-----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, Df32/wMz1uBJpIQkpNnVpU2IH+R+WtGhFcYqUixQM/KZN9MPYPbEPGA2qCHPpyiq 4oWeH+33GgRQNpwhD0hjdQ== 0000950137-01-503304.txt : 20010827 0000950137-01-503304.hdr.sgml : 20010827 ACCESSION NUMBER: 0000950137-01-503304 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010824 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: 1940 Act SEC FILE NUMBER: 811-05707 FILM NUMBER: 1722212 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 c63669n-30d.txt SEMIANNUAL REPORT 1 Van Kampen High Income Trust SEMIANNUAL REPORT JUNE 30, 2001 [PHOTO] Privacy Notice information on the back. [VAN KAMPEN INVESTMENTS LOGO] 2 Table of Contents OVERVIEW LETTER TO SHAREHOLDERS 1 ECONOMIC SNAPSHOT 2 PERFORMANCE SUMMARY RETURN HIGHLIGHTS 4 PORTFOLIO AT A GLANCE CREDIT QUALITY 6 SIX-MONTH DIVIDEND HISTORY 6 TOP FIVE SECTORS 7 NET ASSET VALUE AND MARKET PRICE 7 Q&A WITH YOUR PORTFOLIO MANAGER 8 GLOSSARY OF TERMS 11 BY THE NUMBERS YOUR TRUST'S INVESTMENTS 12 FINANCIAL STATEMENTS 21 NOTES TO FINANCIAL STATEMENTS 26 DIVIDEND REINVESTMENT PLAN 30 BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 32 RESULTS OF SHAREHOLDER VOTES 33
Long-term investment strategies can help you cope with uncertain markets. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE 3 OVERVIEW LETTER TO SHAREHOLDERS July 20, 2001 Dear Shareholder, The first few months of 2001 were challenging for everyone. The markets experienced dramatic downshifts which affected many investors, no matter the size of their portfolios. We realize this is unsettling to shareholders--especially those who may be accustomed to positive returns--but it is important to keep in mind that maintaining a long-term investment horizon may be your most efficient strategy for coping with uncertain markets. To help you make sense of recent events and put your trust's performance into perspective, this report examines how your trust's portfolio manager invested your assets. Packed with information and insightful commentary, this report includes an interview with the trust's manager, a complete list of the trust's holdings at the end of the reporting period, charts and graphs which summarize interest rate and inflation trends, and other information to help you better understand your investment. With nearly four generations of investment management experience, we at Van Kampen understand market declines are inevitable--and new opportunities may arise at any time. So, as you strive to craft a successful investment strategy and try to protect yourself against future downturns, consider these time-tested investing principles: - DIVERSIFY--Owning a portfolio that includes a variety of stock funds and fixed-income funds may moderate your investment risk and improve your long-term portfolio performance. - - SEEK FINANCIAL ADVICE--Your financial advisor can help you develop a personalized investment strategy based on your age, family status and goals. When comparing asset allocation strategies to your personal financial situation, you should consider your time frame and all of your personal savings and investments, in addition to your retirement assets and risk tolerance level. Your financial advisor can help you assess your individual situation before you make any decisions. Though no portfolio is immune to volatility, your advisor can help you structure a portfolio designed to address your long-term financial goals. We are grateful for your continued trust in Van Kampen. We appreciate the opportunity to manage your assets while you enjoy true wealth--family, friends, and life's daily pleasures. Sincerely, [SIG] Richard F. Powers, III President and CEO Van Kampen Investment Advisory Corp. 1 4 ECONOMIC SNAPSHOT ECONOMIC GROWTH THE U.S. ECONOMY CONTINUED TO SHOW SIGNS OF OVERALL WEAKNESS IN JUNE 2001. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF ECONOMIC GROWTH, ROSE A DISAPPOINTING 1.2 PERCENT ON AN ANNUALIZED BASIS FOR THE FIRST QUARTER OF 2001--CONSIDERABLY SLOWER THAN THE GOVERNMENT'S INITIAL 2-PERCENT ESTIMATE AND SUBSEQUENT REVISIONS. THIS STAGNATING GROWTH ONLY COMPLICATED THE ECONOMIC OUTLOOK, AS MIXED DATA MADE IT DIFFICULT FOR ANALYSTS AND INVESTORS ALIKE TO DRAW ANY CLEAR CONCLUSIONS. CONSUMER SPENDING AND EMPLOYMENT AS REPORTS OF LACKLUSTER GROWTH AND CORPORATE LAYOFFS MOUNTED, THE AMERICAN CONSUMER CONTINUED TO SURPRISE ANALYSTS. SPURRED BY THE FEDERAL RESERVE'S (THE FED) SIXTH INTEREST RATE CUT THIS YEAR, CONSUMER CONFIDENCE IMPROVED SLIGHTLY IN JUNE. THIS RENEWED OPTIMISM WAS SURPRISING TO SOME, GIVEN THE UNEMPLOYMENT RATE CLIMBED TO 4.5 PERCENT. WHILE UNEMPLOYMENT HOVERED AT HISTORICALLY LOW LEVELS, SOME ANALYSTS WERE ENCOURAGED BY AN INCREASE IN FACTORY ORDERS--AN INDICATION THE ECONOMY MIGHT BE MOVING TOWARD A RECOVERY. INTEREST RATES AND INFLATION CONSUMERS' RENEWED CONFIDENCE CAME ON THE HEELS OF THE GOVERNMENT'S ATTEMPT TO JUMP-START THE ECONOMY. BETWEEN JANUARY 1 AND JUNE 30, 2001, THE FED CUT INTEREST RATES SIX TIMES BY A TOTAL OF 2.75 PERCENT. THE FED STATED ITS LATEST RATE CUT WAS PROMPTED BY DECLINING CORPORATE PROFITS AND BUSINESS CAPITAL SPENDING, WEAK CONSUMPTION AND A SLOWING GLOBAL ECONOMY--BUT ALSO INDICATED ADDITIONAL RATE CUTS REMAINED A POSSIBILITY. INDUSTRY ANALYSTS AND INVESTORS WELCOMED THE FED'S ACTIONS, VIEWING THEM AS NECESSARY STEPS TO WARD OFF A RECESSION AND RETURN THE GROWTH OF GDP TO A HEALTHY AND SUSTAINABLE RATE. THE CONSUMER PRICE INDEX, A COMMON MEASURE OF THE INFLATION RATE, ROSE 3.2 PERCENT IN THE 12 MONTHS ENDED JUNE 30. ALTHOUGH INFLATION WAS NOT AN IMMEDIATE THREAT, SOME ANALYSTS CAUTIONED THAT RISING MEDICAL COSTS AND SEASONAL DEMANDS FOR ELECTRICITY AND NATURAL GAS MIGHT DRIVE INFLATION HIGHER. 2 5 U.S. GROSS DOMESTIC PRODUCT SEASONALLY ADJUSTED ANNUALIZED RATES (March 31, 1999--March 31, 2001) [BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT --------------------------- Mar 99 3.50 Jun 99 2.50 Sep 99 5.70 Dec 99 8.30 Mar 00 4.80 Jun 00 5.60 Sep 00 2.20 Dec 00 1.00 Mar 01 1.20
Source: Bureau of Economic Analysis INTEREST RATES AND INFLATION (June 30, 1999--June 30, 2001) [LINE GRAPH]
INTEREST RATES INFLATION -------------- --------- Jun 99 5.00 2.00 5.00 2.10 5.25 2.30 Sep 99 5.25 2.60 5.25 2.60 5.50 2.60 Dec 99 5.50 2.70 5.50 2.70 5.75 3.20 Mar 00 6.00 3.80 6.00 3.10 6.50 3.20 Jun 00 6.50 3.70 6.50 3.70 6.50 3.40 Sep 00 6.50 3.50 6.50 3.40 6.50 3.40 Dec 00 6.50 3.40 5.50 3.70 5.50 3.50 Mar 01 5.00 2.90 4.50 3.30 4.00 3.60 Jun 01 3.75 3.20
Interest rates are represented by the closing midline federal funds target rate on the last day of each month. Inflation is indicated by the annual percentage change of the Consumer Price Index for all urban consumers at the end of each month. Source: Bloomberg 3 6 PERFORMANCE SUMMARY RETURN HIGHLIGHTS (as of June 30, 2001) - ----------------------------- NYSE Ticker Symbol - VIT - -----------------------------
MARKET(1) NAV(2) - --------------------------------------------------------------------------- Six-month total return 22.64% 7.01% - ------------------------------------------------------------------------------- One-year total return 7.56% 1.51% - ------------------------------------------------------------------------------- Five-year average annual total return 4.81% 4.92% - ------------------------------------------------------------------------------- Ten-year average annual total return 10.16% 10.42% - ------------------------------------------------------------------------------- Life-of-Trust average annual total return 6.36% 6.69% - ------------------------------------------------------------------------------- Commencement date 1/26/89 - ------------------------------------------------------------------------------- Distribution rate as a % of closing common share price(3) 11.80% - ------------------------------------------------------------------------------- Net asset value $4.24 - ------------------------------------------------------------------------------- Closing common share price $4.78 - ------------------------------------------------------------------------------- Six-month high common share price (03/05/01) $5.25 - ------------------------------------------------------------------------------- Six-month low common share price (01/02/01) $4.125 - ------------------------------------------------------------------------------- Preferred share rate(4) 3.75% - -------------------------------------------------------------------------------
4 7 (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 common share 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 is no guarantee of future results. Investment return, share price and net asset value will fluctuate and Trust shares, when sold, may be worth more or less than their original cost. An investment in the Trust is subject to investment risks, and you could lose money on your investment in the Trust. As a result of recent market activity, current performance may vary from the figures shown. 5 8 PORTFOLIO AT A GLANCE CREDIT QUALITY (as a percentage of long-term debt investments)
As of June 30, 2001 - - A/A................ 4.2% [PIE CHART] - - BBB/Baa............ 7.3% - - BB/Ba.............. 36.5% - - B/B................ 48.8% - - CCC/Caa............ 2.9% - - Non-Rated.......... 0.3% As of December 31, 2000 - - BBB/Baa............ 5.8% [PIE CHART] - - BB/Ba.............. 36.9% - - B/B................ 54.8% - - CCC/Caa............ 2.5%
Based upon the credit quality ratings as issued by Standard & Poor's Credit Market Services/Moody's Investor Services, respectively. Subject to change daily. SIX-MONTH DIVIDEND HISTORY (for the six months ending June 30, 2001, for common shares) [BAR GRAPH]
DIVIDENDS --------- 1/01 0.047 2/01 0.047 3/01 0.047 4/01 0.047 5/01 0.047 6/01 0.047
The dividend history represents dividends that were paid on the trust and is no guarantee of the trust's future dividends. 6 9 TOP FIVE SECTORS* (as a percentage of long-term investments) [INVESTMENT PERFORMANCE GRAPH]
JUNE 30, 2001 DECEMBER 31, 2000 ------------- ----------------- Telecommunications 14.10 11.50 Printing, Publishing & Broadcasting 12.20 11.60 Oil & Gas 10.10 10.90 Hotel, Motel, Inns & Gaming 6.80 6.30 Chemical 6.20 5.20
*Subject to change daily. NET ASSET VALUE AND MARKET PRICE (based upon quarter-end values--June 1991 through June 2001) [INVESTMENT PERFORMANCE GRAPH]
NET ASSET VALUE MARKET PRICE --------------- ------------ 6/91 5.6900 5.6250 5.8900 6.2500 5.9200 6.8750 6.3200 7.3750 6/92 6.3400 8.0000 6.4300 7.8750 6.2300 7.2500 6.6300 8.0000 6/93 6.7600 8.3750 6.6600 8.3750 6.7400 8.1250 6.3300 7.6250 6/94 6.0600 8.0000 5.8500 7.0000 5.6200 5.5000 5.8400 6.1250 6/95 6.0700 6.6250 6.1200 6.3750 6.1900 6.3750 6.1600 6.7500 6/96 6.0500 6.5000 6.2000 6.8750 6.3500 6.7500 6.2200 6.7500 6/97 6.3600 7.3125 6.4900 7.3125 6.4700 7.3750 6.5300 7.3125 6/98 6.4400 7.0000 5.8900 6.3125 5.8600 6.3750 5.7000 6.4375 6/99 5.4900 6.3750 5.1600 5.9375 5.1000 4.5000 4.8400 4.6250 6/00 4.7500 5.0000 4.6800 4.7500 4.2200 4.1250 4.5000 5.0900 6/01 4.2400 4.7800
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. 7 10 [PHOTO] Q&A WITH YOUR PORTFOLIO MANAGER WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGER OF THE VAN KAMPEN HIGH INCOME TRUST ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED THE TRUST'S RETURN DURING THE PAST SIX MONTHS. ROBERT J. HICKEY, PORTFOLIO MANAGER, HAS MANAGED THE TRUST SINCE 1999 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1988. THE FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE TRUST'S PERFORMANCE DURING THE SIX-MONTH PERIOD ENDED JUNE 30, 2001. Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE TRUST OPERATED AND HOW DID THE TRUST PERFORM IN THAT ENVIRONMENT? A Actually, the market environment over the past six months has been close to ideal for this type of portfolio, resulting in a period of strong performance. A combination of declining interest rates, a leveraged portfolio structure, and an emphasis on higher-rated securities has helped the trust perform well despite the slowing economy that has threatened to flatten corporate earnings. For example, even though the trust invests primarily in high-yield corporate securities, its focus has been on the higher-quality segment of the market. Compared to similar portfolios, the trust holds a greater proportion of its assets in securities rated BB or higher. As of June 30, 2001, this segment of the market represented roughly 50 percent of the portfolio's long-term debt investments. This focus on quality has helped temper the credit concerns that have haunted the high-yield corporate arena. The default rate of troubled high-yield credits has been running markedly higher than in recent years (roughly 8.5 percent, up from the typical 5 to 6 percent), so stronger investor demand for high-yield issues in the higher rating categories has helped bolster prices in this segment. Also, by focusing on higher-rated issues, the trust was lightly weighted in the telecommunications sector compared to its benchmark, the Chase High Yield Index, which is dominated by lower-rated issuers and has therefore performed quite poorly in recent months. Trust holdings in this sector are predominantly higher-rated issues. As a leveraged portfolio, the trust borrows funds at short-term rates and reinvests these assets in longer-term securities, capturing the yield differential between the two ends of the maturity spectrum. This yield difference may help to supplement the return delivered to shareholders. Short- term interest rates have declined steadily over the past six months, and have dropped more than long-term rates. Therefore, the trust's cost of 8 11 borrowing has declined, while its ability to earn income at the long end of the yield curve has remained strong, increasing the potential benefit of the trust's leveraged portfolio structure. The trust continued to provide shareholders with an attractive monthly dividend of $.0470 per share, which translates to a distribution rate of 11.80 percent based on the trust's closing market price on June 30, 2001. For the six months ending June 30, 2001, the trust had a total return of 22.64 percent based on market price. This reflects an increase in market price from $4.125 per share on December 31, 2000, to $4.780 per share on June 30, 2001. Of course, past performance is no guarantee of future results. As a result of recent market activity, current performance may vary from the figures shown. For more up-to-date information, please visit www.vankampen.com or speak with your financial advisor. By comparison, the Chase High Yield Index posted a total return of 4.56 percent for the same period. The Chase High Yield Index is an unmanaged, broad-based statistical composite of high-yield securities. Its returns do not include any sales charges or fees that would be paid by an investor purchasing the securities it represents. Such costs would lower performance. It is not possible to invest directly in an index. For additional performance results, please refer to the chart and footnotes on page 4. Q WHAT SPECIFIC STRATEGIES DID YOU EMPLOY IN MANAGING THE TRUST? A We have consistently moved toward broader diversification of the portfolio, selecting investments from an increasingly large number of individual issuers across a wide cross section of industries. As of June 30, 2001, the trust held securities from no fewer than 140 separate issuers. This degree of diversification has been a conscious decision, as we seek to buffer the portfolio from the occasional credit-related problem experienced by high-yield securities of this type. Thus far, it is a strategy that has fulfilled our expectations. We have also relied on our diligent credit research to evaluate our investment choices and lead us in the right direction. Within the portfolio's varied mix, we chose to favor some of the industry sectors that appeared to offer the greatest relative value. Consequently, the portfolio was weighted more heavily in several sectors, such as energy (especially refining), food and tobacco, and the beverage category, all of which were positives for the trust's performance. Several of the securities we purchased were issued by Mexican-based issuers, which benefited from Mexico's upgraded credit rating status. Other strong performers were in the wireless personal communication systems sector, chemicals, home building, and retail, including K-Mart, Saks, and Musicland. We have been very happy with our credit selection in the retail sector, which is typically a more risky sector during times of lower consumer spending and a slowing economy. Also, the housing sector has been strong due to the lower interest rate environment, as people have been willing to take advantage of lower mortgage rates to reduce their borrowing costs. Keep in mind that not all securities in the trust performed as favorably, nor is there any 9 12 guarantee that these securities will perform as well or will be held by the trust in the future. Areas in which we reduced the trust's exposure included gaming and health care, both of which had provided a strong run of good performance, but appeared to be peaking. We believed it would be beneficial to realize gains in these sectors and reduce the trust's exposure to a potential pullback in these industries. On the down side, the trust had a heavy-weighted position in forest products, which were hurt by a downtrend in paper and pulp profits; a heavier weight in metals & mining, which included the economically sensitive steel companies; and in textiles, which lagged due to weak sales and high domestic production costs encountered by selected retail clothing issuers. We continue to evaluate our holdings in these industries. Overall, with the attractiveness of higher-rated, shorter-term securities in recent months, we have been able to keep the portfolio close to being fully invested, with a cash position in the range of 1 to 4 percent over the past six months. Q WHAT IS YOUR OUTLOOK FOR THE MARKET AND THE TRUST IN THE MONTHS AHEAD? A At the close of the period, we were generally optimistic about the long-term prospects for the high-yield corporate sector. We expect a potentially more stable market moving forward, as the Federal Reserve Board continues its efforts to reinvigorate the economy and avoid recession by lowering short-term interest rates, making it less expensive for companies to finance their operations through the bond market. It appears the market is already pricing in further interest rate cuts by the Fed, expecting perhaps another one or two cuts of 25 basis points each. This is a positive sign for the trust's leveraged portfolio, as lower interest rates mean lower borrowing costs. On the other hand, further cuts also mean that the economy continues to be weak in the near term, which is bad news for corporate earnings and the demand for high-yield corporate debt. We will be closely watching the yield-spread dynamics in the marketplace, as strong prices in the BB rated portion of the market may be creating a situation where B rated securities begin to look quite attractive in comparison. If yields in these two sectors begin to converge, the trust could be susceptible to falling prices for its holdings in the BB rated sector. Nevertheless, our focus will remain on maintaining a higher-quality portfolio built on strong credit research, while seeking to provide a highly competitive level of current income. As of July 24, 2001, the trust is managed by the High Yield team of Van Kampen Investment Advisory Corp. ("The Adviser"). The team is made up of established investment professionals. Current members of the team include Stephen F. Esser, a Managing Director of the Adviser, Gordon W. Loery, an Executive Director of the Adviser, and Deanna L. Loughnane, an Executive Director of the Adviser. The composition of the team may change without notice from time to time. 10 13 GLOSSARY OF TERMS A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT AND OTHER FINANCIAL PUBLICATIONS. CREDIT RATING: An evaluation of a bond issuer's credit history and capability of repaying debt obligations. Standard & Poor's Ratings Group and Moody's Investors Service are two companies that assign credit 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. FEDERAL FUNDS RATE: The interest rate charged by one financial institution lending federal funds to another. The Federal Reserve Board adjusts the federal funds rate to affect the direction of interest rates. 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 at least eight times a year to establish monetary policy and monitor the economic pulse of the United States. LEVERAGE: An investment strategy that involves using borrowed money to finance an investment. Leveraging involves certain risks, including the potential for increased volatility. NET ASSET VALUE (NAV): The value of a trust share, calculated by deducting a trust's liabilities from the total assets applicable to common shareholders in its portfolio and dividing this amount by the number of common shares outstanding. YIELD: The annual rate of return on an investment, expressed as a percentage. YIELD CURVE: The pattern that results from viewing the yields of U.S. Treasury securities maturing in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of increasing yield is often reflected as the time to maturity extends. This pattern creates an upward sloping "curve." A "flat" yield curve represents little difference between short- and long-term interest rates, while a "negative" yield curve represents decreasing yields as the time to maturity extends. 11 14 BY THE NUMBERS YOUR TRUST'S INVESTMENTS June 30, 2001 (Unaudited) THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF THE REPORTING PERIOD.
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE CORPORATE BONDS 92.3% AEROSPACE & DEFENSE 2.1% $1,475 Dyncorp................................ 9.500% 03/01/07 $ 1,386,500 940 Sequa Corp. ........................... 9.000 08/01/09 935,300 ------------ 2,321,800 ------------ AUTOMOBILE 2.0% 1,520 Aetna Industries, Inc. (a)............. 11.875 10/01/06 562,400 450 Aftermarket Technology Corp. .......... 12.000 08/01/04 452,250 300 Cambridge Industries, Inc. (b) (c)..... 10.250 07/15/07 42,000 570 Lear Corp. ............................ 7.960 05/15/05 575,700 140 Talon Automotive Group, Inc. (b)....... 9.625 05/01/08 7,000 600 Venture Holdings Trust................. 9.500 07/01/05 474,000 60 Venture Holdings Trust................. 12.000 06/01/09 36,300 ------------ 2,149,650 ------------ BEVERAGE, FOOD & TOBACCO 3.6% 750 Chiquita Brands International, Inc. (b) ................................... 10.000 06/15/09 510,000 1,100 Coca Cola Femsa S.A. (Mexico).......... 8.950 11/01/06 1,188,000 330 Del Monte Corp, 144A--Private Placement (d).................................... 9.250 05/15/11 333,712 570 National Wine & Spirits, Inc. ......... 10.125 01/15/09 581,400 1,150 Pepsi Gemex S.A. (Mexico).............. 9.750 03/30/04 1,244,875 ------------ 3,857,987 ------------ BUILDINGS & REAL ESTATE 2.9% 180 Choctaw Resort Development Enterprise, 144A--Private Placement (d)............ 9.250 04/01/09 184,500 425 Hovnanian K Enterprises, Inc. ......... 10.500 10/01/07 435,625 847 Intrawest Corp. (Canada)............... 9.750 08/15/08 855,470 250 Nortek, Inc. .......................... 8.875 08/01/08 241,250 570 Scholer Homes, 144A--Private Placement (d).................................... 9.375 07/15/09 570,712 825 Webb (Del E.) Corp. ................... 10.250 02/15/10 874,500 ------------ 3,162,057 ------------
See Notes to Financial Statements 12 15 YOUR TRUST'S INVESTMENTS June 30, 2001 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE CHEMICAL 5.8% $ 735 Agriculture Minerals & Chemicals, Inc. .................................. 10.750% 09/30/03 $ 628,425 850 Equistar Chemicals L.P. ............... 8.500 02/15/04 837,250 165 Hercules, Inc., 144A--Private Placement (d).................................... 11.125 11/15/07 165,825 2,891 Huntsman Polymers Corp. ............... 11.750 12/01/04 2,370,620 1,579 ISP Holdings, Inc. .................... 9.750 02/15/02 1,590,842 570 Millennium America, Inc. 144A--Private Placement (d).......................... 9.250 06/15/08 577,125 230 Pioneer Americas Acquisition Corp. (b).................................... 9.250 06/15/07 74,750 ------------ 6,244,837 ------------ CONSUMER DISTRIBUTION 0.3% 285 Owens & Minor, Inc., 144A--Private Placement (d) (e)...................... 8.500 07/15/11 287,850 ------------ CONSUMER NON-DURABLES 0.6% 320 BRL Universal Equipment................ 8.875 02/15/08 329,600 265 Elizabeth Arden, Inc. ................. 11.750 02/01/11 281,562 ------------ 611,162 ------------ CONTAINERS, PACKAGING & GLASS 2.0% 850 Fonda Group, Inc. ..................... 9.500 03/01/07 722,500 1,400 Radnor Holdings Corp. ................. 10.000 12/01/03 1,169,000 275 Sweetheart Cup, Inc. .................. 10.500 09/01/03 261,250 ------------ 2,152,750 ------------ DIVERSIFIED/CONGLOMERATE MANUFACTURING 1.5% 1,350 Communications & Power Industries, Inc. .................................. 12.000 08/01/05 702,000 855 Pacifica Papers, Inc. (Canada)......... 10.000 03/15/09 910,575 ------------ 1,612,575 ------------ ELECTRONICS 0.9% 850 Flextronics International Ltd. (Singapore)............................ 8.750 10/15/07 820,250 510 Globix Corp. .......................... 12.500 02/01/10 156,825 ------------ 977,075 ------------
See Notes to Financial Statements 13 16 YOUR TRUST'S INVESTMENTS June 30, 2001 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE FINANCE 4.2% $ 235 Alamosa Delaware, Inc., 144A--Private Placement (d).......................... 12.500% 02/01/11 $ 212,675 310 Banco Nacional de Comercio Exterior (Mexico)............................... 7.250 02/02/04 312,325 855 Conseco, Inc. ......................... 6.400 02/10/03 799,425 385 Labranche & Co., Inc. ................. 12.000 03/02/07 431,200 280 Madison River Capital LLC.............. 13.250 03/01/10 140,000 590 Port Arthur Finance Corp. ............. 12.500 01/15/09 604,750 2,000 Vicap S.A. (Mexico).................... 10.250 05/15/02 1,995,000 ------------ 4,495,375 ------------ GROCERY 4.2% 1,160 Disco S.A. (Argentina)................. 9.125 05/15/03 1,096,200 1,550 Fleming Cos., Inc. .................... 10.500 12/01/04 1,592,625 1,570 Jitney Jungle Stores America, Inc. (b) (c).................................... 12.000 03/01/06 19,625 1,845 Pantry, Inc. .......................... 10.250 10/15/07 1,798,875 ------------ 4,507,325 ------------ HEALTHCARE 3.3% 250 AdvancePCS............................. 8.500 04/01/08 253,750 650 Fisher Scientific International, Inc. .................................. 7.125 12/15/05 622,375 930 Fresenius Medical Care Capital Trust... 9.000 12/01/06 962,550 1,150 Tenet Healthcare Corp. ................ 8.000 01/15/05 1,181,625 570 Tenet Healthcare Corp. ................ 8.625 12/01/03 591,375 ------------ 3,611,675 ------------ HOME & OFFICE FURNISHINGS 0.1% 90 Sealy Mattress Co., 144A--Private Placement (d).......................... 9.875 12/15/07 89,100 ------------ HOTEL, MOTEL, INNS & GAMING 6.3% 260 Agrosy Gaming Co. ..................... 10.750 06/01/09 280,800 280 Argosy Gaming Co., 144A--Private Placement (d).......................... 10.750 06/01/09 302,400 540 Booth Creek Ski Holdings, Inc. ........ 12.500 03/15/07 450,900 848 Boyd Gaming Corp. ..................... 9.250 10/01/03 856,480
See Notes to Financial Statements 14 17 YOUR TRUST'S INVESTMENTS June 30, 2001 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE HOTEL, MOTEL, INNS & GAMING (CONTINUED) $ 275 Circus Circus Enterprises, Inc. ....... 6.450% 02/01/06 $ 254,375 570 Harvey's Casino Resorts................ 10.625 06/01/06 601,350 140 Horseshoe Gaming LLC................... 8.625 05/15/09 141,050 320 Majestic Star Casino LLC............... 10.875 07/01/06 289,600 925 Mandalay Resort Groups................. 10.250 08/01/07 971,250 280 MGM Grand, Inc. ....................... 9.750 06/01/07 299,600 1,400 Mohegan Tribal Gaming Authority........ 8.125 01/01/06 1,421,000 490 Park Place Entertainment Corp. ........ 7.875 12/15/05 493,675 425 Park Place Entertainment Corp. ........ 8.875 09/15/08 443,062 ------------ 6,805,542 ------------ LEISURE/ENTERTAINMENT 0.2% 250 Steinway Musical Instruments, Inc., 144A--Private Placement (d)............ 8.750 04/15/11 252,500 ------------ MINING, STEEL, IRON & NON-PRECIOUS METAL 2.8% 1,100 GS Technologies Operating, Inc. (b)(c)................................. 12.250 10/01/05 38,500 1,925 Kaiser Aluminum & Chemical Corp. ...... 9.875 02/15/02 1,896,125 210 Renco Steel Holdings, Inc. ............ 10.875 02/01/05 35,700 1,590 WCI Steel, Inc. ....................... 10.000 12/01/04 1,081,200 ------------ 3,051,525 ------------ OIL & GAS 9.4% 990 Benton Oil & Gas, Inc. ................ 11.625 05/01/03 712,800 285 Chesapeake Energy Corp., 144A--Private Placement (d).......................... 8.125 04/01/11 267,900 570 Chesapeake Energy, Inc. ............... 7.875 03/15/04 564,300 1,140 Frontier Oil Corp. .................... 11.750 11/15/09 1,225,500 355 Giant Industries, Inc. ................ 9.000 09/01/07 335,475 1,657 Giant Industries, Inc. ................ 9.750 11/15/03 1,661,143 1,401 KCS Energy, Inc. ...................... 11.000 01/15/03 1,422,015 575 Petroleos Mexicanos (Mexico)........... 7.430 07/15/05 583,625 335 Pogo Producing Co. .................... 8.250 04/15/11 335,000 1,000 Pride Petroleum Services, Inc. ........ 9.375 05/01/07 1,057,500 570 R & B Falcon Corp. .................... 6.500 04/15/03 581,400 685 R & B Falcon Corp. .................... 9.500 12/15/08 804,875 665 Vintage Petroleum, Inc., 144A--Private Placement (d).......................... 7.875 05/15/11 645,050 ------------ 10,196,583 ------------
See Notes to Financial Statements 15 18 YOUR TRUST'S INVESTMENTS June 30, 2001 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE PAPER 1.1% $ 285 Fibermark, Inc., 144A--Private Placement (d).......................... 10.750% 04/15/11 $ 289,275 825 Repap New Brunswick, Inc. (Canada)..... 9.000 06/01/04 874,500 ------------ 1,163,775 ------------ PRINTING, PUBLISHING & BROADCASTING 11.4% 1,400 Adelphia Communications Corp. ......... 9.250 10/01/02 1,407,000 570 Century Communications Corp. .......... 9.750 02/15/02 572,850 1,420 Charter Communication Holdings LLC..... 8.250 04/01/07 1,345,450 200 Classic Cable, Inc. ................... 9.375 08/01/09 64,000 630 CSC Holdings, Inc. .................... 10.500 05/15/16 696,150 975 EchoStar Communications Corp. ......... 9.250 02/01/06 957,938 500 Insight Communications, Inc., 144A--Private Placement (d) (f)........ 0/12.250 02/15/11 285,000 1,000 International Cabletel, Inc. .......... 12.750 04/15/05 760,000 1,460 James Cable Partners L.P. ............. 10.750 08/15/04 1,204,500 1,500 K-III Communications Corp. ............ 10.250 06/01/04 1,560,000 570 Price Communications Wireless, Inc. ... 9.125 12/15/06 592,800 850 Primedia, Inc., 144A--Private Placement (d).................................... 8.875 05/15/11 807,500 285 Radio One, Inc., 144A--Private Placement (d).......................... 8.875 07/01/11 286,425 425 Sinclair Broadcast Group, Inc. ........ 10.000 09/30/05 429,250 1,140 Telewest PLC (United Kingdom).......... 9.625 10/01/06 951,900 785 United Pan Europe Communications (Netherlands).......................... 10.875 11/01/07 314,000 165 Ziff Davis Media, Inc. ................ 12.000 07/15/10 94,050 ------------ 12,328,813 ------------ PRODUCER MANUFACTURING 2.3% 570 Allied Waste North America, Inc., 144A--Private Placement (d)............ 8.875 04/01/08 584,250 200 Associated Materials, Inc. ............ 9.250 03/01/08 196,000 705 Briggs & Straton, 144A--Private Placement (d).......................... 8.875 03/15/11 712,050 635 Cemex Corp., 144A--Private Placement (Mexico) (d)........................... 8.625 07/18/03 669,925 595 Numatics, Inc. ........................ 9.625 04/01/08 374,850 ------------ 2,537,075 ------------
See Notes to Financial Statements 16 19 YOUR TRUST'S INVESTMENTS June 30, 2001 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE RAW MATERIALS/PROCESSING INDUSTRIES 0.1% $ 280 Doe Run Resources Corp. ............... 11.250% 03/15/05 $ 77,000 ------------ RETAIL 3.1% 210 Big 5 Corp. ........................... 10.875 11/15/07 206,850 600 Community Distributors, Inc. .......... 10.250 10/15/04 246,000 500 Hosiery Corp. of America, Inc. ........ 13.750 08/01/02 135,000 570 J C Penney, Inc. ...................... 7.250 04/01/02 570,121 340 K Mart Corp. .......................... 8.375 12/01/04 331,500 825 Musicland Group, Inc. ................. 9.875 03/15/08 880,688 710 Polaroid Corp. ........................ 6.750 01/15/02 362,100 710 Saks, Inc. ............................ 7.000 07/15/04 670,950 ------------ 3,403,209 ------------ TECHNOLOGY 1.5% 685 Amkor Technology, Inc., 144A--Private Placement (d).......................... 9.250 02/15/08 640,475 280 Exodus Communications, Inc. ........... 11.250 07/01/08 92,400 425 Fairchild Semiconductor Corp. ......... 10.500 02/01/09 412,250 630 PSI Net, Inc. (b) (c).................. 10.500 12/01/06 44,100 425 Tektronix, Inc. ....................... 7.625 08/15/02 433,500 ------------ 1,622,725 ------------ TELECOMMUNICATIONS 13.0% 830 Airgate PCS, Inc. (f).................. 0/13.500 10/01/09 481,400 245 Alamosa Holdings, Inc. (f)............. 0/12.875 02/15/10 113,925 285 American Cellular Corp., 144A--Private Placement (d).......................... 9.500 10/15/09 266,475 285 American Tower Corp., 144A--Private Placement (d).......................... 9.375 02/01/09 269,325 570 Asia Global Crossing (Bermuda)......... 13.375 10/15/10 444,600 425 AT&T Wireless Services, Inc., 144A--Private Placement (d)............ 7.875 03/01/11 426,522 1,275 Filtronic PLC (United Kingdom)......... 10.000 12/01/05 841,500 570 Focal Communications................... 11.875 01/15/10 182,400 570 France Telecom, 144A--Private Placement (France) (d)........................... 7.750 03/01/11 581,972 850 Frontier Corp. ........................ 6.000 10/15/03 692,750 1,035 Global Crossing Holdings Ltd. (Bermuda).............................. 9.125 11/15/06 817,650 560 Grupo Iusacell S.A. (Mexico)........... 10.000 07/15/04 571,200 1,260 GT Group Telecom, Inc. (Canada) (f).... 0/13.250 02/01/10 390,600 1,710 Intercel, Inc. ........................ 12.000 05/01/06 1,812,600
See Notes to Financial Statements 17 20 YOUR TRUST'S INVESTMENTS June 30, 2001 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE TELECOMMUNICATIONS (CONTINUED) $ 45 Intermedia Communications, Inc. ....... 12.500% 05/15/06 $ 44,775 1,230 Intermedia Communications, Inc. ....... 8.600 06/01/08 1,211,550 205 Intermedia Communications, Inc. ....... 8.875 11/01/07 201,925 830 IPCS, Inc. (f)......................... 0/14.000 07/15/10 340,300 85 Level 3 Communications, Inc. .......... 9.125 05/01/08 35,700 185 McLeod USA, Inc. ...................... 11.375 01/01/09 118,400 1,160 Metromedia Fiber Network, Inc. ........ 10.000 12/15/09 452,400 280 MGC Communications, Inc. .............. 13.000 10/01/04 172,200 1,105 Nextel Communications, Inc. ........... 9.375 11/15/09 867,425 570 Nextlink Communications, Inc. ......... 9.625 10/01/07 165,300 600 Nextlink Communications, Inc. ......... 10.500 12/01/09 180,000 175 Philippine Long Distance Telephone (Philippines).......................... 10.500 04/15/09 162,295 280 Philippine Long Distance Telephone (Philippines).......................... 10.625 06/02/04 280,224 280 Pinnacle Holdings, Inc. (f)............ 0/10.000 03/15/08 148,400 345 Rural Cellular Corp. .................. 9.625 05/15/08 336,375 280 Telecorp PCS, Inc. .................... 10.625 07/15/10 263,900 375 Tritel PCS, Inc. ...................... 10.375 01/15/11 342,188 190 U.S. Unwired, Inc. (f)................. 0/13.375 11/01/09 94,050 950 Williams Communications Group, Inc. ... 11.700 08/01/08 384,750 425 WorldCom, Inc. ........................ 8.250 05/15/31 418,004 ------------ 14,113,080 ------------ TEXTILES 0.5% 1,075 Dan River, Inc. ....................... 10.125 12/15/03 483,750 100 Supreme International, Inc. ........... 12.250 04/01/06 93,500 ------------ 577,250 ------------ TRANSPORTATION 4.0% 425 Cenargo International PLC (United Kingdom)............................... 9.750 06/15/08 335,750 2,070 Greyhound Lines, Inc. ................. 11.500 04/15/07 1,904,400 594 International Shipholding Corp. ....... 9.000 07/01/03 591,030 850 Laidlaw, Inc. (Canada) (b)............. 7.700 08/15/02 357,000 567 Northwest Airlines Corp. .............. 8.375 03/15/04 567,000 570 Stena AB (Sweden)...................... 10.500 12/15/05 564,300 ------------ 4,319,480 ------------ UTILITIES 3.1% 425 AES Corp. ............................. 8.750 12/15/02 430,313 715 AES Corp. ............................. 9.500 06/01/09 728,406 570 AES Drax Energy Ltd. (Cayman Islands)............................... 11.500 08/30/10 619,875
See Notes to Financial Statements 18 21 YOUR TRUST'S INVESTMENTS June 30, 2001 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE UTILITIES (CONTINUED) $ 425 Calpine Corp. ......................... 8.500% 02/15/11 $ 413,313 570 Calpine Corp. ......................... 8.625 08/15/10 558,600 570 CMS Energy Corp. ...................... 7.625 11/15/04 558,600 ------------ 3,309,107 ------------ TOTAL CORPORATE BONDS 92.3%............................................... 99,838,882 ------------ GOVERNMENT AND GOVERNMENT AGENCY OBLIGATION 0.1% 140 United Mexican States (Mexico)......... 8.375 01/14/11 141,085 ------------ EQUITIES 0.8% DecisionOne Corp. (3,033 common shares) (g)................................ 6,433 DecisionOne Corp. (6,670 common stock warrants) (g)........................ 67 GT Group Telecom, Inc. (1,260 common stock warrants) 144A--Private Placement (d) (g).......................................................... 44,100 Hosiery Corp of America, Inc. (500 common shares) (g)...................... 20,250 IPCS, Inc. (830 common stock warrants) 144A--Private Placement (d) (g)..... 16,600 NTL, Inc. (1,622 common stock warrants) 144A--Private Placement (d) (g).... 8,775 Pathmark Stores, Inc (30,674 common shares) (g)............................ 754,581 Star Gas Partners L.P. (264 limited partnership units)..................... 5,504 ------------ TOTAL EQUITIES ........................................................... 856,310 ------------ TOTAL LONG-TERM INVESTMENTS 93.2% (Cost $116,116,039)........................................................ 100,836,277 REPURCHASE AGREEMENT 4.9% State Street Bank and Trust (Collateralized by U.S. Treasury Note, $5,095,000 par, 6.00% coupon due 08/15/09, dated 06/29/01, to be sold on 07/02/01 at $5,309,738) (Cost $5,308,000).................................. 5,308,000 ------------ TOTAL INVESTMENTS 98.1% (Cost $121,424,039)...................................................... 106,144,277 OTHER ASSETS IN EXCESS OF LIABILITIES 1.9%................................ 2,039,804 ------------ NET ASSETS 100.0%......................................................... $108,184,081 ============
See Notes to Financial Statements 19 22 YOUR TRUST'S INVESTMENTS June 30, 2001 (Unaudited) (a) Assets segregated as collateral for when-issued or delayed delivery purchase commitments. (b) Non-income producing, as security is in default. (c) This borrower has filed for protection in federal bankruptcy court. (d) 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may only be resold in transactions exempt from registration which are normally those transactions with qualified institutional buyers. (e) Securities purchased on a when-issued or delayed delivery basis. (f) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (g) Non-income producing security. See Notes to Financial Statements 20 23 FINANCIAL STATEMENTS Statement of Assets and Liabilities June 30, 2001 (Unaudited) ASSETS: Total Investments (Cost $121,424,039)....................... $106,144,277 Cash........................................................ 123 Receivables: Interest.................................................. 2,633,279 Investments Sold.......................................... 14,288 Other....................................................... 1,892 ------------ Total Assets............................................ 108,793,859 ------------ LIABILITIES: Payables: Investments Purchased..................................... 285,000 Investment Advisory Fee................................... 60,026 Income Distributions--Common and Preferred Shares......... 53,185 Affiliates................................................ 7,224 Trustees' Deferred Compensation and Retirement Plans........ 129,980 Accrued Expenses............................................ 74,363 ------------ Total Liabilities..................................... 609,778 ------------ NET ASSETS.................................................. $108,184,081 ============ NET ASSETS CONSIST OF: Preferred Shares ($.01 par value, authorized 1,000,000 shares, 500 issued with liquidation preference of $100,000 per share)................................................ $ 50,000,000 ------------ Common Shares ($.01 par value with an unlimited number of shares authorized, 13,710,760 shares issued and outstanding).............................................. 137,108 Paid in Surplus............................................. 87,043,519 Accumulated Distributions in Excess of Net Investment Income.................................................... (1,568,791) Accumulated Net Realized Loss............................... (12,753,385) Net Unrealized Depreciation................................. (14,674,370) ------------ Net Assets Applicable to Common Shares.................... 58,184,081 ------------ NET ASSETS.................................................. $108,184,081 ============ NET ASSET VALUE PER COMMON SHARE ($58,184,081 divided by 13,710,760 shares outstanding)............................ $ 4.24 ============
See Notes to Financial Statements 21 24 Statement of Operations For the Six Months Ended June 30, 2001 (Unaudited) INVESTMENT INCOME: Interest.................................................... $ 5,513,368 Dividends................................................... 303 Other....................................................... 3,470 ------------ Total Income............................................ 5,517,141 ------------ EXPENSES: Investment Advisory Fee..................................... 385,755 Preferred Share Maintenance................................. 75,864 Trustees' Fees and Related Expenses......................... 23,412 Legal....................................................... 13,180 Custody..................................................... 7,282 Other....................................................... 112,021 ------------ Total Expenses.......................................... 617,514 ------------ NET INVESTMENT INCOME....................................... $ 4,899,627 ============ REALIZED AND UNREALIZED GAIN/LOSS: Net Realized Loss........................................... $ (2,780,271) ------------ Unrealized Appreciation/Depreciation: Beginning of the Period................................... (18,600,115) End of the Period......................................... (15,279,762) ------------ Net Unrealized Appreciation During the Period............... 3,320,353 ------------ NET REALIZED AND UNREALIZED GAIN............................ $ 540,082 ============ NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 5,439,709 ============
See Notes to Financial Statements 22 25 Statements of Changes in Net Assets For the Six Months Ended June 30, 2001 and the Year Ended December 31, 2000 (Unaudited)
SIX MONTHS ENDED YEAR ENDED JUNE 30, 2001 DECEMBER 31, 2000 ------------------------------------ FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income............................. $ 4,899,627 $ 11,683,962 Net Realized Loss................................. (2,780,271) (4,566,933) Net Unrealized Appreciation/Depreciation During the Period...................................... 3,320,353 (7,148,485) ------------ ------------ Change in Net Assets from Operations.............. 5,439,709 (31,456) ------------ ------------ Distributions from and in Excess of Net Investment Income: Common Shares................................... (3,866,432) (8,318,168) Preferred Shares................................ (1,249,893) (3,603,414) Return of Capital Distribution--Common Shares..... -0- (161,205) ------------ ------------ Total Distributions............................... (5,116,325) (12,082,787) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...................................... 323,384 (12,114,243) FROM CAPITAL TRANSACTIONS: Redemption of Preferred Shares.................... -0- (8,800,000) ------------ ------------ TOTAL INCREASE/DECREASE IN NET ASSETS............. 323,384 (20,914,243) NET ASSETS: Beginning of the Period........................... 107,860,697 128,774,940 ------------ ------------ End of the Period (Including accumulated distributions in excess of net investment income of $1,568,791 and $746,701, respectively)....... $108,184,081 $107,860,697 ============ ============
See Notes to Financial Statements 23 26 Financial Highlights (Unaudited) THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS ENDED JUNE 30, -------------------- 2001 2000 1999 -------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD............ $ 4.22 $ 5.10 $ 5.86 -------- -------- -------- Net Investment Income.............................. .36 .85 .88 Net Realized and Unrealized Gain/Loss.............. .03 (.85) (.75) -------- -------- -------- Total from Investment Operations.................... .39 -0- .13 -------- -------- -------- Less: Distributions from and in Excess of Net Investment Income: Paid to Common Shareholders...................... .28 .61 .67 Common Share Equivalent of Distributions Paid to Preferred Shareholders......................... .09 .26 .22 Return of Capital Distributions Paid to Common Shareholders..................................... -0- .01 -0- -------- -------- -------- Total Distributions................................. .37 .88 .89 -------- -------- -------- NET ASSET VALUE, END OF THE PERIOD.................. $ 4.24 $ 4.22 $ 5.10 ======== ======== ======== Market Price Per Share at End of the Period......... $ 4.78 $ 4.125 $ 4.50 Total Investment Return at Market Price (a)......... 22.64%* 4.08% -21.20% Total Return at Net Asset Value (b)................. 7.01%* -5.63% -1.60% Net Assets at End of the Period (In millions)....... $ 108.2 $ 107.9 $ 128.8 Ratio of Expenses to Average Net Assets Applicable to Common Shares (c)............................... 2.04% 1.95% 1.92% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (c) (d)................ 16.16% 18.05% 16.13% Portfolio Turnover.................................. 28%* 62% 57% SUPPLEMENTAL RATIOS: Ratio of Expenses to Average Net Assets Including Preferred Shares (c)............................... 1.12% 1.04% 1.07% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (e).................... 12.04% 12.48% 12.09% SENIOR SECURITIES Total Preferred Shares Outstanding.................. 500 500 588 Asset Coverage Per Preferred Share (f).............. $216,368 $215,271 $219,005 Involuntary Liquidating Preference Per Preferred Share.............................................. $100,000 $100,000 $100,000 Average Market Value Per Preferred Share............ $100,000 $100,000 $100,000
* Non-annualized (a) 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 common share price at the end of the period indicated. (b) 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. (c) Ratios do not reflect the effect of dividend payments to preferred shareholders (d) As required, effective January 1, 2001, the Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on fixed income securities. The effect of this change for the period ended June 30, 2001 was to decrease net investment income per share by $.03, increase net realized and unrealized gains and losses per share by $.03 and decrease the ratio of net investment income to average net assets from 17.89% to 16.16%. Per share, ratios and supplemental data for periods prior to June 30, 2001 have not been restated to reflect this change in presentation. (e) Ratios reflect the effect of dividend payments to preferred shareholders (f) Calculated by subtracting the Trust's total liabilities (not including the preferred shares) from the Trust's total assets and dividing this by the number of preferred shares outstanding. 24 27
YEAR ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------- $ 6.47 $ 6.35 $ 6.19 $ 5.62 $ 6.74 $ 6.23 $ 5.92 $ 4.60 -------- -------- -------- -------- -------- -------- -------- -------- .91 .93 .94 .98 1.00 1.11 1.21 1.15 (.58) .13 .15 .54 (.98) .53 .17 1.28 -------- -------- -------- -------- -------- -------- -------- -------- .33 1.06 1.09 1.52 .02 1.64 1.38 2.43 -------- -------- -------- -------- -------- -------- -------- -------- .70 .70 .70 .70 .95 .99 .91 .84 .24 .24 .23 .25 .19 .14 .16 .27 -0- -0- -0- -0- -0- -0- -0- -0- -------- -------- -------- -------- -------- -------- -------- -------- .94 .94 .93 .95 1.14 1.13 1.07 1.11 -------- -------- -------- -------- -------- -------- -------- -------- $ 5.86 $ 6.47 $ 6.35 $ 6.19 $ 5.62 $ 6.74 $ 6.23 $ 5.92 ======== ======== ======== ======== ======== ======== ======== ======== $ 6.375 $ 7.375 $ 6.75 $ 6.375 $ 5.50 $ 8.125 $ 7.25 $ 6.875 -4.33% 20.29% 17.34% 29.17% -23.22% 26.12% 18.67% 92.24% 1.35% 13.69% 14.86% 23.70% -2.54% 25.46% 21.36% 48.77% $ 139.2 $ 147.5 $ 145.8 $ 143.6 $ 135.9 $ 151.1 $ 144.2 $ 140.0 1.76% 1.87% 1.92% 1.96% 1.72% 1.87% 2.51% 1.85% 14.60% 15.32% 16.39% 16.33% 16.75% 19.15% 20.74% 14.56% 65% 102% 92% 119% 110% 99% 109% 78% 1.05% 1.11% 1.12% 1.16% 1.04% 1.11% 1.42% 1.09% 10.90% 11.58% 12.16% 13.31% 14.66% 16.48% 15.86% 10.77% 588 588 588 588 588 588 588 588 $236,742 $250,850 $247,974 $244,242 $231,106 $257,054 $245,221 $238,138 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
See Notes to Financial Statements 25 28 NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) 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, while seeking to preserve shareholders' capital through investment in a professionally managed diversified portfolio of high yield, fixed income securities. 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 accounting principals generally accepted in the United States of America 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, which approximates market value. 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 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 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 accreted and premiums are amortized over the expected life of each applicable security. 26 29 NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) As required, effective January 1, 2001, the Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on fixed income securities. Prior to January 1, 2001, the Trust did not amortize premiums on fixed income securities. The cumulative effect of this accounting change had no impact on total net assets of the Trust, but resulted in a $605,392 reduction in cost of securities and a corresponding $605,392 decrease in net unrealized depreciation based on securities held by the Trust on January 1, 2001. The effect of this change for the six months ended June 30, 2001 was to decrease net investment income by $525,431; decrease net unrealized depreciation by $391,469 and decrease net realized losses by $133,962. The Statement of Changes in Net Assets and Financial Highlights for prior periods have not been restated to reflect this change in presentation. 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, 2000, the Trust had an accumulated capital loss carry forward for tax purposes of $9,094,182 which expires between December 31, 2002 and December 31, 2008. 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. At June 30, 2001, for federal income tax purposes, cost of long- and short-term investments is $121,979,928; the aggregate gross unrealized appreciation is $2,210,748 and the aggregate gross unrealized depreciation is $18,046,399, resulting in net unrealized depreciation on long- and short-term investments of $15,835,651. 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. Distributions from net realized gains for book purposes may include short-term capital gains, which are included in ordinary income for tax purposes. F. RECLASSIFICATIONS Certain information included in the prior years' financial highlights has been conformed to the current year presentation. 27 30 NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) 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 .70% of the average daily net assets of the Trust. For the six months ended June 30, 2001, the Trust recognized expenses of approximately $1,700 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. Under separate Accounting Services and Legal Services agreements, the Adviser provides accounting and legal services to the Trust. The Adviser allocates the cost of such services to each trust. For the six months ended June 30, 2001, the Trust recognized expenses of approximately $18,700 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Trust, which are reported as part of other and legal expenses, respectively, in the Statement of Operations. 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 upon retirement 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 $28,925,343 and $28,855,980, respectively. 4. AUCTION MARKET PREFERRED SHARES The Trust has outstanding 500 shares of Auction Market Preferred Shares ("AMPS") at a liquidation value of $100,000 per share. Dividends are cumulative and the rate is currently reset through an auction process every 28 days. The rate in effect on June 30, 2001 was 3.75%. During the six months ended June 30, 2001, the rates ranged from 3.75% to 6.55%. 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. 28 31 NOTES TO FINANCIAL STATEMENTS June 30, 2001 (Unaudited) 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. 29 32 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 30 33 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 31 34 BOARD OF TRUSTEES AND IMPORTANT ADDRESSES VAN KAMPEN HIGH INCOME TRUST BOARD OF TRUSTEES DAVID C. ARCH ROD DAMMEYER HOWARD J KERR THEODORE A. MYERS RICHARD F. POWERS, III* - Chairman HUGO F. SONNENSCHEIN WAYNE W. WHALEN* 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 c/o EquiServe P.O. Box 43011 Providence, Rhode Island 02940-3011 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER, & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT AUDITORS DELOITTE & TOUCHE LLP 180 North Stetson Avenue Chicago, Illinois 60601 * "Interested persons" of the Trust, as defined in the Investment Company Act of 1940, as amended. 32 35 RESULTS OF SHAREHOLDER VOTES An Annual Meeting of the Shareholders of the Trust was held on June 27, 2001, where shareholders voted on the election of trustees. With regards to the election of the following trustees by the common shareholders of the Trust:
# OF SHARES ------------------------------ IN FAVOR WITHHELD - -------------------------------------------------------------------------------------- Richard F. Powers, III................................ 11,502,736 203,622 Hugo F. Sonnenschein.................................. 11,501,833 204,525
With regards to the election of the following trustee by the preferred shareholders of the Trust:
# OF SHARES ---------------------------- IN FAVOR WITHHELD - --------------------------------------------------------------------------------------- Theodore A. Myers........................................ 498 --
The other trustees whose terms did not expire in 2001 were David C. Arch, Rod Dammeyer, Howard J Kerr, and Wayne W. Whalen. 33 36 Van Kampen Privacy Notice The Van Kampen companies and investment products* respect your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain nonpublic personal information about you. This is information we collect from you on applications or other forms, and from the transactions you make with us, our affiliates, or third parties. We may also collect information you provide when using our web site, and text files (a.k.a. "cookies") may be placed on your computer to help us to recognize you and to facilitate transactions you initiate. We do not disclose any nonpublic personal information about you or any of our former customers to anyone, except as permitted by law. For instance, so that we may continue to offer you Van Kampen investment products and services that meet your investing needs, and to effect transactions that you request or authorize, we may disclose the information we collect to companies that perform services on our behalf, such as printers and mailers that assist us in the distribution of investor materials. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. To protect your nonpublic personal information internally, we permit access to it only by authorized employees, and maintain physical, electronic and procedural safeguards to guard your nonpublic personal information. * Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as well as the many Van Kampen mutual funds and Van Kampen unit investment trusts. Van Kampen Funds Inc. 1 Parkview Plaza, P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 www.vankampen.com [VAN KAMPEN INVESTMENTS LOGO] Copyright (C)2001 Van Kampen Funds Inc. All rights reserved. 920, 911, 104 3549H01-AS-8/01 VIT SAR 8/01 -----END PRIVACY-ENHANCED MESSAGE-----