VAN KAMPEN AMERICAN CAPITAL LIMITED TERM HIGH INCOME, N-30D, 1996-02-28

VAN KAMPEN AMERICAN CAPITAL LIMITED TERM HIGH INCOME
N-30D, 1996-02-28

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<TABLE>

Table of Contents

<CAPTION>
<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
Independent Auditors' Report........... 17
Dividend Reinvestment Plan............. 18
</TABLE>

LCEF ANR 2/96

Letter to Shareholders

February 2, 1996

Dear Shareholder,

For most investors, it would be hard to surpass the success enjoyed during
1995. The stock and bond markets enjoyed substantial gains, driven by a
combination of continuing economic growth and low inflation. The strength of
equity and fixed-income securities in 1995 was particularly impressive because
it followed a year in which both markets declined. People who remained invested
during 1995 generally shared in the growth of the markets, while investors who
retreated after 1994's downturn may have missed out on the double-digit returns.

The rebound in the markets last year reinforces the importance of maintaining
a long-term perspective for your investments. While the environment for stocks
and bonds remains positive, it is unlikely that 1996 will see a repeat of the
markets' strong 1995 performance. However, over the long-term, stocks have
outperformed virtually all other types of investments, and bonds have met the
needs of investors who seek capital preservation and regular income.

[PHOTO]
Dennis J. McDonnell and Don G. Powell

Economic Overview

The U.S. economy grew throughout 1995, but the rate of growth slowed toward
year-end. The gross domestic product (the value of all goods and services
produced in the United States) grew at an annual rate of more than 4 percent in
the third quarter of 1995, but slowed to an estimated 2 to 3 percent in the
fourth quarter of the year, with retail and auto sales particularly sluggish.
The slower growth rate eased concerns about inflation and allowed the Federal
Reserve Board in late December to lower short-term interest rates by a
quarter-percentage point. Just as the Fed's raising of short-term rates in 1994
helped slow economic growth in 1995, the reduction in rates during the latter
half of 1995 was expected to help generate moderate economic growth in 1996.

The cut in short-term rates, combined with modest growth forecasts, was viewed
by the financial markets as a positive event, pushing up both stock and bond
prices. For the year ended December 31, 1995, the Standard & Poor's 500-Stock
Index achieved a total return of 37.45 percent. The yield on 10-year Treasury
notes was 5.57 percent on December 31, compared to 7.82 percent a year earlier.
Many observers expect the Fed to cut rates further if Congress and the President
are able to reach an agreement on the federal budget, provided economic
conditions justify further easing.

Performance Summary

Van Kampen American Capital Limited Term High Income Trust, formerly 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 30.33 percent<F1> for the year ended December 31,
1995. This strong performance reflects a gain in market price per

Continued on page two

common share on the New York Stock Exchange from $7.50 per share on December 31,
1994, to $8.75 per share on December 31, 1995.

Since the Fed was focused for most of the year on slowing economic growth to a
sustainable level, 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. We believe the portfolio's defensive
posture will allow for relatively strong performance unless the economy
deteriorates unexpectedly.

Corporate News

As you may have noticed in the performance summary, your Trust has a new name.
At the beginning of January all former Van Kampen Merritt and American Capital
closed-end funds assumed the Van Kampen American Capital name. Please look under
the new heading "VnKmAC" to find your Trust's price in your daily newspaper.

Outlook

Looking ahead, we are cautiously optimistic. We expect the economy to grow at
a rate of 2 to 3 percent throughout 1996, with growth stronger in the second
half of the year as the full impact of the Fed's rate cuts take effect. Lower
rates will have the greatest impact on interest sensitive industries, such as
housing. Although inflation appears to be under control, there probably will be
some upward pressure in 1996 as lower interest rates generate increased economic
activity.

The current economic conditions are ideal for stocks, especially the stocks of
smaller companies, since they tend to be affected less by economic cycles. The
outlook for the fixed income market---including high yield bonds---is positive,
too. In the near-term, we believe domestic markets will benefit from a stable
U.S. dollar and increased business activity driven in part by a number of
recently announced strategic reorganizations of some of the nation's blue chip
industry leaders.

During recent months, debate over tax reform and the federal deficit has
dominated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue in
Washington. There has been varied speculation about the impact of these issues
on the economy and on various types of investments. We are following the tax
reform debate very closely, and we will keep you updated on this issue
throughout the year.

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.

Performance Results for the Period Ended December 31, 1995
Van Kampen American Capital Limited Term High Income Trust
(NYSE Ticker Symbol VLT)

<TABLE>
<CAPTION>
<S> <C>
Total Returns
One-year total return on market price<F1>..................... 30.33%
One-year total return based on NAV<F2>........................ 25.19%

Distribution Rate
Distribution rate as a % of closing common stock price<F3>.... 10.97%

Share Valuations
Net asset value............................................... $ 8.12
Closing common stock price.................................... $ 8.750
One-year high common stock price (12/07/95)................... $ 9.250
One-year low common stock price (01/24/95).................... $ 7.375
Preferred share rate<F4>...................................... 5.774%

<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 NAV.

<F3> Distribution rate represents the monthly annualized distributions of the Trust
at the end of 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.

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.
</TABLE>

<TABLE>
<CAPTION>
Portfolio of Investments
December 31, 1995
- ----------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate Bonds
Aerospace & Defense 2.1%
$ 1,800 Sequa Corp. .......................... 9.625% 10/15/99 $ 1,782,000
600 Sequa Corp. .......................... 9.375 12/15/03 565,500
------------
2,347,500
------------
Automobile 1.0%
1,050 Exide Corp. .......................... 10.000 04/15/05 1,139,250
------------
Beverage, Food & Tobacco 0.7%
850 Fleming Cos. Inc. Var. Rate Cpn. ..... 8.125 12/15/01 731,000
------------
Buildings & Real Estate 8.4%
1,800 American Standard Inc. ............... 10.875 05/15/99 1,993,500
600 American Standard Inc. ............... 11.375 05/15/04 664,500
1,850 Building Material Corp. <F2> ......... 0/11.750 07/01/04 1,258,000
1,600 Doman Industries Ltd. ................ 8.750 03/15/04 1,544,000
900 Schuller International Group Inc. .... 10.875 12/15/04 1,017,000
350 Southdown Inc. ....................... 14.000 10/15/01 385,000
2,400 Walter Industries Inc. ............... 12.190 03/15/00 2,430,000
------------
9,292,000
------------
Chemicals, Plastics & Rubber 0.3%
450 G. I. Holdings Inc. .................. * 10/01/98 347,625
------------
Consumer Non-Durables 2.9%
200 Herff Jones Inc. ..................... 11.000 08/15/05 214,000
1,050 Playtex Family Products Corp. ........ 9.000 12/15/03 926,625
2,030 Revlon Consumer Products Corp. ....... 9.375 04/01/01 2,050,300
------------
3,190,925
------------
Containers, Packaging & Glass 6.3%
300 Anchor Glass Container Corp. ......... 10.250 06/30/02 244,500
200 Anchor Glass Container Corp. ......... 9.875 12/15/08 122,000
1,500 Atlantis Group Inc. .................. 11.000 02/15/03 1,312,500
500 Owens Illinois Inc. .................. 10.500 06/15/02 532,500
2,000 Owens Illinois Inc. .................. 11.000 12/01/03 2,270,000
700 S.D. Warren Co. ...................... 12.000 12/15/04 773,500
1,650 Stone Consolidated Corp. ............. 10.250 12/15/00 1,769,625
------------
7,024,625
------------
</TABLE>

4 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- ---------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Diversified/Conglomerate Manufacturing 4.5%
$ 150 Communications & Power Industries Inc. ..... 12.000% 08/01/05 $ 154,500
2,600 Jordan Industries Inc. ..................... 10.375 08/01/03 2,210,000
750 Republic Engineered Steels Inc. ............ 9.875 12/15/01 676,875
1,900 Talley Manufacturing & Technology Inc. ..... 10.750 10/15/03 1,909,500
------------
4,950,875
------------
Ecological 0.6%
700 Norcal Waste Systems Inc. .................. 12.500 11/15/05 708,750
------------
Electronics 1.7%
1,500 Bell & Howell Holdings Co. <F2> ............ 0/11.500 03/01/05 986,250
900 Computervision ............................. 11.375 08/15/99 947,250
------------
1,933,500
------------
Farming & Agriculture 1.7%
2,030 Trans Resources Inc. ....................... 11.875 07/01/02 1,877,750
------------
Finance 2.4%
2,500 American Annuity Group Inc. ................ 11.125 02/01/03 2,706,250
------------
Grocery 2.5%
900 Pathmark Stores Inc. ....................... 11.625 06/15/02 909,000
1,200 Pathmark Stores Inc. ....................... 9.625 05/01/03 1,167,000
625 Purity Supreme Inc. ........................ 11.750 08/01/99 685,938
------------
2,761,938
------------
Healthcare 3.3%
350 Merit Behavioral Care Corp. ................ 11.500 11/15/05 364,000
1,200 Ornda Healthcorp ........................... 11.375 08/15/04 1,350,000
1,300 Tenet Healthcare Corp. ..................... 9.625 09/01/02 1,433,250
450 Tenet Healthcare Corp. ..................... 10.125 03/01/05 498,375
------------
3,645,625
------------
Hotel, Motel, Inns & Gaming 6.8%
500 Aztar Corp. ................................ 13.750 10/01/04 555,000
2,550 California Hotel Finance Corp. ............. 11.000 12/01/02 2,703,000
1,500 GB Property Funding Corp. .................. 10.875 01/15/04 1,323,750
1,350 Hollywood Casino Inc. ...................... 12.750 11/01/03 1,228,500
1,650 Trump Plaza Funding Inc. ................... 10.875 06/15/01 1,716,000
------------
7,526,250
------------
</TABLE>

5 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- ---------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance 0.8%
$ 800 Nacolah Holding Corp. .................. 9.500% 12/01/03 $ 840,000
------------
Leisure 2.4%
2,150 Viacom International Inc. .............. 10.250 09/15/01 2,472,500
150 Viacom International Inc. .............. 8.000 07/07/06 153,375
------------
2,625,875
------------
Mining, Steel, Iron & Non-Precious
Metal 3.5%
850 Armco Inc. ............................. 11.375 10/15/99 871,250
400 Carbide/Graphite Group Inc. ............ 11.500 09/01/03 434,000
2,500 Easco Corp. ............................ 10.000 03/15/01 2,512,500
------------
3,817,750
------------
Oil & Gas 10.6%
1,150 Clark R & M Holdings Inc. .............. * 02/15/00 767,625
1,100 Giant Industries Inc. .................. 9.750 11/15/03 1,113,750
2,800 Global Marine Inc. ..................... 12.750 12/15/99 3,108,000
1,400 Petroleum Heat & Power Inc. ............ 12.250 02/01/05 1,561,000
1,130 Plains Resources Inc. .................. 12.000 10/01/99 1,183,675
950 TransTexas Gas Corp. ................... 11.500 06/15/02 978,500
100 Triton Energy Corp. .................... * 11/01/97 86,500
3,000 Triton Energy Corp. <F2> ............... 0/9.750 12/15/00 2,835,000
50 United Meridian Corp. .................. 10.375 10/15/05 53,000
------------
11,687,050
------------
</TABLE>

6 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- --------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Printing, Publishing & Broadcasting 14.8%
$ 2,400 Century Communications Corp. .............. 9.750% 02/15/02 $ 2,484,000
400 Century Communications Corp. .............. 11.875 10/15/03 430,000
950 Comcast Corp. ............................. 9.375 05/15/05 999,875
1,900 Heritage Media Services ................... 11.000 06/15/02 2,023,500
2,600 Insight Communications Co. <F2> ........... 8.250/11.250 03/01/00 2,613,000
1,900 K-III Communications Corp. ................ 10.625 05/01/02 2,033,000
500 K-III Communications Corp. ................ 10.250 06/01/04 537,500
1,900 SCI Television Inc. ....................... 11.000 06/30/05 2,023,500
2,100 Storer Communications Inc. ................ 10.000 05/15/03 2,105,250
200 Young Broadcasting Inc. ................... 11.750 11/15/04 224,000
900 Young Broadcasting Inc. ................... 10.125 02/15/05 954,000
------------
16,427,625
------------
Retail 1.4%
500 Hosiery Corp. America Inc.
(Including 500 common stock warrants) ..... 13.750 08/01/02 541,250
975 Waban Inc. ................................ 11.000 05/15/04 999,375
------------
1,540,625
------------
Telecommunications 5.8%
1,000 Centennial Cellular Corp. ................. 10.125 05/15/05 1,055,000
900 Continental Cablevision Inc. .............. 8.300 05/15/06 904,500
400 Intermedia Communications of Florida, Inc.
(Including 400 common stock warrants) ..... 13.500 06/01/05 448,000
750 Metrocall Inc. ............................ 10.375 10/01/07 798,750
900 Mobilemedia Communications Inc. ........... 9.375 11/01/07 931,500
2,180 Panamsat L. P. ............................ 9.750 08/01/00 2,310,800
------------
6,448,550
------------
</TABLE>

7 See Notes to Financial Statements

Repurchase Agreement 6.8%
State Street Bank & Trust, U.S. Treasury Bond, $6,540,000 par,
7.500% coupon, due 11/15/16, dated 12/29/95, to be sold on
01/02/96 at $7,560,827 .................................................... 7,556,000
Other Assets in Excess of Liabilities 4.6%.................................. 5,137,568
------------
Net Assets 100%............................................................. $110,821,594
============

*Zero coupon bond

<FN>

<F1> At December 31, 1995, cost for federal income tax purposes is $95,384,190;
the aggregate gross unrealized appreciation is $3,640,673 and the
aggregate gross unrealized depreciation is $896,837, resulting in net
unrealized appreciation of $2,743,836.

<F2> Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
</TABLE>

The following table summarizes the portfolio composition at December 31, 1995,
based upon quality ratings issued by Standard & Poor's. For securities not rated
by Standard & Poor's, the Moody's rating is used.

<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
BBB........... 0.7%
BB............ 39.2
B............. 57.5
CCC........... 0.1
Non-Rated..... 2.5
------
100.0%
======
</TABLE>

8 See Notes to Financial Statements

<TABLE>
Statement of Assets and Liabilities
December 31, 1995
- ----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $95,384,190) (Note 1)............................. $ 98,128,026
Repurchase Agreements (Note 1)....................................................... 7,556,000
Receivables:
Investments Sold................................................................... 4,190,970
Interest........................................................................... 2,198,051
Miscellaneous...................................................................... 60,000
Other................................................................................ 2,243
---------------
Total Assets..................................................................... 112,135,290
---------------
Liabilities:
Payables:
Investments Purchased.............................................................. 707,785
Income Distributions - Common and Preferred Shares................................. 255,691
Investment Advisory Fee (Note 2)................................................... 70,338
Custodian Bank..................................................................... 36,816
Accrued Expenses..................................................................... 243,066
---------------
Total Liabilities.................................................................... 1,313,696
---------------
Net Assets........................................................................... $ 110,821,594
===============
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...................................................................... 84,320,585
Net Unrealized Appreciation on Investments........................................... 2,743,836
Accumulated Undistributed Net Investment Income...................................... 1,551,323
Accumulated Net Realized Loss on Investments......................................... (22,875,240)
---------------
Net Assets Applicable to Common Shares............................................... 65,821,594
---------------
Net Assets........................................................................... $ 110,821,594
===============
Net Asset Value Per Common Share ($65,821,594 divided by 8,109,000 shares
outstanding)....................................................................... $ 8.12
===============
</TABLE>

9 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest........................................................ $ 11,430,242
Other........................................................... 137,500
----------------
Total Income................................................ 11,567,742
----------------
Expenses:
Investment Advisory Fee (Note 2)................................ 816,098
Preferred Share Maintenance (Note 4)............................ 130,363
Shareholder Services (Note 2)................................... 66,243
Audit........................................................... 62,645
Trustees Fees and Expenses (Note 2)............................. 25,312
Legal (Note 2).................................................. 8,220
Other........................................................... 139,918
----------------
Total Expenses.............................................. 1,248,799
----------------
Net Investment Income........................................... $ 10,318,943
================
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales........................................... $ 122,074,145
Cost of Securities Sold....................................... (121,413,262)
----------------
Net Realized Gain on Investments ............................... 660,883
----------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period....................................... (3,135,079)

End of the Period............................................. 2,743,836
----------------
Net Unrealized Appreciation on Investments During the Period.... 5,878,915
----------------
Net Realized and Unrealized Gain on Investments................. $ 6,539,798
================
Net Increase in Net Assets from Operations...................... $ 16,858,741
================
</TABLE>

10 See Notes to Financial Statements

<TABLE>
Statement of Changes in Net Assets
For the Years Ended December 31, 1995 and 1994
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income.............................................. $ 10,318,943 $ 10,404,659
Net Realized Gain/Loss on Investments.............................. 660,883 (4,011,409)
Net Unrealized Appreciation/Depreciation on Investments During the
Period........................................................... 5,878,915 (8,395,741)
----------------- -----------------
Change in Net Assets from Operations .............................. 16,858,741 (2,002,491)
----------------- -----------------
Distributions from Net Investment Income:
Common Shares.................................................... (7,783,987) (9,568,006)
Preferred Shares................................................. (2,614,443) (1,901,938)
----------------- -----------------
Total Distributions................................................ (10,398,430) (11,469,944)
----------------- -----------------
Net Change in Net Assets from Investment Activities................ 6,460,311 (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 $1,551,323 and $1,430,641, respectively) ..................... $ 110,821,594 $ 104,361,283
================= =================
</TABLE>

11 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights

The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- ---------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period <F1>.... $ 7.320 $ 8.982
---------- ------------
Net Investment Income.......................... 1.273 1.283
Net Realized and Unrealized Gain/Loss on
Investments.................................. .806 (1.530)
---------- ------------
Total from Investment Operations................. 2.079 (.247)
---------- ------------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders.................. .960 1.180
Common Share Equivalent of Distributions Paid
to Preferred Shareholders.................... .322 .235
Return of Capital Paid to
Common Shareholders.......................... -0- -0-
---------- ------------
Total Distributions.............................. 1.282 1.415
---------- ------------
Net Asset Value, End of the Period............... $ 8.117 $ 7.320
========== ============
Market Price Per Share at End of the Period...... $ 8.750 $ 7.500
Total Investment Return at Market Price <F2>..... 30.33% (12.94%)
Total Return at Net Asset Value <F3>............. 25.19% (5.70%)
Net Assets at End of the Period (In millions).... $ 110.8 $ 104.4
Ratio of Expenses to Average Net Assets
Applicable to Common Shares (Annualized)....... 1.96% 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>................ 12.09% 12.87%
Portfolio Turnover............................... 123.71% 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.

N/A = Not Applicable
*Non-Annualized
</TABLE>

<TABLE>
<CAPTION>
The following schedule presents financial highlights for one
common share of the Trust outstanding throughout the periods
indicated.
- -------------------------------------------------------------------------------------------------------------------
April 28, 1989
(Commencement of
Year Ended December 31 Investment
--------------------------------------------- Operations) to
1993 1992 1991 1990 December 31, 1989
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period <F1>.... $ 7.916 $ 7.287 $ 5.884 $ 9.307 $ 10.765
--------- --------- --------- ------------ -----------------
Net Investment Income.......................... 1.422 1.691 1.512 1.908 1.283
Net Realized and Unrealized Gain/Loss on
Investments.................................. 1.021 .415 1.686 (3.410) (1.461)
--------- --------- --------- ------------ -----------------
Total from Investment Operations................. 2.443 2.106 3.198 (1.502) (0.178)
--------- --------- --------- ------------ -----------------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders.................. 1.200 .975 .920 1.238 .909
Common Share Equivalent of Distributions Paid
to Preferred Shareholders.................... .177 .502 .543 .666 .371
Return of Capital Paid to
Common Shareholders.......................... -0- -0- -0- .017 -0
--------- --------- --------- ------------ -----------------
Total Distributions.............................. 1.377 1.477 1.463 1.921 1.280
--------- --------- --------- ------------ -----------------
Net Asset Value, End of the Period............... $ 8.982 $ 7.916 $ 7.619 $ 5.884 $ 9.307
========= ========= ========= ============ =================
Market Price Per Share at End of the Period...... $ 9.750 $ 9.375 $ 7.500 $ 5.250 $ 9.000
Total Investment Return at Market Price <F2>..... 17.01% 39.58% 62.27% (30.57%) (18.34%)*
Total Return at Net Asset Value <F3>............. 30.08% 16.92% 46.26% (24.92%) (15.21%)*
Net Assets at End of the Period (In millions).... $ 117.8 $ 109.2 $ 108.2 $ 94.1 $ 135.5
Ratio of Expenses to Average Net Assets
Applicable to Common Shares (Annualized)....... 1.72% 1.73% 2.73% 2.12% 1.57%
Ratio of Expenses to Average
Net Assets (Annualized)........................ 1.05% 1.02% 1.52% 1.11% N/A
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (Annualized) <F4>................ 14.41% 14.49% 13.59% 15.99% 12.91%
Portfolio Turnover............................... 139.89% 145.05% 96.79% 64.64% 31.04%

<FN>

<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.

N/A = Not Applicable
*Non-Annualized

</TABLE>

13 See Notes to Financial Statements

Notes to Financial Statements
December 31, 1995
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1. Significant Accounting Policies

Van Kampen American Capital 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'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 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 December 31,
1995, there were no when issued or delayed delivery purchase commitments.

C. Investment Income and Expenses---Interest income and expenses are recorded
on an accrual basis. Bond discounts are amortized over the expected life of each
applicable security.

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.

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

Notes to Financial Statements (Continued)
December 31, 1995
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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, 1995, the Trust had an accumulated capital loss
carryforward of $22,875,240, of which $8,476,712, $11,048,002, $902,225 and
$2,448,301 will expire on December 31, 1998, 1999, 2002 and 2003, 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.

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. Permanent book and tax
basis differences relating to the recognition of certain expenses which are not
deductible for tax purposes totaling $200,169 have been reclassified from
accumulated undistributed net investment income to paid in surplus.

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 year ended December 31, 1995, the Trust recognized expenses of
approximately $15,500 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 December 31, 1995, was approximately $30,400.

Notes to Financial Statements (Continued)
December 31, 1995
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3. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the year ended December 31, 1995, were $123,882,332 and
$121,413,262, 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 December 31, 1995, was 5.774%. During
the year ended December 31, 1995, the rates ranged from 5.630% to 6.049%.

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.

Independent Auditors' Report
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The Board of Trustees and Shareholders of
Van Kampen American Capital Limited Term High Income Trust:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Limited Term High Income Trust (the "Trust"), including
the portfolio of investments, as of December 31, 1995, 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 periods presented. These financial statements and
financial highlights are the responsibility of the Trust'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, 1995, 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 Limited Term High Income Trust as of December 31, 1995,
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 periods presented, in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP
Chicago, Illinois
February 6, 1996

Dividend Reinvestment Plan
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The Trust offers a Dividend Reinvestment Plan (the "Plan") for Common
Shareholders pursuant to which Common Shareholders who are participants in the
Plan may have all distributions of dividends and capital gains distributions
automatically reinvested in Common Shares of the Trust. All Common Shareholders
are deemed to be participants in the Plan unless they specifically elect not to
participate. Common Shareholders who elect not to participate in the Plan will
receive all distributions of dividends and capital gains in cash paid by check
mailed directly to the Common Shareholder by the Trust's dividend disbursing
agent.

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 capital gains 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.

Cost 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

All Common Shareholders of the Trust are deemed to be participants in the Plan
unless they specifically elect not to participate. 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:

One Parkview Plaza, Oakbrook Terrace, IL 60181, Attn: Closed-End Funds

Funds Distributed by Van Kampen American Capital
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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 adviser 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.

Van Kampen American Capital Limited Term High Income Trust
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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.

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