Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 6
TWELVE-MONTH DIVIDEND HISTORY 6
TOP FIVE SECTORS 7
NET ASSET VALUE AND COMMON SHARE MARKET PRICE 7
Q&A WITH YOUR PORTFOLIO MANAGERS 8
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 12
FINANCIAL STATEMENTS 19
NOTES TO FINANCIAL STATEMENTS 24
REPORT OF INDEPENDENT AUDITORS 28
DIVIDEND REINVESTMENT PLAN 29
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 31
TRUSTEE AND OFFICER INFORMATION 32
Regardless of the market environment, your investment goals don't go away.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
OVERVIEW
LETTER TO SHAREHOLDERS
January 17, 2003
Dear Shareholder,
During the bull market of the 1990s, many investors ignored what investment risk
really means: the possibility of losing money. Instead, investors came to define
risk as "more reward."
Today, it's clear that for many people, the pendulum has swung to the opposite
extreme. Many are reluctant to enter the market, stick with their long-term
plans, or assume prudent levels of risk. Not knowing what action to take, many
investors are taking none.
Regardless of how you define risk and regardless of the market environment, your
investment goals don't go away. Parents will want to send children to college,
retirees will want to enjoy their golden years, and families will want to
purchase homes. And history bears out that a prudent investment may be one of
the best ways to get there.
How can you reconcile the reality of market risk with the
pursuit of your long-term investment goals? At Van Kampen, we
believe that diversification and asset allocation are the best
strategies for managing the market's ups and downs. That's why
Van Kampen offers a full range of fund choices. We encourage you to work with
your advisor to make sure that you have an asset allocation that's suitable for
you.
As we enter a new year, all of us at Van Kampen remain grateful for the trust
you have placed in us and for the opportunity to help you enjoy life's true
wealth.
Sincerely,
[SIG]
David M. Swanson
Chief Operating Officer
Van Kampen Investment Advisory Corp.
1
ECONOMIC SNAPSHOT
THE ECONOMY
ECONOMIC DATA RELEASED IN DECEMBER 2002 SEEMED TO SUGGEST THE ECONOMY WAS
EMERGING FROM ITS AUTUMN SOFT SPOT. RETAIL SALES AND INDUSTRIAL PRODUCTION
RECORDED GAINS THAT SURPASSED EXPECTATIONS. BOTH NEW AND EXISTING HOME SALES
CONTINUED TO REMAIN AT HISTORICALLY HIGH LEVELS. EVEN THE BELEAGUERED
MANUFACTURING SECTOR ENJOYED SOME GOOD NEWS: THE INSTITUTE OF SUPPLY MANAGEMENT
REPORTED THAT NEW ORDERS WERE SO ROBUST, THEY REGISTERED THE LARGEST MONTHLY
INCREASE SINCE 1980. EQUALLY ENCOURAGING, INFLATION PRESSURES REMAINED STABLE
THROUGHOUT THE REPORTING PERIOD--DESPITE RISING OIL PRICES.
AGAINST THIS BACKDROP, THE FEDERAL RESERVE MAINTAINED ITS ACCOMMODATIVE MONETARY
POLICY WHICH, AS A RESULT, ALLOWED INTEREST RATES TO CONTINUE HOVERING AT THE
LOWEST LEVELS IN DECADES.
YET, POCKETS OF WEAKNESS PERSISTED. DECEMBER'S JOB LOSSES WERE THE STRONGEST
RECORDED IN RECENT MONTHS, CAUSING INVESTORS TO QUESTION THE SUSTAINABILITY OF
ECONOMIC ACTIVITY MOVING FORWARD.
FURTHER CLOUDING THE ECONOMIC HORIZON, THE DOLLAR MOVED LOWER AS TRADERS AND
INVESTORS QUESTIONED THE NEWLY APPOINTED TREASURY SECRETARY'S COMMITMENT TO A
STRONG DOLLAR. WHILE THE DECLINING DOLLAR SEEMED LIKE ANOTHER DARK CLOUD, A
POSSIBLE SILVER LINING REMAINS: DOLLAR WEAKNESS COULD TRANSLATE INTO IMPROVED
EXPORTS IN 2003, FURTHER SUPPORTING ECONOMIC GROWTH.
2
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(December 31, 2000--December 31, 2002)
[BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT
---------------------------
Dec 00 1.1%
Mar 01 -0.6%
Jun 01 -1.6%
Sep 01 -0.3%
Dec 01 2.7%
Mar 02 5.0%
Jun 02 1.3%
Sep 02 4.0%
Dec 02 0.7%
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(December 31, 2000--December 31, 2002)
[LINE GRAPH]
INTEREST RATES INFLATION
-------------- ---------
Dec 00 6.50% 3.40%
5.50% 3.70%
5.50% 3.50%
Mar 01 5.00% 2.90%
4.50% 3.30%
4.00% 3.60%
Jun 01 3.75% 3.20%
3.75% 2.70%
3.50% 2.70%
Sep 01 3.00% 2.60%
2.50% 2.10%
2.00% 1.90%
Dec 01 1.75% 1.60%
1.75% 1.10%
1.75% 1.10%
Mar 02 1.75% 1.50%
1.75% 1.60%
1.75% 1.20%
Jun 02 1.75% 1.10%
1.75% 1.50%
1.75% 1.80%
Sep 02 1.75% 1.50%
1.75% 2.00%
1.25% 2.20%
Dec 02 1.25% 2.40%
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percentage
change of the Consumer Price Index for all urban consumers at the end of each
month.
Source: Bloomberg
3
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of December 31, 2002)
-----------------------------
NYSE Ticker Symbol - VIT
-----------------------------
-----------------------------------------------------------------------
One-year total return(1) -22.99%
-----------------------------------------------------------------------
Five-year average annual total return(1) -5.65%
-----------------------------------------------------------------------
Ten-year average annual total return(1) 2.82%
-----------------------------------------------------------------------
Life-of-Trust average annual total return(1) 3.76%
-----------------------------------------------------------------------
Commencement date 01/26/89
-----------------------------------------------------------------------
Distribution rate as a % of closing common share market
price(2) 12.58%
-----------------------------------------------------------------------
Net asset value $3.03
-----------------------------------------------------------------------
Closing common share market price $3.10
-----------------------------------------------------------------------
One-year high common share market price (01/18/02) $4.99
-----------------------------------------------------------------------
One-year low common share market price (07/24/02) $2.76
-----------------------------------------------------------------------
Preferred share rate(3) 1.380%
-----------------------------------------------------------------------
4
(1) Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common share market price at the end of the
period indicated.
(2) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(3) See "Notes to Financial Statements" footnote #4, for more information
concerning Preferred Share reset periods.
Past performance is no guarantee of future results. Investment return,
common share market price and net asset value will fluctuate and Trust
shares, when sold, may be worth more or less than their original cost. An
investment in the Trust is subject to investment risks, and you could lose
money on your investment in the Trust. As a result of recent market
activity, current performance may vary from the figures shown. For more
up-to-date information, please visit vankampen.com or speak with your
financial advisor.
5
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term debt investments)
As of December 31, 2002
- A/A................ 5.6% [PIE CHART]
- BBB/Baa............ 19.5%
- BB/Ba.............. 42.4%
- B/B................ 30.0%
- CCC/Caa & below.... 2.3%
- Non-Rated.......... 0.2%
As of December 31, 2001
- A/A................ 3.8% [PIE CHART]
- BBB/Baa............ 12.7%
- BB/Ba.............. 38.3%
- B/B................ 37.2%
- CCC/Caa & below.... 7.9%
- Non-Rated.......... 0.1%
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
TWELVE-MONTH DIVIDEND HISTORY
(for the year ended December 31, 2002, for common shares)
[BAR GRAPH]
DIVIDENDS
---------
1/02 $0.0470
2/02 $0.0440
3/02 $0.0440
4/02 $0.0440
5/02 $0.0440
6/02 $0.0380
7/02 $0.0380
8/02 $0.0380
9/02 $0.0350
10/02 $0.0350
11/02 $0.0350
12/02 $0.0325
The dividend history represents dividends that were paid on the trust and is no
guarantee of the trust's future dividends.
6
TOP FIVE SECTORS
(as a percentage of long-term investments)
[INVESTMENT PERFORMANCE GRAPH]
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
Gaming & Leisure 14.1% 9.2%
Energy 11.8% 9.5%
Forest Products 8.1% 8.2%
Transportation 7.1% 5.8%
Housing 6.4% 4.6%
Subject to change daily.
NET ASSET VALUE AND COMMON SHARE MARKET PRICE
(based upon quarter-end values--December 1992 through December 2002)
[INVESTMENT PERFORMANCE GRAPH]
NET ASSET VALUE COMMON SHARE MARKET PRICE
--------------- -------------------------
12/92 $6.2300 $7.2500
6.6300 8.0000
6.7600 8.3750
6.6600 8.3750
12/93 6.7400 8.1250
6.3300 7.6250
6.0600 8.0000
5.8500 7.0000
12/94 5.6200 5.5000
5.8400 6.1250
6.0700 6.6250
6.1200 6.3750
12/95 6.1900 6.3750
6.1600 6.7500
6.0500 6.5000
6.2000 6.8750
12/96 6.3500 6.7500
6.2200 6.7500
6.3600 7.3125
6.4900 7.3125
12/97 6.4700 7.3750
6.5300 7.3125
6.4400 7.0000
5.8900 6.3125
12/98 5.8600 6.3750
5.7000 6.4375
5.4900 6.3750
5.1600 5.9375
12/99 5.1000 4.5000
4.8400 4.6250
4.7500 5.0000
4.6800 4.7500
12/00 4.2200 4.1250
4.5000 5.0900
4.2400 4.7800
3.7600 4.5600
12/01 3.7800 4.5400
3.6200 4.6700
3.2200 4.1000
2.8800 3.3500
12/02 3.0300 3.1000
The solid line above represents the trust's net asset value (NAV), which
indicates overall changes in value among the trust's underlying securities. The
trust's common share market price is represented by the dashed line, which
indicates the price the market is willing to pay for shares of the trust at a
given time. Common share market price is influenced by a range of factors,
including supply and demand and market conditions.
7
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGEMENT TEAM FOR THE VAN KAMPEN HIGH
INCOME TRUST ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS
AND INFLUENCED THE TRUST'S RETURN DURING THE 12-MONTH PERIOD ENDED DECEMBER 31,
2002. THE TRUST IS MANAGED BY THE ADVISER'S HIGH YIELD TEAM. CURRENT MEMBERS(1)
OF THE TEAM INCLUDE STEPHEN ESSER, MANAGING DIRECTOR; GORDON LOERY, EXECUTIVE
DIRECTOR; AND DEANNA LOUGHNANE, EXECUTIVE DIRECTOR. THE FOLLOWING DISCUSSION
REFLECTS THEIR VIEWS ON THE TRUST'S PERFORMANCE.
(1) Team members may change without notice at any time.
Q WHAT WAS THE MARKET
ENVIRONMENT OF THE PAST 12 MONTHS?
A The 12-month period ended
December 31, 2002, was a highly volatile time in the high-yield market. The year
got off to a strong start, with the credit markets well supported by strong
economic activity in the first quarter of the year. At that point, the market
consensus appeared to coalesce around expectations of continued economic
strength.
The market took a decided turn for the worse for the next six months. The
primary culprit, at least initially, was the growing number and severity of
corporate-governance scandals, including the bankruptcies of Adelphia and
WorldCom. The latter had a particularly strong effect on the high-yield markets
because of the large amount of bonds originating in the telecommunications
sector. Economic fears also resurfaced when it became clear that a recovery in
the second half was increasingly unlikely. Finally, continued weakness in
corporate profits served to undermine both the credit and equity markets. These
factors combined to make June and July two of the worst back-to-back months in
the history of the high-yield market.
As in the final months of 2001, the last two months of 2002 were somewhat
more positive for high-yield bonds. While the corporate credit spreads over U.S.
Treasuries remained fairly wide by historical standards, the high-yield market
on the whole experienced a reversal of some of its previous losses as money
began to flow back into the asset class.
Issuance during the period was generally moderate. While it was off from the
record highs of the late 1990s, corporations still managed to bring roughly $60
to $70 billion in new bonds to market. This supply of debt was relatively well
balanced against demand over the course of the year; in fact, the level of
issuance tended to vary with market demand. Economic uncertainty also led
investors to favor
8
bonds of higher credit quality. This was a continuation of a two-year trend, and
stood in marked contrast to the period of 1997 through 1999 when lower-rated
companies (many of them in the telecommunications sector) brought record amounts
of bonds to market.
That last wave of issuance of lower-quality bonds proved to be a major
factor in the rising rate of defaults from 2000 through 2001. While defaults
remained well above historical averages in 2002, they did appear to taper off
and decline in the last months of the year.
Q HOW DID THE TRUST PERFORM IN
THIS ENVIRONMENT?
A The trust continued to provide
shareholders with what we believe is an attractive level of income, as its
monthly dividend of $0.0325 per share translates to a distribution rate of 12.58
percent based on the trust's common share market price as of December 31, 2002.
For the 12-month period ended December 31, 2002, the trust generated a total
return of -22.99 percent. This reflects a decrease in common share market price
from $4.54 per share on December 31, 2001, to $3.10 per share on December 31,
2002.
Of course, past performance is no guarantee of future results. As a result
of recent market activity, current performance may vary from the figures shown.
Investment return, share price and net asset value will fluctuate and trust
shares, when sold, may be worth more or less than their original cost. For more
up-to-date information, please visit vankampen.com or speak with your financial
advisor.
By comparison, the Chase High Yield Index posted a total return of 2.17
percent for the same period. The Chase High Yield Index is a broad-based,
unmanaged statistical composite of high yield securities. Index returns do not
include any sales charges or fees that would be paid by an investor purchasing
the securities it represents. Such costs would lower performance. It is not
possible to invest directly in an index. For additional performance results,
please refer to the chart and footnotes on page 4.
Q WHAT WERE THE KEY DRIVERS OF
THE TRUST'S RELATIVE PERFORMANCE?
A The trust's exposure to the cable
and telecom industries had the greatest impact on performance. These were two of
the market's worst-performing sectors because of a combination of deteriorating
industry fundamentals and high default rates. The trust also experienced the
effects of poor security selection in a few select industries. On the positive
side, our underweighted positions in utilities and airlines helped relative
performance, as did good security selection in broadcasting.
Q WHAT STRATEGIES DID YOU USE
IN MANAGING THE TRUST?
A At the portfolio level, we
continued to follow our strategy of rigorous bottom-up security analysis and
selection. Our purchases were generally made with an eye to capitalizing on
securities that had become oversold and as a result, offered compelling value.
Our analysts were able to identify attractive opportunities across a wide range
of sectors including chemicals, forest products, transportation, manufacturing
and general
9
industrial issues. These securities offered the additional benefit of giving the
portfolio exposure to economically sensitive sectors that we anticipate should
perform strongly when the economy turns the corner.
In keeping with our bottom-up focus, we sold some of the portfolio's
positions that no longer met our investment criteria. Some of these bonds had
met their performance targets, while others experienced deteriorating
fundamentals. Many of our sales were from the portfolio's holdings of
telecommunications, cable and wireless securities. We also allowed market forces
to reduce the portfolio's weightings in these sectors. By the end of the period,
the trust was underweighted in these troubled sectors relative to its benchmark.
Q WHAT IS YOUR OUTLOOK FOR THE
HIGH-YIELD MARKET?
A In spite of the strong upturn at
the end of the year, high-yield spreads remain at historically wide levels.
These spreads are especially attractive considering that the default rate in the
market appears to be declining and could very well fall further in the coming
year. In our view, the relatively high quality of most of the issuance over the
past few years bodes especially well for a continued decrease in default rates.
Our economic research also indicates that the economy is likely to grow
moderately in the coming year, perhaps somewhere in the range of 2 percent to 3
percent, which should also be supportive of the high-yield market.
10
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BOTTOM-UP INVESTING: A management style that emphasizes the analysis of
individual stocks, rather than economic and market cycles.
CREDIT RATING: An evaluation of a bond issuer's credit history and capability of
repaying debt obligations. Standard & Poor's Ratings Group and Moody's Investors
Service are two companies that assign credit ratings. Standard & Poor's ratings
range from a high of AAA to a low of D, Moody's from a high of Aaa to a low of
C.
CREDIT SPREAD: Also called quality spread; the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality ones.
Normally, lower-quality issues provide higher yields to compensate investors for
their additional credit risk.
DEFAULT: The failure to make required debt payments on time.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent, large swings in price.
11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
December 31, 2002
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CORPORATE BONDS 174.7%
AEROSPACE 2.2%
$ 940 Sequa Corp. ................................. 9.000% 08/01/09 $ 907,100
------------
BROADCASTING 3.7%
745 Nextmedia Operating, Inc. ................... 10.750 07/01/11 786,906
845 TV Azteca S.A. (Mexico)...................... 10.500 02/15/07 765,781
------------
1,552,687
------------
CABLE 8.4%
1,425 British Sky Broadcasting (United Kingdom).... 7.300 10/15/06 1,483,459
1,005 Charter Communication Holdings LLC........... 8.250 04/01/07 452,250
975 EchoStar Communications Corp. ............... 9.250 02/01/06 1,023,750
355 Quebecor Media, Inc. (Canada)................ 11.125 07/15/11 328,819
1,140 Telewest PLC (United Kingdom) (a)............ 9.625 10/01/06 210,900
------------
3,499,178
------------
CHEMICALS 8.6%
330 Acetex Corp. (Canada)........................ 10.875 08/01/09 351,450
850 Equistar Chemicals L.P. ..................... 8.500 02/15/04 841,768
245 FMC Corp., 144A--Private Placement (b)....... 10.250 11/01/09 265,825
190 ISP Chemco, Inc. ............................ 10.250 07/01/11 197,600
900 ISP Holdings, Inc. .......................... 10.625 12/15/09 787,500
260 Lyondell Chemical Co. ....................... 9.875 05/01/07 250,900
265 Lyondell Chemical Co. ....................... 9.500 12/15/08 247,775
230 Millennium America, Inc. .................... 7.000 11/15/06 223,387
340 Millennium America, Inc. .................... 9.250 06/15/08 356,150
50 PCI Chemicals Canada, Inc. (Canada).......... 10.000 12/31/08 35,443
17 Pioneer Cos., Inc. .......................... 5.298 12/31/06 11,668
------------
3,569,466
------------
CONSUMER PRODUCTS 0.7%
265 Elizabeth Arden, Inc. ....................... 11.750 02/01/11 274,275
------------
DIVERSIFIED MEDIA 9.6%
715 Alliance Atlantis Communications, Inc.
(Canada)..................................... 13.000 12/15/09 782,925
450 AOL Time Warner, Inc. ....................... 6.125 04/15/06 465,023
630 K-III Communications Corp. .................. 10.250 06/01/04 621,337
See Notes to Financial Statements
12
YOUR TRUST'S INVESTMENTS
December 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
DIVERSIFIED MEDIA (CONTINUED)
$ 620 Mail Well I Corp. ........................... 9.625% 03/15/12 $ 554,900
500 MDC Corp., Inc. (Canada)..................... 10.500 12/01/06 450,000
115 RH Donnelley Fin Corp. I, 144A--Private
Placement (b)................................ 8.875 12/15/10 123,625
280 RH Donnelley Fin Corp. I, 144A--Private
Placement (b)................................ 10.875 12/15/12 306,600
315 Salem Communications Corp. .................. 7.750 12/15/10 315,787
395 Six Flags, Inc. ............................. 8.875 02/01/10 373,275
------------
3,993,472
------------
ENERGY 21.1%
910 BRL Universal Equipment...................... 8.875 02/15/08 950,950
570 Chesapeake Energy Corp. ..................... 7.875 03/15/04 595,650
545 Chesapeake Energy Corp. ..................... 8.125 04/01/11 564,075
365 El Paso Energy Partners LP, 144A--Private
Placement (b)................................ 10.625 12/01/12 375,037
1,140 Frontier Oil Corp. .......................... 11.750 11/15/09 1,179,900
715 Hanover Equipment Trust, 144A--Private
Placement (b)................................ 9.487 09/01/08 700,700
215 Hanover Equipment Trust, 144A--Private
Placement (b)................................ 9.737 09/01/11 208,550
275 Magnum Hunter Resources, Inc. ............... 9.600 03/15/12 293,562
580 Port Arthur Finance Corp. ................... 12.500 01/15/09 640,867
315 Stone Energy Corp. .......................... 8.250 12/15/11 329,175
830 Tesoro Petroleum Corp. ...................... 9.625 04/01/12 543,650
570 Transocean, Inc. ............................ 6.500 04/15/03 575,843
685 Transocean, Inc. ............................ 9.500 12/15/08 867,467
815 Vintage Petroleum, Inc. ..................... 7.875 05/15/11 798,700
115 Westport Resources Corp., 144A--Private
Placement (b)................................ 8.250 11/01/11 121,325
------------
8,745,451
------------
FINANCIAL 3.4%
310 Banco Nacional de Comercio Exterior
(Mexico)..................................... 7.250 02/02/04 325,832
410 Health Net, Inc. ............................ 8.375 04/15/11 473,449
585 Istar Financial, Inc. ....................... 8.750 08/15/08 623,263
------------
1,422,544
------------
FOOD & DRUG 0.0%
1,570 Jitney-Jungle Stores America,
Inc. (a) (c) (d)............................. 12.000 03/01/06 157
------------
See Notes to Financial Statements
13
YOUR TRUST'S INVESTMENTS
December 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FOOD & TOBACCO 11.1%
$1,100 Coca Cola Femsa S.A. (Mexico)................ 8.950% 11/01/06 $ 1,245,750
1,150 Pepsi Gemex S.A. (Mexico).................... 9.750 03/30/04 1,250,625
1,065 Smithfield Foods, Inc. ...................... 7.625 02/15/08 1,043,700
1,050 Smithfield Foods, Inc. ...................... 8.000 10/15/09 1,076,250
------------
4,616,325
------------
FOREST PRODUCTS 14.5%
410 Abitibi-Consolidated, Inc. (Canada).......... 8.550 08/01/10 455,817
590 MDP Acquisitions PLC, 144A--Private Placement
(Ireland) (b)................................ 9.625 10/01/12 616,550
390 Norske Skog Canada Ltd. (Canada)............. 8.625 06/15/11 394,875
1,350 Owens-Brockway Glass Container, Inc. ........ 8.875 02/15/09 1,397,250
855 Pacifica Papers, Inc. (Canada)............... 10.000 03/15/09 908,438
575 Radnor Holdings Corp. ....................... 10.000 12/01/03 491,625
1,790 Tembec Industries, Inc. (Canada)............. 7.750 03/15/12 1,745,250
------------
6,009,805
------------
GAMING & LEISURE 25.3%
920 Harrahs Operating Co., Inc. ................. 7.875 12/15/05 977,500
230 Harrahs Operating Co., Inc. ................. 8.000 02/01/11 265,674
465 Hilton Hotels Corp. ......................... 7.950 04/15/07 483,518
950 HMH Properties, Inc. ........................ 7.875 08/01/05 940,500
845 Horseshoe Gaming LLC......................... 8.625 05/15/09 902,038
1,425 International Game Technology................ 7.875 05/15/04 1,489,125
1,400 Mohegan Tribal Gaming Authority.............. 8.125 01/01/06 1,480,500
490 Park Place Entertainment Corp. .............. 7.875 12/15/05 499,800
425 Park Place Entertainment Corp. .............. 8.875 09/15/08 452,659
595 Prime Hospitality Corp. ..................... 8.375 05/01/12 580,125
1,075 Starwood Hotels & Resorts, 144A--Private
Placement (b)................................ 7.375 05/01/07 1,061,563
780 Station Casinos, Inc. ....................... 8.375 02/15/08 832,650
475 Station Casinos, Inc. ....................... 9.875 07/01/10 517,750
------------
10,483,402
------------
HEALTHCARE 11.0%
625 Amerisourcebergen Corp. ..................... 8.125 09/01/08 668,750
650 Fisher Scientific International, Inc. ....... 7.125 12/15/05 663,000
690 Fresenius Medical Care Capital Trust II...... 7.875 02/01/08 681,375
235 Fresenius Medical Care Capital Trust IV...... 7.875 06/15/11 229,125
1,045 HCA, Inc. ................................... 6.910 06/15/05 1,098,656
155 Manor Care, Inc. ............................ 8.000 03/01/08 164,300
See Notes to Financial Statements
14
YOUR TRUST'S INVESTMENTS
December 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
HEALTHCARE (CONTINUED)
$ 450 Omnicare, Inc. .............................. 8.125% 03/15/11 $ 483,750
635 Tenet Healthcare Corp. ...................... 6.500 06/01/12 575,846
------------
4,564,802
------------
HOUSING 11.5%
545 CB Richard Ellis Service, Inc. .............. 11.250 06/15/11 504,125
775 Louisiana Pacific Corp. ..................... 10.875 11/15/08 837,000
110 Nortek Holdings, Inc. ....................... 9.250 03/15/07 113,575
550 Schuler Homes, Inc. ......................... 9.375 07/15/09 563,750
420 Tech Olympic USA, Inc. ...................... 9.000 07/01/10 409,500
360 Tech Olympic USA, Inc., 144A--Private
Placement (b)................................ 10.375 07/01/12 342,000
1,100 Toll Corp. .................................. 8.250 02/01/11 1,111,000
825 Webb (Del E.) Corp. ......................... 10.250 02/15/10 903,375
------------
4,784,325
------------
INFORMATION TECHNOLOGY 3.2%
425 Fairchild Semiconductor Corp. ............... 10.500 02/01/09 461,125
850 Flextronics International Ltd. (Singapore)... 8.750 10/15/07 877,625
------------
1,338,750
------------
MANUFACTURING 7.0%
255 Case Corp. .................................. 6.250 12/01/03 247,416
260 Case Credit Corp. ........................... 6.125 02/15/03 258,326
740 Communications & Power Industries, Inc. ..... 12.000 08/01/05 625,300
360 Johnsondiversey, Inc., 144A--Private
Placement (b)................................ 9.625 05/15/12 380,700
580 Manitowoc, Inc., 144A-- Private
Placement (b)................................ 10.500 08/01/12 604,650
510 Trimas Corp., 144A--Private Placement (b).... 9.875 06/15/12 507,450
290 Tyco Intl Group S.A. (Luxembourg)............ 6.375 02/15/06 281,533
------------
2,905,375
------------
METALS 3.2%
280 Doe Run Resources Corp., Ser B (a)........... 11.250 03/15/05 57,400
1,100 GS Technologies Operating,
Inc. (a) (c) (d)............................. 12.250 10/01/05 49,500
370 Oregon Steel Mills, Inc., 144A--Private
Placement (b)................................ 10.000 07/15/09 377,400
495 UCAR Finance, Inc. .......................... 10.250 02/15/12 396,000
1,590 WCI Steel, Inc. ............................. 10.000 12/01/04 429,300
------------
1,309,600
------------
RETAIL 2.1%
210 Big 5 Corp. ................................. 10.875 11/15/07 219,450
245 Gap, Inc. ................................... 10.550 12/15/08 268,275
See Notes to Financial Statements
15
YOUR TRUST'S INVESTMENTS
December 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
RETAIL (CONTINUED)
$ 80 Penney JC Co., Inc. ......................... 7.600% 04/01/07 $ 81,400
295 Penney JC Co., Inc., 144A--Private
Placement (b)................................ 9.000 08/01/12 302,375
------------
871,500
------------
SERVICES 7.0%
1,345 Allied Waste North America, Inc. ............ 8.875 04/01/08 1,371,900
1,400 Waste Management, Inc. ...................... 7.125 10/01/07 1,529,791
------------
2,901,691
------------
TELECOMMUNICATIONS 1.3%
165 Asia Global Crossing (Bermuda) (a) (c)....... 13.375 10/15/10 18,769
245 Exodus Communications, Inc. (a) (c) (d)...... 11.250 07/01/08 14,693
370 Focal Communications Corp. (a) (c)........... 11.875 01/15/10 9,250
850 Frontier Corp. (a) (c)....................... 6.000 10/15/03 46,750
950 Global Crossing Holdings Ltd.
(Bermuda) (a) (c)............................ 9.125 11/15/06 33,250
100 Globix Corp., 144A--Private
Placement (b) (f)............................ 11.000 05/01/08 72,737
1,160 Metromedia Fiber Network, Inc. (a) (c) (d)... 10.000 12/15/09 2,900
570 Nextlink Communications, Inc. (a) (c)........ 9.625 10/01/07 3,563
600 Nextlink Communications, Inc. (a) (c)........ 10.500 12/01/09 3,750
630 PSINet, Inc. (a) (c)......................... 10.500 12/01/06 22,050
1,255 WorldCom, Inc. (a) (c)....................... 7.750 04/01/07 301,200
------------
528,912
------------
TRANSPORTATION 12.7%
1,520 Aetna Industries, Inc. (a) (c) (d)........... 11.875 10/01/06 243,200
400 Autonation, Inc. ............................ 9.000 08/01/08 406,000
185 Collins & Aikman Products Co. ............... 11.500 04/15/06 156,325
605 Collins & Aikman Products Co. ............... 10.750 12/31/11 579,288
615 Dana Corp. .................................. 9.000 08/15/11 596,550
460 Dura Operating Corp. ........................ 8.625 04/15/12 464,600
940 Ford Motor Credit Co. ....................... 6.500 01/25/07 929,270
455 General Motors Acceptance Corp. ............. 7.500 07/15/05 479,429
505 Intermet Corp. .............................. 9.750 06/15/09 457,025
575 Lear Corp. .................................. 8.110 05/15/09 610,938
425 Metaldyne Corp. ............................. 11.000 06/15/12 350,625
------------
5,273,250
------------
UTILITY 4.1%
570 Calpine Corp. ............................... 8.625 08/15/10 245,100
10 Calpine Corp. ............................... 8.500 02/15/11 4,400
535 Dynegy Holdings, Inc. ....................... 6.875 04/01/11 184,575
455 Monongahela Power Co. ....................... 5.000 10/01/06 439,698
See Notes to Financial Statements
16
YOUR TRUST'S INVESTMENTS
December 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
UTILITY (CONTINUED)
$ 635 PSEG Energy Holdings, Inc. .................. 9.125% 02/10/04 $ 628,846
220 PSEG Energy Holdings, Inc. .................. 8.625 02/15/08 183,915
------------
1,686,534
------------
WIRELESS COMMUNICATIONS 3.0%
285 American Cellular Corp. ..................... 9.500 10/15/09 55,575
1,105 Nextel Communications, Inc. ................. 9.375 11/15/09 1,005,550
182 Telecorp PCS, Inc. .......................... 10.625 07/15/10 196,560
------------
1,257,685
------------
TOTAL CORPORATE BONDS 174.7%............................................... 72,496,286
------------
GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 3.5%
545 Federal Republic of Brazil (Brazil).......... 11.250 07/26/07 418,287
140 United Mexican States (Mexico)............... 8.375 01/14/11 158,550
750 United Mexican States (Mexico)............... 8.625 03/12/08 863,625
------------
TOTAL GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS.......................... 1,440,462
------------
DESCRIPTION
EQUITIES 0.7%
DecisionOne Corp. (3,033 common shares) (d) (e)............................. 0
DecisionOne Corp. (6,670 common stock warrants) (d) (e)..................... 0
Globix Corp. (11,697 common shares) (e)..................................... 23,394
HCI Direct, Inc. (30,357 common shares) (d) (e)............................. 236,784
Hosiery Corp of America, Inc. (500 common shares) (e)....................... 5
McLeodUSA, Inc. (1,437 common stock warrants) (e)........................... 503
McLeodUSA, Inc. (648 preferred shares) (e).................................. 2,657
Pioneer Cos., Inc. (3,251 common shares) (e)................................ 5,852
Star Gas Partners L.P. (264 limited partnership units)...................... 4,884
VS Holdings, Inc. (11,316 common shares) (d) (e)............................ 2,113
------------
TOTAL EQUITIES.............................................................. 276,192
------------
TOTAL LONG-TERM INVESTMENTS 178.9%
(Cost $88,415,172)........................................................ 74,212,940
------------
REPURCHASE AGREEMENT 8.3%
State Street Bank & Trust Co. ($3,456,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 12/31/02, to be sold
on 01/02/03 at $3,456,202) (Cost $3,456,000).............................. 3,456,000
------------
See Notes to Financial Statements
17
YOUR TRUST'S INVESTMENTS
December 31, 2002
MARKET
DESCRIPTION VALUE
TOTAL INVESTMENTS $187.2%
(Cost $91,871,172)..................................................... $ 77,668,940
OTHER ASSETS IN EXCESS OF LIABILITIES 3.5%.............................. 1,446,507
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (90.7%).............. (37,630,267)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%........................... $ 41,485,180
============
(a) Non-income producing as security is in default.
(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(c) This borrower has filed for protection in federal bankruptcy court.
(d) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(e) Non-income producing security.
(f) Payment-in-kind security.
See Notes to Financial Statements
18
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2002
ASSETS:
Total Investments (Cost $91,871,172)........................ $ 77,668,940
Cash........................................................ 446
Interest Receivable......................................... 1,702,089
Other....................................................... 772
------------
Total Assets............................................ 79,372,247
------------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 46,956
Affiliates................................................ 5,449
Trustees' Deferred Compensation and Retirement Plans........ 136,398
Accrued Expenses............................................ 67,997
------------
Total Liabilities....................................... 256,800
Preferred Shares (including accrued distributions).......... 37,630,267
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 41,485,180
============
NET ASSET VALUE PER COMMON SHARE ($41,485,180 divided by
13,710,760 shares outstanding)............................ $ 3.03
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 13,710,760 shares issued and
outstanding).............................................. $ 137,108
Paid in Surplus............................................. 85,174,600
Accumulated Undistributed Net Investment Income............. (1,274,014)
Net Unrealized Depreciation................................. (14,202,232)
Accumulated Net Realized Loss............................... (28,350,282)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 41,485,180
============
PREFERRED SHARES ($.01 par value, authorized 1,000,000
shares, 376 issued with liquidation preference of $100,000
per share)................................................ $ 37,600,000
------------
NET ASSETS INCLUDING PREFERRED SHARES....................... $ 79,085,180
============
See Notes to Financial Statements
19
Statement of Operations
For the Year Ended December 31, 2002
INVESTMENT INCOME:
Interest.................................................... $ 7,420,274
Dividends................................................... 607
Other....................................................... 44,279
------------
Total Income............................................ 7,465,160
------------
EXPENSES:
Investment Advisory Fee..................................... 606,008
Preferred Share Maintenance................................. 123,935
Legal....................................................... 36,577
Custody..................................................... 15,276
Trustees' Fees and Related Expenses......................... 8,438
Other....................................................... 179,626
------------
Total Expenses.......................................... 969,860
------------
NET INVESTMENT INCOME....................................... $ 6,495,300
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(11,284,395)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (15,949,872)
End of the Period......................................... (14,202,232)
------------
Net Unrealized Appreciation During the Period............... 1,747,640
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (9,536,755)
============
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (754,350)
============
NET DECREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ (3,795,805)
============
See Notes to Financial Statements
20
Statements of Changes in Net Assets
YEAR ENDED YEAR ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
--------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 6,495,300 $ 9,683,102
Net Realized Loss................................ (11,284,395) (8,072,306)
Net Unrealized Appreciation During the Period.... 1,747,640 2,051,508
Distributions to Preferred Shareholders:
Net Investment Income.......................... (754,350) (2,004,147)
------------ -----------
Change in Net Assets Applicable to Common Shares
from Operations................................ (3,795,805) 1,658,157
Distributions to Common Shareholders:
Net Investment Income.......................... (6,306,907) (7,732,621)
Return of Capital Distribution................. (198,341) -0-
------------ -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM INVESTMENT ACTIVITIES.............. (10,301,053) (6,074,464)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period.......................... 51,786,233 57,860,697
------------ -----------
End of the Period (Including accumulated
undistributed net investment income of
($1,274,014) and ($1,386,700), respectively)... $ 41,485,180 $51,786,233
============ ===========
See Notes to Financial Statements
21
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
--------------------------------
2002 2001 (c) 2000
--------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD............ $ 3.78 $ 4.22 $ 5.10
-------- -------- --------
Net Investment Income............................. .47 .71 .85
Net Realized and Unrealized Gain/Loss............. (.69) (.44) (.85)
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income........................... (.06) (.15) (.26)
-------- -------- --------
Total from Investment Operations.................... (.28) .12 (.26)
Distributions Paid to Common Shareholders:
Net Investment Income............................. (.46) (.56) (.61)
Return of Capital Distributions................... (.01) -0- (.01)
-------- -------- --------
NET ASSET VALUE, END OF THE PERIOD.................. $ 3.03 $ 3.78 $ 4.22
======== ======== ========
Common Share Market Price Per Share at End of the
Period............................................ $ 3.10 $ 4.54 $ 4.125
Total Return (a).................................... -22.99% 23.76% 4.08%
Net Assets Applicable to Common Shares at End of the
Period (In millions).............................. $ 41.5 $ 51.8 $ 57.9
Ratio of Expenses to Average Net Assets Applicable
to Common Shares (b).............................. 2.15% 1.98% 1.95%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (b)................... 14.42% 16.80% 18.05%
Portfolio Turnover.................................. 82% 64% 62%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (b).............................. 1.12% 1.07% 1.04%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)................... 12.75% 13.32% 12.48%
SENIOR SECURITIES:
Total Preferred Shares Outstanding.................. 376 450 500
Asset Coverage Per Preferred Share (e).............. $210,413 $215,081 $215,271
Involuntary Liquidating Preference Per Preferred
Share............................................. $100,000 $100,000 $100,000
Average Market Value Per Preferred Share............ $100,000 $100,000 $100,000
(a) Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common share market price at the end of the
period indicated.
(b) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(c) As required, effective January 1, 2001, the Trust has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on fixed income securities. The effect of this change for
the year ended December 31, 2001 was to decrease net investment income per
share by $.02, increase net realized and unrealized gains and losses per
share by $.02 and decrease the ratio of net investment income to average net
assets applicable to common shares by .38%. Per share, ratios and
supplemental data for periods prior to December 31, 2001 have not been
restated to reflect this change in presentation.
(d) Ratios reflect the effect of dividend payments to preferred shareholders.
(e) Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
22
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993
------------------------------------------------------------------------------
$ 5.86 $ 6.47 $ 6.35 $ 6.19 $ 5.62 $ 6.74 $ 6.23
-------- -------- -------- -------- -------- -------- --------
.88 .91 .93 .94 .98 1.00 1.11
(.75) (.58) .13 .15 .54 (.98) .53
(.22) (.24) (.24) (.23) (.25) (.19) (.14)
-------- -------- -------- -------- -------- -------- --------
(.09) .09 .82 .86 1.27 (.17) 1.50
(.67) (.70) (.70) (.70) (.70) (.95) (.99)
-0- -0- -0- -0- -0- -0- -0-
-------- -------- -------- -------- -------- -------- --------
$ 5.10 $ 5.86 $ 6.47 $ 6.35 $ 6.19 $ 5.62 $ 6.74
======== ======== ======== ======== ======== ======== ========
$ 4.50 $ 6.375 $ 7.375 $ 6.75 $ 6.375 $ 5.50 $ 8.125
-21.20% -4.33% 20.29% 17.34% 29.17% -23.22% 26.12%
$ 70.0 $ 80.4 $ 88.7 $ 87.0 $ 84.8 $ 77.1 $ 92.3
1.92% 1.85% 1.76% 1.87% 1.92% 1.96% 1.72%
16.13% 14.56% 14.60% 15.32% 16.39% 16.33% 16.75%
57% 65% 102% 92% 119% 110% 99%
1.07% 1.09% 1.05% 1.11% 1.12% 1.16% 1.04%
12.09% 10.77% 10.90% 11.58% 12.16% 13.31% 14.66%
588 588 588 588 588 588 588
$219,005 $236,742 $250,850 $247,974 $244,242 $231,106 $257,054
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
See Notes to Financial Statements
23
NOTES TO
FINANCIAL STATEMENTS
December 31, 2002
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Income Trust (the "Trust") is registered as a diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended. The Trust's investment objective is to provide high current
income, while seeking to preserve shareholders' capital through investment in a
professionally managed diversified portfolio of high yield, fixed income
securities. The Trust commenced investment operations on January 26, 1989.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principals
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Investments are stated at value using market quotations or
indications of value obtained from an independent pricing service. For those
securities where quotations or prices are not available, valuations are obtained
from yield data relating to instruments or securities with similar
characteristics in accordance with procedures established in good faith by the
Board of Trustees. Short-term securities with remaining maturities of 60 days or
less are valued at amortized cost, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Trust may invest in repurchase agreements, which are short-term
investments in which the Trust acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Trust may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Trust will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Trust.
24
NOTES TO
FINANCIAL STATEMENTS
December 31, 2002
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
discount is accreted and premium is amortized over the expected life of each
applicable security.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At December 31, 2002, the Trust had an accumulated capital loss carry
forward for tax purposes of $26,230,148 which expires between December 31, 2003
and December 31, 2010. Of this amount, $1,028,010 will expire on December 31,
2003.
At December 31, 2002, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $ 92,297,850
============
Gross tax unrealized appreciation........................... $ 2,258,813
Gross tax unrealized depreciation........................... (16,887,723)
------------
Net tax unrealized depreciation on investments.............. $(14,628,910)
============
E. DISTRIBUTION OF INCOME AND GAINS The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually to common shareholders. Distributions from net
realized gains for book purposes may include short-term capital gains which are
included in ordinary income for tax purposes.
The tax character of distributions paid during the years ended December 31,
2002 and 2001 was as follows:
2002 2001
Distributions paid from:
Ordinary income........................................... $7,081,715 $9,858,889
Return of capital......................................... 198,341 --
---------- ----------
$7,280,056 $9,858,889
Due to inherent differences in the recognition of income, expenses and
realized gain/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between
25
NOTES TO
FINANCIAL STATEMENTS
December 31, 2002
book and tax basis reporting for the 2002 fiscal year have been identified and
appropriately reclassified. Permanent differences of $695,393 relating to book
to tax amortization differences were reclassified from accumulated undistributed
net investment income to accumulated net realized loss, $16,750 relating to fee
income received from tender offers were reclassified from accumulated
undistributed net investment income to accumulated net realized loss, $198,341
relating to return of capital distributions were reclassified from accumulated
undistributed net investment income to capital, and $1,670,578 relating to a
portion of the capital loss carryforward that expired during the tax year ended
December 31, 2002 were reclassified from accumulated net realized loss to
capital.
Net realized gains or losses may differ for financial reporting and tax
purposes as a result of the deferral of losses relating to wash sale
transactions and as a result of post-October losses which many not be recognized
for tax purposes until the first day of the following fiscal year.
F. RECLASSIFICATIONS In accordance with the provisions of EITF D-98,
"Classification and Measurement of Redeemable Securities", effective for the
current period, the Trust has reclassified its Auction Market Preferred Shares
("AMPS") outside of permanent equity in the Net Assets section of the Statement
of Assets and Liabilities. In addition, distributions to AMPS shareholders are
now classified as a component of the "Net decrease in net assets applicable to
common shares from operations" on the Statement of Operations and the Statements
of Changes in Net Assets and as a component of the "Total from Investment
Operations" on the Financial Highlights. Prior year amounts presented have been
reclassified to conform to this period's presentation. This change has no impact
on the net assets applicable to common shares of the Trust.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .70% of the average daily net assets of the Trust.
For the year ended December 31, 2002, the Trust recognized expenses of
approximately $21,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each trust. For the year ended December
31, 2002, the Trust recognized expenses of approximately $28,700 representing
Van Kampen
26
NOTES TO
FINANCIAL STATEMENTS
December 31, 2002
Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Trust, which are reported as part
of "Other" and "Legal" expenses, respectively, in the Statement of Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $65,622,055 and $68,986,589,
respectively.
4. AUCTION MARKET PREFERRED SHARES
The Trust has outstanding 376 shares of AMPS at a liquidation value of $100,000
per share. Dividends are cumulative and the rate is currently reset through an
auction process every 28 days. The rate in effect on December 31, 2002 was
1.380%. During the year ended December 31, 2002, the rates ranged from 1.350% to
2.029%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense. The AMPS are redeemable at the option of the Trust in whole or in part
at a price of $100,000 per share plus accumulated and unpaid dividends. The
Trust is subject to certain asset coverage tests, and the AMPS are subject to
mandatory redemption if the tests are not met.
On June 28, 2002, the Trust redeemed 37 shares of its AMPS with a
liquidation value of $100,000 per share.
On July 30, 2002, the Trust redeemed an additional 37 shares of its AMPS
with a liquidation value of $100,000 per share.
27
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of Van Kampen High Income Trust
We have audited the accompanying statement of assets and liabilities of Van
Kampen High Income Trust (the "Trust"), including the portfolio of investments,
as of December 31, 2002, the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The Trust's financial highlights for the periods ended prior to December
31, 2000, were audited by other auditors whose report, dated February 4, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2002, by correspondence with the Trust's
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen High Income Trust as of December 31, 2002, the results of its operations,
the changes in its net assets and the financial highlights for the respective
stated periods, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 7, 2003
28
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") in which Common
Shareholders may elect to have dividends and capital gains distributions
automatically reinvested in Common Shares of the Trust. The service is entirely
voluntary and you may join or withdraw at any time.
HOW TO PARTICIPATE
If you wish to elect to participate in the Plan and your shares are held in
your own name, call 1-800-341-2929 for more information and a brochure. If your
shares are held in the name of a brokerage firm, bank, or other nominee, you
should contact your nominee to see if it would participate in the Plan on your
behalf. If you wish to participate in the Plan, but your brokerage firm, bank,
or nominee is unable to participate on your behalf, you should request that your
shares be re-registered in your own name which will enable your participation in
the Plan.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for
the Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or capital gains distribution paid subsequent to written
notice of the change sent to all Common Shareholders of the Trust at least 90
days before the record date for the dividend or distribution. The Plan also may
be amended or terminated by the Plan Agent, with the written consent of the
Trust, by providing at least 90 days written notice to all Participants in the
Plan.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic
29
reinvestment of dividends and capital gains distributions does not relieve you
of any income tax which may be payable on dividends or capital gains
distributions.
RIGHT TO WITHDRAW
You may withdraw from the Plan at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company. If you withdraw, you will receive,
without charge, a share certificate issued in your name for all full Common
Shares credited to your account under the Plan, and a cash payment will be made
for any fractional Common Share credited to your account under the Plan. You may
again elect to participate in the Plan at any time by calling 1-800-341-2929 or
writing to the Trust at:
2800 Post Oak Blvd.
Houston, TX 77056
Attn: Closed-End Funds
30
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN HIGH INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
31
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees and the Trust's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Trust and their
principal occupations for the last five years, other directorships held by the
trustees and their affiliations, if any, with Van Kampen Investments Inc. ("Van
Kampen Investments"), Van Kampen Investment Advisory Corp. ("Advisory Corp."),
Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds Inc.
(the "Distributor"), Van Kampen Advisors Inc., Van Kampen Exchange Corp. and Van
Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and Asset
Management sometimes are referred to herein collectively as the "Advisers." For
purposes hereof, the term "Fund Complex" includes each of the investment
companies advised by the Advisers or their affiliates. Trustees serve three year
terms or until their successors are duly elected and qualified. Officers are
annually elected by the trustees.
INDEPENDENT TRUSTEES:
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE
David C. Arch (57) Trustee Trustee Mr. Arch is Chairman and Chief Executive 37
Blistex Inc. since 1988 Officer of Blistex Inc., a consumer health
1800 Swift Drive care products manufacturer, and former
Oak Brook, IL 60523 Director of the World Presidents
Organization-Chicago Chapter. Mr. Arch is also
a Trustee or Managing General Partner of other
investment companies advised by the Advisers.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
David C. Arch (57) Mr. Arch is a member of
Blistex Inc. the Board of Directors of
1800 Swift Drive the Heartland Alliance, a
Oak Brook, IL 60523 non-profit organization
serving human needs based
in Chicago.
32
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE
Rod Dammeyer (62) Trustee Trustee Mr. Dammeyer is President of CAC, llc., a 37
CAC, llc. since 1988 private company offering capital investment
676 North Michigan Avenue and management advisory services. Mr. Dammeyer
Suite 2800 is also a Trustee or Managing General Partner
Chicago, IL 60611 of other investment companies advised by the
Advisers. Prior to February 2001, Mr. Dammeyer
was Vice Chairman and Director of Anixter
International, Inc. and IMC Global Inc. Prior
to July 2000, Mr. Dammeyer was a Managing
Partner of Equity Group Corporate Investment
(EGI), a company that makes private
investments in other companies. Prior to 1997,
Mr. Dammeyer was President, Chief Executive
Officer and a Director of Great American
Management & Investment, Inc., a diversified
manufacturing company.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (62) Mr. Dammeyer is a member
CAC, llc. of the Board of Directors
676 North Michigan Avenue of TeleTech Holdings
Suite 2800 Inc., Stericycle, Inc.,
Chicago, IL 60611 GATX Corporation,
Therasence, Inc. and
Peregrine Systems Inc.
and a member of the Board
of Trustees of the
University of Chicago
Hospitals and Health
Systems. Prior to July
2000, Mr. Dammeyer was a
member of the Board of
Directors of Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM). Prior to April
1999, Mr. Dammeyer was a
Director of Metal
Management, Inc. Prior to
1998, Mr. Dammeyer was a
Director of Lukens, Inc.,
Capsure Holdings Corp.,
Revco D.S., Inc., the
Chase Manhattan
Corporation National
Advisory Board and Sealy,
Inc. Prior to 1997, Mr.
Dammeyer was a Director
of Flacon Building
Products, Inc.
33
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE
Howard J Kerr (67) Trustee Trustee Mr. Kerr is a Trustee or Managing General 37
736 North Western Avenue since 1992 Partner of other investment companies advised
P.O. Box 317 by the Advisers. Prior to 1998, Mr. Kerr was
Lake Forest, IL 60045 the President and Chief Executive Officer of
Pocklington Corporation, Inc., an Investment
holding company.
Theodore A. Myers (72) Trustee Trustee Mr. Myers is a financial consultant. Mr. Myers 37
550 Washington Avenue since 1988 is also a Trustee or Managing General Partner
Glencoe, IL 60022 of other investment companies advised by the
Advisers. Prior to 1998, Mr. Myers was a
Senior Financial Advisor (and, prior to 1997,
an Executive Vice President, Chief Financial
Officer and Director) of Qualitech Steel
Corporation, a producer of high quality
engineered steels for automotive,
transportation and capital goods industries.
Prior to 1997, Mr. Myers was a member of the
Arthur Andersen Chief Financial Officers'
Committee.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Howard J Kerr (67) Mr. Kerr is a Director of
736 North Western Avenue Canbra Foods, Ltd., a
P.O. Box 317 Canadian oilseed
Lake Forest, IL 60045 crushing, refining,
processing and packaging,
operations, the Marrow
Foundation and Lake
Forest Bank & Trust.
Theodore A. Myers (72) Mr. Myers is a Director
550 Washington Avenue of Met Life Investors
Glencoe, IL 60022 (formerly known as COVA
Financial Life
Insurance). Prior to
1997, Mr. Myers was a
Director of McLouth
Steel.
34
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE
Hugo F. Sonnenschein (62) Trustee Trustee Mr. Sonnenschein is President Emeritus and 37
1126 E. 59th Street since 1994 Honorary Trustee of the University of Chicago
Chicago, IL 60637 and the Hutchinson Distinguished Service
Professor in the Department of Economics at
the University of Chicago. Prior to July 2000,
Mr. Sonnenschein was President of the
University of Chicago. Mr. Sonnenschein is a
member of the Board of Trustees of the
University of Rochester and a member of its
investment committee. Mr. Sonnenschein is a
member of the National Academy of Sciences,
the American Philosophical Society, and a
fellow of the American Academy of Arts and
Sciences. Mr. Sonnenschein is also a Trustee
or Managing General Partner of other
investment companies advised by the Advisers.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE HELD BY TRUSTEE
Hugo F. Sonnenschein (62) Mr. Sonnenschein is a
1126 E. 59th Street Director of Winston
Chicago, IL 60637 Laboratories, Inc.
35
INTERESTED TRUSTEES*:
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN
OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE
Richard F. Powers, III* Chairman Trustee Mr. Powers is Chairman of the Board. Trustee/ 92
(57) since 1999 Director of funds in the Fund Complex. Prior
1 Parkview Plaza to December 2002, Mr. Powers was Chairman,
Oakbrook Terrace, IL Director, President, Chief Executive Officer
60181 and Managing Director of Van Kampen; Chairman,
Director, Chief Executive Officer and Managing
Director of the Advisers, Distributor, Van
Kampen Advisors Inc. and Van Kampen Management
Inc.; Director of other subsidiaries of Van
Kampen; and Chief Sales and Marketing Officer
of Morgan Stanley Asset Management Inc. Prior
to May 1998, Mr. Powers was Executive Vice
President; and Director of Marketing of Morgan
Stanley and Director of Dean Witter Discover &
Co. and Dean Witter Realty. Prior to 1996, Mr.
Powers was Director of Dean Witter Reynolds
Inc.
Wayne W. Whalen* (63) Trustee Trustee Mr. Whalen is a Partner in the law firm of 92
333 West Wacker Drive since 1988 Skadden, Arps, Slate, Meagher & Flom
Chicago, IL 60606 (Illinois), legal counsel to certain funds
advised by the Advisers. Mr. Whalen is a
Trustee, Director or Managing General Partner
of other funds advised by the Advisers.
NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III*
(57)
1 Parkview Plaza
Oakbrook Terrace, IL
60181
Wayne W. Whalen* (63)
333 West Wacker Drive
Chicago, IL 60606
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person to certain of the funds
in the Fund Complex by reason of his firm currently acting as legal counsel to
such funds in the Fund Complex. Mr. Powers is an interested person of such
funds in the Fund Complex and the Advisers by reason of their current or
former positions with Morgan Stanley or its affiliates.
36
OFFICERS:
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Stephen L. Boyd (62) Vice President Officer Managing Director and Chief Investment Officer of Van Kampen
2800 Post Oak Blvd. since 1998 Investments, and Managing Director and President of the
45th Floor Advisers and Van Kampen Advisors Inc. Executive Vice
Houston, TX 77056 President and Chief Investment Officer of funds in the Fund
Complex. Prior to December 2000, Executive Vice President
and Chief Investment Officer of Van Kampen Investments, and
President and Chief Operating Officer of the Advisers. Prior
to April 2000, Executive Vice President and Chief Investment
Officer for Equity Investments of the Advisers. Prior to
October 1998, Vice President and Senior Portfolio Manager
with AIM Capital Management, Inc. Prior to February 1998,
Senior Vice President and Portfolio Manager of Van Kampen
American Capital Asset Management, Inc., Van Kampen American
Capital Investment Advisory Corp. and Van Kampen American
Capital Management, Inc.
37
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
Mitchell M. Merin (49) President and Officer President and Chief Executive Officer of funds in the Fund
1221 Avenue of the Americas Chief Executive since 2002 Complex since November 2002. Trustee/Director of certain
New York, NY 10020 Officer funds in the Fund Complex since 1999. President and Chief
Operating Officer of Morgan Stanley Investment Management
since December 1998. President and Director since April 1997
and Chief Executive Officer since June 1998 of Morgan
Stanley Investment Advisors Inc. and Morgan Stanley Services
Company Inc. Chairman, Chief Executive Officer and Director
of Morgan Stanley Distributors Inc. since June 1998.
Chairman since June 1998, and Director since January 1998 of
Morgan Stanley Trust. Director of various Morgan Stanley
subsidiaries. President of the Morgan Stanley Funds since
May 1999. Previously Chief Strategic Officer of Morgan
Stanley Investment Advisors Inc. and Morgan Stanley Services
Company Inc. and Executive Vice President of Morgan Stanley
Distributors Inc. April 1997-June 1998, Vice President of
the Morgan Stanley Funds May 1997-April 1999, and Executive
Vice President of Dean Witter, Discover & Co. prior to May
1997.
Joseph J. McAlinden (60) Chief Investment Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas Officer since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Management Inc. and Morgan Stanley Investments LP; and
Director of Morgan Stanley Trust for five years.
38
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
A. Thomas Smith III (46) Vice President and Officer Managing Director and Director of Van Kampen Investments,
1221 Avenue of Americas Secretary since 1999 Director of the Advisers, Van Kampen Advisors Inc., the
New York, NY 10020 Distributor, Investor Services and certain other
subsidiaries of Van Kampen Investments. Managing Director
and General Counsel-Mutual Funds of Morgan Stanley
Investment Advisors, Inc. Vice President or Principal Legal
Officer and Secretary of funds in the Fund Complex. Prior to
July 2001, Managing Director, General Counsel, Secretary and
Director of Van Kampen Investments, the Advisers, the
Distributor, Investor Services, and certain other
subsidiaries of Van Kampen Investments. Prior to December
2000, Executive Vice President, General Counsel, Secretary
and Director of Van Kampen Investments, the Advisers, Van
Kampen Advisors Inc., the Distributor, Investor Services and
certain other subsidiaries of Van Kampen Investments. Prior
to January 1999, Vice President and Associate General
Counsel to New York Life Insurance Company ("New York
Life"), and prior to March 1997, Associate General Counsel
of New York Life. Prior to December 1993, Assistant General
Counsel of The Dreyfus Corporation. Prior to August 1991,
Senior Associate, Willkie Farr & Gallagher. Prior to January
1989, Staff Attorney at the Securities and Exchange
Commission, Division of Investment Management, Office of
Chief Counsel.
John R. Reynoldson (49) Vice President Officer Executive Director of the Advisers and Van Kampen Advisors
1 Parkview Plaza since 2000 Inc. Vice President of funds in the Fund Complex. Prior to
Oakbrook Terrace, IL 60181 July 2001, Principal and Co- head of the Fixed Income
Department of the Advisers and Van Kampen Advisors Inc.
Prior to December 2000, Senior Vice President of the
Advisers and Van Kampen Advisors Inc. Prior to May 2000, he
managed the investment grade taxable group for the Advisers
since July 1999. From July 1988 to June 1999, he managed the
government securities bond group for Asset Management. Mr.
Reynoldson has been with Asset Management since April 1987.
John L. Sullivan (47) Vice President, Officer Executive Director of Van Kampen Investments, the Advisers
1 Parkview Plaza Chief Financial since 1996 and Van Kampen Advisors Inc. Vice President, Chief Financial
Oakbrook Terrace, IL 60181 Officer and Officer and Treasurer of funds in the Fund Complex. Head of
Treasurer Fund Accounting for Morgan Stanley Investment Management.
39
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS
John H. Zimmermann, III (45) Vice President Officer Managing Director and Director of Van Kampen Investments,
Harborside Financial Center since 2000 and Managing Director, President and Director of the
Plaza 2 - 7th Floor Distributor. Vice President of funds in the Fund Complex.
Jersey City, NJ 07311 Prior to December 2000, President of Van Kampen Insurance
Agency of Illinois Inc., and Senior Vice President and
Director of Van Kampen Investments. From November 1992 to
December 1997, Mr. Zimmermann was Senior Vice President of
the Distributor.
40
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you make with us,
our affiliates, or third parties. We may also collect information you provide
when using our web site, and text files (a.k.a. "cookies") may be placed on your
computer to help us to recognize you and to facilitate transactions you
initiate. We do not disclose any nonpublic personal information about you or any
of our former customers to anyone, except as permitted by law. For instance, so
that we may continue to offer you Van Kampen investment products and services
that meet your investing needs, and to effect transactions that you request or
authorize, we may disclose the information we collect to companies that perform
services on our behalf, such as printers and mailers that assist us in the
distribution of investor materials. These companies will use this information
only for the services for which we hired them, and are not permitted to use or
share this information for any other purpose. To protect your nonpublic personal
information internally, we permit access to it only by authorized employees, and
maintain physical, electronic and procedural safeguards to guard your nonpublic
personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van
Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as
well as the many Van Kampen mutual funds and Van Kampen unit investment
trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2003 Van Kampen Funds Inc. All rights reserved.
920, 911, 104 Member NASD/SIPC.
VIT ANR 2/03 9490B03-AS-2/03