VAN KAMPEN MERRITT TRUST /IL, N-30D, 1995-08-29

VAN KAMPEN MERRITT TRUST /IL
N-30D, 1995-08-29

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<TABLE>

<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Performance Perspective ............... 4
Portfolio Management Review .......... 5
Portfolio of Investments ............. 7
Statement of Assets and Liabilities ... 13
Statement of Operations .............. 14
Statement of Changes in Net Assets .... 15
Financial Highlights ................. 16
Notes to Financial Statements ......... 19
Independent Auditors' Report ......... 26

</TABLE>

Letter to Shareholders

August 3, 1995

Dear Shareholder:
The first half of 1995 has been a very positive
one for most investors. Both the fixed-income and
stock markets have made considerable gains for
the period ended June 30, 1995. This year has
been particularly rewarding for investors after
weathering the difficult markets of 1994.
The first six months of 1995 serve as a
reminder of just how quickly markets can move,
and how difficult it can be to predict the timing of
those movements. Moreover, this year reinforces
the importance of maintaining a long-term perspective, and
reaffirms the principle that it is time---not timing---that
leads to investment success.

[PHOTO]

Dennis J. McDonnell and Don G. Powell

Economic Overview
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of this
guided slowdown was reflected in gross domestic product for the second quarter,
which grew at an annual rate of 0.5 percent, substantially lower than its first
quarter rate of 2.7 percent and fourth quarter 1994 rate of 5.1 percent. While
other key economic data, including unemployment rates and housing starts, have
shown mixed signs during recent weeks, the general trend for the first half of
the year suggested a "soft landing" scenario. Subsequently, concern over
inflation has subsided, as its annualized rate has run at a modest pace of 3.2
percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent. Likewise, the
yield on the Bond Buyer's Municipal Bond Index fell from 7.28 percent to 6.37
percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

Economic Outlook
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously

(Continued on page two)

before easing again, waiting for further signs that the economy has settled into
a slow growth pattern. We anticipate that the economy will grow at an annual
rate between 2 and 3 percent in the second half of the year and that inflation
will run at an annualized rate between 3.3 and 3.5 percent. Based upon a
generally slow growth and low inflation outlook, we believe fixed-income markets
will continue to make positive gains as interest rates fall. We look for stocks
to perform well, but perhaps not as strongly as in the first half of the year,
as some companies may find it difficult to maintain their strong earnings
momentum.

During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At this
point, no one knows for sure what will happen or when it might actually take
place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.

Once again, it is important to remember that financial markets will inevitably
experience highs and lows, but by maintaining a long-term investment
perspective, it may allow you to ride the ups and downs of the markets more
easily as you pursue your investment goals.
On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the
question-and-answer section helpful.

Corporate News
Along with your Fund's shareholder report, we are pleased to introduce a new
shareholder publication called Your Portfolio. The purpose of this publication
is to provide you with additional information about your mutual fund investment,
as well as offer helpful insights regarding long-term investment strategies and
trends in the marketplace. The publication will be mailed twice a year with your
June and December shareholder reports. This premier issue focuses on our various
shareholder services and privileges designed to make mutual fund investing
easier for you.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.

Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt High Yield Fund

A Shares B Shares C Shares

<TABLE>

<CAPTION>
<S> <C> <C> <C>
Total Returns
One-year total return
based on NAV<F1> ............ 8.50% 7.61% 7.61%
One-year total return<F2> ... 3.35% 3.71% 6.63%
Five-year average
annual total return<F2> ..... 10.80% N/A N/A
Life-of-Fund average
annual total return<F2> ..... 7.62% 4.60% 4.64%
Commencement Date .......... 06/27/86 05/17/93 08/13/93
Distribution Rate and Yield
Distribution Rate<F3> ....... 9.73% 9.45% 9.45%
SEC Yield<F4> ............... 8.72% 8.37% 8.33%
N/A = Not Applicable

<FN>
<F1>Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
<F2>Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for all A shares)
or contingent deferred sales charge for early withdrawal (4% for B shares and 1%
for C shares).
<F3>Distribution rate represents the monthly annualized
distributions of the Fund at the end of the period and not the earnings of the
Fund.
<F4>SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1995.

See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
</TABLE>

Putting Your Fund's Performance in Perspective

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the First Boston High Yield Index
over time. As a broad-based, unmanaged statistical composite, this index does
not reflect any commissions or fees which would be incurred by an investor
purchasing the securities it represents. Similarly, its performance does not
reflect any charges or other costs which would be applicable to an actively
managed portfolio, such as that of the Fund.

[LINE GRAPH]

Growth of a Hypothetical $10,000 Investment
VKM High Yield Fund vs. First Boston High Yield Index
(June 1986 through June 1995)

Van Kampen Merritt High Yield Fund Class A

<TABLE>
<CAPTION>
OPENING VALUE First Boston
Fund High Yield Index
<S> <C> <C>
30-Jun-86 9,573 10,000
31-Jul-86 9,373 9,805
31-Aug-86 9,464 9,972
30-Sep-86 9,564 10,051
31-Oct-86 9,794 10,246
30-Nov-86 9,895 10,206
31-Dec-86 9,956 10,234
31-Jan-87 10,305 10,657
28-Feb-87 10,551 10,793
31-Mar-87 10,635 10,857
30-Apr-87 10,647 10,531
31-May-87 10,600 10,493
30-Jun-87 10,801 10,700
31-Jul-87 10,720 10,808
31-Aug-87 10,871 10,919
30-Sep-87 10,835 10,652
31-Oct-87 10,327 10,244
30-Nov-87 10,599 10,640
31-Dec-87 10,656 10,902
31-Jan-88 11,111 11,275
29-Feb-88 11,410 11,601
31-Mar-88 11,257 11,522
30-Apr-88 11,217 11,604
31-May-88 11,301 11,662
30-Jun-88 11,478 11,909
31-Jul-88 11,580 11,926
31-Aug-88 11,564 11,891
30-Sep-88 11,686 11,999
31-Oct-88 11,845 12,164
30-Nov-88 11,846 12,190
31-Dec-88 12,101 12,268
31-Jan-89 12,270 12,515
28-Feb-89 12,326 12,572
31-Mar-S9 12,235 12,482
30-Apr-89 12,116 12,452
31-May-89 12,212 12748
30-Jun-89 12,392 12,932
31-Jul-89 12,287 12960
31-Aug-89 12,298 12,959
29-Sep-S9 12,013 12,665
31-Oct-89 11,496 12,347
30-Nov-89 11,367 12,372
31-Dec-S9 11,066 12,316
31-Jan-90 10,839 11,883
28-Feb-90 10,578 11,663
31-Mar-90 10,734 11,999
30-Apr-90 10,667 12,049
31-May-90 10,816 12,300
30-Jun-90 11,043 12,687
31-Jul-90 11,285 13,097
31-Aug-90 10,822 12,492
30-Sep-90 10,274 11,540
31-Oct-90 9,684 11,249
30-Nov-90 9,810 11,475
31-Dec-90 9,783 11,530
31-Jan-91 9,876 11,846
28-Feb-91 10,628 12,867
31-Mar-91 11,267 13,665
30-Apr-91 11,689 14,232
31-May-91 11,737 14,303
30-Jun-91 11,951 14,678
31-Jul-91 12,260 15,174
31-Aug-91 12,507 15,450
30-Sep-91 12,743 15,801
31-Oct-91 13,117 16,324
30-Nov-91 13,127 16,455
31-Dec-91 13,220 16,575
31-Jan-92 13,843 17,249
29-Feb-92 14,093 17,669
31-Mar-92 14,161 17,932
30-Apr-92 14,463 17,948
31-May-92 14,594 18,192
30-Jun-92 14,682 18,372
31-Jul-92 14,934 18,655
31-Aug-92 15,144 18,905
30-Sep-92 15,325 19,028
31-Oct-92 15,111 18,830
30-Nov-92 15,312 19,113
31-Dec-92 15,468 19,329
31-Jan-93 15,877 19,856
28-Feb-93 16,275 20,249
31-Mar-93 16,629 20,677
30-Apr-93 16,677 20,794
31-May-93 16,874 21,098
30-Jun-93 17,337 21,480
31-Jul-93 17,504 21,703
31-Aug-93 17,420 21,888
30-Sep-93 17,556 22,013
31-Oct-93 18,019 22,415
30-Nov-93 18,071 22,698
31-Dec-93 18,210 22,984
31-Jan-94 18,606 23,393
28-Feb-94 18,721 23,428
31-Mar-94 18,069 22,739
29-Apr-94 17,843 22,435
31-May-94 17,798 22,562
30-Jun-94 17,844 22,411
29-Jul-94 17,723 22,517
31-Aug-94 17,677 22,679
30-Sep-94 17,686 22,769
31-Oct-94 17,639 22,785
30-Nov-94 17,437 22,521
30-Dec-94 17,602 22,760
31-Jan-95 17,758 22,999
28-Feb-95 18,173 23,565
31-Mar-95 18,391 23,831
28-Apr-95 18,833 24,360
31-May-95 19,279 25,047
30-Jun-95 19,360 25,212
</TABLE>

The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of the other share classes
of the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions for the period ended June 30, 1995,
and includes payment of the maximum sales charge (4.75% for A shares)

While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.

Portfolio Management Review
Van Kampen Merritt High Yield Fund

The following is an interview with the management team of Van Kampen Merritt
High Yield Fund, including Anne K. Lorsung, portfolio manager, and Peter W.
Hegel, executive vice president, Van Kampen American Capital Investment Advisory
Corp. This interview covers the Fund's twelve-month period ended June 30, 1995.

Q. What significant events have influenced the market since
June of 1994?
A. As interest rates increased throughout 1994, bond investors saw their
holdings decrease in value. Although high yield bonds were affected to a
lesser extent, declining values left most of the fixed-income market ending
1994 on a negative note.
Entering 1995, when economic numbers came in weaker than expected, the
market rallied (interest rates declined and bond prices increased). In
general, existing bonds increased in value as interest rates declined because
they offered a higher yield than was available on new bonds in the
marketplace.
Evidence of an economic slowdown is an important factor when evaluating the
high yield market. Since the high yield market is credit sensitive, an
economic slowdown could be of concern to high yield issues. When the economy
slows, there is an increased chance that corporate profits may decrease,
which could make it more difficult for highly leveraged companies to service
their debt. However, as a mutual fund shareholder you are subject to less
default risk than an individual investor, because a fund can typically afford
to invest and diversify in a larger number of securities.

Q. What actions did you take in response to these events?
A. Since June of 1994, we've been repositioning the Fund for an economic
slowdown. Our first action was to move out of early cyclical industries,
such as housing and steel, because we felt that these would be the first
affected. Second, we worked to increase the quality of the Fund's portfolio
by decreasing our exposure to lower quality high yield securities.
Also, beginning in 1995, we began to increase the Fund's exposure to
foreign markets. Because these investments tend to have different dynamics
than U.S. issues, they are not likely to be affected in the same manner
during a slowdown of the U.S. economy. As we started to investigate overseas
opportunities with favorable risk/reward scenarios, the peso devaluation
crisis in Mexico unfolded. As Mexico's bond market sharply declined, we
found that the other Latin American markets, which were judged guilty by
association rather than on their own fundamentals, offered investment
potential.
In addition to our investments in Latin America and to provide the Fund
with further diversification, we have invested in foreign securities of
Eastern Europe, Africa, and the Far East. Our goal was to provide the Fund
with good returns while maintaining diversity, which over the long-term
should help to reduce volatility. Overall, we have increased the Fund's
weighting in foreign holdings to roughly 18 percent of the portfolio from
less than 1 percent in June of 1994.

Q. What were the results?
A. A rebound in the high yield market helped the Fund achieve a one-year total
return at NAV, Class A shares, of 8.50 percent<F1>, outperforming the
8.17 percent average total return of all high yield funds tracked by Lipper
Analytical Services. Overall, the Fund ranked 55 out of the 106 funds in its
category for the twelve months ended June 30, 1995.* Additionally, Fund
shareholders enjoy a current distribution rate of 9.73 percent<F3>.
While the Fund underperformed the First Boston High Yield Index, we are
pleased with our performance given the dramatic shifts in the market over the
course of this reporting period. The First Boston High Yield Index one-year
total return was 10.77 percent. The Index is a broadbased, unmanaged index
that reflects the general performance of a wide range of selected bonds
within the public high yield debt market. It does not reflect any commissions
or fees that would be paid by an investor purchasing the securities it
represents. (Please refer to the chart on page three for additional Fund
performance.)

*Source: Lipper Analytical Services. The Fund ranked 55th of 106 funds in the
High Current Yield Fund category for the one-year period ended June 30, 1995;
43rd of 60 funds for the five-year period ended June 30, 1995. Lipper rankings
are based on total return for the period measured, assuming that all
distributions are reinvested and that Fund shares are purchased without payment
of the maximum sales charge of 4.75 percent.

Q. What is your investment strategy and outlook for the Fund?
A. Our emphasis is on selecting higher quality securities which have a favorable
risk/reward profile and are still capable of providing solid returns.
Further, we will continually seek to identify new and overlooked investment
opportunities as they arise.
Foreign holdings will remain well-diversified and subject to higher quality
standards than domestic issues. Although over the past several months we have
increased our purchase of foreign bonds, these holdings still represent a
relatively small portion of the portfolio.
It is important to understand that, because the high yield market is so
credit sensitive, the Fund could experience short-term volatility if the
economy was to weaken dramatically. We believe our conservative investment
philosophy and diversification into foreign markets will allow the Fund to
perform relatively well in such a scenario.
Overall, the Fund's level of foreign exposure will reflect our judgment of
relative values in the U.S. and overseas markets. We feel confident that the
Fund's blend of domestic and foreign securities will continue to add value as
the economy slows.

Peter W. Hegel Anne K. Lorsung
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

Please see footnotes on page three.

Portfolio of Investments
June 30, 1995

<TABLE>
<CAPTION>
Par
Amount
In Local
Currency
(000) Description Coupon Maturity U.S. Market Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bonds 67.5%
Aerospace & Defense 1.1%

3,800 Sequa Corp. ............................. 9.375% 12/15/03 $ 3,534,000
------------
Automobile 1.0%
500 Chrysler Financial Corp. (Var Rate Cpn) ... 10.340 05/15/08 517,500
2,600 Exide Corp. ............................... 10.000 04/15/05 2,678,000
------------
3,195,500
------------
Beverage, Food & Tobacco 2.3%
2,550 Fleming Cos. Inc. ........................ 10.625 12/15/01 2,690,250
1,800 Fleming Cos. Inc. (Var Rate Cpn) .......... 8.313 12/15/01 1,755,000
3,000 Pilgrims Pride Corp. ..................... 10.875 08/01/03 2,835,000
------------
7,280,250
------------
Buildings & Real Estate 3.2%

3,700 American Standard Inc. .................. 11.375 05/15/04 4,051,500
2,000 Building Material Corp. <F2> ........... 0/11.750 07/01/04 1,190,000
4,700 Walter Industries Inc. <F3> ............ 12.190 03/15/00 4,747,000
------------
9,988,500
------------
Chemicals, Plastics & Rubber 1.6%
1,450 Foamex L.P. ............................ 11.250 10/01/02 1,435,500
4,500 G I Holdings Inc. ..... ................. * 10/01/98 3,060,000
500 NL Industries Inc. ..................... 11.750 10/15/03 522,500
-----------
5,018,000
-----------
Containers, Packaging & Glass 6.3%
2,250 Anchor Glass Container Corp. ............ 10.250 06/30/02 2,261,250
2,750 Anchor Glass Container Corp. ............ 9.875 12/15/08 2,530,000
4,000 Atlantis Group Inc. <F4> ................ 11.000 02/15/03 3,940,000
950 Owens Illinois Inc. ..................... 10.250 04/01/99 978,500
1,800 Owens Illinois Inc. ..................... 10.500 06/15/02 1,872,000
900 Owens Illinois Inc. ..................... 11.000 12/01/03 990,000
5,080 Silgan Holdings Inc. <F2> .............. 0/13.250 12/15/02 4,622,800
2,100 SD Warren Co. .......................... 12.000 12/15/04 2,268,000
-----------
19,462,550
-----------
Diversified/Conglomerate Manufacturing 4.8%
3,600 Cabot Safety Acquisition Corp. <F3> ...... 12.500 07/15/05 3,600,000
2,000 Chatwins Group Inc. ..................... 13.000 05/01/03 1,650,000
1,561 IMO Industries Inc. ..................... 12.250 08/15/97 1,568,805
4,250 Jordan Industries Inc. .................. 10.375 08/01/03 3,910,000
1,800 Talley Industries Inc. <F2> ............. 0/12.250 10/15/05 1,201,500
2,900 Talley Manufacturing & Technology Inc. ... 10.750 10/15/03 2,842,000
-----------
14,772,305
-----------
</TABLE>

7 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995
<TABLE>
<CAPTION>
Par Amount
In Local
Currency
(000) Description Coupon Maturity U.S. $ Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bonds (Continued)
Diversified/Conglomerate Service 1.1%

3,100 Comdata Network Inc. ................ 13.250% 12/15/02 $ 3,503,000
-----------
Ecological 0.9%
3,300 Envirosource Inc. .................. 9.750 06/15/03 2,953,500
-----------

Farming and Agriculture 0.9%
3,150 Trans Resources Inc. ................ 11.875 07/01/02 2,850,750
-----------
Grocery 2.7%
2,400 Pantry Inc. ........................ 12.000 11/15/00 2,376,000
3,800 Pathmark Stores Inc. ................ 9.625 05/01/03 3,724,000
2,000 Purity Supreme Inc. ................. 11.750 08/01/99 2,150,000
-----------
8,250,000
-----------
Healthcare 4.2%
900 Columbia/HCA Healthcare Corp. ...... 7.690 06/15/25 900,000
300 Jackson County <F5> ................. 13.000 11/01/96 60,000
4,600 National Medical Enterprises Inc. ... 10.125 03/01/05 4,876,000
3,250 Ornda Healthcorp ................... 11.375 08/15/04 3,558,750
3,650 Paracelsus Healthcare Corp. ........ 9.875 10/15/03 3,704,750
-----------
13,099,500
-----------

Hotel, Motel, Inns & Gaming 5.0%

1,600 Aztar Corp. ........................ 11.000 10/01/02 1,600,000
1,900 Aztar Corp. ........................ 13.750 10/01/04 2,147,000
4,500 California Hotel Finance Corp. ...... 11.000 12/01/02 4,657,500
3,000 GB Property Funding Corp. ........... 10.875 01/15/04 2,580,000
900 HWCC Tunica Inc. .................... 13.500 09/30/98 1,032,750
750 Station Casinos Inc. ............... 9.625 06/01/03 705,000
2,550 Trump Plaza Funding Inc. ........... 10.875 06/15/01 2,358,750
600 Trump Taj Mahal Funding Inc. <F6> ... 11.350 11/15/99 476,684
----------
15,557,684
----------
Insurance & Finance 3.2%
3,650 American Annuity Group Inc. ........ 11.125 02/01/03 3,814,250
2,750 Americo Life Inc. <F4> ............. 9.250 06/01/05 2,543,750
2,800 Nacolah Holding Corp. ............... 9.500 12/01/03 2,646,000
300 Orion Capital Corp. ................ 9.125 09/01/02 321,000
500 Reliance Group Holdings Inc. ........ 9.000 11/15/00 495,000
----------
9,820,000
----------
Leisure 3.0%
4,000 AMC Entertainment Inc. <F4> ..... 12.625 08/01/02 4,400,000
1,200 Viacom International Inc. ....... 8.000 07/07/06 1,164,000
3,300 Viacom International Inc. ....... 10.250 09/15/01 3,696,000
----------
9,260,000
----------
</TABLE>

8
See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995

1,300 Armco Inc. ........................ 11.375% 10/15/99 $ 1,332,500
1,900 Carbide/Graphite Group Inc. ....... 11.500 09/01/03 2,004,500
3,700 Easco Corp. ....................... 10.000 03/15/01 3,700,000
------------
7,037,000
------------
Oil & Gas 4.7%
3,000 Clark R & M Holdings Inc. ......... * 02/15/00 1,875,000
3,000 Global Marine Inc. ............... 12.750 12/15/99 3,315,000
3,500 Petroleum Heat & Power Inc. ...... 12.250 02/01/05 3,762,500
2,900 Plains Resources Inc. ............. 12.000 10/01/99 3,016,000
2,600 TransTexas Gas Corp. .............. 11.500 06/15/02 2,665,000
------------
14,633,500
------------
Personal & Non-Durable 2.9%
1,850 Astrum International Corp. ....... 11.500 06/08/03 1,942,500
4,000 Playtex Family Products Corp. .... 9.000 12/15/03 3,760,000
3,350 Revlon Consumer Products Corp. .... 9.375 04/01/01 3,249,500
-----------
8,952,000
-----------
Printing, Publishing & Broadcasting 8.3%
3,450 Century Communications Corp. ..... 9.750 02/15/02 3,501,750
2,600 Comcast Corp. ..................... 9.375 05/15/05 2,613,000
3,175 Insight Communications Co.L.P.<F2>. 8.250/11.250 03/01/00 3,222,625
1,600 K-III Communications Corp. ........ 10.625 05/01/02 1,696,000
1,800 K-III Communications Corp. ........ 10.250 06/01/04 1,890,000
489 SCI Television Inc. (Var Rate Cpn) 7.500 06/30/98 484,209
3,700 SCI Television Inc. ............... 11.000 06/30/05 3,866,500
1,350 Storer Communications Inc. ........ 10.000 05/15/03 1,350,000
3,800 Williamhouse Regency Delaware Inc.. 11.500 06/15/05 3,838,000
2,350 Young Broadcasting Inc. ........... 11.750 11/15/04 2,585,000
800 Young Broadcasting Inc. ........... 10.125 02/15/05 808,000
-----------
25,855,084
-----------
Retail 2.4%
1,332 Eckerd, Jack Corp. ............ 11.125 05/01/01 1,338,660
2,750 Hosiery Corp. America Inc. .... 13.750 08/01/02 2,736,250
3,500 Waban Inc. .................... 11.000 05/15/04 3,465,000
-----------
7,539,910
-----------
</TABLE>

9 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995

<TABLE>
<CAPTION>
Par Amount
In Local
Currency
(000) Description Coupon Maturity U.S. $ Market Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bonds (Continued)
Telecommunications 4.4%
3,400 Centennial Cellular Corp. .............................. 10.125% 05/15/05 $ 3,349,000
3,150 Intermedia Communications .............................. 13.500 06/01/05 3,165,750
3,100 Mobile Telecommunication Technology .................... 13.500 12/15/02 3,317,000
1,800 Panamsat L.P. <F2> .................................... 0/11.375 08/01/03 1,287,000
3,200 Pricellular Wireless Corp. ............................. 14.000 11/15/01 2,576,000
------------
13,694,750
------------
Utilities 1.2%
3,200 Midland Funding Corp. II ............................... 11.750 07/23/05 3,344,000
500 Toledo Edison Co. ..................................... 8.700 09/01/02 457,500
------------
3,801,500
------------
Total Corporate Bonds ....................................................... 210,059,283
------------
Foreign Bonds and Debt Securities 15.3%
Argentina 2.3%
3,550 Federal Republic of Argentina
(Var Rate Cpn) (US$) .................................. 5.000 03/31/23 1,704,000
3,000 Sodigas Pampeana (US$) ................................ 10.500 07/06/99 2,670,000
3,000 Telefonica De Argentina (US$) ......................... 8.375 10/01/00 2,666,250
------------
7,040,250
------------
Australia 0.3%
1,900 New South Wales Trust (AU$) ........................... 6.500 05/01/06 1,074,911
------------
Brazil 0.9%
1,940 Republic of Brazil (US$) .............................. 6.688 01/01/01 1,559,275
2,600 Republic of Brazil (US$) .............................. 4.250 04/15/24 1,160,250
------------
2,719,525
------------
Canada 3.3%
4,100 Malette Inc. (US$) ..................................... 12.250 07/15/04 4,551,000
1,000 Repap New Brunswick Inc. (US$) ......................... 9.875 07/15/00 1,010,000
400 Rogers Cantel Mobile Inc. (US$) ....................... 10.750 11/01/01 414,000
4,200 Rogers Communications Inc. (US$) ....................... 10.875 04/15/04 4,326,000
------------
10,301,000
------------
Colombia 1.3%
4,050 Oleoducto Central South America (US$) .................. 9.350 09/01/05 4,060,125
------------
Denmark 0.3%
5,640 Kingdom of Denmark (Kroner) ........................... 9.000 11/15/98 1,079,856
------------
Ecuador 0.2%
2,000 Federal Republic of Ecuador (US$) ..................... 3.000 02/28/25 645,000
------------
Indonesia 1.8%
5,450 Indah Kiat International Finance Co. B.V. (US$) ....... 11.875 06/15/02 5,531,750
------------
</TABLE>

10 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995

<TABLE>
<CAPTION>
Par Amount
In Local
Currency
(000) Description Coupon Maturity U.S. $ Market Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign Bonds and Debt Securities (Continued)
Italy 0.6%
1,700,000 Federal Republic of Italy (Lira) ................. 9.000% 10/01/98 $ 961,039
1,650,000 Federal Republic of Italy (Lira) ................. 10.500 04/01/00 952,840
-----------
1,913,879
-----------
Morocco 0.8%
4,000 Morocco Trust A Loan <F3> <F7> (US$) ............. * 01/01/09 2,345,000
-----------
Poland 1.4%
5,700 Government of Poland (Var Rate Cpn) (US$) ....... 7.125 10/27/24 4,367,625
-----------
Spain 0.6%
129,500 Government of Spain (Peseta) .................... 10.250 11/30/98 1,032,258
114,000 Government of Spain (Peseta) .................... 12.250 03/25/00 955,953
-----------
1,988,211
-----------
Sweden 0.7%
7,000 Kingdom of Sweden (Krona) ....................... 10.250 05/05/00 946,311
7,300 Kingdom of Sweden (Krona) ....................... 13.000 06/15/01 1,098,348
-----------
2,044,659
-----------
United Kingdom 0.8%
650 United Kingdom Treasury (Pound) ................. 8.500 12/07/05 1,036,785
2,700 International Cabletel Inc. <F2> (US$) ........... 0/12.750 04/15/05 1,606,500
-----------
2,643,285
-----------
Total Foreign Bonds and Debt Securities ................................... 47,755,076
-----------
Government and Agencies (U.S.) 1.0%
900 U.S. Treasury Note ............................... 5.625 06/30/97 896,625
2,000 U.S. Treasury Note ............................... 6.250 05/31/00 2,022,080
-----------
Total Government and Agencies (U.S.) ..................................... 2,918,705
-----------
Total Debt Securities ..................................................... 260,733,064
-----------
Equities 0.6%
Capital Gaming (5,000 common stock warrants) ........................................ 0
Casino America Inc. (5,873 common stock warrants) .................................... 17,620
Chatwins Group Inc. (1,000 common stock warrants) ................................... 4,000
Hosiery Corp. America Inc. (2,750 common stock warrants) ............................ 41,250
Panamsat L. P. (1,754 preferred shares) ............................................. 1,776,250
Purity Supreme Inc. (5,198 common stock warrants) .................................... 0
-----------
Total Equities ....................................................................... 1,839,120
-----------
Total Long-Term Investments 84.4%
(Cost $256,117,900) <F1> ............................................................. 262,572,184
-----------

</TABLE>

11 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995

<TABLE>
<CAPTION>
Description U.S. $ Market Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Short-Term Investments 16.5%
Repurchase Agreement (UBS Securities, U.S. Treasury Note, $26,930,000 par, 14.000% coupon,
due 11/15/11, dated 06/30/95, to be sold on 07/03/95 at $42,661,675) .................... $ 42,640,000
J.P. Morgan Indonesian Rupiah Linked CD ($3,000,000 par,
yielding 15.250%, maturing 11/24/95) .................................................... 2,830,785
J.P. Morgan Polish Zloty Linked CD ($1,035,197 par, yielding 24.000%, maturing 08/09/95) . 1,035,714
J.P. Morgan Polish Zloty Linked CD ($2,001,641 par, yielding 25.200%, maturing 10/19/95) . 1,871,935
J.P. Morgan Thai Baht Linked CD ($1,000,000 par, yielding 13.035%, maturing 10/19/95) .... 967,835
J.P. Morgan Thai Baht Linked CD ($2,000,000 par, yielding 10.990%, maturing 11/16/95) .... 1,918,148
--------------
Total Short-Term Investments (Cost $51,220,439) <F1> ....................................... 51,264,417
--------------
Liabilities in Excess of Other Assets -0.9% ............................................... (2,709,483)
--------------
Net Assets 100.0% ....................................................................... $ 311,127,118
--------------
*Zero Coupon

<FN>
<F1> At June 30, 1995, cost for federal income tax purposes including
short-term investments is $307,338,339; the aggregate gross unrealized
appreciation is $8,657,124 and the aggregate gross unrealized
depreciation is $2,218,120, resulting in net unrealized appreciation
including foreign currency translation of other assets and liabilities
and forward currency contracts of $6,439,004.
<F2> Security is a "Step-up" bond where the coupon increases or steps up at a
predetermined date.
<F3> Securities purchased on a when issued or delayed delivery basis.
<F4> Assets segregated as collateral for when issued or delayed delivery
purchase commitments and open forward transactions.
<F5> Currently is a non-income producing security.
<F6> Payment-in-kind security.
<F7> Security is a bank loan participation currently being restructured. At
June 30, 1995, item is a non-income producing security.
</FN>
</TABLE>

The following table summarizes the portfolio composition at June 30, 1995, based
upon quality ratings issued by Standard & Poor's. For securities not rated by
Standard & Poor's, the Moody's rating is used.

Portfolio Composition by Credit Quality
<TABLE>
<CAPTION>
<S> <C> <C>
AAA .......... 1.5%
AA .......... 0.8
A ........... 0.6
BBB ......... 0.5
BB .......... 21.4
B ........... 61.5
CCC .......... 2.0
Non-Rated ... 11.7
-------
100.0%
-------
</TABLE>
12 See Notes to Financial Statements

Statement of Assets and Liabilities
June 30, 1995

<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $256,117,900) (Note 1) .......................... $ 262,572,184
Short-Term Investments (Cost $51,220,439) (Note 1) ................................ 51,264,417
Cash .............................................................................. 4,136,772
Receivables:
Interest ......................................................................... 5,751,121
Investments Sold ................................................................ 5,662,267
Fund Shares Sold ................................................................. 1,585,667
Other ............................................................................. 51,046
---------------
Total Assets ....................................................................... 331,023,474
---------------
Liabilities:
Payables:
Investments Purchased ............................................................ 17,220,433
Income Distributions ............................................................ 1,685,787
Fund Shares Repurchased ......................................................... 219,501
Investment Advisory Fee (Note 2) ................................................ 192,494
Forward Currency Contracts (Note 5) ............................................. 63,734
Accrued Expenses ................................................................... 514,407
---------------
Total Liabilities .................................................................. 19,896,356
---------------
Net Assets ......................................................................... $ 311,127,118
---------------
Net Assets Consist of:
Paid in Surplus (Note 3) ........................................................... $ 417,969,853
Net Unrealized Appreciation on Investments and Foreign Currency .................... 6,439,004
Accumulated Distributions in Excess of Net Investment Income (Note 1) ............. (1,895,466)
Accumulated Net Realized Loss on Investments ....................................... (111,386,273)
---------------
Net Assets ......................................................................... $ 311,127,118
---------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $253,278,355
and 26,951,319 shares of beneficial interest issued and outstanding) (Note 3) ...... $ 9.40
Maximum sales charge (4.75%* of offering price) .................................... .47
---------------
Maximum offering price to public ................................................... $ 9.87
---------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $55,857,410
and 5,943,391 shares of beneficial interest issued and outstanding) (Note 3) ....... $ 9.40
---------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $1,991,353
and 211,927 shares of beneficial interest issued and outstanding) (Note 3) ........ $ 9.40
---------------
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>

13 See Notes to Financial Statements

Statement of Operations
For the Year Ended June 30, 1995

<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest .............................................................................. $ 30,403,100
Dividend ............................................................................. 51,250
Other ................................................................................ 229,048
---------------
Total Income ......................................................................... 30,683,398
---------------
Expenses:
Investment Advisory Fee (Note 2) ..................................................... 2,202,317
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $645,210,
$433,721, $18,586 and $3, respectively) (Note 6) .................................... 1,097,520
Shareholder Services (Note 2) ......................................................... 508,098
Legal (Note 2) ....................................................................... 52,828
Trustees Fees and Expenses (Note 2) ................................................... 26,329
Other ................................................................................ 298,746
---------------
Total Expenses ........................................................................ 4,185,838
---------------
Net Investment Income ................................................................. $ 26,497,560
---------------
Realized and Unrealized Gain/Loss on Investments and Foreign Currency:
Net Realized Loss on Investments and Foreign Currency (Including realized loss
on foreign currency transactions and expired option transactions of $15,692
and $28,463, respectively) ........................................................... $ (18,692,466)
---------------
Unrealized Appreciation/Depreciation on Investments and Foreign Currency:
Beginning of the Period .............................................................. (9,599,697)
End of the Period (Including unrealized appreciation on foreign currency translation
of other assets and liabilities of $4,476 and unrealized depreciation on forward
currency contracts of $63,734) ........................................................ 6,439,004
---------------
Net Unrealized Appreciation on Investments and Foreign Currency During the Period ..... 16,038,701
---------------
Net Realized and Unrealized Loss on Investments and Foreign Currency ................. $ (2,653,765)
---------------
Net Increase in Net Assets from Operations ........................................... $ 23,843,795
---------------
</TABLE>

14 See Notes to Financial Statements

Statement of Changes in Net Assets
For the Years Ended June 30, 1995 and 1994

<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1995 June 30, 1994
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 26,497,560 $ 24,154,826
Net Realized Gain/Loss on Investments and Foreign Currency ........ (18,692,466) 722,946
Net Unrealized Appreciation/Depreciation on Investments
and Foreign Currency During the Period ............................ 16,038,701 (18,485,429)
-------------- --------------
Change in Net Assets from Operations ............................. 23,843,795 6,392,343
-------------- --------------
Distributions from Net Investment Income* ......................... (25,471,594) (24,154,826)
Distributions in Excess of Net Investment Income* (Note 1) ........ -0- (1,176,275)
-------------- --------------
Distributions from and in Excess of Net Investment Income* ........ (25,471,594) (25,331,101)
Return of Capital Distribution* (Note 1) ......................... (5,584,355) (2,807,769)
-------------- --------------
Total Distributions .............................................. (31,055,949) (28,138,870)
-------------- --------------
Net Change in Net Assets from Investment Activities .............. (7,212,154) (21,746,527)
-------------- --------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ........................................ 73,674,367 114,607,347
Net Asset Value of Shares Issued Through Dividend Reinvestment .... 11,308,840 9,509,394
Cost of Shares Repurchased ........................................ (62,721,749) (60,437,772)
-------------- --------------
Net Change in Net Assets from Capital Transactions ............... 22,261,458 63,678,969
-------------- --------------
Total Increase in Net Assets ..................................... 15,049,304 41,932,442
Net Assets:
Beginning of the Period .......................................... 296,077,814 254,145,372
-------------- --------------
End of the Period (Including undistributed net investment income of
$(1,895,466) and $(1,435,104), respectively) .................... $ 311,127,118 $ 296,077,814
-------------- --------------
</TABLE>

<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class June 30, 1995 June 30, 1994
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares .................... $ (21,911,417) $(23,837,532)
Class B Shares .................... (3,405,059) (1,416,951)
Class C Shares .................... (155,035) (76,590)
Class D Shares .................... (83) (28)
---------------- -------------
$ (25,471,594) $(25,331,101)
---------------- -------------
Return of Capital Distribution:
Class A Shares .................... $ (4,709,317) $ (2,558,430)
Class B Shares .................... (846,910) (238,038)
Class C Shares .................... (28,115) (11,294)
Class D Shares .................... (13) (7)
---------------- -------------
$ (5,584,355) $ (2,807,769)
---------------- -------------
</TABLE>

15 See Notes to Financial Statements

Financial Highlights

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
Year Ended June 30
-------------------------------------------------------------
Class A Shares 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period ..................... $ 9.643 $ 10.380 $ 9.896 $ 9.202 $ 9.960
--------- --------- --------- --------- ---------
Net Investment Income ................... .844 .908 1.118 1.169 1.256
Net Realized and Unrealized Gain/Loss on
Investments and Foreign Currency ...... (.099) (.595) .566 .813 (.604)
--------- --------- --------- --------- ---------
Total from Investment
Operations ............................ .745 .313 1.684 1.982 .652
--------- --------- --------- --------- ---------
Less:
Distributions from and in
Excess of Net Investment
Income (Note 1) .......................... .815 .950 1.129 1.189 1.297
Return of Capital
Distribution (Note 1) .................... .175 .100 .071 .099 .113
--------- --------- --------- --------- ---------
Total Distributions ...................... .990 1.050 1.200 1.288 1.410
--------- --------- --------- --------- ---------
Net Asset Value, End of Period .......... $ 9.398 $ 9.643 $ 10.380 $ 9.896 $ 9.202
--------- --------- --------- --------- ---------
Total Return (Non-Annualized) ............ 8.50% 2.92% 18.08% 22.85% 8.22%
Net Assets at End of Period
(In millions) ............................ $ 253.3 $ 260.7 $ 251.5 $ 221.4 $ 199.5
Ratio of Expenses to Average
Net Assets (Annualized) ................. 1.31% 1.32% 1.20% 1.42% 1.41%
Ratio of Net Investment
Income to Average
Net Assets (Annualized) ................. 9.13% 8.85% 11.13% 12.12% 14.00%
Portfolio Turnover ....................... 151.51% 202.7% 198.06% 173.97% 157.84%

Note: Certain per share amounts and the ratio of net investment income to
average net assets have been restated to conform with Statement of Position 93-4,
"Foreign Currency Accounting and Financial Statement Presentation for Investment Companies."
</TABLE>

16 See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
Year Year May 17, 1993
Ended Ended (Commencement of
June 30, June 30, Distribution) to
Class B Shares 1995 1994 June 30, 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ........ $ 9.638 $ 10.382 $ 10.190
--------- --------- -------------------
Net Investment Income ........................ .788 .889 .117
Net Realized and Unrealized Gain/Loss on
Investments and Foreign Currency ............ (.115) (.665) .217
--------- --------- -------------------
Total from Investment Operations ............ .673 .224 .334
--------- --------- -------------------
Less:
Distributions from and in Excess of
Net Investment Income (Note 1) .............. .751 .877 .128
Return of Capital Distribution (Note 1) ..... .162 .091 .014
--------- --------- -------------------
Total Distributions ......................... .913 .968 .142
--------- --------- -------------------
Net Asset Value, End of Period .............. $ 9.398 $ 9.638 $ 10.382
--------- --------- -------------------
Total Return (Non-Annualized) ............... 7.61% 2.11% 3.27%
Net Assets at End of Period (In millions) ... $ 55.9 $ 33.2 $ 2.7
Ratio of Expenses to Average Net
Assets (Annualized) ......................... 2.04% 2.13% 2.06%
Ratio of Net Investment Income to
Average Net Assets (Annualized) .............. 8.35% 7.94% 7.17%
Portfolio Turnover ........................... 151.51% 202.70% 198.06%
</TABLE>

17 See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
Year August 13, 1993
Ended (Commencement of
June 30, Distribution) to
Class C Shares 1995 June 30, 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ................................. $ 9.643 $ 10.340
--------- ------------------
Net Investment Income ............................................... .745 .761
Net Realized and Unrealized Loss on
Investments and Foreign Currency .................................... (.079) (.605)
--------- ------------------
Total from Investment Operations ..................................... .666 .156
--------- ------------------
Less:
Distributions from and in Excess of Net Investment Income (Note 1) ... .751 .763
Return of Capital Distribution (Note 1) .............................. .162 .090
--------- ------------------
Total Distributions .................................................. .913 .853
--------- ------------------
Net Asset Value, End of Period ...................................... $ 9.396 $ 9.643
--------- ------------------
Total Return (Non-Annualized) ........................................ 7.61% 1.37%
Net Assets at End of Period (In millions) ........................... $ 2.0 $ 2.2
Ratio of Expenses to Average Net
Assets (Annualized) ................................................. 2.12% 2.14%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ..................................... 8.13% 7.91%
Portfolio Turnover .................................................. 151.51% 202.70%
</TABLE>

18 See Notes to Financial Statements

Notes to Financial Statements
June 30, 1995

1. Significant Accounting Policies
Van Kampen Merritt High Yield Fund (the "Fund") was organized as a sub-trust of
Van Kampen Merritt Trust, a Massachusetts business trust (the "Trust"), on March
14, 1986, and is registered as a diversified open-end management investment
company under the Investment Company Act of 1940, as amended. The Fund commenced
distribution of its Class B and C shares on May 17, 1993 and August 13, 1993,
respectively. On May 2, 1995, all Class D shareholders redeemed their shares and
the class was eliminated. The Fund will no longer offer Class D shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

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 less than 60 days are valued at
amortized cost.

B. Security Transactions-Security transactions are recorded on a trade date
basis. Realizedgains and losses are determined on an identified cost basis. The
Fund 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 Fund 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. Dividend
incomeis recorded on the ex-dividend date. Bond discount is amortized over the
expected life of each applicable security.

D. Federal Income Taxes-It is the Fund's policy to comply with the requirements
of theInternal 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 Fund 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 June 30, 1995, the Fund had an accumulated capital

Notes to Financial Statements (Continued)

June 30, 1995

loss carryforward for tax purposes of $102,028,402. Of this amount, $4,105,907,
$55,057,263, $30,093,392, $45,384 and $12,726,456 will expire on June 30, 1998,
1999, 2000, 2002 and 2003, respectively. Net realized gains or losses may differ
for financial and tax reporting purposes primarily as a result of post October
31 losses which are not recognized for tax purposes until the first day of the
following fiscal year.

E. Distribution of Income and Gains-The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on foreign currency
transactions. These gains and losses are included as net realized gains and
losses for financial reporting purposes. Permanent book and tax basis
differences resulting from these items totaling $15,692 were reclassified from
accumulated undistributed net investment income to accumulated net realized
gain/loss on investments. Permanent book and tax basis differences relating to
shareholder distributions totaling $1,470,636 have been reclassified from
accumulated undistributed net investment income to Class A share paid in
surplus.
Net realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains, which are
included as ordinary income for tax purposes.
Due to inherent differences in the recognition of interest income under
generally accepted accounting principles and federal income tax purposes, for
those securities which the Fund has placed on non-accrual status, the amount of
distributable net investment income may differ between book and federal income
tax purposes for a particular period. These differences are temporary in nature,
but may result in book basis distributions in excess of net investment income
for certain periods.

F. Currency Translation-During the current period, the Fund adopted Statement of
Position 93-4 "Foreign Currency Accounting and Financial Statement Presentation
for Investment Companies." Accordingly, prior period financial highlights were
restated to reflect reclassification of net realized gain/loss on foreign
currency and forward currency contracts from net investment income to net
realized gain/loss on investments and foreign currency.
Assets and liabilities denominated in foreign currencies and commitments under
forward currency contracts are translated into U.S. dollars at the mean of the
quoted bid and ask prices of such currencies against the U.S. dollar. Purchases
and sales of portfolio securities are translated at the rate of exchange
prevailing when such securities were acquired or sold. Income and expenses are
translated at rates prevailing when accrued.

Notes to Financial Statements (Continued)
June 30, 1995

G. Bank Loan Participations-The Fund invests in participation interests of loans
to foreign entities. When the Fund purchases a participation of a foreign loan
interest, the Fund typically enters into a contractual agreement with the lender
or other third party selling the participation, but not with the borrower
directly. As such, the Fund assumes credit risk for the borrower, selling
participant or other persons positioned between the Fund and the borrower.

2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:

<TABLE>
<CAPTION>
Average Net Assets % Per Annum
<S> <C>
First $500 million ... .75 of 1%
Over $500 million ... .65 of 1%
</TABLE>

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the year ended June 30, 1995, the Fund recognized expenses of
approximately $150,300 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
legal and certain shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC. The Fund's liability under the
deferred compensation and retirement plans at June 30, 1995, was $24,650.
At June 30, 1995, VKAC owned 100 shares each of Classes B and C, respectively.

Notes to Financial Statements (Continued)

June 30, 1995

3. Capital Transactions
The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized. At June 30, 1995, paid in surplus aggregated $358,452,226,
$57,414,003 and $2,103,624 for Class A, B and C shares, respectively. For the
year ended June 30, 1995, transactions were as follows:

<TABLE>

<CAPTION>
Shares Value
<S> <C> <C>
- --------------------------------------------------------------
Sales:
Class A ...................... 4,486,285 $ 41,415,162
Class B ...................... 3,320,361 30,775,474
Class C ....................... 160,125 1,483,731
Class D ....................... -0- -0-
---------- ---------------
Total Sales ................... 7,966,771 $ 73,674,367
---------- ---------------

Dividend Reinvestment:
Class A ...................... 1,055,695 $ 9,744,229
Class B ...................... 159,582 1,472,222
Class C ....................... 10,007 92,378
Class D ....................... 1 11
---------- ---------------
Total Dividend Reinvestment ... 1,225,285 $ 11,308,840
---------- ---------------
Repurchases:
Class A ...................... (5,626,205) $ (51,959,218)
Class B ...................... (978,937) (9,050,461)
Class C ....................... (186,357) (1,710,842)
Class D ....................... (121) (1,228)
---------- ---------------
Total Repurchases ............ (6,791,620) $ (62,721,749)
---------- ---------------
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995

At June 30, 1994, paid in surplus aggregated $362,490,734, $35,063,678,
$2,266,472 and $1,230 for Class A, B, C and D shares, respectively. For the year
ended June 30, 1994,

<TABLE>

<CAPTION>
transactions were as follows:
<S> <C> <C>
Shares Value
Sales:
Class A ...................... 7,494,392 $ 76,173,279
Class B ...................... 3,442,369 35,264,417
Class C ....................... 314,495 3,168,418
Class D ....................... 120 1,233
---------- ------------
Total Sales ................... 11,251,376 $114,607,347
---------- ------------
Dividend Reinvestment:
Class A ...................... 872,209 $ 8,866,612
Class B ...................... 58,361 585,228
Class C ....................... 5,663 57,550
Class D ....................... -0- 4
---------- ------------
Total Dividend Reinvestment ... 936,233 $ 9,509,394
---------- ------------
Repurchases:
Class A ...................... (5,555,631) $(56,294,993)
Class B ...................... (317,140) (3,194,577)
Class C ....................... (92,006) (948,202)
Class D ....................... -0- -0-
---------- ------------
Total Repurchases ............ (5,964,777) $(60,437,772)
---------- ------------
</TABLE>

Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within six years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.

Page: 25

Notes to Financial Statements (Continued)

June 30, 1995

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C
- --------------------------------------------
<S> <C> <C>
First .................... 4.00% 1.00%
Second .................. 3.75% None
Third ................... 3.50% None
Fourth .................. 2.50% None
Fifth .................... 1.50% None
Sixth ................... 1.00% None
Seventh and Thereafter ... None None
</TABLE>

For the year ended June 30, 1995, VKAC, as Distributor for the Fund, received
net commissions on sales of the Fund's Class A shares of approximately $95,400
and CDSC on the redeemed shares of Classes B, C and D of approximately $180,500.
Sales charges do not represent expenses of the Fund.

4. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the year ended June 30, 1995, were $368,454,901 and
$385,700,477, respectively.

5. 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 Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. All of the Fund's portfolio holdings, including
derivative instruments, are marked to market each day with the change in value
reflected in the unrealized appreciation/depreciation on investments. Upon dis
position, a realized gain or loss is recognized accordingly.
Summarized below are the specific types of derivative financial instruments
used by the Fund.

Notes to Financial Statements (Continued)

June 30, 1995

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 Fund
to manage the portfolio's effective maturity and duration.
Transactions in options for the year ended June 30, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts Premium
- ---------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1994 ... -0- $ -0-
Options Written (Net) .......... 1,035 (28,463)
Options Expired (Net) .......... (1,035) 28,463
--------- ----------
Outstanding at June 30, 1995 ... -0- $ -0-
--------- ----------
</TABLE>

B. Forward Currency Contracts-These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract
is included as a component of realized gain/loss on investments and foreign
currency.
At June 30, 1995, the Fund has outstanding forward currency contracts as
follows:

<TABLE>
<CAPTION>
Forward Original Current Unrealized
Currency Contracts Value Value Depreciation
- ----------------------------------------------------------------
<S> <C> <C> <C>
Sells to Open
German Mark,
expiring 12/08/95 ... $ 3,002,112 $ 3,065,846 $ 63,734
------------
</TABLE>

6. Distribution and Service Plans

The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .30% for Class A shares and 1.00% each
for Class B and Class C shares are accrued daily. Included in these fees for the
year ended June 30, 1995, are payments to VKAC of approximately $443,900.

Independent Auditors' Report

The Board of Trustees and Shareholders of Van Kampen Merritt High Yield Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt High Yield Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1995, 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 Fund'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 June
30, 1995, 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 Merritt High Yield Fund as of June 30, 1995, 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
August 15, 1995

Funds Distributed by Van Kampen American Capital

GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund

EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund

FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income

TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund

THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund

Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.

Van Kampen Merritt High Yield Fund

Board of Trustees

Philip P. Gaughan
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Jerome L. Robinson
Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10, 1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

*"Interested" persons of the Fund, as defined in the Investment Company Act of
1940.

(C)Van Kampen American Capital Distributors, Inc., 1995
All rights reserved.

SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data.

Table of Contents

<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Performance Perspective ............... 4
Portfolio Management Review ........... 5
Portfolio of Investments ............. 7
Statement of Assets and Liabilities ... 10
Statement of Operations ............... 11
Statement of Changes in Net Assets .... 12
Financial Highlights ................. 13
Notes to Financial Statements ......... 16
Independent Auditors'Report .......... 26
</TABLE>

Letter to Shareholders

August 3, 1995

Dear Shareholder:

The first half of 1995 has been a positive one
for most Americans investing abroad. While not as
strong as the U.S. market, many foreign bond and
stock markets have made attractive gains for the
period ended June 30, 1995.

This year has been additionally gratifying for
those investors who weathered the difficult markets
of 1994 and maintained a long-term
perspective. It serves as a reminder of how a long-
term investment strategy -- one that includes a
well-rounded portfolio of domestic and foreign
investments -- can help increase the overall stability
and return of an investor's portfolio.

[PHOTO]

Dennis J. McDonnell and Don G. Powell

Economic Overview

Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the U.S. economy has slowed significantly this year. As a
result, U.S. interest rates declined and the value of fixed-income investments
rose. For example, the yield on 30-year U.S. Treasury securities fell from 7.88
percent at the end of December to 6.62 percent at the end of June, while its
price appreciated 18 percent. Likewise, after struggling through most of 1994,
the U.S. stock market climbed through the first part of the year, with the Dow
Jones Industrial Average and the S&P 500 Index gaining nearly 19 percent.

Abroad, bond markets in a number of industrialized countries also rallied
during the first half of the year. Those countries regarded as being in the U.S.
dollar bloc performed well, particularly in Canada and New Zealand, where both
economies showed signs of moderating growth and a trend toward lower interest
rates. These markets are highly influenced by events in the United States and
have tended to mirror its economic trends. Among the dollar bloc countries, New
Zealand provided the strongest performance in dollar terms, with a 12.8 percent
return for the first half of 1995, according to the J.P. Morgan Global Bond
Market Index.

Among the mature European stock markets -- such as Switzerland and the
Netherlands -- stocks on average have appreciated in dollar terms by 22.02
percent and 14.03 percent, respectively, during the same period, according to
the Morgan Stanley Capital International Switzerland and Netherlands Indexes.
These gains can be partially attributed to an increase in demand for higher
investment quality by investors during the start of the year, especially those
seeking to reallocate monies from Latin American countries to more developed
markets. Latin American markets suffered through the first three months of the
year from various currency and political problems, which began with Mexico's
peso devaluation in late December.

Several international currencies, including the Japanese yen and German mark,
strengthened substantially against the U.S. dollar over the last twelve months.
Their appreciation against the dollar has been positive for Americans investing
overseas, as it has resulted in better overall returns due to substantial
currency gains. The Japanese bond market, for example, produced a

(Continued on page two)

32.8 percent return, in dollar terms, for the six-month period ended June 30,
1995, according to the J.P. Morgan Global Bond Market Index. Nevertheless, the
sharp increase in the strength of the yen and a debt crisis in the Japanese bank
sector have compounded Japan's domestic problems and led to further
uncertainties about the government's ability to deal effectively with a
struggling economy.

Economic Outlook

We believe foreign markets will continue to be influenced by U.S. interest
rate movements and trends in corporate profitability and foreign exchange rates.
This was recently apparent when the United States reversed monetary course and
lowered short-term interest rates on July 6. Several countries, including Japan,
France and Canada, quickly followed the U.S. and lowered short-term interest
rates as well. We believe this reflects a global trend toward slower economic
growth and lower interest rates, as inflation fears continue to subside around
the world. With business activity in the U.S. and other industrialized countries
slowing, we look for Europe and developing markets to offer the greatest growth
opportunities.

Once again, we believe it is important to remember that financial markets will
inevitably experience highs and lows, but by maintaining a long-term investment
perspective, it may allow you to ride the ups and downs of the markets more
easily as you pursue your investment goals.

On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the
question-and-answer section helpful.

Corporate News

Along with your Fund's shareholder report, we are pleased to introduce a new
shareholder publication called Your Portfolio. The purpose of this publication
is to provide you with additional information about your mutual fund investment,
as well as offer helpful insights regarding long-term investment strategies and
trends in the marketplace. The publication will be mailed twice a year with your
June and December shareholder reports. This premier issue focuses on our various
shareholder services and privileges designed to make mutual fund investing
easier for you.

We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.

Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt Short-Term Global Income Fund

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
One-year total return
based on NAV<F1> ............ .69% (.14%) (.27%)
One-year total return<F2> ... (2.59%) (2.92%) (1.20%)
Life-of-Fund average
annual total return<F2> ..... 2.58% 1.89% (3.49%)
Commencement Date ........... 09/28/90 07/22/91 08/13/93
Distribution Rate and Yield
Distribution Rate<F3> ....... 7.68% 7.21% 7.21%
SEC Yield<F4> ............... 8.91% 8.45% 8.45%
<FN>

<F1> Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (3.25% for A shares) or contingent
deferred sales charge for early withdrawal (3% for B shares and 1% for C
shares).
<F2> Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (3.25% for A shares)
or contingent deferred sales charge for early withdrawal (3% for B shares and 1%
for C shares).
<F3> Distribution rate represents the monthly annualized
distributions of the Fund at the end of the period and not the earnings of the
Fund.
<F4> SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1995.

Putting Your Fund's Performance in Perspective

As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular
intervals. A good starting point is a comparison of your investment holdings
to an applicable benchmark, such as a broad-based market index. Such a
comparison can:
* Illustrate the general market environment in which your investments are
being managed
* Reflect the impact of favorable market trends or difficult market conditions
* Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the J.P. Morgan 3-Month U.S.
LIBOR Return Index over time. As a broad-based, unmanaged statistical
composite, this index does not reflect any commissions or fees which would be
incurred by an investor purchasing the securities it represents. Similarly,
its performance does not reflect any sales charges or other costs which would
be applicable to an actively managed portfolio, such as that of the Fund.

[LINE GRAPH]
Growth of a Hypothetical $10,000 Investment
VKM Short-Term Global Income Fund vs. J.P. Morgan 3-Month U.S. LIBOR
Return Index
(October 1990 through June 1995)

<TABLE>
<CAPTION>
Class A
Shares
of Fund J.P. Morgan 3-Month Libor Return Index Level
<S> <C> <C>
28-Sep-90 9,700 10,000
31-Oct-90 9,680 10,081
30-Nov-90 9,717 10,136
31-Dec-90 9,784 10,222
31-Jan-91 9,852 10,298
28-Feb-91 9,962 10,353
31-Mar-91 10,090 10,418
30-Apr-91 10,136 10,479
31-May-91 10,203 10,535
30-Jun-91 10,182 10,581
31-Jul-91 10,236 10,642
31-Aug-91 10,330 10,699
30-Sep-91 10,443 10,749
31-Oct-91 10,577 10,808
30-Nov-91 10,580 10,853
31-Dec-91 10,727 10,909
31-Jan-92 10,808 10,946
29-Feb-92 11,003 10,977
31-Mar-92 11,060 11,013
30-Apr-92 11,141 11,057
31-May-92 11,292 11,090
30-Jun-92 11,338 11,130
31-Jul-92 11,372 11,174
31-Aug-92 11,347 11,201
30-Sep-92 11,275 11,234
31-Oct-92 11,357 11,259
30-Nov-92 11,271 11,280
31-Dec-92 11,291 11,325
31-Jan-93 11,397 11,358
28-Feb-93 11,317 11,384
31-Mar-93 11,160 11,414
30-Apr-93 11,252 11,444
31-May-93 11,380 11,468
30-Jun-93 11,662 11,499
31-Jul-93 11,816 11,528
31-Aug-93 11,980 11,559
30-Sep-93 11,859 11,583
30-Oct-93 11,994 11,613
30-Nov-93 11,960 11,642
31-Dec-93 12,111 11,674
31-Jan-94 12,143 11,732
28-Feb-94 11,787 11,732
31-Mar-94 11,524 11,755
30-Apr-94 11,394 11,782
31-May-94 11,345 11,819
30-Jun-94 11,241 11,854
31-Jul-94 11,260 11,895
31-Aug-94 11,252 11,940
30-Sep-94 11,257 11,972
31-Oct-94 11,277 12,025
30-Nov-94 11,254 12,061
30-Dec-94 11,217 12,110
31-Jan-95 11,166 12,175
28-Feb-95 11,157 12,226
31-Mar-95 10,988 12,281
28-Apr-95 11,141 12,332
31-May-95 11,333 12,391
30-Jun-95 11,318 12,440
</TABLE>

The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions for the period ended June 30, 1995,
and includes payment of the maximum sales charge (3.25% for A shares).

Portfolio Management Review

Van Kampen Merritt Short-Term Global Income Fund
The following is an interview with the management team of Van Kampen Merritt
Short-Term Global Income Fund, including Thomas J. Slefinger, portfolio manager,
and Peter W. Hegel, executive vice president, Van Kampen American Capital
Investment Advisory Corp. This interview covers the Fund's twelve-month period
ended June 30, 1995.

Q. What were the significant market events over the period?

A. There were basically three events which had an impact on the Fund. They
were: strong and sustained economic growth throughout the industrialized
world, the peso crisis in Mexico and a rally in the bond market.

In 1994, as economies in the industrialized world grew, the trend towards
higher interest rates and flattening yield curves continued (the yield curve
flattens when the difference in yield between short-and long-term debt
decreases). Since bond prices decline as interest rates increase, higher rates
caused some of the Fund's holdings to decrease in value.

Then in December, the Fund faced the peso devaluation crisis in Mexico. As the
peso declined in value, Mexico's interest rates increased dramatically causing
bond prices to decline. At the time, the Fund owned tesobonos -- short-dated
U.S. dollar-denominated Mexican government securities -- which held up
reasonably well compared to peso-denominated securities which dropped sharply.

Entering 1995, when economic numbers came in weaker than expected, the U.S.
bond market rallied (interest rates declined and bond prices increased). In
general, existing bonds increased in value as interest rates declined because
they offered a higher yield than was available on new bonds in the marketplace.

Q. What actions did you take in response to these events?

A. We tried to maintain a defensive posture across all global markets. In an
effort to stabilize price fluctuations, the Fund's exposure to European markets
was reduced, while allocation into the U.S. and Australian fixed-income markets
was increased.

Throughout the fourth quarter of 1994 and the first quarter of 1995, a
relatively large percentage of the Fund's assets were allocated to the U.S.
sector. This strategy served the Fund well, as interest rates declined sharply
within the dollar bloc region (Australia, Canada, New Zealand & U.S.).
Additionally, we maintained high credit quality standards with a majority of the
Fund's assets invested in AAA-and AA-rated securities.

Q. What were the results?

A. The Fund's Class A share net asset value (NAV) declined $0.59 from $8.15
on June 30, 1994, to $7.56 on June 30, 1995. However, throughout the period,
the Fund provided a competitive distribution rate which stood at 7.68 percent
<F3>, as of June 30, 1995. The Fund reported a one-year total return at NAV,
Class A shares, of 0.69 percent<F1>.

The Fund's comparative index, the J.P. Morgan 3-Month U.S. LIBOR Return, had a
one-year total return of 4.94 percent. This unmanaged index tracks the London
Interbank Offered Rate, a key short-term interest rate that the most
creditworthy international banks dealing in Eurodollars charge each other for
large loans. It does not reflect any commissions or fees that would be paid by
an investor purchasing the securities it represents. (Please refer to the chart
on page three for additional Fund performance.)

Q. What overall investment strategy are you adhering to?

A. With regard to the Fund's duration, we try to maintain a level between 1.5
and 2 years.

Duration is a measure of the potential impact interest rate changes have on a
bond's value. In terms of country allocation, the Fund is once again increasing
its exposure to European and Scandinavian markets which have lagged the U.S.
market. This reallocation will more closely reflect the composition of the
Fund's comparative index. Additionally, to help reduce currency exposure, most
foreign securities are hedged back into U.S. dollars.

Overall, while we seek to provide investors with a competitive yield, it is
important to remember the Fund is not managed with the same objective as a money
market fund or certificate of deposit. The Fund is meant to give investors an
opportunity to add a global component to their portfolio through exposure to
non-dollar, fixed income markets worldwide, as well as the potential to capture
the attractive yields which are often available in markets outside the U.S.

Q. What is your outlook for the Fund?

A. As yields on U.S. securities have declined, we have found more attractive
investment opportunities in foreign markets. Specifically we will be looking
at European, Latin American and Pacific Rim securities with favorable
risk/return profiles.

The Fund will continue to be positioned defensively against interest rate
changes. This will best be accomplished through a variety of global securities
and a low duration, which should help to lessen the portfolio's sensitivity to
interest rate changes.

We believe a varied portfolio will allow the Fund to provide a favorable yield
without excessive duration risk. Additionally, we feel the Fund remains an ideal
complement to a domestic portfolio and an affordable way to access the potential
of global markets.

Peter W. Hegel Thomas J. Slefinger
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

6 Please see footnotes on page three.

Portfolio of Investments
June 30,1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
In Local
Currency
(000) Description Coupon Maturity U.S.$ Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australia 5.3% AU$
Government/Agency 5.3%
8,000 Queensland Treasury Corp ........... 8.000% 05/14/97 $ 5,693,817
6,500 Treasury Corp of Victoria .......... 12.500 09/15/97 5,021,400
------------
10,715,217
------------
Canada 9.5% CA$
Government/Agency 9.5%
10,000 Canadian Government <F2> ........... 6.500 08/01/96 7,247,907
5,000 Canadian Wheat Bond <F2> ........... 7.500 12/29/97 3,649,800
10,800 Ontario Province CDA <F2> .......... 8.750 04/16/97 8,052,695
------------
18,950,402
------------
Denmark 4.6% Kroner
Government/Agency 4.6%
35,000 Kingdom of Denmark (Bullets) <F2> ... 6.250 02/10/97 6,408,944
15,000 Kingdom of Denmark (Bullets) ....... 7.000 08/15/97 2,763,077
------------
9,172,021
------------
Germany 5.2% Mark
Government/Agency 5.2%
13,800 Republic of Germany <F2> ............ 8.000 03/20/97 10,430,581
------------
Ireland 4.1% Pound
Government/Agency 4.1%
5,000 Republic of Ireland ................. 8.750 07/27/97 8,297,872
------------
Italy 10.2% Lira
Government/Agency 5.9%
19,500,000 Republic of Italy .................... 10.000 08/01/96 11,774,485
Corporate 4.3%
15,000,000 Vermilion International Trust-BTPS ... 9.160 12/01/97 8,732,544
------------
Total Italian Securities .............................. 20,507,029
------------
Netherlands 1.2% Guilder
Government/Agency 1.2%
3,500 Kingdom of Netherlands ................ 6.500 08/15/96 2,303,291
------------
New Zealand 3.7% NZ$
Government/Agency 3.7%
4,500 New Zealand Government ............... 8.000 11/15/95 2,999,534
6,500 New Zealand Government ............... 10.000 07/15/97 4,495,420
------------

7,494,954
------------
</TABLE>

7 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30,1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
In Local
Currency
(000) Description Coupon Maturity U.S.$ Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Spain 8.0% Peseta
Government/Agency 8.0%
600,000 Kingdom of Spain ................... 9.000% 02/28/97 $ 4,815,851
800,000 Kingdom of Spain ................... 11.000 06/15/97 6,603,426
600,000 Kingdom of Spain ................... 7.300 07/30/97 4,621,177
------------
16,040,454
------------
Sweden 2.5% Krona
Government/Agency 2.5%
40,000 Swedish Treasury Bill .............. * 04/17/96 5,094,019
------------
United Kingdom 4.9%Pound
Government/Agency 4.9%
6,000 U.K. Treasury <F2> ................ 8.750 09/01/97 9,746,302
------------
United States 20.7% US$
Government/Agency 4.9%
10,000 U.S. Treasury Note <F2> ........... 4.750 02/15/97 9,832,813
------------
Currency Indexed Debt Obligations 15.8%
Argentinian Peso Indexed 1.7%
1,500 Citibank Time Deposit .............. 20.500 08/09/95 1,502,550
2,000 Citibank Time Deposit .............. 25.000 10/20/95 2,002,200
------------
Chilean Peso Indexed 2.6%
5,000 Citibank Time Deposit .............. 11.500 11/06/95 5,287,000
------------
Indian Rupee Indexed 0.5%
1,000 Citibank Time Deposit .............. 12.000 10/31/95 996,900
------------
Indonesian Rupiah Indexed 3.9%
5,000 Citibank Time Deposit .............. 14.750 12/05/95 4,828,500
1,500 JP Morgan CD ........................ 15.300 05/01/96 1,490,931
1,500 MGT of Singapore CD ................ * 08/10/95 1,480,630
------------
Polish Zloty Indexed 2.2%
2,000 JP Morgan CD ........................ * 07/26/95 1,984,000
430 JP Morgan CD ........................ * 10/19/95 401,735
2,000 Merrill Lynch CD .................... 25.500 08/16/95 1,987,000

</TABLE>

8 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30,1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
In Local
Currency
(000) Description Coupon Maturity U.S.$ Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States (Continued)
Thai Baht Indexed 4.9%
4,500 JP Morgan CD ........................ *% 10/19/95 $ 4,355,257
2,500 JP Morgan CD ........................ * 11/09/95 2,406,065
2,000 JP Morgan CD ........................ 12.800 10/28/96 2,039,636
1,000 JP Morgan CD ........................ 10.600 12/02/96 1,008,246
------------
Total United States Securities............ ... 41,603,463
------------
Repurchase Agreement 22.5%
UBS Securities, U.S. Treasury Note, $30,390,000 par, 12% coupon,
due 08/15/13, dated 06/30/95, to be sold on 07/03/95 at $45,160,945. 45,138,000
------------
Total Investments 102.4%
(Cost $205,234,791) <F1> .......................................... 205,493,605
Liabilities in Excess of Other Assets (2.4%) ...................... (4,869,781)
------------
Net Assets 100.0% ................................................ $200,623,824
------------
<FN>
*Zero coupon bond

<F1> At June 30, 1995, cost for federal income tax purposes is $205,234,791; the
aggregate gross unrealized appreciation is $2,638,590 and the aggregate gross
unrealized depreciation is $22,933,084, resulting in net unrealized depreciation
on investments, foreign currency translation of other assets and liabilities,
forward currency contracts, option and swap transactions of $20,294,494.

<F2> Assets segregated as collateral for currency indexed securities, forward
currency contracts, option and swap transactions.
</FN>
</TABLE>

Portfolio Composition by Credit Quality

<TABLE>
<CAPTION>
<S> <C>
AAA .......... 22.4%
AA ........... 61.8
A ............ 10.4
Non-Rated ... 5.4
-------
100.0%
-------
</TABLE>

9 See Notes to Financial Statements

Statement of Assets and Liabilities
June 30,1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $205,234,791) (Note 1) ............................ $ 205,493,605
Cash ................................................................................ 954
Receivables:
Investments Sold ................................................................... 6,128,330
Interest ........................................................................... 4,464,716
Fund Shares Sold ................................................................... 572
Options at Market Value (Net premiums paid of $1,537,634) (Note 5) .................. 714,705
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) ......... 12,598
---------------
Total Assets ......................................................................... 216,815,480
---------------
Liabilities:
Payables:
Forward Currency Contracts and Swap Transactions (Note 5) .......................... 14,011,820
Fund Shares Repurchased ........................................................... 792,431
Income Distributions .............................................................. 565,099
Investment Advisory Fee (Note 2) ................................................... 93,434
Accrued Expenses ..................................................................... 728,872
---------------
Total Liabilities .................................................................... 16,191,656
---------------
Net Assets ........................................................................... $ 200,623,824
---------------
Net Assets Consist of:
Paid in Surplus (Note 3) ............................................................. $ 286,965,034
Accumulated Distributions in Excess of Net Investment Income (Note 1) ............... (588,190)
Net Unrealized Depreciation on Investments and Foreign Currency ...................... (20,294,494)
Accumulated Net Realized Loss on Investments ......................................... (65,458,526)
---------------
Net Assets ........................................................................... $ 200,623,824
---------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $72,546,744 and
9,590,434 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 7.56
Maximum sales charge (3.25%* of offering price) ...................................... .25
---------------
Maximum offering price to public ..................................................... $ 7.81
---------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $127,905,542 and
16,910,386 shares of beneficial interest issued and outstanding) (Note 3) ............ $ 7.56
---------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $171,538 and
22,678 shares of beneficial interest issued and outstanding) (Note 3) ............... $ 7.56
---------------
*On sales of $25,000 or more, the sales charge will be reduced.
</TABLE>

See Notes to Financial Statements

Statement of Operations
For the Year Ended June 30,1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest (Net of foreign withholding taxes of $320,941) ..................................... $ 24,695,762
----------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $263,818,
$1,899,931, $1,918 and $2, respectively) (Note 6) .......................................... 2,165,669
Investment Advisory Fee (Note 2) ........................................................... 1,616,498
Shareholder Services (Note 2) ............................................................... 518,178
Custody ..................................................................................... 235,955
Legal (Note 2) ............................................................................. 56,215
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) ............ 49,972
Trustees Fees and Expenses (Note 2) ......................................................... 26,594
Other ....................................................................................... 265,225
----------------
Total Expenses .............................................................................. 4,934,306
----------------
Net Investment Income ....................................................................... $ 19,761,456
----------------
Realized and Unrealized Gain/Loss on Investments and Foreign Currency:
Net Realized Loss on Investments and Foreign Currency (Including realized gain on
foreign currency transactions of $2,667,741 and realized loss on closed and expired
option transactions of $3,248,498) .......................................................... $ (12,602,409)
----------------
Net Unrealized Appreciation/Depreciation on Investments and Foreign Currency:
Beginning of the Period .................................................................... (12,555,624)
End of the Period (Including unrealized appreciation on foreign currency translation of other
assets and liabilities of $33,662 and unrealized depreciation on forward currency contracts,
option and swap transactions of $19,490,440, $822,929 and $273,601, respectively) .......... (20,294,494)
----------------
Net Unrealized Depreciation on Investments and Foreign Currency During the Period ........... (7,738,870)
----------------
Net Realized and Unrealized Loss on Investments and Foreign Currency ........................ $ (20,341,279)
----------------
Net Decrease in Net Assets from Operations ................................................. $ (579,823)
----------------
</TABLE>

See Notes to Financial Statements

Statement of Changes in Net Assets
For the Years Ended June 30,1995 and 1994
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
June 30,1995 June 30,1994
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income .............................................. $ 19,761,456 $ 33,472,724
Net Realized Loss on Investments and Foreign Currency .............. (12,602,409) (45,182,611)
Net Unrealized Depreciation on Investments and
Foreign Currency During the Period ................................. (7,738,870) (5,827,126)
---------------- ----------------
Change in Net Assets from Operations .............................. (579,823) (17,537,013)
---------------- ----------------
Distributions from Net Investment Income* .......................... (14,866,346) (21,649,827)
Return of Capital Distribution* ................................... (7,736,408) (16,378,081)
---------------- ----------------
Total Distributions ............................................... (22,602,754) (38,027,908)
---------------- ----------------
Net Change in Net Assets from Investment Activities ................ (23,182,577) (55,564,921)
---------------- ----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ......................................... 6,199,457 48,354,257
Net Asset Value of Shares Issued Through Dividend Reinvestment ..... 12,635,688 21,920,768
Cost of Shares Repurchased ......................................... (214,719,738) (193,990,293)
---------------- ----------------
Net Change in Net Assets from Capital Transactions ................ (195,884,593) (123,715,268)
---------------- ----------------
Total Decrease in Net Assets ....................................... (219,067,170) (179,280,189)
---------------- ----------------
Net Assets:
Beginning of the Period ........................................... 419,690,994 598,971,183
---------------- ----------------
End of the Period (Including undistributed net investment income of
$(588,190) and $(5,032,543), respectively) ........................ $ 200,623,824 $ 419,690,994
---------------- ----------------
</TABLE>

Year Ended Year Ended
*Distributions by Class June 30,1995 June 30,1994
---------------- ----------------
<S> <C> <C>
Distributions from
Net Investment Income:
Class A Shares ................ $ (5,617,141) $ (8,004,201)
Class B Shares ................ (9,240,772) (13,642,774)
Class C Shares ................ (8,387) (2,850)
Class D Shares ................ (46) (2)
---------------- ----------------
$ (14,866,346) $ (21,649,827)
---------------- ----------------
Return of Capital Distribution:
Class A Shares ................ $ (2,908,177) $ (6,158,141)
Class B Shares ................ (4,822,441) (10,214,511)
Class C Shares ................ (5,768) (5,407)
Class D Shares ................ (22) (22)
---------------- ----------------
$ (7,736,408) $ (16,378,081)
---------------- ----------------
</TABLE>

See Notes to Financial Statements

Financial Highlights

<TABLE>
<CAPTION>
September 28,1990
(Commencement
Year Ended June 30 of Investment
------------------------------------------------ Operations) to
Class A Shares 1995 1994 1993 1992 June 30,1991
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 8.15 $ 9.11 $ 9.65 $ 9.49 $ 9.70
----------- ----------- ----------- --------- --------------
Net Investment Income ................. .50 .59 .71 .69 .62
Net Realized and Unrealized
Gain/Loss on Investments
and Foreign Currency ................... (.45) (.89) (.46) .34 (.15)
----------- ----------- ----------- --------- --------------
Total from Investment Operations ....... .05 (.30) .25 1.03 .47
----------- ----------- ----------- --------- --------------
Less:
Distributions from and in Excess of
Net Investment Income .................. .37 .35 .79 .87 .68
Return of Capital Distribution ........ .27 .31 -0- -0- -0-
----------- ----------- ----------- --------- --------------
Total Distributions (Note 1) .......... .64 .66 .79 .87 .68
----------- ----------- ----------- --------- --------------
Net Asset Value, End of Period ......... $ 7.56 $ 8.15 $ 9.11 $ 9.65 $ 9.49
----------- ----------- ----------- --------- --------------
Total Return (Non-Annualized) .......... .69% (3.61%) 2.86% 11.35% 4.97%
Net Assets at End of Period
(In millions) .......................... $ 72.5 $ 147.7 $ 205.9 $ 205.1 $ 85.4
Ratio of Expenses to Average Net
Assets (Annualized) .................... 1.14% 1.13% 1.14% 1.32% 1.57%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ........ 7.20% 6.64% 7.87% 8.12% 7.20%
Portfolio Turnover ..................... 203.92% 259.10% 141.22% 64.87% 77.89%
</TABLE>

Note: Certain per share amounts and the ratio of net investment income to
average net assets have been restated to conform with Statement of Position
93-4, "Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies."

See Notes to Financial Statements

Financial Highlights (Continued)

<TABLE>
<CAPTION>
July 22,1991
Year Ended June 30 (Commencement of
Distribution) to
Class B Shares 1995 1994 1993 June 30,1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $ 8.15 $ 9.10 $ 9.65 $ 9.43
----------- ----------- ----------- ----------------
Net Investment Income ........................ .41 .54 .67 .78
Net Realized and Unrealized Gain/Loss
on Investments and Foreign Currency .......... (.42) (.90) (.49) .19
----------- ----------- ----------- ----------------
Total from Investment Operations ............. (.01) (.36) .18 .97
----------- ----------- ----------- ----------------
Less:
Distributions from and in Excess of
Net Investment Income ........................ .34 .32 .73 .75
Return of Capital Distribution .............. .24 .27 -0- -0-
----------- ----------- ----------- ----------------
Total Distributions (Note 1) ................. .58 .59 .73 .75
----------- ----------- ----------- ----------------
Net Asset Value, End of Period .............. $ 7.56 $ 8.15 $ 9.10 $ 9.65
----------- ----------- ----------- ----------------
Total Return (Non-Annualized) ................ (.14%) (4.22%) 2.02% 10.47%
Net Assets at End of Period (In millions) ... $ 127.9 $ 271.8 $ 393.1 $ 241.7
Ratio of Expenses to Average Net
Assets (Annualized) ......................... 1.96% 1.85% 1.85% 2.08%
Ratio of Net Investment Income to
Average Net Assets (Annualized) .............. 6.42% 5.91% 7.20% 8.62%
Portfolio Turnover ........................... 203.92% 259.10% 141.22% 64.87%
</TABLE>

Note: Certain per share amounts and the ratio of net investment income to
average net assets have been restated to conform with Statement of Position
93-4, "Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies."

See Notes to Financial Statements

Financial Highlights (Continued)

<TABLE>
<CAPTION>
August 13,1993
(Commencement of
Year Ended Distribution) to
Class C Shares June 30,1995 June 30,1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ......................... $ 8.16 $ 9.24
------------ ----------------
Net Investment Income ........................................ .50 .49
Net Realized and Unrealized Loss
on Investments and Foreign Currency .......................... (.52) (1.05)
------------ ----------------
Total from Investment Operations ............................ (.02) (.56)
------------ ----------------
Less:
Distributions from and in Excess of Net Investment Income ... .34 .27
Return of Capital Distribution .............................. .24 .25
------------ ----------------
Total Distributions (Note 1) ................................. .58 .52
------------ ----------------
Net Asset Value, End of Period .............................. $ 7.56 $ 8.16
------------ ----------------
Total Return (Non-Annualized) ................................ (.27%) (6.32%)
Net Assets at End of Period (In millions) ................... $ .2 $ .2
Ratio of Expenses to Average Net
Assets (Annualized) ......................................... 1.96% 1.84%
Ratio of Net Investment Income to
Average Net Assets (Annualized) .............................. 6.30% 5.83%
Portfolio Turnover ........................................... 203.92% 259.10%
</TABLE>

Note: Certain per share amounts and the ratio of net investment income to
average net assets have been restated to conform with Statement of Position
93-4, "Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies."

See Notes to Financial Statements

Notes to Financial Statements

June 30,1995
- --------------------------------------------------------------------------------

1. Significant Accounting Policies
Van Kampen Merritt Short-Term Global Income Fund (the "Fund") is organized as a
sub-trust of Van Kampen Merritt Trust (the "Trust"), a Massachusetts business
trust, and is registered as a non-diversified open-end management investment
company under the Investment Company Act of 1940 as amended. The Fund commenced
investment operations on September 28, 1990. The distribution of the Fund's
Class B and Class C shares commenced on July 22, 1991, and August 13, 1993,
respectively. On May 2, 1995, all Class D shareholders redeemed their shares and
the class was eliminated. The Fund will no longer offer Class D shares.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

A. Security Valuation-Investments are stated at value using the last available
bid price or yield equivalents obtained from dealers in the OTC or interbank
market. Short-term securities with remaining maturities of less than 60 days 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
Fund 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 Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1995, there were no when
issued or delayed delivery purchase commitments.

C. Investment Income-Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.

D. Currency Translation-During the current period, the Fund adopted Statement of
Position 93-4, "Foreign Currency Accounting and Financial Statement Presentation
for Investment Companies." Accordingly, the 1994 statement of changes in net
assets and prior period financial highlights were restated to reflect
reclassification of net realized gain/loss on foreign currency and forward
currency contracts from net investment income to net realized gain/loss on
investments and foreign currency.

Assets and liabilities denominated in foreign currencies and commitments under
forward currency contracts are translated into U.S. dollars at the mean of the
quoted bid and ask prices of such currencies against the U.S. dollar. Purchases
and sales of portfolio securities are trans-

Notes to Financial Statements(Continued)

June 30,1995
- --------------------------------------------------------------------------------

lated at the rate of exchange prevailing when such securities were acquired or
sold. Income and expenses are translated at rates prevailing when accrued.

E. Organizational Expenses and Initial Registration Costs-The Fund has
reimbursed Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC") for costs incurred in connection with the Fund's
organization and initial registration in the amount of $250,000. These costs are
being amortized on a straight line basis over the 60 month period ending
September 28, 1995. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Fund
originally purchased by VKAC are redeemed during the amortization period, the
Fund will be reimbursed for any unamortized organizational expenses and initial
registration costs in the same proportion as the number of shares redeemed bears
to the number of initial shares held at the time of redemption.

The Fund 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 June 30, 1995, the Fund had an accumulated capital loss carryforward
for tax purposes of $62,900,163. Of this amount, $10,010,730 and $52,889,433
will expire on June 30, 2001 and 2003, respectively. Net realized gains or
losses may differ for financial and tax reporting purposes primarily as a result
of post October 31 losses which are not recognized for tax purposes until the
first day of the following fiscal year.

G. Distribution of Income and Gains-The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on transactions in foreign
currencies and options on foreign currencies. These realized gains and losses
are included as net realized gains or losses for financial reporting purposes.
Permanent book and tax basis differences relating to these items totaling
$450,757 were reclassified from accumulated undistributed net investment income
to accumulated net realized gain/loss on investments.

Net realized gains on securities, if any, are distributed annually.
Distributions from net realized gains for book purposes may include short-term
capital gains which are included in ordinary income for tax purposes.

Notes to Financial Statements (Continued)

June 30,1995
- --------------------------------------------------------------------------------

2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly of .55% of the Fund's average net assets.

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.

For the year ended June 30, 1995, the Fund recognized expenses of
approximately $152,100 representing VKAC's cost of providing accounting, legal
and certain shareholder services to the Fund.

Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.

The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC. The Fund's liability under the
deferred compensation and retirement plans at June 30, 1995, was approximately
$23,100.

At June 30, 1995, VKAC owned 1,263, 1,347 and 100 shares of beneficial
interest of Classes A, B and C, respectively.

3. Capital Transactions
The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized.

Notes to Financial Statements (Continued)

June 30,1995
- --------------------------------------------------------------------------------

At June 30, 1995, paid in surplus aggregated $102,375,382, $184,393,612 and
$196,040, for Classes A, B and C, respectively. For the year ended June 30,
1995, transactions were as follows:

<S> <C> <C>
Shares Value

Sales:
Class A ....................... 147,880 $ 1,164,395
Class B ....................... 633,871 5,017,062
Class C ....................... 2,233 18,000
Class D ....................... -0- -0-
------------ --------------
Total Sales ................... 783,984 $ 6,199,457
------------ --------------
Dividend Reinvestment:
Class A ....................... 640,247 $ 5,003,613
Class B ....................... 973,210 7,618,093
Class C ....................... 1,792 13,973
Class D ....................... 1 9
------------ --------------
Total Dividend Reinvestment ... 1,615,250 $ 12,635,688
------------ --------------
Repurchases:
Class A ....................... (9,324,231) $(73,225,277)
Class B ....................... (18,052,147) (141,454,897)
Class C ....................... (4,985) (38,532)
Class D ....................... (124) (1,032)
------------ --------------
Total Repurchases ............ (27,381,487) $(214,719,738)
------------ --------------
</TABLE>

Notes to Financial Statements (Continued)

June 30,1995
- --------------------------------------------------------------------------------

At June 30, 1994, paid in surplus aggregated $172,340,828, $318,035,795,
$208,367 and $1,045, for Classes A, B, C and D, respectively. For the year ended
June 30, 1994, transactions were as follows:

<TABLE>
<CAPTION>
<S> <C> <C>
Shares Value

Sales:
Class A ....................... 3,219,135 $ 29,120,587
Class B ....................... 2,103,750 18,929,822
Class C ....................... 33,998 302,784
Class D ....................... 123 1,064
------------ --------------
Total Sales ................... 5,357,006 $ 48,354,257
------------ --------------
Dividend Reinvestment:
Class A ....................... 931,309 $ 8,246,649
Class B ....................... 1,543,949 13,668,730
Class C ....................... 629 5,386
Class D ....................... -0- 3
------------ --------------
Total Dividend Reinvestment ... 2,475,887 $ 21,920,768
------------ --------------
Repurchases:
Class A ....................... (8,636,073) $(75,861,675)
Class B ....................... (13,472,314) (118,034,222)
Class C ....................... (10,989) (94,396)
Class D ....................... -0- -0-
------------ --------------
Total Repurchases ............ (22,119,376) $(193,990,293)
------------ --------------
</TABLE>

Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within three years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C

<S> <C> <C>
First ................... 3.00% 1.00%
Second ................. 2.00% None
Third ................... 1.00% None
Fourth and Thereafter ... None None
</TABLE>

Notes to Financial Statements (Continued)

June 30,1995
- --------------------------------------------------------------------------------

For the year ended June 30, 1995, VKAC, as Distributor for the Fund, received
net commissions on sales of the Fund's Class A shares of $197 and CDSC on the
redeemed shares of Classes B and C of approximately $900,200. Sales charges do
not represent expenses of the Fund.

4. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding U.S.
Government securities and short-term notes, for the year ended June 30, 1995,
were $430,869,580 and $553,195,987, respectively.

The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. All of the Fund's portfolio holdings, including
derivative instruments, are marked to market each day with the change in value
reflected in the unrealized appreciation/depreciation on investments. Upon
disposition, a realized gain or loss is recognized accordingly, except for
exercised option contracts where the recognition of gain or loss is postponed
until the disposal of the security underlying the option contract.

Summarized below are the specific types of derivative financial instruments
used by the Fund.

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 Fund
to manage the portfolio's foreign currency exposure and effective maturity and
duration.

Notes to Financial Statements (Continued)

June 30,1995
- --------------------------------------------------------------------------------
Transactions in options for the year ended June 30, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts Premium
<S> <C> <C>
Outstanding at June 30, 1994 .... 30 $ (4,152,667)
Options Written and
Purchased (Net) ................ 66 (603,970)
Options Terminated in Closing
Transactions (Net) .............. (73) 913,996
Options Expired (Net) .......... (10) 2,344,492
Options Exercised (Net) ......... (2) (39,485)
----------------- ---------------
Outstanding at June 30, 1995 ... 11 $ (1,537,634)
----------------- ---------------
</TABLE>

The descriptions and market values of the option contracts outstanding as of
June 30, 1995, are as follows:

<TABLE>
<CAPTION>
Strike
Opening Expiration Price/ Market
Description Transaction Date Yield Value

<S> <C> <C> <C> <C>
Italian Lira Call ............ Buy 07/14/95 97.35 $ -0-
Japanese Yen Call ........... Buy 04/22/96 82.65 58,935
Japanese Yen Call ........... Buy 04/22/96 83.25 39,290
Japanese Yen Call ........... Buy 04/25/96 83.80 69,260
Japanese Yen Call ........... Buy 05/08/96 83.10 88,118
Japanese Yen Call ........... Buy 05/09/96 83.55 140,528
Japanese Yen Call ........... Buy 05/09/96 83.10 105,396
Japanese Yen Call ........... Buy 05/13/96 84.95 144,238
Receivers Option on Swaps:
6 month German Swap .......... Buy 06/07/96 5.71% 37,581
Payers Option on Swaps:
3 year Swedish/German Swap ... Buy 08/12/95 4.33% 14,498
3 year Spanish/German Swap ... Buy 08/12/95 5.17% 16,861
----------
$ 714,705
----------
</TABLE>

B.Forward Currency Contracts-These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on investments and foreign currency.

Notes to Financial Statements (Continued)

June 30,1995
- --------------------------------------------------------------------------------

At June 30, 1995, the Fund has outstanding forward currency contracts as
follows:

<TABLE>
<CAPTION>
Unrealized
Forward Original Current Appreciation/
Currency Contracts Value Value Depreciation
<S> <C> <C> <C>
Buys to Open
German Mark,
expiring 07/07/95 -
08/15/95 .............. $ 131,042,708 $ 129,839,029 $ (1,203,679)
Italian Lira,
expiring 07/07/95 ..... 23,211,778 23,205,800 (5,978)
Japanese Yen,
expiring 07/07/95 ..... 16,014,783 15,353,525 (661,258)
Mexican Peso,
expiring 08/24/95 -
03/04/96 .............. 2,769,927 2,952,033 182,106
Spanish Peseta,
expiring 07/07/95 ..... 17,821,564 17,977,614 156,050
Sells to Open
Australian Dollar,
expiring 07/05/95 -
07/31/95 .............. 10,071,541 9,958,077 113,464
British Pound Sterling,
expiring 07/17/95 ..... 10,593,040 10,812,856 (219,816)
Canadian Dollar,
expiring 07/07/95 -
07/17/95 .............. 13,999,993 14,537,250 (537,257)
German Mark,
expiring 07/06/95 -
08/18/95 .............. 158,699,985 171,093,073 (12,393,088)
Irish Pound,
expiring 07/11/95 ..... 6,222,052 6,250,261 (28,209)
Italian Lira,
expiring 07/07/95 ..... 18,685,556 20,148,673 (1,463,117)
Japanese Yen,
expiring 07/11/95 -
07/17/95 .............. 18,174,961 20,345,093 (2,170,132)
Spanish Peseta,
expiring 07/07/95 -
07/24/95 .............. 29,968,720 31,253,398 (1,284,678)
Swedish Krona,
expiring 08/03/95 ..... 5,025,273 5,000,121 25,152
----------------
$ (19,490,440)
----------------
</TABLE>

Notes to Financial Statements (Continued)

June 30,1995
- --------------------------------------------------------------------------------

At June 30, 1995, the Fund had realized gains on closed but unsettled forward
currency contracts of $5,752,221 scheduled to settle between July 3, 1995 and
July 8, 1996.

C.Swap Transactions-A swap represents an agreement between two parties to
exchange a series of cash flows based upon various indices at specified
intervals. A forward swap represents a commitment to enter into a swap agreement
at a future date.

The interest rate swap and forward swap transactions outstanding as of June
30, 1995, and the descriptions and unrealized depreciation are as follows:

<TABLE>
<CAPTION>
Unrealized
Description Depreciation
<S> <C>
Interest Rate Swaps:
Goldman Sachs, 5,000,000 US$ notional amount, maturing 11/20/95,
payment based upon the following formula: Notional amount times
[5.33%-(3 month Spanish LIBOR-3 month German LIBOR)] ...................... $ 21,500
Goldman Sachs, 5,000,000 US$ notional amount, maturing 11/20/95,
payment based upon the following formula: Notional amount times
[4.06%-(3 month Spanish LIBOR-3 month German LIBOR)] ...................... 27,000
J.P.Morgan, 5,000,000 US$ notional amount, maturing 08/17/95,
payment based upon the following formula: Notional amount times
[5.41%-(1 year Spanish rate-1 year German rate)] .......................... 29,387
J.P.Morgan, 5,000,000 US$ notional amount, maturing 08/18/95,
payment based upon the following formula: Notional amount times
[5.44%-(1 year Italian rate-1 year German rate)] .......................... 80,270
J.P.Morgan, 5,000,000 US$ notional amount, maturing 08/18/95,
payment based upon the following formula: Notional amount times
[4.42%-(1 year Swedish rate-1 year German rate)] .......................... 55,210
Forward Swaps:
J.P.Morgan, 8,000,000,000 Italian Lira notional amount, effective 12/07/95,
Fund receives 11.068% fixed, Fund pays 6 month Italian LIBOR ............... 60,234
------------
$ 273,601
------------
</TABLE>

D.Indexed Securities-These instruments are identified in the portfolio of
investments.

Currency Indexed securities contain one or more embedded links to currency
indices or forward currency contracts which cause a security's valuation to
fluctuate based upon the value of the linked foreign currency or currencies.

Notes to Financial Statements (Continued)

June 30,1995
- --------------------------------------------------------------------------------

6. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "Service Plan," collectively the "Plans"). The
Plans govern payments for the distribution of the Fund's shares, ongoing
shareholder services and maintenance of shareholder accounts.

Annual fees under the Plans of up to .30% for Class A and 1.00% each for Class
B and Class C shares are accrued daily. Included in these fees for the year
ended June 30, 1995, are payments to VKAC of approximately $1,443,200.

Independent Auditors' Report

The Board of Trustees and Shareholders of
Van Kampen Merritt Short-Term Global Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Short-Term Global Income Fund (the "Fund"), including the
portfolio of investments, as of June 30, 1995, 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 Fund'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 June
30, 1995, 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 Merritt Short-Term Global Income Fund as of June 30, 1995, 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
August 15, 1995

Funds Distributed by Van Kampen American Capital

GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund

EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund

THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America
Fund Pacific Strategy Fund
Smaller Companies Fund

Van Kampen Merritt Short-Term Global Income Fund

Board of Trustees

Philip P. Gaughan
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Jerome L. Robinson
Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10,1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

*"Interested" persons of the Fund, as defined in the Investment Company Act of
1940.

SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.

28
<TABLE>
<CAPTION>

Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Performance Perspective ............... 4
Portfolio Management Review .......... 5
Portfolio of Investments ............. 7
Statement of Assets and Liabilities ... 8
Statement of Operations .............. 9
Statement of Changes in Net Assets .... 10
Financial Highlights ................. 11
Notes to Financial Statements ......... 14
Independent Auditors' Report ......... 20
</TABLE>

Letter to Shareholders

August 3, 1995

Dear Shareholder:

The first half of 1995 has been a very positive one for most investors. Both
the fixed-income and stock markets have made considerable gains for the period
ended June 30, 1995. This year has been particularly rewarding for investors
after weathering the difficult markets of 1994.
The first six months of 1995 serve as a reminder of just how quickly markets
can move, and how difficult it can be to predict the timing of those movements.
Moreover, this year reinforces the importance of maintaining a long-term
perspective, and reaffirms the principle that it is time---not timing---that
leads to investment success.

[PHOTO]

Dennis J. McDonnell and Don G. Powell

Economic Overview

Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of this
guided slowdown was reflected in gross domestic product for the second quarter,
which grew at an annual rate of 0.5 percent, substantially lower than its first
quarter rate of 2.7 percent and fourth quarter 1994 rate of 5.1 percent. While
other key economic data, including unemployment rates and housing starts, have
shown mixed signs during recent weeks, the general trend for the first half of
the year suggested a "soft landing" scenario. Subsequently, concern over
inflation has subsided, as its annualized rate has run at a modest pace of 3.2
percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent. Likewise, the
yield on the Bond Buyer's Municipal Bond Index fell from 7.28 percent to 6.37
percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

Economic Outlook

Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously

1 (Continued on page two)

Corporate News

Sincerely,

Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt Adjustable Rate U.S. Government Fund

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
- ----------------------------------
Quotron Symbol ................... VKRAX VKGVX VKRCX
One-year total return
based on NAV<F1> ................. 4.79% 4.11% 4.12%
One-year total return<F2> ........ 1.38% 1.12% 3.12%
Life-of-Fund average
annual total return<F2> .......... 2.64% 2.85% 1.98%
Life-of-Fund cumulative
total return based on NAV<F1> ... 11.34% 9.25% 3.83%
Commencement date ............... 08/28/92 08/28/92 08/13/93

<FN>
<F1>Assumes reinvestment of all distributions for the period ended, and does not
include payment of the maximum sales charge (3.25% for A shares) or contingent
deferred sales charge for early withdrawal (3% for B shares and 1% for C
shares). Had certain expenses of the Fund not been assumed by the Adviser, the
total returns would have been lower.

<F2>Standardized total return for the period ended June 30, 1995.

Putting Your Fund's Performance in Perspective

As you evaluate your prgress track your investment portfolio's performance at
regular intervals. A good starting point is a comparison of your investment
holdings to an applicable benchmark, such as a broad-based market index.
Such a comparison can:

* Illustrate the general market environment in which your investments
being managed

* Reflect the impact of favorable market trends or difficult market
conditions

* Help you evaluate the extent to which your Fund's management team
has responded to the opportunities and challenges presented to them
over the period measured

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Adjustable
Rate Mortgage Index over time. As a broad-based, unmanaged statistical
composite, this index does not reflect any commissions or fees which would
be incurred by an investor purchasing the securities it represents.
Similarly, its performance does not reflect any sales charges or other
costs which would be applicable to an actively managed portfolio, such as
that of the Fund.

Growth of a Hypothetical $10,000 Investment
VKM Adjustable Rate U.S. Government Fund vs. Lehman Brothers Adjustable
Rate Mortgage Index (August 1992 through June 1995)

[LINE GRAPH]

<TABLE>
<CAPTION>
Class A
Shares of Lehman Brothers
Fund ARM Index
<S> <C> <C>
31-Aug-92 9,671 10,000
30-Sep-92 9,695 10,055
30-Oct-92 9,718 9,972
30-Nov-92 9,740 9,987
31-Dec-92 9,773 10,080
29-Jan-93 9,857 10,184
26-Feb-93 9,951 10,274
31-Mar-93 10,055 10,320
30-Apr-93 10,099 10,381
31-May-93 10,132 10,407
30-Jun-93 10,176 10,516
31-Jul-93 10,221 10,565
31-Aug-93 10,275 10,627
30-Sep-93 10,288 10,628
29-Oct-93 10,281 10,632
30-Nov-93 10,283 10,603
31-Dec-93 10,286 10,683
31-Jan-94 10,338 10,755
28-Feb-94 10,347 10,720
31-Mar-94 10,291 10,635
30-Apr-94 10,333 10,579
31-May-94 10,266 10,571
30-Jun-94 10,275 10,594
31-Jul-94 10,307 10,659
31-Aug-94 10,338 10,711
30-Sep-94 10,336 10,667
31-Oct-94 10,346 10,658
30-Nov-94 10,301 10,628
30-Dec-94 10,289 10,684
31-Jan-95 10,390 10,861
28-Feb-95 10,480 11,079
31-Mar-95 10,570 11,133
30-Apr-95 10,649 11,251
31-May-95 10,788 11,433
30-Jun-95 10,767 11,480
</TABLE>

The above chart reflects the performance of Class A shares of the Fund.
The performance of Class A shares will differ from that of other share
classes of the Fund because of the difference in sales charges and/or
expenses paid by shareholders investing in the different share classes.
The Fund's performance assumes reinvestment of all distributions for the
period ended June 30, 1995, and includes payment of the maximum sales
charge (3.25% for A shares).

Van Kampen Merritt Adjustable Rate U.S. Government Fund

The following are excerpts from a recent interview with the management team of
Van Kampen Merritt Adjustable Rate U.S. Government Fund, including Robert J.
Hickey, portfolio manager, and Peter W. Hegel, executive vice president, Van
Kampen American Capital Investment Advisory Corp.

Q. What are some of the key events or market conditions which had the greatest
impact on the Fund during the period covered by this report (the twelve months
ended June 30, 1995)?
A. The primary events that have affected the Fund would be the volatility
we've seen in short-term interest rates and the drastic change in expectations
throughout the marketplace between the third and fourth quarters of 1994 and
the first and second quarters of 1995. It wasn't that long ago that interest
rates were expected to trend higher as the Fed tightened monetary policy to
curb inflation; but now that the economy has shown signs of slowing, the
expectation is a trend toward lower rates as the Fed reacts to keep the economy
from sliding into recession.
Essentially, we have come full circle since January of 1994, with interest
rates rising sharply and then returning to their January 1994 levels in just
eighteen months---a cycle that normally takes twice as long to complete. Such
rapid and pronounced market movements not only play havoc with the prices of
fixed-income securities, they make an adjustable-rate portfolio more difficult
to manage.
The appeal of adjustable-rate securities is that they are designed to reflect
the ups and downs of interest rates over time. Unfortunately, the speed and
scope of the changes over the past year and a half have been out of the norm.
As an example of what's been happening, think of the homeowner who owns an
adjustable rate mortgage (ARM). The interest rate paid on that mortgage adjusts
with rising rates, but within pre-established limits---generally one or two
percent per year with a ceiling of four or five percent over the life of the
mortgage. In the markets over the past year, the rate of change has exceeded the
capacity for these securities to adjust, so they began to trade more and more
like fixed-rate securities. It's definitely a challenge to maximize the
performance of an adjustable-rate portfolio under that type of scenario.

Q. In terms of managing the Fund, how did you react to the changing market
conditions during the past fiscal year?
A. We have run this Fund fairly conservatively all along, keeping a "market-
neutral" position and occasionally taking controlled risks to boost performance.
Actually, while 1994 was a difficult year, we were still very competitive within
our category.
Thus far in 1995, we have taken a generally defensive approach, with a focus
on keeping the portfolio's overall average reset period relatively short. We've
favored FNMA and FHLMC conventional mortgages because they tend to reset (adjust
to the most current interest rate levels) more frequently, and have moved away
from ARMs with low initial "teaser" rates.

Q. How did the Fund perform over the past fiscal year?
A. The total return for the Fund's Class A shares, at net asset value, during
the twelve month period ended June 30, 1995, was 4.79 percent<F1>, substantially
higher than the category average of 1.53 percent for all adjustable rate
mortgage funds tracked by Lipper Analytical Services over the same period.
As of June 30, 1995, the net asset value per share stood at $9.36, down just 4
cents from the beginning of the fiscal year. The Fund's dividend (Class A
shares) was increased twice during the period, resulting in a monthly per-share
dividend of $.0420, up from $.0385 as of June 30, 1994. Distributions during the
fiscal year totalled $0.4762 cents per share. (Please refer to the chart on page
three for additional Fund performance.)

Q. What is your near-term outlook?
A. The ARM market will move with the trend set by the Federal Reserve Board.
While there's quite a bit of mileage on the current market rally, the recent
move by the Fed in July has biased the market's expectations toward further
easing. If further easing does occur, it would be a positive for the market;
if the Fed coasts along without easing, we might see the markets go into neutral
for the summer.
One of the positive factors we see on the horizon is a drastic reduction in
the market supply of new and outstanding ARMs. With rates as they are, borrowers
may find it more sensible to go to longer, fixed-rate mortgages, because the
spread between short-term and longer-term rates has declined. That could trigger
rapid prepayments of outstanding mortgages in the third and fourth quarter of
1995 and reduce the level of new supply coming into the market.
Our goal in the months ahead will be to position the portfolio in line with
the current coupon trend, staying about half a percentage point below the
market's benchmark. That will allow us to avoid paying a premium for securities
with higher coupons, which could be hurt if prepayment rates accelerate.
We will continue to run the Fund under a conservative investment philosophy,
seeking to provide a high level of current income with relative principal
stability.
In addition, the Board of Trustees of the Fund has approved the merger of the
Fund into the American Capital Federal Mortgage Trust, to be renamed the Van
Kampen American Capital Limited Maturity Government Fund, pending shareholder
approval. By now all shareholders should have received a proxy seeking their
vote on this proposal and a special shareholder meeting has been scheduled for
September 15, 1995.

Peter W. Hegel Robert J. Hickey
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

6 Please see footnotes on page three.

Portfolio of Investments

Par
Amount Coupon at
(000) Description June 30, 1995 Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-Backed Securities 101.4%
$ 626 AFC Mortgage #93-4B2A1 ............................ 7.737% 12/25/23 $ 635,659
1,590 DLJ Mortgage Acceptance Corporation #94-Q1 ........ 5.819 03/25/24 1,587,745
839 Federal Home Loan Mortgage Corporation ............. 6.625 07/01/14 841,230
1,620 Federal Home Loan Mortgage Corporation ............. 7.638 03/01/18 1,657,491
2,549 Federal Home Loan Mortgage Corporation ............. 7.661 08/01/20 2,620,676
732 Federal Home Loan Mortgage Corporation <F3> ....... 7.339 07/01/22 747,742
1,137 Federal Home Loan Mortgage Corporation ............. 6.086 10/01/23 1,151,994
1,648 Federal National Mortgage Association ............. 7.358 01/01/16 1,694,690
2,191 Federal National Mortgage Association ............. 7.698 11/01/18 2,257,548
1,553 Federal National Mortgage Association ............. 7.372 03/01/19 1,588,400
796 Federal National Mortgage Association ............. 7.539 03/01/19 819,376
1,823 Federal National Mortgage Association ............. 6.143 02/01/21 1,835,607
2,110 Federal National Mortgage Association ............. 7.741 10/01/22 2,165,662
1,522 Federal National Mortgage Association ............. 6.254 10/01/23 1,566,733
575 Federal National Mortgage Association ............. 6.251 11/01/26 578,696
477 Federal National Mortgage Association <F3> ......... 6.314 03/01/29 480,401
1,673 Government National Mortgage Association II ....... 6.750 06/20/23 1,680,960
1,003 Government National Mortgage Association II ....... 7.500 03/20/25 1,033,304
1,000 Government National Mortgage Association II <F2> ... 6.500 06/01/25 1,012,500
951 Nomura Asset Securities Corporation ............... 7.328 07/07/03 973,444
6,421 Salomon Brothers Mortgage Securities
VII Inc - Interest Only ........................... 2.283 03/25/24 262,876
-------------
27,192,734
-------------
Corporate Securities 4.8%
1,200 Greenwich Capital Acceptance Inc .................. 7.479 07/25/22 1,141,875
3,551 Greenwich Capital Acceptance Inc - Interest Only ... 2.515 10/25/22 145,356
-------------
1,287,231
-------------
Total Long-Term Investments 106.2%
(Cost $29,151,259) <F1> ......................................................... 28,479,965
-------------
Liabilities in Excess of Other Assets (6.2%) .................................. (1,661,614)
-------------
Net Assets 100% ............................................................... $ 26,818,351
-------------

<FN>

<F1> At June 30, 1995, cost for federal income tax purposes is $29,151,259; the
aggregate gross unrealized appreciation is $13,965 and the aggregate gross
unrealized depreciation is $685,259, resulting in net unrealized
depreciation on investments of $671,294.

<F2> Securities purchased on a when issued or delayed delivery basis.

<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments.
</TABLE>

7 See Notes to Financial Statements

Statement of Assets and Liabilities

June 30, 1995

Assets:
<S> <C>
Investments, at Market Value (Cost $29,151,259) (Note 1) ............................ $ 28,479,965
Cash ............................................................................... 1,764,063
Receivables:
Interest .......................................................................... 409,295
Fund Shares Sold .................................................................. 3,100
Unamortized Organizational Expenses (Note 1) ....................................... 17,279
-------------
Total Assets ........................................................................ 30,673,702
-------------
Liabilities:
Payables:
Reverse Repurchase Agreement (Note 4) ............................................. 2,535,000
Investments Purchased ............................................................. 1,015,427
Investment Advisory Fee (Note 2) ................................................. 50,000
Income Distributions ............................................................. 32,349
Fund Shares Repurchased .......................................................... 26,583
Accrued Expenses .................................................................... 195,992
-------------
Total Liabilities ................................................................... 3,855,351
-------------
Net Assets .......................................................................... $ 26,818,351
-------------
Net Assets Consist of:
Paid in Surplus (Note 3) ............................................................ $ 28,328,764
Accumulated Undistributed Net Investment Income .................................... 6,715
Net Unrealized Depreciation on Investments ......................................... (671,294)
Accumulated Net Realized Loss on Investments ........................................ (845,834)
-------------
Net Assets .......................................................................... $ 26,818,351
-------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $5,644,148 and
603,011 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 9.36
Maximum sales charge (3.25%* of offering price) ..................................... .31
-------------
Maximum offering price to public .................................................... $ 9.67
-------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $18,945,023 and
2,021,774 shares of beneficial interest issued and outstanding) (Note 3) ........... $ 9.37
-------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $2,229,180 and
238,011 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 9.37
-------------
*On sales of $25,000 or more, the sales charge will be reduced.
</TABLE>

8 See Notes to Financial Statements

Statement of Operations

For the Year Ended June 30, 1995

Investment Income:
<S> <C>
Interest ................................................................ $ 2,074,803
-------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$18,001, $230,374 and $35,210, respectively) (Note 6) ................... 283,585
Investment Advisory Fee (Note 2) ....................................... 197,909
Custody ................................................................ 53,252
Shareholder Services ................................................... 48,275
Trustees Fees and Expenses (Note 2) ..................................... 29,939
Legal (Note 2) ......................................................... 20,725
Interest (Note 4) ...................................................... 13,548
Amortization of Organizational Expenses (Note 1) ....................... 7,997
Other .................................................................. 77,579
-------------
Total Expenses .......................................................... 732,809
Less Fees Waived ....................................................... 147,909
-------------
Net Expenses ............................................................ 584,900
-------------
Net Investment Income ................................................... $ 1,489,903
-------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ..................................................... $ 12,576,573
Cost of Securities Sold ................................................. (13,027,775)
-------------
Net Realized Loss on Investments ...................................... (451,202)
-------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ................................................ (879,553)
End of the Period ...................................................... (671,294)
-------------
Net Unrealized Appreciation on Investments During the Period ............ 208,259
-------------
Net Realized and Unrealized Loss on Investments ......................... $ (242,943)
-------------
Net Increase in Net Assets from Operations ............................. $ 1,246,960
-------------
</TABLE>

9 See Notes to Financial Statements

Statement of Changes in Net Assets

For the Years Ended June 30, 1995 and 1994

<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1995 June 30, 1994
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 1,489,903 $ 1,301,216
Net Realized Loss on Investments .................................. (451,202) (362,674)
Net Unrealized Appreciation/Depreciation on Investments
During the Period ................................................ 208,259 (985,777)
--------------- ---------------
Change in Net Assets from Operations ............................. 1,246,960 (47,235)
--------------- ---------------
Distributions from Net Investment Income:
Class A Shares ................................................... (328,517) (384,334)
Class B Shares ................................................... (1,002,376) (879,036)
Class C Shares ................................................... (154,188) (91,263)
--------------- ---------------
Total Distributions .............................................. (1,485,081) (1,354,633)
--------------- ---------------
Net Change in Net Assets from Investment Activities .............. (238,121) (1,401,868)
--------------- ---------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ........................................ 5,659,726 35,960,141
Net Asset Value of Shares Issued Through Dividend Reinvestment .... 1,040,640 959,832
Cost of Shares Repurchased ........................................ (18,379,724) (15,553,274)
--------------- ---------------
Net Change in Net Assets from Capital Transactions .............. (11,679,358) 21,366,699
--------------- ---------------
Total Increase/Decrease in Net Assets ............................. (11,917,479) 19,964,831
--------------- ---------------
Net Assets:
Beginning of the Period .......................................... 38,735,830 18,770,999
--------------- ---------------
End of the Period (Including undistributed net investment income of
$6,715 and $1,893, respectively) ................................. $ 26,818,351 $ 38,735,830
--------------- ---------------
</TABLE>

10 See Notes to Financial Statements

Financial Highlights

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
August 28, 1992
Year Year (Commencement
Ended Ended of Investment
June 30, June 30, Operations) to
Class A Shares 1995 1994 June 30, 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ..................... $ 9.399 $ 9.793 $ 9.700
-------- -------- -----------
Net Investment Income ................................... .473 .452 .451
Net Realized and Unrealized Gain/Loss
on Investments ........................................... (.036) (.360) .049
-------- -------- -----------
Total from Investment Operations ......................... .437 .092 .500
Less Distributions from Net Investment Income ........... .476 .486 .407
-------- -------- -----------
Net Asset Value, End of Period ........................... $ 9.360 $ 9.399 $ 9.793
-------- -------- -----------
Total Return* (Non-Annualized) .......................... 4.79% .97% 5.22%
Net Assets at End of Period (In millions) ............... $ 5.6 $ 7.1 $ 4.7
Ratio of Expenses to Average Net
Assets* (Annualized) ..................................... 1.23% .61% .95%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ........................ 5.08% 4.73% 5.29%
Portfolio Turnover ...................................... 15.98% 81.70% 76.62%
*If certain expenses had not been assumed by the Adviser,
total return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets (Annualized) .... 1.67% 1.62% 1.86%
Ratio of Net Investment Income to Average
Net Assets (Annualized) .................................. 4.65% 3.72% 4.37%
</TABLE>

11 See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
August 28, 1992
Year Year (Commencement
Ended Ended of Investment
June 30, June 30, Operations) to
Class B Shares 1995 1994 June 30, 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 9.403 $ 9.799 $ 9.700
-------- -------- ------------
Net Investment Income ..................................... .409 .391 .378
Net Realized and Unrealized Gain/Loss
on Investments ............................................. (.036) (.370) .076
-------- -------- ------------
Total from Investment Operations ........................... .373 .021 .454
Less Distributions from Net Investment Income ............. .406 .417 .355
-------- -------- ------------
Net Asset Value, End of Period ............................. $ 9.370 $ 9.403 $ 9.799
-------- -------- ------------
Total Return* (Non-Annualized) ............................ 4.11% .15% 4.78%
Net Assets at End of Period (In millions) ................. $ 18.9 $ 27.6 $ 14.1
Ratio of Expenses to Average Net
Assets* (Annualized) ....................................... 1.91% 1.31% 1.63%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) .......................... 4.39% 4.14% 4.78%
Portfolio Turnover ........................................ 15.98% 81.70% 76.62%
*If certain expenses had not been assumed by the
Adviser, total return would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net Assets (Annualized) ...... 2.36% 2.36% 2.55%
Ratio of Net Investment Income to Average
Net Assets (Annualized) .................................... 3.93% 3.09% 3.86%
</TABLE>

12 See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
August 13, 1993
Year (Commencement
Ended of Distribution)
June 30, to June 30,
Class C Shares 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ................................. $ 9.403 $ 9.790
-------- -----------
Net Investment Income ................................................ .401 .366
Net Realized and Unrealized Loss on Investments ....................... (.032) (.387)
-------- ------------
Total from Investment Operations ..................................... .369 (.021)
Less Distributions from Net Investment Income ......................... .406 .366
-------- ------------
Net Asset Value, End of Period ........................................ $ 9.366 $ 9.403
-------- ------------
Total Return* (Non-Annualized) ....................................... 4.12% (.27%)
Net Assets at End of Period (In millions) ............................. $ 2.2 $ 4.0
Ratio of Expenses to Average Net
Assets* (Annualized) ................................................. 1.92% 1.31%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ...................................... 4.47% 4.05%
Portfolio Turnover ................................................... 15.98% 81.70%
*If certain expenses had not been assumed by the Adviser, total return
would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets (Annualized) .................. 2.37% 2.37%
Ratio of Net Investment Income to Average Net Assets (Annualized) ..... 4.01% 2.98%
</TABLE>

13 See Notes to Financial Statements

Notes to Financial Statements

June 30, 1995

1. Significant Accounting Policies

Van Kampen Merritt Adjustable Rate U.S. Government Fund (the "Fund") was
organized as a sub-trust of Van Kampen Merritt Trust (the "Trust"), a
Massachusetts business trust, as of May 28, 1992, and is registered as a
diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund commenced investment operations
on August 28, 1992, with two classes of common shares, Class A and Class B
shares. The Fund commenced the distribution of Class C shares on August 13,
1993.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund 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 Fund 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 commitment until payment is made.

C. Investment Income-Interest income is recorded on an accrual basis. Original
issue discount is amortized over the expected life of each applicable security.

D. Organizational Expenses-The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $40,000. These costs
are being amortized on a straight line basis over the 60 month period ending
August 28, 1997. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Fund
originally purchased by VKAC are redeemed during the amortization period, the
Fund will be reimbursed for any unamortized organizational expenses in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.

Notes to Financial Statements (Continued)

June 30, 1995

E. Federal Income Taxes-It is the Fund'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 Fund 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 June 30, 1995, the Fund had an accumulated capital loss carryforward
for tax purposes of $522,085. Of this amount, $12,348, $49,236 and $460,501 will
expire on June 30, 2001, 2002 and 2003, respectively. Net realized gains or
losses may differ for financial and tax reporting purposes primarily as a result
of post October 31 losses which are not recognized for tax purposes until the
first day of the following fiscal year.

F. Distribution of Income and Gains-The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.

2. Investment Advisory Agreement and Other Transactions with Affiliates

Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide facilities and investment advice to the Fund for an annual fee payable
monthly as follows:

Average Net Assets % Per Annum
- ------------------------------------
<S> <C>
First $500 million ... .600 of 1%
Next $500 million .... .550 of 1%
Next $2 billion ....... .500 of 1%
Next $2 billion ....... .475 of 1%
Next $2 billion ....... .450 of 1%
Next $2 billion ....... .425 of 1%
Over $9 billion ...... .400 of 1%
</TABLE>

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the year ended June 30, 1995, the Fund recognized expenses of
approximately $25,900, representing VKAC's cost of providing accounting, legal
and certain shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
Trustees.

Notes to Financial Statements (Continued)

June 30, 1995

Under the deferred compensation plan, Trustees may elect to defer all or a
portion of their compensation to a later date. The retirement plan covers those
Trustees who are not officers of VKAC. The Fund's liability under the deferred
compensation and retirement plans at June 30, 1995, was approximately $20,000.
At June 30, 1995, VKAC owned 10,050, 103 and 100 shares of beneficial interest
of Classes A, B and C, respectively.

3. Capital Transactions

The Fund has outstanding three classes of capital stock, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized. At June 30, 1995, paid in surplus aggregated $6,005,128, $19,935,659
and $2,387,977 for Classes A, B and C, respectively. For the year ended June 30,
1995, transactions were as follows:

Shares Value
- -------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 105,608 $ 983,281
Class B ...................... 378,892 3,537,915
Class C ...................... 121,658 1,138,530
--------- ---------------
Total Sales................... 606,158 $ 5,659,726
--------- ---------------
Dividend Reinvestment:
Class A ...................... 26,264 $ 244,563
Class B ...................... 74,113 690,371
Class C ...................... 11,352 105,706
--------- ---------------
Total Dividend Reinvestment... 111,729 $ 1,040,640
--------- ---------------
Repurchases:
Class A ...................... (282,084) $ (2,617,305)
Class B ...................... (1,368,682) (12,744,183)
Class C ...................... (324,089) (3,018,236)
--------- ---------------
Total Repurchases ............ (1,974,855) $ (18,379,724)
--------- ---------------
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995

At June 30, 1994, paid in surplus aggregated $7,394,589, $28,451,556 and
$4,161,977 for Classes A, B and C, respectively. For the period ended June 30,
1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ....................... 902,396 $ 8,731,126
Class B ....................... 2,364,040 22,736,081
Class C ....................... 464,005 4,492,934
----------- ---------------
Total Sales ................... 3,730,441 $ 35,960,141
----------- ---------------
Dividend Reinvestment:
Class A ....................... 26,263 $ 252,576
Class B ....................... 64,882 623,837
Class C ....................... 8,729 83,419
----------- ---------------
Total Dividend Reinvestment ... 99,874 $ 959,832
----------- ---------------
Repurchases:
Class A ....................... (656,490) $ (6,285,280)
Class B ....................... (926,283) (8,853,618)
Class C ....................... (43,644) (414,376)
----------- ---------------
Total Repurchases.............. (1,626,417) $ (15,553,274)
----------- ---------------
</TABLE>

Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC for Class B and
Class C shares will be imposed on most redemptions made within three years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule. The Class B and Class C shares bear the expense of their
respective deferred sales arrangements, including higher distribution and
service fees and incremental transfer agency costs.

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C
- ----------------------------------------------------------
<S> <C> <C>
First .................. 3.00% 1.00%
Second ................. 2.00% None
Third ................... 1.00% None
Fourth and Thereafter ... None None
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995

For the year ended June 30, 1995, VKAC, as Distributor for the Fund, received
net commissions on sales of the Fund's Class A shares of $117 and CDSC on the
redeemed shares of Classes B and C of approximately $132,000. Sales charges do
not represent expenses of the Fund.
The Board of Trustees has approved the sale of the Fund's assets and
liabilities to the American Capital Federal Mortgage Trust (the "AC Fund"). This
transaction, subject to approval by the Fund's shareholders, is expected to be
completed in September 1995. As a result of this transaction, Fund shareholders
will receive shares of the AC Fund equal in value to their net assets.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the year ended June 30, 1995, were $5,062,475 and
$12,028,385, respectively.
The Fund utilizes an investment technique called reverse repurchase agreements
for temporary borrowing purposes. In a reverse repurchase agreement the Fund
sells securities and agrees to repurchase them at a mutually agreed upon date
and price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities. The average daily
balance of reverse repurchase agreements during the period was approximately
$226,600 with an average interest rate of 5.98%. At June 30, 1995, the interest
rate in effect for reverse repurchase agreements was 6.45%.

5. Mortgage Backed Securities

A Mortgage Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies---Government National Mortgage Association (GNMA), Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC).
An Interest Only security is another class of MBS representing ownership in
the cash flows of the interest payments made from a specified pool of MBS. The
cash flow on this instrument decreases as the mortgage principal balance is
repaid by the borrower.

Notes to Financial Statements (Continued)

June 30, 1995

6. Distribution and Service Plans

Independent Auditors' Report

The Board of Trustees and Shareholders of
Van Kampen Merritt Adjustable Rate U.S. Government Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Adjustable Rate U.S. Government Fund (the "Fund"), including the
portfolio of investments, as of June 30, 1995, 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 Fund'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 June
30, 1995, 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 Merritt Adjustable Rate U.S. Government Fund as of June 30, 1995, 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
July 24, 1995

Van Kampen Merritt Adjustable Rate U.S. Government Fund

Board of Trustees

Philip P. Gaughan
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Jerome L. Robinson
Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10, 1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

*"Interested" persons of the Fund, as defined in the Investment Company Act of
1940.

SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.

TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Performance Perspective ............... 4
Portfolio Management Review ........... 5
Portfolio of Investments ............. 8
Statement of Assets and Liabilities ... 12
Statement of Operations ............... 13
Statement of Changes in Net Assets .... 14
Financial Highlights ................. 15
Notes to Financial Statements ......... 18
Independent Auditors'Report .......... 28
</TABLE>

Letter to Shareholders

August 3, 1995

Dear Shareholder:

The first half of 1995 has been a positive one for most Americans investing
abroad. While not as strong as the U.S. market, many foreign bond and stock
markets have made attractive gains for the period ended June 30, 1995.

This year has been additionally gratifying for those investors who weathered
the difficult markets of 1994 and maintained a long-term perspective. It serves
as a reminder of how a long-term investment strategy -- one that includes a
well-rounded portfolio of domestic and foreign investments -- can help increase
the overall stability and return of an investor's portfolio.

[PHOTO]
Dennis J. McDonnell and Don G. Powell

Economic Overview

1 (Continued on page two)

Economic Outlook

Corporate News

Along with your Fund's shareholder report, we are pleased to introduce a new
shareholder publication called Your Portfolio. The purpose of this publication
is to provide you with additional information about your mutual fund
investment, as well as offer helpful insights regarding long-term investment
strategies and trends in the marketplace. The publication will be mailed twice
a year with your June and December shareholder reports. This premier issue
focuses on our various shareholder services and privileges designed to make
mutual fund investing easier for you.

We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.

Sincerely,

Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

<TABLE>
Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt Strategic Income Fund
<CAPTION>
A Shares B Shares C Shares
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Total Returns

One-year total return based on NAV<F1> ... 8.46% 7.62% 7.53%
One-year total return<F2> ................ 3.31% 3.71% 6.55%
Life-of-Fund average
annual total return<F2> .................. (6.73%) (6.55%) (4.50%)
Commencement Date ....................... 12/31/93 12/31/93 12/31/93

Distribution Rate and Yield

Distribution Rate<F3> .................... 9.77% 9.33% 9.33%
SEC Yield<F4> ............................ 8.35% 8.07% 8.07%

<FN>
<F1> Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales char ge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
<F2> Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (4.75% for A shares)
or contingent deferred sales charge for early withdrawal (4% for B shares and 1%
for C shares).
<F3> Distribution rate represents the monthly annualized
distributions of the Fund at the end of the period and not the earnings of the
Fund.
<F4> SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1995.

Putting Your Fund's Performance in Perspective

* Reflect the impact of favorable market trends or difficult
market conditions

* Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured.

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Aggregate
Bond Index and the hybrid indices presented. These indices are unmanaged
statistical composites and do not reflect any commissions or fees that would
be incurred by an investor purchasing the securities they represent.
Similarly, their performance does not reflect any sales charges or other
costs that would be applicable to an actively managed portfolio, such as
that of the Fund.

Growth of a Hypothetical $10,000 Investment
VKM Strategic Income Fund vs. Lehman Brothers Aggregate Bond Index and hybrid
indices
(January 1994 through June 1995)

[THIS IS A LINE GRAPH]

<TABLE>
<CAPTION>
Class A Hybrid of Lehman Brother
Shares Hybrid of Salomon Aggregate
of Fun JP Morgan* Brothers** Bond Index
<S> <C> <C> <C> <C>
31-Dec-93 9,514 10,000 10,000 10,000
31-Jan-94 9,480 10,081 10,096 10,135
28-Feb-94 9,167 9,825 9,825 9,959
31-Mar-94 8,617 9,564 9,392 9,713
30-Apr-94 8,326 9,559 9,335 9,635
31-May-94 8,422 9,627 9,429 9,634
30-Jun-94 8,305 9,564 9,277 9,613
31-Jul-94 8,416 9,683 9,442 9,804
31-Aug-94 8,423 9,801 9,619 9,816
30-Sep-94 8,465 9,859 9,587 9,672
31-Oct-94 8,316 9,921 9,533 9,663
30-Nov-94 8,137 9,842 9,538 9,642
30-Dec-94 7,985 9,729 9,470 9,708
31-Jan-95 8,029 9,819 9,565 9,900
28-Feb-95 8,102 9,919 9,633 10,136
31-Mar-95 8,080 10,267 9,656 10,198
28-Apr-95 8,485 10,618 9,997 10,341
31-May-95 8,962 11,042 10,447 10,741
30-Jun-95 9,008 11,140 10,535 10,819
</TABLE>

*This hybrid index is a simulated composite reflecting 80% of the J.P. Morgan
Global Government Bond Index and 20% of the J.P. Morgan Brady Bond Index. This
index was initially selected by the Fund as a benchmark for its performance;
however, based upon the Fund's asset composition, the hybrid of the Salomon
Brothers indices provides a more accurate benchmark for the Fund's performance.
Therefore, the hybrid of the J.P. Morgan Indices will not be shown in future
reports.

**This hybrid index is a simulated composite reflecting 20% of each of the
following Salomon Brothers Indices: Mortgage, High Yield Market, Corporate,
Non-U.S. Dollar World Government Bond and Brady Bond.

Portfolio Management Review

Van Kampen Merritt Strategic Income Fund

Peter W. Hegel, executive vice president, Van Kampen American Capital Investment
Advisory Corp., discusses the Fund's performance for the twelve-month period
ended June 30, 1995.

Q: What do you consider to be the key factors driving the Fund's performance?

A: Because of the multi-sector composition of its portfolio, the Fund must be
managed to respond to a wide range of factors in both the domestic and foreign
markets. Our heaviest weightings were in U.S. Government/mortgage-backed
securities and in emerging markets, so naturally the performance of these
markets -- both good and bad -- had the greatest impact on our results.

The interest rate environment in the U.S., the relative weakness of the U.S.
dollar, the devaluation of the Mexican peso last December, the recent trade
disputes with Japan -- all of these things contributed to market movements over
the period. We were in a reasonably strong position to deal with these events,
with more than 50 percent of the Fund's assets in the U.S. market, a global
position that benefitted from a weaker U.S. dollar, and very minimal exposure to
Mexican securities, which were hammered during the peso devaluation crisis.

Nevertheless, the aftershock of the Mexican devaluation was felt in nearly
every other emerging market, dragging down our holdings in that sector through
the first two months of 1995. In fact, the prices on certain individual issues
fell by as much as 40 or 50 percent. It's probably safe to say that instability
in emerging markets has made the Fund somewhat more volatile than many of our
shareholders expected. Fortunately, we were well diversified within this sector
and rode out the storm without selling at fire-sale prices.

In our view, some very sound credits were unfairly tarred by the peso crisis
and we see them as excellent values for investors willing to be patient with the
emerging markets sector. During the past six months, we've already seen the
price of selected issues rebound by as much as 20 to 40 percent. Nevertheless,
while we may have seen the worst in the emerging-markets arena, the ripple
effects of the peso devaluation will last for years, so a long-term investment
horizon is still essential.

Q: Looking back over the past fiscal year,would you say the Fund has
performed as you expected it to?

A: With the volatility of the markets over the past twelve months, the Fund's
net asset value was down 28 cents from its year-ago level -- closing at $11.70
as of June 30, 1995 -- but still off its low of $10.23 on March 8 of this year.
With that in mind, I would say the Fund is just beginning to perform the way we
believe it's capable of performing.

The total return on the Fund's Class A shares, excluding payment of the
maximum sales charge, was 12.81 percent<F1> for the first six months of 1995. Of
course, a six-month trend says little about what to expect in the long run, but
at this point we are comfortable with the way we've allocated the Fund's assets.
For the fiscal year, the Class A shares of the Fund posted a total return at net
asset value of 8.46 percent<F1>. In comparison, the Lehman Brothers Aggregate
Bond Index, a broad-based, unmanaged index generated a total return of 12.55
percent over the same period. Similarly, a composite index composed of 20
percent of each of the Salomon

(This is a Pie Chart)

Portfolio Holdings By Major Market Sector as of June 30, 1995

Domestic Investment Grade 10.3%
Domestic Non-Investment Grade 10.4%
Foreign Investment Grade 20.3%
U.S. Government/Mortgage-Backed Securities 24.7%
Foreign Non-Investment Grade (Mainly Emerging Markets) 34.3%

Brothers indices for Mortgages, High Yield, Corporate, Non-U.S. Dollar World
Government Bond and Brady Bonds produced a total return of 13.56 percent over
the same period. Neither index reflects any commissions or fees that would be
paid by an investor purchasing the securities they represent. (Please refer to
the chart on page three for additional Fund performance.)

Q: What approach have you taken in managing the Fund during this
volatile period?

A: Our portfolio was well-positioned to take advantage of the rally in the
U.S. bond market over the past six months, especially with our substantial
position in U.S. Government and mortgage-backed securities. We also caught
the downward trend in the U.S. dollar, which served to boost our holdings in
the foreign government and corporate sector.

By focusing our efforts on evaluating the five major market sectors in terms
of greatest relative value, we anticipate finding securities which offer the
potential for capital appreciation over the long term. In the meantime, these
securities can provide significant yield opportunities. For example, the income
stream produced by the Fund's portfolio as of June 30, 1995, translated into a
monthly distribution rate of 9.77 percent <F3> (Class A shares).

Of course, as market conditions evolve, we have to manage the Fund's cash flow
to make sure it is consistent with the realities of the marketplace. Late in the
second quarter of this year, we found it necessary to reduce the Fund's dividend
(effective August 1, 1995) as we took steps to align the portfolio within the
current interest rate environment.

One of the key factors driving this decision was the fact that the current
interest rate environment makes it more difficult to leverage the Fund's assets,
which is one of the strategic techniques we employ to provide additional return
to the Fund's shareholders. Essentially, leverage entails borrowing money at
short-term rates and putting it to work by investing in higher-yielding,
longer-term securities. However, the spread between the rate at which funds can
be borrowed and the yield that can be captured in the marketplace has been
persistently narrow, making the leveraging technique somewhat more expensive
than we'd like. One of the things we hope to accomplish in the near term is to
reduce the cost of that leverage and make it more efficient, and therefore more
effective. In the meantime, we have reduced the Fund's use of leverage.

The cost of this leverage and our subsequent move to reduce the degree to
which the Fund uses leverage -- combined with our efforts to emphasize a higher
overall credit quality profile

within the portfolio -- have been the key factors in our decision to adjust the
dividend downward (higher quality securities generally carry lower coupon
interest rates). Still, even after the dividend reduction, we believe the Fund's
distribution rate is consistent with the markets and highly competitive when
compared to that of similar funds.

Q: What is your outlook for the months ahead?

A: We're going to stick with our strategy of investing where we see the
greatest relative value, anticipating that this value will be recognized --
and rewarded -- by the marketplace over time.

With our current portfolio composition, the outlook for the Fund is closely
tied to the interest rate environment in the U.S. Any move by the Federal
Reserve Board to lower interest rates further -- which is a widely held
expectation -- would be considered a positive development in terms of the Fund's
performance. Lower rates would make the U.S. securities we hold more valuable,
as well as provide a boost to many overseas and emerging markets where we have
a presence.

On other fronts, we expect the U.S. dollar to gain ground versus most major
foreign currencies, so we'll likely underweight the global portion of the
portfolio, which would be the sector most adversely affected by a strengthening
dollar. We'll also continue to upgrade the credit quality of our holdings in the
domestic high yield sector as a defensive measure -- underweighting this sector
as a precaution against a slowing U.S. economy, which would put downward
pressure on high yield securities.

After a tumultuous year, we feel the Fund is well-positioned from the
perspective of long- term value, offering shareholders the potential to
participate in what we regard as excellent opportunities for solid returns well
into the future.

Peter W. Hegel
Executive Vice President
Van Kampen American Capital Investment Advisory Corp.

7 Please see footnotes on page three.

<TABLE>
Portfolio of Investments
June 30,1995
- -------------------------------------------------------------------------------------
<CAPTION>
Par
Amount
In Local
Currency
(000) Description Coupon Maturity U.S.$ Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bonds (U.S.) 26.9%
Banking 2.4%
2,000 Western Financial Savings .............. 8.500% 07/01/03 $ 2,010,000
------------
Beverage, Food & Tobacco 1.2%
500 Fleming Cos Inc (Var Rate Cpn) <F4> ... 8.313 12/15/01 487,500
500 Fleming Cos Inc (Var Rate Cpn) <F4> ... 10.625 12/15/01 527,500
------------
1,015,000
-------------
Chemicals, Plastics and Rubber 3.2%
2,500 W. R. Grace & Co <F4> .................. 8.000 08/15/04 2,653,638
------------
Containers, Packaging & Glass 1.8%
500 Anchor Glass Container Corp <F4> ...... 10.250 06/30/02 502,500
1,000 Atlantis Group Inc <F4> ................ 11.000 02/15/03 985,000
------------
1,487,500
------------
Electronics 1.2%
1,000 Panamsat L.P. ......................... 9.750 08/01/00 1,025,000
------------
Healthcare 1.2%
1,000 Tenet Healthcare Corp ................. 10.125 03/01/05 1,060,000
------------
Leisure & Amusement 3.6%
1,000 Time Warner Inc (Convertible Bond) ..... 8.750 01/10/15 1,042,500
2,000 Time Warner Entertainment .............. 8.375 03/15/23 1,960,000
------------
3,002,500
------------
Mining .5%
400 Carbide/Graphite Group Inc <F4> ....... 11.500 09/01/03 422,000
------------
Oil & Gas .9%
300 Global Marine <F4> ..................... 12.750 12/15/99 331,500
420 Plains Resources Inc .................. 12.000 10/01/99 436,800
-------------
768,300
-------------
Personal-Food 1.2%
1,000 Nabisco Inc <F4> ...................... 7.550 06/15/15 992,260
-------------
Personal & Non Durable 4.3%
3,500 Colgate Palmolive Co <F4> .............. 7.600 05/19/25 3,639,489
-------------
Printing, Publishing & Broadcasting 1.2%
1,000 Century Communications <F4> ............ 9.750 02/15/02 1,015,000
------------
Transportation 2.3%
1,928 Jet Equipment Trust <F4> .............. 8.080 06/15/96 1,955,063
------------
Utilities 1.9%
1,500 Midland Funding Corp II ................ 11.750 07/23/05 1,567,500
-------------
Total Corporate Bonds (U.S.) .............................. 22,613,250
-------------
Foreign Bonds and Debt Securities 71.0%
Argentina 24.1%
3,000 Argentina Discount Bond - US$ <F5> ..... 6.875 03/31/23 1,717,500
1,000 Argentina Floating Rate Bond - US$ <F5> . 7.313 03/31/05 615,000
</TABLE>

8 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30,1995
- ---------------------------------------------------------------------------------------------
<CAPTION>
Par
Amount
In Local
Currency
(000) Description Coupon Maturity U.S.$ Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign Bonds and Debt Securities (Continued)
3,000 Republic of Argentina Global Bond - US$ <F4> ... 8.375% 12/20/03 $ 2,220,000
5,000 Argentina Par Bond - US$ <F5> ................. 5.000 03/31/23 2,400,000
3,000 Banco De Galicia Yankee - US$ .................. 9.000 11/01/03 2,115,000
1,000 Banco Rio De La Plata Yankee - US$ ............. 8.500 07/15/98 915,000
2,000 Banco Rio De La Plata Yankee - US$ ............. 8.750 12/15/03 1,475,000
1,000 Bridas Corp - US$ <F4> ......................... 12.500 11/15/99 900,000
1,000 Central Termica Guemes - US$ .................. 12.000 11/29/96 880,000
1,000 Empresa Distribuidor Del Sur - US$ ............. 10.075 05/17/96 970,000
2,000 Goldman Sachs Argentine Bocones Trust - US$ .... 13.375 08/15/01 1,665,000
1,000 Sodigas Pampeana - US$ ........................ 10.500 07/06/99 890,000
2,000 Telecom Argentina - US$ ........................ 8.375 10/18/00 1,777,500
1,950 Transportadora De Gas Del Sur - US$ ........... 7.750 12/23/98 1,696,500
------------
20,236,500
-------------
Australia 1.6%
1,750 New South Wales Treasury - AU$ ................. 11.500 07/01/99 1,364,428
------------
Brazil 3.7%
3,880 Brazil IDU -US$ <F5> ........................... 7.813 01/01/01 3,118,550
------------
Canada 3.1%
1,400 Canadian Government - CA$ ...................... 5.750 03/01/99 965,271
1,500 Canadian Government - CA$ ...................... 6.500 06/01/04 991,627
1,000 Rogers Cable Systems - CA$ ..................... 9.650 01/15/14 626,138
------------
2,583,036
------------
Chile 3.7%
3,000 Banco Del Estado - US$ <F4> .................... 8.390 08/01/01 3,097,500
------------
China 4.9%
1,000 Guangdong Enterprise - US$ <F4> ............... 8.750 12/15/03 880,150
3,000 China International Trust - US$ <F4> ........... 9.000 10/15/06 3,207,966
------------
4,088,116
------------
Columbia 1.8%
1,500 Ocensa - US$ ................................... 9.350 09/01/05 1,503,750
------------
Costa Rica .6%
1,000 Banco Central Costa Rica - US$ <F5> ........... 6.250 05/21/10 490,000
------------
Ecuador 1.7%
2,550 Ecuador Discount Bond - US$ <F5> .............. 7.250 02/28/25 1,268,625
560 Ecuador PDI Bond - US$ <F3> <F5> ............... 7.250 02/28/15 180,600
------------
1,449,225
------------
Finland 1.7%
6,000 Finnish Government - FIM ....................... 9.500 03/15/04 1,454,975
------------
Germany 2.3%
1,200 Bundes-Obligation - DEM <F4> .................. 8.375 01/20/97 908,960
1,500 Deutschland Republic - DEM ..................... 6.000 09/15/03 1,015,800
------------
1,924,760
------------
</TABLE>
9 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30,1995
- -----------------------------------------------------------------------------------------------
<CAPTION>
Par
Amount
In Local
Currency
(000) Description Coupon Maturity U.S.$ Market Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign Bonds and Debt Securities (Continued)
Hungary .9%
1,000 National Bank of Hungary - US$ .............. 8.875% 11/01/13 $ 748,120
----------
Italy .6%
1,000,000 Republic of Italy - ITL ..................... 8.500 04/01/99 546,983
----------
Mexico 2.2%
6,000 Mexico Par Bond with Rights - US$ <F5> ...... 6.250 12/31/19 1,830,000
----------
New Zealand 1.6%
2,000 New Zealand Government - NZ$ ................. 9.000 11/15/96 1,346,437
----------
Nigeria 1.0%
2,002 Nigeria Par Bond with Warrants - US$ <F5> ... 6.250 11/15/20 882,000
----------
Philippines 1.9%
1,000 Philippines Government (FLIRB) - US$ <F5> .... 5.000 06/01/08 753,700
931 Subic Power Corp - US$ ....................... 9.500 12/28/08 854,224
----------
1,607,924
----------
Poland 3.1%
3,500 Poland PDI Bond - US$ <F5> .................. 3.250 10/27/14 2,091,250
1,039 Poland RSTA Par Bond - US$ <F5> .............. 2.750 10/27/24 487,031
----------
2,578,281
----------
Russia .6%
2,000 Vneshekonombank Loans - DEM .................. <F2> <F2> 488,105
----------
Spain 2.6%
265,000 Spanish Government - ESP ..................... 11.000 06/15/97 2,187,385
----------
Sweden 1.8%
3,500 Swedish Government - SEK ..................... 11.000 01/21/99 485,882
7,500 Swedish Government - SEK ..................... 10.250 05/05/03 997,029
----------
1,482,911
----------
Thailand 1.2%
25,000 ABN/AMRO Bank - THB .......................... 9.100 08/05/97 979,238
----------
United Kingdom 3.1%
350 UK Treasury Bonds - GBP ..................... 6.000 08/10/99 515,820
1,425 UK Treasury Bonds - GBP <F4> ................ 7.000 11/06/01 2,116,421
----------
2,632,241
----------
Venezuela 1.2%
2,010 Venezuelan Par Bond with Oil Obligation
Certificates - US$ <F5> ...................... 6.750 03/31/20 1,005,000
----------
Total Foreign Bonds and Debt Securities ........................... 59,625,465
----------
Government and Agencies (U.S.) 2.5%
2,000 U.S. Treasury Notes ............................ 7.125 09/30/99 2,083,080
----------
Mortgage Backed Securities (U.S.) 29.6%
3,000 FNMA Note ...................................... 8.000 04/13/05 3,104,400
5,000 FNMA REMIC #95-11 A PAC (Principal Only) <F4> .. * 01/25/24 3,437,500

</TABLE>
10 See Notes to Financial Statements

Mortgage Backed Securities (U.S.) (Continued)
4,319 FNMA REMIC #93-180 SB (Inverse Fltg) .......... 2.330% 09/25/00 $ 3,908,330
2,000 FNMA REMIC #92-33 S (Inverse Fltg) <F4> ........ 12.720 03/25/22 1,949,375
75 FNMA REMIC #93-55 M PAC (Interest Only) <F4> ... 727.220 09/25/06 1,987,500
5,000 FNMA REMIC #93-206 SE (Inverse Fltg) <F4> ...... 2.909 11/25/23 2,125,000
1,930 FNMA REMIC #94-3 SA (Inverse Fltg) ............ 3.102 01/25/24 1,044,861
2,926 FNMA REMIC #94-15 SD (Inverse Fltg) ........... 2.930 02/25/24 1,613,137
5,000 Residential Funding Mtg 92-S39 A8 PAC .......... 7.500 11/25/07 5,139,062
13,185 Salomon Brothers Mtg Securities VII 1994-2 P2
(Interest Only) ............................... 2.285 03/25/24 539,772
------------
Total Mortgage Backed Securities (U.S.) ................................... 24,848,937
------------
Total Long-Term Investments 130.0%
(Cost $111,218,711) <F1> ................................................... 109,170,732
Short-Term Investments 2.4%
(Cost $2,000,000) <F1> ..................................................... 1,988,800
Liabilities in Excess of Other Assets (32.4%) ............................ (27,194,563)
-------------
Net Assets 100.0% ......................................................... $ 83,964,969
-------------

*Zero coupon bond

<FN>
<F1> At June 30, 1995, cost for federal income tax purposes including short-term
investments is $113,218,711; the aggregate gross unrealized appreciation is
$3,618,690 and the aggregate gross unrealized depreciation is $5,598,586,
resulting in net unrealized depreciation on investments, foreign currency
translation of other assets and liabilities, forward currency contracts, option
and futures transactions of $1,979,896.

<F2> Items represents an assignment of a bank loan which currently is in default
with the potential to be restructured at a future date. As of June 30, 1995,
item is a non-income producing security.

<F3> Item represents a when issued security resulting from the restructuring of
a previously defaulted bank loan.

<F4> Assets segregated as collateral for when issued or delayed delivery
purchase commitments, forward currency contracts, open option or futures
transactions or borrowings of the Fund.

<F5> Item represents a "Brady Bond" which is a product of the "Brady Plan" under
which various Latin American, African and southeast Asian nations have converted
their outstanding external defaulted commercial bank loans into bonds. Certain
Brady Bonds have been collateralized, as to principal due at maturity, by U.S.
Treasury zero coupon bonds with a maturity date equal to the final maturity date
of such Brady Bonds.
</TABLE>

<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
AAA .......... 29.2%
AA ........... 7.6
A ............ 3.3
BBB .......... 10.9
BB ........... 19.7
B ............ 11.2
Non-Rated ... 18.1
------
100.0%
======
</TABLE>

11 See Notes to Financial Statements

<TABLE>
Statement of Assets and Liabilities
June 30,1995
- ------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $111,218,711) (Note 1) ............................ $ 109,170,732
Short-Term Investments (Cost $2,000,000) (Note 1) ................................... 1,988,800
Receivables:
Interest ........................................................................... 2,169,215
Investments Sold ................................................................... 1,005,700
Fund Shares Sold ................................................................... 705,755
Forward Currency Contracts (Note 5) ............................................... 24,617
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) ......... 119,074
Options at Market Value (Net premiums paid of $268,450) (Note 5) ..................... 50,415
---------------
Total Assets ......................................................................... 115,234,308
---------------
Liabilities:
Payables:
Bank Borrowing (Note 8) ........................................................... 23,234,065
Reverse Repurchase Agreement (Note 8) .............................................. 5,261,990
Investments Purchased .............................................................. 1,380,211
Income Distributions .............................................................. 389,745
Investment Advisory Fee (Note 2) ................................................... 275,426
Fund Shares Repurchased ........................................................... 151,464
Margin on Futures (Note 5) ........................................................ 124,656
Accrued Expenses ..................................................................... 451,782
---------------
Total Liabilities .................................................................... 31,269,339
---------------
Net Assets ........................................................................... $ 83,964,969
---------------
Net Assets Consist of:
Paid in Surplus (Note 3) ............................................................. $ 95,176,206
Accumulated Distributions in Excess of Net Investment Income (Note 1) ............... (407,598)
Net Unrealized Depreciation on Investments and Foreign Currency ...................... (1,979,896)
Accumulated Net Realized Loss on Investments ......................................... (8,823,743)
---------------
Net Assets ........................................................................... $ 83,964,969
---------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $29,633,169 and
2,531,907 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 11.70
Maximum sales charge (4.75%* of offering price) ...................................... .58
---------------
Maximum offering price to public ..................................................... $ 12.28
---------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $52,607,669 and
4,494,004 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 11.71
---------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $1,724,131 and
147,376 shares of beneficial interest issued and outstanding) (Note 3) .............. $ 11.70
---------------
</TABLE>

*On sales of $100,000 or more, the sales charge will be reduced.

12 See Notes to Financial Statements

<TABLE>
Statement of Operations
For the Year Ended June 30,1995
- -----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Investment Income:
Interest (Net of foreign withholding taxes of $16,904) .............................. $ 7,830,242
Fee Income .......................................................................... 125,781
---------------
Total Income ....................................................................... 7,956,023
---------------
Expenses:
Investment Advisory Fee (Note 2) ................................................... 798,331
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of $74,777,
$487,064 and $20,370, respectively) (Note 7) ........................................ 582,211
Custody ............................................................................. 132,324
Shareholder Services (Note 2) ....................................................... 129,526
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) .... 38,965
Trustees Fees and Expenses (Note 2) ................................................. 22,994
Legal (Note 2) ..................................................................... 21,900
Other ............................................................................... 153,064
---------------
Total Operating Expenses ............................................................ 1,879,315
Interest Expense (Note 8) ........................................................... 1,830,949
---------------
Net Investment Income ............................................................... $ 4,245,759
---------------
Realized and Unrealized Gain/Loss on Investments and Foreign Currency:
Net Realized Loss on Investments and Foreign Currency (Including realized gain
on foreign currency transactions of $248,308 and realized loss on closed and expired
option and futures transactions of $740,429 and $1,569,872, respectively) .......... $ (5,113,942)
---------------
Net Unrealized Appreciation/Depreciation on Investments and Foreign Currency:
Beginning of the Period ............................................................ (8,751,995)
End of the Period (Including unrealized appreciation on foreign currency translation
of other assets and liabilities, forward currency contracts and futures contracts of
$6,084, $13,360 and $277,874, respectively and unrealized depreciation on
option transactions of $218,035) ................................................... (1,979,896)
---------------
Net Unrealized Appreciation on Investments and Foreign Currency During the Period ... 6,772,099
---------------
Net Realized and Unrealized Gain on Investments and Foreign Currency ................ $ 1,658,157
---------------
Net Increase in Net Assets from Operations .......................................... $ 5,903,916
---------------
</TABLE>

13 See Notes to Financial Statements

<TABLE>
Statement of Changes in Net Assets

For the Year Ended June 30,1995 and the Period December 31,1993
(Commencement of Investment Operations) to June 30,1994
- ---------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended Period Ended
June 30,1995 June 30,1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................ $ 4,245,759 $ 2,906,189
Net Realized Loss on Investments and Foreign Currency ............ (5,113,942) (3,791,891)
Net Unrealized Appreciation/Depreciation on Investments and
Foreign Currency During the Period ............................... 6,772,099 (8,751,995)
--------------- ---------------
Change in Net Assets from Operations ............................ 5,903,916 (9,637,697)
--------------- ---------------
Distributions from Net Investment Income* ........................ (4,415,661) (2,528,789)
Distributions in Excess of Net Investment Income* (Note 1) ....... (533,006) -0-
--------------- ---------------
Distributions from and in Excess of Net Investment Income* ....... (4,948,667) (2,528,789)
Return of Capital Distribution* ................................. (2,635,924) -0-
--------------- ---------------
Total Distributions ............................................. (7,584,591) (2,528,789)
--------------- ---------------
Net Change in Net Assets from Investment Activities .............. (1,680,675) (12,166,486)
--------------- ---------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ....................................... 25,816,917 89,237,622
Net Asset Value of Shares Issued Through Dividend Reinvestment ... 3,244,998 1,072,183
Cost of Shares Repurchased ....................................... (16,415,322) (5,148,558)
--------------- ---------------
Net Change in Net Assets from Capital Transactions .............. 12,646,593 85,161,247
--------------- ---------------
Total Increase in Net Assets .................................... 10,965,918 72,994,761
Net Assets:
Beginning of the Period ......................................... 72,999,051 4,290
--------------- ---------------
End of the Period (Including undistributed net investment income
of $(407,598) and $169,902, respectively) ....................... $ 83,964,969 $ 72,999,051
--------------- ---------------
</TABLE>

Year Ended Period Ended
*Distributions by Class June 30,1995 June 30,1994
- ---------------------------------- --------------- ---------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares .................... $ (1,773,941) $ (927,849)
Class B Shares .................... (3,039,599) (1,532,147)
Class C Shares .................... (135,127) (68,793)
--------------- ---------------
$ (4,948,667) $ (2,528,789)
--------------- ---------------
Return of Capital Distribution:
Class A Shares .................... $ (957,995) $ -0-
Class B Shares .................... (1,618,412) -0-
Class C Shares .................... (59,517) -0-
--------------- ---------------
$ (2,635,924) $ -0-
--------------- ---------------
</TABLE>

14 See Notes to Financial Statements

<TABLE>
Financial Highlights

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- ----------------------------------------------------------------------------------------------
<CAPTION>
December 31,1993
(Commencement
of Investment
Year Ended Operations) to
Class A Shares June 30,1995 June 30,1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ......................... $ 11.975 $ 14.300
------------ ----------------
Net Investment Income ....................................... .657 .566
Net Realized and Unrealized Gain/Loss on Investments
and Foreign Currency ......................................... .272 (2.391)
------------ ----------------
Total from Investment Operations ............................. .929 (1.825)
------------ ----------------
Less:
Distributions from and in Excess of Net Investment Income ... .793 .500
Return of Capital Distribution .............................. .407 -0-
------------ ----------------
Total Distributions (Note 1) ................................ 1.200 .500
------------ ----------------
Net Asset Value, End of Period ............................... $ 11.704 $ 11.975
------------ ----------------
Total Return (Non-Annualized) ................................ 8.46% (12.83%)
Net Assets at End of Period (In millions) ................... $ 29.6 $ 24.5
Ratio of Operating Expenses to Average Net
Assets (Annualized) .......................................... 1.98% 1.88%
Ratio of Interest Expense to Average
Net Assets (Annualized) (Note 8) ............................. 2.38% .96%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ............................. 5.88% 9.27%
Portfolio Turnover ........................................... 252.74% 114.04%

</TABLE>

Note: Certain per share amounts and the ratio of net investment income to
average net assets have been restated to conform with Statement of Position
93-4, "Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies."

15 See Notes to Financial Statements

<TABLE>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- ----------------------------------------------------------------------------------------------
<CAPTION>
December 31,1993
(Commencement
of Investment
Year Ended Operations) to
Class B Shares June 30,1995 June 30,1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ......................... $ 11.968 $ 14.300
------------ ----------------
Net Investment Income ....................................... .585 .515
Net Realized and Unrealized Gain/Loss on Investments
and Foreign Currency ......................................... .245 (2.392)
------------ ----------------
Total from Investment Operations ............................. .830 (1.877)
------------ ----------------
Less:
Distributions from and in Excess of Net Investment Income ... .722 .455
Return of Capital Distribution .............................. .370 -0-
------------ ----------------
Total Distributions (Note 1) ................................ 1.092 .455
------------ ----------------
Net Asset Value, End of Period ............................... $ 11.706 $ 11.968
------------ ----------------
Total Return (Non-Annualized) ................................ 7.62% (13.21%)
Net Assets at End of Period (In millions) ................... $ 52.6 $ 46.4
Ratio of Operating Expenses to Average Net
Assets (Annualized) .......................................... 2.68% 2.63%
Ratio of Interest Expense to Average
Net Assets (Annualized) (Note 8) ............................. 2.38% .96%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ............................. 5.30% 8.48%
Portfolio Turnover ........................................... 252.74% 114.04%
</TABLE>

Note: Certain per share amounts and the ratio of net investment income to
average net assets have been restated to conform with Statement of
Position 93-4, "Foreign Currency Accounting and Financial Statement
Presentation for Investment Companies."

16 See Notes to Financial Statements

<TABLE>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- ---------------------------------------------------------------------------------------------
<CAPTION>
December 31,1993
(Commencement
of Investment
Year Ended Operations) to
Class C Shares June 30,1995 June 30,1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ......................... $ 11.966 $ 14.300
------------ ----------------
Net Investment Income ....................................... .598 .509
Net Realized and Unrealized Gain/Loss on Investments
and Foreign Currency ......................................... .227 (2.388)
------------ ----------------
Total from Investment Operations ............................. .825 (1.879)
------------ ----------------
Less:
Distributions from and in Excess of Net Investment Income ... .722 .455
Return of Capital Distribution .............................. .370 -0-
------------ ----------------
Total Distributions (Note 1) ................................ 1.092 .455
------------ ----------------
Net Asset Value, End of Period ............................... $ 11.699 $ 11.966
------------ ----------------
Total Return (Non-Annualized) ................................ 7.53% (13.21%)
Net Assets at End of Period (In millions) ................... $ 1.7 $ 2.1
Ratio of Operating Expenses to Average Net
Assets (Annualized) .......................................... 2.69% 2.65%
Ratio of Interest Expense to Average
Net Assets (Annualized) (Note 8) ............................. 2.38% .95%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ............................. 5.92% 8.36%
Portfolio Turnover ........................................... 252.74% 114.04%

</TABLE>

Note: Certain per share amounts and the ratio of net investment income to
average net assets have been restated to conform with Statement of Position
93-4, "Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies."

17 See Notes to Financial Statements

Notes to Financial Statements
June 30,1995
- --------------------------------------------------------------------------------

1. Significant Accounting Policies

Van Kampen Merritt Strategic Income Fund (the "Fund") is organized as a
sub-trust of Van Kampen Merritt Trust (the "Trust"), a Massachusetts business
trust, and is registered as a non-diversified open-end management investment
company under the Investment Company Act of 1940, as amended. The Fund
commenced investment operations on December 31, 1993, with three classes of
common shares, Class A, Class B and Class C shares.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

A. Security Valuation-Investments are stated at value using market quotations,
prices provided by market makers 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. Foreign investments are stated at value using the last
available bid price or yield equivalents obtained from dealers in the OTC or
interbank market. Short-term securities with remaining maturities of less than
60 days 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
Fund 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 Fund 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. Original
issue discount is amortized over the expected life of each applicable security.

D. Currency Translation-During the current period, the Fund adopted Statement of
Position 93-4, "Foreign Currency Accounting and Financial Statement Presentation
for Investment Companies." Accordingly, the 1994 statement of changes in net
assets and financial highlights were restated to reflect reclassification of net
realized gain/loss on foreign currency and forward currency contracts from net
investment income to net realized gain/loss on investments and foreign currency.

Assets and liabilities denominated in foreign currencies and commitments under
forward currency contracts are translated into U.S. dollars at the mean of the
quoted bid and ask prices

Notes to Financial Statements (Continued)
June 30,1995
- --------------------------------------------------------------------------------

of such currencies against the U.S. dollar. Purchases and sales of portfolio
securities are translated at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates
prevailing when accrued.

E. Organizational Expenses and Initial Registration Costs-The Fund will
reimburse Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC") for costs incurred in connection with the Fund's
organization and initial registration in the amount of $170,000. These costs are
being amortized on a straight line basis over the 60 month period ending
December 31, 1998. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Fund
originally purchased by VKAC are redeemed during the amortization period, the
Fund will be reimbursed for any unamortized organizational expenses and initial
registration costs in the same proportion as the number of shares redeemed bears
to the number of initial shares held at the time of redemption.

The Fund 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 June 30, 1995, the Fund had an accumulated capital loss carryforward
for tax purposes of $4,216,449, which will expire on June 30, 2003. Net realized
gains or losses may differ for financial and tax reporting purposes primarily as
a result of post October 31 losses which are not recognized for tax purposes
until the first day of the following fiscal year.

G. Distribution of Income and Gains-The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on transactions in foreign
currencies and options on foreign currencies. These realized gains and losses
are included as net realized gains or losses for financial reporting purposes.
Permanent book and tax basis differences relating to these items totaling
$125,408 were reclassified from accumulated net realized gain/loss on
investments to accumulated undistributed net investment income.

Net realized gains on securities, if any, are distributed annually.

Notes to Financial Statements (Continued)
June 30,1995
- --------------------------------------------------------------------------------

2. Investment Advisory Agreement and Other Transactions with Affiliates

Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:

<TABLE>
<CAPTION>
Average Managed Assets % Per Annum
- -----------------------------------
<S> <C>
First $500 million ... .75 of 1%
Next $500 million .... .70 of 1%
Over $1 billion ..... .65 of 1%
</TABLE>

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.

For the year ended June 30, 1995, the Fund recognized expenses of
approximately $61,400 representing VKAC's cost of providing certain accounting,
legal and shareholder services to the Fund.

Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.

The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers
of VKAC. The Fund's liability under the deferred compensation and retirement
plans at June 30, 1995, was approximately $17,900.

At June 30, 1995, VKAC owned 100 shares each of Classes A, B and C.

3. Capital Transactions

The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized.

Notes to Financial Statements (Continued)
June 30,1995
- --------------------------------------------------------------------------------

At June 30, 1995, paid in surplus aggregated $33,387,911, $59,671,778 and
$2,116,517 for Classes A, B and C, respectively. For the year ended June 30,
1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ....................... 970,765 $ 11,135,557
Class B ....................... 1,206,027 13,927,571
Class C ....................... 65,188 753,789
------------ --------------
Total Sales ................... 2,241,980 $ 25,816,917
------------ --------------
Dividend Reinvestment:
Class A ....................... 90,046 $ 1,025,064
Class B ....................... 185,189 2,109,222
Class C ....................... 9,720 110,712
------------ --------------
Total Dividend Reinvestment ... 284,955 $ 3,244,998
------------ --------------
Repurchases:
Class A ....................... (576,467) $ (6,551,783)
Class B ....................... (772,126) (8,730,596)
Class C ....................... (103,217) (1,132,943)
------------ --------------
Total Repurchases ............ (1,451,810) $ (16,415,322)
------------ --------------
</TABLE>

Notes to Financial Statements (Continued)
June 30,1995
- --------------------------------------------------------------------------------

At June 30, 1994, paid in surplus aggregated $28,737,068, $53,983,993 and
$2,444,476 for Classes A, B and C, respectively. For the period ended June 30,
1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------
<S> <C> <C>
Sales:
Class A ....................... 2,215,561 $ 30,883,579
Class B ....................... 4,015,167 55,799,231
Class C ....................... 184,146 2,554,812
---------- --------------
Total Sales ................... 6,414,874 $ 89,237,622
---------- --------------
Dividend Reinvestment:
Class A ....................... 27,966 $ 349,478
Class B ....................... 55,412 691,148
Class C ....................... 2,535 31,557
---------- --------------
Total Dividend Reinvestment ... 85,913 $ 1,072,183
---------- --------------
Repurchases:
Class A ....................... (196,064) $ (2,497,419)
Class B ....................... (195,765) (2,507,816)
Class C ....................... (11,096) (143,323)
---------- --------------
Total Repurchases ............ (402,925) $ (5,148,558)
---------- --------------
</TABLE>

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C
- --------------------------------------------
<S> <C> <C>
First .................... 4.00% 1.00%
Second .................. 3.75% None
Third .................... 3.50% None
Fourth ................... 2.50% None
Fifth .................... 1.50% None
Sixth .................... 1.00% None
Seventh and Thereafter ... None None
</TABLE>

Notes to Financial Statements (Continued)
June 30,1995
- --------------------------------------------------------------------------------

For the year ended June 30, 1995, VKAC, as Distributor for the Fund, received
net commissions on sales of the Fund's Class A shares of approximately $39,200
and CDSC on the redeemed shares of Classes B and C of approximately $203,000.
Sales charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, including dollar
rolls and excluding short-term notes, for the year ended June 30, 1995 were
$321,417,051 and $322,572,748, respectively.

5. 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 Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio, manage the portfolio's effective yield, foreign currency exposure,
maturity and duration or generate potential gain. All of the Fund's portfolio
holdings, including derivative instruments, are marked to market each day with
the change in value reflected in the unrealized appreciation/depreciation on
investments. Upon disposition, a realized gain or loss is recognized
accordingly, except for exercised option contracts where the recognition of gain
or loss is postponed until the disposal of the security underlying the option
contract.

Summarized below are the specific types of derivative financial instruments
used by the Fund.

<TABLE>
Notes to Financial Statements (Continued)
June 30,1995
- -------------------------------------------------------------------------------
Transactions in options for the year ended June 30, 1995, were as follows:
<CAPTION>
Contracts Premium
- -------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1994 .......... 254 $ (412,000)
Options Written and Purchased (Net) ... 3,241 (1,792,579)
Options Terminated in Closing
Transactions (Net) .................... (1,549) 1,253,269
Options Exercised ..................... (151) 80,081
Options Expired (Net) ................. (1,790) 602,779
----------------------- --------------
Outstanding at June 30, 1995 ......... 5 $ (268,450)
----------------------- --------------
</TABLE>

The descriptions and market values of the option contracts outstanding as of
June 30, 1995, are as follows:

<TABLE>
<CAPTION>
Strike
Opening Expiration Price/ Market
Description Transaction Date Yield Value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argentina Par Bond Call ... Sell 07/05/95 45.00% $ (132,330)
Argentina Par Bond Put .... Sell 07/05/95 36.00% -0-
Argentina Par Bond Put .... Buy 07/24/95 45.00% 25,585
Japanese Yen Call ......... Buy 04/22/96 82.65% 39,290
Japanese Yen Call ......... Buy 04/22/96 83.25% 117,870
-------------
$ 50,415
-------------
</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 Fund
generally invests in futures on U.S. Treasury Bonds and typically closes the
contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.

The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.

Transactions in futures contracts for the year ended June 30, 1995, were as
follows:

<TABLE>
<CAPTION>
Contracts
- -------------------------------------------
<S> <C>
Outstanding at June 30, 1994 .... 1,594
Futures Opened .................. 4,973
Futures Closed ................. (6,268)
--------
Outstanding at June 30, 1995 ... 299
--------
</TABLE>

Notes to Financial Statements (Continued)
June 30,1995
- --------------------------------------------------------------------------------

The futures contracts outstanding as of June 30, 1995, and the descriptions
and unrealized appreciation/depreciation are as follows:

<TABLE>
<CAPTION>
Unrealized
Appreciation/
Contracts Depreciation
- ----------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond Futures
Sept 1995 - Sells to Open ....... 175 $ 306,030
5-Year U.S. Treasury Bond Futures
Sept 1995 - Sells to Open ...... 124 (28,156)
--------- -------------
299 $ 277,874
--------- -------------
</TABLE>

C.Forward Currency Contracts-These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on investments and foreign currency.

At June 30, 1995, the Fund has outstanding forward currency contracts as
follows:

<TABLE>
<CAPTION>
Forward Original Current Unrealized
Currency Contracts Value Value Appreciation
- -------------------------------------------------------------
<S> <C> <C> <C>
Sells to Open
German Mark,
expiring 07/06/95 -
08/30/95 .......... $ 2,384,883 $ 2,371,523 $ 13,360
------------
</TABLE>

At June 30, 1995, the Fund had realized gains on closed but unsettled forward
currency contracts of $11,257 scheduled to settle between July 6 and August 30,
1995.

D.Indexed Securities-These instruments are identified in the portfolio of
investments.

An Inverse Floating security is one where the coupon is inversely indexed to a
short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these securities may be more
volatile than the price of a comparable fixed rate security. These instruments
are typically used by the Fund to enhance the yield of the portfolio.

Notes to Financial Statements (Continued)
June 30,1995
- --------------------------------------------------------------------------------

6. Mortgage Backed Securities

A Collateralized Mortgage Obligation (CMO) is a bond which is collateralized
by a pool of MBS's. The Fund also invests in REMIC's (Real Estate Mortgage
Investment Conduit) which are simply another form of CMO. These MBS pools are
divided into classes or tranches with each class having its own characteristics.
For instance, a PAC (Planned Amortization Class) is a specific class of
mortgages with the most stable cash flows and the lowest prepayment risk.

A MBS may also be stripped to create an Interest Only (IO) or a Principal Only
(PO) security. An IO represents ownership in the cash flows of the interest
payments made from a specific pool of MBS. The cash flow on this instrument
decreases as the mortgage principal balance is repaid by the borrower.
Conversely, a PO represents an ownership interest in the cash flows of the
principal payments made from a specified pool of MBS. The cash flows on this
instrument would increase in a declining interest rate environment as
prepayments on the underlying mortgages increase. IO's and PO's are typically
used to manage interest rate exposure in the Fund's portfolio.

7. Distribution and Service Plans

Annual fees under the Plans of up to .30% for Class A shares and 1.00% each
for Class B and Class C shares are accrued daily. Included in these fees for the
year ended June 30, 1995, are payments to VKAC of approximately $398,000.

Notes to Financial Statements (Continued)
June 30,1995
- --------------------------------------------------------------------------------

8. Borrowings

In accordance with its investment policies, the Fund may borrow money from banks
or enter into reverse repurchase agreements or dollar rolls for investment
purposes in an amount up to 33.3% of its total assets.

The Fund has entered into a $40,000,000 revolving credit agreement which
expires on April 30, 1996. Interest is charged under the agreement at a rate of
1.10% above the federal funds rate. The interest rate in effect at June 30, 1995
was 7.3125%. An annual commitment fee of 1/4 of 1% is charged on the unused
portion of the credit line.

The Fund has entered into reverse repurchase agreements under which the Fund
sells securities and agrees to repurchase them at a mutually agreed upon date
and price. At June 30, 1995, the average interest rate in effect for reverse
repurchase agreements was 6.41%.

The average daily balance of bank borrowings and reverse repurchase agreements
for the year ended June 30, 1995, was approximately $29,790,000 with an average
interest rate of 6.15%.

The Fund has also entered into dollar rolls under which the Fund sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar securities (same type, coupon and maturity) on
a specified future date from the same party at an agreed upon price which is
less than the sales price. The Fund is compensated by the difference between the
current sales price and the forward price for the future purchase. At June 30,
1995, there were no open dollar roll transactions.

At June 30, 1995, these agreements represented 24.7% of the Fund's total
assets.

Independent Auditors' Report

The Board of Trustees and Shareholders of Van Kampen Merritt Strategic Income
Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Strategic Income Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1995, and the related statement of operations for
the year then ended, and the statement of changes in net assets and the
financial highlights for the year then ended and for the period from December
31, 1993 (commencement of investment operations) through June 30, 1994. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen Merritt Strategic Income Fund as of June 30, 1995, the results of its
operations for the year then ended, and the changes in its net assets and
financial highlights for the year then ended and for the period fr om December
31, 1993 (commencement of investment operations) through June 30, 1994, in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP
Chicago, Illinois
August 15, 1995

Van Kampen Merritt Strategic Income Fund

Board of Trustees

Philip P. Gaughan
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Jerome L. Robinson
Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10,1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

*"Interested" persons of the Fund, as defined in the Investment Company Act of
1940.

SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.

29
Van Kampen Merritt Emerging Market Income Fund
Portfolio of Investments
June 30, 1995

<TABLE>
<CAPTION>
Local
Currency
Par US$
Amount S&P Moody's Maturity Market
(000) Description Rating Rating Coupon Date Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

Foreign Bonds - 72.9%
Argentina - 7.3%
500 Argentina Bocon Pre2 (Var Rate Coupon)- US$ <F2> NR NR * % 04/01/01 $ 377,500
400 Banco De Galicia - US$ BB- B1 9.000 11/01/03 282,000
------------
659,500
------------
Brazil- 17.7%
2,081 Republic of Brazil (Var Rate Coupon) - US$ NR NR 8.000 04/15/14 1,022,193
1,000 Republic of Brazil (Var Rate Coupon) - US$ NR NR 7.250 04/15/24 570,000
------------
1,592,193
------------
Bulgaria - 5.5%
1,000 Republic of Bulgaria (Var Rate Coupon) - US$ NR NR 7.563 07/28/24 496,250
------------
Costa Rica - 5.8%
382 Banco Central Costa Rica (Var Rate Coupon) - US$ NR NR 6.938 05/21/05 274,925
500 Banco Central Costa Rica - US$ NR NR 6.250 05/21/10 245,000
------------
519,925
------------
Ecuador- 5.5%
1,000 Republic of Ecuador (Var Rate Coupon) - US$ NR NR 7.250 02/28/25 497,500
------------
Hungary- 4.2%
500 National Bank of Hungary - US$ BB+ Ba1 8.875 11/01/13 374,060
------------
Nigeria - 4.9%
1,000 Nigeria Par Bond with Warrants - US$ NR NR 6.250 11/15/20 441,000
------------
Panama - 2.9%
500 Panama Loan Agreement - US$ <F3><F4> NR NR 01/30/15 255,000
------------
Philippines - 4.2%
500 Philippines Government - US$ NR NR 5.000 06/01/08 376,850
------------
Poland- 3.9%
500 Poland Debt Conversion Bond (Var Rate Coupon) - US$ NR NR 4.500 10/27/19 242,500
175 Poland New Money Bond (Var Rate Coupon)- US$ NR NR 7.125 10/27/09 108,500
------------
351,000
------------
Venezuela - 11.0%
1,000 Venezuelan Debt Conversion Bond (Var Rate Coupon) - US$ NR Ba2 6.813 12/18/07 487,500
1,000 Venezuelan Par Bond Series A with Warrants - US$ B+ Ba3 6.750 3/31/20 502,500
------------
990,000
------------

Total Long-Term Investments - 72.9%
(Cost $6,719,277) <F1> $ 6,553,278
------------
</TABLE>

See Notes to the Financial Statements

Van Kampen Merritt Emerging Markets Income Fund
Portfolio of Investments (Continued)
June 30,1995

Short-Term Investments at Amortized Cost - 22.6%

Federal Farm Credit ($300,000 par, yielding 5.98%,maturing 07/17/95) $ 299,216
Farmer Mac Disc Note ($350,000 par, yielding 5.99%, maturing 07/05/95) 349,770
Federal Mortgage Credit Disc Note ($330,000 par, yielding 5.99%, maturing 07/05/95) 329,784
Federal National Mortgage Association Disc Note ($350,000 par, yielding 5.99%, maturing 07/05/95) 349,771
Repurchase Agreement (State Street Bank and Trust, U.S. T-Note, $365,000 par, 5.125% coupon,
due 06/30/98, dated 06/30/95, to be sold on 07/03/95 at $350,146) 350,000
Repurchase Agreement (UBS Securities, U.S. T-Note, $350,000 par, 6.625% coupon,
due 03/31/97, dated 06/30/95, to be sold on 07/03/95 at $350,178) 350,000
-------------
Total Short-Term Investments at Amortized Cost 2,028,541

Other Assets in Excess of Liabilities - 4.5% 409,522
-------------
Net Assets - 100.0% $ 8,991,341
-------------

*Zero Coupon Bond
<FN>
<F1> At June 30,1995, cost for federal income tax purposes is $6,719,277; the aggregate gross unrealized
appreciation is $475,647 and the aggregate gross unrealized depreciation is $504,846, resulting in
net unrealized depreciation including open option transactions of $29,199.
<F2> Currently is a zero coupon bond which will convert to a variable rate coupon paying bond at a
predetermined date.
<F3> Securities purchased on a when issued or delayed delivery basis.
<F4> Item represents a bank loan participation currently being restructured. At June 30, 1995, item is a
non-income producing security.
</TABLE>

See Notes to the Financial Statements

VAN KAMPEN MERRITT EMERGING MARKETS INCOME FUND

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1995

<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $6,719,277) (Note 1) $ 6,553,278
Short-Term Investments (Note 1) 2,028,541
Cash 312,987
Options at Market Value (Net premiums paid of $67,000) (Note 5) 203,800
Interest Receivable 152,419
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) 84,445
---------------
Total Assets 9,335,470
---------------
LIABILITIES:
Payables:
Investments Purchased 195,000
Organizational Expenses and Initial Registration Costs 58,870
Foreign Currency Contracts (Note 5) 21,066
Investment Advisory Fee (Note 2) 4,350
Accrued Expenses 64,843
---------------
Total Liabilities 344,129
---------------
NET ASSETS $ 8,991,341
===============
NET ASSETS CONSIST OF:
Paid in Surplus (Note 3) $ 10,014,290
Accumulated Undistributed Net Investment Income 524,175
Net Unrealized Depreciation on Investments (29,199)
Accumulated Net Realized Loss on Investments (1,517,925)
---------------
NET ASSETS $ 8,991,341
===============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$5,393,595 and 420,100 shares of beneficial interest issued and outstanding)
(Note 3) $12.84
Maximum sales charge (4.75%* of offering price) 0.64
---------------
Maximum offering price to public $13.48
===============
Class B Shares:
Net asset value and offering price per share (Based on net assets of $1,798,873
and 140,100 shares of beneficial interest issued and outstanding)(Note 3) $12.84
===============
Class C Shares:
Net asset value and offering price per share (Based on net assets of $1,798,873
and 140,100 shares of beneficial interest issued and outstanding)(Note 3) $12.84
===============
</TABLE>

* On sales of $100,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

VAN KAMPEN MERRITT EMERGING MARKETS INCOME FUND

STATEMENT OF OPERATIONS
For the Year Ended June 30,1995

<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding tax of $571) $ 1,013,885
------------------

EXPENSES:
Investment Advisory Fee (Note 2) 84,584
Custody 50,244
Audit 27,400
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) 23,988
Legal (Note 2) 10,250
Trustees Fees and Expenses (Note 2) 8,256
Other 6,179
------------------
Total Expenses 210,901
Less Fees Waived 29,860
------------------
Net Expenses 181,041
------------------
NET INVESTMENT INCOME $ 832,844
==================
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS AND
FOREIGN CURRENCY:
Net Realized Loss on Investments and Foreign Currency (Including realized gain on
foreign currency transactions of $11,867 and realized loss on option transactions
of $251,560) $ (864,621)
------------------
Unrealized Appreciation/Depreciation on Investments and Foreign Currency:
Beginning of the Period (643,513)
End of the Period (Including unrealized appreciation on open option transactions
of $136,800) (29,199)
------------------
Net Unrealized Appreciation on Investments and Foreign
Currency During the Period 614,314
------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
FOREIGN CURRENCY $ (250,307)
==================
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 582,537
==================
</TABLE>

See Notes to Financial Statements

VAN KAMPEN MERRITT EMERGING MARKETS INCOME FUND

STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended June 30,1995
and the Period December 31,1993 (Commencement of Investment
Operations) through June 30,1994
<TABLE>
<CAPTION>

Year Ended Period Ended
June 30, 1995 June 30, 1994
------------------ ------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:

Operations:
Net Investment Income $ 832,844 $ 279,634
Net Realized Loss on Investments and Foreign Currency (864,621) (695,373)
Net Unrealized Appreciation/Depreciation on
Investments and Foreign Currency During the Period 614,314 (643,513)
------------------ ------------------
Change in Net Assets from Operations 582,537 (1,059,252)
------------------ ------------------

Distributions from Net Investment Income:
Class A Shares (327,678) 0
Class B Shares (109,278) 0
Class C Shares (109,278) 0
------------------ ------------------
Total Distributions (546,234) 0
------------------ ------------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT A ACTIVITIES 36,303 (1,059,252)
------------------ ------------------
FROM CAPITAL TRANSACTIONS (Note 3):
Proceeds from Shares Sold 0 10,010,000
------------------ ------------------
TOTAL INCREASE IN NET ASSETS 36,303 8,950,748
NET ASSETS:
Beginning of the Period 8,955,038 4,290
------------------ ------------------
End of the Period (Including undistributed net
investment income of $524,175 and $225,698,
respectively) $ 8,991,341 $ 8,955,038
================= ==================
</TABLE>

See Notes to Financial Statements

VAN KAMPEN MERRITT EMERGING MARKETS INCOME FUND

FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
December 31 ,1993
(Commencement
of Investment
Year Ended Operations) to
Class A Shares June 30, 1995 June 30, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 12.806 $ 14.300
----------- ------------
Net Investment Income 1.189 0.419
Net Realized and Unrealized Loss on Investments and
Foreign Currency (0.376) (1.913)
----------- ------------
Total from Investment Operations 0.813 (1.494)
Less Distributions from Net Investment Income 0.780 0.000
----------- ------------
Net Asset Value, End of Period $ 12.839 $ 12.806
=========== ============
Total Return (Non-Annualized)* 6.82% -10.42%
Net Assets at End of Period (In millions) $5.4 $5.4
Ratio of Expenses to Average Net Assets (Annualized)* 2.11% 2.88%
Ratio of Net Investment Income to Average Net Assets (Annualized)* 9.64% 6.51%
Portfolio Turnover 260.21% 117.62%

*If certain expenses had not been assumed by the Adviser, total return
would have been lower and the ratios would have been as follows:

Ratio of Expenses to Average Net Assets (Annualized) 2.46% N/A
Ratio of Net Investment Income to Average Net Assets (Annualized) 9.30% N/A

N/A = Not Applicable

Note: Certain per share amounts and the ratio of net investment income to average net assets
have been restated to conform with Statement of Position 93-4, "Foreign Currency Accounting
and Financial Statement Presentation for Investment Companies."
</TABLE>

See Notes to Financial Statements

VAN KAMPEN MERRITT EMERGING MARKETS INCOME FUND

FINANCIAL HIGHLIGHTS (Continued)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
December 31,1993
(Commencement
of Investment
Year Ended Operations) to
Class B Shares June 30, 1995 June 30, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>

Net Asset Value, Beginning of Period $ 12.760 $ 14.300
----------- ------------
Net Investment Income 1.190 0.370
Net Realized and Unrealized Loss on Investments and
Foreign Currency (0.330) (1.910)
----------- ------------
Total from Investment Operations 0.860 (1.540)
Less Distributions from Net Investment Income 0.780 0.000
----------- ------------
Net Asset Value, End of Period $ 12.840 $ 12.760
=========== ============
Total Return (Non-Annualized)* 7.24% -10.77%
Net Assets at End of Period (In millions) $1.8 $1.8
Ratio of Expenses to Average Net Assets (Annualized)* 2.08% 3.64%
Ratio of Net Investment Income to Average Net Assets (Annualized)* 9.67% 5.76%
Portfolio Turnover 260.21% 117.62%

*If certain expenses had not been assumed by the Adviser, total return
would have been lower and the ratios would have been as follows:

Ratio of Expenses to Average Net Assets (Annualized) 2.43% N/A
Ratio of Net Investment Income to Average Net Assets (Annualized) 9.33% N/A

N/A = Not Applicable

Note: Certain per share amounts and the ratio of net investment income to average net assets
have been restated to conform with Statement of Position 93-4, "Foreign Currency Accounting
and Financial Statement Presentation for Investment Companies."
</TABLE>

See Notes to Financial Statements

VAN KAMPEN MERRITT EMERGING MARKETS INCOME FUND

FINANCIAL HIGHLIGHTS (Continued)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.

<TABLE>
<CAPTION>
December 31,1993
(Commencement
of Investment
Year Ended Operations) to
Class C Shares June 30, 1995 June 30, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 12.760 $ 14.300
----------- ------------
Net Investment Income 1.190 0.370
Net Realized and Unrealized Loss on Investments and
Foreign Currency (0.330) (1.910)
----------- ------------
Total from Investment Operations 0.860 (1.540)
Less Distributions from Net Investment Income 0.780 0.000
----------- ------------
Net Asset Value, End of Period $ 12.840 $ 12.760
----------- ------------
Total Return (Non-Annualized)* 7.24% -10.77%
Net Assets at End of Period (In millions) $1.8 $1.8
Ratio of Expenses to Average Net Assets (Annualized)* 2.08% 3.64%
Ratio of Net Investment Income to Average Net Assets (Annualized)* 9.67% 5.76%
Portfolio Turnover 260.21% 117.62%

*If certain expenses had not been assumed by the Adviser, total return
would have been lower and the ratios would have been as follows:

Ratio of Expenses to Average Net Assets (Annualized) 2.43% N/A
Ratio of Net Investment Income to Average Net Assets (Annualized) 9.33% N/A

N/A = Not Applicable

Note: Certain per share amounts and the ratio of net investment income to average net assets
have been restated to conform with Statement of Position 93-4, "Foreign Currency Accounting
and Financial Statement Presentation for Investment Companies."
</TABLE>

See Notes to Financial Statements

VAN KAMPEN MERRITT
EMERGING MARKETS INCOME FUND
Notes to Financial Statements
June 30, 1995

1. Significant Accounting Policies
Van Kampen Merritt Emerging Markets Income Fund (the
"Fund") was organized as a sub-trust of Van Kampen
Merritt Trust, a Massachusetts business trust (the "Trust"),
on October 14,1993, and is registered as a diversified
open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund
commenced investment operations on December 31,1993,
with three classes of common shares, Class A, Class B and
Class C.
The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation
of its financial statements.

A. Security Valuation - Investments are stated at value
using market quotations, prices provided by market makers
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. Foreign
investments are stated at value using the last available bid
price or yield equivalents obtained from dealers in the OTC
or interbank market. Short-term securities with remaining
maturities of less than 60 days 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 Fund 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 Fund 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. Dividend income is recorded on the
ex-dividend date. Original issue discount is amortized over
the expected life of each applicable security.

D. Currency Translation - During the current period, the
Fund adopted Statement of Position 93A, "Foreign
Currency Accounting and Financial Statement Presentation
for Investment Companies." Accordingly, the 1994
statement of changes in net assets and financial highlights
were restated to reflect reclassification of net realized
gain/loss on foreign currency and forward currency
contracts from net investment income to net realized
gain/loss on investments and foreign currency.
Assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the mean of
the quoted bid and asked prices of such currencies against
the U.S. dollar. Purchases and sales of portfolio securities
are translated at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are
translated at rates of exchange prevailing when accrued.

E. Organizational Expenses and Initial Registration
Costs - The Fund will reimburse Van Kampen American
Capital Distributors Inc. ("VKAC") for costs incurred in
connection with the Fund's organization and initial
registration in the amount of $120,000. These costs are
being amortized on a straight Line basis over the 60 month
period ending December 31,1998. Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") has
agreed that in the event any of the initial shares of the Fund
originally purchased by VKAC are redeemed during the
amortization period, the Fund will be reimbursed for any
unamortized organizational expenses and initial registration
costs in the same proportion as the number of shares
redeemed bears to the number of initial shares held at the
time of redemption.

F. Federal Income Taxes - It is the Fund'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 and gains to
its shareholders. Therefore, no provision for federal income
taxes is required.
The Fund 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 June 30,1995, the Fund had an accumulated
capital loss carryforward for tax purposes of $769,051
which will expire on June 30,2003. Net realized gains or
losses may differ for financial and tax reporting purposes
primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the
following fiscal year.

G. Distribution of Income and Gains - Dividends from net
investment income and net realized gains, if any, are
distributed annually. Net investment income for federal
income tax purposes includes gains and losses realized on
transactions in foreign currencies. These gains and losses
are included as net realized gains or losses for financial
reporting purposes. Permanent book and tax basis
differences relating to these items totaling $11,867 were
reclassified from accumulated net realized gain/Loss on
investment to accumulated undistributed net investment
income.

H. Bank Loan Participations - The Fund invests in
participation interests of loans to foreign entities. When the
Fund purchases a participation of a foreign loan interest,
the Fund typically enters into a contractual agreement with
the lender or other third party selling the participation, but
not with the borrower directly. As such, the Fund assumes
credit risk for the borrower, selling participant or other
persons positioned between the Fund and the borrower.

VAN KAMPEN MERRITT
EMERGING MARKETS INCOME FUND
Notes to Financial Statements (Continued)
June 30, 1995
2. Investment Advisory Agreement and Other
Transactions with Affiliates
Under the terms of the Fund's Investment Advisory
Agreement, the Adviser will provide investment advice and
facilities to the Fund for an annual fee payable monthly as
follows:

Average Net Assets % Per Annum
- ------------------------ ------------
<S> <C>
First $500 million 1.00%
Next $500 million .95%
Over $1 billion .90%
</TABLE>

Prior to July 21,1994, the investment advisory fee was
.75% of average net assets.
Certain legal expenses are paid to Skadden, Arps,
Slate, Meagher & Flom, counsel to the Fund, of which a
trustee of the Fund is an affiliated person.
For the year ended June 30,1995, the Fund
recognized expenses of approximately $15,100
representing VKAC's cost of providing accounting, legal and
certain shareholder services to the Fund.
Certain officers and trustees of the Fund are also
officers and directors of VKAC. The Fund does not
compensate its officers or trustees who are officers of
VKAC. The Fund has implemented deferred compensation
and retirement plans for its Trustees. Under the deferred
compensation plan, Trustees may elect to defer all or a
portion of their compensation to a later date. The Fund's
liability under the deferred compensation and retirement
plans at June 30,1995, was approximately $4,400.
At June 30, 1995, VKAC owned 420,100, 140,100 and
140,100 shares of Classes A, B and C, respectively.

3. Capital Transactions
The Fund has outstanding three classes of common
shares, Classes A, B and C. There are an unlimited
number of shares of each class without par value
authorized. At June 30,1995 and 1994, paid in surplus
aggregated $6,007,430, $2,003,430 and $2,003,430 for
Classes A, B and C, respectively. For the period ended
June 30,1994, transactions in common shares were as
follows:

<TABLE>
<CAPTION>
Shares Value
--------- ------------
<S> <C> <C>
Sales:
Class A 420,000 $6,006,000
Class B 140,000 2,002,000
Class C 140,000 2,002,000
------- -----------
Total Sales 700,000 $10,010,000
======= ===========
</TABLE>

Class B and Class C shares are offered without a front end
sales charge, but are subject to a contingent deferred sales
charge (CDSC). The CDSC will be imposed on most
redemptions made within six years of the purchase for
Class B and one year of the purchase for Class C as
detailed in the following schedule. The Class B and Class
C shares bear the expense of their respective deferred
sales arrangements, including higher distribution and
service fees and incremental transfer agency costs.

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Class B Class C
Year of Redemption Shares Shares
- --------------------------- --------- ---------
<S> <C> <C>
First 4.00% 1.00%
Second 3.75% None
Third 3.50% None
Fourth 2.50% None
Fifth 1.50% None
Sixth 1.00% None
Seventh and Thereafter None None
</TABLE>

4. Investment Transactions
Aggregate purchases and cost of sales of investment
securities, excluding short-term investments, for the year
ended June 30,1995 were $17,923,205 and $19,154,735,
respectively.

5. 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 Fund has a variety of reasons to use derivative
instruments, such as to attempt to protect the Fund against
possible changes in the market value of its portfolio,
manage the portfolio's effective yield, maturity, duration and
foreign currency exposure or to generate potential gain. All
of the Fund's portfolio holdings, including derivative
instruments, are marked to market each day with the
change in value reflected in the unrealized
appreciation/depreciation on investments. Upon
disposition, a realized gain or loss is recognized
accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of
the security underlying the option contract.
Summarized below are the specific types of derivative
financial instruments used by the Fund.

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 fund to
manage the portfolio's effective maturity and duration.

Transactions in options for the year ended June 30,
1995, were as follows:

VAN KAMPEN MERRITT
EMERGING MARKETS INCOME FUND
Notes to Financial Statements (Continued)
June 30, 1995

<TABLE>
<CAPTION>
Contracts Premium
--------- ----------
<S> <C> <C>
Outstanding at June 30,1994 0 $0
Options Written and Purchased
(Net) 12 (294,236)
Options Terminated in Closing
Transaction (Net) (2) 32,000
Options Expired (Net) (4) 238,160
Options Exercised (Net) (3) (42,924)
--- ---------
Outstanding at June 30,1995 3 $(67,000)
=== =========
</TABLE>

The descriptions and market values of the option contracts
outstanding at June 30,1995 were as follows:

Opening Expiration Strike Market
Description Transaction Date Price Value
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Vnesheconom
Bank Loan Sell 07/20/95 26.25 $(800)
Vnesheconom
Bank Loan Buy 05/08/96 22.375 205,400
Argentina
FRB Sell 07/24/95 53.75 (800)
--------
$203,800
========
</TABLE>

B. Forward Currency Contracts - These instruments are
commitments to purchase or sell a foreign currency at a
future date at a negotiated forward rate. The gain or loss
arising from the difference between the original value of the
contract and the closing value of such contract is included
as a component of realized gain/loss on investments and
foreign currency.
At June 30,1995 the Fund had realized gains on
closed but unsettled forward contracts of $21,066
scheduled to settle on August 16, 1995.

6. Distribution and Service Plans
The Fund and its Shareholders have adopted a distribution
plan (the "Distribution Plan") pursuant to Rule 12b-1 under
the Investment Company Act of 1940 and a service plan
(the "Service Plan", collectively the "Plans"). The Plans
govern payments for the distribution of the Fund's shares,
ongoing shareholder services and maintenance of
shareholder accounts.
Since the Fund is not currently offering its shares to
the public, no fees related to the Plans are being accrued
and no payments under the Plan have been made to VKAC.

INDEPENDENT AUDITORS' REPORT

The Board of Trustees and Shareholder of
Van Kampen Merritt Emerging Markets Income Fund:

We have audited the accompanying statement of assets and
liabilities of Van Kampen Merritt Emerging Markets Income Fund
(the "Fund"), including the portfolio of investments, as of June
30, 1995, and the related statement of operations for the year
then ended, and the statement of changes in net assets and the
financial highlights for the year then ended, and for the period from
December 31, 1993 (commencement of investment operations) through
June 30, 1994. These financial statements and financial highlights
are the responsibility of the Fund'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 June 30, 1995, 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 Merritt Emerging Markets Income Fund as of June 30, 1995, the
results of its operations for the year then ended, the changes in its net assets
and financial highlights for the year then ended and for the period from
December 31, 1993 (commencement of investment operations) through June 30, 1994,
in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
August 4, 1995

Van Kampen Merritt Emerging Markets Income Fund

Board of Trustees
Phillip P.Gaughan
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Jerome L. Robinson
Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, Ill*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*
Scott E. Martin*
Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent

ACCESS Investor (Effective July 10,1995)
Services, Inc.
P.O. Box 1713
Boston, Massachusetts 02105

Custodian

State Street Bank and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

*"Interested" persons of the Fund as defined in
the Investment Company Act of 1940