-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GOvGhkUFk043zZ8iPgZbdut2A+1VU5AnMRwR44WRWSv6r68NyEgvmwc7U+o3ZMB0 D9zf08af4EcHkbe4eTtT9g== 0000950137-04-001489.txt : 20040305 0000950137-04-001489.hdr.sgml : 20040305 20040305124943 ACCESSION NUMBER: 0000950137-04-001489 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040305 EFFECTIVENESS DATE: 20040305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN INCOME TRUST CENTRAL INDEX KEY: 0000820026 IRS NUMBER: 766040347 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05273 FILM NUMBER: 04651134 BUSINESS ADDRESS: STREET 1: ONE PARKVIEW PLAZA STREET 2: VAN KAMPEN INVESTMENTS INC CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 BUSINESS PHONE: 6306846774 MAIL ADDRESS: STREET 1: ONE PARKVIEW PLAZA STREET 2: VAN KAMPEN INVESTMENTS INC CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL INCOME TRUST DATE OF NAME CHANGE: 19960102 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CAPITAL INCOME TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CAPITAL BALANCED INCOME TRUST DATE OF NAME CHANGE: 19880327 N-CSR 1 c81953nvcsr.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-05273 Van Kampen Income Trust ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) 1221 Avenue of the Americas New York, New York 10020 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Ronald Robison 1221 Avenue of the Americas New York, New York 10020 ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: 12/31 Date of reporting period: 12/31/03 Item 1. Report to Shareholders. The Trust's annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen Income Trust performed during the annual period. The portfolio management team will provide an overview of the market conditions and discuss some of the factors that affected investment performance during the reporting period. In addition, this report includes the trust's financial statements and a list of trust investments as of December 31, 2003. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the trust will achieve its investment objective. The trust is subject to market risk, which is the possibility that the market values of securities owned by the trust will decline and, therefore, the value of the trust shares may be less than what you paid for them. Accordingly, you can lose money investing in this trust.
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary AVERAGE ANNUAL TOTAL RETURNS
INCOME TRUST SYMBOL: VIN - ------------------------------------------------------- AVERAGE ANNUAL BASED ON BASED ON TOTAL RETURNS NAV MARKET PRICE Since Inception (04/22/88) 7.17% 6.45% 10-year 6.34 5.76 5-year 4.36 2.41 1-year 12.66 8.42 - -------------------------------------------------------
Past performance is no guarantee of future results. Investment return, net asset value (NAV) and common share market price will fluctuate and trust shares, when sold, may be worth more or less than their original cost. As a result of recent market activity, current performance may vary from the figures shown. For more up-to-date information, please visit vankampen.com or speak with your financial advisor. The NAV per share is determined by dividing the value of the trust's portfolio securities, cash and other assets, less all liabilities, by the total number of common shares outstanding. The common share market price is the price the market is willing to pay for shares of the trust at a given time. Common share market price is influenced by a range of factors, including supply and demand and market conditions. Total return assumes an investment at the beginning of the period, reinvestment of all distributions for the period in accordance with the trust's dividend reinvestment plan, and sale of all shares at the end of the period. 1 Trust Report FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2003 Van Kampen Income Trust is managed by the adviser's Taxable Fixed-Income team.(1) Current team members include Gordon Loery, Executive Director; Jaidip Singh, Executive Director; and Menglin Luo, Vice President. MARKET CONDITIONS The bond markets in 2003 were dominated by the Federal Reserve Bank's perceived deflation concerns as well as by mounting evidence that the U.S. economy was moving into a solid recovery. Interest rates rose briefly in January on expectations of an imminent recovery, only to consolidate through the spring in the absence of any decisive economic developments. The market moved out of this pattern in May, when Federal Reserve minutes acknowledged heightened concern about deflation as a possibility, "however remote." These comments sent yields plummeting to multi-decade lows as investors sought the safety of Treasury bonds. Interest rates reversed course once more in June, when the Federal Reserve reduced the federal funds target rate by 25 basis points. This cut was half of what the market had expected, and seemed to signal that the Fed was less concerned about deflation than had previously been thought. The economy also began showing convincing signs of improvement in the third quarter. By September, both consumer and corporate spending showed strength, and GDP growth topped 8 percent. Interest rates moved sharply higher through the end of August in one of their strongest upward moves in decades, and remained largely unchanged through the end of the year. The high-yield market entered the 12-month period on a strong footing and continued to rally sharply through the end of the period, with the CSFB High Yield Index posting its second-best return since the asset class developed in the 1980s. Many factors contributed to the high-yield market's stellar performance in 2003. Improving perceptions regarding the economy, the credit cycle, and defaults led to renewed investor interest in credit-sensitive issues. Several highly visible high-yield companies produced positive earnings surprises, and the Moody's issuer-based default rate fell by more than half over the course of the year. Low interest rates added to the allure of high-yield bonds for yield-hungry investors. The resulting record inflows into the asset class provided portfolio managers with large amounts of cash that handily offset a near-record amount of new issuance. In addition, many high-yield portfolios, which began the year with conservative holdings relative to the high-yield indices, began heavily buying lower-rated credits in an attempt to catch up to the rallying market. These factors combined to produce significant price appreciation across all sectors of the high-yield market, with the most speculative companies in the (1)Team members may change without notice at any time. 2 lowest-credit tiers tending to perform most strongly. Wireless communications, utilities, telecom, and cable--among the worst performers in 2001 and 2002-- were the best-performing sectors in 2003. More typically defensive sectors, such as consumer products and food and drug lagged, as did forest products and metals. PERFORMANCE ANALYSIS Closed-end fund returns can be calculated based upon either the market price or the net asset value (NAV) of its shares. NAV per share is determined by dividing the value of the trust's portfolio securities, cash and other assets, less all liabilities, by the total number of common shares outstanding, while market price reflects the supply and demand for the shares. As a result, the two returns can differ significantly. On a market-price basis, the fund returned 8.42 percent, while on an NAV basis, the fund returned 12.66 percent. Within the high-yield segment of the portfolio, the greatest driver of the trust's performance was strong credit selection. Many of the portfolio's best performers entered the year at a steep discount to their par value, and enjoyed robust price appreciation in addition to earning attractive coupons over the course of the year. In the wireless sector, the portfolio's position in Nextel benefited from the company's continued financial strength coupled with a low valuation at the beginning of the period. The trust enjoyed similarly strong performance from companies in the broadcasting, utilities, cable, telecommunications and chemicals industries. The trust uses leverage to enhance its dividend to common shareholders on an ongoing basis. As part of this approach, the trust borrows money at short-term rates through the issuance of preferred shares, and then invests the proceeds in longer-term securities, taking advantage of the difference between short and longer-term rates. With short-term rates at historic lows during the period, the difference between short- and longer-term rates was relatively high. This made using leverage a particularly profitable approach during the period, and added to the trust's strong performance. The investment-grade segment of the trust's portfolio continued to provide liquidity and high credit quality. This segment of the portfolio remained diversified among mortgage-backed securities, Treasuries and Agencies. One of our key strategies over the course of the year was to modify the trust's sector TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2003
- ------------------------------------- BASED ON BASED ON NAV MARKET PRICE 12.66% 8.42% - -------------------------------------
Past performance is no guarantee of future results. Investment return, net asset value and common share market price will fluctuate and trust shares, when sold, may be worth more or less than their original cost. See Performance Summary for additional performance information. 3 mix to position the trust for an economic environment of rising interest rates. We did this by emphasizing securities with above-Treasury yields. We took advantage of historically attractive valuations by shifting some assets out of Treasuries and into mortgage-backed securities. This strategy contributed to the trust's performance as yield spreads generally tightened over the period. While the trust's performance was positive, not all of its positions were beneficial. The rapid rise in the market price of CCC-rated debt led us to trim some of the trust's exposure to those securities in order to redeploy assets into parts of the market we viewed as more attractive. While we remain convinced of the wisdom of this approach in the longer-term, it did cause the portfolio to miss some of the price performance of lower-rated securities during the year. Although the trust benefited from good credit selection within utilities, our stringent investment criteria made it difficult to find attractive companies in that sector given its widespread problem of overcapacity. As a result, we deemphasized utility bonds, which performed strongly as a sector during the period. Going forward, we will continue with our disciplined investment approach, monitoring the market closely for opportunities to capture value. PROXY VOTING POLICIES AND PROCEDURES A description of the trust's policies and procedures with respect to the voting of proxies relating to the trust's portfolio securities is available without charge, upon request, by calling 1-800-847-2424. This information is also available on the Securities and Exchange Commission's website at http://www.sec.gov. TOP 5 SECTORS AS OF 12/31/03 RATINGS ALLOCATIONS AS OF 12/31/03 Media-Noncable 5.2% AAA /Aaa 48.2% Chemicals 3.8 BBB/Baa 3.1 Media-Cable 3.3 BB/Ba 16.8 Wireless Communications 3.0 B/B 25.6 Paper 2.9 CCC/Caa 4.8 CC/Ca 0.8 Non-Rated 0.7
Subject to change daily. All percentages are as a percentage of long-term investments. Provided for informational purposes only and should not be deemed as a recommendation to buy securities in the sectors shown above. Securities are classified by sectors that represent broad groupings of related industries. Ratings allocation based upon ratings as issued by Standard and Poor's and Moody's, respectively. Van Kampen is a wholly owned subsidiary of a global securities firm which is engaged in a wide range of financial services including, for example, securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. 4 BY THE NUMBERS YOUR TRUST'S INVESTMENTS December 31, 2003 THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF THE REPORTING PERIOD.
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE DOMESTIC CORPORATE BONDS 46.6% AUTOMOTIVE 1.1% $ 250 Autonation, Inc. ................. 9.000% 08/01/08 $ 288,125 335 Laidlaw International, Inc., 144A--Private Placement (a)....... 10.750 06/15/11 380,225 335 Lear Corp. ....................... 8.110 05/15/09 395,719 ----------- 1,064,069 ----------- BUILDING MATERIALS 1.4% 125 Brand Services, Inc. ............. 12.000 10/15/12 145,156 160 NMHG Holdings Co. ................ 10.000 05/15/09 177,600 60 Nortek Holdings, Inc. ............ 9.250 03/15/07 61,950 585 Nortek Holdings, Inc., 144A--Private Placement (a) (b)... 0/10.000 05/15/11 425,587 295 Schuler Homes, Inc. .............. 9.375 07/15/09 333,350 280 Trimas Corp. ..................... 9.875 06/15/12 293,300 ----------- 1,436,943 ----------- CHEMICALS 2.9% 50 ABB Finance, Inc. ................ 6.750 06/03/04 48,015 100 Equistar Chemicals LP............. 10.625 05/01/11 111,000 120 FMC Corp. ........................ 10.250 11/01/09 141,000 110 Huntsman Advanced Materials LLC, 144A--Private Placement (a)....... 11.000 07/15/10 122,100 395 Huntsman ICI Chemicals, LLC....... 10.125 07/01/09 408,825 250 Hydrochem Industrial Services, Inc., Ser B....................... 10.375 08/01/07 239,375 140 ISP Chemco, Inc. ................. 10.250 07/01/11 158,200 300 ISP Holdings, Inc. ............... 10.625 12/15/09 331,500 230 Johnsondiversey, Inc. ............ 9.625 05/15/12 257,600 80 Koppers, Inc.,144A--Private Placement (a)..................... 9.875 10/15/13 88,600 40 Kraton Polymers LLC, 144A--Private Placement (a)..................... 8.125 01/15/14 41,800 225 Millennium America, Inc. ......... 7.000 11/15/06 231,750 305 Nalco Co., 144A--Private Placement (a)............................... 7.750 11/15/11 327,875
See Notes to Financial Statements 5 YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE CHEMICALS (CONTINUED) $ 17 Pioneer Cos., Inc. ............... 4.663% 12/31/06 $ 15,747 185 Rockwood Specialties Group, Inc., 144A--Private Placement (a)....... 10.625 05/15/11 207,200 120 Westlake Chemical Corp., 144A-- Private Placement (a)............. 8.750 07/15/11 132,000 ----------- 2,862,587 ----------- CONSTRUCTION MACHINERY 0.8% 85 Flowserve Corp. .................. 12.250 08/15/10 99,025 25 Manitowoc Co., Inc. (EUR)......... 10.375 05/15/11 34,964 330 Manitowoc, Inc. .................. 10.500 08/01/12 377,437 240 United Rentals North America, Inc., 144A--Private Placement (a)............................... 7.750 11/15/13 246,300 ----------- 757,726 ----------- CONSUMER PRODUCTS 2.1% 255 Iron Mountain, Inc. .............. 8.625 04/01/13 276,675 170 Iron Mountain, Inc. .............. 7.750 01/15/15 178,925 325 Jacuzzi Brands, Inc., 144A--Private Placement (a)....... 9.625 07/01/10 359,125 185 Muzak, LLC........................ 10.000 02/15/09 197,950 250 Muzak, LLC........................ 9.875 03/15/09 242,812 370 Outsourcing Services Group, Inc. ............................. 10.875 03/01/06 205,350 180 Rayovac Corp. .................... 8.500 10/01/13 191,700 60 Simmons Co., 144A--Private Placement (a)..................... 7.875 01/15/14 60,600 114 Tempur Pedic, Inc., 144A--Private Placement (a)..................... 10.250 08/15/10 127,680 280 Xerox Corp. ...................... 7.125 06/15/10 301,000 ----------- 2,141,817 ----------- ELECTRIC 2.0% 41 AES Corp. ........................ 9.375 09/15/10 45,664 26 AES Corp. ........................ 8.875 02/15/11 28,470 260 AES Corp., 144A--Private Placement (a)............................... 9.000 05/15/15 295,100 135 Allegheny Energy, Inc. ........... 7.750 08/01/05 136,856 240 Calpine Corp. .................... 8.500 02/15/11 191,100 130 Calpine Corp., 144A--Private Placement (a)..................... 8.500 07/15/10 127,400 35 CMS Energy Corp. ................. 7.500 01/15/09 36,225 220 CMS Energy Corp. ................. 8.500 04/15/11 238,700 75 IPALCO Enterprises, Inc. ......... 7.625 11/14/11 84,187 260 Monongahela Power Co. ............ 5.000 10/01/06 265,850
6 See Notes to Financial Statements YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE ELECTRIC (CONTINUED) $ 225 Nevada Power Co., 144A--Private Placement (a)..................... 9.000% 08/15/13 $ 250,031 20 PSEG Energy Holdings, Inc. ....... 7.750 04/16/07 21,325 205 PSEG Energy Holdings, Inc. ....... 8.625 02/15/08 224,731 ----------- 1,945,639 ----------- ENVIRONMENTAL SERVICES 0.4% 235 Allied Waste North America, Inc. ............................. 10.000 08/01/09 254,975 110 Allied Waste North America, Inc., 144A--Private Placement (a)....... 6.500 11/15/10 113,300 ----------- 368,275 ----------- FOOD/BEVERAGE 1.5% 70 Couche-Tard US Finance, 144A-- Private Placement (a)............. 7.500 12/15/13 73,675 195 Michael Foods, Inc., 144A--Private Placement (a)..................... 8.000 11/15/13 204,262 125 National Beef Packing Co., 144A-- Private Placement (a)............. 10.500 08/01/11 129,375 435 Pilgrim's Pride Corp. ............ 9.625 09/15/11 480,675 125 PPC Escrow Corp., 144A--Private Placement (a)..................... 9.250 11/15/13 130,000 430 Smithfield Foods, Inc. ........... 8.000 10/15/09 455,800 ----------- 1,473,787 ----------- GAMING 2.0% 210 Harrahs Operating Co., Inc. ...... 7.875 12/15/05 228,900 150 Harrahs Operating Co., Inc. ...... 8.000 02/01/11 176,444 215 Horseshoe Gaming, LLC............. 8.625 05/15/09 228,169 240 MGM Mirage, Inc. ................. 6.000 10/01/09 247,800 180 Park Place Entertainment Corp. ... 7.875 12/15/05 193,275 250 Park Place Entertainment Corp. ... 8.875 09/15/08 283,750 300 Station Casinos, Inc. ............ 8.875 12/01/08 312,000 100 Station Casinos, Inc. ............ 9.875 07/01/10 110,500 170 Venetian Casino Resort, LLC....... 11.000 06/15/10 198,050 ----------- 1,978,888 ----------- HEALTHCARE 2.4% 390 AmerisourceBergen Corp. .......... 8.125 09/01/08 441,675 226 Fisher Scientific International, Inc. ............................. 8.125 05/01/12 243,515 165 Fresenius Medical Care Capital Trust II.......................... 7.875 02/01/08 176,962 240 Fresenius Medical Care Capital Trust IV.......................... 7.875 06/15/11 260,400 335 HCA, Inc. ........................ 8.750 09/01/10 399,414 30 Manor Care, Inc. ................. 7.500 06/15/06 32,700 85 Manor Care, Inc. ................. 8.000 03/01/08 96,475
See Notes to Financial Statements 7 YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE HEALTHCARE (CONTINUED) $ 110 Medco Health Solutions, Inc. ..... 7.250% 08/15/13 $ 120,215 50 National Nephrology Associates, Inc., 144A--Private Placement (a)............................... 9.000 11/01/11 52,625 150 Omnicare, Inc. ................... 8.125 03/15/11 164,625 55 Omnicare, Inc. ................... 6.125 06/01/13 55,412 90 Tenet Healthcare Corp. ........... 6.500 06/01/12 86,737 280 Tenet Healthcare Corp. ........... 7.375 02/01/13 282,800 ----------- 2,413,555 ----------- HOME CONSTRUCTION 1.1% 345 LNR Property Corp. ............... 7.625 07/15/13 364,837 110 LNR Property Corp., 144A--Private Placement (a)..................... 7.250 10/15/13 112,475 110 Meritage Corp. ................... 9.750 06/01/11 123,475 95 Technical Olympic USA, Inc. ...... 9.000 07/01/10 102,600 145 Technical Olympic USA, Inc. ...... 9.000 07/01/10 156,600 205 Technical Olympic USA, Inc. ...... 10.375 07/01/12 230,625 ----------- 1,090,612 ----------- INDEPENDENT ENERGY 0.3% 240 Equistar Chemicals LP............. 10.125 09/01/08 264,000 ----------- INTEGRATED ENERGY 1.5% 345 BRL Universal Equipment........... 8.875 02/15/08 371,737 345 Chesapeake Energy Corp. .......... 7.500 09/15/13 375,187 60 Hanover Compressor Co. ........... 8.625 12/15/10 62,700 205 Hanover Equipment Trust........... 8.500 09/01/08 218,325 95 Hanover Equipment Trust........... 8.750 09/01/11 101,175 50 MSW Energy Holdings LLC........... 8.500 09/01/10 54,750 230 MSW Energy Holdings LLC, 144A-- Private Placement (a)............. 7.375 09/01/10 241,500 95 Transcontinental Gas Pipe Line Corp. ............................ 8.875 07/15/12 112,813 ----------- 1,538,187 ----------- LODGING 1.3% 250 Hilton Hotels Corp. .............. 7.950 04/15/07 278,438 130 Hilton Hotels Corp. .............. 7.625 12/01/12 146,738 290 HMH Properties, Inc. ............. 7.875 08/01/08 303,050 155 LodgeNet Entertainment Corp. ..... 9.500 06/15/13 170,500 65 Starwood Hotels & Resorts Worldwide, Inc. .................. 7.375 05/01/07 70,525 275 Starwood Hotels & Resorts Worldwide, Inc. .................. 7.875 05/01/12 310,750 ----------- 1,280,001 -----------
8 See Notes to Financial Statements YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE MEDIA-CABLE 2.5% $ 63 Avalon Cable, LLC (b)............. 0/11.875% 12/01/08 $ 66,802 565 Charter Communication Holdings LLC............................... 9.625 11/15/09 500,025 50 CSC Holdings, Inc. ............... 7.250 07/15/08 52,250 260 CSC Holdings, Inc. ............... 8.125 07/15/09 280,800 70 CSC Holdings, Inc. ............... 9.875 02/15/13 73,500 65 CSC Holdings, Inc. ............... 10.500 05/15/16 74,750 330 DirecTV Holdings LLC.............. 8.375 03/15/13 384,450 81 Echostar DBS Corp. ............... 9.125 01/15/09 91,024 310 Echostar DBS Corp. ............... 9.375 02/01/09 325,888 320 Echostar DBS Corp., 144A--Private Placement (a)..................... 6.375 10/01/11 329,600 1,000 Park N View, Inc., Ser B (c) (d) (e)............................... 13.000 05/15/08 0 160 Pegasus Communications Corp., Ser B................................. 9.750 12/01/06 145,200 20 Pegasus Satellite Communications (b)............................... 0/13.500 03/01/07 17,025 135 Renaissance Media Group........... 10.000 04/15/08 140,231 ----------- 2,481,545 ----------- MEDIA-NONCABLE 3.3% 45 Advanstar Communications, Inc., 144A--Private Placement (a)....... 10.750 08/15/10 48,938 399 Advanstar Communications, Inc., 144A--Private Placement (Variable Rate Coupon) (a).................. 8.680 08/15/08 420,945 195 Dex Media East Finance Corp. LLC............................... 12.125 11/15/12 240,825 200 Dex Media West Finance Corp., 144A--Private Placement (a)....... 9.875 08/15/13 233,500 370 Dex Media, Inc., 144A--Private Placement (a) (b)................. 0/9.000 11/15/13 262,700 160 Granite Broadcasting Corp., 144A-- Private Placement (a)............. 9.750 12/01/10 160,400 330 Hollinger Participation Trust, 144A--Private Placement (a) (f)... 12.125 11/15/10 393,279 275 Interep National Radio Sales, Inc., Ser B....................... 10.000 07/01/08 244,750 95 Nexstar Finance, Inc., 144A--Private Placement (a)....... 7.000 01/15/14 95,950 320 Nextmedia Operating, Inc. ........ 10.750 07/01/11 364,800 120 PEI Holdings, Inc. ............... 11.000 03/15/10 139,800 325 Primedia, Inc. ................... 8.875 05/15/11 344,500 275 Salem Communications Corp. ....... 7.750 12/15/10 288,063 ----------- 3,238,450 -----------
See Notes to Financial Statements 9 YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE METALS 0.8% $ 323 Doe Run Resources Corp., 144A-- Private Placement (a) (e) (f)..... 11.750% 11/01/08 $ 113,028 120 General Cable Corp., 144A--Private Placement (a)..................... 9.500 11/15/10 129,000 750 GS Technologies Operating, Inc. (c) (d) (e)....................... 12.000 09/01/04 75 47 Republic Engineered Products, LLC (c) (d)........................... 10.000 08/16/09 19,529 245 UCAR Finance, Inc. ............... 10.250 02/15/12 282,975 225 United States Steel Corp. ........ 9.750 05/15/10 254,250 ----------- 798,857 ----------- NATURAL GAS PIPELINES 1.9% 340 Dynegy Holdings, Inc. ............ 6.875 04/01/11 314,925 200 Dynegy Holdings, Inc., 144A--Private Placement (a)....... 9.875 07/15/10 226,000 365 El Paso Production Holding Co., 144A--Private Placement (a)....... 7.750 06/01/13 361,350 64 Gulfterra Energy Partners LP...... 8.500 06/01/10 72,960 211 Gulfterra Energy Partners LP...... 10.625 12/01/12 262,695 55 Northwest Pipeline Corp. ......... 8.125 03/01/10 61,325 105 Southern Natural Gas Co. ......... 8.875 03/15/10 118,650 25 Williams Cos., Inc. .............. 6.750 01/15/06 26,000 420 Williams Cos., Inc. .............. 7.875 09/01/21 445,200 ----------- 1,889,105 ----------- OIL FIELD SERVICES 0.5% 265 Hilcorp Energy Finance Corp., 144A--Private Placement (a)....... 10.500 09/01/10 291,500 160 Magnum Hunter Resources, Inc. .... 9.600 03/15/12 182,400 ----------- 473,900 ----------- PACKAGING 0.8% 450 Owens-Illinois, Inc. ............. 7.500 05/15/10 464,063 90 Tekni-Plex, Inc., 144A--Private Placement (a)..................... 8.750 11/15/13 94,275 250 Tekni-Plex, Inc., Ser B........... 12.750 06/15/10 273,750 ----------- 832,088 ----------- PAPER 1.4% 435 Georgia-Pacific Corp. ............ 8.875 02/01/10 498,075 310 Graphic Packaging International, Inc., 144A--Private Placement (a)............................... 9.500 08/15/13 344,100 50 Louisiana Pacific Corp. .......... 10.875 11/15/08 59,750 145 Louisiana Pacific Corp. .......... 8.875 08/15/10 171,825 25 Owens-Brockway Glass Containers, Inc. ............................. 7.750 05/15/11 26,969
10 See Notes to Financial Statements YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE PAPER (CONTINUED) $ 80 Owens-Brockway Glass Containers, Inc. ............................. 8.750% 11/15/12 $ 89,500 35 Pliant Corp. ..................... 13.000 06/01/10 32,200 185 Pliant Corp. ..................... 13.000 06/01/10 170,200 ----------- 1,392,619 ----------- RAILROADS 0.3% 235 Amsted Industries, Inc., 144A-- Private Placement (a)............. 10.250 10/15/11 260,850 ----------- REAL ESTATE INVESTMENT TRUSTS 0.4% 320 Istar Financial, Inc. ............ 8.750 08/15/08 371,200 ----------- REFINING 1.1% 120 Citgo Petroleum Corp. ............ 11.375 02/01/11 139,800 250 Frontier Oil Corp. ............... 11.750 11/15/09 283,750 145 Tesoro Petroleum Corp. ........... 9.000 07/01/08 151,163 135 Tesoro Petroleum Corp. ........... 9.625 04/01/12 148,500 390 Vintage Petroleum, Inc. .......... 7.875 05/15/11 413,400 ----------- 1,136,613 ----------- RETAIL 1.7% 196 Big 5 Corp., Ser B................ 10.875 11/15/07 206,780 104 Elizabeth Arden, Inc. ............ 11.750 02/01/11 124,280 165 General Nutrition Centers, Inc., 144A--Private Placement (a)....... 8.500 12/01/10 169,950 120 Oxford Industrials, Inc., 144A-- Private Placement (a)............. 8.875 06/01/11 131,850 365 Payless Shoesource, Inc. ......... 8.250 08/01/13 353,138 45 Penney JC Co., Inc. .............. 7.600 04/01/07 49,894 120 Penney JC Co., Inc. .............. 8.000 03/01/10 138,150 135 Penney JC Co., Inc. .............. 9.000 08/01/12 162,169 35 Penney JC Co., Inc. .............. 6.875 10/15/15 36,969 1,000 Sleepmaster LLC (c) (d) (e)....... 11.000 05/15/09 277,500 ----------- 1,650,680 ----------- SERVICES 0.7% 315 CB Richard Ellis Service, Inc. ... 11.250 06/15/11 357,525 60 CBRE Escrow, Inc., 144A--Private Placement (a)..................... 9.750 05/15/10 66,900 240 Intermet Corp. ................... 9.750 06/15/09 247,200 ----------- 671,625 -----------
See Notes to Financial Statements 11 YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE SUPERMARKETS 0.7% $ 330 Delhaize America, Inc. ........... 8.125% 04/15/11 $ 381,150 255 Kroger Co., 144A--Private Placement (a)..................... 8.500 07/15/17 287,614 ----------- 668,764 ----------- TECHNOLOGY 0.6% 315 Avaya, Inc. ...................... 11.125 04/01/09 370,125 250 Fairchild Semiconductor Corp. .... 10.500 02/01/09 280,000 ----------- 650,125 ----------- TOBACCO 0.3% 315 Altria Group, Inc. ............... 7.000 11/04/13 336,641 ----------- TRANSPORTATION SERVICES 0.7% 14 Aran Shipping & Trading, SA (c) (e)............................... 8.300 01/31/04 0 235 Sonic Automotive, Inc. ........... 8.625 08/15/13 249,100 90 Sonic Automotive, Inc., 144A-- Private Placement (a)............. 8.625 08/15/13 95,400 315 TRW Automotive, Inc. ............. 9.375 02/15/13 361,463 ----------- 705,963 ----------- U.S. GOVERNMENT AGENCY 4.9% 4,850 Freddie Mac....................... 2.750 08/15/06 4,897,579 ----------- WIRELESS COMMUNICATIONS 2.3% 50 American Tower Corp. ............. 9.375 02/01/09 53,500 465 American Tower Corp. ............. 6.250 10/15/09 469,650 195 Dobson Communications Corp. ...... 10.875 07/01/10 213,525 275 MetroPCS, Inc., 144A--Private Placement (a)..................... 10.750 10/01/11 275,000 475 Nextel Communications, Inc. ...... 9.375 11/15/09 520,125 75 Nextel Communications, Inc. ...... 7.375 08/01/15 81,000 225 Nextel Partners, Inc. ............ 11.000 03/15/10 249,750 62 SBA Communications Corp. ......... 12.000 03/01/08 67,735 225 SBA Communications Corp. ......... 10.250 02/01/09 222,188 160 SBA Communications Corp., 144A-- Private Placement (a) (b)......... 0/9.750 12/15/11 113,600 ----------- 2,266,073 ----------- WIRELINE COMMUNICATIONS 0.9% 250 Exodus Communications, Inc. (c) (d) (e)........................... 11.250 07/01/08 0 400 Exodus Communications, Inc. (c) (d) (e)........................... 11.625 07/15/10 0 200 Primus Telecom Group.............. 9.875 05/15/08 208,000 15 Primus Telecom Group.............. 11.250 01/15/09 15,975
12 See Notes to Financial Statements YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE WIRELINE COMMUNICATIONS (CONTINUED) $ 280 Qwest Services Corp., 144A--Private Placement (a)....... 13.000% 12/15/07 $ 330,400 205 US West Communications, Inc. ..... 6.625 09/15/05 213,713 170 US West Communications, Inc. ..... 5.625 11/15/08 169,150 ----------- 937,238 ----------- TOTAL DOMESTIC CORPORATE BONDS 46.6%......................................... 46,276,001 ----------- PAR AMOUNT IN LOCAL CURRENCY (000) FOREIGN BONDS AND DEBT SECURITIES (US $) 5.5% BELGIUM 0.3% 170 Telenet Communications, 144A-- Private Placement (EUR) (a)....... 9.000 12/15/13 222,224 75 Telenet Group Holding, 144A-- Private Placement (a)............. 11.500 06/15/14 47,625 ----------- 269,849 ----------- BRAZIL 0.2% 500 Multicanal Participacoes, Ser B (c)............................... 12.625 06/18/04 252,500 ----------- CANADA 1.6% 205 Abitibi-Consolidated, Inc. ....... 8.550 08/01/10 228,636 80 Abitibi-Consolidated, Inc. ....... 6.000 06/20/13 76,915 355 Alliance Atlantis Communications, Inc. ............................. 13.000 12/15/09 406,475 285 Husky Oil Ltd. (Variable Rate Coupon)........................... 8.900 08/15/28 330,600 125 Norampac, Inc. ................... 6.750 06/01/13 130,938 55 PCI Chemicals Canada, Inc. ....... 10.000 12/31/08 49,728 350 Tembec Industries, Inc. .......... 7.750 03/15/12 350,000 ----------- 1,573,292 ----------- FRANCE 0.6% 220 Rhodia S.A., 144A--Private Placement (a)..................... 8.875 06/01/11 203,500 235 Vivendi Universal S.A. ........... 9.250 04/15/10 279,650 85 Vivendi Universal S.A., 144A--Private Placement (a)....... 6.250 07/15/08 90,419 ----------- 573,569 -----------
See Notes to Financial Statements 13 YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT IN LOCAL CURRENCY MARKET (000) DESCRIPTION COUPON MATURITY VALUE GUERNSEY 0.2% $ 145 ABB International Finance Ltd. (EUR)............................. 11.000% 01/15/08 $ 207,069 ----------- LUXEMBOURG 0.9% 110 Johnsondiversey, Inc. (EUR)....... 9.625 05/15/12 153,147 305 Safilo Capital International S.A., 144A--Private Placement (EUR) (a)............................... 9.625 05/15/13 326,642 350 Tyco International Group S.A...... 6.750 02/15/11 384,125 ----------- 863,914 ----------- MEXICO 0.9% 275 Axtel S.A., 144A--Private Placement (a)..................... 11.000 12/15/13 281,875 475 Satelites Mexicanos S.A. (c)...... 10.125 11/01/04 216,125 400 TV Azteca S.A. ................... 10.500 02/15/07 411,000 ----------- 909,000 ----------- UNITED KINGDOM 0.8% 240 Avecia Group Plc.................. 11.000 07/01/09 217,200 325 JSG Funding Plc (EUR)............. 10.125 10/01/12 464,764 160 Xerox Capital Europe Plc.......... 5.875 05/15/04 162,400 ----------- 844,364 ----------- TOTAL FOREIGN BONDS AND DEBT SECURITIES 5.5%.................................. 5,493,557 ----------- COLLATERALIZED MORTGAGE OBLIGATIONS 16.2% 1,197 Federal Home Loan Mortgage Corp. (Interest Only)................... 5.000 09/15/14 to 12/15/16 112,732 533 Federal Home Loan Mortgage Corp. (Interest Only)................... 6.000 05/15/30 45,313 403 Federal Home Loan Mortgage Corp. (Interest Only) (g)............... 6.338 01/15/29 35,779 286 Federal Home Loan Mortgage Corp. (Interest Only) REMIC (g)......... 6.840 03/15/32 24,502 400 Federal Home Loan Mortgage Corp., January........................... 7.500 TBA 429,625 738 Federal National Mortgage Association (Interest Only)....... 5.500 06/25/26 76,503 1,031 Federal National Mortgage Association (Interest Only) REMIC............................. 6.000 08/25/32 to 07/25/33 179,141 984 Federal National Mortgage Association (Interest Only)....... 6.500 07/01/31 to 05/25/33 160,871 514 Federal National Mortgage Association (Interest Only) REMIC............................. 7.000 03/01/32 to 04/25/33 83,895
14 See Notes to Financial Statements YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED) $ 112 Federal National Mortgage Association (Interest Only)....... 8.000% 05/01/30 $ 20,057 1,800 Federal National Mortgage Association, January.............. 5.500 TBA 1,823,625 3,000 Federal National Mortgage Association, January.............. 6.000 TBA 3,101,250 5,500 Federal National Mortgage Association, January.............. 6.500 TBA 5,752,659 3,025 Federal National Mortgage Association, January.............. 7.000 TBA 3,203,662 472 Government National Mortgage Association (Interest Only) REMIC............................. 6.246 05/16/32 31,893 428 Government National Mortgage Association (Interest Only) REMIC (g)............................... 6.850 05/16/32 40,176 1,000 Government National Mortgage Association, January.............. 5.500 TBA 1,016,875 ----------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 16.2%.............................. 16,138,558 ----------- MORTGAGE BACKED SECURITIES 9.3% 2,450 Federal Home Loan Mortgage Corp. 30 Year Pools..................... 6.500 09/01/31 to 09/01/32 2,567,583 645 Federal Home Loan Mortgage Corp. 30 Year Pools..................... 7.500 11/01/29 to 10/01/31 692,635 98 Federal National Mortgage Association 15 Year Pools......... 6.500 06/01/15 103,649 551 Federal National Mortgage Association 15 Year Pools......... 7.000 03/01/15 to 05/01/15 589,796 109 Federal National Mortgage Association 15 Year Pools......... 7.500 03/01/15 to 06/01/15 116,793 657 Federal National Mortgage Association 30 Year Pools......... 6.000 04/01/28 to 12/01/28 680,997 1,081 Federal National Mortgage Association 30 Year Pools......... 7.000 04/01/28 to 12/01/32 1,145,397 914 Federal National Mortgage Association 30 Year Pools......... 7.500 03/01/30 to 03/01/32 976,509 303 Government National Mortgage Association 30 Year Pools......... 7.000 07/15/29 to 01/15/30 322,826 694 Government National Mortgage Association 30 Year Pools......... 7.500 07/15/23 to 09/15/29 748,110 435 Government National Mortgage Association 30 Year Pools......... 8.000 03/15/17 to 10/15/22 477,779 217 Government National Mortgage Association 30 Year Pools......... 8.500 07/15/24 to 12/15/24 239,493
See Notes to Financial Statements 15 YOUR TRUST'S INVESTMENTS December 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE MORTGAGE BACKED SECURITIES (CONTINUED) $ 445 Government National Mortgage Association 30 Year Pools......... 9.000% 08/15/16 to 12/15/24 $ 498,095 90 Government National Mortgage Association 30 Year Pools......... 9.500 11/15/09 to 01/15/17 100,264 ----------- TOTAL MORTGAGE BACKED SECURITIES 9.3%........................................ 9,259,926 ----------- UNITED STATES TREASURY OBLIGATIONS 13.8% 1,600 United States Treasury Bonds...... 5.250 02/15/29 1,614,625 1,855 United States Treasury Bonds...... 6.125 08/15/29 2,102,672 2,570 United States Treasury Bonds...... 7.625 02/15/25 3,394,911 325 United States Treasury Bonds...... 8.125 08/15/21 443,333 6,250 United States Treasury Notes...... 3.875 02/15/13 6,120,119 ----------- TOTAL UNITED STATES TREASURY OBLIGATIONS...................................... 13,675,660 ----------- FOREIGN GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 0.3% 105 Republic of Colombia (Columbia)... 10.750 01/15/13 119,962 180 United Mexican States (Mexico).... 8.375 01/14/11 214,200 ----------- TOTAL FOREIGN GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS.................... 334,162 -----------
DESCRIPTION EQUITIES 1.4% Aurora Foods, Inc. (8,855 Common Shares) (h)................................. 44 Dobson Communications Corp. (3,290 Preferred Shares) (f)..................... 354,498 Dobson Communications Corp., 144A--Private Placement (410 Preferred Shares) (a)........................................................................ 73,800 Doe Run Resources Corp. (1 Common Stock Warrant) (e) (h)..................... 0 HF Holdings, Inc. (5,260 Common Stock Warrants) (e) (h)...................... 0 Microcell Telecommunications, Inc. (1,221 Common Stock Warrants) (CAN) (h)... 2,598 Microcell Telecommunications, Inc. (1,985 Preferred Shares) (CAN) (h)........ 26,480 Microcell Telecommunications, Inc. (16 Common Shares) (CAN) (h).............. 224 Microcell Telecommunications, Inc. (733 Common Stock Warrants) (CAN) (h)..... 1,117 Microcell Telecommunications, Inc., Class B (1,973 Common Shares) (CAN) (h)........................................................................ 26,396 Optel, Inc. (500 Common Shares) (e) (h)...................................... 0 Park N View, Inc., 144A--Private Placement (1,000 Common Stock Warrants) (a) (e) (h).................................................................... 0 Paxon Communications Corp. (3,900 Preferred Shares) (f)...................... 359,775 Pioneer Cos., Inc. (3,533 Common Shares) (h)................................. 28,794
16 See Notes to Financial Statements YOUR TRUST'S INVESTMENTS December 31, 2003
MARKET DESCRIPTION VALUE EQUITIES (CONTINUED) Republic Technologies International, Inc., 144A--Private Placement (250 Common Stock Warrants) (a) (h)............................................. 0 Startec Global Communications, 144A--Private Placement (1,000 Common Stock Warrants) (a) (e) (h)...................................................... 0 TNP Enterprises, Inc. (4,310 Preferred Shares) (f)........................... 468,713 ----------- TOTAL EQUITIES 1.4%......................................................... 1,342,439 ----------- TOTAL LONG-TERM INVESTMENTS 93.1% (Cost $92,491,440)......................................................... 92,520,303 ----------- SHORT-TERM INVESTMENTS 20.9% REPURCHASE AGREEMENT 10.8% Banc of America Securities LLC ($10,752,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 12/31/03, to be sold on 01/02/04 at $10,752,526)................................................ 10,752,000 U.S. GOVERNMENT AGENCY OBLIGATIONS 10.1% Federal National Mortgage Association Discount Note ($10,000,000 par, yielding 1.02%, 01/14/04 maturity)......................................... 9,996,317 ----------- TOTAL SHORT-TERM INVESTMENTS (Cost $20,748,317)......................................................... 20,748,317 ----------- TOTAL INVESTMENTS 114.0% (Cost $113,239,757)........................................................ 113,268,620 LIABILITIES IN EXCESS OF OTHER ASSETS (14.0%)............................... (13,916,307) ----------- NET ASSETS 100.0%........................................................... $99,352,313 ===========
(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 in transactions exempt from registration which are normally those 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 as security is in default. (d) This borrower has filed for protection in federal bankruptcy court. (e) Market value is determined in accordance with procedures established in good faith by the Board of Trustees. (f) Payment-in-kind security. See Notes to Financial Statements 17 YOUR TRUST'S INVESTMENTS December 31, 2003 (g) An Inverse Floating Rate security is one where the coupon is inversely indexed to a short-term floating interest rate multiplied by a specific factor. As the floating rate rises, the coupon is reduced. Conversely, as the floating rate declines, the coupon is increased. The price of these securities may be more volatile than the price of a comparable fixed rate security. These instruments are typically used by the Trust to enhance the yield of the portfolio. All of the Trust's portfolio holdings, including derivative instruments, are marked to market. (h) Non-income producing security. TBA--To be announced, maturity date has not yet been established. The maturity date will be determined upon settlement and delivery of the mortgage pools. CAN--Canadian Dollar EUR--Eurodollar REMIC--Real Estate Mortgage Investment Conduits 18 See Notes to Financial Statements FINANCIAL STATEMENTS Statement of Assets and Liabilities December 31, 2003 ASSETS: Total Investments (Cost $113,239,757), including repurchase agreement of $10,752,000.................................. $113,268,620 Receivables: Investments Sold.......................................... 2,570,608 Interest.................................................. 1,369,369 Other....................................................... 30,974 ------------ Total Assets............................................ 117,239,571 ------------ LIABILITIES: Payables: Investments Purchased..................................... 17,346,342 Custodian Bank............................................ 185,873 Investment Advisory Fee................................... 54,657 Income Distributions...................................... 26,271 Other Affiliates.......................................... 3,273 Trustees' Deferred Compensation and Retirement Plans........ 120,799 Accrued Expenses............................................ 75,899 Forward Foreign Currency Contracts.......................... 74,144 ------------ Total Liabilities....................................... 17,887,258 ------------ NET ASSETS.................................................. $ 99,352,313 ============ NET ASSET VALUE PER COMMON SHARE ($99,352,313 divided by 15,371,738 shares outstanding)............................ $ 6.46 ============ NET ASSETS CONSIST OF: Common Shares (no par value with unlimited shares authorized, 15,371,738 shares issued and outstanding)..... $120,152,592 Net Unrealized Depreciation................................. (42,524) Accumulated Undistributed Net Investment Income............. (437,188) Accumulated Net Realized Loss............................... (20,320,567) ------------ NET ASSETS.................................................. $ 99,352,313 ============
See Notes to Financial Statements 19 Statement of Operations For the Year Ended December 31, 2003 INVESTMENT INCOME: Interest.................................................... $ 5,689,443 Dividends................................................... 155,860 Other....................................................... 28,380 ------------ Total Income.......................................... 5,873,683 ------------ EXPENSES: Investment Advisory Fee..................................... 629,166 Accounting.................................................. 53,597 Trustees' Fees and Related Expenses......................... 47,716 Shareholder Reports......................................... 45,562 Custody..................................................... 31,891 Legal....................................................... 6,640 Other....................................................... 80,040 ------------ Total Expenses........................................ 894,612 ------------ NET INVESTMENT INCOME....................................... $ 4,979,071 ============ REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ (4,634,830) Foreign Currency Contracts................................ (71,002) Foreign Currency Transactions............................. (27,130) ------------ Net Realized Loss........................................... (4,732,962) ------------ Unrealized Appreciation/Depreciation: Beginning of the Period................................... (11,096,106) ------------ End of the Period: Investments............................................. 28,863 Foreign Currency Contracts.............................. (74,144) Foreign Currency Translation............................ 2,757 ------------ (42,524) ------------ Net Unrealized Appreciation During the Period............... 11,053,582 ------------ NET REALIZED AND UNREALIZED GAIN............................ $ 6,320,620 ============ NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 11,299,691 ============
20 See Notes to Financial Statements Statements of Changes in Net Assets
YEAR ENDED YEAR ENDED DECEMBER 31, 2003 DECEMBER 31, 2002 --------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income............................... $ 4,979,071 $ 5,997,463 Net Realized Loss................................... (4,732,962) (6,169,169) Net Unrealized Appreciation During the Period....... 11,053,582 1,071,689 ----------- ------------ Change in Net Assets from Operations................ 11,299,691 899,983 ----------- ------------ Distributions from Net Investment Income............ (5,291,984) (7,220,386) Return of Capital Distribution...................... (464,494) -0- ----------- ------------ Total Distributions................................. (5,756,478) (7,220,386) ----------- ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES........................................ 5,543,213 (6,320,403) FROM CAPITAL TRANSACTIONS: Value of Common Shares Issued Through Dividend Reinvestment...................................... -0- 81,841 ----------- ------------ TOTAL INCREASE/DECREASE IN NET ASSETS............... 5,543,213 (6,238,562) NET ASSETS: Beginning of the Period............................. 93,809,100 100,047,662 ----------- ------------ End of the Period (Including accumulated undistributed net investment income of ($437,188) and ($1,120,176), respectively)................... $99,352,313 $ 93,809,100 =========== ============
See Notes to Financial Statements 21 Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
------------------------------------------------- 2003 2002 2001 (a) 2000 1999 ------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.................................. $6.10 $ 6.51 $ 6.85 $ 7.25 $ 7.84 ----- ------ ------ ------- ------- Net Investment Income................... .32 .39 .53 .60 .64 Net Realized and Unrealized Gain/Loss... .41 (.33) (.29) (.40) (.63) ----- ------ ------ ------- ------- Total from Investment Operations.......... .73 .06 .24 .20 .01 Less: Distributions from Net Investment Income................................ .34 .47 .58 .60 .60 Return of Capital Distributions......... .03 -0- -0- -0- -0- ----- ------ ------ ------- ------- Total Distributions....................... .37 .47 .58 .60 .60 ----- ------ ------ ------- ------- NET ASSET VALUE, END OF THE PERIOD........ $6.46 $ 6.10 $ 6.51 $ 6.85 $ 7.25 ===== ====== ====== ======= ======= Common Share Market Price at End of the Period.................................. $5.81 $ 5.71 $ 6.33 $6.5625 $5.6875 Total Return (b).......................... 8.42% -2.59% 5.05% 26.59% -19.81% Net Assets at End of the Period (In millions)............................... $99.4 $ 93.8 $100.0 $ 104.8 $ 110.9 Ratio of Expenses to Average Net Assets... .92% .89% .93% .96% .95% Ratio of Net Investment Income to Average Net Assets.............................. 5.14% 6.29% 7.88% 8.51% 8.46% Portfolio Turnover........................ 299%(c) 101% 46% 60% 28%
(a) As required, effective January 1, 2001, the Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on fixed income securities and presenting paydown gains and losses on mortgage-and asset-backed securities as interest income. The effect of these changes for the year ended December 31, 2001 was an increase in the ratio of net investment income to average net assets from 7.83% to 7.88%. Net investment income per share and net realized and unrealized gains and losses per share were unaffected by the adjustments. Per share, ratios and supplemental data for periods prior to December 31, 2001 have not been restated to reflect this change in presentation. (b) Total return assumes an investment at the common share market price at the beginning of the period indicated, reinvestment of all distributions for the period in accordance with the Trust's dividend reinvestment plan, and sale of all shares at the closing common share price at the end of the period indicated. (c) The Trust's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for a fiscal year by the average monthly value of the Trust's portfolio securities during such fiscal year. The turnover rate may vary greatly from year to year as well as within a year. The accounting treatment used by the Trust for mortgage pool forward commitments now reflects them as purchases and sales, which had not been the case in the past. This caused the reported portfolio turnover rate to be higher during the current fiscal year than in previous fiscal years. 22
YEAR ENDED DECEMBER 31, - ----------------------------------------------- 1998 1997 1996 1995 1994 - ----------------------------------------------- $ 8.05 $ 7.93 $ 7.94 $ 7.28 $ 8.15 ------ ------ ------ ------ ------ .66 .66 .66 .65 .65 (.22) .18 (.01) .66 (.86) ------ ------ ------ ------ ------ .44 .84 .65 1.31 (.21) .65 .72 .66 .65 .66 -0- -0- -0- -0- -0- ------ ------ ------ ------ ------ .65 .72 .66 .65 .66 ------ ------ ------ ------ ------ $ 7.84 $ 8.05 $ 7.93 $ 7.94 $ 7.28 ====== ====== ====== ====== ====== $ 7.75 $ 8.00 $ 7.50 $ 7.25 $ 6.50 5.05% 16.97% 12.95% 21.83% -8.06% $120.0 $123.1 $121.2 $121.4 $111.4 .96% .91% 1.00% .94% .96% 8.17% 8.32% 8.40% 8.50% 7.94% 47% 55% 36% 34% 45%
See Notes to Financial Statements 23 NOTES TO FINANCIAL STATEMENTS December 31, 2003 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 Trust commenced investment operations on April 22, 1988. The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Fixed income investments are stated at value using market quotations or indications of value obtained from an independent pricing service. Investments in securities listed on a securities exchange are valued at their sales price as of the close of such securities exchange. Listed and unlisted securities for which the last sales price is not available are valued at the mean of the bid and asked prices. For those securities where quotations or prices are not available, valuations are 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. Forward foreign currency contracts are valued using quoted foreign exchange rates. 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", "delayed delivery" or "forward commitment" basis, with settlement to occur at a later date. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security so purchased is subject to market fluctuations during this period. Purchasing securities on this basis 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. 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, 2003, the Trust has $17,346,342 of forward purchase commitments. 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 (the "Adviser") or its affiliates, the daily aggregate of which is invested in repurchase agreements. Repurchase 24 NOTES TO FINANCIAL STATEMENTS December 31, 2003 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. Discounts are accreted and premiums are amortized over the expected life of each applicable security. D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Trust intends to utilize provisions of the federal income tax laws which allow it to carry a realized capital loss forward for eight years following the year of the loss and offset these losses against any future realized capital gains. At December 31, 2003, the Trust had an accumulated capital loss carryforward for tax purposes of $19,032,344, which will expire between December 31, 2007 and December 31, 2011. At December 31, 2003, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $113,429,813 ============ Gross tax unrealized appreciation........................... $ 4,876,784 Gross tax unrealized depreciation........................... (5,037,977) ------------ Net tax unrealized depreciation on investments.............. $ (161,193) ============
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. The tax character of distributions paid during the years ended December 31, 2003 and 2002 was as follows:
2003 2002 Distribution paid from: Ordinary Income........................................... $5,265,713 $7,220,386 Long-term capital gain.................................... -0- -0- Return of Capital......................................... 464,494 -0- ---------- ---------- $5,730,207 $7,220,386 ========== ==========
Due to inherent differences in the recognition of income, expenses, and realized gains/losses under accounting principles generally accepted in the United States of America 25 NOTES TO FINANCIAL STATEMENTS December 31, 2003 and federal income tax purposes, permanent differences between book and tax basis reporting for the 2003 fiscal year have been identified and appropriately reclassified. A permanent book and tax basis differences relating to paydowns on mortgage-backed securities totaling $200,199 was reclassified from accumulated net realized loss to accumulated undistributed net investment income. A permanent book and tax difference related to the recognition of net realized losses on foreign currency transactions totaling $98,132 has been reclassified from accumulated net realized loss to accumulated undistributed net investment income. A permanent book and tax difference relating to consent fee income totaling $26,850 has been reclassified from accumulated undistributed net investment income to accumulated net realized loss. A permanent book and tax difference relating to a portion of the capital loss carry-forward expiring in the current year totaling $1,776,125 was reclassified from accumulated net realized loss to capital. A permanent book and tax difference related to the portion of return of capital distributions totaling $464,494 in the current year has been reclassified from accumulated undistributed net investment income to capital. Additionally, a permanent difference relating to book to tax amortization differences totaling $920,684 was reclassified from accumulated undistributed net investment income to accumulated net realized loss. Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of the deferral of losses relating to wash sale transactions and post October losses of $1,203,971 which are not recognized for tax purposes until the first day of the following fiscal year. F. FOREIGN CURRENCY TRANSLATION Asset and liabilities denominated in foreign currencies and commitments under forward foreign currency contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated at the rate of exchange prevailing when such securities were acquired or sold. Realized gain and loss on foreign currency transactions on the Statement of Operations includes the net realized amount from the sale of foreign currency and the amount realized between trade date and settlement date on securities transactions. Income and expenses are translated at rates prevailing when accrued. 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 daily net assets of the Trust. For the year ended December 31, 2003, the Trust recognized expenses of approximately $6,600 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. Under an Accounting Services agreement, the Adviser provides accounting services to the Trust. The Adviser allocates the cost of such services to each trust. For the year ended December 31, 2003, the Trust recognized expenses of approximately $11,900 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing 26 NOTES TO FINANCIAL STATEMENTS December 31, 2003 accounting services to the Trust, which is reported as part of "Accounting" expenses in the Statement of Operations. Certain officers and trustees of the Trust are also officers and directors of Van Kampen. The Trust does not compensate its officers or trustees who are officers of Van Kampen. The Trust provides deferred compensation and retirement plans for its trustees who are not officers of Van Kampen. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation to a later date. Benefits under the retirement plan are payable upon retirement for a ten-year period and are based upon each trustee's years of service to the Trust. The maximum annual benefit per trustee under the plan is $2,500. 3. CAPITAL TRANSACTIONS At December 31, 2003 and 2002, paid in surplus related to common shares aggregated $120,152,592 and $122,393,211, respectively. Transactions in common shares were as follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2003 DECEMBER 31, 2002 Beginning Shares..................................... 15,371,738 15,358,477 Shares Issued Through Dividend Reinvestment.......... -0- 13,261 ---------- ---------- Ending Shares........................................ 15,371,738 15,371,738 ========== ==========
4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, including principal paydowns and excluding short-term investments, were $271,990,817 and $280,757,244, 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, foreign currency exposure, or generate potential gain. All of the Trust's holdings, including derivative instruments, are marked to market each day with the change in 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 forward commitment. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying the forward commitment. 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 27 NOTES TO FINANCIAL STATEMENTS December 31, 2003 may arise as a result of the potential inability of the counterparties to meet the terms of their contracts. A forward currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. 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. The following forward foreign currency contracts were outstanding as of December 31, 2003.
UNREALIZED CURRENT APPRECIATION/ VALUE DEPRECIATION SHORT CONTRACTS: Euro Currency 615,000 expiring 1/26/04................................ $ 774,312 $(50,765) 100,000 expiring 1/26/04................................ 125,904 (8,105) 70,000 expiring 1/26/04................................. 88,133 (5,883) 100,000 expiring 1/26/04................................ 125,904 (4,419) 40,000 expiring 1/26/04................................. 50,362 (1,449) 185,000 expiring 1/26/04................................ 232,923 (3,523) ---------- -------- $1,397,538 $(74,144) ========== ========
28 REPORT OF INDEPENDENT AUDITORS To the Board of Trustees and Shareholders of Van Kampen Income Trust We have audited the accompanying statement of assets and liabilities of Van Kampen Income Trust (the "Trust"), including the portfolio of investments, as of December 31, 2003, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The Trust's financial highlights for the periods ended prior to December 31, 2000, were audited by other auditors whose report, dated February 15, 2000, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the Trust's custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. 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 as of December 31, 2003, the results of its operations, the changes in its net assets and the financial highlights for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Chicago, Illinois February 6, 2004 29 BOARD OF TRUSTEES AND IMPORTANT ADDRESSES VAN KAMPEN INCOME TRUST BOARD OF TRUSTEES DAVID C. ARCH J. MILES BRANAGAN JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUSAN H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT 1221 Avenue of the Americas New York, NY 10020 CUSTODIAN AND TRANSFER AGENT STATE STREET BANK AND TRUST COMPANY c/o EquiServe P.O. Box 43011 Providence, Rhode Island 02940-3011 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT AUDITORS DELOITTE & TOUCHE LLP 180 North Stetson Avenue Chicago, Illinois 60601 For federal income tax purposes, the following is furnished with respect to the distributions paid by the Trust during its taxable year ended December 31, 2003. For corporate shareholders 3% of the distributions qualify for the dividends received deduction. In January, the Trust provides tax information to shareholders for the preceding calendar year. * "Interested persons" of the Trust, as defined in the Investment Company Act of 1940, as amended. 30 TRUSTEES AND OFFICERS The business and affairs of the Trust are managed under the direction of the Trust's Board of Trustees and the Trust's officers appointed by the Board of Trustees. The tables below list the trustees and executive officers of the Trust and their principal occupations during the last five years, other directorships held by trustees and their affiliations, if any, with Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Asset Management ("Asset Management" or the "Adviser"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). The term "Fund Complex" includes each of the investment companies advised by the Adviser or its affiliates as of the date of this Statement of Additional Information. Trustees serve until reaching their retirement age or until their successors are duly elected and qualified. Officers are annually elected by the trustees. INDEPENDENT TRUSTEES
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE David C. Arch (58) Trustee Trustee Chairman and Chief 88 Trustee/Director/Managing Blistex Inc. since 1997 Executive Officer of General Partner of funds 1800 Swift Drive Blistex Inc., a consumer in the Fund Complex. Oak Brook, IL 60523 health care products manufacturer. Former Director of the World Presidents Organization-Chicago Chapter. Director of the Heartland Alliance, a nonprofit organization serving human needs based in Chicago. J. Miles Branagan (71) Trustee Trustee Private investor. 86 Trustee/Director/Managing 1632 Morning Mountain Road since 2003 Co-founder, and prior to General Partner of funds Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex. Chief Executive Officer and President, MDT Corporation (now known as Getinge/Castle, Inc., a subsidiary of Getinge Industrier AB), a company which develops, manufactures, markets and services medical and scientific equipment.
31
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jerry D. Choate (65) Trustee Trustee Prior to January 1999, 86 Trustee/Director/Managing 33971 Selva Road since 2003 Chairman and Chief General Partner of funds Suite 130 Executive Officer of the in the Fund Complex. Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a ("Allstate") and Allstate biotechnological company, Insurance Company. Prior and Director of Valero to January 1995, Energy Corporation, an President and Chief independent refining Executive Officer of company. Allstate. Prior to August 1994, various management positions at Allstate.
32
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (63) Trustee Trustee President of CAC, llc., a 88 Trustee/Director/Managing CAC, llc. since 1997 private company offering General Partner of funds 4350 LaJolla Village Drive capital investment and in the Fund Complex. Suite 980 management advisory Director of Stericycle, San Diego, CA 92122-6223 services. Prior to July Inc., TheraSense, Inc., 2000, Managing Partner of Ventana Medical Systems, Equity Group Corporate Inc., GATX Corporation Investment (EGI), a and Trustee of The company that makes Scripps Research private investments in Institute and the other companies. University of Chicago Hospitals and Health Systems. Prior to January 2004, Director of TeleTech Holdings Inc. and Arris Group, Inc. Prior to May 2002, Director of Peregrine Systems Inc. Prior to February 2001, Vice Chairman and Director of Anixter International, Inc. and IMC Global Inc. Prior to July 2000, Director of Allied Riser Communications Corp., Matria Healthcare Inc., Transmedia Networks, Inc., CNA Surety, Corp. and Grupo Azcarero Mexico (GAM). Prior to April 1999, Director of Metal Management, Inc.
33
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (55) Trustee Trustee Managing Partner of 86 Trustee/Director/Managing Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds 233 South Wacker Drive executive search firm. in the Fund Complex. Suite 7000 Trustee on the University Chicago, IL 60606 of Chicago Hospitals Board, Vice Chair of the Board of the YMCA of Metropolitan Chicago and a member of the Women's Board of the University of Chicago. Prior to 1997, Partner of Ray & Berndtson, Inc., an executive recruiting firm. Prior to 1996, Trustee of The International House Board, a fellowship and housing organization for international graduate students. Prior to 1995, Executive Vice President of ABN AMRO, N.A., a bank holding company. Prior to 1992, Executive Vice President of La Salle National Bank. R. Craig Kennedy (51) Trustee Trustee Director and President of 86 Trustee/Director/Managing 11 DuPont Circle, N.W. since 2003 the German Marshall Fund General Partner of funds Washington, D.C. 20016 of the United States, an in the Fund Complex. independent U.S. foundation created to deepen understanding, promote collaboration and stimulate exchanges of practical experience between Americans and Europeans. Formerly, advisor to the Dennis Trading Group Inc., a managed futures and option company that invests money for individuals and institutions. Prior to 1992, President and Chief Executive Officer, Director and member of the Investment Committee of the Joyce Foundation, a private foundation. Howard J Kerr (68) Trustee Trustee Prior to 1998, President 88 Trustee/Director/Managing 736 North Western Avenue since 1997 and Chief Executive General Partner of funds P.O. Box 317 Officer of Pocklington in the Fund Complex. Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake investment holding Forest Bank & Trust. company. Director of the Marrow Foundation.
34
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (67) Trustee Trustee President of Nelson 86 Trustee/Director/Managing 423 Country Club Drive since 2003 Investment Planning General Partner of funds Winter Park, FL 32789 Services, Inc., a in the Fund Complex. financial planning company and registered investment adviser in the State of Florida. President of Nelson Ivest Brokerage Services Inc., a member of the NASD, Securities Investors Protection Corp. and the Municipal Securities Rulemaking Board. President of Nelson Sales and Services Corporation, a marketing and services company to support affiliated companies. Hugo F. Sonnenschein (63) Trustee Trustee President Emeritus and 88 Trustee/Director/Managing 1126 E. 59th Street since 1997 Honorary Trustee of the General Partner of funds Chicago, IL 60637 University of Chicago and in the Fund Complex. the Adam Smith Director of Winston Distinguished Service Laboratories, Inc. Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences. Suzanne H. Woolsey, P.H.D. Trustee Trustee Currently with Paladin 86 Trustee/Director/Managing (62) since 2003 Capital Group-Paladin General Partner of funds 2001 Pennsylvania Avenue Homeland Security Fund in the Fund Complex. Suite 400 since November 2003. Director of Neurogen Washington, DC 20006 Previously, Chief Corporation, a Communications Officer of pharmaceutical company, the National Academy of since January 1998. Sciences/National Research Council, an independent, federally chartered policy institution, since 2001 and Chief Operating Officer from 1993 to 2001. Director of the Institute for Defense Analyses, a federally funded research and development center, Director of the German Marshall Fund of the United States, and Trustee of Colorado College. Prior to 1993, Executive Director of the Commission on Behavioral and Social Sciences and Education at the National Academy of Sciences/National Research Council. From 1980 through 1989, Partner of Coopers & Lybrand.
35 INTERESTED TRUSTEES:*
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Mitchell M. Merin* (50) Trustee, Trustee President and Chief 86 Trustee/Director/Managing 1221 Avenue of the Americas President since Executive Officer of General Partner of funds New York, NY 10020 and Chief 2003; funds in the Fund in the Fund Complex. Executive President Complex. Chairman, Officer and Chief President, Chief Executive Executive Officer and Officer Director of the Adviser since 2002 and Van Kampen Advisors Inc. since December 2002. Chairman, President and Chief Executive Officer of Van Kampen Investments since December 2002. Director of Van Kampen Investments since December 1999. Chairman and Director of Van Kampen Funds Inc. since December 2002. President, Director and Chief Operating Officer of Morgan Stanley Investment Management since December 1998. President and Director since April 1997 and Chief Executive Officer since June 1998 of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Chairman, Chief Executive Officer and Director of Morgan Stanley Distributors Inc. since June 1998. Chairman since June 1998, and Director since January 1998 of Morgan Stanley Trust. Director of various Morgan Stanley subsidiaries. President of the Morgan Stanley Funds since May 1999. Previously Chief Executive Officer of Van Kampen Funds Inc. from December 2002 to July 2003, Chief Strategic Officer of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. and Executive Vice President of Morgan Stanley Distributors Inc. from April 1997 to June 1998. Chief Executive Officer from September 2002 to April 2003 and Vice President from May 1997 to April 1999 of the Morgan Stanley Funds.
36
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (57) Trustee Trustee Advisory Director of 88 Trustee/Director/Managing 1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds P.O. Box 5555 December 2002, Chairman, in the Fund Complex. Oakbrook Terrace, IL 60181 Director, President, Chief Executive Officer and Managing Director of Van Kampen Investments and its investment advisory, distribution and other subsidiaries. Prior to December 2002, President and Chief Executive Officer of funds in the Fund Complex. Prior to May 1998, Executive Vice President and Director of Marketing at Morgan Stanley and Director of Dean Witter, Discover & Co. and Dean Witter Realty. Prior to 1996, Director of Dean Witter Reynolds Inc. Wayne W. Whalen* (64) Trustee Trustee Partner in the law firm 88 Trustee/Director/Managing 333 West Wacker Drive since 1997 of Skadden, Arps, Slate, General Partner of funds Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex. counsel to funds in the Fund Complex.
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Messrs. Merin and Powers are interested persons of funds in the Fund Complex and the Adviser by reason of their current or former positions with Morgan Stanley or its affiliates. 37 OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS Stephen L. Boyd (63) Vice President Officer Managing Director of Global Research Investment Management. 2800 Post Oak Blvd. since 1998 Vice President of funds in the Fund Complex. Prior to 45th Floor December 2002, Chief Investment Officer of Van Kampen Houston, TX 77056 Investments and President and Chief Operations Officer of the Adviser and Van Kampen Advisors Inc. Prior to May 2002, Executive Vice President and Chief Investment Officer of funds in the Fund Complex. Prior to May 2001, Managing Director and Chief Investment Officer of Van Kampen Investments, and Managing Director and President of the Adviser and Van Kampen Advisors Inc. Prior to December 2000, Executive Vice President and Chief Investment Officer of Van Kampen Investments, and President and Chief Operating Officer of the Adviser. Prior to April 2000, Executive Vice President and Chief Investment Officer for Equity Investments of the Adviser. Prior to October 1998, Vice President and Senior Portfolio Manager with AIM Capital Management, Inc. Prior to February 1998, Senior Vice President and Portfolio Manager of Van Kampen American Capital Asset Management, Inc., Van Kampen American Capital Investment Advisory Corp. and Van Kampen American Capital Management, Inc. Stefanie V. Chang (37) Vice President Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas since 2003 Vice President of funds in the Fund Complex. New York, NY 10020 Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Investment Officer Management Inc. and Morgan Stanley Investments LP and Director of Morgan Stanley Trust for over 5 years. Executive Vice President and Chief Investment Officer of funds in the Fund Complex. Managing Director and Chief Investment Officer of Van Kampen Investments, the Adviser and Van Kampen Advisors Inc. since December 2002.
38
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS John R. Reynoldson (50) Vice President Officer Executive Director and Portfolio Specialist of the Adviser 1 Parkview Plaza since 2000 and Van Kampen Advisors Inc. Vice President of funds in the P.O. Box 5555 Fund Complex. Prior to July 2001, Principal and Co-head of Oakbrook Terrace, IL 60181 the Fixed Income Department of the Adviser and Van Kampen Advisors Inc. Prior to December 2000, Senior Vice President of the Adviser and Van Kampen Advisors Inc. Prior to May 2000, Senior Vice President of the investment grade taxable group for the Adviser. Prior to June 1999, Senior Vice President of the government securities bond group for Asset Management. Ronald E. Robison (65) Executive Vice Officer Chief Executive Officer and Chairman of Investor Services. 1221 Avenue of the Americas President and since 2003 Executive Vice President and Principal Executive Officer of New York, NY 10020 Principal Executive funds in the Fund Complex. Chief Global Operations Officer Officer and Managing Director of Morgan Stanley Investment Management Inc. Managing Director of Morgan Stanley. Managing Director and Director of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Chief Executive Officer and Director of Morgan Stanley Trust. Vice President of the Morgan Stanley Funds. A. Thomas Smith III (47) Vice President and Officer Managing Director of Morgan Stanley, Managing Director and 1221 Avenue of the Americas Secretary since 1999 Director of Van Kampen Investments, Director of the Adviser, New York, NY 10020 Van Kampen Advisors Inc., the Distributor, Investor Services and certain other subsidiaries of Van Kampen Investments. Managing Director and General Counsel-Mutual Funds of Morgan Stanley Investment Advisors, Inc. Vice President and Secretary of funds in the Fund Complex. Prior to July 2001, Managing Director, General Counsel, Secretary and Director of Van Kampen Investments, the Adviser, the Distributor, Investor Services, and certain other subsidiaries of Van Kampen Investments. Prior to December 2000, Executive Vice President, General Counsel, Secretary and Director of Van Kampen Investments, the Adviser, Van Kampen Advisors Inc., the Distributor, Investor Services and certain other subsidiaries of Van Kampen Investments. Prior to January 1999, Vice President and Associate General Counsel to New York Life Insurance Company ("New York Life"), and prior to March 1997, Associate General Counsel of New York Life. Prior to December 1993, Assistant General Counsel of The Dreyfus Corporation. Prior to August 1991, Senior Associate, Willkie Farr & Gallagher. Prior to January 1989, Staff Attorney at the Securities and Exchange Commission, Division of Investment Management, Office of Chief Counsel.
39
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS John L. Sullivan (48) Vice President, Chief Officer Director and Managing Director of Van Kampen Investments, 1 Parkview Plaza Financial Officer and since 1996 the Adviser, Van Kampen Advisors Inc. and certain other P.O. Box 5555 Treasurer subsidiaries of Van Kampen Investments. Vice President, Oakbrook Terrace, IL 60181 Chief Financial Officer and Treasurer of funds in the Fund Complex. Head of Fund Accounting for Morgan Stanley Investment Management. Prior to December 2002, Executive Director of Van Kampen Investments, the Adviser and Van Kampen Advisors Inc.
40 Van Kampen Privacy Notice The Van Kampen companies and investment products* respect your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain nonpublic personal information about you. This is information we collect from you on applications or other forms, and from the transactions you conduct with us, our affiliates, or third parties. We may also collect information you provide when using our Web site, and text files (also known as "cookies") may be placed on your computer to help us to recognize you and to facilitate transactions you initiate. We do not disclose any nonpublic personal information about you or any of our former customers to anyone, except as permitted by law. For instance, so that we may continue to offer you Van Kampen investment products and services that meet your investing needs, and to effect transactions that you request or authorize, we may disclose the information we collect to companies that perform services on our behalf, such as printers and mailers that assist us in the distribution of investor materials. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. To protect your nonpublic personal information internally, we permit access to it only by authorized employees, and maintain physical, electronic and procedural safeguards to guard your nonpublic personal information. * Includes Van Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van Kampen System Inc. and Van Kampen Exchange Corp., as well as the many Van Kampen mutual funds and Van Kampen unit investment trusts. Van Kampen Funds Inc. 1 Parkview Plaza, P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 www.vankampen.com (VAN KAMPEN INVESTMENTS LOGO) Copyright (C)2004 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 920, 957, 107 VIN ANR 2/04 13616B04-AS-2/04 Item 2. Code of Ethics. (a) The Trust has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Trust or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) The Trust has not amended its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto. (d) The Trust has not granted a waiver or an implicit waiver from a provision of its Code of Ethics. (e) Not applicable. (f) (1) The Trust's Code of Ethics is attached hereto as Exhibit A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Trust's Board of Trustees has determined that it has three "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees: J. Miles Branagan, Jerry Choate and R. Craig Kennedy. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. Item 4. Principal Accountant Fees and Services. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2003 REGISTRANT COVERED ENTITIES(1) AUDIT FEES ............................... $ 21,730 N/A NON-AUDIT FEES AUDIT-RELATED FEES ........................ $ 0 $230,000 (2) TAX FEES .................................. $ 1,500(3) $ 0 (4) ALL OTHER FEES ............................ $ 0 $ 0 TOTAL NON-AUDIT FEES ...................... $ 1,500 $230,000 TOTAL ..................................... $ 23,230 $230,000 2002 REGISTRANT COVERED ENTITIES(1) AUDIT FEES ................................ $21,500 N/A NON-AUDIT FEES AUDIT-RELATED FEES ........................ $ 0 $95,000 (2) TAX FEES .................................. $ 1,500(3) $ 0 (4) ALL OTHER FEES ............................ $ 0 $ 0 TOTAL NON-AUDIT FEES ...................... $ 1,500 $95,000 TOTAL ..................................... $23,000 $95,000
N/A- Not applicable, as not required by Item 4. (1) Covered Entities include the Adviser (excluding sub-advisors) and any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Registrant. (2) Audit-Related Fees represent assurance and related services provided that are reasonably related to the performance of the audit of Covered Entities' financial statements. (3) Tax Fees represent tax compliance services provided in connection with the review of the Registrant's tax returns. (4) Tax Fees represent tax compliance services provided in connection with the review of Covered Entities' tax returns. (e)(1) The audit committee's pre-approval policies and procedures are as follows: JOINT AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE VAN KAMPEN FUNDS AS ADOPTED JULY 23, 2003(1) 1. STATEMENT OF PRINCIPLES The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor's independence from the Fund.(2) The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent auditor. The SEC's rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee ("general pre-approval"); or require the specific pre-approval of the Audit Committee ("specific pre-approval"). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee. For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SEC's rules on auditor independence. The Audit Committee will also consider whether the Independent Auditors are best positioned to provide the most effective and efficient services, for reasons such as its familiarity with the Fund's business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Fund's ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative. The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services and may determine for each fiscal year, the appropriate ratio between the total amount of fees for Audit, Audit-related and Tax services for the Fund (including any Audit-related or Tax service fees for Covered Entities that were subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as All Other services for the Fund (including any such services for Covered Entities subject to pre-approval). The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. - ------------------------- (1) This Joint Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "Policy"), adopted as of the date above, supercedes and replaces all prior versions that may have been adopted from time to time. (2) Terms used in this Policy and not otherwise defined herein shall have the meanings as defined in the Joint Audit Committee Charter. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the Independent Auditors to management. The Fund's Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors' independence. 2. DELEGATION As provided in the Act and the SEC's rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. 3. AUDIT SERVICES The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund's financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will monitor the Audit services engagement as necessary, but no less than on a quarterly basis, and will also approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. The Audit Committee has pre-approved the following Audit services. All other Audit services not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated): - Statutory audits or financial audits for the Fund - Services associated with SEC registration statements (including new funds), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters for closed-end fund offerings, consents), and assistance in responding to SEC comment letters - Consultations by the Fund's management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard setting bodies (Note: Under SEC rules, some consultations may be "audit related" services rather than "audit" services) 4. AUDIT-RELATED SERVICES Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements or, to the extent they are Covered Services, the Covered Entities' financial statements, or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as "Audit services"; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR. The Audit Committee has pre-approved the following Audit-related services. All other Audit-related services not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated): - Attest procedures not required by statute or regulation (including agreed upon procedures related to the Closed-End Fund asset coverage tests required by the rating agencies and/or lenders) - Due diligence services pertaining to potential fund mergers - Issuance of SAS-70 reports on internal controls of Morgan Stanley Trust Co. and MSIM Trade Operations - Consultations by the Fund's management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be "audit" services rather than "audit-related" services) - Information systems reviews not performed in connection with the audit (e.g., application data center and technical reviews) - General assistance with implementation of the requirements of SEC rules or listing standards promulgated pursuant to the Sarbanes-Oxley Act - Audit of record keeping services performed by Morgan Stanley Trust Fund related to the New Jersey State Retirement Plan 5. TAX SERVICES The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the Independent Auditors may provide such services. Hence, the Audit Committee believes it may grant general pre-approval to those Tax services that have historically been provided by the Independent Auditors, that the Audit Committee has reviewed and believes would not impair the independence of the Independent Auditors, and that are consistent with the SEC's rules on auditor independence. The Audit Committee will not permit the retention of the Independent Auditors in connection with a transaction initially recommended by the Independent Auditors, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with Director of Tax or outside counsel to determine that the tax planning and reporting positions are consistent with this policy. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the following Tax Services. All Tax services involving large and complex transactions not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated), including tax services proposed to be provided by the Independent Auditors to any executive officer or trustee/director/managing general partner of the Fund, in his or her individual capacity, where such services are paid for by the Fund (generally applicable only to internally managed investment companies): - U.S. federal, state and local tax planning and advice - U.S. federal, state and local tax compliance - International tax planning and advice - International tax compliance - Review of federal, state, local and international income, franchise, and other tax returns - Identification of Passive Foreign Investment Companies - Review of closed-end funds pro rata allocation of taxable income and capital gains to common and preferred shares. - Domestic and foreign tax planning, compliance, and advice - Assistance with tax audits and appeals before the IRS and similar state, local and foreign agencies - Tax advice and assistance regarding statutory, regulatory or administrative developments (e.g., excise tax reviews, evaluation of Fund's tax compliance function) - Review the calculations of taxable income from corporate actions including reorganizations related to bankruptcy filings and provide guidance related to the foregoing 6. ALL OTHER SERVICES The Audit Committee believes, based on the SEC's rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the following All Other services. Permissible All Other services not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated): - Risk management advisory services, e.g., assessment and testing of security infrastructure controls The following is a list of the SEC's prohibited non-audit services. The SEC's rules and relevant guidance should be consulted to determine the precise definitions of these services and the applicability of exceptions to certain of the prohibitions: - Bookkeeping or other services related to the accounting records or financial statements of the audit client - Financial information systems design and implementation - Appraisal or valuation services, fairness opinions or contribution-in-kind reports - Actuarial services - Internal audit outsourcing services - Management functions - Human resources - Broker-dealer, investment adviser or investment banking services - Legal services - Expert services unrelated to the audit 7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For each fiscal year, the Audit Committee may determine the appropriate ratio between the total amount of fees for Audit, Audit-related, and Tax services for the Fund (including any Audit-related or Tax services fees for Covered Entities subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as All Other services for the Fund (including any such services for Covered Entities subject to pre-approval). 8. PROCEDURES All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund's Chief Financial Officer and must include a detailed description of the services to be rendered. The Fund's Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund's Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence. The Audit Committee has designated the Fund's Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund's Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund's Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund's Chief Financial Officer or any member of management. 9. ADDITIONAL REQUIREMENTS The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor's independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence. 10. COVERED ENTITIES Covered Entities include the Fund's investment adviser(s) and any entity controlling, controlled by or under common control with the Fund's investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund's audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include: - Van Kampen Investments, Inc. - Van Kampen Investment Advisory Corporation - Van Kampen Asset Management Inc. - Van Kampen Advisors Inc. - Van Kampen Funds Inc. - Van Kampen Trust Company - Van Kampen Investor Services Inc. - Van Kampen Management Inc. - Morgan Stanley Investment Management Inc. - Morgan Stanley Investments LP - Morgan Stanley Trust Company (e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee's pre-approval policies and procedures (attached hereto). (f) Not applicable. (g) See table above. (h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. The Trust's and its investment advisor's Proxy Voting Policies and Procedures are as follows: I. POLICY STATEMENT Introduction - Morgan Stanley Investment Management's ("MSIM") policies and procedures for voting proxies with respect to securities held in the accounts of clients applies to those MSIM entities that provide discretionary Investment Management services and for which a MSIM entity has the authority to vote their proxies. The policies and procedures and general guidelines in this section will be reviewed and, as necessary, updated periodically to address new or revised proxy voting issues. The MSIM entities covered by these policies and procedures currently include the following: Morgan Stanley Investment Advisors Inc., Morgan Stanley Alternative Investment Partners, L.P., Morgan Stanley AIP GP LP, Morgan Stanley Investment Management Inc., Morgan Stanley Investment Group Inc., Morgan Stanley Investment Management Limited, Morgan Stanley Investment Management Company, Morgan Stanley Asset & Investment Trust Management Co., Limited, Morgan Stanley Investment Management Private Limited, Morgan Stanley Investments LP, Morgan Stanley Hedge Fund Partners GP LP, Morgan Stanley Hedge Fund Partners LP, Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., and Van Kampen Advisors Inc. (each a "MSIM Affiliate" and collectively referred to as the "MSIM Affiliates"). Each MSIM Affiliate will vote proxies as part of its authority to manage, acquire and dispose of account assets. With respect to the MSIM registered management investment companies (Van Kampen, Institutional and Advisor Funds)(collectively referred to as the "MSIM Funds"), each MSIM Fund will vote proxies pursuant to authority granted under its applicable investment advisory agreement or, in the absence of such authority, as authorized by its Board of Directors or Trustees. A MSIM Affiliate will not vote proxies if the "named fiduciary" for an ERISA account has reserved the authority for itself, or in the case of an account not governed by ERISA, the Investment Management Agreement does not authorize the MSIM Affiliate to vote proxies. MSIM Affiliates will, in a prudent and diligent manner, vote proxies in the best interests of clients, including beneficiaries of and participants in a client's benefit plan(s) for which we manage assets, consistent with the objective of maximizing long-term investment returns ("Client Proxy Standard"). In certain situations, a client or its fiduciary may provide a MSIM Affiliate with a statement of proxy voting policy. In these situations, the MSIM Affiliate will comply with the client's policy unless to do so would be inconsistent with applicable laws or regulations or the MSIM Affiliate's fiduciary responsibility. Proxy Research Services - To assist the MSIM Affiliates in their responsibility for voting proxies and the overall global proxy voting process, Institutional Shareholder Services ("ISS") and the Investor Responsibility Research Center ("IRRC") have been retained as experts in the proxy voting and corporate governance area. ISS and IRRC are independent advisers that specialize in providing a variety of fiduciary-level proxy-related services to institutional investment managers, plan sponsors, custodians, consultants, and other institutional investors. The services provided to MSIM Affiliates include in-depth research, global issuer analysis, and voting recommendations. In addition to research, ISS provides vote execution, reporting, and recordkeeping. MSIM's Proxy Review Committee (see Section IV.A. below) will carefully monitor and supervise the services provided by the proxy research services. Voting Proxies for certain Non-US Companies - While the proxy voting process is well established in the United States and other developed markets with a number of tools and services available to assist an investment manager, voting proxies of non-US companies located in certain jurisdictions, particularly emerging markets, may involve a number of problems that may restrict or prevent a MSIM Affiliate's ability to vote such proxies. These problems include, but are not limited to: (i) proxy statements and ballots being written in a language other than English; (ii) untimely and/or inadequate notice of shareholder meetings; (iii) restrictions on the ability of holders outside the issuer's jurisdiction of organization to exercise votes; (iv) requirements to vote proxies in person, (v) the imposition of restrictions on the sale of the securities for a period of time in proximity to the shareholder meeting; and (vi) requirements to provide local agents with power of attorney to facilitate the MSIM Affiliate's voting instructions. As a result, clients' non-U.S. proxies will be voted on a best efforts basis only, consistent with the Client Proxy Standard. ISS has been retained to provide assistance to the MSIM Affiliates in connection with voting their clients' non-US proxies. II. GENERAL PROXY VOTING GUIDELINES To ensure consistency in voting proxies on behalf of its clients, MSIM Affiliates will follow (subject to any exception set forth herein) these Proxy Voting Policies and Procedures, including the guidelines set forth below. These guidelines address a broad range of issues, including board size and composition, executive compensation, anti-takeover proposals, capital structure proposals and social responsibility issues and are meant to be general voting parameters on issues that arise most frequently. The MSIM Affiliates, however, may vote in a manner that is contrary to the following general guidelines, pursuant to the procedures set forth in Section IV. below, provided the vote is consistent with the Client Proxy Standard. III. GUIDELINES A. MANAGEMENT PROPOSALS 1. When voting on routine ballot items the following proposals are generally voted in support of management, subject to the review and approval of the Proxy Review Committee, as appropriate. o Selection or ratification of auditors. o Approval of financial statements, director and auditor reports. o Election of Directors. o Limiting Directors' liability and broadening indemnification of Directors. o Requirement that a certain percentage (up to 66 2/3%) of its Board's members be comprised of independent and unaffiliated Directors. o Requirement that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated Directors. o Recommendations to set retirement ages or require specific levels of stock ownership by Directors. o General updating/corrective amendments to the charter. o Elimination of cumulative voting. o Elimination of preemptive rights. o Provisions for confidential voting and independent tabulation of voting results. o Proposals related to the conduct of the annual meeting except those proposals that relate to the "transaction of such other business which may come before the meeting." 2. The following non-routine proposals, which potentially may have a substantive financial or best interest impact on a shareholder, are generally voted in support of management, subject to the review and approval of the Proxy Review Committee, as appropriate. Capitalization changes o Capitalization changes that eliminate other classes of stock and voting rights. o Proposals to increase the authorization of existing classes of common stock (or securities convertible into common stock) if: (i) a clear and legitimate business purpose is stated; (ii) the number of shares requested is reasonable in relation to the purpose for which authorization is requested; and (iii) the authorization does not exceed 100% of shares currently authorized and at least 30% of the new authorization will be outstanding. o Proposals to create a new class of preferred stock or for issuances of preferred stock up to 50% of issued capital. o Proposals for share repurchase plans. o Proposals to reduce the number of authorized shares of common or preferred stock, or to eliminate classes of preferred stock. o Proposals to effect stock splits. o Proposals to effect reverse stock splits if management proportionately reduces the authorized share amount set forth in the corporate charter. Reverse stock splits that do not adjust proportionately to the authorized share amount will generally be approved if the resulting increase in authorized shares coincides with the proxy guidelines set forth above for common stock increases. Compensation o Director fees, provided the amounts are not excessive relative to other companies in the country or industry. o Employee stock purchase plans that permit discounts up to 15%, but only for grants that are part of a broad based employee plan, including all non-executive employees. o Establishment of Employee Stock Option Plans and other employee ownership plans. Anti-Takeover Matters o Modify or rescind existing supermajority vote requirements to amend the charters or bylaws. o Adoption of anti-greenmail provisions provided that the proposal: (i) defines greenmail; (ii) prohibits buyback offers to large block holders not made to all shareholders or not approved by disinterested shareholders; and (iii) contains no anti-takeover measures or other provisions restricting the rights of shareholders. 3. The following non-routine proposals, which potentially may have a substantive financial or best interest impact on the shareholder, are generally voted against (notwithstanding management support), subject to the review and approval of the Proxy Review Committee, as appropriate. o Capitalization changes that add classes of stock which substantially dilute the voting interests of existing shareholders. o Proposals to increase the authorized number of shares of existing classes of stock that carry preemptive rights or supervoting rights. o Creation of "blank check" preferred stock. o Changes in capitalization by 100% or more. o Compensation proposals that allow for discounted stock options that have not been offered to employees in general. o Amendments to bylaws that would require a supermajority shareholder vote to pass or repeal certain provisions. o Proposals to indemnify auditors. 4. The following types of non-routine proposals, which potentially may have a potential financial or best interest impact on an issuer, are voted as determined by the Proxy Review Committee. Corporate Transactions o Mergers, acquisitions and other special corporate transactions (i.e., takeovers, spin-offs, sales of assets, reorganizations, restructurings and recapitalizations) will be examined on a case-by-case basis. In all cases, ISS and IRRC research and analysis will be used along with MSIM Affiliates' research and analysis, based on, among other things, MSIM internal company-specific knowledge. o Change-in-control provisions in non-salary compensation plans, employment contracts, and severance agreements that benefit management and would be costly to shareholders if triggered. o Shareholders rights plans that allow appropriate offers to shareholders to be blocked by the board or trigger provisions that prevent legitimate offers from proceeding. o Executive/Director stock option plans. Generally, stock option plans should meet the following criteria: (i) Whether the stock option plan is incentive based; (ii) For mature companies, should be no more than 5% of the issued capital at the time of approval; (iii) For growth companies, should be no more than 10% of the issued capital at the time of approval. Anti-Takeover Provisions o Proposals requiring shareholder ratification of poison pills. o Anti-takeover and related provisions that serve to prevent the majority of shareholders from exercising their rights or effectively deter the appropriate tender offers and other offers. B. SHAREHOLDER PROPOSALS 1. The following shareholder proposals are generally supported, subject to the review and approval of the Proxy Review Committee, as appropriate: o Requiring auditors to attend the annual meeting of shareholders. o Requirement that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated Directors. o Requirement that a certain percentage of its Board's members be comprised of independent and unaffiliated Directors. o Confidential voting. o Reduction or elimination of supermajority vote requirements. 2. The following shareholder proposals will be voted as determined by the Proxy Review Committee. o Proposals that limit tenure of directors. o Proposals to limit golden parachutes. o Proposals requiring directors to own large amounts of stock to be eligible for election. o Restoring cumulative voting in the election of directors. o Proposals that request or require disclosure of executive compensation in addition to the disclosure required by the Securities and Exchange Commission ("SEC") regulations. o Proposals that limit retirement benefits or executive compensation. o Requiring shareholder approval for bylaw or charter amendments. o Requiring shareholder approval for shareholder rights plan or poison pill. o Requiring shareholder approval of golden parachutes. o Elimination of certain anti-takeover related provisions. o Prohibit payment of greenmail. 3. The following shareholder proposals are generally not supported, subject to the review and approval of the Committee, as appropriate. o Requirements that the issuer prepare reports that are costly to provide or that would require duplicative efforts or expenditures that are of a non-business nature or would provide no pertinent information from the perspective of institutional shareholders. o Restrictions related to social, political or special interest issues that impact the ability of the company to do business or be competitive and that have a significant financial or best interest impact to the shareholders. o Proposals that require inappropriate endorsements or corporate actions. IV. ADMINISTRATION OF PROXY POLICIES AND PROCEDURES A. PROXY REVIEW COMMITTEE 1. The MSIM Proxy Review Committee ("Committee") is responsible for creating and implementing MSIM's Proxy Voting Policy and Procedures and, in this regard, has expressly adopted them. Following are some of the functions and responsibilities of the Committee. (a) The Committee, which will consist of members designated by MSIM's Chief Investment Officer, is responsible for establishing MSIM's proxy voting policies and guidelines and determining how MSIM will vote proxies on an ongoing basis. (b) The Committee will periodically review and have the authority to amend as necessary MSIM's proxy voting policies and guidelines (as expressed in these Proxy Voting Policy and Procedures) and establish and direct voting positions consistent with the Client Proxy Standard. (c) The Committee will meet at least monthly to (among other matters): (1) address any outstanding issues relating to MSIM's Proxy Voting Policy and Procedures; and (2) generally review proposals at upcoming shareholder meetings of MSIM portfolio companies in accordance with this Policy and Procedures including, as appropriate, the voting results of prior shareholder meetings of the same issuer where a similar proposal was presented to shareholders. The Committee, or its designee, will timely communicate to ISS MSIM's Proxy Voting Policy and Procedures (and any amendments to them and/or any additional guidelines or procedures it may adopt). (d) The Committee will meet on an ad hoc basis to (among other matters): (1) authorize "split voting" (i.e., allowing certain shares of the same issuer that are the subject of the same proxy solicitation and held by one or more MSIM portfolios to be voted differently than other shares) and/or "override voting" (i.e., voting all MSIM portfolio shares in a manner contrary to the Procedures); (2) review and approve upcoming votes, as appropriate, for matters for which specific direction has been provided in Sections I, II, and III above; and (3) determine how to vote matters for which specific direction has not been provided in Sections I, II and III above. Split votes will generally not be approved within a single Global Investor Group team. The Committee may take into account ISS recommendations and the research provided by IRRC as well as any other relevant information they may request or receive. (e) In addition to the procedures discussed above, if the Committee determines that an issue raises a potential material conflict of interest, or gives rise to the appearance of a potential material conflict of interest, the Committee will designate a special committee to review, and recommend a course of action with respect to, the conflict(s) in question ("Special Committee"). The Special Committee may request the assistance of the Law and Compliance Departments and will have sole discretion to cast a vote. In addition to the research provided by ISS and IRRC, the Special Committee may request analysis from MSIM Affiliate investment professionals and outside sources to the extent it deems appropriate. (f) The Committee and the Special Committee, or their designee(s), will document in writing all of their decisions and actions, which documentation will be maintained by the Committee and the Special Committee, or their designee(s) for a period of at least 6 years. To the extent these decisions relate to a security held by a MSIM U.S. registered investment company, the Committee and Special Committee, or their designee(s), will report their decisions to each applicable Board of Trustees/Directors of those investment companies at each Board's next regularly Scheduled Board meeting. The report will contain information concerning decisions made by the Committee and Special Committee during the most recently ended calendar quarter immediately preceding the Board meeting. The Committee and Special Committee, or their designee(s), will timely communicate to applicable PMs, the Compliance Departments and, as necessary to ISS, decisions of the Committee and Special Committee so that, among other things, ISS will vote proxies consistent with their decisions. Item 8. [Reserved.] Item 9. Controls and Procedures (a) The Trust's principal executive officer and principal financial officer have concluded that the Trust's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10. Exhibits. (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (b)(1) A certification for the Principal Executive Officer of the registrant is attached hereto as part of EX-99.CERT. (b)(2) A certification for the Principal Financial Officer of the registrant is attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Van Kampen Income Trust By: /s/ Ronald E. Robison ------------------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: February 18, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald E. Robison ------------------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: February 18, 2004 By: /s/ John L. Sullivan ------------------------------- Name: John L. Sullivan Title: Principal Financial Officer Date: February 18, 2004 EX-99.CODE 3 c81953exv99wcode.txt CODE OF ETHICS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS ADOPTED JULY 23, 2003 I. This Code of Ethics (the "Code") for the investment companies within the Van Kampen complex identified in Exhibit A (collectively, "Funds" and each, a "Fund") applies to each Fund's Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) ("Covered Officers" each of whom are set forth in Exhibit B) for the purpose of promoting: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. o full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; o compliance with applicable laws and governmental rules and regulations; o prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C). II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" (as defined in the Investment Company Act) of the Fund. The Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors/Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must not: o use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly) to the detriment of the Fund; o cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or o use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually. Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund's Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer's family living in the same household engages in such an activity or has such a relationship. Examples of these include: o service or significant business relationships as a director on the board of any public or private company; o accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; o any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and o a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE o Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds; o each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations; o each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code; o annually thereafter affirm to the Boards that he has complied with the requirements of the Code; o not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and o notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers(1) sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds. The Funds will follow these procedures in investigating and enforcing this Code: o the General Counsel will take all appropriate action to investigate any potential violations reported to him; o if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; o any matter that the General Counsel believes is a violation will be reported to the relevant Fund's Audit Committee; o if the directors/trustees/managing general partners who are not "interested persons" as defined by the Investment Company Act (the "Independent Directors/Trustees/Managing General Partners") of the relevant Fund concur that a violation has occurred, they will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a - -------- (1) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics." recommendation to dismiss the Covered Officer or other appropriate disciplinary actions; o the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and o any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds' and their investment advisers' and principal underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley's Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Independent Directors/Trustees/Managing General Partners of the relevant Fund or Funds and their counsel, the relevant Fund or Funds and their counsel and the relevant investment adviser and its counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion I have read and understand the terms of the above Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the above Code. - ------------------------- Date: -------------------- EXHIBIT A FUND LIST Van Kampen Series Fund, Inc. on behalf of its series Van Kampen American Value Fund Van Kampen Emerging Markets Debt Fund Van Kampen Emerging Markets Fund Van Kampen Equity Growth Fund Van Kampen European Value Equity Fund Van Kampen Focus Equity Fund Van Kampen Global Equity Allocation Fund Van Kampen Global Value Equity Fund Van Kampen Growth and Income Fund II Van Kampen International Magnum Fund Van Kampen Japanese Equity Fund Van Kampen Mid Cap Growth Fund Van Kampen Global Franchise Fund Van Kampen Value Fund Van Kampen Worldwide High Income Fund Van Kampen U.S. Government Trust on behalf of its series Van Kampen U.S. Government Fund Van Kampen Tax Free Trust on behalf of its series Van Kampen Insured Tax Free Income Fund Van Kampen Strategic Municipal Income Fund Van Kampen California Insured Tax Free Fund Van Kampen Municipal Income Fund Van Kampen Intermediate Term Municipal Income Fund Van Kampen New York Tax Free Income Fund Van Kampen California Municipal Income Fund Van Kampen Michigan Tax Free Income Fund Van Kampen Missouri Tax Free Income Fund Van Kampen Ohio Tax Free Income Fund Van Kampen Trust on behalf of its series Van Kampen High Yield Fund Van Kampen Equity Trust on behalf of its series Van Kampen Utility Fund Van Kampen Growth Fund Van Kampen Aggressive Growth Fund Van Kampen Small Cap Value Fund Van Kampen Select Growth Fund Van Kampen Small Company Growth Fund Van Kampen Small Cap Growth Fund Van Kampen Value Opportunities Fund Van Kampen Tax-Exempt Trust on behalf of its Series Van Kampen High Yield Municipal Fund EXHIBIT A (CONT.) FUND LIST Van Kampen Equity Trust II on behalf of its Series Van Kampen Technology Fund Van Kampen International Advantage Van Kampen Pennsylvania Tax Free Income Fund Van Kampen Tax Free Money Fund Van Kampen Comstock Fund Van Kampen Corporate Bond Fund Van Kampen Emerging Growth Fund Van Kampen Enterprise Fund Van Kampen Equity Income Fund Van Kampen Government Securities Fund Van Kampen Growth and Income Fund Van Kampen Harbor Fund Van Kampen High Income Corporate Bond Fund Van Kampen Limited Maturity Government Fund Van Kampen Pace Fund Van Kampen Real Estate Securities Fund Van Kampen Reserve Fund Van Kampen Exchange Fund Van Kampen Life Investment Trust on behalf of its Portfolios Aggressive Growth Portfolio Comstock Portfolio Emerging Growth Portfolio Enterprise Portfolio Government Portfolio Growth and Income Portfolio Money Market Portfolio Van Kampen Municipal Income Trust Van Kampen California Municipal Trust Van Kampen High Income Trust Van Kampen High Income Trust II Van Kampen Investment Grade Municipal Trust Van Kampen Municipal Trust Van Kampen California Quality Municipal Trust Van Kampen Florida Quality Municipal Trust Van Kampen New York Quality Municipal Trust Van Kampen Ohio Quality Municipal Trust Van Kampen Pennsylvania Quality Municipal Trust Van Kampen Trust for Insured Municipals Van Kampen Trust for Investment Grade Municipals Van Kampen Trust for Investment Grade California Municipals Van Kampen Trust for Investment Grade Florida Municipals Van Kampen Trust for Investment Grade New Jersey Municipals Van Kampen Trust for Investment Grade New York Municipals Van Kampen Trust for Investment Grade Pennsylvania Municipals Van Kampen Municipal Opportunity Trust Van Kampen Advantage Municipal Income Trust Van Kampen Advantage Pennsylvania Municipal Income Trust Van Kampen Strategic Sector Municipal Trust EXHIBIT A (CONT.) FUND LIST Van Kampen Value Municipal Income Trust Van Kampen California Value Municipal Income Trust Van Kampen Massachusetts Value Municipal Income Trust Van Kampen New York Value Municipal Income Trust Van Kampen Ohio Value Municipal Income Trust Van Kampen Pennsylvania Value Municipal Income Trust Van Kampen Municipal Opportunity Trust II Van Kampen Advantage Municipal Income Trust II Van Kampen Select Sector Municipal Trust Van Kampen Senior Loan Fund Van Kampen Senior Income Trust Van Kampen Bond Fund Van Kampen Income Trust EXHIBIT B COVERED OFFICERS Mitchell M. Merin -- President Ronald E. Robison -- Executive Vice President and Principal Executive Officer John L. Sullivan -- Vice President, Chief Financial Officer and Treasurer EXHIBIT C GENERAL COUNSEL'S DESIGNEE A. Thomas Smith III EX-99.CERT 4 c81953exv99wcert.txt CERTIFICATION I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Van Kampen Income Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [b) Omitted.] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: February 18, 2004 /s/ Ronald E. Robison --------------------------- Principal Executive Officer I, John L. Sullivan, certify that: 1. I have reviewed this report on Form N-CSR of Van Kampen Income Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [b) Omitted.] e) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and f) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): c) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: February 18, 2004 /s/ John L. Sullivan --------------------------- Principal Financial Officer EX-99.906CERT 5 c81953exv99w906cert.txt CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Issuer: Van Kampen Income Trust In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended December 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: February 18, 2004 /s/ Ronald E. Robison --------------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Van Kampen Income Trust and will be retained by Van Kampen Income Trust and furnished to the Securities and Exchange Commission or its staff upon request. This written statement required by Section 906 is being furnished with this report, but not being filed as part of this Report. Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Issuer: Van Kampen Income Trust In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended December 31, 2003 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: February 18, 2004 /s/ John L. Sullivan --------------------------- John L. Sullivan Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Van Kampen Income Trust and will be retained by Van Kampen Income Trust and furnished to the Securities and Exchange Commission or its staff upon request. This written statement required by Section 906 is being furnished with this report, but not being filed as part of this Report. -----END PRIVACY-ENHANCED MESSAGE-----