<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Portfolio Management Review...................... 4
Glossary of Terms................................ 7
Portfolio Highlights............................. 8
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 17
Statement of Operations.......................... 18
Statement of Changes in Net Assets............... 19
Financial Highlights............................. 20
Notes to Financial Statements.................... 22
</TABLE>
ACD SAR 8/99
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
July 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the worst of the Asian crisis appears to be behind us, new concerns
are always emerging. In the coming months, we'll likely hear more about how the
year 2000 computer problem may affect the markets or that we're overdue for a
correction. While the markets could undoubtedly suffer as a result of these or
any number of other events, we encourage you to focus on your long-term
investment goals. Although nothing is certain, history has shown us that over
time, the markets tend to recover--and most investors want to be positioned to
take advantage of any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Asset Management Inc.
[SIG]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
1
<PAGE> 3
ECONOMIC SNAPSHOT
The strength of the domestic economy continued to defy expectations in the
first half of 1999, although it finally began to show signs of slowing down.
Strong growth, healthy employment, and low inflation all contributed to the
favorable economic environment.
STRONG ECONOMIC GROWTH
The nation's gross domestic product rose at an impressive rate of 4.3
percent during the first quarter of 1999, but fell to 2.3 percent in the second
quarter. The first-quarter expansion was fueled by an increase in consumer
spending, which dropped to more moderate levels later in the reporting period.
POSITIVE EMPLOYMENT ENVIRONMENT
In May, the unemployment rate dropped to 4.2 percent--its lowest level in
more than 30 years. Throughout the reporting period, unemployment remained low,
the number of jobs grew, and wages rose. The labor market remained especially
tight in the service industry and most urban areas.
LOW INFLATION
Inflation remained low throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index report (CPI). Following this up-tick, the Federal Reserve raised interest
rates 0.25 percent on June 30. Although the Fed had expressed a bias toward a
series of rate increases, May's tame CPI report prompted it to drop this bias
when announcing the June rate increase.
ECONOMIC OUTLOOK
Our outlook for the economy suggests that the moderate slowdown may
continue, bringing the economy back to historically normal growth levels.
Healthy job growth, which has been supporting the consumer confidence and
spending levels, showed signs of faltering toward the end of the reporting
period. However, a renewed optimism for corporate earnings, low unemployment,
and a vibrant housing market should provide some balance against a slower job
growth rate.
INTEREST RATES AND INFLATION
June 30, 1997, through June 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jun 1997 6.5000 2.3000
6.0000 2.2000
5.5000 2.2000
Sep 1997 6.2500 2.2000
5.7500 2.1000
5.6875 1.8000
Dec 1997 6.5000 1.7000
5.5625 1.6000
5.6250 1.4000
Mar 1998 6.1250 1.4000
5.6250 1.4000
5.6875 1.7000
Jun 1998 6.0000 1.7000
5.5625 1.7000
5.9375 1.6000
Sep 1998 5.7500 1.5000
5.2500 1.5000
4.8750 1.5000
Dec 1998 4.0000 1.6000
4.8125 1.7000
4.8750 1.6000
Mar 1999 5.1250 1.7000
4.9375 2.3000
4.5000 2.1000
Jun 1999 4.0000 2.0000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1999
VAN KAMPEN INCOME TRUST
(NYSE TICKER SYMBOL--VIN)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
Six-month total return based on market price(1)............ (7.50%)
Six-month total return based on NAV(2)..................... (0.42%)
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................... 8.73%
SHARE VALUATIONS
Net asset value............................................ $ 7.51
Closing common stock price................................. $ 6.875
Six-month high common stock price (01/04/99)............... $7.8125
Six-month low common stock price (06/30/99)................ $ 6.875
</TABLE>
(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 common 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.
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.
3
<PAGE> 5
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN INCOME TRUST
We recently spoke with the management team of the Van Kampen Income Trust about
the key events and economic forces that shaped the markets during the past six
months. The team includes Peter Ehret, portfolio manager, and Peter W. Hegel,
chief investment officer for fixed-income investments. Mr. Ehret assumed
management responsibilities for the Trust on June 1, 1999. The following
comments reflect their views on the Trust's performance during the six months
ended June 30, 1999.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE TRUST
OPERATED DURING THE PAST SIX MONTHS?
A
The first quarter of 1999 marked a recovery from the October 1998 low
point in the fixed-income market, as investors grew confident in the
strength of the economy and modest inflation. Consequently, yield spreads
narrowed between Treasuries and other fixed-income products (such as
mortgage-backed, high-grade, and high-yield securities). However, this good news
for fixed-income products was quelled in the second quarter by a slight surge in
inflation fears and the potential for interest-rate increases from the Federal
Reserve Board. This prompted yield spreads to widen once again, although not to
the extreme levels seen last fall.
As interest rates climbed steadily during the period, the Treasury yield
curve began to flatten, indicating a moderation in the yield difference between
long- and short-term Treasuries. This change became more pronounced as
short-term Treasury yields rose to reflect the potential for an increase--or
perhaps a series of increases--in the federal funds rate. The market breathed a
sigh of relief at the end of the reporting period, as the Fed approved a 0.25
percent hike while reassuring fixed-income investors that additional action
seemed unnecessary.
Q APPROXIMATELY HALF OF THE TRUST'S PORTFOLIO IS INVESTED IN HIGH-YIELD
BONDS. WHAT HAPPENED TO THOSE SECURITIES DURING THIS TIME?
A The high-yield market participated in the cautious recovery of the
fixed-income market from last fall's lows. However, investor concerns
about the direction of interest rates and the level of high-yield defaults
lingered through the reporting period. Accordingly, the yields for high-yield
bonds fell but remained relatively high compared to Treasuries. Falling yields
had a somewhat negative impact on the portfolio's income stream, but because
bond prices move in the opposite direction of yields, this environment was
somewhat supportive of the Trust's net asset value.
Thanks to the positive economic environment and relatively low interest
rates, high-yield issuance bounced back from last fall's depressed levels,
giving us a greater range of bonds to consider for purchase. Although the
default rate crept higher during the period, we believe it represented a
reversion to historical norms from the unusually low default
4
<PAGE> 6
levels of the past few years. We believe the attractive yields of high-yield
bonds compensate investors for their increased credit and default risk.
Q IN LIGHT OF THESE CONDITIONS, HOW WERE THE TRUST'S ASSETS ALLOCATED?
A The Income Trust invests in a portfolio comprised primarily of high-yield
corporate bonds and U.S. government securities and agencies. We left the
balance between the two sectors basically unchanged during the first
quarter, but took advantage of opportunities to adjust the balance toward the
high-yield sector in the second quarter. This action reflected our concerns
about rising interest rates and our belief that high-yield securities would
outperform in such an environment. At the end of the period, approximately 52
percent of the Trust's assets were allocated to high-yield investments, and 45
percent were invested in Treasury and agency securities.
Within the high-yield portion, we added to our positions in the relatively
defensive food segment. The Trust's food investments included well-known
companies such as Chiquita, Vlasic, Del Monte, and the grocery store chain
Pathmark. Companies in this sector tend to demonstrate less sensitivity to
changes in the economic cycle--after all, people will continue to eat,
regardless of the interest-rate environment! However, the Trust's return was
hurt by its high-yield holdings in the health-care and energy sectors--two of
the weakest industries of 1999. For additional Trust highlights, please refer to
the chart on page 8.
Q HOW DID THE TRUST PERFORM DURING THE REPORTING PERIOD?
A The Trust generated a total return of -7.50 percent(1) at market price and
-0.42 percent(2) at net asset value for the six-month period ended June
30, 1999. This performance reflects a decrease in market price per common
share from $7.750 on December 31, 1998, to $6.875 on June 30, 1999, which
includes reinvestment of dividends totaling $.30 per share. The dividend
represents a distribution rate of 8.73 percent based on the closing common stock
price on June 30, 1999.
By comparison, the Lehman Brothers High Yield Index posted a total return of
2.20 percent for the same period, and the Lehman Brothers Government Index
posted a -2.27 percent total return. These indices are broad-based measures that
reflect the general performance of high-yield bond and government securities.
They do not include any commissions that an investor would actually have to pay
in order to purchase the securities they represent. Of course, past performance
is no guarantee of comparable future results. Please refer to the chart and
footnotes on page 3 for additional performance numbers.
5
<PAGE> 7
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We anticipate a moderate slowdown in economic growth in the months ahead,
but do not expect this to have a negative effect on the high-yield market
unless it becomes a significant downturn. We believe strong high-yield
issuance will continue over the next few months as issuers catch up from the
relatively quiet market of last fall. However, we are anticipating a slowdown in
issuance toward the end of the year.
As we manage the Trust going forward, our focus on fundamental, in-depth
research and assessment of high-yield bonds will remain unchanged. We will look
beyond the sector and credit rating of a bond to identify those issuers that we
believe will remain financially sound and perform well in a range of market
conditions. We'll also search for value in out-of-favor areas of the market in
our quest for opportunities to diversify the portfolio and contribute to the
Trust's performance.
[SIG]
Peter Ehret
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
6
<PAGE> 8
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending overnight funds to another. The Federal Reserve Board adjusts the
federal funds rate to affect the direction of interest rates.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a
year to establish monetary policy and monitor the economic pulse of the
United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INCOME TRUST
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Utilities 14.70 14.20
Consumer Services 13.10 13.30
Raw Materials/Processing Industries 6.00 6.30
Consumer Distribution 5.80 5.00
Producer Manufacturing 3.90 5.00
</TABLE>
* As a percentage of long-term investments
NET ASSET VALUE AND MARKET PRICE
(BASED UPON MONTH-END VALUES)
JUNE 1989 THROUGH JUNE 1999
[LINE GRAPH]
<TABLE>
<CAPTION>
MARKET PRICE NET ASSET VALUE
------------ ---------------
<S> <C> <C>
Jun 1989 9.130 9.000
9.130 8.940
9.000 8.700
8.250 8.500
7.880 8.150
8.000 8.070
7.500 7.910
7.500 7.710
6.880 7.520
7.130 7.540
6.630 7.470
6.750 7.540
Jun 1990 6.880 7.580
7.000 7.640
6.500 7.330
5.630 7.070
5.880 6.840
5.880 6.740
5.630 6.660
5.630 6.680
6.500 6.950
6.380 7.050
6.880 7.140
6.750 7.170
Jun 1991 7.000 7.280
7.000 7.390
7.380 7.530
7.500 7.570
7.380 7.680
7.375 7.700
7.380 7.700
7.630 7.810
7.750 7.810
7.750 7.850
8.000 7.860
7.880 7.940
Jun 1992 8.130 7.930
8.380 8.000
8.250 8.070
8.260 8.030
7.500 7.830
7.750 7.810
7.630 7.850
7.750 7.950
8.250 7.960
7.880 8.030
8.000 8.030
8.000 8.070
Jun 1993 8.130 8.170
8.250 8.150
8.130 8.150
7.250 8.080
7.750 8.130
7.750 8.130
7.760 8.160
8.130 8.250
7.250 8.170
7.000 7.920
7.790 6.880
7.000 7.730
Jun 1994 7.000 7.720
7.000 7.700
7.250 7.630
7.250 7.430
6.880 7.360
6.630 7.290
6.500 7.280
6.880 7.350
7.130 7.500
7.250 7.500
7.000 7.580
7.130 7.780
Jun 1995 7.250 7.760
7.250 7.750
7.000 7.780
7.380 7.840
7.250 7.860
7.130 7.880
7.250 7.940
7.500 7.960
7.380 7.920
7.380 7.810
7.380 7.790
7.380 7.790
Jun 1996 7.250 7.700
7.250 7.740
7.500 7.760
7.250 7.840
7.380 7.860
7.630 7.940
7.500 7.980
7.630 7.890
7.500 7.980
7.500 7.500
7.630 7.760
7.630 7.890
Jun 1997 7.690 7.970
7.750 8.040
7.440 7.960
7.690 8.100
7.630 8.090
8.000 8.120
8.000 8.050
8.130 8.160
8.130 8.150
8.190 8.180
7.880 8.190
8.060 8.190
Jun 1998 7.810 8.170
7.880 8.170
7.440 7.880
7.630 7.870
7.880 7.690
7.940 7.910
7.750 7.840
7.310 7.900
7.130 7.720
7.000 7.750
7.060 7.780
7.060 7.600
Jun 1999 6.875 7.506
</TABLE>
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 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.
Market price is influenced by a range of factors, including supply and demand
and market conditions.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS (CONTINUED)
VAN KAMPEN INCOME TRUST
CREDIT QUALITY
AS OF JUNE 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA, US
GOV'T,
AND GOV'T NON-
AGENCY AA/AA BBB/BAA BB/BA B/B CCC/CAA CC/CA C/C RATED
--------- ----- ------- ----- --- ------- ----- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of June 30, 1999 44.70 0.5 1.80 6.80 38.10 3.90 0.2 0.1 2.90
<CAPTION>
OTHER
-----
<S> <C>
As of June 30, 1999 1.00
</TABLE>
AS OF DECEMBER 31, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA, US
GOV'T, AND
GOV'T AGENCY BBB/BAA BB/BA B/B CCC/CAA NON-RATED
------------ ------- ----- --- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998 43.90 1.30 5.90 41.00 3.50 3.60
<CAPTION>
OTHER
-----
<S> <C>
As of December 31, 1998 0.8
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY
FOR THE PERIOD ENDED JUNE 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
MONTHLY DIVIDEND
----------------
<S> <C>
'Jan 1999' 0.05
'Feb 1999' 0.05
'Mar 1999' 0.05
'Apr 1999' 0.05
'May 1999' 0.05
'Jun 1999' 0.05
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DOMESTIC CORPORATE BONDS (US $) 44.8%
CONSUMER DISTRIBUTION 4.8%
500 Agrilink Foods, Inc. .......... 11.875% 11/01/08 $ 517,500
500 Aurora Foods, Inc., Ser D...... 9.875 02/15/07 520,000
500 Big 5 Corp., Ser B............. 10.875 11/15/07 507,500
500 Chiquita Brands International,
Inc. .......................... 10.000 06/15/09 504,375
500 Luiginos, Inc., 144A - Private
Placement (a).................. 10.000 02/01/06 490,625
250 Pantry, Inc. .................. 10.250 10/15/07 252,500
500 Pathmark Stores, Inc. ......... 12.625 06/15/02 511,250
1,250 Pathmark Stores, Inc. (b)...... 0/10.750 11/01/03 1,235,938
1,000 Southern Foods Group........... 9.875 09/01/07 1,025,000
------------
5,564,688
------------
CONSUMER DURABLES 2.2%
900 Aetna Industries, Inc. ........ 11.875 10/01/06 911,250
1,000 Sleepmaster LLC, 144A - Private
Placement (a).................. 11.000 05/15/09 1,025,000
300 Venture Holdings Trust, Ser
B.............................. 9.500 07/01/05 286,500
200 Venture Holdings Trust......... 9.750 04/01/04 209,750
125 Venture Holdings Trust,
144A - Private Placement (a)... 11.000 06/01/07 127,188
------------
2,559,688
------------
CONSUMER NON-DURABLES 2.2%
850 Consoltex Group, Inc., Ser B... 11.000 10/01/03 862,750
520 Del Monte Foods Co., Ser B
(b)............................ 0/12.500 12/15/07 384,800
250 Delta Mills Inc., Ser B........ 9.625 09/01/07 243,750
500 Outsourcing Services Group,
Inc. .......................... 10.875 03/01/06 477,500
575 Vlasic Foods International,
Inc., 144A - Private Placement
(a)............................ 10.250 07/01/09 568,531
------------
2,537,331
------------
CONSUMER SERVICES 10.4%
800 Amazon.com, Inc. (b)........... 0/10.000 05/01/08 548,000
250 Americredit Corp. ............. 9.250 02/01/04 253,750
150 Argosy Gaming Co.,
144A - Private Placement (a)... 10.750 06/01/09 153,563
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
1,250 Booth Creek Ski Holdings, Inc.,
Ser B.......................... 12.500% 03/15/07 $ 1,106,250
750 Capstar Broadcasting (b)....... 0/12.750 02/01/09 633,750
600 Casino Magic Louisiana Corp.,
Ser B.......................... 13.000 08/15/03 693,000
600 Charter Communications
Holdings, LLC,
144A - Private Placement (a)... 8.625 04/01/09 580,500
310 Charter Communications
Holdings, LLC, 144A - Private
Placement (a).................. 8.250 04/01/07 296,825
1,250 Frontiervision Holdings LP
(b)............................ 0/11.875 09/15/07 1,085,937
250 Frontiervision Holdings LP, Ser
B (b).......................... 0/11.875 09/15/07 218,125
1,000 IHF Holdings, Inc., Ser B
(b)............................ 0/15.000 11/15/04 135,000
500 Isle of Capri Casinos,
144A - Private Placement (a)... 8.750 04/15/09 470,000
575 Majestic Star Casino LLC,
144A - Private Placement (a)... 10.875 07/01/06 572,125
500 Muzak LLC, 144A - Private
Placement (a).................. 9.875 03/15/09 497,500
700 Northland Cable Television,
Inc. .......................... 10.250 11/15/07 733,250
1,000 NTL, Inc. (b).................. 0/11.500 02/01/06 877,500
1,000 Park N View, Inc., Ser B....... 13.000 05/15/08 305,000
375 Premier Parks, Inc. ........... 9.250 04/01/06 372,187
329 SFX Broadcasting, Inc., Ser
B.............................. 10.750 05/15/06 356,965
1,000 Splitrock Services, Inc., Ser
B.............................. 11.750 07/15/08 940,000
500 Tele-Communications, Inc. ..... 9.250 01/15/23 547,459
500 United International Holdings,
Inc., Ser B (b)................ 0/10.750 02/15/08 335,000
250 Young America Corp., Ser B..... 11.625 02/15/06 181,250
------------
11,892,936
------------
ENERGY 0.3%
500 Hurricane Hydrocarbons,
144A - Private Placement (a)... 11.750 11/01/04 85,000
500 KCS Energy, Inc., Ser B........ 11.000 01/15/03 305,000
------------
390,000
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCE 1.7%
1,250 Americo Life, Inc.,
144A - Private
Placement (a) (d).............. 9.250% 06/01/05 $ 1,259,375
500 Americredit Corp. ............. 9.250 02/01/04 507,500
250 Superior National Capital Trust
I.............................. 10.750 12/01/17 241,250
------------
2,008,125
------------
HEALTHCARE 1.0%
1,000 Mariner Post-Acute Network,
Inc., Ser B (b)................ 0/10.500 11/01/07 127,500
500 Maxxim Medical, Inc. .......... 10.500 08/01/06 537,500
550 Oxford Health Plans, Inc.,
144A - Private Placement (a)... 11.000 05/15/05 561,000
------------
1,226,000
------------
PRODUCER MANUFACTURING 2.0%
200 Compass Aerospace Corp., 144A -
Private Placement (a).......... 10.125 04/15/05 181,000
250 Eagle-Picher Industries,
Inc. .......................... 9.375 03/01/08 239,375
750 GS Technologies Operating,
Inc. .......................... 12.000 09/01/04 628,125
810 IMO Industries, Inc. .......... 11.750 05/01/06 822,150
250 W.R. Carpenter of North
America, Inc. ................. 10.625 06/15/07 238,750
250 Waxman Industries, Inc., Ser
B.............................. 12.750 06/01/04 121,250
------------
2,230,650
------------
RAW MATERIALS/PROCESSING INDUSTRIES 5.8%
1,000 Acetex Corp. .................. 9.750 10/01/03 925,000
250 American Pacific Corp. ........ 9.250 03/01/05 256,250
500 Doe Run Resources Corp., Ser
B.............................. 11.250 03/15/05 457,500
500 Dyersburg Corp., Ser B......... 9.750 09/01/07 207,500
250 Hydrochem Industrial Services,
Inc., Ser B.................... 10.375 08/01/07 226,250
390 Pioneer Americas Acquisition
Corp., Ser B................... 9.250 06/15/07 329,550
1,000 Printpack, Inc., Ser B......... 10.625 08/15/06 935,000
750 Radnor Holdings, Inc., Ser B... 10.000 12/01/03 757,500
500 Scovill Fasteners, Inc., Ser
B.............................. 11.250 11/30/07 277,500
1,000 Tekni-Plex, Inc., Ser B........ 11.250 04/01/07 1,065,000
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
667 United Stationer Supply Co. ... 12.750% 05/01/05 $ 733,700
450 WHX Corp. ..................... 10.500 04/15/05 429,750
------------
6,600,500
------------
TECHNOLOGY 0.7%
1,000 Crown Castle International
Corp. (b)...................... 0/10.625 11/15/07 705,000
90 Dictaphone Corp. .............. 11.750 08/01/05 52,650
------------
757,650
------------
TRANSPORTATION 1.6%
200 Atlas Air, Inc. ............... 9.250 04/15/08 191,500
500 Atlas Air, Inc. ............... 10.750 08/01/05 515,000
1,000 Greyhound Lines, Inc., Ser B... 11.500 04/15/07 1,135,000
------------
1,841,500
------------
UTILITIES 12.1%
300 Aes Corp. ..................... 9.500 06/01/09 309,000
500 American Cellular Corp......... 10.500 05/15/08 514,375
400 Centennial Cellular,
144A - Private Placement (a)... 10.750 12/15/08 417,000
1,000 Clearnet Communications, Inc.
(b)............................ 0/14.750 12/15/05 921,250
1,100 E. Spire Communications,
Inc. (b)....................... 0/13.000 11/01/05 605,000
55 GST Telecommuncations, Inc.,
144A - Private Placement (a)
(b)............................ 0/13.875 12/15/05 65,931
1,250 Intermedia Communications, Inc.
(b)............................ 0/12.500 05/15/06 1,034,375
300 Metromedia Fiber Network Inc.,
Ser B.......................... 10.000 11/15/08 309,750
500 Metronet Communications Corp.
(b)............................ 0/9.950 06/15/08 400,000
250 Metronet Communications
Corp. ......................... 12.000 08/15/07 290,000
500 Microcell Telecommunications,
Ser B (b)...................... 0/14.000 06/01/06 410,000
1,000 Optel, Inc., Ser B............. 13.000 02/15/05 755,000
500 Pegasus Communications Corp.,
Ser B.......................... 9.625 10/15/05 497,500
750 Price Communications Wireless,
Inc. .......................... 11.750 07/15/07 832,500
500 Primus Telecommunications
Group, 144A - Private Placement
(a)............................ 11.250 01/15/09 510,000
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES (CONTINUED)
175 Primus Telecommunications
Group.......................... 11.750% 08/01/04 $ 178,500
2,000 PSINET, Inc. .................. 11.500 11/01/08 2,110,000
1,250 SBA Communications Corp. (b)... 0/12.000 03/01/08 725,000
1,000 Startec Global
Communications................. 12.000 05/15/08 875,000
500 Triton PCS, Inc. (b)........... 0/11.000 05/01/08 321,875
1,500 Verio, Inc. ................... 10.375 04/01/05 1,533,750
300 Verio, Inc., 144A - Private
Placement (a).................. 11.250 12/01/08 315,000
------------
13,930,806
------------
TOTAL DOMESTIC CORPORATE BONDS 44.8%........................ 51,539,874
------------
FOREIGN BONDS AND DEBT SECURITIES (US $) 7.6%
BERMUDA 0.6%
750 Pegasus Shipping Hellas Ltd.,
Ser A.......................... 11.875 11/15/04 367,500
250 Sea Containers Ltd., Ser B..... 12.500 12/01/04 271,250
------------
638,750
------------
BRAZIL 0.7%
500 Mrs Logistica SA, Ser B,
144A - Private Placement (a)... 10.625 08/15/05 312,500
500 Multicanal Participacoes, Ser
B.............................. 12.625 06/18/04 477,500
------------
790,000
------------
CHINA 0.3%
1,000 Cathay International Ltd.,
144A - Private Placement (a)
(b)............................ 0/13.500 04/15/08 400,000
------------
MEXICO 2.1%
850 Cemex SA de CV, 144A - Private
Placement (a).................. 9.250 06/17/02 841,500
1,000 Gruma SA de CV................. 7.625 10/15/07 892,500
500 Grupo Televisa SA (b).......... 0/13.250 05/15/08 408,750
250 Vicap SA....................... 10.250 05/15/02 235,000
------------
2,377,750
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NETHERLANDS 0.9%
500 Hermes Europe Railtel BV....... 10.375% 01/15/09 $ 507,500
750 Netia Holdings BV, Ser B (b)... 0/11.250 11/01/07 468,750
------------
976,250
------------
SWEDEN 0.4%
500 Stena AB....................... 10.500 12/15/05 501,250
------------
UNITED KINGDOM 2.6%
300 Cenargo International PLC...... 9.750 06/15/08 282,750
250 Diamond Cable Communication
Co. (b)........................ 0/11.750 12/15/05 221,875
1,000 Diamond Cable Communication
Co. (b)........................ 0/13.250 09/30/04 1,037,500
1,000 Filtronic PLC, 144A - Private
Placement (a).................. 10.000 12/01/05 1,006,250
500 Telewest Communication PLC
(b)............................ 0/11.000 10/01/07 448,750
------------
2,997,125
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES (US $) 7.6%......... 8,681,125
------------
FORWARD PURCHASE COMMITMENTS (US $) 0.8%
1,000 Government National Mortgage
Association, July Forward
(e)............................ 6.500 TBA 965,155
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (US $) 42.4%
5,000 Federal Farm Credit Banks
Medium Term Note............... 6.375 08/06/07 4,975,000
3,734 Government National Mortgage
Association Pool............... 7.500 07/15/23-08/15/23 3,781,287
3,106 Government National Mortgage
Association Pool............... 8.000 03/15/17-10/15/22 3,202,606
1,129 Government National Mortgage
Association Pool............... 8.500 01/15/23-12/15/24 1,183,117
2,223 Government National Mortgage
Association Pool............... 9.000 05/15/16-12/15/24 2,384,125
447 Government National Mortgage
Association Pool............... 9.500 11/15/09-06/15/19 484,090
3,500 U.S. Treasury Bonds............ 7.250 05/15/16 3,854,725
3,000 U.S. Treasury Bonds............ 7.500 11/15/16 3,383,700
11,500 U.S. Treasury Bonds............ 8.875 02/15/19 14,802,915
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
8,000 U.S. Treasury Notes............ 7.000% 07/15/06 $ 8,486,240
2,000 U.S. Treasury Notes............ 7.250 08/15/04 2,127,100
------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS 42.4%........................................... 48,664,905
------------
EQUITIES 1.0%
American Telecasting, Inc. (250 Common Stock Warrants) (c).............. 250
Dairy Mart Convenience Stores, Inc. (1,666 Common Stock Warrants) (c)... 600
Metronet Communications Corp. (250 Common Stock Warrants) (c)........... 14,250
NTL, Inc. (1,188 Common Stock Warrants) (c)............................. 15,444
Optel, Inc., Ser B (500 Common Stock Warrants) (c)...................... 1,000
Park N View, Inc. (1,000 Common Stock Warrants) (c)..................... 250
Price Communications Corp. (64,670 Common Shares)....................... 970,050
Signature Brands, Inc. (500 Common Stock Warrants) (c).................. 10,950
Splitrock Services, Inc. (1,000 Common Stock Warrants) (c).............. 75,500
Star Gas Partners, LP (143 Limited Partnership Interest Units).......... 2,458
Startec Global Communications (1,000 Common Stock Warrants) (c)......... 1,000
------------
TOTAL EQUITIES 1.0%.................................................... 1,091,752
------------
TOTAL LONG-TERM INVESTMENTS 96.6%
(Cost $115,719,524)................................................... 110,942,811
REPURCHASE AGREEMENT 2.5%
BA Securities ($2,845,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 06/30/99, to be sold on
07/01/99 at $2,845,399)
(Cost $2,845,000)..................................................... 2,845,000
------------
TOTAL INVESTMENTS 99.1%
(Cost $118,564,524)................................................... 113,787,811
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%............................. 1,108,071
------------
NET ASSETS 100.0%...................................................... $114,895,882
============
</TABLE>
(a) 144A securities are those which are exempt from registration under rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) Non-Income producing security.
(d) Asset segregated as collateral for when issued or delayed delivery purchase
commitments.
(e) Securities purchased on a when issued or delayed delivery basis TBA--To be
announced, maturity date has not yet been established. Upon settlement and
delivery of the mortgage pools, maturity dates will be assigned.
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $118,564,524)....................... $113,787,811
Cash........................................................ 2,349
Receivables:
Interest.................................................. 2,183,600
Investments Sold.......................................... 35,572
Other....................................................... 61,356
------------
Total Assets.......................................... 116,070,688
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 957,073
Investment Advisory Fee................................... 61,345
Income Distributions...................................... 60,866
Administrative Fee........................................ 9,438
Affiliates................................................ 4,644
Accrued Expenses............................................ 51,323
Trustees' Deferred Compensation and Retirement Plans........ 30,117
------------
Total Liabilities..................................... 1,174,806
------------
NET ASSETS.................................................. $114,895,882
============
NET ASSETS CONSIST OF:
Common Shares (no par value with unlimited shares
authorized, 15,308,194 shares issued and outstanding)..... $132,397,633
Accumulated Undistributed Net Investment Income............. 870,949
Net Unrealized Depreciation................................. (4,776,713)
Accumulated Net Realized Loss............................... (13,595,987)
------------
NET ASSETS.................................................. $114,895,882
============
NET ASSET VALUE PER COMMON SHARE ($114,895,882 divided by
15,308,194 shares outstanding)............................ $ 7.51
============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 5,447,854
Other....................................................... 188,910
-----------
Total Income............................................ 5,636,764
-----------
EXPENSES:
Investment Advisory Fee..................................... 381,111
Administrative Fee.......................................... 58,632
Custody..................................................... 18,786
Trustees' Fees and Related Expenses......................... 15,776
Legal....................................................... 829
Other....................................................... 84,864
-----------
Total Expenses.......................................... 559,998
-----------
NET INVESTMENT INCOME....................................... $ 5,076,766
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(1,078,084)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (283,575)
End of the Period......................................... (4,776,713)
-----------
Net Unrealized Depreciation During the Period............... (4,493,138)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(5,571,222)
===========
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (494,456)
===========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1999
and the Year Ended December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 5,076,766 $ 10,041,185
Net Realized Gain/Loss........................... (1,078,084) 422,724
Net Unrealized Depreciation During the Period.... (4,493,138) (3,842,124)
------------ ------------
Change in Net Assets from Operations............. (494,456) 6,621,785
Distributions from Net Investment Income......... (4,592,257) (9,863,152)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... (5,086,713) (3,241,367)
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment................................... -0- 141,700
------------ ------------
TOTAL DECREASE IN NET ASSETS..................... (5,086,713) (3,099,667)
NET ASSETS:
Beginning of the Period.......................... 119,982,595 123,082,262
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $870,949
and $386,440 respectively)..................... $114,895,882 $119,982,595
============ ============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Trust
outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended ---------------------------------
June 30, 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $7.838 $8.050 $7.926 $ 7.94 $ 7.28
------ ------ ------ ------ ------
Net Investment Income........... .332 .657 .663 .658 .65
Net Realized and Unrealized
Gain/Loss..................... (.364) (.224) .183 (.011) .655
------ ------ ------ ------ ------
Total from Investment
Operations...................... (.032) .433 .846 .647 1.035
Less Distributions from Net
Investment Income............... .300 .645 .722 .661 .645
------ ------ ------ ------ ------
Net Asset Value, End of the
Period.......................... $7.506 $7.838 $8.050 $7.926 $ 7.94
====== ====== ====== ====== ======
Market Price Per Share at End of
the Period...................... $6.875 $7.750 $8.000 $7.500 $7.250
Total Investment Return at Market
Price (a) (c)................... (7.50%)* 5.05% 16.97% 12.95% 21.83%
Total Return at Net Asset
Value (b) (c)................... (0.42%)* 5.51% 11.32% 8.61% 19.13%
Net Assets at End of the Period
(In millions)................... $114.9 $120.0 $123.1 $121.2 $121.4
Ratio of Operating Expenses to
Average Net Assets.............. .95% .96% .91% 1.00% .94%
Ratio of Net Investment Income to
Average Net Assets.............. 8.66% 8.17% 8.32% 8.40% 8.50%
Portfolio Turnover................ 13%* 47% 55% 36% 34%
</TABLE>
* Non-annualized
(a) 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.
(b) Total Return at Net Asset Value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
(c) Prior to fiscal year end 1992, this was not a required disclosure.
20
<PAGE> 22
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------
1994 1993 1992 1991 1990
- -------------------------------------------------
<S> <C> <C> <C> <C>
$ 8.15 $ 7.85 $ 7.70 $ 6.66 $ 7.90
------ ------ ------- ------ ------
.65 .78 .845 .88 .974
(.8577) .285 .1625 1.05 (1.242)
------ ------ ------- ------ ------
(.2077) 1.065 1.0075 1.93 (.268)
.6623 .765 .8575 .89 .972
------ ------ ------- ------ ------
$ 7.28 $ 8.15 $ 7.85 $ 7.70 $ 6.66
====== ====== ======= ====== ======
$6.500 $7.750 $ 7.625 $7.375 $5.625
(8.06%) 11.82% 15.22% -- --
(2.08%) 14.36% 13.61% -- --
$111.4 $124.7 $ 119.6 $116.3 $100.6
.96% 1.00% .99% 1.03% 1.00%
7.94% 8.99% 10.71% 12.11% 13.25%
45% 53% 54% 50% 29%
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 current income through
investing in a portfolio of debt securities.
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--Fixed income investments are stated at value using market
quotations. Investments in securities listed on a securities exchange are valued
at their sales price as of the close of such securities exchange. Unlisted
securities and listed securities for which the last sales price is not available
are valued at the mean of the last reported bid and asked prices or, if not
available, at their fair value as determined 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.
Trust investments include lower-rated debt securities which may be more
susceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuer's ability to meet principal and
interest payments. At June 30, 1999, debt securities rated below investment
grade and comparable unrated securities represented approximately 52% of the
long-term investment portfolio.
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.
The Trust may invest in repurchase agreements, which are short-term
investments whereby the Trust acquires ownership of a debt security and the
seller agrees to
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
repurchase the security at a future time and specified price. The Trust may
invest independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account along with other investment companies
advised by Van Kampen Asset Management Inc. (the "Adviser") or its affiliates,
the daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. The Trust
will make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is required
to maintain the value of the underlying security at not less than the repurchase
proceeds due the Trust.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized.
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 these losses against any future realized capital
gains. At December 31, 1998, the Trust had an accumulated capital loss
carryforward for tax purposes of $12,153,006 which will expire between December
31, 1999 and December 31, 2003. Of this amount, $10,053,213 will expire on
December 31, 1999. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year.
At June 30, 1999, for federal income tax purposes, cost of long- and
short-term investments is $117,611,243, the aggregate gross unrealized
appreciation is $2,765,124 and the aggregate gross unrealized depreciation is
$7,553,711, resulting in net unrealized depreciation on long- and short-term
investments of $4,788,587.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends
monthly from net investment income to shareholders. Net realized gains, if any,
are distributed annually. Distributions from net realized gains for book
purposes may include short-term capital gains. All short-term capital gains are
included in ordinary income for tax purposes.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 .65% of the average weekly net assets of the Trust. In addition, the
Trust will pay a monthly administrative fee to Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen"), the Trust's Administrator, at an annual
rate of .10% of the first $250 million and .05% of the amount in excess of $250
million of the average weekly net assets of the Trust. The administrative
services provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and providing certain
services to shareholders.
For the six months ended June 30, 1999, the Trust recognized expenses of
approximately $800 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.
For the six months ended June 30, 1999, the Trust recognized expenses of
approximately $23,100 representing Van Kampen's cost of providing accounting
services to the Trust.
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 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.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At June 30, 1999 and December 31, 1998, paid in surplus related to common shares
aggregated $132,397,632 and $132,397,632, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares..................... 15,308,194 15,290,019
Shares Issued Through Dividend
Reinvestment....................... -0- 18,175
------------ ------------
Ending Shares........................ 15,308,194 15,308,194
============ ============
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $14,971,011 and $17,085,455 respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio, manage the portfolio's effective yield, or generate potential gain.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in the value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when taking delivery of a security underlying a
futures or forward contract. In this instance, the recognition of gain or loss
is postponed until the disposal of the security underlying the futures or
forward contract.
Summarized below are the specific types of derivative financial instruments
which may have been used by the Trust.
A. FORWARD COMMITMENTS--The Trust may trade certain securities under the terms
of forward commitments, whereby the settlement occurs at a specific future date.
Forward commitments are privately negotiated transactions between the Trust and
dealers. While forward commitments are outstanding, the Trust maintains
collateral of cash or liquid securities in a segregated account with its
custodian. If the intent of the Portfolio is to accept delivery of a security
traded under a forward bond purchase commitment, the commitment is recorded as a
long-term purchase. For forward bond purchase
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
commitments for which security settlement is not intended by the Portfolio,
changes in the value of the commitment are recognized by marking the commitment
to market on a daily basis with changes in the value reflected as a component of
unrealized appreciation/ depreciation. Upon the settlement of the contract, a
realized gain or loss is recognized and is included as a component of realized
gain/loss on forwards. Purchasing securities on a forward commitment involves a
risk that the market value at the time of delivery may be lower than the agreed
upon purchase price resulting in an unrealized loss. Selling securities on a
forward commitment involves different risks and can result in losses more
significant than those arising from the purchase of such securities. Risks may
arise as a result of the potential inability of the counterparties to meet the
terms of their contracts.
26
<PAGE> 28
VAN KAMPEN INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL* - Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and
Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
Boston, Massachusetts 02105
SHAREHOLDER SERVICING AGENT
EQUISERVE LP
P.O. Box 8200
Boston, Massachusetts 02266-8200
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
ERNST & YOUNG LLP
1221 McKinney Suite 2400
Houston, Texas 77010
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
Inquiries about an investor's account should be
referred to the trust's transfer agent:
EQUISERVE LP
P.O. Box 8200
Boston, Massachusetts 02266-8200
Telephone: (800) 821-1238
ALASKA AND HAWAII
Call Collect: (781) 575-2000
Ask for closed end fund account services
27
<PAGE> 29
RESULTS OF SHAREHOLDER VOTES
The Joint Annual Meeting of Shareholders of the Trust was held on June 16, 1999,
where shareholders voted on the election of trustees and independent public
accountants.
1) With regard to the election of the following trustees by the common
shareholders:
<TABLE>
<CAPTION>
# OF SHARES
---------------------
IN FAVOR WITHHELD
- ----------------------------------------------------------------------
<S> <C> <C>
Wayne W. Whalen................................ 14,080,054 109,491
Steven Muller.................................. 14,078,660 110,885
Rod Dammeyer................................... 14,078,894 110,651
</TABLE>
The other trustees of the Trust whose terms did not expire in 1999 are:
David C. Arch, Howard J Kerr, Dennis J. McDonnell, Theodore A. Meyers, Don G.
Powell and Hugo F. Sonnenschein.
2) With regard to the ratification of Ernst & Young LLP as independent
public accountants for the Trust, 14,057,251 shares voted in favor of the
proposal, 66,535 shares voted against, and 65,759 shares abstained.
28
<PAGE> 30
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Trust could be adversely affected if the computer systems
used by the Trust's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Trust's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Trust. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Trust may invest that, in turn, may adversely affect
the net asset value of the Trust. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Trust's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999<F1>
<PERIOD-START> JAN-01-1999<F1>
<PERIOD-END> JUN-30-1999<F1>
<INVESTMENTS-AT-COST> 118,564,524<F1>
<INVESTMENTS-AT-VALUE> 113,787,811<F1>
<RECEIVABLES> 2,219,172<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 63,705<F1>
<TOTAL-ASSETS> 116,070,688<F1>
<PAYABLE-FOR-SECURITIES> 957,073<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 217,733<F1>
<TOTAL-LIABILITIES> 1,174,806<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132,397,633
<SHARES-COMMON-STOCK> 15,308,194
<SHARES-COMMON-PRIOR> 15,308,194
<ACCUMULATED-NII-CURRENT> 870,949<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (13,595,987)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (4,776,713)<F1>
<NET-ASSETS> 114,895,882
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 5,447,854<F1>
<OTHER-INCOME> 188,910<F1>
<EXPENSES-NET> (559,998)<F1>
<NET-INVESTMENT-INCOME> 5,076,766<F1>
<REALIZED-GAINS-CURRENT> (1,078,084)<F1>
<APPREC-INCREASE-CURRENT> (4,493,138)<F1>
<NET-CHANGE-FROM-OPS> (494,456)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (4,592,257)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (5,086,713)
<ACCUMULATED-NII-PRIOR> 386,440<F1>
<ACCUMULATED-GAINS-PRIOR> (12,517,903)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 381,111<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 559,998<F1>
<AVERAGE-NET-ASSETS> 118,188,681
<PER-SHARE-NAV-BEGIN> 7.838
<PER-SHARE-NII> 0.332
<PER-SHARE-GAIN-APPREC> (0.364)
<PER-SHARE-DIVIDEND> (0.300)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.506
<EXPENSE-RATIO> 0.95
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
