<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio of Investments ............. 4
Statement of Assets and Liabilities ... 11
Statement of Operations .............. 12
Statement of Changes in Net Assets .... 13
Financial Highlights ................. 14
Notes to Financial Statements ......... 16
Independent Auditors' Report ......... 21
</TABLE>
Letter to Shareholders
August 3, 1995
Dear Shareholder:
The fiscal year ended June 30, 1995 has been a very positive one for most
investors. After a poor first half, both the fixed-income and stock markets have
made considerable gains.
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. Although municipal bond
yields have declined, they are still offering compelling yields, particularly to
investors in high tax brackets. Average yields on municipal bonds reached 90
percent of their taxable counterparts during the fiscal year ended June 30,
1995.
Performance Summary
For the fiscal year ended June 30, 1995, the Trust generated a total return at
market price of 8.59 percent<F1>. This return reflects a market price per common
share on the New York Stock Exchange of $11.125 at both the beginning and end of
the period, and reinvestment of dividends totaling $0.84 per share.
1 (Continued on page two)
Additionally, the Trust produced a tax-exempt distribution rate of 7.55
percent<F3>, based on the closing stock price of $11.125 per share on June 30,
1995. Since income from the Trust is exempt from federal income tax, it is
important to compare the Trust's distribution rate to
an equivalent taxable rate. For example, for investors in the 36 percent federal
income tax bracket, the Trust's distribution rate represents a yield equivalent
to a taxable investment earning 11.80 percent <F4>.
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 that
the Fed will move cautiously 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 this generally slow
growth and low inflation outlook, we believe that fixed-income
markets---including municipal bonds---will continue to make attractive gains as
interest rates fall. We believe that the municipal bond market has probably
overreacted to developments in Orange County, California and that the discounts
currently impacting prices will likely diminish over the short term.
During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At this
point, no one knows for sure what will happen or when it might actually take
place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.
Once again, it is important to remember that financial markets will inevitably
experience highs and lows, but by maintaining a long-term investment
perspective, it may allow you to ride the ups and downs of the markets more
easily as you pursue your investment goals.
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 Trust.
Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.
2
<TABLE>
<CAPTION>
Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt Municipal Income Trust
(NYSE Ticker Symbol-VMT)
<S> <C>
Total Returns
One-year total return based on market price<F1> ................................... 8.59%
One-year total return based on NAV<F2> ........................................... 7.24%
Distribution Rates
Distribution rate as a % of initial offer stock price<F3> ......................... 8.40%
Taxable-equivalent distribution rate as a % of initial offer stock price<F4> ...... 13.13%
Distribution rate as a % of 06/30/95 closing stock price<F3> ..................... 7.55%
Taxable-equivalent distribution rate as a % of 06/30/95 closing stock price<F4> ... 11.80%
Share Valuations
Net asset value as of 06/30/95 .................................................... $ 9.76
Closing stock price as of 06/30/95 ............................................... $ 11.125
One-year high common stock price (04/12/95) ....................................... $ 11.375
One-year low common stock price (11/11/94) ....................................... $ 9.000
Preferred share (Series A) rate as of 06/30/95<F5> ................................ 4.084%
Preferred share (Series B) rate as of 06/30/95<F5> ................................ 3.915%
Preferred share (Series C) rate as of 06/30/95<F5> ................................ 3.886%
<FN>
<F1>Total return based on market price assumes an investment at the market price at
the beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale of
all shares at the closing stock price at the end of the period indicated.
<F2>Total return based on Net Asset Value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at net asset value.
<F3>Distribution rate represents the monthly annualized distributions of the Trust
at the end of the period and not the earnings of the Trust.
<F4>The taxable-equivalent distribution rate is calculated assuming a 36% federal
tax bracket.
<F5>See "Notes to Financial Statements" footnote #6, for more information
concerning Preferred Share reset periods.
</TABLE>
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
3
Portfolio of Investments
June 30, 1995
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Alaska 1.9%
$ 345 Alaska St Hsg Fin Corp Rfdg ...................... 7.800% 12/01/30 $ 362,764
1,895 Kasaan, AK Lease Rev ............................. 8.000 08/15/10 2,095,870
1,955 Kasaan, AK Lease Rev ............................. 8.000 08/15/16 2,128,995
3,500 North Slope Borough, AK Ser B (Cap Guar Insd) ... 6.100 06/30/99 3,691,135
----------
8,278,764
----------
Arkansas 0.2%
1,000 Conway, AR Hosp Rev Conway Regl Hosp Rfdg .......... 8.375 07/01/11 1,078,390
----------
California 6.6%
11,150 California Hsg Fin Agy Rev Homeowner Mtg Ser D .... * 08/01/20 1,576,722
5,000 Contra Costa, CA Home Mtg Fin Auth Home
Mtg Rev (MBIA Insd) ............................... * 09/01/17 1,160,000
5,000 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev
Multi Cap Fac Proj IV (MBIA Insd) ................. 4.750 12/01/13 4,328,750
2,690 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev
Multi Cap Fac Proj IV (MBIA Insd) ................. 5.250 12/01/16 2,460,489
7,000 Metro Wtrwks Dist Southern CA ..................... 5.808 08/05/22 6,816,040
5,000 Mount Diablo, CA Hosp Dist Rev Ser A
(Embedded Cap) (AMBAC Insd) ....................... 5.125 12/01/23 4,465,850
2,000 Northern California Pwr Agy Pub Pwr Rfdg
(AMBAC Insd) <F2> .................................. 5.850 07/01/10 2,019,900
6,075 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ... 6.000 06/01/09 6,057,625
----------
28,885,376
----------
Colorado 9.5%
2,000 Denver, CO City & Cnty Arpt Rev Ser A ............ 8.500 11/15/07 2,232,240
12,400 Denver, CO City & Cnty Arpt Rev Ser A ............ 8.250 11/15/12 13,551,464
5,600 Denver, CO City & Cnty Arpt Rev Ser A ............ 8.500 11/15/23 6,223,112
6,000 Denver, CO City & Cnty Arpt Rev Ser A ............ 8.750 11/15/23 6,828,540
6,000 Denver, CO City & Cnty Sch Dist No 1 Ser A Rfdg ... 5.125 12/01/12 5,485,560
2,000 Douglas Cnty, CO Sch Dist No 1 Rev Douglas &
Elbert Cntys Impt Ser A (MBIA Insd) .............. 6.400 12/15/11 2,109,080
3,000 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg .............................. 7.500 12/01/11 3,192,900
1,850 Montrose Cnty, CO Ctfs Partn ..................... 6.350 06/15/06 1,810,724
----------
41,433,620
----------
District of Columbia 1.9%
1,000 District of Columbia Ctfs Partn ................... 6.875 01/01/03 1,007,260
2,775 District of Columbia Hosp Rev Medlantic Hlthcare
Ser A Rfdg (MBIA Insd) ............................. 5.250 08/15/12 2,548,393
</TABLE>
4 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
June 30, 1995
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
District of Columbia (Continued)
$4,500 District of Columbia Ser A (Prerefunded @ 06/01/97)
(AMBAC Insd) <F3> .................................... 8.000% 06/01/07 $ 4,889,970
-----------
8,445,623
-----------
Florida 6.4%
3,150 Broward Cnty, FL Tourist Dev Tax Spl Rev
Convention Cent Proj (Prerefunded @ 10/01/98)
(FGIC Insd) ............................................. 7.750 10/01/13 3,546,553
5,000 Dunes, FL Cmnty Dev Dist Rev Wtr & Swr Proj
(Prerefunded @ 10/01/98) ................................ 8.250 10/01/18 5,694,850
4,660 Florida St Brd Edl Cap Outlay Pub Ed Ser A Rfdg
(Prerefunded @ 06/01/00) ................................ * 06/01/15 1,273,718
295 Largo, FL Sun Coast Hlth Sys Rev Ser 1993 ............... 5.750 03/01/99 288,315
285 Largo, FL Sun Coast Hlth Sys Rev Ser 1993 ............... 5.750 03/01/01 275,883
3,630 Orange Cnty, FL Hsg Fin Auth Mtg Rev Ser A .............. 8.375 03/01/21 3,924,103
4,095 Palm Beach Cnty, FL Hlth Fac Auth Rev JFK Med Cent
Inc Proj Ser 1988 Rfdg .................................. 8.875 12/01/18 4,536,769
5,685 Palm Beach Cnty, FL Hlth Fac Auth Rev JFK Med Cent
Inc Proj Ser 1988 Rfdg (Prerefunded @ 12/01/98) .......... 8.875 12/01/18 6,580,103
1,675 Pinellas Cnty, FL Hlth Fac Auth Sun Coast Hlth Sys
Rev Sun Coast Hosp Ser A (Prerefunded @ 03/01/00) ........ 8.500 03/01/20 1,974,389
-----------
28,094,683
-----------
Georgia 3.0%
7,000 Fulton Cnty, GA Lease Rev <F4> ........................... 7.250 06/15/10 7,510,090
2,300 Georgia Muni Elec Auth Pwr Rev Ser O .................... 8.125 01/01/17 2,522,042
2,635 Municipal Elec Auth GA Spl Oblig First Crossover
(MBIA Insd) ............................................. 6.500 01/01/20 2,838,475
-----------
12,870,607
-----------
Idaho 1.1%
4,390 Boise, ID Urban Renewal Agy Park Ser A ................... 8.125 09/01/15 4,843,575
-----------
Illinois 13.6%
3,035 Alsip, IL Indl Dev Rev New Process Steel Corp Proj ....... 8.300 10/01/04 3,225,021
2,500 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent Proj .... 8.375 09/01/14 2,659,575
14,810 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls
Inc Proj Ser 84A ........................................ 8.850 05/01/18 16,571,502
2,800 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls
Inc Proj Ser 84B ........................................ 8.850 05/01/18 3,154,704
4,895 Chicago, IL Pub Bldg Comm Bldg Rev Ser A
(MBIA Insd) ............................................. * 01/01/07 2,502,079
1,680 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D ...... 9.500 11/15/15 1,957,486
1,275 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D
(Prerefunded @ 11/15/00) ................................ 9.500 11/15/15 1,588,676
670 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser E ...... 9.500 11/15/19 780,664
</TABLE>
5 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
June 30, 1995
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (Continued)
$ 1,310 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser E (Prerefunded @ 11/15/00) ....................... 9.500% 11/15/19 $ 1,632,286
2,000 Illinois Hlth Fac Auth Rev Ingalls Hlth Sys Proj
(MBIA Insd) ......................................... 6.250 05/15/24 2,012,360
1,000 Illinois Hlth Fac Auth Rev Lutheran Social Svcs
Proj Ser A (Prerefunded @ 08/01/00) ................. 7.650 08/01/20 1,140,970
5,455 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys Rfdg ..... 6.000 11/15/23 5,163,812
2,000 Illinois Hlth Fac Auth Rev Servantcor Ser A Var Rate
Cpn (Prerefunded @ 08/15/01) ......................... 8.000 08/15/21 2,368,240
2,000 Illinois Hlth Fac Auth Rev Servantcor Ser B
(Prerefunded @ 08/15/99) ............................ 7.875 08/15/19 2,271,680
5,000 Illinois Hlth Fac Auth Rev Univ of Chicago Hosps Proj
(MBIA Insd) ......................................... 6.125 08/15/24 4,962,600
45,775 Illinois Hsg Dev Auth Multi-Family Hsg Ser A ........ * 07/01/27 3,950,840
1,745 Illinois Hsg Dev Auth Multi-Family Hsg Ser C ........ 7.400 07/01/23 1,841,795
1,250 Sangamon Cnty, IL Ctfs Partn ........................ 10.000 12/01/06 1,700,350
----------
59,484,640
----------
Indiana 1.3%
1,370 Indiana Hlth Fac Fin Auth Hosp Rev Bartholomew
Cnty Hosp Proj (Prerefunded @ 08/15/00)
(Cap Guar Insd) ..................................... 7.750 08/15/20 1,584,926
1,650 Indiana St Edl Fac Auth Rev Univ Evansville Proj ..... 8.125 11/01/10 1,791,718
2,000 Indiana St Toll Fin Auth Toll Road Rev (FGIC Insd) ... 6.875 07/01/12 2,097,620
----------
5,474,264
----------
Louisiana 2.1%
2,239 Lafayette, LA Pub Fin Auth Single Family Mtg Rev
Ser A Var Rate Cpn ................................... 8.500 11/15/12 2,300,138
5,093 Louisiana Pub Fac Auth Rev Multi-Family Hsg Proj
Var Rate Cpn ......................................... 8.375 07/20/23 5,573,062
1,250 New Orleans, LA Hsg Dev Multi-Family Rev Ser A ....... 7.700 02/01/22 1,339,375
----------
9,212,575
----------
Maine 0.3%
1,335 Maine St Hsg Auth Ser C ............................. 8.300 11/15/20 1,440,772
----------
Maryland 0.5%
4,650 Baltimore, MD Cap Apprec Cons Pub Impt Ser
(FGIC Insd) .......................................... * 10/15/09 1,983,830
----------
Massachusetts 0.7%
2,695 Massachusetts St Hlth & Ed Fac Auth Rev Farmingham
Union Hosp Ser B (Prerefunded @ 07/01/00) ........... 8.500 07/01/10 3,169,724
----------
</TABLE>
6 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
June 30, 1995
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan 2.3%
$ 4,610 Michigan St Hosp Fin Auth Hosp Rev Battle Creek
Ser G Rfdg ..................................... 9.500% 11/15/15 $5,271,120
2,000 Michigan St Hosp Fin Auth Hosp Rev Bay Med
Cent Ser A Rfdg ................................ 8.250 07/01/12 2,131,460
2,300 Muskegon, MI Hosp Fin Auth Hosp Rev Hackley
Hosp Ser A ...................................... 8.000 02/01/08 2,514,590
---------
9,917,170
---------
Minnesota 1.6%
5,000 Duluth, MN Econ Dev Hlthcare Fac Rev
(Prerefunded @ 02/15/00) .......................... 8.375 02/15/20 5,870,350
6,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev
Ser A (MBIA Insd) .................................. * 01/01/22 1,201,800
---------
7,072,150
---------
Mississippi 0.6%
1,000 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res Inc. 9.500 04/01/16 1,064,620
1,500 Mississippi Hosp Equip & Fac MS Baptist Med Cent
Rfdg (MBIA Insd) .................................. 6.000 05/01/13 1,491,735
---------
2,556,355
---------
Missouri 1.4%
1,000 Clay Cnty, MO Indl Dev Auth Indl Dev Rev .......... 8.250 10/01/08 1,011,840
3,000 Missouri St Hsg Dev Cmnty Mtg Rev Ser B ........... 7.000 09/01/10 3,175,290
1,500 Phelps Cnty, MO Hosp Rev Phelps Cnty Regl
Med Cent (Prerefunded @ 03/01/00) ................. 8.300 03/01/20 1,754,940
---------
5,942,070
---------
Nebraska 2.1%
8,300 Nebraska Invt Fin Single Family Secs Pgm B
(Inverse Fltg) ................................... 10.508 03/15/22 9,347,875
---------
Nevada 1.3%
2,605 Nevada Hsg Div Single Family Pgm Ser B ............ 8.375 10/01/20 2,854,741
2,740 Washoe Cnty, NV Hosp Fac Rev Washoe Med Cent A
Rfdg (FSA Insd) .................................. 6.000 06/01/15 2,727,232
---------
5,581,973
---------
New York 10.2%
3,000 New York City Indl Spl Fac Terminal One Group
Assn Proj .......................................... 6.000 01/01/15 2,864,160
2,250 New York City Muni Wtr Fin Auth & Swr Sys Rev
(Prerefunded @ 06/15/01) ......................... 7.750 06/15/20 2,640,083
1,000 New York City Ser A .............................. 5.200 08/01/02 972,420
7,000 New York City Ser A Rfdg ......................... 7.000 08/01/04 7,530,530
3,800 New York City Ser C .............................. 7.000 08/15/08 3,944,742
1,000 New York City Tran Auth Tran Fac Livingston Plaza
Proj Rfdg (FSA Insd) .............................. 5.400 01/01/18 932,260
4,615 New York St Dorm Auth Rev St Univ Edl Fac Ser B ... 7.000 05/15/16 4,810,814
</TABLE>
7 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
June 30, 1995
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (Continued)
$ 1,110 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Fac Ser A .................................... 7.750% 08/15/11 $ 1,221,855
2,985 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Fac Ser A (Prerefunded @ 02/15/01) ............ 7.750 08/15/11 3,490,719
2,520 New York St Thruway Auth Genl Rev Spl Oblig
Crossover Ser A ................................... * 01/01/97 2,323,339
500 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser A Rfdg .................................... 5.500 01/01/08 474,435
2,200 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser C (Prerefunded @ 01/01/98) (AMBAC Insd) ... 7.750 01/01/13 2,428,360
7,000 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 2 (Prerefunded @ 01/01/01) ................. 7.500 01/01/18 8,082,340
2,635 New York St Urban Dev Corp Rev Youth Fac .......... 5.875 04/01/08 2,584,961
----------
44,301,018
----------
North Carolina 5.9%
7,000 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev
Ser B Rfdg (Embedded Cap) ......................... 6.000 01/01/14 6,743,030
4,225 North Carolina Muni Pwr (AMBAC Insd) .............. 5.750 01/01/15 4,090,349
15,000 North Carolina Muni Pwr Agy No 1 Catawba Elec
Rev (Embedded Cap) ................................. 6.000 01/01/12 14,692,200
----------
25,525,579
----------
North Dakota 0.4%
1,515 North Dakota St Hsg Single Family Mtg Rev Ser A .... 8.375 07/01/21 1,599,658
----------
Ohio 1.6%
3,965 Mason, OH Hlth Care Fac Rev (FHA Insd) ............ 7.625 02/01/40 4,283,191
12,160 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B ....... * 11/15/14 1,790,439
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd
Partnership Proj Rfdg (AMBAC Insd) ................. 6.375 04/01/29 1,031,070
----------
7,104,700
----------
Oregon 0.6%
2,500 Oregon St Hsg & Cmnty Svcs Dept Mtg Rev
Single Family Mtg Proj Ser B ...................... 6.875 07/01/28 2,606,325
----------
Pennsylvania 9.5%
6,000 Delaware Cnty, PA Indl Dev Auth Rev Res Recovery
Proj Ser A ......................................... 8.100 12/01/13 6,345,540
1,750 Emmaus, PA Genl Auth Rev Var Loc Govt Bond Pool
Pgm Ser B Var Rate Cpn (BIGI Insd) ................ 8.000 05/15/18 1,921,553
10,000 Geisinger Auth PA Hlth Sys Muni Cap Ser A
(Embedded Cap) ..................................... 6.197 07/01/22 10,136,400
5,000 Pennsylvania St Higher Edl Assistance Agy Student Ln
Rev Ser B (Inverse Fltg) (MBIA Insd) ............... 10.696 03/01/20 5,650,000
</TABLE>
8 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
June 30, 1995
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (Continued)
$ 1,100 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A ..................................... 8.375% 03/01/11 $ 1,179,882
1,750 Philadelphia, PA Sch Dist Ser A (AMBAC Insd) ......... * 07/01/01 1,289,663
6,950 Philadelphia, PA Wtr & Swr Rev 16th Ser .............. 7.500 08/01/10 8,038,856
2,000 Ridley Park, PA Hosp Auth Rev Hosp Auth Rev
Ser 1993 A ............................................ 6.000 12/01/13 1,731,500
4,745 Sayre, PA Hlthcare Fac Auth Rev VHA Cap Asset Fin
Pgm Ser A (AMBAC Insd) <F3> .......................... 7.700 12/01/15 5,315,823
----------
41,609,217
----------
Rhode Island 0.3%
1,000 Providence, RI Pub Bldg Auth Ser B (Cap Guar Insd) ..... 7.250 12/15/10 1,100,370
----------
South Carolina 0.4%
1,610 South Carolina St Hsg Fin Dev Auth Homeowner Ser A ...... 7.400 07/01/23 1,693,157
----------
Tennessee 3.0%
12,230 Tennessee Hsg Dev Agy Mtg Fin Ser A ................... 7.125 07/01/26 12,872,809
----------
Texas 4.4%
2,370 Brazos Cnty, TX Hlth Fac Dev ........................... 6.000 01/01/13 2,249,557
7,065 Dallas Cnty, TX Util & Reclamation Dist Cap Apprec
(MBIA Insd) ............................................ * 02/15/20 1,236,092
935 Dallas Cnty, TX Util & Reclamation Dist Cap Apprec
(Prerefunded @ 02/15/00) (MBIA Insd) .................... * 02/15/20 173,994
1,000 Dallas-Fort Worth, TX Regl Arpt Jt Dallas-Fort Worth Intl
Ser F Rfdg (FGIC Insd) <F2> ............................ 5.625 11/01/15 953,930
4,820 Harris Cnty, TX Toll Rd (Prerefunded @ 08/15/09)
(AMBAC Insd) ........................................... * 08/15/18 1,173,092
1,000 Harris Cnty, TX Toll Rd (Prerefunded @ 08/15/09)
(AMBAC Insd) ........................................... * 08/15/21 197,990
3,525 Texas Muni Pwr Agy Rev (AMBAC Insd) .................... * 09/01/07 1,745,404
6,420 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation Rfdg (Cap Guar Insd) ....................... 5.500 09/01/13 6,067,157
1,860 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation (Prerefunded @ 01/01/98) (BIGI Insd) ........ 7.875 01/01/08 2,021,243
2,000 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation (Prerefunded @ 01/01/98) (BIGI Insd) ........ 7.875 01/01/09 2,173,380
1,250 West Side Calhoun Cnty, TX Navig Dist Solid Waste
Disp Union Carbide Chem & Plastics ..................... 8.200 03/15/21 1,378,487
----------
19,370,326
----------
Utah 2.0%
5,210 Salt Lake City, UT Arpt Rev Delta Airls Inc Proj ....... 7.900 06/01/17 5,504,261
3,300 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg
(Embedded Cap) .......................................... 5.500 02/15/17 3,056,724
----------
8,560,985
----------
</TABLE>
9 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
June 30, 1995
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
West Virginia 1.0%
$ 2,480 South Charleston, WV Indl Dev Rev Union Carbide
Chem & Plastics Ser A ............................. 8.000% 08/01/20 $ 2,660,594
1,600 West Virginia St Hsg Dev Hsg Fin Ser A ............ 7.400 11/01/11 1,694,528
-----------
4,355,122
-----------
Wisconsin 0.8%
3,000 Wisconsin St Hlth & Edl Fac Auth Rev Wheaton
Franciscan (Prerefunded @ 08/15/98) ................ 8.200 08/15/18 3,399,510
-----------
Puerto Rico 0.2%
1,000 Puerto Rico Elec Pwr Auth Pwr Rev Ser N ........... 7.000 07/01/07 1,068,280
-----------
Swaps 0.0%
JP Morgan Securities, $10,000,000 notional amount,
01/01/96 maturity, Trust pays variable rate, Trust
receives 5.45% fixed rate (used to offset variable
component of Geisinger Auth PA Hlth Sys Muni
Cap Ser A Bond) ......................................................... (69,858)
-----------
Total Long-Term Investments 98.7%
(Cost $400,453,366) <F1> ................................................ 430,211,234
Other Assets in Excess of Liabilities 1.3% ............................. 5,878,302
-----------
Net Assets 100% ........................................................ $436,089,536
-----------
*Zero coupon bond
<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $400,453,366;
the aggregate gross unrealized appreciation is $32,212,541 and the
aggregate gross unrealized depreciation is $2,361,591, resulting in net
unrealized appreciation including open futures transactions of
$29,850,950.
<F2> Securities purchased on a when issued or delayed delivery basis.
<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments and open futures transactions.
<F4> Private placement issue.
</TABLE>
The following table summarizes the portfolio composition at June 30, 1995, based
upon quality ratings issued by Standard & Poor's. For securities not rated by
Standard & Poor's, the Moody's rating is used.
<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
AAA ........... 35.4%
AA ........... 9.6
A ............ 26.1
BBB .......... 14.3
BB ........... 12.6
B ............ 0.2
Non-Rated .... 1.8
------
100.0%
------
</TABLE>
10 See Notes to Financial Statements
<TABLE>
Statement of Assets and Liabilities
June 30, 1995
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $400,453,366) (Note 1) ................................ $ 430,211,234
Receivables:
Interest ............................................................................... 8,068,846
Investments Sold ...................................................................... 3,032,397
-------------
Total Assets ............................................................................. 441,312,477
-------------
Liabilities:
Payables:
Investments Purchased .................................................................. 2,986,150
Custodian Bank ........................................................................ ` 1,111,757
Income Distributions - Common and Preferred Shares .................................... 295,458
Investment Advisory Fee (Note 2) ...................................................... 217,075
Margin on Futures (Note 5) ............................................................ 154,063
Accrued Expenses ......................................................................... 458,438
-------------
Total Liabilities ........................................................................ 5,222,941
-------------
Net Assets ............................................................................... $ 436,089,536
-------------
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 1,000,000 shares, 330 issued with liquidation
preference of $500,000 per share) (Note 6) ............................................... $ 165,000,000
-------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
27,775,981 shares issued and outstanding) (Note 3) ....................................... 277,760
Paid in Surplus (Note 3) ................................................................. 256,561,256
Net Unrealized Appreciation on Investments .............................................. 29,850,950
Accumulated Undistributed Net Investment Income ......................................... 3,135,019
Accumulated Net Realized Loss on Investments ............................................. (18,735,449)
-------------
Net Assets Applicable to Common Shares ................................................... 271,089,536
-------------
Net Assets ............................................................................... $ 436,089,536
-------------
Net Asset Value Per Common Share ($271,089,536 divided by
27,775,981 shares outstanding) .......................................................... $ 9.76
-------------
</TABLE>
11 See Notes to Financial Statements
<TABLE>
Statement of Operations
For the Year Ended June 30, 1995
<CAPTION>
<S> <C>
Investment Income:
Interest ........................................................................................ $ 30,299,526
--------------
Expenses:
Investment Advisory Fee (Note 2) ............................................................... 2,598,940
Preferred Share Maintenance (Note 6) ............................................................ 470,711
Shareholder Services ........................................................................... 186,269
Legal (Note 2) ................................................................................. 45,280
Trustees Fees and Expenses (Note 2) ............................................................. 21,900
Other .......................................................................................... 293,957
--------------
Total Expenses .................................................................................. 3,617,057
--------------
Net Investment Income ........................................................................... $ 26,682,469
--------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ............................................................................. $ 159,090,816
Cost of Securities Sold ......................................................................... (172,093,493)
--------------
Net Realized Loss on Investments (Including realized loss on closed and expired option and
futures transactions of $638,697 and $6,883,909, respectively) .................................. (13,002,677)
--------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ........................................................................ 18,774,316
End of the Period (Including unrealized appreciation on open futures transactions of $93,082) ... 29,850,950
--------------
Net Unrealized Appreciation on Investments During the Period .................................... 11,076,634
--------------
Net Realized and Unrealized Loss on Investments ................................................. $ (1,926,043)
--------------
Net Increase in Net Assets from Operations ..................................................... $ 24,756,426
--------------
</TABLE>
12 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 ............................................. $ 26,682,469 $ 27,386,640
Net Realized Loss on Investments .................................. (13,002,677) (3,364,551)
Net Unrealized Appreciation/Depreciation on Investments
During the Period ................................................ 11,076,634 (30,062,371)
----------- ----------
Change in Net Assets from Operations ............................ 24,756,426 (6,040,282)
----------- ----------
Distributions from Net Investment Income:
Common Shares .................................................... (23,197,415) (22,955,321)
Preferred Shares ................................................. (6,187,268) (4,236,270)
----------- ----------
Total Distributions .............................................. (29,384,683) (27,191,591)
----------- ----------
Net Change in Net Assets from Investment Activities .............. (4,628,257) (33,231,873)
From Capital Transactions (Note 3):
Value of Common Shares Issued Through Dividend Reinvestment ....... 3,009,912 3,019,714
----------- ----------
Total Decrease in Net Assets ...................................... (1,618,345) (30,212,159)
Net Assets:
Beginning of the Period .......................................... 437,707,881 467,920,040
----------- -----------
End of the Period (Including undistributed net investment income of
$3,135,019 and $5,837,233, respectively) ......................... $ 436,089,536 $ 437,707,881
----------- -----------
</TABLE>
13 See Notes to Financial Statements
<TABLE>
Financial Highlights
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
<CAPTION>
Year Ended June 30,
1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period <F1> ... $ 9.924 $ 11.133
-------- --------
Net Investment Income ....................... .964 1.000
Net Realized and Unrealized
Gain/Loss on Investments ................... (.065) (1.214)
-------- --------
Total from Investment Operations ........... .899 (.214)
-------- --------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders ................. .840 .840
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders ..................... .223 .155
Distributions from and in Excess
of Net Realized Gain on
Investments Paid to Common
Shareholders (Note 1) ...................... -0- -0-
-------- --------
Total Distributions ........................ 1.063 .995
-------- --------
Net Asset Value, End of Period ............. $ 9.760 $ 9.924
-------- --------
Market Price Per Share at End of Period .... $ 11.125 $ 11.125
Total Investment Return at Market Price
(Non-Annualized) <F2> ...................... 8.59% (0.05%)
Total Return at Net Asset Value
(Non-Annualized) <F3> ...................... 7.24% (3.63%)
Net Assets at End of Period (In millions) ... $ 436.1 $ 437.7
Ratio of Expenses to Average Net Assets
Applicable to Common Shares
(Annualized) ................................ 1.33% 1.28%
Ratio of Expenses to Average
Net Assets (Annualized) .................... .83% .82%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (Annualized) <F4> ............. 7.56% 7.86%
Portfolio Turnover .......................... 38.43% 44.78%
* If certain expenses had not been assumed by the Adviser for the period ended
June 30, 1989, the ratio of expenses to average net assets applicable to common
shares would have been 1.07% and the ratio of net investment income to average
net assets applicable to common shares would have been 5.99%.
<FN>
<F1> Net asset value at August 26, 1988, is adjusted for common and preferred
share offering costs of $.120 per share.
<F2> Total investment return at market price reflects the change in market
value of the common shares for the period indicated with reinvestment of
dividends in accordance with the Trust's dividend reinvestment plan.
<F3> Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
<F4> Net investment income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
</TABLE>
N/A = Not Applicable
14
<TABLE>
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
<CAPTION>
August 26, 1988
(Commencement
of Investment
Year Ended June 30 Operations) to
1993 1992 1991 1990 June 30, 1989
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10.688 $ 9.805 $ 9.534 $ 9.767 $ 9.180
- ------------ --------- --------- --------- -------
1.078 1.095 1.093 1.070 .766
.520 .848 .295 (.229) .559
- ------------ --------- --------- --------- -------
1.598 1.943 1.388 .841 1.325
- ------------ --------- --------- --------- -------
.829 .791 .725 .685 .501
.162 .238 .337 .389 .237
.162 .031 .055 -0- -0-
- ------------ --------- --------- --------- -------
1.153 1.060 1.117 1.074 .738
- ------------ --------- --------- --------- -------
$ 11.133 $ 10.688 $ 9.805 $ 9.534 $ 9.767
- ------------ --------- --------- --------- -------
$ 12.000 $ 11.375 $ 10.125 $ 9.250 $ 9.500
15.20% 21.65% 18.71% 4.65% .10%
13.97% 18.08% 11.61% 4.76% 10.62%
$ 467.9 $ 452.7 $ 426.7 $ 418.3 $ 424.4
1.25% 1.35% 1.46% 1.43% .92%*
.80% .84% .89% .87% N/A
8.41% 8.41% 7.88% 7.11% 6.15%*
44.74% 26.53% 68.76% 116.21% 89.63%
</TABLE>
15 See Notes to Financial Statements
Notes to Financial Statements
June 30, 1995
1. Significant Accounting Policies
Van Kampen Merritt Municipal Income Trust (the "Trust") is registered as a
diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust commenced investment operations
on August 26, 1988.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements.
A. Security Valuation-Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. Investment Income-Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
D. Federal Income Taxes-It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1995, the Trust had an accumulated capital loss carryforward
for tax purposes of $464,732, which will expire on June 30, 2002. 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.
16
Notes to Financial Statements (Continued)
June 30, 1995
E. Distribution of Income and Gains-The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized
gains, if any, are distributed annually to common shareholders. Distributions
from net realized gains for book purposes may include short-term capital
gains, which are included as ordinary income for tax purposes.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
investment advice and facilities to the Trust for an annual fee payable monthly
of .60% of the average net assets of the Trust.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.
For the year ended June 30, 1995, the Trust recognized expenses of
approximately $36,700 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
legal and certain shareholder services to the Trust.
Certain officers and trustees of the Trust are also officers and directors of
VKAC. The Trust does not compensate its officers or trustees who are officers of
VKAC.
The Trust has implemented deferred compensation and retirement plans for its
trustees. 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 Trust's liability under the deferred compensation and retirement
plans at June 30, 1995, was approximately $19,400.
3. Capital Transactions
At June 30, 1995 and 1994, common share paid in surplus aggregated $256,561,256
and $253,554,309, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1995 June 30, 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares .............................. 27,479,484 27,208,123
Shares Issued Through Dividend Reinvestment ... 296,497 271,361
------------ ------------
Ending Shares ................................. 27,775,981 27,479,484
------------ ------------
</TABLE>
17
Notes to Financial Statements (Continued)
June 30, 1995
4. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the year ended June 30, 1995, were $161,943,839 and
$172,093,493, 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 Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. Option Contracts-An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Trust
to manage the portfolio's effective maturity and duration.
Transactions in options for the year ended June 30, 1995, were as follows:
<TABLE>
<CAPTION>
Contracts Premium
- ----------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1994 ... 500 $ 113,172
Options Written and
Purchased (Net) ................ 5,354 (1,019,985)
Options Terminated in Closing
Transactions (Net) ............ (1,258) 30,312
Options Expired (Net) ......... (4,004) 912,610
Options Exercised (Net) ....... (592) (36,109)
--------- --------------
Outstanding at June 30, 1995 ... -0- $ -0-
--------- --------------
</TABLE>
18
Notes to Financial Statements (Continued)
June 30, 1995
B. Futures Contracts-A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used by the Trust to manage the portfolio's effective
maturity and duration.
The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.
Transactions in futures contracts, each with a par value of $100,000, for the
year ended June 30, 1995, were as follows:
<TABLE>
<CAPTION>
Contracts
- --------------------------------------------
<S> <C>
Outstanding at June 30, 1994 .... 2,350
Futures Opened .................. 12,526
Futures Closed ................. (13,726)
---------
Outstanding at June 30, 1995 ... 1,150
---------
</TABLE>
The futures contracts outstanding at June 30, 1995, and the descriptions and
unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Contracts Depreciation
- -------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond Futures
Sept 1995 - Buys to Open .... 300 $ 456,954
Sept 1995 - Sells to Open ... 250 (25,455)
Euro $ Futures
Dec 1995 - Sells to Open ... 350 (126,837)
Mar 1996 - Sells to Open .... 250 (211,580)
--------- -------------
1,150 $ 93,082
--------- -------------
</TABLE>
C. Swap Transactions-These transactions are identified in the portfolio of
investments and represent an agreement between two parties to exchange a series
of cash flows at specified intervals. The cash flows can be indexed to various
indices such as interest rates. The difference in the cash flows is recorded as
an increase or decrease in interest income.
19
Notes to Financial Statements (Continued)
June 30, 1995
D. Indexed Securities-These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the
price of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to a
short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Trust to enhance the yield of the portfolio.
An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level. The Trust invests in these
instruments as a hedge against a rise in the short term interest rates which it
pays on its preferred shares.
6. Preferred Shares
The Trust has outstanding 330 shares of rate adjusted tax-exempt preferred
shares ("Rates") in three series of 110 shares each. Dividends are cumulative
and the rate on each series is currently reset every 28 days through an auction
process. The average rate in effect on June 30, 1995, was 3.96%. During the year
ended June 30, 1995, the rates ranged from 2.79% to 5.20%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The Rates are redeemable at the option of the Trust in whole or in part at a
price of $500,000 per share plus accumulated and unpaid dividends. The Trust is
subject to certain asset coverage tests, and the Rates are subject to mandatory
redemption if the tests are not met.
20
Independent Auditors' Report
The Board of Trustees and Shareholders of Van Kampen Merritt Municipal Income
Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Municipal Income Trust (the "Trust"), 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 Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of 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 Municipal Income Trust as of June 30, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 3, 1995
21
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.
22
Van Kampen Merritt Municipal Income Trust
Officers and Trustees
Don G. Powell*
Chairman and Trustee
Dennis J. McDonnell*
President and Trustee
David C. Arch
Trustee
Rod Dammeyer
Trustee
Howard J Kerr
Trustee
Theodore A. Myers
Trustee
Hugo F. Sonnenschein
Trustee
Wayne W. Whalen*
Trustee
Peter W. Hegel*
Vice President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Treasurer
Scott E. Martin*
Assistant Secretary
Weston B. Wetherell*
Assistant Secretary
Nicholas Dalmaso*
Assistant Secretary
John L. Sullivan*
Controller
Steven M. Hill*
Assistant Treasurer
Investment Adviser
Van Kampen American Capital Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Custodian and
Transfer Agent
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
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 Trust, 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.
23
Van Kampen Merritt Municipal Income Trust
This Page Intentionally Left Blank
24
