-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SxsJV67/TLSIiQz4Iq7PeR2zvvdHEVCF0AIky5BS7BCKYlTt6kLc/GOaTJvCMRWh MxkyDXayRCdcPMy1kKwCkg== 0000950137-00-000638.txt : 20000225 0000950137-00-000638.hdr.sgml : 20000225 ACCESSION NUMBER: 0000950137-00-000638 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN HIGH INCOME TRUST CENTRAL INDEX KEY: 0000843506 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 363616859 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05707 FILM NUMBER: 552513 BUSINESS ADDRESS: STREET 1: ONE PARKVIEW PLZ STREET 2: VAN KAMPEN INVESTMENTS INC CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 BUSINESS PHONE: 6306846774 MAIL ADDRESS: STREET 1: VAN KAMPEN INVESTMENTS INC STREET 2: ONE PARKVIEW PLAZA CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM HIGH INCOME TR DATE OF NAME CHANGE: 19960102 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN MERRITT INTERMEDIATE TERM HIGH INCOME TRUST DATE OF NAME CHANGE: 19920703 N-30D 1 ANNUAL REPORT 1 TABLE OF CONTENTS Letter to Shareholders........................... 1 Economic Snapshot................................ 2 Performance Results.............................. 3 Portfolio Management Review...................... 4 Glossary of Terms................................ 7 Portfolio Highlights............................. 8 Portfolio of Investments......................... 10 Statement of Assets and Liabilities.............. 17 Statement of Operations.......................... 18 Statement of Changes in Net Assets............... 19 Financial Highlights............................. 20 Notes to Financial Statements.................... 22 Report of Independent Accountants................ 25 Dividend Reinvestment Plan....................... 26
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE. 2 LETTER TO SHAREHOLDERS January 20, 2000 Dear Shareholder: As we enter a new century--and millennium--it seems appropriate to take a look back at the progress that's been made over the last 100 years and how the world of investing has changed over the generations. Although rapid advances in technology and science have dramatically altered the world that we live in today, one of the greatest shifts we've seen is the increasing importance of investing for many Americans. Once considered primarily for the wealthy, investing in the stock market is now available to most people. In fact, almost 79 million individuals--who represent almost half of all U.S. households--own stocks either directly or through mutual funds. This is even more impressive when considering that just 16 years earlier, only 19 percent of households owned stocks. Another important shift has been the need for retirement planning beyond a pension plan or Social Security. The Investment Company Institute, the leading mutual fund industry association, reports that 77 percent of all mutual fund shareholders earmarked retirement as their primary financial goal in 1998. Through all the changes in the investment environment over the past century, the general principles that have made generations of investors successful remain the same. Some that have stood the test of time include: - INVESTING FOR THE LONG-TERM - BASING INVESTMENT DECISIONS ON SOUND RESEARCH - BUILDING A DIVERSIFIED PORTFOLIO - BELIEVING IN THE VALUE OF PROFESSIONAL INVESTMENT ADVICE While no one can predict the future, at Van Kampen we believe that these ideas will remain important tenets for investors well into this century. As we continue to focus on these principles, we hope that our decades of investment experience can help bring you closer to your financial goals as we welcome the new millennium. Sincerely, /s/ Richard F. Powers, III /s/ Dennis J. McDonnell Richard F. Powers, III Dennis J. McDonnell Chairman President Van Kampen Investment Advisory Van Kampen Investment Advisory Corp. Corp.
1 3 ECONOMIC SNAPSHOT ECONOMIC GROWTH The nation's brisk rate of economic growth continued throughout 1999, bringing the United States to the verge of its longest economic expansion on record. High levels of consumer spending, a host of new jobs, and increasing productivity kept the economy strong. Gross domestic product, the primary measure of economic growth, increased 4.2 percent for the year, including an impressive annualized rate of 5.7 percent for the third quarter and 5.8 percent in the fourth quarter. EMPLOYMENT The job market remained vibrant throughout the year, with more than 2.7 million U.S. jobs created in 1999. In addition, unemployment dropped to 4.1 percent in October--its lowest rate in three decades. With jobs plentiful and wages on the rise, most Americans were optimistic about the future. At the end of the year the consumer confidence index hit its highest level since 1968. Although wage pressures caused some concerns about the potential erosion of corporate profits, productivity gains helped keep those concerns muted through the end of the year. INFLATION AND INTEREST RATES Although the Consumer Price Index continued to reflect historically low inflation--rising only 2.7 percent during 1999--concerns about future increases in inflation were prevalent throughout the reporting period. The Federal Reserve Board remained active in guarding against inflation and trying to temper economic growth. The Fed reversed its three interest-rate cuts from the fall of 1998 by raising rates in June, August, and November 1999. U.S. GROSS DOMESTIC PRODUCT Seasonally Adjusted Annualized Rates Third Quarter 1997 through Fourth Quarter 1999 [GRAPH] 97Q3 4.0 97Q4 3.1 98Q1 6.7 98Q2 2.1 98Q3 3.8 98Q4 5.9 99Q1 3.7 99Q2 1.9 99Q3 5.7 99Q4 5.8
Source: Bureau of Economic Analysis 2 4 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999 VAN KAMPEN HIGH INCOME TRUST (NYSE TICKER SYMBOL--VIT) COMMON SHARE TOTAL RETURNS One-year total return based on market price(1)............. (21.20%) One-year total return based on NAV(2)...................... (1.60%) DISTRIBUTION RATE Distribution rate as a % of closing common stock price(3)................................................... 14.40% SHARE VALUATIONS Net asset value............................................ $5.10 Closing common stock price................................. $4.50 One-year high common stock price (02/09/99)................ $6.6875 One-year low common stock price (12/17/99)................. $4.250 Preferred share rate(4).................................... 6.249%
(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. Investing in high-yield, lower-rated securities involves certain risks, which may include the potential for greater sensitivity to general economic downturns and greater market price volatility. Past performance does not guarantee future results. Investment return, stock price and net asset value will fluctuate with market conditions. Trust shares, when sold, may be worth more or less than their original cost. 3 5 PORTFOLIO MANAGEMENT REVIEW VAN KAMPEN HIGH INCOME TRUST We recently spoke with representatives of the adviser of the Van Kampen High Income Trust about the key events and economic forces that shaped the markets during the past year. Peter Ehret, portfolio manager, has managed the Trust since June 1, 1999, and worked in the investment industry since 1988. He is joined by Peter W. Hegel, chief investment officer for fixed-income investments. The following discussion reflects their views on the Trust's performance during the one-year period ended December 31, 1999. Q COULD YOU DESCRIBE THE CONDITIONS IN THE BOND MARKET DURING THE REPORTING PERIOD? A The high-yield market proved to be one of the best-performing sectors of the domestic bond market during a poor year for fixed-income securities. Rising interest rates and concerns about inflation from a thriving economy caused the domestic fixed-income markets to decline significantly during 1999. Because the high-yield market typically displays lower sensitivity to interest rates than other areas of the fixed-income markets, high-yield securities were able to outperform Treasury, mortgage, and investment-grade corporate bonds, despite having a relatively poor year themselves. Credit problems and excess supply were among the major issues weighing down the high-yield market, and the Trust was not spared from erosion of market value. Credit problems mounted significantly in 1999, and as perceptions of credit risk increased, yields increased and bond values fell. Although the number of bond issuers in financial distress or bankruptcy increased during 1999, the trend appeared to be leveling off by year-end. The high-yield market as a whole appeared to be on the upswing by the end of the reporting period. Excess supply was mitigated as investors' interest in this asset class heightened, new bond issuance slowed, and the market grew more confident that the date rollover to year 2000 was not going to present serious computer problems. The year closed on a high note, as November and December provided some of the year's best returns. Q WHAT SECTORS PERFORMED WELL IN THIS ENVIRONMENT? A Once again, the telecommunications sector saw tremendous new issuance and outperformed other sectors as the industry grew during the year. Various portfolio constraints limit the Trust's ability to invest in this sector. However, we were able to purchase some attractive telecommunications securities throughout the year that contributed to performance. At the end of the reporting period, telecommunications represented 10.7 percent of the portfolio's long-term holdings. Other top-performing sectors that benefited the Trust included gaming and commodity-oriented sectors such as energy and paper. Commodities generally experienced a turnaround during the year, with higher oil and paper prices underpinning the recoveries. For additional portfolio highlights, please refer to page 8. 4 6 Q WILL YOU TRY TO INCREASE YOUR EXPOSURE TO TELECOMMUNICATIONS AND OTHER SECTORS GOING FORWARD? A Yes, as long as our research supports doing so. However, the Trust is constrained in its telecommunications sector holdings because of the quality and structure of many telecommunications issues. During 1999, we achieved a policy change with the major credit-rating agencies that now allows a broader range of issues to be introduced to the Trust. We are in the process of taking advantage of this opportunity and expect to invest more in telecommunications. Q OTHER THAN SECTOR LIMITATIONS, WERE THERE ANY DISAPPOINTMENTS DURING THE YEAR? A As we mentioned earlier, the high-yield market saw an increase in credit erosion in 1999. Some credit problems had a negative impact on the Trust during the year, although these effects were partially mitigated by diversification and credit selection. We were disappointed with some holdings in the supermarket and food sectors, which are currently experiencing limited growth despite the economic expansion. Some of these issues experienced credit problems that negatively affected the Trust's total return, so we will be closely monitoring these holdings in the coming months. We also experienced significant deterioration in some chemical sector investments, although we saw some recovery by year-end. Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE TRUST? A We focused on increasing the portfolio's diversification throughout the year. To accomplish this, we selectively reduced our holdings in the chemicals sector and purchased bonds in smaller blocks to allow the portfolio to participate in a wider range of sectors and issues, including telecommunications. We also purchased some foreign securities during the year, which benefited the Trust as emerging-market and European high-yield issues outperformed the domestic market. In addition, we sold some of the bonds in the portfolio that were valued at a premium to their face value and invested the proceeds in a broader range of sectors and issues. In some instances, we used the proceeds from the premium sales to purchase discount bonds. To help cushion the Trust's net asset value in this volatile market, we purchased bonds with shorter maturities and higher credit quality. We also reduced risk potential by increasing the portfolio's sector and issue diversification, which we believe will reduce the consequences of individual credit failures. 5 7 Q HOW DID THE TRUST PERFORM DURING THE PERIOD? A Total return performance was disappointing because of the general downturn in bond prices and the Trust's limited participation in high-performing sectors such as telecommunications. In addition, the Trust's leverage component hurt its performance during the period. Although leverage helps the Trust provide higher income levels to common shareholders, it made the portfolio more sensitive to the interest-rate increases we experienced during the reporting period and magnified the weak performance of the high-yield market. For the one-year period ended December 31, 1999, the Trust returned -21.20 percent(1) based on market price. This reflects a decrease in market price from $6.375 per share on December 31, 1998, to $4.50 per share on December 31, 1999. The Trust continued to provide shareholders with an attractive dividend, although the dividend rate was decreased in November. The adjustment can be attributed to a combination of credit problems, declining bond prices, and an increase in short-term interest rates, which raised the cost of leverage for the Trust. The current monthly dividend of $0.054 per share translates to a distribution rate of 14.4 percent(3) based on the Trust's closing market price on December 31, 1999. Please refer to the chart and footnotes on page 3 for additional performance results. Past performance does not guarantee future results. Q WHAT DO YOU SEE AHEAD FOR THE HIGH-YIELD MARKET AND THE TRUST? A With year 2000 computer concerns largely behind us, we expect to see increased issuance in the high-yield market. We plan to maximize our new ability to invest in a greater range of issues and attractive sectors such as telecommunications, and we will continue to reduce the Trust's exposure to the chemical sector in line with our diversification efforts. Overall, we will continue to apply our research-intensive selection process and evaluate bonds on a case-by-case basis to find those that we believe can add the most value to the portfolio. 6 8 GLOSSARY OF TERMS CREDIT RATING: An evaluation of an issuer's credit history and capability of repaying obligations. Standard & Poor's and Moody's Investors Service are two companies that assign bond ratings. Standard & Poor's ratings range from a high of AAA to a low of D, while Moody's ratings range from a high of Aaa to a low of C. DISCOUNT BOND: A bond whose market price is lower than its face value (or "par value"). Because bonds usually mature at face value, a discount bond has more potential to appreciate in price than a par bond does. FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve System, which is the central bank of the United States. Its policy-making committee, called the Federal Open Market Committee, meets eight times a year to establish monetary policy and monitor the economic pulse of the United States. INFLATION: A persistent and measurable rise in the general level of prices. Inflation is widely measured by the Consumer Price Index, an economic indicator that measures the change in the cost of purchased goods and services. LEVERAGE: A process employed by the Trust that involves borrowing money at short-term interest rates by issuing preferred shares. The proceeds are then invested in longer-term bonds, which typically pay higher rates. The difference between the long-term rates earned by the Trust and the short-term rates paid on the preferred shares is passed along to shareholders in the Trust's dividend. Common shareholders typically benefit from leverage when short-term interest rates decline. However, a rise in short-term rates would have a negative effect by raising the Trust's borrowing costs and possibly affecting the dividend and price of common shares. PREMIUM BOND: A bond whose market price is above its face value (or "par value"). Because bonds usually mature at face value, a premium bond has less potential to appreciate in price than a par bond does. 7 9 PORTFOLIO HIGHLIGHTS VAN KAMPEN HIGH INCOME TRUST TOP FIVE PORTFOLIO INDUSTRIES* [GRAPH]
DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- Telecommunications 10.7 14.4 Printing, Publishing, & Broadcasting 8.8 8.3 Chemical 8.8 4.5 Oil & Gas 7.7 8.1 Automobile 6.9 1.4
* As a percentage of long-term investments NET ASSET VALUE AND MARKET PRICE (BASED UPON MONTH-END VALUES) DECEMBER 1989 THROUGH DECEMBER 1999 [GRAPH]
MARKET PRICE NET ASSET VALUE ------------ --------------- Dec 1989 7.3750 7.4900 7.6250 7.3800 6.5000 6.7200 7.2500 6.7900 6.8750 6.6200 6.1250 6.6600 6.7500 6.6500 7.1250 6.7300 6.0000 6.0700 4.8750 5.3600 4.2500 4.7100 4.2500 4.6900 Dec 1990 4.1250 4.6200 4.2500 4.6400 5.1250 5.0900 5.3750 5.4300 5.8750 5.6100 5.3750 5.5600 5.6250 5.6900 6.0000 5.8100 6.0000 5.8400 6.2500 5.8900 6.2500 6.0100 6.1250 5.9600 Dec 1991 6.8750 5.9200 7.1250 6.2100 7.1250 6.3000 7.3750 6.3200 7.7500 6.4100 7.6250 6.3800 8.0000 6.3400 7.8750 6.4300 7.8750 6.4300 7.8750 6.4300 7.5000 6.2400 7.5000 6.2300 Dec 1992 7.2500 6.2300 7.7500 6.3800 8.1250 6.5100 8.0000 6.6300 8.0000 6.6000 8.1250 6.5600 8.3750 6.7600 8.3750 6.7500 8.3750 6.7000 8.3750 6.6600 8.6250 6.7300 8.2500 6.7100 Dec 1993 8.1250 6.7400 8.5000 6.8200 8.5000 6.7500 7.6250 6.3300 7.7500 6.1900 7.8750 6.1400 8.0000 6.0600 7.3750 5.9700 7.6250 5.9000 7.0000 5.8500 6.8750 5.7900 6.3750 5.5800 Dec 1994 5.5000 5.6200 5.7500 5.6300 6.0000 5.8200 6.1250 5.8400 6.1250 5.9900 6.7500 6.1000 6.6250 6.0700 6.5000 6.1400 6.6250 6.1000 6.3750 6.1200 6.5000 6.1400 6.7500 6.1300 Dec 1995 6.3750 6.1900 6.6250 6.2900 6.6250 6.2700 6.7500 6.1600 6.5000 6.1200 6.6250 6.1100 6.5000 6.0500 6.6250 6.0300 6.7500 6.1000 6.8750 6.2000 6.7500 6.2100 6.7500 6.2900 Dec 1996 6.7500 6.3500 6.8750 6.3400 7.0000 6.4200 6.7500 6.2200 6.8750 6.2100 7.0000 6.3200 7.3130 6.3600 7.4380 6.4600 7.3750 6.4100 7.3130 6.4900 7.4380 6.4200 7.3750 6.4400 Dec 1997 7.3750 6.4700 7.5000 6.5500 7.4380 6.5100 7.3130 6.5300 6.8750 6.4900 7.2500 6.4700 7.0000 6.4400 6.9380 6.4500 5.7500 5.9600 6.3130 5.8900 6.6250 5.6600 6.8750 5.9700 Dec 1998 6.3750 5.8600 6.4375 5.8700 6.5000 5.6800 6.4375 5.7000 6.5000 5.7200 6.3750 5.6000 6.3750 5.4900 6.4375 5.4100 6.3750 5.2900 5.9375 5.1600 5.4375 5.0200 5.0000 5.0600 Dec 1999 4.5000 5.1000
The solid line above represents the Trust's net asset value (NAV), which indicates overall changes in value among the Trust's underlying securities. The Trust's market price is represented by the dashed line, which indicates the price the market is willing to pay for shares of the Trust at a given time. Market price is influenced by a range of factors, including supply and demand and market conditions. 8 10 PORTFOLIO HIGHLIGHTS (CONTINUED) VAN KAMPEN HIGH INCOME TRUST CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM DEBT SECURITIES AS OF DECEMBER 31, 1999 [PIE CHART]
AS OF DECEMBER 31, 1999 ----------------------- BBB/Baa 4.5 BB/Ba 36.2 B/B 55.1 CCC/Caa and below 4.2
AS OF DECEMBER 31, 1998 [PIE CHART]
A/A TO CCC/CAA AND AAA/AAA BBB/BAA BB/BA B/B BELOW ------- ------- ----- --- ----------- As of December 31, 1999 2.50 7.40 33.70 54.50 0.40 NON-RATED --------- As of December 31, 1999 1.50
Based upon the highest credit quality ratings as issued by Standard & Poor's or Moody's, respectively. DIVIDEND HISTORY FOR THE PERIOD ENDED DECEMBER 31, 1999 [BAR GRAPH]
MONTHLY DIVIDEND ---------------- Jan 1999 0.0560 Feb 1999 0.0560 Mar 1999 0.0560 Apr 1999 0.0560 May 1999 0.0560 Jun 1999 0.0560 Jul 1999 0.0560 Aug 1999 0.0560 Sep 1999 0.0560 Oct 1999 0.0560 Nov 1999 0.0540 Dec 1999 0.0540
The dividend history represents past performance of the Trust and does not predict the Trust's future distributions. 9 11 PORTFOLIO OF INVESTMENTS December 31, 1999 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------- CORPORATE BONDS 90.6% AEROSPACE & DEFENSE 2.3% $1,700 Dyncorp.............................. 9.500% 03/01/07 $ 1,487,500 1,500 Sequa Corp........................... 9.000 08/01/09 1,455,000 ------------ 2,942,500 ------------ AUTOMOBILE 6.3% 1,520 Aetna Industries, Inc. .............. 11.875 10/01/06 1,558,000 300 Cambridge Industries, Inc. .......... 10.250 07/15/07 127,500 2,530 JPS Automotive Products Corp. ....... 11.125 06/15/01 2,542,650 2,750 Lear Seating Corp. .................. 8.250 02/01/02 2,722,500 375 Venture Holdings, Inc. .............. 9.500 07/01/05 335,625 900 Venture Holdings, Inc. .............. 12.000 06/01/09 805,500 ------------ 8,091,775 ------------ BEVERAGE, FOOD & TOBACCO 3.6% 550 Canandaigua Brands, Inc. ............ 8.625 08/01/06 549,313 1,035 Chiquita Brands International, Inc. ................................ 10.000 06/15/09 755,550 1,100 Coca Cola Femsa S.A. (Mexico)........ 8.950 11/01/06 1,102,750 575 National Wine & Spirits, Inc. ....... 10.125 01/15/09 587,937 1,700 Pepsi Gemex S. A. (Mexico)........... 9.750 03/30/04 1,632,000 ------------ 4,627,550 ------------ BUILDINGS & REAL ESTATE 1.4% 525 Engle Homes, Inc. ................... 9.250 02/01/08 477,750 567 Intrawest Corp. ..................... 9.750 08/15/08 558,495 825 Webb (Del E.) Corp. ................. 10.250 02/15/10 796,125 ------------ 1,832,370 ------------ CHEMICAL 8.0% 975 Acetex Corp. (Canada)................ 9.750 10/01/03 892,125 2,240 Agriculture Minerals & Chemicals, Inc. ................................ 10.750 09/30/03 1,590,400 660 American Pacific Corp. .............. 9.250 03/01/05 666,600 1,110 Equistar Chemicals L.P. ............. 8.500 02/15/04 1,108,613 2,891 Huntsman Polymers Corp. ............. 11.750 12/01/04 3,035,550 1,479 ISP Holdings, Inc. .................. 9.750 02/15/02 1,490,092 1,850 Pioneer Americas Acquisition Corp. ............................... 9.250 06/15/07 1,480,000 ------------ 10,263,380 ------------
See Notes to Financial Statements 10 12 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------- CONTAINERS, PACKAGING & GLASS 5.0% $ 850 Fonda Group, Inc. ................... 9.500% 03/01/07 $ 716,125 1,130 Printpack, Inc. ..................... 10.625 08/15/06 1,090,450 1,400 Radnor Holdings, Inc. ............... 10.000 12/01/03 1,407,000 1,350 S.D. Warren Co. ..................... 12.000 12/15/04 1,417,500 1,855 Sweetheart Cup, Inc. ................ 9.625 09/01/00 1,845,725 ------------ 6,476,800 ------------ DIVERSIFIED/CONGLOMERATE MANUFACTURING 0.9% 1,350 Communications & Power Industries, Inc. ................................ 12.000 08/01/05 1,123,875 ------------ ELECTRONICS 1.5% 1,925 Advanced Micro Devices, Inc. ........ 11.000 08/01/03 1,915,375 1,300 DecisionOne Corp. (c)................ 9.750 08/01/07 11,375 ------------ 1,926,750 ------------ FINANCE 4.4% 2,050 Americredit Corp. ................... 9.250 02/01/04 2,065,375 1,200 Contifinancial Corp. ................ 8.375 08/15/03 132,000 550 Port Arthur Finance Corp., 144A Private Placement (b)........... 12.500 01/15/09 558,250 3,050 Vicap S.A. (Mexico).................. 10.250 05/15/02 2,950,875 ------------ 5,706,500 ------------ GROCERY 4.2% 1,160 Disco S.A. (Argentina)............... 9.125 05/15/03 1,058,500 350 Fleming Cos., Inc. .................. 10.625 12/15/01 353,500 1,550 Fleming Cos., Inc. .................. 10.500 12/01/04 1,429,875 1,570 Jitney Jungle Stores America, Inc. (c).................................. 12.000 03/01/06 384,650 1,760 Pantry, Inc. ........................ 10.250 10/15/07 1,716,000 575 Pathmark Stores, Inc. ............... 9.625 05/01/03 434,125 ------------ 5,376,650 ------------
See Notes to Financial Statements 11 13 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------- HEALTHCARE 3.4% $ 650 Fisher Scientific International, Inc. ................................ 7.125% 12/15/05 $ 583,375 1,500 Fresenius Medical Care Capital Trust................................ 9.000 12/01/06 1,477,500 570 Health South Rehab Corp. ............ 9.500 04/01/01 552,900 680 Iasis Healthcare Corp., 144A Private Placement (b)........................ 13.000 10/15/09 702,100 1,100 Tenet Healthcare Corp. .............. 8.625 01/15/07 1,064,250 ------------ 4,380,125 ------------ HOTEL, MOTEL, INNS & GAMING 3.9% 260 Agrosy Gaming Co. ................... 10.750 06/01/09 274,300 540 Booth Creek Ski Holdings, Inc. ...... 12.500 03/15/07 391,500 848 Boyd Gaming Corp. ................... 9.250 10/01/03 852,240 825 Casino Magic Louisiana Corp. ........ 13.000 08/15/03 913,688 255 Hollywood Casino Shreveport, 144A Private Placement (b)........... 13.000 08/01/06 275,400 450 Majestic Star Casino LLC............. 10.875 07/01/06 437,625 1,400 Mohegan Tribal Gaming Authority...... 8.125 01/01/06 1,365,000 560 Park Place Entertainment............. 8.500 11/15/06 558,600 ------------ 5,068,353 ------------ LEISURE/ENTERTAINMENT 2.2% 2,750 Selmer, Inc. ........................ 11.000 05/15/05 2,901,250 ------------ MINING, STEEL, IRON & NON-PRECIOUS METAL 3.8% 1,100 GS Technologies Operating, Inc. ..... 12.250 10/01/05 506,000 225 Kaiser Aluminum & Chemical, Inc. .... 9.875 02/15/02 226,125 1,130 Kaiser Aluminum & Chemical, Inc. .... 10.875 10/15/06 1,144,125 350 Renco Steel Holdings, Inc. .......... 10.875 02/01/05 306,250 2,650 WCI Steel, Inc. ..................... 10.000 12/01/04 2,709,625 ------------ 4,892,125 ------------
See Notes to Financial Statements 12 14 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------- OIL & GAS 7.0% $1,550 Benton Oil & Gas, Inc. .............. 11.625% 05/01/03 $ 1,123,750 300 Cheasapeake Energy Corp. ............ 9.625 05/01/05 284,250 1,000 Frontier Oil Corp. .................. 11.750 11/15/09 986,250 1,507 Giant Industries, Inc. .............. 9.750 11/15/03 1,473,093 1,390 Giant Industries, Inc. .............. 9.000 09/01/07 1,292,700 2,270 KCS Energy, Inc. (c)................. 11.000 01/15/03 1,759,250 575 Petroleos Mexicanos Pemex (Mexico)... 8.799 01/15/00 565,685 1,000 Pride Petroleum Services, Inc. ...... 9.375 05/01/07 1,007,500 850 Universal Compression, Inc. (a)...... 0/9.875 02/15/03 531,250 ------------ 9,023,728 ------------ PAPER 1.3% 1,680 Repap New Brunswick, Inc. ........... 9.000 06/01/04 1,638,000 ------------ PRINTING, PUBLISHING & BROADCASTING 8.0% 550 Adelphia Communications Corp. ....... 9.250 10/01/02 555,500 200 Classic Cable, Inc. ................. 9.375 08/01/09 194,000 1,200 CSC Holdings, Inc. .................. 10.500 05/15/16 1,332,000 1,100 Grupo Televisa, Inc., S.A. (Mexico)............................. 11.375 05/15/03 1,174,250 1,100 Grupo Televisa, Inc., S.A. (Mexico)............................. 11.875 05/15/06 1,174,250 1,000 International Cabletel, Inc. (a)..... 0/12.750 04/15/05 1,010,000 750 International Cabletel, Inc. (a)..... 0/11.500 02/01/06 686,250 905 James Cable Partners L.P. ........... 10.750 08/15/04 911,787 1,500 K-III Communications Corp. .......... 10.250 06/01/04 1,563,750 700 Northland Cable Television, Inc. .... 10.250 11/15/07 705,250 950 Young Broadcasting, Inc. ............ 11.750 11/15/04 997,500 ------------ 10,304,537 ------------
See Notes to Financial Statements 13 15 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------- PRODUCER MANUFACTURING 3.6% $ 200 Associated Materials, Inc. .......... 9.250% 03/01/08 $ 197,000 500 Carpenter W. R., Inc. ............... 10.625 06/15/07 287,500 1,000 Cemex S. A., 144A Private Placement (Mexico) (b)......................... 9.250 06/17/02 1,020,000 580 Federal Mogul Corp. ................. 7.500 07/01/04 550,275 265 Juno Lighting, Inc. ................. 11.875 07/01/09 247,775 850 Numatics, Inc. ...................... 9.625 04/01/08 641,750 1,550 Ucar Global Enterprises, Inc. ....... 12.000 01/15/05 1,631,375 ------------ 4,575,675 ------------ RETAIL 2.0% 200 Big 5 Corp. ......................... 10.875 11/15/07 198,000 600 Community Distributors, Inc. ........ 10.250 10/15/04 513,000 500 Hosiery Corp. of America, Inc. ...... 13.750 08/01/02 522,500 570 K Mart Corp. ........................ 8.375 12/01/04 568,575 75 Musicland Group, Inc. ............... 9.000 06/15/03 71,625 825 Musicland Group, Inc. ............... 9.875 03/15/08 746,625 ------------ 2,620,325 ------------ TELECOMMUNICATIONS 9.5% 490 Airgate PCS, Inc. ................... * 10/01/09 323,400 220 Airgate PCS, Inc. ................... * 10/01/09 125,400 1,330 Capstar Broadcasting Partners........ 9.250 07/01/07 1,383,200 1,100 EZ Communications, Inc. ............. 9.750 12/01/05 1,160,500 755 Global Crossing Holdings Limited, 144A Private Placement (b)........... 9.125 11/15/06 749,337 300 Globenet Communications Group Ltd., 144A Private Placement (Bermuda) (b).................................. 13.000 07/15/07 307,500 1,300 Gray Communications Systems, Inc. ... 10.625 10/01/06 1,345,500 600 Intermedia Communications of Florida, Inc. ................................ 13.500 06/01/05 678,000 250 Intermedia Communications, Inc. ..... 8.875 11/01/07 235,000 1,230 Intermedia Communications, Inc. ..... 8.600 06/01/08 1,140,825 565 IXC Communications, Inc. ............ 9.000 04/15/08 571,356 1,100 McLeod USA, Inc. .................... 8.375 03/15/08 1,050,500 400 Metromedia Fiber Network, Inc. ...... 10.000 12/15/09 412,000
See Notes to Financial Statements 14 16 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------- TELECOMMUNICATIONS (CONTINUED) $ 600 Nextlink Communications, Inc., 144A Private Placement (b)........... 10.500% 12/01/09 $ 612,000 1,230 Pegasus Communications Corp. ........ 9.625 10/15/05 1,223,850 175 Philippine Long Distance Telephone (Philippines)........................ 10.500 04/15/09 175,438 325 Telefonica De Argentina S. A., 144A Private Placement (Argentina) (b).... 9.875 07/01/02 324,188 405 Voicestream Wire..................... 10.375 11/15/09 418,162 ------------ 12,236,156 ------------ TECHNOLOGY 0.5% 350 PSINet, Inc. ........................ 10.000 02/15/05 347,375 300 Williams Communications Corp. ....... 10.700 10/01/07 314,625 ------------ 662,000 ------------ TEXTILES 2.2% 1,635 Dan River, Inc. ..................... 10.125 12/15/03 1,651,350 1,905 Pillowtex Corp. ..................... 10.000 11/15/06 885,825 550 Scovill Fasteners, Inc. ............. 11.250 11/30/07 261,250 ------------ 2,798,425 ------------ TRANSPORTATION 3.9% 565 Cenargo International PLC (United Kingdom)............................. 9.750 06/15/08 473,187 1,275 Continental Airlines, Inc............ 9.500 12/15/01 1,294,125 1,220 Greyhound Lines, Inc. ............... 11.500 04/15/07 1,378,600 825 International Shipholding Corp. ..... 9.000 07/01/03 804,375 567 Northwest Airlines Corp. ............ 8.375 03/15/04 539,359 570 Stena AB (Sweden).................... 10.500 12/15/05 524,400 ------------ 5,014,046 ------------ UTILITIES 1.7% 1,475 AES Corp. ........................... 9.500 06/01/09 1,493,438 134 Midland Cogeneration Venture......... 10.330 07/23/02 140,508 1,100 National Energy Group, Inc. (c)...... 10.750 11/01/06 528,000 ------------ 2,161,946 ------------ TOTAL CORPORATE BONDS 90.6%.......................................... 116,644,841 ------------
See Notes to Financial Statements 15 17 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1999 - --------------------------------------------------------------------------------
Description Market Value - ------------------------------------------------------------------------------------------- EQUITIES 0.3% Hosiery Corp. of America, Inc., (500 common shares) 144A Private Placement (b)............................................... $ 20,250 Intermedia Communications of Florida, Inc., (600 common stock warrants) 144A Private Placement (b)............................................... 87,729 NTL, Inc., (1,662 common stock warrants) 144A Private Placement (b)............................................... 221,096 Star Gas Partners L. P. (264 limited partnership units).................. 3,498 Urohealth Systems, Inc., (675 common stock warrants) 144A Private Placement (b)............................................... 7 ------------ TOTAL EQUITIES............................................................. 332,580 ------------ TOTAL LONG-TERM INVESTMENTS 90.9% (Cost $128,429,051)...................................................... 116,977,421 REPURCHASE AGREEMENT 7.4% State Street Bank and Trust (Collateralized by U.S. Treasury Note, $8,505,000 par, 7.875% coupon, due 02/15/21, dated 12/31/99, to be sold on 01/03/00 at $9,578,594) (Cost $9,576,000) ................. 9,576,000 ------------ TOTAL INVESTMENTS 98.3% (Cost $138,005,051)...................................................... 126,553,421 OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%................................ 2,221,519 ------------ NET ASSETS 100.0%......................................................... $128,774,940 ============
* Zero coupon bond (a) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (b) 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may only be resold in transactions exempt from registration which are normally transactions with qualified institutional buyers. (c) Non-income producing security. See Notes to Financial Statements 16 18 STATEMENT OF ASSETS AND LIABILITIES December 31, 1999 - -------------------------------------------------------------------------------- ASSETS: Total Investments (Cost $138,005,051)....................... $126,553,421 Cash........................................................ 410 Interest Receivable......................................... 2,749,385 Other....................................................... 7,438 ------------ Total Assets.......................................... 129,310,654 ------------ LIABILITIES: Payables: Income Distributions--Common and Preferred Shares......... 164,329 Investment Advisory Fee................................... 81,703 Preferred Share Maintenance............................... 60,292 Affiliates................................................ 12,991 Trustees' Deferred Compensation and Retirement Plans........ 109,770 Accrued Expenses............................................ 106,629 ------------ Total Liabilities..................................... 535,714 ------------ NET ASSETS.................................................. $128,774,940 ============ NET ASSETS CONSIST OF: Preferred Shares ($.01 par value, 1,000,000 shares authorized, 588 shares outstanding with liquidation preference of $100,000 per share)......................... $ 58,800,000 ------------ Common Shares ($.01 par value with an unlimited number of shares authorized, 13,710,760 shares issued and outstanding)................. 137,108 Paid in Surplus............................................. 87,204,724 Accumulated Distributions in Excess of Net Investment Income.................................................... (380,691) Accumulated Net Realized Loss............................... (5,534,571) Net Unrealized Depreciation................................. (11,451,630) ------------ Net Assets Applicable to Common Shares................ 69,974,940 ------------ NET ASSETS.................................................. $128,774,940 ============ NET ASSET VALUE PER COMMON SHARE ($69,974,940 divided by 13,710,760 shares outstanding)............................ $ 5.10 ============
See Notes to Financial Statements 17 19 STATEMENT OF OPERATIONS For the Year Ended December 31, 1999 - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest.................................................... $ 13,041,587 Other....................................................... 391,903 ------------ Total Income............................................ 13,433,490 ------------ EXPENSES: Investment Advisory Fee..................................... 1,000,912 Preferred Share Maintenance................................. 161,944 Trustees' Fees and Related Expenses......................... 21,775 Custody..................................................... 16,874 Legal....................................................... 9,695 Other....................................................... 223,468 ------------ Total Expenses.......................................... 1,434,668 ------------ NET INVESTMENT INCOME....................................... $ 11,998,822 ============ REALIZED AND UNREALIZED GAIN/LOSS: Net Realized Loss........................................... $ (3,180,995) ------------ Unrealized Appreciation/Depreciation: Beginning of the Period................................... (4,368,777) End of the Period......................................... (11,451,630) ------------ Net Unrealized Depreciation During the Period............... (7,082,853) ------------ NET REALIZED AND UNREALIZED LOSS............................ $(10,263,848) ============ NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,734,974 ============
See Notes to Financial Statements 18 20 STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1999 and 1998 - --------------------------------------------------------------------------------
Year Ended Year Ended December 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.......................... $ 11,998,822 $ 12,475,409 Net Realized Gain/Loss......................... (3,180,995) 416,102 Net Unrealized Depreciation During the Period....................................... (7,082,853) (8,317,008) ----------------- ------------ Change in Net Assets from Operations........... 1,734,974 4,574,503 ----------------- ------------ Distributions from and in Excess of Net Investment Income: Common Shares................................ (9,158,353) (9,624,412) Preferred Shares............................. (3,006,220) (3,245,532) ----------------- ------------ Total Distributions............................ (12,164,573) (12,869,944) ----------------- ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES................................... (10,429,599) (8,295,441) NET ASSETS: Beginning of the Period........................ 139,204,539 147,499,980 ----------------- ------------ End of the Period (Including accumulated undistributed net investment income of ($380,691) and $147,635, respectively)....... $ 128,774,940 $139,204,539 ================= ============
See Notes to Financial Statements 19 21 FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one common share of the Trust outstanding throughout the periods indicated. - --------------------------------------------------------------------------------
------------------------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------- Net Asset Value, Beginning of the Period.................... $ 5.864 $6.469 $6.346 $6.186 $5.623 ------- ------ ------ ------ ------ Net Investment Income......... .875 .910 .930 .946 .982 Net Realized and Unrealized Gain/Loss................... (.748) (.576) .131 .147 .537 ------- ------ ------ ------ ------ Total from Investment Operations.................... .127 .334 1.061 1.093 1.519 ------- ------ ------ ------ ------ Less Distributions from and in Excess of Net Investment Income: Paid to Common Shareholders... .668 .702 .702 .702 .702 Common Share Equivalent of Distributions Paid to Preferred Shareholders...... .219 .237 .236 .231 .254 ------- ------ ------ ------ ------ Total Distributions............. .887 .939 .938 .933 .956 ------- ------ ------ ------ ------ Net Asset Value, End of the Period........................ $ 5.104 $5.864 $6.469 $6.346 $6.186 ======= ====== ====== ====== ====== Market Price Per Share at End of the Period.................... $4.500 $6.375 $7.375 $6.750 $6.375 Total Investment Return at Market Price (a).............. (21.20%) (4.33%) 20.29% 17.34% 29.17% Total Return at Net Asset Value (b)..................... (1.60%) 1.35% 13.69% 14.86% 23.70% Net Assets at End of the Period (In millions)................. $128.8 $139.2 $147.5 $145.8 $143.6 Ratio of Expenses to Average Net Assets Applicable to Common Shares**............... 1.92% 1.85% 1.76% 1.87% 1.92% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (c).................... 12.09% 10.77% 10.90% 11.58% 12.16% Portfolio Turnover.............. 57% 65% 102% 92% 119% ** Ratio of Expenses to Average Net Assets Including Preferred Shares............. 1.07% 1.09% 1.05% 1.11% 1.12%
(a) Total Investment Return at Market Price reflects the change in market value of the common shares for the period indicated with reinvestment of dividends in accordance with the Trust's dividend reinvestment plan. (b) Total Return at Net Asset Value (NAV) reflects the change in value of the Trust's assets with reinvestment of dividends based on NAV. (c) Net Investment Income is adjusted for the common share equivalent of distributions paid to preferred shareholders. 20 22 - --------------------------------------------------------------------------------
Year Ended December 31, - -------------------------------------------------- 1994 1993 1992 1991 1990 - -------------------------------------------------- $ 6.735 $6.228 $5.924 $4.603 $ 7.488 ------- ------ ------ ------ ------- 1.002 1.109 1.206 1.150 1.566 (.975) .526 .174 1.282 (2.866) ------- ------ ------ ------ ------- .027 1.635 1.380 2.432 (1.300) ------- ------ ------ ------ ------- .954 .990 .908 .840 1.083 .185 .138 .168 .271 .502 ------- ------ ------ ------ ------- 1.139 1.128 1.076 1.111 1.585 ------- ------ ------ ------ ------- $ 5.623 $6.735 $6.228 $5.924 $ 4.603 ======= ====== ====== ====== ======= $ 5.500 $8.125 $7.250 $6.875 $ 4.125 (23.22%) 26.12% 18.67% 92.24% (32.91%) (2.54%) 25.46% 21.36% 48.77% (26.20%) $ 135.9 $151.1 $144.2 $140.0 $ 121.9 1.96% 1.72% 1.87% 2.51% 2.10% 13.31% 14.66% 16.48% 15.86% 17.24% 110% 99% 109% 78% 57% 1.16% 1.04% 1.11% 1.42% 1.90%
See Notes to Financial Statements 21 23 NOTES TO FINANCIAL STATEMENTS December 31, 1999 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen 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. As of April 1, 1999, through a resolution approved by the Board of Trustees, the Trust may invest up to 35 percent of its total assets in securities of foreign issuers. The Trust commenced investment operations on January 26, 1989. The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION--Investments are stated at value using market quotations or indications of value obtained from an independent pricing service. For those securities where quotations or prices are not available, valuations are 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, 1999, there were no when issued or delayed delivery purchase commitments. The Trust may invest in repurchase agreements, which are short-term investments in which the Trust acquires ownership of a debt security and the seller agrees to repurchase the security at a future time and specified price. Repurchase agreements are fully collateralized by the underlying debt security. The Trust will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of 22 24 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- the custodian bank. The seller is required to maintain the value of the underlying security at not less than the repurchase proceeds due the Trust. C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. 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, 1999, the Trust had an accumulated capital loss carry forward for tax purposes of $5,083,598 which expires between December 31, 2002 and December 31, 2007. Net realized gains or losses may differ for financial reporting and tax purposes as a result of the deferral of losses relating to wash sale transactions and post-October losses which may not be recognized for tax purposes until the first day of the following fiscal year. At December 31, 1999, for federal income tax purposes, cost of long- and short-term investments is $138,029,090; the aggregate gross unrealized appreciation is $1,049,218 and the aggregate gross unrealized depreciation is $12,524,887, resulting in net unrealized depreciation on long- and short-term investments of $11,475,669. E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly dividends from net investment income to common shareholders. Net realized gains, if any, are distributed annually to common shareholders. 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 financial and tax basis reporting for the 1999 fiscal year have been identified and appropriately reclassified. Permanent differences of $19,427,104 relating to a portion of the capital loss carryforward that expired during the period was reclassified from accumulated net realized loss to capital and $362,575 relating to fee income was reclassified from accumulated distributions in excess of net investment income to accumulated net realized loss. 23 25 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1999 - -------------------------------------------------------------------------------- 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Trust's Investment Advisory Agreement, Van Kampen 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. For the year ended December 31, 1999, the Trust recognized expenses of approximately $5,300 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of the Trust is an affiliated person. For the year ended December 31, 1999, the Trust recognized expenses of approximately $61,600 representing Van Kampen Funds Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Trust. Certain officers and trustees of the Trust are also officers and directors of Van Kampen. The Trust does not compensate its officers or trustees who are officers of Van Kampen. The Trust provides deferred compensation and retirement plans for its trustees who are not officers of Van Kampen. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation to a later date. Benefits under the retirement plan are payable for a ten-year period and are based upon each trustee's years of service to the Trust. The maximum annual benefit per trustee under the plan is $2,500. 3. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $69,711,645 and $68,787,979, respectively. 4. AUCTION MARKET PREFERRED SHARES The Trust has outstanding 588 shares of Auction Market Preferred Shares ("AMPS") at a liquidation value of $100,000 per share. Dividends are cumulative and the rate is currently reset through an auction process every 28 days. The rate in effect on December 31, 1999, was 6.249%. During the year ended December 31, 1999, the rates ranged from 4.640% to 6.249%. The Trust pays annual fees equivalent to .25% of the preferred share liquidation value for the remarketing efforts associated with the preferred auctions. These fees are included as a component of Preferred Share Maintenance expense. The AMPS are redeemable at the option of the Trust in whole or in part at a price of $100,000 per share plus accumulated and unpaid dividends. The Trust is subject to certain asset coverage tests, and the AMPS are subject to mandatory redemption if the tests are not met. 24 26 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Trustees and Shareholders of Van Kampen High Income Trust: We have audited the accompanying statement of assets and liabilities of Van Kampen High Income Trust (the "Trust"), including the portfolio of investments, as of December 31, 1999, 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, 1999, by correspondence with the custodian. 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 High Income Trust as of December 31, 1999, 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 LLP Chicago, Illinois February 4, 2000 25 27 DIVIDEND REINVESTMENT PLAN The Trust offers a Dividend Reinvestment Plan (the "Plan") in which Common Shareholders may elect to have dividends and capital gains distributions automatically reinvested in Common Shares of the Trust. The service is entirely voluntary and you may join or withdraw at any time. HOW TO PARTICIPATE If you wish to elect to participate in the Plan and your shares are held in your own name, call 1-800-341-2929 for more information and a brochure. If your shares are held in the name of a brokerage firm, bank, or other nominee, you should contact your nominee to see if it would participate in the Plan on your behalf. If you wish to participate in the Plan, but your brokerage firm, bank, or nominee is unable to participate on your behalf, you should request that your shares be re-registered in your own name which will enable your participation in the Plan. HOW THE PLAN WORKS State Street Bank and Trust Company, as your Plan Agent, serves as agent for the Common Shareholders in administering the Plan. After the Trust declares a dividend or determines to make a capital gains distribution, the Plan Agent will, as agent for the participants, receive the cash payment and use it to buy Common Shares in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts. The Trust will not issue any new Common Shares in connection with the Plan. All reinvestments are in full and fractional Common Shares, carried to three decimal places. Experience under the Plan may indicate that changes are desirable. Accordingly, the Trust reserves the right to amend or terminate the Plan as applied to any dividend or capital gains distribution paid subsequent to written notice of the change sent to all Common Shareholders of the Trust at least 90 days before the record date for the dividend or distribution. The Plan also may be amended or terminated by the Plan Agent, with the written consent of the Trust, by providing at least 90 days written notice to all Participants in the Plan. COSTS OF THE PLAN The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Trust. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. No other charges will be made to participants for reinvesting dividends or capital gains distributions, except for certain brokerage commissions, as described above. TAX IMPLICATIONS You will receive tax information annually for your personal records and to help you prepare your federal income tax return. The automatic reinvestment of dividends and capital gains distributions does not relieve you of any income tax which may be payable on dividends or capital gains distributions. RIGHT TO WITHDRAW You may withdraw from the Plan at any time by calling 1-800-341-2929 or by writing State Street Bank and Trust Company. If you withdraw, you will receive, without charge, a share certificate issued in your name for all full Common Shares credited to your account under the Plan, and a cash payment will be made for any fractional Common Share credited to your account under the Plan. You may again elect to participate in the Plan at any time by calling 1-800-341-2929 or writing to the Trust at: 2800 Post Oak Blvd., Houston, TX 77056, Attn: Closed-End Funds 26 28 VAN KAMPEN HIGH INCOME TRUST BOARD OF TRUSTEES DAVID C. ARCH ROD DAMMEYER HOWARD J KERR DENNIS J. MCDONNELL* THEODORE A. MYERS RICHARD F. POWERS, III* - Chairman HUGO F. SONNENSCHEIN WAYNE W. WHALEN* OFFICERS RICHARD F. POWERS, III* President DENNIS J. MCDONNELL* Executive Vice President and Chief Investment Officer A. THOMAS SMITH III* Vice President and Secretary JOHN L. SULLIVAN* Vice President, Treasurer, and Chief Financial Officer PETER W. HEGEL* MICHAEL H. SANTO* EDWARD C. WOOD, III* Vice Presidents INVESTMENT ADVISER VAN KAMPEN INVESTMENT ADVISORY CORP. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, Illinois 60181-5555 CUSTODIAN AND TRANSFER AGENT STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02105 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT ACCOUNTANTS KPMG LLP 303 East Wacker Drive Chicago, Illinois 60601 * "Interested" persons of the Trust, as defined in the Investment Company Act of 1940. (C) Van Kampen Funds Inc., 2000. All rights reserved. (SM) denotes a service mark of Van Kampen Funds Inc. 27 29 RESULTS OF SHAREHOLDER VOTES The Annual Meeting of Shareholders of the Trust was held on June 16, 1999, where shareholders voted on the election of trustees, the selection of independent public accountants and the approval of the Preferred Share split and simultaneous reduction of the liquidation preference per Preferred Share of the Trust. 1) With regard to the election of the following trustees by the common shareholders of the Trust:
# OF SHARES ---------------------- IN FAVOR WITHHELD - ------------------------------------------------------------------------ David C. Arch.................................... 11,667,810 124,368 Howard J Kerr.................................... 11,667,710 124,468 Dennis J. McDonnell.............................. 11,667,110 125,068
The other trustees of the Trust whose terms did not expire in 1999 are Rod Dammeyer, Steven Muller**, Theodore A. Myers, Don G. Powell*, Hugo F. Sonnenschein and Wayne W. Whalen. 2) With regard to the ratification of KPMG LLP as independent public accountants for the Trust, 11,622,706 shares voted in favor of the proposal, 55,980 shares voted against and 114,035 shares abstained. 3) With regards to the proposal to approve the Preferred Share split and simultaneous reduction of the liquidation preference per Preferred Share, the Meeting was adjourned until July 7, 1999, July 28, 1999, and August 18, 1999 at which time it was determined that it was in the best interest of the Trust to discontinue efforts to obtain the vote and adjourn with respect to the Preferred Shares of this proposal. * On August 9, 1999, Don G. Powell resigned and the Board of Trustees appointed Richard F. Powers, III. ** On December 31, 1999, Steven Muller resigned from the Board of Trustees. 28 30 YEAR 2000 UPDATE As we enter the new century, it's "business as usual" for Van Kampen. Thank you for the confidence you showed in us during the changeover on January 1, 2000, and for entrusting us with your investment portfolio. We look forward to continuing to serve your investment needs. -----END PRIVACY-ENHANCED MESSAGE-----