<TABLE>
Table of Contents
<CAPTION>
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio of Investments .............. 4
Statement of Assets and Liabilities ... 7
Statement of Operations ............... 8
Statement of Changes in Net Assets .... 9
Financial Highlights .................. 10
Notes to Financial Statements ......... 11
</TABLE>
Letter to Shareholders
March 27, 1995
Dear Shareholder:
During the six-month period covered by this report, September 1, 1994
through February 28, 1995, we saw the close of a challenging and
difficult year in the financial markets -- and the beginning of a new
year, with renewed optimism and strength on many fronts.
(PHOTOGRAPH INSERTED HERE)
Dennis J. McDonnell and Don G. Powell
Market Overview
In an effort to moderate economic growth and keep inflation under control,
the Federal Reserve Board (the "Fed") has raised the federal funds rate
(the rate banks charge each other for overnight loans) seven times over a
12-month period. As a result, the fed funds rate doubled from 3 percent to 6
percent, its highest level in three years. Intermediate and long-term interest
rates quickly followed the Fed's lead and moved significantly higher as well.
The yield on 30-year Treasury securities, for example, began 1994 at 6.35
percent and increased to a high of 8.16 percent, before retreating to 7.89
percent at the end of the year. However, since yields and prices move in
opposite directions, this had a negative impact on prices of fixed-income
securities, including municipal bonds.
Stock market investors did not fare much better during this rising interest
rate environment, despite the robust economy and stronger corporate earnings.
Concerned that higher interest rates and the prospect for continued rate hikes
might altogether extinguish the prolonged economic expansion, the equity market
sputtered for most of 1994. The S&P 500 Index, for example, produced a 1.36
percent total return for 1994, while the average price change for the year for
all stocks listed on the New York Stock Exchange was down 20 percent.
In contrast, 1995 began more positively, as the bond market got a boost from
growing sentiment that the Fed appeared to have stabilized economic growth while
keeping inflation under control, and that it may be near the end of its
tightening cycle. Subsequently, the Bond Buyer's Municipal Index rose to 90.97
at the end of February -- an increase of more than
12 percent from its low of 80.81 in November.
The stock market responded in late February with the Dow Jones Industrial
Average breaking through the 4000 mark, setting a new record high and raising
expectations for a stronger market in 1995. At the same time, almost all other
major stock indexes rose, including the S&P 500 Index, the New York Stock
Exchange Composite Index, and the Nasdaq Composite Index.
Additionally, the Van Kampen American Capital Index of Investor Intentions for
February reached 233 -- an increase of 17 percent over January's level of 200 --
its largest monthly increase since February 1994. The index, computed from an
independently conducted survey and published by Van Kampen American Capital,
measures the investment climate (investors' confidence) by asking 1,000
investors about what they intend to do with their money over
the next 60-90 days. A total of 45.6 percent of investors said the next 60-90
days would be a "good" time to invest.
(Continued on page two)
1
Performance
At its current annualized dividend level of $0.984 per common share, the Trust
provides a current distribution rate of 6.30 percent <F3> based upon the closing
price of $15.625 per share on February 28, 1995. For shareholders who purchased
the Trust at its initial offering price of $15 per share, their current
distribution rate is 6.56 percent <F3>. At these distribution rates, the Trust
provides Ohio residents in the combined marginal tax bracket of 40.8 percent
with a yield equivalent to a taxable investment earning 10.64 percent <F4> and
11.08 percent <F4>, respectively.
The Trust's closing stock price of $15.625 per share for the period ended
February 28, 1995, is up significantly from its six-month low of $13.875 per
share on November 22, 1994, reflecting a stronger municipal market at the start
of 1995. Moreover, the Trust generated a six-month total return of 2.49 percent
<F2>, based on net asset value, for the period ended February 28, 1995.
Outlook
To date, the Fed appears to have been relatively successful in engineering the
"soft landing" that it has labored to promote over the last 12 months. Inflation
appears to be under control and, while the nation's current pace of economic
growth exceeds the Fed's target rate of 2.5 percent, such a goal appears
achievable and reasonable. Moreover, there are no pressing signs that suggest
that the Fed has over-corrected to this point and will drive the economy into
premature recession.
Regarding the municipal market, we remain optimistic about the current supply
and demand relationship. With much of the refinancing by municipal issuers
behind us, we expect new issue supply to remain low in 1995 and demand for
municipals to grow as confidence in the economy increases. As confidence is
renewed, we believe many investors will begin to move off the sidelines and into
domestic markets in pursuit of high credit quality and stable income.
Additionally, we believe the Trust will continue to provide shareholders with
long-term value, as we seek to maintain a high level of current income and
consistent dividends over time.
Corporate News
As you may have already noticed, we have adopted a new design for our
shareholder reports that begins to reflect our new identity as Van Kampen
American Capital. Going forward, we will continue to look for new ways to
improve upon the presentation of information in your Trust's report. In
addition, we have developed a new corporate ad campaign introducing Van Kampen
American Capital. Full page ads appeared in The Wall Street Journal in February
- -- watch for more advertising throughout the year.
We look forward to communicating with you on a regular basis, providing
information about your Trust's performance, new investment opportunities, and
our newly created company. We appreciate your continued confidence in your Trust
and Van Kampen American Capital.
Sincerely,
Don G. Powell
Chief Executive Officer
Van Kampen American Capital
Investment Advisory Corp.
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<TABLE>
Performance Results for the Period Ended February 28, 1995
Van Kampen Merritt Ohio Quality Municipal Trust
(NYSE Ticker Symbol-VOQ)
<CAPTION>
<S> <C>
Total Returns
Six-month total return based on market price<F1> .................................. 2.48%
Six-month total return based on NAV<F2> ........................................... 2.49%
Distribution Rates
Distribution rate as a % of initial offer stock price<F3> ......................... 6.56%
Taxable-equivalent distribution rate as a % of initial offer stock price<F4> ...... 11.08%
Distribution rate as a % of 02/28/95 closing stock price<F3> ...................... 6.30%
Taxable-equivalent distribution rate as a % of 02/28/95 closing stock price<F4> ... 10.64%
Share Valuations
Net asset value as of 02/28/95 .................................................... $ 16.12
Preferred share rate as of 02/28/95<F5> ........................................... 4.074%
Closing stock price as of 02/28/95 ............................................... $ 15.625
Six-month high common stock price (02/24/95) ..................................... $ 15.875
Six-month low common stock price (11/22/94) ...................................... $ 13.875
<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 February 1995, and not the earnings of the Trust.
<F4> The taxable-equivalent distribution rate is calculated assuming a 40.8%
combined federal and state tax bracket, which takes into consideration the
deductibility of individual state taxes paid.
<F5> See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the 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.
</FN>
</TABLE>
3
<TABLE>
Portfolio of Investments
February 28,1995 (Unaudited)
- ------------------------------------------------------------------------------------------------
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Ohio 78.4%
$ 2,750 Akron, OH Wtrwrks Rev Mtg (AMBAC Insd) ............. 6.550% 03/01/12 $ 2,878,810
2,100 Alliance, OH Swr Sys Rev Rfdg (AMBAC Insd) ......... 6.000 10/15/10 2,151,051
500 Athens Cnty, OH Cmnty Mental Hlth Rev
West Cent Proj Ser 1 ............................... 6.900 06/01/10 521,635
2,500 Carroll Cnty, OH Hosp Impt Rev Timken Mercy
Med Cent (Prerefunded @ 12/01/01) .................. 7.125 12/01/18 2,794,200
3,250 Cincinnati & Hamilton Cnty, OH Port Auth Indl
Dev Rev Convention Garage Rfdg .................... 7.450 06/01/10 3,330,860
4,000 Cincinnati & Hamilton Cnty, OH Port Auth Indl
Dev Rev Sixth Street Garage Rfdg .................. 7.450 06/01/10 4,085,400
2,500 Cleveland, OH Arpt Sys Rev Ser A (MBIA Insd) ...... 7.375 01/01/10 2,700,675
500 Cleveland, OH Pub Pwr Sys Rev Impt
1st Mtg Ser A (MBIA Insd) ......................... 7.000 11/15/17 540,305
1,000 Cleveland, OH Pub Pwr Sys Rev Impt
1st Mtg Ser B Rfdg (MBIA Insd) .................... 7.000 11/15/17 1,080,610
1,000 Colmbus, OH Wtr Sys Rev Rfdg ....................... 6.375 11/01/10 1,026,320
500 Cuyahoga Cnty, OH Hosp Rev Hlth Cleveland
Fairview Genl Hosp & Lutheran Med Cent ............ 6.300 08/15/15 485,455
1,000 Cuyahoga Cnty, OH Hosp Rev Meridia Hlth Sys ........ 7.000 08/15/09 1,043,340
3,000 Cuyahoga Cnty, OH Hosp Rev Meridia Hlth Sys ........ 7.000 08/15/23 3,094,380
3,000 Erie Cnty, OH Hosp Impt Rev Firelands
Cmnty Hosp Proj Rfdg .............................. 6.750 01/01/08 3,090,120
4,000 Erie Cnty, OH Hosp Impt Rev Firelands
Cmnty Hosp Proj Rfdg .............................. 6.750 01/01/15 4,052,560
2,500 Franklin Cnty, OH Convention Fac Auth Tax &
Lease Rev Antic Bonds Rfdg (MBIA Insd) ............. 5.800 12/01/13 2,496,900
1,000 Franklin Cnty, OH Hosp Rev Holy Cross
Mt Carmel (MBIA Insd) <F2> ........................ 6.750 06/01/19 1,056,920
7,500 Gateway Econ Dev Corp Gtr Cleveland, OH
Excise Tax Rev Sr Lien Ser A (FSA Insd) <F3> ....... 6.875 09/01/05 8,158,800
3,000 Hamilton Cnty, OH Hlth Sys Rev
Providence Hosp Franciscan Rfdg .................... 6.875 07/01/15 2,887,020
2,000 Lorain, OH Hosp Impt Rev Lakeland Cmnty Hosp Inc ... 6.500 11/15/12 1,991,420
1,400 Mahoning Cnty, OH Hosp Fac Rev
YHA Inc Proj Ser A Rfdg (MBIA Insd) ............... 7.000 10/15/08 1,524,558
</TABLE>
4 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
February 28,1995 (Unaudited)
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ohio (Continued)
$ 3,650 Ohio Hsg Fin Agy Mtg Rev Residential Ser A2 <F2> ....... 6.625% 03/01/26 $ 3,693,654
1,810 Ohio Hsg Fin Agy Single Family Mtg
Rev Ser A (GNMA Collateralized) ......................... 7.650 03/01/29 1,918,781
5,550 Ohio Hsg Fin Agy Single Family Mtg Rev
(Prerefunded @ 1/15/15) (FGIC Insd) .................... * 01/15/15 1,555,943
5,850 Ohio Hsg Fin Agy Single Family Mtg Rev
(Prerefunded @ 7/15/14) (FGIC Insd) .................... * 11/05/15 1,610,797
1,060 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B ........... 8.100 12/15/08 1,119,116
2,350 Ohio St Air Quality Dev Auth Rev
Ashland Oil Inc Proj Rfdg .............................. 6.850 04/01/10 2,392,065
2,000 Ohio St Bldg Auth St Fac James Rhodes Ser A Rfdg ........ 6.250 06/01/11 2,039,780
1,230 Ohio St Dept Tran Ctfs Partn Panhandle Rail Line Proj ... 6.500 04/15/12 1,288,474
645 Ohio St Econ Dev Rev OH Enterprise Brd Fd Ser 9 ......... 7.625 12/01/11 686,583
3,000 Ohio St Univ Rev Genl Rcpts
(Prerefunded @ 12/01/98) ............................... 7.150 12/01/09 3,278,820
1,500 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev
Wtr Ctl Ln Fd St Match (MBIA Insd) ..................... 6.000 12/01/11 1,524,330
1,650 Toledo-Lucas Cnty, OH Port Auth Port
Rev Fac Cargill Inc Proj Rfdg ........................... 7.250 03/01/22 1,784,442
3,000 University Cincinnati, OH Genl Rcpts Ser II
(Prerefunded @ 06/01/99) ............................... 7.100 06/01/10 3,290,880
3,000 Westerville, OH Minerva Park & Blendon Jt Twp
Hosp Dist Rev Saint Anns Hosp Ser B Rfdg
(AMBAC Insd) ........................................... 6.800 09/15/06 3,273,000
------------
80,448,004
------------
Guam 1.0%
1,000 Guam Arpt Auth Rev Ser B ............................... 6.700 10/01/23 993,610
------------
Puerto Rico 16.0%
10,000 Puerto Rico Comwlth Pub Impt Rfdg ...................... 3.000 07/01/06 7,612,100
1,815 Puerto Rico Elec Pwr Auth Pwr Rev Ser P ................ 7.000 07/01/11 1,942,268
5,500 Puerto Rico Elec Pwr Auth Pwr Rev Ser P ................ 7.000 07/01/21 5,856,235
1,000 Puerto Rico Elec Pwr Auth Pwr Rev Ser T ................ 6.375 07/01/24 1,015,620
------------
16,426,223
</TABLE>
5 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
February 28,1995 (Unaudited)
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Virgin Islands 2.0%
$ 2,000 Virgin Islands Pub Fin Auth Rev Matching
Fd Ln Nts Ser A Rfdg .................................. 7.250% 10/01/18 $ 2,069,580
------------
Total Long-Term Investments 97.4%
(Cost $95,000,917) <F1> ............................................................. 99,937,417
Short-Term Investments at Amortized Cost 4.2% ....................................... 4,300,000
Liabilities in Excess of Other Assets (1.6%) ........................................ (1,667,506)
------------
Net Assets 100% ..................................................................... $102,569,911
------------
*Zero coupon bond
<FN>
<F1> At February 28, 1995, cost for federal income tax purposes is $95,000,917;
the aggregate gross unrealized appreciation is $5,004,058 and the aggregate
gross unrealized depreciation is $67,558, resulting in net unrealized
appreciation of $4,936,500.
<F2> Securities purchased on a when issued or delayed delivery basis.
<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments.
</FN>
</TABLE>
The following table summarizes the portfolio composition at February 28, 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>
Portfolio Composition
<CAPTION>
<S> <C>
AAA ......... 41.4%
AA ......... 6.6
A .......... 36.2
BBB ........ 6.3
Non-Rated ... 9.5
-------
100.0%
-------
</TABLE>
6 See Notes to Financial Statements
<TABLE>
Statement of Assets and Liabilities
February 28,1995 (Unaudited)
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $95,000,917) (Note 1) ................................... $ 99,937,417
Short-Term Investments (Note 1) ............................................................ 4,300,000
Receivables:
Investments Sold ........................................................................... 1,829,630
Interest ................................................................................... 1,690,037
Unamortized Organizational Expenses (Note 1) .............................................. 9,458
---------------
Total Assets ............................................................................... 107,766,542
---------------
Liabilities:
Payables:
Investments Purchased ...................................................................... 4,721,272
Custodian Bank ............................................................................. 207,914
Income Distributions - Common and Preferred Shares ........................................ 95,468
Investment Advisory Fee (Note 2) ........................................................... 54,356
Administrative Fee (Note 2) ............................................................... 15,530
Accrued Expenses ........................................................................... 102,091
---------------
Total Liabilities .......................................................................... 5,196,631
---------------
Net Assets ................................................................................. $ 102,569,911
---------------
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 700 issued with liquidation
preference of $50,000 per share) (Note 5) .................................................. $ 35,000,000
---------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
4,192,971 shares issued and outstanding) (Note 3) .......................................... 41,930
Paid in Surplus ........................................................................... 61,851,572
Net Unrealized Appreciation on Investments ................................................ 4,936,500
Accumulated Undistributed Net Investment Income ........................................... 1,117,990
Accumulated Net Realized Loss on Investments ............................................... (378,081)
---------------
Net Assets Applicable to Common Shares ..................................................... 67,569,911
---------------
Net Assets ................................................................................. $ 102,569,911
---------------
Net Asset Value Per Common Share ($67,569,911 divided
by 4,192,971 shares outstanding) ........................................................... $ 16.12
---------------
</TABLE>
7 See Notes to Financial Statements
<TABLE>
Statement of Operations
For the Six Months Ended February 28,1995 (Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Investment Income:
Interest ....................................................... $ 3,301,475
---------------
Expenses:
Investment Advisory Fee (Note 2) .............................. 343,596
Administrative Fee (Note 2) .................................... 98,170
Preferred Share Maintenance (Note 5) ........................... 52,750
Trustees Fees and Expenses (Note 2) ............................ 10,440
Amortization of Organizational Expenses (Note 1) .............. 2,972
Legal (Note 2) ................................................ 2,745
Other .......................................................... 72,191
---------------
Total Expenses ................................................. 582,864
---------------
Net Investment Income .......................................... $ 2,718,611
---------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ............................................ $ 14,600,444
Cost of Securities Sold ........................................ (14,931,753)
---------------
Net Realized Loss on Investments ............................. (331,309)
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ....................................... 5,103,793
End of the Period .............................................. 4,936,500
---------------
Net Unrealized Depreciation on Investments During the Period ... (167,293)
---------------
Net Realized and Unrealized Loss on Investments ................ $ (498,602)
---------------
Net Increase in Net Assets from Operations ..................... $ 2,220,009
---------------
</TABLE>
8 See Notes to Financial Statements
<TABLE>
Statement of Changes in Net Assets
For the Six Months Ended February 28,1995 and
the Year Ended August 31,1994 (Unaudited)
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended
February 28,1995 August 31,1994
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 2,718,611 $ 5,403,893
Net Realized Loss on Investments .................................. (331,309) (46,774)
Net Unrealized Depreciation on Investments During the Period ..... (167,293) (4,959,268)
---------------- ---------------
Change in Net Assets from Operations ............................. 2,220,009 397,851
---------------- ---------------
Distributions from Net Investment Income:
Common Shares ..................................................... (2,061,790) (4,120,921)
Preferred Shares ................................................. (670,742) (871,172)
---------------- ---------------
(2,732,532) (4,992,093)
---------------- ---------------
Distributions from Net Realized Gain on Investments:
Common Shares ..................................................... -0- (379,854)
Preferred Shares ................................................. -0- (76,319)
---------------- ---------------
-0- (456,173)
---------------- ---------------
Total Distributions .............................................. (2,732,532) (5,448,266)
---------------- ---------------
Net Change in Net Assets from Investment Activities ............... (512,523) (5,050,415)
---------------- ---------------
From Capital Transactions (Note 3):
Value of Common Shares Issued Through Dividend Reinvestment ....... 74,619 -0-
---------------- ---------------
Total Decrease in Net Assets ...................................... (437,904) (5,050,415)
Net Assets:
Beginning of the Period .......................................... 103,007,815 108,058,230
---------------- ---------------
End of the Period (Including undistributed net investment income of
$1,117,990 and $1,131,911, respectively) ......................... $ 102,569,911 $ 103,007,815
---------------- ---------------
</TABLE>
9 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.(Unaudited)
- -----------------------------------------------------------------------------------------------
<CAPTION>
September 27,1991
Six Months Year Year (Commencement
Ended Ended Ended of Investment
February 28, August 31, August 31, Operations) to
1995 1994 1993 August 31,1992
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period <F1> ............ $ 16.239 $ 17.445 $ 15.988 $ 14.748
------------ ----------- ---------- -----------------
Net Investment Income ............... .649 1.290 1.291 1.006
Net Realized and Unrealized
Gain/Loss on Investments ........... (.121) (1.195) 1.442 1.175
------------ ----------- ---------- -----------------
Total from Investment Operations ... .528 .095 2.733 2.181
------------ ----------- ---------- -----------------
Less:
Distributions from Net
Investment Income:
Paid to Common Shareholders ......... .492 .984 .983 .731
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders ............. .160 .208 .201 .210
Distributions from Net Realized
Gain on Investments:
Paid to Common Shareholders ......... -0- .091 .072 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders ............. -0- .018 .020 -0-
------------ ----------- ---------- -----------------
Total Distributions ................ .652 1.301 1.276 .941
------------ ----------- ---------- -----------------
Net Asset Value, End of Period ..... $ 16.115 $ 16.239 $ 17.445 $ 15.988
------------ ----------- ---------- -----------------
Market Price Per Share
at End of Period .................... $ 15.625 $ 15.750 $ 17.250 $ 16.250
Total Investment Return at Market
Price (Non-Annualized) <F2> ......... 2.48% (2.54%) 13.17% 13.59%
Total Return at Net Asset
Value (Non-Annualized) <F3> ......... 2.49% (0.79%) 16.26% 11.78%
Net Assets at End of Period
(In millions) ....................... $ 102.6 $ 103.0 $ 108.1 $ 101.8
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares (Annualized) ......... 1.80% 1.82% 1.72% 1.79%
Ratio of Expenses to Average
Net Assets (Annualized) ............. 1.17% 1.22% 1.14% 1.22%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (Annualized) <F4> ..... 6.32% 6.39% 6.61% 5.83%
Portfolio Turnover .................. 14.79% 0.27% 18.41% 42.70%
<FN>
<F1> Net asset value at September 27, 1991, is adjusted for common and preferred
share offering costs of $.252 per common 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 the value of
the Trust's asset with reinvestment of dividends based upon NAV.
<F4> Net investment income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
</FN>
</TABLE>
10 See Notes to Financial Statements
Notes to Financial Statements
February 28,1995 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen Merritt Ohio Quality Municipal Trust (the "Trust") is registered as a
non-diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust commenced investment operations on
September 27, 1991.
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. Organizational Expenses -- The Trust has reimbursed Van Kampen American
Capital Distributors, Inc. or its affiliates ("VKAC") for costs incurred in
connection with the Trust's organization and initial registration in the amount
of $30,000. These costs are being amortized on a straight line basis over the
60-month period ending September 26, 1996. Van Kampen American Capital
Investment Advisory Corp. (the "Adviser") has agreed that in the event any of
the initial shares of the Trust originally purchased by VKAC are redeemed during
the amortization period, the Trust will be reimbursed for any unamortized
organizational expenses in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.
E. Federal Income Taxes -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substan-
11
Notes to Financial Statements (Continued)
February 28,1995 (Unaudited)
- --------------------------------------------------------------------------------
tially 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 August 31, 1994, the Trust had an accumulated capital loss
carryforward for tax purposes of $4,288, which will expire on August 31, 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.
F. Distribution of Income and Gains -- The Trust declares and pays dividends
from net investment income to common shareholders monthly. Net realized gains,
if any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .70% of the average net assets of the Trust. In addition, the Trust
will pay a monthly administrative fee to VKAC, the Trust's Administrator, at an
annual rate of .20% of the average net assets of the Trust. The administrative
services provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and preferred shares and
providing certain services to shareholders.
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 six months ended February 28, 1995, the Trust recognized expenses of
approximately $9,600 representing VKAC's or the Adviser's cost of providing
accounting and legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors of
the Adviser and VKAC. The Trust does not compensate its officers or trustees who
are officers of the Adviser
or 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
12
Notes to Financial Statements (Continued)
February 28,1995 (Unaudited)
- --------------------------------------------------------------------------------
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 February 28, 1995, was approximately $11,700.
At February 28, 1995, VKAC owned 6,700 common shares of the Trust.
3. Capital Transactions
At February 28, 1995 and August 31, 1994, paid in surplus related to common
shares aggregated $61,851,572 and $61,777,003, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 28,1995 August 31,1994
<S> <C> <C>
Beginning Shares........ 4,188,021 4,188,021
Shares Issued Through
Dividend Reinvestment... 4,950 -0-
---------------- --------------
Ending Shares........... 4,192,971 4,188,021
---------------- --------------
</TABLE>
4. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended February 28, 1995, were $14,342,859
and $14,931,753, respectively.
5. Preferred Shares
The Trust has outstanding 700 Auction Preferred Shares ("APS"). Dividends are
cumulative and the dividend rate is currently reset every 28 days through an
auction process. The rate in effect on February 28, 1995 was 4.074%. During the
six months ended February 28, 1995, the rates ranged from 2.96% to 5.00%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests, and the APS are subject to
mandatory redemption if the tests are not met.
13
Funds Distributed by Van Kampen American Capital
GLOBAL AND
INTERNATIONAL
Govett Emerging Markets Fund
AC Global Equity Fund
Govett Global Government Income Fund
AC Global Government Securities
AC Global Managed Assets Fund
Govett International Equity Fund
Govett Latin America Fund
Govett Pacific Strategy Fund
EQUITY
Growth
AC Emerging Growth Fund
AC Enterprise Fund
AC Pace Fund
Govett Smaller Companies Fund
Growth & Income
VKM Balanced Fund
AC Comstock Fund
AC Equity Income Fund
AC Growth and Income Fund
VKM Growth and Income Fund
AC Harbor Fund
AC Real Estate Securities Fund
VKM Strategic Income Fund
VKM Utility Fund
AC Utilities Income Fund
FIXED INCOME
VKM Adjustable Rate U.S. Government Fund
AC Corporate Bond Fund
AC Federal Mortgage Trust
AC Government Securities
VKM High Yield Fund
AC High Yield Investments
VKM Money Market Fund
VKM Prime Rate Income Trust
AC Reserve Fund
VKM Short-Term Global Income Fund
VKM U.S. Government Fund
AC U.S. Government Trust for Income
TAX-FREE
VKM California Insured Tax Free Fund
VKM Florida Insured Tax Free Income Fund
VKM Insured Tax Free Income Fund
VKM Limited Term Municipal Income Fund
AC Municipal Bond Fund
VKM Municipal Income Fund
VKM New Jersey Tax Free Income Fund
VKM New York Tax Free Income Fund
VKM Pennsylvania Tax Free Income Fund
AC Tax-Exempt Trust
-- High Yield Municipal Portfolio
-- Insured Municipal Portfolio
VKM Tax Free High Income Fund
VKM Tax Free Money Fund
AC Texas Municipal Securities
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.
14
Van Kampen Merritt Ohio Quality Municipal 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
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.
This report is submitted for the general information of the shareholders of the
Trust. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Trust
which contains additional information on how to purchase shares, the sales
charge, and other pertinent data.
15
Van Kampen Merritt Ohio Quality Municipal Trust
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