<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Portfolio of Investments.................... 3
Statement of Assets and Liabilities......... 8
Statement of Operations..................... 9
Statement of Changes in Net Assets.......... 9
Financial Highlights........................ 10
Notes to Financial Statements............... 11
</TABLE>
ACS SAR 8/95
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
August 3, 1995
Dear Shareholder:
The first half of 1995 has been a very positive one for most investors. Both
the fixed-income and stock markets have made considerable gains for the period
ended June 30, 1995. This year has been particularly rewarding for investors
after weathering the difficult markets of 1994.
The first six months of 1995 serve as a reminder of just how quickly markets
can move, and how difficult it can be to predict the timing of those movements.
Moreover, this year reinforces the importance of maintaining a long-term per-
spective, and reaffirms the principle that it is time--not timing--that leads
to investment success.
ECONOMIC OVERVIEW
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in the gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially slower than
its first quarter rate of 2.7 percent and fourth quarter 1994 rate of 5.1 per-
cent. While other key economic data, including unemployment rates and housing
starts, have shown mixed signs during recent weeks, the general trend for the
first half of the year suggested a "soft landing" scenario. Subsequently, con-
cern over inflation has subsided, as its annualized rate has run at a modest
pace of 3.2 percent year-to-date.
Financial markets, perceiving that the Fed's monetary initiatives had taken
hold without driving the economy into a recession, rallied through the first
six months of the year. With slowing growth, interest rates declined and the
value of fixed-income investments rose. For example, the yield on 30-year Trea-
sury Securities fell from 7.88 at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent. The strongest performance has been in the
science & technology sector of the market--and in big "capitalization" stocks.
As the U.S. dollar plunged against several international currencies, compa-
nies--typically large ones--which had diversified overseas were able to capture
additional earnings, while technology stocks benefited from the booming growth
in computers and telecommunications throughout the world.
PERFORMANCE SUMMARY
The American Capital Income Trust is a blend of long-term U.S. government
bonds (47 percent as of June 30, 1995) and high yield corporate bonds (48 per-
cent as of June 30, 1995). We believe this mixture is a good way to help manage
the market risk of the portfolio, since
(Continued on page two)
1
<PAGE>
government securities and high yield corporate bonds tend to perform differ-
ently in a given economic environment.
The general decline in interest rates during the period was favorable for
funds that invest in fixed-income securities such as the American Capital In-
come Trust. For the first six months of 1995, the Trust generated a total re-
turn at market price of 16.6 percent. This return reflects an increase in
market price per share on the New York Stock Exchange from $6.50 on December
31, 1994 to $7.25 on June 30, 1995. For the same six-month period, the Shearson
Lehman Treasury Index produced a total return of 11.21 percent and the Shearson
Lehman High Yield Index generated a total return of 12.45 percent. Both indexes
are broad-based, unmanaged indexes that reflect the general performance of
Treasury and high-yield securities, respectively. Neither index reflects any
commissions or fees that would be paid by an investor purchasing the securities
it represents.
While 48 percent of the Trust's portfolio currently is held in higher-yield-
ing, non-investment grade securities (BB and lower as rated by Standard &
Poor's Ratings Group), we believe many of these securities are issued by well-
established companies. Examples include Unisys Corp., a computer manufacturer,
Super-markets General, a grocery chain, and AMC Entertainment, a movie theater
chain.
OUTLOOK
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. As the economy
strengthens, high yield bonds typically have outperformed U.S. government secu-
rities. By combining these two types of securities in one portfolio, the goal
of the American Capital Income Trust is to obtain a blended return with less
volatility over time.
We believe that the Fed will move cautiously before easing again, waiting for
further signs that the economy has settled into a slow growth pattern. We an-
ticipate that the economy will grow at an annual rate between 2 and 3 percent
in the second half of the year, and that inflation will run at an annualized
rate between 3.3 and 3.5 percent. Based upon this generally slow growth and low
inflation outlook, we believe that fixed-income markets will continue to make
attractive gains as interest rates fall.
Once again, it is important to remember that financial markets will inevita-
bly experience highs and lows, but by maintaining a long-term investment per-
spective, it may allow you to ride the ups and downs of the markets more easily
as you pursue your investments goals.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
- --------------------------- ---------------------------
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
2
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 45.3%
CONSUMER DISTRIBUTION 6.5%
$1,000 Big 5 Holdings.................... 13.625% 09/15/02 $ 1,015,000
450 Big V Supermarkets, Inc........... 11.000 02/15/04 373,500
500 Brylane Capital................... 10.000 09/01/03 467,500
250 CompUSA, Inc...................... 9.500 06/15/00 240,000
250 Computervision Corp............... 11.375 08/15/99 229,375
Dairy Mart Convenience Stores,
250 Inc............................... 10.250 03/15/04 204,375
FF Holdings Corp., Payment-in-
825 Kind.............................. 14.250 10/01/02 412,707
Finlay Enterprises, Inc., Step
300 Bonds, to 12.00% at 05/01/98...... 0.000 05/01/05 201,000
500 Finlay Fine Jewelry Corp.......... 10.625 05/01/03 482,500
500 Fleming Companies, Inc............ 8.563 12/15/01 490,000
1,500 Food 4 Less Supermarkets, Inc..... 13.750 06/15/01 1,605,000
Pathmark Stores, Inc., Step Bonds,
1,000 to 10.75% at 11/01/99............. 0.000 11/01/03 592,500
250 Smitty's Supervalue............... 12.750 06/15/04 243,750
1,250 Specialty Retailers, Inc.......... 11.000 08/15/03 1,162,500
--------------
TOTAL CONSUMER DISTRIBUTION....... 7,719,707
--------------
CONSUMER DURABLES 1.7%
500 MDC Holdings, Inc................. 11.125 12/15/03 432,500
750 Oriole Homes Corp................. 12.500 01/15/03 654,375
750 Truck Components.................. 12.250 06/30/01 826,875
*200 UDC Homes, Inc.................... 11.750 04/30/03 157,000
--------------
TOTAL CONSUMER DURABLES........... 2,070,750
--------------
CONSUMER NON-DURABLES 5.1%
850 Consoltex Group, Inc.............. 11.000 10/01/03 777,750
1,000 Dan River, Inc.................... 10.125 12/15/03 990,000
100 Dr. Pepper Bottle Holdings, Step
Bonds, to 11.625% at 2/15/98...... 0.000 02/15/03 75,500
1,500 Fieldcrest Cannon................. 11.250 06/15/04 1,560,000
500 Health O Meter, Inc............... 13.000 08/15/02 455,000
500 Lomas Mortgage Corp............... 10.250 10/01/02 370,000
1,850 Synthetic Industries, Inc......... 12.750 12/01/02 1,868,500
--------------
TOTAL CONSUMER NON-DURABLES....... 6,096,750
--------------
CONSUMER SERVICES 6.7%
250 Act III Broadcasting.............. 9.625 12/15/03 252,500
250 Act III Theatres, Inc............. 11.875 02/01/03 262,500
1,225 AMC Entertainment, Inc............ 12.625 08/01/02 1,359,750
250 American Restaurant Group......... 12.000 09/15/98 203,750
500 American Standard, Inc............ 11.375 05/15/04 550,000
Australis Media Ltd., Step Bonds,
500 to 14.00% at 05/15/00............. 0.000 05/15/03 260,000
250 Bally's Grand, Inc................ 10.375 12/15/03 243,750
</TABLE>
See Notes to Financial Statements
3
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 250 Cablevision Industries Co......... 9.250% 04/01/08 $ 259,063
1,000 California Hotel Finance Corp..... 11.000 12/01/02 1,030,000
150 Carrols Corp...................... 11.500 08/15/03 142,875
250 Continental Cablevision, Inc...... 11.000 06/01/07 277,500
400 GB Property Funding Corp.......... 10.875 01/15/04 344,000
500 Granite Broadcasting Corp......... 12.750 09/01/02 548,750
750 Outlet Broadcasting, Inc.......... 10.875 07/15/03 757,500
250 Petro PSC Properties.............. 12.500 06/01/02 250,625
750 Resorts International, Inc.,
Increasing Rate Notes, coupon rate
as of 6/30/95..................... 7.888 06/30/00 632,872
500 Spanish Broadcasting Systems...... 7.500 06/15/02 472,500
100 Videotron Groupe, Ltd............. 10.625 02/15/05 105,750
--------------
TOTAL CONSUMER SERVICES........... 7,953,685
--------------
ENERGY 3.0%
750 Clark (R&M) Holdings, Inc......... ** 02/15/00 466,875
500 Dual Drilling Co.................. 9.875 01/15/04 468,125
500 Giant Industries, Inc............. 9.750 11/15/03 485,000
500 Global Marine, Inc................ 12.750 12/15/99 551,250
844 Mesa Capital Corp. ............... 12.750 06/30/98 761,710
500 Petroleum Heat & Power, Inc....... 12.250 02/01/05 532,500
250 Wainoco Oil Corp.................. 12.000 08/01/02 258,750
--------------
TOTAL ENERGY...................... 3,524,210
--------------
FINANCE 3.2%
500 American Annuity Group, Inc....... 11.125 02/01/03 520,000
1,250 Americo Life, Inc................. 9.250 06/01/05 1,156,250
1,186 Blue Bell Funding, Inc............ 11.850 05/01/99 1,257,160
400 Phoenix Re Corp................... 9.750 08/15/03 419,000
500 Southwestern Life Corp............ 11.250 12/01/96 400,000
--------------
TOTAL FINANCE..................... 3,752,410
--------------
HEALTH CARE 1.5%
Amerisource Distribution Corp.,
147 Payment-in-Kind................... 11.250 07/15/05 165,049
250 Community Health Systems, Inc..... 10.250 11/30/03 260,000
250 Hillhaven Corp.................... 10.125 09/01/01 260,000
500 OrNda HealthCorp.................. 11.375 08/15/04 546,250
500 Paracelsus Healthcare Corp........ 9.875 10/15/03 500,000
--------------
TOTAL HEALTH CARE................. 1,731,299
--------------
PRODUCER MANUFACTURING 6.0%
250 American Standard, Inc............ 10.875 05/15/99 269,688
200 EnviroSource, Inc................. 9.750 06/15/03 179,000
250 GS Technologies Operations, Inc... 12.000 09/01/04 245,000
750 ICF Kaiser International, each
unit consist of a $1,000 face
amount note and 5 warrants
(expiring 12/31/98)............... 12.000 12/31/03 705,000
</TABLE>
See Notes to Financial Statements
4
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 500 IMO Industries, Inc............... 12.000% 11/01/01 $ 513,750
Jordan Industries, Inc., Step
1,100 Bonds, to 11.75% at 08/01/98...... 0.000 08/01/05 649,000
250 MVE, Inc., each unit consist of a
$1,000 face amount note and one
warrant (expiring 2/15/02)........ 12.500 02/15/02 260,000
Robertson Ceco Corp., Payment-in-
1,667 Kind.............................. 12.000 11/30/99 1,233,893
250 Southdown, Inc.................... 14.000 10/15/01 280,000
500 Spreckles Industries, Inc......... 11.500 09/01/00 485,000
1,583 Thermadyne Holdings Corp.......... 10.250 05/01/02 1,543,425
378 Thermadyne Holdings Corp.......... 10.750 11/01/03 370,146
440 USG Corp.......................... 10.250 12/15/02 445,500
--------------
TOTAL PRODUCER MANUFACTURING...... 7,179,402
--------------
RAW MATERIALS/PROCESSING
INDUSTRIES 6.6%
750 Buckeye Cellulose Corp............ 10.250 05/15/01 746,250
500 Container Corp. of America........ 9.750 04/01/03 497,500
1,000 Gaylord Container Corp., Step
Bonds, to 12.75% at 05/15/96...... 0.000 05/15/05 982,500
750 IMC Fertilizer Group, Inc......... 9.450 12/15/11 757,500
250 Indah Kiat International.......... 11.875 06/15/02 253,750
500 INDSPEC Chemical Corp., Step
Bonds, to 11.50% at 12/01/98...... 0.000 12/01/03 315,000
500 Mail-Well Corp.................... 10.500 02/15/04 462,500
NL Industries, Inc., Step Bonds,
500 to 13.00% at 10/15/98............. 0.000 10/15/05 352,500
Plastic Specialties & Technology
250 Corp.............................. 11.250 12/01/03 226,250
500 PT Inti Indorayon................. 9.125 10/15/00 456,250
550 Republic Engineered Steel......... 9.875 12/15/01 497,750
500 Riverwood International Corp...... 10.375 06/30/04 547,500
500 Sherritt, Inc..................... 10.500 03/31/14 485,000
750 Sweetheart Cup, Inc............... 10.500 09/01/03 723,750
250 UCC Investors Holding, Inc........ 10.500 05/01/02 255,000
250 UCC Investors Holding, Inc........ 11.000 05/01/03 255,000
--------------
TOTAL RAW MATERIALS/PROCESSING
INDUSTRIES........................ 7,814,000
--------------
TECHNOLOGY 3.5%
Harman International Industries,
500 Inc............................... 12.000 08/01/02 550,000
500 MFS Communications Co., Inc., Step
Bonds, to 9.375% at 01/15/99...... 0.000 01/15/04 350,000
500 Mobile Telecom, Inc............... 13.500 12/15/02 531,250
500 Tele-Communications, Inc.......... 9.250 01/15/23 505,500
2,000 Unisys Corp....................... 13.500 07/01/97 2,212,500
--------------
TOTAL TECHNOLOGY.................. 4,149,250
--------------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TRANSPORTATION 1.2%
$ 250 Sea Containers, Ltd..... 9.500% 07/01/03 $ 239,375
250 Sea Containers, Ltd..... 12.500 12/01/04 270,000
500 Trism, Inc.............. 10.750 12/15/00 487,500
250 USAir, Inc.............. 10.000 07/01/03 211,875
250 USAir, Inc.............. 9.625 02/01/01 213,750
--------------
TOTAL TRANSPORTATION.... 1,422,500
--------------
UTILITIES 0.3%
500 PanAmSat L.P., Step
Bonds, to 11.375% at
8/1/98.................. 0.000 08/01/03 357,500
--------------
TOTAL CORPORATE
OBLIGATIONS
(Cost $53,054,905).... 53,771,463
--------------
UNITED STATES AGENCY AND
GOVERNMENT
OBLIGATIONS 47.4%
Federal Farm Credit
3,000 Banks................... 5.425 09/15/03 2,784,570
7,485 Government National
Mortgage Association
Pools................... 7.500 08/15/23 7,520,494
8,539 Government National
Mortgage Association
Pools................... 8.000 03/15/17 to 10/15/22 8,741,693
3,942 Government National
Mortgage Association
Pools................... 8.500 01/15/23 to 12/15/24 4,092,813
9,843 Government National
Mortgage Association
Pools................... 9.000 05/15/16 to 12/15/24 10,335,724
1,765 Government National
Mortgage Association
Pools................... 9.500 11/15/09 to 06/15/20 1,870,474
United States Treasury
3,000 Bonds................... 7.250 05/15/16 3,185,640
United States Treasury
3,000 Bonds................... 7.500 11/15/16 3,268,590
United States Treasury
11,500 Bonds................... 8.875 02/15/19 14,400,185
--------------
TOTAL UNITED STATES
AGENCY AND GOVERNMENT
OBLIGATIONS
(Cost $56,192,360).... 56,200,183
--------------
PRIVATE PLACEMENTS 2.9%
250 Granite Broadcasting
Corp., purchased
05/12/95................ 10.375 05/15/05 250,625
GPA Holland, purchased
1,500 12/21/93 and 1/7/94..... 9.900 07/24/96 1,455,000
*33 Hemmeter Enterprises,
Inc., Payment-in-Kind,
purchased 12/7/94....... 12.000 12/15/00 14,770
250 Intermedia
Communications, each
unit consist of a $1,000
face amount note and one
warrant (expiring
6/1/00)................. 13.500 06/01/05 251,250
Selmer Co., purchased
500 5/18/95................. 11.000 05/15/05 475,000
400 UCAR Global Enterprises,
Inc., purchased 1/20/95. 12.000 01/15/05 431,000
United Stationers,
500 purchased 4/26/95....... 12.750 05/01/05 512,500
--------------
TOTAL PRIVATE PLACEMENTS
(Cost $3,255,950)..... 3,390,145
--------------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Coupon Maturity Market Value
- ----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PREFERRED STOCK 1.7%
*56,550 Supermarkets General Holdings Corp., $3.52,
Payment-in-Kind.................................... $ 1,498,575
*500 PanAmSat Corp., 12.75%, Payment-in-Kind............ 521,250
------------
TOTAL PREFERRED STOCK (Cost $1,870,390)............ 2,019,825
------------
COMMON STOCK & WARRANTS 0.0%
*625 Capital Gaming, warrants, expiring 2/1/99.......... 78
*7,500 FF Holdings Co..................................... 15,000
*400 Finlay Enterprises, Inc............................ 5,650
*500 Smitty's Supermarket............................... 5,000
*2,073 Thermadyne Holdings Corp........................... 29,280
------------
TOTAL COMMON STOCK & WARRANTS (Cost $64,443)....... 55,008
------------
<CAPTION>
Principal
Amount
(000)
- ----------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT 1.1%
$1,270 Lehman Government Securities,
Inc., dated 6/30/95
(Collateralized by U.S. Government
obligations in a pooled cash
account) repurchase proceeds
$1,270,654
(Cost $1,270,000)................. 6.180% 07/03/95 1,270,000
------------
TOTAL INVESTMENTS (Cost $115,708,048) 98.4%.................. 116,706,624
OTHER ASSETS AND LIABILITIES, NET 1.6%....................... 1,898,710
------------
NET ASSETS 100%.............................................. $118,605,334
------------
</TABLE>
*Non-income producing security.
**Zero coupon bond.
See Notes to Financial Statements
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments, at market value (Cost $115,708,048)................. $116,706,624
Cash............................................................. 409
Interest receivable.............................................. 2,114,050
Other assets and receivables..................................... 15,399
------------
Total Assets.................................................... 118,836,482
------------
LIABILITIES
Dividends payable................................................ 87,178
Due to Adviser................................................... 64,368
Accrued expenses and other liabilities........................... 79,602
------------
Total Liabilities............................................... 231,148
------------
NET ASSETS, equivalent to $7.76 per share........................ $118,605,334
------------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, no par value; unlimited shares
authorized;
15,290,019 shares outstanding................................... $141,137,820
Accumulated net realized loss on securities...................... (23,801,360)
Net unrealized appreciation of investments....................... 998,576
Undistributed net investment income.............................. 270,298
------------
NET ASSETS....................................................... $118,605,334
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
See Notes to Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.......................................................... $ 5,487,644
-----------
EXPENSES
Management fees................................................... 374,567
Shareholder service agent's fees and expenses..................... 17,583
Administration fees............................................... 57,626
Accounting services............................................... 32,973
Trustees' fees and expenses....................................... 14,833
Audit fees........................................................ 9,150
Custodian fees.................................................... 8,382
Legal fees........................................................ 6,268
Reports to shareholders........................................... 16,980
Registration and filing fees...................................... 10,406
Miscellaneous..................................................... 4,508
-----------
Total expenses................................................... 553,276
-----------
NET INVESTMENT INCOME............................................ 4,934,368
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES.................
Net realized loss on securities................................... (1,265,100)
Net unrealized appreciation of securities during the period....... 8,512,551
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES................... 7,247,451
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $12,181,819
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period........... $111,354,468 $124,668,219
------------ ------------
Operations
Net investment income.................... 4,934,368 9,361,866
Net realized loss on securities.......... (1,265,100) (357,996)
Net unrealized appreciation (deprecia-
tion) of securities during the period... 8,512,551 (12,191,929)
------------ ------------
Increase (decrease) in net assets result-
ing from operations..................... 12,181,819 (3,188,059)
------------ ------------
Distributions to shareholders from net
investment income......................... (4,930,953) (10,125,692)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS......... 7,250,866 (13,313,751)
------------ ------------
NET ASSETS, end of period................. $118,605,334 $111,354,468
------------ ------------
</TABLE>
9
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31
June 30, -----------------------------------------
1995 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 7.28 $ 8.15 $ 7.85 $ 7.70 $ 6.66 $ 7.90
------- ------- ------ ------ ------ -------
Income from investment
operations
Investment income...... .36 .73 .87 .925 .955 1.047
Expenses............... (.04) (.08) (.09) (.08) (.075) (.073)
------- ------- ------ ------ ------ -------
Net investment income... .32 .65 .78 .845 .88 .974
Net realized and
unrealized gain or loss
on securities.......... .4825 (.8577) .285 .1625 1.05 (1.242)
------- ------- ------ ------ ------ -------
Total from investment
operations............. .8025 (.2077) 1.065 1.0075 1.93 (.268)
------- ------- ------ ------ ------ -------
Distributions from net
investment income...... (.3225) (.6623) (.765) (.8575) (.89) (.972)
------- ------- ------ ------ ------ -------
Net asset value, end of
period................. $ 7.76 $ 7.28 $ 8.15 $ 7.85 $ 7.70 $ 6.66
------- ------- ------ ------ ------ -------
Market price, end of
period................. $ 7.25 $ 6.50 $ 7.75 $ 7.63 $ 7.38 $ 5.63
------- ------- ------ ------ ------ -------
TOTAL RETURN, market
price(/1/)............. 11.43% (8.06)% 11.82% 15.22% 48.73% (13.17)%
TOTAL RETURN, net asset
value(/1/)............. 16.60% (2.08)% 14.36% 13.61% 31.16% (2.40)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (millions)...... $118.6 $111.4 $124.7 $119.6 $116.3 $100.6
Average net assets
(millions)............. $115.3 $117.9 $123.2 $119.8 $109.9 $111.1
Ratios to average net
assets (annualized)
Expenses............... .96% .96% 1.00% .99% 1.03% 1.00%
Net investment income.. 8.56% 7.94% 8.99% 10.71% 12.11% 13.25%
Portfolio turnover rate. 15% 45% 53% 54% 50% 29%
</TABLE>
(/1/)Total return for periods of less than one year are not annualized.
See Notes to Financial Statements
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
American Capital Income Trust (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, closed-end management com-
pany. The following is a summary of significant accounting policies consist-
ently followed by the Fund in the preparation of its financial statements.
A. INVESTMENT VALUATIONS-Securities actively traded in the over-the-counter
market, including listed securities for which the primary market is believed
to be over-the-counter, are valued at the most recently quoted bid price. Se-
curities for which the primary market is on a national securities exchange are
valued at the last reported sale price, or, if no sale is reported, at the
last reported bid price. If no sale or bid price is reported, securities are
valued at the most recent sale price. Private placements are valued at fair
value under a method approved by the Board of Trustees.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.
Fund investments include lower rated debt securities which may be more sus-
ceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuer's ability to meet principal
and interest payments. Debt securities rated below investment grade and compa-
rable unrated securities represented approximately 48% of the investment port-
folio at the end of the period.
B. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a period cash account along with other investment companies advised
by Van Kampen American Capital Asset Management, Inc. (the "Adviser"), the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are collateralized by the underlying debt security. The Fund will
make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
C. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized capital gains to its shareholders. It is anticipated that no distribu-
tions of capital gains will be made until tax basis capital loss carryforwards
expire or are offset by net realized capital gains.
The net realized capital loss carryforward of approximately $21.9 million at
December 31, 1994 may be utilized to offset current or future capital gains un-
til expiration in 1997 through 2002. Additionally, approximately $624,000 of
post October losses are being deferred for tax purposes to the 1995 fiscal
year.
D. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on invest-
ments are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date. Interest income is accrued weekly. Issuers of
Payment-in-Kind securities may make dividend or interest payments by issuing
additional stocks or bonds in lieu of cash payments.
E. DIVIDENDS AND DISTRIBUTIONS-Dividends and distributions to shareholders are
recorded on the record date. The Fund distributes tax basis earnings in accor-
dance with the minimum distribution requirements of the Internal Revenue Code,
which may differ from generally accepted accounting principles. Such dividends
or distributions may exceed financial statement earnings.
F. DEBT DISCOUNT AND PREMIUM-The Fund accounts for discounts and premiums on
the same basis as is used for federal income tax reporting. Accordingly, origi-
nal issue discounts on debt securities purchased are amortized over the life of
the security. Premiums on debt securities are not amortized. Market discounts
are recognized at the time of sale as realized gains for book purchases and or-
dinary income for tax purposes.
G. PRIVATE PLACEMENTS-The Fund may purchase securities through private place-
ment transactions without registration under the Securities Act of 1933. Such
securities generally may be resold only in a privately negotiated transaction
with a limited number of purchasers or in a public offering after registration
under the Securities Act of 1933. The issuers generally have agreed to register
these securities within six months of purchase by the Fund.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on an annual rate of .65% of the Fund's average weekly net as-
sets.
Van Kampen American Capital Distributors, Inc., an affiliate of the Adviser,
serves as administrative agent for the Fund by providing a shareholder rela-
tions program. Administrative fees are paid monthly, based on the Fund's aver-
age weekly net assets at an annual rate of .10% of the first $250 million and
.05% of the amount in excess of $250 million.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised by the Adviser. For the period, these
charges included $9,560 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting service expense
was paid to the Adviser in reimbursement of personnel, facilities and equip-
ment costs attributable to the provision of accounting services to the Fund.
The services provided by the Adviser are at cost.
Certain officers and trustees of the Fund are officers and directors of the
Adviser and the administrative agent.
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $19,574,942 and $16,129,537, re-
spectively.
The identified cost of investments owned at the end of the period was the
same for federal income tax and financial reporting purposes. Gross unrealized
appreciation of investments aggregated $3,702,056 and gross unrealized depre-
ciation aggregated $2,703,480.
NOTE 4--TRUSTEE COMPENSATION
Trustees who are not affiliated with the Adviser are compensated by the Fund
at the annual rate of $1,960 plus $112 per meeting attended. During the peri-
od, such fees aggregated $13,208.
NOTE 5--SUBSEQUENT DIVIDENDS
The Board of Trustees declared a dividend of $.05375 per share from net-in-
vestment income, payable July 31, 1995 and August 31, 1995 to shareholders of
record July 21, 1995 and August 18, 1995, respectively.
13
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
14
<PAGE>
AMERICAN CAPITAL INCOME TRUST
BOARD OF TRUSTEES
DONALD M. CARLTON
A. BENTON COCANOUGHER
STEPHEN R. GROSS
NORMAN HACKERMAN
ROBERT D.H. HARVEY
ALAN G. MERTEN
STEVE MULLER
F. ROBERT PAULSON
R. RICHARDSON PETTIT
DON G. POWELL
ALAN B. SHEPARD, JR.
MILLER UPTON
BENJAMIN N. WOODSON
OFFICERS
DON G. POWELL
Chairman of the Board and President
CURTIS W. MORELL
Vice President and Treasurer
ELLIS S. BIGELOW
DENNIS J. MCDONNELL
RONALD A. NYBERG
ROBERT C. PECK, JR.
PAUL R. WOLKENBERG
Vice Presidents
TANYA M. LODEN
Vice President and Controller
NORI L. GABERT
Vice President and Secretary
J. DAVID WISE
Vice President and Assistant Secretary
PERRY F. FARRELL
M. ROBERT SULLIVAN
Assistant Treasurers
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
2800 Post Oak Blvd. Houston, Texas 77056
CUSTODIAN
STATE STREET BANK AND TRUST CO.
225 Franklin Street Boston, Massachusetts 02110
SHAREHOLDER SERVICE AGENT
BOSTON FINANCIAL SERVICES, INC.
P.O. Box 366
Boston, Massachusetts 02101
ADMINISTRATIVE AGENT
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza Oakbrook Terrace, Illinois 60181
(C)Van Kampen American Capital Distributors, Inc., 1995 All rights reserved.
SM denotes a service mark of Van Kampen American Capital Distributors, Inc.
Nationally distributed by Van Kampen American Capital Distributors, Inc.
NEW YORK STOCK EXCHANGE SYMBOL: ACD
INQUIRIES ABOUT AN INVESTOR'S ACCOUNT SHOULD BE REFERRED TO THE FUND'S
ADMINISTRATIVE AGENT: VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
TELEPHONE: (800) 341-2929
15
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AMERICAN CAPITAL INCOME TRUST
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16
