<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
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
</TABLE>
ACD SAR 8/96
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL APPEARS HERE]
August 20, 1996
Dear Shareholder,
The first six months of 1996 were relatively favorable for high yield corpo-
rate bonds, compared to other fixed-income securities. High yield bonds have
historically outperformed U.S. Treasuries and investment-grade corporate bonds
during periods of strong economic growth and a rising interest rate environ-
ment. This is because a strengthening economy often improves their credit
prospects, and their high coupon payments serve as a buffer to rising interest
rates.
Contrary to the positive performance in the high yield sector, yields on
U.S. Treasuries increased by 1.00 to 1.25 percentage points, as interest rates
rose sharply in the first half of the year. Consequently, the benchmark 10-
year Treasury bond declined in value by 7.8 percent. Signs of increasing eco-
nomic momentum were the major factor contributing to this decline and the
generally negative government market environment.
After an anemic 0.3 percent rise in gross domestic product in the fourth
quarter of 1995, GDP rose 2.0 percent in the first quarter of 1996 and 4.2
percent in the second quarter. The strengthening economic growth was spurred
by consumer spending, as retail sales rose more than 5 percent in the first
five months of this year versus the comparable 1995 period. This brisk activ-
ity generated new concerns of inflation, which has been running at 2 to 3 per-
cent for several years. Investors began to suspect that the Federal Reserve
might tighten monetary policy in order to ward off an increase in inflation.
PORTFOLIO STRATEGY
The Income Trust invests in a portfolio primarily of U.S. government securi-
ties and high yield corporate bonds (41 percent and 50 percent, respectively
as of June 30, 1996). During the six-month period, this allocation proved to
be a prudent way to manage the risk of holding fixed-income securities.
As interest rates rose, we de-emphasized our holdings of government securi-
ties and focused on high yield corporate bonds. We also increased our cash po-
sition from 4 percent at the start of the year to 6 percent at the end of June
in order to attempt to reduce market fluctuations.
During the period, we moved way from securities rated BB, the highest qual-
ity rating within the high yield (below-investment grade) category, and in-
creased our holdings of single B-rated securities. Bonds rated single B and
lower provided stronger performance than higher quality alternatives through-
out the reporting period.
Continued on page two
1
<PAGE>
[Pie Chart Portfolio Composition by Credit Quality as of June 30, 1996
appears here]
Non-Rated 5.8%
CCC 2.4%
B 34.2%
BB 6.8%
AAA & Govt 41.0%
Other 9.8%
[Pie Chart Portfolio Composition by Credit Quality as of December 31, 1995
appears here]
Non-Rated 2.8%
CCC 2.1%
B 31.8%
BB 10.4%
AAA & Govt 45.6%
Other 7.3%
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.
Strong high yield performers during the report period included bonds issued
by Outlet Broadcasting, which was recently purchased by NBC; and GPA Group, an
Irish aircraft lessor. Other strong market sectors were retail and paper,
which are traditionally fueled by consumer demand and therefore are expected
to perform well in a strong economy.
PERFORMANCE SUMMARY
For the six-month period ended June 30, 1996, the Trust generated a total
return at market price of 4.45 percent, including reinvestment of dividends.
The Trust's performance reflects a market price per common share on the New
York Stock Exchange of $7.25 per share on December 31, 1995 and $7.25 per
share on June 30, 1996. By comparison, the Lehman Brothers Treasury Index pro-
duced a total return of -1.84 percent, and the Lehman Brothers High Yield In-
dex generated a total return of 3.46 percent for the same period. Both
measures are broad-based, unmanaged indexes that reflect the general perfor-
mance 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.
Longer-term, the one-year total return at market price was 9.13 percent, in-
cluding reinvestment of dividends totaling $0.645 per share.
MARKET OUTLOOK
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at more moderate rates than the second quarter's
swift pace. We expect rates of inflation and yields on long-term bonds to re-
main near current levels. In particular, we look for 10-year Treasury yields
to remain within a trading range of 6.50 and 7.25 percent. Through the rest of
1996, we expect corporate earnings will be supportive, but perhaps not the
primary factor in the movement of the general stock market. We believe inter-
est rates and the economy's growth rate will continue to be the focus of the
fixed-income market.
CORPORATE NEWS
As you may be aware, an agreement was reached in late June for VK/AC Hold-
ing, Inc., the parent company of Van Kampen American Capital, Inc., to be ac-
quired by Morgan Stanley
Continued on page three
2
<PAGE>
Group Inc. While this announcement may appear commonplace in an ever-changing
financial industry, we believe it represents an exciting opportunity for in-
vestors.
With Morgan Stanley's global leadership in investment banking and asset man-
agement and Van Kampen American Capital's reputation for competitive long-term
performance and superior investor services, together we will offer a broader
range of investment opportunities.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
closed-end fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response
for inclusion in the shareholder vote. We value our relationship with you and
look forward to communicating more details of this transaction, which is an-
ticipated to be completed in November.
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.
3
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 49.9%
CONSUMER DISTRIBUTION 7.8%
$ 500 Americold Corp........................ 12.875% 05/01/08 $ 515,000
700 Big 5 Holdings........................ 13.625 09/15/02 651,000
450 Big V Supermarkets, Inc., Series B.... 11.000 02/15/04 418,500
500 Brylane Capital....................... 10.000 09/01/03 485,000
750 Cole National Group, Inc.............. 11.250 10/01/01 791,250
250 CompUSA, Inc.......................... 9.500 06/15/00 253,125
500 Dairy Mart Convenience Stores, Inc.... 10.250 03/15/04 463,750
947 FF Holdings Corp., PIK................ 14.250 10/01/02 322,055
550 Finlay Enterprises, Inc., Step Bonds 0.000 05/01/05 401,500
to 12.00% at 05/01/98.................
500 Fresh Del Monte....................... 10.000 05/01/03 463,750
250 Guitar Center ........................ 11.000 07/01/06 253,750
250 Hills Stores Co., private placement,
purchased 04/23/96
(see Note 1G)......................... 12.500 07/01/03 245,625
750 Mothers Work Inc...................... 12.625 08/01/05 793,125
1,000 Pathmark Stores Inc, Step Bonds to
10.75% at 11/01/99.................... 0.000 11/01/03 605,000
400 Phar-Mor Inc.......................... 11.720 09/11/02 396,000
500 Ralph's Grocery....................... 13.750 06/15/05 510,000
1,250 Specialty Retailers, Inc.............. 11.000 08/15/03 1,287,500
325 Thrifty Payless....................... 12.250 04/15/04 366,435
------------
9,222,365
------------
CONSUMER DURABLES 1.2%
750 MDC Holdings, Inc..................... 11.125 12/15/03 716,250
750 Oriole Homes Corp. ................... 12.500 01/15/03 652,500
------------
1,368,750
------------
CONSUMER NON-DURABLES 5.1%
250 Collins & Aikman...................... 11.500 04/15/06 254,375
850 Consoltex Group, Inc.................. 11.000 10/01/03 782,000
1,000 Dan River, Inc........................ 10.125 12/15/03 971,250
100 Dr Pepper Bottle Holdings, Step Bonds
to 11.625% at 02/15/98................ 0.000 02/15/03 82,500
900 Fieldcrest Cannon, Inc................ 11.250 06/15/04 904,500
500 Health O Meter, Inc................... 13.000 08/15/02 530,000
750 Revlon Worldwide, Series B............ ** 03/15/98 622,500
1,850 Synthetic Industries, Inc............. 12.750 12/01/02 1,956,375
------------
6,103,500
------------
CONSUMER SERVICES 10.0%
250 Act III Theatres Inc.................. 11.875 02/01/03 272,500
250 Alliance Gaming Corp.................. 12.875 06/30/03 248,750
750 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 05/15/03 442,500
</TABLE>
See Notes to Financial Statements
4
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 250 Bally's Grand, Inc.................... 10.375% 12/15/03 $ 274,375
250 Busse Broadcasting.................... 11.625 10/15/00 251,875
750 California Hotel Finance Corp......... 11.000 12/01/02 789,375
150 Carrol's Corp......................... 11.500 08/15/03 152,250
250 Casino America........................ 11.500 11/15/01 261,250
250 Casino Magic Finance.................. 11.500 10/15/01 259,375
250 Chancellor Broadcast.................. 9.375 10/01/04 238,125
500 Comcast UK Cable, Step Bonds to 11.20%
at 11/15/00........................... 0.000 11/15/07 286,875
250 Continental Cablevision Inc........... 11.000 06/01/07 281,250
500 Diamond Cable Co, Step Bonds to 11.75%
at 12/15/00........................... 0.000 12/15/05 295,000
500 Echostar Corp, Step Bonds to 13.125%
at 3/15/00, private placement,
purchased 3/19/96 (see Note 1G)....... 0.000 03/15/04 311,250
250 Fundy Cable Ltd....................... 11.000 11/15/05 253,125
250 Galaxy Telecom........................ 12.375 10/01/05 258,750
1,000 Granite Broadcast Corp................ 12.750 09/01/02 1,095,000
250 Hollinger International............... 9.250 02/01/06 228,750
250 International Cabletel, Step Bonds to
11.50% at 2/01/01..................... 0.000 02/01/06 140,625
500 International Cabletel, Step Bonds to
12.75% at 4/15/00..................... 0.000 04/15/05 320,000
750 Mohegan Tribal Game................... 13.500 11/15/02 941,250
500 Petro PSC Properties.................. 12.500 06/01/02 487,500
400 Resorts International Hotel, Inc...... 11.000 09/15/03 417,000
1,000 SC International...................... 13.000 10/01/05 1,095,000
500 SFX Broadcast......................... 10.750 05/15/06 497,500
750 Showboat Marina, private placement,
purchased 3/21/96
(see Note 1G)......................... 13.500 03/15/03 813,750
500 Tele Communications Inc............... 9.250 01/15/23 496,550
500 Trump A C Association................. 11.250 05/01/06 501,250
------------
11,910,800
------------
ENERGY 3.3%
750 Clark (R&M) Holdings Inc.............. ** 02/15/00 515,625
500 Coda Energy Inc, private placement,
purchased 3/12/96
(see Note 1G)......................... 10.500 04/01/06 496,875
400 Forest Oil Corp....................... 11.250 09/01/03 417,000
750 Gerrity Oil & Gas..................... 11.750 07/15/04 793,125
250 Giant Industries Inc.................. 9.750 11/15/03 245,000
325 Global Marine Inc..................... 12.750 12/15/99 352,625
500 Mesa Capital Corp..................... 12.750 06/30/98 501,875
250 Mesa Operating Co..................... 10.625 07/01/06 254,375
325 Petroleum Heat & Power Inc............ 12.250 02/01/05 357,500
------------
3,934,000
------------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FINANCE 2.7%
$ 1,250 Americo Life Inc...................... 9.250% 06/01/05 $ 1,175,000
250 GPA Group, Pass Thru Certificates,
Series D.............................. 10.875 03/15/19 260,000
1,500 GPA / Holland, private placement,
purchased 12/21/93
(see Note 1G)......................... 9.900 07/24/96 1,507,500
250 Trizec Finance........................ 10.875 10/15/05 255,625
------------
3,198,125
------------
HEALTH CARE 1.3%
250 Community Health Systems Inc.......... 10.250 11/30/03 275,000
250 OrNda HealthCorp...................... 12.250 05/15/02 270,000
500 Paracelsus Healthcare Corp............ 9.875 10/15/03 493,750
500 Tenet Healthcare Corp................. 10.125 03/01/05 528,750
------------
1,567,500
------------
PRODUCER MANUFACTURING 5.5%
500 Figgie International Inc.............. 9.875 10/01/99 506,250
750 GS Technologies Operations Inc........ 12.000 09/01/04 767,813
750 ICF Kaiser International.............. 13.000 12/31/03 716,250
250 Interlake Corp........................ 12.000 11/15/01 261,875
750 Interlake Corp........................ 12.125 03/01/02 750,000
1,667 Robertson Ceco Corp, PIK.............. 12.000 11/30/99 1,567,377
350 Spreckles Industries Inc.............. 11.500 09/01/00 363,125
1,583 Thermadyne Holdings Corp.............. 10.250 05/01/02 1,590,915
------------
6,523,605
------------
RAW MATERIALS/PROCESSING
INDUSTRIES 6.0%
200 Calmar Inc............................ 11.500 08/15/05 195,000
750 IMC Fertilizer Group Inc.............. 9.450 12/15/11 764,063
500 Indah Kiat International Finance...... 11.875 06/15/02 531,250
500 INDSPEC Chemical Corp, Step Bonds to
11.50% at 12/01/98.................... 0.000 12/01/03 431,250
950 Mail Well Envelope Corp............... 10.500 02/15/04 909,625
750 NL Industries Inc, Step Bonds to
13.00% at 10/15/98.................... 0.000 10/15/05 585,000
250 Plastic Specialties & Technology Corp. 11.250 12/01/03 247,500
500 S D Warren Co......................... 12.000 12/15/04 530,000
750 Sweetheart Cup Inc.................... 10.500 09/01/03 742,500
1,000 Tjiwi Kimia........................... 13.250 08/01/01 1,117,500
1,000 United Stationers..................... 12.750 05/01/05 1,072,500
------------
7,126,188
------------
TECHNOLOGY 3.5%
150 Computervision........................ 11.375 08/15/99 157,500
500 Dictaphone Corp....................... 11.750 08/01/05 470,000
750 Exide Electronics, each unit consists
of $1,000 face amount note and one
warrant (expiring 3/15/06), private
placement, purchased 3/7/96, 3/15/96
and 3/22/96 (see Note 1G)............. 11.500 03/15/06 765,000
2,604 Unisys Corp........................... 15.000 07/01/97 2,763,495
------------
4,155,995
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
TRANSPORTATION 1.2%
$ 250 Sea Containers Ltd................ 12.500% 12/01/04 $ 276,250
500 Stena AB.......................... 10.500 12/15/05 496,250
500 Trism Inc......................... 10.750 12/15/00 472,500
250 Valujet Inc, private placement,
purchased 4/11/96
(see Note 1G)..................... 10.250 04/15/01 193,750
------------
1,438,750
------------
UTILITIES 2.3%
750 AES Corp.......................... 10.250 07/15/06 752,812
400 Arch Communications Group, Step
Bonds to 10.875% at 3/15/01....... 0.000 03/15/08 204,000
250 A+ Network........................ 11.875 11/01/05 255,000
250 Fonorola Inc...................... 12.500 08/15/02 270,000
55 GST Telecom, Step Bonds to 13.875%
at 12/15/05....................... 0.000 12/15/05 54,863
440 GST USA Inc, Step bonds to 13.875%
at 12/15/00....................... 0.000 12/15/05 245,300
250 Mobilemedia Communications, Step
Bonds to 10.50% at 12/01/98....... 0.000 12/01/03 175,625
750 Pricellular Wireless, Step Bonds
to 12.25% at 10/1/98.............. 0.000 10/01/03 592,500
250 USA Mobile Communications......... 9.500 02/01/04 228,125
------------
2,778,225
------------
TOTAL CORPORATE OBLIGATIONS (Cost $57,741,629)..... 59,327,803
------------
UNITED STATES AGENCIES AND GOVERNMENT
OBLIGATIONS 41.1%
3,000 Federal Farm Credit Banks......... 5.425 09/15/03 2,748,270
6,698 Government National Mtg
Association....................... 7.500 various 6,597,380
7,260 Government National Mtg
Association....................... 8.000 various 7,320,800
2,912 Government National Mtg
Association....................... 8.500 various 2,993,136
7,670 Government National Mtg
Association....................... 9.000 various 8,020,257
1,468 Government National Mtg
Association....................... 9.500 various 1,566,792
2,500 Treasury Bonds.................... 7.250 05/15/16 2,557,025
3,000 Treasury Bonds.................... 7.500 11/15/16 3,145,770
11,500 Treasury Bonds.................... 8.875 02/15/19 13,848,530
------------
TOTAL UNITED STATES AGENCIES AND GOVERNMENT
OBLIGATIONS (Cost $49,948,479)..................... 48,797,960
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COMMON STOCK, PREFERRED STOCK, AND
WARRANTS 2.7%
*250 American Telecasting, Warrants, expiring 8/10/00..... $ 8,000
*625 Capital Gaming, Warrants, expiring 2/01/99........... 6
*7,500 FF Holdings Co, Common Stock......................... 7,500
*400 Finlay Enterprises Inc, Common Stock................. 5,500
*3,600 ICF Kaiser International, Warrants, expiring
12/31/98............................................. 36
*1,196 PanAmSat Corp, 12.75%, Preferred Stock, PIK.......... 1,375,400
Supermarkets General Holdings, $3.52, Preferred
*61,550 Stock, PIK........................................... 1,600,300
256 Time Warner, S-K, 10.25%, Preferred Stock, private
placement, purchased 4/30/96
(see Note 1G)........................................ 246,626
------------
TOTAL COMMON STOCK, PREFERRED STOCK, AND WARRANTS
(Cost $3,074,527).................................... 3,243,368
------------
<CAPTION>
Par
Amount
(000)
- -----------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENT 5.1%
$ 6,090 Lehman Government Securities, Inc.,
dated 6/28/96 (Collateralized by
U.S. Government obligations in a
pooled cash account) repurchase
proceeds $6,092,756
(Cost $6,090,000)................... 5.430% 07/01/96 6,090,000
------------
TOTAL INVESTMENTS (Cost $116,854,635) 98.8%.................... 117,459,131
OTHER ASSETS AND LIABILITIES, NET 1.2%......................... 1,432,322
------------
NET ASSETS 100%................................................ $118,891,453
------------
</TABLE>
*Non-income producing security.
**Zero coupon bond.
PIK-payment-in-kind (see Note 1D)
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments, at market value (Cost $116,854,635)................. $117,459,131
Cash............................................................. 943
Interest receivable.............................................. 2,122,538
Receivable for investments sold.................................. 1,797,135
Other assets and receivables..................................... 109,204
------------
Total Assets.................................................... 121,488,951
------------
LIABILITIES
Payable for investments purchased................................ 2,351,615
Dividends payable................................................ 75,989
Due to Adviser................................................... 64,034
Accrued expenses and other liabilities........................... 105,860
------------
Total Liabilities............................................... 2,597,498
------------
NET ASSETS, equivalent to $7.78 per share........................ $118,891,453
------------
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...................... (23,218,974)
Net unrealized appreciation of investments....................... 604,496
Undistributed net investment income.............................. 369,011
------------
NET ASSETS....................................................... $118,891,453
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................... $ 5,582,839
-----------
EXPENSES
Management fees.................................................... 389,405
Shareholder service agent's fees and expenses...................... 14,614
Administration fees................................................ 59,852
Accounting services................................................ 47,829
Trustees' fees and expenses........................................ 16,592
Audit fees......................................................... 9,650
Custodian fees..................................................... 5,263
Legal fees......................................................... 20,338
Reports to shareholders............................................ 15,180
Registration and filing fees....................................... 12,901
Miscellaneous...................................................... 2,365
-----------
Total expenses.................................................. 593,989
-----------
NET INVESTMENT INCOME.............................................. 4,988,850
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES..................
Net realized gain on securities.................................... 469,772
Net unrealized depreciation of securities during the period........ (3,047,280)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES..................... (2,577,508)
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $ 2,411,342
-----------
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, December 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period.................... $121,411,312 $111,354,468
------------ ------------
OPERATIONS
Net investment income............................. 4,988,850 9,989,429
Net realized gain (loss) on securities............ 469,772 (1,235,800)
Net unrealized appreciation (depreciation) of se-
curities during the period....................... (3,047,280) 11,165,751
------------ ------------
Increase in net assets resulting from operations.. 2,411,342 19,919,380
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME............................................. (4,931,201) (9,862,536)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS.................. (2,519,859) 10,056,844
------------ ------------
NET ASSETS, end of period (including undistributed
net investment income of $369,011 and $311,362,
respectively)...................................... $118,891,453 $121,411,312
------------ ------------
</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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31
Ended June ----------------------------------------
30, 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $7.94 $7.28 $8.15 $7.85 $7.70 $6.66
------ ------ ------- ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Investment income....... .37 .72 .73 .87 .925 .955
Expenses................ (.04) (.07) (.08) (.09) (.08) (.075)
------ ------ ------- ------ ------ ------
Net investment income.... .33 .65 .65 .78 .845 .88
Net realized and
unrealized gain (loss)
on securities........... (.1675) .655 (.8577) .285 .1625 1.05
------ ------ ------- ------ ------ ------
Total from investment
operations.............. .1625 1.305 (.2077) 1.065 1.0075 1.93
------ ------ ------- ------ ------ ------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME....... (.3225) (.645) (.6623) (.765) (.8575) (.89)
------ ------ ------- ------ ------ ------
Net asset value, end of
period.................. $7.78 $7.94 $7.28 $8.15 $7.85 $7.70
------ ------ ------- ------ ------ ------
Market price, end of
period.................. $7.25 $7.25 $6.50 $7.75 $7.63 $7.38
------ ------ ------- ------ ------ ------
TOTAL RETURN, at net
asset value............. 2.34% 19.13% (2.08)% 14.36% 13.61% 31.16%
TOTAL RETURN, at market
price................... 4.45% 21.83% (8.06)% 11.82% 15.22% 48.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions).............. $118.9 $121.4 $111.4 $124.7 $119.6 $116.3
Average net assets
(millions).............. $119.8 $117.5 $117.9 $123.2 $119.8 $109.9
Ratios to average net
assets (annualized)
Expenses................ .99% .94% .96% 1.00% .99% 1.03%
Net investment income... 8.33% 8.50% 7.94% 8.99% 10.71% 12.11%
Portfolio turnover rate.. 18% 34% 45% 53% 54% 50%
</TABLE>
See Notes to Financial Statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Income Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end man-
agement company. The Fund seeks income by primarily investing in debt securi-
ties.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The prep-
aration of financial statements in conformity with generally accepted account-
ing 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. 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 50% of the investment port-
folio at the end of the period.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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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
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 distri-
butions 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 current or future capital gains
until expiration 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 in-
vestments 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 issu-
ing 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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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 purposes 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.
At the end of the period, private placement securities comprised 3.9% of the
Fund's net assets with an aggregated market value and cost of $4,580,376 and
$4,450,706, respectively.
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
Chief Accounting Officer and the personnel operating under his direction.
Charges are allocated among investment companies advised by the Adviser. For
the period, these charges included $2,479 as the Fund's share of the employee
costs attributable to the Fund's accounting officers. A portion of the account-
ing service expense was paid to the Adviser in reimbursement of personnel, fa-
cilities 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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $20,891,455 and $23,803,519, 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 $3,543,789 and gross unrealized depre-
ciation aggregated $2,939,293.
NOTE 4--TRUSTEE COMPENSATION
Trustees who are not affiliated with the Adviser are compensated by the Fund
at the annual rate of $1,543 plus $103 per meeting attended. During the peri-
od, such fees aggregated $11,035.
The Trustees of the Fund instituted a Retirement Plan effective April 1,
1996. The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. For the current Trustees not affiliated with the Adviser, the
annual retirement benefit payable per year for a ten year period is based upon
the highest total annual compensation received in any of the three calendar
years preceding retirement. Trustees with more than five but less than ten
years of service at retirement will receive a prorated reduced benefit. Under
the Plan, for the Trustees retiring with the effectiveness of the Plan, the
annual retirement benefit payable per year for a ten year period is equal to
75% of the total compensation received from the Trust during the 1995 calendar
year. Retirement plan expenses for the period aggregated $4,729.
NOTE 5--SUBSEQUENT DIVIDENDS
The Board of Trustees declared a dividend of $.05375 per share from net in-
vestment income, payable July 31, 1996 to shareholders of record July 12,
1996.
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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
Aggressive Growth Fund
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
Intermediate 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 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
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VAN KAMPEN AMERICAN CAPITAL INCOME TRUST
BOARD OF TRUSTEES
DONALD M. CARLTON
A. BENTON COCANOUGHER
STEPHEN R. GROSS
ALAN G. MERTEN
STEVE MULLER
F. ROBERT PAULSON
R. RICHARDSON PETTIT
DON G. POWELL
ALAN B. SHEPARD, JR.
OFFICERS
DON G. POWELL
Chairman of the Board and President
DENNIS J. MCDONNELL
Executive Vice President
EDWARD C. WOOD, III
Vice President and Chief Financial Officer
CURTIS W. MORELL
Vice President and Chief Accounting Officer
ELLIS S. BIGELOW
Vice President and Portfolio Manager
WILLIAM BROWN
RONALD A. NYBERG
ROBERT C. PECK, JR.
PAUL R. WOLKENBERG
Vice Presidents
JOHN L. SULLIVAN
Treasurer
TANYA M. LODEN
Controller
NORI L. GABERT
Vice President and Corporate Secretary
HUEY P. FALGOUT, JR.
Assistant Corporate Secretary
STEVEN HILL
Assistant Treasurer
M. ROBERT SULLIVAN
Assistant Controller
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
One Parkview Plaza Oakbrook Terrace, Illinois 60181
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., 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
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