N-CSR 1 c91095nvcsr.txt CERTIFIED SHAREHOLDER 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: 12/31/04 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, 2004. 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 THAT THE VALUE OF THE TRUST SHARES MAY THEREFORE 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 as of 12/31/04
INCOME TRUST SYMBOL: VIN ------------------------------------------------------------ AVERAGE ANNUAL BASED ON BASED ON TOTAL RETURNS NAV MARKET PRICE Since Inception (4/22/88) 7.21% 6.46% 10-year 7.38 7.34 5-year 5.73 8.41 1-year 7.86 6.62 ------------------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, 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. 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, 2004 Van Kampen Income Trust is managed by the Adviser's Taxable Fixed-Income team.(1) Current team members include Gordon Loery, Jaidip Singh and Menglin Luo, Executive Directors of the Adviser. MARKET CONDITIONS The 12-month review period began with interest rates generally falling and still near their historical lows. Continued low employment numbers and deflationary pressures caused rates to follow this downward path throughout the first quarter of 2004. The market then reversed course in April, after the release of March employment numbers. The surprisingly strong employment data, coupled with increasing oil prices, led investors to the conclusion that the Federal Reserve Open Market Committee (the "Fed") would move to raise interest rates. At its June meeting, the Fed initiated a series of 25 basis point rate increases that continued through the end of the year. Despite these rate increases, continued softness in the economy pushed yields on intermediate and longer maturity government securities lower during the third quarter of 2004 and into the beginning of the fourth. Investors became increasingly concerned by increasing oil prices, and uneven employment gains. While the bond market gained slightly following the conclusion of the election, gains were largely limited to intermediate and longer-maturity securities. High yield was the best-performing segment of the fixed income markets in 2004, though its path was not entirely smooth. After a strong showing in January, the market slowed from February through April as investors became less willing to accept credit risk in the face of poor employment growth. The high yield market worsened in April and May in sympathy with the broader fixed income sectors, which were undermined by rising interest rates. In June, the high yield sector rebounded as buyers returned to the market. The rest of the year was more positive, with the high yield market as measured by the CSFB High Yield Index gaining more than 1 percent for every month from June through December. (1)Team members may change without notice at any time. 2 PERFORMANCE ANALYSIS The trust's return 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 may differ significantly. The trust showed a 7.86 percent return on an NAV basis and a 6.62 percent return on a market-price basis. In keeping with its long-term objective, the trust's portfolio remained balanced between government and high yield exposures. Within the government portion of the portfolio, we kept the trust's interest-rate sensitivity somewhat low in anticipation of rising interest rates. While rates did rise at the short end of the market, this positioning limited the trust's participation in the decline in intermediate and longer-term yields. On a more positive note, the trust's government holdings benefited from an emphasis on mortgage-backed securities with higher coupons, which outperformed their Treasury counterparts. The trust also de-emphasized agency securities, which underperformed in the wake of accounting scandals. Three strategic decisions helped the trust's performance most within the high yield component. First, the trust benefited from its lack of participation in airlines issues, which were the worst-performing sector within the high yield market during the 12-month period. Second, the trust's overweight in the chemical sector added to performance as this sector generally reported better results. Finally, security selection in the wireless communications and telecom sectors added to performance. The trust avoided a few credits that had poor results in favor of other holdings which generally posted solid gains. Within high yield, the main detractor from performance during the period was security selection in the utility, service and gaming/leisure sectors. The trust's limited exposure to the metals/mining sector hurt performance as higher metal prices led this sector to strong gains during 2004. The trust's returns were also hampered by its focus on the more conservative tiers of the high yield market, which lagged their more speculative peers. There is no guarantee that any securities will continue to perform well or be held by the trust in the future. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED DECEMBER 31, 2004
--------------------------------------- BASED ON BASED ON NAV MARKET PRICE 7.86% 6.62% ---------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. 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
RATINGS ALLOCATION AS OF 12/31/04 AAA/Aaa 45.5% BBB/Baa 31.8 BB/Ba 13.5 B/B 1.3 CCC/Caa 0.6 CC/Ca 6.2 Non-Rated 0.3 SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 12/31/04 U.S. Government Obligations 38.6% Chemicals 3.6 Media-Cable 3.3 Media-Noncable 3.3 Electric 2.7 Home Construction 2.7 Paper 2.5 Healthcare 2.4 Wireless Communications 2.3 Integrated Energy 2.2 Consumer Products 2.0 Gaming 2.0 Food/Beverage 1.4 Retail 1.4 Transportation Services 1.3 Building Materials 1.1 Oil Field Services 1.1 Wireline Communications 1.1 Metals 1.0 Natural Gas Pipelines 1.0 Services 0.9 Construction Machinery 0.8 Packaging 0.8 Refining 0.6 Supermarkets 0.6 Technology 0.6 Automotive 0.5 Brokerage 0.4 Wireless Telecommunication Services 0.4 Aerospace & Defense 0.3 Diversified Chemicals 0.3 Environmental Services 0.3 Independent Energy 0.3 Entertainment 0.2 Lodging 0.2 Railroads 0.2 Semiconductors 0.2 Sovereigns 0.2 Other Industrial 0.1 ----- Total Long-Term Investments 84.9% Short-Term Investments 15.1 ----- Total Investments 100.0%
Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned or securities in the industries shown above. Ratings are as a percentage of long-term investments and summary of investments by industry classification are as a percentage of total investments. 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 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS Each Van Kampen trust provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the trust's second and fourth fiscal quarters by filing the schedule electronically with the Securities and Exchange Commission (SEC). The semiannual reports are filed on Form N-CSRS and the annual reports are filed on Form N-CSR. Van Kampen also delivers the semiannual and annual reports to trust shareholders, and makes these reports available on its public web site, www.vankampen.com. In addition to the semiannual and annual reports that Van Kampen delivers to shareholders and makes available through the Van Kampen public web site, each trust files a complete schedule of portfolio holdings with the SEC for the trust's first and third fiscal quarters on Form N-Q. Van Kampen does not deliver the reports for the first and third fiscal quarters to shareholders, nor are the reports posted to the Van Kampen public web site. You may, however, obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by accessing the SEC's web site, http://www.sec.gov. You may also review and copy them at the SEC's Public Reference Room in Washington, DC. Information on the operation of the SEC's Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. You can also request copies of these materials, upon payment of a duplicating fee, by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by writing the Public Reference section of the SEC, Washington, DC 20549-0102. In addition to filing a complete schedule of portfolio holdings with the SEC each fiscal quarter, each Van Kampen trust makes portfolio holdings information available by periodically providing the information on its public web site, www.vankampen.com. Each Van Kampen trust provides a complete schedule of portfolio holdings on the public web site on a calendar-quarter basis approximately 30 days after the close of the calendar quarter. Van Kampen closed-end funds do not presently provide partial lists of their portfolio holdings on a monthly basis, but may do so in the future. You may obtain copies of a trust's fiscal quarter filings, or its monthly or calendar-quarter web site postings, by contacting Van Kampen Client Relations at 1-800-847-2424. PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD The trust's policies and procedures with respect to the voting of proxies relating to the trust's portfolio securities and information on how the trust voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge, upon request, by calling 1-800-847-2424 or by visiting our web site at www.vankampen.com. This information is also available on the Securities and Exchange Commission's web site at http://www.sec.gov. 5 VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- DOMESTIC CORPORATE BONDS 41.0% AEROSPACE & DEFENSE 0.3% $ 280 K & F Acquisition, Inc., 144A--Private Placement (a).......... 7.750% 11/15/14 $ 290,500 ------------ AUTOMOTIVE 0.5% 250 AutoNation, Inc. .................... 9.000 08/01/08 286,875 220 Cooper Standard Automotive Inc., 144A--Private Placement (a).......... 8.375 12/15/14 220,550 ------------ 507,425 ------------ BROKERAGE 0.4% 400 Refco Finance Holdings LLC, 144A-- Private Placement (a)................ 9.000 08/01/12 440,000 ------------ BUILDING MATERIALS 1.2% 300 Brand Services, Inc. ................ 12.000 10/15/12 337,500 290 NMHG Holdings Co. ................... 10.000 05/15/09 321,900 200 Propex Fabrics, Inc., 144A--Private Placement (a)........................ 10.000 12/01/12 208,500 355 Trimas Corp. ........................ 9.875 06/15/12 378,075 ------------ 1,245,975 ------------ CHEMICALS 3.2% 100 Equistar Chemicals LP................ 10.625 05/01/11 116,500 120 FMC Corp. ........................... 10.250 11/01/09 138,300 110 Huntsman Advanced Materials LLC, 144A--Private Placement (a).......... 11.000 07/15/10 131,450 240 Huntsman ICI Chemicals LLC........... 10.125 07/01/09 253,800 80 Hydrochem Industrial Services, Inc., Ser B................................ 10.375 08/01/07 81,000 155 Innophos, Inc., 144A--Private Placement (a)........................ 8.875 08/15/14 168,175 140 ISP Chemco, Inc., Ser B.............. 10.250 07/01/11 158,900 300 ISP Holdings, Inc., Ser B............ 10.625 12/15/09 333,750 230 JohnsonDiversey, Inc. ............... 9.625 05/15/12 258,175 80 Koppers, Inc. ....................... 9.875 10/15/13 91,600 225 Lyondell Chemical Co. ............... 10.500 06/01/13 268,875 225 Millennium America, Inc. ............ 7.000 11/15/06 235,125 95 Nalco Co. ........................... 7.750 11/15/11 103,075 370 Nalco Co. ........................... 8.875 11/15/13 407,925 280 Rockwood Specialties Group, Inc. .... 10.625 05/15/11 323,400 75 Rockwood Specialties Group, Inc., 144A--Private Placement (a).......... 7.625 11/15/14 104,762 78 Westlake Chemical Corp. ............. 8.750 07/15/11 88,530 ------------ 3,263,342 ------------
6 See Notes to Financial Statements VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- CONSTRUCTION MACHINERY 0.9% $ 85 Flowserve Corp. ..................... 12.250% 08/15/10 $ 94,350 25 Manitowoc Co., Inc. (EUR)............ 10.375 05/15/11 38,265 214 Manitowoc, Inc. ..................... 10.500 08/01/12 247,170 230 United Rentals North America, Inc. ................................ 6.500 02/15/12 225,400 290 United Rentals North America, Inc. ................................ 7.750 11/15/13 285,650 ------------ 890,835 ------------ CONSUMER PRODUCTS 1.7% 160 Amscan Holdings, Inc. ............... 8.750 05/01/14 160,800 310 Iron Mountain, Inc. ................. 8.625 04/01/13 330,925 155 Leiner Health Products, Inc. ........ 11.000 06/01/12 170,112 245 Muzak LLC............................ 9.875 03/15/09 172,419 120 Oxford Industrials, Inc. ............ 8.875 06/01/11 129,450 180 Rayovac Corp. ....................... 8.500 10/01/13 200,700 89 Tempur-Pedic, Inc. .................. 10.250 08/15/10 102,795 465 Xerox Corp. ......................... 7.125 06/15/10 504,525 ------------ 1,771,726 ------------ ELECTRIC 2.4% 41 AES Corp. ........................... 9.375 09/15/10 47,867 26 AES Corp. ........................... 8.875 02/15/11 29,835 160 AES Corp. ........................... 7.750 03/01/14 174,400 260 AES Corp., 144A--Private Placement (a).................................. 9.000 05/15/15 299,000 135 Allegheny Energy, Inc. .............. 7.750 08/01/05 137,531 35 CMS Energy Corp. .................... 7.500 01/15/09 37,450 220 CMS Energy Corp. .................... 8.500 04/15/11 251,075 200 Dynegy Holdings, Inc., 144A--Private Placement (a)........................ 9.875 07/15/10 224,500 75 IPALCO Enterprises, Inc. ............ 7.625 11/14/11 84,375 260 Monongahela Power Co. ............... 5.000 10/01/06 265,995 170 Nevada Power Co. .................... 8.250 06/01/11 196,137 215 Nevada Power Co. .................... 9.000 08/15/13 252,625 20 PSEG Energy Holdings, Inc. .......... 7.750 04/16/07 21,250 205 PSEG Energy Holdings, Inc. .......... 8.625 02/15/08 226,012 160 Reliant Energy, Inc. ................ 6.750 12/15/14 159,800 ------------ 2,407,852 ------------ ENTERTAINMENT 0.3% 105 Cinemark, Inc. (b)................... 0/9.750 03/15/14 79,800 180 Marquee, Inc., 144A--Private Placement (Variable Rate Coupon) (a).................................. 6.540 08/15/10 190,350 ------------ 270,150 ------------ ENVIRONMENTAL SERVICES 0.3% 110 Allied Waste North America, Inc. .... 6.500 11/15/10 108,350 185 Allied Waste North America, Inc., Ser B.................................... 9.250 09/01/12 201,187 ------------ 309,537 ------------
See Notes to Financial Statements 7 VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- FOOD/BEVERAGE 1.5% $ 195 Michael Foods, Inc. ................. 8.000% 11/15/13 $ 206,700 435 Pilgrim's Pride Corp. ............... 9.625 09/15/11 491,550 125 Pilgrim's Pride Corp. ............... 9.250 11/15/13 140,625 430 Smithfield Foods, Inc. .............. 8.000 10/15/09 478,375 150 Smithfield Foods, Inc. .............. 7.000 08/01/11 160,875 ------------ 1,478,125 ------------ GAMING 2.1% 250 Caesars Entertainment................ 8.875 09/15/08 283,750 210 Harrahs Operating Co., Inc. ......... 7.875 12/15/05 218,925 280 Isle of Capri Casinos, Inc. ......... 7.000 03/01/14 287,000 690 MGM Mirage, Inc. .................... 6.000 10/01/09 710,700 60 MGM Mirage, Inc. .................... 5.875 02/27/14 59,250 100 Station Casinos, Inc. ............... 6.000 04/01/12 102,375 260 Station Casinos, Inc. ............... 6.500 02/01/14 268,450 170 Venetian Casino Resort LLC........... 11.000 06/15/10 194,862 ------------ 2,125,312 ------------ HEALTHCARE 2.6% 230 AmerisourceBergen Corp. ............. 8.125 09/01/08 257,025 200 Community Health Systems Inc., 144A-- Private Placement (a)................ 6.500 12/15/12 202,500 226 Fisher Scientific International, Inc. ................................ 8.125 05/01/12 251,990 105 Fisher Scientific International, Inc., 144A--Private Placement (a).... 6.750 08/15/14 113,137 165 Fresenius Medical Care Capital Trust II................................... 7.875 02/01/08 179,437 240 Fresenius Medical Care Capital Trust IV................................... 7.875 06/15/11 268,800 210 HCA, Inc. ........................... 8.750 09/01/10 240,320 55 HCA, Inc. ........................... 6.375 01/15/15 55,324 240 Medcath Holdings Corp. .............. 9.875 07/15/12 261,600 50 National Nephrology Associates, Inc., 144A--Private Placement (a).......... 9.000 11/01/11 58,125 265 Team Health, Inc. ................... 9.000 04/01/12 260,362 50 Tenet Healthcare Corp. .............. 6.500 06/01/12 46,500 135 Tenet Healthcare Corp., 144A--Private Placement (a)........................ 9.875 07/01/14 147,825 110 VWR International, Inc., 144A--Private Placement (a).......... 6.875 04/15/12 115,500 140 VWR International, Inc., 144A--Private Placement (a).......... 8.000 04/15/14 150,150 ------------ 2,608,595 ------------ HOME CONSTRUCTION 2.9% 285 ACIH, Inc., 144A--Private Placement (a) (b).............................. 0/11.500 12/15/12 207,337 725 Associated Materials, Inc. (b)....... 0/11.250 03/01/14 525,625 55 CB Richard Ellis Service, Inc. ...... 9.750 05/15/10 62,975
8 See Notes to Financial Statements VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- HOME CONSTRUCTION (CONTINUED) $ 85 Goodman Global Holdings Inc., 144A-- Private Placement (Variable Rate Coupon) (a).......................... 5.760% 06/15/12 $ 86,700 170 Goodman Global Holdings Inc., 144A-- Private Placement (a)................ 7.875 12/15/12 169,150 65 Interface, Inc. ..................... 7.300 04/01/08 66,787 75 Interface, Inc. ..................... 10.375 02/01/10 86,625 255 Interface, Inc. ..................... 9.500 02/01/14 279,225 360 Nortek Holdings, Inc., 144A--Private Placement (a)........................ 8.500 09/01/14 378,000 340 Ply Gem Industries, Inc., 144A--Private Placement (a).......... 9.000 02/15/12 346,800 260 RMCC Acquisition Co., 144A--Private Placement (a)........................ 9.500 11/01/12 260,650 75 Technical Olympic USA, Inc. ......... 9.000 07/01/10 80,625 180 Technical Olympic USA, Inc. ......... 9.000 07/01/10 193,500 180 Technical Olympic USA, Inc. ......... 10.375 07/01/12 202,500 ------------ 2,946,499 ------------ INDEPENDENT ENERGY 0.3% 240 Equistar Chemicals LP................ 10.125 09/01/08 277,800 ------------ INTEGRATED ENERGY 2.1% 195 BRL Universal Equipment.............. 8.875 02/15/08 205,969 195 Calpine Corp., 144A--Private Placement (a)........................ 8.500 07/15/10 168,187 345 Chesapeake Energy Corp. ............. 7.500 09/15/13 377,344 525 El Paso Production Holding Co. ...... 7.750 06/01/13 552,562 60 Hanover Compressor Co. .............. 8.625 12/15/10 65,850 95 Hanover Equipment Trust.............. 8.750 09/01/11 103,550 205 Hanover Equipment Trust, Ser A....... 8.500 09/01/08 221,400 50 MSW Energy Holdings LLC.............. 8.500 09/01/10 55,000 215 Pacific Energy Partners.............. 7.125 06/15/14 230,050 95 Transcontinental Gas Pipe Line Corp., Ser B................................ 8.875 07/15/12 116,019 ------------ 2,095,931 ------------ LODGING 0.3% 190 Gaylord Entertainment Co., 144A-- Private Placement (a)................ 6.750 11/15/14 191,900 74 HMH Properties, Inc. ................ 7.875 08/01/08 76,405 ------------ 268,305 ------------ MEDIA-CABLE 1.7% 63 Avalon Cable LLC..................... 11.875 12/01/08 66,093 565 Charter Communications Holdings LLC.................................. 9.625 11/15/09 498,612 90 DirecTV Holdings LLC................. 8.375 03/15/13 101,363 320 Echostar DBS Corp. .................. 6.375 10/01/11 328,800
See Notes to Financial Statements 9 VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- MEDIA-CABLE (CONTINUED) $ 120 General Cable Corp. ................. 9.500% 11/15/10 $ 136,200 145 PanAmSat Corp., 144A--Private Placement (a)........................ 9.000 08/15/14 162,581 440 PanAmSat Corp., 144A--Private Placement (a) (b).................... 0/10.375 11/01/14 304,700 1,000 Park N View, Inc., Ser B (c) (d) (e).................................. 13.000 05/15/08 0 135 Renaissance Media Group.............. 10.000 04/15/08 139,725 ------------ 1,738,074 ------------ MEDIA-NONCABLE 2.9% 45 Advanstar Communications, Inc. ...... 10.750 08/15/10 51,019 395 Advanstar Communications, Inc. (Variable Rate Coupon)............... 9.790 08/15/08 414,750 127 Dex Media East LLC................... 12.125 11/15/12 155,416 171 Dex Media West LLC, Ser B............ 9.875 08/15/13 197,933 350 Houghton Mifflin Co. ................ 9.875 02/01/13 385,000 65 Houghton Mifflin Co. (b)............. 0/11.500 10/15/13 48,100 205 Interep National Radio Sales, Inc., Ser B................................ 10.000 07/01/08 155,544 375 Interpublic Group of Companies Inc. ................................ 6.250 11/15/14 381,323 145 Muzak LLC............................ 10.000 02/15/09 135,756 235 Nebraska Book Co., Inc. ............. 8.625 03/15/12 242,050 83 PEI Holdings, Inc. .................. 11.000 03/15/10 97,110 375 Primedia, Inc. ...................... 8.875 05/15/11 398,438 250 Vertis, Inc., 144A--Private Placement (a).................................. 13.500 12/07/09 264,688 ------------ 2,927,127 ------------ METALS 0.9% 361 Doe Run Resources Corp., (Acquired 03/06/98 to 10/15/04, Cost $524,900) (i) (f).............................. 13.063 11/01/08 308,777 85 Foundation PA Coal Co., 144A--Private Placement (a)........................ 7.250 08/01/14 90,950 750 GS Technologies Operating, Inc. (c) (d) (e).............................. 12.000 09/01/04 75 245 UCAR Finance, Inc. .................. 10.250 02/15/12 281,138 189 United States Steel Corp. ........... 9.750 05/15/10 216,405 ------------ 897,345 ------------ NATURAL GAS PIPELINES 1.0% 340 Dynegy Holdings, Inc. ............... 6.875 04/01/11 328,950 55 Northwest Pipeline Corp. ............ 8.125 03/01/10 61,119 105 Southern Natural Gas Co. ............ 8.875 03/15/10 118,125 470 Williams Cos., Inc. ................. 7.875 09/01/21 526,400 ------------ 1,034,594 ------------
10 See Notes to Financial Statements VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- OIL FIELD SERVICES 1.2% $ 225 Hanover Compressor Co. .............. 9.000% 06/01/14 $ 251,438 350 Hilcorp Energy Finance Corp., 144A-- Private Placement (a)................ 10.500 09/01/10 397,250 104 Magnum Hunter Resources, Inc. ....... 9.600 03/15/12 118,560 230 MSW Energy Holdings II LLC........... 7.375 09/01/10 242,650 160 Plains Exploration & Production Co. ................................. 7.125 06/15/14 175,200 ------------ 1,185,098 ------------ OTHER INDUSTRIAL 0.1% 70 Global Cash Access LLC............... 8.750 03/15/12 75,775 ------------ PACKAGING 0.9% 65 Owens-Illinois, Inc. ................ 7.350 05/15/08 68,575 680 Owens-Illinois, Inc. ................ 7.500 05/15/10 725,050 120 Tekni-Plex, Inc., 144A--Private Placement (a)........................ 8.750 11/15/13 120,000 ------------ 913,625 ------------ PAPER 1.3% 435 Georgia-Pacific Corp. ............... 8.875 02/01/10 508,406 130 Graham Packaging Co., Inc., 144A-- Private Placement (a)................ 8.500 10/15/12 137,150 340 Graphic Packaging International, Inc. ................................ 9.500 08/15/13 388,450 150 Pliant Corp. ........................ 13.000 06/01/10 147,000 185 Pliant Corp. ........................ 13.000 06/01/10 180,375 ------------ 1,361,381 ------------ RAILROADS 0.3% 235 Amsted Industries, Inc., 144A-- Private Placement (a)................ 10.250 10/15/11 266,725 ------------ REFINING 0.6% 80 CITGO Petroleum Corp., 144A--Private Placement (a)........................ 6.000 10/15/11 80,000 135 Tesoro Petroleum Corp. .............. 9.625 04/01/12 155,925 390 Vintage Petroleum, Inc. ............. 7.875 05/15/11 417,300 ------------ 653,225 ------------ RETAIL 1.0% 165 General Nutrition Center, Inc. ...... 8.500 12/01/10 156,750 350 Petro Shopping Center Financial...... 9.000 02/15/12 371,875 175 Rite Aid Corp. ...................... 7.125 01/15/07 175,875 65 Rite Aid Corp. ...................... 8.125 05/01/10 69,063 1,000 Sleepmaster LLC, Ser B (c) (d) (e)... 11.000 05/15/09 220,000 ------------ 993,563 ------------
See Notes to Financial Statements 11 VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- SERVICES 1.0% $ 355 Allied Waste North America, Inc. .... 6.375% 04/15/11 $ 345,238 300 Buhrmann US, Inc. ................... 8.250 07/01/14 304,875 315 CB Richard Ellis Service, Inc. ...... 11.250 06/15/11 363,825 ------------ 1,013,938 ------------ SUPERMARKETS 0.6% 325 Delhaize America, Inc. .............. 8.125 04/15/11 380,485 238 Kroger Co., 144A--Private Placement (a).................................. 8.500 07/15/17 274,500 ------------ 654,985 ------------ TECHNOLOGY 0.2% 170 Iron Mountain, Inc. ................. 7.750 01/15/15 173,400 ------------ TRANSPORTATION SERVICES 1.1% 335 Laidlaw International, Inc. ......... 10.750 06/15/11 392,788 270 Sonic Automotive, Inc. .............. 8.625 08/15/13 289,238 391 TRW Automotive, Inc. ................ 9.375 02/15/13 455,515 ------------ 1,137,541 ------------ WIRELESS COMMUNICATIONS 2.1% 85 AirGate PCS, Inc., 144A--Private Placement (Variable Rate Coupon) (a).................................. 6.410 10/15/11 87,763 52 American Tower Corp. ................ 9.375 02/01/09 55,250 185 American Tower Corp. ................ 7.500 05/01/12 195,175 190 American Tower Corp., 144A--Private Placement (a)........................ 7.125 10/15/12 195,225 95 Centennial Communications Corp. ..... 8.125 02/01/14 98,088 275 MetroPCS, Inc. ...................... 10.750 10/01/11 295,625 250 Nextel Communications, Inc. ......... 6.875 10/31/13 272,500 145 Rural Cellular Corp. (Variable Rate Coupon).............................. 6.990 03/15/10 150,800 360 SBA Communications Corp. (b)......... 0/9.750 12/15/11 305,100 190 SBA Communications Corp., 144A-- Private Placement (a)................ 8.500 12/01/12 194,750 35 UbiquiTel Operating Co. ............. 9.875 03/01/11 39,463 215 UbiquiTel Operating Co., 144A--Private Placement (a).......... 9.875 03/01/11 242,413 ------------ 2,132,152 ------------ WIRELINE COMMUNICATIONS 1.1% 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 0 415 Primus Telecommunications Holdings... 8.000 01/15/14 367,275 300 Qwest Communications International, Inc., 144A--Private Placement (Variable Rate Coupon) (a)........... 6.040 02/15/09 305,250
12 See Notes to Financial Statements VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- WIRELINE COMMUNICATIONS (CONTINUED) $ 110 Qwest Corp. ......................... 6.625% 09/15/05 $ 112,750 310 Qwest Services Corp., 144A--Private Placement (a)........................ 13.000 12/15/07 355,725 ------------ 1,141,000 ------------ TOTAL DOMESTIC CORPORATE BONDS 41.0%.......................................... 41,497,457 ------------ FOREIGN BONDS AND DEBT SECURITIES 7.8% BELGIUM 0.6% 295 Telenet Communication NV, 144A-- Private Placement (EUR) (a).......... 9.000 12/15/13 447,527 215 Telenet Group Holding NV, 144A-- Private Placement (a) (b)............ 0/11.500 06/15/14 164,475 ------------ 612,002 ------------ CANADA 3.2% 205 Abitibi-Consolidated, Inc. .......... 8.550 08/01/10 223,194 80 Abitibi-Consolidated, Inc. .......... 7.750 06/15/11 84,400 80 Abitibi-Consolidated, Inc. .......... 6.000 06/20/13 76,700 398 Canwest Media, Inc., 144A--Private Placement (a)........................ 8.000 09/15/12 428,936 300 CHC Helicopter Corp. ................ 7.375 05/01/14 318,000 285 Husky Oil Ltd. (Variable Rate Coupon).............................. 8.900 08/15/28 325,865 90 Jean Coutu Group (PJC), Inc., 144A-- Private Placement (a)................ 7.625 08/01/12 95,625 375 Jean Coutu Group (PJC), Inc., 144A-- Private Placement (a)................ 8.500 08/01/14 386,250 125 Norampac, Inc. ...................... 6.750 06/01/13 132,187 260 Nortel Networks Corp. ............... 4.250 09/01/08 254,150 250 Nortel Networks Ltd. ................ 6.125 02/15/06 255,625 125 Rogers Wireless Communications, Inc., 144A--Private Placement (a).......... 8.000 12/15/12 132,812 170 Rogers Wireless Communications, Inc., 144A--Private Placement (a).......... 7.500 03/15/15 180,200 350 Tembec Industries, Inc. ............. 7.750 03/15/12 340,375 ------------ 3,234,319 ------------ FRANCE 0.3% 285 Rhodia SA............................ 8.875 06/01/11 288,563 ------------ GERMANY 0.7% 260 Cognis Deutschland, 144A--Private Placement (Variable Rate Coupon) (EUR) (a)............................ 6.897 11/15/13 373,300 325 Kabel Deutschland, 144A--Private Placement (a)........................ 10.625 07/01/14 375,375 ------------ 748,675 ------------
See Notes to Financial Statements 13 VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- IRELAND 0.5% $ 325 JSG Funding PLC (EUR)................ 10.125% 10/01/12 $ 506,244 ------------ LUXEMBOURG 1.7% 430 Cablecom Luxembourg, 144A--Private Placement (EUR) (a).................. 9.375 04/15/14 649,415 110 JohnsonDiversey, Inc. (EUR).......... 9.625 05/15/12 168,364 200 Lighthouse Intl., 144A--Private Placement (EUR) (a).................. 8.000 04/30/14 280,381 305 Safilo Capital International SA, 144A--Private Placement (EUR) (a).... 9.625 05/15/13 424,483 140 SGL Carbon Luxembourg SA, 144A-- Private Placement (EUR) (a).......... 8.500 02/01/12 214,282 ------------ 1,736,925 ------------ MEXICO 0.6% 350 Axtel SA............................. 11.000 12/15/13 378,875 325 Satelites Mexicanos SA, Ser B (c).... 10.125 11/01/04 180,375 ------------ 559,250 ------------ UNITED KINGDOM 0.2% 145 Avecia Group PLC..................... 11.000 07/01/09 150,075 ------------ TOTAL FOREIGN BONDS AND DEBT SECURITIES 7.8%.................................. 7,836,053 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS 0.9% 855 Federal Home Loan Mortgage Corp. (Interest Only)...................... 5.000 09/15/14 to 12/15/16 80,213 152 Federal Home Loan Mortgage Corp. (Interest Only) (g).................. 5.600 03/15/32 14,396 283 Federal Home Loan Mortgage Corp. (Interest Only)...................... 6.000 05/15/30 21,832 476 Federal National Mortgage Association.......................... 2.810 12/18/32 478,629 801 Federal National Mortgage Association (Interest Only)...................... 5.500 06/25/26 to 05/25/27 52,226 346 Federal National Mortgage Association (Interest Only) REMIC................ 6.000 08/25/32 to 11/25/32 47,895 539 Federal National Mortgage Association (Interest Only)...................... 6.500 07/01/31 to 05/25/33 107,811 61 Federal National Mortgage Association (Interest Only)...................... 8.000 05/01/30 12,964 268 Federal National Mortgage Association (Interest Only) REMIC................ 7.000 03/01/32 to 04/25/33 50,792
14 See Notes to Financial Statements VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED) $ 203 Government National Mortgage Association (Interest Only) REMIC (g).................................. 4.990% 05/16/32 $ 12,311 209 Government National Mortgage Association (Interest Only) REMIC (g).................................. 5.590 05/16/32 15,816 ------------ TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 0.9%................................ 894,885 ------------ MORTGAGE BACKED SECURITIES 18.0% 685 Federal Home Loan Mortgage Corp. .... 7.500 11/01/29 to 06/01/32 737,184 140 Federal Home Loan Mortgage Corp. (ARM)................................ 3.637 07/01/34 139,073 370 Federal Home Loan Mortgage Corp. (ARM)................................ 4.182 08/01/34 372,953 1,450 Federal Home Loan Mortgage Corp., January.............................. 5.000 TBA 1,472,202 725 Federal Home Loan Mortgage Corp., January.............................. 5.500 TBA 748,789 2,762 Federal National Mortgage Association.......................... 6.500 06/01/15 to 05/01/34 2,901,242 2,509 Federal National Mortgage Association.......................... 7.000 03/01/15 to 12/01/32 2,661,524 541 Federal National Mortgage Association.......................... 7.500 03/01/15 to 03/01/32 579,114 183 Federal National Mortgage Association (ARM)................................ 3.712 07/01/34 182,044 231 Federal National Mortgage Association (ARM)................................ 4.111 09/01/34 232,803 199 Federal National Mortgage Association (ARM)................................ 4.237 10/01/34 201,738 235 Federal National Mortgage Association (ARM)................................ 4.269 10/01/34 236,776 400 Federal National Mortgage Association, February................ 6.000 TBA 412,750 1,500 Federal National Mortgage Association, January................. 4.500 TBA 1,480,156 2,275 Federal National Mortgage Association, January................. 5.500 TBA 2,318,445 500 Federal National Mortgage Association, January................. 6.000 TBA 517,031 500 Federal National Mortgage Association, January................. 6.500 TBA 524,375 150 Government National Mortgage Association.......................... 7.000 07/15/29 to 01/15/30 159,181 486 Government National Mortgage Association.......................... 7.500 07/15/23 to 09/15/29 525,747 259 Government National Mortgage Association.......................... 8.000 03/15/17 to 10/15/22 283,097 122 Government National Mortgage Association.......................... 8.500 07/15/24 to 12/15/24 133,664
See Notes to Financial Statements 15 VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE ---------------------------------------------------------------------------------------------- MORTGAGE BACKED SECURITIES (CONTINUED) $ 286 Government National Mortgage Association.......................... 9.000% 08/15/16 to 12/15/24 $ 321,443 82 Government National Mortgage Association.......................... 9.500 11/15/09 to 01/15/17 92,294 1,000 Government National Mortgage Association, January................. 5.500 TBA 1,020,625 ------------ TOTAL MORTGAGE BACKED SECURITIES 18.0%........................................ 18,254,250 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS 10.4% 4,850 Federal Home Loan Mortgage Corp. .... 2.750 08/15/06 4,820,066 1,100 Federal Home Loan Mortgage Corp. .... 6.625 09/15/09 1,231,428 1,100 Federal Home Loan Mortgage Corp. .... 7.000 03/15/10 1,257,637 415 Federal National Mortgage Association.......................... 6.625 11/15/30 496,203 1,250 Federal National Mortgage Association.......................... 7.125 06/15/10 1,438,425 1,100 Federal National Mortgage Association.......................... 7.250 01/15/10 1,265,584 ------------ TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS....................................... 10,509,343 ------------ UNITED STATES TREASURY OBLIGATIONS 12.2% 1,600 United States Treasury Bonds......... 5.250 02/15/29 1,678,875 3,010 United States Treasury Bonds......... 6.125 08/15/29 3,534,872 2,130 United States Treasury Bonds......... 7.625 02/15/25 2,885,402 3,535 United States Treasury Notes......... 3.875 02/15/13 3,488,883 2,000 United States Treasury Notes (STRIPS)............................. 0.000 05/15/25 708,614 ------------ TOTAL UNITED STATES TREASURY OBLIGATIONS....................................... 12,296,646 ------------ FOREIGN GOVERNMENT AND GOVERNMENT AGENCY OBLIGATION 0.2% 180 United Mexican States (Mexico)....... 8.375 01/14/11 211,860 ------------ EQUITIES 0.7% Doe Run Resources Corp. (1 Common Stock Warrant) (e) (h)............. 0 HF Holdings, Inc. (5,260 Common Stock Warrants) (e) (h).............. 0 Optel, Inc. (500 Common Shares) (e) (h).............................. 0 Park N View, Inc., 144A--Private Placement (1,000 Common Stock Warrants) (a) (e) (h)................................................ 0
16 See Notes to Financial Statements VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued
DESCRIPTION VALUE -------------------------------------------------------------------------------------------------- EQUITIES (CONTINUED) Paxon Communications Corp. (3,000 Preferred Shares) (f)............................ $ 221,250 TNP Enterprises, Inc. (4,322 Preferred Shares) (f)................................. 502,452 ------------ TOTAL EQUITIES 0.7%............................................................... 723,702 ------------ TOTAL LONG-TERM INVESTMENTS 91.2% (Cost $91,226,355)............................................................... 92,224,196 ------------ SHORT-TERM INVESTMENTS 16.2% REPURCHASE AGREEMENT 13.8% Bank of America Securities LLC ($13,972,000 par collateralized by U.S. Government obligations in a pooled cash account, interest rate of 2.00%, dated 12/31/04, to be sold on 01/03/05 at $13,974,329).............................................. 13,972,000 U.S. GOVERNMENT AGENCY OBLIGATIONS 2.4% Federal National Mortgage Association Discount Note ($2,400,000 par, yielding 1.804%, 01/13/05 maturity)....................................................... 2,398,557 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $16,370,288)............................................................... 16,370,557 ------------ TOTAL INVESTMENTS 107.4% (Cost $107,596,643).............................................................. 108,594,753 FOREIGN CURRENCY 0.0% (Cost $568)...................................................................... 595 LIABILITIES IN EXCESS OF OTHER ASSETS (7.4%)...................................... (7,445,774) ------------ NET ASSETS 100.0%................................................................. $101,149,574 ============
Percentages are calculated as a percentage of net assets. (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. See Notes to Financial Statements 17 VAN KAMPEN INCOME TRUST PORTFOLIO OF INVESTMENTS -- DECEMBER 31, 2004 continued (f) Payment-in-kind security. (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 each day with the change in value reflected in the unrealized appreciation/depreciation. Upon disposition, a realized gain or loss is recognized accordingly. (h) Non-income producing security. (i) These securities are restricted and may be resold only in transactions exempt from registration which are normally those transactions with qualified institutional buyers. Restricted securities comprise 0.3% of net assets. ARM--Adjustable Rate Mortgage EUR--Eurodollar REMIC--Real Estate Mortgage Investment Conduits STRIPS--Separate Trading of Registered Interest and Principal of Securities TBA--To be announced, maturity date has not yet been established. Upon settlement and delivery of the mortgage pools, maturity dates will be assigned. 18 See Notes to Financial Statements VAN KAMPEN INCOME TRUST FINANCIAL STATEMENTS Statement of Assets and Liabilities December 31, 2004 ASSETS: Total Investments, including repurchase agreement of $13,972,000 (Cost $107,596,643)........................... $108,594,753 Foreign Currency (Cost $568)................................ 595 Cash........................................................ 169,320 Receivables: Interest.................................................. 1,340,085 Investments Sold.......................................... 671,559 Other....................................................... 29,117 ------------ Total Assets............................................ 110,805,429 ------------ LIABILITIES: Payables: Investments Purchased..................................... 9,147,764 Investment Advisory Fee................................... 55,601 Income Distributions...................................... 17,654 Other Affiliates.......................................... 4,145 Forward Foreign Currency Contracts.......................... 208,619 Trustees' Deferred Compensation and Retirement Plans........ 145,950 Accrued Expenses............................................ 76,122 ------------ Total Liabilities....................................... 9,655,855 ------------ NET ASSETS.................................................. $101,149,574 ============ NET ASSET VALUE PER COMMON SHARE ($101,149,574 divided by 15,371,738 shares outstanding)............................ $ 6.58 ============ NET ASSETS CONSIST OF: Common Shares (no par value with unlimited shares authorized, 15,371,738 shares issued and outstanding)..... $120,152,605 Net Unrealized Appreciation................................. 791,159 Accumulated Undistributed Net Investment Income............. (264,593) Accumulated Net Realized Loss............................... (19,529,597) ------------ NET ASSETS.................................................. $101,149,574 ============
See Notes to Financial Statements 19 VAN KAMPEN INCOME TRUST FINANCIAL STATEMENTS continued Statement of Operations For the Year Ended December 31, 2004 INVESTMENT INCOME: Interest.................................................... $5,876,174 Dividends................................................... 124,558 Other....................................................... 51,341 ---------- Total Income............................................ 6,052,073 ---------- EXPENSES: Investment Advisory Fee..................................... 645,768 Accounting.................................................. 52,425 Trustees' Fees and Related Expenses......................... 52,141 Shareholder Reports......................................... 47,396 Custody..................................................... 32,190 Legal....................................................... 8,264 Other....................................................... 75,798 ---------- Total Expenses.......................................... 913,982 Less Credits Earned on Cash Balances.................... 661 ---------- Net Expenses............................................ 913,321 ---------- NET INVESTMENT INCOME....................................... $5,138,752 ========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $1,004,692 Forward Foreign Currency Contracts........................ (133,597) Foreign Currency Transactions............................. 26,407 ---------- Net Realized Gain........................................... 897,502 ---------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... (42,524) ---------- End of the Period: Investments............................................. 998,110 Forward Foreign Currency Contracts...................... (208,619) Foreign Currency Translation............................ 1,668 ---------- 791,159 ---------- Net Unrealized Appreciation During the Period............... 833,683 ---------- NET REALIZED AND UNREALIZED GAIN............................ $1,731,185 ========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $6,869,937 ==========
20 See Notes to Financial Statements VAN KAMPEN INCOME TRUST FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED DECEMBER 31, 2004 DECEMBER 31, 2003 ------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income................................. $ 5,138,752 $ 4,979,071 Net Realized Gain/Loss................................ 897,502 (4,732,962) Net Unrealized Appreciation During the Period......... 833,683 11,053,582 ------------ ----------- Change in Net Assets from Operations.................. 6,869,937 11,299,691 ------------ ----------- Distributions from Net Investment Income.............. (5,072,676) (5,291,984) Return of Capital Distribution........................ -0- (464,494) ------------ ----------- Total Distributions................................... (5,072,676) (5,756,478) ------------ ----------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 1,797,261 5,543,213 NET ASSETS: Beginning of the Period............................... 99,352,313 93,809,100 ------------ ----------- End of the Period (Including accumulated undistributed net investment income of $(264,593) and $(437,188), respectively)....................................... $101,149,574 $99,352,313 ============ ===========
See Notes to Financial Statements 21 VAN KAMPEN INCOME TRUST FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
------------------------------------------------ 2004 2003 2002 2001 (A) 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD.... $ 6.46 $6.10 $ 6.51 $ 6.85 $ 7.25 ------ ----- ------ ------ ------- Net Investment Income..................... .33 .32 .39 .53 .60 Net Realized and Unrealized Gain/Loss..... .12 .41 (.33) (.29) (.40) ------ ----- ------ ------ ------- Total from Investment Operations............ .45 .73 .06 .24 .20 ------ ----- ------ ------ ------- Less: Distributions from Net Investment Income.................................. .33 .34 .47 .58 .60 Return of Capital Distributions........... -0- .03 -0- -0- -0- ------ ----- ------ ------ ------- Total Distributions......................... .33 .37 .47 .58 .60 ------ ----- ------ ------ ------- NET ASSET VALUE, END OF THE PERIOD.......... $ 6.58 $6.46 $ 6.10 $ 6.51 $ 6.85 ====== ===== ====== ====== ======= Common Share Market Price at End of the Period.................................... $ 5.85 $5.81 $ 5.71 $ 6.33 $6.5625 Total Return (b)............................ 6.62% 8.42% -2.59% 5.05% 26.59% Net Assets at End of the Period (In millions)................................. $101.1 $99.4 $ 93.8 $100.0 $ 104.8 Ratio of Expenses to Average Net Assets..... .92% .92% .89% .93% .96% Ratio of Net Investment Income to Average Net Assets................................ 5.17% 5.14% 6.29% 7.88% 8.51% Portfolio Turnover.......................... 225% 299%(c) 101% 46% 60%
(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 VAN KAMPEN INCOME TRUST FINANCIAL HIGHLIGHTS continued
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1999 1998 1997 1996 1995 ------------------------------------------------ $ 7.84 $ 8.05 $ 7.93 $ 7.94 $ 7.28 ------- ------ ------ ------ ------ .64 .66 .66 .66 .65 (.63) (.22) .18 (.01) .66 ------- ------ ------ ------ ------ .01 .44 .84 .65 1.31 ------- ------ ------ ------ ------ .60 .65 .72 .66 .65 -0- -0- -0- -0- -0- ------- ------ ------ ------ ------ .60 .65 .72 .66 .65 ------- ------ ------ ------ ------ $ 7.25 $ 7.84 $ 8.05 $ 7.93 $ 7.94 ======= ====== ====== ====== ====== $5.6875 $ 7.75 $ 8.00 $ 7.50 $ 7.25 -19.81% 5.05% 16.97% 12.95% 21.83% $ 110.9 $120.0 $123.1 $121.2 $121.4 .95% .96% .91% 1.00% .94% 8.46% 8.17% 8.32% 8.40% 8.50% 28% 47% 55% 36% 34%
See Notes to Financial Statements 23 VAN KAMPEN INCOME TRUST NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004 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. Securities listed on a foreign exchange are valued at their closing price. 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, 2004, the Trust had $9,147,764 of when-issued, delayed delivery and 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 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 24 VAN KAMPEN INCOME TRUST NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004 continued 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 Subchapter M 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, 2004, the Trust had an accumulated capital loss carryforward for tax purposes of $19,474,366, which will expire according to the following schedule.
AMOUNT EXPIRATION $1,416,375.................................................. December 31, 2007 1,347,021.................................................. December 31, 2008 5,081,926.................................................. December 31, 2009 6,212,026.................................................. December 31, 2010 4,974,996.................................................. December 31, 2011 442,022.................................................. December 31, 2012
At December 31, 2004, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $107,875,970 ============ Gross tax unrealized appreciation........................... $ 4,680,365 Gross tax unrealized depreciation........................... (3,961,582) ------------ Net tax unrealized appreciation on investments.............. $ 718,783 ============
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, 2004 and 2003 was as follows:
2004 2003 Distribution paid from: Ordinary Income........................................... $5,081,293 $5,265,713 Return of Capital......................................... -0- 464,494 ---------- ---------- $5,081,293 $5,730,207 ========== ==========
25 VAN KAMPEN INCOME TRUST NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004 continued 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 and federal income tax purposes, permanent differences between book and tax basis reporting for the 2004 calendar year have been identified and appropriately reclassified on the Statement of Assets and Liabilities. A permanent book and tax difference relating to paydowns on mortgage-backed securities totaling $183,066 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 gains on foreign currency transactions totaling $107,190 has been reclassified to accumulated undistributed net investment income from accumulated net realized loss. A permanent book and tax difference relating to consent fee income totaling $50,305 has been reclassified from accumulated undistributed net investment income to accumulated net realized loss. Also, a permanent book and tax difference relating to the true-up of prior year adjustments totaling $1,242 was reclassified from accumulated undistributed net investment income to accumulated net realized loss in the amount of $1,229 and capital in the amount of $13. Additionally, a permanent difference relating to book to tax amortization differences totaling $82,190 was reclassified from accumulated undistributed net investment income to accumulated net realized loss. As of December 31, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $186,578
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 currency losses in the amount of $168,673 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. G. EXPENSE REDUCTION During the year ended December 31, 2004, the Trust's custody fee was reduced by $661 as a result of credits earned on cash balances. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Trust's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Trust for an annual fee payable monthly of .65% of the average daily net assets of the Trust. For the year ended December 31, 2004, the Trust recognized expenses of approximately $8,100 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, 26 VAN KAMPEN INCOME TRUST NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004 continued counsel to the Trust, of which a trustee of the Trust is a partner of such firm and he and his law firm provide legal services as legal counsel to the Trust. 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, 2004, the Trust recognized expenses of approximately $9,300 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing 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 also officers of Van Kampen. The Trust provides deferred compensation and retirement plans for its trustees who are not officers of Van Kampen. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation to a later date. Benefits under the retirement plan are payable upon retirement for a ten-year period and are based upon each trustee's years of service to the Trust. The maximum annual benefit per trustee under the plan is $2,500. 3. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, including principal paydowns and excluding short-term investments, were $212,809,455 and $212,575,108, respectively. 4. 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 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 27 VAN KAMPEN INCOME TRUST NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2004 continued 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, 2004.
UNREALIZED CURRENT APPRECIATION/ VALUE DEPRECIATION SHORT CONTRACTS: Euro Currency 1,310,000 expiring 1/26/05................................ $1,774,693 $(120,818) 680,000 expiring 1/26/05.................................. 921,215 (62,382) 45,000 expiring 1/26/05................................... 60,963 (4,128) 70,000 expiring 1/26/05................................... 94,831 (6,456) 75,000 expiring 1/26/05................................... 101,605 (4,583) 200,000 expiring 1/26/05.................................. 270,946 (10,252) ---------- --------- $3,224,253 $(208,619) ========== =========
6. INDEMNIFICATIONS The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 28 VAN KAMPEN INCOME TRUST REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2004, 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 five 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 Fund's financial highlights for the periods ended prior to December 31, 2000, were audited by other auditors whose report, dated February 10, 2000, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2004, by correspondence with the Trust's custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. 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, 2004, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Chicago, Illinois February 11, 2005 29 VAN KAMPEN INCOME TRUST BOARD OF TRUSTEES AND IMPORTANT ADDRESSES BOARD OF TRUSTEES DAVID C. ARCH 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 LLP 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM DELOITTE & TOUCHE LLP 180 North Stetson Avenue Chicago, Illinois 60601 For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Trust during its taxable year ended December 31, 2004. For corporate shareholders, 2% of the distributions qualify for the dividends received deduction. Certain dividends paid by the Trust may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Trust intends to designate up to a maximum of $5,081,293 as taxed at a maximum of 15%. 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 VAN KAMPEN INCOME TRUST TRUSTEE AND OFFICER INFORMATION The business and affairs of the Trust are managed under the direction of the Trust's Board of Trustees and the Trust's officers appointed by the Board of Trustees. The tables below list the trustees and 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 (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 (59) Trustee Trustee Chairman and Chief 83 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. Director of the Heartland Alliance, a nonprofit organization serving human needs based in Chicago. Director of St. Vincent de Paul Center, a Chicago based day care facility serving the children of low income families. Board member of the Illinois Manufacturers' Association. Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 81 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.
31
VAN KAMPEN INCOME TRUST TRUSTEE AND OFFICER INFORMATION continued 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 (64) Trustee Trustee President of CAC, L.L.C., 83 Trustee/Director/Managing CAC, L.L.C. since 1997 a private company General Partner of funds 4350 LaJolla Village Drive offering capital in the Fund Complex. Suite 980 investment and management Director of Stericycle, San Diego, CA 92122-6223 advisory services. Prior Inc., Ventana Medical to February 2001, Vice Systems, Inc., and GATX Chairman and Director of Corporation, and Trustee Anixter International, of The Scripps Research Inc., a global Institute and the distributor of wire, University of Chicago cable and communications Hospitals and Health connectivity products. Systems. Prior to January Prior to July 2000, 2004, Director of Managing Partner of TeleTech Holdings Inc. Equity Group Corporate and Arris Group, Inc. Investment (EGI), a Prior to May 2002, company that makes Director of Peregrine private investments in Systems Inc. Prior to other companies. February 2001, Director of 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).
32
VAN KAMPEN INCOME TRUST TRUSTEE AND OFFICER INFORMATION continued 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 (56) Trustee Trustee Managing Partner of 81 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 (52) Trustee Trustee Director and President of 81 Trustee/Director/Managing 1744 R Street, NW since 2003 the German Marshall Fund General Partner of funds Washington, DC 20009 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 (69) Trustee Trustee Prior to 1998, President 83 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.
33
VAN KAMPEN INCOME TRUST TRUSTEE AND OFFICER INFORMATION continued 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 (68) Trustee Trustee President of Nelson 81 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 (64) Trustee Trustee President Emeritus and 83 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, Ph.D. Trustee Trustee Chief Communications 81 Trustee/Director/Managing (63) since 2003 Officer of the National General Partner of funds 815 Cumberstone Road Academy of in the Fund Complex. Harwood, MD 20776 Sciences/National Director of Fluor Corp., Research Council, an an engineering, independent, federally procurement and chartered policy construction institution, from 2001 to organization, since November 2003 and Chief January 2004 and Director Operating Officer from of Neurogen Corporation, 1993 to 2001. Director of a pharmaceutical company, the Institute for Defense since January 1998. Analyses, a federally funded research and development center, Director of the German Marshall Fund of the United States, Director of the Rocky Mountain Institute 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.
34 VAN KAMPEN INCOME TRUST TRUSTEE AND OFFICER INFORMATION continued 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 INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Mitchell M. Merin* (51) Trustee, Trustee President and Chief 81 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.
35
VAN KAMPEN INCOME TRUST TRUSTEE AND OFFICER INFORMATION continued 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 Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 83 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* (65) Trustee Trustee Partner in the law firm 83 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). 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. Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of he and his firm currently providing legal services as legal counsel to such funds in the Fund Complex. 36 VAN KAMPEN INCOME TRUST TRUSTEE AND OFFICER INFORMATION continued 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 Stefanie V. Chang (38) Vice President Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas and Secretary since 2003 Vice President of funds in the Fund Complex. New York, NY 10020 Amy R. Doberman (42) Vice President Officer Managing Director and General Counsel, U.S. Investment 1221 Avenue of the Americas since 2004 Management; Managing Director of Morgan Stanley Investment New York, NY 10020 Management, Inc., Morgan Stanley Investment Advisers Inc. and the Adviser. Vice President of the Morgan Stanley Institutional and Retail Funds since July 2004 and Vice President of funds in the Fund Complex as of August 2004. Previously, Managing Director and General Counsel of Americas, UBS Global Asset Management from July 2000 to July 2004 and General Counsel of Aeitus Investment Management, Inc. from January 1997 to July 2000. James W. Garrett (36) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas and Treasurer since 2005 Chief Financial Officer and Treasurer of the Morgan Stanley New York, NY 10020 Institutional Funds since 2002 and funds in the Fund Complex since January 2005. Joseph J. McAlinden (62) 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., and Morgan Stanley New York, NY 10020 Investment Officer Investment Management Inc. 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.
37
VAN KAMPEN INCOME TRUST TRUSTEE AND OFFICER INFORMATION continued 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 Ronald E. Robison (66) Executive Vice Officer Principal Executive Officer of funds in the Fund Complex 1221 Avenue of the Americas President and since 2003 since May 2003. Chief Executive Officer and Chairman of New York, NY 10020 Principal Executive Investor Services. Executive Vice President and Principal Officer Executive Officer of funds in the Fund Complex. Managing Director of Morgan Stanley. Chief Administrative Officer, Managing Director and Director of Morgan Stanley Investment Advisors Inc., Morgan Stanley Services Company Inc. and Managing Director and Director of Morgan Stanley Distributors Inc. Chief Executive Officer and Director of Morgan Stanley Trust. Executive Vice President and Principal Executive Officer of the Institutional and Retail Morgan Stanley Funds; Director of Morgan Stanley SICAV; previously Chief Global Operations Officer and Managing Director of Morgan Stanley Investment Management Inc. John L. Sullivan (49) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since 1 Parkview Plaza Officer since 1998 August 2004. Director and Managing Director of Van Kampen Oakbrook Terrace, IL 60181 Investments, the Adviser, Van Kampen Advisors Inc. and certain other subsidiaries of Van Kampen Investments. Prior August 2004, Vice President, Chief Financial Officer and Treasurer of funds in the Fund Complex and 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.
38 VAN KAMPEN AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY We are required by federal law to provide you with a copy of our Privacy Policy annually. The following Policy applies to current and former individual clients of Van Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van Kampen Exchange Corp., as well as current and former individual investors in Van Kampen mutual funds, unit investment trusts, and related companies. This Policy is not applicable to partnerships, corporations, trusts or other non-individual clients or account holders, nor is this Policy applicable to individuals who are either beneficiaries of a trust for which we serve as trustee or participants in an employee benefit plan administered or advised by us. This Policy is, however, applicable to individuals who select us to be a custodian of securities or assets in individual retirement accounts, 401(k) accounts, 529 Educational Savings Accounts, accounts subject to the Uniform Gifts to Minors Act, or similar accounts. Please note that we may amend this Policy at any time, and will inform you of any changes to this Policy as required by law. WE RESPECT YOUR PRIVACY We appreciate that you have provided us with your personal financial information. We strive to maintain the privacy of such information while we help you achieve your financial objectives. This Policy describes what non-public personal information we collect about you, why we collect it, and when we may share it with others. We hope this Policy will help you understand how we collect and share non-public personal information that we gather about you. Throughout this Policy, we refer to the non-public information that personally identifies you or your accounts as "personal information." 1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU? To serve you better and manage our business, it is important that we collect and maintain accurate information about you. We may obtain this information from applications and other forms you submit to us, from your dealings with us, from consumer reporting agencies, from our Web sites and from third parties and other sources. For example: -- We may collect information such as your name, address, e-mail address, telephone/fax numbers, assets, income and investment objectives through applications and other forms you submit to us. -- We may obtain information about account balances, your use of account(s) and the types of products and services you prefer to receive from us through your dealings and transactions with us and other sources. -- We may obtain information about your creditworthiness and credit history from consumer reporting agencies. -- We may collect background information from and through third-party vendors to verify representations you have made and to comply with various regulatory requirements. -- If you interact with us through our public and private Web sites, we may collect information that you provide directly through online communications (such as an e-mail address). We may also collect information about your Internet service provider, your domain name, your computer's operating system and Web browser, (continued on back) VAN KAMPEN AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued your use of our Web sites and your product and service preferences, through the use of "cookies." "Cookies" recognize your computer each time you return to one of our sites, and help to improve our sites' content and personalize your experience on our sites by, for example, suggesting offerings that may interest you. Please consult the Terms of Use of these sites for more details on our use of cookies. 2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU? To provide you with the products and services you request, to serve you better and to manage our business, we may disclose personal information we collect about you to our affiliated companies and to non-affiliated third parties as required or permitted by law. A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose personal information that we collect about you to our affiliated companies except to enable them to provide services on our behalf or as otherwise required or permitted by law. B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal information that we collect about you to non-affiliated third parties except to enable them to provide services on our behalf, to perform joint marketing agreements with other financial institutions, or as otherwise required or permitted by law. For example, some instances where we may disclose information about you to non-affiliated third parties include: for servicing and processing transactions, to offer our own products and services, to protect against fraud, for institutional risk control, to respond to judicial process or to perform services on our behalf. When we share personal information with these companies, they are required to limit their use of personal information to the particular purpose for which it was shared and they are not allowed to share personal information with others except to fulfill that limited purpose. 3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE COLLECT ABOUT YOU? We maintain physical, electronic and procedural security measures to help safeguard the personal information we collect about you. We have internal policies governing the proper handling of client information. Third parties that provide support or marketing services on our behalf may also receive personal information, and we require them to adhere to confidentiality standards with respect to such information. The Statement of Additional Information includes additional information about Fund trustees and is available, without charge, upon request by calling 1-800-847-2424. Van Kampen Funds Inc. 1 Parkview Plaza, P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 www.vankampen.com Copyright (C)2004 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 920, 957, 107 VIN ANR 3/05 RN05-00265P-Y12/04 (VAN KAMPEN INVESTMENTS LOGO) 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 amended its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto to delete from the end of the following paragraph on page 2 of the Code the phrase "to the detriment of the Fund.": "Each Covered Officer must not use his personal influence or personal relationship improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly)." Further, due to personnel changes at the Adviser, the list of Covered Officers set forth in Exhibit B and the General Counsel designee to whom questions about the application of the Code should be referred in Exhibit C were amended during the period. Exhibit B was then amended again in February 2005. Both editions of Exhibit B are attached. (d) Not applicable. (e) Not applicable. (f) (1) The Trust's Code of Ethics is attached hereto as Exhibit 11A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Trust's Board of Trustees has determined that it has two "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees : 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:
2004 REGISTRANT COVERED ENTITIES(1) AUDIT FEES....................... $24,780 N/A NON-AUDIT FEES AUDIT-RELATED FEES.......... $0 $198,000(2) TAX FEES.................... $1550(3) $0 ALL OTHER FEES.............. $0 $0 TOTAL NON-AUDIT FEES............. $1550 $198,000 TOTAL............................ $26,330 $198,000
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 ALL OTHER FEES.............. $0 $0 TOTAL NON-AUDIT FEES............. $1,500 $230,000 TOTAL............................ $23,230 $230,000
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 the financial statements of the Covered Entities' and funds advised by the Adviser or its affiliates, specifically attestation services provided in connection with a SAS 70 Report. (3) Tax Fees represent tax advice and compliance services provided in connection with the review of the Registrant's tax. (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 AND AMENDED MAY 26, 2004(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 --------------------------- (1) This Joint Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "Policy"), amended as of the date above, supercedes and replaces all prior versions that may have been amended 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. from the Audit Committee. 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 Audit services in Appendix B.1. All other Audit services not listed in Appendix B.1 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 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 Audit-related services in Appendix B.2. All other Audit-related services not listed in Appendix B.2 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). 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 Tax Services in Appendix B.3. All Tax services involving large and complex transactions not listed in Appendix B.3 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). 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 All Other services in Appendix B.4. Permissible All Other services not listed in Appendix B.4 must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated). A list of the SEC's prohibited non-audit services is attached to this policy as Appendix B.5. 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. 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. A sample report is included as Appendix B.7. 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 Asset Management - Van Kampen Advisors Inc. - Van Kampen Funds Inc. - Van Kampen Investor Services Inc. - Morgan Stanley Investment Management Inc. - Morgan Stanley Trust Company - Morgan Stanley Investment Management Ltd. - Morgan Stanley Investment Management Company - Morgan Stanley Asset & Investment Trust Management Company Ltd. (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 (included herein). (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. (a) The Trust has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: Craig Kennedy, Jerry Choate and Rod Dammeyer. (b) Not applicable. Item 6. Schedule of Investments. Please refer to Item #1. 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. - Selection or ratification of auditors. - Approval of financial statements, director and auditor reports. - Election of Directors. - Limiting Directors' liability and broadening indemnification of Directors. - Requirement that a certain percentage (up to 66 2/3%) of its Board's members be comprised of independent and unaffiliated Directors. - Requirement that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated Directors. - Recommendations to set retirement ages or require specific levels of stock ownership by Directors. - General updating/corrective amendments to the charter. - Elimination of cumulative voting. - Elimination of preemptive rights. - Provisions for confidential voting and independent tabulation of voting results. - 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 - Capitalization changes that eliminate other classes of stock and voting rights. - 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. - Proposals to create a new class of preferred stock or for issuances of preferred stock up to 50% of issued capital. - Proposals for share repurchase plans. - Proposals to reduce the number of authorized shares of common or preferred stock, or to eliminate classes of preferred stock. - Proposals to effect stock splits. - 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 - Director fees, provided the amounts are not excessive relative to other companies in the country or industry. - 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. - Establishment of Employee Stock Option Plans and other employee ownership plans. Anti-Takeover Matters - Modify or rescind existing supermajority vote requirements to amend the charters or bylaws. - 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. - Capitalization changes that add classes of stock which substantially dilute the voting interests of existing shareholders. - Proposals to increase the authorized number of shares of existing classes of stock that carry preemptive rights or supervoting rights. - Creation of "blank check" preferred stock. - Changes in capitalization by 100% or more. - Compensation proposals that allow for discounted stock options that have not been offered to employees in general. - Amendments to bylaws that would require a supermajority shareholder vote to pass or repeal certain provisions. - 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 - 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. - 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. - Shareholders rights plans that allow appropriate offers to shareholders to be blocked by the board or trigger provisions that prevent legitimate offers from proceeding. - 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 - Proposals requiring shareholder ratification of poison pills. - 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: - Requiring auditors to attend the annual meeting of shareholders. - Requirement that members of the company's compensation, nominating and audit committees be comprised of independent or unaffiliated Directors. - Requirement that a certain percentage of its Board's members be comprised of independent and unaffiliated Directors. - Confidential voting. - Reduction or elimination of supermajority vote requirements. 2. The following shareholder proposals will be voted as determined by the Proxy Review Committee. - Proposals that limit tenure of directors. - Proposals to limit golden parachutes. - Proposals requiring directors to own large amounts of stock to be eligible for election. - Restoring cumulative voting in the election of directors. - Proposals that request or require disclosure of executive compensation in addition to the disclosure required by the Securities and Exchange Commission ("SEC") regulations. - Proposals that limit retirement benefits or executive compensation. - Requiring shareholder approval for bylaw or charter amendments. - Requiring shareholder approval for shareholder rights plan or poison pill. - Requiring shareholder approval of golden parachutes. - Elimination of certain anti-takeover related provisions. - Prohibit payment of greenmail. 3. The following shareholder proposals are generally not supported, subject to the review and approval of the Committee, as appropriate. - 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. - 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. - 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. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not Applicable. Item 9. Submission of Matters to a Vote of Security Holders. Not Applicable. Item 10. 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 11. 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 17, 2005 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 17, 2005 By: /s/ James W. Garrett --------------------- Name: James W. Garrett Title: Principal Financial Officer Date: February 17, 2005