-----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, AhYg50BPrlHPW+T617cK3Rdkx2PnRJxyrFK7fZtmDmxe2WNZ7+p9Hit1hCuCxqv7 wDgt3YsojKMhDiyEoVF3VQ== 0000950137-02-004673.txt : 20020827 0000950137-02-004673.hdr.sgml : 20020827 20020827171240 ACCESSION NUMBER: 0000950137-02-004673 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020827 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: 02749945 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 c70794nv30d.txt SEMIANNUAL REPORT 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 COMMON SHARE MARKET PRICE 7 Q&A WITH YOUR PORTFOLIO MANAGERS 8 GLOSSARY OF TERMS 11 BY THE NUMBERS YOUR TRUST'S INVESTMENTS 12 FINANCIAL STATEMENTS 19 NOTES TO FINANCIAL STATEMENTS 24 BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 28 RESULTS OF SHAREHOLDER VOTES 29
You have a time-tested partner in Van Kampen. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE OVERVIEW LETTER TO SHAREHOLDERS July 22, 2002 Dear Shareholder, Due to events in the markets and the well-publicized controversies surrounding certain companies, the recent months have been challenging for many investors. Against this backdrop, you may be re-evaluating your investments. In this regard, your financial advisor is a particularly valuable resource. Your advisor can help you review your current asset allocation and determine whether it remains appropriate for your goals, risk tolerance and time horizon. You also have a time-tested partner in Van Kampen. With roots extending to 1927, our legacy spans other market downturns and periods of uncertainty. While the causes of turbulence have changed, our generations of experience have taught us the enduring value of patience, discipline and long-term focus. Thank you for your continued trust in Van Kampen. We appreciate the opportunity to help 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 OVERALL ECONOMIC ACTIVITY INCREASED MODESTLY IN JUNE, CONTINUING THE TREND THAT HAS BEEN EVIDENT THROUGHOUT 2002. SIGNS OF GROWTH WERE EVIDENT IN MANY OF THE STATISTICAL MEASURES RELEASED THROUGHOUT THE MONTH. FOR EXAMPLE, MANUFACTURING ACTIVITY, WHICH SLOWLY GAINED MOMENTUM IN RECENT MONTHS, CLIMBED TO ITS HIGHEST LEVEL SINCE JUNE 1999. AND, DESPITE LESS-THAN-ANTICIPATED EMPLOYMENT GROWTH AND INCREASING UNCERTAINTY IN WORLD ECONOMICS AND POLITICS, U.S. CONSUMERS CONTINUED TO SUPPORT DOMESTIC GROWTH THROUGH THE PURCHASE OF HOUSES, CARS AND EVERYDAY MERCHANDISE AND SERVICES. FINALLY, AS IF ACKNOWLEDGING HOW FAR THE ECONOMY HAS COME--AND HOW FAR IT STILL HAS TO GO--THE FEDERAL RESERVE BOARD CHOSE TO LEAVE SHORT-TERM INTEREST RATES AT THE REMARKABLY LOW LEVELS THAT PREVAILED THROUGHOUT THE FIRST HALF OF 2002. 2 U.S. GROSS DOMESTIC PRODUCT SEASONALLY ADJUSTED ANNUALIZED RATES (March 31, 2000--March 31, 2002) [BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT --------------------------- 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 1.70% Mar 02 6.10%
Source: Bureau of Economic Analysis INTEREST RATES AND INFLATION (June 30, 2000--June 30, 2002) [LINE GRAPH]
INTEREST RATES INFLATION -------------- --------- Jun 00 6.50% 3.70% 6.50% 3.70% 6.50% 3.40% Sept 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% Sept 01 3.00% 2.60% 2.50% 2.10% 2.00% 1.90% Dec 01 1.75% 1.60% 1.75% 1.10% 1.75% 1.10% Mar 02 1.75% 1.50% 1.75% 1.60% 1.75% 1.20% Jun 02 1.75% 1.10%
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 June 30, 2002) - ----------------------------- NYSE Ticker Symbol - VIT - -----------------------------
- ----------------------------------------------------------------------- Six-month total return(1) -4.49% - ----------------------------------------------------------------------- One-year total return(1) -3.62% - ----------------------------------------------------------------------- Five-year average annual total return(1) -0.40% - ----------------------------------------------------------------------- Ten-year average annual total return(1) 4.68% - ----------------------------------------------------------------------- Life-of-Trust average annual total return(1) 5.58% - ----------------------------------------------------------------------- Commencement date 01/26/89 - ----------------------------------------------------------------------- Distribution rate as a % of closing common share market price(2) 11.12% - ----------------------------------------------------------------------- Net asset value $3.22 - ----------------------------------------------------------------------- Closing common share market price $4.10 - ----------------------------------------------------------------------- Six-month high common share market price (01/18/02) $4.99 - ----------------------------------------------------------------------- Six-month low common share market price (06/26/02) $3.90 - ----------------------------------------------------------------------- Preferred share rate(3) 1.860% - -----------------------------------------------------------------------
4 (1) Total return assumes an investment at the common share 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 market price at the end of the period indicated. (2) Distribution rate represents the monthly annualized distributions of the Trust at the end of the period and not the earnings of the Trust. (3) 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, common share market 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 June 30, 2002 - - AAA/Aaa............ 1.7% [PIE CHART] - - A/A................ 2.9% - - BBB/Baa............ 22.5% - - BB/Ba.............. 40.8% - - B/B................ 27.2% - - CCC/Caa & below.... 4.2% - - Non-Rated.......... 0.7% 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 & below.... 7.9% - - Non-Rated.......... 0.1%
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, 2002, for common shares) [BAR GRAPH]
DIVIDENDS --------- 1/02 0.047 2/02 0.044 3/02 0.044 4/02 0.044 5/02 0.044 6/02 0.038
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) [INVESTMENT PERFORMANCE GRAPH]
JUNE 30, 2002 DECEMBER 31, 2001 ------------- ----------------- Gaming & Leisure 12.60% 9.20% Energy 10.70% 9.50% Transportation 7.90% 5.80% Forest Products 7.40% 8.20% Cable 6.60% 10.20%
Subject to change daily. NET ASSET VALUE AND COMMON SHARE MARKET PRICE (based upon quarter-end values--June 1992 through June 2002) [INVESTMENT PERFORMANCE GRAPH]
NET ASSET VALUE COMMON SHARE MARKET PRICE --------------- ------------------------- 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 3.7600 4.5600 3.7800 4.5400 3.6200 4.6700 6/02 3.2200 4.1000
The solid line above represents the trust's net asset value (NAV), which indicates overall changes in value among the trust's underlying securities. The trust's common share 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. Common share 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 FOR 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 SIX-MONTH PERIOD ENDED JUNE 30, 2002. 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 DEANNE 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 WHAT WAS THE MARKET ENVIRONMENT OF THE PAST SIX MONTHS? A The high-yield market entered the period with something of a tailwind at its back. Spreads were relatively wide by historical standards, even after strong performance in the fourth quarter of 2001. The economy also appeared to be turning the corner, with economic numbers beginning to evidence the recovery widely anticipated in the previous period. This had the result of strengthening the equity markets, which in turn, provided support for the high-yield market. On the technical side, the supply of new issuance was moderate while demand remained strong. This favorable confluence of factors produced strong high-yield performance for the first four months of 2002. The market took a turn for the worse in May, however, in tandem with the equity markets. A string of accounting scandals served to undermine investor confidence in corporate America. This had the effect of slowing demand just as the new issuance calendar picked up. The market ended the period on a down note, with performance faltering for the last two months. In sector terms, market performance was widely varied. Company-specific scandals in such areas as energy and utilities (Enron), and cable (Adelphia) served to drag down entire industry sectors, regardless of individual company fundamentals. The telecommunications sector continued its underperformance, suffering more defaults than any other industry sector. Two high-profile companies--WorldCom and Qwest--were also downgraded from investment grade to junk status, which further undermined confidence in the sector. Q HOW DID THE TRUST PERFORM IN THIS ENVIRONMENT? A For the six-month period ended June 30, 2002, the trust produced a total return of -4.49 percent based on 8 common share market price. This reflects a decrease in common share market price from $4.54 per share on December 31, 2001, to $4.10 per share on June 30, 2002. 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 0.10 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 refer to the chart and footnotes on page 4. Q WHAT WERE THE KEY DRIVERS OF THE TRUST'S RELATIVE PERFORMANCE? A At the beginning of the period, we were quite cautious about the prospects for further volatility in the credit markets. This led us to position the trust in a conservative manner, with generally higher quality than the benchmark. While we believe this strategy to be in the long-term interest of the trust's shareholders, it caused the portfolio to lag the market when lower-quality credits led the market during the first four months of the period. Our search for well-priced companies led us in recent years to invest in the cable sector. Unfortunately, the sector was among the worst performers during the period. The trust also suffered from negative surprises in selected holdings in the metals industry. Q WHAT STRATEGIES DID YOU USE TO MANAGE THE TRUST? A Our opinion has been that the economy is likely to continue to show strength in the months ahead. As a result, we added positions to the portfolio in economically sensitive sectors that would be most likely to benefit from an upturn in the economic cycle. Many of the names we added were in such sectors as transportation, manufacturing and chemicals. Through bottom-up research, our analysts also identified several attractive companies in industries whose prices had been driven down by the high-profile troubles of their peers. Through their research, we were able to locate several attractive companies in the utilities and energy sectors and selectively added to the portfolio's exposure. Throughout the period under review, we kept the trust under-weighted in consumer-related sectors. It is our belief that U.S. consumer spending is unlikely to perform as well as the rest of the economy going forward. We have also not seen many companies with prices that made sense to us. As a result, we maintained the underweighting and anticipate that we 9 will continue to do so in the coming months. Q WHAT IS YOUR OUTLOOK FOR THE TRUST AND THE MARKETS IN THE COMING MONTHS? A Broadly speaking, we remain optimistic about the high-yield market. Spreads continue to be relatively wide, with the market offering what we believe to be some compelling values. We anticipate that the economy is likely to grow moderately over the next 18 months. We believe this growth should help corporate balance sheets, which will in turn help to lower defaults. We also believe that the high-yield market will benefit from a structural shift in its makeup that has occurred over the past year. One of the greatest excesses of the late 1990s occurred when more and more lower-quality companies were able to tap the high-yield market for financing. This wave of lower-quality companies helped to drag down the market's overall credit quality, and was a large contributor to the climbing default rates of the past two years. In our view, that trend has reversed in the past year, as lower-quality companies have been all but shut out of the market for new issuance. As a result, roughly 44 percent of last year's issuance was rated BB, relative to a historical average of 29 percent. We anticipate this shift upward in quality should also help to reduce broader market default rates from recent elevated levels back to their historical averages. 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. NET ASSET VALUE: 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 June 30, 2002 (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 172.1% AEROSPACE 3.3% $ 567 Northwest Airlines, Inc. ................... 8.375% 03/15/04 $ 518,805 940 Sequa Corp. ................................ 9.000 08/01/09 949,400 ----------- 1,468,205 ----------- BROADCASTING 2.1% 845 TV Azteca S.A. (Mexico)..................... 10.500 02/15/07 821,762 130 Young Broadcasting, Inc. ................... 10.000 03/01/11 115,700 ----------- 937,462 ----------- CABLE 11.7% 1,425 British Sky Broadcasting (United Kingdom)... 7.300 10/15/06 1,387,666 1,420 Charter Communication Holdings LLC.......... 8.250 04/01/07 958,500 630 CSC Holdings, Inc. ......................... 10.500 05/15/16 475,650 975 EchoStar Communications Corp. .............. 9.250 02/01/06 901,875 1,000 International Cabletel, Inc. (a)............ 12.750 04/15/05 270,000 610 James Cable Partners L.P. .................. 10.750 08/15/04 350,750 775 Ono Finance PLC (United Kingdom)............ 13.000 05/01/09 259,625 1,140 Telewest PLC (United Kingdom)............... 9.625 10/01/06 450,300 785 United Pan Europe Communications (Netherlands) (a)........................... 10.875 11/01/07 105,975 ----------- 5,160,341 ----------- CHEMICALS 7.5% 330 Acetex Corp. (Canada)....................... 10.875 08/01/09 346,500 850 Equistar Chemicals L.P. .................... 8.500 02/15/04 828,666 190 ISP Chemco.................................. 10.250 07/01/11 194,750 900 ISP Holdings, Inc., 144A--Private Placement (b)......................................... 10.625 12/15/09 895,500 420 Lyondell Chemical Co. ...................... 9.875 05/01/07 403,200 570 Millennium America, Inc. ................... 9.250 06/15/08 584,250 50 PCI Chemicals, Canada (Canada).............. 10.000 12/31/08 34,501 17 Pioneer Cos., Inc. ......................... 5.355 12/31/06 10,997 ----------- 3,298,364 ----------- CONSUMER PRODUCTS 0.6% 265 Elizabeth Arden, Inc. ...................... 11.750 02/01/11 272,950 -----------
See Notes to Financial Statements 12 YOUR TRUST'S INVESTMENTS June 30, 2002 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE DIVERSIFIED MEDIA 7.9% $ 440 Alliance Atlantis Communications, Inc. (Canada).................................... 13.000% 12/15/09 $ 486,200 750 AOL Time Warner, Inc. ...................... 6.125 04/15/06 729,595 945 K-III Communications Corp. ................. 10.250 06/01/04 807,975 595 Mail Well I Corp., 144A--Private Placement (b)......................................... 9.625 03/15/12 600,950 500 MDC Corporation, Inc. (Canada).............. 10.500 12/01/06 437,500 440 Quebecor Media, Inc. (Canada)............... 11.125 07/15/11 435,600 ----------- 3,497,820 ----------- ENERGY 19.0% 910 BRL Universal Equipment..................... 8.875 02/15/08 905,450 570 Chesapeake Energy Corp. .................... 7.875 03/15/04 581,400 710 Chesapeake Energy Corp. .................... 8.125 04/01/11 701,125 1,140 Frontier Oil Corp. ......................... 11.750 11/15/09 1,216,950 715 Hanover Equipment Trust, 144A--Private Placement (b)............................... 8.500 09/01/08 664,950 215 Hanover Equipment Trust, 144A--Private Placement (b)............................... 8.750 09/01/11 197,800 120 Magnum Hunter Resources, Inc., 144A--Private Placement (b)............................... 9.600 03/15/12 124,200 590 Port Arthur Finance Corp. .................. 12.500 01/15/09 660,800 315 Stone Energy Corp. ......................... 8.250 12/15/11 316,575 705 Tesoro Petroleum Corp., 144A--Private Placement (b)............................... 9.625 04/01/12 648,600 570 Transocean, Inc. ........................... 6.500 04/15/03 582,824 685 Transocean, Inc. ........................... 9.500 12/15/08 819,176 1,065 Vintage Petroleum, Inc. .................... 7.875 05/15/11 969,150 ----------- 8,389,000 ----------- FINANCIAL 2.8% 310 Banco Nacional de Comercio Exterior (Mexico).................................... 7.250 02/02/04 324,620 270 CIT Group, Inc. ............................ 5.625 05/17/04 259,167 50 CIT Group, Inc. ............................ 6.500 02/07/06 48,517 100 Golden State Holdings....................... 7.125 08/01/05 106,872 450 Health Net, Inc. ........................... 8.375 04/15/11 501,101 ----------- 1,240,277 ----------- FOOD & DRUG 0.0% 1,570 Jitney-Jungle Stores America, Inc. (a) (c)......................................... 12.000 03/01/06 157 ----------- FOOD & TOBACCO 10.3% 1,100 Coca Cola Femsa S.A. (Mexico)............... 8.950 11/01/06 1,201,750 1,150 Pepsi Gemex S.A. (Mexico)................... 9.750 03/30/04 1,216,125
See Notes to Financial Statements 13 YOUR TRUST'S INVESTMENTS June 30, 2002 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE FOOD & TOBACCO (Continued) $1,065 Smithfield Foods, Inc. ..................... 7.625% 02/15/08 $ 1,067,662 1,050 Smithfield Foods, Inc. ..................... 8.000 10/15/09 1,071,000 ----------- 4,556,537 ----------- FOREST PRODUCTS 13.2% 775 Louisiana Pacific Corp. .................... 10.875 11/15/08 856,375 390 Norske Skog Canada (Canada)................. 8.625 06/15/11 401,700 1,350 Owens-Brockway Glass Containers, 144A-- Private Placement (b)....................... 8.875 02/15/09 1,356,750 855 Pacifica Papers, Inc. (Canada).............. 10.000 03/15/09 912,712 575 Radnor Holdings Corp. ...................... 10.000 12/01/03 529,000 1,790 Tembec Industries, Inc. (Canada)............ 7.750 03/15/12 1,785,525 ----------- 5,842,062 ----------- GAMING & LEISURE 22.4% 920 Harrahs Operating Co., Inc. ................ 7.875 12/15/05 947,600 230 Harrahs Operating Co., Inc. ................ 8.000 02/01/11 249,172 340 Hilton Hotels............................... 7.950 04/15/07 352,953 950 HMH Properties, Inc. ....................... 7.875 08/01/05 931,000 845 Horseshoe Gaming LLC........................ 8.625 05/15/09 864,012 1,425 International Game Technology............... 7.875 05/15/04 1,474,875 1,400 Mohegan Tribal Gaming Authority............. 8.125 01/01/06 1,442,000 490 Park Place Entertainment.................... 7.875 12/15/05 492,450 425 Park Place Entertainment.................... 8.875 09/15/08 439,344 570 Prime Hospitality Corp., 144A--Private Placement (b)............................... 8.375 05/01/12 561,450 855 Starwood Hotels Resorts, 144A--Private Placement (b)............................... 7.375 05/01/07 845,381 780 Station Casinos, Inc. ...................... 8.375 02/15/08 800,475 475 Station Casinos, Inc. ...................... 9.875 07/01/10 504,688 ----------- 9,905,400 ----------- HEALTHCARE 10.9% 550 Amerisourcebergen Corp. .................... 8.125 09/01/08 570,625 650 Fisher Scientific International, Inc. ...... 7.125 12/15/05 648,375 795 Fresenius Medical Care Capital Trust II..... 7.875 02/01/08 717,488 235 Fresenius Medical Care Capital Trust IV..... 7.875 06/15/11 211,500 1,045 HCA, Inc. .................................. 6.910 06/15/05 1,091,042 100 HCA, Inc. .................................. 7.150 03/30/04 105,106 1,000 Healthsouth Corp. .......................... 7.375 10/01/06 1,005,000 450 Omnicare Inc. .............................. 8.125 03/15/11 465,750 ----------- 4,814,886 -----------
See Notes to Financial Statements 14 YOUR TRUST'S INVESTMENTS June 30, 2002 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE HOUSING 10.1% $ 400 CB Richard Ellis Service.................... 11.250% 06/15/11 $ 338,000 550 Istar Financial, Inc. ...................... 8.750 08/15/08 546,078 845 Schuler Homes............................... 9.375 07/15/09 866,125 330 Tech Olympic USA, Inc., 144A--Private Placement (b)............................... 9.000 07/01/10 326,700 360 Tech Olympic USA, Inc., 144A--Private Placement (b)............................... 10.375 07/01/12 360,000 1,100 Toll Corp. ................................. 8.250 02/01/11 1,111,000 825 Webb (Del E.) Corp. ........................ 10.250 02/15/10 909,563 ----------- 4,457,466 ----------- INFORMATION TECHNOLOGY 3.9% 425 Fairchild Semiconductor Corp. .............. 10.500 02/01/09 454,750 850 Flextronics International Ltd. (Singapore)................................. 8.750 10/15/07 856,375 425 Tektronix, Inc. ............................ 7.625 08/15/02 426,833 ----------- 1,737,958 ----------- MANUFACTURING 5.3% 255 Case Corporation............................ 6.250 12/01/03 248,984 260 Case Credit Corporation..................... 6.125 02/15/03 255,264 740 Communications & Power Industries, Inc. .... 12.000 08/01/05 599,400 140 Johnsondiversey, Inc., 144A--Private Placement (b)............................... 9.625 05/15/12 147,000 595 Numatics, Inc. ............................. 9.625 04/01/08 354,025 340 Trimas Corp., 144A--Private Placement (b)... 9.875 06/15/12 340,850 490 Tyco Intl Group SA (Luxembourg)............. 6.375 02/15/06 397,091 ----------- 2,342,614 ----------- METALS 4.0% 280 Doe Run Resources Corp., Ser B.............. 11.250 03/15/05 57,400 1,100 GS Technologies Operating, Inc. (a) (c)..... 12.250 10/01/05 27,500 330 Intermet Corp., 144A--Private Placement (b)......................................... 9.750 06/15/09 332,475 210 Renco Steel Holdings, Inc. ................. 10.875 02/01/05 15,750 420 Ucar Finance, Inc., 144A--Private Placement (b)......................................... 10.250 02/15/12 430,500 1,590 WCI Steel, Inc. ............................ 10.000 12/01/04 898,350 ----------- 1,761,975 ----------- RETAIL 1.4% 400 Autonation, Inc. ........................... 9.000 08/01/08 414,000 210 Big 5 Corp. ................................ 10.875 11/15/07 222,600 ----------- 636,600 -----------
See Notes to Financial Statements 15 YOUR TRUST'S INVESTMENTS June 30, 2002 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE SERVICES 6.3% $1,345 Allied Waste North America, Inc. ........... 8.875% 04/01/08 $ 1,324,825 1,400 Waste Management, Inc. ..................... 7.125 10/01/07 1,460,061 ----------- 2,784,886 ----------- TELECOMMUNICATIONS 2.5% 570 Asia Global Crossing (Bermuda) (a).......... 13.375 10/15/10 115,425 280 Exodus Communications, Inc. (a) (c)......... 11.250 07/01/08 47,600 370 Focal Communications Corp., Ser B........... 11.875 01/15/10 61,050 850 Frontier Corp. (a) (c)...................... 6.000 10/15/03 106,250 1,035 Global Crossing Holdings Ltd. (Bermuda) (a) (c)......................................... 9.125 11/15/06 15,525 510 Globix Corp. (a) (c)........................ 12.500 02/01/10 94,350 1,260 GT Group Telecom, Inc. (Canada) (d)......... 0/13.250 02/01/10 9,450 280 Madison River Capital LLC................... 13.250 03/01/10 225,400 1,160 Metromedia Fiber Network (a)................ 10.000 12/15/09 17,400 280 MGC Communications, Inc. (a)................ 13.000 10/01/04 113,400 570 Nextlink Communications, Inc. (a)........... 9.625 10/01/07 17,100 600 Nextlink Communications, Inc. (a)........... 10.500 12/01/09 18,000 630 PSI Net, Inc. (a) (c)....................... 10.500 12/01/06 64,575 1,255 WorldCom, Inc. (a) (e)...................... 7.750 04/01/07 194,525 ----------- 1,100,050 ----------- TRANSPORTATION 14.1% 1,520 Aetna Industries, Inc. (a).................. 11.875 10/01/06 243,200 185 Collins & Aikman Products Co. .............. 11.500 04/15/06 176,213 605 Collins & Aikman Products Co., 144A--Private Placement (b)............................... 10.750 12/31/11 611,050 1,060 Dana Corp. ................................. 9.000 08/15/11 1,049,400 335 Dura Operating Corp., 144A--Private Placement (b)............................... 8.625 04/15/12 338,350 940 Ford Motor Credit Co. ...................... 6.500 01/25/07 941,776 455 General Motors Acceptance Corp. ............ 7.500 07/15/05 485,246 432 International Shipholding Corp. ............ 9.000 07/01/03 429,840 495 Lear Corp. ................................. 8.110 05/15/09 508,172 325 Metaldyne Corp., 144A--Private Placement (b)......................................... 11.000 06/15/12 318,500 570 Stena AB (Sweden)........................... 10.500 12/15/05 589,950 170 Stoneridge, Inc. ........................... 11.500 05/01/12 172,550 335 Stoneridge, Inc., 144A--Private Placement (b)......................................... 11.500 05/01/12 340,025 ----------- 6,204,272 ----------- UTILITY 8.4% 215 Calpine Corp. .............................. 8.500 02/15/11 145,125 570 Calpine Corp. .............................. 8.625 08/15/10 373,350 535 Dynegy Holdings, Inc. ...................... 6.875 04/01/11 369,799
See Notes to Financial Statements 16 YOUR TRUST'S INVESTMENTS June 30, 2002 (Unaudited)
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE UTILITY (Continued) $ 65 El Paso Corp. .............................. 7.000% 05/15/11 $ 62,327 200 El Paso Corp., 144A--Private Placement (b)......................................... 7.875 06/15/12 201,767 515 Mirant Americas Generation LLC.............. 7.625 05/01/06 417,540 400 PG & E National Energy Group, Inc. ......... 10.375 05/16/11 408,706 680 PSEG Energy Holdings........................ 9.125 02/10/04 692,277 220 PSEG Energy Holdings, 144A--Private Placement (b)............................... 8.625 02/15/08 211,426 1,020 Williams Cos., Inc. ........................ 6.500 08/01/06 830,146 ----------- 3,712,463 ----------- WIRELESS COMMUNICATIONS 4.4% 235 Alamosa Delaware Inc. ...................... 12.500 02/01/11 66,975 245 Alamosa Holdings, Inc. (d).................. 0/12.875 02/15/10 37,975 285 American Cellular Corp. .................... 9.500 10/15/09 52,725 285 American Tower Corp. ....................... 9.375 02/01/09 158,175 560 Grupo Iusacell S.A. (Mexico)................ 10.000 07/15/04 488,600 830 IPCS, Inc. (d).............................. 0/14.000 07/15/10 112,050 1,105 Nextel Communications, Inc. ................ 9.375 11/15/09 563,550 182 Telecorp PCS, Inc. ......................... 10.625 07/15/10 171,080 244 Tritel PCS, Inc. ........................... 10.375 01/15/11 223,260 190 US Unwired, Inc. (d)........................ 0/13.375 11/01/09 46,550 ----------- 1,920,940 ----------- TOTAL CORPORATE BONDS 172.1%............................................. 76,042,685 ----------- GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 5.4% 1,285 Federal Republic of Brazil (Brazil)......... 11.250 07/26/07 877,012 140 United Mexican States (Mexico).............. 8.375 01/14/11 145,600 1,200 United States Treasury Bonds................ 11.875 11/15/03 1,353,622 ----------- TOTAL GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS........................ 2,376,234 ----------- EQUITIES 0.6% DecisionOne Corp. (3,033 common shares) (f) (g)........................... 0 DecisionOne Corp. (6,670 common stock warrants) (f) (g)................... 0 Focal Communications Corp. (2,439 common shares) (g)...................... 5,683 GT Group Telecom, Inc. (1,260 common stock warrants) 144A-Private Placement (Canada) (b) (g)................................................ 1,890 HCI Direct, Inc. (30,357 common shares) (g)............................... 236,788 Hosiery Corp of America, Inc. (500 common shares) (g)..................... 5
See Notes to Financial Statements 17 YOUR TRUST'S INVESTMENTS June 30, 2002 (Unaudited)
MARKET DESCRIPTION VALUE EQUITIES (Continued) IPCS, Inc. (830 common stock warrants) 144A--Private Placement (b) (g).... $ 311 McLeodUSA, Inc. (1,437 common stock warrants)............................. 187 McLeodUSA, Inc. (648 preferred shares) (g)................................ 2,430 NTL, Inc. (1,622 common stock warrants) 144A--Private Placement (b) (g)... 291 Ono Finance PLC, 144A--Private Placement (775 equity value certificates) (United Kingdom) (b) (g)................................................ 291 Pioneer Cos., Inc. (3,251 common shares) (g).............................. 5,949 Star Gas Partners L.P. (264 limited partnership units).................... 4,852 VS Holdings, Inc. (11,316 common shares) (g).............................. 2,113 ----------- TOTAL EQUITIES 0.6%...................................................... 260,790 ----------- TOTAL LONG-TERM INVESTMENTS 178.1% (Cost $98,468,656)...................................................... 78,679,709 REPURCHASE AGREEMENT 10.2% State Street Bank & Trust Co. ($4,500,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 06/28/02, to be sold on 07/01/02 at $4,500,705) (Cost $4,500,000)..................... 4,500,000 ----------- TOTAL INVESTMENTS 188.3% (Cost $102,968,656)..................................................... 83,179,709 OTHER ASSETS IN EXCESS OF LIABILITIES 5.2%............................... 2,289,657 PREFERRED SHARES (93.5%)................................................. (41,300,000) ----------- NET ASSETS APPLICABLE TO COMMON SHARES 100.0%............................ $44,169,366 ===========
(a) Non-income producing as security is in default. (b) 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. (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) Subsequent to June 30, 2002, this company has filed for protection in federal bankruptcy court. (f) Market value is determined in accordance with procedures established in good faith by the Board of Trustees. (g) Non-income producing security. See Notes to Financial Statements 18 FINANCIAL STATEMENTS Statement of Assets and Liabilities June 30, 2002 (Unaudited) ASSETS: Total Investments (Cost $102,968,656)....................... $ 83,179,709 Receivables: Interest.................................................. 2,084,512 Investments Sold.......................................... 706,649 Other....................................................... 56,158 ------------ Total Assets............................................ 86,027,028 ------------ LIABILITIES: Payables: Custodian Bank............................................ 177,651 Investments Purchased..................................... 134,432 Investment Advisory Fee................................... 52,841 Affiliates................................................ 5,962 Trustees' Deferred Compensation and Retirement Plans........ 148,547 Accrued Expenses............................................ 38,229 ------------ Total Liabilities....................................... 557,662 Preferred Shares............................................ 41,300,000 ------------ NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 44,169,366 ============ NET ASSET VALUE PER COMMON SHARE ($44,169,366 divided by 13,710,760 shares outstanding)............................ $ 3.22 ============ NET ASSETS CONSIST OF: 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 Undistributed Net Investment Income............. (1,878,274) Net Unrealized Depreciation................................. (19,788,947) Accumulated Net Realized Loss............................... (21,344,040) ------------ NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 44,169,366 ============ PREFERRED SHARES ($.01 par value, authorized 1,000,000 shares, 413 issued with liquidation preference of $100,000 per share)................................................ $ 41,300,000 ------------ NET ASSETS INCLUDING PREFERRED SHARES....................... $ 85,469,366 ============
See Notes to Financial Statements 19 Statement of Operations For the Six Months Ended June 30, 2002 (Unaudited) INVESTMENT INCOME: Interest.................................................... $ 4,008,450 Dividends................................................... 304 Other....................................................... 26,287 ------------ Total Income............................................ 4,035,041 ------------ EXPENSES: Investment Advisory Fee..................................... 328,327 Preferred Share Maintenance................................. 63,971 Legal....................................................... 19,778 Trustees' Fees and Related Expenses......................... 17,275 Custody..................................................... 8,586 Other....................................................... 99,466 ------------ Total Expenses.......................................... 537,403 ------------ NET INVESTMENT INCOME....................................... $ 3,497,638 ============ REALIZED AND UNREALIZED GAIN/LOSS: Net Realized Loss........................................... $ (3,286,218) ------------ Unrealized Appreciation/Depreciation: Beginning of the Period................................... (15,949,872) End of the Period......................................... (19,788,947) ------------ Net Unrealized Depreciation During the Period............... (3,839,075) ------------ NET REALIZED AND UNREALIZED LOSS............................ $ (7,125,293) ============ DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (410,980) ============ NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (4,038,635) ============
See Notes to Financial Statements 20 Statements of Changes in Net Assets (Unaudited)
SIX MONTHS ENDED YEAR ENDED JUNE 30, 2002 DECEMBER 31, 2001 ------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income............................. $ 3,497,638 $ 9,683,102 Net Realized Loss................................. (3,286,218) (8,072,306) Net Unrealized Appreciation/Depreciation During the Period...................................... (3,839,075) 2,051,508 Distributions to Preferred Shareholders: Net Investment Income........................... (410,980) (2,004,147) ----------- ----------- Change in Net Assets from Operations.............. (4,038,635) 1,658,157 Distributions to Common Shareholders: Net Investment Income........................... (3,578,232) (7,732,621) ----------- ----------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...................................... (7,616,867) (6,074,464) NET ASSETS: Beginning of the Period........................... 51,786,233 57,860,697 ----------- ----------- End of the Period (Including accumulated undistributed net investment income of ($1,878,274) and ($1,386,700), respectively).... $44,169,366 $51,786,233 =========== ===========
See Notes to Financial Statements 21 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, ------------------- 2002 2001 (c) 2000 -------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD............. $ 3.78 $ 4.22 $ 5.10 -------- -------- -------- Net Investment Income.............................. .25 .71 .85 Net Realized and Unrealized Gain/Loss.............. (.52) (.44) (.85) Common Share Equivalent of Distributions Paid to Preferred Shareholders: Net Investment Income............................ (.03) (.15) (.26) -------- -------- -------- Total from Investment Operations..................... (.30) .12 (.26) Less Distributions Paid to Common Shareholders: Net Investment Income............................ .26 .56 .61 Return of Capital Distributions...................... -0- -0- .01 -------- -------- -------- NET ASSET VALUE, END OF THE PERIOD................... $ 3.22 $ 3.78 $ 4.22 ======== ======== ======== Common Share Market Price at End of the Period....... $ 4.10 $ 4.54 $ 4.125 Total Return (a)..................................... -4.49%* 23.76% 4.08% Net Assets at End of the Period (In millions)........ $ 44.2 $ 51.8 $ 57.9 Ratio of Expenses to Average Net Assets Applicable to Common Shares (b).................................. 2.18% 1.98% 1.95% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (b).................... 14.21% 16.80% 18.05% Portfolio Turnover................................... 55%* 64% 62% SUPPLEMENTAL RATIOS: Ratio of Expenses to Average Net Assets Including Preferred Shares (b)............................... 1.15% 1.07% 1.04% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (d).................... 12.54% 13.32% 12.48% SENIOR SECURITIES: Total Preferred Shares Outstanding................... 413 450 500 Asset Coverage Per Preferred Share (e)............... $206,948 $215,081 $215,271 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 assumes an investment at the common share 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 market price at the end of the period indicated. (b) Ratios do not reflect the effect of dividend payments to preferred shareholders. (c) 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 year 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. (d) Ratios reflect the effect of dividend payments to preferred shareholders. (e) 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. 22
YEAR ENDED DECEMBER 31, - ----------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------- $ 5.86 $ 6.47 $ 6.35 $ 6.19 $ 5.62 $ 6.74 $ 6.23 $ 5.92 -------- -------- -------- -------- -------- -------- -------- -------- .88 .91 .93 .94 .98 1.00 1.11 1.21 (.75) (.58) .13 .15 .54 (.98) .53 .17 (.22) (.24) (.24) (.23) (.25) (.19) (.14) (.16) -------- -------- -------- -------- -------- -------- -------- -------- (.09) .09 .82 .86 1.27 (.17) 1.50 1.22 .67 .70 .70 .70 .70 .95 .99 .91 -0- -0- -0- -0- -0- -0- -0- -0- -------- -------- -------- -------- -------- -------- -------- -------- $ 5.10 $ 5.86 $ 6.47 $ 6.35 $ 6.19 $ 5.62 $ 6.74 $ 6.23 ======== ======== ======== ======== ======== ======== ======== ======== $ 4.50 $ 6.375 $ 7.375 $ 6.75 $ 6.375 $ 5.50 $ 8.125 $ 7.25 -21.20% -4.33% 20.29% 17.34% 29.17% -23.22% 26.12% 18.67% $ 70.0 $ 80.4 $ 88.7 $ 87.0 $ 84.8 $ 77.1 $ 92.3 $ 85.4 1.92% 1.85% 1.76% 1.87% 1.92% 1.96% 1.72% 1.87% 16.13% 14.56% 14.60% 15.32% 16.39% 16.33% 16.75% 19.15% 57% 65% 102% 92% 119% 110% 99% 109% 1.07% 1.09% 1.05% 1.11% 1.12% 1.16% 1.04% 1.11% 12.09% 10.77% 10.90% 11.58% 12.16% 13.31% 14.66% 16.48% 588 588 588 588 588 588 588 588 $219,005 $236,742 $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 $100,000 $100,000 $100,000 $100,000
See Notes to Financial Statements 23 NOTES TO FINANCIAL STATEMENTS June 30, 2002 (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. 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. 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. 24 NOTES TO FINANCIAL STATEMENTS June 30, 2002 (Unaudited) 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. 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. At June 30, 2002, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $103,341,700 ============ Gross tax unrealized appreciation........................... $ 1,286,104 Gross tax unrealized depreciation........................... (21,448,095) ------------ Net tax unrealized depreciation on investments.............. $(20,161,991) ============
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 year's financial highlights has been conformed to the current year presentation. In accordance with the provisions of EITF D-98, "Classification and Measurement of Redeemable Securities", effective for the current period, the Trust has reclassified its Auction Market Preferred Shares ("AMPS") outside of permanent equity in the Net Assets section of the Statement of Assets and Liabilities. In addition, distributions to AMPS shareholders are now classified as a component of the "Decrease in net assets from operations" on the Statement of Operations and the Statements of Changes in Net Assets and as a component of 25 NOTES TO FINANCIAL STATEMENTS June 30, 2002 (Unaudited) the "Total from Investment Operations" on the Financial Highlights. Prior year amounts presented have been reclassified to conform to this period's presentation. This change has no impact on the net assets applicable to common shares of the Trust. 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, 2002, the Trust recognized expenses of approximately $7,700 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, 2002, the Trust recognized expenses of approximately $19,200 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 $47,299,587 and $48,586,421, respectively. 4. AUCTION MARKET PREFERRED SHARES The Trust has outstanding 413 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 26 NOTES TO FINANCIAL STATEMENTS June 30, 2002 (Unaudited) in effect on June 30, 2002, was 1.860%. During the six months ended June 30, 2002, the rates ranged from 1.690% to 2.029%. 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 June 28, 2002, the Trust redeemed 37 shares of its AMPS with a liquidation value of $100,000 per share. On July 30, 2002, the Trust redeemed an additional 37 shares of its AMPS with a liquidation value of $100,000 per share. 27 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. 28 RESULTS OF SHAREHOLDER VOTES The Annual Meeting of Shareholders of the Trust was held on June 12, 2002, where shareholders voted on the election of trustees. 1) With regards to the election of the following trustees by the common shareholders of the Trust:
# OF SHARES ------------------------------ IN FAVOR WITHHELD - -------------------------------------------------------------------------------------- David C. Arch......................................... 11,288,145 164,146 Howard J Kerr......................................... 11,264,916 187,375
The other trustees of the Trust whose terms did not expire in 2002 are Rod Dammeyer, Theodore A. Myers, Richard F. Powers, III, Hugo F. Sonnenschein, and Wayne W. Whalen. 29 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)2002 Van Kampen Funds Inc. All rights reserved. 920, 911, 104 Member NASD/SIPC. VIT SAR 8/02 6952H02-AS-8/02 -----END PRIVACY-ENHANCED MESSAGE-----