<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio of Investments ............. 4
Statement of Assets and Liabilities ... 9
Statement of Operations .............. 10
Statement of Changes in Net Assets .... 11
Financial Highlights ................. 12
Notes to Financial Statements ......... 14
</TABLE>
Letter to Shareholders
August 3, 1995
Dear Shareholder:
The first half of 1995 has been a very positive
one for most investors. Both the fixed-income and
stock markets have made considerable gains for
the period ended June 30, 1995. This year has
been particularly rewarding for investors after
weathering the difficult markets of 1994.
The first six months of 1995 serve as a
reminder of just how quickly markets can move,
and how difficult it can be to predict the timing of
those movements. Moreover, this year reinforces
the importance of maintaining a long-term perspective, and reaffirms the
principle that it is time---not timing---that leads to investment success.
[PHOTO]
Dennis J. McDonnell and Don G. Powell
Economic Overview
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of this
guided slowdown was reflected in gross domestic product for the second quarter,
which grew at an annual rate of 0.5 percent, substantially lower than its first
quarter rate of 2.7 percent and fourth quarter 1994 rate of
5.1 percent. While other key economic data, including unemployment rates and
housing starts, have shown mixed signs during recent weeks, the general trend
for the first half of the year suggested a "soft landing" scenario.
Subsequently, concern over inflation has subsided, as its annualized rate has
run at a modest pace of 3.2 percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent.
The high yield market kept pace with the rally in the Treasury market for most
of the period. Yields on high yield securities remained about 3.30 percentage
points higher than Treasuries until June, when the "spread" between high yield
bonds and Treasuries began to widen. Typically, in a period of economic
slowdown, high yield bonds underperform other fixed income securities as
investors become concerned about the health of the issuing companies. However,
the underlying cash flows of companies issuing high yield debt remained healthy
during the first half of 1995, keeping the high yield sector strong.
Performance Summary
The Van Kampen Merritt Limited Term High Income Trust is a diversified
portfolio of high yield bonds. We are pleased to report that the Trust generated
a total return at market price of
(Continued on page two)
1
21.78 percent1, for the six-month period ended June 30, 1995. This strong
performance reflects a gain in market price per common share on the New York
Stock Exchange from $7.50 on December 31, 1994, to $8.625 on June 30, 1995, and
reinvestment of dividends totaling $0.48 per share.
Since the Fed was taking action to slow the economy, the Trust's portfolio
moved away from bonds issued by cyclical companies such as homebuilders and
steel companies. Companies in these industries generally perform worse in an
economic slowdown than companies that produce consumer products and services.
The average quality of the Trust has been upgraded by increasing its exposure to
BB-rated issues because higher-quality bonds perform better than lower-quality
bonds in a slower economy. We believe the portfolio's defensive posture will
allow for relatively strong performance unless the economy slows to a greater
degree than expected. To that end, we will continue to monitor economic data
very carefully, and take further defensive action if it becomes warranted.
Outlook
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe that
the Fed will move cautiously before easing again, waiting for further signs that
the economy has settled into a slow growth pattern. We anticipate that the
economy will grow at an annual rate between 2 and 3 percent in the second half
of the year, and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon this generally slow growth and low inflation outlook, we
believe that fixed-income markets---including high yield bonds---will continue
to make attractive gains as interest rates fall.
During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At this
point, no one knows for sure what will happen or when it might actually take
place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.
Once again, it is important to remember that financial markets will inevitably
experience highs and lows, but by maintaining a long-term investment
perspective, it may allow you to ride the ups and downs of the markets more
easily as you pursue your investment goals.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Trust.
Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.
2
Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt Limited Term High Income Trust
(NYSE Ticker Symbol VLT)
<TABLE>
<CAPTION>
<S> <C>
Total Returns
Six-month total return on market price<F1> ............................ 21.78%
Six-month total return based on NAV<F2> .............................. 15.80%
Distribution Rates
Distribution rate as a % of initial offer common stock price<F3> ...... 8.00%
Distribution rate as a % of 06/30/95 closing common stock price<F3> ... 11.13%
Share Valuations
Net asset value as of 06/30/95 ........................................ $ 7.97
Closing common stock price as of 06/30/95 ............................ $ 8.625
Six-month high common stock price (06/12/95) ......................... $ 9.000
Six-month low common stock price (01/24/95) .......................... $ 7.375
Preferred share rate as of 06/30/95<F4> ............................... 5.970%
<FN>
<F1>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.
<F2>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 net asset value.
<F3>Distribution rate represents the monthly annualized distributions of the Trust
at the end the period, and not the earnings of the Trust.
<F4>See "Notes to Financial Statements" footnote #4, for more information
concerning Preferred Share reset periods.
</TABLE>
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.
3
Portfolio of Investments
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
Corporate Bonds
Aerospace & Defense 3.3%
$ 1,950 Sequa Corp. ............................. 9.375% 12/15/03 $ 1,813,500
1,900 Talley Manufacturing & Technology Inc. ... 10.750 10/15/03 1,862,000
-----------
3,675,500
-----------
Automobile 0.8%
900 Exide Corp. .............................. 10.000 04/15/05 927,000
-----------
Beverage, Food & Tobacco 1.5%
1,675 Fleming Cos. Inc. Var. Rate Cpn. ......... 8.313 12/15/01 1,633,125
-----------
Buildings & Real Estate 4.6%
1,400 American Standard Inc. ................... 11.375 05/15/04 1,533,000
950 Building Material Corp. <F2> ............ 0/11.750 07/01/04 565,250
2,875 Walter Industries Inc. .................. 12.190 03/15/00 2,903,750
-----------
5,002,000
-----------
Chemicals, Plastics & Rubber 1.2%
600 Foamex L.P. ............................. 11.250 10/01/02 594,000
1,000 G. I. Holdings Inc. ...................... * 10/01/98 680,000
-----------
1,274,000
-----------
Consumer Non-Durables 4.3%
1,100 Astrum Intl Corp. ....................... 11.500 06/08/03 1,155,000
2,000 Playtex Family Products Corp. ............ 9.000 12/15/03 1,880,000
1,775 Revlon Consumer Products Corp. .......... 9.375 04/01/01 1,721,750
-----------
4,756,750
-----------
Containers, Packaging & Glass 14.4%
1,575 Anchor Glass Container Corp. ............. 10.250 06/30/02 1,582,875
500 Anchor Glass Container Corp. ............. 9.875 12/15/08 460,000
2,700 Atlantis Group Inc. ..................... 11.000 02/15/03 2,659,500
1,700 Malette Inc. ............................. 12.250 07/15/04 1,887,000
1,000 Owens Illinois Inc. ..................... 10.500 06/15/02 1,040,000
2,000 Owens Illinois Inc. ..................... 11.000 12/01/03 2,200,000
</TABLE>
See Notes to Financial Statements
4
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
Containers, Packaging & Glass (Continued)
$ 400 Repap New Brunswick Inc. ................ 9.875% 07/15/00 $ 404,000
3,000 Silgan Holdings Inc. .................... 11.750 06/15/02 3,120,000
700 South Dakota Warren Co. ................. 12.000 12/15/04 756,000
1,650 Stone Consolidated Corp. ................ 10.250 12/15/00 1,724,250
-----------
15,833,625
-----------
Diversified/Conglomerate Manufacturing 4.6%
2,530 IMO Industries Inc. ...................... 12.000 11/01/01 2,605,900
2,600 Jordan Industries Inc. ................... 10.375 08/01/03 2,392,000
-----------
4,997,900
-----------
Diversified/Conglomerate Service 2.5%
1,750 Comdata Network Inc. ...................... 12.500 12/15/99 1,916,250
750 Comdata Network Inc. ...................... 13.250 12/15/02 847,500
-----------
2,763,750
-----------
Farming & Agriculture 1.8%
2,200 Trans Resources Inc. ...................... 11.875 07/01/02 1,991,000
-----------
Finance 2.4%
2,500 American Annuity Group Inc. ............... 11.125 02/01/03 2,612,500
-----------
Grocery 0.9%
1,000 Pathmark Stores Inc. ...................... 9.625 05/01/03 980,000
-----------
Healthcare 2.9%
1,200 Ornda Healthcorp ......................... 11.375 08/15/04 1,314,000
1,300 Tenet Healthcare Corp. ................... 9.625 09/01/02 1,378,000
450 Tenet Healthcare Corp. ................... 10.125 03/01/05 477,000
-----------
3,169,000
-----------
Hotel, Motel, Inns & Gaming 5.2%
700 Aztar Corp. .............................. 11.000 10/01/02 700,000
800 Aztar Corp. .............................. 13.750 10/01/04 904,000
2,100 California Hotel Finance Corp. ............ 11.000 12/01/02 2,173,500
1,730 Trump Plaza Funding Inc. ................. 10.875 06/15/01 1,600,250
381 Trump Taj Mahal Funding Inc. .............. 11.350 11/15/99 302,533
-----------
5,680,283
-----------
</TABLE>
See Notes to Financial Statements
5
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
Leisure 5.8%
$ 3,000 AMC Entertainment Inc. ................... 12.625% 08/01/02 $ 3,300,000
1,100 Viacom International Inc. ................ 10.250 09/15/01 1,232,000
1,900 Viacom International Inc. ................ 8.000 07/07/06 1,843,000
-----------
6,375,000
-----------
Mining, Steel, Iron & Non-Precious Metal 3.2%
475 Armco Inc. .............................. 11.375 10/15/99 486,875
3,000 Easco Corp. ............................. 10.000 03/15/01 3,000,000
-----------
3,486,875
-----------
Oil & Gas 9.2%
2,000 Clark R & M Holdings Inc. ............... * 02/15/00 1,250,000
2,200 Global Marine Inc. ...................... 12.750 12/15/99 2,431,000
1,400 Petroleum Heat & Power Inc. .............. 12.250 02/01/05 1,505,000
1,630 Plains Resources Inc. ................... 12.000 10/01/99 1,695,200
950 TransTexas Gas Corp. .................... 11.500 06/15/02 973,750
350 Triton Energy Corp. ...................... * 11/01/97 288,750
2,200 Triton Energy Corp. <F2> ................ 0/9.750 12/15/00 1,947,000
-----------
10,090,700
-----------
</TABLE>
See Notes to Financial Statements
6
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
Printing, Publishing & Broadcasting 15.3%
$ 2,800 Century Communications Corp. ............ 9.750% 02/15/02 $ 2,842,000
950 Comcast Corp. .......................... 9.375 05/15/05 954,750
1,900 Heritage Media Services ................ 11.000 06/15/02 2,023,500
2,100 Insight Communications Co. <F2> ......8.250/11.250 03/01/00 2,131,500
1,800 K - III Communications Corp. ........... 10.625 05/01/02 1,908,000
500 K - III Communications Corp. ........... 10.250 06/01/04 525,000
1,700 SCI Television Inc. .................... 11.000 06/30/05 1,776,500
2,100 Storer Communications Inc. ............. 10.000 05/15/03 2,100,000
1,300 Williamhouse Regency Delaware Inc. ...... 11.500 06/15/05 1,313,000
825 Young Broadcasting Inc. ................ 11.750 11/15/04 907,500
300 Young Broadcasting Inc. ................ 10.125 02/15/05 303,000
-----------
16,784,750
-----------
Retail 0.5%
500 Hosiery Corp. America Inc. ............. 13.750 08/01/02 497,500
-----------
Telecommunications 4.1%
600 Centennial Cellular Corp. .............. 10.125 05/15/05 591,000
400 Intermedia Communications .............. 13.500 06/01/05 402,000
1,150 Mobile Telecommunication Technology .... 13.500 12/15/02 1,230,500
2,180 Panamsat L. P. ......................... 9.750 08/01/00 2,234,500
-----------
4,458,000
-----------
</TABLE>
See Notes to Financial Statements
7
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
Utilities 2.7%
$ 2,840 Midland Funding Corp I Senior Secured Lease Obligation
Bond Ser C ................................................. 10.330% 07/23/02 $ 2,968,088
------------
Total Corporate Bonds 91.2% .......................................... 99,957,346
------------
Equities 0.0%
Hosiery Corp. America Inc. (500 common stock warrants) .............. 7,500
------------
Total Long-Term Investments 91.2%
(Cost $96,918,506) <F1> ............................................... 99,964,846
Repurchase Agreement 5.2%
UBS Securities, U.S. T-Note, $4,615,000 par, 8.75% coupon, due 08/15/20,
dated 06/30/95, to be sold on 07/03/95 at $5,749,921 .................... 5,747,000
Other Assets in Excess of Liabilities 3.6% ............................. 3,917,037
------------
Net Assets 100% ........................................................ $ 109,628,883
------------
*Zero coupon bond
<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $96,918,506; the
aggregate gross unrealized appreciation is $3,321,028 and the aggregate
gross unrealized depreciation is $274,688, resulting in net unrealized
appreciation of $3,046,340.
<F2> Security is a "Step-up" bond where the coupon increases or steps up at a
predetermined date.
</FN>
</TABLE>
The following table summarizes the portfolio composition at June 30, 1995, based
upon quality ratings issued by Standard & Poor's. For securities not rated by
Standard & Poor's, the Moody's rating is used.
Portfolio Composition by Credit Quality
<TABLE>
<CAPTION>
<S> <C>
BB ........... 27.9%
B ........... 68.9
CCC ......... 0.3
Non-Rated ... 2.9
------
100.0%
------
</TABLE>
See Notes to Financial Statements
8
Statement of Assets and Liabilities
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $96,918,506) (Note 1) ............................ $ 99,964,846
Short-Term Investments (Note 1) ..................................................... 5,747,000
Cash ............................................................................... 1,371
Receivables:
Investments Sold ................................................................. 4,704,362
Interest .......................................................................... 2,317,578
-------------
Total Assets ........................................................................ 112,735,157
-------------
Liabilities:
Payables:
Investments Purchased ............................................................. 2,671,536
Income Distributions - Common and Preferred Shares ............................... 146,625
Investment Advisory Fee (Note 2) ................................................. 67,783
Accrued Expenses .................................................................... 220,330
-------------
Total Liabilities ................................................................... 3,106,274
-------------
Net Assets .......................................................................... $ 109,628,883
-------------
Net Assets Consist of:
Preferred Shares ($.01 par value, 100,000,000 shares authorized, 900 outstanding with
liquidation preference of $50,000 per share) (Note 4) .............................. $ 45,000,000
-------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
8,109,000 shares issued and outstanding) ........................................... 81,090
Paid in Surplus .................................................................... 84,520,754
Net Unrealized Appreciation on Investments ......................................... 3,046,340
Accumulated Undistributed Net Investment Income .................................... 1,293,550
Accumulated Net Realized Loss on Investments ........................................ (24,312,851)
-------------
Net Assets Applicable to Common Shares .............................................. 64,628,883
-------------
Net Assets .......................................................................... $ 109,628,883
-------------
Net Asset Value Per Common Share ($64,628,883 divided by
8,109,000 shares outstanding) ...................................................... $ 7.97
-------------
</TABLE>
See Notes to Financial Statements
9
Statement of Operations
For the Six Months Ended June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest ....................................................... $ 5,665,201
Other ......................................................... 21,250
-------------
Total Income .................................................. 5,686,451
-------------
Expenses:
Investment Advisory Fee (Note 2) .............................. 399,329
Preferred Share Maintenance (Note 4) ........................... 64,535
Shareholder Services (Note 2) .................................. 37,829
Legal (Note 2) ................................................ 9,050
Trustees Fees and Expenses (Note 2) ............................ 9,050
Other ......................................................... 100,095
-------------
Total Expenses ................................................. 619,888
-------------
Net Investment Income .......................................... $ 5,066,563
-------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ............................................ $ 72,959,619
Cost of Securities Sold ........................................ (73,736,347)
-------------
Net Realized Loss on Investments ............................. (776,728)
-------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ....................................... (3,135,079)
End of the Period ............................................. 3,046,340
-------------
Net Unrealized Appreciation on Investments During the Period ... 6,181,419
-------------
Net Realized and Unrealized Gain on Investments ................ $ 5,404,691
-------------
Net Increase in Net Assets from Operations .................... $ 10,471,254
-------------
</TABLE>
See Notes to Financial Statements
10
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1995 and
the Year Ended December 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 5,066,563 $ 10,404,659
Net Realized Loss on Investments .................................. (776,728) (4,011,409)
Net Unrealized Appreciation/Depreciation on Investments
During the Period ................................................ 6,181,419 (8,395,741)
-------------- ---------------
Change in Net Assets from Operations ............................ 10,471,254 (2,002,491)
-------------- ---------------
Distributions from Net Investment Income:
Common Shares .................................................... (3,892,012) (9,568,006)
Preferred Shares ................................................. (1,311,642) (1,901,938)
-------------- ---------------
Total Distributions .............................................. (5,203,654) (11,469,944)
-------------- ---------------
Net Change in Net Assets from Investment Activities .............. 5,267,600 (13,472,435)
Net Assets:
Beginning of the Period .......................................... 104,361,283 117,833,718
-------------- ---------------
End of the Period (Including undistributed net investment income of
$1,293,550 and $1,430,641, respectively) ......................... $ 109,628,883 $ 104,361,283
-------------- ---------------
</TABLE>
See Notes to Financial Statements
11
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 Year Ended
June 30, 1995 December 31, 1994
<S> <C> <C>
Net Asset Value, Beginning of Period <F1> ............... $ 7.320 $ 8.982
-------------- --------
Net Investment Income ................................... .625 1.283
Net Realized and Unrealized
Gain/Loss on Investments ................................. .667 (1.530)
-------------- --------
Total from Investment Operations ........................ 1.292 (.247)
-------------- --------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders ............................. .480 1.180
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders .................................. .162 .235
Return of Capital Paid to
Common Shareholders ..................................... -0- -0-
-------------- --------
Total Distributions ..................................... .642 1.415
-------------- --------
Net Asset Value, End of Period ........................... $ 7.970 $ 7.320
-------------- --------
Market Price Per Share at End of Period .................. $ 8.625 $ 7.500
Total Investment Return at Market Price
(Non-Annualized) <F2> .................................... 21.78% (12.94%)
Total Return at Net Asset Value (Non-Annualized) <F3> ... 15.80% (5.70%)
Net Assets at End of Period (In millions) ............... $ 109.6 $ 104.4
Ratio of Expenses to Average Net Assets
Applicable to Common Shares
(Annualized) ............................................ 1.99% 1.97%
Ratio of Expenses to Average
Net Assets (Annualized) .................................. 1.15% 1.17%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (Annualized) <F4> ......................... 12.04% 12.87%
Portfolio Turnover ...................................... 77.55% 124.93%
<FN>
<F1> Net asset value at April 28, 1989 of $11.160 is adjusted for common and
preferred share offering costs of $.395 per share. Net asset value at
December 31, 1991 of $7.619 is adjusted for redemption costs associated
with the 9.5% cumulative preferred shares and offering costs associated
with the auction preferred shares of $.332 per share.
<F2> 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.
<F3> Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
<F4> Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
</FN>
</TABLE>
N/A = Not Applicable
12
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
April 28, 1989
(Commencement of
Investment
Year Ended December 31 Operations) to
1993 1992 1991 1990 December 31, 1989
<S> <C> <C> <C> <C>
$ 7.916 $ 7.287 $ 5.884 $ 9.307 $ 10.765
--------- ------- ------- --------- --------------
1.422 1.691 1.512 1.908 1.283
1.021 .415 1.686 (3.410) (1.461)
--------- ------- ------- --------- --------------
2.443 2.106 3.198 (1.502) (0.178)
--------- ------- ------- --------- --------------
1.200 .975 .920 1.238 .909
.177 .502 .543 .666 .371
-0- -0- -0- .017 -0-
--------- ------- ------- --------- --------------
1.377 1.477 1.463 1.921 1.280
--------- ------- ------- --------- --------------
$ 8.982 $ 7.916 $ 7.619 $ 5.884 $ 9.307
--------- ------- ------- --------- --------------
$ 9.750 $ 9.375 $ 7.500 $ 5.250 $ 9.000
17.01% 39.58% 62.27% (30.57%) (18.34%)
30.08% 16.92% 46.26% (24.92%) (15.21%)
$ 117.8 $ 109.2 $ 108.2 $ 94.1 $ 135.5
1.72% 1.73% 2.73% 2.12% 1.57%
1.05% 1.02% 1.52% 1.11% N/A
14.41% 14.49% 13.59% 15.99% 12.91%
139.89% 145.05% 96.79% 64.64% 31.04%
</TABLE>
See Notes to Financial Statements
13
Notes to Financial Statements
June 30, 1995 (Unaudited)
1. Significant Accounting Policies
Van Kampen Merritt Limited Term High Income Trust (the "Trust") is registered as
a diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust commenced investment operations on
April 28, 1989.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements.
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 with remaining maturities of less than 60 days 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, 1995, there were no when
issued or delayed delivery purchase commitments.
C. Investment Income---Interest income is recorded on an accrual basis. Bond
discounts are 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, 1994, the Trust had an accumulated capital loss
carryforward of $20,426,939. Of this amount, $8,476,712, $11,048,002 and
$902,225 will expire on December 31, 1998, 1999 and 2002, respectively. 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.
14
Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)
E. Distribution of Income and Gains---The Trust declares and pays dividends
monthly from net investment income to common shareholders. Net realized gains,
if any, are distributed annually to common shareholders.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (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.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.
For the six months ended June 30, 1995, the Trust recognized expenses of
approximately $11,300 representing Van Kampen American Capital Distributors,
Inc.'s or 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 has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC. The Trust's liability under the
deferred compensation and retirement plans at June 30, 1995, was approximately
$15,600.
3. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended June 30, 1995, were $78,200,109 and
$73,736,347, respectively.
4. Auction Preferred Shares
The Trust has outstanding 900 shares of Auction Preferred Shares ("APS").
Dividends are cumulative and the rate is currently reset every 28 days through
an auction process. The rate in effect on June 30, 1995, was 5.970%. During the
six months ended June 30, 1995, the rates ranged from 5.725% to 5.980%.
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 APS are redeemable at the option of the Trust in whole or in part at a
price of $50,000 per share plus accumulated and unpaid dividends. The Trust is
subject to certain asset coverage tests, and the APS are subject to mandatory
redemption if the tests are not met.
15
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
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
16
Van Kampen Merritt Limited Term High Income Trust
Officers and Trustees
Don G. Powell*
Chairman and Trustee
Dennis J. McDonnell*
President and Trustee
David C. Arch
Trustee
Rod Dammeyer
Trustee
Howard J Kerr
Trustee
Theodore A. Myers
Trustee
Hugo F. Sonnenschein
Trustee
Wayne W. Whalen*
Trustee
Peter W. Hegel*
Vice President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Treasurer
Scott E. Martin*
Assistant Secretary
Weston B. Wetherell*
Assistant Secretary
Nicholas Dalmaso*
Assistant Secretary
John L. Sullivan*
Controller
Steven M. Hill*
Assistant Treasurer
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
333 West Wacker Drive
Chicago, Illinois 60606
Independent Auditors
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., 1995 All rights reserved.
SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.
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