-----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, EJdVNOu+fttunN/hTn6C6KarZLPnTv3gTbz2HjUHRozYInLDjNDfz8adlnKXTFFH qBltGefGumAT+7RyNFWU3A== 0000950137-03-001201.txt : 20030227 0000950137-03-001201.hdr.sgml : 20030227 20030226205021 ACCESSION NUMBER: 0000950137-03-001201 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030227 EFFECTIVENESS DATE: 20030227 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: 03581818 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 c74211nv30d.txt ANNUAL REPORT DATED 12/31/02 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 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 REPORT OF INDEPENDENT AUDITORS 28 DIVIDEND REINVESTMENT PLAN 29 BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 31 TRUSTEE AND OFFICER INFORMATION 32
Regardless of the market environment, your investment goals don't go away. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE OVERVIEW LETTER TO SHAREHOLDERS January 17, 2003 Dear Shareholder, During the bull market of the 1990s, many investors ignored what investment risk really means: the possibility of losing money. Instead, investors came to define risk as "more reward." Today, it's clear that for many people, the pendulum has swung to the opposite extreme. Many are reluctant to enter the market, stick with their long-term plans, or assume prudent levels of risk. Not knowing what action to take, many investors are taking none. Regardless of how you define risk and regardless of the market environment, your investment goals don't go away. Parents will want to send children to college, retirees will want to enjoy their golden years, and families will want to purchase homes. And history bears out that a prudent investment may be one of the best ways to get there. How can you reconcile the reality of market risk with the pursuit of your long-term investment goals? At Van Kampen, we believe that diversification and asset allocation are the best strategies for managing the market's ups and downs. That's why Van Kampen offers a full range of fund choices. We encourage you to work with your advisor to make sure that you have an asset allocation that's suitable for you. As we enter a new year, all of us at Van Kampen remain grateful for the trust you have placed in us and for the opportunity to help you enjoy life's true wealth. Sincerely, [SIG] David M. Swanson Chief Operating Officer Van Kampen Investment Advisory Corp. 1 ECONOMIC SNAPSHOT THE ECONOMY ECONOMIC DATA RELEASED IN DECEMBER 2002 SEEMED TO SUGGEST THE ECONOMY WAS EMERGING FROM ITS AUTUMN SOFT SPOT. RETAIL SALES AND INDUSTRIAL PRODUCTION RECORDED GAINS THAT SURPASSED EXPECTATIONS. BOTH NEW AND EXISTING HOME SALES CONTINUED TO REMAIN AT HISTORICALLY HIGH LEVELS. EVEN THE BELEAGUERED MANUFACTURING SECTOR ENJOYED SOME GOOD NEWS: THE INSTITUTE OF SUPPLY MANAGEMENT REPORTED THAT NEW ORDERS WERE SO ROBUST, THEY REGISTERED THE LARGEST MONTHLY INCREASE SINCE 1980. EQUALLY ENCOURAGING, INFLATION PRESSURES REMAINED STABLE THROUGHOUT THE REPORTING PERIOD--DESPITE RISING OIL PRICES. AGAINST THIS BACKDROP, THE FEDERAL RESERVE MAINTAINED ITS ACCOMMODATIVE MONETARY POLICY WHICH, AS A RESULT, ALLOWED INTEREST RATES TO CONTINUE HOVERING AT THE LOWEST LEVELS IN DECADES. YET, POCKETS OF WEAKNESS PERSISTED. DECEMBER'S JOB LOSSES WERE THE STRONGEST RECORDED IN RECENT MONTHS, CAUSING INVESTORS TO QUESTION THE SUSTAINABILITY OF ECONOMIC ACTIVITY MOVING FORWARD. FURTHER CLOUDING THE ECONOMIC HORIZON, THE DOLLAR MOVED LOWER AS TRADERS AND INVESTORS QUESTIONED THE NEWLY APPOINTED TREASURY SECRETARY'S COMMITMENT TO A STRONG DOLLAR. WHILE THE DECLINING DOLLAR SEEMED LIKE ANOTHER DARK CLOUD, A POSSIBLE SILVER LINING REMAINS: DOLLAR WEAKNESS COULD TRANSLATE INTO IMPROVED EXPORTS IN 2003, FURTHER SUPPORTING ECONOMIC GROWTH. 2 U.S. GROSS DOMESTIC PRODUCT SEASONALLY ADJUSTED ANNUALIZED RATES (December 31, 2000--December 31, 2002) [BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT --------------------------- Dec 00 1.1% Mar 01 -0.6% Jun 01 -1.6% Sep 01 -0.3% Dec 01 2.7% Mar 02 5.0% Jun 02 1.3% Sep 02 4.0% Dec 02 0.7%
Source: Bureau of Economic Analysis INTEREST RATES AND INFLATION (December 31, 2000--December 31, 2002) [LINE GRAPH]
INTEREST RATES INFLATION -------------- --------- 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% 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% 1.75% 1.50% 1.75% 1.80% Sep 02 1.75% 1.50% 1.75% 2.00% 1.25% 2.20% Dec 02 1.25% 2.40%
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, 2002) - ----------------------------- NYSE Ticker Symbol - VIT - -----------------------------
- ----------------------------------------------------------------------- One-year total return(1) -22.99% - ----------------------------------------------------------------------- Five-year average annual total return(1) -5.65% - ----------------------------------------------------------------------- Ten-year average annual total return(1) 2.82% - ----------------------------------------------------------------------- Life-of-Trust average annual total return(1) 3.76% - ----------------------------------------------------------------------- Commencement date 01/26/89 - ----------------------------------------------------------------------- Distribution rate as a % of closing common share market price(2) 12.58% - ----------------------------------------------------------------------- Net asset value $3.03 - ----------------------------------------------------------------------- Closing common share market price $3.10 - ----------------------------------------------------------------------- One-year high common share market price (01/18/02) $4.99 - ----------------------------------------------------------------------- One-year low common share market price (07/24/02) $2.76 - ----------------------------------------------------------------------- Preferred share rate(3) 1.380% - -----------------------------------------------------------------------
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 December 31, 2002 - - A/A................ 5.6% [PIE CHART] - - BBB/Baa............ 19.5% - - BB/Ba.............. 42.4% - - B/B................ 30.0% - - CCC/Caa & below.... 2.3% - - Non-Rated.......... 0.2% 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. TWELVE-MONTH DIVIDEND HISTORY (for the year ended December 31, 2002, for common shares) [BAR GRAPH]
DIVIDENDS --------- 1/02 $0.0470 2/02 $0.0440 3/02 $0.0440 4/02 $0.0440 5/02 $0.0440 6/02 $0.0380 7/02 $0.0380 8/02 $0.0380 9/02 $0.0350 10/02 $0.0350 11/02 $0.0350 12/02 $0.0325
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]
DECEMBER 31, 2002 DECEMBER 31, 2001 ----------------- ----------------- Gaming & Leisure 14.1% 9.2% Energy 11.8% 9.5% Forest Products 8.1% 8.2% Transportation 7.1% 5.8% Housing 6.4% 4.6%
Subject to change daily. NET ASSET VALUE AND COMMON SHARE MARKET PRICE (based upon quarter-end values--December 1992 through December 2002) [INVESTMENT PERFORMANCE GRAPH]
NET ASSET VALUE COMMON SHARE MARKET PRICE --------------- ------------------------- 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 3.6200 4.6700 3.2200 4.1000 2.8800 3.3500 12/02 3.0300 3.1000
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 12-MONTH PERIOD ENDED DECEMBER 31, 2002. THE TRUST IS MANAGED BY THE ADVISER'S HIGH YIELD TEAM. CURRENT MEMBERS(1) OF THE TEAM INCLUDE STEPHEN ESSER, MANAGING DIRECTOR; GORDON LOERY, EXECUTIVE DIRECTOR; AND DEANNA LOUGHNANE, EXECUTIVE DIRECTOR. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE TRUST'S PERFORMANCE. (1) Team members may change without notice at any time. Q WHAT WAS THE MARKET ENVIRONMENT OF THE PAST 12 MONTHS? A The 12-month period ended December 31, 2002, was a highly volatile time in the high-yield market. The year got off to a strong start, with the credit markets well supported by strong economic activity in the first quarter of the year. At that point, the market consensus appeared to coalesce around expectations of continued economic strength. The market took a decided turn for the worse for the next six months. The primary culprit, at least initially, was the growing number and severity of corporate-governance scandals, including the bankruptcies of Adelphia and WorldCom. The latter had a particularly strong effect on the high-yield markets because of the large amount of bonds originating in the telecommunications sector. Economic fears also resurfaced when it became clear that a recovery in the second half was increasingly unlikely. Finally, continued weakness in corporate profits served to undermine both the credit and equity markets. These factors combined to make June and July two of the worst back-to-back months in the history of the high-yield market. As in the final months of 2001, the last two months of 2002 were somewhat more positive for high-yield bonds. While the corporate credit spreads over U.S. Treasuries remained fairly wide by historical standards, the high-yield market on the whole experienced a reversal of some of its previous losses as money began to flow back into the asset class. Issuance during the period was generally moderate. While it was off from the record highs of the late 1990s, corporations still managed to bring roughly $60 to $70 billion in new bonds to market. This supply of debt was relatively well balanced against demand over the course of the year; in fact, the level of issuance tended to vary with market demand. Economic uncertainty also led investors to favor 8 bonds of higher credit quality. This was a continuation of a two-year trend, and stood in marked contrast to the period of 1997 through 1999 when lower-rated companies (many of them in the telecommunications sector) brought record amounts of bonds to market. That last wave of issuance of lower-quality bonds proved to be a major factor in the rising rate of defaults from 2000 through 2001. While defaults remained well above historical averages in 2002, they did appear to taper off and decline in the last months of the year. Q HOW DID THE TRUST PERFORM IN THIS ENVIRONMENT? A The trust continued to provide shareholders with what we believe is an attractive level of income, as its monthly dividend of $0.0325 per share translates to a distribution rate of 12.58 percent based on the trust's common share market price as of December 31, 2002. For the 12-month period ended December 31, 2002, the trust generated a total return of -22.99 percent. This reflects a decrease in common share market price from $4.54 per share on December 31, 2001, to $3.10 per share on December 31, 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 2.17 percent for the same period. The Chase High Yield Index is a broad-based, unmanaged 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 The trust's exposure to the cable and telecom industries had the greatest impact on performance. These were two of the market's worst-performing sectors because of a combination of deteriorating industry fundamentals and high default rates. The trust also experienced the effects of poor security selection in a few select industries. On the positive side, our underweighted positions in utilities and airlines helped relative performance, as did good security selection in broadcasting. Q WHAT STRATEGIES DID YOU USE IN MANAGING THE TRUST? A At the portfolio level, we continued to follow our strategy of rigorous bottom-up security analysis and selection. Our purchases were generally made with an eye to capitalizing on securities that had become oversold and as a result, offered compelling value. Our analysts were able to identify attractive opportunities across a wide range of sectors including chemicals, forest products, transportation, manufacturing and general 9 industrial issues. These securities offered the additional benefit of giving the portfolio exposure to economically sensitive sectors that we anticipate should perform strongly when the economy turns the corner. In keeping with our bottom-up focus, we sold some of the portfolio's positions that no longer met our investment criteria. Some of these bonds had met their performance targets, while others experienced deteriorating fundamentals. Many of our sales were from the portfolio's holdings of telecommunications, cable and wireless securities. We also allowed market forces to reduce the portfolio's weightings in these sectors. By the end of the period, the trust was underweighted in these troubled sectors relative to its benchmark. Q WHAT IS YOUR OUTLOOK FOR THE HIGH-YIELD MARKET? A In spite of the strong upturn at the end of the year, high-yield spreads remain at historically wide levels. These spreads are especially attractive considering that the default rate in the market appears to be declining and could very well fall further in the coming year. In our view, the relatively high quality of most of the issuance over the past few years bodes especially well for a continued decrease in default rates. Our economic research also indicates that the economy is likely to grow moderately in the coming year, perhaps somewhere in the range of 2 percent to 3 percent, which should also be supportive of the high-yield market. 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 stocks, rather than economic and market cycles. CREDIT RATING: An evaluation of a bond issuer's credit history and capability of repaying debt obligations. Standard & Poor's Ratings Group and Moody's Investors Service are two companies that assign credit ratings. Standard & Poor's ratings range from a high of AAA to a low of D, Moody's from a high of Aaa to a low of C. CREDIT SPREAD: Also called quality spread; the difference in yield between higher-quality issues (such as Treasury securities) and lower-quality ones. Normally, lower-quality issues provide higher yields to compensate investors for their additional credit risk. DEFAULT: The failure to make required debt payments on time. VOLATILITY: A measure of the fluctuation in the market price of a security. A security that is volatile has frequent, large swings in price. 11 BY THE NUMBERS YOUR TRUST'S INVESTMENTS December 31, 2002 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 174.7% AEROSPACE 2.2% $ 940 Sequa Corp. ................................. 9.000% 08/01/09 $ 907,100 ------------ BROADCASTING 3.7% 745 Nextmedia Operating, Inc. ................... 10.750 07/01/11 786,906 845 TV Azteca S.A. (Mexico)...................... 10.500 02/15/07 765,781 ------------ 1,552,687 ------------ CABLE 8.4% 1,425 British Sky Broadcasting (United Kingdom).... 7.300 10/15/06 1,483,459 1,005 Charter Communication Holdings LLC........... 8.250 04/01/07 452,250 975 EchoStar Communications Corp. ............... 9.250 02/01/06 1,023,750 355 Quebecor Media, Inc. (Canada)................ 11.125 07/15/11 328,819 1,140 Telewest PLC (United Kingdom) (a)............ 9.625 10/01/06 210,900 ------------ 3,499,178 ------------ CHEMICALS 8.6% 330 Acetex Corp. (Canada)........................ 10.875 08/01/09 351,450 850 Equistar Chemicals L.P. ..................... 8.500 02/15/04 841,768 245 FMC Corp., 144A--Private Placement (b)....... 10.250 11/01/09 265,825 190 ISP Chemco, Inc. ............................ 10.250 07/01/11 197,600 900 ISP Holdings, Inc. .......................... 10.625 12/15/09 787,500 260 Lyondell Chemical Co. ....................... 9.875 05/01/07 250,900 265 Lyondell Chemical Co. ....................... 9.500 12/15/08 247,775 230 Millennium America, Inc. .................... 7.000 11/15/06 223,387 340 Millennium America, Inc. .................... 9.250 06/15/08 356,150 50 PCI Chemicals Canada, Inc. (Canada).......... 10.000 12/31/08 35,443 17 Pioneer Cos., Inc. .......................... 5.298 12/31/06 11,668 ------------ 3,569,466 ------------ CONSUMER PRODUCTS 0.7% 265 Elizabeth Arden, Inc. ....................... 11.750 02/01/11 274,275 ------------ DIVERSIFIED MEDIA 9.6% 715 Alliance Atlantis Communications, Inc. (Canada)..................................... 13.000 12/15/09 782,925 450 AOL Time Warner, Inc. ....................... 6.125 04/15/06 465,023 630 K-III Communications Corp. .................. 10.250 06/01/04 621,337
See Notes to Financial Statements 12 YOUR TRUST'S INVESTMENTS December 31, 2002
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE DIVERSIFIED MEDIA (CONTINUED) $ 620 Mail Well I Corp. ........................... 9.625% 03/15/12 $ 554,900 500 MDC Corp., Inc. (Canada)..................... 10.500 12/01/06 450,000 115 RH Donnelley Fin Corp. I, 144A--Private Placement (b)................................ 8.875 12/15/10 123,625 280 RH Donnelley Fin Corp. I, 144A--Private Placement (b)................................ 10.875 12/15/12 306,600 315 Salem Communications Corp. .................. 7.750 12/15/10 315,787 395 Six Flags, Inc. ............................. 8.875 02/01/10 373,275 ------------ 3,993,472 ------------ ENERGY 21.1% 910 BRL Universal Equipment...................... 8.875 02/15/08 950,950 570 Chesapeake Energy Corp. ..................... 7.875 03/15/04 595,650 545 Chesapeake Energy Corp. ..................... 8.125 04/01/11 564,075 365 El Paso Energy Partners LP, 144A--Private Placement (b)................................ 10.625 12/01/12 375,037 1,140 Frontier Oil Corp. .......................... 11.750 11/15/09 1,179,900 715 Hanover Equipment Trust, 144A--Private Placement (b)................................ 9.487 09/01/08 700,700 215 Hanover Equipment Trust, 144A--Private Placement (b)................................ 9.737 09/01/11 208,550 275 Magnum Hunter Resources, Inc. ............... 9.600 03/15/12 293,562 580 Port Arthur Finance Corp. ................... 12.500 01/15/09 640,867 315 Stone Energy Corp. .......................... 8.250 12/15/11 329,175 830 Tesoro Petroleum Corp. ...................... 9.625 04/01/12 543,650 570 Transocean, Inc. ............................ 6.500 04/15/03 575,843 685 Transocean, Inc. ............................ 9.500 12/15/08 867,467 815 Vintage Petroleum, Inc. ..................... 7.875 05/15/11 798,700 115 Westport Resources Corp., 144A--Private Placement (b)................................ 8.250 11/01/11 121,325 ------------ 8,745,451 ------------ FINANCIAL 3.4% 310 Banco Nacional de Comercio Exterior (Mexico)..................................... 7.250 02/02/04 325,832 410 Health Net, Inc. ............................ 8.375 04/15/11 473,449 585 Istar Financial, Inc. ....................... 8.750 08/15/08 623,263 ------------ 1,422,544 ------------ FOOD & DRUG 0.0% 1,570 Jitney-Jungle Stores America, Inc. (a) (c) (d)............................. 12.000 03/01/06 157 ------------
See Notes to Financial Statements 13 YOUR TRUST'S INVESTMENTS December 31, 2002
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE FOOD & TOBACCO 11.1% $1,100 Coca Cola Femsa S.A. (Mexico)................ 8.950% 11/01/06 $ 1,245,750 1,150 Pepsi Gemex S.A. (Mexico).................... 9.750 03/30/04 1,250,625 1,065 Smithfield Foods, Inc. ...................... 7.625 02/15/08 1,043,700 1,050 Smithfield Foods, Inc. ...................... 8.000 10/15/09 1,076,250 ------------ 4,616,325 ------------ FOREST PRODUCTS 14.5% 410 Abitibi-Consolidated, Inc. (Canada).......... 8.550 08/01/10 455,817 590 MDP Acquisitions PLC, 144A--Private Placement (Ireland) (b)................................ 9.625 10/01/12 616,550 390 Norske Skog Canada Ltd. (Canada)............. 8.625 06/15/11 394,875 1,350 Owens-Brockway Glass Container, Inc. ........ 8.875 02/15/09 1,397,250 855 Pacifica Papers, Inc. (Canada)............... 10.000 03/15/09 908,438 575 Radnor Holdings Corp. ....................... 10.000 12/01/03 491,625 1,790 Tembec Industries, Inc. (Canada)............. 7.750 03/15/12 1,745,250 ------------ 6,009,805 ------------ GAMING & LEISURE 25.3% 920 Harrahs Operating Co., Inc. ................. 7.875 12/15/05 977,500 230 Harrahs Operating Co., Inc. ................. 8.000 02/01/11 265,674 465 Hilton Hotels Corp. ......................... 7.950 04/15/07 483,518 950 HMH Properties, Inc. ........................ 7.875 08/01/05 940,500 845 Horseshoe Gaming LLC......................... 8.625 05/15/09 902,038 1,425 International Game Technology................ 7.875 05/15/04 1,489,125 1,400 Mohegan Tribal Gaming Authority.............. 8.125 01/01/06 1,480,500 490 Park Place Entertainment Corp. .............. 7.875 12/15/05 499,800 425 Park Place Entertainment Corp. .............. 8.875 09/15/08 452,659 595 Prime Hospitality Corp. ..................... 8.375 05/01/12 580,125 1,075 Starwood Hotels & Resorts, 144A--Private Placement (b)................................ 7.375 05/01/07 1,061,563 780 Station Casinos, Inc. ....................... 8.375 02/15/08 832,650 475 Station Casinos, Inc. ....................... 9.875 07/01/10 517,750 ------------ 10,483,402 ------------ HEALTHCARE 11.0% 625 Amerisourcebergen Corp. ..................... 8.125 09/01/08 668,750 650 Fisher Scientific International, Inc. ....... 7.125 12/15/05 663,000 690 Fresenius Medical Care Capital Trust II...... 7.875 02/01/08 681,375 235 Fresenius Medical Care Capital Trust IV...... 7.875 06/15/11 229,125 1,045 HCA, Inc. ................................... 6.910 06/15/05 1,098,656 155 Manor Care, Inc. ............................ 8.000 03/01/08 164,300
See Notes to Financial Statements 14 YOUR TRUST'S INVESTMENTS December 31, 2002
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE HEALTHCARE (CONTINUED) $ 450 Omnicare, Inc. .............................. 8.125% 03/15/11 $ 483,750 635 Tenet Healthcare Corp. ...................... 6.500 06/01/12 575,846 ------------ 4,564,802 ------------ HOUSING 11.5% 545 CB Richard Ellis Service, Inc. .............. 11.250 06/15/11 504,125 775 Louisiana Pacific Corp. ..................... 10.875 11/15/08 837,000 110 Nortek Holdings, Inc. ....................... 9.250 03/15/07 113,575 550 Schuler Homes, Inc. ......................... 9.375 07/15/09 563,750 420 Tech Olympic USA, Inc. ...................... 9.000 07/01/10 409,500 360 Tech Olympic USA, Inc., 144A--Private Placement (b)................................ 10.375 07/01/12 342,000 1,100 Toll Corp. .................................. 8.250 02/01/11 1,111,000 825 Webb (Del E.) Corp. ......................... 10.250 02/15/10 903,375 ------------ 4,784,325 ------------ INFORMATION TECHNOLOGY 3.2% 425 Fairchild Semiconductor Corp. ............... 10.500 02/01/09 461,125 850 Flextronics International Ltd. (Singapore)... 8.750 10/15/07 877,625 ------------ 1,338,750 ------------ MANUFACTURING 7.0% 255 Case Corp. .................................. 6.250 12/01/03 247,416 260 Case Credit Corp. ........................... 6.125 02/15/03 258,326 740 Communications & Power Industries, Inc. ..... 12.000 08/01/05 625,300 360 Johnsondiversey, Inc., 144A--Private Placement (b)................................ 9.625 05/15/12 380,700 580 Manitowoc, Inc., 144A-- Private Placement (b)................................ 10.500 08/01/12 604,650 510 Trimas Corp., 144A--Private Placement (b).... 9.875 06/15/12 507,450 290 Tyco Intl Group S.A. (Luxembourg)............ 6.375 02/15/06 281,533 ------------ 2,905,375 ------------ METALS 3.2% 280 Doe Run Resources Corp., Ser B (a)........... 11.250 03/15/05 57,400 1,100 GS Technologies Operating, Inc. (a) (c) (d)............................. 12.250 10/01/05 49,500 370 Oregon Steel Mills, Inc., 144A--Private Placement (b)................................ 10.000 07/15/09 377,400 495 UCAR Finance, Inc. .......................... 10.250 02/15/12 396,000 1,590 WCI Steel, Inc. ............................. 10.000 12/01/04 429,300 ------------ 1,309,600 ------------ RETAIL 2.1% 210 Big 5 Corp. ................................. 10.875 11/15/07 219,450 245 Gap, Inc. ................................... 10.550 12/15/08 268,275
See Notes to Financial Statements 15 YOUR TRUST'S INVESTMENTS December 31, 2002
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE RETAIL (CONTINUED) $ 80 Penney JC Co., Inc. ......................... 7.600% 04/01/07 $ 81,400 295 Penney JC Co., Inc., 144A--Private Placement (b)................................ 9.000 08/01/12 302,375 ------------ 871,500 ------------ SERVICES 7.0% 1,345 Allied Waste North America, Inc. ............ 8.875 04/01/08 1,371,900 1,400 Waste Management, Inc. ...................... 7.125 10/01/07 1,529,791 ------------ 2,901,691 ------------ TELECOMMUNICATIONS 1.3% 165 Asia Global Crossing (Bermuda) (a) (c)....... 13.375 10/15/10 18,769 245 Exodus Communications, Inc. (a) (c) (d)...... 11.250 07/01/08 14,693 370 Focal Communications Corp. (a) (c)........... 11.875 01/15/10 9,250 850 Frontier Corp. (a) (c)....................... 6.000 10/15/03 46,750 950 Global Crossing Holdings Ltd. (Bermuda) (a) (c)............................ 9.125 11/15/06 33,250 100 Globix Corp., 144A--Private Placement (b) (f)............................ 11.000 05/01/08 72,737 1,160 Metromedia Fiber Network, Inc. (a) (c) (d)... 10.000 12/15/09 2,900 570 Nextlink Communications, Inc. (a) (c)........ 9.625 10/01/07 3,563 600 Nextlink Communications, Inc. (a) (c)........ 10.500 12/01/09 3,750 630 PSINet, Inc. (a) (c)......................... 10.500 12/01/06 22,050 1,255 WorldCom, Inc. (a) (c)....................... 7.750 04/01/07 301,200 ------------ 528,912 ------------ TRANSPORTATION 12.7% 1,520 Aetna Industries, Inc. (a) (c) (d)........... 11.875 10/01/06 243,200 400 Autonation, Inc. ............................ 9.000 08/01/08 406,000 185 Collins & Aikman Products Co. ............... 11.500 04/15/06 156,325 605 Collins & Aikman Products Co. ............... 10.750 12/31/11 579,288 615 Dana Corp. .................................. 9.000 08/15/11 596,550 460 Dura Operating Corp. ........................ 8.625 04/15/12 464,600 940 Ford Motor Credit Co. ....................... 6.500 01/25/07 929,270 455 General Motors Acceptance Corp. ............. 7.500 07/15/05 479,429 505 Intermet Corp. .............................. 9.750 06/15/09 457,025 575 Lear Corp. .................................. 8.110 05/15/09 610,938 425 Metaldyne Corp. ............................. 11.000 06/15/12 350,625 ------------ 5,273,250 ------------ UTILITY 4.1% 570 Calpine Corp. ............................... 8.625 08/15/10 245,100 10 Calpine Corp. ............................... 8.500 02/15/11 4,400 535 Dynegy Holdings, Inc. ....................... 6.875 04/01/11 184,575 455 Monongahela Power Co. ....................... 5.000 10/01/06 439,698
See Notes to Financial Statements 16 YOUR TRUST'S INVESTMENTS December 31, 2002
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE UTILITY (CONTINUED) $ 635 PSEG Energy Holdings, Inc. .................. 9.125% 02/10/04 $ 628,846 220 PSEG Energy Holdings, Inc. .................. 8.625 02/15/08 183,915 ------------ 1,686,534 ------------ WIRELESS COMMUNICATIONS 3.0% 285 American Cellular Corp. ..................... 9.500 10/15/09 55,575 1,105 Nextel Communications, Inc. ................. 9.375 11/15/09 1,005,550 182 Telecorp PCS, Inc. .......................... 10.625 07/15/10 196,560 ------------ 1,257,685 ------------ TOTAL CORPORATE BONDS 174.7%............................................... 72,496,286 ------------ GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 3.5% 545 Federal Republic of Brazil (Brazil).......... 11.250 07/26/07 418,287 140 United Mexican States (Mexico)............... 8.375 01/14/11 158,550 750 United Mexican States (Mexico)............... 8.625 03/12/08 863,625 ------------ TOTAL GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS.......................... 1,440,462 ------------ DESCRIPTION EQUITIES 0.7% DecisionOne Corp. (3,033 common shares) (d) (e)............................. 0 DecisionOne Corp. (6,670 common stock warrants) (d) (e)..................... 0 Globix Corp. (11,697 common shares) (e)..................................... 23,394 HCI Direct, Inc. (30,357 common shares) (d) (e)............................. 236,784 Hosiery Corp of America, Inc. (500 common shares) (e)....................... 5 McLeodUSA, Inc. (1,437 common stock warrants) (e)........................... 503 McLeodUSA, Inc. (648 preferred shares) (e).................................. 2,657 Pioneer Cos., Inc. (3,251 common shares) (e)................................ 5,852 Star Gas Partners L.P. (264 limited partnership units)...................... 4,884 VS Holdings, Inc. (11,316 common shares) (d) (e)............................ 2,113 ------------ TOTAL EQUITIES.............................................................. 276,192 ------------ TOTAL LONG-TERM INVESTMENTS 178.9% (Cost $88,415,172)........................................................ 74,212,940 ------------ REPURCHASE AGREEMENT 8.3% State Street Bank & Trust Co. ($3,456,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 12/31/02, to be sold on 01/02/03 at $3,456,202) (Cost $3,456,000).............................. 3,456,000 ------------
See Notes to Financial Statements 17 YOUR TRUST'S INVESTMENTS December 31, 2002
MARKET DESCRIPTION VALUE TOTAL INVESTMENTS $187.2% (Cost $91,871,172)..................................................... $ 77,668,940 OTHER ASSETS IN EXCESS OF LIABILITIES 3.5%.............................. 1,446,507 PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (90.7%).............. (37,630,267) ------------ NET ASSETS APPLICABLE TO COMMON SHARES 100.0%........................... $ 41,485,180 ============
(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) Market value is determined in accordance with procedures established in good faith by the Board of Trustees. (e) Non-income producing security. (f) Payment-in-kind security. See Notes to Financial Statements 18 FINANCIAL STATEMENTS Statement of Assets and Liabilities December 31, 2002 ASSETS: Total Investments (Cost $91,871,172)........................ $ 77,668,940 Cash........................................................ 446 Interest Receivable......................................... 1,702,089 Other....................................................... 772 ------------ Total Assets............................................ 79,372,247 ------------ LIABILITIES: Payables: Investment Advisory Fee................................... 46,956 Affiliates................................................ 5,449 Trustees' Deferred Compensation and Retirement Plans........ 136,398 Accrued Expenses............................................ 67,997 ------------ Total Liabilities....................................... 256,800 Preferred Shares (including accrued distributions).......... 37,630,267 ------------ NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 41,485,180 ============ NET ASSET VALUE PER COMMON SHARE ($41,485,180 divided by 13,710,760 shares outstanding)............................ $ 3.03 ============ 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............................................. 85,174,600 Accumulated Undistributed Net Investment Income............. (1,274,014) Net Unrealized Depreciation................................. (14,202,232) Accumulated Net Realized Loss............................... (28,350,282) ------------ NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 41,485,180 ============ PREFERRED SHARES ($.01 par value, authorized 1,000,000 shares, 376 issued with liquidation preference of $100,000 per share)................................................ $ 37,600,000 ------------ NET ASSETS INCLUDING PREFERRED SHARES....................... $ 79,085,180 ============
See Notes to Financial Statements 19 Statement of Operations For the Year Ended December 31, 2002 INVESTMENT INCOME: Interest.................................................... $ 7,420,274 Dividends................................................... 607 Other....................................................... 44,279 ------------ Total Income............................................ 7,465,160 ------------ EXPENSES: Investment Advisory Fee..................................... 606,008 Preferred Share Maintenance................................. 123,935 Legal....................................................... 36,577 Custody..................................................... 15,276 Trustees' Fees and Related Expenses......................... 8,438 Other....................................................... 179,626 ------------ Total Expenses.......................................... 969,860 ------------ NET INVESTMENT INCOME....................................... $ 6,495,300 ============ REALIZED AND UNREALIZED GAIN/LOSS: Net Realized Loss........................................... $(11,284,395) ------------ Unrealized Appreciation/Depreciation: Beginning of the Period................................... (15,949,872) End of the Period......................................... (14,202,232) ------------ Net Unrealized Appreciation During the Period............... 1,747,640 ------------ NET REALIZED AND UNREALIZED LOSS............................ $ (9,536,755) ============ DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (754,350) ============ NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM OPERATIONS................................................ $ (3,795,805) ============
See Notes to Financial Statements 20 Statements of Changes in Net Assets
YEAR ENDED YEAR ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 -------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income............................ $ 6,495,300 $ 9,683,102 Net Realized Loss................................ (11,284,395) (8,072,306) Net Unrealized Appreciation During the Period.... 1,747,640 2,051,508 Distributions to Preferred Shareholders: Net Investment Income.......................... (754,350) (2,004,147) ------------ ----------- Change in Net Assets Applicable to Common Shares from Operations................................ (3,795,805) 1,658,157 Distributions to Common Shareholders: Net Investment Income.......................... (6,306,907) (7,732,621) Return of Capital Distribution................. (198,341) -0- ------------ ----------- NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM INVESTMENT ACTIVITIES.............. (10,301,053) (6,074,464) NET ASSETS APPLICABLE TO COMMON SHARES: Beginning of the Period.......................... 51,786,233 57,860,697 ------------ ----------- End of the Period (Including accumulated undistributed net investment income of ($1,274,014) and ($1,386,700), respectively)... $ 41,485,180 $51,786,233 ============ ===========
See Notes to Financial Statements 21 Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
-------------------------------- 2002 2001 (c) 2000 -------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD............ $ 3.78 $ 4.22 $ 5.10 -------- -------- -------- Net Investment Income............................. .47 .71 .85 Net Realized and Unrealized Gain/Loss............. (.69) (.44) (.85) Common Share Equivalent of Distributions Paid to Preferred Shareholders: Net Investment Income........................... (.06) (.15) (.26) -------- -------- -------- Total from Investment Operations.................... (.28) .12 (.26) Distributions Paid to Common Shareholders: Net Investment Income............................. (.46) (.56) (.61) Return of Capital Distributions................... (.01) -0- (.01) -------- -------- -------- NET ASSET VALUE, END OF THE PERIOD.................. $ 3.03 $ 3.78 $ 4.22 ======== ======== ======== Common Share Market Price Per Share at End of the Period............................................ $ 3.10 $ 4.54 $ 4.125 Total Return (a).................................... -22.99% 23.76% 4.08% Net Assets Applicable to Common Shares at End of the Period (In millions).............................. $ 41.5 $ 51.8 $ 57.9 Ratio of Expenses to Average Net Assets Applicable to Common Shares (b).............................. 2.15% 1.98% 1.95% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (b)................... 14.42% 16.80% 18.05% Portfolio Turnover.................................. 82% 64% 62% SUPPLEMENTAL RATIOS: Ratio of Expenses to Average Net Assets Including Preferred Shares (b).............................. 1.12% 1.07% 1.04% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (d)................... 12.75% 13.32% 12.48% SENIOR SECURITIES: Total Preferred Shares Outstanding.................. 376 450 500 Asset Coverage Per Preferred Share (e).............. $210,413 $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
(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 - ------------------------------------------------------------------------------ $ 5.86 $ 6.47 $ 6.35 $ 6.19 $ 5.62 $ 6.74 $ 6.23 -------- -------- -------- -------- -------- -------- -------- .88 .91 .93 .94 .98 1.00 1.11 (.75) (.58) .13 .15 .54 (.98) .53 (.22) (.24) (.24) (.23) (.25) (.19) (.14) -------- -------- -------- -------- -------- -------- -------- (.09) .09 .82 .86 1.27 (.17) 1.50 (.67) (.70) (.70) (.70) (.70) (.95) (.99) -0- -0- -0- -0- -0- -0- -0- -------- -------- -------- -------- -------- -------- -------- $ 5.10 $ 5.86 $ 6.47 $ 6.35 $ 6.19 $ 5.62 $ 6.74 ======== ======== ======== ======== ======== ======== ======== $ 4.50 $ 6.375 $ 7.375 $ 6.75 $ 6.375 $ 5.50 $ 8.125 -21.20% -4.33% 20.29% 17.34% 29.17% -23.22% 26.12% $ 70.0 $ 80.4 $ 88.7 $ 87.0 $ 84.8 $ 77.1 $ 92.3 1.92% 1.85% 1.76% 1.87% 1.92% 1.96% 1.72% 16.13% 14.56% 14.60% 15.32% 16.39% 16.33% 16.75% 57% 65% 102% 92% 119% 110% 99% 1.07% 1.09% 1.05% 1.11% 1.12% 1.16% 1.04% 12.09% 10.77% 10.90% 11.58% 12.16% 13.31% 14.66% 588 588 588 588 588 588 588 $219,005 $236,742 $250,850 $247,974 $244,242 $231,106 $257,054 $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 December 31, 2002 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 December 31, 2002 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, 2002, the Trust had an accumulated capital loss carry forward for tax purposes of $26,230,148 which expires between December 31, 2003 and December 31, 2010. Of this amount, $1,028,010 will expire on December 31, 2003. At December 31, 2002, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $ 92,297,850 ============ Gross tax unrealized appreciation........................... $ 2,258,813 Gross tax unrealized depreciation........................... (16,887,723) ------------ Net tax unrealized depreciation on investments.............. $(14,628,910) ============
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. The tax character of distributions paid during the years ended December 31, 2002 and 2001 was as follows:
2002 2001 Distributions paid from: Ordinary income........................................... $7,081,715 $9,858,889 Return of capital......................................... 198,341 -- ---------- ---------- $7,280,056 $9,858,889
Due to inherent differences in the recognition of income, expenses and realized gain/losses under accounting principles generally accepted in the United States of America and federal income tax purposes, permanent differences between 25 NOTES TO FINANCIAL STATEMENTS December 31, 2002 book and tax basis reporting for the 2002 fiscal year have been identified and appropriately reclassified. Permanent differences of $695,393 relating to book to tax amortization differences were reclassified from accumulated undistributed net investment income to accumulated net realized loss, $16,750 relating to fee income received from tender offers were reclassified from accumulated undistributed net investment income to accumulated net realized loss, $198,341 relating to return of capital distributions were reclassified from accumulated undistributed net investment income to capital, and $1,670,578 relating to a portion of the capital loss carryforward that expired during the tax year ended December 31, 2002 were reclassified from accumulated net realized loss to capital. 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 many not be recognized for tax purposes until the first day of the following fiscal year. F. RECLASSIFICATIONS 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 "Net decrease in net assets applicable to common shares from operations" on the Statement of Operations and the Statements of Changes in Net Assets and as a component of 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, 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, 2002, the Trust recognized expenses of approximately $21,700 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, 2002, the Trust recognized expenses of approximately $28,700 representing Van Kampen 26 NOTES TO FINANCIAL STATEMENTS December 31, 2002 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 $65,622,055 and $68,986,589, respectively. 4. AUCTION MARKET PREFERRED SHARES The Trust has outstanding 376 shares of 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, 2002 was 1.380%. During the year ended December 31, 2002, the rates ranged from 1.350% 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 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, 2002, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three 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, 2002, by correspondence with the Trust's custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Van Kampen High Income Trust as of December 31, 2002, 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 7, 2003 28 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 29 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 30 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. 31 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 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 or their affiliates. 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 (57) 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 (57) Mr. Arch is a member of Blistex Inc. the Board of Directors of 1800 Swift Drive the Heartland Alliance, a Oak Brook, IL 60523 non-profit organization serving human needs based in Chicago.
32
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 (62) 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 (62) 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, Therasence, 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.
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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 (67) 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 (72) 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 (67) 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, operations, the Marrow Foundation and Lake Forest Bank & Trust. Theodore A. Myers (72) 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.
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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 (62) 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 Service 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 (62) Mr. Sonnenschein is a 1126 E. 59th Street Director of Winston Chicago, IL 60637 Laboratories, Inc.
35 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 INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE Richard F. Powers, III* Chairman Trustee Mr. Powers is Chairman of the Board. Trustee/ 92 (57) since 1999 Director of funds in the Fund Complex. Prior 1 Parkview Plaza to December 2002, Mr. Powers was Chairman, Oakbrook Terrace, IL Director, President, Chief Executive Officer 60181 and Managing Director of Van Kampen; Chairman, Director, Chief Executive Officer and Managing Director of the 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 Asset Management Inc. Prior to May 1998, Mr. Powers was Executive Vice President; and Director of Marketing of Morgan Stanley 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* (63) Trustee Trustee Mr. Whalen is a Partner in the law firm of 92 333 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 INTERESTED TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (57) 1 Parkview Plaza Oakbrook Terrace, IL 60181 Wayne W. Whalen* (63) 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 current or former positions with Morgan Stanley or its affiliates. 36 OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS Stephen L. Boyd (62) Vice President Officer Managing Director and Chief Investment Officer of Van Kampen 2800 Post Oak Blvd. since 1998 Investments, and Managing Director and President of the 45th Floor Advisers and Van Kampen Advisors Inc. Executive Vice Houston, TX 77056 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.
37
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS Mitchell M. Merin (49) President and Officer President and Chief Executive Officer of funds in the Fund 1221 Avenue of the Americas Chief Executive since 2002 Complex since November 2002. Trustee/Director of certain New York, NY 10020 Officer funds in the Fund Complex since 1999. President and Chief Operating Officer of Morgan Stanley Investment Management since December 1998. President and Director since April 1997 and Chief Executive Officer since June 1998 of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Chairman, Chief Executive Officer and Director of Morgan Stanley Distributors Inc. since June 1998. Chairman since June 1998, and Director since January 1998 of Morgan Stanley Trust. Director of various Morgan Stanley subsidiaries. President of the Morgan Stanley Funds since May 1999. Previously Chief Strategic Officer of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. and Executive Vice President of Morgan Stanley Distributors Inc. April 1997-June 1998, Vice President of the Morgan Stanley Funds May 1997-April 1999, and Executive Vice President of Dean Witter, Discover & Co. prior to May 1997. Joseph J. McAlinden (60) Chief Investment Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas Officer since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Management Inc. and Morgan Stanley Investments LP; and Director of Morgan Stanley Trust for five years.
38
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS A. Thomas Smith III (46) Vice President and Officer Managing Director and Director of Van Kampen Investments, 1221 Avenue of Americas Secretary since 1999 Director of the Advisers, Van Kampen Advisors Inc., the New York, NY 10020 Distributor, Investor Services and certain other 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. John R. Reynoldson (49) 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 (47) 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. Head of Treasurer Fund Accounting for Morgan Stanley Investment Management.
39
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS John H. Zimmermann, III (45) 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.
40 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)2003 Van Kampen Funds Inc. All rights reserved. 920, 911, 104 Member NASD/SIPC. VIT ANR 2/03 9490B03-AS-2/03 -----END PRIVACY-ENHANCED MESSAGE-----