-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OTfVbAfiyBxc1q7Zc+XBTpMg5dgM9A3iAaLanUjaJHpyG4QA4JpzrB70Gi8kTcIF fkZZG80qkbfhYeJ6Oz/aaw== 0000950137-07-001012.txt : 20070126 0000950137-07-001012.hdr.sgml : 20070126 20070126170810 ACCESSION NUMBER: 0000950137-07-001012 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060930 FILED AS OF DATE: 20070126 DATE AS OF CHANGE: 20070126 EFFECTIVENESS DATE: 20070126 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN TAX FREE TRUST CENTRAL INDEX KEY: 0000774556 IRS NUMBER: 363324847 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSR/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-04386 FILM NUMBER: 07557452 BUSINESS ADDRESS: STREET 1: VAN KAMPEN INVESTMENTS INC. STREET 2: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2127625441 MAIL ADDRESS: STREET 1: VAN KAMPEN INVESTMENTS INC. STREET 2: 1221 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10020 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST DATE OF NAME CHANGE: 19951219 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN MERRITT TAX FREE FUND /IL/ DATE OF NAME CHANGE: 19920703 0000774556 S000002275 Van Kampen California Insured Tax Free Fund C000005905 Class A Shares VKCIX C000005906 Class B Shares VCIBX C000005907 Class C Shares VCICX C000005908 Class I Shares VCIIX 0000774556 S000002276 Van Kampen Insured Tax Free Income Fund C000005909 Class A Shares VKMTX C000005910 Class B Shares VMTBX C000005911 Class C Shares VMTCX C000005912 Class I Shares VMTIX 0000774556 S000002277 Van Kampen Intermediate Term Municipal Income Fund C000005913 Class A Shares VKLMX C000005914 Class B Shares VKLBX C000005915 Class C Shares VKLCX C000005916 Class I Shares VKLIX 0000774556 S000002278 Van Kampen Municipal Income Fund C000005917 Class A Shares VKMMX C000005918 Class B Shares VMIBX C000005919 Class C Shares VMICX C000005920 Class I Shares VMIIX 0000774556 S000002279 Van Kampen New York Tax Free Income Fund C000005921 Class A Shares VNYAX C000005922 Class B Shares VBNYX C000005923 Class C Shares VNYCX C000005924 Class I Shares VNYDX 0000774556 S000002280 Van Kampen Strategic Municipal Income Fund C000005925 Class A Shares VKMHX C000005926 Class B Shares VKTFX C000005927 Class C Shares VMHCX C000005928 Class I Shares VMHIX N-CSR/A 1 c11687a1nvcsrza.txt AMENDMENT TO CERTIFIED SHAREHOLDER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR/A CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-4386 Van Kampen Tax Free Trust (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 (Address of principal executive offices) (Zip code) Ronald Robison 1221 Avenue of the Americas, New York, New York 10020 (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: 9/30 Date of reporting period: 9/30/06 Item 1. Reports to Shareholders. The Trust's annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen Insured Tax Free Income Fund performed during the annual period. The portfolio management team will provide an overview of the market conditions and discuss some of the factors that affected investment performance during the reporting period. In addition, this report includes the fund's financial statements and a list of fund investments as of September 30, 2006. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CLASS A, B, AND C SHARE OR CLASS I [AND R] SHARE PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUSES CONTAIN INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. TO OBTAIN AN ADDITIONAL PROSPECTUS, CONTACT YOUR FINANCIAL ADVISOR OR DOWNLOAD ONE AT VANKAMPEN.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 9/30/06 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index from 9/30/96 through 9/30/06. Class A shares, adjusted for sales charges. (LINE GRAPH)
LEHMAN BROTHERS MUNICIPAL BOND VAN KAMPEN INSURED TAX FREE FUND INDEX -------------------------------- ------------------------------ 9/96 9523 10000 9629 10113 9822 10298 9777 10255 9752 10274 9840 10369 9694 10230 9767 10316 9903 10471 10008 10583 10328 10876 10181 10774 9/97 10297 10902 10350 10972 10419 11037 10577 11197 10685 11313 10674 11316 10666 11326 10579 11275 10777 11454 10821 11499 10837 11528 11026 11706 9/98 11171 11852 11138 11851 11169 11893 11175 11923 11299 12065 11245 12012 11231 12029 11252 12059 11150 11989 10926 11816 10947 11859 10797 11764 9/99 10746 11769 10588 11642 10704 11765 10613 11678 10549 11627 10739 11762 11003 12019 10914 11948 10829 11886 11156 12201 11329 12371 11498 12561 9/00 11405 12496 11546 12632 11644 12728 12012 13042 12079 13172 12114 13213 12213 13332 12006 13187 12144 13329 12236 13418 12444 13617 12654 13842 9/01 12577 13795 12729 13959 12587 13842 12475 13711 12664 13949 12833 14117 12545 13840 12789 14111 12883 14196 13018 14346 13202 14531 13380 14705 9/02 13745 15028 13467 14778 13420 14717 13697 15028 13606 14990 13816 15199 13818 15208 13964 15309 14299 15667 14147 15601 13573 15055 13748 15167 9/03 14144 15613 14063 15534 14248 15696 14351 15826 14375 15917 14648 16156 14507 16100 14146 15719 14118 15662 14166 15719 14359 15926 14646 16245 9/04 14740 16331 14843 16472 14675 16336 14906 16535 15098 16690 15013 16634 14865 16529 15114 16790 15252 16909 15331 17013 15274 16937 15418 17108 9/05 15296 16992 15206 16889 15279 16970 15429 17116 15479 17162 15654 17278 15519 17158 15501 17153 15568 17229 15465 17164 15643 17368 15881 17626 9/06 15983 17749
A SHARES B SHARES C SHARES I SHARES since 12/14/84 since 5/03/93 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 7.54% 7.30% 4.76% 4.76% 4.47% 4.47% 4.36% 10-year 5.31 4.80 4.66 4.66 4.50 4.50 n/a 5-year 4.91 3.89 4.12 3.87 4.11 4.11 n/a 1-year 4.49 -0.47 3.71 -0.23 3.66 2.67 4.75 - --------------------------------------------------------------------------------------------------- SEC Yield 3.35% 2.77% 2.77% 3.76%
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 eight years after purchase. The since inception returns for Class C shares reflect their conversion into Class A shares ten years after purchase. 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 Rule 12b-1 fees and service fees. Figures shown above assume reinvestment of all dividends and capital gains. SEC yield is a calculation for 1 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, 2006 As discussed in Note 11 to the Fund's financial statements, the Fund's financial statements have been restated. The accompanying management's discussion of fund performance gives effect to that restatement. MARKET CONDITIONS Against the backdrop of strong economic growth, good employment data and inflationary pressures stemming from rising oil prices, the Federal Open Market Committee (the "Fed") continued its tightening campaign during the first nine months of the reporting period, raising the federal funds target rate six times to 5.25 percent at the end of June. As the months progressed however, economic growth moderated as consumer spending and housing weakened while inflation concerns eased, prompting investors to speculate that the Fed would take a break from rate increases. In August the Fed did pause, ending a two-year run of 17 consecutive rate increases -- the longest stretch of increases in 25 years. At its September meeting, the Fed again kept its target rate unchanged, and indicated that any future rate increases would be driven by the weight of economic data. As a result of the improved outlook for the fixed income market, yields on longer-maturity municipal bonds fell dramatically in latter months of the reporting year, ultimately ending at the lowest level in decades. Yields on shorter-maturity municipal bonds, however, moved higher. Accordingly, the slope of the municipal yield curve flattened as the spread between short-term and long-term interest rates narrowed. Demand for municipal bonds continued to be strong during the period. In fact, inflows into municipal bond funds were 45 percent higher year-to-date through September than for the same period last year, much of which went into high yield funds. Because prevailing interest rates were still at relatively low levels, investors increasingly sought out lower-quality, higher yielding bonds. The increased demand for high yield bonds led this segment of the market to considerably outperform high-grade issues. In addition, long-term bonds continued to earn the best returns, while the short end of the curve posted the lowest returns as Fed rate increases moved yields in this portion of the curve higher. Although municipal bond issuance remained brisk in the last quarter of 2005, volume declined throughout the remaining months of the period. As of the end of September, national municipal bond issuance was down 14 percent for 2006. The reduced supply, coupled with growing demand, further fueled municipal bond performance. 3 PERFORMANCE ANALYSIS The fund returned 4.49 percent for the 12 months ended September 30, 2006 (Class A shares, unadjusted for sales charges). In comparison, the fund's benchmark, the Lehman Brothers Municipal Bond Index, returned 4.45 percent for the period. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2006
- -------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL CLASS A CLASS B CLASS C CLASS I BOND INDEX 4.49% 3.71% 3.66% 4.75% 4.45% - --------------------------------------------------------------
The performance for the four 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. A variety of factors contributed positively to the fund's performance during the reporting year. Reflecting our view that Treasury rates would continue to rise, we kept the portfolio's duration (a measure of interest-rate sensitivity) lower than that of its benchmark for the first eight months of the period. This conservative positioning benefited the fund as interest rates continued to climb as anticipated. In June, when economic data started to weaken and it appeared that rates were done climbing, we increased the duration of the portfolio to be more in line with the Lehman Brothers Municipal Bond Index. This less-defensive positioning also contributed positively to fund returns as the yield curve began to flatten in the latter months of the period. The fund's positioning along the yield curve remained consistent throughout the period. We favored the longer-term segment of the curve, purchasing bonds primarily in the 25-to-30 year maturity range. This proved advantageous as longer-dated issues outperformed those with shorter maturities. We also purchased premium coupon bonds priced to 10 years or shorter, and added to the fund's holdings in inverse floating-rate investments,* both of which added income to the fund. We continued to avoid zero coupon bonds, which have been volatile, as well as non-callable bonds. The fund also benefited considerably from new issues being brought into the marketplace that refunded current holdings in the portfolio, which allowed the fund to capture appreciation gains. For hedging purposes, we used Bond Market Association (BMA) swaps and to a lesser extent, Treasury futures. BMA swaps are more closely tied to the municipal market than are Treasury futures, which we believe makes them a more effective hedging tool. *An inverse floating-rate investment, or "inverse floater", is a variable rate investment whose net interest rate changes in the opposite direction from the change in the reference rate. 4 The fund maintained an emphasis on the essential services sectors of the market, such as water and sewer and education bonds. We selectively added some health care issues to the portfolio but continued to avoid housing bonds. These factors were also additive to performance whereas an underweight relative to the Lehman Brothers Municipal Bond Index in the tax-supported debt and education sectors tempered returns somewhat. We continued to keep the fund's Alternative Minimum Tax (AMT) exposure low, at approximately two percent of total assets. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the fund in the future. 5
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/06 Illinois 17.1% California 16.2 Washington 9.1 Florida 6.8 Texas 6.7 Alabama 6.5 Georgia 4.7 Pennsylvania 3.3 Indiana 3.2 South Carolina 2.6 Louisiana 2.4 Oklahoma 2.3 Alaska 2.3 Colorado 2.1 Nevada 2.0 Arizona 1.7 New York 1.3 North Carolina 1.2 Missouri 1.2 South Dakota 1.1 Nebraska 1.0 North Dakota 1.0 Wisconsin 0.8 Arkansas 0.8 Michigan 0.6 Ohio 0.6 New Jersey 0.6 Mississippi 0.6 New Mexico 0.5 District of Columbia 0.4 Montana 0.3 Massachusetts 0.3 Utah 0.3 Oregon 0.3 Puerto Rico 0.3 Tennessee 0.2 New Hampshire 0.2 Iowa 0.2 West Virginia 0.1 ----- Total Long-Term Investments 102.9% Short-Term Investments 5.8 ----- Total Investments 108.7 Liability for Floating Rate Note (5.5) Liabilities in Excess of Other Assets (3.2) ----- Net Assets 100.0%
6
CREDIT QUALITY AS OF 9/30/06 AAA/Aaa 100.0%
TOP FIVE SECTORS AS OF 9/30/06 Public Education 16.2% Wholesale Electric 10.8 Higher Education 10.7 Airports 10.4 Water & Sewer 9.1
Summary by State are as a percentage of Total Net Assets Credit Quality and Top Five Sectors are as a percentage of Long-Term Investments 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 total long-term investments. Summary of investments by state classification are 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. 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. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. 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 without charge 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 charges on redemptions of Class B and Class C Shares; and redemption fees; 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 4/1/06 - 9/30/06. 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 or redemption fees. 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.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/06 9/30/06 4/1/06-9/30/06 Class A Actual...................................... $1,000.00 $1,029.73 $5.04 Hypothetical................................ 1,000.00 1,020.10 5.01 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,025.94 8.89 Hypothetical................................ 1,000.00 1,016.33 8.85 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,025.96 8.89 Hypothetical................................ 1,000.00 1,016.32 8.85 (5% annual return before expenses) Class I Actual...................................... 1,000.00 1,030.98 3.82 Hypothetical................................ 1,000.00 1,021.33 3.80 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.99%, 1.75%, 1.75%, and 0.75% 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). Assumes all dividends and distributions were reinvested. 10 The following table shows what expenses a shareholder would have paid, excluding interest and residual trust expenses.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/06 9/30/06 4/1/06-9/30/06 Class A Actual...................................... $1,000.00 $1,029.73 $4.48 Hypothetical................................ 1,000.00 1,020.67 4.46 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,025.94 8.28 Hypothetical................................ 1,000.00 1,016.87 8.24 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,025.96 8.28 Hypothetical................................ 1,000.00 1,016.87 8.24 (5% annual return before expenses) Class I Actual...................................... 1,000.00 1,030.98 3.21 Hypothetical................................ 1,000.00 1,021.97 3.19 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.88%, 1.63%, 1.63%, and 0.63% 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). Assumes all dividends and distributions were reinvested. 11 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 22, 2006, 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 12 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 and changes made in the Fund's portfolio management team over time. 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, 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 the Board. The trustees 13 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. 14 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ MUNICIPAL BONDS 102.9% ALABAMA 6.5% $ 1,385 Alabama St Brd Ed Rev Calhoun Cmnty College (AMBAC Insd)................................... 5.000% 05/01/21 $ 1,484,263 200 Alabama St Brd Ed Rev Calhoun Cmnty College (AMBAC Insd)................................... 5.000 05/01/22 213,884 2,255 Alabama St Brd Ed Rev George C Wallace Cmnty College (AMBAC Insd) (a)....................... 5.250 07/01/23 2,436,911 1,095 Birmingham, AL Wtrwks & Swr Brd Ser A (FGIC Insd) (a)...................................... 5.000 01/01/21 1,162,945 2,000 Birmingham, AL Wtrwks & Swr Brd Wtr & Swr Rev (FSA Insd)..................................... 4.500 01/01/35 1,995,120 1,900 Birmingham, AL Wtrwks & Swr Brd Wtr & Swr Rev (FSA Insd)..................................... 5.000 01/01/40 1,992,416 3,590 Clarke & Mobile Cnty AL Gas Dist Rev (AMBAC Insd) (a)...................................... 5.250 01/01/21 3,906,315 3,670 Houston Cnty, AL Hlthcare Auth Ser A (AMBAC Insd).......................................... 5.250 10/01/30 3,977,142 3,120 Huntsville, AL Hlthcare Auth Ser A (MBIA Insd).......................................... 5.400 06/01/22 3,403,078 2,500 Huntsville, AL Hlthcare Auth Ser A (MBIA Insd).......................................... 5.500 06/01/27 2,727,125 14,255 Jefferson Cnty, AL Pub Bldg Auth Lease Rev Wt (AMBAC Insd)................................... 5.000 04/01/26 15,146,935 5,000 Mobile, AL Wt Impt & Rfdg (AMBAC Insd)......... 5.000 02/15/23 5,341,150 5,280 Montgomery Cnty, AL Pub Bldg Wt Auth Rev Fac Proj (MBIA Insd) (a)........................... 5.000 03/01/24 5,607,835 5,550 Montgomery Cnty, AL Pub Bldg Auth Rev Wt Fac Proj (MBIA Insd) (a)........................... 5.000 03/01/25 5,890,159 8,000 Trussville, AL Wt Ser A (FGIC Insd)............ 5.000 10/01/31 8,466,560 10,000 Trussville, AL Wt Ser A (FGIC Insd)............ 5.000 10/01/36 10,537,200 -------------- 74,289,038 -------------- ALASKA 2.3% 2,000 Alaska St Hsg Fin Corp Gen Hsg Ser A (FGIC Insd).................................... 5.000 12/01/30 2,094,800 1,000 Alaska St Hsg Fin Corp Gen Hsg Ser A (FGIC Insd).................................... 5.250 12/01/41 1,059,520 4,000 Alaska St Intl Arpt Rev Ser A Rfdg (AMT) (MBIA Insd).......................................... 5.000 10/01/21 4,225,720 16,100 Alaska St Intl Arpt Rev Ser B Rfdg (MBIA Insd) (b)............................................ 5.000 10/01/24 17,177,251 1,425 Anchorage, AK Wtr Rev Rfdg (AMBAC Insd)........ 6.000 09/01/19 1,528,768 -------------- 26,086,059 -------------- ARIZONA 1.7% 1,940 Arizona St Univ Ctf Partn Resh Infrastructure Proj (AMBAC Insd).............................. 5.250 09/01/23 2,097,043 1,225 Arizona St Univ Ctf Partn Resh Infrastructure Proj (AMBAC Insd).............................. 5.250 09/01/24 1,322,436 2,900 Arizona Tourism & Sports Auth Multi Purp Stad Fac Ser A (MBIA Insd).......................... 5.375 07/01/22 3,153,489
See Notes to Financial Statements 15 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ ARIZONA (CONTINUED) $ 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 $ 5,019,700 640 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig Irvington Proj Tucson Elec Pwr Co Ser A Rfdg (FSA Insd)................................ 7.250 07/15/10 642,451 1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg (AMBAC Insd)................... 6.000 09/01/12 1,951,687 1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg (AMBAC Insd)................... 6.125 09/01/17 1,820,525 300 University AZ Ctf Partn Ser A (AMBAC Insd)..... 5.000 06/01/23 319,635 825 University AZ Ctf Partn Ser B (AMBAC Insd)..... 5.000 06/01/22 880,852 300 University AZ Ctf Partn Ser C (AMBAC Insd)..... 5.000 06/01/21 320,763 1,585 University AZ Ctf Partn Ser C (AMBAC Insd)..... 5.000 06/01/22 1,692,304 -------------- 19,220,885 -------------- ARKANSAS 0.8% 2,500 Arkansas St Dev Fin Auth Rev St Agy Fac Donaghey Plaza Proj (FSA Insd)................. 5.000 06/01/29 2,625,700 6,265 Little Rock, AR Sch Dist Ser B Rfdg (FSA Insd).......................................... 5.500 02/01/25 6,591,657 -------------- 9,217,357 -------------- CALIFORNIA 16.2% 4,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Pool Ser A (XLCA Insd)......................... 5.250 09/01/35 4,267,920 3,225 Bay Area Govt Assn CA Rev Tax Alloc Ser A (AMBAC Insd) (a)............................... 4.500 09/01/25 3,264,829 3,205 Bell, CA Cmnty Hsg Auth Lease Rev Rfdg (AMBAC Insd).......................................... 5.000 10/01/30 3,386,980 3,310 Bell, CA Cmnty Hsg Auth Lease Rev Rfdg (AMBAC Insd).......................................... 5.000 10/01/36 3,462,624 3,500 California Ed Fac Auth Rev Occidental College Ser A (MBIA Insd).............................. 5.000 10/01/36 3,685,325 3,000 California St Pub Wks Brd UCLA Replacement Hosp Ser A (FSA Insd)............................... 5.375 10/01/20 3,255,780 3,000 California St Pub Wks Brd UCLA Replacement Hosp Ser A (FSA Insd)............................... 5.000 10/01/22 3,154,650 5,000 California Stwide Cmnty Depooled Fin Pg Ser 2004A (FSA Insd)............................... 5.250 10/01/24 5,405,300 4,615 California Stwide Cmnty Dev Auth Wtr & Wastewtr Rev Ser D (FSA Insd) (a)....................... 5.000 10/01/26 4,912,621 3,000 California Stwide Cmnty Pooled Fin Pg Ser 2004A (FSA Insd)..................................... 5.000 10/01/29 3,158,610 4,000 California Stwide Cmnty Pooled Fin Pg Ser 2004A (FSA Insd)..................................... 5.250 10/01/34 4,257,600 2,980 California Stwide Cmnty Pooled Fin Pg Ser 2004C (FSA Insd) (a)................................. 5.000 10/01/29 3,137,553 7,430 Capistrano, CA Uni Sch Dist (FGIC Insd) (a).... 5.000 09/01/25 7,899,502 7,995 Capistrano, CA Uni Sch Dist (FGIC Insd) (a).... 5.000 09/01/26 8,481,895
16 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ CALIFORNIA (CONTINUED) $ 8,600 Capistrano, CA Uni Sch Dist (FGIC Insd) (a).... 5.000% 09/01/27 $ 9,117,118 3,500 Capistrano, CA Uni Sch Dist (FGIC Insd)........ 5.000 09/01/29 3,702,440 5,000 Chino Vly Uni Sch Dist CA Election 2002 Ser C (MBIA Insd).................................... 5.250 08/01/30 5,428,250 3,225 Coronado, CA Cmnty Dev Agy Tax Alloc Coronado Cmnty Dev Proj (AMBAC Insd).................... 5.000 09/01/30 3,391,926 425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC Insd).......................................... 6.700 08/01/21 559,045 265 Golden West Sch Fin Auth CA Rev Ser A Rfdg (MBIA Insd) (a)................................ 5.750 08/01/19 314,279 10,000 Hawthorne, CA Cmnty Redev Agy Tax Alloc Proj Area No 2 (XLCA Insd).......................... 5.250 09/01/36 10,756,200 690 Jurupa, CA Univ Sch Dist Election 2001 (FGIC Insd).......................................... 5.000 08/01/26 725,204 3,360 Loma Linda, CA Redev Agy Tax Alloc Ser A (XLCA Insd).......................................... 5.250 07/01/30 3,609,648 540 Long Beach, CA Bd Fin Auth Rev Redev Hsg & Gas Util Fin Ser A1 (AMBAC Insd)................... 5.000 08/01/40 562,037 5,000 Los Angeles, CA Uni Sch Dist Elec of 1997- Ser F (FGIC Insd).................................. 5.000 07/01/25 5,294,050 3,700 Marin, CA Cmnty College Dist Election of 2004 Ser A (MBIA Insd).............................. 5.000 08/01/26 3,934,728 10,000 Merced, CA Irr Dist Rev Ctf Partn Elec Sys Proj (XLCA Insd).................................... 5.250 09/01/36 10,708,900 4,000 Murrieta Vy, CA Uni Sch Dist Pub Fin Auth Spl Tax Rev (AGL Insd)............................. 4.750 09/01/36 4,058,360 765 North Monterey Cnty, CA Uni Sch Dist Election 2002 Ser B (FGIC Insd)......................... 4.750 08/01/29 787,499 3,455 Oxnard, CA Fin Auth Headworks Proj (AMBAC Insd) (a)............................................ 5.000 06/01/36 3,629,167 2,070 Pacifica, CA Wastewtr Rev Rfdg (AMBAC Insd) (a)............................................ 5.250 10/01/23 2,245,018 5,000 Palm Springs, CA Fin Lease Rev Convention Ctr Proj Ser A (MBIA Insd)......................... 5.500 11/01/29 5,558,050 2,250 Riverside, CA Ctf Partn (AMBAC Insd) (a)....... 5.000 09/01/23 2,367,427 1,840 Rohnert Park, CA Swr Sys Rev Ctf Partn Spl Term (AMBAC Insd)................................... 5.000 06/01/30 1,932,994 3,200 Rohnert Park, CA Swr Sys Rev Ctf Partn Spl Term (AMBAC Insd) (a)............................... 5.000 06/01/36 3,347,552 5,000 Sacramento Cnty, CA San Dist Fin Auth Rev Sacramento Regl Cnty San (FGIC Insd)........... 5.000 12/01/29 5,325,200 8,985 San Jose, CA Arpt Rev Ser A Rfdg (FSA Insd).... 5.375 03/01/18 9,761,124 5,140 San Marcos, CA Pub Fac Auth Rev Tax Increment Pass-Thru Ser A (AMBAC Insd) (b)............... 5.000 10/01/31 5,457,986 2,785 Santa Monica, CA Cmnty College Ser A Rfdg (AMBAC Insd)................................... 5.000 02/01/27 2,916,257 1,775 Sierra, CA Jt Cmnty College Impt Dist 2 Westn Nevada Ser A (FGIC Insd) (a)................... 5.000 08/01/28 1,871,951
See Notes to Financial Statements 17 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ CALIFORNIA (CONTINUED) $ 1,960 Sierra, CA Jt Cmnty College Impt Dist 2 Westn Nevada Ser A (FGIC Insd) (a)................... 5.000% 08/01/29 $ 2,064,370 5,380 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev Ladera Ranch Ser A (AMBAC Insd)................ 5.000 08/15/27 5,710,278 2,000 South Tahoe, CA Jt Pwr Fin Redev Proj Area No 1 Ser A Rfdg (AMBAC Insd)........................ 5.000 10/01/35 2,095,240 2,110 Val Verde, CA Uni Sch Dist Ctf Sch Constr Proj Ser B Rfdg (FGIC Insd) (a)..................... 5.000 01/01/22 2,247,066 2,370 Val Verde, CA Uni Sch Dist Ctf Sch Constr Proj Ser B Rfdg (FGIC Insd)......................... 5.000 01/01/30 2,484,945 1,100 Vallejo City, CA Uni Sch Ser A Rfdg (MBIA Insd).......................................... 5.900 08/01/25 1,331,352 -------------- 185,026,850 -------------- COLORADO 2.1% 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 3,983,519 2,500 Colorado Ed & Cultural Fac Auth Rev Charter Sch Bromley Sch Proj Rfdg (XLCA Insd).............. 5.250 09/15/32 2,685,600 1,000 Colorado Ed & Cultural Fac Auth Rev Charter Sch Woodrow Wilson Sch Proj Ser A Rfdg (XLCA Insd).................................... 5.250 12/01/34 1,073,280 5,000 Colorado Ed & Cultural Fac Auth Rev Frontier Academy Rdfg (CIFG Insd) (c)................... 4.375 06/01/26 4,936,700 5,000 Denver, CO City & Cnty Arpt Rev Sys Ser A (XLCA Insd).......................................... 5.000 11/15/25 5,321,900 1,175 Thornton, CO Ctf Partn (AMBAC Insd)............ 5.375 12/01/19 1,275,568 3,080 Thornton, CO Ctf Partn (AMBAC Insd) (a)........ 5.375 12/01/21 3,328,648 1,650 Thornton, CO Ctf Partn (AMBAC Insd)............ 5.375 12/01/22 1,783,205 -------------- 24,388,420 -------------- DISTRICT OF COLUMBIA 0.4% 1,000 District of Columbia Ctf Partn Dist Pub Safety & Emergency (AMBAC Insd)....................... 5.500 01/01/19 1,095,240 4,000 Metropolitan Washington DC Arpt Ser A (AMT) (FSA Insd)..................................... 5.000 10/01/32 4,192,560 -------------- 5,287,800 -------------- FLORIDA 6.8% 1,000 Brevard Cnty, FL Sch Brd Ctf Partn Ser A (AMBAC Insd).......................................... 5.400 07/01/12 1,087,610 500 Dade Cnty, FL Aviation Rev Ser B (MBIA Insd)... 5.600 10/01/26 510,665 1,000 Dade Cnty, FL Ed Fac Auth Rev Exchanged From Univ of Miami Ser B (MBIA Insd)................ 5.750 04/01/20 1,021,620 750 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC Insd).... 5.375 10/01/16 776,670 140 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC Insd).......................................... 5.950 07/01/20 146,616
18 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ FLORIDA (CONTINUED) $ 1,000 Escambia Cnty, FL Util Auth Util Sys Rev (FGIC Insd).......................................... 5.250% 01/01/24 $ 1,039,520 1,000 Florida Intergovnmtl Fin Ser C1 (AMBAC Insd)... 5.125 02/01/31 1,045,160 575 Florida Muni Ln Council Rev Ser B (MBIA Insd).......................................... 5.750 11/01/14 624,508 1,185 Florida St Brd Ed Cap Outlay Pub Ed Ser C (FGIC Insd).......................................... 5.000 06/01/23 1,248,670 1,250 Florida St Brd Ed Lottery Rev Ser A (FGIC Insd).......................................... 6.000 07/01/12 1,365,350 1,000 Florida St Brd Ed Lottery Rev Ser A (FGIC Insd).......................................... 6.000 07/01/14 1,090,810 2,750 Florida St Brd Ed Lottery Rev Ser B (FGIC Insd).......................................... 5.250 07/01/13 2,849,825 750 Florida St Brd of Regt Hsg Rev (MBIA Insd)..... 5.750 07/01/14 811,305 1,365 Florida St Correctional Privatization Commn Ctf Partn (MBIA Insd).............................. 5.375 08/01/14 1,479,332 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 1,785,438 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 1,556,520 1,340 Gulf Breeze, FL Rev Loc Govt (FGIC Insd) (d)... 5.150 12/01/20 1,414,986 500 Gulf Breeze, FL Rev Loc Govt (Variable Rate Coupon) (FGIC Insd)............................ 5.650 12/01/20 532,385 1,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd).......................................... 6.100 10/01/18 1,021,840 1,750 Jea, FL Wtr & Swr Sys Rev Ser A (MBIA Insd).... 5.375 10/01/30 1,763,545 1,000 Key West, FL Util Brd Elec Rev Cap Apprec Ser D (Escrowed to Maturity) (AMBAC Insd)............ * 10/01/13 745,380 1,000 Miami-Dade Cnty, FL Hlth Fac Miami Childrens Hosp Ser A Rfdg (AMBAC Insd)................... 5.125 08/15/26 1,047,420 5,000 Miami-Dade Cnty, FL Pub Fac Rev Jackson Hlth Sys Ser A (MBIA Insd).......................... 5.000 06/01/31 5,252,700 1,000 Orange Cnty, FL Sch Brd Ctf Partn Ser A (AMBAC Insd).......................................... 5.250 08/01/14 1,085,620 1,000 Orlando, FL Cmnty Redev Agy Tax Rep Drive Universal Blvd Rfdg (AMBAC Insd)............... 5.125 04/01/20 1,063,480 800 Palm Beach Cnty, FL Sch Brd Ctf Ser A (AMBAC Insd).......................................... 5.125 08/01/26 838,552 4,000 Palm Beach Cnty, FL Sch Brd Ctf Ser C (FSA Insd).......................................... 5.000 08/01/21 4,208,360 4,000 Palm Beach Cnty, FL Sch Brd Ctf Ser C (FSA Insd).......................................... 5.000 08/01/22 4,208,360 750 Polk Cnty, FL Sch Brd Ctf Partn Master Lease Ser A (FSA Insd)............................... 5.500 01/01/16 809,693 1,000 Port Saint Lucie, FL Spl Assmt Rev Util Svc Area No 3 & 4A (MBIA Insd)..................... 5.000 10/01/18 1,034,290 1,505 Reedy Creek, FL Impt Dist FL Util Ser 1 (AMBAC Insd).......................................... 5.000 10/01/24 1,606,723 535 Saint Johns Cnty, FL Indl Dev Auth Professional Golf Proj Rfdg (MBIA Insd)..................... 5.250 09/01/12 579,721 1,000 Saint Lucie Cnty, FL Sch Brd Ctf Ser A (FSA Insd).......................................... 5.000 07/01/21 1,051,420
See Notes to Financial Statements 19 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ FLORIDA (CONTINUED) $ 3,245 Santa Rosa Bay Brdg Auth FL Rev Cap Apprec (MBIA Insd).................................... * 07/01/18 $ 1,997,590 4,000 Sunrise, FL Util Sys Rev Rfdg (AMBAC Insd)..... 5.200% 10/01/22 4,482,880 10,000 Tallahassee, FL Hlth Fac Rev Tallahassee Mem Regl Med Ser A Rfdg (MBIA Insd) (e)............ 6.625 12/01/13 10,047,300 2,500 Tampa Bay Wtr FL A Regl Wtr Supply Auth Util Sys Rev Impt & Rfdg (FGIC Insd) (c)............ 4.500 10/01/36 2,481,675 2,610 University Cent FL Ctf Partn UCF Convocation Corp Ser A (FGIC Insd) (a)..................... 5.000 10/01/26 2,764,225 2,740 University Cent FL Ctf Partn UCF Convocation Corp Ser A (FGIC Insd) (a)..................... 5.000 10/01/27 2,899,797 1,000 Village Ctr Cmnty Dev Dist FL Ser A (MBIA Insd).......................................... 5.200 11/01/25 1,063,520 3,735 Volusia Cnty, FL Ed Fac Auth Rev Ed Fac Embry Riddle Ser B Rfdg (AMBAC Insd)................. 5.250 10/15/19 3,933,030 1,000 Volusia Cnty, FL Ed Fac Auth Rev Ed Fac Embry Riddle Ser B Rfdg (AMBAC Insd)................. 5.250 10/15/22 1,049,330 -------------- 77,423,441 -------------- GEORGIA 4.7% 3,460 Albany Dougherty, GA Inner City Auth Rev Albany St Univ Student Hsg Ser A (XLCA Insd).......... 5.000 07/01/25 3,675,143 4,590 Bleckley-Cochran, GA Dev Auth Student Hsg Fac Rev MGC Real Estate Fndtn Ser A (CIFG Insd) (a)................................ 5.000 07/01/25 4,858,148 11,355 Bleckley-Cochran, GA Dev Auth Student Hsg Fac Rev MGC Real Estate Fndtn Ser A (CIFG Insd) (a)................................ 5.000 07/01/36 11,849,056 3,510 Douglasville-Douglas Cnty, GA Wtr & Swr Auth Rev (MBIA Insd)................................ 5.000 06/01/27 3,725,830 14,530 Georgia Muni Elec Auth Pwr Rev 2005 Ser Y (AMBAC Insd)................................... 6.400 01/01/13 16,341,019 9,445 Georgia Muni Elec Auth Pwr Rev 2005 Ser Y (MBIA Insd).......................................... 6.500 01/01/17 11,157,945 160 Georgia Muni Elec Auth Pwr Rev 2005 Ser Y (Prerefunded @ 01/01/11) (AMBAC Insd).......... 6.400 01/01/13 177,779 145 Georgia Muni Elec Auth Pwr Rev 2005 Ser Y (Prerefunded @ 01/01/14) (MBIA Insd)........... 6.500 01/01/17 170,769 860 Georgia Muni Elec Auth Pwr Rev Ser Y (Escrowed to Maturity) (AMBAC Insd)...................... 6.400 01/01/13 969,160 410 Georgia Muni Elec Auth Pwr Rev Ser Y (Escrowed to Maturity) (MBIA Insd)....................... 6.500 01/01/17 501,118 -------------- 53,425,967 -------------- ILLINOIS 17.1% 1,005 Bolingbrook, IL Cap Apprec Ser C Rfdg (MBIA Insd).......................................... * 01/01/19 597,372 2,845 Chicago, IL Brd Ed Cap Apprec Sch Reform B 1 (FGIC Insd).................................... * 12/01/19 1,626,543
20 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ ILLINOIS (CONTINUED) $ 1,500 Chicago, IL Brd Ed Cap Apprec Sch Reform Ser A (FGIC Insd).................................... * 12/01/19 $ 857,580 1,020 Chicago, IL Brd Ed Cap Apprec Sch Reform Ser A (FGIC Insd).................................... * 12/01/25 436,213 2,000 Chicago, IL Lakefront Millenium Pkg Fac (MBIA Insd).......................................... 5.700% 01/01/25 2,205,320 2,000 Chicago, IL Lakefront Millenium Pkg Fac (MBIA Insd).......................................... 5.700 01/01/29 2,208,820 5,925 Chicago, IL Midway Arpt Rev Second Lien Ser B Rfdg (AMBAC Insd) (a).......................... 5.000 01/01/21 6,305,563 6,220 Chicago, IL Midway Arpt Rev Second Lien Ser B Rfdg (AMBAC Insd) (a).......................... 5.000 01/01/22 6,606,075 1,000 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser A Rfdg (MBIA Insd).................... 5.000 01/01/29 1,047,790 12,000 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser A (MBIA Insd) (b)..................... 5.250 01/01/24 13,031,010 17,500 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser A Rfdg (AMT) (b)...................... 5.750 01/01/20 19,295,150 20,000 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser A Rfdg (AMT) (FSA Insd) (b)........... 5.750 01/01/21 22,078,000 2,840 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser E Rfdg (CIFG Insd) (a)................ 5.250 01/01/21 3,054,988 2,975 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser E Rfdg (CIFG Insd) (a)................ 5.250 01/01/22 3,194,406 3,120 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser E Rfdg (CIFG Insd).................... 5.250 01/01/23 3,344,016 1,430 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser E Rfdg (CIFG Insd).................... 5.250 01/01/24 1,530,829 5,000 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien Ser E Rfdg (CIFG Insd).................... 5.000 01/01/34 5,185,850 5,000 Chicago, IL Pk Dist Ser A (FGIC Insd).......... 5.000 01/01/31 5,274,350 615 Chicago, IL Pk Dist Ser C (FGIC Insd).......... 5.500 01/01/19 660,473 3,230 Chicago, IL Proj Ser A Rfdg (FGIC Insd)........ 5.375 01/01/34 3,367,017 1,305 Chicago, IL Proj Ser A Rfdg (MBIA Insd)........ 5.500 01/01/38 1,399,260 145 Chicago, IL Proj Ser A Rfdg (AMBAC Insd)....... 5.625 01/01/39 158,008 50 Chicago, IL Proj Ser A Rfdg (Prerefunded @ 01/01/11) (MBIA Insd).......................... 5.500 01/01/38 54,258 290 Cook Cnty, IL Sch Dist No 100 Berwyn South Cap Apprec (FSA Insd) (a).......................... 8.200 12/01/14 376,121 345 Cook Cnty, IL Sch Dist No 100 Berwyn South Cap Apprec (FSA Insd) (a).......................... 8.100 12/01/16 463,849 2,605 Cook Cnty, IL Sch Dist No 122 Oak Lawn Cap Apprec (FGIC Insd) (a)......................... * 12/01/17 1,644,510 2,995 Cook Cnty, IL Sch Dist No 122 Oak Lawn Cap Apprec (FGIC Insd) (a)......................... * 12/01/18 1,799,366
See Notes to Financial Statements 21 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ ILLINOIS (CONTINUED) $ 4,210 Cook Cnty, IL Sch Dist No 122 Oak Lawn Cap Apprec (FGIC Insd) (a)......................... * 12/01/19 $ 2,406,941 4,050 Cook Cnty, IL Sch Dist No 122 Oak Lawn Cap Apprec (FGIC Insd)............................. * 12/01/20 2,203,889 3,000 Du Page Cnty, IL Cmnty High Sch (FSA Insd)..... 5.600% 01/01/22 3,281,880 540 Grundy, Kendall & Will Cntys, IL (AMBAC Insd).......................................... 5.500 05/01/20 577,249 340 Grundy, Kendall & Will Cntys, IL (AMBAC Insd).......................................... 5.500 05/01/21 362,056 2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford Sch 205 (FSA Insd)............................. 6.650 02/01/11 2,240,580 5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford Sch 205 (FSA Insd)............................. 6.650 02/01/12 5,075,652 4,800 Illinois Fin Auth Rev Swedish American Hosp (AMBAC Insd)................................... 5.000 11/15/31 4,999,776 2,000 Illinois Med Dist (MBIA Insd).................. 5.250 06/01/32 2,120,420 3,500 Illinois Muni Elec Agy Pwr Supply Sys Rev Rfdg (FSA Insd)..................................... 5.000 02/01/21 3,589,495 10,000 Illinois St Toll Hwy Auth Toll Highway Rev Sr Priority Ser A-1 (FSA Insd).................... 5.000 01/01/26 10,679,700 1,200 Lake Cnty, IL Cmnty Cons Sch Dist No 50 Woodland Cap Apprec Ser B (FGIC Insd).......... * 12/01/14 871,812 6,790 Lake Cnty, IL Cmnty Unit Sch Dist No 60 Waukegan Cap Apprec Ser A (FSA Insd)........... * 12/01/17 4,286,459 3,000 McHenry & Kane Cnty, IL Cmnty Cons Sch Dist No 158 Cap Apprec (FGIC Insd)..................... * 01/01/17 1,966,710 4,000 McHenry & Kane Cnty, IL Cmnty Cons Sch Dist No 158 Cap Apprec (FGIC Insd)..................... * 01/01/18 2,497,160 1,330 McHenry Cnty, IL Cmnty High Sch Dist No 154 Cap Apprec (FGIC Insd)............................. * 01/01/16 913,511 6,000 Metropolitan Pier & Expo Auth IL Dedicated St Tax Rev McCormick Pl Expn Ser A (MBIA Insd).... 5.250 06/15/42 6,421,620 500 Southern IL Univ Rev Cap Apprec Hsg & Aux Ser A (MBIA Insd).................................... * 04/01/20 279,245 5,245 University IL Univ Rev Aux Fac Sys (MBIA Insd) (c)............................................ 4.500 04/01/36 5,181,640 11,020 University IL Univ Rev Aux Fac Sys (MBIA Insd) (c)............................................ 5.000 04/01/26 11,727,264 8,910 University IL Univ Rev Aux Fac Sys (MBIA Insd) (c)............................................ 5.000 04/01/27 9,460,282 6,415 Will Cnty, IL Sch Dist No 086 Joliet Ser B Rfdg (FSA Insd)..................................... 5.000 03/01/23 6,854,492 -------------- 195,800,570 -------------- INDIANA 3.2% 5,810 Indiana Bd Bk Rev Spl Pgm Ser B1 (FSA Insd) (a)............................................ 5.000 03/01/27 6,170,743 870 Indiana Bd Bk Spl Pgm Ser A (Escrowed to Maturity) (AMBAC Insd)......................... 9.750 08/01/09 948,953 6,745 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Proj Ser A (AMBAC Insd)............................. 5.000 05/01/35 7,034,023 2,335 Lake Cnty, IN Bldg Corp First Mtg (MBIA Insd) (a)............................................ 5.750 08/01/11 2,513,371
22 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ INDIANA (CONTINUED) $ 1,550 Marion Cnty, IN Convention & Rec Lease Rent Ser A Rfdg (AMBAC Insd)............................ 5.000% 06/01/21 $ 1,632,941 1,655 Plainfield, IN Cmnty High Sch Bldg Corp First Mgt (FGIC Insd)................................ 5.000 07/15/27 1,756,567 2,555 Plainfield, IN Cmnty High Sch Bldg Corp First Mtg (FGIC Insd)................................ 5.000 07/15/28 2,703,727 800 Plainfield, IN Cmnty High Sch Bldg Corp First Mtg (FGIC Insd)................................ 5.000 01/15/30 844,680 1,900 South Harrison, IN 2000 Sch Bldg Corp Ser A (FSA Insd)..................................... 5.250 01/15/25 2,057,073 5,780 Wawasee Cmnty Sch Corp IN New Elem & Remodeling Bldg Corp First Mtg Rfdg (FSA Insd) (a)........ 5.000 07/15/24 6,225,811 4,900 Wayne Twp, IN Marion Cnty Sch First Mtg Rfdg (FGIC Insd).................................... 5.000 07/15/27 5,251,673 -------------- 37,139,562 -------------- IOWA 0.2% 2,375 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp Proj (FSA Insd)................................ 5.750 07/01/17 2,452,734 -------------- LOUISIANA 2.4% 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 4,377,802 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 6,734,987 7,500 Lafayette, LA Util Rev (MBIA Insd)............. 5.250 11/01/24 8,158,350 655 Louisiana Loc Govt Environment BRCC Fac Corp Proj (MBIA Insd)............................... 5.375 12/01/16 711,625 2,035 Louisiana Loc Govt Environment BRCC Fac Corp Proj (MBIA Insd) (a)........................... 5.375 12/01/17 2,198,716 2,150 Louisiana Loc Govt Environment BRCC Fac Corp Proj (MBIA Insd) (a)........................... 5.375 12/01/18 2,322,968 1,415 Louisiana Loc Govt Environment BRCC Fac Corp Proj (MBIA Insd)............................... 5.375 12/01/19 1,528,837 1,200 Louisiana Loc Govt Environment BRCC Fac Corp Proj (MBIA Insd)............................... 5.375 12/01/20 1,296,540 320 New Orleans, LA Home Mtg Auth Single Family Mtg Rev 1985 Ser A (MBIA Insd)..................... * 09/15/16 113,542 -------------- 27,443,367 --------------
See Notes to Financial Statements 23 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ MASSACHUSETTS 0.3% $ 2,700 Massachusetts Muni Whsl Elec Co Nuclear Mix 1-A (MBIA Insd).................................... 5.250% 07/01/13 $ 2,927,070 175 Massachusetts Muni Whsl Elec Co Proj No 6-A (MBIA Insd).................................... 5.250 07/01/16 189,280 -------------- 3,116,350 -------------- MICHIGAN 0.6% 75 Chippewa Valley, MI Sch Bldg & Site (FSA Insd).......................................... 5.000 05/01/20 80,601 1,400 Huron, MI Sch Dist (FSA Insd).................. 5.250 05/01/21 1,486,814 2,675 Wayne Charter Cnty, MI Arpt Rev Ser C Rfdg (FGIC Insd).................................... 5.375 12/01/17 2,894,778 2,840 Wayne Charter Cnty, MI Arpt Rev Ser C Rfdg (FGIC Insd).................................... 5.375 12/01/20 3,073,334 -------------- 7,535,527 -------------- MISSISSIPPI 0.6% 1,000 Harrison Cnty, MS Wastewtr Mgmt & Solid Wastewtr Treatment Fac Ser A Rfdg (FGIC Insd).......................................... 8.500 02/01/13 1,258,300 5,000 Mississippi Dev Bank Spl Oblg Muni Energy Agy Pwr Supply Proj Ser A (XLCA Insd).............. 5.000 03/01/41 5,207,650 -------------- 6,465,950 -------------- MISSOURI 1.2% 1,170 Mehlville, MO Sch Dist No R-9 Ctf Partn Ser A (FSA Insd)..................................... 5.500 03/01/16 1,256,627 1,225 Mehlville, MO Sch Dist No R-9 Ctf Partn Ser A (FSA Insd)..................................... 5.500 03/01/17 1,310,799 840 Saint Louis, MO Arpt Rev Cap Impt Pgm Ser A (MBIA Insd).................................... 5.375 07/01/17 904,840 10,000 Springfield, MO Pub Util Rev (FGIC Insd)....... 4.500 08/01/36 9,926,300 -------------- 13,398,566 -------------- MONTANA 0.3% 3,400 Forsyth, MT Pollutn Ctl Rev Northwestern Corp Colstrip Rfdg (AMBAC Insd)..................... 4.650 08/01/23 3,481,566 -------------- NEBRASKA 1.0% 7,000 Nebraska Pub Pwr Dist Rev Gen Ser A (FGIC Insd) (c)............................................ 5.000 01/01/41 7,329,560 3,620 Saunders Cnty, NE (FSA Insd) (a)............... 5.000 11/01/35 3,724,292 -------------- 11,053,852 -------------- NEVADA 2.0% 10,040 Clark Cnty, NV Arpt Rev Sub Lien Ser A (AMT) (FGIC Insd) (b)................................ 5.500 07/01/22 10,902,536 10,000 Director St, NV Dept Business & Ind Las Vegas Monorail Proj First Tier (AMBAC Insd).......... 5.625 01/01/32 10,704,700 935 Reno, NV Cap Impt Rev (FGIC Insd).............. 5.125 06/01/26 985,911 -------------- 22,593,147 --------------
24 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ NEW HAMPSHIRE 0.2% $ 2,500 New Hampshire St Tpk Sys Rev Ser C Rfdg (Inverse Fltg) (FGIC Insd)..................... 10.193% 11/01/17 $ 2,613,125 -------------- NEW JERSEY 0.6% 3,350 New Jersey Econ Dev Auth Rev Mtr Veh Sur Rev Ser A (MBIA Insd).............................. 5.000 07/01/23 3,547,215 2,760 Newark, NJ Hsg Auth Port Auth Newark Marine Term (MBIA Insd)............................... 5.500 01/01/28 3,040,223 -------------- 6,587,438 -------------- NEW MEXICO 0.5% 5,440 New Mexico Fin Auth Rev Sub Lien Pub Proj Revolving Fd C (MBIA Insd) (a) (c)............. 4.750 06/15/26 5,630,128 -------------- NEW YORK 1.3% 5,000 Long Island Pwr Auth NY Gen Ser A (XLCA Insd).......................................... 5.000 12/01/26 5,317,000 5,470 New York City Hlth & Hosp Hlth Sys Ser A (FSA Insd).......................................... 5.000 02/15/21 5,750,994 3,105 New York St Dorm Auth Rev Insd Brooklyn Law Sch Ser B (XLCA Insd) (a).......................... 5.375 07/01/21 3,410,253 -------------- 14,478,247 -------------- NORTH CAROLINA 1.2% 10,000 North Carolina Muni Pwr Agy Ser A (MBIA Insd).......................................... 5.250 01/01/18 10,779,800 2,735 North Carolina Muni Pwr Agy Ser A (MBIA Insd).......................................... 5.250 01/01/19 2,948,275 -------------- 13,728,075 -------------- NORTH DAKOTA 1.0% 5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope Vly Station Rfdg (AMBAC Insd)...................... 7.200 06/30/13 5,766,550 5,000 Oliver Cnty, ND Pollutn Ctl Rev Square Butte Elec Coop Ser A Rfdg (AMBAC Insd).............. 5.300 01/01/27 5,240,650 -------------- 11,007,200 -------------- OHIO 0.6% 1,000 Chillicothe, OH City Sch Dist Sch Impt (FGIC Insd).......................................... 5.250 12/01/26 1,092,180 5,000 Columbus, OH City Sch Dist Sch Fac Constr & Impt (FSA Insd)................................ 5.250 12/01/27 5,539,050 -------------- 6,631,230 -------------- OKLAHOMA 2.3% 2,340 Claremore, OK Pub Wk Auth Util Sys Rev Rfdg (FSA Insd) (a)................................. 5.000 07/01/25 2,481,523 2,890 Jenks, OK Aquarium Auth Rev Rfdg (MBIA Insd)... 5.250 07/01/19 3,168,163 1,480 Jenks, OK Aquarium Auth Rev Rfdg (MBIA Insd)... 5.250 07/01/33 1,599,214 4,320 McAlester, OK Pub Wks Auth Util Cap Apprec Ser A (FSA Insd)................................... * 02/01/30 1,212,581 2,020 Oklahoma City, OK Arpt Tr Jr Lien 27th Ser A (FSA Insd)..................................... 5.000 07/01/17 2,103,628
See Notes to Financial Statements 25 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ OKLAHOMA (CONTINUED) $ 2,400 Oklahoma City, OK Pub Ppty Auth Hotel Tax Rev (FGIC Insd).................................... 5.250% 10/01/29 $ 2,599,512 2,000 Oklahoma Colleges Brd Regt Stad Univ Cent OK Ser B (AMBAC Insd)............................. 5.500 06/01/24 2,214,500 2,000 Tulsa, OK Cmnty College Rev (AMBAC Insd)....... 5.500 07/01/22 2,191,280 8,260 Tulsa, OK Tulsa Indl Auth Rev Univ Tulsa Ser A (MBIA Insd).................................... 5.375 10/01/31 8,723,469 -------------- 26,293,870 -------------- OREGON 0.3% 2,835 Oregon St Dept Admin Ser B Rfdg (MBIA Insd).... 5.250 05/01/17 3,037,929 -------------- PENNSYLVANIA 3.3% 5,000 Allegheny Cnty, PA Hosp Dev Auth Rev Insd Hlth Sys Ser A (MBIA Insd).......................... 6.500 11/15/30 5,593,550 4,875 Allegheny Cnty, PA Hosp Dev Auth Rev Pittsburgh Mercy Hlth Sys Inc (Escrowed to Maturity) (AMBAC Insd)................................... 5.625 08/15/26 5,328,619 3,000 Harrisburg, PA Auth Res Gtd Sub Ser D-2 (Variable Rate Coupon) (FSA Insd).............. 5.000 12/01/33 3,208,050 3,000 Lycoming Cnty, PA Auth College Rev PA College of Technology (AMBAC Insd)..................... 5.350 07/01/26 3,171,030 1,375 Pennsylvania St Higher Ed Fac Auth Rev St Sys Higher Ed Ser P (AMBAC Insd)................... 5.000 12/15/16 1,404,068 2,990 Philadelphia, PA Gas Wks Rev 1998 Gen Ordinance 4th Ser (FSA Insd)............................. 5.250 08/01/18 3,216,911 4,555 Philadelphia, PA Gas Wks Rev 1998 Gen Ordinance 4th Ser (FSA Insd)............................. 5.250 08/01/21 4,885,465 1,485 Philadelphia, PA Gas Wks Rev Eighteenth Ser (AGL).......................................... 5.250 08/01/20 1,605,137 3,665 Philadelphia, PA Gas Wks Rev Fifth Ser A-1 (AGL) (a)...................................... 5.250 09/01/17 3,983,672 5,000 State Pub Sch Bldg Auth PA Sch Lease Philadelphia Sch Dist Proj (FSA Insd).......... 5.250 06/01/26 5,356,500 -------------- 37,753,002 -------------- SOUTH CAROLINA 2.6% 3,325 Columbia, SC Pkg Fac Rev Ser A (CIFG Insd)..... 5.000 02/01/37 3,468,707 5,170 Easley, SC Util Rev Impt & Rfdg (FSA Insd)..... 5.000 12/01/34 5,431,602 3,000 Kershaw Cnty, SC Pub Schs Fndtn Installment Pwr Rev Dist Proj (CIFG Insd)...................... 5.000 12/01/30 3,154,950 3,000 Kershaw Cnty, SC Pub Schs Fndtn Installment Pwr Rev Dist Proj (CIFG Insd)...................... 5.000 12/01/31 3,152,430 3,800 Scago Ed & Fac Corp for Cherokee Cnty SC Proj Ser B (FSA Insd)............................... 5.000 12/01/30 4,009,988
26 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ SOUTH CAROLINA (CONTINUED) $ 6,500 South Carolina Jobs Econ Dev Auth Indl Rev Elec & Gas Co Proj Ser A (AMBAC Insd)............... 5.200% 11/01/27 $ 6,913,985 4,000 South Carolina Jobs Econ Tuomey (CIFG Insd).... 5.000 11/01/30 4,200,320 -------------- 30,331,982 -------------- SOUTH DAKOTA 1.1% 1,455 Rapid City, SD Sales Tax Rev Rfdg (AMBAC Insd).......................................... 5.500 06/01/12 1,574,790 5,205 South Dakota St Lease Rev Tr Ctf Ser A (FSA Insd).......................................... 6.625 09/01/12 5,856,770 4,000 South Dakota St Lease Rev Tr Ctf Ser A (FSA Insd).......................................... 6.700 09/01/17 4,952,800 -------------- 12,384,360 -------------- TENNESSEE 0.2% 3,000 White House Util Dist TN Impt & Rfdg (MBIA Insd) (c)...................................... 4.250 01/01/32 2,906,250 -------------- TEXAS 6.7% 1,165 Alamo, TX Cmnty College Dist Combined Fee Rfdg (FSA Insd)..................................... 5.000 11/01/22 1,222,493 5,000 Brazos Riv Auth TX Rev Houston Ind Inc Proj Ser C (Variable Rate Coupon) (AMBAC Insd).......... 5.125 05/01/19 5,190,900 1,900 Colorado Riv, TX Muni Wtr Dist Sys Rfdg (AMBAC Insd).......................................... 5.375 01/01/19 2,064,559 6,110 Dallas Fort Worth, TX Intl Arpt Rev Impt Ser B (AMT) (FSA Insd) (b)........................... 5.500 11/01/19 6,676,030 4,000 Dallas Fort Worth, TX Intl Arpt Rev Impt Ser B (AMT) (FSA Insd) (b)........................... 5.375 11/01/21 4,321,940 22,500 Houston, TX Util Sys Rev First Lien Ser A Rfdg (FGIC Insd).................................... 5.250 05/15/23 24,378,300 1,790 Laredo, TX Cmnty College Dist Combined Fee Rev Bldg Rfdg (AMBAC Insd)......................... 5.300 08/01/26 1,878,838 3,265 North Harris Cnty, TX Regl Wtr Sr Lien (MBIA Insd) (a)...................................... 5.000 12/15/29 3,420,349 3,000 Nueces Riv Auth TX Wtr Supply Rev Fac Corpus Christi Proj Rfdg (FSA Insd)................... 5.000 07/15/25 3,178,170 2,000 Nueces Riv Auth TX Wtr Supply Rev Fac Corpus Christi Proj Rfdg (FSA Insd)................... 5.000 03/01/27 2,111,240 2,220 Raven Hills, TX Higher Ed Corp Cardinal Vlg Llc Lamar Univ A (Prerefunded @ 08/01/13) (MBIA Insd).......................................... 5.500 08/01/28 2,463,911 2,000 San Antonio, TX Hotel Occupancy Rev Sub Lien Ser A Rfdg (AMBAC Insd)........................ 5.000 08/15/29 2,076,680 1,750 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth Sys Rev Ser B (Escrowed to Maturity) (FGIC Insd)....... 5.000 09/01/15 1,890,000 1,060 Tarrant Regl Wtr Dist TX Impt Rfdg (FSA Insd).......................................... 5.250 03/01/18 1,144,630 2,000 Tarrant Regl Wtr Dist TX Impt Rfdg (FSA Insd).......................................... 5.250 03/01/20 2,159,680
See Notes to Financial Statements 27 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ TEXAS (CONTINUED) $ 10,000 Texas St Tpk Auth Cent TX Tpk First Tier Ser A (AMBAC Insd)................................... 5.500% 08/15/39 $ 10,832,700 1,800 Tyler, TX Indpt Sch Dist (FSA Insd) (a)........ 5.000 02/15/27 1,898,784 -------------- 76,909,204 -------------- UTAH 0.3% 2,140 Murray City, UT Swr & Wtr Rev (AMBAC Insd)..... 5.250 10/01/23 2,318,326 560 Provo, UT Elec Rev 1984 Ser A Rfdg (Escrowed to Maturity) (AMBAC Insd)......................... 10.375 09/15/15 734,530 -------------- 3,052,856 -------------- WASHINGTON 9.1% 4,115 Chelan Cnty, WA Sch Dist No 246 (FSA Insd)..... 5.000 12/01/21 4,354,946 11,340 Energy Northwest WA Elec Rev Columbia Generating Ser A Rfdg (FSA Insd)............... 5.500 07/01/17 12,288,818 4,500 Energy Northwest WA Elec Rev Proj No 3 Ser A Rfdg (FSA Insd)................................ 5.500 07/01/17 4,876,515 14,500 Energy Northwest WA Elec Rev Proj No 3 Ser A Rfdg (FSA Insd)................................ 5.500 07/01/18 15,713,215 5,000 Energy Northwest WA Elec Rev Proj No 3 Ser B Rfdg (FSA Insd)................................ 6.000 07/01/16 5,612,950 1,365 Energy Northwest WA Wind Proj (AMBAC Insd)..... 5.000 07/01/23 1,427,694 5,540 Everett, WA Wtr & Swr Rev (MBIA Insd).......... 5.000 12/01/29 5,859,049 1,215 Fife, WA Wtr & Swr Rev (MBIA Insd) (a)......... 5.000 04/01/24 1,279,820 1,160 Fife, WA Wtr & Swr Rev (MBIA Insd) (a)......... 5.000 04/01/29 1,215,030 1,895 Fife, WA Wtr & Swr Rev (MBIA Insd)............. 5.125 04/01/24 1,906,976 2,500 Goat Hill Ppty WA Lease Rev Govt Office Bldg Proj (MBIA Insd)............................... 5.000 12/01/33 2,602,750 1,025 Grant Cnty, WA Pub Util Dist No 2 Rev Second Ser C Rfdg (AMBAC Insd) (a).................... 6.000 01/01/17 1,041,103 8,160 Klickitat Cnty, WA Pub Util Dist 001 Elec Rev Ser B Rfdg (FGIC Insd) (a)..................... 5.000 12/01/26 8,698,886 5,115 Lynnwood, WA Pub Fac Dist Rev Convention Ctr (AMBAC Insd)................................... 5.000 12/01/34 5,346,658 4,185 Port Seattle, WA Rev Intermediate Lien Rfdg (XLCA Insd).................................... 5.000 02/01/27 4,432,919 8,220 Port Seattle, WA Rev Intermediate Lien Rfdg (XLCA Insd).................................... 5.000 02/01/28 8,687,471 2,000 Seattle, WA Muni Lt & Pwr Rev Impt & Rfdg (FSA Insd).......................................... 5.500 03/01/18 2,135,880 2,565 Snohomish Cnty, WA Pub Util 1 (FSA Insd)....... 5.500 12/01/23 2,792,464 145 Snohomish Cnty, WA Pub Util 1 (FSA Insd)....... 5.000 12/01/24 151,441 3,000 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)..... 5.250 09/01/33 3,188,370 2,000 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)..... 5.750 12/01/25 2,226,780 2,420 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)..... 5.750 12/01/26 2,691,209 1,465 Tacoma, WA Solid Waste Util Rev Rfdg (Prerefunded @ 12/01/11) (AMBAC Insd).......... 5.375 12/01/18 1,589,877
28 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ WASHINGTON (CONTINUED) $ 2,075 Tacoma, WA Solid Waste Util Rev Rfdg (Prerefunded @ 12/01/11) (AMBAC Insd) (a)...... 5.375% 12/01/19 $ 2,251,873 1,600 Washington St Ser R 99A Rfdg (FGIC Insd)....... 5.000 01/01/17 1,642,608 -------------- 104,015,302 -------------- WEST VIRGINIA 0.1% 1,530 West Virginia Econ Dev Auth Lease Rev Correctional Juvenile & Pub-A (MBIA Insd)...... 5.500 06/01/19 1,678,379 -------------- WISCONSIN 0.8% 1,350 Plover, WI Wtr Sys Rev (AMBAC Insd) (a)........ 5.400 12/01/16 1,418,688 1,500 Plover, WI Wtr Sys Rev (AMBAC Insd) (a)........ 5.500 12/01/18 1,580,715 1,405 Racine, WI Wtrwks Rev Sys Mtg (MBIA Insd) (a)............................................ 5.250 09/01/16 1,504,095 750 Wilmot, WI Un High Sch Dist Ser B Rfdg (FSA Insd).......................................... 5.000 03/01/23 809,070 4,000 Wisconsin Pub Pwr Inc Sys Pwr Supply Sys Rev Ser A (AMBAC Insd)............................. 5.000 07/01/37 4,191,840 -------------- 9,504,408 -------------- PUERTO RICO 0.3% 3,000 Puerto Rico Indl Tourist Ed Med & Environmental Ctl Fac Hosp Aux (MBIA Insd)................... 6.250 07/01/16 3,020,100 -------------- TOTAL LONG-TERM INVESTMENTS 102.9% (Cost $1,118,785,707)........................................................ 1,176,410,093 -------------- SHORT-TERM INVESTMENTS 5.8% 5,400 Atlanta, GA Wtr & Wastewtr Rev Ser C (FSA Insd) (f)............................................ 3.850 11/01/41 5,400,000 10,945 Bell Cnty, TX Hlth Fac Dev Corp Rev Hosp Scott & White 2001 Ser 2 (MBIA Insd) (f)............. 3.890 08/15/31 10,945,000 8,200 Blount Cnty, TN Pub Bldg Auth Loc Govt Pub Impt Ser D 5 B (XLCA Insd) (a)(f)................... 3.800 06/01/22 8,200,000 11,200 Detroit, MI Swr Disp Rev Sr Lien Ser B (FSA Insd) (f)...................................... 3.850 07/01/33 11,200,000 2,700 Illinois Hlth Fac Auth Rev Univ Chicago Hosp (MBIA Insd) (f)................................ 3.890 08/01/26 2,700,000 15,500 Pinellas Cnty, FL Hlth Fac Pooled Hosp Ln Pgm Rfdg (AMBAC Insd) (f).......................... 3.850 12/01/15 15,500,000 8,000 Sevier Cnty, TN Pub Bldg Auth Loc Govt Pub Impt Ser VI D3 (AMBAC Insd) (f)..................... 3.800 06/01/33 8,000,000
See Notes to Financial Statements 29 VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS (CONTINUED) $ 1,100 University Toledo, OH Gen Rcpt (FGIC Insd) (f)............................................ 3.850% 06/01/32 $ 1,100,000 2,800 Wisconsin St Hlth & Ed Fac Auth Rev Gundersen Lutheran Ser B (FGIC Insd) (f)................. 3.840 05/01/33 2,800,000 -------------- TOTAL SHORT-TERM INVESTMENTS 5.8% (Cost $65,845,000)........................................................... 65,845,000 -------------- TOTAL INVESTMENTS 108.7% (Cost $1,184,630,707)........................................................ 1,242,255,093 LIABILITY FOR FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES HELD (5.5%) (Cost ($63,130,000)) (63,130) Notes with interest rates ranging from 3.760% to 3.810% at September 30, 2006 and contractual maturities of collateral ranging from 2019 to 2031 (see Note 1) (g)................................. (63,130,000) -------------- TOTAL NET INVESTMENTS 103.2% (Cost $1,121,500,707)........................................................ 1,179,125,093 LIABILITIES IN EXCESS OF OTHER ASSETS (3.2%).................................. (36,521,131) -------------- NET ASSETS 100.0%............................................................. $1,142,603,962 ==============
Percentages are calculated as a percentage of net assets. * Zero coupon bond (a) The Fund owns 100% of the outstanding bond issuance. (b) Underlying security related to Inverse Floaters entered into the by the Fund. See Notes 1.H. and 6.B. (c) Securities purchased on a when-issued or delayed delivery basis. (d) Security converts to a fixed coupon rate at a predetermined date. (e) All or a portion of this security has been physically segregated in connection with open futures and swap contracts. (f) Security includes a put feature allowing the Fund to periodically put the security back to the issuer at amortized cost on specified put dates. The interest rate shown represents the current interest rate earned by the Fund based on the most recent reset date. (g) Floating rate notes. The interest rates shown reflect the rates in effect at September 30, 2006. AGL--Assured Guaranty Ltd. AMBAC--AMBAC Indemnity Corp. AMT--Alternative Minimum Tax 30 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued 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, 2006:
UNREALIZED APPRECIATION/ CONTRACTS DEPRECIATION SHORT CONTRACTS: U.S. Treasury Notes 10-Year Futures December 2006 (Current Notional Value of $108,063 per contract).................. 890 $(958,483)
SWAP AGREEMENT OUTSTANDING AS OF SEPTEMBER 30, 2006: INTEREST RATE SWAPS
PAY/ RECEIVE NOTIONAL UNREALIZED FLOATING RATE FLOATING FIXED EXPIRATION AMOUNT APPRECIATION/ COUNTERPARTY INDEX RATE RATE DATE (000) DEPRECIATION JP Morgan Chase Bank N.A. USD-BMA Municipal Swap Index........... Receive 4.096% 12/15/26 $71,900 $(926,662)
See Notes to Financial Statements 31 VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities (As Restated--See Note 11) September 30, 2006 ASSETS: Total Investments (Cost $1,184,630,707)..................... $1,242,255,093 Cash........................................................ 1,685,244 Receivables: Interest.................................................. 13,962,138 Investments Sold.......................................... 1,297,148 Fund Shares Sold.......................................... 500,748 Variation Margin on Futures............................... 83,437 Other....................................................... 301,181 -------------- Total Assets............................................ 1,260,084,989 -------------- LIABILITIES: Payables: Floating Rate Note Obligations............................ 63,130,000 Investments Purchased..................................... 49,356,004 Fund Shares Repurchased................................... 1,803,581 Income Distributions...................................... 813,068 Investment Advisory Fee................................... 476,501 Distributor and Affiliates................................ 359,852 Swap Contracts.............................................. 926,662 Trustees' Deferred Compensation and Retirement Plans........ 369,928 Accrued Expenses............................................ 245,431 -------------- Total Liabilities....................................... 117,481,027 -------------- NET ASSETS.................................................. $1,142,603,962 ============== NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $1,080,807,166 Net Unrealized Appreciation................................. 55,739,241 Accumulated Net Realized Gain............................... 4,996,707 Accumulated Undistributed Net Investment Income............. 1,060,848 -------------- NET ASSETS.................................................. $1,142,603,962 ============== MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $1,075,890,764 and 57,872,850 shares of beneficial interest issued and outstanding)............. $ 18.59 Maximum sales charge (4.75%* of offering price)......... .93 -------------- Maximum offering price to public........................ $ 19.52 ============== Class B Shares: Net asset value and offering price per share (Based on net assets of $43,023,552 and 2,317,026 shares of beneficial interest issued and outstanding)............. $ 18.57 ============== Class C Shares: Net asset value and offering price per share (Based on net assets of $21,255,010 and 1,145,748 shares of beneficial interest issued and outstanding)............. $ 18.55 ============== Class I Shares: Net asset value and offering price per share (Based on net assets of $2,434,636 and 130,966 shares of beneficial interest issued and outstanding)............. $ 18.59 ==============
* On sales of $100,000 or more, the sales charge will be reduced. 32 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL STATEMENTS continued Statement of Operations (As Restated--See Note 11) For the Year Ended September 30, 2006 INVESTMENT INCOME: Interest.................................................... $56,273,132 ----------- EXPENSES: Investment Advisory Fee..................................... 5,871,569 Distribution (12b-1) and Service Fees (Attributed to Classes A, B, and C of $2,647,401, $498,684, and $217,789, respectively)............................................. 3,363,874 Interest and Residual Trust Expenses........................ 1,416,322 Shareholder Services........................................ 691,987 Legal....................................................... 79,880 Custody..................................................... 72,940 Trustees' Fees and Related Expenses......................... 46,285 Other....................................................... 556,770 ----------- Total Expenses.......................................... 12,099,627 Less Credits Earned on Cash Balances.................... 57,640 ----------- Net Expenses............................................ 12,041,987 ----------- NET INVESTMENT INCOME....................................... $44,231,145 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 5,922,921 Futures................................................... 5,316,471 Swaps..................................................... (1,329,464) ----------- Net Realized Gain........................................... 9,909,928 ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 60,107,152 ----------- End of the Period: Investments............................................. 57,624,386 Swaps................................................... (926,662) Futures................................................. (958,483) ----------- 55,739,241 ----------- Net Unrealized Depreciation During the Period............... (4,367,911) ----------- NET REALIZED AND UNREALIZED GAIN............................ $ 5,542,017 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $49,773,162 ===========
See Notes to Financial Statements 33 VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets (As Restated--See Note 11)
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ---------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.............................. $ 44,231,145 $ 45,435,392 Net Realized Gain.................................. 9,909,928 18,143,294 Net Unrealized Depreciation During the Period...... (4,367,911) (18,879,056) -------------- -------------- Change in Net Assets from Operations............... 49,773,162 44,699,630 -------------- -------------- Distributions from Net Investment Income: Class A Shares................................... (41,491,407) (43,893,696) Class B Shares................................... (1,533,329) (1,921,231) Class C Shares................................... (670,641) (636,583) Class I Shares................................... (78,466) (9,817) -------------- -------------- (43,773,843) (46,461,327) -------------- -------------- Distributions from Net Realized Gain: Class A Shares................................... (22,486,062) (10,259,399) Class B Shares................................... (1,089,279) (577,204) Class C Shares................................... (456,473) (180,088) Class I Shares................................... (37,990) -0- -------------- -------------- (24,069,804) (11,016,691) -------------- -------------- Total Distributions................................ (67,843,647) (57,478,018) -------------- -------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....................................... (18,070,485) (12,778,388) -------------- -------------- FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold.......................... 74,704,286 76,930,648 Net Asset Value of Shares Issued Through Dividend Reinvestment..................................... 54,158,045 44,697,062 Cost of Shares Repurchased......................... (162,232,377) (138,280,579) -------------- -------------- NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..................................... (33,370,046) (16,652,869) -------------- -------------- TOTAL DECREASE IN NET ASSETS....................... (51,440,531) (29,431,257) NET ASSETS: Beginning of the Period............................ 1,194,044,493 1,223,475,750 -------------- -------------- End of the Period (Including accumulated undistributed net investment income of $1,060,848 and $772,068, respectively)...................... $1,142,603,962 $1,194,044,493 ============== ==============
34 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED--SEE NOTE 11) THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ----------------------------------------------------- 2006 2005 2004 2003 2002 ----------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.................................. $ 18.87 $ 19.07 $ 19.27 $ 19.65 $ 19.22 -------- -------- -------- -------- -------- Net Investment Income................... .72(a) .72 .76 .77 .81 Net Realized and Unrealized Gain/Loss... .09 (.01) .02 (.23) .87 -------- -------- -------- -------- -------- Total from Investment Operations.......... .81 .71 .78 .54 1.68 -------- -------- -------- -------- -------- Less: Distributions from Net Investment Income................................ .71 .74 .75 .74 .81 Distributions from Net Realized Gain.... .38 .17 .23 .18 .44 -------- -------- -------- -------- -------- Total Distributions....................... 1.09 .91 .98 .92 1.25 -------- -------- -------- -------- -------- NET ASSET VALUE, END OF THE PERIOD........ $ 18.59 $ 18.87 $ 19.07 $ 19.27 $ 19.65 ======== ======== ======== ======== ======== Total Return (b).......................... 4.49% 3.77% 4.22% 2.90% 9.28% Net Assets at End of the Period (In millions)............................... $1,075.9 $1,114.2 $1,137.2 $1,209.9 $1,244.3 Ratio of Expenses to Average Net Assets... 1.00% 0.94% 0.89% 0.86% 0.87% Ratio of Net Investment Income to Average Net Assets.............................. 3.87% 3.81% 3.99% 4.02% 4.30% Portfolio Turnover........................ 45% 65% 39% 58% 54% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)............................... 0.88% 0.88% 0.87% 0.86% 0.87%
(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 or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to .25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. See Notes to Financial Statements 35 VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED--SEE NOTE 11) continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $18.85 $19.05 $19.24 $19.63 $19.20 ------ ------ ------ ------ ------ Net Investment Income...................... .58(a) .59 .62 .63 .66 Net Realized and Unrealized Gain/Loss...... .09 (.02) .02 (.24) .88 ------ ------ ------ ------ ------ Total from Investment Operations............. .67 .57 .64 .39 1.54 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .57 .60 .60 .60 .67 Distributions from Net Realized Gain....... .38 .17 .23 .18 .44 ------ ------ ------ ------ ------ Total Distributions.......................... .95 .77 .83 .78 1.11 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $18.57 $18.85 $19.05 $19.24 $19.63 ====== ====== ====== ====== ====== Total Return (b)............................. 3.71% 3.04% 3.43% 2.08% 8.47% Net Assets at End of the Period (In millions).................................. $ 43.0 $ 56.2 $ 66.4 $ 82.6 $ 87.2 Ratio of Expenses to Average Net Assets...... 1.75% 1.70% 1.65% 1.62% 1.63% Ratio of Net Investment Income to Average Net Assets..................................... 3.11% 3.05% 3.23% 3.26% 3.53% Portfolio Turnover........................... 45% 65% 39% 58% 54% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).................................. 1.63% 1.64% 1.63% 1.62% 1.63%
(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. 36 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED--SEE NOTE 11) continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $18.84 $19.04 $19.23 $19.62 $19.19 ------ ------ ------ ------ ------ Net Investment Income...................... .58(a) .58 .62 .63 .67 Net Realized and Unrealized Gain/Loss...... .08 (.01) .02 (.24) .87 ------ ------ ------ ------ ------ Total from Investment Operations............. .66 .57 .64 .39 1.54 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .57 .60 .60 .60 .67 Distributions from Net Realized Gain....... .38 .17 .23 .18 .44 ------ ------ ------ ------ ------ Total Distributions.......................... .95 .77 .83 .78 1.11 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $18.55 $18.84 $19.04 $19.23 $19.62 ====== ====== ====== ====== ====== Total Return (b)............................. 3.66% 3.04% 3.43% 2.08% 8.48% Net Assets at End of the Period (In millions).................................. $ 21.3 $ 21.7 $ 19.9 $ 24.1 $ 22.1 Ratio of Expenses to Average Net Assets...... 1.75% 1.70% 1.65% 1.62% 1.63% Ratio of Net Investment Income to Average Net Assets..................................... 3.11% 3.05% 3.23% 3.25% 3.53% Portfolio Turnover........................... 45% 65% 39% 58% 54% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).................................. 1.63% 1.64% 1.63% 1.62% 1.63%
(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. See Notes to Financial Statements 37 VAN KAMPEN INSURED TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED--SEE NOTE 11) continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
AUGUST 12, 2005 (COMMENCEMENT OF YEAR ENDED OPERATIONS) TO CLASS I SHARES SEPTEMBER 30, SEPTEMBER 30, 2006 2005 --------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD................ $18.87 $18.93 ------ ------ Net Investment Income................................. .75(a) .10 Net Realized and Unrealized Gain/Loss................. .10 (.06) ------ ------ Total from Investment Operations........................ .85 .04 ------ ------ Less: Distributions from Net Investment Income.............. .75 .10 Distributions from Net Realized Gain.................. .38 -0- ------ ------ Total Distributions..................................... 1.13 .10 ------ ------ NET ASSET VALUE, END OF THE PERIOD...................... $18.59 $18.87 ====== ====== Total Return (b)........................................ 4.75% .20%* Net Assets at End of the Period (In millions)........... $ 2.4 $ 1.9 Ratio of Expenses to Average Net Assets................. 0.75% 0.70% Ratio of Net Investment Income to Average Net Assets.... 4.11% 4.06% Portfolio Turnover...................................... 45% 65% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)................. 0.63% 0.64%
* Non-Annualized (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. 38 See Notes to Financial Statements VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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 Fund offers Class A Shares, Class B Shares, Class C Shares and Class I Shares. Each class of shares differs by its initial sales load, contingent deferred sales charges, the allocation of class-specific expenses and voting rights on matters affecting a single class. 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. Interest rate swaps are valued using market quotations from brokers. 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, 2006, the Fund had $49,356,004 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 39 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. At September 30, 2006, the cost and related gross unrealized appreciation and depreciation were as follows: Cost of investments for tax purposes........................ $1,120,657,263 ============== Gross tax unrealized appreciation........................... $ 58,510,653 Gross tax unrealized depreciation........................... (42,823) -------------- Net tax unrealized appreciation on investments.............. $ 58,467,830 ==============
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, 2006 and 2005 was as follows:
2006 2005 Distributions paid from: Ordinary income........................................... $ 5,594,196 $ 1,834,335 Tax-exempt income......................................... 43,813,499 46,489,249 Long-term capital gain.................................... 18,477,514 9,269,523 ----------- ----------- $67,885,209 $57,593,107 =========== ===========
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 $114,771 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 $9,951 was reclassified from accumulated undistributed net investment income to accumulated net realized gain. A permanent book to tax difference of $6,200 was reclassed from accumulated net investment income to capital. As of September 30, 2006, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $ 362,927 Undistributed tax-exempt income............................. 1,719,881 Undistributed long-term capital gain........................ 3,333,429
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, 2006 and gains or losses recognized on securities for tax purposes but not for book. 40 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued F. INSURANCE EXPENSES The Fund typically invests in insured bonds. Any portfolio securities not specifically covered by a primary insurance policy are insured secondarily through the Fund's portfolio insurance policy. Insurance premiums are based on the daily balances of uninsured bonds in the portfolio of investments and are charged to expense on an accrual basis. The insurance policy guarantees the timely payment of principal and interest on the securities in the Fund's portfolio. G. EXPENSE REDUCTIONS During the year ended September 30, 2006, the Fund's custody fee was reduced by $57,640 as a result of credits earned on cash balances. H. FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES HELD The Fund enters into transactions in which it transfers to dealer trusts fixed rate bonds in exchange for cash and residual interests in the dealer trusts' assets and cash flows, which are in the form of inverse floating rate investments. The dealer trusts fund the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Fund to retain residual interests in the bonds. The Fund enters into shortfall agreements with the dealer trusts, which commit the Fund to pay the dealer trusts, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the dealer trusts and the liquidation value of the floating rate notes held by third parties, as well as any shortfalls in interest cash flows. The residual interests held by the Fund (inverse floating rate investments) include the right of the Fund (1) to cause the holders of the floating rate notes to tender their notes at par at the next interest rate reset date, and (2) to transfer the municipal bond from the dealer trusts to the Fund, thereby collapsing the dealer trusts. The Fund accounts for the transfer of bonds to the dealer trusts as secured borrowings, with the securities transferred remaining in the Fund's investment assets, and the related floating rate notes reflected as Fund liabilities under the caption "Floating Rate Note Obligations" on the Statement of Assets and Liabilities. The Fund records the interest income from the fixed rate bonds under the caption "Interest" and records the expenses related to floating rate note obligations and any administrative expenses of the dealer trusts under the caption "Interest and Residual Trust Expenses" in the Fund's Statement of Operations. The notes issued by the dealer trusts have interest rates that reset weekly and the floating rate note holders have the option to tender their notes to the dealer trusts for redemption at par at each reset date. At September 30, 2006, Fund investments with a value of $98,939,903 are held by the dealer trusts and serve as collateral for the $63,130,000 in floating rate notes outstanding at that date. Contractual maturities of the floating rate notes and interest rates in effect at September 30, 2006 are presented on the Portfolio of Investments. 41 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, Van Kampen Asset Management (the "Adviser") will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM First $500 million.......................................... .525% Next $500 million........................................... .500% Next $500 million........................................... .475% Over $1.5 billion........................................... .450%
For the year ended September 30, 2006, the Fund recognized expenses of approximately $21,900 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, 2006, the Fund recognized expenses of approximately $124,900 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Fund, 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, 2006, the Fund recognized expenses of approximately $549,300 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 $257,791 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2006. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligations and do not affect the net asset value of the Fund. Benefits under the retirement plan are payable upon retirement 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. For the year ended September 30, 2006, Van Kampen, as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $169,800 and 42 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued contingent deferred sales charge (CDSC) on redeemed shares of approximately $87,300. Sales charges do not represent expenses of the Fund. 3. CAPITAL TRANSACTIONS For the years ended September 30, 2006 and 2005, transactions were as follows:
YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ---------------------------- --------------------------- SHARES VALUE SHARES VALUE Sales: Class A........................ 3,647,193 $ 67,459,015 3,391,018 $ 64,402,543 Class B........................ 145,733 2,695,598 254,051 4,816,384 Class C........................ 193,827 3,592,442 298,578 5,659,465 Class I........................ 52,223 957,231 108,413 2,052,256 ---------- -------------- ---------- ------------- Total Sales...................... 4,038,976 $ 74,704,286 4,052,060 $ 76,930,648 ========== ============== ========== ============= Dividend Reinvestment: Class A........................ 2,782,083 $ 51,372,658 2,239,715 $ 42,453,709 Class B........................ 99,188 1,829,554 87,830 1,662,581 Class C........................ 45,556 839,386 30,180 570,946 Class I........................ 6,305 116,447 519 9,826 ---------- -------------- ---------- ------------- Total Dividend Reinvestment...... 2,933,132 $ 54,158,045 2,358,244 $ 44,697,062 ========== ============== ========== ============= Repurchases: Class A........................ (7,591,729) $ (140,348,327) (6,212,732) $(117,927,260) Class B........................ (909,576) (16,794,436) (844,830) (16,033,908) Class C........................ (248,131) (4,575,867) (219,186) (4,154,336) Class I........................ (27,777) (513,747) (8,717) (165,075) ---------- -------------- ---------- ------------- Total Repurchases................ (8,777,213) $ (162,232,377) (7,285,465) $(138,280,579) ========== ============== ========== =============
4. REDEMPTION FEES 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, 2006, the Fund received redemption fees of approximately $800, which are reported as part of "Cost of Shares Repurchased" on the Statement of Changes in Net Assets. The per share impact from redemption fees paid to the Fund was less than $0.01. 5. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $517,827,838 and $520,156,738, 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 may use derivative instruments for a variety of reasons, such as to attempt to protect the Fund against possible changes in the market value of its portfolio and to manage 43 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued the portfolio's effective yield, maturity and duration. All of the Fund's holdings, including derivative instruments, are marked to market each day with the change in value reflected in unrealized appreciation/depreciation. Upon disposition, a realized gain or loss is recognized accordingly, except when taking delivery of a security underlying a futures contract. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying a futures contract. Summarized below are the specific types of derivative financial instruments used by the Fund. A. FUTURES CONTRACTS A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in exchange traded futures contracts on U.S. Treasury Bonds or Notes for duration and risk management purposes 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, 2006, were as follows:
CONTRACTS Outstanding at September 30, 2005........................... 2,992 Futures Opened.............................................. 10,944 Futures Closed.............................................. (13,046) ------- Outstanding at September 30, 2006........................... 890 =======
B. INVERSE FLOATING RATE INVESTMENTS The Fund may invest a portion of its assets in inverse floating rate instruments, either through outright purchases of inverse floating rate securities or through the transfer of bonds to a dealer trust in exchange for cash and residual interests in the dealer trust. These investments are typically used by the Fund in seeking to enhance the yield of the portfolio. These instruments typically involve greater risks than a fixed rate municipal bond. In particular, these instruments are acquired through leverage or may have leverage embedded in them and therefore involve many of the risks associated with leverage. Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. Leverage may cause the Fund's net asset value to be more volatile than if it had not been leveraged because leverage tends to magnify the effect of any increases or decreases in the value of the Fund's portfolio securities. The use of leverage may also cause the Fund to liquidate portfolio positions when it may not be advantageous to do so in order to satisfy its obligations with respect to inverse floating rate instruments. C. INTEREST RATE SWAPS The Fund may enter into forward interest rate swap transactions intended to help the Fund manage its overall interest rate sensitivity, either shorter or longer, generally to more closely align the Fund's interest rate sensitivity with that of the broader 44 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued municipal market. Forward interest rate swap transactions involve the Fund's agreement with a counterparty to pay, in the future, a fixed or variable rate payment in exchange for the counterparty paying the Fund a variable or fixed rate payment, the accruals for which would begin at a specified date in the future (the "effective date"). The amount of the payment obligation is based on the notional amount of the forward swap contract and the termination date of the swap (which is akin to a bond's maturity). The value of the Fund's swap commitment would increase or decrease based primarily on the extent to which long-term interest rates for bonds having a maturity of the swap's termination date increases or decreases. The Fund may terminate a swap contract prior to the effective date, at which point a realized gain or loss is recognized. When a forward swap is terminated, it ordinarily does not involve the delivery of securities or other underlying assets or principal, but rather is settled in cash on a net basis. The Fund intends, but is not obligated, to terminate its forward swaps before the effective date. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the credit risk associated with a counterparty failing to honor its commitment to pay any realized gain to the Fund upon termination. To reduce such credit risk, all counterparties are required to pledge collateral daily (based on the daily valuation of each swap) on behalf of the Fund with a value approximately equal to the amount of any unrealized gain. Reciprocally, when the Fund has an unrealized loss on a swap contract, the Fund has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate. Restricted cash, if any, for segregating purposes is shown on the Statement of Assets and Liabilities. 7. DISTRIBUTION AND SERVICE PLANS Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"), an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively, the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate the Distributor for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees 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. These fees are accrued daily and paid to the Distributor monthly. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed receivable") was approximately $1,072,700 and $58,600 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, the distribution fee is reduced. 8. INDEMNIFICATIONS The Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. 9. LEGAL MATTERS The Adviser and certain affiliates of the Adviser are named as defendants in a derivative action which additionally names as defendants certain individual trustees of certain 45 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 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 Van Kampen 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 derivative action was coordinated with a direct action alleging related violations of defendants' statutory disclosure obligations and fiduciary duties with respect to the payments described above. In addition, this derivative action was stayed by agreement of the parties pending rulings on the motion to dismiss the direct action and the motion to dismiss another derivative action brought by the same plaintiff that brought this derivative action, alleging market timing and late trading in the Van Kampen funds. In April 2006, the court granted defendants' motion to dismiss the direct action. In June 2006, the court granted defendants' motion to dismiss the market timing action. Accordingly, the stay on this action was lifted. Plaintiff and defendants have agreed that this action should be dismissed in light of the rulings dismissing the two cases discussed above. The Court has approved a notice to shareholders regarding the dismissal, which is located at the back of this Report. 10. ACCOUNTING PRONOUNCEMENTS In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The impact to the Fund's financial statements, if any, is currently being assessed. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures. 11. RESTATEMENT INFORMATION Subsequent to the issuance of its September 30, 2006 financial statements, the Fund determined that the criteria for sale accounting in Statement of Financial Accounting Standards No. 140 had not been met for certain municipal bonds transferred to dealer trusts during the fiscal years ended September 30, 2006, 2005, 2004, 2003 and 2002 and that the transfers should have been accounted for as secured borrowings rather than as sales. Accordingly, the Fund has restated the Statement of Assets and Liabilities as of September 30, 2006, the related Statement of Operations and Statement of Changes in Net Assets for the year then ended and the Financial Highlights for each of the five years in the period then ended to give effect to recording the transfers of the municipal bonds as secured borrowings. The footnotes to the financial statements have also been revised to further explain these transactions, the accounting treatment thereof and the associated risks. See footnotes 1H and 6B. 46 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued Among other things, the effects of properly reporting these municipal securities known as "inverse floaters" are to increase assets and liabilities by corresponding and equal amounts, and to increase interest income and interest and residual trust expenses by corresponding and equal amounts. These changes in the financial statements did not impact the Fund's net asset values per share or the Fund's total returns for the current or any prior period. These changes do, however, impact certain ratios reported in the Fund's financial highlights for the current and prior years. The following line items from the respective financial statements and financial highlights have been changed as a result of these restatements.
PREVIOUSLY REPORTED RESTATED STATEMENT OF ASSETS AND LIABILITIES AS OF SEPTEMBER 30, 2006 Cost.................................................. $1,121,505,190 $1,184,630,707 Total Investments..................................... 1,179,125,093 1,242,255,093 TOTAL ASSETS............................................ 1,196,954,989 1,260,084,989 Payables: Floating Rate Note Obligations...................... -- 63,130,000 TOTAL LIABILITIES....................................... 54,351,027 117,481,027 NET ASSETS CONSIST OF: Net Unrealized Appreciation........................... 55,734,758 55,739,241 Accumulated Net Realized Gain......................... 5,001,190 4,996,707 STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2006 Interest.............................................. 54,856,810 56,273,132 Interest and Residual Trust Expenses.................. -- 1,416,322 TOTAL EXPENSES.......................................... 10,683,305 12,099,627 NET EXPENSES............................................ 10,625,665 12,041,987 REALIZED AND UNREALIZED GAIN/LOSS Investments........................................... 5,927,404 5,922,921 NET REALIZED GAIN....................................... 9,914,411 9,909,928 UNREALIZED APPRECIATION/DEPRECIATION: End of the Period: Investments......................................... 57,619,903 57,624,386 Net Unrealized Depreciation During the Period......... (4,372,394) (4,367,911) STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2006 Net Realized Gain..................................... 9,914,411 9,909,928 Net Unrealized Depreciation During the Period......... (4,372,394) (4,367,911)
47 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued FINANCIAL HIGHLIGHTS
YEAR ENDED SEPTEMBER 30, ----------------------------------------- 2006 2005 2004 2003 2002 PREVIOUSLY REPORTED CLASS A Ratio of Expenses to Average Net Assets....... 0.88% 0.88% 0.87% 0.86% 0.87% Portfolio Turnover............................ 48% 66% 40% 61% 54% RESTATED CLASS A Ratio of Expenses to Average Net Assets....... 1.00% 0.94% 0.89% 0.86% 0.87% Portfolio Turnover............................ 45% 65% 39% 58% 54% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)................................... 0.88% 0.88% 0.87% 0.86% 0.87%
YEAR ENDED SEPTEMBER 30, ----------------------------------------- 2006 2005 2004 2003 2002 PREVIOUSLY REPORTED CLASS B Ratio of Expenses to Average Net Assets....... 1.63% 1.64% 1.63% 1.62% 1.63% Portfolio Turnover............................ 48% 66% 40% 61% 54% RESTATED CLASS B Ratio of Expenses to Average Net Assets....... 1.75% 1.70% 1.65% 1.62% 1.63% Portfolio Turnover............................ 45% 65% 39% 58% 54% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)................................... 1.63% 1.64% 1.63% 1.62% 1.63%
48 VAN KAMPEN INSURED TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued FINANCIAL HIGHLIGHTS continued
YEAR ENDED SEPTEMBER 30, ----------------------------------------- 2006 2005 2004 2003 2002 PREVIOUSLY REPORTED CLASS C Ratio of Expenses to Average Net Assets....... 1.63% 1.64% 1.63% 1.62% 1.63% Portfolio Turnover............................ 48% 66% 40% 61% 54% RESTATED CLASS C Ratio of Expenses to Average Net Assets....... 1.75% 1.70% 1.65% 1.62% 1.63% Portfolio Turnover............................ 45% 65% 39% 58% 54% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)................................... 1.63% 1.64% 1.63% 1.62% 1.63%
YEAR ENDED SEPTEMBER 30, -------------- 2006 2005 PREVIOUSLY REPORTED CLASS I Ratio of Expenses to Average Net Assets................... 0.63% 0.64% Portfolio Turnover........................................ 48% 66% RESTATED CLASS I Ratio of Expenses to Average Net Assets................... 0.75% 0.70% Portfolio Turnover........................................ 45% 65% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)........ 0.63% 0.64%
While the Statement of Assets and Liabilities as of September 30, 2005, 2004, 2003 and 2002 (not presented herein) and the Statements of Operations for the years ended September 30, 2005, 2004, 2003 and 2002 (not presented herein) have not been reissued to give effect to the restatement, the principal effects of the restatement would be the same as those described above for the September 30, 2006 financial statements, thus resulting in no changes in the Fund's net asset values per share or total returns for such period but changing certain ratios reported (which changes are reflected in the Financial Highlights of these financial statements for the year ended September 30, 2006). 49 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, 2006, 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, 2006, 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, 2006, 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. As discussed in Note 11, the statement of assets and liabilities, including the portfolio of investments as of September 30, 2006, the related statement of operations and statement of changes in net assets for the year then ended and the financial highlights for each of the five years in the period then ended have been restated. /s/ Ernst & Young LLP Chicago, Illinois November 14, 2006, except for Note 11, as to which the date is January 26, 2007 50 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 DENNIS SHEA Vice President J. DAVID GERMANY Vice President AMY R. DOBERMAN Vice President STEFANIE V. CHANG Vice President and Secretary JOHN L. SULLIVAN Chief Compliance Officer JAMES W. GARRETT 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 One Lincoln Street Boston, Massachusetts 02111 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, 2006. The Fund designated 99.9% of the income distributions as a tax-exempt income distribution. The Fund designated and paid $18,477,514 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. 51 VAN KAMPEN INSURED TAX FREE INCOME FUND TRUSTEE AND OFFICER 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, the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange Corp. and 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:
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 (61) Trustee Trustee Chairman and Chief 71 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 (68) Trustee Trustee Prior to January 1999, 71 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.
52
VAN KAMPEN INSURED TAX FREE INCOME FUND TRUSTEE AND OFfiCER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (66) Trustee Trustee President of CAC, L.L.C., 71 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 Quidel San Diego, CA 92122-6223 advisory services. Prior Corporation, Stericycle, to February 2001, Vice Inc., Ventana Medical Chairman and Director of Systems, Inc., and GATX Anixter International, Corporation, and Trustee Inc., a global of The Scripps Research distributor of wire, Institute. Prior to cable and communications January 2005, Trustee of connectivity products. the University of Chicago Prior to July 2000, Hospitals and Health Managing Partner of Systems. Prior to April Equity Group Corporate 2004, Director of Investment (EGI), a TheraSense, Inc. Prior to company that makes January 2004, Director of private investments in TeleTech Holdings Inc. other companies. and Arris Group, Inc. 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).
53
VAN KAMPEN INSURED TAX FREE INCOME FUND TRUSTEE AND OFfiCER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (58) Trustee Trustee Managing Partner of 71 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 (54) Trustee Trustee Director and President of 71 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 (71) Trustee Trustee Prior to 1998, President 71 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.
54
VAN KAMPEN INSURED TAX FREE INCOME FUND TRUSTEE AND OFfiCER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (70) Trustee Trustee President of Nelson 71 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 (66) Trustee Trustee President Emeritus and 71 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 71 Trustee/Director/Managing (64) 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.
55 VAN KAMPEN INSURED TAX FREE INCOME FUND TRUSTEE AND OFFICER INFORMATION continued INTERESTED TRUSTEE:*
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 Wayne W. Whalen* (67) Trustee Trustee Partner in the law firm 71 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.
* 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. 56 VAN KAMPEN INSURED TAX FREE INCOME FUND TRUSTEE AND OFFICER INFORMATION continued OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (67) 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 Van Kampen Advisors Inc. since June 2003. Director of Investor Services since September 2002. Director of the Adviser, Van Kampen Investments and Van Kampen Exchange Corp. since January 2005. 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. Dennis Shea (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 1221 Avenue of the Americas since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser New York, NY 10020 and Van Kampen Advisors Inc. Chief Investment Officer-Global Equity of the same entities since February 2006. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006. Previously, Managing Director and Director of Global Equity Research at Morgan Stanley from April 2000 to February 2006. J. David Germany (52) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 25 Cabot Square since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser Canary Wharf and Van Kampen Advisors Inc. Chief Investment Officer - London, GBR E14 4QA Global Fixed Income of the same entities since December 2005. Managing Director and Director of Morgan Stanley Investment Management Ltd. Director of Morgan Stanley Investment Management (ACD) Limited since December 2003. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006.
57
VAN KAMPEN INSURED TAX FREE INCOME FUND TRUSTEE AND OFfiCER INFORMATION continued TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Amy R. Doberman (44) 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 Advisors 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 (40) 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. John L. Sullivan (51) 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. James W. Garrett (37) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas and Treasurer since 2006 Chief Financial Officer and Treasurer of Morgan Stanley New York, NY 10020 Institutional Funds since 2002 and of Funds in the Fund Complex from January 2005 to August 2005 and since September 2006.
58 Notice to Fund Shareholders As previously disclosed, a derivative action was filed on behalf of the Fund against the Fund's investment adviser, broker-dealer, distributor, and Trustees. The complaint alleges that defendants violated federal securities laws and state laws in connection with certain economic incentive programs. The case is pending before the Honorable Richard Owen, United States District Judge in the Southern District of New York. Defendants have filed a motion to dismiss the complaint in its entirety on numerous grounds, and that motion is still pending. On April 18, 2006, Judge Owen dismissed a separate lawsuit against Morgan Stanley and all of the same corporate defendants that are named in the derivative action. The Morgan Stanley suit related to the same incentive programs that are at issue in the derivative action, and asserted many of the same legal claims. In his decision, Judge Owen found that the programs do not violate federal law, and that defendants had made the appropriate disclosures concerning the programs. The plaintiffs in the Morgan Stanley suit did not appeal from the decision, and that decision is now final. In light of this decision by Judge Owen -- as well as several other decisions by other judges in the Southern District of New York and certain other courts that have dismissed similar complaints against other investment funds -- plaintiff in the derivative action has determined that the suit would be unsuccessful, if pursued further. Accordingly, plaintiff has asked Judge Owen to dismiss the action. No attorneys' fees will be paid by defendants and no consideration will be paid to the named plaintiff. All investors in the Fund are hereby provided notice of this proposed dismissal. If you object to the proposed dismissal, your objection must be mailed no later than December 29, 2006, in writing, to the Honorable Richard Owen, United States District Judge, United States Courthouse, Room 640, 500 Pearl Street, New York, NY 10007-1312. Copies of the objection must also be mailed to Denise Davis Schwartzman, Esquire, Chimicles & Tikellis LLP, 361 West Lancaster Avenue, Haverford, PA 19041; and Richard A. Rosen, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, NY 10019-6064. 59 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)2006 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 32, 332, 532 TFINANR 11/06 (VAN KAMPEN INVESTMENTS LOGO) RN06-03167P-Y09/06 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, 2006. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CLASS A, B, AND C SHARE PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUSES CONTAIN INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. TO OBTAIN AN ADDITIONAL PROSPECTUS, CONTACT YOUR FINANCIAL ADVISOR OR DOWNLOAD ONE AT VANKAMPEN.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 9/30/06 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index from 9/30/96 through 9/30/06. Class A shares, adjusted for sales charges. (LINE GRAPH)
VAN KAMPEN STRATEGIC MUNICIPAL LEHMAN BROTHERS MUNICIPAL BOND INCOME FUND INDEX ------------------------------ ------------------------------ 9/96 9523 10000 9629 10113 9756 10298 9742 10255 9753 10274 9832 10369 9788 10230 9854 10316 9954 10471 10055 10583 10337 10876 10269 10774 9/97 10384 10902 10471 10972 10480 11037 10624 11197 10720 11313 10751 11316 10779 11326 10734 11275 10872 11454 10930 11499 10966 11528 11136 11706 9/98 11261 11852 11216 11851 11238 11893 11260 11923 11356 12065 11308 12012 11321 12029 11364 12059 11324 11989 11159 11816 11180 11859 11021 11764 9/99 10979 11769 10835 11642 10912 11765 10798 11678 10666 11627 10775 11762 10917 12019 10848 11948 10763 11886 10940 12201 11057 12371 11158 12561 9/00 11118 12496 11112 12632 11080 12728 11166 13042 11227 13172 11314 13213 11410 13332 11308 13187 11414 13329 11494 13418 11626 13617 11803 13842 9/01 11726 13795 11807 13959 11738 13842 11657 13711 11754 13949 11835 14117 11743 13840 11879 14111 11951 14196 12060 14346 12161 14531 12225 14705 9/02 12345 15028 12185 14778 12212 14717 12371 15028 12314 14990 12465 15199 12426 15208 12540 15309 12751 15667 12789 15601 12525 15055 12596 15167 9/03 12864 15613 12896 15534 12988 15696 13070 15826 13173 15917 13356 16156 13328 16100 13101 15719 13087 15662 13134 15719 13284 15926 13519 16245 9/04 13619 16331 13740 16472 13736 16336 13972 16535 14113 16690 14158 16634 14161 16529 14357 16790 14523 16909 14656 17013 14724 16937 14881 17108 9/05 14674 16992 14610 16889 14702 16970 14914 17116 14981 17162 15173 17278 15172 17158 15194 17153 15308 17229 15354 17164 15561 17368 15781 17626 9/06 15909 17749
A SHARES B SHARES C SHARES 6/28/85 4/30/93 8/13/93 - --------------------------------------------------------------------------------------------- W/MAX W/MAX W/MAX 4.75% 4.00% 1.00% AVERAGE ANNUAL W/O SALES SALES W/O SALES SALES W/O SALES SALES TOTAL RETURNS CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES Since Inception 6.68% 6.44% 5.07% 5.07% 4.76% 4.76% 10-year 5.27 4.75 4.62 4.62 4.54 4.54 5-year 6.29 5.26 5.50 5.26 5.64 5.64 1-year 8.41 3.26 7.54 3.54 7.55 6.55 - --------------------------------------------------------------------------------------------- 30 day SEC Yield 4.54% 4.02% 3.98%
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. 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, 2006 As discussed in Note 11 to the Fund's financial statements, the Fund's financial statements have been restated. The accompanying management's discussion of fund performance gives effect to that restatement. MARKET CONDITIONS Against the backdrop of strong economic growth, good employment data and inflationary pressures stemming from rising oil prices, the Federal Open Market Committee (the "Fed") continued its tightening campaign during the first nine months of the reporting period, raising the federal funds target rate six times to 5.25 percent at the end of June. As the months progressed, however, economic growth moderated as consumer spending and housing weakened while inflation concerns eased, prompting investors to speculate that the Fed would take a break from rate increases. In August the Fed did pause, ending a two-year run of 17 consecutive rate increases -- the longest stretch of increases in 25 years. At its September meeting, the Fed again kept its target rate unchanged, and indicated that any future rate increases would be driven by the weight of economic data. As a result of the improved outlook for the fixed income market, yields on longer-maturity municipal bonds fell dramatically in the latter months of the reporting year, ultimately ending at the lowest level in decades. Yields on shorter-maturity municipal bonds, however, moved higher. Accordingly, the slope of the municipal yield curve flattened as the spread between short-term and long-term interest rates narrowed. Demand for municipal bonds continued to be strong during the period. In fact, inflows into municipal bond funds were 45 percent higher year-to-date through September than for the same period last year, much of which went into high yield mutual funds. Because prevailing interest rates were still at relatively low levels, investors increasingly sought out lower-quality, higher yielding bonds. The increased demand for high yield bonds led this segment of the market to considerably outperform high-grade issues. In addition, long-term bonds continued to earn the best returns, while the short end of the curve posted the lowest returns as Fed rate increases moved yields in this portion of the curve higher. Although municipal bond issuance remained brisk in the last quarter of 2005, volume declined throughout the remaining months of the period. As of the end of September, national municipal bond issuance was down 14 percent for 2006. The reduced supply, coupled with growing demand, further fueled municipal bond performance. 2 PERFORMANCE ANALYSIS The fund returned 8.41 percent for the 12 months ended September 30, 2006 (Class A shares, unadjusted for sales charges). In comparison, the fund's benchmark, the Lehman Brothers Municipal Bond Index, returned 4.45 percent for the period. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2006
- -------------------------------------------------------------- LEHMAN BROTHERS CLASS A CLASS B CLASS C MUNICIPAL BOND INDEX 8.41% 7.54% 7.55% 4.45% - --------------------------------------------------------------
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. A variety of factors contributed to the fund's strong performance during the reporting year. The fund's allocation to high yield bonds and lower rated bonds was a considerable driver of performance. Given the relatively low level of interest rates, investors seeking yield turned to the high yield bond market, which led to further 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.) At the same time, supply of new high yield bonds continued to decline. The combination of steep demand, narrowing spreads, and decreasing supply served as catalysts to the high yield market. The fund's high yield holdings realized price appreciation, especially in the health care, special tax district and master settlement tobacco bonds. The fund made a major sector change which allowed the fund to capture considerable gains during the period. August, we sold the portfolio's holdings in special facility airline revenue bonds, which represented over 10 percent of the fund's holdings. The airline industry has made a significant turnaround since September 11, 2001. Consequently, these bonds rallied sharply from their very depressed levels of only a few years ago. We believed that the prices bonds were trading at in the summer did not adequately reflect the geopolitical and oil price risks inherent in the industry. We therefore decided this was a good time for the fund to exit the sector and lock in gains. The funds from sale of airline issues were primarily redeployed to increasing the portfolio's exposure to inverse floating-rate investments,* which offered attractive yields. At the same time, we initiated hedging strategies to help offset the additional price volatility of these derivatives. Inverse floaters held by the *An inverse floating-rate investment, or "inverse floater", is a variable rate investment whose net interest rate changes in the opposite direction from the change in the reference rate. 3 fund carry a AAA rating and, as such, the fund's allocation to higher-rated bonds increased while the non-rated portion of the portfolio declined to approximately 60 percent of holdings as of the end of the period. While the fund outperformed its benchmark for the reporting period, the Lehman Brothers Municipal Bond Index, a few isolated issues declined due to security-specific reasons. Holdings in the higher education and affordable senior housing sectors also tempered performance early in the period. The fund remained well diversified across the municipal bond market. As of September 30, 2006, the life care, acute care, and special tax/assessment district sectors represented the largest sector weightings. We closely manage the growth of the fund's asset base as an important part of our commitment to the fund's existing shareholders. Based on our analysis of the supply and demand trends in the market, we believed the prudent course was to keep the fund closed to new investors during the period. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the fund in the future. 4
RATINGS ALLOCATIONS AS OF 9/30/06 AAA/Aaa 16.9% AA/Aa 7.9 A/A 13.0 BBB/Baa 12.3 BB/Ba 2.0 B/B 0.7 CCC/Caa 0.1 Non-Rated 47.1 TOP FIVE SECTORS AS OF 9/30/06 Hospital 17.5% Life Care 16.3 Special Tax District 14.7 Tobacco Settlement 5.3 Public Buildings 4.9 SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/06 California 16.9% Florida 15.4 New York 10.1 Illinois 8.4 Texas 7.6 Michigan 6.1 Tennessee 5.6 Minnesota 5.2 New Jersey 5.0 Colorado 4.7 Pennsylvania 4.3 Missouri 4.1 Virginia 3.8 Ohio 3.4 District of Columbia 3.0 Arizona 2.7 Massachusetts 1.9 Alaska 1.8 Oklahoma 1.8 Puerto Rico 1.7 Maryland 1.5 South Carolina 1.5 Georgia 1.3 Wisconsin 1.3 Alabama 0.9 Indiana 0.9 Iowa 0.9 Louisiana 0.8 Oregon 0.8 South Dakota 0.8 Washington 0.7 New Hampshire 0.6 Nevada 0.5 New Mexico 0.5
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5
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/06 (continued from previous page) Connecticut 0.4 Hawaii 0.4 Wyoming 0.4 Kansas 0.3 North Carolina 0.3 Rhode Island 0.3 Delaware 0.2 Idaho 0.2 Montana 0.2 North Dakota 0.2 U. S. Virgin Islands 0.2 Utah 0.2 Vermont 0.1 Mississippi 0.0* ----- Total Long-Term Investments 129.9% Short-Term Investments 0.3 Liability for Floating Rate Obligations Related to Securities Held (31.2) Other Assets in Excess of Liabilities 1.0 ----- Net Assets 100.0%
* Amount is less than 0.1% 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 are as a percentage of long-term investments. Sectors are as a percentage of total 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. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. 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 without charge 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 charges on redemptions of Class B and Class C Shares and redemption fees; 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 4/1/06 - 9/30/06. 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 or redemption fees. 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.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/06 9/30/06 4/1/06-9/30/06 Class A Actual...................................... $1,000.00 $1,048.54 $7.09 Hypothetical................................ 1,000.00 1,020.87 6.99 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,044.69 10.97 Hypothetical................................ 1,000.00 1,017.07 10.81 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,044.28 10.97 Hypothetical................................ 1,000.00 1,017.07 10.81 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 1.38%, 2.14%, and 2.14% 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 The following table shows what expenses a shareholder would have paid, excluding interest and residual trust expenses.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/06 9/30/06 4/1/06-9/30/06 Class A Actual...................................... $1,000.00 $1,048.54 $4.31 Hypothetical................................ 1,000.00 1,020.87 4.26 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,044.69 8.15 Hypothetical................................ 1,000.00 1,017.07 8.04 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,044.28 8.15 Hypothetical................................ 1,000.00 1,017.07 8.04 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.84%, 1.59%, and 1.59% 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. 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 22, 2006, 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 and changes made in the Fund's portfolio management team over time. 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, 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 the Board. The trustees 12 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. 13 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MUNICIPAL BONDS 129.9% ALABAMA 0.9% $ 2,000 Alabama Drinking Wtr Fin Auth Revolving Fd Ln Ser C (AMBAC Insd)................. 5.375% 08/15/23 $ 2,122,540 1,000 Alabama Drinking Wtr Fin Auth Revolving Fd Ln Ser C (AMBAC Insd)................. 5.750 08/15/18 1,081,060 2,000 Alabama Wtr Pollutn Ctl Auth (AMBAC Insd).................................... 5.750 08/15/18 2,153,740 1,500 Alexander City, AL Spl Care Fac Fin Auth Med Fac Rev Russell Hosp Corp Ser A...... 5.750 12/01/36 1,563,810 1,000 Butler, AL Indl Dev Brd Solid GA Pacific Corp Proj Rfdg (AMT)..................... 5.750 09/01/28 1,024,660 1,500 Colbert Cnty Northwest Auth Hlthcare Fac...................................... 5.750 06/01/27 1,570,350 250 Huntsville Redstone Vlg, AL Spl Care Fac Fin Auth Ser A........................... 8.250 12/01/32 272,672 2,500 Huntsville/Carlton Cove, AL Carlton Cove Inc Proj Ser A........................... 7.000 11/15/17 1,356,975 3 Mobile, AL Indl Dev Brd Solid Waste Disp Rev Mobile Energy Svc Co Proj Rfdg....... 6.950 01/01/20 293 1,395 Valley, AL Spl Care Fac Fin Auth Rev Lanier Mem Hosp Ser A.................... 5.600 11/01/16 1,429,749 1,750 Valley, AL Spl Care Fac Fin Auth Rev Lanier Mem Hosp Ser A.................... 5.650 11/01/22 1,791,492 -------------- 14,367,341 -------------- ALASKA 1.8% 1,320 Alaska Indl Dev & Expt Auth Williams Lynxs AK Cargoport (Acquired 05/17/01, Cost $1,320,000) (AMT)................... 7.800 05/01/14 1,406,777 3,890 Juneau, AK City & Borough Rev Saint Anns Care Ctr Proj............................ 6.875 12/01/25 3,999,037 25,000 Northern Tob Securitization Corp. Asset Bkd Ser A................................ 5.000 06/01/46 25,069,250 -------------- 30,475,064 -------------- ARIZONA 2.7% 1,000 Arizona Hlth Fac Auth Rev Terraces Proj Ser A.................................... 7.500 11/15/23 1,127,360 1,250 Arizona Hlth Fac Auth Rev Terraces Proj Ser A.................................... 7.750 11/15/33 1,411,812 5,770 Cochise Cnty, AZ Indl Dev Sierra Vista Cmnty Hosp Ser A Rfdg.................... 6.750 12/01/26 5,895,209 500 Flagstaff, AZ Indl Dev Auth Rev Sr Living Cmnty Northn AZ Proj..................... 6.300 09/01/38 504,760 985 Flagstaff, AZ Indl Dev Auth Rev Sr Living Cmnty Northn AZ Proj..................... 7.500 03/01/35 1,074,822 7,000 Glendale, AZ Indl Dev Auth Rfdg.......... 5.000 12/01/35 7,131,600 4,000 Maricopa Cnty, AZ Hlth Fac Rev Catholic Hlthcare West Ser A...................... 5.500 07/01/26 4,288,880
14 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- ARIZONA (CONTINUED) $ 2,290 Maricopa Cnty, AZ Indl Dev Christian Care Mesa Inc Proj Ser A (Prerefunded @ 04/01/07)................................ 7.750% 04/01/15 $ 2,379,516 2,000 Maricopa Cnty, AZ Indl Dev Christian Care Mesa Inc Proj Ser A (Prerefunded @ 04/01/07)................................ 7.875 04/01/27 2,079,360 1,500 Peoria, AZ Indl Dev Auth Rev Sierra Winds Life Ser A Rfdg.......................... 6.375 08/15/29 1,555,230 2,525 Pima Cnty, AZ Indl Dev Auth Ed Rev Fac Choice Ed & Dev Corp Proj................ 6.250 06/01/26 2,577,040 1,865 Pima Cnty, AZ Indl Dev Auth Ed Rev Fac Milestones Charter Sch Proj.............. 6.750 11/01/33 1,905,191 1,590 Pima Cnty, AZ Indl Dev Auth Ed Rev Fac P.L.C Charter Sch Proj................... 6.500 04/01/26 1,685,352 2,805 Pima Cnty, AZ Indl Dev Auth Ed Rev Fac P.L.C Charter Sch Proj................... 6.750 04/01/36 2,992,346 4,225 Pima Cnty, AZ Indl Dev Auth Ed Rev Fac Premier & Air Co......................... 7.000 09/01/35 4,296,022 800 Pima Cnty, AZ Indl Dev Auth Fac Skyline Tech High Sch Proj....................... 7.500 02/01/34 814,096 1,000 Pima Cnty, AZ Indl Dev Auth Rev La Posada at Park Ctr Ser A........................ 7.000 05/15/27 1,029,100 790 Red Hawk Canyon Cmnty Fac Dist No 2 AZ Dist Assmt Rev Ser A..................... 6.500 12/01/12 808,857 2,080 Tucson, AZ Multi-Family Rev Hsg Catalina Asstd Living Ser A (AMT)................. 6.500 07/01/31 1,819,896 -------------- 45,376,449 -------------- CALIFORNIA 16.9% 1,000 ABAG Fin Auth Nonprofit Corp CA Amern Baptist Homes Ser A Rfdg................. 5.850 10/01/27 1,014,840 1,000 Beaumont, CA Fin Auth Loc Agy Ser A...... 5.600 09/01/25 1,055,410 2,000 Beaumont, CA Fin Auth Loc Agy Ser A...... 5.650 09/01/30 2,121,620 2,000 Beaumont, CA Fin Auth Loc Agy Ser A...... 5.700 09/01/35 2,109,920 1,000 Beaumont, CA Fin Auth Loc Agy Ser D...... 5.800 09/01/35 1,059,120 1,000 Blythe, CA Redev Agy Proj................ 5.750 05/01/34 1,053,580 1,000 Brentwood, CA Infrastructure Auth Rev.... 5.875 09/02/34 1,030,520 15,000 California Hlth Fac Fing Auth Rev Cedars Sinai Med Ctr Rfdg (i)................... 5.000 11/15/34 15,454,725 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 3,178,380 24,600 California St (i)........................ 5.250 02/01/28 26,202,936 20,000 California St Var Purp (i)............... 5.250 11/01/26 21,420,800 25,940 California St Var Purp (i)............... 5.000 09/01/27 27,491,731 1,000 California Statewide Cmnty Dev Auth Elder Care Alliance Ser A...................... 8.250 11/15/32 1,098,560
See Notes to Financial Statements 15 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- CALIFORNIA (CONTINUED) $ 940 California Statewide Cmnty Dev Auth Multi-Family Rev Hsg Heritage Pointe Sr Apt Ser QQ (Acquired 02/19/02, Cost $937,650) (AMT) (a)...................... 7.500% 10/01/26 $ 977,374 20,000 California Statewide Cmntys Dev Auth Rev Kaiser Permanente Ser B (i).............. 5.000 03/01/41 20,839,400 20,000 California Statewide Cmntys Dev Auth Rev Kaiser Permanente Ser B (i).............. 5.250 03/01/45 20,839,400 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 1,066,360 1,000 Chino, CA Cmnty Fac Dist No 03 Impt Area 1........................................ 5.700 09/01/29 1,048,680 5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev (Escrowed to Maturity) (MBIA Insd).................................... * 09/01/17 2,537,300 1,500 Corona-Norco, CA Univ Sch Dist Pub Fin Auth Spl Tax Rev Ser A................... 5.800 09/01/35 1,548,660 2,300 Foothill/Eastern Tran Corridor Agy CA Toll Rd Rev (MBIA Insd).................. * 01/15/18 1,310,655 10,880 Golden St Tob Securitization Corp CA Tob Settlement Enhanced Ser A (AMBAC insd) (i)...................................... 5.000 06/01/45 11,303,014 30,000 Golden St Tob Securitization Corp CA Tob Settlement Rev Enhanced Asset Bkd Ser A (i)...................................... 5.000 06/01/45 30,772,800 800 Golden St Tob Securitization Corp CA Tob Settlement Ser 2003 A-1.................. 6.750 06/01/39 906,632 1,750 Huntington Beach, CA Cmnty No 2003 1 Huntington Ctr........................... 5.800 09/01/23 1,808,362 2,000 Indio, CA Redev Agy Tax Alloc Sub Merged Proj Area Ser B.......................... 6.375 08/15/33 2,180,520 500 Indio, CA Redev Agy Tax Alloc Sub Merged Proj Area Ser B.......................... 6.500 08/15/34 549,160 1,000 Jurupa, CA Cmnty Svc Dist Spl Cmnty Fac Dist No 4 Ser A.......................... 5.700 09/01/34 1,032,270 1,780 Lake Elsinore, CA Pub Fin Auth Loc Agy Rev Ser F................................ 7.100 09/01/20 1,862,272 2,500 Lake Elsinore, CA Spl Tax Cmnty Fac Dist 2 Area AA................................ 5.450 09/01/36 2,571,925 1,000 Lee Lake Wtr Dist CA Cmnty Fac Dist No 1 Spl Tax Sycamore Creek................... 6.000 09/01/33 1,073,830 905 Lincoln, CA Spl Tax Cmnty Fac Dist No 2003 Ser 1............................... 6.000 09/01/34 967,780 14,180 Los Angeles, CA Hbr Dept Rev Ser B Rfdg (AMT) (FGIC Insd) (i).................... 5.000 08/01/22 15,169,303
16 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- CALIFORNIA (CONTINUED) $ 8,400 Los Angeles, CA Hbr Dept Rev Ser B Rfdg (AMT) (FGIC Insd) (i).................... 5.000% 08/01/23 $ 8,986,047 1,395 Millbrae, CA Residential Fac Rev Magnolia of Millbrae Proj Ser A (AMT)............. 7.375 09/01/27 1,454,455 1,000 Murrieta, CA Cmnty Fac Dist No 2 the Oaks Impt Area A.............................. 5.900 09/01/27 1,061,250 1,000 Murrieta, CA Cmnty Fac Dist No 2 the Oaks Impt Area A.............................. 6.000 09/01/34 1,066,390 1,000 Murrieta, CA Cmnty Fac Dist No 2 the Oaks Impt Area B.............................. 6.000 09/01/27 1,067,740 3,000 Northstar Cmnty Svc Dist CA Spl Tax Cmnty Fac Dist No 1............................ 5.450 09/01/28 3,065,820 1,000 Palmdale, CA Spl Tax Cmnty Fac 03-1 Anaverde A............................... 5.350 09/01/30 1,032,210 1,100 Palmdale, CA Spl Tax Cmnty Fac 03-1 Anaverde A............................... 5.400 09/01/35 1,133,605 1,000 Perris, CA Cmnty Fac Dist Spl Tax No 01-2 Ser A.................................... 6.375 09/01/32 1,086,490 2,000 Rancho Cordova Cmnty Fac Dist CA Spl Tax No 2003 1 Sunridge Anatolia.............. 5.500 09/01/37 2,055,960 2,000 Riverside, CA Univ Sch Dist Tax Cmnty Fac Dist 15 Impt Area 1...................... 5.550 09/01/30 2,063,300 6,000 San Jose, CA Multi-Family Hsg Rev Helzer Courts Apt Proj Ser A (AMT).............. 6.400 12/01/41 6,082,140 2,000 San Marcos, CA Pub Fac Auth Spl Tax Rev Ser A.................................... 5.650 09/01/36 2,066,560 3,000 Temecula, CA Pub Fin Auth Spl Tax Roripaugh Cmnty Fac Dist 03-2............ 5.500 09/01/36 2,810,220 35,000 Tobacco Securitization Southn CA Tob Settlement Cabs-First Sub................ * 06/01/46 3,152,100 27,200 Tobacco Securitization Southn CA Tob Settlement Cabs-Second Sub............... * 06/01/46 2,269,296 47,000 Tobacco Securitization Southn CA Tob Settlement Cabs-Third Sub................ * 06/01/46 3,058,290 1,000 Upland, CA Cmnty Fac Dist 2003 San Antonio Impt 1 A......................... 5.900 09/01/24 1,060,770 1,500 Upland, CA Cmnty Fac Dist 2003 San Antonio Impt 1 A......................... 6.000 09/01/34 1,584,540 1,965 Vallejo, CA Ctf Partn Touro Univ......... 7.250 06/01/16 2,098,620 945 Vallejo, CA Pub Fin Auth Loc Hiddenbrooke Impt Dist Ser A.......................... 5.800 09/01/31 971,224 1,000 Woodland, CA Spl Tax Cmnty Fac Dist 1 Spring Lake.............................. 6.250 09/01/34 1,098,220
See Notes to Financial Statements 17 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- CALIFORNIA (CONTINUED) $ 1,800 Yuba City, CA Redev Agy Tax Proj Ser A... 6.000% 09/01/31 $ 1,924,362 3,000 Yuba City, CA Redev Agy Tax Proj Ser A... 6.000 09/01/39 3,195,120 -------------- 280,102,568 -------------- COLORADO 4.7% 1,060 Beacon Pt Metro Dist CO Ser A............ 6.125 12/01/25 1,127,140 1,005 Beacon Pt Metro Dist CO Ser A............ 6.250 12/01/35 1,072,425 1,000 Bromley Pk Metro Dist CO No 2 Ser B...... 8.050 12/01/32 1,080,550 1,000 Castle Oaks Metro Dist CO Ltd Tax........ 6.000 12/01/25 1,046,920 1,500 Castle Oaks Metro Dist CO Ltd Tax........ 6.125 12/01/35 1,574,955 795 Colorado Ed & Cultural Fac Charter Sch Frontier Academy......................... 7.250 06/01/20 852,057 2,000 Colorado Hlth Fac Auth Rev Baptist Home Assn Ser A............................... 6.375 08/15/24 2,000,080 2,000 Colorado Hlth Fac Auth Rev Baptist Home Assn Ser B (Variable Rate Coupon)........ 6.500 08/15/27 1,989,260 1,060 Colorado Hlth Fac Auth Rev Christian Living Campus Proj Ser A................. 7.050 01/01/19 1,076,070 2,000 Colorado Intl Ctr Metro Dist No 3 (FGIC Insd).................................... 6.500 12/01/35 2,082,060 2,000 Copperleaf Met Dist No 2 CO (Acquired 09/15/06, Cost $2,000,000) (a)........... 5.950 12/01/36 2,038,780 15,060 Denver, CO City & Cnty Arpt Rev Sys Ser A (i)...................................... 5.000 11/15/24 16,126,662 15,000 Denver, CO Convention Ctr Hotel Auth Rev Rfdg (i)................................. 5.000 12/01/35 15,745,050 3,425 Denver, CO Hlth & Hosp Auth Ser A Rfdg... 6.250 12/01/33 3,824,629 2,500 Elk Vly, CO Pub Impt Fee Ser A........... 7.300 09/01/22 2,685,175 1,150 High Plains Metro Dist CO Ser A.......... 6.125 12/01/25 1,222,841 2,250 High Plains Metro Dist CO Ser A.......... 6.250 12/01/35 2,400,952 615 Lafayette, CO Indl Dev Rev Rocky Mtn Instr Proj Ser A......................... 6.750 10/01/14 512,393 1,920 Lafayette, CO Indl Dev Rev Rocky Mtn Instr Proj Ser A (AMT)................... 7.000 10/01/18 1,554,048 4,700 Lake Creek Affordable Hsg Corp Hsg Proj Ser A Rfdg............................... 6.250 12/01/23 4,918,080 500 Neu Towne, CO Metro Dist................. 7.250 12/01/34 549,845 3,500 Northwest CO Metro Dist No 3 Ltd Tax..... 6.125 12/01/25 3,716,440 1,500 Salida, CO Hosp Dist Rev (d)............. 5.250 10/01/36 1,492,140 1,000 Serenity Ridge, CO Metro Dist No 2....... 7.500 12/01/34 1,115,830 1,672 Skyland Metro Dist CO Gunnison Cnty Rfdg..................................... 6.750 12/01/22 1,724,049 1,000 Southlands Metro Dist No 1 CO............ 7.000 12/01/24 1,106,230 1,000 Vista Ridge Met Dist, CO Ref Ltd Tax Sub Ser B.................................... 6.625 12/01/40 1,008,940
18 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- COLORADO (CONTINUED) $ 1,000 Wheatlands Metro Dist No 2 CO Ltd Tax.... 6.000% 12/01/25 $ 1,033,730 1,500 Wheatlands Metro Dist No 2 CO Ltd Tax.... 6.125 12/01/35 1,553,025 -------------- 78,230,356 -------------- CONNECTICUT 0.4% 1,500 Connecticut St Dev Auth Indl Afco Cargo Bldg LLC Proj (AMT)...................... 8.000 04/01/30 1,631,145 2,000 Mohegan Tribe Indians CT Pub Impt Priority Dist (Acquired 09/27/01, Cost $1,955,120) (a).......................... 6.250 01/01/31 2,132,960 3,500 Mohegan Tribe Indians CT Pub Impt Priority Dist (Acquired 11/03/04, Cost $3,418,565) (a).......................... 5.250 01/01/33 3,545,815 -------------- 7,309,920 -------------- DELAWARE 0.2% 850 Sussex Cnty, DE Rev Adj First Mtg Cadbury Lewes Ser A.............................. 5.900 01/01/26 886,592 1,000 Sussex Cnty, DE Rev Adj First Mtg Cadbury Lewes Ser A.............................. 6.000 01/01/35 1,044,640 1,060 Wilmington, DE Multi-Family Rent Rev Hsg Electra Arms Sr Assoc Proj (AMT)......... 6.250 06/01/28 1,083,733 -------------- 3,014,965 -------------- DISTRICT OF COLUMBIA 3.0% 28,940 District Columbia Tob Settlement Fin Corp Ser A.................................... * 06/15/46 2,572,477 17,500 District Columbia Tob Settlement Fin Corp Ser B.................................... * 06/15/46 1,470,525 67,660 District Columbia Tob Settlement Fin Corp Ser C.................................... * 06/15/55 2,548,076 12,119 District Columbia Ballpark Rev Ser B1 (i)...................................... 5.000 02/01/24 12,890,153 13,033 District Columbia Ballpark Rev Ser B1 (i)...................................... 5.000 02/01/25 13,863,296 13,948 District Columbia Ballpark Rev Ser B1 (i)...................................... 5.000 02/01/26 14,836,439 1,000 District of Columbia Rev Methodist Home Issue.................................... 6.000 01/01/29 1,018,640 85 District of Columbia Ser A-1 (Escrowed to Maturity) (MBIA Insd).................... 6.500 06/01/10 93,572 -------------- 49,293,178 -------------- FLORIDA 15.4% 1,000 Anthem Pk Cmnty Dev Dist FL Cap Impt Rev...................................... 5.800 05/01/36 1,039,820 1,375 Bay Laurel Ctr Cmnty Dev Dist FL Spl Assmt Candler............................ 5.450 05/01/37 1,401,152 1,000 Bellalago Ed Fac Benefits Ser A.......... 6.000 05/01/33 1,053,100 985 Bellalago Ed Fac Benefits Ser B.......... 5.800 05/01/34 1,024,814 4,315 Bloomingdale, FL Cmnty Dev Dist Spl Assmt Rev...................................... 5.875 05/01/36 4,544,170
See Notes to Financial Statements 19 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- FLORIDA (CONTINUED) $ 985 Bluewaters Cmnty Dev Dist of FL.......... 6.000% 05/01/35 $ 1,042,120 2,350 Boca Raton, FL Hsg Auth Mtg Hsg Rev First Lien Banyan Pl Sr Apt Rfdg (Acquired 03/23/06, Cost $2,317,265) (a)........... 5.900 10/01/36 2,354,042 1,830 Boca Raton, FL Hsg Auth Mtg Hsg Rev First Lien Banyan Pl Sr Apt Rfdg (Acquired 3/23/06, Cost $1,811,556) (a)............ 5.800 10/01/26 1,830,274 2,500 Bonnet Creek Resort Cmnty Dev............ 7.500 05/01/34 2,757,975 20,000 Brevard Cnty FL Hlth Fac Auth Hlthcare Facs Rev Hlth First Inc Proj (i)......... 5.000 04/01/34 20,653,900 785 Caribe Palm Cmnty Dev Dist FL Spl Assmt Ser A.................................... 5.850 05/01/35 820,992 1,000 City Ctr Cmnty Dev Dist FL Spl Assmt Rev Ser A.................................... 6.125 05/01/36 1,026,170 2,555 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev Ctr Ser A....................... 10.250 07/01/11 2,579,835 1,085 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev Ctr............................. 10.250 07/01/11 1,095,546 5,000 Fiddlers Creek Cmnty Dev Dist............ 6.000 05/01/38 5,301,100 3,630 Florida Hsg Fin Corp Rev Hsg Beacon Hill Apt Ser C (AMT).......................... 6.610 07/01/38 3,754,073 7,055 Florida Hsg Fin Corp Rev Hsg Cypress Trace Apt Ser G (AMT).................... 6.600 07/01/38 7,269,754 4,775 Florida Hsg Fin Corp Rev Hsg Westchase Apt Ser B (AMT).......................... 6.610 07/01/38 4,913,809 19,740 Halifax Hosp Med Ctr FL Hosp Rev & Impt Ser A Rfdg (i)........................... 5.375 06/01/46 20,800,828 2,690 Hammock Bay Cmnty Dev Dist FL Spl Assmt Rev Ser A................................ 6.125 05/01/35 2,833,296 1,480 Harbour Isles Cmnty Dev Dist of FL....... 6.125 05/01/35 1,573,255 290 Heritage Harbor Cmnty Dev Dist FL Rev Rec...................................... 7.750 05/01/23 290,896 775 Heritage Harbor Cmnty Dev Dist FL Rev Spl Assmt Ser A.............................. 6.700 05/01/19 790,151 31,500 Highlands Cnty FL Hlth Facs Auth Rev Hosp Adventist Hlth Sys Ser C (i)............. 5.250 11/15/36 33,403,073 2,000 Highlands, FL Cmnty Dev Dist Spl Assmt... 5.550 05/01/36 2,045,800 6,000 Hillsborough Cnty, FL Indl Dev Tampa Gen Hosp Proj................................ 5.250 10/01/41 6,346,440 3,500 Hillsborough Cnty, FL Hsg Fin Hsg Clipper Cove Apt Proj Ser A (AMT)................ 7.375 07/01/40 3,753,785 990 Islands at Doral III Cmnty 2004 Ser A.... 5.900 05/01/35 1,029,026 1,000 Islands at Doral NE Cmnty Dev............ 6.250 05/01/34 1,072,840 12,820 Jea FL Wtr & Swr Sys Rev Sub 2nd Crossover (i)............................ 4.750 10/01/40 12,969,802
20 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- FLORIDA (CONTINUED) $ 1,530 Kendall Breeze West Cmnty Dev Dist FL Spl Assmt (b)................................ 5.875% 05/01/34 $ 1,612,436 1,975 Keys Cove Cmnty Dev Dist FL Assmt Rev.... 5.875 05/01/35 2,082,953 2,940 Keys Cove Cmnty Dev Dist II FL........... 5.500 05/01/36 2,989,127 2,000 Lee Cnty, FL Indl Dev Auth Hlthcare Fac Rev Cypress Cove Hlthpk Ser A............ 6.750 10/01/32 2,156,440 3,435 Leon Cnty, FL Ed Fac Auth Rev Southgate Residence Hall Ser A Rfdg................ 6.750 09/01/28 3,546,054 1,255 Lexington Cmnty Dev Dist FL.............. 6.125 05/01/34 1,325,180 75 Marshall Creek Cmnty Dev FL Spl Assmt Ser B........................................ 6.750 05/01/07 75,115 2,470 Meadow Woods Cmnty Dev Dist FL Ser A..... 6.050 05/01/35 2,572,999 1,000 Miami Beach, FL Hlth Fac Hosp Mt Sinai Med Ctr FL Proj.......................... 5.375 11/15/28 1,015,630 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 2,863,625 3,000 Midtown Miami, FL Cmnty Dev Dist Ser A... 6.000 05/01/24 3,265,350 1,120 Miromar Lakes Cmnty Dev Dist Ser B Rfdg..................................... 7.250 05/01/12 1,234,890 25,000 Miami Dade Cnty FL Aviation Rev Miami Intl Arpt Ser A (AMT) (i)................ 5.000 10/01/38 25,954,625 885 Northern Palm Beach Cnty Dist FL Impt Wtr Ctl & Impt Unit Dev No 16 Rfdg........... 7.500 08/01/24 950,977 1,750 Oak Creek Cmnty Dev Dist FL Spl Assmt.... 5.800 05/01/35 1,819,685 1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp Adventist Hlth Sys (Prerefunded @ 11/15/10)................................ 6.375 11/15/20 1,111,700 2,000 Orange Cnty, FL Hlth Fac Auth Rev Westminster Cmnty Care................... 6.600 04/01/24 2,076,360 990 Overoaks, FL Cmnty Dev Dist CA Ser A..... 6.125 05/01/35 1,052,380 5,000 Palm Coast Pk Cmnty Dev Dist FL Spl Assmt Rev...................................... 5.700 05/01/37 5,095,900 985 Parklands Lee Cmnty Dev Dist FL Spl Assmt Ser A.................................... 5.800 05/01/35 1,020,056 985 Pine Is Cmnty Dev Dist FL Spl Assmt...... 5.750 05/01/35 1,018,451 3,000 Pinellas Cnty, FL Hlth Fac Auth Oaks of Clearwtr Proj............................ 6.250 06/01/34 3,210,570 1,000 Reunion East Cmnty Dev Dist.............. 5.800 05/01/36 1,041,240 2,000 Reunion West Cmnty Dev Dist.............. 6.250 05/01/36 2,122,100 965 Saddlebrook, FL Cmnty Ser A.............. 6.900 05/01/33 1,040,212 500 Saint John's Cnty, FL Indl Dev Auth Hlthcare Glenmoor Saint John's Proj Ser A........................................ 8.000 01/01/17 535,820 4,500 Saint John's Cnty, FL Indl Dev Auth Hlthcare Glenmoor Saint John's Proj Ser A........................................ 8.000 01/01/30 4,822,380 2,000 Saint John's Cnty, FL Indl Dev Auth Hlthcare Rev Bayview Proj Ser A.......... 7.100 10/01/26 2,021,100
See Notes to Financial Statements 21 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- FLORIDA (CONTINUED) $ 1,955 Silver Palms Cmnty Dev Dist.............. 5.900% 05/01/34 $ 2,054,940 1,300 South Dade Venture Cmnty Dev............. 6.125 05/01/34 1,389,336 1,480 South Vlg Cmnty Dev Dist FL Cap Impt Rev Ser A.................................... 5.700 05/01/35 1,525,332 1,600 St Johns Cnty, FL Indl Dev Auth Glenmoor Pj Ser A (d)............................. 5.375 01/01/40 1,602,176 115 Stoneybrook West Cmnty Dev Dist FL Spl Assmt Rev Ser B.......................... 6.450 05/01/10 115,221 4,000 Tisons Landing Cmnty Dev Dist FL Spl Assmt Ser A.............................. 5.625 05/01/37 4,081,640 1,480 Town Ctr at Palm Coast Cmnty Dev Dist FL Cap Impt Rev............................. 6.000 05/01/36 1,541,612 1,480 Turnbull Creek Cmnty Dev Dist FL Spl Assmt.................................... 5.800 05/01/35 1,531,741 1,652 University Square Cmnty Dev Dist FL Cap Impt Rev (Acquired 10/07/99 to 09/07/00, Cost $1,650,391) (a)..................... 6.750 05/01/20 1,774,397 2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg (Prerefunded @ 11/01/06)................................ 7.625 11/01/26 2,046,860 2,000 West Vlg Impt Dist FL Rev Spl Assmt Unit of Dev No 3.............................. 5.500 05/01/37 2,045,900 2,000 Winter Garden Vlg at Fowler Groves Cmnty Dev Dist FL Spl.......................... 5.650 05/01/37 2,063,360 1,000 World Comm Cmnty Dev Dist Ser A1......... 6.250 05/01/22 1,069,440 1,695 World Comm Cmnty Dev Dist Ser A2......... 6.125 05/01/35 1,810,277 -------------- 255,657,425 -------------- GEORGIA 1.3% 2,000 Atlanta, GA Tax Alloc Atlantic Sta Proj..................................... 7.750 12/01/14 2,218,880 1,235 Atlanta, GA Tax Alloc Princeton Lakes Proj (Acquired 03/10/06, Cost $1,235,000) (a)...................................... 5.500 01/01/31 1,257,749 2,305 Atlanta, GA Urban Residential Fin Auth Multi-Family Rev John Eagan Proj Ser A (AMT).................................... 6.750 07/01/30 2,378,852 1,000 Effingham Cnty, GA Dev Auth Solfort James Proj (AMT)............................... 5.625 07/01/18 1,010,850 1,800 Fulton Cnty, GA Residential Care Canterbury Court Proj Ser A.............. 6.000 02/15/22 1,831,698 650 Fulton Cnty, GA Residential Care Canterbury Court Proj Ser A.............. 6.125 02/15/34 675,187 3,500 Fulton Cnty, GA Residential Care Sr Lien RHA Asstd Living Ser A................... 7.000 07/01/29 3,683,680 4,000 Milledgeville Baldwin Cnty, GA College & St Univ Fndtn............................ 5.625 09/01/30 4,304,280
22 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- GEORGIA (CONTINUED) $ 1,000 Private Colleges & Univ Auth GA Mercer Hsg Corp Proj Ser A...................... 6.000% 06/01/21 $ 1,075,220 2,930 Renaissance on Peachtree Unit Invt Tr Ctf GA Custody Ctf (Variable Rate Coupon).... 6.000 10/01/25 2,589,827 -------------- 21,026,223 -------------- HAWAII 0.4% 2,500 Hawaii St Dept Budget & Fin Spl Purp Rev Kahala Nui Proj Ser A.................... 8.000 11/15/33 2,900,425 2,825 Kuakini, HI Hlth Sys Spl Ser A........... 6.375 07/01/32 3,098,968 -------------- 5,999,393 -------------- IDAHO 0.2% 3,000 Idaho Hlth Fac Auth Rev Vly Vista Care Ser A Rfdg............................... 7.875 11/15/29 3,138,360 -------------- ILLINOIS 8.4% 2,500 Bolingbrook, IL Cap Apprec Ser B (MBIA Insd).................................... * 01/01/29 769,425 4,000 Bolingbrook, IL Sales Tax Rev Bolingbrook (c)...................................... 0.000/6.250 01/01/24 3,885,920 1,984 Bolingbrook, IL Spl Svc Area No 01-1..... 7.375 07/01/31 2,158,215 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 1,600,770 1,665 Bolingbrook, IL Spl Svc Area No 1 Spl Tax Augusta Vlg Proj Ser 2004................ 6.250 03/01/32 1,721,260 2,000 Bolingbrook, IL Spl Svc Area No 1 Spl Tax Forest City Tax Proj (c)................. 0.000/5.900 03/01/27 2,009,920 1,894 Bolingbrook, IL Spl Svc Area No 3 Lakewood Ridge Proj...................... 7.050 03/01/31 2,028,663 735 Cary, IL Spl Tax Svc Area No 1 Cambridge Ser A (Prerefunded @ 03/01/10)........... 7.625 03/01/30 834,129 1,750 Chicago, IL Incrmnt Aloctn Rev Diversey Narragansett Proj Nt (Acquired 08/01/06, Cost $1,867,810) (AMT) (FSA Insd) (a).... 7.460 02/15/26 1,876,560 1,305 Chicago, IL 2006 Proj & Rfdg Ser A (MBIA Insd).................................... 5.500 01/01/38 1,399,260 15,500 Chicago, IL O'Hare Intl Arpt Rev Gen Airport 3rd Lien Ser A-2 Rfdg (i)........ 5.750 01/01/19 17,079,760 50 Chicago, IL Proj Ser A Rfdg (Prerefunded @ 01/01/11) (MBIA Insd).................. 5.500 01/01/38 54,257 4,000 Chicago, IL Spl Assmt Lakeshore East Proj..................................... 6.625 12/01/22 4,341,200 760 Chicago, IL Tax Increment Alloc Read Dunning Ser B (ACA Insd)................. 7.250 01/01/14 781,189 3,000 Chicago, IL Tax Increment Alloc Sub Cent Loop Redev Ser A (ACA Insd).............. 6.500 12/01/06 3,014,010
See Notes to Financial Statements 23 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 1,925 Chicago, IL Tax Increment Alloc Sub Cent Loop Redev Ser A (ACA Insd).............. 6.500% 12/01/08 $ 2,031,221 1,000 Clay Cnty, IL Hosp Rev (Prerefunded @ 12/01/08)................................ 5.900 12/01/28 1,067,160 3,500 Cortland, IL Spl Tax Rev Sheaffer Sys Proj (Acquired 05/02/06, Cost $3,465,000) (a)...................................... 5.500 03/01/17 3,536,085 2,000 Deerfield, IL Ed Fac Chicagoland Jewish High Sch Proj............................ 6.000 05/01/41 2,044,480 1,127 Gilberts, IL Spl Svc Area No 9 Spl Tax Big Timber Proj (Escrowed to Maturity) (b)...................................... 7.375 03/01/11 1,226,976 1,245 Gilberts, IL Spl Svc Area No 9 Spl Tax Big Timber Proj (Prerefunded @ 03/01/11) (h)...................................... 7.750 03/01/27 1,465,875 1,500 Godfrey, IL Rev Utd Methodist Vlg Ser A........................................ 5.875 11/15/29 1,245,435 2,700 Hoopeston, IL Hosp Cap Imot Rev Hoopeston Cmnty Mem Hosp Impt & Rfdg............... 6.550 11/15/29 2,725,569 1,660 Huntley, IL Increment Alloc Rev Huntley Redev Proj Ser A......................... 8.500 12/01/15 1,688,901 187 Huntley, IL Spl Svc Area No 10 Spl Tax Ser A (b)................................ 6.250 03/01/09 193,837 2,621 Huntley, IL Spl Svc Area No 10 Spl Tax Ser A.................................... 6.500 03/01/29 2,780,435 9,000 Illinois Fin Auth Rev Clare at Wtr Tower Proj Ser A............................... 6.125 05/15/38 9,377,820 4,500 Illinois Fin Auth Rev Clare Oaks Proj Ser A........................................ 6.000 11/15/39 4,686,795 1,405 Illinois Fin Auth Rev Cmnty Fac Clinic Altgeld Proj............................. 8.000 11/15/16 1,436,528 500 Illinois Fin Auth Rev Fairview Oblig Grp Ser A Rfdg............................... 6.000 08/15/20 509,860 500 Illinois Fin Auth Rev Fairview Oblig Grp Ser A Rfdg............................... 6.125 08/15/27 508,175 1,000 Illinois Fin Auth Rev Friendship Vlg Schaumburg Ser A......................... 5.375 02/15/25 1,014,410 2,000 Illinois Fin Auth Rev Friendship Vlg Schaumburg Ser A......................... 5.875 02/15/37 2,057,000 2,700 Illinois Fin Auth Rev Kewanee Hosp Proj..................................... 5.000 08/15/26 2,717,631 3,000 Illinois Fin Auth Rev Landing at Plymouth Pl Proj A................................ 6.000 05/15/37 3,151,230 750 Illinois Fin Auth Rev Luther Oaks Proj Ser A.................................... 6.000 08/15/26 786,390 2,000 Illinois Fin Auth Rev Luther Oaks Proj Ser A.................................... 6.000 08/15/39 2,081,460 3,000 Illinois Fin Auth Rev Northwestn Mem Hosp Ser A.................................... 5.500 08/15/43 3,278,700 1,500 Illinois Fin Auth Rev Three Crowns Pk Plaza Ser A.............................. 5.875 02/15/38 1,551,000
24 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 3,750 Illinois Fin Auth Student Hsg Ref Edl Advancement Fd Inc. Ser B (d)............ 5.000% 05/01/25 $ 3,892,837 1,000 Illinois Hlth Fac Auth Rev Ctr Baptist Home Proj................................ 7.125 11/15/29 1,055,490 2,500 Illinois Hlth Fac Auth Rev Decatur Mem Hosp..................................... 5.750 10/01/24 2,655,325 650 Illinois Hlth Fac Auth Rev Loyola Univ Hlth Sys Ser A........................... 6.000 07/01/21 691,990 1,200 Illinois Hlth Fac Auth Rev Lutheran Sr Ministries Oblig Ser A (Prerefunded 08/15/11)................................ 7.375 08/15/31 1,406,304 250 Illinois Hlth Fac Auth Rev Ser A Rfdg.... 6.200 08/15/23 254,367 1,125 Illinois Hlth Fac Auth Rev Ser A Rfdg.... 6.400 08/15/33 1,145,689 400 Illinois Hlth Fac Auth Rev Silver Cross.................................... 5.500 08/15/19 415,336 675 Lake Cnty, IL Fst Presv Dist Ld Acquisition & Dev........................ 5.750 12/15/17 728,872 80 Lake, Cook, Kane & McHenry Cntys, IL Cmnty Unit Sch Dist No 22 (FGIC Insd).... 5.750 12/01/19 86,138 2,200 Manhattan, IL No 04-1 Brookstone Springs Proj..................................... 6.100 03/01/35 2,268,310 1,000 Minooka, IL Spl Assmt Impt Lakewood Trls Unit 2 Proj.............................. 6.375 03/01/34 1,056,460 1,193 Montgomery, IL Spl Assmt Impt Lakewood Creek Proj............................... 7.750 03/01/30 1,311,107 1,800 Peoria, IL Spl Tax Weaverridge Spl Svc Area (Prerefunded 02/01/07).............. 8.050 02/01/17 1,860,498 3,000 Pingree Grove, IL Spl Svc Area No 2 Spl Tax Ser 05-2 Cambridge Lakes Proj........ 6.000 03/01/35 3,056,850 2,250 Pingree Grove, IL Spl Svc Area No 7 Spl Tax Ser 06-1 Cambridge Lakes Proj........ 6.000 03/01/36 2,301,052 2,000 Plano, IL Spl Svc Area No 1 Lakewood Springs Proj Ser A....................... 6.200 03/01/34 2,083,120 2,095 Regional Tran Auth IL Ser B (AMBAC Insd).................................... 8.000 06/01/17 2,805,477 935 Sterling, IL Rev Hoosier Care Proj Ser A........................................ 7.125 06/01/34 952,615 1,925 Volo Vlg, IL Spl Svc Area No 3 Symphony Meadows Pj Ser 1......................... 6.000 03/01/36 1,954,318 3,135 Wheeling, IL Tax Increment Rev N Milwaukee/Lake Cook Tif Proj............. 6.000 01/01/25 3,102,114 5,650 Yorkville, IL Utd City Spl Svc Area Spl Tax No 2004 107 Raintree Vlg II Proj..... 6.250 03/01/35 5,993,972 2,000 Yorkville, IL Utd City Spl Svc Area Spl Tax No 4 104 Mpi Grade Resv Proj......... 6.375 03/01/34 2,128,000 -------------- 139,923,752 --------------
See Notes to Financial Statements 25 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- INDIANA 0.9% $ 825 Crawfordsville, IN Redev Cmnty Redev Dist Tax Increment Rev (Acquired 10/15/97, Cost $825,000) (a) (b)................... 7.000% 02/01/12 $ 847,011 1,875 Indiana Hlth Fac Fin Auth Rev Hoosier Care Proj Ser A.......................... 7.125 06/01/34 1,910,325 6,500 Indiana Hlth Fac Hosp Rev Cmnty Fndtn Northwest IN Ser A....................... 6.000 03/01/34 6,978,790 2,000 Petersburg, IN Pollutn Ctl Rev IN Pwr & Lt (AMT)................................. 6.375 11/01/29 2,173,460 1,810 Portage, IN Spl Impt Dist Rev Marina Shores Proj.............................. 6.375 03/01/35 1,861,223 265 Saint Joseph Cnty, IN Econ Dev Rev Holy Cross Vlg Notre Dame Proj A.............. 5.700 05/15/28 269,118 230 Saint Joseph Cnty, IN Econ Dev Rev Holy Cross Vlg Notre Dame Proj A.............. 6.000 05/15/26 243,782 470 Saint Joseph Cnty, IN Econ Dev Rev Holy Cross Vlg Notre Dame Proj A.............. 6.000 05/15/38 492,720 -------------- 14,776,429 -------------- IOWA 0.9% 1,000 Bremer Cnty, IA Retirement Fac Rev Bartels Lutheran Ser A................... 5.375 11/15/27 1,016,520 2,000 Estherville, IA Hosp Rev Avera Holy Family Proj.............................. 6.250 07/01/26 2,141,100 375 Evansdale, IA Hlthcare Westn Home Proj... 6.000 11/01/26 384,484 3,400 Evansdale, IA Hlthcare Westn Home Proj Ser A (b)................................ 6.000 11/01/26 3,473,746 3,250 Iowa Fin Auth Hlth Facs Rev Dev Care Initiatives Pj Ser A..................... 5.500 07/01/25 3,416,270 1,520 Iowa Fin Auth Hlthcare Fac Care Initiatives Proj Rfdg (Prerefunded @ 07/01/11)................................ 9.250 07/01/25 1,895,030 500 Iowa Fin Auth Retirement Cmnty Friendship Haven Proj Ser A......................... 5.750 11/15/19 506,585 500 Iowa Fin Auth Retirement Cmnty Friendship Haven Proj Ser A......................... 6.000 11/15/24 511,155 800 Iowa Fin Auth Retirement Cmnty Friendship Haven Proj Ser A......................... 6.125 11/15/32 817,232 1,000 Polk Cnty, IA Hlthcare Fac Rev Luther Pk Hlth Ctr Inc Proj........................ 6.150 10/01/36 1,023,220 -------------- 15,185,342 -------------- KANSAS 0.3% 910 Lawrence, KS Coml Dev Rev Holiday Inn Sr Ser A Rfdg (e)........................... 8.000 07/01/16 378,087 1,000 Lenexa, KS Hlthcare Fac Rev Lakeview Vlg Inc Ser B................................ 6.250 05/15/26 1,025,040 915 Manhattan, KS Coml Dev Rev Holiday Inn Sr Ser A Rfdg (e)........................... 8.000 07/01/16 439,703
26 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- KANSAS (CONTINUED) $ 1,000 Olathe, KS Sr Living Fac Rev Catholic Care Campus Inc Ser A.................... 6.000% 11/15/26 $ 1,062,300 1,000 Olathe, KS Sr Living Fac Rev Catholic Care Campus Inc Ser A.................... 6.000 11/15/38 1,052,960 1,500 Overland Pk, KS Dev Corp Rev First Tier Overland Park Ser A...................... 7.375 01/01/32 1,644,630 -------------- 5,602,720 -------------- LOUISIANA 0.8% 1,965 Louisiana Hsg Fin Agy Rev Azalea Estates Ser A Rfdg (AMT) (GNMA Collateralized)... 5.375 10/20/39 2,059,634 1,800 Louisiana Loc Govt Environment Fac Cmnty Dev Auth Rev Hlthcare Saint James Place Ser A Rfdg............................... 7.000 11/01/29 1,869,984 4,100 Louisiana Loc Govt Environment Fac Cmnty Dev Auth Rev Hlthcare Saint James Place Ser A Rfdg............................... 7.000 11/01/25 4,269,945 1,500 Louisiana Pub Fac Auth Rev Progressive Hlthcare................................. 6.375 10/01/20 1,508,655 1,000 Louisiana Pub Fac Auth Rev Progressive Hlthcare................................. 6.375 10/01/28 1,002,260 2,973 Louisiana St Univ & Agric & Mechanical College Univ Rev Master Agreement (Acquired 11/30/98, Cost $2,973,329) (a)...................................... 5.750 10/30/18 2,847,111 -------------- 13,557,589 -------------- MARYLAND 1.5% 1,000 Baltimore Cnty, MD Mtg Rev Shelter Elder Care Ser A............................... 7.250 11/01/29 1,040,300 1,500 Brunswick MD Spl Oblg Bruinswick Crossing Spl Taxing............................... 5.500 07/01/36 1,531,080 4,000 Frederick Cnty, MD Spl Oblig Urbana Cmnty Dev Auth Ser A........................... 5.950 07/01/30 4,122,200 1,000 Frederick Cnty, MD Spl Oblig Urbana Cmnty Dev Auth Ser B........................... 6.250 07/01/30 1,031,840 230 Maryland St Econ Dev Corp Air Cargo Rev Afco Cargo BWI II LLC Proj (AMT) (b)..... 6.250 07/01/07 231,270 1,180 Maryland St Econ Dev Corp MD Golf Course Sys (Prerefunded 06/01/11)............... 8.250 06/01/28 1,390,311 1,500 Maryland St Economic Dev Corp. Sr Lien Proj Chesapeake Bay Ser B (d)............ 5.250 12/01/31 1,518,165 1,540 Maryland St Hlth & Higher Ed Calvert Hlth Sys...................................... 5.500 07/01/36 1,641,332 1,000 Maryland St Hlth & Higher Ed Medstar Hlth Rfdg..................................... 5.500 08/15/33 1,061,910 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 2,709,750
See Notes to Financial Statements 27 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MARYLAND (CONTINUED) $ 2,863 Prince Georges Cnty, MD Rev (Prerefunded @ 10/01/07).............................. 7.000% 04/01/16 $ 2,950,980 3,000 Prince Georges Cnty, MD Spl Oblig Spl Assmt Woodview Ser A..................... 8.000 07/01/26 3,087,060 1,000 Westminster, MD Econ Dev Carroll Lutheran Vlg Ser A................................ 6.000 05/01/24 1,064,080 1,500 Westminster, MD Econ Dev Carroll Lutheran Vlg Ser A................................ 6.250 05/01/34 1,603,650 -------------- 24,983,928 -------------- MASSACHUSETTS 1.9% 1,000 Massachusetts St Dev Fin Agy Briarwood Ser B (Prerefunded @ 12/01/10)........... 8.000 12/01/22 1,171,010 250 Massachusetts St Dev Fin Agy Rev Evergreen Ctr Inc........................ 5.000 01/01/24 248,410 500 Massachusetts St Dev Fin Agy Rev Evergreen Ctr Inc........................ 5.500 01/01/35 511,775 735 Massachusetts St Dev Fin Agy Rev Gtr Lynn Mental Hlth (Acquired 07/27/00, Cost $733,600) (Prerefunded @ 06/01/08) (a)... 7.750 06/01/18 794,035 1,880 Massachusetts St Dev Fin Agy Rev Hillcrest Ed Ctr Inc..................... 6.375 07/01/29 1,907,805 2,890 Massachusetts St Dev Fin Agy Rev Hlthcare Fac Alliance Ser A....................... 7.100 07/01/32 3,018,605 1,000 Massachusetts St Dev Fin Agy Rev MCHSP Human Svc Providers Ser A (Prerefunded @ 07/01/10)................................ 8.000 07/01/20 1,152,210 3,650 Massachusetts St Dev Fin Agy Rev New England Ctr For Children................. 6.000 11/01/19 3,769,829 3,100 Massachusetts St Hlth & Ed Civic Invt Ser B........................................ 9.150 12/15/23 3,821,122 891 Massachusetts St Hlth & Ed Nichols College Issue Ser C...................... 6.000 10/01/17 945,707 1,000 Massachusetts St Hlth & Ed Northrn Berkshire Hlth Ser B..................... 6.250 07/01/24 1,065,890 1,865 Massachusetts St Indl Fin Agy Assisted Living Fac Rev Marina Bay LLC Proj (AMT) (Prerefunded @ 12/01/07)................. 7.500 12/01/27 1,966,139 955 Massachusetts St Indl Fin Agy Assisted Living Fac Rev Newton Grp Pptys LLC Proj (AMT) (Prerefunded @ 09/01/07)........... 8.000 09/01/27 1,017,056 515 Massachusetts St Indl Fin Agy Rev First Mtg GF/Pilgrim Inc Proj.................. 6.500 10/01/15 505,055 2,000 Massachusetts St Indl Fin Agy Rev First Mtg GF/Pilgrim Inc Proj.................. 6.750 10/01/28 1,914,080 1,940 Massachusetts St Indl Fin Agy Rev First Mtg Reeds Landing Proj (c)............... 7.100/7.350 10/01/28 1,908,223
28 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MASSACHUSETTS (CONTINUED) $ 2,130 Massachusetts St Indl Fin Agy Rev Gtr Lynn Mental Hlth (Acquired 06/24/98, Cost $2,130,000) (Prerefunded @ 06/01/08) (a)...................................... 6.375% 06/01/18 $ 2,254,328 220 Massachusetts St Indl Fin Agy Rev Gtr Lynn Mental Hlth (Acquired 06/24/98, Cost $220,000) (Escrowed to Maturity) (a)..... 6.200 06/01/08 228,118 2,800 Massachusetts St Indl Fin Agy Rev Swr Fac Res Ctl Composting (Acquired 08/10/89, Cost $2,800,000) (AMT) (a)............... 9.250 06/01/10 2,809,884 -------------- 31,009,281 -------------- MICHIGAN 6.1% 2,500 Chelsea, MI Econ Dev Corp Rev Utd Methodist Retirement Rfdg................ 5.400 11/15/27 2,524,950 11,299 Detroit, MI Wtr Supply Sys Sr Lien Ser A (i)...................................... 5.000 07/01/23 12,046,370 11,863 Detroit, MI Wtr Supply Sys Sr Lien Ser A (i)...................................... 5.000 07/01/24 12,648,688 13,078 Detroit, MI Wtr Supply Sys Sr Lien Ser A (i)...................................... 5.000 07/01/26 13,943,939 835 Detroit, MI Loc Dev Fin Auth Tax Increment Sub Ser C (Acquired 09/08/97, Cost $835,000) (a)....................... 6.850 05/01/21 854,831 1,000 Gaylord, MI Hosp Fin Auth Ltd Oblig Rev Otsego Mem Hosp Rfdg..................... 6.500 01/01/31 1,042,630 1,700 Hillsdale, MI Hosp Fin Hillsdale Cmnty Hlth Ctr................................. 5.000 05/15/13 1,703,706 4,000 Kent Hosp Fin Auth MI Rev Metro Hosp Proj Ser A.................................... 6.250 07/01/40 4,457,200 2,390 Meridian, MI Econ Dev Corp Ltd Oblig Rev First Mtg Burcham Hills Ser A Rfdg....... 7.500 07/01/13 2,440,214 3,430 Meridian, MI Econ Dev Corp Ltd Oblig Rev First Mtg Burcham Hills Ser A Rfdg....... 7.750 07/01/19 3,502,613 3,045 Michigan St Hosp Fin Auth Rev Hosp Pontiac Osteopathic Ser A Rfdg........... 6.000 02/01/14 3,045,731 1,500 Michigan St Hosp Fin Auth Rev Hosp Pontiac Osteopathic Ser A Rfdg........... 6.000 02/01/24 1,500,600 2,000 Michigan St Hosp Fin Auth Rev Presbyterian Vlg Rfdg.................... 5.500 11/15/35 2,088,640 13,380 Michigan St Hosp Fin Auth Rev Henry Ford Hlth Sys Ser A Rfdg (i).................. 5.250 11/15/46 14,095,964
See Notes to Financial Statements 29 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MICHIGAN (CONTINUED) $ 20,660 Wayne Cnty, MI Arpt Auth Rev Detroit Met Wayne Cnty Arpt (i)...................... 5.250% 12/01/24 $ 22,198,344 3,900 Wenonah Pk Ppty Inc Bay City Hotel Rev Bd....................................... 7.500 04/01/33 3,606,213 -------------- 101,700,633 -------------- MINNESOTA 5.2% 700 Aitkin, MN Hlthcare Facs Rev Ref Riverwood Hlthcare Ctr................... 5.500 02/01/24 715,848 2,540 Aitkin, MN Hlthcare Facs Rev Ref Riverwood Hlthcare Ctr................... 5.600 02/01/32 2,603,449 2,000 Aitkin, MN Hlth Fac Rev Riverwood Hlthcare Ctr Proj (Prerefunded @ 02/01/11)................................ 7.750 02/01/31 2,315,740 1,000 Cambridge, MN Hsg & Hlthcare Fac Rev Grandview West Proj Ser B................ 6.000 10/01/33 1,003,060 2,000 Carlton, MN Hlth & Hsg Fac Inter Faith Social Svc Inc Proj (Prerefunded @ 04/01/10)................................ 7.500 04/01/19 2,257,440 2,000 Carlton, MN Hlth & Hsg Fac Inter Faith Social Svc Inc Proj (Prerefunded @ 04/01/10)................................ 7.750 04/01/29 2,283,180 2,700 Carlton, MN Hlthcare & Hsg Fac Rev Inter Faith Care Ctr Proj Rfdg................. 5.700 04/01/36 2,727,810 2,250 Cuyuna Range Hosp Dist MN Hlth Fac Gross Rev...................................... 5.500 06/01/35 2,293,312 790 Duluth, MN Econ Dev Auth Hlthcare Fac Rev Saint Lukes Hosp......................... 6.000 06/15/12 807,972 1,500 Duluth, MN Econ Dev Auth Hlthcare Fac Rev Saint Lukes Hosp......................... 7.250 06/15/32 1,612,530 2,000 Glencoe, MN Hlthcare Fac Rev (Prerefunded @ 04/01/11).............................. 7.500 04/01/31 2,305,860 6,695 Minneapolis & St Paul, MN Metro Arpt Com Arpt Rev Sub Ser B (AMBAC Insd) (AMT) (i)...................................... 5.000 01/01/21 7,049,768 7,385 Minneapolis & St Paul, MN Metro Arpt Com Arpt Rev Sub Ser B (AMBAC Insd) (AMT) (i)...................................... 5.000 01/01/23 7,776,331 1,400 Minneapolis, MN Student Hsg Rev Riverton Cmnty Hsg Proj Ser A..................... 5.600 08/01/26 1,402,954 3,100 Minneapolis, MN Student Hsg Rev Riverton Cmnty Hsg Proj Ser A..................... 5.700 08/01/40 3,106,510 1,000 Minneapolis, MN Tax Increment Rev Ivy Tower Proj............................... 5.700 02/01/29 1,021,480 900 Minnesota Agric & Econ Dev Brd Rev Hlthcare Benedictine Proj Ser A.......... 5.500 08/01/23 918,000 875 Minnesota Agric & Econ Dev Brd Rev Hlthcare Benedictine Proj Ser A.......... 5.750 02/01/30 893,769 3,770 Moorhead, MN Sr Hsg Rev Sheyenne Crossing Proj..................................... 5.650 04/01/41 3,787,304
30 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MINNESOTA (CONTINUED) $ 875 New Ulm, MN Economic Dev Auth Ref Hadc Ridgeway Proj Ser A...................... 5.750% 06/01/28 $ 886,279 2,150 New Ulm, MN Economic Dev Auth Ref Hadc Ridgeway Proj Ser A...................... 6.000 06/01/41 2,182,487 2,500 Northwest MN Multi-Cnty Pooled Hsg Pgm A Rfdg..................................... 6.250 07/01/40 2,535,850 1,500 Oakdale, MN Rev Sr Hsg Oak Meadows Proj Rfdg..................................... 6.250 04/01/34 1,571,340 1,100 Pine City, MN Lease Rev Lakes Intl Language Academy Ser A................... 6.250 05/01/35 1,115,356 2,000 Prior Lake MN Sr Hsg Rev Shepards Path Ser B.................................... 5.750 08/01/41 2,020,480 2,000 Prior Lake MN Sr Hsg Rev Shepards Path Ser B.................................... 5.700 08/01/36 2,043,640 1,425 Ramsey, MN Lease Rev Pact Charter Sch Proj Ser A............................... 6.750 12/01/33 1,534,383 1,500 Saint Cloud, MN Hsg & Redev Auth Sterling Heights Apt Proj (AMT)................... 7.550 04/01/39 1,590,090 1,000 Saint Paul, MN Hsg & Redev Auth Higher Ground Academy Ser A Rfdg................ 6.625 12/01/23 1,028,990 5,000 Saint Paul, MN Hsg & Redev Auth Hosp Rev Hlth East Proj........................... 6.000 11/15/35 5,530,800 2,185 Saint Paul, MN Hsg & Redev Auth Lease Rev Hope Cmnty Academy Proj A................ 6.250 12/01/33 2,255,969 2,295 Saint Paul, MN Hsg & Redev Auth LSE Rev Rfdg..................................... 6.750 01/01/35 1,633,856 1,000 Saint Paul, MN Hsg & Redev Cmnty of Peace Academy Proj Ser A....................... 7.875 12/01/30 1,107,260 2,250 Saint Paul, MN Port Auth Hotel Fac Rev Radisson Kellogg Proj Ser 2 Rfdg (Prerefunded @ 08/01/08)................. 7.375 08/01/29 2,462,670 1,250 Saint Paul, MN Port Auth Lease Rev Hltheast Midway Campus 03 Ser A.......... 5.875 05/01/30 1,283,825 700 Saint Paul, MN Port Auth Lease Rev Hltheast Midway Campus 03 Ser B.......... 6.000 05/01/30 720,286 1,000 Shakopee, MN Hlthcare Saint Francis Regl Med Ctr.................................. 5.250 09/01/34 1,044,260 2,355 St Louis Park MN Rev Ref Roitenberg Family Pj................................ 5.700 08/15/41 2,391,597 400 St Paul, MN Hsg & Redev Auth Hmong Academy Proj Ser A....................... 5.750 09/01/26 401,328 1,000 St Paul, MN Hsg & Redev Auth Hmong Academy Proj Ser A....................... 6.000 09/01/36 1,007,750 1,000 Vadnais Heights, MN Lease Rev Agric & Food Sciences Ser A...................... 6.375 12/01/24 1,017,100
See Notes to Financial Statements 31 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MINNESOTA (CONTINUED) $ 1,000 Vadnais Heights, MN Lease Rev Agric & Food Sciences Ser A...................... 6.600% 12/01/34 $ 1,015,040 1,450 Winona, MN Hlthcare Winona Hlth Ser A.... 6.000 07/01/34 1,583,864 -------------- 86,846,817 -------------- MISSISSIPPI 0.0% 615 Mississippi Bus Fin Corp (AMT)........... 7.250 07/01/34 674,507 -------------- MISSOURI 4.1% 1,500 Carthage, MO Hosp Rev.................... 5.875 04/01/30 1,524,555 8,500 Carthage, MO Hosp Rev.................... 6.000 04/01/38 8,613,560 1,250 Cole Cnty, MO Indl Dev Auth Sr Living Fac Rev Lutheran Svc Heisinger Proj.......... 5.500 02/01/35 1,315,663 910 Fenton, MO Tax Increment Rev & Impt Gravois Bluffs Proj Rfdg (Prerefunded 10/01/11)................................ 6.125 10/01/21 1,031,267 960 Fenton, MO Tax Increment Rev & Impt Gravois Bluffs Proj Rfdg (Prerefunded 10/01/12)................................ 7.000 10/01/21 1,113,686 1,400 Ferguson, MO Tax Increment Rev Crossings at Halls Ferry Proj...................... 5.000 04/01/17 1,381,450 120 Ferguson, MO Tax Increment Rev Crossings at Halls Ferry Proj (Escrowed to Maturity)................................ 7.250 04/01/07 122,032 3,095 Ferguson, MO Tax Increment Rev Crossings at Halls Ferry Proj (Prerefunded @ 04/01/07)................................ 7.625 04/01/17 3,213,879 209 Ferguson, MO Tax Increment Rev Crossings at Halls Ferry Proj (Prerefunded @ 04/01/07)................................ 7.625 04/01/18 217,028 3,000 Joplin, MO Indl Dev Auth Hlth Fac Rev Freeman Hlth Sys Proj.................... 5.500 02/15/29 3,206,610 2,000 Kansas City, MO Indl Dev Auth First Mtg Bishop Spencer Ser A..................... 6.250 01/01/24 2,102,320 1,500 Kansas City, MO Indl Dev Auth First Mtg Bishop Spencer Ser A..................... 6.500 01/01/35 1,586,070 976 Kansas City, MO Indl Dev Auth Multi-Family Hsg Rev Brentwood Manor Apt Proj Ser B (AMT)......................... 7.250 10/15/38 1,016,709 3,000 Kansas City, MO Indl Dev Plaza Lib Proj..................................... 5.900 03/01/24 3,024,180 1,793 Kansas City, MO Multi-Family Hsg Rev Northwoods Apts Proj Ser A (AMT)......... 6.450 05/01/40 1,880,983
32 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MISSOURI (CONTINUED) $ 2,641 Missouri St Hlth & Ed Fac Auth Fac Rev BJC Hlth Sys (i)......................... 5.250% 05/15/16 $ 2,818,150 3,318 Missouri St Hlth & Ed Fac Auth Fac Rev BJC Hlth Sys (i)......................... 5.250 05/15/17 3,540,888 2,641 Missouri St Hlth & Ed Fac Auth Fac Rev BJC Hlth Sys (i)......................... 5.250 05/15/18 2,818,150 3,785 Missouri St Hlth & Ed Fac Auth Hlth Fac Rev BJC Hlth Sys Ser A (i)............... 5.000 05/15/18 4,024,937 2,000 Missouri St Hlth & Ed Fac Auth Hlth Fac Rev BJC Hlth Sys Ser A (i)............... 5.000 05/15/19 2,126,783 2,000 Missouri St Hlth & Ed Fac Auth Hlth Fac Rev BJC Hlth Sys Ser A (i)............... 5.000 05/15/20 2,126,783 2,000 Missouri St Hlth & Ed Fac Auth Hlth Fac Rev BJC Hlth Sys Ser A (i)............... 5.000 05/15/21 2,126,783 3,000 Missouri St Hlth & Ed Fac Auth Hlth Fac Rev BJC Hlth Sys Ser A (i)............... 5.000 05/15/22 3,190,174 2,220 Nevada, MO Hosp Rev Neveda Regional Med Ctr...................................... 6.750 10/01/22 2,372,958 2,750 Saint Joseph, MO Indl Dev Auth Hlthcare Rev Living Cmnty Saint Joseph Proj....... 7.000 08/15/32 2,792,515 500 Saint Joseph, MO Indl Dev Auth Tax Increment Rev Shoppes at North Vlg Proj Ser A.................................... 5.100 11/01/19 502,710 1,000 Saint Joseph, MO Indl Dev Auth Tax Increment Rev Shoppes at North Vlg Proj Ser A.................................... 5.500 11/01/27 1,017,900 4,820 Saline Cnty, MO Indl Dev Auth Hlth Fac Rev (Acquired 01/12/99, Cost $4,727,371) (a)...................................... 6.500 12/01/28 4,975,782 1,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)... 6.000 06/01/15 1,166,980 -------------- 66,951,485 -------------- MONTANA 0.2% 1,000 Montana Fac Fin Auth Rev Sr Living St Johns Lutheran Ser A..................... 6.000 05/15/25 1,029,380 2,000 Montana Fac Fin Auth Rev Sr Living St Johns Lutheran Ser A..................... 6.125 05/15/36 2,078,520 -------------- 3,107,900 -------------- NEVADA 0.5% 3,500 Clark Cnty, NV Indl Dev Southwest Gas Corp Proj Ser D1 (AMT) (FGIC Insd)....... 5.250 03/01/38 3,706,850 3,000 Henderson, NV Hlthcare Fac Rev Catholic Hlthcare West Ser A...................... 5.625 07/01/24 3,243,150 1,000 Las Vegas, NV Loc Impt Bds Spl Impt Dist No 607................................... 6.000 06/01/19 1,032,980 -------------- 7,982,980 --------------
See Notes to Financial Statements 33 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- NEW HAMPSHIRE 0.6% $ 2,000 New Hampshire Higher Ed & Hlth Fac Auth Rev Havenwood-Heritage Heights........... 7.350% 01/01/18 $ 2,045,960 2,000 New Hampshire Higher Ed & Hlth Fac Auth Rev Havenwood-Heritage Heights........... 7.450 01/01/25 2,046,140 1,690 New Hampshire Hlth & Ed Fac Auth Rev Huntington At Nashua Ser A............... 6.875 05/01/33 1,803,044 1,500 New Hampshire Hlth & Ed Fac Hlthcare Sys Covenant Hlth............................ 5.500 07/01/34 1,594,650 1,500 New Hampshire Hlth & Ed Fac Speare Mem Hosp..................................... 5.875 07/01/34 1,578,975 1,000 New Hampshire St Business Fin Auth Rev Alice Peck Day Hlth Sys Ser A............ 6.875 10/01/19 1,057,660 -------------- 10,126,429 -------------- NEW JERSEY 5.0% 1,000 Middlesex Cnty, NJ Pollutn Ctl Pollutn Ctl Amerada Rfdg......................... 6.050 09/15/34 1,079,130 2,000 New Jersey Econ Dev Auth Cedar Crest Vlg Inc Fac Ser A............................ 7.000 11/15/16 2,072,480 2,500 New Jersey Econ Dev Auth Econ Dev Rev Utd Methodist Homes Ser A-1.................. 6.000 07/01/18 2,706,425 2,000 New Jersey Econ Dev Auth First Mtg Franciscan Oaks Proj..................... 5.700 10/01/17 2,049,560 1,000 New Jersey Econ Dev Auth Retirement Cmnty Rev Ser A................................ 8.000 11/15/15 1,125,600 1,000 New Jersey Econ Dev Auth Retirement Cmnty Rev Ser A................................ 8.125 11/15/18 1,064,050 1,440 New Jersey Econ Dev Auth Retirement Cmnty Rev Ser A................................ 8.125 11/15/23 1,617,984 710 New Jersey Econ Dev Auth Rev First Mtg Lions Gate Proj A........................ 5.750 01/01/25 732,990 1,230 New Jersey Econ Dev Auth Rev First Mtg Lions Gate Proj A........................ 5.875 01/01/37 1,271,119 1,000 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens Ser A (Prerefunded @ 11/01/06)................................ 8.500 11/01/16 1,024,250 1,500 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens Ser A (Prerefunded @ 11/01/06)................................ 8.625 11/01/25 1,536,540 1,365 New Jersey Econ Dev Auth Rev Kullman Assoc Proj Ser A (AMT)................... 6.125 06/01/18 1,315,218 2,000 New Jersey Econ Dev Auth Rev Sr Living Fac Esplanade Bear (AMT)................. 7.000 06/01/39 1,436,000 1,500 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glan Proj Ser A.......................... 6.000 05/15/28 1,545,585 3,500 New Jersey Econ Dev Auth Utd Methodist Homes NJ Oblig........................... 5.750 07/01/29 3,578,365
34 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- NEW JERSEY (CONTINUED) $ 900 New Jersey Hlthcare Fac Fin Auth Rev Avalon at Hillsborough Ser A (AMT)....... 6.375% 07/01/25 $ 913,491 575 New Jersey Hlthcare Fac Fin Auth Rev Avalon at Hillsborough Ser A (AMT)....... 6.625 07/01/35 583,683 3,225 New Jersey Hlthcare Fac Fin Auth Rev Cap Hlth Sys Oblig Grp Ser A................. 5.375 07/01/33 3,363,740 645 New Jersey Hlthcare Fac Fin Auth Rev Raritan Bay Med Ctr Issue Rfdg........... 7.250 07/01/14 664,221 3,000 New Jersey Hlthcare Fac Fin Inst Inc Cherry Hill Proj......................... 8.000 07/01/27 3,081,510 970 New Jersey St Ed Fac Auth Rev Felician College of Lodi Ser D (Acquired 11/07/97, Cost $1,275,000) (a)..................... 7.375 11/01/22 1,009,954 30,000 New Jersey St Transn Tr Fd Auth Transn Sys Ser A (i)............................ 5.500 12/15/22 34,800,780 3,535 Tobacco Settlement Fin Corp NJ........... 6.750 06/01/39 3,981,188 5,000 Tobacco Settlement Fin Corp NJ........... 6.250 06/01/43 5,467,500 5,000 Tobacco Settlement Fin Corp NJ Asset Bkd...................................... 6.000 06/01/37 5,346,900 -------------- 83,368,263 -------------- NEW MEXICO 0.5% 4,060 Albuquerque, NM Retirement Fac Rev La Vida Llena Proj Ser B Rfdg............... 6.600 12/15/28 4,258,534 1,505 Cabezon Pub Impt Dist NM Spl Levg Rev.... 6.000 09/01/24 1,565,095 1,005 New Mexico Hsg Auth Region lll Sr Brentwood Gardens Apt Ser A (AMT)........ 6.850 12/01/31 1,088,264 750 Ventana West Pub Impt Dist NM............ 6.875 08/01/33 804,765 -------------- 7,716,658 -------------- NEW YORK 10.1% 960 Bethlehem, NY Indl Dev Agy Sr Hsg Rev Van Allen Proj Ser A......................... 6.875 06/01/39 985,642 1,000 Brookhaven, NY Indl Dev Agy Mem Hosp Med Ctr Inc Ser A............................ 8.125 11/15/20 1,101,980 1,400 Brookhaven, NY Indl Dev Agy Sr Residential Hsg Rev Woodcrest Estates Fac Ser A (AMT).............................. 6.375 12/01/37 1,450,246 3,415 Dutchess Cnty, NY Indl Dev Agy Saint Francis Hosp Ser A Rfdg.................. 7.500 03/01/29 3,768,692 1,700 East Rochester, NY Hsg Auth Rev Ref Sr Living Woodland Vlg Proj................. 5.500 08/01/33 1,731,739 2,000 Erie Cnty, NY Indl Dev Agy Rev Orchard Pk CCRC Inc Proj Ser A...................... 6.000 11/15/36 2,116,520 1,975 Monroe Cnty, NY Indl Dev Agy Woodland Vlg Proj (Prerefunded @ 11/15/10)............ 8.000 11/15/15 2,252,843 2,975 New York City Ser A...................... 7.000 08/01/07 3,027,330 43,175 New York City Indl Dev Agy Rev Liberty 7 World Trade Ctr Ser A.................... 6.250 03/01/15 45,943,381
See Notes to Financial Statements 35 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $ 15,400 New York City Indl Dev Agy Rev Liberty 7 World Trade Ctr Ser A.................... 6.500% 03/01/35 $ 16,445,352 17,780 New York, NY City Indl Dev Agy Liberty 7 World Trade Ctr Ser A (i)................ 6.250 03/01/15 18,920,143 7,500 New York, NY City Indl Dev Agy Rev Yankee Stadium Pilot (i)........................ 5.000 03/01/31 7,920,037 5,580 New York, NY City Indl Dev Agy Rev Yankee Stadium Pilot (i)........................ 5.000 03/01/36 5,892,508 10,000 New York, NY City Mun Wtr Fin Auth Wtr & Swr Sys Rev Ser D (i).................... 5.000 06/15/36 10,480,400 10,000 New York, NY City Mun Wtr Fin Auth Wtr & Swr Sys Rev Ser D (i).................... 5.000 06/15/38 10,480,400 2,500 New York St Energy Resh & Dev Auth Gas Fac Rev (Inverse Fltg)................... 8.700 04/01/20 2,787,100 1,950 Saratoga Cnty, NY Indl Dev Agy Sr Hsg Rev Highpointe at Malta Proj Ser A........... 6.875 06/01/39 2,016,144 1,000 Suffolk Cnty, NY Gurwin Jewish Phase II....................................... 6.700 05/01/39 1,089,620 1,000 Suffolk Cnty, NY Indl Dev Agy Continuing Care Retirement Cmnty Rev (Prerefunded @ 11/01/09)................................ 7.250 11/01/28 1,115,700 2,975 Suffolk Cnty, NY Indl Dev Agy Eastn Long Is Hosp Assoc Ser A...................... 7.750 01/01/22 3,182,655 1,340 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev Spellman High Voltage Fac Ser A (AMT).................................... 6.375 12/01/17 1,347,276 4,000 Suffolk Cnty, NY Indl Dev Agy Medford Hamlet Asstd Living Proj (AMT)........... 6.375 01/01/39 4,066,320 1,445 Suffolk Cnty, NY Indl Dev Agy Peconic Landing Ser A............................ 8.000 10/01/20 1,613,689 1,000 Syracuse, NY Indl Dev Agy Rev First Mtg Jewish Home Ser A........................ 7.375 03/01/31 1,077,800 10,000 TSASC Inc NY Ser 1 (i)................... 5.000 06/01/26 10,207,000 2,700 Ulster Cnty, NY Indl Dev Agy Civic Fac Rev Benedictine Hosp Proj Ser A.......... 6.450 06/01/24 2,712,852 2,315 Utica, NY Indl Dev Agy Civic Utica College Civic Fac........................ 6.750 12/01/21 2,537,171 1,000 Westchester Cnty, NY Indl Dev Hebrew Hosp Sr Hsg Inc Ser A......................... 7.375 07/01/30 1,077,300 -------------- 167,347,840 -------------- NORTH CAROLINA 0.3% 2,000 North Carolina Med Care Commn First Mtg Utd Methodist Homes (Prerefunded @ 10/01/09)................................ 7.000 10/01/17 2,191,740 2,600 North Carolina Med Care Commn Retirement Fac Rev First Mtg Ser A 05............... 5.500 10/01/35 2,663,882 -------------- 4,855,622 --------------
36 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- NORTH DAKOTA 0.2% $ 2,000 Grand Forks, ND Sr Hsg Rev Spl Term 4000 Vly Square Proj.......................... 6.250% 12/01/34 $ 2,008,280 935 Grand Forks, ND Sr Hsg Rev Spl Term 4000 Vly Square Proj.......................... 6.375 12/01/34 940,283 -------------- 2,948,563 -------------- OHIO 3.4% 10,200 Adams Cnty Hosp Fac Impt Rev Adams Cnty Hosp Proj................................ 6.500 09/01/36 10,511,610 5,000 Athens Cnty, OH Hosp Fac Rev Impt O'Bleness Mem Ser A Rfdg................. 7.125 11/15/33 5,457,350 3,000 Cleveland-Cuyahoga Cnty, OH Spl Assmt/ Tax Increment............................ 7.000 12/01/18 3,220,620 1,000 Cuyahoga Cnty, OH Hlthcare Fac Franciscan Cnty OH Inc Proj Ser C................... 6.250 05/15/32 1,021,440 5,000 Cuyahoga Cnty, OH Rev Ser A Rfdg......... 6.000 01/01/32 5,561,500 1,760 Dayton, OH Spl Fac Rev Air Freight Cargo Day LLC Proj (AMT)....................... 6.300 04/01/22 1,786,083 7,510 Erie Cnty, OH Hosp Fac Rev Firelands Regl Med Ctr Ser A............................ 5.625 08/15/32 8,019,554 5,955 Franklin Cnty, OH Hlthcare Fac Rev Impt Lutheran Sr City Proj Rfdg (b)........... 6.125 12/15/28 5,900,869 2,600 Franklin Cnty, OH Hlthcare Fac Rev Impt OH Presbyterian Svc Ser A................ 5.125 07/01/35 2,670,850 1,500 Lucas Cnty, OH Hlthcare & Impt Sunset Retirement Rfdg.......................... 6.500 08/15/20 1,613,475 750 Lucas Cnty, OH Port Auth Rev Saint Mary Woods Proj Ser A......................... 6.000 05/15/24 766,320 2,250 Lucas Cnty, OH Port Auth Rev Saint Mary Woods Proj Ser A......................... 6.000 05/15/34 2,278,418 2,805 Madison Cnty, OH Hosp Impt Rev Madison Cnty Hosp Proj Rfdg (Prerefunded 08/01/08)................................ 6.400 08/01/28 2,929,963 4,340 Norwood, OH Tax Increment Rev Fin Cornerstone at Norwood................... 6.200 12/01/31 4,381,664 -------------- 56,119,716 -------------- OKLAHOMA 1.8% 1,000 Citizen Potawatomi Nation, OK Ser A...... 6.500 09/01/16 1,063,310 430 Langston, OK Econ Dev Langston Cmnty Dev Corp Proj Ser A (Escrowed to Maturity)... 7.000 08/01/10 458,844 750 Langston, OK Econ Dev Langston Cmnty Dev Corp Proj Ser A (Prerefunded @ 08/01/10)................................ 7.400 08/01/17 860,625 1,000 Langston, OK Econ Dev Langston Cmnty Dev Corp Proj Ser A (Prerefunded @ 08/01/10)................................ 7.625 08/01/20 1,155,470 1,000 Norman, OK Regl Hosp Auth Hosp Rev....... 5.375 09/01/29 1,053,400 3,000 Norman, OK Regl Hosp Auth Hosp Rev....... 5.375 09/01/36 3,140,820 2,000 Oklahoma Cnty, OK Fin Auth Rev Epworth Villa Proj Rfdg.......................... 6.000 04/01/18 2,049,800
See Notes to Financial Statements 37 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- OKLAHOMA (CONTINUED) $ 750 Oklahoma Cnty, OK Fin Auth Rev Epworth Villa Proj Ser A Rfdg.................... 5.700% 04/01/25 $ 766,890 1,000 Oklahoma Cnty, OK Fin Auth Rev Epworth Villa Proj Ser A Rfdg.................... 7.000 04/01/25 1,027,240 1,250 Oklahoma Cnty, OK Fin Auth Rev Epworth Villa Proj Ser A Rfdg.................... 5.875 04/01/30 1,287,600 1,500 Oklahoma Cnty, OK Fin Auth Rev Retirement Fac Concordia Ser A...................... 6.125 11/15/25 1,532,445 5,500 Oklahoma Cnty, OK Fin Auth Rev Retirement Fac Concordia Ser A...................... 6.000 11/15/38 5,556,100 1,065 Oklahoma Dev Fin Auth Rev Hillcrest Hlthcare Sys Ser A Rfdg (Prerefunded @ 08/15/09)................................ 5.750 08/15/12 1,136,472 1,000 Oklahoma Dev Fin Auth Rev Hillcrest Hlthcare Sys Ser A Rfdg (Prerefunded @ 08/15/09)................................ 5.750 08/15/15 1,067,110 4,000 Oklahoma Dev Fin Auth Rev Hillcrest Hlthcare Sys Ser A Rfdg (Prerefunded @ 08/15/09)................................ 5.625 08/15/19 4,254,920 3,250 Tulsa Cnty, OK Pub Fac Auth (Prerefunded @ 11/01/09) (AMBAC Insd)................. 6.250 11/01/22 3,564,275 -------------- 29,975,321 -------------- OREGON 0.8% 2,000 Clackamas Cnty, OR Hosp Fac Willamette View Inc Proj Ser A (Prerefunded @ 11/01/09)................................ 7.500 11/01/29 2,242,080 2,145 Clatsop Care Ctr Hlth Dist OR Rev Sr Hsg...................................... 6.875 08/01/28 2,190,624 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 2,578,100 4,998 Oregon St Hlth Hsg Ed & Cultural Fac Auth (AMT).................................... 7.250 06/01/28 5,183,807 970 Oregon St Hlth Hsg Ed Auth OR Baptist Retirement Homes Ser A................... 8.000 11/15/26 991,486 -------------- 13,186,097 -------------- PENNSYLVANIA 4.3% 2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser B........................................ 9.250 11/15/15 2,379,820 2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser B........................................ 9.250 11/15/22 2,373,000 2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser B........................................ 9.250 11/15/30 2,369,000 2,000 Allegheny Cnty, PA Indl Dev Auth Lease Rev (AMT)................................ 6.625 09/01/24 2,063,420 1,500 Allegheny Cnty, PA Redev Auth Pittsburgh Mills Proj............................... 5.600 07/01/23 1,589,490
38 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- PENNSYLVANIA (CONTINUED) $ 1,500 Bucks Cnty, PA Indl Dev Auth Retirement Cmty Rev Ann's Choice Inc Fac Ser A...... 6.125% 01/01/25 $ 1,610,175 1,250 Bucks Cnty, PA Indl Dev Auth Retirement Cmty Rev Ann's Choice Inc Fac Ser A...... 6.250 01/01/35 1,337,250 1,000 Bucks Cnty, PA Indl Dev Auth Rev First Mtg Hlthcare Fac Chandler................ 6.200 05/01/19 1,008,740 1,800 Bucks Cnty, PA Indl Dev Auth Rev First Mtg Hlthcare Fac Chandler................ 6.300 05/01/29 1,807,884 1,500 Chester Cnty, PA Hlth & Ed Fac Chester Cnty Hosp Ser A.......................... 6.750 07/01/31 1,649,985 2,000 Cumberland Cnty, PA Indl Dev Auth Rev First Mtg Woods Cedar Run Ser A Rfdg (e) (f)...................................... 6.500 11/01/28 979,000 3,000 Dauphin Cnty, PA Gen Auth Rev Office & Pkg Riverfront Office.................... 6.000 01/01/25 2,863,770 1,000 Fulton Cnty, PA Indl Dev Auth Hosp Rev Fulton Cnty Med Ctr Proj................. 5.675 07/01/31 1,027,540 1,900 Fulton Cnty, PA Indl Dev Auth Hosp Rev Fulton Cnty Med Ctr Proj................. 5.900 07/01/40 1,953,143 2,200 Indiana Cnty, PA Indl Dev Auth PSEG Pwr LLC Proj Rfdg (AMT)...................... 5.850 06/01/27 2,322,870 1,000 Lancaster Cnty, PA Hosp Auth Rev Hlth Ctr Saint Anne's Home........................ 6.625 04/01/28 1,035,240 1,200 Lehigh Cnty, PA Gen Purp Auth First Mtg Bible Fellowship Church.................. 7.625 11/01/21 1,331,616 3,000 Lehigh Cnty, PA Gen Purp Auth Rev Good Shepherd Group Ser A..................... 5.500 11/01/24 3,194,070 3,585 Lehigh Cnty, PA Gen Purp Auth Rev Kidspeace Oblig Grp (b).................. 6.200 11/01/14 3,575,751 5,500 Lehigh Cnty, PA Gen Purp Auth Rev Kidspeace Oblig Grp Rfdg................. 6.000 11/01/23 5,379,055 1,000 Lehigh Cnty, PA Indl Dev Auth Hlth Fac Rev Lifepath Inc Proj.................... 6.100 06/01/18 970,700 4,180 Montgomery Cnty, PA Higher Ed & Hlth Auth Rev Montgomery Impt & Rfdg............... 6.875 04/01/36 4,356,856 1,085 Montgomery Cnty, PA Indl Dev Auth Rev Mtg Whitemarsh Cont Care Proj................ 6.000 02/01/21 1,154,353 4,500 Montgomery Cnty, PA Indl Dev Auth Rev Mtg Whitemarsh Cont Care Proj................ 6.250 02/01/35 4,790,970 1,365 Northeastern PA Hosp & Ed Auth Hlthcare Rev...................................... 7.125 10/01/29 1,407,479 1,690 Northeastern PA Hosp & Ed Auth Hlthcare Rev Oakwood Ter Proj (Acquired 12/27/05, Cost $1,690,000) (a) (b)................. 6.500 10/01/32 1,710,787 1,500 Pennsylvania Econ Dev Fin Auth Reliant Energy Ser A (AMT)....................... 6.750 12/01/36 1,611,930
See Notes to Financial Statements 39 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- PENNSYLVANIA (CONTINUED) $ 3,000 Pennsylvania Econ Dev Fin Auth Reliant Energy Seward Ser A (AMT)................ 6.750% 12/01/36 $ 3,223,860 980 Pennsylvania St Higher Ed Student Assn Inc Proj Ser A........................... 6.750 09/01/32 1,070,993 2,150 Philadelphia, PA Auth Indl Dev Rev Coml Dev Rfdg (AMT)........................... 7.750 12/01/17 2,159,654 1,925 Philadelphia, PA Hosp & Higher Ed Fac Auth Rev Centralized Comp Human Svc Ser A........................................ 6.125 01/01/13 1,917,377 1,500 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Rfdg (Prerefunded @ 01/15/07)... 7.250 01/15/17 1,544,295 2,000 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Rfdg (Prerefunded @ 01/15/07)... 7.350 01/15/22 2,059,640 1,500 Westmoreland Cnty, PA Indl Dev Hlthcare Fac Redstone Ser B (Prerefunded @ 11/15/10)................................ 8.000 11/15/23 1,741,650 -------------- 71,571,363 -------------- RHODE ISLAND 0.3% 1,825 Rhode Island St Econ Dev Corp Rev Oblig Providence Pl............................ 7.250 07/01/20 1,879,458 3,000 Tobacco Settlement Fin Corp RI Asset Bkd Ser A.................................... 6.000 06/01/23 3,176,670 -------------- 5,056,128 -------------- SOUTH CAROLINA 1.5% 2,500 Lancaster Cnty, SC Assmt Rev Edenmoor Impt Dist Ser A (Acquired 05/19/06, Cost $2,500,000) (a).......................... 5.750 12/01/37 2,656,575 1,700 Lancaster Cnty, SC Assmt Rev Sun City Carolina Lakes Impt...................... 5.450 12/01/37 1,713,906 1,000 Myrtle Beach Sc Tax Increment Myrtle Beach Air Force Base Ser A (Acquired 09/29/06, Cost $997,500) (a) (d)......... 5.250 11/01/26 997,500 1,250 Myrtle Beach Sc Tax Increment Myrtle Beach Air Force Base Ser A (Acquired 09/29/06, Cost $1,245,313) (a) (d)....... 5.300 11/01/35 1,245,313 3,000 South Carolina Jobs Econ Dev Auth Econ Dev Rev Westminster Impt & Rfdg.......... 5.375 11/15/30 3,021,300 1,570 South Carolina Jobs Econ Dev Auth Hosp Fac Rev Palmetto Hlth Alliance Ser A Impt & Rfdg................................... 6.250 08/01/31 1,758,510 1,000 South Carolina Jobs Econ Dev Episcopal Home Still Proj A........................ 6.000 05/15/17 1,028,650 2,000 South Carolina Jobs Econ Dev First Mtg Westley Com Proj......................... 7.750 10/01/24 2,307,980 4,500 South Carolina Jobs Econ Dev First Mtg Westley Com Proj......................... 8.000 10/01/31 5,230,530
40 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- SOUTH CAROLINA (CONTINUED) $ 2,250 South Carolina Jobs Econ Dev Ref First Mtg Wesley Commons (d)................... 5.300% 10/01/36 $ 2,258,663 3,000 Tobacco Settlement Rev Mgmt Auth SC Tob Settlement Rev Ser B..................... 6.375 05/15/28 3,236,010 -------------- 25,454,937 -------------- SOUTH DAKOTA 0.8% 1,010 Keystone, SD Econ Dev Rev Wtr Quality Mgmt Corp Ser A (AMT).................... 6.000 12/15/18 1,015,080 4,080 Sioux Falls, SD Multi-Family Rev Ref Hsg Inn on Westport Proj Ser A1 (Acquired 08/04/06, Cost $4,080,000) (a)........... 6.000 03/01/40 4,142,220 1,035 Sioux Falls, SD Multi-Family Rev Ref Hsg Inn on Westport Sub B (Acquired 08/04/06, Cost $1,035,000) (a) (b)................. 7.500 03/01/40 1,044,626 5,415 Sioux Falls, SD Multi-Family Hsg Inn Westport Proj Ser A (Acquired 01/26/04 to 04/27/05, Cost $5,511,293) (Prerefunded @ 12/01/08) (a)............................ 7.500 12/01/34 5,609,832 1,050 South Dakota St Hlth & Ed Fac Auth Rev Sioux Vly Hosp & Hlth Sys Ser A.......... 5.250 11/01/34 1,101,986 -------------- 12,913,744 -------------- TENNESSEE 5.6% 3,000 Elizabethton, TN Hlth & Ed Fac Brd Rev Rfdg (MBIA Insd) (h)..................... 7.750 07/01/29 3,644,670 1,000 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev First Mtg Mtn States Hlth Ser A Rfdg..................................... 7.500 07/01/33 1,171,800 9,900 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev 1st Mtg Mtn Sts Hlth Ser A (i)....... 5.500 07/01/36 10,549,242 1,000 Johnson City, TN Hlth & Ed Fac Brd Retirement Fac Rev Appalachian Christian Vlg Proj Ser A........................... 6.250 02/15/32 1,044,290 800 Shelby Cnty, TN Hlth Edl Hsg Vlg at Germantown............................... 6.250 12/01/34 816,816 1,750 Shelby Cnty, TN Hlth & Ed Germantown Vlg Ser A.................................... 7.000 12/01/23 1,856,855 1,000 Shelby Cnty, TN Hlth & Ed Germantown Vlg Ser A.................................... 7.250 12/01/34 1,068,150 1,000 Shelby Cnty, TN Hlth Ed & Hsg Fac Brd Rev Trezavant Manor Proj Ser A............... 5.625 09/01/26 1,018,830 4,500 Shelby Cnty, TN Hlth Ed & Hsg Fac Brd Rev Trezavant Manor Proj Ser A............... 5.750 09/01/37 4,595,265 4,920 Sullivan Cnty, TN Hlth Ed & Hsg Fac Brd Rev...................................... 8.410 11/01/19 5,135,890 12,500 Tennessee Energy Acqusn Corp Gas Rev Ser A (i).................................... 5.250 09/01/21 13,980,813
See Notes to Financial Statements 41 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- TENNESSEE (CONTINUED) $ 40,000 Tennessee Energy Acqusn Corp Gas Rev Ser A (i).................................... 5.250% 09/01/22 $ 44,765,000 2,625 Trenton, TN Hlth & Ed Fac Brd Rev Inc Proj Ser A (Acquired 06/08/89, Cost $3,195,000) (a).......................... 10.000 11/01/19 2,771,554 1,160 Trenton, TN Hlth & Ed Fac Brd Rev Inc Proj Ser B (Acquired 06/08/89, Cost $1,160,000) (a) (b) (e) (f).............. 10.000 11/01/20 124,050 -------------- 92,543,225 -------------- TEXAS 7.6% 300 Abia Dev Corp TX Arpt Fac Rev Austin Belly Port Dev LLC Proj Ser A (AMT)...... 6.250 10/01/08 303,762 3,000 Abia Dev Corp TX Arpt Fac Rev Austin Belly Port Dev LLC Proj Ser A (AMT)...... 6.500 10/01/23 3,066,630 1,000 Atlanta, TX Hosp Auth Fac Rev............ 6.700 08/01/19 1,045,850 2,035 Atlanta, TX Hosp Auth Fac Rev............ 6.750 08/01/29 2,095,480 990 Austin-Bergstorm Landhost Enterprises Inc TX Arpt Hotel Sr Ser A (g)............... 6.750/4.450 04/01/27 745,569 980 Bexar Cnty, TX Hsg Fin Corp Multi-Family Hsg Rev Woodland Ridge Apt Proj Ser A (AMT).................................... 7.000 01/01/39 1,031,254 2,000 Brazos Cnty, TX Hlth Fac Dev Oblig Grp... 5.375 01/01/32 2,104,640 735 Comal Cnty, TX Hlth Fac Dev Hlthcare Sys McKenna Mem Proj Ser A................... 6.250 02/01/32 795,307 1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Cap Apprec Rfdg (Acquired 08/28/89, Cost $660,829) (a)............................ * 08/01/11 1,407,896 3,445 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg..................................... 7.250 04/01/32 3,612,806 4,305 Dallas Cnty, TX Flood Ctl Dist Rfdg (b)...................................... 6.750 04/01/16 4,543,067 2,500 Decatur, TX Hosp Auth Hosp Wise Regl Hlth Sys Ser A................................ 7.000 09/01/25 2,739,750 3,500 Decatur, TX Hosp Auth Hosp Wise Regl Hlth Sys Ser A................................ 7.125 09/01/34 3,841,075 1,500 Grand Pairie, TX Hsg Fin Corp Indpt Sr Living Ctr Rev........................... 7.500 07/01/17 1,505,970 3,000 Grand Pairie, TX Hsg Fin Corp Indpt Sr Living Ctr Rev........................... 7.750 01/01/34 3,010,140 1,750 Houston, TX Arpt Sys Rev Sub Lien Ser A (AMT) (FSA Insd)......................... 5.125 07/01/32 1,804,250 3,000 Houston, TX Hlth Fac Dev Corp Buckingham Sr Living Cmnty Ser A.................... 7.125 02/15/34 3,344,460 17,760 Houston, TX Util Sys Rev Combined First Lien Ser A Rfdg (i)...................... 5.125 05/15/28 18,819,473 17,760 Lower CO Riv Auth Tx Rev Ser A Rrdg (i)...................................... 5.875 05/15/14 18,874,618 7,500 Lower CO Riv Auth Tx Rev Ser A Rrdg (i)...................................... 5.875 05/15/15 7,978,500
42 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- TEXAS (CONTINUED) $ 1,000 Lubbock, TX Hlth Fac Dev Corp Rev First Mtg Carillon Proj A Rfdg................. 6.500% 07/01/26 $ 1,035,880 10,000 Lubbock, TX Hlth Fac Dev Corp Rev First Mtg Carillon Proj A Rfdg................. 6.625 07/01/36 10,343,800 1,255 Lubbock, TX Hlth Fac Dev Corp Rev First Mtg Carillon Proj Ser A (Prerefunded @ 07/01/09)................................ 6.500 07/01/19 1,347,054 2,245 Meadow Parc Dev Inc TX Multi-Family Rev Hsg Meadow Parc Apt Proj................. 6.500 12/01/30 2,290,394 2,500 Metropolitan Hlth Fac Dev Corp TX Wilson N Jones Mem Hosp Proj.................... 7.250 01/01/31 2,588,800 2,755 Midlothian, TX Dev Auth Tax Increment Contract Rev............................. 6.700 11/15/23 2,862,445 2,000 Midlothian, TX Dev Auth Tax Increment Contract Rev............................. 7.875 11/15/26 2,206,260 1,500 Midlothian, TX Dev Auth Tax Increment Contract Rev (Acquired 12/02/04, Cost $1,500,000) (a).......................... 6.200 11/15/29 1,536,345 1,000 Richardson, TX Hosp Auth Rev Baylor & Richardson Impt & Rfdg................... 5.625 12/01/28 1,035,830 2,500 Tarrant Cnty, TX Cultural Ed Fac Fin Corp Retirement Fac Northwest Sr Hsg Edgemore Proj A................................... 6.000 11/15/36 2,637,225 1,200 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev (AMT) (GNMA Collateralized)...... 6.900 07/02/24 1,235,760 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 1,829,787 1,500 Texas St Student Hsg Corp MSU Proj Midwestn St Univ......................... 6.500 09/01/34 1,618,365 2,950 Tomball, TX Hosp Auth Rev Hosp Tomball Regl Hosp................................ 6.000 07/01/29 3,073,340 1,000 Travis Cnty, TX Hlth Fac Dev Corp Retirement Fac Rev Querencia Barton Creek Proj..................................... 5.500 11/15/25 1,012,160 2,950 Travis Cnty, TX Hlth Fac Dev Corp Retirement Fac Rev Querencia Barton Creek Proj..................................... 5.650 11/15/35 2,985,636 945 Wichita Cnty, TX Hlth Fac Rolling Meadows Fac Ser A Rfdg........................... 6.250 01/01/28 966,083 2,500 Woodhill Pub Fac Corp TX Hsg-Woodhill Apt Proj..................................... 7.500 12/01/29 2,495,525 -------------- 125,771,186 --------------
See Notes to Financial Statements 43 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- UTAH 0.2% $ 1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (e)................................. 7.800% 09/01/15 $ 308,750 585 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (e)................................. 7.800 09/01/25 180,619 1,165 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (e)................................. 8.000 09/01/20 359,694 2,355 Utah St Hsg Fin Agy Rev RHA Cmnty Svc Proj Ser A............................... 6.875 07/01/27 2,404,384 5 Utah St Hsg Fin Agy Single Family Mtg Mezz A1 (AMBAC Insd)..................... 6.100 07/01/13 5,107 -------------- 3,258,554 -------------- VERMONT 0.1% 1,000 Vermont Ed & Hlth Bldg Fin Agy Rev Bennington College Proj.................. 6.625 10/01/29 1,031,750 1,000 Vermont Ed & Hlth Bldg Fin Agy Rev VT Council Dev Mental Hlth Ser A............ 6.000 12/15/09 1,045,370 -------------- 2,077,120 -------------- VIRGINIA 3.8% 4,000 Albemarle Cnty, VA Indl Dev Auth Ed Fac Rev Covenant Sch Inc Ser A............... 7.750 07/15/32 4,412,240 5,000 Celebrate, VA South Cmnty Dev Celebrate VA South Proj............................ 6.250 03/01/37 5,170,450 1,500 Farms New Kent, VA Cmnty Dev Ser B....... 5.450 03/01/36 1,508,490 1,500 Farms New Kent, VA Cmnty Dev Ser C....... 5.800 03/01/36 1,506,090 2,500 Henrico Cnty, VA Econ Dev Auth Residential Care Fac Rev Utd Methodist Ser A Rfdg............................... 6.500 06/01/22 2,681,725 15,220 Virginia St Hsg Auth Dev Auth Comnwlth Mtg Sub Ser D1 (AMT) (i)................. 4.900 01/01/33 15,434,298 1,000 New Port Cmnty Dev Auth VA Spl Assmt..... 5.500 09/01/26 1,027,650 2,500 New Port Cmnty Dev Auth VA Spl Assmt..... 5.600 09/01/36 2,569,200 4,000 Peninsula Ports Auth VA Residential Care Fac Rev VA Baptist Homes Ser C Rfdg...... 5.400 12/01/33 4,097,200 4,000 Roanoke Cnty, VA Indl Dev Auth Glebe Inc Ser A.................................... 6.300 07/01/35 4,069,120 17,620 Tobacco Settlement Fing Corp VA Asset Bkd (i)...................................... 5.625 06/01/37 18,586,281 1,700 Virginia Small Business Fin Auth Rev Indl Dev SIL Clean Wtr Proj (AMT)............. 7.250 11/01/24 1,769,853 -------------- 62,832,597 --------------
44 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- WASHINGTON 0.7% $ 1,000 King Cnty, WA Pub Hosp Dist No 004 Snoqualmie Vly Hosp...................... 7.250% 12/01/15 $ 1,062,050 8,830 Tobacco Settlement Auth WA Asset Bkd..... 6.625 06/01/32 9,761,212 -------------- 10,823,262 -------------- WISCONSIN 1.3% 800 Baldwin, WI Hosp Rev Mtg Ser A........... 6.125 12/01/18 804,088 1,000 Baldwin, WI Hosp Rev Mtg Ser A........... 6.375 12/01/28 1,005,650 1,745 Milwaukee, WI Rev Sr Air Cargo (AMT)..... 6.500 01/01/25 1,883,413 1,000 Waukesha, WI Redev Auth Hsg Rev Ref Sr Kirkland Crossings Proj.................. 5.500 07/01/31 1,013,760 1,500 Waukesha, WI Redev Auth Hsg Rev Ref Sr Kirkland Crossings Proj.................. 5.600 07/01/41 1,530,855 750 Wisconsin Hlth & Ed Fac Eastcastle Pl Inc Proj..................................... 6.000 12/01/24 774,098 2,000 Wisconsin St Hlth & Ed Fac Auth Rev Aurora Hlthcare Inc Ser A................ 5.600 02/15/29 2,076,280 3,000 Wisconsin St Hlth & Ed Fac Auth Rev Milwaukee Catholic Home Inc Proj......... 7.500 07/01/26 3,063,090 1,000 Wisconsin St Hlth & Ed Fac Auth Rev Oakwood Vlg Proj Ser A................... 7.625 08/15/30 1,090,040 1,500 Wisconsin St Hlth & Ed Fac Beaver Dam Cmnty Hosp Inc Ser A..................... 6.750 08/15/34 1,633,545 1,000 Wisconsin St Hlth & Ed Fac Divine Savior Hlthcare Ser C (Prerefunded @ 05/01/12)................................ 7.500 05/01/32 1,173,800 2,000 Wisconsin St Hlth & Ed Fac Fort Hlthcare Inc Proj................................. 6.100 05/01/34 2,220,940 1,500 Wisconsin St Hlth & Ed Fac Southwest Hlth Ctr Ser A................................ 6.125 04/01/24 1,550,490 1,105 Wisconsin St Hlth Edl Facs Upland Hills Hlth Inc. Ser B (d)...................... 5.000 05/15/36 1,123,951 -------------- 20,944,000 -------------- WYOMING 0.4% 4,000 Sweetwater Cnty, WY Solid Waste Disp Rev Corp Proj Rfdg (AMT)..................... 5.600 12/01/35 4,223,640 1,500 Teton Cnty, WY Hosp Dist Hosp Saint Johns Med Ctr.................................. 6.750 12/01/27 1,597,410 -------------- 5,821,050 -------------- PUERTO RICO 1.7% 6,500 Puerto Rico Comnwlth Infrastructive Ser B........................................ 5.000 07/01/46 6,696,430 15,000 Puerto Rico Comwlth Hwy & Trans Auth Trans Rev Ser K.......................... 5.000 07/01/40 15,418,650 5,000 Puerto Rico Pub Bldg Auth Rev Govt Fac Ser I (Comwth Gtd)....................... 5.250 07/01/33 5,301,650 -------------- 27,416,730 --------------
See Notes to Financial Statements 45 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- U. S. VIRGIN ISLANDS 0.2% $ 2,500 Northern Mariana Islands Ser A........... 7.375% 06/01/30 $ 2,726,875 1,000 Virgin Islands Pub Fin Auth Resr Secd-Hovensa Refinery (AMT).............. 5.875 07/01/22 1,094,920 -------------- 3,821,795 -------------- TOTAL LONG-TERM INVESTMENTS 129.9% (Cost $2,074,442,527)...................................................... 2,152,244,805 TOTAL SHORT-TERM INVESTMENTS 0.3% (Cost $4,200,000).......................................................... 4,200,000 -------------- TOTAL INVESTMENTS 130.2% (Cost $2,078,642,527)...................................................... 2,156,444,805 LIABILITY FOR FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES HELD (31.2%) (Cost $517,240,000) (517,240) Notes with interest rates ranging from 3.76% to 3.82% at September 30, 2006 and contractual maturities of collateral ranging from 2014 to 2046 (see Note 1) (j)....................... (517,240,000) -------------- TOTAL NET INVESTMENTS 99.0% (Cost $1,561,402,527)...................................................... 1,639,204,805 OTHER ASSETS IN EXCESS OF LIABILITIES 1.0%.................................. 17,366,311 -------------- NET ASSETS 100.0%........................................................... $1,656,571,116 ==============
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 18.9% of net assets. (b) The Fund owns 100% of the outstanding bond issuance. (c) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (d) Securities purchased on a when-issued or delayed delivery basis. (e) Non-income producing security. (f) This borrower has filed for protection in federal bankruptcy court. (g) Interest is accruing at less than the stated coupon. Coupon is shown as stated coupon/actual coupon. (h) All or a portion of this security has been physically segregated in connections with open futures contracts. 46 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued (i) Underlying security related to Inverse Floaters entered into by the Trust. See Note 1. (j) Floating rate notes. The interest rates shown reflect the rates in effect at September 30, 2006. ACA--American Capital Access AMBAC--AMBAC Indemnity Corp. AMT--Alternative Minimum Tax CIFG--CIFG Assurance North America Inc. Comwth Gtd--Commonwealth of Puerto Rico 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. FUTURES CONTRACTS OUTSTANDING AS OF SEPTEMBER 30, 2006:
UNREALIZED APPRECIATION/ CONTRACTS DEPRECIATION SHORT CONTRACTS: U.S. Treasury Bond Futures December 2006 (Current Notional Value of $112,406 per contract)........................... 2,670 $(4,148,805) ===== ============
See Notes to Financial Statements 47 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities (As Restated--See Note 11) September 30, 2006 ASSETS: Total Investments (Cost $2,078,642,527)..................... $2,156,444,805 Cash........................................................ 2,934,440 Receivables: Interest.................................................. 27,871,170 Investments Sold.......................................... 7,988,295 Fund Shares Sold.......................................... 7,659,078 Other....................................................... 216,743 -------------- Total Assets............................................ 2,203,114,531 -------------- LIABILITIES: Payables: Floating Rate Note Obligations............................ 517,240,000 Investments Purchased..................................... 20,672,654 Fund Shares Repurchased................................... 4,500,542 Income Distributions...................................... 2,279,726 Distributor and Affiliates................................ 701,286 Investment Advisory Fee................................... 627,083 Trustees' Deferred Compensation and Retirement Plans........ 269,807 Accrued Expenses............................................ 252,317 -------------- Total Liabilities....................................... 546,543,415 -------------- NET ASSETS.................................................. $1,656,571,116 ============== NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $1,697,363,489 Net Unrealized Appreciation................................. 73,653,473 Accumulated Undistributed Net Investment Income............. 1,677,725 Accumulated Net Realized Loss............................... (116,123,571) -------------- NET ASSETS.................................................. $1,656,571,116 ============== MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $1,338,651,418 and 98,486,244 shares of beneficial interest issued and outstanding)............. $ 13.59 Maximum sales charge (4.75%* of offering price)......... .68 -------------- Maximum offering price to public........................ $ 14.27 ============== Class B Shares: Net asset value and offering price per share (Based on net assets of $119,950,844 and 8,830,783 shares of beneficial interest issued and outstanding)............. $ 13.58 ============== Class C Shares: Net asset value and offering price per share (Based on net assets of $197,968,854 and 14,458,280 shares of beneficial interest issued and outstanding)............. $ 13.69 ==============
* On sales of $100,000 or more, the sales charge will be reduced. 48 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statement of Operations (As Restated--See Note 11) For the Year Ended September 30, 2006 INVESTMENT INCOME: Interest.................................................... $108,298,641 ------------ EXPENSES: Interest and Residual Trust Expenses........................ 8,787,626 Investment Advisory Fee..................................... 7,504,070 Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $3,217,155, $1,318,006 and $1,982,718, respectively)............................................. 6,517,879 Shareholder Services........................................ 802,157 Custody..................................................... 212,100 Legal....................................................... 205,753 Trustees' Fees and Related Expenses......................... 51,534 Other....................................................... 697,308 ------------ Total Expenses.......................................... 24,778,427 Less Credits Earned on Cash Balances.................... 46,097 ------------ Net Expenses............................................ 24,732,330 ------------ NET INVESTMENT INCOME....................................... $ 83,566,311 ============ REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 4,791,106 Futures................................................... (1,263,577) ------------ Net Realized Gain........................................... 3,527,529 ------------ Unrealized Appreciation/Depreciation: Beginning of the Period................................... 32,455,361 ------------ End of the Period: Investments............................................. 77,802,278 Futures................................................. (4,148,805) ------------ 73,653,473 ------------ Net Unrealized Appreciation During the Period............... 41,198,112 ------------ NET REALIZED AND UNREALIZED GAIN............................ $ 44,725,641 ============ NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $128,291,952 ============
See Notes to Financial Statements 49 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statement of Cash Flows (See Note 11) For the Year Ended September 30, 2006 CASH FLOWS USED FOR OPERATING ACTIVITIES Purchases of investments.................................. $(1,581,961,292) Proceeds from sales/maturities of investments............. 1,197,247,361 Net investment income....................................... 83,566,311 ADJUSTMENTS TO RECONCILE NET INVESTMENT LOSS TO NET CASH USED IN OPERATING ACTIVITIES Net Amortization/Accretion................................ 1,718,273 Change in Unrealized Depreciation on Futures.............. (4,148,805) (Increase)/decrease in assets and increase/(decrease) in liabilities related to operations Interest receivable..................................... (437,941) Other assets............................................ (12,182) Accrued expenses........................................ (145,936) --------------- NET CASH USED IN OPERATING ACTIVITIES................. (304,174,211) --------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from subscriptions............................. 201,840,108 Repurchased shares...................................... (260,841,113) Dividends paid (net of reinvested dividends of $56,971,212).......................................... (27,776,624) Proceeds from floating rate note obligations............ 393,795,000 --------------- NET CASH PROVIDED BY FINANCING ACTIVITIES............. 307,017,371 --------------- NET INCREASE IN CASH FOR THE PERIOD................... 2,843,160 Cash at beginning of period................................. 91,280 --------------- Cash at end of period....................................... $ 2,934,440 =============== Supplemental Disclosure of Cash Flow Information Interest paid........................................... $ 8,787,626 ===============
50 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets (As Restated--See Note 11)
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ---------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income................................ $ 83,566,311 $ 64,808,196 Net Realized Gain/Loss............................... 3,527,529 (24,372,853) Net Unrealized Appreciation During the Period........ 41,198,112 43,414,445 -------------- -------------- Change in Net Assets from Operations................. 128,291,952 83,849,788 -------------- -------------- Distributions from Net Investment Income: Class A Shares..................................... (69,389,893) (55,305,117) Class B Shares..................................... (6,164,057) (6,722,269) Class C Shares..................................... (9,173,440) (6,404,362) -------------- -------------- Total Distributions.................................. (84,727,390) (68,431,748) -------------- -------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......................................... 43,564,562 15,418,040 -------------- -------------- FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold............................ 204,752,493 800,745,467 Net Asset Value of Shares Issued Through Dividend Reinvestment....................................... 56,971,212 45,579,353 Cost of Shares Repurchased........................... (260,956,548) (223,389,642) -------------- -------------- NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... 767,157 622,935,178 -------------- -------------- TOTAL INCREASE IN NET ASSETS......................... 44,331,719 638,353,218 NET ASSETS: Beginning of the Period.............................. 1,612,239,397 973,886,179 -------------- -------------- End of the Period (Including accumulated undistributed net investment income of $1,677,725 and ($2,187,250), respectively).................... $1,656,571,116 $1,612,239,397 ============== ==============
See Notes to Financial Statements 51 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED--SEE NOTE 11) THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES -------------------------------------------------- 2006 2005 2004 2003 2002 -------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.... $ 13.23 $ 13.00 $13.03 $13.21 $13.25 -------- -------- ------ ------ ------ Net Investment Income..................... .71(a) .72(a) .74(a) .79 .78 Net Realized and Unrealized Gain/Loss............................... .37 .27 -0- (.25) (.11) -------- -------- ------ ------ ------ Total from Investment Operations............ 1.08 .99 .74 .54 .67 Less Distributions from Net Investment Income.................................... .72 .76 .77 .72 .71 -------- -------- ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD.......... $ 13.59 $ 13.23 $13.00 $13.03 $13.21 ======== ======== ====== ====== ====== Total Return (b)............................ 8.41% 7.75% 5.87% 4.21% 5.28% Net Assets at End of the Period (In millions)................................. $1,338.7 $1,267.3 $766.1 $560.9 $579.1 Ratio of Expenses to Average Net Assets..... 1.39% 1.04% 0.99% 0.92% 0.89% Ratio of Net Investment Income to Average Net Assets................................ 5.34% 5.41% 5.74% 6.07% 5.99% Portfolio Turnover.......................... 48% 34% 10% 14% 13% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)................................. 0.84% 0.86% 0.91% 0.89% 0.86%
(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 or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months 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. 52 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED--SEE NOTE 11) continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $13.22 $12.99 $13.02 $13.20 $13.24 ------ ------ ------ ------ ------ Net Investment Income...................... .61(a) .62(a) .65(a) .69(a) .70 Net Realized and Unrealized Gain/Loss...... .37 .27 (.01) (.25) (.12) ------ ------ ------ ------ ------ Total from Investment Operations............. .98 .89 .64 .44 .58 Less Distributions from Net Investment Income..................................... .62 .66 .67 .62 .62 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $13.58 $13.22 $12.99 $13.02 $13.20 ====== ====== ====== ====== ====== Total Return (b)............................. 7.54% 7.04% 5.07% 3.42% 4.49% Net Assets at End of the Period (In millions).................................. $120.0 $144.9 $123.8 $115.6 $149.5 Ratio of Expenses to Average Net Assets...... 2.14% 1.79% 1.75% 1.67% 1.65% Ratio of Net Investment Income to Average Net Assets..................................... 4.58% 4.67% 5.00% 5.32% 5.23% Portfolio Turnover........................... 48% 34% 10% 14% 13% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).................................. 1.59% 1.61% 1.67% 1.64% 1.62%
(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. See Notes to Financial Statements 53 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED--SEE NOTE 11) continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $13.32 $13.09 $13.11 $13.20 $13.24 ------ ------ ------ ------ ------ Net Investment Income...................... .61(a) .62(a) .64(a) .79(a) .70 Net Realized and Unrealized Gain/Loss...... .38 .27 .01 (.26) (.12) ------ ------ ------ ------ ------ Total from Investment Operations............. .99 .89 .65 .53 .58 Less Distributions from Net Investment Income..................................... .62 .66 .67 .62 .62 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $13.69 $13.32 $13.09 $13.11 $$13.20 ====== ====== ====== ====== ====== Total Return (b)............................. 7.55% 6.98% 5.10%(d) 4.10%(c) 4.49% Net Assets at End of the Period (In millions).................................. $198.0 $200.0 $ 84.0 $ 34.3 $ 38.5 Ratio of Expenses to Average Net Assets...... 2.14% 1.80% 1.73% 1.67% 1.65% Ratio of Net Investment Income to Average Net Assets..................................... 4.59% 4.62% 4.94%(d) 6.00%(c) 5.23% Portfolio Turnover........................... 48% 34% 10% 14% 13% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).................................. 1.59% 1.62% 1.65% 1.64% 1.62%
(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) 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) 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) 54 See Notes to Financial Statements VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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 seek 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 Fund offers Class A Shares, Class B Shares, Class C Shares and Class I Shares. Each class of shares differs by its initial sales load, contingent deferred sales charges, the allocation of class-specific expenses and voting rights on matters affecting a single class. As of September 30, 2006, there have been no sales of Class I Shares. 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, 2006 the Fund had $15,343,221 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. 55 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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 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, 2006 the Fund had an accumulated capital loss carryforward for tax purposes of $115,213,774 which will expire according to the following schedule.
AMOUNT EXPIRATION $ 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 24,197,373................................................. September 30, 2014
At September 30, 2006 the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $1,560,150,208 ============== Gross tax unrealized appreciation........................... $ 90,266,347 Gross tax unrealized depreciation........................... (11,211,750) -------------- Net tax unrealized appreciation on investments.............. $ 79,054,597 ==============
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, 2006 and 2005 were as follows:
2006 2005 Distributions paid from: Ordinary income........................................... $ 57,989 $ 1,843 Tax-exempt income......................................... 84,689,847 67,834,052 ----------- ----------- $84,747,836 $67,835,895 =========== ===========
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 $1,076,939 has been reclassified from accumulated net realized loss to capital. 56 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued Additionally, permanent book and tax differences relating to the Fund's investment in other regulated investment companies totaling $6,390 were reclassified from accumulated undistributed net investment income to accumulated net realized loss. Additionally, permanent book to tax accretion differences totaling $124,534 were reclassified from accumulated undistributed net investment income to accumulated net realized loss. A permanent book to tax difference relating to the sale of PIK bonds totaling $5,156,978 was reclassified from accumulated undistributed net investment income to accumulated net realized loss. As of September 30, 2006 the components of distributable earnings on a tax basis were as follows: Undistributed Ordinary income............................... $ 192,687 Undistributed Tax-exempt income............................. 5,043,163
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, gains or losses recognized on securities for tax purposes but not for book purposes and gains or losses recognized for tax purposes on open futures transactions at September 30, 2006 and post October losses of $6,025,399 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, 2006 the Fund's custody fee was reduced by $46,097 as a result of credits earned on cash balances. G. FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES HELD The Fund enters into transactions in which it transfers to dealer trusts fixed rate bonds in exchange for cash and residual interests in the dealer trusts' assets and cash flows, which are in the form of inverse floating rate investments. The dealer trusts fund the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Fund to retain residual interests in the bonds. The Fund enters into shortfall agreements with the dealer trusts, which commit the Fund to pay the dealer trusts, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the dealer trusts and the liquidation value of the floating rate notes held by third parties, as well as any shortfalls in interest cash flows. The residual interests held by the Fund (inverse floating rate investments) include the right of the Fund (1) to cause the holders of the floating rate notes to tender their notes at par at the next interest rate reset date, and (2) to transfer the municipal bond from the dealer trusts to the Fund, thereby collapsing the dealer trusts. The Fund accounts for the transfer of bonds to the dealer trusts as secured borrowings, with the securities transferred remaining in the Fund's investment assets, and the related floating rate notes reflected as Fund liabilities under the caption "Floating Rate Note Obligations" on the Statement of Assets and Liabilities. The Fund records the interest income from the fixed rate bonds under the caption "Interest" and records the expenses related to floating rate note obligations and any administrative expenses of the dealer trusts under the caption "Interest and Residual Trust Expenses" in the Fund's Statement of Operations. The notes issued by the dealer trusts have interest rates that reset weekly and the floating rate note holders have the option to tender their notes to the dealer trusts for redemption at par at each reset date. At September 30, 2006, Fund investments with a value of $763,025,289 are held by the dealer trusts and serve as collateral for the 57 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued $517,240,000 in floating rate notes outstanding at that date. Contractual maturities of the floating rate notes and interest rates in effect at September 30, 2006 are presented on the Portfolio of Investments. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, Van Kampen Asset Management ("the Adviser") will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM First $500 million.......................................... .50% Over $500 million........................................... .45%
For the year ended September 30, 2006 the Fund recognized expenses of approximately $31,500 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, 2006 the Fund recognized expenses of approximately $183,600 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, 2006 the Fund recognized expenses of approximately $672,700 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 $163,813 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2006. 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. 58 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued For the year ended September 30, 2006 Van Kampen, as distributor for the Fund, received commissions on sales of the Fund's Class A shares of approximately $362,400 and contingent deferred sales charge (CDSC) on redeemed shares of approximately $263,500 Sales charges do not represent expenses of the Fund. 3. CAPITAL TRANSACTIONS For the years ended September 30, 2006, 2005 transactions were as follows:
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ---------------------------- ---------------------------- SHARES VALUE SHARES VALUE Sales: Class A....................... 13,055,319 $ 173,891,015 46,042,142 $ 610,280,678 Class B....................... 334,366 4,446,493 3,997,568 52,841,157 Class C....................... 1,973,723 26,414,985 10,302,312 137,623,632 ----------- ------------- ----------- ------------- Total Sales..................... 15,363,408 $ 204,752,493 60,342,022 $ 800,745,467 =========== ============= =========== ============= Dividend Reinvestment: Class A....................... 3,595,933 $ 47,892,378 2,846,859 $ 37,712,082 Class B....................... 308,235 4,099,833 322,306 4,263,931 Class C....................... 371,317 4,979,001 269,962 3,603,340 ----------- ------------- ----------- ------------- Total Dividend Reinvestment..... 4,275,485 $ 56,971,212 3,439,127 $ 45,579,353 =========== ============= =========== ============= Repurchases: Class A....................... (13,939,360) $(185,299,918) (12,050,561) $(158,836,281) Class B....................... (2,767,368) (36,807,094) (2,891,622) (38,202,420) Class C....................... (2,899,964) (38,849,536) (1,980,028) (26,350,941) ----------- ------------- ----------- ------------- Total Repurchases............... (19,606,692) $(260,956,548) (16,922,211) $(223,389,642) =========== ============= =========== =============
4. REDEMPTION FEE 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 year ended September 30, 2006 the Fund received redemption fees of approximately $12,300 which are reported as part of "Cost of Shares Repurchased" on the Statement of Changes in Net Assets. The per share impact from redemption fees paid to the fund was less than $0.01. 5. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $1,271,032,316 and $892,129,199, 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. 59 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued The Fund may use derivative instruments for a variety of reasons, 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. 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 future contracts for year ended September 30, 2006 are as follows:
CONTRACTS Outstanding at September 30, 2005........................... -0- Futures Opened.............................................. 6,940 Futures Closed.............................................. (4,270) ------ Outstanding at September 30, 2006........................... 2,670 ======
B. INVERSE FLOATING RATE INVESTMENTS The Fund may invest a portion of its assets in inverse floating rate instruments, either through outright purchases of inverse floating rate securities or through the transfer of bonds to a dealer trust in exchange for cash and residual interests in the dealer trust. These investments are typically used by the Fund in seeking to enhance the yield of the portfolio. These instruments typically involve greater risks than a fixed rate municipal bond. In particular, these instruments are acquired through leverage or may have leverage embedded in them and therefore involve many of the risks associated with leverage. Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. Leverage may cause the Fund's net asset value to be more volatile than if it had not been leveraged because leverage tends to magnify the effect of any increases or decreases in the value of the Fund's portfolio securities. The use of leverage may also cause the Fund to liquidate portfolio positions when it may not be advantageous to do so in order to satisfy its obligations with respect to inverse floating rate instruments. 60 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 7. DISTRIBUTION AND SERVICE PLANS Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"), an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively, the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate the Distributor for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees 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. These fees are accrued daily and paid to the Distributor monthly. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed receivable") was approximately $2,627,100 and $115,200 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, the distribution fee is reduced. 8. LEGAL MATTERS The Adviser and certain affiliates of the Adviser are named as defendants in a derivative action 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 Van Kampen 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 derivative action was coordinated with a direct action alleging related violations of defendants' statutory disclosure obligations and fiduciary duties with respect to the payments described above. In addition, this derivative action was stayed by agreement of the parties pending rulings on the motion to dismiss the direct action and the motion to dismiss another derivative action brought by the same plaintiff that brought this derivative action, alleging market timing and late trading in the Van Kampen funds. In April 2006, the court granted defendants' motion to dismiss the direct action. In June 2006, the court granted defendants' motion to dismiss the market timing action. Accordingly, the stay on this action was lifted. Plaintiff and defendants have agreed that this action should be dismissed in light of the rulings dismissing the two cases discussed above. The Court has approved a notice to shareholders regarding the dismissal, which is located at the back of this Report. 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. 10. ACCOUNTING PRONOUNCEMENTS In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement 109 61 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The impact to the Fund's Financial Statements, if any is currently being assessed. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures. 11. RESTATEMENT INFORMATION Subsequent to the issuance of its September 30, 2006 financial statements, the Fund determined that the criteria for sale accounting in Statement of Financial Accounting Standards No. 140 had not been met for certain municipal bonds transferred to dealer trusts during the fiscal years ended September 30, 2006, 2005, 2004, 2003 and 2002 and that the transfers should have been accounted for as secured borrowings rather than as sales. Accordingly, the Fund has restated the Statement of Assets and Liabilities as of September 30, 2006, the related Statement of Operations and Statement of Changes in Net Assets for the year then ended and the Financial Highlights for each of the five years in the period then ended to give effect to recording the transfers of the municipal bonds as secured borrowings. The footnotes to the financial statements have also been revised to further explain these transactions, the accounting treatment thereof and the associated risks. See footnotes 1G and 6B. Among other things, the effects of properly reporting these municipal securities known as "inverse floaters" are to increase assets and liabilities by corresponding and equal amounts, and to increase interest income and interest and residual trust expenses by corresponding and equal amounts. These changes in the financial statements did not impact the Fund's net asset values per share or the Fund's total returns for the current or any prior period. These changes do, however, impact certain ratios reported in the Fund's financial highlights for the current and prior years. In addition, the Fund has included a Statement of Cash Flows in this report which was not provided in the previously issued financial statements. 62 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued The following line items from the respective financial statements and financial highlights have been changed as a result of these restatements.
PREVIOUSLY REPORTED RESTATED ------------- -------------- STATEMENT OF ASSETS AND LIABILITIES AS OF SEPTEMBER 30, 2006 Cost.................................................... 1,560,537,803 2,078,642,527 Total Investments....................................... 1,639,204,805 2,156,444,805 TOTAL ASSETS.............................................. 1,685,874,531 2,203,114,531 Payables: Floating Rate Note Obligations........................ -- 517,240,000 TOTAL LIABILITIES......................................... 29,303,415 546,543,415 NET ASSETS CONSIST OF: Net Unrealized Appreciation............................. 74,518,197 73,653,473 Accumulated Net Realized Loss........................... (116,988,295) (116,123,571) STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2006 Interest................................................ 99,511,015 108,298,641 Interest and Residual Trust Expenses.................... -- 8,787,626 TOTAL EXPENSES............................................ 15,990,801 24,778,427 NET EXPENSES.............................................. 15,944,704 24,732,330 REALIZED AND UNREALIZED GAIN/LOSS INVESTMENTS............. 3,926,382 4,791,106 NET REALIZED GAIN/(LOSS).................................. 2,662,805 3,527,529 UNREALIZED APPRECIATION/DEPRECIATION: End of the Period: Investments........................................... 78,667,002 77,802,278 Net Unrealized Appreciation During the Period........... 42,062,836 41,198,112 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2006 Net Realized Gain/Loss.................................. 2,662,805 3,527,529 Net Unrealized Appreciation During the Period........... 42,062,836 41,198,112
63 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued FINANCIAL HIGHLIGHTS
YEAR ENDED SEPTEMBER 30, ------------------------------------- 2006 2005 2004 2003 2002 PREVIOUSLY REPORTED CLASS A Ratio of Expenses to Average Net Assets...... 0.84% 0.86% 0.91% 0.89% 0.86% Portfolio Turnover........................... 99% 48% 16% 14% 14% RESTATED CLASS A Ratio of Expenses to Average Net Assets...... 1.39% 1.04% 0.99% 0.92% 0.89% Portfolio Turnover........................... 48% 34% 10% 14% 13% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).................................. 0.84% 0.86% 0.91% 0.89% 0.86%
YEAR ENDED SEPTEMBER 30, ------------------------------------- 2006 2005 2004 2003 2002 PREVIOUSLY REPORTED CLASS B Ratio of Expenses to Average Net Assets...... 1.59% 1.61% 1.67% 1.64% 1.62% Portfolio Turnover........................... 99% 48% 16% 14% 14% RESTATED CLASS B Ratio of Expenses to Average Net Assets...... 2.14% 1.79% 1.75% 1.67% 1.65% Portfolio Turnover........................... 48% 34% 10% 14% 13% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).................................. 1.59% 1.61% 1.67% 1.64% 1.62%
64 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued FINANCIAL HIGHLIGHTS continued
YEAR ENDED SEPTEMBER 30, ------------------------------------- 2006 2005 2004 2003 2002 PREVIOUSLY REPORTED CLASS C Ratio of Expenses to Average Net Assets...... 1.59% 1.62% 1.65% 1.64% 1.62% Portfolio Turnover........................... 99% 48% 16% 14% 14% RESTATED CLASS C Ratio of Expenses to Average Net Assets...... 2.14% 1.80% 1.73% 1.67% 1.65% Portfolio Turnover........................... 48% 34% 10% 14% 13% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).................................. 1.59% 1.62% 1.65% 1.64% 1.62%
While the Statement of Assets and Liabilities as of September 30, 2005, 2004, 2003 and 2002 (not presented herein) and the Statements of Operations for the years ended September 30, 2005, 2004, 2003 and 2002 (not presented herein) have not been reissued to give effect to the restatement, the principal effects of the restatement would be the same as those described above for the September 30, 2006 financial statements, thus resulting in no changes in the Fund's net asset values per share or total returns for such period but changing certain ratios reported (which changes are reflected in the Financial Highlights of these financial statements for the year ended September 30, 2006). 65 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, 2006, and the related statements of operations and cash flows 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, 2006, 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 Van Kampen Strategic Municipal Income Fund at September 30, 2006, the results of its operations and its cash flows 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. As discussed in Note 11, the statement of assets and liabilities, including the portfolio of investments as of September 30, 2006, the related statement of operations and statement of changes in net assets for the year then ended and the financial highlights for each of the five years in the period then ended have been restated. /s/ Ernst & Young LLP Chicago, Illinois November 14, 2006, except for Note 11 and the statement of cash flows, as to which the date is January 26, 2007 66 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 DENNIS SHEA Vice President J. DAVID GERMANY Vice President AMY R. DOBERMAN Vice President STEFANIE V. CHANG Vice President and Secretary JOHN L. SULLIVAN Chief Compliance Officer JAMES W. GARRETT 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 One Lincoln Street Boston, Massachusetts 02111 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, 2006. 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. 67 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND TRUSTEE AND OFFICER 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, the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange Corp. and 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:
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 (61) Trustee Trustee Chairman and Chief 71 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 (68) Trustee Trustee Prior to January 1999, 71 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.
68
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (66) Trustee Trustee President of CAC, L.L.C., 71 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 Quidel San Diego, CA 92122-6223 advisory services. Prior Corporation, Stericycle, to February 2001, Vice Inc., Ventana Medical Chairman and Director of Systems, Inc., and GATX Anixter International, Corporation, and Trustee Inc., a global of The Scripps Research distributor of wire, Institute. Prior to cable and communications January 2005, Trustee of connectivity products. the University of Chicago Prior to July 2000, Hospitals and Health Managing Partner of Systems. Prior to April Equity Group Corporate 2004, Director of Investment (EGI), a TheraSense, Inc. Prior to company that makes January 2004, Director of private investments in TeleTech Holdings Inc. other companies. and Arris Group, Inc. 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).
69
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (58) Trustee Trustee Managing Partner of 71 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 (54) Trustee Trustee Director and President of 71 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 (71) Trustee Trustee Prior to 1998, President 71 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.
70
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (70) Trustee Trustee President of Nelson 71 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 (66) Trustee Trustee President Emeritus and 71 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 71 Trustee/Director/Managing (64) 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.
71 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued INTERESTED TRUSTEE:*
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 Wayne W. Whalen* (67) Trustee Trustee Partner in the law firm 71 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.
* 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. 72 VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (67) 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 Van Kampen Advisors Inc. since June 2003. Director of Investor Services since September 2002. Director of the Adviser, Van Kampen Investments and Van Kampen Exchange Corp. since January 2005. 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. Dennis Shea (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 1221 Avenue of the Americas since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser New York, NY 10020 and Van Kampen Advisors Inc. Chief Investment Officer-Global Equity of the same entities since February 2006. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006. Previously, Managing Director and Director of Global Equity Research at Morgan Stanley from April 2000 to February 2006. J. David Germany (52) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 25 Cabot Square since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser Canary Wharf and Van Kampen Advisors Inc. Chief Investment Officer - London, GBR E14 4QA Global Fixed Income of the same entities since December 2005. Managing Director and Director of Morgan Stanley Investment Management Ltd. Director of Morgan Stanley Investment Management (ACD) Limited since December 2003. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006.
73
VAN KAMPEN STRATEGIC MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Amy R. Doberman (44) 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 Advisors 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 (40) 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. John L. Sullivan (51) 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. James W. Garrett (37) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas and Treasurer since 2006 Chief Financial Officer and Treasurer of Morgan Stanley New York, NY 10020 Institutional Funds since 2002 and of Funds in the Fund Complex from January 2005 to August 2005 and since September 2006.
74 Notice to Fund Shareholders As previously disclosed, a derivative action was filed on behalf of the Fund against the Fund's investment adviser, broker-dealer, distributor, and Trustees. The complaint alleges that defendants violated federal securities laws and state laws in connection with certain economic incentive programs. The case is pending before the Honorable Richard Owen, United States District Judge in the Southern District of New York. Defendants have filed a motion to dismiss the complaint in its entirety on numerous grounds, and that motion is still pending. On April 18, 2006, Judge Owen dismissed a separate lawsuit against Morgan Stanley and all of the same corporate defendants that are named in the derivative action. The Morgan Stanley suit related to the same incentive programs that are at issue in the derivative action, and asserted many of the same legal claims. In his decision, Judge Owen found that the programs do not violate federal law, and that defendants had made the appropriate disclosures concerning the programs. The plaintiffs in the Morgan Stanley suit did not appeal from the decision, and that decision is now final. In light of this decision by Judge Owen -- as well as several other decisions by other judges in the Southern District of New York and certain other courts that have dismissed similar complaints against other investment funds -- plaintiff in the derivative action has determined that the suit would be unsuccessful, if pursued further. Accordingly, plaintiff has asked Judge Owen to dismiss the action. No attorneys' fees will be paid by defendants and no consideration will be paid to the named plaintiff. All investors in the Fund are hereby provided notice of this proposed dismissal. If you object to the proposed dismissal, your objection must be mailed no later than December 29, 2006, in writing, to the Honorable Richard Owen, United States District Judge, United States Courthouse, Room 640, 500 Pearl Street, New York, NY 10007-1312. Copies of the objection must also be mailed to Denise Davis Schwartzman, Esquire, Chimicles & Tikellis LLP, 361 West Lancaster Avenue, Haverford, PA 19041; and Richard A. Rosen, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, NY 10019-6064. 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)2006 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 39, 399, 539 STMIANR 11/06 (VAN KAMPEN INVESTMENTS LOGO) RN06-03170P-Y09/06 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, 2006. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CLASS A, B, AND C SHARE OR CLASS I [AND R] SHARE PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUSES CONTAIN INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. TO OBTAIN AN ADDITIONAL PROSPECTUS, CONTACT YOUR FINANCIAL ADVISOR OR DOWNLOAD ONE AT VANKAMPEN.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 9/30/06 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index and the Lehman Brothers California Insured Municipal Bond Index from 9/30/96 through 9/30/06. Class A shares, adjusted for sales charges. (LINE GRAPH)
LEHMAN BROTHERS CALIFORNIA VAN KAMPEN CALIFORNIA INSURED MUNICIPAL BOND LEHMAN BROTHERS MUNICIPAL INSURED TAX FREE FUND INDEX BOND INDEX --------------------- -------------------------- ------------------------- 9/96 9527 10000 10000 9653 10116 10113 9852 10333 10298 9796 10273 10255 9768 10265 10274 9846 10361 10369 9711 10191 10230 9801 10291 10316 9965 10477 10471 10079 10579 10583 10405 10958 10876 10228 10819 10774 9/97 10361 10955 10902 10425 11023 10972 10489 11096 11037 10671 11275 11197 10784 11424 11313 10768 11425 11316 10782 11414 11326 10690 11343 11275 10899 11546 11454 10949 11587 11499 10981 11614 11528 11169 11826 11706 9/98 11352 12027 11852 11306 12017 11851 11350 12071 11893 11347 12075 11923 11471 12216 12065 11418 12174 12012 11432 12210 12029 11441 12211 12059 11343 12118 11989 11133 11915 11816 11139 11945 11859 10994 11799 11764 9/99 10961 11811 11769 10726 11624 11642 10866 11765 11765 10769 11639 11678 10703 11590 11627 10914 11817 11762 11255 12136 12019 11129 11983 11948 11043 11949 11886 11394 12333 12201 11576 12517 12371 11839 12803 12561 9/00 11750 12735 12496 11853 12843 12632 11957 12944 12728 12342 13281 13042 12413 13406 13172 12416 13429 13213 12494 13537 13332 12232 13280 13187 12379 13476 13329 12444 13536 13418 12647 13765 13617 13001 14115 13842 9/01 12936 14042 13795 13078 14227 13959 12949 14126 13842 12786 13980 13711 12979 14202 13949 13138 14355 14117 12802 14010 13840 13054 14278 14111 13150 14392 14196 13254 14501 14346 13415 14672 14531 13642 14909 14705 9/02 14101 15305 15028 13677 14932 14778 13659 14911 14717 13980 15224 15028 13842 15141 14990 14059 15379 15199 14076 15409 15208 14221 15555 15309 14537 15932 15667 14349 15806 15601 13753 15207 15055 13912 15305 15167 9/03 14336 15738 15613 14275 15701 15534 14481 15873 15696 14580 16015 15826 14602 16100 15917 14910 16384 16156 14778 16292 16100 14352 15858 15719 14297 15797 15662 14369 15878 15719 14597 16096 15926 14882 16448 16245 9/04 14970 16519 16331 15153 16688 16472 14957 16539 16336 15200 16763 16535 15387 16970 16690 15292 16882 16634 15131 16751 16529 15417 17050 16790 15549 17162 16909 15641 17273 17013 15536 17178 16937 15710 17380 17108 9/05 15563 17258 16992 15457 17133 16889 15542 17242 16970 15702 17409 17116 15729 17457 17162 15858 17607 17278 15715 17469 17158 15683 17429 17153 15742 17514 17229 15646 17434 17164 15835 17686 17368 16103 17975 17626 9/06 16207 18083 17749
A SHARES B SHARES C SHARES I SHARES since 12/13/85 since 4/30/93 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 6.83% 6.59% 4.86% 4.86% 4.53% 4.53% 4.02% 10-year 5.46 4.95 4.90 4.90 4.70 4.70 n/a 5-year 4.61 3.60 4.34 4.08 3.86 3.86 n/a 1-year 4.14 -0.82 4.40 0.44 3.36 2.37 4.40 - ------------------------------------------------------------------------------------------------------ SEC Yield 3.33% 3.51% 2.78% 3.75%
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, 2006, 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. 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 years one and two and declining to zero after year five), a contingent deferred sales charge of 1.00 percent for Class C shares in year one and combined Rule 12b-1 fees and service fees of up to 0.25 percent for Class A shares and up to 1.00 percent for Class B and C shares. The since inception and 10-year returns for Class B shares reflect the conversion of Class B shares into Class A shares eight 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. Class I shares are available for purchase exclusively by investors through (i) tax-exempt retirement plans with assets of at least 1 $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 Rule 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 Lehman Brothers California Insured Municipal Bond Index is comprised of insured CA municipal bond issues. The indexes do not include any expenses, fees or sales charges, which would lower performance. The indexes are unmanaged and should not be considered investments. 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, 2006 MARKET CONDITIONS Against the backdrop of strong economic growth, good employment data and inflationary pressures stemming from rising oil prices, the Federal Open Market Committee (the "Fed") continued its tightening campaign during the first nine months of the reporting period, raising the federal funds target rate six times to 5.25 percent at the end of June. As the months progressed however, economic growth moderated as consumer spending and housing weakened while inflation concerns eased, prompting investors to speculate that the Fed would take a break from rate increases. In August the Fed did pause, ending a two-year run of 17 consecutive rate increases -- the longest stretch of increases in 25 years. At its September meeting, the Fed again kept its target rate unchanged, and indicated that any future rate increases would be driven by the weight of economic data. As a result of the improved outlook for the fixed income market, yields on longer-maturity municipal bonds fell dramatically in latter months of the reporting year, ultimately ending at the lowest level in decades. Yields on shorter-maturity municipal bonds, however, moved higher. Accordingly, the slope of the municipal yield curve flattened as the spread between short-term and long-term interest rates narrowed. Demand for municipal bonds continued to be strong during the period. In fact, inflows into municipal bond funds were 45 percent higher year-to-date through September than for the same period last year, much of which went into high yield funds. Because prevailing interest rates were still at relatively low levels, investors increasingly sought out lower-quality, higher yielding bonds. The increased demand for high yield bonds led this segment of the market to considerably outperform high-grade issues. In addition, long-term bonds continued to earn the best returns, while the short end of the curve posted the lowest returns as Fed rate increases moved yields in this portion of the curve higher. Although municipal bond issuance remained brisk in the last quarter of 2005, volume declined throughout the remaining months of the period. As of the end of September, national municipal bond issuance was down 14 percent for 2006. The reduced supply, coupled with growing demand, further fueled municipal bond performance. Consistent with the national trend, the amount of municipal issues (both insured and uninsured) that came to market in California declined for the overall period. The large number of refundings that took place in the state in the previous two years contributed to the reduction in supply. In addition, the low level of interest rates more recently has led investors to seek securities with 3 high yields, which resulted in a decline in demand for higher-quality, lower yielding paper. Despite the 20 percent drop in new issue supply, the State of California remained the nation's largest issuer of municipal debt. The state's municipal market continued to benefit from the strengthening of its credit fundamentals as its credit rating was raised to A+ in 2006. PERFORMANCE ANALYSIS The fund returned 4.14 percent for the 12 months ended September 30, 2006 (Class A shares, unadjusted for sales charges). In comparison, the fund's benchmarks, the Lehman Brothers California Insured Municipal Bond Index and the Lehman Brothers Municipal Bond Index, returned 4.78 percent and 4.45 percent for the period, respectively. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2006
- ------------------------------------------------------------------------------------------------ LEHMAN BROTHERS LEHMAN BROTHERS CALIFORNIA INSURED MUNICIPAL BOND CLASS A CLASS B CLASS C CLASS I MUNICIPAL BOND INDEX INDEX 4.14% 4.40% 3.36% 4.40% 4.78% 4.45% - ------------------------------------------------------------------------------------------------
The performance for the four 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, 2006, 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. A variety of factors contributed positively to the fund's performance during the reporting year. Reflecting our view that Treasury rates would continue to rise, we kept the portfolio's duration (a measure of interest-rate sensitivity) lower than that of the Lehman Brothers California Insured Municipal Bond Index for the first eight months of the period. This conservative positioning benefited the fund as interest rates continued to climb as anticipated. In June, when economic data started to weaken and it appeared that rates were done climbing, we increased the duration of the portfolio to be more in line with the Lehman Brothers California Insured Municipal Bond Index. This less-defensive positioning also contributed positively to fund returns as the yield curve began to flatten in the latter months of the period. The fund's positioning along the yield curve remained consistent throughout the period. We favored the longer-term segment of the curve, purchasing bonds 4 primarily in the 25-to-30 year maturity range. This proved advantageous as longer-dated issues outperformed those with shorter maturities. We also purchased premium coupon bonds priced to 10 years or shorter, and added to the fund's holdings in inverse floating-rate securities,* both of which added income to the fund. We continued to avoid zero-coupon bonds, which have been volatile, as well as non-callable bonds. The fund also benefited considerably from new issues being brought into the marketplace that refunded current holdings in the portfolio, which allowed the fund to capture appreciation gains. For hedging purposes, we used Bond Market Association (BMA) swaps and to a lesser extent, Treasury futures. BMA swaps are more closely tied to the municipal market than are Treasury futures, which we believe makes them a more effective hedging tool. The fund maintained an emphasis on the essential services sectors of the market, such as water and sewer and education bonds. We selectively added some health care issues to the portfolio but continued to avoid housing bonds. These factors were also additive to performance whereas an underweight relative to the Lehman Brothers California Insured Municipal Bond Index in the tax-supported debt and education sectors tempered returns somewhat. In addition, the portfolio did not contain any holdings subject to the Alternative Minimum Tax (AMT). (*)An inverse floating-rate security, or "inverse floater", is a variable rate security whose coupon rate changes in the opposite direction from the change in the reference rate used to calculate the coupon rate. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the fund in the future. TOP FIVE SECTORS AS OF 9/30/06 RATINGS ALLOCATIONS AS OF 9/30/06 Tax Allocation 22.2% AAA/Aaa 100% Public Education 20.5 Public Building 17.2 General Purpose 7.2 Higher Education 6.2
Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned or securities in the industries shown above. Ratings allocations 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. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. 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. 6 HOUSEHOLDING NOTICE To reduce fund expenses, the fund attempts to eliminate duplicate mailings to the same address. The fund delivers a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. The fund's prospectuses and shareholder reports (including annual privacy notices) will be delivered to you in this manner indefinitely unless you instruct us otherwise. You can request multiple copies of these documents by either calling (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 without charge 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 costs, including sales charges (loads) on purchase payments of Class A Shares and contingent deferred sales charges on redemptions of Class B and C Shares; and redemption fees; 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 4/1/06 - 9/30/06. 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 or redemption fees. 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.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/06 9/30/06 4/1/06-9/30/06 Class A Actual............................................. $1,000.00 $1,031.28 $4.63 Hypothetical....................................... 1,000.00 1,020.57 4.61 (5% annual return before expenses) Class B Actual............................................. 1,000.00 1,034.19 2.45 Hypothetical....................................... 1,000.00 1,022.67 2.43 (5% annual return before expenses) Class C Actual............................................. 1,000.00 1,027.98 8.44 Hypothetical....................................... 1,000.00 1,016.77 8.39 (5% annual return before expenses) Class I Actual............................................. 1,000.00 1,033.14 3.36 Hypothetical....................................... 1,000.00 1,021.77 3.35 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.91%, 0.48%, 1.66%, 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). 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 22, 2006, 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, 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 the Board. The trustees discuss with the investment adviser its revenues and expenses, including among 10 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, 2006
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- CALIFORNIA MUNICIPAL BONDS 99.4% $1,925 Alhambra, CA City Elem Sch Dist Cap Apprec Ser A (FSA Insd) (a).................................. * 09/01/20 $ 1,064,621 2,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev (Inverse Fltg) (MBIA Insd)............................... 9.321% 12/28/18 2,209,740 3,000 Baldy Mesa, CA Wtr Dist Ctf Partn Parity Wtr Sys Impt Proj (AMBAC Insd).......................... 5.000 08/01/36 3,160,710 1,430 Bay Area Govt Assn CA Lease Rev Cap Proj Ser A (AMBAC Insd) (a)................................ 5.250 07/01/17 1,551,164 2,735 Bay Area Govt Assn CA Lease West Sacramento Ser A (XLCA Insd) (a)............................... 5.000 09/01/29 2,866,964 1,000 Bonita, CA Uni Sch Dist Election 2004 Ser A (MBIA Insd)..................................... 5.000 08/01/28 1,055,990 1,070 Bonita, CA Uni Sch Dist Election 2004 Ser A (MBIA Insd)..................................... 5.250 08/01/24 1,167,456 1,850 Brea & Olinda, CA Uni Sch Dist Ser A Rfdg (FSA Insd) (a)....................................... 5.500 08/01/18 2,013,836 2,165 California Ed Fac Auth Rev Univ Pacific (MBIA Insd)..................................... 5.875 11/01/20 2,349,350 2,000 California Infrastructure & Econ Dev Bk Rev Bay Area Toll Brdg First Lien Ser A (Prerefunded @ 01/01/28) (FGIC Insd)........................... 5.000 07/01/29 2,249,040 1,050 California Spl Dist Assn Fin Corp Ctf Partn Pgm Ser DD (a)...................................... 5.625 01/01/27 1,075,704 1,050 California St (FGIC Insd)....................... 6.250 09/01/12 1,193,881 1,200 California St Dept Transn Ctf Ser A Rfdg (MBIA Insd)..................................... 5.250 03/01/16 1,231,392 2,500 California St Dept Wtr Res Pwr Supply Rev Rite Ser B (Inverse Fltg) (Acquired 09/08/03, Cost $2,709,650) (MBIA Insd) (a) (b)................. 6.785 05/01/11 3,021,775 2,500 California St Pub Wks Brd Lease Dept Corrections Ten Admin Ser A (AMBAC Insd).................... 5.250 03/01/17 2,677,950 7,750 California St Rfdg (FGIC Insd).................. 5.000 02/01/23 7,940,495 1,000 California St Univ Rev & Colleges Systemwide Ser A (AMBAC Insd).................................. 5.375 11/01/18 1,090,820 1,900 California Statewide Cmntys Dev Auth Wtr Rev Ser A (FSA Insd).................................... 5.000 10/01/26 2,021,942 1,000 Carson, CA Redev Agy Redev Proj Area No 1 Tax Alloc (MBIA Insd)............................... 5.500 10/01/15 1,133,110 2,000 Castaic Lake Wtr Agy CA Ctf Partn Wtr Sys Impt Proj Ser A Rfdg (MBIA Insd)..................... 7.000 08/01/12 2,351,060 3,000 Castaic Lake Wtr Agy CA Rev Ctf Partn Ser A (MBIA Insd)..................................... 5.250 08/01/23 3,192,870 100 Cerritos, CA Cmnty College Election 2004 Ser A (MBIA Insd)..................................... 5.000 08/01/26 105,736
12 See Notes to Financial Statements VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- CALIFORNIA MUNICIPAL BONDS (CONTINUED) $ 125 Cerritos, CA Cmnty College Election 2004 Ser A (MBIA Insd)..................................... 5.000% 08/01/28 $ 131,999 2,000 Chula Vista, CA Pub Fin Auth Rev Ser A Rfdg (MBIA Insd)..................................... 5.000 09/01/29 2,103,520 1,160 Coachella, CA Fin Auth Tax Proj 1 & 2 Ser A Rfdg (XLCA Insd) (a)................................. 5.250 12/01/30 1,241,374 3,140 Colton, CA Jt Uni Sch Dist Election 2001 Ser C (FGIC Insd) (a)................................. 5.250 02/01/25 3,412,332 3,400 Contra Costa, CA Cmnty College Election 2002 (MBIA Insd)..................................... 5.000 08/01/29 3,585,708 2,890 Cucamonga Vly, CA Wtr Dist Ctf Partn Wtr Fac Fin (MBIA Insd)..................................... 5.000 09/01/36 3,038,777 2,500 Culver City, CA Redev Agy Tax Alloc Redev Proj Ser A Rfdg (AMBAC Insd)......................... 5.000 11/01/23 2,649,075 2,400 Dinuba, CA Redev Agy Tax Alloc Merged City Redev Proj No 2 Rfdg (AMBAC Insd)..................... 5.000 09/01/34 2,514,624 1,000 East Bay, CA Muni Util Dist Wtr Sys Rev (MBIA Insd)..................................... 5.000 06/01/21 1,055,040 2,195 Elk Grove, CA Uni Sch Dist Spl Tax Cmnty Fac Dist No 1 (MBIA Insd)........................... 5.000 12/01/35 2,300,997 1,280 Fillmore, CA Uni Sch Dist Election 2004 Ser A (FSA Insd)...................................... 5.000 08/01/27 1,360,230 1,300 Folsom Cordova, CA Uni Sch Dist Sch Fac Impt Dist No 2 Ser A (MBIA Insd)..................... 5.375 10/01/17 1,412,281 1,360 Folsom, CA Pub Fin Auth City Hall & Cmnty Ctr Rfdg (FSA Insd) (a)............................. 5.000 10/01/16 1,456,288 1,480 Fontana, CA Redev Agy Tax Alloc Dwntwn Redev Proj Rfdg (MBIA Insd)........................... 5.000 09/01/21 1,536,284 650 Fresno, CA Jt Pwrs Fin Auth Ser A (FSA Insd).... 5.000 06/01/17 686,348 590 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd) (a)....................................... 5.900 08/01/17 695,923 630 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd) (a)....................................... 5.900 08/01/18 748,856 675 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd) (a)....................................... 5.900 08/01/19 806,895 720 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA Insd) (a)....................................... 5.900 08/01/20 867,247 2,000 Glendale, CA Redev Agy Tax Ctr Glendale Redev Proj (MBIA Insd)................................ 5.250 12/01/20 2,159,640 2,425 Glendora, CA Pub Fin Auth Tax Alloc Proj No 1 Ser A (MBIA Insd)............................... 5.000 09/01/24 2,545,619 2,230 Hanford, CA High Sch Dist Election 1998 Ser C (MBIA Insd) (a)................................. 5.700 08/01/28 2,532,745 2,275 Hawaiian Gardens, CA Redev Agy Proj No 1 Tax Alloc Ser A (AMBAC Insd)........................ 5.000 12/01/25 2,425,241
See Notes to Financial Statements 13 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- CALIFORNIA MUNICIPAL BONDS (CONTINUED) $2,500 Huntington Beach, CA High Election 2004 (FSA Insd)...................................... 5.000% 08/01/26 $ 2,643,400 2,000 Imperial Irr Dist CA Ctf Partn Elec Sys Proj (FSA Insd)...................................... 5.250 11/01/23 2,147,180 1,950 Imperial Irr Dist CA Ctf Partn Wtr Sys Proj (AMBAC Insd) (a)................................ 5.000 07/01/19 2,053,954 2,000 Inglewood, CA Redev Agy Tax Alloc Merged Redev Proj Ser A Rfdg (AMBAC Insd).................... 5.250 05/01/23 2,253,880 1,715 Irvine, CA Pub Fac & Infrastructure Ser B (AMBAC Insd) (a)....................................... 5.000 09/02/23 1,774,442 2,000 La Canada, CA Uni Sch Dist Election 2004 Ser A (MBIA Insd)..................................... 5.500 08/01/28 2,205,000 2,000 La Quinta, CA Fin Auth Loc Ser A (AMBAC Insd)... 5.000 09/01/29 2,104,740 2,000 La Quinta, CA Redev Agy Tax Alloc Redev Proj Area No 1 (AMBAC Insd).......................... 5.000 09/01/22 2,125,520 2,000 La Quinta, CA Fin Auth Loc Ser A (AMBAC Insd)... 5.250 09/01/24 2,167,540 1,000 Livermore-Amador Vly Wtr Mgmt Agy CA Swr Rev Ser A (AMBAC Insd).................................. 5.250 08/01/16 1,074,460 1,260 Long Beach, CA Bd Fin Auth Pub Lease Safety Fac Proj (AMBAC Insd) (a)........................... 5.250 11/01/16 1,374,887 1,545 Long Beach, CA Bd Fin Auth Pub Lease Safety Fac Proj (AMBAC Insd) (a)........................... 5.250 11/01/20 1,672,246 2,000 Long Beach, CA Cmnty College Dist 2002 Election Ser B (FGIC Insd)............................... 5.000 05/01/25 2,128,400 2,000 Los Angeles, CA Cmnty Redev Agy Cmnty Redev Fin Auth Rev Ser N (MBIA)........................... 5.250 09/01/26 2,178,220 2,740 Los Angeles Cnty, CA Ctf Partn Antelope Vly Courthouse Ser A (AMBAC Insd)................... 5.750 11/01/16 2,966,379 1,000 Los Angeles Cnty, CA Ctf Partn Disney Pkg Proj Rfdg (AMBAC Insd)............................... 4.750 03/01/23 1,018,040 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 1,038,210 1,265 Los Angeles Cnty, CA Schs Regionalized Business Svcs Ctf Partn Cap Apprec Pooled Fin Ser A (AMBAC Insd).................................... * 08/01/24 567,934 1,975 Los Angeles, CA Ctf Partn Real Ppty Pgm Ser T (MBIA Insd) (a)................................. 5.000 02/01/19 2,075,192 2,000 Los Angeles, CA Dept Wtr & Pwr Sys Ser C (MBIA Insd)........................................... 5.000 07/01/26 2,113,660 2,350 Los Angeles, CA Mtg Rev FHA Security 8 Asstd Proj Ser A Rfdg (MBIA Insd)..................... 6.100 07/01/25 2,352,726 1,375 Los Angeles, CA Spl Assmt Landscaping & Ltg Dist No 96 Ser 1 (AMBAC Insd) (a).................... 5.000 03/01/21 1,439,680 1,000 Lynwood, CA Uni Sch Dist 2002 Election Ser A (FSA Insd)...................................... 5.000 08/01/27 1,050,410
14 See Notes to Financial Statements VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- CALIFORNIA MUNICIPAL BONDS (CONTINUED) $1,000 Menifee, CA Uni Sch Dist 2002 Election Ser B (FGIC Insd)..................................... 5.000% 08/01/28 $ 1,060,400 1,500 Modesto, CA Irr Rect Ctf Partn Cap Impt Ser A (FSA Insd)...................................... 5.250 07/01/18 1,608,180 1,105 Monrovia, CA Fin Auth Lease Rev Hillside Wilderness Preserve (AMBAC Insd)................ 5.000 12/01/20 1,182,516 2,000 Montclair, CA Redev Agy Tax Redev Proj No V Rfdg (MBIA Insd)..................................... 5.000 10/01/20 2,124,180 1,000 Mount Pleasant, CA Elem Sch Dist 1998 Election Ser C (FSA Insd)................................ 5.500 03/01/26 1,076,190 1,570 Mountain View, CA Shoreline Tax Alloc Ser A (MBIA Insd) (a)................................. 5.250 08/01/16 1,677,466 1,105 National City, CA Cmnty Dev Com Redev Proj Ser B Rfdg (AMBAC Insd)............................... 5.250 08/01/32 1,185,212 2,060 Norco, CA Redev Agy Tax Alloc Norco Redev Proj Area No 1 Rfdg (AMBAC Insd)..................... 5.000 03/01/26 2,172,085 1,000 Novato, CA Uni Sch Dist (FSA Insd).............. 5.000 08/01/28 1,055,990 3,915 Oak Grove, CA Sch Dist 1995 Election (FGIC Insd)........................................... 5.250 08/01/25 4,147,590 1,000 Oakland, CA Uni Sch Dist Alameda Cnty (FSA Insd)...................................... 5.000 08/01/17 1,031,750 1,300 Oceanside, CA Ctf Part Ser A Rfdg (AMBAC Insd)........................................... 5.200 04/01/23 1,383,291 3,025 Orange Cnty, CA Pub Fin Auth Lease Rev Juvenile Justice Ctr Fac Rfdg (AMBAC Insd)............... 5.375 06/01/17 3,307,323 1,145 Pacifica, CA Wastewtr Rev Rfdg (AMBAC Insd)..... 5.000 10/01/25 1,209,521 1,200 Palm Desert, CA Fin Auth Tax Alloc Rev Proj Area No 4 Ser A Rfdg (MBIA Insd)..................... 5.000 10/01/29 1,270,224 1,340 Palm Springs, CA Fin Lease Rev Convention Ctr Proj Ser A Rfdg (MBIA Insd)..................... 5.250 11/01/19 1,446,932 3,545 Panama-Buena Vista Uni Sch Dist CA Ctf Partn Sch Constr Proj (MBIA Insd)......................... 5.000 09/01/30 3,739,195 3,065 Placentia Yorba Linda, CA Uni Sch Dist Ctf Partn (FGIC Insd)..................................... 5.000 10/01/30 3,224,962 2,020 Pomona, CA Pub Fin Auth Rev Merged Redev Proj Ser AD (MBIA Insd) (a).......................... 5.000 02/01/15 2,134,231 1,110 Pomona, CA Pub Fin Auth Rev Merged Redev Proj Ser AD (MBIA Insd) (a).......................... 5.000 02/01/16 1,172,770 1,360 Port Hueneme, CA Ctf Partn Cap Impt Pgm Rfdg (MBIA Insd)..................................... 6.000 04/01/19 1,629,321 1,055 Poway, CA Redev Agy Tax Alloc Paguay Redev Proj (AMBAC Insd) (a)................................ 5.375 06/15/20 1,143,842 3,000 Rancho Cucamonga, CA Redev Agy Rancho Redev Proj (MBIA Insd)..................................... 5.375 09/01/25 3,206,040 925 Redding, CA Elec Sys Rev Ctf Partn (Inverse Fltg) (Escrowed to Maturity) (MBIA Insd)........ 9.207 07/01/22 1,292,808 1,400 Redding, CA Redev Agy Tax Alloc Canby Hilltop Cypress Redev Ser A (MBIA Insd)................. 5.000 09/01/23 1,485,708
See Notes to Financial Statements 15 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- CALIFORNIA MUNICIPAL BONDS (CONTINUED) $3,775 Riverside, CA Lease Rev Ctf Partn Galleria at Tyler Pub Impt (FGIC Insd)...................... 5.000% 09/01/36 $ 3,969,337 3,775 Riverside Cnty, CA Ctf Partn Historic Courthouse Proj (FGIC Insd) (a)............................ 5.000 11/01/27 3,982,097 2,160 Roseville, CA Jt Un High Sch Election 2004 Ser A (FGIC Insd) (a)................................. 5.000 08/01/26 2,283,898 2,000 Sacramento Cnty, CA San Dist Fin Auth Rev Sacramento Regl Cnty San (FGIC Insd)............ 5.000 12/01/29 2,130,080 1,000 Sacramento, CA City Fin Auth Rev Cap Impt (AMBAC Insd)........................................... 5.000 12/01/33 1,044,320 1,500 San Diego Cnty, CA Ctf Partn Edgemoor Proj & Regl Sys Rfdg (AMBAC Insd)...................... 5.000 02/01/23 1,589,565 2,000 San Francisco, CA City & Cnty Second Ser Issue 26B (FGIC Insd)................................. 5.000 05/01/22 2,089,880 2,290 San Jose, CA Uni Sch Dist Ctf Partn Rfdg (FGIC Insd)........................................... 4.500 06/01/24 2,326,342 2,675 San Jose, CA Fin Auth Lease Rev Convention Ctr Proj Ser F Rfdg (MBIA Insd)..................... 5.000 09/01/17 2,829,481 1,000 San Leandro, CA Ctf Part Lib & Fire Stations Fin (AMBAC Insd).................................... 5.750 11/01/29 1,076,230 1,000 San Leandro, CA Jt Proj Area Fin (MBIA Insd).... 5.100 12/01/26 1,058,580 1,340 Sanger, CA Uni Sch Dist Ctf Cap Impt Prog (FSA Insd) (a)....................................... 5.000 03/01/25 1,422,812 2,000 Santa Fe Springs, CA Cmnty Dev Comm Tax Alloc Ser A Rfdg (MBIA Insd) (a)...................... 5.375 09/01/20 2,135,880 2,065 Santa Fe Springs, CA Cmnty Dev Comm Tax Alloc Ser A Rfdg (MBIA Insd).......................... 5.375 09/01/21 2,199,989 2,450 Santa Monica, CA Cmnty College Ser A Rfdg (AMBAC Insd) (a)....................................... 5.250 02/01/23 2,635,710 1,460 Shafter, CA Cmnty Dev Agy Tax Alloc Rev Cmnty Dev Proj Area No 1 Ser A Rfdg (FSA Insd)........ 5.000 11/01/36 1,536,168 1,000 Shasta, CA Jt Pwr Fin Auth Cnty Admin Bldg Proj Ser A (MBIA Insd)............................... 5.250 04/01/22 1,071,270 1,000 South Gate, CA Pub Fin Auth South Gate Redev Proj No 1 (XLCA Insd)........................... 5.750 09/01/22 1,117,380 2,150 Temecula, CA Redev Agy Tax Alloc Rev Temecula Redev Proj No 1 (MBIA Insd)..................... 5.125 08/01/27 2,235,850 2,500 Turlock, CA Pub Fin Auth Tax Alloc Rev (FSA Insd)...................................... 5.000 09/01/36 2,628,700 1,000 University of CA Rev Multi Purp Proj Ser M (FGIC Insd)........................................... 5.125 09/01/17 1,049,930 1,000 University of CA Rev Resh Fac Ser E (AMBAC Insd).................................... 5.000 09/01/19 1,045,920 1,540 Vallejo City, CA Uni Sch Dist Ser A Rfdg (MBIA Insd)..................................... 5.900 02/01/20 1,853,405
16 See Notes to Financial Statements VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- CALIFORNIA MUNICIPAL BONDS (CONTINUED) $2,000 Ventura Cnty, CA Ctf Partn Pub Fin Auth Ser I (FSA Insd)...................................... 5.250% 08/15/16 $ 2,090,200 3,655 Woodland, CA Fin Auth Wastewater Rev Second Sr Lien (MBIA Insd) (a)............................ 5.000 03/01/30 3,843,306 ------------ TOTAL INVESTMENTS 99.4% (Cost $215,216,236)....................................................... 227,732,806 OTHER ASSETS IN EXCESS OF LIABILITIES 0.6%................................. 1,373,079 ------------ NET ASSETS 100.0%.......................................................... $229,105,885 ============
Percentages are calculated as a percentage of net assets. * Zero coupon bond (a) The Fund owns 100% of the outstanding bond issuance. (b) This security is 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. 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, 2006 ASSETS: Total Investments (Cost $215,216,236)....................... $ 227,732,806 Receivables: Interest.................................................. 2,403,871 Fund Shares Sold.......................................... 217,530 Other....................................................... 158,193 -------------- Total Assets............................................ 230,512,400 -------------- LIABILITIES: Payables: Custodian Bank............................................ 352,708 Fund Shares Repurchased................................... 281,465 Income Distributions...................................... 198,588 Swap Contract............................................. 139,531 Investment Advisory Fee................................... 88,375 Distributor and Affiliates................................ 8,884 Trustees' Deferred Compensation and Retirement Plans........ 228,231 Accrued Expenses............................................ 108,733 -------------- Total Liabilities....................................... 1,406,515 -------------- NET ASSETS.................................................. $ 229,105,885 ============== NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $ 215,173,211 Net Unrealized Appreciation................................. 12,516,570 Accumulated Net Realized Gain............................... 871,553 Accumulated Undistributed Net Investment Income............. 544,551 -------------- NET ASSETS.................................................. $ 229,105,885 ============== MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $190,008,231 and 10,230,102 shares of beneficial interest issued and outstanding)............. $ 18.57 Maximum sales charge (4.75%* of offering price)......... .93 -------------- Maximum offering price to public........................ $ 19.50 ============== Class B Shares: Net asset value and offering price per share (Based on net assets of $25,262,197 and 1,339,201 shares of beneficial interest issued and outstanding)............. $ 18.86 ============== Class C Shares: Net asset value and offering price per share (Based on net assets of $9,943,503 and 535,190 shares of beneficial interest issued and outstanding)............. $ 18.58 ============== Class I Shares: Net asset value and offering price per share (Based on net assets of $3,891,954 and 209,561 shares of beneficial interest issued and outstanding)............. $ 18.57 ==============
* 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, 2006 INVESTMENT INCOME: Interest.................................................... $10,926,660 ----------- EXPENSES: Investment Advisory Fee..................................... 1,081,723 Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $463,787, $5,941 and $110,694, respectively)............................................. 580,422 Shareholder Services........................................ 126,612 Legal....................................................... 40,118 Trustees' Fees and Related Expenses......................... 36,257 Custody..................................................... 23,384 Other....................................................... 215,302 ----------- Total Expenses.......................................... 2,103,818 Less Credits Earned on Cash Balances.................... 8,828 ----------- Net Expenses............................................ 2,094,990 ----------- NET INVESTMENT INCOME....................................... $ 8,831,670 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 1,011,910 Swap Contracts............................................ (34,020) Futures................................................... (51,471) ----------- Net Realized Gain........................................... 926,419 ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 13,202,185 End of the Period......................................... 12,516,570 ----------- Net Unrealized Depreciation During the Period............... (685,615) ----------- NET REALIZED AND UNREALIZED GAIN............................ $ 240,804 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 9,072,474 ===========
See Notes to Financial Statements 19 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 --------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income................................ $ 8,831,670 $ 9,071,213 Net Realized Gain.................................... 926,419 2,956,456 Net Unrealized Depreciation During the Period........ (685,615) (2,833,739) ------------ ------------ Change in Net Assets from Operations................. 9,072,474 9,193,930 ------------ ------------ Distributions from Net Investment Income: Class A Shares..................................... (7,346,494) (7,367,133) Class B Shares..................................... (1,198,106) (1,193,998) Class C Shares..................................... (355,129) (381,330) Class I Shares..................................... (110,088) (14,214) ------------ ------------ (9,009,817) (8,956,675) ------------ ------------ Distributions from Net Realized Gain: Class A Shares..................................... (2,396,767) (1,194,255) Class B Shares..................................... (396,499) (256,541) Class C Shares..................................... (152,451) (76,525) Class I Shares..................................... (31,914) -0- ------------ ------------ (2,977,631) (1,527,321) ------------ ------------ Total Distributions.................................. (11,987,448) (10,483,996) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......................................... (2,914,974) (1,290,066) ------------ ------------ FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold............................ 38,204,676 34,454,209 Net Asset Value of Shares Issued Through Dividend Reinvestment....................................... 8,620,544 7,391,256 Cost of Shares Repurchased........................... (51,173,595) (40,845,600) ------------ ------------ NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... (4,348,375) 999,865 ------------ ------------ TOTAL DECREASE IN NET ASSETS......................... (7,263,349) (290,201) NET ASSETS: Beginning of the Period.............................. 236,369,234 236,659,435 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $544,551 and $727,655, respectively)............................ $229,105,885 $236,369,234 ============ ============
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.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $18.80 $18.93 $18.84 $19.45 $18.64 ------ ------ ------ ------ ------ Net Investment Income...................... .71(a) .72 .75 .74 .77 Net Realized and Unrealized Gain/Loss...... .03 .01 .06 (.44) .85 ------ ------ ------ ------ ------ Total from Investment Operations............. .74 .73 .81 .30 1.62 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .73 .74 .72 .75 .78 Distributions from Net Realized Gain....... .24 .12 -0- .16 .03 ------ ------ ------ ------ ------ Total Distributions.......................... .97 .86 .72 .91 .81 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $18.57 $18.80 $18.93 $18.84 $19.45 ====== ====== ====== ====== ====== Total Return (b)............................. 4.14% 3.96% 4.42% 1.67% 9.01% Net Assets at End of the Period (In millions).................................. $190.0 $188.0 $183.0 $195.4 $200.4 Ratio of Expenses to Average Net Assets...... .91% .92% .89% .87% .87% Ratio of Net Investment Income to Average Net Assets..................................... 3.86% 3.83% 4.00% 3.93% 4.18% Portfolio Turnover........................... 31% 25% 16% 25% 32%
(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 or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to .25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. See Notes to Financial Statements 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.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $19.07 $19.03 $18.82 $19.44 $18.65 ------ ------ ------ ------ ------ Net Investment Income...................... .77(a) .79 .72 .60 .63 Net Realized and Unrealized Gain/Loss...... .02 (.03) .07 (.45) .84 ------ ------ ------ ------ ------ Total from Investment Operations............. .79 .76 .79 .15 1.47 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .76 .60 .58 .61 .65 Distributions from Net Realized Gain....... .24 .12 -0- .16 .03 ------ ------ ------ ------ ------ Total Distributions.......................... 1.00 .72 .58 .77 .68 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $18.86 $19.07 $19.03 $18.82 $19.44 ====== ====== ====== ====== ====== Total Return (b)............................. 4.40%(c) 4.10%(c) 4.29%(c) 0.87% 8.16% Net Assets at End of the Period (In millions).................................. $ 25.3 $ 33.7 $ 41.1 $ 49.8 $ 53.0 Ratio of Expenses to Average Net Assets...... .69%(c) .81%(c) 1.09%(c) 1.62% 1.63% Ratio of Net Investment Income to Average Net Assets..................................... 4.08%(c) 3.96%(c) 3.80%(c) 3.18% 3.42% Portfolio Turnover........................... 31% 25% 16% 25% 32%
(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 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. (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.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $18.81 $18.93 $18.82 $19.43 $18.64 ------ ------ ------ ------ ------ Net Investment Income...................... .57(a) .59 .61 .61 .64 Net Realized and Unrealized Gain/Loss...... .03 .01 .08 (.45) .83 ------ ------ ------ ------ ------ Total from Investment Operations............. .60 .60 .69 .16 1.47 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .59 .60 .58 .61 .65 Distributions from Net Realized Gain....... .24 .12 -0- .16 .03 ------ ------ ------ ------ ------ Total Distributions.......................... .83 .72 .58 .77 .68 ------ ------ ------ ------ ------ Net Asset Value, End of the Period........... $18.58 $18.81 $18.93 $18.82 $19.43 ====== ====== ====== ====== ====== Total Return (b)............................. 3.36% 3.26%(d) 3.75%(d) 0.92%(c) 8.16% Net Assets at End of the Period (In millions).................................. $ 9.9 $ 12.0 $ 12.6 $ 18.1 $ 15.0 Ratio of Expenses to Average Net Assets...... 1.66% 1.61%(d) 1.59%(d) 1.62% 1.63% Ratio of Net Investment Income to Average Net Assets..................................... 3.11% 3.15%(d) 3.30%(d) 3.20%(c) 3.41% Portfolio Turnover........................... 31% 25% 16% 25% 32%
(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) 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 PERIODS INDICATED.
AUGUST 12, 2005 (COMMENCEMENT OF YEAR ENDED OPERATIONS) TO CLASS I SHARES SEPTEMBER 30, SEPTEMBER 30, 2006 2005 --------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD................ $18.80 $18.87 ------ ------ Net Investment Income................................. .74(a) .09 Net Realized and Unrealized Gain/Loss................. .05 (.06) ------ ------ Total from Investment Operations........................ .79 .03 ------ ------ Less: Distributions from Net Investment Income.............. .78 .10 Distributions from Net Realized Gain.................. .24 -0- ------ ------ Total Distributions..................................... 1.02 .10 ------ ------ NET ASSET VALUE, END OF THE PERIOD...................... $18.57 $18.80 ====== ====== Total Return (b)........................................ 4.40% 0.17%* Net Assets at End of the Period (In millions)........... $ 3.9 $ 2.6 Ratio of Expenses to Average Net Assets................. .66% .73% Ratio of Net Investment Income to Average Net Assets.... 4.11% 4.03% Portfolio Turnover...................................... 31% 25%
* Non-Annualized (a) Based on average shares outstanding. (b) 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 FREE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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 Fund offers Class A Shares, Class B Shares, Class C Shares and Class I Shares. Each class of shares differs by its initial sales load, contingent deferred sales charges, the allocation of class specific expenses and voting rights on matters affecting a single class. 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. Interest rate swaps are valued using market quotations from brokers. 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, 2006, 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. 25 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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 to its shareholders. Therefore, no provision for federal income taxes is required. At September 30, 2006, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $215,019,141 ============ Gross tax unrealized appreciation........................... $ 12,713,665 Gross tax unrealized depreciation........................... -0- ------------ Net tax unrealized appreciation on investments.............. $ 12,713,665 ============
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, 2006 and 2005 was as follows:
2006 2005 Distributions paid from: Ordinary income........................................... $ 95,063 $ 755 Tax exempt income......................................... 9,038,938 8,952,295 Long-term capital gain.................................... 2,883,508 1,527,321 ----------- ----------- $12,017,509 $10,480,371 =========== ===========
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 $4,955 was reclassified from accumulated undistributed net investment income to accumulated net realized gain. Additionally, a permanent book and tax difference of $2 related to book to tax accretion differences was reclassified from accumulated undistributed net investment income to accumulated net realized gain. As of September 30, 2006, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $ 881 Undistributed tax-exempt income............................. 757,779 Undistributed long-term capital gain........................ 863,817
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 26 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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, 2006, the Fund's custody fee was reduced by $8,828 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:
AVERAGE DAILY NET ASSETS % PER ANNUM First $100 million.......................................... .500% Next $150 million........................................... .450% Next $250 million........................................... .425% Over $500 million........................................... .400%
For the year ended September 30, 2006, the Fund recognized expenses of approximately $10,100 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, 2006, the Fund recognized expenses of approximately $62,300 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, 2006, the Fund recognized expenses of approximately $101,000 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 $130,897 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2006. Appreciation/depreciation and distributions received from these investments are recorded with 27 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 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. For the year ended September 30, 2006, Van Kampen as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $80,800 and contingent deferred sale charge (CDSC) on redeemed shares of approximately $25,900. Sales charges do not represent expenses of the Fund. 3. CAPITAL TRANSACTIONS For the years ended September 30, 2006 and 2005, transactions were as follows:
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 -------------------------- -------------------------- SHARES VALUE SHARES VALUE Sales: Class A........................... 1,812,267 $ 33,433,166 1,471,767 $ 27,872,464 Class B........................... 49,974 934,624 83,294 1,597,761 Class C........................... 108,337 2,004,651 118,736 2,246,315 Class I........................... 100,465 1,832,235 145,079 2,737,669 ---------- ------------ ---------- ------------ Total Sales......................... 2,071,043 $ 38,204,676 1,818,876 $ 34,454,209 ========== ============ ========== ============ Dividend Reinvestment: Class A........................... 380,862 $ 7,032,383 320,900 $ 6,072,157 Class B........................... 60,585 1,135,274 53,489 1,021,670 Class C........................... 16,821 310,888 14,962 283,212 Class I........................... 7,689 141,999 753 14,217 ---------- ------------ ---------- ------------ Total Dividend Reinvestment......... 465,957 $ 8,620,544 390,104 $ 7,391,256 ========== ============ ========== ============ Repurchases: Class A........................... (1,962,076) $(36,181,704) (1,459,363) $(27,608,932) Class B........................... (536,985) (10,050,277) (528,905) (10,111,922) Class C........................... (229,765) (4,227,565) (158,990) (3,012,985) Class I........................... (38,520) (714,049) (5,905) (111,761) ---------- ------------ ---------- ------------ Total Repurchases................... (2,767,346) $(51,173,595) (2,153,163) $(40,845,600) ========== ============ ========== ============
4. REDEMPTION FEE 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, 2006, the Fund received redemption fees of approximately $2,500, which are reported as part of "Cost of Shares Repurchased" in the Statement of Changes in Net Assets. The per share impact from redemption fees paid to the Fund was less than $0.01. 28 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 5. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $69,282,470 and $74,941,574, 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 may use derivative instruments for a variety of reasons, 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 these instances, the recognition of gain or loss is postponed until the disposal of the security underlying the futures contract. Summarized below are the specific types of derivative financial instruments used by the Fund. A. FUTURES CONTRACTS During the period, the Fund invested in futures contracts, a type of derivative. A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in futures on U.S. Treasury Notes and typically closes the contract prior to the delivery date. The contracts are generally used to manage the portfolio'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, 2006, were as follows:
CONTRACTS Outstanding at September 30, 2005........................... -0- Futures Opened.............................................. 182 Futures Closed.............................................. (182) ---- Outstanding at September 30, 2006........................... -0- ====
B. INVERSE FLOATING RATE SECURITIES An inverse floating rate security is one where the coupon is inversely indexed to a short-term 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. C. INTEREST RATE SWAPS The Fund may enter into forward interest rate swap transactions intended to help the Fund manage its overall interest rate sensitivity, either shorter or longer, 29 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued generally to more closely align the Fund's interest rate sensitivity with that of the broader municipal market. Forward interest rate swap transactions involve the Fund's agreement with a counterparty to pay, in the future, a fixed or variable rate payment in exchange for the counterparty paying the Fund a variable or fixed rate payment, the accruals for which would begin at a specified date in the future (the "effective date"). The amount of the payment obligation is based on the notional amount of the forward swap contract and the termination date of the swap (which is akin to a bond's maturity). The value of the Fund's swap commitment would increase or decrease based primarily on the extent to which long-term interest rates for bonds having a maturity of the swap's termination date increases or decreases. The Fund may terminate a swap contract prior to the effective date, at which point a realized gain or loss is recognized. When a forward swap is terminated, it ordinarily does not involve the delivery of securities or other underlying assets or principal, but rather is settled in cash on a net basis. The Fund intends, but is not obligated, to terminate its forward swaps before the effective date. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the credit risk associated with a counterparty failing to honor its commitment to pay any realized gain to the Fund upon termination. To reduce such credit risk, all counterparties are required to pledge collateral daily (based on the daily valuation of each swap) on behalf of the Fund with a value approximately equal to the amount of any unrealized gain. Reciprocally, when the Fund has an unrealized loss on a swap contract, the Fund has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate. Restricted cash, if any, for segregating purposes is shown on the Statement of Assets and Liabilities. 7. DISTRIBUTION AND SERVICE PLANS Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"), an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively, the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate the Distributor for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees 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. These fees are accrued daily and paid to the Distributor monthly. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed receivable") was approximately $0 and $0 for Class B and Class C Shares, respectively. These amounts may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed receivable has been fully recovered, the distribution fee is reduced. 8. LEGAL MATTERS The Adviser and certain affiliates of the Adviser are named as defendants in a derivative action 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 Van Kampen funds. The complaint also alleges that the Van Kampen funds paid excessive commissions to 30 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 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 derivative action was coordinated with a direct action alleging related violations of defendants' statutory disclosure obligations and fiduciary duties with respect to the payments described above. In addition, this derivative action was stayed by agreement of the parties pending rulings on the motion to dismiss the direct action and the motion to dismiss another derivative action brought by the same plaintiff that brought this derivative action, alleging market timing and late trading in the Van Kampen funds. In April 2006, the court granted defendants' motion to dismiss the direct action. In June 2006, the court granted defendants' motion to dismiss the market timing action. Accordingly, the stay on this action was lifted. Plaintiff and defendants have agreed that this action should be dismissed in light of the rulings dismissing the two cases discussed above. The Court has approved a notice to shareholders regarding the dismissal, which is located at the back of this Report. 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. 10. ACCOUNTING PRONOUNCEMENTS In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The impact to the Fund's financial statements, if any, is currently being assessed. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for the fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures. 31 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, 2006, 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, 2006, 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 California Insured Tax Free Fund at September 30, 2006, 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 14, 2006 32 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 DENNIS SHEA Vice President J. DAVID GERMANY Vice President AMY R. DOBERMAN Vice President STEFANIE V. CHANG Vice President and Secretary JOHN L. SULLIVAN Chief Compliance Officer JAMES W. GARRETT 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 One Lincoln Street Boston, Massachusetts 02111 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, 2006. The Fund designated 99.9% of the income distributions as a tax-exempt income distribution. The Fund designated and paid $2,883,508 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. 33 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND TRUSTEE AND OFFICER 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, the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange Corp. and 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:
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 (61) Trustee Trustee Chairman and Chief 71 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 (68) Trustee Trustee Prior to January 1999, 71 Trustee/Director/Managing 33971 Selva Road since 1999 Chairman and Chief General Partner of funds Suite 130 Executive Officer of the in the Fund Complex. Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a ("Allstate") and Allstate biotechnological company, Insurance Company. Prior and Director of Valero to January 1995, Energy Corporation, an President and Chief independent refining Executive Officer of company. Allstate. Prior to August 1994, various management positions at Allstate.
34
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (66) Trustee Trustee President of CAC, L.L.C., 71 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 Quidel San Diego, CA 92122-6223 advisory services. Prior Corporation, Stericycle, to February 2001, Vice Inc., Ventana Medical Chairman and Director of Systems, Inc., and GATX Anixter International, Corporation, and Trustee Inc., a global of The Scripps Research distributor of wire, Institute. Prior to cable and communications January 2005, Trustee of connectivity products. the University of Chicago Prior to July 2000, Hospitals and Health Managing Partner of Systems. Prior to April Equity Group Corporate 2004, Director of Investment (EGI), a TheraSense, Inc. Prior to company that makes January 2004, Director of private investments in TeleTech Holdings Inc. other companies. and Arris Group, Inc. 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).
35
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (58) Trustee Trustee Managing Partner of 71 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 (54) Trustee Trustee Director and President of 71 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 (71) Trustee Trustee Prior to 1998, President 71 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.
36
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (70) Trustee Trustee President of Nelson 71 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 (66) Trustee Trustee President Emeritus and 71 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 71 Trustee/Director/Managing (64) since 1999 Officer of the National General Partner of funds 815 Cumberstone Road Academy of in the Fund Complex. Harwood, MD 20776 Sciences/National Director of Fluor Corp., Research Council, an an engineering, independent, federally procurement and chartered policy construction institution, from 2001 to organization, since November 2003 and Chief January 2004 and Director Operating Officer from of Neurogen Corporation, 1993 to 2001. Director of a pharmaceutical company, the Institute for Defense since January 1998. Analyses, a federally funded research and development center, Director of the German Marshall Fund of the United States, Director of the Rocky Mountain Institute and Trustee of Colorado College. Prior to 1993, Executive Director of the Commission on Behavioral and Social Sciences and Education at the National Academy of Sciences/National Research Council. From 1980 through 1989, Partner of Coopers & Lybrand.
37 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND TRUSTEE AND OFFICER INFORMATION continued INTERESTED TRUSTEE:*
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 Wayne W. Whalen* (67) Trustee Trustee Partner in the law firm 71 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.
* 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. 38 VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND TRUSTEE AND OFFICER INFORMATION continued OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (67) 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 Van Kampen Advisors Inc. since June 2003. Director of Investor Services since September 2002. Director of the Adviser, Van Kampen Investments and Van Kampen Exchange Corp. since January 2005. 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. Dennis Shea (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 1221 Avenue of the Americas since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser New York, NY 10020 and Van Kampen Advisors Inc. Chief Investment Officer-Global Equity of the same entities since February 2006. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006. Previously, Managing Director and Director of Global Equity Research at Morgan Stanley from April 2000 to February 2006. J. David Germany (52) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 25 Cabot Square since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser Canary Wharf and Van Kampen Advisors Inc. Chief Investment Officer - London, GBR E14 4QA Global Fixed Income of the same entities since December 2005. Managing Director and Director of Morgan Stanley Investment Management Ltd. Director of Morgan Stanley Investment Management (ACD) Limited since December 2003. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006.
39
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND TRUSTEE AND OFFICER INFORMATION continued TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Amy R. Doberman (44) 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 Advisors 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 (40) 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. John L. Sullivan (51) 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. James W. Garrett (37) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas and Treasurer since 2006 Chief Financial Officer and Treasurer of Morgan Stanley New York, NY 10020 Institutional Funds since 2002 and of Funds in the Fund Complex from January 2005 to August 2005 and since September 2006.
40 Notice to Fund Shareholders As previously disclosed, a derivative action was filed on behalf of the Fund against the Fund's investment adviser, broker-dealer, distributor, and Trustees. The complaint alleges that defendants violated federal securities laws and state laws in connection with certain economic incentive programs. The case is pending before the Honorable Richard Owen, United States District Judge in the Southern District of New York. Defendants have filed a motion to dismiss the complaint in its entirety on numerous grounds, and that motion is still pending. On April 18, 2006, Judge Owen dismissed a separate lawsuit against Morgan Stanley and all of the same corporate defendants that are named in the derivative action. The Morgan Stanley suit related to the same incentive programs that are at issue in the derivative action, and asserted many of the same legal claims. In his decision, Judge Owen found that the programs do not violate federal law, and that defendants had made the appropriate disclosures concerning the programs. The plaintiffs in the Morgan Stanley suit did not appeal from the decision, and that decision is now final. In light of this decision by Judge Owen--as well as several other decisions by other judges in the Southern District of New York and certain other courts that have dismissed similar complaints against other investment funds--plaintiff in the derivative action has determined that the suit would be unsuccessful, if pursued further. Accordingly, plaintiff has asked Judge Owen to dismiss the action. No attorneys' fees will be paid by defendants and no consideration will be paid to the named plaintiff. All investors in the Fund are hereby provided notice of this proposed dismissal. If you object to the proposed dismissal, your objection must be mailed no later than December 29, 2006, in writing, to the Honorable Richard Owen, United States District Judge, United States Courthouse, Room 640, 500 Pearl Street, New York, NY 10007-1312. Copies of the objection must also be mailed to Denise Davis Schwartzman, Esquire, Chimicles & Tikellis LLP, 361 West Lancaster Avenue, Haverford, PA 19041; and Richard A. Rosen, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, NY 10019-6064. 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)2006 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 41, 341, 541 CAI ANR 11/06 (VAN KAMPEN INVESTMENTS LOGO) RN06-03210P-Y09/06 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, 2006. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CLASS A, B AND C SHARE OR CLASS I [AND R] SHARE PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUSES CONTAIN INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. TO OBTAIN AN ADDITIONAL PROSPECTUS, CONTACT YOUR FINANCIAL ADVISOR OR DOWNLOAD ONE AT VANKAMPEN.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 9/30/06 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index from 9/30/96 through 9/30/06. Class A shares, adjusted for sales charges. (LINE GRAPH)
VAN KAMPEN MUNICIPAL INCOME LEHMAN BROTHERS MUNICIPAL BOND FUND INDEX --------------------------- ------------------------------ 9/96 9528 10000 9643 10113 9804 10298 9755 10255 9764 10274 9843 10369 9753 10230 9831 10316 9942 10471 10080 10583 10376 10876 10231 10774 9/97 10357 10902 10437 10972 10485 11037 10646 11197 10728 11313 10748 11316 10762 11326 10674 11275 10860 11454 10908 11499 10929 11528 11118 11706 9/98 11244 11852 11174 11851 11182 11893 11196 11923 11296 12065 11225 12012 11218 12029 11247 12059 11183 11989 10957 11816 10979 11859 10811 11764 9/99 10767 11769 10626 11642 10693 11765 10589 11678 10481 11627 10601 11762 10789 12019 10695 11948 10609 11886 10870 12201 11004 12371 11139 12561 9/00 11056 12496 11106 12632 11156 12728 11443 13042 11515 13172 11564 13213 11669 13332 11468 13187 11599 13329 11695 13418 11882 13617 12094 13842 9/01 12043 13795 12166 13959 12015 13842 11872 13711 12064 13949 12205 14117 11951 13840 12162 14111 12262 14196 12389 14346 12560 14531 12713 14705 9/02 13049 15028 12753 14778 12691 14717 12984 15028 12875 14990 13091 15199 13123 15208 13234 15309 13551 15667 13449 15601 12888 15055 13044 15167 9/03 13481 15613 13402 15534 13569 15696 13681 15826 13721 15917 14000 16156 13864 16100 13514 15719 13461 15662 13529 15719 13701 15926 13949 16245 9/04 14047 16331 14146 16472 13988 16336 14202 16535 14369 16690 14296 16634 14136 16529 14383 16790 14494 16909 14596 17013 14492 16937 14683 17108 9/05 14579 16992 14484 16889 14557 16970 14701 17116 14736 17162 14861 17278 14794 17158 14778 17153 14864 17229 14837 17164 15016 17368 15247 17626 9/06 15375 17749
A SHARES B SHARES C SHARES I SHARES since 8/1/90 since 8/24/92 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 5.97% 5.66% 4.72% 4.72% 4.12% 4.12% 5.52% 10-year 4.90 4.40 4.27 4.27 4.11 4.11 -- 5-year 5.01 3.98 4.23 3.98 4.23 4.23 -- 1-year 5.46 0.48 4.69 0.69 4.62 3.62 5.65 - ------------------------------------------------------------------------------------------------------ 30-Day SEC Yield 3.32% 2.75% 2.75% 3.75%
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 eight 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. 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 Rule 12b-1 fees and service fees. Figures shown above assume reinvestment of all dividends and capital gains. SEC yield is a calculation 1 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, 2006 As discussed in Note 11 to the Fund's financial statements, the Fund's financial statements have been restated. The accompanying management's discussion of fund performance gives effect to that restatement. MARKET CONDITIONS Against the backdrop of strong economic growth, good employment data and inflationary pressures stemming from rising oil prices, the Federal Open Market Committee (the "Fed") continued its tightening campaign during the first nine months of the reporting period, raising the federal funds target rate six times to 5.25 percent at the end of June. As the months progressed however, economic growth moderated as consumer spending and housing weakened while inflation concerns eased, prompting investors to speculate that the Fed would take a break from rate increases. In August the Fed did pause, ending a two-year run of 17 consecutive rate increases--the longest stretch of increases in 25 years. At its September meeting, the Fed again kept its target rate unchanged, and indicated that any future rate increases would be driven by the weight of economic data. As a result of the improved outlook for the fixed income market, yields on longer-maturity municipal bonds fell dramatically in latter months of the reporting year, ultimately ending at the lowest level in decades. Yields on shorter-maturity municipal bonds, however, moved higher. Accordingly, the slope of the municipal yield curve flattened as the spread between short-term and long-term interest rates narrowed. Demand for municipal bonds continued to be strong during the period. In fact, inflows into municipal bond funds were 45 percent higher year-to-date through September than for the same period last year, much of which went into high yield funds. Because prevailing interest rates were still at relatively low levels, investors increasingly sought out lower-quality, higher yielding bonds. The increased demand for high yield bonds led this segment of the market to considerably outperform high-grade issues. In addition, long-term bonds continued to earn the best returns, while the short end of the curve posted the lowest returns as Fed rate increases moved yields in this portion of the curve higher. Although municipal bond issuance remained brisk in the last quarter of 2005, volume declined throughout the remaining months of the period. As of the end of September, national municipal bond issuance was down 14 percent for 2006. The reduced supply, coupled with growing demand, further fueled municipal bond performance. 3 PERFORMANCE ANALYSIS The fund returned 5.46 percent for the 12 months ended September 30, 2006 (Class A shares, unadjusted for sales charges). In comparison, the fund's benchmark, the Lehman Brothers Municipal Bond Index, returned 4.45 percent for the period. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2006
- -------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL CLASS A CLASS B CLASS C CLASS I BOND INDEX 5.46% 4.69% 4.62% 5.65% 4.45% - --------------------------------------------------------------
The performance for the four 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. We sought opportunities to enhance the portfolio's yield, selectively adding bonds to the portfolio that we believed were both attractively valued and offered greater future total return prospects. To implement this strategy, we lowered the fund's exposure to AAA rated bonds, investing the proceeds into higher yielding BBB rated bonds. As a result, the fund was overweighted versus the Lehman Brothers Municipal Bond Index in BBB and non-rated bonds, which proved advantageous as this portion of the market outperformed higher-rated bonds. Despite this shift in credit allocation, however, the fund's overall credit quality remained high. The fund also benefited from an overweight relative to the Lehman Brothers Municipal Bond Index in zero coupon bonds, which outperformed current and premium coupon bonds during the reporting year, as well as an overweight in the hospital sector which improved due to credit spread tightening. Holdings in the tobacco sector also did well as the litigation environment has become favorable for tobacco companies, demand for the bonds remains strong, and the industry continues to prosper. On a less positive note, an overweight relative to the Lehman Brothers Municipal Bond Index in prerefunded bonds detracted somewhat from performance due to their positioning on the short end of the yield curve. However, these bonds were purchased at much higher interest rates and therefore, add considerably to the overall yield of the fund. The fund's yield-curve positioning also had a significant impact on performance. When making new purchases, we emphasized the long end of the curve, favoring bonds with maturities of 20 years or more. This strategy served the fund well as longer-maturity issues outperformed those with shorter maturities during the reporting period. 4 The fund remained well diversified across the major sectors of the municipal market. As of the close of the period, general purpose, hospital and wholesale electric bonds represented the fund's largest sector weightings. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the fund in the future. 5
RATINGS ALLOCATION AS OF 9/30/06 AAA/Aaa 63.3% AA/Aa 10.9 A/A 4.9 BBB/Baa 9.7 BB/Ba 0.3 B/B 0.9 NR 10.0 TOP FIVE SECTORS AS OF 9/30/06 General Purpose 13.5% Hospital 12.1 Wholesale Electric 8.0 Bridge, Tunnel & Toll Road 7.7 Water & Sewer 6.7 SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/06 California 18.2% New York 14.6 Texas 10.7 Illinois 7.7 Colorado 6.2 New Jersey 5.2 Florida 5.2 Missouri 3.7 Michigan 3.6 Massachusetts 2.8 Indiana 2.6 Connecticut 2.3 Utah 2.0 Arizona 2.0 North Carolina 1.7 Georgia 1.4 Alabama 1.4 Washington 1.3 District of Columbia 1.3 Kansas 1.2 Iowa 1.1 Pennsylvania 1.0 Oregon 1.0 Tennessee 0.9 West Virginia 0.8 New Hampshire 0.7 Nevada 0.7 Ohio 0.5 Rhode Island 0.5 Alaska 0.5 Minnesota 0.4
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6
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/06 (continued from previous page) Oklahoma 0.4 Nebraska 0.4 Vermont 0.3 Maryland 0.3 Wyoming 0.3 South Carolina 0.2 South Dakota 0.2 Montana 0.2 ----- Total Investments 105.5% Liability for Floating Rate Note Obligations Related to Securities Held (6.7) Other Assets in Excess of Liabilities 1.2 ----- Net Assets 100.0%
Subject to change daily. Provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned or securities in the sectors shown above. Ratings allocations and sectors are as a percentage of long-term investments. Summary of investments by state classification is as a percentage of net assets. Securities are classified by sectors that represent broad groupings of related industries. Van Kampen is a wholly owned subsidiary of a global securities firm which is engaged in a wide range of financial services including, for example, securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. Rating allocations based upon ratings as issued by Standard and Poor's and Moody's, respectively. 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. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. 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 without charge 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 charges on redemptions of Class B and C Shares; and redemption fees; 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 4/1/06 - 9/30/06. 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 or redemption fees. 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.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------- 4/1/06 9/30/06 4/1/06-9/30/06 Class A Actual..................................... $1,000.00 $1,039.24 $5.67 Hypothetical............................... 1,000.00 1,019.52 5.61 (5% annual return before expenses) Class B Actual..................................... 1,000.00 1,036.85 9.51 Hypothetical............................... 1,000.00 1,015.76 9.41 (5% annual return before expenses) Class C Actual..................................... 1,000.00 1,035.50 9.50 Hypothetical............................... 1,000.00 1,015.76 9.41 (5% annual return before expenses) Class I Actual..................................... 1,000.00 1,040.54 4.40 Hypothetical............................... 1,000.00 1,020.77 4.36 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 1.11%, 1.86%, 1.86% and 0.86% 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). Assumes all dividends and distributions were reinvested. 10 The following table shows what expenses a shareholder would have paid, excluding interest and residual trust expenses.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------- 4/1/06 9/30/06 4/1/06-9/30/06 Class A Actual..................................... $1,000.00 $1,039.24 $4.55 Hypothetical............................... 1,000.00 1,020.57 4.51 (5% annual return before expenses) Class B Actual..................................... 1,000.00 1,036.85 8.37 Hypothetical............................... 1,000.00 1,016.87 8.29 (5% annual return before expenses) Class C Actual..................................... 1,000.00 1,035.50 8.37 Hypothetical............................... 1,000.00 1,016.87 8.29 (5% annual return before expenses) Class I Actual..................................... 1,000.00 1,040.54 3.27 Hypothetical............................... 1,000.00 1,021.87 3.24 (5% annual return before expenses)
* 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). Assumes all dividends and distributions were reinvested. 11 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 22, 2006, 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 12 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 and changes made in the Fund's portfolio management team over time. 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, 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 the Board. The trustees 13 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. 14 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MUNICIPAL BONDS 104.8% ALABAMA 1.4% $ 2,000 Birmingham Baptist Med Ctr AL Spl Care Fac Fin Auth Rev Baptist Hlth Sys Inc Ser A..... 5.000% 11/15/30 $ 2,038,800 1,000 Jefferson Cnty, AL Ltd Oblig Sch Wt Ser A... 5.000 01/01/24 1,043,490 3 Mobile, AL Indl Dev Brd Solid Waste Disp Rev Mobile Energy Svc Co Proj Rfdg.............. 6.950 01/01/20 293 2,250 Montgomery Cnty, AL Pub Bldg Auth Rev Wt Fac Proj (MBIA Insd)............................ 5.000 03/01/31 2,375,347 3,420 University AL Birmingham Hosp Rev Ser A (h)......................................... 5.000 09/01/36 3,527,456 ------------ 8,985,386 ------------ ALASKA 0.5% 3,000 Northern Tob Securitization Corp AK Tob Settlement Rev Ser A........................ 5.000 06/01/46 3,008,310 ------------ ARIZONA 2.0% 1,000 Cottonwood, AZ Wtr Rev Sys Sr Lien (XLCA Insd)................................. 5.000 07/01/30 1,059,730 5,000 Phoenix, AZ Civic Impt Corp Sr Lien Ser B (AMT) (FGIC Insd)........................... 5.250 07/01/32 5,214,950 1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg (AMBAC Insd)................ 6.000 09/01/12 1,951,687 1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg (AMBAC Insd)................ 6.125 09/01/17 1,820,525 2,750 University Med Ctr Corp AZ Hosp Rev......... 5.000 07/01/35 2,808,465 ------------ 12,855,357 ------------ CALIFORNIA 18.2% 4,870 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Sub Pub Impt Proj C (FSA Insd)....... * 09/01/20 2,693,353 2,000 California Cnty, CA Tob Securitization Agy Tob LA Cnty Securitization Ser A (a)........ 0/5.250 06/01/21 1,694,840 1,670 California Cnty, CA Tob Securitization Agy Tob Sonoma Cnty Corp Rfdg................... 5.000 06/01/26 1,698,089 1,875 California Cnty, CA Tob Securitization Agy Tob Sonoma Cnty Corp Rfdg................... 5.250 06/01/45 1,911,487 1,000 California Hlth Fac Fin Auth Rev Cedars Sinai Med Ctr Rfdg.......................... 5.000 11/15/27 1,041,600 3,000 California Hlth Fac Fin Auth Rev Cedars Sinai Med Ctr Rfdg (h)...................... 5.000 11/15/34 3,090,950 1,200 California Hlth Fac Fin Auth Rev Kaiser Permanente Ser A............................ 5.250 04/01/39 1,270,128 305 California Infrastructure & Econ Dev Bk Rev Bay Area Toll Brdgs First Lien A (Prerefunded @ 07/01/13) (FSA Insd)......... 5.250 07/01/20 335,982
See Notes to Financial Statements 15 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- CALIFORNIA (CONTINUED) $10,000 California Infrastructure & Econ Dev Bk Rev Bay Area Toll Brdgs First Lien A (FSA Insd) (h)......................................... 5.250% 07/01/20 $ 11,015,750 5,725 California St (FSA Insd).................... 5.000 02/01/29 5,996,250 15,000 California St (XLCA Insd) (h)............... 5.250 10/01/20 16,220,775 13,150 California St Dept Wtr Res Pwr Supply Rev Ser A (MBIA Insd) (h)....................... 5.250 05/01/20 14,439,357 5,000 California St Dept Wtr Res Pwr Supply Rev Ser A (Prerefunded @ 05/01/12) (XLCA Insd)....................................... 5.375 05/01/17 5,521,750 3,500 California St Pub Wks Brd Lease Rev Dept Corrections Ser C........................... 5.250 06/01/28 3,702,020 1,350 California Statewide Cmnty Dev Auth Rev Daughters of Charity Hlth Ser A............. 5.000 07/01/39 1,378,701 3,000 California Statewide Cmnty Dev Auth Rev Hlth Fac Adventist Hlth Ser A.................... 5.000 03/01/35 3,093,060 1,600 California Statewide Cmnty Dev Auth Rev Kaiser Permanente Ser B..................... 5.000 03/01/41 1,647,440 2,200 California Statewide Cmnty Dev Auth Rev Kaiser Permanente Ser B..................... 5.250 03/01/45 2,319,438 3,000 California Statewide Cmnty Dev Auth Rev Kaiser Ser C................................ 5.250 08/01/31 3,195,510 2,640 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd)................................ * 09/01/13 1,725,240 5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd)................................ * 09/01/14 3,315,015 3,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap Apprec Rfdg (MBIA Insd)................. * 01/15/17 1,809,960 21,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap Apprec Rfdg............................. * 01/15/24 7,966,140 15,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap Apprec Rfdg............................. * 01/15/30 3,946,650 6,695 San Francisco, CA City & Cnty Second Ser Issue 29 B Rfdg (FGIC Insd)................. 5.125 05/01/20 7,141,222 5,000 Tobacco Securitization Auth Southn CA Tob Settlement Ser A1........................... 5.000 06/01/37 5,032,900 1,600 Turlock, CA Hlth Fac Rev Ctf Partn Emanuel Med Ctr Inc................................. 5.375 10/15/34 1,676,752 5,000 West Contra Costa CA Uni Election of 2002 Ser B (FSA Insd)............................ 5.000 08/01/26 5,252,500 ------------ 120,132,859 ------------ COLORADO 6.2% 2,840 Adams Cnty, CO Single Family Mtg Rev Ser A (Escrowed to Maturity) (c).................. 8.875 08/01/10 3,359,890 5,000 Arapahoe Cnty, CO Wtr & Waste Proj Ser A (MBIA Insd)................................. 5.125 12/01/32 5,293,450
16 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- COLORADO (CONTINUED) $ 5,000 Colorado Ed & Cultural Fac Auth Rev Impt Charter Sch Peak to Peak Rfdg (XLCA Insd)... 5.250% 08/15/34 $ 5,336,700 3,000 Colorado Hlth Fac Auth Rev Covenant Retirement Cmntys Inc....................... 5.000 12/01/35 3,047,250 1,000 Colorado Hlth Fac Auth Rev Evangelical Lutheran Ser A.............................. 5.250 06/01/34 1,041,420 5,000 Colorado Springs, CO Util Rev Sys Sub Lien Impt Ser A Rfdg............................. 5.000 11/15/21 5,278,150 5,000 Colorado Springs, CO Util Rev Sys Sub Lien Impt Ser A Rfdg............................. 5.000 11/15/29 5,179,050 1,530 Dove Vly Metro Dist CO Arapahoe Cnty Rfdg (FSA Insd).................................. 5.000 11/01/25 1,629,373 15,000 E 470 Pub Hwy Auth CO Rev Cap Apprec Sr Ser B (MBIA Insd)............................... * 09/01/20 8,250,600 1,500 Park Creek Metro Dist CO Rev Sr Ltd Tax Ppty Tax Rfdg.................................... 5.500 12/01/37 1,576,620 1,000 Salida, CO Hosp Dist Rev (e)................ 5.250 10/01/36 994,760 ------------ 40,987,263 ------------ CONNECTICUT 2.3% 5,570 Bridgeport, CT Rfdg Ser A (FGIC Insd) (h)... 5.375 08/15/15 6,077,009 5,900 Bridgeport, CT Rfdg Ser A (FGIC Insd) (h)... 5.375 08/15/16 6,424,008 2,470 Mashantucket Western Pequot Tribe CT Spl Rev Ser A (Prerefunded @ 09/01/07) (d).......... 6.400 09/01/11 2,559,315 ------------ 15,060,332 ------------ DISTRICT OF COLUMBIA 1.3% 5,150 District Columbia Tax Incrmnt Gallary Place Proj (FSA Insd)............................. 5.250 07/01/27 5,469,557 3,000 Metropolitan Washington DC Arpt Auth Sys Ser A (AMT) (FGIC Insd)......................... 5.250 10/01/32 3,146,190 ------------ 8,615,747 ------------ FLORIDA 5.2% 5,000 Broward Cnty, FL Arpt Sys Rev Ser J-I (AMT) (AMBAC Insd)................................ 5.250 10/01/26 5,240,950 1,100 Capital Tr Agy FL Rev Ft Lauderdale Proj (AMT).................................. 5.750 01/01/32 1,153,251 9,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec Ser A Rfdg (MBIA Insd)...................... * 02/01/18 4,666,140 570 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC Insd)....................................... 5.950 07/01/20 596,938 1,000 Halifax Hosp Med Ctr FL Hosp Rev Impt Ser A Rfdg........................................ 5.250 06/01/26 1,056,220 6,385 Lake Cnty, FL Sch Brd Ctf Partn (Prerefunded @ 07/01/12) (AMBAC Insd).................... 5.375 07/01/16 6,974,272
See Notes to Financial Statements 17 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- FLORIDA (CONTINUED) $ 595 Orange Cnty, FL Tourist Dev Tax Rev (Escrowed to Maturity) (AMBAC Insd)......... 6.000% 10/01/16 $ 598,463 12,860 Orlando, FL Util Commn Wtr Rfdg............. 5.250 10/01/19 13,830,544 ------------ 34,116,778 ------------ GEORGIA 1.4% 2,000 Atlanta, GA Tax Alloc Eastside Proj Ser B... 5.600 01/01/30 2,066,460 6,310 Municipal Elec Auth GA Combustion Turbine Ser A (MBIA Insd)........................... 5.250 11/01/17 6,811,834 5 Municipal Elec Auth GA Combustion Turbine Ser A (Prerefunded @ 11/01/12) (MBIA Insd)....................................... 5.250 11/01/17 5,452 ------------ 8,883,746 ------------ ILLINOIS 7.7% 1,500 Bolingbrook, IL Sales Tax Rev............... 6.250 01/01/24 1,457,220 500 Chicago, IL Increment Alloc Rev Diversey/ Narrangansett Proj (Acquired 08/01/06, Cost $533,660) (b)............................... 7.460 02/15/26 536,160 3,000 Chicago, IL Lakefront Millennium Pkg Fac (MBIA Insd)................................. 5.650 01/01/19 3,316,500 1,000 Chicago, IL Metro Wtr Reclamation Dist Gtr Chicago (Escrowed to Maturity).............. 7.000 01/01/11 1,097,370 8,050 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third Lien C-2 Rfdg (AMT) (XLCA Insd)....... 5.250 01/01/34 8,409,513 1,200 Chicago, IL Proj & Rfdg Ser C (FGIC Insd) (c)......................................... 5.750 01/01/16 1,296,780 2,010 Chicago, IL Proj & Rfdg Ser C (Prerefunded @ 07/01/10) (FGIC Insd) (c)................... 5.750 01/01/16 2,182,800 40 Chicago, IL Single Family Mtg Rev Ser A (AMT) (GNMA Collateralized)................. 7.000 09/01/27 41,086 945 Chicago, IL Tax Increment Alloc Santn Drain & Ship Canal Ser A.......................... 7.750 01/01/14 971,649 1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctf Partn (FGIC Insd)............... 8.750 01/01/07 1,012,730 5,000 Cook Cnty, IL Ser A (Prerefunded @ 05/15/11) (FGIC Insd)................................. 5.500 11/15/31 5,413,600 1,250 Huntley, IL Increment Alloc Rev Huntley Redev Proj Ser A............................ 8.500 12/01/15 1,271,762 90 Illinois Dev Fin Auth Rev Cmnty Fac Clinic Altgeld Proj................................ 8.000 11/15/06 90,292 1,000 Illinois Fin Auth Rev Kewanee Hosp Proj..... 5.100 08/15/31 1,014,130 4,700 Illinois Hsg Dev Auth Rev Homeowner Mtg Sub Ser C-2 (AMT)............................... 5.150 08/01/37 4,863,466 5,000 Illinois St First Ser (FSA Insd)............ 5.250 12/01/21 5,396,700 9,250 Metropolitan Pier & Expo Auth IL Dedicated St Tax Rev Cap Apprec McCormick Rfdg (MBIA Insd) (a)................................... 0/5.400 06/15/19 7,670,933 2,854 Pingree Grove Vlg, IL Spl Svc Area No 1 Spl Tax Ser 05-1 Cambridge Lakes Proj........... 5.250 03/01/15 2,911,280
18 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 550 Volo Village, IL Spl Svc Area No 3 Spl Tax Symphony Meadows Proj Ser 1................. 6.000% 03/01/36 $ 558,377 1,000 Yorkville, IL Utd City Spl Svc Area Spl Tax No 2004-107 Raintree Vlg IL Proj............ 6.250 03/01/35 1,060,880 ------------ 50,573,228 ------------ INDIANA 2.2% 2,500 Indiana Bd Bk Spl Pgm Hendricks Redev (Prerefunded @ 02/01/07) (LOC--Canadian Imperial Bank).............................. 6.200 02/01/23 2,571,700 5,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosp Proj Ser A (AMBAC Insd)................ 5.000 05/01/35 5,214,250 1,880 Indiana Hlth Fac Fin Auth Rev Hoosier Care Proj Ser A.................................. 7.125 06/01/34 1,915,419 550 Indianapolis, IN Loc Pub Impt Bd Bk Ser D... 6.750 02/01/14 633,138 140 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B (c)..................... * 06/30/11 97,817 140 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B (c)..................... * 06/30/12 90,611 135 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B (c)..................... * 06/30/13 80,949 130 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B (c)..................... * 06/30/14 72,218 130 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B (c)..................... * 06/30/15 66,897 135 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B (c)..................... * 06/30/16 64,360 225 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B (c)..................... * 06/30/17 99,365 3,295 Vigo Cnty, IN Elem Sch Bldg First Mtg Impt & Rfdg (FSA Insd)............................. 5.250 01/10/22 3,514,941 ------------ 14,421,665 ------------ IOWA 1.1% 1,125 Coralville, IA Ctf Partn Ser D.............. 5.250 06/01/26 1,185,998 2,400 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp Proj (FSA Insd)............................. 5.750 07/01/17 2,478,552 1,000 Tobacco Settlement Auth IA Tob Settlement Rev Ser C................................... 5.375 06/01/38 1,028,530 2,500 Tobacco Settlement Auth IA Tob Settlement Rev Ser C................................... 5.625 06/01/46 2,616,725 ------------ 7,309,805 ------------
See Notes to Financial Statements 19 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- KANSAS 1.2% $ 1,000 Lawrence, KS Hosp Rev Lawrence Mem Hosp.................................... 5.125% 07/01/36 $ 1,047,630 6,600 Sedgwick Cnty, KS Uni Sch Dist No 259 Wichita (MBIA Insd) (c)..................... 5.625 09/01/13 7,073,352 ------------ 8,120,982 ------------ MARYLAND 0.3% 600 Maryland St Hlth & Higher Ed Fac Auth Rev Edenwald Ser A.............................. 5.400 01/01/37 624,744 1,250 Prince Georges Cnty, MD Spl Oblig Natl Harbor Proj................................. 5.200 07/01/34 1,274,825 ------------ 1,899,569 ------------ MASSACHUSETTS 2.8% 10,000 Massachusetts St Cons Ln Ser A (FSA Insd) (h)......................................... 5.000 03/01/24 10,624,250 3,500 Massachusetts St Hlth & Ed Fac Auth Rev Ser G (MBIA Insd)............................... 5.000 07/01/13 3,503,290 2,000 Massachusetts St Hlth & Ed Fac Auth Rev Univ MA Mem Issue Ser D.......................... 5.000 07/01/33 2,030,320 2,695 Massachusetts St Indl Fin Agy Rev First Mtg Reeds Landing Proj (a)...................... 7.350/7.450 10/01/28 2,650,856 ------------ 18,808,716 ------------ MICHIGAN 3.6% 810 Detroit, MI Loc Dev Fin Auth Tax Increment Sub Ser C (Acquired 09/08/97, Cost $810,000) (b)......................................... 6.850 05/01/21 829,238 5,000 Detroit, MI Sew Disp Rev Sr Lien Ser A Rfdg (FGIC Insd)................................. 5.125 07/01/31 5,241,100 5,000 Michigan St Bldg Auth Rev Fac Pgm Ser II (Prerefunded @ 10/15/11).................... 5.500 10/15/16 5,445,400 5,000 Michigan St Strategic Fd Detroit Edison Co Proj Ser C Rfdg (AMT) (XLCA Insd)........... 5.450 12/15/32 5,310,450 1,905 Michigan St Strategic Fd Solid Genesee Pwr Sta Proj Rfdg (AMT)......................... 7.500 01/01/21 1,904,829 5,000 Western Townships, MI Util Sew Rfdg (MBIA Insd)....................................... 5.250 01/01/16 5,240,050 ------------ 23,971,067 ------------ MINNESOTA 0.4% 550 Inver Grove Heights, MN Nursing Home Rev Presbyterian Home Care Rfdg................. 5.500 10/01/33 554,741 2,000 Saint Paul, MN Hsg & Redev Auth Hosp Rev Hltheast Proj............................... 6.000 11/15/35 2,212,320 ------------ 2,767,061 ------------ MISSOURI 3.7% 1,000 Carthage, MO Hosp Rev....................... 5.750 04/01/22 1,013,880 1,000 Carthage, MO Hosp Rev....................... 5.875 04/01/30 1,016,370 3,000 Kansas City, MO Indl Dev Auth Plaza Lib Proj........................................ 6.000 03/01/16 3,122,670
20 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- MISSOURI (CONTINUED) $ 2,835 Kansas City, MO Port Auth Fac Riverfront Park Proj Ser A (c)......................... 5.750% 10/01/06 $ 2,835,000 2,275 Missouri JT Muni Elec Util Commn Pwr Proj Rev Plum Point Proj (MBIA Insd)............. 5.000 01/01/26 2,419,531 1,200 Missouri St Hlth & Ed Fac Auth Rev Sr Living Fac Lutheran Ser B Rfdg..................... 5.125 02/01/27 1,242,252 385 Saint Louis, MO Tax Increment Rev Scullin Redev Area Ser A............................ 10.000 08/01/10 427,277 12,500 Springfield, MO Pub Util Rev (FGIC Insd).... 4.500 08/01/36 12,407,875 ------------ 24,484,855 ------------ MONTANA 0.2% 1,000 Forsyth, MT Pollutn Ctl Rev Northwestn Corp Colstrip Rfdg (AMBAC Insd).................. 4.650 08/01/23 1,023,990 ------------ NEBRASKA 0.4% 2,500 University NE Fac Corp Deferred Maintenance (AMBAC Insd)................................ 5.000 07/15/17 2,731,325 ------------ NEVADA 0.7% 4,300 Clark Cnty, NV Indl Dev Rev Southwest Gas Corp Proj Ser A (AMT) (FGIC Insd)........... 4.750 09/01/36 4,324,553 ------------ NEW HAMPSHIRE 0.7% 1,010 New Hampshire Higher Ed & Hlth Fac Auth Rev (c)......................................... 8.800 06/01/09 1,103,516 480 New Hampshire Higher Ed & Hlth Fac Auth Rev Daniel Webster College Issue Rfdg (c)....... 6.100 07/01/09 484,066 645 New Hampshire St Business Fin Auth Elec Fac Rev Plymouth Cogeneration (AMT) (Acquired 06/29/93, Cost $631,308) (b)................ 7.750 06/01/14 659,622 1,000 New Hampshire St Business Fin Auth Rev Alice Peck Day Hlth Sys Ser A..................... 6.875 10/01/19 1,057,660 1,000 New Hampshire St Tpk Sys Rev Ser A Rfdg (FGIC Insd)................................. 6.750 11/01/11 1,022,720 ------------ 4,327,584 ------------ NEW JERSEY 5.2% 3,250 Landis, NJ Swr Auth Swr Rev (Inverse Fltg) (FGIC Insd)................................. 7.935 09/19/19 3,949,985 5,055 Middlesex Cnty, NJ Util Auth Swr Rev Ser A Rfdg (MBIA Insd)............................ 6.250 08/15/10 5,338,990 2,000 New Jersey Econ Dev Auth Rev Cig Tax........ 5.750 06/15/34 2,137,840 1,900 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens Ser A (Prerefunded @ 11/01/06)................................... 8.500 11/01/16 1,946,075 565 New Jersey St Tpk Auth Tpk Rev (MBIA Insd)....................................... 6.500 01/01/16 661,587
See Notes to Financial Statements 21 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- NEW JERSEY (CONTINUED) $ 190 New Jersey St Tpk Auth Tpk Rev Ser C (Escrowed to Maturity) (MBIA Insd).......... 6.500% 01/01/16 $ 223,020 2,725 New Jersey St Tpk Auth Tpk Rev Ser C (Escrowed to Maturity) (MBIA Insd).......... 6.500 01/01/16 3,198,578 5,710 New Jersey St Trans Corp Ctf Fed Trans Admin Gnt Ser A (AMBAC Insd)...................... 5.750 09/15/10 6,050,316 10,000 New Jersey St Trans Corp Ctf Fed Trans Admin Gnt Ser B (Prerefunded @ 09/15/10) (AMBAC Insd) (f)................................... 6.000 09/15/15 10,881,200 ------------ 34,387,591 ------------ NEW YORK 14.6% 5,000 Metropolitan Trans Auth NY Rev Ser B (FGIC Insd)....................................... 5.250 11/15/18 5,466,700 1,000 Nassau Cnty, NY Tob Settlement Corp Ser A-3..................................... 5.000 06/01/35 1,015,650 1,000 Nassau Cnty, NY Tob Settlement Corp Ser A-3..................................... 5.125 06/01/46 1,017,480 5,000 New York City Hsg Dev Corp Hsg Multi-Family Ser K (AMT)................................. 5.000 11/01/37 5,119,000 2,300 New York City Indl Dev Agy Amern Airl JFK Intl Arpt (AMT)............................. 7.625 08/01/25 2,686,561 1,000 New York City Indl Dev Agy Amern Airl JFK Intl Arpt (AMT)............................. 7.750 08/01/31 1,180,420 3,000 New York City Indl Dev Agy Rev Liberty 7 World Trade Ctr Ser A....................... 6.250 03/01/15 3,192,360 10,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser C (MBIA Insd) (h)............... 5.000 06/15/27 10,634,300 2,975 New York City Ser A......................... 7.000 08/01/07 3,027,330 2,845 New York City Ser B (MBIA Insd)............. 5.875 08/01/15 3,095,502 14,515 New York City Ser B (Prerefunded @ 08/01/10) (MBIA Insd)................................. 5.875 08/01/15 15,878,829 10,000 New York City Transitional Fin Auth Future Tax Secd Ser C (AMBAC Insd) (h)............. 5.250 08/01/19 10,798,600 3,000 New York Cnty Tob Tr IV Settlement Pass Thru Ser A....................................... 5.000 06/01/42 3,028,170 750 New York Liberty Dev Corp Rev Natl Sports Museum Proj A (Acquired 08/07/06, Cost $750,000) (b)............................... 6.125 02/15/19 777,255 695 New York St Dorm Auth Rev Mental Hlth Ser A.................................. 5.750 02/15/11 714,113 680 New York St Dorm Auth Rev Mental Hlth Ser A.................................. 5.750 02/15/12 698,700 2,500 New York St Energy Resh & Dev Auth Gas Fac Rev (Inverse Fltg).......................... 8.700 04/01/20 2,787,100
22 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $ 3,000 New York St Energy Resh & Dev Auth Gas Fac Rev Brooklyn Union Gas Ser B (Inverse Fltg) (AMT)....................................... 9.919% 07/01/26 $ 3,188,400 10,725 New York St Environmental Fac Rev Fds Second Resolution (c).............................. 5.000 06/15/20 11,536,346 10,000 Triborough Brdg & Tunl Auth NY Gen Ser B Rfdg........................................ 5.000 11/15/22 10,567,700 ------------ 96,410,516 ------------ NORTH CAROLINA 1.7% 2,000 Charlotte Mecklenberg Hosp Auth NC Hlthcare Sys Rev Carolina Hlthcare Sys Ser A......... 5.000 01/15/45 2,065,940 8,500 North Carolina Muni Pwr Agy Ser A (MBIA Insd)................................. 5.250 01/01/19 9,162,830 ------------ 11,228,770 ------------ OHIO 0.5% 3,340 Adams Cnty Hosp Fac Impt Rev Adams Cnty Hosp Proj........................................ 6.250 09/01/20 3,424,669 ------------ OKLAHOMA 0.4% 2,250 Oklahoma City, OK Pub Ppty Auth Hotel Tax Rev (FGIC Insd)............................. 5.250 10/01/29 2,437,043 285 Oklahoma Hsg Fin Agy Single Family Rev Mtg Class B (AMT) (GNMA Collateralized)......... 7.997 08/01/18 297,768 ------------ 2,734,811 ------------ OREGON 1.0% 5,000 Oregon Hlth Sciences Univ Insd Ser A (MBIA Insd)....................................... 5.250 07/01/22 5,376,950 1,000 Port Morrow, OR Pollutn Ctl Portland Gen A Rfdg (Variable Rate Coupon)................. 5.200 05/01/33 1,026,150 ------------ 6,403,100 ------------ PENNSYLVANIA 1.0% 1,000 Montgomery Cnty, PA Indl Dev Auth Rev Mtg Whitemarsh Cont Care Proj................... 6.250 02/01/35 1,064,660 5,250 Philadelphia, PA Auth Indl Rev Ser B (FSA Insd).................................. 5.500 10/01/16 5,726,910 ------------ 6,791,570 ------------ RHODE ISLAND 0.5% 915 Rhode Island St Econ Dev Corp Rev (c)....... 7.250 07/01/10 943,081 2,000 Rhode Island St Hlth & Ed Bldg Higher Ed Johnson & Wales Rfdg (XLCA Insd)............ 5.375 04/01/19 2,162,460 ------------ 3,105,541 ------------
See Notes to Financial Statements 23 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- SOUTH CAROLINA 0.2% $ 700 Piedmont Muni Pwr Agy SC Elec Rev Rfdg...... 5.000% 01/01/25 $ 700,098 500 South Carolina Jobs Econ Dev Auth Hlth Fac Rev First Mtg Wesley Commons Rfdg (e)....... 5.125 10/01/26 499,690 ------------ 1,199,788 ------------ SOUTH DAKOTA 0.2% 1,250 South Dakota St Hlth & Ed Fac Auth Rev Sioux Vly Hosp & Hlth Sys Ser A................... 5.250 11/01/34 1,311,888 ------------ TENNESSEE 0.9% 1,000 Chattanooga, TN Hlth Ed & Hsg Fac Brd Rev CDFI Phase I LLC Proj Ser A Rfdg............ 5.000 10/01/25 1,008,300 4,000 Elizabethton, TN Hlth & Ed Fac Brd Rev Hosp Ser B Impt & Rfdg (MBIA Insd)............... 7.750 07/01/29 4,859,560 ------------ 5,867,860 ------------ TEXAS 10.7% 2,000 Alliance Arpt Auth Inc TX Spl Fac Rev Fedex Corp Proj Rfdg (AMT)........................ 4.850 04/01/21 2,022,160 500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev Saint Luke's Lutheran Hosp (Escrowed to Maturity)................................... 7.000 05/01/21 653,145 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 3,371,707 8,410 Comal, TX Indpt Sch Dist Sch Bldg (PSF Gtd)........................................ 5.000 02/01/31 8,773,985 5,000 Dallas-Fort Worth, TX Intl Arpt Rev Jt Ser A Impt & Rfdg (AMT) (FGIC Insd)............... 5.500 11/01/31 5,336,100 6,065 Harris Cnty, TX Toll Rd Sub Lien Rfdg....... 5.000 08/01/33 6,171,198 5,000 Harris Cnty-Houston, TX Sports Auth Spl Rev Jr Lien Ser B Rfdg (MBIA Insd).............. 5.250 11/15/40 5,289,300 10,000 Houston, TX Hotel Occupancy Tax Convtn & Entertnmnt Ser B (AMBAC Insd)............... 5.750 09/01/14 10,933,300 7,500 Lower CO Riv Auth TX Rev Ser A Rfdg (Inverse Fltg) (Acquired 10/20/99, Cost $7,623,805) (FSA Insd) (b).............................. 7.775 05/15/14 8,441,400 6,250 Lower CO Riv Auth TX Rev Ser A Rfdg (Inverse Fltg) (Acquired 10/20/99, Cost $6,312,134) (FSA Insd) (b).............................. 7.775 05/15/15 7,047,500 3,250 Lower CO Riv Auth TX Rev Ser A Rfdg (Inverse Fltg) (Acquired 10/20/99, Cost $3,254,875) (FSA Insd) (b) (c).......................... 7.775 05/15/16 3,668,048 5,210 Mabank, TX Indpt Sch Dist (PSF Gtd) (c)..... 5.000 08/15/30 5,398,758
24 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - --------------------------------------------------------------------------------------------- TEXAS (CONTINUED) $ 2,000 Metropolitan Hlth Fac Dev Corp TX Wilson N Jones Mem Hosp Proj......................... 7.200% 01/01/21 $ 2,077,320 1,175 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev Coll Ser C-2 Rfdg (Inverse Fltg) (AMT) (GNMA Collateralized)....................... 9.977 07/02/24 1,245,065 ------------ 70,428,986 ------------ UTAH 2.0% 1,340 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (g)................................ 7.800 09/01/15 413,725 1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (g).................................... 8.000 09/01/20 308,750 1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj (g).................................... 7.800 09/01/25 308,750 11,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg........................................ 6.150 02/15/12 12,119,580 ------------ 13,150,805 ------------ VERMONT 0.3% 1,000 Vermont Econ Dev Auth Mtg Rev Wake Robin Corp Proj Ser A............................. 5.375 05/01/36 1,013,330 1,000 Vermont Ed & Hlth Bldg Fin Agy Rev Bennington College Proj..................... 6.625 10/01/29 1,031,750 ------------ 2,045,080 ------------ WASHINGTON 1.3% 8,000 King Cnty, WA Sch Dist No 411 (FGIC Insd) (c)............................. 5.250 12/01/20 8,655,520 ------------ WEST VIRGINIA 0.8% 1,500 West Virginia St Hosp Fin Auth Hosp Rev Bears & Bulls WV Univ Med Corp Rfdg (MBIA Insd)....................................... 6.100 01/01/18 1,523,925 4,000 West Virginia St Hosp Fin Auth Hosp Rev Bears & Bulls WV Univ Med Corp Rfdg (MBIA Insd)....................................... 6.100 01/01/18 4,063,800 ------------ 5,587,725 ------------ TOTAL LONG-TERM INVESTMENTS 104.8% (Cost $659,661,270)......................................................... 690,144,398 SHORT-TERM INVESTMENTS 0.7% (Cost $5,000,000)........................................................... 5,000,000 ------------
See Notes to Financial Statements 25 VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued
DESCRIPTION VALUE - ------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS 105.5% (Cost $664,661,270)............................................................. $695,144,398 LIABILITY FOR FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES HELD (6.7%) (Cost ($44,090,000)) (44,090) Notes with interest rates ranging from 3.760% to 3.780% at September 30, 2006 and contractual maturities of collateral ranging from 2015 to 2036 (See Note 1) (i)............................................ (44,090,000) ------------ TOTAL NET INVESTMENTS 98.8% (Cost $620,571,270)............................................................. 651,054,398 OTHER ASSETS IN EXCESS OF LIABILITIES 1.2%....................................... 7,781,990 ------------ NET ASSETS 100.0%................................................................ $658,836,388 ============
Percentages are calculated as a percentage of net assets. * Zero coupon bond (a) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (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 3.3% of net assets. (c) The Fund owns 100% of the outstanding bond issuance. (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) Securities purchased on a when-issued or delayed delivery basis. (f) All or a portion of this security has been physically segregated in connection with open futures contracts. (g) Non-income producing security. (h) Underlying security related to Inverse Floaters entered into by the Fund. See Notes 1 and 6.B. (i) Floating rate notes. The interest rates shown reflect rates in effect at September 30, 2006. AMBAC--AMBAC Indemnity Corp. AMT--Alternative Minimum Tax FGIC--Financial Guaranty Insurance Co. FSA--Financial Security Assurance Inc. GNMA--Government National Mortgage Association LOC--Letter of Credit 26 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS (AS RESTATED--SEE NOTE 11) -- SEPTEMBER 30, 2006 continued MBIA--Municipal Bond Investors Assurance Corp. PSF--Public School Fund XLCA--XL Capital Assurance Inc. FUTURES CONTRACTS OUTSTANDING AS OF SEPTEMBER 30, 2006:
UNREALIZED APPRECIATION/ CONTRACTS DEPRECIATION SHORT CONTRACTS U.S. Treasury Notes 10-Year Futures December 2006 (Current Notional Value of $108,063 per contract)......... 35 $(48,812) == ========
See Notes to Financial Statements 27 VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities (As Restated -- See Note 11) September 30, 2006 ASSETS: Total Investments (Cost $664,661,270)....................... $695,144,398 Cash........................................................ 792,562 Receivables: Interest.................................................. 8,312,567 Investments Sold.......................................... 1,923,667 Fund Shares Sold.......................................... 828,691 Variation Margin on Futures............................... 3,281 Other....................................................... 220,803 ------------ Total Assets............................................ 707,225,969 ------------ LIABILITIES: Payables: Floating Rate Note Obligations............................ 44,090,000 Investments Purchased..................................... 1,496,809 Fund Shares Repurchased................................... 1,166,796 Income Distributions...................................... 677,357 Investment Advisory Fee................................... 261,782 Distributor and Affiliates................................ 217,900 Trustees' Deferred Compensation and Retirement Plans........ 288,550 Accrued Expenses............................................ 190,387 ------------ Total Liabilities....................................... 48,389,581 ------------ NET ASSETS.................................................. $658,836,388 ============ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $655,563,243 Net Unrealized Appreciation................................. 30,434,316 Accumulated Undistributed Net Investment Income............. 5,044,228 Accumulated Net Realized Loss............................... (32,205,399) ------------ NET ASSETS.................................................. $658,836,388 ============ MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $613,615,593 and 41,355,868 shares of beneficial interest issued and outstanding)............. $ 14.84 Maximum sales charge (4.75%* of offering price)......... .74 ------------ Maximum offering price to public........................ $ 15.58 ============ Class B Shares: Net asset value and offering price per share (Based on net assets of $29,563,546 and 1,995,246 shares of beneficial interest issued and outstanding)............. $ 14.82 ============ Class C Shares: Net asset value and offering price per share (Based on net assets of $14,270,631 and 964,658 shares of beneficial interest issued and outstanding)............. $ 14.79 ============ Class I Shares: Net asset value and offering price per share (Based on net assets of $1,386,618 and 93,483 shares of beneficial interest issued and outstanding)........................ $ 14.83 ============
* On sales of $100,000 or more, the sales charge will be reduced. 28 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statement of Operations (As Restated -- See Note 11) For the Year Ended September 30, 2006 INVESTMENT INCOME: Interest.................................................... $35,071,879 ----------- EXPENSES: Investment Advisory Fee..................................... 3,111,809 Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $1,470,199, $337,935 and $134,262, respectively)............................................. 1,942,396 Interest and Residual Trust Expenses........................ 1,412,403 Shareholder Services........................................ 393,231 Legal....................................................... 66,026 Custody..................................................... 42,512 Trustees' Fees and Related Expenses......................... 39,689 Other....................................................... 423,834 ----------- Total Expenses.......................................... 7,431,900 Less Credits Earned on Cash Balances.................... 25,960 ----------- Net Expenses............................................ 7,405,940 ----------- NET INVESTMENT INCOME....................................... $27,665,939 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $(6,335,064) Futures................................................... 707,834 ----------- Net Realized Loss........................................... (5,627,230) ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 19,006,762 ----------- End of the Period: Investments............................................. 30,483,128 Futures................................................. (48,812) ----------- 30,434,316 ----------- Net Unrealized Appreciation During the Period............... 11,427,554 ----------- NET REALIZED AND UNREALIZED GAIN............................ $ 5,800,324 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $33,466,263 ===========
See Notes to Financial Statements 29 VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets (As Restated -- See Note 11)
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ---------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.............................. $ 27,665,939 $ 28,142,888 Net Realized Gain/Loss............................. (5,627,230) 7,645,862 Net Unrealized Appreciation/Depreciation During the Period........................................... 11,427,554 (11,721,452) ------------ ------------ Change in Net Assets from Operations............... 33,466,263 24,067,298 ------------ ------------ Distributions from Net Investment Income: Class A Shares................................... (26,130,470) (26,358,317) Class B Shares................................... (1,254,229) (1,598,728) Class C Shares................................... (498,465) (476,845) Class I Shares................................... (60,090) (7,693) ------------ ------------ Total Distributions................................ (27,943,254) (28,441,583) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....................................... 5,523,009 (4,374,285) ------------ ------------ FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold.......................... 86,101,699 41,515,355 Net Asset Value of Shares Issued Through Dividend Reinvestment..................................... 19,662,764 19,629,302 Cost of Shares Repurchased......................... (91,989,700) (89,121,245) ------------ ------------ NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..................................... 13,774,763 (27,976,588) ------------ ------------ TOTAL INCREASE/DECREASE IN NET ASSETS.............. 19,297,772 (32,350,873) NET ASSETS: Beginning of the Period............................ 639,538,616 671,889,489 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $5,044,228 and $770,696, respectively)...................... $658,836,388 $639,538,616 ============ ============
30 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED -- SEE NOTE 11) THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $14.71 $14.81 $14.84 $15.03 $14.56 ------ ------ ------ ------ ------ Net Investment Income...................... .64(a) .64(a) .66(a) .67(a) .71 Net Realized and Unrealized Gain/Loss...... .14 (.09) (.05) (.19) .46 ------ ------ ------ ------ ------ Total from Investment Operations............. .78 .55 .61 .48 1.17 Less Distributions from Net Investment Income.......................... .65 .65 .64 .67 .70 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $14.84 $14.71 $14.81 $14.84 $15.03 ====== ====== ====== ====== ====== Total Return (b)............................. 5.46% 3.78% 4.20% 3.31% 8.35% Net Assets at End of the Period (In millions).............................. $613.6 $587.6 $609.4 $658.5 $696.4 Ratio of Expenses to Average Net Assets...... 1.11% 1.04% 0.98% 0.92% 0.89% Ratio of Net Investment Income to Average Net Assets..................................... 4.40% 4.35% 4.46% 4.53% 4.89% Portfolio Turnover........................... 16% 30% 11% 43% 47% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).................................. 0.89% 0.88% 0.89% 0.88% 0.87%
(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. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to .25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. See Notes to Financial Statements 31 VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED -- SEE NOTE 11) continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $14.69 $14.79 $14.82 $15.02 $14.54 ------ ------ ------ ------ ------ Net Investment Income...................... .53(a) .53(a) .55(a) .56(a) .60 Net Realized and Unrealized Gain/Loss...... .14 (.09) (.05) (.20) .48 ------ ------ ------ ------ ------ Total from Investment Operations............. .67 .44 .50 .36 1.08 Less Distributions from Net Investment Income.......................... .54 .54 .53 .56 .60 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $14.82 $14.69 $14.79 $14.82 $15.02 ====== ====== ====== ====== ====== Total Return (b)............................. 4.69% 3.03% 3.41% 2.48% 7.64% Net Assets at End of the Period (In millions).............................. $ 29.6 $ 38.1 $ 48.8 $ 58.4 $ 65.0 Ratio of Expenses to Average Net Assets...... 1.86% 1.79% 1.73% 1.67% 1.64% Ratio of Net Investment Income to Average Net Assets..................................... 3.64% 3.60% 3.71% 3.78% 4.13% Portfolio Turnover........................... 16% 30% 11% 43% 47% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).................................. 1.64% 1.63% 1.64% 1.63% 1.62%
(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. 32 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED -- SEE NOTE 11) continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $14.67 $14.77 $14.80 $15.00 $14.52 ------ ------ ------ ------ ------ Net Investment Income...................... .53(a) .53(a) .55(a) .56(a) .60 Net Realized and Unrealized Gain/Loss...... .13 (.09) (.05) (.20) .48 ------ ------ ------ ------ ------ Total from Investment Operations............. .66 .44 .50 .36 1.08 Less Distributions from Net Investment Income..................................... .54 .54 .53 .56 .60 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $14.79 $14.67 $14.77 $14.80 $15.00 ====== ====== ====== ====== ====== Total Return (b)............................. 4.62% 3.03% 3.43% 2.48% 7.65% Net Assets at End of the Period (In millions).............................. $ 14.3 $ 12.5 $ 13.7 $ 17.0 $ 18.8 Ratio of Expenses to Average Net Assets...... 1.86% 1.79% 1.73% 1.67% 1.64% Ratio of Net Investment Income to Average Net Assets..................................... 3.65% 3.60% 3.71% 3.78% 4.13% Portfolio Turnover........................... 16% 30% 11% 43% 47% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).................................. 1.64% 1.63% 1.64% 1.63% 1.62%
(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. See Notes to Financial Statements 33 VAN KAMPEN MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS (AS RESTATED -- SEE NOTE 11) continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
AUGUST 12, 2005 (COMMENCEMENT OF CLASS I SHARES YEAR ENDED OPERATIONS) TO SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ---------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD............. $14.71 $14.71 ------ ------ Net Investment Income (a).......................... .68 .09 Net Realized and Unrealized Gain................... .13 -0-** ------ ------ Total from Investment Operations..................... .81 .09 Less Distributions from Net Investment Income........ .69 .09 ------ ------ NET ASSET VALUE, END OF THE PERIOD................... $14.83 $14.71 ====== ====== Total Return (b)..................................... 5.65% .60%* Net Assets at End of the Period (In millions)........ $ 1.4 $ 1.3 Ratio of Expenses to Average Net Assets.............. 0.86% 0.82% Ratio of Net Investment Income to Average Net Assets............................................. 4.67% 4.56% Portfolio Turnover................................... 16% 30% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses).............. 0.64% 0.66%
* Non-Annualized ** Amount is less than $.01. (a) Based on average shares outstanding. (b) 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. 34 See Notes to Financial Statements VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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 Fund offers Class A Shares, Class B Shares, Class C Shares and Class I Shares. Each class of shares differs by its initial sales load, contingent deferred sales charges, the allocation of class-specific expenses and voting rights on the matters affecting a single class. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Municipal bonds are valued by independent pricing services or dealers using the mean of the bid and asked prices or, in the absence of market quotations, at fair value based upon yield data relating to municipal bonds with similar characteristics and general market conditions. Securities which are not valued by independent pricing services or dealers are valued at fair value using procedures established in good faith by the Board of Trustees. Future contracts are valued at the settlement price established each day on the exchange on which they are traded. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. Legal expenditures that are expected to result in the restructuring of or a plan of reorganization for an investment are recorded as realized losses. The Fund may purchase and sell securities on a "when-issued" or "delayed delivery" basis, with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. The Fund will segregate assets with the custodian having an aggregate value at least equal to the amount of the when-issued or delayed delivery purchase commitments until payment is made. At September 30, 2006, the Fund had $1,496,809 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 35 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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. During the current fiscal year, the Fund utilized capital losses carried forward of $898,417. At September 30, 2006, the Fund had an accumulated capital loss carryforward for tax purposes of $21,157,577, which will expire according to the following schedule.
AMOUNT EXPIRATION $4,180,889.................................................. September 30, 2008 9,728,055.................................................. September 30, 2009 7,248,633.................................................. September 30, 2010
At September 30, 2006, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $620,865,903 ============ Gross tax unrealized appreciation........................... $ 32,696,710 Gross tax unrealized depreciation........................... (2,508,215) ------------ Net tax unrealized appreciation on investments.............. $ 30,188,495 ============
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 gains on futures transactions. All short-term capital gains and a portion of futures gains are included in ordinary income for tax purposes. The tax character of distributions paid during the years ended September 30, 2006 and 2005 was as follows:
2006 2005 Distributions paid from: Ordinary income........................................... $ 105,229 $ 117,584 Tax-exempt income......................................... 27,858,452 28,382,892 Long-term capital gain.................................... -0- -0- ----------- ----------- $27,963,681 $28,500,476 =========== ===========
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 book and tax difference related to the Fund's investment in other regulated investment companies totaling $7,760 was reclassified from accumulated undistributed net investment income to accumulated net realized loss. A permanent book and tax difference related to the sale of a payment-in-kind security totaling $4,525,006 was reclassified from accumulated undistributed 36 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued net investment income to accumulated net realized loss. Additionally, a permanent book and tax difference of $33,601 related to book to tax accretion differences was reclassified from accumulated undistributed net investment income to accumulated net realized loss. As of September 30, 2006, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $ 35,026 Undistributed tax-exempt income............................. 6,959,489
Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of gains or losses recognized on securities for tax purposes but not for book, post-October losses of $10,955,598 which are not recognized for tax purposes until the first day of the following fiscal year, and gains or losses recognized for tax purposes on open futures transactions on September 30, 2006. F. EXPENSE REDUCTIONS During the year ended September 30, 2006, the Fund's custody fee was reduced by $25,960 as a result of credits earned on cash balances. G. FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES HELD The Fund enters into transactions in which it transfers to dealer trusts fixed rate bonds in exchange for cash and residual interests in the dealer trusts' assets and cash flows, which are in the form of inverse floating rate investments. The dealer trusts fund the purchases of the fixed rate bonds by issuing floating rate notes to third parties and allowing the Fund to retain residual interests in the bonds. The Fund enters into shortfall agreements with the dealer trusts, which commit the Fund to pay the dealer trusts, in certain circumstances, the difference between the liquidation value of the fixed rate bonds held by the dealer trusts and the liquidation value of the floating rate notes held by third parties, as well as any shortfalls in interest cash flows. The residual interests held by the Fund (inverse floating rate investments) include the right of the Fund (1) to cause the holders of the floating rate notes to tender their notes at par at the next interest rate reset date, and (2) to transfer the municipal bond from the dealer trusts to the Fund, thereby collapsing the dealer trusts. The Fund accounts for the transfer of bonds to the dealer trusts as secured borrowings, with the securities transferred remaining in the Fund's investment assets, and the related floating rate notes reflected as Fund liabilities under the caption "Floating Rate Note Obligations" on the Statement of Assets and Liabilities. The Fund records the interest income from the fixed rate bonds under the caption "Interest" and records the expenses related to floating rate note obligations and any administrative expenses of the dealer trusts under the caption "Interest and Residual Trust Expenses" on the Fund's Statement of Operations. The notes issued by the dealer trusts have interest rates that reset weekly and the floating rate note holders have the option to tender their notes to the dealer trusts for redemption at par at each reset date. At September 30, 2006, Fund investments with a value of $92,852,455 are held by the dealer trusts and serve as collateral for the $44,090,000 in floating rate notes outstanding at that date. Contractual maturities of the floating rate notes and interest rates in effect at September 30, 2006 are presented on the Portfolio of Investments. 37 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, Van Kampen Asset Management (the "Adviser") will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM First $500 million.......................................... .50% Over $500 million........................................... .45%
For the year ended September 30, 2006, the Fund recognized expenses of approximately $14,500 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, 2006, the Fund recognized expenses of approximately $98,500 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, 2006, the Fund recognized expenses of approximately $306,100 representing transfer agency fees paid to VKIS. Transfer agency fees are determined through negotiations with the Fund's Board of Trustees. Certain officers and trustees of the Fund are also officers and directors of Van Kampen. The Fund does not compensate its officers or trustees who are 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 $184,427 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2006. 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. For the year ended September 30, 2006, Van Kampen as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $155,900 and contingent deferred sales charge (CDSC) on redeemed shares of approximately $59,800. Sales charges do not represent expenses of the Fund. 38 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 3. CAPITAL TRANSACTIONS For the years ended September 30, 2006 and 2005, transactions were as follows:
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 -------------------------- -------------------------- SHARES VALUE SHARES VALUE Sales: Class A........................... 5,173,374 $ 75,736,363 2,412,267 $ 35,680,084 Class B........................... 308,856 4,508,963 177,415 2,622,903 Class C........................... 366,639 5,340,515 130,335 1,918,515 Class I........................... 35,407 515,858 87,953 1,293,853 ---------- ------------ ---------- ------------ Total Sales......................... 5,884,276 $ 86,101,699 2,807,970 $ 41,515,355 ========== ============ ========== ============ Dividend Reinvestment: Class A........................... 1,258,124 $ 18,406,616 1,233,680 $ 18,241,199 Class B........................... 57,246 835,581 69,165 1,021,344 Class C........................... 24,712 360,477 24,348 359,067 Class I........................... 4,107 60,090 521 7,692 ---------- ------------ ---------- ------------ Total Dividend Reinvestment......... 1,344,189 $ 19,662,764 1,327,714 $ 19,629,302 ========== ============ ========== ============ Repurchases: Class A........................... (5,014,627) $(73,329,393) (4,851,772) $(71,717,331) Class B........................... (965,243) (14,079,445) (952,114) (14,055,751) Class C........................... (281,046) (4,104,067) (225,130) (3,317,881) Class I........................... (32,456) (476,795) (2,049) (30,282) ---------- ------------ ---------- ------------ Total Repurchases................... (6,293,372) $(91,989,700) (6,031,065) $(89,121,245) ========== ============ ========== ============
4. REDEMPTION FEE 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, 2006, the Fund received redemption fees of approximately $400, which are reported as part of "Cost of Shares Repurchased" on the Statement of Changes in Net Assets. The per share impact from redemption fees paid to the Fund was less than $0.01. 5. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $119,293,948 and $108,537,402, 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 may use derivative instruments for a variety of reasons, 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 39 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 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 counterparties to meet the terms of their contracts. Summarized below are the different types of derivative financial instruments used by the Fund. A. FUTURES CONTRACTS A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in exchange traded futures on U.S. Treasury 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, 2006, were as follows:
CONTRACTS Outstanding at September 30, 2005........................... 438 Futures Opened.............................................. 1,380 Futures Closed.............................................. (1,783) ------ Outstanding at September 30, 2006........................... 35 ======
B. INVERSE FLOATING RATE INVESTMENTS The Fund may invest a portion of its assets in inverse floating rate instruments, either through outright purchases of inverse floating rate securities or through the transfer of bonds to a dealer trust in exchange for cash and residual interests in the dealer trust. These investments are typically used by the Fund in seeking to enhance the yield of the portfolio. These instruments typically involve greater risks than a fixed rate municipal bond. In particular, these instruments are acquired through leverage or may have leverage embedded in them and therefore involved many of the risks associated with leverage. Leverage is a speculative technique that may expose the Fund to greater risk increased costs. Leverage may cause the Fund's net asset value to be more volatile than if it had not been leveraged because leverage tends to magnify the effect of any increases or decreases in the value of the Fund's portfolio securities. The use of leverage may also cause the Fund to liquidate portfolio positions when it may not be advantageous to do so in order to satisfy its obligations with respect to inverse floating rate instruments. 7. DISTRIBUTION AND SERVICE PLANS Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"), an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively, the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate the Distributor for the sale, distribution, 40 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees 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. These fees are accrued daily and paid to the Distributor monthly. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed receivable") was approximately $2,456,400 and $208,700 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, the distribution fee is reduced. 8. LEGAL MATTERS The Adviser and certain affiliates of the Adviser are named as defendants in a derivative action 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 Van Kampen 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 derivative action was coordinated with a direct action alleging related violations of defendants' statutory disclosure obligations and fiduciary duties with respect to the payments described above. In addition, this derivative action was stayed by agreement of the parties pending rulings on the motion to dismiss the direct action and the motion to dismiss another derivative action brought by the same plaintiff that brought this derivative action, alleging market timing and late trading in the Van Kampen funds. In April 2006, the court granted defendants' motion to dismiss the direct action. In June 2006, the court granted defendants' motion to dismiss the market timing action. Accordingly, the stay on this action was lifted. Plaintiff and defendants have agreed that this action should be dismissed in light of the rulings dismissing the two cases discussed above. The Court has approved a notice to shareholders regarding the dismissal, which is located at the back of this Report. 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. 10. ACCOUNTING PRONOUNCEMENTS In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes--an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The impact to the Fund's financial statements, if any, is currently being assessed. 41 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures. 11. RESTATEMENT INFORMATION Subsequent to the issuance of its September 30, 2006 financial statements, the Fund determined that the criteria for sale accounting in Statement of Financial Accounting Standards No. 140 had not been met for certain municipal bonds transferred to dealer trusts during the fiscal years ended September 30, 2006, 2005, 2004, 2003 and 2002 and that the transfers should have been accounted for as secured borrowings rather than as sales. Accordingly, the Fund has restated the Statement of Assets and Liabilities as of September 30, 2006 and the related Statement of Operations and Statement of Changes in Net Assets for the year then ended and the Financial Highlights for each of the five years in the period then ended to give effect to recording the transfers of the municipal bonds as secured borrowings. The footnotes to the financial statements have also been revised to further explain these transactions, the accounting treatment thereof and the associated risks. See footnotes 1G and 6B. Among other things, the effects of properly reporting these municipal securities known as "inverse floaters" are to increase assets and liabilities by corresponding and equal amounts, and to increase interest income and interest and residual trust expenses by corresponding and equal amounts. These changes in the financial statements did not impact the Fund's net asset values per share or the Fund's total returns for the current or any prior period. These changes do, however, impact certain ratios reported in the Fund's financial highlights for the current and prior years. 42 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued The following line items from the respective financial statements and financial highlights have been changed as a result of these restatements.
PREVIOUSLY REPORTED RESTATED STATEMENT OF ASSETS AND LIABILITIES AS OF SEPTEMBER 30, 2006 Cost..................................................... $621,008,038 $664,661,270 Total Investments........................................ 651,054,398 695,144,398 TOTAL ASSETS............................................... 663,135,969 707,225,969 Payables: Floating Rate Note Obligations....................... -- 44,090,000 TOTAL LIABILITIES.......................................... 4,299,581 48,389,581 NET ASSETS CONSIST OF: Net Unrealized Appreciation.............................. 29,997,548 30,434,316 Accumulated Net Realized Loss............................ (31,768,631) (32,205,399) STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2006 Interest................................................. 33,659,476 35,071,879 Interest and Residual Trust Expenses..................... -- 1,412,403 Total Expenses............................................. 6,019,497 7,431,900 NET EXPENSES............................................... 5,993,537 7,405,940 REALIZED AND UNREALIZED GAIN/LOSS Investments.............................................. (5,898,296) (6,335,064) NET REALIZED GAIN/(LOSS)................................... (5,190,462) (5,627,230) UNREALIZED APPRECIATION/DEPRECIATION: End of Period: Investments............................................ 30,046,360 30,483,128 Net Unrealized Appreciation During the Period............ 10,990,786 11,427,554 STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED SEPTEMBER 30, 2006 Net Realized Gain/Loss................................... (5,190,462) (5,627,230) Net Unrealized Appreciation During the Period............ 10,990,786 11,427,554
43 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued FINANCIAL HIGHLIGHTS
YEAR ENDED SEPTEMBER 30, ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- PREVIOUSLY REPORTED CLASS A Ratio of Expenses to Average Net Assets................................ 0.89% 0.88% 0.89% 0.88% 0.87% Portfolio Turnover.................... 18% 39% 15% 46% 49% RESTATED CLASS A Ratio of Expenses to Average Net Assets................................ 1.11% 1.04% 0.98% 0.92% 0.89% Portfolio Turnover.................... 16% 30% 11% 43% 47% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)............................. 0.89% 0.88% 0.89% 0.88% 0.87%
YEAR ENDED SEPTEMBER 30, ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- PREVIOUSLY REPORTED CLASS B Ratio of Expenses to Average Net Assets................................ 1.64% 1.63% 1.64% 1.63% 1.62% Portfolio Turnover.................... 18% 39% 15% 46% 49% RESTATED CLASS B Ratio of Expenses to Average Net Assets................................ 1.86% 1.79% 1.73% 1.67% 1.64% Portfolio Turnover.................... 16% 30% 11% 43% 47% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)............................. 1.64% 1.63% 1.64% 1.63% 1.62%
44 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued FINANCIAL HIGHLIGHTS continued
YEAR ENDED SEPTEMBER 30, ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- PREVIOUSLY REPORTED CLASS C Ratio of Expenses to Average Net Assets................................ 1.64% 1.63% 1.64% 1.63% 1.62% Portfolio Turnover.................... 18% 39% 15% 46% 49% RESTATED CLASS C Ratio of Expenses to Average Net Assets................................ 1.86% 1.79% 1.73% 1.67% 1.64% Portfolio Turnover.................... 16% 30% 11% 43% 47% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)............................. 1.64% 1.63% 1.64% 1.63% 1.62%
YEAR ENDED SEPTEMBER 30, ---------------- 2006 2005 ---------------- PREVIOUSLY REPORTED CLASS I Ratio of Expenses to Average Net Assets................. 0.64% 0.66% Portfolio Turnover...................................... 18% 39% RESTATED CLASS I Ratio of Expenses to Average Net Assets................. 0.86% 0.82% Portfolio Turnover...................................... 16% 30% SUPPLEMENTAL RATIO: Ratio of Expenses to Average Net Assets (Excluding Interest and Residual Trust Expenses)........ 0.64% 0.66%
45 VAN KAMPEN MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued While the Statement of Assets and Liabilities as of September 30, 2005, 2004, 2003 and 2002 (not presented herein) and the Statements of Operations for the years ended September 30, 2005, 2004, 2003 and 2002 (not presented herein) have not been reissued to give effect to the restatement, the principal effects of the restatement would be the same as those described above for the September 30, 2006 financial statements, thus resulting in no changes in the Fund's net asset values per share or total returns for such period but changing certain ratios reported (which changes are reflected in the Financial Highlights of these financial statements for the year ended September 30, 2006). 46 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, 2006, 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, 2006, 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 Van Kampen Municipal Income Fund at September 30, 2006, 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. As discussed in Note 11, the statement of assets and liabilities, including the portfolio of investments as of September 30, 2006, the related statement of operations and statement of changes in net assets for the year then ended and the financial highlights for each of the five years in the period then ended have been restated. /s/ Ernst & Young LLP Chicago, Illinois November 14, 2006, except for Note 11, as to which the date is January 26, 2007 47 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 DENNIS SHEA Vice President J. DAVID GERMANY Vice President AMY R. DOBERMAN Vice President STEFANIE V. CHANG Vice President and Secretary JOHN L. SULLIVAN Chief Compliance Officer JAMES W. GARRETT 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 One Lincoln Street Boston, Massachusetts 02111 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, 2006. 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. 48 VAN KAMPEN MUNICIPAL INCOME FUND TRUSTEE AND OFFICER 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, the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange Corp. and 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:
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 (61) Trustee Trustee Chairman and Chief 71 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 (68) Trustee Trustee Prior to January 1999, 71 Trustee/Director/Managing 33971 Selva Road since 1999 Chairman and Chief General Partner of funds Suite 130 Executive Officer of the in the Fund Complex. Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a ("Allstate") and Allstate biotechnological company, Insurance Company. Prior and Director of Valero to January 1995, Energy Corporation, an President and Chief independent refining Executive Officer of company. Allstate. Prior to August 1994, various management positions at Allstate.
49
VAN KAMPEN MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (66) Trustee Trustee President of CAC, L.L.C., 71 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 Quidel San Diego, CA 92122-6223 advisory services. Prior Corporation, Stericycle, to February 2001, Vice Inc., Ventana Medical Chairman and Director of Systems, Inc., and GATX Anixter International, Corporation, and Trustee Inc., a global of The Scripps Research distributor of wire, Institute. Prior to cable and communications January 2005, Trustee of connectivity products. the University of Chicago Prior to July 2000, Hospitals and Health Managing Partner of Systems. Prior to April Equity Group Corporate 2004, Director of Investment (EGI), a TheraSense, Inc. Prior to company that makes January 2004, Director of private investments in TeleTech Holdings Inc. other companies. and Arris Group, Inc. 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).
50
VAN KAMPEN MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (58) Trustee Trustee Managing Partner of 71 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 (54) Trustee Trustee Director and President of 71 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 (71) Trustee Trustee Prior to 1998, President 71 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.
51
VAN KAMPEN MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (70) Trustee Trustee President of Nelson 71 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 (66) Trustee Trustee President Emeritus and 71 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 71 Trustee/Director/Managing (64) since 1999 Officer of the National General Partner of funds 815 Cumberstone Road Academy of in the Fund Complex. Harwood, MD 20776 Sciences/National Director of Fluor Corp., Research Council, an an engineering, independent, federally procurement and chartered policy construction institution, from 2001 to organization, since November 2003 and Chief January 2004 and Director Operating Officer from of Neurogen Corporation, 1993 to 2001. Director of a pharmaceutical company, the Institute for Defense since January 1998. Analyses, a federally funded research and development center, Director of the German Marshall Fund of the United States, Director of the Rocky Mountain Institute and Trustee of Colorado College. Prior to 1993, Executive Director of the Commission on Behavioral and Social Sciences and Education at the National Academy of Sciences/National Research Council. From 1980 through 1989, Partner of Coopers & Lybrand.
52 VAN KAMPEN MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued INTERESTED TRUSTEE:*
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 Wayne W. Whalen* (67) Trustee Trustee Partner in the law firm 71 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.
* 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 MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (67) 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 Van Kampen Advisors Inc. since June 2003. Director of Investor Services since September 2002. Director of the Adviser, Van Kampen Investments and Van Kampen Exchange Corp. since January 2005. 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. Dennis Shea (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 1221 Avenue of the Americas since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser New York, NY 10020 and Van Kampen Advisors Inc. Chief Investment Officer-Global Equity of the same entities since February 2006. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006. Previously, Managing Director and Director of Global Equity Research at Morgan Stanley from April 2000 to February 2006. J. David Germany (52) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 25 Cabot Square since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser Canary Wharf and Van Kampen Advisors Inc. Chief Investment Officer - London, GBR E14 4QA Global Fixed Income of the same entities since December 2005. Managing Director and Director of Morgan Stanley Investment Management Ltd. Director of Morgan Stanley Investment Management (ACD) Limited since December 2003. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006.
54
VAN KAMPEN MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Amy R. Doberman (44) 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 Advisors 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 (40) 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. John L. Sullivan (51) 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. James W. Garrett (37) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas and Treasurer since 2006 Chief Financial Officer and Treasurer of Morgan Stanley New York, NY 10020 Institutional Funds since 2002 and of Funds in the Fund Complex from January 2005 to August 2005 and since September 2006.
55 Notice to Fund Shareholders As previously disclosed, a derivative action was filed on behalf of the Fund against the Fund's investment adviser, broker-dealer, distributor, and Trustees. The complaint alleges that defendants violated federal securities laws and state laws in connection with certain economic incentive programs. The case is pending before the Honorable Richard Owen, United States District Judge in the Southern District of New York. Defendants have filed a motion to dismiss the complaint in its entirety on numerous grounds, and that motion is still pending. On April 18, 2006, Judge Owen dismissed a separate lawsuit against Morgan Stanley and all of the same corporate defendants that are named in the derivative action. The Morgan Stanley suit related to the same incentive programs that are at issue in the derivative action, and asserted many of the same legal claims. In his decision, Judge Owen found that the programs do not violate federal law, and that defendants had made the appropriate disclosures concerning the programs. The plaintiffs in the Morgan Stanley suit did not appeal from the decision, and that decision is now final. In light of this decision by Judge Owen -- as well as several other decisions by other judges in the Southern District of New York and certain other courts that have dismissed similar complaints against other investment funds -- plaintiff in the derivative action has determined that the suit would be unsuccessful, if pursued further. Accordingly, plaintiff has asked Judge Owen to dismiss the action. No attorneys' fees will be paid by defendants and no consideration will be paid to the named plaintiff. All investors in the Fund are hereby provided notice of this proposed dismissal. If you object to the proposed dismissal, your objection must be mailed no later than December 29, 2006, in writing, to the Honorable Richard Owen, United States District Judge, United States Courthouse, Room 640, 500 Pearl Street, New York, NY 10007-1312. Copies of the objection must also be mailed to Denise Davis Schwartzman, Esquire, Chimicles & Tikellis LLP, 361 West Lancaster Avenue, Haverford, PA 19041; and Richard A. Rosen, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, NY 10019-6064. 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)2006 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 49, 349, 549 MIFANR 11/06 (VAN KAMPEN INVESTMENTS LOGO) RN06-03169P-Y09/06 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, 2006. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CLASS A, B, AND C SHARE OR CLASS I [AND R] SHARE PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUSES CONTAIN INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. TO OBTAIN AN ADDITIONAL PROSPECTUS, CONTACT YOUR FINANCIAL ADVISOR OR DOWNLOAD ONE AT VANKAMPEN.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 9/30/06 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index from 9/30/96 through 9/30/06. Class A shares, adjusted for sales charges. (LINE GRAPH)
VAN KAMPEN INTERMEDIATE TERM LEHMAN BROTHERS MUNICIPAL BOND INCOME FUND INDEX ---------------------------- ------------------------------ 9/96 9529 10000 9623 10113 9764 10298 9735 10255 9744 10274 9830 10369 9743 10230 9800 10316 9916 10471 10003 10583 10227 10876 10177 10774 9/97 10275 10902 10344 10972 10393 11037 10522 11197 10602 11313 10623 11316 10663 11326 10623 11275 10786 11454 10817 11499 10838 11528 10972 11706 9/98 11086 11852 11086 11851 11118 11893 11150 11923 11265 12065 11234 12012 11248 12029 11283 12059 11243 11989 11108 11816 11154 11859 11071 11764 9/99 11075 11769 10969 11642 11060 11765 10976 11678 10921 11627 10988 11762 11110 12019 11100 11948 11089 11886 11291 12201 11435 12371 11557 12561 9/00 11532 12496 11393 12632 11448 12728 11690 13042 11788 13172 11840 13213 11985 13332 11875 13187 11997 13329 12061 13418 12185 13617 12379 13842 9/01 12361 13795 12510 13959 12373 13842 12283 13711 12457 13949 12607 14117 12384 13840 12644 14111 12711 14196 12851 14346 13016 14531 13145 14705 9/02 13410 15028 13194 14778 13150 14717 13415 15028 13346 14990 13541 15199 13547 15208 13655 15309 13915 15667 13801 15601 13419 15055 13560 15167 9/03 13856 15613 13792 15534 13948 15696 14049 15826 14076 15917 14286 16156 14182 16100 13919 15719 13906 15662 13947 15719 14107 15926 14334 16245 9/04 14389 16331 14483 16472 14376 16336 14557 16535 14680 16690 14626 16634 14504 16529 14710 16790 14807 16909 14876 17013 14822 16937 14961 17108 9/05 14864 16992 14782 16889 14852 16970 14966 17116 15009 17162 15095 17278 14996 17158 14983 17153 15055 17229 14998 17164 15157 17368 15345 17626 9/06 15446 17749
A SHARES B SHARES C SHARES I SHARES 5/28/93 5/28/93 10/19/93 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 CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES Since Inception 5.28% 4.90% 4.82% 4.82% 4.26% 4.26% 3.93% 10-year 4.95 4.44 4.38 4.38 4.18 4.18 -- 5-year 4.56 3.54 4.25 4.00 3.80 3.80 -- 1-year 3.91 -0.99 4.13 0.13 3.04 2.05 4.08% - -------------------------------------------------------------------------------------------------------- SEC Yield 3.10% 3.25% 2.53% 3.50% - -------------------------------------------------------------------------------------------------------- Unsubsidized SEC Yield 3.00% 3.15% 2.43% 3.40%
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, 2006, 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. 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 years one and two and declining to zero after year five), a contingent deferred sales charge of 1.00 percent for Class C shares in year one and combined Rule 12b-1 fees and service fees of up to 0.25 percent for Class A shares and up to 1.00 percent for Class B and C shares. The since inception and 10-year returns for Class B shares reflect the conversion of Class B shares into Class A shares eight years after purchase. The since inception returns for Class C shares reflect the conversion 1 of Class C shares into Class A shares ten years after purchase. 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 Rule 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, 2006 MARKET CONDITIONS Against the backdrop of strong economic growth, good employment data, and inflationary pressures stemming from rising oil prices, the Federal Open Market Committee (the "Fed") continued its tightening campaign during the first nine months of the reporting period, raising the federal funds target rate six times to 5.25 percent at the end of June. As the months progressed however, economic growth moderated as consumer spending and housing weakened while inflation concerns eased, prompting investors to speculate that the Fed would take a break from rate increases. In August the Fed did pause, ending a two-year run of 17 consecutive rate increases--the longest stretch of increases in 25 years. At its September meeting, the Fed again kept its target rate unchanged, and indicated that any future rate increases would be driven by the weight of economic data. As a result of the improved outlook for the fixed income market, yields on longer-maturity municipal bonds fell dramatically in latter months of the reporting year, ultimately ending at the lowest level in decades. Yields on shorter-maturity municipal bonds, however, moved higher. Accordingly, the slope of the municipal yield curve flattened as the spread between short-term and long-term interest rates narrowed. Demand for municipal bonds continued to be strong during the period. In fact, inflows into municipal bond funds were 45 percent higher year-to-date through September than for the same period last year, much of which went into high yield funds. Because prevailing interest rates were still at relatively low levels, investors increasingly sought out lower-quality, higher yielding bonds. The increased demand for high yield bonds led this segment of the market to considerably outperform high-grade issues. In addition, long-term bonds continued to earn the best returns, while the short end of the curve posted the lowest returns as Fed rate increases moved yields in this portion of the curve higher. Although municipal bond issuance remained brisk in the last quarter of 2005, volume declined throughout the remaining months of the period. As of the end of September, national municipal bond issuance was down 14 percent for 2006. The reduced supply, coupled with growing demand, further fueled municipal bond performance. 3 PERFORMANCE ANALYSIS The fund returned 3.91 percent for the 12 months ended September 30, 2006 (Class A shares, unadjusted for sales charges). In comparison, the fund's benchmark, the Lehman Brothers Municipal Bond Index, returned 4.45 percent for the period. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2006
- -------------------------------------------------------------- LEHMAN BROTHERS MUNICIPAL CLASS A CLASS B CLASS C CLASS I BOND INDEX 3.91% 4.13% 3.04% 4.08% 4.45% - --------------------------------------------------------------
The performance for the four 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, 2006, 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. We sought opportunities to enhance the portfolio's yield, selectively adding bonds to the portfolio that we believed were both attractively valued and offered greater future total return prospects. This led us to lower the fund's exposure to AA rated bonds, investing the proceeds into higher-yielding A and BBB rated bonds. As a result, the fund was overweighted versus the Lehman Brothers Municipal Bond Index in BBB and non-rated bonds, which proved advantageous as this portion of the market outperformed higher-rated bonds. Despite this shift in credit allocation, however, the fund's overall credit quality remained high. The fund's yield-curve positioning also contributed positively to performance. We emphasized the long end of the fund's investment range, favoring bonds with maturities of 10 to 15 years, which served the fund well as longer-maturity issues outperformed those with shorter maturities. It's important to note that the fund has, by nature, a shorter average maturity than that of the Lehman Brothers Municipal Bond Index, which is a long-term index, and as such, could not benefit as much from rising prices on the very long end of the curve. The fund's comparatively shorter duration (a measure of interest-rate sensitivity) was also a factor in its underperformance versus the Lehman Brothers Municipal Bond Index, keeping the fund from more fully participating in the rally later in the period. The hospital and tobacco sectors performed particularly well during the period and the fund's holdings here were additive to performance. The litigation environment has become favorable for tobacco companies, demand for the 4 bonds remains strong, and the industry continues to prosper. The fund remained well diversified across the major sectors of the municipal market. As of the close of the period, public education, retail electric and general purpose bonds represented the fund's largest sector weightings. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the fund in the future. 5
RATINGS ALLOCATIONS AS OF 9/30/06 AAA/Aaa 58.1% AA/Aa 7.7 A/A 6.2 BBB/Baa 10.4 Non-Rated 17.6 TOP FIVE SECTORS AS OF 9/30/06 Public Education 13.1% Retail Electric 11.0 General Purpose 8.9 Hospital 8.7 Higher Education 7.6 SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/06 Pennsylvania 9.2% Missouri 8.5 Florida 5.9 New Jersey 5.2 California 5.2 Ohio 4.6 Indiana 4.5 Illinois 4.3 New York 4.0 Alabama 3.9 Texas 3.8 Colorado 3.6 Oregon 3.5 Maryland 3.1 South Carolina 3.0 Michigan 2.7 Arizona 2.4 Tennessee 2.3 New Mexico 2.3 Kansas 2.0 North Carolina 1.6 Nebraska 1.5 Washington 1.5 South Dakota 1.5 West Virginia 1.4 Kentucky 1.0
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6
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 9/30/06 (continued from previous page) Virginia 0.9 Connecticut 0.9 Arkansas 0.9 Iowa 0.5 Wisconsin 0.5 Minnesota 0.4 Georgia 0.1 Montana 0.1 Massachusetts 0.1 ----- Total Long-Term Investments 96.9% Short-Term Investments 3.2 Liabilities in Excess of Other Assets (0.1) ----- Net Assets 100.0%
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. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. 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 without charge 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 charges on redemptions of Class B and C Shares; and redemption fees; 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 4/1/06 - 9/30/06. 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 or redemption fees. 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.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 4/1/06 9/30/06 4/1/06-9/30/06 Class A Actual...................................... $1,000.00 $1,029.99 $4.83 Hypothetical................................ 1,000.00 1,020.37 4.81 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,031.91 2.75 Hypothetical................................ 1,000.00 1,022.37 2.74 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,025.22 8.58 Hypothetical................................ 1,000.00 1,016.57 8.54 (5% annual return before expenses) Class I Actual...................................... 1,000.00 1,030.33 3.46 Hypothetical................................ 1,000.00 1,021.67 3.45 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.95%, 0.54%, 1.69% and 0.68% 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). 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 22, 2006, 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 and changes made in the Fund's portfolio management team over time. 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, 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 the Board. The trustees 12 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. 13 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- MUNICIPAL BONDS 96.9% ALABAMA 3.9% $1,260 Dothan Houston Cnty, AL Arpt Auth (AMT) (MBIA Insd) (a)................................. 5.400% 12/01/15 $ 1,348,099 1,000 Jefferson Cnty, AL Pub Bldg Auth Lease Rev Wts (AMBAC Insd).................................... 5.125 04/01/21 1,083,870 1,500 Montgomery Cnty, AL Pub Bldg Auth Rev Wts Fac Proj (MBIA Insd) (a)............................ 5.000 03/01/23 1,596,735 200 West Jefferson Cnty, AL Amusement & Pub Park Auth (Prerefunded @ 12/01/06)................... 7.500 12/01/08 204,384 ------------ 4,233,088 ------------ ARIZONA 2.4% 1,000 Arizona St Univ Rev Sys Rfdg (AMBAC Insd)....... 5.000 07/01/20 1,074,340 1,000 Maricopa Cnty, AZ Uni Sch Dist No 48 Scottsdale Sch Impt Proj Ser B (FSA Insd) (b).............. 4.750 07/01/23 1,047,260 480 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig Irvington Proj Tucson Ser A Rfdg (FSA Insd)..... 7.250 07/15/10 481,838 ------------ 2,603,438 ------------ ARKANSAS 0.9% 950 University of AR Rev UALR Cap Impt Ser B (FSA Insd)........................................... 4.500 12/01/19 986,546 ------------ CALIFORNIA 5.2% 1,090 California Edl Fac Auth Rev Occidental College Ser A (MBIA Insd) (a)........................... 5.000 10/01/20 1,177,309 1,000 California St (AMBAC Insd) (a) (c).............. 6.400 09/01/08 1,053,710 1,500 California St Dept Wtr Res Pwr Ser A (Prerefunded @ 05/01/12) (AMBAC Insd)........... 5.375 05/01/18 1,656,525 565 Perris, CA Pub Fin Auth Rev Tax Alloc (a)....... 4.750 10/01/13 570,023 1,100 Santa Clara, CA Elec Rev Sub Ser A (MBIA Insd)........................................... 5.250 07/01/20 1,199,308 ------------ 5,656,875 ------------ COLORADO 3.6% 115 Colorado Hlth Fac Auth Rev Sr Living Fac Eaton Ter Ser A....................................... 6.800 07/01/09 119,735 1,560 Colorado Springs, CO Utils Rev Sys Sub Lien Impt Ser A........................................... 5.000 11/15/19 1,672,336 1,000 Denver, CO City & Cnty Arpt Rev Ser D Rfdg (AMT) (FSA Insd)...................................... 5.500 11/15/12 1,077,760 1,000 Denver, CO Convention Ctr Hotel Auth Rev Rfdg (XLCA Insd)..................................... 5.250 12/01/14 1,101,510 ------------ 3,971,341 ------------
14 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- CONNECTICUT 0.9% $ 800 Connecticut St Hlth & Edl Fac Auth Rev Griffin Hosp Ser B (Radian Insd)........................ 5.000% 07/01/11 $ 842,960 165 New Haven, CT Indl Fac Rev Adj Govt Ctr Thermal Energies (AMT).................................. 7.250 07/01/09 165,945 ------------ 1,008,905 ------------ FLORIDA 5.9% 500 Baywinds Cmnty Dev Dist FL Spl Assmt Ser B...... 4.900 05/01/12 504,720 1,000 Brevard Cnty, FL Sch Brd Ctfs Ser B Rfdg (FGIC Insd)........................................... 5.000 07/01/20 1,067,120 2,000 Broward Cnty, FL Arpt Sys Rev Ser E Rfdg (AMT) (MBIA Insd) (c)................................. 5.375 10/01/13 2,077,440 500 Halifax, FL Hosp Med Ctr Rev Impt & Rfdg Ser A............................................... 5.250 06/01/19 533,360 1,500 Orange Cnty, FL Sch Brd Ctf Ser A (AMBAC Insd)........................................... 5.250 08/01/14 1,628,430 500 Saint Johns Cnty, FL Indl Dev Auth Hlth Care Glenmoor Proj Ser A (b)......................... 5.000 01/01/16 500,695 115 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg (Escrowed to Maturity)..................... 7.125 11/01/06 115,359 ------------ 6,427,124 ------------ GEORGIA 0.1% 155 Forsyth Cnty, GA Hosp Auth Rev Antic Ctfs GA Baptist Hlthcare Sys Proj (Escrowed to Maturity)....................................... 6.000 10/01/08 158,495 ------------ ILLINOIS 4.3% 545 Clay Cnty, IL Hosp Rev (Prerefunded @ 12/1/08) (a)............................................. 5.500 12/01/10 573,160 500 Hodgkins, IL Tax Increment Rev Sr Lien Rfdg..... 5.000 01/01/14 527,000 80 Huntley, IL Spl Svc Area No 7 Spl Tax........... 6.000 03/01/09 81,150 500 Illinois Fin Auth Rev Landing at Plymouth Pl Proj Ser A...................................... 5.250 05/15/14 505,255 1,000 Illinois Fin Auth Student Hsg Rev MJH Ed Assistance IV Sr Ser A.......................... 5.500 06/01/19 1,070,570 500 Lincolnshire, IL Spl Svc Area Sedgebrook Proj... 5.000 03/01/11 512,020 130 Peoria, IL Spl Tax Weaverridge Spl Svc Area (Prerefunded @ 02/01/07)........................ 7.625 02/01/08 134,191 346 Pingree Grove Village, IL Spl Svc Area No 1 Spl Tax Ser 05-1 Cambridge Lakes Proj............... 5.250 03/01/15 352,944 1,000 Round Lake Beach, IL Tax........................ 4.650 12/15/13 1,011,680 ------------ 4,767,970 ------------ INDIANA 4.5% 1,000 Allen Cnty, IN Juvenile Justice Ctr First Mtg (AMBAC Insd).................................... 5.500 01/01/18 1,086,200 1,000 Carmel Cnty, IN Redev Auth Opt Income Tax Lease Rent Rev (MBIA Insd)............................ 5.000 07/01/22 1,068,800
See Notes to Financial Statements 15 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- INDIANA (CONTINUED) $ 830 Hobart, IN Bldg Corp First Mtg (FGIC Insd) (a)............................................. 5.500% 07/15/13 $ 918,611 1,400 Indiana Bd Bk Spl Prog Hendricks Redev Ser B (Prerefunded @ 02/01/07)........................ 6.000 02/01/12 1,439,228 400 Saint Joseph Cnty, IN Econ Dev Rev Holy Cross Vlg Notre Dame Proj Ser A....................... 5.750 05/15/13 414,828 ------------ 4,927,667 ------------ IOWA 0.5% 500 Coralville, IA Ctfs Partn Ser D................. 5.250 06/01/22 529,515 ------------ KANSAS 2.0% 500 Burlington, KS Envrn Impt Rev................... 4.750 09/01/15 504,645 500 Kansas St Dev Fin Auth Hlth Fac Rev Hays Med Ctr Inc Ser L....................................... 5.250 11/15/16 540,385 1,000 Shawnee Cnty, KS Sch Dist 501 Topeka............ 5.000 02/01/20 1,056,700 120 Wyandotte Cnty, KS City KS Univ Brd of Public Utility Office Bldg Complex Proj (MBIA Insd).... 5.000 05/01/11 127,033 ------------ 2,228,763 ------------ KENTUCKY 1.0% 1,000 Louisville & Jefferson Cnty, KY Ser C (AMT) (FSA Insd)........................................... 5.500 07/01/17 1,085,500 ------------ MARYLAND 3.1% 1,000 Baltimore, MD Convention Ctr Hotel Rev Ser A (XLCA Insd)..................................... 5.250 09/01/22 1,101,940 1,000 Maryland St Econ Dev Corp Student Hsg Rev Univ MD College Park Proj Rfdg (CIFG Insd)........... 5.000 06/01/13 1,077,230 625 Maryland St Econ Dev Corp Univ MD College Park Proj (Escrowed to Maturity)..................... 5.750 06/01/13 698,225 500 Prince Georges Cnty, MD Spl Oblig Natl Harbor Proj................................ 4.700 07/01/15 509,130 ------------ 3,386,525 ------------ MASSACHUSETTS 0.1% 85 Massachusetts St Indl Fin Agy Rev Gtr Lynn Mental Hlth (Escrowed to Maturity) (Acquired 06/24/1998, Cost $85,000) (d)................... 6.200 06/01/08 88,136 ------------ MICHIGAN 2.7% 1,000 Brighton, MI Area Sch Dist Rfdg (a)............. 5.250 05/01/18 1,082,870 1,000 Brighton, MI Area Sch Dist Rfdg................. 5.250 05/01/20 1,082,870 500 Kent Hosp Fin Auth MI Rev Met Hosp Proj Ser A... 5.000 07/01/09 511,060 250 Michigan St Strategic Fd Ltd Oblig United Waste Sys Proj (AMT).................................. 5.200 04/01/10 258,317 ------------ 2,935,117 ------------
16 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- MINNESOTA 0.4% $ 430 Inver Grove Heights, MN Presbyterian Homes Care Rfdg............................................ 5.000% 10/01/16 $ 429,329 25 Minneapolis, MN Multi-Family Rev Hsg Belmont Apts Proj (AMT) (a)............................. 7.000 11/01/06 25,004 ------------ 454,333 ------------ MISSOURI 8.5% 500 Carthage, MO Hosp Rev........................... 4.000 04/01/07 499,875 500 Fenton, MO Tax Increment Rev Gravois Bluffs Redev Proj Rfdg................................. 5.000 04/01/13 524,595 610 Ferguson, MO Tax Increment Rev Crossing at Halls Ferry Rfdg (a).................................. 5.500 04/01/14 626,781 1,350 Kansas City, MO Indl Dev Auth Plaza Lib Proj.... 6.000 03/01/16 1,405,202 1,000 Macon, MO Ctfs Partn (MBIA Insd)................ 5.250 08/01/17 1,039,300 830 Missouri St Dev Fin Brd Fac Rev Pub Safety Proj Ser A (a)....................................... 5.000 03/01/11 863,208 2,125 O' Fallon, MO Ctfs Partn (MBIA Insd) (a)........ 5.375 02/01/18 2,284,715 2,000 Saint Charles, MO Ctf Partn Ser B............... 5.500 05/01/18 2,113,440 ------------ 9,357,116 ------------ MONTANA 0.1% 110 Crow Fin Auth, MT Tribal Purp Rev (Acquired 12/11/1997, Cost $110,000) (d).................. 5.400 10/01/07 110,991 ------------ NEBRASKA 1.5% 1,500 University of NE Fac Corp Defd Maint (AMBAC Insd).................................... 5.000 07/15/17 1,638,795 ------------ NEW JERSEY 5.2% 1,400 Essex Cnty, NJ Impt Auth Lease Gtd Cnty Correctional Fac Proj (Prerefunded @ 10/01/10) (FGIC Insd)..................................... 5.750 10/01/30 1,514,870 400 New Jersey Econ Dev Auth First Mtg Winchester Ser A Rfdg...................................... 3.000 11/01/06 399,672 1,500 New Jersey Econ Dev Auth Rev Cigarette Tax...... 5.500 06/15/16 1,636,095 1,000 New Jersey Hlthcare Fac Fin Auth Rev St. Clare's Hosp Inc Ser A Rfdg (Radian Insd)............... 5.250 07/01/20 1,073,270 455 Rahway, NJ Ctfs Partn (MBIA Insd)............... 5.500 02/15/16 486,577 565 Rahway, NJ Ctfs Partn (MBIA Insd)............... 5.600 02/15/17 606,646 ------------ 5,717,130 ------------ NEW MEXICO 2.3% 1,000 Jicarilla, NM Apache Nation Rev Ser A (Acquired 10/23/2003, Cost $1,020,380) (d)................ 5.500 09/01/23 1,067,010 1,310 New Mexico Fin Auth Rev Sr Lien Pub Proj Revolving Fd Ser B (MBIA Insd).................. 5.000 06/01/17 1,431,411 ------------ 2,498,421 ------------
See Notes to Financial Statements 17 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- NEW YORK 4.0% $ 180 Brookhaven, NY Indl Dev Agy Sr Residential Hsg Rev Woodcrest Estates Fac Ser A (AMT)........... 5.875% 12/01/09 $ 183,627 1,000 Long Island Pwr Auth NY Elec Gen Ser C (Prerefunded @ 09/01/13)........................ 5.500 09/01/17 1,112,100 500 New York City Indl Dev Agy Rev Liberty 7 World Trade Ctr Ser A................................. 6.250 03/01/15 532,060 780 New York City Indl Dev Agy Spl Fac Rev Terminal One Group Assn Proj (AMT)....................... 5.000 01/01/10 805,951 300 New York City Ser A............................. 7.000 08/01/07 305,277 430 New York St Dorm Auth Rev Mt Sinai NYU Hlth Ser C............................................... 5.000 07/01/11 436,102 5 Niagara Falls, NY Pub Impt (MBIA Insd).......... 6.900 03/01/20 5,014 1,000 Tobacco Settlement Fin Corp NY Ser C-1.......... 5.250 06/01/13 1,026,260 ------------ 4,406,391 ------------ NORTH CAROLINA 1.6% 630 North Carolina Eastn Mun Pwr Agy Pwr Sys Rev Ser D............................................... 6.450 01/01/14 683,474 1,000 North Carolina Muni Pwr Agy Ser A (MBIA Insd)... 5.250 01/01/19 1,077,980 ------------ 1,761,454 ------------ OHIO 4.6% 500 Adams Cnty Hosp Fac Impt Rev Adams Cnty Hosp Proj............................................ 6.250 09/01/20 512,675 500 Athens Cnty, OH Hosp Fac Rev & Impt O' Bleness Mem Ser A Rfdg.................................. 6.250 11/15/13 525,465 1,370 Cleveland, OH Non Tax Rev Cleveland Stadium Proj Rfdg (AMBAC Insd)............................... 5.125 12/01/20 1,476,161 500 Dayton, OH Spl Fac Rev Afco Cargo Day LLC Proj (AMT)........................................... 6.000 04/01/09 503,685 750 Ohio Mun Elec Generation Agy Jt Venture 5 Ctfs Ben Int Rfdg (AMBAC Insd)....................... 5.000 02/15/21 794,768 1,160 Sugarcreek, OH Loc Sch Dist Sch Impt & Rfdg (MBIA Insd) (a)................................. 5.250 12/01/18 1,265,050 ------------ 5,077,804 ------------ OREGON 3.5% 2,575 Emerald Peoples Util Dist OR Ser A Rfdg (FSA Insd) (a).................................. 5.250 11/01/16 2,820,114 1,000 Port Morrow, OR Pollutn Ctl Portland Gen Ser A Rfdg (Mandatory Put @ 05/01/09)................. 5.200 05/01/33 1,026,150 ------------ 3,846,264 ------------ PENNSYLVANIA 9.2% 500 Allegheny Cnty, PA Indl Dev Auth Lease Rev Residential Res Inc Proj........................ 5.000 09/01/21 513,365 250 Allegheny Cnty, PA Redev Auth Rev Pittsburgh Mills Proj...................................... 5.100 07/01/14 257,780
18 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- PENNSYLVANIA (CONTINUED) $1,120 Canon McMillan Sch Dist PA Ser A Rfdg (MBIA Insd)..................................... 5.000% 12/15/15 $ 1,211,358 500 Montgomery Cnty, PA Indl Dev Auth Rev Mtg Whitemarsh Cont Care Proj....................... 6.000 02/01/21 531,960 950 Philadelphia, PA Gas Wks Rev Eighteenth Ser (AGL Insd)........................................... 5.250 08/01/18 1,029,781 900 Philadelphia, PA Gas Wks Rev Third Ser (FSA Insd)...................................... 5.000 08/01/10 944,199 2,000 Philadelphia, PA Redev Auth Rev Neighborhood Trans Ser A (FGIC Insd)......................... 5.500 04/15/16 2,184,160 1,090 Wilson, PA Area Sch Dist (FGIC Insd)............ 5.125 03/15/17 1,167,281 2,070 York Cnty, PA Sch Technology (FGIC Insd)........ 5.375 02/15/16 2,266,526 ------------ 10,106,410 ------------ SOUTH CAROLINA 3.0% 1,020 Berkeley Cnty, SC Impt & Rfdg (FSA Insd)........ 5.000 09/01/17 1,093,532 1,000 Kershaw Cnty, SC Pub Sch Fndtn Installment Pwr Rev Kershaw Cnty Sch Dist Proj (CIFG Insd)...... 5.000 12/01/22 1,067,750 1,065 Lexington, SC Wtr & Swr Rev & Impt Comb Ser A Rfdg (MBIA Insd) (a)............................ 5.000 04/01/14 1,119,848 ------------ 3,281,130 ------------ SOUTH DAKOTA 1.5% 1,515 Minnehaha Cnty, SD Ctfs Ltd Tax (FSA Insd)...... 5.000 12/01/18 1,624,671 ------------ TENNESSEE 2.3% 455 Chattanooga, TN Hlth Edl Hsg Fac CDFI Phase I LLC Proj Ser A Rfdg............................. 5.000 10/01/15 468,463 700 Franklin, TN Spl Sch Dist Cap Apprec (FSA Insd)........................................... * 06/01/15 497,868 1,000 Gatlinburg, TN Pub Bldg Auth Rfdg (AMBAC Insd)........................................... 5.750 12/01/11 1,100,480 500 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev Trezevant Manor Proj Ser A...................... 5.250 09/01/16 501,245 ------------ 2,568,056 ------------ TEXAS 3.8% 1,000 Alliance Arpt Auth Inc TX Spl Fac Rev Fedex Corp Proj Rfdg (AMT)................................. 4.850 04/01/21 1,011,080 395 Brazos Riv Auth TX Pollutn Ctl Rev Adj TXU Elec Co Proj Ser C Rfdg (AMT) (Mandatory Put @ 11/01/11)....................................... 5.750 05/01/36 420,134 500 Hidalgo Cnty, TX Hlth Svcs Mission Hosp Inc Proj............................................ 5.000 08/15/13 515,905 350 Hidalgo Cnty, TX Hlth Svcs Mission Hosp Inc Proj............................................ 5.000 08/15/19 356,794 1,000 Lower Colorado Riv Auth TX LCRA Svcs Corp Proj Rfdg (FGIC Insd)................................ 5.000 05/15/17 1,048,060 500 Mesquite, TX Hlth Fac Dev Retirement Christian Care............................................ 5.000 02/15/15 514,835 250 San Antonio, TX Hsg Fin Corp Multi-Family Hsg Rev Beverly Oaks Apt Proj Ser A (a)............. 7.500 02/01/10 258,203 ------------ 4,125,011 ------------
See Notes to Financial Statements 19 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - ------------------------------------------------------------------------------------------- VIRGINIA 0.9% $1,000 Tobacco Settlement Fin Corp VA Asset Bkd........ 5.250% 06/01/19 $ 1,039,100 ------------ WASHINGTON 1.5% 1,000 Klickitat Cnty, WA Pub Util Dist No 001 Elec Rev Ser B Rfdg (FGIC Insd).......................... 5.250 12/01/22 1,101,370 510 Skagit Cnty, WA Pub Hosp Dist No 001 Skagit Vly Hosp............................................ 5.250 12/01/10 528,824 ------------ 1,630,194 ------------ WEST VIRGINIA 1.4% 1,500 West Virginia St Hosp Fin Auth (MBIA Insd)...... 6.100 01/01/18 1,523,925 ------------ WISCONSIN 0.5% 500 Wisconsin St Hlth & Edl Fac Beaver Dam Cmnty Hosp Inc........................................ 5.500 08/15/14 506,070 ------------ TOTAL LONG-TERM INVESTMENTS 96.9% (Cost $103,383,710)....................................................... 106,268,271 SHORT-TERM INVESTMENTS 3.2% (Cost $3,500,000)......................................................... 3,500,000 ------------ TOTAL INVESTMENTS 100.1% (Cost $106,883,710)....................................................... 109,768,271 LIABILITIES IN EXCESS OF OTHER ASSETS (0.1%)............................... (102,657) ------------ NET ASSETS 100.0%.......................................................... $109,665,614 ============
Percentages are calculated as a percentage of net assets. * Zero coupon bond (a) The Fund owns 100% of the outstanding 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) 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 1.2% of net assets. 20 See Notes to Financial Statements VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued AGL--Assured Guaranty Ltd. AMBAC--AMBAC Indemnity Corp. AMT--Alternative Minimum Tax CIFG--CDC IXIS Financial Guaranty FGIC--Financial Guaranty Insurance Co. 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, 2006:
UNREALIZED APPRECIATION/ CONTRACTS DEPRECIATION Short Contracts: U.S. Treasury Notes 10-Year Futures December 2006 (Current Notional Value of $108,063 per contract)....... 45 $(44,110) == ========
See Notes to Financial Statements 21 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities September 30, 2006 ASSETS: Total Investments (Cost $106,883,710)....................... $109,768,271 Cash........................................................ 78,447 Receivables: Interest.................................................. 1,443,558 Investments Sold.......................................... 399,800 Fund Shares Sold.......................................... 51,806 Variation Margin on Futures............................... 4,219 Other....................................................... 145,684 ------------ Total Assets............................................ 111,891,785 ------------ LIABILITIES: Payables: Investments Purchased..................................... 1,536,514 Fund Shares Repurchased................................... 266,950 Income Distributions...................................... 78,742 Investment Advisory Fee................................... 36,119 Distributor and Affiliates................................ 11,861 Trustees' Deferred Compensation and Retirement Plans........ 210,514 Accrued Expenses............................................ 85,471 ------------ Total Liabilities....................................... 2,226,171 ------------ NET ASSETS.................................................. $109,665,614 ============ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $106,620,829 Net Unrealized Appreciation................................. 2,840,451 Accumulated Undistributed Net Investment Income............. 202,213 Accumulated Net Realized Gain............................... 2,121 ------------ NET ASSETS.................................................. $109,665,614 ============ MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $79,420,062 and 7,438,655 shares of beneficial interest issued and outstanding)............. $ 10.68 Maximum sales charge (4.75%* of offering price)......... .53 ------------ Maximum offering price to public........................ $ 11.21 ============ Class B Shares: Net asset value and offering price per share (Based on net assets of $14,630,634 and 1,352,722 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 $14,714,274 and 1,379,878 shares of beneficial interest issued and outstanding)............. $ 10.66 ============ Class I Shares: Net asset value and offering price per share (Based on net assets of $900,644 and 84,391 shares of beneficial interest issued and outstanding)........................ $ 10.67 ============
* 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, 2006 INVESTMENT INCOME: Interest.................................................... $5,093,462 ---------- EXPENSES: Investment Advisory Fee..................................... 572,894 Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $206,751, $5,445 and $158,967 respectively)............................................. 371,163 Accounting.................................................. 71,740 Shareholder Services........................................ 62,107 Trustees' Fees and Related Expenses......................... 37,647 Legal....................................................... 36,663 Custody..................................................... 18,602 Other....................................................... 163,015 ---------- Total Expenses.......................................... 1,333,831 Investment Advisory Fee Reduction....................... 114,579 Less Credits Earned on Cash Balances.................... 3,624 ---------- Net Expenses............................................ 1,215,628 ---------- NET INVESTMENT INCOME....................................... $3,877,834 ========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 4,857 Futures................................................... 223,920 ---------- Net Realized Gain........................................... 228,777 ---------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 2,795,009 ---------- End of the Period: Investments............................................. 2,884,561 Futures................................................. (44,110) ---------- 2,840,451 ---------- Net Unrealized Appreciation During the Period............... 45,442 ---------- NET REALIZED AND UNREALIZED GAIN............................ $ 274,219 ========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $4,152,053 ==========
See Notes to Financial Statements 23 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ---------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.............................. $ 3,877,834 $ 3,992,236 Net Realized Gain.................................. 228,777 411,603 Net Unrealized Appreciation/Depreciation During the Period........................................... 45,442 (541,868) ------------ ------------ Change in Net Assets from Operations............... 4,152,053 3,861,971 ------------ ------------ Distributions from Net Investment Income: Class A Shares................................... (2,855,993) (2,950,100) Class B Shares................................... (553,231) (500,423) Class C Shares................................... (430,486) (447,551) Class I Shares................................... (22,966) (2,786) ------------ ------------ (3,862,676) (3,900,860) ------------ ------------ Distributions from Net Realized Gain: Class A Shares................................... (390,380) (111,173) Class B Shares................................... (76,687) (25,082) Class C Shares................................... (80,238) (21,027) Class I Shares................................... (2,627) -0- ------------ ------------ (549,932) (157,282) ------------ ------------ Total Distributions................................ (4,412,608) (4,058,142) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....................................... (260,555) (196,171) ------------ ------------ FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold.......................... 23,378,784 35,234,147 Net Asset Value of Shares Issued Through Dividend Reinvestment..................................... 3,272,076 2,853,082 Cost of Shares Repurchased......................... (38,938,362) (30,577,511) ------------ ------------ NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..................................... (12,287,502) 7,509,718 ------------ ------------ TOTAL INCREASE/DECREASE IN NET ASSETS.............. (12,548,057) 7,313,547 NET ASSETS: Beginning of the Period............................ 122,213,671 114,900,124 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $202,213 and $192,750, respectively)...................... $109,665,614 $122,213,671 ============ ============
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.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ---------------------------------------------- 2006 2005 2004 2003 2002 ---------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD..... $10.69 $10.72 $10.76 $10.86 $10.42 ------ ------ ------ ------ ------ Net Investment Income...................... .37(a) .36 .37 .38 .42 Net Realized and Unrealized Gain/Loss...... .04 (.01) .04 (.03) .44 ------ ------ ------ ------ ------ Total from Investment Operations............. .41 .35 .41 .35 .86 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .37 .37 .37 .40 .42 Distributions from Net Realized Gain....... .05 .01 .08 .05 -0- ------ ------ ------ ------ ------ Total Distributions.......................... .42 .38 .45 .45 .42 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $10.68 $10.69 $10.72 $10.76 $10.86 ====== ====== ====== ====== ====== Total Return* (b)............................ 3.91% 3.31% 3.84% 3.33% 8.48% Net Assets at End of the Period (In millions).................................. $ 79.4 $ 88.2 $ 76.5 $ 70.1 $ 53.5 Ratio of Expenses to Average Net Assets*..... .99% .99% .93% .84% .85% Ratio of Net Investment Income to Average Net Assets*.................................... 3.46% 3.32% 3.50% 3.55% 4.08% Portfolio Turnover........................... 21% 34% 60% 35% 75% * 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% 1.09% 1.03% 1.04% 1.14% Ratio of Net Investment Income to Average Net Assets.............................. 3.36% 3.22% 3.40% 3.35% 3.79%
(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 or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months of purchase. If the sales charges were included, total returns would be lower. These returns include combined Rule 12b-1 fees and service fees of up to .25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. See Notes to Financial Statements 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.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ------------------------------------------------------ 2006 2005 2004 2003 2002 ------------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD.................................. $10.82 $10.75 $10.78 $10.84 $10.41 ------ ------ ------ ------ ------ Net Investment Income................... .39(a) .40 .30 .32 .35 Net Realized and Unrealized Gain/Loss... .04 (.03) .04 (.01) .42 ------ ------ ------ ------ ------ Total from Investment Operations.......... .43 .37 .34 .31 .77 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income................................ .38 .29 .29 .32 .34 Distributions from Net Realized Gain.... .05 .01 .08 .05 -0- ------ ------ ------ ------ ------ Total Distributions....................... .43 .30 .37 .37 .34 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........ $10.82 $10.82 $10.75 $10.78 $10.84 ====== ====== ====== ====== ====== Total Return* (b)......................... 4.13%(d) 3.47%(d) 3.15%(d) 2.96%(c) 7.61% Net Assets at End of the Period (In millions)............................... $ 14.6 $ 16.9 $ 20.3 $ 23.9 $ 17.1 Ratio of Expenses to Average Net Assets*................................. .78%(d) .82%(d) 1.67%(d) 1.59% 1.60% Ratio of Net Investment Income to Average Net Assets*............................. 3.67%(d) 3.51%(d) 2.76%(d) 3.08%(c) 3.34% Portfolio Turnover........................ 21% 34% 60% 35% 75% * 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............................... .88%(d) .92%(d) 1.77%(d) 1.79% 1.89% Ratio of Net Investment Income to Average Net Assets................... 3.57%(d) 3.41%(d) 2.66%(d) 2.88%(c) 3.05%
(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 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. (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.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ------------------------------------------------------ 2006 2005 2004 2003 2002 ------------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD.................................. $10.68 $10.70 $10.73 $10.82 $10.40 ------ ------ ------ ------ ------ Net Investment Income................... .29(a) .29 .30 .30 .34 Net Realized and Unrealized Gain/Loss... .03 (.01) .04 (.02) .42 ------ ------ ------ ------ ------ Total from Investment Operations.......... .32 .28 .34 .28 .76 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income................................ .29 .29 .29 .32 .34 Distributions from Net Realized Gain.... .05 .01 .08 .05 -0- ------ ------ ------ ------ ------ Total Distributions....................... .34 .30 .37 .37 .34 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........ $10.66 $10.68 $10.70 $10.73 $10.82 ====== ====== ====== ====== ====== Total Return* (b)......................... 3.04% 2.64%(d) 3.17%(d) 2.69%(c) 7.52% Net Assets at End of the Period (In millions)............................... $ 14.7 $ 16.5 $ 18.1 $ 21.4 $ 13.2 Ratio of Expenses to Average Net Assets*................................. 1.74% 1.64%(d) 1.66%(d) 1.59% 1.60% Ratio of Net Investment Income to Average Net Assets *............................ 2.71% 2.69%(d) 2.77%(d) 2.84%(c) 3.33% Portfolio Turnover........................ 21% 34% 60% 35% 75% * If certain expenses had not been voluntarily assumed by Van Kampen, total return would have been lower and the ratios would have been as follows: Ratio of Expenses to Average Net Assets............................... 1.84% 1.74%(d) 1.76%(d) 1.79% 1.89% Ratio of Net Investment Income to Average Net Assets................... 2.61% 2.59%(d) 2.67%(d) 2.64%(c) 3.04%
(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) 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 PERIODS INDICATED.
AUGUST 12, 2005 YEAR ENDED (COMMENCEMENT CLASS I SHARES SEPTEMBER 30, OF OPERATIONS) 2006 TO SEPTEMBER 30, 2005 -------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD............... $10.69 $10.70 ------ ------ Net Investment Income................................ .39(a) .05 Net Realized and Unrealized Gain/Loss................ .03 (.01) ------ ------ Total from Investment Operations....................... .42 .04 ------ ------ Less: Distributions from Net Investment Income............. .39 .05 Distributions from Net Realized Gain................. .05 -0- ------ ------ Total Distributions.................................... .44 .05 ------ ------ NET ASSET VALUE, END OF THE PERIOD..................... $10.67 $10.69 ====== ====== Total Return* (b)...................................... 4.08% 0.38%** Net Assets at End of the Period (In millions).......... $ .9 $ .6 Ratio of Expenses to Average Net Assets................ .72% .77% Ratio of Net Investment Income to Average Net Assets... 3.73% 3.59% Portfolio Turnover..................................... 21% 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............. .82% .87% Ratio of Net Investment Income to Average Net Assets............................................ 3.63% 3.49%
** Non-Annualized (a) Based on average shares outstanding. (b) 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, 2006 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, 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. The Fund offers Class A Shares, Class B Shares, Class C Shares and Class I Shares. Each class of shares differs by its initial sales load, contingent deferred sales charges, the allocation of class specific expenses and voting rights on matters affecting a single class. 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, 2006, the Fund has $1,536,514 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, 2006 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, 2006, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $106,867,796 ============ Gross tax unrealized appreciation........................... $ 2,911,616 Gross tax unrealized depreciation........................... (11,141) ------------ Net tax unrealized appreciation on investments.............. $ 2,900,475 ============
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 at least annually. Distributions from net realized gains for book purposes may include short term capital gains and gains on futures transactions. All short-term capital gains and a portion of futures gains are included in ordinary income for tax purposes. The tax character of distributions paid during the years ended September 30, 2006 and 2005 was as follows:
2006 2005 Distributions paid from: Ordinary income........................................... $ 467,011 $ 157,902 Tax-exempt income......................................... 3,880,983 3,880,918 Long-term capital gain.................................... 84,585 -- ---------- ---------- $4,432,579 $4,038,820 ========== ==========
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 2006 fiscal year have been identified and appropriately reclassified on the Statement of Assets and Liabilities. Permanent book and tax differences of $4,607 related to the Fund's investments in other regulated investment companies have been reclassified from accumulated undistributed net investment income to accumulated net realized gain. Additionally, a permanent difference of $1,088 related to book to tax amortization difference was reclassified from accumulated undistributed net investment income to accumulated net realized gain. As of September 30, 2006, the components of distributable earnings on a tax basis were as follows: Undistributed tax-exempt income............................. $459,602
Net realized gains or losses may differ for financial reporting and tax purposes primarily as a result of post October losses which are not realized for tax purposes until the first day of the following fiscal year and gains or losses recognized for tax purposes on open futures transactions at September 30, 2006. 30 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued F. EXPENSE REDUCTIONS During the year ended September 30, 2006, the Fund's custody fee was reduced by $3,624 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:
AVERAGE DAILY NET ASSETS % PER ANNUM First $500 million.......................................... .50% Over $500 million........................................... .45%
For the year ended September 30, 2006, the Adviser waived $114,579 of its investment advisory fee. This represents .10% of the Fund's 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, 2006, the Fund recognized expenses of approximately $3,300 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, 2006, the Fund recognized expenses of approximately $61,900 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, 2006, the Fund recognized expenses of approximately $53,200 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 approximately $124,000 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2006. 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 31 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 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. For the year ended September 30, 2006, Van Kampen, as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $34,800 and contingent deferred sales charge (CDSC) on redeemed shares of approximately $29,300. Sales charges do not represent expenses of the Fund. 3. CAPITAL TRANSACTIONS For the years ended September 30, 2006 and 2005, transactions were as follows:
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 -------------------------- -------------------------- SHARES VALUE SHARES VALUE Sales: Class A........................... 1,797,066 $ 19,041,928 2,799,376 $ 30,055,073 Class B........................... 122,999 1,315,764 164,518 1,783,449 Class C........................... 243,523 2,575,766 261,414 2,801,679 Class I........................... 42,334 445,326 55,508 593,946 ---------- ------------ ---------- ------------ Total Sales......................... 2,205,922 $ 23,378,784 3,280,816 $ 35,234,147 ========== ============ ========== ============ Dividend Reinvestment: Class A........................... 242,302 $ 2,565,280 209,871 $ 2,252,182 Class B........................... 35,247 377,806 29,127 315,068 Class C........................... 28,688 303,396 26,416 283,046 Class I........................... 2,418 25,594 260 2,786 ---------- ------------ ---------- ------------ Total Dividend Reinvestment......... 308,655 $ 3,272,076 265,674 $ 2,853,082 ========== ============ ========== ============ Repurchases: Class A........................... (2,853,781) $(30,222,471) (1,888,033) $(20,267,308) Class B........................... (367,467) (3,939,234) (524,704) (5,674,515) Class C........................... (436,595) (4,611,782) (432,719) (4,629,779) Class I........................... (15,578) (164,875) (551) (5,909) ---------- ------------ ---------- ------------ Total Repurchases................... (3,673,421) $(38,938,362) (2,846,007) $(30,577,511) ========== ============ ========== ============
4. REDEMPTION FEE 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, 2006, the fund received redemption fees of $14, which are reported as part of "Cost of Shares Repurchased" on the Statement of Changes in Net Assets. The per share impact from redemption fees paid to the Fund was less than $0.01. 5. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $23,204,650 and $36,254,665 respectively. 32 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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 may use derivative instruments for a variety of reasons, 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 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. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contracts. During the period, the Fund invested in futures contracts, a type of derivative. A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in exchange traded futures on U.S. Treasury Securities 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, 2006, were as follows:
CONTRACTS Outstanding at September 30, 2005........................... 161 Futures Opened.............................................. 398 Futures Closed.............................................. (514) ---- Outstanding at September 30, 2006........................... 45 ====
7. DISTRIBUTION AND SERVICE PLANS Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"), an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively, the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate the Distributor for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees 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. These fees are accrued daily and paid to the Distributor monthly. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed receivable") was approximately $0 and $2,500 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, the distribution fee is reduced. 33 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 8. LEGAL MATTERS The Adviser and certain affiliates of the Adviser are named as defendants in a derivative action 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 Van Kampen 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 derivative action was coordinated with a direct action alleging related violations of defendants' statutory disclosure obligations and fiduciary duties with respect to the payments described above. In addition, this derivative action was stayed by agreement of the parties pending rulings on the motion to dismiss the direct action and the motion to dismiss another derivative action brought by the same plaintiff that brought this derivative action, alleging market timing and late trading in the Van Kampen funds. In April 2006, the court granted defendants' motion to dismiss the direct action. In June 2006, the court granted defendants' motion to dismiss the market timing action. Accordingly, the stay on this action was lifted. Plaintiff and defendants have agreed that this action should be dismissed in light of the rulings dismissing the two cases discussed above. The Court has approved a notice to shareholders regarding the dismissal, which is located at the back of this Report. 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. 10. ACCOUNTING PRONOUNCEMENTS In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The impact to the Fund's financial statements, if any, is currently being assessed. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures. 34 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, 2006, 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, 2006, 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, 2006, 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 14, 2006 35 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 DENNIS SHEA Vice President J. DAVID GERMANY Vice President AMY R. DOBERMAN Vice President STEFANIE V. CHANG Vice President and Secretary JOHN L. SULLIVAN Chief Compliance Officer JAMES W. GARRETT 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 One Lincoln Street Boston, Massachusetts 02111 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, 2006. The Fund designated 99.9% of the income distributions as a tax-exempt income distribution. The Fund designated and paid $84,585 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. 36 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND TRUSTEE AND OFFICER 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, the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange Corp. and 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:
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 (61) Trustee Trustee Chairman and Chief 71 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 (68) Trustee Trustee Prior to January 1999, 71 Trustee/Director/Managing 33971 Selva Road since 1999 Chairman and Chief General Partner of funds Suite 130 Executive Officer of the in the Fund Complex. Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a ("Allstate") and Allstate biotechnological company, Insurance Company. Prior and Director of Valero to January 1995, Energy Corporation, an President and Chief independent refining Executive Officer of company. Allstate. Prior to August 1994, various management positions at Allstate.
37
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (66) Trustee Trustee President of CAC, L.L.C., 71 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 Quidel San Diego, CA 92122-6223 advisory services. Prior Corporation, Stericycle, to February 2001, Vice Inc., Ventana Medical Chairman and Director of Systems, Inc., and GATX Anixter International, Corporation, and Trustee Inc., a global of The Scripps Research distributor of wire, Institute. Prior to cable and communications January 2005, Trustee of connectivity products. the University of Chicago Prior to July 2000, Hospitals and Health Managing Partner of Systems. Prior to April Equity Group Corporate 2004, Director of Investment (EGI), a TheraSense, Inc. Prior to company that makes January 2004, Director of private investments in TeleTech Holdings Inc. other companies. and Arris Group, Inc. 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).
38
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (58) Trustee Trustee Managing Partner of 71 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 (54) Trustee Trustee Director and President of 71 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 (71) Trustee Trustee Prior to 1998, President 71 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.
39
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (70) Trustee Trustee President of Nelson 71 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 (66) Trustee Trustee President Emeritus and 71 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 71 Trustee/Director/Managing (64) since 1999 Officer of the National General Partner of funds 815 Cumberstone Road Academy of in the Fund Complex. Harwood, MD 20776 Sciences/National Director of Fluor Corp., Research Council, an an engineering, independent, federally procurement and chartered policy construction institution, from 2001 to organization, since November 2003 and Chief January 2004 and Director Operating Officer from of Neurogen Corporation, 1993 to 2001. Director of a pharmaceutical company, the Institute for Defense since January 1998. Analyses, a federally funded research and development center, Director of the German Marshall Fund of the United States, Director of the Rocky Mountain Institute and Trustee of Colorado College. Prior to 1993, Executive Director of the Commission on Behavioral and Social Sciences and Education at the National Academy of Sciences/National Research Council. From 1980 through 1989, Partner of Coopers & Lybrand.
40 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued INTERESTED TRUSTEE:*
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 Wayne W. Whalen* (67) Trustee Trustee Partner in the law firm 71 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.
* 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. 41 VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (67) 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 Van Kampen Advisors Inc. since June 2003. Director of Investor Services since September 2002. Director of the Adviser, Van Kampen Investments and Van Kampen Exchange Corp. since January 2005. 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. Dennis Shea (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 1221 Avenue of the Americas since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser New York, NY 10020 and Van Kampen Advisors Inc. Chief Investment Officer-Global Equity of the same entities since February 2006. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006. Previously, Managing Director and Director of Global Equity Research at Morgan Stanley from April 2000 to February 2006. J. David Germany (52) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 25 Cabot Square since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser Canary Wharf and Van Kampen Advisors Inc. Chief Investment Officer - London, GBR E14 4QA Global Fixed Income of the same entities since December 2005. Managing Director and Director of Morgan Stanley Investment Management Ltd. Director of Morgan Stanley Investment Management (ACD) Limited since December 2003. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006.
42
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND TRUSTEE AND OFFICER INFORMATION continued TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Amy R. Doberman (44) 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 Advisors 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 (40) 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. John L. Sullivan (51) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since 1 Parkview Plaza Officer since 2003 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. James W. Garrett (37) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas and Treasurer since 2006 Chief Financial Officer and Treasurer of Morgan Stanley New York, NY 10020 Institutional Funds since 2002 and of Funds in the Fund Complex from January 2005 to August 2005 and since September 2006.
43 Notice to Fund Shareholders As previously disclosed, a derivative action was filed on behalf of the Fund against the Fund's investment adviser, broker-dealer, distributor, and Trustees. The complaint alleges that defendants violated federal securities laws and state laws in connection with certain economic incentive programs. The case is pending before the Honorable Richard Owen, United States District Judge in the Southern District of New York. Defendants have filed a motion to dismiss the complaint in its entirety on numerous grounds, and that motion is still pending. On April 18, 2006, Judge Owen dismissed a separate lawsuit against Morgan Stanley and all of the same corporate defendants that are named in the derivative action. The Morgan Stanley suit related to the same incentive programs that are at issue in the derivative action, and asserted many of the same legal claims. In his decision, Judge Owen found that the programs do not violate federal law, and that defendants had made the appropriate disclosures concerning the programs. The plaintiffs in the Morgan Stanley suit did not appeal from the decision, and that decision is now final. In light of this decision by Judge Owen -- as well as several other decisions by other judges in the Southern District of New York and certain other courts that have dismissed similar complaints against other investment funds -- plaintiff in the derivative action has determined that the suit would be unsuccessful, if pursued further. Accordingly, plaintiff has asked Judge Owen to dismiss the action. No attorneys' fees will be paid by defendants and no consideration will be paid to the named plaintiff. All investors in the Fund are hereby provided notice of this proposed dismissal. If you object to the proposed dismissal, your objection must be mailed no later than December 29, 2006, in writing, to the Honorable Richard Owen, United States District Judge, United States Courthouse, Room 640, 500 Pearl Street, New York, NY 10007-1312. Copies of the objection must also be mailed to Denise Davis Schwartzman, Esquire, Chimicles & Tikellis LLP, 361 West Lancaster Avenue, Haverford, PA 19041; and Richard A. Rosen, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, NY 10019-6064. 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)2006 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 138, 338, 538 INF ANR 11/06 (VAN KAMPEN INVESTMENTS LOGO) RN06-03168P-Y09/06 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, 2006. THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CLASS A, B, AND C SHARE PROSPECTUS FOR THE FUND BEING OFFERED. THE PROSPECTUSES CONTAIN INFORMATION ABOUT THE FUND, INCLUDING THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES. TO OBTAIN AN ADDITIONAL PROSPECTUS, CONTACT YOUR FINANCIAL ADVISOR OR DOWNLOAD ONE AT VANKAMPEN.COM. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE IS NO ASSURANCE THAT A MUTUAL FUND WILL ACHIEVE ITS INVESTMENT OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND THAT THE VALUE OF FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND. INCOME MAY SUBJECT CERTAIN INDIVIDUALS TO THE FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
--------------------------------------------------------------------------------------- NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE --------------------------------------------------------------------------------------- NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT ---------------------------------------------------------------------------------------
Performance Summary as of 9/30/06 PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Municipal Bond Index and the Lehman Brothers New York Municipal Bond Index from 9/30/96 through 9/30/06. Class A shares, adjusted for sales charges. (LINE GRAPH)
VAN KAMPEN NEW YORK TAX LEHMAN BROTHERS NEW YORK LEHMAN BROTHERS MUNICIPAL FREE INCOME FUND MUNICIPAL BOND INDEX BOND INDEX ----------------------- ------------------------ ------------------------- 9/96 9522.00 10000.00 10000.00 9656.00 10112.00 10113.00 9848.00 10302.00 10298.00 9806.00 10258.00 10255.00 9811.00 10276.00 10274.00 9920.00 10373.00 10369.00 9825.00 10239.00 10230.00 9896.00 10336.00 10316.00 10047.00 10512.00 10471.00 10172.00 10628.00 10583.00 10525.00 10938.00 10876.00 10395.00 10831.00 10774.00 9/97 10528.00 10960.00 10902.00 10607.00 11034.00 10972.00 10666.00 11099.00 11037.00 10878.00 11267.00 11197.00 11006.00 11386.00 11313.00 11032.00 11394.00 11316.00 11048.00 11417.00 11326.00 10976.00 11345.00 11275.00 11198.00 11551.00 11454.00 11253.00 11604.00 11499.00 11278.00 11628.00 11528.00 11504.00 11814.00 11706.00 9/98 11652.00 11960.00 11852.00 11613.00 11969.00 11851.00 11640.00 12009.00 11893.00 11693.00 12042.00 11923.00 11822.00 12191.00 12065.00 11768.00 12139.00 12012.00 11788.00 12151.00 12029.00 11837.00 12184.00 12059.00 11753.00 12114.00 11989.00 11556.00 11936.00 11816.00 11576.00 11977.00 11859.00 11415.00 11892.00 11764.00 9/99 11348.00 11891.00 11769.00 11136.00 11753.00 11642.00 11266.00 11890.00 11765.00 11121.00 11798.00 11678.00 11022.00 11746.00 11627.00 11162.00 11894.00 11762.00 11426.00 12156.00 12019.00 11357.00 12078.00 11948.00 11264.00 12020.00 11886.00 11579.00 12345.00 12201.00 11785.00 12506.00 12371.00 11992.00 12693.00 12561.00 9/00 11905.00 12633.00 12496.00 12034.00 12774.00 12632.00 12123.00 12878.00 12728.00 12494.00 13214.00 13042.00 12583.00 13336.00 13172.00 12617.00 13371.00 13213.00 12759.00 13507.00 13332.00 12599.00 13403.00 13187.00 12750.00 13539.00 13329.00 12877.00 13618.00 13418.00 13080.00 13810.00 13617.00 13350.00 14030.00 13842.00 9/01 13211.00 13922.00 13795.00 13324.00 14079.00 13959.00 13201.00 13974.00 13842.00 13053.00 13854.00 13711.00 13294.00 14101.00 13949.00 13507.00 14284.00 14117.00 13225.00 14023.00 13840.00 13509.00 14288.00 14111.00 13577.00 14351.00 14196.00 13725.00 14501.00 14346.00 13933.00 14682.00 14531.00 14134.00 14868.00 14705.00 9/02 14484.00 15189.00 15028.00 14185.00 14953.00 14778.00 14123.00 14871.00 14717.00 14433.00 15193.00 15028.00 14335.00 15160.00 14990.00 14576.00 15364.00 15199.00 14582.00 15380.00 15208.00 14731.00 15477.00 15309.00 15098.00 15826.00 15667.00 14982.00 15763.00 15601.00 14431.00 15230.00 15055.00 14623.00 15353.00 15167.00 9/03 15018.00 15795.00 15613.00 14983.00 15722.00 15534.00 15178.00 15883.00 15696.00 15299.00 15998.00 15826.00 15310.00 16088.00 15917.00 15628.00 16322.00 16156.00 15471.00 16260.00 16100.00 15137.00 15892.00 15719.00 15120.00 15833.00 15662.00 15179.00 15882.00 15719.00 15397.00 16092.00 15926.00 15702.00 16404.00 16245.00 9/04 15789.00 16493.00 16331.00 15905.00 16632.00 16472.00 15716.00 16493.00 16336.00 15948.00 16683.00 16535.00 16122.00 16829.00 16690.00 16057.00 16782.00 16634.00 15894.00 16673.00 16529.00 16177.00 16921.00 16790.00 16325.00 17037.00 16909.00 16456.00 17140.00 17013.00 16400.00 17059.00 16937.00 16571.00 17226.00 17108.00 9/05 16466.00 17110.00 16992.00 16371.00 17014.00 16889.00 16394.00 17085.00 16970.00 16568.00 17235.00 17116.00 16632.00 17278.00 17162.00 16809.00 17403.00 17278.00 16690.00 17286.00 17158.00 16663.00 17280.00 17153.00 16749.00 17356.00 17229.00 16701.00 17288.00 17164.00 16895.00 17492.00 17368.00 17151.00 17738.00 17626.00 9/06 17283.00 17859.00 17749.00
A SHARES B SHARES C SHARES since 7/29/94 since 7/29/94 since 7/29/94 - ------------------------------------------------------------------------------------------------------ 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 6.33% 5.91% 5.81% 5.81% 5.69% 5.69% 10-year 6.14 5.62 5.51 5.51 5.36 5.36 5-year 5.52 4.49 4.72 4.47 4.72 4.72 1-year 4.96 -0.02 4.18 0.23 4.14 3.15 - ------------------------------------------------------------------------------------------------------ 30-Day SEC Subsidized Yield 3.45% 2.87% 2.87% - ------------------------------------------------------------------------------------------------------ 30-Day SEC Yield 3.21% 2.62% 2.62%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS 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 eight 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. Figures shown above assume reinvestment of all dividends and capital gains. The fund's adviser has waived or reimbursed fees and expenses from time to time; absent such waivers/reimbursements the fund's returns would have been lower. SEC yield is a calculation for determining the amount of portfolio income, excluding non-income items as prescribed by the SEC. The 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 Lehman Brothers NY Municipal Bond Index tracks the performance of NY issued municipal bonds rated at least Baa or BBB by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively and with maturities of 2 years or greater. Indexes do not include any expenses, fees or sales charges, which would lower performance. Indexes are unmanaged and should not be considered an investment. It is not possible to invest directly in an index. Source for index performance: Lipper, Inc. 1 Fund Report FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2006 MARKET CONDITIONS Against the backdrop of strong economic growth, good employment data and inflationary pressures stemming from rising oil prices, the Federal Open Market Committee (the "Fed") continued its tightening campaign during the first nine months of the reporting period, raising the federal funds target rate six times to 5.25 percent at the end of June. As the months progressed however, economic growth moderated as consumer spending and housing weakened while inflation concerns eased, prompting investors to speculate that the Fed would take a break from rate increases. In August the Fed did pause, ending a two-year run of 17 consecutive rate increases--the longest stretch of increases in 25 years. At its September meeting, the Fed again kept its target rate unchanged, and indicated that any future rate increases would be driven by the weight of economic data. As a result of the improved outlook for the fixed income market, yields on longer-maturity municipal bonds fell dramatically in latter months of the reporting year, ultimately ending at the lowest level in decades. Yields on shorter-maturity municipal bonds, however, moved higher. Accordingly, the slope of the municipal yield curve flattened as the spread between short-term and long-term interest rates narrowed. Demand for municipal bonds continued to be strong during the period. In fact, inflows into municipal bond funds were 45 percent higher year-to-date through September than for the same period last year, much of which went into high yield funds. Because prevailing interest rates were still at relatively low levels, investors increasingly sought out lower-quality, higher yielding bonds. The increased demand for high yield bonds led this segment of the market to considerably outperform high-grade issues. In addition, long-term bonds continued to earn the best returns, while the short end of the curve posted the lowest returns as Fed rate increases moved yields in this portion of the curve higher. Although municipal bond issuance remained brisk in the last quarter of 2005, volume declined throughout the remaining months of the period. As of the end of September, national municipal bond issuance was down 14 percent for 2006. The reduced supply, coupled with growing demand, further fueled municipal bond performance. Consistent with the national trend, municipal bond issuance by the State of New York declined for the overall period. However, there was still an abundance of new issue supply as New York continues to be one of the largest issuers of municipal bonds in the country. The state's economy is largely driven by the 2 financial world, which has enjoyed a healthy run over the past decade. As such, the state continues to have a positive credit outlook. PERFORMANCE ANALYSIS The fund returned 4.96 percent for the 12 months ended September 30, 2006 (Class A shares, unadjusted for sales charges). In comparison, the fund's benchmarks, the Lehman Brothers Municipal Bond Index returned 4.45 percent and the Lehman Brothers NY Municipal Bond Index returned 4.38 percent for the period. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED SEPTEMBER 30, 2006
- --------------------------------------------------------------------------- LEHMAN BROTHERS LEHMAN BROTHERS MUNICIPAL NY MUNICIPAL CLASS A CLASS B CLASS C BOND INDEX BOND INDEX 4.96% 4.18% 4.14% 4.45% 4.38% - ---------------------------------------------------------------------------
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. Throughout the reporting period, we sought opportunities to enhance the portfolio's yield, while still adhering to our quality-driven investment discipline. We added to the fund's holdings of lower and non-rated issues that offered favorable characteristics. As a result, the fund was overweighted relative to the Lehman Brothers New York Municipal Bond Index benchmark in the non-rated sector, and underweighted in higher-quality bonds. This posture proved advantageous as lower and non-rated bonds outperformed higher-rated bonds during the reporting period. Another strategy that allowed us to capture significant yield was to increase the fund's holdings of tobacco revenue bonds. Prior to August of 2005, the fund did not contain any tobacco bonds but we began cautiously purchasing the bonds as refundings came into the market in New York. The litigation environment has become quite favorable for tobacco companies, demand for the bonds remains strong, and the industry continues to prosper. Our decision to increase the fund's exposure to this sector during the period was especially additive to performance as valuations have dramatically improved. The fund also benefited from its yield-curve positioning. We continued to emphasize the long end of the curve, favoring bonds with maturities of 20 to 40 years. This strategy served the fund well as longer-dated issues outperformed shorter-maturity bonds. In addition, reflecting our view that interest rates in the Treasury market would continue to rise, we kept the fund's duration (a measure of interest-rate sensitivity) slightly shorter than that of the Lehman Brothers New York Municipal Bond Index. This conservative stance, which we 3 implemented by hedging with five- and 10-year Treasury futures, was beneficial as rates in the taxable market rose throughout the period. We added to the fund's holdings in the housing and health care sectors, but the portfolio remained well diversified across the major sectors of the municipal bond market. As of September 30, 2006, the fund's largest allocations were to the general purpose, hospital and higher education sectors. The portfolio was underweight relative to the Lehman Brothers New York Municipal Bond Index in the transportation sector, which detracted from returns in the last few months of the period when the sector rallied. There is no guarantee that any sectors mentioned will continue to perform as discussed herein or that securities in such sectors will be held by the fund in the future. 4
RATINGS ALLOCATIONS AS OF 9/30/06 AAA/Aaa 34.3% AA/Aa 32.4 A/A 10.3 BBB/Baa 16.4 BB/Ba 2.2 B/B 0.5 NR 3.9 TOP FIVE SECTORS AS OF 9/30/06 General Purpose 17.9% Hospital 14.1 Higher Education 8.9 Tobacco-Master Settlement 8.6 Student Housing 7.9
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. 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. The semiannual reports and the annual reports are filed electronically with the Securities and Exchange Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. 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. 6 HOUSEHOLDING NOTICE To reduce fund expenses, the fund attempts to eliminate duplicate mailings to the same address. The fund delivers a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. The fund's prospectuses and shareholder reports (including annual privacy notices) will be delivered to you in this manner indefinitely unless you instruct us otherwise. You can request multiple copies of these documents by either calling (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 without charge 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 costs, including sales charges (loads) on purchase payments of Class A Shares and contingent deferred sales charges on redemptions of Class B and Class C Shares; and redemption fees; 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 04/01/06 - 09/30/06. 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 or redemption fees. 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.
BEGINNING ENDING EXPENSES PAID ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD* ------------------------------------------------ 04/01/06 09/30/06 4/1/06-9/30/06 Class A Actual...................................... $1,000.00 $1,035.53 $3.78 Hypothetical................................ 1,000.00 1,021.37 3.75 (5% annual return before expenses) Class B Actual...................................... 1,000.00 1,031.74 7.59 Hypothetical................................ 1,000.00 1,017.57 7.54 (5% annual return before expenses) Class C Actual...................................... 1,000.00 1,031.97 7.34 Hypothetical................................ 1,000.00 1,017.87 7.28 (5% annual return before expenses)
* Expenses are equal to the Fund's annualized expense ratio of 0.74%, 1.49%, and 1.44% 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). These ratios reflect an expense waiver. 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 22, 2006, 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 and changes made in the Fund's portfolio management team over time. 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, 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 the Board. The trustees 10 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. 11 VAN KAMPEN NEW YORK TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------- MUNICIPAL BONDS 99.5% NEW YORK 98.6% $1,290 Albany Cnty, NY Indl Dev Agy Indl Dev Rev Albany College of Pharmacy Ser A.......... 5.625% 12/01/34 $ 1,356,693 330 Bethlehem, NY Indl Dev Agy Sr Hsg Rev Van Allen Proj Ser A.......................... 6.875 06/01/39 338,814 500 East Rochester, NY Hsg Auth Rev Sr Living Woodland Vlg Proj Rfdg.................... 5.500 08/01/33 509,335 1,250 Erie Cnty, NY Indl Dev Agy Sch Fac Rev City of Buffalo Proj (FSA Insd)........... 5.750 05/01/21 1,380,587 1,250 Erie Cnty, NY Indl Dev Agy Sch Fac Rev City of Buffalo Proj (FSA Insd)........... 5.750 05/01/22 1,376,937 1,000 Erie Cnty, NY Tob Asset Sec Corp Ser A.... 5.000 06/01/45 1,009,390 1,530 Hempstead Town, NY Indl Dev Adelphi Univ Civic Fac................................. 5.000 10/01/35 1,592,455 1,250 Hempstead Town, NY Indl Dev Adelphi Univ Civic Fac................................. 5.750 06/01/22 1,368,912 1,290 Islip, NY Res Recovery Agy Res 1985 Fac Ser E (AMT) (FSA Insd).................... 5.750 07/01/22 1,431,345 1,000 Livingston Cnty, NY Indl Dev Agy Civic Fac Rev Nicholas H Noyes Mem Hosp............. 6.000 07/01/30 1,036,880 1,500 Long Island Pwr Auth NY Elec Sys Rev Gen Ser B..................................... 5.000 12/01/35 1,565,985 2,000 Long Island Pwr Auth NY Elec Sys Rev Gen Ser C..................................... 5.500 09/01/19 2,174,720 1,000 Metropolitan Trans Auth NY Rev Ser A Rfdg (AMBAC Insd).............................. 5.500 11/15/19 1,099,850 1,000 Metropolitan Trans Auth NY Svc Contract Ser A Rfdg................................ 5.125 01/01/29 1,055,160 1,500 Metropolitan Trans Auth NY Rev Ser A Rfdg...................................... 5.000 11/15/23 1,602,570 1,000 Monroe Cnty, NY Indl Dev Agy Nazareth College Rochester Proj (MBIA Insd)........ 5.250 10/01/21 1,078,320 1,320 Montgomery Cnty, NY Indl Dev Agy Lease HFM Boces Ser A (XLCA Insd)................... 5.000 07/01/34 1,378,529 2,425 New York City Fiscal 2003 Ser I........... 5.750 03/01/15 2,687,773 1,500 New York City Hlth & Hosp Corp Rev Hlth Sys Ser A (FSA Insd)...................... 5.500 02/15/18 1,633,185 1,000 New York City Hlth & Hosp Corp Rev Hlth Sys Ser A (FSA Insd)...................... 5.500 02/15/19 1,088,790 1,000 New York City Hsg Dev Corp Multi-Family Rev Hsg Ser J1............................ 4.850 05/01/36 1,017,620 2,500 New York City Hsg Dev Corp Multi-Family Rev Hsg Ser L (AMT)....................... 5.050 11/01/39 2,555,100 1,000 New York City Hsg Dev Corp Ser A (AMT).... 5.500 11/01/34 1,037,140 455 New York City Indl Dev Agy Civic Fac Rev Cmnty Res Developmentally Disabled........ 7.500 08/01/26 464,833
12 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $ 500 New York City Indl Dev Agy Civic Fac Rev College of New Rochelle Proj.............. 5.750% 09/01/17 $ 517,490 500 New York City Indl Dev Agy Civic Fac Rev YMCA Greater NY Proj...................... 6.000 08/01/07 509,515 1,405 New York City Indl Dev Agy Fac Rev Royal Charter-NY Presbyterian (FSA Insd)........ 5.375 12/15/16 1,544,376 500 New York City Indl Dev Agy Rev Liberty 7 World Trade Ctr Ser A..................... 6.250 03/01/15 532,060 500 New York City Indl Dev Agy Rev Liberty 7 World Trade Ctr Ser A..................... 6.500 03/01/35 533,940 1,125 New York City Indl Dev Agy Rev Liberty Iac/Interactivecorp....................... 5.000 09/01/35 1,145,632 500 New York City Indl Dev Agy Spl Fac Rev Amern Airl JFK Intl Arpt (AMT)............ 7.750 08/01/31 590,210 500 New York City Indl Dev Agy Spl Fac Rols RR II (Inverse Floating Rate) (AMT) (Acquired 12/09/05, Cost $1,114,880) (b)............ 6.961 01/01/19 673,580 500 New York City Muni Wtr Fin Ser B (c)...... 6.000 06/15/33 544,865 2,500 New York City Ser A....................... 5.500 08/01/20 2,734,025 2,500 New York City Ser G....................... 5.000 08/01/24 2,648,100 2,390 New York City Ser G....................... 5.000 12/01/28 2,506,632 1,500 New York City Ser J....................... 5.000 03/01/24 1,581,615 1,000 New York City Transitional Cultural Res Rev Amern Museum Nat History Ser A (MBIA Insd)..................................... 5.000 07/01/44 1,042,470 1,000 New York City Transitional Fin Auth Rev Future Tax Secd Ser A Rfdg (d)............ 5.500/14.000 11/01/26 1,083,530 1,500 New York City Transitional Fin Auth Rev Future Tax Secd Ser C (AMBAC Insd)........ 5.250 08/01/21 1,619,790 1,540 New York City Transitional Future Tax Secd Ser B..................................... 5.500 02/01/15 1,663,878 2,475 New York Cnty Tob Tr IV Settlement Pass Thru Ser A................................ 5.000 06/01/45 2,498,240 750 New York Liberty Dev Corp. Rev National Sports Museum Proj Ser A (Acquired 08/07/06, Cost $750,000) (b).............. 6.125 02/15/19 777,255 1,400 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser B............................. 5.000 06/15/36 1,466,612 1,500 New York St Dorm Auth Lease Rev Muni Hlth Fac Impt Pgm Ser 1 (FSA Insd)............. 5.500 01/15/14 1,616,850 2,000 New York St Dorm Auth Rev Catholic Hlth L.I. Oblig Grp............................ 5.000 07/01/27 2,062,080 1,000 New York St Dorm Auth Rev City Univ Cons Third Ser 1 (FGIC Insd)................... 5.250 07/01/25 1,047,260 1,230 New York St Dorm Auth Rev City Univ Ser D Rfdg (FSA Insd)........................... 5.750 07/01/12 1,331,721
See Notes to Financial Statements 13 VAN KAMPEN NEW YORK TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $ 650 New York St Dorm Auth Rev City Univ Sys Cons Ser A................................ 5.625% 07/01/16 $ 729,281 1,000 New York St Dorm Auth Rev City Univ Sys Cons Ser B................................ 6.000 07/01/14 1,105,130 1,890 New York St Dorm Auth Rev Dept Ed (e)..... 5.250 07/01/21 2,044,111 2,000 New York St Dorm Auth Rev FHA Montefiore Hosp (FGIC Insd).......................... 5.000 08/01/33 2,097,840 1,000 New York St Dorm Auth Rev Insd Brooklyn Law Sch Ser B (XLCA Insd)................. 5.375 07/01/23 1,091,140 1,055 New York St Dorm Auth Rev Insd NY St Rehab Assn Ser A (AMBAC Insd) (e)............... 5.500 07/01/13 1,158,664 1,040 New York St Dorm Auth Rev Insd NY St Rehab Assn Ser A (AMBAC Insd) (e)............... 5.500 07/01/15 1,137,874 415 New York St Dorm Auth Rev Mental Hlth Svc Ser B (MBIA Insd)......................... 5.250 08/15/31 438,514 1,200 New York St Dorm Auth Rev Miriam Osborn Mem Home Ser B (ACA Insd)................. 6.375 07/01/29 1,305,432 2,000 New York St Dorm Auth Rev Non St Supported Debt Mt Sinai NYU Hlth Ser C.............. 5.500 07/01/26 2,032,400 2,000 New York St Dorm Auth Rev Non St Supported Debt Providence Rest (ACA Insd)........... 5.250 07/01/25 2,120,040 750 New York St Dorm Auth Rev Nursing Home Menorah Campus (FHA Gtd).................. 5.950 02/01/17 770,655 1,000 New York St Dorm Auth Rev Sch Dist Fin Pgm Ser D (MBIA Insd)......................... 5.500 10/01/17 1,098,110 1,000 New York St Dorm Auth Rev Secd Hosp North Gen Hosp Rfdg............................. 5.750 02/15/18 1,106,730 1,000 New York St Dorm Auth Rev St Univ Ed Fac 1989 Res (MBIA Insd)...................... 6.000 05/15/15 1,090,390 1,500 New York St Dorm Auth Rev Non St Supported Debt NYU Hosp Ctr Ser A (a)............... 5.000 07/01/20 1,541,280 500 New York St Energy Resh & Dev Auth Gas Fac Rev Brooklyn Union Gas Ser B (Inverse Floating Rate) (AMT)...................... 9.919 07/01/26 531,400 2,200 New York St Environ Fac Corp St Clean Wtr & Drinking NYC Muni Wtr Fin Auth Sub Ser B......................................... 5.000 06/15/26 2,348,984 1,000 New York St Environ Fac Corp St Clean Wtr & Drinking Revolving Fd Pooled Fin Pgm Ser I......................................... 5.250 09/15/19 1,083,610 2,280 New York St Loc Govt Assist Corp Ser E Rfdg...................................... 6.000 04/01/14 2,620,130 1,990 New York St Mtg Agy Rev for Homeowner Mtg Ser 130 (AMT)............................. 4.800 10/01/37 2,005,622 695 New York St Mtg Agy Rev Ser 82 (AMT)...... 5.650 04/01/30 700,908 995 New York St Mtg Agy Rev Ser 101 (AMT)..... 5.400 04/01/32 1,027,576 500 New York St Urban Dev Corp Rev Correctional Fac Ser A Rfdg............... 5.500 01/01/14 542,240
14 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
PAR AMOUNT (000) DESCRIPTION COUPON MATURITY VALUE - -------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $ 220 Oneida Cnty, NY Indl Dev Agy Civic Fac Saint Elizabeth Med Ser A................. 5.875% 12/01/29 $ 224,503 100 Port Auth NY & NJ Spl Oblig (AMT)......... 7.000 10/01/07 101,484 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 1,055,370 2,500 Rensselaer Cnty, NY Sch Dist Ctfs Partn (XLCA Insd)............................... 5.000 06/01/26 2,668,775 1,000 Rockland Cnty, NY Solid Waste Ser B (AMT) (AMBAC Insd).............................. 5.000 12/15/23 1,048,630 825 Suffolk Cnty, NY Indl Dev Agy Civic Fac Rev Family Svc League Suffolk Cnty (LOC: Fleet National)........................... 5.000 11/01/34 858,751 40 Syracuse, NY Hsg Auth Rev Sub Proj Loretto Rest Ser B................................ 7.500 08/01/10 40,522 250 Syracuse, NY Indl Dev Agy Rev First Mtg Jewish Home Ser A......................... 7.375 03/01/21 270,468 2,000 Tobacco Settlement Fin Corp NY Ser C-1.... 5.500 06/01/22 2,164,920 325 Triborough Brdg & Tunl Auth NY Rev Gen Purp Ser A................................ 5.000 01/01/32 335,348 2,000 Triborough Brdg & Tunl Auth NY Rev Gen Purp Ser A................................ 5.250 01/01/18 2,145,240 1,590 Tsasc, Inc. NY Ser 1...................... 5.000 06/01/34 1,614,884 2,500 Tsasc, Inc. NY Ser 1...................... 5.125 06/01/42 2,549,500 1,000 Ulster Cnty, NY Res Recovery Agy Solid Waste Sys Rev Rfdg (AMBAC Insd)........... 5.250 03/01/18 1,075,600 1,000 Upper Mohawk Vly Regl Wtr Fin Auth NY Wtr Sys Rev (AMBAC Insd)...................... 5.750 04/01/20 1,077,490 310 Utica, NY Indl Dev Agy Civic Fac Rev Utica College Proj Ser A........................ 5.750 08/01/28 324,818 1,000 Warren & Washington Cnty, NY Indl Dev Agy Civic Fac Rev Glens Falls Hosp Proj Ser A (FSA Insd)................................ 5.000 12/01/35 1,042,440 500 Westchester Cnty, NY Indl Dev Agy Mtg Kendal on Hudson Proj Ser A............... 6.375 01/01/24 535,385 2,000 Westchester Tob Asset Sec Corp NY......... 5.125 06/01/45 2,036,300 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 1,124,300 ------------ 118,135,438 ------------ 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 1,100,900 ------------
See Notes to Financial Statements 15 VAN KAMPEN NEW YORK TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS -- SEPTEMBER 30, 2006 continued
DESCRIPTION VALUE - ------------------------------------------------------------------------------------------------ TOTAL LONG-TERM INVESTMENTS 99.5% (Cost $114,058,331)............................................................ $119,236,338 SHORT-TERM INVESTMENT 0.2% (Cost $250,000)................................................................ 250,000 ------------ TOTAL INVESTMENTS 99.7% (Cost $114,308,331)............................................................ 119,486,338 OTHER ASSETS IN EXCESS OF LIABILITIES 0.3%...................................... 355,203 ------------ NET ASSETS 100.0%............................................................... $119,841,541 ============
Percentages are calculated as a percentage of net assets. (a) Security purchased on a when-issued or delayed delivery basis. (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 1.21% of net assets. (c) All or a portion of these securities have been physically segregated in connection with open futures contracts. (d) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (e) The Fund owns 100% of the outstanding 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. FUTURES CONTRACTS OUTSTANDING AS OF SEPTEMBER 30, 2006:
UNREALIZED APPRECIATION/ CONTRACTS DEPRECIATION SHORT CONTRACTS: U.S. Treasury Notes 10-Year Futures December 2006 (Current Notional Value of $108,063 per contract).................. 29 $(22,999) == ========
16 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL STATEMENTS Statement of Assets and Liabilities September 30, 2006 ASSETS: Total Investments (Cost $114,308,331)....................... $119,486,338 Cash........................................................ 279,127 Receivables: Interest.................................................. 1,632,425 Investments Sold.......................................... 514,820 Fund Shares Sold.......................................... 125,673 Variation Margin on Futures............................... 2,719 Other....................................................... 96,762 ------------ Total Assets............................................ 122,137,864 ------------ LIABILITIES: Payables: Investments Purchased..................................... 1,546,575 Fund Shares Repurchased................................... 210,924 Income Distributions...................................... 108,479 Swap Contracts............................................ 106,425 Distributor and Affiliates................................ 69,285 Investment Advisory Fee................................... 21,621 Trustees' Deferred Compensation and Retirement Plans........ 153,396 Accrued Expenses............................................ 79,618 ------------ Total Liabilities....................................... 2,296,323 ------------ NET ASSETS.................................................. $119,841,541 ------------ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $114,168,104 Net Unrealized Appreciation................................. 5,155,008 Accumulated Undistributed Net Investment Income............. 388,711 Accumulated Net Realized Gain............................... 129,718 ------------ NET ASSETS.................................................. $119,841,541 ============ MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $73,838,558 and 4,482,841 shares of beneficial interest issued and outstanding)............. $ 16.47 Maximum sales charge (4.75%* of offering price)......... .82 ------------ Maximum offering price to public........................ $ 17.29 ============ Class B Shares: Net asset value and offering price per share (Based on net assets of $28,613,499 and 1,741,477 shares of beneficial interest issued and outstanding)............. $ 16.43 ============ Class C Shares: Net asset value and offering price per share (Based on net assets of $17,389,484 and 1,057,212 shares of beneficial interest issued and outstanding)............. $ 16.45 ============
* On sales of $100,000 or more, the sales charge will be reduced. See Notes to Financial Statements 17 VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL STATEMENTS continued Statement of Operations For the Year Ended September 30, 2006 INVESTMENT INCOME: Interest.................................................... $5,700,537 ---------- EXPENSES: Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $177,911, $311,406 and $171,191, respectively)............................................. 660,508 Investment Advisory Fee..................................... 560,661 Shareholder Services........................................ 67,680 Trustees' Fees and Related Expenses......................... 36,472 Legal....................................................... 33,434 Custody..................................................... 17,911 Other....................................................... 157,680 ---------- Total Expenses........................................ 1,534,346 Investment Advisory Fee Reduction..................... 298,224 Less Credits Earned on Cash Balances.................. 3,982 ---------- Net Expenses.......................................... 1,232,140 ---------- NET INVESTMENT INCOME....................................... $4,468,397 ========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 2,255 Futures................................................... 601,519 Swap Contracts............................................ (123,562) ---------- Net Realized Gain........................................... 480,212 ---------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 4,846,831 ---------- End of the Period: Investments............................................. 5,178,007 Futures................................................. (22,999) ---------- 5,155,008 ---------- Net Unrealized Appreciation During the Period............... 308,177 ---------- NET REALIZED AND UNREALIZED GAIN............................ $ 788,389 ========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $5,256,786 ==========
18 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL STATEMENTS continued Statements of Changes in Net Assets
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 ---------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.............................. $ 4,468,397 $ 4,216,652 Net Realized Gain.................................. 480,212 2,081,074 Net Unrealized Appreciation/Depreciation During the Period........................................... 308,177 (1,745,917) ------------ ------------ Change in Net Assets from Operations............... 5,256,786 4,551,809 ------------ ------------ Distributions from Net Investment Income: Class A Shares................................... (2,816,473) (2,448,929) Class B Shares................................... (1,008,247) (1,124,558) Class C Shares................................... (572,354) (547,665) ------------ ------------ (4,397,074) (4,121,152) ------------ ------------ Distributions from Net Realized Gain: Class A Shares................................... (1,332,049) -0- Class B Shares................................... (632,017) -0- Class C Shares................................... (347,951) -0- ------------ ------------ (2,312,017) -0- ------------ ------------ Total Distributions................................ (6,709,091) (4,121,152) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....................................... (1,452,305) 430,657 ------------ ------------ FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold.......................... 21,951,233 20,984,248 Net Asset Value of Shares Issued Through Dividend Reinvestment..................................... 4,826,992 2,899,167 Cost of Shares Repurchased......................... (25,286,714) (22,740,048) ------------ ------------ NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..................................... 1,491,511 1,143,367 ------------ ------------ TOTAL INCREASE IN NET ASSETS....................... 39,206 1,574,024 NET ASSETS: Beginning of the Period............................ 119,802,335 118,228,311 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $388,711 and $319,669, respectively)...................... $119,841,541 $119,802,335 ============ ============
See Notes to Financial Statements 19 VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS A SHARES ------------------------------------------------ 2006 2005 2004 2003 2002 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD..... $16.67 $16.60 $16.40 $16.49 $15.76 ------ ------ ------ ------ ------ Net Investment Income...................... .66(a) .64 .65 .69 .74 Net Realized and Unrealized Gain/Loss...... .11 .06 .17 (.10) .73 ------ ------ ------ ------ ------ Total from Investment Operations............. .77 .70 .82 .59 1.47 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .65 .63 .62 .68 .74 Distributions from Net Realized Gain....... .32 -0- -0- -0- -0- ------ ------ ------ ------ ------ Total Distributions.......................... .97 .63 .62 .68 .74 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $16.47 $16.67 $16.60 $16.40 $16.49 ====== ====== ====== ====== ====== Total Return* (b)............................ 4.96% 4.29% 5.13% 3.69% 9.63% Net Assets at End of the Period (In millions).................................. $ 73.8 $ 67.8 $ 62.2 $ 63.6 $ 47.5 Ratio of Expenses to Average Net Assets*..... .73% .76% .76% .55% .38% Ratio of Net Investment Income to Average Net Assets*.................................... 4.05% 3.87% 3.94% 4.19% 4.68% Portfolio Turnover........................... 30% 41% 15% 27% 43% * 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... .98% 1.01% 1.09% 1.06% 1.07% Ratio of Net Investment Income to Average Net Assets.............................. 3.80% 3.62% 3.60% 3.68% 3.99%
(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 or more, a CDSC of 1% may be imposed on certain redemptions made within eighteen months 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. 20 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS B SHARES ------------------------------------------------ 2006 2005 2004 2003 2002 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD..... $16.63 $16.58 $16.38 $16.47 $15.74 ------ ------ ------ ------ ------ Net Investment Income...................... .54(a) .52 .52 .56 .62 Net Realized and Unrealized Gain/Loss...... .11 .04 .18 (.09) .73 ------ ------ ------ ------ ------ Total from Investment Operations............. .65 .56 .70 .47 1.35 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .53 .51 .50 .56 .62 Distributions from Net Realized Gain....... .32 -0- -0- -0- -0- ------ ------ ------ ------ ------ Total Distributions.......................... .85 .51 .50 .56 .62 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $16.43 $16.63 $16.58 $16.38 $16.47 ====== ====== ====== ====== ====== Total Return* (b)............................ 4.18% 3.40% 4.36% 2.93% 8.83% Net Assets at End of the Period (In millions).................................. $ 28.6 $ 33.9 $ 38.6 $ 40.5 $ 40.5 Ratio of Expenses to Average Net Assets*..... 1.48% 1.51% 1.51% 1.29% 1.13% Ratio of Net Investment Income to Average Net Assets*.................................... 3.30% 3.12% 3.19% 3.45% 3.92% Portfolio Turnover........................... 30% 41% 15% 27% 43% * 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... 1.73% 1.76% 1.84% 1.80% 1.82% Ratio of Net Investment Income to Average Net Assets.............................. 3.05% 2.87% 2.85% 2.94% 3.24%
(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 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 21 VAN KAMPEN NEW YORK TAX FREE INCOME FUND FINANCIAL HIGHLIGHTS continued THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED SEPTEMBER 30, CLASS C SHARES ------------------------------------------------ 2006 2005 2004 2003 2002 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD..... $16.65 $16.59 $16.39 $16.48 $15.75 ------ ------ ------ ------ ------ Net Investment Income...................... .54(a) .52 .52 .56 .62 Net Realized and Unrealized Gain/Loss...... .11 .05 .18 (.09) .73 ------ ------ ------ ------ ------ Total from Investment Operations............. .65 .57 .70 .47 1.35 ------ ------ ------ ------ ------ Less: Distributions from Net Investment Income... .53 .51 .50 .56 .62 Distributions from Net Realized Gain....... .32 -0- -0- -0- -0- ------ ------ ------ ------ ------ Total Distributions.......................... .85 .51 .50 .56 .62 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD........... $16.45 $16.65 $16.59 $16.39 $16.48 ====== ====== ====== ====== ====== Total Return* (b)............................ 4.14%(d) 3.46%(d) 4.36% 2.92%(c) 8.83% Net Assets at End of the Period (In millions).................................. $ 17.4 $ 18.1 $ 17.5 $ 17.7 $ 12.0 Ratio of Expenses to Average Net Assets*..... 1.46%(d) 1.47%(d) 1.51% 1.30% 1.13% Ratio of Net Investment Income to Average Net Assets*.................................... 3.32%(d) 3.14%(d) 3.19% 3.45%(c) 3.92% Portfolio Turnover........................... 30% 41% 15% 27% 43% * 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... 1.71%(d) 1.72%(d) 1.84% 1.81% 1.82% Ratio of Net Investment Income to Average Net Assets.............................. 3.10%(d) 2.89%(d) 2.85% 2.94%(c) 3.23%
(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) 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). 22 See Notes to Financial Statements VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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. The Fund offers Class A Shares, Class B Shares, Class C Shares and Class I Shares. Each class of shares differs by its initial sales load, contingent deferred sales charges, the allocation of class-specific expenses and voting rights on matters affecting a single class. As of September 30, 2006, there have been no sales of Class I Shares. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Municipal bonds are valued by independent pricing services or dealers using the mean of the bid and asked prices or, in the absence of market quotations, at fair value based upon yield data relating to municipal bonds with similar characteristics and general market conditions. Securities which are not valued by independent pricing services or dealers are valued at fair value using procedures established in good faith by the Board of Trustees. Future contracts are valued at the settlement price established each day on the exchange on which they are traded. Interest rate swaps are valued using market quotations from brokers. 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, 2006, the Fund had $1,546,575 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. 23 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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, 2006, the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $114,292,111 ============ Gross tax unrealized appreciation........................... $ 5,200,124 Gross tax unrealized depreciation........................... (5,897) ------------ Net tax unrealized appreciation on investments.............. $ 5,194,227 ============
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 gains on futures transactions. All short-term capital gains and a portion of futures gains are included as ordinary income for tax purposes. The tax character of distributions paid during the years ended September 30, 2006 and 2005 were as follows:
2006 2005 Distributions paid from: Ordinary income........................................... $ 140,635 $ 384 Tax-exempt income......................................... 4,392,841 4,114,874 Long-term capital gain.................................... 2,171,980 -0- ---------- ---------- $6,705,456 $4,115,258 ========== ==========
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 $2,281 was reclassified from accumulated undistributed net investment income to accumulated net realized gain. As of September 30, 2006, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $ 7,306 Undistributed tax-exempt income............................. 622,012 Undistributed long-term capital gain........................ 91,886
Net realized gains and losses may differ for financial reporting and tax purposes primarily as a result of gains and losses recognized for tax purposes on open futures transactions on September 30, 2006. 24 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued F. EXPENSE REDUCTION During the year ended September 30, 2006, the Fund's custody fee was reduced by $3,982 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:
AVERAGE DAILY NET ASSETS % PER ANNUM First $500 million.......................................... .470% Over $500 million........................................... .445%
For the year ended September 30, 2006, the Adviser voluntarily waived $298,224 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, 2006, the Fund recognized expenses of approximately $7,500 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, 2006, the Fund recognized expenses of approximately $48,700 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, 2006, the Fund recognized expenses of approximately $49,400 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 $74,047 are included in "Other" assets on the Statement of Assets and Liabilities at September 30, 2006. 25 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 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. For the year ended September 30, 2006, Van Kampen, as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $33,400 and contingent deferred sales charge (CDSC) on redeemed shares of approximately $47,600. Sales charges do not represent expenses of the Fund. 3. CAPITAL TRANSACTIONS For the years ended September 30, 2006 and 2005, transactions were as follows:
FOR THE FOR THE YEAR ENDED YEAR ENDED SEPTEMBER 30, 2006 SEPTEMBER 30, 2005 -------------------------- -------------------------- SHARES VALUE SHARES VALUE Sales: Class A........................... 1,111,770 $ 18,163,119 948,370 $ 15,809,067 Class B........................... 122,535 2,005,119 104,295 1,729,569 Class C........................... 108,099 1,782,996 207,093 3,445,612 ---------- ------------ ---------- ------------ Total Sales......................... 1,342,404 $ 21,951,233 1,259,758 $ 20,984,248 ========== ============ ========== ============ Dividend Reinvestment: Class A........................... 182,158 $ 2,972,744 103,277 $ 1,720,306 Class B........................... 74,600 1,204,963 46,953 780,802 Class C........................... 41,056 649,285 23,912 398,059 ---------- ------------ ---------- ------------ Total Dividend Reinvestment......... 297,814 $ 4,826,992 174,142 $ 2,899,167 ========== ============ ========== ============ Repurchases: Class A........................... (878,472) $(14,316,761) (731,919) $(12,170,713) Class B........................... (495,061) (8,061,368) (437,927) (7,282,119) Class C........................... (178,507) (2,908,585) (197,540) (3,287,216) ---------- ------------ ---------- ------------ Total Repurchases................... (1,552,040) $(25,286,714) (1,367,386) $(22,740,048) ========== ============ ========== ============
4. REDEMPTION FEE 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, 2006, the Fund received redemption fees of approximately $2, which are reported as part of "Cost of Shares Repurchased" in the Statement of Changes in Net Assets. The per share impact from redemption fees paid to the Fund was less than $0.01. 5. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $37,494,310 and $35,349,645, respectively. 26 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 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 may use derivative instruments for a variety of reasons 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 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 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 investment. A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in exchange traded futures contracts on U.S. Treasury Bonds or Notes for duration and risk management purposes 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 percentage of the contract amount with either a future commission merchant pursuant to rules and regulations promulgated in the 1940 Act, as amended, or with its custodian in an account in the broker's name. This amount is known as initial margin. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract the (variation margin). The risk of loss associated with a futures contract is in excess of the variation margin reflected on the Statement of Assets and Liabilities. Transactions in futures contracts for the year ended September 30, 2006 are as follows:
CONTRACTS Outstanding at September 30, 2005........................... 237 Futures Opened.............................................. 593 Futures Closed.............................................. (801) ---- Outstanding at September 30, 2006........................... 29 ====
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 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 on the Portfolio of Investments. C. INTEREST RATE SWAPS The Fund may enter into forward interest rate swap transactions intended to help the Fund manage its overall interest rate sensitivity, either shorter or longer, generally to more closely align the Fund's interest rate sensitivity with that of the broader municipal market. Forward interest rate swap transactions involve the Fund's agreement with 27 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued a counterparty to pay, in the future, a fixed or variable rate payment in exchange for the counterparty paying the Fund a variable or fixed rate payment, the accruals for which would begin at a specified date in the future (the "effective date"). The amount of the payment obligation is based on the notional amount of the forward swap contract and the termination date of the swap (which is akin to a bond's maturity). The value of the Fund's swap commitment would increase or decrease based primarily on the extent to which long-term interest rates for bonds having a maturity of the swap's termination date increases or decreases. The Fund may terminate a swap contract prior to the effective date, at which point a realized gain or loss is recognized. When a forward swap is terminated, it ordinarily does not involve the delivery of securities or other underlying assets or principal, but rather is settled in cash on a net basis. The Fund intends, but is not obligated, to terminate its forward swaps before the effective date. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the credit risk associated with a counterparty failing to honor its commitment to pay any realized gain to the Fund upon termination. To reduce such credit risk, all counterparties are required to pledge collateral daily (based on the daily valuation of each swap) on behalf of the Fund with a value approximately equal to the amount of any unrealized gain. Reciprocally, when the Fund has an unrealized loss on a swap contract, the Fund has instructed the custodian to pledge cash or liquid securities as collateral with a value approximately equal to the amount of the unrealized loss. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate. Restricted cash, if any, for segregating purposes is shown on the Statement of Assets and Liabilities. 7. DISTRIBUTION AND SERVICE PLANS Shares of the Fund are distributed by Van Kampen Funds Inc. (the "Distributor"), an affiliate of the Adviser. The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, as amended, and a service plan (collectively, the "Plans") for Class A Shares, Class B Shares and Class C Shares to compensate the Distributor for the sale, distribution, shareholder servicing and maintenance of shareholder accounts for these shares. Under the Plans, the Fund will incur annual fees 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. These fees are accrued daily and paid to the Distributor monthly. The amount of distribution expenses incurred by the Distributor and not yet reimbursed ("unreimbursed receivable") was approximately $79,200 and $0 for Class B and Class C Shares, respectively. These amounts may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed receivable has been fully recovered, the distribution fee is reduced. 8. LEGAL MATTERS The Adviser and certain affiliates of the Adviser are named as defendants in a derivative action 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 Van Kampen funds. The complaint 28 VAN KAMPEN NEW YORK TAX FREE INCOME FUND NOTES TO FINANCIAL STATEMENTS -- SEPTEMBER 30, 2006 continued 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 derivative action was coordinated with a direct action alleging related violations of defendants' statutory disclosure obligations and fiduciary duties with respect to the payments described above. In addition, this derivative action was stayed by agreement of the parties pending rulings on the motion to dismiss the direct action and the motion to dismiss another derivative action brought by the same plaintiff that brought this derivative action, alleging market timing and late trading in the Van Kampen funds. In April 2006, the court granted defendants' motion to dismiss the direct action. In June 2006, the court granted defendants' motion to dismiss the market timing action. Accordingly, the stay on this action was lifted. Plaintiff and defendants have agreed that this action should be dismissed in light of the rulings dismissing the two cases discussed above. The Court has approved a notice to shareholders regarding the dismissal, which is located at the back of this Report. 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. 10. ACCOUNTING PRONOUNCEMENTS In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation 48, Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The impact to the Fund's financial statements, if any, is currently being assessed. In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures. 29 VAN KAMPEN NEW YORK TAX FREE INCOME FUND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Van Kampen New York Tax Free Income Fund: We have audited the accompanying statement of assets and liabilities of Van Kampen New York Tax Free Income Fund (the "Fund"), including the portfolio of investments, as of September 30, 2006, 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, 2006, 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, 2006, 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 14, 2006 30 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 DENNIS SHEA Vice President J. DAVID GERMANY Vice President AMY R. DOBERMAN Vice President STEFANIE V. CHANG Vice President and Secretary JOHN L. SULLIVAN Chief Compliance Officer JAMES W. GARRETT 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 One Lincoln Street Boston, Massachusetts 02111 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, 2006. The Fund designated 99.99% of the income distributions as a tax-exempt income distributions as a tax-exempt income distribution. The Fund designated and paid $2,171,980 as a long-term capital gain distribution. * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940, as amended. 31 VAN KAMPEN NEW YORK TAX FREE INCOME FUND TRUSTEE AND OFFICER 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, the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange Corp. and 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:
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 (61) Trustee Trustee Chairman and Chief 71 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 (68) Trustee Trustee Prior to January 1999, 71 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.
32
VAN KAMPEN NEW YORK TAX FREE INCOME FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Rod Dammeyer (66) Trustee Trustee President of CAC, L.L.C., 71 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 Quidel San Diego, CA 92122-6223 advisory services. Prior Corporation, Stericycle, to February 2001, Vice Inc., Ventana Medical Chairman and Director of Systems, Inc., and GATX Anixter International, Corporation, and Trustee Inc., a global of The Scripps Research distributor of wire, Institute. Prior to cable and communications January 2005, Trustee of connectivity products. the University of Chicago Prior to July 2000, Hospitals and Health Managing Partner of Systems. Prior to April Equity Group Corporate 2004, Director of Investment (EGI), a TheraSense, Inc. Prior to company that makes January 2004, Director of private investments in TeleTech Holdings Inc. other companies. and Arris Group, Inc. 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).
33
VAN KAMPEN NEW YORK TAX FREE INCOME FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (58) Trustee Trustee Managing Partner of 71 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 (54) Trustee Trustee Director and President of 71 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 (71) Trustee Trustee Prior to 1998, President 71 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.
34
VAN KAMPEN NEW YORK TAX FREE INCOME FUND TRUSTEE AND OFFICER INFORMATION continued NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (70) Trustee Trustee President of Nelson 71 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 (66) Trustee Trustee President Emeritus and 71 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. (64) Trustee Trustee Chief Communications 71 Trustee/Director/Managing 815 Cumberstone Road since 1999 Officer of the National General Partner of funds Harwood, MD 20776 Academy of in the Fund Complex. 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.
35 VAN KAMPEN NEW YORK TAX FREE INCOME FUND TRUSTEE AND OFFICER INFORMATION continued INTERESTED TRUSTEE:*
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 Wayne W. Whalen* (67) Trustee Trustee Partner in the law firm 71 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.
* 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. 36 VAN KAMPEN NEW YORK TAX FREE INCOME FUND TRUSTEE AND OFFICER INFORMATION continued OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Ronald E. Robison (67) 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 Van Kampen Advisors Inc. since June 2003. Director of Investor Services since September 2002. Director of the Adviser, Van Kampen Investments and Van Kampen Exchange Corp. since January 2005. 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. Dennis Shea (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 1221 Avenue of the Americas since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser New York, NY 10020 and Van Kampen Advisors Inc. Chief Investment Officer-Global Equity of the same entities since February 2006. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006. Previously, Managing Director and Director of Global Equity Research at Morgan Stanley from April 2000 to February 2006. J. David Germany (52) Vice President Officer Managing Director of Morgan Stanley Investment Advisors 25 Cabot Square since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser Canary Wharf and Van Kampen Advisors Inc. Chief Investment Officer - London, GBR E14 4QA Global Fixed Income of the same entities since December 2005. Managing Director and Director of Morgan Stanley Investment Management Ltd. Director of Morgan Stanley Investment Management (ACD) Limited since December 2003. Vice President of Morgan Stanley Institutional and Retail Funds since February 2006. Vice President of funds in the Fund Complex since March 2006.
37
VAN KAMPEN NEW YORK TAX FREE INCOME FUND TRUSTEE AND OFFICER INFORMATION continued TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Amy R. Doberman (44) 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 Advisors 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 (40) 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. John L. Sullivan (51) 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. James W. Garrett (37) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas and Treasurer since 2006 Chief Financial Officer and Treasurer of Morgan Stanley New York, NY 10020 Institutional Funds since 2002 and of Funds in the Fund Complex from January 2005 to August 2005 and since September 2006.
38 Notice to Fund Shareholders As previously disclosed, a derivative action was filed on behalf of the Fund against the Fund's investment adviser, broker-dealer, distributor, and Trustees. The complaint alleges that defendants violated federal securities laws and state laws in connection with certain economic incentive programs. The case is pending before the Honorable Richard Owen, United States District Judge in the Southern District of New York. Defendants have filed a motion to dismiss the complaint in its entirety on numerous grounds, and that motion is still pending. On April 18, 2006, Judge Owen dismissed a separate lawsuit against Morgan Stanley and all of the same corporate defendants that are named in the derivative action. The Morgan Stanley suit related to the same incentive programs that are at issue in the derivative action, and asserted many of the same legal claims. In his decision, Judge Owen found that the programs do not violate federal law, and that defendants had made the appropriate disclosures concerning the programs. The plaintiffs in the Morgan Stanley suit did not appeal from the decision, and that decision is now final. In light of this decision by Judge Owen -- as well as several other decisions by other judges in the Southern District of New York and certain other courts that have dismissed similar complaints against other investment funds -- plaintiff in the derivative action has determined that the suit would be unsuccessful, if pursued further. Accordingly, plaintiff has asked Judge Owen to dismiss the action. No attorneys' fees will be paid by defendants and no consideration will be paid to the named plaintiff. All investors in the Fund are hereby provided notice of this proposed dismissal. If you object to the proposed dismissal, your objection must be mailed no later than December 29, 2006, in writing, to the Honorable Richard Owen, United States District Judge, United States Courthouse, Room 640, 500 Pearl Street, New York, NY 10007-1312. Copies of the objection must also be mailed to Denise Davis Schwartzman, Esquire, Chimicles & Tikellis LLP, 361 West Lancaster Avenue, Haverford, PA 19041; and Richard A. Rosen, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, NY 10019-6064. 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)2006 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 235, 325, 425 NYTF ANR 11/06 (VAN KAMPEN INVESTMENTS LOGO) RN06-03199P-Y09/06 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) Not applicable. (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 three "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees: Rod Dammeyer, Jerry D. 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: 2006
REGISTRANT COVERED ENTITIES(1) ---------- ------------------- AUDIT FEES .............. $243,100 N/A NON-AUDIT FEES AUDIT-RELATED FEES ... $ 0 $ 706,000(2) TAX FEES ............. $ 15,300(3) $ 79,422(4) ALL OTHER FEES ....... $ 0 $ 832,851(5) TOTAL NON-AUDIT FEES .... $ 15,300 $1,618,273 TOTAL ................... $258,400 $1,618,273
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
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. (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 D. 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. FUNDS VK TAX FREE TRUST a) The Trust's principal executive officer and principal financial officer have concluded that the Trust's disclosure controls and procedures are sufficient to provide reasonable assurance that information required to be disclosed by the Trust in this amended Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's ("SEC") 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 this amended report. The Trust's principal executive officer and principal financial officer have also concluded that the Trust's disclosure controls and procedures designed to ensure that information required to be disclosed by the Trust in this amended Form N-CSR is accumulated and communicated to the Trust's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure were effective. Management of the Trust has determined that as of and prior to September 30, 2006, the Trust's fiscal year end, the Trust had a deficiency in its internal control over financial reporting related to the review, analysis and determination of whether certain transfers of municipal securities qualified for sale accounting under the provisions of Statement of Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." As a result, there were changes in the Trust's financial statements with respect to the Insured Tax Free Income, Municipal Income and Strategic Municipal Income Funds, which did not impact the net asset value of such Funds' shares or the Funds' total return for any period, and were re-issued to such Funds' shareholders. There were no changes to the Trust's financial statements with respect to the other portfolios of the Trust. Since September 30, 2006, and prior to the re-issuance of the Trust's annual report, management has revised its disclosure controls and procedures and its internal control over financial reporting in order to improve the controls' effectiveness to ensure that transactions in transfers of municipal securities are accounted for properly. Management notes that other investment companies investing in similar investments over similar time periods had been accounting for such investments in a similar manner as the Trust. Accordingly, other investment companies are also concluding that there was a deficiency in their internal control over financial reporting of such investments. (b) There were no changes in the Trust's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this amended report that have materially affected, or are reasonably likely to materially affect, the Trust's internal control over financial reporting. However, as discussed above, subsequent to September 30, 2006, the Trust's internal control over financial reporting was revised. 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: January 26, 2007 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: January 26, 2007 By: /s/ James W. Garrett ---------------------------------- Name: James W. Garrett Title: Principal Financial Officer Date: January 26, 2007 EX-99.CODE 2 c11687a1exv99wcode.txt CODE OF ETHICS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS ADOPTED JULY 23, 2003, AS AMENDED AUGUST 10, 2005 AND SEPTEMBER 22, 2005 I. This Code of Ethics (the "Code") for the investment companies within the Van Kampen complex identified in Exhibit A (collectively, "Funds" and each, a "Fund") applies to each Fund's Principal Executive Officer, President, Principal Financial Officer and Treasurer (or persons performing similar functions) ("Covered Officers" each of whom are set forth in Exhibit B) for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. - full, fair, accurate, timely and understandable disclosure in reports and documents that a company files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; - compliance with applicable laws and governmental rules and regulations; - prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and - accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. Any question about the application of the Code should be referred to the General Counsel or his/her designee (who is set forth in Exhibit C). II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes, or appears to interfere, with the interests of, or his service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" (as defined in the Investment Company Act) of the Fund. The Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside the parameters of this Code, unless or until the General Counsel determines that any violation of such programs and procedures is also a violation of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Fund and its investment adviser of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund or for the investment adviser, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Fund and its investment adviser. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the investment adviser and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the Funds' Boards of Directors/Trustees ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. Each Covered Officer must not: - use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally (directly or indirectly); - cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or - use material non-public knowledge of portfolio transactions made or contemplated for, or actions proposed to be taken by, the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions. Each Covered Officer must, at the time of signing this Code, report to the General Counsel all affiliations or significant business relationships outside the Morgan Stanley complex and must update the report annually. Conflict of interest situations should always be approved by the General Counsel and communicated to the relevant Fund or Fund's Board. Any activity or relationship that would present such a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if an immediate member of the Covered Officer's family living in the same household engages in such an activity or has such a relationship. Examples of these include: - service or significant business relationships as a director on the board of any public or private company; - accepting directly or indirectly, anything of value, including gifts and gratuities in excess of $100 per year from any person or entity with which the Fund has current or prospective business dealings, not including occasional meals or tickets for theatre or sporting events or other similar entertainment; provided it is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than its investment adviser, principal underwriter, or any affiliated person thereof; and - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. III. DISCLOSURE AND COMPLIANCE - Each Covered Officer should familiarize himself/herself with the disclosure and compliance requirements generally applicable to the Funds; - each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Directors/Trustees and auditors, or to governmental regulators and self-regulatory organizations; - each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and their investment advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and - it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: - upon adoption of the Code (thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Boards that he has received, read and understands the Code; - annually thereafter affirm to the Boards that he has complied with the requirements of the Code; - not retaliate against any other Covered Officer, other officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; and - notify the General Counsel promptly if he/she knows or suspects of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any waivers(3) sought by a Covered Officer must be considered by the Board of the relevant Fund or Funds. The Funds will follow these procedures in investigating and enforcing this Code: - the General Counsel will take all appropriate action to investigate any potential violations reported to him; - if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action; - any matter that the General Counsel believes is a violation will be reported to the relevant Fund's Audit Committee; - if the directors/trustees/managing general partners who are not "interested persons" as defined by the Investment Company Act (the "Independent Directors/Trustees/Managing General Partners") of the relevant Fund concur that a violation has occurred, they will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer or other appropriate disciplinary actions; - the Independent Directors/Trustees/Managing General Partners of the relevant Fund will be responsible for granting waivers of this Code, as appropriate; and - any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' investment advisers, principal underwriters, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code unless any provision of this Code conflicts with any applicable federal or state law, in which case the requirements of such law will govern. The Funds' and their investment advisers' and principal underwriters' codes of ethics under Rule 17j-1 under the Investment Company Act and Morgan Stanley's Code of Ethics are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibits A, B or C, must be approved or ratified by a majority vote of the Board of each Fund, including a majority of Independent Directors/Trustees/Managing General Partners. VII. CONFIDENTIALITY - ---------- (3) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics." All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Independent Directors/Trustees/Managing General Partners of the relevant Fund or Funds and their counsel, the relevant Fund or Funds and their counsel and the relevant investment adviser and its counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion I have read and understand the terms of the above Code. I recognize the responsibilities and obligations incurred by me as a result of my being subject to the Code. I hereby agree to abide by the above Code. - --------------------------------------- Date: --------------------------------- EXHIBIT B COVERED OFFICERS Ronald E. Robison - President and Principal Executive Officer Phillip G. Goff - Chief Financial Officer and Treasurer EXHIBIT C GENERAL COUNSEL'S DESIGNEE Amy Doberman EX-99.CERT 3 c11687a1exv99wcert.txt CERTIFICATION I, Ronald E. Robison, certify that: 1. I have reviewed this report on Form N-CSR of Van Kampen Tax Free Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: January 26, 2007 /s/ Ronald E. Robison ---------------------------------------- Principal Executive Officer I, James W. Garrett, certify that: 1. I have reviewed this report on Form N-CSR of Van Kampen Tax Free Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: January 26, 2007 /s/ James W. Garrett ---------------------------------------- Principal Financial Officer EX-99.906CERT 4 c11687a1exv99w906cert.txt 906 CERTIFICATION Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Issuer: Van Kampen Tax Free Trust In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended September 30, 2006 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: January 26, 2007 /s/ Ronald E. Robison ---------------------------------------- Ronald E. Robison Principal Executive Officer A signed original of this written statement required by Section 906 has been provided to Van Kampen Tax Free Trust and will be retained by Van Kampen Tax Free Trust and furnished to the Securities and Exchange Commission or its staff upon request. This written statement required by Section 906 is being furnished with this Report, but not being filed as part of this Report. Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Issuer: Van Kampen Tax Free Trust In connection with the Report on Form N-CSR (the "Report") of the above-named issuer for the period ended September 30, 2006 that is accompanied by this certification, the undersigned hereby certifies that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Date: January 26, 2007 /s/ James W. Garrett ---------------------------------------- James W. Garrett Principal Financial Officer A signed original of this written statement required by Section 906 has been provided to Van Kampen Tax Free Trust and will be retained by Van Kampen Tax Free Trust and furnished to the Securities and Exchange Commission or its staff upon request. This written statement required by Section 906 is being furnished with this Report, but not being filed as part of this Report. -----END PRIVACY-ENHANCED MESSAGE-----