<TABLE>
Table of Contents
<CAPTION>
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio of Investments ............. 4
Statement of Assets and Liabilities ... 14
Statement of Operations ............... 15
Statement of Changes in Net Assets .... 16
Financial Highlights ................. 17
Notes to Financial Statements ......... 18
Independent Auditors' Report ......... 22
Dividend Reinvestment Plan ........... 23
VKV ANR 12/95
</TABLE>
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 7.15 percent<F3>, based on the
closing stock price of $12.75 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
11.17 percent<F4>. In fact, many closed-end municipal bond funds, such as your
investment, are currently offering higher yields (after taxes) over 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 18.6 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 27.67 percent<F1>, which includes
reinvestment of dividends for the period ended October 31, 1995.
1 (Continued on page two)
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
Market
Date NAV Price
31-Oct-94 12.90 10.750
30-Nov-94 12.23 11.375
31-Dec-94 12.82 11.000
31-Jan-95 13.31 12.000
28-Feb-95 14.00 12.375
31-Mar-95 14.07 12.375
30-Apr-95 13.87 12.500
31-May-95 14.30 12.625
3O-Jun-95 13.75 12.375
31-Jul-95 13.88 12.500
31-Aug-95 14.02 12.500
3O-Sep-95 14.08 12.125
31-Oct-95 14.37 12.750
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
<TABLE>
<CAPTION>
Van Kampen Merritt Value Municipal Income Trust
(NYSE Ticker Symbol VKV)
<S> <C>
Total Returns
One-year total return based on market price<F1> ....................................... 27.67%
One-year total return based on NAV<F2> ................................................ 19.04%
Distribution Rates
Distribution rate as a % of initial offer common stock price<F3> ...................... 6.08%
Taxable-equivalent distribution rate as a % of initial offer common stock price<F4> ... 9.50%
Distribution rate as a % of closing common stock price<F3> ........................... 7.15%
Taxable-equivalent distribution rate as a % of closing common stock price<F4> ......... 11.17%
Share Valuations
Net asset value ....................................................................... $ 14.37
Closing common stock price .......................................................... $ 12.750
One-year high common stock price (06/05/95) ........................................... $ 13.125
One-year low common stock price (11/18/94) ........................................... $ 10.250
Preferred share (Series A) rate<F5> .................................................. 3.700%
Preferred share (Series B) rate<F5> .................................................. 3.807%
Preferred share (Series C) rate<F5> ................................................... 3.774%
Preferred share (Series D) rate<F5> ................................................... 3.764%
Preferred share (Series E) rate<F5> .................................................. 3.770%
<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.
</TABLE>
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
3
<TABLE>
Portfolio of Investments
October 31, 1995
<CAPTION>
- -----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Alabama 1.5%
$ 3,830 Birmingham, AL Spl Care Fac Fin Auth Hlthcare Fac
Rev Childrens Hosp Ser A (FGIC Insd) ............ 5.625% 06/01/13 $ 3,844,707
2,650 Huntsville, AL Hlthcare Auth Hlthcare Fac
Rev Ser A (MBIA Insd) ........................... 6.375 06/01/22 2,748,421
2,000 Mobile, AL Indl Dev Brd Solid Waste Disp
Rev Mobile Energy Svcs Co Proj Rfdg .............. 6.950 01/01/20 2,075,260
------------
8,668,388
------------
Alaska 0.2%
1,000 North Slope Borough, AK Ser B (Cap Guar Insd) ... 7.500 06/30/01 1,139,390
------------
Arizona 1.2%
6,000 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd) .... 7.250 07/15/10 6,719,220
------------
California 13.0%
1,000 California Hsg Fin Agy Rev Home Mtg
Ser B1 (FHA Gtd) ............................... 6.300 08/01/08 1,045,170
2,500 California Pollutn Ctl Fin Auth Pollutn Ctl
Rev San Diego Gas & Elec Ser A (MBIA Insd) ..... 5.850 06/01/21 2,468,825
1,750 California Rural Home Mtg Fin Auth Single
Family Mtg Rev Ser B (GNMA Collateralized) ...... 7.750 09/01/26 1,975,523
1,500 California St Pub Wks Brd Lease Rev Dept of
Correction Monterey Ser A (MBIA Insd) ........... 6.400 11/01/10 1,630,335
6,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd) . 5.250 12/01/13 5,805,840
2,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd) . 5.000 12/01/19 1,828,720
6,000 California Statewide Cmntys Dev Corp Ctfs Partn
Sharp Hlthcare Oblig Group (MBIA Insd) .......... 6.000 08/15/24 6,044,340
1,000 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev Ser A .............................. 6.500 01/01/32 1,005,010
2,000 Fresno, CA Hlth Fac Rev Holy Cross Hlth
Sys Saint Agnes Med (MBIA Insd) ................. 6.625 06/01/21 2,133,160
1,250 Kings Cnty, CA Waste Mgmt Auth Solid Waste Rev . 7.200 10/01/14 1,324,075
2,000 Loma Linda, CA Hosp Rev Loma Linda Univ
Med Cent Rfdg (MBIA Insd) ...................... 5.375 12/01/22 1,880,600
3,000 Los Angeles Cnty, CA Pub Wks Fin Auth Lease
Rev Multi Cap Fac Proj IV (MBIA Insd) .......... 5.250 12/01/16 2,854,830
</TABLE>
4 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
October 31, 1995
<CAPTION>
- ------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (Continued)
$ 1,000 Los Angeles, CA Cmnty Redev Agy Cmnty Redev
Fin Auth Rev Grand Cent Qualified Redev Ser A ..... 5.900% 12/01/13 $ 945,280
2,000 Los Angeles, CA Convention & Exhibition Cent
Auth Lease Rev Ser A Rfdg (MBIA Insd) .............. 5.125 08/15/21 1,846,700
9,500 Los Angeles, CA Dept Wtr & Pwr Elec Plant
Rev Crossover Rfdg (FGIC Insd) .................... 5.375 09/01/23 9,064,520
2,145 Los Angeles, CA Wastewtr Sys Rev
Ser A Rfdg (MBIA Insd) ............................. 5.700 06/01/20 2,118,338
3,000 Los Angeles, CA Wastewtr Sys Rev
Ser D Rfdg (FGIC Insd) ............................. 5.200 11/01/21 2,799,810
12,500 Mount Diablo, CA Hosp Dist Rev Ser A
(Embedded Cap) (AMBAC Insd) ....................... 5.125 12/01/23 11,212,500
1,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ... 5.600 06/01/07 1,030,920
2,995 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ... 6.000 06/01/08 3,167,512
1,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ... 5.750 06/01/15 993,560
5,700 Sacramento, CA City Fin Auth Rev Comb
Proj B (MBIA Insd) ................................ * 11/01/15 1,757,595
1,000 San Francisco, CA City & Cnty Arpts Comm Intl
Arpt Rev 2nd Ser Issue 8a (FGIC Insd) .............. 6.250 05/01/20 1,032,880
2,000 San Francisco, CA City & Cnty Arpts Comm Intl
Arpt Rev 2nd Ser Issue 8a (FGIC Insd) .............. 6.300 05/01/25 2,065,620
3,250 San Marcos, CA Pub Fac Auth Rev Pub
Impt Civic Cent Ser A Rfdg ........................ 6.200 08/01/22 3,124,712
2,000 Southern CA Pub Pwr Auth (FSA Insd) ............... 6.000 07/01/12 2,041,760
------------
73,198,135
------------
Colorado 6.1%
1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy
Rev E-470 Proj Ser B ......................... ... 6.950 08/31/20 1,056,060
3,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy
Rev E-470 Proj Ser B ............................. 7.000 08/31/26 3,175,830
9,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy
Rev E-470 Proj Ser C ............................. * 08/31/15 2,208,780
19,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy
Rev E-470 Proj Ser C ............................. * 08/31/26 2,033,265
</TABLE>
5 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
October 31, 1995
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colorado (Continued)
$ 1,750 Denver, CO City & Cnty Arpt Rev Ser A ............... 6.900% 11/15/98 $ 1,856,785
1,250 Denver, CO City & Cnty Arpt Rev Ser A ............... 8.875 11/15/12 1,475,538
3,095 Denver, CO City & Cnty Arpt Rev Ser A ............... 8.500 11/15/23 3,528,888
8,000 Denver, CO City & Cnty Arpt Rev Ser A (MBIA Insd) ... 5.700 11/15/25 7,881,040
2,500 Denver, CO City & Cnty Arpt Rev Ser B (MBIA Insd) ... 5.750 11/15/17 2,440,475
6,000 Denver, CO City & Cnty Arpt Rev Ser C ............... 6.600 11/15/04 6,412,080
2,000 Meridian Metro Dist CO Peninsular &
Oriental Steam Navig Co Rfdg ......................... 7.500 12/01/11 2,147,940
------------
34,216,681
------------
Connecticut 0.5%
2,500 Connecticut St Hlth & Edl Fac Auth Rev
Nursing Home Pgm AHF/Hartford ....................... 7.125 11/01/14 2,818,900
------------
Florida 5.1%
1,985 Bay Cnty, FL Sch Brd Ctfs Partn (AMBAC Insd) ........ 6.750 07/01/12 2,210,198
3,500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp
Ser A Rfdg (FSA Insd) ............................... 6.500 08/15/12 3,780,385
2,000 Florida Hsg Fin Agy Single Family Mtg Ser A
Rfdg (GNMA Collateralized) .......................... 6.650 01/01/24 2,058,540
3,000 Hillsborough Cnty, FL Cap Impt Pgm Rev
Criminal Justice Fac Rfdg (FGIC Insd) ............... 5.250 08/01/16 2,873,610
3,000 Hillsborough Cnty, FL Indl Dev Auth Pollutn
Ctl Rev Tampa Elec Co Proj Ser 92 Rfdg ............. 8.000 05/01/22 3,566,940
2,945 Hillsborough Cnty, FL Sch Brd Ctfs
Partn (MBIA Insd) ................................... 6.000 07/01/12 3,056,351
1,300 Jacksonville, FL Hlth Fac Auth Hosp Rev Baptist
Med Cent Proj Ser A Rfdg (MBIA Insd) ............... 7.300 06/01/19 1,441,089
4,000 Orlando, FL Util Comm Wtr & Elec Rev
Ser A (Prerefunded @ 10/01/01) ...................... 6.500 10/01/20 4,506,240
5,000 Pinellas Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Multi Cnty Pgm Ser A (GNMA Collateralized) ..... 6.700 02/01/28 5,191,500
------------
28,684,853
------------
Georgia 3.2%
3,000 Burke Cnty, GA Dev Auth Pollutn Ctl Rev GA
Pwr Co Plant Vogtle Proj (MBIA Insd) ................ 6.350 05/01/19 3,082,710
7,750 Fulton De Kalb, GA Hosp Auth Hosp
Rev Ctfs Rfdg (MBIA Insd) .......................... 5.500 01/01/20 7,483,322
5,000 Georgia Muni Elec Auth Pwr Rev
Ser B Rfdg (FGIC Insd) ............................. 5.700 01/01/19 5,047,800
2,700 Marietta, GA Dev Auth Rev First Mtg Life
Coll Ser B (Cap Guar Insd) ......................... 5.375 09/01/09 2,693,277
------------
18,307,109
------------
</TABLE>
6 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
October 31, 1995
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hawaii 0.4%
$ 2,250 Hawaii St Arpts Sys Rev 3rd Ser Rfdg (AMBAC Insd) ... 5.750% 07/01/09 $ 2,305,688
------------
Illinois 4.1%
3,500 Chicago, IL Cap Apprec (AMBAC Insd) ................. * 01/01/17 903,875
1,000 Chicago, IL Park District ........................... 6.700 01/01/11 1,083,640
1,560 Illinois Hlth Fac Auth Rev Carle Fndtn
Ser A Rfdg (FGIC Insd) ............................. 6.750 01/01/10 1,667,609
3,000 Illinois Hlth Fac Auth Rev Childrens'
Mem Hosp (MBIA Insd) ............................... 6.250 08/15/13 3,179,190
2,250 Illinois Hlth Fac Auth Rev Evangelical
Hosps Ser A Rfdg (FSA Insd) ........................ 6.750 04/15/17 2,409,030
1,250 Illinois Hlth Fac Auth Rev Evangelical
Hosps Ser C (FSA Insd) ............................. 6.750 04/15/17 1,338,350
1,000 Illinois Hlth Fac Auth Rev Hlth Fac SSM
Hlthcare Ser A (MBIA Insd) .......................... 5.750 06/01/12 1,004,140
3,000 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys Rfdg .... 5.750 11/15/07 3,027,240
2,070 Northern IL Univ Ctfs Partn Hoffman
Estates Cent Proj (Cap Guar Insd) ................... 5.400 09/01/16 1,978,878
5,000 Regional Tran Auth IL Ser A (AMBAC Insd) ........... 8.000 06/01/17 6,480,650
------------
23,072,602
------------
Indiana 1.3%
12,750 Indiana Tran Fin Auth Hwy Rev Cap
Apprec Ser A (AMBAC Insd) .......................... * 06/01/17 3,609,652
5,500 Indiana Tran Fin Auth Hwy Rev Cap
Apprec Ser A (AMBAC Insd) .......................... * 06/01/18 1,467,730
2,000 Petersburg, IN Pollutn Ctl Rev Indianapolis
Pwr & Lt Ser A Rfdg ................................ 6.100 01/01/16 2,032,060
------------
7,109,442
------------
Kentucky 2.8%
9,900 Kenton Cnty, KY Arpt Brd Arpt Rev Spl
Fac Delta Airls Proj Ser A <F3> ..................... 7.500 02/01/12 10,549,044
3,500 Kenton Cnty, KY Arpt Brd Arpt Rev Spl
Fac Delta Airls Proj Ser A <F3> ..................... 7.500 02/01/20 3,729,460
1,250 Mount Sterling, KY Lease Rev KY
League Cities Fdg Ser A ............................ 6.100 03/01/18 1,275,212
------------
15,553,716
------------
</TABLE>
7 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
October 31, 1995
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Louisiana 1.5%
$ 1,500 Louisiana Pub Fac Auth Hosp Rev Southern
Baptist Hosp Proj Rfdg (FSA Insd) ................... 6.800% 05/15/12 $ 1,714,110
6,000 Saint Charles Parish, LA Solid Waste Disp
Rev LA Pwr & Lt Co Proj (FSA Insd) <F3> ............ 7.050 04/01/22 6,577,320
------------
8,291,430
------------
Maine 1.2%
3,000 Maine Edl Ln Marketing Corp Student Ln Rev Ser A4 ... 5.950 11/01/03 3,179,760
1,630 Maine St Hsg Auth Mtg Purp Ser A6 ................. 6.350 11/15/22 1,625,762
2,000 Maine St Hsg Auth Mtg Purp Ser C2 ................. 6.875 11/15/23 2,073,720
------------
6,879,242
------------
Maryland 1.4%
8,700 Maryland St Hlth & Higher Edl Fac
Auth Rev (FGIC Insd) ............................... 5.000 07/01/20 7,860,711
------------
Massachusetts 6.1%
2,000 Massachusetts St Hlth & Edl Fac Auth Rev
(AMBAC Insd) ....................................... 7.100 07/01/21 2,219,880
1,000 Massachusetts St Hlth & Edl Fac Auth Rev
Brigham & Womens Hosp Ser C ......................... 7.125 06/01/09 1,090,450
3,000 Massachusetts St Hlth & Edl Fac Auth Rev
North Shore Med Cent Ser A (MBIA Insd) ............. 5.625 07/01/14 2,968,980
8,850 Massachusetts St Hsg Fin Agy Hsg Proj Ser A ......... 6.375 04/01/21 8,914,693
1,000 Massachusetts St Indl Fin Agy Wtr
Treatment American Hingham ......................... 6.750 12/01/20 1,018,120
1,000 Massachusetts St Indl Fin Agy Wtr
Treatment American Hingham ......................... 6.900 12/01/29 1,017,970
1,000 Massachusetts St Indl Fin Agy Wtr
Treatment American Hingham ......................... 6.950 12/01/35 1,017,920
14,500 Massachusetts St Wtr Res Auth Ser A
(Prerefunded @ 12/01/01) ........................... 6.500 12/01/19 16,314,965
------------
34,562,978
------------
Michigan 1.9%
1,250 Battle Creek, MI Downtown Dev Auth
Tax Increment Rev ................................... 7.600 05/01/16 1,373,487
2,750 Detroit, MI Ser B Rfdg .............................. 7.000 04/01/04 2,991,945
4,000 Michigan St Bldg Auth Rev Ser I Rfdg (MBIA Insd) ... 6.250 10/01/20 4,149,960
2,500 Michigan St Hosp Fin Auth Rev Hosp Port
Huron Hosp Oblig Rfdg (FSA Insd) <F2> .............. 5.375 07/01/12 2,423,575
------------
10,938,967
------------
</TABLE>
8 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
October 31, 1995
<CAPTION>
- -------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mississippi 0.3%
$ 1,500 Claiborne Cnty, MS Pollutn Ctl Rev Sys
Energy Res Inc Rfdg ................................ 7.300% 05/01/25 $ 1,552,380
------------
Missouri 0.2%
1,000 Missouri St Hsg Dev Comm Mtg Single Family
Homeowner Ser C (GNMA Collateralized) ............. 7.250 09/01/26 1,093,140
------------
Nevada 3.8%
7,820 Clark Cnty, NV Arpt Sys Rfdg (MBIA Insd) ............ 5.300 07/01/13 7,221,614
5,750 Clark Cnty, NV Indl Dev Rev NV Pwr Co
Proj C Rfdg (AMBAC Insd) .......................... 7.200 10/01/22 6,475,132
5,000 Clark Cnty, NV Passenger Fac Las Vegas
Macarran Intl Arpt (MBIA Insd) .................... 5.750 07/01/23 4,815,500
2,675 Nevada Hsg Division Single Family Pgm
Mezzanine B (FHA Gtd) .............................. 6.550 10/01/12 2,726,494
------------
21,238,740
------------
New Hampshire 1.3%
8,000 New Hampshire St Tpk Sys Rev (MBIA Insd)............. 5.250 02/01/19 7,652,720
------------
New Jersey 4.0%
1,000 Bordentown, NJ Swr Auth Rev Ser C (MBIA Insd) ..... 6.800 12/01/25 1,098,500
1,600 Middlesex Cnty, NJ Ctfs Partn (MBIA Insd) ......... 6.125 02/15/19 1,661,680
1,000 New Jersey Econ Dev Auth Econ Dev Rev
Manahawkin Convalescent Ser A Rfdg (FHA Gtd) ....... 6.650 02/01/23 1,056,510
2,500 New Jersey Econ Dev Auth Mkt Transition Fac
Rev Sr Lien Ser A (MBIA Insd) ..................... 5.800 07/01/09 2,589,300
2,290 New Jersey Hlthcare Fac Fin Auth Rev
Deborah Heart & Lung Cent ......................... 6.200 07/01/13 2,321,327
1,695 New Jersey Hlthcare Fac Fin Auth Rev
Genl Hosp Cent at Passaic (FSA Insd) ............... 6.000 07/01/06 1,838,787
2,500 New Jersey Hlthcare Fac Fin Auth Rev
Genl Hosp Cent at Passaic (FSA Insd) ............... 6.750 07/01/19 2,750,525
2,250 New Jersey St Edl Fac Auth Rev Glassboro
St College Ser A (MBIA Insd) ...................... 6.700 07/01/21 2,432,835
6,750 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth Rev Pollutn
Ctl Pub Svc Elec & Gas Ser A (MBIA Insd) .......... 5.450 02/01/32 6,340,073
2,500 West New York, NJ Muni Util Auth
Swr Rev Rfdg (FGIC Insd) ........................... * 12/15/18 681,800
------------
22,771,337
------------
</TABLE>
9 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
October 31, 1995
<CAPTION>
- -------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York 10.8%
$ 2,070 New York City Muni Wtr Fin Auth
Wtr & Swr Sys Rev Ser A ...................... 7.000% 06/15/09 $ 2,292,152
2,105 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Ser A (Prerefunded @ 06/15/01) ....... 7.000 06/15/09 2,389,070
3,180 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Ser B (AMBAC Insd) ................... 5.375 06/15/19 3,072,548
2,500 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Ser F (MBIA Insd) .................... 5.500 06/15/15 2,471,750
7,270 New York City Ser A Rfdg ..................... 7.000 08/01/04 7,928,880
5,000 New York City Ser B Rfdg ..................... 6.375 08/15/12 5,135,000
5,700 New York City Ser E Rfdg ..................... 6.600 08/01/03 6,083,268
2,000 New York St Dorm Auth Rev City Univ
3rd Genl Resources Ser 2 (MBIA Insd) ......... 6.250 07/01/19 2,080,460
7,500 New York St Dorm Auth Rev Cons City
Univ Sys Ser A ................................ 5.750 07/01/13 7,380,900
4,000 New York St Dorm Auth Rev St Univ Edl Fac
Ser A Rfdg (AMBAC Insd) ....................... 5.500 05/15/09 4,101,800
5,215 New York St Dorm Auth Rev St Univ Edl Fac
Ser B Rfdg ................................... 7.375 05/15/14 5,803,513
2,310 New York St Med Care Fac Fin Agy Rev
Saint Peter's Hosp Proj Ser A (AMBAC Insd) ... 5.375 11/01/13 2,234,255
3,000 New York St Twy Auth Hwy & Brdg Trust
Fund Ser B (FGIC Insd) ........................ 6.000 04/01/14 3,080,460
4,000 New York St Urban Dev Corp Rev
Correctional Cap Fac Rfdg ..................... 5.500 01/01/15 3,754,160
3,130 New York St Urban Dev Corp Rev
Correctional Fac Ser A Rfdg .................. 5.500 01/01/16 2,946,331
------------
60,754,547
------------
North Dakota 0.4%
2,000 Ward Cnty, ND Hlthcare Fac Rev Saint
Joseph Hosp Corp Proj ........................ 8.875 11/15/24 2,202,200
------------
Ohio 3.0%
2,110 Cleveland Rock Glen Hsg Assistance Corp
OH Mtg Rev Ser A Rfdg (FHA Gtd) ............... 6.750 01/15/25 2,203,536
2,000 Cuyahoga Cnty, OH Multi Family Rev
Hsg Dale Brdg Apt ............................ 6.600 10/20/30 2,046,480
3,345 Franklin Cnty, OH Hosp Rev & Impt
Doctors Hosp Proj Rfdg ....................... 5.875 12/01/23 3,154,469
1,000 Ohio St Higher Edl Fac Comm Rev Higher
Edl OH Wesleyan Univ (MBIA Insd) .............. 6.125 11/15/17 1,043,180
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev
OH Edison Co Proj Rfdg ........................ 5.950 05/15/29 1,835,300
</TABLE>
10 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
October 31, 1995
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ohio (Continued)
$ 1,500 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev
PA Pwr Co Proj Rfdg (AMBAC Insd) ................. 6.150% 08/01/23 $ 1,565,190
4,000 Ohio St Wtr Dev Auth Rev Coll Wtr Cincinnati
Gas A Rfdg (MBIA Insd) ........................... 5.450 01/01/24 3,895,800
1,200 Ohio Univ Genl Rcpts Athens Rfdg (FGIC Insd) ..... 5.000 12/01/18 1,116,840
------------
16,860,795
------------
Oklahoma 1.9%
10,000 Tulsa, OK Muni Arpt Tran Rev American Airls Inc .. 7.375 12/01/20 10,536,000
------------
Pennsylvania 6.0%
3,000 Butler Cnty, PA Hosp Auth Hosp Rev Butler
Mem Hosp Ser A (FSA Insd) ........................ 5.250 07/01/16 2,814,540
3,730 Delaware Cnty, PA Auth Hlthcare Rev Mercy Hlth
Corp of Southeastn PA Ser A Rfdg (Connie Lee Insd) 5.375 11/15/23 3,528,841
1,450 Harrisburg, PA Auth Res Recovery Fac Rev Ser A ... 5.875 09/01/21 1,415,983
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser 43 . 7.500 10/01/25 1,075,610
3,000 Pennsylvania St Higher Edl Fac Auth
Rev Med College PA Ser A ........................ 7.250 03/01/11 3,254,700
9,450 Philadelphia, PA Gas Wks Rev 14th Ser (FSA Insd) 6.250 07/01/08 10,136,164
2,525 Philadelphia, PA Gas Wks Rev 14th Ser Rfdg
(FSA Insd) ...................................... 6.375 07/01/26 2,670,289
1,250 Philadelphia, PA Gas Wks Rev 15th Ser
Subser 3 (FSA Insd) ............................. 5.250 08/01/24 1,166,638
800 Philadelphia, PA Hosps & Higher Ed Fac Auth
Rev Cmnty College Ser A (MBIA Insd) .............. 6.100 05/01/09 850,040
1,370 Philadelphia, PA Hosps & Higher Ed Fac Auth
Rev Cmnty College Ser B Rfdg (MBIA Insd) ......... 6.500 05/01/08 1,532,879
2,000 Philadelphia, PA Sch Dist Ser B (AMBAC Insd) .... 5.500 09/01/15 1,977,240
3,500 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser A .. 6.000 12/01/05 3,468,535
------------
33,891,459
------------
Rhode Island 0.7%
3,000 Rhode Island Depositors Econ Protection Corp
Spl Oblig Ser B Rfdg (MBIA Insd) ................ 6.000 08/01/17 3,040,530
1,050 Rhode Island St Hlth & Edl Bldg Corp Rev
Higher Ed Fac Roger Williams (Connie Lee Insd) ... 7.200 11/15/14 1,179,413
------------
4,219,943
------------
South Carolina 0.2%
1,185 Spartanburg Cnty, SC Sch Dist No 005 Pub
Fac Corp Ctfs Partn (MBIA Insd) .................. 5.600 07/01/10 1,193,485
------------
</TABLE>
11 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
October 31, 1995
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tennessee 1.0%
$ 2,250 Tennessee Hsg Dev Agy Homeownership Proj T ........ 7.375% 07/01/23 $ 2,392,200
3,000 Tennessee Hsg Dev Agy Mtg Fin Ser A .............. 7.125 07/01/26 3,178,680
------------
5,570,880
------------
Texas 4.0%
9,065 Alliance Arpt Auth Inc TX Spl Fac Rev
American Airls Inc Proj <F3> .................... 7.500 12/01/29 9,622,769
2,250 Harris Cnty, TX Hlth Fac Dev Corp Hosp
Rev Hermann Hosp Proj (MBIA Insd) ................ 6.375 10/01/24 2,351,655
7,450 Harris Cnty, TX Toll Rd Sr Lien Rfdg (FGIC Insd) . 5.000 08/15/16 6,900,041
1,275 Matagorda Cnty, TX Navig Dist No 1 Rev
Houston Lt & Pwr Ser A Rfdg (AMBAC Insd) ........ 6.700 03/01/27 1,382,062
2,250 Tomball, TX Hosp Auth Rev Rfdg ................... 6.125 07/01/23 2,077,245
------------
22,333,772
------------
Utah 0.2%
4,950 Intermountain Pwr Agy UT Pwr Supply Rev
Ser A Rfdg (FGIC Insd) .......................... * 07/01/17 1,331,253
------------
Virginia 2.2%
1,100 Augusta Cnty, VA Indl Dev Auth Hosp Rev
Augusta Hosp Corp Rfdg (AMBAC Insd) ............. 5.125 09/01/21 1,005,917
2,250 Fredericksburg, VA Indl Dev Auth Hosp Fac
Rev (Inverse Fltg) (FGIC Insd) ................... 6.600 08/15/23 2,369,880
3,000 Isle Wight Cnty, VA Indl Dev Auth Solid Waste
Disposal Fac Rev Union Camp Corp Proj ............ 6.550 04/01/24 3,123,870
2,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd) .......... 6.900 03/01/19 2,209,700
2,000 Norfolk, VA Wtr Rev (MBIA Insd) .................. 5.875 11/01/20 2,020,600
1,500 Virginia St Hsg Dev Auth Multi Family Ser E Rfdg . 5.900 11/01/17 1,463,925
------------
12,193,892
------------
Washington 0.8%
4,000 Washington St Pub Pwr Supply Ser A Rfdg ........... 7.000 07/01/08 4,609,160
------------
West Virginia 2.5%
5,920 Harrison Cnty, WV Cnty Cmnty Solid Waste Disp
Rev West PA Pwr Co Ser C (AMBAC Insd) .............. 6.750 08/01/24 6,396,501
4,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr
Co Proj Ser C Rfdg (MBIA Insd) .................... 6.850 06/01/22 4,363,360
3,000 West Virginia St Wtr Dev Auth Wtr Dev Rev
Ln Prog II Ser A (FSA Insd) ........................ 6.750 11/01/33 3,238,260
------------
13,998,121
------------
</TABLE>
12 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
October 31, 1995
<CAPTION>
- --------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wisconsin 1.3%
$ 5,000 Wisconsin St Hlth & Edl Fac Auth Rev Children's
Hosp (Embedded Cap) (FGIC Insd) ................ 5.000% 08/15/10 $ 4,842,600
2,360 Wisconsin St Hlth & Edl Fac Waukesha Mem
Hosp Ser A (AMBAC Insd) <F2> .................... 5.000 08/15/09 2,248,986
------------
7,091,586
------------
Puerto Rico 2.6%
4,500 Puerto Rico Elec Pwr Auth Pwr Rev Ser Z Rfdg ... 5.500 07/01/13 4,390,425
10,000 Puerto Rico Pub Bldg Auth Gtd Pub
Edl & Hlth Fac Ser M Rfdg ...................... 5.600 07/01/08 10,315,400
------------
14,705,825
------------
Total Long-Term Investments 98.7%
(Cost $532,224,865) <F1> ................................................... 556,128,687
Short-Term Investments at Amortized Cost 0.6% .............................. 3,200,000
Other Assets in Excess of Liabilities 0.7% .................................. 4,062,441
------------
Net Assets 100% ............................................................. $563,391,128
============
<FN>
*Zero coupon bond
<F1> At October 31, 1995, cost for federal income tax purposes is $532,224,865;
the aggregate gross unrealized appreciation is $25,115,257 and the aggregate gross
unrealized depreciation is $1,944,954, resulting in net unrealized appreciation
including futures transactions of $23,170,303.
<F2> Securities purchased on a when issued or delayed delivery basis.
<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments and open futures transactions.
</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.
<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
AAA .......... 63.7%
AA ........... 4.7
A ............ 8.8
BBB .......... 13.7
BB ........... 8.6
Non-Rated ... 0.5
-------
100.0%
=======
</TABLE>
13 See Notes to Financial Statements
<TABLE>
Statement of Assets and Liabilities
October 31, 1995
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $532,224,865) (Note 1) .................................... $ 556,128,687
Short-Term Investments (Note 1) .............................................................. 3,200,000
Receivables:
Interest ................................................................................... 10,288,115
Investments Sold ........................................................................... 1,480,228
Unamortized Organizational Expenses (Note 1) ................................................ 19,186
Other ........................................................................................ 10,462
---------------
Total Assets ............................................................................. 571,126,678
---------------
Liabilities:
Payables:
Investments Purchased ...................................................................... 4,640,818
Custodian Bank ............................................................................. 1,903,245
Income Distributions - Common and Preferred Shares ........................................ 537,214
Investment Advisory Fee (Note 2) ........................................................... 309,669
Administrative Fee (Note 2) ............................................................... 95,283
Margin on Futures (Note 4) ................................................................ 30,937
Accrued Expenses ............................................................................. 218,384
---------------
Total Liabilities ........................................................................ 7,735,550
---------------
Net Assets ................................................................................... $ 563,391,128
===============
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 4,500 issued with liquidation
preference of $50,000 per share) (Note 5) .................................................. $ 225,000,000
---------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
23,555,115 shares issued and outstanding) ................................................. 235,551
Paid in Surplus ............................................................................. 348,118,080
Net Unrealized Appreciation on Investments .................................................. 23,170,303
Accumulated Undistributed Net Investment Income ............................................. 1,669,714
Accumulated Net Realized Loss on Investments ................................................. (34,802,520)
---------------
Net Assets Applicable to Common Shares ..................................................... 338,391,128
---------------
Net Assets ................................................................................... $ 563,391,128
===============
Net Asset Value Per Common Share($338,391,128 divided
by 23,555,115 shares outstanding) .......................................................... $ 14.37
===============
</TABLE>
14 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended October 31, 1995
- ----------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest ....................................................... $ 33,666,682
----------------
Expenses:
Investment Advisory Fee (Note 2) .............................. 3,552,502
Administrative Fee (Note 2) .................................... 1,093,077
Preferred Share Maintenance (Note 5) ........................... 648,366
Legal (Note 2) ................................................ 53,599
Trustees Fees and Expenses (Note 2) ............................ 23,929
Amortization of Organizational Expenses (Note 1) .............. 7,997
Other .......................................................... 426,537
----------------
Total Expenses ............................................. 5,806,007
----------------
Net Investment Income .......................................... $ 27,860,675
================
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales .......................................... $ 274,326,039
Cost of Securities Sold ...................................... (299,107,586)
----------------
Net Realized Loss on Investments (Including realized loss on
futures transactions of $14,960,288) ......................... (24,781,547)
----------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ..................................... (38,623,711)
End of the Period (Including unrealized depreciation on
futures transactions of $733,519) .......................... 23,170,303
----------------
Net Unrealized Appreciation on Investments During the Period ... 61,794,014
----------------
Net Realized and Unrealized Gain on Investments ................ $ 37,012,467
================
Net Increase in Net Assets from Operations ..................... $ 64,873,142
================
</TABLE>
15 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 ............................................. $ 27,860,675 $ 27,723,563
Net Realized Loss on Investments .................................. (24,781,547) (10,020,973)
Net Unrealized Appreciation/Depreciation on Investments
During the Period .............................................. 61,794,014 (68,634,397)
--------------- ---------------
Change in Net Assets from Operations ............................. 64,873,142 (50,931,807)
--------------- ---------------
Distributions from Net Investment Income:
Common Shares ................................................... (21,482,127) (21,482,198)
Preferred Shares ............................................... (8,891,837) (5,610,595)
--------------- ---------------
(30,373,964) (27,092,793)
--------------- ---------------
Distributions from Net Realized Gain on Investments (Note 1):
Common Shares ................................................... -0- (4,159,934)
Preferred Shares ............................................... -0- (855,632)
--------------- ---------------
-0- (5,015,566)
--------------- ---------------
Total Distributions .............................................. (30,373,964) (32,108,359)
--------------- ---------------
Net Change in Net Assets from Investment Activities ............... 34,499,178 (83,040,166)
Net Assets:
Beginning of the Period .......................................... 528,891,950 611,932,116
--------------- ---------------
End of the Period (Including undistributed net investment income of
$1,669,714 and $4,183,003, respectively) ....................... $ 563,391,128 $ 528,891,950
=============== ===============
</TABLE>
16 See Notes to Financial Statements
Financial Highlights
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
March 26,1993
Year Year (Commencement
Ended Ended of Investment
October 31, October 31, Operations) to
1995 1994 October 31,1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period <F1> ........... $ 12.901 $ 16.427 $ 14.789
----------- ------------ ---------------
Net Investment Income ................................ 1.183 1.177 .639
Net Realized and Unrealized Gain/Loss
on Investments ...................................... 1.571 (3.340) 1.487
----------- ------------ ---------------
Total from Investment Operations ........................ 2.754 (2.163) 2.126
----------- ------------ ---------------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders ......................... .912 .912 .380
Common Share Equivalent of Distributions Paid
to Preferred Shareholders ......................... .377 .238 .108
Distributions from Net Realized
Gain on Investments (Note 1):
Paid to Common Shareholders ......................... -0- .177 -0-
Common Share Equivalent of Distributions Paid
to Preferred Shareholders ......................... -0- .036 -0-
----------- ------------ ---------------
Total Distributions ..................................... 1.289 1.363 .488
----------- ------------ ---------------
Net Asset Value, End of the Period ...................... $ 14.366 $ 12.901 $ 16.427
=========== ============ ===============
Market Price Per Share at End of the Period ............. $ 12.750 $ 10.750 $ 15.250
Total Investment Return at Market Price
(Non-Annualized) <F2> ................................. 27.67% (23.52%) 4.25%
Total Return at Net Asset Value
(Non-Annualized) <F3> ................................. 19.04% (15.48%) 12.14%
Net Assets at End of the Period (In millions) ........... $ 563.4 $ 528.9 $ 611.9
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (Annualized) ............................ 1.80% 1.70% 1.46%
Ratio of Expenses to Average Net Assets (Annualized) ... 1.06% 1.03% 1.00%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (Annualized) <F4> ......... 5.90% 6.39% 5.59%
Portfolio Turnover ...................................... 49.85% 79.05% 65.72%
<FN>
<F1> Net asset value at March 26, 1993, is adjusted for common and preferred
share offering costs of $.211 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>
17 See Notes to Financial Statements
Notes to Financial Statements
October 31,1995
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen Merritt Value Municipal Income Trust (the "Trust") is registered as a
diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust commenced investment operations on
March 26, 1993.
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 March 25, 1998.
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.
18
Notes to Financial Statements (Continued)
October 31,1995
- --------------------------------------------------------------------------------
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, 1995, the Trust had an accumulated capital loss
carry forward for tax purposes of $34,802,520, of which $10,020,973 and
$24,781,547 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.
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 year ended October 31, 1995, the Trust recognized expenses of
approximately $32,200 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
19
Notes to Financial Statements (Continued)
October 31,1995
- --------------------------------------------------------------------------------
VKAC. The Trust's liability under the deferred compensation and retirement plans
at October 31, 1995, was approximately $24,100.
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 $265,806,659 and
$299,107,586, 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 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 year ended October 31, 1995, were as
follows:
<TABLE>
<CAPTION>
Contracts
- -----------------------------------------------
<S> <C>
Outstanding at October 31, 1994 .... 1,350
Futures Opened ..................... 4,000
Futures Closed ..................... (5,185)
--------
Outstanding at October 31, 1995 ... 165
========
</TABLE>
20
Notes to Financial Statements (Continued)
October 31,1995
- --------------------------------------------------------------------------------
The futures contracts outstanding as of October 31, 1995, and the description
and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Contracts Depreciation
- ----------------------------------------------------------------
<S> <C> <C>
Municipal Bond Index Futures
Dec. 1995 - Sells to Open ............ 165 $733,519
========= ============
</TABLE>
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 4,500 Auction Preferred Shares ("APS") in five series.
Series A, B, C and D each contain 1,000 shares and Series E contains 500 shares.
Dividends are cumulative and the dividend rate is periodically reset through an
auction process. The dividend period for Series A and E is seven days, and for
Series B, C and D is 28 days. The average rate in ef fect on October 31, 1995
was 3.762%. During the year ended October 31, 1995, the rates ranged from 3.240%
to 6.375%.
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.
21
Independent Auditors' Report
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The Board of Trustees and Shareholders of
Van Kampen Merritt Value Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt Value Municipal Income Trust (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 Value Municipal Income Trust 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
December 5, 1995
22
Dividend Reinvestment Plan
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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
23
Funds Distributed by Van Kampen American Capital
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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.
24
Van Kampen Merritt Value Municipal Income Trust
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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.