<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................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 19
Statement of Operations.......................... 20
Statement of Changes in Net Assets............... 21
Financial Highlights............................. 22
Notes to Financial Statements.................... 24
Report of Independent Auditors................... 29
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
January 20, 2000
Dear Shareholder:
As we enter a new century--and millennium--it seems appropriate to take a
look back at the progress that's been made over the last 100 years and how the
world of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is
now available to most people. In fact, almost 79 million individuals--who
represent almost half of all U.S. households--own stocks either directly or
through mutual funds. This is even more impressive when considering that just 16
years earlier, only 19 percent of households owned stocks. Another important
shift has been the need for retirement planning beyond a pension plan or Social
Security. The Investment Company Institute, the leading mutual fund industry
association, reports that 77 percent of all mutual fund shareholders earmarked
retirement as their primary financial goal in 1998.
Through all the changes in the investment environment over the past century,
the general principles that have made generations of investors successful remain
the same. Some that have stood the test of time include:
- INVESTING FOR THE LONG-TERM
- BASING INVESTMENT DECISIONS ON SOUND RESEARCH
- BUILDING A DIVERSIFIED PORTFOLIO
- BELIEVING IN THE VALUE OF PROFESSIONAL INVESTMENT ADVICE
While no one can predict the future, at Van Kampen we believe that these
ideas will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
/s/ Richard F. Powers, III /s/ Dennis J. McDonnell
Richard F. Powers, III Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
The nation's brisk rate of economic growth continued throughout 1999,
bringing the United States to the verge of its longest economic expansion on
record. High levels of consumer spending, a host of new jobs, and increasing
productivity kept the economy strong. Gross domestic product, the primary
measure of economic growth, increased 4.2 percent for the year, including an
impressive annualized rate of 5.7 percent for the third quarter and 5.8 percent
in the fourth quarter.
EMPLOYMENT
The job market remained vibrant throughout the year, with more than 2.7
million U.S. jobs created in 1999. In addition, unemployment dropped to 4.1
percent in October--its lowest rate in three decades. With jobs plentiful and
wages on the rise, most Americans were optimistic about the future. At the end
of the year the consumer confidence index hit its highest level since 1968.
Although wage pressures caused some concerns about the potential erosion of
corporate profits, productivity gains helped keep those concerns muted through
the end of the year.
INFLATION AND INTEREST RATES
Although the Consumer Price Index continued to reflect historically low
inflation--rising only 2.7 percent during 1999--concerns about future increases
in inflation were prevalent throughout the reporting period. The Federal Reserve
Board remained active in guarding against inflation and trying to temper
economic growth. The Fed reversed its three interest-rate cuts from the fall of
1998 by raising rates in June, August, and November 1999.
U.S. GROSS DOMESTIC PRODUCT
Seasonally Adjusted Annualized Rates
Third Quarter 1997 through Fourth Quarter 1999
[GRAPH]
<TABLE>
<S> <C>
97Q3 4%
97Q4 3%
98Q1 6.9%
98Q2 2%
98Q3 3.9%
98Q4 5.9%
99Q1 3.7%
99Q2 1.9%
99Q3 5.7%
99Q4 5.8%
</TABLE>
Source: Bureau of Economic Analysis
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999
VAN KAMPEN INCOME TRUST
(NYSE TICKER SYMBOL--VIN)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
One-year total return based on market price(1)............. (19.81%)
One-year total return based on NAV(2)...................... (0.11%)
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................... 10.55%
SHARE VALUATIONS
Net asset value............................................ $7.25
Closing common stock price................................. $5.6875
One-year high common stock price (01/04/99)................ $7.8125
One-year low common stock price (12/23/99)................. $5.6250
</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 representatives of the adviser of the Van Kampen Income
Trust about the key events and economic forces that shaped the markets during
the Trust's fiscal year. The representatives are led by Peter Ehret, portfolio
manager, who has managed the Trust since June 1999 and worked in the investment
industry since 1988. He is joined by Ted Mundy, portfolio manager, and Peter W.
Hegel, chief investment officer for fixed-income investments. The following
discussion reflects their views on the Trust's performance during the 12-month
period ended December 31, 1999.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE TRUST
OPERATED DURING THE PAST 12 MONTHS?
A After the volatility of late 1998, the new year began on a note of
cautious optimism about the economy. As investors grew confident that U.S.
economic expansion would not be injured by the global economic problems
from the previous year, yield spreads narrowed between Treasuries and other
types of bonds (such as corporate, high-yield, and mortgage-backed securities).
In other words, the premium for holding these bonds fell, and they generally
outperformed Treasuries.
As the year progressed, it became clear that the economy had not only
averted a slowdown, but was gaining in strength. This robust growth rekindled
inflation concerns, which contributed to the Federal Reserve Board's decisions
to raise interest rates three times during the period. As a result, Treasuries
were significantly affected and posted very poor returns for the year. Higher
interest rates also dragged down returns in other rate-sensitive sectors, such
as mortgage-backed securities and investment-grade corporate bonds.
Investors found more to worry about in November, with the potential for year
2000 problems looming on the horizon. These problems failed to materialize at
the turn of the year, but concerns lingered about the strong economy and
possibility of further Fed action in the year 2000.
Q HOW DID THE HIGH-YIELD MARKET FARE IN THIS ENVIRONMENT?
A Because the high-yield market typically displays lower sensitivity to
interest-rate changes than other areas of the fixed-income markets,
high-yield, high-risk securities were able to outperform Treasury,
mortgage-backed, and investment-grade corporate bonds, despite having a
relatively poor year themselves.
Credit problems and excess supply were among the major issues weighing down
the high-yield market, and the Trust was not spared from market value erosion.
Credit problems mounted significantly in 1999, and as perceptions of credit risk
increased, yields increased and bond values fell. Although the number of bond
issuers in financial distress or bankruptcy increased during 1999, the trend
began to level off by year-end. The high-yield, high-risk market as a whole
appeared to be on the upswing by the end of the reporting period. Excess supply
was mitigated as investors' interest in this asset class
4
<PAGE> 6
heightened and the market grew more confident that the year 2000 computer
problem would not seriously impact bond issuers and the economy.
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE TRUST DURING THE PERIOD?
A We continued to focus on maintaining a high degree of diversification in
the Trust's portfolio and using credit analysis to help reduce the risks
of challenging market conditions. Given the rising interest-rate
environment, we focused on adding new investments in the high-yield sector of
the portfolio. Specifically, we maintained a significant allocation to the
telecommunications industry, an industry that turned in some of the high-yield
market's best results for the year. We also looked for new investments in the
government securities and investment-grade bond sector, with an emphasis on
mortgage-backed securities that we believed offered value.
Finally, two changes to the Trust's investment policies were approved by the
Trust's Board of Trustees during 1999, to be implemented immediately. First, the
management team may now invest up to 15 percent of the Trust's total assets in
U.S. dollar-denominated foreign securities. Although we currently do not plan to
invest such a large percentage in foreign bonds, we believe there are a number
of attractive overseas issues. For more information about the risks involved in
foreign investing, please see the Important Trust Update on page 7.
Second, the management team may now invest up to 25 percent of the Trust's
total assets in Treasury and non-Treasury zero-coupon securities, as well as
step-up coupon securities, which provide for a period of interest payment
deferral followed by a period where cash coupon payments are provided.
Q WERE THERE ANY DISAPPOINTMENTS DURING THE YEAR?
A As we mentioned earlier, the high-yield market saw an increase in credit
erosion in 1999. Some credit problems had a negative impact on the Trust
during the year, although these effects were partially mitigated by
diversification and credit selection. We were disappointed with some of the
Trust's holdings in the supermarket, textile, and food sectors. Despite economic
expansion, these sectors experienced limited growth and highly competitive
business conditions. As a result, we will be closely monitoring the Trust's
holdings in these areas in the coming months.
Q IN LIGHT OF THESE CONDITIONS, HOW WERE THE TRUST'S ASSETS ALLOCATED?
A The Income Trust's portfolio is comprised primarily of high-yield,
high-risk corporate bonds and U.S. government securities and agencies. We
left the balance between the two sectors basically unchanged during the
first half of the year but took advantage of opportunities to adjust the balance
in favor of the high-yield sector in the second half. This action reflected our
concerns about rising interest rates and our belief that high-yield bonds would
outperform mortgage-backed securities in such an
5
<PAGE> 7
environment. At the end of the period, approximately 52 percent of the Trust's
long-term investments were allocated to high-yield investments, and 46 percent
were invested in Treasury and agency securities. For additional portfolio
highlights, please refer to page 9.
Q HOW DID THE TRUST PERFORM DURING THE REPORTING PERIOD?
A The Trust's return was supported by its favorable sector allocations,
which helped blunt the negative impact of a poor overall year for the
fixed-income market. As a result, the Trust generated a total return of
- -19.81 percent(1) at market price and -0.11 percent(2) at net asset value for
the 12-month period ended December 31, 1999. This performance reflects a
decrease in market price per common share from $7.7500 on December 31, 1998, to
$5.6875 on December 31, 1999, which includes reinvestment of dividends totaling
$0.60 per share. The dividend represents a distribution rate of 10.55 percent
based on the closing common stock price on December 31, 1999.
By comparison, the Lehman Brothers High Yield Index posted a total return of
2.39 percent for the same period, and the Lehman Brothers Government Index
posted a -2.23 percent total return. These broad-based, unmanaged indices
reflect the general performance of high-yield bond and government securities.
They do not reflect any commissions or fees that would be paid by an investor
purchasing the securities they represent. Such costs would lower the performance
of the indices. An investment cannot be made directly in an index. 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.
Q WHAT IS YOUR OUTLOOK FOR THE HIGH-YIELD MARKET AND THE TRUST?
A We anticipate the continued combination of a robust economy and rising
interest rates. Against this backdrop, we expect the high-yield market to
again outperform the Treasury, mortgage-backed, and investment-grade
markets. Within the high-yield market, we believe the telecommunications
industry will continue to shine, with returns generally exceeding those of other
sectors.
Although we believe credit quality will continue to level off after falling
in 1999, we plan to maintain our efforts to diversify the Trust's high-yield
allocation as a defensive method. Overall, we will continue to apply our
research-intensive selection process and evaluate bonds on a case-by-case basis
to find those that we believe can add the most value to the portfolio.
6
<PAGE> 8
IMPORTANT TRUST UPDATE
As you may have read on page 5 of the Portfolio Management Review, the Board
of Trustees has approved a resolution that will allow the Trust to invest in
foreign securities. This change will allow the portfolio management team to
select from a greater number of available securities, particularly when the
supply of attractive U.S. securities is limited. The Trust may now invest up to
15 percent of its total assets in U.S. dollar-denominated securities of foreign
issuers.
Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign exchange rates, political and economic developments
(including war or other instability, expropriation of assets, nationalization
and confiscatory taxation), the imposition of foreign exchange limitations,
withholding taxes on income or capital transactions or other restrictions,
higher transaction costs and difficulty in taking judicial action. In addition,
there generally is less publicly available information about many foreign
issuers, and auditing, accounting, and financial reporting requirements are less
stringent and less uniform in many foreign countries. Such securities may be
less liquid than the securities of U.S. corporations or the U.S. government.
Such securities may also be subject to greater fluctuations in price than
securities of U.S. corporations or the U.S. government. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers, and
dealers than there is in the U.S., the Trust may experience settlement
difficulties or delays not usually encountered in the U.S. The risks of foreign
investments should be considered carefully by an investor in the Trust.
7
<PAGE> 9
GLOSSARY OF TERMS
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
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.
MORTGAGE-BACKED SECURITIES: Securities backed by pools of similar mortgages.
These securities are generally issued by agencies of the U.S. government,
such as Government National Mortgage Association (GNMA, or "Ginnie Mae") and
Federal Home Loan Mortgage Corporation (FHLMC, or "Freddie Mac").
YIELD: The annual rate of return on an investment, expressed as a percentage.
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.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INCOME TRUST
TOP FIVE PORTFOLIO INDUSTRIES*
[GRAPH]
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Utilities 14.6 14.2
Consumer Services 13.9 13.3
Raw Materials/Processing Industries 5.8 6.3
Consumer Distribution 4.2 5.0
Producer Manufacturing 3.6 5.0
</TABLE>
* As a percentage of long-term investments
NET ASSET VALUE AND MARKET PRICE
(BASED UPON MONTH-END VALUES)
DECEMBER 1989 THROUGH DECEMBER 1999
[GRAPH]
<TABLE>
<CAPTION>
MARKET PRICE NET ASSET VALUE
------------ ---------------
<S> <C> <C>
Dec 1989 7.50 7.91
7.50 7.71
6.88 7.52
7.13 7.54
6.63 7.47
6.75 7.54
6.88 7.58
7.00 7.64
6.50 7.33
5.63 7.07
5.88 6.84
5.88 6.74
Dec 1990 5.63 6.66
5.63 6.68
6.50 6.95
6.38 7.05
6.88 7.14
6.75 7.17
7.00 7.28
7.00 7.39
7.38 7.53
7.50 7.57
7.38 7.68
7.38 7.70
Dec 1991 7.38 7.70
7.63 7.81
7.75 7.81
7.75 7.85
8.00 7.86
7.88 7.94
8.13 7.93
8.38 8.00
8.25 8.07
8.25 8.03
7.50 7.83
7.75 7.81
Dec 1992 7.63 7.85
7.75 7.95
8.25 7.96
7.88 8.03
8.00 8.03
8.00 8.07
8.13 8.17
8.25 8.15
8.13 8.15
7.25 8.08
7.75 8.13
7.75 8.13
Dec 1993 7.75 8.16
8.13 8.25
7.25 8.17
7.00 7.92
7.79 6.88
7.00 7.73
7.00 7.72
7.00 7.70
7.25 7.63
7.25 7.43
6.88 7.36
6.63 7.29
Dec 1994 6.50 7.28
6.88 7.35
7.13 7.50
7.25 7.50
7.00 7.58
7.13 7.78
7.25 7.76
7.25 7.75
7.00 7.78
7.38 7.84
7.25 7.86
7.13 7.88
Dec 1995 7.25 7.94
7.50 7.96
7.38 7.92
7.38 7.81
7.38 7.79
7.38 7.79
7.25 7.70
7.25 7.74
7.50 7.76
7.25 7.84
7.38 7.86
7.63 7.94
Dec 1996 7.50 7.98
7.63 7.89
7.50 7.98
7.50 7.50
7.63 7.76
7.63 7.89
7.69 7.97
7.75 8.04
7.44 7.96
7.69 8.10
7.63 8.09
8.00 8.12
Dec 1997 8.00 8.05
8.13 8.16
8.13 8.15
8.19 8.18
7.88 8.19
8.06 8.19
7.81 8.17
7.88 8.17
7.44 7.88
7.63 7.87
7.88 7.69
7.94 7.91
Dec 1998 7.75 7.84
7.31 7.90
7.13 7.72
7.00 7.75
7.06 7.78
7.06 7.60
6.88 7.51
6.56 7.47
6.56 7.40
6.38 7.39
6.25 7.36
6.00 7.36
Dec 1999 5.69 7.25
</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.
9
<PAGE> 11
PORTFOLIO HIGHLIGHTS (CONTINUED)
VAN KAMPEN INCOME TRUST
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF DECEMBER 31, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA, US AA/AA BBB/BAA BB/BA B/B CCC/CAA CC/CA C/C NON-
GOV'T, ----- ------- ----- --- ------- ----- --- RATED
AND GOV'T -----
AGENCY
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31, 45.7 0.5 1.1 9.1 35.1 3.1 0.5 0.3 4.3
1999
<CAPTION>
OTHER
-----
<S> <C>
As of December 31, 0.3
1999
</TABLE>
AS OF DECEMBER 31, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA, US BBB/BAA BB/BA B/B CCC/CAA NON-RATED
GOV'T, AND ------- ----- --- ------- ---------
GOV'T AGENCY
------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998 43.9 1.3 5.9 41.0 3.5 3.6
<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 DECEMBER 31, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
MONTHLY DIVIDEND
----------------
<S> <C>
Jan 1999 0.0500
Feb 1999 0.0500
Mar 1999 0.0500
Apr 1999 0.0500
May 1999 0.0500
Jun 1999 0.0500
Jul 1999 0.0500
Aug 1999 0.0500
Sep 1999 0.0500
Oct 1999 0.0500
Nov 1999 0.0500
Dec 1999 0.0500
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
December 31, 1999
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
<C> <S> <C> <C> <C>
DOMESTIC CORPORATE BONDS (US $) 44.1%
CONSUMER DISTRIBUTION 3.3%
$ 500 Aurora Foods, Inc., Ser D..... 9.875% 02/15/07 $ 508,750
500 Big 5 Corp., Ser B............ 10.875 11/15/07 495,000
795 Chiquita Brands International,
Inc........................... 10.000 06/15/09 580,350
500 Luigino's, Inc................ 10.000 02/01/06 432,500
250 Pantry, Inc................... 10.250 10/15/07 243,750
360 Pathmark Stores, Inc.......... 11.625 06/15/02 127,800
140 Pathmark Stores, Inc.......... 12.625 06/15/02 49,700
1,250 Pathmark Stores, Inc.......... 10.750 11/01/03 156,250
1,000 Southern Foods Group.......... 9.875 09/01/07 1,012,500
------------
3,606,600
------------
CONSUMER DURABLES 2.9%
1,010 Aetna Industries, Inc......... 11.875 10/01/06 1,035,250
250 Cambridge Industries, Inc.,
Ser B......................... 10.250 07/15/07 106,250
1,000 Sleepmaster LLC, 144A -
Private Placement (a)......... 11.000 05/15/09 1,005,000
335 Venture Holdings Trust, Ser B. 9.500 07/01/05 299,825
800 Venture Holdings Trust........ 12.000 06/01/09 716,000
------------
3,162,325
------------
CONSUMER NON-DURABLES 1.7%
850 Consoltex Group, Inc., Ser B.. 11.000 10/01/03 854,250
375 Del Monte Corp................ 12.250 04/15/07 414,375
250 Delta Mills Inc., Ser B....... 9.625 09/01/07 176,250
500 Outsourcing Services Group,
Inc........................... 10.875 03/01/06 442,500
------------
1,887,375
------------
CONSUMER SERVICES 11.1%
550 Amazon.com, Inc. (b).......... 0/10.000 05/01/08 361,625
250 Americredit Corp.............. 9.250 02/01/04 251,875
150 Argosy Gaming Co.............. 10.750 06/01/09 158,250
1,250 Booth Creek Ski Holdings,
Inc., Ser B................... 12.500 03/15/07 906,250
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$ 500 Bresnan Communications Group,
Ser B......................... 8.000% 02/01/09 $ 501,250
750 AMFM Inc./Capstar
Broadcasting (b).............. 0/12.750 02/01/09 667,500
600 Casino Magic Louisiana Corp.,
Ser B......................... 13.000 08/15/03 664,500
910 Charter Communications
Hldgs, LLC.................... 8.250 04/01/07 850,850
175 Classic Cable, Inc., Ser B.... 9.375 08/01/09 169,750
1,250 Frontiervision Holdings LP
(b)........................... 0/11.875 09/15/07 1,109,375
250 Frontiervision Holdings LP,
Ser B (b)..................... 0/11.875 09/15/07 221,875
500 Isle of Capri Casinos, Inc.... 8.750 04/15/09 462,500
500 IXC Communications, Inc....... 9.000 04/15/08 505,625
375 Majestic Star Casino LLC, Ser
B............................. 10.875 07/01/06 364,688
500 Muzak LLC..................... 9.875 03/15/09 485,000
700 Northland Cable Television,
Inc........................... 10.250 11/15/07 705,250
1,000 NTL, Inc., Ser B (b).......... 0/11.500 02/01/06 915,000
1,000 Park N View, Inc., Ser B...... 13.000 05/15/08 755,000
375 Premier Parks, Inc............ 9.250 04/01/06 367,500
1,000 Splitrock Services, Inc., Ser
B............................. 11.750 07/15/08 925,000
500 Tele-Communications, Inc...... 9.250 01/15/23 538,276
225 United International Holdings,
Inc., Ser B (b)............... 0/10.750 02/15/08 144,563
275 United Pan-Europe
Communication, Ser B (b)...... 0/12.500 08/01/09 156,750
250 Young America Corp., Ser B.... 11.625 02/15/06 176,250
------------
12,364,502
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ENERGY 0.7%
$ 130 Chesapeake Energy Corp., Ser
B............................. 9.625% 05/01/05 $ 123,175
455 Hurricane Hydrocarbons,
144A - Private Placement (a)
(c)........................... 11.750 11/01/04 298,025
500 KCS Energy, Inc., Ser B (c)... 11.000 01/15/03 387,500
------------
808,700
------------
FINANCE 1.6%
1,250 Americo Life, Inc............. 9.250 06/01/05 1,256,250
500 Americredit Corp.............. 9.250 02/01/04 502,500
------------
1,758,750
------------
HEALTHCARE 0.8%
300 Iasis Healthcare Corp.,
144A - Private Placement
(a)........................... 13.000 10/15/09 310,500
550 Oxford Health Plans, Inc...... 11.000 05/15/05 536,250
------------
846,750
------------
PRODUCER MANUFACTURING 1.6%
200 Compass Aerospace Corp.,
144A - Private Placement
(a)........................... 10.125 04/15/05 112,000
250 Eagle-Picher Industries,
Inc........................... 9.375 03/01/08 221,250
750 GS Technologies Operating,
Inc........................... 12.000 09/01/04 352,500
810 IMO Industries, Inc........... 11.750 05/01/06 814,050
250 W.R. Carpenter of North
America, Inc.................. 10.625 06/15/07 143,750
250 Waxman Industries, Inc., Ser
B............................. 12.750 06/01/04 122,500
------------
1,766,050
------------
RAW MATERIALS/PROCESSING INDUSTRIES 5.5%
1,000 Acetex Corp................... 9.750 10/01/03 915,000
250 American Pacific Corp......... 9.250 03/01/05 252,500
500 Doe Run Resources Corp., Ser
B............................. 11.250 03/15/05 478,750
500 Dyersburg Corp., Ser B........ 9.750 09/01/07 202,500
250 Hydrochem Industrial Services,
Inc., Ser B................... 10.375 08/01/07 215,625
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
$ 390 Pioneer Americas Acquisition
Corp., Ser B.................. 9.250% 06/15/07 $ 312,000
1,000 Printpack, Inc., Ser B........ 10.625 08/15/06 965,000
750 Radnor Holdings Corp., Ser
B............................. 10.000 12/01/03 753,750
500 Scovill Fasteners, Inc., Ser
B............................. 11.250 11/30/07 237,500
250 Sweetheart Cup, Inc........... 9.625 09/01/00 248,750
1,000 Tekni-Plex, Inc., Ser B....... 11.250 04/01/07 1,090,000
450 WHX Corp...................... 10.500 04/15/05 443,250
------------
6,114,625
------------
TECHNOLOGY 0.7%
1,000 Crown Castle International
Corp. (b)..................... 0/10.625 11/15/07 765,000
90 Dictaphone Corp............... 11.750 08/01/05 67,500
------------
832,500
------------
TRANSPORTATION 1.6%
500 Atlas Air, Inc................ 10.750 08/01/05 512,500
200 Atlas Air, Inc................ 9.250 04/15/08 193,000
1,000 Greyhound Lines, Inc., Ser
B............................. 11.500 04/15/07 1,130,000
------------
1,835,500
------------
UTILITIES 12.6%
300 AES Corp...................... 9.500 06/01/09 303,750
190 Airgate PCS, Inc. (b)......... 0/13.500 10/01/09 108,300
425 Airgate PCS, Inc., Ser UNIT
(b)........................... 0/13.500 10/01/09 280,500
500 American Cellular Corp........ 10.500 05/15/08 556,875
400 Centennial Cellular Operating
Co............................ 10.750 12/15/08 428,000
1,000 Clearnet Communications, Inc.
(b)........................... 0/14.750 12/15/05 982,500
1,100 E. Spire Communications, Inc.
(b)........................... 0/13.000 11/01/05 610,500
670 Global Crossing Holdings Ltd.,
144A - Private Placement
(a)........................... 9.125 11/15/06 664,975
55 GST Telecommunications, Inc.,
144A - Private Placement (a)
(b)........................... 0/13.875 12/15/05 41,113
1,170 Intermedia Communications,
Inc. (b)...................... 0/12.500 05/15/06 1,029,600
350 Metromedia Fiber Network,
Inc........................... 10.000 12/15/09 360,500
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
$ 500 Microcell Telecommunications,
Ser B (b)..................... 0/14.000% 06/01/06 $ 446,250
480 Nextlink Communications, Inc.,
144A - Private Placement
(a)........................... 10.500 12/01/09 489,600
500 Pegasus Communications Corp.,
Ser B......................... 9.625 10/15/05 497,500
750 Price Communications Wireless,
Inc........................... 11.750 07/15/07 828,750
175 Primus Telecommunications
Group......................... 11.750 08/01/04 175,437
240 Primus Telecommunications
Group......................... 11.250 01/15/09 232,800
1,500 PSINET, Inc................... 11.500 11/01/08 1,575,000
1,250 SBA Communications Corp.
(b)........................... 0/12.000 03/01/08 768,750
1,000 Startec Global
Communications................ 12.000 05/15/08 815,000
500 Triton PCS, Inc. (b).......... 0/11.000 05/01/08 355,000
1,500 Verio, Inc.................... 10.375 04/01/05 1,507,500
215 Verio, Inc.................... 11.250 12/01/08 224,675
360 Voicestream Wireless Co.,
144A - Private Placement
(a)........................... 10.375 11/15/09 371,700
275 Williams Communications Group,
Inc........................... 10.700 10/01/07 288,406
------------
13,942,981
------------
TOTAL DOMESTIC CORPORATE BONDS 44.1%.......................... 48,926,658
------------
FOREIGN BONDS AND DEBT SECURITIES (US $) 7.5%
BERMUDA 0.5%
750 Pegasus Shipping Hellas Ltd.,
Ser A (c)..................... 11.875 11/15/04 273,750
250 Sea Containers Ltd., Ser B.... 12.500 12/01/04 256,250
------------
530,000
------------
BRAZIL 0.7%
500 Mrs Logistica, Ser B,
144A - Private Placement
(a)........................... 10.625 08/15/05 357,500
500 Multicanal Participacoes, Ser
B............................. 12.625 06/18/04 480,000
------------
837,500
------------
CHINA 0.5%
1,000 Cathay International Ltd.,
144A - Private Placement
(a)........................... 13.500 04/15/08 520,000
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MEXICO 1.8%
$ 850 Cemex SA de CV, 144A - Private
Placement (a)................. 9.250% 06/17/02 $ 867,000
1,000 Gruma SA de CV................ 7.625 10/15/07 872,500
250 Vicap SA...................... 10.250 05/15/02 241,875
------------
1,981,375
------------
NETHERLANDS 0.9%
500 Hermes Europe Railtel BV...... 10.375 01/15/09 495,000
750 Netia Holdings BV, Ser B
(b)........................... 0/11.250 11/01/07 491,250
------------
986,250
------------
SWEDEN 0.4%
500 Stena AB...................... 10.500 12/15/05 460,000
------------
UNITED KINGDOM 2.7%
300 Cenargo International PLC..... 9.750 06/15/08 251,250
1,000 Diamond Cable Communication
Co............................ 13.250 09/30/04 1,076,250
250 Diamond Cable Communication
Co. (b)....................... 0/11.750 12/15/05 236,250
1,000 Filtronic PLC................. 10.000 12/01/05 972,500
500 Telewest Communications PLC
(b)........................... 0/11.000 10/01/07 466,250
------------
3,002,500
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES (US $) 7.5%........... 8,317,625
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (US $) 43.7%
5,000 Federal Farm Credit Bank
Medium Term Notes............. 6.375 08/06/07 4,797,150
1,993 Government National Mortgage
Association Pool.............. 6.500 07/15/29-08/15/29 1,871,702
4,439 Government National Mortgage
Association Pool.............. 7.500 07/15/23-09/15/29 4,395,581
2,773 Government National Mortgage
Association Pool.............. 8.000 03/15/17-10/15/22 2,806,733
1,033 Government National Mortgage
Association Pool.............. 8.500 01/15/23-12/15/24 1,062,980
1,938 Government National Mortgage
Association Pool.............. 9.000 05/15/16-12/15/24 2,040,703
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
$ 384 Government National Mortgage
Association Pool.............. 9.500% 11/15/09-06/15/20 $ 410,528
3,500 U.S. Treasury Bonds........... 7.250 05/15/16 3,655,785
3,000 U.S. Treasury Bonds........... 7.500 11/15/16 3,206,850
11,500 U.S. Treasury Bonds........... 8.875 02/15/19 13,983,655
8,000 U.S. Treasury Notes........... 7.000 07/15/06 8,189,520
2,000 U.S. Treasury Notes........... 7.500 11/15/16 2,062,800
------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS
43.7%.......................................................... 48,483,987
------------
<CAPTION>
Description Market Value
- ---------------------------------------------------------------------------------------------
<S> <C>
EQUITIES 0.3%
American Telecasting, Inc., 144A - Private Placement
(250 Common Stock Warrants) (a) (c)........................................ 250
Dairy Mart Convenience Stores, Inc. (1,666 Common Stock Warrants) (c)........ 600
HF Holdings Inc. (5,260 Common Stock Warrants) (c)........................... 5,786
Metronet Communications Corp. (250 Common Stock Warrants) (c)................ 20,875
NTL, Inc., 144A - Private Placement (1,188 Common Stock Warrants) (a) (c).... 158,004
Optel, Inc., 144A - Private Placement (500 Common Shares) (a) (c)............ 1,000
Park N View, Inc., 144A - Private Placement
(1,000 Common Stock Warrants) (a) (c)...................................... 250
Signature Brands, Inc. (500 Common Stock Warrants) (c)....................... 10,750
Splitrock Services Inc. (5,692 Common Shares) (c)............................ 113,128
Star Gas Partners, LP (143 Limited Partnership Interest Units)............... 1,895
Startec Global Communications, 144A - Private Placement
(1,000 Common Stock Warrants) (a) (c)...................................... 1,000
Superior National Capital Trust I (2,500 Exchange Preferred Securities)...... 115,000
------------
TOTAL EQUITIES............................................................... 428,538
------------
TOTAL LONG-TERM INVESTMENTS 95.6%
(Cost $114,212,924)........................................................ 106,156,808
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- ---------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT 1.4%
BA Securities ($1,614,000 par collateralized by U.S. Government obligations
in a pooled cash account, dated 12/31/99, to be sold on 01/03/00 at
$1,614,370)
(Cost $1,614,000).......................................................... $ 1,614,000
------------
TOTAL INVESTMENTS 97.0%
(Cost $115,826,924)........................................................ 107,770,808
OTHER ASSETS IN EXCESS OF LIABILITIES 3.0%.................................. 3,282,772
------------
NET ASSETS 100.0%........................................................... $111,053,580
============
</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.
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $115,826,924)....................... $107,770,808
Cash........................................................ 1,129,129
Interest Receivable......................................... 2,294,349
Other....................................................... 38,740
------------
Total Assets.......................................... 111,233,026
------------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 61,866
Reports to Shareholders................................... 24,999
Administrative Fee........................................ 19,064
Custody................................................... 10,309
Affiliates................................................ 4,052
Trustees' Deferred Compensation and Retirement Plans........ 35,038
Accrued Expenses............................................ 24,118
------------
Total Liabilities..................................... 179,446
------------
NET ASSETS.................................................. $111,053,580
============
NET ASSETS CONSIST OF:
Common Shares (no par value with unlimited shares
authorized, 15,308,194 shares issued and outstanding)..... $122,340,720
Accumulated Undistributed Net Investment Income............. 727,515
Accumulated Net Realized Loss............................... (3,958,539)
Net Unrealized Depreciation................................. (8,056,116)
------------
NET ASSETS.................................................. $111,053,580
============
NET ASSET VALUE PER COMMON SHARE ($111,053,580 divided by
15,308,194 shares outstanding)............................ $ 7.25
============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $10,648,625
Other....................................................... 238,781
-----------
Total Income............................................ 10,887,406
-----------
EXPENSES:
Investment Advisory Fee..................................... 751,853
Administrative Fee.......................................... 115,670
Custody..................................................... 31,974
Trustees' Fees and Related Expenses......................... 31,920
Legal....................................................... 2,204
Other....................................................... 167,553
-----------
Total Expenses.......................................... 1,101,174
Less Credits Earned on Cash Balances.................... 418
-----------
Net Expenses............................................ 1,100,756
-----------
NET INVESTMENT INCOME....................................... $ 9,786,650
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(1,758,573)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (283,575)
End of the Period......................................... (8,056,116)
-----------
Net Unrealized Depreciation During the Period............... (7,772,541)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(9,531,114)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 255,536
===========
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................... $ 9,786,650 $ 10,041,185
Net Realized Gain/Loss......................... (1,758,573) 422,724
Net Unrealized Depreciation During the
Period....................................... (7,772,541) (3,842,124)
------------ ------------
Change in Net Assets from Operations........... 255,536 6,621,785
Distributions from Net Investment Income....... (9,184,551) (9,863,152)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... (8,929,015) (3,241,367)
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment................................. -0- 141,700
------------ ------------
TOTAL DECREASE IN NET ASSETS................... (8,929,015) (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
$727,515 and $386,440, respectively)......... $111,053,580 $119,982,595
============ ============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Trust
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------
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.............. .639 .657 .663 .658 .65
Net Realized and Unrealized
Gain/Loss........................ (.623) (.224) .183 (.011) .655
------- ------ ------ ------ ------
Total from Investment Operations..... .016 .433 .846 .647 1.305
Less Distributions from Net
Investment Income.................. .600 .645 .722 .661 .645
------- ------ ------ ------ ------
Net Asset Value, End of the Period... $7.254 $7.838 $8.050 $7.926 $ 7.94
======= ====== ====== ====== ======
Market Price Per Share at End of the
Period............................. $5.6875 $7.750 $8.000 $7.500 $7.250
Total Investment Return at Market
Price (a) (c)...................... (19.81%) 5.05% 16.97% 12.95% 21.83%
Total Return at Net Asset
Value (b) (c)...................... (0.11%) 5.51% 11.32% 8.61% 19.13%
Net Assets at End of the Period (In
millions).......................... $110.9 $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................. 8.46% 8.17% 8.32% 8.40% 8.50%
Portfolio Turnover................... 28% 47% 55% 36% 34%
</TABLE>
(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.
22
<PAGE> 24
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------
1994 1993 1992 1991 1990
- -----------------------------------------------------
<S> <C> <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
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- --------------------------------------------------------------------------------
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 December 31, 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. At December 31, 1999, there were no
when-issued or delayed delivery purchase commitments.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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 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, 1999, the Trust had an accumulated capital loss
carryforward for tax purposes of $3,516,168 which will expire between December
31, 2002 and December 31, 2007. Net realized gains or losses may differ for
financial and tax reporting purposes primarily as a result of the deferral of
losses relating to wash sale transactions.
At December 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $115,858,442, the aggregate gross unrealized
appreciation is $1,644,758 and the aggregate gross unrealized depreciation is
$9,732,392, resulting in net unrealized depreciation on long- and short-term
investments of $8,087,634.
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, which are included in ordinary
income for tax purposes.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
Due to inherent differences in the recognition of income, expenses and
realized gain/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1999 fiscal year have been identified and appropriately reclassified.
For the year ended December 31, 1999, a permanent book and tax difference
relating to the expiration of a capital loss carryforward in the amount of
$10,053,213 was reclassified from capital to accumulated net realized loss. Net
permanent book and tax differences relating to paydowns on mortgage-backed
securities and consent fee income totaling $279,722 were reclassified from
accumulated undistributed net investment income to accumulated net realized
loss. Additionally, a permanent book and tax difference relating to market
discounts on bonds sold in the amount of $14,998 was reclassified from
accumulated net realized loss to accumulated undistributed net investment
income. Finally, a permanent book and tax difference, in the amount of $3,700 of
non-deductible expenses, was reclassified from capital to accumulated
undistributed net investment income.
F. EXPENSE REDUCTION--During the period ended December 31, 1999, the Trust's
custody fee was reduced by $418 as a result of credits earned on overnight cash
balances.
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 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 year ended December 31, 1999, the Trust recognized expenses of
approximately $2,200 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.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
For the year ended December 31, 1999, the Trust recognized expenses of
approximately $43,800 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.
3. CAPITAL TRANSACTIONS
At December 31, 1999 and December 31, 1998, paid in surplus related to common
shares aggregated $122,340,720 and $132,397,633, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 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 $31,296,258 and $33,788,971,
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
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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.
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 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.
At December 31, 1999 there were no forward committments outstanding.
28
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
To Shareholders and Board of Trustees of
Van Kampen Income Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Van Kampen Income Trust, as of December 31,
1999, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the ten years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999, by correspondence with the 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 Income Trust at December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the ten years in the
period then ended, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
Chicago, IL
February 15, 2000
29
<PAGE> 31
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth*
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income*
Global Franchise
Global Government Securities*
Global Managed Assets*
International Magnum
Latin American
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these
funds, ask your financial advisor for
a prospectus, which contains more
complete information, including sales
charges, risks, and ongoing expenses.
Please read it carefully before you
invest or send money.
To view a current Van Kampen fund
prospectus or to receive additional
fund information, choose from one of
the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
* Closed to new investors
** Open to new investors for a
limited time
30
<PAGE> 32
VAN KAMPEN INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 2000
All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
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
233 South Wacker Drive
Chicago, Illinois 60606
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
31
<PAGE> 33
YEAR 2000 UPDATE
As we enter the new century, it's "business as usual" for Van Kampen. Thank you
for the confidence you showed in us during the changeover on January 1, 2000,
and for entrusting us with your investment portfolio. We look forward to
continuing to serve your investment needs.
32
