-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A0qDm/Dt4aRAnHHDSA9DNixhQsNhtqARZ14zaRMRo7E5cvJ+B2S4P1ZaKCkftlSW 4GDDXyisoKzLnnaTSttRnQ== 0000950137-04-010519.txt : 20041130 0000950137-04-010519.hdr.sgml : 20041130 20041130105125 ACCESSION NUMBER: 0000950137-04-010519 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041130 DATE AS OF CHANGE: 20041130 EFFECTIVENESS DATE: 20041130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN TAX FREE TRUST CENTRAL INDEX KEY: 0000774556 IRS NUMBER: 363324847 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04386 FILM NUMBER: 041173464 BUSINESS ADDRESS: STREET 1: VAN KAMPEN INVESTMENTS INC. STREET 2: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2127625441 MAIL ADDRESS: STREET 1: VAN KAMPEN INVESTMENTS INC. STREET 2: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST DATE OF NAME CHANGE: 19951219 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN MERRITT TAX FREE FUND /IL/ DATE OF NAME CHANGE: 19920703 N-CSR 1 c88768nvcsr.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 811-4386 Van Kampen Tax Free 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: 9/30 Date of reporting period: 9/30/04 Item 1. Reports 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 Insured Tax Free Income Fund 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 fund's financial statements and a list of fund investments as of September 30, 2004. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUS CONTAINS INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 9/30/04 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index from 9/30/94 through 9/30/04. Class A shares, adjusted for sales charges. (LINE GRAPH)
VAN KAMPEN INSURED TAX FREE LEHMAN BROTHERS MUNICIPAL BOND INCOME FUND INDEX --------------------------- ------------------------------ 9/94 9526 10000 12/94 9393 9857 10083 10554 10277 10808 10484 11118 12/95 11036 11577 10791 11438 10854 11526 11142 11790 12/96 11438 12090 11341 12061 11709 12477 12047 12853 12/97 12375 13202 12479 13354 12660 13557 13070 13973 12/98 13074 14057 13139 14181 12782 13931 12572 13876 12/99 12417 13768 12872 14170 13051 14384 13344 14732 12/00 14054 15377 14289 15718 14315 15820 14715 16264 12/01 14595 16165 14677 16317 15230 16914 16081 17717 12/02 16024 17717 16166 17930 16551 18393 16547 18407 12/03 16789 18659 16973 18982 16573 18532 9/04 17245 19254
A SHARES B SHARES C SHARES since 12/14/84 since 5/03/93 since 8/13/93 - -------------------------------------------------------------------------------------------- W/MAX W/MAX W/MAX 4.75% 4.00% 1.00% AVERAGE ANNUAL W/O SALES SALES W/O SALES SALES W/O SALES SALES TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE Since Inception 7.89% 7.63% 4.94% 4.94% 4.54% 4.54% 10-year 6.11 5.60 5.54 5.54 5.29 5.29 5-year 6.52 5.49 5.69 5.45 5.68 5.68 1-year 4.22 -0.73 3.43 -0.54 3.43 2.44 - -------------------------------------------------------------------------------------------- 30-Day SEC Yield 2.81% 2.20% 2.20%
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 AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The returns shown in this report do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance of share classes will vary due to differences in sales charges and expenses. Average annual total return with sales charges includes payment of the maximum sales charge of 4.75 percent for Class A shares, a contingent deferred sales charge of 4.00 percent for Class B shares (in year one and declining to zero after year six), a contingent deferred sales charge of 1.00 percent for Class C shares in year one and combined Rule 12b-1 fees and service fees of up to 0.25 percent for Class A shares and up to 1.00 percent for Class B and C shares. The since inception and 10-year returns for Class B shares reflect their conversion into Class A shares seven years after purchase. The since inception returns for Class C shares reflect their conversion into Class A shares ten years after purchase. See footnote 3 in the Notes to Financial Statements for additional information. Figures shown above assume reinvestment of all dividends and capital gains. SEC yield is a calculation for determining the amount of portfolio income, excluding non-income items as prescribed by the SEC. Yields are subject to change. The Lehman Brothers Municipal Bond Index is generally representative of investment-grade, tax-exempt bonds. The index does not include any expenses, fees or sales charges, which would lower performance. The index is unmanaged and should not be considered an investment. It is not possible to invest directly in an index. Index data source: Lipper Inc. 1 Fund Report FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004 Van Kampen Insured Tax Free Income Fund is managed by the Adviser's Municipal Fixed Income team. Members of the team include James F. Willison, Managing Director of the Adviser; Joseph R. Arcieri, Executive Director of the Adviser; and Joseph A. Piraro, Vice President of the Adviser.(1) MARKET CONDITIONS The interest-rate environment of the 12 months ended September 30, 2004 was marked by two periods of steadily declining yields, with a significant sell-off in the middle. Yields fell steadily through the first half of the period, approaching the historical lows of 2003. This trend persisted until March, at which point yields reversed direction and began an upward march as prices fell. These losses were steepest in April, as a surprisingly strong employment report and signals from members of the Federal Open Market Committee (the "Fed") caused investors to expect a near-term rate increase. Yields went on to decline from May through the end of the period as the market digested the Fed's newly hawkish rate stance. Investors were further comforted when, after the Fed raised rates at its June 30, 2004 meeting, its members indicated that the path of future rate increases would be measured. Unusually, longer-maturity securities largely outperformed in this period of Fed tightening. The typical pattern in periods of tightening policy has been an increase in yields across all maturities. During the review period, however, yields of shorter maturity bonds rose while those of bonds with longer maturities declined slightly. Lower-quality municipal bonds also performed strongly in this environment, as the difference in yields (known as the "yield spread") between AAA and BBB rated bonds decreased by roughly 20 basis points for 20-year bonds. As a result, sectors with heavy exposure to lower-rated debt, such as hospitals and industrial revenue, posted higher total returns than sectors dominated by higher-rated debt. Issuance for the first nine months of 2004 (the final nine months of the review period) was roughly 9 percent lower than in the same period in 2003. That said, 2003 was a record year, and at the current pace of issuance, 2004 could well be one of the largest years in recent memory. This historically strong supply met with faltering demand from mutual funds, as fund investors withdrew over $16 billion in net cash during the period. This was largely offset, however, by increased participation in the market by insurance companies and individual investors. (1)Team members may change at any time without notice. 2 PERFORMANCE ANALYSIS The fund returned 4.22 percent for the 12 months ended September 30, 2004 (Class A shares, unadjusted for sales charge). In comparison, the fund's benchmark index, the Lehman Brothers Municipal Bond Index, returned 4.60 percent for the period. (See table below.) Our interest-rate strategy during the period emphasized maintaining the fund's duration (a measure of its interest-rate sensitivity) below that of the market. This posture limited the fund's participation in the rallies that accompanied the periods of falling yields during the year, though it also protected the fund from the adverse impact of rising rates in the spring of 2004. We remained focused on securities in the 18- to 22-year segment of the yield curve. Most of the fund's purchases here were in securities that, because of their embedded option features, offered the limited interest-rate sensitivity of instruments with shorter maturities. These holdings contributed significantly to the fund's returns as longer-maturity bonds outperformed during the reporting year. The fund remained well diversified across major market sectors. Our approach emphasized bonds from sectors such as public education and public buildings. These sectors are tied to essential ongoing services rather than general tax revenues, and as such are less sensitive to the vagaries of the economic cycle. We also added to the fund's position in airport bonds, which we believed offered compelling relative value. While airlines have suffered from well-publicized troubles in recent months, airports have shown more resiliency. We avoided bonds in the housing sector out of concern over the lack of appealing structures in the new issues that came to the market, and also did not purchase any new health-care bonds due to the lack of improvement in many of the bonds in that sector. There is no guarantee that the securities mentioned will continue to perform well or be held by the fund in the future. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004
- -------------------------------------------------------------- LEHMAN BROTHERS CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX 4.22% 3.43% 3.43% 4.60% - --------------------------------------------------------------
The performance for the three share classes varies because each has different expenses. The fund's total return figures assume the reinvestment of all distributions, but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information and index definition. 3
TOP 5 SECTORS AS OF 9/30/04 Public Education 15.6% Water & Sewer 13.1 Public Building 12.3 Wholesale Electric 11.6 Airport 9.9 SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/04 Illinois 16.0% Texas 15.9 Washington 8.0 Florida 7.2 California 7.1 Colorado 4.2 Pennsylvania 4.2 Indiana 3.5 Louisiana 3.3 New Jersey 2.9 Georgia 2.8 Oklahoma 2.7 New York 2.4 Alabama 1.9 Nevada 1.6 Wisconsin 1.3 North Carolina 1.3 South Dakota 1.3 Michigan 1.1 Arizona 1.0 North Dakota 0.9 South Carolina 0.8 Arkansas 0.8 Ohio 0.7 Oregon 0.6 Missouri 0.6 Massachusetts 0.4 Puerto Rico 0.4 District of Columbia 0.3 Utah 0.3 New Hampshire 0.2 Iowa 0.2 Mississippi 0.2 Nebraska 0.2 New Mexico 0.2 West Virginia 0.1
(continued on next page)
4
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/04 (continued from previous page) Alaska 0.1% Virginia 0.1 Minnesota 0.1 ----- Total Long-Term Investments 96.8% Short-Term Investments 4.0 Liabilities in Excess of Other Assets -0.8 ----- Total Net Assets 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. Sectors are as a percentage of long-term investments. Summary of investments by state classification are as a percentage of net assets. 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. 5 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS Each Van Kampen fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund'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 fund 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 fund files a complete schedule of portfolio holdings with the SEC for the fund'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 1-202-942-8090. 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 fund makes portfolio holdings information available by periodically providing the information on its public web site, www.vankampen.com. Each Van Kampen fund 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. Furthermore, each Van Kampen open-end fund provides partial lists of its portfolio holdings (such as top 10 or top 15 fund holdings) to the public web site each month with a delay of approximately 15 days. You may obtain copies of a fund's fiscal quarter filings, or its monthly or calendar-quarter web site postings, by contacting Van Kampen Client Relations at 1-800-847-2424. 6 HOUSEHOLDING NOTICE To reduce expenses, the fund attempts to eliminate duplicate mailings to the same address. The fund delivers a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. The fund's prospectus and shareholder reports (including annual privacy notices) will be delivered to you in this manner indefinitely unless you instruct us otherwise. You can request multiple copies of these documents by either calling 1-800-341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has received your instructions, we will begin sending individual copies for each account within 30 days. PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD The fund's policies and procedures with respect to the voting of proxies relating to the fund's portfolio securities and information on how the fund 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. 7 Expense Example As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 4/1/04 - 9/30/04. ACTUAL EXPENSE The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads), and redemption fees, or exchange fees.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/04 9/30/04 4/1/04-9/30/04 Class A Actual...................................... $1,000.00 $1,016.08 $4.44 Hypothetical................................ 1,000.00 1,020.60 4.45 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,011.62 8.20 Hypothetical................................ 1,000.00 1,016.80 8.22 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,011.62 8.20 Hypothetical................................ 1,000.00 1,016.80 8.22 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.88%, 1.63%, and 1.63% for Class A, B, and C Shares, respectively, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). Assumes all dividends and distributions were reinvested. 8 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MUNICIPAL BONDS 96.8% ALABAMA 1.9% $ 2,255 Alabama St Brd Ed Rev George C Wallace Cmnty College (AMBAC Insd)......................... 5.250% 07/01/23 $ 2,407,190 1,760 Alabama St Brd Ed Rev Shelton St Cmnty College Rfdg (AMBAC Insd).................... 5.500 10/01/10 1,991,563 1,250 Alabama Wtr Pollution Ctl Auth (AMBAC Insd)........................................ 5.500 08/15/13 1,406,962 1,955 Alabama Wtr Pollutn Ctl Auth Revolving Fd Ln Ser A (Prerefunded 08/15/05) (AMBAC Insd).... 6.750 08/15/17 2,042,095 2,145 Birmingham, AL Wtrwks & Swr Brd Ser A (FGIC Insd)........................................ 5.000 01/01/21 2,274,472 3,120 Huntsville, AL Hlthcare Auth Ser A (MBIA Insd)........................................ 5.400 06/01/22 3,383,453 2,500 Huntsville, AL Hlthcare Auth Ser A (MBIA Insd)........................................ 5.500 06/01/27 2,691,950 1,740 Mobile Cnty, AL Impt Wt & Rfdg (FSA Insd).... 5.250 08/01/18 1,932,531 2,260 Mobile Cnty, AL Impt Wt & Rfdg (FSA Insd).... 5.250 08/01/19 2,496,441 2,540 University South, AL Univ Rev Cap Impt & Rfdg (FGIC Insd).................................. 5.000 03/15/21 2,696,210 -------------- 23,322,867 -------------- ALASKA 0.1% 1,425 Anchorage, AK Wtr Rev Rfdg (AMBAC Insd)...... 6.000 09/01/19 1,629,687 -------------- ARIZONA 1.0% 1,000 Arizona Sch Fac Brd Ctf Part Ser A (MBIA Insd)........................................ 5.250 09/01/17 1,101,720 1,940 Arizona St Univ Ctf Part Resh Infrastructure Proj (AMBAC Insd)............................ 5.250 09/01/23 2,091,553 1,225 Arizona St Univ Ctf Part Resh Infrastructure Proj (AMBAC Insd)............................ 5.250 09/01/24 1,315,564 2,900 Arizona Tourism & Sports Auth Multi Purp Stad Fac Ser A (MBIA Insd)........................ 5.375 07/01/22 3,163,871 895 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig Irvington Proj Tucson Elec Pwr Co Ser A Rfdg (FSA Insd).............................. 7.250 07/15/10 944,493 1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg (AMBAC Insd)................. 6.000 09/01/12 2,091,506 1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg (AMBAC Insd)................. 6.125 09/01/17 1,955,555 -------------- 12,664,262 -------------- ARKANSAS 0.8% 2,500 Arkansas St Dev Fin Auth Rev St Agy Fac Donaghey Plaza Proj (FSA Insd)............... 5.000 06/01/29 2,562,475 6,265 Little Rock, AR Sch Dist Ser B Rfdg (FSA Insd)........................................ 5.500 02/01/25 6,777,853 -------------- 9,340,328 --------------
See Notes to Financial Statements 9 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- CALIFORNIA 7.1% $10,000 California St Dept Wtr Res Pwr Ser A (AMBAC Insd) (a).................................... 5.500% 05/01/16 $ 11,373,900 5,000 California St Dept Wtr Res Pwr Supply Rev Ser A (XLCA Insd)................................ 5.375 05/01/17 5,557,450 3,000 California St Pub Wks Brd UCLA Replacement Hosp Ser A (FSA Insd)........................ 5.375 10/01/20 3,281,190 3,000 California St Pub Wks Brd UCLA Replacement Hosp Ser A (FSA Insd)........................ 5.000 10/01/22 3,141,960 5,000 California Statewide Cmnty Depooled Fin Pg Ser 2004A (FSA Insd)......................... 5.250 10/01/24 5,363,950 3,000 California Statewide Cmnty Pooled Fin Pg Ser 2004A (FSA Insd)............................. 5.000 10/01/29 3,072,360 4,000 California Statewide Cmnty Pooled Fin Pg Ser 2004A (FSA Insd)............................. 5.250 10/01/34 4,168,320 425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC Insd)........................................ 6.700 08/01/21 553,201 3,205 El Dorado, CA Irr Dist Ctf Ser A (FGIC Insd)........................................ 5.000 03/01/21 3,372,365 265 Golden West Sch Fin Auth CA Rev Ser A Rfdg (MBIA Insd).................................. 5.750 08/01/19 317,324 965 Jurupa, CA Univ Sch Dist Election 2001 (FGIC Insd)........................................ 5.000 08/01/26 996,604 1,530 Ontario, CA Ctf Part Wtr Sys Impt Proj (MBIA Insd)........................................ 5.250 07/01/19 1,686,351 1,615 Ontario, CA Ctf Part Wtr Sys Impt Proj (MBIA Insd)........................................ 5.250 07/01/20 1,770,444 2,070 Pacifica, CA Wastewater Rev Rfdg (AMBAC Insd)........................................ 5.250 10/01/23 2,238,125 5,000 Palm Springs, CA Fin Lease Rev Convention Ctr Proj Ser A (MBIA Insd)....................... 5.500 11/01/29 5,479,100 2,475 Poway, CA Ctf Part City Office Bldg Proj (AMBAC Insd)................................. 5.000 01/01/23 2,572,342 2,250 Riverside, CA Ctf Part (AMBAC Insd).......... 5.000 09/01/23 2,344,410 6,705 San Diego, CA Univ Sch Dist Election 1998 Ser F (FSA Insd)................................. 5.000 07/01/28 6,905,412 9,085 San Jose, CA Arpt Rev Ser A Rfdg (FSA Insd)........................................ 5.375 03/01/18 10,105,245 2,785 Santa Monica, CA Cmnty College Ser A Rfdg (AMBAC Insd)................................. 5.000 02/01/27 2,848,442 4,080 Tahoe Truckee, CA Univ Sch Rfdg (MBIA Insd)........................................ 6.000 09/01/20 4,998,530 1,950 Vallejo City, CA Uni Sch Ser A Rfdg (MBIA Insd)........................................ 5.900 08/01/25 2,341,716 2,000 William S Hart CA Jt Sch Fin Auth Spl Tax Rev Cmnty Fac Rfdg (FSA Insd).................... 6.500 09/01/14 2,124,500 -------------- 86,613,241 --------------
10 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- COLORADO 4.2% $ 3,745 Colorado Ed & Cultural Fac Charter Sch Aurora Academy (XLCA Insd).......................... 5.000% 02/15/34 $ 3,900,380 1,035 Colorado St Colleges Brd Ser B Rfdg (MBIA Insd)........................................ 5.000 05/15/22 1,087,081 11,850 Denver, CO City & Cnty Arpt Rev Ser A (MBIA Insd)........................................ 5.700 11/15/25 12,472,717 3,605 Denver, CO City & Cnty Arpt Rev Ser B (XLCA Insd)........................................ 5.750 11/15/16 4,111,286 4,310 Denver, CO City & Cnty Arpt Rev Ser B (XLCA Insd)........................................ 5.750 11/15/17 4,901,116 4,505 Denver, CO City & Cnty Arpt Rev Ser B (XLCA Insd)........................................ 5.750 11/15/18 5,111,778 5,345 Denver, CO City & Cnty Arpt Rev Ser B (XLCA Insd)........................................ 5.750 11/15/20 6,025,632 3,165 Denver, CO Convention Ctr Sr Ser A (XLCA Insd)........................................ 5.000 12/01/17 3,396,995 2,000 Denver, CO Convention Ctr Sr Ser A (XLCA Insd)........................................ 5.000 12/01/22 2,082,720 2,000 Fremont Cnty, CO Ctf Part & Impt Ser A Rfdg (MBIA Insd).................................. 5.250 12/15/26 2,114,240 1,175 Thornton, CO Ctf Part (AMBAC Insd)........... 5.375 12/01/19 1,306,647 3,080 Thornton, CO Ctf Part (AMBAC Insd)........... 5.375 12/01/21 3,348,976 1,650 Thornton, CO Ctf Part (AMBAC Insd)........... 5.375 12/01/22 1,785,762 -------------- 51,645,330 -------------- DISTRICT OF COLUMBIA 0.3% 1,000 District of Columbia Ctf Part Dist Pub Safety & Emergency (AMBAC Insd)..................... 5.500 01/01/19 1,107,240 2,000 District of Columbia Ctf Part Dist Pub Safety & Emergency (AMBAC Insd)..................... 5.500 01/01/20 2,204,760 -------------- 3,312,000 -------------- FLORIDA 7.2% 1,000 Brevard Cnty, FL Sch Brd Ctf Part Ser A (AMBAC Insd)................................. 5.400 07/01/12 1,140,730 7,055 Broward Cnty, FL Sch Brd Ctf (MBIA Insd)..... 5.250 07/01/17 7,790,907 500 Dade Cnty, FL Aviation Rev Ser B (MBIA Insd)........................................ 5.600 10/01/26 534,985 1,000 Dade Cnty, FL Ed Fac Auth Rev Exchanged From Univ of Miami Ser B (MBIA Insd).............. 5.750 04/01/20 1,071,410 750 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC Insd)........................................ 5.375 10/01/16 825,810 1,250 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC Insd)........................................ 5.950 07/01/20 1,288,388 1,000 Escambia Cnty, FL Util Auth Util Sys Rev (FGIC Insd).................................. 5.250 01/01/24 1,059,440 1,000 Florida Intergovnmtl Fin Ser C1 (AMBAC Insd)........................................ 5.125 02/01/31 1,024,370 575 Florida Muni Ln Council Rev Ser B (MBIA Insd)........................................ 5.750 11/01/14 659,813
See Notes to Financial Statements 11 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- FLORIDA (CONTINUED) $ 1,185 Florida St Brd of Ed Cap Outlay Pub Ed Ser C (FGIC Insd).................................. 5.000% 06/01/23 $ 1,237,460 2,000 Florida St Brd of Ed Cap Outlay Pub Ed Ser C (FGIC Insd).................................. 5.750 06/01/29 2,222,360 1,250 Florida St Brd of Ed Lottery Rev Ser A (FGIC Insd)........................................ 6.000 07/01/12 1,448,275 1,000 Florida St Brd of Ed Lottery Rev Ser A (FGIC Insd)........................................ 6.000 07/01/14 1,158,620 2,750 Florida St Brd of Ed Lottery Rev Ser B (FGIC Insd)........................................ 5.250 07/01/13 3,034,845 750 Florida St Brd of Regt Hsg Rev (MBIA Insd)... 5.750 07/01/14 857,798 1,365 Florida St Correctional Privatization Commn Ctf Part (MBIA Insd)......................... 5.375 08/01/14 1,541,931 1,750 Florida St Div Bd Fin Dept Gen Svc Rev Dept Environmental Prot Presvtn 2000 Ser A (AMBAC Insd)........................................ 5.000 07/01/12 1,890,000 1,500 Florida St Div Bd Fin Dept Gen Svc Rev Dept Environmental Prot Presvtn 2000 Ser B (FSA Insd)........................................ 5.250 07/01/11 1,655,370 1,000 Florida St Muni Pwr Agy Rev Stanton Proj Rfdg (FSA Insd)................................... 5.500 10/01/14 1,139,820 500 Gulf Breeze, FL Rev Loc Govt (Variable Rate Coupon) (FGIC Insd).......................... 5.650 12/01/20 545,300 1,340 Gulf Breeze, FL Rev Loc Govt (Variable Rate Coupon) (FGIC Insd).......................... 5.150 12/01/20 1,452,654 1,480 Hillsborough Cnty, FL Sch Brd (AMBAC Insd)... 5.375 10/01/16 1,655,898 1,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd)........................................ 6.100 10/01/18 1,093,300 1,000 Jacksonville, FL Cap Impt Rev Crossover Ser B Rfdg (AMBAC Insd)............................ 5.250 10/01/14 1,126,060 1,750 Jea, FL Wtr & Swr Sys Rev Ser A (MBIA Insd)........................................ 5.375 10/01/30 1,835,908 1,000 Key West, FL Util Brd Elec Rev Cap Apprec Ser D (Escrowed to Maturity) (AMBAC Insd)........ * 10/01/13 708,480 1,000 Miami-Dade Cnty, FL Hlth Fac Miami Childrens Hosp Ser A Rfdg (AMBAC Insd)................. 5.125 08/15/26 1,031,970 1,000 Orange Cnty, FL Sch Brd Ctf Part Ser A (AMBAC Insd)........................................ 5.250 08/01/14 1,119,230 1,000 Orlando, FL Cmnty Redev Agy Tax Rep Drive Universal Blvd Rfdg (AMBAC Insd)............. 5.125 04/01/20 1,067,290 1,000 Palm Beach Cnty, FL Sch Brd Ctf Ser A (AMBAC Insd)........................................ 5.500 08/01/16 1,113,330 4,180 Palm Beach Cnty, FL Sch Brd Ctf Ser A (AMBAC Insd)........................................ 5.000 08/01/18 4,515,821 800 Palm Beach Cnty, FL Sch Brd Ctf Ser A (AMBAC Insd)........................................ 5.125 08/01/26 829,720
12 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- FLORIDA (CONTINUED) $ 4,000 Palm Beach Cnty, FL Sch Brd Ctf Ser C (FSA Insd)........................................ 5.000% 08/01/21 $ 4,221,120 4,000 Palm Beach Cnty, FL Sch Brd Ctf Ser C (FSA Insd)........................................ 5.000 08/01/22 4,199,320 750 Polk Cnty, FL Sch Brd Ctf Part Master Lease Ser A (FSA Insd)............................. 5.500 01/01/16 829,118 1,000 Port Saint Lucie, FL Spl Assmt Rev Util Svc Area No 3 & 4A (MBIA Insd)................... 5.000 10/01/18 1,074,060 1,000 Reedy Creek, FL Impt Dist FL Ser 2 Rfdg (MBIA Insd)........................................ 5.500 10/01/13 1,126,190 535 Saint Johns Cnty, FL Indl Dev Auth Professional Golf Proj Rfdg (MBIA Insd)...... 5.250 09/01/12 601,024 1,000 Saint Lucie Cnty, FL Sch Brd Ctf Ser A (FSA Insd)........................................ 5.000 07/01/21 1,052,750 3,245 Santa Rosa Bay Brdg Auth FL Rev Cap Apprec (MBIA Insd).................................. * 07/01/18 1,756,064 1,515 Seminole Cnty, FL Sales Tax Rev (FGIC Insd)........................................ 5.375 10/01/16 1,683,498 4,000 Sunrise, FL Util Sys Rev Rfdg (AMBAC Insd)... 5.200 10/01/22 4,447,600 10,000 Tallahassee, FL Hlth Fac Rev Tallahassee Mem Regl Med Ser A Rfdg (MBIA Insd) (a).......... 6.625 12/01/13 10,278,400 1,000 Village Ctr Cmnty Dev Dist FL Ser A (MBIA Insd)........................................ 5.200 11/01/25 1,052,720 3,735 Volusia Cnty, FL Ed Fac Auth Rev Ed Fac Embry Riddle Ser B Rfdg (AMBAC Insd)............... 5.250 10/15/19 4,107,641 1,000 Volusia Cnty, FL Ed Fac Auth Rev Ed Fac Embry Riddle Ser B Rfdg (AMBAC Insd)............... 5.250 10/15/22 1,076,220 500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp Fac Mem Hlth Impt & Rfdg (AMBAC Insd)............ 5.750 11/15/13 512,340 -------------- 87,695,358 -------------- GEORGIA 2.8% 1,600 Athens, GA Hsg Auth Student East Campus Hsg Rfdg (AMBAC Insd)............................ 5.250 12/01/18 1,771,248 2,150 Georgia Muni Elec Auth Pwr Rev Cap Apprec Gen Ser B (BIGI Insd)............................ * 01/01/08 1,976,087 14,690 Georgia Muni Elec Auth Pwr Rev Ser Y (AMBAC Insd)........................................ 6.400 01/01/13 17,390,022 9,590 Georgia Muni Elec Auth Pwr Rev Ser Y (MBIA Insd)........................................ 6.500 01/01/17 11,762,710 860 Georgia Muni Elec Auth Pwr Rev Ser Y (Escrowed to Maturity) (AMBAC Insd).......... 6.400 01/01/13 1,022,566 410 Georgia Muni Elec Auth Pwr Rev Ser Y (Escrowed to Maturity) (MBIA Insd)........... 6.500 01/01/17 504,940 -------------- 34,427,573 --------------
See Notes to Financial Statements 13 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- ILLINOIS 16.0% $ 4,330 Berwyn, IL Rfdg (AMBAC Insd)................. 5.000% 12/01/13 $ 4,807,512 2,215 Bolingbrook, IL Cap Apprec Ser C Rfdg (MBIA Insd)........................................ * 01/01/19 1,143,981 2,595 Bolingbrook, IL Cap Apprec Ser C Rfdg (MBIA Insd)........................................ * 01/01/20 1,262,493 6,225 Chicago, IL Brd of Ed Cap Apprec Sch Reform B 1 (FGIC Insd)................................ * 12/01/15 3,870,456 2,845 Chicago, IL Brd of Ed Cap Apprec Sch Reform B 1 (FGIC Insd)................................ * 12/01/19 1,408,218 1,500 Chicago, IL Brd of Ed Cap Apprec Sch Reform Ser A (FGIC Insd)............................ * 12/01/19 742,470 1,020 Chicago, IL Brd of Ed Cap Apprec Sch Reform Ser A (FGIC Insd)............................ * 12/01/25 344,056 8,000 Chicago, IL Brd of Ed Cap Apprec Sch Reform Ser A (FGIC Insd)............................ * 12/01/29 2,113,040 3,250 Chicago, IL Brd of Ed Cap Apprec Sch Reform Ser A (FGIC Insd)............................ * 12/01/30 806,748 2,000 Chicago, IL Lakefront Millenium Pkg Fac (MBIA Insd) (b).................................... 0/5.700 01/01/25 1,978,600 2,000 Chicago, IL Lakefront Millenium Pkg Fac (MBIA Insd) (b).................................... 0/5.750 01/01/29 1,957,120 2,840 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser E Rfdg (CIFG Insd)............ 5.250 01/01/21 3,054,079 2,975 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser E Rfdg (CIFG Insd)............ 5.250 01/01/22 3,180,483 3,120 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser E Rfdg (CIFG Insd)............ 5.250 01/01/23 3,315,905 3,280 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser E Rfdg (CIFG Insd)............ 5.250 01/01/24 3,473,192 5,000 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser E Rfdg (CIFG Insd)............ 5.000 01/01/34 5,086,750 8,750 Chicago, IL O'Hare Intl Arpt Rev Rols RR II 239-2 (Inverse Fltg) (AMT) (FSA Insd)........ 9.664 01/01/20 10,647,875 10,000 Chicago, IL O'Hare Intl Arpt Rev Rols RR II 239-3 (Inverse Fltg) (AMT) (FSA Insd)........ 9.664 01/01/21 12,104,700 2,500 Chicago, IL Pk Dist Ser C (FGIC Insd)........ 5.500 01/01/19 2,804,625 10,000 Chicago, IL Proj Ser A Rfdg (FGIC Insd)...... 5.375 01/01/34 10,580,500 5,000 Chicago, IL Proj Ser A Rfdg (MBIA Insd)...... 5.500 01/01/38 5,387,250 5,000 Chicago, IL Proj Ser A Rfdg (AMBAC Insd)..... 5.625 01/01/39 5,455,200 1,270 Chicago, IL Wtr Rev Cap Apprec (FGIC Insd)... * 11/01/10 1,032,002 2,055 Cook Cnty, IL Cmnty Cons Sch Dist No 015 Palatine Cap Apprec (FSA Insd)............... * 12/01/10 1,660,707 1,505 Cook Cnty, IL Sch Dist No 100 Berwyn South (FSA Insd)................................... 8.200 12/01/14 2,075,154 1,775 Cook Cnty, IL Sch Dist No 100 Berwyn South (FSA Insd)................................... 8.100 12/01/16 2,483,882
14 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 2,605 Cook Cnty, IL Sch Dist No 122 Cap Apprec (FGIC Insd).................................. * 12/01/17 $ 1,442,284 2,995 Cook Cnty, IL Sch Dist No 122 Cap Apprec (FGIC Insd).................................. * 12/01/18 1,565,756 4,210 Cook Cnty, IL Sch Dist No 122 Cap Apprec (FGIC Insd).................................. * 12/01/19 2,077,719 4,050 Cook Cnty, IL Sch Dist No 122 Cap Apprec (FGIC Insd).................................. * 12/01/20 1,880,901 3,000 Du Page Cnty, IL Cmnty High Sch (FSA Insd)... 5.600% 01/01/22 3,303,570 2,000 Du Page Cnty, IL Cmnty High Sch Rfdg (FSA Insd)........................................ 5.000 12/01/17 2,177,000 1,860 Grundy Kendall & Will Cntys (AMBAC Insd)..... 5.500 05/01/20 2,062,405 1,180 Grundy Kendall & Will Cntys (AMBAC Insd)..... 5.500 05/01/21 1,299,333 10,000 Illinois Dev Fin Auth Pollutn Ctl Rev Comwlth Edison Co Proj Ser D Rfdg (AMBAC Insd)....... 6.750 03/01/15 10,394,900 35,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co Proj Ser B First Mtg Rfdg (MBIA Insd)..... 7.400 12/01/24 36,026,200 2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford Sch 205 (FSA Insd).................. 6.650 02/01/11 2,389,860 5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford Sch 205 (FSA Insd).................. 6.650 02/01/12 5,526,545 2,000 Illinois Med Dist (MBIA Insd)................ 5.250 06/01/32 2,084,520 3,500 Illinois Muni Elec Agy Pwr Supply Sys Rev Rfdg (FSA Insd).............................. 5.000 02/01/21 3,665,725 755 Kane Cook & Du Page Cntys IL Ser A (FGIC Insd)........................................ 7.000 12/15/11 931,164 1,000 Kane Cook & Du Page Cntys IL Ser A (FGIC Insd)........................................ 7.000 12/15/12 1,250,120 1,200 Lake Cnty, IL Cmnty Cons Sch Dist No 50 Woodland Cap Apprec Ser B (FGIC Insd)........ * 12/01/14 785,556 2,500 Lake Cnty, IL Cmnty Cons Sch Dist No 50 Woodland Ser A (FGIC Insd)................... 6.000 12/01/20 2,788,450 6,790 Lake Cnty, IL Cmnty Unit Sch Dist No 60 Waukegan Cap Apprec Ser A (FSA Insd)......... * 12/01/17 3,759,351 3,175 Lake Cnty, IL Cmnty Unit Sch Dist No 95 Lake Zurich Cap Apprec (FGIC Insd)................ * 12/01/15 1,969,802 3,000 McHenry & Kane Cnty, IL Cmnty Cons Sch Dist No 158 Cap Apprec (FGIC Insd)................ * 01/01/17 1,730,760 4,000 McHenry & Kane Cnty, IL Cmnty Cons Sch Dist No 158 Cap Apprec (FGIC Insd)................ * 01/01/18 2,180,800 2,080 McHenry Cnty, IL Cmnty High Sch Dist No 154 Cap Apprec (FGIC Insd)....................... * 01/01/16 1,270,381 1,000 McHenry Cnty, IL Consv Dist Ser A (FGIC Insd)........................................ 5.500 02/01/16 1,115,130 1,330 McHenry Cnty, IL Consv Dist Ser A (FGIC Insd)........................................ 5.500 02/01/17 1,483,123
See Notes to Financial Statements 15 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 6,000 Metropolitan Pier & Expo Auth IL Dedicated St Tax Rev McCormick Pl Expn Ser A (MBIA Insd).. 5.250% 06/15/42 $ 6,213,660 1,000 Southern IL Univ Rev Cap Apprec Hsg & Aux Ser A (MBIA Insd)................................ * 04/01/20 480,790 1,495 Will Cnty, IL Sch Dist No 017 (AMBAC Insd)... 5.000 12/01/16 1,624,183 -------------- 196,256,986 -------------- INDIANA 3.5% 1,000 Ball St Univ IN Rev Student Fee Ser L (FSA Insd)........................................ 5.500 07/01/20 1,161,860 2,000 Brownsburg, IN Sch Bldg First Mtg 1999 Ser A (FSA Insd)................................... 5.250 09/15/22 2,148,440 1,785 Center Grove, IN 2000 Bldg First Mtg (AMBAC Insd)........................................ 5.500 07/15/17 2,001,324 1,885 Center Grove, IN 2000 Bldg First Mtg (AMBAC Insd)........................................ 5.500 07/15/18 2,113,443 2,500 Evansville Vanderburgh, IN Pub Lease Corp First Mtg (MBIA Insd)........................ 5.750 07/15/18 2,794,275 1,855 Hamilton Southeastern, IN Cons First Mtg (FSA Insd)........................................ 5.500 07/15/16 2,079,807 1,075 Hamilton Southeastern, IN Cons First Mtg (FSA Insd)........................................ 5.500 01/15/19 1,205,279 1,320 Indiana Bd Bk Spl Pgm Ser A (Escrowed to Maturity) (AMBAC Insd)....................... 9.750 08/01/09 1,567,223 765 Indianapolis, IN Loc Pub Impt Ser B (FSA Insd)........................................ 5.000 01/15/20 806,065 2,335 Lake Cnty, IN Bldg Corp First Mtg (MBIA Insd)........................................ 5.750 08/01/11 2,656,226 2,670 Marion Cnty, IN Convention & Rec Lease Rent Ser A Rfdg (AMBAC Insd)...................... 5.000 06/01/20 2,822,724 1,550 Marion Cnty, IN Convention & Rec Lease Rent Ser A Rfdg (AMBAC Insd)...................... 5.000 06/01/21 1,628,306 1,605 Mount Vernon of Hancock Cnty First Mtg Ser B (AMBAC Insd)................................. 5.500 07/15/16 1,799,510 1,695 Mount Vernon of Hancock Cnty First Mtg Ser B (AMBAC Insd)................................. 5.500 07/15/17 1,900,417 4,000 New Albany Floyd Cnty, IN Sch First Mtg (FGIC Insd)........................................ 5.750 07/15/20 4,600,640 9,400 New Albany Floyd Cnty, IN Sch First Mtg (FGIC Insd)........................................ 5.125 01/15/27 9,754,380 2,130 Northwest Allen Cnty, IN First Mtg (MBIA Insd)........................................ 5.250 07/15/19 2,323,106 -------------- 43,363,025 --------------
16 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- IOWA 0.2% $ 2,375 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp Proj (FSA Insd).............................. 5.750% 07/01/17 $ 2,616,300 -------------- LOUISIANA 3.3% 4,065 Calcasieu Parish, LA Mem Hosp Svc Dist Hosp Rev Lake Charles Mem Hosp Proj Ser A (Connie Lee Insd).................................... 6.375 12/01/12 4,857,025 5,530 Calcasieu Parish, LA Mem Hosp Svc Dist Hosp Rev Lake Charles Mem Hosp Proj Ser A (Connie Lee Insd).................................... 6.500 12/01/18 6,914,657 1,375 Greater New Orleans Expwy Impt Rfdg (AMBAC Insd)........................................ 5.250 11/01/15 1,536,453 1,450 Greater New Orleans Expwy Impt Rfdg (AMBAC Insd)........................................ 5.250 11/01/16 1,614,343 1,525 Greater New Orleans Expwy Impt Rfdg (AMBAC Insd)........................................ 5.250 11/01/17 1,691,652 8,345 Lafayette, LA Util Rev (MBIA Insd)........... 5.250 11/01/24 8,977,301 1,930 Louisiana Loc Govt Environment BRCC Fac Corp Proj (MBIA Insd)............................. 5.375 12/01/16 2,176,615 2,035 Louisiana Loc Govt Environment BRCC Fac Corp Proj (MBIA Insd)............................. 5.375 12/01/17 2,286,750 2,150 Louisiana Loc Govt Environment BRCC Fac Corp Proj (MBIA Insd)............................. 5.375 12/01/18 2,406,130 2,265 Louisiana Loc Govt Environment BRCC Fac Corp Proj (MBIA Insd)............................. 5.375 12/01/19 2,524,184 2,395 Louisiana Loc Govt Environment BRCC Fac Corp Proj (MBIA Insd)............................. 5.375 12/01/20 2,623,315 2,000 Louisiana St Office Facs Corp Lease St Capital Complex Pg Rfdg (MBIA Insd).......... 5.250 11/01/18 2,196,000 1,870 New Orleans, LA Home Mtg Auth Single Family Mtg Rev 1985 Ser A (MBIA Insd)............... * 09/15/16 538,747 -------------- 40,343,172 -------------- MASSACHUSETTS 0.4% 3,000 Massachusetts Muni Whsl Elec Co Nuclear Mix 1-A (MBIA Insd).............................. 5.250 07/01/13 3,353,400 1,875 Massachusetts Muni Whsl Elec Co Proj No 6-A (MBIA Insd).................................. 5.250 07/01/16 2,069,513 -------------- 5,422,913 -------------- MICHIGAN 1.1% 2,500 Detroit, MI Ser A-1 (AMBAC Insd)............. 5.250 04/01/24 2,670,600 1,400 Huron, MI Sch Dist (FSA Insd)................ 5.250 05/01/21 1,516,578 2,500 Michigan St Strategic Fd Ltd Oblig Rev Detroit Ed Conv Rfdg (Variable Rate Coupon) (AMBAC Insd)................................. 4.850 09/01/30 2,708,625
See Notes to Financial Statements 17 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MICHIGAN (CONTINUED) $ 2,675 Wayne Charter Cnty, MI Arpt Rev Ser C Rfdg (FGIC Insd).................................. 5.375% 12/01/17 $ 2,982,893 2,840 Wayne Charter Cnty, MI Arpt Rev Ser C Rfdg (FGIC Insd).................................. 5.375 12/01/20 3,116,957 -------------- 12,995,653 -------------- MINNESOTA 0.1% 1,000 Brainerd, MN Rev Evangelical Lutheran Ser B Rfdg (FSA Insd).............................. 6.650 03/01/17 1,000,560 -------------- MISSISSIPPI 0.2% 1,000 Harrison Cnty, MS Wastewtr Mgmt & Solid Wastewtr Treatment Fac Ser A Rfdg (FGIC Insd)........................................ 5.500 02/01/08 1,098,720 1,000 Harrison Cnty, MS Wastewtr Mgmt & Solid Wastewtr Treatment Fac Ser A Rfdg (FGIC Insd)........................................ 8.500 02/01/13 1,354,660 -------------- 2,453,380 -------------- MISSOURI 0.5% 1,170 Mehlville, MO Sch Dist No R-9 Ctf Part Ser A (FSA Insd)................................... 5.500 03/01/16 1,304,878 1,225 Mehlville, MO Sch Dist No R-9 Ctf Part Ser A (FSA Insd)................................... 5.500 03/01/17 1,366,218 1,695 Saint Louis Cnty MO Regl Conv & Sports Complex Auth Convtn & Sports Fac Rfdg (AMBAC Insd)........................................ 5.250 08/15/17 1,871,212 1,990 Saint Louis, MO Arpt Rev Cap Impt Pgm Ser A (MBIA Insd).................................. 5.375 07/01/17 2,213,477 -------------- 6,755,785 -------------- NEBRASKA 0.2% 1,930 Dodge Cnty, NE Sch Dist No 001 Rfdg (FSA Insd) (c).................................... 5.000 12/15/17 2,103,025 -------------- NEVADA 1.6% 5,020 Clark Cnty, NV Arpt Rev Rols RR II 292-3 (Inverse Fltg) (AMT) (FGIC Insd)............. 9.156 07/01/22 5,841,925 10,000 Director St, NV Dept Business & Ind Las Vegas Monorail Proj First Tier (AMBAC Insd)........ 5.625 01/01/32 10,949,300 2,500 Reno, NV Cap Impt Rev (FGIC Insd)............ 5.125 06/01/26 2,585,150 -------------- 19,376,375 -------------- NEW HAMPSHIRE 0.2% 2,500 New Hampshire St Tpk Sys Rev Ser C Rfdg (Inverse Fltg) (FGIC Insd)................... 12.364 11/01/17 3,054,075 --------------
18 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- NEW JERSEY 2.9% $ 4,000 Essex Cnty, NJ Impt Auth Rev Cnty Gtd Proj Consldtn Rfdg (MBIA Insd) (c)................ 5.125% 10/01/22 $ 4,291,200 3,625 Morristown, NJ Rfdg (FSA Insd)............... 6.400 08/01/14 3,833,583 4,000 New Jersey Econ Dev Auth Motor Vehicle Surp Rev Ser A (MBIA Insd)........................ 5.000 07/01/23 4,212,720 10,000 New Jersey St Trans Corp Ctf Fed Trans Admin Grants Ser A (AMBAC Insd).................... 5.500 09/15/13 11,425,600 3,840 New Jersey St Trans Tr Fd Auth Trans Sys Ser A (FGIC Insd)................................ 5.250 06/15/19 4,234,176 4,000 New Jersey St Trans Tr Fd Auth Trans Sys Ser C (FSA Insd)................................. 5.500 06/15/20 4,435,760 2,760 Newark, NJ Hsg Auth Port Auth Newark Marine Term (MBIA Insd)............................. 5.500 01/01/28 2,999,458 -------------- 35,432,497 -------------- NEW MEXICO 0.2% 2,000 New Mexico Fin Auth Rev Pub Proj Revolving Fd Ser C (AMBAC Insd) (c)....................... 5.000 06/01/24 2,089,560 -------------- NEW YORK 2.4% 5,470 New York City Hlth & Hosp Hlth Sys Ser A (FSA Insd)........................................ 5.000 02/15/21 5,750,119 14,000 New York City Muni Wtr Fin Auth Ser B (MBIA Insd)........................................ 5.500 06/15/27 14,939,820 5,000 New York City Ser I (MBIA Insd).............. 5.000 08/01/17 5,451,900 3,105 New York St Dorm Auth Rev Insd Brooklyn Law Sch Ser B (XLCA Insd)........................ 5.375 07/01/21 3,413,854 -------------- 29,555,693 -------------- NORTH CAROLINA 1.3% 1,540 North Carolina Cap Fac Fin Johnson & Wales Univ Proj Ser A (XLCA Insd).................. 5.000 04/01/20 1,626,764 10,000 North Carolina Muni Pwr Agy Ser A (MBIA Insd)........................................ 5.250 01/01/18 10,918,400 2,835 North Carolina Muni Pwr Agy Ser A (MBIA Insd)........................................ 5.250 01/01/19 3,082,864 -------------- 15,628,028 -------------- NORTH DAKOTA 0.9% 5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope Vly Station Rfdg (AMBAC Insd).................... 7.200 06/30/13 6,137,000 5,000 Oliver Cnty, ND Pollutn Ctl Rev Square Butte Elec Coop Ser A Rfdg (AMBAC Insd)............ 5.300 01/01/27 5,187,650 -------------- 11,324,650 --------------
See Notes to Financial Statements 19 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- OHIO 0.7% $ 1,000 Chillicothe, OH City Sch Dist Sch Impt (FGIC Insd)........................................ 5.250% 12/01/26 $ 1,067,760 5,000 Columbus, OH City Sch Dist Sch Fac Constr & Impt (FSA Insd).............................. 5.250 12/01/27 5,321,500 1,695 Mason, OH City Sch Dist Sch Impt (FSA Insd)........................................ 5.000 12/01/24 1,772,258 -------------- 8,161,518 -------------- OKLAHOMA 2.7% 3,090 Jenks, OK Aquarium Auth Rev Rfdg (MBIA Insd)........................................ 5.250 07/01/19 3,418,869 1,480 Jenks, OK Aquarium Auth Rev Rfdg (MBIA Insd)........................................ 5.250 07/01/33 1,564,908 1,000 McAlester, OK Pub Wks Auth Util Cap Apprec (FSA Insd)................................... * 02/01/34 216,290 8,320 McAlester, OK Pub Wks Auth Util Cap Apprec Ser A (FSA Insd)............................. * 02/01/30 2,036,736 5,660 Mustang, OK Impt Auth Util Rev (FSA Insd).... 5.800 10/01/30 6,325,673 2,020 Oklahoma City, OK Arpt Tr Jr Lien 27th Ser A (FSA Insd)................................... 5.000 07/01/17 2,168,490 2,000 Oklahoma Colleges Brd Regt Stad Univ Cent OK Ser B (AMBAC Insd)........................... 5.500 06/01/24 2,210,620 4,000 Sapulpa, OK Muni Auth Cap Impt Rev Rfdg (Prerefunded @ 07/01/10) (FSA Insd).......... 5.750 07/01/30 4,623,360 2,000 Tulsa, OK Cmnty College Rev (AMBAC Insd)..... 5.500 07/01/22 2,203,140 8,260 Tulsa, OK Tulsa Indl Auth Rev Univ Tulsa Ser A (MBIA Insd)................................ 5.375 10/01/31 8,788,723 -------------- 33,556,809 -------------- OREGON 0.6% 1,000 Emerald Peoples Util Dist Ser A Rfdg (FSA Insd)........................................ 5.250 11/01/21 1,088,450 4,835 Oregon St Dept Admin Ser B Rfdg (MBIA Insd)........................................ 5.250 05/01/17 5,339,049 600 Portland, OR Arpt Rev Ser 15 Intl Arpt Ser A Rfdg (FGIC Insd)............................. 5.000 07/01/13 654,828 -------------- 7,082,327 -------------- PENNSYLVANIA 4.2% 5,000 Allegheny Cnty, PA Hosp Dev Auth Rev Insd Hlth Sys Ser A (MBIA Insd)................... 6.500 11/15/30 5,874,100 4,875 Allegheny Cnty, PA Hosp Dev Auth Rev Pittsburgh Mercy Hlth Sys Inc (Escrowed to Maturity) (AMBAC Insd)....................... 5.625 08/15/26 5,217,615 10,000 Harrisburg, PA Res Gtd Sub Ser D-2 (Variable Rate Coupon) (FSA Insd)...................... 5.000 12/01/33 11,018,900 3,000 Lycoming Cnty, PA Auth College Rev PA College of Technology (AMBAC Insd)................... 5.350 07/01/26 3,202,590
20 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- PENNSYLVANIA (CONTINUED) $ 1,375 Pennsylvania St Higher Ed Fac Auth Rev St Sys Higher Ed Ser P (AMBAC Insd)................. 5.000% 12/15/16 $ 1,461,075 2,990 Philadelphia, PA Gas Wks Rev 1998 Gen Ordinance 4th Ser (FSA Insd) (c)............. 5.250 08/01/18 3,271,568 4,555 Philadelphia, PA Gas Wks Rev 1998 Gen Ordinance 4th Ser (FSA Insd) (c)............. 5.250 08/01/21 4,906,509 1,485 Philadelphia, PA Gas Wks Rev Eighteenth Ser (AGC) (c).................................... 5.250 08/01/20 1,594,266 5,000 Philadelphia, PA Gas Wks Rev Fifth Ser A-1 (FSA Insd) (c)............................... 5.000 09/01/33 5,105,300 3,665 Philadelphia, PA Gas Wks Rev Fifth Ser A-1 (AGC) (c).................................... 5.250 09/01/17 4,001,300 5,000 State Pub Sch Bldg Auth PA Sch Lease Philadelphia Sch Dist Proj (FSA Insd)........ 5.250 06/01/26 5,275,600 -------------- 50,928,823 -------------- SOUTH CAROLINA 0.8% 2,430 Columbia, SC Ctf Part Tourism Dev Fee Pledge (AMBAC Insd)................................. 5.250 06/01/19 2,653,341 6,500 South Carolina Jobs Econ Dev Auth Indl Rev Elec & Gas Co Proj Ser A (AMBAC Insd)........ 5.200 11/01/27 6,799,000 -------------- 9,452,341 -------------- SOUTH DAKOTA 1.3% 1,065 Minnehaha Cnty, SD Ctf Ltd Tax (FSA Insd) (c).......................................... 5.000 12/01/14 1,177,539 1,245 Minnehaha Cnty, SD Ctf Ltd Tax (FSA Insd) (c).......................................... 5.000 12/01/15 1,366,263 1,455 Rapid City, SD Sales Tax Rev Rfdg (AMBAC Insd)........................................ 5.500 06/01/12 1,646,929 5,205 South Dakota St Lease Rev Tr Ctf Ser A (FSA Insd)........................................ 6.625 09/01/12 6,328,603 4,000 South Dakota St Lease Rev Tr Ctf Ser A (FSA Insd)........................................ 6.700 09/01/17 5,089,120 -------------- 15,608,454 -------------- TEXAS 15.9% 1,165 Alamo, TX Cmnty College Dist Combined Fee Rfdg (FSA Insd).............................. 5.000 11/01/22 1,208,187 2,120 Austin, TX Arpt Sys Rev Pr Lien Rfdg (MBIA Insd)........................................ 5.000 11/15/12 2,338,063 4,455 Austin, TX Hotel Occupancy Tax Rfdg (FSA Insd)........................................ 5.000 11/15/15 4,862,009 4,680 Austin, TX Hotel Occupancy Tax Rfdg (FSA Insd)........................................ 5.000 11/15/16 5,069,984 2,200 Austin, TX Hotel Occupancy Tax Rfdg (FSA Insd)........................................ 5.000 11/15/17 2,369,334 2,335 Austin, TX Hotel Occupancy Tax Rfdg (FSA Insd)........................................ 5.000 11/15/18 2,501,789
See Notes to Financial Statements 21 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- TEXAS (CONTINUED) $ 2,415 Austin, TX Hotel Occupancy Tax Rfdg (FSA Insd)........................................ 5.000% 11/15/19 $ 2,572,337 4,205 Austin, TX Util Sys Rev Rfdg (FSA Insd)...... 5.000 11/15/11 4,520,333 11,900 Austin, TX Util Sys Rev Ser A Rfdg (MBIA Insd)........................................ * 11/15/10 9,656,493 2,500 Austin, TX Wtr & Wastewater Rev Ser A Rfdg (AMBAC Insd) (c)............................. 5.000 11/15/23 2,626,900 5,000 Brazos Riv Auth TX Rev Houston Ind Inc Proj Ser C (Variable Rate Coupon) (AMBAC Insd).... 5.125 05/01/19 5,341,350 2,000 Colorado Riv, TX Muni Wtr Dist Sys Rfdg (AMBAC Insd)................................. 5.375 01/01/19 2,193,760 3,500 Corpus Christi, TX December Delivery Rfdg (AMBAC Insd) (c)............................. 5.000 03/01/07 3,742,375 1,400 Corpus Christi, TX Util Sys Rev Impt & Rfdg (FSA Insd)................................... 5.250 07/15/17 1,546,244 15,400 Dallas Cnty, TX Util & Reclamation Dist Ser B Rfdg (AMBAC Insd)............................ 5.875 02/15/29 15,598,352 3,055 Dallas Fort Worth, TX Intl Arpt Rols RR II 291-1 (Inverse Fltg) (AMT) (FSA Insd)........ 9.156 11/01/19 3,641,835 2,000 Dallas Fort Worth, TX Intl Arpt Rols RR II 291-2 (Inverse Fltg) (AMT) (FSA Insd)........ 8.902 11/01/21 2,292,520 5,000 El Paso, TX Ctf Oblig (FSA Insd)............. 5.750 08/15/25 5,371,300 4,500 Harris Cnty, TX Toll Rd Sr Lien Rfdg (MBIA Insd)........................................ 5.125 08/15/17 4,834,305 4,605 Houston, TX Arpt Sys Rev Sub Lien (FSA Insd)........................................ 5.500 07/01/17 5,193,059 2,000 Houston, TX Arpt Sys Rev Sub Lien (FSA Insd)........................................ 5.500 07/01/18 2,247,760 5,000 Houston, TX Hotel Occupancy Convention & Entmt Ser A Rfdg (AMBAC Insd)................ 5.375 09/01/14 5,614,650 2,000 Houston, TX Pub Impt Ser A Rfdg (MBIA Insd)........................................ 5.375 03/01/18 2,223,120 22,500 Houston, TX Util Sys Rev First Lien Ser A Rfdg (FGIC Insd)............................. 5.250 05/15/23 24,141,600 12,400 Houston, TX Wtr & Swr Sys Rev Cap Apprec Ser A Rfdg (Escrowed to Maturity) (FSA Insd)..... * 12/01/20 5,841,268 7,930 Lancaster, TX Indpt Sch Dist Rfdg (FSA Insd)........................................ 5.750 02/15/30 8,767,170 1,790 Laredo, TX Cmnty College Dist Combined Fee Rev Bldg Rfdg (AMBAC Insd)................... 5.300 08/01/26 1,891,063 4,335 North Harris Cnty, TX Regl Wtr Sr Lien (FGIC Insd)........................................ 5.250 12/15/19 4,739,976 2,220 Raven Hills, TX Higher Ed Corp Cardinal Vlg Llc Lamar Univ A (MBIA Insd)................. 5.500 08/01/28 2,389,630 2,000 San Antonio, TX Hotel Occupancy Rev Sub Lien Ser A Rfdg (AMBAC Insd)...................... 5.000 08/15/29 2,030,460 1,000 San Antonio, TX Indpt Sch Dist Pub Fac Corp Lease Rev (AMBAC Insd)....................... 5.850 10/15/10 1,087,810 1,730 San Antonio, TX Muni Drain Util (MBIA Insd)........................................ 5.000 02/01/21 1,817,088
22 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- TEXAS (CONTINUED) $ 1,750 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth Sys Rev Ser B (Escrowed to Maturity) (FGIC Insd)........................................ 5.000% 09/01/15 $ 1,937,863 1,060 Tarrant Regl Wtr Dist TX Impt Rfdg (FSA Insd)........................................ 5.250 03/01/18 1,157,456 2,000 Tarrant Regl Wtr Dist TX Impt Rfdg (FSA Insd)........................................ 5.250 03/01/20 2,163,040 10,000 Texas St Tpk Auth Cent TX Tpk First Tier Ser A (AMBAC Insd)............................... 5.500 08/15/39 10,706,300 26,905 Texas St Tpk Auth Dallas Northtwy Rev George Bush Tpk (FGIC Insd)......................... 5.250 01/01/23 28,280,922 -------------- 194,517,705 -------------- UTAH 0.3% 2,140 Murray City, UT Swr & Wtr Rev (AMBAC Insd)... 5.250 10/01/23 2,292,903 630 Provo, UT Elec Rev 1984 Ser A Rfdg (Escrowed to Maturity) (AMBAC Insd).................... 10.375 09/15/15 879,669 -------------- 3,172,572 -------------- VIRGINIA 0.1% 1,290 Virginia St Hsg Dev Auth Comwlth Mtg Ser J Subser J-1 (MBIA Insd)....................... 5.200 07/01/19 1,313,994 -------------- WASHINGTON 8.0% 4,115 Chelan Cnty, WA Sch Dist No 246 (FSA Insd)... 5.000 12/01/21 4,316,347 1,930 Clark Cnty, WA Pub Util Dist No 001 Elec Rev Rfdg (AMBAC Insd)............................ 5.500 01/01/12 2,197,112 2,990 Clark Cnty, WA Pub Util Dist No 001 Wtr Rev (FSA Insd)................................... 5.125 01/01/20 3,218,466 11,340 Energy Northwest WA Elec Rev Columbia Generating Ser A Rfdg (FSA Insd)............. 5.500 07/01/17 12,749,789 4,500 Energy Northwest WA Elec Rev Proj No 3 Ser A Rfdg (FSA Insd).............................. 5.500 07/01/17 5,040,720 10,000 Energy Northwest WA Elec Rev Proj No 3 Ser A Rfdg (XLCA Insd)............................. 5.500 07/01/17 11,180,100 14,500 Energy Northwest WA Elec Rev Proj No 3 Ser A Rfdg (FSA Insd).............................. 5.500 07/01/18 16,197,950 5,000 Energy Northwest WA Elec Rev Proj No 3 Ser B Rfdg (FSA Insd).............................. 6.000 07/01/16 5,812,550 1,365 Energy Northwest WA Wind Proj (AMBAC Insd)... 5.000 07/01/23 1,412,325 1,215 Fife, WA Wtr & Swr Rev (MBIA Insd)........... 5.000 04/01/24 1,262,033 2,000 Fife, WA Wtr & Swr Rev (MBIA Insd)........... 5.125 04/01/24 2,006,520 1,160 Fife, WA Wtr & Swr Rev (MBIA Insd)........... 5.000 04/01/29 1,183,304 2,335 Grant Cnty, WA Pub Util Dist No 2 Rev Second Ser C Rfdg (AMBAC Insd)...................... 6.000 01/01/17 2,535,180 1,025 Grant Cnty, WA Pub Util Dist No 2 Rev Second Ser C Rfdg (AMBAC Insd)...................... 6.000 01/01/17 1,112,873
See Notes to Financial Statements 23 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- WASHINGTON (CONTINUED) $ 350 Pierce Cnty, WA Swr Rev Ser A (Escrowed to Maturity) (MBIA Insd)........................ 9.000% 02/01/05 $ 358,593 2,000 Seattle, WA Muni Lt & Pwr Rev Impt & Rfdg (FSA Insd)................................... 5.500 03/01/18 2,225,700 4,100 Snohomish Cnty, WA Pub Util 1 (FSA Insd)..... 5.000 12/01/21 4,343,171 2,565 Snohomish Cnty, WA Pub Util 1 (FSA Insd)..... 5.500 12/01/23 2,829,426 145 Snohomish Cnty, WA Pub Util 1 (FSA Insd)..... 5.000 12/01/24 149,852 2,000 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)... 5.750 12/01/25 2,256,840 2,420 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)... 5.750 12/01/26 2,717,563 3,000 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)... 5.250 09/01/33 3,136,350 1,965 Tacoma, WA Solid Waste Util Rev Rfdg (AMBAC Insd)........................................ 5.375 12/01/18 2,185,532 2,075 Tacoma, WA Solid Waste Util Rev Rfdg (AMBAC Insd)........................................ 5.375 12/01/19 2,297,378 3,090 Washington St Pub Pwr Supply Sys Nuclear Proj No 1 Rev Ser A Rfdg (AMBAC Insd)............. 5.700 07/01/09 3,343,565 1,600 Washington St Ser R 99A Rfdg (FGIC Insd)..... 5.000 01/01/17 1,700,816 -------------- 97,770,055 -------------- WEST VIRGINIA 0.1% 1,530 West Virginia Econ Dev Auth Lease Rev Correctional Juvenile & Pub-A (MBIA Insd).... 5.500 06/01/19 1,721,388 -------------- WISCONSIN 1.3% 4,500 Green Bay, WI Wtr Sys Rev Impt Rfdg (FSA Insd) (c).................................... 5.000 11/01/29 4,609,080 1,350 Plover, WI Wtr Sys Rev (AMBAC Insd).......... 5.400 12/01/16 1,494,005 1,500 Plover, WI Wtr Sys Rev (AMBAC Insd).......... 5.500 12/01/18 1,672,560 1,405 Racine, WI Wtrwks Rev Sys Mtg (MBIA Insd).... 5.250 09/01/16 1,554,899 3,920 University of WI Hosp & Clinics Auth Rev (FSA Insd)........................................ 6.200 04/01/29 4,473,739 1,985 Waunakee, WI Cmnty Sch Dist Ser A Rfdg (FGIC Insd) (c).................................... 5.250 04/01/24 2,120,456 -------------- 15,924,739 --------------
24 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- PUERTO RICO 0.4% $ 3,000 Puerto Rico Indl Tourist Ed Med & Environmental Ctl Fac Hosp Aux (MBIA Insd)... 6.250% 07/01/16 $ 3,092,670 1,485 Puerto Rico Pub Fin Corp Comwlth Approp Ser A (Variable Rate Coupon) (CIFG Insd)........... 5.000 08/01/27 1,629,164 -------------- 4,721,834 -------------- TOTAL LONG-TERM INVESTMENTS 96.8% (Cost $1,105,281,278)..................................................... 1,184,354,882 SHORT-TERM INVESTMENTS 4.0% (Cost $49,320,000)........................................................ 49,320,000 -------------- TOTAL INVESTMENTS 100.8% (Cost $1,154,601,278)..................................................... 1,233,674,882 LIABILITIES IN EXCESS OF OTHER ASSETS (0.8%)............................... (10,199,132) -------------- NET ASSETS 100.0%.......................................................... $1,223,475,750 ==============
Percentages are calculated as a percentage of net assets. * Zero coupon bond (a) All or a portion of these securities have been physically segregated in connection with open futures contracts. (b) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (c) Securities purchased on a when-issued or delayed delivery basis. AGC--ACE Guaranty Corp. AMBAC--AMBAC Indemnity Corp. AMT--Alternative Minimum Tax BIGI--Bond Investor Guaranty Inc. CIFG--CDC IXIS Financial Guaranty Connie Lee--Connie Lee Insurance Co. FGIC--Financial Guaranty Insurance Co. FSA--Financial Security Assurance Inc. MBIA--Municipal Bond Investors Assurance Corp. XLCA--XL Capital Assurance Inc. See Notes to Financial Statements 25 VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities September 30, 2004 ASSETS: Total Investments (Cost $1,154,601,278)..................... $1,233,674,882 Cash........................................................ 94,800 Receivables: Interest.................................................. 15,187,470 Investments Sold.......................................... 12,031,861 Fund Shares Sold.......................................... 917,593 Other....................................................... 264,597 -------------- Total Assets............................................ 1,262,171,203 -------------- LIABILITIES: Payables: Investments Purchased..................................... 34,771,705 Fund Shares Repurchased................................... 1,344,949 Income Distributions...................................... 970,181 Distributor and Affiliates................................ 607,554 Investment Advisory Fee................................... 507,085 Variation Margin on Futures............................... 3,426 Trustees' Deferred Compensation and Retirement Plans........ 314,048 Accrued Expenses............................................ 176,505 -------------- Total Liabilities....................................... 38,695,453 -------------- NET ASSETS.................................................. $1,223,475,750 ============== NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $1,130,836,281 Net Unrealized Appreciation................................. 78,986,208 Accumulated Net Realized Gain............................... 11,805,573 Accumulated Undistributed Net Investment Income............. 1,847,688 -------------- NET ASSETS.................................................. $1,223,475,750 ============== NET ASSET VALUE PER COMMON SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $1,137,196,398 and 59,617,302 shares of beneficial interest issued and outstanding)............. $ 19.07 Maximum sales charge (4.75%* of offering price)......... .95 -------------- Maximum offering price to public........................ $ 20.02 ============== Class B Shares: Net asset value and offering price per share (Based on net assets of $66,386,420 and 3,484,630 shares of beneficial interest issued and outstanding)............. $ 19.05 ============== Class C Shares: Net asset value and offering price per share (Based on net assets of $19,892,932 and 1,044,924 shares of beneficial interest issued and outstanding)............. $ 19.04 ==============
* On sales of $100,000 or more, the sales charge will be reduced. 26 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL STATEMENTS continued Statement of Operations For the Year Ended September 30, 2004 INVESTMENT INCOME: Interest.................................................... $60,939,030 ----------- EXPENSES: Investment Advisory Fee..................................... 6,330,396 Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $2,808,729, $751,028 and $220,470, respectively)............................................. 3,780,227 Shareholder Services........................................ 819,432 Custody..................................................... 95,456 Legal....................................................... 91,325 Trustees' Fees and Related Expenses......................... 31,385 Other....................................................... 523,649 ----------- Total Expenses.......................................... 11,671,870 Less Credits Earned on Cash Balances.................... 13,809 ----------- Net Expenses............................................ 11,658,061 ----------- NET INVESTMENT INCOME....................................... $49,280,969 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $15,425,353 Futures................................................... (8,391,260) ----------- Net Realized Gain........................................... 7,034,093 ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 85,171,911 ----------- End of the Period: Investments............................................. 79,073,604 Futures................................................. (87,396) ----------- 78,986,208 ----------- Net Unrealized Depreciation During the Period............... (6,185,703) ----------- NET REALIZED AND UNREALIZED GAIN............................ $ 848,390 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $50,129,359 ===========
See Notes to Financial Statements 27 VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 ---------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.............................. $ 49,280,969 $ 52,180,180 Net Realized Gain.................................. 7,034,093 20,955,240 Net Unrealized Depreciation During the Period...... (6,185,703) (37,035,786) -------------- -------------- Change in Net Assets from Operations............... 50,129,359 36,099,634 -------------- -------------- Distributions from Net Investment Income: Class A Shares................................... (45,586,240) (47,030,700) Class B Shares................................... (2,382,337) (2,660,042) Class C Shares................................... (699,272) (760,360) -------------- -------------- (48,667,849) (50,451,102) -------------- -------------- Distributions from Net Realized Gain: Class A Shares................................... (13,949,578) (11,285,930) Class B Shares................................... (936,852) (786,390) Class C Shares................................... (284,764) (214,972) -------------- -------------- (15,171,194) (12,287,292) -------------- -------------- Total Distributions................................ (63,839,043) (62,738,394) -------------- -------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....................................... (13,709,684) (26,638,760) -------------- -------------- FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold.......................... 72,538,790 323,995,612 Net Asset Value of Shares Issued Through Dividend Reinvestment..................................... 49,356,828 47,057,129 Cost of Shares Repurchased......................... (201,234,835) (381,484,901) -------------- -------------- NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..................................... (79,339,217) (10,432,160) -------------- -------------- TOTAL DECREASE IN NET ASSETS....................... (93,048,901) (37,070,920) NET ASSETS: Beginning of the Period............................ 1,316,524,651 1,353,595,571 -------------- -------------- End of the Period (Including accumulated undistributed net investment income of $1,847,688 and $1,271,160, respectively).................... $1,223,475,750 $1,316,524,651 ============== ==============
28 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ------------------------------------------------------- 2004 2003 2002 (a) 2001 2000 ------------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD............................... $ 19.27 $ 19.65 $ 19.22 $ 18.27 $ 18.08 -------- -------- -------- -------- -------- Net Investment Income................ .76 .77 .81 .86 .91 Net Realized and Unrealized Gain/Loss.......................... .02 (.23) .87 .98 .17 -------- -------- -------- -------- -------- Total from Investment Operations....... .78 .54 1.68 1.84 1.08 -------- -------- -------- -------- -------- Less: Distributions from Net Investment Income............................. .75 .74 .81 .89 .88 Distributions from Net Realized Gain............................... .23 .18 .44 -0- .01 -------- -------- -------- -------- -------- Total Distributions.................... .98 .92 1.25 .89 .89 -------- -------- -------- -------- -------- NET ASSET VALUE, END OF THE PERIOD..... $ 19.07 $ 19.27 $ 19.65 $ 19.22 $ 18.27 ======== ======== ======== ======== ======== Total Return (b)....................... 4.22% 2.90% 9.28% 10.28% 6.13% Net Assets at End of the Period (In millions)............................ $1,137.2 $1,209.9 $1,244.3 $1,129.6 $1,086.6 Ratio of Expenses to Average Net Assets............................... .87% .86% .87% .90% .90% Ratio of Net Investment Income to Average Net Assets................... 3.99% 4.02% 4.30% 4.55% 5.10% Portfolio Turnover..................... 40% 61% 54% 80% 69%
(a) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01, and increase the ratio of net investment income to average net assets from 4.27% to 4.30%. Per share, ratios and supplemental data for the periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 4.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. With respect to shares purchased prior to December 1, 2004, a CDSC of 1% may be imposed on certain redemptions made within one year of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to .25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. See Notes to Financial Statements 29 VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ------------------------------------------------ 2004 2003 2002 (a) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD..... $19.24 $19.63 $19.20 $18.26 $18.08 ------ ------ ------ ------ ------ Net Investment Income...................... .62 .63 .66 .70 .78 Net Realized and Unrealized Gain/Loss...... .02 (.24) .88 .99 .15 ------ ------ ------ ------ ------ Total from Investment Operations............. .64 .39 1.54 1.69 .93 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .60 .60 .67 .75 .74 Distributions from Net Realized Gain....... .23 .18 .44 -0- .01 ------ ------ ------ ------ ------ Total Distributions.......................... .83 .78 1.11 .75 .75 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $19.05 $19.24 $19.63 $19.20 $18.26 ====== ====== ====== ====== ====== Total Return (b)............................. 3.43% 2.08% 8.47% 9.42% 5.25% Net Assets at End of the Period (In millions).................................. $ 66.4 $ 82.6 $ 87.2 $ 49.2 $ 43.0 Ratio of Expenses to Average Net Assets...... 1.63% 1.62% 1.63% 1.69% 1.68% Ratio of Net Investment Income to Average Net Assets..................................... 3.23% 3.26% 3.53% 3.76% 4.34% Portfolio Turnover........................... 40% 61% 54% 80% 69%
(a) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01, and increase the ratio of net investment income to average net assets from 3.50% to 3.53%. Per share, ratios and supplemental data for the periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 4%, charged on certain redemptions made within one year of purchase and declining to 0% after the sixth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 30 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ------------------------------------------------ 2004 2003 2002 (a) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD..... $19.23 $19.62 $19.19 $18.25 $18.08 ------ ------ ------ ------ ------ Net Investment Income...................... .62 .63 .67 .69 .79 Net Realized and Unrealized Gain/Loss...... .02 (.24) .87 1.00 .13 ------ ------ ------ ------ ------ Total from Investment Operations............. .64 .39 1.54 1.69 .92 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .60 .60 .67 .75 .74 Distributions from Net Realized Gain....... .23 .18 .44 -0- .01 ------ ------ ------ ------ ------ Total Distributions.......................... .83 .78 1.11 .75 .75 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $19.04 $19.23 $19.62 $19.19 $18.25 ====== ====== ====== ====== ====== Total Return (b)............................. 3.43% 2.08% 8.48% 9.42% 5.19% Net Assets at End of the Period (In millions).................................. $ 19.9 $ 24.1 $ 22.1 $ 11.2 $ 5.4 Ratio of Expenses to Average Net Assets...... 1.63% 1.62% 1.63% 1.65% 1.68% Ratio of Net Investment Income to Average Net Assets..................................... 3.23% 3.25% 3.53% 3.80% 4.35% Portfolio Turnover........................... 40% 61% 54% 80% 69%
(a) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01, and increase the ratio of net investment income to average net assets from 3.50% to 3.53%. Per share, ratios and supplemental data for the periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. See Notes to Financial Statements 31 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen Insured Tax Free Income Fund (the "Fund") is organized as a series of the Van Kampen Tax Free Trust, a Delaware statutory trust, and is registered as a diversified open-end management investment company under the Investment Company Act of 1940 (the "1940 Act"), as amended. The Fund's investment objective is to provide investors a high level of current income exempt from federal income taxes, with liquidity and safety of principal, primarily through investment in a diversified portfolio of insured municipal securities. The Fund commenced investment operations on December 14, 1984. The distribution of the Fund's Class B and Class C Shares commenced on May 3, 1993 and August 13, 1993, respectively. The Fund registered Class I Shares on August 31, 2004. There were no sales of Class I Shares for the period ended September 30, 2004. Effective November 30, 2003, the Fund's investment adviser, Van Kampen Investment Advisory Corp., merged into its affiliate, Van Kampen Asset Management (the "Adviser"). The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Municipal bonds are valued by independent pricing services or dealers using the mean of the bid and asked prices or, in the absence of market quotations, at fair value based upon yield data relating to municipal bonds with similar characteristics and general market conditions. Securities which are not valued by independent pricing services or dealers are valued at fair value using procedures established in good faith by the Board of Trustees. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. The Fund may purchase and sell securities on a "when-issued" or "delayed delivery" basis, with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. The Fund will segregate assets with the custodian having an aggregate value at least equal to the amount of the when-issued or delayed delivery purchase commitments until payment is made. At September 30, 2004, the Fund had $34,771,705 of when-issued and delayed delivery purchase commitments. C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Bond premium is amortized and discount is accreted over the expected life of each applicable security. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. 32 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. At September 30, 2004, the cost and related gross unrealized appreciation and depreciation were as follows: Cost of investments for tax purposes........................ $1,153,636,031 ============== Gross tax unrealized appreciation........................... $ 80,651,211 Gross tax unrealized depreciation........................... (612,360) -------------- Net tax unrealized appreciation on investments.............. $ 80,038,851 ==============
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly dividends from net investment income. Net realized gains, if any, are distributed annually. Distributions from net realized gains for book purposes may include short-term capital gains and a portion of futures gains, which are included as ordinary income for tax purposes. The tax character of distributions paid during the years ended September 30, 2004 and 2003 was as follows:
2004 2003 Distributions paid from: Ordinary Income......................................... $ 1,429,233 $ 4,974,664 Long-term capital gain.................................. 14,007,249 7,723,917 ----------- ----------- $15,436,482 $12,698,581 =========== ===========
Due to inherent differences in the recognition of income, expenses, and realized gain/ losses under U.S. generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. A permanent difference relating to book to tax accretion differences totaling $40,482 was reclassified from accumulated undistributed net investment income to accumulated net realized gain. Additionally, a permanent difference relating to the Fund's investments in other regulated investment companies totaling $3,890 was reclassified from accumulated undistributed net investment income to accumulated net realized gain. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $1,832,228 Undistributed long-term capital gain........................ 9,263,391
Net realized gains or losses may differ for financial and tax reporting purposes primarily as a result of losses recognized for tax purposes on open futures transactions on September 30, 2004. 33 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued F. INSURANCE EXPENSES The Fund typically invests in insured bonds. Any portfolio securities not specifically covered by a primary insurance policy are insured secondarily through the Fund's portfolio insurance policy. Insurance premiums are based on the daily balances of uninsured bonds in the portfolio of investments and are charged to expense on an accrual basis. The insurance policy guarantees the timely payment of principal and interest on the securities in the Fund's portfolio. G. EXPENSE REDUCTIONS During the year ended September 30, 2004, the Fund's custody fee was reduced by $13,809 as a result of credits earned on cash balances. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM First $500 million.......................................... .525% Next $500 million........................................... .500% Next $500 million........................................... .475% Over $1.5 billion........................................... .450%
For the year ended September 30, 2004, the Fund recognized expenses of approximately $55,500 representing legal expenses provided by Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Fund, of which a trustee of the Fund is an affiliated person. Under separate Accounting Services and Legal Services agreements, the Adviser provides accounting and legal services to the Fund. The Adviser allocates the cost of such services to each fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $124,600 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Fund, which are reported as part of "Other" and "Legal" expenses, respectively, in the Statement of Operations. Van Kampen Investor Services Inc. (VKIS), an affiliate of the Adviser, serves as the shareholder servicing agent for the Fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $623,900, representing transfer agency fees paid to VKIS. Transfer agency fees are determined through negotiations with the Fund's Board of Trustees. Certain officers and trustees of the Fund are also officers and directors of Van Kampen. The Fund does not compensate its officers or trustees who are officers of Van Kampen. The Fund 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. Amounts deferred are retained by the Fund and to the extent permitted by the 1940 Act, as amended, may be invested in the common shares of those funds selected by the trustees. Investments in such funds of $224,129 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2004. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligations and do not affect the net asset value of the Fund. Benefits under the retirement plan are payable upon retirement 34 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued for a ten-year period and are based upon each trustee's years of service to the Fund. The maximum annual benefit per trustee under the plan is $2,500. 3. CAPITAL TRANSACTIONS At September 30, 2004, capital aggregated $1,045,456,639, $65,067,541 and $20,312,101 for Classes A, B and C, respectively. For the year ended September 30, 2004, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 3,340,579 $ 63,441,645 Class B................................................... 247,730 4,719,271 Class C................................................... 229,874 4,377,874 ----------- ------------- Total Sales................................................. 3,818,183 $ 72,538,790 =========== ============= Dividend Reinvestment: Class A................................................... 2,446,565 $ 46,521,567 Class B................................................... 113,357 2,154,207 Class C................................................... 35,848 681,054 ----------- ------------- Total Dividend Reinvestment................................. 2,595,770 $ 49,356,828 =========== ============= Repurchases: Class A................................................... (8,970,968) $(170,303,857) Class B................................................... (1,167,114) (22,050,635) Class C................................................... (473,277) (8,880,343) ----------- ------------- Total Repurchases........................................... (10,611,359) $(201,234,835) =========== =============
35 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued At September 30, 2003, capital aggregated $1,105,797,284, $80,244,698 and $24,133,516 for Classes A, B and C, respectively. For the year ended September 30, 2003, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 15,358,941 $ 294,205,218 Class B................................................... 997,166 19,179,849 Class C................................................... 552,551 10,610,545 ----------- ------------- Total Sales................................................. 16,908,658 $ 323,995,612 =========== ============= Dividend Reinvestment: Class A................................................... 2,306,810 $ 44,213,876 Class B................................................... 112,868 2,160,427 Class C................................................... 35,696 682,826 ----------- ------------- Total Dividend Reinvestment................................. 2,455,374 $ 47,057,129 =========== ============= Repurchases: Class A................................................... (18,180,737) $(348,581,095) Class B................................................... (1,260,175) (24,097,852) Class C................................................... (461,820) (8,805,954) ----------- ------------- Total Repurchases........................................... (19,902,732) $(381,484,901) =========== =============
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares eight years after the end of the calendar month in which the shares were purchased. Class B Shares purchased before June 1, 1996, and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares seven years after the end of the calendar month in which the shares were purchased. For the years ended September 30, 2004 and 2003, 106,142 and 177,637 Class B Shares converted to Class A Shares, respectively, and are shown in the above tables as sales of Class A Shares and repurchases of Class B Shares. Class C Shares purchased before January 1, 1997, and any dividend reinvestment plan Class C Shares received on such shares, automatically convert to Class A Shares ten years after the end of the calendar month in which such shares were purchased. Class C Shares purchased on or after January 1, 1997 do not possess a conversion feature. For the years ended September 30, 2004 and 2003, no Class C Shares converted to Class A Shares. Class B and Class C Shares are offered without a front end sales charge, but are subject to a contingent deferred sales charge (CDSC). The CDSC for Class B and Class C Shares will be imposed on 36 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued most redemptions made within six years of the purchase for Class B and one year of the purchase for Class C as detailed in the following schedule.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE -------------------------- YEAR OF REDEMPTION CLASS B CLASS C First....................................................... 4.00% 1.00% Second...................................................... 3.75% None Third....................................................... 3.50% None Fourth...................................................... 2.50% None Fifth....................................................... 1.50% None Sixth....................................................... 1.00% None Seventh and Thereafter...................................... None None
For the year ended September 30, 2004, Van Kampen, as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $149,000 and CDSC on redeemed shares of approximately $192,900. Sales charges do not represent expenses of the Fund. 4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $495,411,514 and $607,148,793, respectively. 5. DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument in very general terms refers to a security whose value is "derived" from the value of an underlying asset, reference rate or index. The Fund has a variety of reasons to use derivative instruments, such as to attempt to protect the Fund against possible changes in the market value of its portfolio and to manage the portfolio's effective yield, maturity and duration. All of the Fund's portfolio 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 futures contract. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying the futures contract. Summarized below are the specific types of derivative financial instruments used by the Fund. A. FUTURES CONTRACTS A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in exchange traded futures contracts on U.S. Treasury Notes and typically closes the contract prior to the delivery date. Upon entering into futures contracts, the Fund maintains an amount of cash or liquid securities with a value equal to a percentage of the contract amount with either a futures commission merchant pursuant to rules and regulations promulgated under the 1940 Act, as amended, or with its custodian in an account in the broker's name. 37 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued This amount is known as initial margin. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). The risk of loss associated with a futures contract is in excess of the variation margin reflected on the Statement of Assets and Liabilities. Transactions in futures contracts, for the year ended September 30, 2004, were as follows:
CONTRACTS Outstanding at September 30, 2003........................... 1,750 Futures Opened.............................................. 4,866 Futures Closed.............................................. (5,181) ------ Outstanding at September 30, 2004........................... 1,435 ======
The futures contracts outstanding as of September 30, 2004, and the descriptions and unrealized appreciation/depreciation are as follows:
UNREALIZED CONTRACTS DEPRECIATION Short Contracts: U.S. Treasury Notes 10-Year Futures December 2004 (Current Notional Value of $112,625 per contract).................. (259) $(53,645) U.S. Treasury Notes 5-Year Futures December 2004 (Current Notional Value of $110,750 per contract).................. (1,176) (33,751) ------ -------- (1,435) $(87,396) ====== ========
B. INVERSE FLOATING RATE SECURITIES An Inverse Floating Rate security is one where the coupon is inversely indexed to a short-term floating interest rate multiplied by a specified 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 Fund to enhance the yield of the portfolio. 6. DISTRIBUTION AND SERVICE PLANS With respect to its Class A Shares, Class B Shares and Class C Shares, the Fund and its shareholders have adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively the "Plans"). The Plans govern payments for: the distribution of the Fund's Class A Shares, Class B Shares and Class C Shares; the provision of ongoing shareholder services with respect to such classes of shares; and maintenance of shareholder accounts with respect to such classes of shares. Annual fees under the Plans of up to .25% of Class A average daily net assets and up to 1.00% each of Class B and Class C average daily net assets are accrued daily. The annual fees for Class A Shares are paid quarterly and the annual fees for Class C Shares are paid monthly. For Class B Shares, 75% of the annual fees are paid monthly, while 25% of the annual fees are paid quarterly. The amount of distribution expenses incurred by Van Kampen and not yet reimbursed ("unreimbursed receivable") was approximately $1,814,500 and $52,600 for Class B and Class C Shares, respectively. This amount may be recovered from 38 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued future payments under the distribution plan or CDSC. To the extent the unreimbursed receivable has been fully recovered, any excess 12b-1 fees will be refunded to the Fund on a quarterly basis. Included in the fees for the year ended September 30, 2004, are payments retained by Van Kampen of approximately $825,200 and payments made to Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $100,400. 7. LEGAL MATTERS The Adviser, certain affiliates of the Adviser, and certain investment companies advised by the Adviser or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. The consolidated action also names as defendants certain individual Trustees and Directors of certain investment companies advised by affiliates of the Adviser; the complaint does not, however, name the individual Trustees of any Van Kampen funds. The consolidated amended complaint generally alleges that defendants violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Adviser and certain affiliates of the Adviser allegedly offered economic incentives to brokers and others to steer investors to the funds advised by the Adviser or its affiliates rather than funds managed by other companies, and (ii) that the funds advised by the Adviser or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their alleged efforts to steer investors to these funds. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The Adviser and certain affiliates of the Adviser are also named as defendants in a derivative suit which additionally names as defendants certain individual Trustees of certain Van Kampen funds; the named investment companies, including the Fund, are listed as nominal defendants. The complaint alleges that defendants caused the Van Kampen funds to pay economic incentives to a proprietary sales force to promote the sale of proprietary mutual funds. The complaint also alleges that the Van Kampen funds paid excessive commissions to Morgan Stanley and its affiliates in connection with the sales of the funds. The complaint seeks, among other things, the removal of the current Trustees of the funds, rescission of the management contracts for the funds, disgorgement of profits by Morgan Stanley and its affiliates and monetary damages. This complaint has been coordinated with the consolidated complaint described in the preceding paragraph. The defendants have moved to dismiss each of these actions and otherwise intend to defend them vigorously. While the defendants believe that they have meritorious defenses, the ultimate outcome of these matters is not presently determinable at this early stage of litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of these matters. 8. 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. 39 VAN KAMPEN INSURED TAX FREE INCOME FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Van Kampen Insured Tax Free Income Fund We have audited the accompanying statement of assets and liabilities of Van Kampen Insured Tax Free Income Fund (the "Fund"), including the portfolio of investments, as of September 30, 2004, and 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 Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Van Kampen Insured Tax Free Income Fund at September 30, 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 U.S. generally accepted accounting principles. -s- Ernst & Young LLP Chicago, Illinois November 5, 2004 40 VAN KAMPEN INSURED TAX FREE INCOME FUND BOARD OF TRUSTEES AND IMPORTANT ADDRESSES BOARD OF TRUSTEES DAVID C. ARCH J. MILES BRANAGAN JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT 1221 Avenue of the Americas New York, New York 10020 DISTRIBUTOR VAN KAMPEN FUNDS INC. 1221 Avenue of the Americas New York, New York 10020 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 947 Jersey City, New Jersey 07303-0947 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02110 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 233 South Wacker Drive Chicago, Illinois 60606 For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended September 30, 2004. The Fund designated 99.5% of the income distributions as tax-exempt income distribution. The Fund designated and paid $14,007,249 as a long-term capital gain distribution. In January, the Fund provides tax information to shareholders for the preceding calendar year. * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940, as amended. 41 VAN KAMPEN INSURED TAX FREE INCOME FUND TRUSTEES AND OFFICERS The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees and the Fund's officers appointed by the Board of Trustees. The tables below list the trustees and executive officers of the Fund 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing Blistex Inc. since 2003 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. J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing 1632 Morning Mountain Road since 1995 Co-founder, and prior to General Partner of funds Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex. Chief Executive Officer and President, MDT Corporation (now known as Getinge/Castle, Inc., a subsidiary of Getinge Industrier AB), a company which develops, manufactures, markets and services medical and scientific equipment.
42
VAN KAMPEN INSURED TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing 33971 Selva Road since 1999 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.
43
VAN KAMPEN INSURED TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing CAC, L.L.C. since 2003 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).
44
VAN KAMPEN INSURED TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing Heidrick & Struggles since 1995 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 83 Trustee/Director/Managing 1744 R Street, NW since 1993 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 85 Trustee/Director/Managing 736 North Western Avenue since 2003 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.
45
VAN KAMPEN INSURED TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing 423 Country Club Drive since 1984 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 85 Trustee/Director/Managing 1126 E. 59th Street since 2003 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 83 Trustee/Director/Managing (62) since 1999 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.
46 VAN KAMPEN INSURED TAX FREE INCOME FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing 1221 Avenue of the Americas President since Executive Officer of General Partner of funds New York, NY 10020 and Chief 1999; 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.
47
VAN KAMPEN INSURED TAX FREE INCOME FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 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 85 Trustee/Director/Managing 333 West Wacker Drive since 1984 of Skadden, Arps, Slate, General Partner of funds Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex. counsel to funds in the Fund Complex.
* Such Trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Messrs. Merin and Powers are interested persons of funds in the Fund Complex and the Adviser by reason of their current or former positions with Morgan Stanley or its affiliates. 48 VAN KAMPEN INSURED TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS Stefanie V. Chang (37) 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 M. Dykas (38) Chief Financial Officer Officer Executive Director of Van Kampen Asset Management and Morgan 1 Parkview Plaza and Treasurer since 1999 Stanley Investment Management. Chief Financial Officer and Oakbrook Terrace, IL 60181 Treasurer of funds in the Fund Complex. Prior to August 2004, Assistant Treasurer of funds in the Fund Complex. Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Investment Officer Management Inc. and 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.
49
VAN KAMPEN INSURED TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since November 1221 Avenue of the Americas President and since 2003 2003. Chief Executive Officer and Chairman of Investor New York, NY 10020 Principal Executive Services. Executive Vice President and Principal Executive Officer 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 1996 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.
50 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 (VAN KAMPEN INVESTMENTS LOGO) Copyright (C)2004 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 32, 332, 532 TFIN ANR 11/04 RN04-02597P-Y09/04 Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen Strategic Municipal Income Fund 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 fund's financial statements and a list of fund investments as of September 30, 2004. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUS CONTAINS INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 9/30/04 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index from 9/30/94 through 9/30/04. Class A shares, adjusted for sales charges. (LINE GRAPH)
VAN KAMPEN STRATEGIC MUNICIPAL LEHMAN BROTHERS MUNICIPAL BOND INCOME FUND INDEX ------------------------------ ------------------------------ 9/94 9527 10000 12/94 9399 9857 9971 10554 10130 10808 10398 11118 12/95 10857 11577 10645 11438 10742 11526 10953 11790 12/96 11205 12090 11258 12061 11565 12477 11943 12853 12/97 12220 13202 12397 13354 12571 13557 12952 13973 12/98 12950 14057 13020 14181 12834 13931 12628 13876 12/99 12419 13768 12556 14170 12582 14384 12700 14732 12/00 12842 15377 13123 15718 13219 15820 13486 16264 12/01 13407 16165 13506 16317 13871 16914 14198 17717 12/02 14229 17717 14291 17930 14709 18393 14795 18407 12/03 15032 18659 15330 18982 15106 18532 9/04 15664 19254
A SHARES B SHARES C SHARES since 6/28/85 since 4/30/93 since 8/13/93 - ------------------------------------------------------------------------------------- W/MAX W/MAX W/MAX 4.75% 4.00% 1.00% AVERAGE ANNUAL W/O SALES SALES W/O SALES SALES W/O SALES SALES TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE Since Inception 6.54% 6.27% 4.63% 4.63% 4.17% 4.17% 10-year 5.10 4.59 4.53 4.53 4.37 4.37 5-year 4.40 3.40 3.62 3.37 3.76 3.76 1-year 5.87 0.84 5.07 1.08 5.10 4.11 - ------------------------------------------------------------------------------------- 30-Day SEC Yield 5.05% 4.55% 4.51%
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 AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. Average annual total return with sales charges includes payment of the maximum sales charge of 4.75 percent for Class A shares, a contingent deferred sales charge of 4.00 percent for Class B shares (in year one and declining to zero after year five), a contingent deferred sales charge of 1.00 percent for Class C shares in year one and combined Rule 12b-1 fees and service fees of up to 0.25 percent for Class A shares and up to 1.00 percent for Class B and C shares. The since-inception and 10-year returns for Class B shares reflect the conversion of Class B shares into Class A shares seven years after purchase. The since inception returns for Class C shares reflect the conversion of Class C shares into Class A shares ten years after purchase. See footnote 3 in the Notes to Financial Statements for additional information. Figures shown above assume reinvestment of all dividends and capital gains. SEC yield is a calculation for determining the amount of portfolio income, excluding non-income items as prescribed by the SEC. Yields are subject to change. The Lehman Brothers Municipal Bond Index is generally representative of investment-grade, tax-exempt bonds. The index does not include any expenses, fees or sales charges, which would lower performance. The index is unmanaged and should not be considered an investment. It is not possible to invest directly in an index. Index data source: Lipper Inc. 1 Fund Report FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004 Van Kampen Strategic Municipal Income Fund is managed by the Adviser's Municipal Fixed Income team. Members of the team include Wayne D. Godlin and Dennis S. Pietrzak, Executive Directors of the Adviser, and James D. Phillips, Vice President of the Adviser.(1) MARKET CONDITIONS The municipal market for the 12 months ended September 30, 2004 was marked by two periods of steadily declining yields, with a significant sell-off in the middle. Yields fell steadily through the first half of the period, but in late March, surprisingly strong employment data and continued signs of solid economic growth led to expectations that the Federal Open Market Committee (the Fed) would soon begin increasing interest rates, which drove yields up and prices down. This sell-off was short-lived, however, lasting only until early May when yields began to decline again and the market rallied--a trend that continued throughout the remainder of the reporting year. During the period, the Fed began raising short-term interest rates as anticipated, starting with a quarter-point hike in the target federal funds rate in June and subsequent increases in August and September. Typically, Fed tightening like this results in an increase in yields across all maturities. In this case, however, while yields on short-maturity bonds (one-to-eight years) rose, yields on longer-maturity bonds (20 years or more) declined slightly. Because of this flattening of the yield, which caught many market participants by surprise, long-term bonds outperformed short-term issues. Overall, high-yield bonds posted the highest returns due to considerable spread tightening and higher yield distribution within this segment of the market. As a result, sectors with a preponderance of lower-rated debt, such as health-care and industrial-revenue bonds, outperformed sectors dominated by higher-rated debt. New-issue supply declined during the period yet remained quite high by historical standards. While demand from mutual fund investors tapered off during the period, this decline was mostly offset by increased market participation from insurance companies and individual investors. (1)Team members may change without notice at any time. 2 PERFORMANCE ANALYSIS The fund turned in very favorable performance for the 12-month period ended September 30, 2004, returning 5.87 percent (Class A shares, unadjusted for sales charge) and outperforming its benchmark index by a comfortable margin. (See table below.) The greatest contributors to the fund's relative outperformance were its emphasis on lower-rated and non-rated bonds, as well as its greater concentration in the health-care, continuing-care, and tax-district sectors--the fund's top three sectors. Overall, health-care bonds have been performing particularly well as the marketplace has begun to recognize the improving fundamentals within this sector. Many large hospitals are showing improved balance sheets and profit and loss statements as well as better debt-service coverage ratios. In addition, reimbursement rates from many insurance providers have moved marginally higher. These improvements have helped to reduce the yield premium demanded by investors in these bonds. Fundamentals have also been improving in the life-care (or continuing-care) sector of the market. These bonds are a hybrid of long-term care bonds and elderly housing bonds, and the fund's exposure to this sector--its second largest--was another driver of performance. The fact that the fund had a very low weighting in special-facility airport- revenue bonds also helped performance--especially during the second half of the reporting period. Unexpectedly high fuels costs continue to hinder this sector's performance. The fund experienced significant inflows over the course of the year, particularly during a period when many municipal bond prices were at or near their lows for the period. As a result, we were able to invest these funds at very attractive prices. We increased the overall credit quality of the fund's high-yield holdings--focusing more on BB rated bonds and less on single-B bonds. This strategy was also additive to returns as this segment of the market experienced the greatest contraction in spreads. There is no guarantee that the securities mentioned will continue to perform well or be held by the fund in the future. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004
- -------------------------------------------------------------- LEHMAN BROTHERS CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX 5.87% 5.07% 5.10% 4.60% - --------------------------------------------------------------
The performance for the three share classes varies because each has different expenses. The fund's total return figures assume the reinvestment of all distributions, but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information and index definition. 3
RATING ALLOCATIONS AS OF 9/30/04 AAA/Aaa 16.5% AA/Aa 4.2 A/A 7.3 BBB/Baa 9.0 BB/Ba 3.2 B/B 4.1 Non-Rated 55.7 TOP 5 SECTORS AS OF 9/30/04 Health Care 19.3% Continuing Care 18.0 Tax District 13.5 Industrial Revenue 11.6 General Purpose 9.4 SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/04 Florida 9.1% Illinois 8.6 Texas 7.7 Pennsylvania 7.1 New York 5.4 California 5.3 New Jersey 4.7 Missouri 3.9 Arizona 3.7 Minnesota 3.3 Massachusetts 3.1 Hawaii 3.0 Ohio 2.9 Colorado 2.7 Georgia 2.4 Maryland 2.1 Tennessee 1.9 Oklahoma 1.8 Wisconsin 1.4 North Carolina 1.4 Michigan 1.3 Virginia 1.3 Alabama 1.2 Oregon 1.2 Indiana 1.1 Washington 1.1 Louisiana 1.0 New Hampshire 1.0
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4
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/04 (continued from previous page) South Carolina 0.9% Nevada 0.9 Puerto Rico 0.7 Kansas 0.7 New Mexico 0.6 Alaska 0.5 Iowa 0.5 South Dakota 0.4 Connecticut 0.4 U. S. Virgin Islands 0.4 North Dakota 0.3 Rhode Island 0.3 Vermont 0.3 Wyoming 0.2 District of Columbia 0.1 Idaho 0.1 Delaware 0.1 Kentucky 0.1 Utah 0.1 Mississippi 0.1 ----- Total Long-Term Investments 98.1% Short-Term Investments 0.2 Liabilities in Excess of Other Assets 1.7 ----- Total Net Assets 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 sectors shown above. Ratings allocations & sectors are as a percentage of long-term investments. Summary of investments by state classification is as a percentage of total net assets. Securities are classified by sectors that represent broad groupings of related industries. 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. Rating allocations based upon ratings as issued by Standard and Poor's and Moody's, respectively. 5 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS Each Van Kampen fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund'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 fund 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 fund files a complete schedule of portfolio holdings with the SEC for the fund'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 1-202-942-8090. 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 fund makes portfolio holdings information available by periodically providing the information on its public web site, www.vankampen.com. Each Van Kampen fund 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. Furthermore, each Van Kampen open-end fund provides partial lists of its portfolio holdings (such as top 10 or top 15 fund holdings) to the public web site each month with a delay of approximately 15 days. You may obtain copies of a fund's fiscal quarter filings, or its monthly or calendar-quarter web site postings, by contacting Van Kampen Client Relations at 1-800-847-2424. 6 HOUSEHOLDING NOTICE To reduce fund expenses, the fund attempts to eliminate duplicate mailings to the same address. The fund delivers a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. The fund's prospectuses and shareholder reports (including annual privacy notices) will be delivered to you in this manner indefinitely unless you instruct us otherwise. You can request multiple copies of these documents by either calling 1-800-341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has received your instructions, we will begin sending individual copies for each account within 30 days. PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD The fund's policies and procedures with respect to the voting of proxies relating to the fund's portfolio securities and information on how the fund 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. 7 Expense Example As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 4/1/04 - 9/30/04. ACTUAL EXPENSE The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads), and redemption fees, or exchange fees.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/04 9/30/04 4/1/04-9/30/04 Class A Actual...................................... $1,000.00 $1,021.79 $4.50 Hypothetical................................ 1,000.00 1,020.60 4.50 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,017.86 8.27 Hypothetical................................ 1,000.00 1,016.80 8.27 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,017.74 8.27 Hypothetical................................ 1,000.00 1,016.80 8.27 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.89%, 1.64%, and 1.64% for Class A, B, and C Shares, respectively, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). Assumes all dividends and distributions were reinvested. 8 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- MUNICIPAL BONDS 98.1% ALABAMA 1.2% $ 1,000 Alabama Drinking Wtr Fin Auth Revolving Fd Ln Ser C (AMBAC Insd)....................... 5.750% 08/15/18 $ 1,133,630 2,000 Alabama Drinking Wtr Fin Auth Revolving Fd Ln Ser C (AMBAC Insd)....................... 5.375 08/15/23 2,175,240 2,000 Alabama Wtr Pollutn Ctl Auth (AMBAC Insd)... 5.750 08/15/18 2,255,040 1,500 Colbert Cnty Northwest Auth Hlth Care Fac... 5.750 06/01/27 1,446,705 2,500 Huntsville/Carlton Cove, AL Carlton Cove Inc Proj Ser A.................................. 7.000 11/15/17 1,502,900 3 Mobile, AL Indl Dev Brd Solid Waste Disp Rev Mobile Energy Svc Co Proj Rfdg.............. 6.950 01/01/20 18 1,395 Valley, AL Spl Care Fac Fin Auth Rev Lanier Mem Hosp Ser A.............................. 5.600 11/01/16 1,403,928 1,750 Valley, AL Spl Care Fac Fin Auth Rev Lanier Mem Hosp Ser A.............................. 5.650 11/01/22 1,746,360 ------------ 11,663,821 ------------ ALASKA 0.5% 1,520 Alaska Indl Dev & Expt Auth Williams Lynxs AK Cargoport (AMT) (Acquired 05/17/01, Cost $1,520,000) (a)............................. 7.800 05/01/14 1,578,702 4,000 Juneau, AK City & Borough Rev Saint Anns Care Ctr Proj............................... 6.875 12/01/25 3,599,920 ------------ 5,178,622 ------------ ARIZONA 3.7% 2,000 Arizona Hlth Fac Auth Hosp John C Lincoln Hlth Network................................ 6.375 12/01/37 2,109,060 1,000 Arizona Hlth Fac Auth Rev Terraces Proj Ser A........................................... 7.500 11/15/23 1,012,960 1,250 Arizona Hlth Fac Auth Rev Terraces Proj Ser A........................................... 7.750 11/15/33 1,274,262 5,985 Cochise Cnty, AZ Indl Dev Sierra Vista Cmnty Hosp Ser A Rfdg............................. 6.750 12/01/26 6,106,795 1,000 Flagstaff, AZ Indl Dev Auth Rev Sr Living Cmnty Northn AZ Proj........................ 7.500 03/01/35 1,068,520 500 Flagstaff, AZ Indl Dev Auth Rev Sr Living Cmnty Northn AZ Proj........................ 6.300 09/01/38 477,610 4,000 Maricopa Cnty, AZ Hlth Fac Rev Catholic Hlthcare West Ser A......................... 5.500 07/01/26 4,041,760 1,000 Maricopa Cnty, AZ Indl Dev Auth Horizon Cmnty Learning Ctr Proj 1 Ser A............. 7.125 06/01/10 1,037,500 4,000 Maricopa Cnty, AZ Indl Dev Auth Multi-Family Hsg Rev Natl Hlth Fac II Proj Ser B (Acquired 01/15/98, Cost $4,000,000) (a).... 6.625 07/01/33 3,017,040 2,605 Maricopa Cnty, AZ Indl Dev Christian Care Mesa Inc Proj Ser A......................... 7.750 04/01/15 2,716,754
See Notes to Financial Statements 9 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- ARIZONA (CONTINUED) $ 2,000 Maricopa Cnty, AZ Indl Dev Christian Care Mesa Inc Proj Ser A......................... 7.875% 04/01/27 $ 2,060,400 1,500 Peoria, AZ Indl Dev Auth Rev Sierra Winds Life Ser A Rfdg............................. 6.375 08/15/29 1,432,500 2,500 Phoenix, AZ Indl Dev Auth Mtg Christian Care Apt Proj Ser A Rfdg......................... 6.500 01/01/26 2,561,275 1,355 Pima Cnty, AZ Indl Dev Auth Dev Radisson City Ctr Proj Rfdg (Acquired 03/28/02, Cost $1,355,000) (a)............................. 7.000 12/02/12 1,336,233 800 Pima Cnty, AZ Indl Dev Auth Fac Skyline Tech High Sch Proj............................... 7.500 02/01/34 808,696 1,000 Pima Cnty, AZ Indl Dev Auth Rev La Posada at Park Ctr Ser A.............................. 7.000 05/15/27 1,015,580 520 Pima Cnty, AZ Indl Dev Auth Ser A........... 7.250 11/15/18 337,017 500 Pima Cnty, AZ Indl Dev Auth Ser A........... 8.250 11/15/22 323,930 1,050 Red Hawk Canyon Cmnty Fac Dist No 2 AZ Dist Assmt Rev................................... 6.500 12/01/12 1,138,000 2,150 Tucson, AZ Multi-Family Rev Hsg Catalina Asstd Living Ser A (AMT).................... 6.500 07/01/31 1,889,635 ------------ 35,765,527 ------------ CALIFORNIA 5.3% 1,000 Abag Fin Auth Nonprofit Corp CA American Baptist Homes Ser A Rfdg.................... 5.850 10/01/27 940,410 1,000 Brentwood, CA Infrastructure Auth Rev....... 5.875 09/02/34 1,011,060 2,000 California St Dept Wtr Res Pwr Ser A (AMBAC Insd)....................................... 5.500 05/01/16 2,274,780 5,000 California St Econ Ser A.................... 5.000 07/01/16 5,358,750 1,000 California Statewide Cmnty Dev Auth Elder Care Alliance Ser A......................... 8.250 11/15/32 996,590 965 California Statewide Cmnty Dev Auth Multi- Family Rev Hsg Heritage Pointe Sr Apt Ser QQ (AMT) (Acquired 02/19/02, Cost $962,587) (a)......................................... 7.500 10/01/26 940,209 1,000 California Statewide Cmnty Dev Auth San Francisco Art Institute (Acquired 07/05/02, Cost $1,000,000) (a)........................ 7.375 04/01/32 1,006,090 5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev (Escrowed to Maturity) (MBIA Insd)...... * 09/01/17 2,711,750 2,300 Foothill/Eastern Tran Corridor Agy CA Toll Rd Rev (MBIA Insd).......................... * 01/15/18 1,163,777 1,460 Healdsburg, CA Ctf Partn Nuestro Hosp Inc (Acquired 11/13/98, Cost $1,437,932) (a) (b) (c)......................................... 6.375 11/01/28 25,550 1,750 Huntington Beach, CA Cmnty No 2003 1 Huntington Ctr............................ 5.800 09/01/23 1,776,932 905 Indio, CA Pub Fin Auth Rev Tax Increment (Prerefunded @ 08/15/06).................... 6.500 08/15/27 975,201
10 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- CALIFORNIA (CONTINUED) $ 2,000 Indio, CA Redev Agy Tax Alloc Sub Merged Proj Area Ser B............................. 6.375% 08/15/33 $ 2,054,360 500 Indio, CA Redev Agy Tax Alloc Sub Merged Proj Area Ser B............................. 6.500 08/15/34 514,815 1,000 Jurupa, CA Cmnty Svc Dist Spl Cmnty Fac Dist No 4 Ser A.................................. 5.700 09/01/34 1,004,080 1,865 Lake Elsinore, CA Pub Fin Auth Loc Agy Rev Ser F....................................... 7.100 09/01/20 2,030,164 1,000 Lee Lake Wtr Dist CA Cmnty Fac Dist No 1 Spl Tax Sycamore Creek.......................... 6.000 09/01/33 1,028,590 1,000 Lincoln, CA Spl Tax Cmnty Fac Dist No 2003 Ser 1....................................... 6.000 09/01/34 1,020,420 1,750 Los Angeles, CA Regl Arpt Impt Corp Lease Rev Fac Sublease LA Intl Ser A-1 Rfdg....... 7.125 12/01/24 1,554,682 5,440 Los Angeles, CA Regl Arpt Impt Corp Lease Rev Ser C (AMT)............................. 7.500 12/01/24 4,971,942 1,440 Millbrae, CA Residential Fac Rev Magnolia of Millbrae Proj Ser A (AMT)................... 7.375 09/01/27 1,468,051 1,000 Murrieta, CA Cmnty Fac Dist No 2 the Oaks Impt Area A................................. 5.900 09/01/27 1,019,870 1,000 Murrieta, CA Cmnty Fac Dist No 2 the Oaks Impt Area A................................. 6.000 09/01/34 1,022,820 1,000 Murrieta, CA Cmnty Fac Dist No 2 the Oaks Impt Area B................................. 6.000 09/01/27 1,023,580 1,000 Perris, CA Cmnty Fac Dist Spl Tax No 01-2 Ser A....................................... 6.375 09/01/32 1,020,550 1,135 Simi Vly, CA Cmnty Dev Agy Coml Sycamore Plaza II Rfdg (Acquired 07/28/98, Cost $1,135,000) (a)............................. 6.000 09/01/12 1,188,981 1,000 Upland, CA Cmnty Fac Dist 2003 San Antonio Impt 1 A.................................... 5.900 09/01/24 1,026,780 1,500 Upland, CA Cmnty Fac Dist 2003 San Antonio Impt 1 A.................................... 6.000 09/01/34 1,526,325 1,965 Vallejo, CA Ctf Partn Touro Univ............ 7.250 06/01/16 2,055,901 1,000 Vallejo, CA Pub Fin Auth Loc Hiddenbrooke Impt Dist Ser A............................. 5.800 09/01/31 1,012,820 1,000 Woodland, CA Spl Tax Cmnty Fac Dist 1 Spring Lake (d).................................... 6.250 09/01/34 991,240 1,800 Yuba City, CA Redev Agy Tax Proj Ser A...... 6.000 09/01/31 1,842,444 3,000 Yuba City, CA Redev Agy Tax Proj Ser A...... 6.000 09/01/39 3,045,750 ------------ 51,605,264 ------------ COLORADO 2.7% 1,000 Bromley Pk Met Dist CO No 2 Ser B........... 8.050 12/01/32 1,018,620 975 Colorado Ed & Cultural Fac Charter Sch Frontier Academy............................ 7.250 06/01/20 1,013,142
See Notes to Financial Statements 11 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- COLORADO (CONTINUED) $ 2,000 Colorado Hlth Fac Auth Rev Baptist Home Assn Ser A....................................... 6.375% 08/15/24 $ 1,723,220 1,060 Colorado Hlth Fac Auth Rev Christian Living Campus Proj................................. 7.050 01/01/19 1,074,437 6,200 Colorado Hlth Fac Auth Rev Christian Living Campus Proj (Prerefunded @ 01/01/05)........ 9.000 01/01/25 6,429,958 3,425 Denver, CO Hlth & Hosp Auth Ser A Rfdg...... 6.250 12/01/33 3,635,055 2,500 Elk Vly, CO Pub Impt Fee Ser A.............. 7.300 09/01/22 2,616,675 710 Lafayette, CO Indl Dev Rev Rocky Mtn Instr Proj Ser A.................................. 6.750 10/01/14 412,134 1,985 Lafayette, CO Indl Dev Rev Rocky Mtn Instr Proj Ser A (AMT)............................ 7.000 10/01/18 1,136,293 4,935 Lake Creek Affordable Hsg Corp Hsg Proj Ser A Rfdg...................................... 6.250 12/01/23 4,559,249 1,774 Skyland Metro Dist CO Gunnison Cnty Rfdg.... 6.750 12/01/22 1,769,175 1,000 Southlands Met Dist No 1 CO................. 7.000 12/01/24 999,330 ------------ 26,387,288 ------------ CONNECTICUT 0.4% 1,500 Connecticut St Dev Auth Indl Afco Cargo Bdl LLC Proj (AMT).............................. 8.000 04/01/30 1,567,680 2,000 Mohegan Tribe Indians CT Pub Impt Priority Dist (Acquired 09/27/01, Cost $1,956,874) (a)......................................... 6.250 01/01/31 2,118,540 ------------ 3,686,220 ------------ DELAWARE 0.1% 1,100 Wilmington, DE Multi-Family Rent Rev Hsg Electra Arms Sr Assoc Proj (AMT)............ 6.250 06/01/28 957,880 ------------ DISTRICT OF COLUMBIA 0.1% 1,000 District of Columbia Rev Methodist Home Issue....................................... 6.000 01/01/29 892,460 85 District of Columbia Ser A-1 (Escrowed to Maturity) (MBIA Insd)....................... 6.500 06/01/10 100,682 ------------ 993,142 ------------ FLORIDA 9.1% 1,000 Bellalago Ed Fac Benefits Ser A............. 6.000 05/01/33 1,006,530 1,000 Bluewaters Cmnty Dev Dist of FL............. 6.000 05/01/35 1,004,990 2,500 Bonnet Creek Resort Cmnty Dev............... 7.500 05/01/34 2,641,625 3,280 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev Ctr..................................... 10.250 07/01/11 3,295,547 1,390 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev Ctr Ser A............................... 10.250 07/01/11 1,396,589 80 Fishhawk Cmnty Dev Dist of FL Spl Assmt Rev......................................... 6.650 05/01/07 80,322 1,390 Fishhawk Cmnty Dev Dist of FL Spl Assmt Rev (Prerefunded @ 05/01/06).................... 7.625 05/01/18 1,518,088
12 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- FLORIDA (CONTINUED) $ 3,690 Florida Hsg Fin Corp Rev Hsg Beacon Hill Apt Ser C (AMT)................................. 6.610% 07/01/38 $ 3,479,153 7,180 Florida Hsg Fin Corp Rev Hsg Cypress Trace Apt Ser G (AMT)............................. 6.600 07/01/38 6,738,502 4,905 Florida Hsg Fin Corp Rev Hsg Westchase Apt Ser B (AMT)................................. 6.610 07/01/38 4,279,809 1,500 Harbour Isles Cmnty Dev Dist of FL.......... 6.125 05/01/35 1,519,125 310 Heritage Harbor Cmnty Dev Dist FL Rev Recntl...................................... 7.750 05/01/23 289,661 850 Heritage Harbor Cmnty Dev Dist FL Rev Spl Assmt Ser A................................. 6.700 05/01/19 874,259 1,500 Hillsborough Cnty, FL Hsg Fin Hsg Clipper Cove Apt Proj Ser A (AMT)................... 7.375 07/01/40 1,453,620 1,000 Islands at Doral III Cmnty 2004 Ser A....... 5.900 05/01/35 1,006,960 1,000 Islands at Doral NE Cmnty Dev............... 6.250 05/01/34 1,017,750 815 Lake Saint Charles, FL Cmnty Dev Dist Spl Assmt Rev................................... 7.875 05/01/17 840,518 2,000 Lee Cnty, FL Indl Dev Auth Hlthcare Fac Rev Cypress Cove Hlthpk Ser A................... 6.750 10/01/32 2,047,200 3,535 Leon Cnty, FL Ed Fac Auth Rev Southgate Residence Hall Ser A Rfdg................... 6.750 09/01/28 3,559,356 1,295 Lexington Cmnty Dev Dist FL................. 6.125 05/01/34 1,317,106 135 Marshall Creek Cmnty Dev FL Spl Assmt Ser B........................................... 6.750 05/01/07 135,925 2,500 Meadow Woods Cmnty Dev Dist FL Ser A........ 6.050 05/01/35 2,522,200 1,000 Miami Beach, FL Hlth Fac Hosp Mt Sinai Med Ctr FL Proj................................. 5.375 11/15/28 880,810 2,500 Miami Beach, FL Hlth Fac Hosp Mt Sinai Med Ctr Rfdg (Acquired 04/26/04, Cost $2,412,158) (a)............................. 6.750 11/15/29 2,594,775 3,000 Midtown Miami, FL Cmnty Dev Dist Ser A...... 6.000 05/01/24 3,064,470 1,325 Miromar Lakes Cmnty Dev Dist Ser B.......... 7.250 05/01/12 1,397,027 930 Northern Palm Beach Cnty Dist FL Impt Wtr Ctl & Impt Unit Dev No 16 Rfdg.............. 7.500 08/01/24 993,379 2,050 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran Twr Rfdg................... 8.625 07/01/20 2,131,283 2,250 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran Twr Rfdg................... 8.750 07/01/26 2,314,283 1,560 Orange Cnty, FL Hlth Fac Auth Rev Hosp Adventist Hlth Sys.......................... 5.875 11/15/11 1,753,175 1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp Adventist Hlth Sys.......................... 6.375 11/15/20 1,102,890 2,000 Orange Cnty, FL Hlth Fac Auth Rev Westminster Cmnty Care...................... 6.600 04/01/24 1,748,880 1,000 Overoaks, FL Cmnty Dev Dist CA Ser A........ 6.125 05/01/35 1,003,800
See Notes to Financial Statements 13 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- FLORIDA (CONTINUED) $ 2,340 Pinellas Cnty, FL Ed Fac Auth Rev College Harbor Proj Ser A........................... 8.250% 12/01/21 $ 2,436,385 1,685 Pinellas Cnty, FL Ed Fac Auth Rev College Harbor Proj Ser A........................... 8.500 12/01/28 1,758,533 3,000 Pinellas Cnty, FL Hlth Fac Auth Oaks of Clearwater Proj............................. 6.250 06/01/34 3,011,730 2,000 Reunion West Cmnty Dev Dist................. 6.250 05/01/36 2,028,360 990 Saddlebrook, FL Cmnty Ser A................. 6.900 05/01/33 1,040,213 1,000 Saint John's Cnty, FL Indl Dev Auth Hlthcare Glenmoor Saint John's Proj Ser A............ 8.000 01/01/30 1,031,340 2,000 Saint John's Cnty, FL Indl Dev Auth Hlthcare Rev Bayview Proj Ser A...................... 7.100 10/01/26 2,002,320 6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac Sunnyside Ppty.............................. 6.700 07/01/25 3,976,200 2,015 Silver Palms Cmnty Dev Dist................. 5.900 05/01/34 1,991,263 1,300 South Dade Venture Cmnty Dev................ 6.125 05/01/34 1,317,602 315 Stoneybrook West Cmnty Dev Dist FL Spl Assmt Rev Ser B................................... 6.450 05/01/10 320,207 22 Tara Cmnty Dev Dist 1 FL Cap Impt Rev Ser B........................................... 6.750 05/01/10 22,412 1,787 University Square Cmnty Dev Dist FL Cap Impt Rev (Acquired 10/07/99, Cost $1,785,270) (a)......................................... 6.750 05/01/20 1,883,212 2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg (Prerefunded @ 11/01/06).......... 7.625 11/01/26 2,270,620 1,000 World Commerce Cmnty Dev Dist Ser A1........ 6.250 05/01/22 1,005,700 1,715 World Commerce Cmnty Dev Dist Ser A2........ 6.125 05/01/35 1,738,890 ------------ 88,844,594 ------------ GEORGIA 2.4% 2,000 Atlanta, GA Tax Alloc Atlantic Sta Proj..... 7.750 12/01/14 2,088,680 2,385 Atlanta, GA Urban Residential Fin Auth Multi-Family Rev John Eagan Proj Ser A (AMT)....................................... 6.750 07/01/30 2,290,649 2,750 De Kalb Cnty, GA Residential Care Fac Kings Bridge Ser A................................ 8.250 07/01/26 2,862,833 1,000 Effingham Cnty, GA Dev Auth Solfort James Proj (AMT).................................. 5.625 07/01/18 977,000 4,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg Rev Azalea Manor Proj Ser A (Acquired 02/18/98, Cost $4,000,000) (a) (b).......... 6.500 02/01/28 1,980,000 1,800 Fulton Cnty, GA Residential Care Canterbury Court Proj Ser A............................ 6.000 02/15/22 1,811,592 650 Fulton Cnty, GA Residential Care Canterbury Court Proj Ser A............................ 6.125 02/15/34 644,170 2,000 Fulton Cnty, GA Residential Care Sr Lien RHA Asstd Living Ser A.......................... 7.000 07/01/29 1,942,560 4,000 Milledgeville Baldwin Cnty GA College & St Univ Fndtn.................................. 5.625 09/01/30 4,120,720
14 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- GEORGIA (CONTINUED) $ 1,000 Private Colleges & Univ Auth GA Mercer Hsg Corp Proj Ser A............................. 6.000% 06/01/21 $ 1,050,310 2,930 Renaissance on Peachtree Unit Invt Tr Ctf GA Custody Ctf (Variable Rate Coupon).......... 12.334 10/01/25 3,265,397 ------------ 23,033,911 ------------ HAWAII 3.0% 3,000 Hawaii St Dept Budget & Fin Spl Purp Rev Kahala Nui Proj Ser A....................... 8.000 11/15/33 3,150,240 1,820 Hawaii St Dept Trans Spl Fac Rev Continental Airl Inc (AMT).............................. 5.625 11/15/27 1,217,380 19,575 Honolulu, HI City & Cnty Ser B (MBIA Insd)....................................... 5.000 07/01/13 21,778,949 2,825 Kuakini, HI Hlth Sys Spl Ser A.............. 6.375 07/01/32 2,908,987 ------------ 29,055,556 ------------ IDAHO 0.1% 1,000 Idaho Hlth Fac Auth Rev Vly Vista Care Ser A Rfdg........................................ 7.875 11/15/29 969,610 ------------ ILLINOIS 8.6% 2,500 Bolingbrook, IL Cap Apprec Ser B (MBIA Insd)....................................... * 01/01/29 660,900 1,993 Bolingbrook, IL Spl Svc Area No 01-1........ 7.375 07/01/31 2,135,878 1,500 Bolingbrook, IL Spl Svc Area No 1 Spl Tax Augusta Vlg Proj (Acquired 11/13/02, Cost $1,500,000) (a)............................. 6.750 03/01/32 1,558,635 1,906 Bolingbrook, IL Spl Svc Area No 3 Lakewood Ridge Proj.................................. 7.050 03/01/31 2,024,363 964 Cary, IL Spl Tax Svc Area No 1 Cambridge Ser A........................................... 7.625 03/01/30 1,047,396 3,000 Chicago, IL Lakefront Millenium Pkg Fac (MBIA Insd) (e)............................. 0/5.700 01/01/25 2,967,900 7,750 Chicago, IL O'Hare Intl Arpt Rev RR II R 239-1 (AMT) (Inverse Fltg) (Acquired 08/18/03, Cost $8,410,439) (FSA Insd) (a) (f)......................................... 9.664 01/01/19 9,518,628 3,600 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airl Inc Proj Ser B Rfdg (AMT) (b) (c)......................................... 6.100 11/01/35 972,000 5,000 Chicago, IL Proj Ser A Rfdg (MBIA Insd)..... 5.500 01/01/38 5,387,250 4,000 Chicago, IL Spl Assmt Lakeshore East Proj... 6.625 12/01/22 4,152,360 880 Chicago, IL Tax Increment Alloc Read Dunning Ser B (ACA Insd)............................ 7.250 01/01/14 948,710 2,000 Chicago, IL Tax Increment Alloc Sub Cent Loop Redev Ser A............................ 6.500 12/01/05 2,080,860 3,000 Chicago, IL Tax Increment Alloc Sub Cent Loop Redev Ser A (ACA Insd)................. 6.500 12/01/06 3,234,090 1,925 Chicago, IL Tax Increment Alloc Sub Cent Loop Redev Ser A (ACA Insd)................. 6.500 12/01/08 2,157,906
See Notes to Financial Statements 15 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 1,000 Clay Cnty, IL Hosp Rev...................... 5.900% 12/01/28 $ 933,700 1,295 Gilberts, IL Spl Svc Area No 9 Spl Tax Big Timber Proj................................. 7.375 03/01/11 1,368,530 1,245 Gilberts, IL Spl Svc Area No 9 Spl Tax Big Timber Proj................................. 7.750 03/01/27 1,357,461 1,500 Godfrey, IL Rev Utd Methodist Vlg Ser A..... 5.875 11/15/29 1,127,190 2,700 Hoopeston, IL Hosp Cap Impt Rev Hoopeston Cmnty Mem Hosp Rfdg......................... 6.550 11/15/29 2,485,485 1,810 Huntley, IL Increment Alloc Rev Huntley Redev Proj Ser A............................ 8.500 12/01/15 1,901,170 253 Huntley, IL Spl Svc Area No 10 Spl Tax Ser A........................................... 6.250 03/01/09 256,238 2,621 Huntley, IL Spl Svc Area No 10 Spl Tax Ser A........................................... 6.500 03/01/29 2,676,539 1,405 Illinois Fin Auth Rev Cmnty Fac Clinic Altgeld Proj................................ 8.000 11/15/16 1,259,540 500 Illinois Fin Auth Rev Fairview Oblig Group Ser A Rfdg.................................. 6.000 08/15/20 502,135 500 Illinois Fin Auth Rev Fairview Oblig Grp Ser A Rfdg...................................... 6.125 08/15/27 494,560 3,000 Illinois Fin Auth Rev Northwestern Mem Hosp Ser A....................................... 5.500 08/15/43 3,088,020 1,000 Illinois Hlth Fac Auth Rev Ctr Baptist Home Proj........................................ 7.125 11/15/29 975,380 2,500 Illinois Hlth Fac Auth Rev Decatur Mem Hosp........................................ 5.750 10/01/24 2,591,700 3,000 Illinois Hlth Fac Auth Rev Fairview Oblig Grp Ser A Rfdg (Prerefunded @ 08/15/06)..... 7.400 08/15/23 3,339,480 1,000 Illinois Hlth Fac Auth Rev Lifelink Corp Oblig Group Ser B (Prerefunded @ 02/15/05)................................... 8.000 02/15/25 1,023,550 650 Illinois Hlth Fac Auth Rev Loyola Univ Hlth Sys Ser A................................... 6.000 07/01/21 676,793 1,200 Illinois Hlth Fac Auth Rev Lutheran Sr Ministries Oblig Ser A...................... 7.375 08/15/31 1,200,624 1,500 Illinois Hlth Fac Auth Rev Peace Mem Ministries Proj (Prerefunded @ 08/15/06).... 7.500 08/15/26 1,672,350 1,545 Illinois Hlth Fac Auth Rev Proctor Cmnty Hosp Proj................................... 7.500 01/01/11 1,546,051 250 Illinois Hlth Fac Auth Rev Ser A Rfdg....... 6.200 08/15/23 252,930 1,125 Illinois Hlth Fac Auth Rev Ser A Rfdg....... 6.400 08/15/33 1,138,590 700 Illinois Hlth Fac Auth Rev Silver Cross Hosp & Med Rfdg.................................. 5.500 08/15/19 719,901 2,375 Lake Cnty, IL Fst Presv Dist Ld Acquisition & Dev....................................... 5.750 12/15/16 2,734,338 675 Lake Cnty, IL Fst Presv Dist Ld Acquisition & Dev....................................... 5.750 12/15/17 777,128 80 Lake, Cook, Kane & McHenry Cntys, IL Cmnty Unit Sch Dist No 22 (FGIC Insd)............. 5.750 12/01/19 91,359
16 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 1,223 Montgomery, IL Spl Assmt Impt Lakewood Creek Proj........................................ 7.750% 03/01/30 $ 1,354,020 1,800 Peoria, IL Spl Tax Weaverridge Spl Svc Area........................................ 8.050 02/01/17 1,909,440 2,000 Plano, IL Spl Svc Area No 1 Lakewood Springs Proj Ser A.................................. 6.200 03/01/34 1,987,820 2,095 Regional Tran Auth IL Ser B (AMBAC Insd).... 8.000 06/01/17 2,930,360 955 Sterling, IL Rev Hoosier Care Proj Ser A.... 7.125 06/01/34 876,757 ------------ 84,096,015 ------------ INDIANA 1.1% 825 Crawfordsville, IN Redev Cmnty Redev Dist Tax Increment Rev (Acquired 10/15/97, Cost $825,000) (a)............................... 7.000 02/01/12 840,114 1,915 Indiana Hlth Fac Fin Auth Rev Hoosier Care Proj Ser A.................................. 7.125 06/01/34 1,759,942 6,500 Indiana Hlth Fac Hosp Rev Cmnty Fndtn Northwest IN Ser A.......................... 6.000 03/01/34 6,389,435 2,000 Petersburg, IN Pollutn Ctl Rev IN Pwr & Lt (AMT)....................................... 6.375 11/01/29 2,086,140 ------------ 11,075,631 ------------ IOWA 0.5% 2,000 Estherville, IA Hosp Rev Avera Holy Family Proj........................................ 6.250 07/01/26 2,123,080 1,975 Iowa Fin Auth Hlth Care Fac Care Initiatives Proj Rfdg................................... 9.250 07/01/25 2,393,700 ------------ 4,516,780 ------------ KANSAS 0.7% 910 Lawrence, KS Coml Dev Rev Holiday Inn Sr Ser A Rfdg...................................... 8.000 07/01/16 840,540 1,000 Lenexa, KS Hlthcare Fac Rev Lakeview Vlg Inc Ser B....................................... 6.250 05/15/26 1,011,530 915 Manhattan, KS Coml Dev Rev Holiday Inn Sr Ser A Rfdg.................................. 8.000 07/01/16 845,158 2,000 Olathe, KS Sr Living Fac Rev Aberdeen Vlg Inc Ser A................................... 8.000 05/15/30 2,182,960 1,500 Overland Pk, KS Dev Corp Rev First Tier Overland Park Ser A......................... 7.375 01/01/32 1,534,755 ------------ 6,414,943 ------------ KENTUCKY 0.1% 1,000 Kenton Cnty, KY Arpt Brd Spl Fac Rev Mesaba Aviation Inc Proj Ser A (AMT)............... 6.700 07/01/29 790,740 ------------
See Notes to Financial Statements 17 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- LOUISIANA 1.0% $ 2,135 Louisiana Hsg Fin Agy Rev Multi-Family Hsg Plantation Ser A............................ 7.125% 01/01/28 $ 1,603,663 2,000 Louisiana Hsg Fin Agy Rev Azalea Estates A Rfdg (AMT) (GNMA Collateralized)............ 5.375 10/20/39 2,016,760 2,000 Louisiana Loc Govt Environment Fac Hlthcare Saint James Place Ser A Rfdg................ 8.000 11/01/29 1,348,420 1,000 Louisiana Pub Fac Auth Rev Progressive Hlthcare.................................... 6.375 10/01/20 936,750 1,000 Louisiana Pub Fac Auth Rev Progressive Hlthcare.................................... 6.375 10/01/28 891,830 3,282 Louisiana St Univ & Agric & Mechanical College Univ Rev Master Agreement (Acquired 11/30/98, Cost $3,282,396) (a).............. 5.750 10/30/18 3,105,016 ------------ 9,902,439 ------------ MARYLAND 2.1% 1,000 Baltimore Cnty, MD Mtg Rev Shelter Elder Care Ser A.................................. 7.250 11/01/29 977,460 4,000 Frederick Cnty, MD Spl Oblig Urbana Cmnty Dev Auth Ser A.............................. 5.950 07/01/30 4,015,120 1,000 Frederick Cnty, MD Spl Oblig Urbana Cmnty Dev Auth Ser B.............................. 6.250 07/01/30 1,003,750 595 Maryland St Econ Dev Corp Air Cargo Rev Afco Cargo BWI II LLC Proj (AMT)................. 6.250 07/01/07 592,989 1,200 Maryland St Econ Dev Corp MD Golf Course Sys......................................... 8.250 06/01/28 1,116,276 1,540 Maryland St Hlth & Higher Ed Calvert Hlth Sys......................................... 5.500 07/01/36 1,588,525 1,000 Maryland St Hlth & Higher Ed Medstar Hlth Rfdg........................................ 5.500 08/15/33 1,011,710 3,000 Montgomery Cnty, MD Econ Dev Editorial Proj In Ed Ser A (Acquired 09/28/98, Cost $3,002,660) (a)............................. 6.400 09/01/28 2,857,260 1,652 Prince Georges Cnty, MD Rev................. 8.000 04/01/16 1,376,314 3,000 Prince Georges Cnty, MD Spl Oblig Spl Assmt Woodview Ser A.............................. 8.000 07/01/26 3,244,050 1,000 Westminster, MD Econ Dev Carroll Lutheran Vlg Ser A................................... 6.000 05/01/24 1,019,500 1,500 Westminster, MD Econ Dev Carroll Lutheran Vlg Ser A................................... 6.250 05/01/34 1,539,585 ------------ 20,342,539 ------------ MASSACHUSETTS 3.1% 1,000 Massachusetts St Dev Fin Agy Briarwood Ser B........................................... 8.000 12/01/22 1,053,500 880 Massachusetts St Dev Fin Agy Rev Gtr Lynn Mental Hlth (Acquired 07/27/00, Cost $880,000) (a)............................... 7.750 06/01/18 911,363
18 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- MASSACHUSETTS (CONTINUED) $ 1,930 Massachusetts St Dev Fin Agy Rev Hillcrest Ed Ctr Inc.................................. 6.375% 07/01/29 $ 1,852,202 2,970 Massachusetts St Dev Fin Agy Rev Hlthcare Fac Alliance Ser A.......................... 7.100 07/01/32 2,875,316 1,000 Massachusetts St Dev Fin Agy Rev MCHSP Human Svc Providers Ser A (Prerefunded @ 07/01/10)................................... 8.000 07/01/20 1,245,790 3,765 Massachusetts St Dev Fin Agy Rev New England Ctr For Children............................ 6.000 11/01/19 3,798,245 3,100 Massachusetts St Hlth & Ed Civic Investments Ser B....................................... 9.150 12/15/23 3,585,646 1,000 Massachusetts St Hlth & Ed Nichols College Issue Ser C................................. 6.000 10/01/17 1,047,950 1,000 Massachusetts St Hlth & Ed Northern Berkshire Hlth Ser B (d).................... 6.250 07/01/24 983,200 1,940 Massachusetts St Indl Fin Agy Assisted Living Fac Rev Marina Bay LLC Proj (AMT).... 7.500 12/01/27 1,973,116 990 Massachusetts St Indl Fin Agy Assisted Living Fac Rev Newton Grp Pptys LLC Proj (AMT)....................................... 8.000 09/01/27 1,048,172 605 Massachusetts St Indl Fin Agy Rev First Mtg GF/Pilgrim Inc Proj......................... 6.500 10/01/15 550,725 2,000 Massachusetts St Indl Fin Agy Rev First Mtg GF/Pilgrim Inc Proj......................... 6.750 10/01/28 1,749,380 2,900 Massachusetts St Indl Fin Agy Rev Gtr Lynn Mental Hlth (Acquired 06/24/98, Cost $2,900,000) (a)............................. 6.375 06/01/18 2,797,804 655 Massachusetts St Indl Fin Agy Rev Gtr Lynn Mental Hlth (Acquired 06/24/98, Cost $655,000) (a)............................... 6.200 06/01/08 637,400 4,000 Massachusetts St Indl Fin Agy Rev Swr Fac Res Ctl Composting (AMT) (Acquired 08/10/89, Cost $4,000,000) (a)........................ 9.250 06/01/10 4,011,280 ------------ 30,121,089 ------------ MICHIGAN 1.3% 2,500 Chelsea, MI Econ Dev Corp Rev Utd Methodist Retirement Rfdg............................. 5.400 11/15/27 2,315,300 875 Detroit, MI Loc Dev Fin Auth Tax Increment Sub Ser C (Acquired 09/08/97, Cost $875,000) (a)......................................... 6.850 05/01/21 855,881 1,700 Hillsdale, MI Hosp Fin Hillsdale Cmnty Hlth Ctr......................................... 5.000 05/15/13 1,673,837 2,390 Meridian, MI Econ Dev Corp Ltd Oblig Rev First Mtg Burcham Hills Ser A Rfdg.......... 7.500 07/01/13 2,443,440
See Notes to Financial Statements 19 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- MICHIGAN (CONTINUED) $ 3,430 Meridian, MI Econ Dev Corp Ltd Oblig Rev First Mtg Burcham Hills Ser A Rfdg.......... 7.750% 07/01/19 $ 3,517,602 11,084 Michigan St Strategic Fd Ltd Oblig Rev Great Lakes Pulp & Fiber Proj (AMT) (b) (g)....... 8.000 12/01/27 1,640,365 ------------ 12,446,425 ------------ MINNESOTA 3.2% 2,000 Aitkin, MN Hlth Fac Rev Riverwood Hlthcare Ctr Proj.................................... 7.750 02/01/31 2,074,040 1,000 Cambridge, MN Hsg & Hlthcare Fac Rev Grandview West Proj Ser B................... 6.000 10/01/33 909,790 2,000 Carlton, MN Hlth & Hsg Fac Intermediate Faith Social Svc Inc Proj................... 7.500 04/01/19 2,080,020 1,000 Dakota Cnty, MN Hsg & Redev................. 6.250 05/01/29 950,000 2,500 Duluth, MN Econ Dev Auth Benedictine Hlth Sys Saint Marys Hosp........................ 5.250 02/15/33 2,509,950 1,500 Duluth, MN Econ Dev Auth Saint Lukes Hosp... 7.250 06/15/32 1,570,665 1,000 Duluth, MN Econ Dev Hlth Care Saint Lukes Hosp........................................ 6.000 06/15/12 1,003,560 2,000 Glencoe, MN Hlthcare Fac Rev................ 7.500 04/01/31 2,153,520 6,890 Minneapolis & Saint Paul, MN Met Northwest Airl Proj Ser A (AMT)....................... 7.000 04/01/25 5,727,381 1,000 Minneapolis & Saint Paul, MN Met Northwest Airl Proj Ser B (AMT)....................... 6.500 04/01/25 959,010 1,500 Oakdale, MN Rev Sr Hsg Oak Meadows Proj Rfdg........................................ 6.250 04/01/34 1,524,045 1,425 Ramsey, MN Lease Rev Pact Charter Sch Proj Ser A....................................... 6.750 12/01/33 1,447,244 1,500 Saint Cloud, MN Hsg & Redev Auth Sterling Heights Apt Proj (AMT)...................... 7.550 04/01/39 1,470,270 1,225 Saint Paul, MN Hsg & Redev Auth Hosp Rev Hltheast Proj Ser A Rfdg.................... 6.625 11/01/17 1,238,193 1,000 Saint Paul, MN Hsg & Redev Auth Higher Ground Academy Ser A Rfdg................... 6.625 12/01/23 1,020,660 1,000 Saint Paul, MN Hsg & Redev Cmnty of Peace Academy Proj Ser A.......................... 7.875 12/01/30 1,062,850 1,500 Saint Paul, MN Port Auth Hotel Fac Rev Radisson Kellogg Proj Ser 2 Rfdg............ 7.375 08/01/29 1,521,990 1,000 Shakopee, MN Hlthcare Saint Francis Regl Med Ctr (d)..................................... 5.250 09/01/34 987,020 1,450 Winona, MN Hlthcare Winona Hlth Ser A....... 6.000 07/01/34 1,479,218 ------------ 31,689,426 ------------ MISSISSIPPI 0.1% 615 Mississippi Business Fin Corp (AMT)......... 7.250 07/01/34 624,625 ------------
20 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- MISSOURI 3.9% $ 1,250 Cole Cnty, MO Indl Dev Auth Living Fac Rev Lutheran Svc Heisinger Proj................. 5.500% 02/01/35 $ 1,273,200 1,000 Fenton, MO Tax Increment Rev & Impt Gravois Bluffs Proj Rfdg............................ 6.125 10/01/21 1,027,330 1,000 Fenton, MO Tax Increment Rev & Impt Gravois Bluffs Proj Rfdg............................ 7.000 10/01/21 1,081,850 320 Ferguson, MO Tax Increment Rev Crossings at Halls Ferry Proj............................ 7.250 04/01/07 321,379 3,095 Ferguson, MO Tax Increment Rev Crossings at Halls Ferry Proj............................ 7.625 04/01/17 3,116,789 484 Ferguson, MO Tax Increment Rev Crossings at Halls Ferry Proj............................ 7.625 04/01/18 487,407 2,000 Kansas City, MO Indl Dev Auth First Mtg Bishop Spencer Ser A........................ 6.250 01/01/24 2,026,940 1,500 Kansas City, MO Indl Dev Auth First Mtg Bishop Spencer Ser A........................ 6.500 01/01/35 1,521,885 988 Kansas City, MO Indl Dev Auth Multi-Family Hsg Rev Brentwood Manor Apt Proj Ser B (AMT)....................................... 7.250 10/15/38 972,627 1,831 Kansas City, MO Multi-Family Hsg Rev Northwoods Apt Proj Ser A (AMT)............. 6.450 05/01/40 1,827,063 955 Kansas City, MO Multi-Family Hsg Rev Vlg Green Apt Proj (AMT)........................ 6.250 04/01/30 695,202 3,000 Kansas City, MO Indl Dev Plaza Lib Proj..... 5.900 03/01/24 2,970,090 10,820 Missouri St Hlth & Ed Fac Auth Rev Drivers Ser 362 (Inverse Fltg) (Acquired 07/21/03, Cost $12,044,675) (a) (f)................... 8.570 05/15/11 12,379,595 2,220 Nevada, MO Hosp Rev Nevada Regional Med Ctr......................................... 6.750 10/01/22 2,289,775 5,000 Saline Cnty, MO Indl Dev Auth Hlth Fac Rev (Acquired 01/12/99, Cost $4,910,436) (a).... 6.500 12/01/28 5,092,300 1,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)...... 6.000 06/01/15 1,206,570 ------------ 38,290,002 ------------ NEVADA 0.9% 3,500 Clark Cnty, NV Indl Dev Rev Southwest Gas Corp Proj Ser D1 (AMT) (FGIC Insd).......... 5.250 03/01/38 3,544,835 1,000 Clark Cnty, NV Pollutn Ctl Rev Southn CA Rfdg (AMT).................................. 3.250 06/01/31 992,170 3,000 Henderson, NV Hlthcare Fac Rev Catholic Hlthcare West Ser A......................... 5.625 07/01/24 3,092,820 1,000 Las Vegas, NV Loc Impt Bds Spl Impt Dist No 607......................................... 6.000 06/01/19 1,030,480 ------------ 8,660,305 ------------
See Notes to Financial Statements 21 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- NEW HAMPSHIRE 0.9% $ 1,500 New Hampshire Higher Ed & Hlth Brewster Academy..................................... 6.750% 06/01/25 $ 1,511,640 2,000 New Hampshire Higher Ed & Hlth Fac Auth Rev Havenwood-Heritage Heights.................. 7.350 01/01/18 2,078,920 2,000 New Hampshire Higher Ed & Hlth Fac Auth Rev Havenwood-Heritage Heights.................. 7.450 01/01/25 2,066,460 1,000 New Hampshire Hlth & Ed Fac Auth Rev NH College Issue............................... 7.500 01/01/31 1,079,960 1,500 New Hampshire Hlth & Ed Fac Hlthcare Sys Covenant Hlth............................... 5.500 07/01/34 1,521,915 1,000 New Hampshire St Business Fin Auth Rev Alice Peck Day Hlth Sys Ser A..................... 6.875 10/01/19 1,004,120 ------------ 9,263,015 ------------ NEW JERSEY 4.7% 2,240 Camden Cnty, NJ Impt Auth Lease Rev Dockside Refrig (Acquired 01/29/97, Cost $2,299,415) (a) (b) (c)................................. 8.400 04/01/24 1,800,400 1,000 Middlesex Cnty, NJ Pollutn Ctl Pollutn Ctl Amerada Rfdg................................ 6.050 09/15/34 1,037,830 2,000 New Jersey Econ Dev Auth Cedar Crest Vlg Inc Fac Ser A................................... 7.000 11/15/16 2,031,860 2,000 New Jersey Econ Dev Auth Continental Airl Inc Proj (AMT).............................. 6.250 09/15/19 1,577,380 2,000 New Jersey Econ Dev Auth First Mtg Franciscan Oaks Proj........................ 5.700 10/01/17 1,929,400 1,000 New Jersey Econ Dev Auth Retirement Cmnty Rev Ser A................................... 8.000 11/15/15 1,080,550 1,000 New Jersey Econ Dev Auth Retirement Cmnty Rev Ser A................................... 8.125 11/15/18 1,054,980 1,440 New Jersey Econ Dev Auth Retirement Cmnty Rev Ser A................................... 8.125 11/15/23 1,555,286 1,000 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens Ser A (Prerefunded @ 11/01/06)................................... 8.500 11/01/16 1,143,840 1,500 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens Ser A (Prerefunded @ 11/01/06)................................... 8.625 11/01/25 1,719,450 1,510 New Jersey Econ Dev Auth Rev Kullman Assoc Proj Ser A (AMT)............................ 6.125 06/01/18 1,277,898 2,000 New Jersey Econ Dev Auth Rev Sr Living Fac Esplanade Bear (AMT)........................ 7.000 06/01/39 1,657,000 3,000 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen Proj Ser A (Prerefunded @ 05/15/06).... 8.750 05/15/26 3,384,900 4,030 New Jersey Econ Dev Auth Spl Fac Rev Continental Airl Inc Proj (AMT)............. 6.400 09/15/23 3,139,330
22 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- NEW JERSEY (CONTINUED) $ 4,000 New Jersey Econ Dev Auth Spl Fac Rev Continental Airl Inc Proj (AMT)............. 6.250% 09/15/29 $ 2,985,360 10,000 New Jersey Econ Dev Auth Tics Ser 1 (Inverse Fltg) (Acquired 01/21/04, Cost $11,338,364) (AMBAC Insd) (a) (f)........................ 8.138 03/01/11 11,263,600 2,500 New Jersey Econ Dev Auth Utd Methodist Homes NJ Oblig.................................... 5.750 07/01/29 2,405,675 3,225 New Jersey Hlthcare Fac Fin Auth Rev Cap Hlth Sys Oblig Grp Ser A.................... 5.375 07/01/33 3,244,834 810 New Jersey Hlthcare Fac Fin Auth Rev Raritan Bay Med Ctr Issue Rfdg...................... 7.250 07/01/14 843,534 1,060 New Jersey St Ed Fac Auth Rev Felician College of Lodi Ser D (Acquired 11/07/97, Cost $1,060,000) (a)........................ 7.375 11/01/22 1,070,600 ------------ 46,203,707 ------------ NEW MEXICO 0.6% 4,155 Albuquerque, NM Retirement Fac Rev La Vida Llena Proj Ser B Rfdg....................... 6.600 12/15/28 4,061,263 1,030 New Mexico Hsg Auth Region III Sr Brentwood Gardens Apt Ser A (AMT)..................... 6.850 12/01/31 1,060,066 750 Ventana West Pub Impt Dist NM............... 6.875 08/01/33 763,035 ------------ 5,884,364 ------------ NEW YORK 5.4% 980 Bethlehem, NY Indl Dev Agy Sr Hsg Rev Van Allen Proj Ser A............................ 6.875 06/01/39 930,510 1,400 Brookhaven, NY Indl Dev Agy Sr Residential Hsg Rev Woodcrest Estates Fac Ser A (AMT)... 6.375 12/01/37 1,390,284 3,500 Dutchess Cnty, NY Indl Dev Agy Saint Francis Hosp Ser A Rfdg............................. 7.500 03/01/29 3,472,210 2,220 Monroe Cnty, NY Indl Dev Agy Woodland Vlg Proj........................................ 8.000 11/15/15 2,391,273 3,125 Nassau Cnty, NY Interim Fin Auth Sales Tax Sec Ser A (AMBAC Insd)...................... 5.000 11/15/12 3,486,656 3,000 New York City Indl Dev Agy JFK Intl Arpt Proj Ser B (AMT)............................ 8.500 08/01/28 2,270,880 4,800 New York City Ser A......................... 7.000 08/01/07 5,262,336 200 New York City Ser A (Prerefunded @ 08/01/06)................................... 7.000 08/01/07 221,760 2,130 New York City Ser D......................... 8.000 02/01/05 2,173,090 870 New York City Ser D (Escrowed to Maturity)................................... 8.000 02/01/05 888,557 5,000 New York City Ser I (MBIA Insd)............. 5.000 08/01/17 5,451,900 5,000 New York City Transitional Drivers Ser 386 (Inverse Fltg) (Acquired 02/02/04, Cost $5,429,169) (a) (f)......................... 8.660 02/01/12 5,544,850 1,360 New York St Dorm Auth Rev NY Methodist Hosp........................................ 5.250 07/01/24 1,420,588
See Notes to Financial Statements 23 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $ 2,000 New York St Dorm Auth Rev NY Methodist Hosp........................................ 5.250% 07/01/33 $ 2,045,040 2,500 New York St Energy Resh & Dev Auth Gas Fac Rev (Inverse Fltg) (f)...................... 11.509 04/01/20 3,113,450 1,975 Saratoga Cnty, NY Indl Dev Agy Sr Hsg Rev Highpointe at Malta Proj Ser A.............. 6.875 06/01/39 1,799,383 1,000 Suffolk Cnty, NY Gurwin Jewish Phase II..... 6.700 05/01/39 1,025,690 1,000 Suffolk Cnty, NY Indl Dev Agy Continuing Care Retirement Cmnty Rev................... 7.250 11/01/28 1,042,540 980 Suffolk Cnty, NY Indl Dev Agy Eastern Long Is Hosp Assoc Ser A......................... 7.750 01/01/22 992,544 1,400 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev Spellman High Voltage Fac Ser A (AMT)....... 6.375 12/01/17 1,246,798 1,445 Suffolk Cnty, NY Indl Dev Agy Peconic Landing Ser A............................... 8.000 10/01/20 1,535,298 1,000 Syracuse, NY Indl Dev Agy Rev First Mtg Jewish Home Ser A........................... 7.375 03/01/31 1,019,650 2,315 Utica, NY Indl Dev Agy Civic Utica College Civic Fac................................... 6.750 12/01/21 2,398,687 1,000 Westchester Cnty, NY Indl Dev Hebrew Hosp Sr Hsg Inc Ser A............................... 7.375 07/01/30 1,063,800 ------------ 52,187,774 ------------ NORTH CAROLINA 1.4% 2,000 North Carolina Med Care Commn First Mtg Utd Methodist Homes............................. 7.000 10/01/17 2,067,000 10,000 North Carolina St Rites PA 1246 (Inverse Fltg) (Acquired 03/16/04, Cost $11,756,148) (a) (f)..................................... 8.081 03/01/12 11,289,500 ------------ 13,356,500 ------------ NORTH DAKOTA 0.3% 2,000 Grand Forks, ND Sr Hsg Rev Spl Term 4000 Vly Square Proj................................. 6.250 12/01/34 1,900,160 955 Grand Forks, ND Sr Hsg Rev Spl Term 4000 Vly Square Proj................................. 6.375 12/01/34 927,047 ------------ 2,827,207 ------------ OHIO 2.9% 5,000 Athens Cnty, OH Hosp Fac Rev Impt O'Bleness Mem Ser A Rfdg.............................. 7.125 11/15/33 5,072,650 3,000 Cleveland-Cuyahoga Cnty, OH Spl Assmt/Tax Increment................................... 7.000 12/01/18 3,132,540 1,000 Cuyahoga Cnty, OH Hlthcare Fac Franciscan Cnty, OH Inc. Proj Ser C.................... 6.250 05/15/32 996,000 623 Cuyahoga Cnty, OH Multi-Family Rev Hsg Park Lane Apt Ser A1 Rfdg (e).................... 6.000/7.625 10/01/37 454,100 1,081 Cuyahoga Cnty, OH Multi-Family Rev Hsg Park Lane Apt Ser A2 Rfdg (b).................... 5.460 10/01/37 1,081
24 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- OHIO (CONTINUED) $ 5,000 Cuyahoga Cnty, OH Rev Ser A Rfdg............ 6.000% 01/01/32 $ 5,381,700 1,760 Dayton, OH Spl Fac Rev Air Freight Cargo Day LLC Proj (AMT).............................. 6.300 04/01/22 1,582,838 7,510 Erie Cnty, OH Hosp Fac Rev Firelands Regl Med Ctr Ser A............................... 5.625 08/15/32 7,696,023 1,500 Lucas Cnty, OH Hlthcare & Impt Sunset Retirement Rfdg............................. 6.500 08/15/20 1,591,650 2,875 Madison Cnty, OH Hosp Impt Rev Madison Cnty Hosp Proj Rfdg.............................. 6.400 08/01/28 2,664,148 ------------ 28,572,730 ------------ OKLAHOMA 1.8% 1,000 Citizen Potawatomi Nation OK Ser A.......... 6.500 09/01/16 1,013,620 605 Langston, OK Econ Dev Langston Cmnty Dev Corp Proj Ser A............................. 7.000 08/01/10 603,064 750 Langston, OK Econ Dev Langston Cmnty Dev Corp Proj Ser A............................. 7.400 08/01/17 737,423 1,000 Langston, OK Econ Dev Langston Cmnty Dev Corp Proj Ser A............................. 7.625 08/01/20 988,100 1,000 Oklahoma Cnty, OK Fin Auth Epworth Villa Proj Ser A Rfdg............................. 7.000 04/01/25 1,007,640 1,065 Oklahoma Dev Fin Auth Rev Hillcrest Hlthcare Sys Ser A Rfdg.............................. 5.750 08/15/12 1,212,577 1,000 Oklahoma Dev Fin Auth Rev Hillcrest Hlthcare Sys Ser A Rfdg.............................. 5.750 08/15/15 1,138,570 4,000 Oklahoma Dev Fin Auth Rev Hillcrest Hlthcare Sys Ser A Rfdg.............................. 5.625 08/15/19 4,531,680 3,250 Tulsa Cnty, OK Pub Fac Auth (AMBAC Insd).... 6.250 11/01/22 3,778,255 3,000 Tulsa, OK Muni Arpt Tr Rev Amern Airl Proj Rfdg........................................ 6.250 06/01/20 2,217,210 ------------ 17,228,139 ------------ OREGON 1.2% 2,000 Clackamas Cnty, OR Hosp Fac Willamette View Inc Proj Ser A.............................. 7.500 11/01/29 2,112,660 2,145 Clatsop Care Ctr Hlth Dist OR Rev Sr Hsg.... 6.875 08/01/28 2,152,379 2,500 Multnomah Cnty, OR Hosp Fac Auth Rev Terwilliger Plaza Proj Rfdg (Acquired 05/21/04, Cost $2,442,200) (a).............. 6.500 12/01/29 2,502,400 3,818 Oregon St Hlth Hsg Ed & Cultural Fac Auth (AMT)....................................... 7.250 06/01/28 3,711,946 1,000 Oregon St Hlth Hsg Ed Auth OR Baptist Retirement Homes Ser A...................... 8.000 11/15/26 1,048,870 ------------ 11,528,255 ------------ PENNSYLVANIA 7.1% 2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser B........................................... 9.250 11/15/15 2,283,580 2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser B........................................... 9.250 11/15/22 2,283,580
See Notes to Financial Statements 25 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- PENNSYLVANIA (CONTINUED) $ 2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser B........................................... 9.250% 11/15/30 $ 2,298,420 2,000 Allegheny Cnty, PA Indl Dev Auth Lease Rev (AMT)....................................... 6.625 09/01/24 1,869,160 6,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Collateral Toledo Edison Co Proj Ser A Rfdg........................................ 7.750 05/01/20 6,429,720 1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks Vlg Inc Proj Rfdg (Prerefunded @ 05/15/06)................................... 7.700 05/15/22 1,108,610 1,000 Bucks Cnty, PA Indl Dev Auth Rev First Mtg Hlthcare Fac Chandler....................... 6.200 05/01/19 966,090 1,500 Chester Cnty, PA Hlth & Ed Fac Chester Cnty Hosp Ser A.................................. 6.750 07/01/31 1,465,335 2,500 Cliff House Ctf Trust Var Sts Ctf Part Ser A (AMT)....................................... 6.625 06/01/27 2,020,675 2,000 Cumberland Cnty, PA Indl Dev Auth Rev First Mtg Woods Cedar Run Ser A Rfdg (h).......... 6.500 11/01/28 1,120,740 3,000 Dauphin Cnty, PA Gen Auth Rev Office & Pkg Riverfront Office........................... 6.000 01/01/25 2,693,820 2,200 Indiana Cnty, PA Indl Dev Auth PSEG Pwr LLC Proj Rfdg (AMT)............................. 5.850 06/01/27 2,232,230 1,000 Lancaster Cnty, PA Hosp Auth Rev Hlth Ctr Saint Anne's Home........................... 6.625 04/01/28 1,000,210 1,200 Lehigh Cnty, PA Gen Purp Auth First Mtg Bible Fellowship Church..................... 7.625 11/01/21 1,295,112 3,000 Lehigh Cnty, PA Gen Purp Auth Rev Good Shepherd Group Ser A........................ 5.500 11/01/24 3,055,170 2,000 Lehigh Cnty, PA Gen Purp Auth Rev Kidspeace Oblig Grp Rfdg.............................. 6.000 11/01/23 1,730,640 1,000 Lehigh Cnty, PA Indl Dev Auth Hlth Fac Rev Lifepath Inc Proj........................... 6.100 06/01/18 894,800 2,000 Montgomery Cnty, PA Higher Ed & Temple Continuing Care Ctr (b)..................... 6.750 07/01/29 320,120 500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood Corp Rfdg................. 7.000 12/01/10 517,830 2,500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood Corp Rfdg................. 7.250 12/01/15 2,527,725 6,000 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood Corp Rfdg................. 7.400 12/01/20 6,105,540 1,415 Northeastern PA Hosp & Ed Auth Hlthcare Rev......................................... 7.125 10/01/29 1,370,173 3,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev Colver Proj Ser D (AMT)................. 7.050 12/01/10 3,074,430 5,675 Pennsylvania St Drivers Ser 396 (Inverse Fltg) (Acquired 03/01/04, Cost $6,818,800) (a) (f)..................................... 8.520 10/15/09 6,803,474 980 Pennsylvania St Higher Ed Student Assn Inc Proj Ser A.................................. 6.750 09/01/32 1,022,218
26 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- PENNSYLVANIA (CONTINUED) $ 2,150 Philadelphia, PA Auth Indl Dev Rev Coml Dev Rfdg........................................ 7.750% 12/01/17 $ 2,201,149 4,105 Philadelphia, PA Gas Wks Rev Drivers Ser 384 (Inverse Fltg) (Acquired 01/20/04, Cost $4,890,690) (FSA Insd) (a) (f).............. 8.770 07/01/11 4,863,358 1,500 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Rfdg.................................... 7.250 01/15/17 1,691,730 2,000 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Rfdg.................................... 7.350 01/15/22 2,259,900 1,500 Westmoreland Cnty, PA Indl Dev Hlthcare Fac Redstone Ser B.............................. 8.000 11/15/23 1,611,960 ------------ 69,117,499 ------------ RHODE ISLAND 0.3% 1,825 Rhode Island St Econ Dev Corp Rev Oblig Providence Place............................ 7.250 07/01/20 1,774,411 1,000 Rhode Island St Hlth & Ed Hosp Fin Ser A.... 6.000 09/15/33 1,008,880 ------------ 2,783,291 ------------ SOUTH CAROLINA 0.9% 1,000 South Carolina Jobs Econ Dev Episcopal Home Still Proj A................................ 6.000 05/15/17 1,014,960 2,000 South Carolina Jobs Econ Dev First Mtg Westley Commons Proj........................ 7.750 10/01/24 1,831,920 5,930 South Carolina Jobs Econ Dev FMU Proj A (MBIA Insd)................................. 5.375 08/01/26 6,340,771 ------------ 9,187,651 ------------ SOUTH DAKOTA 0.4% 1,510 Keystone, SD Econ Dev Rev Wtr Quality Mgmt Corp Ser A (AMT)............................ 6.000 12/15/18 1,346,814 1,495 Sioux Falls, SD Multi-Family Hsg Inn Westport Proj Ser A (Acquired 01/26/04, Cost $1,498,047) (a)............................. 7.500 12/01/34 1,507,379 1,050 South Dakota St Hlth & Ed Fac Auth Rev Sioux VY Hosp & Hlth Sys Ser A.................... 5.250 11/01/34 1,055,828 ------------ 3,910,021 ------------ TENNESSEE 1.9% 3,000 Elizabethton, TN Hlth & Ed Fac Brd Rev Rfdg (MBIA Insd)................................. 7.750 07/01/29 3,884,640 1,000 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev First Mtg Mtn States Hlth Ser A Rfdg........ 7.500 07/01/33 1,169,120 2,960 SCA Tax Exempt Trust Multi-Family Mtg Memphis Hlth Ed Rev Ser A6 (AMT) (FSA Insd)....................................... 7.350 01/01/30 3,038,262 1,000 Shelby Cnty, TN Hlth & Ed Germantown Vlg Ser A........................................... 7.250 12/01/34 1,028,550
See Notes to Financial Statements 27 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- TENNESSEE (CONTINUED) $ 1,000 Shelby Cnty, TN Hlth & Hsg Germantown Vlg Ser A....................................... 7.000% 12/01/23 $ 1,022,310 5,495 Sullivan Cnty, TN Hlth Ed & Hsg Fac Brd Rev......................................... 8.410 11/01/19 5,564,732 2,900 Trenton, TN Hlth & Ed Fac Brd Rev Inc Proj Ser A (Acquired 06/08/89, Cost $2,900,000) (a)......................................... 10.000 11/01/19 3,076,320 1,160 Trenton, TN Hlth & Ed Fac Brd Rev Inc Proj Ser B (Acquired 06/08/89, Cost $1,160,000) (a) (b)..................................... 10.000 11/01/20 116,023 ------------ 18,899,957 ------------ TEXAS 7.7% 560 Abia Dev Corp TX Arpt Fac Rev Austin Belly Port Dev LLC Proj Ser A (AMT)............... 6.250 10/01/08 555,134 3,000 Abia Dev Corp TX Arpt Fac Rev Austin Belly Port Dev LLC Proj Ser A (AMT)............... 6.500 10/01/23 2,694,540 1,000 Atlanta, TX Hosp Auth Fac Rev............... 6.700 08/01/19 967,100 2,035 Atlanta, TX Hosp Auth Fac Rev............... 6.750 08/01/29 1,938,521 1,000 Austin-Bergstorm Landhost Enterprises Inc TX Arpt Hotel Sr Ser A......................... 6.750 04/01/27 493,040 1,960 Bell Cnty, TX Indl Dev Corp Solid Waste Disposal Rev (AMT) (b)...................... 7.600 12/01/17 294,000 1,000 Bexar Cnty, TX Hsg Fin Corp Multi-Family Hsg Rev Woodland Ridge Apt Proj Ser A........... 7.000 01/01/39 976,390 2,000 Brazos Cnty, TX Hlth Fac Dev Oblig Grp...... 5.375 01/01/32 2,012,860 735 Comal Cnty, TX Hlth Fac Dev Hlthcare Sys McKenna Mem Proj Ser A...................... 6.250 02/01/32 751,868 1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Cap Apprec Rfdg (Acquired 08/28/89, Cost $1,017,594) (a)............................. * 08/01/11 1,094,197 3,445 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.... 7.250 04/01/32 3,567,435 2,970 Dallas, TX Wtrwks & Swr Sys Rev Rfdg........ 5.750 10/01/17 3,376,296 2,500 Decatur, TX Hosp Auth Hosp Wise Regl Hlth Sys Ser A................................... 7.125 09/01/34 2,543,500 2,500 Decatur, TX Hosp Auth Hosp Wise Regl Hlth Sys Ser A................................... 7.000 09/01/25 2,528,275 6,400 Houston, TX Arpt Sys Rev Spl Fac Continental Airl Ser B (AMT)............................ 6.125 07/15/17 5,009,344 3,000 Houston, TX Arpt Sys Rev Spl Fac Continental Airl Ser C (AMT)............................ 5.700 07/15/29 2,008,500 1,750 Houston, TX Arpt Sys Rev Sub Lien Ser A (AMT) (FSA Insd)............................ 5.125 07/01/32 1,773,205 3,000 Houston, TX Hlth Fac Dev Corp Buckingham Sr Living Cmnty Ser A.......................... 7.125 02/15/34 3,096,420 3,750 Lower CO River Auth TX Rev Ser A Rfdg (Inverse Fltg) (Acquired 10/20/99, Cost $3,784,875) (FSA Insd) (a) (f).............. 9.802 05/15/15 4,751,925
28 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- TEXAS (CONTINUED) $ 8,880 Lower CO River Auth TX Rev Ser A Rfdg (Inverse Fltg) (Acquired 10/20/99, Cost $9,020,950) (FSA Insd) (a) (f).............. 9.802% 05/15/14 $ 11,264,990 1,445 Lubbock, TX Hlth Fac Dev Corp Rev First Mtg Carillon Proj Ser A (h)..................... 6.500 07/01/19 1,123,863 2,285 Meadow Parc Dev Inc TX Multi-Family Rev Hsg Meadow Parc Apt Proj........................ 6.500 12/01/30 2,108,758 2,500 Metropolitan Hlth Fac Dev Corp TX Wilson N Jones Mem Hosp Proj......................... 7.250 01/01/31 2,408,375 2,880 Midlothian, TX Dev Auth Tax Increment Contract Rev................................ 6.700 11/15/23 2,949,091 2,000 Midlothian, TX Dev Auth Tax Increment Contract Rev................................ 7.875 11/15/26 2,212,560 250 San Antonio, TX Hlth Fac Dev Corp Rev Encore Nursing Ctr Part............................ 8.250 12/01/19 252,075 1,642 Texas Gen Svc Comm Part Interests........... 7.250 08/01/11 1,673,512 2,050 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev (AMT) (GNMA Collateralized)............. 6.900 07/02/24 2,077,183 465 Texas St Higher Ed Coordinating Brd College Student Ln Rev (AMT)........................ 7.849 10/01/25 466,237 1,500 Texas St Student Hsg Corp MSU Proj Midwestern St Univ.......................... 6.500 09/01/34 1,585,680 2,950 Tomball, TX Hosp Auth Rev Hosp Tomball Regl Hosp........................................ 6.000 07/01/29 2,932,743 985 Wichita Cnty, TX Hlth Fac Rolling Meadows Fac Ser A Rfdg.............................. 6.250 01/01/28 975,357 2,500 Woodhill Pub Fac Corp TX Hsg-Woodhill Apt Proj........................................ 7.500 12/01/29 2,554,375 ------------ 75,017,349 ------------ UTAH 0.1% 1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (b).................................... 7.800 09/01/15 200,000 1,165 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (b).................................... 8.000 09/01/20 233,000 1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (b).................................... 7.800 09/01/25 200,000 120 Utah St Hsg Fin Agy Single Family Mtg Mezz A1 (AMBAC Insd)............................. 6.100 07/01/13 125,141 ------------ 758,141 ------------
See Notes to Financial Statements 29 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- VERMONT 0.3% $ 1,015 Vermont Ed & Hlth Bldg Fin Agy Rev Hlthcare Fac Copley Manor Proj (h)................... 6.250% 04/01/29 $ 453,898 1,000 Vermont Ed & Hlth Bldg Fin Agy Rev VT Council Dev Mental Hlth Ser A............... 6.000 12/15/09 1,101,910 1,000 Vermont Ed & Hlth Bldg Fin Bennington College Proj................................ 6.625 10/01/29 1,016,540 ------------ 2,572,348 ------------ VIRGINIA 1.3% 1,000 Greensville Cnty, VA Indl Dev Wheeling Steel Proj Ser A (AMT)............................ 7.000 04/01/14 684,440 2,500 Henrico Cnty, VA Econ Dev Auth Residential Care Fac Rev Utd Methodist Ser A Rfdg....... 6.500 06/01/22 2,589,800 6,000 Peninsula Port Auth VA Residential Care Fac Rev VA Baptist Homes Ser A.................. 7.375 12/01/32 6,294,300 1,000 Roanoke Cnty, VA Indl Dev Auth Glebe Inc Ser A....................................... 6.300 07/01/35 1,008,500 1,700 Virginia Small Business Fin Auth Rev Indl Dev SIL Clean Wtr Proj (AMT)................ 7.250 11/01/24 1,677,237 ------------ 12,254,277 ------------ WASHINGTON 1.1% 6,580 Energy Northwest WA Elec Rev Proj No 3 Ser A Rfdg (FSA Insd)............................. 5.500 07/01/17 7,370,653 1,000 King Cnty, WA Pub Hosp Dist No 004 Snoqualmie Vly Hosp......................... 7.250 12/01/15 1,032,530 1,000 Port Seattle, WA Spl Fac Rev Northwest Airl Proj (AMT).................................. 7.125 04/01/20 857,490 2,000 Port Seattle, WA Spl Fac Rev Northwest Airl Proj (AMT).................................. 7.250 04/01/30 1,681,100 ------------ 10,941,773 ------------ WISCONSIN 1.4% 800 Baldwin, WI Hosp Rev Mtg Ser A.............. 6.125 12/01/18 799,544 1,000 Baldwin, WI Hosp Rev Mtg Ser A.............. 6.375 12/01/28 1,001,160 1,750 Milwaukee, WI Rev Sr Air Cargo (AMT)........ 6.500 01/01/25 1,773,153 3,000 Wisconsin St Hlth & Ed Fac Auth Rev Milwaukee Catholic Home Inc Proj............ 7.500 07/01/26 3,072,840 1,000 Wisconsin St Hlth & Ed Fac Auth Rev Oakwood Vlg Proj Ser A.............................. 7.625 08/15/30 1,037,650 1,500 Wisconsin St Hlth & Ed Fac Beaver Dam Cmnty Hosp Inc Ser A.............................. 6.750 08/15/34 1,507,785 1,000 Wisconsin St Hlth & Ed Fac Divine Savior Hlthcare Ser C.............................. 7.500 05/01/32 1,045,680
30 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ----------------------------------------------------------------------------------------------- WISCONSIN (CONTINUED) $ 1,500 Wisconsin St Hlth & Ed Fac Southwest Hlth Ctr Ser A................................... 6.125% 04/01/24 $ 1,476,210 2,000 Wisconsin St Hlth & Ed Fac Fort Hlthcare Inc Proj........................................ 6.100 05/01/34 2,081,260 ------------ 13,795,282 ------------ WYOMING 0.1% 1,500 Teton Cnty, WY Hosp Dist Hosp Saint Johns Med Ctr..................................... 6.750 12/01/27 1,518,540 ------------ PUERTO RICO 0.7% 2,465 Puerto Rico Port Auth Rev Spl Fac Amern Airl Ser A (AMT)................................. 6.250 06/01/26 1,520,067 5,000 Puerto Rico Pub Bldg Auth Rev Govt Fac Ser I........................................... 5.250 07/01/33 5,200,900 ------------ 6,720,967 ------------ U.S. VIRGIN ISLANDS 0.4% 2,500 Northern Mariana Islands Ser A.............. 7.375 06/01/30 2,584,725 1,000 Virgin Islands Pub Fin Auth Refinery Fac Rev Sr Secd-Hovensa Refinery (AMT).............. 5.875 07/01/22 1,055,110 ------------ 3,639,835 ------------ TOTAL LONG-TERM INVESTMENTS 98.1% (Cost $966,240,100)........................................................... 955,281,016 SHORT-TERM INVESTMENTS 0.2% (Cost $1,950,000)............................................................. 1,950,000 ------------ TOTAL INVESTMENTS 98.3% (Cost $968,190,100)........................................................... 957,231,016 OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%..................................... 16,655,163 ------------ NET ASSETS 100.0%.............................................................. $973,886,179 ============
Percentages are calculated as a percentage of net assets. * Zero coupon bond (a) 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 13.3% of net assets. (b) Non-income producing security. (c) This borrower has filed for protection in federal bankruptcy court. (d) Securities purchased on a when-issued or delayed delivery basis. (e) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. See Notes to Financial Statements 31 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued (f) 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 Fund to enhance the yield of the portfolio. All of the Fund'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. (g) Payment-in-kind security. (h) Interest is accruing at less than the stated coupon. ACA--American Capital Access AMBAC--AMBAC Indemnity Corp. AMT--Alternative Minimum Tax FGIC--Financial Guaranty Insurance Co. FSA--Financial Security Assurance Inc. GNMA--Government National Mortgage Association MBIA--Municipal Bond Investors Assurance Corp. 32 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities September 30, 2004 ASSETS: Total Investments (Cost $968,190,100)....................... $ 957,231,016 Cash........................................................ 32,969 Receivables: Interest.................................................. 18,479,405 Fund Shares Sold.......................................... 5,280,946 Investments Sold.......................................... 758,583 Other....................................................... 168,328 -------------- Total Assets............................................ 981,951,247 -------------- LIABILITIES: Payables: Investments Purchased..................................... 2,974,803 Fund Shares Repurchased................................... 2,030,391 Income Distributions...................................... 1,704,319 Distributor and Affiliates................................ 544,953 Investment Advisory Fee................................... 376,814 Accrued Expenses............................................ 218,231 Trustees' Deferred Compensation and Retirement Plans........ 215,557 -------------- Total Liabilities....................................... 8,065,068 -------------- NET ASSETS.................................................. $ 973,886,179 ============== NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $1,084,592,154 Accumulated Undistributed Net Investment Income............. 1,540,919 Net Unrealized Depreciation................................. (10,959,084) Accumulated Net Realized Loss............................... (101,287,810) -------------- NET ASSETS.................................................. $ 973,886,179 ============== MAXIMUM OFFERING PRICE PER COMMON SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $766,065,605 and 58,935,912 shares of beneficial interest issued and outstanding)............. $ 13.00 Maximum sales charge (4.75% * of offering price)........ .65 -------------- Maximum offering price to public........................ $ 13.65 ============== Class B Shares: Net asset value and offering price per share (Based on net assets of $123,785,756 and 9,527,298 shares of beneficial interest issued and outstanding)............. $ 12.99 ============== Class C Shares: Net asset value and offering price per share (Based on net assets of $84,034,818 and 6,420,957 shares of beneficial interest issued and outstanding)............. $ 13.09 ==============
* On sales of $100,000 or more, the sales charge will be reduced. See Notes to Financial Statements 33 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statement of Operations For the Year Ended September 30, 2004 INVESTMENT INCOME: Interest.................................................... $ 54,700,147 ------------ EXPENSES: Investment Advisory Fee..................................... 3,951,578 Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $1,587,238, $1,201,160 and $572,883, respectively)............................................. 3,361,281 Shareholder Services........................................ 500,569 Legal....................................................... 423,152 Custody..................................................... 76,506 Trustees' Fees and Related Expenses......................... 28,738 Other....................................................... 482,482 ------------ Total Expenses.......................................... 8,823,825 Less Credits Earned on Cash Balances.................... 11,393 ------------ Net Expenses............................................ 8,812,913 ------------ NET INVESTMENT INCOME....................................... $ 45,887,234 ============ REALIZED AND UNREALIZED GAIN/LOSS: Net Realized Loss........................................... $(27,452,425) ------------ Unrealized Appreciation/Depreciation: Beginning of the Period................................... (37,860,779) End of the Period......................................... (10,959,084) ------------ Net Unrealized Appreciation During the Period............... 26,901,695 ------------ NET REALIZED AND UNREALIZED LOSS............................ $ (550,730) ============ NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 45,336,504 ============
34 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 --------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income................................ $ 45,887,234 $ 43,426,498 Net Realized Loss.................................... (27,452,425) (3,546,709) Net Unrealized Appreciation/Depreciation During the Period............................................. 26,901,695 (11,454,464) ------------- ------------- Change in Net Assets from Operations................. 45,336,504 28,425,325 ------------- ------------- Distributions from Net Investment Income: Class A Shares..................................... (38,473,790) (31,090,893) Class B Shares..................................... (6,237,920) (6,152,493) Class C Shares..................................... (2,997,702) (1,735,013) ------------- ------------- Total Distributions.................................. (47,709,412) (38,978,399) ------------- ------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......................................... (2,372,908) (10,553,074) ------------- ------------- FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold............................ 368,145,718 55,882,726 Net Asset Value of Shares Issued Through Dividend Reinvestment....................................... 30,424,886 24,291,545 Cost of Shares Repurchased........................... (133,088,608) (125,918,977) ------------- ------------- NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... 265,481,996 (45,744,706) ------------- ------------- TOTAL INCREASE/DECREASE IN NET ASSETS................ 263,109,088 (56,297,780) NET ASSETS: Beginning of the Period.............................. 710,777,091 767,074,871 ------------- ------------- End of the Period (Including accumulated undistributed net investment income of $1,540,919 and $3,564,047, respectively)...................... $ 973,886,179 $ 710,777,091 ============= =============
See Notes to Financial Statements 35 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ------------------------------------------------ 2004 2003 2002 (a) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD.... $13.03 $13.21 $13.25 $13.27 $13.91 ------ ------ ------ ------ ------ Net Investment Income..................... .74(c) .79 .78 .77 .77 Net Realized and Unrealized Loss.......... -0- (.25) (.11) (.05) (.63) ------ ------ ------ ------ ------ Total from Investment Operations............ .74 .54 .67 .72 .14 Less Distributions from Net Investment Income.................................... .77 .72 .71 .74 .78 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $13.00 $13.03 $13.21 $13.25 $13.27 ====== ====== ====== ====== ====== Total Return (b)............................ 5.87% 4.21% 5.28% 5.46% 1.27% Net Assets at End of the Period (In millions)................................. $766.1 $560.9 $579.1 $607.1 $621.5 Ratio of Expenses to Average Net Assets..... .91% .89% .86% .87% .91% Ratio of Net Investment Income to Average Net Assets................................ 5.74% 6.07% 5.99% 5.88% 5.91% Portfolio Turnover.......................... 16% 14% 14% 22% 37%
(a) As required, effective October 31, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01 and increase the ratio of net investment income to average net assets from 5.95% to 5.99%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 4.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. With respect to shares purchased prior to December 1, 2004, a CDSC of 1% may be imposed on certain redemptions made within one year of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees of up to .25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) Based on average shares outstanding. 36 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ------------------------------------------------ 2004 2003 2002 (a) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD.... $13.02 $13.20 $13.24 $13.27 $13.90 ------ ------ ------ ------ ------ Net Investment Income..................... .65(c) .69(c) .70 .68 .69 Net Realized and Unrealized Loss.......... (.01) (.25) (.12) (.06) (.64) ------ ------ ------ ------ ------ Total from Investment Operations............ .64 .44 .58 .62 .05 Less Distributions from Net Investment Income.................................... .67 .62 .62 .65 .68 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $12.99 $13.02 $13.20 $13.24 $13.27 ====== ====== ====== ====== ====== Total Return (b)............................ 5.07% 3.42% 4.49% 4.71% .48% Net Assets at End of the Period (In millions)................................. $123.8 $115.6 $149.5 $176.5 $221.4 Ratio of Expenses to Average Net Assets..... 1.67% 1.64% 1.62% 1.63% 1.67% Ratio of Net Investment Income to Average Net Assets................................ 5.00% 5.32% 5.23% 5.12% 5.15% Portfolio Turnover.......................... 16% 14% 14% 22% 37%
(a) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01, and increase the ratio of net investment income to average net assets from 5.19% to 5.23%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 4% charged on certain redemptions made within one year of purchase and declining to 0% after the sixth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) Based on average shares outstanding. See Notes to Financial Statements 37 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ------------------------------------------------ 2004 2003 2002 (a) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD.... $13.11 $13.20 $13.24 $13.27 $13.90 ------ ------ ------ ------ ------ Net Investment Income..................... .64(d) .79(d) .70 .68 .69 Net Realized and Unrealized Gain/Loss..... .01 (.26) (.12) (.06) (.64) ------ ------ ------ ------ ------ Total from Investment Operations............ .65 .53 .58 .62 .05 Less Distributions from Net Investment Income.................................... .67 .62 .62 .65 .68 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $13.09 $13.11 $13.20 $13.24 $13.27 ====== ====== ====== ====== ====== Total Return (b)............................ 5.10%(e) 4.10%(c) 4.49% 4.71% .48% Net Assets at End of the Period (In millions)................................. $ 84.0 $ 34.3 $ 38.5 $ 44.4 $ 49.1 Ratio of Expenses to Average Net Assets..... 1.65%(e) 1.64% 1.62% 1.62% 1.67% Ratio of Net Investment Income to Average Net Assets................................ 4.94%(e) 6.00%(c) 5.23% 5.13% 5.15% Portfolio Turnover.......................... 16% 14% 14% 22% 37%
(a) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01, and increase the ratio of net investment income to average net assets from 5.19% to 5.23%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) Certain non-recurring payments were made to Class C Shares, resulting in an increase to the Total Return and Ratio of Net Investment Income to Average Net Assets of .68% and .69%, respectively. (d) Based on average shares outstanding. (e) The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of less that 1% (See footnote 5). 38 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen Strategic Municipal Income Fund (the "Fund") is organized as a series of the Van Kampen Tax Free Trust, a Delaware statutory trust, and is registered as a diversified, open-end management investment company under the Investment Company Act of 1940 (the "1940 Act"), as amended. The Fund's investment objective is to provide investors a high level of current income exempt from federal income tax primarily through investment in a diversified portfolio of medium- and lower-grade municipal securities. The Fund commenced investment operations on June 28, 1985. The distribution of the Fund's Class B and Class C shares commenced on April 30, 1993 and August 13, 1993, respectively. Effective November 30, 2003, the Fund's investment adviser, Van Kampen Investment Advisory Corp. merged into its affiliate, Van Kampen Asset Management (the "Adviser"). The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Municipal bonds are valued by independent pricing services or dealers using the mean of the bid and asked prices or, in the absence of market quotations, at fair value based upon yield data relating to municipal bonds with similar characteristics and general market conditions. Securities which are not valued by independent pricing services or dealers are valued at fair value using 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. B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. Legal expenditures that are expected to result in the restructuring of or a plan of reorganization for an investment are recorded as realized losses. The Fund may purchase and sell securities on a "when-issued" or "delayed delivery" basis, with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. The Fund will segregate assets with the custodian having an aggregate value at least equal to the amount of the when-issued or delayed delivery purchase commitments until payment is made. At September 30, 2004, the Fund had $2,974,803 of when-issued or delayed delivery purchase commitments. C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Bond premium is amortized and discount is accreted over the expected life of each applicable security. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute 39 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Fund 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 September 30, 2004, the Fund had an accumulated capital loss carryforward for tax purposes of $72,989,958 which expires between September 30, 2005 and September 30, 2012. Of this amount, $9,854,061 will expire on September 30, 2005. At September 30, 2004, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $967,954,267 ============ Gross tax unrealized appreciation........................... $ 35,808,938 Gross tax unrealized depreciation........................... (46,532,189) ------------ Net tax unrealized depreciation on investments.............. $(10,723,251) ============
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly dividends from net investment income. 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 as ordinary income for tax purposes. The tax character of distributions paid during the years ended September 30, 2004 and 2003 were as follows:
2004 2003 Distributions paid from: Ordinary income........................................... $115,296 $113,206 Long-term capital gain.................................... -0- -0- -------- -------- $115,296 $113,206 ======== ========
Due to inherent differences in the recognition of income, expenses and realized gain/losses under U.S. generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. Permanent book and tax differences relating to a portion of the capital loss carry forward expiring in the current year totaling $9,606,294 has been reclassified from accumulated net realized loss to capital. Additionally, permanent book and tax differences relating to the Fund's investment in other regulated investment companies totaling $2,264 and book to tax accretion differences totaling $203,214 were reclassified from accumulated undistributed net investment income to accumulated net realized loss. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $1,403
40 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued Net realized gains or losses may differ for financial and tax reporting purposes primarily as a result of the deferral of losses related to wash sale transactions, the capitalization of reorganization and restructuring costs, losses recognized for tax purposes but not for book purposes, and post October losses which are not realized for tax purposes until the first day of the following fiscal year. F. EXPENSE REDUCTIONS During the year ended September, 30, 2004, the Fund's custody fee was reduced by $11,393 as a result of credits earned on cash balances. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM First $500 million.......................................... .50% Over $500 million........................................... .45%
For the year ended September 30, 2004, the Fund recognized expenses of approximately $33,200 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Fund, of which a trustee of the Fund is an affiliated person. Under separate Accounting Services and Legal Services agreements, the Adviser provides accounting and legal services to the Fund. The Adviser allocates the cost of such services to each fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $124,900 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Fund, which are reported as part of "Other" and "Legal" expenses in the Statement of Operations. Van Kampen Investor Services Inc. (VKIS), an affiliate of the Adviser, serves as the shareholder servicing agent of the Fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $391,100 representing transfer agency fees paid to VKIS. Transfer agency fees are determined through negotiations with the Fund's Board of Trustees. Certain officers and trustees of the Fund are also officers and directors of Van Kampen. The Fund does not compensate its officers or trustees who are officers of Van Kampen. The Fund 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. Amounts deferred are retained by the Fund and to the extent permitted by the 1940 Act, as amended, may be invested in the common shares of those funds selected by the trustees. Investments in such funds of $133,714 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2004. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 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 Fund. The maximum annual benefit per trustee under the plan is $2,500. 41 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued 3. CAPITAL TRANSACTIONS At September 30, 2004, capital aggregated $853,930,073, $143,286,846 and $87,375,235 for Classes A, B and C, respectively. For the year ended September 30, 2004, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 20,778,883 $ 270,278,898 Class B................................................... 2,866,387 37,221,319 Class C................................................... 4,630,792 60,645,501 ----------- ------------- Total Sales................................................. 28,276,062 $ 368,145,718 =========== ============= Dividend Reinvestment: Class A................................................... 1,924,479 $ 24,925,465 Class B................................................... 282,301 3,654,185 Class C................................................... 141,730 1,845,236 ----------- ------------- Total Dividend Reinvestment................................. 2,348,510 $ 30,424,886 =========== ============= Repurchases: Class A................................................... (6,820,426) $ (88,176,943) Class B................................................... (2,498,494) (32,303,015) Class C................................................... (970,228) (12,608,650) ----------- ------------- Total Repurchases........................................... (10,289,148) $(133,088,608) =========== =============
At September 30, 2003, capital aggregated $654,459,030, $135,935,365 and $38,322,057 for Classes A, B and C, respectively. For the year ended September 30, 2003, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 3,764,226 $ 48,895,391 Class B................................................... 330,503 4,299,420 Class C................................................... 205,707 2,687,915 ---------- ------------- Total Sales................................................. 4,300,436 $ 55,882,726 ========== ============= Dividend Reinvestment: Class A................................................... 1,530,608 $ 19,879,267 Class B................................................... 256,324 3,326,662 Class C................................................... 83,177 1,085,616 ---------- ------------- Total Dividend Reinvestment................................. 1,870,109 $ 24,291,545 ========== ============= Repurchases: Class A................................................... (6,076,868) $ (78,875,948) Class B................................................... (3,037,630) (39,421,866) Class C................................................... (584,518) (7,621,163) ---------- ------------- Total Repurchases........................................... (9,699,016) $(125,918,977) ========== =============
42 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued Class B Shares purchased on or after June 1, 1996 and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares eight years after the end of the calendar month in which the shares were purchased. Class B Shares purchased before June 1, 1996, and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares seven years after the end of the calendar month in which the shares were purchased. For the years ended September 30, 2004 and 2003, 351,113 and 740,191 Class B Shares automatically converted to Class A Shares, respectively, and are shown in the above tables as sales of Class A Shares and repurchases of Class B Shares. Class C Shares purchased before January 1, 1997, and any dividend reinvestment plan Class C Shares received thereon, automatically convert to Class A Shares ten years after the end of the calendar month in which the shares are purchased. Class C Shares purchased on or after January 1, 1997 do not possess a conversion feature. For the years ended September 30, 2004 and 2003, no Class C Shares converted to Class A Shares. Class B and C Shares are offered without a front end sales charge, but are subject to a contingent deferred sales charge (CDSC). The CDSC for Class B and C Shares will be imposed on most redemptions made within six years of the purchase for Class B Shares and one year of the purchase for Class C Shares as detailed in the following schedule.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE -------------------------- YEAR OF REDEMPTION CLASS B CLASS C First....................................................... 4.00% 1.00% Second...................................................... 3.75% None Third....................................................... 3.50% None Fourth...................................................... 2.50% None Fifth....................................................... 1.50% None Sixth....................................................... 1.00% None Seventh and Thereafter...................................... None None
For the year ended September 30, 2004, Van Kampen, as distributor for the Fund, received commissions on sales of the Fund's Class A shares of approximately $621,700 and CDSC on redeemed shares of approximately $196,800. Sales charges do not represent expenses of the Fund. 4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $387,535,621 and $129,985,225, respectively. 5. DISTRIBUTION AND SERVICE PLANS With respect to its Class A Shares, Class B Shares and Class C Shares, the Fund and its shareholders have adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively the "Plans"). The Plans govern payments for: the distribution of the Fund's Class A Shares, Class B Shares and Class C Shares; the provision of 43 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued ongoing shareholder services with respect to such classes of shares; and maintenance of shareholder accounts with respect to such classes of shares. Annual fees under the Plans of up to 0.25% of Class A average daily net assets and up to 1.00% each for Class B and Class C average daily net assets are accrued daily. The annual fees for Class A Shares are paid quarterly and the annual fees for Class C Shares are paid monthly. For Class B Shares, 75% of the annual fees are paid monthly, while 25% of the annual fees are paid quarterly. The amount of distribution expenses incurred by Van Kampen and not yet reimbursed ("unreimbursed receivable") was approximately $2,499,600 and $312,900 for Class B and Class C Shares, respectively. These amounts may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed receivable has been fully recovered, any excess 12b-1 fees will be refunded to the Fund on a quarterly basis. Included in the fees for the year ended September 30, 2004, are payments retained by Van Kampen of approximately $1,179,400 and payments made to Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $72,000. 6. LEGAL MATTERS The Adviser, certain affiliates of the Adviser, and certain investment companies advised by the Adviser or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. The consolidated action also names as defendants certain individual Trustees and Directors of certain investment companies advised by affiliates of the Adviser; the complaint does not, however, name the individual Trustees of any Van Kampen funds. The consolidated amended complaint generally alleges that defendants violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Adviser and certain affiliates of the Adviser allegedly offered economic incentives to brokers and others to steer investors to the funds advised by the Adviser or its affiliates rather than funds managed by other companies, and (ii) that the funds advised by the Adviser or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their alleged efforts to steer investors to these funds. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The Adviser and certain affiliates of the Adviser are also named as defendants in a derivative suit which additionally names as defendants certain individual Trustees of certain Van Kampen funds; the named investment companies, including the Fund, are listed as nominal defendants. The complaint alleges that defendants caused the Van Kampen funds to pay economic incentives to a proprietary sales force to promote the sale of proprietary mutual funds. The complaint also alleges that the Van Kampen funds paid excessive commissions to Morgan Stanley and its affiliates in connection with the sales of the funds. The complaint seeks, among other things, the removal of the current Trustees of the funds, rescission of the management contracts for the funds, disgorgement of profits by Morgan Stanley and its affiliates and monetary damages. This complaint has been coordinated with the consolidated complaint described in the preceding paragraph. The defendants have moved to dismiss each of these actions and otherwise intend to defend them vigorously. While the defendants believe that they have meritorious defenses, the ultimate outcome of these matters is not presently determinable at this early stage of 44 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of these matters. 7. 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. 45 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Van Kampen Strategic Municipal Income Fund: We have audited the accompanying statement of assets and liabilities of Van Kampen Strategic Municipal Income Fund (the "Fund"), including the portfolio of investments, as of September 30, 2004, and 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 Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Van Kampen Strategic Municipal Income Fund at September 30, 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 U.S. generally accepted accounting principles. -s- Ernst & Young LLP Chicago, Illinois November 5, 2004 46 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND BOARD OF TRUSTEES AND IMPORTANT ADDRESSES BOARD OF TRUSTEES DAVID C. ARCH J. MILES BRANAGAN JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT 1221 Avenue of the Americas New York, New York 10020 DISTRIBUTOR VAN KAMPEN FUNDS INC. 1221 Avenue of the Americas New York, New York 10020 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 947 Jersey City, New Jersey 07303-0947 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02110 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 233 South Wacker Drive Chicago, Illinois 60606 For federal income tax purposes, the following is furnished with respect to the distributions paid by the Fund during its taxable year ended September 30, 2004. The Fund designated 99.8% of the income distributions as a tax-exempt income distribution. In January, the Fund provides tax information to shareholders for the preceding calendar year. * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940, as amended. 47 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND TRUSTEES AND OFFICERS The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees and the Fund's officers appointed by the Board of Trustees. The tables below list the trustees and executive officers of the Fund 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing Blistex Inc. since 2003 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. J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing 1632 Morning Mountain Road since 1995 Co-founder, and prior to General Partner of funds Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex. Chief Executive Officer and President, MDT Corporation (now known as Getinge/Castle, Inc., a subsidiary of Getinge Industrier AB), a company which develops, manufactures, markets and services medical and scientific equipment.
48
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing 33971 Selva Road since 1999 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.
49
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing CAC, L.L.C. since 2003 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).
50
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing Heidrick & Struggles since 1995 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 83 Trustee/Director/Managing 1744 R Street, NW since 1993 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 85 Trustee/Director/Managing 736 North Western Avenue since 2003 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.
51
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing 423 Country Club Drive since 1985 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 85 Trustee/Director/Managing 1126 E. 59th Street since 2003 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 83 Trustee/Director/Managing (62) since 1999 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.
52 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing 1221 Avenue of the Americas President since Executive Officer of General Partner of funds New York, NY 10020 and Chief 1999; 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.
53
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 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 85 Trustee/Director/Managing 333 West Wacker Drive since 1985 of Skadden, Arps, Slate, General Partner of funds Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex. counsel to funds in the Fund Complex.
* Such Trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Messrs. Merin and Powers are interested persons of funds in the Fund Complex and the Adviser by reason of their current or former positions with Morgan Stanley or its affiliates. 54 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS Stefanie V. Chang (37) 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 M. Dykas (38) Chief Financial Officer Officer Executive Director of Van Kampen Asset Management and Morgan 1 Parkview Plaza and Treasurer since 1999 Stanley Investment Management. Chief Financial Officer and Oakbrook Terrace, IL 60181 Treasurer of funds in the Fund Complex. Prior to August 2004, Assistant Treasurer of funds in the Fund Complex. Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Investment Officer Management Inc. and 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.
55
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since November 1221 Avenue of the Americas President and since 2003 2003. Chief Executive Officer and Chairman of Investor New York, NY 10020 Principal Executive Services. Executive Vice President and Principal Executive Officer 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 1996 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.
56 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, your use of our Web sites and your product and service preferences, through the use (continued on back) VAN KAMPEN AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued 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 (VAN KAMPEN INVESTMENTS LOGO) Copyright (C)2004 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 39, 399, 539 STMI ANR 11/04 RN04-02633P-Y09/04 Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen California Insured Tax Free Fund 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 fund's financial statements and a list of fund investments as of September 30, 2004. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUS CONTAINS INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 9/30/04 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index from 9/30/94 through 9/30/04. Class A shares, adjusted for sales charges. (LINE GRAPH)
VAN KAMPEN CALIFORNIA INSURED TAX LEHMAN BROTHERS MUNICIPAL BOND FREE FUND INDEX --------------------------------- ------------------------------ 9/94 9674 10000 12/94 9502 9857 10227 10554 10405 10808 10667 11118 12/95 11239 11577 11011 11438 11084 11526 11390 11790 12/96 11711 12090 11610 12061 12050 12477 12386 12853 12/97 12757 13202 12890 13354 13090 13557 13571 13973 12/98 13565 14057 13667 14181 13310 13931 13104 13876 12/99 12874 13768 13455 14170 13622 14384 14048 14732 12/00 14755 15377 14937 15718 14877 15820 15465 16264 12/01 15286 16165 15305 16317 15845 16914 16858 17717 12/02 16713 17717 16828 17930 17154 18393 17139 18407 12/03 17430 18659 17668 18982 17178 18532 9/04 17897 19254
A SHARES B SHARES C SHARES since 12/13/85 since 4/30/93 since 8/13/93 - -------------------------------------------------------------------------------------------- W/MAX W/MAX W/MAX 3.25% 3.00% 1.00% AVERAGE ANNUAL W/O SALES SALES W/O SALES SALES W/O SALES SALES TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE Since Inception 7.13% 6.95% 5.13% 5.13% 4.61% 4.61% 10-year 6.34 5.99 5.88 5.88 5.58 5.58 5-year 6.43 5.73 5.80 5.80 5.69 5.69 1-year 4.42 1.04 4.29 1.29 3.75 2.75 - -------------------------------------------------------------------------------------------- 30-Day SEC Yield 3.08% 2.42% 2.43%
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 AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The returns shown in this report do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance of share classes will vary due to differences in sales charges and expenses. Average annual total return with sales charges includes payment of the maximum sales charge of 3.25 percent for Class A shares, a contingent deferred sales charge of 3.00 percent for Class B shares (in year one and declining to zero after year four), a contingent deferred sales charge of 1.00 percent for Class C shares in year one and combined Rule 12b-1 fees and service fees of up to 0.25 percent for Class A shares and up to 1.00 percent for Class B and C shares. The since inception and 10-year returns for Class B shares reflect the conversion of Class B shares into Class A shares six years after purchase. The since inception returns for Class C shares reflect the conversion of Class C shares into Class A shares ten years after purchase. See footnote 3 in the Notes to Financial Statements for additional information. Figures shown above assume reinvestment of all dividends and capital gains. SEC yield is a calculation for determining the amount of portfolio income, excluding non-income items as prescribed by the SEC. Yields are subject to change. The Lehman Brothers Municipal Bond Index is generally representative of investment-grade, tax-exempt bonds. The index does not include any expenses, fees or sales charges, which would lower performance. The index is unmanaged and should not be considered an investment. It is not possible to invest directly in an index. Source for index performance: Lipper Inc. 1 Fund Report FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004 Van Kampen California Insured Tax Free Fund is managed by the Adviser's Municipal Fixed-Income team. Members of the team include Dennis S. Pietrzak, Executive Director of the Adviser; John R. Reynoldson, Executive Director of the Adviser; and Joseph A. Piraro, Vice President of the Adviser.(1) MARKET CONDITIONS The interest-rate environment of the 12 months ended September 30, 2004 was marked by two periods of steadily declining yields, with a significant sell-off in the middle. Yields fell steadily through the first half of the period, approaching the historical lows of 2003. This trend persisted until March, at which point yields reversed direction and began an upward march as prices fell. These losses were steepest in April, as a surprisingly strong employment report and signals from members of the Federal Open Market Committee (the Fed) caused investors to expect a near-term rate increase. Rates went on to decline from May through the end of the period as the market digested the Fed's newly hawkish rate stance. Investors were further comforted when, after the Fed raised rates at its June 30, 2004 meeting, its members indicated that the path of future rate increases would be measured. Unusually, longer-maturity securities largely outperformed in this period of Fed tightening. The typical pattern in periods of tightening policy has been an increase in yields rise across all maturities. During the review period, however, yields of shorter-maturity bonds rose while those of bonds with longer maturities declined slightly. Lower-quality municipal bonds also performed strongly in this environment, as the difference in yields (known as the "yield spread") between AAA and BBB rated bonds decreased by roughly 20 basis points for 20-year bonds. As a result, sectors with heavy exposure to lower-rated debt, such as hospitals and industrial revenue, posted higher total returns than sectors dominated by higher-rated debt. Issuance for the first nine months of 2004 (the final nine months of the review period) was roughly 9 percent lower than in the same period in 2003. That said, 2003 was a record year, and at the current pace of issuance, 2004 could well be one of the largest years in recent memory. This historically strong supply met with faltering demand from mutual funds, as fund investors withdrew over $16 billion in net cash during the period. However, this decline was largely offset by increased participation in the market by insurance companies and individual investors. (1)Team members may change at any time without notice. 2 California's credit outlook continued to improve throughout the year, leading to a series of upgrades by major ratings agencies including S&P, Moody's and Fitch. Spreads at the beginning of the period were near historically high levels, but declined through the fiscal year as investors from both within the state and across the country bid up bond prices. The state continued to lead the nation in terms of issuance, and 60 percent of the bonds that came to market were backed by some form of credit insurance. PERFORMANCE ANALYSIS Van Kampen California Insured Tax Free Fund returned 4.42 percent (Class A shares, unadjusted for sales charge) for the 12 months ended September 30, 2004, slightly underperforming its benchmark, the Lehman Brothers Municipal Bond Index. (See table below.) Our interest-rate strategy during the period emphasized maintaining the fund's duration (a measure of its interest-rate sensitivity) below that of the market. This posture limited the fund's participation in the rallies that accompanied the periods of falling yields during the year, but it also protected the fund from the adverse impact of rising rates in the spring of 2004. We remained focused on securities in the 18- to 22-year segment of the yield curve. Most of the fund's purchases also offered the limited interest-rate sensitivity of instruments with shorter maturities due to embedded option features. The fund's holdings of these securities contributed significantly to the fund's returns due to the outperformance of longer-maturity bonds. The fund remained well diversified across major market sectors. Our approach emphasized bonds from sectors such as public education and public buildings. These sectors are tied to essential ongoing services rather than general tax revenues, and as such are less sensitive to the vagaries of the economic cycle. We avoided bonds in the housing sector out of concern over the lack of appealing structures in the new issues that came to the market. We also did not purchase any new health-care bonds because we saw little improvement in many of the bonds in that sector. We believe the fund is positioned to continue to provide investors with attractive income across an array of possible market environments. We will continue to monitor the California market for attractive investment opportunities. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004
- -------------------------------------------------------------- LEHMAN BROTHERS CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX 4.42% 4.29% 3.75% 4.60% - --------------------------------------------------------------
The performance for the three share classes varies because each has different expenses. The fund's total return figures assume the reinvestment of all distributions, but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information and index definition. 3 RATINGS ALLOCATIONS AS OF 9/30/04 TOP 5 SECTORS AS OF 9/30/04 AAA/Aaa 100% Tax District 21.0% Public Education 19.8 Public Building 13.3 General Purpose 12.7 Higher Education 11.2
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 allocations is as a percentage of total investments. Top 5 sectors percentages are as a percentage of long-term 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. Ratings allocations based upon ratings as issued by Standard & Poor's and Moody's, respectively. 4 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS Each Van Kampen fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund'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 fund 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 fund files a complete schedule of portfolio holdings with the SEC for the fund'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 1-202-942-8090. 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 fund makes portfolio holdings information available by periodically providing the information on its public web site, www.vankampen.com. Each Van Kampen fund 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. Furthermore, each Van Kampen open-end fund provides partial lists of its portfolio holdings (such as top 10 or top 15 fund holdings) to the public web site each month with a delay of approximately 15 days. You may obtain copies of a fund's fiscal quarter filings, or its monthly or calendar-quarter web site postings, by contacting Van Kampen Client Relations at 1-800-847-2424. 5 HOUSEHOLDING NOTICE To reduce fund expenses, the fund attempts to eliminate duplicate mailings to the same address. The fund delivers a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. The fund's prospectuses and shareholder reports (including annual privacy notices) will be delivered to you in this manner indefinitely unless you instruct us otherwise. You can request multiple copies of these documents by either calling 1-800-341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has received your instructions, we will begin sending individual copies for each account within 30 days. PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD The fund's policies and procedures with respect to the voting of proxies relating to the fund's portfolio securities and information on how the fund 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. 6 EXPENSE EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 4/1/04 - 9/30/04. ACTUAL EXPENSE The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads), and redemption fees, or exchange fees.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/04 9/30/04 4/1/04-9/30/04 Class A Actual...................................... $1,000.00 $1,012.95 $4.53 Hypothetical................................ 1,000.00 1,020.50 4.55 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,013.36 4.33 Hypothetical................................ 1,000.00 1,020.70 4.34 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,010.21 7.64 Hypothetical................................ 1,000.00 1,017.40 7.67 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.90%, 0.86%, and 1.52% for Class A, B, and C Shares, respectively, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). Assumes all dividends and distributions were reinvested. 7 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- CALIFORNIA MUNICIPAL BONDS 99.0% $1,925 Alhambra, CA City Elem Sch Dist Cap Apprec Ser A (FSA Insd)...................................... * 09/01/20 $ 899,764 2,900 Anaheim, CA Pub Fin Auth Rev Elec Sys Generation Ser B Rfdg (FSA Insd)........................... 5.000% 10/01/16 3,137,162 2,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev (Inverse Fltg) (MBIA Insd)............................... 11.190 12/28/18 2,562,260 2,070 Anaheim, CA Uni High Sch Dist Ser A (FSA Insd)........................................... 5.000 08/01/25 2,142,429 1,430 Bay Area Govt Assn CA Lease Rev Cap Proj Ser A (AMBAC Insd).................................... 5.250 07/01/17 1,559,458 2,735 Bay Area Govt Assn CA Lease West Sacramento Ser A (XLCA Insd)................................... 5.000 09/01/29 2,789,563 1,070 Bonita, CA Uni Sch Dist Election 2004 Ser A (MBIA Insd)..................................... 5.250 08/01/24 1,151,213 1,000 Bonita, CA Uni Sch Dist Election 2004 Ser A (MBIA Insd)..................................... 5.000 08/01/28 1,030,100 1,730 Brea & Olinda, CA Uni Sch Dist Ser A Rfdg (FSA Insd)........................................... 5.500 08/01/17 1,922,739 1,850 Brea & Olinda, CA Uni Sch Dist Ser A Rfdg (FSA Insd)........................................... 5.500 08/01/18 2,049,041 1,295 Calexico, CA Cmnty Redev Agy Tax Alloc Merged Cent Bus & Residential Ser C (AMBAC Insd)....... 5.000 08/01/28 1,327,064 7,000 California Edl Fac Auth Rev Univ Of The Pacific (MBIA Insd)..................................... 5.875 11/01/20 7,957,390 2,000 California Infrastructure & Econ Dev Bk Rev Bay Area Toll Brdgs First Lien Ser A (FGIC Insd).... 5.000 07/01/29 2,051,900 1,050 California Spl Dist Assn Fin Corp Ctf Partn Pgm Ser DD (FSA Insd)............................... 5.625 01/01/27 1,128,235 1,250 California St (FGIC Insd)....................... 6.250 09/01/12 1,499,125 2,385 California St (XLCA Insd)....................... 6.250 09/01/12 2,838,412 1,200 California St Dept Transn Ctf Ser A Rfdg (MBIA Insd)........................................... 5.250 03/01/16 1,294,164 2,000 California St Dept Vet Affairs Ser A (AMBAC Insd)........................................... 5.300 12/01/21 2,134,400 1,000 California St Dept Wtr Res Pwr Ser A (AMBAC Insd)........................................... 5.500 05/01/16 1,137,390 1,000 California St Dept Wtr Res Pwr Ser A (AMBAC Insd)........................................... 5.375 05/01/18 1,107,300 2,500 California St Dept Wtr Res Pwr Supply Rev Rite Ser B (Inverse Fltg) (MBIA Insd) (Acquired 09/08/03, Cost $2,709,650) (a).................. 8.831 05/01/11 2,957,150 2,500 California St Pub Wks Brd Lease Dept Corrections Ten Admin Ser A (AMBAC Insd).................... 5.250 03/01/17 2,729,850 4,125 California St Pub Wks Brd Lease Rev CA St Univ Ser A Rfdg (AMBAC Insd)......................... 5.500 10/01/14 4,480,781 7,750 California St Rfdg (FGIC Insd).................. 5.000 02/01/23 7,935,922
8 See Notes to Financial Statements VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- $1,000 California St Univ Rev & Colleges Systemwide Ser A (AMBAC Insd).................................. 5.375% 11/01/18 $ 1,120,930 1,000 Carson, CA Redev Agy Redev Proj Area No 1 Tax Alloc (MBIA Insd)............................... 5.500 10/01/15 1,155,120 2,000 Castaic Lake Wtr Agy CA Ctf Partn Wtr Sys Impt Proj Ser A Rfdg (MBIA Insd)..................... 7.000 08/01/12 2,490,280 3,000 Castaic Lake Wtr Agy CA Rev Ctf Partn Ser A (MBIA Insd)..................................... 5.250 08/01/23 3,178,470 1,415 Cerritos, CA Cmnty College Election 2004 Ser A (MBIA Insd)..................................... 5.000 08/01/26 1,458,723 1,735 Cerritos, CA Cmnty College Election 2004 Ser A (MBIA Insd)..................................... 5.000 08/01/28 1,778,948 2,335 Chaffey, CA Union High Sch Dist Ser B (FGIC Insd)........................................... 5.500 08/01/16 2,619,963 1,205 Channel Islands Beach, CA Cmnty Svcs Dist Ctf Partn CA Spl Dist Fin Proj BB (FSA Insd)........ 5.700 09/01/21 1,329,633 3,400 Contra Costa, CA Cmnty College Election 2002 (MBIA Insd)..................................... 5.000 08/01/29 3,496,934 1,000 East Bay, CA Muni Util Dist Wtr Sys Rev (MBIA Insd)........................................... 5.000 06/01/21 1,047,540 1,300 Folsom Cordova, CA Uni Sch Dist Sch Fac Impt Dist No 2 Ser A (MBIA Insd)..................... 5.375 10/01/17 1,440,335 1,360 Folsom, CA Pub Fin Auth City Hall & Cmnty Ctr Rfdg (FSA Insd)................................. 5.000 10/01/16 1,477,341 1,480 Fontana, CA Redev Agy Tax Alloc Dwntwn Redev Proj Rfdg (MBIA Insd)........................... 5.000 09/01/21 1,537,113 1,040 Fontana, CA Uni Sch Dist Rfdg (MBIA Insd)....... 5.250 05/01/20 1,145,674 650 Fresno, CA Jt Pwrs Fin Auth Ser A (FSA Insd).... 5.000 06/01/17 703,898 590 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd)........................................... 5.900 08/01/17 711,764 630 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd)........................................... 5.900 08/01/18 763,182 675 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd)........................................... 5.900 08/01/19 818,525 720 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd)........................................... 5.900 08/01/20 873,878 2,000 Glendale, CA Redev Agy Tax Ctr Glendale Redev Proj (MBIA Insd)................................ 5.250 12/01/20 2,180,540 2,425 Glendora, CA Pub Fin Auth Tax Alloc Proj No 1 Ser A (MBIA Insd)............................... 5.000 09/01/24 2,512,276 1,750 Hacienda La Puente, CA Uni Sch Dist Ser A (MBIA Insd)........................................... 5.500 08/01/20 1,908,288 2,230 Hanford, CA High Sch Dist Election 1998 Ser C (MBIA Insd)..................................... 5.700 08/01/28 2,480,964 1,250 Hemet, CA Uni Sch Dist Ctf Partn Nutrition Ctr Proj (FSA Insd)................................. 5.875 04/01/27 1,360,975 2,500 Huntington Beach, CA High Election 2004 (FSA Insd)........................................... 5.000 08/01/26 2,589,275 2,000 Imperial Irr Dist CA Ctf Partn Elec Sys Proj (FSA Insd)...................................... 5.250 11/01/23 2,145,480
See Notes to Financial Statements 9 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- $1,950 Imperial Irr Dist CA Ctf Partn Wtr Sys Proj (AMBAC Insd).................................... 5.000% 07/01/19 $ 2,069,789 2,000 Inglewood, CA Redev Agy Tax Alloc Merged Redev Proj Ser A Rfdg (AMBAC Insd).................... 5.250 05/01/23 2,232,920 1,715 Irvine, CA Pub Fac & Infrastructure Ser B (AMBAC Insd)........................................... 5.000 09/02/23 1,770,377 2,000 La Canada, CA Uni Sch Dist Election 2004 Ser A (MBIA Insd)..................................... 5.500 08/01/28 2,181,500 2,250 La Mesa Spring Vly, CA Sch Dist Ser A (FGIC Insd)........................................... 5.000 08/01/26 2,316,713 2,000 La Quinta, CA Fin Auth Loc Ser A (AMBAC Insd)... 5.250 09/01/24 2,144,540 2,000 La Quinta, CA Fin Auth Loc Ser A (AMBAC Insd)... 5.000 09/01/29 2,047,860 2,000 La Quinta, CA Redev Agy Tax Alloc Redev Proj Area No 1 (AMBAC Insd).......................... 5.000 09/01/22 2,106,240 1,000 Livermore-Amador Vly Wtr Mgmt Agy CA Swr Rev Ser A (AMBAC Insd).................................. 5.250 08/01/16 1,106,170 1,000 Long Beach, CA Bond Fin Auth Lease Rev Rainbow Harbor Refin Proj Ser A (AMBAC Insd)............ 5.250 05/01/24 1,060,160 1,260 Long Beach, CA Bond Fin Auth Pub Lease Safety Fac Proj (AMBAC Insd)........................... 5.250 11/01/16 1,408,441 1,545 Long Beach, CA Bond Fin Auth Pub Lease Safety Fac Proj (AMBAC Insd)........................... 5.250 11/01/20 1,672,262 2,740 Los Angeles Cnty, CA Ctf Partn Antelope Vly Courthouse Ser A (AMBAC Insd)................... 5.750 11/01/16 3,127,600 1,000 Los Angeles Cnty, CA Ctf Partn Disney Pkg Proj Rfdg (AMBAC Insd)............................... 4.750 03/01/23 1,011,020 1,000 Los Angeles Cnty, CA Met Tran Auth Sales Tax Rev Prop A First Tier Sr Ser C Rfdg (AMBAC Insd).... 5.000 07/01/23 1,032,960 1,235 Los Angeles Cnty, CA Met Tran Auth Sales Tax Rev Prop C Second Tier Sr Ser A Rfdg (FGIC Insd).... 5.000 07/01/15 1,334,850 1,000 Los Angeles Cnty, CA Met Tran Auth Sales Tax Rev Prop C Second Tier Sr Ser A Rfdg (FGIC Insd).... 5.000 07/01/16 1,080,850 1,265 Los Angeles Cnty, CA Schs Regionalized Business Svcs Ctf Partn Cap Apprec Pooled Fin Ser A (AMBAC Insd).................................... * 08/01/24 456,488 264 Los Angeles Cnty, CA Tran Comm Lease Rev Dia RR Lease Ltd (FSA Insd)............................ 7.375 12/15/06 267,099 1,975 Los Angeles, CA Ctf Partn Real Ppty Pgm Ser T (MBIA Insd)..................................... 5.000 02/01/19 2,089,728 2,000 Los Angeles, CA Dept Wtr & Pwr Sys Ser C (MBIA Insd)........................................... 5.000 07/01/26 2,070,920 2,380 Los Angeles, CA Mtg Rev FHA Security 8 Asstd Proj Ser A Rfdg (MBIA Insd)..................... 6.100 07/01/25 2,402,182 1,375 Los Angeles, CA Spl Assmt Landscaping & Ltg Dist No 96 Ser 1 (AMBAC Insd)........................ 5.000 03/01/21 1,439,543 1,000 Los Angeles, CA Uni Sch Dist 1997 Election Ser E (MBIA Insd)..................................... 5.500 07/01/17 1,133,990
10 See Notes to Financial Statements VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- $1,000 Lynwood, CA Uni Sch Dist 2002 Election Ser A (FSA Insd)...................................... 5.000% 08/01/27 $ 1,028,350 1,500 Modesto, CA Irr Dist Ctfs Partn Cap Impts Ser A (FSA Insd)...................................... 5.250 07/01/18 1,626,270 1,105 Monrovia, CA Fin Auth Lease Rev Hillside Wilderness Preserve (AMBAC Insd)................ 5.000 12/01/20 1,180,792 2,000 Montclair, CA Redev Agy Tax Redev Proj No V Rfdg (MBIA Insd)..................................... 5.000 10/01/20 2,112,660 1,000 Mount Pleasant, CA Elem Sch Dist 1998 Election Ser C (FSA Insd)................................ 5.500 03/01/26 1,081,570 1,570 Mountain View, CA Shoreline Tax Alloc Ser A (MBIA Insd)..................................... 5.250 08/01/16 1,742,009 370 M-S-R Pub Pwr Agy CA San Juan Proj Rev Adj Sub Lien Ser E (MBIA Insd).......................... 6.000 07/01/22 374,144 2,000 Natomas, CA Uni Sch Dist Rfdg (FGIC Insd)....... 5.250 09/01/16 2,202,740 1,250 North City West, CA Sch Fac Fin Auth Spl Tax Ser B Rfdg (FSA Insd)............................... 5.750 09/01/15 1,358,438 3,915 Oak Grove, CA Sch Dist 1995 Election (FGIC Insd)........................................... 5.250 08/01/25 4,122,378 1,000 Oakland, CA Uni Sch Dist Alameda Cnty (FSA Insd)........................................... 5.000 08/01/17 1,046,140 1,300 Oceanside, CA Ctf Partn Ser A Rfdg (AMBAC Insd)........................................... 5.200 04/01/23 1,382,303 1,930 Ontario, CA Redev Fin Auth Rev Proj No 1 Ctr City & Cimarron (MBIA Insd)..................... 5.250 08/01/15 2,119,854 3,025 Orange Cnty, CA Pub Fin Auth Lease Rev Juvenile Justice Ctr Fac Rfdg (AMBAC Insd)............... 5.375 06/01/17 3,358,688 5,000 Orange Cnty, CA Recovery Ctfs Partn Ser A (MBIA Insd)........................................... 5.800 07/01/16 5,407,500 1,145 Pacifica, CA Wastewater Rev Rfdg (AMBAC Insd)... 5.000 10/01/25 1,189,300 1,340 Palm Springs, CA Fin Lease Rev Convention Ctr Proj Ser A Rfdg (MBIA Insd)..................... 5.250 11/01/19 1,454,704 1,000 Perris, CA Sch Dist Ctf Partn Rfdg (FSA Insd)... 6.100 03/01/16 1,020,130 2,020 Pomona, CA Pub Fin Auth Rev Merged Redev Proj Ser AD (MBIA Insd).............................. 5.000 02/01/15 2,177,661 1,110 Pomona, CA Pub Fin Auth Rev Merged Redev Proj Ser AD (MBIA Insd).............................. 5.000 02/01/16 1,196,636 1,360 Port Hueneme, CA Ctf Partn Cap Impt Pgm Rfdg (MBIA Insd)..................................... 6.000 04/01/19 1,647,898 1,055 Poway, CA Redev Agy Tax Alloc Paguay Redev Proj (AMBAC Insd).................................... 5.375 06/15/20 1,151,195 300 Poway, CA Redev Agy Tax Alloc Paguay Redev Proj Ser A (MBIA Insd)............................... 5.000 06/15/33 304,314 3,000 Rancho Cucamonga, CA Redev Agy Rancho Redev Proj (MBIA Insd)..................................... 5.375 09/01/25 3,221,580 1,680 Rancho, CA Wtr Dist Spl Tax Cmnty Fac Dist 883 Ser A Rfdg (AMBAC Insd)......................... 6.000 09/01/17 1,773,744
See Notes to Financial Statements 11 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- $1,000 Redding, CA Elec Sys Rev Ctf Partn (Inverse Fltg) (Escrowed to Maturity) (MBIA Insd)........ 11.093% 07/01/22 $ 1,417,240 1,400 Redding, CA Redev Agy Tax Alloc Canby Hilltop Cypress Redev Ser A (MBIA Insd)................. 5.000 09/01/23 1,467,158 2,000 Rialto, CA Spl Tax Cmnty Fac Dist 87-1 Rfdg (FSA Insd)........................................... 5.625 09/01/18 2,164,080 1,000 Riverside Cnty, CA Ctf Partn Historic Courthouse Proj (MBIA Insd)................................ 5.875 11/01/27 1,102,230 1,310 Rowland, CA Uni Sch Dist Ser A (FSA Insd)....... 5.500 09/01/20 1,429,852 1,000 Sacramento, CA City Fin Auth Rev Cap Impt (AMBAC Insd)........................................... 5.000 12/01/33 1,020,950 1,500 San Francisco, CA City & Cnty Redev Fin Auth Tax Alloc San Francisco Redev Proj Ser A (FSA Insd)........................................... 5.000 08/01/15 1,594,365 2,000 San Francisco, CA City & Cnty Second Ser Issue 26B (FGIC Insd)................................. 5.000 05/01/22 2,081,020 2,000 San Jose, CA Arpt Rev Ser A Rfdg (FSA Insd)..... 5.375 03/01/17 2,234,640 2,675 San Jose, CA Fin Auth Lease Rev Convention Ctr Proj Ser F Rfdg (MBIA Insd)..................... 5.000 09/01/17 2,895,527 1,000 San Leandro, CA Ctf Part Lib & Fire Stations Fin (AMBAC Insd).................................... 5.750 11/01/29 1,104,420 1,000 San Leandro, CA Jt Proj Area Fin (MBIA Insd).... 5.100 12/01/26 1,035,110 1,460 San Marcos, CA Redev Agy Tax Alloc (FSA Insd)... 5.375 08/01/25 1,559,032 2,000 Santa Fe Springs, CA Cmnty Dev Comm Tax Alloc Ser A Rfdg (MBIA Insd).......................... 5.375 09/01/20 2,156,680 2,065 Santa Fe Springs, CA Cmnty Dev Comm Tax Alloc Ser A Rfdg (MBIA Insd).......................... 5.375 09/01/21 2,218,863 2,450 Santa Monica, CA Cmnty College Ser A Rfdg (AMBAC Insd)........................................... 5.250 02/01/23 2,632,158 1,000 Shasta, CA Jt Pwrs Fin Auth Cnty Admin Bldg Proj Ser A (MBIA Insd)............................... 5.250 04/01/22 1,074,060 1,000 South Gate, CA Pub Fin Auth South Gate Redev Proj No 1 (XLCA Insd)........................... 5.750 09/01/22 1,143,390 2,750 Southern CA Pub Pwr Transmission Rev Southn Transmission Sub Ser A Rfdg (FSA Insd).......... 5.250 07/01/16 3,062,290 1,135 Sweetwater, CA Auth Wtr Rev (FSA Insd).......... 5.250 04/01/15 1,245,583 1,195 Sweetwater, CA Auth Wtr Rev (FSA Insd).......... 5.250 04/01/16 1,311,429 2,150 Temecula, CA Redev Agy Tax Alloc Rev Temecula Redev Proj No 1 (MBIA Insd)..................... 5.125 08/01/27 2,203,191 1,000 University of CA Rev Multi Purp Proj Ser F (FGIC Insd)........................................... 5.000 09/01/16 1,053,610 1,000 University of CA Rev Multi Purp Proj Ser M (FGIC Insd)........................................... 5.125 09/01/17 1,089,540 1,000 University of CA Rev Resh Fac Ser E (AMBAC Insd)........................................... 5.000 09/01/19 1,066,250
12 See Notes to Financial Statements VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- $1,540 Vallejo City, CA Uni Sch Dist Ser A Rfdg (MBIA Insd)........................................... 5.900% 02/01/20 $ 1,857,687 2,000 Ventura Cnty, CA Ctf Partn Pub Fin Auth Ser I (FSA Insd)...................................... 5.250 08/15/16 2,172,800 ------------ TOTAL LONG-TERM INVESTMENTS 99.0% (Cost $218,351,292)....................................................... 234,387,216 TOTAL SHORT-TERM INVESTMENTS 0.9% (Cost $2,000,000)......................................................... 2,000,000 ------------ TOTAL INVESTMENTS 99.9% (Cost $220,351,292)....................................................... 236,387,216 OTHER ASSETS IN EXCESS OF LIABILITIES 0.1%................................. 272,219 ------------ NET ASSETS 100.0%.......................................................... $236,659,435 ============
Percentages are calculated as a percentage of net assets. * Zero coupon bond (a) 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 1.25% of net assets. AMBAC--AMBAC Indemnity Corp. FGIC--Financial Guaranty Insurance Co. FSA--Financial Security Assurance Inc. MBIA--Municipal Bond Investors Assurance Corp. XLCA--XL Capital Assurance Inc. See Notes to Financial Statements 13 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities September 30, 2004 ASSETS: Total Investments (Cost $220,351,292)....................... $236,387,216 Cash........................................................ 49,747 Receivables: Interest.................................................. 2,673,260 Fund Shares Sold.......................................... 179,305 Investments Sold.......................................... 103,488 Other....................................................... 130,065 ------------ Total Assets............................................ 239,523,081 ------------ LIABILITIES: Payables: Fund Shares Repurchased................................... 2,119,064 Income Distributions...................................... 225,024 Distributor and Affiliates................................ 160,560 Investment Advisory Fee................................... 92,102 Trustees' Deferred Compensation and Retirement Plans........ 187,685 Accrued Expenses............................................ 79,211 ------------ Total Liabilities....................................... 2,863,646 ------------ NET ASSETS.................................................. $236,659,435 ============ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $218,521,721 Net Unrealized Appreciation................................. 16,035,924 Accumulated Net Realized Gain............................... 1,488,875 Accumulated Undistributed Net Investment Income............. 612,915 ------------ NET ASSETS.................................................. $236,659,435 ============ MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $183,006,636 and 9,665,745 shares of beneficial interest issued and outstanding)............. $ 18.93 Maximum sales charge (3.25%* of offering price)......... .64 ------------ Maximum offering price to public........................ $ 19.57 ============ Class B Shares: Net asset value and offering price per share (Based on net assets of $41,062,668 and 2,157,749 shares of beneficial interest issued and outstanding)............. $ 19.03 ============ Class C Shares: Net asset value and offering price per share (Based on net assets of $12,590,131 and 665,089 shares of beneficial interest issued and outstanding)............. $ 18.93 ============
* On sales of $25,000 or more, the sales charge will be reduced. 14 See Notes to Financial Statements VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND FINANCIAL STATEMENTS continued Statement of Operations For the Year Ended September 30, 2004 INVESTMENT INCOME: Interest.................................................... $12,155,138 Dividends................................................... 809 ----------- Total Income............................................ 12,155,947 ----------- EXPENSES: Investment Advisory Fee..................................... 1,164,091 Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $465,232, $200,233 and $142,464, respectively)............................................. 807,929 Shareholder Services........................................ 146,780 Legal....................................................... 37,932 Trustees' Fees and Related Expenses......................... 26,450 Custody..................................................... 19,675 Other....................................................... 200,356 ----------- Total Expenses.......................................... 2,403,213 Less Credits Earned on Cash Balances.................... 2,140 ----------- Net Expenses............................................ 2,401,073 ----------- NET INVESTMENT INCOME....................................... $ 9,754,874 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 1,860,463 Futures................................................... (640,951) ----------- Net Realized Gain........................................... 1,219,512 ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 16,847,748 End of the Period......................................... 16,035,924 ----------- Net Unrealized Depreciation During the Period............... (811,824) ----------- NET REALIZED AND UNREALIZED GAIN............................ $ 407,688 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $10,162,562 ===========
See Notes to Financial Statements 15 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 ---------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income............................... $ 9,754,874 $ 10,073,099 Net Realized Gain................................... 1,219,512 257,251 Net Unrealized Depreciation During the Period....... (811,824) (6,703,034) ------------ ------------ Change in Net Assets from Operations................ 10,162,562 3,627,316 ------------ ------------ Distributions from Net Investment Income: Class A Shares.................................... (7,229,603) (7,904,427) Class B Shares.................................... (1,397,557) (1,686,177) Class C Shares.................................... (466,320) (557,298) ------------ ------------ (9,093,480) (10,147,902) ------------ ------------ Distributions from Net Realized Gain: Class A Shares.................................... -0- (1,755,292) Class B Shares.................................... -0- (460,678) Class C Shares.................................... -0- (133,437) ------------ ------------ -0- (2,349,407) ------------ ------------ Total Distributions................................. (9,093,480) (12,497,309) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES........................................ 1,069,082 (8,869,993) ------------ ------------ FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold........................... 29,982,107 48,488,523 Net Asset Value of Shares Issued Through Dividend Reinvestment...................................... 6,394,383 8,957,796 Cost of Shares Repurchased.......................... (64,008,093) (53,753,503) ------------ ------------ NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS...................................... (27,631,603) 3,692,816 ------------ ------------ TOTAL DECREASE IN NET ASSETS........................ (26,562,521) (5,177,177) NET ASSETS: Beginning of the Period............................. 263,221,956 268,399,133 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $612,915 and ($50,625), respectively)...................... $236,659,435 $263,221,956 ============ ============
16 See Notes to Financial Statements VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ------------------------------------------------ 2004 2003 2002 (c) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD..... $18.84 $19.45 $18.64 $17.67 $17.28 ------ ------ ------ ------ ------ Net Investment Income...................... .75 .74 .77 .81 .82 Net Realized and Unrealized Gain/Loss...... .06 (.44) .85 .94 .38 ------ ------ ------ ------ ------ Total from Investment Operations............. .81 .30 1.62 1.75 1.20 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .72 .75 .78 .78 .81 Distributions from Net Realized Gain....... -0- .16 .03 -0- -0- ------ ------ ------ ------ ------ Total Distributions.......................... .72 .91 .81 .78 .81 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $18.93 $18.84 $19.45 $18.64 $17.67 ====== ====== ====== ====== ====== Total Return (a)............................. 4.42% 1.67% 9.01% 10.09% 7.20% Net Assets at End of the Period (In millions).................................. $183.0 $195.4 $200.4 $174.9 $152.5 Ratio of Expenses to Average Net Assets (b)........................................ .89% .87% .87% .89% .98% Ratio of Net Investment Income to Average Net Assets..................................... 4.00% 3.93% 4.18% 4.43% 4.79% Portfolio Turnover........................... 16% 25% 32% 39% 52%
(a) Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 3.25% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchases. With respect to shares purchased prior to December 1, 2004, a CDSC of 1% may be imposed on certain redemptions made within one year of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to .25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (b) The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratio would decrease by .01% for the year ended September 30, 2000. (c) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01 and increase the ratio of net investment income to average net assets from 4.16% to 4.18%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. See Notes to Financial Statements 17 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES -------------------------------------------------- 2004 2003 2002 (c) 2001 2000 -------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.... $18.82 $19.44 $18.65 $17.69 $17.26 ------ ------ ------ ------ ------ Net Investment Income..................... .72 .60 .63 .67 .68 Net Realized and Unrealized Gain/Loss..... .07 (.45) .84 .94 .43 ------ ------ ------ ------ ------ Total from Investment Operations............ .79 .15 1.47 1.61 1.11 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income.................................. .58 .61 .65 .65 .68 Distributions from Net Realized Gain...... -0- .16 .03 -0- -0- ------ ------ ------ ------ ------ Total Distributions......................... .58 .77 .68 .65 .68 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $19.03 $18.82 $19.44 $18.65 $17.69 ====== ====== ====== ====== ====== Total Return (a)............................ 4.29%(d) 0.87% 8.16% 9.27% 6.63% Net Assets at End of the Period (In millions)................................. $ 41.1 $ 49.8 $ 53.0 $ 47.7 $ 38.3 Ratio of Expenses to Average Net Assets (b)....................................... 1.09%(d) 1.62% 1.63% 1.65% 1.74% Ratio of Net Investment Income to Average Net Assets................................ 3.80%(d) 3.18% 3.42% 3.67% 4.03% Portfolio Turnover.......................... 16% 25% 32% 39% 52%
(a) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 3%, charged on certain redemptions made within one year of purchase and declining to 0% after the fourth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (b) The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratio would decrease by .01% for the year ended September 30, 2000. (c) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01 and increase the ratio of net investment income to average net assets from 3.40% to 3.42%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (d) The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of less than 1% (See footnote 6). 18 See Notes to Financial Statements VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ---------------------------------------------------- 2004 2003 2002 (c) 2001 2000 ---------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD... $18.82 $19.43 $18.64 $17.68 $17.26 ------ ------ ------ ------ ------ Net Investment Income.................... .61 .61 .64 .68 .68 Net Realized and Unrealized Gain/Loss.... .08 (.45) .83 .93 .42 ------ ------ ------ ------ ------ Total from Investment Operations........... .69 .16 1.47 1.61 1.10 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income................................. .58 .61 .65 .65 .68 Distributions from Net Realized Gain..... -0- .16 .03 -0- -0- ------ ------ ------ ------ ------ Total Distributions........................ .58 .77 .68 .65 .68 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD......... $18.93 $18.82 $19.43 $18.64 $17.68 ====== ====== ====== ====== ====== Total Return (a)........................... 3.75%(e) 0.92%(d) 8.16% 9.27% 6.57% Net Assets at End of the Period (In millions)................................ $ 12.6 $ 18.1 $ 15.0 $ 11.0 $ 6.6 Ratio of Expenses to Average Net Assets (b)...................................... 1.59%(e) 1.62% 1.63% 1.65% 1.74% Ratio of Net Investment Income to Average Net Assets............................... 3.30%(e) 3.20%(d) 3.41% 3.67% 4.03% Portfolio Turnover......................... 16% 25% 32% 39% 52%
(a) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1% charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (b) The Ratio of Expenses to Average Net Assets does not reflect credits earned on cash balances. If these credits were reflected as a reduction of expenses, the ratio would decrease by .01% for the year ended September 30, 2000. (c) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01 and increase the ratio of net investment income to average net assets from 3.39% to 3.41%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (d) Certain non-recurring payments were made to Class C Shares, resulting in an increase to the Total Return and Ratio of Net Investment Income to Average Net Assets of .03%. (e) The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of less than 1% (See footnote 6). See Notes to Financial Statements 19 VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen California Insured Tax Free Fund (the "Fund") is organized as a series of the Van Kampen Tax Free Trust, a Delaware statutory trust, and is registered as a diversified, open-end management investment company under the Investment Company Act of 1940 (the "1940 Act"), as amended. The Fund's investment objective is to provide only California investors with a high level of current income exempt from federal and California income taxes, with liquidity and safety of principal, primarily through investment in a diversified portfolio of insured California municipal securities. The Fund commenced investment operations on December 13, 1985. The distribution of the Fund's Class B Shares and Class C Shares commenced on April 30, 1993 and August 13, 1993, respectively. The Fund registered Class I Shares on September 1, 2004. There were no sales of Class I Shares for the period ended September 30, 2004. Effective November 30, 2003, the Fund's investment adviser, Van Kampen Investment Advisory Corp. merged into its affiliate, Van Kampen Asset Management (the "Adviser"). The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Municipal bonds are valued by independent pricing services or dealers using the mean of the bid and asked prices or, in the absence of market quotations, at fair value based upon yield data relating to municipal bonds with similar characteristics and general market conditions. Securities which are not valued by independent pricing services or dealers are valued at fair value using procedures established in good faith by the Board of Trustees. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. The Fund may purchase and sell securities on a "when-issued" or "delayed delivery" basis, with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. The Fund will segregate assets with the custodian having an aggregate value at least equal to the amount of the when-issued or delayed delivery purchase commitments until payment is made. At September 30, 2004, the Fund had no when-issued or delayed delivery purchase commitment. C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Bond premium is amortized and discount is accreted over the expected life of each applicable security. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. 20 VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. At September 30, 2004, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $220,218,696 ============ Gross tax unrealized appreciation........................... $ 16,168,520 Gross tax unrealized depreciation........................... -- ------------ Net tax unrealized appreciation on investments.............. $ 16,168,520 ============
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly dividends from net investment income. Net realized gains, if any, are distributed annually. Distributions from net realized gains for book purposes may include short-term capital gains and a portion of futures gains, which are included in ordinary income for tax purposes. The tax character of distributions paid during the years ended September 30, 2004 and 2003 was as follows:
2004 2003 Distributions paid from: Ordinary income........................................... $6,710 $ 58,761 Long-term capital gain.................................... -- 2,326,272 ------ ---------- $6,710 $2,385,033 ====== ==========
Due to inherent differences in the recognition of income, expenses and realized gains/losses under U.S. generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. A permanent difference relating to the Fund's investment in other regulated investment companies totaling $2,152 was reclassified from accumulated undistributed net investment income to accumulated net realized gain. Additionally, a permanent difference relating to book to tax accretion differences totaling $6 was reclassified from accumulated undistributed net investment income to accumulated net realized gain. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $ 543 Undistributed long-term capital gain........................ 1,481,141
F. INSURANCE EXPENSE The Fund typically invests in insured bonds. Any portfolio securities not specifically covered by a primary insurance policy are insured secondarily through the Fund's portfolio insurance policy. Insurance premiums are based on the daily balances of uninsured bonds in the portfolio of investments and are charged to expense on an accrual 21 VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued basis. The insurance policy guarantees the timely payment of principal and interest on the securities in the Fund's portfolio. G. EXPENSE REDUCTIONS During the year ended September 30, 2004, the Fund's custody fee was reduced by $2,140 as a result of credits earned on cash balances. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM First $100 million.......................................... .500% Next $150 million........................................... .450% Next $250 million........................................... .425% Over $500 million........................................... .400%
For the year ended September 30, 2004, the Fund recognized expenses of approximately $19,700 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Fund, of which a trustee of the Fund is an affiliated person. Under separate Accounting Services and Legal Services Agreements, the Adviser provides accounting and legal services to the Fund. The Adviser allocates the cost of such services to each fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $51,800 representing Van Kampen Investment Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Fund, which are reported as part of "Other" and "Legal" expenses, respectively, in the Statement of Operations. Van Kampen Investor Services Inc. (VKIS), an affiliate of the Adviser, serves as the shareholder servicing agent for the Fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $109,900 representing transfer agency fees paid to VKIS. Transfer agency fees are determined through negotiations with the Fund's Board of Trustees. Certain officers and trustees of the Fund are also officers and directors of Van Kampen. The Fund does not compensate its officers or trustees who are officers of Van Kampen. The Fund 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. Amounts deferred are retained by the Fund and to the extent permitted by the 1940 Act, as amended, may be invested in the common shares of those funds selected by the trustees. Investments in such funds of $108,807 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2004. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 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 Fund. The maximum annual benefit per trustee under the plan is $2,500. 22 VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued 3. CAPITAL TRANSACTIONS At September 30, 2004, capital aggregated $166,597,159, $39,298,465 and $12,626,097 for Classes A, B and C, respectively. For the year ended September 30, 2004, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 1,321,299 $ 24,855,999 Class B................................................... 171,104 3,223,210 Class C................................................... 100,371 1,902,898 ---------- ------------ Total Sales................................................. 1,592,774 $ 29,982,107 ========== ============ Dividend Reinvestment: Class A................................................... 273,238 $ 5,131,435 Class B................................................... 51,748 973,315 Class C................................................... 15,415 289,633 ---------- ------------ Total Dividend Reinvestment................................. 340,401 $ 6,394,383 ========== ============ Repurchases: Class A................................................... (2,300,593) $(42,956,763) Class B................................................... (711,747) (13,334,011) Class C................................................... (409,940) (7,717,319) ---------- ------------ Total Repurchases........................................... (3,422,280) $(64,008,093) ========== ============
At September 30, 2003, capital aggregated $179,566,488, $48,435,951 and $18,150,885 for Classes A, B and C, respectively. For the year ended September 30, 2003, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 1,661,438 $ 31,350,394 Class B................................................... 428,696 8,090,363 Class C................................................... 480,104 9,047,766 ---------- ------------ Total Sales................................................. 2,570,238 $ 48,488,523 ========== ============ Dividend Reinvestment: Class A................................................... 366,301 $ 6,890,766 Class B................................................... 83,899 1,577,306 Class C................................................... 26,042 489,724 ---------- ------------ Total Dividend Reinvestment................................. 476,242 $ 8,957,796 ========== ============ Repurchases: Class A................................................... (1,957,587) $(36,611,996) Class B................................................... (593,532) (11,117,759) Class C................................................... (320,896) (6,023,748) ---------- ------------ Total Repurchases........................................... (2,872,015) $(53,753,503) ========== ============
23 VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued Class B Shares purchased on or after June 1, 1996 and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares eight years after the end of the calendar month in which the shares were purchased. Class B Shares purchased before June 1, 1996, and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares six years after the end of the calendar month in which the shares were purchased. For the years ended September 30, 2004 and 2003, 28,194 and 44,998 Class B Shares automatically converted to Class A Shares, respectively, and are shown in the above tables as sales of Class A Shares and repurchases of Class B Shares. Class C Shares purchased before January 1, 1997, and any dividend reinvestment plan Class C Shares received on such shares, automatically convert to Class A Shares ten years after the end of the calendar month in which such shares were purchased. Class C Shares purchased on or after January 1, 1997 do not possess a conversion feature. For the years ended September 30, 2004 and 2003, no Class C Shares converted to Class A Shares. Classes B and C Shares are offered without a front end sales charge, but are subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed on most redemptions made within four years of the purchase for Class B Shares and one year of the purchase for Class C Shares as detailed in the following schedule.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE -------------------------- YEAR OF REDEMPTION CLASS B CLASS C First....................................................... 3.00% 1.00% Second...................................................... 2.50% None Third....................................................... 2.00% None Fourth...................................................... 1.00% None Fifth and Thereafter........................................ None None
For the year ended September 30, 2004, Van Kampen as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $31,800 and CDSC on redeemed shares of approximately $63,300. Sales charges do not represent expenses of the Fund. 4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $38,368,144 and $72,683,812, respectively. 5. DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument in very general terms refers to a security whose value is "derived" from the value of an underlying asset, reference rate or index. The Fund has a variety of reasons to use derivative instruments, such as to attempt to protect the Fund against possible changes in the market value of its portfolio, to manage the portfolio's effective yield, maturity and duration, or to generate potential gain. All of the Fund'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 24 VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued realized gain or loss is recognized accordingly, except when taking delivery of a security underlying a futures contract. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying the futures contract. Summarized below are the different types of derivative financial instruments used by the Fund. A. FUTURES CONTRACTS A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in exchange traded futures on U.S. Treasury Bonds and Notes and typically closes the contract prior to delivery date. Upon entering into futures contracts, the Fund maintains an amount of cash or liquid securities with a value equal to a percentage of the contract amount with either a futures commission merchant pursuant to rules and regulations promulgated under the 1940 Act, as amended, or with its custodian in an account in the broker's name. This amount is known as initial margin. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). Transactions in futures contracts for the year ended September 30, 2004, were as follows:
CONTRACTS Outstanding at September 30, 2003........................... 252 Futures Closed.............................................. (252) ---- Outstanding at September 30, 2004........................... -0- ====
B. INDEXED SECURITY 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 Fund to enhance the yield of the portfolio. These instruments are identified in the portfolio of investments. 6. DISTRIBUTION AND SERVICE PLANS With respect to its Class A Shares, Class B Shares and Class C Shares, the Fund and its shareholders have adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively the "Plans"). The Plans govern payments for: the distribution of the Fund's Class A Shares, Class B Shares and Class C Shares; the provision of ongoing shareholder services with respect to such classes of shares; and maintenance of shareholder accounts with respect to such classes of shares. Annual fees under the Plans of up to .25% of Class A average daily net assets and up to 1.00% each of Class B and Class C average daily net assets are accrued daily. The annual fees for Class A Shares are paid quarterly and the annual fees for Class C Shares are paid monthly. For Class B Shares, 75% of the annual fees are paid monthly, while 25% of the annual fees are paid quarterly. At September 30, 2004, there were no distribution expenses incurred by Van Kampen and not yet reimbursed ("unreimbursed receivable") for Class B and Class C Shares. Any unreimbursed receivables may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed receivable has been fully recovered, any excess 12b-1 fees will be refunded to the Fund on a quarterly basis. 25 VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued Included in the fees for the year ended September 30, 2004 are payments retained by Van Kampen of approximately $146,500 and payments made to Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $47,600. 7. LEGAL MATTERS The Adviser, certain affiliates of the Adviser, and certain investment companies advised by the Adviser or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. The consolidated action also names as defendants certain individual Trustees and Directors of certain investment companies advised by affiliates of the Adviser; the complaint does not, however, name the individual Trustees of any Van Kampen funds. The consolidated amended complaint generally alleges that defendants violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Adviser and certain affiliates of the Adviser allegedly offered economic incentives to brokers and others to steer investors to the funds advised by the Adviser or its affiliates rather than funds managed by other companies, and (ii) that the funds advised by the Adviser or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their alleged efforts to steer investors to these funds. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The Adviser and certain affiliates of the Adviser are also named as defendants in a derivative suit which additionally names as defendants certain individual Trustees of certain Van Kampen funds; the named investment companies, including the Fund, are listed as nominal defendants. The complaint alleges that defendants caused the Van Kampen funds to pay economic incentives to a proprietary sales force to promote the sale of proprietary mutual funds. The complaint also alleges that the Van Kampen funds paid excessive commissions to Morgan Stanley and its affiliates in connection with the sales of the funds. The complaint seeks, among other things, the removal of the current Trustees of the funds, rescission of the management contracts for the funds, disgorgement of profits by Morgan Stanley and its affiliates and monetary damages. This complaint has been coordinated with the consolidated complaint described in the preceding paragraph. The defendants have moved to dismiss each of these actions and otherwise intend to defend them vigorously. While the defendants believe that they have meritorious defenses, the ultimate outcome of these matters is not presently determinable at this early stage of litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of these matters. 8. 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. 26 VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Van Kampen California Insured Tax Free Fund: We have audited the accompanying statement of assets and liabilities of Van Kampen California Insured Tax Free Fund (the "Fund"), including the portfolio of investments, as of September 30, 2004, and 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 Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2004, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Van Kampen California Insured Tax Free Fund at September 30, 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 U.S. generally accepted accounting principles. -s- Ernst & Young LLP Chicago, Illinois November 5, 2004 27 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND BOARD OF TRUSTEES AND IMPORTANT ADDRESSES BOARD OF TRUSTEES DAVID C. ARCH J. MILES BRANAGAN JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT 1221 Avenue of the Americas New York, New York 10020 DISTRIBUTOR VAN KAMPEN FUNDS INC. 1221 Avenue of the Americas New York, New York 10020 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 947 Jersey City, New Jersey 07303-0947 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02110 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 233 South Wacker Drive Chicago, Illinois 60606 For Federal Income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended September 30, 2004. The Fund designated 99.9% of the income distributions as a tax-exempt income distribution. In January, the Fund provides tax information to shareholders for the preceding calendar year. * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940, as amended. 28 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND TRUSTEES AND OFFICERS The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees and the Fund's officers appointed by the Board of Trustees. The tables below list the trustees and executive officers of the Fund 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing Blistex Inc. since 2003 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. J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing 1632 Morning Mountain Road since 1995 Co-founder, and prior to General Partner of funds Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex. Chief Executive Officer and President, MDT Corporation (now known as Getinge/Castle, Inc., a subsidiary of Getinge Industrier AB), a company which develops, manufactures, markets and services medical and scientific equipment.
29
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing 33971 Selva Road since 1999 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.
30
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing CAC, L.L.C. since 2003 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).
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VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing Heidrick & Struggles since 1995 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 83 Trustee/Director/Managing 1744 R Street, NW since 1993 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 85 Trustee/Director/Managing 736 North Western Avenue since 2003 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.
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VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing 423 Country Club Drive since 1985 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 85 Trustee/Director/Managing 1126 E. 59th Street since 2003 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 83 Trustee/Director/Managing (62) since 1999 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.
33 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing 1221 Avenue of the Americas President since Executive Officer of General Partner of funds New York, NY 10020 and Chief 1999; 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.
34
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 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 85 Trustee/Director/Managing 333 West Wacker Drive since 1985 of Skadden, Arps, Slate, General Partner of funds Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex. counsel to funds in the Fund Complex.
* Such Trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Messrs. Merin and Powers are interested persons of funds in the Fund Complex and the Adviser by reason of their current or former positions with Morgan Stanley or its affiliates. 35 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND 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 FUND SERVED DURING PAST 5 YEARS Stefanie V. Chang (37) 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 M. Dykas (38) Chief Financial Officer Officer Executive Director of Van Kampen Asset Management and Morgan 1 Parkview Plaza and Treasurer since 1999 Stanley Investment Management. Chief Financial Officer and Oakbrook Terrace, IL 60181 Treasurer of funds in the Fund Complex. Prior to August 2004, Assistant Treasurer of funds in the Fund Complex. Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Investment Officer Management Inc. and 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.
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VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND 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 FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since November 1221 Avenue of the Americas President and since 2003 2003. Chief Executive Officer and Chairman of Investor New York, NY 10020 Principal Executive Services. Executive Vice President and Principal Executive Officer 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 1996 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.
37 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, 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 (continued on back) VAN KAMPEN AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued 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 (VAN KAMPEN INVESTMENTS LOGO) Copyright (C)2004 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 41, 341, 541 CAI ANR 11/04 RN04-02583P-Y 09/04 Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen Municipal Income Fund 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 fund's financial statements and a list of fund investments as of September 30, 2004. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUS CONTAINS INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 09/30/04 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index from 9/30/94 through 9/30/04. Class A shares, adjusted for sales charges. (LINE GRAPH)
VAN KAMPEN MUNICIPAL INCOME LEHMAN BROTHERS MUNICIPAL BOND FUND INDEX --------------------------- ------------------------------ 9/94 9525 10000 12/94 9417 9857 10080 10554 10168 10808 10373 11118 12/95 10887 11577 10717 11438 10804 11526 11065 11790 12/96 11329 12090 11327 12061 11706 12477 12029 12853 12/97 12364 13202 12499 13354 12669 13557 13059 13973 12/98 13003 14057 13029 14181 12725 13931 12504 13876 12/99 12298 13768 12530 14170 12624 14384 12840 14732 12/00 13289 15377 13552 15718 13583 15820 13987 16264 12/01 13788 16165 13880 16317 14389 16914 15155 17717 12/02 15080 17717 15240 17930 15619 18393 15657 18407 12/03 15889 18659 16101 18982 15713 18532 9/04 16314 19254
A SHARES B SHARES C SHARES since 08/01/90 since 08/24/92 since 08/13/93 - -------------------------------------------------------------------------------------------- W/MAX W/MAX W/MAX 4.75% 4.00% 1.00% AVERAGE ANNUAL TOTAL W/O SALES SALES W/O SALES SALES W/O SALES SALES RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE Since Inception 6.17% 5.80% 4.87% 4.87% 4.03% 4.03% 10-year 5.53 5.02 5.06 5.06 4.72 4.72 5-year 5.46 4.45 4.67 4.42 4.66 4.66 1-year 4.20 -0.75 3.41 -0.58 3.43 2.43 - -------------------------------------------------------------------------------------------- 30-Day SEC Yield 3.29% 2.72% 2.72%
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 AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The returns shown in this report do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance of share classes will vary due to differences in sales charges and expenses. Average annual total return with sales charges includes payment of the maximum sales charge of 4.75 percent for Class A shares, a contingent deferred sales charge of 4.00 percent for Class B shares (in year one and declining to zero after year six), a contingent deferred sales charge of 1.00 percent for Class C shares in year one and combined Rule 12b-1 fees and service fees of up to 0.25 percent for Class A shares and up to 1.00 percent for Class B and C shares. The since inception and 10-year returns for Class B shares reflect the conversion of Class B shares into Class A shares six years after purchase. The since inception returns for Class C shares reflect the conversion of Class C shares into Class A shares ten years after purchase. See footnote 3 in the Notes to Financial Statements for additional information. Figures shown above assume reinvestment of all dividends and capital gains. SEC yield is a calculation for determining the amount of portfolio income, excluding non-income items as prescribed by the SEC. Yields are subject to change. The Lehman Brothers Municipal Bond Index is generally representative of investment-grade, tax-exempt bonds. The index does not include any expenses, fees or sales charges, which would lower performance. The index is unmanaged and should not be considered an investment. It is not possible to invest directly in an index. Index data source: Lipper Inc. 1 Fund Report FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004 Van Kampen Municipal Income Fund is managed by the Adviser's Municipal Fixed Income team. Current members of the team include James F. Willison, Managing Director of the Adviser; Joseph R. Arcieri, Executive Director of the Adviser; and Timothy D. Haney, Vice President of the Adviser.(1) MARKET CONDITIONS The interest-rate environment of the 12 months ended September 30, 2004 was marked by two periods of steadily declining yields, with a significant sell-off in the middle. Yields fell steadily through the first half of the period, approaching the historical lows of 2003. This trend persisted until March, at which point yields reversed direction and began an upward march as prices fell. These losses were steepest in April, as a surprisingly strong employment report and signals from members of the Federal Open Market Committee (the Fed) caused investors to expect a near-term rate increase. Rates went on to decline from May through the end of the period as the market digested the Fed's newly hawkish rate stance. Investors were further comforted when, after the Fed raised rates at its June 30, 2004 meeting, its members indicated that the path of future rate increases would be measured. Unusually, longer-maturity securities largely outperformed in this period of Fed tightening. The typical pattern in periods of tightening policy has been an increase in yields across all maturities. During the review period, however, yields of shorter maturity bonds rose while those of bonds with longer maturities declined slightly. Lower-quality municipal bonds also performed strongly in this environment, as the difference in yields (known as the "yield spread") between AAA and BBB rated bonds decreased by roughly 20 basis points for 20-year bonds. As a result, sectors with heavy exposure to lower-rated debt, such as hospitals and industrial revenue, posted higher total returns than sectors dominated by higher-rated debt. Issuance for the first nine months of 2004 (the final nine months of the review period) was roughly 9 percent lower than in the same period in 2003. That said, 2003 was a record year, and at the current pace of issuance, 2004 could well be one of the largest years in recent memory. This historically strong supply met with faltering demand from mutual funds, as fund investors withdrew over $16 billion in net cash during the period. This faltering demand was largely offset by increased participation in the market by insurance companies and individual investors. (1)Team members may change at any time without notice. 2 PERFORMANCE ANALYSIS The fund returned 4.20 percent for the 12 months ended September 30, 2004 (Class A shares, unadjusted for sales charge), just slightly underperforming the Lehman Brothers Municipal Bond Index (which is not adjusted for any expenses). (See table below.) One of our key strategies in managing the fund is to adjust its interest-rate exposure to reflect our expectations for the economy. During the period, we continued to see an improving economy and a rise in short-term interest rates that typically accompanies it. As a result, we kept the portfolio's duration (a measure of interest-rate sensitivity) lower than that of our internal performance benchmark. We also de-emphasized the 5- to 10-year area of the yield curve in order to limit the potential adverse effects of rising interest rates there. Instead, we focused our purchases on bonds with longer maturities. Many of these securities were high-grade bonds in the 30-year range. We also added to our core position of premium, callable bonds in the 15- to 20-year range. The structure of these bonds offers the yield advantage of longer-maturity securities coupled with the limited interest-rate volatility of bonds with shorter maturities. The portfolio's shorter duration slightly hampered returns; however, its exposure to bonds on the longer end of the yield curve was more beneficial. In managing the portfolio, we actively traded our high-grade securities based on relative-value fluctuations. This trading was largely driven by instances where securities met our performance targets, were sold, and the proceeds reinvested in bonds with more compelling total-return potential. In addition, several of the fund's positions were called by their issuers, and we replaced them with securities with attractive yield characteristics. These purchases had the effect of slightly reducing the fund's overall credit quality, though it remained high, with 81 percent of holdings rated AA or better. The portfolio remained well diversified across major market sectors, with its three largest exposures being general purpose, transportation and public education. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004
- -------------------------------------------------------------- LEHMAN BROTHERS CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX 4.20% 3.41% 3.43% 4.60% - --------------------------------------------------------------
The performance for the three share classes varies because each has different expenses. The fund's total return figures assume the reinvestment of all distributions, but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information and index definition. 3 RATINGS ALLOCATIONS AS OF 9/30/04 TOP 5 SECTORS AS OF 9/30/04 AAA/Aaa 70.2% General Purpose 15.5% AA/Aa 11.2 Transportation 13.4 A/A 5.1 Public Education 11.3 BBB/Baa 3.7 Wholesale Electric 10.5 BB/Ba 0.9 Water & Sewer 8.3 B/B 0.3 D/D 0.2 Non-Rated 8.4
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/04 New York 14.0% California 11.0 New Jersey 10.2 Texas 8.1 Illinois 7.9 Colorado 6.7 Florida 5.7 Michigan 3.9 Massachusetts 3.7 Arizona 3.3 Oregon 2.6 Washington 2.1 Utah 2.0 Connecticut 1.9 Missouri 1.6 Georgia 1.5 North Carolina 1.4 Indiana 1.4 District of Columbia 1.3 Kansas 1.1 Tennessee 1.1 Pennsylvania 0.9 West Virginia 0.8 New Hampshire 0.8 Alabama 0.8 Rhode Island 0.5 Arkansas 0.5 Iowa 0.5 Nevada 0.5 South Dakota 0.3 Louisiana 0.2
(continued on next page) 4
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/04 (continued from previous page) South Carolina 0.2% Ohio 0.2 Vermont 0.2 Oklahoma 0.1 ----- Total Investments 99.0% Other Assets in Excess of Liabilities 1.0 ----- Total Net Assets 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 sectors shown above. Ratings allocations and sectors are as a percentage of long-term investments. Summary of investments by state classification is as a percentage of net assets. Securities are classified by sectors that represent broad groupings of related industries. 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. Rating allocations based upon ratings as issued by Standard and Poor's and Moody's, respectively. 5 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS Each Van Kampen fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund'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 fund 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 fund files a complete schedule of portfolio holdings with the SEC for the fund'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 1-202-942-8090. 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 fund makes portfolio holdings information available by periodically providing the information on its public web site, www.vankampen.com. Each Van Kampen fund 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. Furthermore, each Van Kampen open-end fund provides partial lists of its portfolio holdings (such as top 10 or top 15 fund holdings) to the public web site each month with a delay of approximately 15 days. You may obtain copies of a fund's fiscal quarter filings, or its monthly or calendar-quarter web site postings, by contacting Van Kampen Client Relations at 1-800-847-2424. 6 HOUSEHOLDING NOTICE To reduce fund expenses, the fund attempts to eliminate duplicate mailings to the same address. The fund delivers a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. The fund's prospectuses and shareholder reports (including annual privacy notices) will be delivered to you in this manner indefinitely unless you instruct us otherwise. You can request multiple copies of these documents by either calling 1-800-341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has received your instructions, we will begin sending individual copies for each account within 30 days. PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD The fund's policies and procedures with respect to the voting of proxies relating to the fund's portfolio securities and information on how the fund 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. 7 Expense Example As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 4/1/04-9/30/04. ACTUAL EXPENSE The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads), and redemption fees, or exchange fees.
BEGINNING ACCOUNT ENDING EXPENSES PAID VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------- 4/1/04 9/30/04 4/1/04-9/30/04 Class A Actual.................................... $1,000.00 $1,013.21 $4.28 Hypothetical.............................. 1,000.00 1,020.70 4.29 (5% annual return before expenses) Class B Actual.................................... 1,000.00 1,009.34 8.09 Hypothetical.............................. 1,000.00 1,017.00 8.12 (5% annual return before expenses) Class C Actual.................................... 1,000.00 1,009.39 8.09 Hypothetical.............................. 1,000.00 1,017.00 8.12 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.85%, 1.61%, and 1.61% for Class A, B, and C Shares, respectively, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). Assumes all dividends and distributions were reinvested. 8 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MUNICIPAL BONDS 98.6% ALABAMA 0.8% $ 1,865 Alabama St Univ Rev Gen Tuition & Fee Ser B (MBIA Insd).................................... 5.250% 03/01/33 $ 2,114,425 2,930 Alabama Wtr Pollutn Ctl Auth Revolving Fd Ln Ser A (Prerefunded 08/15/05) (AMBAC Insd) (a)............................................ 6.750 08/15/17 3,060,531 3 Mobile, AL Indl Dev Brd Solid Waste Disp Rev Mobile Energy Svc Co Proj Rfdg................. 6.950 01/01/20 18 ------------ 5,174,974 ------------ ARIZONA 3.3% 8,685 Arizona Sch Fac Brd Ctf Ser B (FGIC Insd)...... 5.250 09/01/17 9,612,558 5,000 Phoenix, AZ Civic Impt Corp Sr Lien Ser B (AMT) (FGIC Insd).................................... 5.250 07/01/32 5,125,950 2,500 Phoenix, AZ Indl Dev Auth Mtg Christian Care Apt Proj Ser A Rfdg............................ 6.500 01/01/26 2,561,275 500 Scottsdale, AZ Indl Dev Auth Rev First Mtg Westminster Vlg Ser A Rfdg (Prerefunded @ 06/01/05)...................................... 8.250 06/01/15 530,500 1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg (AMBAC Insd)................... 6.000 09/01/12 2,091,506 1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg (AMBAC Insd)................... 6.125 09/01/17 1,955,555 ------------ 21,877,344 ------------ ARKANSAS 0.5% 1,400 Jackson Cnty, AR Hlthcare Fac Brd First Mtg Hosp Rev Newport Hosp & Clinic Inc............. 7.375 11/01/11 1,404,256 2,102 Maumelle, AR Dogwood Addition Prd Muni Ppty Owners Rfdg.................................... 7.500 03/01/06 2,087,988 ------------ 3,492,244 ------------ CALIFORNIA 11.0% 4,870 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Sub Pub Impts Proj C (FSA Insd)................ * 09/01/20 2,248,138 305 California Infrastructure & Econ Dev Bk Rev Bay Area Toll Brdgs First Lien A (FSA Insd)........ 5.250 07/01/20 333,728 5,000 California Infrastructure & Econ Dev Bk Rev Rites-PA-1202R (Inverse Fltg) (Acquired 09/10/03, Cost $5,484,100) (FSA Insd) (b) (c)............................................ 8.581 07/01/11 5,941,900 10,000 California St Dept Wtr Res Pwr Ser A (AMBAC Insd).......................................... 5.500 05/01/16 11,373,900 5,000 California St Dept Wtr Res Pwr Ser A (XLCA Insd).......................................... 5.375 05/01/17 5,557,450 6,575 California St Dept Wtr Res Pwr Supply Rev Rites-PA-1201R (Inverse Fltg) (Acquired 09/08/03, Cost $7,143,277) (MBIA Insd) (b) (c)............................................ 8.581 05/01/20 7,715,828 7,500 California St Drivers Ser 482 (Inverse Fltg) (Acquired 07/19/04, Cost $8,325,750) (XLCA Insd) (b) (c).................................. 8.505 10/01/10 8,767,950
See Notes to Financial Statements 9 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- CALIFORNIA (CONTINUED) $ 3,500 California St Pub Wks Brd Lease Rev Dept Corrections Ser C.............................. 5.250% 06/01/28 $ 3,606,050 2,640 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd).......................................... * 09/01/13 1,577,110 5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd).......................................... * 09/01/14 3,028,148 3,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap Apprec Rfdg (MBIA Insd).................... * 01/15/17 1,619,160 21,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap Apprec Rfdg................................ * 01/15/24 6,769,560 15,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap Apprec Rfdg................................ * 01/15/30 3,335,100 6,695 San Francisco, CA City & Cnty Second Ser Issue 29 B Rfdg (FGIC Insd).......................... 5.125 05/01/20 7,184,739 5,000 West Contra Costa CA Uni Election of 2002 Ser B (FSA Insd)..................................... 5.000 08/01/26 5,148,250 ------------ 74,207,011 ------------ COLORADO 6.7% 2,840 Adams Cnty, CO Single Family Mtg Rev Ser A (Escrowed to Maturity)......................... 8.875 08/01/10 3,690,892 5,000 Arapahoe Cnty, CO Wtr & Waste Proj Ser A (MBIA Insd).......................................... 5.125 12/01/32 5,159,250 5,000 Colorado Dept Trans Rev Antic Nts Ser A (Prerefunded @ 12/15/13) (AMBAC Insd).......... 5.250 12/15/16 5,703,300 5,000 Colorado Ed & Cultural Fac Auth Rev Impt Charter Sch Peak to Peak Rfdg (XLCA Insd)...... 5.250 08/15/34 5,197,750 1,000 Colorado Hlth Fac Auth Rev Evangelical Lutheran Ser A.......................................... 5.250 06/01/34 1,010,880 5,000 Colorado Springs, CO Utils Rev Sys Sub Lien Ser A Impt & Rfdg.................................. 5.000 11/15/21 5,229,750 6,500 E 470 Pub Hwy Auth Co Rev Cap Apprec Sr Ser B (MBIA Insd).................................... * 09/01/20 3,059,485 15,000 E 470 Pub Hwy Auth Co Rev Cap Apprec Sr Ser B (MBIA Insd).................................... * 09/01/20 7,099,950 1,320 El Paso Cnty, CO Sch Dist No 003 Widefield Ser A (Prerefunded @ 12/15/05) (MBIA Insd)......... * 12/15/14 781,572 1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser A (Prerefunded @ 12/15/05) (MBIA Insd)......... * 12/15/15 792,559 1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser A (Prerefunded @ 12/15/05) (MBIA Insd)......... * 12/15/16 743,086 1,330 El Paso Cnty, CO Sch Dist No 003 Widefield Ser A (Prerefunded @ 12/15/05) (MBIA Insd)......... * 12/15/18 611,893 3,690 Jefferson Cnty, CO Residential Mtg Rev (Escrowed to Maturity)......................... 11.500 09/01/12 5,661,161 ------------ 44,741,528 ------------
10 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- CONNECTICUT 1.9% $ 2,785 Bridgeport, CT Rol Ser II R 182 (Inverse Fltg) (Acquired 07/09/02, Cost $3,177,971) (FGIC Insd) (b) (c).................................. 8.982% 08/15/15 $ 3,506,371 2,950 Bridgeport, CT Rol Ser II R 182 (Inverse Fltg) (Acquired 07/09/02, Cost $3,323,232) (FGIC Insd) (b) (c).................................. 8.982 08/15/16 3,692,485 2,530 Mashantucket Western Pequot Tribe CT Spl Rev Ser A, 144A-Private Placement (d).............. 6.400 09/01/11 2,707,657 2,470 Mashantucket Western Pequot Tribe CT Spl Rev Ser A, 144A-Private Placement (Prerefunded @ 09/01/07) (d).................................. 6.400 09/01/11 2,753,926 ------------ 12,660,439 ------------ DISTRICT OF COLUMBIA 1.3% 5,150 District Columbia Tax Incrmnt Gallary Place Proj (FSA Insd)................................ 5.250 07/01/27 5,394,213 3,000 Metropolitan Washington DC Arpts Auth Sys Ser A (AMT) (FGIC Insd).............................. 5.250 10/01/32 3,067,830 ------------ 8,462,043 ------------ FLORIDA 5.6% 5,000 Broward Cnty, FL Arpt Sys Rev Ser J-I (AMT) (AMBAC Insd)................................... 5.250 10/01/26 5,146,400 9,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec Ser A Rfdg (MBIA Insd)......................... * 02/01/18 4,322,430 5,000 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC Insd).......................................... 5.950 07/01/20 5,153,550 6,385 Lake Cnty, FL Sch Brd Ctf Part (AMBAC Insd).... 5.375 07/01/16 7,079,305 500 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran Twr Rfdg...................... 8.625 07/01/20 519,825 595 Orange Cnty, FL Tourist Dev Tax Rev (Escrowed to Maturity) (AMBAC Insd)...................... 6.000 10/01/16 596,089 12,860 Orlando, FL Utils Commn Wtr Rfdg............... 5.250 10/01/19 13,975,991 808 Tampa Palms, FL Open Space & Tran Cmnty Dev Dist Rev Cap Impt Area 7 Proj (Prerefunded @ 05/01/05)...................................... 7.500 05/01/18 849,628 ------------ 37,643,218 ------------ GEORGIA 1.2% 2,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg Rev Azalea Manor Proj Ser A (Acquired 02/18/98, Cost $2,000,000) (b) (e)....................... 6.500 02/01/28 990,000 6,315 Municipal Elec Auth GA Combustion Turbine Proj Ser A (MBIA Insd).............................. 5.250 11/01/17 7,020,070 ------------ 8,010,070 ------------
See Notes to Financial Statements 11 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- ILLINOIS 7.9% $ 5,000 Chicago, IL Brd Ed Cap Apprec Sch Reform Ser A (FGIC Insd).................................... * 12/01/20 $ 2,329,450 3,000 Chicago, IL Lakefront Millennium Pkg Fac (MBIA Insd) (f)...................................... 0/5.650% 01/01/19 3,053,970 1,000 Chicago, IL Metro Wtr Reclamation Dist Gtr Chicago (Escrowed to Maturity)................. 7.000 01/01/11 1,189,820 8,050 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien C-2 Rfdg (AMT) (XLCA Insd)................ 5.250 01/01/34 8,247,949 5,100 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Proj Ser B (AMT) (e) (g)................. 5.200 04/01/11 1,377,000 3,210 Chicago, IL Proj & Rfdg Ser C (FGIC Insd)...... 5.750 01/01/16 3,653,558 165 Chicago, IL Single Family Mtg Rev Ser A (AMT) (GNMA Collateralized).......................... 7.000 09/01/27 165,729 125 Chicago, IL Tax Increment Alloc Santn Drain & Ship Canal Ser A............................... 7.375 01/01/05 125,284 1,000 Chicago, IL Tax Increment Alloc Santn Drain & Ship Canal Ser A............................... 7.750 01/01/14 1,045,000 2,000 Chicago, IL Tax Increment Alloc Sub Cent Loop Redev Ser A.................................... 6.500 12/01/05 2,080,860 1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctf Part (FGIC Insd)........................... 8.750 01/01/07 1,143,730 2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak Park (FSA Insd)................................ * 12/01/11 1,739,384 5,000 Cook Cnty, IL Ser A (FGIC Insd)................ 5.500 11/15/31 5,374,650 1,500 Hodgkins, IL Tax Increment Ser A Rfdg.......... 7.625 12/01/13 1,612,965 1,365 Huntley, IL Increment Alloc Rev Huntley Redev Proj Ser A..................................... 8.500 12/01/15 1,433,755 250 Illinois Dev Fin Auth Rev Cmnty Fac Clinic Altgeld Proj................................... 8.000 11/15/06 240,567 5,000 Illinois St First Ser (FSA Insd)............... 5.250 12/01/21 5,393,650 9,250 Metropolitan Pier & Expo Auth IL Dedicated St Tax Rev Cap Apprec McCormick Rfdg (MBIA Insd).......................................... * 06/15/19 6,886,625 3,555 Metropolitan Pier & Expo Auth IL Dedicated St Tax Rev Cap Apprec McCormick Ser A Rfdg (MBIA Insd).......................................... * 12/15/15 2,213,983 1,200 Saint Charles, IL Indl Dev Rev Tri-City Ctr Proj (Acquired 11/17/93, Cost $1,200,000) (b)............................................ 7.500 11/01/13 1,194,204 4,270 Will Cnty, IL Fst Presv Dist Ser B (FGIC Insd).......................................... * 12/01/15 2,654,915 ------------ 53,157,048 ------------ INDIANA 1.4% 2,500 Indiana Bd Bk Spl Pgm Hendricks Redev (Prerefunded @ 02/01/07) (LOC--Canadian Imperial Bank)................................. 6.200 02/01/23 2,784,975 1,920 Indiana Hlth Fac Fin Auth Rev Hoosier Care Proj Ser A.......................................... 7.125 06/01/34 1,764,538 550 Indianapolis, IN Loc Pub Impt Bd Bk Ser D...... 6.750 02/01/14 667,414
12 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- INDIANA (CONTINUED) $ 140 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B...................................... * 06/30/11 $ 84,433 140 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B...................................... * 06/30/12 78,212 135 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B...................................... * 06/30/13 69,864 130 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B...................................... * 06/30/14 62,321 130 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B...................................... * 06/30/15 57,729 135 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B...................................... * 06/30/16 55,551 225 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B...................................... * 06/30/17 85,763 3,295 Vigo Cnty, IN Elem Sch Bldg First Mtg Impt & Rfdg (FSA Insd)................................ 5.250% 01/10/22 3,519,159 ------------ 9,229,959 ------------ IOWA 0.5% 640 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp Proj (FSA Insd)................................ 6.000 07/01/07 703,328 2,400 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp Proj (FSA Insd)................................ 5.750 07/01/17 2,643,840 ------------ 3,347,168 ------------ KANSAS 1.1% 6,600 Sedgwick Cnty, KS Uni Sch Dist No 259 Wichita (MBIA Insd).................................... 5.625 09/01/13 7,496,676 ------------ LOUISIANA 0.2% 1,400 West Feliciana Parish, LA Pollutn Ctl Rev Gulf States Util Co Proj Ser A...................... 7.500 05/01/15 1,419,418 ------------ MASSACHUSETTS 3.7% 7,500 Massachusetts St Fed Hwy Ser A................. 5.750 06/15/14 8,488,425 3,500 Massachusetts St Hlth & Ed Fac Auth Rev (MBIA Insd).......................................... 5.000 07/01/13 3,578,680 1,500 Massachusetts St Indl Fin Agy Hillcrest Ed Ctr Inc Proj (Prerefunded @ 07/01/05).............. 8.450 07/01/18 1,585,755 5,270 Massachusetts St Indl Fin Agy Rev First Mtg Reeds Landing Proj (Variable Rate Coupon)...... 7.100 10/01/28 5,250,712 5,000 Massachusetts St Rol-R 143-Ser II (Inverse Fltg) (Acquired 11/26/01, Cost $5,345,326) (MBIA Insd) (b) (c)............................ 8.718 11/01/16 6,204,150 ------------ 25,107,722 ------------
See Notes to Financial Statements 13 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MICHIGAN 3.9% $ 840 Detroit, MI Loc Dev Fin Auth Tax Increment Sub Ser C (Acquired 09/08/97, Cost $840,000) (b)... 6.850% 05/01/21 $ 821,646 5,000 Detroit, MI Sew Disp Rev Sr Lien Ser A Rfdg (FGIC Insd).................................... 5.125 07/01/31 5,129,500 5,000 Michigan St Bldg Auth Rev Fac Pgm Ser II....... 5.500 10/15/16 5,632,550 5,000 Michigan St Strategic Fd Detroit Edison Co Proj C Rfdg (AMT) (XLCA Insd)....................... 5.450 12/15/32 5,199,400 1,000 Michigan St Strategic Fd Detroit Edison Pollutn Ctl Ser B Rfdg (AMT)........................... 5.650 09/01/29 1,024,660 9,739 Michigan St Strategic Fd Ltd Oblig Rev Great Lakes Pulp & Fiber Proj (AMT) (e) (h).......... 8.000 12/01/27 1,441,445 1,935 Michigan St Strategic Fd Solid Genesee Pwr Sta Proj Rfdg (AMT)................................ 7.500 01/01/21 1,704,445 5,000 Western Townships, MI Util Sew Rfdg (MBIA Insd).......................................... 5.250 01/01/16 5,460,150 ------------ 26,413,796 ------------ MISSOURI 1.6% 3,000 Kansas City, MO Indl Dev Auth Plaza Lib Proj... 6.000 03/01/16 3,146,040 2,835 Kansas City, MO Port Auth Fac Riverfront Park Proj Ser A..................................... 5.750 10/01/06 2,875,852 3,935 Macon, MO Ctf Part (MBIA Insd)................. 5.250 08/01/17 4,272,466 530 Saint Louis, MO Tax Increment Rev Scullin Redev Area Ser A..................................... 10.000 08/01/10 624,192 ------------ 10,918,550 ------------ NEVADA 0.5% 3,000 Clark Cnty, NV Arpt Rev Sub Lien Ser A-2 (FGIC Insd).......................................... 5.000 07/01/36 3,046,080 ------------ NEW HAMPSHIRE 0.8% 1,555 New Hampshire Higher Ed & Hlth Fac Auth Rev.... 8.800 06/01/09 1,651,923 760 New Hampshire Higher Ed & Hlth Fac Auth Rev Daniel Webster College Issue Rfdg.............. 6.100 07/01/09 813,025 750 New Hampshire St Business Fin Auth Elec Fac Rev Plymouth Cogeneration (AMT) (Acquired 06/29/93, Cost $734,079) (b)............................. 7.750 06/01/14 767,527 1,000 New Hampshire St Business Fin Auth Rev Alice Peck Day Hlth Sys Ser A........................ 6.875 10/01/19 1,004,120 1,000 New Hampshire St Tpk Sys Rev Ser A Rfdg (FGIC Insd).......................................... 6.750 11/01/11 1,113,720 ------------ 5,350,315 ------------ NEW JERSEY 10.2% 2,000 Camden Cnty, NJ Impt Auth Lease Rev Dockside Refrig (Acquired 01/29/97, Cost $2,074,739) (b) (e) (g)........................................ 8.400 04/01/24 1,607,500 3,250 Landis, NJ Sew Auth Swr Rev (Inverse Fltg) (FGIC Insd) (c)................................ 9.670 09/19/19 4,198,837
14 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- NEW JERSEY (CONTINUED) $ 6,130 Middlesex Cnty, NJ Util Auth Swr Rev Ser A Rfdg (MBIA Insd).................................... 6.250% 08/15/10 $ 6,931,007 9,725 New Jersey Econ Dev Auth Drivers Ser 365 (Inverse Fltg) (Acquired 08/04/03, Cost $10,450,265) (FGIC Insd) (b) (c)............... 8.525 06/15/11 11,519,165 2,000 New Jersey Econ Dev Auth Holt Hauling & Warehsg Rev Ser G Rfdg (e) (g)......................... 8.400 12/15/15 1,607,500 1,900 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens Ser A (Prerefunded @ 11/01/06)...................................... 8.500 11/01/16 2,173,296 350 New Jersey Econ Dev Auth Rev RWJ Hlthcare Corp (FSA Insd)..................................... 6.250 07/01/14 358,235 1,000 New Jersey Econ Dev Auth Rev Utd Methodist Homes (Prerefunded @ 07/01/05)................. 7.500 07/01/20 1,061,140 1,000 New Jersey Econ Dev Auth Rev Utd Methodist Homes (Prerefunded @ 07/01/05)................. 7.500 07/01/25 1,061,140 8,000 New Jersey Econ Dev Auth Sch Fac Constr Ser F (FGIC Insd).................................... 5.250 06/15/17 8,868,400 755 New Jersey St Tpk Auth Tpk Rev Ser C (MBIA Insd).......................................... 6.500 01/01/16 926,634 2,725 New Jersey St Tpk Auth Tpk Rev Ser C (Escrowed to Maturity) (MBIA Insd)....................... 6.500 01/01/16 3,317,578 5,710 New Jersey St Trans Corp Ctf Fed Trans Admin Gnt Ser A (AMBAC Insd)......................... 5.750 09/15/10 6,390,404 10,000 New Jersey St Trans Corp Ctf Fed Trans Admin Gnt Ser B (Prerefunded @ 09/15/10) (AMBAC Insd).......................................... 6.000 09/15/15 11,655,200 5,500 New Jersey St Trans Tr Fd Auth Rols RR II R 236 (Inverse Fltg) (Acquired 07/30/03, Cost $6,391,317) (FSA Insd) (b) (c)................. 9.226 06/15/20 6,698,285 ------------ 68,374,321 ------------ NEW YORK 14.0% 5,000 Metropolitan Trans Auth NY Rev Ser B (FGIC Insd).......................................... 5.250 11/15/18 5,519,900 10,000 Nassau Cnty, NY Interim Fin Auth Ser A (Prerefunded @ 11/15/10)....................... 5.750 11/15/14 11,570,300 4,800 New York City Ser A............................ 7.000 08/01/07 5,262,336 200 New York City Ser A (Prerefunded @ 08/01/06)... 7.000 08/01/07 221,760 21,860 New York City Ser B (MBIA Insd)................ 5.875 08/01/15 25,151,242 1,420 New York City Ser D............................ 8.000 02/01/05 1,448,727 5,000 New York City Ser D (MBIA Insd)................ 5.200 08/01/14 5,523,400 5,000 New York City Transitional Drivers Ser 307 (Inverse Fltg) (Acquired 11/06/02, Cost $5,439,826) (AMBAC Insd) (b) (c)............... 8.526 08/01/19 5,885,850 2,285 New York St Dorm Auth Rev Mental Hlth Ser A.... 5.750 02/15/11 2,491,244 2,275 New York St Dorm Auth Rev Mental Hlth Svc Fac Ser A.......................................... 5.750 02/15/12 2,480,342 2,500 New York St Energy Resh & Dev Auth Gas Fac Rev (Inverse Fltg) (c)............................. 10.931 04/01/20 3,113,450
See Notes to Financial Statements 15 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $ 3,000 New York St Energy Resh & Dev Auth Gas Fac Rev Brooklyn Union Gas Ser B (Inverse Fltg) (AMT) (c)............................................ 12.048% 07/01/26 $ 3,510,600 10,725 New York St Environmental Fac Rev Fds-Second Resolution..................................... 5.000 06/15/20 11,502,455 10,000 Triborough Brdg & Tunl Auth NY Gen Ser B Rfdg........................................... 5.000 11/15/22 10,492,800 ------------ 94,174,406 ------------ NORTH CAROLINA 1.4% 8,700 North Carolina Muni Pwr Agy Ser A (MBIA Insd).......................................... 5.250 01/01/19 9,460,641 ------------ OHIO 0.2% 1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd Part Proj Rfdg (AMT) (AMBAC Insd).......... 6.375 04/01/29 1,023,540 ------------ OKLAHOMA 0.1% 445 Oklahoma Hsg Fin Agy Single Family Rev Mtg Class B (AMT) (GNMA Collateralized)............ 7.997 08/01/18 459,707 ------------ OREGON 2.6% 5,000 Oregon Hlth Sciences Univ Insd Ser A (MBIA Insd).......................................... 5.250 07/01/22 5,375,250 1,000 Port Morrow, OR Pollutn Ctl Portland Gen A Rfdg (Variable Rate Coupon)......................... 5.200 05/01/33 1,060,970 10,000 Portland, OR Swr Sys Rev Ser A (FGIC Insd)..... 5.750 08/01/18 11,361,500 ------------ 17,797,720 ------------ PENNSYLVANIA 0.9% 5,250 Philadelphia, PA Auth Indl Ser B (FSA Insd).... 5.500 10/01/16 5,938,275 ------------ RHODE ISLAND 0.5% 1,305 Rhode Island St Econ Dev Corp Rev.............. 7.250 07/01/10 1,308,615 2,000 Rhode Island St Hlth & Ed Bldg Higher Ed Johnson & Wales Rfdg (XLCA Insd)............... 5.375 04/01/19 2,195,800 ------------ 3,504,415 ------------ SOUTH CAROLINA 0.2% 1,070 Piedmont Muni Pwr Agy SC Elec Rev.............. 5.000 01/01/25 1,040,703 ------------ SOUTH DAKOTA 0.3% 1,000 South Dakota St Hlth & Ed Fac Auth Rev Huron Regl Med Ctr................................... 7.250 04/01/20 1,023,280 1,250 South Dakota St Hlth & Ed Fac Auth Rev Sioux VY Hosp & Hlth Sys Ser A.......................... 5.250 11/01/34 1,256,938 ------------ 2,280,218 ------------
16 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- TENNESSEE 1.1% $ 4,000 Elizabethton, TN Hlth & Ed Fac Brd Rev Rfdg (MBIA Insd).................................... 7.750% 07/01/29 $ 5,179,520 2,000 Springfield, TN Hlth & Ed Jesse Holman Jones Hosp Proj (Prerefunded @ 04/01/06)............. 8.500 04/01/24 2,235,280 ------------ 7,414,800 ------------ TEXAS 8.1% 1,955 Bell Cnty, TX Indl Dev Corp Solid Waste Disposal Rev (AMT) (e)......................... 7.600 12/01/17 293,250 500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev St. Luke's Lutheran Hosp (Escrowed to Maturity).... 7.000 05/01/21 655,730 3,170 Brazos River Auth TX Pollutn Ctl Rev Adj Elec Co Proj Ser C Rfdg (AMT) (Variable Rate Coupon)........................................ 5.750 05/01/36 3,346,220 90 Coastal Wtr Auth TX Conveyance Sys Rev (Escrowed to Maturity) (AMBAC Insd)............ 6.250 12/15/17 90,176 5,000 Dallas-Fort Worth, TX Intl Arpt Rev Impt Jt Ser A Rfdg (AMT) (FGIC Insd)....................... 5.500 11/01/31 5,197,250 7,350 Grapevine Colleyville Indpt Sch Dist TX (PSFG Insd).......................................... * 08/15/11 5,712,494 10,000 Houston, TX Hotel Occupancy Tax Convtn & Entertnmnt Ser B (AMBAC Insd).................. 5.750 09/01/14 11,445,800 7,500 Lower CO River Auth TX Rev Ser A Rfdg (Inverse Fltg) (Acquired 10/20/99, Cost $7,623,805) (FSA Insd) (b) (c).................................. 9.802 05/15/14 9,514,350 6,250 Lower CO River Auth TX Rev Ser A Rfdg (Inverse Fltg) (Acquired 10/20/99, Cost $6,312,134) (FSA Insd) (b) (c).................................. 9.802 05/15/15 7,919,875 3,250 Lower CO River Auth TX Rev Ser A Rfdg (Inverse Fltg) (Acquired 10/20/99, Cost $3,254,875) (FSA Insd) (b) (c).................................. 9.802 05/15/16 4,109,300 2,000 Metropolitan Hlth Fac Dev Corp TX Wilson N Jones Mem Hosp Proj............................ 7.200 01/01/21 1,988,340 500 Texas Gen Svc Cmnty Part Int Office Bldg & Land Acquisition Proj............................... 7.000 08/01/19 507,035 500 Texas Gen Svc Cmnty Part Int Office Bldg & Land Acquisition Proj............................... 7.000 08/01/24 507,075 633 Texas Gen Svc Cmnty Part Lease Purch Ctf....... 7.500 02/15/13 644,272 2,125 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev Coll Ser C-2 Rfdg (AMT) (Inverse Fltg) (GNMA Collateralized) (c)............................ 11.995 07/02/24 2,181,313 625 Texas St Higher Ed Coordinating Brd College Student Ln Rev (AMT)........................... 7.849 10/01/25 626,663 ------------ 54,739,143 ------------ UTAH 2.0% 1,340 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (e)............................................ 7.800 09/01/15 268,000 1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (e)............................................ 8.000 09/01/20 200,000 1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (e)............................................ 7.800 09/01/25 200,000 11,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg........................................... 6.150 02/15/12 12,875,940
See Notes to Financial Statements 17 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- UTAH (CONTINUED) $ 30 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A1 (AMT) (FHA Gtd)................................ 7.100% 07/01/14 $ 30,757 45 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A2 (AMT) (FHA Gtd)................................ 7.200 01/01/27 46,079 ------------ 13,620,776 ------------ VERMONT 0.2% 1,000 Vermont Ed & Hlth Bldg Fing Agy Rev Bennington College Proj................................... 6.625 10/01/29 1,016,540 ------------ WASHINGTON 2.1% 5,000 Energy Northwest WA Elec Rev Proj No 3 Ser A Rfdg (XLCA Insd)............................... 5.500 07/01/17 5,590,050 8,000 King Cnty, WA Sch Dist No 411 (FGIC Insd)...... 5.250 12/01/20 8,686,400 ------------ 14,276,450 ------------ WEST VIRGINIA 0.8% 1,500 West Virginia St Hosp Fin Auth Hosp Rev Bears & Bulls WV Univ Med Corp Rfdg (MBIA Insd)........ 6.100 01/01/18 1,504,890 4,000 West Virginia St Hosp Fin Auth Hosp Rev Bears & Bulls WV Univ Med Corp Rfdg (MBIA Insd)........ 6.100 01/01/18 4,012,920 ------------ 5,517,810 ------------ WISCONSIN 0.0% 75 Wisconsin St Hlth & Ed Fac Auth Rev Hess Mem Hosp Assn (ACA Insd)........................... 7.200 11/01/05 76,745 ------------ TOTAL LONG-TERM INVESTMENTS 98.6% (Cost $631,720,377)......................................................... 662,471,813 SHORT-TERM INVESTMENTS 0.4% (Cost $3,000,000)........................................................... 3,000,000 ------------ TOTAL INVESTMENTS 99.0% (Cost $634,720,377)......................................................... 665,471,813 OTHER ASSETS IN EXCESS OF LIABILITIES 1.0%................................... 6,417,676 ------------ NET ASSETS 100.0%............................................................ $671,889,489 ============
Percentages are calculated as a percentage of net assets. * Zero coupon bond (a) Asset segregated as collateral for open futures transactions. 18 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued (b) 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 12.9% of net assets. (c) 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 Fund to enhance the yield of the portfolio. All of the Fund'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. (d) 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. (e) Non-income producing security. (f) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (g) This borrower has filed for protection in federal bankruptcy court. (h) Payment-in-kind security. ACA--American Capital Access AMBAC--AMBAC Indemnity Corp. AMT--Alternative Minimum Tax FGIC--Financial Guaranty Insurance Co. FHA--Federal Housing Administration FSA--Financial Security Assurance Inc. GNMA--Government National Mortgage Association LOC--Letter of Credit MBIA--Municipal Bond Investors Assurance Corp. PSFG--Permanent School Fund Guaranty XLCA--XL Capital Assurance Inc. See Notes to Financial Statements 19 VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities September 30, 2004 ASSETS: Total Investments (Cost $634,720,377)....................... $665,471,813 Cash........................................................ 3,886 Receivables: Interest.................................................. 9,349,009 Fund Shares Sold.......................................... 233,683 Investments Sold.......................................... 115,117 Variation Margin on Futures............................... 16,094 Other....................................................... 190,630 ------------ Total Assets............................................ 675,380,232 ------------ LIABILITIES: Payables: Fund Shares Repurchased................................... 1,705,610 Income Distributions...................................... 756,677 Distributor and Affiliates................................ 364,223 Investment Advisory Fee................................... 268,790 Trustees' Deferred Compensation and Retirement Plans........ 241,822 Accrued Expenses............................................ 153,621 ------------ Total Liabilities....................................... 3,490,743 ------------ NET ASSETS.................................................. $671,889,489 ============ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $669,765,068 Net Unrealized Appreciation................................. 30,728,214 Accumulated Undistributed Net Investment Income............. 1,196,811 Accumulated Net Realized Loss............................... (29,800,604) ------------ NET ASSETS.................................................. $671,889,489 ============ MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $609,412,235 and 41,144,822 shares of beneficial interest issued and outstanding)............. $ 14.81 Maximum sales charge (4.75%* of offering price)......... .74 ------------ Maximum offering price to public........................ $ 15.55 ============ Class B Shares: Net asset value and offering price per share (Based on net assets of $48,814,721 and 3,299,921 shares of beneficial interest issued and outstanding)............. $ 14.79 ============ Class C Shares: Net asset value and offering price per share (Based on net assets of $13,662,533 and 924,800 shares of beneficial interest issued and outstanding)............. $ 14.77 ============
* On sales of $100,000 or more, the sales charge will be reduced. 20 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statement of Operations For the Year Ended September 30, 2004 INVESTMENT INCOME: Interest.................................................... $37,471,768 ----------- EXPENSES: Investment Advisory Fee..................................... 3,397,287 Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $1,568,298, $540,346 and $158,122, respectively)............................................. 2,266,766 Shareholder Services........................................ 456,269 Legal....................................................... 186,066 Custody..................................................... 66,336 Trustees' Fees and Related Expenses......................... 30,006 Other....................................................... 375,386 ----------- Total Expenses.......................................... 6,778,116 Less Credits Earned on Cash Balances.................... 6,755 ----------- Net Expenses............................................ 6,771,361 ----------- NET INVESTMENT INCOME....................................... $30,700,407 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ (606,496) Futures................................................... (2,182,614) ----------- Net Realized Loss........................................... (2,789,110) ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 30,747,521 ----------- End of the Period: Investments............................................. 30,751,436 Futures................................................. (23,222) ----------- 30,728,214 ----------- Net Unrealized Depreciation During the Period............... (19,307) ----------- NET REALIZED AND UNREALIZED LOSS............................ $(2,808,417) =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $27,891,990 ===========
See Notes to Financial Statements 21 VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 --------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income................................ $ 30,700,407 $ 33,414,534 Net Realized Gain/Loss............................... (2,789,110) 11,327,363 Net Unrealized Depreciation During the Period........ (19,307) (21,838,216) ------------- ------------- Change in Net Assets from Operations................. 27,891,990 22,903,681 ------------- ------------- Distributions from Net Investment Income: Class A Shares..................................... (27,226,749) (30,423,796) Class B Shares..................................... (1,926,469) (2,325,118) Class C Shares..................................... (565,309) (700,757) ------------- ------------- Total Distributions.................................. (29,718,527) (33,449,671) ------------- ------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......................................... (1,826,537) (10,545,990) ------------- ------------- FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold............................ 37,955,532 127,051,831 Net Asset Value of Shares Issued Through Dividend Reinvestment....................................... 20,108,172 22,094,872 Cost of Shares Repurchased........................... (118,216,715) (184,959,736) ------------- ------------- NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... (60,153,011) (35,813,033) ------------- ------------- TOTAL DECREASE IN NET ASSETS......................... (61,979,548) (46,359,023) NET ASSETS: Beginning of the Period.............................. 733,869,037 780,228,060 ------------- ------------- End of the Period (Including accumulated undistributed net investment income of $1,196,811 and $135,804, respectively)........................ $ 671,889,489 $ 733,869,037 ============= =============
22 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ------------------------------------------------ 2004 2003 2002 (c) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD.... $14.84 $15.03 $14.56 $14.06 $14.50 ------ ------ ------ ------ ------ Net Investment Income..................... .66(a) .67(a) .71 .74 .79 Net Realized and Unrealized Gain/Loss..... (.05) (.19) .46 .49 (.42) ------ ------ ------ ------ ------ Total from Investment Operations............ .61 .48 1.17 1.23 .37 Less Distributions from Net Investment Income.................................... .64 .67 .70 .73 .81 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $14.81 $14.84 $15.03 $14.56 $14.06 ====== ====== ====== ====== ====== Total Return (b)............................ 4.20% 3.31% 8.35% 8.93% 2.69% Net Assets at End of the Period (In millions)................................. $609.4 $658.5 $696.4 $701.5 $688.3 Ratio of Expenses to Average Net Assets..... .89% .88% .87% .83% .89% Ratio of Interest Expense to Average Net Assets.................................... N/A N/A N/A N/A .01% Ratio of Net Investment Income to Average Net Assets................................ 4.46% 4.53% 4.89% 5.16% 5.58% Portfolio Turnover.......................... 15% 46% 49% 31% 45%
(a) Based on average shares outstanding. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 4.75% or contingent deferred sales charge (CDSC). On purchases of $1 million of more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. With respect to shares purchased prior to December 1, 2004, a CDSC of 1% may be imposed on certain redemptions made within one year of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to .25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by $.01, decrease net realized and unrealized gains and losses by $.01 and increase the ratio of net investment income to average net assets from 4.85% to 4.89%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. N/A=Not Applicable. See Notes to Financial Statements 23 VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ------------------------------------------------ 2004 2003 2002 (c) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD.... $14.82 $15.02 $14.54 $14.05 $14.49 ------ ------ ------ ------ ------ Net Investment Income..................... .55(a) .56(a) .60 .63 .68 Net Realized and Unrealized Gain/Loss..... (.05) (.20) .48 .48 (.42) ------ ------ ------ ------ ------ Total from Investment Operations............ .50 .36 1.08 1.11 .26 Less Distributions from Net Investment Income.................................... .53 .56 .60 .62 .70 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $14.79 $14.82 $15.02 $14.54 $14.05 ====== ====== ====== ====== ====== Total Return (b)............................ 3.41% 2.48% 7.64% 8.06% 1.90% Net Assets at End of the Period (In millions)................................. $ 48.8 $ 58.4 $ 65.0 $ 66.6 $ 69.5 Ratio of Expenses to Average Net Assets..... 1.64% 1.63% 1.62% 1.59% 1.67% Ratio of Interest Expense to Average Net Assets.................................... N/A N/A N/A N/A .01% Ratio of Net Investment Income to Average Net Assets................................ 3.71% 3.78% 4.13% 4.40% 4.86% Portfolio Turnover.......................... 15% 46% 49% 31% 45%
(a) Based on average shares outstanding. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 4%, charged on certain redemptions made within one year of purchase and declining to 0% after the sixth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by $.01, decrease net realized and unrealized gains and losses by $.01 and increase the ratio of net investment income to average net assets from 4.09% to 4.13%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. N/A=Not Applicable. 24 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ------------------------------------------------ 2004 2003 2002 (c) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD.... $14.80 $15.00 $14.52 $14.04 $14.48 ------ ------ ------ ------ ------ Net Investment Income..................... .55(a) .56(a) .60 .63 .68 Net Realized and Unrealized Gain/Loss..... (.05) (.20) .48 .47 (.42) ------ ------ ------ ------ ------ Total from Investment Operations............ .50 .36 1.08 1.10 .26 Less Distributions from Net Investment Income.................................... .53 .56 .60 .62 .70 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $14.77 $14.80 $15.00 $14.52 $14.04 ====== ====== ====== ====== ====== Total Return (b)............................ 3.43% 2.48% 7.65% 8.00% 1.91% Net Assets at End of the Period (In millions)................................. $ 13.7 $ 17.0 $ 18.8 $ 17.4 $ 13.8 Ratio of Expenses to Average Net Assets..... 1.64% 1.63% 1.62% 1.62% 1.66% Ratio of Interest Expense to Average Net Assets.................................... N/A N/A N/A N/A .01% Ratio of Net Investment Income to Average Net Assets................................ 3.71% 3.78% 4.13% 4.37% 4.84% Portfolio Turnover.......................... 15% 46% 49% 31% 45%
(a) Based on average shares outstanding. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by $.01, decrease net realized and unrealized gains and losses by $.01 and increase the ratio of net investment income to average net assets from 4.09% to 4.13%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. N/A=Not Applicable. See Notes to Financial Statements 25 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen Municipal Income Fund (the "Fund") is organized as a series of the Van Kampen Tax Free Trust, a Delaware statutory trust, and is registered as a diversified open-end management investment company under the Investment Company Act of 1940 (the "1940 Act"), as amended. The Fund's investment objective is to provide a high level of current income exempt from federal income tax, consistent with preservation of capital. The Fund commenced investment operations on August 1, 1990. The distribution of the Fund's Class B and Class C shares commenced on August 24, 1992 and August 13, 1993, respectively. The Fund registered Class I shares on September 1, 2004. There were no sales of Class I shares for the period ended September 30, 2004. Effective November 30, 2003, the Fund's investment adviser, Van Kampen Investment Advisory Corp. merged into its affiliate, Van Kampen Asset Management (the "Adviser"). The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Municipal bonds are valued by independent pricing services or dealers using the mean of the bid and asked prices or, in the absence of market quotations, at fair value based upon yield data relating to municipal bonds with similar characteristics and general market conditions. Securities which are not valued by independent pricing services or dealers are valued at fair value using procedures established in good faith by the Board of Trustees. Future contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. Legal expenditures that are expected to result in the restructuring of or a plan of reorganization for an investment are recorded as realized losses. The Fund may purchase and sell securities on a "when-issued" or "delayed delivery" basis, with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. The Fund will segregate assets with the custodian having an aggregate value at least equal to the amount of the when-issued or delayed delivery purchase commitments until payment is made. At September 30, 2004, the Fund had no when-issued and delayed delivery purchase commitments. C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Bond premium is amortized and discount is accreted over the expected life of each applicable security. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. 26 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Fund 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 September 30, 2004, the Fund had an accumulated capital loss carryforward for tax purposes of $27,985,150 which will expire between September 30, 2008 and September 30, 2010. At September 30, 2004, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $634,566,138 ============ Gross tax unrealized appreciation........................... $ 47,267,948 Gross tax unrealized depreciation........................... (16,362,273) ------------ Net tax unrealized appreciation investments................. $ 30,905,675 ============
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly dividends from net investment income. 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 September 30, 2004 and 2003 was as follows:
2004 2003 Distribution paid from: Ordinary Income........................................... $291,037 $239,149 Long-term capital gain.................................... -0- -0- -------- -------- $291,037 $239,149 ======== ========
Due to inherent differences in the recognition of income, expenses and realized gains/losses under U.S. generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. A permanent difference related to the Fund's investment in other regulated investment companies totaling $2,052 was reclassified from accumulated undistributed net investment income to accumulated net realized loss. Additionally, a permanent difference of $77,075 related to book to tax accretion differences was reclassified from accumulated undistributed net investment income to accumulated net realized loss. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $117,235
27 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of post October losses which are not recognized for tax purposes until the first day of the following fiscal year and gains or losses recognized for tax purposes on open futures transactions on September 30, 2004. F. EXPENSE REDUCTIONS During the year ended September 30, 2004, the Fund's custody fee was reduced by $6,755 as a result of credits earned on cash balances. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM First $500 million.......................................... .50% Over $500 million........................................... .45%
For the year ended September 30, 2004, the Fund recognized expenses of approximately $43,400 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Fund, of which a trustee of the Fund is an affiliated person. Under separate Accounting Services and Legal Services agreements, the Adviser provides accounting and legal services to the Fund. The Adviser allocates the cost of such services to each fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $104,300 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Fund, which are reported as part of "Other" and "Legal" expenses, respectively, in the Statement of Operations. Van Kampen Investor Services Inc. (VKIS), an affiliate of the Adviser, serves as the shareholder servicing agent for the Fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $349,900 representing transfer agency fees paid to VKIS. Transfer agency fees are determined through negotiations with the Fund's Board of Trustees. Certain officers and trustees of the Fund are also officers and directors of Van Kampen. The Fund does not compensate its officers or trustees who are officers of Van Kampen. The Fund 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. Amounts deferred are retained by the Fund and, to the extent permitted by the 1940 Act, as amended, may be invested in the common shares of those funds selected by the trustees. Investments in such funds of $158,301 are included in "Other" assets on the Statements of Assets and Liabilities at September 30, 2004. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 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 Fund. The maximum annual benefit per trustee under the plan is $2,500. 28 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued 3. CAPITAL TRANSACTIONS At September 30, 2004, capital aggregated $604,119,629, $51,306,326 and $14,339,113 for Classes A, B and C, respectively. For the year ended September 30, 2004, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 2,289,405 $ 33,797,656 Class B................................................... 160,379 2,372,126 Class C................................................... 121,130 1,785,750 ---------- ------------- Total Sales................................................. 2,570,914 $ 37,955,532 ========== ============= Dividend Reinvestment: Class A................................................... 1,256,987 $ 18,523,059 Class B................................................... 80,748 1,188,399 Class C................................................... 26,991 396,714 ---------- ------------- Total Dividend Reinvestment................................. 1,364,726 $ 20,108,172 ========== ============= Repurchases: Class A................................................... (6,774,537) $ (99,847,334) Class B................................................... (879,827) (12,919,631) Class C................................................... (372,418) (5,449,750) ---------- ------------- Total Repurchases........................................... (8,026,782) $(118,216,715) ========== =============
At September 30, 2003, capital aggregated $651,646,248, $60,665,432 and $17,606,399 for Classes A, B and C, respectively. For the year ended September 30, 2003, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 7,801,000 $ 114,651,871 Class B................................................... 503,655 7,411,147 Class C................................................... 338,633 4,988,813 ----------- ------------- Total Sales................................................. 8,643,288 $ 127,051,831 =========== ============= Dividend Reinvestment: Class A................................................... 1,375,257 $ 20,229,463 Class B................................................... 96,732 1,421,035 Class C................................................... 30,289 444,374 ----------- ------------- Total Dividend Reinvestment................................. 1,502,278 $ 22,094,872 =========== ============= Repurchases: Class A................................................... (11,127,622) $(163,537,726) Class B................................................... (988,417) (14,485,338) Class C................................................... (474,542) (6,936,672) ----------- ------------- Total Repurchases........................................... (12,590,581) $(184,959,736) =========== =============
29 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares eight years after the end of the calendar month in which the shares were purchased. Class B Shares purchased before June 1, 1996, and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares six years after the end of the calendar month in which the shares were purchased. For the years ended September 30, 2004 and 2003, 144,827 and 155,348 Class B Shares converted to Class A Shares, respectively and are shown in the above tables as sales of Class A Shares and repurchases of Class B Shares. Class C Shares purchased before January 1, 1997, and any dividend reinvestment plan Class C Shares received on such shares, automatically convert to Class A Shares ten years after the end of the calendar month in which such shares were purchased. Class C Shares purchased on or after January 1, 1997 do not possess a conversion feature. For the years ended September 30, 2004 and 2003, 2,500 and 0 Class C Shares automatically convert to Class A Shares, respectively and are shown in the above table as sales of Class A Shares and repurchases of Class C Shares. Class B and C Shares are offered without a front end sales charges, but are subject to a contingent deferred sale charge (CDSC). The CDSC will be imposed on most redemptions made within six years of the purchase for Class B and one year of the purchase for Class C as detailed in the following schedule.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE -------------------------- YEAR OF REDEMPTION CLASS B CLASS C First....................................................... 4.00% 1.00% Second...................................................... 3.75% None Third....................................................... 3.50% None Fourth...................................................... 2.50% None Fifth....................................................... 1.50% None Sixth....................................................... 1.00% None Seventh and Thereafter...................................... None None
For the year ended September 30, 2004, Van Kampen as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $65,700 and CDSC on redeemed shares of approximately $62,900. Sales charges do not represent expenses of the Fund. 4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $100,361,487 and $149,007,545, respectively. 5. DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument in very general terms refers to a security whose value is "derived" from the value of an underlying asset, reference rate or index. 30 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued The Fund has a variety of reasons to use derivative instruments, such as to attempt to protect the Fund against possible changes in the market value of its portfolio, to manage the portfolio's effective yield, maturity and duration, or generate potential gain. All of the Fund's portfolio 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 futures contract. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying the futures contract. Risks may arise as a result of the potential inability of the counter parties to meet the terms of their contracts. During the period, the Fund invested in futures contracts, a type of derivative. A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in futures on U.S. Treasury Notes. Upon entering into futures contracts, the Fund maintains an amount of cash or liquid securities with a value equal to a percentage of the contract amount with either a futures commission merchant pursuant to rules and regulations promulgated under the 1940 Act, as amended, or with its custodian in an account in the broker's name. This amount is known as initial margin. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). The risk of loss associated with a futures contract is in excess of the variation margin reflected on the Statement of Assets and Liabilities. Transactions in futures contracts for the year ended September 30, 2004, were as follows:
CONTRACTS Outstanding at September 30, 2003........................... 276 Futures Opened.............................................. 2,067 Futures Closed.............................................. (1,768) ------ Outstanding at September 30, 2004........................... 575 ======
The futures contracts outstanding as of September 30, 2004, and the descriptions and unrealized appreciation/depreciation are as follows:
UNREALIZED APPRECIATION/ SHORT CONTRACTS: CONTRACTS DEPRECIATION U.S. Treasury Notes 10-Year Futures December 2004 (Current Notional Value of $112,625 per contract).................. 103 $(21,334) U.S. Treasury Notes 5-Year Futures December 2004 (Current Notional Value of $110,750 per contract).................. 472 (1,888) --- -------- 575 $(23,222) === ========
6. DISTRIBUTION AND SERVICE PLANS With respect to its Class A Shares, Class B Shares and Class C Shares, the Fund and its shareholders have adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively, the "Plans"). The Plans govern payments for: the distribution of the Fund's Class A Shares, Class B Shares and Class C Shares; the provision of 31 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued ongoing shareholder services with respect to such classes of shares; and the maintenance of shareholder accounts with respect to such classes of shares. Annual fees under the Plans of up to 0.25% of Class A average daily net assets and up to 1.00% each for Class B and Class C average daily net assets are accrued daily. The annual fees for Class A Shares are paid quarterly and the annual fees for Class C Shares are paid monthly. For Class B Shares, 75% of the annual fees are paid monthly, while 25% of the annual fees are paid quarterly. The amount of distribution expenses incurred by Van Kampen and not yet reimbursed ("unreimbursed receivable") was approximately $2,750,300 and $179,400 for Class B and Class C Shares, respectively. These amounts may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed receivable has been fully recovered, any excess 12b-1 fees will be refunded to the Fund on a quarterly basis. Included in the fees for the year ended September 30, 2004 are payments retained by Van Kampen of approximately $448,200 and payments made to Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $71,600. 7. LEGAL MATTERS The Adviser, certain affiliates of the Adviser, and certain investment companies advised by the Adviser or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. The consolidated action also names as defendants certain individual Trustees and Directors of certain investment companies advised by affiliates of the Adviser; the complaint does not, however, name the individual Trustees of any Van Kampen funds. The consolidated amended complaint generally alleges that defendants violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Adviser and certain affiliates of the Adviser allegedly offered economic incentives to brokers and others to steer investors to the funds advised by the Adviser or its affiliates rather than funds managed by other companies, and (ii) that the funds advised by the Adviser or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their alleged efforts to steer investors to these funds. The complaint seeks, among other things, unspecified compensatory damages, recessionary damages, fees and costs. The Adviser and certain affiliates of the Adviser are also named as defendants in a derivative suit which additionally names as defendants certain individual Trustees of certain Van Kampen funds; the named investment companies, including the Fund, are listed as nominal defendants. The complaint alleges that defendants caused the Van Kampen funds to pay economic incentives to a proprietary sales force to promote the sale of proprietary mutual funds. The complaint also alleges that the Van Kampen funds paid excessive commissions to Morgan Stanley and its affiliates in connection with the sales of the funds. The complaint seeks, among other things, the removal of the current Trustees of the funds, rescission of the management contracts for the funds, disgorgement of profits by Morgan Stanley and its affiliates and monetary damages. This complaint has been coordinated with the consolidated complaint described in the preceding paragraph. The defendants have moved to dismiss each of these actions and otherwise intend to defend them vigorously. While the defendants believe that they have meritorious defenses, the ultimate outcome of these matters is not presently determinable at this early stage of 32 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of these matters. 8. 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. 33 VAN KAMPEN MUNICIPAL INCOME FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Van Kampen Municipal Income Fund: We have audited the accompanying statement of assets and liabilities of Van Kampen Municipal Income Fund (the "Fund"), including the portfolio of investments, as of September 30, 2004, and 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 Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2004, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Van Kampen Municipal Income Fund at September 30, 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 U.S. generally accepted accounting principles. -s- Ernst & Young LLP Chicago, Illinois November 5, 2004 34 VAN KAMPEN MUNICIPAL INCOME FUND BOARD OF TRUSTEES AND IMPORTANT ADDRESSES BOARD OF TRUSTEES DAVID C. ARCH J. MILES BRANAGAN JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT 1221 Avenue of the Americas New York, New York 10020 DISTRIBUTOR VAN KAMPEN FUNDS INC. 1221 Avenue of the Americas New York, New York 10020 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 947 Jersey City, New Jersey 07303-0947 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02110 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 233 South Wacker Drive Chicago, Illinois 60606 For Federal income tax purposes, the following information is furnished with respect to the distribution paid by the Fund during its taxable year ended September 30, 2004. The Fund designated 99.0% of the income distributions as a tax-exempt income distribution. In January, the Fund provides tax information to shareholders for the preceding calendar year. * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940, as amended. 35 VAN KAMPEN MUNICIPAL INCOME FUND TRUSTEES AND OFFICERS The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees and the Fund's officers appointed by the Board of Trustees. The tables below list the trustees and executive officers of the Fund 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing Blistex Inc. since 2003 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. J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing 1632 Morning Mountain Road since 1995 Co-founder, and prior to General Partner of funds Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex. Chief Executive Officer and President, MDT Corporation (now known as Getinge/Castle, Inc., a subsidiary of Getinge Industrier AB), a company which develops, manufactures, markets and services medical and scientific equipment.
36
VAN KAMPEN MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing 33971 Selva Road since 1999 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.
37
VAN KAMPEN MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing CAC, L.L.C. since 2003 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).
38
VAN KAMPEN MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing Heidrick & Struggles since 1995 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 83 Trustee/Director/Managing 1744 R Street, NW since 1993 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 85 Trustee/Director/Managing 736 North Western Avenue since 2003 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.
39
VAN KAMPEN MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing 423 Country Club Drive since 1990 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 85 Trustee/Director/Managing 1126 E. 59th Street since 2003 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 83 Trustee/Director/Managing (62) since 1999 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.
40 VAN KAMPEN MUNICIPAL INCOME FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing 1221 Avenue of the Americas President since Executive Officer of General Partner of funds New York, NY 10020 and Chief 1999; 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.
41
VAN KAMPEN MUNICIPAL INCOME FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 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 85 Trustee/Director/Managing 333 West Wacker Drive since 1990 of Skadden, Arps, Slate, General Partner of funds Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex. counsel to funds in the Fund Complex.
* Such Trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Messrs. Merin and Powers are interested persons of funds in the Fund Complex and the Adviser by reason of their current or former positions with Morgan Stanley or its affiliates. 42 VAN KAMPEN MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS Stefanie V. Chang (37) 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 M. Dykas (38) Chief Financial Officer Officer Executive Director of Van Kampen Asset Management and Morgan 1 Parkview Plaza and Treasurer since 1999 Stanley Investment Management. Chief Financial Officer and Oakbrook Terrace, IL 60181 Treasurer of funds in the Fund Complex. Prior to August 2004, Assistant Treasurer of funds in the Fund Complex. Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Investment Officer Management Inc. and 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.
43
VAN KAMPEN MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since November 1221 Avenue of the Americas President and since 2003 2003. Chief Executive Officer and Chairman of Investor New York, NY 10020 Principal Executive Services. Executive Vice President and Principal Executive Officer 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 1996 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.
44 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 (VAN KAMPEN INVESTMENTS LOGO) Copyright (C)2004 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 49, 349, 549 MIF ANR 11/04 RN04-02594P-Y09/04 Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen Intermediate Term Municipal Income Fund 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 fund's financial statements and a list of fund investments as of September 30, 2004. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUS CONTAINS INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 9/30/04 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index from 9/30/94 through 9/30/04. Class A shares, adjusted for sales charges. (LINE GRAPH)
VAN KAMPEN INTERMEDIATE TERM LEHMAN BROTHERS MUNICIPAL BOND MUNICIPAL INCOME FUND INDEX ---------------------------- ------------------------------ 9/94 9678 10000 12/94 9506 9857 10118 10554 10375 10808 10656 11118 12/95 10962 11577 10874 11438 10959 11526 11189 11790 12/96 11431 12090 11440 12061 11745 12477 12065 12853 12/97 12354 13202 12521 13354 12701 13557 13017 13973 12/98 13092 14057 13207 14181 13043 13931 13004 13876 12/99 12887 13768 13045 14170 13258 14384 13541 14732 12/00 13727 15377 14073 15718 14162 15820 14515 16264 12/01 14423 16165 14541 16317 15090 16914 15746 17717 12/02 15752 17717 15907 17930 16205 18393 16270 18407 12/03 16496 18659 16652 18982 16376 18532 9/04 16895 19254
A SHARES B SHARES C SHARES since 5/28/1993 since 5/28/1993 since 10/19/1993 - -------------------------------------------------------------------------------------------- W/MAX W/MAX W/MAX 3.25% 3.00% 1.00% AVERAGE ANNUAL W/O SALES SALES W/O SALES SALES W/O SALES SALES TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE Since Inception 5.58% 5.27% 5.18% 5.18% 4.38% 4.38% 10-year 5.73 5.38 5.28 5.28 4.98 4.98 5-year 5.38 4.69 4.70 4.70 4.61 4.61 1-year 3.84 0.48 3.15 0.16 3.17 2.17 - -------------------------------------------------------------------------------------------- 30-Day SEC Subsidized Yield 2.91% 2.26% 2.27% - -------------------------------------------------------------------------------------------- 30-Day SEC Yield 2.81% 2.16% 2.17%
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 AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The returns shown in this report do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance of share classes will vary due to differences in sales charges and expenses. Average annual total return with sales charges includes payment of the maximum sales charge of 3.25 percent for Class A shares, a contingent deferred sales charge of 3.00 percent for Class B shares (in year one and declining to zero after year four), a contingent deferred sales charge of 1.00 percent for Class C shares in year one and combined Rule 12b-1 fees and service fees of up to 0.25 percent for Class A shares and up to 1.00 percent for Class B and C shares. The since inception and 10-year returns for Class B shares reflect the conversion of Class B shares into Class A shares six years after purchase. The since inception returns for Class C shares reflect the conversion of Class C shares into Class A shares ten years after purchase. See footnote 3 in the Notes to Financial Statements for additional information. Figures shown above assume reinvestment of all dividends and capital gains. The fund's adviser has waived or reimbursed fees and expenses from time to time; absent such waivers/reimbursements the fund's returns would have been lower. SEC yield is a calculation for determining the amount of portfolio income, excluding 1 non-income items as prescribed by the SEC. The subsidized SEC yields reflect some or all of the expenses that the adviser had voluntarily waived. Yields are subject to change. The Lehman Brothers Municipal Bond Index is generally representative of investment-grade, tax-exempt bonds. The index does not include any expenses, fees or sales charges, which would lower performance. The index is unmanaged and should not be considered an investment. It is not possible to invest directly in an index. Index data source: Lipper Inc. 2 Fund Report FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004 Van Kampen Intermediate Term Municipal Income Fund is managed by the Adviser's Municipal Fixed Income team, which includes Timothy D. Haney, Vice President of the Adviser.(1) MARKET CONDITIONS The interest-rate environment of the 12 months ended September 30, 2004 was marked by two periods of steadily declining yields, with a significant sell-off in the middle. Yields fell steadily through the first half of the period, approaching the historical lows of 2003. This trend persisted until March, at which point yields reversed direction and began an upward march as prices fell. These losses were steepest in April, as a surprisingly strong employment report and signals from members of the Federal Open Market Committee (the Fed) caused investors to expect a near-term rate increase. Yields went on to decline from May through the end of the period as the market digested the Fed's newly hawkish rate stance. Investors were further comforted when, after the Fed raised rates at its June 30, 2004 meeting, its members indicated that the path of future rate increases would be measured. Unusually, longer-maturity securities largely outperformed in this period of Fed tightening. The typical pattern in periods of tightening policy has been an increase in yields across all maturities. During the review period, however, yields of shorter maturity bonds rose while those of bonds with longer maturities declined slightly. Lower-quality municipal bonds also performed strongly in this environment, as the difference in yields (known as the "yield spread") between AAA and BBB rated bonds decreased by roughly 20 basis points for 20-year bonds. As a result, sectors with heavy exposure to lower-rated debt, such as hospitals and industrial revenue, posted higher total returns than sectors dominated by higher-rated debt. Issuance for the first nine months of 2004 (the final nine months of the review period) was roughly 9 percent lower than in the same period in 2003. That said, 2003 was a record year, and at the current pace of issuance, 2004 could well be one of the largest years in recent memory. This historically strong supply met with faltering demand from mutual funds, as fund investors withdrew over $16 billion in net cash during the period. However, this was largely offset by increased participation in the market by insurance companies and individual investors. (1)Team members may change at any time without notice. 3 PERFORMANCE ANALYSIS The fund returned 3.84 percent for the 12 months ended September 30, 2004 (Class A shares, unadjusted for sales charge). In comparison, the fund's benchmark index, the Lehman Brothers Municipal Bond Index, returned 4.6 percent for the period. (See table below.) The index is a general market index containing issues across the entire maturity spectrum. The fund, by definition, focuses on bonds in the short- to intermediate-maturity range. By virtue of its shorter curve positioning and lower overall interest-rate risk, the fund would be expected to underperform the index in a period where long bonds perform well, as they generally did during the reporting year. One of our key strategies in managing the fund is to adjust its interest-rate exposure to reflect our expectations for the economy. During the period, we continued to see an improving economy and the rising short-term interest rates that would typically accompany it. Therefore, we kept the portfolio's duration (a measure of interest-rate sensitivity) lower than that of our internal performance benchmark. We also de-emphasized the 5- to 10-year area of the yield curve in order to limit the potential adverse effects of rising interest rates there. Instead, we focused our purchases on premium, callable bonds with maturities in the 15-year range. The structure of these securities offers the yield advantage of longer-maturity securities but with the limited interest-rate volatility of bonds with shorter maturities. The portfolio's below-market duration was the key driver of its performance relative to the general market index. In managing the portfolio, we actively traded our high-grade securities based on relative-value fluctuations. The trading was largely driven by instances where securities met our performance targets, were sold, and the proceeds reinvested in bonds with more compelling total-return potential. Several of the fund's positions were called by their issuers, and we replaced them with securities with attractive yield characteristics. These purchases had the effect of slightly reducing the fund's overall credit quality, though it remained high with approximately 78 percent of holdings rated AA or better. The portfolio remained well diversified across major market sectors, with its three largest exposures being public education, public building and general purpose. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004
- -------------------------------------------------------------- LEHMAN BROTHERS CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX 3.84% 3.15% 3.17% 4.60% - --------------------------------------------------------------
The performance for the three share classes varies because each has different expenses. The fund's total return figures assume the reinvestment of all distributions, but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information and index definition. 4
RATINGS ALLOCATION AS OF 9/30/04 AAA/Aaa 68.9% AA/Aa 8.9 A/A 11.5 BBB/Baa 4.2 Non-Rated 6.5 TOP 5 SECTORS AS OF 9/30/04 Public Education 16.8% Public Building 12.5 General Purpose 11.1 Retail Electric/Gas/Telephone 10.9 Higher Education 8.2 SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/04 Pennsylvania 11.0% Ohio 6.5 California 6.4 Missouri 6.1 Oregon 6.0 Florida 5.5 Colorado 5.1 New Jersey 4.7 New York 4.5 North Carolina 3.5 Illinois 3.4 Nebraska 3.1 Tennessee 2.6 Michigan 2.4 Indiana 2.3 Kansas 2.2 Arkansas 2.0 South Carolina 2.0 Arizona 1.6 South Dakota 1.6 New Mexico 1.5 Alabama 1.5 Georgia 1.5 Oklahoma 1.4 West Virginia 1.3 Texas 1.3 Louisiana 1.2 Virginia 1.0 Kentucky 1.0
(continued on next page)
5
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/04 (continued from previous page) Rhode Island 0.9% District of Columbia 0.9 Maryland 0.6 Wisconsin 0.4 Minnesota 0.4 Connecticut 0.4 Montana 0.3 Massachusetts 0.3 Utah 0.1 ----- Total Long-Term Investments 98.5% Short Term Investments 5.1 Liabilities in Excess of Other Assets (3.6) ----- Total Net Assets 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 sectors shown above. Ratings allocations and sector percentages are as a percentage of long-term investments. Securities are classified by sectors that represent broad groupings of related industries. Summary of investments by state classification are as a percentage of total net assets. 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. Rating allocations based upon ratings as issued by Standard and Poor's and Moody's, respectively. 6 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS Each Van Kampen fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund'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 fund 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 fund files a complete schedule of portfolio holdings with the SEC for the fund'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, . 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 1-202-942-8090. 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 fund makes portfolio holdings information available by periodically providing the information on its public web site, . Each Van Kampen fund 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. Furthermore, each Van Kampen open-end fund provides partial lists of its portfolio holdings (such as top 10 or top 15 fund holdings) to the public web site each month with a delay of approximately 15 days. You may obtain copies of a fund's fiscal quarter filings, or its monthly or calendar-quarter web site postings, by contacting Van Kampen Client Relations at 1-800-847-2424. 7 HOUSEHOLDING NOTICE To reduce fund expenses, the fund attempts to eliminate duplicate mailings to the same address. The fund delivers a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. The fund's prospectuses and shareholder reports (including annual privacy notices) will be delivered to you in this manner indefinitely unless you instruct us otherwise. You can request multiple copies of these documents by either calling 1-800-341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has received your instructions, we will begin sending individual copies for each account within 30 days. PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD The fund's policies and procedures with respect to the voting of proxies relating to the fund's portfolio securities and information on how the fund 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 www.sec.gov. 8 Expense Example As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 4/1/04-9/30/04. ACTUAL EXPENSE The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, and $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads), and redemption fees, or exchange fees.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/04 9/30/04 4/1/04-9/30/04 Class A Actual...................................... $1,000.00 $1,014.58 $4.78 Hypothetical................................ 1,000.00 1,020.30 4.80 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,010.72 8.45 Hypothetical................................ 1,000.00 1,016.60 8.47 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,010.77 8.29 Hypothetical................................ 1,000.00 1,016.70 8.32 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.95%, 1.68%, and 1.65% for Class A, B, and C Shares, respectively, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). These expense ratios reflect an expense waiver. Assumes all dividends and distributions were reinvested. 9 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- MUNICIPAL BONDS 98.5% ALABAMA 1.5% $1,260 Dothan Houston Cnty, AL Arpt Auth (MBIA Insd) (AMT)........................................... 5.400% 12/01/15 $ 1,371,283 305 West Jefferson Cnty, AL Amusement & Pub Park Auth (Prerefunded @ 12/01/06)................... 7.500 12/01/08 332,484 ------------ 1,703,767 ------------ ARIZONA 1.6% 30 Maricopa Cnty, AZ Indl Dev Auth Sr Living Fac Rev Christian Care Mesa Inc Proj A.............. 7.250 04/01/05 30,215 1,000 Maricopa Cnty, AZ Uni Sch Impt Proj of 2002 Ser B (FSA Insd).................................... 5.250 07/01/16 1,123,700 675 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig Irvington Proj Tucson Ser A Rfdg (FSA Insd)..... 7.250 07/15/10 712,327 ------------ 1,866,242 ------------ ARKANSAS 2.0% 1,000 Arkansas St Fed Hwy Grant Antic Ser A........... 5.500 08/01/06 1,066,470 1,200 University of Arkansas Rev UALR Cap Impt Ser B (FSA Insd)...................................... 4.500 12/01/19 1,245,096 ------------ 2,311,566 ------------ CALIFORNIA 6.4% 175 California Edl Fac Auth Rev Pacific Grad Sch.... 6.950 11/01/07 182,857 1,000 California St (AMBAC Insd) (a).................. 6.400 09/01/08 1,150,820 1,500 California St Dept Wtr Res Pwr Ser A (AMBAC Insd).................................... 5.375 05/01/18 1,660,950 1,885 Fairfield Suisun, CA Uni Sch Election 2002 (MBIA Insd)........................................... 5.250 08/01/18 2,103,377 1,000 Modesto, CA Irr Dist Ctfs Partn Cap Impts Ser A Rfdg (MBIA Insd)................................ 5.000 07/01/16 1,084,320 1,100 Santa Clara, CA Elec Rev Sub Ser A (MBIA Insd)........................................... 5.250 07/01/20 1,200,210 ------------ 7,382,534 ------------ COLORADO 5.1% 1,750 Adams & Arapahoe Cntys, CO Sch Dist 28 Ser C (Prerefunded @ 12/01/06)........................ 5.200 12/01/11 1,905,120 1,000 Boulder Cnty, CO Dev Rev Univ Corp for Atmospheric Resh (AMBAC Insd)................... 5.000 09/01/19 1,066,250 180 Colorado Hlth Fac Auth Rev Sr Living Fac Eaton Ter Ser A....................................... 6.800 07/01/09 184,921 1,560 Colorado Springs, CO Utils Rev Sys Sub Lien Impt Ser A........................................... 5.000 11/15/19 1,667,749 1,000 Denver, CO City & Cnty Arpt Rev Ser A (AMT)..... 7.400 11/15/04 1,006,230 ------------ 5,830,270 ------------
10 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- CONNECTICUT 0.4% $ 145 Mashantucket Western Pequot Tribe, 144A--Private Placement (Escrowed to Maturity) (b)............ 6.500% 09/01/06 $ 157,648 260 New Haven, CT Indl Fac Rev Adj Govt Ctr Thermal Energies (AMT).................................. 7.250 07/01/09 260,403 ------------ 418,051 ------------ DISTRICT OF COLUMBIA 0.9% 1,000 District of Columbia Rev Friendship Pub Charter Sch Inc (ACA Insd).............................. 5.000 06/01/13 1,051,260 ------------ FLORIDA 5.5% 2,000 Broward Cnty, FL Arpt Sys Rev Ser E Rfdg (MBIA Insd) (AMT) (a)................................. 5.375 10/01/13 2,143,160 1,150 Florida Hsg Fin Agy Hsg Maitland Club Apts Ser B-1 (AMBAC Insd) (AMT).......................... 6.750 08/01/14 1,180,222 500 Highlands Cnty, FL Hlth Facs Hosp Adventist Hlth.................................. 3.350 11/15/32 506,295 190 Lee Cnty, FL Indl Dev Auth Econ Rev Encore Nursing Ctr Part Rfdg........................... 8.125 12/01/07 192,491 80 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran Twr Rfdg....................... 8.125 07/01/06 81,790 250 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran Twr Rfdg....................... 8.625 07/01/20 259,912 1,500 Orange Cnty, FL Sch Brd Ctf Part Ser A (AMBAC Insd)........................................... 5.250 08/01/14 1,678,845 300 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg (Escrowed to Maturity)..................... 7.125 11/01/06 315,675 ------------ 6,358,390 ------------ GEORGIA 1.5% 1,340 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg Rev North Hill Apts Proj Rfdg (FNMA Collateralized)................................. 6.625 01/01/25 1,352,944 300 Forsyth Cnty, GA Hosp Auth Rev Antic Ctfs GA Baptist Hlthcare Sys Proj (Escrowed to Maturity)....................................... 6.000 10/01/08 322,059 ------------ 1,675,003 ------------ ILLINOIS 3.4% 150 Bedford Park, IL Tax Increment 71st & Cicero Proj Rfdg....................................... 7.000 01/01/06 152,952 1,325 Bedford Park, IL Wtr Rev Ser B (Escrowed to Maturity) (ACA Insd) (AMT)...................... 6.000 12/15/08 1,478,992 125 Chicago, IL Tax Increment Alloc Santn Drain & Ship Canal Ser A................................ 7.375 01/01/05 125,284 250 Chicago, IL Tax Increment Alloc Sub Cent Loop Redev Ser A..................................... 6.500 12/01/05 260,108 545 Clay Cnty, IL Hosp Rev.......................... 5.500 12/01/10 543,828 135 Huntley, IL Spl Svc Area No 7 Spl Tax........... 6.000 03/01/09 142,321
See Notes to Financial Statements 11 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 225 Peoria, IL Spl Tax Weaverridge Spl Svc Area..... 7.625% 02/01/08 $ 235,568 1,000 Round Lake Beach, IL Tax........................ 4.650 12/15/13 1,017,280 ------------ 3,956,333 ------------ INDIANA 2.3% 1,000 Allen Cnty, IN Juvenile Justice Ctr First Mtg (AMBAC Insd).................................... 5.500 01/01/18 1,117,260 1,400 Indiana Bd Bk Spl Prog Hendricks Redev Ser B (Prerefunded @ 02/01/07)........................ 6.000 02/01/12 1,553,230 ------------ 2,670,490 ------------ KANSAS 2.2% 500 Burlington, KS Envrn Impt Rev................... 4.750 09/01/15 526,020 1,000 Shawnee Cnty, KS Sch Dist 501 Topeka............ 5.000 02/01/20 1,056,790 320 Wyandotte Cnty, KS City KS Univ Brd of Public Utility Office Bldg Complex Proj (MBIA Insd).... 5.000 05/01/11 353,331 510 Wyandotte Cnty, KS City KS Univ Brd of Public Utility Office Bldg Complex Proj (MBIA Insd).... 5.000 05/01/12 557,930 ------------ 2,494,071 ------------ KENTUCKY 1.0% 1,000 Louisville & Jefferson Cnty, KY Ser C (FSA Insd) (AMT)........................................... 5.500 07/01/17 1,098,550 ------------ LOUISIANA 1.2% 235 Louisiana Hsg Fin Agy Rev Multi-Family Hsg Plantation Ser A................................ 7.200 01/01/06 176,581 1,065 Louisiana Loc Govt Envir Pkg Facs Garage Proj Ser A (AMBAC Insd).............................. 5.000 10/01/12 1,165,536 ------------ 1,342,117 ------------ MARYLAND 0.6% 625 Maryland St Economic Dev Corp Univ MD College Park Proj....................................... 5.750 06/01/13 698,838 ------------ MASSACHUSETTS 0.3% 65 Massachusetts St Indl Fin Agy East Boston Neighborhood Proj............................... 7.250 07/01/06 64,779 245 Massachusetts St Indl Fin Agy Rev Gtr Lynn Mental Hlth (Acquired 06/24/1998, Cost $245,000) (c)............................................. 6.200 06/01/08 238,417 ------------ 303,196 ------------ MICHIGAN 2.4% 1,000 Brighton, MI Area Sch Dist Rfdg................. 5.250 05/01/18 1,098,810 1,000 Brighton, MI Area Sch Dist Rfdg................. 5.250 05/01/20 1,088,150 335 John Tolfree Hlth Sys Corp MI Mtg Rev Rfdg...... 5.450 09/15/06 342,534 250 Michigan St Strategic Fd Ltd Oblig Rev United Waste Sys Proj (AMT)............................ 5.200 04/01/10 264,055 ------------ 2,793,549 ------------
12 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- MINNESOTA 0.4% $ 400 Dakota Cnty, MN Hsg & Redev Auth Multi-Family Hsg Rev Affordable Hsg View Pointe Proj......... 6.000% 11/01/09 $ 380,000 110 Minneapolis, MN Multi-Family Rev Hsg Belmont Apts Proj (AMT)................................. 7.000 11/01/06 110,910 ------------ 490,910 ------------ MISSOURI 6.1% 1,350 Kansas City, MO Indl Dev Auth Plaza Lib Proj.... 6.000 03/01/16 1,415,718 1,000 Macon, MO Ctfs Partn (MBIA Insd)................ 5.250 08/01/17 1,085,760 2,125 O' Fallon, MO Ctfs Partn (MBIA Insd)............ 5.375 02/01/18 2,362,278 2,000 Saint Charles, MO Ctf Part Ser B................ 5.500 05/01/18 2,137,380 ------------ 7,001,136 ------------ MONTANA 0.3% 300 Crow Fin Auth, MT Tribal Purp Rev (Acquired 12/11/1997, Cost $300,000) (c).................. 5.400 10/01/07 315,675 ------------ NEBRASKA 3.1% 1,000 Dodge Cnty, NE Sch Dist 001 Rfdg (FSA Insd) (d)............................................. 5.000 12/15/18 1,083,520 1,295 Nebraska Pub Pwr Dist Rev Ser B (AMBAC Insd).... 5.000 01/01/15 1,413,234 1,000 Omaha, NE Rfdg.................................. 5.000 11/01/16 1,093,700 ------------ 3,590,454 ------------ NEW JERSEY 4.7% 500 Camden Cnty, NJ Impt Auth Lease Rev Kaighn Pt Marine Terminal A (AMT) (e) (f) (g)............. 7.375 06/01/07 28,750 1,400 Essex Cnty, NJ Impt Auth Lease Gtd Cnty Correctional Fac Proj (Prerefunded @ 10/01/10) (FGIC Insd)..................................... 5.750 10/01/30 1,613,794 460 Middlesex Cnty, NJ Impt Auth Street Student Hsg Proj Ser A...................................... 2.500 08/15/06 461,302 265 New Jersey Econ Dev Auth First Mtg Winchester Ser A Rfdg...................................... 2.600 11/01/05 264,483 400 New Jersey Econ Dev Auth First Mtg Winchester Ser A Rfdg...................................... 3.000 11/01/06 399,656 800 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp Group Issue (Connie Lee Insd)................... 7.000 07/01/06 849,520 670 New Jersey St Edl Facs Auth Fairleigh Dickinson Univ Ser D (ACA Insd)........................... 5.000 07/01/05 683,501 455 Rahway, NJ Ctfs Partn (MBIA Insd)............... 5.500 02/15/16 508,281 565 Rahway, NJ Ctfs Partn (MBIA Insd)............... 5.600 02/15/17 634,071 ------------ 5,443,358 ------------ NEW MEXICO 1.5% 1,000 Jicarilla, NM Apache Nation Rev Ser A (Acquired 10/23/2003, Cost $1,020,380) (c)................ 5.500 09/01/23 1,057,520 700 Jicarilla, NM Apache Nation Ser A (Acquired 10/23/2003, Cost $728,707) (c).................. 4.000 09/01/08 727,216 ------------ 1,784,736 ------------
See Notes to Financial Statements 13 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- NEW YORK 4.5% $ 265 Brookhaven, NY Indl Dev Agy Sr Residential Hsg Rev Woodcrest Estates Fac Ser A (AMT)........... 5.875% 12/01/09 $ 274,964 1,000 Long Island Pwr Auth NY Elec Gen Ser C.......... 5.500 09/01/17 1,102,490 480 New York City Ser A............................. 7.000 08/01/07 526,234 20 New York City Ser A (Prerefunded @ 08/01/06).... 7.000 08/01/07 22,176 1,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg Ser A (Prerefunded @ 02/15/05) (AMBAC Insd).................................... 6.200 08/15/05 1,037,100 1,000 New York St Mun Bd Bk Agy Sch Rev Ser C......... 5.250 06/01/19 1,079,350 5 Niagara Falls, NY Pub Impt (MBIA Insd).......... 6.900 03/01/20 5,121 1,000 Tobacco Settlement Fin Corp NY Ser C-1.......... 5.250 06/01/13 1,072,730 ------------ 5,120,165 ------------ NORTH CAROLINA 3.5% 1,040 Buncombe Cnty, NC Met Swr Dist Rfdg (MBIA Insd)..................................... 5.000 07/01/18 1,122,878 630 North Carolina Eastn Mun Pwr Agy Pwr Sys Rev Ser D............................................... 6.450 01/01/14 710,577 1,000 North Carolina Infrastructure Correctional Fac Proj........................................ 5.000 10/01/16 1,088,780 1,000 North Carolina Muni Pwr Agy Ser A (MBIA Insd)... 5.250 01/01/19 1,087,430 ------------ 4,009,665 ------------ OHIO 6.5% 500 Athens Cnty, OH Hosp Facs Rev & Impt O' Bleness Mem Ser A Rfdg.................................. 6.250 11/15/13 515,050 110 Cleveland-Cuyahoga Cnty, OH Port Auth Rev Dev-Port Cleveland Bd Fd Ser B (AMT)............ 6.500 05/15/05 111,650 500 Dayton, OH Spl Facs Rev Afco Cargo Day LLC Proj (AMT)........................................... 6.000 04/01/09 482,590 2,775 Ohio Mun Elec Generation Agy Jt Venture 5 Ctfs Ben Int Rfdg (AMBAC Insd)....................... 5.000 02/15/21 2,937,726 1,160 Sugarcreek, OH Loc Sch Dist Sch Impt Rfdg (MBIA Insd)........................................... 5.250 12/01/18 1,282,983 1,010 Toledo, OH Swr Sys Rev (AMBAC Insd)............. 5.000 11/15/18 1,092,557 1,000 University of Cincinnati Gen Ser C (FGIC Insd)........................................... 5.000 06/01/18 1,078,300 ------------ 7,500,856 ------------ OKLAHOMA 1.4% 1,500 University of Oklahoma Rev Multiple Fac (MBIA Insd)........................ 5.000 06/01/19 1,606,170 ------------
14 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- OREGON 6.0% $2,575 Emerald Peoples Util Dist OR Ser A Rfdg (FSA Insd)................................. 5.250% 11/01/16 $ 2,875,271 2,685 Oregon St Dept Admin Svcs Lottery Rev Ser B (FSA Insd)........................................... 5.000 04/01/18 2,923,213 1,000 Port Morrow, OR Pollutn Ctl Portland Gen A Rfdg...................................... 5.200 05/01/33 1,060,970 ------------ 6,859,454 ------------ PENNSYLVANIA 11.0% 1,320 Canon McMillan Sch Dist PA Ser A Rfdg (MBIA Insd)..................................... 5.000 12/15/15 1,453,346 1,000 Erie, PA Ser A (FSA Insd) (d)................... 5.000 11/15/18 1,087,320 1,500 Philadelphia, PA Gas Wks Rev Eighteenth Ser (AGC Insd)........................................... 5.250 08/01/18 1,626,585 900 Philadelphia, PA Gas Wks Rev Third Ser (FSA Insd)...................................... 5.000 08/01/10 992,484 2,000 Philadelphia, PA Redev Auth Rev Neighborhood Trans Ser A (FGIC Insd)......................... 5.500 04/15/16 2,256,020 1,600 Springfield, PA Sch Dist DE Ser A (FGIC Insd)... 5.000 03/15/20 1,711,280 1,090 Wilson, PA Area Sch Dist (FGIC Insd)............ 5.125 03/15/17 1,185,015 2,070 York Cnty, PA Sch Technology (FGIC Insd)........ 5.375 02/15/16 2,305,835 ------------ 12,617,885 ------------ RHODE ISLAND 0.9% 1,000 Rhode Island St Econ Dev Grant Antic RI Dept Trans Ser A (FSA Insd).......................... 5.000 06/15/15 1,096,360 ------------ SOUTH CAROLINA 2.0% 1,020 Berkeley Cnty, SC Impt & Rfdg (FSA Insd)........ 5.000 09/01/17 1,109,015 1,065 Lexington, SC Wtr & Swr Rev & Impt Comb Ser A Rfdg (MBIA Insd)................................ 5.000 04/01/14 1,163,981 ------------ 2,272,996 ------------ SOUTH DAKOTA 1.6% 1,665 Minnehaha Cnty, SD Ctfs Ltd Tax (FSA Insd) (d)............................................. 5.000 12/01/18 1,794,987 ------------ TENNESSEE 2.6% 1,050 Blount Cnty, TN Pub Bldg Auth Loc Govt Impt Ser B 5 A (FGIC Insd)............................... 5.250 06/01/19 1,160,985 1,050 Franklin, TN Spl Sch Dist Cap Apprec (FSA Insd)...................................... * 06/01/15 681,261 1,000 Gatlinburg, TN Pub Bldg Auth Rfdg (AMBAC Insd).................................... 5.750 12/01/11 1,156,820 ------------ 2,999,066 ------------
See Notes to Financial Statements 15 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- TEXAS 1.3% $ 740 Austin, TX Util Sys Rev Comb Ser A Rfdg (MBIA Insd)........................................... 5.375% 11/15/05 $ 749,576 395 Brazos River Auth TX Pollutn Ctl Rev TXU Energy Co Proj Ser C Rfdg (AMT)........................ 5.750 05/01/36 416,958 300 San Antonio, TX Hsg Fin Corp Multi-Family Hsg Rev Beverly Oaks Arpt Proj Ser A................ 7.500 02/01/10 300,411 ------------ 1,466,945 ------------ UTAH 0.1% 70 Utah St Hsg Fin Agy Single Family Mtg Mezz Ser A (FHA/VA Gtd) (AMT).............................. 7.150 07/01/12 71,749 ------------ VIRGINIA 1.0% 1,000 Portsmouth, VA Rfdg (FSA Insd).................. 5.000 07/01/15 1,112,930 ------------ WEST VIRGINIA 1.3% 1,500 West Virginia St Hosp Fin Auth (MBIA Insd)...... 6.100 01/01/18 1,504,890 ------------ WISCONSIN 0.4% 500 Wisconsin St Hlth & Edl Facs Beaver Dam Cmnty Hosp Inc. ...................................... 5.500 08/15/14 492,380 ------------ TOTAL LONG-TERM INVESTMENTS 98.5% (Cost $109,758,676)....................................................... 113,106,994 ------------ SHORT-TERM INVESTMENTS 5.1% 3,000 Detroit, MI Sew Disp Rev (Variable Rate Coupon)......................................... 1.730 07/01/33 3,000,000 1,700 Hapeville, GA Dev Auth Indl Dev Rev Hapeville Hotel Ltd (Variable Rate Coupon) (LOC: Bank of America).......................... 1.720 11/01/15 1,700,000 1,200 Idaho Hlth Fac Auth Rev Saint Lukes Med Ctr (Variable Rate Coupon).......................... 1.700 07/01/30 1,200,000 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $5,900,000)......................................................... 5,900,000 ------------ TOTAL INVESTMENTS 103.6% (Cost $115,658,676)....................................................... 119,006,994 LIABILITIES IN EXCESS OF OTHER ASSETS (3.6%)............................... (4,106,870) ------------ NET ASSETS 100.0%.......................................................... $114,900,124 ============
Percentages are calculated as a percentage of net assets. 16 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued * Zero coupon bond (a) All or a portion of these securities have been physically segregated in connection with open futures contracts. (b) 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. (c) 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 2.0% of net assets. (d) Securities purchased on a when-issued or delayed delivery basis. (e) Non-income producing security. (f) This borrower has filed for protection in federal bankruptcy court. (g) Security is in default. ACA--American Capital Access AGC--AGC Insured Custody Certificates AMBAC--AMBAC Indemnity Corp. AMT--Alternative Minimum Tax Connie Lee--Connie Lee Insurance Co. FGIC--Financial Guaranty Insurance Co. FHA/VA--Federal Housing Administration/Department of Veterans Affairs FNMA--Federal National Mortgage Association FSA--Financial Security Assurance Inc. LOC--Letter of Credit MBIA--Municipal Bond Investors Assurance Corp. See Notes to Financial Statements 17 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities September 30, 2004 ASSETS: Total Investments (Cost $115,658,676)....................... $119,006,994 Cash........................................................ 76,770 Receivables: Interest.................................................. 1,490,252 Fund Shares Sold.......................................... 178,652 Investments Sold.......................................... 160,000 Variation Margin on Futures............................... 4,375 Other....................................................... 118,610 ------------ Total Assets............................................ 121,035,653 ------------ LIABILITIES: Payables: Investments Purchased..................................... 5,582,422 Fund Shares Repurchased................................... 109,763 Distributor and Affiliates................................ 83,004 Income Distributions...................................... 79,391 Investment Advisory Fee................................... 37,447 Trustees' Deferred Compensation and Retirement Plans........ 163,067 Accrued Expenses............................................ 80,435 ------------ Total Liabilities....................................... 6,135,529 ------------ NET ASSETS.................................................. $114,900,124 ============ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $111,398,613 Net Unrealized Appreciation................................. 3,336,877 Accumulated Undistributed Net Investment Income............. 99,066 Accumulated Net Realized Gain............................... 65,568 ------------ NET ASSETS.................................................. $114,900,124 ============ MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $76,478,386 and 7,131,854 shares of beneficial interest issued and outstanding)............. $ 10.72 Maximum sales charge (3.25%* of offering price)......... .36 ------------ Maximum offering price to public........................ $ 11.08 ============ Class B Shares: Net asset value and offering price per share (Based on net assets of $20,348,364 and 1,893,002 shares of beneficial interest issued and outstanding)............. $ 10.75 ============ Class C Shares: Net asset value and offering price per share (Based on net assets of $18,073,374 and 1,689,151 shares of beneficial interest issued and outstanding)............. $ 10.70 ============
* On sales of $25,000 or more, the sales charge will be reduced. 18 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statement of Operations For the Year Ended September 30, 2004 INVESTMENT INCOME: Interest.................................................... $ 5,164,957 ----------- EXPENSES: Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $185,180, $222,049 and $196,144, respectively)............................................. 603,373 Investment Advisory Fee..................................... 583,010 Legal....................................................... 26,460 Trustees' Fees and Related Expenses......................... 23,026 Custody..................................................... 10,984 Other....................................................... 268,157 ----------- Total Expenses.......................................... 1,515,010 Investment Advisory Fee Reduction....................... 116,602 Less Credits Earned on Cash Balances.................... 861 ----------- Net Expenses............................................ 1,397,547 ----------- NET INVESTMENT INCOME....................................... $ 3,767,410 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 941,278 Futures................................................... (1,058,105) ----------- Net Realized Loss........................................... (116,827) ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 2,900,450 ----------- End of the Period: Investments............................................. 3,348,318 Futures................................................. (11,441) ----------- 3,336,877 ----------- Net Unrealized Appreciation During the Period............... 436,427 ----------- NET REALIZED AND UNREALIZED GAIN............................ $ 319,600 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 4,087,010 ===========
See Notes to Financial Statements 19 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 ---------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.............................. $ 3,767,410 $ 3,398,661 Net Realized Gain/Loss............................. (116,827) 1,078,053 Net Unrealized Appreciation/Depreciation During the Period........................................... 436,427 (1,143,711) ------------ ------------ Change in Net Assets from Operations............... 4,087,010 3,333,003 ------------ ------------ Distributions from Net Investment Income: Class A Shares................................... (2,540,540) (2,298,933) Class B Shares................................... (599,449) (666,166) Class C Shares................................... (538,322) (558,258) ------------ ------------ (3,678,311) (3,523,357) ------------ ------------ Distributions from Net Realized Gain: Class A Shares................................... (559,167) (246,892) Class B Shares................................... (168,772) (92,417) Class C Shares................................... (151,088) (78,490) ------------ ------------ (879,027) (417,799) ------------ ------------ Total Distributions................................ (4,557,338) (3,941,156) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....................................... (470,328) (608,153) ------------ ------------ FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold.......................... 35,464,587 65,586,619 Net Asset Value of Shares Issued Through Dividend Reinvestment..................................... 3,315,608 2,827,927 Cost of Shares Repurchased......................... (38,885,321) (36,079,223) ------------ ------------ NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..................................... (105,126) 32,335,323 ------------ ------------ TOTAL INCREASE/DECREASE IN NET ASSETS.............. (575,454) 31,727,170 NET ASSETS: Beginning of the Period............................ 115,475,578 83,748,408 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $99,066 and $9,415, respectively)........................ $114,900,124 $115,475,578 ============ ============
20 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ---------------------------------------------------- 2004 2003 2002 (b) 2001 2000 ---------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.... $10.76 $10.86 $10.42 $10.14 $10.22 ------ ------ ------ ------ ------ Net Investment Income..................... .37 .38 .42 .49 .46 Net Realized and Unrealized Gain/Loss..... .04 (.03) .44 .23 (.05) ------ ------ ------ ------ ------ Total from Investment Operations............ .41 .35 .86 .72 .41 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income.................................. .37 .40 .42 .43 .49 Distributions from Net Realized Gain...... .08 .05 -0- .01 -0- ------ ------ ------ ------ ------ Total Distributions......................... .45 .45 .42 .44 .49 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $10.72 $10.76 $10.86 $10.42 $10.14 ====== ====== ====== ====== ====== Total Return* (a)........................... 3.84% 3.33% 8.48% 7.19% 4.13% Net Assets at End of the Period (In millions)................................. $ 76.5 $ 70.1 $ 53.5 $ 29.1 $ 26.6 Ratio of Expenses to Average Net Assets*.... .93% .84% .85% .77% 1.44% Ratio of Net Investment Income to Average Net Assets*............................... 3.50% 3.55% 4.08% 4.78% 4.65% Portfolio Turnover.......................... 60% 35% 75% 106% 85% * If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the ratios would have been as follows: Ratio of Expenses to Average Net Assets................................. 1.03% 1.04% 1.14% 1.23% N/A Ratio of Net Investment Income to Average Net Assets............................. 3.40% 3.35% 3.79% 4.32% N/A
(a) Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 3.25% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 0.50% may be imposed on certain redemptions made within eighteen months of purchase. With respect to shares purchased prior to December 1, 2004, a CDSC of 1% may be imposed on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to .25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (b) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01 and increase the ratio of net investment income to average net assets by .01%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. N/A=Not Applicable See Notes to Financial Statements 21 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ------------------------------------------------ 2004 2003 2002 (b) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD..... $10.78 $10.84 $10.41 $10.13 $10.20 ------ ------ ------ ------ ------ Net Investment Income...................... .30 .32 .35 .42 .38 Net Realized and Unrealized Gain/Loss...... .04 (.01) .42 .22 (.04) ------ ------ ------ ------ ------ Total from Investment Operations............. .34 .31 .77 .64 .34 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .29 .32 .34 .35 .41 Distributions from Net Realized Gain....... .08 .05 -0- .01 -0- ------ ------ ------ ------ ------ Total Distributions.......................... .37 .37 .34 .36 .41 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $10.75 $10.78 $10.84 $10.41 $10.13 ====== ====== ====== ====== ====== Total Return* (a)............................ 3.15%(d) 2.96%(c) 7.61% 6.42% 3.46% Net Assets at End of the Period (In millions).................................. $ 20.3 $ 23.9 $ 17.1 $ 11.1 $ 8.6 Ratio of Expenses to Average Net Assets*..... 1.67%(d) 1.59% 1.60% 1.52% 2.20% Ratio of Net Investment Income to Average Net Assets*.................................... 2.76%(d) 3.08%(c) 3.34% 4.02% 3.90% Portfolio Turnover........................... 60% 35% 75% 106% 85% * If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the ratios would have been as follows: Ratio of Expenses to Average Net Assets... 1.77%(d) 1.79% 1.89% 1.98% N/A Ratio of Net Investment Income to Average Net Assets.............................. 2.66%(d) 2.88%(c) 3.05% 3.56% N/A
(a) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 3%, charged on certain redemptions made within one year of purchase and declining to 0% after the fourth year. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (b) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01 and increase the ratio of net investment income to average net assets by .01%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (c) Certain non-recurring payments were made to Class B Shares, resulting in an increase to the Ratio of Net Investment Income to Average Net Assets and Total Return of .28%. (d) The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of less than 1% (See footnote 6). N/A=Not Applicable 22 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ----------------------------------------------- 2004 2003 2002 (b) 2001 2000 ----------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD...... $10.73 $10.82 $10.40 $10.12 $10.20 ------ ------ ------ ------ ------ Net Investment Income....................... .30 .30 .34 .42 .39 Net Realized and Unrealized Gain/Loss....... .04 (.02) .42 .22 (.06) ------ ------ ------ ------ ------ Total from Investment Operations.............. .34 .28 .76 .64 .33 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income.... .29 .32 .34 .35 .41 Distributions from Net Realized Gain........ .08 .05 -0- .01 -0- ------ ------ ------ ------ ------ Total Distributions........................... .37 .37 .34 .36 .41 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD............ $10.70 $10.73 $10.82 $10.40 $10.12 ====== ====== ====== ====== ====== Total Return* (a)............................. 3.17%(d) 2.69%(c) 7.52% 6.42% 3.36% Net Assets at End of the Period (In millions)................................... $ 18.1 $ 21.4 $ 13.2 $ 8.6 $ 6.4 Ratio of Expenses to Average Net Assets*...... 1.66%(d) 1.59% 1.60% 1.52% 2.20% Ratio of Net Investment Income to Average Net Assets*..................................... 2.77%(d) 2.84%(c) 3.33% 4.02% 3.90% Portfolio Turnover............................ 60% 35% 75% 106% 85% * If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the ratios would have been as follows: Ratio of Expenses to Average Net Assets.... 1.76%(d) 1.79% 1.89% 1.98% N/A Ratio of Net Investment Income to Average Net Assets............................... 2.67%(d) 2.64%(c) 3.04% 3.56% N/A
(a) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 1%, charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (b) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01 and increase the ratio of net investment income to average net assets by .01%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (c) Certain non-recurring payments were made to Class C Shares, resulting in an increase to the Ratio of Net Investment Income to Average Net Assets and Total Return of .06%. (d) The Total Return, Ratio of Expenses to Average Net Assets and Ratio of Net Investment Income to Average Net Assets reflect actual 12b-1 fees of less than 1% (See footnote 6). N/A=Not Applicable See Notes to Financial Statements 23 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen Intermediate Term Municipal Income Fund (the "Fund") is organized as a series of the Van Kampen Tax Free Trust (the "Trust"), a Delaware statutory trust, and is registered as a diversified, open-end management investment company under the Investment Company Act of 1940 (the "1940 Act"), as amended. The Fund's investment objective is to provide investors with a high level of current income exempt from federal income tax, consistent with preservation of capital. The Fund commenced investment operations on May 28, 1993 with two classes of common shares, Class A and Class B shares. The distribution of the Fund's Class C shares commenced on October 19, 1993. Effective November 30, 2003, the Fund's investment adviser, Van Kampen Investment Advisory Corp. merged into its affiliate, Van Kampen Asset Management. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Municipal bonds are valued by independent pricing services or dealers using the mean of the bid and asked prices or, in the absence of market quotations, at fair value based upon yield data relating to municipal bonds with similar characteristics and general market conditions. Securities which are not valued by independent pricing services are valued at fair value using procedures established in good faith by the Board of Trustees. Futures contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. Legal expenditures that are expected to result in the restructuring of or a plan of reorganization for an investment are recorded as realized losses. The Fund may purchase and sell securities on a "when-issued" or "delayed delivery" basis, with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. 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 Fund will segregate assets with the custodian having an aggregate value at least equal to the amount of the when-issued or delayed delivery purchase commitments until payment is made. At September 30, 2004, the Fund has $3,955,838 of when-issued and delayed delivery purchase commitments. C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Bond premium is amortized and discount is accreted over the expected life of each applicable security. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. 24 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income, if any, to its shareholders. Therefore, no provision for federal income taxes is required. At September 30, 2004, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $115,646,168 ============ Gross tax unrealized appreciation........................... $ 3,920,666 Gross tax unrealized depreciation........................... (559,840) ------------ Net tax unrealized appreciation on investments.............. $ 3,360,826 ============
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly dividends from net investment income. 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 September 30, 2004 and 2003 was as follows:
2004 2003 Distributions paid from: Ordinary Income........................................... $444,464 $318,534 Long Term Capital Gain.................................... 437,594 113,705 -------- -------- 882,058 432,239 -------- --------
Due to inherent differences in the recognition of income, expenses, and realized gains/losses under U.S. generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting for the 2004 fiscal year have been identified and appropriately reclassified on the Statement of Assets and Liabilities. For the tax year ended September 30, 2004, a permanent book and tax difference relating to the Fund's investment in other regulated investment companies totaling $2,127 was reclassified from accumulated undistributed net investment income to accumulated net realized gain. Also, a permanent difference of $1,575 relating to book to tax amortization differences was reclassified from accumulated undistributed net investment income to accumulated net realized gain. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $157,502
Net realized gains or losses may differ for financial and tax reporting purposes primarily as a result of post-October losses, which may not be recognized for tax purposes until the first day of the following fiscal year and losses recognized for tax purposes for open futures contracts at September 30, 2004. F. EXPENSE REDUCTIONS During the year ended September 30, 2004, the Fund's custody fee was reduced by $861 as a result of credits earned on cash balances. 25 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, Van Kampen Asset Management (the "Adviser") will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM First $500 million.......................................... .50% Over $500 million........................................... .45%
For the year ended September 30, 2004, the Adviser waived $116,602 of its investment advisory fee. This represents .10% of its average net assets for the period. This waiver is voluntary in nature and can be discontinued at the Adviser's discretion. For the year ended September 30, 2004, the Fund recognized expenses of approximately $8,000 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Fund, of which a trustee of the Fund is an affiliated person. Under separate Accounting Services and Legal Services agreements, the Adviser provides accounting and legal services to the Fund. The Adviser allocates the cost of such services to each fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $42,100 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Fund, which are reported as part of "Other" and "Legal" expenses, respectively, on the Statement of Operations. Van Kampen Investor Services Inc. (VKIS), an affiliate of the Adviser, serves as the shareholder servicing agent for the Fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $51,400, representing transfer agency fees paid to VKIS. Transfer agency fees are determined through negotiations with the Fund's Board of Trustees. Certain officers and trustees of the Fund are also officers and directors of Van Kampen. The Fund does not compensate its officers or trustees who are officers of Van Kampen. The Fund 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. Amounts deferred are retained by the Fund, and to the extent permitted by the 1940 Act, as amended, may be invested in the common shares of those funds selected by the trustees. Investments in such funds of approximately $103,100 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2004. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 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 Fund. The maximum annual benefit per trustee under the plan is $2,500. 26 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued 3. CAPITAL TRANSACTIONS At September 30, 2004, capital aggregated $74,789,709, $19,206,050 and $17,402,854 for Classes A, B and C, respectively. For the year ended September 30, 2004, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 2,439,175 $ 26,096,448 Class B................................................... 442,461 4,732,358 Class C................................................... 433,331 4,635,781 ---------- ------------ Total Sales................................................. 3,314,967 $ 35,464,587 ========== ============ Dividend Reinvestment: Class A................................................... 228,163 $ 2,436,459 Class B................................................... 42,299 453,007 Class C................................................... 39,974 426,142 ---------- ------------ Total Dividend Reinvestment................................. 310,436 $ 3,315,608 ========== ============ Repurchases: Class A................................................... (2,054,862) $(21,954,065) Class B................................................... (808,689) (8,651,743) Class C................................................... (781,197) (8,279,513) ---------- ------------ Total Repurchases........................................... (3,644,748) $(38,885,321) ========== ============
At September 30, 2003, capital aggregated $68,210,867, $22,672,428 and $20,620,444 for Classes A, B and C, respectively. For the year ended September 30, 2003, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 3,510,100 $ 37,536,509 Class B................................................... 1,307,031 14,035,027 Class C................................................... 1,310,574 14,015,083 ---------- ------------ Total Sales................................................. 6,127,705 $ 65,586,619 ========== ============ Dividend Reinvestment: Class A................................................... 184,280 $ 1,971,012 Class B................................................... 41,458 444,020 Class C................................................... 38,700 412,895 ---------- ------------ Total Dividend Reinvestment................................. 264,438 $ 2,827,927 ========== ============ Repurchases: Class A................................................... (2,098,791) $(22,416,093) Class B................................................... (707,557) (7,574,011) Class C................................................... (572,938) (6,089,119) ---------- ------------ Total Repurchases........................................... (3,379,286) $(36,079,223) ========== ============
27 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment plan Class B Shares received thereon, automatically convert to Class A Shares eight years after the end of the calendar month in which the shares were purchased. Class B Shares purchased before June 1, 1996, and any dividend reinvestment plan Class B Shares received thereon, automatically convert to Class A Shares six years after the end of the calendar month in which the shares were purchased. For the years ended September 30, 2004 and 2003, 36,615 and 49,940 Class B Shares converted to Class A Shares and are shown in the above tables as sales of Class A Shares and repurchases of Class B Shares. Class C Shares purchased before January 1, 1997, and any dividend reinvestment plan Class C Shares received thereon, automatically convert to Class A Shares ten years after the end of the calendar month in which such shares were purchased. Class C Shares purchased on or after January 1, 1997 do not possess a conversion feature. For the years ended September 30, 2004 and 2003, no Class C Shares converted to Class A Shares. Class B and C Shares are offered without a front end sales charge, but are subject to a contingent deferred sales charge (CDSC). The CDSC for Class B and Class C Shares will be imposed on most redemptions made within four years of the purchase for Class B Shares and one year of the purchase for Class C Shares as detailed in the following schedule.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE -------------------------- YEAR OF REDEMPTION CLASS B CLASS C First....................................................... 3.00% 1.00% Second...................................................... 2.50% None Third....................................................... 2.00% None Fourth...................................................... 1.00% None Fifth and Thereafter........................................ None None
For the year ended September 30, 2004, Van Kampen, as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $16,500 and CDSC on redeemed shares of approximately $64,000. Sales charges do not represent expenses of the Fund. 4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $68,092,662 and $68,557,453 respectively. 5. DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument in very general terms refers to a security whose value is "derived" from the value of an underlying asset, reference rate or index. The Fund has a variety of reasons to use derivative instruments, such as to attempt to protect the Fund against possible changes in the market value of its portfolio or generate potential gain. All of the Fund'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, except when 28 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued taking delivery of a security underlying a futures contract. In these instances, the recognition of gain or loss is postponed until the disposal of the security underlying the futures contract. During the period, the Fund invested in futures contracts, a type of derivative. A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in exchange traded futures contracts on U.S. Treasury Securities and typically closes the contract prior to delivery date. These contracts are generally used to manage the Fund's effective maturity and duration. Upon entering into futures contracts, the Fund maintains, an amount of cash or liquid securities with a value equal to a percentage of the contract amount with either a future commission merchant pursuant to rules and regulations promulgated in the 1940 Act, as amended, or with its custodian in an account in the broker's name. This amount is known as initial margin. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). The risk of loss associated with a futures contract is in excess of the variation margin reflected on the Statement of Assets and Liabilities. Transactions in futures contracts for the year ended September 30, 2004, were as follows:
CONTRACTS Outstanding at September 30, 2003........................... 162 Futures Opened.............................................. 586 Futures Closed.............................................. (591) ---- Outstanding at September 30, 2004........................... 157 ====
The futures contracts outstanding as of September 30, 2004, and the description and unrealized appreciation/depreciation were as follows:
UNREALIZED APPRECIATION/ SHORT CONTRACTS: CONTRACTS DEPRECIATION U.S. Treasury Notes 10 year futures December 2004 (Current Notional Value of $112,625 per contract).................. 28 $ (6,925) U.S. Treasury Notes 5 year futures December 2004 (Current Notional Value of $110,750 per contract).................. 129 (4,516) --- -------- 157 $(11,441) === ========
6. DISTRIBUTION AND SERVICE PLANS With respect to its Class A Shares, Class B Shares, and Class C Shares, the Fund and its shareholders have adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively, the "Plans"). The Plans govern payments for: the distribution of the Fund's Class A Shares, Class B Shares and Class C Shares; the provision of ongoing shareholder services with respect to such classes of shares; and the maintenance of shareholder accounts with respect to such classes of shares. Annual fees under the Plans of up to .25% of Class A average daily net assets and up to 1.00% each of Class B and Class C average daily net assets are accrued daily. The annual fees for Class A Shares are paid quarterly and the annual fees for Class C Shares are paid monthly. For Class B Shares, 75% of the annual fees are paid monthly, while 25% of the 29 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued annual fees are paid quarterly. At September 30, 2004, there were no distribution expenses incurred by Van Kampen and not yet reimbursed ("unreimbursed receivable") for Class B and Class C shares. Any unreimbursed receivables may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed receivable has been fully recovered, any excess 12b-1 fees will be refunded to the Fund on a quarterly basis. Included in these fees for the year ended September 30, 2004, are payments retained by Van Kampen of approximately $245,900, and payments made to Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $27,800. 7. LEGAL MATTERS The Adviser, certain affiliates of the Adviser, and certain investment companies advised by the Adviser or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. The consolidated action also names as defendants certain individual Trustees and Directors of certain investment companies advised by affiliates of the Adviser; the complaint does not, however, name the individual Trustees of any Van Kampen funds. The consolidated amended complaint generally alleges that defendants violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Adviser and certain affiliates of the Adviser allegedly offered economic incentives to brokers and others to steer investors to the funds advised by the Adviser or its affiliates rather than funds managed by other companies, and (ii) that the funds advised by the Adviser or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their alleged efforts to steer investors to these funds. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The Adviser and certain affiliates of the Adviser are also named as defendants in a derivative suit which additionally names as defendants certain individual Trustees of certain Van Kampen funds; the named investment companies, including the Fund, are listed as nominal defendants. The complaint alleges that defendants caused the Van Kampen funds to pay economic incentives to a proprietary sales force economic incentives to promote the sale of proprietary mutual funds. The complaint also alleges that the Van Kampen funds paid excessive commissions to Morgan Stanley and its affiliates in connection with the sales of the funds. The complaint seeks, among other things, the removal of the current Trustees of the funds, rescission of the management contracts for the funds, disgorgement of profits by Morgan Stanley and its affiliates and monetary damages. This complaint has been coordinated with the consolidated complaint described in the preceding paragraph. The defendants have moved to dismiss these actions and otherwise intend to defend them vigorously. While the defendants believe that they have meritorious defenses, the ultimate outcome of these matters is not presently determinable at this early stage of litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of these matters. 8. 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. 30 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Van Kampen Intermediate Term Municipal Income Fund We have audited the accompanying statement of assets and liabilities of Van Kampen Intermediate Term Municipal Income Fund (the "Fund"), including the portfolio of investments, as of September 30, 2004, and 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 Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2004, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Van Kampen Intermediate Term Municipal Income Fund at September 30, 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 U.S. generally accepted accounting principles. -s- Ernst & Young LLP Chicago, Illinois November 5, 2004 31 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND BOARD OF TRUSTEES AND IMPORTANT ADDRESSES BOARD OF TRUSTEES DAVID C. ARCH J. MILES BRANAGAN JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III * HUGO F. SONNENSCHEIN WAYNE W. WHALEN * - Chairman SUZANNE H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT 1221 Avenue of the Americas New York, New York 10020 DISTRIBUTOR VAN KAMPEN FUNDS INC. 1221 Avenue of the Americas New York, New York 10020 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 947 Jersey City, New Jersey 07303-0947 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02110 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 333 South Wacker Drive Chicago, Illinois 60606 For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended September 30, 2004. The Fund designated 99.9% of the income distributions as a tax-exempt income distribution. The Fund designated and paid $437,594 as a long-term capital gain distribution. In January, the Fund provides tax information to shareholders for the preceding calendar year. * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940, as amended. 32 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND TRUSTEES AND OFFICERS The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees and the Fund's officers appointed by the Board of Trustees. The tables below list the trustees and executive officers of the Fund 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing Blistex Inc. since 2003 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. J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing 1632 Morning Mountain Road since 1995 Co-founder, and prior to General Partner of funds Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex. Chief Executive Officer and President, MDT Corporation (now known as Getinge/Castle, Inc., a subsidiary of Getinge Industrier AB), a company which develops, manufactures, markets and services medical and scientific equipment.
33
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing 33971 Selva Road since 1999 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.
34
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing CAC, L.L.C. since 2003 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).
35
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing Heidrick & Struggles since 1995 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 83 Trustee/Director/Managing 1744 R Street, NW since 1993 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 85 Trustee/Director/Managing 736 North Western Avenue since 2003 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.
36
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing 423 Country Club Drive since 1993 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 85 Trustee/Director/Managing 1126 E. 59th Street since 2003 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 83 Trustee/Director/Managing (62) since 1999 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.
37 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing 1221 Avenue of the Americas President since Executive Officer of General Partner of funds New York, NY 10020 and Chief 1999; 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.
38
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 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 85 Trustee/Director/Managing 333 West Wacker Drive since 1993 of Skadden, Arps, Slate, General Partner of funds Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex. counsel to funds in the Fund Complex.
* Such Trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Messrs. Merin and Powers are interested persons of funds in the Fund Complex and the Adviser by reason of their current or former positions with Morgan Stanley or its affiliates. 39 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS Stefanie V. Chang (37) 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 M. Dykas (38) Chief Financial Officer Officer Executive Director of Van Kampen Asset Management and Morgan 1 Parkview Plaza and Treasurer since 1999 Stanley Investment Management. Chief Financial Officer and Oakbrook Terrace, IL 60181 Treasurer of funds in the Fund Complex. Prior to August 2004, Assistant Treasurer of funds in the Fund Complex. Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Investment Officer Management Inc. and 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.
40
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since November 1221 Avenue of the Americas President and since 2002 2003. Chief Executive Officer and Chairman of Investor New York, NY 10020 Principal Executive Services. Executive Vice President and Principal Executive Officer 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 1996 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.
41 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 (VAN KAMPEN INVESTMENTS LOGO) Copyright (C)2004 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 138, 338, 538 INF ANR 11/04 RN04-02595P-Y09/04 Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen New York Tax Free Income Fund 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 fund's financial statements and a list of fund investments as of September 30, 2004. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUS CONTAINS INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 09/30/04 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index from 9/30/94 through 9/30/04. Class A shares, adjusted for sales charges. (LINE GRAPH)
VAN KAMPEN NEW YORK TAX FREE LEHMAN BROTHERS MUNICIPAL BOND INCOME FUND INDEX ---------------------------- ------------------------------ 9/94 9525 10000 12/94 9350 9857 10067 10554 10157 10808 10434 11118 12/95 10970 11577 10741 11438 10853 11526 11199 11790 12/96 11533 12090 11555 12061 11963 12477 12382 12853 12/97 12793 13202 12994 13354 13234 13557 13703 13973 12/98 13752 14057 13863 14181 13591 13931 13346 13876 12/99 13080 13768 13438 14170 13618 14384 14001 14732 12/00 14693 15377 15005 15718 15145 15820 15538 16264 12/01 15351 16165 15554 16317 16141 16914 17034 17717 12/02 16974 17717 17149 17930 17620 18393 17662 18407 12/03 17993 18659 18195 18982 17851 18532 9/04 18569 19254
A SHARES B SHARES C SHARES 7/29/94 7/29/94 7/29/94 - -------------------------------------------------------------------------------------------- W/MAX W/MAX W/MAX 4.75% 4.00% 1.00% AVERAGE ANNUAL W/O SALES SALES W/O SALES SALES W/O SALES SALES TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE Since Inception 6.67% 6.16% 6.13% 6.13% 5.90% 5.90% 10-year 6.90 6.38 6.35 6.35 6.13 6.13 5-year 6.83 5.79 6.04 5.80 6.05 6.05 1-year 5.13 0.13 4.36 0.36 4.36 3.36 - -------------------------------------------------------------------------------------------- 30-Day SEC Subsidized Yield 2.96% 2.37% 2.37% - -------------------------------------------------------------------------------------------- 30-Day SEC Yield 2.73% 2.12% 2.12%
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 AND PRINCIPAL VALUE WILL FLUCTUATE AND FUND SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. The returns shown in this report do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Performance of share classes will vary due to differences in sales charges and expenses. Average annual total return with sales charges includes payment of the maximum sales charge of 4.75 percent for Class A shares, a contingent deferred sales charge of 4.00 percent for Class B shares (in year one and declining to zero after year six), a contingent deferred sales charge of 1.00 percent for Class C shares in year one and combined Rule 12b-1 fees and service fees of up to 0.25 percent for Class A shares and up to 1.00 percent for Class B and C shares. The since inception and 10-year returns for Class B shares reflect its conversion into Class A shares seven years after purchase. The since inception returns for Class C shares reflects the conversion of Class C shares into Class A shares ten years after purchase. See footnote 3 in the Notes to Financial Statements for additional information. Figures shown above assume reinvestment of all dividends and capital gains. The fund's adviser has waived or reimbursed fees and expenses from time to time; absent such waivers/reimbursements the fund's returns would have been lower. SEC yield is a calculation for determining the amount of portfolio income, excluding non-income items as prescribed by the SEC. The subsidized SEC yields reflect some or all of the expenses that the adviser had voluntarily waived. Yields are subject to change. The Lehman Brothers Municipal Bond Index is generally representative of investment-grade, tax-exempt bonds. The index does not include any expenses, fees or sales charges, which would lower performance. The index is unmanaged and should not be considered an investment. It is not possible to invest directly in an index. Index data source: Lipper Inc. 1 Fund Report FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004 MARKET CONDITIONS Van Kampen New York Tax Free Income Fund is managed by the Adviser's Municipal Fixed Income team. Members of the team include Dennis S. Pietrzak, Executive Director of the Adviser; John R. Reynoldson, Executive Director of the Adviser; and Timothy D. Haney, Vice President of the Adviser.(1) The interest-rate environment of the 12 months ended September 30, 2004 was marked by two periods of steadily declining yields, with a significant sell-off in the middle. Yields fell steadily through the first half of the period, approaching the historical lows of 2003. This trend persisted until March, at which point yields reversed direction and began an upward march as prices fell. These losses were steepest in April, as a surprisingly strong employment report and signals from members of the Federal Open Market Committee (the "Fed") caused investors to expect a near-term rate increase. Yields went on to decline from May through the end of the period as the market digested the Fed's newly hawkish rate stance. Investors were further comforted when, after the Fed raised rates at its June 30, 2004 meeting, its members indicated that the path of future rate increases would be measured. Unusually, longer-maturity securities largely outperformed in this period of Fed tightening. The typical pattern in periods of tightening policy has been an increase in yields across all maturities. During the review period, however, yields of shorter maturity bonds rose while those of bonds with longer maturities declined slightly. Lower-quality municipal bonds also performed strongly in this environment, as the difference in yields (known as the "yield spread") between AAA and BBB rated bonds decreased by roughly 20 basis points for 20-year bonds. As a result, sectors with heavy exposure to lower-rated debt, such as hospitals and industrial revenue, posted higher total returns than sectors dominated by higher-rated debt. While New York was still among the largest issuers in the country during the period, its overall issuance fell by 18 percent for the first nine months of 2004 relative to the same period in 2003. Many local municipalities moved to take advantage of relatively low interest rates during the period by refinancing their existing debt. The state's ongoing economic improvement led to an upgrade by Moody's. (1)Team members may change at any time without notice. 2 PERFORMANCE ANALYSIS The fund returned 5.13 percent for the 12 months ended September 30, 2004 (Class A shares, unadjusted for sales charge), outperforming its benchmark index, the Lehman Brothers Municipal Bond Index. (See table below.) One of our key strategies in managing the fund during the period was to adjust its interest-rate exposure (duration) to reflect our expectations for the economy. During the period, we continued to see an improving economy that was characterized by rising short-term interest rates. We focused our purchases on premium, callable bonds with 15- to 20-year maturities. These securities are structured to offer the yield advantage of longer-maturity securities with the limited interest-rate volatility of bonds with shorter maturities. Given the low level of interest rates, we generally made only modest adjustments to the portfolio. Our trading activity was largely driven by instances where securities met our performance targets, were sold, and the proceeds reinvested in bonds with more compelling total-return potential. The fund's portfolio remained well diversified across major market sectors, and retained its high quality bias, with 82 percent of the portfolio rated AA or better at the end of the period. Going forward, we believe the fund is positioned to continue to provide investors with attractive income across an array of possible market environments. We will continue will continue to monitor the New York market for attractive investment opportunities. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2004
- -------------------------------------------------------------- LEHMAN BROTHERS CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX 5.13% 4.36% 4.36% 4.60% - --------------------------------------------------------------
The performance for the three share classes varies because each has different expenses. The fund's total return figures assume the reinvestment of all distributions, but do not reflect the deduction of any applicable sales charges. Such costs would lower performance. Past performance is no guarantee of future results. See Performance Summary for standardized performance information and index definition. 3 RATINGS ALLOCATIONS AS OF 9/30/04 TOP 5 SECTORS AS OF 9/30/04 AAA/Aaa 48.2% General Purpose 21.6% AA/Aa 34.4 Higher Education 20.4 A/A 12.5 Health Care 9.7 BBB/Baa 2.8 Public Education 8.6 Non-Rated 2.1 Industrial Revenue 7.6
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 sectors shown above. All percentages are as a percentage of total investments. Securities are classified by sectors that represent broad groupings of related industries. 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. Rating allocations based upon ratings as issued by Standard and Poor's and Moody's, respectively. 4 FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS Each Van Kampen fund provides a complete schedule of portfolio holdings in its semiannual and annual reports within 60 days of the end of the fund'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 fund 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 fund files a complete schedule of portfolio holdings with the SEC for the fund'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 1-202-942-8090. 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 fund makes portfolio holdings information available by periodically providing the information on its public web site, www.vankampen.com. Each Van Kampen fund 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. Furthermore, each Van Kampen open-end fund provides partial lists of its portfolio holdings (such as top 10 or top 15 fund holdings) to the public web site each month with a delay of approximately 15 days. You may obtain copies of a fund's fiscal quarter filings, or its monthly or calendar-quarter web site postings, by contacting Van Kampen Client Relations at 1-800-847-2424. 5 HOUSEHOLDING NOTICE To reduce fund expenses, the fund attempts to eliminate duplicate mailings to the same address. The fund delivers a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. The fund's prospectuses and shareholder reports (including annual privacy notices) will be delivered to you in this manner indefinitely unless you instruct us otherwise. You can request multiple copies of these documents by either calling 1-800-341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has received your instructions, we will begin sending individual copies for each account within 30 days. PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING RECORD The fund's policies and procedures with respect to the voting of proxies relating to the fund's portfolio securities and information on how the fund 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. 6 Expense Example As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing cost (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period 4/1/04 - 9/30/04. ACTUAL EXPENSE The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, and $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing cost of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line of the table is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds that have transactional costs, such as sales charges (loads), and redemption fees, or exchange fees.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/04 9/30/04 4/1/04-9/30/04 Class A Actual...................................... $1,000.00 $1,020.52 $3.94 Hypothetical................................ 1,000.00 1,021.10 3.94 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,016.73 7.76 Hypothetical................................ 1,000.00 1,017.30 7.77 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,016.72 7.76 Hypothetical................................ 1,000.00 1,017.30 7.77 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.78%, 1.54%, and 1.54% for Class A, B, and C Shares, respectively, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period). These ratios reflect an expense cap. Assumes all dividends and distributions were reinvested. 7 VAN KAMPEN NEW YORK TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ---------------------------------------------------------------------------------------------- MUNICIPAL BONDS 98.0% NEW YORK 97.0% $ 330 Bethlehem, NY Indl Dev Agy Sr Hsg Rev Van Allen Proj Ser A........................... 6.875% 06/01/39 $ 313,335 1,250 Erie Cnty, NY Indl Dev Agy Sch Fac Rev City of Buffalo Proj (FSA Insd)................. 5.750 05/01/21 1,436,187 1,250 Erie Cnty, NY Indl Dev Agy Sch Fac Rev City of Buffalo Proj (FSA Insd)................. 5.750 05/01/22 1,430,275 1,250 Hempstead Town, NY Indl Dev Adelphi Univ Civic Fac.................................. 5.750 06/01/22 1,379,712 500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY Institute of Technology Rfdg (Prerefunded @ 03/01/06).................................. 7.500 03/01/26 549,970 1,290 Islip, NY Res Recovery Agy Res 1985 Fac Ser E (AMT) (FSA Insd)......................... 5.750 07/01/22 1,403,623 1,250 Long Island Pwr Auth NY Elec Sys Rev Gen Ser A (AMBAC Insd)......................... 5.500 12/01/09 1,410,238 2,000 Long Island Pwr Auth NY Elec Sys Rev Gen Ser C...................................... 5.500 09/01/19 2,187,800 1,000 Metropolitan Trans Auth NY Rev Ser A Rfdg (AMBAC Insd)............................... 5.500 11/15/19 1,135,110 1,000 Metropolitan Trans Auth NY Svc Contract Ser A Rfdg..................................... 5.125 01/01/29 1,023,030 1,000 Monroe Cnty, NY Indl Dev Agy Nazareth College Rochester Proj (MBIA Insd)......... 5.250 10/01/21 1,076,600 1,155 Monroe Cnty, NY Indl Dev Agy Saint John Fisher College Proj (Radian Insd).......... 5.375 06/01/09 1,278,689 2,510 Nassau Cnty, NY Interim Fin Auth Sales Tax Secd Ser A (Prerefunded @ 11/15/10)........ 5.750 11/15/13 2,904,145 295 Nassau Cnty, NY Interim Fin Auth Sales Tax Secd Ser A1 (AMBAC Insd)................... 5.375 11/15/16 330,984 2,425 New York City Fiscal 2003 Ser I............ 5.750 03/01/15 2,735,909 1,500 New York City Hlth & Hosp Corp Rev Hlth Sys Ser A (FSA Insd)........................... 5.500 02/15/18 1,681,965 1,000 New York City Hlth & Hosp Corp Rev Hlth Sys Ser A (FSA Insd)........................... 5.500 02/15/19 1,118,700 1,000 New York City Hsg Dev Corp Ser A (AMT)..... 5.500 11/01/34 1,027,700 475 New York City Indl Dev Agy Civic Fac Rev Cmnty Res Developmentally Disabled......... 7.500 08/01/26 483,408 500 New York City Indl Dev Agy Civic Fac Rev College of New Rochelle Proj............... 5.750 09/01/17 531,420 1,800 New York City Indl Dev Agy Civic Fac Rev New York Inst of Technology Proj (MBIA Insd)...................................... 5.250 03/01/18 1,973,592 500 New York City Indl Dev Agy Civic Fac Rev YMCA Greater NY Proj....................... 6.000 08/01/07 547,805 1,015 New York City Indl Dev Agy Fac Rev Royal Charter-NY Presbyterian (FSA Insd)......... 5.250 12/15/11 1,149,274
8 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ---------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $1,405 New York City Indl Dev Agy Fac Rev Royal Charter-NY Presbyterian (FSA Insd)......... 5.375% 12/15/16 $ 1,572,771 1,440 New York City Indl Dev Agy Spl Fac Rev Terminal One Group Assn Proj (AMT)......... 6.100 01/01/09 1,470,773 500 New York City Muni Wtr Fin Ser B........... 6.000 06/15/33 574,455 825 New York City Muni Wtr Fin Ser B (Prerefunded @ 06/15/10)................... 6.000 06/15/33 967,139 2,500 New York City Ser A........................ 5.500 08/01/20 2,754,175 1,000 New York City Ser A Rfdg................... 5.250 03/15/14 1,115,850 1,000 New York City Ser A Rfdg................... 5.250 03/15/15 1,096,500 1,000 New York City Ser B (MBIA Insd)............ 5.875 08/01/15 1,150,560 1,000 New York City Transitional Fin Auth Rev Future Tax Secd Ser A Rfdg (a)............. 5.500/14.000 11/01/26 1,129,200 1,500 New York City Transitional Fin Auth Rev Future Tax Secd Ser C (AMBAC Insd)......... 5.250 08/01/21 1,617,135 1,000 New York City Transitional Fin Auth Rev Future Tax Secd Ser D (MBIA Insd).......... 5.250 02/01/19 1,093,370 1,540 New York City Transitional Future Tax Secd Ser B...................................... 5.500 02/01/15 1,705,119 2,000 New York St Dorm Auth Lease Rev Court Fac Ser A...................................... 5.500 05/15/20 2,184,120 510 New York St Dorm Auth Lease Rev Insd St Judicial Inst At Pace (AMBAC Insd)......... 5.500 07/01/09 573,878 600 New York St Dorm Auth Lease Rev Insd St Judicial Inst At Pace (AMBAC Insd)......... 5.500 07/01/10 680,892 1,060 New York St Dorm Auth Lease Rev Master Boces Pgm (FSA Insd)....................... 5.250 08/15/22 1,143,740 1,500 New York St Dorm Auth Lease Rev Muni Hlth Fac Impt Pgm Ser 1 (FSA Insd).............. 5.500 01/15/14 1,685,265 1,000 New York St Dorm Auth Lease Rev St Univ Dorm Fac................................... 5.375 07/01/16 1,100,970 1,000 New York St Dorm Auth Rev City Univ Cons Third Ser 1 (FGIC Insd).................... 5.250 07/01/25 1,052,940 1,230 New York St Dorm Auth Rev City Univ Ser D Rfdg (FSA Insd)............................ 5.750 07/01/12 1,408,965 750 New York St Dorm Auth Rev City Univ Sys Cons Ser A................................. 5.625 07/01/16 868,305 1,000 New York St Dorm Auth Rev City Univ Sys Cons Ser B................................. 6.000 07/01/14 1,153,660 1,890 New York St Dorm Auth Rev Dept Ed.......... 5.250 07/01/21 2,030,900 1,000 New York St Dorm Auth Rev Insd Brooklyn Law Sch Ser B (XLCA Insd)...................... 5.375 07/01/23 1,089,460 1,055 New York St Dorm Auth Rev Insd NY St Rehab Assn Ser A (AMBAC Insd).................... 5.500 07/01/13 1,198,786 1,040 New York St Dorm Auth Rev Insd NY St Rehab Assn Ser A (AMBAC Insd).................... 5.500 07/01/15 1,163,479
See Notes to Financial Statements 9 VAN KAMPEN NEW YORK TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ---------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $1,500 New York St Dorm Auth Rev Mem Sloan- Kettering Ctr Ser 1 (MBIA Insd)............ 5.000% 07/01/20 $ 1,597,785 605 New York St Dorm Auth Rev Mental Hlth Svc B (MBIA Insd)................................ 5.250 08/15/31 626,296 1,200 New York St Dorm Auth Rev Miriam Osborn Mem Home Ser B (ACA Insd)...................... 6.375 07/01/29 1,314,408 750 New York St Dorm Auth Rev Nursing Home Menorah Campus (FHA Gtd)................... 5.950 02/01/17 798,975 1,000 New York St Dorm Auth Rev Sch Dist Fin Pgm Ser C (MBIA Insd).......................... 5.250 10/01/16 1,106,150 1,000 New York St Dorm Auth Rev Sch Dist Fin Pgm Ser D (MBIA Insd).......................... 5.500 10/01/17 1,137,800 1,000 New York St Dorm Auth Rev Sch Dist Fin Pgm Ser I (MBIA Insd).......................... 5.750 10/01/18 1,158,890 1,000 New York St Dorm Auth Rev Second Hosp Interfaith Med Cent Ser D (FSA Insd)....... 5.750 02/15/08 1,103,500 1,000 New York St Dorm Auth Rev Secd Hosp North Gen Hosp Rfdg (MBIA Insd).................. 5.750 02/15/17 1,135,250 1,000 New York St Dorm Auth Rev Secd Hosp North Gen Hosp Rfdg.............................. 5.750 02/15/18 1,121,560 1,000 New York St Dorm Auth Rev St Personal Income Tax Ed Ser A........................ 5.375 03/15/20 1,098,960 1,000 New York St Dorm Auth Rev St Univ Ed Fac 1989 Res (MBIA Insd)....................... 6.000 05/15/15 1,161,230 1,140 New York St Dorm Auth Rev St Univ Ed Fac Ser A (FSA Insd)........................... 5.875 05/15/17 1,362,106 1,000 New York St Dorm Auth Rev St Univ Ed Fac Ser A...................................... 5.250 05/15/21 1,115,130 1,665 New York St Dorm Auth Rev St Univ Ed Fac Ser B (FSA Insd)........................... 5.250 05/15/13 1,889,525 500 New York St Energy Resh & Dev Auth Gas Fac Rev Brooklyn Union Gas Ser B (Inverse Fltg) (AMT) (b).................................. 12.048 07/01/26 585,100 2,500 New York St Environ Fac Corp St Clean Wtr & Drinking Revolving Fds..................... 5.000 06/15/21 2,664,175 1,000 New York St Environ Fac Corp St Clean Wtr & Drinking Revolving Fds Pooled Fin Pgm I.... 5.250 09/15/19 1,094,810 1,890 New York St Environ Fac Corp St Clean Wtr & Drinking Revolving Fds Ser B............... 5.000 12/15/21 2,001,983 1,000 New York St Hsg Fin Agy St Personal Income Tax Rev Econ Dev & Hsg Ser A............... 5.250 09/15/19 1,082,460 2,280 New York St Loc Govt Assist Corp Ser E Rfdg................................. 6.000 04/01/14 2,703,556 1,500 New York St Med Care Fac Fin Hosp & Nursing Home Ser D Agy Rev (FHA Gtd)............... 6.200 02/15/28 1,551,930
10 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ---------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $1,000 New York St Mtg Agy Rev Homeowner Mtg Ser 71 (AMT)................................... 5.400% 04/01/29 $ 1,022,060 985 New York St Mtg Agy Rev Homeowner Mtg Ser 82 (AMT)................................... 5.650 04/01/30 1,035,412 995 New York St Mtg Agy Rev Ser 101 (AMT)...... 5.400 04/01/32 1,020,452 1,885 New York St Ser C Rfdg..................... 5.000 04/15/19 2,016,705 1,000 New York St Twy Auth Svc Contract Rev Loc Hwy & Brdg................................. 6.000 04/01/07 1,091,660 460 New York St Twy Auth Svc Contract Rev Loc Hwy & Brdg................................. 5.500 04/01/16 517,983 500 New York St Urban Dev Corp Rev Correctional Fac Ser A Rfdg............................. 5.500 01/01/14 557,250 1,400 New York St Urban Dev Corp Rev Personal Income Tax St Fac Ser A.................... 5.375 03/15/18 1,533,924 325 Oneida Cnty, NY Indl Dev Agy Civic Fac Saint Elizabeth Med Ser A.................. 5.875 12/01/29 296,969 200 Port Auth NY & NJ Spl Oblig (AMT).......... 7.000 10/01/07 207,178 1,000 Rockland Cnty, NY Solid Waste Ser B (AMT) (AMBAC Insd)............................... 5.000 12/15/23 1,035,380 1,000 Rondout Vly Cent Sch Dist NY Accord Ser A Rfdg (FGIC Insd)........................... 5.000 03/01/19 1,065,270 1,320 Sodus, NY Cent Sch Dist Rfdg (FGIC Insd)... 5.125 06/15/18 1,428,966 100 Syracuse, NY Hsg Auth Rev Sub Proj Loretto Rest Ser B................................. 7.500 08/01/10 100,550 250 Syracuse, NY Indl Dev Agy Rev First Mtg Jewish Home Ser A.......................... 7.375 03/01/21 256,505 2,000 Tobacco Settlement Fin Corp NY Ser C-1..... 5.500 06/01/22 2,166,760 2,000 Triborough Brdg & Tunl Auth NY Gen Purp Ser A.......................................... 5.250 01/01/18 2,168,360 1,000 Triborough Brdg & Tunl Auth NY Rev Gen Purp Ser A...................................... 5.000 01/01/32 1,016,030 1,000 Ulster Cnty, NY Res Recovery Agy Solid Waste Sys Rev Rfdg (AMBAC Insd)............ 5.250 03/01/18 1,091,190 1,000 Upper Mohawk Vly Regl Wtr Fin Auth NY Wtr Sys Rev (AMBAC Insd)....................... 5.750 04/01/20 1,128,030 310 Utica, NY Indl Dev Agy Civic Fac Rev Utica College Proj Ser A......................... 5.750 08/01/28 308,577 500 Westchester Cnty, NY Indl Dev Agy Mtg Kendal on Hudson Proj Ser A................ 6.375 01/01/24 508,850 1,000 Yonkers, NY Indl Dev Agy Civic Fac Rev Cmnty Dev Ppty Yonkers Inc Ser A........... 6.625 02/01/26 1,075,720 ------------ 114,753,238 ------------
See Notes to Financial Statements 11 VAN KAMPEN NEW YORK TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ---------------------------------------------------------------------------------------------- U. S. VIRGIN ISLANDS 1.0% $1,000 Virgin Islands Pub Fin Auth Rev Gross Rcpt Taxes Ln Nt Ser A.......................... 6.375% 10/01/19 $ 1,136,960 ------------ TOTAL LONG-TERM INVESTMENTS 98.0% (Cost $109,297,450).......................................................... 115,890,198 SHORT-TERM INVESTMENTS 1.1% (Cost $1,300,000)............................................................ 1,300,000 ------------ TOTAL INVESTMENTS 99.1% (Cost $110,597,450).......................................................... 117,190,198 OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%.................................... 1,038,113 ------------ NET ASSETS 100.0%............................................................. $118,228,311 ============
Percentages are calculated as a percentage of net assets. (a) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (b) 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 Fund to enhance the yield of the portfolio. All of the Fund'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. ACA--American Capital Access AMBAC--AMBAC Indemnity Corp. AMT--Alternative Minimum Tax FGIC--Financial Guaranty Insurance Co. FHA--Federal Housing Administration FSA--Financial Security Assurance Inc. MBIA--Municipal Bond Investors Assurance Corp. Radian--Radian Asset Assurance XLCA--XL Capital Assurance Inc. 12 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities September 30, 2004 ASSETS: Total Investments (Cost $110,597,450)....................... $117,190,198 Cash........................................................ 73,220 Receivables: Interest.................................................. 1,565,986 Fund Shares Sold.......................................... 143,437 Investments Sold.......................................... 70,066 Other....................................................... 73,448 ------------ Total Assets............................................ 119,116,355 ------------ LIABILITIES: Payables: Fund Shares Repurchased................................... 477,069 Income Distributions...................................... 98,950 Distributor and Affiliates................................ 97,234 Investment Advisory Fee................................... 33,750 Trustees' Deferred Compensation and Retirement Plans........ 107,593 Accrued Expenses............................................ 73,448 ------------ Total Liabilities....................................... 888,044 ------------ NET ASSETS.................................................. $118,228,311 ============ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $111,533,226 Net Unrealized Appreciation................................. 6,592,748 Accumulated Undistributed Net Investment Income............. 223,289 Accumulated Net Realized Loss............................... (120,952) ------------ NET ASSETS.................................................. $118,228,311 ============ MAXIMUM OFFERING PRICE PER COMMON SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $62,204,266 and 3,747,657 shares of beneficial interest issued and outstanding)............. $ 16.60 Maximum sales charge (4.75%* of offering price)......... .83 ------------ Maximum offering price to public........................ $ 17.43 ============ Class B Shares: Net asset value and offering price per share (Based on net assets of $38,556,138 and 2,326,082 shares of beneficial interest issued and outstanding)............. $ 16.58 ============ Class C Shares: Net asset value and offering price per share (Based on net assets of $17,467,907 and 1,053,099 shares of beneficial interest issued and outstanding)............. $ 16.59 ============
* On sales of $100,000 or more, the sales charge will be reduced. See Notes to Financial Statements 13 VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL STATEMENTS continued Statement of Operations For the Year Ended September 30, 2004 INVESTMENT INCOME: Interest.................................................... $5,648,658 ---------- EXPENSES: Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $157,316, $393,852 and $178,288, respectively)............................................. 729,456 Investment Advisory Fee..................................... 722,253 Shareholder Services........................................ 72,542 Legal....................................................... 30,087 Trustees' Fees and Related Expenses......................... 22,395 Custody..................................................... 15,137 Other....................................................... 149,846 ---------- Total Expenses.......................................... 1,741,716 Investment Advisory Fee Reduction....................... 401,816 Less Credits Earned on Cash Balances.................... 1,290 ---------- Net Expenses............................................ 1,338,610 ---------- NET INVESTMENT INCOME....................................... $4,310,048 ========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 455,118 Futures................................................... (521,432) ---------- Net Realized Loss........................................... (66,314) ---------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 5,479,882 End of the Period: Investments............................................. 6,592,748 ---------- Net Unrealized Appreciation During the Period............... 1,112,866 ---------- NET REALIZED AND UNREALIZED GAIN............................ $1,046,552 ========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $5,356,600 ==========
14 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2004 SEPTEMBER 30, 2003 ---------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.............................. $ 4,310,048 $ 4,179,882 Net Realized Gain/Loss............................. (66,314) 989,815 Net Unrealized Appreciation/Depreciation During the Period........................................... 1,112,866 (1,642,930) ------------ ------------ Change in Net Assets from Operations............... 5,356,600 3,526,767 ------------ ------------ Distributions from Net Investment Income: Class A Shares................................... (2,401,423) (2,244,033) Class B Shares................................... (1,205,741) (1,406,581) Class C Shares................................... (545,278) (484,424) ------------ ------------ Total Distributions................................ (4,152,442) (4,135,038) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....................................... 1,204,158 (608,271) ------------ ------------ FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold.......................... 17,546,428 44,156,929 Net Asset Value of Shares Issued Through Dividend Reinvestment..................................... 2,852,349 2,899,936 Cost of Shares Repurchased......................... (25,202,533) (24,649,019) ------------ ------------ NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..................................... (4,803,756) 22,407,846 ------------ ------------ TOTAL INCREASE/DECREASE IN NET ASSETS.............. (3,599,598) 21,799,575 NET ASSETS: Beginning of the Period............................ 121,827,909 100,028,334 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $223,289 and $65,106, respectively)....................... $118,228,311 $121,827,909 ============ ============
See Notes to Financial Statements 15 VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ------------------------------------------------ 2004 2003 2002 (a) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD... $16.40 $16.49 $15.76 $14.91 $14.94 ------ ------ ------ ------ ------ Net Investment Income.................... .65 .69 .74 .73 .77 Net Realized and Unrealized Gain/Loss.... .17 (.10) .73 .88 (.07) ------ ------ ------ ------ ------ Total from Investment Operations........... .82 .59 1.47 1.61 .70 Less: Distributions from Net Investment Income................................... .62 .68 .74 .76 .73 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD......... $16.60 $16.40 $16.49 $15.76 $14.91 ====== ====== ====== ====== ====== Total Return* (b).......................... 5.13% 3.69% 9.63% 10.97% 4.91% Net Assets at End of the Period (In millions)................................ $ 62.2 $ 63.6 $ 47.5 $ 43.5 $ 29.0 Ratio of Expenses to Average Net Assets*... .76% .55% .38% .53% .61% Ratio of Net Investment Income to Average Net Assets*.............................. 3.94% 4.19% 4.68% 4.74% 5.26% Portfolio Turnover......................... 15% 27% 43% 30% 58% * If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the ratios would have been as follows: Ratio of Expenses to Average Net Assets................................ 1.09% 1.06% 1.07% 1.13% 1.32% Ratio of Net Investment Income to Average Net Assets.................... 3.60% 3.68% 3.99% 4.14% 4.56%
(a) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01 and increase the ratio of net investment income to average net assets by .01%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum sales charge of 4.75% or contingent deferred sales charge (CDSC). On purchases of $1 million or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. With respect to shares purchased prior to December 1, 2004, a CDSC of 1% may be imposed on certain redemptions made within one year of purchase. If the sales charges were included, total returns would be lower. These returns do include Rule 12b-1 fees of up to .25% and do not reflect the deduction of taxes that a share holder would pay on Fund distributions or the redemptions of Fund shares. 16 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ------------------------------------------------ 2004 2003 2002 (a) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD... $16.38 $16.47 $15.74 $14.90 $14.92 ------ ------ ------ ------ ------ Net Investment Income.................... .52 .56 .62 .62 .66 Net Realized and Unrealized Gain/Loss.... .18 (.09) .73 .86 (.06) ------ ------ ------ ------ ------ Total from Investment Operations........... .70 .47 1.35 1.48 .60 Less: Distributions from Net Investment Income................................... .50 .56 .62 .64 .62 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD......... $16.58 $16.38 $16.47 $15.74 $14.90 ====== ====== ====== ====== ====== Total Return* (b).......................... 4.36% 2.93% 8.83% 10.09% 4.17% Net Assets at End of the Period (In millions)................................ $ 38.6 $ 40.5 $ 40.5 $ 35.0 $ 28.8 Ratio of Expenses to Average Net Assets*... 1.51% 1.29% 1.13% 1.28% 1.36% Ratio of Net Investment Income to Average Net Assets*.............................. 3.19% 3.45% 3.92% 3.99% 4.51% Portfolio Turnover......................... 15% 27% 43% 30% 58% * If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the ratios would have been as follows: Ratio of Expenses to Average Net Assets................................ 1.84% 1.80% 1.82% 1.88% 2.07% Ratio of Net Investment Income to Average Net Assets.................... 2.85% 2.94% 3.24% 3.39% 3.81%
(a) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01 and increase the ratio of net investment income to average net assets by .01%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum CDSC of 4%, charged on certain redemptions made within one year of purchase and declining to 0% after the sixth year. If the sales charge was included, total returns would be lower. These returns include Rule 12b-1 fees of up to 1% and do not reflect the reduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. See Notes to Financial Statements 17 VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ------------------------------------------------ 2004 2003 2002 (a) 2001 2000 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD... $16.39 $16.48 $15.75 $14.91 $14.92 ------ ------ ------ ------ ------ Net Investment Income.................... .52 .56 .62 .60 .68 Net Realized and Unrealized Gain/Loss.... .18 (.09) .73 .88 (.07) ------ ------ ------ ------ ------ Total from Investment Operations........... .70 .47 1.35 1.48 .61 Less: Distributions from Net Investment Income................................... .50 .56 .62 .64 .62 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD......... $16.59 $16.39 $16.48 $15.75 $14.91 ====== ====== ====== ====== ====== Total Return* (b).......................... 4.36% 2.92% 8.83% 10.09% 4.24% Net Assets at End of the Period (In millions)................................ $ 17.5 $ 17.7 $ 12.0 $ 7.3 $ 4.6 Ratio of Expenses to Average Net Assets*... 1.51% 1.30% 1.13% 1.30% 1.36% Ratio of Net Investment Income to Average Net Assets*.............................. 3.19% 3.45%(c) 3.92% 3.97% 4.52% Portfolio Turnover......................... 15% 27% 43% 30% 58% * If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the ratios would have been as follows: Ratio of Expenses to Average Net Assets................................ 1.84% 1.81% 1.82% 1.90% 2.07% Ratio of Net Investment Income to Average Net Assets.................... 2.85% 2.94%(c) 3.23% 3.37% 3.81%
(a) As required, effective October 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on fixed income securities. The effect of this change for the year ended September 30, 2002 was to increase net investment income per share by less than $.01, decrease net realized and unrealized gains and losses per share by less than $.01 and increase the ratio of net investment income to average net assets by .01%. Per share, ratios and supplemental data for periods prior to September 30, 2002 have not been restated to reflect this change in presentation. (b) Assumes reinvestment of all distributions for the period and does not include payment of the maximum contingent deferred sales charge of 1% charged on certain redemptions made within one year of purchase. If the sales charge was included, total returns would be lower. These returns do include Rule 12b-1 fees of up to 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) Certain non-recurring payments were made to Class C Shares, resulting in an increase to the Total Return and Ratio of Net Investment Income to Average Net Assets of .03%. 18 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen New York Tax Free Income Fund (the "Fund") is organized as a series of the Van Kampen Tax Free Trust, a Delaware statutory trust, and is registered as a non-diversified, open-end management investment company under the Investment Company Act of 1940 (the "1940 Act"), as amended. The Fund's investment objective is to provide investors with a high level of current income exempt from federal, New York State and New York City income taxes, consistent with preservation of capital. The Fund seeks to achieve its investment objective by investing at least 80% of its total assets in a portfolio of New York municipal securities that are rated investment grade at the time of purchase. The Fund commenced investment operations on July 29, 1994, with three classes of common shares, Class A, Class B and Class C. Effective November 30, 2003, the Fund's investment adviser, Van Kampen Investment Advisory Corp. merged into its affiliate, Van Kampen Asset Management (the "Adviser"). The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Municipal bonds are valued by independent pricing services or dealers using the mean of the bid and asked prices or, in the absence of market quotations, at fair value based upon yield data relating to municipal bonds with similar characteristics and general market conditions. Securities which are not valued by independent pricing services or dealers are valued at fair value using procedures established in good faith by the Board of Trustees. Future contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. The Fund may purchase and sell securities on a "when-issued" or "delayed delivery" basis, with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. The Fund will segregate assets with the custodian having an aggregate value at least equal to the amount of the when-issued or delayed delivery purchase commitments until payments is made. At September 30, 2004, the Fund had no when-issued and delayed delivery purchase commitments. C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Bond premium is amortized and discount is accreted over the expected life of each applicable security. Income and expenses of the Fund are allocated on a pro rata basis to each class of shares, except for distribution and service fees and incremental transfer agency costs which are unique to each class of shares. 19 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income, if any, to its shareholders. Therefore, no provision for federal income taxes is required. The Fund 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 such losses against any future realized capital gains. At September 30, 2004, the Fund had an accumulated capital loss carryforward for tax purposes of $78,198 which will expire on September 30, 2009. At September 30, 2004, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $110,637,895 ============ Gross tax unrealized appreciation........................... $ 6,616,507 Gross tax unrealized depreciation........................... (64,204) ------------ Net tax unrealized appreciation on investments.............. $ 6,552,303 ============
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly dividends from net investment income. 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 as ordinary income for tax purposes. The tax character of distributions paid during the years ended September 30, 2004 and 2003 was as follows:
2004 2003 Distributions paid from: Ordinary Income........................................... $11,294 $6,501 Long-term capital gain.................................... -0- -0- ------- ------ $11,294 $6,501 ======= ======
Due to inherent differences in the recognition of income, expenses, and realized gains/losses under U.S. generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. Permanent book and tax differences relating to the Fund's investment in other regulated investment companies totaling $718 was reclassified from accumulated undistributed net investment income to accumulated net realized loss. Additionally, permanent differences relating to book and tax accretion differences totaling $141 has been reclassified from accumulated undistributed net investment income to accumulated net realized loss. As of September 30, 2004, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $271
20 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued Net realized gains and losses may differ for financial reporting purposes primarily as a result of the deferral of losses relating to wash sale transactions. F. EXPENSE REDUCTIONS During the year ended September 30, 2004, the Fund's custody fee was reduced by $1,290 as a result of credit earned on cash balances. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM First $500 million.......................................... 0.60% Over $500 million........................................... 0.50%
For the year ended September 30, 2004, the Adviser voluntarily waived $401,816 of its investment advisory fees. This represents .33% of its average net assets for the period. This waiver is voluntary and can be discontinued at any time. For the year ended September 30, 2004, the Fund recognized expenses of approximately $16,300, representing legal services provided by Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Fund, of which a trustee of the Fund is an affiliated person. Under separate Accounting Services and Legal Services agreements, the Adviser provides accounting and legal services to the Fund. The Adviser allocates the cost of such services to each fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $38,800 representing Van Kampen Investments or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Fund, which are reported as part of "Other" and "Legal" expenses, respectively, in the Statement of Operations. Van Kampen Investor Services Inc. (VKIS), an affiliate of the Adviser, serves as the shareholder servicing agent for the Fund. For the year ended September 30, 2004, the Fund recognized expenses of approximately $51,900 representing transfer agency fees paid to VKIS. Transfer agency fees are determined through negotiations with the Fund's Board of Trustees. Certain officers and trustees of the Fund are also officers and directors of Van Kampen. The Fund does not compensate its officers or trustees who are officers of Van Kampen. The Fund 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. Amounts deferred are retained by the Fund and to the extent permitted by the 1940 Act, as amended, may be invested in the common shares of those funds selected by the trustees. Investments in such funds of $56,695 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2004. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. 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 Fund. The maximum annual benefit per trustee under the plan is $2,500. 21 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued 3. CAPITAL TRANSACTIONS At September 30, 2004, capital aggregated $59,379,704, $35,369,578 and $16,783,944 for Classes A, B and C, respectively. For the year ended September 30, 2004, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 776,337 $ 12,757,760 Class B................................................... 132,445 2,181,681 Class C................................................... 158,253 2,606,987 ---------- ------------ Total Sales................................................. 1,067,035 $ 17,546,428 ========== ============ Dividend Reinvestment: Class A................................................... 99,436 $ 1,632,645 Class B................................................... 50,889 834,539 Class C................................................... 23,478 385,165 ---------- ------------ Total Dividend Reinvestment................................. 173,803 $ 2,852,349 ========== ============ Repurchases: Class A................................................... (1,007,240) $(16,370,851) Class B................................................... (330,464) (5,404,452) Class C................................................... (210,103) (3,427,230) ---------- ------------ Total Repurchases........................................... (1,547,807) $(25,202,533) ========== ============
At September 30, 2003, capital aggregated $61,360,150, $37,757,810 and $17,219,022 for Classes A, B and C, respectively. For the year ended September 30, 2003, transactions were as follows:
SHARES VALUE Sales: Class A................................................... 1,655,466 $ 27,062,415 Class B................................................... 519,637 8,452,098 Class C................................................... 531,210 8,642,416 ---------- ------------ Total Sales................................................. 2,706,313 $ 44,156,929 ========== ============ Dividend Reinvestment: Class A................................................... 96,700 $ 1,569,395 Class B................................................... 60,400 978,904 Class C................................................... 21,673 351,637 ---------- ------------ Total Dividend Reinvestment................................. 178,773 $ 2,899,936 ========== ============ Repurchases: Class A................................................... (751,111) $(12,180,934) Class B................................................... (568,107) (9,209,533) Class C................................................... (200,158) (3,258,552) ---------- ------------ Total Repurchases........................................... (1,519,376) $(24,649,019) ========== ============
22 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued Class B Shares purchased on or after June 1, 1996 and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares eight years after the end of the calendar month in which the shares were purchased. Class B Shares purchased before June 1, 1996, and any dividend reinvestment plan Class B Shares received on such shares, automatically convert to Class A Shares seven years after the end of the calendar month in which the shares were purchased. For the years ended September 30, 2004 and 2003, 15,022 and 49,822 Class B Shares automatically converted to Class A Shares, respectively, and are shown in the above tables as sales of Class A Shares and repurchases of Class B Shares. Class C Shares purchased before January 1, 1997, and any dividend reinvestment plan Class C Shares received on such shares, automatically convert to Class A Shares ten years after the end of the calendar month in which the shares are purchased. Class C Shares purchased on or after January 1, 1997 do not possess a conversion feature. For the years ended September 30, 2004 and 2003, no Class C Shares converted to Class A Shares. Class B and Class C Shares are offered without a front end sales charge, but are subject to a contingent deferred sales charge (CDSC). The CDSC for Class B and Class C Shares will be imposed on most redemptions made within six years of the purchase for Class B Shares and one year of the purchase for Class C Shares as detailed in the following schedule.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE -------------------------- YEAR OF REDEMPTION CLASS B CLASS C First....................................................... 4.00% 1.00% Second...................................................... 3.75% None Third....................................................... 3.50% None Fourth...................................................... 2.50% None Fifth....................................................... 1.50% None Sixth....................................................... 1.00% None Seventh and Thereafter...................................... None None
For the year ended September 30, 2004, Van Kampen, as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $35,500 and CDSC on redeemed shares of approximately $62,700. Sales charges do not represent expenses of the Fund. 4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $17,784,250 and $22,930,048, respectively. 5. DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument in very general terms refers to a security whose value is "derived" from the value of an underlying asset, reference rate or index. The Fund has a variety of reasons to use derivative instruments, such as to attempt to protect the Fund against possible changes in the market value of its portfolio or to generate potential gain. All of the Fund's portfolio holdings, including derivative instruments, are 23 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued 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, except when taking delivery of a security underlying a futures contract. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying the futures contract. During the period, the Fund invested in futures contracts, a type of derivative. A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in exchange traded futures contracts on U.S. Treasury Bonds and typically closes the contract prior to the delivery date. These contracts are generally used to manage the Fund's effective maturity and duration. Upon entering into futures contracts, the Fund maintains an amount of cash or liquid securities with a value equal to percentage of the contract amount with either a future commission merchant pursuant to rules and regulations promulgated in the 1940 Act, as amended, or with its custodian in an account in the broker's name. This amount is known as initial margin. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the values of the contract (variation margin). Transactions in futures contracts for the year ended September 30, 2004, are as follows:
CONTRACTS Outstanding at September 30, 2003........................... 172 Futures Opened.............................................. 369 Futures Closed.............................................. (541) ---- Outstanding at September 30, 2004........................... -0- ====
6. DISTRIBUTION AND SERVICE PLANS With respect to its Class A Shares, Class B Shares and Class C Shares, the Fund and its shareholders have adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively the "Plans"). The Plans govern payments for: the distribution of the Fund's Class A Shares, Class B Shares and Class C Shares; the provision of ongoing shareholder services with respect to such classes of shares; and the maintenance of shareholder accounts with respect to such classes of shares. Annual fees under the Plans of up to .25% of Class A average daily net assets and up to 1.00% each for Class B and Class C average daily net assets are accrued daily. The annual fees for Class A Shares are paid quarterly and the annual fees for Class C Shares are paid monthly. For Class B Shares, 75% of the annual fees and paid monthly, while 25% of the annual fees are paid quarterly. The amount of distribution expenses incurred by Van Kampen and not yet reimbursed ("unreimbursed receivable") was approximately $586,000 and $0 for Class B and Class C Shares, respectively. These amounts may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed receivable has been fully recovered, any excess 12b-1 fees will be refunded to the Fund on a quarterly basis. Included in the fees for the year ended September 30, 2004, are payments retained by Van Kampen of approximately $369,500 and payments made to Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $41,800. 24 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2004 continued 7. LEGAL MATTERS The Adviser, certain affiliates of the Adviser, and certain investment companies advised by the Adviser or its affiliates, including the Fund, are named as defendants in a number of similar class action complaints which were recently consolidated. The consolidated action also names as defendants certain individual Trustees and Directors of certain investment companies advised by affiliates of the Adviser; the complaint does not, however, name the individual Trustees of any Van Kampen funds. The consolidated amended complaint generally alleges that defendants violated their statutory disclosure obligations and fiduciary duties by failing properly to disclose (i) that the Adviser and certain affiliates of the Adviser allegedly offered economic incentives to brokers and others to steer investors to the funds advised by the Adviser or its affiliates rather than funds managed by other companies, and (ii) that the funds advised by the Adviser or its affiliates, including the Fund, allegedly paid excessive commissions to brokers in return for their alleged efforts to steer investors to these funds. The complaint seeks, among other things, unspecified compensatory damages, rescissionary damages, fees and costs. The Adviser and certain affiliates of the Adviser are also named as defendants in a derivative suit which additionally names as defendants certain individual Trustees of certain Van Kampen funds; the named investment companies, including the Fund, are listed as nominal defendants. The complaint alleges that defendants caused the Van Kampen funds to pay economic incentives to a proprietary sales force to promote the sale of proprietary mutual funds. The complaint also alleges that the Van Kampen funds paid excessive commissions to Morgan Stanley and its affiliates in connection with the sales of the funds. The complaint seeks, among other things, the removal of the current Trustees of the funds, rescission of the management contracts for the funds, disgorgement of profits by Morgan Stanley and its affiliates and monetary damages. This complaint has been coordinated with the consolidated complaint described in the preceding paragraph. The defendants have moved to dismiss each of these actions and otherwise intend to defend them vigorously. While the defendants believe that they have meritorious defenses, the ultimate outcome of these matters is not presently determinable at this early stage of litigation, and no provision has been made in the Fund's financial statements for the effect, if any, of these matters. 8. 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. 25 VAN KAMPEN NEW YORK TAX FREE INCOME FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Van Kampen New York Tax Free Income Fund: We have audited the accompanying statement of assets and liabilities of Van Kampen New York Tax Free Income Fund (the "Fund"), including the portfolio of investments, as of September 30, 2004, and 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 Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of September 30, 2004, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Van Kampen New York Tax Free Income Fund at September 30, 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 U.S. generally accepted accounting principles. -s- Ernst & Young LLP Chicago, Illinois November 5, 2004 26 VAN KAMPEN NEW YORK TAX FREE INCOME FUND BOARD OF TRUSTEES AND IMPORTANT ADDRESSES BOARD OF TRUSTEES DAVID C. ARCH J. MILES BRANAGAN JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT 1221 Avenue of the Americas New York, New York 10020 DISTRIBUTOR VAN KAMPEN FUNDS, INC. 1221 Avenue of the Americas New York, New York 10020 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 947 Jersey City, New Jersey 07303-0947 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02110 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ERNST & YOUNG LLP 233 South Wacker Drive Chicago, Illinois 60606 For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Fund during its taxable year ended September 30, 2004. The Fund designated 99.7% of the income distributions as a tax-exempt income distribution. In January, the Fund provides tax information to shareholders for the preceding calendar year. * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940, as amended. 27 VAN KAMPEN NEW YORK TAX FREE INCOME FUND TRUSTEES AND OFFICERS The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees and the Fund's officers appointed by the Board of Trustees. The tables below list the trustees and executive officers of the Fund 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE David C. Arch (59) Trustee Trustee Chairman and Chief 85 Trustee/Director/Managing Blistex Inc. since 2003 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. J. Miles Branagan (72) Trustee Trustee Private investor. 83 Trustee/Director/Managing 1632 Morning Mountain Road since 1995 Co-founder, and prior to General Partner of funds Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex. Chief Executive Officer and President, MDT Corporation (now known as Getinge/Castle, Inc., a subsidiary of Getinge Industrier AB), a company which develops, manufactures, markets and services medical and scientific equipment.
28
VAN KAMPEN NEW YORK TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jerry D. Choate (66) Trustee Trustee Prior to January 1999, 83 Trustee/Director/Managing 33971 Selva Road since 1999 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.
29
VAN KAMPEN NEW YORK TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (64) Trustee Trustee President of CAC, L.L.C., 85 Trustee/Director/Managing CAC, L.L.C. since 2003 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).
30
VAN KAMPEN NEW YORK TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (56) Trustee Trustee Managing Partner of 83 Trustee/Director/Managing Heidrick & Struggles since 1995 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 83 Trustee/Director/Managing 1744 R Street, NW since 1994 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 85 Trustee/Director/Managing 736 North Western Avenue since 2003 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.
31
VAN KAMPEN NEW YORK TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (68) Trustee Trustee President of Nelson 83 Trustee/Director/Managing 423 Country Club Drive since 1994 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 85 Trustee/Director/Managing 1126 E. 59th Street since 2003 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 83 Trustee/Director/Managing (62) since 1999 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.
32 VAN KAMPEN NEW YORK TAX FREE INCOME FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Mitchell M. Merin* (51) Trustee, Trustee President and Chief 83 Trustee/Director/Managing 1221 Avenue of the Americas President since Executive Officer of General Partner of funds New York, NY 10020 and Chief 1999; 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.
33
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND 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 INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (58) Trustee Trustee Advisory Director of 85 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 85 Trustee/Director/Managing 333 West Wacker Drive since 1994 of Skadden, Arps, Slate, General Partner of funds Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex. counsel to funds in the Fund Complex.
* Such Trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Messrs. Merin and Powers are interested persons of funds in the Fund Complex and the Adviser by reason of their current or former positions with Morgan Stanley or its affiliates. 34 VAN KAMPEN NEW YORK TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS Stefanie V. Chang (37) 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 M. Dykas (38) Chief Financial Officer Officer Executive Director of Van Kampen Asset Management and Morgan 1 Parkview Plaza and Treasurer since 1999 Stanley Investment Management. Chief Financial Officer and Oakbrook Terrace, IL 60181 Treasurer of funds in the Fund Complex. Prior to August 2004, Assistant Treasurer of funds in the Fund Complex. Joseph J. McAlinden (61) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Investment Officer Management Inc. and 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.
35
VAN KAMPEN NEW YORK TAX FREE INCOME FUND 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 FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (65) Executive Vice Officer Principal Executive Officer of the Funds since November 1221 Avenue of the Americas President and since 2003 2003. Chief Executive Officer and Chairman of Investor New York, NY 10020 Principal Executive Services. Executive Vice President and Principal Executive Officer 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 1996 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.
36 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 (VAN KAMPEN INVESTMENTS LOGO) Copyright (C)2004 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 235, 325, 425 NYTF ANR 11/04 RN04-02596P-Y09/04 Item 2. Code of Ethics. (a) The Trust has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Trust or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) 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 have been amended. (d) The Trust has not granted a waiver or an implicit waiver from a provision of its Code of Ethics. (e) Not applicable. (f) (1) The Trust's Code of Ethics is attached hereto as Exhibit 11A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Trust's Board of Trustees has determined that it has three "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees: J. Miles Branagan, Jerry Choate and R. Craig Kennedy. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. Item 4. Principal Accountant Fees and Services. (a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2004 REGISTRANT COVERED ENTITIES(1) AUDIT FEES...................... $231,000 N/A NON-AUDIT FEES AUDIT-RELATED FEES.... $0 $123,000(2) TAX FEES.............. $10,500(3) $42,141(4) ALL OTHER FEES........ $0 $203,160(5) TOTAL NON-AUDIT FEES............ $10,500 $368,301 TOTAL........................... $241,500 $368,301 2003 REGISTRANT COVERED ENTITIES(1) AUDIT FEES...................... $214,780 N/A NON-AUDIT FEES AUDIT-RELATED FEES.... $0 $40,000(2) TAX FEES.............. $8,220(3) $70,314 (4) ALL OTHER FEES........ $0 $213,250(6) TOTAL NON-AUDIT FEES............ $8,220 $323,564 TOTAL........................... $223,000 $323,564
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 returns. (4) Tax Fees represent tax advice services provided to Covered Entities, including research and identification of PFIC entities. (5) All Other Fees represent attestation services provided in connection with performance presentation standards. (6) All Other Fees represent attestation services provided in connection with performance presentation standards, general industry education seminars provided, and a regulatory review project performed. (e)(1) The audit committee's pre-approval policies and procedures are as follows: JOINT AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY AND PROCEDURES OF THE VAN KAMPEN FUNDS AS ADOPTED JULY 23, 2003(1) 1. STATEMENT OF PRINCIPLES The Audit Committee of the Board is required to review and, in its sole discretion, pre-approve all Covered Services to be provided by the Independent Auditors to the Fund and Covered Entities in order to assure that services performed by the Independent Auditors do not impair the auditor's independence from the Fund.(2) The SEC has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the audit committee's administration of the engagement of the independent auditor. The SEC's rules establish two different approaches to pre-approving services, which the SEC considers to be equally valid. Proposed services either: may be pre-approved without consideration of specific case-by-case services by the Audit Committee ("general pre-approval"); or require the specific pre-approval of the Audit Committee ("specific pre-approval"). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the Independent Auditors. As set forth in this Policy, unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Committee (or by any member of the Audit Committee to which pre-approval authority has been delegated) if it is to be provided by the Independent Auditors. Any proposed services exceeding pre-approved cost levels or budgeted amounts will also require specific pre-approval by the Audit Committee. For both types of pre-approval, the Audit Committee will consider whether such services are consistent with the SEC's rules on auditor independence. The Audit Committee will also consider whether the Independent Auditors are best positioned to provide the most effective and efficient services, for reasons such as its familiarity with the Fund's business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Fund's ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor should necessarily be determinative. The Audit Committee is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services and may determine for each fiscal year, the appropriate ratio between the total amount of fees for Audit, Audit-related and Tax services for the Fund (including any Audit-related or Tax service fees for Covered Entities that were subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as All Other services for the Fund (including any such services for Covered Entities subject to pre-approval). - ----------- (1) This Joint Audit Committee Audit and Non-Audit Services Pre-Approval Policy and Procedures (the "Policy"), adopted as of the date above, supercedes and replaces all prior versions that may have been adopted from time to time. (2) Terms used in this Policy and not otherwise defined herein shall have the meanings as defined in the Joint Audit Committee Charter. The appendices to this Policy describe the Audit, Audit-related, Tax and All Other services that have the general pre-approval of the Audit Committee. The term of any general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee considers and provides a different period and states otherwise. The Audit Committee will annually review and pre-approve the services that may be provided by the Independent Auditors without obtaining specific pre-approval from the Audit Committee. The Audit Committee will add to or subtract from the list of general pre-approved services from time to time, based on subsequent determinations. The purpose of this Policy is to set forth the policy and procedures by which the Audit Committee intends to fulfill its responsibilities. It does not delegate the Audit Committee's responsibilities to pre-approve services performed by the Independent Auditors to management. The Fund's Independent Auditors have reviewed this Policy and believes that implementation of the Policy will not adversely affect the Independent Auditors' independence. 2. DELEGATION As provided in the Act and the SEC's rules, the Audit Committee may delegate either type of pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. 3. AUDIT SERVICES The annual Audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the Independent Auditors to be able to form an opinion on the Fund's financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit. The Audit Committee will monitor the Audit services engagement as necessary, but no less than on a quarterly basis, and will also approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, Fund structure or other items. In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant general pre-approval to other Audit services, which are those services that only the Independent Auditors reasonably can provide. Other Audit services may include statutory audits and services associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings. The Audit Committee has pre-approved the following Audit services. All other Audit services not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated): - Statutory audits or financial audits for the Fund - Services associated with SEC registration statements (including new funds), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters for closed-end fund offerings, consents), and assistance in responding to SEC comment letters - Consultations by the Fund's management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard setting bodies (Note: Under SEC rules, some consultations may be "audit related" services rather than "audit" services) 4. AUDIT-RELATED SERVICES Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Fund's financial statements or, to the extent they are Covered Services, the Covered Entities' financial statements, or that are traditionally performed by the Independent Auditors. Because the Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant general pre-approval to Audit-related services. Audit-related services include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as "Audit services"; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Forms N-SAR and/or N-CSR. The Audit Committee has pre-approved the following Audit-related services. All other Audit-related services not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated): - Attest procedures not required by statute or regulation (including agreed upon procedures related to the Closed-End Fund asset coverage tests required by the rating agencies and/or lenders) - Due diligence services pertaining to potential fund mergers - Issuance of SAS-70 reports on internal controls of Morgan Stanley Trust Co. and MSIM Trade Operations - Consultations by the Fund's management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be "audit" services rather than "audit-related" services) - Information systems reviews not performed in connection with the audit (e.g., application data center and technical reviews) - General assistance with implementation of the requirements of SEC rules or listing standards promulgated pursuant to the Sarbanes-Oxley Act - Audit of record keeping services performed by Morgan Stanley Trust Fund related to the New Jersey State Retirement Plan 5. TAX SERVICES The Audit Committee believes that the Independent Auditors can provide Tax services to the Fund and, to the extent they are Covered Services, the Covered Entities, such as tax compliance, tax planning and tax advice without impairing the auditor's independence, and the SEC has stated that the Independent Auditors may provide such services. Hence, the Audit Committee believes it may grant general pre-approval to those Tax services that have historically been provided by the Independent Auditors, that the Audit Committee has reviewed and believes would not impair the independence of the Independent Auditors, and that are consistent with the SEC's rules on auditor independence. The Audit Committee will not permit the retention of the Independent Auditors in connection with a transaction initially recommended by the Independent Auditors, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with Director of Tax or outside counsel to determine that the tax planning and reporting positions are consistent with this policy. Pursuant to the preceding paragraph, the Audit Committee has pre-approved the following Tax Services. All Tax services involving large and complex transactions not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated), including tax services proposed to be provided by the Independent Auditors to any executive officer or trustee/director/managing general partner of the Fund, in his or her individual capacity, where such services are paid for by the Fund (generally applicable only to internally managed investment companies): - U.S. federal, state and local tax planning and advice - U.S. federal, state and local tax compliance - International tax planning and advice - International tax compliance - Review of federal, state, local and international income, franchise, and other tax returns - Identification of Passive Foreign Investment Companies - Review of closed-end funds pro rata allocation of taxable income and capital gains to common and preferred shares. - Domestic and foreign tax planning, compliance, and advice - Assistance with tax audits and appeals before the IRS and similar state, local and foreign agencies - Tax advice and assistance regarding statutory, regulatory or administrative developments (e.g., excise tax reviews, evaluation of Fund's tax compliance function) - Review the calculations of taxable income from corporate actions including reorganizations related to bankruptcy filings and provide guidance related to the foregoing 6. ALL OTHER SERVICES The Audit Committee believes, based on the SEC's rules prohibiting the Independent Auditors from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the following All Other services. Permissible All Other services not listed below must be specifically pre-approved by the Audit Committee (or by any member of the Audit Committee to which pre-approval has been delegated): - Risk management advisory services, e.g., assessment and testing of security infrastructure controls The following is a list of the SEC's prohibited non-audit services. The SEC's rules and relevant guidance should be consulted to determine the precise definitions of these services and the applicability of exceptions to certain of the prohibitions: - Bookkeeping or other services related to the accounting records or financial statements of the audit client - Financial information systems design and implementation - Appraisal or valuation services, fairness opinions or contribution-in-kind reports - Actuarial services - Internal audit outsourcing services - Management functions - Human resources - Broker-dealer, investment adviser or investment banking services - Legal services - Expert services unrelated to the audit 7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS Pre-approval fee levels or budgeted amounts for all services to be provided by the Independent Auditors will be established annually by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For each fiscal year, the Audit Committee may determine the appropriate ratio between the total amount of fees for Audit, Audit-related, and Tax services for the Fund (including any Audit-related or Tax services fees for Covered Entities subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as All Other services for the Fund (including any such services for Covered Entities subject to pre-approval). 8. PROCEDURES All requests or applications for services to be provided by the Independent Auditors that do not require specific approval by the Audit Committee will be submitted to the Fund's Chief Financial Officer and must include a detailed description of the services to be rendered. The Fund's Chief Financial Officer will determine whether such services are included within the list of services that have received the general pre-approval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the Independent Auditors. Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the Independent Auditors and the Fund's Chief Financial Officer, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC's rules on auditor independence. The Audit Committee has designated the Fund's Chief Financial Officer to monitor the performance of all services provided by the Independent Auditors and to determine whether such services are in compliance with this Policy. The Fund's Chief Financial Officer will report to the Audit Committee on a periodic basis on the results of its monitoring. Both the Fund's Chief Financial Officer and management will immediately report to the chairman of the Audit Committee any breach of this Policy that comes to the attention of the Fund's Chief Financial Officer or any member of management. 9. ADDITIONAL REQUIREMENTS The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work of the Independent Auditors and to assure the auditor's independence from the Fund, such as reviewing a formal written statement from the Independent Auditors delineating all relationships between the Independent Auditors and the Fund, consistent with Independence Standards Board No. 1, and discussing with the Independent Auditors its methods and procedures for ensuring independence. 10. COVERED ENTITIES Covered Entities include the Fund's investment adviser(s) and any entity controlling, controlled by or under common control with the Fund's investment adviser(s) that provides ongoing services to the Fund(s). Beginning with non-audit service contracts entered into on or after May 6, 2003, the Fund's audit committee must pre-approve non-audit services provided not only to the Fund but also to the Covered Entities if the engagements relate directly to the operations and financial reporting of the Fund. This list of Covered Entities would include: - Van Kampen Investments, Inc. - Van Kampen Investment Advisory Corporation - Van Kampen Asset Management Inc. - Van Kampen Advisors Inc. - Van Kampen Funds Inc. - Van Kampen Trust Company - Van Kampen Investor Services Inc. - Van Kampen Management Inc. - Morgan Stanley Investment Management Inc. - Morgan Stanley Investments LP - Morgan Stanley Trust Company (e)(2) Beginning with non-audit service contracts entered into on or after May 6, 2003, the audit committee also is required to pre-approve services to Covered Entities to the extent that the services are determined to have a direct impact on the operations or financial reporting of the Registrant. 100% of such services were pre-approved by the audit committee pursuant to the Audit Committee's pre-approval policies and procedures (attached hereto). (f) Not applicable. (g) See table above. (h) The audit committee of the Board of Trustees has considered whether the provision of services other than audit services performed by the auditors to the Registrant and Covered Entities is compatible with maintaining the auditors' independence in performing audit services. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments. Please refer to Item #1. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Purchases 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 Tax Free Trust By: /s/ Ronald E. Robison ---------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: November 19, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald E. Robison --------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: November 19, 2004 By: /s/ James M. Dykas ------------------ Name: James M. Dykas Title: Principal Financial Officer Date: November 19, 2004 EX-99.CODE 2 c88768exv99wcode.txt CODE OF ETHICS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS ADOPTED JULY 23, 2003, AS AMENDED AUGUST 11, 2004 I. This Code of Ethics (the "Code") for the investment companies within the Van Kampen complex identified in Exhibit A (collectively, "Funds" and each, a "Fund") applies to each Fund's Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) ("Covered Officers" each of whom are set forth in Exhibit B) for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. - full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; - compliance with applicable laws and governmental rules and regulations; - prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C). II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" (as defined in the Investment Company Act) of the Fund. The Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors/Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must not: - use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly) to the detriment of the Fund; - cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or - use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually. Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund's Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer's family living in the same household engages in such an activity or has such a relationship. Examples of these include: - service or significant business relationships as a director on the board of any public or private company; - accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE - Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds; - each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations; - each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code; - annually thereafter affirm to the Boards that he has complied with the requirements of the Code; - not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and - notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers(3) sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds. The Funds will follow these procedures in investigating and enforcing this Code: - the General Counsel will take all appropriate action to investigate any potential violations reported to him; - --------- (3) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics." - if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; - any matter that the General Counsel believes is a violation will be reported to the relevant Fund's Audit Committee; - if the directors/trustees/managing general partners who are not "interested persons" as defined by the Investment Company Act (the "Independent Directors/Trustees/Managing General Partners") of the relevant Fund concur that a violation has occurred, they will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer or other appropriate disciplinary actions; - the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds' and their investment advisers' and principal underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley's Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Independent Directors/Trustees/Managing General Partners of the relevant Fund or Funds and their counsel, the relevant Fund or Funds and their counsel and the relevant investment adviser and its counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion I have read and understand the terms of the above Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the above Code. - ------------------------- Date: -------------------- EXHIBIT A FUND LIST Van Kampen Series Fund, Inc. ----------------------------------------------- on behalf of its series Van Kampen American Value Fund Van Kampen Emerging Markets Debt Fund Van Kampen Emerging Markets Income Fund Van Kampen Emerging Markets Fund Van Kampen Equity Growth Fund Van Kampen Focus Equity Fund Van Kampen Global Equity Allocation Fund Van Kampen Global Value Equity Fund Van Kampen Growth and Income Fund II Van Kampen International Magnum Fund Van Kampen Japanese Equity Fund Van Kampen Global Franchise Fund Van Kampen U.S. Government Trust ----------------------------------------------- on behalf of its series Van Kampen U.S. Mortgage Fund Van Kampen Tax Free Trust ----------------------------------------------- on behalf of its series Van Kampen Insured Tax Free Income Fund Van Kampen Strategic Municipal Income Fund Van Kampen California Insured Tax Free Fund Van Kampen Municipal Income Fund Van Kampen Intermediate Term Municipal Income Fund Van Kampen New York Tax Free Income Fund Van Kampen California Municipal Income Fund Van Kampen Michigan Tax Free Income Fund Van Kampen Missouri Tax Free Income Fund Van Kampen Ohio Tax Free Income Fund Van Kampen Trust ----------------------------------------------- on behalf of its series Van Kampen High Yield Fund Van Kampen Managed Short Term Income Fund Van Kampen Equity Trust ----------------------------------------------- on behalf of its series Van Kampen Utility Fund Van Kampen Mid Cap Growth Fund Van Kampen Aggressive Growth Fund Van Kampen Small Cap Value Fund Van Kampen Select Growth Fund EXHIBIT A (CONT.) FUND LIST Van Kampen Small Company Growth Fund Van Kampen Small Cap Growth Fund Van Kampen Value Opportunities Fund Van Kampen Tax-Exempt Trust ----------------------------------------------- on behalf of its Series Van Kampen High Yield Municipal Fund Van Kampen Equity Trust II ----------------------------------------------- on behalf of its Series Van Kampen Technology Fund Van Kampen International Advantage Van Kampen Pennsylvania Tax Free Income Fund Van Kampen Tax Free Money Fund Van Kampen Comstock Fund Van Kampen Corporate Bond Fund Van Kampen Emerging Growth Fund Van Kampen Enterprise Fund Van Kampen Equity Income Fund Van Kampen Government Securities Fund Van Kampen Growth and Income Fund Van Kampen Harbor Fund Van Kampen High Income Corporate Bond Fund Van Kampen Limited Maturity Government Fund Van Kampen Pace Fund Van Kampen Real Estate Securities Fund Van Kampen Reserve Fund Van Kampen Exchange Fund Van Kampen Life Investment Trust ----------------------------------------------- on behalf of its Portfolios Aggressive Growth Portfolio Comstock Portfolio Emerging Growth Portfolio Enterprise Portfolio Government Portfolio Growth and Income Portfolio Money Market Portfolio Van Kampen Municipal Income Trust Van Kampen California Municipal Trust EXHIBIT A (CONT.) FUND LIST Van Kampen High Income Trust Van Kampen High Income Trust II Van Kampen Investment Grade Municipal Trust Van Kampen Municipal Trust Van Kampen California Quality Municipal Trust Van Kampen Florida Quality Municipal Trust Van Kampen New York Quality Municipal Trust Van Kampen Ohio Quality Municipal Trust Van Kampen Pennsylvania Quality Municipal Trust Van Kampen Trust for Insured Municipals Van Kampen Trust for Investment Grade Municipals Van Kampen Trust for Investment Grade California Municipals Van Kampen Trust for Investment Grade Florida Municipals Van Kampen Trust for Investment Grade New Jersey Municipals Van Kampen Trust for Investment Grade New York Municipals Van Kampen Trust for Investment Grade Pennsylvania Municipals Van Kampen Municipal Opportunity Trust Van Kampen Advantage Municipal Income Trust Van Kampen Advantage Pennsylvania Municipal Income Trust Van Kampen Strategic Sector Municipal Trust Van Kampen Value Municipal Income Trust Van Kampen California Value Municipal Income Trust Van Kampen Massachusetts Value Municipal Income Trust Van Kampen New York Value Municipal Income Trust Van Kampen Ohio Value Municipal Income Trust Van Kampen Pennsylvania Value Municipal Income Trust Van Kampen Municipal Opportunity Trust II Van Kampen Advantage Municipal Income Trust II Van Kampen Select Sector Municipal Trust Van Kampen Senior Loan Fund Van Kampen Senior Income Trust Van Kampen Bond Fund Van Kampen Income Trust EXHIBIT B COVERED OFFICERS Mitchell M. Merin -- President Ronald E. Robison -- Executive Vice President and Principal Executive Officer James M. Dykas -- Chief Financial Officer and Treasurer EXHIBIT C GENERAL COUNSEL'S DESIGNEE Amy Doberman EX-99.CERT 3 c88768exv99wcert.txt CERTIFICATION I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Van Kampen Tax Free Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Omitted] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: November 19, 2004 /s/ Ronald E. Robison --------------------- Principal Executive Officer I, James M. Dykas, certify that: 1. I have reviewed this report on Form N-CSR of Van Kampen Tax Free Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Omitted] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: November 19, 2004 /s/ James M. Dykas ------------------ Principal Financial Officer EX-99.906CERT 4 c88768exv99w906cert.txt 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Issuer: Van Kampen Tax Free Trust In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended September 30, 2004 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: November 19, 2004 /s/ Ronald E. Robison --------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Van Kampen Tax Free Trust and will be retained by Van Kampen Tax Free Trust and furnished to the Securities and Exchange Commission or its staff upon request. This written statement required by Section 906 is being furnished with this report, but not being filed as part of this Report. Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Issuer: Van Kampen Tax Free Trust In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended September 30, 2004 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: November 19, 2004 /s/ James M. Dykas ------------------- James M. Dykas Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Van Kampen Tax Free Trust and will be retained by Van Kampen Tax Free Trust and furnished to the Securities and Exchange Commission or its staff upon request. This written statement required by Section 906 is being furnished with this report, but not being filed as part of this Report. -----END PRIVACY-ENHANCED MESSAGE-----