<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Dividend Reinvestment Plan.................. 3
Portfolio of Investments.................... 4
Statement of Assets and Liabilities......... 9
Statement of Operations..................... 10
Statement of Changes in Net Assets.......... 10
Financial Highlights........................ 11
Notes to Financial Statements............... 12
Report of Independent Auditors.............. 16
</TABLE>
ACS ANR 2/96
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
February 8, 1996
Dear Shareholder,
For most investors, it would be hard to surpass the success enjoyed during
1995. The stock and bond markets enjoyed substantial gains, driven by a combi-
nation of continuing economic growth and low inflation. The strength of equity
and fixed-income securities in 1995 was particularly impressive because it
followed a year in which both markets declined. People who remained invested
during 1995 generally shared in the growth of the markets, while investors who
retreated after 1994's downturn may have missed out on the double-digit re-
turns.
The rebound in the markets last year reinforces the importance of maintain-
ing a long-term perspective for your investments. While the environment for
stocks and bonds remains positive, it is unlikely that 1996 will see a repeat
of the markets' strong 1995 performance. However, over the long-term, stocks
have outperformed virtually all other types of investments, and bonds have met
the needs of investors who seek capital preservation and regular income.
ECONOMIC OVERVIEW
The U.S. economy grew throughout 1995, but the rate of growth slowed toward
year-end. The gross domestic product (the value of all goods and services pro-
duced in the United States) grew at an annual rate of more than 4 percent in
the third quarter of 1995, but slowed to an estimated 2 to 3 percent in the
fourth quarter of the year, with retail and auto sales particularly sluggish.
The slower growth rate eased concerns about a rise in inflation and allowed
the Federal Reserve Board in late December to lower short-term interest rates
by a quarter-percentage point. Just as the Fed's raising of short-term rates
in 1994 helped slow economic growth in 1995, the reduction in rates during the
latter half of 1995 was expected to help generate moderate economic growth in
1996.
The cut in short-term rates was viewed by the financial markets as a posi-
tive event, pushing up both stock and bond prices. The yield on 10-year Trea-
sury notes was 5.57 percent on December 31, 1995, compared to 7.82 percent a
year earlier. Many observers expect the Fed to cut rates further if Congress
and the President are able to reach an agreement on the federal budget, pro-
vided economic conditions justify further easing.
PERFORMANCE SUMMARY
The Van Kampen American Capital Income Trust, formerly American Capital In-
come Trust, is a blend of long-term U.S. government bonds (46 percent) and
high yield corporate bonds (45 percent) as of December 31, 1995. We believe
this mixture is a good way to help manage the market risk of the portfolio,
since government securities and high yield corporate bonds tend to perform
differently in a given economic environment.
Continued on page two
1
<PAGE>
The general decline in interest rates during the past year was favorable for
funds that invest in fixed-income securities, such as Van Kampen American Capi-
tal Income Trust. For the 12 months ended December 31, 1995, the Trust gener-
ated a total return at market price of 21.83 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 December 31, 1995. For the same period, the Leh-
man Brothers Treasury Index produced a total return of 18.35 percent and the
Lehman Brothers High Yield Index generated a total return of 19.17 percent.
Both indexes are broad-based, unmanaged indexes that reflect the general per-
formance of Treasury and high-yield securities, respectively. Neither index re-
flects any commissions or fees that would be paid by an investor purchasing the
securities it represents.
CORPORATE NEWS
As you may have noticed in the performance summary, your Fund has a new name.
At the beginning of January all former Van Kampen Merritt and American Capital
closed-end funds assumed the Van Kampen American Capital name. Please look un-
der the new heading "VnKmAC" to find your Fund's price in your daily newspaper.
OUTLOOK
Looking ahead, we are cautiously optimistic. We expect the economy to grow at
a rate of 2 to 3 percent throughout 1996, with growth stronger in the second
half of the year as the full impact of the Fed's rate cuts takes effect. Lower
rates will have the greatest impact on interest-sensitive industries, such as
housing. Although inflation appears to be under control, there probably will be
some upward pressure in 1996 as lower interest rates generate increased eco-
nomic activity.
The outlook for the fixed-income market--including high yield bonds--is posi-
tive. In the near-term, we believe domestic markets will benefit from a stable
U.S. dollar and increased business activity driven in part by a number of re-
cently announced strategic reorganizations of some of the nation's blue chip
industry leaders.
During recent months, debate over tax reform and the federal deficit has dom-
inated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue in
Washington. There has been varied speculation about the impact of these issues
on the economy and on various types of investments. We are following the tax
reform debate very closely, and we will keep you updated on this issue through-
out the year.
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>
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
The Fund pays distributions in cash, but if you own shares in your own name,
you may elect to participate in the Fund's dividend reinvestment plan (the
"Plan"). Under the Plan, if the Fund declares a dividend or capital gain dis-
tribution payable either in cash or shares of the Fund, and the market price of
shares on the payment date equals or exceeds their net asset value, the Fund
will issue new shares to you at a value equal to the higher of the net asset
value or 95% of the market price. If such market price is lower than net asset
value, or if dividends or capital gain distributions are payable only in cash,
then you will receive shares purchased on the New York Stock Exchange or other-
wise on the open market. If the market price exceeds net asset value before the
Plan Agent has completed its purchases, the average purchase price may exceed
net asset value, resulting in fewer shares being acquired than if the Fund had
issued new shares.
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gain distributions do not relieve you of any income tax
which may be payable (or required to be withheld) on dividends or distribu-
tions.
You may begin or discontinue participation in the Plan at any time by written
notice to the address below. If you withdraw from the Plan, you may rejoin at
any time if you own shares of record. Elections and terminations will be effec-
tive for distributions declared after receipt. If you withdraw from the Plan, a
certificate for the whole shares and a check for the fractional shares, if any,
credited to your Plan account will be sent as soon as practicable after receipt
of your election to withdraw, or, if you wish, State Street Bank and Trust Com-
pany, the Fund's custodian, will sell your shares and send you the proceeds
less a service fee of $2.50 and less brokerage commissions. Under the rules
generally applicable to sales of securities, a sale of shares (including frac-
tional shares) will be a taxable event for U.S. federal income tax purposes and
may be a taxable event for state, local and foreign tax purposes. Except for
brokerage commissions, if any, which are borne by Plan participants, all costs
of the Plan are borne by the Fund. The Fund reserves the right to amend or ter-
minate the Plan on 30 days' written notice prior to the record date of the dis-
tribution for which such amendment or termination is effective.
Record stockholders should address all notices, correspondence, questions or
other communications about the Plan to:
STATE STREET BANK AND TRUST COMPANY
P.O. BOX 8200
BOSTON, MA 02266-8200
(800) 821-1238
If your shares are not held directly in your name, you should contact your
brokerage firm, bank or other nominee for more information and to see if your
nominee will participate in the Plan on your behalf. If you participate through
your broker and choose to move your account to another broker, you will need to
re-enroll in the Plan through your new broker.
3
<PAGE>
PORTFOLIO OF INVESTMENTS
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 45.1%
CONSUMER DISTRIBUTION 6.8%
$ 700 Big 5 Holdings........................ 13.625% 09/15/02 $ 556,500
450 Big V Supermarkets, Inc., Series B.... 11.000 02/15/04 362,250
500 Brylane Capital....................... 10.000 09/01/03 442,500
750 Cole National Group, Inc.............. 11.250 10/01/01 753,750
250 CompUSA, Inc.......................... 9.500 06/15/00 251,250
250 Dairy Mart Convenience Stores, Inc.... 10.250 03/15/04 215,000
884 FF Holdings Corp., Payment-in-Kind.... 14.250 10/01/02 459,797
300 Finlay Enterprises, Inc., Step Bonds, 0.000 05/01/05 198,000
to 12.00% at 05/01/98.................
500 Finlay Fine Jewelry Corp. ............ 10.625 05/01/03 475,000
1,000 Pathmark Stores, Inc., Step Bonds, to 0.000 11/01/03 612,500
10.75% at 11/01/99....................
400 Phar-Mor, Inc......................... 11.720 09/11/02 366,000
1,500 Ralph's Grocery....................... 13.750 06/15/05 1,605,000
250 Smitty's Supervalue................... 12.750 06/15/04 240,000
1,250 Specialty Retailers, Inc.............. 11.000 08/15/03 1,162,500
500 Thrifty Payless....................... 12.250 04/15/04 535,000
------------
8,235,047
------------
CONSUMER DURABLES 1.0%
500 MDC Holdings, Inc..................... 11.125 12/15/03 477,500
750 Oriole Homes Corp. ................... 12.500 01/15/03 633,750
65 UDC Homes, Inc., Series A............. 12.500 05/01/00 60,554
12 UDC Homes, Inc., Series B............. 12.500 05/01/00 11,193
------------
1,182,997
------------
CONSUMER NON-DURABLES 4.7%
850 Consoltex Group, Inc.................. 11.000 10/01/03 765,000
250 Curtice-Burns Foods................... 12.250 02/01/05 256,250
1,000 Dan River, Inc........................ 10.125 12/15/03 925,000
100 Dr Pepper Bottle Holdings, Step Bonds,
to 11.625% at 02/15/98................ 0.000 02/15/03 81,500
1,500 Fieldcrest Cannon, Inc................ 11.250 06/15/04 1,395,000
500 Health O Meter, Inc., each unit
consists of $1,000 face amount note
and one warrant (expiring 02/15/97)... 13.000 08/15/02 425,000
1,850 Synthetic Industries, Inc............. 12.750 12/01/02 1,813,000
------------
5,660,750
------------
CONSUMER SERVICES 8.5%
250 Act III Broadcasting.................. 9.625 12/15/03 260,000
250 Act III Theatres, Inc................. 11.875 02/01/03 268,750
500 Australis Media Ltd., each unit
consists of $1,000 face amount note
and one warrant (expiring 05/15/00)
Step Bonds, to 14.00% at 05/15/00..... 0.000 05/15/03 362,500
250 Bally's Grand, Inc.................... 10.375 12/15/03 253,750
</TABLE>
See Notes to Financial Statements
4
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 250 Cablevision Industries Co. ........... 9.250% 04/01/08 $ 267,500
1,000 California Hotel Finance Corp. ....... 11.000 12/01/02 1,055,000
150 Carrol's Corp......................... 11.500 08/15/03 151,875
250 Casino America........................ 11.500 11/15/01 233,438
Comcast UK Cable, Step Bonds, to
500 11.20% at 11/15/00.................... 0.000 11/15/07 291,250
250 Continental Cablevision, Inc.......... 11.000 06/01/07 279,375
Diamond Cable Co., Step Bonds, to
500 11.75% at 12/15/00.................... 0.000 12/15/05 294,375
250 Fundy Cable, Ltd...................... 11.000 11/15/05 260,000
250 Galaxy Telecom........................ 12.375 10/01/05 249,375
500 Granite Broadcasting Corp............. 12.750 09/01/02 556,250
International Cabletel, Step Bonds, to
500 12.75% at 4/15/00..................... 0.000 04/15/05 316,250
1,650 Outlet Broadcasting, Inc.............. 10.875 07/15/03 1,881,000
250 Petro PSC Properties.................. 12.500 06/01/02 237,500
400 Resorts International Hotel, Inc...... 11.000 09/15/03 374,000
1,000 SC International...................... 13.000 10/01/05 1,060,000
500 Spanish Broadcasting Systems.......... 7.500 06/15/02 485,000
500 Tele-Communications, Inc.............. 9.250 01/15/23 545,100
510 Trump Taj Mahal Funding, Inc., each
unit consists of a $1,000 face amount
note and two class A and one class B
shares of Taj Mahal common stock,
Payment-in-Kind....................... 11.350 11/15/99 483,441
100 Videotron Groupe, Ltd................. 10.625 02/15/05 107,250
------------
10,272,979
------------
ENERGY 2.7%
750 Clark (R&M) Holdings, Inc............. ** 02/15/00 498,750
750 Falcon Drilling Co., Inc.............. 9.750 01/15/01 766,875
400 Forest Oil Corp....................... 11.250 09/01/03 388,000
500 Giant Industries, Inc................. 9.750 11/15/03 506,250
325 Global Marine, Inc.................... 12.750 12/15/99 359,938
500 Petroleum Heat & Power, Inc........... 12.250 02/01/05 557,500
250 United Meridian....................... 10.375 10/15/05 264,375
------------
3,341,688
------------
FINANCE 3.1%
500 American Annuity Group, Inc........... 11.125 02/01/03 540,000
1,250 Americo Life, Inc..................... 9.250 06/01/05 1,184,375
1,186 Blue Bell Funding, Inc................ 11.850 05/01/99 1,043,680
650 Phoenix Re Corp....................... 9.750 08/15/03 692,250
250 Trizec Finance........................ 10.875 10/15/05 258,750
------------
3,719,055
------------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
HEALTHCARE 1.4%
AmeriSource Distribution Corp.,
$ 147 Payment-in-Kind....................... 11.250% 07/15/05 $ 161,381
250 Community Health Systems, Inc......... 10.250 11/30/03 270,000
250 OrNda HealthCorp...................... 12.250 05/15/02 273,750
500 Paracelsus Healthcare Corp............ 9.875 10/15/03 506,250
500 Tenet Healthcare Corp................. 10.125 03/01/05 553,125
------------
1,764,506
------------
PRODUCER MANUFACTURING 5.0%
250 American Standard, Inc................ 10.875 05/15/99 275,625
500 Figgie International, Inc............. 9.875 10/01/99 500,000
250 GS Technology Operations, Inc......... 12.000 09/01/04 247,500
750 ICF Kaiser International, each unit
consists of a $1,000 face amount note
and 5 warrants (expiring 12/31/98).... 12.000 12/31/03 701,250
250 IMO Industries, Inc................... 12.000 11/01/01 255,000
500 Johnstown American Industries......... 11.750 08/15/05 450,000
1,667 Robertson Ceco Corp., Payment-in-Kind. 12.000 11/30/99 1,519,438
250 Southdown, Inc........................ 14.000 10/15/01 275,000
350 Spreckles Industries, Inc............. 11.500 09/01/00 344,750
1,583 Thermadyne Holdings Corp.............. 10.250 05/01/02 1,571,128
------------
6,139,691
------------
RAW
MATERIALS/PROCESSING INDUSTRIES 5.8%
500 Harris Chemical North America, Inc.,
Step Bonds, to 10.25% at 01/15/96..... 0.000 07/15/01 485,000
750 IMC Fertilizer Group, Inc............. 9.450 12/15/11 804,375
500 Indah Kiat International Finance...... 11.875 06/15/02 505,000
500 INDSPEC Chemical Corp., Step Bonds, to
11.50% at 12/01/98.................... 0.000 12/01/03 417,500
750 Mail-Well Envelope Corp............... 10.500 02/15/04 723,750
500 NL Industries, Inc., Step Bonds, to
13.00% at 10/15/98.................... 0.000 10/15/05 383,750
Plastic Specialties & Technology
250 Corp.................................. 11.250 12/01/03 228,750
500 Sherritt, Inc......................... 10.500 03/31/14 545,625
750 Sweetheart Cup, Inc................... 10.500 09/01/03 765,000
1,000 Tjiwi Kimia........................... 13.250 08/01/01 1,090,000
215 UCAR Global Enterprise, Inc........... 12.000 01/15/05 246,713
750 United Stationers..................... 12.750 05/01/05 817,500
------------
7,012,963
------------
TECHNOLOGY 2.9%
150 Computervision........................ 11.375 08/15/99 157,500
500 Harman International Industries, Inc.. 12.000 08/01/02 550,000
500 MFS Communications Co., Inc., Step
Bonds, to 9.375% at 01/15/99.......... 0.000 01/15/04 400,000
500 Mobile Telecom, Inc................... 13.500 12/15/02 555,000
2,000 Unisys Corp........................... 13.500 07/01/97 1,905,000
------------
3,567,500
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TRANSPORTATION 1.4%
$ 250 Sea Containers, Ltd....... 12.500% 12/01/04 $ 266,875
500 Stena..................... 10.500 12/15/05 513,750
500 Trism, Inc................ 10.750 12/15/00 490,000
250 USAir, Inc................ 9.625 02/01/01 218,750
250 USAir, Inc................ 10.000 07/01/03 218,125
-----------
1,707,500
-----------
UTILITIES 1.8%
250 A+ Network................ 11.875 11/01/05 251,875
500 California Energy......... 9.875 06/30/03 522,500
250 Fonorola, Inc............. 12.500 08/15/02 262,500
500 Paging Network Service.... 10.125 08/01/07 544,375
500 Pricellular Wireless, Step
Bonds, to 12.25%
at 10/01/98............... 0.000 10/01/03 386,250
250 USA Mobile Communications. 9.500 02/01/04 246,875
-----------
2,214,375
-----------
TOTAL CORPORATE OBLIGATIONS (Cost $53,879,512)......... 54,819,051
-----------
CORPORATE OBLIGATIONS--PRIVATE
PLACEMENTS 3.0%
250 American Telecasting, each
unit consists of a $1,000
face amount note and one
warrant (expiring
08/10/00) Step Bonds, to
14.50% at 08/15/00,
purchased 09/28/95........ 0.000 08/15/05 158,125
Busse Broadcasting,
250 purchased 10/19/95........ 11.625 10/15/00 241,875
Calmar, Inc., purchased
450 10/30/95.................. 11.500 08/15/05 456,750
Carr-Gottstein, purchased
500 11/09/95.................. 12.000 11/15/05 502,500
495 GST Telecom, each unit
consists of $9,000 face
amount Notes with $8,000
in Senior Discount Notes
and $1,000 in Convertible
Senior Step Notes, 13.875%
at 12/15/00, purchased
12/14/95.................. 0.000 12/15/05 261,250
GPA/Holland, purchased
1,500 12/21/93.................. 9.900 07/24/96 1,500,000
Mohegan Tribal Game,
250 purchased 09/22/95........ 13.500 11/15/02 270,000
250 Thrifty Payless, Payment-
in-Kind, purchased
11/01/95.................. 11.625 04/15/06 225,625
-----------
TOTAL CORPORATE OBLIGATIONS--PRIVATE PLACEMENTS (Cost
$3,420,052)............................................ 3,616,125
-----------
UNITED STATES AGENCY AND
GOVERNMENT
OBLIGATIONS 45.6%
3,000 Federal Farm Credit Banks. 5.425 09/15/03 2,928,788
Government National Mtg.
7,138 Association, Pools........ 7.500 07/15/23 to 08/15/23 7,338,682
Government National Mtg.
7,833 Association, Pools........ 8.000 03/15/17 to 10/15/22 8,153,590
Government National Mtg.
3,759 Association, Pools........ 8.500 01/15/23 to 11/15/24 3,946,619
Government National Mtg.
8,931 Association, Pools........ 9.000 05/15/16 to 12/15/24 9,464,540
Government National Mtg.
1,561 Association, Pools........ 9.500 02/15/16 to 06/15/20 1,675,125
United States Treasury
2,500 Bonds..................... 7.250 05/15/16 2,853,900
United States Treasury
3,000 Bonds..................... 7.500 11/15/16 3,517,500
United States Treasury
11,500 Bonds..................... 8.875 02/15/19 15,499,815
-----------
TOTAL UNITED STATES AGENCY AND GOVERNMENT OBLIGATIONS
(Cost $53,220,803)..................................... 55,378,559
-----------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PREFERRED STOCK 2.2%
882 PanAmSat Corp., 12.75%, Payment-in-Kind.............. $ 990,045
*56,550 Supermarkets General Holdings Corp., $3.52, Payment-
in-Kind.............................................. 1,639,950
------------
TOTAL PREFERRED STOCK (Cost $2,257,277).............. 2,629,995
------------
COMMON STOCK & WARRANTS 0.0%
*625 Capital Gaming, warrants, expiring 2/1/99............ 6
*7,500 FF Holdings Co....................................... 15,000
*400 Finlay Enterprises, Inc.............................. 4,700
------------
TOTAL COMMON STOCK & WARRANTS (Cost $34,016)......... 19,706
------------
<CAPTION>
Par
Amount
(000)
- ----------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT 2.2%
$ 2,635 Lehman Government Securities, Inc.,
dated 12/29/95 (Collateralized by
U.S. Government obligations in a
pooled cash account) repurchase
proceeds $2,636,720
(Cost $2,635,000)................... 5.875% 01/02/96 2,635,000
------------
TOTAL INVESTMENTS (Cost $115,446,660) 98.1%.................... 119,098,436
OTHER ASSETS AND LIABILITIES, NET 1.9%......................... 2,312,876
------------
NET ASSETS 100%................................................ $121,411,312
------------
</TABLE>
*Non-income producing security.
**Zero coupon bond.
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- -------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments, at market value (Cost $115,446,660)................. $119,098,436
Cash............................................................. 3,506
Interest receivable.............................................. 2,090,427
Receivable for investments sold.................................. 1,441,215
Other assets and receivables..................................... 23,198
------------
Total Assets.................................................... 122,656,782
------------
LIABILITIES
Payable for investments purchased................................ 279,748
Dividends payable................................................ 821,839
Due to Adviser................................................... 65,481
Accrued expenses and other liabilities........................... 78,402
------------
Total Liabilities............................................... 1,245,470
------------
NET ASSETS, equivalent to $7.94 per share........................ $121,411,312
------------
NET ASSETS WERE COMPRISED OF:
Shares of common stock, no par value; unlimited shares
authorized;
15,290,019 shares outstanding................................... $141,136,920
Accumulated net realized loss on securities...................... (23,688,746)
Net unrealized appreciation of investments....................... 3,651,776
Undistributed net investment income.............................. 311,362
------------
NET ASSETS....................................................... $121,411,312
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................... $11,099,212
-----------
EXPENSES
Management fees.................................................... 763,485
Shareholder service agent's fees and expenses...................... 30,052
Administration fees................................................ 117,459
Accounting services................................................ 65,536
Trustees' fees and expenses........................................ 28,257
Audit fees......................................................... 18,300
Custodian fees..................................................... 15,121
Legal fees......................................................... 16,468
Reports to shareholders............................................ 26,483
Registration and filing fees....................................... 24,680
Miscellaneous...................................................... 3,942
-----------
Total expenses.................................................... 1,109,783
-----------
NET INVESTMENT INCOME.............................................. 9,989,429
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES..................
Net realized loss on securities.................................... (1,235,800)
Net unrealized appreciation of securities during the period........ 11,165,751
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... 9,929,951
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $19,919,380
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period.................... $111,354,468 $124,668,219
------------ ------------
OPERATIONS
Net investment income............................. 9,989,429 9,361,866
Net realized loss on securities................... (1,235,800) (357,996)
Net unrealized appreciation (depreciation) of se-
curities during the period....................... 11,165,751 (12,191,929)
------------ ------------
Increase (decrease) in net assets resulting from
operations....................................... 19,919,380 (3,188,059)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME............................................. (9,862,536) (10,125,692)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS.................. 10,056,844 (13,313,751)
------------ ------------
NET ASSETS, end of period (including undistributed
net investment income of $311,362 and $266,883,
respectively)...................................... $121,411,312 $111,354,468
------------ ------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each of the
periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period. $7.28 $8.15 $7.85 $7.70 $6.66
------ ------- ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income................... .72 .73 .87 .925 .955
Expenses............................ (.07) (.08) (.09) (.08) (.075)
------ ------- ------ ------ ------
Net investment income................ .65 .65 .78 .845 .88
Net realized and unrealized gain
(loss) on securities................ .655 (.8577) .285 .1625 1.05
------ ------- ------ ------ ------
Total from investment operations..... 1.305 (.2077) 1.065 1.0075 1.93
------ ------- ------ ------ ------
DISTRIBUTIONS FROM NET INVESTMENT
INCOME.............................. (.645) (.6623) (.765) (.8575) (.89)
------ ------- ------ ------ ------
Net asset value, end of period....... $7.94 $7.28 $8.15 $7.85 $7.70
------ ------- ------ ------ ------
Market price, end of period.......... $7.25 $6.50 $7.75 $7.63 $7.38
------ ------- ------ ------ ------
TOTAL RETURN, at net asset value..... 19.13% (2.08)% 14.36% 13.61% 31.16%
TOTAL RETURN, at market price........ 21.83% (8.06)% 11.82% 15.22% 48.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions). $121.4 $111.4 $124.7 $119.6 $116.3
Average net assets (millions)........ $117.5 $117.9 $123.2 $119.8 $109.9
Ratios to average net assets
Expenses............................ .94% .96% 1.00% .99% 1.03%
Net investment income............... 8.50% 7.94% 8.99% 10.71% 12.11%
Portfolio turnover rate.............. 34% 45% 53% 54% 50%
</TABLE>
See Notes to Financial Statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Income Trust (the "Fund", formerly American Capital
Income Trust) is registered under the Investment Company Act of 1940, as amend-
ed, as a diversified, closed-end management company. The Fund seeks income by
primarily investing in debt securities.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The prepa-
ration of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the amounts reported. Actual amounts may differ from the estimates.
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. Securi-
ties for which the primary market is on a national securities exchange are val-
ued 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 un-
der 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 comparable
unrated securities represented approximately 49% of the investment portfolio 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 pooled 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
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
the custodian bank. The seller is required to maintain the value of the under-
lying security at not less than the repurchase proceeds due the Fund.
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 $23.7 million at
December 31, 1995 may be utilized to offset future capital gains until expira-
tion in 1997 through 2003.
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.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 $8,004 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 equipment
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 trustees 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 $40,598,545 and $39,229,873, 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 $6,105,577 and gross unrealized depreci-
ation aggregated $2,453,801.
NOTE 4--TRUSTEE COMPENSATION
Trustees who are not affiliated with the Adviser are compensated by the Fund at
the annual rate of $1,551 plus $103 per meeting attended. During the period,
such fees aggregated $25,768.
NOTE 5--SUBSEQUENT DIVIDENDS
The Board of Trustees declared a dividend of $.05375 per share from net invest-
ment income, payable January 31, 1996 to shareholders of record January 13,
1996.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 6--QUARTERLY DATA (UNAUDITED)
The following is a summary of quarterly results of operations for each of the
two years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95 Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net realized and
unrealized gain (loss):
on securities.......... $ 3,016,567 $ 4,230,884 $ 1,541,279 $ 1,141,221 $ 9,929,951
on securities per
share................... .20 .28 .10 .075 .655
Total investment income. 2,728,377 2,759,267 2,603,511 3,008,057 11,099,212
Net investment income... 2,452,256 2,482,112 2,324,555 2,730,506 9,989,429
Net investment income
per share............... .16 .16 .15 .18 .65
<CAPTION>
Quarter Ended
----------------------------------------------------------------
3/31/94 6/30/94 9/30/94 12/31/94 Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net realized and
unrealized gain (loss):
on securities.......... $(3,426,652) $(3,169,106) $(4,115,714) $(1,838,453) $(12,549,925)
on securities per
share................... (.22) (.21) (.22) (.2077) (.8577)
Total investment income. 2,783,479 2,595,373 2,764,588 2,345,891 10,489,331
Net investment income... 2,472,827 2,308,652 2,486,907 2,093,480 9,361,866
Net investment income
per share............... .16 .15 .16 .18 .65
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL INCOME TRUST
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio of Van Kampen American Capital Income Trust, as of De-
cember 31, 1995, and the related statement of operations for the year then end-
ed, 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 five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund'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 stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights 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 De-
cember 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides 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 American Capital Income Trust at December 31, 1995, the results of its
operations for the year 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 five years in the period then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 9, 1996
16
<PAGE>
VAN KAMPEN 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
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
1221 McKinney Houston, Texas 77010
(C) Van Kampen American Capital Distributors, Inc., 1996 All rights reserved.
SM denotes a service mark of 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
17
