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).
<Table>
<Caption>
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
</Table>
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)
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
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%
</Table>
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
<Table>
<Caption>
- --------------------------------------------------------------
LEHMAN BROTHERS
CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX
4.22% 3.43% 3.43% 4.60%
- --------------------------------------------------------------
</Table>
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
<Table>
<Caption>
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
<Caption>
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
</Table>
<Table>
(continued on next page)
</Table>
4
<Table>
<Caption>
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%
</Table>
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.
<Table>
<Caption>
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)
</Table>
* 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
<Table>
<Caption>
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
--------------
</Table>
See Notes to Financial Statements 9
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
--------------
</Table>
10 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 11
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
12 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
--------------
</Table>
See Notes to Financial Statements 13
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
14 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 15
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
--------------
</Table>
16 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 17
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
--------------
</Table>
18 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
--------------
</Table>
See Notes to Financial Statements 19
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
20 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 21
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
22 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 23
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
--------------
</Table>
24 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
==============
</Table>
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
<Table>
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
==============
</Table>
* 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
<Table>
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
===========
</Table>
See Notes to Financial Statements 27
VAN KAMPEN INSURED TAX FREE INCOME FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
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
============== ==============
</Table>
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.
<Table>
<Caption>
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%
</Table>
(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.
<Table>
<Caption>
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%
</Table>
(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.
<Table>
<Caption>
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%
</Table>
(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:
<Table>
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
==============
</Table>
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:
<Table>
<Caption>
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
=========== ===========
</Table>
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:
<Table>
Undistributed ordinary income............................... $1,832,228
Undistributed long-term capital gain........................ 9,263,391
</Table>
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:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS % PER ANNUM
First $500 million.......................................... .525%
Next $500 million........................................... .500%
Next $500 million........................................... .475%
Over $1.5 billion........................................... .450%
</Table>
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:
<Table>
<Caption>
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)
=========== =============
</Table>
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:
<Table>
<Caption>
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)
=========== =============
</Table>
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.
<Table>
<Caption>
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
</Table>
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:
<Table>
<Caption>
CONTRACTS
Outstanding at September 30, 2003........................... 1,750
Futures Opened.............................................. 4,866
Futures Closed.............................................. (5,181)
------
Outstanding at September 30, 2004........................... 1,435
======
</Table>
The futures contracts outstanding as of September 30, 2004, and the
descriptions and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
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)
====== ========
</Table>
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:
<Table>
<Caption>
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.
</Table>
42
<Table>
<Caption>
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.
</Table>
43
<Table>
<Caption>
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).
</Table>
44
<Table>
<Caption>
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.
</Table>
45
<Table>
<Caption>
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.
</Table>
46
VAN KAMPEN INSURED TAX FREE INCOME FUND
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
<Table>
<Caption>
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.
</Table>
47
<Table>
<Caption>
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.
</Table>
* 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:
<Table>
<Caption>
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.
</Table>
49
<Table>
<Caption>
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.
</Table>
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).
<Table>
<Caption>
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
</Table>
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)
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
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%
</Table>
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
<Table>
<Caption>
- --------------------------------------------------------------
LEHMAN BROTHERS
CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX
5.87% 5.07% 5.10% 4.60%
- --------------------------------------------------------------
</Table>
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
<Table>
<Caption>
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
<Caption>
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
<Caption>
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
</Table>
<Table>
(continued on next page)
</Table>
4
<Table>
<Caption>
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%
</Table>
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.
<Table>
<Caption>
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)
</Table>
* 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
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 9
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
10 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 11
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
12 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 13
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
14 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 15
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
16 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
See Notes to Financial Statements 17
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
18 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 19
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
20 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
See Notes to Financial Statements 21
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
22 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 23
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
24 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 25
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
26 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 27
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
28 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
See Notes to Financial Statements 29
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
30 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
============
</Table>
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
<Table>
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
==============
</Table>
* 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
<Table>
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
============
</Table>
34 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
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
============= =============
</Table>
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.
<Table>
<Caption>
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%
</Table>
(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.
<Table>
<Caption>
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%
</Table>
(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.
<Table>
<Caption>
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%
</Table>
(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:
<Table>
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)
============
</Table>
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:
<Table>
<Caption>
2004 2003
Distributions paid from:
Ordinary income........................................... $115,296 $113,206
Long-term capital gain.................................... -0- -0-
-------- --------
$115,296 $113,206
======== ========
</Table>
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:
<Table>
Undistributed ordinary income............................... $1,403
</Table>
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:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS % PER ANNUM
First $500 million.......................................... .50%
Over $500 million........................................... .45%
</Table>
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:
<Table>
<Caption>
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)
=========== =============
</Table>
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:
<Table>
<Caption>
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)
========== =============
</Table>
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.
<Table>
<Caption>
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
</Table>
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:
<Table>
<Caption>
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.
</Table>
48
<Table>
<Caption>
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.
</Table>
49
<Table>
<Caption>
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).
</Table>
50
<Table>
<Caption>
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.
</Table>
51
<Table>
<Caption>
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.
</Table>
52
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
<Table>
<Caption>
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.
</Table>
53
<Table>
<Caption>
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.
</Table>
* 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:
<Table>
<Caption>
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.
</Table>
55
<Table>
<Caption>
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.
</Table>
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).
<Table>
<Caption>
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
</Table>
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)
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
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%
</Table>
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
<Table>
<Caption>
- --------------------------------------------------------------
LEHMAN BROTHERS
CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX
4.42% 4.29% 3.75% 4.60%
- --------------------------------------------------------------
</Table>
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
<Table>
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
</Table>
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.
<Table>
<Caption>
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)
</Table>
* 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
<Table>
<Caption>
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
</Table>
8 See Notes to Financial Statements
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 9
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
10 See Notes to Financial Statements
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 11
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
12 See Notes to Financial Statements
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
============
</Table>
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
<Table>
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
============
</Table>
* 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
<Table>
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
===========
</Table>
See Notes to Financial Statements 15
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
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
============ ============
</Table>
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.
<Table>
<Caption>
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%
</Table>
(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.
<Table>
<Caption>
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%
</Table>
(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.
<Table>
<Caption>
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%
</Table>
(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:
<Table>
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
============
</Table>
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:
<Table>
<Caption>
2004 2003
Distributions paid from:
Ordinary income........................................... $6,710 $ 58,761
Long-term capital gain.................................... -- 2,326,272
------ ----------
$6,710 $2,385,033
====== ==========
</Table>
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:
<Table>
Undistributed ordinary income............................... $ 543
Undistributed long-term capital gain........................ 1,481,141
</Table>
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:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS % PER ANNUM
First $100 million.......................................... .500%
Next $150 million........................................... .450%
Next $250 million........................................... .425%
Over $500 million........................................... .400%
</Table>
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:
<Table>
<Caption>
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)
========== ============
</Table>
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:
<Table>
<Caption>
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)
========== ============
</Table>
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.
<Table>
<Caption>
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
</Table>
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:
<Table>
<Caption>
CONTRACTS
Outstanding at September 30, 2003........................... 252
Futures Closed.............................................. (252)
----
Outstanding at September 30, 2004........................... -0-
====
</Table>
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:
<Table>
<Caption>
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.
</Table>
29
<Table>
<Caption>
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.
</Table>
30
<Table>
<Caption>
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).
</Table>
31
<Table>
<Caption>
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.
</Table>
32
<Table>
<Caption>
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.
</Table>
33
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
<Table>
<Caption>
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.
</Table>
34
<Table>
<Caption>
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.
</Table>
* 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:
<Table>
<Caption>
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.
</Table>
36
<Table>
<Caption>
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.
</Table>
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).
<Table>
<Caption>
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
</Table>
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)
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
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%
</Table>
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
<Table>
<Caption>
- --------------------------------------------------------------
LEHMAN BROTHERS
CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX
4.20% 3.41% 3.43% 4.60%
- --------------------------------------------------------------
</Table>
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
<Table>
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
</Table>
<Table>
<Caption>
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
</Table>
(continued on next page)
4
<Table>
<Caption>
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%
</Table>
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.
<Table>
<Caption>
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)
</Table>
* 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
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 9
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
10 See Notes to Financial Statements
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
See Notes to Financial Statements 11
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
12 See Notes to Financial Statements
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
See Notes to Financial Statements 13
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
14 See Notes to Financial Statements
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 15
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
16 See Notes to Financial Statements
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 17
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
============
</Table>
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
<Table>
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
============
</Table>
* 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
<Table>
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
===========
</Table>
See Notes to Financial Statements 21
VAN KAMPEN MUNICIPAL INCOME FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
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
============= =============
</Table>
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.
<Table>
<Caption>
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%
</Table>
(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.
<Table>
<Caption>
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%
</Table>
(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.
<Table>
<Caption>
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%
</Table>
(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:
<Table>
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
============
</Table>
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:
<Table>
<Caption>
2004 2003
Distribution paid from:
Ordinary Income........................................... $291,037 $239,149
Long-term capital gain.................................... -0- -0-
-------- --------
$291,037 $239,149
======== ========
</Table>
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:
<Table>
Undistributed ordinary income............................... $117,235
</Table>
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:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS % PER ANNUM
First $500 million.......................................... .50%
Over $500 million........................................... .45%
</Table>
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:
<Table>
<Caption>
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)
========== =============
</Table>
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:
<Table>
<Caption>
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)
=========== =============
</Table>
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.
<Table>
<Caption>
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
</Table>
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:
<Table>
<Caption>
CONTRACTS
Outstanding at September 30, 2003........................... 276
Futures Opened.............................................. 2,067
Futures Closed.............................................. (1,768)
------
Outstanding at September 30, 2004........................... 575
======
</Table>
The futures contracts outstanding as of September 30, 2004, and the
descriptions and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
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)
=== ========
</Table>
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:
<Table>
<Caption>
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.
</Table>
36
<Table>
<Caption>
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.
</Table>
37
<Table>
<Caption>
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).
</Table>
38
<Table>
<Caption>
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.
</Table>
39
<Table>
<Caption>
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.
</Table>
40
VAN KAMPEN MUNICIPAL INCOME FUND
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
<Table>
<Caption>
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.
</Table>
41
<Table>
<Caption>
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.
</Table>
* 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:
<Table>
<Caption>
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.
</Table>
43
<Table>
<Caption>
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.
</Table>
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).
<Table>
<Caption>
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
</Table>
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)
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
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%
</Table>
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
<Table>
<Caption>
- --------------------------------------------------------------
LEHMAN BROTHERS
CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX
3.84% 3.15% 3.17% 4.60%
- --------------------------------------------------------------
</Table>
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
<Table>
<Caption>
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
<Caption>
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
<Caption>
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
</Table>
<Table>
(continued on next page)
</Table>
5
<Table>
<Caption>
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%
</Table>
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.
<Table>
<Caption>
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)
</Table>
* 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
<Table>
<Caption>
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
------------
</Table>
10 See Notes to Financial Statements
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 11
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
12 See Notes to Financial Statements
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
See Notes to Financial Statements 13
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
14 See Notes to Financial Statements
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
See Notes to Financial Statements 15
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
============
</Table>
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
<Table>
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
============
</Table>
* 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
<Table>
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
===========
</Table>
See Notes to Financial Statements 19
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
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
============ ============
</Table>
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.
<Table>
<Caption>
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
</Table>
(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.
<Table>
<Caption>
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
</Table>
(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.
<Table>
<Caption>
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
</Table>
(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:
<Table>
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
============
</Table>
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:
<Table>
<Caption>
2004 2003
Distributions paid from:
Ordinary Income........................................... $444,464 $318,534
Long Term Capital Gain.................................... 437,594 113,705
-------- --------
882,058 432,239
-------- --------
</Table>
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:
<Table>
Undistributed ordinary income............................... $157,502
</Table>
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:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS % PER ANNUM
First $500 million.......................................... .50%
Over $500 million........................................... .45%
</Table>
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:
<Table>
<Caption>
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)
========== ============
</Table>
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:
<Table>
<Caption>
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)
========== ============
</Table>
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.
<Table>
<Caption>
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
</Table>
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:
<Table>
<Caption>
CONTRACTS
Outstanding at September 30, 2003........................... 162
Futures Opened.............................................. 586
Futures Closed.............................................. (591)
----
Outstanding at September 30, 2004........................... 157
====
</Table>
The futures contracts outstanding as of September 30, 2004, and the
description and unrealized appreciation/depreciation were as follows:
<Table>
<Caption>
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)
=== ========
</Table>
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:
<Table>
<Caption>
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.
</Table>
33
<Table>
<Caption>
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.
</Table>
34
<Table>
<Caption>
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).
</Table>
35
<Table>
<Caption>
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.
</Table>
36
<Table>
<Caption>
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.
</Table>
37
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
<Table>
<Caption>
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.
</Table>
38
<Table>
<Caption>
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.
</Table>
* 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:
<Table>
<Caption>
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.
</Table>
40
<Table>
<Caption>
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.
</Table>
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).
<Table>
<Caption>
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
</Table>
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)
<Table>
<Caption>
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
</Table>
<Table>
<Caption>
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%
</Table>
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
<Table>
<Caption>
- --------------------------------------------------------------
LEHMAN BROTHERS
CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX
5.13% 4.36% 4.36% 4.60%
- --------------------------------------------------------------
</Table>
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
<Table>
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
</Table>
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.
<Table>
<Caption>
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)
</Table>
* 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
<Table>
<Caption>
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
</Table>
8 See Notes to Financial Statements
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
See Notes to Financial Statements 9
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
</Table>
10 See Notes to Financial Statements
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
------------
</Table>
See Notes to Financial Statements 11
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2004 continued
<Table>
<Caption>
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
============
</Table>
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
<Table>
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
============
</Table>
* 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
<Table>
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
==========
</Table>
14 See Notes to Financial Statements
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
<Table>
<Caption>
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
============ ============
</Table>
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.
<Table>
<Caption>
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%
</Table>
(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.
<Table>
<Caption>
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%
</Table>
(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.
<Table>
<Caption>
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%
</Table>
(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:
<Table>
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
============
</Table>
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:
<Table>
<Caption>
2004 2003
Distributions paid from:
Ordinary Income........................................... $11,294 $6,501
Long-term capital gain.................................... -0- -0-
------- ------
$11,294 $6,501
======= ======
</Table>
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:
<Table>
Undistributed ordinary income............................... $271
</Table>
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:
<Table>
<Caption>
AVERAGE DAILY NET ASSETS % PER ANNUM
First $500 million.......................................... 0.60%
Over $500 million........................................... 0.50%
</Table>
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:
<Table>
<Caption>
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)
========== ============
</Table>
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:
<Table>
<Caption>
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)
========== ============
</Table>
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.
<Table>
<Caption>
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
</Table>
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:
<Table>
<Caption>
CONTRACTS
Outstanding at September 30, 2003........................... 172
Futures Opened.............................................. 369
Futures Closed.............................................. (541)
----
Outstanding at September 30, 2004........................... -0-
====
</Table>
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:
<Table>
<Caption>
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.
</Table>
28
<Table>
<Caption>
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.
</Table>
29
<Table>
<Caption>
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).
</Table>
30
<Table>
<Caption>
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.
</Table>
31
<Table>
<Caption>
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.
</Table>
32
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEES:*
<Table>
<Caption>
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.
</Table>
33
<Table>
<Caption>
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.
</Table>
* 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:
<Table>
<Caption>
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.
</Table>
35
<Table>
<Caption>
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.
</Table>
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