<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 6
Portfolio of Investments......................... 7
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
Dividend Reinvestment Plan....................... 19
</TABLE>
VIT SAR 8/97
<PAGE> 2
LETTER TO SHAREHOLDERS
August 4, 1997
Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan
Stanley Group Inc., a world leader in
asset management. On February 5,
1997, Morgan Stanley Group Inc. and [PHOTO]
Dean Witter, Discover & Co. agreed to
merge; the merger was completed on
May 31, creating the combined company
of Morgan Stanley, Dean Witter,
Discover & Co. This preeminent global DENNIS J. MCDONNELL AND DON G.POWELL
financial services firm boasts a
market capitalization of $21 billion
and leading market positions in securities, asset management, and credit
services. Additionally, I am very pleased to announce that Philip N. Duff,
formerly the chief financial officer of Morgan Stanley, has joined Van Kampen
American Capital as president and chief executive officer. I will continue as
chairman of the firm.
As the financial industry continues to witness unprecedented consolidations
and new partnerships, we believe that those firms who are leaders in all facets
of their business will be able to offer investors the greatest opportunities and
services as we move into the next century. We are confident that these changes
will continue to work to the benefit of our fund shareholders as we move into
the next century.
Another change that we believe will benefit shareholders is the elimination
of the Trust's February 1, 1999, termination date. Without a fixed maturity
date, the Trust will be able to hold onto its long-term assets more easily and
maintain its ability to generate relatively high dividends. As a result of this
change, the Intermediate Term High Income Trust has been renamed the High Income
Trust. The New York Stock Exchange symbol (VIT) will remain the same.
ECONOMIC REVIEW
Bond prices were volatile during the six months ended June 30. Initially,
prices fell as the economy rebounded, culminating at a 4.9 percent pace in GDP
in the first quarter. This strength, coupled with warnings by Federal Reserve
Board chairman Alan Greenspan that tighter monetary policy might be appropriate,
reignited fears of a rate hike. Then, on March 25, the Fed raised short-term
rates a modest quarter percentage point, a hike that market participants viewed
as the first of many. As a result, the 30-year Treasury bond's yield, which
moves in the opposite direction of its price, jumped above 7 percent for the
first time in six months.
By the end of April, the bond market turned its attention to a succession of
positive news about inflation and signs that economic growth had moderated. This
view was reinforced by the Fed's decision not to raise rates again when its
policymakers met in
Continued on page two
1
<PAGE> 3
May. The yield on the 30-year Treasury bond stood at 6.79 percent by the end of
June, up slightly from 6.64 percent at the end of December but down sharply from
the 7.17 percent high reached in mid-April.
High-yield corporate bonds outperformed Treasury securities and
investment-grade corporate bonds throughout the first half of 1997. A vigorous
economy and decline in the number of corporate bond defaults contributed to
their strong performance. In addition, heavy cash flows from retail and
institutional investors into high yield mutual funds more than offset the
potentially negative effects of a surge in supply. When interest rates rose in
March, the higher level of income generated by these bonds cushioned any decline
in their principal value. Within the non-investment-grade sector,
higher-yielding B-rated and CCC-rated bonds outperformed BB-rated bonds.
FUND STRATEGY
We maintained a portfolio heavily weighted in non-investment-grade U.S.
corporate bonds. As of June 30, approximately 36 percent of the Trust's assets
were BB-rated, which is the highest quality rating within the
non-investment-grade category, 54 percent were B-rated, and 3 percent were
non-rated. Because non-investment-grade bonds tend to pay higher yields than
investment-grade bonds, they usually have outperformed high-quality securities
when interest rates rise. The additional income they generate may help
compensate for some of the decline in principal value due to rising rates. These
bonds also have tended to perform well when economic growth accelerates, because
this improves prospects for their credit quality.
We maintain a relatively large number of BB-rated holdings, despite their
lower yield levels as compared to B-rated issues. Because the Trust is exposed
to additional market rate risk due to its leveraged structure, we believe its
holdings should be relatively defensive. Using leverage, the Trust borrows
short-term funds to purchase long-term securities, thereby providing
above-market levels of dividend income to common shareholders. It should be
noted, however, that a rise in short-term rates would have an unfavorable effect
on the dividend-paying ability of the common shares and could negatively impact
the share price.
The remaining assets of the Trust were investment grade. Approximately 2
percent of long-term investments were rated A to AAA, and 5 percent were
BBB-rated, the lowest rating in the investment-grade category. The relatively
large position in short-term investments on June 30 was a result of tender
offers and calls by issuers who chose to retire high-yielding debt. Most of the
tenders and calls occurred in May, when about 15 percent of the Trust's gross
assets were retired prematurely. Companies were able to retire bonds early
because, within a favorable economic environment, they had access to other less
expensive financing options, such as bank loans and new stock issuance. Looking
ahead, we hope to reinvest the Trust's cash holdings in non-investment-grade
bonds similar to those currently held in the portfolio.
Continued on page three
2
<PAGE> 4
[CREDIT QUALIFY GRAPH]
Portfolio Composition by Credit Quality
as of June 30, 1997*
<TABLE>
<S> <C>
A.............. 1.5%
BBB............ 5.0%
BB............. 36.1%
B.............. 54.4%
Non-Rated...... 3.0%
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's
During the six months ended June 30, trading was limited because market
conditions offered few opportunities to add value over existing holdings. The
average yield of bonds in the portfolio was higher than market yields, and the
difference between the yields of B-rated and BB-rated securities was narrow
compared to historical spreads. As a result, there often was not enough reward
to justify the additional credit risk of purchasing securities rated B or lower.
Purchases were selectively chosen by our research team and focused on bonds
with the potential to outperform other securities. Purchases included Aetna
Industries, a small auto-parts manufacturer, and CapStar Broadcasting, a radio
broadcast company. Sales focused on bonds whose issuers were experiencing
earnings shortfalls, including Speedy Muffler King and Loehmann's Corp. Both
bonds were sold at premium prices.
The Trust's portfolio remains well-diversified in its industry weightings.
Among its leading sectors are telecommunications, oil and gas drilling and
servicing, and printing and publishing.
As of June 30, the average duration of the Trust, which is a measure of its
sensitivity to changing interest rates, was 2.65 years, and the average maturity
of its assets was 5.50 years. Our goal is to lengthen the duration and maturity
of the Trust gradually over time to in order to seek to enhance its
income-earning ability. The elimination of the Trust's February 1, 1999,
termination date, which was approved by the Board of Directors following
shareholder approval in October, allows us the opportunity to accomplish that
goal.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR* AS OF JUNE 30, 1997
<TABLE>
<S> <C>
Printing/Publishing................................ 12.8%
Oil & Gas.......................................... 11.3%
Telecommunications................................. 8.5%
Buildings/Real Estate.............................. 6.1%
Hotel, Motel, Inns & Gaming........................ 5.2%
</TABLE>
*As a Percentage of Long-Term Investments
Continued on page four
3
<PAGE> 5
PERFORMANCE SUMMARY
For the six-month period ended June 30, 1997, the Trust generated a total
return of 13.82 percent(1). This reflects a gain in market price per common
share from $6.750 on December 31, 1996, to $7.3125 on June 30, 1997, plus
reinvestment of dividends totaling $.3510 per common share. Based upon the
monthly dividend of $.0585 per share and the closing common stock price on June
30, 1997, the Trust generated a distribution rate of 9.60 percent(3). The
Trust's preferred share costs increased moderately due to the rise in short-term
interest rates.
[DIVIDEND HISTORY GRAPH]
Six-month Dividend History
For the Period Ended June 30, 1997
<TABLE>
<CAPTION>
Distribution per Common Share
<S> <C>
Jan 1997....................... $.0585
Feb 1997....................... $.0585
Mar 1997....................... $.0585
Apr 1997....................... $.0585
May 1997....................... $.0585
Jun 1997....................... $.0585
</TABLE>
The dividend history represents past performance of the Trust and does
not perdict the Trust's future distributions.
OUTLOOK
We continue to see strength in the economy, but we do not believe that the
4.9 percent growth pace of the first quarter will be repeated in the final
quarters of this year. While labor productivity and manufacturing remained
strong in the second quarter, retail sales fell, and the unemployment rate,
which had slipped below 5.0 percent in April and May, edged up to that level in
June.
We expect that growth will accelerate again during the second half of the
year because the economy's strong underlying fundamentals remain intact,
including consumer confidence, job growth, and moderate inflation. As a result,
we believe the Federal Reserve may not raise rates again before year end. Given
this outlook, we expect the yield on the 30-year Treasury bond will range
between 6.25 and 6.75 percent for the remainder of the year.
We believe that the Trust's heavy weighting of relatively high quality
noninvestment-grade bonds and its relatively short average maturity should aid
in limiting future volatility stemming from changing market conditions. In
addition, the Trust is well-diversified among different securities and different
market sectors. We do not anticipate making any major adjustments to the
portfolio until market fundamentals shift substantially, and we will
Continued on page five
4
<PAGE> 6
monitor the economy, as well as Fed policy, in order to anticipate signs of
fundamental change. In addition, we will seek a balance between the Trust's
total return and its dividend income, and look to add value through security
selection. Thank you for your continued confidence in Van Kampen American
Capital and your Trust's team of managers.
Sincerely,
[sig]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
5
<PAGE> 7
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
(NYSE TICKER SYMBOL--VIT)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
Six-month total return based on market price(1)............ 13.82%
Six-month total return based on NAV(2)..................... 5.86%
DISTRIBUTION RATE
Distribution rate as a % of closing common stock
price(3)................................................. 9.60%
SHARE VALUATIONS
Net asset value............................................ $ 6.36
Closing common stock price................................. $7.3125
One-year high common stock price (06/23/97)................ $ 7.375
One-year low common stock price (04/24/97)................. $ 6.625
Preferred share rate(4).................................... 5.450%
</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 Trust'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
Trust at the end of the period and not the earnings of the Trust.
(4)See "Notes to Financial Statements" footnote #4, for more information
concerning Preferred Share reset periods.
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS
AEROSPACE & DEFENSE 2.8%
$ 750 Dyncorp, Inc., 144A Private Placement (b)....... 9.500% 03/01/07 $ 757,500
2,800 Sequa Corp. .................................... 9.625 10/15/99 2,884,000
500 Sequa Corp. .................................... 9.375 12/15/03 513,750
------------
4,155,250
------------
AUTOMOBILE 1.6%
900 Aetna Industries, Inc. ......................... 11.875 10/01/06 983,250
600 Collins & Aikman Products Co. .................. 11.500 04/15/06 681,000
700 Exide Corp. .................................... 10.750 12/15/02 738,500
------------
2,402,750
------------
BUILDINGS & REAL ESTATE 5.0%
3,050 American Standard, Inc. ........................ 10.875 05/15/99 3,248,250
450 Clark Material Handling......................... 10.750 11/15/06 473,625
2,050 Doman Industries Ltd. .......................... 8.750 03/15/04 1,988,500
1,450 Johns Manville International Group, Inc. ....... 10.875 12/15/04 1,616,750
------------
7,327,125
------------
CHEMICAL 2.3%
2,404 ISP Holdings, Inc. ............................. 9.750 02/15/02 2,548,240
800 Pioneer Amers Acquisition Corp., 144A Private
Placement (b)................................... 9.250 06/15/07 792,000
------------
3,340,240
------------
CONTAINERS, PACKAGING & GLASS 1.7%
525 Owens Illinois, Inc. ........................... 9.750 08/15/04 552,563
1,000 S.D. Warren Co. ................................ 12.000 12/15/04 1,120,000
825 Sweetheart Cup, Inc. ........................... 9.625 09/01/00 837,375
------------
2,509,938
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING 4.0%
1,150 Communications & Power Industries, Inc. ........ 12.000 08/01/05 1,276,500
2,000 Newflo Corp. ................................... 13.250 11/15/02 2,160,000
2,270 Talley Manufacturing & Technology, Inc. ........ 10.750 10/15/03 2,383,500
------------
5,820,000
------------
ECOLOGICAL 0.2%
200 Norcal Waste Systems, Inc....................... 13.250 11/15/05 226,000
------------
ELECTRONICS 3.8%
1,900 Advanced Micro Devices, Inc. ................... 11.000 08/01/03 2,109,000
2,300 Bell & Howell Co. (a)........................... 0/11.500 03/01/05 1,840,000
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ELECTRONICS (CONTINUED)
$1,500 Exide Electronics Group, Inc. (Including 1,300
common stock warrants).......................... 11.500% 03/15/06 $ 1,622,500
------------
5,571,500
------------
FINANCE 4.0%
2,900 American Annuity Group, Inc. ................... 11.125 02/01/03 3,074,000
600 Americredit Corp. .............................. 9.250 02/01/04 597,000
1,200 Contifinancial Corp. ........................... 8.375 08/15/03 1,230,000
850 Trizec Finance.................................. 10.875 10/15/05 956,250
------------
5,857,250
------------
GROCERY 1.3%
780 Pantry, Inc. ................................... 12.000 11/15/00 805,350
1,050 Pathmark Stores, Inc. .......................... 9.625 05/01/03 1,015,875
------------
1,821,225
------------
HEALTHCARE 3.0%
1,250 Merit Behavioral Care Corp. .................... 11.500 11/15/05 1,387,500
1,300 Tenet Healthcare Corp. ......................... 8.625 12/01/03 1,352,000
900 Tenet Healthcare Corp. ......................... 10.125 03/01/05 985,500
675 Urohealth Systems, Inc. (Including 675 common
stock warrants), 144A Private Placement (b)..... 12.500 04/01/04 664,875
------------
4,389,875
------------
HOTEL, MOTEL, INNS & GAMING 4.2%
1,900 Argosy Gaming Co. .............................. 13.250 06/01/04 1,833,500
1,075 Coast Hotels & Casinos, Inc. ................... 13.000 12/15/02 1,201,313
1,300 Grand Casino, Inc. ............................. 10.125 12/01/03 1,358,500
1,800 Trump Atlantic City Associates.................. 11.250 05/01/06 1,764,000
------------
6,157,313
------------
LEISURE/ENTERTAINMENT 3.2%
900 Cobblestone Golf Group, Inc. ................... 11.500 06/01/03 945,000
2,200 Selmer, Inc. ................................... 11.000 05/15/05 2,431,000
1,185 Viacom International, Inc. ..................... 10.250 09/15/01 1,285,725
------------
4,661,725
------------
MACHINERY 0.2%
250 Terex Corp. .................................... 13.250 05/15/02 281,250
------------
MINING, STEEL, IRON & NON-PRECIOUS METAL 3.9%
1,000 Algoma Steel, Inc. ............................. 12.375 07/15/05 1,112,500
2,175 Armco, Inc. .................................... 11.375 10/15/99 2,251,125
950 Carbide/Graphite Group, Inc. ................... 11.500 09/01/03 1,040,250
1,250 WCI Steel, Inc. ................................ 10.000 12/01/04 1,296,875
------------
5,700,750
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OIL & GAS 9.2%
$1,450 Clark R & M Holdings, Inc....................... * 02/15/00 $ 1,102,000
1,050 Dawson Production Services, Inc. ............... 9.375% 02/01/07 1,071,000
750 Falcon Drilling................................. 9.750 01/15/01 778,125
1,600 Giant Industries, Inc. ......................... 9.750 11/15/03 1,648,000
3,650 Global Marine, Inc. ............................ 12.750 12/15/99 3,832,500
1,700 KCS Energy, Inc. ............................... 11.000 01/15/03 1,840,250
450 Parker Drilling Co. ............................ 9.750 11/15/06 473,625
1,900 Petroleum Heat & Power, Inc. ................... 12.250 02/01/05 1,995,000
725 Pride Petroleum Services, Inc. ................. 9.375 05/01/07 757,625
------------
13,498,125
------------
PERSONAL & NON-DURABLE 3.2%
1,460 Revlon Consumer Products Corp. ................. 9.375 04/01/01 1,503,800
550 Revlon Consumer Products Corp. ................. 10.875 07/15/10 559,625
2,300 Samsonite Corp. ................................ 11.125 07/15/05 2,599,000
------------
4,662,425
------------
PRINTING, PUBLISHING & BROADCASTING 10.5%
450 Cablevision Systems Corp. ...................... 10.750 04/01/04 464,625
550 Cablevision Systems Corp. ...................... 9.875 05/15/06 585,750
1,350 Cablevision Systems Corp. ...................... 10.500 05/15/16 1,471,500
1,100 Capstar Radio Broadcasting,144A Private
Placement (b)................................... 9.250 07/01/07 1,064,250
1,750 Century Communications Corp. ................... 8.875 01/15/07 1,715,000
700 Comcast Corp. .................................. 9.375 05/15/05 736,750
500 Comcast Corp. .................................. 9.125 10/15/06 522,500
700 EZ Communications, Inc. ........................ 9.750 12/01/05 742,000
500 Heritage Media Services......................... 11.000 06/15/02 527,500
1,000 International Cabletel, Inc.(a)................. 0/12.750 04/15/05 770,000
500 International Cabletel, Inc.(a)................. 0/11.500 02/01/06 345,000
600 Katz Media Corp. ............................... 10.500 01/15/07 591,000
1,350 Rogers Communications, Inc. .................... 10.875 04/15/04 1,414,125
2,750 SCI Television, Inc. ........................... 11.000 06/30/05 2,894,375
950 Young Broadcasting, Inc. ....................... 11.750 11/15/04 1,054,500
350 Young Broadcasting, Inc. ....................... 10.125 02/15/05 366,625
------------
15,265,500
------------
RETAIL 3.6%
550 Cole National Group, Inc. ...................... 11.250 10/01/01 603,625
1,350 Cole National Group, Inc. ...................... 9.875 12/31/06 1,420,875
500 Hosiery Corp. America, Inc. (Including 500
common stock warrants).......................... 13.750 08/01/02 585,000
2,300 Waban, Inc. .................................... 11.000 05/15/04 2,593,250
------------
5,202,750
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS 6.9%
$ 650 Centennial Cellular Corp. ...................... 8.875% 11/01/01 $ 643,500
575 Centennial Cellular Corp. ...................... 10.125 05/15/05 599,437
450 Echostar Communications Corp.(a)................ 0/12.875 06/01/04 378,000
400 Gray Communications Systems, Inc. .............. 10.625 10/01/06 424,000
550 Intermedia Communications of Florida, Inc.(a)... 0/12.500 05/15/06 385,000
600 Intermedia Communications of Florida, Inc.
(Including 600 common stock warrants)........... 13.500 06/01/05 756,000
1,700 IXC Communications, Inc. ....................... 12.500 10/01/05 1,942,250
1,700 Panamsat L.P. .................................. 9.750 08/01/00 1,785,000
1,100 Pricellular Wireless Corp. (a).................. 0/12.250 10/01/03 1,031,250
1,100 Pricellular Wireless Corp. ..................... 10.750 11/01/04 1,149,500
1,400 Teleport Communications Group (a)............... 0/11.125 07/01/07 1,011,500
------------
10,105,437
------------
TEXTILES 2.0%
1,600 Anvil Knitwear, Inc., 144A Private Placement
(b)............................................. 10.875 03/15/07 1,620,000
1,250 Dan River, Inc. ................................ 10.125 12/15/03 1,331,250
------------
2,951,250
------------
TRANSPORTATION 1.2%
1,700 U.S. Air, Inc. ................................. 8.625 09/01/98 1,717,000
------------
UTILITIES 3.8%
2,050 AES Corp. ...................................... 10.250 07/15/06 2,244,750
1,500 El Paso Electric Co. ........................... 8.250 02/01/03 1,563,750
1,650 National Energy Group, Inc. .................... 10.750 11/01/06 1,707,750
------------
5,516,250
------------
TOTAL LONG-TERM INVESTMENTS 81.6%
(Cost $115,542,020).......................................................... 119,140,928
REPURCHASE AGREEMENT 15.9%
J.P. Morgan Securities (U.S. Treasury Note, $18,786,000 par, 8.875% coupon,
due 02/15/19, dated 06/30/97, to be sold on 07/01/97 at $23,163,796)......... 23,160,000
------------
TOTAL INVESTMENTS 97.5%
(Cost $138,702,020).......................................................... 142,300,928
OTHER ASSETS IN EXCESS OF LIABILITIES 2.5%.................................... 3,699,853
------------
NET ASSETS 100.0%............................................................. $146,000,781
============
</TABLE>
*Zero coupon bond
(a) Security bond 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 only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, including repurchase agreements of
$23,160,000 (Cost $138,702,020)........................... $142,300,928
Receivables:
Interest.................................................. 2,692,113
Investments Sold.......................................... 1,682,611
Other....................................................... 1,341
------------
Total Assets.......................................... 146,676,993
------------
LIABILITIES:
Payables:
Income Distributions--Common and Preferred Shares......... 289,667
Investment Advisory Fee................................... 90,083
Custodian Bank............................................ 78,759
Affiliates................................................ 14,349
Accrued Expenses............................................ 129,792
Deferred Compensation and Retirement Plans.................. 73,562
------------
Total Liabilities..................................... 676,212
------------
NET ASSETS.................................................. $146,000,781
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, 1,000,000 shares
authorized, 588 shares outstanding with liquidation
preference of $100,000 per share)......................... $ 58,800,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 13,710,760 shares
issued and outstanding)................................... 137,108
Paid in Surplus............................................. 124,454,347
Net Unrealized Appreciation................................. 3,598,908
Accumulated Undistributed Net Investment Income............. 1,114,083
Accumulated Net Realized Loss............................... (42,103,665)
------------
Net Assets Applicable to Common Shares................ 87,200,781
------------
NET ASSETS.................................................. $146,000,781
============
NET ASSET VALUE PER COMMON SHARE ($87,200,781 divided by
13,710,760 shares outstanding)............................ $ 6.36
============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 6,961,037
Other....................................................... 157,006
-----------
Total Income............................................ 7,118,043
-----------
EXPENSES:
Investment Advisory Fee..................................... 540,521
Preferred Share Maintenance................................. 89,287
Shareholder Services........................................ 27,126
Custody..................................................... 19,383
Trustees Fees and Expenses.................................. 15,034
Legal....................................................... 4,750
Other....................................................... 90,092
-----------
Total Expenses.......................................... 786,193
-----------
NET INVESTMENT INCOME....................................... $ 6,331,850
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 1,262,818
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 4,600,766
End of the Period......................................... 3,598,908
-----------
Net Unrealized Depreciation During the Period............... (1,001,858)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 260,960
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 6,592,810
===========
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 6,331,850 $ 12,970,396
Net Realized Gain..................................... 1,262,818 1,386,511
Net Unrealized Appreciation/Depreciation
During the Period................................... (1,001,858) 631,401
---------- ----------
Change in Net Assets from Operations.................. 6,592,810 14,988,308
---------- ----------
Distributions from Net Investment Income:
Common Shares....................................... (4,812,218) (9,624,578)
Preferred Shares.................................... (1,588,769) (3,169,033)
---------- ----------
Total Distributions................................... (6,400,987) (12,793,611)
---------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 191,823 2,194,697
NET ASSETS:
Beginning of the Period............................... 145,808,958 143,614,261
---------- ----------
End of the Period (Including accumulated undistributed
net investment income of $1,114,083 and $1,183,220,
respectively)....................................... $146,000,781 $145,808,958
============ ============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30, -----------------------------
1997 1996 1995 1994
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period (a).................................. $6.346 $6.186 $5.623 $6.735
------ ------- ------- -------
Net Investment Income......................... .462 .946 .982 1.002
Net Realized and Unrealized Gain/Loss......... .019 .147 .537 (.975)
------ ------- ------- -------
Total from Investment Operations.............. .481 1.093 1.519 .027
------ ------- ------- -------
Less Distributions from Net Investment Income:
Paid to Common Shareholders................. .351 .702 .702 .954
Common Share Equivalent of Distributions
Paid to Preferred Shareholders............ .116 .231 .254 .185
------ ------- ------- -------
Total Distributions........................... .467 .933 .956 1.139
------ ------- ------- -------
Net Asset Value, End of the Period............ $6.360 $6.346 $6.186 $5.623
====== ======= ======= =======
Market Price Per Share at End of the Period... $7.3125 $6.750 $6.375 $5.500
Total Investment Return at Market Price (b)... 13.82%* 17.34% 29.17% (23.22%)
Total Return at Net Asset Value (c)........... 5.86%* 14.86% 23.70% (2.54%)
Net Assets at End of the Period (In
millions)................................... $146.0 $145.8 $143.6 $135.9
Ratio of Expenses to Average Net Assets
Applicable to Common Shares................. 1.83% 1.87% 1.92% 1.96%
Ratio of Expenses to Average Net Assets....... 1.09% 1.11% 1.12% 1.16%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (d)...... 11.06% 11.58% 12.16% 13.31%
Portfolio Turnover............................ 47%* 92% 119% 110%
</TABLE>
(a) Net Asset Value at January 26, 1989 of $9.300 is adjusted for common and
preferred share offering costs of $.198 per share.
(b) 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 Trust's dividend reinvestment plan.
(c) Total Return at Net Asset Value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based on NAV.
(d) Net Investment Income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
N/A = Not Applicable
14
<PAGE> 16
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 26, 1989
(Commencement
Year Ended December 31, of Investment
- ------------------------------------------- Operations) to
1993 1992 1991 1990 December 31, 1989
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------
$6.228 $5.924 $4.603 $7.488 $9.102
----- ----- ----- ----- -----
1.109 1.206 1.150 1.566 1.387
.526 .174 1.282 (2.866) (1.653)
----- ----- ----- ----- -----
1.635 1.380 2.432 (1.300) (.266)
----- ----- ----- ----- -----
.990 .908 .840 1.083 1.020
.138 .168 .271 .502 .328
----- ----- ----- ----- -----
1.128 1.076 1.111 1.585 1.348
----- ----- ----- ----- -----
$6.735 $6.228 $5.924 $4.603 $7.488
====== ====== ====== ====== ======
$8.125 $7.250 $6.875 $4.125 $7.375
26.12% 18.67% 92.24% (32.91%) (17.27%)*
25.46% 21.36% 48.77% (26.20%) (15.58%)*
$151.1 $144.2 $140.0 $121.9 $187.7
1.72% 1.87% 2.51% 2.10% 1.56%
1.04% 1.11% 1.42% 1.90% N/A
14.66% 16.48% 15.86% 17.24% 13.20%
99% 109% 78% 57% 33%*
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital High Income Trust (the "Trust," formerly Van Kampen
American Capital Intermediate Term High Income Trust) is registered as a
diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust's investment objective is to provide
high current income, consistent with preservation of capital, by investing in a
portfolio of medium or lower grade fixed-income securities, or non-rated
securities of comparable quality. The Trust commenced investment operations on
January 26, 1989.
The following is a summary of significant accounting policies consistently
followed by the Trust 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--Investments are stated at value using market quotations,
prices provided by market makers or estimates obtained from yield data relating
to instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees. Short-term
securities and repurchase agreements with remaining maturities of 60 days or
less are valued at amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust 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 Trust 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 June 30, 1997, there were no when
issued or delayed delivery purchase commitments.
The Trust may invest in repurchase agreements, which are short-term
investments in which the Trust acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
Repurchase agreements are fully collateralized by the underlying debt security.
The Trust will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
the custodian bank. The seller is required to maintain the value of the
underlying security at not less than the repurchase proceeds due the Trust.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
discount is amortized over the expected life of each applicable security.
D. FEDERAL INCOME TAXES--It is the Trust'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 Trust 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 such losses against any future realized capital
gains. At December 31, 1996, the Trust had an accumulated capital loss carry
forward for tax purposes of $43,366,483 which expires between December 31, 1998
and December 31, 2003.
At June 30, 1997, for federal income tax purposes, cost for long- and
short-term investments is $138,702,020, the aggregate gross unrealized
appreciation is $3,776,182 and the aggregate gross unrealized depreciation is
$177,274, resulting in net unrealized appreciation of $3,598,908.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually to common shareholders. Distributions from net
realized gains for book purposes may include short-term capital gains, which are
included in ordinary income for tax purposes.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .75% of the average net assets of the Trust.
For the six months ended June 30, 1997, the Trust recognized expenses of
approximately $4,500 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the six months ended June 30, 1997, the Trust recognized expenses of
approximately $20,700 representing Van Kampen American Capital Distributors,
Inc.'s or
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
its affiliates' (collectively "VKAC") cost of providing accounting, legal and
certain shareholder services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit per Trustee under the plan is equal to the trustees' annual retainer
fee, which is currently $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $61,329,781 and $81,912,795,
respectively.
4. AUCTION MARKET PREFERRED SHARES
The Trust has outstanding 588 shares of Auction Market Preferred Shares ("AMPS")
at a liquidation value of $100,000 per share. Dividends are cumulative and the
rate is currently reset through an auction process every 28 days. The rate in
effect on June 30, 1997, was 5.450%. During the six months ended June 30, 1997,
the rates ranged from 5.088% to 5.590%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The AMPS are redeemable at the option of the Trust in whole or in part at a
price of $100,000 per share plus accumulated and unpaid dividends. The Trust is
subject to certain asset coverage tests, and the AMPS are subject to mandatory
redemption if the tests are not met.
18
<PAGE> 20
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") in which Common
Shareholders may elect to have dividends and capital gains distributions
automatically reinvested in Common Shares of the Trust. The service is entirely
voluntary and you may join or withdraw at any time.
HOW TO PARTICIPATE
If you wish to elect to participate in the Plan and your shares are held in your
own name, call 1-800-341-2929 for more information and a brochure. If your
shares are held in the name of a brokerage firm, bank, or other nominee, you
should contact your nominee to see if it would participate in the Plan on your
behalf. If you wish to participate in the Plan, but your brokerage firm, bank,
or nominee is unable to participate on your behalf, you should request that your
shares be re-registered in your own name which will enable your participation in
the Plan.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for the
Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or capital gains distribution paid subsequent to written
notice of the change sent to all Common Shareholders of the Trust at least 90
days before the record date for the dividend or distribution. The Plan also may
be amended or terminated by the Plan Agent, with the written consent of the
Trust, by providing at least 90 days written notice to all Participants in the
Plan.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
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 gains distributions does not relieve you of any income tax
which may be payable on dividends or capital gains distributions.
RIGHT TO WITHDRAW
You may withdraw from the Plan at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company. If you withdraw, you will receive,
without charge, a share certificate issued in your name for all full Common
Shares credited to your account under the Plan, and a cash payment will be made
for any fractional Common Share credited to your account under the Plan. You may
again elect to participate in the Plan at any time by calling 1-800-341-2929 or
writing to the Trust at:
2800 Post Oak Blvd., Houston, TX 77056, Attn: Closed-End Funds
19
<PAGE> 21
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
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
U.S. Real Estate Fund
Value 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
Morgan Stanley retail funds.
20
<PAGE> 22
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
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 W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in
the Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1997.
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on June 28, 1997, where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the selection of independent public accountants. With regard to the
approval of a new investment advisory agreement between Van Kampen American
Capital Investment Advisory Corp. and the Trust, 11,410,374 shares voted for the
proposal, 251,060 shares voted against, 229,809 shares abstained and 0 shares
represented broker non-votes. With regard to the election of Rod Dammeyer as
elected trustee by the preferred shareholders of the Trust 578 shares voted in
his favor, 0 shares withheld. With regard to the election of Wayne W. Whalen as
elected trustee by the common shareholders of the Trust 11,613,068 shares voted
in his favor, 277,597 shares withheld. The other trustees of the Fund whose
terms did not expire in 1997 are Dennis J. McDonnell, Theodore A. Myers, Hugo
Sonnenschein, David C. Arch and Howard J Kerr. With regard to the ratification
of KPMG Peat Marwick LLP as independent public accountants for the Trust,
11,661,580 shares voted in favor of the proposal, 111,304 shares voted against,
118,360 shares abstained and 0 shares represented broker non-votes.
21
