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
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(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
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(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas, New York, New York 10020
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(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: 9/30/05
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 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,
2005.
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>
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NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
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NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
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</Table>
Performance Summary as of 9/30/05
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index from 9/30/95 through 9/30/05. Class A shares, adjusted for
sales charges.
(Line Graph)
<Table>
<Caption>
VAN KAMPEN INSURED TAX FREE LEHMAN BROTHERS MUNICIPAL BOND
INCOME FUND INDEX
--------------------------- ------------------------------
9/95 9524 10000
12/95 10026 10413
9802 10288
9860 10366
10121 10604
12/96 10391 10874
10303 10848
10636 11222
10944 11560
12/97 11242 11873
11336 12010
11500 12192
11873 12567
12/98 11877 12642
11936 12755
11612 12529
11421 12479
12/99 11280 12381
11694 12743
11856 12935
12122 13248
12/00 12767 13827
12980 14134
13004 14226
13367 14626
12/01 13259 14537
13333 14673
13836 15210
14608 15933
12/02 14557 15933
14686 16124
15035 16540
15032 16553
12/03 15252 16780
15418 17070
15056 16666
15666 17314
12/04 15842 17530
15798 17523
16294 18037
9/05 16257 18015
</Table>
<Table>
<Caption>
A SHARES B SHARES C SHARES I SHARES
since 12/14/84 since 5/3/93 since 8/13/93 since 8/12/05
- ----------------------------------------------------------------------------------------------------
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 W/O SALES
TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE CHARGES
Since Inception 7.69% 7.44% 4.85% 4.85% 4.47% 4.47% 0.20%
10-year 5.49 4.98 4.93 4.93 4.68 4.68 n/a
5-year 6.05 5.02 5.24 5.00 5.25 5.25 n/a
1-year 3.77 -1.15 3.04 -0.92 3.04 2.05 n/a
- ----------------------------------------------------------------------------------------------------
SEC Yield 2.98% 2.37% 2.37% 3.37%
</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. Class I shares are available for purchase exclusively by
investors through (i) tax-exempt retirement plans with assets of at least $1
million (including 401(k) plans, 457 plans, employer-sponsored 403(b) plans,
profit sharing and money purchase plans, defined benefit plans and non-qualified
deferred compensation plans), (ii) fee-based investment programs with assets of
at least $1 million and (iii) institutional clients with assets of at least $1
million. Class I shares are offered without any sales charges on purchases or
sales and do not include combined 12b-1 fees and service fees. Figures shown
above assume reinvestment of
1
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.
2
Fund Report
FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2005
Van Kampen Insured Tax Free Income Fund is managed by the Adviser's Municipal
Fixed Income team.(1) 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.
MARKET CONDITIONS
During the 12-month period ended September 30, 2005, the economy grew at a
moderate pace, with reasonable gains in employment and sustained strength in
consumer spending. Although oil prices soared, core inflation (which excludes
food and energy) remained relatively benign. Continuing with the course it began
in June of 2004, the Federal Open Market Committee (the Fed) raised the federal
funds target rate eight times during the period. Through a "measured pace" of 25
basis points increments, the Fed brought the rate to 3.75 percent at the end of
the reporting period. While the yields of short- and intermediate-term bonds
moved upward in concert with the Fed's actions, the yields of long-term bonds
rates declined. As a result, the yield curve (which charts the difference
between short-term and long-term rates) flattened.
Against this backdrop, total returns across the municipal bond market varied
dramatically, with long maturity bonds outperforming short-term issues by a wide
margin. As investors sought income in an environment of historically low rates,
BBB rated and non-rated bonds significantly outperformed high grade debt, and
credit spreads tightened markedly. Strong and steady flows of new cash into high
yield municipal funds added to the demand for lower rated issues.
Sectors with a preponderance of lower rated credits performed with particular
strength. Tobacco revenue bonds were by far the best performing sector,
supported by overall spread tightening as well as by increasing investor comfort
with tobacco companies' future litigation risk. Health care bonds (hospitals and
long-term care facilities) also fared well, boosted by strong investor demand.
In contrast, housing bonds underperformed as interest rates declined and
prepayment risk increased.
Municipal bond issuance remained robust in 2005, with $310 billion of debt
brought to market in the first nine months of the year, a pace on track to beat
the record issuance of 2003. Refunding activity represented a good portion of
this activity, as issuers sought to refinance higher cost debt at low prevailing
interest rates. Bonds backed by insurance dominated issuance and increased their
market penetration to nearly 60 percent.
(1)Team members may change without notice from time to time.
3
PERFORMANCE ANALYSIS
The fund underperformed its benchmark, the Lehman Brothers Municipal Bond Index,
for the 12 months ended September 30, 2005, assuming no deduction of applicable
sales charges.
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
- --------------------------------------------------------------
LEHMAN BROTHERS
CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX
3.77% 3.04% 3.04% 4.05%
- --------------------------------------------------------------
</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.
Throughout the period, we followed our long-standing practice of trading between
liquid, high quality securities which our analysis identified as compelling
total return opportunities. Our strategy involves buying bonds when they are
attractively valued, and selling them when they reach our return targets. We
then invest the proceeds into bonds with greater potential for future total
return.
Reflecting our view that rates would move higher and that the yields of
short-term bonds would rise faster than those of long-term bonds, we kept the
overall duration of the fund shorter than that of its benchmark index. (Duration
is a measure of interest rate sensitivity.) Our analysis led us to favor bonds
within the 25- to 30-year segment of the market. In keeping with our
conservative strategy, we favored bonds with premium (above-market) coupons and
more defensive interest rate characteristics. To fund the portfolio's purchases,
we sold bonds with maturities of 10 years and less. Pre-refunded issues figured
prominently among our sales. We were also able to take advantage of refinancing
trends by selling pre-refunded bonds that had appreciated significantly during
the time the fund had held them. A modest position in inverse floaters (about 3
percent of the portfolio as of the end of the reporting period) provided an
additional boost to performance.
Meanwhile, we largely avoided zero coupon bonds because of their volatility.
Increased exposure to zero coupon securities would extend the duration of the
portfolio, and our long-term preference was to manage the portfolio's overall
interest rate exposure more conservatively. This decision tempered the fund's
pace over the period.
We kept the fund well diversified across the major sectors of the municipal
market, with an emphasis on essential services. The abundant issuance of insured
debt provided us with considerable choice and flexibility in constructing the
portfolio during the period. At the end of the period, the largest sectors
4
represented in the portfolio were public education, water & sewer, airports,
wholesale electric and public building. In contrast, we avoided housing bonds
due to their less attractive structures.
The fund reflected a high degree of geographic diversification as well. That
said, as of the end of reporting period, less than five percent of the fund was
in Louisiana, Alabama and Mississippi, with all exposures in areas spared by
Hurricanes Katrina and Rita. Moreover, we have no significant concerns about the
impact of the storms on our Texas-issued debt (13 percent of the portfolio as of
September 30, 2005).
In addition to sector and geographic diversification, we invested in bonds
insured by a range of companies. This strategy enhanced performance during the
period. While all of these insurers were AAA rated, not all were equally
well-known in the market. In certain cases, the less well-known companies
offered higher yields. As a result, we were able to increase the income of the
portfolio within the strict parameters of our quality criteria.
Reflecting its focus on bonds that offer the credit enhancement of insurance,
the portfolio was rated AAA at the end of the period.
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Fund in the future.
5
<Table>
<Caption>
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/2005
California 16.1%
Texas 13.0
Illinois 11.7
Florida 7.2
Washington 7.0
Arizona 3.5
Oklahoma 3.4
Colorado 3.3
Pennsylvania 3.2
Michigan 3.1
Georgia 3.0
Louisiana 2.6
Indiana 2.4
New York 2.1
Nevada 1.6
Alabama 1.4
South Carolina 1.2
South Dakota 1.2
North Carolina 1.2
North Dakota 1.2
New Jersey 1.1
Wisconsin 0.9
Arkansas 0.8
Ohio 0.5
Missouri 0.5
Massachusetts 0.5
Oregon 0.4
Alaska 0.4
District of Columbia 0.3
Utah 0.3
Puerto Rico 0.3
New Hampshire 0.2
Iowa 0.2
Mississippi 0.2
West Virginia 0.1
-----
Total Long-Term Investments 96.1%
Short-Term Investments 2.4
-----
Total Investments 98.5
Other Assets in Excess of Liabilities 1.5
-----
Net Assets 100.0%
<Caption>
CREDIT QUALITY AS OF 9/30/2005
AAA/Aaa 97.3%
A/A 1.4
Not Rated 1.3
</Table>
Based upon the highest quality ratings as issued by Standard & Poor's or
Moody's.
6
<Table>
<Caption>
TOP FIVE SECTORS AS OF 9/30/2005
Public Education 15.8%
Water & Sewer 12.6
Airport 10.1
Wholesale Electric 9.3
Public Building 7.8
</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. Credit quality is based on 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.
7
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 (800) SEC-0330. You
can also request copies of these materials, upon payment of a duplicating fee,
by electronic request at the SEC's e-mail address (publicinfo@sec.gov) or by
writing the Public Reference section of the SEC, Washington, DC 20549-0102.
You may obtain copies of a fund's fiscal quarter filings by contacting Van
Kampen Client Relations at (800) 847-2424.
8
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 (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 POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the fund's Proxy Voting Policy and Procedures without
charge, upon request, by calling toll free (800) 847-2424 or by visiting our Web
site at www.vankampen.com. It is also available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the fund voted proxies relating to
portfolio securities during the most recent twelve-month period ended June 30 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.
9
Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments of Class A Shares
and contingent deferred sales charge on redemptions of Class B and C Shares; and
(2) 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 4/1/05 - 9/30/05.
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
account values and 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 and do not reflect any transactional costs, such as sales
charges (loads) or contingent deferred sales charges. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
--------------------------------------------------
4/1/05 9/30/05 4/1/05-9/30/05
Class A
Actual.................................... $1,000.00 $1,029.02 $4.53
Hypothetical.............................. 1,000.00 1,020.67 4.51
(5% annual return before expenses)
Class B
Actual.................................... 1,000.00 1,025.74 8.38
Hypothetical.............................. 1,000.00 1,016.77 8.34
(5% annual return before expenses)
Class C
Actual.................................... 1,000.00 1,025.76 8.33
Hypothetical.............................. 1,000.00 1,016.87 8.29
(5% annual return before expenses)
Class I
Actual.................................... 1,000.00 1,001.96 0.82
Hypothetical.............................. 1,000.00 1,021.67 3.29
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 0.89%, 1.64%,
1.64%, and 0.64% for Class A, B, C, and I Shares, respectively, multiplied
by the average account value over the period, multiplied by 183/365 (to
reflect the one-half year period) except for Class I Shares "Actual"
information which reflects the period from Commencement of Operations
through September 30, 2005.
Assumes all dividends and distributions were reinvested.
10
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On May 25, 2005, the Board of Trustees, and the independent trustees voting
separately, determined that the terms of the investment advisory agreement are
fair and reasonable and approved the continuance of the investment advisory
contract as being in the best interests of the Fund and its shareholders. In
making its determination, the Board of Trustees considered materials that were
specifically prepared by the investment adviser at the request of the Board and
Fund counsel, and by an independent provider of investment company data
contracted to assist the Board, relating to the contract review process. The
Board also considered information received periodically about the portfolio,
performance, the investment strategy, portfolio management team and fees and
expenses of the Fund. The Board of Trustees considered the contract over a
period of several months and the non-management trustees held sessions both with
the investment adviser and separate from the investment adviser in reviewing and
considering the contract.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
existing and alternative breakpoints in the Fund's investment advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies and/or other products at different asset levels,
and considered the trends in the industry versus historical and projected assets
of the Fund. The Board of Trustees evaluated other benefits the investment
adviser and its affiliates derive from their relationship with the Fund. The
Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the investment adviser and
its affiliated companies and the capability of the personnel of the investment
adviser, and specifically the strength and background of its portfolio
management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees, evaluated
all of the foregoing and does not believe any single factor or group of factors
control or dominate the review process, and, after considering all factors
11
together, has determined, in the exercise of its business judgment, that
approval of the investment advisory agreement is in the best interests of the
Fund and its shareholders. The following summary provides more detail on certain
matters considered but does not detail all matters considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The Fund
discloses information about its portfolio management team members and their
experience in its prospectus. The trustees also discuss certain other services
which are provided on a cost-reimbursement basis by the investment adviser or
its affiliates to the Van Kampen funds including certain accounting,
administrative and legal services. The Board has determined that the nature,
extent and quality of the services provided by the investment adviser support
its decision to approve the investment advisory contract.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, a performance committee of the
Board spends more focused time on the performance of the Fund and other funds in
the Van Kampen complex, paying specific attention to underperforming funds. The
trustees discuss with the investment adviser the performance goals and the
actual results achieved in managing the Fund. When considering a fund's
performance, the trustees and the investment adviser place emphasis on trends
and longer-term returns (focusing on one-year, three-year and five-year
performance with special attention to three-year performance) and, when a fund's
weighted performance is under the fund's benchmark, they discuss the causes and
where necessary seek to make specific changes to investment strategy or
investment personnel. The Fund discloses more information about its performance
elsewhere in this report and in the Fund's prospectus. The trustees discuss with
the investment adviser the level of advisory fees for this Fund relative to
comparable funds and other products advised by the adviser and others in the
marketplace. The trustees review not only the advisory fees but other fees and
expenses (whether paid to the adviser, its affiliates or others) and the Fund's
overall expense ratio. The Fund discloses more information about its fees and
expenses in its prospectus. The Board has determined that the performance, fees
and expenses of the Fund support its decision to approve the investment advisory
contract.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put together by the investment adviser with the oversight of a special ad hoc
committee of the Board. The trustees discuss with the investment adviser its
12
revenues and expenses, including among other things, revenues for advisory
services, portfolio management-related expenses, revenue sharing arrangement
costs and allocated expenses both on an aggregate basis and per fund. The Board
has determined that the analysis of the investment adviser's expenses and
profitability support its decision to approve the investment advisory contract.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
and growth prospects of the Fund and how that relates to the Fund's expense
ratio and particularly the Fund's advisory fee rate. In conjunction with its
review of the investment adviser's profitability, the trustees discuss with the
investment adviser how more (or less) assets can affect the efficiency or
effectiveness of managing the Fund's portfolio and whether the advisory fee
level is appropriate relative to current and projected asset levels and/or
whether the advisory fee structure reflects economies of scale as asset levels
change. The Board has determined that its review of the actual and potential
economies of scale of the Fund support its decision to approve the investment
advisory contract.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory contract.
13
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
MUNICIPAL BONDS 96.1%
ALABAMA 1.4%
$1,385 Alabama St Brd Ed Rev Calhoun Cmnty College
(AMBAC Insd)................................... 5.000% 05/01/21 $ 1,476,715
400 Alabama St Brd Ed Rev Calhoun Cmnty College
(AMBAC Insd)................................... 5.000 05/01/22 424,864
2,255 Alabama St Brd Ed Rev George C Wallace Cmnty
College (AMBAC Insd) (a)....................... 5.250 07/01/23 2,460,002
2,145 Birmingham, AL Wtrwks & Swr Brd Ser A (FGIC
Insd) (a)...................................... 5.000 01/01/21 2,270,397
3,590 Clarke & Mobile Cnty AL Gas Dist Rev (AMBAC
Insd) (a)...................................... 5.250 01/01/21 3,894,252
3,120 Huntsville, AL Hlthcare Auth Ser A (MBIA
Insd).......................................... 5.400 06/01/22 3,411,938
2,500 Huntsville, AL Hlthcare Auth Ser A (MBIA
Insd).......................................... 5.500 06/01/27 2,736,975
--------------
16,675,143
--------------
ALASKA 0.4%
2,000 Alaska St Hsg Fin Corp Gen Hsg Ser A (FGIC
Insd).......................................... 5.000 12/01/30 2,076,620
1,000 Alaska St Hsg Fin Corp Gen Hsg Ser A (FGIC
Insd).......................................... 5.250 12/01/41 1,060,020
1,425 Anchorage, AK Wtr Rev Rfdg (AMBAC Insd)........ 6.000 09/01/19 1,577,589
--------------
4,714,229
--------------
ARIZONA 3.5%
1,940 Arizona St Univ Ctf Part Resh Infrastructure
Proj (AMBAC Insd).............................. 5.250 09/01/23 2,101,427
1,225 Arizona St Univ Ctf Part Resh Infrastructure
Proj (AMBAC Insd).............................. 5.250 09/01/24 1,324,078
2,900 Arizona Tourism & Sports Auth Multi Purp Stad
Fac Ser A (MBIA Insd).......................... 5.375 07/01/22 3,189,739
5,000 Maricopa Cnty, AZ Pollutn Ctl Corp Pollutn Ctl
Rev El Paso Elec Co Ser A Rfdg (FGIC Insd)..... 4.800 08/01/40 5,022,050
9,215 Phoenix, AZ Civic Impt Corp Excise Tax Rev Sub
Civic Plaza Expansion Proj Ser A (FGIC Insd)... 5.000 07/01/25 9,742,651
8,425 Phoenix, AZ Civic Impt Corp Excise Tax Rev Sub
Civic Plaza Expansion Proj Ser A (FGIC Insd)... 5.000 07/01/24 8,928,141
755 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease
Oblig Irvington Proj Tucson Elec Pwr Co Ser A
Rfdg (FSA Insd)................................ 7.250 07/15/10 775,476
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................... 6.000 09/01/12 2,003,269
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................... 6.125 09/01/17 1,873,865
1,000 University AZ Ctf Part Ser A (AMBAC Insd)...... 5.000 06/01/23 1,047,990
1,000 University AZ Ctf Part Ser B (AMBAC Insd)...... 5.000 06/01/22 1,050,400
1,060 University AZ Ctf Part Ser B (AMBAC Insd)...... 5.000 06/01/24 1,109,163
</Table>
14 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
ARIZONA (CONTINUED)
$1,000 University AZ Ctf Part Ser C (AMBAC Insd)...... 5.000% 06/01/21 $ 1,054,440
1,885 University AZ Ctf Part Ser C (AMBAC Insd)...... 5.000 06/01/22 1,980,004
--------------
41,202,693
--------------
ARKANSAS 0.8%
2,500 Arkansas St Dev Fin Auth Rev St Agy Fac
Donaghey Plaza Proj (FSA Insd)................. 5.000 06/01/29 2,609,750
6,265 Little Rock, AR Sch Dist Ser B Rfdg (FSA
Insd).......................................... 5.500 02/01/25 6,730,051
--------------
9,339,801
--------------
CALIFORNIA 16.1%
4,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev
Pool Ser A (XLCA Insd)......................... 5.250 09/01/35 4,234,840
3,500 California Ed Fac Auth Rev Occidental College
Ser A (MBIA Insd).............................. 5.000 10/01/36 3,655,470
10,000 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd) (b)...................................... 5.500 05/01/16 11,116,800
5,000 California St Dept Wtr Res Pwr Ser A (XLCA
Insd).......................................... 5.375 05/01/17 5,465,150
3,000 California St Pub Wks Brd UCLA Replacement Hosp
Ser A (FSA Insd)............................... 5.375 10/01/20 3,243,120
3,000 California St Pub Wks Brd UCLA Replacement Hosp
Ser A (FSA Insd)............................... 5.000 10/01/22 3,139,680
5,000 California Stwide Cmnty Depooled Fin Pg Ser
2004A (FSA Insd)............................... 5.250 10/01/24 5,398,400
5,500 California Stwide Cmnty Dev Auth Wtr & Wastewtr
Rev Ser C (FSA Insd)........................... 5.000 10/01/25 5,817,185
3,000 California Stwide Cmnty Pooled Fin Pg Ser 2004A
(FSA Insd)..................................... 5.000 10/01/29 3,131,490
4,000 California Stwide Cmnty Pooled Fin Pg Ser 2004A
(FSA Insd)..................................... 5.250 10/01/34 4,253,600
2,980 California Stwide Cmnty Pooled Fin Pg Ser 2004C
(FSA Insd) (a)................................. 5.000 10/01/29 3,103,849
7,430 Capistrano, CA Uni Sch Dist (FGIC Insd) (a).... 5.000 09/01/25 7,824,682
7,995 Capistrano, CA Uni Sch Dist (FGIC Insd) (a).... 5.000 09/01/26 8,399,947
8,600 Capistrano, CA Uni Sch Dist (FGIC Insd) (a).... 5.000 09/01/27 9,014,348
3,500 Capistrano, CA Uni Sch Dist (FGIC Insd)........ 5.000 09/01/29 3,657,185
5,200 Coachella Valley, CA Univ Sch Dist Election Ser
A (FGIC Insd) (a).............................. 5.000 08/01/30 5,461,456
425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC
Insd).......................................... 6.700 08/01/21 546,214
10,000 Golden St Tob Securitization Corp CA Tob
Settlement Rev Enhanced Asset Bkd Ser A (AMBAC
Insd).......................................... 5.000 06/01/30 10,369,900
10,000 Golden St Tob Securitization Corp CA Tob
Settlement Rev Enhanced Asset Bkd Ser A (FGIC
Insd).......................................... 5.000 06/01/38 10,399,900
</Table>
See Notes to Financial Statements 15
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
$ 265 Golden West Sch Fin Auth CA Rev Ser A Rfdg
(MBIA Insd) (a)................................ 5.750% 08/01/19 $ 311,884
690 Jurupa, CA Univ Sch Dist Election 2001 (FGIC
Insd).......................................... 5.000 08/01/26 722,506
1,190 Lancaster, CA Redev Agy Tax Alloc Comb Fire
Prot Fac Proj Rfdg (XLCA Insd) (a)............. 5.250 12/01/18 1,293,173
1,375 Lancaster, CA Redev Agy Tax Alloc Proj Areas
Sheriffs Fac (XLCA Insd) (a)................... 5.250 12/01/19 1,490,940
3,000 Long Beach, CA Bd Fin Auth Rev Redev Hsg & Gas
Util Fin Ser A1 (AMBAC Insd)................... 5.000 08/01/40 3,087,690
1,265 North Monterey Cnty, CA Uni Sch Dist Election
2002 Ser B (FGIC Insd)......................... 4.750 08/01/29 1,290,338
2,070 Pacifica, CA Wastewtr Rev Rfdg (AMBAC Insd)
(a)............................................ 5.250 10/01/23 2,238,788
5,000 Palm Springs, CA Fin Lease Rev Convention Ctr
Proj Ser A (MBIA Insd)......................... 5.500 11/01/29 5,556,350
2,375 Poway, CA Ctf Part City Office Bldg Proj (AMBAC
Insd).......................................... 5.000 01/01/23 2,478,241
2,250 Riverside, CA Ctf Part (AMBAC Insd) (a)........ 5.000 09/01/23 2,355,457
1,840 Rohnert Park, CA Swr Sys Rev Ctf Part Spl Term
(AMBAC Insd)................................... 5.000 06/01/30 1,920,923
3,200 Rohnert Park, CA Swr Sys Rev Ctf Part Spl Term
(AMBAC Insd) (a)............................... 5.000 06/01/36 3,335,616
6,235 Sacramento, CA City Fin Auth Rev Rfdg (FGIC
Insd).......................................... 5.000 12/01/21 6,657,359
3,770 San Diego Cnty, CA Ctf Part Edgemont Proj &
Regl Sys Rfdg (AMBAC Insd) (a)................. 5.000 02/01/21 3,990,281
9,085 San Jose, CA Arpt Rev Ser A Rfdg (FSA Insd).... 5.375 03/01/18 9,985,869
3,000 San Jose, CA Redev Agy Tax Alloc Ser A (MBIA
Insd).......................................... 5.000 08/01/25 3,158,220
3,000 San Marcos, CA Pub Fac Auth Rev Sr Tax
Increment Proj Area 3-A (AMBAC Insd)........... 5.000 10/01/34 3,115,650
1,500 San Marcos, CA Pub Fac Auth Tax Alloc Rev Proj
Areas No. 2 & 3 Fin Proj Ser C (AMBAC Insd).... 5.000 08/01/38 1,571,670
2,785 Santa Monica, CA Cmnty College Ser A Rfdg
(AMBAC Insd)................................... 5.000 02/01/27 2,901,385
1,775 Sierra, CA Jt Cmnty College Impt Dist 2 Westn
Nevada Ser A (FGIC Insd) (a)................... 5.000 08/01/28 1,859,454
1,960 Sierra, CA Jt Cmnty College Impt Dist 2 Westn
Nevada Ser A (FGIC Insd) (a)................... 5.000 08/01/29 2,050,317
2,000 South Tahoe CA Jt Pwr Fin Redev Proj Area No 1
Ser A Rfdg (AMBAC Insd)........................ 5.000 10/01/35 2,087,200
3,560 Southern CA Pub Pwr Auth Rev Proj Ser A Rfdg
(FSA Insd) (a)................................. 5.000 01/01/19 3,820,022
6,775 Sweetwater, CA Auth Wtr Rev (AMBAC Insd) (a)... 4.500 04/01/22 6,814,092
</Table>
16 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
$2,110 Val Verde, CA Uni Sch Dist Ctf Part Sch Constr
Proj Ser B Rfdg (FGIC Insd) (a)................ 5.000% 01/01/22 $ 2,215,880
2,440 Val Verde, CA Uni Sch Dist Ctf Part Sch Constr
Proj Ser B Rfdg (FGIC Insd) (a)................ 5.000 01/01/25 2,547,311
2,370 Val Verde, CA Uni Sch Dist Ctf Part Sch Constr
Proj Ser B Rfdg (FGIC Insd).................... 5.000 01/01/30 2,470,559
1,850 Vallejo City, CA Uni Sch Ser A Rfdg (MBIA
Insd).......................................... 5.900 08/01/25 2,223,089
--------------
191,783,480
--------------
COLORADO 3.3%
3,745 Colorado Ed & Cultural Fac Auth Rev Charter Sch
Aurora Academy Sch Proj Ser A Rfdg (XLCA Insd)
(a)............................................ 5.250 02/15/34 3,991,458
2,500 Colorado Ed & Cultural Fac Auth Rev Charter Sch
Bromley Sch Proj Rfdg (XLCA Insd).............. 5.250 09/15/32 2,662,550
750 Colorado Ed & Cultural Fac Auth Rev Charter Sch
Woodrow Wilson Sch Proj Ser A Rfdg (XLCA
Insd).......................................... 5.125 12/01/25 794,655
1,000 Colorado Ed & Cultural Fac Auth Rev Charter Sch
Woodrow Wilson Sch Proj Ser A Rfdg (XLCA
Insd).......................................... 5.250 12/01/34 1,065,220
4,305 Denver, CO City & Cnty Arpt Rev Ser B (XLCA
Insd).......................................... 5.750 11/15/18 4,821,428
3,760 Denver, CO City & Cnty Arpt Rev Ser B (XLCA
Insd).......................................... 5.750 11/15/20 4,208,267
5,000 Denver, CO City & Cnty Arpt Rev Sys Ser A (XLCA
Insd).......................................... 5.000 11/15/25 5,236,500
2,505 Denver, CO City & Cnty Arpt Rev Sys Ser B (XLCA
Insd).......................................... 5.750 11/15/16 2,816,572
4,310 Denver, CO City & Cnty Arpt Rev Sys Ser B (XLCA
Insd).......................................... 5.750 11/15/17 4,842,888
2,000 Fremont Cnty, CO Ctf Part & Impt Ser A Rfdg
(MBIA Insd).................................... 5.250 12/15/26 2,145,120
1,175 Thornton, CO Ctf Part (AMBAC Insd)............. 5.375 12/01/19 1,292,829
3,080 Thornton, CO Ctf Part (AMBAC Insd) (a)......... 5.375 12/01/21 3,359,572
1,650 Thornton, CO Ctf Part (AMBAC Insd)............. 5.375 12/01/22 1,799,770
--------------
39,036,829
--------------
DISTRICT OF COLUMBIA 0.3%
1,000 District of Columbia Ctf Part Dist Pub Safety &
Emergency (AMBAC Insd)......................... 5.500 01/01/19 1,091,630
2,000 District of Columbia Ctf Part Dist Pub Safety &
Emergency (AMBAC Insd)......................... 5.500 01/01/20 2,180,340
--------------
3,271,970
--------------
</Table>
See Notes to Financial Statements 17
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
FLORIDA 7.2%
$1,000 Brevard Cnty, FL Sch Brd Ctf Part Ser A (AMBAC
Insd).......................................... 5.400% 07/01/12 $ 1,106,680
500 Dade Cnty, FL Aviation Rev Ser B (MBIA Insd)... 5.600 10/01/26 520,285
1,000 Dade Cnty, FL Ed Fac Auth Rev Exchanged From
Univ of Miami Ser B (MBIA Insd)................ 5.750 04/01/20 1,032,730
750 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC Insd).... 5.375 10/01/16 796,110
140 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC
Insd).......................................... 5.950 07/01/20 150,247
1,000 Escambia Cnty, FL Util Auth Util Sys Rev (FGIC
Insd).......................................... 5.250 01/01/24 1,057,800
1,000 Florida Intergovnmtl Fin Ser C1 (AMBAC Insd)... 5.125 02/01/31 1,035,770
575 Florida Muni Ln Council Rev Ser B (MBIA
Insd).......................................... 5.750 11/01/14 639,233
1,185 Florida St Brd Ed Cap Outlay Pub Ed Ser C (FGIC
Insd).......................................... 5.000 06/01/23 1,249,168
1,250 Florida St Brd Ed Lottery Rev Ser A (FGIC
Insd).......................................... 6.000 07/01/12 1,400,925
1,000 Florida St Brd Ed Lottery Rev Ser A (FGIC
Insd).......................................... 6.000 07/01/14 1,120,740
2,750 Florida St Brd Ed Lottery Rev Ser B (FGIC
Insd).......................................... 5.250 07/01/13 2,916,870
750 Florida St Brd of Regt Hsg Rev (MBIA Insd)..... 5.750 07/01/14 832,395
1,365 Florida St Correctional Privatization Commn Ctf
Part (MBIA Insd)............................... 5.375 08/01/14 1,504,353
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 1,821,732
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 1,591,020
1,340 Gulf Breeze, FL Rev Loc Govt (FGIC Insd) (c)... 5.150 12/01/20 1,436,065
500 Gulf Breeze, FL Rev Loc Govt (Variable Rate
Coupon) (FGIC Insd) (f)........................ 5.650 12/01/20 537,980
1,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA
Insd).......................................... 6.100 10/01/18 1,047,920
1,750 Jea, FL Wtr & Swr Sys Rev Ser A (MBIA Insd).... 5.375 10/01/30 1,796,935
1,000 Key West, FL Util Brd Elec Rev Cap Apprec Ser D
(Escrowed to Maturity) (AMBAC Insd)............ * 10/01/13 705,550
1,000 Miami-Dade Cnty, FL Hlth Fac Miami Childrens
Hosp Ser A Rfdg (AMBAC Insd)................... 5.125 08/15/26 1,046,480
5,000 Miami-Dade Cnty, FL Pub Fac Rev Jackson Hlth
Sys Ser A (MBIA Insd).......................... 5.000 06/01/35 5,209,900
5,000 Miami-Dade Cnty, FL Spl Oblig Cap Apprec &
Income Sub Ser A (MBIA Insd) (d)............... 0/5.000 10/01/30 3,437,450
1,000 Orange Cnty, FL Sch Brd Ctf Ser A (AMBAC
Insd).......................................... 5.250 08/01/14 1,097,550
1,000 Orlando, FL Cmnty Redev Agy Tax Rep Drive
Universal Blvd Rfdg (AMBAC Insd)............... 5.125 04/01/20 1,070,360
3,580 Palm Beach Cnty, FL Sch Brd Ctf Ser A (AMBAC
Insd).......................................... 5.000 08/01/18 3,819,108
</Table>
18 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$ 800 Palm Beach Cnty, FL Sch Brd Ctf Ser A (AMBAC
Insd).......................................... 5.125% 08/01/26 $ 839,408
2,000 Palm Beach Cnty, FL Sch Brd Ctf Ser A Rfdg (FSA
Insd).......................................... 5.000 08/01/21 2,128,560
1,500 Palm Beach Cnty, FL Sch Brd Ctf Ser A Rfdg (FSA
Insd).......................................... 5.000 08/01/22 1,591,440
4,000 Palm Beach Cnty, FL Sch Brd Ctf Ser C (FSA
Insd).......................................... 5.000 08/01/21 4,220,080
4,000 Palm Beach Cnty, FL Sch Brd Ctf Ser C (FSA
Insd).......................................... 5.000 08/01/22 4,200,360
750 Polk Cnty, FL Sch Brd Ctf Part Master Lease Ser
A (FSA Insd)................................... 5.500 01/01/16 823,440
1,000 Port Saint Lucie, FL Spl Assmt Rev Util Svc
Area No 3 & 4A (MBIA Insd)..................... 5.000 10/01/18 1,057,140
1,505 Reedy Creek, FL Impt Dist FL Util Ser 1 (AMBAC
Insd).......................................... 5.000 10/01/24 1,595,571
535 Saint Johns Cnty, FL Indl Dev Auth Professional
Golf Proj Rfdg (MBIA Insd)..................... 5.250 09/01/12 587,740
1,000 Saint Lucie Cnty, FL Sch Brd Ctf Ser A (FSA
Insd).......................................... 5.000 07/01/21 1,054,790
3,245 Santa Rosa Bay Brdg Auth FL Rev Cap Apprec
(MBIA Insd).................................... * 07/01/18 1,860,456
4,000 Sunrise, FL Util Sys Rev Rfdg (AMBAC Insd)..... 5.200 10/01/22 4,439,640
10,000 Tallahassee, FL Hlth Fac Rev Tallahassee Mem
Regl Med Ser A Rfdg (MBIA Insd) (b)............ 6.625 12/01/13 10,229,000
2,610 University Cent FL Ctf Part UCF Convocation
Corp Ser A (FGIC Insd) (a)..................... 5.000 10/01/26 2,743,162
2,740 University Cent FL Ctf Part UCF Convocation
Corp Ser A (FGIC Insd) (a)..................... 5.000 10/01/27 2,875,274
1,000 Village Ctr Cmnty Dev Dist FL Ser A (MBIA
Insd).......................................... 5.200 11/01/25 1,075,390
3,735 Volusia Cnty, FL Ed Fac Auth Rev Ed Fac Embry
Riddle Ser B Rfdg (AMBAC Insd)................. 5.250 10/15/19 4,025,695
1,000 Volusia Cnty, FL Ed Fac Auth Rev Ed Fac Embry
Riddle Ser B Rfdg (AMBAC Insd)................. 5.250 10/15/22 1,068,630
--------------
86,397,132
--------------
GEORGIA 3.0%
6,095 Albany Dougherty, GA Inner City Auth Rev Albany
St Univ Student Hsg Ser A (XLCA Insd) (a)...... 5.000 07/01/25 6,374,700
14,530 Georgia Muni Elec Auth Pwr Rev 2005 Ser Y
(AMBAC Insd)................................... 6.400 01/01/13 16,786,654
9,445 Georgia Muni Elec Auth Pwr Rev 2005 Ser Y (MBIA
Insd).......................................... 6.500 01/01/17 11,296,598
160 Georgia Muni Elec Auth Pwr Rev 2005 Ser Y
(Prerefunded @ 01/01/11) (AMBAC Insd).......... 6.400 01/01/13 183,275
</Table>
See Notes to Financial Statements 19
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
GEORGIA (CONTINUED)
$ 145 Georgia Muni Elec Auth Pwr Rev 2005 Ser Y
(Prerefunded @ 01/01/14) (MBIA Insd)........... 6.500% 01/01/17 $ 173,466
860 Georgia Muni Elec Auth Pwr Rev Ser Y (Escrowed
to Maturity) (AMBAC Insd)...................... 6.400 01/01/13 990,574
410 Georgia Muni Elec Auth Pwr Rev Ser Y (Escrowed
to Maturity) (MBIA Insd)....................... 6.500 01/01/17 492,410
--------------
36,297,677
--------------
ILLINOIS 11.7%
1,715 Bolingbrook, IL Cap Apprec Ser C Rfdg (MBIA
Insd).......................................... * 01/01/19 945,977
2,845 Chicago, IL Brd Ed Cap Apprec Sch Reform B 1
(FGIC Insd).................................... * 12/01/19 1,501,847
1,500 Chicago, IL Brd Ed Cap Apprec Sch Reform Ser A
(FGIC Insd).................................... * 12/01/19 791,835
1,020 Chicago, IL Brd Ed Cap Apprec Sch Reform Ser A
(FGIC Insd).................................... * 12/01/25 392,618
2,000 Chicago, IL Lakefront Millenium Pkg Fac (MBIA
Insd) (d)...................................... 0/5.700 01/01/25 2,117,660
2,000 Chicago, IL Lakefront Millenium Pkg Fac (MBIA
Insd) (d)...................................... 0/5.750 01/01/29 2,107,340
5,925 Chicago, IL Midway Arpt Rev Second Lien Ser B
Rfdg (AMBAC Insd) (a).......................... 5.000 01/01/21 6,250,045
6,220 Chicago, IL Midway Arpt Rev Second Lien Ser B
Rfdg (AMBAC Insd) (a).......................... 5.000 01/01/22 6,532,120
1,000 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien Ser A Rfdg (MBIA Insd).................... 5.000 01/01/29 1,040,120
2,840 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien Ser E Rfdg (CIFG Insd) (a)................ 5.250 01/01/21 3,053,142
2,975 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien Ser E Rfdg (CIFG Insd) (a)................ 5.250 01/01/22 3,187,564
3,120 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien Ser E Rfdg (CIFG Insd).................... 5.250 01/01/23 3,340,678
1,430 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien Ser E Rfdg (CIFG Insd).................... 5.250 01/01/24 1,528,055
5,000 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien Ser E Rfdg (CIFG Insd).................... 5.000 01/01/34 5,165,200
8,750 Chicago, IL O'Hare Intl Arpt Rev Rols RR II
239-2 (Inverse Fltg) (Acquired 08/18/03, Cost
$9,500,313) (AMT) (FSA Insd) (e)............... 8.600 01/01/20 10,617,687
10,000 Chicago, IL O'Hare Intl Arpt Rev Rols RR II
239-3 (Inverse Fltg) (Acquired 08/18/03, Cost
$10,760,100) (AMT) (FSA Insd) (a) (e).......... 8.600 01/01/21 12,134,500
2,500 Chicago, IL Pk Dist Ser C (FGIC Insd).......... 5.500 01/01/19 2,738,575
10,000 Chicago, IL Proj Ser A Rfdg (FGIC Insd)........ 5.375 01/01/34 10,593,900
4,950 Chicago, IL Proj Ser A Rfdg (MBIA Insd)........ 5.500 01/01/38 5,387,580
145 Chicago, IL Proj Ser A Rfdg (AMBAC Insd)....... 5.625 01/01/39 160,167
</Table>
20 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$ 50 Chicago, IL Proj Ser A Rfdg (Prerefunded @
01/01/11) (MBIA Insd).......................... 5.500% 01/01/38 $ 55,517
1,000 Cicero, IL Tax Increment Ser A (XLCA Insd)..... 5.250 01/01/21 1,082,540
1,505 Cook Cnty, IL Sch Dist No 100 Berwyn South (FSA
Insd) (a)...................................... 8.200 12/01/14 2,002,237
1,775 Cook Cnty, IL Sch Dist No 100 Berwyn South (FSA
Insd) (a)...................................... 8.100 12/01/16 2,410,414
2,605 Cook Cnty, IL Sch Dist No 122 Cap Apprec (FGIC
Insd) (a)...................................... * 12/01/17 1,530,203
2,995 Cook Cnty, IL Sch Dist No 122 Cap Apprec (FGIC
Insd) (a)...................................... * 12/01/18 1,668,904
4,210 Cook Cnty, IL Sch Dist No 122 Cap Apprec (FGIC
Insd) (a)...................................... * 12/01/19 2,228,563
4,050 Cook Cnty, IL Sch Dist No 122 Cap Apprec (FGIC
Insd).......................................... * 12/01/20 2,034,639
3,000 Du Page Cnty, IL Cmnty High Sch (FSA Insd)..... 5.600 01/01/22 3,320,490
1,000 Du Page Cnty, IL Cmnty High Sch Rfdg (FSA
Insd).......................................... 5.000 12/01/17 1,075,680
1,860 Grundy Kendall & Will Cntys (AMBAC Insd)....... 5.500 05/01/20 2,022,620
1,180 Grundy Kendall & Will Cntys (AMBAC Insd)....... 5.500 05/01/21 1,283,167
2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford
Sch 205 (FSA Insd)............................. 6.650 02/01/11 2,302,220
5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford
Sch 205 (FSA Insd)............................. 6.650 02/01/12 5,255,647
4,800 Illinois Fin Auth Rev Swedish American Hosp
(AMBAC Insd)................................... 5.000 11/15/31 4,970,448
2,000 Illinois Med Dist (MBIA Insd).................. 5.250 06/01/32 2,093,560
3,500 Illinois Muni Elec Agy Pwr Supply Sys Rev Rfdg
(FSA Insd)..................................... 5.000 02/01/21 3,639,615
250 Lake Cnty, IL Cmnty Cons Sch Dist No 50
Woodland (FGIC Insd)........................... 5.000 01/01/20 266,075
1,200 Lake Cnty, IL Cmnty Cons Sch Dist No 50
Woodland Cap Apprec Ser B (FGIC Insd).......... * 12/01/14 816,912
6,790 Lake Cnty, IL Cmnty Unit Sch Dist No 60
Waukegan Cap Apprec Ser A (FSA Insd)........... * 12/01/17 3,964,817
1,000 Madison & St Clair Cnty, IL Sch Dist No 10
Collinsville Rfdg (FGIC Insd).................. 5.000 02/01/21 1,061,600
3,000 McHenry & Kane Cnty, IL Cmnty Cons Sch Dist No
158 Cap Apprec (FGIC Insd)..................... * 01/01/17 1,834,290
4,000 McHenry & Kane Cnty, IL Cmnty Cons Sch Dist No
158 Cap Apprec (FGIC Insd)..................... * 01/01/18 2,321,520
1,330 McHenry Cnty, IL Cmnty High Sch Dist No 154 Cap
Apprec (FGIC Insd)............................. * 01/01/16 853,807
6,000 Metropolitan Pier & Expo Auth IL Dedicated St
Tax Rev McCormick Pl Expn Ser A (MBIA Insd).... 5.250 06/15/42 6,278,400
675 Peoria, IL Ser B Rfdg (FGIC Insd).............. 5.000 01/01/20 720,313
</Table>
See Notes to Financial Statements 21
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$1,000 Southern IL Univ Rev Cap Apprec Hsg & Aux Ser A
(MBIA Insd).................................... * 04/01/20 $ 516,340
2,500 Will Cnty, IL Fst Presv Dist Ser A (MBIA
Insd).......................................... 5.000% 12/15/23 2,646,400
--------------
139,843,548
--------------
INDIANA 2.4%
1,000 Ball St Univ IN Rev Student Fee Ser L (FSA
Insd).......................................... 5.500 07/01/20 1,149,560
2,000 Brownsburg, IN Sch Bldg First Mtg 1999 Ser A
(FSA Insd)..................................... 5.250 09/15/22 2,178,880
1,105 Indiana Bd Bk Spl Pgm Ser A (Escrowed to
Maturity) (AMBAC Insd)......................... 9.750 08/01/09 1,249,877
6,745 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Proj
Ser A (AMBAC Insd)............................. 5.000 05/01/35 7,015,677
2,335 Lake Cnty, IN Bldg Corp First Mtg (MBIA Insd)
(a)............................................ 5.750 08/01/11 2,574,828
1,550 Marion Cnty, IN Convention & Rec Lease Rent Ser
A Rfdg (AMBAC Insd)............................ 5.000 06/01/21 1,625,841
1,700 New Prarie Utd Sch Bldg Corp Ind Rfdg (FSA
Insd) (a)...................................... 5.000 07/05/18 1,818,456
4,000 South Harrison, IN 2000 Sch Bldg Corp Ser A
(FSA Insd)..................................... 5.250 01/15/25 4,302,560
5,780 Wawasee Cmnty Sch Corp IN New Elem & Remodeling
Bldg Corp First Mtg Rfdg (FSA Insd) (a)........ 5.000 07/15/24 6,154,024
--------------
28,069,703
--------------
IOWA 0.2%
2,375 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp
Proj (FSA Insd)................................ 5.750 07/01/17 2,513,415
--------------
LOUISIANA 2.6%
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 4,500,565
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 6,727,577
110 Lafayette, LA Pub Impt Sales Tax Rfdg (MBIA
Insd).......................................... 5.000 03/01/20 115,691
8,345 Lafayette, LA Util Rev (MBIA Insd)............. 5.250 11/01/24 8,906,618
1,055 Louisiana Loc Govt Environment BRCC Fac Corp
Proj (MBIA Insd)............................... 5.375 12/01/16 1,157,324
2,035 Louisiana Loc Govt Environment BRCC Fac Corp
Proj (MBIA Insd) (a)........................... 5.375 12/01/17 2,227,043
2,150 Louisiana Loc Govt Environment BRCC Fac Corp
Proj (MBIA Insd) (a)........................... 5.375 12/01/18 2,352,895
</Table>
22 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
LOUISIANA (CONTINUED)
$2,265 Louisiana Loc Govt Environment BRCC Fac Corp
Proj (MBIA Insd) (a)........................... 5.375% 12/01/19 $ 2,478,748
2,395 Louisiana Loc Govt Environment BRCC Fac Corp
Proj (MBIA Insd) (a)........................... 5.375 12/01/20 2,598,359
1,420 New Orleans, LA Home Mtg Auth Single Family Mtg
Rev 1985 Ser A (MBIA Insd)..................... * 09/15/16 454,443
--------------
31,519,263
--------------
MASSACHUSETTS 0.5%
2,700 Massachusetts Muni Whsl Elec Co Nuclear Mix 1-A
(MBIA Insd).................................... 5.250 07/01/13 2,954,610
175 Massachusetts Muni Whsl Elec Co Proj No 6-A
(MBIA Insd).................................... 5.250 07/01/16 190,223
2,500 Massachusetts St Dev Fin Agy Rev Boston Univ
Ser T-1 (AMBAC Insd)........................... 5.000 10/01/39 2,605,525
--------------
5,750,358
--------------
MICHIGAN 3.1%
2,650 Chippewa Valley, MI Sch Bldg & Site (FSA
Insd).......................................... 5.000 05/01/20 2,834,148
5,000 Detroit, MI City Sch Dist Sch Bldg & Site Impt
Ser A Rfdg (FSA Insd).......................... 5.000 05/01/25 5,258,350
1,400 Huron, MI Sch Dist (FSA Insd).................. 5.250 05/01/21 1,501,990
10,000 Michigan Muni Bd Auth Rev Sch Dist City of
Detroit (FSA Insd)............................. 5.000 06/01/19 10,633,900
5,000 Michigan Muni Bd Auth Rev Sch Dist City of
Detroit (FSA Insd)............................. 5.000 06/01/20 5,296,550
2,500 Michigan St Strategic Fd Detroit Edison Conv
Rfdg (Variable Rate Coupon) (AMBAC Insd)....... 4.850 09/01/30 2,631,800
2,520 Southgate, MI Cmnty Sch Dist Rfdg (FGIC Insd)
(a)............................................ 5.000 05/01/22 2,676,643
2,675 Wayne Charter Cnty, MI Arpt Rev Ser C Rfdg
(FGIC Insd).................................... 5.375 12/01/17 2,932,709
2,840 Wayne Charter Cnty, MI Arpt Rev Ser C Rfdg
(FGIC Insd).................................... 5.375 12/01/20 3,090,374
--------------
36,856,464
--------------
MISSISSIPPI 0.2%
1,000 Harrison Cnty, MS Wastewtr Mgmt & Solid
Wastewtr Treatment Fac Ser A Rfdg (FGIC
Insd).......................................... 8.500 02/01/13 1,289,320
1,050 Tupelo, MS Pub Sch Dist Rfdg (FSA Insd)........ 5.000 11/01/15 1,134,420
--------------
2,423,740
--------------
MISSOURI 0.5%
1,170 Mehlville, MO Sch Dist No R-9 Ctf Part Ser A
(FSA Insd)..................................... 5.500 03/01/16 1,278,225
1,225 Mehlville, MO Sch Dist No R-9 Ctf Part Ser A
(FSA Insd)..................................... 5.500 03/01/17 1,335,801
</Table>
See Notes to Financial Statements 23
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
MISSOURI (CONTINUED)
$1,630 Saint Louis Cnty MO Regl Conv & Sports Complex
Auth Convtn & Sports Fac Rfdg (AMBAC Insd)..... 5.250% 08/15/17 $ 1,766,969
1,490 Saint Louis, MO Arpt Rev Cap Impt Pgm Ser A
(MBIA Insd).................................... 5.375 07/01/17 1,626,216
--------------
6,007,211
--------------
NEVADA 1.6%
5,020 Clark Cnty, NV Arpt Rev Rols RR II 292-3
(Inverse Fltg) (Acquired 06/30/04, Cost
$5,493,386) (AMT) (FGIC Insd) (e).............. 8.093 07/01/22 5,871,342
10,000 Director St, NV Dept Business & Ind Las Vegas
Monorail Proj First Tier (AMBAC Insd).......... 5.625 01/01/32 10,938,200
2,500 Reno, NV Cap Impt Rev (FGIC Insd).............. 5.125 06/01/26 2,613,625
--------------
19,423,167
--------------
NEW HAMPSHIRE 0.2%
2,500 New Hampshire St Tpk Sys Rev Ser C Rfdg
(Inverse Fltg) (FGIC Insd)..................... 11.096 11/01/17 2,792,100
--------------
NEW JERSEY 1.1%
5,000 Jersey City, NJ Qual Sch Ser C Rfdg (MBIA
Insd).......................................... 5.000 09/01/17 5,412,300
4,000 New Jersey Econ Dev Auth Rev Motor Vehicle Sur
Rev Ser A (MBIA Insd).......................... 5.000 07/01/23 4,236,600
2,760 Newark, NJ Hsg Auth Port Auth Newark Marine
Term (MBIA Insd)............................... 5.500 01/01/28 3,054,520
--------------
12,703,420
--------------
NEW YORK 2.1%
5,470 New York City Hlth & Hosp Hlth Sys Ser A (FSA
Insd).......................................... 5.000 02/15/21 5,793,824
5,000 New York City Sub Ser F-1 (AMBAC Insd)......... 5.000 09/01/21 5,344,650
10,000 New York City Sub Ser F-1 (XLCA Insd).......... 5.000 09/01/22 10,580,800
3,105 New York St Dorm Auth Rev Insd Brooklyn Law Sch
Ser B (XLCA Insd) (a).......................... 5.375 07/01/21 3,421,772
--------------
25,141,046
--------------
NORTH CAROLINA 1.2%
10,000 North Carolina Muni Pwr Agy Ser A (MBIA
Insd).......................................... 5.250 01/01/18 10,831,900
2,735 North Carolina Muni Pwr Agy Ser A (MBIA
Insd).......................................... 5.250 01/01/19 2,958,942
--------------
13,790,842
--------------
</Table>
24 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
NORTH DAKOTA 1.2%
$5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope Vly
Station Rfdg (AMBAC Insd)...................... 7.200% 06/30/13 $ 5,951,750
2,400 North Dakota St Brd Higher Ed Rev Hsg & Aux Fac
Univ ND (FGIC Insd)............................ 5.000 04/01/32 2,491,728
5,000 Oliver Cnty, ND Pollutn Ctl Rev Square Butte
Elec Coop Ser A Rfdg (AMBAC Insd).............. 5.300 01/01/27 5,312,950
--------------
13,756,428
--------------
OHIO 0.5%
1,000 Chillicothe, OH City Sch Dist Sch Impt (FGIC
Insd).......................................... 5.250 12/01/26 1,084,320
5,000 Columbus, OH City Sch Dist Sch Fac Constr &
Impt (FSA Insd)................................ 5.250 12/01/27 5,409,700
--------------
6,494,020
--------------
OKLAHOMA 3.4%
1,525 Claremore, OK Pub Wk Auth Elec Sys Rev (FSA
Insd).......................................... 5.000 06/01/23 1,609,638
2,340 Claremore, OK Pub Wk Auth Util Sys Rev Rfdg
(FSA Insd) (a)................................. 5.000 07/01/25 2,470,829
2,990 Jenks, OK Aquarium Auth Rev Rfdg (MBIA Insd)... 5.250 07/01/19 3,281,196
1,480 Jenks, OK Aquarium Auth Rev Rfdg (MBIA Insd)... 5.250 07/01/33 1,600,206
8,320 McAlester, OK Pub Wks Auth Util Cap Apprec Ser
A (FSA Insd)................................... * 02/01/30 2,191,738
5,660 Mustang, OK Impt Auth Util Rev (FSA Insd)...... 5.800 10/01/30 6,247,112
2,020 Oklahoma City, OK Arpt Tr Jr Lien 27th Ser A
(FSA Insd)..................................... 5.000 07/01/17 2,141,059
2,400 Oklahoma City, OK Pub Ppty Auth Hotel Tax Rev
(FGIC Insd).................................... 5.250 10/01/29 2,596,968
2,000 Oklahoma Colleges Brd Regt Stad Univ Cent OK
Ser B (AMBAC Insd)............................. 5.500 06/01/24 2,213,980
4,650 Sallisaw, OK Muni Auth Util Sys Rev (XLCA
Insd).......................................... 5.000 01/01/25 4,887,941
2,000 Tulsa, OK Cmnty College Rev (AMBAC Insd)....... 5.500 07/01/22 2,221,500
8,260 Tulsa, OK Tulsa Indl Auth Rev Univ Tulsa Ser A
(MBIA Insd).................................... 5.375 10/01/31 8,865,954
--------------
40,328,121
--------------
OREGON 0.4%
4,835 Oregon St Dept Admin Ser B Rfdg (MBIA Insd).... 5.250 05/01/17 5,250,230
--------------
</Table>
See Notes to Financial Statements 25
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
PENNSYLVANIA 3.2%
$5,000 Allegheny Cnty, PA Hosp Dev Auth Rev Insd Hlth
Sys Ser A (MBIA Insd).......................... 6.500% 11/15/30 $ 5,711,800
4,875 Allegheny Cnty, PA Hosp Dev Auth Rev Pittsburgh
Mercy Hlth Sys Inc (Escrowed to Maturity)
(AMBAC Insd)................................... 5.625 08/15/26 5,047,673
4,000 Harrisburg, PA Auth Res Gtd Sub Ser D-2
(Variable Rate Coupon) (FSA Insd).............. 5.000 12/01/33 4,314,360
3,000 Lycoming Cnty, PA Auth College Rev PA College
of Technology (AMBAC Insd)..................... 5.350 07/01/26 3,210,510
1,375 Pennsylvania St Higher Ed Fac Auth Rev St Sys
Higher Ed Ser P (AMBAC Insd)................... 5.000 12/15/16 1,434,111
2,990 Philadelphia, PA Gas Wks Rev 1998 Gen Ordinance
4th Ser (FSA Insd)............................. 5.250 08/01/18 3,233,894
4,555 Philadelphia, PA Gas Wks Rev 1998 Gen Ordinance
4th Ser (FSA Insd)............................. 5.250 08/01/21 4,894,894
1,485 Philadelphia, PA Gas Wks Rev Eighteenth Ser
(AGL Insd)..................................... 5.250 08/01/20 1,601,870
3,665 Philadelphia, PA Gas Wks Rev Fifth Ser A-1 (AGL
Insd) (a)...................................... 5.250 09/01/17 3,984,222
5,000 State Pub Sch Bldg Auth PA Sch Lease
Philadelphia Sch Dist Proj (FSA Insd).......... 5.250 06/01/26 5,352,750
--------------
38,786,084
--------------
SOUTH CAROLINA 1.2%
2,200 Columbia, SC Ctf Part Tourism Dev Fee Pledge
(AMBAC Insd)................................... 5.250 06/01/19 2,368,674
5,170 Easley, SC Util Rev Impt & Rfdg (FSA Insd)..... 5.000 12/01/34 5,424,002
6,500 South Carolina Jobs Econ Dev Auth Indl Rev Elec
& Gas Co Proj Ser A (AMBAC Insd)............... 5.200 11/01/27 6,971,965
--------------
14,764,641
--------------
SOUTH DAKOTA 1.2%
1,065 Minnehaha Cnty, SD Ctf Ltd Tax (FSA Insd)
(a)............................................ 5.000 12/01/14 1,156,164
745 Minnehaha Cnty, SD Ctf Ltd Tax (FSA Insd)...... 5.000 12/01/15 807,245
1,455 Rapid City, SD Sales Tax Rev Rfdg (AMBAC
Insd).......................................... 5.500 06/01/12 1,603,861
5,205 South Dakota St Lease Rev Tr Ctf Ser A (FSA
Insd).......................................... 6.625 09/01/12 6,038,893
4,000 South Dakota St Lease Rev Tr Ctf Ser A (FSA
Insd).......................................... 6.700 09/01/17 4,970,560
--------------
14,576,723
--------------
TEXAS 13.0%
1,165 Alamo, TX Cmnty College Dist Combined Fee Rfdg
(FSA Insd)..................................... 5.000 11/01/22 1,226,640
5,000 Brazos Riv Auth TX Rev Houston Ind Inc Proj Ser
C (Variable Rate Coupon) (AMBAC Insd).......... 5.125 05/01/19 5,292,400
</Table>
26 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$2,000 Colorado Riv, TX Muni Wtr Dist Sys Rfdg (AMBAC
Insd).......................................... 5.375% 01/01/19 $ 2,178,080
3,055 Dallas Fort Worth, TX Intl Arpt Rols RR II
291-1 (Inverse Fltg) (Acquired 07/19/04, Cost
$3,448,667) (AMT) (FSA Insd) (a) (e)........... 8.093 11/01/19 3,608,658
2,000 Dallas Fort Worth, TX Intl Arpt Rols RR II
291-2 (Inverse Fltg) (Acquired 07/19/04, Cost
$2,164,480) (AMT) (FSA Insd) (a) (e)........... 7.839 11/01/21 2,290,280
4,500 Harris Cnty, TX Toll Rd Sr Lien Rfdg (MBIA
Insd).......................................... 5.125 08/15/17 4,687,425
4,605 Houston, TX Arpt Sys Rev Sub Lien (FSA Insd)... 5.500 07/01/17 5,048,462
2,000 Houston, TX Arpt Sys Rev Sub Lien (FSA Insd)... 5.500 07/01/18 2,192,600
5,000 Houston, TX Hotel Occupancy Convention & Entmt
Ser A Rfdg (AMBAC Insd)........................ 5.375 09/01/14 5,451,950
2,000 Houston, TX Pub Impt Ser A Rfdg (MBIA Insd).... 5.375 03/01/18 2,208,420
6,905 Houston, TX Util Sys Rev First Lien Rfdg (FSA
Insd).......................................... 5.000 11/15/25 7,254,600
7,500 Houston, TX Util Sys Rev First Lien Rfdg (FSA
Insd).......................................... 5.000 11/15/27 7,854,750
22,500 Houston, TX Util Sys Rev First Lien Ser A Rfdg
(FGIC Insd).................................... 5.250 05/15/23 24,168,150
12,400 Houston, TX Wtr & Swr Sys Rev Cap Apprec Ser A
Rfdg (Escrowed to Maturity) (FSA Insd)......... * 12/01/20 6,275,764
7,930 Lancaster, TX Indpt Sch Dist Rfdg (FSA Insd)... 5.750 02/15/30 8,858,127
1,790 Laredo, TX Cmnty College Dist Combined Fee Rev
Bldg Rfdg (AMBAC Insd)......................... 5.300 08/01/26 1,907,585
4,335 North Harris Cnty, TX Regl Wtr Sr Lien (FGIC
Insd) (a)...................................... 5.250 12/15/19 4,720,208
4,665 North Harris Cnty, TX Regl Wtr Sr Lien (MBIA
Insd) (a)...................................... 5.000 12/15/29 4,858,598
3,000 Nueces Riv Auth TX Wtr Supply Rev Fac Corpus
Christi Proj Rfdg (FSA Insd)................... 5.000 07/15/25 3,147,840
2,000 Nueces Riv Auth TX Wtr Supply Rev Fac Corpus
Christi Proj Rfdg (FSA Insd)................... 5.000 03/15/27 2,092,080
2,220 Raven Hills, TX Higher Ed Corp Cardinal Vlg Llc
Lamar Univ A (MBIA Insd)....................... 5.500 08/01/28 2,443,709
2,000 San Antonio, TX Hotel Occupancy Rev Sub Lien
Ser A Rfdg (AMBAC Insd)........................ 5.000 08/15/29 2,065,040
1,750 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth Sys Rev
Ser B (Escrowed to Maturity) (FGIC Insd)....... 5.000 09/01/15 1,898,348
1,060 Tarrant Regl Wtr Dist TX Impt Rfdg (FSA
Insd).......................................... 5.250 03/01/18 1,147,842
2,000 Tarrant Regl Wtr Dist TX Impt Rfdg (FSA
Insd).......................................... 5.250 03/01/20 2,163,060
10,000 Texas St Tpk Auth Cent TX Tpk First Tier Ser A
(AMBAC Insd)................................... 5.500 08/15/39 10,951,200
</Table>
See Notes to Financial Statements 27
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$26,905 Texas St Tpk Auth Dallas Northtwy Rev George
Bush Tpk (FGIC Insd)........................... 5.250% 01/01/23 $ 27,562,289
1,800 Tyler, TX Indpt Sch Dist (FSA Insd) (a)........ 5.000 02/15/27 1,880,028
--------------
155,434,133
--------------
UTAH 0.3%
2,140 Murray City, UT Swr & Wtr Rev (AMBAC Insd)..... 5.250 10/01/23 2,336,966
595 Provo, UT Elec Rev 1984 Ser A Rfdg (Escrowed to
Maturity) (AMBAC Insd)......................... 10.375 09/15/15 802,720
--------------
3,139,686
--------------
WASHINGTON 7.0%
4,115 Chelan Cnty, WA Sch Dist No 246 (FSA Insd)..... 5.000 12/01/21 4,359,020
2,990 Clark Cnty, WA Pub Util Dist No 001 Wtr Rev
(FSA Insd)..................................... 5.125 01/01/20 3,172,480
11,340 Energy Northwest WA Elec Rev Columbia
Generating Ser A Rfdg (FSA Insd)............... 5.500 07/01/17 12,443,609
4,500 Energy Northwest WA Elec Rev Proj No 3 Ser A
Rfdg (FSA Insd)................................ 5.500 07/01/17 4,937,940
14,500 Energy Northwest WA Elec Rev Proj No 3 Ser A
Rfdg (FSA Insd)................................ 5.500 07/01/18 15,911,140
5,000 Energy Northwest WA Elec Rev Proj No 3 Ser B
Rfdg (FSA Insd)................................ 6.000 07/01/16 5,705,300
1,365 Energy Northwest WA Wind Proj (AMBAC Insd)..... 5.000 07/01/23 1,419,177
1,215 Fife, WA Wtr & Swr Rev (MBIA Insd) (a)......... 5.000 04/01/24 1,274,596
1,975 Fife, WA Wtr & Swr Rev (MBIA Insd)............. 5.125 04/01/24 1,991,985
1,160 Fife, WA Wtr & Swr Rev (MBIA Insd) (a)......... 5.000 04/01/29 1,208,511
2,500 Goat Hill Ppty WA Lease Rev Govt Office Bldg
Proj (MBIA Insd)............................... 5.000 12/01/33 2,591,975
2,335 Grant Cnty, WA Pub Util Dist No 2 Rev Second
Ser C Rfdg (AMBAC Insd) (a).................... 6.000 01/01/17 2,439,164
1,025 Grant Cnty, WA Pub Util Dist No 2 Rev Second
Ser C Rfdg (AMBAC Insd) (a).................... 6.000 01/01/17 1,070,725
2,000 Port Seattle, WA Rev Inter Lien Ser A Rfdg
(MBIA Insd).................................... 5.000 03/01/28 2,097,160
3,500 Port Seattle, WA Rev Inter Lien Ser A Rfdg
(MBIA Insd).................................... 5.000 03/01/35 3,650,780
2,000 Seattle, WA Muni Lt & Pwr Rev Impt & Rfdg (FSA
Insd).......................................... 5.500 03/01/18 2,176,800
2,565 Snohomish Cnty, WA Pub Util 1 (FSA Insd)....... 5.500 12/01/23 2,832,889
145 Snohomish Cnty, WA Pub Util 1 (FSA Insd)....... 5.000 12/01/24 151,061
2,000 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)..... 5.750 12/01/25 2,259,600
2,420 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)..... 5.750 12/01/26 2,734,116
3,000 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)..... 5.250 09/01/33 3,153,450
1,465 Tacoma, WA Solid Waste Util Rev Rfdg (AMBAC
Insd).......................................... 5.375 12/01/18 1,600,439
</Table>
28 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
WASHINGTON (CONTINUED)
$2,075 Tacoma, WA Solid Waste Util Rev Rfdg (AMBAC
Insd) (a)...................................... 5.375% 12/01/19 $ 2,266,834
1,600 Washington St Ser R 99A Rfdg (FGIC Insd)....... 5.000 01/01/17 1,671,344
--------------
83,120,095
--------------
WEST VIRGINIA 0.1%
1,530 West Virginia Econ Dev Auth Lease Rev
Correctional Juvenile & Pub-A (MBIA Insd)...... 5.500 06/01/19 1,699,034
--------------
WISCONSIN 0.9%
1,350 Plover, WI Wtr Sys Rev (AMBAC Insd) (a)........ 5.400 12/01/16 1,455,098
1,500 Plover, WI Wtr Sys Rev (AMBAC Insd) (a)........ 5.500 12/01/18 1,621,110
1,405 Racine, WI Wtrwks Rev Sys Mtg (MBIA Insd)
(a)............................................ 5.250 09/01/16 1,527,165
3,920 University WI Hosp & Clinics Auth Rev (FSA
Insd).......................................... 6.200 04/01/29 4,414,469
750 Wilmot, WI Un High Sch Dist Ser B Rfdg (FSA
Insd).......................................... 5.000 03/01/23 798,000
1,215 Wilmot, WI Un High Sch Dist Ser B Rfdg (FSA
Insd).......................................... 5.000 03/01/24 1,290,500
--------------
11,106,342
--------------
PUERTO RICO 0.3%
3,000 Puerto Rico Indl Tourist Ed Med & Environmental
Ctl Fac Hosp Aux (MBIA Insd)................... 6.250 07/01/16 3,067,950
--------------
TOTAL LONG-TERM INVESTMENTS 96.1%
(Cost $1,088,985,863).................................................... 1,147,076,718
SHORT-TERM INVESTMENTS 2.4%
(Cost $28,985,000)....................................................... 28,985,000
--------------
TOTAL INVESTMENTS 98.5%
(Cost $1,117,970,863).................................................... 1,176,061,718
OTHER ASSETS IN EXCESS OF LIABILITIES 1.5%................................ 17,982,775
--------------
NET ASSETS 100.0%......................................................... $1,194,044,493
==============
</Table>
Percentages are calculated as a percentage of net assets.
* Zero coupon bond
(a) The Fund owns 100% of the bond issuance.
(b) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(c) Security converts to a fixed coupon rate at a predetermined date.
See Notes to Financial Statements 29
VAN KAMPEN INSURED TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
(d) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(e) 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 2.9% of net
assets.
(f) Variable rate coupon. Rate shown is that in effect on September 30, 2005.
AGL--Assured Guaranty Ltd.
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
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.
FUTURES CONTRACTS OUTSTANDING AS OF SEPTEMBER 30, 2005:
<Table>
<Caption>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
U.S. Treasury Notes 2-Year Futures December 2005 (Current
Notional Value of $205,891 per contract)................ 316 $ 179,954
U.S. Treasury Notes 5-Year Futures December 2005 (Current
Notional Value of $106,859 per contract)................ 2,676 1,836,343
----- ----------
2,992 $2,016,297
===== ==========
</Table>
30 See Notes to Financial Statements
VAN KAMPEN INSURED TAX FREE INCOME FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2005
<Table>
ASSETS:
Total Investments (Cost $1,117,970,863)..................... $1,176,061,718
Receivables:
Interest.................................................. 14,405,862
Investments Sold.......................................... 10,124,610
Fund Shares Sold.......................................... 1,083,507
Variation Margin on Futures............................... 738,125
Other....................................................... 297,607
--------------
Total Assets............................................ 1,202,711,429
--------------
LIABILITIES:
Payables:
Custodian Bank............................................ 4,702,129
Fund Shares Repurchased................................... 1,441,775
Income Distributions...................................... 855,092
Distributor and Affiliates................................ 583,258
Investment Advisory Fee................................... 500,039
Trustees' Deferred Compensation and Retirement Plans........ 343,690
Accrued Expenses............................................ 240,953
--------------
Total Liabilities....................................... 8,666,936
--------------
NET ASSETS.................................................. $1,194,044,493
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,114,183,412
Net Unrealized Appreciation................................. 60,107,152
Accumulated Net Realized Gain............................... 19,031,861
Accumulated Undistributed Net Investment Income............. 722,068
--------------
NET ASSETS.................................................. $1,194,044,493
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,114,198,081 and 59,035,303 shares of
beneficial interest issued and outstanding)............. $ 18.87
Maximum sales charge (4.75% * of offering price)........ .94
--------------
Maximum offering price to public........................ $ 19.81
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $56,209,027 and 2,981,681 shares of
beneficial interest issued and outstanding)............. $ 18.85
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $21,745,946 and 1,154,496 shares of
beneficial interest issued and outstanding)............. $ 18.84
==============
Class I Shares:
Net asset value and offering price per share (Based on
net assets of $1,891,439 and 100,215 shares of
beneficial interest issued and outstanding)............. $ 18.87
==============
</Table>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 31
VAN KAMPEN INSURED TAX FREE INCOME FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended September 30, 2005
<Table>
INVESTMENT INCOME:
Interest.................................................... $ 56,648,464
------------
EXPENSES:
Investment Advisory Fee..................................... 6,111,604
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $2,728,271, $611,049 and $202,841,
respectively)............................................. 3,542,161
Shareholder Services........................................ 752,882
Legal....................................................... 158,038
Custody..................................................... 109,307
Trustees' Fees and Related Expenses......................... 27,761
Other....................................................... 550,703
------------
Total Expenses.......................................... 11,252,456
Less Credits Earned on Cash Balances.................... 39,384
------------
Net Expenses............................................ 11,213,072
------------
NET INVESTMENT INCOME....................................... $ 45,435,392
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 16,520,352
Futures................................................... 1,622,942
------------
Net Realized Gain........................................... 18,143,294
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 78,986,208
------------
End of the Period:
Investments............................................. 58,090,855
Futures................................................. 2,016,297
------------
60,107,152
------------
Net Unrealized Depreciation During the Period............... (18,879,056)
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (735,762)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 44,699,630
============
</Table>
32 See Notes to Financial Statements
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, 2005 SEPTEMBER 30, 2004
----------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 45,435,392 $ 49,280,969
Net Realized Gain.................................. 18,143,294 7,034,093
Net Unrealized Depreciation During the Period...... (18,879,056) (6,185,703)
-------------- --------------
Change in Net Assets from Operations............... 44,699,630 50,129,359
-------------- --------------
Distributions from Net Investment Income:
Class A Shares................................... (43,893,696) (45,586,240)
Class B Shares................................... (1,921,231) (2,382,337)
Class C Shares................................... (636,583) (699,272)
Class I Shares................................... (9,817) -0-
-------------- --------------
(46,461,327) (48,667,849)
-------------- --------------
Distributions from Net Realized Gain:
Class A Shares................................... (10,259,399) (13,949,578)
Class B Shares................................... (577,204) (936,852)
Class C Shares................................... (180,088) (284,764)
Class I Shares................................... -0- -0-
-------------- --------------
(11,016,691) (15,171,194)
-------------- --------------
Total Distributions................................ (57,478,018) (63,839,043)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... (12,778,388) (13,709,684)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................... 76,930,648 72,538,790
Net Asset Value of Shares Issued Through Dividend
Reinvestment..................................... 44,697,062 49,356,828
Cost of Shares Repurchased......................... (138,280,579) (201,234,835)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS..................................... (16,652,869) (79,339,217)
-------------- --------------
TOTAL DECREASE IN NET ASSETS....................... (29,431,257) (93,048,901)
NET ASSETS:
Beginning of the Period............................ 1,223,475,750 1,316,524,651
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of $722,068
and $1,847,688, respectively..................... $1,194,044,493 $1,223,475,750
============== ==============
</Table>
See Notes to Financial Statements 33
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 ----------------------------------------------------
2005 2004 2003 2002 (A) 2001
----------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD... $ 19.07 $ 19.27 $ 19.65 $ 19.22 $ 18.27
-------- -------- -------- -------- --------
Net Investment Income.................... .72 .76 .77 .81 .86
Net Realized and Unrealized Gain/Loss.... (.01) .02 (.23) .87 .98
-------- -------- -------- -------- --------
Total from Investment Operations........... .71 .78 .54 1.68 1.84
-------- -------- -------- -------- --------
Less:
Distributions from Net Investment
Income................................. .74 .75 .74 .81 .89
Distributions from Net Realized Gain..... .17 .23 .18 .44 -0-
-------- -------- -------- -------- --------
Total Distributions........................ .91 .98 .92 1.25 .89
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE PERIOD......... $ 18.87 $ 19.07 $ 19.27 $ 19.65 $ 19.22
======== ======== ======== ======== ========
Total Return (b)........................... 3.77% 4.22% 2.90% 9.28% 10.28%
Net Assets at End of the Period (In
millions)................................ $1,114.2 $1,137.2 $1,209.9 $1,244.3 $1,129.6
Ratio of Expenses to Average Net Assets.... .88% .87% .86% .87% .90%
Ratio of Net Investment Income to Average
Net Assets............................... 3.81% 3.99% 4.02% 4.30% 4.55%
Portfolio Turnover......................... 66% 40% 61% 54% 80%
</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.
34 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 B SHARES --------------------------------------------
2005 2004 2003 2002 (A) 2001
--------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD........ $19.05 $19.24 $19.63 $19.20 $18.26
------ ------ ------ ------ ------
Net Investment Income......................... .59 .62 .63 .66 .70
Net Realized and Unrealized Gain/Loss......... (.02) .02 (.24) .88 .99
------ ------ ------ ------ ------
Total from Investment Operations................ .57 .64 .39 1.54 1.69
------ ------ ------ ------ ------
Less:
Distributions from Net Investment Income...... .60 .60 .60 .67 .75
Distributions from Net Realized Gain.......... .17 .23 .18 .44 -0-
------ ------ ------ ------ ------
Total Distributions............................. .77 .83 .78 1.11 .75
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.............. $18.85 $19.05 $19.24 $19.63 $19.20
====== ====== ====== ====== ======
Total Return (b)................................ 3.04% 3.43% 2.08% 8.47% 9.42%
Net Assets at End of the Period (In millions)... $ 56.2 $ 66.4 $ 82.6 $ 87.2 $ 49.2
Ratio of Expenses to Average Net Assets......... 1.64% 1.63% 1.62% 1.63% 1.69%
Ratio of Net Investment Income to Average Net
Assets........................................ 3.05% 3.23% 3.26% 3.53% 3.76%
Portfolio Turnover.............................. 66% 40% 61% 54% 80%
</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.
See Notes to Financial Statements 35
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 --------------------------------------------
2005 2004 2003 2002 (A) 2001
--------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD........ $19.04 $19.23 $19.62 $19.19 $18.25
------ ------ ------ ------ ------
Net Investment Income......................... .58 .62 .63 .67 .69
Net Realized and Unrealized Gain/Loss......... (.01) .02 (.24) .87 1.00
------ ------ ------ ------ ------
Total from Investment Operations................ .57 .64 .39 1.54 1.69
------ ------ ------ ------ ------
Less:
Distributions from Net Investment Income...... .60 .60 .60 .67 .75
Distributions from Net Realized Gain.......... .17 .23 .18 .44 -0-
------ ------ ------ ------ ------
Total Distributions............................. .77 .83 .78 1.11 .75
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.............. $18.84 $19.04 $19.23 $19.62 $19.19
====== ====== ====== ====== ======
Total Return (b)................................ 3.04% 3.43% 2.08% 8.48% 9.42%
Net Assets at End of the Period (In millions)... $ 21.7 $ 19.9 $ 24.1 $ 22.1 $ 11.2
Ratio of Expenses to Average Net Assets......... 1.64% 1.63% 1.62% 1.63% 1.65%
Ratio of Net Investment Income to Average Net
Assets........................................ 3.05% 3.23% 3.25% 3.53% 3.80%
Portfolio Turnover.............................. 66% 40% 61% 54% 80%
</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.
36 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 PERIOD INDICATED.
<Table>
<Caption>
AUGUST 12, 2005
(COMMENCEMENT OF
OPERATIONS) TO
SEPTEMBER 30,
2005
CLASS I SHARES ----------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $18.93
------
Net Investment Income..................................... .10
Net Realized and Unrealized Loss.......................... (.06)
------
Total from Investment Operations............................ .04
Less Distributions from Net Investment Income............... .10
------
NET ASSET VALUE, END OF THE PERIOD.......................... $18.87
======
Total Return (a)............................................ .20%*
Net Assets at End of the Period (In millions)............... $ 1.9
Ratio of Expenses to Average Net Assets..................... .64%
Ratio of Net Investment Income to Average Net Assets........ 4.06%
Portfolio Turnover.......................................... 66%
</Table>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period. This return does
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 37
VAN KAMPEN INSURED TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005
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 distribution of the Fund's Class I shares commenced on August
12, 2005.
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, 2005, 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.
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
38
VAN KAMPEN INSURED TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
At September 30, 2005, the cost and related gross unrealized appreciation
and depreciation were as follows:
<Table>
Cost of investments for tax purposes...................... $1,116,883,541
==============
Gross tax unrealized appreciation......................... $ 61,288,180
Gross tax unrealized depreciation......................... (2,110,003)
--------------
Net tax unrealized appreciation on investments.............. $ 59,178,177
==============
</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,
2005 and 2004 was as follows:
<Table>
<Caption>
2005 2004
Distributions paid from:
Ordinary Income........................................... $ 1,834,335 $ 1,429,233
Long-term capital gain.................................... 9,269,523 14,007,249
----------- -----------
$11,103,858 $15,436,482
=========== ===========
</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 book to tax
accretion differences totaling $105,272 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 $5,587 was reclassified from accumulated
undistributed net investment income to accumulated net realized gain.
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $ 5,035,342
Undistributed long-term capital gain........................ 15,304,816
</Table>
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of gains or losses recognized for tax purposes on
open futures transactions on September 30, 2005.
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
39
VAN KAMPEN INSURED TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 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, 2005, the Fund's
custody fee was reduced by $39,384 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, 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.......................................... .525%
Next $500 million........................................... .500%
Next $500 million........................................... .475%
Over $1.5 billion........................................... .450%
</Table>
For the year ended September 30, 2005, the Fund recognized expenses of
approximately $62,400 representing legal expenses provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Fund is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Fund.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer ("CCO") Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Fund. The costs of
these services are allocated to each fund. For the year ended September 30,
2005, the Fund recognized expenses of approximately $143,400, representing Van
Kampen Investment Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Fund, as well as, the salary,
benefits and related costs of the CCO and related support staff paid by Van
Kampen. Services provided pursuant to the Legal Services agreement are reported
as part of "Legal" expenses on the Statement of Operations. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Other" expenses 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, 2005, the Fund recognized expenses of approximately $579,200,
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 also
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 $246,728 are included in
"Other" assets on the Statement of Assets and Liabilities at September 30, 2005.
Appreciation/depreciation and distributions received from these investments are
recorded with
40
VAN KAMPEN INSURED TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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 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, 2005, capital aggregated $1,034,385,631, $55,512,598,
$22,388,176 and $1,897,007 for Classes A, B, C and I, respectively. For the year
ended September 30, 2005, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 3,391,018 $ 64,402,543
Class B................................................... 254,051 4,816,384
Class C................................................... 298,578 5,659,465
Class I................................................... 108,413 2,052,256
----------- -------------
Total Sales................................................. 4,052,060 $ 76,930,648
=========== =============
Dividend Reinvestment:
Class A................................................... 2,239,715 $ 42,453,709
Class B................................................... 87,830 1,662,581
Class C................................................... 30,180 570,946
Class I................................................... 519 9,826
----------- -------------
Total Dividend Reinvestment................................. 2,358,244 $ 44,697,062
=========== =============
Repurchases:
Class A................................................... (6,212,732) $(117,927,260)
Class B................................................... (844,830) (16,033,908)
Class C................................................... (219,186) (4,154,336)
Class I................................................... (8,717) (165,075)
----------- -------------
Total Repurchases........................................... (7,285,465) $(138,280,579)
=========== =============
</Table>
41
VAN KAMPEN INSURED TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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>
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, 2005 and
2004, 260,919 and 106,142 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, 2005 and 2004, 32,422 and 0 Class C Shares converted 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 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
42
VAN KAMPEN INSURED TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
Shares 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, 2005, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $206,300 and CDSC on redeemed shares of approximately $120,100.
Sales charges do not represent expenses of the Fund.
4. REDEMPTION FEES
Effective September 26, 2005, the Fund assesses a 2% redemption fee on the
proceeds of Fund shares that are redeemed (either by sale or exchange) within
seven days of purchase. The redemption fee is paid directly to the Fund. For the
period ended September 30, 2005, the Fund did not receive any redemption fees.
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $776,593,577 and $809,276,957,
respectively.
6. 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.
43
VAN KAMPEN INSURED TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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. 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, 2005,
were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at September 30, 2004........................... 1,435
Futures Opened.............................................. 10,822
Futures Closed.............................................. (9,265)
------
Outstanding at September 30, 2005........................... 2,992
======
</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.
7. 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 $1,399,800 and $61,600
for Class B and Class C Shares, respectively. This amount 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.
44
VAN KAMPEN INSURED TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
Included in the fees for the year ended September 30, 2005, are payments
retained by Van Kampen of approximately $693,500 and payments made to Morgan
Stanley DW Inc., an affiliate of the Adviser, of approximately $88,200.
8. 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. Plaintiffs have
filed a Motion for Leave to file a Supplemental Pleading that would, among other
things, expand the allegations and alleged class.
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. Plaintiff has sought leave to file a second amended
derivative complaint that alleges that the Adviser permitted or recklessly
disregarded market timing and late trading in its proprietary mutual funds in
order to increase assets under management and fees. However, pursuant to an
agreement between the parties, the plaintiff's proposed second amended
derivative complaint was withdrawn and the allegations regarding market timing
and late trading asserted therein were filed in a separate complaint and
coordinated with other cases related to market timing that have been centralized
in a federal court.
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.
45
VAN KAMPEN INSURED TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
9. 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.
46
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, 2005, 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.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2005, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. 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, 2005, 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 11, 2005
47
VAN KAMPEN INSURED TAX FREE INCOME FUND
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President and Chief Investment Officer
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
PHILLIP G. GOFF
Chief Financial Officer and Treasurer
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, 2005. The Fund designated 99.8% of the income distributions as a
tax-exempt income distribution. The Fund designated and paid $9,269,523 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.
48
VAN KAMPEN INSURED TAX FREE INCOME FUND
TRUSTEES AND OFFICERS INFORMATION
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 as of the date of this Annual Report. 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 (60) Trustee Trustee Chairman and Chief 72 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.
Jerry D. Choate (67) Trustee Trustee Prior to January 1999, 70 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 INSURED TAX FREE INCOME FUND
TRUSTEE AND OFfiCERS 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 (65) Trustee Trustee President of CAC, L.L.C., 72 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. Prior to
distributor of wire, January 2005, Trustee of
cable and communications the University of Chicago
connectivity products. Hospitals and Health
Prior to July 2000, Systems. Prior to April
Managing Partner of 2004, Director of
Equity Group Corporate TheraSense, Inc. Prior to
Investment (EGI), a January 2004, Director of
company that makes TeleTech Holdings Inc.
private investments in and Arris Group, Inc.
other companies. Prior to May 2002,
Director of Peregrine
Systems Inc. Prior to
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 INSURED TAX FREE INCOME FUND
TRUSTEE AND OFfiCERS 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 (57) Trustee Trustee Managing Partner of 70 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
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (53) Trustee Trustee Director and President of 70 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 (70) Trustee Trustee Prior to 1998, President 72 Trustee/Director/Managing
14 Huron Trace since 2003 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
</Table>
51
<Table>
<Caption>
VAN KAMPEN INSURED TAX FREE INCOME FUND
TRUSTEE AND OFfiCERS 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 (69) Trustee Trustee President of Nelson 70 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 (65) Trustee Trustee President Emeritus and 72 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 70 Trustee/Director/Managing
(63) 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 INSURED TAX FREE INCOME FUND
TRUSTEE AND OFFICERS INFORMATION continued
INTERESTED TRUSTEE:*
<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
Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 72 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 Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
</Table>
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
53
VAN KAMPEN INSURED TAX FREE INCOME FUND
TRUSTEE AND OFFICERS 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
Ronald E. Robison (66) President and Officer President of funds in the Fund Complex since September 2005
1221 Avenue of the Americas Principal Executive since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since May 2003. Managing Director of Morgan Stanley and
Morgan Stanley & Co. Incorporated. Managing Director and
Director of Morgan Stanley Investment Management Inc. Chief
Administrative Officer, Managing Director and Director of
Morgan Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc. Managing Director and Director of
Morgan Stanley Distributors Inc. and Morgan Stanley
Distribution 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 of Morgan Stanley Investment
Management Inc. and Executive Vice President of funds in the
Fund Complex from May 2003 to September 2005.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Investment Officer Investment Management Inc. and Director of Morgan Stanley
Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Amy R. Doberman (43) 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 since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (39) Vice President Officer Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.
</Table>
54
<Table>
<Caption>
VAN KAMPEN INSURED TAX FREE INCOME FUND
TRUSTEE AND OFfiCERS 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
John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1996 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Phillip G. Goff (42) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza and Treasurer since 2005 Inc. since June 2005. Chief Financial Officer and Treasurer
Oakbrook Terrace, IL 60181 of funds in the Fund Complex since August 2005. Prior to
June 2005, Vice President and Chief Financial Officer of
Enterprise Capital Management, Inc., an investment holding
company.
</Table>
55
Van Kampen Insured Tax Free Income Fund
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.
(continued on next page)
Van Kampen Insured Tax Free Income Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
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 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
(continued on back)
Van Kampen Insured Tax Free Income Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
The Statement of Additional Information includes additional information
about Fund trustees and is available, without charge, upon request by
calling 1-800-847-2424.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
32, 332, 532
TFIN ANR 11/05
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-02737P-Y09/05
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, 2005.
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 9/30/05
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index from 9/30/95 through 9/30/05. Class A shares, adjusted for
sales charges.
(LINE GRAPH)
<Table>
<Caption>
VAN KAMPEN STRATEGIC MUNICIPAL LEHMAN BROTHERS MUNICIPAL BOND
INCOME FUND INDEX
------------------------------ ------------------------------
9/95 9523 10000
12/95 9943 10413
9749 10288
9838 10366
10031 10604
12/96 10262 10874
10310 10848
10591 11222
10938 11560
12/97 11191 11873
11354 12010
11513 12192
11862 12567
12/98 11860 12642
11925 12755
11754 12529
11565 12479
12/99 11374 12381
11500 12743
11524 12935
11711 13248
12/00 11761 13827
12018 14134
12107 14226
12351 14626
12/01 12279 14537
12370 14673
12704 15210
13003 15933
12/02 13031 15933
13089 16124
13471 16540
13550 16553
12/03 13767 16780
14040 17070
13835 16666
14345 17314
12/04 14717 17530
14916 17523
15438 18037
9/05 15457 18015
</Table>
<Table>
<Caption>
A SHARES B SHARES C SHARES
6/28/85 4/30/93 8/13/93
- ---------------------------------------------------------------------------------------------
W/MAX W/MAX W/MAX
W/O 4.75% W/O 4.00% W/O 1.00%
AVERAGE ANNUAL SALES SALES SALES SALES SALES SALES
TOTAL RETURNS CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES
Since Inception 6.60% 6.34% 4.88% 4.88% 4.46% 4.46%
10-year 4.96 4.45 4.39 4.39 4.24 4.24
5-year 5.71 4.69 4.94 4.69 5.07 5.07
1-year 7.75 2.62 7.04 3.04 6.98 5.98
- ---------------------------------------------------------------------------------------------
30 day SEC Yield 4.49% 3.95% 3.91%
</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 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 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, 2005
Van Kampen Strategic Municipal Income Fund is managed by the Adviser's Municipal
Fixed Income team.(1) Members of the team include Wayne D. Godlin, Managing
Director of the Adviser and James D. Phillips, Executive Director of the
Adviser.
MARKET CONDITIONS
During the 12-month period ended September 30, 2005, the economy grew at a
moderate pace, with reasonable gains in employment and sustained strength in
consumer spending. Although oil prices soared, core inflation (which excludes
food and energy) remained relatively stable. Continuing with the course it began
in June of 2004, the Federal Open Market Committee (the Fed) raised the federal
funds target rate eight times during the period. Through a "measured pace" of 25
basis point increments, the Fed brought the rate to 3.75 percent at the end of
the reporting period. While the yields of short- and intermediate-term bonds
moved upward in concert with the Fed's actions, the yields of long-term bonds
rates declined. As a result, the yield curve (which charts the difference
between short-term and long-term rates) flattened.
Against this backdrop, total returns across the municipal bond market varied
dramatically, with long maturity bonds outperforming short-term issues by a wide
margin. As investors sought income in an environment of historically low rates,
BBB rated and non-rated bonds significantly outperformed high grade debt, and
credit spreads tightened markedly. Strong and steady flows of new cash into high
yield municipal funds added to the demand for lower rated issues.
Sectors with a preponderance of lower rated credits performed with particular
strength. Tobacco revenue bonds were by far the best performing sector,
supported by overall spread tightening as well as by increasing investor comfort
with tobacco companies' future litigation risk. Health care bonds (hospitals and
long-term care facilities) also fared well, boosted by strong investor demand.
In contrast, housing bonds underperformed as interest rates declined and
prepayment risk increased.
Municipal bond issuance remained robust in 2005, with $310 billion of debt
brought to market in the first nine months of the year, a pace on track to beat
the record issuance of 2003. Refunding activity represented a good portion of
this activity, as issuers sought to refinance higher cost debt at low prevailing
interest rates. Bonds backed by insurance dominated issuance and increased their
market penetration to nearly 60 percent.
(1)Team members may change without notice from time to time.
2
PERFORMANCE ANALYSIS
The fund returned 7.75 percent for the 12 months ended September 30, 2005 (Class
A shares, unadjusted for sales charges). In comparison, the fund's benchmark,
the Lehman Brothers Municipal Bond Index, returned 4.05 percent for the period.
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
- ---------------------------------------------------------
LEHMAN BROTHERS
MUNICIPAL
CLASS A CLASS B CLASS C BOND INDEX
7.75% 7.04% 6.98% 4.05%
- ---------------------------------------------------------
</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.
The fund's outperformance during the period was attributable to a variety of
factors. Relative to the benchmark, the fund held greater exposure to higher
yielding bonds. As a result, the fund was better positioned to benefit from the
dramatic tightening of credit spreads. (Credit spreads measure the added
compensation investors require to assume risk. When credit spreads tighten,
bonds with lower credit ratings generally outperform higher quality bonds.) As
investors sought income, they increasingly favored the high yield sector.
Improving economic and corporate fundamentals and declining defaults further
bolstered the appeal of high yield issues.
While this tightening occurred across many sectors of the market, it was
particularly notable in the health care and special tax district sectors, two
areas which we emphasized during the period. Health care bonds were recognized
by the market for their improving fundamentals and potential to benefit from
demographic trends, while tax district bonds were supported by housing starts
and low mortgage rates. The fund's special facility airport bonds boosted the
fund's income. Generally, these bonds are secured by lease payments from
airlines, while airport authorities have ownership rights to these facilities.
Inverse floaters further enhanced performance. (The yields of inverse floaters
move in opposition with interest rates.) We had initiated positions in these
securities when the yield curve was steeper, thereby locking in higher interest
rates. The fund's inverse floaters appreciated briskly when long-term bonds
rallied.
During the period, we increased exposure to tobacco bonds, specifically master
settlement agreement securities. Through our analysis, we determined that
certain of these bonds might offer compelling risk and reward characteristics.
In particular, we were encouraged by the improving litigation environment for
3
tobacco companies. As investors rekindled their interest in the sector, the fund
was well served by its exposure to select master settlement agreement bonds.
Although the fund outperformed the benchmark by a significant margin, not all
areas performed equally well. The fund's multi-family and nursing home bond
generated more muted gains relative to the leading sectors. Moreover, a handful
of individual bonds declined due to company-specific factors.
At the end of the period, the fund's largest sector positions were health care,
life care, special tax districts, air carriers and public facilities. To pursue
income with enhanced stability, the fund blended high yield and high grade
securities. High grade bonds represented approximately 14 percent of the
portfolio as of September 30, 2005.
As we begin the fund's next fiscal year, we remain optimistic. Ongoing economic
growth, stronger corporate balance sheets and declining levels of defaults are
among the factors that underpin our sentiment. That said, this optimism is
grounded in appropriate caution and informed by our exacting research of
individual securities.
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Fund in the future.
4
<Table>
<Caption>
RATING ALLOCATIONS AS OF 9/30/05
AAA/Aaa 10.3%
AA/Aa 4.1
A/A 8.1
BBB/Baa 16.1
BB/Ba 2.8
B/B 4.2
CCC/Caa 1.3
Non-Rated 53.1
<Caption>
TOP FIVE SECTORS AS OF 9/30/05
Hospital 19.1%
Life Care 14.3
Special Tax District 10.2
Air Carriers 5.9
Public Buildings 5.0
<Caption>
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/05
New York 11.1%
California 9.4
Texas 8.5
Florida 7.8
Illinois 5.8
Pennsylvania 5.4
New Jersey 4.9
Massachusetts 3.6
Missouri 3.5
Ohio 3.3
Arizona 3.0
Michigan 2.9
Colorado 2.9
Virginia 2.8
Minnesota 2.7
Oklahoma 2.5
Puerto Rico 1.8
Maryland 1.6
South Carolina 1.4
(continued on next page)
</Table>
5
<Table>
<Caption>
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/05
(continued from previous page)
Georgia 1.4
Iowa 1.1
Wisconsin 1.0
Tennessee 1.0
North Carolina 1.0
Washington 1.0
Oregon 0.8
Louisiana 0.8
New Hampshire 0.8
Alabama 0.8
Indiana 0.7
Nevada 0.5
South Dakota 0.5
New Mexico 0.5
Kansas 0.5
Connecticut 0.5
Hawaii 0.4
Rhode Island 0.4
Alaska 0.3
Maine 0.3
Vermont 0.2
U. S. Virgin Islands 0.2
Utah 0.2
North Dakota 0.2
Wyoming 0.1
District of Columbia 0.1
Idaho 0.1
Delaware 0.1
-----
Total Investments 100.4%
Liabilities in Excess of Other Assets -0.4
-----
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.
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, 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 (800) SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a fund's fiscal quarter filings by contacting
Van Kampen Client Relations at (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 (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 POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the Fund's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 847-2424 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the Fund voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 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.
8
Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments of Class A Shares
and contingent deferred sales charge on redemptions of Class B and Class C
Shares; and (2) 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 04/01/05 - 09/30/05.
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
account values and 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 and do not reflect any transactional costs, such as sales
charges (loads) or contingent deferred sales charges. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your cost would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------------------------------------------
4/1/05 9/30/05 4/1/05-9/30/05
Class A
Actual...................................... $1,000.00 $1,036.25 $4.44
Hypothetical................................ 1,000.00 1,020.67 4.41
(5% annual return before expenses)
Class B
Actual...................................... 1,000.00 1,033.30 8.31
Hypothetical................................ 1,000.00 1,016.87 8.24
(5% annual return before expenses)
Class C
Actual...................................... 1,000.00 1,033.01 8.31
Hypothetical................................ 1,000.00 1,016.87 8.24
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 0.87%, 1.63%,
and 1.63% for Class A, B, and C Shares, respectively, multiplied by the
average account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
Assumes all dividends and distributions were reinvested.
9
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On May 25, 2005, the Board of Trustees, and the independent trustees voting
separately, determined that the terms of the investment advisory agreement are
fair and reasonable and approved the continuance of the investment advisory
contract as being in the best interests of the Fund and its shareholders. In
making its determination, the Board of Trustees considered materials that were
specifically prepared by the investment adviser at the request of the Board and
Fund counsel, and by an independent provider of investment company data
contracted to assist the Board, relating to the contract review process. The
Board also considered information received periodically about the portfolio,
performance, the investment strategy, portfolio management team and fees and
expenses of the Fund. The Board of Trustees considered the contract over a
period of several months and the non-management trustees held sessions both with
the investment adviser and separate from the investment adviser in reviewing and
considering the contract.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
existing and alternative breakpoints in the Fund's investment advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies and/or other products at different asset levels,
and considered the trends in the industry versus historical and projected assets
of the Fund. The Board of Trustees evaluated other benefits the investment
adviser and its affiliates derive from their relationship with the Fund. The
Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the investment adviser and
its affiliated companies and the capability of the personnel of the investment
adviser, and specifically the strength and background of its portfolio
management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees, evaluated
all of the foregoing and does not believe any single factor or group of factors
control or dominate the review process, and, after considering all factors
10
together, has determined, in the exercise of its business judgment, that
approval of the investment advisory agreement is in the best interests of the
Fund and its shareholders. The following summary provides more detail on certain
matters considered but does not detail all matters considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The Fund
discloses information about its portfolio management team members and their
experience in its prospectus. The trustees also discuss certain other services
which are provided on a cost-reimbursement basis by the investment adviser or
its affiliates to the Van Kampen funds including certain accounting,
administrative and legal services. The Board has determined that the nature,
extent and quality of the services provided by the investment adviser support
its decision to approve the investment advisory contract.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, a performance committee of the
Board spends more focused time on the performance of the Fund and other funds in
the Van Kampen complex, paying specific attention to underperforming funds. The
trustees discuss with the investment adviser the performance goals and the
actual results achieved in managing the Fund. When considering a fund's
performance, the trustees and the investment adviser place emphasis on trends
and longer-term returns (focusing on one-year, three-year and five-year
performance with special attention to three-year performance) and, when a fund's
weighted performance is under the fund's benchmark, they discuss the causes and
where necessary seek to make specific changes to investment strategy or
investment personnel. The Fund discloses more information about its performance
elsewhere in this report and in the Fund's prospectus. The trustees discuss with
the investment adviser the level of advisory fees for this Fund relative to
comparable funds and other products advised by the adviser and others in the
marketplace. The trustees review not only the advisory fees but other fees and
expenses (whether paid to the adviser, its affiliates or others) and the Fund's
overall expense ratio. The Fund discloses more information about its fees and
expenses in its prospectus. The Board has determined that the performance, fees
and expenses of the Fund support its decision to approve the investment advisory
contract.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put together by the investment adviser with the oversight of a special ad hoc
committee of the Board. The trustees discuss with the investment adviser its
11
revenues and expenses, including among other things, revenues for advisory
services, portfolio management-related expenses, revenue sharing arrangement
costs and allocated expenses both on an aggregate basis and per fund. The Board
has determined that the analysis of the investment adviser's expenses and
profitability support its decision to approve the investment advisory contract.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
and growth prospects of the Fund and how that relates to the Fund's expense
ratio and particularly the Fund's advisory fee rate. In conjunction with its
review of the investment adviser's profitability, the trustees discuss with the
investment adviser how more (or less) assets can affect the efficiency or
effectiveness of managing the Fund's portfolio and whether the advisory fee
level is appropriate relative to current and projected asset levels and/or
whether the advisory fee structure reflects economies of scale as asset levels
change. The Board has determined that its review of the actual and potential
economies of scale of the Fund support its decision to approve the investment
advisory contract.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory contract.
12
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
MUNICIPAL BONDS 99.5%
ALABAMA 0.8%
$1,000 Alabama Drinking Wtr Fin Auth Revolving Fd
Ln Ser C (AMBAC Insd)...................... 5.750% 08/15/18 $ 1,106,490
2,000 Alabama Drinking Wtr Fin Auth Revolving Fd
Ln Ser C (AMBAC Insd)...................... 5.375 08/15/23 2,151,760
2,000 Alabama Wtr Pollutn Ctl Auth
(AMBAC Insd)............................... 5.750 08/15/18 2,202,700
1,000 Butler, AL Indl Dev Brd Solid GA Pacific
Corp Proj Rfdg (AMT)....................... 5.750 09/01/28 1,015,770
1,500 Colbert Cnty Northwest Auth Hlthcare Fac... 5.750 06/01/27 1,543,680
2,500 Huntsville/Carlton Cove, AL Carlton Cove
Inc Proj Ser A............................. 7.000 11/15/17 1,386,650
3 Mobile, AL Indl Dev Brd Solid Waste Disp
Rev Mobile Energy Svc Co Proj Rfdg......... 6.950 01/01/20 294
1,395 Valley, AL Spl Care Fac Fin Auth Rev Lanier
Mem Hosp Ser A............................. 5.600 11/01/16 1,435,009
1,750 Valley, AL Spl Care Fac Fin Auth Rev Lanier
Mem Hosp Ser A............................. 5.650 11/01/22 1,787,537
--------------
12,629,890
--------------
ALASKA 0.3%
1,405 Alaska Indl Dev & Expt Auth Williams Lynxs
AK Cargoport (AMT) (Acquired 05/17/01, Cost
$1,405,000) (a)............................ 7.800 05/01/14 1,313,675
4,000 Juneau, AK City & Borough Rev Saint Anns
Care Ctr Proj.............................. 6.875 12/01/25 3,649,040
--------------
4,962,715
--------------
ARIZONA 3.0%
2,000 Arizona Hlth Fac Auth Hosp John C Lincoln
Hlth Network............................... 6.375 12/01/37 2,194,960
1,000 Arizona Hlth Fac Auth Rev Terraces Proj
Ser A...................................... 7.500 11/15/23 1,126,450
1,250 Arizona Hlth Fac Auth Rev Terraces Proj
Ser A...................................... 7.750 11/15/33 1,414,062
5,880 Cochise Cnty, AZ Indl Dev Sierra Vista
Cmnty Hosp Ser A Rfdg...................... 6.750 12/01/26 6,055,753
995 Flagstaff, AZ Indl Dev Auth Rev Sr Living
Cmnty Northn AZ Proj....................... 7.500 03/01/35 1,084,510
500 Flagstaff, AZ Indl Dev Auth Rev Sr Living
Cmnty Northn AZ Proj....................... 6.300 09/01/38 501,725
7,000 Glendale, AZ Indl Dev Auth Rfdg............ 5.000 12/01/35 7,046,690
4,000 Maricopa Cnty, AZ Hlth Fac Rev Catholic
Hlthcare West Ser A........................ 5.500 07/01/26 4,228,640
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 2,857,040
</Table>
See Notes to Financial Statements 13
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
ARIZONA (CONTINUED)
$2,460 Maricopa Cnty, AZ Indl Dev Christian Care
Mesa Inc Proj Ser A........................ 7.750% 04/01/15 $ 2,566,715
2,000 Maricopa Cnty, AZ Indl Dev Christian Care
Mesa Inc Proj Ser A........................ 7.875 04/01/27 2,084,160
1,500 Peoria, AZ Indl Dev Auth Rev Sierra Winds
Life Ser A Rfdg............................ 6.375 08/15/29 1,540,545
2,500 Phoenix, AZ Indl Dev Auth Mtg Christian
Care Apt Proj Ser A Rfdg................... 6.500 01/01/26 2,581,200
4,225 Pima Cnty, AZ Indl Dev Auth Ed Rev Fac
Premier & Air Co........................... 7.000 09/01/35 4,232,140
1,865 Pima Cnty, AZ Indl Dev Auth Ed Rev Fac
Milestones Charter Sch Proj................ 6.750 11/01/33 1,890,271
2,750 Pima Cnty, AZ Indl Dev Auth Ed Rev Horizon
Cmnty Learning Ctr Rfdg.................... 5.250 06/01/35 2,777,445
800 Pima Cnty, AZ Indl Dev Auth Fac Skyline
Tech High Sch Proj......................... 7.500 02/01/34 808,176
1,000 Pima Cnty, AZ Indl Dev Auth Rev La Posada
at Park Ctr Ser A.......................... 7.000 05/15/27 1,039,750
815 Red Hawk Canyon Cmnty Fac Dist No 2 AZ Dist
Assmt Rev.................................. 6.500 12/01/12 836,703
2,150 Tucson, AZ Multi-Family Rev Hsg Catalina
Asstd Living Ser A (AMT)................... 6.500 07/01/31 1,987,911
--------------
48,854,846
--------------
CALIFORNIA 9.4%
1,000 ABAG Fin Auth Nonprofit Corp CA American
Baptist Homes Ser A Rfdg................... 5.850 10/01/27 1,006,470
1,000 Beaumont, CA Fin Auth Loc Agy Ser A........ 5.600 09/01/25 1,042,840
2,000 Beaumont, CA Fin Auth Loc Agy Ser A........ 5.650 09/01/30 2,065,640
2,000 Beaumont, CA Fin Auth Loc Agy Ser A........ 5.700 09/01/35 2,070,820
1,000 Beaumont, CA Fin Auth Loc Agy Ser D........ 5.800 09/01/35 1,041,420
1,000 Blythe, CA Redev Agy Proj.................. 5.750 05/01/34 1,018,750
1,000 Brentwood, CA Infrastructure Auth Rev...... 5.875 09/02/34 1,030,850
15,000 California Hlth Fac Fin Auth Rev Cedars
Sinai Med Ctr Rfdg......................... 5.000 11/15/34 15,296,700
3,000 California Pollutn Ctl Fin Auth Solid Waste
Disp Rev Solid Waste Mgmt Inc Proj Ser A 2
(AMT)...................................... 5.400 04/01/25 3,117,000
10,000 California St Rfdg......................... 5.000 08/01/26 10,478,400
1,000 California Statewide Cmnty Dev Auth Elder
Care Alliance Ser A........................ 8.250 11/15/32 1,036,760
950 California Statewide Cmnty Dev Auth Multi-
Family Rev Hsg Heritage Pointe Sr Apt Ser
QQ (AMT) (Acquired 02/19/02, Cost $947,625)
(a)........................................ 7.500 10/01/26 980,381
1,675 California Statewide Cmnty Dev Auth Rev
Daughters of Charity Hlth Ser A............ 5.250 07/01/35 1,717,026
</Table>
14 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
$1,250 California Statewide Cmnty Dev Auth Rev
Daughters of Charity Hlth Ser A............ 5.000% 07/01/39 $ 1,253,162
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 1,009,720
1,000 Chino, CA Cmnty Fac Dist No 03 Impt Area
1.......................................... 5.700 09/01/29 1,038,530
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg
Rev (Escrowed to Maturity) (MBIA Insd)..... * 09/01/17 2,385,750
1,500 Corona-Norco, CA Univ Sch Dist Pub Fin Auth
Spl Tax Rev Ser A.......................... 5.800 09/01/35 1,546,980
2,300 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev (MBIA Insd)......................... * 01/15/18 1,257,778
30,000 Golden St Tob Securitization Corp CA Tob
Settlement Rev Enhanced Asset Bkd Ser A.... 5.000 06/01/45 30,492,600
800 Golden St Tob Securitization Corp CA Tob
Settlement Ser 2003 A-1.................... 6.750 06/01/39 922,040
1,750 Huntington Beach, CA Cmnty No 2003 1
Huntington Ctr............................. 5.800 09/01/23 1,817,585
885 Indio, CA Pub Fin Auth Rev Tax Increment
(Prerefunded @ 08/15/06)................... 6.500 08/15/27 920,294
2,000 Indio, CA Redev Agy Tax Alloc Sub Merged
Proj Area Ser B............................ 6.375 08/15/33 2,071,020
500 Indio, CA Redev Agy Tax Alloc Sub Merged
Proj Area Ser B............................ 6.500 08/15/34 522,385
1,000 Jurupa, CA Cmnty Svc Dist Spl Cmnty Fac
Dist No 4 Ser A............................ 5.700 09/01/34 1,031,340
1,825 Lake Elsinore, CA Pub Fin Auth Loc Agy Rev
Ser F...................................... 7.100 09/01/20 1,958,499
1,000 Lee Lake Wtr Dist CA Cmnty Fac Dist No 1
Spl Tax Sycamore Creek..................... 6.000 09/01/33 1,057,760
1,000 Lincoln, CA Spl Tax Cmnty Fac Dist No 2003
Ser 1...................................... 6.000 09/01/34 1,045,950
1,750 Los Angeles, CA Regl Arpt Impt Corp Lease
Rev Fac Sublease LA Intl Ser A-1 Rfdg...... 7.125 12/01/24 1,733,532
17,440 Los Angeles, CA Regl Arpt Impt Corp Lease
Rev Ser C (AMT)............................ 7.500 12/01/24 17,318,269
5,000 Metropolitan Wtr Dist Southn CA Wtrwks Rev
Ser A (FSA Insd)........................... 5.000 07/01/35 5,249,650
1,425 Millbrae, CA Residential Fac Rev Magnolia
of Millbrae Proj Ser A (AMT)............... 7.375 09/01/27 1,458,901
1,000 Murrieta, CA Cmnty Fac Dist No 2 the Oaks
Impt Area A................................ 5.900 09/01/27 1,060,020
1,000 Murrieta, CA Cmnty Fac Dist No 2 the Oaks
Impt Area A................................ 6.000 09/01/34 1,056,830
1,000 Murrieta, CA Cmnty Fac Dist No 2 the Oaks
Impt Area B................................ 6.000 09/01/27 1,067,130
</Table>
See Notes to Financial Statements 15
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
$2,000 Orange Cnty, CA Cmnty Fac Tax No 04-1
Ladera Ranch Ser A......................... 5.150% 08/15/29 $ 2,009,000
1,000 Palmdale, CA Spl Tax Cmnty Fac 03-1
Anaverde A................................. 5.350 09/01/30 1,014,410
1,100 Palmdale, CA Spl Tax Cmnty Fac 03-1
Anaverde A................................. 5.400 09/01/35 1,118,557
1,000 Perris, CA Cmnty Fac Dist Spl Tax No 01-2
Ser A...................................... 6.375 09/01/32 1,084,260
2,000 Riverside, CA Univ Sch Dist Tax Cmnty Fac
Dist 15 Impt Area 1........................ 5.550 09/01/30 2,060,160
2,165 Roseville, CA Spl Tax Cmnty Fac Dist No 1
Westpark................................... 5.150 09/01/30 2,173,422
7,100 San Jose, CA Redev Agy Tax Alloc Drivers
Ser 1085 (Inverse Fltg) (Acquired 09/12/05,
Cost $7,967,620) (MBIA Insd) (a) (b)....... 6.937 08/01/13 7,749,295
2,000 San Marcos, CA Pub Fac Auth Spl Tax Rev Ser
A.......................................... 5.650 09/01/36 2,052,240
1,000 Upland, CA Cmnty Fac Dist 2003 San Antonio
Impt 1 A................................... 5.900 09/01/24 1,055,210
1,500 Upland, CA Cmnty Fac Dist 2003 San Antonio
Impt 1 A................................... 6.000 09/01/34 1,567,605
1,965 Vallejo, CA Ctf Partn Touro Univ........... 7.250 06/01/16 2,108,170
965 Vallejo, CA Pub Fin Auth Loc Hiddenbrooke
Impt Dist Ser A............................ 5.800 09/01/31 987,079
1,000 Woodland, CA Spl Tax Cmnty Fac Dist 1
Spring Lake................................ 6.250 09/01/34 1,006,620
1,800 Yuba City, CA Redev Agy Tax Proj Ser A..... 6.000 09/01/31 1,903,608
3,000 Yuba City, CA Redev Agy Tax Proj Ser A..... 6.000 09/01/39 3,159,570
--------------
152,227,988
--------------
COLORADO 2.9%
1,060 Beacon Pt Met Dist Co Ser A................ 6.125 12/01/25 1,071,480
1,005 Beacon Pt Met Dist Co Ser A................ 6.250 12/01/35 1,013,924
1,000 Bromley Pk Met Dist CO No 2 Ser B.......... 8.050 12/01/32 1,082,780
1,000 Castle Oaks Met Dist CO Ltd Tax............ 6.000 12/01/25 993,540
1,500 Castle Oaks Met Dist CO Ltd Tax............ 6.125 12/01/35 1,489,635
975 Colorado Ed & Cultural Fac Charter Sch
Frontier Academy........................... 7.250 06/01/20 1,010,958
2,000 Colorado Hlth Fac Auth Rev Baptist Home
Assn Ser A................................. 6.375 08/15/24 1,752,660
2,000 Colorado Hlth Fac Auth Rev Baptist Home
Assn Ser B (Variable Rate Coupon).......... 7.250 08/15/27 1,981,500
1,060 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj................................ 7.050 01/01/19 1,094,969
3,000 Colorado Hlth Fac Auth Rev Covenant
Retirement Cmnty Inc....................... 5.000 12/01/35 2,922,300
</Table>
16 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
COLORADO (CONTINUED)
$3,000 Denver, CO City & Cnty Arpt Rev Sys Ser A
(XLCA Insd)................................ 5.000% 11/15/25 $ 3,141,900
3,425 Denver, CO Hlth & Hosp Auth Ser A Rfdg..... 6.250 12/01/33 3,790,961
2,500 Elk Vly, CO Pub Impt Fee Ser A............. 7.300 09/01/22 2,685,775
1,150 High Plains Met Dist Co Ser A.............. 6.125 12/01/25 1,160,269
1,750 High Plains Met Dist Co Ser A.............. 6.250 12/01/35 1,765,540
5,000 Jefferson Cnty, CO Sch Dist No R-001
Drivers Ser 674 (Inverse Fltg) (Acquired
12/22/04, Cost $5,675,285) (FSA Insd) (a)
(b)........................................ 6.927 12/15/12 5,588,300
615 Lafayette, CO Indl Dev Rev Rocky Mtn Instr
Proj Ser A (b)............................. 6.750 10/01/14 510,721
1,920 Lafayette, CO Indl Dev Rev Rocky Mtn Instr
Proj Ser A (AMT)........................... 7.000 10/01/18 1,562,803
4,825 Lake Creek Affordable Hsg Corp Hsg Proj Ser
A Rfdg..................................... 6.250 12/01/23 4,689,417
500 Neu Towne, CO Met Dist..................... 7.250 12/01/34 528,895
1,000 Serenity Ridge, CO Met Dist No 2........... 7.500 12/01/34 1,076,360
1,725 Skyland Met Dist CO Gunnison Cnty Rfdg..... 6.750 12/01/22 1,782,822
1,000 Southlands Met Dist No 1 CO................ 7.000 12/01/24 1,096,600
1,000 Wheatlands Met Dist No 2 CO Ltd Tax........ 6.000 12/01/25 999,320
1,500 Wheatlands Met Dist No 2 CO Ltd Tax........ 6.125 12/01/35 1,498,815
--------------
46,292,244
--------------
CONNECTICUT 0.5%
1,500 Connecticut St Dev Auth Indl Afco Cargo Bdl
LLC Proj (AMT)............................. 8.000 04/01/30 1,631,610
2,000 Mohegan Tribe Indians CT Pub Impt Priority
Dist (Acquired 09/27/01, Cost $1,955,120)
(a)........................................ 6.250 01/01/31 2,151,540
3,500 Mohegan Tribe Indians CT Pub Impt Priority
Dist (Acquired 11/03/04 to 11/04/04, Cost
$3,418,565) (a)............................ 5.250 01/01/33 3,511,340
--------------
7,294,490
--------------
DELAWARE 0.1%
1,080 Wilmington, DE Multi-Family Rent Rev Hsg
Electra Arms Sr Assoc Proj (AMT)........... 6.250 06/01/28 973,242
--------------
DISTRICT OF COLUMBIA 0.1%
1,000 District of Columbia Rev Methodist Home
Issue...................................... 6.000 01/01/29 1,012,900
85 District of Columbia Ser A-1 (Escrowed to
Maturity) (MBIA Insd)...................... 6.500 06/01/10 96,748
--------------
1,109,648
--------------
FLORIDA 7.6%
1,000 Anthem Pk Cmnty Dev Dist FL Cap Impt Rev... 5.800 05/01/36 1,015,340
1,000 Bellalago Ed Fac Benefits Ser A............ 6.000 05/01/33 1,044,580
1,000 Bellalago Ed Fac Benefits Ser B............ 5.800 05/01/34 1,030,670
</Table>
See Notes to Financial Statements 17
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$4,315 Bloomingdale, FL Cmnty Dev Dist Spl Assmt
Rev........................................ 5.875% 05/01/36 $ 4,490,750
1,000 Bluewaters Cmnty Dev Dist of FL............ 6.000 05/01/35 1,047,820
2,500 Bonnet Creek Resort Cmnty Dev.............. 7.500 05/01/34 2,695,000
795 Caribe Palm Cmnty Dev Dist FL Spl Assmt Ser
A.......................................... 5.850 05/01/35 821,251
1,000 City Ctr Cmnty Dev Dist FL Spl Assmt Rev
Ser A...................................... 6.125 05/01/36 1,004,570
2,935 Escambia Cnty, FL Rev ICF/MR Pensacola Care
Dev Ctr.................................... 10.250 07/01/11 2,962,002
1,245 Escambia Cnty, FL Rev ICF/MR Pensacola Care
Dev Ctr Ser A.............................. 10.250 07/01/11 1,256,454
1,340 Fishhawk Cmnty Dev Dist of FL Spl Assmt Rev
(Prerefunded @ 05/01/06)................... 7.625 05/01/18 1,399,509
3,660 Florida Hsg Fin Corp Rev Hsg Beacon Hill
Apt Ser C (AMT)............................ 6.610 07/01/38 3,685,400
7,120 Florida Hsg Fin Corp Rev Hsg Cypress Trace
Apt Ser G (AMT)............................ 6.600 07/01/38 6,808,856
4,830 Florida Hsg Fin Corp Rev Hsg Westchase Apt
Ser B (AMT)................................ 6.610 07/01/38 4,197,705
3,505 Hammock Bay Cmnty Dev Dist FL Spl Assmt Rev
Ser A...................................... 6.125 05/01/35 3,648,845
1,500 Harbour Isles Cmnty Dev Dist of FL......... 6.125 05/01/35 1,579,890
300 Heritage Harbor Cmnty Dev Dist FL Rev
Rec........................................ 7.750 05/01/23 280,782
850 Heritage Harbor Cmnty Dev Dist FL Rev Spl
Assmt Ser A................................ 6.700 05/01/19 871,649
1,435 Highlands Cnty, FL Hlth Fac Hosp Adventist
Hlth Sys................................... 5.250 11/15/28 1,474,018
1,500 Hillsborough Cnty, FL Hsg Fin Hsg Clipper
Cove Apt Proj Ser A (AMT).................. 7.375 07/01/40 1,534,875
2,500 Hillsborough Cnty, FL Indl Dev Auth Hosp
Rev Tampa Gen Hosp Proj Ser B.............. 5.250 10/01/34 2,592,700
1,000 Islands at Doral III Cmnty 2004 Ser A...... 5.900 05/01/35 1,031,670
1,000 Islands at Doral NE Cmnty Dev.............. 6.250 05/01/34 1,064,050
6,410 Jea, FL Wtr & Swr Sys Rev Drivers Ser 805
(Inverse Fltg) (Acquired 03/22/05, Cost
$6,268,702) (MBIA Insd) (a)................ 4.750 10/01/12 6,508,073
1,550 Kendall Breeze West Cmnty Dev Dist FL Spl
Assmt (b).................................. 5.875 05/01/34 1,614,402
2,000 Keys Cove Cmnty Dev Dist FL Assmt Rev...... 5.875 05/01/35 2,083,100
2,000 Lee Cnty, FL Indl Dev Auth Hlthcare Fac Rev
Cypress Cove Hlthpk Ser A.................. 6.750 10/01/32 2,091,640
3,500 Leon Cnty, FL Ed Fac Auth Rev Southgate
Residence Hall Ser A Rfdg.................. 6.750 09/01/28 3,625,720
1,275 Lexington Cmnty Dev Dist FL................ 6.125 05/01/34 1,333,204
</Table>
18 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$ 90 Marshall Creek Cmnty Dev FL Spl Assmt Ser
B.......................................... 6.750% 05/01/07 $ 91,114
2,500 Meadow Woods Cmnty Dev Dist FL Ser A....... 6.050 05/01/35 2,557,300
1,000 Miami Beach, FL Hlth Fac Hosp Mt Sinai Med
Ctr FL Proj................................ 5.375 11/15/28 1,005,040
2,500 Miami Beach, FL Hlth Fac Hosp Mt Sinai Med
Ctr Rfdg (Acquired 04/26/04, Cost
$2,411,600) (a)............................ 6.750 11/15/29 2,787,175
2,000 Miami-Dade Cnty, FL Aviation Rev Ser A
(AMT) (FSA Insd)........................... 5.000 10/01/33 2,050,440
3,000 Midtown Miami, FL Cmnty Dev Dist Ser A..... 6.000 05/01/24 3,197,490
1,195 Miromar Lakes Cmnty Dev Dist Ser B Rfdg.... 7.250 05/01/12 1,266,210
910 Northern Palm Beach Cnty Dist FL Impt Wtr
Ctl & Impt Unit Dev No 16 Rfdg............. 7.500 08/01/24 991,645
1,775 Oak Creek Cmnty Dev Dist FL Spl Assmt...... 5.800 05/01/35 1,838,101
2,050 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg (Prerefunded @
07/01/06).................................. 8.625 07/01/20 2,190,035
2,250 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg (Prerefunded @
07/01/06).................................. 8.750 07/01/26 2,405,745
1,560 Orange Cnty, FL Hlth Fac Auth Rev Hosp
Adventist Hlth Sys (Prerefunded @ 11/15/10)
(b)........................................ 5.875 11/15/11 1,752,067
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp
Adventist Hlth Sys (Prerefunded @
11/15/10).................................. 6.375 11/15/20 1,146,450
2,000 Orange Cnty, FL Hlth Fac Auth Rev
Westminster Cmnty Care..................... 6.600 04/01/24 2,061,320
1,000 Overoaks, FL Cmnty Dev Dist CA Ser A....... 6.125 05/01/35 1,053,260
1,000 Parklands Lee Cmnty Dev Dist FL Spl Assmt
Ser A...................................... 5.800 05/01/35 1,027,390
1,000 Pine Is Cmnty Dev Dist FL Spl Assmt........ 5.750 05/01/35 1,026,190
3,000 Pinellas Cnty, FL Hlth Fac Auth Oaks of
Clearwtr Proj.............................. 6.250 06/01/34 3,136,770
1,000 Reunion East Cmnty Dev Dist................ 5.800 05/01/36 1,031,580
2,000 Reunion West Cmnty Dev Dist................ 6.250 05/01/36 2,112,840
980 Saddlebrook, FL Cmnty Ser A................ 6.900 05/01/33 1,059,017
500 Saint John's Cnty, FL Indl Dev Auth
Hlthcare Glenmoor Saint John's Proj Ser
A.......................................... 8.000 01/01/17 539,665
4,500 Saint John's Cnty, FL Indl Dev Auth
Hlthcare Glenmoor Saint John's Proj Ser
A.......................................... 8.000 01/01/30 4,856,985
2,000 Saint John's Cnty, FL Indl Dev Auth
Hlthcare Rev Bayview Proj Ser A............ 7.100 10/01/26 2,010,900
1,995 Silver Palms Cmnty Dev Dist (b)............ 5.900 05/01/34 2,075,578
1,300 South Dade Venture Cmnty Dev............... 6.125 05/01/34 1,377,220
</Table>
See Notes to Financial Statements 19
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$1,500 South Vlg Cmnty Dev Dist FL Cap Impt Rev
Ser A...................................... 5.700% 05/01/35 $ 1,532,775
175 Stoneybrook West Cmnty Dev Dist FL Spl
Assmt Rev Ser B............................ 6.450 05/01/10 176,088
1,500 Town Ctr Palm Coast Cmnty Dev Dist FL Cap
Impt Rev................................... 6.000 05/01/36 1,548,105
1,500 Turnbull Creek Cmnty Dev Dist FL
Spl Assmt.................................. 5.800 05/01/35 1,545,390
1,722 University Square Cmnty Dev Dist FL Cap
Impt Rev (Acquired 10/07/99 to 09/07/00,
Cost $1,720,270) (a)....................... 6.750 05/01/20 1,815,694
2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg (Prerefunded @ 11/01/06)......... 7.625 11/01/26 2,137,660
1,000 World Commerce Cmnty Dev Dist Ser A1....... 6.250 05/01/22 1,019,050
1,715 World Commerce Cmnty Dev Dist Ser A2....... 6.125 05/01/35 1,762,420
--------------
122,979,234
--------------
GEORGIA 1.4%
2,000 Atlanta, GA Tax Alloc Atlantic Sta Proj.... 7.750 12/01/14 2,172,540
2,345 Atlanta, GA Urban Residential Fin Auth
Multi-Family Rev John Eagan Proj Ser A
(AMT)...................................... 6.750 07/01/30 2,166,545
2,750 De Kalb Cnty, GA Residential Care Fac Kings
Bridge Ser A............................... 8.250 07/01/26 2,854,527
1,000 Effingham Cnty, GA Dev Auth Solfort James
Proj (AMT)................................. 5.625 07/01/18 998,370
1,800 Fulton Cnty, GA Residential Care Canterbury
Court Proj Ser A........................... 6.000 02/15/22 1,831,122
650 Fulton Cnty, GA Residential Care Canterbury
Court Proj Ser A........................... 6.125 02/15/34 667,264
3,500 Fulton Cnty, GA Residential Care Sr Lien
RHA Asstd Living Ser A..................... 7.000 07/01/29 3,526,565
4,000 Milledgeville Baldwin Cnty, GA College & St
Univ Fndtn................................. 5.625 09/01/30 4,200,760
1,000 Private Colleges & Univ Auth GA Mercer Hsg
Corp Proj Ser A............................ 6.000 06/01/21 1,049,400
2,930 Renaissance on Peachtree Unit Invt Tr Ctf
GA Custody Ctf (Variable Rate Coupon)...... 12.178 10/01/25 2,528,707
--------------
21,995,800
--------------
HAWAII 0.4%
2,500 Hawaii St Dept Budget & Fin Spl Purp Rev
Kahala Nui Proj Ser A...................... 8.000 11/15/33 2,874,700
1,820 Hawaii St Dept Trans Spl Fac Rev
Continental Airl Inc (AMT)................. 5.625 11/15/27 1,387,932
2,825 Kuakini, HI Hlth Sys Spl Ser A............. 6.375 07/01/32 3,017,524
--------------
7,280,156
--------------
</Table>
20 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
IDAHO 0.1%
$1,000 Idaho Hlth Fac Auth Rev Vly Vista Care Ser
A Rfdg..................................... 7.875% 11/15/29 $ 1,004,230
--------------
ILLINOIS 5.8%
2,500 Bolingbrook, IL Cap Apprec Ser B (MBIA
Insd)...................................... * 01/01/29 711,925
1,990 Bolingbrook, IL Spl Svc Area No 01-1....... 7.375 07/01/31 2,158,135
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 1,579,995
1,665 Bolingbrook, IL Spl Svc Area No 1 Spl Tax
Ser 2004 Augusta Vlg Proj.................. 6.250 03/01/32 1,696,002
1,901 Bolingbrook, IL Spl Svc Area No 3 Lakewood
Ridge Proj................................. 7.050 03/01/31 2,027,397
947 Cary, IL Spl Tax Svc Area No 1 Cambridge
Ser A...................................... 7.625 03/01/30 1,069,930
7,750 Chicago, IL O'Hare Intl Arpt Rev RR II R
239-1 (AMT) (Inverse Fltg) (Acquired
08/18/03, Cost $8,490,358) (FSA Insd) (a)
(b)........................................ 8.600 01/01/19 9,427,022
4,950 Chicago, IL Proj Ser A Rfdg (MBIA Insd).... 5.500 01/01/38 5,387,580
50 Chicago, IL Proj Ser A Rfdg (Prerefunded @
01/01/11) (MBIA Insd)...................... 5.500 01/01/38 55,517
4,000 Chicago, IL Spl Assmt Lakeshore East
Proj....................................... 6.625 12/01/22 4,366,080
840 Chicago, IL Tax Increment Alloc Read
Dunning Ser B (ACA Insd)................... 7.250 01/01/14 885,125
2,000 Chicago, IL Tax Increment Alloc Sub Cent
Loop Redev Ser A........................... 6.500 12/01/05 2,009,860
3,000 Chicago, IL Tax Increment Alloc Sub Cent
Loop Redev Ser A (ACA Insd)................ 6.500 12/01/06 3,105,660
1,925 Chicago, IL Tax Increment Alloc Sub Cent
Loop Redev Ser A (ACA Insd)................ 6.500 12/01/08 2,086,893
1,000 Clay Cnty, IL Hosp Rev..................... 5.900 12/01/28 991,180
1,228 Gilberts, IL Spl Svc Area No 9 Spl Tax Big
Timber Proj (Escrowed to Maturity) (b)..... 7.375 03/01/11 1,378,000
1,245 Gilberts, IL Spl Svc Area No 9 Spl Tax Big
Timber Proj (Prerefunded @ 03/01/11)....... 7.750 03/01/27 1,513,111
1,500 Godfrey, IL Rev Utd Methodist Vlg Ser A.... 5.875 11/15/29 1,054,965
2,700 Hoopeston, IL Hosp Cap Impt Rev Hoopeston
Cmnty Mem Hosp Rfdg........................ 6.550 11/15/29 2,547,180
1,740 Huntley, IL Increment Alloc Rev Huntley
Redev Proj Ser A........................... 8.500 12/01/15 1,789,103
225 Huntley, IL Spl Svc Area No 10 Spl Tax Ser
A (b)...................................... 6.250 03/01/09 236,358
2,621 Huntley, IL Spl Svc Area No 10 Spl
Tax Ser A.................................. 6.500 03/01/29 2,818,623
1,405 Illinois Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj............................... 8.000 11/15/16 1,281,613
</Table>
See Notes to Financial Statements 21
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$ 500 Illinois Fin Auth Rev Fairview Oblig Grp
Ser A Rfdg................................. 6.000% 08/15/20 $ 508,440
500 Illinois Fin Auth Rev Fairview Oblig Grp
Ser A Rfdg................................. 6.125 08/15/27 506,565
2,000 Illinois Fin Auth Rev Friendship Vlg
Schaumburg A............................... 5.625 02/15/37 2,026,760
3,000 Illinois Fin Auth Rev Northwestern Mem Hosp
Ser A...................................... 5.500 08/15/43 3,201,510
1,000 Illinois Hlth Fac Auth Rev Ctr Baptist Home
Proj....................................... 7.125 11/15/29 1,061,270
2,500 Illinois Hlth Fac Auth Rev Decatur Mem
Hosp....................................... 5.750 10/01/24 2,632,575
3,000 Illinois Hlth Fac Auth Rev Fairview Oblig
Grp Ser A Rfdg (Prerefunded @ 08/15/06).... 7.400 08/15/23 3,164,970
650 Illinois Hlth Fac Auth Rev Loyola Univ Hlth
Sys Ser A.................................. 6.000 07/01/21 692,276
1,200 Illinois Hlth Fac Auth Rev Lutheran Sr
Ministries Oblig Ser A..................... 7.375 08/15/31 1,295,904
1,500 Illinois Hlth Fac Auth Rev Peace Mem
Ministries Proj (Prerefunded @ 08/15/06)... 7.500 08/15/26 1,583,715
1,365 Illinois Hlth Fac Auth Rev Proctor Cmnty
Hosp Proj.................................. 7.500 01/01/11 1,366,242
250 Illinois Hlth Fac Auth Rev Ser A Rfdg...... 6.200 08/15/23 254,715
1,125 Illinois Hlth Fac Auth Rev Ser A Rfdg...... 6.400 08/15/33 1,147,219
700 Illinois Hlth Fac Auth Rev Silver Cross
Hosp & Med Rfdg............................ 5.500 08/15/19 729,603
2,375 Lake Cnty, IL Fst Presv Dist Ld Acquisition
& Dev...................................... 5.750 12/15/16 2,635,039
675 Lake Cnty, IL Fst Presv Dist Ld Acquisition
& Dev...................................... 5.750 12/15/17 747,205
80 Lake, Cook, Kane & McHenry Cntys, IL Cmnty
Unit Sch Dist No 22 (FGIC Insd)............ 5.750 12/01/19 88,261
2,200 Manhattan, IL No 04-1 Brookstone Springs
Proj....................................... 6.100 03/01/35 2,216,412
1,000 Minooka, IL Spl Assmt Impt Lakewood Trls
Unit 2 Proj................................ 6.375 03/01/34 1,032,980
1,207 Montgomery, IL Spl Assmt Impt Lakewood
Creek Proj................................. 7.750 03/01/30 1,327,712
1,800 Peoria, IL Spl Tax Weaverridge Spl Svc
Area....................................... 8.050 02/01/17 1,918,998
3,000 Pingree Grove, IL Spl Svc Area No 2 Spl Tax
Ser 05-2 Cambridge Lakes Proj.............. 6.000 03/01/35 2,981,370
2,000 Plano, IL Spl Svc Area No 1 Lakewood
Springs Proj Ser A......................... 6.200 03/01/34 2,039,080
2,095 Regional Tran Auth IL Ser B (AMBAC Insd)... 8.000 06/01/17 2,838,411
945 Sterling, IL Rev Hoosier Care Proj Ser A... 7.125 06/01/34 884,539
3,135 Wheeling, IL Tax Increment Rev N Milwaukee/
Lake Cook Tif Proj......................... 6.000 01/01/25 3,108,164
</Table>
22 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$2,000 Yorkville, IL Utd City Spl Svc Area Spl Tax
No 4 104 Mpi Grade Resv Proj............... 6.375% 03/01/34 $ 2,065,960
--------------
94,233,149
--------------
INDIANA 0.7%
825 Crawfordsville, IN Redev Cmnty Redev Dist
Tax Increment Rev (Acquired 10/15/97, Cost
$825,000) (a) (b).......................... 7.000 02/01/12 838,695
1,895 Indiana Hlth Fac Fin Auth Rev Hoosier Care
Proj Ser A................................. 7.125 06/01/34 1,775,634
6,500 Indiana Hlth Fac Hosp Rev Cmnty Fndtn
Northwest IN Ser A......................... 6.000 03/01/34 6,894,615
2,000 Petersburg, IN Pollutn Ctl Rev IN Pwr & Lt
(AMT)...................................... 6.375 11/01/29 2,131,140
--------------
11,640,084
--------------
IOWA 1.1%
1,000 Bremer Cnty, IA Retirement Fac Rev Bartels
Lutheran Ser A (c)......................... 5.375 11/15/27 987,830
2,000 Estherville, IA Hosp Rev Avera Holy
Family Proj................................ 6.250 07/01/26 2,145,200
375 Evansdale, IA Hlthcare Western Home Proj... 6.000 11/01/26 381,851
3,400 Evansdale, IA Hlthcare Western Home Proj
Ser A (b).................................. 6.000 11/01/26 3,453,278
1,950 Iowa Fin Auth Hlthcare Fac Care Initiatives
Proj Rfdg.................................. 9.250 07/01/25 2,388,204
500 Iowa Fin Auth Retirement Cmnty Friendship
Haven Proj Ser A........................... 5.750 11/15/19 505,345
500 Iowa Fin Auth Retirement Cmnty Friendship
Haven Proj Ser A........................... 6.000 11/15/24 508,430
800 Iowa Fin Auth Retirement Cmnty Friendship
Haven Proj Ser A........................... 6.125 11/15/32 813,160
1,000 Polk Cnty, IA Hlthcare Fac Rev Luther Pk
Hlth Ctr Inc Proj.......................... 6.150 10/01/36 1,015,310
5,000 Tobacco Settlement Auth IA Tob Settlement
Rev Asset Bkd Ser B........................ 5.600 06/01/35 5,146,550
--------------
17,345,158
--------------
KANSAS 0.5%
910 Lawrence, KS Coml Dev Rev Holiday Inn Sr
Ser A Rfdg (d)............................. 8.000 07/01/16 492,219
1,000 Lenexa, KS Hlthcare Fac Rev Lakeview Vlg
Inc Ser B.................................. 6.250 05/15/26 1,024,100
915 Manhattan, KS Coml Dev Rev Holiday Inn Sr
Ser A Rfdg (d)............................. 8.000 07/01/16 465,515
2,000 Olathe, KS Sr Living Fac Rev Aberdeen Vlg
Inc Ser A (Prerefunded @ 05/15/10)......... 8.000 05/15/30 2,388,580
</Table>
See Notes to Financial Statements 23
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
KANSAS (CONTINUED)
$1,500 Olathe, KS Sr Living Fac Rev Aberdeen Vlg
Inc Ser A Rfdg............................. 5.600% 05/15/28 $ 1,514,295
1,500 Overland Pk, KS Dev Corp Rev First Tier
Overland Park Ser A........................ 7.375 01/01/32 1,637,115
--------------
7,521,824
--------------
LOUISIANA 0.8%
1,985 Louisiana Hsg Fin Agy Rev Azalea Estates
Ser A Rfdg (AMT) (GNMA Collateralized)..... 5.375 10/20/39 2,060,847
1,800 Louisiana Loc Govt Environment Fac Hlthcare
Saint James Place A Rfdg................... 7.000 11/01/29 1,837,278
4,100 Louisiana Loc Govt Environment Fac Cmnty
Dev Auth Rev Hlthcare Saint James Place A
Rfdg....................................... 7.000 11/01/25 4,195,202
1,000 Louisiana Pub Fac Auth Rev Progressive
Hlthcare................................... 6.375 10/01/20 983,440
1,000 Louisiana Pub Fac Auth Rev Progressive
Hlthcare................................... 6.375 10/01/28 937,710
3,132 Louisiana St Univ & Agric & Mechanical
College Univ Rev Master Agreement (Acquired
11/30/98, Cost $3,132,241) (a)............. 5.750 10/30/18 2,981,393
--------------
12,995,870
--------------
MAINE 0.3%
4,480 Jay, ME Solid Waste Disp Rev Intl Paper Co
Proj Ser A Rfdg (AMT)...................... 4.900 11/01/17 4,530,579
--------------
MARYLAND 1.6%
2,000 Annapolis, MD Spl Oblig Park Pl Proj Ser
A.......................................... 5.350 07/01/34 2,017,900
1,000 Baltimore Cnty, MD Mtg Rev Shelter Elder
Care Ser A................................. 7.250 11/01/29 1,037,130
4,000 Frederick Cnty, MD Spl Oblig Urbana Cmnty
Dev Auth Ser A............................. 5.950 07/01/30 4,201,960
1,000 Frederick Cnty, MD Spl Oblig Urbana Cmnty
Dev Auth Ser B............................. 6.250 07/01/30 1,053,770
425 Maryland St Econ Dev Corp Air Cargo Rev
Afco Cargo BWI II LLC Proj (AMT) (b)....... 6.250 07/01/07 425,519
1,200 Maryland St Econ Dev Corp MD Golf Course
Sys (Prerefunded @ 06/01/11)............... 8.250 06/01/28 1,442,076
1,540 Maryland St Hlth & Higher Ed Calvert
Hlth Sys................................... 5.500 07/01/36 1,633,694
1,000 Maryland St Hlth & Higher Ed Medstar Hlth
Rfdg....................................... 5.500 08/15/33 1,050,410
3,000 Montgomery Cnty, MD Econ Dev Editorial Proj
In Ed Ser A (Acquired 09/28/98, Cost
$3,000,000) (a)............................ 6.400 09/01/28 2,962,530
1,652 Prince Georges Cnty, MD Rev................ 8.000 04/01/16 1,652,017
</Table>
24 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
MARYLAND (CONTINUED)
$2,250 Prince Georges Cnty, MD Spl Oblig Natl
Harbor Proj................................ 5.200% 07/01/34 $ 2,283,345
3,000 Prince Georges Cnty, MD Spl Oblig Spl Assmt
Woodview Ser A............................. 8.000 07/01/26 3,200,280
1,000 Westminster, MD Econ Dev Carroll Lutheran
Vlg Ser A.................................. 6.000 05/01/24 1,045,280
1,500 Westminster, MD Econ Dev Carroll Lutheran
Vlg Ser A.................................. 6.250 05/01/34 1,580,700
--------------
25,586,611
--------------
MASSACHUSETTS 3.6%
1,000 Massachusetts St Dev Fin Agy Briarwood Ser
B (Prerefunded @ 12/01/10)................. 8.000 12/01/22 1,212,780
250 Massachusetts St Dev Fin Agy Rev Evergreen
Ctr Inc.................................... 5.000 01/01/24 247,765
500 Massachusetts St Dev Fin Agy Rev Evergreen
Ctr Inc.................................... 5.500 01/01/35 502,475
840 Massachusetts St Dev Fin Agy Rev Gtr Lynn
Mental Hlth (Acquired 07/27/00, Cost
$840,000) (a).............................. 7.750 06/01/18 903,202
1,890 Massachusetts St Dev Fin Agy Rev Hillcrest
Ed Ctr Inc................................. 6.375 07/01/29 1,910,110
2,935 Massachusetts St Dev Fin Agy Rev Hlthcare
Fac Alliance Ser A......................... 7.100 07/01/32 3,008,815
1,000 Massachusetts St Dev Fin Agy Rev MCHSP
Human Svc Providers Ser A (Prerefunded @
07/01/01).................................. 8.000 07/01/20 1,196,330
3,710 Massachusetts St Dev Fin Agy Rev New
England Ctr For Children................... 6.000 11/01/19 3,805,607
10,315 Massachusetts St Dev Fin Agy Rev Rites PA
1316 (Inverse Fltg) (Acquired 07/20/05,
Cost $11,406,224) (AMBAC Insd) (a) (b)..... 7.061 10/01/39 11,185,792
3,100 Massachusetts St Hlth & Ed Civic
Investments Ser B.......................... 9.150 12/15/23 3,763,400
4,475 Massachusetts St Hlth & Ed Fac Auth Rev
Caritas Christi Oblig Grp Ser A............ 5.625 07/01/20 4,582,713
7,380 Massachusetts St Hlth & Ed Fac Auth Rev
UMass Mem Issue Ser D...................... 5.000 07/01/33 7,373,948
933 Massachusetts St Hlth & Ed Nichols College
Issue Ser C................................ 6.000 10/01/17 992,106
1,000 Massachusetts St Hlth & Ed Northern
Berkshire Hlth Ser B....................... 6.250 07/01/24 1,054,640
1,450 Massachusetts St Hsg Fin Agy Hsg Ser E
(AMT)...................................... 5.100 06/01/37 1,475,506
1,895 Massachusetts St Indl Fin Agy Assisted
Living Fac Rev Marina Bay LLC Proj (AMT)... 7.500 12/01/27 2,006,388
</Table>
See Notes to Financial Statements 25
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
MASSACHUSETTS (CONTINUED)
$ 980 Massachusetts St Indl Fin Agy Assisted
Living Fac Rev Newton Grp Pptys LLC Proj
(AMT)...................................... 8.000% 09/01/27 $ 1,040,103
560 Massachusetts St Indl Fin Agy Rev First Mtg
GF/Pilgrim Inc Proj........................ 6.500 10/01/15 542,046
2,000 Massachusetts St Indl Fin Agy Rev First Mtg
GF/Pilgrim Inc Proj........................ 6.750 10/01/28 1,878,260
1,975 Massachusetts St Indl Fin Agy Rev First Mtg
Reeds Landing Proj (e)..................... 7.100/7.350 10/01/28 1,971,228
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 3,016,870
505 Massachusetts St Indl Fin Agy Rev Gtr Lynn
Mental Hlth (Acquired 06/24/98, Cost
$505,000) (a).............................. 6.200 06/01/08 520,741
3,400 Massachusetts St Indl Fin Agy Rev Swr Fac
Res Ctl Composting (AMT) (Acquired
08/10/89, Cost $3,400,00) (a).............. 9.250 06/01/10 3,410,982
--------------
57,601,807
--------------
MICHIGAN 2.9%
2,500 Chelsea, MI Econ Dev Corp Rev Utd Methodist
Retirement Rfdg............................ 5.400 11/15/27 2,502,150
850 Detroit, MI Loc Dev Fin Auth Tax Increment
Sub Ser C (Acquired 09/08/97, Cost
$850,000) (a).............................. 6.850 05/01/21 869,508
1,000 Gaylord, MI Hosp Fin Auth Ltd Oblig Rev
Otsego Mem Hosp Rfdg....................... 6.500 01/01/31 1,033,560
1,700 Hillsdale, MI Hosp Fin Hillsdale Cmnty
Hlth Ctr................................... 5.000 05/15/13 1,702,958
10,430 Kent Hosp Fin Auth MI Rev Met Hosp Proj Ser
A.......................................... 6.000 07/01/35 11,183,046
4,000 Kent Hosp Fin Auth MI Rev Met Hosp Proj Ser
A.......................................... 6.250 07/01/40 4,362,800
2,390 Meridian, MI Econ Dev Corp Ltd Oblig Rev
First Mtg Burcham Hills Ser A Rfdg......... 7.500 07/01/13 2,440,572
3,430 Meridian, MI Econ Dev Corp Ltd Oblig Rev
First Mtg Burcham Hills Ser A Rfdg......... 7.750 07/01/19 3,510,879
3,045 Michigan St Hosp Fin Auth Rev Hosp Pontiac
Osteopathic Ser A Rfdg..................... 6.000 02/01/14 3,047,466
1,500 Michigan St Hosp Fin Auth Rev Hosp Pontiac
Osteopathic Ser A Rfdg..................... 6.000 02/01/24 1,501,515
2,000 Michigan St Hosp Fin Auth Rev Presbyterian
Vlg Rfdg................................... 5.500 11/15/35 2,014,120
</Table>
26 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
MICHIGAN (CONTINUED)
$11,084 Michigan St Strategic Fd Ltd Oblig Rev
Great Lakes Pulp & Fiber Proj (AMT) (d)
(f)........................................ 8.000% 12/01/27 $ 1,550,145
10,325 Wayne Cnty, MI Arpt Auth Rev Rols RR II R
352 (AMT) (Inverse Fltg) (Acquired
04/05/05, Cost $11,112,797) (MBIA Insd) (a)
(b)........................................ 5.250 12/01/24 11,654,550
--------------
47,373,269
--------------
MINNESOTA 2.7%
2,000 Aitkin, MN Hlth Fac Rev Riverwood Hlthcare
Ctr Proj................................... 7.750 02/01/31 2,134,660
1,000 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Proj Ser B.................. 6.000 10/01/33 1,000,270
2,000 Carlton, MN Hlth & Hsg Fac Inter Faith
Social Svc Inc Proj........................ 7.500 04/01/19 2,151,440
2,000 Carlton, MN Hlth & Hsg Fac Inter Faith
Social Svc Inc Proj........................ 7.750 04/01/29 2,159,580
2,250 Cuyuna Range Hosp Dist MN Hlth Fac Gross
Rev........................................ 5.500 06/01/35 2,261,543
1,500 Duluth, MN Econ Dev Auth Saint
Lukes Hosp................................. 7.250 06/15/32 1,614,615
900 Duluth, MN Econ Dev Hlthcare Saint Lukes
Hosp....................................... 6.000 06/15/12 922,950
2,000 Glencoe, MN Hlthcare Fac Rev (Prerefunded @
04/01/11).................................. 7.500 04/01/31 2,378,960
900 Minnesota Agric & Econ Dev Brd Rev Hlthcare
Benedictine Proj Ser A..................... 5.500 08/01/23 907,758
875 Minnesota Agric & Econ Dev Brd Rev Hlthcare
Benedictine Proj Ser A..................... 5.750 02/01/30 880,898
2,500 Northwest MN Multi-Cnty Pooled Hsg Pgm A
Rfdg....................................... 6.250 07/01/40 2,487,400
1,500 Oakdale, MN Rev Sr Hsg Oak Meadows Proj
Rfdg....................................... 6.250 04/01/34 1,565,415
1,425 Ramsey, MN Lease Rev Pact Charter Sch Proj
Ser A...................................... 6.750 12/01/33 1,451,391
1,500 Saint Cloud, MN Hsg & Redev Auth Sterling
Heights Apt Proj (AMT)..................... 7.550 04/01/39 1,568,295
1,000 Saint Paul, MN Hsg & Redev Auth Higher
Ground Academy Ser A Rfdg.................. 6.625 12/01/23 1,022,520
5,000 Saint Paul, MN Hsg & Redev Auth Hosp Rev
Hltheast Proj.............................. 6.000 11/15/35 5,370,950
1,170 Saint Paul, MN Hsg & Redev Auth Hosp Rev
Hltheast Proj Ser A Rfdg................... 6.625 11/01/17 1,173,674
2,295 Saint Paul, MN Hsg & Redev Auth LSE Rev
Rfdg....................................... 6.750 01/01/35 2,295,482
1,000 Saint Paul, MN Hsg & Redev Cmnty of Peace
Academy Proj Ser A......................... 7.875 12/01/30 1,042,520
</Table>
See Notes to Financial Statements 27
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
MINNESOTA (CONTINUED)
$2,250 Saint Paul, MN Port Auth Hotel Fac Rev
Radisson Kellogg Proj Ser 2 Rfdg........... 7.375% 08/01/29 $ 2,357,955
1,250 Saint Paul, MN Port Auth Lease Rev Hltheast
Midway Campus 03 A......................... 5.875 05/01/30 1,271,450
700 Saint Paul, MN Port Auth Lease Rev Hltheast
Midway Campus 03 B......................... 6.000 05/01/30 713,230
1,000 Shakopee, MN Hlthcare Saint Francis Regl
Med Ctr.................................... 5.250 09/01/34 1,028,790
1,000 Vadnais Heights, MN Lease Rev Agric & Food
Sciences Ser A............................. 6.375 12/01/24 1,000,680
1,000 Vadnais Heights, MN Lease Rev Agric & Food
Sciences Ser A............................. 6.600 12/01/34 999,240
1,450 Winona, MN Hlthcare Winona Hlth Ser A...... 6.000 07/01/34 1,538,247
--------------
43,299,913
--------------
MISSISSIPPI 0.0%
615 Mississippi Bus Fin Corp (AMT)............. 7.250 07/01/34 632,546
--------------
MISSOURI 3.5%
1,250 Cole Cnty, MO Indl Dev Auth Sr Living Fac
Rev Lutheran Svcs Heisinger Proj........... 5.500 02/01/35 1,305,075
1,000 Fenton, MO Tax Increment Rev & Impt Gravois
Bluffs Proj Rfdg........................... 6.125 10/01/21 1,028,030
1,000 Fenton, MO Tax Increment Rev & Impt Gravois
Bluffs Proj Rfdg........................... 7.000 10/01/21 1,076,400
1,440 Ferguson, MO Tax Increment Rev Crossings at
Halls Ferry Proj Rfdg...................... 5.000 04/01/17 1,418,357
225 Ferguson, MO Tax Increment Rev Crossings at
Halls Ferry Proj (Escrowed to Maturity).... 7.250 04/01/07 232,209
3,095 Ferguson, MO Tax Increment Rev Crossings at
Halls Ferry Proj (Prerefunded @
04/01/07).................................. 7.625 04/01/17 3,344,550
209 Ferguson, MO Tax Increment Rev Crossings at
Halls Ferry Proj (Prerefunded @
04/01/07).................................. 7.625 04/01/18 225,852
1,500 Folk Ave South Transn Dist MO Transn Sales
Tax Rev Dev MO............................. 5.625 11/01/31 1,503,120
3,000 Joplin, MO Indl Dev Auth Hlth Fac Rev
Freeman Hlth Sys Proj...................... 5.500 02/15/29 3,114,240
2,000 Kansas City, MO Indl Dev Auth First Mtg
Bishop Spencer Ser A....................... 6.250 01/01/24 2,091,200
1,500 Kansas City, MO Indl Dev Auth First Mtg
Bishop Spencer Ser A....................... 6.500 01/01/35 1,578,585
984 Kansas City, MO Indl Dev Auth Multi-Family
Hsg Rev Brentwood Manor Apt Proj Ser B
(AMT)...................................... 7.250 10/15/38 1,019,335
3,000 Kansas City, MO Indl Dev Plaza Lib Proj.... 5.900 03/01/24 2,991,810
1,831 Kansas City, MO Multi-Family Hsg Rev
Northwoods Apts Proj Ser A (AMT)........... 6.450 05/01/40 1,877,526
</Table>
28 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
MISSOURI (CONTINUED)
$ 935 Kansas City, MO Multi-Family Hsg Rev Vlg
Green Apt Proj (AMT)....................... 6.250% 04/01/30 $ 767,242
10,820 Missouri St Hlth & Ed Fac Rev Drivers Ser
362 (Inverse Fltg) (Acquired 07/21/03, Cost
$12,211,777) (a) (b)....................... 7.427 05/15/11 12,284,162
6,390 Missouri St Hlth & Ed Fac Rev Drivers Ser
847 (Inverse Fltg) (Acquired 04/05/05, Cost
$6,971,107) (a) (b)........................ 5.000 11/15/12 7,095,328
2,220 Nevada, MO Hosp Rev Nevada Regional Med
Ctr........................................ 6.750 10/01/22 2,370,405
2,750 Saint Joseph, MO Indl Dev Auth Hlthcare Rev
Living Cmnty Saint Joseph Proj............. 7.000 08/15/32 2,944,673
500 Saint Joseph, MO Indl Dev Auth Tax
Increment Rev Shoppes at North Vlg Proj Ser
A.......................................... 5.100 11/01/19 493,800
1,000 Saint Joseph, MO Indl Dev Auth Tax
Increment Rev Shoppes at North Vlg Proj Ser
A.......................................... 5.500 11/01/27 1,000,300
4,915 Saline Cnty, MO Indl Dev Auth Hlth Fac Rev
(Acquired 01/12/99, Cost $4,820,545) (a)... 6.500 12/01/28 5,069,626
1,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)..... 6.000 06/01/15 1,176,400
--------------
56,008,225
--------------
NEVADA 0.5%
3,500 Clark Cnty, NV Indl Dev Southwest Gas Corp
Proj Ser D1 (AMT) (FGIC Insd).............. 5.250 03/01/38 3,635,625
1,000 Clark Cnty, NV Pollutn Ctl Rev Southn CA
Rfdg (AMT)................................. 3.250 06/01/31 981,380
3,000 Henderson, NV Hlthcare Fac Rev Catholic
Hlthcare West Ser A........................ 5.625 07/01/24 3,207,000
1,000 Las Vegas, NV Loc Impt Bds Spl Impt Dist No
607........................................ 6.000 06/01/19 1,032,900
--------------
8,856,905
--------------
NEW HAMPSHIRE 0.8%
1,500 New Hampshire Higher Ed & Hlth Brewster
Academy (Prerefunded @ 06/01/06)........... 6.750 06/01/25 1,564,185
2,000 New Hampshire Higher Ed & Hlth Fac Auth Rev
Havenwood-Heritage Heights................. 7.350 01/01/18 2,049,740
2,000 New Hampshire Higher Ed & Hlth Fac Auth Rev
Havenwood-Heritage Heights................. 7.450 01/01/25 2,049,720
1,000 New Hampshire Hlth & Ed Auth Rev NH College
Issue (Prerefunded @ 01/01/11)............. 7.500 01/01/31 1,190,970
1,690 New Hampshire Hlth & Ed Fac Auth Rev
Huntington At Nashua Ser A................. 6.875 05/01/33 1,772,658
1,500 New Hampshire Hlth & Ed Fac Hlthcare Sys
Covenant Hlth.............................. 5.500 07/01/34 1,575,630
</Table>
See Notes to Financial Statements 29
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
NEW HAMPSHIRE (CONTINUED)
$1,500 New Hampshire Hlth & Ed Fac Speare Mem
Hosp....................................... 5.875% 07/01/34 $ 1,554,825
1,000 New Hampshire St Business Fin Auth Rev
Alice Peck Day Hlth Sys Ser A.............. 6.875 10/01/19 1,061,490
--------------
12,819,218
--------------
NEW JERSEY 4.9%
2,240 Camden Cnty, NJ Impt Auth Lease Rev
Dockside Refrig (Acquired 01/29/97 to
05/20/97, Cost $2,340,765) (a) (g)......... 8.400 04/01/24 2,153,200
1,000 Middlesex Cnty, NJ Pollutn Ctl Pollutn Ctl
Amerada Rfdg............................... 6.050 09/15/34 1,074,680
2,000 New Jersey Econ Dev Auth Cedar Crest Vlg
Inc Fac Ser A.............................. 7.000 11/15/16 2,093,360
2,500 New Jersey Econ Dev Auth Econ Dev Rev Utd
Methodist Homes Ser A-1.................... 6.000 07/01/18 2,673,550
2,000 New Jersey Econ Dev Auth First Mtg
Franciscan Oaks Proj....................... 5.700 10/01/17 2,033,280
1,000 New Jersey Econ Dev Auth Retirement Cmnty
Rev Ser A.................................. 8.000 11/15/15 1,142,960
1,000 New Jersey Econ Dev Auth Retirement Cmnty
Rev Ser A.................................. 8.125 11/15/18 1,086,190
1,440 New Jersey Econ Dev Auth Retirement Cmnty
Rev Ser A.................................. 8.125 11/15/23 1,638,792
710 New Jersey Econ Dev Auth Rev First Mtg
Lions Gate Proj A.......................... 5.750 01/01/25 723,703
1,230 New Jersey Econ Dev Auth Rev First Mtg
Lions Gate Proj A.......................... 5.875 01/01/37 1,259,213
1,000 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A (Prerefunded @
11/01/06).................................. 8.500 11/01/16 1,078,320
1,500 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A (Prerefunded @
11/01/06).................................. 8.625 11/01/25 1,619,415
1,440 New Jersey Econ Dev Auth Rev Kullman Assoc
Proj Ser A (AMT)........................... 6.125 06/01/18 1,319,616
2,000 New Jersey Econ Dev Auth Rev Sr Living Fac
Esplanade Bear (AMT)....................... 7.000 06/01/39 1,610,960
3,000 New Jersey Econ Dev Auth Rev Sr Mtg Arbor
Glen Proj Ser A (Prerefunded @ 05/15/06)... 8.750 05/15/26 3,166,500
100 New Jersey Econ Dev Auth Spl Fac Rev Contl
Airl Inc Proj (AMT)........................ 6.625 09/15/12 92,665
14,075 New Jersey Econ Dev Auth Spl Fac Rev Contl
Airl Inc Proj (AMT)........................ 6.400 09/15/23 11,923,918
1,500 New Jersey Econ Dev Auth Sr Mtg Arbor A.... 6.000 05/15/28 1,538,670
3,500 New Jersey Econ Dev Auth Utd Methodist
Homes NJ Oblig............................. 5.750 07/01/29 3,567,305
</Table>
30 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
NEW JERSEY (CONTINUED)
$3,225 New Jersey Hlthcare Fac Fin Auth Rev Cap
Hlth Sys Oblig Grp Ser A................... 5.375% 07/01/33 $ 3,339,391
810 New Jersey Hlthcare Fac Fin Auth Rev
Raritan Bay Med Ctr Issue Rfdg............. 7.250 07/01/14 854,510
3,000 New Jersey Hlthcare Fac Fin Inst Inc Cherry
Hill Proj (AMT)............................ 8.000 07/01/27 3,133,710
900 New Jersey Hlthcare Fac Fin Auth Rev Avalon
at Hillsborough A (AMT).................... 6.375 07/01/25 905,904
575 New Jersey Hlthcare Fac Fin Auth Rev Avalon
at Hillsborough A (AMT).................... 6.625 07/01/35 580,658
1,000 New Jersey St Ed Fac Auth Rev Felician
College of Lodi Ser D (Acquired 11/07/97,
Cost $1,000,000) (a)....................... 7.375 11/01/22 1,042,270
8,535 Tobacco Settlement Fin Corp NJ............. 6.750 06/01/39 9,897,271
5,000 Tobacco Settlement Fin Corp NJ............. 6.250 06/01/43 5,601,450
4,525 Tobacco Settlement Fin Corp NJ Asset Bkd... 5.750 06/01/32 4,732,064
5,000 Tobacco Settlement Fin Corp NJ Asset Bkd... 6.000 06/01/37 5,357,750
2,000 Tobacco Settlement Fin Corp NJ Asset Bkd... 6.125 06/01/42 2,151,340
--------------
79,392,615
--------------
NEW MEXICO 0.5%
4,110 Albuquerque, NM Retirement Fac Rev La Vida
Llena Proj Ser B Rfdg...................... 6.600 12/15/28 4,240,451
1,505 Cabezon Pub Impt Dist NM Spl Levg Rev...... 6.000 09/01/24 1,513,187
1,020 New Mexico Hsg Auth Region III Sr Brentwood
Gardens Apt Ser A (AMT).................... 6.850 12/01/31 1,055,221
750 Ventana West Pub Impt Dist NM.............. 6.875 08/01/33 796,800
--------------
7,605,659
--------------
NEW YORK 10.6%
970 Bethlehem, NY Indl Dev Agy Sr Hsg Rev Van
Allen Proj Ser A........................... 6.875 06/01/39 946,303
1,000 Brookhaven, NY Indl Dev Agy Mem Hosp Med
Ctr Inc Ser A.............................. 8.125 11/15/20 1,081,040
1,400 Brookhaven, NY Indl Dev Agy Sr Residential
Hsg Rev Woodcrest Estates Fac Ser A
(AMT)...................................... 6.375 12/01/37 1,433,488
3,460 Dutchess Cnty, NY Indl Dev Agy Saint
Francis Hosp Ser A Rfdg.................... 7.500 03/01/29 3,782,264
4,000 Liberty, NY Dev Corp Rev Goldman Sachs
Headquarters (c)........................... 5.250 10/01/35 4,466,400
8,250 Metropolitan Trans Auth NY Drivers Ser 898
(Inverse Fltg) (Acquired 05/09/05, Cost
$8,893,723) (FSA Insd) (a)................. 6.937 05/15/11 8,936,153
2,105 Monroe Cnty, NY Indl Dev Agy Woodland Vlg
Proj....................................... 8.000 11/15/15 2,267,043
3,000 New York City Indl Dev Agy JFK Intl Arpt
Proj Ser B (AMT)........................... 8.500 08/01/28 2,855,040
</Table>
See Notes to Financial Statements 31
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$47,890 New York City Indl Dev Agy Rev Liberty 7
World Trade Ctr Ser A...................... 6.250% 03/01/15 $ 51,322,755
15,400 New York City Indl Dev Agy Rev Liberty 7
World Trade Ctr Ser A...................... 6.500 03/01/35 16,512,342
4,000 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Fiscal 2004 Ser C (MBIA Insd)...... 5.000 06/15/35 4,182,120
7,000 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Ser B (FSA Insd)................... 5.000 06/15/36 7,329,840
10,000 New York City Muni Wtr Fin Drivers Ser 786
(Inverse Fltg) (Acquired 03/15/05 to
07/21/05, Cost $10,865,500) (a)............ 6.937 12/15/12 10,850,000
4,800 New York City Ser A........................ 7.000 08/01/07 5,021,904
200 New York City Ser A (Prerefunded @
08/01/06).................................. 7.000 08/01/07 209,812
5,000 New York City Ser M........................ 5.000 04/01/35 5,181,800
5,000 New York City Transitional Drivers Ser 386
(Inverse Fltg) (Acquired 02/02/04, Cost
$5,458,300) (a)............................ 6.937 02/01/12 5,568,000
3,000 New York St Dorm Auth Rev Mt Sinai NYU
Hlth....................................... 5.500 07/01/26 3,045,210
1,360 New York St Dorm Auth Rev NY Methodist
Hosp....................................... 5.250 07/01/24 1,438,567
2,000 New York St Dorm Auth Rev NY Methodist
Hosp....................................... 5.250 07/01/33 2,104,440
2,500 New York St Energy Resh & Dev Auth Gas Fac
Rev (Inverse Fltg)......................... 9.917 04/01/20 2,946,350
6,000 Port Authority NY & NJ Rites PA 1927 A
(AMT) (Inverse Fltg) (Acquired 05/24/05,
Cost $6,114,300) (FGIC) (a)................ 6.021 10/01/20 6,048,180
5,250 Port Authority NY & NJ Rites PA 1927 B
(AMT) (Inverse Fltg) (Acquired 05/24/05,
Cost $5,189,573) (FGIC) (a)................ 6.021 10/01/23 5,141,430
1,960 Saratoga Cnty, NY Indl Dev Agy Sr Hsg Rev
Highpointe at Malta Proj Ser A............. 6.875 06/01/39 1,949,553
1,000 Suffolk Cnty, NY Gurwin Jewish Phase II.... 6.700 05/01/39 1,056,690
1,000 Suffolk Cnty, NY Indl Dev Agy Continuing
Care Retirement Cmnty Rev.................. 7.250 11/01/28 1,085,270
3,065 Suffolk Cnty, NY Indl Dev Agy Eastern Long
Is Hosp Assoc Ser A........................ 7.750 01/01/22 3,273,205
1,400 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev
Spellman High Voltage Fac Ser A (AMT)...... 6.375 12/01/17 1,380,890
1,445 Suffolk Cnty, NY Indl Dev Agy Peconic
Landing Ser A.............................. 8.000 10/01/20 1,631,969
1,000 Syracuse, NY Indl Dev Agy Rev First Mtg
Jewish Home Ser A.......................... 7.375 03/01/31 1,073,470
2,700 Ulster Cnty, NY Indl Dev Agy Civic Fac Rev
Benedictine Hosp Proj Ser A................ 6.450 06/01/24 2,509,164
</Table>
32 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$2,315 Utica, NY Indl Dev Agy Civic Utica College
Civic Fac.................................. 6.750% 12/01/21 $ 2,435,496
1,000 Westchester Cnty, NY Indl Dev Hebrew Hosp
Sr Hsg Inc Ser A........................... 7.375 07/01/30 1,076,310
--------------
170,142,498
--------------
NORTH CAROLINA 1.0%
2,000 North Carolina Med Care Commn First Mtg Utd
Methodist Homes (Prerefunded @ 10/01/09)... 7.000 10/01/17 2,269,920
2,600 North Carolina Med Care Commn Retirement
Fac Rev First Mtg Ser A 05................. 5.500 10/01/35 2,628,678
10,000 North Carolina St Rites PA 1246 (Inverse
Fltg) (Acquired 03/16/04, Cost $11,859,100)
(a)........................................ 7.031 03/01/12 11,336,100
--------------
16,234,698
--------------
NORTH DAKOTA 0.2%
2,000 Grand Forks, ND Sr Hsg Rev Spl Term 4000
Vly Square Proj............................ 6.250 12/01/34 2,007,000
945 Grand Forks, ND Sr Hsg Rev Spl Term 4000
Vly Square Proj............................ 6.375 12/01/34 951,152
--------------
2,958,152
--------------
OHIO 3.3%
10,200 Adams Cnty Hosp Fac Impt Rev Adams Cnty
Hosp Proj.................................. 6.500 09/01/36 10,243,656
5,000 Athens Cnty, OH Hosp Fac Rev Impt O'Bleness
Mem Ser A Rfdg............................. 7.125 11/15/33 5,351,800
3,000 Cleveland-Cuyahoga Cnty, OH Spl Assmt/ Tax
Increment.................................. 7.000 12/01/18 3,202,140
1,000 Cuyahoga Cnty, OH Hlthcare Fac Franciscan
Cnty OH Inc Proj Ser C..................... 6.250 05/15/32 1,004,400
623 Cuyahoga Cnty, OH Multi-Family Rev Hsg Park
Lane Apts Ser A1 Rfdg (e).................. 6.000/7.625 10/01/37 449,500
1,081 Cuyahoga Cnty, OH Multi-Family Rev Hsg Park
Lane Apts Ser A2 Rfdg (d) (h).............. 5.460 10/01/37 0
5,000 Cuyahoga Cnty, OH Rev Ser A Rfdg........... 6.000 01/01/32 5,551,500
1,760 Dayton, OH Spl Fac Rev Air Freight Cargo
Day LLC Proj (AMT)......................... 6.300 04/01/22 1,625,994
7,510 Erie Cnty, OH Hosp Fac Rev Firelands Regl
Med Ctr Ser A.............................. 5.625 08/15/32 7,864,247
5,955 Franklin Cnty, OH Hlthcare Fac Rev Impt
Lutheran Sr City Proj Rfdg................. 6.125 12/15/28 5,799,813
2,600 Franklin Cnty, OH Hlthcare Fac Rev Impt OH
Presbyterian Svcs Ser A.................... 5.125 07/01/35 2,643,524
1,500 Lucas Cnty, OH Hlthcare & Impt Sunset
Retirement Rfdg............................ 6.500 08/15/20 1,622,490
</Table>
See Notes to Financial Statements 33
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
OHIO (CONTINUED)
$ 750 Lucas Cnty, OH Port Auth Rev Saint Mary
Woods Proj Ser A........................... 6.000% 05/15/24 $ 762,630
2,250 Lucas Cnty, OH Port Auth Rev Saint Mary
Woods Proj Ser A........................... 6.000 05/15/34 2,268,743
2,840 Madison Cnty, OH Hosp Impt Rev Madison Cnty
Hosp Proj Rfdg (Prerefunded @ 08/01/08).... 6.400 08/01/28 3,087,052
2,000 Ohio St Environmental Fac Rev Ford Motor Co
Proj (AMT)................................. 5.750 04/01/35 1,874,700
--------------
53,352,189
--------------
OKLAHOMA 2.5%
1,000 Citizen Potawatomi Nation, OK Ser A........ 6.500 09/01/16 1,043,130
520 Langston, OK Econ Dev Langston Cmnty Dev
Corp Proj Ser A............................ 7.000 08/01/10 528,107
750 Langston, OK Econ Dev Langston Cmnty Dev
Corp Proj Ser A............................ 7.400 08/01/17 767,400
1,000 Langston, OK Econ Dev Langston Cmnty Dev
Corp Proj Ser A............................ 7.625 08/01/20 1,029,810
1,000 Oklahoma Cnty, OK Fin Auth Epworth Villa
Proj Ser A Rfdg............................ 7.000 04/01/25 1,020,750
2,000 Oklahoma Cnty, OK Fin Auth Rev Epworth
Villa Proj Rfdg............................ 6.000 04/01/18 2,032,220
1,065 Oklahoma Dev Fin Auth Rev Hillcrest
Hlthcare Sys Ser A Rfdg (Prerefunded @
08/15/09).................................. 5.750 08/15/12 1,166,686
1,000 Oklahoma Dev Fin Auth Rev Hillcrest
Hlthcare Sys Ser A Rfdg (Prerefunded @
08/15/09).................................. 5.750 08/15/15 1,095,480
4,000 Oklahoma Dev Fin Auth Rev Hillcrest
Hlthcare Sys Ser A Rfdg (Prerefunded @
08/15/09).................................. 5.625 08/15/19 4,363,880
3,250 Tulsa Cnty, OK Pub Fac Auth (AMBAC Insd)... 6.250 11/01/22 3,639,870
7,030 Tulsa, OK Muni Arpt Tr Rev Amern Airl Proj
Rfdg....................................... 6.250 06/01/20 6,256,419
16,855 Tulsa, OK Muni Arpt Tr Rev Ser A
Rfdg (AMT)................................. 7.750 06/01/35 17,359,807
--------------
40,303,559
--------------
OREGON 0.8%
2,000 Clackamas Cnty, OR Hosp Fac Willamette View
Inc Proj Ser A............................. 7.500 11/01/29 2,145,100
2,145 Clatsop Care Ctr Hlth Dist OR Rev Sr Hsg... 6.875 08/01/28 2,166,171
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 2,556,950
5,093 Oregon St Hlth Hsg Ed & Cultural Fac Auth
(AMT)...................................... 7.250 06/01/28 5,145,971
995 Oregon St Hlth Hsg Ed Auth OR Baptist
Retirement Homes Ser A..................... 8.000 11/15/26 1,032,243
--------------
13,046,435
--------------
</Table>
34 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
PENNSYLVANIA 5.4%
$2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser
B.......................................... 9.250% 11/15/15 $ 2,406,040
2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser
B.......................................... 9.250 11/15/22 2,402,700
2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser
B.......................................... 9.250 11/15/30 2,393,760
2,000 Allegheny Cnty, PA Hosp Dev OH Vly Gen Hosp
Proj A..................................... 5.125 04/01/35 2,009,100
2,000 Allegheny Cnty, PA Indl Dev Auth Lease Rev
(AMT)...................................... 6.625 09/01/24 1,924,080
1,500 Allegheny Cnty, PA Redev Auth Pittsburgh
Mills Proj................................. 5.600 07/01/23 1,560,735
6,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl
Rev Coll Toledo Edison Co Proj Ser A
Rfdg....................................... 7.750 05/01/20 6,147,540
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks
Vlg Inc Proj Rfdg (Prerefunded @
05/15/06).................................. 7.700 05/15/22 1,047,650
1,000 Bucks Cnty, PA Indl Dev Auth Rev First Mtg
Hlthcare Fac Chandler...................... 6.200 05/01/19 1,028,060
1,500 Chester Cnty, PA Hlth & Ed Fac Chester Cnty
Hosp Ser A................................. 6.750 07/01/31 1,606,425
2,000 Cumberland Cnty, PA Indl Dev Auth Rev First
Mtg Woods Cedar Run Ser A Rfdg (g)......... 6.500 11/01/28 675,400
3,000 Dauphin Cnty, PA Gen Auth Rev Office & Pkg
Riverfront Office.......................... 6.000 01/01/25 2,789,610
2,200 Indiana Cnty, PA Indl Dev Auth PSEG Pwr LLC
Proj Rfdg (AMT)............................ 5.850 06/01/27 2,314,092
1,000 Lancaster Cnty, PA Hosp Auth Rev Hlth Ctr
Saint Anne's Home.......................... 6.625 04/01/28 1,038,660
1,200 Lehigh Cnty, PA Gen Purp Auth First Mtg
Bible Fellowship Church.................... 7.625 11/01/21 1,329,060
3,000 Lehigh Cnty, PA Gen Purp Auth Rev Good
Shepherd Group Ser A....................... 5.500 11/01/24 3,156,420
3,585 Lehigh Cnty, PA Gen Purp Auth Rev Kidspeace
Oblig Grp.................................. 6.200 11/01/14 3,540,761
5,500 Lehigh Cnty, PA Gen Purp Auth Rev Kidspeace
Oblig Grp Rfdg............................. 6.000 11/01/23 5,294,355
1,000 Lehigh Cnty, PA Indl Dev Auth Hlth Fac Rev
Lifepath Inc Proj.......................... 6.100 06/01/18 955,760
500 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Rfdg (Prerefunded @
12/01/05).................................. 7.000 12/01/10 513,175
2,500 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Rfdg (Prerefunded @
12/01/05).................................. 7.250 12/01/15 2,566,925
6,000 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Rfdg (Prerefunded @
12/01/05).................................. 7.400 12/01/20 6,162,060
1,085 Montgomery Cnty, PA Indl Dev Auth Rev Mtg
Whitemarsh Cont Care Proj.................. 6.000 02/01/21 1,133,771
</Table>
See Notes to Financial Statements 35
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
PENNSYLVANIA (CONTINUED)
$4,500 Montgomery Cnty, PA Indl Dev Auth Rev Mtg
Whitemarsh Cont Care Proj.................. 6.250% 02/01/35 $ 4,720,005
1,390 Northeastern PA Hosp & Ed Auth
Hlthcare Rev............................... 7.125 10/01/29 1,433,910
1,500 Pennsylvania Econ Dev Fin Auth Reliant
Energy Ser A (AMT)......................... 6.750 12/01/36 1,613,280
3,000 Pennsylvania Econ Dev Fin Auth Reliant
Energy Seward Ser A (AMT).................. 6.750 12/01/36 3,226,560
980 Pennsylvania St Higher Ed Student Assn Inc
Proj Ser A................................. 6.750 09/01/32 1,029,255
7,000 Philadelphia, PA Arpt Rev Ser A (AMT) (MBIA
Insd)...................................... 4.750 06/15/35 6,937,840
2,150 Philadelphia, PA Auth Indl Dev Rev Coml Dev
Rfdg....................................... 7.750 12/01/17 2,197,193
4,105 Philadelphia, PA Gas Wks Rev Drivers Ser
384 (Inverse Fltg) (Acquired 01/20/04, Cost
$4,956,436) (FSA Insd) (a)................. 7.677 07/01/11 4,788,318
2,140 Philadelphia, PA Hosp & Higher Ed Fac Auth
Rev Centralized Comp Human Svcs Ser A...... 6.125 01/01/13 2,160,309
1,500 Scranton Lackawanna, PA Hlth & Welfare Auth
Rev Rfdg (Prerefunded @ 01/15/07).......... 7.250 01/15/17 1,601,985
2,000 Scranton Lackawanna, PA Hlth & Welfare Auth
Rev Rfdg (Prerefunded @ 01/15/07).......... 7.350 01/15/22 2,138,380
1,500 Westmoreland Cnty, PA Indl Dev Hlthcare Fac
Redstone Ser B............................. 8.000 11/15/23 1,652,040
--------------
87,495,214
--------------
RHODE ISLAND 0.4%
1,825 Rhode Island St Econ Dev Corp Rev Oblig
Providence Place........................... 7.250 07/01/20 1,796,037
1,000 Rhode Island St Hlth & Ed Hosp Fin Ser A... 6.000 09/15/33 1,020,140
3,000 Tobacco Settlement Fin Corp RI Asset Bkd
Ser A...................................... 6.000 06/01/23 3,177,720
--------------
5,993,897
--------------
SOUTH CAROLINA 1.4%
2,000 Newberry Investing in Children's Ed SC
Installment Newberry Cnty Sch Dist Proj
(c)........................................ 5.000 12/01/30 2,007,780
1,570 South Carolina Jobs Econ Dev Auth Hosp Fac
Rev Impt Palmetto Hlth Alliance Ser A
Rfdg....................................... 6.250 08/01/31 1,720,861
2,965 South Carolina Jobs Econ Dev Auth Student
Hdg Rev Drivers Ser 650 (Inverse Fltg)
(Acquired 12/17/04, Cost $3,437,858) (MBIA
Insd) (a).................................. 7.677 08/01/12 3,490,576
1,000 South Carolina Jobs Econ Dev Episcopal Home
Still Proj A............................... 6.000 05/15/17 1,026,510
2,000 South Carolina Jobs Econ Dev First Mtg
Westley Commons Proj....................... 7.750 10/01/24 2,195,480
</Table>
36 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
SOUTH CAROLINA (CONTINUED)
$4,500 South Carolina Jobs Econ Dev First Mtg
Westley Commons Proj....................... 8.000% 10/01/31 $ 4,967,415
3,000 Tobacco Settlement Rev Mgmt Auth SC Tob
Settlement Rev Ser B....................... 6.375 05/15/28 3,255,600
3,165 Tobacco Settlement Rev Mgmt Auth SC Tob
Settlement Rev Ser B....................... 6.375 05/15/30 3,613,006
--------------
22,277,228
--------------
SOUTH DAKOTA 0.5%
1,010 Keystone, SD Econ Dev Rev Wtr Quality Mgmt
Corp Ser A (AMT)........................... 6.000 12/15/18 1,015,181
5,465 Sioux Falls, SD Multi-Family Hsg Inn
Westport Proj Ser A (Acquired 01/26/04 to
03/22/05, Cost $5,639,149) (a)............. 7.500 12/01/34 5,651,247
1,050 South Dakota St Hlth & Ed Fac Auth Rev
Sioux Vly Hosp & Hlth Sys Ser A............ 5.250 11/01/34 1,092,347
--------------
7,758,775
--------------
TENNESSEE 1.0%
3,000 Elizabethton, TN Hlth & Ed Fac Brd Rev Rfdg
(MBIA Insd)................................ 7.750 07/01/29 3,738,780
1,000 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev
First Mtg Mtn States Hlth Ser A Rfdg....... 7.500 07/01/33 1,178,390
1,000 Johnson City, TN Hlth & Ed Fac Brd
Retirement Fac Rev Appalachian Christian
Vlg Proj Ser A............................. 6.250 02/15/32 1,024,780
1,000 Shelby Cnty, TN Hlth & Ed Germantown Vlg
Ser A...................................... 7.000 12/01/23 1,022,290
1,000 Shelby Cnty, TN Hlth & Ed Germantown Vlg
Ser A...................................... 7.250 12/01/34 1,026,330
5,320 Sullivan Cnty, TN Hlth Ed & Hsg Fac Brd
Rev........................................ 8.410 11/01/19 5,480,398
2,815 Trenton, TN Hlth & Ed Fac Brd Rev Inc Proj
Ser A (Acquired 06/08/89,
Cost $2,815,000) (a)....................... 10.000 11/01/19 3,025,196
1,160 Trenton, TN Hlth & Ed Fac Brd Rev Inc Proj
Ser B (Acquired 06/08/89, Cost $1,160,000)
(a) (d).................................... 10.000 11/01/20 123,888
--------------
16,620,052
--------------
TEXAS 8.5%
435 Abia Dev Corp TX Arpt Fac Rev Austin Belly
Port Dev LLC Proj Ser A (AMT).............. 6.250 10/01/08 435,526
3,000 Abia Dev Corp TX Arpt Fac Rev Austin Belly
Port Dev LLC Proj Ser A (AMT).............. 6.500 10/01/23 2,895,300
1,000 Atlanta, TX Hosp Auth Fac Rev.............. 6.700 08/01/19 1,041,960
2,035 Atlanta, TX Hosp Auth Fac Rev.............. 6.750 08/01/29 2,086,893
1,000 Austin-Bergstorm Landhost Enterprises Inc
TX Arpt Hotel Sr Ser A (g)................. 6.750 04/01/27 491,100
</Table>
See Notes to Financial Statements 37
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$ 990 Bexar Cnty, TX Hsg Fin Corp Multi-Family
Hsg Rev Woodland Ridge Apt Proj Ser A
(AMT)...................................... 7.000% 01/01/39 $ 975,407
2,000 Brazos Cnty, TX Hlth Fac Dev Oblig Grp..... 5.375 01/01/32 2,062,320
735 Comal Cnty, TX Hlth Fac Dev Hlthcare Sys
McKenna Mem Proj Ser A..................... 6.250 02/01/32 786,825
1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Cap
Apprec Rfdg (Acquired 08/28/89, Cost
$660,829) (a).............................. * 08/01/11 1,181,213
3,445 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg... 7.250 04/01/32 3,562,475
2,970 Dallas, TX Wtrwks & Swr Sys Rev Rfdg
(Prerefunded @ 10/01/10)................... 5.750 10/01/17 3,303,769
2,500 Decatur, TX Hosp Auth Hosp Wise Regl Hlth
Sys Ser A.................................. 7.000 09/01/25 2,706,450
3,500 Decatur, TX Hosp Auth Hosp Wise Regl Hlth
Sys Ser A.................................. 7.125 09/01/34 3,794,840
6,400 Houston, TX Arpt Sys Rev Spl Fac Contl Airl
Ser B (AMT)................................ 6.125 07/15/17 5,463,424
500 Houston, TX Arpt Sys Rev Spl Fac Contl Airl
Ser C (AMT)................................ 5.700 07/15/29 371,260
20,280 Houston, TX Arpt Sys Rev Spl Fac Contl Airl
Ser E (AMT)................................ 6.750 07/01/21 18,162,160
4,155 Houston, TX Arpt Sys Rev Spl Fac Contl Airl
Ser E (AMT)................................ 6.750 07/01/29 3,621,623
1,750 Houston, TX Arpt Sys Rev Sub Lien Ser A
(AMT) (FSA Insd)........................... 5.125 07/01/32 1,796,970
3,000 Houston, TX Hlth Fac Dev Corp Buckingham Sr
Living Cmnty Ser A......................... 7.125 02/15/34 3,300,870
3,500 Houston, TX Util Sys Rev Comb First Lien
Rfdg (FSA Insd)............................ 4.750 11/15/30 3,529,225
10,000 Houston, TX Util Sys Rev Comb First Lien
Rfdg (FSA Insd)............................ 5.000 11/15/35 10,439,800
3,750 Lower CO River Auth TX Rev Ser A Rfdg
(Inverse Fltg) (Acquired 10/20/99,
Cost $3,784,875) (FSA Insd) (a)............ 8.752 05/15/15 4,458,900
8,880 Lower CO River Auth TX Rev Ser A Rfdg
(Inverse Fltg) (Acquired 10/20/99,
Cost $9,073,939) (FSA Insd) (a)............ 8.752 05/15/14 10,520,402
1,445 Lubbock, TX Hlth Fac Dev Corp Rev First Mtg
Carillon Proj Ser A (g).................... 6.500 07/01/19 1,222,080
2,270 Lufkin, TX Hlth Fac Dev Corp Hlth Sys Rev
Mem Hlth Sys of East TX Rfdg............... 5.700 02/15/28 2,345,727
2,265 Meadow Parc Dev Inc TX Multi-Family Rev Hsg
Meadow Parc Apt Proj....................... 6.500 12/01/30 2,200,606
2,500 Metropolitan Hlth Fac Dev Corp TX Wilson N
Jones Mem Hosp Proj........................ 7.250 01/01/31 2,587,350
2,820 Midlothian, TX Dev Auth Tax Increment
Contract Rev............................... 6.700 11/15/23 2,909,084
</Table>
38 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$2,000 Midlothian, TX Dev Auth Tax Increment
Contract Rev............................... 7.875% 11/15/26 $ 2,207,800
1,500 Midlothian, TX Dev Auth Tax Increment
Contract Rev (Acquired 12/02/04, Cost
$1,500,000) (a)............................ 6.200 11/15/29 1,510,800
19,085 North TX Twy Auth Dallas North Twy Sys Rev
Ser A (FSA Insd)........................... 5.000 01/01/40 19,675,490
1,000 Richardson, TX Hosp Auth Rev Baylor &
Richardson Impt Rfdg....................... 5.625 12/01/28 1,030,290
250 San Antonio, TX Hlth Fac Dev Corp Rev
Encore Nursing Ctr Part.................... 8.250 12/01/19 250,305
1,600 Texas St Dept Hsg & Cmnty Affairs Home Mtg
Rev (AMT) (GNMA Collateralized)............ 6.900 07/02/24 1,615,408
30 Texas St Higher Ed Coordinating Brd College
Student Ln Rev (AMT) (b)................... 7.849 10/01/25 30,004
1,675 Texas St Pub Fin Auth Sch Excellence Ed
Proj Ser A (Acquired 12/02/04,
Cost $1,654,197) (a)....................... 7.000 12/01/34 1,737,226
1,500 Texas St Student Hsg Corp MSU Proj
Midwestern St Univ......................... 6.500 09/01/34 1,586,025
2,950 Tomball, TX Hosp Auth Rev Hosp Tomball Regl
Hosp....................................... 6.000 07/01/29 3,043,899
1,000 Travis Cnty, TX Hlth Fac Dev Corp
Retirement Fac Rev Querencia Barton Creek
Proj....................................... 5.500 11/15/25 985,570
1,350 Travis Cnty, TX Hlth Fac Dev Corp
Retirement Fac Rev Querencia Barton Creek
Proj....................................... 5.650 11/15/35 1,331,816
965 Wichita Cnty, TX Hlth Fac Rolling Meadows
Fac Ser A Rfdg............................. 6.250 01/01/28 980,826
2,500 Woodhill Pub Fac Corp TX Hsg-Woodhill Apt
Proj....................................... 7.500 12/01/29 2,430,475
--------------
136,669,493
--------------
UTAH 0.2%
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj (d)................................... 7.800 09/01/15 300,000
1,165 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj (d)................................... 8.000 09/01/20 349,500
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj (d)................................... 7.800 09/01/25 300,000
2,395 Utah St Hsg Fin Agy Rev RHA Cmnty Svc Proj
Ser A...................................... 6.875 07/01/27 2,422,710
60 Utah St Hsg Fin Agy Single Family Mtg Mezz
A1 (AMBAC Insd)............................ 6.100 07/01/13 61,455
--------------
3,433,665
--------------
</Table>
See Notes to Financial Statements 39
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
VERMONT 0.2%
$1,910 Vermont Ed & Hlth Bldg Fin Agy Rev Hlthcare
Fac Copley Manor Proj...................... 6.500% 04/01/33 $ 1,826,571
1,000 Vermont Ed & Hlth Bldg Fin Agy Rev VT
Council Dev Mental Hlth Ser A.............. 6.000 12/15/09 1,068,620
1,000 Vermont Ed & Hlth Bldg Fin Agy Rev
Bennington College Proj.................... 6.625 10/01/29 1,037,210
--------------
3,932,401
--------------
VIRGINIA 2.6%
4,000 Albemarle Cnty, VA Indl Dev Auth Ed Fac Rev
Covenant Sch Inc Ser A..................... 7.750 07/15/32 4,421,880
930 Greensville Cnty, VA Indl Dev Wheeling
Steel Proj Ser A (AMT)..................... 7.000 04/01/14 849,834
2,500 Henrico Cnty, VA Econ Dev Auth Residential
Care Fac Rev Utd Methodist Ser A Rfdg...... 6.500 06/01/22 2,676,600
6,000 Peninsula Port Auth VA Residential Care Fac
Rev VA Baptist Homes Ser A................. 7.375 12/01/32 6,698,700
4,000 Roanoke Cnty, VA Indl Dev Auth Glebe Inc
Ser A...................................... 6.300 07/01/35 4,118,720
3,000 Tobacco Settlement Fin Corp VA Asset Bkd... 5.500 06/01/26 3,126,540
17,620 Tobacco Settlement Fin Corp VA Asset Bkd... 5.625 06/01/37 18,324,624
1,700 Virginia Small Business Fin Auth Rev Indl
Dev SIL Clean Wtr Proj (AMT)............... 7.250 11/01/24 1,712,444
--------------
41,929,342
--------------
WASHINGTON 1.0%
1,000 King Cnty, WA Pub Hosp Dist No 004
Snoqualmie Vly Hosp........................ 7.250 12/01/15 1,036,920
8,830 Tobacco Settlement Auth WA Asset Bkd....... 6.625 06/01/32 9,862,050
5,000 Washington St Hlthcare Fac Overlake Hosp
Med Ctr Ser B (ACA Insd)................... 5.000 07/01/38 5,065,100
--------------
15,964,070
--------------
WISCONSIN 1.0%
800 Baldwin, WI Hosp Rev Mtg Ser A............. 6.125 12/01/18 803,216
1,000 Baldwin, WI Hosp Rev Mtg Ser A............. 6.375 12/01/28 1,004,800
1,745 Milwaukee, WI Rev Sr Air Cargo (AMT)....... 6.500 01/01/25 1,842,162
750 Wisconsin Hlth & Ed Fac Eastcastle Pl Inc
Proj....................................... 6.000 12/01/24 768,150
2,000 Wisconsin St Hlth & Ed Fac Auth Rev Aurora
Hlthcare Inc Ser A......................... 5.600 02/15/29 2,054,480
3,000 Wisconsin St Hlth & Ed Fac Auth Rev
Milwaukee Catholic Home Inc Proj........... 7.500 07/01/26 3,083,850
1,000 Wisconsin St Hlth & Ed Fac Auth Rev Oakwood
Vlg Proj Ser A............................. 7.625 08/15/30 1,049,690
1,500 Wisconsin St Hlth & Ed Fac Beaver Dam Cmnty
Hosp Inc Ser A............................. 6.750 08/15/34 1,596,570
</Table>
40 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
WISCONSIN (CONTINUED)
$1,000 Wisconsin St Hlth & Ed Fac Divine Savior
Hlthcare Ser C............................. 7.500% 05/01/32 $ 1,051,710
2,000 Wisconsin St Hlth & Ed Fac Fort Hlthcare
Inc Proj................................... 6.100 05/01/34 2,148,640
1,500 Wisconsin St Hlth & Ed Fac Southwest Hlth
Ctr Ser A.................................. 6.125 04/01/24 1,530,345
--------------
16,933,613
--------------
WYOMING 0.1%
1,500 Teton Cnty, WY Hosp Dist Hosp Saint Johns
Med Ctr.................................... 6.750 12/01/27 1,557,915
--------------
PUERTO RICO 1.8%
61,000 Childrens Tr Fd PR Tob Settlement Rev Asset
Bkd Bds Ser B.............................. * 05/15/55 2,075,220
20,000 Puerto Rico Comwlth Hwy & Trans Auth Trans
Rev Ser K (c).............................. 5.000 07/01/40 20,542,400
465 Puerto Rico Port Auth Rev Spl Fac Amern
Airl Ser A (AMT)........................... 6.250 06/01/26 349,364
5,000 Puerto Rico Pub Bldg Auth Rev Govt Fac Ser
I.......................................... 5.250 07/01/33 5,301,900
--------------
28,268,884
--------------
U.S. VIRGIN ISLANDS 0.2%
2,500 Northern Mariana Islands Ser A............. 7.375 06/01/30 2,701,650
1,000 Virgin Islands Pub Fin Auth Resr Secd-
Hovensa Refinery (AMT)..................... 5.875 07/01/22 1,083,440
--------------
3,785,090
--------------
TOTAL MUNICIPAL BONDS 99.5%................................................ 1,603,705,085
--------------
</Table>
See Notes to Financial Statements 41
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
NUMBER OF
DESCRIPTION SHARES VALUE
- -----------------------------------------------------------------------------------------
EQUITY 0.0%
GMT Holdings, LLC (h)....................................... 2,240 $ 0
--------------
TOTAL LONG-TERM INVESTMENTS 99.5%
(Cost $1,571,249,724)..................................... 1,603,705,085
SHORT-TERM INVESTMENTS 0.9%
(Cost $15,295,000)........................................ 15,295,000
--------------
TOTAL INVESTMENTS 100.4%
(Cost $1,586,544,724)..................................... 1,619,000,085
LIABILITIES IN EXCESS OF OTHER ASSETS (0.4%)............... (6,760,688)
--------------
NET ASSETS 100.0%.......................................... $1,612,239,397
==============
</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 12.4% of net
assets.
(b) The Fund owns 100% of the bond issuance.
(c) Securities purchased on a when-issued or delayed delivery basis.
(d) Non-income producing security.
(e) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(f) Payment-in-kind security.
(g) Interest is accruing at less than the stated coupon.
(h) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
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.
XLCA--XL Capital Assurance Inc.
42 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2005
<Table>
ASSETS:
Total Investments (Cost $1,586,544,724)..................... $1,619,000,085
Cash........................................................ 91,280
Receivables:
Interest.................................................. 27,433,229
Investments Sold.......................................... 18,501,457
Fund Shares Sold.......................................... 4,746,693
Other....................................................... 204,561
--------------
Total Assets............................................ 1,669,977,305
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 49,056,200
Fund Shares Repurchased................................... 4,385,107
Income Distributions...................................... 2,300,172
Distributor and Affiliates................................ 935,387
Investment Advisory Fee................................... 604,261
Trustees' Deferred Compensation and Retirement Plans........ 241,145
Accrued Expenses............................................ 215,636
--------------
Total Liabilities....................................... 57,737,908
--------------
NET ASSETS.................................................. $1,612,239,397
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,697,673,271
Net Unrealized Appreciation................................. 32,455,361
Accumulated Undistributed Net Investment Income............. (2,187,250)
Accumulated Net Realized Loss............................... (115,701,985)
--------------
NET ASSETS.................................................. $1,612,239,397
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,267,316,438 and 95,774,352 shares of
beneficial interest issued and outstanding)............. $ 13.23
Maximum sales charge (4.75%* of offering price)......... .66
--------------
Maximum offering price to public........................ $ 13.89
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $144,877,970 and 10,955,550 shares of
beneficial interest issued and outstanding)............. $ 13.22
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $200,044,989 and 15,013,203 shares of
beneficial interest issued and outstanding)............. $ 13.32
==============
</Table>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 43
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended September 30, 2005
<Table>
INVESTMENT INCOME:
Interest.................................................... $ 77,343,468
------------
EXPENSES:
Investment Advisory Fee..................................... 5,813,918
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $2,355,217, $1,349,823 and $1,306,128,
respectively)............................................. 5,011,168
Shareholder Services........................................ 645,016
Legal....................................................... 423,430
Custody..................................................... 136,041
Trustees' Fees and Related Expenses......................... 28,062
Other....................................................... 543,016
------------
Total Expenses.......................................... 12,600,651
Less Credits Earned on Cash Balances.................... 65,379
------------
Net Expenses............................................ 12,535,272
------------
NET INVESTMENT INCOME....................................... $ 64,808,196
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(21,139,963)
Futures................................................... (3,232,890)
------------
Net Realized Loss........................................... (24,372,853)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (10,959,084)
End of the Period......................................... 32,455,361
------------
Net Unrealized Appreciation During the Period............... 43,414,445
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 19,041,592
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 83,849,788
============
</Table>
44 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, 2005 SEPTEMBER 30, 2004
---------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 64,808,196 $ 45,887,234
Net Realized Loss.................................... (24,372,853) (27,452,425)
Net Unrealized Appreciation During the Period........ 43,414,445 26,901,695
-------------- -------------
Change in Net Assets from Operations................. 83,849,788 45,336,504
-------------- -------------
Distributions from Net Investment Income:
Class A Shares..................................... (55,305,117) (38,473,790)
Class B Shares..................................... (6,722,269) (6,237,920)
Class C Shares..................................... (6,404,362) (2,997,702)
-------------- -------------
Total Distributions.................................. (68,431,748) (47,709,412)
-------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... 15,418,040 (2,372,908)
-------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 800,745,467 368,145,718
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 45,579,353 30,424,886
Cost of Shares Repurchased........................... (223,389,642) (133,088,608)
-------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... 622,935,178 265,481,996
-------------- -------------
TOTAL INCREASE IN NET ASSETS......................... 638,353,218 263,109,088
NET ASSETS:
Beginning of the Period.............................. 973,886,179 710,777,091
-------------- -------------
End of the Period (Including accumulated
undistributed net investment income of ($2,187,250)
and $1,540,919, respectively)...................... $1,612,239,397 $ 973,886,179
============== =============
</Table>
See Notes to Financial Statements 45
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 --------------------------------------------------
2005 2004 2003 2002 (A) 2001
--------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $ 13.00 $13.03 $13.21 $13.25 $13.27
-------- ------ ------ ------ ------
Net Investment Income.................. .72(c) .74(c) .79 .78 .77
Net Realized and Unrealized
Gain/Loss............................ .27 -0- (.25) (.11) (.05)
-------- ------ ------ ------ ------
Total from Investment Operations......... .99 .74 .54 .67 .72
Less Distributions from Net Investment
Income................................. .76 .77 .72 .71 .74
-------- ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD....... $ 13.23 $13.00 $13.03 $13.21 $13.25
======== ====== ====== ====== ======
Total Return (b)......................... 7.75% 5.87% 4.21% 5.28% 5.46%
Net Assets at End of the Period
(In millions).......................... $1,267.3 $766.1 $560.9 $579.1 $607.1
Ratio of Expenses to Average Net
Assets................................. .86% .91% .89% .86% .87%
Ratio of Net Investment Income to Average
Net Assets............................. 5.41% 5.74% 6.07% 5.99% 5.88%
Portfolio Turnover....................... 48% 16% 14% 14% 22%
</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 5.95% 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.
46 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 ------------------------------------------------
2005 2004 2003 2002 (A) 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD.................................. $12.99 $13.02 $13.20 $13.24 $13.27
------ ------ ------ ------ ------
Net Investment Income................... .62(c) .65(c) .69(c) .70 .68
Net Realized and Unrealized Gain/Loss... .27 (.01) (.25) (.12) (.06)
------ ------ ------ ------ ------
Total from Investment Operations.......... .89 .64 .44 .58 .62
Less Distributions from Net Investment
Income.................................. .66 .67 .62 .62 .65
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD........ $13.22 $12.99 $13.02 $13.20 $13.24
====== ====== ====== ====== ======
Total Return (b).......................... 7.04% 5.07% 3.42% 4.49% 4.71%
Net Assets at End of the Period
(In millions)........................... $144.9 $123.8 $115.6 $149.5 $176.5
Ratio of Expenses to Average Net Assets... 1.61% 1.67% 1.64% 1.62% 1.63%
Ratio of Net Investment Income to Average
Net Assets.............................. 4.67% 5.00% 5.32% 5.23% 5.12%
Portfolio Turnover........................ 48% 16% 14% 14% 22%
</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 47
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 ------------------------------------------------
2005 2004 2003 2002 (A) 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD.................................. $13.09 $13.11 $13.20 $13.24 $13.27
------ ------ ------ ------ ------
Net Investment Income................... .62(d) .64(d) .79(d) .70 .68
Net Realized and Unrealized
Gain/Loss............................. .27 .01 (.26) (.12) (.06)
------ ------ ------ ------ ------
Total from Investment Operations.......... .89 .65 .53 .58 .62
Less Distributions from Net Investment
Income.................................. .66 .67 .62 .62 .65
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD........ $13.32 $13.09 $13.11 $13.20 $13.24
====== ====== ====== ====== ======
Total Return (b).......................... 6.98% 5.10%(e) 4.10%(c) 4.49% 4.71%
Net Assets at End of the Period
(In millions)........................... $200.0 $ 84.0 $ 34.3 $ 38.5 $ 44.4
Ratio of Expenses to Average
Net Assets.............................. 1.62% 1.65%(e) 1.64% 1.62% 1.62%
Ratio of Net Investment Income to Average
Net Assets.............................. 4.62% 4.94%(e) 6.00%(c) 5.23% 5.13%
Portfolio Turnover........................ 48% 16% 14% 14% 22%
</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
than 1% (See footnote 7).
48 See Notes to Financial Statements
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005
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. The Fund
registered Class I Shares on December 30, 2004. There were no sales of Class I
Shares for the period ended September 30, 2005.
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.
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, 2005, the Fund had $49,056,200 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 Subchapter M of the Internal Revenue Code applicable to regulated investment
companies
49
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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, 2005, the Fund had an accumulated capital loss
carryforward for tax purposes of $92,093,340 which will expire according to the
following schedule.
<Table>
<Caption>
AMOUNT EXPIRATION
$ 1,076,939................................................. September 30, 2006
9,610,374................................................. September 30, 2008
10,147,307................................................. September 30, 2009
16,221,240................................................. September 30, 2010
22,472,916................................................. September 30, 2011
3,607,121................................................. September 30, 2012
28,957,443................................................. September 30, 2013
</Table>
At September 30, 2005, the cost and related gross unrealized appreciation
and depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $1,586,128,607
==============
Gross tax unrealized appreciation........................... $ 61,917,344
Gross tax unrealized depreciation........................... (29,045,866)
--------------
Net tax unrealized appreciation on investments.............. $ 32,871,478
==============
</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,
2005 and 2004 were as follows:
<Table>
<Caption>
2005 2004
Distributions paid from:
Ordinary income........................................... $1,843 $115,296
Long-term capital gain.................................... -0- -0-
------ --------
$1,843 $115,296
====== ========
</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 carryforward expiring in the current year totaling
$9,854,061 has been reclassified from accumulated net realized loss to capital.
Additionally, permanent book and tax differences relating to the Fund's
investment in other
50
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
regulated investment companies totaling $3,207, book to tax accretion
differences on bonds sold totaling $18,847, and book to tax accretion
differences totaling $126,671 were reclassified from accumulated undistributed
net investment income to accumulated net realized loss.
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $48,591
</Table>
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses relating to wash sale
transactions, the capitalization of reorganization and restructuring costs, and
post October losses of $23,710,338 which are not recognized for tax purposes
until the first day of the following fiscal year.
F. EXPENSE REDUCTIONS During the year ended September 30, 2005, the Fund's
custody fee was reduced by $65,379 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, 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, 2005, the Fund recognized expenses of
approximately $45,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Fund is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Fund.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer ("CCO") Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Fund. The costs of
these services are allocated to each fund. For the year ended September 30,
2005, the Fund recognized expenses of approximately $174,800 representing Van
Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Fund, as well as, the salary,
benefits and related costs of the CCO and related support staff paid by Van
Kampen. Services provided pursuant to the Legal Services agreement are reported
as part of "Legal" expenses on the Statement of Operations. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Other" expenses on 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, 2005, the Fund recognized expenses of approximately $550,100
representing transfer agency fees paid to VKIS. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees.
51
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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 also
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 $150,660 are included in
"Other" assets on the Statement of Assets and Liabilities at September 30, 2005.
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.
During the year ended September 30, 2005, the Adviser voluntarily reimbursed
the Fund $30,000 for losses incurred on the sale of portfolio securities which
resulted from the correction of a compliance violation.
3. CAPITAL TRANSACTIONS
At September 30, 2005, capital aggregated $1,335,340,672, $161,304,015 and
$201,028,584 for Classes A, B and C, respectively. For the year ended September
30, 2005, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 46,042,142 $ 610,280,678
Class B................................................... 3,997,568 52,841,157
Class C................................................... 10,302,312 137,623,632
----------- -------------
Total Sales................................................. 60,342,022 $ 800,745,467
=========== =============
Dividend Reinvestment:
Class A................................................... 2,846,859 $ 37,712,082
Class B................................................... 322,306 4,263,931
Class C................................................... 269,962 3,603,340
----------- -------------
Total Dividend Reinvestment................................. 3,439,127 $ 45,579,353
=========== =============
Repurchases:
Class A................................................... (12,050,561) $(158,836,281)
Class B................................................... (2,891,622) (38,202,420)
Class C................................................... (1,980,028) (26,350,941)
----------- -------------
Total Repurchases........................................... (16,922,211) $(223,389,642)
=========== =============
</Table>
52
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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>
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, 2005 and
2004, 1,446,189 and 351,113 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, 2005 and 2004, 51,804 and 0 Class C 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 C 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
53
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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, 2005, Van Kampen, as distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $1,581,300 and CDSC on redeemed shares of approximately $246,100.
Sales charges do not represent expenses of the Fund.
4. REDEMPTION FEE
Effective September 26, 2005, the Fund assesses a 2% redemption fee on the
proceeds of Fund shares that are redeemed (either by sale or exchange) within 30
days of purchase. The redemption fee is paid directly to the Fund. For the
period ended September 30, 2005, the Fund received redemption fees of $14, which
are reported as part of "Cost of Shares Repurchased" in the Statement of Changes
in Net Assets.
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $1,214,417,911 and $585,626,384,
respectively.
6. 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
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.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
54
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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
Securities 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 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, 2005 are
as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at September 30, 2004........................... -0-
Futures Opened.............................................. 16,431
Futures Closed.............................................. (16,431)
-------
Outstanding at September 30, 2005........................... -0-
=======
</Table>
B. INDEXED SECURITIES 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.
7. 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 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 $3,134,300 and $557,700
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.
55
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
Included in the fees for the year ended September 30, 2005, are payments
retained by Van Kampen of approximately $1,900,400 and payments made to Morgan
Stanley DW Inc., an affiliate of the Adviser, of approximately $83,400.
8. 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. Plaintiffs have
filed a Motion for Leave to file a Supplemental Pleading that would, among other
things, expand the allegations and alleged class.
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. Plaintiff has sought leave to file second amended
derivative complaint that alleges that the Adviser permitted or recklessly
disregarded market timing and later trading in its proprietary mutual funds in
order to increase assets under management and fees. However, pursuant to an
agreement between the parties, that plaintiff's proposed second amended
derivative complaint was withdrawn and that the allegations regarding market
timing and late trading asserted therein were filed in a separate complaint and
coordinated with other cases related to market timing that have been centralized
in a federal court.
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.
56
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
9. 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.
57
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, 2005, 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.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2005, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. 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, 2005, 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 11, 2005
58
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President and Chief Investment Officer
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
PHILLIP G. GOFF
Chief Financial Officer and Treasurer
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, 2005. The Fund designated 99.99% 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.
59
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
TRUSTEES AND OFFICERS INFORMATION
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 as of the date of this Annual Report. 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 (60) Trustee Trustee Chairman and Chief 72 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.
Jerry D. Choate (67) Trustee Trustee Prior to January 1999, 70 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>
60
<Table>
<Caption>
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
TRUSTEE AND OFfiCERS 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 (65) Trustee Trustee President of CAC, L.L.C., 72 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. Prior to
distributor of wire, January 2005, Trustee of
cable and communications the University of Chicago
connectivity products. Hospitals and Health
Prior to July 2000, Systems. Prior to April
Managing Partner of 2004, Director of
Equity Group Corporate TheraSense, Inc. Prior to
Investment (EGI), a January 2004, Director of
company that makes TeleTech Holdings Inc.
private investments in and Arris Group, Inc.
other companies. Prior to May 2002,
Director of Peregrine
Systems Inc. Prior to
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>
61
<Table>
<Caption>
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
TRUSTEE AND OFfiCERS 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 (57) Trustee Trustee Managing Partner of 70 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
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (53) Trustee Trustee Director and President of 70 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 (70) Trustee Trustee Prior to 1998, President 72 Trustee/Director/Managing
14 Huron Trace since 2003 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
</Table>
62
<Table>
<Caption>
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
TRUSTEE AND OFfiCERS 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 (69) Trustee Trustee President of Nelson 70 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 (65) Trustee Trustee President Emeritus and 72 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 70 Trustee/Director/Managing
(63) 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>
63
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
TRUSTEE AND OFFICERS INFORMATION continued
INTERESTED TRUSTEE:*
<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
Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 72 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 Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
</Table>
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
64
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
TRUSTEE AND OFFICERS 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
Ronald E. Robison (66) President and Officer President of funds in the Fund Complex since September 2005
1221 Avenue of the Americas Principal Executive since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since May 2003. Managing Director of Morgan Stanley and
Morgan Stanley & Co. Incorporated. Managing Director and
Director of Morgan Stanley Investment Management Inc. Chief
Administrative Officer, Managing Director and Director of
Morgan Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc. Managing Director and Director of
Morgan Stanley Distributors Inc. and Morgan Stanley
Distribution 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 of Morgan Stanley Investment
Management Inc. and Executive Vice President of funds in the
Fund Complex from May 2003 to September 2005.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Investment Officer Investment Management Inc. and Director of Morgan Stanley
Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Amy R. Doberman (43) 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 since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (39) Vice President Officer Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.
</Table>
65
<Table>
<Caption>
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND
TRUSTEE AND OFfiCERS 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
John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1996 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Phillip G. Goff (42) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza and Treasurer since 2005 Inc. since June 2005. Chief Financial Officer and Treasurer
Oakbrook Terrace, IL 60181 of funds in the Fund Complex since August 2005. Prior to
June 2005, Vice President and Chief Financial Officer of
Enterprise Capital Management, Inc., an investment holding
company.
</Table>
66
Van Kampen Strategic Municipal Income Fund
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.
(continued on next page)
Van Kampen Strategic Municipal Income Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
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 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
(continued on back)
Van Kampen Strategic Municipal Income Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
The Statement of Additional Information includes additional information
about Fund trustees and is available, without charge, upon request by
calling 1-800-847-2424.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
39, 399, 539
STMI ANR 11/05
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-02748P-Y09/05
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, 2005.
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 9/30/05
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index from 9/30/95 through 9/30/05. Class A shares, adjusted for
sales charges.
(LINE GRAPH)
<Table>
<Caption>
VAN KAMPEN CALIFORNIA INSURED TAX LEHMAN BROTHERS MUNICIPAL BOND
FREE FUND INDEX
--------------------------------- ------------------------------
9/95 9677 10000
12/95 10196 10413
9989 10288
10055 10366
10332 10604
12/96 10624 10874
10532 10848
10931 11222
11236 11560
12/97 11573 11873
11694 12010
11875 12192
12312 12567
12/98 12306 12642
12399 12755
12074 12529
11888 12479
12/99 11679 12381
12206 12743
12357 12935
12744 13248
12/00 13385 13827
13550 14134
13496 14226
14029 14626
12/01 13867 14537
13884 14673
14374 15210
15293 15933
12/02 15162 15933
15266 16124
15562 16540
15548 16553
12/03 15812 16780
16028 17070
15583 16666
16235 17314
12/04 16485 17530
16410 17523
16963 18037
9/05 16615 18015
</Table>
<Table>
<Caption>
A SHARES B SHARES C SHARES I SHARES
since 12/13/85 since 4/30/93 since 8/13/93 since 8/12/2005
- ---------------------------------------------------------------------------------------------------------------
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 W/O SALES
TOTAL RETURNS CHARGES CHARGE CHARGES CHARGE CHARGES CHARGE CHARGES
Since Inception 6.97% 6.71% 5.03% 5.03% 4.56% 4.56% 0.17%
10-year 5.72 5.21 5.26 5.26 4.96 4.96 N/A
5-year 5.78 4.76 5.29 5.05 5.03 5.03 N/A
1-year 3.96 -0.96 4.10 0.10 3.26 2.26 N/A
- ---------------------------------------------------------------------------------------------------------------
SEC Yield 2.91% 2.25% 2.30% 3.08%
</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.
BECAUSE CLASS B SHARES INCURRED LOWER EXPENSES UNDER THE 12B-1 PLAN THAN DID
CLASS A SHARES FOR THE FISCAL PERIOD ENDED SEPTEMBER 30, 2005, THE TOTAL
OPERATING EXPENSE RATIO FOR CLASS B SHARES WAS LOWER AND, AS A RESULT, THE
PERFORMANCE OF CLASS B SHARES WAS HIGHER THAN THAT OF CLASS A SHARES. THERE CAN
BE NO ASSURANCE THAT THIS WILL CONTINUE TO OCCUR IN THE FUTURE AS THE MAXIMUM
FEES PAYABLE BY CLASS B SHARES UNDER THE 12B-1 PLAN ARE HIGHER THAN THOSE
PAYABLE BY CLASS A SHARES.
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. Effective June 1, 2005, the maximum sales charge for Class A shares
increased to 4.75% from 3.25% and the contingent deferred sales charge for Class
B shares increased to 4.00% in years one and two, 3.00% in year three, 2.50% in
year four, 1.50% in year five and 0.00% in year six and thereafter from 3.00% in
year one, 2.50% in year two, 2.00% in year three, 1.00% in year four and 0.00%
in year five and thereafter. 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 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
1
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. Class I shares are available
for purchase exclusively by investors through (i) tax-exempt retirement plans
with assets of at least $1 million (including 401(k) plans, 457 plans,
employer-sponsored 403(b) plans, profit sharing and money purchase plans,
defined benefit plans and non-qualified deferred compensation plans), (ii)
fee-based investment programs with assets of at least $1 million and (iii)
institutional clients with assets of at least $1 million. Class I shares are
offered without any sales charges on purchases or sales and do not include
combined 12b-1 fees and service fees. 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.
2
Fund Report
FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2005
Van Kampen California Insured Tax Free Fund is managed by the Adviser's
Municipal Fixed-Income team.(1) Members of the team include Joseph A. Piraro and
Robert J. Stryker, Vice Presidents of the Adviser; and Joseph R. Arcieri,
Executive Director of the Adviser.
MARKET CONDITIONS
During the 12-month period ended September 30, 2005, the economy grew at a
moderate pace, with reasonable gains in employment and sustained strength in
consumer spending. Although oil prices soared, core inflation (which excludes
food and energy) remained relatively benign. Continuing with the course it began
in June of 2004, the Federal Open Market Committee (the Fed) raised the federal
funds target rate eight times during the period. Through a "measured pace" of 25
basis points increments, the Fed brought the rate to 3.75 percent at the end of
the reporting period. While the yields of short- and intermediate-term bonds
moved upward in concert with the Fed's actions, the yields of long-term bonds
declined. As a result, the yield curve (which charts the difference between
short-term and long-term rates) flattened.
Against this backdrop, total returns across the municipal bond market varied
dramatically, with long maturity bonds outperforming short-term issues by a wide
margin. As investors sought income in an environment of historically low rates,
BBB rated and non-rated bonds significantly outperformed high grade debt, and
credit spreads tightened markedly. Strong and steady flows of new cash into high
yield municipal funds added to the demand for lower rated issues.
Sectors with a preponderance of lower rated credits performed with particular
strength. Tobacco revenue bonds were by far the best performing sector,
supported by overall spread tightening as well as by increasing investor comfort
with tobacco companies' future litigation risk. Health care bonds (hospitals and
long-term care facilities) also fared well, boosted by strong investor demand.
In contrast, housing bonds underperformed as interest rates declined and
prepayment risk increased.
Municipal bond issuance remained robust in 2005, with $310 billion of debt
brought to market in the first nine months of the year, a pace on track to beat
the record issuance of 2003. Refunding activity represented a good portion of
this activity, as issuers sought to refinance higher cost debt at low prevailing
interest rates. Bonds backed by insurance dominated issuance and increased their
market penetration to nearly 60 percent.
(1)Team members may change without notice from time to time.
3
Although issuance dipped from last year's pace, the State of California remained
the leading issuer of municipal debt for the first nine months of 2005.
Throughout the period, the state made notable progress shoring up its fiscal and
credit conditions. For example, the government's plan to reduce budgetary
deficits has been generally well received. In recognition of the state's
strides, rating agencies upgraded California debt, while increased market
interest resulted in broad price appreciation. However, the outlook for the
state is not entirely unclouded. The governor has struggled with declining
popularity and growing impatience from residents over pace of reforms--factors
which could stall the pace of continued reforms.
PERFORMANCE ANALYSIS
The fund returned 3.96 percent for the 12 months ended September 30, 2005 (Class
A shares, unadjusted for sales charges). In comparison, the fund's benchmark,
the Lehman Brothers Municipal Bond Index, returned 4.05 percent for the period.
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
- -------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL
CLASS A CLASS B CLASS C BOND INDEX
3.96% 4.10% 3.26% 4.05%
- -------------------------------------------------------------------
</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 definitions.
Because Class B shares incurred lower expenses under the 12b-1 Plan than did
Class A shares for the fiscal period ended September 30, 2005, the total
operating expense ratio for Class B shares was lower and, as a result, the
performance of Class B shares was higher than that of Class A shares. There can
be no assurance that this will continue to occur in the future as the maximum
fees payable by Class B shares under the 12b-1 Plan are higher than those
payable by Class A shares.
Throughout the period, we followed our long-standing practice of trading between
liquid, high quality securities which our analysis identified as compelling
total return opportunities. Our strategy involves buying bonds when they are in
our opinion attractively valued, and selling them when they reach our return
targets. We then invest the proceeds into bonds that we believe have greater
potential for future total return.
Reflecting our view that rates would move higher and that the yields of short-
term bonds would rise faster than those of bonds with longer maturities, we kept
the overall duration of the fund shorter than that of its benchmark index.
(Duration is a measure of interest rate sensitivity.) Our analysis led us to
favor bonds within the 25- to 30-year segment of the market. In keeping with our
conservative strategy, we favored bonds with premium (above-market) coupons and
more defensive interest rate characteristics. Although we have high
4
conviction in the long-term total return potential of these issues, they
increased the fund's exposure to a segment of the California market which
trailed the broader Lehman Brothers Municipal Bond Index during the annual
period. To fund these purchases, we sold bonds with maturities of 10 years and
less. We were also able to take advantage of refinancing trends by selling
pre-refunded bonds that had appreciated significantly during the time the fund
had held them. A modest position in inverse floaters (about 3 percent of the
portfolio as of the end of the reporting period) provided an additional boost to
performance.
Meanwhile, we largely avoided zero coupon bonds because of their volatility.
Increased exposure to zero coupon securities would extend the duration of the
portfolio, and our long-term preference was to manage the portfolio's overall
interest rate exposure more conservatively. This decision tempered the fund's
pace over the period.
We kept the fund well diversified across the major sectors of the California
market, with an emphasis on essential services. The abundant issuance of insured
debt provided us with considerable choice and flexibility in constructing the
portfolio during the period. At the end of the period, the largest sectors
represented in the portfolio were public education, public building, tax
allocation, higher education and general purpose. In contrast, we avoided
housing bonds due to their less attractive structures.
In addition to sector diversification, we invested in bonds insured by a range
of companies. This strategy enhanced performance during the period. While all of
these insurers were AAA rated, not all were equally well-known in the market. In
certain cases, the less well-known companies offered higher yields. As a result,
we were able to increase the income of the portfolio within the strict
parameters of our quality criteria.
Reflecting its focus on bonds that offer the credit enhancement of insurance,
the portfolio was rated AAA at the end of the period.
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Fund in the future.
<Table>
TOP 5 SECTORS AS OF 9/30/05 RATINGS ALLOCATIONS AS OF 9/30/05
Public Education 19.3% AAA/Aaa 100%
Public Building 18.3
Tax Allocation 17.8
Higher Education 14.1
General Purpose 8.8
</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 are 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.
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 (800) SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a fund's fiscal quarter filings by contacting
Van Kampen Client Relations at (800) 847-2424.
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 (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.
6
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the fund's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 847-2424 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the fund voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 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 two types of costs: (1) transaction
cost, including sales charges (loads) on purchase payments of Class A Shares and
contingent deferred sales charge on redemptions of Class B and C Shares; and (2)
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 04/01/05 - 09/30/05.
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
account values and 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 and do not reflect any transactional costs, such as sales
charges (loads) or contingent deferred sales charges. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------------------------------------------
4/1/05 9/30/05 4/1/05-9/30/05
Class A
Actual...................................... $1,000.00 $1,028.53 $4.78
Hypothetical................................ 1,000.00 1,020.37 4.76
(5% annual return before expenses)
Class B
Actual...................................... 1,000.00 1,029.89 4.17
Hypothetical................................ 1,000.00 1,020.97 4.15
(5% annual return before expenses)
Class C
Actual...................................... 1,000.00 1,025.31 8.48
Hypothetical................................ 1,000.00 1,016.67 8.44
(5% annual return before expenses)
Class I
Actual...................................... 1,000.00 1,001.68 0.92
Hypothetical................................ 1,000.00 1,024.17 3.70
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 0.94%, 0.82%,
1.67%, and 0.73% for Class A, B, C and I Shares, respectively, multiplied by
the average account value over the period, multiplied by 183/365 (to reflect
the one-half year period) except for Class I Shares "Actual" information
which reflects the period from Commencement of Operations through September
30, 2005.
Assumes all dividends and distributions were reinvested.
8
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On May 25, 2005, the Board of Trustees, and the independent trustees voting
separately, determined that the terms of the investment advisory agreement are
fair and reasonable and approved the continuance of the investment advisory
contract as being in the best interests of the Fund and its shareholders. In
making its determination, the Board of Trustees considered materials that were
specifically prepared by the investment adviser at the request of the Board and
Fund counsel, and by an independent provider of investment company data
contracted to assist the Board, relating to the contract review process. The
Board also considered information received periodically about the portfolio,
performance, the investment strategy, portfolio management team and fees and
expenses of the Fund. The Board of Trustees considered the contract over a
period of several months and the non-management trustees held sessions both with
the investment adviser and separate from the investment adviser in reviewing and
considering the contract.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
existing and alternative breakpoints in the Fund's investment advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies and/or other products at different asset levels,
and considered the trends in the industry versus historical and projected assets
of the Fund. The Board of Trustees evaluated other benefits the investment
adviser and its affiliates derive from their relationship with the Fund. The
Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the investment adviser and
its affiliated companies and the capability of the personnel of the investment
adviser, and specifically the strength and background of its portfolio
management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees, evaluated
all of the foregoing and does not believe any single factor or group of factors
control or dominate the review process, and, after considering all factors
9
together, has determined, in the exercise of its business judgment, that
approval of the investment advisory agreement is in the best interests of the
Fund and its shareholders. The following summary provides more detail on certain
matters considered but does not detail all matters considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The Fund
discloses information about its portfolio management team members and their
experience in its prospectus. The trustees also discuss certain other services
which are provided on a cost-reimbursement basis by the investment adviser or
its affiliates to the Van Kampen funds including certain accounting,
administrative and legal services. The Board has determined that the nature,
extent and quality of the services provided by the investment adviser support
its decision to approve the investment advisory contract.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, a performance committee of the
Board spends more focused time on the performance of the Fund and other funds in
the Van Kampen complex, paying specific attention to underperforming funds. The
trustees discuss with the investment adviser the performance goals and the
actual results achieved in managing the Fund. When considering a fund's
performance, the trustees and the investment adviser place emphasis on trends
and longer-term returns (focusing on one-year, three-year and five-year
performance with special attention to three-year performance) and, when a fund's
weighted performance is under the fund's benchmark, they discuss the causes and
where necessary seek to make specific changes to investment strategy or
investment personnel. The Fund discloses more information about its performance
elsewhere in this report and in the Fund's prospectus. The trustees discuss with
the investment adviser the level of advisory fees for this Fund relative to
comparable funds and other products advised by the adviser and others in the
marketplace. The trustees review not only the advisory fees but other fees and
expenses (whether paid to the adviser, its affiliates or others) and the Fund's
overall expense ratio. The Fund discloses more information about its fees and
expenses in its prospectus. The Board has determined that the performance, fees
and expenses of the Fund support its decision to approve the investment advisory
contract.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put together by the investment adviser with the oversight of a special ad hoc
committee of the Board. The trustees discuss with the investment adviser its
10
revenues and expenses, including among other things, revenues for advisory
services, portfolio management-related expenses, revenue sharing arrangement
costs and allocated expenses both on an aggregate basis and per fund. The Board
has determined that the analysis of the investment adviser's expenses and
profitability support its decision to approve the investment advisory contract.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
and growth prospects of the Fund and how that relates to the Fund's expense
ratio and particularly the Fund's advisory fee rate. In conjunction with its
review of the investment adviser's profitability, the trustees discuss with the
investment adviser how more (or less) assets can affect the efficiency or
effectiveness of managing the Fund's portfolio and whether the advisory fee
level is appropriate relative to current and projected asset levels and/or
whether the advisory fee structure reflects economies of scale as asset levels
change. The Board has determined that its review of the actual and potential
economies of scale of the Fund support its decision to approve the investment
advisory contract.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory contract.
11
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS 98.5%
$1,925 Alhambra, CA City Elem Sch Dist Cap Apprec Ser A
(FSA Insd) (a).................................. * 09/01/20 $ 979,536
1,000 Anaheim, CA Pub Fin Auth Rev Elec Sys Generation
Ser B Rfdg (FSA Insd)........................... 5.000% 10/01/16 1,065,260
2,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev (Inverse
Fltg) (MBIA Insd)............................... 9.970 12/28/18 2,364,940
1,430 Bay Area Govt Assn CA Lease Rev Cap Proj Ser A
(AMBAC Insd) (a)................................ 5.250 07/01/17 1,557,484
2,735 Bay Area Govt Assn CA Lease West Sacramento Ser
A (XLCA Insd) (a)............................... 5.000 09/01/29 2,821,262
1,070 Bonita, CA Uni Sch Dist Election 2004 Ser A
(MBIA Insd)..................................... 5.250 08/01/24 1,158,318
1,000 Bonita, CA Uni Sch Dist Election 2004 Ser A
(MBIA Insd)..................................... 5.000 08/01/28 1,049,080
1,730 Brea & Olinda, CA Uni Sch Dist Ser A Rfdg (FSA
Insd) (a)....................................... 5.500 08/01/17 1,914,539
1,850 Brea & Olinda, CA Uni Sch Dist Ser A Rfdg (FSA
Insd) (a)....................................... 5.500 08/01/18 2,047,339
455 Calexico, CA Cmnty Redev Agy Tax Alloc Merged
Cent Bus & Residential Ser C (AMBAC Insd)....... 5.000 08/01/28 476,026
7,000 California Edl Fac Auth Rev Univ Of The Pacific
(MBIA Insd)..................................... 5.875 11/01/20 7,763,070
2,000 California Infrastructure & Econ Dev Bk Rev Bay
Area Toll Brdg First Lien Ser A (FGIC Insd)..... 5.000 07/01/29 2,085,320
1,050 California Spl Dist Assn Fin Corp Ctf Partn Pgm
Ser DD (FSA Insd) (a)........................... 5.625 01/01/27 1,099,413
1,150 California St (FGIC Insd)....................... 6.250 09/01/12 1,340,900
1,835 California St (XLCA Insd)....................... 6.250 09/01/12 2,124,967
1,200 California St Dept Transn Ctf Ser A Rfdg (MBIA
Insd)........................................... 5.250 03/01/16 1,258,668
1,000 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)........................................... 5.500 05/01/16 1,111,680
1,000 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)........................................... 5.375 05/01/18 1,097,000
2,500 California St Dept Wtr Res Pwr Supply Rev Rite
Ser B (Inverse Fltg) (MBIA Insd) (Acquired
9/8/03, Cost $2,676,175) (a) (b)................ 7.771 05/01/11 2,979,425
2,500 California St Pub Wks Brd Lease Dept Corrections
Ten Admin Ser A (AMBAC Insd).................... 5.250 03/01/17 2,681,875
4,125 California St Pub Wks Brd Lease Rev CA St Univ
Ser A Rfdg (AMBAC Insd) (a)..................... 5.500 10/01/14 4,308,934
7,750 California St Rfdg (FGIC Insd).................. 5.000 02/01/23 8,059,147
1,000 California St Univ Rev & Colleges Systemwide Ser
A (AMBAC Insd).................................. 5.375 11/01/18 1,105,180
2,000 California St Univ Rev Systemwide Ser C (MBIA
Insd) (c)....................................... 5.000 11/01/38 2,099,320
</Table>
12 See Notes to Financial Statements
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,000 Carson, CA Redev Agy Redev Proj Area No 1 Tax
Alloc (MBIA Insd)............................... 5.500% 10/01/15 $ 1,129,700
2,000 Castaic Lake Wtr Agy CA Ctf Partn Wtr Sys Impt
Proj Ser A Rfdg (MBIA Insd)..................... 7.000 08/01/12 2,408,700
3,000 Castaic Lake Wtr Agy CA Rev Ctf Partn Ser A
(MBIA Insd)..................................... 5.250 08/01/23 3,221,250
2,350 Cerritos, CA Cmnty College Dist Rfdg (AMBAC
Insd)........................................... 5.000 08/01/20 2,524,581
100 Cerritos, CA Cmnty College Election 2004 Ser A
(MBIA Insd)..................................... 5.000 08/01/26 105,208
125 Cerritos, CA Cmnty College Election 2004 Ser A
(MBIA Insd)..................................... 5.000 08/01/28 131,135
1,205 Channel Islands Beach, CA Cmnty Svcs Dist Ctf
Partn CA Spl Dist Fin Proj BB (FSA Insd) (a).... 5.700 09/01/21 1,283,060
2,000 Chula Vista, CA Pub Fin Auth Rev Ser A Rfdg
(MBIA Insd)..................................... 5.000 09/01/29 2,089,820
1,160 Coachella, CA Fin Auth Tax Proj 1 & 2 Ser A Rfdg
(XLCA Insd) (a)................................. 5.250 12/01/30 1,230,516
3,400 Contra Costa, CA Cmnty College Election 2002
(MBIA Insd)..................................... 5.000 08/01/29 3,561,772
1,000 East Bay, CA Muni Util Dist Wtr Sys Rev (MBIA
Insd)........................................... 5.000 06/01/21 1,058,020
3,125 El Camino, CA Cmnty College Dist Rfdg (FSA
Insd)........................................... 5.000 08/01/22 3,325,875
1,280 Fillmore, CA Uni Sch Dist Election 2004 Ser A
(FSA Insd)...................................... 5.000 08/01/27 1,350,656
1,300 Folsom Cordova, CA Uni Sch Dist Sch Fac Impt
Dist No 2 Ser A (MBIA Insd)..................... 5.375 10/01/17 1,435,109
1,360 Folsom, CA Pub Fin Auth City Hall & Cmnty Ctr
Rfdg (FSA Insd) (a)............................. 5.000 10/01/16 1,456,682
1,480 Fontana, CA Redev Agy Tax Alloc Dwntwn Redev
Proj Rfdg (MBIA Insd)........................... 5.000 09/01/21 1,556,930
650 Fresno, CA Jt Pwrs Fin Auth Ser A (FSA Insd).... 5.000 06/01/17 695,299
590 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd)
(a)............................................. 5.900 08/01/17 696,613
630 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd)
(a)............................................. 5.900 08/01/18 747,753
675 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd)
(a)............................................. 5.900 08/01/19 804,580
720 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd)
(a)............................................. 5.900 08/01/20 863,388
1,000 Fullerton, CA Sch Dist 2002 Election Ser B (FSA
Insd)........................................... 5.125 08/01/26 1,066,790
1,500 Gilroy, CA Uni Sch Dist Election 2002 (FGIC
Insd)........................................... 5.000 08/01/27 1,582,800
2,000 Glendale, CA Redev Agy Tax Ctr Glendale Redev
Proj (MBIA Insd)................................ 5.250 12/01/20 2,160,980
</Table>
See Notes to Financial Statements 13
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$2,425 Glendora, CA Pub Fin Auth Tax Alloc Proj No 1
Ser A (MBIA Insd)............................... 5.000% 09/01/24 $ 2,535,338
5,000 Golden St Tobacco Securitization Corp CA Tobacco
Settlement Rev Enhanced Asset Bkd Ser A (FGIC
Insd)........................................... 5.000 06/01/38 5,199,950
2,230 Hanford, CA High Sch Dist Election 1998 Ser C
(MBIA Insd) (a)................................. 5.700 08/01/28 2,508,839
1,250 Hemet, CA Uni Sch Dist Ctf Partn Nutrition Ctr
Proj (FSA Insd)................................. 5.875 04/01/27 1,321,813
2,500 Huntington Beach, CA High Election 2004 (FSA
Insd)........................................... 5.000 08/01/26 2,630,200
2,000 Imperial Irr Dist CA Ctf Partn Elec Sys Proj
(FSA Insd)...................................... 5.250 11/01/23 2,144,780
1,950 Imperial Irr Dist CA Ctf Partn Wtr Sys Proj
(AMBAC Insd) (a)................................ 5.000 07/01/19 2,076,009
2,000 Inglewood, CA Redev Agy Tax Alloc Merged Redev
Proj Ser A Rfdg (AMBAC Insd).................... 5.250 05/01/23 2,243,500
1,715 Irvine, CA Pub Fac & Infrastructure Ser B (AMBAC
Insd) (a)....................................... 5.000 09/02/23 1,778,404
2,000 La Canada, CA Uni Sch Dist Election 2004 Ser A
(MBIA Insd)..................................... 5.500 08/01/28 2,209,580
2,000 La Quinta, CA Fin Auth Loc Ser A (AMBAC Insd)... 5.250 09/01/24 2,163,320
2,000 La Quinta, CA Fin Auth Loc Ser A (AMBAC Insd)... 5.000 09/01/29 2,092,920
2,000 La Quinta, CA Redev Agy Tax Alloc Redev Proj
Area No 1 (AMBAC Insd).......................... 5.000 09/01/22 2,109,560
1,000 Livermore-Amador Vly Wtr Mgmt Agy CA Swr Rev Ser
A (AMBAC Insd).................................. 5.250 08/01/16 1,090,780
1,000 Long Beach, CA Bd Fin Auth Lease Rev Rainbow
Harbor Refin Proj Ser A (AMBAC Insd)............ 5.250 05/01/24 1,065,900
1,260 Long Beach, CA Bd Fin Auth Pub Lease Safety Fac
Proj (AMBAC Insd) (a)........................... 5.250 11/01/16 1,384,173
1,545 Long Beach, CA Bd Fin Auth Pub Lease Safety Fac
Proj (AMBAC Insd) (a)........................... 5.250 11/01/20 1,673,003
1,500 Long Beach, CA Bd Fin Auth Rev Redev Hsg & Gas
Util Fin Ser A-1 (AMBAC Insd)................... 5.000 08/01/35 1,554,765
1,000 Los Angeles Cnty, CA Ctf Part Disney Pkg Proj
Rfdg (AMBAC Insd)............................... 4.750 03/01/23 1,013,310
2,740 Los Angeles Cnty, CA Ctf Partn Antelope Vly
Courthouse Ser A (AMBAC Insd)................... 5.750 11/01/16 3,043,071
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 1,051,300
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 1,329,811
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 1,070,630
</Table>
14 See Notes to Financial Statements
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,265 Los Angeles Cnty, CA Schs Regionalized Business
Svcs Ctf Partn Cap Apprec Pooled Fin Ser A
(AMBAC Insd).................................... * 08/01/24 $ 520,168
1,975 Los Angeles, CA Ctf Partn Real Ppty Pgm Ser T
(MBIA Insd) (a)................................. 5.000% 02/01/19 2,070,393
2,000 Los Angeles, CA Dept Wtr & Pwr Sys Ser C (MBIA
Insd)........................................... 5.000 07/01/26 2,094,400
2,380 Los Angeles, CA Mtg Rev FHA Security 8 Asstd
Proj Ser A Rfdg (MBIA Insd)..................... 6.100 07/01/25 2,382,451
1,375 Los Angeles, CA Spl Assmt Landscaping & Ltg Dist
No 96 Ser 1 (AMBAC Insd) (a).................... 5.000 03/01/21 1,435,899
1,000 Lynwood, CA Uni Sch Dist 2002 Election Ser A
(FSA Insd)...................................... 5.000 08/01/27 1,045,750
1,500 Modesto, CA Irr Dist Ctfs Partn Cap Impts Ser A
(FSA Insd)...................................... 5.250 07/01/18 1,627,335
1,105 Monrovia, CA Fin Auth Lease Rev Hillside
Wilderness Preserve (AMBAC Insd)................ 5.000 12/01/20 1,175,532
2,000 Montclair, CA Redev Agy Tax Redev Proj No V Rfdg
(MBIA Insd)..................................... 5.000 10/01/20 2,112,980
1,000 Mount Pleasant, CA Elem Sch Dist 1998 Election
Ser C (FSA Insd)................................ 5.500 03/01/26 1,092,220
1,570 Mountain View, CA Shoreline Tax Alloc Ser A
(MBIA Insd) (a)................................. 5.250 08/01/16 1,711,410
1,105 National City, CA Cmnty Dev Com Redev Proj Ser B
Rfdg (AMBAC Insd)............................... 5.250 08/01/32 1,184,869
2,000 Natomas, CA Uni Sch Dist Rfdg (FGIC Insd)....... 5.250 09/01/16 2,152,440
1,250 North City West, CA Sch Fac Fin Auth Spl Tax Ser
B Rfdg (FSA Insd)............................... 5.750 09/01/15 1,306,113
1,000 Novato, CA Uni Sch Dist (FSA Insd).............. 5.000 08/01/28 1,049,080
3,915 Oak Grove, CA Sch Dist 1995 Election (FGIC
Insd)........................................... 5.250 08/01/25 4,194,609
1,000 Oakland, CA Uni Sch Dist Alameda Cnty (FSA
Insd)........................................... 5.000 08/01/17 1,054,880
1,300 Oceanside, CA Ctf Part Ser A Rfdg (AMBAC
Insd)........................................... 5.200 04/01/23 1,381,809
1,930 Ontario, CA Redev Fin Auth Rev Proj No 1 Ctr
City & Cimarron (MBIA Insd)..................... 5.250 08/01/15 2,113,987
3,025 Orange Cnty, CA Pub Fin Auth Lease Rev Juvenile
Justice Ctr Fac Rfdg (AMBAC Insd)............... 5.375 06/01/17 3,342,928
1,145 Pacifica, CA Wastewtr Rev Rfdg (AMBAC Insd)..... 5.000 10/01/25 1,203,876
1,340 Palm Springs, CA Fin Lease Rev Convention Ctr
Proj Ser A Rfdg (MBIA Insd)..................... 5.250 11/01/19 1,466,389
1,000 Plumas, CA Uni Sch Dist Election 2002 Ser B (FSA
Insd)........................................... 5.000 08/01/26 1,055,200
2,020 Pomona, CA Pub Fin Auth Rev Merged Redev Proj
Ser AD (MBIA Insd) (a).......................... 5.000 02/01/15 2,164,693
1,110 Pomona, CA Pub Fin Auth Rev Merged Redev Proj
Ser AD (MBIA Insd) (a).......................... 5.000 02/01/16 1,188,066
</Table>
See Notes to Financial Statements 15
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,360 Port Hueneme, CA Ctf Partn Cap Impt Pgm Rfdg
(MBIA Insd)..................................... 6.000% 04/01/19 $ 1,621,990
1,055 Poway, CA Redev Agy Tax Alloc Paguay Redev Proj
(AMBAC Insd) (a)................................ 5.375 06/15/20 1,149,644
3,000 Rancho Cucamonga, CA Redev Agy Rancho Redev Proj
(MBIA Insd)..................................... 5.375 09/01/25 3,231,780
1,000 Redding, CA Elec Sys Rev Ctf Part (Inverse Fltg)
(Escrowed to Maturity) (MBIA Insd).............. 10.170 07/01/22 1,413,150
1,400 Redding, CA Redev Agy Tax Alloc Canby Hilltop
Cypress Redev Ser A (MBIA Insd)................. 5.000 09/01/23 1,478,512
2,000 Rialto, CA Spl Tax Cmnty Fac Dist 87-1 Rfdg (FSA
Insd)........................................... 5.625 09/01/18 2,086,600
3,775 Riverside Cnty, CA Ctf Part Historic Courthouse
Proj (FGIC Insd) (a)............................ 5.000 11/01/27 3,953,067
2,160 Roseville, CA Jt Un High Sch Election 2004 Ser A
(FGIC Insd) (a)................................. 5.000 08/01/26 2,272,493
1,000 Sacramento, CA City Fin Auth Rev Cap Impt (AMBAC
Insd)........................................... 5.000 12/01/33 1,036,920
1,500 San Diego Cnty, CA Ctf Part Edgemoor Proj & Regl
Sys Rfdg (AMBAC Insd)........................... 5.000 02/01/23 1,577,010
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 1,563,720
2,000 San Francisco, CA City & Cnty Second Ser Issue
26B (FGIC Insd)................................. 5.000 05/01/22 2,103,260
2,675 San Jose, CA Fin Auth Lease Rev Convention Ctr
Proj Ser F Rfdg (MBIA Insd)..................... 5.000 09/01/17 2,859,441
1,000 San Leandro, CA Ctf Part Lib & Fire Stations Fin
(AMBAC Insd).................................... 5.750 11/01/29 1,104,720
1,000 San Leandro, CA Jt Proj Area Fin (MBIA Insd).... 5.100 12/01/26 1,044,770
1,340 Sanger, CA Uni Sch Dist Ctfs Cap Impt Prog (FSA
Insd) (a)....................................... 5.000 03/01/25 1,389,419
1,935 Santa Clarita, CA Cmnty College Dist Rfdg (AMBAC
Insd) (a)....................................... 5.000 08/01/21 2,070,644
2,000 Santa Fe Springs, CA Cmnty Dev Comm Tax Alloc
Ser A Rfdg (MBIA Insd) (a)...................... 5.375 09/01/20 2,160,800
2,065 Santa Fe Springs, CA Cmnty Dev Comm Tax Alloc
Ser A Rfdg (MBIA Insd).......................... 5.375 09/01/21 2,231,026
1,000 Santa Monica, CA Cmnty College Dist 2002
Election Ser C (MBIA Insd)...................... 5.000 08/01/29 1,050,280
2,450 Santa Monica, CA Cmnty College Ser A Rfdg (AMBAC
Insd) (a)....................................... 5.250 02/01/23 2,631,888
1,000 Shasta, CA Jt Pwrs Fin Auth Cnty Admin Bldg Proj
Ser A (MBIA Insd)............................... 5.250 04/01/22 1,069,960
1,000 South Gate, CA Pub Fin Auth South Gate Redev
Proj No 1 (XLCA Insd)........................... 5.750 09/01/22 1,131,740
</Table>
16 See Notes to Financial Statements
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$2,150 Temecula, CA Redev Agy Tax Alloc Rev Temecula
Redev Proj No 1 (MBIA Insd)..................... 5.125% 08/01/27 $ 2,269,347
1,000 University of CA Rev Multi Purp Proj Ser M (FGIC
Insd)........................................... 5.125 09/01/17 1,074,400
1,000 University of CA Rev Resh Fac Ser E (AMBAC
Insd)........................................... 5.000 09/01/19 1,069,340
1,540 Vallejo City, CA Uni Sch Dist Ser A Rfdg (MBIA
Insd)........................................... 5.900 02/01/20 1,839,068
2,000 Ventura Cnty, CA Ctf Partn Pub Fin Auth Ser I
(FSA Insd)...................................... 5.250 08/15/16 2,143,320
1,545 Victor, CA Elem Sch Dist Rfdg (FGIC Insd) (a)... 5.000 08/01/18 1,668,878
2,000 Woodland, CA Fin Auth Lease Rev Cap Proj (FSA
Insd)........................................... 5.000 03/01/26 2,087,720
------------
TOTAL LONG-TERM INVESTMENTS 98.5%
(Cost $219,637,055)....................................................... 232,839,240
SHORT-TERM INVESTMENTS 0.9%
(Cost $2,200,000)......................................................... 2,200,000
------------
TOTAL INVESTMENTS 99.4%
(Cost $221,837,055)....................................................... 235,039,240
OTHER ASSETS IN EXCESS OF LIABILITIES 0.6%................................. 1,329,994
------------
NET ASSETS 100.0%.......................................................... $236,369,234
============
</Table>
Percentages are calculated as a percentage of net assets.
* Zero coupon bond
(a) The Fund owns 100% of the bond issuance.
(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 1.3% of net
assets.
(c) Security purchased on a when-issued or delayed delivery basis.
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 17
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2005
<Table>
ASSETS:
Total Investments (Cost $221,837,055)....................... $235,039,240
Cash........................................................ 1,555,472
Receivables:
Interest.................................................. 2,570,793
Fund Shares Sold.......................................... 242,725
Other....................................................... 148,903
------------
Total Assets............................................ 239,557,133
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,093,260
Fund Shares Repurchased................................... 356,725
Income Distributions...................................... 228,649
Distributor and Affiliates................................ 107,112
Investment Advisory Fee................................... 92,038
Trustees' Deferred Compensation and Retirement Plans........ 208,154
Accrued Expenses............................................ 101,961
------------
Total Liabilities....................................... 3,187,899
------------
NET ASSETS.................................................. $236,369,234
============
NET ASSETS CONSIST OF:......................................
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $219,521,586
Net Unrealized Appreciation................................. 13,202,185
Accumulated Net Realized Gain............................... 2,917,808
Accumulated Undistributed Net Investment Income............. 727,655
------------
NET ASSETS.................................................. $236,369,234
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $188,029,895 and 9,999,049 shares of
beneficial interest issued and outstanding)............. $ 18.80
Maximum sales charge (4.75%* of offering price)......... .94
------------
Maximum offering price to public........................ $ 19.74
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $33,673,241 and 1,765,627 shares of
beneficial interest issued and outstanding)............. $ 19.07
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $12,035,345 and 639,797 shares of
beneficial interest issued and outstanding)............. $ 18.81
============
Class I Shares:
Net asset value and offering price per share (Based on
net assets of $2,630,753 and 139,927 shares of
beneficial interest issued
and outstanding)........................................ $ 18.80
============
</Table>
* On sales of $100,000 or more, the sales charge will be reduced.
18 See Notes to Financial Statements
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended September 30, 2005
<Table>
INVESTMENT INCOME:
Interest.................................................... $11,294,555
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,118,949
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, C and I of $463,339, $48,876, $111,163 and $0,
respectively)............................................. 623,378
Shareholder Services........................................ 134,982
Legal....................................................... 75,218
Trustees' Fees and Related Expenses......................... 23,404
Custody..................................................... 26,168
Other....................................................... 227,965
-----------
Total Expenses.......................................... 2,230,064
Less Credits Earned on Cash Balances.................... 6,722
-----------
Net Expenses............................................ 2,223,342
-----------
NET INVESTMENT INCOME....................................... $ 9,071,213
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... 2,956,456
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 16,035,924
End of the Period......................................... 13,202,185
-----------
Net Unrealized Depreciation During the Period............... (2,833,739)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 122,717
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 9,193,930
===========
</Table>
See Notes to Financial Statements 19
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, 2005 SEPTEMBER 30, 2004
---------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 9,071,213 $ 9,754,874
Net Realized Gain.................................... 2,956,456 1,219,512
Net Unrealized Depreciation During the Period........ (2,833,739) (811,824)
------------ ------------
Change in Net Assets from Operations................. 9,193,930 10,162,562
------------ ------------
Distributions from Net Investment Income:
Class A Shares..................................... (7,367,133) (7,229,603)
Class B Shares..................................... (1,193,998) (1,397,557)
Class C Shares..................................... (381,330) (466,320)
Class I Shares..................................... (14,214) -0-
------------ ------------
(8,956,675) (9,093,480)
------------ ------------
Distributions from Net Realized Gain:
Class A Shares..................................... (1,194,255) -0-
Class B Shares..................................... (256,541) -0-
Class C Shares..................................... (76,525) -0-
Class I Shares..................................... -0- -0-
------------ ------------
(1,527,321) -0-
------------ ------------
Total Distributions.................................. (10,483,996) (9,093,480)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... (1,290,066) 1,069,082
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 34,454,209 29,982,107
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 7,391,256 6,394,383
Cost of Shares Repurchased........................... (40,845,600) (64,008,093)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... 999,865 (27,631,603)
------------ ------------
TOTAL DECREASE IN NET ASSETS......................... (290,201) (26,562,521)
NET ASSETS:
Beginning of the Period.............................. 236,659,435 263,221,956
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $727,655 and
$612,915, respectively)............................ $236,369,234 $236,659,435
============ ============
</Table>
20 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 ------------------------------------------------
2005 2004 2003 2002 (B) 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD... $18.93 $18.84 $19.45 $18.64 $17.67
------ ------ ------ ------ ------
Net Investment Income.................... .72 .75 .74 .77 .81
Net Realized and Unrealized Gain/Loss.... .01 .06 (.44) .85 .94
------ ------ ------ ------ ------
Total from Investment Operations........... .73 .81 .30 1.62 1.75
------ ------ ------ ------ ------
Less:
Distributions from Net Investment
Income................................. .74 .72 .75 .78 .78
Distributions from Net Realized Gain..... .12 -0- .16 .03 -0-
------ ------ ------ ------ ------
Total Distributions........................ .86 .72 .91 .81 .78
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD......... $18.80 $18.93 $18.84 $19.45 $18.64
====== ====== ====== ====== ======
Total Return (a)........................... 3.96% 4.42% 1.67% 9.01% 10.09%
Net Assets at End of the Period (In
millions)................................ $188.0 $183.0 $195.4 $200.4 $174.9
Ratio of Expenses to Average Net Assets.... .92% .89% .87% .87% .89%
Ratio of Net Investment Income to Average
Net Assets............................... 3.83% 4.00% 3.93% 4.18% 4.43%
Portfolio Turnover......................... 25% 16% 25% 32% 39%
</Table>
(a) 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 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) 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 21
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 ----------------------------------------------------
2005 2004 2003 2002 (B) 2001
----------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD..... $19.03 $18.82 $19.44 $18.65 $17.69
------ ------ ------ ------ ------
Net Investment Income...................... .79 .72 .60 .63 .67
Net Realized and Unrealized Gain/Loss...... (.03) .07 (.45) .84 .94
------ ------ ------ ------ ------
Total from Investment Operations............. .76 .79 .15 1.47 1.61
------ ------ ------ ------ ------
Less:
Distributions from Net Investment Income... .60 .58 .61 .65 .65
Distributions from Net Realized Gain....... .12 -0- .16 .03 -0-
------ ------ ------ ------ ------
Total Distributions.......................... .72 .58 .77 .68 .65
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD........... $19.07 $19.03 $18.82 $19.44 $18.65
====== ====== ====== ====== ======
Total Return (a)............................. 4.10%(c) 4.29%(c) 0.87% 8.16% 9.27%
Net Assets at End of the Period (In
millions).................................. $ 33.7 $ 41.1 $ 49.8 $ 53.0 $ 47.7
Ratio of Expenses to Average Net Assets...... .81%(c) 1.09%(c) 1.62% 1.63% 1.65%
Ratio of Net Investment Income to Average Net
Assets..................................... 3.96%(c) 3.80%(c) 3.18% 3.42% 3.67%
Portfolio Turnover........................... 25% 16% 25% 32% 39%
</Table>
(a) 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 fifth 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 the 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 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.
(c) 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 7).
22 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 ------------------------------------------------------
2005 2004 2003 2002 (B) 2001
------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.... $18.93 $18.82 $19.43 $18.64 $17.68
------ ------ ------ ------ ------
Net Investment Income..................... .59 .61 .61 .64 .68
Net Realized and Unrealized Gain/Loss..... .01 .08 (.45) .83 .93
------ ------ ------ ------ ------
Total from Investment Operations............ .60 .69 .16 1.47 1.61
------ ------ ------ ------ ------
Less:
Distributions from Net Investment
Income.................................. .60 .58 .61 .65 .65
Distributions from Net Realized Gain...... .12 -0- .16 .03 -0-
------ ------ ------ ------ ------
Total Distributions......................... .72 .58 .77 .68 .65
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.......... $18.81 $18.93 $18.82 $19.43 $18.64
====== ====== ====== ====== ======
Total Return (a)............................ 3.26%(d) 3.75%(d) 0.92%(c) 8.16% 9.27%
Net Assets at End of the Period (In
millions)................................. $ 12.0 $ 12.6 $ 18.1 $ 15.0 $ 11.0
Ratio of Expenses to Average Net Assets..... 1.61%(d) 1.59%(d) 1.62% 1.63% 1.65%
Ratio of Net Investment Income to Average
Net Assets................................ 3.15%(d) 3.30%(d) 3.20%(c) 3.41% 3.67%
Portfolio Turnover.......................... 25% 16% 25% 32% 39%
</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 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.
(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%.
(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 7).
See Notes to Financial Statements 23
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 PERIOD INDICATED.
<Table>
<Caption>
AUGUST 12, 2005
(COMMENCEMENT OF
CLASS I SHARES OPERATIONS) TO
SEPTEMBER 30, 2005
------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $18.87
------
Net Investment Income.................................... .09
Net Realized and Unrealized Loss......................... (.06)
------
Total from Investment Operations........................... .03
Less Distributions from Net Investment Income.............. .10
------
NET ASSET VALUE, END OF THE PERIOD......................... $18.80
======
Total Return (a)........................................... 0.17%*
Net Assets at End of the Period (In millions).............. $ 2.6
Ratio of Expenses to Average Net Assets.................... .73%
Ratio of Net Investment Income to Average Net Assets....... 4.03%
Portfolio Turnover......................................... 25%
</Table>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period. These returns do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund Shares.
24 See Notes to Financial Statements
VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005
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, C and I Shares commenced on April 30, 1993, August 13, 1993 and August 12,
2005 respectively.
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, 2005, the Fund had $2,093,260 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.
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
25
VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
At September 30, 2005, the cost and related gross unrealized appreciation
and depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $221,674,280
============
Gross tax unrealized appreciation........................... $ 13,544,125
Gross tax unrealized depreciation........................... (179,165)
------------
Net tax unrealized appreciation on investments.............. $ 13,364,960
============
</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,
2005 and 2004 was as follows:
<Table>
<Caption>
2005 2004
Distributions paid from:
Ordinary income........................................... $ 755 $6,710
Long-term capital gain.................................... 1,527,321 --
---------- ------
$1,528,076 $6,710
========== ======
</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 $2,551 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 $2,349 was reclassified from accumulated
undistributed net investment income to accumulated net realized gain.
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $ 94,762
Undistributed long-term capital gain........................ 2,815,951
</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 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, 2005, the Fund's
custody fee was reduced by $6,722 as a result of credits earned on cash
balances.
26
VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 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 $100 million.......................................... .500%
Next $150 million........................................... .450%
Next $250 million........................................... .425%
Over $500 million........................................... .400%
</Table>
For the year ended September 30, 2005, the Fund recognized expenses of
approximately $20,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Fund is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Fund.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer ("CCO") Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Fund. The costs of
these services are allocated to each fund. For the year ended September 30,
2005, the Fund recognized expenses of approximately $65,400 representing Van
Kampen Investment Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Fund, as well as, the salary,
benefits and related costs of the CCO and related support staff paid by Van
Kampen. Services provided pursuant to the Legal Services agreement are reported
as part of "Legal" expenses on the Statement of Operations. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Other" expenses 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, 2005, the Fund recognized expenses of approximately $105,200
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 $122,000
are included in "Other" assets on the Statement of Assets and Liabilities at
September 30, 2005. 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.
27
VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
3. CAPITAL TRANSACTIONS
At September 30, 2005, capital aggregated $172,932,848, $31,805,974, $12,142,639
and $2,640,125 for Classes A, B, C and I respectively. For the year ended
September 30, 2005, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 1,471,767 $ 27,872,464
Class B................................................... 83,294 1,597,761
Class C................................................... 118,736 2,246,315
Class I................................................... 145,079 2,737,669
---------- ------------
Total Sales................................................. 1,818,876 $ 34,454,209
========== ============
Dividend Reinvestment:
Class A................................................... 320,900 $ 6,072,157
Class B................................................... 53,489 1,021,670
Class C................................................... 14,962 283,212
Class I................................................... 753 14,217
---------- ------------
Total Dividend Reinvestment................................. 390,104 $ 7,391,256
========== ============
Repurchases:
Class A................................................... (1,459,363) $(27,608,932)
Class B................................................... (528,905) (10,111,922)
Class C................................................... (158,990) (3,012,985)
Class I................................................... (5,905) (111,761)
---------- ------------
Total Repurchases........................................... (2,153,163) $(40,845,600)
========== ============
</Table>
28
VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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>
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 year ended September 30, 2005 and 2004,
155,328 and 28,194 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 year ended
September 30, 2005 and 2004, 104,613 and 0 Class C Shares converted to Class A
Shares, respectively. 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
29
VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
most redemptions made within five 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...................................................... 4.00% None
Third....................................................... 3.00% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth and After............................................. 0.00% None
</Table>
Class B Shares purchased prior to June 1, 2005 are subject to the following
CDSC schedule:
<Table>
<Caption>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
YEAR OF REDEMPTION -------------------
First....................................................... 3.00%
Second...................................................... 2.50%
Third....................................................... 2.00%
Fourth...................................................... 1.00%
Fifth and Thereafter........................................ None
</Table>
For the year ended September 30, 2005, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $58,400 and CDSC on redeemed shares of approximately $28,700.
Sales charges do not represent expenses of the Fund.
4. REDEMPTION FEE
Effective September 26, 2005, the Fund assesses a 2% redemption fee on the
proceeds of Fund shares that are redeemed (either by sale or exchange) within
seven days of purchase. The redemption fee is paid directly to the Fund. For the
period ended September 30, 2005, the Fund did not receive any redemption fees.
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $58,105,802 and $59,459,967,
respectively.
30
VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
6. 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.
The Fund invests in indexed securities. These instruments are identified in
the Portfolio of Investments. The price of these securities may be more volatile
than the price of a comparable fixed rate 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. These instruments are typically used by
the Fund to enhance the yield of the portfolio.
7. 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 $0 and $6,800 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, 2005 are payments
retained by Van Kampen of approximately $36,200 and payments made to Morgan
Stanley DW Inc., an affiliate of the Adviser, of approximately $45,800.
8. 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. This 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 to
31
VAN KAMPEN CALIFORNIA INSURED TAX FEE FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
investors 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. Plaintiffs have
filed a Motion for Leave to file a Supplemental Pleading that would, among other
things, expand the allegations and alleged class.
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 the 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. Plaintiff has sought leave to file a second amended
derivative complaint that alleges that the Adviser permitted or recklessly
disregarded market timing and late trading in its proprietary mutual funds in
order to increase assets under management and fees. However, pursuant to an
agreement between the parties, the plaintiff's proposed second amended
derivative complaint was withdrawn and that the allegations regarding market
timing and late trading asserted therein were filed in a separate complaint and
coordinated with other cases related to market timing that have been centralized
in a federal court.
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.
9. 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.
32
VAN KAMPEN CALIFORNIA INSURED TAX FREE 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, 2005, 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.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2005, by correspondence with the
custodian. 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, 2005, 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 11, 2005
33
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President
and Chief Investment Officer
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
PHILLIP G. GOFF
Chief Financial Officer and Treasurer
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, 2005. The Fund designated 99.9% of the income distributions as a
tax-exempt income distribution. The Fund designated and paid $1,527,321 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.
34
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TRUSTEES AND OFFICERS INFORMATION
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 as of the date of this Annual Report. 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 (60) Trustee Trustee Chairman and Chief 72 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.
Jerry D. Choate (67) Trustee Trustee Prior to January 1999, 70 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>
35
<Table>
<Caption>
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TRUSTEE AND OFfiCERS 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 (65) Trustee Trustee President of CAC, L.L.C., 72 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. Prior to
distributor of wire, January 2005, Trustee of
cable and communications the University of Chicago
connectivity products. Hospitals and Health
Prior to July 2000, Systems. Prior to April
Managing Partner of 2004, Director of
Equity Group Corporate TheraSense, Inc. Prior to
Investment (EGI), a January 2004, Director of
company that makes TeleTech Holdings Inc.
private investments in and Arris Group, Inc.
other companies. Prior to May 2002,
Director of Peregrine
Systems Inc. Prior to
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>
36
<Table>
<Caption>
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TRUSTEE AND OFfiCERS 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 (57) Trustee Trustee Managing Partner of 70 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
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (53) Trustee Trustee Director and President of 70 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 (70) Trustee Trustee Prior to 1998, President 72 Trustee/Director/Managing
14 Huron Trace since 2003 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
</Table>
37
<Table>
<Caption>
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TRUSTEE AND OFfiCERS 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 (69) Trustee Trustee President of Nelson 70 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 (65) Trustee Trustee President Emeritus and 72 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 70 Trustee/Director/Managing
(63) 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>
38
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TRUSTEE AND OFFICERS INFORMATION continued
INTERESTED TRUSTEE:*
<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
Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 72 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 Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
</Table>
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
39
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TRUSTEE AND OFFICERS 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
Ronald E. Robison (66) President and Officer President of funds in the Fund Complex since September 2005
1221 Avenue of the Americas Principal Executive since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since May 2003. Managing Director of Morgan Stanley and
Morgan Stanley & Co. Incorporated. Managing Director and
Director of Morgan Stanley Investment Management Inc. Chief
Administrative Officer, Managing Director and Director of
Morgan Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc. Managing Director and Director of
Morgan Stanley Distributors Inc. and Morgan Stanley
Distribution 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 of Morgan Stanley Investment
Management Inc. and Executive Vice President of funds in the
Fund Complex from May 2003 to September 2005.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Investment Officer Investment Management Inc. and Director of Morgan Stanley
Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Amy R. Doberman (43) 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 since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (39) Vice President Officer Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.
</Table>
40
<Table>
<Caption>
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TRUSTEE AND OFfiCERS 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
John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1996 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Phillip G. Goff (42) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza and Treasurer since 2005 Inc. since June 2005. Chief Financial Officer and Treasurer
Oakbrook Terrace, IL 60181 of funds in the Fund Complex since August 2005. Prior to
June 2005, Vice President and Chief Financial Officer of
Enterprise Capital Management, Inc., an investment holding
company.
</Table>
41
Van Kampen California Insured Tax Free Fund
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.
(continued on next page)
Van Kampen California Insured Tax Free Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
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 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
(continued on back)
Van Kampen California Insured Tax Free Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
The Statement of Additional Information includes additional information
about Fund trustees and is available, without charge, upon request by
calling 1-800-847-2424.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
41, 341, 541
CAI ANR 11/05
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-02749P-Y09/05
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,
2005.
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 9/30/05
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index from 9/30/95 through 9/30/05. Class A shares, adjusted for
sales charges.
(LINE GRAPH)
<Table>
<Caption>
VAN KAMPEN MUNICIPAL INCOME LEHMAN BROTHERS MUNICIPAL BOND
FUND INDEX
--------------------------- ------------------------------
9/95 9525 10000
12/95 9996 10413
9841 10288
9920 10366
10160 10604
12/96 10403 10874
10400 10848
10749 11222
11045 11560
12/97 11353 11873
11477 12010
11632 12192
11991 12567
12/98 11939 12642
11963 12755
11684 12529
11481 12479
12/99 11292 12381
11505 12743
11591 12935
11790 13248
12/00 12202 13827
12444 14134
12472 14226
12843 14626
12/01 12661 14537
12744 14673
13212 15210
13916 15933
12/02 13846 15933
13994 16124
14342 16540
14376 16553
12/03 14590 16780
14785 17070
14428 16666
14980 17314
12/04 15145 17530
15075 17523
15565 18037
9/05 15546 18015
</Table>
<Table>
<Caption>
A SHARES B SHARES C SHARES I SHARES
since 8/1/90 since 8/24/92 since 8/13/93 since 8/12/05
- -------------------------------------------------------------------------------------------------
AVERAGE ANNUAL W/O SALES W/SALES W/O SALES W/SALES W/O SALES W/SALES W/O SALES
TOTAL RETURNS CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES
Since Inception 6.01% 5.67% 4.79% 4.79% 4.01% 4.01% 0.60%
10-year 5.02 4.51 4.54 4.54 4.22 4.22 N/A
5-year 5.69 4.67 4.90 4.65 4.89 4.89 N/A
1-year 3.78 -1.16 3.03 -0.95 3.03 2.04 N/A
- -------------------------------------------------------------------------------------------------
30-Day SEC Yield 3.20% 2.61% 2.62% 3.61%
</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. Class I shares are available
for purchase exclusively by investors through (i) tax-exempt retirement plans
with assets of at least $1 million (including 401(k) plans, 457 plans,
employer-sponsored 403(b) plans, profit sharing and money purchase plans,
defined benefit plans and non-qualified deferred compensation plans), (ii)
fee-based investment programs with assets of at least $1 million and (iii)
institutional clients with assets of at least $1 million. Class I shares are
offered without any sales charges on purchases or sales and do not include
combined 12b-1 fees and service fees. 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.
1
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, 2005
Van Kampen Municipal Income Fund is managed by the Adviser's Municipal Fixed
Income team. Current members of the team include Robert W. Wimmel, Vice
President of the Adviser; James F. Willison, Managing Director of the Adviser;
Joseph R. Arcieri, Executive Director of the Adviser; and Robert J. Stryker,
Vice President of the Adviser.(1)
MARKET CONDITIONS
During the 12-month period ended September 30, 2005, the economy grew at a
moderate pace, with reasonable gains in employment and sustained strength in
consumer spending. Although oil prices soared, core inflation (which excludes
food and energy) remained relatively benign. Continuing with the course it began
in June of 2004, the Federal Open Market Committee (the Fed) raised the federal
funds target rate eight times during the period. Through a "measured pace" of 25
basis points increments, the Fed brought the rate to 3.75 percent at the end of
the reporting period. While the yields of short- and intermediate-term bonds
moved upward in concert with the Fed's actions, the yields of long-term bonds
rates declined. As a result, the yield curve (which charts the difference
between short-term and long-term rates) flattened.
Against this backdrop, total returns across the municipal bond market varied
dramatically, with long maturity bonds outperforming short-term issues by a wide
margin. As investors sought income in an environment of historically low rates,
BBB rated and non-rated bonds significantly outperformed high grade debt, and
credit spreads tightened markedly. Strong and steady flows of new cash into high
yield municipal funds added to the demand for lower rated issues.
Sectors with a preponderance of lower rated credits performed with particular
strength. Tobacco revenue bonds were by far the best performing sector,
supported by overall spread tightening as well as by increasing investor comfort
with tobacco companies' future litigation risk. Health care bonds (hospitals and
long-term care facilities) also fared well, boosted by strong investor demand.
In contrast, housing bonds underperformed as interest rates declined and
prepayment risk increased.
Municipal bond issuance remained robust in 2005, with $310 billion of debt
brought to market in the first nine months of the year, a pace on track to beat
the record issuance of 2003. Refunding activity represented a good portion of
this activity, as issuers sought to refinance higher cost debt at low prevailing
interest rates. Bonds backed by insurance dominated issuance and increased their
market penetration to nearly 60 percent.
(1)Team members may change without notice from time to time.
3
PERFORMANCE ANALYSIS
The fund returned 3.78 percent for the 12 months ended September 30, 2005 (Class
A shares, unadjusted for sales charges). In comparison, the fund's benchmark,
the Lehman Brothers Municipal Bond Index, returned 4.05 percent for the period.
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
- --------------------------------------------------------------
LEHMAN BROTHERS
MUNICIPAL BOND
CLASS A CLASS B CLASS C INDEX
3.78%.. 3.03% 3.03% 4.05%
- --------------------------------------------------------------
</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.
Throughout the period, we followed our long-standing practice of trading between
liquid, high quality securities which our analysis identified as compelling
total return opportunities. Our strategy involves buying these bonds when they
are in our opinion attractively valued, and selling them when they reach our
return targets. We then invest the proceeds into bonds we believe have greater
potential for future total return.
Reflecting our view that rates would move higher and that the yields of short-
term bonds would rise faster than those of longer-term bonds, we kept the
overall duration of the fund shorter than that of its benchmark index. (Duration
is a measure of interest rate sensitivity.) Additionally, we constructed the
portfolio according to a "barbell" structure, a strategy which was a significant
positive contributor to performance. Specifically, we emphasized very short-term
bonds and longer-term bonds, while limiting exposure to intermediate-term bonds.
Within the long-term portion of the portfolio, we favored high quality bonds
with more moderate interest-rate characteristics. These bonds performed well as
the yield curve flattened.
Consistent with our quality focus, securities rated AA or better represented
approximately 75 percent of the portfolio at the end of the reporting period.
However, we also found opportunities to enhance the yield of the portfolio by
gradually and selectively adding exposure to higher-yielding BBB rated and non-
rated bonds. These credits accounted for approximately 18 percent of the
portfolio as of September 30, 2005. Here, we focused on the health care sector,
where we found a number of issues which met our stringent criteria. To fund
these purchases, we liquidated positions in insured bonds. This shift benefited
performance as quality spreads tightened, particularly within the non-rated
sector. In contrast, the fund's relative performance was hindered by a lack of
exposure to tobacco revenue bonds, the leading sector for the period.
4
The fund remained well diversified across the major sectors of the municipal
market. At the end of the period, the largest sectors represented in the
portfolio were general purpose, transportation and wholesale electric.
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Fund in the future.
5
<Table>
<Caption>
RATINGS ALLOCATIONS AS OF 9/30/05
AAA/Aaa 63.1%
AA/Aa 12.0
A/A 6.1
BBB/Baa 7.0
BB/Ba 1.0
B/B 0.3
NR 10.5
<Caption>
TOP 5 SECTORS AS OF 9/30/05
General Purpose 13.8%
Transportation 9.7
Wholesale Electric 9.4
Public Education 8.9
Water & Sewer 8.5
<Caption>
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/05
California 15.0%
New York 13.4
Texas 12.2
Illinois 7.4
Florida 6.5
New Jersey 6.2
Colorado 5.9
Michigan 4.0
Massachusetts 2.2
Utah 2.1
North Carolina 1.9
Connecticut 1.9
Oregon 1.9
Arizona 1.8
Missouri 1.7
Indiana 1.4
Pennsylvania 1.4
Georgia 1.4
Washington 1.4
District of Columbia 1.4
Tennessee 1.3
Kansas 1.1
West Virginia 0.9
New Hampshire 0.8
Louisiana 0.7
Ohio 0.5
Rhode Island 0.5
Oklahoma 0.4
Iowa 0.4
South Dakota 0.4
Minnesota 0.3
Maryland 0.2
Vermont 0.2
Alabama 0.2
</Table>
<Table>
(continued on next page)
</Table>
6
<Table>
<Caption>
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/05
(continued from previous page)
South Carolina 0.1
-----
Total Investments 99.1%
Other Assets in Excess of Liabilities 0.9
-----
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.
7
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 (800) SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a fund's fiscal quarter filings by contacting
Van Kampen Client Relations at (800) 847-2424.
8
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 (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 POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the fund's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 847-2424 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the fund voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 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.
9
Expense Example
As a shareholder of the Fund, you incur two types of costs : (1) transaction
costs, including sales charges (loads) on purchase payments of Class A Shares
and contingent deferred sales charge on redemptions of Class B and C Shares; and
(2) 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 4/1/05 - 9/30/05.
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
account values and 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 and do not reflect any transactional costs, such as sales
charges (loads) or contingent deferred sales charges. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
------------------------------------------------
4/1/05 9/30/05 4/1/05-9/30/05
Class A
Actual...................................... $1,000.00 $1,031.28 $4.53
Hypothetical................................ 1,000.00 1,020.57 4.51
(5% annual return before expenses)
Class B
Actual...................................... 1,000.00 1,027.54 8.34
Hypothetical................................ 1,000.00 1,016.87 8.29
(5% annual return before expenses)
Class C
Actual...................................... 1,000.00 1,027.58 8.34
Hypothetical................................ 1,000.00 1,016.87 8.29
(5% annual return before expenses)
Class I
Actual...................................... 1,000.00 1,006.01 0.85
Hypothetical................................ 1,000.00 1,021.77 3.35
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 0.89%, 1.64%,
1.64% and 0.66% for Class A, B, C and I Shares, respectively, multiplied by
the average account value over the period, multiplied by 183/365 (to reflect
the one-half year period) except for Class I Shares "Actual" information
which reflects the period from Commencement of Operations through September
30, 2005.
Assumes all dividends and distributions were reinvested.
10
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On May 25, 2005, the Board of Trustees, and the independent trustees voting
separately, determined that the terms of the investment advisory agreement are
fair and reasonable and approved the continuance of the investment advisory
contract as being in the best interests of the Fund and its shareholders. In
making its determination, the Board of Trustees considered materials that were
specifically prepared by the investment adviser at the request of the Board and
Fund counsel, and by an independent provider of investment company data
contracted to assist the Board, relating to the contract review process. The
Board also considered information received periodically about the portfolio,
performance, the investment strategy, portfolio management team and fees and
expenses of the Fund. The Board of Trustees considered the contract over a
period of several months and the non-management trustees held sessions both with
the investment adviser and separate from the investment adviser in reviewing and
considering the contract.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
existing and alternative breakpoints in the Fund's investment advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies and/or other products at different asset levels,
and considered the trends in the industry versus historical and projected assets
of the Fund. The Board of Trustees evaluated other benefits the investment
adviser and its affiliates derive from their relationship with the Fund. The
Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the investment adviser and
its affiliated companies and the capability of the personnel of the investment
adviser, and specifically the strength and background of its portfolio
management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees, evaluated
all of the foregoing and does not believe any single factor or group of factors
control or dominate the review process, and, after considering all factors
11
together, has determined, in the exercise of its business judgment, that
approval of the investment advisory agreement is in the best interests of the
Fund and its shareholders. The following summary provides more detail on certain
matters considered but does not detail all matters considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The Fund
discloses information about its portfolio management team members and their
experience in its prospectus. The trustees also discuss certain other services
which are provided on a cost-reimbursement basis by the investment adviser or
its affiliates to the Van Kampen funds including certain accounting,
administrative and legal services. The Board has determined that the nature,
extent and quality of the services provided by the investment adviser support
its decision to approve the investment advisory contract.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, a performance committee of the
Board spends more focused time on the performance of the Fund and other funds in
the Van Kampen complex, paying specific attention to underperforming funds. The
trustees discuss with the investment adviser the performance goals and the
actual results achieved in managing the Fund. When considering a fund's
performance, the trustees and the investment adviser place emphasis on trends
and longer-term returns (focusing on one-year, three-year and five-year
performance with special attention to three-year performance) and, when a fund's
weighted performance is under the fund's benchmark, they discuss the causes and
where necessary seek to make specific changes to investment strategy or
investment personnel. The Fund discloses more information about its performance
elsewhere in this report and in the Fund's prospectus. The trustees discuss with
the investment adviser the level of advisory fees for this Fund relative to
comparable funds and other products advised by the adviser and others in the
marketplace. The trustees review not only the advisory fees but other fees and
expenses (whether paid to the adviser, its affiliates or others) and the Fund's
overall expense ratio. The Fund discloses more information about its fees and
expenses in its prospectus. The Board has determined that the performance, fees
and expenses of the Fund support its decision to approve the investment advisory
contract.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put together by the investment adviser with the oversight of a special ad hoc
committee of the Board. The trustees discuss with the investment adviser its
12
revenues and expenses, including among other things, revenues for advisory
services, portfolio management-related expenses, revenue sharing arrangement
costs and allocated expenses both on an aggregate basis and per fund. The Board
has determined that the analysis of the investment adviser's expenses and
profitability support its decision to approve the investment advisory contract.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
and growth prospects of the Fund and how that relates to the Fund's expense
ratio and particularly the Fund's advisory fee rate. In conjunction with its
review of the investment adviser's profitability, the trustees discuss with the
investment adviser how more (or less) assets can affect the efficiency or
effectiveness of managing the Fund's portfolio and whether the advisory fee
level is appropriate relative to current and projected asset levels and/or
whether the advisory fee structure reflects economies of scale as asset levels
change. The Board has determined that its review of the actual and potential
economies of scale of the Fund support its decision to approve the investment
advisory contract.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory contract.
13
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
MUNICIPAL BONDS 99.1%
ALABAMA 0.2%
$1,000 Jefferson Cnty, AL Ltd Oblig Sch Wt Ser A... 5.000% 01/01/24 $ 1,034,080
3 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svc Co Proj Rfdg.............. 6.950 01/01/20 294
------------
1,034,374
------------
ARIZONA 1.8%
5,000 Phoenix, AZ Civic Impt Corp Sr Lien Ser B
(AMT) (FGIC Insd)........................... 5.250 07/01/32 5,205,600
2,500 Phoenix, AZ Indl Dev Auth Mtg Christian Care
Apt Proj Ser A Rfdg......................... 6.500 01/01/26 2,581,200
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................ 6.000 09/01/12 2,003,269
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................ 6.125 09/01/17 1,873,865
------------
11,663,934
------------
CALIFORNIA 15.0%
4,870 Anaheim, CA Pub Fin Auth Lease Rev Cap
Apprec Sub Pub Impt Proj C (FSA Insd)....... * 09/01/20 2,478,099
1,000 California Hlth Fac Fin Auth Rev Cedars
Sinai Med Ctr Rfdg.......................... 5.000 11/15/27 1,027,550
3,000 California Hlth Fac Fin Auth Rev Cedars
Sinai Med Ctr Rfdg.......................... 5.000 11/15/34 3,059,340
305 California Infrastructure & Econ Dev Bk Rev
Bay Area Toll Brdgs First Lien A (FSA
Insd)....................................... 5.250 07/01/20 332,941
5,000 California Infrastructure & Econ Dev Bk Rev
Rites-PA-1202R (Inverse Fltg) (Acquired
09/10/03, Cost $5,484,100) (FSA Insd) (a)
(b)......................................... 7.521 07/01/11 5,916,100
5,725 California St (FSA Insd).................... 5.000 02/01/29 5,952,168
10,000 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)....................................... 5.500 05/01/16 11,116,800
5,000 California St Dept Wtr Res Pwr Ser A J (XLCA
Insd)....................................... 5.375 05/01/17 5,465,150
6,575 California St Dept Wtr Res Pwr Supply Rev
Rites-PA-1201R (Inverse Fltg) (Acquired
09/08/03, Cost $7,143,277) (MBI Insd) (a)... 7.521 05/01/20 7,692,618
7,500 California St Drivers Ser 482 (Inverse Fltg)
(Acquired 07/19/04, Cost $8,325,750) (XLCA
Insd) (a) (b)............................... 7.437 10/01/10 8,768,775
3,500 California St Pub Wks Brd Lease Rev Dept
Corrections Ser C........................... 5.250 06/01/28 3,703,315
1,350 California Statewide Cmnty Dev Auth Rev
Daughters of Charity Hlth Ser A............. 5.000 07/01/39 1,353,415
3,000 California Statewide Cmnty Dev Auth Rev Hlth
Fac Adventist Hlth Ser A (c)................ 5.000 03/01/35 3,049,200
2,640 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)................................ * 09/01/13 1,638,410
5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)................................ * 09/01/14 3,146,576
</Table>
14 See Notes to Financial Statements
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
$3,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Cap Apprec Rfdg (MBIA Insd)................. * 01/15/17 $ 1,734,750
21,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Cap Apprec Rfdg............................. * 01/15/24 7,465,920
15,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Cap Apprec Rfdg............................. * 01/15/30 3,671,400
4,400 Golden St Tob Securitization Corp CA Tob
Settlement Rev Enhanced Ser A............... 5.000% 06/01/45 4,472,248
6,695 San Francisco, CA City & Cnty Second Ser
Issue 29 B Rfdg (FGIC Insd)................. 5.125 05/01/20 7,122,610
1,600 Turlock, CA Hlth Fac Rev Ctf Partn Emanuel
Med Ctr Inc................................. 5.375 10/15/34 1,655,648
5,000 West Contra Costa CA Uni Election of 2002
Ser B (FSA Insd)............................ 5.000 08/01/26 5,209,650
------------
96,032,683
------------
COLORADO 5.9%
2,840 Adams Cnty, CO Single Family Mtg Rev Ser A
(Escrowed to Maturity)...................... 8.875 08/01/10 3,509,644
5,000 Arapahoe Cnty, CO Wtr & Waste Proj Ser A
(MBIA Insd)................................. 5.125 12/01/32 5,243,400
5,000 Colorado Ed & Cultural Fac Auth Rev Impt
Charter Sch Peak to Peak Rfdg (XLCA Insd)... 5.250 08/15/34 5,318,650
3,000 Colorado Hlth Fac Auth Rev Covenant
Retirement Cmntys Inc....................... 5.000 12/01/35 2,922,300
1,000 Colorado Hlth Fac Auth Rev Evangelical
Lutheran Ser A.............................. 5.250 06/01/34 1,033,190
5,000 Colorado Springs, CO Util Rev Sys Sub Lien
Impt Ser A Rfdg............................. 5.000 11/15/21 5,305,250
5,000 Colorado Springs, CO Util Rev Sys Sub Lien
Impt Ser A Rfdg............................. 5.000 11/15/29 5,155,250
1,730 Dove Vly Met Dist CO Arapahoe Cnty Rfdg (FSA
Insd)....................................... 5.000 11/01/25 1,826,015
15,000 E 470 Pub Hwy Auth Co Rev Cap Apprec Sr Ser
B (MBIA Insd)............................... * 09/01/20 7,599,450
------------
37,913,149
------------
CONNECTICUT 1.9%
2,785 Bridgeport, CT Rol Ser II R 182 (Inverse
Fltg) (Acquired 07/09/02, Cost $3,177,971)
(FGIC Insd) (a) (b)......................... 7.879 08/15/15 3,351,887
2,950 Bridgeport, CT Rol Ser II R 182 (Inverse
Fltg) (Acquired 07/09/02, Cost $3,323,232)
(FGIC Insd) (a) (b)......................... 7.879 08/15/16 3,550,472
</Table>
See Notes to Financial Statements 15
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
CONNECTICUT (CONTINUED)
$2,530 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A--Private Placement (d).......... 6.400% 09/01/11 $ 2,638,790
2,470 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A--Private Placement (Prerefunded
@ 09/01/07) (d)............................. 6.400 09/01/11 2,623,560
------------
12,164,709
------------
DISTRICT OF COLUMBIA 1.4%
5,150 District Columbia Tax Incrmnt Gallary Place
Proj (FSA Insd)............................. 5.250 07/01/27 5,510,036
3,000 Metropolitan Washington DC Arpt Auth Sys Ser
A (AMT) (FGIC Insd)......................... 5.250 10/01/32 3,122,910
------------
8,632,946
------------
FLORIDA 6.5%
5,000 Broward Cnty, FL Arpt Sys Rev Ser J-I (AMT)
(AMBAC Insd)................................ 5.250 10/01/26 5,230,750
1,100 Capital Tr Agy FL Rev Ft Lauderdale Proj
(AMT)....................................... 5.750 01/01/32 1,111,286
9,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec
Ser A Rfdg (MBIA Insd)...................... * 02/01/18 4,419,270
570 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC
Insd)....................................... 5.950 07/01/20 611,718
6,385 Lake Cnty, FL Sch Brd Ctf Part (AMBAC
Insd)....................................... 5.375 07/01/16 7,008,495
5,000 Miami Dade Cnty, FL Spl Oblig Cap Apprec &
Income Sub Ser A (MBIA Insd) (e)............ 0/5.000 10/01/24 3,492,800
5,000 Miami-Dade Cnty, FL Spl Oblig Cap Apprec &
Income Sub Ser B (MBIA Insd) (e)............ 0/5.000 10/01/35 4,304,400
500 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg (Prerefunded @
07/01/06)................................... 8.625 07/01/20 534,155
595 Orange Cnty, FL Tourist Dev Tax Rev
(Escrowed to Maturity) (AMBAC Insd)......... 6.000 10/01/16 599,653
12,860 Orlando, FL Util Commn Wtr Rfdg............. 5.250 10/01/19 14,056,494
------------
41,369,021
------------
GEORGIA 1.4%
2,000 Atlanta, GA Tax Alloc Eastside Proj Ser B... 5.600 01/01/30 2,015,800
6,310 Municipal Elec Auth GA Combustion Turbine
Ser A (MBIA Insd)........................... 5.250 11/01/17 6,904,276
5 Municipal Elec Auth GA Combustion Turbine
Ser A (Prerefunded @ 11/01/12) (MBIA
Insd)....................................... 5.250 11/01/17 5,522
------------
8,925,598
------------
ILLINOIS 7.4%
3,000 Chicago, IL Lakefront Millennium Pkg Fac
(MBIA Insd) (e)............................. 0/5.650 01/01/19 3,207,870
1,000 Chicago, IL Metro Wtr Reclamation Dist Gtr
Chicago (Escrowed to Maturity).............. 7.000 01/01/11 1,136,120
8,050 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt
Third Lien C-2 Rfdg (AMT) (XLCA Insd)....... 5.250 01/01/34 8,413,779
5,100 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airl Proj Ser B Rfdg (AMT) (f) (i)... 5.200 04/01/11 615,162
</Table>
16 See Notes to Financial Statements
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$3,210 Chicago, IL Proj & Rfdg Ser C (FGIC Insd)
(b)......................................... 5.750% 01/01/16 $ 3,551,480
90 Chicago, IL Single Family Mtg Rev Ser A
(AMT) (GNMA Collateralized)................. 7.000 09/01/27 90,352
1,000 Chicago, IL Tax Increment Alloc Santn Drain
& Ship Canal Ser A.......................... 7.750 01/01/14 1,059,680
2,000 Chicago, IL Tax Increment Alloc Sub Cent
Loop Redev Ser A............................ 6.500 12/01/05 2,009,860
1,000 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctf Part (FGIC Insd)................ 8.750 01/01/07 1,068,750
5,000 Cook Cnty, IL Ser A (FGIC Insd)............. 5.500 11/15/31 5,421,350
1,500 Hodgkins, IL Tax Increment Ser A Rfdg....... 7.625 12/01/13 1,540,140
1,310 Huntley, IL Increment Alloc Rev Huntley
Redev Proj Ser A............................ 8.500 12/01/15 1,346,968
170 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj................................ 8.000 11/15/06 166,722
5,000 Illinois St First Ser (FSA Insd)............ 5.250 12/01/21 5,431,400
9,250 Metropolitan Pier & Expo Auth IL Dedicated
St Tax Rev Cap Apprec McCormick Rfdg (MBIA
Insd) (e)................................... 0/5.400 06/15/19 7,215,000
4,100 Pingree Grove Village, IL Spl Svc Area No 1
Spl Tax Ser 05-1 Cambridge Lakes Proj....... 5.250 03/01/15 4,146,904
1,120 Saint Charles, IL Indl Dev Rev Tri-City Ctr
Proj (Acquired 11/17/93, Cost $1,120,000)
(a)......................................... 7.500 11/01/13 1,119,933
------------
47,541,470
------------
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 2,652,100
1,900 Indiana Hlth Fac Fin Auth Rev Hoosier Care
Proj Ser A.................................. 7.125 06/01/34 1,780,319
550 Indianapolis, IN Loc Pub Impt Bd Bk Ser D... 6.750 02/01/14 648,631
140 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B (b)..................... * 06/30/11 90,982
140 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B (b)..................... * 06/30/12 84,280
135 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B (b)..................... * 06/30/13 75,283
130 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B (b)..................... * 06/30/14 67,154
130 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B (b)..................... * 06/30/15 62,208
135 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B (b)..................... * 06/30/16 59,854
225 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B (b)..................... * 06/30/17 92,407
3,295 Vigo Cnty, IN Elem Sch Bldg First Mtg Impt &
Rfdg (FSA Insd)............................. 5.250 01/10/22 3,510,855
------------
9,124,073
------------
</Table>
See Notes to Financial Statements 17
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
IOWA 0.4%
$ 175 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp
Proj (FSA Insd)............................. 6.000% 07/01/07 $ 181,333
2,400 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp
Proj (FSA Insd)............................. 5.750 07/01/17 2,539,872
------------
2,721,205
------------
KANSAS 1.1%
6,600 Sedgwick Cnty, KS Uni Sch Dist No 259
Wichita (MBIA Insd) (b)..................... 5.625 09/01/13 7,215,450
------------
LOUISIANA 0.7%
4,350 Ernest N Morial New Orleans, LA Exhib Hall
Auth Spl Tax Sub Ser A (AMBAC Insd)......... 5.000 07/15/33 4,466,885
------------
MARYLAND 0.2%
1,250 Prince Georges Cnty, MD Spl Oblig Natl
Harbor Proj................................. 5.200 07/01/34 1,268,525
------------
MASSACHUSETTS 2.2%
3,500 Massachusetts St Hlth & Ed Fac Auth Rev Ser
G (MBIA Insd)............................... 5.000 07/01/13 3,540,600
2,000 Massachusetts St Hlth & Ed Fac Auth Rev Univ
MA Mem Issue Ser D.......................... 5.000 07/01/33 1,998,360
2,740 Massachusetts St Indl Fin Agy Rev First Mtg
Reeds Landing Proj (e)...................... 7.100/7.350 10/01/28 2,734,767
5,000 Massachusetts St Rites PA 1290--Private
Placement (Inverse Fltg) (Acquired 03/23/05,
Cost $5,458,000) (FSA Insd) (a) (b)......... 7.051 03/01/24 5,604,750
------------
13,878,477
------------
MICHIGAN 4.0%
825 Detroit, MI Loc Dev Fin Auth Tax Increment
Sub Ser C (Acquired 09/08/97, Cost $825,000)
(a)......................................... 6.850 05/01/21 843,934
5,000 Detroit, MI Sew Disp Rev Sr Lien Ser A Rfdg
(FGIC Insd)................................. 5.125 07/01/31 5,205,850
5,000 Michigan St Bldg Auth Rev Fac Prog Ser II
(Prerefunded @ 10/15/11).................... 5.500 10/15/16 5,554,600
5,000 Michigan St Strategic Fd Detroit Edison Co
Proj C Rfdg (AMT) (XLCA Insd)............... 5.450 12/15/32 5,285,200
9,739 Michigan St Strategic Fd Ltd Oblig Rev Great
Lakes Pulp & Fiber Proj (AMT) (f) (g)....... 8.000 12/01/27 1,362,166
1,935 Michigan St Strategic Fd Solid Genesee Pwr
Sta Proj Rfdg (AMT)......................... 7.500 01/01/21 1,934,458
5,000 Western Townships, MI Util Sew Rfdg (MBIA
Insd)....................................... 5.250 01/01/16 5,339,650
------------
25,525,858
------------
MINNESOTA 0.3%
2,000 Saint Paul, MN Hsg & Redev Auth Hosp Rev
Hltheast Proj............................... 6.000 11/15/35 2,148,380
------------
</Table>
18 See Notes to Financial Statements
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
MISSOURI 1.7%
$3,000 Kansas City, MO Indl Dev Auth Plaza Lib
Proj........................................ 6.000% 03/01/16 $ 3,150,330
2,835 Kansas City, MO Port Auth Fac Riverfront
Park Proj Ser A (b)......................... 5.750 10/01/06 2,855,214
3,935 Macon, MO Ctf Part (MBIA Insd).............. 5.250 08/01/17 4,183,653
460 Saint Louis, MO Tax Increment Rev Scullin
Redev Area Ser A............................ 10.000 08/01/10 524,147
------------
10,713,344
------------
NEW HAMPSHIRE 0.8%
1,295 New Hampshire Higher Ed & Hlth Fac Auth Rev
(b)......................................... 8.800 06/01/09 1,367,792
625 New Hampshire Higher Ed & Hlth Fac Auth Rev
Daniel Webster College Issue Rfdg (b)....... 6.100 07/01/09 649,200
700 New Hampshire St Business Fin Auth Elec Fac
Rev Plymouth Cogeneration (AMT) (Acquired
06/29/93, Cost $685,140) (a)................ 7.750 06/01/14 721,035
1,000 New Hampshire St Business Fin Auth Rev Alice
Peck Day Hlth Sys Ser A..................... 6.875 10/01/19 1,061,490
1,000 New Hampshire St Tpk Sys Rev Ser A Rfdg
(FGIC Insd)................................. 6.750 11/01/11 1,059,240
------------
4,858,757
------------
NEW JERSEY 6.2%
2,000 Camden Cnty, NJ Impt Auth Lease Rev Dockside
Refrig (Acquired 01/29/97, Cost $2,074,739)
(a) (h)..................................... 8.400 04/01/24 1,922,500
3,250 Landis, NJ Sew Auth Swr Rev (Inverse Fltg)
(FGIC Insd)................................. 8.420 09/19/19 4,032,600
6,130 Middlesex Cnty, NJ Util Auth Swr Rev Ser A
Rfdg (MBIA Insd)............................ 6.250 08/15/10 6,620,400
2,000 New Jersey Econ Dev Auth Cig Tax............ 5.750 06/15/34 2,118,440
2,000 New Jersey Econ Dev Auth Holt Hauling &
Warehsg Rev Ser G Rfdg (f).................. 8.400 12/15/15 1,582,000
1,900 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A (Prerefunded @
11/01/06)................................... 8.500 11/01/16 2,048,808
190 New Jersey St Tpk Auth Tpk Rev (MBIA Insd)
(Escrowed to Maturity)...................... 6.500 01/01/16 226,104
565 New Jersey St Tpk Auth Tpk Rev (MBIA
Insd)....................................... 6.500 01/01/16 670,808
2,725 New Jersey St Tpk Auth Tpk Rev Ser C
(Escrowed to Maturity) (MBIA Insd).......... 6.500 01/01/16 3,242,805
5,710 New Jersey St Trans Corp Ctf Fed Trans Admin
Gnt Ser A (AMBAC Insd)...................... 5.750 09/15/10 6,192,609
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 11,243,500
------------
39,900,574
------------
</Table>
See Notes to Financial Statements 19
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
NEW YORK 13.4%
$5,000 Metropolitan Trans Auth NY Rev Ser B (FGIC
Insd)....................................... 5.250% 11/15/18 $ 5,491,500
3,000 New York City Indl Dev Agy Rev Liberty 7
World Trade Ctr Ser A....................... 6.250 03/01/15 3,215,040
5,000 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Rites PA 1289 (Inverse Fltg)
(Acquired 03/09/05, Cost $5,451,150) (MBIA
Insd) (a)................................... 7.041 06/15/27 5,578,650
4,800 New York City Ser A......................... 7.000 08/01/07 5,021,904
2,930 New York City Ser B (MBIA Insd)............. 5.875 08/01/15 3,280,487
14,430 New York City Ser B (Prerefunded @ 08/01/10)
(MBIA Insd)................................. 5.875 08/01/15 16,257,415
5,000 New York City Transitional Drivers Ser 307
(Inverse Fltg) (Acquired 11/06/02, Cost
$5,439,826) (AMBAC Insd) (a) (b)............ 7.437 08/01/19 5,937,600
5,000 New York City Transitional Fin Auth Future
Tax Secd Ser E.............................. 5.000 02/01/33 5,190,850
3,000 New York Cntys Tob Tr IV Settlement Pass
Thru Ser A.................................. 5.000 06/01/42 2,913,930
695 New York St Dorm Auth Rev Mental Hlth Ser
A........................................... 5.750 02/15/11 730,431
1,590 New York St Dorm Auth Rev Mental Hlth Ser A
(Prerefunded @ 02/15/07).................... 5.750 02/15/11 1,680,042
680 New York St Dorm Auth Rev Mental Hlth Ser
A........................................... 5.750 02/15/12 714,666
1,595 New York St Dorm Auth Rev Mental Hlth Ser A
(Prerefunded @ 02/15/07).................... 5.750 02/15/12 1,685,325
2,500 New York St Energy Resh & Dev Auth Gas Fac
Rev (Inverse Fltg).......................... 9.917 04/01/20 2,946,350
3,000 New York St Energy Resh & Dev Auth Gas Fac
Rev Brooklyn Union Gas Ser B (Inverse Fltg)
(AMT)....................................... 10.730 07/01/26 3,263,730
10,725 New York St Environmental Fac Rev Fds Second
Resolution (b).............................. 5.000 06/15/20 11,454,729
10,000 Triborough Brdg & Tunl Auth NY Gen Ser B
Rfdg........................................ 5.000 11/15/22 10,506,600
------------
85,869,249
------------
NORTH CAROLINA 1.9%
8,700 North Carolina Muni Pwr Agy Ser A (MBIA
Insd)....................................... 5.250 01/01/19 9,412,356
2,655 Wilmington, NC Ctf Part Ser A (AMBAC
Insd)....................................... 5.000 06/01/32 2,765,395
------------
12,177,751
------------
OHIO 0.5%
3,340 Adams Cnty Hosp Fac Impt Rev Adams Cnty Hosp
Proj........................................ 6.250 09/01/20 3,354,462
------------
</Table>
20 See Notes to Financial Statements
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
OKLAHOMA 0.4%
$2,250 Oklahoma City, OK Pub Ppty Auth Hotel Tax
Rev (FGIC Insd)............................. 5.250% 10/01/29 $ 2,434,658
350 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B (AMT) (GNMA Collateralized)......... 7.997 08/01/18 380,156
------------
2,814,814
------------
OREGON 1.9%
5,000 Oregon Hlth Sciences Univ Insd Ser A (MBIA
Insd)....................................... 5.250 07/01/22 5,429,100
1,000 Port Morrow, OR Pollutn Ctl Portland Gen A
Rfdg (Variable Rate Coupon)................. 5.200 05/01/33 1,041,480
5,000 Portland, OR Swr Sys Rev Ser A (Prerefunded
@ 08/01/10) (FGIC Insd)..................... 5.750 08/01/18 5,548,400
------------
12,018,980
------------
PENNSYLVANIA 1.4%
2,000 Delaware Cnty, PA Indl Dev Auth Rev Res
Recovery Fac Ser A.......................... 6.100 07/01/13 2,104,380
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Mtg
Whitemarsh Cont Care Proj................... 6.250 02/01/35 1,048,890
5,250 Philadelphia, PA Auth Indl Ser B (FSA
Insd)....................................... 5.500 10/01/16 5,818,785
------------
8,972,055
------------
RHODE ISLAND 0.5%
1,110 Rhode Island St Econ Dev Corp Rev (b)....... 7.250 07/01/10 1,118,125
2,000 Rhode Island St Hlth & Ed Bldg Higher Ed
Johnson & Wales Rfdg (XLCA Insd)............ 5.375 04/01/19 2,166,620
------------
3,284,745
------------
SOUTH CAROLINA 0.1%
700 Piedmont Muni Pwr Agy SC Elec Rev Rfdg...... 5.000 01/01/25 699,944
------------
SOUTH DAKOTA 0.4%
1,000 South Dakota St Hlth & Ed Fac Auth Rev Huron
Regl Med Ctr................................ 7.250 04/01/20 1,012,440
1,250 South Dakota St Hlth & Ed Fac Auth Rev Sioux
Vly Hosp & Hlth Sys Ser A................... 5.250 11/01/34 1,300,413
------------
2,312,853
------------
TENNESSEE 1.3%
1,000 Chattanooga, TN Hlth Ed & Hsg Fac Brd Rev
CDFI Phase I LLC Proj Ser A Rfdg............ 5.000 10/01/25 983,240
4,000 Elizabethton, TN Hlth & Ed Fac Brd Rev Hosp
Ser B Impt & Rfdg (MBIA Insd)............... 7.750 07/01/29 4,985,040
2,000 Springfield, TN Hlth & Ed Jesse Holman Jones
Hosp Proj (Prerefunded @ 04/01/06).......... 8.500 04/01/24 2,095,180
------------
8,063,460
------------
TEXAS 12.2%
500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Saint Luke's Lutheran Hosp (Escrowed to
Maturity)................................... 7.000 05/01/21 654,515
3,170 Brazos Riv Auth TX Pollutn Ctl Rev Adj Elec
Co Proj Ser C Rfdg (Variable Rate Coupon)
(AMT)....................................... 5.750 05/01/36 3,392,693
</Table>
See Notes to Financial Statements 21
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$ 90 Coastal Wtr Auth TX Conveyance Sys Rev
(Escrowed to Maturity) (AMBAC Insd)......... 6.250% 12/15/17 $ 90,165
5,000 Dallas-Fort Worth, TX Intl Arpt Rev Jt Ser A
Impt & Rfdg (AMT) (FGIC Insd)............... 5.500 11/01/31 5,272,950
6,065 Harris Cnty, TX Toll Rd Sub Lien Rfdg....... 5.000 08/01/33 6,153,428
5,000 Harris Cnty-Houston, TX Sports Auth Spl Rev
Jr Lien Ser B Rfdg (MBIA Insd).............. 5.250 11/15/40 5,193,950
10,000 Houston, TX Hotel Occupancy Tax Convtn &
Entertnmnt Ser B (AMBAC Insd)............... 5.750 09/01/14 11,158,200
7,500 Lower CO Riv Auth TX Rev Ser A Rfdg (Inverse
Fltg) (Acquired 10/20/99, Cost $7,623,805)
(FSA Insd) (a).............................. 8.752 05/15/14 8,885,475
6,250 Lower CO Riv Auth TX Rev Ser A Rfdg (Inverse
Fltg) (Acquired 10/20/99, Cost $6,312,134)
(FSA Insd) (a).............................. 8.752 05/15/15 7,431,500
3,250 Lower CO Riv Auth TX Rev Ser A Rfdg (Inverse
Fltg) (Acquired 10/20/99, Cost $3,254,875)
(FSA Insd) (a) (b).......................... 8.752 05/15/16 3,864,380
5,000 Mabank, TX Indpt Sch Dist (PSF Gtd)......... 5.125 08/15/35 5,191,750
5,210 Mabank, TX Indpt Sch Dist (PSF Gtd) (b)..... 5.000 08/15/30 5,376,303
2,000 Metropolitan Hlth Fac Dev Corp TX Wilson N
Jones Mem Hosp Proj......................... 7.200 01/01/21 2,073,760
9,175 Midlothian, TX Indpt Sch Dist Rfdg (PSF
Gtd)........................................ 5.000 02/15/34 9,428,872
1,675 Texas St Dept Hsg & Cmnty Affairs Home Mtg
Rev Coll Ser C-2 Rfdg (Inverse Fltg) (AMT)
(GNMA Collateralized)....................... 11.296 07/02/24 1,707,244
40 Texas St Higher Ed Coordinating Brd College
Student Ln Rev (AMT)........................ 7.849 10/01/25 40,005
2,220 Wylie, TX Indpt Sch Dist Rfdg (PSF Gtd)..... 5.000 08/15/30 2,281,827
------------
78,197,017
------------
UTAH 2.1%
1,340 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj (f).................................... 7.800 09/01/15 402,000
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj (f).................................... 8.000 09/01/20 300,000
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj (f).................................... 7.800 09/01/25 300,000
11,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc
Rfdg........................................ 6.150 02/15/12 12,449,470
10 Utah St Hsg Fin Agy Single Family Mtg Sr Ser
A1 (AMT) (FHA/VA)........................... 7.100 07/01/14 10,214
10 Utah St Hsg Fin Agy Single Family Mtg Sr Ser
A2 (AMT) (FHA/VA)........................... 7.200 01/01/27 10,214
------------
13,471,898
------------
VERMONT 0.2%
1,000 Vermont Ed & Hlth Bldg Fin Agy Rev
Bennington College Proj..................... 6.625 10/01/29 1,037,210
------------
</Table>
22 See Notes to Financial Statements
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- --------------------------------------------------------------------------------------------
WASHINGTON 1.4%
$8,000 King Cnty, WA Sch Dist No 411 (FGIC Insd)
(b)......................................... 5.250% 12/01/20 $ 8,692,960
------------
WEST VIRGINIA 0.9%
1,500 West Virginia St Hosp Fin Auth Hosp Rev
Bears & Bulls WV Univ Med Corp Rfdg (MBIA
Insd) (b)................................... 6.100 01/01/18 1,526,985
4,000 West Virginia St Hosp Fin Auth Hosp Rev
Bears & Bulls WV Univ Med Corp Rfdg (MBIA
Insd) (b)................................... 6.100 01/01/18 4,071,840
------------
5,598,825
------------
TOTAL INVESTMENTS 99.1%
(Cost $614,925,933)........................................................ 633,665,635
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%.................................. 5,872,981
------------
NET ASSETS 100.0%........................................................... $639,538,616
============
</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 11.1% of net
assets.
(b) The Fund owns 100% of the bond issuance.
(c) Security purchased on a when-issued or delayed delivery basis.
(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) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(f) Non-income producing security.
(g) Payment-in-kind security.
(h) Interest is accruing at less than the stated coupon.
(i) This borrower has filed for protection in federal bankruptcy court.
See Notes to Financial Statements 23
VAN KAMPEN MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
FGIC--Financial Guaranty Insurance Co.
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Public School Fund
XLCA--XL Capital Assurance Inc.
FUTURE CONTRACTS OUTSTANDING AS OF SEPTEMBER 30, 2005
<Table>
<Caption>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
U.S. Treasury Notes 2-Year Futures December 2005............ 163 $ 83,395
(Current Notional Value of $205,891 per contract)
U.S. Treasury Notes 5-Year Futures December 2005............ 275 183,665
(Current Notional Value of $106,859 per contract)...........
--- --------
438 $267,060
=== ========
</Table>
24 See Notes to Financial Statements
VAN KAMPEN MUNICIPAL INCOME FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2005
<Table>
ASSETS:
Total Investments (Cost $614,925,933)....................... $633,665,635
Cash........................................................ 4,204,115
Receivables:
Interest.................................................. 8,243,557
Fund Shares Sold.......................................... 596,595
Investments Sold.......................................... 548,808
Variation Margin on Futures............................... 104,406
Other....................................................... 213,741
------------
Total Assets............................................ 647,576,857
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 5,553,500
Fund Shares Repurchased................................... 794,043
Income Distributions...................................... 697,784
Distributor and Affiliates................................ 318,896
Investment Advisory Fee................................... 258,923
Trustees' Deferred Compensation and Retirement Plans........ 265,828
Accrued Expenses............................................ 149,267
------------
Total Liabilities....................................... 8,038,241
------------
NET ASSETS.................................................. $639,538,616
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $641,788,480
Net Unrealized Appreciation................................. 19,006,762
Accumulated Undistributed Net Investment Income............. 770,696
Accumulated Net Realized Loss............................... (22,027,322)
------------
NET ASSETS.................................................. $639,538,616
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $587,617,335 and 39,938,997 shares of
beneficial interest issued and outstanding)............. $ 14.71
Maximum sales charge (4.75%* of offering price)......... .73
------------
Maximum offering price to public........................ $ 15.44
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $38,115,530 and 2,594,387 shares of
beneficial interest issued and outstanding)............. $ 14.69
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $12,534,567 and 854,353 shares of
beneficial interest issued and outstanding)............. $ 14.67
============
Class I Shares:
Net asset value and offering price per share (Based on
net assets of $1,271,184 and 86,425 shares of beneficial
interest issued and outstanding)........................ $ 14.71
============
</Table>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 25
VAN KAMPEN MUNICIPAL INCOME FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended September 30, 2005
<Table>
INVESTMENT INCOME:
Interest.................................................... $ 34,342,354
------------
EXPENSES:
Investment Advisory Fee..................................... 3,202,733
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,484,355, $436,129 and $129,983,
respectively)............................................. 2,050,467
Shareholder Services........................................ 402,580
Legal....................................................... 102,218
Custody..................................................... 75,326
Trustees' Fees and Related Expenses......................... 26,184
Other....................................................... 355,846
------------
Total Expenses.......................................... 6,215,354
Less Credits Earned on Cash Balances.................... 15,888
------------
Net Expenses............................................ 6,199,466
------------
NET INVESTMENT INCOME....................................... $ 28,142,888
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 7,547,562
Futures................................................... 98,300
------------
Net Realized Gain........................................... 7,645,862
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 30,728,214
------------
End of the Period:
Investments............................................. 18,739,702
Futures................................................. 267,060
------------
19,006,762
------------
Net Unrealized Depreciation During the Period............... (11,721,452)
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (4,075,590)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 24,067,298
============
</Table>
26 See Notes to Financial Statements
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, 2005 SEPTEMBER 30, 2004
----------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 28,142,888 $ 30,700,407
Net Realized Gain/Loss............................. 7,645,862 (2,789,110)
Net Unrealized Depreciation During the Period...... (11,721,452) (19,307)
------------ -------------
Change in Net Assets from Operations............... 24,067,298 27,891,990
------------ -------------
Distributions from Net Investment Income:
Class A Shares................................... (26,358,317) (27,226,749)
Class B Shares................................... (1,598,728) (1,926,469)
Class C Shares................................... (476,845) (565,309)
Class I Shares................................... (7,693) -0-
------------ -------------
Total Distributions................................ (28,441,583) (29,718,527)
------------ -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... (4,374,285) (1,826,537)
------------ -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................... 41,515,355 37,955,532
Net Asset Value of Shares Issued Through Dividend
Reinvestment..................................... 19,629,302 20,108,172
Cost of Shares Repurchased......................... (89,121,245) (118,216,715)
------------ -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS..................................... (27,976,588) (60,153,011)
------------ -------------
TOTAL DECREASE IN NET ASSETS....................... (32,350,873) (61,979,548)
NET ASSETS:
Beginning of the Period............................ 671,889,489 733,869,037
------------ -------------
End of the Period (Including accumulated
undistributed net investment income of $770,696
and $1,196,811, respectively).................... $639,538,616 $ 671,889,489
============ =============
</Table>
See Notes to Financial Statements 27
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 --------------------------------------------------------
2005 2004 2003 2002 (C) 2001
--------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD.................................. $14.81 $14.84 $15.03 $14.56 $14.06
------ ------ ------ ------ ------
Net Investment Income................... .64(a) .66(a) .67(a) .71 .74
Net Realized and Unrealized Gain/Loss... (.09) (.05) (.19) .46 .49
------ ------ ------ ------ ------
Total from Investment Operations.......... .55 .61 .48 1.17 1.23
Less Distributions from Net Investment
Income.................................. .65 .64 .67 .70 .73
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD........ $14.71 $14.81 $14.84 $15.03 $14.56
====== ====== ====== ====== ======
Total Return (b).......................... 3.78% 4.20% 3.31% 8.35% 8.93%
Net Assets at End of the Period (In
millions)............................... $587.6 $609.4 $658.5 $696.4 $701.5
Ratio of Expenses to Average Net Assets... .88% .89% .88% .87% .83%
Ratio of Net Investment Income to Average
Net Assets.............................. 4.35% 4.46% 4.53% 4.89% 5.16%
Portfolio Turnover........................ 39% 15% 46% 49% 31%
</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.
28 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 B SHARES --------------------------------------------------------
2005 2004 2003 2002 (C) 2001
--------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD.................................. $14.79 $14.82 $15.02 $14.54 $14.05
------ ------ ------ ------ ------
Net Investment Income................... .53(a) .55(a) .56(a) .60 .63
Net Realized and Unrealized Gain/Loss... (.09) (.05) (.20) .48 .48
------ ------ ------ ------ ------
Total from Investment Operations.......... .44 .50 .36 1.08 1.11
Less Distributions from Net Investment
Income.................................. .54 .53 .56 .60 .62
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD........ $14.69 $14.79 $14.82 $15.02 $14.54
====== ====== ====== ====== ======
Total Return (b).......................... 3.03% 3.41% 2.48% 7.64% 8.06%
Net Assets at End of the Period (In
millions)............................... $ 38.1 $ 48.8 $ 58.4 $ 65.0 $ 66.6
Ratio of Expenses to Average Net Assets... 1.63% 1.64% 1.63% 1.62% 1.59%
Ratio of Net Investment Income to Average
Net Assets.............................. 3.60% 3.71% 3.78% 4.13% 4.40%
Portfolio Turnover........................ 39% 15% 46% 49% 31%
</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.
See Notes to Financial Statements 29
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 --------------------------------------------------------
2005 2004 2003 2002 (C) 2001
--------------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD.................................. $14.77 $14.80 $15.00 $14.52 $14.04
------ ------ ------ ------ ------
Net Investment Income................... .53(a) .55(a) .56(a) .60 .63
Net Realized and Unrealized Gain/Loss... (.09) (.05) (.20) .48 .47
------ ------ ------ ------ ------
Total from Investment Operations.......... .44 .50 .36 1.08 1.10
Less Distributions from Net Investment
Income.................................. .54 .53 .56 .60 .62
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD........ $14.67 $14.77 $14.80 $15.00 $14.52
====== ====== ====== ====== ======
Total Return (b).......................... 3.03% 3.43% 2.48% 7.65% 8.00%
Net Assets at End of the Period (In
millions)............................... $ 12.5 $ 13.7 $ 17.0 $ 18.8 $ 17.4
Ratio of Expenses to Average Net Assets... 1.63% 1.64% 1.63% 1.62% 1.62%
Ratio of Net Investment Income to Average
Net Assets.............................. 3.60% 3.71% 3.78% 4.13% 4.37%
Portfolio Turnover........................ 39% 15% 46% 49% 31%
</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.
30 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>
AUGUST 12, 2005
(COMMENCEMENT OF
CLASS I SHARES OPERATIONS) TO
SEPTEMBER 30, 2005
------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $14.71
------
Net Investment Income..................................... .09(a)
Net Realized and Unrealized Gain.......................... .00**
------
Total from Investment Operations............................ .09
Less Distributions from Net Investment Income............... .09
------
NET ASSET VALUE, END OF THE PERIOD.......................... $14.71
======
Total Return (b)............................................ 0.60%*
Net Assets at End of the Period (In millions)............... $ 1.3
Ratio of Expenses to Average Net Assets..................... .66%
Ratio of Net Investment Income to Average Net Assets........ 4.56%
Portfolio Turnover.......................................... 39%
</Table>
* Non-Annualized
** Amount is less than $.01
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period This return does
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 MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005
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, Class C
and Class I shares commenced on August 24, 1992, August 13, 1993, and August 12,
2005, respectively.
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.
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, 2005, the Fund had $3,049,200 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.
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
32
VAN KAMPEN MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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. During the current fiscal year, the Fund utilized capital losses carried
forward of $5,929,156. At September 30, 2005, the Fund had an accumulated
capital loss carryforward for tax purposes of $22,055,994 which will expire
according to the following schedule.
<Table>
<Caption>
AMOUNT EXPIRATION
$5,079,306.................................................. September 30, 2008
9,728,055.................................................. September 30, 2009
7,248,633.................................................. September 30, 2010
</Table>
At September 30, 2005, the cost and related gross unrealized appreciation
and depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $614,831,923
============
Gross tax unrealized appreciation........................... $ 32,621,828
Gross tax unrealized depreciation........................... (13,788,116)
------------
Net tax unrealized appreciation investments................. $ 18,833,712
============
</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,
2005 and 2004 were as follows:
<Table>
<Caption>
2005 2004
Distribution paid from:
Ordinary Income........................................... $117,584 $291,037
Long-term capital gain.................................... -0- -0-
-------- --------
$117,584 $291,037
======== ========
</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 $3,155 was
reclassified from accumulated undistributed net investment income to accumulated
net realized loss. Additionally, a permanent difference of $130,575 related to
book to tax accretion differences was reclassified from accumulated
undistributed net investment income to accumulated net realized loss.
33
VAN KAMPEN MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $106,600
</Table>
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of gains or losses recognized for tax purposes on
open futures transactions on September 30, 2005.
F. EXPENSE REDUCTIONS During the year ended September 30, 2005, the Fund's
custody fee was reduced by $15,888 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, 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, 2005, the Fund recognized expenses of
approximately $33,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Fund is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Fund.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer ("CCO") Employment Agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Fund. The costs of
these services are allocated to each fund. For the year ended September 30,
2005, the Fund recognized expenses of approximately $91,700, representing Van
Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Fund, as well as, the salary,
benefits and related costs of the CCO and related support staff paid by Van
Kampen. Services provided pursuant to the Legal Services agreement are reported
as part of "Legal" expenses on the Statement of Operations. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Other" expenses 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, 2005, the Fund recognized expenses of approximately $325,200
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 also
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,
34
VAN KAMPEN MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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 $174,857 are included in "Other" assets on the Statements of Assets and
Liabilities at September 30, 2005. 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.
3. CAPITAL TRANSACTIONS
At September 30, 2005, capital aggregated $586,323,581, $40,894,822, $13,298,814
and $1,271,263 for Classes A, B, C and I, respectively. For the year ended
September 30, 2005, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 2,412,267 $ 35,680,084
Class B................................................... 177,415 2,622,903
Class C................................................... 130,335 1,918,515
Class I................................................... 87,953 1,293,853
---------- ------------
Total Sales................................................. 2,807,970 $ 41,515,355
========== ============
Dividend Reinvestment:
Class A................................................... 1,233,680 $ 18,241,199
Class B................................................... 69,165 1,021,344
Class C................................................... 24,348 359,067
Class I................................................... 521 7,692
---------- ------------
Total Dividend Reinvestment................................. 1,327,714 $ 19,629,302
========== ============
Repurchases:
Class A................................................... (4,851,772) $(71,717,331)
Class B................................................... (952,114) (14,055,751)
Class C................................................... (225,130) (3,317,881)
Class I................................................... (2,049) (30,282)
---------- ------------
Total Repurchases........................................... (6,031,065) $(89,121,245)
========== ============
</Table>
35
VAN KAMPEN MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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>
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, 2005 and 2004,
440,230 and 144,827 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, 2005 and
2004, 59,220 and 2,500 Class C Shares converted 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
36
VAN KAMPEN MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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, 2005, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $82,600 and CDSC on redeemed shares of approximately $52,600.
Sales charges do not represent expenses of the Fund.
4. REDEMPTION FEE
Effective September 26, 2005, the Fund assesses a 2% redemption fee on the
proceeds of Fund shares that are redeemed (either by sale or exchange) within
seven days of purchase. The redemption fee is paid directly to the Fund. For the
period ended September 30, 2005, the Fund did not receive any redemption fees.
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $251,131,868 and $275,839,532,
respectively.
6. 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
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.
Summarized below are the different types of derivative financial instruments
used by the Fund.
37
VAN KAMPEN MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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 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). 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, 2005,
were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at September 30, 2004........................... 575
Futures Opened.............................................. 1,902
Futures Closed.............................................. (2,039)
------
Outstanding at September 30, 2005........................... 438
======
</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.
7. 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 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 $2,516,800 and $190,400
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, 2005, are payments
retained by Van Kampen of approximately $366,600 and payments made to Morgan
Stanley DW Inc., an affiliate of the Adviser, of approximately $66,900.
38
VAN KAMPEN MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
8. 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. Plaintiffs have
filed a Motion for Leave to file a Supplemental Pleading that would, among other
things, expand the allegations and alleged class.
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. Plaintiff has sought leave to file a second amended
derivative complaint that alleges that the Adviser permitted or recklessly
disregarded market timing and late trading in its proprietary mutual funds in
order to increase assets under management and fees. However, pursuant to an
agreement between the parties, that plaintiff's proposed second amended
derivative complaint was withdrawn and that the allegations regarding market
timing and late trading asserted therein were filed in a separate complaint and
coordinated with other cases related to market timing that have been centralized
in a federal court.
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 the litigation, and no provision has been
made in the Fund's financial statements for the effect, if any, of these
matters.
9. 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 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, 2005, 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.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2005, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. 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, 2005, 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 11, 2005
40
VAN KAMPEN MUNICIPAL INCOME FUND
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President and Chief
Investment Officer
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
PHILLIP G. GOFF
Chief Financial Officer and Treasurer
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, 2005. The Fund designated 99.6% 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.
41
VAN KAMPEN MUNICIPAL INCOME FUND
TRUSTEES AND OFFICERS INFORMATION
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 as of the date of this Annual Report. 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 (60) Trustee Trustee Chairman and Chief 72 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.
Jerry D. Choate (67) Trustee Trustee Prior to January 1999, 70 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>
42
<Table>
<Caption>
VAN KAMPEN MUNICIPAL INCOME FUND
TRUSTEE AND OFfiCERS 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 (65) Trustee Trustee President of CAC, L.L.C., 72 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. Prior to
distributor of wire, January 2005, Trustee of
cable and communications the University of Chicago
connectivity products. Hospitals and Health
Prior to July 2000, Systems. Prior to April
Managing Partner of 2004, Director of
Equity Group Corporate TheraSense, Inc. Prior to
Investment (EGI), a January 2004, Director of
company that makes TeleTech Holdings Inc.
private investments in and Arris Group, Inc.
other companies. Prior to May 2002,
Director of Peregrine
Systems Inc. Prior to
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>
43
<Table>
<Caption>
VAN KAMPEN MUNICIPAL INCOME FUND
TRUSTEE AND OFfiCERS 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 (57) Trustee Trustee Managing Partner of 70 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
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (53) Trustee Trustee Director and President of 70 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 (70) Trustee Trustee Prior to 1998, President 72 Trustee/Director/Managing
14 Huron Trace since 2003 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
</Table>
44
<Table>
<Caption>
VAN KAMPEN MUNICIPAL INCOME FUND
TRUSTEE AND OFfiCERS 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 (69) Trustee Trustee President of Nelson 70 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 (65) Trustee Trustee President Emeritus and 72 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 70 Trustee/Director/Managing
(63) 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>
45
VAN KAMPEN MUNICIPAL INCOME FUND
TRUSTEE AND OFFICERS INFORMATION continued
INTERESTED TRUSTEE:*
<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
Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 72 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 Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
</Table>
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
46
VAN KAMPEN MUNICIPAL INCOME FUND
TRUSTEE AND OFFICERS 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
Ronald E. Robison (66) President and Officer President of funds in the Fund Complex since September 2005
1221 Avenue of the Americas Principal Executive since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since May 2003. Managing Director of Morgan Stanley and
Morgan Stanley & Co. Incorporated. Managing Director and
Director of Morgan Stanley Investment Management Inc. Chief
Administrative Officer, Managing Director and Director of
Morgan Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc. Managing Director and Director of
Morgan Stanley Distributors Inc. and Morgan Stanley
Distribution 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 of Morgan Stanley Investment
Management Inc. and Executive Vice President of funds in the
Fund Complex from May 2003 to September 2005.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Investment Officer Investment Management Inc. and Director of Morgan Stanley
Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Amy R. Doberman (43) 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 since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (39) Vice President Officer Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.
</Table>
47
<Table>
<Caption>
VAN KAMPEN MUNICIPAL INCOME FUND
TRUSTEE AND OFfiCERS 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
John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1996 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Phillip G. Goff (42) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza and Treasurer since 2005 Inc. since June 2005. Chief Financial Officer and Treasurer
Oakbrook Terrace, IL 60181 of funds in the Fund Complex since August 2005. Prior to
June 2005, Vice President and Chief Financial Officer of
Enterprise Capital Management, Inc., an investment holding
company.
</Table>
48
Van Kampen Municipal Income Fund
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.
(continued on next page)
Van Kampen Municipal Income Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
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 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
(continued on back)
Van Kampen Municipal Income Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
The Statement of Additional Information includes additional information
about Fund trustees and is available, without charge, upon request by
calling 1-800-847-2424.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
49, 349, 549
MIF ANR 11/05
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-02747P-Y09/05
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, 2005.
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 9/30/05
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index from 9/30/95 through 9/30/05. Class A shares, adjusted for
sales charges.
(LINE GRAPH)
<Table>
<Caption>
VAN KAMPEN INTERMEDIATE TERM LEHMAN BROTHERS MUNICIPAL BOND
MUNICIPAL INCOME FUND INDEX
---------------------------- ------------------------------
9/95 9674 10000
12/95 9952 10413
9872 10288
9949 10366
10157 10604
12/96 10377 10874
10385 10848
10663 11222
10953 11560
12/97 11215 11873
11366 12010
11530 12192
11817 12567
12/98 11885 12642
11989 12755
11840 12529
11805 12479
12/99 11699 12381
11843 12743
12036 12935
12293 13248
12/00 12461 13827
12775 14134
12857 14226
13177 14626
12/01 13093 14537
13201 14673
13699 15210
14294 15933
12/02 14300 15933
14441 16124
14711 16540
14770 16553
12/03 14975 16780
15117 17070
14866 16666
15337 17314
12/04 15517 17530
15461 17523
15857 18037
9/05 15605 18015
</Table>
<Table>
<Caption>
A SHARES B SHARES C SHARES I SHARES
5/28/1993 5/28/1993 10/19/1993 8/12/2005
- ------------------------------------------------------------------------------------------------------
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 W/O SALES
TOTAL RETURNS CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES
Since Inception 5.39% 4.98% 5.03% 5.03% 4.29% 4.29% 0.38%
10-year 5.06 4.55 4.61 4.61 4.32 4.32 N/A
5-year 5.21 4.18 4.71 4.46 4.47 4.47 N/A
1-year 3.31 -1.56 3.47 -0.53 2.64 1.64 N/A
- ------------------------------------------------------------------------------------------------------
SEC Yield 2.85% 2.19% 2.25% 3.25%
- ------------------------------------------------------------------------------------------------------
Unsubsidized SEC Yield 2.75% 2.09% 2.15% 3.15%
</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.
BECAUSE CLASS B SHARES INCURRED LOWER EXPENSES UNDER THE 12B-1 PLAN THAN DID
CLASS A SHARES FOR THE FISCAL PERIOD ENDED SEPTEMBER 30, 2005, THE TOTAL
OPERATING EXPENSE RATIO FOR CLASS B SHARES WAS LOWER AND, AS A RESULT, THE
PERFORMANCE OF CLASS B SHARES WAS HIGHER THAN THAT OF CLASS A SHARES. THERE CAN
BE NO ASSURANCE THAT THIS WILL CONTINUE TO OCCUR IN THE FUTURE AS THE MAXIMUM
FEES PAYABLE BY CLASS B SHARES UNDER THE 12B-1 PLAN ARE HIGHER THAN THOSE
PAYABLE BY CLASS A SHARES.
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. Effective June 1, 2005, the maximum sales charge for Class A shares
increased to 4.75% from 3.25% and the contingent deferred sales charge for Class
B shares increased to 4.00% in years one and two, 3.00% in year three, 2.50% in
year four, 1.50% in year five and 0.00% in year six and thereafter from 3.00% in
year one, 2.50% in year two, 2.00% in year three, 1.00% in year four and 0.00%
in year five and thereafter. 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 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
1
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. Class I shares
are available for purchase exclusively by investors through (i) tax-exempt
retirement plans with assets of at least $1 million (including 401(k) plans, 457
plans, employer-sponsored 403(b) plans, profit sharing and money purchase plans,
defined benefit plans and non-qualified deferred compensation plans), (ii)
fee-based investment programs with assets of at least $1 million and (iii)
institutional clients with assets of at least $1 million. Class I shares are
offered without any sales charges on purchases or sales and do not include
combined 12b-1 fees and service fees. 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 nonincome items as prescribed by the
SEC. The unsubsidized 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, 2005
Van Kampen Intermediate Term Municipal Income Fund is managed by the Adviser's
Municipal Fixed Income team(1). Current members of the team include James F.
Willison, Managing Director of the Adviser; Joseph R. Arcieri, Executive
Director of the Adviser and Robert W. Wimmel and Robert J. Stryker, Vice
Presidents of the Adviser.
MARKET CONDITIONS
During the 12-month period ended September 30, 2005, the economy grew at a
moderate pace, with reasonable gains in employment and sustained strength in
consumer spending. Although oil prices soared, core inflation (which excludes
food and energy) remained relatively benign. Continuing with the course it began
in June of 2004, the Federal Open Market Committee (the Fed) raised the federal
funds target rate eight times during the period. Through a "measured pace" of 25
basis point increments, the Fed brought the rate to 3.75 percent at the end of
the reporting period. While the yields of short- and intermediate-term bonds
moved upward in concert with the Fed's actions, the yields of long-term bonds
declined. As a result, the yield curve (which charts the difference between
short-term and long-term rates) flattened.
Against this backdrop, total returns across the municipal bond market varied
dramatically, with long maturity bonds outperforming short-term issues by a wide
margin. As investors sought income in an environment of historically low rates,
BBB rated and non-rated bonds significantly outperformed high grade debt, and
credit spreads tightened markedly. Strong and steady flows of new cash into high
yield municipal funds added to the demand for lower rated issues.
Sectors with a preponderance of lower rated credits performed with particular
strength. Tobacco revenue bonds were by far the best performing sector,
supported by overall spread tightening as well as by increasing investor comfort
with tobacco companies' future litigation risk. Health care bonds (hospitals and
long-term care facilities) also fared well, boosted by strong investor demand.
In contrast, housing bonds underperformed as interest rates declined and
prepayment risk increased.
Municipal bond issuance remained robust in 2005, with $310 billion of debt
brought to market in the first nine months of the year, a pace on track to beat
the record issuance of 2003. Refunding activity represented a good portion of
this activity, as issuers sought to refinance higher cost debt at low prevailing
interest rates. Bonds backed by insurance dominated issuance and increased their
market penetration to nearly 60 percent.
(1)Team members may change without notice from time to time.
3
PERFORMANCE ANALYSIS
The fund returned 3.31 percent for the 12 months ended September 30, 2005 (Class
A shares, unadjusted for sales charges). In comparison, the fund's benchmark,
the Lehman Brothers Municipal Bond Index, returned 4.05 percent for the period.
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
- -------------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL
CLASS A CLASS B CLASS C BOND INDEX
3.31% 3.47% 2.64% 4.05%
- -------------------------------------------------------------------
</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.
Because Class B shares incurred lower expenses under the 12b-1 Plan than did
Class A shares for the fiscal period ended September 30, 2005, the total
operating expense ratio for Class B shares was lower and, as a result, the
performance of Class B shares was higher than that of Class A shares. There can
be no assurance that this will continue to occur in the future as the maximum
fees payable by Class B shares under the 12b-1 Plan are higher than those
payable by Class A shares.
Throughout the period, we followed our long-standing practice of trading between
liquid, high quality securities which our analysis identified as compelling
total return opportunities. Our strategy involves buying these bonds when they
are in our opinion attractively valued, and selling them when they reach our
return targets. We then invest the proceeds into bonds that we believe have
greater potential for future total return.
We structured the portfolio to reflect our view that rates would move higher and
that the yields of short-term bonds would rise faster than those of longer-term
bonds. We emphasized very short-term bonds and bonds on the longer end of the
fund's investment horizon, while limiting exposure to intermediate-term bonds.
As the long end of the curve outperformed, this positioning was the main driver
of positive performance for the overall period.
Consistent with our quality focus, securities rated AA or better represented 68
percent of assets at the end of the reporting period. However, we also found
opportunities to enhance the yield of the portfolio by selectively adding
exposure to higher yielding BBB rated and non-rated bonds. These credits
accounted for 22 percent of the portfolio as of September 30, 2005. Here, we
focused on the health care sector, where we found a number of issues which met
our stringent criteria. To fund these purchases, we liquidated positions in
insured bonds. This increased exposure to lower rated credits was of particular
benefit to the fund's total returns as credit quality spreads, particularly non-
rated spreads, tightened dramatically over the past 12 months.
4
Relative value trading between specialty state bonds also helped returns.
(Specialty state bonds are from states with higher than average state taxes.) We
found occasions to buy newly issued bonds at attractive prices when demand was
low. We held these credits until the supply-demand relationship became more
favorable, and sold them to in-state investors seeking tax-exempt yield.
Intermediate-term bonds were particularly well represented among new issuance,
providing us with a wide pool of securities to choose among. The fund remained
well diversified across the major sectors of the municipal market. At the end of
the period, the largest sectors represented in the portfolio were public
education, general purpose and health care.
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Fund in the future.
5
<Table>
<Caption>
RATINGS ALLOCATIONS AS OF 9/30/05
AAA/Aaa 58.3%
AA/Aa 10.0
A/A 8.3
BBB/Baa 9.6
BB/Ba 0.9
Non-Rated 12.9
<Caption>
TOP FIVE SECTORS AS OF 9/30/05
Public Education 18.0%
General Purpose 13.4
Hospital 9.8
Retail Electric 9.3
Higher Education 7.0
<Caption>
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 09/30/05
Pennsylvania 12.1%
New Jersey 8.3
Missouri 7.3
Ohio 6.7
Illinois 5.5
Alabama 5.1
California 5.1
Colorado 4.7
Florida 4.5
Oregon 4.0
New York 3.2
Michigan 2.7
Arkansas 2.3
Arizona 2.3
Texas 2.2
Indiana 2.1
Kansas 2.0
South Carolina 1.8
Tennessee 1.7
North Carolina 1.5
New Mexico 1.5
South Dakota 1.3
West Virginia 1.2
Connecticut 1.2
Maryland 1.0
Kentucky 0.9
Nebraska 0.9
Oklahoma 0.9
District of Columbia 0.9
Virginia 0.8
Rhode Island 0.6
Washington 0.4
Wisconsin 0.4
Montana 0.3
Georgia 0.2
Massachusetts 0.2
</Table>
<Table>
(continued on next page)
</Table>
6
<Table>
<Caption>
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 09/30/05
(continued from previous page)
Minnesota 0.1
Utah 0.0
-----
Total Long-Term Investments 97.9%
Short Term Investments 0.4
Other Assets in Excess of Liabilities 1.7
-----
Total Net Assets 100.0%
</Table>
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. Subject to change daily. 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.
7
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 (800) SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a fund's fiscal quarter filings by contacting
Van Kampen Client Relations at (800)-847-2424.
8
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 (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 POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the fund's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 847-2424 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the fund voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 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.
9
Expense Example
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments of Class A Shares
and contingent deferred sales charge on redemptions of Class B and C Shares; and
(2) 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 4/1/05--09/30/05.
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
account values and 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 and do not reflect any transactional costs, such as sales
charges (loads) or contingent deferred sales charges. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING ACCOUNT EXPENSES PAID
ACCOUNT VALUE VALUE DURING PERIOD*
--------------------------------------------------
4/1/05 9/30/05 4/1/05-09/30/05
Class A
Actual.................................... $1,000.00 $1,024.82 $5.28
Hypothetical.............................. 1,000.00 1,019.87 5.27
(5% annual return before expenses)
Class B
Actual.................................... 1,000.00 1,024.58 4.01
Hypothetical.............................. 1,000.00 1,021.17 4.00
(5% annual return before expenses)
Class C
Actual.................................... 1,000.00 1,021.03 8.76
Hypothetical.............................. 1,000.00 1,016.37 8.74
(5% annual return before expenses)
Class I
Actual.................................... 1,000.00 1,003.79 0.97
Hypothetical.............................. 1,000.00 1,024.07 3.91
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 1.04%, 0.79%,
1.73% and 0.77% for Class A, B, C and I Shares, respectively, multiplied by
the average account value over the period, multiplied by 183/365 (to reflect
the one-half year period) except for Class I Shares "Actual" information
which reflects the period from Commencement of Operations through September
30, 2005. These ratios reflect an expense waiver.
Assumes all dividends and distributions were reinvested.
10
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On May 25, 2005, the Board of Trustees, and the independent trustees voting
separately, determined that the terms of the investment advisory agreement are
fair and reasonable and approved the continuance of the investment advisory
contract as being in the best interests of the Fund and its shareholders. In
making its determination, the Board of Trustees considered materials that were
specifically prepared by the investment adviser at the request of the Board and
Fund counsel, and by an independent provider of investment company data
contracted to assist the Board, relating to the contract review process. The
Board also considered information received periodically about the portfolio,
performance, the investment strategy, portfolio management team and fees and
expenses of the Fund. The Board of Trustees considered the contract over a
period of several months and the non-management trustees held sessions both with
the investment adviser and separate from the investment adviser in reviewing and
considering the contract.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
existing and alternative breakpoints in the Fund's investment advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies and/or other products at different asset levels,
and considered the trends in the industry versus historical and projected assets
of the Fund. The Board of Trustees evaluated other benefits the investment
adviser and its affiliates derive from their relationship with the Fund. The
Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the investment adviser and
its affiliated companies and the capability of the personnel of the investment
adviser, and specifically the strength and background of its portfolio
management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees, evaluated
all of the foregoing and does not believe any single factor or group of factors
control or dominate the review process, and, after considering all factors
11
together, has determined, in the exercise of its business judgment, that
approval of the investment advisory agreement is in the best interests of the
Fund and its shareholders. The following summary provides more detail on certain
matters considered but does not detail all matters considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The Fund
discloses information about its portfolio management team members and their
experience in its prospectus. The trustees also discuss certain other services
which are provided on a cost-reimbursement basis by the investment adviser or
its affiliates to the Van Kampen funds including certain accounting,
administrative and legal services. The Board has determined that the nature,
extent and quality of the services provided by the investment adviser support
its decision to approve the investment advisory contract.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, a performance committee of the
Board spends more focused time on the performance of the Fund and other funds in
the Van Kampen complex, paying specific attention to underperforming funds. The
trustees discuss with the investment adviser the performance goals and the
actual results achieved in managing the Fund. When considering a fund's
performance, the trustees and the investment adviser place emphasis on trends
and longer-term returns (focusing on one-year, three-year and five-year
performance with special attention to three-year performance) and, when a fund's
weighted performance is under the fund's benchmark, they discuss the causes and
where necessary seek to make specific changes to investment strategy or
investment personnel. The Fund discloses more information about its performance
elsewhere in this report and in the Fund's prospectus. The trustees discuss with
the investment adviser the level of advisory fees for this Fund relative to
comparable funds and other products advised by the adviser and others in the
marketplace. The trustees review not only the advisory fees but other fees and
expenses (whether paid to the adviser, its affiliates or others) and the Fund's
overall expense ratio. The Fund discloses more information about its fees and
expenses in its prospectus. The Board has determined that the performance, fees
and expenses of the Fund support its decision to approve the investment advisory
contract.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put together by the investment adviser with the oversight of a special ad hoc
committee of the Board. The trustees discuss with the investment adviser its
12
revenues and expenses, including among other things, revenues for advisory
services, portfolio management-related expenses, revenue sharing arrangement
costs and allocated expenses both on an aggregate basis and per fund. The Board
has determined that the analysis of the investment adviser's expenses and
profitability support its decision to approve the investment advisory contract.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
and growth prospects of the Fund and how that relates to the Fund's expense
ratio and particularly the Fund's advisory fee rate. In conjunction with its
review of the investment adviser's profitability, the trustees discuss with the
investment adviser how more (or less) assets can affect the efficiency or
effectiveness of managing the Fund's portfolio and whether the advisory fee
level is appropriate relative to current and projected asset levels and/or
whether the advisory fee structure reflects economies of scale as asset levels
change. The Board has determined that its review of the actual and potential
economies of scale of the Fund support its decision to approve the investment
advisory contract.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory contract.
13
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
MUNICIPAL BONDS 97.9%
ALABAMA 5.1%
$1,260 Dothan Houston Cnty, AL Arpt Auth (AMT) (MBIA
Insd) (a)....................................... 5.400% 12/01/15 $ 1,360,624
1,890 Elmore Cnty, AL Ltd Oblig Sch Wts (FSA Insd)
(a)............................................. 5.000 02/01/20 2,001,926
1,505 Greenville, AL Wts Rfdg (XLCA Insd)............. 5.000 01/01/18 1,606,542
1,000 Jefferson Cnty, AL Ltd Oblig Ser A.............. 5.000 01/01/07 1,020,520
255 West Jefferson Cnty, AL Amusement & Pub Park
Auth (Prerefunded @ 12/01/06)................... 7.500 12/01/08 268,586
------------
6,258,198
------------
ARIZONA 2.3%
1,000 Arizona St Univ Rev Sys Rfdg (AMBAC Insd)....... 5.000 07/01/20 1,071,270
1,000 Maricopa Cnty, AZ Uni Sch Impt Proj of 2002 Ser
B (FSA Insd).................................... 5.250 07/01/16 1,102,740
570 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)..... 7.250 07/15/10 585,458
------------
2,759,468
------------
ARKANSAS 2.3%
1,000 Arkansas St Fed Hwy Grant Antic Ser A........... 5.500 08/01/06 1,021,970
1,200 University of AR Rev UALR Cap Impt Ser B (FSA
Insd)........................................... 4.500 12/01/19 1,236,780
500 University of AR Univ Rev Pine Bluff Campus Ser
A Rfdg (AMBAC Insd) (a) (b)..................... 5.000 12/01/17 543,375
------------
2,802,125
------------
CALIFORNIA 5.1%
1,090 California Edl Fac Auth Rev Occidental College
Ser A (MBIA Insd) (a)........................... 5.000 10/01/20 1,169,374
1,000 California St (AMBAC Insd) (c).................. 6.400 09/01/08 1,093,220
1,500 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)........................................... 5.375 05/01/18 1,645,500
700 California Statewide Cmntys Dev Auth Rev
Daughters of Charity Hlth Ser F................. 5.000 07/01/08 724,962
385 Fairfield Suisun, CA Uni Sch Election 2002 (MBIA
Insd)........................................... 5.250 08/01/18 422,757
1,100 Santa Clara, CA Elec Rev Sub Ser A (MBIA
Insd)........................................... 5.250 07/01/20 1,197,691
------------
6,253,504
------------
COLORADO 4.7%
1,750 Adams & Arapahoe Cntys, CO Sch Dist 28 Ser C
(Prerefunded @ 12/01/06)........................ 5.200 12/01/11 1,830,027
150 Colorado Hlth Fac Auth Rev Sr Living Fac Eaton
Ter Ser A....................................... 6.800 07/01/09 155,531
1,560 Colorado Springs, CO Utils Rev Sys Sub Lien Impt
Ser A........................................... 5.000 11/15/19 1,664,894
</Table>
14 See Notes to Financial Statements
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
COLORADO (CONTINUED)
$1,000 Denver, CO City & Cnty Arpt Rev Ser D Rfdg (AMT)
(FSA Insd)...................................... 5.500% 11/15/12 $ 1,084,400
1,000 Weld & Adams Cntys, CO Sch Dist (FSA Insd)...... 5.000 12/15/21 1,067,200
------------
5,802,052
------------
CONNECTICUT 1.2%
1,000 Connecticut St Hlth & Edl Fac Auth Rev Griffin
Hosp Ser B (Radian Insd)........................ 5.000 07/01/11 1,066,750
145 Mashantucket Western Pequot Tribe, 144A--
Private Placement (Escrowed to Maturity) (d).... 6.500 09/01/06 149,755
215 New Haven, CT Indl Fac Rev Adj Govt Ctr Thermal
Energies (AMT).................................. 7.250 07/01/09 215,507
------------
1,432,012
------------
DISTRICT OF COLUMBIA 0.9%
1,000 District of Columbia Rev Friendship Pub Charter
Sch Inc (ACA Insd).............................. 5.000 06/01/13 1,053,950
------------
FLORIDA 4.5%
1,000 Brevard Cnty, FL Sch Brd Ctfs Ser B Rfdg (FGIC
Insd)........................................... 5.000 07/01/20 1,061,140
2,000 Broward Cnty, FL Arpt Sys Rev Ser E Rfdg (AMT)
(MBIA Insd) (c)................................. 5.375 10/01/13 2,116,100
190 Lee Cnty, FL Indl Dev Auth Econ Rev Encore
Nursing Ctr Part Rfdg........................... 8.125 12/01/07 190,378
40 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg (Escrowed to
Maturity)....................................... 8.125 07/01/06 41,470
250 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg (Prerefunded @
07/01/06)....................................... 8.625 07/01/20 267,078
1,500 Orange Cnty, FL Sch Brd Ctf Ser A (AMBAC
Insd)........................................... 5.250 08/01/14 1,646,325
210 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj
Rfdg (Escrowed to Maturity)..................... 7.125 11/01/06 214,582
------------
5,537,073
------------
GEORGIA 0.2%
230 Forsyth Cnty, GA Hosp Auth Rev Antic Ctfs GA
Baptist Hlthcare Sys Proj (Escrowed to
Maturity)....................................... 6.000 10/01/08 239,241
------------
ILLINOIS 5.5%
100 Bedford Park, IL Tax Increment 71st & Cicero
Proj Rfdg (Escrowed to Maturity)................ 7.000 01/01/06 100,891
1,325 Bedford Park, IL Wtr Rev Ser B (Escrowed to
Maturity) (AMT) (ACA Insd)...................... 6.000 12/15/08 1,415,776
250 Chicago, IL Tax Increment Alloc Sub Cent Loop
Redev Ser A..................................... 6.500 12/01/05 251,233
545 Clay Cnty, IL Hosp Rev (a)...................... 5.500 12/01/10 550,047
</Table>
See Notes to Financial Statements 15
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$ 99 Huntley, IL Spl Svc Area No 7 Spl Tax........... 6.000% 03/01/09 $ 101,587
1,010 Illinois Fin Auth Student Hsg Rev MJH Ed
Assistance IV Sr Ser A (a)...................... 5.000 06/01/09 1,044,411
1,000 Illinois Fin Auth Student Hsg Rev MJH Ed
Assistance IV Sr Ser A.......................... 5.500 06/01/19 1,058,180
500 Lincolnshire, IL Spl Svc Area Sedgebrook Proj... 5.000 03/01/11 514,185
180 Peoria, IL Spl Tax Weaverridge Spl Svc Area..... 7.625 02/01/08 190,919
500 Pingree Grove Village, IL Spl Svc Area No 1 Spl
Tax Ser 05-1 Cambridge Lakes Proj............... 5.250 03/01/15 505,720
1,000 Round Lake Beach, IL Tax........................ 4.650 12/15/13 1,013,170
------------
6,746,119
------------
INDIANA 2.1%
1,000 Allen Cnty, IN Juvenile Justice Ctr First Mtg
(AMBAC Insd).................................... 5.500 01/01/18 1,100,200
1,400 Indiana Bd Bk Spl Prog Hendricks Redev Ser B
(Prerefunded @ 02/01/07)........................ 6.000 02/01/12 1,481,536
------------
2,581,736
------------
KANSAS 2.0%
500 Burlington, KS Envrn Impt Rev................... 4.750 09/01/15 511,960
1,000 Shawnee Cnty, KS Sch Dist 501 Topeka............ 5.000 02/01/20 1,060,600
320 Wyandotte Cnty, KS City KS Univ Brd of Public
Utility Office Bldg Complex Proj (MBIA Insd).... 5.000 05/01/11 344,406
510 Wyandotte Cnty, KS City KS Univ Brd of Public
Utility Office Bldg Complex Proj (MBIA Insd).... 5.000 05/01/12 545,879
------------
2,462,845
------------
KENTUCKY 0.9%
1,000 Louisville & Jefferson Cnty, KY Ser C (AMT) (FSA
Insd)........................................... 5.500 07/01/17 1,093,150
------------
MARYLAND 1.0%
625 Maryland St Econ Dev Corp Univ MD College Park
Proj............................................ 5.750 06/01/13 686,756
500 Prince Georges Cnty, MD Spl Oblig Natl Harbor
Proj............................................ 4.700 07/01/15 500,470
------------
1,187,226
------------
MASSACHUSETTS 0.2%
35 Massachusetts St Indl Fin Agy East Boston
Neighborhood Proj............................... 7.250 07/01/06 34,994
190 Massachusetts St Indl Fin Agy Rev Gtr Lynn
Mental Hlth (Acquired 06/24/1998, Cost $190,000)
(e)............................................. 6.200 06/01/08 195,922
------------
230,916
------------
MICHIGAN 2.7%
1,000 Brighton, MI Area Sch Dist Rfdg (a)............. 5.250 05/01/18 1,087,880
1,000 Brighton, MI Area Sch Dist Rfdg................. 5.250 05/01/20 1,086,510
335 John Tolfree Hlth Sys Corp MI Mtg Rev Rfdg...... 5.450 09/15/06 338,511
</Table>
16 See Notes to Financial Statements
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
MICHIGAN (CONTINUED)
$ 500 Kent Hosp Fin Auth MI Rev Met Hosp Proj Ser A... 5.000% 07/01/09 $ 518,555
250 Michigan St Strategic Fd Ltd Oblig United Waste
Sys Proj (AMT).................................. 5.200 04/01/10 262,828
------------
3,294,284
------------
MINNESOTA 0.1%
70 Minneapolis, MN Multi-Family Rev Hsg Belmont
Apts Proj (AMT) (a)............................. 7.000 11/01/06 70,294
------------
MISSOURI 7.3%
610 Ferguson, MO Tax Increment Rev Crossing at Halls
Ferry Rfdg (a).................................. 5.500 04/01/14 631,984
1,350 Kansas City, MO Indl Dev Auth Plaza Lib Proj.... 6.000 03/01/16 1,417,649
500 Kirkwood, MO Sch Dist Edl Fac Auth Leasehold Rev
Kirkwood Sch Dist R-7 Proj Ser B (MBIA Insd).... 5.000 02/15/17 540,170
1,000 Macon, MO Ctfs Partn (MBIA Insd)................ 5.250 08/01/17 1,063,190
830 Missouri St Dev Fin Brd Fac Rev Pub Safety Proj
Ser A (a)....................................... 5.000 03/01/11 872,529
2,125 O' Fallon, MO Ctfs Partn (MBIA Insd) (a)........ 5.375 02/01/18 2,316,144
2,000 Saint Charles, MO Ctf Part Ser B................ 5.500 05/01/18 2,122,640
------------
8,964,306
------------
MONTANA 0.3%
300 Crow Fin Auth, MT Tribal Purp Rev (Acquired
12/11/1997, Cost $300,000) (e).................. 5.400 10/01/07 307,431
------------
NEBRASKA 0.9%
1,000 Dodge Cnty, NE Sch Dist 001 Rfdg (FSA Insd)..... 5.000 12/15/18 1,071,960
------------
NEW JERSEY 8.3%
1,000 Casino Reinvestment Dev Auth NJ Hotel Room Fee
Rev (AMBAC Insd)................................ 5.250 01/01/20 1,093,770
1,400 Essex Cnty, NJ Impt Auth Lease Gtd Cnty
Correctional Fac Proj (Prerefunded @ 10/01/10)
(FGIC Insd)..................................... 5.750 10/01/30 1,559,376
460 Middlesex Cnty, NJ Impt Auth Street Student Hsg
Proj Ser A...................................... 2.500 08/15/06 456,688
1,000 Morris Union Jointure Cmnty NJ Ctfs Part (Radian
Insd)........................................... 5.250 05/01/20 1,069,090
265 New Jersey Econ Dev Auth First Mtg Winchester
Ser A Rfdg...................................... 2.600 11/01/05 264,748
400 New Jersey Econ Dev Auth First Mtg Winchester
Ser A Rfdg...................................... 3.000 11/01/06 396,484
1,500 New Jersey Econ Dev Auth Rev Cigarette Tax...... 5.500 06/15/16 1,638,915
415 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Escrowed to Maturity) (Connie Lee
Insd)........................................... 7.000 07/01/06 427,097
</Table>
See Notes to Financial Statements 17
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
NEW JERSEY (CONTINUED)
$1,000 New Jersey Hlthcare Facs Fin Auth Rev St Clare's
Hosp Inc A Rfdg (Radian Insd)................... 5.250% 07/01/20 $ 1,067,120
1,000 New Jersey Hlthcare Facs Fin Auth Rev Virtua
Hlth Issue (FSA Insd)........................... 5.250 07/01/10 1,066,860
455 Rahway, NJ Ctfs Partn (MBIA Insd)............... 5.500 02/15/16 496,764
565 Rahway, NJ Ctfs Partn (MBIA Insd)............... 5.600 02/15/17 618,178
------------
10,155,090
------------
NEW MEXICO 1.5%
1,000 Jicarilla, NM Apache Nation Rev Ser A (Acquired
10/23/2003, Cost $1,020,380) (e)................ 5.500 09/01/23 1,064,070
700 Jicarilla, NM Apache Nation Rev Ser A (Acquired
10/23/2003, Cost $728,707) (e).................. 4.000 09/01/08 708,687
------------
1,772,757
------------
NEW YORK 3.2%
225 Brookhaven, NY Indl Dev Agy Sr Residential Hsg
Rev Woodcrest Estates Fac Ser A (AMT)........... 5.875 12/01/09 232,601
1,000 Long Island Pwr Auth NY Elec Gen Ser C.......... 5.500 09/01/17 1,093,470
500 New York City Indl Dev Agy Rev Liberty 7 World
Trade Ctr Ser A................................. 6.250 03/01/15 535,840
480 New York City Ser A............................. 7.000 08/01/07 502,190
20 New York City Ser A (Prerefunded @ 08/01/06).... 7.000 08/01/07 20,981
500 New York St Dorm Auth Rev Mt Sinai NYU Hlth Ser
C (b)........................................... 5.000 07/01/11 508,960
5 Niagara Falls, NY Pub Impt (MBIA Insd).......... 6.900 03/01/20 5,066
1,000 Tobacco Settlement Fin Corp NY Ser C-1.......... 5.250 06/01/13 1,049,780
------------
3,948,888
------------
NORTH CAROLINA 1.5%
630 North Carolina Eastn Mun Pwr Agy Pwr Sys Rev Ser
D............................................... 6.450 01/01/14 697,826
1,000 North Carolina Muni Pwr Agy Ser A (MBIA Insd)... 5.250 01/01/19 1,081,880
------------
1,779,706
------------
OHIO 6.7%
500 Adams Cnty Hosp Fac Impt Rev Proj............... 6.250 09/01/20 502,165
500 Athens Cnty, OH Hosp Facs Rev & Impt O' Bleness
Mem Ser A Rfdg.................................. 6.250 11/15/13 526,310
1,370 Cleveland, OH Non Tax Rev Cleveland Stadium Proj
Rfdg (AMBAC Insd)............................... 5.125 12/01/20 1,472,887
500 Dayton, OH Spl Fac Rev Afco Cargo Day LLC Proj
(AMT)........................................... 6.000 04/01/09 488,580
2,675 Ohio Mun Elec Generation Agy Jt Venture 5 Ctfs
Ben Int Rfdg (AMBAC Insd)....................... 5.000 02/15/21 2,825,629
1,160 Sugarcreek, OH Loc Sch Dist Sch Impt Rfdg (MBIA
Insd) (a)....................................... 5.250 12/01/18 1,271,998
1,010 Toledo, OH Swr Sys Rev (AMBAC Insd)............. 5.000 11/15/18 1,082,831
------------
8,170,400
------------
</Table>
18 See Notes to Financial Statements
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
OKLAHOMA 0.9%
$1,000 University of OK Rev Multiple Fac (MBIA Insd)... 5.000% 06/01/19 $ 1,063,930
------------
OREGON 4.0%
2,575 Emerald Peoples Util Dist OR Ser A Rfdg (FSA
Insd) (a)....................................... 5.250 11/01/16 2,828,998
985 Oregon St Dept Admin Svcs Lottery Rev Ser B (FSA
Insd)........................................... 5.000 04/01/18 1,057,240
1,000 Port Morrow, OR Pollutn Ctl Portland Gen A
Rfdg............................................ 5.200 05/01/33 1,041,480
------------
4,927,718
------------
PENNSYLVANIA 12.1%
250 Allegheny Cnty, PA Redev Auth Rev Pittsburgh
Mills Proj...................................... 5.100 07/01/14 258,450
1,220 Canon McMillan Sch Dist PA Ser A Rfdg (MBIA
Insd)........................................... 5.000 12/15/15 1,322,334
500 Delaware Cnty, PA Indl Dev Auth Rev Res Recovery
Fac Ser A Rfdg.................................. 6.100 07/01/13 526,095
1,000 Erie, PA Ser A (FSA Insd)....................... 5.000 11/15/18 1,074,590
500 Montgomery Cnty, PA Indl Dev Auth Rev Mtg
Whitemarsh Cont Care Proj....................... 6.000 02/01/21 522,475
1,000 Pennsylvania St High Edl Fac Auth Rev Univ PA
Hlth Sys Ser A.................................. 5.000 08/15/08 1,040,790
1,150 Philadelphia, PA Gas Wks Rev Eighteenth Ser..... 5.250 08/01/18 1,246,692
900 Philadelphia, PA Gas Wks Rev Third Ser (FSA
Insd)........................................... 5.000 08/01/10 965,340
2,000 Philadelphia, PA Redev Auth Rev Neighborhood
Trans Ser A (FGIC Insd)......................... 5.500 04/15/16 2,201,940
500 Seneca Vy, PA Sch Dist (FGIC Insd).............. 5.000 01/01/18 539,390
1,500 Springfield, PA Sch Dist DE Ser A (FGIC Insd)... 5.000 03/15/20 1,595,100
1,090 Wilson, PA Area Sch Dist (FGIC Insd)............ 5.125 03/15/17 1,179,565
2,070 York Cnty, PA Sch Technology (FGIC Insd)........ 5.375 02/15/16 2,272,301
------------
14,745,062
------------
RHODE ISLAND 0.6%
700 Rhode Island St Econ Dev Grant Antic RI Dept
Trans Ser A (FSA Insd).......................... 5.000 06/15/15 755,636
------------
SOUTH CAROLINA 1.8%
1,020 Berkeley Cnty, SC Impt & Rfdg (FSA Insd)........ 5.000 09/01/17 1,096,286
1,065 Lexington, SC Wtr & Swr Rev & Impt Comb Ser A
Rfdg (MBIA Insd) (a)............................ 5.000 04/01/14 1,141,233
------------
2,237,519
------------
SOUTH DAKOTA 1.3%
1,515 Minnehaha Cnty, SD Ctfs Ltd Tax (FSA Insd)...... 5.000 12/01/18 1,624,413
------------
</Table>
See Notes to Financial Statements 19
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
TENNESSEE 1.7%
$ 495 Chattanooga, TN Hlth Edl Hsg Fac CDFI Phase I
LLC Proj Ser A Rfdg............................. 5.000% 10/01/15 $ 506,939
700 Franklin, TN Spl Sch Dist Cap Apprec (FSA
Insd)........................................... * 06/01/15 467,705
1,000 Gatlinburg, TN Pub Bldg Auth Rfdg (AMBAC
Insd)........................................... 5.750 12/01/11 1,123,820
------------
2,098,464
------------
TEXAS 2.2%
395 Brazos Riv Auth TX Pollutn Ctl Rev Adj TXU Elec
Co Proj Ser C Rfdg (AMT)........................ 5.750 05/01/36 422,749
500 Hidalgo Cnty, TX Hlth Svcs Mission Hosp Inc
Proj............................................ 5.000 08/15/13 516,935
350 Hidalgo Cnty, TX Hlth Svcs Mission Hosp Inc
Proj............................................ 5.000 08/15/19 353,920
1,000 Lower Colorado Riv Auth TX LCRA Svcs Corp Proj
Rfdg (FGIC Insd)................................ 5.000 05/15/17 1,057,260
300 San Antonio, TX Hsg Fin Corp Multi-Family Hsg
Rev Beverly Oaks Apt Proj Ser A (a)............. 7.500 02/01/10 285,879
------------
2,636,743
------------
UTAH 0.0%
15 Utah St Hsg Fin Agy Single Family Mtg Mezz Ser A
(AMT) (FHA/VA Gtd).............................. 7.150 07/01/12 15,324
------------
VIRGINIA 0.8%
1,000 Tobacco Settlement Fin Corp VA Asset Bkd........ 5.250 06/01/19 1,037,950
------------
WASHINGTON 0.4%
510 Skagit Cnty, WA Pub Hosp Dist No 001 Skagit Vy
Hosp............................................ 5.250 12/01/10 537,724
------------
WEST VIRGINIA 1.2%
1,500 West Virginia St Hosp Fin Auth (MBIA Insd)...... 6.100 01/01/18 1,526,985
------------
WISCONSIN 0.4%
500 Wisconsin St Hlth & Edl Facs Beaver Dam Cmnty
Hosp Inc........................................ 5.500 08/15/14 502,090
------------
TOTAL LONG-TERM INVESTMENTS 97.9%
(Cost $116,988,058)....................................................... 119,684,289
SHORT-TERM INVESTMENT 0.4%
(Cost $510,000)........................................................... 510,000
------------
TOTAL INVESTMENTS 98.3%
(Cost $117,498,058)....................................................... 120,194,289
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%................................. 2,019,382
------------
NET ASSETS 100.0%.......................................................... $122,213,671
============
</Table>
20 See Notes to Financial Statements
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
Percentages are calculated as a percentage of net assets.
* Zero coupon bond
(a) The Fund owns 100% of the bond issuance.
(b) Securities purchased on a when-issued or delayed delivery basis.
(c) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(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) 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 1.9% of net
assets.
ACA--American Capital Access
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
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
Radian--Radian Asset Assurance
XLCA--XL Capital Assurance Inc.
FUTURES CONTRACTS OUTSTANDING AS OF SEPTEMBER 30, 2005:
<Table>
<Caption>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
U.S. Treasury Notes 2-Year Futures December 2005 (Current
Notional Value of $102,945 per contract).................. 56 $28,651
U.S. Treasury Notes 5-Year Futures December 2005 (Current
Notional Value of $106,859 per contract).................. 105 70,127
---- -------
161 $98,778
==== =======
</Table>
See Notes to Financial Statements 21
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2005
<Table>
ASSETS:
Total Investments (Cost $117,498,058)....................... $120,194,289
Cash........................................................ 1,012,962
Receivables:
Interest.................................................. 1,623,821
Fund Shares Sold.......................................... 287,893
Investments Sold.......................................... 75,000
Variation Margin on Futures............................... 38,500
Other....................................................... 135,870
------------
Total Assets............................................ 123,368,335
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 546,424
Fund Shares Repurchased................................... 129,772
Income Distributions...................................... 98,713
Distributor and Affiliates................................ 60,864
Investment Advisory Fee................................... 40,315
Trustees' Deferred Compensation and Retirement Plans........ 186,906
Accrued Expenses............................................ 91,670
------------
Total Liabilities....................................... 1,154,664
------------
NET ASSETS.................................................. $122,213,671
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $118,908,331
Net Unrealized Appreciation................................. 2,795,009
Accumulated Net Realized Gain............................... 317,581
Accumulated Undistributed Net Investment Income............. 192,750
------------
NET ASSETS.................................................. $122,213,671
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $88,235,160 and 8,253,068 shares of
beneficial interest issued and outstanding)............. $ 10.69
Maximum sales charge (4.75%* of offering price)......... .53
------------
Maximum offering price to public........................ $ 11.22
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $16,898,863 and 1,561,943 shares of
beneficial interest issued and outstanding)............. $ 10.82
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $16,489,577 and 1,544,262 shares of
beneficial interest issued and outstanding)............. $ 10.68
============
Class I Shares:
Net asset value and offering price per share (Based on
net assets of $590,071 and 55,217 shares of beneficial
interest issued
and outstanding)........................................ $ 10.69
============
</Table>
* On sales of $100,000 or more, the sales charge will be reduced.
22 See Notes to Financial Statements
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended September 30, 2005
<Table>
INVESTMENT INCOME:
Interest.................................................... $5,278,523
----------
EXPENSES:
Investment Advisory Fee..................................... 611,576
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, C and I of $215,861, $14,201, $149,945 and $0,
respectively)............................................. 380,007
Registration and Filing Fees................................ 77,260
Shareholder Services........................................ 71,376
Legal....................................................... 62,849
Trustees' Fees and Related Expenses......................... 22,742
Custody..................................................... 18,663
Other....................................................... 166,860
----------
Total Expenses.......................................... 1,411,333
Investment Advisory Fee Reduction....................... 122,315
Less Credits Earned on Cash Balances.................... 2,731
----------
Net Expenses............................................ 1,286,287
----------
NET INVESTMENT INCOME....................................... $3,992,236
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 122,081
Futures................................................... 289,522
----------
Net Realized Gain........................................... 411,603
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 3,336,877
End of the Period:
Investments............................................. 2,696,231
Futures................................................. 98,778
----------
2,795,009
----------
Net Unrealized Depreciation During the Period............... (541,868)
----------
NET REALIZED AND UNREALIZED LOSS............................ $ (130,265)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $3,861,971
==========
</Table>
See Notes to Financial Statements 23
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, 2005 SEPTEMBER 30, 2004
----------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 3,992,236 $ 3,767,410
Net Realized Gain/Loss............................. 411,603 (116,827)
Net Unrealized Appreciation/Depreciation During the
Period........................................... (541,868) 436,427
------------ ------------
Change in Net Assets from Operations............... 3,861,971 4,087,010
------------ ------------
Distributions from Net Investment Income:
Class A Shares................................... (2,950,100) (2,540,540)
Class B Shares................................... (500,423) (599,449)
Class C Shares................................... (447,551) (538,322)
Class I Shares................................... (2,786) -0-
------------ ------------
(3,900,860) (3,678,311)
------------ ------------
Distributions from Net Realized Gain:
Class A Shares................................... (111,173) (559,167)
Class B Shares................................... (25,082) (168,772)
Class C Shares................................... (21,027) (151,088)
Class I Shares................................... -0- -0-
------------ ------------
(157,282) (879,027)
------------ ------------
Total Distributions................................ (4,058,142) (4,557,338)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... (196,171) (470,328)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................... 35,234,147 35,464,587
Net Asset Value of Shares Issued Through Dividend
Reinvestment..................................... 2,853,082 3,315,608
Cost of Shares Repurchased......................... (30,577,511) (38,885,321)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS..................................... 7,509,718 (105,126)
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS.............. 7,313,547 (575,454)
NET ASSETS:
Beginning of the Period............................ 114,900,124 115,475,578
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $192,750
and $99,066, respectively)....................... $122,213,671 $114,900,124
============ ============
</Table>
24 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 ------------------------------------------------
2005 2004 2003 2002 (B) 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD..... $10.72 $10.76 $10.86 $10.42 $10.14
------ ------ ------ ------ ------
Net Investment Income...................... .36 .37 .38 .42 .49
Net Realized and Unrealized Gain/Loss...... (.01) .04 (.03) .44 .23
------ ------ ------ ------ ------
Total from Investment Operations............. .35 .41 .35 .86 .72
------ ------ ------ ------ ------
Less:
Distributions from Net Investment Income... .37 .37 .40 .42 .43
Distributions from Net Realized Gain....... .01 .08 .05 -0- .01
------ ------ ------ ------ ------
Total Distributions.......................... .38 .45 .45 .42 .44
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD........... $10.69 $10.72 $10.76 $10.86 $10.42
====== ====== ====== ====== ======
Total Return* (a)............................ 3.31% 3.84% 3.33% 8.48% 7.19%
Net Assets at End of the Period (In
millions).................................. $ 88.2 $ 76.5 $ 70.1 $ 53.5 $ 29.1
Ratio of Expenses to Average Net Assets*..... .99% .93% .84% .85% .77%
Ratio of Net Investment Income to Average Net
Assets*.................................... 3.32% 3.50% 3.55% 4.08% 4.78%
Portfolio Turnover........................... 34% 60% 35% 75% 106%
* 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% 1.03% 1.04% 1.14% 1.23%
Ratio of Net Investment Income to Average
Net Assets.............................. 3.22% 3.40% 3.35% 3.79% 4.32%
</Table>
(a) 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 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.
See Notes to Financial Statements 25
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 ------------------------------------------------
2005 2004 2003 2002 (B) 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD..... $10.75 $10.78 $10.84 $10.41 $10.13
------ ------ ------ ------ ------
Net Investment Income...................... .40 .30 .32 .35 .42
Net Realized and Unrealized Gain/Loss...... (.03) .04 (.01) .42 .22
------ ------ ------ ------ ------
Total from Investment Operations............. .37 .34 .31 .77 .64
------ ------ ------ ------ ------
Less:
Distributions from Net Investment Income... .29 .29 .32 .34 .35
Distributions from Net Realized Gain....... .01 .08 .05 -0- .01
------ ------ ------ ------ ------
Total Distributions.......................... .30 .37 .37 .34 .36
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD........... $10.82 $10.75 $10.78 $10.84 $10.41
====== ====== ====== ====== ======
Total Return* (a)............................ 3.47%(d) 3.15%(d) 2.96%(c) 7.61% 6.42%
Net Assets at End of the Period (In
millions).................................. $ 16.9 $ 20.3 $ 23.9 $ 17.1 $ 11.1
Ratio of Expenses to Average Net Assets*..... .82%(d) 1.67%(d) 1.59% 1.60% 1.52%
Ratio of Net Investment Income to Average Net
Assets*.................................... 3.51%(d) 2.76%(d) 3.08%(c) 3.34% 4.02%
Portfolio Turnover........................... 34% 60% 35% 75% 106%
* 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... .92%(d) 1.77%(d) 1.79% 1.89% 1.98%
Ratio of Net Investment Income to Average
Net Assets.............................. 3.41%(d) 2.66%(d) 2.88%(c) 3.05% 3.56%
</Table>
(a) 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 the first and second year of purchase and declining to 0% after
the fifth 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 7).
26 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 ------------------------------------------------
2005 2004 2003 2002 (B) 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD..... $10.70 $10.73 $10.82 $10.40 $10.12
------ ------ ------ ------ ------
Net Investment Income...................... .29 .30 .30 .34 .42
Net Realized and Unrealized Gain/Loss...... (.01) .04 (.02) .42 .22
------ ------ ------ ------ ------
Total from Investment Operations............. .28 .34 .28 .76 .64
------ ------ ------ ------ ------
Less:
Distributions from Net Investment Income... .29 .29 .32 .34 .35
Distributions from Net Realized Gain....... .01 .08 .05 -0- .01
------ ------ ------ ------ ------
Total Distributions.......................... .30 .37 .37 .34 .36
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD........... $10.68 $10.70 $10.73 $10.82 $10.40
====== ====== ====== ====== ======
Total Return* (a)............................ 2.64%(d) 3.17%(d) 2.69%(c) 7.52% 6.42%
Net Assets at End of the Period (In
millions).................................. $ 16.5 $ 18.1 $ 21.4 $ 13.2 $ 8.6
Ratio of Expenses to Average Net Assets*..... 1.64%(d) 1.66%(d) 1.59% 1.60% 1.52%
Ratio of Net Investment Income to Average Net
Assets*.................................... 2.69%(d) 2.77%(d) 2.84%(c) 3.33% 4.02%
Portfolio Turnover........................... 34% 60% 35% 75% 106%
* 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... 1.74%(d) 1.76%(d) 1.79% 1.89% 1.98%
Ratio of Net Investment Income to Average
Net Assets.............................. 2.59%(d) 2.67%(d) 2.64%(c) 3.04% 3.56%
</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 7).
See Notes to Financial Statements 27
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 PERIOD INDICATED.
<Table>
<Caption>
AUGUST 12, 2005
(COMMENCEMENT OF
CLASS I SHARES OPERATIONS) TO
SEPTEMBER 30, 2005
------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $10.70
------
Net Investment Income..................................... .05
Net Realized and Unrealized Loss.......................... (.01)
------
Total from Investment Operations............................ .04
Less Distributions from Net Investment Income............... .05
------
NET ASSET VALUE, END OF THE PERIOD.......................... $10.69
======
Total Return* (a)........................................... 0.38%**
Net Assets at End of the Period (In millions)............... $ .6
Ratio of Expenses to Average Net Assets*.................... .77%
Ratio of Net Investment Income to Average Net Assets*....... 3.59%
Portfolio Turnover.......................................... 34%
* 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.................. .87%
Ratio of Net Investment Income to Average Net Assets..... 3.49%
</Table>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period. These returns do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund Shares.
28 See Notes to Financial Statements
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005
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 and Class I shares commenced on October 19, 1993 and August 12,
2005, respectively.
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, 2005, the Fund had $546,424 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.
29
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income, if any, to
its shareholders. Therefore, no provision for federal income taxes is required.
At September 30, 2005, the cost and related gross unrealized appreciation
and depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $117,483,411
============
Gross tax unrealized appreciation........................... $ 2,879,812
Gross tax unrealized depreciation........................... (168,934)
------------
Net tax unrealized appreciation on investments.............. $ 2,710,878
============
</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,
2005 and 2004 was as follows:
<Table>
<Caption>
2005 2004
Distributions paid from:
Ordinary Income........................................... $157,902 $444,464
Long Term Capital Gain.................................... -- 437,594
-------- --------
$157,902 $882,058
</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 2005 fiscal year have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. For the tax year ended
September 30, 2005, a permanent book and tax difference relating to the Fund's
investment in other regulated investment companies totaling $2,392 was
reclassified from accumulated undistributed net investment income to accumulated
net realized gain. Additionally, a permanent difference of $84 relating to book
to tax amortization differences was reclassified from accumulated undistributed
net investment income to accumulated net realized gain.
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $413,786
</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 contracts at September 30, 2005.
F. EXPENSE REDUCTIONS During the year ended September 30, 2005, the Fund's
custody fee was reduced by $2,731 as a result of credits earned on cash
balances.
30
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 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, 2005, the Adviser waived $122,315 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, 2005, the Fund recognized expenses of
approximately $16,400 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Fund is a partner of such
firm and he and his law firm provide services as legal counsel to the Fund.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer ("CCO") Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Fund. The costs of
these services are allocated to each fund. For the year ended September 30,
2005, the Fund recognized expenses of approximately $55,200, representing Van
Kampen Investment Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Fund, as well as, the salary,
benefits and related costs of the CCO and related support staff paid by Van
Kampen. Services provided pursuant to the Legal Services agreement are reported
as part of "Legal" expenses on the Statement of Operations. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Other" expenses 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, 2005, the Fund recognized expenses of approximately $52,400,
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 also
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 $115,500
are included in "Other" assets on the Statement of Assets and Liabilities at
September 30, 2005. 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.
31
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
3. CAPITAL TRANSACTIONS
At September 30, 2005, capital aggregated $86,829,656, $15,630,052, $15,857,800
and $590,823 for Classes A, B, C and I respectively. For the year ended
September 30, 2005, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 2,799,376 $ 30,055,073
Class B................................................... 164,518 1,783,449
Class C................................................... 261,414 2,801,679
Class I................................................... 55,508 593,946
---------- ------------
Total Sales................................................. 3,280,816 $ 35,234,147
========== ============
Dividend Reinvestment:
Class A................................................... 209,871 $ 2,252,182
Class B................................................... 29,127 315,068
Class C................................................... 26,416 283,046
Class I................................................... 260 2,786
---------- ------------
Total Dividend Reinvestment................................. 265,674 $ 2,853,082
========== ============
Repurchases:
Class A................................................... (1,888,033) $(20,267,308)
Class B................................................... (524,704) (5,674,515)
Class C................................................... (432,719) (4,629,779)
Class I................................................... (551) (5,909)
---------- ------------
Total Repurchases........................................... (2,846,007) $(30,577,511)
========== ============
</Table>
32
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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>
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, 2005 and 2004,
154,113 and 36,615 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, 2005 and 2004, 68,366 and
0 Class C Shares converted to Class A Shares, respectively, and are shown in the
above tables as sales of Class A Shares and repurchases of Class C 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
33
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
be imposed on most redemptions made within five 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...................................................... 4.00% None
Third....................................................... 3.00% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth and Thereafter........................................ None None
</Table>
Class B Shares purchased prior to June 1, 2005 are subject to the following
CDSC schedule:
<Table>
<Caption>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
YEAR SINCE PURCHASE -------------------
First....................................................... 3.00%
Second...................................................... 2.50%
Third....................................................... 2.00%
Fourth...................................................... 1.00%
Fifth and Thereafter........................................ None
</Table>
For the year ended September 30, 2005, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $22,600 and CDSC on redeemed shares of approximately $33,100.
Sales charges do not represent expenses of the Fund.
4. REDEMPTION FEE
Effective September 26, 2005 the Fund assesses a 2% redemption fee on the
proceeds of Fund shares that are redeemed (either by sale or exchange) within
seven days of purchase. The redemption fee is paid directly to the Fund. For the
year ended September 30, 2005, the fund did not receive any redemption fees.
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $48,387,002 and $40,639,754 respectively.
34
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
6. 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
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 futures 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, 2005,
were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at September 30, 2004........................... 157
Futures Opened.............................................. 818
Futures Closed.............................................. (814)
----
Outstanding at September 30, 2005........................... 161
====
</Table>
7. 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 annual fees are paid quarterly.
The amount of distribution expenses incurred by Van Kampen and not yet
reimbursed ("unreimbursed receivable") was approximately $0 and $4,700 for Class
B and Class C shares, respectively. These amounts may be recovered from future
35
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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, 2005, are payments
retained by Van Kampen of approximately $9,000, and payments made to Morgan
Stanley DW Inc., an affiliate of the Adviser, of approximately $31,400.
8. 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. Plaintiffs have
filed a Motion for Leave to file a Supplemental Pleading that would, among other
things, expand the allegations and alleged class.
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. Plaintiff has sought leave to
file a second amended derivative complaint that alleges that the Adviser
permitted or recklessly disregarded market timing and late trading in its
proprietary mutual funds in order to increase assets under management and fees.
However, pursuant to an agreement between the parties, the plaintiff's proposed
second amended derivative complaint was withdrawn and the allegations regarding
market timing and late trading asserted therein were filed in a separate
complaint and coordinated with other cases related to market timing that have
been centralized in a federal court.
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.
36
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
9. 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.
37
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, 2005, 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.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2005, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. 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, 2005, 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 11, 2005
38
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President and Chief Investment Officer
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
PHILLIP G. GOFF
Chief Financial Officer and Treasurer
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, 2005. 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.
39
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TRUSTEES AND OFFICERS INFORMATION
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 as of the date of this Annual Report. 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 (60) Trustee Trustee Chairman and Chief 72 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.
Jerry D. Choate (67) Trustee Trustee Prior to January 1999, 70 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>
40
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TRUSTEE AND OFFICERS INFORMATION continued
<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
Rod Dammeyer (65) Trustee Trustee President of CAC, L.L.C., 72 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. Prior to
distributor of wire, January 2005, Trustee of
cable and communications the University of Chicago
connectivity products. Hospitals and Health
Prior to July 2000, Systems. Prior to April
Managing Partner of 2004, Director of
Equity Group Corporate TheraSense, Inc. Prior to
Investment (EGI), a January 2004, Director of
company that makes TeleTech Holdings Inc.
private investments in and Arris Group, Inc.
other companies. Prior to May 2002,
Director of Peregrine
Systems Inc. Prior to
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>
41
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TRUSTEE AND OFFICERS INFORMATION continued
<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
Linda Hutton Heagy (57) Trustee Trustee Managing Partner of 70 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
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (53) Trustee Trustee Director and President of 70 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 (70) Trustee Trustee Prior to 1998, President 72 Trustee/Director/Managing
14 Huron Trace since 2003 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
</Table>
42
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TRUSTEE AND OFFICERS INFORMATION continued
<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
Jack E. Nelson (69) Trustee Trustee President of Nelson 70 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 (65) Trustee Trustee President Emeritus and 72 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 70 Trustee/Director/Managing
(63) 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>
43
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TRUSTEE AND OFFICERS INFORMATION continued
INTERESTED TRUSTEE:*
<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
Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 72 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 Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
</Table>
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
44
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TRUSTEE AND OFFICERS 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
Ronald E. Robison (66) President and Officer President of funds in the Fund Complex since September 2005
1221 Avenue of the Americas Principal Executive since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since May 2003. Managing Director of Morgan Stanley and
Morgan Stanley & Co. Incorporated. Managing Director and
Director of Morgan Stanley Investment Management Inc. Chief
Administrative Officer, Managing Director and Director of
Morgan Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc. Managing Director and Director of
Morgan Stanley Distributors Inc. and Morgan Stanley
Distribution 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 of Morgan Stanley Investment
Management Inc. and Executive Vice President of funds in the
Fund Complex from May 2003 to September 2005.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Investment Officer Investment Management Inc. and Director of Morgan Stanley
Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Amy R. Doberman (43) 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 since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (39) Vice President Officer Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.
</Table>
45
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TRUSTEE AND OFFICERS INFORMATION continued
<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
John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1996 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Phillip G. Goff (42) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza and Treasurer since 2005 Inc. since June 2005. Chief Financial Officer and Treasurer
Oakbrook Terrace, IL 60181 of funds in the Fund Complex since August 2005. Prior to
June 2005, Vice President and Chief Financial Officer of
Enterprise Capital Management, Inc., an investment holding
company.
</Table>
46
Van Kampen Intermediate Term Municipal Income Fund
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.
(continued on next page)
Van Kampen Intermediate Term Municipal Income Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
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 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
(continued on back)
Van Kampen Intermediate Term Municipal Income Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
The Statement of Additional Information includes additional information
about Fund trustees and is available, without charge, upon request by
calling 1-800-847-2424.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
138, 338, 538
INF ANR 11/05
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-02751P-Y09/05
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, 2005.
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 9/30/05
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index from 9/30/95 through 9/30/05. Class A shares, adjusted for
sales charges.
(LINE GRAPH)
<Table>
<Caption>
VAN KAMPEN NEW YORK TAX FREE LEHMAN BROTHERS MUNICIPAL BOND
INCOME FUND INDEX
---------------------------- ------------------------------
9/95 9527 10000
12/95 10017 10413
9808 10288
9910 10366
10226 10604
12/96 10531 10874
10552 10848
10924 11222
11306 11560
12/97 11682 11873
11865 12010
12084 12192
12513 12567
12/98 12558 12642
12659 12755
12410 12529
12186 12479
12/99 11944 12381
12271 12743
12435 12935
12785 13248
12/00 13417 13827
13702 14134
13829 14226
14188 14626
12/01 14018 14537
14203 14673
14739 15210
15554 15933
12/02 15500 15933
15660 16124
16089 16540
16128 16553
12/03 16430 16780
16615 17070
16301 16666
16956 17314
12/04 17126 17530
17069 17523
17672 18037
9/05 17683 18015
</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 CHARGES CHARGES CHARGES CHARGES CHARGES
Since Inception 6.45% 5.99% 5.96% 5.96% 5.76% 5.76%
10-year 6.38 5.87 5.83 5.83 5.60 5.60
5-year 6.70 5.67 5.88 5.64 5.89 5.89
1-year 4.29 -0.68 3.40 -0.60 3.46 2.46
- ---------------------------------------------------------------------------------------------
30-Day SEC Subsidized
Yield 3.33% 2.75% 2.75%
- ---------------------------------------------------------------------------------------------
30-Day SEC Yield 3.09% 2.50% 2.50%
</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
1
prescribed by the SEC. The unsubsidized 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, 2005
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, John R.
Reynoldson and Joseph R. Arcieri, Executive Directors of the Adviser.
MARKET CONDITIONS
During the 12-month period ended September 30, 2005, the economy grew at a
moderate pace, with reasonable gains in employment and sustained strength in
consumer spending. Although oil prices soared, core inflation (which excludes
food and energy) remained relatively benign. Continuing with the course it began
in June of 2004, the Federal Open Market Committee (the Fed) raised the federal
funds target rate eight times during the period. Through a "measured pace" of 25
basis points increments, the Fed brought the rate to 3.75 percent at the end of
the reporting period. While the yields of short- and intermediate-term bonds
moved upward in concert with the Fed's actions, the yields of long-term bonds
rates declined. As a result, the yield curve (which charts the difference
between short-term and long-term rates) flattened.
Against this backdrop, total returns across the municipal bond market varied
dramatically, with long maturity bonds outperforming short-term issues by a wide
margin. As investors sought income in an environment of historically low rates,
BBB rated and non-rated bonds significantly outperformed high grade debt, and
credit spreads tightened markedly. Strong and steady flows of new cash into high
yield municipal funds added to the demand for lower rated issues.
Sectors with a preponderance of lower rated credits performed with particular
strength. Tobacco revenue bonds were by far the best performing sector,
supported by overall spread tightening as well as by increasing investor comfort
with tobacco companies' future litigation risk. Health care bonds (hospitals and
long-term care facilities) also fared well, boosted by strong investor demand.
In contrast, housing bonds underperformed as interest rates declined and
prepayment risk increased.
Municipal bond issuance remained robust in 2005, with $310 billion of debt
brought to market in the first nine months of the year, a pace on track to beat
the record issuance of 2003. Refunding activity represented a good portion of
this activity, as issuers sought to refinance higher cost debt at low prevailing
interest rates. Bonds backed by insurance dominated issuance and increased their
market penetration to nearly 60 percent.
The State of New York remained a leading issuer of debt during the period.
Liberty bonds (for the reconstruction of the World Trade Center site) were among
the prominent fundings. The state saw its credit rating improve, due largely to
improvements in New York City's fiscal health. Positive employment data and
stable real estate markets also contributed to a brighter outlook. Economic
conditions were not uniformly strong across the state, however, as the northern
"rust belt" area continued to struggle economically.
(1)Team members may change without notice from time to time.
3
PERFORMANCE ANALYSIS
The fund returned 4.29 percent for the 12 months ended September 30, 2005 (Class
A shares, unadjusted for sales charges). In comparison, the fund's benchmark,
the Lehman Brothers Municipal Bond Index, returned 4.05 percent for the period.
TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
- --------------------------------------------------------------
LEHMAN BROTHERS
CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX
4.29% 3.40% 3.46% 4.05%
- --------------------------------------------------------------
</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.
Throughout the period, we followed our long-standing practice of trading between
liquid, high quality securities which our analysis identified as compelling
total return opportunities. Our strategy involves buying these bonds when they
are attractively valued, and selling them when they reach our return targets. We
then invest the proceeds into bonds with greater potential for future total
return.
We sought to position the fund for rising rates, a strategy which proved
beneficial during the period. We kept the overall duration of the fund shorter
than that of its benchmark index. (Duration is a measure of interest rate
sensitivity.) To limit the fund's exposure to bonds that would be most
vulnerable to rising short-term rates, we sold bonds with maturities of 15 years
and less. Pre-refunded issues also figured prominently among our sales. As
refinancing activity surged, we sold many bonds which had appreciated
significantly during the time the fund had held them. We re-deployed assets into
the 25- to 30-year segment of the market, favoring bonds with premium
(above-market) coupons and more defensive interest rate characteristics. As the
yield curve continued to flatten, these bonds contributed strong performance.
At the end of the reporting period, securities rated BBB or higher accounted for
more than 94 percent of the portfolio. Within the context of our quality focused
approach, we sought opportunities to enhance the fund's exposure to higher
yielding securities. For example, after extensive research, we invested in
long-term investment-grade tobacco revenue bonds (which represented
approximately 5 percent of assets at the end of the period).
The fund was well diversified among the major sectors of the New York municipal
market. At the close of the period, the largest sector representations were
general purpose, health care, water and sewer, public education and
4
student housing. The fund also established a stake in Liberty bonds during the
period.
There is no guarantee that any sectors mentioned will continue to perform well
or that securities in such sectors will be held by the Fund in the future.
5
<Table>
<Caption>
RATINGS ALLOCATIONS AS OF 9/30/05
AAA/Aaa 50.5%
AA/Aa 18.2
A/A 15.0
BBB/Baa 10.8
BB/Ba 2.6
NR 2.9
</Table>
<Table>
<Caption>
<Caption>
TOP 5 SECTORS AS OF 9/30/05
General Purpose 15.6%
Hospital 12.7
Water & Sewer 11.3
Student Housing 8.9
Public Education 7.9
</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. Sectors are as a percentage of long-term
investments. Ratings 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.
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, 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 (800) SEC-0330. You
can also request copies of these materials, upon payment of a duplicating
fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a fund's fiscal quarter filings by contacting
Van Kampen Client Relations at (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 (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 POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the fund's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 847-2424 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the fund voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 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.
8
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments of Class A Shares
and contingent deferred sales charge on redemptions of Class B and C Shares; and
(2) 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 04/01/05 - 09/30/05.
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
account values and 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 and do not reflect any transactional costs, such as sales
charges (loads) or contingent deferred sales charges. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD*
---------------------------------------------------
04/01/05 09/30/05 04/01/05-09/30/05
Class A
Actual................................... $1,000.00 $1,035.96 $4.03
Hypothetical............................. 1,000.00 1,021.07 4.00
(5% annual return before expenses)
Class B
Actual................................... 1,000.00 1,030.94 7.84
Hypothetical............................. 1,000.00 1,017.37 7.79
(5% annual return before expenses)
Class C
Actual................................... 1,000.00 1,030.91 7.84
Hypothetical............................. 1,000.00 1,017.37 7.79
(5% annual return before expenses)
</Table>
* Expenses are equal to the Fund's annualized expense ratio of 0.79%, 1.54%,
and 1.54% for Class A, B, and C Shares, respectively, multiplied by the
average account value over the period, multiplied by 183/365 (to reflect the
one-half year period).
Assumes all dividends and distributions were reinvested.
9
INVESTMENT ADVISORY AGREEMENT APPROVAL
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On May 25, 2005, the Board of Trustees, and the independent trustees voting
separately, determined that the terms of the investment advisory agreement are
fair and reasonable and approved the continuance of the investment advisory
contract as being in the best interests of the Fund and its shareholders. In
making its determination, the Board of Trustees considered materials that were
specifically prepared by the investment adviser at the request of the Board and
Fund counsel, and by an independent provider of investment company data
contracted to assist the Board, relating to the contract review process. The
Board also considered information received periodically about the portfolio,
performance, the investment strategy, portfolio management team and fees and
expenses of the Fund. Finally, the Board considered materials it had received in
approving a change in the advisory fee rate effective November 1, 2004. The
Board of Trustees considered the contract over a period of several months and
the non-management trustees held sessions both with the investment adviser and
separate from the investment adviser in reviewing and considering the contract.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
existing and alternative breakpoints in the Fund's investment advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies and/or other products at different asset levels,
and considered the trends in the industry versus historical and projected assets
of the Fund. The Board of Trustees evaluated other benefits the investment
adviser and its affiliates derive from their relationship with the Fund. The
Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the investment adviser and
its affiliated companies and the capability of the personnel of the investment
adviser, and specifically the strength and background of its portfolio
management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees,
10
evaluated all of the foregoing and does not believe any single factor or group
of factors control or dominate the review process, and, after considering all
factors together, has determined, in the exercise of its business judgment, that
approval of the investment advisory agreement is in the best interests of the
Fund and its shareholders. The following summary provides more detail on certain
matters considered but does not detail all matters considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The Fund
discloses information about its portfolio management team members and their
experience in its prospectus. The trustees also discuss certain other services
which are provided on a cost-reimbursement basis by the investment adviser or
its affiliates to the Van Kampen funds including certain accounting,
administrative and legal services. The Board has determined that the nature,
extent and quality of the services provided by the investment adviser support
its decision to approve the investment advisory contract.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, a performance committee of the
Board spends more focused time on the performance of the Fund and other funds in
the Van Kampen complex, paying specific attention to underperforming funds. The
trustees discuss with the investment adviser the performance goals and the
actual results achieved in managing the Fund. When considering a fund's
performance, the trustees and the investment adviser place emphasis on trends
and longer-term returns (focusing on one-year, three-year and five-year
performance with special attention to three-year performance) and, when a fund's
weighted performance is under the fund's benchmark, they discuss the causes and
where necessary seek to make specific changes to investment strategy or
investment personnel. The Fund discloses more information about its performance
elsewhere in this report and in the Fund's prospectus. The trustees discuss with
the investment adviser the level of advisory fees for this Fund relative to
comparable funds and other products advised by the adviser and others in the
marketplace. The trustees review not only the advisory fees but other fees and
expenses (whether paid to the adviser, its affiliates or others) and the Fund's
overall expense ratio. The Fund discloses more information about its fees and
expenses in its prospectus. The Board has determined that the performance, fees
and expenses of the Fund support its decision to approve the investment advisory
contract.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put
11
together by the investment adviser with the oversight of a special ad hoc
committee of the Board. The trustees discuss with the investment adviser its
revenues and expenses, including among other things, revenues for advisory
services, portfolio management-related expenses, revenue sharing arrangement
costs and allocated expenses both on an aggregate basis and per fund. The Board
has determined that the analysis of the investment adviser's expenses and
profitability support its decision to approve the investment advisory contract.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
and growth prospects of the Fund and how that relates to the Fund's expense
ratio and particularly the Fund's advisory fee rate. In conjunction with its
review of the investment adviser's profitability, the trustees discuss with the
investment adviser how more (or less) assets can affect the efficiency or
effectiveness of managing the Fund's portfolio and whether the advisory fee
level is appropriate relative to current and projected asset levels and/or
whether the advisory fee structure reflects economies of scale as asset levels
change. The Board has determined that its review of the actual and potential
economies of scale of the Fund support its decision to approve the investment
advisory contract.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory contract.
12
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
MUNICIPAL BONDS 97.6%
NEW YORK 95.4%
$1,290 Albany Cnty, NY Indl Dev Agy Indl Dev Rev
Albany College of Pharmacy Ser A......... 5.625% 12/01/34 $ 1,354,435
330 Bethlehem, NY Indl Dev Agy Sr Hsg Rev Van
Allen Proj Ser A......................... 6.875 06/01/39 321,938
1,250 Erie Cnty, NY Indl Dev Agy Sch Fac Rev
City of Buffalo Proj (FSA Insd).......... 5.750 05/01/21 1,396,975
1,250 Erie Cnty, NY Indl Dev Agy Sch Fac Rev
City of Buffalo Proj (FSA Insd).......... 5.750 05/01/22 1,396,975
625 Erie Cnty, NY Tob Asset Sec Corp Ser A... 5.000 06/01/38 615,456
1,500 Erie Cnty, NY Tob Asset Sec Corp Ser A... 5.000 06/01/45 1,463,250
1,250 Hempstead Town, NY Indl Dev Adelphi Univ
Civic Fac................................ 5.750 06/01/22 1,372,650
1,290 Islip, NY Res Recovery Agy Res 1985 Fac
Ser E (AMT) (FSA Insd)................... 5.750 07/01/22 1,432,545
1,000 Livingston Cnty, NY Indl Dev Agy Civic
Fac Rev Nicholas H Noyes Mem Hosp........ 6.000 07/01/30 1,048,640
2,000 Long Island Pwr Auth NY Elec Sys Rev Gen
Ser C.................................... 5.500 09/01/19 2,179,880
1,000 Metropolitan Trans Auth NY Rev Ser A Rfdg
(AMBAC Insd)............................. 5.500 11/15/19 1,112,120
1,000 Metropolitan Trans Auth NY Svc Contract
Ser A Rfdg............................... 5.125 01/01/29 1,052,090
1,000 Monroe Cnty, NY Indl Dev Agy Nazareth
College Rochester Proj (MBIA Insd)....... 5.250 10/01/21 1,085,710
1,320 Montgomery Cnty, NY Indl Dev Agy Lease
HFM Boces Ser A (XLCA Insd).............. 5.000 07/01/34 1,372,549
2,425 New York City Fiscal 2003 Ser I.......... 5.750 03/01/15 2,703,923
1,500 New York City Hlth & Hosp Corp Rev Hlth
Sys Ser A (FSA Insd)..................... 5.500 02/15/18 1,647,990
1,000 New York City Hlth & Hosp Corp Rev Hlth
Sys Ser A (FSA Insd)..................... 5.500 02/15/19 1,098,660
1,500 New York City Hsg Dev Corp Cap Fd Pgm NYC
Hsg Auth Pgm Ser A (FGIC Insd)........... 5.000 07/01/25 1,584,660
1,000 New York City Hsg Dev Corp Ser A (AMT)... 5.500 11/01/34 1,034,800
465 New York City Indl Dev Agy Civic Fac Rev
Cmnty Res Developmentally Disabled....... 7.500 08/01/26 478,034
500 New York City Indl Dev Agy Civic Fac Rev
College of New Rochelle Proj............. 5.750 09/01/17 523,410
500 New York City Indl Dev Agy Civic Fac Rev
YMCA Greater NY Proj..................... 6.000 08/01/07 525,815
1,405 New York City Indl Dev Agy Fac Rev Royal
Charter-NY Presbyterian (FSA Insd)....... 5.375 12/15/16 1,562,669
500 New York City Indl Dev Agy Rev Liberty 7
World Trade Ctr Ser A.................... 6.250 03/01/15 535,840
</Table>
See Notes to Financial Statements 13
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$ 500 New York City Indl Dev Agy Rev Liberty 7
World Trade Ctr Ser A.................... 6.500% 03/01/35 $ 536,115
1,125 New York City Indl Dev Agy Rev Liberty
Iac/Interactivecorp...................... 5.000 09/01/35 1,140,952
1,440 New York City Indl Dev Agy Spl Fac Rev
Terminal One Group Assn Proj (AMT)....... 6.100 01/01/09 1,444,838
1,000 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Ser D............................ 5.000 06/15/39 1,041,230
500 New York City Muni Wtr Fin Ser B (b)..... 6.000 06/15/33 558,900
2,500 New York City Ser A...................... 5.500 08/01/20 2,722,775
2,390 New York City Ser G...................... 5.000 12/01/28 2,483,377
1,000 New York City Ser K...................... 5.000 08/01/24 1,045,400
1,000 New York City Transitional Cultural Res
Rev Amern Museum Nat History Ser A (MBIA
Insd).................................... 5.000 07/01/44 1,039,220
1,000 New York City Transitional Fin Auth Rev
Future Tax Secd Ser A Rfdg (a)........... 5.500/14.000 11/01/26 1,100,400
1,500 New York City Transitional Fin Auth Rev
Future Tax Secd Ser C (AMBAC Insd)....... 5.250 08/01/21 1,628,850
1,000 New York City Transitional Fin Auth Rev
Future Tax Secd Ser D (MBIA Insd)........ 5.250 02/01/19 1,088,680
1,540 New York City Transitional Future Tax
Secd Ser B............................... 5.500 02/01/15 1,696,233
1,500 New York Cntys Tob Tr IV Settlement Pass
Thru Ser A............................... 5.000 06/01/45 1,449,480
1,060 New York St Dorm Auth Lease Rev Master
Boces Pgm (FSA Insd) (d)................. 5.250 08/15/22 1,159,937
1,500 New York St Dorm Auth Lease Rev Muni Hlth
Fac Impt Pgm Ser 1 (FSA Insd)............ 5.500 01/15/14 1,641,795
1,000 New York St Dorm Auth Rev City Univ Cons
Third Ser 1 (FGIC Insd).................. 5.250 07/01/25 1,061,440
1,230 New York St Dorm Auth Rev City Univ Ser D
Rfdg (FSA Insd).......................... 5.750 07/01/12 1,364,943
750 New York St Dorm Auth Rev City Univ Sys
Cons Ser A............................... 5.625 07/01/16 850,350
1,000 New York St Dorm Auth Rev City Univ Sys
Cons Ser B............................... 6.000 07/01/14 1,131,490
1,890 New York St Dorm Auth Rev Dept Ed........ 5.250 07/01/21 2,028,953
2,000 New York St Dorm Auth Rev FHA Montefiore
Hosp (FGIC Insd) (FHA Gtd)............... 5.000 08/01/33 2,083,940
1,000 New York St Dorm Auth Rev Insd Brooklyn
Law Sch Ser B (XLCA Insd)................ 5.375 07/01/23 1,102,020
1,055 New York St Dorm Auth Rev Insd NY St
Rehab Assn Ser A (AMBAC Insd) (d)........ 5.500 07/01/13 1,173,223
1,040 New York St Dorm Auth Rev Insd NY St
Rehab Assn Ser A (AMBAC Insd) (d)........ 5.500 07/01/15 1,148,638
</Table>
14 See Notes to Financial Statements
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$1,000 New York St Dorm Auth Rev Insd NY Univ
Ser 2 (AMBAC Insd)....................... 5.000% 07/01/41 $ 1,027,830
415 New York St Dorm Auth Rev Mental Hlth Svc
Ser B (MBIA Insd)........................ 5.250 08/15/31 436,597
1,200 New York St Dorm Auth Rev Miriam Osborn
Mem Home Ser B (ACA Insd)................ 6.375 07/01/29 1,318,164
2,000 New York St Dorm Auth Rev Non St
Supported Debt Mt Sinai NYU Hlth Ser C... 5.500 07/01/26 2,030,140
1,250 New York St Dorm Auth Rev Non St
Supported Debt Mtg Hosp Spl Surgery (MBIA
Insd) (FHA Gtd) (c)...................... 5.000 08/15/29 1,317,363
2,000 New York St Dorm Auth Rev Non St
Supported Debt Providence Rest (ACA
Insd).................................... 5.250 07/01/25 2,077,980
750 New York St Dorm Auth Rev Nursing Home
Menorah Campus (FHA Gtd)................. 5.950 02/01/17 792,818
1,000 New York St Dorm Auth Rev Sch Dist Bd Fin
Ser C (MBIA Insd)........................ 5.000 04/01/35 1,048,960
1,000 New York St Dorm Auth Rev Sch Dist Fin
Pgm Ser C (MBIA Insd).................... 5.250 10/01/16 1,096,470
1,000 New York St Dorm Auth Rev Sch Dist Fin
Pgm Ser D (MBIA Insd).................... 5.500 10/01/17 1,110,480
1,000 New York St Dorm Auth Rev Sch Dist Fin
Pgm Ser I (MBIA Insd).................... 5.750 10/01/18 1,129,070
1,000 New York St Dorm Auth Rev Secd Hosp North
Gen Hosp Rfdg (MBIA Insd)................ 5.750 02/15/17 1,126,400
1,000 New York St Dorm Auth Rev Secd Hosp North
Gen Hosp Rfdg............................ 5.750 02/15/18 1,108,410
1,000 New York St Dorm Auth Rev St Univ Ed Fac
1989 Res (MBIA Insd)..................... 6.000 05/15/15 1,122,800
500 New York St Energy Resh & Dev Auth Gas
Fac Rev Brooklyn Union Gas Ser B
(Inverse Fltg) (AMT)..................... 10.730 07/01/26 543,955
2,500 New York St Environ Fac Corp St Clean Wtr
& Drinking Revolving Fds................. 5.000 06/15/21 2,666,150
1,890 New York St Environ Fac Corp St Clean Wtr
& Drinking Revolving Fds Ser B (d)....... 5.000 12/15/21 2,015,024
1,000 New York St Environ Fac Corp St Clean Wtr
& Drinking Revolving Fd Pooled Fin Pgm
I........................................ 5.250 09/15/19 1,094,630
1,250 New York St Hsg Fin Agy St Econ Dev Hsg
Ser A (FGIC Insd)........................ 5.000 09/15/34 1,303,075
2,280 New York St Loc Govt Assist Corp Ser E
Rfdg..................................... 6.000 04/01/14 2,633,491
995 New York St Mtg Agy Rev Homeowner Mtg Ser
71 (AMT)................................. 5.400 04/01/29 1,027,208
</Table>
See Notes to Financial Statements 15
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$ 750 New York St Mtg Agy Rev Homeowner Mtg Ser
82 (AMT)................................. 5.650% 04/01/30 $ 764,873
995 New York St Mtg Agy Rev Ser 101 (AMT).... 5.400 04/01/32 1,026,283
460 New York St Twy Auth Svc Contract Rev Loc
Hwy & Brdg............................... 5.500 04/01/16 508,167
500 New York St Urban Dev Corp Rev
Correctional Fac Ser A Rfdg.............. 5.500 01/01/14 547,970
1,000 Niagra Falls, NY City Sch Dist Ctf Partn
High Sch Fac Rfdg (FSA Insd)............. 5.000 06/15/28 1,048,140
1,000 Niagra Falls, NY Pub Wtr Auth Wtr & Swr
Sys Rev (XLCA Insd)...................... 5.000 07/15/27 1,054,170
1,000 Niagra Falls, NY Pub Wtr Auth Wtr & Swr
Sys Rev (XLCA Insd)...................... 5.000 07/15/28 1,053,350
220 Oneida Cnty, NY Indl Dev Agy Civic Fac
Saint Elizabeth Med Ser A................ 5.875 12/01/29 225,762
100 Port Auth NY & NJ Spl Oblig (AMT)........ 7.000 10/01/07 104,698
1,000 Rensselaer Cnty, NY Indl Dev Agy Indl Dev
Rev Franciscan Heights LP Proj Ser A
(AMT) (LOC: JP Morgan Chase)............. 5.375 12/01/36 1,046,710
1,000 Rockland Cnty, NY Solid Waste Ser B (AMT)
(AMBAC Insd)............................. 5.000 12/15/23 1,043,350
1,000 Rondout Vly Cent Sch Dist NY Accord Ser A
Rfdg (FGIC Insd)......................... 5.000 03/01/19 1,068,050
825 Suffolk Cnty, NY Indl Dev Agy Civic Fac
Rev Family Svc League Suffolk Cnty (LOC:
Fleet National).......................... 5.000 11/01/34 855,146
100 Syracuse, NY Hsg Auth Rev Sub Proj
Loretto Rest Ser B....................... 7.500 08/01/10 101,049
250 Syracuse, NY Indl Dev Agy Rev First Mtg
Jewish Home Ser A........................ 7.375 03/01/21 269,088
2,000 Tobacco Settlement Fin Corp NY Ser C-1... 5.500 06/01/22 2,170,900
2,000 Triborough Brdg & Tunl Auth NY Rev Gen
Purp Ser A............................... 5.250 01/01/18 2,172,100
325 Triborough Brdg & Tunl Auth NY Rev Gen
Purp Ser A............................... 5.000 01/01/32 334,552
1,000 Ulster Cnty, NY Res Recovery Agy Solid
Waste Sys Rev Rfdg (AMBAC Insd).......... 5.250 03/01/18 1,076,540
1,000 Upper Mohawk Vly Regl Wtr Fin Auth NY Wtr
Sys Rev (AMBAC Insd)..................... 5.750 04/01/20 1,101,760
310 Utica, NY Indl Dev Agy Civic Fac Rev
Utica College Proj Ser A................. 5.750 08/01/28 313,422
1,000 Warren & Wash Cnty NY Indl Dev Agy Civic
Fac Rev Glens Falls Hosp Proj Ser A (FSA
Insd).................................... 5.000 12/01/35 1,039,700
500 Westchester Cnty, NY Indl Dev Agy Mtg
Kendal on Hudson Proj Ser A.............. 6.375 01/01/24 532,430
</Table>
16 See Notes to Financial Statements
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- ---------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$2,000 Westchester Tob Asset Sec Corp NY........ 5.125% 06/01/45 $ 1,979,740
1,000 Western Nassau Cnty, NY Wtr Auth Wtr Sys
Rev (AMBAC Insd)......................... 5.000 05/01/26 1,058,920
1,000 Yonkers, NY Indl Dev Agy Civic Fac Rev
Cmnty Dev Ppty Yonkers Inc Ser A
(Prerefunded @ 02/01/11)................. 6.625 02/01/26 1,162,630
------------
114,310,708
------------
PUERTO RICO 1.3%
1,500 Puerto Rico Comwlth Infrastructure Fin
Auth Spl Ser B........................... 5.000 07/01/41 1,540,680
------------
U. S. VIRGIN ISLANDS 0.9%
1,000 Virgin Islands Pub Fin Auth Rev Gross
Rcpt Taxes Ln Nt Ser A................... 6.375 10/01/19 1,129,230
------------
TOTAL LONG-TERM INVESTMENTS 97.6%
(Cost $112,296,448)......................................................... 116,980,618
SHORT-TERM INVESTMENT 2.3%
(Cost $2,700,000)........................................................... 2,700,000
------------
TOTAL INVESTMENTS 99.9%
(Cost $114,996,448)......................................................... 119,680,618
OTHER ASSETS IN EXCESS OF LIABILITIES 0.1%................................... 121,717
------------
NET ASSETS 100.0%............................................................ $119,802,335
============
</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) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(c) Securities purchased on a when-issued or delayed delivery basis.
(d) The Fund owns 100% of the bond issuance.
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.
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
XLCA--XL Capital Assurance Inc.
See Notes to Financial Statements 17
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2005 continued
The futures contracts outstanding as of September 30, 2005, and the
descriptions and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
U.S. Treasury Notes 5-Year Futures December 2005
(Current Notational Value of $106,859 per contract)....... 237 $162,661
=== ========
</Table>
18 See Notes to Financial Statements
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2005
<Table>
ASSETS:
Total Investments (Cost $114,996,448)....................... $119,680,618
Cash........................................................ 59,939
Receivables:
Interest.................................................. 1,520,486
Investments Sold.......................................... 120,037
Fund Shares Sold.......................................... 108,843
Variation Margin on Futures............................... 59,250
Other....................................................... 87,040
------------
Total Assets............................................ 121,636,213
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,320,463
Income Distributions...................................... 104,844
Distributor and Affiliates................................ 98,693
Fund Shares Repurchased................................... 76,809
Investment Advisory Fee................................... 21,788
Trustees' Deferred Compensation and Retirement Plans........ 129,619
Accrued Expenses............................................ 81,662
------------
Total Liabilities....................................... 1,833,878
------------
NET ASSETS.................................................. $119,802,335
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $112,676,593
Net Unrealized Appreciation................................. 4,846,831
Accumulated Net Realized Gain............................... 1,959,242
Accumulated Undistributed Net Investment Income............. 319,669
------------
NET ASSETS.................................................. $119,802,335
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $67,799,235 and 4,067,385 shares of
beneficial interest issued and outstanding)............. $ 16.67
Maximum sales charge (4.75%* of offering price)......... .83
------------
Maximum offering price to public........................ $ 17.50
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $33,915,476 and 2,039,403 shares of
beneficial interest issued and outstanding)............. $ 16.63
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $18,087,624 and 1,086,564 shares of
beneficial interest issued and outstanding)............. $ 16.65
============
</Table>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 19
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended September 30, 2005
<Table>
INVESTMENT INCOME:
Interest.................................................... $ 5,527,548
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $160,168, $368,628 and $173,345,
respectively)............................................. 702,141
Investment Advisory Fee..................................... 574,623
Shareholder Services........................................ 67,570
Legal....................................................... 58,199
Trustees' Fees and Related Expenses......................... 23,032
Custody..................................................... 17,769
Other....................................................... 168,745
------------
Total Expenses.......................................... 1,612,079
Investment Advisory Fee Reduction....................... 298,729
Less Credits Earned on Cash Balances.................... 2,454
------------
Net Expenses............................................ 1,310,896
------------
NET INVESTMENT INCOME....................................... $ 4,216,652
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 2,117,267
Futures................................................... (36,193)
------------
Net Realized Gain........................................... 2,081,074
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 6,592,748
------------
End of the Period:
Investments............................................. 4,684,170
Futures................................................. 162,661
------------
4,846,831
------------
Net Unrealized Depreciation During the Period............... (1,745,917)
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 335,157
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 4,551,809
============
</Table>
20 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, 2005 SEPTEMBER 30, 2004
----------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 4,216,652 $ 4,310,048
Net Realized Gain/Loss............................. 2,081,074 (66,314)
Net Unrealized Appreciation/Depreciation During the
Period........................................... (1,745,917) 1,112,866
------------ ------------
Change in Net Assets from Operations............... 4,551,809 5,356,600
------------ ------------
Distributions from Net Investment Income:
Class A Shares................................... (2,448,929) (2,401,423)
Class B Shares................................... (1,124,558) (1,205,741)
Class C Shares................................... (547,665) (545,278)
------------ ------------
Total Distributions................................ (4,121,152) (4,152,442)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... 430,657 1,204,158
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................... 20,984,248 17,546,428
Net Asset Value of Shares Issued Through Dividend
Reinvestment..................................... 2,899,167 2,852,349
Cost of Shares Repurchased......................... (22,740,048) (25,202,533)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS..................................... 1,143,367 (4,803,756)
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS.............. 1,574,024 (3,599,598)
NET ASSETS:
Beginning of the Period............................ 118,228,311 121,827,909
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $319,669
and $223,289, respectively)...................... $119,802,335 $118,228,311
============ ============
</Table>
See Notes to Financial Statements 21
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 ------------------------------------------------
2005 2004 2003 2002 (A) 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.... $16.60 $16.40 $16.49 $15.76 $14.91
------ ------ ------ ------ ------
Net Investment Income..................... .64 .65 .69 .74 .73
Net Realized and Unrealized Gain/Loss..... .06 .17 (.10) .73 .88
------ ------ ------ ------ ------
Total from Investment Operations............ .70 .82 .59 1.47 1.61
Less Distributions from Net Investment
Income.................................... .63 .62 .68 .74 .76
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.......... $16.67 $16.60 $16.40 $16.49 $15.76
====== ====== ====== ====== ======
Total Return
* (b)....................................... 4.29% 5.13% 3.69% 9.63% 10.97%
Net Assets at End of the Period (In
millions)................................. $ 67.8 $ 62.2 $ 63.6 $ 47.5 $ 43.5
Ratio of Expenses to Average Net Assets*.... .76% .76% .55% .38% .53%
Ratio of Net Investment Income to Average
Net Assets*............................... 3.87% 3.94% 4.19% 4.68% 4.74%
Portfolio Turnover.......................... 41% 15% 27% 43% 30%
* 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................................. 1.01% 1.09% 1.06% 1.07% 1.13%
Ratio of Net Investment Income to Average
Net Assets............................. 3.62% 3.60% 3.68% 3.99% 4.14%
</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 shareholder would pay on Fund distributions or the redemptions
of Fund shares.
22 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 ------------------------------------------------
2005 2004 2003 2002 (A) 2001
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.... $16.58 $16.38 $16.47 $15.74 $14.90
------ ------ ------ ------ ------
Net Investment Income..................... .52 .52 .56 .62 .62
Net Realized and Unrealized Gain/Loss..... .04 .18 (.09) .73 .86
------ ------ ------ ------ ------
Total from Investment Operations............ .56 .70 .47 1.35 1.48
Less Distributions from Net Investment
Income.................................... .51 .50 .56 .62 .64
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.......... $16.63 $16.58 $16.38 $16.47 $15.74
====== ====== ====== ====== ======
Total Return
* (b)....................................... 3.40% 4.36% 2.93% 8.83% 10.09%
Net Assets at End of the Period (In
millions)................................. $ 33.9 $ 38.6 $ 40.5 $ 40.5 $ 35.0
Ratio of Expenses to Average Net Assets*.... 1.51% 1.51% 1.29% 1.13% 1.28%
Ratio of Net Investment Income to Average
Net Assets*............................... 3.12% 3.19% 3.45% 3.92% 3.99%
Portfolio Turnover.......................... 41% 15% 27% 43% 30%
* 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% 1.84% 1.80% 1.82% 1.88%
Ratio of Net Investment Income to Average
Net Assets............................. 2.87% 2.85% 2.94% 3.24% 3.39%
</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 23
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 --------------------------------------------------
2005 2004 2003 2002 (A) 2001
--------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD... $16.59 $16.39 $16.48 $15.75 $14.91
------ ------ ------ ------ ------
Net Investment Income.................... .52 .52 .56 .62 .60
Net Realized and Unrealized Gain/Loss.... .05 .18 (.09) .73 .88
------ ------ ------ ------ ------
Total from Investment Operations........... .57 .70 .47 1.35 1.48
Less Distributions from Net Investment
Income................................... .51 .50 .56 .62 .64
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD......... $16.65 $16.59 $16.39 $16.48 $15.75
====== ====== ====== ====== ======
Total Return
* (b)...................................... 3.46%(d) 4.36% 2.92%(c) 8.83% 10.09%
Net Assets at End of the Period (In
millions)................................ $ 18.1 $ 17.5 $ 17.7 $ 12.0 7.3
Ratio of Expenses to Average Net Assets*... 1.47%(d) 1.51% 1.30% 1.13% 1.30%
Ratio of Net Investment Income to Average
Net Assets*.............................. 3.14%(d) 3.19% 3.45%(c) 3.92% 3.97%
Portfolio Turnover......................... 41% 15% 27% 43% 30%
* 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................................ 1.72%(d) 1.84% 1.81% 1.82% 1.90%
Ratio of Net Investment Income to
Average Net Assets.................... 2.89%(d) 2.85% 2.94%(c) 3.23% 3.37%
</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 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%.
(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 7).
24 See Notes to Financial Statements
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005
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. The Fund registered Class I Shares
on December 30, 2004. There were no sales of Class I Shares for the period ended
September 30, 2005.
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
payments is made. At September 30, 2005, the Fund had $1,320,463 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.
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies
25
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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. During the current fiscal year, the Fund utilized capital losses carried
forward of $78,198.
At September 30, 2005, the cost and related gross unrealized appreciation
and depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $114,975,470
============
Gross tax unrealized appreciation........................... $ 4,784,860
Gross tax unrealized depreciation........................... (79,712)
------------
Net tax unrealized appreciation on investments.............. $ 4,705,148
============
</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,
2005 and 2004 was as follows:
<Table>
<Caption>
2005 2004
Distributions paid from:
Ordinary Income........................................... $384 $11,294
Long-term capital gain.................................... -0- -0-
---- -------
$384 $11,294
==== =======
</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 $1,502 and
book and tax accretion differences totaling $622 were reclassified from
accumulated undistributed net investment income to accumulated net realized
loss.
As of September 30, 2005, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $ 73,859
Undistributed long-term capital gain........................ $2,033,570
</Table>
Net realized gains and losses may differ for financial reporting and tax
purposes primarily as a result of gains or losses recognized for tax purposes on
open futures transactions on September 30, 2005.
26
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
F. EXPENSE REDUCTION During the year ended September 30, 2005, the Fund's
custody fee was reduced by $2,454 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, 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.......................................... 0.47%
Over $500 million........................................... 0.445%
</Table>
Effective November 1, 2004, the management fee was reduced from .60% for the
first $500 million, and .50% for any average daily net assets greater than $500
million.
For the year ended September 30, 2005, the Adviser voluntarily waived
$298,729 of its investment advisory fees. This represents .25% 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, 2005, the Fund recognized expenses of
approximately $16,200, representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to the Fund, of which a trustee of the Fund
is a partner of such firm and he and his law firm provide legal services as
counsel to the Fund.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer ("CCO") Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Fund. The costs of
these services are allocated to each fund. For the year ended September 30,
2005, the Fund recognized expenses of approximately $47,400, representing Van
Kampen Investment Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Fund, as well as, the salary,
benefits and related costs of the CCO and related support staff paid by Van
Kampen. Services provided pursuant to the Legal Services agreement are reported
as part of "Legal" expenses on the Statement of Operations. Services provided
pursuant to the Accounting Services and CCO Employment agreement are reported as
part of "Other" expenses 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, 2005, the Fund recognized expenses of approximately $51,300
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 also
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 $65,689 are included in
"Other" assets on the Statement of Assets and Liabilities at September 30, 2005.
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
27
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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, 2005, capital aggregated $64,738,364, $30,597,830 and
$17,340,399 for Classes A, B and C, respectively. For the year ended September
30, 2005, transactions were as follows:
<Table>
<Caption>
SHARES VALUE
Sales:
Class A................................................... 948,370 $ 15,809,067
Class B................................................... 104,295 1,729,569
Class C................................................... 207,093 3,445,612
---------- ------------
Total Sales................................................. 1,259,758 $ 20,984,248
========== ============
Dividend Reinvestment:
Class A................................................... 103,277 $ 1,720,306
Class B................................................... 46,953 780,802
Class C................................................... 23,912 398,059
---------- ------------
Total Dividend Reinvestment................................. 174,142 $ 2,899,167
========== ============
Repurchases:
Class A................................................... (731,919) $(12,170,713)
Class B................................................... (437,927) (7,282,119)
Class C................................................... (197,540) (3,287,216)
---------- ------------
Total Repurchases........................................... (1,367,386) $(22,740,048)
========== ============
</Table>
28
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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>
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, 2005 and
2004, 141,939 and 15,022 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, 2005 and 2004, 29,665 and 0 Class C 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 C 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
29
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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, 2005, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $38,000 and CDSC on redeemed shares of approximately $70,600.
Sales charges do not represent expenses of the Fund.
4. REDEMPTION FEE
Effective September 26, 2005, the Fund assesses a 2% redemption fee on the
proceeds of Fund shares that are redeemed (either by sale or exchange) within
seven days of purchase. For the period ended September 30, 2005, the Fund did
not receive any redemption fees.
5. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $49,501,556 and $48,156,498,
respectively.
6. 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 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.
Summarized below are the different types of derivative financial instruments
used by the Fund.
A. FUTURES 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 exchange traded
30
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
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). 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, 2005, are
as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at September 30, 2004........................... -0-
Futures Opened.............................................. 660
Futures Closed.............................................. (423)
----
Outstanding at September 30, 2005........................... 237
====
</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 securities are identified in the portfolio of
investments.
7. 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 $305,000 and $1,000 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, 2005, are payments
retained by Van Kampen of approximately $330,700 and payments made to Morgan
Stanley DW Inc., an affiliate of the Adviser, of approximately $46,200.
31
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2005 continued
8. 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. Plaintiffs have
filed a Motion for Leave to file a Supplemental Pleading that would, among other
things, expand the allegations and alleged class.
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. However, pursuant to an agreement between the parties, the
plaintiff's proposed second amended derivative complaint was withdrawn and the
allegations regarding market timing and late trading asserted therein were filed
in a separate complaint and coordinated with other cases related to market
timing that have been centralized in a federal court.
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.
9. 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.
32
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, 2005, 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.
We were not engaged to perform an audit of the Fund's internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2005, by correspondence with the
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. 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, 2005, 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 11, 2005
33
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
BOARD OF TRUSTEES, OFFICERS, AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
JOSEPH J. MCALINDEN
Executive Vice President and Chief Investment Officer
AMY R. DOBERMAN
Vice President
STEPHANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
PHILLIP G. GOFF
Chief Financial Officer and Treasurer
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, 2005. The Fund designated 100% 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.
34
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TRUSTEES AND OFFICERS INFORMATION
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 as of the date of this Annual Report. 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 (60) Trustee Trustee Chairman and Chief 72 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.
Jerry D. Choate (67) Trustee Trustee Prior to January 1999, 70 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>
35
<Table>
<Caption>
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TRUSTEE AND OFfiCERS 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 (65) Trustee Trustee President of CAC, L.L.C., 72 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. Prior to
distributor of wire, January 2005, Trustee of
cable and communications the University of Chicago
connectivity products. Hospitals and Health
Prior to July 2000, Systems. Prior to April
Managing Partner of 2004, Director of
Equity Group Corporate TheraSense, Inc. Prior to
Investment (EGI), a January 2004, Director of
company that makes TeleTech Holdings Inc.
private investments in and Arris Group, Inc.
other companies. Prior to May 2002,
Director of Peregrine
Systems Inc. Prior to
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>
36
<Table>
<Caption>
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TRUSTEE AND OFfiCERS 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 (57) Trustee Trustee Managing Partner of 70 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
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (53) Trustee Trustee Director and President of 70 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 (70) Trustee Trustee Prior to 1998, President 72 Trustee/Director/Managing
14 Huron Trace since 2003 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
</Table>
37
<Table>
<Caption>
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TRUSTEE AND OFfiCERS 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 (69) Trustee Trustee President of Nelson 70 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 (65) Trustee Trustee President Emeritus and 72 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 70 Trustee/Director/Managing
(63) 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>
38
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TRUSTEE AND OFFICERS INFORMATION continued
INTERESTED TRUSTEE:*
<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
Wayne W. Whalen* (66) Trustee Trustee Partner in the law firm 72 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 Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
</Table>
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and
his firm currently providing legal services as legal counsel to such funds
in the Fund Complex.
39
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TRUSTEE AND OFFICERS 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
Ronald E. Robison (66) President and Officer President of funds in the Fund Complex since September 2005
1221 Avenue of the Americas Principal Executive since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since May 2003. Managing Director of Morgan Stanley and
Morgan Stanley & Co. Incorporated. Managing Director and
Director of Morgan Stanley Investment Management Inc. Chief
Administrative Officer, Managing Director and Director of
Morgan Stanley Investment Advisors Inc. and Morgan Stanley
Services Company Inc. Managing Director and Director of
Morgan Stanley Distributors Inc. and Morgan Stanley
Distribution 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 of Morgan Stanley Investment
Management Inc. and Executive Vice President of funds in the
Fund Complex from May 2003 to September 2005.
Joseph J. McAlinden (62) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., and Morgan Stanley
New York, NY 10020 Investment Officer Investment Management Inc. and Director of Morgan Stanley
Trust for over 5 years. Executive Vice President and Chief
Investment Officer of funds in the Fund Complex. Managing
Director and Chief Investment Officer of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc. since
December 2002.
Amy R. Doberman (43) 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 since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (39) Vice President Officer Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.
</Table>
40
<Table>
<Caption>
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TRUSTEE AND OFfiCERS 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
John L. Sullivan (50) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1996 August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen Investments, the Adviser, Van Kampen
Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Phillip G. Goff (42) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza and Treasurer since 2005 Inc. since June 2005. Chief Financial Officer and Treasurer
Oakbrook Terrace, IL 60181 of funds in the Fund Complex since August 2005. Prior to
June 2005, Vice President and Chief Financial Officer of
Enterprise Capital Management, Inc., an investment holding
company.
</Table>
41
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
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.
(continued on next page)
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
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 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
(continued on back)
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
The Statement of Additional Information includes additional information
about Fund trustees and is available, without charge, upon request by
calling 1-800-847-2424.
Van Kampen Funds Inc.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2005 Van Kampen Funds Inc. All rights reserved.
Member NASD/SIPC.
235, 325, 425
NYTF ANR 11/05
(VAN KAMPEN INVESTMENTS SHINE LOGO) RN05-02750P-Y09/05
Item 2. Code of Ethics.
(a) The Trust has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Trust or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Trust has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
Further, due to personnel changes at the Adviser, the list of Covered Officers
set forth in Exhibit B and the General Counsel designee to whom questions about
the application of the Code should be referred in Exhibit C were amended during
the period. Exhibit B was then amended again in March 2005 and a third time in
August 2005 and a fourth time in September 2005. All four editions of Exhibit B
are attached. Additionally, Exhibit B was amended to remove Mitchell M. Merin as
a covered officer.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Trust's Code of Ethics is attached hereto as Exhibit 12A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Trust's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Jerry Choate and R. Craig Kennedy. Under applicable
securities laws, a person who is determined to be an audit committee financial
expert will not be deemed an "expert" for any purpose, including without
limitation for the purposes of Section 11 of the Securities Act of 1933, as a
result of being designated or identified as an audit committee financial expert.
The designation or identification of a person as an audit committee financial
expert does not impose on such person any duties, obligations, or liabilities
that are greater than the duties, obligations, and liabilities imposed on such
person as a member of the audit committee and Board of Trustees in the absence
of such designation or identification.
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2005
REGISTRANT COVERED ENTITIES(1)
---------- -------------------
AUDIT FEES ............ $234,800 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES.. $ 0 $280,000(2)
TAX FEES ........... $ 13,500(3) $ 58,688(4)
ALL OTHER FEES ..... $ 0 $655,125(5)
TOTAL NON-AUDIT FEES... $ 13,500 $993,813
TOTAL ................. $248,300 $993,813
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(6)
TOTAL NON-AUDIT FEES... $ 10,500 $368,301
TOTAL ................. $241,500 $368,301
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.
(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 and assistance with
compliance policies and procedures.
(6) All Other Fees represent attestation services provided in connection
with performance presentation standards, general industry education
seminars provided, advisory compliance project 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 AND AMENDED MAY 26, 2004(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.(2)
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("general pre-approval"); or require the specific pre-approval
of the Audit Committee ("specific pre-approval"). The Audit Committee believes
that the combination of these two approaches in this Policy will result in an
effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
For both types of pre-approval, the Audit Committee will consider whether
such services are consistent with the SEC's rules on auditor independence. The
Audit Committee will also consider whether the Independent Auditors are best
positioned to provide the most effective and efficient services, for reasons
such as its familiarity with the Fund's business, people, culture, accounting
systems, risk profile and other factors, and whether the service might enhance
the Fund's ability to manage or control risk or improve audit quality. All such
factors will be considered as a whole, and no one factor should necessarily be
determinative.
The Audit Committee is also mindful of the relationship between fees for
audit and non-audit services in deciding whether to pre-approve any such
services and may determine for each fiscal year, the appropriate ratio between
the total amount of fees for Audit, Audit-related and Tax services for the Fund
(including any Audit-related or Tax service fees for Covered Entities that were
subject to pre-approval), and the total amount of fees for certain permissible
non-audit services classified as All Other services for the Fund (including any
such services for Covered Entities subject to pre-approval).
The appendices to this Policy describe the Audit, Audit-related, Tax and
All Other services that have the general pre-approval of the Audit Committee.
The term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval 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.
- ----------
1 This Joint Audit Committee Audit and Non-Audit Services Pre-Approval
Policy and Procedures (the "Policy"), amended as of the date above,
supercedes and replaces all prior versions that may have been
amended from time to time.
2 Terms used in this Policy and not otherwise defined herein shall
have the meanings as defined in the Joint Audit Committee Charter.
The Fund's Independent Auditors have reviewed this Policy and believes
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will monitor the Audit services engagement as necessary, but no less
than on a quarterly basis, and will also approve, if necessary, any changes in
terms, conditions and fees resulting from changes in audit scope, Fund structure
or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1.
All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements or, to the extent they are Covered Services, the Covered
Entities' financial statements, or that are traditionally performed by the
Independent Auditors. Because the Audit Committee believes that the provision of
Audit-related services does not impair the independence of the auditor and is
consistent with the SEC's rules on auditor independence, the Audit Committee may
grant general pre-approval to Audit-related services. Audit-related services
include, among others, accounting consultations related to accounting, financial
reporting or disclosure matters not classified as "Audit services"; assistance
with understanding and implementing new accounting and financial reporting
guidance from rulemaking authorities; agreed-upon or expanded audit procedures
related to accounting and/or billing records required to respond to or comply
with financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in
Appendix B.2. All other Audit-related services not listed in Appendix B.2 must
be specifically pre-approved by the Audit Committee (or by any member of the
Audit Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services. Hence, the Audit Committee believes it may grant
general pre-approval to those Tax services that have historically been provided
by the Independent Auditors, that the Audit Committee has reviewed and believes
would not impair the independence of the Independent Auditors, and that are
consistent with the SEC's rules on auditor independence. The Audit Committee
will not permit the retention of the
Independent Auditors in connection with a transaction initially recommended by
the Independent Auditors, the sole business purpose of which may be tax
avoidance and the tax treatment of which may not be supported in the Internal
Revenue Code and related regulations. The Audit Committee will consult with
Director of Tax or outside counsel to determine that the tax planning and
reporting positions are consistent with this policy.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved
the Tax Services in Appendix B.3. All Tax services involving large and complex
transactions not listed in Appendix B.3 must be specifically pre-approved by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
has been delegated), including tax services proposed to be provided by the
Independent Auditors to any executive officer or trustee/director/managing
general partner of the Fund, in his or her individual capacity, where such
services are paid for by the Fund (generally applicable only to internally
managed investment companies).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix
B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
A list of the SEC's prohibited non-audit services is attached to this
policy as Appendix B.5. The SEC's rules and relevant guidance should be
consulted to determine the precise definitions of these services and the
applicability of exceptions to certain of the prohibitions.
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services. For each fiscal year, the Audit
Committee may determine the appropriate ratio between the total amount of fees
for Audit, Audit-related, and Tax services for the Fund (including any
Audit-related or Tax services fees for Covered Entities subject to
pre-approval), and the total amount of fees for certain permissible non-audit
services classified as All Other services for the Fund (including any such
services for Covered Entities subject to pre-approval).
8. PROCEDURES
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the Fund's
Chief Financial Officer, and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules on
auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to
monitor the performance of all services provided by the Independent Auditors and
to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. A sample report is included as Appendix
B.7. Both the Fund's Chief Financial Officer and management will immediately
report to the chairman of the Audit Committee any breach of this Policy that
comes to the attention of the Fund's Chief Financial Officer or any member of
management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
- Van Kampen Investments Inc.
- Van Kampen Asset Management
- Van Kampen Advisors Inc.
- Van Kampen Funds Inc.
- Van Kampen Investor Services Inc.
- Morgan Stanley Investment Management Inc.
- Morgan Stanley Trust Company
- Morgan Stanley Investment Management Ltd.
- Morgan Stanley Investment Management Company
- Morgan Stanley Asset & Investment Trust Management Company Ltd.
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (included herein).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Trust has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: R.
Craig Kennedy, Jerry Choate, Rod Dammeyer.
(b) Not applicable.
Item 6. Schedule of Investments.
Please refer to Item #1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. 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 12. Exhibits.
(1) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(2)(a) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(2)(b) 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 21, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
----------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: November 21, 2005
By: /s/ Phillip G. Goff
----------------------
Name: Phillip G. Goff
Title: Principal Financial Officer
Date: November 21, 2005