-----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, VcKFvMrLdvNXElEaoCWQbeXa5jI5T0JKkdLMOaXWYLHsDkBvnqjyS4PxusaikmId 8NV/pntLpOxncFXeVJ4p/A== 0000950137-97-000859.txt : 19970303 0000950137-97-000859.hdr.sgml : 19970303 ACCESSION NUMBER: 0000950137-97-000859 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970228 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM HIGH INCOME TR CENTRAL INDEX KEY: 0000843506 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 363616859 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05707 FILM NUMBER: 97547480 BUSINESS ADDRESS: STREET 1: ONE PARKVIEW PLZ CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 BUSINESS PHONE: 7086846000 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN MERRITT INTERMEDIATE TERM HIGH INCOME TRUST DATE OF NAME CHANGE: 19920703 N-30D 1 ANNUAL REPORT 1 TABLE OF CONTENTS Letter to Shareholders........................... 1 Performance Results.............................. 4 Portfolio of Investments......................... 5 Statement of Assets and Liabilities.............. 9 Statement of Operations.......................... 10 Statement of Changes in Net Assets............... 11 Financial Highlights............................. 12 Notes to Financial Statements.................... 14 Report of Independent Accountants................ 17 Dividend Reinvestment Plan....................... 18
2 LETTER TO SHAREHOLDERS February 10, 1997 Dear Shareholder, The high yield bond market, which is influenced by both the stock and [PHOTO] bond markets, was one of the best performing sectors of the domestic DENNIS J. MCDONNELL AND DON G. POWELL fixed-income market in 1996. Strong corporate earnings helped boost high yield bond prices throughout 1996 and offset some of the negative effects of a weaker bond market during the first half of the year. Bond prices fell in the first six months of 1996 on fears that strong economic growth would spur the Federal Reserve Board to raise interest rates. When second-quarter growth was reported to have risen 4.7 percent, bond prices fell even further, and long-term Treasury bond yields, which move in the opposite direction of bond prices, jumped above 7.0 percent. During this same period, equities surged, particularly stocks of small capitalization companies. Early in the third quarter, the scenario shifted. Stocks suffered a temporary setback but bounced back in early August and rallied through year end, led by large capitalization stocks. Bonds recovered as economic growth (real gross domestic product, adjusted for inflation) slowed to a 2.0 percent pace. Concerns about increasing price pressures and Fed tightening receded, and the 30-year Treasury bond yield fell to approximately 6.6 percent in late October, where it remained at year end. PORTFOLIO STRATEGY The Van Kampen American Capital Intermediate Term High Income Trust's portfolio is comprised primarily of non-investment grade bonds. Currently about 38 percent of the Trust's assets are invested in BB-rated bonds, which is the highest quality rating within the non-investment grade category. Slightly more than 55 percent of the Trust's assets are invested in B-rated bonds. When the stock market rises, as it did in 1996, these lower-rated bonds have tended to outperform higher-rated bonds, because higher-rated securities are more liquid and respond more quickly to interest rate movements. Also, the credit prospects for lower-rated bonds are usually greater in a growing economy, and the high coupons act as a buffer against rising interest rates. During 1996, we increased the Trust's exposure to energy and gaming securities, which were among the top performing sectors in the high yield market. Exposure to media/telecommunications companies, some of the largest issuers of high yield bonds, was also increased. Following shareholder approval in October, we eliminated the Trust's February 1, 1999 termination date. This change will allow the Trust to lengthen the portfolio's average Continued on page two 1 3 maturity. A longer weighted average maturity may help increase the future income potential of the Trust. [CREDIT QUALITY GRAPH] Portfolio composition by Credit Quality as of December 31, 1996 as of June 30, 1996(1) B...................... 55.5% A...................... 0.4% BB..................... 38.1% B...................... 56.5% BBB.................... 2.2% BB..................... 38.5% CCC.................... 0.3% BBB.................... 2.5% Non-Rated.............. 3.9% CCC.................... 0.3% Non-Rated.............. 1.8% (1) Unaudited Based upon credit quality ratings issued by Standard & Poor's. For securities not rated by Standard & Poor's, the Moody's rating is used.
PERFORMANCE SUMMARY The Trust's leveraged capital structure, which involves borrowing short-term funds to purchase long-term corporate securities, helped to provide a high level of current income and strong total returns in 1996. For the 12-month period ended December 31, 1996, the Trust generated a total return of 17.34 percent(1). This strong performance reflects a gain in market price per common share from $6.375 on December 31, 1995 to $6.75 on December 31, 1996, plus reinvestment of dividends totaling $0.702 per share. Based upon the monthly dividend of $.0585 per share and the closing common stock price on December 31, 1996, the Trust generated a distribution rate of 10.40 percent(3). The Trust's borrowing costs held steady because short-term interest rates remained relatively stable. It should be noted, however, that a rise in short-term rates would have an unfavorable effect on the dividend-paying ability of the common shares and could negatively impact the share price. OUTLOOK We believe that the economy will grow at a modest pace in 1997, near 2.5 percent. Although economic growth could be accompanied by short-term market fluctuation, we do not believe it will be strong enough to reignite price pressures. The results of the November elections reinforce this view--the combination of a Democratic president and a Republican Congress should help restrain potential spending increases and large tax cuts, and therefore keep the budget deficit under control. We believe there is a possibility that the Fed will grow more concerned about the economy's strength and nudge interest rates higher, though not before March. We also anticipate continued strong demand for U.S. bonds by overseas investors. The stock market is another factor that will influence the performance of the high yield bond market Continued on page three 2 4 this year. If stocks continue to advance, we believe the high yield bond market will reap a large percentage of that gain, as it has in the past. If stocks fall, we believe the income component of the high yield market will offset some of the negative effects of that decline. CORPORATE NEWS As you may be aware, shareholders approved the acquisition of VK/AC Holding, Inc. by Morgan Stanley Group Inc. We believe this acquisition will further help investors achieve their long-term goals. Morgan Stanley's strong global presence and commitment to superior investment performance complement our broad range of investment products, money management capability and high level of service. Thank you for your continued confidence in your investment with Van Kampen American Capital. Sincerely, [SIG] Don G. Powell Chairman Van Kampen American Capital Investment Advisory Corp. [SIG] Dennis J. McDonnell President Van Kampen American Capital Investment Advisory Corp. 3 5 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1996 VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM HIGH INCOME TRUST (NYSE TICKER SYMBOL--VIT) COMMON SHARE TOTAL RETURNS One-year total return based on market price(1)............. 17.34% One-year total return based on NAV(2)...................... 14.86% DISTRIBUTION RATE Distribution rate as a % of closing common stock price(3)................................................. 10.40% SHARE VALUATIONS Net asset value............................................ $ 6.35 Closing common stock price................................. $6.750 One-year high common stock price (12/30/96)................ $7.000 One-year low common stock price (03/08/96)................. $6.250 Preferred share rate(4).................................... 5.547%
(1)Total return based on market price assumes an investment at the market price at the beginning of the period indicated, reinvestment of all distributions for the period in accordance with the Trust's dividend reinvestment plan, and sale of all shares at the closing stock price at the end of the period indicated. (2)Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. (3)Distribution rate represents the monthly annualized distributions of the Trust at the end of the period and not the earnings of the Trust. (4)See "Notes to Financial Statements" footnote #4, for more information concerning Preferred Share reset periods. Past performance does not guarantee future results. Investment return, stock price and net asset value will fluctuate with market conditions. Trust shares, when sold, may be worth more or less than their original cost. 4 6 PORTFOLIO OF INVESTMENTS December 31, 1996
- ----------------------------------------------------------------------------------------------------------------- Par Amount (000) Description Coupon Maturity Market Value - --------------------------------------------------------------------------------------------- CORPORATE BONDS AEROSPACE & DEFENSE 2.3% $2,800 Sequa Corp. .................................... 9.625% 10/15/99 $ 2,905,000 500 Sequa Corp. .................................... 9.375 12/15/03 510,000 ------------ 3,415,000 ------------ AUTOMOBILE 2.7% 700 Aetna Industries, Inc. ......................... 11.875 10/01/06 754,250 1,200 Exide Corp. .................................... 10.750 12/15/02 1,254,000 650 JPS Automotive Products Corp. .................. 11.125 06/15/01 698,750 1,200 Speedy Muffler King, Inc. ...................... 10.875 10/01/06 1,284,000 ------------ 3,991,000 ------------ BUILDINGS AND REAL ESTATE 5.0% 3,050 American Standard, Inc. ........................ 10.875 05/15/99 3,286,375 2,100 Doman Industries Ltd. .......................... 8.750 03/15/04 1,974,000 1,800 Schuller International Group, Inc. ............. 10.875 12/15/04 2,007,000 ------------ 7,267,375 ------------ CHEMICAL 1.7% 2,404 ISP Holdings, Inc., 144A Private Placement (c) ............................................ 9.750 02/15/02 2,524,200 ------------ CONTAINERS, PACKAGING & GLASS 5.9% 500 Owens Illinois, Inc. ........................... 10.250 04/01/99 505,000 3,000 Owens Illinois, Inc. ........................... 11.000 12/01/03 3,345,000 1,000 S.D. Warren Co. ................................ 12.000 12/15/04 1,080,000 900 Stone Consolidated Corp. ....................... 10.250 12/15/00 956,250 600 Sweetheart Cup, Inc. ........................... 9.625 09/01/00 622,500 650 Sweetheart Cup, Inc. ........................... 10.500 09/01/03 684,125 1,300 U.S. Can Co. ................................... 13.500 01/15/02 1,358,500 ------------ 8,551,375 ------------ DIVERSIFIED/CONGLOMERATE MANUFACTURING 3.5% 1,350 Communications & Power Industries, Inc. ........ 12.000 08/01/05 1,515,375 1,200 Jordan Industries, Inc. ........................ 10.375 08/01/03 1,194,000 2,270 Talley Manufacturing & Technology, Inc. ........ 10.750 10/15/03 2,377,825 ------------ 5,087,200 ------------ ECOLOGICAL 0.3% 400 Norcal Waste Systems, Inc. (b).................. 12.500 11/15/05 446,000 ELECTRONICS 4.3% 1,500 Advanced Micro Devices, Inc. ................... 11.000 08/01/03 1,631,250 2,300 Bell & Howell Co. (b)........................... 0/11.500 03/01/05 1,707,750 1,400 Computervision.................................. 11.375 08/15/99 1,463,000
See Notes to Financial Statements 5 7 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1996 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - --------------------------------------------------------------------------------------------- ELECTRONICS (CONTINUED) $1,300 Exide Electronics Group, Inc. (Including 1,300 common stock warrants).......................... 11.500% 03/15/06 $ 1,430,000 ------------ 6,232,000 ------------ ENERGY 1.8% 650 National Energy Group, Inc., 144A Private Placement (c) .................................. 10.750 11/01/06 682,500 1,700 Petroleum Heat & Power, Inc. ................... 12.250 02/01/05 1,895,500 ------------ 2,578,000 ------------ FARMING & AGRICULTURE 0.4% 550 Trans Resources, Inc. .......................... 11.875 07/01/02 555,500 ------------ FINANCE 2.1% 2,900 American Annuity Group, Inc. ................... 11.125 02/01/03 3,124,750 ------------ GROCERY 2.0% 780 Pantry, Inc. ................................... 12.000 11/15/00 748,800 1,250 Pathmark Stores, Inc. .......................... 9.625 05/01/03 1,200,000 950 Vons Cos., Inc. ................................ 9.625 04/01/02 992,750 ------------ 2,941,550 ------------ HEALTHCARE 3.2% 1,250 Merit Behavioral Care Corp. .................... 11.500 11/15/05 1,343,750 300 Ornda Healthcorp................................ 12.250 05/15/02 319,500 1,700 Ornda Healthcorp................................ 11.375 08/15/04 1,963,500 900 Tenet Healthcare Corp. ......................... 10.125 03/01/05 994,500 ------------ 4,621,250 ------------ HOTEL, MOTEL, INNS & GAMING 7.5% 1,075 Argosy Gaming Co. .............................. 13.250 06/01/04 1,010,500 1,900 California Hotel Finance Corp. ................. 11.000 12/01/02 1,976,000 1,300 Coast Hotels & Casinos, Inc. ................... 13.000 12/15/02 1,436,500 1,100 Grand Casino, Inc. ............................. 10.125 12/01/03 1,105,500 1,200 Hollywood Casino, Inc. ......................... 12.750 11/01/03 1,158,000 800 Majestic Star Casino L.L.C. .................... 12.750 05/15/03 858,000 2,500 MGM Grand Hotel Finance Corp. .................. 11.750 05/01/99 2,600,000 800 Trump Atlantic City Associates.................. 11.250 05/01/06 796,000 ------------ 10,940,500 ------------ LEISURE/ENTERTAINMENT 3.4% 1,850 Selmer, Inc. ................................... 11.000 05/15/05 2,011,875 2,685 Viacom International, Inc. ..................... 10.250 09/15/01 2,919,938 ------------ 4,931,813 ------------ MACHINERY 0.7% 1,000 Clark Material Handling Corp., 144A Private Placement (c) .................................. 10.750 11/15/06 1,035,000 ------------ MINING, STEEL, IRON & NON-PRECIOUS METAL 3.5% 1,575 Armco, Inc. .................................... 11.375 10/15/99 1,653,750
See Notes to Financial Statements 6 8 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1996 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - --------------------------------------------------------------------------------------------- MINING, STEEL, IRON & NON-PRECIOUS METAL (CONTINUED) $ 800 Carbide/Graphite Group, Inc. ................... 11.500% 09/01/03 $ 876,000 1,500 Easco Corp. .................................... 10.000 03/15/01 1,515,000 1,050 WCI Steel, Inc., 144A Private Placement (c) .... 10.000 12/01/04 1,071,000 ------------ 5,115,750 OIL & GAS 9.2% ------------ 1,150 Clark R & M Holdings, Inc. ..................... * 02/15/00 828,000 900 Coda Energy, Inc. .............................. 10.500 04/01/06 954,000 1,600 Giant Industries, Inc. ......................... 9.750 11/15/03 1,660,000 3,650 Global Marine, Inc. ............................ 12.750 12/15/99 3,942,000 1,650 KCS Energy, Inc. ............................... 11.000 01/15/03 1,798,500 600 Parker Drilling Co., 144A Private Placement (c) ............................................ 9.750 11/15/06 631,500 3,425 Triton Energy Corp. (b)......................... 9.750 12/15/00 3,579,125 ----------- 13,393,125 PERSONAL & NON-DURABLE 2.2% ----------- 400 Rayovac Corp., 144A Private Placement (c)....... 10.250 11/01/06 410,000 1,460 Revlon Consumer Products Corp. ................. 9.375 04/01/01 1,500,150 700 Revlon Consumer Products Corp. ................. 10.500 02/15/03 735,000 550 Revlon Consumer Products Corp. ................. 10.875 07/15/10 562,375 ----------- 3,207,525 PRINTING, PUBLISHING & BROADCASTING 16.1% ----------- 2,450 Cablevision Systems Corp. ...................... 10.750 04/01/04 2,541,875 600 Cablevision Systems Corp. ...................... 10.500 05/15/16 621,000 1,200 Century Communications Corp. ................... 9.750 02/15/02 1,233,000 600 Century Communications Corp. ................... 11.875 10/15/03 639,000 700 Comcast Corp. .................................. 9.375 05/15/05 728,000 750 Comcast Corp. .................................. 9.125 10/15/06 768,750 1,050 EZ Communications, Inc. ........................ 9.750 12/01/05 1,097,250 500 Heritage Media Services......................... 11.000 06/15/02 537,500 3,200 Insight Communications Co. (b).................. 11.250 03/01/00 3,312,000 1,000 International Cabletel, Inc. (b)................ 0/12.750 04/15/05 752,500 550 International Cabletel, Inc. (b)................ 0/11.500 02/01/06 375,375 450 JCAC, Inc....................................... 10.125 06/15/06 465,750 2,600 K-III Communications Corp. ..................... 10.625 05/01/02 2,736,500 1,000 Katz Media Corp., 144A Private Placement (c).... 10.500 01/15/07 1,027,500 1,750 Rogers Communications, Inc. .................... 10.875 04/15/04 1,846,250 2,750 SCI Television, Inc. ........................... 11.000 06/30/05 2,956,250 950 Young Broadcasting, Inc. ....................... 11.750 11/15/04 1,040,250 750 Young Broadcasting, Inc. ....................... 10.125 02/15/05 772,500 ----------- 23,451,250 RETAIL 5.1% ----------- 450 Cole National Group, Inc., 144A Private Placement (c) .................................. 9.875 12/31/06 460,125 500 Hosiery Corp. America, Inc. (Including 500 common stock warrants).......................... 13.750 08/01/02 580,000
See Notes to Financial Statements 7 9 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1996 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - --------------------------------------------------------------------------------------------- RETAIL (CONTINUED) $1,100 Loehmann's, Inc. ............................... 11.875% 05/15/03 $ 1,188,000 2,485 Thrifty Payless................................. 12.250 04/15/04 2,932,300 2,100 Waban, Inc. .................................... 11.000 05/15/04 2,362,500 ------------ 7,522,925 ------------ TELECOMMUNICATIONS 5.5% 1,375 Centennial Cellular Corp. ...................... 10.125 05/15/05 1,388,750 600 Intermedia Communications of Florida, Inc. (Including 600 common stock warrants)........... 13.500 06/01/05 712,500 550 Intermedia Communications of Florida, Inc. (b)............................................. 0/12.500 05/15/06 363,000 1,450 IXC Communications, Inc. ....................... 12.500 10/01/05 1,595,000 1,700 Panamsat L.P. .................................. 9.750 08/01/00 1,797,750 550 Pricellular Wireless Corp. (b).................. 0/12.250 10/01/03 473,000 550 Pricellular Wireless Corp., 144A Private Placement (c) .................................. 10.750 11/01/04 576,125 1,650 Teleport Communications Group (b)............... 0/11.125 07/01/07 1,138,500 ------------ 8,044,625 ------------ TEXTILES 0.8% 1,250 Dan River, Inc. ................................ 10.125 12/15/03 1,256,250 ------------ TRANSPORTATION 1.2% 1,700 U.S. Air, Inc. ................................. 8.625 09/01/98 1,704,250 ------------ UTILITIES 5.0% 1,600 AES Corp. ...................................... 10.250 07/15/06 1,728,000 825 California Energy, Inc. ........................ 9.875 06/30/03 874,500 3,000 Connecticut Yankee Atomic Power................. 12.000 06/01/00 3,090,000 1,050 El Paso Electric Co. ........................... 8.250 02/01/03 1,078,875 450 El Paso Electric Co. ........................... 8.900 02/01/06 474,750 ------------ 7,246,125 ------------ TOTAL LONG-TERM INVESTMENTS 95.4% (Cost $134,583,572) (a)...................................................... 139,184,338 REPURCHASE AGREEMENT 2.9% J.P. Morgan Securities, U.S. Treasury Bond, $4,017,000 par, 7.250% coupon, due 5/15/16, dated 12/31/96, to be sold on 01/02/97 at $4,195,456............ 4,194,000 OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%.................................... 2,430,620 ------------ NET ASSETS 100.0%............................................................. $145,808,958 ============ *Zero coupon bond
(a) At December 31, 1996, cost for federal income tax purposes is $134,583,572; the aggregate gross unrealized appreciation is $4,982,828 and the aggregate gross unrealized depreciation is $382,062, resulting in net unrealized appreciation of $4,600,766. (b) Security bond is a "step-up" bond where the coupon increases or steps up at a predetermined date. (c) 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration which are normally transactions with qualified institutional buyers. See Notes to Financial Statements 8 10 STATEMENT OF ASSETS AND LIABILITIES December 31, 1996 - -------------------------------------------------------------------------------- ASSETS: Long-Term Investments, at Market Value (Cost $134,583,572) (Note 1).................................................. $139,184,338 Repurchase Agreements (Note 1).............................. 4,194,000 Cash........................................................ 153,172 Interest Receivable......................................... 2,959,886 Other....................................................... 1,437 ------------ Total Assets.......................................... 146,492,833 ------------ LIABILITIES: Payables: Income Distributions--Common and Preferred Shares......... 179,371 Investments Purchased..................................... 152,250 Investment Advisory Fee (Note 2).......................... 92,264 Affiliates (Note 2)....................................... 8,549 Accrued Expenses............................................ 192,507 Deferred Compensation and Retirement Plans (Note 2)......... 58,934 ------------ Total Liabilities..................................... 683,875 ------------ NET ASSETS.................................................. $145,808,958 ============ NET ASSETS CONSIST OF: Preferred Shares ($.01 par value, 1,000,000 shares authorized, 588 shares outstanding with liquidation preference of $100,000 per share) (Note 4)................ $ 58,800,000 ------------ Common Shares ($.01 par value with an unlimited number of shares authorized, 13,710,760 shares issued and outstanding) 137,108 Paid in Surplus............................................. 124,454,347 Net Unrealized Appreciation on Investments.................. 4,600,766 Accumulated Undistributed Net Investment Income............. 1,183,220 Accumulated Net Realized Loss on Investments................ (43,366,483) ------------ Net Assets Applicable to Common Shares................ 87,008,958 ------------ NET ASSETS.................................................. $145,808,958 ============ NET ASSET VALUE PER COMMON SHARE ($87,008,958 divided by 13,710,760 shares outstanding)............................ $ 6.35 ============
See Notes to Financial Statements 9 11 STATEMENT OF OPERATIONS For the Year Ended December 31, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest.................................................... $14,476,892 Other....................................................... 79,850 ------------- Total Income............................................ 14,556,742 ------------- EXPENSES: Investment Advisory Fee (Note 2)............................ 1,075,076 Preferred Share Maintenance (Note 4)........................ 193,336 Shareholder Services (Note 2)............................... 76,154 Custody..................................................... 55,337 Trustees Fees and Expenses (Note 2)......................... 25,368 Legal (Note 2).............................................. 18,300 Other....................................................... 142,775 ------------- Total Expenses.......................................... 1,586,346 ------------- NET INVESTMENT INCOME....................................... $12,970,396 ============= REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS: Net Realized Gain on Investments............................ $ 1,386,511 ============= Unrealized Appreciation/Depreciation on Investments: Beginning of the Period................................... 3,969,365 End of the Period......................................... 4,600,766 ------------- Net Unrealized Appreciation on Investments During the Period.................................................... 631,401 ------------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. $ 2,017,912 ============= NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $14,988,308 =============
See Notes to Financial Statements 10 12 STATEMENT OF CHANGES IN NET ASSETS For the Years Ended December 31, 1996 and 1995
- -------------------------------------------------------------------------------------------------------------------------------- Year Ended Year Ended December 31, 1996 December 31, 1995 - ------------------------------------------------------------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income................................ $ 12,970,396 $ 13,467,671 Net Realized Gain on Investments..................... 1,386,511 1,199,409 Net Unrealized Appreciation on Investments During the Period...................... 631,401 6,158,150 ---------- ---------- Change in Net Assets from Operations................. 14,988,308 20,825,230 ---------- ---------- Distributions from Net Investment Income: Common Shares...................................... (9,624,578) (9,624,657) Preferred Shares................................... (3,169,033) (3,476,603) ---------- ---------- Total Distributions.................................. (12,793,611) (13,101,260) ---------- ---------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......................................... 2,194,697 7,723,970 NET ASSETS: Beginning of the Period.............................. 143,614,261 135,890,291 ---------- ---------- End of the Period (Including accumulated undistributed net investment income of $1,183,220 and $986,397, respectively)........................ $145,808,958 $143,614,261 ========== ===========
See Notes to Financial Statements 11 13 FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one common share of the Trust outstanding throughout the periods indicated. - --------------------------------------------------------------------------------
------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------ Net Asset Value, Beginning of the Period (a).............................. $6.186 $5.623 $6.735 ----- ----- ----- Net Investment Income..................... .946 .982 1.002 Net Realized and Unrealized Gain/Loss on Investments............................. .147 .537 (.975) ----- ----- ----- Total from Investment Operations.......... 1.093 1.519 .027 ----- ----- ----- Less Distributions from Net Investment Income: Paid to Common Shareholders............. .702 .702 .954 Common Share Equivalent of Distributions Paid to Preferred Shareholders........ .231 .254 .185 ----- ----- ----- Total Distributions....................... .933 .956 1.139 ----- ----- ----- Net Asset Value, End of the Period........ $6.346 $6.186 $5.623 ====== ====== ====== Market Price Per Share at End of the Period.................................. $6.750 $6.375 $5.500 Total Investment Return at Market Price (b)............................... 17.34% 29.17% (23.22%) Total Return at Net Asset Value (c)....... 14.86% 23.70% (2.54%) Net Assets at End of the Period (In millions)............................... $145.8 $143.6 $135.9 Ratio of Expenses to Average Net Assets Applicable to Common Shares............. 1.87% 1.92% 1.96% Ratio of Expenses to Average Net Assets... 1.11% 1.12% 1.16% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (d).............................. 11.58% 12.16% 13.31% Portfolio Turnover........................ 92% 119% 110%
(a) Net Asset Value at January 26, 1989 of $9.300 is adjusted for common and preferred share offering costs of $.198 per share. (b) Total Investment Return at Market Price reflects the change in market value of the common shares for the period indicated with reinvestment of dividends in accordance with the Trust's dividend reinvestment plan. (c) Total Return at Net Asset Value (NAV) reflects the change in value of the Trust's assets with reinvestment of dividends based on NAV. (d) Net investment income is adjusted for the common share equivalent of distributions paid to preferred shareholders. * Non-Annualized N/A = Not Applicable 12 14 - --------------------------------------------------------------------------------
January 26, 1989 (Commencement Year Ended December 31 of Investment - ------------------------------------------- Operations) to 1993 1992 1991 1990 December 31, 1989 - ----------------------------------------------------------------------- $6.228 $5.924 $4.603 $7.488 $9.102 ----- ----- ----- ----- ----- 1.109 1.206 1.150 1.566 1.387 .526 .174 1.282 (2.866) (1.653) ----- ----- ----- ----- ----- 1.635 1.380 2.432 (1.300) (.266) ----- ----- ----- ----- ----- .990 .908 .840 1.083 1.020 .138 .168 .271 .502 .328 ----- ----- ----- ----- ----- 1.128 1.076 1.111 1.585 1.348 ----- ----- ----- ----- ----- $6.735 $6.228 $5.924 $4.603 $7.488 ====== ====== ====== ====== ====== $8.125 $7.250 $6.875 $4.125 $7.375 26.12% 18.67% 92.24% (32.91%) (17.27%)* 25.46% 21.36% 48.77% (26.20%) (15.58%)* $151.1 $144.2 $140.0 $121.9 $187.7 1.72% 1.87% 2.51% 2.10% 1.56% 1.04% 1.11% 1.42% 1.90% N/A 14.66% 16.48% 15.86% 17.24% 13.20% 99% 109% 78% 57% 33%*
See Notes to Financial Statements 13 15 NOTES TO FINANCIAL STATEMENTS December 31, 1996 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen American Capital Intermediate Term 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, consistent with preservation of capital, by investing in a portfolio of medium or lower grade fixed-income securities, or non-rated securities of comparable quality. 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 generally accepted accounting principles 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, prices provided by market makers or estimates 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 and repurchase agreements with remaining maturities of 60 days or less are valued at amortized cost. 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 maintain, in a segregated account with its custodian, assets having an aggregate value at least equal to the amount of the when issued or delayed delivery purchase commitments until payment is made. At December 31, 1996, there were no when issued or delayed delivery purchase commitments. The Trust invests in repurchase agreements, which are short-term investments in which the Trust acquires ownership of a debt security and the seller agrees to repurchase the security at a future time and specified price. Repurchase agreements are fully collateralized by the underlying debt security. The Trust will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of 14 16 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 - -------------------------------------------------------------------------------- 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 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, 1996, the Trust had an accumulated capital loss carry forward for tax purposes of $43,366,483 which expires between December 31, 1998 and December 31, 2003. E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from net investment income to common shareholders monthly. 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. Due to inherent differences in the recognition of income, expenses and realized gains/losses under generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting for the 1996 fiscal year have been identified and appropriately reclassified. Permanent book and tax basis differences relating to the recognition of certain expenses which are not deductible for tax purposes totaling $20,038 have been reclassified from accumulated undistributed net investment income to capital. 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 .75% of the average net assets of the Trust. Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of the Trust is an affiliated person. 15 17 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 - -------------------------------------------------------------------------------- For the year ended December 31, 1996, the Trust recognized expenses of approximately $17,800 representing Van Kampen American Capital Distributors, Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting, legal and certain shareholder services to the Trust. Certain officers and trustees of the Trust are also officers and directors of VKAC. The Trust does not compensate its officers or trustees who are officers of VKAC. The Trust has implemented deferred compensation and retirement plans for its trustees. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation to a later date. The retirement plan covers those trustees who are not officers of VKAC. 3. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $133,226,298 and $123,310,820, respectively. 4. AUCTION MARKET PREFERRED SHARES The Trust has outstanding 588 shares of Auction Market Preferred Shares ("AMPS") at a liquidation value of $100,000 per share. Dividends are cumulative and the rate is currently reset through an auction process every 28 days. The rate in effect on December 31, 1996, was 5.547%. During the year ended December 31, 1996, the rates ranged from 5.049% to 5.890%. 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. 16 18 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Trustees and Shareholders of Van Kampen American Capital Intermediate Term High Income Trust: We have audited the accompanying statement of assets and liabilities of Van Kampen American Capital Intermediate Term High Income Trust (the "Trust"), including the portfolio of investments, as of December 31, 1996, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. 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. We conducted our audits in accordance with generally accepted auditing standards. 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, 1996, by correspondence with the custodian and broker. 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 American Capital Intermediate Term High Income Trust as of December 31, 1996, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Chicago, Illinois February 4, 1997 17 19 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 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 18 20 FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL GLOBAL AND INTERNATIONAL Global Equity Fund Global Government Securities Fund Global Managed Assets Fund Short-Term Global Income Fund Strategic Income Fund EQUITY Growth Aggressive Growth Fund Emerging Growth Fund Enterprise Fund Growth Fund Pace Fund Growth & Income Balanced Fund Comstock Fund Equity Income Fund Growth and Income Fund Harbor Fund Real Estate Securities Fund Utility Fund FIXED INCOME Corporate Bond Fund Government Securities Fund High Income Corporate Bond Fund High Yield Fund Limited Maturity Government Fund Prime Rate Income Trust Reserve Fund U.S. Government Fund U.S. Government Trust for Income TAX-FREE California Insured Tax Free Fund Florida Insured Tax Free Income Fund High Yield Municipal Fund Insured Tax Free Income Fund Intermediate Term Municipal Income Fund Municipal Income Fund New Jersey Tax Free Income Fund New York Tax Free Income Fund Pennsylvania Tax Free Income Fund Tax Free High Income Fund Tax Free Money Fund MORGAN STANLEY FUND, INC. Aggressive Equity Fund American Value Fund Asian Growth Fund Emerging Markets Fund Global Equity Allocation Fund Global Fixed Income Fund High Yield Fund International Magnum Fund Latin American Fund Worldwide High Income Fund Ask your investment representative for a prospectus containing more complete information, including sales charges and expenses. Please read it carefully before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00 p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds, or 1-800-282-4404 for Morgan Stanley retail funds. 19 21 VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM HIGH INCOME TRUST BOARD OF TRUSTEES DAVID C. ARCH ROD DAMMEYER HOWARD J KERR DENNIS J. MCDONNELL*--Chairman THEODORE A. MYERS HUGO F. SONNENSCHEIN WAYNE W. WHALEN* OFFICERS DENNIS J. MCDONNELL* President RONALD A. NYBERG* Vice President and Secretary EDWARD C. WOOD, III* Vice President and Chief Financial Officer CURTIS W. MORELL* Vice President and Chief Accounting Officer JOHN L. SULLIVAN* Treasurer TANYA M. LODEN* Controller PETER W. HEGEL* Vice President INVESTMENT ADVISER VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. One Parkview Plaza Oakbrook Terrace, Illinois 60181 CUSTODIAN AND TRANSFER AGENT STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02105 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT AUDITORS KPMG PEAT MARWICK LLP Peat Marwick Plaza 303 East Wacker Drive Chicago, Illinois 60601 * "Interested" persons of the Trust, as defined in the Investment Company Act of 1940. (C) Van Kampen American Capital Distributors, Inc., 1997. All rights reserved. (SM) denotes a service mark of Van Kampen American Capital Distributors, Inc. RESULTS OF SHAREHOLDER VOTES An Annual Meeting of Shareholders of the Trust was held on May 23, 1996, where shareholders voted on the election of trustees and the selection of independent public accountants. With regard to the election of David C. Arch as elected trustee by the common shareholders of the Trust, 11,933,609 shares voted in his favor, 195,989 shares withheld. With regard to the election of Howard J Kerr as elected trustee by the common shareholders of the Trust, 11,929,539 shares voted in his favor, 200,059 shares withheld. With regard to the election of Dennis J. McDonnell as elected trustee by the common shareholders of the Trust, 11,929,331 shares voted in his favor, 200,267 shares withheld. The other trustees of the Fund whose terms did not expire in 1996 are Rod Dammeyer, Theodore A. Myers, Hugo Sonnenschein and Wayne W. Whalen. With regard to the ratification of KPMG Peat Marwick LLP as independent public accountants for the Trust, 11,913,260 shares voted in favor of the proposal, 11,689 shares voted against and 115,997 shares abstained. A Special Meeting of Shareholders of the Trust was held on October 23, 1996, where shareholders voted on a new investment advisory agreement, an amendment to the Fund's Declaration of Trust and changes to investment policies. With regard to the approval of a new investment advisory agreement between Van Kampen American Capital Investment Advisory Corp. and the Trust, 10,647,888 shares voted for the proposal, 263,422 shares voted against, 302,958 shares abstained and 1,196,513 shares represented broker non-votes. With regard to the approval of an amendment to the Fund's Declaration of Trust, 6,581,694 shares voted in favor of the proposal, 263,422 shares voted against, 302,958 shares abstained and 5,298,982 shares represented broker non-votes. With regard to the approval of certain changes to the Trust's fundamental investment policies with respect to investments in other investment companies, 5,850,777 shares voted for the proposal, 371,305 voted against, 289,505 shares abstained and 5,935,468 shares represented broker non-votes. 20 -----END PRIVACY-ENHANCED MESSAGE-----