-----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, DpTKTfrkr3fE9EdtePxQjE2kzgtT9IsfwIQnaw1I4ymLCZY+cXHxbe5ibgjW5msc 0H/flqyjRQEotvqmyRw31Q== 0000950137-02-000950.txt : 20020414 0000950137-02-000950.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950137-02-000950 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN HIGH INCOME TRUST CENTRAL INDEX KEY: 0000843506 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: 02560383 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 MERRITT INTERMEDIATE TERM HIGH INCOME TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM HIGH INCOME TR DATE OF NAME CHANGE: 19960102 N-30D 1 c66859n-30d.txt ANNUAL REPORT Table of Contents OVERVIEW LETTER TO SHAREHOLDERS 1 ECONOMIC SNAPSHOT 2 PERFORMANCE SUMMARY RETURN HIGHLIGHTS 4 PORTFOLIO AT A GLANCE CREDIT QUALITY 6 TWELVE-MONTH DIVIDEND HISTORY 6 TOP FIVE SECTORS 7 NET ASSET VALUE AND MARKET PRICE 7 Q&A WITH YOUR PORTFOLIO MANAGERS 8 GLOSSARY OF TERMS 11 BY THE NUMBERS YOUR TRUST'S INVESTMENTS 12 FINANCIAL STATEMENTS 21 NOTES TO FINANCIAL STATEMENTS 26 REPORT OF INDEPENDENT AUDITORS 30 DIVIDEND REINVESTMENT PLAN 31 BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 33 TRUSTEE AND OFFICER INFORMATION 34
Van Kampen wishes peace and prosperity to all. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE OVERVIEW LETTER TO SHAREHOLDERS January 18, 2002 Dear Shareholder, As the new year begins, Van Kampen wishes peace, prosperity and hope to all. With a legacy that spans nearly four generations, Van Kampen has helped investors pursue their goals through social, political and economic change. In the face of challenges and uncertainty, our core investment philosophy has been tested and, we believe affirmed. Whether you're new to the Van Kampen family or revisiting your investment strategy, we encourage you to focus on two fundamental investing principles: SEEK FINANCIAL ADVICE BEFORE YOU INVEST. Your financial advisor can help you develop a tailored investment strategy based on several factors, including your age, family status and goals. While no portfolio is immune to volatility, your advisor can help you structure a portfolio designed to address your long-term financial goals. EXAMINE YOUR PORTFOLIO AND MODERATE YOUR INVESTMENT RISK--DIVERSIFY. Consider including a variety of stock and fixed-income funds in your portfolio, which may improve your long-term performance. We are grateful for your continued trust in Van Kampen and appreciate the opportunity to manage your assets. In the new year, we hope you and your loved ones enjoy life's true wealth--family, friends and life's daily pleasures. Sincerely, [SIG] Richard F. Powers, III President and CEO Van Kampen Investment Advisory Corp. 1 ECONOMIC SNAPSHOT THE ECONOMY DECEMBER 2001 MARKED THE NINTH MONTH OF RECESSION FOR THE U.S. ECONOMY, BUT MIXED DATA AT YEAR'S END SUGGESTED THE WORST MAY BE OVER. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF ECONOMIC GROWTH, INCREASED AT AN ANNUAL RATE OF 0.2 PERCENT FOR THE FOURTH QUARTER. BUSINESS ACTIVITY, WHICH SLOWED PRIOR TO THE SEPTEMBER TERRORIST ATTACKS AND SPIRALED DOWNWARD AFTER, APPEARED TO RETURN TO MORE STABLE--ALBEIT WEAK--PRE-ATTACK LEVELS. MANUFACTURING, THE SECTOR HARDEST HIT BY THE INVENTORY CYCLE AND ITS EFFECT ON PRODUCTION DEMAND, CONTINUED TO CONTRACT IN DECEMBER--BUT AT A MUCH SLOWER RATE THAN IN PREVIOUS MONTHS. CONSUMER SPENDING AND EMPLOYMENT CONSUMER SPENDING, WHICH DRIVES TWO-THIRDS OF U.S. ECONOMIC GROWTH, REMAINED SURPRISINGLY RESILIENT THROUGHOUT THE REPORTING PERIOD. PRICE-CONSCIOUS CONSUMERS SHUNNED HIGH-PRICED DEPARTMENT AND SPECIALTY STORES FOR DISCOUNT STORES DURING THE HOLIDAY SHOPPING SEASON. MANY ALSO TOOK ADVANTAGE OF HISTORICALLY LOW MORTGAGE RATES TO REFINANCE THEIR LOANS OR PURCHASE NEW HOMES. BUT HOMES WEREN'T THE ONLY BIG-TICKET ITEMS POPULAR WITH CONSUMERS DURING THE REPORTING PERIOD. DEEP PRICE DISCOUNTING AND ZERO-PERCENT FINANCING OFFERED BY CARMAKERS DURING THE FIRST TWO MONTHS OF THE FOURTH QUARTER LURED MANY CAR BUYERS INTO DEALERS' SHOWROOMS. CONSUMER CONFIDENCE, WHICH HAD FALLEN FOR FIVE CONSECUTIVE MONTHS, SHOT UP IN DECEMBER AS REPORTS OF THE U.S. MILITARY'S APPARENT VICTORIES IN AFGHANISTAN WERE CIRCULATED. HOWEVER, THIS NEWFOUND OPTIMISM WAS TEMPERED BY MOUNTING JOB REDUCTION ANNOUNCEMENTS AND RISING UNEMPLOYMENT. BY THE END OF DECEMBER, UNEMPLOYMENT LEVELS HAD SURGED TO 5.8 PERCENT. INTEREST RATES AND INFLATION CONSISTENT WITH ITS RECENT ACTIONS, THE FEDERAL RESERVE BOARD (THE FED) AGAIN ATTEMPTED TO STIMULATE THE FALTERING ECONOMY BY SLASHING INTEREST RATES. THE FED'S 0.25 PERCENT CUT ON DECEMBER 11--THE 11TH RATE-CUT TO OCCUR SINCE JANUARY 1, 2001--BROUGHT THE FEDERAL FUNDS RATE TO 1.75 PERCENT, A 40-YEAR LOW. FINALLY, INFLATION REMAINED MODEST DURING THE REPORTING PERIOD. THE CONSUMER PRICE INDEX, A COMMON MEASURE OF THE INFLATION RATE, ROSE 1.6 PERCENT IN THE 12 MONTHS ENDED DECEMBER 31. 2 U.S. GROSS DOMESTIC PRODUCT SEASONALLY ADJUSTED ANNUALIZED RATES (December 31, 1999--December 31, 2001) [BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT --------------------------- Dec 99 8.30 Mar 00 4.80 Jun 00 5.70 Sep 00 1.30 Dec 00 1.90 Mar 01 1.30 Jun 01 0.30 Sep 01 -1.30 Dec 01 0.20
Source: Bureau of Economic Analysis INTEREST RATES AND INFLATION (December 31, 1999--December 31, 2001) [LINE GRAPH]
INTEREST RATES INFLATION -------------- --------- 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 3.75 2.70 3.50 2.70 Sep 01 3.00 2.60 2.50 2.10 2.00 1.90 Dec 01 1.75 1.60
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 PERFORMANCE SUMMARY RETURN HIGHLIGHTS (as of December 31, 2001) - ----------------------------- NYSE Ticker Symbol - VIT - -----------------------------
MARKET(1) NAV(2) - -------------------------------------------------------------------------------- One-year total return 23.76% 2.49% - -------------------------------------------------------------------------------- Five-year average annual total return 3.16% 1.86% - -------------------------------------------------------------------------------- Ten-year average annual total return 7.36% 8.74% - -------------------------------------------------------------------------------- Life-of-Trust average annual total return 6.17% 6.07% - -------------------------------------------------------------------------------- Commencement date 01/26/89 - -------------------------------------------------------------------------------- Distribution rate as a % of closing common share price(3) 12.42% - -------------------------------------------------------------------------------- Net asset value $3.78 - -------------------------------------------------------------------------------- Closing common share price $4.54 - -------------------------------------------------------------------------------- One-year high common share price (03/05/01) $5.25 - -------------------------------------------------------------------------------- One-year low common share price (09/21/01) $3.41 - -------------------------------------------------------------------------------- Preferred share rate(4) 2.029% - --------------------------------------------------------------------------------
4 (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. For more up-to-date information, please visit vankampen.com or speak with your financial advisor. 5 PORTFOLIO AT A GLANCE CREDIT QUALITY (as a percentage of long-term debt investments)
As of December 31, 2001 - - A/A................ 3.8% [PIE CHART] - - BBB/Baa............ 12.7% - - BB/Ba.............. 38.3% - - B/B................ 37.2% - - CCC/Caa............ 7.9% - - Non-Rated.......... 0.1% 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. TWELVE-MONTH DIVIDEND HISTORY (for the period ended December 31, 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 7/01 0.047 8/01 0.047 9/01 0.047 10/01 0.047 11/01 0.047 12/01 0.047
The dividend history represents dividends that were paid on the trust and is no guarantee of the trust's future dividends. 6 TOP FIVE SECTORS (as a percentage of long-term investments--December 31, 2001) [INVESTMENT PERFORMANCE GRAPH]
DECEMBER 31, 2000 ----------------- Cable 10.20 Energy 9.50 Gaming & Leisure 9.20 Forest Products 8.20 Wireless Communications 6.30
Subject to change daily. NET ASSET VALUE AND MARKET PRICE (based upon quarter-end values--December 1991 through December 2001) [INVESTMENT PERFORMANCE GRAPH]
NET ASSET VALUE MARKET PRICE --------------- ------------ 12/91 5.9200 6.8750 6.3200 7.3750 6.3400 8.0000 6.4300 7.8750 12/92 6.2300 7.2500 6.6300 8.0000 6.7600 8.3750 6.6600 8.3750 12/93 6.7400 8.1250 6.3300 7.6250 6.0600 8.0000 5.8500 7.0000 12/94 5.6200 5.5000 5.8400 6.1250 6.0700 6.6250 6.1200 6.3750 12/95 6.1900 6.3750 6.1600 6.7500 6.0500 6.5000 6.2000 6.8750 12/96 6.3500 6.7500 6.2200 6.7500 6.3600 7.3125 6.4900 7.3125 12/97 6.4700 7.3750 6.5300 7.3125 6.4400 7.0000 5.8900 6.3125 12/98 5.8600 6.3750 5.7000 6.4375 5.4900 6.3750 5.1600 5.9375 12/99 5.1000 4.5000 4.8400 4.6250 4.7500 5.0000 4.6800 4.7500 12/00 4.2200 4.1250 4.5000 5.0900 4.2400 4.7800 3.7600 4.5600 12/01 3.7800 4.5400
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 Q&A WITH YOUR PORTFOLIO MANAGERS WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGEMENT TEAM 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 12-MONTH PERIOD ENDED DECEMBER 31, 2001. THE TRUST IS MANAGED BY THE ADVISER'S HIGH YIELD TEAM. CURRENT MEMBERS(1) INCLUDE STEPHEN F. ESSER, MANAGING DIRECTOR, GORDON W. LOERY, EXECUTIVE DIRECTOR AND DEANNA L. LOUGHNANE, EXECUTIVE DIRECTOR. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE TRUST'S PERFORMANCE. (1) Team members may change at any time without notice. Q HOW WOULD YOU CHARACTERIZE THE MARKET ENVIRONMENT IN WHICH THE TRUST OPERATED IN THE LAST TWELVE MONTHS, AND HOW DID THE TRUST PERFORM IN THAT ENVIRONMENT? A The dominant factor in the market over the period was the slowing U.S. economy. The tragic events of September 11 only made a bad economic situation worse. Business activity came to a standstill nationwide and across industries, and the travel sector was especially hard hit. Employment, which had been weak to begin with, fell sharply as companies announced layoffs as part of a general move to cut costs to address a markedly weaker future. For the third quarter of 2001, gross domestic product (GDP) fell by 1.3 percent, its largest decline since the recession of the early 1990s. The Federal Reserve Board (the "Fed") responded to this economic weakness decisively--cutting short-term interest rates 11 times over the course of the year, four of which occurred after September 11. The bond market reacted favorably to the interest rate cuts through October. Rates fell across the yield curve, with the most dramatic declines happening on the short end of the yield curve, which is the most responsive to changes in monetary policy. This shift steepened the curve significantly as short- and intermediate-term paper rallied strongly. That trend only strengthened in the wake of September 11 as investors flocked to the perceived safety of shorter-duration, lower-risk assets. The market shifted again in early November, as confidence slowly returned to the investor psyche. A combination of stabilization in geo-political events and a growing belief that the economy was likely to turn positive in the first half of 2002 led many investors to unwind their long-duration Treasury holdings. This pushed interest rates at the long end of the curve higher while rates on the short end fell even further in response to continued interest-rate cuts (the last 8 cut of the year came on December 11). This further steepened the yield curve. Economic uncertainty in the U.S. led the high-yield market to be similarly volatile. This was especially true in the first nine months of the reporting period, which included a six percent slide for the high-yield market in the month of September alone. Steadily rising defaults were also a factor in the volatility, as poor economic conditions made it impossible for many lower-rated companies to make their debt payments on time. The environment improved markedly in the fourth quarter of 2001 as investor expectations seemed to shift to an impending economic recovery in 2002. Equities rallied as a result, which proved a boon for high-yield bonds. Sector performance was highly varied. On the negative side, one of the poorest performers was the fixed-line segment of the telecommunications sector. Many of these companies were hurt by their ongoing inability to issue new debt to fund infrastructure expansions, which were necessary to generate the revenues to make payments on existing debt. These difficulties led to a string of downgrades and defaults. Other segments of the telecommunications sector also performed poorly. At the other end of the spectrum, several sectors that are traditionally perceived as more defensive plays turned in more positive performances over the period. Energy performed well, and the healthcare sector was particularly strong. The economy also had an impact on companies' issuance of new debt. Because of their poor prospects, many lower-rated companies and industries found that they were effectively shut out of the new-issue market. Higher-rated companies, on the other hand, experienced strong investor demand. Since yields on Treasury bonds had fallen so low, investors turned to higher-quality issues in the high-yield market in order to capture more attractive yields. As a result, higher-rated companies were able to successfully issue large amounts of debt. In all, the credit quality of the year's high-yield issuance was the highest since 1991. For the 12 months through December 31, 2001, the trust produced a total return of 23.76 percent based on market price. This reflects an increase in market price from $4.125 per share on December 31, 2000, to $4.540 per share on December 31, 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. 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. For more up-to-date information, please visit vankampen.com or speak with your financial advisor. By comparison, the Chase High Yield Index posted a total return of 6.07 percent for the same period. The Chase High Yield Index is an unmanaged, broad-based statistical composite of high-yield securities. Index 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 9 refer to the chart and footnotes on page 4. Q HOW DID THESE FACTORS AFFECT THE WAY YOU MANAGED THE TRUST? A One of the most significant stra- tegies we used for the trust was to keep it highly diversified over the course of the year. This proved to be a good strategy as the default rate in the broader market climbed. While the trust had some defaults among its holdings, the fact that there were at times as many as 250 companies represented in the portfolio meant that it was protected from fallout from highly concentrated positions in any one company. Overall, the trust's default rates were at or below those of the broader market. We continued to make adjustments to the portfolio on a bond-by-bond basis, in keeping with our bottom-up orientation. Our strategy is to find bonds that are attractively priced relative to our assessment of their risk and performance potential. As a result, our focus is on finding individual opportunities rather than thematic sector plays. This process resulted in purchases in sectors across the market. For example, we selectively added to the trust's exposure to cable companies when we were able to find what we believed were strong companies that had fallen out of favor with the market. We were able to find similarly attractive opportunities in the chemical, forest products, healthcare and housing sectors. We funded these additions through sales of bonds that we felt no longer offered compelling yield-to-value return opportunities. Many of these bonds had reached their price targets, while in other cases their fundamentals had weakened to the point where we no longer felt comfortable holding them in the portfolio. Continuing volatility in the telecommunications sector led us to trim the trust's exposure to wireless companies. We also reduced the trust's holdings in the manufacturing, consumer products and retailing sectors in order to redeploy assets more productively elsewhere. Q WHAT IS YOUR OUTLOOK FOR THE MARKET? A In general, we expect a more constructive environment. We agree with the general sentiment that the U.S. economy is likely to improve as we move through 2002, with economic growth turning positive. At the same time, we expect inflation to remain tame, coming in below two percent. We believe the dollar should remain stable. We expect that 2002 should be a better year for high-yield bonds. An improving U.S. economy could help to reduce default rates, and while interest rates may be on the rise, we expect that spread contraction should more than offset the effects of possible rising rates. At current levels, the market does not appear to have priced in a full economic recovery. As a result, it may offer compelling opportunities for investors with a disciplined process. 10 GLOSSARY OF TERMS A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT AND OTHER FINANCIAL PUBLICATIONS. BOTTOM-UP INVESTING: A management style that emphasizes the analysis of individual securities, rather than economic and market cycles. DEFAULT: The failure to make required debt payments on time. DURATION: A measure of the sensitivity of a bond's price to changes in interest rates, expressed in years. Each year of duration represents an expected 1 percent change in the price of a bond for every 1 percent change in interest rates. The longer a bond's duration, the greater the effect of interest-rate movements on its price. Typically, trusts with shorter durations perform better in rising-rate environments, while trusts with longer durations perform better when rates decline. 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. GROSS DOMESTIC PRODUCT (GDP): The total market value of all finished goods and services produced in a country in a given year. 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. SECTOR: A group of securities that are similar with respect to industry, maturity, credit rating, or coupon. VOLATILITY: A measure of the fluctuation in the market price of a security. A security that is volatile has frequent and large swings in price. 11 BY THE NUMBERS YOUR TRUST'S INVESTMENTS December 31, 2001 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 88.8% AEROSPACE 1.4% $ 567 Northwest Airlines, Inc..................... 8.375% 03/15/04 $ 493,290 940 Sequa Corp. ................................ 9.000 08/01/09 888,300 ----------- 1,381,590 ----------- BROADCASTING 1.5% 575 Nextmedia Operating, Inc., 144A-Private Placement (a).................. 10.750 07/01/11 596,562 285 Radio One, Inc. ............................ 8.875 07/01/11 295,687 525 TV Azteca S.A. (Mexico)..................... 10.500 02/15/07 514,500 ----------- 1,406,749 ----------- CABLE 9.1% 1,400 Adelphia Communications Corp. .............. 9.250 10/01/02 1,414,000 1,425 British Sky Broadcasting (United Kingdom)... 7.300 10/15/06 1,449,937 570 Century Communications Corp. ............... 9.750 02/15/02 572,850 1,420 Charter Communication Holdings LLC.......... 8.250 04/01/07 1,366,750 630 CSC Holdings, Inc. ......................... 10.500 05/15/16 689,850 975 EchoStar Communications Corp. .............. 9.250 02/01/06 994,500 1,000 International Cabletel, Inc. ............... 12.750 04/15/05 340,000 610 James Cable Partners L.P. .................. 10.750 08/15/04 463,600 775 Ono Finance PLC (United Kingdom)............ 13.000 05/01/09 591,906 1,140 Telewest PLC (United Kingdom)............... 9.625 10/01/06 798,000 785 United Pan Europe Communications (Netherlands)............................... 10.875 11/01/07 129,525 ----------- 8,810,918 ----------- CHEMICALS 2.6% 850 Equistar Chemicals L.P. .................... 8.500 02/15/04 850,000 190 ISP Chemco, Inc., 144A-Private Placement (a)......................................... 10.250 07/01/11 199,500 580 ISP Holdings, Inc., 144A-Private Placement (a)......................................... 10.625 12/15/09 582,900 570 Millennium America, Inc. ................... 9.250 06/15/08 584,250 205 Om Group, Inc., 144A-Private Placement (a)......................................... 9.250 12/15/11 210,125 230 Pioneer Americas Acquisition Corp. (b)...... 9.250 06/15/07 66,700 ----------- 2,493,475 -----------
See Notes to Financial Statements 12 YOUR TRUST'S INVESTMENTS December 31, 2001
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE CONSUMER PRODUCTS 1.0% $ 1,075 Dan River, Inc. ............................ 10.125% 12/15/03 $ 446,125 265 Elizabeth Arden, Inc. ...................... 11.750 02/01/11 274,275 500 Hosiery Corp. of America, Inc. (b).......... 13.750 08/01/02 130,000 100 Supreme International, Inc. ................ 12.250 04/01/06 100,500 ----------- 950,900 ----------- DIVERSIFIED MEDIA 4.1% 245 Belo Corp. ................................. 8.000 11/01/08 250,555 1,500 K-III Communications Corp. ................. 10.250 06/01/04 1,410,000 855 MDC Corporation, Inc. (Canada).............. 10.500 12/01/06 577,125 850 Primedia, Inc. ............................. 8.875 05/15/11 769,250 875 Quebecor Media, Inc. (Canada)............... 11.125 07/15/11 938,437 ----------- 3,945,367 ----------- ENERGY 8.6% 990 Benton Oil & Gas, Inc. ..................... 11.625 05/01/03 702,900 320 BRL Universal Equipment..................... 8.875 02/15/08 334,400 225 BRL Universal Equipment, 144A-Private Placement (a).................. 8.875 02/15/08 235,125 570 Chesapeake Energy Corp. .................... 7.875 03/15/04 578,550 435 Chesapeake Energy Corp. .................... 8.125 04/01/11 424,125 1,140 Frontier Oil Corp. ......................... 11.750 11/15/09 1,214,100 1,401 KCS Energy, Inc. ........................... 11.000 01/15/03 1,408,005 335 Pogo Producing Co. ......................... 8.250 04/15/11 340,025 590 Port Arthur Finance Corp. .................. 12.500 01/15/09 592,950 570 R & B Falcon Corp. ......................... 6.500 04/15/03 589,950 685 R & B Falcon Corp. ......................... 9.500 12/15/08 774,050 315 Stone Energy Corp., 144A-Private Placement (a).................. 8.250 12/15/11 321,300 790 Vintage Petroleum, Inc. .................... 7.875 05/15/11 778,150 ----------- 8,293,630 ----------- FINANCIAL 0.3% 310 Banco Nacional de Comercio Exterior (Mexico).................................... 7.250 02/02/04 323,043 -----------
See Notes to Financial Statements 13 YOUR TRUST'S INVESTMENTS December 31, 2001
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE FOOD & DRUG 2.6% $ 1,550 Fleming Cos., Inc. ......................... 10.500% 12/01/04 $ 1,538,375 1,570 Jitney-Jungle Stores America, Inc. (b) (c)......................................... 12.000 03/01/06 157 1,020 Pantry, Inc. ............................... 10.250 10/15/07 1,007,250 ----------- 2,545,782 ----------- FOOD & TOBACCO 4.0% 1,100 Coca Cola Femsa S.A. (Mexico)............... 8.950 11/01/06 1,232,000 1,150 Pepsi Gemex S.A. (Mexico)................... 9.750 03/30/04 1,224,750 825 Smithfield Foods, Inc. ..................... 7.625 02/15/08 812,625 600 Smithfield Foods, Inc., 144A-Private Placement (a)............................... 8.000 10/15/09 618,000 ----------- 3,887,375 ----------- FOREST PRODUCTS 7.4% 285 Fibermark, Inc. ............................ 10.750 04/15/11 260,775 850 Fonda Group, Inc. .......................... 9.500 03/01/07 769,250 775 Louisiana Pacific Corp. .................... 10.875 11/15/08 755,625 390 Norske Skog, 144A-Private Placement (Canada) (a)......................................... 8.625 06/15/11 409,500 855 Pacifica Papers, Inc. (Canada).............. 10.000 03/15/09 923,400 1,400 Radnor Holdings Corp. ...................... 10.000 12/01/03 1,015,000 825 Repap New Brunswick, Inc. (Canada).......... 9.000 06/01/04 870,375 275 Sweetheart Cup, Inc. ....................... 10.500 09/01/03 269,500 2,000 Vicap S.A. (Mexico)......................... 10.250 05/15/02 1,890,000 ----------- 7,163,425 ----------- GAMING & LEISURE 8.2% 540 Argosy Gaming Co. .......................... 10.750 06/01/09 596,700 460 Harrahs Operating Co., Inc. ................ 7.875 12/15/05 478,400 230 Harrahs Operating Co., Inc. ................ 8.000 02/01/11 237,307 850 HMH Properties, Inc. ....................... 7.875 08/01/05 811,750 690 Horseshoe Gaming LLC........................ 8.625 05/15/09 715,875 1,425 International Game Technology............... 7.875 05/15/04 1,474,875 1,400 Mohegan Tribal Gaming Authority............. 8.125 01/01/06 1,449,000 425 Park Place Entertainment Corp. ............. 8.875 09/15/08 433,500 490 Park Place Entertainment Corp. ............. 7.875 12/15/05 492,450 475 Station Casinos, Inc. ...................... 9.875 07/01/10 484,500 780 Station Casinos, Inc. ...................... 8.375 02/15/08 795,600 ----------- 7,969,957 -----------
See Notes to Financial Statements 14 YOUR TRUST'S INVESTMENTS December 31, 2001
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE HEALTHCARE 4.2% $ 250 AdvancePCS.................................. 8.500% 04/01/08 $ 260,000 650 Fisher Scientific International, Inc. ...... 7.125 12/15/05 643,500 930 Fresenius Medical Care Capital Trust........ 9.000 12/01/06 957,900 100 HCA, Inc. .................................. 7.150 03/30/04 104,750 1,045 HCA, Inc. .................................. 6.910 06/15/05 1,073,737 1,000 Healthsouth Corp., 144A-Private Placement (a)......................................... 7.375 10/01/06 1,005,000 ----------- 4,044,887 ----------- HOUSING 4.1% 635 Cemex S.A., 144A-Private Placement (Mexico) (a)......................................... 8.625 07/18/03 673,100 475 Istar Financial, Inc. ...................... 8.750 08/15/08 475,919 250 Nortek, Inc. ............................... 8.875 08/01/08 252,500 570 Schuler Homes............................... 9.375 07/15/09 592,800 1,100 Toll Corp. ................................. 8.250 02/01/11 1,094,500 825 Webb (Del E.) Corp. ........................ 10.250 02/15/10 895,125 ----------- 3,983,944 ----------- INFORMATION TECHNOLOGY 3.0% 425 Fairchild Semiconductor Corp. .............. 10.500 02/01/09 452,625 1,275 Filtronic PLC (United Kingdom).............. 10.000 12/01/05 1,153,875 850 Flextronics International Ltd. (Singapore)................................. 8.750 10/15/07 875,500 425 Tektronix, Inc. ............................ 7.625 08/15/02 434,563 ----------- 2,916,563 ----------- MANUFACTURING 1.4% 255 Case Corp. ................................. 6.250 12/01/03 237,700 260 Case Credit Corp. .......................... 6.125 02/15/03 245,160 1,350 Communications & Power Industries, Inc. .... 12.000 08/01/05 641,250 595 Numatics, Inc. ............................. 9.625 04/01/08 214,200 ----------- 1,338,310 ----------- METALS 2.9% 280 Doe Run Resources Corp., Ser B.............. 11.250 03/15/05 53,200 1,100 GS Technologies Operating, Inc. (b) (c)..... 12.250 10/01/05 16,500 1,925 Kaiser Aluminum & Chemical Corp. ........... 9.875 02/15/02 1,915,375 210 Renco Steel Holdings, Inc. ................. 10.875 02/01/05 22,050 1,590 WCI Steel, Inc. ............................ 10.000 12/01/04 842,700 ----------- 2,849,825 -----------
See Notes to Financial Statements 15 YOUR TRUST'S INVESTMENTS December 31, 2001
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE RETAIL 1.1% $ 210 Big 5 Corp. ................................ 10.875% 11/15/07 $ 207,900 570 J C Penney, Inc. ........................... 7.250 04/01/02 572,074 340 K Mart Corp. (f) ........................... 8.375 12/01/04 286,450 ----------- 1,066,424 ----------- SERVICES 2.5% 845 Allied Waste North America, Inc. ........... 8.875 04/01/08 874,575 1,475 Dyncorp..................................... 9.500 03/01/07 1,511,875 ----------- 2,386,450 ----------- TELECOMMUNICATIONS 5.0% 570 Asia Global Crossing (Bermuda).............. 13.375 10/15/10 202,350 280 Exodus Communications, Inc. (b) (c)......... 11.250 07/01/08 61,600 370 Focal Communications Corp. ................. 11.875 01/15/10 151,700 570 France Telecom, 144A-Private Placement (France) (a)................................ 7.750 03/01/11 611,721 850 Frontier Corp. (f).......................... 6.000 10/15/03 131,750 1,035 Global Crossing Holdings Ltd. (Bermuda) (b) (f)........................... 9.125 11/15/06 113,850 510 Globix Corp. ............................... 12.500 02/01/10 112,200 1,260 GT Group Telecom, Inc. (Canada) (d)......... 0/13.250 02/01/10 189,000 205 Intermedia Communications, Inc. ............ 8.875 11/01/07 216,531 1,230 Intermedia Communications, Inc. ............ 8.600 06/01/08 1,271,513 280 Madison River Capital LLC................... 13.250 03/01/10 204,400 185 McLeodUSA, Inc. (b) (f)..................... 11.375 01/01/09 42,550 1,160 Metromedia Fiber Network, Inc. ............. 10.000 12/15/09 342,200 280 MGC Communications, Inc. ................... 13.000 10/01/04 92,400 570 Nextlink Communications, Inc. .............. 9.625 10/01/07 65,550 600 Nextlink Communications, Inc. (b)........... 10.500 12/01/09 75,000 175 Philippine Long Distance Telephone (Philippines)............................... 10.500 04/15/09 140,668 280 Philippine Long Distance Telephone (Philippines)............................... 10.625 06/02/04 266,480 630 PSI Net, Inc. (b) (c)....................... 10.500 12/01/06 50,400 425 WorldCom, Inc. ............................. 8.250 05/15/31 450,533 ----------- 4,792,396 -----------
See Notes to Financial Statements 16 YOUR TRUST'S INVESTMENTS December 31, 2001
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE TRANSPORTATION 5.2% $ 1,520 Aetna Industries, Inc. (b).................. 11.875% 10/01/06 $ 243,200 450 Aftermarket Technology Corp. ............... 12.000 08/01/04 459,000 400 AutoNation, Inc., 144A-Private Placement (a)......................................... 9.000 08/01/08 409,000 425 Cenargo International PLC (United Kingdom).................................... 9.750 06/15/08 310,250 90 Collins & Aikman Products Co. .............. 11.500 04/15/06 88,200 420 Collins & Aikman Products Co., 144A-Private Placement (a)............................... 10.750 12/31/11 423,150 625 Dana Corp., 144A-Private Placement (a)...... 9.000 08/15/11 575,000 940 Ford Motor Credit Co. ..................... 6.500 01/25/07 920,603 455 General Motors Acceptance Corp. ............ 7.500 07/15/05 478,697 594 International Shipholding Corp. ............ 9.000 07/01/03 591,030 570 Stena AB (Sweden)........................... 10.500 12/15/05 572,850 140 Talon Automotive Group, Inc. (b) (c)........ 9.625 05/01/08 2,100 ----------- 5,073,080 ----------- UTILITY 3.0% 570 Calpine Corp. .............................. 8.625 08/15/10 510,150 215 Calpine Corp. .............................. 8.500 02/15/11 192,425 570 CMS Energy Corp. ........................... 7.625 11/15/04 567,150 515 Mirant Americas Generation LLC.............. 7.625 05/01/06 469,958 400 PG & E National Energy Group, Inc. ......... 10.375 05/16/11 422,522 680 PSEG Energy Holdings........................ 9.125 02/10/04 715,132 ----------- 2,877,337 ----------- WIRELESS COMMUNICATIONS 5.6% 830 Airgate PCS, Inc. (d)....................... 0/13.500 10/01/09 630,800 235 Alamosa Delaware, Inc. ..................... 12.500 02/01/11 240,875 245 Alamosa Holdings, Inc. (d).................. 0/12.875 02/15/10 151,900
See Notes to Financial Statements 17 YOUR TRUST'S INVESTMENTS December 31, 2001
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE WIRELESS COMMUNICATIONS (CONTINUED) $ 285 American Cellular Corp...................... 9.500% 10/15/09 $ 277,875 285 American Tower Corp......................... 9.375 02/01/09 230,138 560 Grupo Iusacell S.A. (Mexico)................ 10.000 07/15/04 576,800 830 IPCS, Inc. (d).............................. 0/14.000 07/15/10 556,100 1,105 Nextel Communications, Inc.................. 9.375 11/15/09 872,950 280 Pinnacle Holdings, Inc. (d)................. 0/10.000 03/15/08 67,200 570 Price Communications Wireless, Inc.......... 9.125 12/15/06 604,200 345 Rural Cellular Corp......................... 9.625 05/15/08 350,175 280 Telecorp PCS, Inc........................... 10.625 07/15/10 324,800 375 Tritel PCS, Inc............................. 10.375 01/15/11 426,563 190 US Unwired, Inc. (d)........................ 0/13.375 11/01/09 135,850 ----------- 5,446,226 ----------- TOTAL CORPORATE BONDS 88.8%............................................... 85,947,653 ----------- GOVERNMENT AND GOVERNMENT AGENCY OBLIGATION 0.1% 140 United Mexican States (Mexico).............. 8.375 01/14/11 145,113 -----------
MARKET DESCRIPTION VALUE EQUITIES 0.9% DecisionOne Corp. (3,033 common shares) (e) (g)............. $ 6,432 DecisionOne Corp. (6,670 common stock warrants) (e) (g)..... 67 Focal Communications Corp. (85,380 common shares) (e)....... 52,082 GT Group Telecom, Inc. (1,260 common stock warrants) 144A-Private Placement (a) (e)............................ 6,930 Hosiery Corp of America, Inc. (500 common shares) (e)....... 5 IPCS, Inc. (830 common stock warrants) 144A-Private Placement (a) (e)......................................... 21,165 NTL, Inc. (1,622 common stock warrants) 144A-Private Placement (a) (e)......................................... 17 Ono Finance PLC, 144A-Private Placement (775 equity value certificates) (United Kingdom) (a) (e).................... 23,250
See Notes to Financial Statements 18 YOUR TRUST'S INVESTMENTS December 31, 2001
MARKET DESCRIPTION VALUE EQUITIES (CONTINUED) Pathmark Stores, Inc (30,674 common shares) (e)............. $ 756,421 Star Gas Partners L.P. (264 limited partnership units)...... 5,388 ----------- TOTAL EQUITIES 0.9%........................................ 871,757 ----------- TOTAL LONG-TERM INVESTMENTS 89.8% (Cost $102,914,395)....................................... 86,964,523 REPURCHASE AGREEMENT 8.2% State Street Bank & Trust Co. ($7,913,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 12/31/01, to be sold on 01/02/02 at $7,913,747) (Cost $7,913,000)......................................... 7,913,000 ----------- TOTAL INVESTMENTS 98.0% (Cost $110,827,395)....................................... 94,877,523 OTHER ASSETS IN EXCESS OF LIABILITIES 2.0%................. 1,908,710 ----------- NET ASSETS 100.0%.......................................... $96,786,233 ===========
See Notes to Financial Statements 19 YOUR TRUST'S INVESTMENTS December 31, 2001 (a) 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. (b) Non-income producing as security is in default. (c) This borrower has filed for protection in federal bankruptcy court. (d) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (e) Non-Income producing security. (f) Subsequent to December 31, 2001, this company filed for protection in federal bankruptcy court. (g) Market value is determined in accordance with procedures established in good faith by the Board of Trustees. See Notes to Financial Statements 20 FINANCIAL STATEMENTS Statement of Assets and Liabilities December 31, 2001 ASSETS: Total Investments (Cost $110,827,395)....................... $ 94,877,523 Cash........................................................ 818 Interest Receivable......................................... 2,213,047 Other....................................................... 902 ------------ Total Assets............................................ 97,092,290 ------------ LIABILITIES: Payables: Investment Advisory Fee................................... 54,378 Income Distributions--Preferred Shares.................... 50,725 Affiliates................................................ 1,253 Trustees' Deferred Compensation and Retirement Plans........ 136,808 Accrued Expenses............................................ 62,893 ------------ Total Liabilities....................................... 306,057 ------------ NET ASSETS.................................................. $ 96,786,233 ============ NET ASSETS CONSIST OF: Preferred Shares ($.01 par value, authorized 1,000,000 shares, 450 issued with liquidation preference of $100,000 per share)................................................ $ 45,000,000 ------------ 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.................................................... (1,386,700) Net Unrealized Depreciation................................. (15,949,872) Accumulated Net Realized Loss............................... (18,057,822) ------------ Net Assets Applicable to Common Shares.................. 51,786,233 ------------ NET ASSETS.................................................. $ 96,786,233 ============ NET ASSET VALUE PER COMMON SHARE ($51,786,233 divided by 13,710,760 shares outstanding)............................ $ 3.78 ============
See Notes to Financial Statements 21 Statement of Operations For the Year Ended December 31, 2001 INVESTMENT INCOME: Interest.................................................... $10,791,568 Other....................................................... 35,318 ----------- Total Income............................................ 10,826,886 ----------- EXPENSES: Investment Advisory Fee..................................... 745,638 Preferred Share Maintenance................................. 113,644 Trustees' Fees and Related Expenses......................... 35,263 Legal....................................................... 25,134 Custody..................................................... 13,552 Other....................................................... 210,553 ----------- Total Expenses.......................................... 1,143,784 ----------- NET INVESTMENT INCOME....................................... $ 9,683,102 =========== REALIZED AND UNREALIZED GAIN/LOSS: Net Realized Loss........................................... $(8,072,306) ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... (18,001,380) End of the Period......................................... (15,949,872) ----------- Net Unrealized Appreciation During the Period............... 2,051,508 ----------- NET REALIZED AND UNREALIZED LOSS............................ $(6,020,798) =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 3,662,304 ===========
See Notes to Financial Statements 22 Statements of Changes in Net Assets For the Years Ended December 31, 2001 and 2000
YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 -------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income............................ $ 9,683,102 $ 11,683,962 Net Realized Loss................................ (8,072,306) (4,566,933) Net Unrealized Appreciation/Depreciation During the Period..................................... 2,051,508 (7,148,485) ------------ ------------ Change in Net Assets from Operations............. 3,662,304 (31,456) ------------ ------------ Distributions from and in Excess of Net Investment Income: Common Shares.................................. (7,732,621) (8,318,168) Preferred Shares............................... (2,004,147) (3,603,414) Return of Capital Distribution--Common Shares.... -0- (161,205) ------------ ------------ Total Distributions.............................. (9,736,768) (12,082,787) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..................................... (6,074,464) (12,114,243) FROM CAPITAL TRANSACTIONS: Redemption of Preferred Shares................... (5,000,000) (8,800,000) ------------ ------------ TOTAL DECREASE IN NET ASSETS..................... (11,074,464) (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 $1,386,700 and $746,701, respectively).................................. $ 96,786,233 $107,860,697 ============ ============
See Notes to Financial Statements 23 Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
----------------------------------------- 2001 2000 1999 1998 ----------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.......... $ 4.22 $ 5.10 $ 5.86 $ 6.47 -------- -------- -------- -------- Net Investment Income............................ .71 .85 .88 .91 Net Realized and Unrealized Gain/Loss............ (.44) (.85) (.75) (.58) -------- -------- -------- -------- Total from Investment Operations.................. .27 -0- .13 .33 -------- -------- -------- -------- Less: Distributions from and in Excess of Net Investment Income: Paid to Common Shareholders.................... .56 .61 .67 .70 Common Share Equivalent of Distributions Paid to Preferred Shareholders.................... .15 .26 .22 .24 Return of Capital Distributions Paid to Common Shareholders................................... -0- .01 -0- -0- -------- -------- -------- -------- Total Distributions............................... .71 .88 .89 .94 -------- -------- -------- -------- NET ASSET VALUE, END OF THE PERIOD................ $ 3.78 $ 4.22 $ 5.10 $ 5.86 ======== ======== ======== ======== Market Price Per Share at End of the Period....... $ 4.54 $ 4.125 $ 4.50 $ 6.375 Total Investment Return at Market Price (a)....... 23.76% 4.08% -21.20% -4.33% Total Return at Net Asset Value (b)............... 2.49% -5.63% -1.60% 1.35% Net Assets at End of the Period (In millions)..... $ 96.8 $ 107.9 $ 128.8 $ 139.2 Ratio of Expenses to Average Net Assets Applicable to Common Shares (c)............................. 1.98% 1.95% 1.92% 1.85% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (c) (d)....... 16.80% 18.05% 16.13% 14.56% Portfolio Turnover................................ 64% 62% 57% 65% SUPPLEMENTAL RATIOS: Ratio of Expenses to Average Net Assets Including Preferred Shares (c)............................. 1.07% 1.04% 1.07% 1.09% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (e)........... 13.32% 12.48% 12.09% 10.77% SENIOR SECURITIES: Total Preferred Shares Outstanding................ 450 500 588 588 Asset Coverage Per Preferred Share (f)............ $215,081 $215,721 $219,005 $236,742 Involuntary Liquidating Preference Per Preferred Share............................................ $100,000 $100,000 $100,000 $100,000 Average Market Value Per Preferred Share.......... $100,000 $100,000 $100,000 $100,000
(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 December 31, 2001 was to decrease net investment income per share by $.02, increase net realized and unrealized gains and losses per share by $.02 and decrease the ratio of net investment income to average net assets applicable to common shares by .38%. Per share, ratios and supplemental data for periods prior to December 31, 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
YEAR ENDED DECEMBER 31, - ---------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------- $ 6.35 $ 6.19 $ 5.62 $ 6.74 $ 6.23 $ 5.92 -------- -------- -------- -------- -------- -------- .93 .94 .98 1.00 1.11 1.21 .13 .15 .54 (.98) .53 .17 -------- -------- -------- -------- -------- -------- 1.06 1.09 1.52 .02 1.64 1.38 -------- -------- -------- -------- -------- -------- .70 .70 .70 .95 .99 .91 .24 .23 .25 .19 .14 .16 -0- -0- -0- -0- -0- -0- -------- -------- -------- -------- -------- -------- .94 .93 .95 1.14 1.13 1.07 -------- -------- -------- -------- -------- -------- $ 6.47 $ 6.35 $ 6.19 $ 5.62 $ 6.74 $ 6.23 ======== ======== ======== ======== ======== ======== $ 7.375 $ 6.75 $ 6.375 $ 5.50 $ 8.125 $ 7.25 20.29% 17.34% 29.17% -23.22% 26.12% 18.67% 13.69% 14.86% 23.70% -2.54% 25.46% 21.36% $ 147.5 $ 145.8 $ 143.6 $ 135.9 $ 151.1 $ 144.2 1.76% 1.87% 1.92% 1.96% 1.72% 1.87% 14.60% 15.32% 16.39% 16.33% 16.75% 19.15% 102% 92% 119% 110% 99% 109% 1.05% 1.11% 1.12% 1.16% 1.04% 1.11% 10.90% 11.58% 12.16% 13.31% 14.66% 16.48% 588 588 588 588 588 588 $250,850 $247,974 $244,242 $231,106 $257,054 $245,221 $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 NOTES TO FINANCIAL STATEMENTS December 31, 2001 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, or by other means, 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. The Trust may invest independently in repurchase agreements, or transfer uninvested cash balances into a pooled cash account along with other investment companies advised by Van Kampen Investment Advisory Corp. (the "Adviser") or its affiliates, the daily aggregate of which is invested in repurchase agreements. 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. 26 NOTES TO FINANCIAL STATEMENTS December 31, 2001 C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond discount is accreted and premium is amortized over the expected life of each applicable security. 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 $598,735 reduction in cost of securities and a corresponding $598,735 decrease in net unrealized depreciation based on securities held by the Trust on January 1, 2001. The effect of this change for the year ended December 31, 2001 was to decrease net investment income by $221,229; decrease net unrealized appreciation by $182,424, and decrease net realized losses by $403,653. 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, 2001, the Trust had an accumulated capital loss carry forward for tax purposes of $15,583,439 which expires between December 31, 2002 and December 31, 2009. Of this amount, $1,670,578 will expire on December 31, 2002. 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 as a result of post-October losses which may not be recognized for tax purposes until the first day of the following fiscal year. At December 31, 2001, for federal income tax purposes, cost of long- and short-term investments is $111,275,439; the aggregate gross unrealized appreciation is $2,594,491 and the aggregate gross unrealized depreciation is $18,992,407, resulting in net unrealized depreciation on long- and short-term investments of $16,397,916. 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 27 NOTES TO FINANCIAL STATEMENTS December 31, 2001 gains for book purposes may include short-term capital gains which are included in ordinary income for tax purposes. Due to inherent differences in the recognition of income, expenses and realized gain/losses under generally accepted accounting principles and federal income tax purposes, permanent differences between financial and tax basis reporting for the 2001 fiscal year have been identified and appropriately reclassified. Permanent differences of $31,752 relating to proceeds received from the sale of defaulted bonds were reclassified from accumulated net realized loss to accumulated distributions in excess of net investment income, and $19,350 relating to fee income received from tender offers was reclassified from accumulated distributions in excess of net investment income to accumulated net realized loss. F. RECLASSIFICATIONS Certain information included in the prior years' financial highlights has been conformed to the current year presentation. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Trust's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Trust for an annual fee payable monthly of .70% of the average daily net assets of the Trust. For the year ended December 31, 2001, the Trust recognized expenses of approximately $11,700 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 year ended December 31, 2001, the Trust recognized expenses of approximately $27,900 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. 28 NOTES TO FINANCIAL STATEMENTS December 31, 2001 3. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $61,581,507 and $69,552,646, respectively. 4. AUCTION MARKET PREFERRED SHARES The Trust has outstanding 450 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, 2001, was 2.029%. During the year ended December 31, 2001, the rates ranged from 2.029% 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. 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. On November 14, 2001, the Trust redeemed 50 shares of its Auction Market Preferred Shares with a liquidation value of $100,000 per share. 29 REPORT OF INDEPENDENT AUDITORS To 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, 2001, the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. 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. The Trust's financial highlights for the periods ended prior to December 31, 2000, were audited by other auditors whose report, dated February 4, 2000, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2001, by correspondence with the Trust's custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Van Kampen High Income Trust as of December 31, 2001, the results of its operations, the changes in its net assets and the financial highlights for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Chicago, Illinois February 8, 2002 30 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 31 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 32 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. 33 TRUSTEE AND OFFICER INFORMATION The business and affairs of the Trust are managed under the direction of the Trust's Board of Trustees and the Trust's officers appointed by the Board of Trustees. The tables below list the trustees and officers of the Trust and their principal occupations for the last five years, other directorships held by the trustees and their affiliations, if any, with Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are referred to herein collectively as the "Advisers." For purposes hereof, the term "Fund Complex" includes each of the investment companies advised by the Advisers. Trustees serve three year terms or until their successors are duly elected and qualified. Officers are annually elected by the trustees. INDEPENDENT TRUSTEES:
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE David C. Arch (56) Trustee Trustee Mr. Arch is Chairman and Chief Executive 37 Blistex Inc. since 1988 Officer of Blistex Inc., a consumer health 1800 Swift Drive care products manufacturer, and former Oak Brook, IL 60523 Director of the World Presidents Organization-Chicago Chapter. Mr. Arch is also a Trustee or Managing General Partner of other investment companies advised by the Advisers. NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE HELD BY TRUSTEE David C. Arch (56) Blistex Inc. 1800 Swift Drive Oak Brook, IL 60523
34
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE Rod Dammeyer (61) Trustee Trustee Mr. Dammeyer is President of CAC, llc., a 37 CAC, llc. since 1988 private company offering capital investment 676 North Michigan Avenue and management advisory services. Mr. Dammeyer Suite 2800 is also a Trustee or Managing General Partner Chicago, IL 60611 of other investment companies advised by the Advisers. Prior to February 2001, Mr. Dammeyer was Vice Chairman and Director of Anixter International, Inc. and IMC Global Inc. Prior to July 2000, Mr. Dammeyer was a Managing Partner of Equity Group Corporate Investment (EGI), a company that makes private investments in other companies. Prior to 1997, Mr. Dammeyer was President, Chief Executive Officer and a Director of Great American Management & Investment, Inc., a diversified manufacturing company. NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE HELD BY TRUSTEE Rod Dammeyer (61) Mr. Dammeyer is a member CAC, llc. of the Board of Directors 676 North Michigan Avenue of TeleTech Holdings Suite 2800 Inc., Stericycle, Inc., Chicago, IL 60611 GATX Corporation, Arris Group, Inc. and Peregrine Systems Inc. and a member of the Board of Trustees of the University of Chicago Hospitals and Health Systems. Prior to July 2000, Mr. Dammeyer was a member of the Board of Directors of Allied Riser Communications Corp., Matria Healthcare Inc., Transmedia Networks, Inc., CNA Surety, Corp. and Grupo Azcarero Mexico (GAM). Prior to April 1999, Mr. Dammeyer was a Director of Metal Management, Inc. Prior to 1998, Mr. Dammeyer was a Director of Lukens, Inc., Capsure Holdings Corp., Revco D.S., Inc., the Chase Manhattan Corporation National Advisory Board and Sealy, Inc. Prior to 1997, Mr. Dammeyer was a Director of Flacon Building Products, Inc.
35
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE Howard J Kerr (65) Trustee Trustee Mr. Kerr is a Trustee or Managing General 37 736 North Western Avenue since 1992 Partner of other investment companies advised P.O. Box 317 by the Advisers. Prior to 1998, Mr. Kerr was Lake Forest, IL 60045 the President and Chief Executive Officer of Pocklington Corporation, Inc., an Investment holding company. Theodore A. Myers (71) Trustee Trustee Mr. Myers is a financial consultant. Mr. Myers 37 550 Washington Avenue since 1988 is also a Trustee or Managing General Partner Glencoe, IL 60022 of other investment companies advised by the Advisers. Prior to 1998, Mr. Myers was a Senior Financial Advisor (and, prior to 1997, an Executive Vice President, Chief Financial Officer and Director) of Qualitech Steel Corporation, a producer of high quality engineered steels for automotive, transportation and capital goods industries. Prior to 1997, Mr. Myers was a member of the Arthur Andersen Chief Financial Officers' Committee. NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE HELD BY TRUSTEE Howard J Kerr (65) Mr. Kerr is a Director of 736 North Western Avenue Canbra Foods, Ltd., a P.O. Box 317 Canadian oilseed Lake Forest, IL 60045 crushing, refining, processing and packaging. operation, and the Marrow Foundation. Theodore A. Myers (71) Mr. Myers is a Director 550 Washington Avenue of Met Life Investors Glencoe, IL 60022 (formerly known as COVA Financial Life Insurance). Prior to 1997, Mr. Myers was a Director of McLouth Steel.
36
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE Hugo F. Sonnenschein (60) Trustee Trustee Mr. Sonnenschein is President Emeritus and 37 1126 E. 59th Street since 1994 Honorary Trustee of the University of Chicago Chicago, IL 60637 and the Hutchinson Distinguished Professor in the Department of Economics at the University of Chicago. Prior to July 2000, Mr. Sonnenschein was President of the University of Chicago. Mr. Sonnenschein is a member of the Board of Trustees of the University of Rochester and a member of its investment committee. Mr. Sonnenschein is a member of the National Academy of Sciences, the American Philosophical Society, and a fellow of the American Academy of Arts and Sciences. Mr. Sonnenschein is also a Trustee or Managing General Partner of other investment companies advised by the Advisers. NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE HELD BY TRUSTEE Hugo F. Sonnenschein (60) 1126 E. 59th Street Chicago, IL 60637
37 INTERESTED TRUSTEES*:
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE Richard F. Powers, III* Chairman Trustee Mr. Powers is Chairman, Director, President, 98 (55) since 1999 Chief Executive Officer and Managing Director 1 Parkview Plaza of Van Kampen; Chairman, Director, Chief Oakbrook Terrace, IL Executive Officer and Managing Director of the 60181 Advisers, Distributor, Van Kampen Advisors Inc. and Van Kampen Management Inc.; Director of other subsidiaries of Van Kampen; and Chief Sales and Marketing Officer of Morgan Stanley Dean Witter Asset Management Inc. Mr. Powers is also Chairman of the Board, Trustee/Director and President of funds in the Fund Complex. Prior to May 1998, Mr. Powers was Executive Vice President; and Director of Marketing of Morgan Stanley Dean Witter & Co. and Director of Dean Witter Discover & Co. and Dean Witter Realty. Prior to 1996, Mr. Powers was Director of Dean Witter Reynolds Inc. Wayne W. Whalen* (62) Trustee Trustee Mr. Whalen is a Partner in the law firm of 98 333 West Wacker Drive since 1988 Skadden, Arps, Slate, Meagher & Flom Chicago, IL 60606 (Illinois), legal counsel to certain funds advised by the Advisers. Mr. Whalen is a Trustee, Director or Managing General Partner of other funds advised by the Advisers. NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (55) 1 Parkview Plaza Oakbrook Terrace, IL 60181 Wayne W. Whalen* (62) 333 West Wacker Drive Chicago, IL 60606
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person to certain of the funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Mr. Powers is an interested person of such funds in the Fund Complex and the Advisers by reason of their positions with Morgan Stanley or its affiliates. 38 OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Stephen L. Boyd (61) Executive Vice Officer Managing Director and Chief Investment Officer of Van Kampen 2800 Post Oak Blvd. President and since 1998 Investments, and Managing Director, President and Chief 45th Floor Chief Investment Operating Officer of the Advisers and Van Kampen Advisors Houston, TX 77056 Officer Inc. Executive Vice President and Chief Investment Officer of funds in the Fund Complex. Prior to December 2000, Executive Vice President and Chief Investment Officer of Van Kampen Investments, and President and Chief Operating Officer of the Advisers. Prior to April 2000, Executive Vice President and Chief Investment Officer for Equity Investments of the Advisers. Prior to October 1998, Vice President and Senior Portfolio Manager with AIM Capital Management, Inc. Prior to February 1998, Senior Vice President and Portfolio Manager of Van Kampen American Capital Asset Management, Inc., Van Kampen American Capital Investment Advisory Corp. and Van Kampen American Capital Management, Inc.
39
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS A. Thomas Smith III (45) Vice President and Officer Managing Director and Director of Van Kampen Investments, Harborside Financial Center Secretary since 1999 Director of the Advisers, Van Kampen Advisors Inc., the Plaza 2 - 7th Floor Distributor, Investor Services and certain other Jersey City, NJ 07311 subsidiaries of Van Kampen Investments. Managing Director and General Counsel-Mutual Funds of Morgan Stanley Investment Advisors, Inc. Vice President or Principal Legal Officer and Secretary of funds in the Fund Complex. Prior to July 2001, Managing Director, General Counsel, Secretary and Director of Van Kampen Investments, the Advisers, the Distributor, Investor Services, and certain other subsidiaries of Van Kampen Investments. Prior to December 2000, Executive Vice President, General Counsel, Secretary and Director of Van Kampen Investments, the Advisers, Van Kampen Advisors Inc., the Distributor, Investor Services and certain other subsidiaries of Van Kampen Investments. Prior to January 1999, Vice President and Associate General Counsel to New York Life Insurance Company ("New York Life"), and prior to March 1997, Associate General Counsel of New York Life. Prior to December 1993, Assistant General Counsel of The Dreyfus Corporation. Prior to August 1991, Senior Associate, Willkie Farr & Gallagher. Prior to January 1989, Staff Attorney at the Securities and Exchange Commission, Division of Investment Management, Office of Chief Counsel. Michael H. Santo (46) Vice President Officer Managing Director, Chief Operations Officer and Director of 1 Parkview Plaza since 1999 Van Kampen Investments, Managing Director, Chief Executive Oakbrook Terrace, IL 60181 Officer and Director of Investor Services, Managing Director, Chief Operations and Technology Officer and Director of the Advisers, the Distributor and Van Kampen Advisors Inc. and serves as a Director or Officer of certain other subsidiaries of Van Kampen Investments. Vice President of funds in the Fund Complex. Prior to December 2000, Executive Vice President, Chief Administrative Officer and Director of Van Kampen Investments, the Advisers, the Distributor, Van Kampen Advisors Inc. and Investor Services. Prior to 1998, Senior Vice President and Senior Planning Officer for Individual Asset Management of Morgan Stanley Dean Witter and its predecessor since 1994.
40
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS John R. Reynoldson (48) Vice President Officer Executive Director of the Advisers and Van Kampen Advisors 1 Parkview Plaza since 2000 Inc. Vice President of funds in the Fund Complex. Prior to Oakbrook Terrace, IL 60181 July 2001, Principal and Co- head of the Fixed Income Department of the Advisers and Van Kampen Advisors Inc. Prior to December 2000, Senior Vice President of the Advisers and Van Kampen Advisors Inc. Prior to May 2000, he managed the investment grade taxable group for the Advisers since July 1999. From July 1988 to June 1999, he managed the government securities bond group for Asset Management. Mr. Reynoldson has been with Asset Management since April 1987. John L. Sullivan (46) Vice President, Officer Executive Director of Van Kampen Investments, the Advisers 1 Parkview Plaza Chief Financial since 1996 and Van Kampen Advisors Inc. Vice President, Chief Financial Oakbrook Terrace, IL 60181 Officer and Officer and Treasurer of funds in the Fund Complex. Treasurer John H. Zimmermann, III (44) Vice President Officer Managing Director and Director of Van Kampen Investments, Harborside Financial Center since 2000 and Managing Director, President and Director of the Plaza 2 - 7th Floor Distributor. Vice President of funds in the Fund Complex. Jersey City, NJ 07311 Prior to December 2000, President of Van Kampen Insurance Agency of Illinois Inc., and Senior Vice President and Director of Van Kampen Investments. From November 1992 to December 1997, Mr. Zimmermann was Senior Vice President of the Distributor.
41 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 vankampen.com [VAN KAMPEN INVESTMENTS LOGO] Copyright (C)2002 Van Kampen Funds Inc. All rights reserved. 920, 911, 104 Member NASD/SIPC. VIT ANR 2/02 5243B02-AS-2/02 -----END PRIVACY-ENHANCED MESSAGE-----