VAN KAMPEN AMERICAN CAPITAL INCOME TRUST, N-30D, 1997-02-28

VAN KAMPEN AMERICAN CAPITAL INCOME TRUST
N-30D, 1997-02-28

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<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 4
Portfolio of Investments.................... 5
Statement of Assets and Liabilities......... 11
Statement of Operations..................... 12
Statement of Changes in Net Assets.......... 13
Financial Highlights........................ 14
Notes to Financial Statements............... 16
Report of Independent Accountants........... 19
Dividend Reinvestment Plan.................. 20
</TABLE>

ACD ANR 2/97

<PAGE>

LETTER TO SHAREHOLDERS

[PHOTO OF DON G. POWELL AND
DENNIS J. McDONNELL]

DON G. POWELL AND DENNIS J. MCDONNELL
February 10, 1997

Dear Shareholder,

The high yield corporate bond
market, which is influenced by the
stock and bond markets, was the
one of the best performing sectors
of the domestic fixed-income mar-
ket in 1996. Strong corporate
earnings helped boost high yield
bond prices throughout the year
and offset some of the negative
effects of a weaker Treasury bond
market during the first six
months.
Treasury bond prices fell in the
first six months of 1996 due to
fears that strong economic growth
would spur the Federal Reserve
Board to raise interest rates.
When second-quarter growth (real
gross domestic product, adjusted
for inflation) was reported to
have risen 4.7 percent, long-term
Treasury bond yields, which move
in the opposite direction of bond
prices, jumped above 7.0 percent.
High yield bonds outperformed
Treasuries because a growing econ-
omy often improves their credit
prospects, and their high coupon
payments usually act as a buffer
against rising interest rates.
Early in the third quarter the scenario shifted. Stocks suffered a temporary
setback but bounced back and rallied through year end. Bonds recovered as GDP
slowed to a 2.0 percent pace. Concerns about increasing price pressures and
Fed tightening receded, and the 30-year Treasury bond yield fell to approxi-
mately 6.6 percent in late October, where it remained at year end.

PORTFOLIO STRATEGY

The Van Kampen American Capital Income Trust invests in a portfolio com-
prised primarily of high yield corporate bonds and U.S. government securities.
Throughout 1996, high yield bonds accounted for about 50 percent of the
Trust's portfolio, and U.S. government or government agency securities consti-
tuted 41 percent of assets. Cash equivalents and minor equity positions ac-
counted for the remaining assets. This allocation of bonds was a winning
strategy in 1996. High yield securities provided a high level of income, which
cushioned the decline in Treasury bond prices when interest rates rose. Gov-
ernment bonds, in turn, appreciated in price when rates fell in the fourth
quarter.
During 1996, we emphasized B-rated securities, which provide more income
than BB-rated bonds, the highest quality rating within the non-investment
grade category. As of December 31, 1996, B-rated bonds comprised about 38.5
percent of the Trust's portfolio. We do not expect to increase that percentage
during the early part of 1997 as the yield spread between quality securities,
such as governments, and lower-rated securities has narrowed. With the spread
difference currently as tight as it is, we do not feel that the investor is
adequately compensated for the additional risk.
Continued on page two

1
<PAGE>

Strong performers among our high yield bonds included Outlet Broadcasting,
GPA Group (an Irish aircraft leasing company), Unisys Corp., and Robertson
Ceco Corp., a metals fabricator whose business was so brisk in 1996 that the
company was able to exercise its call option on the bond. Among the strongest
sectors were steel, paper, energy, media, and consumer products, including
homebuilders, textile manufacturers, and casino operators.

[PIE CHARTS APPEAR HERE]

Portfolio Composition by Credit Quality
as a Percentage of Long-Term Investments

as of December 31, 1996 as of June 30, 1996

AAA and U.S. Govt. & Agency 41.9% AAA and U.S. Govt. & Agency 45.1%
BBB 1.6% BBB 0.7%
BB 8.4% BB 7.5%
B 38.5% B 37.6%
CCC 3.8% CCC 2.7%
Non-Rated 4.9% Non-Rated 6.4%
Other 0.9%

Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.

PERFORMANCE SUMMARY

For the 12-month period ended December 31, 1996, the Trust generated a total
return of 12.95 percent/1/. This performance reflects an increase in market
price per common share from $7.25 on December 31, 1995 to $7.50 on December
31, 1996, plus reinvestment of dividends totaling $.66125 per share. Based on
the normal monthly dividend of $.05375 per share and the closing common stock
price on December 31, 1996, the Trust generated a distribution rate of 8.60
percent/3/.
By comparison, the Lehman Brothers High Yield Index posted a total annual
return of 11.35 percent, while the Lehman Brothers Government Index returned
2.77 for the year. Keep in mind that both indices are broad-based, unmanaged
indices that reflect the general performance of high yield bonds and/or gov-
ernment securities. Neither index includes any commissions or fees that an in-
vestor would pay to purchase the securities they represent. Please refer to
the chart on page four for additional Fund performance results.

OUTLOOK

We believe that the economy will grow at a modest pace in 1997, near 2.5
percent. Although economic growth could be accompanied by short-term market
fluctuation, we do not believe it will be strong enough to reignite price
pressures. The results of the November elections reinforce this view--the com-
bination of a Democratic president and a Republican Congress should help re-
strain potential spending increases and large tax cuts, and therefore keep the
budget deficit under control.
We believe there is a possibility that the Fed will grow more concerned
about the economy's strength and nudge interest rates higher, though not be-
fore March. The stock

Continued on page three

2
<PAGE>

market is another factor that will influence the performance of the high yield
bond market this year. If stocks continue to advance, we believe the high yield
bond market will reap a large percentage of that gain, as it has in the past. If
stocks fall, we believe the income component of the high yield market may help
offset some of the negative effects of that decline. We also expect that there
will be continued strong demand for U.S. bonds by overseas investors.
Overall, our expectation is that most fixed-income products will have rela-
tively uneventful performance during the year. While we expect the Trust to
provide regular dividend income, we do not look for significant fluctuations in
share price.

CORPORATE NEWS

As you may be aware, shareholders approved the acquisition of VK/AC Holding,
Inc. by Morgan Stanley Group Inc. We believe this acquisition will further help
investors achieve their long-term goals. Morgan Stanley's strong global pres-
ence and commitment to superior investment performance complement our broad
range of investment products, money management capability, and high level of
service. Thank you for your continued confidence in your investment with Van
Kampen American Capital.

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>

PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1996

VAN KAMPEN AMERICAN CAPITAL INCOME TRUST
NYSE TICKER SYMBOL -- ACD
<TABLE>

<S> <C>
COMMON SHARE TOTAL RETURNS
One-year total return based on market price/1/.......................... 12.95%
One-year total return based on NAV/2/................................... 8.61%

DISTRIBUTION RATE
Distribution rate as a % of closing common stock price/3/............... 8.60%

SHARE VALUATIONS
Net asset value......................................................... $ 7.93
Closing common stock price.............................................. $7.500
One-year high common stock price (12/11/96)............................. $7.750
One-year low common stock price (07/02/96).............................. $7.125
</TABLE>

/1/Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions
for the period in accordance with the Fund's dividend reinvestment plan, and
sale of all shares at the closing stock price at the end of the period
indicated.

/2/Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.

/3/Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.

Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Fund shares,
when sold, may be worth more or less than their original cost.

4
<PAGE>

PORTFOLIO OF INVESTMENTS

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DOMESTIC CORPORATE BONDS 47.1%
CONSUMER DISTRIBUTION 5.6%
300 Americold Corp. (b).................................... 12.875/13.875% 05/01/08 $ 307,500
700 Big 5 Holdings, Inc.................................... 13.625 09/15/02 735,000
450 Big V Supermarkets, Inc................................ 11.000 02/15/04 414,000
500 Brylane Capital Corp................................... 10.000 09/01/03 515,000
750 Cole National Group, Inc............................... 11.250 10/01/01 825,000
125 CompUSA, Inc........................................... 9.500 06/15/00 128,438
550 Finlay Enterprises (b)................................. 0/12.000 05/01/05 456,500
250 Guitar Center Management Co., Inc., 144A Private
Placement (c).......................................... 11.000 07/01/06 265,000
750 Pathmark Stores, Inc................................... 11.625 06/15/02 765,000
500 Petro PSC Properties LP/ Petro Finance................. 12.500 06/01/02 508,750
1,400 Specialty Retailers, Inc............................... 11.000 08/15/03 1,466,500
325 Thrifty Payless........................................ 12.250 04/15/04 377,000
------------
6,763,688
------------
CONSUMER DURABLES 2.3%
500 Aetna Industries, Inc.................................. 11.875 10/01/06 537,500
200 Blue Bird Body Co., 144A Private Placement (c)......... 10.750 11/15/06 209,000
1,000 Marvel Holdings, Inc. (d).............................. * 04/15/98 155,000
500 MCII Holding USA, Inc., 144A Private Placement (b) (c). 0/12.000 11/15/02 412,500
750 MDC Holdings, Inc...................................... 11.125 12/15/03 753,750
750 Oriole Homes Corp...................................... 12.500 01/15/03 735,000
------------
2,802,750
------------
CONSUMER NON-DURABLES 4.4%
850 Consoltex Group........................................ 11.000 10/01/03 854,250
500 Curtice Burns Foods, Inc............................... 12.250 02/01/05 518,750
1,000 Dan River, Inc......................................... 10.125 12/15/03 1,005,000
100 Dr. Pepper Bottling Co. (b)............................ 0/11.625 02/15/03 94,000
250 Genesco, Inc........................................... 10.375 02/01/03 254,375
500 Health O Meter, Inc.................................... 13.000 08/15/02 565,000
1,850 Synthetic Industries................................... 12.750 12/01/02 2,039,625
------------
5,331,000
------------
CONSUMER SERVICES 8.8%
250 Act III Theaters....................................... 11.875 02/01/03 271,250
750 Alliance Gaming Group.................................. 12.875 06/30/03 800,625
250 Busse Broadcasting Corp................................ 11.625 10/15/00 253,750
150 Carrols Corp........................................... 11.500 08/15/03 158,625
250 Casino Magic Corp...................................... 11.500 10/15/01 225,000
</TABLE>

See Notes to Financial Statements
5
<PAGE>

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
500 Comcast United Kingdom Cable
Partners, Ltd. (b)............ 0/11.200% 11/15/07 $ 350,000
250 Continental Cablevision, Inc.. 11.000 06/01/07 286,875
500 Echostar Satellite Broadcast
Corp. (b)..................... 0/13.125 03/15/04 378,750
250 Galaxy Telecom................ 12.375 10/01/05 265,000
1,000 Granite Broadcasting Corp..... 12.750 09/01/02 1,092,500
250 Hollinger International....... 9.250 02/01/06 246,250
725 Majestic Star Casino L.L.C.... 12.750 05/15/03 779,375
750 Mohegan Tribal Gaming
Authority of Connecticut...... 13.500 11/15/02 982,500
400 Resorts International Hotel
Financing, Inc................ 11.000 09/15/03 430,500
500 SFX Broadcasting, Inc......... 10.750 05/15/06 526,250
500 Showboat Marina Casino........ 13.500 03/15/03 550,000
1,000 South Carolina International
Services, Inc................. 13.000 10/01/05 1,130,000
1,000 Stratosphere Corp. (d)........ 14.250 05/15/02 940,000
500 Stuart Entertainment,
Inc.,144A Private Placement
(c)........................... 12.500 11/15/04 508,750
500 Tele Communications, Inc...... 9.250 01/15/23 492,800
------------
10,668,800
------------
ENERGY 4.6%
750 Clark R & M Holdings, Inc..... * 02/15/00 540,000
500 Cliffs Drilling Co. .......... 10.250 05/15/03 530,000
400 Forest Oil Corp............... 11.250 09/01/03 432,000
750 Gerrity Oil & Gas Corp. ...... 11.750 07/15/04 817,500
250 Giant Industries, Inc......... 9.750 11/15/03 260,000
325 Global Marine, Inc. .......... 12.750 12/15/99 348,156
500 KCS Energy, Inc. ............. 11.000 01/15/03 542,500
500 Kelley Oil & Gas Partners Ltd. 7.875 12/15/99 470,000
500 Maxus Energy Corp. ........... 11.500 11/15/15 521,250
250 Parker Drilling Co., 144A
Private Placement (c)......... 9.750 11/15/06 263,750
325 Petroleum Heat & Power, Inc. . 12.250 02/01/05 360,750
500 Veritas DGC, Inc. ............ 9.750 10/15/03 515,000
------------
5,600,906
------------
FINANCE 1.0%
1,250 Americo Life, Inc. ........... 9.250 06/01/05 1,243,750
------------
HEALTH CARE 1.1%
500 Maxxim Medical, Inc., 144A
Private Placement (c)......... 10.500 08/01/06 522,500
250 Ornda Healthcorp.............. 12.250 05/15/02 266,250
500 Tenet Healthcare Corp. ....... 10.125 03/01/05 552,500
------------
1,341,250
------------
</TABLE>

See Notes to Financial Statements
6
<PAGE>

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PRODUCER MANUFACTURING 7.7%
350 Clark Material Handling Corp., 144A
Private Placement (c).............. 10.750% 11/15/06 $ 364,000
750 Exide Electronics Group, Inc.
(Including 750 common stock
warrants convertible into 3,863
common shares at a strike price of
$13.475 expiring 03/15/06)......... 11.500 03/15/06 821,250
500 Figgie International, Inc. ........ 9.875 10/01/99 519,375
500 Foamex L.P./Foamex Capital Corp. .. 11.875 10/01/04 537,500
750 GS Technologies Operating, Inc. ... 12.000 09/01/04 779,063
500 IMO Industries, Inc. .............. 11.750 05/01/06 465,000
250 Interlake Corp. ................... 12.000 11/15/01 268,750
1,000 Interlake Corp. ................... 12.125 03/01/02 1,035,000
500 International Knife & Saw, Inc.,
144A Private Placement (c)......... 11.375 11/15/06 517,500
250 RayoVac Corp., 144A Private
Placement (c)...................... 10.250 11/01/06 256,250
1,667 Robertson Ceco Corp................ 12.000 11/30/99 1,667,422
1,583 Thermadyne Holdings Corp. ......... 10.250 05/01/02 1,614,660
500 Wilcox & Gibbs, Inc., 144A Private
Placement (c)(e)................... 12.250 12/15/03 502,500
------------
9,348,270
------------
RAW MATERIALS/PROCESSING
INDUSTRIES 5.5%
500 Indspec Chemical Corp. (b)......... 0/11.500 12/01/03 455,000
500 International Cabletel, Inc. (b)... 0/12.750 04/15/05 373,750
250 International Cabletel, Inc. (b)... 0/11.500 02/01/06 170,000
950 Mail-Well Envelope Corp. .......... 10.500 02/15/04 945,250
750 NL Industries, Inc. (b)............ 0/13.000 10/15/05 648,750
1,000 Pioneer Americas Acquisition Corp.. 13.375 04/01/05 1,137,500
250 Plastic Specialty & Technical, Inc. 11.250 12/01/03 263,125
500 Printpack, Inc., 144A Private
Placement (c)...................... 10.625 08/15/06 521,250
200 S.D. Warren Co. ................... 12.000 12/15/04 216,000
750 Sweetheart Cup, Inc. .............. 10.500 09/01/03 785,625
1,000 United Stationers Supply Co. ...... 12.750 05/01/05 1,105,000
------------
6,621,250
------------
TECHNOLOGY 3.0%
150 ComputerVision..................... 11.375 08/15/99 156,000
500 Dictaphone Corp. .................. 11.750 08/01/05 440,000
250 Iron Mountain, Inc. ............... 10.125 10/01/06 263,750
2,604 Unisys Corp. ...................... 15.000 07/01/97 2,740,710
------------
3,600,460
------------
</TABLE>

See Notes to Financial Statements
7
<PAGE>

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TRANSPORTATION 1.3%
250 International Shipbuilding
Corp. ........................ 9.000% 07/01/03 $ 252,500
250 Moran Transport Co. .......... 11.750 07/15/04 270,000
250 Sea Containers Ltd. .......... 12.500 12/01/04 273,750
500 Trism, Inc. .................. 10.750 12/15/00 477,500
250 ValuJet, Inc. ................ 10.250 04/15/01 202,500
------------
1,476,250
------------
UTILITIES 1.8%
750 AES Corp. .................... 10.250 07/15/06 806,250
400 Arch Communications Group,
Inc. (b)...................... 0/10.875 03/15/08 228,000
55 GST Telecommunciations, Inc.,
144A Private Placement
(b) (c)....................... 0/13.875 12/15/05 43,450
440 GST USA, Inc. (b)............. 0/13.875 12/15/05 259,600
750 Pricellular Wireless Corp.
(b)........................... 0/12.250 10/01/03 641,250
250 USA Mobil Commerce, Inc. ..... 9.500 02/01/04 235,000
------------
2,213,550
------------
TOTAL DOMESTIC CORPORATE BONDS 57,011,924
------------
FOREIGN BONDS AND DEBT
SECURITIES 7.9%
ARGENTINA 0.4%
500 CIA Trans Energy SA (US$)..... 9.625 07/15/99 512,500
------------
AUSTRALIA 0.4%
750 Australis Media, Ltd. (US$)
(b)........................... 0/15.750 05/15/03 438,750
------------
BRAZIL 0.4%
500 Klabin Fabricadora De Papel,
144A Private Placement (US$)
(c)........................... 11.000 08/12/04 515,000
------------
CANADA 1.0%
500 Fonorola, Inc. (US$).......... 12.500 08/15/02 547,500
150 Fundy Cable Ltd. (US$)........ 11.000 11/15/05 159,000
500 Trizec Finance (US$).......... 10.875 10/15/05 551,875
------------
1,258,375
------------
GERMANY 0.9%
1,000 Tarkett International GMBH
(US$) (f)..................... 9.000 03/01/02 1,027,500
------------
INDONESIA 1.6%
250 FSW International Finance Co.
BV, 144A Private Placement
(US$) (c)..................... 12.500 11/01/06 264,375
500 Indah Kiat International
Finance Co. BV (US$).......... 11.875 06/15/02 548,750
1,000 Tjiwi Kimia International
Finance (US$)................. 13.250 08/01/01 1,135,000
------------
1,948,125
------------
</TABLE>

See Notes to Financial Statements
8
<PAGE>

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

See Notes to Financial Statements
9
<PAGE>
Income Trust
PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------------
<S> <C>
EQUITIES 2.8%
American Telecasting, Inc. (250 Common Stock Warrants convertible
into 1,170 common shares at a strike price of $12.65 expiring
08/10/00) (d)...................................................... $ 2,688

Cap Gaming International, Inc. (625 Common Stock Warrants
convertible into 625 common shares at a strike price of $6.50
expiring 02/01/99) (d)............................................. 6

FF Holdings Corp. (7,500 Common Shares) (c) (d).................... 75

Finlay Enterprises, Inc. (400 Common Shares) (d)................... 6,200

PanAmSat LP Corp. (1,274 Preferred Shares) (d) (g)................. 1,567,602

Supermarkets General Holdings Corp.
(61,550 Preferred Shares) (d) (g).................................. 1,569,525

Time Warner, Inc. (268 Preferred Shares)........................... 290,441
-----------
TOTAL EQUITIES..................................................... 3,436,537
-----------
TOTAL LONG-TERM INVESTMENTS 97.4%
(Cost $114,904,298) (a).......................................... 118,020,144

REPURCHASE AGREEMENT 1.2%
Lehman Brothers, Inc. ($1,450,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 12/31/96,
to be sold on 01/02/97 at $1,450,544).............................. 1,450,000

OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%......................... 1,725,200
------------
NET ASSETS 100.0%.................................................. $121,195,344
============
</TABLE>

*Zero coupon bond

(a) At December 31, 1996, for federal income tax purposes cost is $114,904,298,
the aggregate gross unrealized appreciation is $5,235,920 and the aggregate
gross unrealized depreciation is $2,120,074, resulting in net unrealized
appreciation of $3,115,846.

(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.

(c) 144A securities are those which are exempt from registration under rule
144A of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.

(d) Non-Income producing security.

(e) Security purchased on a when issued or delayed delivery basis.

(f) Assets segregated as collateral for when issued or delayed delivery
purchase commitments.

(g) Payment-in-kind security.

See Notes to Financial Statements
10
<PAGE>

STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $114,904,298) (Note
1).............................................................. $118,020,144
Repurchase Agreement (Note 1)................................... 1,450,000
Cash............................................................ 4,416
Receivables:
Interest....................................................... 2,321,722
Investments Sold............................................... 104,842
Other........................................................... 4,209
------------
Total Assets.................................................. 121,905,333
------------
LIABILITIES:
Payables:
Investments Purchased.......................................... 491,250
Income Distributions........................................... 95,230
Investment Advisory Fee (Note 2)............................... 65,699
Administrative Fee (Note 2).................................... 10,107
Affiliates (Note 2)............................................ 2,050
Accrued Expenses................................................ 36,200
Retirement Plan (Note 2)........................................ 9,453
------------
Total Liabilities.............................................. 709,989
------------
NET ASSETS...................................................... $121,195,344
------------
NET ASSETS CONSIST OF:
Common Shares (no par value with unlimited shares authorized,
15,290,019 shares issued and outstanding)..................... $141,136,383
Net Unrealized Appreciation on Investments...................... 3,115,846
Accumulated Undistributed Net Investment Income................. 347,713
Accumulated Net Realized Loss on Investments.................... (23,404,598)
------------
NET ASSETS...................................................... $121,195,344
------------
NET ASSET VALUE PER COMMON SHARE ($121,195,344 divided
by 15,290,019 shares outstanding)............................. $ 7.93
------------
</TABLE>

See Notes to Financial Statements

11
<PAGE>

STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996

- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $10,972,152
Dividends.......................................................... 292,448
-----------
Total Income...................................................... 11,264,600
-----------
EXPENSES:
Investment Advisory Fee (Note 2)................................... 779,090
Administrative Fee (Note 2)........................................ 119,919
Accounting Services................................................ 62,127
Trustees Fees and Expenses (Note 2)................................ 35,606
Shareholder Services............................................... 25,805
Custody ........................................................... 16,302
Other ............................................................. 159,877
-----------
Total Expenses.................................................... 1,198,726
-----------
NET INVESTMENT INCOME.............................................. $10,065,874
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net Realized Gain on Investments................................... $ 365,147
-----------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period........................................... 3,651,776
End of the Period................................................. 3,115,846
-----------
Net Unrealized Depreciation on Securities During the Period........ (535,930)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS.................... $ (170,783)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $ 9,895,091
-----------
</TABLE>

See Notes to Financial Statements

12
<PAGE>

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1996 and 1995

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................... $ 10,065,874 $ 9,989,429
Net Realized Gain/Loss on Investments.... 365,147 (1,235,800)
Net Unrealized Appreciation/Depreciation
on Investments During the Period........ (535,930) 11,165,751
------------ ------------
Change in Net Assets from Operations..... 9,895,091 19,919,380
Distributions from Net Investment Income. (10,111,059) (9,862,536)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................... (215,968) 10,056,844
NET ASSETS:
Beginning of the Period.................. 121,411,312 111,354,468
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$347,713 and $311,362, respectively).... $121,195,344 $121,411,312
------------ ------------
</TABLE>

13
<PAGE>

FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one common share of
the Fund outstanding throughout the periods indicated.

- --------------------------------------------------------------------------------

----------------------
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of the Period................................ $7.94 $7.28 $8.15
------ ------ -------
Net Investment Income.................................. .658 .65 .65
Net Realized and Unrealized Gain/Loss on Securities.... (.011) .655 (.8577)
------ ------ -------
Total from Investment Operations........................ .647 1.305 (.2077)
------ ------ -------
Less:
Distributions from Net Investment Income............... .661 .645 .6623
Distributions from Net Realized Gains on Securities.... -- -- --
------ ------ -------
Total Distributions..................................... .661 .645 .6623
------ ------ -------
Net Asset Value, End of the Period...................... $7.926 $7.94 $7.28
------ ------ -------
Market Price Per Share at End of the Period............. $7.500 $7.250 $6.500
Total Investment Return at Market Price (a) (c)......... 12.95% 21.83% (8.06)%
Total Return at Net Asset Value (b) (c)................. 8.61% 19.13% (2.08)%
Net Assets at End of the Period (In millions)........... $121.2 $121.4 $111.4
Ratio of Operating Expenses to Average Net Assets....... 1.00% .94% .96%
Ratio of Net Investment Income to Average Net Assets.... 8.40% 8.50% 7.94%
Portfolio Turnover...................................... 36% 34% 45%
</TABLE>
(a) Total investment return at market price reflects the change in market value
of the common shares for the period indicated with reinvestment of
dividends in accordance with the Fund's dividend reinvestment plan.
(b) Total return at net asset value (NAV) reflects the change in value of the
Fund's assets with reinvestment of dividends based upon NAV.
(c) Prior to fiscal year end 1992, this was not a required disclosure.

14
<PAGE>

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 2, 1988
(Commencement
of Investment
Year Ended December 31 Operations)
- -------------------------------------- to December
1993 1992 1991 1990 1989 31, 1988
- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$7.85 $7.70 $6.66 $7.90 $9.06 $9.30
------ ------ ------ ------ ------ ------
.78 .845 .88 .974 1.06 .68
.285 .1625 1.05 (1.242) (1.116) (.2505)
------ ------ ------ ------ ------ ------
1.065 1.0075 1.93 (.268) (.056) .4295
------ ------ ------ ------ ------ ------
.765 .8575 .89 .972 1.078 .6695
-- -- -- -- .026 --
------ ------ ------ ------ ------ ------
.765 .8575 .89 .972 1.104 .6695
------ ------ ------ ------ ------ ------
$8.15 $7.85 $7.70 $6.66 $7.90 $9.06
------ ------ ------ ------ ------ ------
$7.750 $7.625 $7.375 $5.625 $7.500 $9.250
11.82% 15.22% -- -- -- --
14.36% 13.61% -- -- -- --
$124.7 $119.6 $116.3 $100.6 $119.4 $134.4
1.00% .99% 1.03% 1.00% .97% .93%
8.99% 10.71% 12.11% 13.25% 12.18% 11.26%
53% 54% 50% 29% 20% 46%
</TABLE>

See Notes to Financial Statements

15
<PAGE>

NOTES TO FINANCIAL STATEMENTS

December 31, 1996

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Income Trust (the "Fund") is registered as a diver-
sified closed-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to provide current
income through investing in a portfolio of 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 reported amounts of assets and liabilities and disclosure of contingent as-
sets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

A. SECURITY VALUATION-Fixed income investments are stated at value using market
quotations. Investments in securities listed on a securities exchange are val-
ued at their sales price as of the close of such securities exchange. Unlisted
securities and listed securities for which the last sales price is not avail-
able are valued at the last reported bid price. For those securities where quo-
tations or prices are not available, valuations are determined in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 or less days 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. At December 31, 1996, debt securities rated below investment
grade and comparable unrated securities represented approximately 56.5% of the
investment portfolio.

B. SECURITY TRANSACTIONS-Security transactions are recorded on a trade date ba-
sis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggre-
gate value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
The Fund may invest in repurchase agreements, which are short-term invest-
ments whereby 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 invest independently in repurchase

16
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996

- -------------------------------------------------------------------------------
agreements, or transfer uninvested cash balances into a pooled cash account
along with other investment companies advised by Van Kampen American Capital
Asset Management, Inc. (the "Adviser") or its affiliates, the daily aggregate
of which is invested in repurchase agreements. Repurchase agreements are fully
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 underlying security at not less than the repurchase proceeds due
the Fund.

C. INVESTMENT INCOME-Interest income is recorded on an accrual basis and divi-
dend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized. Market discounts are recognized at the time of
sale as realized gains for book purposes and ordinary income for tax purposes.

D. FEDERAL INCOME TAXES-It is the Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated investment compa-
nies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following
the year of the loss and offset these losses against any future realized capi-
tal gains. At December 31, 1996, the Fund had an accumulated capital loss
carryforward for tax purposes of approximately $23.4 million which will expire
between December 31, 1997 and December 31, 2003. Of this amount, $3,343,595
will expire on December 31, 1997. Net realized gains or losses may differ for
financial and tax reporting purposes primarily as a result of post October 31
losses which are not recognized for tax purposes until the first day of the
following fiscal year.

E. DISTRIBUTION OF INCOME AND GAINS-The Fund declares and pays dividends from
net investment income to shareholders monthly. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains. All short-term capital gains are in-
cluded in ordinary income for tax purposes.
Due to inherent differences in the recognition of income, expenses and real-
ized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis report-
ing for the current fiscal year have been identified and appropriately reclas-
sified. Permanent differences related to the recognition of market discounts
on bonds totaling $93,504 and net losses on paydowns of mortgage-

17
<PAGE>

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996

- -------------------------------------------------------------------------------
backed securities totaling $112,505 were reclassified from accumulated net re-
alized gain/loss on investments to accumulated undistributed net investment
income. In addition, permanent differences relating to the recognition of cer-
tain expenses which are not deductible for tax purposes totaling $537 have
been reclassified from accumulated undistributed net investment income to cap-
ital.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly of .65% of the average weekly net assets of the Fund. In addition, the
Fund will pay a monthly administrative fee to Van Kampen American Capital Dis-
tributors, Inc.'s or its affiliates' (collectively "VKAC"), the Fund's Admin-
istrator, at an annual rate of .10% of the first $250 million and .05% of the
amount in excess of $250 million of the average weekly net assets of the Fund.
The administrative services provided by the Administrator include record keep-
ing and reporting responsibilities with respect to the Fund's portfolio and
providing certain services to shareholders.
For the year ended December 31, 1996, the Fund recognized expenses of ap-
proximately $62,100 representing VKAC's cost of providing accounting services
to the Fund. These services are provided by VKAC at cost.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
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 VKAC, 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 re-
tirement benefit payable per year for a ten year period is equal to 75% of the
total compensation received from the Fund during the 1995 calendar year.

3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $43,029,677 and $41,853,588, re-
spectively.

18
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL INCOME TRUST

We have audited the accompanying statement of assets and liabilities, includ-
ing the investment portfolio of Van Kampen American Capital Income Trust, as
of December 31, 1996, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the ten
years in the period then ended. These financial statements and financial high-
lights 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
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of De-
cember 31, 1996, 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 state-
ment presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen American Capital Income Trust at December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the ten years in the period then ended, in conformity with generally ac-
cepted accounting principles.

ERNST & YOUNG LLP

Houston, Texas
January 31, 1997

19
<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
otherwise on the open market. If the market price exceeds net asset value be-
fore 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 does not relieve you of any income
tax which may be payable (or required to be withheld) on dividends or distri-
butions.
You may begin or discontinue participation in the Plan at any time by writ-
ten 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
effective 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 practi-
cable after receipt of your election to withdraw, or, if you wish, State
Street Bank and Trust Company, the Fund's custodian, will sell your shares and
send you the proceeds less a service fee of $2.50 and less brokerage commis-
sions. Under the rules generally applicable to sales of securities, a sale of
shares (including fractional 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 re-
serves the right to amend or terminate the Plan on 30 days' written notice
prior to the record date of the distribution for which such amendment or ter-
mination is effective.
Record stockholders should address all notices, correspondence, questions or
other communications about the Plan to:

BOSTON EQUISERVE LP
P.O. BOX 8200
BOSTON, MA 02266-8200
(800) 341-2929

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.

20
<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
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth 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

MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
Worldwide High Income 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 weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds, or
1-800-282-4404 for Morgan Stanley retail funds.

21
<PAGE>

RESULTS OF SHAREHOLDER VOTES

An Annual Meeting of Shareholders of the Fund was held on October 29, 1996,
where shareholders voted on a new investment advisory agreement, the election
of trustees and the ratification of Ernst & Young LLP as independent auditors.
With regard to the approval of a new investment advisory agreement between Van
Kampen American Capital Asset Management, Inc. and the Fund, 9,827,700 shares
voted for the proposal, 153,739 shares voted against, 243,927 shares abstained
and 440,551 shares represented broker non-votes. With regard to the election of
Stephen R. Gross as elected trustee by the common shareholders of the Fund
10,497,208 shares voted in his favor, 166,708 shares withheld. With regard to
the election of Alan G. Merten, Ph.D. as elected trustee by the common share-
holders of the Fund 10,497,708 shares voted in his favor, 166,208 shares with-
held. With regard to the election of F. Robert Paulsen, Ph.D. as elected
trustee by the common shareholders of the Fund 10,498,708 shares voted in his
favor, 165,208 shares withheld. With regard to the election of Don G. Powell as
elected trustee by the common shareholders of the Fund 10,501,366 shares voted
in his favor, 162,550 shares withheld. The other trustees of the Fund whose
terms did not expire in 1996 are Donald M. Carlton, Ph.D., A. Benton
Cocanougher, Ph.D., Steven Muller, Ph.D., R. Richard Pettit, Ph.D. and Alan B.
Shepard, Jr. With regard to the ratification of Ernst & Young LLP as indepen-
dent auditors for the Fund, 10,471,639 shares voted in favor of the proposal,
55,597 shares voted against and 136,680 shares abstained and 2,000 represented
broker non-votes.

Tax Notice to Corporate
Shareholders

For 1996, 2.56% of the
dividends taxable as
ordinary income quali-
fied for the 70% divi-
dends received
deduction for corpora-
tions.

22
<PAGE>

VAN KAMPEN AMERICAN CAPITAL INCOME TRUST

BOARD OF TRUSTEES
DONALD M. CARLTON
A. BENTON COCANOUGHER
STEPHEN R. GROSS
ALAN G. MERTEN
STEVEN MULLER
F. ROBERT PAULSEN
R. RICHARDSON PETTIT
DON G. POWELL* -- Chairman
ALAN B. SHEPARD, JR.

OFFICERS
DON G. POWELL*
President
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER HEGEL*
ALAN SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
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 02105

SHAREHOLDER SERVICING AGENT
BOSTON EQUISERVE LP
P.O. Box 8200
Boston, Massachusetts 02266

*" Interested" persons of the
Fund, as defined in the
Investment Company Act of
1940.

(SM)denotes a service mark of Van Kampen American Capital Distributors, Inc.

- -------------------------------
INQUIRIES ABOUT AN INVESTOR'S
ACCOUNT SHOULD BE REFERRED
TO THE FUND'S TRANSFER AGENT
BOSTON EQUISERVE LP
P.O. BOX 8200
BOSTON, MASSACHUSETTS 02266-
8200
TELEPHONE: (800) 341-2929
- -------------------------------
ALASKA AND HAWAII
CALL COLLECT: (713) 993-0500
ASK FOR CLOSED END FUND AC-
COUNT
SERVICES
- -------------------------------

23
<PAGE>

VAN KAMPEN AMERICAN CAPITAL INCOME TRUST

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