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

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

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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 ... 12
Statement of Operations ............... 13
Statement of Changes in Net Assets .... 14
Financial Highlights ................. 15
Notes to Financial Statements ......... 18
Independent Auditors'Report .......... 25
</TABLE>

Letter to Shareholders

August 3, 1995

Dear Shareholder:

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

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)

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.

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.

<TABLE>
Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt Growth and Income Fund

<CAPTION>
A Shares B Shares C Shares
Total Returns
<S> <C> <C> <C>
Quotron Symbol .................. VKGIX VGIBX VGICX
One-year total return
based on NAV<F1> ................ 17.51% 16.73% 16.55%
One-year total return<F2> ....... 10.75% 12.73% 15.55%
Five-year average
annual total return<F2> ......... 9.03% N/A N/A
Life-of-Fund average
annual total return<F2> ......... 8.71% 7.71% 6.27%
Life-of-Fund cumulative
total return based on NAV<F1> ... 118.75% 24.66% 12.36%
Commencement date .............. 10/29/86 12/01/92 08/13/93
N/A = Not Applicable

<FN>
<F1> Assumes reinvestment of all distributions for the period ended, and does
not include payment of the maximum sales charge (5.75% for A shares) or
contingent deferred sales charge for early withdrawal (4% for B shares and 1%
for C shares).
<F2> Standardized total return for the period ended.
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>
3

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 Standard & Poor's
500 Composite Stock 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 Growth and Income Fund vs. Standard & Poor's 500 Composite Stock Index
(November 1986 through June 1995)

[LINE GRAPH]

<TABLE>
<CAPTION>
Growth & S & P
Income 500
Fund Composite
<S> <C> <C>
31-Oct-86 9,419 10,000
30-Nov-86 9,577 10,215
31-Dec-86 9,306 10,010
31-Jan-87 10,324 11,329
28-Feb-87 10,756 11,748
31-Mar-87 10,842 12,145
30-Apr-87 10,702 12,006
31-May-87 10,656 12,078
30-Jun-87 11,134 12,751
31-Jul-87 11,560 13,366
31-Aug-87 11,921 13,833
30-Sep-87 11,814 13,592
31-Oct-87 9,451 10,634
30-Nov-87 8,766 9,727
31-Dec-87 9,279 10,529
31-Jan-88 9,949 10,954
29-Feb-88 10,405 11,412
31-Mar-88 10,136 11,128
30-Apr-88 10,274 11,233
31-May-88 10,246 11,268
30-Jun-88 10,688 11,865
31-Jul-88 10,513 11,801
31-Aug-88 10,155 11,345
30-Sep-88 10,569 11,903
31-Oct-88 10,913 12,212
30-Nov-88 10,674 11,981
31-Dec-88 10,822 12,266
31-Jan-89 11,462 13,138
28-Feb-89 11,256 12,758
31-Mar-89 11,398 13,133
30-Apr-89 11,804 13,791
31-May-89 12,103 14,276
30-Jun-89 12,082 14,290
31-Jul-89 12,724 15,553
31-Aug-89 13,009 15,794
29-Sep-89 12,797 15,818
31-Oct-89 12,352 15,420
30-Nov-89 12,491 15,675
29-Dec-89 12,878 16,140
31-Jan-90 12,156 15,030
28-Feb-90 12,007 15,158
30-Mar-90 12,260 15,652
30-Apr-90 11,784 15,231
31-May-90 12,677 16,632
30-Jun-90 12,610 16,632
31-Jul-90 12,587 16,545
31-Aug-90 11,560 14,985
28-Sep-90 10,820 14,357
31-Oct-90 10,632 14,261
30-Nov-90 11,432 15,116
31-Dec-90 11,855 15,638
31-Jan-91 12,487 16,287
28-Feb-91 13,396 17,383
28-Mar-91 13,682 17,901
30-Apr-91 13,944 17,907
31-May-91 14,761 18,598
28-Jun-91 13,951 17,862
31-Jul-91 14,542 18,663
30-Aug-91 14,908 19,030
30-Sep-91 14,566 18,816
31-Oct-91 14,527 19,039
30-Nov-91 13,951 18,203
31-Dec-91 15,364 20,381
31-Jan-92 15,064 19,976
29-Feb-92 15,324 20,167
31-Mar-92 15,277 19,869
30-Apr-92 15,640 20,423
31-May-92 15,719 20,443
30-Jun-92 15,545 20,247
31-Jul-92 15,989 21,044
31-Aug-92 15,471 20,539
30-Sep-92 15,591 20,885
30-Oct-92 15,814 20,929
30-Nov-92 16,204 21,563
31-Dec-92 16,602 21,932
29-Jan-93 16,796 22,086
26-Feb-93 16,999 22,318
31-Mar-93 17,708 22,887
30-Apr-93 17,463 22,305
31-May-93 17,776 22,812
30-Jun-93 17,970 22,995
31-Jul-93 17,993 22,873
31-Aug-93 18,768 23,660
30-Sep-93 18,895 23,587
29-Oct-93 19,287 24,045
30-Nov-93 18,521 23,734
31-Dec-93 19,063 24,133
31-Jan-94 19,846 24,917
28-Feb-94 19,172 24,168
31-Mar-94 18,240 23,225
30-Apr-94 18,022 23,493
31-May-94 18,062 23,784
30-Jun-94 17,546 23,325
31-Jul-94 18,131 24,059
31-Aug-94 18,822 24,964
30-Sep-94 18,432 24,464
31-Oct-94 18,562 24,975
30-Nov-94 17,931 23,989
31-Dec-94 18,069 24,460
31-Jan-95 18,231 25,054
28-Feb-95 18,918 25,958
31-Mar-95 19,212 26,835
30-Apr-95 19,556 27,585
31-May-95 20,041 28,586
30-Jun-95 20,618 29,388
</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 (5.75% 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 Growth and Income Fund

The following is an interview with the management team of the Van Kampen Merritt
Growth and Income Fund, including Dan H. Smith, portfolio manager, and Peter W.
Hegel, executive vice president, Van Kampen American Capital Investment Advisory
Corp.

Q: What factors had the greatest impact on the Fund's performance
during the past year?

A: During 1994, the Fund's performance was negatively impacted by rising
interest rates. The Federal Reserve Board repeatedly raised short-term
interest rates in an effort to slow economic growth and, as a result, stock
prices fell. The shares of cyclical companies, which are those firms most
affected by changes in the economy, were affected most by the change in
interest rates.

The first six months of this year, however, were a different story. Interest
rates fell during most of the period, while earnings growth remained strong,
creating an excellent environment for most stocks. As a result, during the first
half of 1995, stock prices rallied, in a broad-based recovery that was led by
the technology sector. Additionally, a continuous stream of announcements
regarding mergers, corporate restructurings and stock repurchase programs,
helped propel the market higher.

Q: How did you respond to the changing interest-rate environment?

A: In the latter half of 1994, we tried to favor stocks of companies that
would enjoy earnings growth independent of the level of economic activity over
companies in the cyclical or heavy industrial sectors. As a result, we reduced
the Fund's holdings of stocks in the auto, manufacturing and homebuilding
industries, which are very sensitive to higher interest rates. We replaced
these investments with increased holdings in food, healthcare and consumer
services companies, which are less tied to economic cycles and tend to have
more consistent earnings growth. We also favored energy companies because
that sector seemed to offer relatively good values and a very favorable
supply and demand position.

As interest rates fell during the first half of 1995, we increased our
holdings of financial services stocks which include banking and insurance
stocks. Typically, companies in this area benefit greatly from lower interest
rates. The largest portion of the Fund's assets was invested in the finance
sector at the end of the reporting period. The diversification of the portfolio
is illustrated by the pie chart on the next page.

Q: What stocks in the portfolio performed particularly well during
the past year?

A: There were a number of stocks that performed well, spread among the
sectors we just talked about. These included consumer products companies such
as Philip Morris, Colgate, Procter & Gamble and Pepsi, and financial services
firms like Capital One Financial (a credit card issuer), BankAmerica, Bank of
Boston and Federal Home Loan Mortgage Corporation. Large-capitalization growth
companies had underperformed the market for the

(Pie Chart)

Portfolio Holdings by Industry as of June 30, 1995

Beverage, Food & Tobacco 5.9%
Banking 3.9%
Other 46.7%
Diversified/Conglomerate Service 4.3%
Diversified/Conglomerate Manufacturing 8.4%
Financial Services 7.9%
Foreign 4.9%
Oil & Gas 7.9%
Telecommunications 10.1%

two-and-a-half years prior to 1994 and represented good value. They also tend to
do better in a less robust environment. As we discussed earlier, financial
services companies benefited from the decline in interest rates. Of course, not
all of the securities in the portfolio performed as well, and past performance
is no guarantee of future results.

Q: How did the Fund perform during the twelve-months ended
June 30,1995?

A: Class A shares of the Fund achieved a total return at net asset value of
17.51 percent <F1>. This compares to a total return of 25.99 percent for the
Standard & Poor's 500-Stock Index. The S&P 500 is a broad-based, unmanaged
index that reflects general stock market performance. 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 is the outlook for the Fund during the rest of 1995?

A: In anticipation of slower economic growth, we will continue to emphasize
investments in companies with good growth potential regardless of the
economy's direction. In addition, companies with a domestic focus should start
to receive more attention given that the benefits of a weak U.S. dollar on
international businesses will start to wane with a stabilization and/or
recovery in the currency. As always, we will continue to seek the shares of
high quality companies at the best possible prices.

In addition, the Board of Trustees of the Fund has approved the merger of the
Fund into the Van Kampen American Capital Growth and Income 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 Dan H. Smith
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

6 Please see footnotes on page three.

Portfolio of Investments
<TABLE>
June 30,1995
- ------------------------------------------------------------
<CAPTION>
Security Description Shares Market Value
- ------------------------------------------------------------
<S> <C> <C>
Common and Preferred Stock 89.6%
Aerospace & Defense .9%
Northrop Corp. ........................ 15,900 $ 828,788
----------
Automobile 2.7%
Borg Warner Automotive Inc. .......... 35,000 997,500
Exide Corp. .......................... 13,000 559,000
Lear Seating Corp. <F4> ................ 33,800 773,175
----------
2,329,675
---------
Banking 3.6%
BancOne Corp. ......................... 13,000 419,250
Bank of Boston Corp. .................. 27,300 1,023,750
Bankamerica Corp. ..................... 20,600 1,084,075
Crestar Financial Corp. ............... 13,700 671,300
----------
3,198,375
----------
Beverage, Food & Tobacco 5.5%
Dean Foods Co. ........................ 21,800 610,400
Pepsico Inc. .......................... 14,500 661,563
Philip Morris Cos. Inc. ............... 13,700 1,018,937
Ralston Purina Co. .................... 21,100 1,076,100
Sara Lee Corp. ........................ 40,550 1,155,675
Sysco Corp. ........................... 10,000 295,000
----------
4,817,675
----------
Buildings & Materials .4%
Owens Corning Fiberglass Corp. <F4> ... 10,000 368,750
----------
Chemical 3.3%
Air Products & Chemicals Inc. ........ 11,250 627,188
IMC Global Inc. ...................... 19,850 1,074,381
Praxair Inc. ......................... 16,950 423,750
Witco Corp. ........................... 24,450 788,512
----------
2,913,831
----------
Consumer Non-Durables 3.4%
Colgate Palmolive Co. ................ 3,250 237,656
Eastman Kodak Co. <F3> ................ 24,000 1,455,000
Procter & Gamble Co. .................. 18,600 1,336,875
----------
3,029,531
----------
Diversified/Conglomerate Manufacturing 7.8%
American Standard Cos. Inc. <F4> ...... 30,250 828,094
Case Equipment Corp. ................. 17,600 523,600
Corning Inc. .......................... 32,425 1,061,919
General Electric Co. ................. 22,300 1,257,162
Service Corp. International ........... 35,000 1,106,875
</TABLE>

7 See Notes to Financial Statements

Portfolio of Investments (Continued)
<TABLE>
June 30,1995
- ------------------------------------------------------------------------

<CAPTION>
Security Description Shares Market Value
- ------------------------------------------------------------------------
<S> <C> <C>
Diversified/Conglomerate Manufacturing (Continued)
Thermo Electron Corp. <F4> ....................... 39,300 $ 1,581,825
Trinity Industries Inc. ........................ 16,200 538,650
------------
6,898,125
------------
Diversified/Conglomerate Service 4.0%
Automatic Data Processing Inc. .................. 23,700 1,490,137
General Motors Corp. - Preferred ............... 25,000 1,575,000
PHH Corp. ....................................... 11,000 489,500
------------
3,554,637
------------
Ecological 1.6%

Wheelabrator Technologies Inc. .................. 36,000 553,500
WMX Technologies Inc. .......................... 30,450 864,019
------------
1,417,519
------------
Electronics 1.8%
Avnet Inc. ...................................... 24,500 1,185,187
Litton Industries Inc. <F4> ..................... 11,650 429,594
------------
1,614,781
------------
Financial Services 7.4%
Capital One Financial Corp. .................... 52,750 1,028,625
Citicorp ....................................... 14,100 816,038
Federal Home Loan Mortgage Corp. ................ 16,340 1,123,375
General Reinsurance Corp. ....................... 3,150 421,706
Health & Retirement Property Trust .............. 60,100 901,500
Healthcare Realty Trust Inc. .................... 56,750 1,149,187
J.P. Morgan & Co. Inc. .......................... 15,350 1,076,419
------------
6,516,850
------------
Grocery .7%
Fleming Cos. Inc. ............................... 8,500 225,250
Vons Cos. Inc. <F4> .............................. 20,000 402,500
------------
627,750
------------
Healthcare 3.6%
Baxter International Inc. ...................... 5,900 214,613
Lincare Holdings Inc. ........................... 15,500 411,719
Merck & Co. Inc. ............................... 27,000 1,323,000
Sybron International Corp. <F4> .................. 30,500 1,216,187
------------
3,165,519
------------
Insurance 3.0%
ITT Corp. ....................................... 7,500 881,250
Mid Ocean Ltd. .................................. 38,900 1,230,212
Reliance Group Holdings Inc. .................... 79,550 517,075
------------
2,628,537
------------
</TABLE>

8 See Notes to Financial Statements

Portfolio of Investments (Continued)
<TABLE>
June 30,1995
- ------------------------------------------------------------
<CAPTION>
Security Description Shares Market Value
- ------------------------------------------------------------
<S> <C> <C>
Leisure 2.3%
Carnival Corp. .................... 38,900 $ 909,287
Hasbro Inc. ....................... 13,200 419,100
Mattel Inc. ....................... 26,900 699,400
------------
2,027,787
------------
Mining 1.0%
Cyprus Amax Minerals Co. ........... 31,500 897,750
------------
Oil & Gas 7.4%
Amoco Corp. ....................... 17,350 1,155,944
Baker Hughes Inc. ................. 26,000 533,000
Exxon Corp. ........................ 16,875 1,191,797
Mobil Corp. ........................ 12,000 1,152,000
Panhandle Eastern Corp. ............ 31,150 759,281
Sonat Inc. ........................ 10,900 332,450
Triton Energy Corp. <F4> ........... 30,000 1,391,250
------------
6,515,722
------------
Paper 2.3%
Fort Howard Corp. <F4> .............. 44,150 623,619
James River Corp. ................. 49,600 1,370,200
------------
1,993,819
------------
Printing, Publishing & Broadcasting 2.0%
Omnicom Group ...................... 3,700 224,313
Time Warner Inc. .................. 27,500 1,130,937
Tribune Co. ....................... 7,100 435,763
------------
1,791,013
------------
Retail 2.5%
Federated Department Stores Inc. <F4> 51,400 1,323,550
Michaels Stores Inc. <F4> ........... 3,600 76,500
Nine West Group Inc. <F4> ........... 9,950 363,175
Wal-Mart Stores Inc. <F3> ............ 17,100 457,425
------------
2,220,650
------------
Technology 2.2%
Compaq Computer Corp. <F4> .......... 13,100 594,412
International Business Machines .... 2,200 211,200
Microsoft Corp. ................... 2,300 207,863
Motorola Inc. ...................... 13,200 886,050
------------
1,899,525
------------
</TABLE>

9 See Notes to Financial Statements

Portfolio of Investments (Continued)

<TABLE>
June 30,1995
- ------------------------------------------------------------
<CAPTION>
Security Description Shares Market Value
- ------------------------------------------------------------
<S> <C> <C>
Telecommunications 9.4%
Airtouch Communications Inc. <F4> ... 14,900 $ 424,650
Ameritech Corp. ..................... 19,300 849,200
AT & T Corp. ....................... 30,000 1,593,750
Bellsouth Corp. .................... 13,500 857,250
Cox Communications Inc. <F4> ........ 24,400 472,750
DSC Communications Corp. <F4> ........ 16,100 748,650
Frontier Corp. ...................... 18,000 432,000
Nynex Corp. ......................... 20,100 809,025
Tele Communications Inc. <F4> ....... 52,200 1,223,437
Viacom Inc. <F4> ..................... 19,200 890,400
------------
8,301,112
------------
Textiles .7%
Westpoint Stevens Inc. <F4> .......... 33,300 595,238
------------
Transportation 2.0%
AMR Corp. <F4> ....................... 17,500 1,305,938
Burlington Northern Inc. - Preferred . 6,600 445,500
------------
1,751,438
------------
Utilities 3.5%
Central & South West Corp. ......... 25,340 665,175
DPL Inc. .......................... 22,650 501,131
Duke Power Co. ..................... 6,300 261,450
New England Electric Systems ...... 12,000 414,000
Nipsco Inc. ....................... 16,000 544,000
Peco Energy Co. .................... 23,600 651,950
-------------
3,037,706
-------------
</TABLE>
10 See Notes to Financial Statements

Portfolio of Investments (Continued)

<TABLE>
June 30,1995
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Security Description Shares Market Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign 4.6%
Ericsson L M Telephone Co. - ADR (Sweden) ................................ 35,400 $ 708,000
Hafslund Nycomed - ADR (Norway) ......................................... 40,000 925,000
National Power PLC - ADR (UK) ............................................ 32,800 405,900
News Corporation Limited - ADR (Australia) ................................ 19,300 436,663
Powergen PLC - ADR (UK) .................................................. 31,600 387,100
Repsol SA - ADR (Spain) ................................................. 37,400 1,182,775
------------
4,045,438
------------
Total Common and Preferred Stock ............................................................ 78,987,541
------------
Convertible Bonds 3.5%
ADT Operations Inc. ($1,700,000 par, 0% coupon, 07/06/10 maturity, S&P rating BB+) <F2> ... 667,250
United Technologies Corp. ($2,350,000 par, 0% coupon, 09/08/97 maturity, S&P rating NR) .... 2,432,250
------------
Total Convertible Bonds ..................................................................... 3,099,500
------------
Total Long-Term Investments 93.1%
(Cost $75,800,076) <F1> .................................................................... 82,087,041
Repurchase Agreement 7.7%
UBS Securities, U.S. T-Note, $6,760,000 par, 6.50% coupon, due 04/30/97,
dated 06/30/95, to be sold on 07/03/95 at $6,763,436 ....................................... 6,760,000
Liabilities in Excess of Other Assets -0.8% ............................................... (727,906)
------------
Net Assets 100% ............................................................................ $ 88,119,135
------------

<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $75,800,076; the
aggregate gross unrealized appreciation is $6,683,929 and the aggregate gross
unrealized depreciation is $396,964, resulting in net unrealized appreciation
of $6,286,965.

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

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

<F4> Non-income producing security as this stock currently does not declare
dividends.
</TABLE>
11 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Assets and Liabilities
June 30,1995
- -----------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at Market Value (Cost $75,800,076) (Note 1) ............................. $ 82,087,041
Short-Term Investments (Note 1) ...................................................... 6,760,000
Cash ................................................................................ 96,590
Receivables:
Dividends ......................................................................... 218,157
Investments Sold ................................................................... 193,797
Fund Shares Sold ................................................................... 125,333
Interest ........................................................................... 1,145
Other ................................................................................ 3,753
-------------
Total Assets ......................................................................... 89,485,816
-------------
Liabilities:
Payables:
Investments Purchased .............................................................. 933,619
Fund Shares Repurchased ........................................................... 125,823
Investment Advisory Fee (Note 2) ................................................... 43,084
Accrued Expenses ..................................................................... 264,155
-------------
Total Liabilities .................................................................... 1,366,681
-------------
Net Assets ........................................................................... $ 88,119,135
-------------
Net Assets Consist of:
Paid in Surplus (Note 3) ............................................................. $ 78,412,695
Net Unrealized Appreciation on Investments .......................................... 6,286,965
Accumulated Net Realized Gain on Investments ......................................... 2,836,722
Accumulated Undistributed Net Investment Income ..................................... 523,772
Accumulated Equalization Credits (Note 1) ........................................... 58,981
-------------
Net Assets ........................................................................... $ 88,119,135
-------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $52,541,240 and
2,577,639 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 20.38
Maximum sales charge (5.75%* of offering price) ...................................... 1.24
-------------
Maximum offering price to public ..................................................... $ 21.62
-------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $34,114,000 and
1,674,161 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 20.38
-------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $1,463,895 and
71,895 shares of beneficial interest issued and outstanding) (Note 3) ............... $ 20.36
-------------
*On sales of $50,000 or more, the sales charge will be reduced.

</TABLE>
12 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended June 30,1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (Net of foreign withholding taxes of $21,904) ........................................ $ 1,672,394
Interest ....................................................................................... 474,572
----------------
Total Income .................................................................................. 2,146,966
----------------
Expenses:
Investment Advisory Fee (Note 2) .............................................................. 489,062
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $141,125, $304,036,
$10,647 and $5, respectively) (Note 6) ........................................................ 455,813
Shareholder Services .......................................................................... 171,157
Custody ........................................................................................ 104,652
Trustees Fees and Expenses (Note 2) ............................................................ 24,909
Legal (Note 2) ................................................................................ 17,825
Other .......................................................................................... 84,847
----------------
Total Expenses ................................................................................. 1,348,265
----------------
Net Investment Income .......................................................................... $ 798,701
----------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ............................................................................ $ 164,611,892
Cost of Securities Sold ........................................................................ (161,774,286)
----------------
Net Realized Gain on Investments (Including realized loss on closed and expired option
transactions and futures transactions of $237,589 and $53,770, respectively) .................. 2,837,606
----------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ....................................................................... (3,053,822)
End of the Period .............................................................................. 6,286,965
----------------
Net Unrealized Appreciation on Investments During the Period ................................... 9,340,787
----------------
Net Realized and Unrealized Gain on Investments ................................................ $ 12,178,393
----------------
Net Increase in Net Assets from Operations ..................................................... $ 12,977,094
----------------
</TABLE>

13 See Notes to Financial Statements

<TABLE>
Statement of Changes in Net Assets
For the Years Ended June 30,1995 and 1994
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended Year Ended
June 30,1995 June 30,1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 798,701 $ 658,391
Net Realized Gain on Investments .................................. 2,837,606 1,407,337
Net Unrealized Appreciation/Depreciation on Investments
During the Period ................................................ 9,340,787 (5,640,097)
--------------- ---------------
Change in Net Assets from Operations ............................. 12,977,094 (3,574,369)
--------------- ---------------
Distributions from Net Investment Income:
Class A Shares ................................................... (732,681) (283,548)
Class B Shares ................................................... (195,741) (6,360)
Class C Shares ................................................... (4,869) -0-
Class D Shares ................................................... (29) -0-
--------------- ---------------

(933,320) (289,908)
--------------- ---------------
Distributions from Net Realized Gain on Investments:
Class A Shares ................................................... (245,209) (5,555,001)
Class B Shares ................................................... (148,871) (761,009)
Class C Shares ................................................... (6,304) (2,518)
Class D Shares ................................................... (10) -0-
--------------- ---------------

(400,394) (6,318,528)
--------------- ---------------
Total Distributions ............................................... (1,333,714) (6,608,436)
--------------- ---------------
Net Change in Net Assets from Investment Activities ............... 11,643,380 (10,182,805)
--------------- ---------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ........................................ 22,323,468 46,602,308
Net Asset Value of Shares Issued Through Dividend Reinvestment .... 1,211,287 6,217,989
Cost of Shares Repurchased ........................................ (18,869,333) (8,165,855)
Net Equalization Credits/Charges .................................. (3,216) 75,488
--------------- ---------------
Net Change in Net Assets from Capital Transactions ............... 4,662,206 44,729,930
--------------- ---------------
Total Increase in Net Assets ..................................... 16,305,586 34,547,125
Net Assets:
Beginning of the Period .......................................... 71,813,549 37,266,424
--------------- ---------------
End of the Period (Including undistributed net investment income of
$523,772 and $658,391, respectively) ............................. $ 88,119,135 $ 71,813,549
--------------- ---------------
</TABLE>
14 See Notes to Financial Statements

Financial Highlights

Class A Shares 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ......................... $ 17.698 $ 21.286 $ 19.693 $ 17.937 $ 16.697
---------- ----------- ---------- ---------- ----------
Net Investment Income ....................... .237 .199 .355 .367 .370
Net Realized and Unrealized Gain/Loss
on Investments ............................. 2.811 (.455) 2.596 1.685 1.350
---------- ----------- ---------- ---------- ----------
Total from Investment Operations ........... 3.048 (.256) 2.951 2.052 1.720
---------- ----------- ---------- ---------- ----------
Less:
Distributions from Net
Investment Income ........................... .274 .175 .340 .199 .403
Distributions from Net Realized
Gain on Investments ........................ .089 3.157 1.018 .097 -0-
Return of Capital Distribution .............. -0- -0- -0- -0- .077
---------- ----------- ---------- ---------- ----------
Total Distributions ........................ .363 3.332 1.358 .296 .480
---------- ----------- ---------- ---------- ----------
Net Asset Value, End of Period ............. $ 20.383 $ 17.698 $ 21.286 $ 19.693 $ 17.937
---------- ----------- ---------- ---------- ----------
Total Return (Non-Annualized) ............... 17.51% (2.36%) 15.60% 11.42% 10.64%
Net Assets at End of Period (In millions) ... $ 52.5 $ 46.5 $ 34.4 $ 28.4 $ 25.6
Ratio of Expenses to Average Net
Assets (Annualized) ......................... 1.38% 1.61% 1.47% 1.71% 1.84%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ............. 1.25% 1.32% 1.77% 1.93% 2.19%
Portfolio Turnover .......................... 216.55% 190.93% 111.39% 90.48% 48.38%

</TABLE>
15 See Notes to Financial Statements

Financial Highlights (Continued)

<TABLE>
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- -----------------------------------------------------------------------------------------------
<CAPTION>
From December 1,1992
(Commencement of
Year Ended Year Ended Distribution) to
Class B Shares June 30,1995 June 30,1994 June 30,1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $ 17.684 $ 21.331 $ 20.351
------------ ------------ --------------------
Net Investment Income ....................... .104 .095 .054
Net Realized and Unrealized
Gain/Loss on Investments ..................... 2.814 (.535) 1.955
------------ ------------ --------------------
Total from Investment Operations ............. 2.918 (.440) 2.009
------------ ------------ --------------------
Less:
Distributions from Net Investment Income .... .136 .050 .011
Distributions from Net Realized
Gain on Investments .......................... .089 3.157 1.018
------------ ------------ --------------------
Total Distributions .......................... .225 3.207 1.029
------------ ------------ --------------------
Net Asset Value, End of Period ............... $ 20.377 $ 17.684 $ 21.331
------------ ------------ --------------------
Total Return (Non-Annualized) ................ 16.73% (3.34%) 10.48%
Net Assets at End of Period (In millions) ... $ 34.1 $ 24.8 $ 2.8
Ratio of Expenses to Average Net
Assets (Annualized) .......................... 2.10% 2.46% 2.28%
Ratio of Net Investment Income to
Average Net Assets (Annualized) .............. .55% 1.22% .83%
Portfolio Turnover ........................... 216.55% 190.93% 111.39%

</TABLE>
16 See Notes to Financial Statements

Financial Highlights (Continued)

<TABLE>
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- -------------------------------------------------------------------------------------------
<CAPTION>
From 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 ................... $ 17.691 $ 21.350
------------ -------------------
Net Investment Income .................................. .095 .084
Net Realized and Unrealized Gain/Loss on Investments ... 2.801 (.586)
------------ -------------------
Total from Investment Operations ....................... 2.896 (.502)
------------ -------------------
Less:
Distributions from Net Investment Income .............. .136 -0-
Distributions from Net Realized Gain on Investments ... .089 3.157
------------ -------------------
Total Distributions .................................... .225 3.157
------------ -------------------
Net Asset Value, End of Period ......................... $ 20.362 $ 17.691
------------ -------------------
Total Return (Non-Annualized) .......................... 16.55% (3.60%)
Net Assets at End of Period (In millions) .............. $ 1.5 $ .5
Ratio of Expenses to Average Net
Assets (Annualized) .................................... 2.14% 2.46%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ....................... .51% 1.70%
Portfolio Turnover .................................... 216.55% 190.93%
</TABLE>

17 See Notes to Financial Statements

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

1. Significant Accounting Policies

Van Kampen Merritt Growth and Income Fund (the "Fund") was organized as a
Massachusetts business trust on July 8, 1986, 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 October 29, 1986 and was
reorganized as a subtrust of Van Kampen Merritt Equity Trust (the "Trust"), a
Massachusetts business trust, as of June 17, 1988. The Fund commenced the
distribution of Class B and C shares on December 1, 1992, 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 in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Investments in securities not listed on a securities exchange are valued based
on their last quoted bid price or, if not available, their fair value as
determined by the Board of Trustees. Fixed income investments are stated at
values 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. 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-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis.

D. 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.

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

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 and pays dividends semi-
annually from net investment income. Net realized gains, if any, are distributed
annually. Distributions from net realized gains for book purposes may include
short-term capital gains and gains on option and futures transactions. All
short-term capital gains and a portion of option and futures gains are included
in ordinary income for tax purposes.

The Board of Trustees of the Fund declared a dividend of $.150 per share for
Class A shares, $.077 per share for Class B shares and $.074 per share for Class
C shares, aggregating approximately $520,000, from net investment income,
payable July 11, 1995, to shareholders of record on July 11, 1995.

F. Equalization-The Fund utilizes an accounting practice known as equalization,
by which a portion of the proceeds from sales and costs of reacquisitions of
capital shares, equivalent on a per share basis to the amount of distributable
net investment income on the date of the transactions, is credited or charged to
an equalization account, which is a component of capital. As a result,
undistributed net investment income per share is unaffected by sales or
reacquisitions of capital shares.

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 facilities and
investment advice to the Fund for an annual fee payable monthly as follows:

<TABLE>
<CAPTION>
Average Net Assets % Per Annum
<S> <C>
First $500 million ... .60 of 1%
Over $500 million .... .50 of 1%
</TABLE>

Certain legal fees 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 $48,000 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.

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

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 $24,700.

At June 30, 1995, VKAC owned 122 and 116 shares of beneficial interest of
Classes 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, paid in surplus aggregated $44,925,340,
$32,165,186 and $1,322,169, 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 ....................... 496,242 $ 9,104,850
Class B ....................... 671,255 12,373,711
Class C ....................... 46,418 844,907
Class D ....................... -0- -0-
------------ ----------------
Total Sales ................... 1,213,915 $ 22,323,468
------------ ----------------
Dividend Reinvestment:
Class A ....................... 50,575 $ 895,043
Class B ....................... 17,248 307,033
Class C ....................... 515 9,200
Class D ....................... 1 11
------------ ----------------
Total Dividend Reinvestment ... 68,339 $ 1,211,287
------------ ----------------
Repurchases:
Class A ....................... (595,540) $ (11,049,277)
Class B ....................... (417,305) (7,733,657)
Class C ....................... (4,370) (84,267)
Class D ....................... (111) (2,132)
------------ ----------------
Total Repurchases ............ (1,017,326) $ (18,869,333)
------------ ----------------
</TABLE>
20

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

At June 30, 1994, paid in surplus aggregated $45,974,724, $27,218,099,
$552,329 and $2,121, for Classes A, B, C and D, respectively. For the year ended
June 30, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ---------------------------------------------------------
<S> <C> <C>
Sales:
Class A ....................... 1,040,379 $ 20,367,239
Class B ....................... 1,332,246 25,683,130
Class C ....................... 29,202 549,818
Class D ....................... 110 2,121
---------- ------------
Total Sales ................... 2,401,937 $ 46,602,308
---------- ------------
Dividend Reinvestment:
Class A ....................... 286,118 $ 5,506,728
Class B ....................... 36,659 708,750
Class C ....................... 130 2,511
Class D ....................... -0- -0-
---------- ------------
Total Dividend Reinvestment ... 322,907 $ 6,217,989
---------- ------------
Repurchases:
Class A ....................... (318,421) $ (6,259,365)
Class B ....................... (98,138) (1,906,490)
Class C ....................... -0- -0-
Class D ....................... -0- -0-
- ------------------------------- ---------- ------------
Total Repurchases ............ (416,559) $ (8,165,855)
---------- -------------
</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 C
shares 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.

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 $17,000
and CDSC on the redeemed shares of Classes B and C of approximately $154,600.
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 Growth and Income Fund (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 $169,159,300 and
$158,885,116, 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 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.

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

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 provide the return of an index without purchasing all of the securities
underlying the index or as a substitute for purchasing specific securities.

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 .... 972 $ (127,572)
Options Written and
Purchased (Net) ................. 36,845 (5,553,955)
Options Terminated in Closing
Transactions (Net) .............. (32,796) 4,896,262
Options Expired (Net) ........... (4,890) 745,572
Options Exercised ............... (131) 39,693
------------------- --------------
Outstanding at June 30, 1995 ... -0- $ -0-
------------------- --------------
</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 stock index futures. These contracts are generally used to
provide the return of an index without purchasing all of the securities
underlying the index or as a substitute for purchasing specific securities.

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 ... 36
Futures Opened ................. 503
Futures Closed ................. (539)
------
Outstanding at June 30, 1995 ... -0-
------

</TABLE>
23

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% of Class A shares and 1.00% each of
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 $253,000.

Independent Auditors' Report

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

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Growth and 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 Growth and 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
July 24, 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 Growth And 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.

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.

Van Kampen Merritt Growth And Income Fund

This Page Intentionally Left Blank

<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 ... 10
Statement of Operations .............. 11
Statement of Changes in Net Assets .... 12
Financial Highlights ................. 13
Notes to Financial Statements ......... 16
Independent Auditors' Report ......... 23

</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)

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

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 Utility Fund
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns

Quotron Symbol ................... VKUAX VKUBX VKUCX
One-year total return
based on NAV<F1> ................ 8.70% 7.80% 7.88%
One-year total return<F2> ....... 2.45% 3.80% 6.88%
Life-of-Fund cumulative
total return based on NAV<F1> ... 0.67% (0.85%) (1.94%)
Life-of-Fund average
annual total return<F2> .......... (2.69%) (2.30%) (1.02%)
Commencement Date ............... 07/28/93 07/28/93 08/13/93

<FN>
<F1>Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (5.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).

<F2>Standardized total return for the period.
</TABLE>

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.

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 the these reasons, you may find it helpful to review the chart below,
which compares your Fund's performance to that of the Standard & Poor's 40
Utilities 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 portfoio, such as that of the Fund.

<TABLE>
Growth of a Hypothetical $10,000 Investment
VKM Utility Fund vs. Standard & Poor's 40 Utilities Index
(August 1993 through June 1995)
<CAPTION>
Class A S&P's 40
Shares Utilities
[LINE GRAPH] of Funds Index
- -----------------------------------------------
<S> <C> <C>
30-Jul-93 9,427 10,000
31-Aug-93 9,848 10,443
30-Sep-93 9,849 10,504
31-Oct-93 9,968 10,441
30-Nov-93 9,465 9,871
31-Dec-93 9,696 9,908
31-Jan-94 9,777 9,938
28-Feb-94 9,442 9,333
31-Mar-94 8,994 9,094
30-Apr-94 9,102 9,274
31-May-94 8,913 8,982
30-Jun-94 8,730 9,093
31-Jul-94 9,004 9,355
31-Aug-94 9,120 9,285
30-Sep-94 8,867 9,138
31-Oct-94 9,040 9,172
30-Nov-94 8,722 8,993
31-Dec-94 8,742 9,128
31-Jan-95 8,952 9,794
28-Feb-95 9,121 9,734
31-Mar-95 9,043 9,759
30-Apr-95 9,221 10,068
31-May-95 9,476 10,341
30-Jun-95 9,490 10,481
</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 charge 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 (5.75% for A shares).

Portfolio Management Review

Van Kampen Merritt Utility Fund

The following is an interview with the management team of the Van Kampen Merritt
Utility Fund, including Dan H. Smith, portfolio manager, and Peter W. Hegel,
executive vice president, Van Kampen American Capital Investment Advisory Corp.

Q: What factors had the greatest impact on the Fund's performance
during the past year?

A: The utility sector was among the hardest hit by the Federal Reserve Board's
repeated hikes in short-term interest rates during 1994. Throughout 1994, the
Federal Reserve Board repeatedly raised short-term interest rates in an effort
to slow economic growth and, as a result, stock prices fell. During 1994, the
Dow Jones Utility Average fell more than 20 percent to a six-year low. While
weakness in the prices of utility stocks is not surprising during times of
rising interest rates, the large decline in 1994 also was attributable to
investors' concerns over changing business fundamentals in the various groups
that comprise the utility sector. Specifically, actual and potential
legislative changes hurt the shares of electric and telephone utility
companies, while slower usage rates and weaker prices for natural gas pushed
natural gas utility stocks lower.
As interest rates fell during the first six months of this year utilities
performed better, although they did not enjoy the same strong performance turned
in by equities in general. The fundamentals for utilities remained weak because
of increased competition and the lingering concerns over deregulation in both
the electric and telecommunications industries.

Q: What changes did you make to the portfolio in light of these
market conditions?

A: We increased our emphasis on telephone and natural gas utilities. Fears of
increased competition in the telecommunications industry began to weaken toward
the end of June as proposed legislative changes look to be more evenhanded in
the treatment of local and long-distance telephone companies. We believe the
sector represents solid long-term value given the strong franchise value and
substantial asset base of these companies.
Natural gas utilities performed well during the early part of 1995, although
their performance weakened toward mid-year as oil prices leveled off.
Additionally, the summer generally is a seasonally slow period for these
companies as demand for natural gas typically declines. As such, the Fund
reduced its exposure to this group prior to the start of summer. The longer
term positive fundamentals remain intact as worldwide demand for natural gas
continues to exhibit strong growth.
Finally, toward the end of 1994, we reduced the Fund's holdings of foreign
securities, primarily by selling investments in U.K. electric companies, in
anticipation of negative political events. Once these political pressures
subsided, we increased our purchases of foreign securities to bring them up to
their previous percentage of the Fund's net assets. The diversification of the
portfolio is illustrated by the chart on next page.

Portfolio Holdings by Sector as of June 30, 1995

[Pie Chart]

Other 6.0%
Telecommunications 23.3%
Natural Gas 18.3%
Electric 39.3%
Foreign 13.1%

Q: What stocks in the portfolio performed particularly well during
the reporting period?

A: Among the stocks that did well during the past year were Enserch (natural
gas), Pinnacle West (electric utility), American Water Works (water utility),
BellSouth (telecommunications) and Endesa (Spanish electric utility). Of course,
not all of the securities in the portfolio performed as well, and past
performance is no guarantee of future results.

Q: How did the Fund perform during the twelve months ended
June 30, 1995?

A: Class A shares of the Fund achieved a total return at net asset value of
8.70 percent<F1>. By comparison, the Standard & Poor's Utility Index achieved
a total return of 15.24 percent. The S&P is a broad-based, unmanaged index
that reflects the general performance of utility stocks. 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's ahead for the Fund in the next six months?

A: The Fund is positioned to continue enjoying the dividend growth that
has made utilities beneficial to own. Furthermore, the securities in the
portfolio should be less vulnerable to an economic slowdown and should
provide stability during times of concern.
In addition, the Board of Directors of the Van Kampen American Capital
Utilities Income Fund has approved the merger of the Fund into the Van Kampen
Merritt Utility Fund, pending shareholder approval. The combination should
generate greater economies of scale and eliminate many of the costs of operating
each of the funds separately.

Peter W. Hegel Dan H. Smith
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

6 Please see footnotes on page three.

<TABLE>
Portfolio of Investments
June 30, 1995
<CAPTION>
Security Description Shares Market Value
- -----------------------------------------------------------------------------
<S> <C> <C>
Common Stock 92.2%
Buildings & Real Estate 3.6%
Bay Apartment Community Inc. ........................ 65,000 $ 1,267,500
Cali Realty Corp. .................................... 50,000 968,750
Debartolo Realty Corp. ............................... 50,000 731,250
Healthcare Realty Trust Inc. ........................ 90,000 1,822,500
---------
4,790,000
---------
Electric Utilities 36.7%
Boston Edison Co. .................................... 56,054 1,464,411
Central & South West Corp. ........................... 82,250 2,159,063
CMS Energy Corp. .................................... 80,000 1,970,000
DPL Inc. ............................................ 103,700 2,294,362
DQE Inc. ............................................ 97,891 2,300,438
Duke Power Co. ...................................... 40,740 1,690,710
Entergy Corp. ....................................... 40,000 965,000
FPL Group Inc. ...................................... 44,000 1,699,500
General Public Utilities Corp. ....................... 69,175 2,057,956
Houston Industries Inc. ............................. 37,000 1,558,625
New England Electric Systems ......................... 52,000 1,794,000
Nipsco Inc. ......................................... 63,800 2,169,200
Northeast Utilities ................................. 69,700 1,568,250
Nynex Corp. ......................................... 80,000 3,220,000
Ohio Edison Co. ..................................... 75,000 1,696,875
Oklahoma Gas & Electric Co. .......................... 54,806 1,925,061
Pacific Gas & Electric Co. .......................... 45,000 1,305,000
Pacificorp .......................................... 88,000 1,650,000
Peco Energy Co. ..................................... 77,923 2,152,623
Pinnacle West Capital Corp. ......................... 56,400 1,381,800
Public Service Enterprise Group ...................... 70,800 1,964,700
Southern Co. ......................................... 78,000 1,745,250
Teco Energy Inc. .................................... 95,300 2,084,688
Texas Utilities Co. ................................. 40,000 1,375,000
Unicom Corp. ........................................ 40,000 1,065,000
Washington Water Power Co. ........................... 91,475 1,463,600
Wisconsin Energy Corp. .............................. 68,478 1,917,384
---------
48,638,496
---------
Natural Gas Pipeline and Distribution 17.6%
Coastal Corp. ....................................... 30,000 911,250
El Paso Natural Gas Co. ............................. 73,182 2,085,687
Enron Corp. ......................................... 65,300 2,293,662
Equitable Resources Inc. ............................ 56,350 1,627,106
</TABLE>
7 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995
<CAPTION>
Security Description Shares Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Natural Gas Pipeline and Distribution (Continued)
KN Energy Inc. ....................................................... 77,313 $ 1,961,817
MCN Corp. ............................................................ 124,000 2,449,000
National Fuel Gas Co. NJ ............................................. 66,300 1,897,838
Nicor Inc. .......................................................... 79,211 2,128,796
Northwest Natural Gas Co. ............................................ 30,300 946,875
Panhandle Eastern Corp. ............................................. 80,000 1,950,000
Questar Corp. ....................................................... 54,200 1,558,250
Sonat Inc. .......................................................... 73,000 2,226,500
Western Gas Resources Inc. ........................................... 75,300 1,298,925
----------
23,335,706
----------
Telecommunications 19.5%
Airtouch Communications Inc. <F2> ..................................... 61,700 1,758,450
Alltel Corp. ........................................................ 81,150 2,059,181
Ameritech Corp. ..................................................... 63,670 2,801,480
AT & T Corp. ......................................................... 51,600 2,741,250
BCE Inc. ............................................................ 30,850 991,056
Bellsouth Corp. ...................................................... 50,000 3,175,000
Century Telephone Enterprises Inc. .................................. 77,150 2,189,131
Frontier Corp. ...................................................... 58,250 1,398,000
GTE Corp. ............................................................ 88,400 3,016,650
MCI Communications Corp. ............................................ 90,000 1,980,000
SBC Communications Inc. .............................................. 69,770 3,322,797
Viatel Inc. <F2> ..................................................... 117,325 483,966
----------
25,916,961
----------
Water & Sewer Utilities 2.2%
American Water Works Inc. ........................................... 61,083 1,939,385
United Water Resources Inc. ......................................... 74,800 991,100
----------
2,930,485
----------
Foreign 12.6%
China Light & Power Ltd ADR (Hong Kong) .............................. 164,879 848,088
Elf Aquitaine ADR (France) ........................................... 45,150 1,681,838
Empresa Nacional de Electricidad ADR (Spain) ......................... 40,000 1,970,000
Midlands Electricity PLC (UK) ....................................... 100,000 1,000,477
National Power PLC ADR (UK) .......................................... 31,500 389,813
Norweb PLC (UK) ..................................................... 70,000 756,004
Portugal Telecom SA ADR (Portugal) <F2> ............................... 3,200 60,800
Powergen PLC - ADR (UK) ............................................... 49,000 600,250
Repsol SA ADR (Spain) ................................................ 60,300 1,906,987
Royal PTT (Netherlands) ............................................. 30,000 1,078,412
South Wales Electric (UK) ........................................... 86,000 953,428
</TABLE>
8 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995
<CAPTION>
Security Description Shares Market Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Foreign (Continued)
Southern Electric PLC (UK) <F2> ........................ 67,000 $ 683,108
Tele Danmark A/S ADR (Denmark) ........................ 60,000 1,680,000
TransCanada Pipelines Ltd (Canada) .................... 125,000 1,671,875
Westcoast Energy Inc. (Canada) ........................ 100,000 1,475,000
-----------
16,756,080
-----------
Total Common Stock ............................................... 122,367,728
-----------
Fixed Income Securities 4.1%
Electric Utilities 1.2%
Midland Funding Corp. II ($1,500,000 par, 11.750% coupon,
07/23/05 maturity, S&P rating B- ) ................................ 1,567,500
-----------
Telecommunications 2.9%
Time Warner Inc. ($2,112,000 par, 8.750% coupon, 01/10/15 maturity,
S&P rating BB+ ) .................................................. 2,201,760
Viatel Inc. ($3,250,000 par, 0/15.000% coupon, 01/15/05 maturity,
S&P rating NR) <F3> .............................................. 1,641,250
-----------
3,843,010
-----------
Total Fixed Income Securities ..................................... 5,410,510
-----------
Total Long-Term Investments 96.3%
(Cost $127,459,332) <F1> ........................................... 127,778,238
Repurchase Agreement 1.5%
UBS Securities, U.S. T-Note, $1,970,000 par, 5.625% coupon,
due 01/31/98, dated 06/30/95, to be sold on 07/03/95 at $1,958,995.. 1,958,000
Other Assets in Excess of Liabilities 2.2% ........................ 2,925,835
-----------
Net Assets 100% ...................................................$132,662,073
-----------

<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $127,459,332;
the aggregate gross unrealized appreciation is $5,280,933 and the
aggregate gross unrealized depreciation is $4,961,766, resulting in net
unrealized appreciation including foreign currency translation of
$319,167.
<F2> Non-income producing security as this stock currently does not declare
dividends.
<F3> Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.
</TABLE>

9 See Notes to Financial Statements

<TABLE>
Statement of Assets and Liabilities
June 30, 1995
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------
Assets:
Investments, at Market Value (Cost $127,459,332) (Note 1) ............................ $ 127,778,238
Short-Term Investments (Note 1) ...................................................... 1,958,000
Cash ................................................................................ 489,190
Receivables:
Investments Sold .................................................................. 2,279,502
Dividends ......................................................................... 729,130
Fund Shares Sold ................................................................... 170,510
Interest ........................................................................... 122,983
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) ......... 70,711
-----------
Total Assets ......................................................................... 133,598,264
-----------
Liabilities:
Payables:
Fund Shares Repurchased ........................................................... 351,573
Investment Advisory Fee (Note 2) .................................................. 254,843
Accrued Expenses ..................................................................... 329,775
-----------
Total Liabilities .................................................................... 936,191
-----------
Net Assets ........................................................................... $ 132,662,073
-----------
Net Assets Consist of:
Paid in Surplus (Note 3) ............................................................. $ 144,462,705
Accumulated Undistributed Net Investment Income ..................................... 1,563,610
Net Unrealized Appreciation on Investments .......................................... 319,167
Accumulated Net Realized Loss on Investments ......................................... (13,683,409)
-----------
Net Assets ........................................................................... $ 132,662,073
-----------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $50,394,201 and
3,764,785 shares of beneficial interest issued and outstanding) (Note 3) ............ $ 13.39
Maximum sales charge (5.75%* of offering price) ...................................... .82
-----------
Maximum offering price to public ..................................................... $ 14.21
-----------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $80,994,205 and
6,064,329 shares of beneficial interest issued and outstanding) (Note 3) ............ $ 13.36
-----------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $1,273,667 and
95,362 shares of beneficial interest issued and outstanding) (Note 3) ............... $ 13.36
-----------
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.

10 See Notes to Financial Statements

<TABLE>
Statement of Operations
For the Year Ended June 30, 1995
<CAPTION>
<S> <C>
Investment Income:
Dividends (Net of foreign withholding taxes of $128,049) ................................. $ 6,281,372
Interest ................................................................................. 1,659,396
------------
Total Income ............................................................................ 7,940,768
------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $150,498,
$821,749, $12,075 and $4, respectively) (Note 6) ....................................... 984,326
Investment Advisory Fee (Note 2) ........................................................ 874,190
Shareholder Services .................................................................... 266,727
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) ......... 22,995
Trustees Fees and Expenses (Note 2) ...................................................... 22,354
Legal (Note 2) .......................................................................... 12,173
Other ................................................................................... 215,191
------------
Total Expenses ........................................................................... 2,397,956
------------
Net Investment Income .................................................................... $ 5,542,812
------------
Realized and Unrealized Gain/Loss on Investments and Foreign Currency:
Net Realized Loss on Investments (Including realized gain on foreign currency translation
of $74,813 and realized loss on closed option transactions of $246,329) .................. $ (11,154,213)
------------
Unrealized Appreciation/Depreciation on Investments and Foreign Currency:
Beginning of the Period ................................................................. (15,612,166)
End of the Period (Including unrealized appreciation on foreign
currency translation of $261) ........................................................... 319,167
------------
Net Unrealized Appreciation on Investments and Foreign Currency During the Period ........ 15,931,333
------------
Net Realized and Unrealized Gain on Investments and Foreign Currency .................... $ 4,777,120
------------
Net Increase in Net Assets from Operations .............................................. $ 10,319,932
------------
</TABLE>

11 See Notes to Financial Statements

<TABLE>
Statement of Changes in Net Assets

For the Year Ended June 30, 1995 and the Period July 28, 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 ............................................ $ 5,542,812 $ 4,154,946
Net Realized Loss on Investments and Foreign Currency ............ (11,154,213) (2,099,212)
Net Unrealized Appreciation/Depreciation on Investments
and Foreign Currency During the Period ........................... 15,931,333 (15,612,166)
----------- ------------
Change in Net Assets from Operations ............................ 10,319,932 (13,556,432)
----------- ------------
Distributions from Net Investment Income:
Class A Shares .................................................. (2,381,991) (1,135,794)
Class B Shares .................................................. (3,137,968) (1,491,532)
Class C Shares .................................................. (46,441) (15,164)
Class D Shares .................................................. (68) (3)
----------- ------------
(5,566,468) (2,642,493)
----------- ------------
Distributions in Excess of Net Realized Gain on Investments:
Class A Shares .................................................. -0- (131,867)
Class B Shares .................................................. -0- (222,070)
Class C Shares .................................................. -0- (1,234)
----------- ------------
-0- (355,171)
----------- ------------
Total Distributions .............................................. (5,566,468) (2,997,664)
----------- ------------
Net Change in Net Assets from Investment Activities ............. 4,753,464 (16,554,096)
----------- ------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ....................................... 19,193,852 164,220,373
Net Asset Value of Shares Issued Through Dividend Reinvestment ... 4,462,088 2,433,525
Cost of Shares Repurchased ....................................... (32,083,914) (13,766,079)
----------- ------------
Net Change in Net Assets from Capital Transactions .............. (8,427,974) 152,887,819
----------- ------------
Total Increase/Decrease in Net Assets ............................ (3,674,510) 136,333,723
Net Assets:
Beginning of the Period ......................................... 136,336,583 2,860
----------- ------------
End of the Period (Including undistributed net investment
income of $1,563,610 and $1,512,453, respectively) ............. $ 132,662,073 $ 136,336,583
----------- ------------
</TABLE>
12 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>
From July 28, 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 .......................... $ 12.906 $ 14.300
----------- --------------
Net Investment Income .......................................... .595 .479
Net Realized and Unrealized Gain/Loss on
Investments and Foreign Currency .............................. .485 (1.513)
----------- --------------
Total from Investment Operations .............................. 1.080 (1.034)
----------- --------------
Less:
Distributions from Net Investment Income ....................... .600 .323
Distributions in Excess of Net Realized Gain on Investments ... -0- .037
----------- --------------
Total Distributions ........................................... .600 .360
----------- --------------
Net Asset Value, End of Period ................................ $ 13.386 $ 12.906
----------- --------------
Total Return (Non-Annualized) ................................. 8.70% (7.38%)
Net Assets at End of Period (In millions) ...................... $ 50.4 $ 51.5
Ratio of Expenses to Average Net
Assets (Annualized) ........................................... 1.34% 1.34%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ................................ 4.55% 4.10%
Portfolio Turnover ............................................. 109.10% 101.54%
</TABLE>

13 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>
From July 28, 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 .......................... $ 12.880 $ 14.300
----------- --------------
Net Investment Income .......................................... .507 .394
Net Realized and Unrealized Gain/Loss on
Investments and Foreign Currency .............................. .461 (1.519)
----------- --------------
Total from Investment Operations .............................. .968 (1.125)
----------- --------------
Less:
Distributions from Net Investment Income ....................... .492 .258
Distributions in Excess of Net Realized Gain on Investments ... -0- .037
----------- --------------
Total Distributions ........................................... .492 .295
----------- --------------
Net Asset Value, End of Period ................................ $ 13.356 $ 12.880
----------- --------------
Total Return (Non-Annualized) ................................. 7.80% (8.02%)
Net Assets at End of Period (In millions) ...................... $ 81.0 $ 83.7
Ratio of Expenses to Average Net
Assets (Annualized) ........................................... 2.05% 2.06%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ................................ 3.84% 3.36%
Portfolio Turnover ............................................. 109.10% 101.54%
</TABLE>
14 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>
- -------------------------------------------------------------------------------------------------
From
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 .......................... $ 12.868 $ 14.460
----------- ---------------
Net Investment Income .......................................... .482 .330
Net Realized and Unrealized Gain/Loss on
Investments and Foreign Currency .............................. .498 (1.627)
----------- ---------------
Total from Investment Operations .............................. .980 (1.297)
----------- ---------------
Less:
Distributions from Net Investment Income ....................... .492 .258
Distributions in Excess of Net Realized Gain on Investments ... -0- .037
----------- ---------------
Total Distributions ........................................... .492 .295
----------- ---------------
Net Asset Value, End of Period ................................ $ 13.356 $ 12.868
----------- ---------------
Total Return (Non-Annualized) ................................. 7.88% (9.11%)
Net Assets at End of Period (In millions) ...................... $ 1.3 $ 1.1
Ratio of Expenses to Average Net
Assets (Annualized) ........................................... 2.09% 2.05%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ................................ 3.80% 3.38%
Portfolio Turnover ............................................. 109.10% 101.54%
</TABLE>

15 See Notes to Financial Statements

Notes to Financial Statements
June 30, 1995

1. Significant Accounting Policies

Van Kampen Merritt Utility Fund (the "Fund") was organized as a subtrust of the
Van Kampen Merritt Equity Trust, a Massachusetts business trust on March 10,
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 July 28, 1993, with two classes of common shares,
Class A and Class B shares. The distribution of the Fund's Class C shares
commenced on August 13, 1993. 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 in securities listed on a securities exchange
shall be valued at their sale price as of the close of such securities exchange.
Investments in securities not listed on a securities exchange shall be valued
based on their last quoted bid price or, if not available, their fair value as
determined by the Board of Trustees or its delegate. Fixed income 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.

C. Investment Income-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Bond discount is amortized over
the expected life of each applicable security.

D. Organizational Expenses and Initial Registration Costs-The Fund has reim-
bursed Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC") for

Notes to Financial Statements (Continued)
June 30, 1995

costs incurred in connection with the Fund's organization and initial
registration in the amount of $115,000. These costs are being amortized on a
straight line basis over the 60 month period ending July 28, 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 by the Fund 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.

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 $5,186,334, 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.

F. Distribution of Income and Gains-The Fund declares and pays dividends
quarterly from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on foreign currency
transactions. 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 $74,813 were reclassified from
accumulated net realized gain/loss on investments to accumulated undistributed
net investment income.
Net realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains and gains
on option and futures transactions. All short-term capital gains and a portion
of option and futures gains are included as ordinary income for tax purposes.
The Board of Trustees of the Fund declared a dividend of $.150 per share for
Class A shares, $.123 per share for Class B shares and $.123 per share for Class
C shares, aggregating approximately $1,320,500 from net investment income,
payable July 11, 1995, to shareholders of record on July 11, 1995.

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 Net Assets % Per Annum
- ------------------------------------
<S> <C>
First $500 million ... .65 of 1%
Next $500 million .... .60 of 1%
Over $1 billion ...... .55 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 $97,200 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
$17,800.
At June 30, 1995, VKAC owned 104, 103 and 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.

Notes to Financial Statements (Continued)
June 30, 1995

At June 30, 1995, paid in surplus aggregated $54,774,866, $88,342,760 and
$1,345,079 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 ...................... 542,836 $ 7,012,472
Class B ...................... 907,385 11,745,156
Class C ....................... 34,020 436,224
Class D ....................... -0- -0-
--------- --------------
Total Sales ................... 1,484,241 $ 19,193,852
--------- --------------
Dividend Reinvestment:
Class A ...................... 150,900 $ 1,918,578
Class B ...................... 196,967 2,507,508
Class C ....................... 2,830 35,996
Class D ....................... 1 6
--------- --------------
Total Dividend Reinvestment ... 350,698 $ 4,462,088
--------- --------------
Repurchases:
Class A ...................... (918,564) $ (11,858,442)
Class B ...................... (1,539,119) (19,841,320)
Class C ....................... (30,118) (382,553)
Class D ....................... (115) (1,599)
--------- --------------
Total Repurchases ............ (2,487,916) $ (32,083,914)
--------- --------------
</TABLE>

Notes to Financial Statements (Continued)
June 30, 1995

At June 30, 1994, paid in surplus aggregated $57,702,258, $93,931,416,
$1,255,412 and $1,593 for Classes A, B, C and D, respectively. For the period
ended June 30, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 4,376,491 $ 63,097,058
Class B ...................... 6,920,468 99,775,499
Class C ....................... 94,980 1,346,223
Class D ....................... 114 1,593
---------- --------------
Total Sales ................... 11,392,053 $ 164,220,373
---------- --------------
Dividend Reinvestment:
Class A ...................... 74,103 $ 1,036,464
Class B ...................... 98,967 1,383,421
Class C ....................... 981 13,640
Class D ....................... -0- -0-
---------- --------------
Total Dividend Reinvestment ... 174,051 $ 2,433,525
---------- --------------
Repurchases:
Class A ...................... (461,081) $ (6,432,694)
Class B ...................... (520,439) (7,228,934)
Class C ....................... (7,331) (104,451)
Class D ....................... -0- -0-
---------- --------------
Total Repurchases ............ (988,851) $ (13,766,079)
---------- --------------
</TABLE>

Notes to Financial Statements (Continued)
June 30, 1995

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.

<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 $35,000
and CDSC on the redeemed shares of Classes B and C of approximately $483,100.
Sales charges do not represent expenses of the Fund.
The Board of Trustees has approved the acquisition of the assets and
liabilities of the American Capital Utilities Income Fund (the "AC Fund"), which
currently has net assets of approximately $27.7 million. This transaction,
subject to approval by shareholders of the AC Fund, is expected to be completed
in September 1995. As a result of this transaction, the Fund will issue fund
shares equal in value to the net assets of the AC 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 $142,714,031 and
$162,105,948, 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.

Notes to Financial Statements (Continued)
June 30, 1995

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.
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 provide the
return of an index without purchasing all of the securities underlying the
index.
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 ......... 112 $ (245,896)
Options Written and Purchased (Net) ... 2,400 (269,543)
Options Terminated in Closing
Transactions (Net) .................... (2,512) 515,439
-------- -----------
Outstanding at June 30, 1995 ......... -0- $ -0-
-------- -----------
</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 $655,200.

Independent Auditors' Report

The Board of Trustees and Shareholders of Van Kampen Merritt Utility Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Utility 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 the period then
ended and for the period from July 28, 1993 (commencement of investment
operations) through June 30, 1994, 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 audit provides 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 Utility Fund as of June 30, 1995, the results of its operations
for the year then ended, the changes in its net assets for the period then ended
and for the period from July 28, 1993 (commencement of investment operations)
through June 30, 1994, 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

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

Van Kampen Merritt Utility 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.

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 ... 12
Statement of Operations .............. 13
Statement of Changes in Net Assets .... 14
Financial Highlights ................. 15
Notes to Financial Statements ......... 18
Independent Auditors' Report ......... 24
</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

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 Balanced Fund

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
Quotron Symbol ................... VKBAX VKBBX VKBCX
One-year total return
based on NAV<F1> ................. 11.53% 10.82% 10.82%
One-year total return<F2> ........ 5.13% 6.82% 9.82%
Life-of-Fund cumulative
total return based on NAV<F1> ... 11.53% 10.82% 10.82%
Life-of-Fund cumulative
total return<F2> ................ 5.13% 7.07% 10.82%
Commencement date ............... 06/24/94 06/24/94 06/24/94

<F2>Standardized total return for the period ended 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. Investor's shares, when redeemed, may be
worth more or less than their original cost.
</TABLE>

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 Standard & Poor's 500 Composite
Stock 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 Balanced Fund vs. S&P 500 Composite Stock Index and a Hybrid Index of
stocks and bonds*
(June 1994 through June 1995)

OPENING VALUE

[LINE GRAPH]

S&P 500 Hybrid Index* of Balanced
Composite 60% Stocks & Fund Class A
Stock Index 40% Bonds Shares
<S> <C> <C> <C>
30-Jun-94 10,000 10,000 9,427
31-Jul-94 10,315 10,249 9,529
31-Aug-94 10,703 10,513 9,684
30-Sep-94 10,489 10,324 9,562
31-Oct-94 10,708 10,465 9,568
30-Nov-94 10,285 10,218 9,423
31-Dec-94 10,487 10,322 9,436
31-Jan95 10,741 10,550 9,536
28-Feb-95 11,129 10,878 9,797
31-Mar-95 11,505 11,095 9,918
30-Apr-95 11,826 11,342 10,128
31-May-95 12,256 11,742 10,351
30-Jun-95 12,599 11,936 10,513
</TABLE>

*The Hybrid Index is a simulated composite reflecting 60% of the S&P 500 Index
return and 40% of the Lehman Brothers Intermediate Government Index return.
This index is included in addition to the S&P 500 Index as it provides a better
approximation of the Fund's asset mix of both stocks and bonds.

Portfolio Management Review

Van Kampen Merritt Balanced Fund

The following is an interview with the management team of the Van Kampen Merritt
Balanced Fund, including Dan H. Smith, portfolio manager, and Peter W. Hegel,
executive vice president, Van Kampen American Capital Investment Advisory Corp.

Q. What factors had the greatest impact on the Fund's performance during the
past year?
A. The Fund was started in June 1994, so this report marks the end of its first
full year of operation. The Fund got off to a slow start last summer as a large
portion of the Fund's initial offering proceeds were held in cash equivalents.
During 1994, the Fund's performance also was hurt by the impact of rising
interest rates. The Federal Reserve Board repeatedly raised short-term interest
rates in 1994 to try to slow economic growth and, as a result, stock prices
fell.
The Fund's performance began to turn around in the fourth quarter of 1994 and
really picked up in 1995. During the first half of 1995, interest rates fell
while earnings growth remained strong, creating an excellent environment for
most stocks. As a result, stock prices rallied in a broad-based recovery that
was led by the technology sector. Additionally, a continuous stream of
announcements regarding mergers, corporate restructurings and stock repurchase
programs helped propel the market higher.

Q. How did you respond to the changing interest-rate environment?
A. We slightly decreased the percentage of the portfolio invested in stocks
and increased the allocation to bonds. When we started the Fund, the initial
asset allocation was 60 percent stocks and 40 percent bonds. At the end of the
reporting period the allocation was 58-42. We did this because bonds looked
attractive at the end of 1994 after performing poorly during most of last year.
In addition, we felt that if economic growth slowed it would impact corporate
earnings and, therefore, hurt stock prices more than bonds. Most of the fixed-
income portion of the portfolio is invested in U.S. Treasury securities. The
diversification of the portfolio is illustrated by the chart below.

Portfolio Holdings by Industry as of June 30, 1995

[PIE CHART]

Foreign 3.5%
Oil & Gas 3.7%
Telecommunications 5.6%
Healthcare 3.0%
Other 32.6%
Government 39.6%
Electronics 5.8%
Personal/Food 6.2%

Q. What stocks in the portfolio performed particularly well during the past
year?
A. There were a number of stocks that did well, including consumer products
companies such as Philip Morris, Colgate, Procter & Gamble and Pepsi, and
financial services firms like Capital One Financial (a credit card issuer),
BankAmerica, Bank of Boston and Freddie Mac. Large-capitalization growth
companies had underperformed the market for two-and-a-half years prior to
1994 and represented good value. They also tend to do better in a less robust
environment. As we discussed earlier, financial services companies benefited
from the decline in interest rates.
The Fund also benefited from its holdings of AMR, the parent company of
American Airlines. After a period of several years of intense price cutting and
increased emphasis on short-haul routes, the airlines started to do better this
year as a result of reduced cost structures and increased fares. Of course, not
all of the securities in the portfolio performed as well, and past performance
is no guarantee of future results.

Q. How did the Fund perform during the twelve months ended June 30, 1995?
A. Class A shares of the Fund achieved a total return at net asset value of
11.53 percent <F1>. By comparison, the Standard & Poor's 500-Stock Index, a
broad-based, unmanaged index that reflects general stock market performance,
achieved a total return of 25.99 percent. An index comprised of 60 percent of
the S&P 500 and 40 percent of the Lehman Brothers Intermediate Government Index
achieved a total return of 18.55 percent. 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's ahead for the Fund in the next six months?
A. The performance of the stock market during the rest of the year will depend,
in large part, on what action the Fed takes with regard to short-term interest
rates. The stock market also will be dependent upon the degree to which the
slowdown in economic activity that seems to be under way impacts corporate
earnings. The recent cut in rates should increase economic growth and cause
the stock market to continue to perform well in the near-term. However, if
economic growth accelerates rapidly to the point of causing inflation, then
stocks would not perform as well.

Since our investment style is to remain fully invested and broadly
diversified, we will continue to focus on stock selection and pick stocks that
should do well regardless of changes in interest and economic growth rates. We
believe merger and restructuring activity will remain strong, which may help the
performance of stocks in the portfolio.

Peter W. Hegel Dan H. Smith
Executive Vice President Portfolio Manager
Van Kampen American Capital

6 Please see footnotes on page three

Portfolio of Investments

June 30, 1995

Security Market
Description Shares Value
<S> <C> <C>
Common and Preferred Stock 55.2%
Aerospace & Defense 0.5%
Northrop Corp. .................................................... 1,100 $ 57,338
--------
Automobile 2.0%
Borg Warner Automotive Inc. ...................................... 2,600 74,100
Exide Corp. ........................................................ 1,800 77,400
General Motors Corp. - Preferred ................................. 1,400 88,200
--------
239,700
--------
Banking 1.6%
Bank of Boston Corp. ............................................. 1,700 63,750
Bankamerica Corp. ................................................. 1,175 61,834
Crestar Financial Corp. ........................................... 1,275 62,475
--------
188,059
--------
Broadcast, Radio & Television 1.0%
Viacom Inc. ...................................................... 2,500 115,937
--------
Buildings & Materials 0.8%
Owens Corning Fiberglass Corp. .................................... 1,375 50,703
USG Corp. <F2> ..................................................... 2,000 47,500
--------
98,203
--------
Buildings & Real Estate 2.1%
Health & Retirement Property Trust ................................ 4,040 60,600
Healthcare Realty Trust Inc. ....................................... 4,845 98,111
Premium Standard Farms Exchangeable Preference Units - Preferred ... 752 92,496
--------
251,207
--------
Chemical 0.5%
Praxair Inc. ....................................................... 2,400 60,000
Computers 2.7%
Compaq Computer Corp. ............................................. 1,400 63,525
International Business Machines .................................... 600 57,600
Lotus Development Corp. ........................................... 1,750 111,562
Oracle Systems Corp. ............................................... 2,500 96,563
--------
329,250
--------
Consumer Services 0.2%
Omnicom Group Common ................................................ 500 30,313
--------

Diversified/Conglomerate Manufacturing 1.8%
Eastman Kodak Co. ................................................. 1,190 72,144
General Electric Co. .............................................. 615 34,671
McDermott International Inc. ....................................... 3,370 81,302
Trinity Industries Inc. ........................................... 725 24,106
--------
212,223
--------
</TABLE>

7 See Notes to Financial Statements

Portfolio of Investments (Continued)

JUNE 30, 1995

Security Market
Description Shares Value
<S> <C> <C>
Diversified/Conglomerate Service 0.6%
PHH Corp. ................................ 1,500 $ 66,750
--------
Ecological 0.5%
Wheelabrator Technologies Inc. ............ 4,200 64,575
--------
Electric Utilities 1.3%
CMS Energy Corp. ......................... 1,310 32,259
Houston Industries Inc. ................... 1,075 45,284
Northeast Utilities ....................... 2,000 45,000
Public Service Enterprise Group .......... 1,400 38,850
--------
161,393
--------
Electronics 4.8%
American Power Conversion Corp. <F2> ....... 3,000 68,625
Avnet Inc. ................................. 2,620 126,742
Litton Industries Inc. ..................... 1,625 59,922
Motorola Inc. ............................. 1,500 100,687
National Semiconductor Corp. - Preferred ... 1,000 98,625
Southern Co. .............................. 1,500 33,563
Teco Energy Inc. ........................... 2,155 47,141
Westinghouse Electric Corp. - Preferred ... 3,000 45,375
--------
580,680
--------
Entertainment 0.5%
Carnival Corp. ............................ 2,500 58,438
--------
Farming & Agriculture 0.6%
IMC Global Inc. ........................... 1,320 71,445
--------
Financial Services 4.9%
American General Corp. .................... 1,660 56,025
Aon Corp. ................................. 2,360 87,910
Capital One Financial Corp. <F2> ........... 3,700 72,150
Chubb Corp. ............................... 620 49,678
Citicorp .................................. 1,125 65,109
ITT Corp. ................................. 1,000 117,500
Morgan, J.P. & Co. Inc. ................... 800 56,100
Reliance Group Holdings Inc. .............. 13,625 88,562
--------
593,034
--------
Government and Agency (U.S.) 0.8%
Federal Home Loan Mortgage Corp. <F2> ...... 1,330 91,438
--------

</TABLE>

8 See Notes to Financial Statements

Portfolio of Investments (Continued)

June 30, 1995

Security Market
Description Shares Value
<S> <C> <C>
Healthcare 2.9%
Baxter International Inc. .... 2,080 $ 75,660
Bristol Myers Squibb Co. ..... 940 64,038
Merck & Co. Inc. ............. 1,500 73,500
Tenet Healthcare Corp. <F2> ... 3,650 52,469
U.S. Healthcare Inc. ......... 2,700 82,687
--------
348,354
--------
Leisure 0.5%
Hasbro Inc. ................... 1,800 57,150
--------
Mining 0.6%
Cyprus Amax Minerals Co. ...... 2,660 75,810
--------
Oil & Gas 3.5%
Amoco Corp. .................. 1,250 83,281
Atlantic Richfield Co. ....... 600 65,850
Enron Corp. .................. 1,700 59,713
Exxon Corp. ................... 1,200 84,750
Mobil Corp. .................. 925 88,800
Peco Energy Co. ............... 1,680 46,410
--------
428,804
--------
Paper 0.7%
Fort Howard Corp. <F2> ........ 6,150 86,869
--------
Personal/Food 5.9%
Dean Foods Co. ............... 3,050 85,400
Fleming Cos. Inc. ............. 1,250 33,125
McDonalds Corp. ............... 1,100 43,038
Pepsico Inc. .................. 2,000 91,250
Philip Morris Cos. Inc. ...... 1,500 111,562
Ralston Purina Co. ........... 1,850 94,350
Sara Lee Corp. ............... 4,250 121,125
Sysco Corp. ................... 2,200 64,900
Vons Cos. Inc. <F2> ........... 3,640 73,255
--------
718,005
--------
Personal & Non-Durable 1.2%
Colgate Palmolive Co. ........ 1,200 87,750
Procter & Gamble Co. .......... 860 61,812
--------
149,566
--------
Printing & Publishing 0.6%
McGraw Hill Inc. .............. 960 72,840
--------
</TABLE>

9 See Notes to Financial Statements

Portfolio of Investments (Continued)

June 30, 1995

Security Market
Description Shares Value
<S> <C> <C>
Retail 1.9%
Federated Department Stores Inc. <F2> ............................. 5,050 $ 130,037
May Department Stores Co. ........................................ 1,500 62,438
Wal-Mart Stores Inc. .............................................. 1,200 32,100
----------
224,575
----------
Telecommunications 5.4%
Airtouch Communications Inc. ..................................... 1,250 35,625
Ameritech Corp. ................................................... 1,375 60,500
AT & T Corp. ..................................................... 1,450 77,031
Bellsouth Corp. .................................................. 1,200 76,200
DSC Communications Corp. <F2> ...................................... 2,250 104,625
GTE Corp. ........................................................ 1,800 61,425
Nynex Corp. ....................................................... 1,910 76,878
SBC Communications Inc. .......................................... 1,280 60,960
Tele Communications Inc. .......................................... 4,200 98,437
----------
651,681
----------
Textiles 0.7%
Westpoint Stevens Inc. <F2> ........................................ 4,800 85,800
----------
Transportation 0.8%
AMR Corp. <F2> ..................................................... 1,300 97,012
----------
Foreign 3.3%
Alcatel Alsthom Compagnie Generale d' Electricite ADR (France) ... 6,200 112,375
Ericsson L M Telephone Co. ADR (Sweden) .......................... 2,800 56,000
Glaxo PLC ADR (United Kingdom) ................................... 2,575 62,766
Portugal Telecom SA ADR (Portugal) <F2> ........................... 100 1,900
Repsol SA ADR (Spain) ............................................ 1,800 56,925
Tele Danmark A/S ADR (Denmark) <F2> ............................... 1,590 44,520
TransCanada Pipelines Ltd (Canada) ................................ 3,000 40,125
Westcoast Energy Inc. (Canada) ................................... 1,750 25,812
----------
400,423
----------
Total Common and Preferred Stock .................................. 6,666,868
----------
Fixed Income Securities 40.6%
Broadcast, Radio & Television 0.7%
Time Warner Inc. ($82,000 par, 8.75% coupon, 01/10/15 maturity,
S&P rating BB+) ................................................... 85,485
----------
Diversified/Conglomerate Manufacturing 2.0%
United Technologies Corp. - Convertible ($233,000 par, 0% coupon,
09/08/97 maturity, S&P rating NR) ................................. 241,155
----------
Electronics 0.7%
Thermo Electron Corp. Senior Debenture - Convertible ($65,000 par,
5.00% coupon, 04/15/01 maturity, S&P rating A) .................... 88,075
----------
</TABLE>

10 See Notes to Financial Statements

Portfolio of Investments (Continued)

Security Market
Description Value

<S> <C>
Government and Agency (U.S.) 37.2%
Federal Home Loan Bank Corp. Series P2 ($1,000,000 par, 8.50% coupon,
02/08/02 maturity, S&P rating AAA) .................................. $ 1,051,470
US Treasury Notes ($1,000,000 par, 6.875% coupon, 07/31/99 maturity,
S&P rating AAA) .................................................... 1,031,430
US Treasury Notes ($750,000 par, 7.50% coupon, 10/31/99 maturity,
S&P rating AAA) .................................................... 792,098
US Treasury Notes ($1,500,000 par, 7.50% coupon, 11/15/01 maturity,
S&P rating AAA) .................................................... 1,610,175
------------
4,485,173
------------
Total Fixed Income Securities ....................................... 4,899,888
------------
Total Long-Term Investments 95.8%
(Cost $10,758,050) <F1> ............................................. 11,566,756
Repurchase Agreement 2.9%
UBS Securities, U.S. T-Note, $349,000 par, 6.10% coupon, due 01/15/99,
dated 06/30/95, to be sold on 07/03/95 at $349,177 .................. 349,000
Other Assets in Excess of Liabilities 1.3% ......................... 153,938
------------
Net Assets 100% .................................................... $ 12,069,694
------------

<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $10,758,050; the
aggregate gross unrealized appreciation is $859,847 and the aggregate
gross unrealized depreciation is $51,141, resulting in net unrealized
appreciation of $808,706.
<F2> Non-income producing security as this stock currently does not declare
dividends.
</TABLE>

11 See Notes to Financial Statements

Statement of Assets and Liabilities

June 30, 1995

<S> <C>
Assets:
Investments, at Market Value (Cost $10,758,050) (Note 1) ............................ $ 11,566,756
Short-Term Investments (Note 1) ..................................................... 349,000
Cash ............................................................................... 56,824
Receivables:
Interest ......................................................................... 89,012
Fund Shares Sold ................................................................. 40,251
Dividends ....................................................................... 20,280
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) ........ 63,693
------------
Total Assets ........................................................................ 12,185,816
------------
Liabilities:
Payables:
Income Distributions ............................................................ 22,907
Fund Shares Repurchased ......................................................... 12,856
Accrued Expenses .................................................................... 80,359
------------
Total Liabilities ................................................................... 116,122
------------
Net Assets .......................................................................... $ 12,069,694
------------
Net Assets Consist of:
Paid in Surplus (Note 3) .......................................................... $ 11,242,362
Net Unrealized Appreciation on Investments ......................................... 808,706
Accumulated Undistributed Net Investment Income .................................... 28,186
Accumulated Net Realized Loss on Investments ........................................ (9,560)
------------
Net Assets .......................................................................... $ 12,069,694
------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $4,750,911 and
308,746 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 15.39
Maximum sales charge (5.75%* of offering price) ..................................... .94
------------
Maximum offering price to public .................................................... $ 16.33
------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $6,567,967 and
426,808 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 15.39
-----------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $750,816 and
48,792 shares of beneficial interest issued and outstanding) (Note 3) .............. $ 15.39
-----------
*On sales of $50,000 or more, the sales charge will be reduced.
</TABLE>

12 See Notes to Financial Statements

Statement of Operations

For the Period June 24, 1994 (Commencement of Investment Operations)
to June 30, 1995

<S> <C>
Investment Income:
Interest ............................................................................... $ 376,648
Dividends (Net of foreign withholding taxes of $4,922) ................................ 165,939
------------
Total Income .......................................................................... 542,587
------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of
$12,732, $58,308, $4,287 and $4, respectively) (Note 6) ................................ 75,331
Investment Advisory Fee (Note 2) ...................................................... 73,534
Custody ............................................................................... 54,802
Shareholder Services .................................................................. 32,881
Printing .............................................................................. 26,254
Audit ................................................................................. 18,600
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) ....... 16,307
Legal (Note 2) ........................................................................ 12,513
Trustees Fees and Expenses (Note 2) .................................................... 8,181
Other ................................................................................. 17,865
------------
Total Expenses ......................................................................... 336,268
Less Fees Waived and Expenses Reimbursed ($73,534 and $96,010, respectively) .......... 169,544
------------
Net Expenses ........................................................................... 166,724
------------
Net Investment Income .................................................................. $ 375,863
------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales .................................................................... $ 11,063,440
Cost of Securities Sold ................................................................ 11,073,000
------------
Net Realized Loss on Investments (Including realized loss on closed and expired
option transactions of $79,892 and realized gain on futures transactions of $57,054) ... (9,560)
-------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ............................................................... -0-
End of the Period ..................................................................... 808,706
------------
Net Unrealized Appreciation on Investments During the Period ........................... 808,706
------------
Net Realized and Unrealized Gain on Investments ........................................ $ 799,146
------------
Net Increase in Net Assets from Operations ............................................ $ 1,175,009
------------
</TABLE>

13 See Notes to Financial Statements

Statement of Changes in Net Assets

For the Period June 24, 1994 (Commencement of Investment Operations)
to June 30, 1995

<S> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................................ $ 375,863
Net Realized Loss on Investments ................................................. (9,560)
Net Unrealized Appreciation on Investments During the Period ..................... 808,706
------------
Change in Net Assets from Operations ............................................ 1,175,009
------------
Distributions from Net Investment Income:
Class A Shares ................................................................... (156,268)
Class B Shares ................................................................... (177,438)
Class C Shares .................................................................. (13,922)
Class D Shares .................................................................. (49)
-------------
Total Distributions ............................................................. (347,677)
-------------
Net Change in Net Assets from Investment Activities ............................. 827,332
-------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ........................................................ 13,761,643
Net Asset Value of Shares Issued Through Dividend Reinvestment ................... 264,667
Cost of Shares Repurchased ....................................................... (2,789,668)
-------------
Net Change in Net Assets from Capital Transactions .............................. 11,236,642
-------------
Total Increase in Net Assets ..................................................... 12,063,974
Net Assets:
Beginning of the Period ......................................................... 5,720
------------
End of the Period (Including undistributed net investment income of $28,186) ... $ 12,069,694
------------
</TABLE>

14 See Notes to Financial Statements

Financial Highlights

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

From June 24, 1994
(Commencement of
Investment Operations)
Class A Shares to June 30, 1995
<S> <C>
Net Asset Value, Beginning of Period .............................................. $ 14.300
----------
Net Investment Income ............................................................ .572
Net Realized and Unrealized Gain on Investments ................................... 1.041
----------
Total from Investment Operations .................................................. 1.613
Less Distributions from Net Investment Income .................................... .525
----------
Net Asset Value, End of Period .................................................... $ 15.388
----------
Total Return* (Non-Annualized) ................................................... 11.53%
Net Assets at End of Period (In millions) ........................................ $ 4.8
Ratio of Expenses to Average Net
Assets* (Annualized) .............................................................. 1.15%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ................................................. 4.01%
Portfolio Turnover ............................................................... 120.95%
* 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) .......................................................... 2.76%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ................................................... 2.40%
</TABLE>

15 See Notes to Financial Statements

Financial Highlights (Continued)

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

From June 24, 1994
(Commencement of
Investment Operations)
Class B Shares to June 30, 1995
<S> <C>
Net Asset Value, Beginning of Period .............................................. $ 14.300
---------
Net Investment Income ............................................................ .464
Net Realized and Unrealized Gain on Investments ................................... 1.056
---------
Total from Investment Operations .................................................. 1.520
Less Distributions from Net Investment Income .................................... .431
---------
Net Asset Value, End of Period .................................................... $ 15.389
---------
Total Return* (Non-Annualized) ................................................... 10.82%
Net Assets at End of Period (In millions) ........................................ $ 6.6
Ratio of Expenses to Average Net
Assets* (Annualized) .............................................................. 1.88%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ................................................. 3.27%
Portfolio Turnover ............................................................... 120.95%
* 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) .......................................................... 3.48%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ................................................... 1.67%

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 period indicated.

From June 24, 1994
(Commencement of
Investment Operations)
Class C Shares to June 30, 1995
<S> <C>

Net Asset Value, Beginning of Period .............................................. $ 14.300
----------
Net Investment Income ............................................................ .426
Net Realized and Unrealized Gain on Investments ................................... 1.093
----------
Total from Investment Operations .................................................. 1.519
Less Distributions from Net Investment Income .................................... .431
----------
Net Asset Value, End of Period .................................................... $ 15.388
----------
Total Return* (Non-Annualized) ................................................... 10.82%
Net Assets at End of Period (In millions) ........................................ $ .8
Ratio of Expenses to Average Net
Assets* (Annualized) .............................................................. 1.90%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ................................................. 3.19%
Portfolio Turnover ............................................................... 120.95%
* 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) .......................................................... 3.48%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ................................................... 1.61%

17 See Notes to Financial Statements
</TABLE>

Notes to Financial Statements

June 30, 1995

1. Significant Accounting Policies

Van Kampen Merritt Balanced Fund (the "Fund") was organized as a subtrust of the
Van Kampen Merritt Equity Trust, a Massachusetts business trust, on March 17,
1994, 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 June 24, 1994 with four classes of common shares,
Classes A, B, C and D shares. 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 in securities listed on a securities exchange
shall be valued at their sale price as of the close of such securities exchange.
Investments in securities not listed on a securities exchange shall be valued
based on their last quoted bid price or,
if not available, their fair value as determined by the Board of Trustees or its
delegate. Fixed income 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.

D. Organizational Expenses and Initial Registration Costs-The Fund has agreed to
reimburse Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC")

Notes to Financial Statements (Continued)

June 30, 1995

for costs incurred in connection with the Fund's organization and initial
registration in the amount of $80,000. These costs are being amortized on a
straight line basis over the 60 month period ending June 24, 1999. 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.

E. 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 loss carryforward
for tax purposes of $9,560, 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.

F. Distribution of Income and Gains-The Fund declares daily and pays quarterly
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 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 ... .70 of 1%
Over $500 million .... .65 of 1%
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995

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
$4,400.
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.
At June 30, 1995, paid in surplus aggregated $4,424,914, $6,123,381 and
$694,067 for Classes A, B and C, respectively. For the period ended June 30,
1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Sales:
Class A ...................... 375,263 $ 5,399,046
Class B ...................... 532,317 7,659,184
Class C ...................... 49,426 703,213
Class D ...................... 14 200
------- ----------
Total Sales .................. 957,020 $ 13,761,643
------- ----------
Dividend Reinvestment:
Class A ...................... 8,285 $ 121,482
Class B ...................... 9,487 139,212
Class C ...................... 273 3,968
Class D ...................... -0- 5
------ --------
Total Dividend Reinvestment ... 18,045 $ 264,667
------ --------
Repurchases:
Class A ...................... (74,902) $ (1,097,044)
Class B ...................... (115,096) (1,676,445)
Class C ...................... (1,007) (14,544)
Class D ...................... (114) (1,635)
--------- -----------
Total Repurchases ............. (191,119) $ (2,789,668)
--------- -----------
</TABLE>

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 period ended June 30, 1995, VKAC, as Distributor for the Fund, paid
net commissions on sales of the Fund's Class A shares of approximately $800 and
received CDSC
on the redeemed shares of Classes B and C of approximately $40,800. 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 period ended June 30, 1995, were $21,436,677 and
$10,690,895, 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, to manage the portfolio's effective yield, maturity and duration 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

Notes to Financial Statements (Continued)

June 30, 1995

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. The Fund generally invests in options on U.S.
Treasury bonds and the S&P 500 Index. These contracts are generally used by the
Fund to manage the portfolio's effective maturity and duration and as a
substitute for purchasing or selling specific securities.
Transactions in options for the period ended June 30, 1995 were as follows:

<TABLE>
<CAPTION>
Contracts Premium
<S> <C> <C>
Options Written and
Purchased (Net) ............. 535 $ (83,008)
Options Terminated in Closing
Transactions (Net) ......... (335) 55,633
Options Expired (Net) ...... (200) 27,375
-------- ----------
Outstanding at
June 30, 1995 .............. -0- $ -0-
-------- ----------
</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 the S&P 500 Index and typically closes the
contract prior to the delivery date. These contracts are generally used as a
substitute for purchasing or selling specific securities.
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 period ended June 30, 1995, were as
follows:

<TABLE>
<CAPTION>
Contracts
<S> <C>
Futures Opened ................. 6
Futures Closed ................. (6)
--------
Outstanding at June 30, 1995 ... -0-
--------
22
</TABLE>

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 shares and 1.00% each
for Class B and Class C shares are accrued daily. Included in these fees for the
period ended June 30, 1995, are payments to VKAC of approximately $50,600.

Independent Auditors' Report

The Board of Trustees and Shareholders of
Van Kampen Merritt Balanced Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Balanced Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1995, and the related statement of operations, the
statement of changes in net assets and the financial highlights for the period
from June 24, 1994 (commencement of investment operations) through June 30,
1995. 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 Balanced Fund as of June 30, 1995, the results of its operations,
the changes in its net assets and financial highlights for the period from June
24, 1994 (commencement of investment operations) through June 30, 1995, in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
July 27, 1995

Van Kampen Merritt Balanced 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.