<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 6
SIX-MONTH DIVIDEND HISTORY 6
TOP FIVE SECTORS 7
NET ASSET VALUE AND MARKET PRICE 7
Q&A WITH YOUR PORTFOLIO MANAGERS 8
GLOSSARY OF TERMS 12
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 13
FINANCIAL STATEMENTS 21
NOTES TO FINANCIAL STATEMENTS 26
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 29
TRUST OFFICERS AND IMPORTANT ADDRESSES 30
RESULTS OF SHAREHOLDER VOTES 31
</TABLE>
It is times like these when money-management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
July 20, 2000
Dear Shareholder,
Whether you have held your trust for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your trust is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term
market volatility and the value of investing for the long
term.
As we move through the second half of 2000, count on us to
continue to draw on the wisdom of our 74 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is the theme of a
national advertising campaign that we recently kicked off. The message
emphasizes our depth of investment-management history, as well as our firm
belief that with the right investments, anyone can realize life's true wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
BEGINNING IN THE SECOND QUARTER OF 2000, EVIDENCE OF SLOWER ECONOMIC GROWTH IN
THE UNITED STATES EMERGED. HOWEVER, ANALYSTS BELIEVE IT MAY HAVE BEEN PREMATURE
TO ASSUME THAT THE U.S. ECONOMY HAS SLOWED TO A SUSTAINABLE, NONINFLATIONARY
PACE, WITH THE GROSS DOMESTIC PRODUCT (GDP), A MEASURE OF ECONOMIC GROWTH, UP
5.2 PERCENT ANNUALIZED IN THE SECOND QUARTER OF 2000.
CONSUMER SPENDING AND EMPLOYMENT
CONSUMER SPENDING REMAINED THE MAIN ENGINE OF GROWTH BEHIND THE U.S. ECONOMY.
LIVING STANDARDS AND SPENDING HABITS WERE BOOSTED BY STRONG GAINS IN REAL
INCOME, AND INDIVIDUAL WEALTH INCREASED SUBSTANTIALLY, PRIMARILY DUE TO A
BUOYANT STOCK MARKET. NONETHELESS, DATA RELEASED IN THE SECOND QUARTER OF 2000
REFLECTED A MINOR DECREASE IN THE SPENDING OF INDIVIDUALS. IN JUNE, THE CONSUMER
PRICE INDEX (CPI), THE LEADING INFLATION INDICATOR, ROSE HIGHER THAN
EXPECTED--0.6 PERCENT MORE THAN THE PREVIOUS MONTH. THAT HEIGHTENED CONCERNS
ABOUT INFLATION, AND THE PROSPECT OF ADDITIONAL FEDERAL RESERVE BOARD
INTEREST-RATE INCREASES.
THE U.S. LABOR MARKET WAS STILL ROBUST DURING THIS TIME, AND JOB INSECURITY
CONTINUED TO DECLINE. SOLID EMPLOYMENT GROWTH WAS ACCOMPANIED BY UNUSUALLY LARGE
GAINS IN PRODUCTIVITY, WHICH LIMITED THE RISE IN UNIT LABOR COSTS ACROSS THE
WHOLE ECONOMY. GIVEN THE HIGH EMPLOYMENT NUMBERS AND STRONG LEVELS OF
PRODUCTIVITY, ANALYSTS BELIEVE AN INCREASE IN INTEREST RATES TO WARD OFF
INFLATION AND FURTHER SLOW THE ECONOMY IS POSSIBLE.
INTEREST RATES AND INFLATION
DURING THE PAST FEW MONTHS, PERSISTENT STRENGTH IN CONSUMER SPENDING ACCOMPANIED
BY A VERY TIGHT LABOR MARKET, RESULTED IN SOME INFLATION. THE CPI REACHED A
LEVEL OF 2.7 PERCENT IN JANUARY 2000 AND 3.7 PERCENT IN JUNE 2000, CLEARLY
DEMONSTRATING SIGNS OF INFLATION.
SINCE JUNE 1999, THE FEDERAL RESERVE HAS INCREASED THE FEDERAL FUNDS RATE SIX
TIMES BY A TOTAL OF 175 BASIS POINTS TO LOWER ECONOMIC GROWTH AND DECREASE ANY
FUTURE FEARS OF INFLATION. THESE INCREASES IN INTEREST RATES HELPED SLOW THE
INTEREST-SENSITIVE AUTO AND HOUSING MARKETS.
MANY OBSERVERS BELIEVE INTEREST RATES COULD BE LIFTED FURTHER IN COMING MONTHS.
WHILE MARKETS HAVE EXPERIENCED MUCH SHORT-TERM VOLATILITY, THE MARKET'S OUTLOOK
COULD IMPROVE ONCE INTEREST-RATE HIKES CEASE.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Jun 98 2.10
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.20
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of June 30, 2000)
<TABLE>
<S> <C>
---------------------------------------------------------------------
NYSE Ticker Symbol VIN
---------------------------------------------------------------------
Six-month total return based on market price(1) 21.02%
---------------------------------------------------------------------
Six-month total return based on NAV(2) 2.38%
---------------------------------------------------------------------
Distribution rate as a % of closing common stock price(3) 9.14%
---------------------------------------------------------------------
Net asset value $7.12
---------------------------------------------------------------------
Closing common stock price $6.5625
---------------------------------------------------------------------
Six-month high common stock price (06/29/00) $6.6250
---------------------------------------------------------------------
Six-month low common stock price (03/15/00) $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.
4
<PAGE> 6
Past performance is no guarantee of 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.
5
<PAGE> 7
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<TABLE>
<CAPTION>
As of June 30, 2000
<S> <C> <C>
- AAA/Aaa............ 48.7%
- AA/Aa.............. 0.5%
- BBB/Baa............ 0.9%
- BB/Ba.............. 7.7%
- B/B................ 37.2%
- CCC/Caa............ 2.4%
- CC/Ca.............. 0.6%
- Non-Rated.......... 1.7%
- Other.............. 0.3%
[PIE CHART]
<CAPTION>
As of December 31, 1999
<S> <C> <C>
- AAA/Aaa............ 45.7%
- AA/Aa.............. 0.5%
- BBB/Baa............ 1.1%
- BB/Ba.............. 9.1%
- B/B................ 35.1%
- CCC/Caa............ 3.1%
- CC/Ca.............. 0.5%
- C/C................ 0.3%
- Non-Rated.......... 4.3%
- Other.............. 0.3%
[PIE CHART]
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DIVIDEND HISTORY
(for the six months ending June 30, 2000, for common shares)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
1/00 0.05
2/00 0.05
3/00 0.05
4/00 0.05
5/00 0.05
6/00 0.05
</TABLE>
The dividend history represents past performance of the trust and is no
guarantee of the trust's future dividends.
6
<PAGE> 8
TOP FIVE SECTORS
(as a percentage of long-term investments)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Utilities 15.10 14.60
Raw Materials/Processing Industries 9.40 5.80
Consumer Services 8.50 13.90
Consumer Distribution 5.00 4.20
Transportation 2.70 3.20
</TABLE>
NET ASSET VALUE AND MARKET PRICE
(based upon quarter-end values--June 1990 through June 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NET ASSET VALUE MARKET PRICE
--------------- ------------
<S> <C> <C>
6/90 7.5800 6.8800
7.0700 5.6300
6.6600 5.6300
7.0500 6.3800
6/91 7.2800 7.0000
7.5700 7.5000
7.7000 7.3800
7.8500 7.7500
6/92 7.9300 8.1300
8.0300 8.2500
7.8500 7.6300
8.0300 7.8800
6/93 8.1700 8.1300
8.0800 7.2500
8.1600 7.7500
7.9200 7.0000
6/94 7.7200 7.0000
7.4300 7.2500
7.2800 6.5000
7.5000 7.2500
6/95 7.7600 7.2500
7.8400 7.3800
7.9400 7.2500
7.8100 7.3800
6/96 7.7000 7.2500
7.8400 7.2500
7.9800 7.5000
7.5000 7.5000
6/97 7.9700 7.6900
8.1000 7.6900
8.0500 8.0000
8.1800 8.1900
6/98 8.1700 7.8100
7.8700 7.6300
7.8400 7.7500
7.7500 7.0000
6/99 7.5100 6.8800
7.3900 6.3800
7.2500 5.6900
7.2300 6.1875
6/00 7.1200 6.5625
</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.
7
<PAGE> 9
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN INCOME TRUST ABOUT
THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED THE
TRUST'S RETURN DURING THE SIX MONTHS ENDED JUNE 30, 2000. THE TEAM IS LED BY
PETER EHRET, SENIOR PORTFOLIO MANAGER, WHO HAS MANAGED THE TRUST SINCE JUNE 1999
AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1988. HE IS JOINED BY PORTFOLIO
MANAGER TED MUNDY. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE TRUST'S
PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE
MARKET ENVIRONMENT IN WHICH THE TRUST OPERATED, AND HOW DID THE TRUST
PERFORM IN THAT ENVIRONMENT?
A The year began quietly, with a
weak overall bond market. Investors appeared to be taking a cautious approach to
the new year, even though the much-anticipated year 2000 transition turned out
to be a non-event. Market participants instead turned their attention to the
government's plan to buy back long-term Treasury debt and to the Federal Reserve
Board's continued efforts to slow the economy by increasing key short-term
lending rates.
Consequently, short-term interest rates rose, eventually creating an
"inverted" yield curve, meaning that short-term rates were higher than long-
term rates. At the same time, the ongoing government buyback program and overall
reduced issuance of bonds had the effect of reducing the supply of Treasuries.
This created an exceptionally wide yield differential between Treasury
securities and mortgage-backed securities.
Within the corporate bond market, particularly the high-yield sector,
sluggish trading and a slow calendar for new bond issuance during the month of
January set a lackluster tone for the high-yield market that persisted until the
latter weeks of the reporting period.
Despite the relatively attractive yields available in the high-yield market,
the high-profile stock market lured money away from the fixed-income sector.
Overall, prices for high-yield bonds drifted lower as demand remained soft,
regardless of the fundamental strength of many of the market's offerings.
Also, credit quality remained a concern as the higher-than-average default
rates we saw in 1999, along with uncertainties about the economy and the
potential for further interest-rate hikes by the Fed, may have put investors on
their guard. High-yield investors with short-term focus tend to get jittery when
confronted with the threat of sharply higher interest rates, which can quickly
slow the economy.
8
<PAGE> 10
Should the economy slow too much, the resulting earnings pressures could make it
more difficult for companies to meet their debt payment obligations. We believe
all of these issues weighed on the market.
For the six months through June 30, 2000, the trust had a total return of
21.02 percent based on market price, as compared to the average return of 2.63
percent for its peer group (the 16 funds within Lipper's General Corporate
Bond--Closed-End Fund category). The trust's return reflects an increase in
market price from $5.6875 per share on December 31, 1999, to $6.5625 per share
on June 30, 2000. As a result of recent market activity, current performance may
vary from the figures shown. Past performance is no guarantee of future results.
The trust also continued to provide shareholders with an attractive
dividend. Its monthly dividend of $0.0500 per share translates to a distribution
rate of 9.14 percent based on the trust's closing market price on June 30, 2000.
Please refer to the chart and footnotes on page 4 for additional performance
results. Past performance is no guarantee of future results.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE TRUST DURING THIS PERIOD?
A The inverted yield curve and the
changing yield dynamics of the government sector (which includes Treasury,
agency, and mortgage bonds) made us rethink the trust's portfolio allocations
somewhat, but we believe we were able to strike a balance that will serve the
portfolio well as we go forward. We began the period with a bias toward the
Treasury market, but over the period we became more confident in the prospects
for mortgage-backed securities.
On the corporate side, we've been cautious about the ability of high-yield
investments to withstand fiercely competitive market conditions. Many companies
have great difficulty maintaining profit margins, given the threat of losing
customers. Consequently, as companies lose their pricing power, high levels of
profitability are hard to sustain, accentuating the potential credit-quality
risks inherent to this type of investment. This was particularly true in the
transportation, food, and textile sectors, where profit margins for many firms
have been shrinking.
Other sectors, such as the automotive industry, also ran up against shifting
investor expectations. While the long-term prospects for auto sales remain
positive, many investors expect the economy to slow and drag down auto sales. In
the steel industry, companies are facing rising imports, as well as the
potential for a slowing economy.
We also found that the low volume of new bond issuance in the high-yield
arena made it challenging to find suitable new investment opportunities. As
such, our focus was mostly on the secondary market during the period.
9
<PAGE> 11
Q WHAT SPECIFIC STRATEGIES DID YOU
EMPLOY IN REPOSITIONING THE PORTFOLIO?
A The portfolio is a mix of
government securities, including mortgage-backed securities, and higher-
yielding, lower-rated corporate bonds. During the period, we maintained an
allocation of roughly 53 percent of the trust's net assets in high-yield bonds
and cash, and about 47 percent in the government sector. Within the government
sector, we increased the trust's holdings in mortgage-backed securities, which
accounted for slightly more than half of the government portion of the portfolio
at the end of the reporting period. Much of this shift occurred as the prices on
mortgage-backed securities became highly attractive relative to Treasuries.
Overall, we continued to broaden the diversification of the portfolio,
increasing the number of the trust's investments within various sectors and
moving into a wider range of sectors overall. To further diversify the trust's
holdings, we moved into selected foreign issues, including Canadian and European
media and communications firms, and also added a small exposure to Latin
American issues. In addition, we added some shorter-term securities to the
portfolio as a defensive strategy. But, as always, we focused our credit-
research expertise on making selective choices in the more speculative areas of
the markets.
We tried to anticipate declining sectors and were successful in reducing the
trust's North American cable holdings before they began to weaken. We also
trimmed some chemicals exposure that otherwise would have detracted from the
trust's performance. Although automotive and transportation securities had a
negative impact on the trust, we believe at this time that we'll probably
maintain these positions through their current problems in the hopes of being
rewarded with better prices. Finally, steel holdings detracted from trust
performance due to pressure from imports and the potentially slowing U.S.
economy.
Some of the sectors that boosted the trust's performance and continue to
look attractive include energy--particularly exploration, refining, and oil
services--and telecommunications, which is a dynamic, innovative industry with
very strong growth prospects. We added to the trust's positions in these sectors
and believe they have the potential to provide excellent performance. The trust
was also helped by some companies that paid significant premiums to buy back
their bonds. Keep in mind that not all securities in the portfolio performed
favorably, and there is no guarantee that any of these securities will perform
well or will be held by the trust in the future.
Q WHAT IS YOUR OUTLOOK FOR THE
MARKET AND THE TRUST IN THE MONTHS AHEAD?
A The strength of the economy will
be a key factor in the performance of the bond market. Clear signs indicate that
the pace of economic activity in the United States is moderating: the housing
and manufacturing sectors have cooled, and consumer spending
10
<PAGE> 12
has leveled off from its pace of a year earlier. Importantly, core inflation
(which excludes the volatile food and energy sectors) remains subdued. As such,
the Fed's campaign of rate hikes may be nearing an end.
At this time, we see plenty of good companies that should continue to
perform well and provide strong investment opportunities within the high-yield
market. While we expect that headlines will continue to publicize the market's
relatively high default rate, we believe the market has already largely
identified those companies likely to fail and priced their bonds accordingly.
With that in mind, we are optimistic, from a total return standpoint, about the
market's potential.
We expect a slow to moderate pace of new bond issuance. Most likely, we'll
see enough activity to absorb the market demand for high-yield bonds in the near
term. This demand is expected to remain tentative.
While we plan to keep the trust's portfolio as close to fully invested as is
feasible, we will remain cautious and selective, focusing on promising sectors
with strong underlying fundamentals. We are particularly encouraged by the
prospects for the telecommunications industry, such as wireless, cable, and
satellite services, where consumer demand continues to be vigorous.
Finally, we anticipate that mortgage-backed securities will continue to
outperform Treasuries, and we believe the stage may be set for improved returns
in the high-yield market, given its prolonged period of weak performance. We
expect to maintain an emphasis on these sectors. The spread between the yields
on high-yield bonds and comparable Treasury bonds has widened substantially over
the past six months, indicating that carefully selected high-yield bond issues
may prove to hold significant value over time.
11
<PAGE> 13
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CREDIT-QUALITY RISK: The possibility that a bond issuer will fail to pay the
principal or interest in a timely manner.
DEFAULT: The failure to make required debt payments on time.
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.
HIGH-YIELD BOND: A bond with a speculative credit rating equal to or lower than
BB (S&P) or Ba (Moody's).
PROFIT MARGIN: A measure of a company's efficiency, determined by dividing net
income by net sales during the past 12 months.
SECONDARY MARKET: A market where securities are traded after they are initially
offered.
TOTAL RETURN: The annual rate of return on a bond, taking into account interest
income plus appreciation or depreciation. If a bond is held to maturity, its
total return equals its yield to maturity.
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.
12
<PAGE> 14
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
June 30, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
DOMESTIC CORPORATE BONDS (US $) 39.3%
COMPUTER SOFTWARE/SERVICES 2.2%
$ 250 Exodus Communications Inc.,
144A--Private Placement (a)
(d)............................. 11.625% 07/15/10 $ 250,625
400 Globix Corp. ................... 12.500 02/01/10 332,000
1,160 PSINET, Inc. ................... 11.500 11/01/08 1,096,200
720 Verio, Inc. .................... 10.375 04/01/05 768,600
------------
2,447,425
------------
CONSUMER DISTRIBUTION 3.8%
300 Amazon.Com. Inc. (b)............ 0/10.000 05/01/08 165,000
500 Aurora Foods, Inc., Ser D....... 9.875 02/15/07 290,000
500 Big 5 Corp., Ser B.............. 10.875 11/15/07 462,500
795 Chiquita Brands International,
Inc. ........................... 10.000 06/15/09 612,150
375 Del Monte Corp. ................ 12.250 04/15/07 395,625
400 Fleming Cos., Inc. ............. 10.625 12/15/01 398,000
150 K-Mart Corp. ................... 8.375 12/01/04 143,062
500 Luigino's, Inc. ................ 10.000 02/01/06 397,500
140 Musicland Group................. 9.000 06/15/03 130,550
350 National Wine & Spirits,
Inc. ........................... 10.125 01/15/09 339,500
600 Pantry, Inc. ................... 10.250 10/15/07 571,500
360 Pathmark Stores, Inc. (c) (f)... 11.625 06/15/02 90,000
140 Pathmark Stores, Inc. (c) (f)... 12.625 06/15/02 35,000
1,250 Pathmark Stores, Inc. (c) (f)... 10.750 11/01/03 87,500
------------
4,117,887
------------
CONSUMER DURABLES 0.9%
1,000 Sleepmaster LLC, Ser B.......... 11.000 05/15/09 950,000
------------
CONSUMER SERVICES 7.6%
750 AMFM Inc./Capstar
Broadcasting (b)................ 0/12.750 02/01/09 690,000
150 Argosy Gaming Co. .............. 10.750 06/01/09 155,250
1,250 Booth Creek Ski Holdings, Inc.,
Ser B........................... 12.500 03/15/07 912,500
600 Casino Magic Louisiana Corp.,
Ser B........................... 13.000 08/15/03 642,000
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR TRUST'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$ 910 Charter Communication Hldgs,
LLC............................. 8.250% 04/01/07 $ 807,625
175 Classic Cable, Inc., Ser B...... 9.375 08/01/09 152,250
300 Echostar DBS Corp. ............. 9.250 02/01/06 289,500
750 Frontiervision Holdings L.P.
(b)............................. 0/11.875 09/15/07 649,687
250 Frontiervision Holdings L.P.,
Ser B (b)....................... 0/11.875 09/15/07 216,563
500 Isle of Capri Casinos, Inc. .... 8.750 04/15/09 462,500
300 James Cable Partners L.P., Ser
B............................... 10.750 08/15/04 289,500
275 Majestic Star Casino LLC, Ser
B............................... 10.875 07/01/06 228,250
500 Muzak LLC....................... 9.875 03/15/09 460,000
365 Northland Cable Television,
Inc. ........................... 10.250 11/15/07 304,775
1,000 Park N View, Inc., Ser B........ 13.000 05/15/08 320,000
180 Park Place Entertainment
Corp. .......................... 7.875 12/15/05 170,100
375 Premier Parks, Inc. ............ 9.250 04/01/06 358,125
250 Sinclair Broadcast Group........ 10.000 09/30/05 241,250
500 Tele-Communications, Inc. ...... 9.250 01/15/23 533,672
225 United International Holdings,
Inc., Ser B (b)................. 0/10.750 02/15/08 159,750
250 Young America Corp., Ser B...... 11.625 02/15/06 155,000
------------
8,198,297
------------
ENERGY 2.0%
280 Chesapeake Energy Corp., Ser
B............................... 9.625 05/01/05 274,400
250 Frontier Oil Corp. ............. 11.750 11/15/09 252,500
515 KCS Energy, Inc., Ser B (c)
(f)............................. 11.000 01/15/03 478,950
250 Pioneer Americas Acquisition
Corp., Ser B.................... 9.250 06/15/07 165,000
250 Pioneer Natural Resources
Co. ............................ 9.625 04/01/10 256,875
300 R & B Falcon Corp. ............. 9.500 12/15/08 303,000
500 R & B Falcon Corp., Ser B....... 6.500 04/15/03 466,250
------------
2,196,975
------------
FINANCE 1.7%
1,250 Americo Life, Inc. (e).......... 9.250 06/01/05 1,181,250
500 Americredit Corp. .............. 9.250 02/01/04 485,000
225 Labranche & Co. Inc., 144A--
Private Placement (a)........... 12.000 03/01/07 223,875
------------
1,890,125
------------
HEALTHCARE 1.2%
250 HEALTHSOUTH Corp. .............. 9.500 04/01/01 251,250
250 Iaisis Healthcare Corp., 144A--
Private Placement (a)........... 13.000 10/15/09 250,000
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR TRUST'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
HEALTHCARE (CONTINUED)
$ 550 Oxford Health Plans, Inc. ...... 11.000% 05/15/05 $ 570,625
250 Tenet Healthcare Corp. ......... 8.000 01/15/05 241,875
------------
1,313,750
------------
PRODUCER MANUFACTURING 1.3%
200 Compass Aerospace Corp. ........ 10.125 04/15/05 22,000
250 Del Webb Corp. ................. 9.750 03/01/03 236,250
250 Eagle-Picher Industries,
Inc. ........................... 9.375 03/01/08 212,500
810 IMO Industries, Inc. ........... 11.750 05/01/06 814,050
135 W. R. Carpenter of North America
Inc. ........................... 10.625 06/15/07 29,700
250 Waxman Industries, Inc., Ser
B............................... 12.750 06/01/04 113,750
------------
1,428,250
------------
RAW MATERIALS/PROCESSING INDUSTRIES 7.3%
1,010 Aetna Industries, Inc. ......... 11.875 10/01/06 888,800
250 Anvil Knitwear, Inc., Ser B..... 10.875 03/15/07 220,625
250 Cambridge Industries, Inc., Ser
B (c)........................... 10.250 07/15/07 76,250
850 Consoltex Group, Inc., Ser B.... 11.000 10/01/03 777,750
250 Delta Mills Inc., Ser B......... 9.625 09/01/07 211,250
500 Doe Run Resources Corp., Ser
B............................... 11.250 03/15/05 195,000
500 Dyersburg Corp., Ser B.......... 9.750 09/01/07 50,000
275 Fonda Group, Inc., Ser B........ 9.500 03/01/07 217,250
750 GS Technologies Operating,
Inc. ........................... 12.000 09/01/04 247,500
150 Hadco Corp. .................... 9.500 06/15/08 151,312
250 Hydrochem Industrial Services,
Inc., Ser B..................... 10.375 08/01/07 191,250
100 ISP Holdings, Inc., Ser B....... 9.750 02/15/02 97,000
1,000 Kaiser Aluminum & Chemical,
Inc. ........................... 9.875 02/15/02 960,000
500 Outsourcing Services Group
Inc. ........................... 10.875 03/01/06 402,500
670 Printpack, Inc., Ser B.......... 10.625 08/15/06 626,450
750 Radnor Holdings, Corp., Ser B... 10.000 12/01/03 671,250
250 Republic Technologies
International, Inc. ............ 13.750 07/15/09 46,250
500 Scovill Fasteners, Inc. ........ 11.250 11/30/07 225,000
500 Sweetheart Cup, Inc. ........... 10.500 09/01/03 460,000
250 Tekni-Plex Inc., 144A--Private
Placement (a)................... 12.750 06/15/10 251,250
335 Venture Trust, Ser B............ 9.500 07/01/05 244,550
735 Venture Trust................... 12.000 06/01/09 404,250
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR TRUST'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
$ 450 WHX Corp. ...................... 10.500% 04/15/05 $ 342,000
------------
7,957,487
------------
TRANSPORTATION 1.3%
500 Atlas Air, Inc. ................ 10.750 08/01/05 510,000
200 Atlas Air, Inc. ................ 9.250 04/15/08 192,000
999 Greyhound Lines, Inc., Ser B.... 11.500 04/15/07 729,270
------------
1,431,270
------------
UTILITIES 10.0%
300 AES Corp. ...................... 9.500 06/01/09 294,000
425 Airgate PCS, Inc. (b)........... 0/13.500 10/01/09 246,500
250 Calpine Corp. .................. 9.250 02/01/04 250,000
400 Centennial Cellular Operating
Co. ............................ 10.750 12/15/08 392,000
1,000 Crown Castle International Corp.
(b)............................. 0/10.625 11/15/07 747,500
250 Dobson Communications Corp.,
144A--Private Placement (a)..... 10.875 07/01/10 253,125
480 E. Spire Communications, Inc.
(b)............................. 0/13.000 11/01/05 230,400
495 Focal Communications Corp.,
144A--Private Placement (a)..... 11.875 01/15/10 495,000
55 GST Telecommunications, Inc.,
144A--Private Placement (a) (b)
(c) (f)......................... 0/13.875 12/15/05 1,100
250 ICG Holdings, Inc. (b).......... 0/13.500 09/15/05 241,250
1,170 Intermedia Communications, Inc.
(b) (e)......................... 0/12.500 05/15/06 1,111,500
425 IPCS Inc., 144A--Private
Placement (a) (b) (d)........... 0/14.000 07/15/10 215,802
515 Metromedia Fiber Network,
Inc. ........................... 10.000 12/15/09 507,275
750 MGC Communications, Inc., Ser
B............................... 13.000 10/01/04 802,500
300 Nextel Communications, Inc. .... 9.375 11/15/09 288,750
480 Nextlink Communications, Inc.... 10.500 12/01/09 472,800
1,000 NTL Inc., Ser B (b)............. 0/11.500 02/01/06 925,000
160 Pegasus Communications Corp.,
Ser B........................... 9.625 10/15/05 155,200
750 Price Communications Wireless... 11.750 07/15/07 808,125
175 Primus Telecommunications
Group........................... 11.750 08/01/04 140,875
240 Primus Telecommunications
Group........................... 11.250 01/15/09 188,400
750 SBA Communications Corp. (b).... 0/12.000 03/01/08 534,375
1,000 Startec Global Communications... 12.000 05/15/08 805,000
500 Triton PCS, Inc. (b)............ 0/11.000 05/01/08 366,250
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
YOUR TRUST'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
$ 190 US Unwired Inc., Ser B (b)...... 0/13.375% 11/01/09 $ 105,450
275 Williams Communications Group,
Inc. ........................... 10.700 10/01/07 275,000
------------
10,853,177
------------
TOTAL DOMESTIC CORPORATE BONDS (US $) 39.3%.................... 42,784,643
------------
FOREIGN BONDS AND DEBT SECURITIES (US $) 10.0%
ARGENTINA 0.4%
500 Disco SA........................ 9.125 05/15/03 461,250
------------
BERMUDA 1.0%
670 Global Crossing Holdings Ltd.... 9.125 11/15/06 644,875
750 Pegasus Shipping Hellas Ltd. (c)
(f)............................. 11.875 11/15/04 277,500
250 Sea Containers Ltd., Ser B...... 12.500 12/01/04 202,500
------------
1,124,875
------------
BRAZIL 0.6%
230 Mrs Logistica, Ser B, 144A--
Private Placement (a)........... 10.625 08/15/05 182,275
500 Multicanal Participacoes, Ser
B............................... 12.625 06/18/04 510,000
------------
692,275
------------
CANADA 2.8%
200 360Networks Inc., 144A--Private
Placement (a)................... 13.000 05/01/08 199,000
775 Acetex Corp. ................... 9.750 10/01/03 732,375
1,000 Clearnet Communications, Inc.
(b)............................. 0/14.750 12/15/05 1,035,000
250 Doman Industries Ltd. (d)....... 12.000 07/01/04 252,500
184 Hurricane Hydrocarbons Ltd.,
144A--Private Placement (a)..... 16.000 12/31/01 178,643
500 Microcell Telecommunications,
Ser B (b)....................... 0/14.000 06/01/06 462,500
250 Repap New Brunswick, Inc. ...... 9.000 06/01/04 240,000
------------
3,100,018
------------
CHINA 0.5%
1,000 Cathay International Ltd.,
144A--Private Placement (a)..... 13.000 04/15/08 520,000
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
YOUR TRUST'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MEXICO 1.3%
$ 500 Cemex SA de CV, 144A--Private
Placement (a)................... 9.250% 06/17/02 $ 508,750
750 Gruma SA de CV.................. 7.625 10/15/07 626,250
250 Vicap SA........................ 10.250 05/15/02 238,125
------------
1,373,125
------------
NETHERLANDS 1.0%
500 Hermes Europe Railtel BV........ 10.375 01/15/09 412,500
435 Netia Holdings BV, Ser B (b).... 0/11.250 11/01/07 291,450
250 Netia Holdings BV, Ser B........ 10.250 11/01/07 208,750
275 United Pan Europe Communication,
Ser B (b)....................... 0/12.500 08/01/09 138,875
------------
1,051,575
------------
SINGAPORE 0.2%
250 Flextronics International Ltd.,
Ser B........................... 8.750 10/15/07 240,625
------------
SWEDEN 0.5%
500 Stena AB........................ 10.500 12/15/05 492,500
------------
UNITED KINGDOM 1.7%
300 Cenargo International PLC....... 9.750 06/15/08 222,000
250 Diamond Cable Communication Co.
(b)............................. 0/11.750 12/15/05 238,750
1,000 Filtronic PLC................... 10.000 12/01/05 875,000
500 Telewest Communications PLC..... 11.000 10/01/07 476,250
------------
1,812,000
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES (US $) 10.0%........... 10,868,243
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 46.9%
5,000 Federal Farm Credit Bank
Consolidated Medium Term
Notes........................... 6.375 08/06/07 4,762,900
2,971 Federal National Mortgage
Association Pool................ 6.500 07/01/14-03/01/15 2,864,873
4,585 Federal National Mortgage
Association Pool................ 7.000 04/01/15-04/01/30 4,465,985
1,000 Federal National Mortgage
Association Pool 15 YR (d)...... 7.500 TBA 996,250
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
YOUR TRUST'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (CONTINUED)
$9,758 Government National Mortgage
Association Pool................ 6.500% 01/15/28-08/15/29 $ 9,257,169
4,166 Government National Mortgage
Association Pool................ 7.500 07/15/23-09/15/29 4,143,045
2,614 Government National Mortgage
Association Pool................ 8.000 03/15/17-10/15/22 2,647,605
952 Government National Mortgage
Association Pool................ 8.500 01/15/23-12/15/24 976,594
1,854 Government National Mortgage
Association Pool................ 9.000 05/15/16-12/15/24 1,922,765
348 Government National Mortgage
Association Pool................ 9.500 11/15/09-06/15/19 361,991
3,500 U.S. Treasury Bonds............. 7.250 05/15/16 3,853,220
3,000 U.S. Treasury Bonds............. 7.500 11/15/16 3,381,480
9,000 U.S. Treasury Bonds............. 8.875 02/15/19 11,565,180
------------
TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS......... 51,199,057
------------
</TABLE>
<TABLE>
<S> <C>
EQUITIES (US $) 0.3%
Airgate PCS, Inc. (52 Common Shares) (c).................... 2,733
American Telecasting, Inc., 144A--Private Placement (250
Common Stock Warrants) (a).................................. 250
AT & T Canada Inc., Class B--ADR (Canada) (857 Common
Shares) (c)................................................. 28,442
Dairy Mart Convenience Stores, Inc. (1,666 Common Stock
Warrants) (c)............................................... 1,416
HF Holdings Inc. (5,260 Common Stock Warrants) (c).......... 5,786
McLeodUSA, Inc. (8,487 Common Shares) (c)................... 175,575
NTL, Inc., 144A--Private Placement (1,188 Common Stock
Warrants) (a) (c)........................................... 83,155
Optel, Inc., Ser B, 144A--Private Placement (500 Common
Shares) (a) (c)............................................. 500
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
Star Gas Partners L.P. (143 Limited Partnership Interest
Units)...................................................... 2,199
Startec Global Communications, 144A--Private Placement
(1,000 Common Stock Warrants) (a) (c)....................... 4,000
Superior National Capital Trust I (2,500 Exchange Preferred
Securities)................................................. 26,250
------------
TOTAL EQUITIES.............................................. 341,306
------------
TOTAL LONG-TERM INVESTMENTS 96.5%
(Cost $114,654,215)......................................... 105,193,249
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
YOUR TRUST'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
DESCRIPTION MARKET VALUE
<S> <C>
REPURCHASE AGREEMENT 3.0%
Bank of America ($3,225,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated
06/30/00, to be sold on 07/03/00 at $3,226,841)
(Cost $3,225,000)........................................... $ 3,225,000
------------
TOTAL INVESTMENTS 99.5%
(Cost $117,879,215)......................................... 108,418,249
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%................. 550,658
------------
NET ASSETS 100.0%.......................................... $108,968,907
============
</TABLE>
ADR--American Depositary Receipt
TBA--To be announced, maturity date has not been established. Upon settlement
and delivery of the mortgage pools, maturity dates will be assigned.
(a) 144A securities are those which are exempt from registration under rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold 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 as security is in default.
(d) Securities purchased on a when-issued or delayed delivery basis.
(e) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments.
(f) This borrower has filed for protection in federal bankruptcy court.
See Notes to Financial Statements
20
<PAGE> 22
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $117,879,215)....................... $108,418,249
Receivables:
Interest.................................................. 2,056,799
Investments Sold.......................................... 334,883
Other....................................................... 18,669
------------
Total Assets............................................ 110,828,600
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,714,146
Investment Advisory Fee................................... 58,038
Reports to Shareholders................................... 20,485
Administrative Fee........................................ 18,476
Affiliates................................................ 2,003
Trustees' Deferred Compensation and Retirement Plans........ 37,430
Accrued Expenses............................................ 9,115
------------
Total Liabilities....................................... 1,859,693
------------
NET ASSETS.................................................. $108,968,907
============
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............. 695,227
Accumulated Net Realized Loss............................... (4,606,074)
Net Unrealized Depreciation................................. (9,460,966)
------------
NET ASSETS.................................................. $108,968,907
============
NET ASSET VALUE PER COMMON SHARE ($108,968,907 divided by
15,308,194 shares outstanding)............................ $ 7.12
============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
Statement of Operations
For the Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 5,043,384
Other....................................................... 31,703
-----------
Total Income............................................ 5,075,087
-----------
EXPENSES:
Investment Advisory Fee..................................... 356,025
Administrative Fee.......................................... 54,773
Trustees' Fees and Related Expenses......................... 16,335
Custody..................................................... 6,548
Legal....................................................... 1,600
Other....................................................... 79,636
-----------
Total Expenses.......................................... 514,917
-----------
NET INVESTMENT INCOME....................................... $ 4,560,170
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (647,535)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (8,056,116)
End of the Period......................................... (9,460,966)
-----------
Net Unrealized Depreciation During the Period............... (1,404,850)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(2,052,385)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 2,507,785
===========
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
Statement of Changes in Net Assets
For the Six Months Ended June 30, 2000 and the Year Ended
December 31, 1999 (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
----------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 4,560,170 $ 9,786,650
Net Realized Loss................................. (647,535) (1,758,573)
Net Unrealized Depreciation During the Period..... (1,404,850) (7,772,541)
------------ ------------
Change in Net Assets from Operations.............. 2,507,785 255,536
Distributions from Net Investment Income.......... (4,592,458) (9,184,551)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (2,084,673) (8,929,015)
NET ASSETS:
Beginning of the Period........................... 111,053,580 119,982,595
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $695,227
and $727,515, respectively)....................... $108,968,907 $111,053,580
============ ============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE TRUST
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS ENDED ---------------------------
JUNE 30, 2000 1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................ $ 7.254 $ 7.838 $8.050 $7.926
------- ------- ------ ------
Net Investment Income................. .298 .639 .657 .663
Net Realized and Unrealized
Gain/Loss........................... (.134) (.623) (.224) .183
------- ------- ------ ------
Total from Investment Operations........ .164 .016 .433 .846
Less Distributions from Net Investment
Income................................ .300 .600 .645 .722
------- ------- ------ ------
NET ASSET VALUE, END OF THE PERIOD...... $ 7.118 $ 7.254 $7.838 $8.050
======= ======= ====== ======
Market Price Per Share at End of the
Period................................ $6.5625 $5.6875 $7.750 $8.000
Total Investment Return at Market
Price (a) (c)......................... 21.02%* -19.81% 5.05% 16.97%
Total Return at Net Asset
Value (b) (c)......................... 2.38%* -0.11% 5.51% 11.32%
Net Assets at End of the Period (In
millions)............................. $ 109.0 $ 110.9 $120.0 $123.1
Ratio of Expenses to Average Net
Assets................................ .94% .95% .96% .91%
Ratio of Net Investment Income to
Average Net Assets.................... 8.33% 8.46% 8.17% 8.32%
Portfolio Turnover...................... 32%* 28% 47% 55%
</TABLE>
* Non-annualized
(a) Total Investment Return at 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.
(b) Total Return at 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.
(c) Prior to fiscal year end 1992, this was not a required disclosure.
24
<PAGE> 26
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 7.94 $ 7.28 $ 8.15 $ 7.85 $ 7.70 $ 6.66
------ ------ ------ ------ ------ ------
.658 .65 .65 .78 .845 .88
(.011) .655 (.8577) .285 .1625 1.05
------ ------ ------ ------ ------ ------
.647 1.305 (.2077) 1.065 1.0075 1.93
.661 .645 .6623 .765 .8575 .89
------ ------ ------ ------ ------ ------
$7.926 $ 7.94 $ 7.28 $ 8.15 $ 7.85 $ 7.70
====== ====== ====== ====== ====== ======
$7.500 $7.250 $6.500 $7.750 $7.625 $7.375
12.95% 21.83% -8.06% 11.82% 15.22% --
8.61% 19.13% -2.08% 14.36% 13.61% --
$121.2 $121.4 $111.4 $124.7 $119.6 $116.3
1.00% .94% .96% 1.00% .99% 1.03%
8.40% 8.50% 7.94% 8.99% 10.71% 12.11%
36% 34% 45% 53% 54% 50%
</TABLE>
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (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 U.S. Government securities and in corporate fixed
income securities, including high-yielding, lower rated or nonrated securities
believed not to involve undue risk to income or principal.
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, which
approximates market value.
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, 2000, debt securities rated below investment
grade and comparable unrated securities represented approximately 50% 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.
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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
accreted 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 June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $117,910,733, the aggregate gross unrealized
appreciation is $1,898,311 and the aggregate gross unrealized depreciation is
$11,390,795, resulting in net unrealized depreciation on long- and short-term
investments of $9,492,484.
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
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
include short-term capital gains, which are included in ordinary income for tax
purposes.
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 six months ended June 30, 2000, the Trust recognized expenses of
approximately $1,600 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, 2000, the Trust recognized expenses of
approximately $5,300 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. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $35,826,734 and $34,154,878,
respectively.
28
<PAGE> 30
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
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
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
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 [COMPUTER ICON]
- 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.
[PHONE ICON]
- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
29
<PAGE> 31
TRUST OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
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
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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
P.O. Box 1713
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 AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
30
<PAGE> 32
RESULTS OF
SHAREHOLDER VOTES
The Joint Annual Meeting of Shareholders of the Trust was held on June 21, 2000,
where shareholders voted on the election of trustees and the selection of the
independent auditors.
1) With regard to the election of the following trustees by common shareholders
of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
Theodore A. Myers..................................... 12,865,501 221,494
Richard F. Powers, Ill................................ 12,879,543 207,452
Hugo F. Sonnenschein.................................. 12,872,843 214,152
</TABLE>
The other trustees of the Trust whose terms did not expire in 2000 are: David C.
Arch, Howard J Kerr, Rod Dammeyer, and Wayne W. Whalen.
2) With regard to the ratification of Deloitte & Touche LLP as independent
auditors for the Trust, 12,905,339 shares were voted in favor of the proposal,
52,536 shares were voted against, and 129,120 shares were abstained from voting.
31
