N-CSRS 1 c96530nvcsrs.txt FORM N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-5707 Van Kampen High Income Trust -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Ronald Robison 1221 Avenue of the Americas, New York, New York 10020 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: 12/31 Date of reporting period: 6/30/05 Item 1. Report to Shareholders. The Trust's semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen High Income Trust performed during the semi-annual period. The portfolio management team will provide an overview of the market conditions and discuss some of the factors that affected investment performance during the reporting period. In addition, this report includes the trust's financial statements and a list of trust investments as of June 30, 2005. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS INVESTMENT OBJECTIVE. TRUSTS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE TRUST WILL DECLINE AND THAT THE VALUE OF THE TRUST SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS TRUST.
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 6/30/05
HIGH INCOME TRUST SYMBOL VIT ------------------------------------------------------------ AVERAGE ANNUAL BASED ON BASED ON TOTAL RETURNS NAV MARKET Since Inception (1/26/89) 5.57% 5.89% 10-year 5.47 5.06 5-year 5.11 5.06 1-year 11.75 10.15 6-month -0.55 -3.47 ------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, NET ASSET VALUE (NAV) AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND TRUST SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. NAV per share is determined by dividing the value of the trust's portfolio securities, cash and other assets, less all liabilities, by the total number of common shares outstanding. The common share market price is 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. Total return assumes an investment at the beginning of the period, reinvestment of all distributions for the period in accordance with the trust's dividend reinvestment plan, and sale of all shares at the end of the period. The J.P. Morgan Global High Yield Index is generally representative of high-yield securities. The index does not include any expenses, fees or sales charges, which would lower performance. The index is unmanaged and should not be considered an investment. It is not possible to invest directly in an index. 1 Trust Report FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2005 Van Kampen High Income Trust is managed by the Adviser's High Yield team.(1) Current team members include Sheila Finnerty, Managing Director of the Adviser, Gordon Loery, Executive Director of the Adviser and Josh Givelber, Vice President of the Adviser. MARKET CONDITIONS After performing at an extremely brisk clip in 2003 and 2004, the high yield market generated more muted gains for the six-month period ending June 30, 2005. Despite good economic growth, strong underlying company fundamentals, reasonable corporate earnings, low default rates and improving credit qualities, the market encountered considerable volatility. In January, heavy new issuance created a less favorable supply-and-demand relationship, and gave investors pause. Of greater consequence, however, was General Motors' mid-March announcement of production cuts and poor earnings for the next quarter. The realization that such a bellwether company was struggling so significantly exacerbated the woes of the auto industry and cast a grim shadow across the market overall. Moreover, high yield markets were unsettled by the prospect that General Motors could move from the high grade to the high yield universe. Such a move, it was feared, could trigger a sell-off of other high yield bonds, as investors moved to purchase General Motors debt. Against this backdrop, the market declined through mid-April. The reporting period finished on a brighter note, however. The market became more comfortable with the inclusion of General Motors and Ford Motor in the high yield arena, while new issuance slowed. Investors returned their attention to company fundamentals and favorable economic and corporate data. Overall, the higher rated segment of the high yield universe outperformed issues rated CCC and lower. From an industry perspective, wireless communications, telecommunications and food/tobacco generally fared the best, while transportation, aerospace and forest products tended to lag most significantly. (1)Team members may change without notice from time to time. 2 PERFORMANCE ANALYSIS The trust's return can be calculated based upon either the market price or the net asset value (NAV) of its shares. NAV per share is determined by dividing the value of the trust's portfolio securities, cash and other assets, less all liabilities, by the total number of common shares outstanding, while market price reflects the supply and demand for the shares. As a result, the two returns can differ, as they did during the reporting period. On an NAV basis, the trust underperformed its benchmark index, the JP Morgan Global High Yield Index. On a market price basis, the trust underperformed its benchmark. (See table below.) TOTAL RETURNS FOR THE 6-MONTH PERIOD ENDED JUNE 30, 2005
------------------------------------------------------------------- JP MORGAN GLOBAL BASED ON NAV BASED ON MARKET PRICE HIGH YIELD INDEX -0.55% -3.47% 1.13% -------------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. INVESTMENT RETURN, NET ASSET VALUE AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND TRUST SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. SEE PERFORMANCE SUMMARY FOR ADDITIONAL PERFORMANCE INFORMATION AND INDEX DEFINITION. During the period, the transportation sector declined in response to the travails of the auto industry and the trust benefited from underweighted exposure relative to the index benchmark. Moreover, among the transportation securities the trust did hold, our investment discipline had led us to de-emphasize auto and auto related companies; this positioning proved advantageous as these securities were penalized by the market. Security selection within the wireless communications sector also enhanced performance. The sector performed well overall, and several of the trust's positions were particularly rewarded for their strong fundamentals. Consumer product issues contributed gains, propelled by company-specific results and improvements in fundamentals. In contrast, positions in forest products, housing and manufacturing securities slowed the trust's pace. Within housing, exposure to highly leveraged building product companies hindered performance as investors worried about a potential decline in home construction. Forest and manufacturing securities detracted from overall returns due to company-specific reasons. At the close of the reporting period, chemicals, energy, food and gaming/leisure represented the largest overweightings in the trust relative to the JP Morgan Global High Yield Index. Technology, telecommunications, utilities, broadcasting and aerospace were the most significantly underweighted exposures. We note, however, that the overall sector weightings of the trust are the result of our conviction in individual securities, not a reflection of a sector-driven strategy. The overall credit quality of the portfolio was B+ at the close of the period, slightly higher than that of the benchmark. There is no guarantee the security sectors mentioned will continue to perform well or be held by the trust in the future. 3
RATINGS ALLOCATION AS OF 6/30/05 BBB/Baa 2.7% BB/Ba 45.5 B/B 46.4 CCC/Caa 5.2 Non-rated 0.2 SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 6/30/05 Energy 10.3% Gaming & Leisure 8.3 Chemicals 7.5 Utility 7.0 Forest Products 6.7 Healthcare 6.1 Diversified Media 5.4 Cable 5.1 Food & Tobacco 4.8 Transportation 4.4 Housing 4.0 Telecommunications 3.8 Services 3.3 Consumer Products 2.9 Food & Drug 2.7 Wireless Communications 2.7 Manufacturing 2.5 Metals 2.5 Information Technology 2.1 Retail 1.8 Financial 0.9 Aerospace 0.8 Apparel, Accessories & Luxury Goods 0.5 Broadcasting 0.4 ----- Total Long-Term Investments 96.5% Short-Term Investments 3.5 ----- Total Investments 100.0%
Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned or securities in the sectors shown above. Ratings allocation percentages are as a percentage of long-term investments. Summary of investments by industry classification percentages are as a percentage of total investments. Securities are classified by sectors that represent broad groupings of related industries. Ratings allocation based upon ratings as issued by Standard and Poor's and Moody's, respectively. Van Kampen is a wholly owned subsidiary of a global securities firm which is engaged in a wide range of financial services including, for example, securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. 4 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS Each Van Kampen trust provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the trust's second and fourth fiscal quarters by filing the schedule electronically with the Securities and Exchange Commission (SEC). The semiannual reports are filed on Form N-CSRS and the annual reports are filed on Form N-CSR. Van Kampen also delivers the semiannual and annual reports to trust shareholders, and makes these reports available on its public Web site, www.vankampen.com. In addition to the semiannual and annual reports that Van Kampen delivers to shareholders and makes available through the Van Kampen public Web site, each trust files a complete schedule of portfolio holdings with the SEC for the trust's first and third fiscal quarters on Form N-Q. Van Kampen does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Van Kampen public Web site. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's Web site, http://www.sec.gov. You may also review and copy them at the SEC's Public Reference Room in Washington, DC. Information on the operation of the SEC's Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by writing the Public Reference section of the SEC, Washington, DC 20549-0102. You may obtain copies of a trust's fiscal quarter filings by contacting Van Kampen Client Relations at 1-800-847-2424. 5 PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD You may obtain a copy of the trust's Proxy Voting Policy and Procedures without charge, upon request, by calling toll free 800-847-2424 or by visiting our Web site at www.vankampen.com. It is also available on the Securities and Exchange Commission's Web site at http://www.sec.gov. You may obtain information regarding how the trust voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 by visiting our Web site at www.vankampen.com. This information is also available on the Securities and Exchange Commission's Web site at http://www.sec.gov. 6 Investment Advisory Agreement Approval Both the Investment Company Act of 1940 and the terms of the Fund's investment advisory agreement require that the investment advisory agreement between the Fund and its investment adviser be approved annually both by a majority of the Board of Trustees and by a majority of the independent trustees voting separately. On May 25, 2005, the Board of Trustees, and the independent trustees voting separately, determined that the terms of the investment advisory agreement are fair and reasonable and approved the continuance of the investment advisory contract as being in the best interests of the Fund and its shareholders. In making its determination, the Board of Trustees considered materials that were specifically prepared by the investment adviser at the request of the Board and Fund counsel, and by an independent provider of investment company data contracted to assist the Board, relating to the contract review process. The Board also considered information received periodically about the portfolio, performance, the investment strategy, portfolio management team and fees and expenses of the Fund. Finally, the Board considered materials it had received in approving a reorganization of the Fund. The Board of Trustees considered the contract over a period of several months and the non-management trustees held sessions both with the investment adviser and separate from the investment adviser in reviewing and considering the contract. In approving the investment advisory agreement, the Board of Trustees considered, among other things, the nature, extent and quality of the services provided by the investment adviser, the performance, fees and expenses of the Fund compared to other similar funds and other products, the investment adviser's expenses in providing the services and the profitability of the investment adviser and its affiliated companies. The Board of Trustees considered the extent to which any economies of scale experienced by the investment adviser are shared with the Fund's shareholders, and the propriety of breakpoints in the Fund's investment advisory fee schedule. The Board of Trustees considered comparative advisory fees of the Fund and other investment companies and/or other products at different asset levels, and considered the trends in the industry. The Board of Trustees evaluated other benefits the investment adviser and its affiliates derive from their relationship with the Fund. The Board of Trustees reviewed information about the foregoing factors and considered changes, if any, in such information since its previous approval. The Board of Trustees discussed the financial strength of the investment adviser and its affiliated companies and the capability of the personnel of the investment adviser, and specifically the strength and background of its portfolio management personnel. The Board of Trustees reviewed the statutory and regulatory requirements for approval and disclosure of investment advisory agreements. The Board of Trustees, including the independent trustees, evaluated all of the foregoing and does not believe any single factor or group of factors control or dominate the review process, and, after considering all factors 7 together, has determined, in the exercise of its business judgment, that approval of the investment advisory agreement is in the best interests of the Fund and its shareholders. The following summary provides more detail on certain matters considered but does not detail all matters considered. Nature, Extent and Quality of the Services Provided. On a regular basis, the Board of Trustees considers the roles and responsibilities of the investment adviser as a whole and for those specific portfolio management, support and trading functions servicing the Fund. The trustees discuss with investment adviser the resources available and used in managing the Fund. The trustees also discuss certain other services which are provided on a cost-reimbursement basis by the investment adviser or its affiliates to the Van Kampen funds including certain accounting, administrative and legal services. The Board has determined that the nature, extent and quality of the services provided by the investment adviser support its decision to approve the investment advisory contract. Performance, Fees and Expenses of the Fund. On a regular basis, the Board of Trustees reviews the performance, fees and expenses of the Fund compared to its peers and to appropriate benchmarks. In addition, a performance committee of the Board spends more focused time on the performance of the Fund and other funds in the Van Kampen complex, paying specific attention to underperforming funds. The trustees discuss with the investment adviser the performance goals and the actual results achieved in managing the Fund. When considering a fund's performance, the trustees and the investment adviser place emphasis on trends and longer-term returns (focusing on one-year, three-year and five-year performance with special attention to three-year performance) and, when a fund's weighted performance is under the fund's benchmark, they discuss the causes and where necessary seek to make specific changes to investment strategy or investment personnel. The Fund discloses more information about its performance elsewhere in this report and in the Fund's prospectus. The trustees discuss with the investment adviser the level of advisory fees for this Fund relative to comparable funds and other products advised by the adviser and others in the marketplace. The trustees review not only the advisory fees but other fees and expenses (whether paid to the adviser, its affiliates or others) and the Fund's overall expense ratio. The Board has determined that the performance, fees and expenses of the Fund support its decision to approve the investment advisory contract. Investment Adviser's Expenses in Providing the Service and Profitability. At least annually, the trustees review the investment adviser's expenses in providing services to the Fund and other funds advised by the investment adviser and the profitability of the investment adviser. These profitability reports are put together by the investment adviser with the oversight of a special ad hoc committee of the Board. The trustees discuss with the investment adviser its revenues and expenses, including among other things, revenues for advisory services, portfolio management-related expenses, revenue sharing arrangement 8 costs and allocated expenses both on an aggregate basis and per fund. The Board has determined that the analysis of the investment adviser's expenses and profitability support its decision to approve the investment advisory contract. Economies of Scale. On a regular basis, the Board of Trustees considers the size of the Fund and how that relates to the Fund's expense ratio and particularly the Fund's advisory fee rate. In conjunction with its review of the investment adviser's profitability, the trustees discuss with the investment adviser how more (or less) assets can affect the efficiency or effectiveness of managing the Fund's portfolio and whether the advisory fee level is appropriate relative to current asset levels and/or whether the advisory fee structure reflects economies of scale as asset levels change. The Board has determined that its review of the actual and potential economies of scale of the Fund support its decision to approve the investment advisory contract. Other Benefits of the Relationship. On a regular basis, the Board of Trustees considers other benefits to the investment adviser and it affiliates derived from its relationship with the Fund and other funds advised by the investment adviser. These benefits include, among other things, fees for transfer agency services provided to the funds, in certain cases research received by the adviser generated from commission dollars spent on funds' portfolio trading, and in certain cases distribution or service related fees related to funds' sales. The trustees review with the investment adviser each of these arrangements and the reasonableness of its costs relative to the services performed. The Board has determined that the other benefits received by the investment adviser or its affiliates support its decision to approve the investment advisory contract. 9 VAN KAMPEN HIGH INCOME TRUST PORTFOLIO OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED)
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE -------------------------------------------------------------------------------------------- CORPORATE BONDS 163.9% AEROSPACE 1.4% $ 675 K & F Acquisition, Inc. ...................... 7.750% 11/15/14 $ 693,562 ------------ BROADCASTING 0.6% 295 Salem Communications Corp. ................... 7.750 12/15/10 308,275 ------------ CABLE 8.7% 575 Cablevision Systems Corp. (a)................. 7.890 04/01/09 579,312 855 Echostar DBS Corp. ........................... 6.375 10/01/11 851,794 1,260 Intelsat Bermuda Ltd., 144A-Private Placement (Bermuda) (a) (b)............................. 7.805 01/15/12 1,288,350 45 Intelsat Bermuda Ltd., 144A-Private Placement (Bermuda) (b)................................. 8.250 01/15/13 46,687 975 Kabel Deutschland GmbH, 144A-Private Placement (Germany) (b)................................. 10.625 07/01/14 1,062,750 400 PanAmSat Corp. ............................... 9.000 08/15/14 438,500 ------------ 4,267,393 ------------ CHEMICALS 12.7% 610 Equistar Chemicals LP......................... 10.125 09/01/08 663,375 350 Equistar Chemicals LP......................... 10.625 05/01/11 388,062 190 Huntsman Advanced Materials LLC............... 11.000 07/15/10 215,650 425 Innophos, Inc.,144A-Private Placement (b)..... 8.875 08/15/14 435,625 190 ISP Chemco, Inc. ............................. 10.250 07/01/11 208,050 900 ISP Holdings, Inc. ........................... 10.625 12/15/09 972,000 145 Koppers, Inc. ................................ 9.875 10/15/13 157,325 780 Lyondell Chemical Co. ........................ 10.500 06/01/13 896,025 55 Millennium America, Inc. ..................... 7.000 11/15/06 56,512 520 Millennium America, Inc. ..................... 9.250 06/15/08 565,500 535 Nalco Co. .................................... 7.750 11/15/11 572,450 495 Rhodia SA (France)............................ 8.875 06/01/11 478,912 600 Rockwood Specialties Group, Inc. ............. 10.625 05/15/11 664,500 ------------ 6,273,986 ------------ CONSUMER PRODUCTS 4.9% 270 Amscan Holdings, Inc. ........................ 8.750 05/01/14 248,400 210 Oxford Industrials, Inc. ..................... 8.875 06/01/11 225,750 875 Phillips Van-Heusen Corp. .................... 7.250 02/15/11 923,125 635 Rayovac Corp. ................................ 8.500 10/01/13 666,750 190 Rayovac Corp., 144A-Private Placement (b)..... 7.375 02/01/15 184,775 158 Tempur Pedic, Inc. ........................... 10.250 08/15/10 174,590 ------------ 2,423,390 ------------ DIVERSIFIED MEDIA 9.2% 825 Advanstar Communications, Inc. (a)............ 10.768 08/15/08 885,547 425 AMC Entertainment, Inc. (a)................... 7.518 08/15/10 441,469 750 CanWest Media, Inc. (Canada).................. 10.625 05/15/11 822,187 395 Dex Media West Finance Corp. ................. 9.875 08/15/13 452,275
10 See Notes to Financial Statements VAN KAMPEN HIGH INCOME TRUST PORTFOLIO OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED) continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE -------------------------------------------------------------------------------------------- DIVERSIFIED MEDIA (CONTINUED) $ 65 Houghton Mifflin Co. ......................... 8.250% 02/01/11 $ 67,762 590 Houghton Mifflin Co. ......................... 9.875 02/01/13 632,775 135 Interpublic Group of Cos., Inc. .............. 5.400 11/15/09 129,065 200 Interpublic Group of Cos., Inc. .............. 6.250 11/15/14 187,763 860 Primedia, Inc. ............................... 8.875 05/15/11 905,150 ------------ 4,523,993 ------------ ENERGY 17.7% 455 CHC Helicopter Corp. (Canada)................. 7.375 05/01/14 456,137 395 CHC Helicopter Corp., 144A-Private Placement (Canada) (b).................................. 7.375 05/01/14 395,987 1,050 Chesapeake Energy Corp., 144A-Private Placement (b)................................. 6.625 01/15/16 1,089,375 870 CITGO Petroleum Corp. ........................ 6.000 10/15/11 872,175 190 Compagnie Generale de Geophysique, SA, 144A-Private Placement (France)(b)............ 7.500 05/15/15 199,025 860 Frontier Oil Corp. ........................... 6.625 10/01/11 890,100 90 Hanover Compressor Co. ....................... 8.625 12/15/10 95,625 385 Hanover Compressor Co. ....................... 9.000 06/01/14 411,950 375 Hanover Equipment Trust....................... 8.500 09/01/08 391,875 160 Hanover Equipment Trust....................... 8.750 09/01/11 170,800 550 Hilcorp Energy Finance Corp., 144A-Private Placement (b)................................. 10.500 09/01/10 610,500 188 Magnum Hunter Resources, Inc. ................ 9.600 03/15/12 209,620 375 Pacific Energy Partners....................... 7.125 06/15/14 392,344 850 Plains Exploration & Production Co. .......... 7.125 06/15/14 913,750 283 Port Arthur Finance Corp. .................... 12.500 01/15/09 320,842 180 Tesoro Petroleum Corp. ....................... 9.625 04/01/12 200,025 1,025 Vintage Petroleum, Inc. ...................... 7.875 05/15/11 1,086,500 ------------ 8,706,630 ------------ FINANCIAL 1.5% 680 Refco Finance Holdings LLC.................... 9.000 08/01/12 724,200 ------------ FOOD & DRUG 4.7% 690 Delhaize America, Inc. ....................... 8.125 04/15/11 777,343 150 Jean Coutu Group (PJC), Inc. (Canada)......... 7.625 08/01/12 155,625 730 Jean Coutu Group (PJC), Inc. (Canada)......... 8.500 08/01/14 724,525 1,570 Jitney-Jungle Stores America, Inc. (c) (d) (e)........................................... 12.000 03/01/06 0 635 Rite Aid Corp. ............................... 8.125 05/01/10 657,225 ------------ 2,314,718 ------------ FOOD & TOBACCO 8.2% 750 Constellation Brands, Inc. ................... 8.000 02/15/08 802,500 340 Michael Foods, Inc. .......................... 8.000 11/15/13 347,650 230 Pilgrim's Pride Corp. ........................ 9.250 11/15/13 256,450 765 Pilgrim's Pride Corp. ........................ 9.625 09/15/11 839,587 380 Smithfield Foods, Inc. ....................... 7.000 08/01/11 401,850
See Notes to Financial Statements 11 VAN KAMPEN HIGH INCOME TRUST PORTFOLIO OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED) continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE -------------------------------------------------------------------------------------------- FOOD & TOBACCO (CONTINUED) $ 220 Smithfield Foods, Inc. ....................... 7.625% 02/15/08 $ 229,900 1,050 Smithfield Foods, Inc. ....................... 8.000 10/15/09 1,139,250 ------------ 4,017,187 ------------ FOREST PRODUCTS 11.5% 510 Abitibi-Consolidated, Inc. (Canada)........... 6.000 06/20/13 471,750 330 Abitibi-Consolidated, Inc. (Canada)........... 8.550 08/01/10 345,675 965 Georgia-Pacific Corp. ........................ 8.875 02/01/10 1,100,100 775 Graphic Packaging International, Inc. ........ 9.500 08/15/13 784,687 345 MDP Acquisitions PLC (Ireland)................ 9.625 10/01/12 346,725 1,350 Owens-Brockway Glass Containers, Inc. ........ 8.875 02/15/09 1,441,125 495 Pliant Corp. ................................. 13.000 06/01/10 403,425 1,065 Tembec Industries, Inc. (Canada).............. 7.750 03/15/12 788,100 ------------ 5,681,587 ------------ GAMING & LEISURE 14.2% 425 Ceasars Entertainment......................... 8.875 09/15/08 475,469 920 Harrahs Operating Co., Inc. .................. 7.875 12/15/05 936,100 78 HMH Properties, Inc. ......................... 7.875 08/01/08 79,560 275 Host Marriott LP.............................. 7.125 11/01/13 288,062 550 Host Marriott LP, 144A-Private Placement (b)........................................... 6.375 03/15/15 547,250 625 Isle of Capri Casinos, Inc. .................. 7.000 03/01/14 631,250 150 MGM Mirage, Inc. ............................. 5.875 02/27/14 146,437 1,390 MGM Mirage, Inc. ............................. 6.000 10/01/09 1,403,900 865 Mohegan Tribal Gaming Authority............... 7.125 08/15/14 910,412 490 Park Place Entertainment Corp. ............... 7.875 12/15/05 498,575 255 Starwood Hotels & Resorts Worldwide, Inc. .... 7.875 05/01/12 288,787 665 Station Casinos, Inc. ........................ 6.000 04/01/12 678,300 100 Station Casinos, Inc., 144A-Private Placement (b)........................................... 6.875 03/01/16 103,250 ------------ 6,987,352 ------------ HEALTHCARE 10.4% 390 AmerisourceBergen Corp. ...................... 8.125 09/01/08 425,100 340 Community Health Systems, Inc. ............... 6.500 12/15/12 347,650 345 DaVita, Inc., 144A-Private Placement (b)...... 6.625 03/15/13 357,937 185 Del Laboratories, Inc. ....................... 8.000 02/01/12 160,025 1,140 Extendicare Health Services, Inc. ............ 6.875 05/01/14 1,137,150 160 Fisher Scientific International, Inc. ........ 6.750 08/15/14 168,000 215 Fisher Scientific International, Inc. 144A-Private Placement (b) (f)................ 6.125 07/01/15 216,344 56 Fresenius Medical Care Capital Trust II....... 7.875 02/01/08 586,600 235 Fresenius Medical Care Capital Trust IV....... 7.875 06/15/11 253,800 515 HCA, Inc. .................................... 6.375 01/15/15 535,656 85 National Nephrology Associates, Inc., 144A-Private Placement (b).................... 9.000 11/01/11 95,837 805 Ventas Realty LP, 144A-Private Placement (b)........................................... 6.750 06/01/10 839,253 ------------ 5,123,352 ------------
12 See Notes to Financial Statements VAN KAMPEN HIGH INCOME TRUST PORTFOLIO OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED) continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE -------------------------------------------------------------------------------------------- HOUSING 6.9% $1,240 Associated Materials, Inc. (g)................ 0/11.250% 03/01/14 $ 793,600 625 Interface, Inc. .............................. 9.500 02/01/14 640,625 260 Ply Gem Industries, Inc. ..................... 9.000 02/15/12 221,000 445 RMCC Acquisition Co., 144A-Private Placement (b)........................................... 9.500 11/01/12 427,200 340 Technical Olympic USA, Inc. .................. 7.500 01/15/15 307,700 370 Technical Olympic USA, Inc. .................. 9.000 07/01/10 382,488 290 Technical Olympic USA, Inc. .................. 9.000 07/01/10 299,788 310 Technical Olympic USA, Inc. .................. 10.375 07/01/12 325,500 ------------ 3,397,901 ------------ INFORMATION TECHNOLOGY 3.7% 445 Iron Mountain, Inc. .......................... 7.750 01/15/15 449,450 770 Iron Mountain, Inc. .......................... 8.625 04/01/13 800,800 580 Sanmina-SCI Corp., 144A-Private Placement (b)........................................... 6.750 03/01/13 556,800 ------------ 1,807,050 ------------ MANUFACTURING 4.2% 155 Flowserve Corp. .............................. 12.250 08/15/10 168,175 530 JohnsonDiversey, Inc. ........................ 9.625 05/15/12 540,600 439 Manitowoc, Inc. .............................. 10.500 08/01/12 498,265 340 Propex Fabrics, Inc. ......................... 10.000 12/01/12 324,700 650 Trimas Corp. ................................. 9.875 06/15/12 549,250 ------------ 2,080,990 ------------ METALS 4.2% 202 Doe Run Resources Corp. (Acquired 02/15/01 to 10/15/04, Cost $177,470) (h) (i).............. 13.063 11/01/08 162,803 140 Foundation PA Coal Co. ....................... 7.250 08/01/14 147,700 210 General Cable Corp. .......................... 9.500 11/15/10 225,750 690 Novelis, Inc.--144A-Private Placement (Canada) (b).................................. 7.250 02/15/15 696,038 440 UCAR Finance, Inc. ........................... 10.250 02/15/12 465,300 337 United States Steel Corp. .................... 9.750 05/15/10 365,645 ------------ 2,063,236 ------------ RETAIL 3.0% 475 Brown Shoe Co., Inc. ......................... 8.750 05/01/12 497,563 500 General Nutrition Center, Inc. ............... 8.500 12/01/10 402,500 590 Petro Stopping Center Financial............... 9.000 02/15/12 595,900 ------------ 1,495,963 ------------ SERVICES 5.7% 45 Allied Waste North America, Inc. ............. 7.875 04/15/13 46,238 550 Allied Waste North America, Inc. ............. 8.500 12/01/08 579,563 950 Allied Waste North America, Inc. ............. 8.875 04/01/08 1,002,250 510 Buhrmann US, Inc. ............................ 8.250 07/01/14 512,550 170 Buhrmann US, Inc., 144A-Private Placement (b)........................................... 7.875 03/01/15 166,600 405 MSW Energy Holdings II LLC.................... 7.375 09/01/10 417,150 85 MSW Energy Holdings LLC....................... 8.500 09/01/10 90,313 ------------ 2,814,664 ------------
See Notes to Financial Statements 13 VAN KAMPEN HIGH INCOME TRUST PORTFOLIO OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED) continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE -------------------------------------------------------------------------------------------- TELECOMMUNICATIONS 6.5% $ 760 Axtel SA (Mexico)............................. 11.000% 12/15/13 $ 832,200 280 Exodus Communications, Inc. (c) (d) (e)....... 11.250 07/01/08 0 575 Qwest Corp., 144A-Private Placement (b)....... 7.875 09/01/11 602,313 1,720 Qwest Corp., 144A-Private Placement (a) (b)... 6.671 06/15/13 1,769,450 ------------ 3,203,963 ------------ TRANSPORTATION 7.5% 245 Automotive Meritor, Inc. ..................... 6.800 02/15/09 243,775 195 Automotive Meritor, Inc. ..................... 8.750 03/01/12 204,263 450 AutoNation, Inc. ............................. 9.000 08/01/08 493,875 125 Commercial Vehicle Group, Inc., 144A-Private Placement (b) (f)............................. 8.000 07/01/13 127,656 85 General Motors Acceptance Corp. .............. 6.875 09/15/11 78,558 655 General Motors Acceptance Corp. .............. 6.875 08/28/12 600,418 0 Laidlaw International, Inc. .................. 10.750 06/15/11 0 205 Lear Corp. ................................... 8.110 05/15/09 212,152 1,065 Sonic Automotive, Inc. ....................... 8.625 08/15/13 1,080,975 605 TRW Automotive, Inc. ......................... 9.375 02/15/13 673,063 ------------ 3,714,735 ------------ UTILITY 11.9% 485 AES Corp. .................................... 7.750 03/01/14 528,650 23 AES Corp. .................................... 8.875 02/15/11 25,760 73 AES Corp. .................................... 9.375 09/15/10 83,038 350 CMS Energy Corp. ............................. 6.300 02/01/12 353,500 65 CMS Energy Corp. ............................. 7.500 01/15/09 68,738 405 CMS Energy Corp. ............................. 8.500 04/15/11 453,600 605 Dynegy Holdings, Inc. ........................ 6.875 04/01/11 600,463 345 Dynegy Holdings, Inc., 144A-Private Placement (b)........................................... 9.875 07/15/10 382,950 235 IPALCO Enterprises, Inc. ..................... 8.625 11/14/11 265,550 485 Monongahela Power Co. ........................ 5.000 10/01/06 489,071 290 Nevada Power Co. ............................. 8.250 06/01/11 328,425 318 Nevada Power Co. ............................. 9.000 08/15/13 359,340 345 PSEG Energy Holdings, LLC..................... 7.750 04/16/07 357,938 20 PSEG Energy Holdings, LLC..................... 8.625 02/15/08 21,350 530 Reliant Energy, Inc. ......................... 6.750 12/15/14 520,725 195 Southern Natural Gas Co. ..................... 8.875 03/15/10 214,876 785 TNP Enterprises, Inc. ........................ 10.250 04/01/10 828,568 ------------ 5,882,542 ------------ WIRELESS COMMUNICATIONS 4.6% 1,025 Nextel Communications, Inc. .................. 6.875 10/31/13 1,100,594 295 Rogers Wireless Communications, Inc. (Canada)...................................... 7.500 03/15/15 322,288 250 Rural Cellular Corp. (a)...................... 7.910 03/15/10 258,750 575 Rural Cellular Corp. ......................... 8.250 03/15/12 603,750 ------------ 2,285,382 ------------ TOTAL CORPORATE BONDS 163.9%................................................ 80,792,051 ------------
14 See Notes to Financial Statements VAN KAMPEN HIGH INCOME TRUST PORTFOLIO OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED) continued DESCRIPTION VALUE -------------------------------------------------------------------------------------------- EQUITIES 0.9% DecisionOne Corp. (3,033 common shares) (e) (j).............................. $ 0 DecisionOne Corp. (6,670 common stock warrants) (e) (j)...................... 0 Doe Run Resources Corp. (1 common stock warrant) (e) (j)..................... 0 HCI Direct, Inc. (30,357 common shares) (e) (j).............................. 455,355 Hosiery Corp of America, Inc. (500 common shares) (e) (j).................... 0 VS Holdings, Inc. (11,316 common shares) (e) (j)............................. 0 ------------ TOTAL EQUITIES............................................................... 455,355 ------------ TOTAL LONG-TERM INVESTMENTS 164.8% (Cost $82,580,754)......................................................... 81,247,406 REPURCHASE AGREEMENT 5.9% State Street Bank & Trust Co. ($2,927,000 par collateralized by U.S. Government obligations in a pooled cash account, interest rate of 3.25%, dated 06/30/05, to be sold on 07/01/05 at $2,927,264) (Cost $2,927,000).......................................................... 2,927,000 ------------ TOTAL INVESTMENTS 170.7% (Cost $85,507,754)......................................................... 84,174,406 OTHER ASSETS IN EXCESS OF LIABILITIES 5.6%.................................. 2,743,562 PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (76.3%).................. (37,607,206) ------------ NET ASSETS APPLICABLE TO COMMON SHARES 100.0%............................... $ 49,310,762 ============
Percentages are calculated as a percentage of net assets applicable to common shares. (a) Variable rate security. Interest rate shown is that in effect at June 30, 2005. (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) Non-income producing as security is in default. (d) This borrower has filed for protection in federal bankruptcy court. (e) Market value is determined in accordance with procedures established in good faith by the Board of Trustees. (f) Securities purchased on a when-issued or delayed delivery basis. (g) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (h) Payment-in-kind security. See Notes to Financial Statements 15 VAN KAMPEN HIGH INCOME TRUST PORTFOLIO OF INVESTMENTS -- JUNE 30, 2005 (UNAUDITED) continued (i) These securities are restricted and may be resold only in transactions exempt from registration which are normally those transactions with qualified institutional buyers. Restricted securities comprise 0.3% of net assets applicable to common shares. (j) Non-income producing security. 16 See Notes to Financial Statements VAN KAMPEN HIGH INCOME TRUST FINANCIAL STATEMENTS Statement of Assets and Liabilities June 30, 2005 (Unaudited) ASSETS: Total Investments (Cost $85,507,754)........................ $ 84,174,406 Cash........................................................ 688,240 Receivables: Interest.................................................. 1,605,882 Investments Sold.......................................... 1,392,407 Other....................................................... 1,891 ------------ Total Assets............................................ 87,862,826 ------------ LIABILITIES: Payables: Investments Purchased..................................... 573,365 Investment Advisory Fee................................... 49,861 Income Distributions--Common Shares....................... 18,479 Other Affiliates.......................................... 8,503 Trustees' Deferred Compensation and Retirement Plans........ 227,442 Accrued Expenses............................................ 67,208 ------------ Total Liabilities....................................... 944,858 Preferred Shares (including accrued distributions).......... 37,607,206 ------------ NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 49,310,762 ============ NET ASSET VALUE PER COMMON SHARE ($49,310,762 divided by 13,710,760 shares outstanding)............................ $ 3.60 ============ 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............................................. 84,024,777 Accumulated Undistributed Net Investment Income............. (195,947) Net Unrealized Depreciation................................. (1,333,348) Accumulated Net Realized Loss............................... (33,321,828) ------------ NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 49,310,762 ============ 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....................... $ 86,910,762 ============
See Notes to Financial Statements 17 VAN KAMPEN HIGH INCOME TRUST FINANCIAL STATEMENTS continued Statement of Operations For the Six Months Ended June 30, 2005 (Unaudited) INVESTMENT INCOME: Interest.................................................... $ 3,318,484 Dividends................................................... 242,856 Other....................................................... 48,537 ----------- Total Income............................................ 3,609,877 ----------- EXPENSES: Investment Advisory Fee..................................... 304,283 Preferred Share Maintenance................................. 54,601 Legal....................................................... 21,549 Trustees' Fees and Related Expenses......................... 18,923 Custody..................................................... 11,360 Other....................................................... 117,379 ----------- Total Expenses.......................................... 528,095 ----------- NET INVESTMENT INCOME....................................... $ 3,081,782 =========== REALIZED AND UNREALIZED GAIN/LOSS: Net Realized Gain........................................... $ 410,044 ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 1,842,359 End of the Period......................................... (1,333,348) ----------- Net Unrealized Depreciation During the Period............... (3,175,707) ----------- NET REALIZED AND UNREALIZED LOSS............................ $(2,765,663) =========== DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (527,427) =========== NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM OPERATIONS................................................ $ (211,308) ===========
18 See Notes to Financial Statements VAN KAMPEN HIGH INCOME TRUST FINANCIAL STATEMENTS continued Statements of Changes in Net Assets (Unaudited)
FOR THE FOR THE SIX MONTHS ENDED YEAR ENDED JUNE 30, 2005 DECEMBER 31, 2004 ------------------------------------ FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.................................. $ 3,081,782 $ 5,792,568 Net Realized Gain...................................... 410,044 1,201,689 Net Unrealized Appreciation/Depreciation During the Period............................................... (3,175,707) 552,938 Distributions to Preferred Shareholders: Net Investment Income................................ (527,427) (575,670) ----------- ----------- Change in Net Assets Applicable to Common Shares from Operations........................................... (211,308) 6,971,525 Distributions to Common Shareholders: Net Investment Income................................ (2,467,453) (4,934,906) ----------- ----------- NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM INVESTMENT ACTIVITIES........................... (2,678,761) 2,036,619 NET ASSETS APPLICABLE TO COMMON SHARES: Beginning of the Period................................ 51,989,523 49,952,904 ----------- ----------- End of the Period (Including accumulated undistributed net investment income of ($195,947) and ($282,849), respectively)........................................ 49,310,762 $51,989,523 =========== ===========
See Notes to Financial Statements 19 VAN KAMPEN HIGH INCOME TRUST 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, -------------------- 2005 2004 2003 ---------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD................ $ 3.79 $ 3.64 $ 3.03 -------- -------- -------- Net Investment Income................................. .23 .42 .41 Net Realized and Unrealized Gain/Loss................. (.20) .13 .59 Common Share Equivalent of Distributions Paid to Preferred Shareholders: Net Investment Income............................... (.04) (.04) (.03) -------- -------- -------- Total from Investment Operations........................ (.01) .51 .97 Distributions Paid to Common Shareholders: Net Investment Income............................... (.18) (.36) (.35) Return of Capital Distributions..................... -0- -0- (.01) -------- -------- -------- NET ASSET VALUE, END OF THE PERIOD...................... $ 3.60 $ 3.79 $ 3.64 ======== ======== ======== Common Share Market Price at End of the Period.......... $ 3.78 $ 4.10 $ 4.16 Total Return (a)........................................ -3.47%* 7.41% 47.66% Net Assets Applicable to Common Shares at End of the Period (In millions).................................. $ 49.3 $ 52.0 $ 50.0 Ratio of Expenses to Average Net Assets Applicable to Common Shares (b)..................................... 2.13% 1.99% 2.10% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (b)....................... 12.42% 11.61% 12.36% Portfolio Turnover...................................... 36%* 86% 73% SUPPLEMENTAL RATIOS: Ratio of Expenses to Average Net Assets Including Preferred Shares (b).................................. 1.21% 1.13% 1.16% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (d)....................... 10.29% 10.46% 11.38% SENIOR SECURITIES: Total Preferred Shares Outstanding...................... 376 376 376 Asset Coverage Per Preferred Share (e).................. $231,165 $238,423 $232,928 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. 20
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------ 2002 2001 (c) 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------------ $ 3.78 $ 4.22 $ 5.10 $ 5.86 $ 6.47 $ 6.35 $ 6.19 $ 5.62 -------- -------- -------- -------- -------- -------- -------- -------- .47 .71 .85 .88 .91 .93 .94 .98 (.69) (.44) (.85) (.75) (.58) .13 .15 .54 (.06) (.15) (.26) (.22) (.24) (.24) (.23) (.25) -------- -------- -------- -------- -------- -------- -------- -------- (.28) .12 (.26) (.09) .09 .82 .86 1.27 (.46) (.56) (.61) (.67) (.70) (.70) (.70) (.70) (.01) -0- (.01) -0- -0- -0- -0- -0- -------- -------- -------- -------- -------- -------- -------- -------- $ 3.03 $ 3.78 $ 4.22 $ 5.10 $ 5.86 $ 6.47 $ 6.35 $ 6.19 ======== ======== ======== ======== ======== ======== ======== ======== $ 3.10 $ 4.54 $ 4.125 $ 4.50 $ 6.375 $ 7.375 $ 6.75 $ 6.375 -22.99% 23.76% 4.08% -21.20% -4.33% 20.29% 17.34% 29.17% $ 41.5 $ 51.8 $ 57.9 $ 70.0 $ 80.4 $ 88.7 $ 87.0 $ 84.8 2.15% 1.98% 1.95% 1.92% 1.85% 1.76% 1.87% 1.92% 14.42% 16.80% 18.05% 16.13% 14.56% 14.60% 15.32% 16.39% 82% 64% 62% 57% 65% 102% 92% 119% 1.12% 1.07% 1.04% 1.07% 1.09% 1.05% 1.11% 1.12% 12.75% 13.32% 12.48% 12.09% 10.77% 10.90% 11.58% 12.16% 376 450 500 588 588 588 588 588 $210,413 $215,081 $215,271 $219,005 $236,742 $250,850 $247,974 $244,242 $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 21 VAN KAMPEN HIGH INCOME TRUST NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2005 (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 purchase and sell securities on a "when-issued" or "delayed delivery" basis with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. The Trust will segregate assets with the custodian having an aggregate value at least equal to the amount of the when-issued or delayed delivery purchase commitments until after payment is made. At June 30, 2005, the Trust had $573,365 when-issued and delayed delivery purchase commitments. The Trust may invest in repurchase agreements, which are short-term investments in which the Trust acquires ownership of a debt security and the seller agrees to repurchase the security at a future time and specified price. 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 Asset Management (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. 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. Other income is comprised primarily of consent fees. Consent fees are earned as compensation for agreeing to changes in the terms of debt instruments. 22 VAN KAMPEN HIGH INCOME TRUST NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2005 (UNAUDITED) continued D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements of Subchapter M 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, 2004, the Trust had an accumulated capital loss carry forward for tax purposes of $33,728,272 which will expire according to the following schedule.
AMOUNT EXPIRATION $ 2,385,010................................................. December 31, 2007 4,010,584................................................. December 31, 2008 6,489,257................................................. December 31, 2009 12,317,287................................................. December 31, 2010 7,532,784................................................. December 31, 2011 993,350.................................................. December 31, 2012
At June 30, 2005, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $85,955,242 =========== Gross tax unrealized appreciation........................... $ 2,739,165 Gross tax unrealized depreciation........................... (4,520,001) ----------- Net tax unrealized depreciation on investments.............. $(1,780,836) ===========
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 year ended December 31, 2004 was as follows: Distributions paid from: Ordinary income........................................... $5,483,866
As of December 31, 2004, the components of distributable earnings on a tax basis were a follows: Undistributed ordinary income............................... $416,226
23 VAN KAMPEN HIGH INCOME TRUST NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2005 (UNAUDITED) continued 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 six months ended June 30, 2005, the Trust recognized expenses of approximately $6,000 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, of which a trustee of the Trust is a partner of such firm and he and his law firm provide legal services as legal counsel to the Trust. Under separate Legal Services, Accounting Services and Chief Compliance Officer ("CCO") Employment agreements, the Adviser provides accounting and legal services and the CCO provides compliance services to the Fund. The costs of these services are allocated to each fund. For the six months ended June 30, 2005, the Fund recognized expenses of approximately $24,100 representing Van Kampen Investment Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Trust, as well as, the salary, benefits and related costs of the CCO and related support staff paid by Van Kampen. Services provided pursuant to the Legal Services agreement are reported as part of "Legal" expenses on the Statement of Operations. Services provided pursuant to the Accounting Services and CCO Employment agreement are reported as part of "Other" expenses on 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 also 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 $30,030,400 and $32,869,110, respectively. 4. AUCTION MARKET PREFERRED SHARES The Trust has outstanding 376 shares of Auction Market Preferred Shares ("AMPS") at a liquidation value of $100,000 per share. Dividends are cumulative and the rate is currently reset through an auction process every 28 days. The rate in effect on June 30, 2005, was 3.45%. During the six months ended June 30, 2005, the rates ranged from 2.30% to 3.45%. The Trust pays annual fees equivalent to .25% of the preferred share liquidation value for the remarketing efforts associated with the preferred auctions. These fees are included as a component of Preferred Share Maintenance expense. The AMPS are redeemable at the option of the Trust in whole or in part at a price of $100,000 per share plus accumulated and unpaid dividends. The Trust is subject to certain asset coverage tests, and the AMPS are subject to mandatory redemption if the tests are not met. 24 VAN KAMPEN HIGH INCOME TRUST NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2005 (UNAUDITED) continued 5. INDEMNIFICATIONS The Trust enters into contracts that contain a variety of indemnifications. The Trust's maximum exposure under these arrangements is unknown. However, the Trust has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 6. SUBSEQUENT EVENT On July 29, 2005, High Income Trust II (ticker symbol VLT) acquired all of the assets and liabilities of the Trust through a tax free reorganization approved by the Trust's shareholders on July 22, 2005. The shares of the Trust were converted into VLT shares at a ratio of 0.786581 to 1 and 4 to 1, for common shares and AMPS, respectively. 25 VAN KAMPEN HIGH INCOME TRUST BOARD OF TRUSTEES, OFFICERS, AND IMPORTANT ADDRESSES BOARD OF TRUSTEES DAVID C. ARCH JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY OFFICERS MITCHELL M. MERIN President and Chief Executive Officer RONALD E. ROBISON Executive Vice President and Principal Executive Officer JOSEPH J. MCALINDEN Executive Vice President and Chief Investment Officer AMY R. DOBERMAN Vice President STEFANIE V. CHANG Vice President and Secretary JOHN L. SULLIVAN Chief Compliance Officer JAMES W. GARRETT Chief Financial Officer and Treasurer INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT 1221 Avenue of the Americas New York, New York 10020 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 W. Franklin Street P.O. Box 1713 Boston, Massachusetts 02110 TRANSFER AGENT EQUISERVE TRUST COMPANY, N.A. c/o Computershare Investor Services P.O. Box 43011 Providence, Rhode Island 02940-3011 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM DELOITTE & TOUCHE LLP 111 South Wacker Drive Chicago, Illinois 60606-4301 * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940, as amended. 26 VAN KAMPEN HIGH INCOME TRUST AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY We are required by federal law to provide you with a copy of our Privacy Policy annually. The following Policy applies to current and former individual clients of Van Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange Corp., as well as current and former individual investors in Van Kampen mutual funds, unit investment trusts, and related companies. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders, nor is this Policy applicable to individuals who are either beneficiaries of a trust for which we serve as trustee or participants in an employee benefit plan administered or advised by us. This Policy is, however, applicable to individuals who select us to be a custodian of securities or assets in individual retirement accounts, 401(k) accounts, 529 Educational Savings Accounts, accounts subject to the Uniform Gifts to Minors Act, or similar accounts. Please note that we may amend this Policy at any time, and will inform you of any changes to this Policy as required by law. WE RESPECT YOUR PRIVACY We appreciate that you have provided us with your personal financial information. We strive to maintain the privacy of such information while we help you achieve your financial objectives. This Policy describes what non-public personal information we collect about you, why we collect it, and when we may share it with others. We hope this Policy will help you understand how we collect and share non-public personal information that we gather about you. Throughout this Policy, we refer to the non-public information that personally identifies you or your accounts as "personal information." 1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU? To serve you better and manage our business, it is important that we collect and maintain accurate information about you. We may obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our Web sites and from third parties and other sources. (continued on next page) VAN KAMPEN HIGH INCOME TRUST AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued For example: -- We may collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us. -- We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources. -- We may obtain information about your creditworthiness and credit history from consumer reporting agencies. -- We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements. -- If you interact with us through our public and private Web sites, we may collect information that you provide directly through online communications (such as an e-mail address). We may also collect information about your Internet service provider, your domain name, your computer's operating system and Web browser, your use of our Web sites and your product and service preferences, through the use of "cookies." "Cookies" recognize your computer each time you return to one of our sites, and help to improve our sites' content and personalize your experience on our sites by, for example, suggesting offerings that may interest you. Please consult the Terms of Use of these sites for more details on our use of cookies. 2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU? To provide you with the products and services you request, to serve you better and to manage our business, we may disclose personal information we collect about you to our affiliated companies and to non-affiliated third parties as required or permitted by law. A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose personal information that we collect about you to our affiliated companies except to enable them to provide services on our behalf or as otherwise required or permitted by law. B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide services on our behalf, to perform joint marketing agreements with (continued on back) VAN KAMPEN HIGH INCOME TRUST AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued other financial institutions, or as otherwise required or permitted by law. For example, some instances where we may disclose information about you to non-affiliated third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information with these companies, they are required to limit their use of personal information to the particular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill that limited purpose. 3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE COLLECT ABOUT YOU? We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information. Third parties that provide support or marketing services on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respect to such information. The Statement of Additional Information includes additional information about Fund trustees and is available, without charge, upon request by calling 1-800-847-2424. Van Kampen Funds Inc. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 www.vankampen.com Copyright (C)2005 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 902, 911, 104 VIT SAR 6/05 (VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-01913P-Y06/05 Item 2. Code of Ethics. Not applicable for semi-annual reports. Item 3. Audit Committee Financial Expert. Not applicable for semi-annual reports. Item 4. Principal Accountant Fees and Services. Not applicable for semi-annual reports. Item 5. Audit Committee of Listed Registrants. Not applicable for semi-annual reports. Item 6. Schedule of Investments. Please refer to Item #1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable for semi-annual reports. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable for semi-annual reports. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable. Item 10. Submission of Matters to a Vote of Security Holders. Not applicable. Item 11. Controls and Procedures (a) The Trust's principal executive officer and principal financial officer have concluded that the Trust's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a) Code of Ethics - Not applicable for semi-annual reports. (b)(1) A certification for the Principal Executive Officer of the registrant is attached hereto as part of EX-99.CERT. (b)(2) A certification for the Principal Financial Officer of the registrant is attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Van Kampen High Income Trust By: /s/ Ronald E. Robison ---------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: August 23, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald E. Robison --------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: August 23, 2005 By: /s/ Phillip G. Goff ------------------- Name: Phillip G. Goff Title: Principal Financial Officer Date: August 23, 2005