Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders................. 1
Performance Results.................... 3
Portfolio of Investments............... 4
Statement of Assets and Liabilities.... 9
Statement of Operations................ 10
Statement of Changes in Net Assets..... 11
Financial Highlights................... 12
Notes to Financial Statements.......... 13
Independent Auditors' Report........... 17
Dividend Reinvestment Plan............. 18
</TABLE>
TINS ANR 12/95
Letter to Shareholders
November 22, 1995
Dear Shareholder:
The first ten months of 1995 have been very positive for most investors. Both
the fixed-income and equity markets have made considerable gains during the
period ended October 31, 1995.
This year serves 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
Although the third quarter posted a stronger-than-expected annual gross
domestic product growth rate of 4.2 percent, the economy has slowed
significantly this year. This slowdown is due in large part to the Federal
Reserve Board's efforts to tighten monetary supply in 1994--a measure that
proved successful, as economic growth during the first half of 1995 was
substantially lower than its fourth quarter 1994 rate of 5.1 percent.
And, while other key economic data have shown mixed signs during recent months,
the general economic trends for the year continue to support a "soft landing"
scenario.
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed its trend of raising interest rates and lowered short-term rates by a
quarter percent on July 6. With slowing growth, interest rates declined and the
value of many fixed-income investments rose (bond yields and prices move in
opposite directions).
Performance Summary
The Trust produced a tax-exempt distribution of 6.67 percent<F3>, based on
the closing stock price of $15.75 per common share on October 31, 1995.
Because 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 10.42 percent<F4>. In fact, many closed-end
municipal bond funds, such as your investment, are currently offering higher
yields (after taxes) than many income alternatives.
As the graph on the following page shows, the Trust's net asset value and
market price have made significant gains over the one-year period. The Trust's
closing stock price, for example, gained more than 16.6 percent from October
1994 to October 1995. Moreover, we are pleased to report the Trust generated
a one-year total return at market price of 24.96 percent<F1>, which includes
reinvestment of dividends for the period ended October 31, 1995.
(Continued on page two)
1
Economic Outlook
We believe the Fed will move cautiously before it continues to lower
short-term rates, waiting for key indicators to show that the economy has truly
settled into a slow growth pattern. Although current economic data continues to
send mixed signals, we anticipate the economy will grow at an annual rate of 3
percent in the fourth quarter and inflation will run under 3 percent.
Based upon a generally modest growth and low inflation outlook, we believe the
outlook for fixed-income markets is positive. As interest rates fall in response
to a slowing economy, we believe yields on short-term municipal bonds will
continue to move significantly lower than long-term municipal bonds. Lower
short-term rates typically translate into lower leveraging costs for the Trust,
which provides increased opportunities for higher earnings over time.
Additionally, a steepening of the municipal yield curve would likely increase
investor demand for long-term municipal bonds and help to boost market prices.
Long-term municipal bond prices will also benefit from the combination of low
supply of new municipal bond issues and increased demand driven by scheduled
bond maturities.
[GRAPH]
Trust Participates in Market Gains of '95
Date NAV Market
Price
10/31/94 14.88 13.500
10/31/94 14.26 13.875
10/31/94 14.83 13.250
10/31/94 15.38 14.875
10/31/94 15.97 15.250
10/31/94 16.06 15.125
10/31/94 15.99 15.125
10/31/94 16.56 15.500
10/31/94 16.28 15.750
10/31/94 16.26 15.625
10/31/94 16.37 15.625
10/31/94 16.48 15.750
10/31/95 16.69 15.750
Based on month-end prices
While there has been varied speculation about the impact of tax reform, no one
is certain about what will finally happen. Consequently, in the near term, the
municipal market may continue to experience periodic market fluctuations as
various proposals come to the forefront. However, in the long term, we believe
the municipal market will remain an attractive investment choice for investors
seeking high current income. We will continue to keep a close watch over any new
developments and evaluate the potential impact they may have on your investment
in the Trust.
Once again, thank you for your continued confidence in your investment with
Van Kampen American Capital and for the privilege of working with you in seeking
to reach your financial goals.
Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.
2
Performance Results for the Period Ended October 31, 1995
Van Kampen Merritt Trust For Insured Municipals
(NYSE Ticker Symbol VIM)
<TABLE>
<CAPTION>
<S> <C>
Total Returns
One-year total return based on market price<F1>........................................ 24.96%
One-year total return based on NAV<F2>................................................. 19.80%
Distribution Rates
Distribution rate as a % of initial offer common stock price<F3>....................... 7.00%
Taxable-equivalent distribution rate as a % of initial offer common stock price<F4>.... 10.94%
Distribution rate as a % of closing common stock price<F3>............................. 6.67%
Taxable-equivalent distribution rate as a % of closing common stock price<F4>.......... 10.42%
Share Valuations
Net asset value........................................................................ $ 16.69
Closing common stock price ............................................................ $15.750
One-year high common stock price (07/07/95)............................................ $16.000
One-year low common stock price (11/15/94)............................................. $12.625
Preferred share (Series A) rate<F5>.................................................... 3.805%
Preferred share (Series B) rate <F5>................................................... 3.774%
<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 NAV.
<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 #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
</TABLE>
3
<TABLE>
<CAPTION>
Portfolio of Investments
October 31, 1995
- ---------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Alabama 0.4%
$ 1,000 Birmingham-Carraway, AL Methodist Hlth
Sys Ser A (Connie Lee Insd) <F2> .................. 5.875% 08/15/25 $ 992,940
----------
Alaska 1.7%
950 Alaska St Hsg Fin Corp Coll Mtg Oblig Ser A
Subser A2 (GNMA Collateralized) ................... 7.050 06/01/25 994,051
1,000 Alaska Student Ln Corp Student Ln Rev Ser A (AMBAC
Insd) ............................................. 6.000 07/01/07 1,031,930
2,000 North Slope Borough, AK Ser B (Cap Guar Insd) ..... 7.500 06/30/01 2,278,780
----------
4,304,761
----------
Arizona 2.7%
1,500 Arizona Hlth Fac Auth Hosp Sys Rev Phoenix
Baptist Hosp & Med Rfdg (MBIA Insd) ............... 6.250 09/01/11 1,582,875
1,589 Peoria, AZ Indl Dev Auth Multi Family Rev Sr Hsg
Casa Del Rio A Rfdg (GNMA Collateralized) ......... 7.300 02/20/15 1,734,155
3,000 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd) ....... 7.250 07/15/10 3,359,610
----------
6,676,640
----------
California 14.0%
2,500 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Pacific Gas & Elec Ser B (FSA Insd) ............... 6.350 06/01/09 2,669,525
1,000 California St Pub Wks Brd Lease Rev Lease Rev Ser
A (AMBAC Insd) .................................... 5.750 09/01/21 987,320
3,575 California Statewide Cmnty Dev Auth Rev Ctfs Partn
Sutter Hlth Oblig (MBIA Insd) ..................... 5.500 08/15/23 3,410,908
9,000 Los Angeles Cnty, CA Pension Oblig Ctfs Ltd Muni
Oblig Ser A (MBIA Insd) <F4> ...................... 0/6.900 06/30/08 9,870,030
7,500 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded
Cap) (AMBAC Insd) ................................. 5.125 12/01/23 6,727,500
1,305 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) ..... 6.250 08/01/10 1,380,116
1,000 San Francisco, CA City & Cnty Redev Agy Hotel Tax
Rev (Cap Guar Insd) ............................... 6.750 07/01/15 1,084,210
9,000 San Jose, CA Single Family Mtg Rev Ser A Cap
Apprec ............................................ * 04/01/16 2,707,920
4,240 University of CA Rev Multi Purp Proj Ser D (MBIA
Insd) ............................................. 6.300 09/01/14 4,457,766
2,000 Vista, CA Comm Dev Vista Redev Proj Area (MBIA
Insd) ............................................. 5.250 09/01/15 1,908,580
----------
35,203,875
----------
</TABLE>
4 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
October 31, 1995
- -------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida 2.4%
$ 5,000 Florida St Brd Edl Cap Outlay Pub Edl Ser C
(MBIA Insd) <F2> ...................................... 5.600% 06/01/20 $ 4,921,200
1,000 Jacksonville, FL Wtr & Swr Rev United Wtr FL Proj
(AMBAC Insd) .......................................... 6.350 08/01/25 1,047,580
------------
5,968,780
------------
Hawaii 1.5%
3,500 Hawaii St Dept Budget & Fin Spl Purp Mtg Rev
Hawaiian Elec Co Proj Ser B (MBIA Insd) ............... 7.600 07/01/20 3,919,720
------------
Illinois 8.6%
9,050 Chicago, IL O'Hare Intl Arpt Spl Fac Rev Intl
Terminal (MBIA Insd) .................................. 6.750 01/01/18 9,556,890
4,735 Chicago, IL Residential Mtg Rev Ser B Rfdg (MBIA Insd). * 10/01/09 1,800,484
3,000 Onterie Cent Hsg Fin Corp IL Mtg Rev Onterie Cent Proj
Ser A Rfdg (MBIA Insd) ................................ 7.000 07/01/12 3,192,750
6,150 Onterie Cent Hsg Fin Corp IL Mtg Rev Onterie Cent Proj
Ser A Rfdg (MBIA Insd) ................................ 7.050 07/01/27 6,530,439
1,125 Peoria, IL Pub Bldg Comm Sch Bldg & Sch Fac Rev Sch
Dist 150 Proj B (AMBAC Insd) .......................... * 12/01/08 504,608
------------
21,585,171
------------
Kansas 2.6%
3,500 Burlington, KS Pollutn Ctl Rev KS Gas & Elec
Co Proj Rfdg (MBIA Insd) .............................. 7.000 06/01/31 3,893,015
2,245 Olathe Labette Cnty, KS Single Family Mtg Rev Coll Ser
A-I Rfdg (GNMA Collateralized) ........................ 8.100 08/01/23 2,534,897
------------
6,427,912
------------
Louisiana 9.3%
3,145 Calcasieu Parish, LA Mem Hosp Svc Dist Hosp Rev
Lake Charles Mem Hosp Proj Ser A (Connie Lee Insd) .... 6.650 12/01/21 3,335,524
8,500 Louisiana Pub Fac Auth Hosp Rev Southern Baptist Hosp
Proj Rfdg (FSA Insd) .................................. 6.800 05/15/12 9,713,290
3,395 Louisiana Pub Fac Auth Rev (Embedded Cap) (FGIC Insd).. 6.325 02/15/11 3,471,761
65 Louisiana Pub Fac Auth Rev Student Ln LA Opportunity
Ln A (FSA Insd) ....................................... 6.600 01/01/04 70,654
1,005 Louisiana Pub Fac Auth Rev Student Ln LA Opportunity
Ln A (FSA Insd) ....................................... 6.700 01/01/05 1,092,656
670 Louisiana Pub Fac Auth Rev Student Ln LA Opportunity
Ln A (FSA Insd) ....................................... 6.800 01/01/06 727,493
1,420 Louisiana Pub Fac Auth Rev Student Ln LA Opportunity
Ln A (FSA Insd) ....................................... 6.850 01/01/09 1,516,702
2,900 New Orleans, LA Pub Impt (FGIC Insd) .................. 7.000 09/01/19 3,318,528
------------
23,246,608
------------
</TABLE>
5 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
October 31, 1995
- -------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maryland 0.7%
$ 1,675 Prince Georges Cnty, MD Hsg Auth Mtg Rev Riverview
Terrace Ser A Rfdg (GNMA Collateralized) .............. 6.400% 12/20/10 $ 1,760,659
------------
Massachusetts 2.8%
4,710 Massachusetts Edl Ln Auth Edl Ln Rev Muni
Forwards Issue E Ser A (AMBAC Insd) ................... 7.000 01/01/10 5,028,867
2,000 Massachusetts St Hlth & Edl Fac Auth Rev Metro West
Hlth Inc Ser C Rfdg (AMBAC Insd) ...................... 6.300 11/15/12 2,104,700
------------
7,133,567
------------
Michigan 6.1%
6,000 Detroit, MI Econ Dev Corp Res Recovery Rev
Ser A (FSA Insd) ...................................... 6.875 05/01/09 6,546,300
3,900 Detroit, MI Wtr Supply Sys Rev Second Lien Bonds Ser A
(MBIA Insd) ........................................... 5.500 07/01/25 3,780,504
1,000 Monroe Cnty, MI Econ Dev Corp Ltd Oblig Rev Coll
Detroit Edison Co Ser AA Rfdg (FGIC Insd) ............. 6.950 09/01/22 1,180,720
3,500 Monroe Cnty, MI Pollutn Ctl Rev Coll Detroit Edison
Monroe Ser 1 (MBIA Insd) .............................. 6.875 09/01/22 3,780,490
------------
15,288,014
------------
Mississippi 4.8%
2,970 Mississippi Home Corp Single Family Rev Mtg
Access Pgm (GNMA Collateralized) ...................... 7.100 05/01/23 3,199,522
1,935 Mississippi Home Corp Single Family Rev Mtg Access Pgm
Ser C (GNMA Collateralized) ........................... 8.125 12/01/24 2,174,398
1,885 Mississippi Home Corp Single Family Rev Mtg Access Pgm
Ser D (GNMA Collateralized) ........................... 8.100 12/01/24 2,120,983
1,585 Mississippi Home Corp Single Family Rev Mtg Access Pgm
Ser E (GNMA Collateralized) ........................... 8.100 12/01/25 1,783,426
2,500 Mississippi Hosp Equip & Fac Auth Rev Rush Med Fndtn
Proj (Connie Lee Insd) ................................ 6.700 01/01/18 2,665,375
------------
11,943,704
------------
Nebraska 1.0%
2,300 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized) .................. 9.099 09/15/24 2,420,750
------------
Nevada 3.8%
9,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co
Proj Ser A (FGIC Insd) ................................ 6.700 06/01/22 9,475,830
------------
New Jersey 8.2%
8,500 Mercer Cnty, NJ Impt Auth Rev Solid Waste
Ser A Rfdg (FGIC Insd) ................................ 6.700 04/01/13 8,948,375
8,250 New Jersey Hlthcare Fac Fin Auth Rev Overlook Hosp
Assn Ser E (FGIC Insd) ................................ 6.700 07/01/13 8,705,235
2,865 Port Auth NY & NJ Cons 102nd Ser (MBIA Insd) <F2> ..... 5.625 10/15/17 2,836,407
------------
20,490,017
------------
</TABLE>
6 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
October 31, 1995
- --------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Mexico 2.2%
$ 1,900 Albuquerque, NM Arpt Rev Ser A (AMBAC Insd) ..... 6.600% 07/01/16 $ 2,081,469
1,000 Las Cruces, NM Rev (MBIA Insd) <F2> ............. 5.500 12/01/15 958,450
2,410 New Mexico Edl Assistance Fndtn Student Ln Rev
Ser A (AMBAC Insd) .............................. 6.850 04/01/05 2,596,727
------------
5,636,646
------------
North Carolina 1.5%
3,240 Charlotte, NC Ctfs Partn Convention Fac Proj
(Prerefunded @ 12/01/01) (AMBAC Insd) ........... 6.750 12/01/21 3,701,441
------------
Pennsylvania 6.3%
7,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh
Intl Arpt Ser A (FSA Insd) ...................... 6.800 01/01/10 8,220,150
4,000 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd) ........................... 6.625 01/01/22 4,194,640
1,330 Allegheny Cnty, PA Residential Fin Auth Mtg Rev
Single Family (GNMA Collateralized) ............. 7.100 05/01/24 1,398,522
1,950 Sayre, PA Hlthcare Fac Auth Rev Hosp VHA PA/VHA
East Fin Pgm B (AMBAC Insd) ..................... 6.375 07/01/22 2,030,047
------------
15,843,359
------------
Rhode Island 0.7%
1,500 Rhode Island Port Auth & Econ Dev Corp Arpt
Rev Ser A (FSA Insd) ............................ 7.000 07/01/14 1,721,175
------------
South Carolina 3.9%
9,150 South Carolina St Port Auth Port Rev
(AMBAC Insd) <F3> ............................... 6.750 07/01/21 9,790,134
------------
Texas 10.6%
5,000 Brazos River Auth TX Pollutn Ctl Rev Coll TX
Util Elec Co Proj A (AMBAC Insd) ................ 6.750 04/01/22 5,355,250
5,000 Brazos River Auth TX Pollutn Ctl Rev Coll TX
Util Elec Co Proj B (FGIC Insd) ................. 6.625 06/01/22 5,346,950
1,000 Brazos River Auth TX Pollutn Ctl Rev Coll TX
Util Elec Co Proj C (FGIC Insd) ................. 6.700 10/01/22 1,076,250
2,500 Conroe, TX Indpt Sch Dist Cap Apprec
(Prerefunded @ 02/01/02) (PSFG Insd) ............ * 02/01/08 1,272,325
3,000 Conroe, TX Indpt Sch Dist Cap Apprec
(Prerefunded @ 02/01/02) (PSFG Insd) ............ * 02/01/09 1,420,470
755 Conroe, TX Indpt Sch Dist Cap Apprec
(Prerefunded @ 02/01/02) (PSFG Insd) ............ * 02/01/11 308,531
1,000 Conroe, TX Indpt Sch Dist Cap Apprec
(Prerefunded @ 02/01/02) (PSFG Insd) ............ * 02/01/12 379,090
</TABLE>
7 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
October 31, 1995
- -----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas (Continued)
$ 4,000 Houston, TX Arpt Sys Rev Sub Lien Ser A (FGIC Insd) .... 6.750% 07/01/21 $ 4,279,840
4,790 Texas St Veterans Hsg Assistance (MBIA Insd) ........... 6.800 12/01/23 5,024,710
2,000 Tyler, TX Hlth Fac Dev Corp Hosp Rev Mother Frances
Hosp of Tyler (FGIC Insd) .............................. 6.500 07/01/22 2,117,140
------------
26,580,556
------------
Virginia 2.6%
5,750 Prince William Cnty, VA Svc Auth Wtr & Swr Sys
Rev (Prerefunded @ 07/01/01) (FGIC Insd) ............... 6.500 07/01/21 6,433,100
------------
Wisconsin 2.9%
5,000 Wisconsin St Hlth & Edl Fac Auth Rev Children's
Hosp (Embedded Cap) (FGIC Insd) ........................ 5.000 08/15/10 4,842,600
1,250 Wisconsin St Hlth & Edl Fac Auth Rev Felician Hlth Care
Ser A Rfdg (AMBAC Insd) ................................ 7.000 01/01/15 1,361,000
1,000 Wisconsin St Hlth & Edl Fac Auth Rev Saint Lukes Med
Cent Proj (MBIA Insd) .................................. 7.100 08/15/19 1,111,600
------------
7,315,200
------------
Total Long-Term Investments 101.3%
(Cost $236,540,899) <F1>.............................................................. 253,860,559
Short-Term Investments at Amortized Cost 0.1%........................................ 300,000
Liabilities in Excess of Other Assets (1.4%)......................................... (3,583,562)
------------
Net Assets 100%...................................................................... $250,576,997
============
*Zero coupon bond
<FN>
<F1> At October 31, 1995, cost for federal income tax purposes is $236,540,899;
the aggregate gross unrealized appreciation is $17,680,038 and the
aggregate gross unrealized depreciation is $360,378, resulting in net
unrealized appreciation of $17,319,660.
<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> Security is a "Step-up" bond where the coupon increases, or steps up, at a
predetermined date.
</TABLE>
The following table summarizes the portfolio composition at October 31, 1995,
based upon quality ratings issued by Standard & Poor's. For securities not rated
by Standard & Poor's, the Moody's rating is used.
Portfolio Composition by Credit Quality
AAA.... 100.0%
=======
8 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
October 31, 1995
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at Market Value (Cost $236,540,899) (Note 1)...................... $ 253,860,559
Short-Term Investments (Note 1)................................................ 300,000
Cash........................................................................... 2,152,482
Receivables:
Interest..................................................................... 4,511,082
Investments Sold............................................................. 35,000
Unamortized Organizational Expenses (Note 1)................................... 9,816
---------------
Total Assets............................................................... 260,868,939
---------------
Liabilities:
Payables:
Investments Purchased........................................................ 9,700,566
Income Distributions - Common and Preferred Shares........................... 252,626
Investment Advisory Fee (Note 2)............................................. 127,294
Administrative Fee (Note 2).................................................. 42,431
Accrued Expenses............................................................... 169,025
---------------
Total Liabilities.......................................................... 10,291,942
---------------
Net Assets..................................................................... $ 250,576,997
===============
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 1,800 issued
with liquidation preference of $50,000 per share) (Note 5)................... $ 90,000,000
---------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
9,619,286 shares issued and outstanding) .................................... 96,193
Paid in Surplus................................................................ 141,666,418
Net Unrealized Appreciation on Investments..................................... 17,319,660
Accumulated Undistributed Net Investment Income................................ 2,216,453
Accumulated Net Realized Loss on Investments................................... (721,727)
---------------
Net Assets Applicable to Common Shares......................................... 160,576,997
---------------
Net Assets................................................................. $ 250,576,997
===============
Net Asset Value Per Common Share ($160,576,997 divided by 9,619,286 shares
outstanding)................................................................. $ 16.69
===============
</TABLE>
9 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended October 31, 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest............................................................................................ $ 15,378,219
---------------
Expenses:
Investment Advisory Fee (Note 2).................................................................... 1,454,115
Administrative Fee (Note 2)......................................................................... 484,705
Preferred Share Maintenance (Note 5)................................................................ 233,251
Trustees Fees and Expenses (Note 2)................................................................. 22,323
Legal (Note 2)...................................................................................... 21,705
Amortization of Organizational Expenses (Note 1).................................................... 8,001
Other............................................................................................... 266,166
---------------
Total Expenses.................................................................................. 2,490,266
---------------
Net Investment Income............................................................................... $ 12,887,953
===============
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales............................................................................... $ 66,170,372
Cost of Securities Sold........................................................................... (66,609,413)
---------------
Net Realized Loss on Investments (Including realized loss on futures transactions of $1,773,088).... (439,041)
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period........................................................................... (1,232,127)
End of the Period ................................................................................ 17,319,660
---------------
Net Unrealized Appreciation on Investments During the Period........................................ 18,551,787
---------------
Net Realized and Unrealized Gain on Investments..................................................... $ 18,112,746
===============
Net Increase in Net Assets from Operations.......................................................... $ 31,000,699
===============
</TABLE>
10 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Years Ended October 31, 1995 and 1994
- -------------------------------------------------------------------------------------------------------
Year Ended Year Ended
October 31, 1995 October 31, 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income.............................................. $ 12,887,953 $ 12,995,827
Net Realized Loss on Investments................................... (439,041) (282,692)
Net Unrealized Appreciation/Depreciation on Investments During the
Period........................................................... 18,551,787 (30,021,385)
---------------- ----------------
Change in Net Assets from Operations .............................. 31,000,699 (17,308,250)
---------------- ----------------
Distributions from Net Investment Income:
Common Shares.................................................... (10,100,032) (10,100,114)
Preferred Shares................................................. (3,490,755) (2,890,749)
---------------- ----------------
(13,590,787) (12,990,863)
---------------- ----------------
Distributions from Net Realized Gain on Investments (Note 1):
Common Shares.................................................... -0- (1,402,492)
Preferred Shares................................................. -0- (326,312)
---------------- ----------------
-0- (1,728,804)
---------------- ----------------
Total Distributions................................................ (13,590,787) (14,719,667)
---------------- ----------------
Net Change in Net Assets from Investment Activities................ 17,409,912 (32,027,917)
Net Assets:
Beginning of the Period............................................ 233,167,085 265,195,002
---------------- ----------------
End of the Period (Including undistributed net investment income
of $2,216,453 and $2,919,287, respectively)....................... $ 250,576,997 $ 233,167,085
================ ================
</TABLE>
11 See Notes to Financial Statements
<TABLE>
<CAPTION>
Financial Highlights
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 24, 1992
(Commencement
Year Ended October 31 of Investment
------------------------------------ Operations) to
1995 1994 1993 October 31, 1992
- -----------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of the
Period <F1>.......................... $ 14.883 $ 18.213 $ 15.278 $ 14.737
---------- ------------ ---------- ----------------
Net Investment Income.................. 1.340 1.351 1.365 .924
Net Realized and Unrealized Gain/Loss
on Investments....................... 1.883 (3.150) 2.949 .340
---------- ------------ ---------- ----------------
Total from Investment Operations....... 3.223 (1.799) 4.314 1.264
---------- ------------ ---------- ----------------
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders. 1.050 1.050 .970 .525
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders..................... .363 .301 .293 .198
Distributions from Net Realized Gain
on Investments (Note 1):
Paid to Common Shareholders........ -0- .146 .086 -0-
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders..................... -0- .034 .030 -0-
---------- ------------ ---------- ----------------
Total Distributions.................... 1.413 1.531 1.379 .723
---------- ------------ ---------- ----------------
Net Asset Value, End of the Period..... $ 16.693 $ 14.883 $ 18.213 $ 15.278
---------- ------------ ---------- ----------------
Market Price Per Share
at End of the Period................. $ 15.750 $ 13.500 $ 17.250 $ 14.500
Total Investment Return at Market
Price (Non-Annualized) <F2>.......... 24.96% (15.57%) 26.98% .09%
Total Return at Net Asset Value
(Non-Annualized) <F3>................ 19.80% (12.20%) 26.75% 5.33%
Net Assets at End of the Period
(In millions)........................ $ 250.6 $ 233.2 $ 265.2 $ 237.0
Ratio of Expenses to Average Net
Assets Applicable to Common Shares
(Annualized)......................... 1.63% 1.57% 1.54% 1.51%
Ratio of Expenses to Average Net
Assets (Annualized).................. 1.03% 1.01% .99% 1.01%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (Annualized) <F4>...... 6.16% 6.33% 6.29% 6.08%
Portfolio Turnover..................... 27.82% 26.33% 38.49% 90.15%
<FN>
<F1> Net asset value at January 24, 1992, is adjusted for common and preferred
share offering costs of $.263 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 value of the
Trust's assets with reinvestment of dividends based upon NAV.
<F4> Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
</TABLE>
12 See Notes to Financial Statements
Notes to Financial Statements
October 31, 1995
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen Merritt Trust for Insured Municipals (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
January 24, 1992.
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 (collectively "VKAC") for costs incurred in
connection with the Trust's organization and initial registration in the amount
of $40,000. These costs are being amortized on a straight line basis over the 60
month period ending January 23, 1997.
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
13
Notes to Financial Statements (Continued)
October 31, 1995
- --------------------------------------------------------------------------------
substantially all of its taxable income to its shareholders. Therefore, no
provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1995, the Trust had an accumulated capital loss
carryforward for tax purposes of $721,727, of which $282,686 and $439,041 will
expire on October 31, 2002 and 2003, respectively.
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.
G. Insurance Expense-The Trust typically invests in insured bonds. Any portfolio
securities not specifically covered by a primary insurance policy are insured
either through secondary market insurance or portfolio insurance. The insurance
policies guarantee the timely payment of principal and interest on the
securities in the Trust's portfolio.
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 .60% 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 year ended October 31, 1995, the Trust recognized expenses of
approximately $16,900 representing VKAC's cost of providing accounting and legal
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.
14
Notes to Financial Statements (Continued)
October 31, 1995
- --------------------------------------------------------------------------------
Under the deferred compensation plan, trustees may elect to defer all or a
portion of their compensation to a later date. The retirement plan covers those
trustees who are not officers of VKAC. The Trust's liability under the deferred
compensation and retirement plans at October 31, 1995, was approximately
$24,700.
At October 31, 1995, VKAC owned 6,700 common shares of the Trust.
3. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the year ended October 31, 1995, were $78,477,859 and
$66,609,413, respectively.
4. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on investments. Upon disposition, a realized gain or
loss is recognized accordingly.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. Futures Contracts-A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
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 October 31, 1995, were as follows:
<TABLE>
<CAPTION>
Contracts
- -----------------------------------------------
<S> <C>
Outstanding at October 31, 1994..... -0-
Futures Opened...................... 1,410
Futures Closed...................... (1,410)
----------
Outstanding at October 31, 1995..... -0-
==========
</TABLE>
15
Notes to Financial Statements (Continued)
October 31, 1995
- --------------------------------------------------------------------------------
B. 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.
5. Preferred Shares
The Trust has outstanding 1,800 Auction Preferred Shares ("APS") in two series
of 900 shares each. Dividends are cumulative and the dividend rate is
periodically reset through an auction process. The dividend periods for Series A
and Series B are 28 days. The average rate in effect on October 31, 1995, was
3.790%. During the year ended October 31, 1995, the rates ranged from 2.998% to
4.800%.
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.
16
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
Van Kampen Merritt Trust for Insured Municipals:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Trust for Insured Municipals (the "Trust"), including the
portfolio of investments, as of October 31, 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
October 31, 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 Trust for Insured Municipals as of October 31, 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
November 29, 1995
17
Dividend Reinvestment Plan
- --------------------------------------------------------------------------------
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at
any time.
If you decide to participate in the Plan, State Street Bank and Trust Company,
as your Plan Agent, will automatically invest your dividends and capital gains
distributions in Common Shares of the Trust for your account.
How to Participate
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be
re-registered in your own name which will enable your participation in the Plan.
How the Plan Works
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
Costs of the Plan
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
Tax Implications
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of divi-
dends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
Right to Withdraw
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
One Parkview Plaza, Oakbrook Terrace, IL 60181
Attn: Closed-End Funds
18
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.
19
Van Kampen Merritt Trust For Insured Municipals
- --------------------------------------------------------------------------------
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.
20
