<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
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
Report of Independent Accountants................ 17
Dividend Reinvestment Plan....................... 18
</TABLE>
VLT ANR 2/97
<PAGE> 2
LETTER TO SHAREHOLDERS
February 10, 1997
Dear Shareholder,
The high yield bond market, which
is influenced by both the stock and
bond markets, was one of the best
performing sectors of the domestic [PHOTO]
fixed-income market in 1996. Strong
corporate earnings helped boost high
yield bond prices throughout 1996 and
offset some of the negative effects
of a weaker bond market during the
first half of the year. DENNIS J. MCDONNELL AND DON G. POWELL
Bond prices fell in the first six
months of 1996 on fears that strong economic growth would spur the Federal
Reserve Board to raise interest rates. When second-quarter growth (real gross
domestic product, adjusted for inflation) was reported to have risen 4.7
percent, bond prices fell even further, and long-term Treasury bond yields,
which move in the opposite direction of bond prices, jumped above 7.0 percent.
During this same period, equities surged, particularly stocks of small
capitalization companies.
Early in the third quarter, the scenario shifted. Stocks suffered a
temporary setback but bounced back in early August and rallied through year end,
led by large capitalization stocks. Bonds recovered as economic growth slowed to
2.0 percent. Concerns about increasing price pressures and Fed tightening
receded, and the 30-year Treasury bond yield fell to approximately 6.6 percent
in late October, where it remained at year end.
PORTFOLIO STRATEGY
The Limited Term High Income Trust's portfolio is comprised primarily of
non-investment grade bonds. Currently, about 36 percent of the Trust's assets
are invested in BB-rated bonds, which is the highest quality rating within the
non-investment grade category. Approximately 57 percent of the Trust's assets
are invested in B-rated bonds. When the stock market rises, as it did in 1996,
these lower-rated bonds have tended to outperform higher-rated bonds, because
higher-rated securities are more liquid and respond quicker to interest rate
fluctuations. Also, lower-rated securities usually have performed better in a
growing economy as their credit prospects may improve and the high coupons act
as buffers against rising interest rates.
During 1996, the Trust increased its holdings of energy and gaming
securities, which were among the top performing sectors in the high yield
market. The Trust also increased its exposure to media/telecommunications
companies, one of the largest issuers of high yield bonds.
Following shareholder approval in October, we eliminated the Trust's June 1,
2001 termination date. This change will allow the Trust to lengthen the average
maturity of the portfolio's holdings, which may enhance the future income
potential of the Trust.
Continued on page two
1
<PAGE> 3
[CREDIT QUALITY GRAPH]
PORTFOLIO COMPOSITION BY CREDIT QUALITY
<TABLE>
<CAPTION>
As of As of
December 31, June 30,
1996 1996(1)
<S> <C> <C>
B..................... 57.4% 57.0%
BB.................... 35.7% 38.1%
BBB................... 2.4% 2.8%
CCC................... 0.4% 0.3%
Non-Rated............. 4.1% 1.8%
</TABLE>
(1) Unaudited
Based upon credit quality issued by Standard & Poor's.
For securities not rated by Standard & Poor's, the Moody's
rating is used.
PERFORMANCE SUMMARY
The Trust's leveraged capital structure, which involves borrowing short-term
funds to purchase long-term corporate securities, helped to provide a high level
of current income and strong total returns in 1996. For the 12-month period
ended December 31, 1996, the Trust generated a total return of 18.91 percent(1).
This strong performance reflects a gain in market price per common share from
$8.750 on December 31, 1995 to $9.375 on December 31, 1996, plus reinvestment of
dividends totaling $0.96 per share. Based upon the monthly dividend of $.0800
and the closing common stock price on December 31, 1996, the Trust generated a
distribution rate of 10.24 percent(3). The Trust's borrowing costs held steady
because short-term interest rates remained relatively stable during the year. 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.
ECONOMIC OUTLOOK
We believe that the economy will grow at a modest pace in 1997, near 2.5
percent, although there could be periods of strong economic growth. While these
growth spurts may be accompanied by short-term market fluctuation, we do not
believe they will be strong enough to reignite inflation. The results of the
November elections reinforce this view--the combination of a Democratic
president and a Republican Congress should help restrain potential spending
increases and large tax cuts, and therefore keep the budget deficit under
control.
We believe there is a possibility that the Fed will grow more concerned
about the economy's strength and nudge interest rates higher, though not before
March. We also anticipate continued strong demand for U.S. bonds by overseas
investors. The stock market is another factor that will influence the
performance of the high yield bond market this year. If stocks continue to
advance, we believe the high yield bond market will reap a large percentage of
that gain, as it has in the past. If stocks fall, we believe the income
component of the high yield market will offset some of the negative effects of
that decline.
Continued on page three
2
<PAGE> 4
CORPORATE NEWS
As you may be aware, shareholders approved the acquisition of VK/AC Holding,
Inc. by Morgan Stanley Group Inc. We believe this acquisition will further help
investors achieve their long-term goals. Morgan Stanley's strong global presence
and commitment to superior investment performance complement our broad range of
investment products, money management capability and high level of service.
Thank you for your continued confidence in your investment with Van Kampen
American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1996
VAN KAMPEN AMERICAN CAPITAL LIMITED TERM HIGH INCOME TRUST
(NYSE TICKER SYMBOL--VLT)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One year total return on market price(1).................... 18.91%
One year total return based on NAV(2)....................... 15.15%
DISTRIBUTION RATE
Distribution rate as a % of closing common stock price(3)... 10.24%
SHARE VALUATIONS
Net asset value............................................. $ 8.31
Closing common stock price.................................. $9.375
One year high common stock price (12/30/96)................. $9.500
One year low common stock price (06/27/96).................. $8.625
Preferred share rate(4)..................................... 5.305%
</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.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS
AEROSPACE & DEFENSE 2.2%
$1,950 Sequa Corp..................................... 9.625% 10/15/99 $ 2,023,125
450 Sequa Corp..................................... 9.375 12/15/03 459,000
------------
2,482,125
------------
AUTOMOBILE 2.7%
550 Aetna Industries, Inc.......................... 11.875 10/01/06 592,625
900 Exide Corp..................................... 10.750 12/15/02 940,500
500 JPS Automotive Products Corp................... 11.125 06/15/01 537,500
950 Speedy Muffler King, Inc....................... 10.875 10/01/06 1,016,500
------------
3,087,125
------------
BUILDINGS & REAL ESTATE 5.0%
1,900 American Standard, Inc......................... 10.875 05/15/99 2,047,250
250 American Standard, Inc......................... 11.375 05/15/04 268,750
1,600 Doman Industries Ltd........................... 8.750 03/15/04 1,504,000
1,600 Schuller International Group, Inc.............. 10.875 12/15/04 1,784,000
------------
5,604,000
------------
CHEMICAL 1.6%
1,694 ISP Holdings, Inc., 144A Private Placement (c). 9.750 02/15/02 1,778,700
------------
CONTAINERS, PACKAGING & GLASS 6.8%
500 Owens Illinois, Inc............................ 10.250 04/01/99 505,000
2,000 Owens Illinois, Inc............................ 11.000 12/01/03 2,230,000
700 S.D. Warren Co................................. 12.000 12/15/04 756,000
800 Stone Consolidated Corp........................ 10.250 12/15/00 850,000
500 Sweetheart Cup, Inc............................ 9.625 09/01/00 518,750
550 Sweetheart Cup, Inc............................ 10.500 09/01/03 578,875
2,100 U.S. Can Co.................................... 13.500 01/15/02 2,194,500
------------
7,633,125
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING 3.4%
1,050 Communications & Power Industries, Inc......... 12.000 08/01/05 1,178,625
900 Jordan Industries, Inc......................... 10.375 08/01/03 895,500
1,650 Talley Manufacturing & Technology, Inc......... 10.750 10/15/03 1,728,375
------------
3,802,500
------------
ECOLOGICAL 0.4%
400 Norcal Waste Systems, Inc. (b)................. 12.500 11/15/05 446,000
------------
ELECTRONICS 4.4%
1,200 Advanced Micro Devices, Inc.................... 11.000 08/01/03 1,305,000
1,850 Bell & Howell Co. (b).......................... 0/11.500 03/01/05 1,373,625
1,100 Computervision................................. 11.375 08/15/99 1,149,500
1,000 Exide Electronics Group, Inc. (Including 1,000
common stock warrants)......................... 11.500 03/15/06 1,100,000
------------
4,928,125
------------
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ENERGY 1.9%
$ 550 National Energy Group, Inc., 144A Private
Placement (c).................................. 10.750% 11/01/06 $ 577,500
1,350 Petroleum Heat & Power, Inc.................... 12.250 02/01/05 1,505,250
------------
2,082,750
------------
FARMING & AGRICULTURE 0.5%
500 Trans Resources, Inc........................... 11.875 07/01/02 505,000
------------
FINANCE 2.3%
2,450 American Annuity Group, Inc.................... 11.125 02/01/03 2,639,875
------------
GROCERY 2.1%
640 Pantry, Inc.................................... 12.000 11/15/00 614,400
1,050 Pathmark Stores, Inc........................... 9.625 05/01/03 1,008,000
700 Vons Cos., Inc................................. 9.625 04/01/02 731,500
------------
2,353,900
------------
HEALTHCARE 3.1%
1,000 Merit Behavioral Care Corp..................... 11.500 11/15/05 1,075,000
200 Ornda Healthcorp............................... 12.250 05/15/02 213,000
1,200 Ornda Healthcorp............................... 11.375 08/15/04 1,386,000
700 Tenet Healthcare Corp.......................... 10.125 03/01/05 773,500
------------
3,447,500
------------
HOTEL, MOTEL, INNS & GAMING 6.7%
925 Argosy Gaming Co............................... 13.250 06/01/04 869,500
1,400 California Hotel Finance Corp.................. 11.000 12/01/02 1,456,000
950 Coast Hotels & Casinos, Inc.................... 13.000 12/15/02 1,049,750
850 Grand Casino, Inc.............................. 10.125 12/01/03 854,250
850 Hollywood Casino, Inc.......................... 12.750 11/01/03 820,250
700 Majestic Star Casino L.L.C..................... 12.750 05/15/03 750,750
1,025 MGM Grand Hotel Finance Corp................... 11.750 05/01/99 1,066,000
675 Trump Atlantic City Associates................. 11.250 05/01/06 671,625
------------
7,538,125
------------
LEISURE 3.6%
1,450 Selmer, Inc.................................... 11.000 05/15/05 1,576,875
2,300 Viacom International, Inc...................... 10.250 09/15/01 2,501,250
------------
4,078,125
------------
MACHINERY 0.7%
800 Clark Material Handling Corp., 144A Private
Placement (c).................................. 10.750 11/15/06 828,000
------------
MINING, STEEL, IRON & NON-PRECIOUS METAL 3.5%
1,150 Armco, Inc..................................... 11.375 10/15/99 1,207,500
600 Carbide/Graphite Group, Inc.................... 11.500 09/01/03 657,000
1,000 Easco Corp..................................... 10.000 03/15/01 1,010,000
130 Inland Steel Co................................ 12.000 12/01/98 139,100
950 WCI Steel, Inc., 144A Private Placement (c).... 10.000 12/01/04 969,000
------------
3,982,600
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OIL & GAS 9.7%
$1,150 Clark R & M Holdings, Inc...................... * 02/15/00 $ 828,000
700 Coda Energy, Inc............................... 10.500% 04/01/06 742,000
1,400 Giant Industries, Inc.......................... 9.750 11/15/03 1,452,500
2,800 Global Marine, Inc............................. 12.750 12/15/99 3,024,000
1,450 KCS Energy, Inc................................ 11.000 01/15/03 1,580,500
500 Parker Drilling Co., 144A Private Placement (c). 9.750 11/15/06 526,250
2,625 Triton Energy Corp. (b)........................ 9.750 12/15/00 2,743,125
------------
10,896,375
------------
PERSONAL & NON-DURABLE 2.2%
300 Rayovac Corp., 144A Private Placement (c)...... 10.250 11/01/06 307,500
1,150 Revlon Consumer Products Corp.................. 9.375 04/01/01 1,181,625
550 Revlon Consumer Products Corp.................. 10.500 02/15/03 577,500
450 Revlon Consumer Products Corp.................. 10.875 07/15/10 460,125
------------
2,526,750
------------
PRINTING, PUBLISHING & BROADCASTING 15.1%
2,000 Cablevision Systems Corp....................... 10.750 04/01/04 2,075,000
400 Cablevision Systems Corp....................... 10.500 05/15/16 414,000
1,000 Century Communications Corp.................... 9.750 02/15/02 1,027,500
400 Century Communications Corp.................... 11.875 10/15/03 426,000
550 Comcast Corp................................... 9.375 05/15/05 572,000
600 Comcast Corp................................... 9.125 10/15/06 615,000
950 EZ Communications, Inc......................... 9.750 12/01/05 992,750
500 Heritage Media Services........................ 11.000 06/15/02 537,500
2,400 Insight Communications Co. (b)................. 11.250 03/01/00 2,484,000
850 International Cabletel, Inc. (b)............... 0/12.750 04/15/05 639,625
450 International Cabletel, Inc. (b)............... 0/11.500 02/01/06 307,125
350 JCAC, Inc...................................... 10.125 06/15/06 362,250
1,900 K-III Communications Corp...................... 10.625 05/01/02 1,999,750
750 Katz Media Corp., 144A Private Placement (c)... 10.500 01/15/07 770,625
2,150 SCI Television, Inc............................ 11.000 06/30/05 2,311,250
800 Young Broadcasting, Inc........................ 11.750 11/15/04 876,000
550 Young Broadcasting, Inc........................ 10.125 02/15/05 566,500
------------
16,976,875
------------
RETAIL 5.2%
350 Cole National Group, Inc., 144A Private
Placement (c).................................. 9.875 12/31/06 357,875
500 Hosiery Corp. America, Inc. (Including 500
common stock warrants)......................... 13.750 08/01/02 580,000
800 Loehmann's, Inc................................ 11.875 05/15/03 864,000
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RETAIL (CONTINUED)
$2,070 Thrifty Payless................................ 12.250% 04/15/04 $ 2,442,600
1,450 Waban, Inc..................................... 11.000 05/15/04 1,631,250
------------
5,875,725
------------
TELECOMMUNICATIONS 5.9%
1,100 Centennial Cellular Corp....................... 10.125 05/15/05 1,111,000
400 Intermedia Communications of Florida, Inc.
(Including 400 common stock warrants).......... 13.500 06/01/05 475,000
450 Intermedia Communications of Florida, Inc.
(b)............................................ 0/12.500 05/15/06 297,000
1,200 IXC Communications, Inc........................ 12.500 10/01/05 1,320,000
1,500 Panamsat L.P................................... 9.750 08/01/00 1,586,250
450 Pricellular Wireless Corp. (b)................. 0/12.250 10/01/03 387,000
450 Pricellular Wireless Corp., 144A Private
Placement (c).................................. 10.750 11/01/04 471,375
1,350 Teleport Communications Group (b).............. 0/11.125 07/01/07 931,500
------------
6,579,125
------------
TEXTILES 1.0%
1,100 Dan River, Inc................................. 10.125 12/15/03 1,105,500
------------
TRANSPORTATION 1.2%
1,300 U.S. Air, Inc.................................. 8.625 09/01/98 1,303,250
------------
UTILITIES 5.3%
1,300 AES Corp....................................... 10.250 07/15/06 1,404,000
675 California Energy, Inc......................... 9.875 06/30/03 715,500
2,500 Connecticut Yankee Atomic Power................ 12.000 06/01/00 2,575,000
850 El Paso Electric Co............................ 8.250 02/01/03 873,375
350 El Paso Electric Co............................ 8.900 02/01/06 369,250
------------
5,937,125
------------
TOTAL LONG-TERM INVESTMENTS 96.5%
(Cost $105,258,919) (a)..................................................... 108,418,300
REPURCHASE AGREEMENT 1.9%
J.P. Morgan Securities, U.S. Treasury Note, $2,054,000 par, 7.250% coupon, due
05/15/16, dated 12/31/96, to be sold on 01/02/97 at $2,144,744................ 2,144,000
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%................................... 1,801,475
------------
NET ASSETS 100.0%............................................................ $112,363,775
============
</TABLE>
*Zero coupon bond
(a) At December 31, 1996, cost for federal income tax purposes is $105,258,919;
the aggregate gross unrealized appreciation is $3,526,598 and the aggregate
gross unrealized depreciation is $367,217, resulting in net unrealized
appreciation of $3,159,381.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $105,258,919)
(Note 1).................................................. $108,418,300
Repurchase Agreements (Note 1).............................. 2,144,000
Cash........................................................ 101,593
Interest Receivable......................................... 2,354,055
Other....................................................... 1,101
------------
Total Assets.......................................... 113,019,049
------------
LIABILITIES:
Payables:
Income Distributions - Common and Preferred Shares........ 246,201
Investments Purchased..................................... 101,500
Investment Advisory Fee (Note 2).......................... 71,105
Affiliates (Note 2)....................................... 11,764
Accrued Expenses............................................ 166,709
Deferred Compensation and Retirement Plans (Note 2)......... 57,995
------------
Total Liabilities..................................... 655,274
------------
NET ASSETS.................................................. $112,363,775
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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............................................. 84,279,775
Net Unrealized Appreciation on Investments.................. 3,159,381
Accumulated Undistributed Net Investment Income............. 1,400,564
Accumulated Net Realized Loss on Investments................ (21,557,035)
------------
Net Assets Applicable to Common Shares................ 67,363,775
------------
NET ASSETS.................................................. $112,363,775
============
NET ASSET VALUE PER COMMON SHARE ($67,363,775 divided by
8,109,000 shares outstanding)............................. $ 8.31
============
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $11,137,579
Other....................................................... 63,750
-----------
Total Income.......................................... 11,201,329
-----------
EXPENSES:
Investment Advisory Fee (Note 2)............................ 829,233
Preferred Share Maintenance (Note 4)........................ 120,140
Shareholder Services (Note 2)............................... 65,370
Custody..................................................... 46,848
Trustees Fees and Expenses (Note 2)......................... 31,368
Legal (Note 2).............................................. 14,640
Other....................................................... 133,399
-----------
Total Expenses........................................ 1,240,998
-----------
NET INVESTMENT INCOME....................................... $ 9,960,331
===========
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Net Realized Gain on Investments............................ $ 1,318,205
-----------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period................................... 2,743,836
End of the Period......................................... 3,159,381
-----------
Net Unrealized Appreciation on Investments During the
Period.................................................... 415,545
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. $ 1,733,750
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $11,694,081
===========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 9,960,331 $ 10,318,943
Net Realized Gain on Investments................... 1,318,205 660,883
Net Unrealized Appreciation on Investments During
the Period....................................... 415,545 5,878,915
------------ ------------
Change in Net Assets from Operations............... 11,694,081 16,858,741
------------ ------------
Distributions from Net Investment Income:
Common Shares.................................... (7,783,848) (7,783,987)
Preferred Shares................................. (2,368,052) (2,614,443)
------------ ------------
Total Distributions................................ (10,151,900) (10,398,430)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... 1,542,181 6,460,311
NET ASSETS:
Beginning of the Period............................ 110,821,594 104,361,283
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $1,400,564
and $1,551,323, respectively).................... $112,363,775 $110,821,594
============ ============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period (a)............. $8.117 $7.320 $8.982
------ ------ ------
Net Investment Income.................................. 1.228 1.273 1.283
Net Realized and Unrealized Gain/Loss on Investments... .214 .806 (1.530)
------ ------ ------
Total from Investment Operations......................... 1.442 2.079 (.247)
------ ------ ------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders.......................... .960 .960 1.180
Common Share Equivalent of Distributions Paid to
Preferred Shareholders............................. .292 .322 .235
Return of Capital Paid to Common Shareholders.......... -0- -0- -0-
------ ------ ------
Total Distributions...................................... 1.252 1.282 1.415
------ ------ ------
Net Asset Value, End of the Period....................... $8.307 $8.117 $7.320
====== ====== ======
Market Price Per Share at End of the Period.............. $9.375 $8.750 $7.500
Total Investment Return at Market Price (b).............. 18.91% 30.33% (12.94%)
Total Return at Net Asset Value (c)...................... 15.15% 25.19% (5.70%)
Net Assets at End of the Period (In millions)............ $112.4 $110.8 $104.4
Ratio of Expenses to Average Net Assets Applicable to
Common Shares.......................................... 1.89% 1.96% 1.97%
Ratio of Expenses to Average Net Assets.................. 1.12% 1.15% 1.17%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)........................ 11.58% 12.09% 12.87%
Portfolio Turnover....................................... 94% 124% 125%
</TABLE>
(a) 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.
(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 upon NAV.
(d) Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
N/A = Not Applicable
12
<PAGE> 14
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 28, 1989
(Commencement
Year Ended December 31 of Investment
- ---------------------------------------- Operations) to
1993 1992 1991 1990 December 31, 1989
- -------------------------------------------------------------------
<C> <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%
140% 145% 97% 65% 31%*
</TABLE>
See Notes to Financial Statements.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
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. 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 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 December 31, 1996, there were no
when issued or delayed delivery purchase commitments.
The Trust invests 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 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.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
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, 1996, the Trust had an accumulated capital loss
carryforward for tax purposes of $21,549,013 which expires between December 31,
1998 and December 31, 2003, respectively.
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.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1996 fiscal year have been identified and appropriately reclassified.
Permanent book and tax basis differences relating to the recognition of certain
expenses which are not deductible for tax purposes totaling $40,810 have been
reclassified from accumulated undistributed net investment income to capital.
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.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Trust, of which a trustee of the Trust is an
affiliated person.
For the year ended December 31, 1996, the Trust recognized expenses of
approximately $14,700 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.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
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.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments were $106,104,971 and $98,495,709,
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, 1996, was 5.305%. During
the year ended December 31, 1996, the rates ranged from 5.090% to 5.774%.
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.
16
<PAGE> 18
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1996, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the 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, 1996, by correspondence with the custodian and broker. 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, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 4, 1997
17
<PAGE> 19
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") 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 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 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:
2800 Post Oak Blvd., Houston, TX 77056, Attn: Closed-End Funds
18
<PAGE> 20
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds, or
1-800-282-4404 for Morgan Stanley retail funds.
19
<PAGE> 21
VAN KAMPEN AMERICAN CAPITAL LIMITED TERM 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 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., 1997
All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
RESULTS OF SHAREHOLDER VOTES
An Annual Meeting of Shareholders of the Trust was held on May 23, 1996, where
shareholders voted on the election of trustees and the selection of independent
public accountants. With regard to the election of David C. Arch as elected
trustee by the common shareholders of the Trust, 6,998,215 shares voted in his
favor, 140,228 shares withheld. With regard to the election of Howard J Kerr as
elected trustee by the common shareholders of the Trust, 7,000,098 shares voted
in his favor, 138,346 shares withheld. With regard to the election of Dennis J.
McDonnell as elected trustee by the common shareholders of the Trust, 7,005,440
shares voted in his favor, 133,003 shares withheld. The other trustees of the
Fund whose terms did not expire in 1996 are Rod Dammeyer, Theodore A. Myers,
Hugo Sonnenschein and Wayne W. Whalen. With regard to the ratification of KPMG
Peat Marwick LLP as independent public accountants for the Trust, 6,983,805
shares voted in favor of the proposal, 63,644 shares voted against and 91,795
shares abstained.
A Special Meeting of Shareholders of the Trust was held on October 23, 1996,
where shareholders voted on a new investment advisory agreement, an amendment to
the Fund's Declaration of Trust and changes to investment policies. With regard
to the approval of a new investment advisory agreement between Van Kampen
American Capital Investment Advisory Corp. and the Trust, 6,569,166 shares voted
for the proposal, 189,858 shares voted against, 223,798 shares abstained and
143,905 shares represented broker non-votes. With regard to the approval of an
amendment to the Fund's Declaration of Trust, 4,083,540 shares voted in favor of
the proposal, 173,887 shares voted against, 233,871 shares abstained and
2,635,429 shares represented broker non-votes. With regard to the approval of
certain changes to the Trust's fundamental investment policies with respect to
investments in other investment companies, 3,359,054 shares voted for the
proposal, 240,799 voted against, 225,554 shares abstained and 3,301,320 shares
represented broker non-votes.
20
