Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio of Investments ............. 4
Statement of Assets and Liabilities ... 10
Statement of Operations ............... 11
Statement of Changes in Net Assets .... 12
Financial Highlights ................. 13
Notes to Financial Statements ......... 14
</TABLE>
Page: 1
Letter to Shareholders
June 16, 1995
Dear Shareholder:
During the six-month period covered by this report, November 1, 1994 through
April 30, 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.
Market Overview
Most of 1994 was a difficult period for fixed-income investors as the Federal
Reserve Board's crusade against inflation drove interest rates markedly higher.
The yield on 30-year Treasury securities, for example, climbed from 6.35 percent
as the year began to a high of 8.16 percent by early November. As interest rates
rose, fixed-income investments declined in value.
The fixed-income markets have rebounded considerably since late 1994, however,
with growing confidence that the Fed's inflation fighting initiatives have taken
hold. The yield on 30-year Treasury securities fell to 7.34 percent by the end
of April 1995 and to approximately 6.50 percent at the time of this writing.
This rate reversal has pushed bond prices back to February 1994 levels. Closed-
end municipal bond funds, in particular, have been among the greatest
beneficiaries in this rally, earning back virtually all of last year's losses
and posting attractive returns.
Performance Summary
The Trust achieved a six-month total return of 6.75 percent <F1>, based on
market price, for the period ended April 30, 1995. This robust performance
can be partially attributed to the Trust's leveraged capital structure, which
has helped it to more fully benefit from a fall in long-term interest rates
over the last six months. While leveraging adds certain financing risks and
volatility, it is designed, over time, to provide shareholders with enhanced
returns by taking advantage of the yield differential between long-term and
short-term interest rates.
Additionally, the Trust's closing stock price gained more than 2.5 percent
from its $13.000 level on October 31, 1994, to $13.375 on April 30, 1995. As the
graph on the following page shows, we've also seen the Trust's net asset value
rebound during the last six months.
Although intermediate and long-term interest rates eased during this
reporting period, short-term interest rates have remained persistently high,
placing continued pressure on the Trust's preferred rates and common dividend.
The Trust was able, however, to sustain its annualized dividend level in this
environment at $1.02 per common share, which represents a tax-exempt
distribution rate of 7.63 percent <F3>, based on the closing stock price of
$13.375 per share on April 30, 1995. For shareholders in the 36 percent federal
income tax bracket, this distribution rate represents a yield equivalent to a
taxable investment earning 11.92 percent <F4>.
[Photo]
Dennis J. McDonnell and Don G. Powell
(Continued on page two)
Page: 2
Outlook
The outlook for fixed-income securities appears favorable. To date, inflation
remains under control, and recent economic data continues to suggest a slowdown
in the economy. First-quarter gross domestic product, for example, grew at an
annual rate of 2.8 percent, substantially lower than its fourth-quarter rate of
5.1 percent last year. Many analysts now expect GDP to grow at an annual rate
between 1 and 2 percent in the second half of this year. Should this scenario
play out, we suspect that the Fed is more likely to lower than raise short-term
rates, which would be a positive development for all fixed-income investors.
Regarding the municipal market, we remain optimistic about the current supply-
and-demand dynamics. 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 be steady, if not strong. A decline in supply combined with steady demand
should end price stability and price support to this market. We believe the
Trust will continue to provide shareholders with long-term value as we seek
to maintain a high level of current income over time.
[GRAPH]
Trust Rebounds in 1995
<TABLE>
COMPARISON OF NAV AND MARKET PRICE OF THE TRUST
<CAPTION>
Measurement Market
Period NAV Price
<S> <C> <C>
30-Apr-94 $15.37 14.000
31-May-94 $15.49 14.500
30-Jun-94 $15.25 14.625
31-Jul-94 $15.44 14.375
31-Aug-94 $15.45 14.250
30-Sep-94 $14.99 13.375
31-Oct-94 $14.39 13.000
30-Nov-94 $13.64 12.625
31-Dec-94 $14.30 12.750
31-Jan-95 $14.80 13.750
28-Feb-95 $15.41 14.500
31-Mar-95 $15.61 14.000
30-Apr-95 $15.32 13.375
</TABLE>
Corporate News
As you may have already noticed, we have adopted a new design for our
shareholder reports that reflects 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 advertising campaign introducing Van Kampen
American Capital. Full page ads appeared in The Wall Street Journal in the
first quarter of 1995 -- 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
investment with 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.
Page: 3
<TABLE>
Performance Results for the Period Ended April 30, 1995
Van Kampen Merritt Municipal Opportunity Trust
(NYSE Ticker Symbol VMO)
<CAPTION>
<S> <C>
Total Returns
Six-month total return based on market price<F1> .................................. 6.75%
Six-month total return based on NAV<F2> ........................................... 10.18%
Distribution Rates
Distribution rate as a % of initial offer stock price<F3> ......................... 6.80%
Taxable-equivalent distribution rate as a % of initial offer stock price<F4> ...... 10.63%
Distribution rate as a % of 04/30/95 closing stock price<F3> ...................... 7.63%
Taxable-equivalent distribution rate as a % of 04/30/95 closing stock price<F4> ... 11.92%
Share Valuations
Net asset value as of 04/30/95 .................................................... $ 15.32
Preferred share (A Series) rate as of 04/30/95<F5> ................................ 4.198%
Preferred share (B Series) rate as of 04/30/95<F5> ................................ 4.195%
Closing common stock price as of 04/30/95 ........................................ $ 13.375
Six-month high common stock price (03/03/95) ..................................... $ 14.500
Six-month low common stock price (11/11/94) ...................................... $ 11.750
<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 April 1995, 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>
Page: 4
<TABLE>
Portfolio of Investments
<CAPTION>
April 30,1995 (Unaudited)
- -------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Alaska 0.5%
$ 3,300 North Slope Borough, AK Ser A (MBIA Insd) ........... *% 06/30/03 $ 2,066,526
------------
California 9.1%
2,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southern CA Edison Co (Embedded Cap)
(AMBAC Insd) .......................................... 6.000 07/01/27 1,952,520
1,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd) ...... 5.000 12/01/19 856,230
3,800 California St Rev Antic Wts Ser C ................... 5.750 04/25/96 3,852,896
3,000 California St Ser 94 ................................. 5.500 03/01/12 2,796,960
1,000 California Statewide Cmntys Dev Auth Rev Ctfs
Children's Hosp (MBIA Insd) .......................... 6.000 06/01/12 1,009,850
1,000 California Statewide Cmntys Dev Auth Rev Ctfs
Children's Hosp (MBIA Insd) .......................... 6.000 06/01/12 1,010,600
7,000 Metropolitan Wtrwks Dist Southern CA <F2> ........... 5.808 08/05/22 6,752,620
10,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (Embedded Cap) (MBIA Insd) ..................... 6.100 09/01/18 10,028,400
1,000 San Jose, CA Redev Agy Tax Alloc Merged Area
Redev Proj (MBIA Insd) ............................... 6.000 08/01/11 1,017,590
1,895 San Jose, CA Redev Agy Tax Alloc Merged Area
Redev Proj (MBIA Insd) ............................... 6.000 08/01/15 1,912,529
4,000 Southern CA Rapid Tran Dist CA Rev Spl Benefit
Assmt Dist Ser A1 (AMBAC Insd) ...................... 5.500 09/01/09 3,849,960
------------
35,040,155
------------
Colorado 3.4%
1,615 Colorado Hsg Fin Auth Single Family Proj Sr Ser A3 ... 7.000 11/01/24 1,649,545
3,500 Denver, CO City & Cnty Arpt Rev Ser A ............... 8.500 11/15/07 3,817,555
7,000 Denver, CO City & Cnty Arpt Rev Ser A ............... 8.875 11/15/12 7,807,870
------------
13,274,970
------------
Connecticut 1.1%
4,500 Connecticut St Ser A ................................. 5.650 03/15/12 4,357,080
------------
District of Columbia 1.4%
2,000 Metropolitan WA, DC Arpts Auth Genl Arpt Rev
Ser A (FGIC Insd) .................................... 7.250 10/01/10 2,146,080
1,500 Metropolitan WA, DC Arpts Auth Genl Arpt Rev
Ser A (MBIA Insd) .................................... 5.875 10/01/15 1,433,850
2,000 Metropolitan WA, DC Arpts Auth Genl Arpt Rev
Ser A (MBIA Insd) .................................... 5.500 10/01/24 1,786,860
------------
5,366,790
------------
See Notes to Financial Statements
Page: 5
</TABLE>
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- ----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida 0.8%
$ 3,000 Florida St Brd Ed Cap Outlay Pub Ed Ser A ............. 5.875% 06/01/16 $ 2,951,730
------------
Georgia 2.9%
3,370 Fulton Cnty, GA Lease Rev ............................. 7.250 06/15/10 3,563,977
7,000 Municipal Elec Auth GA Spl Oblig First
Crossover (MBIA Insd) ................................. 6.500 01/01/20 7,437,500
------------
11,001,477
------------
Hawaii 1.3%
5,000 Hawaii St Arpt Sys Rev Ser 2 ........................... 7.000 07/01/18 5,165,550
------------
Illinois 5.8%
3,000 Chicago, IL Brd Edl Lease Ctfs Ser A Rfdg (MBIA Insd) ... 6.000 01/01/20 2,931,750
5,000 Chicago, IL O'Hare Intl Arpt Rev Genl Arpt
Second Lien Ser A (MBIA Insd) <F3> .................... 6.375 01/01/12 5,108,900
6,400 Chicago, IL Sch Fin Auth Ser A (MBIA Insd) ............ 5.000 06/01/09 5,785,344
3,285 Illinois Hlth Fac Auth Rev Midwest Physician
Group Ltd Proj ........................................ 8.125 11/15/19 3,367,585
1,475 Regional Tran Auth IL Ser A (AMBAC Insd) .............. 6.500 06/01/15 1,505,282
1,410 Sangamon Cnty, IL Cmnty Unit Sch Dist No 5
(FGIC Insd) ............................................ 6.400 12/01/03 1,511,816
1,865 Sangamon Cnty, IL Cmnty Unit Sch Dist No 5
(FGIC Insd) ............................................ 6.500 12/01/05 2,008,437
------------
22,219,114
------------
Indiana 2.1%
3,500 Indianapolis, IN Loc Pub Impt Bond Bank Ser D ......... 6.500 02/01/22 3,524,045
885 La Porte Cnty, IN Hosp Auth Hosp Fac Rev
La Porte Hosp Inc Rfdg ................................. 5.600 03/01/99 877,433
935 La Porte Cnty, IN Hosp Auth Hosp Fac Rev
La Porte Hosp Inc Rfdg ................................. 5.800 03/01/00 927,567
2,500 Purdue Univ, IN Univ Rev Student Fee Ser B ............ 6.750 07/01/09 2,653,075
------------
7,982,120
------------
Iowa 0.3%
1,250 Iowa Higher Ed Ln Auth Rev Priv Coll Univ
Osteopathic Rfdg (Connie Lee Insd) <F2> ................ 6.000 10/01/25 1,187,288
------------
Louisiana 2.7%
9,600 Louisiana Pub Fac Auth Hosp Rev Southern Baptist
Hosp Proj Rfdg (FSA Insd) <F3> ......................... 6.800 05/15/12 10,198,560
------------
Maine 1.4%
3,400 Maine Edl Ln Auth Edl Ln Rev Supplemental
Edl Ln Pgm Ser A1 ..................................... 7.000 12/01/16 3,609,474
1,870 Maine Edl Ln Auth Edl Ln Rev Supplemental
Edl Ln Pgm Ser A2 ..................................... 7.150 12/01/16 1,953,795
------------
5,563,269
------------
See Notes to Financial Statements
Page: 6
</TABLE>
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- -----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maryland 1.3%
$ 5,000 Northeast, MD Waste Disp Auth Solid Waste Rev
Montgomery Cnty Res Recovery Proj Ser A ........... 6.200% 07/01/10 $ 4,941,400
------------
Massachusetts 2.2%
2,000 Massachusetts St Hlth & Edl Fac Auth Rev
New England Med Cent Hosp Ser G
(Embedded Swap) (MBIA Insd) ...................... 5.000 07/01/13 1,550,860
3,975 Massachusetts St Wtr Res Auth Genl Ser A
(MBIA Insd) ...................................... 5.700 08/01/09 3,913,666
3,000 Plymouth Cnty, MA Ctfs Partn Ser A ............... 7.000 04/01/22 3,184,560
------------
8,649,086
------------
Michigan 1.2%
4,500 Monroe Cnty, MI Pollutn Ctl Rev Coll Detroit Edison
Monroe Ser 1 (MBIA Insd) ......................... 6.875 09/01/22 4,712,445
------------
Minnesota 1.2%
30,660 Southern MN Muni Pwr Agy Pwr Supply Sys
Rev Ser A (MBIA Insd) ............................ * 01/01/26 4,767,630
------------
Missouri 0.8%
3,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd) <F3> ...... 6.200 06/01/10 3,168,990
------------
Nevada 1.1%
4,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser A
(FGIC Insd) ....................................... 6.700 06/01/22 4,114,720
------------
New Jersey 6.6%
20,000 New Jersey Econ Dev Auth St Contract Econ Recovery
(Embedded Cap) .................................... 5.900 03/15/21 19,789,800
5,845 New Jersey Econ Dev Auth Wtr Fac Rev Hackensack
Wtr Co Proj B Rfdg (MBIA Insd) ................... 5.900 03/01/24 5,587,586
------------
25,377,386
------------
New Mexico 0.9%
1,280 Hobbs, NM Single Family Mtg Rev Rfdg ............. 8.750 07/01/11 1,379,942
2,000 University of NM Technology Dev Corp Lease Rev
Univ Cent Resh Pk Proj Ser A (MBIA Insd) ......... 6.450 08/15/18 2,062,900
------------
3,442,842
------------
New York 19.7%
3,000 Metropolitan Tran Auth NY Svcs Contract Tran Fac
Ser 5 Rfdg ....................................... 7.000 07/01/12 3,165,510
1,360 New York City Indl Spl Fac Terminal
One Group Assn Proj .............................. 6.000 01/01/08 1,340,906
1,440 New York City Indl Spl Fac Terminal
One Group Assn Proj .............................. 6.100 01/01/09 1,418,875
See Notes to Financial Statements
Page: 7
</TABLE>
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (Continued)
$ 11,875 New York City Indl Spl Fac Terminal
One Group Assn Proj ................................ 6.000% 01/01/15 $ 11,295,500
8,000 New York City Ser D ................................. 7.500 02/01/19 8,499,600
6,060 New York St Dorm Auth Rev City Univ Ser F .......... 5.500 07/01/12 5,490,178
1,365 New York St Dorm Auth Rev St Univ Edl Fac
Ser B Rfdg ........................................... 5.250 05/15/09 1,238,546
8,000 New York St Energy Resh & Dev Auth Elec Fac Rev
Cons Edison Co NY Proj Ser A (MBIA Insd) ........... 7.500 11/15/21 8,471,680
4,325 New York St Energy Resh & Dev Auth St Svc Contract
Rev Western NY Nuclear Svc Cent Proj ................ 5.500 04/01/99 4,356,053
2,000 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Fac Ser A (MBIA Insd) ......................... 6.000 02/15/25 1,951,020
5,000 New York St Med Care Fac Fin Agy Rev
Presbyterian Hosp Ser A Rfdg (FHA Insd) ............ 5.375 02/15/25 4,423,550
4,000 New York St Med Care Fac Fin Agy Rev
Secd Hosp Ser A ..................................... 6.250 02/15/24 3,662,160
9,500 New York St Pwr Auth Rev & Genl Purp Ser CC Rfdg ... 5.125 01/01/10 8,765,365
4,000 Onondaga Cnty, NY Res Recovery Agy Rev Proj
Res Recovery Fac .................................... 6.625 05/01/00 4,027,600
4,150 Port Auth NY & NJ Cons Ninety Ninth Ser
(FGIC Insd) <F2> .................................... 5.750 11/01/14 3,974,165
3,500 Port Auth NY & NJ Cons Ninety Seventh Ser
(FGIC Insd) ......................................... 6.650 01/23/15 3,647,105
-------------
75,727,813
-------------
North Carolina 6.0%
13,000 North Carolina Eastn Muni Pwr Agy Pwr Sys
Rev Ser B Rfdg (Embedded Cap) ....................... 6.000 01/01/14 12,336,870
11,000 North Carolina Muni Pwr Agy No 1 Catawba Elec
Rev (Embedded Cap) .................................. 6.000 01/01/12 10,716,640
-------------
23,053,510
-------------
Ohio 0.3%
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd
Partnership Proj Rfdg (AMBAC Insd) .................. 6.375 04/01/29 1,017,390
-------------
Oklahoma 0.8%
3,000 Tulsa, OK Muni Arpt Tran Rev American Airls Inc ..... 7.600 12/01/30 3,090,810
-------------
Pennsylvania 6.6%
6,655 Berks Cnty, PA Muni Auth Rev Highlands
at Wyomissing Proj B ................................ 6.875 10/01/17 6,846,930
8,500 Geisinger Auth PA Hlth Sys Muni Cap Ser A
(Embedded Cap) ...................................... 5.450 07/01/22 8,485,635
See Notes to Financial Statements
</TABLE>
Page: 8
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (Continued)
$ 1,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia (Prerefunded @ 06/15/02) ....... 6.800% 06/15/22 $ 1,100,480
8,000 Pennsylvania St 2nd Ser Rfdg & Projs ................. 4.750 06/15/97 8,017,200
1,000 Philadelphia, PA Sch Dist Ser A (MBIA Insd) .......... 5.750 07/01/07 991,280
------------
25,441,525
------------
Tennessee 0.4%
1,500 Maury Cnty, TN Indl Dev Brd Pollutn Ctl Rev
Multi Modal Saturn Corp Proj Rfdg .................... 6.500 09/01/24 1,465,275
------------
Texas 3.7%
4,500 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev Delta Airls Inc .................................. 7.000 11/01/01 4,610,790
2,525 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev Delta Airls Inc .................................. 7.625 11/01/21 2,598,806
5,000 Ector Cnty, TX Hosp Dist Hosp Rev Med Cent Hosp ...... 7.300 04/15/12 5,220,050
1,995 Texas Genl Svcs Comm Partn Int ....................... 7.250 08/01/11 1,994,690
------------
14,424,336
------------
Utah 1.5%
3,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg
(Embedded Cap) ....................................... 5.500 02/15/17 2,676,720
2,990 Utah St Hsg Fin Agy Single Family Mtg Sr Issue B3 .... 7.100 07/01/24 3,066,454
------------
5,743,174
------------
Virginia 1.9%
8,200 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke
Mem Hosp Carilion Hlth Sys Ser B Rfdg (MBIA Insd) ... 4.700 01/01/00 7,492,340
------------
Washington 5.4%
9,850 Bellevue, WA Convention Cent Comp Int Rfdg
(MBIA Insd) ......................................... * 02/01/25 1,418,105
10,975 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev Ser A Rfdg (MBIA Insd) ..................... 5.700 07/01/17 10,192,702
10,000 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev Ser B Rfdg (MBIA Insd) ..................... 5.600 07/01/15 9,227,200
------------
20,838,007
------------
West Virginia 2.1%
8,000 Harrison Cnty, WV Cmnty Solid Waste Disp Rev
West Penn Pwr Co Proj A .............................. 6.875 04/15/22 8,190,160
------------
See Notes to Financial Statements
</TABLE>
Page: 9
<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wisconsin 0.3%
$ 1,000 Madison, WI Indl Dev Rev Madison Gas & Elec Co
Proj Ser A ................................... 6.750% 04/01/27 $ 1,020,040
---------------
Wyoming 0.4%
1,500 Sweetwater Cnty, WY Solid Waste Disp Rev
FMC Corp Proj Ser B ......................... 6.900 09/01/24 1,500,975
---------------
Swaps 0.0%
JP Morgan Securities, $8,500,000 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) .................................................. (30,054)
---------------
Total Long-Term Investments 97.2%
(Cost $366,967,257) <F1> ............................................................... 374,524,429
Short-Term Investments at Amortized Cost 2.4% .......................................... 9,300,000
Other Assets in Excess of Liabilities 0.4% ............................................ 1,421,939
---------------
Net Assets 100% ....................................................................... $ 385,246,368
---------------
*Zero coupon bond
<FN>
<F1> At April 30, 1995, cost for federal income tax purposes is $366,967,257;
the aggregate gross unrealized appreciation is $11,070,547 and the aggregate
gross unrealized depreciation is $4,994,804, resulting in net unrealized
appreciation including options and futures transactions of $6,075,743.
<F2> Securities purchased on a when issued or delayed delivery basis.
<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments, open option and open futures transactions.
</TABLE>
The following table summarizes the portfolio composition at April 30, 1995,
based upon quality ratings issued by Standard & Poor's. For securities not rated
by Standard & Poor's, the Moody's rating is used.
Portfolio Composition by Credit Quality
<TABLE>
<CAPTION>
<S> <C>
AAA .......... 41.2%
AA ........... 13.4
A ............ 29.6
BBB .......... 9.4
BB ........... 5.9
Non-Rated ... .5
-------
100.0%
-------
</TABLE>
See Notes to Financial Statements
Page: 10
Statement of Assets and Liabilities
<TABLE>
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $366,967,257) (Note 1) .................................... $ 374,524,429
Short-Term Investments (Note 1) .............................................................. 9,300,000
Cash ........................................................................................ 57,546
Receivables:
Interest ..................................................................................... 7,049,335
Investments Sold ............................................................................. 5,580,725
Unamortized Organizational Expenses (Note 1) ................................................ 15,844
Options at Market Value (Net premiums paid of $203,984) (Note 4) ............................. 14,064
--------------
Total Assets ................................................................................. 396,541,943
--------------
Liabilities:
Payables:
Investments Purchased ........................................................................ 10,152,368
Income Distributions - Common and Preferred Shares .......................................... 391,521
Investment Advisory Fee (Note 2) ............................................................. 208,496
Administrative Fee (Note 2) ................................................................. 64,153
Margin on Futures (Note 4) .................................................................. 25,000
Accrued Expenses ............................................................................. 454,037
--------------
Total Liabilities ............................................................................ 11,295,575
--------------
Net Assets ................................................................................... $ 385,246,368
--------------
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 3,000 issued with liquidation
preference of $50,000 per share) (Note 5) .................................................... $ 150,000,000
--------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
15,352,891 shares issued and outstanding) ................................................... 153,529
Paid in Surplus ............................................................................. 226,719,758
Net Unrealized Appreciation on Investments .................................................. 6,075,743
Accumulated Undistributed Net Investment Income ............................................. 2,015,403
Accumulated Net Realized Gain on Investments ................................................. 281,935
--------------
Net Assets Applicable to Common Shares ....................................................... 235,246,368
--------------
Net Assets ................................................................................... $ 385,246,368
--------------
Net Asset Value Per Common Share($235,246,368 divided
by 15,352,891 shares outstanding) ............................................................ $ 15.32
--------------
See Notes to Financial Statements
</TABLE>
Page: 11
Statement of Operations
<TABLE>
For the Six Months Ended April 30,1995 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Investment Income:
<S> <C>
Interest ...................................................................................... $ 11,832,051
----------------
Expenses:
Investment Advisory Fee (Note 2) ............................................................. 1,212,743
Administrative Fee (Note 2) ................................................................... 373,152
Preferred Share Maintenance (Note 5) .......................................................... 204,787
Legal (Note 2) ............................................................................... 14,480
Trustees Fees and Expenses (Note 2) ........................................................... 11,765
Amortization of Organizational Expenses (Note 1) ............................................. 3,968
Other ......................................................................................... 150,331
----------------
Total Expenses ................................................................................ 1,971,226
----------------
Net Investment Income ......................................................................... $ 9,860,825
----------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ........................................................................... $ 102,146,821
Cost of Securities Sold ....................................................................... (101,562,779)
----------------
Net Realized Gain on Investments (Including realized loss on closed and expired option
and futures transactions of $433,741 and $154,659, respectively) .............................. 584,042
----------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ...................................................................... (8,696,440)
End of the Period (Including unrealized depreciation on open option and futures transactions of
$189,920 and $1,291,509, respectively) ........................................................ 6,075,743
----------------
Net Unrealized Appreciation on Investments During the Period .................................. 14,772,183
----------------
Net Realized and Unrealized Gain on Investments ............................................... $ 15,356,225
----------------
Net Increase in Net Assets from Operations .................................................... $ 25,217,050
----------------
See Notes to Financial Statements
</TABLE>
Page: 12
Statement of Changes in Net Assets
<TABLE>
For the Six Months Ended April 30,1995 and the Year Ended October 31,1994
(Unaudited)
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended
April 30,1995 October 31,1994
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 9,860,825 $ 20,007,543
Net Realized Gain on Investments .................................. 584,042 2,271,422
Net Unrealized Appreciation/Depreciation on Investments
During the Period ................................................ 14,772,183 (47,067,641)
---------------- ---------------
Change in Net Assets from Operations ............................. 25,217,050 (24,788,676)
---------------- ---------------
Distributions from Net Investment Income:
Common Shares ..................................................... (7,829,854) (15,659,804)
Preferred Shares ................................................. (3,051,699) (4,196,785)
---------------- ---------------
Total Distributions .............................................. (10,881,553) (19,856,589)
---------------- ---------------
Net Change in Net Assets from Investment Activities ............... 14,335,497 (44,645,265)
Net Assets:
Beginning of the Period .......................................... 370,910,871 415,556,136
---------------- ---------------
End of the Period (Including undistributed net investment income of
$2,015,403 and $3,036,131, respectively) ......................... $ 385,246,368 $ 370,910,871
---------------- ---------------
See Notes to Financial Statements
</TABLE>
Page: 13
Financial Highlights
The following schedule presents financial highlights for one common share of the
Trust outstanding throughout the periods indicated.(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 24,1992
Six Months Year Year (Commencement
Ended Ended Ended of Investment
April 30, October 31, October 31, Operations) to
1995 1994 1993 October 31,1992
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period <F1> ............ $ 14.389 $ 17.297 $ 14.990 $ 14.771
---------- ------------ ----------- ---------------
Net Investment Income ............... .642 1.303 1.354 .611
Net Realized and Unrealized
Gain/Loss on Investments ........... 1.001 (2.918) 2.332 .083
---------- ------------ ----------- ---------------
Total from Investment Operations ... 1.643 (1.615) 3.686 .694
---------- ------------ ----------- ---------------
Less:
Distributions from Net
Investment Income:
Paid to Common Shareholders ......... .510 1.020 1.020 .340
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders .............. .199 .273 .282 .135
Distributions from Net Realized
Gain on Investments:
Paid to Common Shareholders ......... .000 .000 .057 .000
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders .............. .000 .000 .020 .000
---------- ------------ ----------- ---------------
Total Distributions ................. .709 1.293 1.379 .475
---------- ------------ ----------- ---------------
Net Asset Value, End of Period ..... $ 15.323 $ 14.389 $ 17.297 $ 14.990
---------- ------------ ----------- ---------------
Market Price Per Share
at End of Period .................... $ 13.375 $ 13.000 $ 16.375 $ 14.500
Total Investment Return at Market
Price (Non-Annualized) <F2> ......... 6.75% (14.96%) 20.85% (1.16%)
Total Return at Net
Asset Value (Non-Annualized) <F3> ... 10.18% (11.30%) 23.17% 2.10%
Net Assets at End of Period
(In millions) ....................... $ 385.2 $ 370.9 $ 415.6 $ 380.1
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares (Annualized) .......... 1.74% 1.69% 1.62% 1.54%
Ratio of Expenses to Average
Net Assets (Annualized) ............ 1.05% 1.05% 1.02% 1.04%
Ratio of Net Investment Income to
Average Net Assets Applicable
to Common Shares
(Annualized) <F4> ................... 6.00% 6.43% 6.51% 5.82%
Portfolio Turnover .................. 28.15% 75.64% 52.40% 53.37%
<FN>
<F1> Net asset value at April 24, 1992 is adjusted for common and preferred
share offering costs of $.229 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 of 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.
See Notes to Financial Statements
</TABLE>
Page: 14
Notes to Financial Statements
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen Merritt Municipal Opportunity 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
April 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. ("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 April
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.
Page: 15
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
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 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, 1994, the Trust had an accumulated capital loss
carryforward for tax purposes of $302,107, which will expire on October 31,
2001.
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 .65% 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 April 30, 1995, the Trust recognized expenses of
approximately $11,200 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. 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
April 30, 1995, was $13,400.
At April 30, 1995, VKAC owned 6,700 common shares of the Trust.
Page: 16
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
3. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended April 30, 1995 were $105,824,486 and
$101,562,779, 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, 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 six months ended April 30, 1995, were as
follows:
<TABLE>
<CAPTION>
Contracts Premium
- ------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1994 .................... 1,200 $ (387,821)
Options Written and Purchased (Net) ................ 1,300 (118,314)
Options Terminated in Closing Transactions (Net) ... (250) 33,270
Options Expired .................................... (1,450) 421,091
Options Exercised .................................. (500) (152,210)
--------- -------------
Outstanding at April 30, 1995 ...................... 300 $ (203,984)
--------- -------------
</TABLE>
Page: 17
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
The related futures contracts of the outstanding option transactions as of
April 30, 1995, and the descriptions and market values are as follows:
<TABLE>
<CAPTION>
Expiration
Month/
Exercise Market Value
Contracts Price of Option
<S> <C> <C> <C>
U.S. Treasury Bond
June 1995 - Purchased Calls ... 300 June/102 $ 14,064
--------- ------------
</TABLE>
B.Futures Contracts-A futures contract is an agreement involving the delivery of
a particular asset on a specified future date at an agreed upon price. The 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 for the six months ended April 30, 1995,
were as follows:
<TABLE>
<CAPTION>
Contracts
<S> <C>
Outstanding at October 31, 1994 ... 1,000
Futures Opened .................... 10,600
Futures Closed .................... (10,050)
---------
Outstanding at April 30, 1995 ..... 1,550
---------
</TABLE>
The futures contracts outstanding as of April 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
June 1995 - Sells to Open ........ 1,150 $ (912,406)
Ten-Year U.S. Treasury Note Futures
June 1995 - Sells to Open ........ 200 41,949
Municipal Bond Futures
June 1995 - Buys to Open ......... 200 (421,052)
--------- ---------------
1,550 $ (1,291,509)
--------- ---------------
</TABLE>
Page: 18
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
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
increases or decreases in interest income.
D.Indexed Securities-These instruments are identified in the portfolio of
investments. Their price may be more volatile than the price of a comparable
fixed rate security.
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.
An Embedded Swap security includes a swap component such that the fixed coupon
component of the underlying bond is adjusted by the difference between the
securities fixed swap rate and the floating swap index. 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.
5. Preferred Shares
The Trust has outstanding 3,000 Auction Preferred Shares ("APS") in two series
of 1,500 shares each. Dividends are cumulative and the dividend rate on each
series is currently reset every 28 days through an auction process. The average
rate in effect on April 30, 1995 was 4.197%. During the six months ended April
30, 1995, the rates ranged from 3.398% to 5.375%.
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.
Page: 19
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
VKM Short-Term Global Income Fund
VKM Strategic Income 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 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 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.
Page: 20
Van Kampen Merritt Municipal Opportunity 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.
