<PAGE>
VAN KAMPEN AMERICAN CAPITAL
INCOME TRUST
Annual Report
December 31, 1997
[PICTURE APPEARS HERE]
--A Wealth of knowledge . A knowledge of Wealth/sm/--
VAN KAMPEN AMERICAN CAPITAL
<PAGE>
Table of Contents
Letter to Shareholders.............................. 1
Performance Results................................. 5
Portfolio of Investments............................ 6
Statement of Assets and Liabilities................. 13
Statement of Operations............................. 14
Statement of Changes in Net Assets.................. 15
Financial Highlights................................ 16
Notes to Financial Statements....................... 18
Report of Independent Accountants................... 21
Dividend Reinvestment Plan.......................... 22
<PAGE>
Letter to Shareholders
February 5, 1998
Dear Shareholder,
The new year ushers in what promises to be an exciting and challenging time
for investors. The Taxpayer Relief Act of 1997 signed into law by President
Clinton in August creates many new opportunities for you and your family to take
a more active role in achieving your long-term financial goals.
Most Americans will benefit from the bill's $95 billion in tax cuts over
five years. The so-called "Kiddie Credit" gives parents $400 in immediate tax
relief for every child under age 17, and families will find it easier to save
for their children's college expenses with the new Education IRA. The bill also
cuts capital gains tax rates for the first time in over a decade and loosens
restrictions on tax-deductible IRA contributions. Perhaps the most exciting
feature of all is the new Roth IRA, which allows investment earnings to grow
tax-free, not just tax-deferred.
This year more than ever, it might be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. With the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
Economic Review
The bond market advanced during 1997, but its ascension wasn't smooth. Bond
prices fell early in the period as economic growth soared, fueling concerns
about rising inflation and a potential interest rate hike by the Federal Reserve
Board. When the Fed did raise interest rates a modest 0.25 percent in late
March, bond prices fell further, sending the yield of the 30-year U.S. Treasury
bond above 7.00 percent for the first time in six months. By mid-April, however,
the market's mood had changed. With few signs of inflation despite the
economy's strength, the yield on the 30-year Treasury bond slipped below 7.00
percent.
The bond market rallied during the second half of 1997, easing concerns
about future interest rate increases. Despite strong economic growth, there was
little evidence of inflation: consumer and wholesale prices rose only slightly
during the second half of the year.
In addition to a favorable inflation scenario, bonds reaped the benefits of
an improved supply-and-demand balance. The supply of new Treasury securities
declined as the federal budget deficit dropped to its lowest level in 23 years.
At the same time, the demand for Treasury issues among U.S. investors increased
amid growing concerns that the stock market rally was nearing an end. The seven-
percent slump in the Dow Jones Industrial Average on October 27 reinforced the
benefit of owning bonds for diversification. Foreign investors remained heavy
purchasers of U.S. Treasury bonds throughout the year. As a result of these
bullish factors, the yield on the 30-year Treasury dropped to 5.92 percent at
year-end.
Dennis J. McDonnell and Don G. Powell (Photo)
1 Continued on page two
<PAGE>
[PIE CHART APPEARS HERE]
Portfolio Composition by Credit Quality as of December 31, 1997*
BBB 1.3%
Other 1.0%
AAA, U.S. Govt. and Govt. Agency 42.9%
B 37.3%
BB 7.0%
Non-Rated 5.8%
CCC 4.7%
* As a Percentage of Long-Term Investments.
Based upon the highest credit quality ratings as issued by Standard & Poor's
or Moody's.
Portfolio Strategy
The Van Kampen American Capital Income Trust invests in a portfolio
comprised primarily of high yield, high risk corporate bonds and U.S. government
securities. As of year-end, approximately 55 percent of the Trust's long-term
investments were allocated to high yield investments including foreign bonds and
debt securities, and approximately 42 percent of long-term investments were
invested in Treasury and agency securities. This posture has enabled us to
achieve a moderate average credit rating with a higher blended yield and a more
stable net asset value.
High-yield investments drew strength from continued positive technical
conditions through the end of the year. Consistent demand was met with
continuing high levels of issuance, keeping the supply-and-demand fundamentals
of the industry in balance. In addition, the default rate for high yields stayed
at historical lows for the year. A robust economy provided a favorable
environment for companies with high-yield debt and helped to maintain an
extremely low default rate. High-yield bonds also benefited from heavy purchases
among retail and institutional investors, balancing the potentially negative
effects of a sharp buildup in supply.
In spite of this good news, high-yield securities intermittently
underperformed high-quality corporate bonds in the last few months of the year.
As the effects from the Asian crisis began to take hold, demand for high-yield
U.S. corporate bonds waned. Between late October and late November, the
difference between the yields of U.S. noninvestment-grade securities and long-
term Treasury bonds widen ed by 40 to 50 percentage points, indicating that U.S.
high-yield bonds underperformed Treasuries during that time.
We continued to focus on B-rated bonds in the Trust's corporate holdings,
as these securities offer more income than BB-rated bonds, although at a higher
credit risk. We maintained the Trust's weighting in B-rated bonds, with
approximately 39 percent at the beginning of the reporting period and
approximately 37 percent as of year-end. The Trust's largest non-federal sectors
at the end of the period were utilities, telecommunications, consumer services,
and consumer distribution.
2 Continued on page three
<PAGE>
Top Five Portfolio Industry Holdings by Sector*
As of
December 31, 1997
Raw Materials/Processing Industries.............. 10.1%
Consumer Services................................ 8.6%
Utilities........................................ 5.6%
Producer Manufacturing........................... 5.1%
Consumer Distribution............................ 4.1%
*As a Percentage of Long-Term Investments
Performance Summary
For the fiscal year ended December 31, 1997, the Trust generated a total
return of 16.97 percent. This performance reflects a gain in market price per
common share from $7.50 on January 1, 1997, to $8.00 on December 31, 1997, plus
reinvestment of dividends totaling $0.7225 per share. The dividend represents a
distribution rate of 8.06 percent/3/ based on the closing common stock price on
December 31, 1997. By comparison, the Lehman Brothers High Yield Index posted a
total return of 12.76 percent for the same period, and the Lehman Brothers
Government Index posted a 9.59 total return. These indices are broad-based,
unmanaged measures that reflect the general performance of high yield bond
securities and government securities. They do not include any commissions or
fees that an investor would actually have to pay in order to purchase the
securities it represents. Please refer to the chart below for additional
performance numbers.
[BAR CHART APPEARS HERE]
Twelve-month Dividend History
For the Period Ended December 31, 1997
<TABLE>
<CAPTION>
Dividend per Common Share
<S> <C>
Dividend
--------
Jan 97 $.05375
Feb 97 $.05375
Mar 97 $.05375
Apr 97 $.05375
May 97 $.05375
Jun 97 $.05375
Jul 97 $.05375
Aug 97 $.05375
Sep 97 $.05375
Oct 97 $.05375
Nov 97 $.05375
Dec 97 $.13125*
</TABLE>
*Includes Special Dividend of $.0775
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
3 Continued on page four
<PAGE>
Outlook
We expect the economy to remain strong going into 1998, although its growth
rate is likely to slow from current levels. The financial crisis in Southeast
Asia is expected to diminish U.S. exports to the region, which could trim the
earnings of many U.S. companies and reduce overall U.S. growth. As a result of
these factors, we believe there is little chance that the Fed will raise
interest rates in the near term, although a rate hike remains a possibility if
inflation picks up or if growth continues at its brisk pace. We anticipate the
yield on the 30-year Treasury bond to remain at its current level in the coming
months, possibly declining further later in 1998.
We will continue to monitor events in Asia and other market developments in
order to assess their effects on the portfolio. At this time, we do not
anticipate making any major changes to the portfolio until market conditions
shift more dramatically. We will continue to seek a balance between the Trust's
total return and its dividend income, and look to add value through careful
security selection. Thank you for your continued confidence and trust in 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.
4 Please see footnotes on page five
<PAGE>
Performance Results for the Year Ended December 31, 1997
Van Kampen American Capital Income Trust
NYSE Ticker Symbol -- ACD
Common Share Total Returns
One-year total return based on market price/1/...................... 16.97%
One-year total return based on NAV/2/............................... 11.32%
Distribution Rate
Distribution rate as a % of closing common stock price/3/........... 8.06%
Share Valuations
Net asset value..................................................... $ 8.05
Closing common stock price.......................................... $ 8.000
One-year high common stock price (11/19/97)......................... $ 8.125
One-year low common stock price (10/28/97).......................... $ 7.3125
/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. This
performance was achieved during generally rising stock prices. Fund shares, when
sold, may be worth more or less than their original cost.
5
<PAGE>
<TABLE>
Portfolio of Investments
December 31, 1997
====================================================================================================
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic Corporate Bonds 47.5%
Consumer Distribution 4.0%
500 Big 5 Corp., 144A - Private Placement (b).......... 10.875% 11/15/07 $ 497,500
500 Brylane Capital Corp............................... 10.000 09/01/03 530,625
550 Finlay Enterprises, Inc. (a)....................... 0/12.000 05/01/05 539,000
1,000 Jitney Jungle Stores America, Inc., 144A -
Private Placement (b).............................. 10.375 09/15/07 1,035,000
239 Pantry, Inc........................................ 12.500 11/15/00 256,925
1,250 Pathmark Stores, Inc. (a).......................... 0/10.750 11/01/03 656,250
500 Pathmark Stores, Inc............................... 12.625 06/15/02 415,000
500 Shoppers Food Warehouse Corp., 144A -
Private Placement (b).............................. 9.750 06/15/04 511,250
500 Southern Foods Group LP, 144A -
Private Placement (b).............................. 9.875 09/01/07 522,500
----------
4,964,050
----------
Consumer Durables 3.1%
300 Aetna Industries, Inc.............................. 11.875 10/01/06 270,000
500 MCII Holdings USA, Inc. (a)........................ 0/12.000 11/15/02 457,500
750 MDC Holdings, Inc.................................. 11.125 12/15/03 825,000
750 Oriole Homes Corp.................................. 12.500 01/15/03 716,250
250 UDC Homes, Inc., Ser B............................. 12.500 05/01/00 255,000
250 United Auto Group, Inc., 144A -
Private Placement (b).............................. 11.000 07/15/07 247,500
1,000 Venture Holdings, lnc.............................. 9.750 04/01/04 985,000
----------
3,756,250
----------
Consumer Non-Durables 3.6%
850 Consoltex Group, lnc............................... 11.000 10/01/03 896,750
500 Curtice Burns Foods, Inc........................... 12.250 02/01/05 551,250
1,000 Dan River, Inc..................................... 10.125 12/15/03 1,065,000
300 Del Monte Corp..................................... 12.250 04/15/07 339,000
750 Drypers Corp., Ser B............................... 10.250 06/15/07 759,375
500 Signature Brands, Inc.............................. 13.000 08/15/02 542,500
250 Signature Brands, Inc.............................. 13.000 08/15/02 267,500
----------
4,421,375
----------
Consumer Services 8.4%
250 Americredit Corp................................... 9.250 02/01/04 247,500
750 Booth Creek Ski Holdings, Inc., Ser B.............. 12.500 03/15/07 735,000
250 Busse Broadcasting Corp............................ 11.625 10/15/00 267,500
750 Capstar Broadcasting Partners (a).................. 0/12.750 02/01/09 541,875
6 See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
Portfolio of Investments (Continued)
December 31, 1997
====================================================================================================
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Services 8.4% (Continued)
500 Casino Magic Louisiana Corp., Ser B............... 13.000% 08/15/03 $ 480,000
500 Echostar Communications Corp. (a)................. 0/12.875 06/01/04 457,500
200 Fox Kids Worldwide, Inc., 144A -
Private Placement (b)............................. 9.250 11/01/07 194,000
1,250 Frontiervision Holdings LP, 144A -
Private Placement (a)(b).......................... 0/11.875 09/15/07 918,750
500 Hollywood Theaters, Inc., 144A -
Private Placement (b)............................. 10.625 08/01/07 532,500
1,000 IHF Holdings, Inc (a)............................. 0/15.000 11/15/04 870,000
250 International Cabletel, Inc. (a).................. 0/12.750 04/15/05 208,125
500 Knology Holdings, Inc., 144A -
Private Placement (a)(b).......................... 0/11.875 10/15/07 267,500
750 Krystal Co., 144A - Private Placement............. 10.250 10/01/07 768,750
500 Livent, Inc., 144A - Private Placement............ 9.375 10/15/04 500,000
1,225 Majestic Star Casino.............................. 12.750 05/15/03 1,313,812
750 Mohegan Tribal Gaming Authority
of Connecticut.................................... 13.500 11/15/02 960,000
500 SFX Broadcasting, Inc............................. 10.750 05/15/06 550,000
500 Tele Communications, Inc.......................... 9.250 01/15/23 556,250
-----------
10,369,062
-----------
Energy 2.2%
1,000 Deeptech International, Inc....................... 12.000 12/15/00 1,062,500
500 KCS Energy, lnc................................... 11.000 01/15/03 545,000
500 Kelley Oil & Gas Partners......................... 7.875 12/15/99 485,000
575 Petroleum Heat & Power, Inc....................... 12.250 02/01/05 563,500
-----------
2,656,000
-----------
Finance 1.3%
1,250 Americo Life, Inc................................. 9.250 06/01/05 1,281,250
250 Superior National Insurance Group, Inc., 144A -
Private Placement (b)............................. 10.750 12/01/17 256,250
-----------
1,537,500
-----------
Healthcare 0.9%
500 Maxxim Medical, Inc., 144A - Private Placement (b) 10.500 08/01/06 544,375
500 Paragon Health Network, Inc., 144A -
Private Placement (a)(b).......................... 0/10.500 11/01/07 308,750
250 Urohealth Systems, Inc., 144A -
Private Placement (b)............................. 12.500 04/01/04 237,500
-----------
1,090,625
-----------
7 See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1997
==============================================================================================================
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Producer Manufacturing 4.9%
500 Communications Instruments, Inc., 144A -
Private Placement (b)........................... 10.000% 09/15/04 $ 508,750
750 GS Technologies Operating, Inc.................. 12.000 09/01/04 820,313
810 IMO Industries, Inc............................. 11.750 05/01/06 895,050
250 Interlake Corp.................................. 12.000 11/15/01 275,000
1,000 Interlake Corp.................................. 12.125 03/01/02 1,030,000
500 International Knife & Saw, Inc., 144A
Private Placement (b)........................... 11.375 11/15/06 541,250
1,400 Marcus Cable Co. (a)............................ 0/14.250 12/15/05 1,214,501
500 Terex Corp...................................... 13.250 05/15/02 571,250
250 Waxman Industries, Inc., Ser B (a).............. 0/12.750 06/01/04 226,250
-----------
6,082,364
-----------
Raw Materials/Processing Industries 9.8%
500 American Architecture Products, 144A -
Private Placement (b)........................... 11.750 12/01/07 505,000
500 Dyersburg Corp., 144A - Private Placement....... 9.750 09/01/07 523,750
750 Gaylord Container Corp., Ser B. 144A -
Private Placement (b)........................... 9.750 06/15/07 723,750
250 Hydrochem Industrial Services, Inc., Ser B...... 10.375 08/01/07 258,125
500 INDSPEC Chemical Corp. (a)...................... 0/11.500 12/01/03 495,000
750 Insilco Corp.................................... 10.250 08/15/07 787,500
1,000 Intermedia Communications, Inc. (a)............. 0/11.250 07/15/07 712,500
1,000 International Cabletel, Inc. (a)................ 0/12.750 02/01/06 780,000
500 IXC Communications Inc.......................... 12.500 10/01/05 577,500
950 Mail-Well Envelope Corp......................... 10.500 02/15/04 1,018,875
750 Northland Cable Television, Inc., 144A -
Private Placement (b)........................... 10.250 11/15/07 790,312
250 Pantry Inc...................................... 10.250 10/15/07 256,875
840 Pioneer Americas Acquisition, Ser B............. 9.250 06/15/07 844,200
250 Plastic Specialties & Technologies, Inc......... 11.250 12/01/03 271,563
1,000 Printpack, Inc., 144A - Private Placement (b)... 10.625 08/15/06 1,062,500
250 Radnor Holdings Corp............................ 10.000 12/01/03 260,000
750 Radnor Holdings Corp., Ser B. 144A -
Private Placement (b)........................... 10.000 12/01/03 780,000
</TABLE>
8 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1997
=============================================================================================================
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Raw Materials/Processing Industries 9.8% (Continued)
500 Scoville Fasteners, Inc., 144A -
Private Placement (b)............................ 11.250% 11/30/07 $ 510,000
200 Transport World Airlines, Inc. 144A -
Private Placement (b)............................ 11.500 12/15/04 200,500
667 United Stationers Supply Co...................... 12.750 05/01/05 758,712
-----------
12,116,662
-----------
Technology 1.2%
320 ComputerVision Corp.............................. 11.375 08/15/99 322,400
1,000 Crown Castle International Corp., 144A -
Private Placement (a)(b)......................... 0/10.625 11/15/07 625,000
500 Dictaphone Corp.................................. 11.750 08/01/05 485,000
-----------
1,432,400
-----------
Transportation 2.6%
500 Atlas Air, Inc................................... 10.750 08/01/05 527,500
1,000 Greyhound Lines, Inc., Ser B..................... 11.500 04/15/07 1,105,000
250 Moran Transport Co............................... 11.750 07/15/04 277,500
750 Physician Sales & Service, Inc., 144A -
Private Placement (b)............................ 8.500 10/01/07 765,000
250 Sea Containers................................... 12.500 12/01/04 282,500
300 Trism, Inc....................................... 10.750 12/15/00 291,000
-----------
3,248,500
-----------
Utilities 5.5%
250 AES Corp......................................... 10.250 07/15/06 270,000
55 GST Telecommunciations, Inc., 144A -
Private Placement (a)(b)......................... 0/13.875 12/15/05 59,972
940 GST USA, Inc. (a)................................ 0/13.875 12/15/05 723,800
250 Intermedia Communications of Florida, Inc. (a)... 0/12.500 05/15/06 196,250
250 Metronet Communications Corp., 144A -
Private Placement (b)............................ 12.000 08/15/07 287,500
500 Optel, Inc., Ser B, 144A - Private Placement (b). 13.000 02/15/05 517,500
500 Pegasus Commerce, 144A -
Private Placement (b)............................ 9.625 10/15/05 510,000
1,000 Price Communications Cellular Unit (a)........... 0/13.500 08/01/07 640,000
1,250 Price Communications Wireless, 144A -
Private Placement (b)............................ 11.750 07/15/07 1,356,250
</TABLE>
9 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1997
====================================================================================================
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities 5.5% (Continued)
750 Pricellular Wireless Corp. (a)...................... 0/12.250% 10/01/03 $ 759,375
125 Primus Telecommunications Group..................... 11.750 08/01/04 133,750
1,045 Teleport Communications Group (a)................... 0/11.125 07/01/07 856,900
250 Telesystem International Wireless, Inc., 144A -
Private Placement (b)............................... 10.500 11/01/07 138,750
500 Telesystem International Wireless, Inc., 144A -
Private Placement (a) (b)........................... 0/13.250 06/30/07 312,500
-----------
6,762,547
-----------
Total Domestic Corporate Bonds...................... 58,437,335
-----------
Foreign Bonds and Debt Securities 7.3%
Bermuda 0.2%
250 Pegasus Shipping Hellas, 144A -
Private Placement (US $) (b)........................ 11.875 11/15/04 247,500
-----------
Brazil 1.2%
500 Multicanal Participacoes (US $)..................... 12.625 06/18/04 515,000
500 Klabin Fabricadora De Papel, 144A Private
Placement (US $) (b)................................ 11.000 08/12/04 487,500
500 Mrs Logistica, Ser B. 144A -
Private Placement (US $) (b)........................ 10.625 08/15/05 455,000
-----------
1,457,500
-----------
Canada 1.0%
750 Pacalta Resources, Ser B (US $)..................... 10.750 06/15/04 727,500
500 Fonorola, Inc. (US $)............................... 12.500 08/15/02 557,500
-----------
1,285,000
-----------
Israel 1.1%
1,400 Indah Kiat International Finance Co. BV (US $)...... 11.875 06/15/02 1,344,000
-----------
Ireland 0.3%
600 Barak I.T.C. International, 144A -
Private Placement (US $) (a)(b)..................... 0/12.500 11/15/07 339,000
-----------
Luxembourg 0.5%
750 Millicom International Cellular (US $) (a).......... 0/13.500 06/01/06 549,375
-----------
Mexico 1.0%
250 Viacap Sa De Cv, 144A - Private Placement
(US $) (b).......................................... 11.375 05/15/07 267,500
500 Grupo Televisa Corp. (US $) (a)..................... 0/13.250 05/15/08 376,250
</TABLE>
10 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1997
=======================================================================================================================
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mexico 1.0% (Continued)
250 Altos Hornos De Mexico, Ser A (US $)................ 11.375% 04/30/02 $ 258,750
250 Grupo Industrial Durango (US $)..................... 12.625 08/01/03 279,062
-----------
1,181,562
-----------
Netherlands 0.2%
500 Netia Holdings B V, 144A -
Private Placement (US $) (a) (b).................... 0/11.250 11/01/07 285,000
-----------
Sweden 0.4%
500 Stena AB (US $)..................................... 10.500 12/15/05 543,750
-----------
United Kingdom 1.4%
1,000 Diamond Cable Co. (US $) (a)........................ 0/13.250 09/30/04 902,500
1,000 Telewest PLC (US $) (a)............................. 0/11.000 10/01/07 777,500
-----------
1,680,000
-----------
Total Foreign Bonds and Debt Securities............................................. 8,912,687
-----------
U.S. Government and Government Agency Obligations 41.8%
3,000 Federal Farm Credit Banks
Medium Term Note.................................... 5.425 09/15/03 2,920,050
5,545 Government National Mortgage
Association Pool.................................... 7.500 07/15/23 - 08/15/23 5,680,911
5,763 Government National Mortgage
Association Pool.................................... 8.000 03/15/17 - 10/15/22 5,981,026
2,254 Government National Mortgage
Association Pool.................................... 8.500 01/15/23 - 12/15/24 2,367,792
5,759 Government National Mortgage
Association Pool.................................... 9.000 05/15/16 - 12/15/24 6,168,940
1,113 Government National Mortgage
Association Pool.................................... 9.500 11/15/09 - 06/15/20 1,201,698
2,500 U.S. T-Bonds........................................ 7.250 05/15/16 2,846,875
3,000 U.S. T-Bonds........................................ 7.500 11/15/16 3,501,090
11,500 U.S. T-Bonds........................................ 8.875 02/15/19 15,393,785
5,000 U.S. T-Notes........................................ 7.000 07/15/06 5,397,650
-----------
Total U.S. Government and Government Agency Obligations........................................ 51,459,817
-----------
Equities 1.0%
American Telecasting, Inc. (250 Common Stock Warrants) (c)................................................ 2,500
Dairy Mart Convenience Stores, Inc. (1,666 Common Stock Warrants) (c)..................................... 833
FF Holdings Corp. (7,500 Common Shares) (c)............................................................... 75
</TABLE>
11 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1997
================================================================================
Par
Amount
in Local
Currency
(000) Description Market Value
- --------------------------------------------------------------------------------
<S> <C>
Equities 1.0% (Continued)
Finlay Enterprises, Inc. (400 Common Shares) (c).................. $ 9,100
Nextlink Communications (10,350 Preferred Shares) (d)............. 646,875
Optel, Inc., Ser B (500 Common Shares) (c)........................ 5
Supermarkets General Holdings Corp. (26,550 Preferred
Shares) (c)(d).................................................. 265,500
Time Warner, Inc. (297 Preferred Shares) (d)...................... 333,383
------------
Total Equities.................................................... 1,258,271
------------
Total Long-Term Investments 97.6%
(Cost $116,509,561).......................................... 120,068,110
Repurchase Agreement 1.0%
BA Securities ($1,235,000 par collateralized by U.S Government
obligations in a pooled cash account, dated 12/31/97, to be
sold on 01/02/98 at $1,235,446)................................. 1,235,000
------------
Total Investments 98.6%
(Cost $117,744,561).......................................... 121,303,110
Other Assets in Excess of Liabilities 1.4%........................ 1,779,152
------------
Net Assets 100.0%................................................ $123,082,262
------------
(a) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(b) 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.
(c) Non-Income producing security.
(d) Payment-in-kind security.
12 See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1997
================================================================================
<S> <C>
Assets:
Total Investments (Cost $117,744,561)........................... $121,303,110
Cash............................................................ 3,158
Interest Receivable............................................. 2,064,906
Other........................................................... 58,884
------------
Total Assets............................................... 123,430,058
------------
Liabilities:
Payables:
Income Distributions......................................... 170,741
Investment Advisory Fee...................................... 68,125
Administrative Fee........................................... 10,481
Affiliates................................................... 5,939
Trustees' Retirement Plan....................................... 76,996
Accrued Expenses................................................ 15,514
------------
Total Liabilities.......................................... 347,796
------------
Net Assets...................................................... $123,082,262
============
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..................................... 3,558,549
Accumulated Distributions in Excess of Net Investment Income.... (560,862)
Accumulated Net Realized Loss................................... (21,051,808)
------------
Net Assets...................................................... $123,082,262
============
Net Asset Value Per Common Share
($123,082,262 divided by 15,290,019 shares outstanding)...... $ 8.05
============
13 See Notes to Financial Statements
</TABLE>
<PAGE>
Statement of Operations
For the Year Ended December 31, 1997
==================================================================
Investment Income:
Interest........................................... $ 11,052,357
Dividends.......................................... 199,658
-------------
Total Income..................................... 11,252,015
-------------
Expenses:
Investment Advisory Fee............................ 792,130
Administrative Fee................................. 121,866
Shareholder Services............................... 24,514
Trustees' Fees and Expenses........................ 20,485
Custody............................................ 16,686
Legal.............................................. 8,489
Other.............................................. 129,372
-------------
Total Expenses................................... 1,113,542
-------------
Net Investment Income.............................. $ 10,138,473
=============
Realized and Unrealized Gain/Loss:
Net Realized Gain.................................. $ 2,352,790
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period.......................... 3,115,846
End of the Period................................ 3,558,549
-------------
Net Unrealized Appreciation During the Period...... 442,703
-------------
Net Realized and Unrealized Gain................... $ 2,795,493
=============
Net Increase in Net Assets From Operations......... $ 12,933,966
=============
See Notes to Financial Statements
14
<PAGE>
Statement of Changes in Net Assets
For the Year Ended December 31, 1997
=============================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income....................... $ 10,138,473 $ 10,065,874
Net Realized Gain........................... 2,352,790 365,147
Net Unrealized Appreciation/Depreciation
During the Period........................ 442,703 (535,930)
----------------- -----------------
Change in Net Assets from Operations........ 12,933,966 9,895,091
Distributions from Net Investment Income.... (11,047,048) (10,111,059)
----------------- -----------------
Net Change in Net Assets from
Investment Activities..................... 1,886,918 (215,968)
Net Assets:
Beginning of the Period..................... 121,195,344 121,411,312
----------------- -----------------
End of the Period (Including accumulated
undistributed net investment income of
$(560,862) and $347,713, respectively).... $ 123,082,262 $ 121,195,344
================= =================
</TABLE>
See Notes to Financial Statements
15
<PAGE>
Financial Highlights
The following schedule presents financial highlights for one common share of the
Fund outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
--------------------------------------------------------
1997 1996 1995 1994
===============================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value:
Beginning of the Period............................ $ 7.926 $ 7.94 $ 7.28 $ 8.15
--------- -------- -------- --------
Net Investment Income.............................. .663 .658 .65 .65
Net Realized and Unrealized Gain/Loss.............. .183 (.011) .655 (.8577)
--------- --------- -------- --------
Total from Investment Operations..................... .846 .647 1.305 (.2077)
--------- --------- -------- --------
Less:
Distributions from Net Investment Income........... .722 .661 .645 .6623
Distributions from Net Realized Gains.............. -- -- -- --
--------- -------- -------- --------
Total Distributions.................................. .722 .661 .645 .6623
--------- -------- -------- --------
Net Asset Value, End of the Period................... $ 8.050 $ 7.926 $ 7.94 $ 7.28
========= ========= ======= ========
Market Price Per Share at End of
the Period........................................ $ 8.000 $ 7.500 $ 7.250 $ 6.500
Total Investment Return at Market
Price (a) (c)..................................... 16.97% 12.95% 21.83% (8.06)%
Total Return at Net Asset Value (b) (c).............. 11.32% 8.61% 19.13% (2.08)%
Net Assets at End of the Period
(In millions)..................................... $ 123.1 $ 121.2 $ 121.4 $ 111.4
Ratio of Operating Expenses to Average
Net Assets........................................ .91% 1.00% .94% .96%
Ratio of Net Investment Income to
Average Net Assets................................ 8.32% 8.40% 8.50% 7.94%
Portfolio Turnover................................... 55% 36% 34% 45%
Average Commission Paid Per Equity
Share Traded (d).................................. $ .0625 -- -- --
</TABLE>
* Non-Annualized.
(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.
(d) Represents the average brokerage commission paid per equity share traded
during the period for trades where commissions were applicable. This
disclosure was not required in fiscal years prior to 1996.
16
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================
April 2, 1988
(Commencement
of Investment
Operations) to
Year Ended December 31, December 31,
- ------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 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
17
<PAGE>
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen American Capital Income Trust (the "Fund") is registered as a
diversified 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
preparation 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 assets 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
valued 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
available are valued at the last reported bid price. For those securities where
quotations 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 days or less are valued at amortized
cost.
Fund investments include lower-rated debt securities which may be more
susceptible 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, 1997, debt securities rated below investment
grade and comparable unrated securities represented approximately 55% of the
long-term investment portfolio.
B. Security Transactions--Security transactions are recorded on a trade date
basis. 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
aggregate value at least equal to the amount of the when issued or delayed
delivery purchase commitments until payment is made. At December 31, 1997, there
were no when-issued or delayed delivery purchase commitments.
The Fund may invest in repurchase agreements, which are short-term
investments whereby the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a
18
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
future time and specified price. The Fund may invest independently in repurchase
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
dividend 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.
D. Federal Income Taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The 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 capital
gains. At December 31, 1997, the Fund had an accumulated capital loss
carryforward for tax purposes of $20,007,721 which will expire between December
31, 1998 and December 31, 2003. Of this amount, $7,854,715 will expire on
December 31, 1998. 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.
At December 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $117,744,561, the aggregate gross unrealized
appreciation is $5,175,945 and the aggregate gross unrealized depreciation is
$1,617,396, resulting in net unrealized appreciation of $3,558,549.
E. Distribution of Income and Gains--The Fund declares and pays monthly
dividends from net investment income to shareholders. 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
included in ordinary income for tax purposes.
19
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
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
Distributors, Inc.'s or its affiliates' (collectively "VKAC"), the Fund's
Administrator, 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
keeping and reporting responsibilities with respect to the Fund's portfolio and
providing certain services to shareholders.
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $21,300 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 retirement
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.
At the Annual Meeting of Shareholders held on December 18, 1997, seven new
trustees and one incumbent trustee were elected to replace the seven trustees
that resigned, with the effective date of their resignation being December 31,
1997. In connection with their resignation from services as trustee of the
Fund, each resigning trustee will receive the vested portion of their retirement
benefits under the Fund's retirement plan. In addition, in recognition of their
years of service, VKAC will pay each resigning trustee an amount equal to the
non-vested portion of their retirement benefits. These retirement benefits are
being paid in lieu of receiving benefit payments over a ten-year period and will
not be paid to a resigning trustee who is an affiliated person of the Adviser.
3. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $64,832,814 and $66,836,088,
respectively.
20
<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, including
the investment portfolio of Van Kampen American Capital Income Trust, as of
December 31, 1997, 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 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
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen American Capital Income Trust at December 31, 1997, 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 accepted
accounting principles.
ERNST & YOUNG LLP
Houston, Texas
February 4, 1998
21
<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
distribution 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 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 does not relieve you of any income tax
which may be payable (or required to be withheld) on dividends or
distributions.
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 the required 100 shares. 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 practicable 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
commissions. 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
reserves 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
termination 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.
22
<PAGE>
Results of Shareholder Votes
The Annual Meeting of Shareholders of the Trust was held on December 18,
1997, where shareholders voted on the election of Trustees whose terms expired
in 1997 and independent public accountants.
1. With regard to the election of the following Trustees by the common
shareholders of the Trust:
# of Shares
--------------------
In Favor Withheld
=========================================================
David C. Arch...................... 9,301,327 108,080
Rod Dammeyer....................... 9,300,327 109,080
Howard J. Kerr..................... 9,299,727 109,680
Dennis J. McDonnell................ 9,301,327 108,080
Steven Muller...................... 9,299,727 109,680
Theodore A. Myers.................. 9,299,727 109,680
Hugo F. Sonnenshein................ 9,299,727 109,680
Wayne W. Whalen.................... 9,301,327 108,080
2. With regard to the ratification of Ernst & Young LLP as independent public
accountants for the Trust, 9,298,279 shares voted in favor of the proposal,
37,271 shares voted against and 75,856 shares abstained.
23
<PAGE>
Van Kampen American Capital Income Trust
<TABLE>
<S> <C>
Board of Trustees Investment Adviser
David C. Arch Van Kampen American Capital
Rod Dammeyer Asset Management, Inc.
Howard J Kerr One Parkview Plaza
Dennis J. McDonnell* -- Chairman Oakbrook Terrace, Illinois 60181
Steven Muller
Theodore A. Myers Custodian
Hugo F. Sonnenschein State Street Bank and Trust Co.
Wayne W. Whalen 225 Franklin Street
Boston, Massachusetts 02105
Officers
Dennis J. McDonnell* Shareholder Servicing Agent
President Boston EquiServe LP
Ronald A. Nyberg* P.O. Box 8200
Vice President and Secretary Boston, Massachusetts 02266-8200
Edward C. Wood, III*
Vice President and Chief Financial Officer Legal Counsel
Curtis W. Morell* Sullivan & Worcester LLP
Vice President and Chief Accounting Officer 1025 Connecticut Ave, NW
John L. Sullivan* Washington, DC 20036
Treasurer
Tanya M. Loden* Independent Accountants
Controller Ernst & Young LLP
Peter W. Hegel* 1221 McKinney Suite 2400
Vice President Houston, Texas 77010
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
/c/ Van Kampen American Capital Distributors, Inc., 1998
All rights reserved.
SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.
Tax Notice to Corporate Inquiries about an investor's account should be
Shareholders referred to the fund's transfer agent:
For 1997, 1.86% of the dividends taxable as
ordinary income qualified for the 70% dividends Boston EquiServe LP
received deduction for corporations. 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 account services
</TABLE>
24
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
25
<PAGE>
Van Kampen American Capital Distributors, Inc. Bulk Rate
One Parkview Plaza U.S. Postage
Oakbrook Terrace, Illinois 60181 PAID
VAN KAMPEN
AMERICAN CAPITAL
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> INCOME TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 117,744,561
<INVESTMENTS-AT-VALUE> 121,303,110
<RECEIVABLES> 2,064,906
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 62,042
<TOTAL-ASSETS> 123,430,058
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 347,796
<TOTAL-LIABILITIES> 347,796
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,136,383
<SHARES-COMMON-STOCK> 15,290,019
<SHARES-COMMON-PRIOR> 15,290,019
<ACCUMULATED-NII-CURRENT> (560,862)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (21,051,808)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,558,549
<NET-ASSETS> 123,082,262
<DIVIDEND-INCOME> 199,658
<INTEREST-INCOME> 11,052,357
<OTHER-INCOME> 0
<EXPENSES-NET> (1,113,542)
<NET-INVESTMENT-INCOME> 10,138,473
<REALIZED-GAINS-CURRENT> 2,352,790
<APPREC-INCREASE-CURRENT> 442,703
<NET-CHANGE-FROM-OPS> 12,933,966
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,047,048)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,886,918
<ACCUMULATED-NII-PRIOR> 347,713
<ACCUMULATED-GAINS-PRIOR> (23,404,598)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 792,130
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,113,542
<AVERAGE-NET-ASSETS> 121,872,624
<PER-SHARE-NAV-BEGIN> 7.926
<PER-SHARE-NII> 0.663
<PER-SHARE-GAIN-APPREC> 0.183
<PER-SHARE-DIVIDEND> (0.722)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.050
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
