VAN KAMPEN TAX FREE TRUST, N-30D, 2000-11-29

VAN KAMPEN TAX FREE TRUST
N-30D, 2000-11-29

Previous: VAN KAMPEN TAX FREE TRUST, NSAR-B, EX-27, 2000-11-29

Next: ALTEX INDUSTRIES INC, 8-K, 2000-11-29

<PAGE> 1

<TABLE>
<S> <C>
Table of Contents

OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2

PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 6

PORTFOLIO AT A GLANCE
CREDIT QUALITY 7
TWELVE-MONTH DIVIDEND HISTORY 7
TOP FIVE STATES 8
TOP FIVE SECTORS 8
Q&A WITH YOUR PORTFOLIO MANAGERS 9
GLOSSARY OF TERMS 12

BY THE NUMBERS
YOUR FUND'S INVESTMENTS 13
FINANCIAL STATEMENTS 29
NOTES TO FINANCIAL STATEMENTS 35
REPORT OF INDEPENDENT AUDITORS 43
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 44
FUND OFFICERS AND IMPORTANT ADDRESSES 45
</TABLE>

Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2

OVERVIEW

LETTER TO SHAREHOLDERS
October 20, 2000

Dear Shareholder,

The first three quarters of 2000 proved to be especially volatile, with all of
the major markets declining in the spring and spending the following months
trying to recover. To manage one's portfolio during such unpredictable times
requires investment-management experience, and the following pages should give
you some insight into how we have performed in this difficult environment.

In this report, the portfolio managers will explain how your investment
performed during the reporting period and describe the strategies they used to
manage your fund during that span. The report will also show you how your
investment has performed over time. Helpful charts summarize the fund's largest
investments, and you can examine the complete portfolio to see all of your
fund's holdings as of the end of your fund's reporting period.

At Van Kampen, we place a high priority on providing you and
your financial advisor with the information you need to help
you monitor your investments during all types of markets. With
nearly four generations of investment-management experience,
we've been around long enough to understand that by investing
with Van Kampen you're entrusting us with much more than your money. Your
investments may help make it possible to afford your next house, keep up with
rising college costs, or enjoy a comfortable retirement.

No matter what your reasons for investing, we're thankful that you've chosen to
place your investments with Van Kampen. We will continue to apply our
generations of money-management experience to helping you pursue life's true
wealth.

Sincerely,

[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments

1
<PAGE> 3

ECONOMIC SNAPSHOT

ECONOMIC GROWTH
ECONOMIC GROWTH WAS STRONG DURING THE REPORTING PERIOD, UNDERPINNED BY LOW
UNEMPLOYMENT AND RISING PRODUCTIVITY, YET THERE WERE SIGNS THAT A HEALTHY
SLOWDOWN WAS UNDERWAY. GROSS DOMESTIC PRODUCT, THE PRIMARY MEASURE OF ECONOMIC
GROWTH, INCREASED AT A 2.7 PERCENT ANNUALIZED RATE FOR THE THIRD QUARTER OF
2000. FOLLOWING MILD FIRST- AND SECOND-QUARTER DATA, THIS THIRD-QUARTER FIGURE
OFFERS FURTHER EVIDENCE THAT GROWTH MIGHT BE SETTLING BACK TO A MORE MODERATE
AND SUSTAINABLE PACE THAN ITS RAPID RATE IN LATE 1999.

CONSUMER SPENDING AND EMPLOYMENT
CONCERNS ABOUT INFLATION REMAINED AT BAY DUE IN PART TO A GRADUAL SLOWDOWN IN
CONSUMER SPENDING. RISING INTEREST RATES, HIGHER ENERGY COSTS, AND A
DISAPPOINTING STOCK MARKET BEGAN TO TEMPER RETAIL SALES, WHICH LEVELED OFF FROM
THE BLISTERING PACE OF LATE 1999 AND EARLY 2000. AND WHILE CONSUMER SPENDING WAS
BRISK, THE OVERALL TREND HAS BEEN DOWNWARD THIS YEAR.

THE JOBLESS RATE CONTINUED TO BE EXTREMELY LOW BY HISTORICAL STANDARDS, BUT
RECENT CUTS IN MANUFACTURING PAYROLLS SUPPORT THE POPULAR BELIEF THAT THE
ECONOMY IS MODERATING. ALTHOUGH EMPLOYER COSTS SUCH AS WAGES AND BENEFITS WERE
RISING AT THE END OF 1999 AND IN THE BEGINNING OF 2000, OVER THE PAST SIX MONTHS
THE EMPLOYMENT COST INDEX HAS SHOWN MARKED DECELERATION, WHICH SHOULD HELP EASE
INFLATION CONCERNS.

INTEREST RATES AND INFLATION
THE FEDERAL RESERVE BOARD (THE FED) RAISED INTEREST RATES FOUR TIMES DURING THE
LAST 12 MONTHS IN AN EFFORT TO WARD OFF INFLATION BY CURBING ECONOMIC GROWTH.
OVER THE SAME PERIOD, THE CONSUMER PRICE INDEX ROSE 3.5 PERCENT, WHICH INDICATED
THAT INFLATION GENERALLY REMAINS UNDER CONTROL.

THE FED HAS ACKNOWLEDGED THE RISK OF RISING INFLATION AND WILL STAY ON GUARD, AS
RISING ENERGY COSTS AND LOW UNEMPLOYMENT THREATEN TO PROPEL THIS FIGURE UPWARD
IN THE COMING MONTHS. AS LONG AS INFLATION IS CONTAINED AND THE PACE OF ECONOMIC
GROWTH REMAINS FAVORABLE, THE FED IS LIKELY TO HOLD INTEREST RATES STEADY IN THE
SHORT TERM, WHICH COULD HELP STABILIZE THE STOCK AND BOND MARKETS.

2
<PAGE> 4

U.S. GROSS DOMESTIC PRODUCT

SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998--September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.70
</TABLE>

Source: Bureau of Economic Analysis

INTEREST RATES AND INFLATION

(September 30, 1998--September 30, 2000)

[LINE GRAPH]

<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
6.50 3.70
6.50 3.30
Sep 00 6.50 3.50
</TABLE>

Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.

3
<PAGE> 5

PERFORMANCE SUMMARY

RETURN HIGHLIGHTS

(as of September 30, 2000)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 6.13% 5.25% 5.19%
-------------------------------------------------------------------------
One-year total return(2) 1.10% 1.25% 4.19%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 3.92% 3.88% 4.12%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 6.16% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 7.88% 4.23%(3) 3.71%
-------------------------------------------------------------------------
Commencement date 12/14/84 05/03/93 08/13/93
-------------------------------------------------------------------------
Distribution rate(4) 4.48% 3.96% 3.96%
-------------------------------------------------------------------------
Taxable-equivalent distribution
rate(5) 7.00% 6.19% 6.19%
-------------------------------------------------------------------------
SEC Yield(6) 4.66% 4.11% 4.11%
-------------------------------------------------------------------------
</TABLE>

N/A = Not Applicable

(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for Class A Shares) or
contingent deferred sales charge ("CDSC") for Class B and C Shares. On
purchases of Class A Shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B Shares are calculated without the effect of the maximum 4% CDSC,
charged on certain redemptions made within one year of purchase and
declining to 0% after the sixth year. Returns for Class C Shares are
calculated without the effect of the maximum 1% CDSC, charged on certain
redemptions made within one year of purchase. If the sales charges were
included, total returns would be lower. These returns do include Rule 12b-1
fees of up to .25% for Class A Shares and 1% for Class B and Class C Shares.

(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
Shares) or contingent deferred sales charge ("CDSC") for Class B and C
Shares and Rule 12b-1 fee. On purchases of Class A Shares of $1 million or
more, a CDSC of 1% may be imposed on certain redemptions made within one
year of purchase. Returns for Class B Shares are calculated with the effect
of the maximum 4% CDSC, charged on certain redemptions made within one year
of purchase and declining to 0% after the sixth year. Returns for Class C
Shares are calculated with the effect of the maximum 1% CDSC, charged on
certain redemptions made within one year of purchase. The Rule 12b-1 fee for
Class A Shares is up to .25% and for Class B and Class C Shares is 1%.

(3) The total return reflects the conversion of Class B Shares into Class A
Shares seven years after the end of the calendar month in which the shares
were purchased. See footnote 3 in the Notes to Financial Statements for
additional information.

4
<PAGE> 6

(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.

(5) Taxable-equivalent calculations reflect a Federal income tax rate of 36%.

(6) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio
should theoretically generate for the 30-day period ending September 30,
2000.

The terms of the insurance are more fully described in the Fund's
prospectus; no representation is made as to the insurer's ability to meet
its commitments. In addition, the insurance does not remove market risk, as
it does not apply to the value of the securities in the Fund's portfolio,
which may increase or decrease depending on interest rates and other factors
affecting the municipal credit markets.

An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary
of the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than their original cost. Past
performance is no guarantee of future results. Investment return and net
asset value will fluctuate with market conditions.

A portion of the interest income may be taxable for those investors subject
to the federal alternative minimum tax (AMT).

Market forecasts provided in this report may not necessarily come to pass.

5
<PAGE> 7
GROWTH OF A $10,000 INVESTMENT

(September 30, 1990--September 30, 2000)

[INVESTMENT PERFORMANCE GRAPH]

LEHMAN BROTHERS MUNICIPAL BOND INDEX
is an unmanaged, broad-based statistical
INSURED TAX FREE INCOME FUND* composite of municipal bonds.+
----------------------------- ---------------------------------------
<S> <C> <C>
9/90 9524 10000
10043 10431
10241 10667
10415 10895
9/91 10760 11318
11109 11698
11172 11733
11617 12179
9/92 11967 12502
12166 12730
12644 13202
13079 13634
9/93 13552 14094
13665 14292
12835 13508
12970 13657
9/94 12985 13751
12803 13553
13744 14511
14007 14862
9/95 14291 15289
15043 15920
14708 15728
14794 15849
9/96 15187 16213
15591 16627
15459 16588
15959 17160
9/97 16420 17677
16867 18157
17009 18366
17255 18644
9/98 17814 19218
17820 19333
17909 19504
17423 19160
9/99 17137 19083
16925 18934
17546 19489
17790 19784
9/00 18188 20262
Fund's Total Return
1 Year Total Return 1.10%
5 Year Avg. Annual 3.92%
10 Year Avg. Annual 6.16%
Inception Avg. Annual 7.88%

</TABLE>

This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index over time.

This index is an unmanaged broad-based, statistical composite that does
not include any commissions or fees that would be paid by an investor
purchasing the securities it represents. Such costs would lower the
performance of this index. The historical performance of the index is
shown for illustrative purposes only; it is not meant to forecast, imply,
or guarantee the future performance of any investment vehicle. It is not
possible to invest directly in an index.

The above chart reflects the performance of Class A shares of the fund. The
performance of Class A shares will differ from that of other share classes of
the fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (4.75% for Class A shares) and an annual 12b-1 fee of up to 0.25
percent.

While past performance is no guarantee of future results, the above information
provides a broader vantage point from which to evaluate the discussion of the
fund's performance found in the following pages. As a result of recent market
activity, current performance may vary from the figures shown.

Source:
* Hypo(R) Provided by Towers Data, Bethesda, MD

(+) Lehman Brothers

6
<PAGE> 8

PORTFOLIO AT A GLANCE

CREDIT QUALITY

(as a percentage of long-term investments)

<TABLE>
<CAPTION>
As of September 30, 2000
<S> <C> <C>
- AAA/Aaa............ 100%

[PIE CHART]
<CAPTION>
As of September 30, 1999
<S> <C> <C>
- AAA/Aaa............ 100%

[PIE CHART]
</TABLE>

Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.

TWELVE-MONTH DIVIDEND HISTORY

(for the period ended September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
DIVIDENDS CAPITAL GAINS
--------- -------------
<S> <C> <C>
10/99 0.0740 0.0000
11/99 0.0740 0.0000
12/99 0.0740 0.0046
1/00 0.0740 0.0000
2/00 0.0740 0.0000
3/00 0.0740 0.0000
4/00 0.0740 0.0000
5/00 0.0716 0.0000
6/00 0.0716 0.0000
7/00 0.0716 0.0000
8/00 0.0716 0.0000
9/00 0.0716 0.0000
</TABLE>

The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.

7
<PAGE> 9

TOP FIVE STATES

(as a percentage of long-term investments--September 30, 2000)

<TABLE>
<S> <C> <C>
Illinois 22.5%
---------------------------------------------------------------------
Texas 9.0%
---------------------------------------------------------------------
New York 7.8%
---------------------------------------------------------------------
Florida 6.5%
---------------------------------------------------------------------
California 5.8%
---------------------------------------------------------------------
</TABLE>

TOP FIVE SECTORS

(as a percentage of long-term investments)
[BAR GRAPH]

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
General Purpose 22.60 13.80
Retail Elec/Gas/Telephone 12.70 9.30
Health Care 11.20 16.10
Public Building 10.70 10.60
Transportation 7.80 5.60
</TABLE>

8
<PAGE> 10

[PHOTO]

Q&A WITH YOUR PORTFOLIO MANAGERS

WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGER OF THE VAN KAMPEN INSURED
TAX FREE INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED SEPTEMBER
30, 2000. JOSEPH PIRARO, PORTFOLIO MANAGER, HAS MANAGED THE FUND SINCE 1992 AND
HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1971. THE FOLLOWING DISCUSSION
REFLECTS HIS VIEWS ON THE FUND'S PERFORMANCE.

Q HOW WOULD YOU CHARACTERIZE THE
MARKET ENVIRONMENT YOU FACED IN MANAGING THE FUND, AND HOW DID THE FUND
PERFORM IN THAT ENVIRONMENT?

A The market had its share of
volatility over the past year. The much-dreaded year 2000 transition came and
went without making a significant impact on the markets, other than a bit of
overcautious defensive selling in late 1999 and early 2000.

Long-term insured municipal bonds were on a bit of a roller-coaster ride,
declining and then rallying twice during the 12-month period, with yields
finally settling at virtually the same level as they began the period. Prices
climbed strongly going into September 2000 but eased off by month's end, as the
yield on the 30-year insured municipal bond rose to about 5.85 percent.

One of the positive aspects of these trading patterns was the widening of
the yield spread between insured municipals and lower-rated, higher-yielding
municipals. As investors sensed the market's uncertainty, fewer assets flowed
into high-yielding bonds, which are perceived to be more risky. This trend
favored the high-quality, insured holdings of the fund, as demand for these
securities remained stable, even though overall demand for municipal bonds was
down.

At the same time, supply in the municipal market has been sharply lower, and
fewer of the newly issued bonds were insured (just around 42 percent of all new
bonds, compared to more than 50 percent a year ago). This lower supply provided
some support for prices of insured municipal bonds. Issuance of new municipal
debt declined because the strong economy allowed municipalities such as state
governments to accumulate sizable budget surpluses, which reduced the

9
<PAGE> 11

need to raise money through debt offerings. Also, higher interest rates made it
less attractive for municipalities to refund existing bond issues; instead, they
have been more likely to buy back outstanding debt and retire it from the
marketplace.

As of September 30, 2000, the fund achieved a 12-month total return of 6.13
percent (Class A shares at net asset value; if the maximum sales charge of 4.75
percent were included, the return would have been lower). Of course, past
performance is no guarantee of future results. As a result of recent market
activity, current performance may vary from the figures shown. By comparison,
the Lehman Brothers Municipal Bond Index produced a total return of 6.17
percent. The Lehman Brothers Municipal Bond Index is an unmanaged, broad-based
statistical composite of municipal bonds. This index does not include any
commissions or sales charges that would be paid by an investor purchasing the
securities it represents. Such costs would lower the performance of the index.
It is not possible to invest directly in an index. Please refer to the footnotes
and chart on page 4 for additional fund performance results.

The fund's dividend was fairly stable, having been reduced once during the
period. And although the fund's monthly tax-exempt dividend was decreased to
$.0716 from $.0740 per Class A share over the past 12 months, its distribution
rate stood at 4.48 percent at the end of the reporting period. With this in
mind, we'd like to point out that investors would have to earn a distribution
rate of 7.00 percent on a taxable investment (for an investor in the 36 percent
federal income tax bracket) to match the tax-exempt yield provided by the fund.

Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?

A Because of the low supply of bonds
entering the primary market, we were forced to be more active in the secondary
market. For example, early in 2000, the uncertainty surrounding the Y2K
transition created opportunities to buy deeply discounted bonds that had become
oversold. We were able to pick up some good values in this segment of the
market.

Strong demand for municipal bonds in California drove those prices up, so we
looked for better relative values in other states. At one time, we held more
bonds from California than from any other state, but after shifting the fund's
assets during the period, Illinois is now the most widely represented state in
the portfolio, followed by Texas and New York. Bonds from these states offered
broad variety and better yields, so we added them to the fund's holdings.

In terms of maturities, we have moved into more intermediate-term issues
than we had in the past, because the yield opportunities were quite attractive.
Rising yields at the short end of the maturity spectrum caused short-term bond
prices to fall, which was only a minor damper on the fund's net asset value
during the period. Fortunately, the fund had only a small percentage of its
assets in bonds with maturities of five years or less.

We increased the fund's holdings in general-purpose municipal bonds,

10
<PAGE> 12

because we have found that these securities are often backed by revenues
generated by some sort of essential service, and during the reporting period
they appeared attractive relative to other sectors. At the end of the period,
this sector represented approximately 23 percent of long-term investments, up
from just 13 percent a year ago. Keep in mind that not all bonds in the
portfolio performed favorably, and there is no guarantee that any of these bonds
will perform as well or will be held by the portfolio in the future.

Q WHICH SECTORS OF THE MARKET WERE
YOU MOST CONCERNED ABOUT?

A The health-care sector has
struggled, so we were careful to protect the portfolio from excessive exposure
to this sector. By the end of the reporting period, we had reduced the fund's
holdings in health care to approximately 11 percent of long-term investments,
down from roughly 16 percent at the start of the period.

Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?

A Because the level of interest rates
has such an influence on the value of municipal bonds, the market will be
carefully watching the actions of the Federal Reserve Board. It appears that
economic growth may be moderating, making it less likely that the Fed will
increase rates again in the very near future. In fact, some market watchers are
expecting the Fed to decrease rates by the end of the year. In light of the
current market conditions, we will remain neutral with respect to interest
rates.

We anticipate that total bond issuance may be stable to lower through
year-end 2000, as municipalities continue to be flush with cash and are
understandably reluctant to issue new debt or refund outstanding debt at current
market rates. We believe that the cost of insuring municipal bonds may be
rising, which could further limit the supply of new insured bonds.

Going forward, we will continue to rely on our strong research capabilities,
seeking to achieve the fund's investment objective over the long term.

11
<PAGE> 13

GLOSSARY OF TERMS

A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.

FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets at least eight times
a year to establish monetary policy and monitor the economic pulse of the United
States.

INSURED BOND: A bond insured against default by the bond insurer. If the issuer
defaults, the insurance company will take over payments of interest and
principal when due. Once a bond is insured, it typically carries the credit
rating of the issuer. Most issuers are rated AAA. Municipal bond insurance
applies to specific securities held in the portfolio. It does not protect the
shareholder against changes in the value of fund shares.

MUNICIPAL BOND: A debt security issued by a state, municipality, or other state
or local government entity to finance capital expenditures of public projects,
such as the construction of highways, public works, or school buildings.
Interest on public-purpose municipal bonds is exempt from federal income taxes
and, in some states, from state and local income taxes.

NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing this
amount by the number of shares outstanding. The NAV does not include any initial
or contingent deferred sales charge.

SECONDARY MARKET: A market where securities are traded after they are initially
offered.

YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower credit ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.

12
<PAGE> 14

BY THE NUMBERS

YOUR FUND'S INVESTMENTS

September 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 93.8%
ALABAMA 4.0%
$2,250 Alabama St Brd Edl Rev Shelton St Cmnty
College (MBIA Insd)....................... 6.000% 10/01/14 $ 2,373,143
4,000 Alabama St Pub Sch & College Auth Cap Impt
(MBIA Insd)............................... 5.250 11/01/05 4,113,880
1,955 Alabama Wtr Pollutn Ctl Auth Revolving Fd
Ln Ser A (AMBAC Insd)..................... 6.750 08/15/17 2,097,402
1,000 East Central, AL Indl Dev Auth Rev (AMBAC
Insd)..................................... 5.400 09/01/15 996,610
27,000 Jefferson Cnty, AL Swr Rev Cap Impt Ser A
(FGIC Insd)............................... 5.375 02/01/36 25,231,770
5,500 Morgan Cnty Decatur, AL Hlthcare Auth Hosp
Rev Decatur Genl Hosp Rfdg (Connie Lee
Insd)..................................... 6.250 03/01/13 5,800,190
2,400 Muscle Shoals, AL Util Brd Wtr & Swr Rev
(FSA Insd)................................ 6.500 04/01/16 2,568,840
3,000 Orange Beach, AL Wtr Swr & Fire Protection
Auth Rev (FSA Insd)....................... 5.000 05/15/23 2,715,240
--------------
45,897,075
--------------
ALASKA 1.0%
5,000 Alaska St Hsg Fin Corp Genl Mtg Ser A
(MBIA Insd)............................... 6.000 06/01/49 5,009,300
1,425 Anchorage, AK Wtr Rev Rfdg (AMBAC Insd)... 6.000 09/01/19 1,479,407
8,000 North Slope Boro, AK Cap Apprec Ser A
(MBIA Insd)............................... * 06/30/10 4,844,400
--------------
11,333,107
--------------
ARIZONA 1.5%
11,000 Arizona St Ctfs Partn Ser B Rfdg (AMBAC
Insd)..................................... 6.250 09/01/10 11,483,670
1,800 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease
Oblig Irvington Proj Tucson Ser A Rfdg
(FSA Insd)................................ 7.250 07/15/10 1,896,066
</TABLE>

See Notes to Financial Statements

13
<PAGE> 15

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ARIZONA (CONTINUED)
$1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale
Mem Hosp Ser A Rfdg (AMBAC Insd).......... 6.000% 09/01/12 $ 2,000,906
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale
Mem Hosp Ser A Rfdg (AMBAC Insd).......... 6.125 09/01/17 1,838,183
--------------
17,218,825
--------------
CALIFORNIA 5.5%
2,835 Bay Area Govt Assn CA Rev Tax Alloc CA
Redev Agy Pool Rev Ser A (FSA Insd)....... 6.000 12/15/14 3,049,496
5,000 Beverly Hills, CA Pub Fin Auth Lease Rev
Ser A (MBIA Insd)......................... 5.650 06/01/15 5,075,300
3,265 California Pub Cap Impt Fin Auth Rev
Pooled Proj Ser B (BIGI Insd)............. 8.100 03/01/18 3,307,314
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA
Insd)..................................... 6.200 09/01/18 3,148,470
220 Concord, CA Redev Agy Tax Alloc Cent
Concord Redev Proj Ser 3 (BIGI Insd)...... 8.000 07/01/18 221,962
805 Corona Norco, CA Uni Sch Dist Lease Rev
Partn Insd Land Acquis Ser A (FSA Insd)... 6.000 04/15/19 851,714
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs Partn Fac
Refin (FGIC Insd)......................... 6.300 09/01/12 1,296,488
425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC
Insd)..................................... 6.700 08/01/21 488,155
265 Golden West Schs Fin Auth CA Rev Ser A
Rfdg (MBIA Insd).......................... 5.750 08/01/19 280,545
320 Golden West Schs Fin Auth CA Rev Ser A
Rfdg (MBIA Insd).......................... 5.800 08/01/22 336,570
345 Golden West Schs Fin Auth CA Rev Ser A
Rfdg (MBIA Insd).......................... 5.800 08/01/23 362,354
6,500 Grossmont, CA Union High Sch Dist Ctfs
Partn (MBIA Insd)......................... * 11/15/21 1,593,670
3,500 Los Angeles Cnty, CA Cap Asset Lease Corp
Leasehold Rev Rfdg (AMBAC Insd)........... 6.000 12/01/16 3,652,005
5,420 Manteca, CA Redev Agy Tax Alloc Redev Proj
No 1 Ser A Rfdg (MBIA Insd)............... 6.700 10/01/21 5,734,631
13,610 Norco, CA Redev Agy Tax Alloc Norco Redev
Proj Area No 1 Rfdg (MBIA Insd)........... 6.250 03/01/19 14,191,827
13,800 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd)............... 6.450 07/01/16 13,863,756
</TABLE>

See Notes to Financial Statements

14
<PAGE> 16

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$2,460 Torrance, CA Hosp Rev Torrance Mem Hosp
Rfdg (MBIA Insd).......................... 6.750% 01/01/12 $ 2,481,156
2,000 William S Hart CA Jt Sch Fin Auth Spl Tax
Rev Cmnty Fac Rfdg (FSA Insd)............. 6.500 09/01/14 2,205,500
--------------
62,140,913
--------------
COLORADO 2.3%
12,100 Denver, CO City & Cnty Arpt Rev Ser A
(MBIA Insd)............................... 5.700 11/15/25 12,065,394
9,205 Denver, CO City & Cnty Ctfs Partn Ser B
(AMBAC Insd).............................. 5.200 12/01/14 9,096,197
10 Jefferson Cnty, CO Single Family Mtg Rev
Ser A Rfdg (MBIA Insd).................... 8.875 10/01/13 10,350
1,000 Metropolitan Football Stadium Dist CO
Sales Tax Rev Ser B (MBIA Insd)........... * 01/01/06 773,780
2,050 Thornton, CO Rfdg (FGIC Insd)............. * 12/01/11 1,152,735
1,100 Thornton, CO Rfdg (FGIC Insd)............. * 12/01/15 476,553
2,000 Westminster, CO Wtr & Wastewtr Util
Enterprise Rev (AMBAC Insd)............... 6.250 12/01/14 2,110,240
--------------
25,685,249
--------------
DISTRICT OF COLUMBIA 0.1%
1,315 District of Columbia Rev Gonzaga College
High Sch (FSA Insd)....................... 5.375 07/01/19 1,263,833
--------------

FLORIDA 6.1%
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)..................................... 8.000 10/01/03 1,107,303
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)..................................... 8.000 10/01/05 1,355,572
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)..................................... 8.000 10/01/06 1,493,305
1,375 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)..................................... 8.000 10/01/07 1,639,110
2,095 Dade Cnty, FL Util Pub Impt Rfdg (FGIC
Insd)..................................... 12.000 10/01/04 2,650,552
5,000 Escambia Cnty, FL Hlth Fac Auth Hlth Fac
Rev FL Hlthcare Fac Ln VHA Pgm (AMBAC
Insd)..................................... 5.950 07/01/20 5,148,350
7,865 Florida St Brd of Edl Cap Outlay Pub Edl
Ser B Rfdg (MBIA Insd).................... 4.500 06/01/24 6,508,602
1,410 Florida St Dept Corrections Ctfs Partn
Okeechobee Correctional (AMBAC Insd)...... 6.250 03/01/15 1,501,467
</TABLE>

See Notes to Financial Statements

15
<PAGE> 17

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$5,000 Florida St Div Brd Fin Dept Envirnmtl
Presrvtn 2000 A (AMBAC Insd).............. 5.750% 07/01/13 $ 5,153,600
1,000 Key West, FL Util Brd Elec Rev Ser D
(AMBAC Insd).............................. * 10/01/13 504,210
4,000 Lee Cnty, FL Hosp Brd Dir Hosp Rev
(Inverse Fltg) (MBIA Insd)................ 8.556 04/01/20 4,230,000
11,575 Miami Dade Cnty, FL Solid Waste Sys Rev
(AMBAC Insd).............................. 4.750 10/01/18 10,305,222
5,615 Miami Dade Cnty, FL Spl Oblig Ser B (MBIA
Insd)..................................... 5.000 10/01/37 4,999,821
6,000 Orange Cnty, FL Hlth Fac Auth Rev (Inverse
Fltg) (MBIA Insd)......................... 8.340 10/29/21 6,450,000
3,725 Santa Rosa Bay Brdg Auth FL Rev Cap Apprec
(MBIA Insd)............................... * 07/01/18 1,314,106
10,000 Tallahassee, FL Hlth Fac Rev Tallahassee
Mem Regl Med Ser A Rfdg (MBIA Insd)....... 6.625 12/01/13 10,792,600
3,735 Volusia Cnty, FL Edl Fac Auth Rev Edl Facs
Embry Riddle Ser B Rfdg (AMBAC Insd)...... 5.250 10/15/19 3,606,292
--------------
68,760,112
--------------
GEORGIA 3.7%
1,750 Atlanta, GA Ctfs Partn Atlanta Pretrial
Detention Cent (MBIA Insd)................ 6.250 12/01/17 1,846,022
3,000 Fulton Cnty, GA Facs Corp Ctfs Partn
Fulton Cnty, GA Pub Purp Proj (AMBAC
Insd)..................................... 5.000 11/01/08 3,036,690
6,500 Georgia Muni Elec Auth Pwr Rev Genl Ser B
(BIGI Insd)............................... * 01/01/07 4,784,195
4,750 Georgia Muni Elec Auth Pwr Rev Genl Ser B
(BIGI Insd)............................... * 01/01/08 3,317,210
15,550 Georgia Muni Elec Auth Pwr Rev Ser Y
(AMBAC Insd).............................. 6.400 01/01/13 17,306,217
10,000 Georgia Muni Elec Auth Pwr Rev Ser Y (MBIA
Insd)..................................... 6.500 01/01/17 11,219,800
--------------
41,510,134
--------------
HAWAII 2.8%
10,000 Hawaii St Ser CS Rfdg (MBIA Insd)......... 5.000 04/01/08 10,121,600
12,785 Hawaii St Arpt Sys Rev Rfdg (MBIA Insd)... 6.400 07/01/08 13,526,914
10,250 Honolulu, HI City & Cnty Wastewtr Sys Rev
(FGIC Insd)............................... 4.500 07/01/28 8,247,867
--------------
31,896,381
--------------
</TABLE>

See Notes to Financial Statements

16
<PAGE> 18

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS 21.1%
$1,000 Berwyn, IL (MBIA Insd).................... 7.000% 11/15/10 $ 1,022,770
2,215 Bolingbrook, IL Cap Apprec Ser C Rfdg
(MBIA Insd)............................... * 01/01/19 771,706
2,595 Bolingbrook, IL Cap Apprec Ser C Rfdg
(MBIA Insd)............................... * 01/01/20 845,425
1,695 Champaign Cnty, IL Cmnty Unit Ser C (FGIC
Insd)..................................... * 01/01/15 755,699
1,500 Chicago, IL Brd of Edl Cap Apprec Sch
Reform Ser A (FGIC Insd).................. * 12/01/19 492,885
8,000 Chicago, IL Brd of Edl Cap Apprec Sch
Reform Ser A (FGIC Insd).................. * 12/01/29 1,409,920
3,250 Chicago, IL Brd of Edl Cap Apprec Sch
Reform Ser A (FGIC Insd).................. * 12/01/30 538,103
2,845 Chicago, IL Brd of Edl Cap Apprec Sch
Reform B 1 (FGIC Insd).................... * 12/01/19 934,839
10,000 Chicago, IL Brd of Edl Cap Apprec Sch
Reform B 1 (FGIC Insd).................... * 12/01/27 1,985,100
5,000 Chicago, IL Cap Apprec City Colleges (FGIC
Insd)..................................... * 01/01/27 1,064,350
5,470 Chicago, IL Emergency Telephone Sys (FGIC
Insd)..................................... 5.550 01/01/08 5,737,209
15,600 Chicago, IL Brd of Edl Chicago Sch Reform
(AMBAC Insd).............................. 5.750 12/01/27 15,513,576
2,000 Chicago, IL Lakefront Millenium Pkg Fac
(MBIA Insd)............................... * 01/01/25 1,415,800
2,000 Chicago, IL Lakefront Millenium Pkg Fac
(MBIA Insd)............................... * 01/01/29 1,409,680
11,475 Chicago, IL Park Dist Ser B (FGIC Insd)... 4.750 01/01/26 9,705,899
25,050 Chicago, IL Proj Rfdg (FGIC Insd)......... 5.250 01/01/28 23,236,630
11,750 Chicago, IL Proj Ser A Rfdg (FGIC Insd)... 5.375 01/01/34 11,041,122
2,720 Chicago, IL Pub Bldg Comm Bldg Rev Chicago
Transit Auth (AMBAC Insd)................. 6.600 01/01/15 2,899,166
9,000 Chicago, IL Pub Bldg Comm Rev Rfdg Chicago
Sch Reform Ser B (FGIC Insd).............. 5.250 12/01/16 8,812,170
5,000 Chicago, IL Sales Tax Rev (FGIC Insd)..... 5.375 01/01/30 4,718,700
3,150 Chicago, IL Skyway Toll Brdg Rev (MBIA
Insd)..................................... 5.500 01/01/23 3,061,138
4,000 Chicago, IL Skyway Toll Brdg Rev (AMBAC
Insd)..................................... 5.500 01/01/31 3,837,640
3,500 Chicago, IL Wastewtr Transmission Rev
(FGIC Insd)............................... 5.125 01/01/25 3,188,640
4,500 Cook Cnty, IL Cap Impt Ser A (FGIC
Insd)..................................... 5.250 11/15/15 4,423,680
</TABLE>

See Notes to Financial Statements

17
<PAGE> 19

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$1,000 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd)............ 8.400% 01/01/01 $ 1,009,780
5,550 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd)............ 8.750 01/01/03 6,033,516
8,460 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd)............ 8.750 01/01/04 9,487,044
2,460 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd)............ 8.750 01/01/05 2,836,651
3,500 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd)............ 8.750 01/01/07 4,230,205
4,230 Cook Cnty, IL Cmnty Cons Sch Dist No 015
Palatine Cap Apprec (FSA Insd)............ * 12/01/09 2,667,607
2,055 Cook Cnty, IL Cmnty Cons Sch Dist No 015
Palatine Cap Apprec (FSA Insd)............ * 12/01/10 1,225,109
1,280 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor (AMBAC Insd).......... * 12/01/05 993,715
8,280 Cook Cnty, IL Cnty Juvenile Detention Ser
A (AMBAC Insd)............................ * 11/01/08 5,557,536
1,505 Cook Cnty, IL Sch Dist No 100 Berwyn South
(FSA Insd)................................ 8.200 12/01/14 1,939,990
1,775 Cook Cnty, IL Sch Dist No 100 Berwyn South
(FSA Insd)................................ 8.100 12/01/16 2,283,538
1,000 Cook Cnty, IL Sch Dist No 135 Cap Apprec
(FGIC Insd)............................... * 12/01/06 737,480
1,380 Grundy Cnty, IL Sch Dist No 054 Morris Ser
A (AMBAC Insd)............................ 5.500 12/01/09 1,439,961
1,105 Grundy Cnty, IL Sch Dist No 054 Morris Ser
A (AMBAC Insd)............................ 5.500 12/01/10 1,151,686
1,800 Grundy Cnty, IL Sch Dist No 054 Morris Ser
A (AMBAC Insd)............................ 5.350 12/01/14 1,795,086
1,900 Grundy Cnty, IL Sch Dist No 054 Morris Ser
A (AMBAC Insd)............................ 5.400 12/01/15 1,895,364
10,000 Illinois Dev Fin Auth Pollutn Ctl Rev
Comwlth Edison Co Proj Ser D Rfdg (AMBAC
Insd)..................................... 6.750 03/01/15 10,824,100
35,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL
Pwr Co Proj Ser A First Mtg Rfdg (MBIA
Insd) (b)................................. 7.400 12/01/24 38,547,950
2,705 Illinois Dev Fin Auth Rev Adventist Hlth
Ser A (AMBAC Insd)........................ 5.500 11/15/15 2,695,181
2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm
Rockford Sch 205 (FSA Insd)............... 6.650 02/01/11 2,245,680
</TABLE>

See Notes to Financial Statements

18
<PAGE> 20

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm
Rockford Sch 205 Rfdg (FSA Insd).......... 6.650% 02/01/12 $ 5,477,401
872 Illinois Hlth Fac Auth Rev Cmnty Prov
Pooled Pgm Ser B (MBIA Insd).............. 7.900 08/15/03 874,320
5,000 Illinois Hlth Fac Auth Rev Methodist Hlth
Proj (Inverse Fltg) (Prerefunded @
05/08/01) (AMBAC Insd).................... 9.142 05/18/21 5,325,000
3,400 Illinois Hlth Fac Auth Rev Rush
Presbyterian Saint Luke Hosp (Inverse
Fltg) (Prerefunded @ 11/01/01) (MBIA
Insd)..................................... 9.007 10/01/24 3,672,000
4,455 Illinois Muni Elec Agy Pwr Supply Sys Rev
Rfdg (FSA Insd)........................... 5.000 02/01/21 4,034,715
2,830 Illinois St (MBIA Insd)................... 5.000 06/01/17 2,654,597
6,790 Lake Cnty, IL Cmnty Unit Sch Dist No 60
Waukegan Cap Apprec Ser A (FSA Insd)...... * 12/01/17 2,539,460
3,000 Rosemont, IL Tax Increment 3 (FGIC
Insd)..................................... * 12/01/07 2,106,660
1,185 Saint Clair Cnty, IL Ctfs Partn (MBIA
Insd)..................................... 8.000 12/01/04 1,333,149
1,285 Saint Clair Cnty, IL Ctfs Partn (MBIA
Insd)..................................... 8.000 12/01/05 1,476,619
2,000 Southern Illinois Univ Rev Cap Apprec Hsg
& Aux Ser A (MBIA Insd)................... * 04/01/20 645,820
2,500 Southern Illinois Univ Rev Cap Apprec Hsg
& Aux Ser A (MBIA Insd)................... * 04/01/23 666,675
2,000 Southern Illinois Univ Rev Cap Apprec Hsg
& Aux Ser A (MBIA Insd)................... * 04/01/26 444,980
--------------
239,670,422
--------------
INDIANA 1.5%
175 Indiana Bond Bank Spl Pgm Ser A (AMBAC
Insd)..................................... 6.125 02/01/25 180,616
2,000 Indiana Bond Bank Spl Pgm Ser A (AMBAC
Insd)..................................... 9.750 08/01/09 2,455,340
5,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty
Hosps Proj Rfdg & Impt (MBIA Insd)........ 6.400 05/01/12 5,194,300
7,535 Indiana Trans Fin Auth Arpt Facs Lease Rev
Ser A Rfdg (AMBAC Insd)................... 6.000 11/01/11 8,173,440
1,000 Marion Cnty, IN Convention & Rectl Fac
Auth Excise Tax Rev Lease Rental Ser A
(AMBAC Insd).............................. 7.000 06/01/21 1,033,890
--------------
17,037,586
--------------
IOWA 0.2%
2,375 Iowa Fin Auth Hosp Fac Rev Trinity Regl
Hosp Proj (FSA Insd)...................... 5.750 07/01/17 2,395,069
--------------
</TABLE>

See Notes to Financial Statements

19
<PAGE> 21

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
KANSAS 1.7%
$18,750 Burlington, KS Pollutn Ctl Rev KS Gas &
Elec Co Proj Rfdg (MBIA Insd)............. 7.000% 06/01/31 $ 19,381,687
--------------

KENTUCKY 0.0%
5 Kentucky Cntys Single Family Mtg
Presbyterian Homes Ser A Rfdg (MBIA
Insd)..................................... 8.625 09/01/15 5,010
--------------

LOUISIANA 1.1%
4,065 Calcasieu Parish, LA Mem Hosp Svcs Dist
Hosp Rev Lake Charles Mem Hosp Proj Ser A
(Connie Lee Insd)......................... 6.375 12/01/12 4,483,695
5,530 Calcasieu Parish, LA Mem Hosp Svcs Dist
Hosp Rev Lake Charles Mem Hosp Proj Ser A
(Connie Lee Insd)......................... 6.500 12/01/18 6,136,088
7,520 New Orleans, LA Home Mtg Auth Single
Family Mtg Rev 1985 Ser A (MBIA Insd)..... * 09/15/16 1,390,674
--------------
12,010,457
--------------
MAINE 0.0%
35 Maine Hlth & Higher Edl Fac Auth Rev Ser B
(FSA Insd)................................ 7.100 07/01/14 38,605
--------------

MASSACHUSETTS 0.2%
1,700 Massachusetts St Hlth & Edl Fac Auth Rev
Mt Auburn Hosp Ser B1 (MBIA Insd)......... 6.250 08/15/14 1,806,046
--------------

MICHIGAN 2.5%
3,700 Big Rapids, MI Pub Schs Dist Rfdg (FSA
Insd)..................................... 4.750 05/01/25 3,180,372
12,270 Detroit, MI City Sch Dist Ser B (FGIC
Insd)..................................... 5.000 05/01/21 11,187,786
3,000 Hazel Park, MI Bldg Auth Ice Arena (AMBAC
Insd)..................................... 4.700 04/01/24 2,561,970
21,000 Livonia, MI Pub Sch Dist Ser II (FGIC
Insd)..................................... * 05/01/21 5,853,960
2,000 Michigan St Hsg Dev Auth Rental Hsg Rev
Ser B (AMBAC Insd)........................ 4.850 04/01/04 1,989,820
5,000 Mount Clemens, MI Cmnty Sch Dist Cap
Apprec (Prerefunded @ 05/01/07) (MBIA
Insd)..................................... * 05/01/17 1,832,950
2,500 Plymouth Canton, MI Cmnty Sch Dist (FSA
Insd)..................................... 4.750 05/01/23 2,161,800
--------------
28,768,658
--------------
</TABLE>

See Notes to Financial Statements

20
<PAGE> 22

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MINNESOTA 0.1%
$1,000 Brainerd, MN Rev Evangelical Lutheran Ser
B Rfdg (FSA Insd)......................... 6.650% 03/01/17 $ 1,043,150
--------------

MISSISSIPPI 0.1%
1,000 Harrison Cnty, MS Wastewtr Mgmt Dist Rev
Wastewtr Treatment Fac Ser A Rfdg (FGIC
Insd)..................................... 8.500 02/01/13 1,294,460
--------------

MISSOURI 0.4%
4,585 Missouri St Hlth & Edl Fac Auth (MBIA
Insd)..................................... 6.250 06/01/16 4,705,906
--------------

NEBRASKA 0.2%
2,250 American Pub Energy Agy NE Gas Sup Rev NE
Pub Gas Agy Proj Ser A (AMBAC Insd)....... 4.375 06/01/10 1,946,295
--------------

NEVADA 1.8%
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj
Ser C Rfdg (AMBAC Insd)................... 7.200 10/01/22 2,125,320
1,675 Clark Cnty, NV Pub Fac Ser C (FGIC
Insd)..................................... 5.000 06/01/24 1,510,481
5,000 Director St, NV Dept Business & Industl
Las Vegas Monorail Proj First Tier (AMBAC
Insd)..................................... 5.375 01/01/40 4,646,550
1,295 Las Vegas, NV Loc Impt Spl Impt Dist No
404 Rfdg (FSA Insd)....................... 4.400 11/01/08 1,234,731
1,095 Las Vegas, NV Loc Impt Spl Impt Dist No
404 Rfdg (FSA Insd)....................... 4.500 11/01/09 1,041,903
1,035 Washoe Cnty, NV Ctfs Partn Pub Safety
Training Fac Proj (AMBAC Insd)............ 4.700 09/01/07 1,025,509
1,000 Washoe Cnty, NV Ctfs Partn Pub Safety
Training Fac Proj (AMBAC Insd)............ 4.750 09/01/08 989,240
2,000 Washoe Cnty, NV Ctfs Partn Pub Safety
Training Fac Proj (AMBAC Insd)............ 4.800 09/01/09 1,973,540
1,530 Washoe Cnty, NV Ctfs Partn Pub Safety
Training Fac Proj (AMBAC Insd)............ 4.875 09/01/10 1,508,657
4,705 Washoe Cnty, NV Sch Dist (AMBAC Insd)..... 4.750 06/01/17 4,192,767
--------------
20,248,698
--------------
NEW HAMPSHIRE 0.3%
2,500 New Hampshire St Tpk Sys Rev Rfdg (Inverse
Fltg) (FGIC Insd)......................... 8.968 11/01/17 3,018,750
--------------
</TABLE>

See Notes to Financial Statements

21
<PAGE> 23

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY 2.5%
$5,500 Howell Twp, NJ Rfdg (FGIC Insd)........... 6.800% 01/01/14 $ 5,739,360
3,625 Morristown, NJ Rfdg (FSA Insd)............ 6.400 08/01/14 3,921,126
12,400 New Jersey St Tran Corp Ctfs Fed Tran
Admin Grants Ser A (AMBAC Insd)........... 5.875 09/15/12 13,217,160
4,800 New Jersey St Tpk Auth Tpk Rev Ser A (MBIA
Insd) (a)................................. 5.750 01/01/10 5,135,328
--------------
28,012,974
--------------
NEW MEXICO 0.7%
8,000 Farmington, NM Pollutn Ctl Rev Southern CA
Edison Co Ser A Rfdg (MBIA Insd).......... 5.875 06/01/23 8,067,360
--------------

NEW YORK 7.3%
11,095 Long Island Pwr Auth, NY Elec Sys Rev Gen
Ser A (FSA Insd).......................... 5.125 12/01/16 10,715,551
4,350 New York City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd)..... 6.375 11/15/14 4,660,634
5,000 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Ser A (AMBAC Insd)................ 5.125 06/15/22 4,623,550
5,000 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev (FSA Insd)........................ * 06/15/14 2,358,850
9,845 New York City Ser I (MBIA Insd)........... 4.750 04/15/17 8,885,605
11,220 New York City Transitional Fin Auth Rev
(FGIC Insd)............................... 4.750 11/01/17 10,104,844
2,750 New York City Transitional Fin Auth Rev
Ser B (FGIC Insd)......................... 4.750 11/15/18 2,455,530
7,425 New York St Dorm Auth Lease Rev Office Fac
& Audit Ctl (MBIA Insd)................... 5.000 04/01/29 6,606,245
5,500 New York St Dorm Auth Rev City Univ Sys
Cons Third Genl 1 (FGIC Insd)............. 5.250 07/01/25 5,162,905
6,000 New York St Loc Govt Assist Ser A Rfdg
(AMBAC Insd).............................. 5.250 04/01/15 5,937,000
15 New York St Med Care Fac Fin Agy Rev (FSA
Insd)..................................... 6.500 08/15/15 16,100
8,865 New York St Twy Auth Hwy & Brdg Tr Fd Ser
A (AMBAC Insd)............................ 5.250 04/01/13 8,910,211
</TABLE>

See Notes to Financial Statements

22
<PAGE> 24

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$8,105 New York St Urban Dev Corp Correctional
Facs Svs Contract Ser B (AMBAC Insd)...... 5.250% 01/01/14 $ 8,092,842
4,890 Suffolk Cnty, NY Judicial Facs Agy Svc
Agreement Rev John P Cohalan Complex
(AMBAC Insd).............................. 5.250 10/15/14 4,877,824
--------------
83,407,691
--------------
NORTH CAROLINA 0.1%
1,250 Franklin Cnty, NC Ctfs Partn Jail & Sch
Projs (FGIC Insd)......................... 6.625 06/01/14 1,358,125
--------------

NORTH DAKOTA 1.3%
5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope
Vly Station Rfdg (AMBAC Insd)............. 7.200 06/30/13 5,869,450
10,000 Oliver Cnty, ND Pollutn Ctl Rev Square
Butte Elec Co-op Ser A Rfdg (AMBAC
Insd)..................................... 5.300 01/01/27 9,332,900
--------------
15,202,350
--------------
OHIO 0.5%
5,000 Clermont Cnty, OH Hosp Fac Rev Muni
(Inverse Fltg) (Prerefunded @ 09/25/01)
(AMBAC Insd).............................. 8.921 10/05/21 5,387,500
--------------

OKLAHOMA 1.8%
1,355 Jenks, OK Aquarium Auth Rev First Mort
(AMBAC Insd).............................. 6.000 07/01/20 1,411,165
11,000 McAlester, OK Pub Wks Auth Util Sys Rev
(FSA Insd)................................ * 02/01/30 1,828,860
5,660 Mustang, OK Impt Auth Util Rev (FSA
Insd)..................................... 5.800 10/01/30 5,715,468
4,000 Sapulpa, OK Muni Auth Cap Impt Rev Rfdg
(FSA Insd)................................ 5.750 07/01/30 4,008,080
8,260 Tulsa, OK Tulsa Indl Auth Rev Univ Of
Tulsa Ser A (MBIA Insd)................... 5.375 10/01/31 7,838,162
--------------
20,801,735
--------------
OREGON 1.6%
6,245 Oregon St Dept Admin Svcs Lottery Rev Ed
Projs Ser A (FSA Insd).................... 5.000 04/01/08 6,336,677
5,460 Oregon St Dept Admin Svcs Lottery Rev Ed
Projs Ser A (FSA Insd).................... 5.250 04/01/09 5,620,306
6,240 Portland, OR Swr Sys Rev Ser A (MBIA
Insd)..................................... 5.125 06/01/10 6,354,441
--------------
18,311,424
--------------
</TABLE>

See Notes to Financial Statements

23
<PAGE> 25

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA 2.0%
$5,000 Allegheny Cnty, PA Hosp Dev Auth Rev Insd
Hlth Sys Ser A (MBIA Insd)................ 6.500% 11/15/30 $ 5,276,800
4,875 Allegheny Cnty, PA Hosp Dev Auth Rev
Pittsburgh Mercy Hlth Sys Inc (AMBAC
Insd)..................................... 5.625 08/15/26 4,868,029
2,000 Dauphin Cnty, PA Genl Auth Hosp Rev Hapsco
Phoenixville Hosp Proj Ser B (FGIC
Insd)..................................... 6.125 07/01/10 2,129,800
4,325 Delaware River Port Auth PA & NJ Rev (FSA
Insd)..................................... 5.500 01/01/11 4,514,262
1,000 Lehigh Cnty, PA Indl Dev Auth Pollutn Ctl
Rev PA Pwr & Lt Co Proj Ser A Rfdg (MBIA
Insd)..................................... 6.400 11/01/21 1,044,010
2,650 Pennsylvania St Third Ser (FGIC Insd)..... 5.000 12/01/15 2,534,354
2,250 Philadelphia, PA Gas Wks Rev 14th Ser A
Rfdg (FSA Insd)........................... 6.375 07/01/14 2,377,035
--------------
22,744,290
--------------
SOUTH CAROLINA 0.2%
70 Charleston Cnty, SC Ctfs Partn Ser B (MBIA
Insd)..................................... 6.875 06/01/14 75,552
2,600 Lancaster Cnty, SC Sch Dist (FSA Insd).... 4.750 03/01/17 2,371,096
--------------
2,446,648
--------------
SOUTH DAKOTA 2.1%
13,860 Sioux Falls, SD Sales Tax Rev (AMBAC
Insd)..................................... 5.450 11/15/14 13,908,787
5,205 South Dakota St Lease Rev Trust Ctfs Ser A
(FSA Insd)................................ 6.625 09/01/12 5,914,806
4,000 South Dakota St Lease Rev Trust Ctfs Ser A
(FSA Insd)................................ 6.700 09/01/17 4,580,080
--------------
24,403,673
--------------
TENNESSEE 0.6%
2,000 Chattanooga-Hamilton Cnty, TN Hosp Auth
Hosp Rev Erlanger Med Cent Ser B (Inverse
Fltg) (Prerefunded @ 05/01/01) (FSA
Insd)..................................... 9.165 05/25/21 2,127,500
6,000 Tennergy Corp, TN Gas Rev (MBIA Insd)..... 4.125 06/01/09 5,125,140
--------------
7,252,640
--------------
TEXAS 8.5%
3,000 Amarillo, TX Hlth Fac Corp Hosp Rev High
Plains Baptist Hosp (Inverse Fltg) (FSA
Insd)..................................... 8.277 01/01/22 3,243,750
12,500 Austin, TX Util Sys Rev Ser A Rfdg (MBIA
Insd)..................................... * 11/15/10 7,461,500
</TABLE>

See Notes to Financial Statements

24
<PAGE> 26

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$5,000 Brazos River Auth, TX Rev Houston Inds Inc
Proj Ser C (AMBAC Insd)................... 5.125% 05/01/19 $ 4,628,000
16,900 Dallas Cnty, TX Util & Reclamation Dist
Ser B Rfdg (AMBAC Insd)................... 5.875 02/15/29 16,989,232
5,500 El Paso, TX Ctfs Oblig (FSA Insd)......... 5.750 08/15/25 5,501,155
17,635 Harris Cnty-Houston, TX Sports Auth Spl
Rev Ser A (MBIA Insd)..................... 5.000 11/15/28 15,701,851
12,500 Houston, TX Wtr & Swr Sys Rev Cap Apprec
Ser A Rfdg (FSA Insd)..................... * 12/01/19 4,122,750
12,400 Houston, TX Wtr & Swr Sys Rev Cap Apprec
Ser A Rfdg (FSA Insd)..................... * 12/01/20 3,822,176
2,505 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA
Insd)..................................... * 03/01/15 1,090,552
1,000 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA
Insd)..................................... * 03/01/16 406,070
1,305 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA
Insd)..................................... * 03/01/17 495,861
600 North Cent, TX Hlth Fac Dev TX Hlth Res
Sys Ser B ( MBIA Insd).................... 5.375 02/15/26 555,438
1,000 San Antonio, TX Indpt Sch Dist Pub Fac
Corp Lease Rev (AMBAC Insd)............... 5.850 10/15/10 1,056,310
1,750 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth
Sys Rev Ser B (FGIC Insd)................. 5.000 09/01/15 1,683,167
31,330 Texas St Tpk Auth Dallas Northtwy George
Bush Tpk (FGIC Insd)...................... 5.250 01/01/23 29,542,937
--------------
96,300,749
--------------
UTAH 0.9%
730 Provo, UT Elec Rev 1984 Ser A Rfdg (AMBAC
Insd)..................................... 10.375 09/15/15 1,009,626
7,385 Utah St Muni Fin Co-op Loc Govt Rev Pool
Cap Salt Lake (FSA Insd).................. * 03/01/09 4,836,141
4,540 West Valley City, UT Muni Bldg Lease Ser A
Rfdg (AMBAC Insd)......................... 4.750 04/15/19 4,000,285
--------------
9,846,052
--------------
VIRGINIA 1.3%
4,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd).... 6.800 03/01/14 4,293,200
5,000 Richmond, VA (FSA Insd) (a)............... 5.500 01/15/17 5,022,550
5,000 Richmond, VA (FSA Insd) (a)............... 5.500 01/15/18 5,005,800
--------------
14,321,550
--------------
</TABLE>

See Notes to Financial Statements

25
<PAGE> 27

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
WASHINGTON 1.9%
$2,335 Grant Cnty, WA Pub Util Dist No 2 Priest
Rapids Hydro Elec Rev Second Ser C Rfdg
(AMBAC Insd).............................. 6.000% 01/01/17 $ 2,419,387
1,025 Grant Cnty, WA Pub Util Dist No 2 Wanapum
Hydro Elec Rev Second Ser C Rfdg (AMBAC
Insd)..................................... 6.000 01/01/17 1,062,043
350 Pierce Cnty, WA Swr Rev Ser A (MBIA
Insd)..................................... 9.000 02/01/05 409,840
5,000 Spokane, WA Regl Solid Waste Mgmt Sys Rev
(AMBAC Insd).............................. 6.250 12/01/11 5,232,400
10,000 Washington St Ser R 99A Rfdg (FGIC
Insd)..................................... 5.000 01/01/17 9,359,200
3,090 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev Proj No 1 Rev Ser A Rfdg
(AMBAC Insd).............................. 5.700 07/01/09 3,232,418
--------------
21,715,288
--------------
WISCONSIN 1.8%
1,350 Plover, WI Wtr Sys Rev (AMBAC Insd)....... 5.400 12/01/16 1,341,981
1,500 Plover, WI Wtr Sys Rev (AMBAC Insd)....... 5.500 12/01/18 1,490,505
3,950 Two Rivers, WI Pub Sch Dist Rfdg (FSA
Insd)..................................... 6.000 03/01/18 4,109,699
3,920 University of Wisconsin Hosps & Clinics
Auth Rev (FSA Insd)....................... 6.200 04/01/29 4,103,299
10,000 Wisconsin St Hlth & Edl Fac Auth Rev
Aurora Med Group Inc Proj (FSA Insd)...... 5.750 11/15/25 9,900,900
--------------
20,946,384
--------------
WYOMING 0.2%
2,000 Laramie Cnty, WY Hosp Rev Mem Hosp Proj
(AMBAC Insd).............................. 6.700 05/01/12 2,103,140
--------------

PUERTO RICO 0.3%
3,000 Puerto Rico Indl Tourist Edl Med &
Environmental Ctl Fac Hosp Aux (MBIA
Insd)..................................... 6.250 07/01/16 3,148,950
--------------
TOTAL LONG-TERM INVESTMENTS 93.8%
(Cost $1,024,544,379)............................................... 1,064,854,951
--------------
</TABLE>

See Notes to Financial Statements

26
<PAGE> 28

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS 5.2%
$3,800 California Statewide Cmntys Dev Auth
Rev....................................... 4.85% 08/15/27 $ 3,800,000
2,700 Orange County, FL Sch Brd Ctfs Partn Ser
B......................................... 3.00 08/01/25 2,700,000
900 Pinellas Cnty, FL Hlth Fec Dates Pooled
Hosp Ln Pgm Rfdg.......................... 5.45 12/01/15 900,000
700 Indiana Hosp Equip Fing Auth Rev Variable
Rate Insd Ser A........................... 4.85 12/01/15 700,000
2,250 Indiana Hosp Equip Fing Auth Rev Variable
Rate Insd Ser A........................... 3.85 12/01/15 2,250,000
1,590 Iowa Fin Auth Rev Burlington Med Cent..... 3.40 06/01/27 1,590,000
1,200 Iowa Fin Auth Rev Burlington Med Cent..... 5.05 06/01/27 1,200,000
5,055 Iowa Fin Auth Rev Burlington Med Cent..... 5.80 08/01/27 5,055,000
1,300 Iowa Fin Auth Rev Burlington Med Cent..... 5.85 06/01/27 1,300,000
400 Iowa Fin Auth Rev Burlington Med Cent..... 6.10 06/01/27 400,000
1,400 Michigan St Strategic Fund Pollution
Control Rev............................... 4.45 04/15/18 1,400,000
2,100 Kansas City, MO Indl Dev Auth Hosp Rev
Resh Hlth Svcs Sys........................ 4.25 04/15/15 2,100,000
2,400 Kansas City, MO Indl Dev Auth Hosp Rev.... 4.25 10/15/15 2,400,000
8,300 Reno Nv Hosp Rev Variable Insd St Marys
Regl Med B................................ 5.10 05/15/23 8,300,000
4,800 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Swr Sys Rev....................... 5.75 06/15/22 4,800,000
200 New York City Muni Wtr Fin Auth Rev....... 3.75 06/15/24 200,000
2,400 New York City Muni Wtr Fin Auth Ser A..... 4.00 06/15/25 2,400,000
2,900 New York City Muni Wtr Fin Auth Ser A..... 5.00 06/15/25 2,900,000
2,000 New York City Ser B....................... 4.05 10/01/21 2,000,000
1,300 New York City Ser B....................... 4.65 10/01/22 1,300,000
4,400 New York City Ser B....................... 5.00 10/01/22 4,400,000
3,700 New York City Ser B....................... 4.50 08/15/18 3,700,000
2,700 Lehigh Cnty, PA Genl Purp Auth Rev Adj Adj
Hosp Lehigh Vly Hosp Ser A................ 5.75 07/01/28 2,700,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $58,495,000).................................................. 58,495,000
--------------
TOTAL INVESTMENTS 99.0%
(Cost $1,083,039,379)............................................... 1,123,349,951
OTHER ASSETS IN EXCESS OF LIABILITIES 1.0%........................... 11,628,719
--------------

NET ASSETS 100.0%.................................................... $1,134,978,670
==============
</TABLE>

See Notes to Financial Statements

27
<PAGE> 29

YOUR FUND'S INVESTMENTS

September 30, 2000

* Zero coupon bond

(a) Securities purchased on a when-issued or delayed delivery basis.

(b) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments.

AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.

See Notes to Financial Statements

28
<PAGE> 30

FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2000

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,083,039,379)..................... $1,123,349,951
Cash........................................................ 22,383
Receivables:
Interest.................................................. 16,373,694
Investments Sold.......................................... 14,971,177
Fund Shares Sold.......................................... 297,570
Other....................................................... 44,602
--------------
Total Assets............................................ 1,155,059,377
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 14,912,700
Fund Shares Repurchased................................... 2,503,667
Income Distributions...................................... 1,249,495
Investment Advisory Fee................................... 477,089
Distributor and Affiliates................................ 455,327
Trustees' Deferred Compensation and Retirement Plans........ 262,189
Accrued Expenses............................................ 220,240
--------------
Total Liabilities....................................... 20,080,707
--------------
NET ASSETS.................................................. $1,134,978,670
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,095,054,403
Net Unrealized Appreciation................................. 40,310,572
Accumulated Undistributed Net Investment Income............. 1,659,961
Accumulated Net Realized Loss............................... (2,046,266)
--------------
NET ASSETS.................................................. $1,134,978,670
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,086,558,234 and 59,468,503 shares of
beneficial interest issued and outstanding)............. $ 18.27
Maximum sales charge (4.75%* of offering price)......... .91
--------------
Maximum offering price to public........................ $ 19.18
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $43,014,842 and 2,355,341 shares of
beneficial interest issued and outstanding)............. $ 18.26
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $5,405,594 and 296,168 shares of
beneficial interest issued and outstanding)............. $ 18.25
==============
</TABLE>

* On sales of $100,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

29
<PAGE> 31

Statement of Operations
For the Year Ended September 30, 2000

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $69,088,270
-----------
EXPENSES:
Investment Advisory Fee..................................... 5,894,012
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $2,557,222, $501,554 and $73,007,
respectively)............................................. 3,131,783
Shareholder Services........................................ 961,032
Custody..................................................... 140,234
Trustees' Fees and Related Expenses......................... 87,763
Legal....................................................... 66,307
Other....................................................... 537,504
-----------
Total Operating Expenses................................ 10,818,635
Less Credits Earned on Cash Balances.................... 103,699
-----------
Net Operating Expenses.................................. 10,714,936
Interest Expense........................................ 7,666
-----------
NET INVESTMENT INCOME....................................... $58,365,668
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 4,571,039
Futures................................................... (1,923,459)
-----------
Net Realized Gain........................................... 2,647,580
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 33,264,766
End of the Period:
Investments............................................. 40,310,572
-----------
Net Unrealized Appreciation During the Period............... 7,045,806
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 9,693,386
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $68,059,054
===========
</TABLE>

See Notes to Financial Statements

30
<PAGE> 32

Statement of Changes in Net Assets
For the Years Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
----------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income......................... $ 58,365,668 $ 63,141,708
Net Realized Gain/Loss........................ 2,647,580 (2,623,262)
Net Unrealized Appreciation/Depreciation
During the Period........................... 7,045,806 (109,883,410)
-------------- --------------
Change in Net Assets from Operations.......... 68,059,054 (49,364,964)
-------------- --------------

Distributions from Net Investment Income:
Class A Shares.............................. (54,044,808) (60,158,791)
Class B Shares.............................. (2,065,598) (2,628,280)
Class C Shares.............................. (300,106) (320,563)
-------------- --------------
(56,410,512) (63,107,634)
-------------- --------------

Distributions from Net Realized Gain:
Class A Shares.............................. (238,550) (15,893,768)
Class B Shares.............................. (40,306) (826,371)
Class C Shares.............................. (21,035) (90,442)
-------------- --------------
(299,891) (16,810,581)
-------------- --------------
Total Distributions........................... (56,710,403) (79,918,215)
-------------- --------------

NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................. 11,348,651 (129,283,179)
-------------- --------------

FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold..................... 130,042,291 692,548,007
Net Asset Value of Shares Issued Through
Dividend Reinvestment....................... 40,567,000 57,008,999
Cost of Shares Repurchased.................... (290,402,820) (809,433,864)
-------------- --------------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS........................ (119,793,529) (59,876,858)
-------------- --------------
TOTAL DECREASE IN NET ASSETS.................. (108,444,878) (189,160,037)
NET ASSETS:
Beginning of the Period....................... 1,243,423,548 1,432,583,585
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of
$1,659,961 and $(487,916), respectively).... $1,134,978,670 $1,243,423,548
============== ==============
</TABLE>

See Notes to Financial Statements

31
<PAGE> 33

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $ 18.08 $ 19.96 $ 19.63 $ 19.24 $ 19.55 $ 17.57
-------- -------- -------- -------- -------- --------
Net Investment Income..... .91 .91 .71 .97 .98 1.02
Net Realized and
Unrealized Gain/Loss.... .17 (1.64) .37 .55 (.30) 1.98
-------- -------- -------- -------- -------- --------
Total from Investment
Operations................ 1.08 (.73) 1.08 1.52 .68 3.00
-------- -------- -------- -------- -------- --------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .88 .92 .72 .97 .99 1.02
Distributions from Net
Realized Gain........... .01 .23 .03 .16 -0- -0-
-------- -------- -------- -------- -------- --------
Total Distributions......... .89 1.15 .75 1.13 .99 1.02
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD.................... $ 18.27 $ 18.08 $ 19.96 $ 19.63 $ 19.24 $ 19.55
======== ======== ======== ======== ======== ========

Total Return (a)............ 6.13% (3.80%) 5.61%* 8.19% 3.65% 17.49%
Net Assets at End of the
Period (In millions)...... $1,086.6 $1,178.3 $1,353.9 $1,283.5 $1,283.7 $1,365.4
Ratio of Expenses to Average
Net Assets (b)............ .90% .92% .90% .92% .95% .88%
Ratio of Net Investment
Income to Average Net
Assets (b)................ 5.10% 4.77% 4.85% 5.07% 5.11% 5.44%
Portfolio Turnover.......... 69% 92% 62%* 82% 92% 70%
</TABLE>

* Non-Annualized

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a contingent
deferred sales charge of 1% may be imposed on certain redemptions made
within one year of purchase. If the sales charges were included, total
returns would be lower.

(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.

See Notes to Financial Statements

32
<PAGE> 34

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD......................... $18.08 $19.96 $19.63 $19.24 $19.55 $17.56
------ ------ ------ ------ ------ ------
Net Investment Income.......... .78 .76 .60 .82 .83 .89
Net Realized and Unrealized
Gain/Loss.................... .15 (1.64) .37 .55 (.30) 1.98
------ ------ ------ ------ ------ ------
Total from Investment
Operations..................... .93 (.88) .97 1.37 .53 2.87
------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income....................... .74 .77 .61 .82 .84 .88
Distributions from Net Realized
Gain......................... .01 .23 .03 .16 -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions.............. .75 1.00 .64 .98 .84 .88
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD......................... $18.26 $18.08 $19.96 $19.63 $19.24 $19.55
====== ====== ====== ====== ====== ======

Total Return (a)................. 5.25% (4.60%) 5.07%* 7.36% 2.83% 16.67%
Net Assets at End of the Period
(In millions).................. $ 43.0 $ 56.8 $ 71.9 $ 70.1 $ 71.6 $ 75.3
Ratio of Expenses to Average Net
Assets (b)..................... 1.68% 1.68% 1.66% 1.69% 1.74% 1.67%
Ratio of Net Investment Income to
Average Net Assets (b)......... 4.34% 3.99% 4.08% 4.29% 4.38% 4.69%
Portfolio Turnover............... 69% 92% 62%* 82% 92% 70%
</TABLE>

* Non-Annualized

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge 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.

See Notes to Financial Statements

33
<PAGE> 35

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD......................... $18.08 $19.95 $19.63 $19.24 $19.55 $17.57
------ ------ ------ ------ ------ ------
Net Investment Income.......... .79 .76 .60 .82 .83 .88
Net Realized and Unrealized
Gain/Loss.................... .13 (1.63) .37 .55 (.30) 1.98
------ ------ ------ ------ ------ ------
Total from Investment
Operations..................... .92 (.87) .97 1.37 .53 2.86
------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income....................... .74 .77 .61 .82 .84 .88
Distributions from Net Realized
Gain......................... .01 .23 .04 .16 -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions.............. .75 1.00 .65 .98 .84 .88
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD......................... $18.25 $18.08 $19.95 $19.63 $19.24 $19.55
====== ====== ====== ====== ====== ======

Total Return (a)................. 5.19% (4.55%) 5.02%* 7.36% 2.83% 16.60%
Net Assets at End of the Period
(In millions).................. $ 5.4 $ 8.3 $ 6.8 $ 5.6 $ 4.9 $ 5.1
Ratio of Expenses to Average Net
Assets (b)..................... 1.68% 1.68% 1.66% 1.69% 1.74% 1.67%
Ratio of Net Investment Income to
Average Net Assets (b)......... 4.35% 3.99% 4.06% 4.29% 4.37% 4.68%
Portfolio Turnover............... 69% 92% 62%* 82% 92% 70%
</TABLE>

* Non-Annualized

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.

See Notes to Financial Statements

34
<PAGE> 36

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen Insured Tax Free Income Fund (the "Fund") is organized as a series of
Van Kampen Tax Free Trust (the "Trust"), a Delaware business trust and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide investors with a high level of current income exempt from federal
income taxes, with liquidity and safety of principal, primarily through an
investment in a diversified portfolio of insured municipal securities. The Fund
commenced investment operations on December 14, 1984. The distribution of the
Fund's Class B and Class C shares commenced on May 3, 1993 and August 13, 1993,
respectively.

The 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 accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

A. SECURITY VALUATION 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. 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
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when-issued or delayed delivery
purchase commitments until payment is made.

C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Bond
premium is amortized and original issue discount is accreted over the expected
life

35
<PAGE> 37

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

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 transfer agency costs which are unique to each class of shares.

D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute 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 such losses against any future realized capital
gains. At September 30, 2000, the Fund had an accumulated capital loss
carryforward for tax purposes of $1,991,890, which will expire on September 30,
2008. Net realized gains or losses may differ for financial reporting and tax
reporting purposes primarily as a result of the deferral of losses relating to
wash sale transactions.

At September 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $1,083,093,755; the aggregate gross unrealized
appreciation is $48,726,106 and the aggregate gross unrealized depreciation is
$8,469,910, resulting in net unrealized appreciation on long- and short-term
investments of $40,256,196.

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.

Due to inherent differences in the recognition of income, expenses and
realized gain/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 2000 fiscal year have been identified and appropriately
reclassified. Permanent book and tax basis differences relating to the
recognition of market discount on bonds totaling $192,721 were reclassified from
accumulated net realized gain/loss to accumulated undistributed net investment
income.

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.

36
<PAGE> 38

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

G. EXPENSE REDUCTIONS During the year ended September 30, 2000, the Fund's
custody fee was reduced by $103,699 as a result of credits earned on overnight
cash balances.

2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES

Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .525 of 1%
Next $500 million........................................... .500 of 1%
Next $500 million........................................... .475 of 1%
Over $1.5 billion........................................... .450 of 1%
</TABLE>

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $38,700 representing legal expenses provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $99,400 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.

Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
2000, the Fund recognized expenses of approximately $698,400. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.

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 to a
later date. Benefits under the retirement plan are payable 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.

37
<PAGE> 39

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

3. CAPITAL TRANSACTIONS

At September 30, 2000, capital aggregated $1,043,663,962, $45,226,320 and
$6,164,121 for Classes A, B and C, respectively. For the year ended September
30, 2000, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 6,924,593 $ 122,658,515
Class B............................................... 281,392 5,044,295
Class C............................................... 131,015 2,339,481
----------- -------------
Total Sales............................................. 7,337,000 $ 130,042,291
=========== =============
Dividend Reinvestment:
Class A............................................... 2,192,824 $ 39,253,774
Class B............................................... 62,202 1,112,560
Class C............................................... 11,228 200,666
----------- -------------
Total Dividend Reinvestment............................. 2,226,254 $ 40,567,000
=========== =============
Repurchases:
Class A............................................... (14,817,661) $(264,704,104)
Class B............................................... (1,127,106) (20,224,429)
Class C............................................... (306,099) (5,474,287)
----------- -------------
Total Repurchases....................................... (16,250,866) $(290,402,820)
=========== =============
</TABLE>

38
<PAGE> 40

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

At September 30, 1999, capital aggregated $1,146,455,777, $59,293,894 and
$9,098,261 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 34,531,055 $ 665,555,139
Class B............................................... 613,802 11,864,633
Class C............................................... 778,739 15,128,235
----------- -------------
Total Sales............................................. 35,923,596 $ 692,548,007
=========== =============
Dividend Reinvestment:
Class A............................................... 2,854,181 $ 54,768,276
Class B............................................... 101,275 1,947,040
Class C............................................... 15,346 293,683
----------- -------------
Total Dividend Reinvestment............................. 2,970,802 $ 57,008,999
=========== =============
Repurchases:
Class A............................................... (40,059,533) $(773,708,764)
Class B............................................... (1,177,316) (22,609,500)
Class C............................................... (676,622) (13,115,600)
----------- -------------
Total Repurchases....................................... (41,913,471) $(809,433,864)
=========== =============
</TABLE>

Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan Class B Shares received thereon, automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan Class B Shares received thereon, automatically
convert to Class A Shares seven years after the end of the calendar month in
which the shares were purchased. For the years ended September 30, 2000 and
1999, 340,832 and 672,438 Class B Shares converted to Class A Shares,
respectively and are shown in the above tables as sales of Class A Shares and
repurchases of Class B Shares. Class C Shares purchased before January 1, 1997,
and any dividend reinvestment plan Class C Shares received thereon,
automatically convert to Class A Shares ten years after the end of the calendar
month in which such shares were purchased. Class C Shares purchased on or after
January 1, 1997 do no possess a conversion feature. For the years ended
September 30, 2000 and 1999, no Class C Shares converted to Class A Shares.
Class B and C Shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within six years of

39
<PAGE> 41

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

the purchase for Class B Shares and one year of the purchase for Class C Shares
as detailed in the following schedule.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First...................................................... 4.00% 1.00%
Second..................................................... 3.75% None
Third...................................................... 3.50% None
Fourth..................................................... 2.50% None
Fifth...................................................... 1.50% None
Sixth...................................................... 1.00% None
Seventh and Thereafter..................................... None None
</TABLE>

For the year ended September 30, 2000, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $56,300 and CDSC on redeemed shares of approximately $138,500.
Sales charges do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $783,104,240 and $963,443,126,
respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising a call option contract or 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 option or futures contract.

40
<PAGE> 42

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

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 futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.

Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. 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, each with a par value of $100,000, for
the year ended September 30, 2000 were as follows:

<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... -0-
Futures Opened............................................ 3,285
Futures Closed............................................ (3,285)
------
Outstanding at September 30, 2000........................... -0-
======
</TABLE>

B. INDEXED SECURITIES These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.

An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.

An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.

6. DISTRIBUTION AND SERVICE PLANS

The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended and a service plan
(collectively the "Plans"). The Plans govern payments for the distribution of

41
<PAGE> 43

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

the Fund's shares, ongoing shareholder services and maintenance of shareholder
accounts.

Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended September 30, 2000, are payments retained by Van Kampen of
approximately $651,000.

7. BORROWINGS

In accordance with its investment policies, the Fund may borrow money from banks
in an amount up to 5% of its total assets. The Fund, in combination with two
other funds in the fund complex, entered into a $100 million revolving credit
agreement which expired September 30, 2000. The maximum amount available to any
single fund was $75 million. Interest was charged under the agreement at a rate
of .45% above the federal funds rate. An annual facility fee of .09% was charged
on the unused portion of the credit facility.

The average daily balance of bank borrowings for the year ended September
30, 2000 was approximately $121,600 with an average interest rate of 6.31%. At
September 30, 2000, the Fund did not have any outstanding borrowings under the
agreement.

42
<PAGE> 44

REPORT OF INDEPENDENT AUDITORS

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, including
the portfolio of investments of Van Kampen Insured Tax Free Income Fund (the
"Fund"), as of September 30, 2000, and the related statements of operations,
changes in net assets and financial highlights for the year 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 based on our audit. The statement of changes in net assets
of the Fund for the year ended September 30, 1999, and the financial highlights
for each of the five years in the period then ended were audited by other
auditors whose report dated November 5, 1999, expressed an unqualified opinion
on those statements.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosure in
the financial statements. Our procedures included confirmation of securities
owned as of September 30, 2000, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund at September 30, 2000, and the results of its operations,
changes in its net assets and its financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United
States.

LOGO

Chicago, Illinois
November 8, 2000

43
<PAGE> 45

VAN KAMPEN FUNDS

THE VAN KAMPEN
FAMILY OF FUNDS

Growth

Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology

Growth and Income

Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value

Global/International

Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income*
Tax Managed Global Franchise
Worldwide High Income

Income

Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income

Capital Preservation

Reserve
Tax Free Money

Senior Loan

Prime Rate Income Trust
Senior Floating Rate

Tax Free

California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal
Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income

To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.

To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:

- visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]

- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.

[PHONE ICON]

- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us

[MAIL ICON]

* Closed to new investors

** Open to new investors for a limited time

44
<PAGE> 46

FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN INSURED TAX FREE INCOME FUND

BOARD OF TRUSTEES

J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY

OFFICERS

RICHARD F. POWERS, III*
President

STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer

A. THOMAS SMITH III*
Vice President and Secretary

JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer

RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents

INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256

CUSTODIAN

STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

LEGAL COUNSEL

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606

INDEPENDENT AUDITORS(1)
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, 2000. The Fund designated 99.99% of the income distributions as
a tax-exempt income distribution. Additionally, during the period, the Fund
designated and paid $299,891 as a 20% rate gain distribution. These
distributions, where applicable were included in 1999's form 1099-DIV which
was mailed to shareholders in January of 2000. In January, 2001, the Fund will
provide tax information to shareholders for the 2000 calendar year.

(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP
to be the Fund's independent auditors.

PricewaterhouseCoopers LLP ceased being the Fund's independent auditors
effective May 18, 2000. The cessation of the client-auditor relationship
between the Fund and PricewaterhouseCoopers was based solely on a possible
future business relationship by PricewaterhouseCoopers with an affiliate of
the Fund's investment adviser.

* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales
charges on shares of the Fund, and other pertinent data. After February 28,
2001, the report if used with prospective investors, must be accompanied by a
monthly performance update.

45
<PAGE> 47

<TABLE>
<S> <C>
Table of Contents

OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2

PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 6

PORTFOLIO AT A GLANCE
CREDIT QUALITY 7
TWELVE-MONTH DIVIDEND HISTORY 7
TOP FIVE STATES 8
TOP FIVE SECTORS 8
Q&A WITH YOUR PORTFOLIO MANAGERS 9
GLOSSARY OF TERMS 12

BY THE NUMBERS
YOUR FUND'S INVESTMENTS 13
FINANCIAL STATEMENTS 36
NOTES TO FINANCIAL STATEMENTS 42
REPORT OF INDEPENDENT AUDITORS 50
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 51
FUND OFFICERS AND IMPORTANT ADDRESSES 52
</TABLE>

Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 48

OVERVIEW

LETTER TO SHAREHOLDERS
October 20, 2000

Dear Shareholder,

Sincerely,

[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments

1
<PAGE> 49

ECONOMIC SNAPSHOT

2
<PAGE> 50

U.S. GROSS DOMESTIC PRODUCT

SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998 -- September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.70
</TABLE>

Source: Bureau of Economic Analysis

INTEREST RATES AND INFLATION

(September 30, 1998 -- September 30, 2000)

[LINE GRAPH]

3
<PAGE> 51

PERFORMANCE SUMMARY

RETURN HIGHLIGHTS

(as of September 30, 2000)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 1.27% 0.48% 0.48%
-------------------------------------------------------------------------
One-year total return(2) -3.52% -3.34% -0.47%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 3.21% 3.16% 3.41%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 4.57% NA NA
-------------------------------------------------------------------------
Life-of-Fund average annual
total return (2) 6.55% 4.29%(3) 3.81%
-------------------------------------------------------------------------
Commencement date 06/28/85 05/01/93 08/13/93
-------------------------------------------------------------------------
Distribution rates(4) 5.33% 4.88% 4.88%
-------------------------------------------------------------------------
Taxable-equivalent distribution
rate(5) 8.33% 7.63% 7.63%
-------------------------------------------------------------------------
SEC Yield(6) 6.22% 5.76% 5.76%
-------------------------------------------------------------------------
</TABLE>

N/A = Not Applicable

(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for Class A Shares) or
contingent deferred sales charge ("CDSC") for Class B and Class C Shares. On
purchases of Class A Shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B Shares are calculated without the effect of the maximum 4% CDSC,
charged on certain redemptions made within one year of purchase and
declining to 0% after the sixth year. Returns for Class C Shares are
calculated without the effect of the maximum 1% CDSC, charged on certain
redemptions made within one year of purchase. If the sales charges were
included, total returns would be lower. These returns do include Rule 12b-1
fees of up to .25% for Class A Shares and 1% for Class B and Class C Shares.

(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
Shares) or contingent deferred sales charge ("CDSC") for Class B and Class C
Shares and Rule 12b-1 fee. On purchases of Class A Shares of $1 million or
more, a CDSC of 1% may be imposed on certain redemptions made within one
year of purchase. Returns for Class B Shares are calculated with the effect
of the maximum 4% CDSC, charged on certain redemptions made within one year
of purchase and declining to 0% after the sixth year. Returns for Class C
Shares are calculated with the effect of the maximum 1% CDSC, charged on
certain redemptions made within one year of purchase. The Rule 12b-1 fee for
Class A Shares is up to .25% and for Class B and Class C Shares is 1%.

4
<PAGE> 52

(3) The total return reflects the conversion of Class B Shares into Class A
Shares seven years after the end of the calendar month in which the shares
were purchased.

(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.

(5) Taxable-equivalent calculations reflect a federal income tax rate of 36%.

A portion of the interest income may be subject to the federal alternative
minimum tax (AMT).

Market forecasts provided in this report may not necessarily come to pass.

5
<PAGE> 53

GROWTH OF A $10,000 INVESTMENT

(September 30, 1990 - September 30, 2000)

[INVESTMENT PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
LEHMAN BROTHERS MUNICIPAL BOND INDEX
is an unmanaged, broad-based statistical
TAX FREE HIGH INCOME FUND* composite of municipal bonds.+
------------------------- ----------------------------------------
<S> <C> <C>
9/90 9524.00 10000.00
9606.00 10431.00
9720.00 10667.00
9884.00 10895.00
9/91 10200.00 11318.00
10423.00 11698.00
10383.00 11733.00
10560.00 12179.00
9/92 10434.00 12502.00
10432.00 12730.00
10703.00 13202.00
11098.00 13634.00
9/93 11676.00 14094.00
12082.00 14292.00
11406.00 13508.00
11489.00 13657.00
9/94 11644.00 13751.00
11487.00 13553.00
12187.00 14511.00
12381.00 14862.00
9/95 12709.00 15289.00
13270.00 15920.00
13010.00 15728.00
13129.00 15849.00
9/96 13387.00 16213.00
13695.00 16627.00
13759.00 16588.00
14135.00 17160.00
9/97 14597.00 17677.00
14935.00 18157.00
15152.00 18366.00
15365.00 18644.00
9/98 15831.00 19218.00
15828.00 19333.00
15914.00 19504.00
15686.00 19160.00
9/99 15434.00 19083.00
15179.00 18934.00
15347.00 19489.00
15379.00 19784.00
9/00 15629.00 20262.00
Fund's Total Return
1 Year Total Return -3.52%
5 Year Avg. Annual 3.21%
10 Year Avg. Annual 4.47%
Inception Avg. Annual 6.55%
</TABLE>

This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index over time.

Source:
* Hypo(R) Provided by Towers Data, Bethesda, MD

(+) Lehman Brothers

6
<PAGE> 54

PORTFOLIO AT A GLANCE

CREDIT QUALITY

(as a percentage of long-term investments)

<TABLE>
<CAPTION>
As of September 30, 2000
<S> <C> <C>
- AAA/Aaa............ 14.9%
- AA/Aa.............. 0.6%
- A/A................ 6.7%
- BBB/Baa............ 9.4%
- BB/Ba.............. 3.2%
- B/B................ 1.1%
- Non-Rated.......... 64.1%

[PIE CHART]
<CAPTION>
As of September 30, 1999
<S> <C> <C>
- AAA/Aaa............ 28.1%
- AA/Aa.............. 2.1%
- A/A................ 6.6%
- BBB/Baa............ 12.1%
- BB/Ba.............. 2.6%
- B/B................ 0.4%
- CC/Ca.............. 0.1%
- Non-Rated.......... 48.0%

[PIE CHART]
</TABLE>

Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.

TWELVE-MONTH DIVIDEND HISTORY

(for the period ended September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.0670
11/99 0.0670
12/99 0.0670
1/00 0.0655
2/00 0.0655
3/00 0.0655
4/00 0.0655
5/00 0.0655
6/00 0.0655
7/00 0.0620
8/00 0.0620
9/00 0.0620
</TABLE>

The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.

7
<PAGE> 55

TOP FIVE STATES

(as a percentage of long-term investments - September 30, 2000)

<TABLE>
<S> <C> <C>
Texas 11.3%
---------------------------------------------------------------------
Pennsylvania 9.0%
---------------------------------------------------------------------
Illinois 7.9%
---------------------------------------------------------------------
Florida 7.9%
---------------------------------------------------------------------
New York 6.8%
---------------------------------------------------------------------
</TABLE>

TOP FIVE SECTORS

(as a percentage of long-term investments)
[BAR GRAPH]

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Industrial Revenue 17.70 16.20
Other Care 15.10 11.60
Health Care 13.50 12.50
Multi-Family Housing 12.60 10.30
Tax District 7.00 6.00
</TABLE>

8
<PAGE> 56

[PHOTO]

Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN TAX FREE
HIGH INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED SEPTEMBER
30, 2000. THE TEAM IS LED BY DENNIS PIETRZAK, SENIOR PORTFOLIO MANAGER, WHO HAS
MANAGED THE FUND SINCE 2000 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE
1968. THE FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE FUND'S PERFORMANCE.

Q HOW WOULD YOU CHARACTERIZE
THE MARKET ENVIRONMENT YOU FACED IN MANAGING THE FUND DURING THE PAST 12
MONTHS, AND HOW DID THE FUND PERFORM IN THAT ENVIRONMENT?

Short-term interest rates climbed steadily as the Federal Reserve Board
increased key short-term lending rates four times over the past 12 months,
reacting to strong economic growth, rising commodities prices, and a tight labor
market. Rising yields at the short end of the maturity spectrum caused
short-term bond prices to fall, which negatively impacted the fund's net asset
value during the period.

Long-term municipal bonds, on the other hand, were on a bit of a
roller-coaster ride, declining and then rallying twice during the 12-month
period, with yields finally settling at virtually the same level as they began
the period. Prices climbed strongly going into September 2000, but eased off by
month's end, as the yield on the 30-year insured municipal bond rose to about
5.85 percent.

One effect of this market volatility was the widening of the yield spread
between high-rated municipals and lower-rated, higher-yielding municipals. As
investors sensed the market's uncertainty, fewer assets flowed into high-
yielding municipal bonds, which typically carry higher risks. While this
situation presented the fund with opportunities to add new securities at
attractive yields, the prices on existing bonds in this sector of the market
fell sharply. As a result, the fund's net asset value was hurt by the
portfolio's relatively high concentration of nonrated and lower-rated bonds.

9
<PAGE> 57

such as state governments to accumulate sizable budget surpluses, which has
reduced the need to raise money through debt offerings. Also, higher interest
rates made it less attractive for municipalities to refund existing bond issues;
instead, they have been more likely to buy back outstanding debt and retire it
from the marketplace.

In general, those funds that held a larger percentage of higher-quality
bonds tended to outperform those that did not, under the conditions we saw over
the past fiscal year.

As of September 30, 2000, the fund achieved a 12-month total return of 1.27
percent (Class A shares at net asset value; if the maximum sales charge of 4.75
percent were included, the return would be lower). Of course, past performance
is no guarantee of future results. As a result of recent market activity,
current performance may vary from the figures shown. By comparison, the Lehman
Brothers Municipal Bond Index produced a total return of 6.17 percent. Another
commonly used index, the Lehman Brothers High Yield Municipal Bond Index,
produced a total return of 1.77 percent for the same period. These indexes are
unmanaged, broad-based statistical composites of municipal bonds that do not
include any commissions or sales charges that would be paid by an investor
purchasing the securities they represent. Such costs would lower the performance
of the indexes. It is not possible to invest directly in an index. Please refer
to the footnotes and chart on page 4 for additional fund performance results.

The fund's dividend was reduced twice during the period--in January and in
June--but it is still quite competitive within its peer group. Also, even though
the fund's monthly tax-exempt dividend was decreased to $.062 from $.067 per
Class A share over the past 12 months, its distribution rate stood at 5.33
percent at the end of the reporting period. With this in mind, we'd like to
point out that investors would have to earn a distribution rate of 8.33 percent
on a taxable investment (for an investor in the 36 percent federal income tax
bracket) to match the tax-exempt yield provided by the fund.

Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?

A Because of the low supply of bonds
entering the primary market, we were more active in the secondary market. For
example, early in 2000, the uncertainty surrounding the Y2K transition created
opportunities to buy deeply discounted bonds that had become oversold. We were
able to purchase bonds at attractive prices in this sector of the market.

We made a strategic decision to alter the fund's portfolio so that it more
closely matched the Lehman Brothers High Yield Municipal Bond Index. In doing
so, we allocated a larger portion of the fund's assets to higher-yielding
securities, but we also reduced the portfolio's duration, which may help make
the fund less sensitive to interest-rate changes.

As of September 30, 2000, we had reduced the fund's AAA rated holdings to
roughly 15 percent of long-term investments and increased the

10
<PAGE> 58

fund's holdings slightly in the BB rated, B rated, and nonrated segments of the
market.

Most of the fund's allocations on a sector basis remained fairly steady. The
most notable change was an increase in the fund's holdings in the Other Care
sector, which includes convalescent-care nursing homes and other continuing-
care retirement communities. Here, we increased the fund's allocation by more
than 3.50 percent, because we saw attractive opportunities to invest as yields
improved.

Overall, the fund remained well diversified. At the end of the reporting
period, the largest sector allocation was Industrial Revenue bonds, which
represented approximately 17 percent of the portfolio's long-term investments.
Only three other sectors--Other Care, Health Care, and Multi-Family Housing--had
allocations of 10 percent or more.

Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?

A Because the level of interest rates
has such an influence on the value of municipal bonds, the market will be
carefully watching the actions of the Federal Reserve Board. It appears that
economic growth may be moderating, making it less likely that the Fed will
increase rates again in the very near future. In fact, some market-watchers are
expecting the Fed to decrease rates by the end of the year. In light of the
current market conditions, we will remain neutral with respect to our
interest-rate outlook.

With yield spreads at historically high levels, we would expect them to
narrow over the near term, which would be a positive development for a portfolio
that emphasizes lower-rated, higher-yielding securities. As spreads narrow and
market sentiment improves, we would expect more assets to flow into the
high-yield bond sector, stabilizing yields and supporting the price levels of
existing bonds. As a result, we feel that the fund is positioned for improved
performance over the last quarter of 2000.

We anticipate that total bond issuance may be stable to lower through
year-end, as municipalities continue to be flush with cash and are
understandably reluctant to issue new debt or refund outstanding debt at current
market rates.

We will continue to rely on our research capabilities to find bond issues
that may be able to advance the objectives of the fund at a reasonable cost and
an acceptable level of risk. Our regional approach to high-yield bond market
research, with analysts across the country, will enable us to monitor regional
economies closely and be vigilant for suitable investment opportunities.

11
<PAGE> 59

GLOSSARY OF TERMS

A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.

DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has more
potential to appreciate in price than a par bond does.

DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a bond's duration, the greater the effect of interest-rate
movements on its price. Typically, funds with shorter durations perform better
in rising-rate environments, while funds with longer durations perform better
when rates decline.

MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond. Typically, short-term bonds mature in
five years or less, intermediate-term bonds mature in five to ten years, and
long-term bonds mature after ten years.

SECONDARY MARKET: A market where securities are traded after they are initially
offered.

12
<PAGE> 60

BY THE NUMBERS

YOUR FUND'S INVESTMENTS

September 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 96.6%
ALABAMA 0.6%
$ 240 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg (d)......... 6.950% 01/01/20 $ 65,463
1,395 Valley, AL Spl Care Fac Fin Auth Rev Lanier
Mem Hosp Ser A.............................. 5.600 11/01/16 1,156,413
2,150 Valley, AL Spl Care Fac Fin Auth Rev Lanier
Mem Hosp Ser A.............................. 5.650 11/01/22 1,715,980
3,290 West Jefferson Cnty, AL Amusement & Pub Park
Auth........................................ 6.375 02/01/29 1,979,593
------------
4,917,449
------------
ALASKA 0.5%
2,000 Juneau, AK City & Borough Nonrecourse Rev... 6.875 12/01/25 1,839,140
2,250 Seward, AK Rev AK Sealife Cent Proj......... 7.650 10/01/16 2,281,748
------------
4,120,888
------------
ARIZONA 3.1%
6,169 Chandler, AZ Indl Dev Auth Rev Chandler Finl
Cent Proj Ser 1986 (c)...................... 9.875 12/01/16 4,503,476
1,000 Maricopa Cnty, AZ Indl Dev Auth AZ Charter
Schs Proj 1 Ser A........................... 6.625 07/01/20 1,001,890
1,000 Maricopa Cnty, AZ Indl Dev Auth Horizon
Cmnty Learning Cent Proj.................... 7.125 06/01/10 996,070
4,000 Maricopa Cnty, AZ Indl Dev Auth Multi-Family
Hsg Rev..................................... 6.625 07/01/33 3,697,360
2,605 Maricopa Cnty, AZ Indl Dev Auth Sr Living
Fac Rev..................................... 7.750 04/01/15 2,597,575
4,000 Maricopa Cnty, AZ Pollutn Ctl El Paso Elec
Ser A Rfdg (Variable Rate Coupon)........... 6.375 08/01/15 4,001,240
2,700 Maricopa Cnty, AZ Uni Sch Dist No 41 Gilbert
Rfdg (FGIC Insd)............................ * 01/01/08 1,900,314
1,500 Peoria, AZ Indl Dev Auth Rev Sierra Winds
Life Ser A Rfdg............................. 6.500 08/15/31 1,306,005
2,160 Pima Cnty, AZ Indl Dev Auth Multi-Family
Rev......................................... 6.625 10/01/28 2,037,204
520 Pima Cnty, AZ Indl Dev Auth Ser A (a)....... 7.250 11/15/18 495,326
500 Pima Cnty, AZ Indl Dev Auth Ser A (a)....... 8.250 11/15/22 485,615
</TABLE>

See Notes to Financial Statements

13
<PAGE> 61

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ARIZONA (CONTINUED)
$1,900 Red Hawk Canyon Cmnty Facs Dist No 2 AZ Dist
Assmt Rev................................... 6.500% 12/01/12 $ 1,853,849
2,160 Tucson, AZ Multi-Family Rev Hsg Catalina
Asstd Living A.............................. 6.500 07/01/31 2,166,761
1,000 Tuscon, AZ Indl Dev Auth Rev Clarion Santa
Rita Hotel Ser A Rfdg....................... 6.375 12/01/16 916,890
------------
27,959,575
------------
ARKANSAS 0.2%
2,000 Arkansas St Dev Fin Auth Hosp WA Regl Med
Cent........................................ 7.250 02/01/20 2,017,240
------------

CALIFORNIA 4.4%
2,000 Abag Fin Auth for Nonprofit Corps CA Ctfs
Partn....................................... 6.375 11/15/28 1,767,160
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg
Rev (MBIA Insd)............................. * 09/01/17 2,001,200
2,500 Corona, CA Ctfs Partn Vista Hosp Sys Inc Ser
C........................................... 8.375 07/01/11 1,000,450
3,465 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA
Cent for the Arts (AMBAC Insd).............. * 09/01/15 1,411,849
3,480 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA
Cent for the Arts (AMBAC Insd).............. * 09/01/18 1,141,858
6,000 Foothill/Eastern Trans Corridor Agy CA Toll
Rd Rev (MBIA Insd).......................... * 01/15/18 2,237,760
22,985 Foothill/Eastern Trans Corridor Agy CA Toll
Rd Rev...................................... * 01/15/24 5,437,561
15,000 Foothill/Eastern Trans Corridor Agy CA Toll
Rd Rev...................................... * 01/15/30 2,406,600
42,460 Foothill/Eastern Trans Corridor Agy CA Toll
Rd Rev...................................... * 01/15/31 6,399,571
2,705 Healdsburg, CA Ctfs Partn Nuestro Hosp
Inc......................................... 6.375 11/01/28 2,293,678
965 Indio, CA Pub Fin Auth Rev Tax Increment.... 6.500 08/15/27 990,901
1,975 Lake Elsinore, CA Pub Fin Auth Loc Agy
Rev......................................... 7.100 09/01/20 2,098,536
2,000 Los Angeles, CA Regl Arpts Impt Corp Lease
Rev Rfdg.................................... 6.350 11/01/25 1,989,920
1,500 Millbrae, CA Residential Fac Rev Magnolia of
Millbrae Proj Ser A......................... 7.375 09/01/27 1,465,605
2,000 San Jose, CA Multi-Family Hsg Rev Helzer
Courts Apts Ser A, 144A (f)................. 6.400 12/01/41 1,881,780
1,000 San Luis Obispo, CA Ctfs Partn Vista Hosp
Sys Inc..................................... 8.375 07/01/29 400,190
</TABLE>

See Notes to Financial Statements

14
<PAGE> 62

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$1,500 Simi Valley, CA Cmnty Dev Agy Coml Sycamore
Plaza II Rfdg............................... 6.000% 09/01/12 $ 1,567,635
1,965 Vallejo, CA Ctfs Partn Touro Univ........... 7.250 06/01/16 2,013,830
1,000 Ventura, CA Port Dist Ctfs Partn............ 6.375 08/01/28 1,007,520
------------
39,513,604
------------
COLORADO 4.7%
2,000 Colorado Hlth Fac Auth Rev Baptist Home Assn
Ser A....................................... 6.375 08/15/24 1,693,180
1,590 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj................................. 6.850 01/01/15 1,536,544
1,060 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj................................. 7.050 01/01/19 1,042,764
6,200 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj (b)............................. 9.000 01/01/25 6,742,128
2,205 Denver, CO City & Cnty Arpt Rev Ser A (b)... 8.875 11/15/12 2,333,728
2,500 Denver, CO City & Cnty Arpt Rev Ser D (b)... 7.750 11/15/13 2,962,275
1,030 Eagle Riverview Affordable Housing Corp.
Multi-Family Rev............................ 6.300 07/01/29 959,085
331 East River Regl Santn Dist CO Var Rfdg (Var
Rate Cpn) (g)............................... 8.250 12/01/08 335,725
4,163 Himalaya Wtr & Santn Dist Adams Cnty, CO
Genl Oblig Ltd Tax Bond Ser 1995 (d)........ 9.500 12/01/24 3,330,268
835 Lafayette, CO Indl Dev Rev Rocky Mtn Instr
Proj A...................................... 6.750 10/01/14 801,550
2,115 Lafayette, CO Indl Dev Rev Rocky Mtn Instr
Proj A...................................... 7.000 10/01/18 1,930,170
3,830 Northern Metro Dist CO Adams Cnty Rfdg...... 6.500 12/01/16 3,821,957
4,392 Skyland Metro Dist CO Gunnison Cnty Rfdg
(Var Rate Cpn) (g).......................... 8.250 12/01/08 3,138,024
13,868 Tower Metro Dist Adams Cnty, CO Genl Oblig
Ltd Tax Rfdg Bond Ser 1995 (d).............. 9.500 12/01/24 11,094,445
------------
41,721,843
------------
CONNECTICUT 0.5%
1,500 Connecticut St Dev Auth Indl Dev Rev Afco
Cargo Bldg LLC Proj......................... 8.000 04/01/30 1,532,070
2,980 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A (Prerefunded @ 09/01/07) (b)
(f)......................................... 6.400 09/01/11 3,305,148
------------
4,837,218
------------
</TABLE>

See Notes to Financial Statements

15
<PAGE> 63

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
DELAWARE 0.2%
$2,200 Wilmington, DE Multi-Family Rent Rev Hsg
Electra Arms Sr Assoc Proj.................. 6.250% 06/01/28 $ 1,986,776
------------

DISTRICT OF COLUMBIA 0.3%
85 District of Columbia A-1 Rfdg (MBIA Insd)... 6.500 06/01/10 95,475
1,000 District Columbia Rev of Methodist Home
Issue....................................... 6.000 01/01/29 819,850
2,000 District of Columbia Ser E (FSA Insd)....... 6.000 06/01/11 2,094,080
------------
3,009,405
------------
FLORIDA 7.7%
4,370 Escambia Cnty, FL Rev ICF/MR Pensacola Care
Dev Cent.................................... 10.250 07/01/11 4,458,842
1,850 Escambia Cnty, FL Rev ICF/MR Pensacola Care
Dev Cent Ser A.............................. 10.250 07/01/11 1,887,611
1,570 Fishhawk Cmnty, FL Dev Dist Spl Assmt Rev... 7.625 05/01/18 1,652,771
3,775 Florida Hsg Fin Corp Rev Hsg Beacon Hill
Apts Ser C.................................. 6.610 07/01/38 3,603,804
5,500 Florida Hsg Fin Corp Rev Hsg Cypress Trace
Apts Ser G.................................. 6.600 07/01/38 5,199,480
3,000 Florida Hsg Fin Corp Rev Hsg Westbrook Apts
Ser U1...................................... 6.450 01/01/39 2,799,570
4,990 Florida Hsg Fin Corp Rev Hsg Westchase Apts
Ser B....................................... 6.610 07/01/38 4,781,817
1,270 Heritage Harbor Cmnty Dev Dist FL Rev
Rectl....................................... 7.750 05/01/19 1,253,287
1,000 Heritage Harbor Cmnty Dev Dist Spl Assmt Ser
A........................................... 6.700 05/01/19 981,710
1,500 Hillsborough Cnty, FL Hsg Fin Hsg Clipper
Cove Apts Proj Ser A........................ 7.375 07/01/40 1,505,595
2,000 Hillsborough Cnty, FL Indl Dev Auth Indl Dev
Rev Hlth Facs Proj Univ Cmnty Hosp Ser A.... 5.500 08/15/14 1,786,820
935 Lake Saint Charles, FL Cmnty Dev Dist Spl
Assmt Rev................................... 7.875 05/01/17 983,283
3,000 Leon Cnty, FL Edl Facs Auth Rev Southgate
Residence Hall Ser A Rfdg................... 6.750 09/01/28 2,982,990
1,500 Marshall Creek Cmnty Dev FL Ser B........... 6.750 05/01/07 1,509,765
1,000 Northern Palm Beach Cnty Impt Dist FL Wtr
Ctl & Impt Unit Dev 16 Rfdg................. 7.500 08/01/24 1,019,530
1,500 Orange Cnty, FL Hlth Facs Auth Adventist
Hlth Sys Enbelt Oblig....................... 6.375 11/15/20 1,488,945
1,560 Orange Cnty, FL Hlth Facs Auth Rev Hosp
Adventist Hlth Sys.......................... 5.875 11/15/11 1,553,588
</TABLE>

See Notes to Financial Statements

16
<PAGE> 64

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$2,050 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg................... 8.625% 07/01/20 $ 2,220,663
2,250 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg................... 8.750 07/01/26 2,427,435
2,000 Orange Cnty, FL Hlth Facs Auth Westminster
Cmnty Care.................................. 6.600 04/01/24 1,788,400
2,395 Pinellas Cnty, FL Edl Fac Auth Rev College
Harbor Proj Ser A........................... 8.250 12/01/21 2,273,166
6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac
Sunnyside Ppty (b).......................... 6.700 07/01/25 5,367,120
1,000 Stoneybrook West Cmnty Dev Ser B............ 6.450 05/01/10 994,640
19,341 Sun N Lake of Sebring, FL Impt Dist Spl
Assmt Ser A (d) (g)......................... 10.000 12/15/11 5,140,800
815 Tampa Palms, FL Open Space & Tran Cmnty Dev
Dist Rev Cap Impt Area 7 Proj............... 8.500 05/01/17 870,542
2,000 Tara Cmnty Dev Dist 1 FL Cap Impt Rev
Ser B....................................... 6.750 05/01/10 2,002,760
2,000 University Square Cmnty Dev Dist FL Cap Impt
Rev......................................... 6.750 05/01/20 1,985,900
1,500 Vista Lakes Cmnty Dev Dist FL Cap Impt Rev
Ser B....................................... 6.350 05/01/05 1,501,950
2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg................................... 7.625 11/01/26 2,316,460
------------
68,339,244
------------
GEORGIA 3.8%
2,000 Americus Sumter Cnty, GA Hosp Auth Rev South
GA Methodist Ser A Rfdg..................... 6.375 05/15/29 1,712,440
18,847 Atlanta, GA Urban Residential Fin Auth
Multi-Family Mtg Rev Hsg Peachtree Apts Proj
Ser A....................................... 8.500 04/01/26 20,098,294
19,000 Atlanta, GA Urban Residential Fin Auth
Multi-Family Mtg Rev Hsg Peachtree Apts Proj
Ser C (h)................................... 2.400 04/01/26 2,804,400
2,500 Atlanta, GA Urban Residential Fin Auth
Multi-Family Rev John Eagan Proj Ser A...... 6.750 07/01/30 2,374,125
1,500 Forsyth Cnty, GA Hosp Auth Rev GA Baptist
Hlthcare Sys Proj........................... 6.375 10/01/28 1,311,450
</TABLE>

See Notes to Financial Statements

17
<PAGE> 65

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
GEORGIA (CONTINUED)
$4,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg
Rev......................................... 6.500% 02/01/28 $ 3,775,880
2,000 Fulton Cnty, GA Residential Care Sr Lien Rha
Asstd Living Ser A.......................... 7.000 07/01/29 1,744,840
------------
33,821,429
------------
HAWAII 0.6%
810 Hawaii St Dept of Trans Spl Fac Continental
Airls Inc................................... 5.625 11/15/27 667,837
3,000 Honolulu, HI City & Cnty Wastewtr Sys Rev
(FGIC Insd)................................. * 07/01/14 1,392,180
4,245 Honolulu, HI City & Cnty Wastewtr Sys Rev
(FGIC Insd)................................. 4.500 07/01/28 3,415,824
------------
5,475,841
------------
IDAHO 0.6%
1,000 Idaho Hlth Facs Auth Rev Vly Vista Care Ser
A Rfdg...................................... 7.875 11/15/29 960,830
4,300 Owyhee Cnty, ID Indl Dev Corp Indl Dev Rev
Envirosafe Svcs of ID Inc. ................. 8.250 11/01/02 4,356,459
------------
5,317,289
------------
ILLINOIS 7.7%
2,500 Bolingbrook, IL Cap Apprec
Ser B (MBIA Insd)........................... * 01/01/29 458,950
1,790 Bridgeview, IL Tax Increment Rev Rfdg
(Prerefunded @ 01/01/04).................... 9.000 01/01/11 2,044,252
1,000 Cary, IL Spl Tax Spl Svc Area No 1 Cambridge
Ser A....................................... 7.625 03/01/30 1,015,130
15,800 Chicago, IL Brd Edu Cap Apprec Sch Reform
Ser B-1 (FGIC Insd)......................... * 12/01/22 4,259,838
3,000 Chicago, IL Lakefront Millennium Pkg Fac
(MBIA Insd) (e)............................. 0/5.700 01/01/25 2,123,700
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Ser A............... 7.875 11/01/25 3,063,630
2,505 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B...................... 8.950 05/01/18 2,585,260
3,375 Chicago, IL Rev Chatham Ridge Tax
Increment................................... 10.250 01/01/07 3,446,347
960 Chicago, IL Tax Increment................... 7.250 01/01/14 989,002
10,000 Chicago, IL Wastewtr Trans Rev Cap Apprec
Rfdg Ser A (MBIA Insd)...................... * 01/01/22 2,817,100
3,900 Cook Cnty, IL Cmnty Cons Dist No 021
Wheeling Cap Apprec......................... * 12/01/18 1,382,316
1,500 Godfrey, IL Rev United Methodist Vlg Ser
A........................................... 5.875 11/15/29 1,192,335
</TABLE>

See Notes to Financial Statements

18
<PAGE> 66

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$2,700 Hoopeston, IL Hosp Cap Impt Rev Hoopeston
Cmnty Mem Hosp Rfdg......................... 6.550% 11/15/29 $ 2,391,984
2,000 Huntley, IL Increment Alloc Rev Huntley
Redev Proj Ser A............................ 8.500 12/01/15 2,204,740
280 Huntley, IL Spl Svc Area No 10 Spl Tax Ser
A........................................... 6.250 03/01/09 272,373
2,629 Huntley, IL Spl Svc Area No 10 Spl Tax Ser
A........................................... 6.500 03/01/29 2,474,362
1,000 Huntley, IL Spl Svc Area No 7 Spl Tax....... 6.300 03/01/28 920,200
1,405 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj................................ 8.000 11/15/16 1,444,649
1,500 Illinois Edl Fac Auth Rev Peace Mem
Ministries Proj............................. 7.500 08/15/26 1,516,650
3,000 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Ser A Rfdg............................ 7.400 08/15/23 2,946,150
4,145 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D....................................... 9.500 11/15/15 4,259,443
1,000 Illinois Hlth Fac Auth Rev Lifelink Corp
Oblig Group Ser B (Prerefunded Proctor Cmnty
Hosp Proj 02/15/05)......................... 8.000 02/15/25 1,132,290
1,000 Illinois Hlth Facs Auth Rev Central Baptist
Home Proj................................... 7.125 11/15/29 943,380
2,000 Illinois Hlth Facs Auth Rev................. 7.500 01/01/11 1,776,320
1,440 Illinois Hlth Facs Auth Rev Silver Cross
Hosp & Med Rfdg............................. 5.500 08/15/19 1,262,592
4,175 Illinois Hlth Facs Auth Rev Silver Cross
Hosp & Med Rfdg............................. 5.500 08/15/25 3,547,539
4,575 Illinois Hlth Facs Auth Rev West Suburban
Hosp Ser A Rfdg............................. 5.750 07/01/20 3,882,574
1,800 Peoria, IL Spl Tax Weaver Ridge Spl Svc
Area........................................ 8.050 02/01/17 1,898,334
2,095 Regional Tran Auth IL Ser B (AMBAC Insd).... 8.000 06/01/17 2,684,470
3,953 Robbins, IL Res Recovery Rev Restructuring
Proj Ser A (d).............................. 8.375 10/15/16 1,027,813
1,547 Robbins, IL Res Recovery Rev Restructuring
Proj Ser B (d).............................. 8.375 10/15/16 402,188
613 Robbins, IL Res Recovery Rev Restructuring
Proj Ser C.................................. 7.250 10/15/09 582,751
2,652 Robbins, IL Res Recovery Rev Restructuring
Proj Ser C.................................. 7.250 10/15/24 2,433,396
1,231 Robbins, IL Res Recovery Rev Restructuring
Proj Ser D.................................. * 10/15/09 575,584
1,705 St Charles, IL Spl Svc Area No 21........... 6.625 03/01/28 1,572,487
</TABLE>

See Notes to Financial Statements

19
<PAGE> 67

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 995 Sterling IL Rev Hoosier Care Proj Ser A..... 7.125% 06/01/34 $ 897,052
470 Will Cnty, IL Forest Presv Dist Ser B (FGIC
Insd)....................................... * 12/01/13 231,470
------------
68,658,651
------------
INDIANA 2.4%
825 Crawfordsville, IN Redev Comm Redev Dist Tax
Increment Rev............................... 7.000 02/01/12 812,996
2,000 East Chicago, IN Exempt Fac Inland Steel Co
Proj No 14.................................. 6.700 11/01/12 1,836,920
1,990 Indiana Hlth Fac Fin Auth Rev Hoosier Care
Proj Ser A.................................. 7.125 06/01/34 1,794,104
970 Indiana Hlth Fac Fin Auth Rev Metro Hlth &
IN Inc Proj................................. 6.300 12/01/23 828,283
3,000 Indiana Hlth Fac Fin Auth Rev Metro Hlth &
IN Inc Proj................................. 6.400 12/01/33 2,517,420
4,000 Indiana St Dev Fin Auth Pollutn Ctl Rev
Inland Steel Co Proj No 13 Rfdg............. 7.250 11/01/11 3,852,600
3,000 Indianapolis, IN Arpt Auth Rev Spl Fac
Federal Express Corp Proj................... 7.100 01/15/17 3,165,420
5,850 Indianapolis, IN Arpt Auth Rev Spl Fac
United Airls Proj Ser A..................... 6.500 11/15/31 5,630,801
1,000 South Bend, IN Econ Dev Rev Ser A........... 6.250 11/15/29 848,000
------------
21,286,544
------------
IOWA 0.1%
1,500 Cedar Rapids, IA Rev First Mtg Cottage Grove
Rfdg........................................ 5.875 07/01/28 1,208,100
------------

KANSAS 0.4%
430 Kansas City, KS Crawford Cnty Leavenworth
Single Family Mtg Rev (AMBAC Insd).......... * 04/01/16 82,818
1,000 Lawrence, KS Coml Dev Rev Holiday Inn Sr Ser
A Rfdg...................................... 8.000 07/01/16 1,036,080
1,000 Manhattan, KS Coml Dev Rev Holiday Inn Sr
Ser A Rfdg.................................. 8.000 07/01/16 1,040,960
1,000 Olathe, KS Sr Living Fac Rev Aberdeen Vlg,
Inc. Ser A.................................. 8.000 05/15/30 1,004,730
------------
3,164,588
------------
</TABLE>

See Notes to Financial Statements

20
<PAGE> 68

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
KENTUCKY 1.1%
$2,300 Jefferson Cnty, KY Hosp Rev (MBIA Insd)
(Inverse Fltg).............................. 8.395% 10/01/08 $ 2,509,875
900 Jefferson Cnty, KY Hosp Rev (Prerefunded @
10/01/02) (MBIA Insd) (Inverse Fltg)........ 8.445 10/01/08 987,750
2,000 Kenton Cnty, KY Aprt Brd Rev Spl Facs Delta
Airls Proj.................................. 7.250 02/01/22 2,065,820
1,000 Kenton Cnty, KY Aprt Brd Spl Facs Rev Mesaba
Aviation Inc Proj Ser A..................... 6.700 07/01/29 949,100
3,000 Newport, KY Pub Pptys Corp Rev First Mtg Pub
Pkg & Plaza A 1............................. 8.500 01/01/27 2,964,570
------------
9,477,115
------------
LOUISIANA 2.1%
5,755 Jefferson, LA Sales Tax Dist Spl Sales Tax
Rev (FSA Insd).............................. * 12/01/14 2,660,076
4,000 Louisiana Hsg Fin Agy Rev Multi-Family Hsg
Plantation Ser A............................ 7.125 01/01/28 3,755,960
2,000 Louisiana Loc Govt Envir Facs Hlthcare Saint
James Place Ser A Rfdg...................... 8.000 11/01/29 1,944,920
1,000 Louisiana Pub Facs Auth Rev Progressive
Hlthcare.................................... 6.375 10/01/20 853,250
1,000 Louisiana Pub Facs Auth Rev Progressive
Hlthcare.................................... 6.375 10/01/28 820,390
4,875 Louisiana Hlth Edl Auth Rev Lambeth House
Ser A Rfdg.................................. 5.250 01/01/05 4,685,655
3,805 Louisiana St Univ Agric & Mech College Univ
Rev......................................... 5.750 10/30/18 3,586,348
------------
18,306,599
------------
MAINE 0.0%
25 Maine Hlth & Higher Edl Facs Auth Rev Ser B
(FSA Insd).................................. 7.000 07/01/24 27,490
------------

MARYLAND 1.2%
1,000 Baltimore Cnty, MD Mtg Rev Shelter Elder
Care Ser A.................................. 7.250 11/01/29 910,520
2,000 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem
Steel Corp Proj Ser B Rfdg.................. 7.500 06/01/15 2,025,860
985 Maryland St Econ Dev Corp Rev Air Cargo BWI
LLC Proj.................................... 6.250 07/01/07 951,786
1,260 Maryland St Econ Dev Corp Rev Air Cargo BWI
LLC Proj.................................... 6.500 07/01/24 1,141,635
</TABLE>

See Notes to Financial Statements

21
<PAGE> 69

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MARYLAND (CONTINUED)
$3,000 Montgomery Cnty, MD Econ Dev Editorial Projs
In Edl Ser A................................ 6.400% 09/01/28 $ 2,685,720
3,000 Prince Georges Cnty, MD Spl Oblig Spl Assmt
Woodview Ser A.............................. 8.000 07/01/26 3,266,760
------------
10,982,281
------------
MASSACHUSETTS 3.5%
3,945 Massachusetts St Dev Fin Agy New England
Center For Children......................... 6.000 11/01/19 3,312,380
1,000 Massachusetts St Dev Fin Agy Rev Grtr Lynn
Mental Hlth................................. 7.750 06/01/18 995,270
3,000 Massachusetts St Dev Fin Agy Rev Hillcrest
Ed Cent Inc................................. 6.375 07/01/29 2,913,150
2,990 Massachusetts St Dev Fin Agy Rev Hlthcare
Facility Alliance Ser A..................... 7.100 07/01/32 2,766,079
1,000 Massachusetts St Dev Fin Agy Rev Mchsp Human
Svs Providers Ser A......................... 8.000 07/01/20 992,170
4,000 Massachusetts St Hlth & Edl Fac Auth Rev New
England Med Cent Hosp Ser G (Embedded Swap)
(MBIA Insd)................................. 5.000 07/01/13 3,873,240
1,929 Massachusetts St Hsg Fin Agy Hsg Rev Insd
Rental Ser A Rfdg (AMBAC Insd).............. 6.650 07/01/19 1,997,313
750 Massachusetts St Indl Fin Agy First Mtg
Pilgrim Inc Proj............................ 6.500 10/01/15 666,158
575 Massachusetts St Indl Fin Agy Rev Dimmock
Cmnty Hlth Cent............................. 8.000 12/01/06 599,248
1,085 Massachusetts St Indl Fin Agy Rev Dimmock
Cmnty Hlth Cent............................. 8.375 12/01/13 1,182,672
675 Massachusetts St Indl Fin Agy Rev Dimmock
Cmnty Hlth Cent............................. 8.500 12/01/20 738,571
1,170 Massachusetts St Indl Fin Agy Rev Grtr Lynn
Mental Hlth................................. 6.200 06/01/08 1,095,003
2,965 Massachusetts St Indl Fin Agy Rev Grtr Lynn
Mental Hlth................................. 6.375 06/01/18 2,617,205 ]
5,800 Massachusetts St Indl Fin Agy Rev Swr Fac
Res Ctl Composting.......................... 9.250 06/01/10 5,877,488
2,000 Massachusetts St Indl Fin Agy Trustees
Deerfield Academy........................... 6.750 10/01/28 1,723,200
------------
31,349,147
------------
</TABLE>

See Notes to Financial Statements

22
<PAGE> 70

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MICHIGAN 2.2%
$5,000 Detroit, MI Downtown Dev Auth Tax Increment
Rev (MBIA Insd)............................. 4.750% 07/01/25 $ 4,273,350
995 Detroit, MI Loc Dev Fin Auth Ser C.......... 6.850 05/01/21 974,523
3,100 Detroit, MI Sewage Disposal Rev (Embedded
Swap) (FGIC Insd)........................... 6.655 07/01/23 2,956,625
2,390 Meridian, MI Econ Dev Corp Ltd Oblig Rev
First Mtg Burcham Hills Ser A............... 7.500 07/01/13 2,400,014
3,430 Meridian, MI Econ Dev Corp Ltd Oblig Rev
First Mtg Burcham Hills Ser A............... 7.750 07/01/19 3,488,173
3,000 Michigan St Hosp Fin Auth Rev Detroit Med
Cent Oblig Ser A............................ 5.250 08/15/23 2,189,280
2,000 Michigan St Hosp Fin Auth Rev Detroit Med
Cent Oblig Ser A............................ 5.250 08/15/28 1,414,820
8,774 Michigan St Strategic Fd Ltd Oblig Rev Great
Lakes Pulp & Fiber Proj..................... 8.000 12/01/27 1,754,817
485 Saint Clair Cnty, MI Econ Dev Corp Kmart
Proj........................................ 9.500 02/01/06 490,078
------------
19,941,680
------------
MINNESOTA 1.3%
1,000 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Proj Ser A................... 6.000 10/01/28 823,440
2,000 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Proj Ser B................... 6.000 10/01/33 1,631,100
2,000 Carlton, MN Hlth & Hsg Facs Intermediate
Faith Social Svcs Inc Proj.................. 7.500 04/01/19 1,927,560
1,425 Columbia Heights, MN Multi-Family Crest View
Corp Proj................................... 6.000 03/01/33 1,189,875
500 Dakota Cnty, MN Hsg & Redev................. 6.000 11/01/09 478,060
2,500 Dakota Cnty, MN Hsg & Redev................. 6.250 05/01/29 2,306,900
800 Little Canada, MN Fac Rev Hsg Alt Dev Co
Proj Ser A.................................. 6.100 12/01/17 746,744
1,000 North Saint Paul, MN Multi-Family Rev Hsg
Cottages North Saint Paul Rfdg (a).......... 9.250 02/01/22 1,029,080
1,500 St Paul, MN Port Auth Hotel Fac Rev Radisson
Kellogg Proj Ser 2.......................... 7.375 08/01/29 1,472,385
------------
11,605,144
------------
MISSOURI 1.6%
580 Ferguson, MO Tax Increment Rev Crossings at
Halls Ferry Proj............................ 7.250 04/01/07 572,170
3,095 Ferguson, MO Tax Increment Rev Crossings at
Halls Ferry Proj............................ 7.625 04/01/17 3,026,136
</TABLE>

See Notes to Financial Statements

23
<PAGE> 71

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MISSOURI (CONTINUED)
$ 675 Ferguson, MO Tax Increment Rev Crossings at
Halls Ferry Proj............................ 7.625% 04/01/18 $ 659,549
905 Jefferson Cnty, MO Indl Dev Auth Indl Rev
Cedars Hlthcare Cent Proj Ser A Rfdg........ 8.250 12/01/15 939,182
1,525 Jefferson Cnty, MO Jr College Jefferson
College..................................... 7.250 07/01/31 1,452,761
995 Kansas City, MO Multi-Family Hsg Rev Vlg
Green Apts Proj............................. 6.250 04/01/30 918,614
5,000 Saline Cnty, MO Indl Dev Auth Hlth Facs
Rev......................................... 6.500 12/01/28 4,260,000
1,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)...... 6.000 06/01/15 1,080,780
2,000 Valley Park, MO Indl Dev Auth Sr Hsg Rev
Cape Albeon Proj............................ 6.150 12/01/33 1,786,360
------------
14,695,552
------------
NEBRASKA 0.3%
1,400 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........ 9.305 09/19/23 1,477,000
1,200 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........ 10.517 09/10/30 1,246,500
------------
2,723,500
------------
NEVADA 0.2%
2,500 Clark Cnty, NV Indl Dev Rev Adj NV Power Co
Proj Ser C Rfdg............................. 5.500 10/01/30 2,108,575
------------

NEW HAMPSHIRE 1.5%
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights.................. 7.350 01/01/18 2,030,480
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights.................. 7.450 01/01/25 2,024,740
4,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Hosp Catholic Med Cent Rfdg................. 8.250 07/01/13 4,045,240
3,285 New Hampshire Higher Edl & Hlth Fac Auth Rev
Vly Regl Hosp............................... 7.350 04/01/23 3,286,872
1,000 New Hampshire Hlth & Ed Facs New Hampshire
College Issue............................... 7.500 01/01/31 1,022,760
1,000 New Hampshire St Business Fin Auth Rev Alice
Peck Day Hlth Sys Ser A..................... 6.875 10/01/19 932,920
------------
13,343,012
------------
</TABLE>

See Notes to Financial Statements

24
<PAGE> 72

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY 2.4%
$2,240 Camden Cnty, NJ Impt Auth Lease Rev Dockside
Refrig...................................... 8.400% 04/01/24 $ 2,181,447
2,000 New Jersey Econ Dev Auth Assisted Living
Rev......................................... 6.750 08/01/30 1,748,660
1,000 New Jersey Econ Dev Auth Econ Dev Rev....... 6.375 04/01/18 988,070
1,000 New Jersey Econ Dev Auth Retirement Cmnty
Rev Ser A................................... 8.000 11/15/15 974,260
1,000 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A.................... 8.500 11/01/16 1,051,380
1,500 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A.................... 8.625 11/01/25 1,582,950
1,765 New Jersey Econ Dev Auth Rev Kullman Assoc
Proj Ser A.................................. 6.125 06/01/18 1,604,085
2,000 New Jersey Econ Dev Auth Rev Sr Living Facs
Esplandade.................................. 7.000 06/01/39 1,775,660
3,000 New Jersey Econ Dev Auth Rev Sr Mtg Arbor
Glen Proj Ser A (Prerefunded @ 05/15/06).... 8.750 05/15/26 3,638,640
500 New Jersey Econ Dev Auth Rev Sr Mtg Arbor
Glen Ser A Rfdg............................. 6.000 05/15/28 409,070
1,000 New Jersey Econ Dev Auth Seabrook Vlg Ser
A........................................... 8.125 11/15/18 979,010
1,440 New Jersey Econ Dev Auth Seabrook Vlg Ser
A........................................... 8.125 11/15/23 1,385,510
1,550 New Jersey Hlthcare Fac Fin Auth Rev Raritan
Bay Med Cent Issue Rfdg..................... 7.250 07/01/14 1,451,978
1,275 New Jersey St Edl Fac Auth Rev Felician
College of Lodi Ser D....................... 7.375 11/01/22 1,346,706
------------
21,117,426
------------
NEW MEXICO 1.0%
5,300 Albuquerque, NM Retirement Facs Rev
Louisiana Vida Liena Proj Ser B Rfdg........ 6.600 12/15/28 4,554,025
2,135 Bernalillo Cnty, NM Multi-Family Hsg
Brentwood Gardens Apt B 1................... 6.600 10/15/28 1,996,012
2,000 Farmington, NM Pollutn Ctl Rev El Paso Elec
Ser A Rfdg.................................. 6.150 11/01/13 2,001,580
------------
8,551,617
------------
NEW YORK 6.6%
1,000 Bethlehem, NY Indl Dev Agy Sr Hsg Rev Van
Allen Proj Ser A............................ 6.875 06/01/39 917,860
2,400 Brookhaven, NY Indl Dev Agy Sr Residential
Hsg Rev..................................... 6.375 12/01/37 2,207,928
</TABLE>

See Notes to Financial Statements

25
<PAGE> 73

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$3,250 Huntington, NY Hsg Auth Sr Hsg Fac Rev
Gurwin Jewish Sr Residences Ser A........... 6.000% 05/01/29 $ 2,658,175
1,500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg................ 7.500 03/01/26 1,705,575
1,000 Monroe Cnty, NY Indl Dev Agy Rev Indl Dev
Empire Sports Proj Ser A.................... 6.250 03/01/28 765,620
2,430 Monroe Cnty, NY Indl Dev Agy Woodland Vlg
Proj........................................ 8.000 11/15/15 2,437,120
3,000 New York City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd)....... 6.250 11/15/06 3,223,710
1,500 New York City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd)....... 6.375 11/15/07 1,618,530
2,000 New York City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd)....... 6.500 11/15/09 2,167,320
3,000 New York City Indl Dev Agy Field Hotel Assoc
Lp JFK Rfdg................................. 6.000 11/01/28 2,568,330
1,250 New York City Indl Dev Agy Laguardia Assoc
Lp Proj Rfdg (a)............................ 6.000 11/01/28 1,070,138
10,330 New York City Adj Subser A-1................ 5.750 08/01/12 10,567,280
5,000 New York City Ser A......................... 7.000 08/01/07 5,562,150
5,000 New York Ser A.............................. 6.000 05/15/30 5,123,300
2,425 New York City Ser C......................... 6.600 08/01/09 2,527,771
3,000 New York City Ser D Rfdg.................... 8.000 02/01/05 3,387,360
2,375 New York St Dorm Auth City Univ Sys
Consolidated Gen 1.......................... 5.375 07/01/25 2,268,505
2,500 New York St Energy Resh & Dev Auth Gas Fac
Rev (Inverse Fltg).......................... 8.001 04/01/20 2,737,500
500 Peekskill, NY Indl Dev Agy Sr Drum Hill Sr
Living Proj................................. 6.375 10/01/28 430,660
2,000 Saratoga Cnty, NY Indl Dev Agy Sr Hsg Rev... 6.875 06/01/39 1,775,920
1,000 Suffolk Cnty, NY Indl Dev Agy Continuing
Care Retirement Cmnty Rev................... 7.250 11/01/28 995,270
1,500 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev
Spellman High Voltage Fac Ser A (a)......... 6.375 12/01/17 1,402,860
1,000 Westchester Cnty, NY Indl Dev Hebrew Hosp Sr
Hsg Inc Ser A............................... 7.375 07/01/30 1,002,870
------------
59,121,752
------------
</TABLE>

See Notes to Financial Statements

26
<PAGE> 74

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NORTH CAROLINA 0.7%
$5,510 Charlotte, NC Spl Facs Rev Charlotte Douglas
Intl Rfdg................................... 5.600% 07/01/27 $ 4,092,387
2,000 North Carolina Med Care Comm First Mtg
United Methodist Homes...................... 7.000 10/01/17 1,973,640
------------
6,066,027
------------
NORTH DAKOTA 0.2%
1,000 Grand Forks, ND Sr Hsg Rev 4000 Vly Square
Proj........................................ 6.250 12/01/34 717,770
1,000 Grand Forks, ND Sr Hsg Rev 4000 Vly Square
Proj........................................ 6.375 12/01/34 738,730
------------
1,456,500
------------
OHIO 1.4%
1,500 Akron Bath Copley, OH St Twp Hosp Dist Rev
Summa Hosp.................................. 5.375 11/15/24 1,204,590
2,250 Cleveland, OH Arpt Spl Rev Continental Airls
Inc Rfdg.................................... 5.700 12/01/19 1,960,717
1,500 Cuyahoga Cnty, OH Multi-Family Rev Hsg Park
Lane Apts Proj Ser A........................ 8.250 07/01/28 1,545,000
2,760 Dayton, OH Spl Facs Rev Afco Cargo Day LLC
Proj........................................ 6.300 04/01/22 2,443,787
1,500 Lucas Cnty, OH Hlthcare & Impt Sunset
Retirement Rfdg (a)......................... 6.500 08/15/20 1,476,855
2,970 Madison Cnty, OH Hosp Impt Rev Madison Cnty
Hosp Proj Rfdg.............................. 6.400 08/01/28 2,554,913
2,500 Ohio St Solid Waste Rev CSC Ltd Proj (d).... 8.500 08/01/22 700,000
3,700 Ohio St Solid Waste Rev Rep Engineered
Steels Proj................................. 8.250 10/01/14 733,710
1,000 Ohio St Solid Waste Rev Rep Engineered
Steels Proj................................. 9.000 06/01/21 197,640
------------
12,817,212
------------
OKLAHOMA 1.2%
750 Langston, OK Econ Dev Langston Cmnty, Dev
Corp Proj Ser A............................. 7.000 08/01/10 733,020
750 Langston, OK Econ Dev Langston Cmnty, Dev
Corp Proj Ser A............................. 7.400 08/01/17 726,728
1,000 Langston, OK Econ Dev Langston Cmnty, Dev
Corp Proj Ser A............................. 7.625 08/01/20 977,200
1,000 Oklahoma Cnty, OK Fin Auth Epworth Villa
Proj Ser A Rfdg............................. 7.000 04/01/25 978,810
</TABLE>

See Notes to Financial Statements

27
<PAGE> 75

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
OKLAHOMA (CONTINUED)
$1,065 Oklahoma Dev Fin Auth Rev Hillcrest Hlthcare
Sys Ser A Rfdg (a).......................... 5.750% 08/15/12 $ 883,332
3,250 Tulsa Cnty, OK Pub Fac Auth................. 6.250 11/01/22 3,222,862
3,000 Tulsa, OK Muni Arpt Trust Rev American Airls
Proj Rfdg................................... 6.250 06/01/20 2,953,020
------------
10,474,972
------------
OREGON 1.0%
2,000 Clackamas Cnty, OR Hosp Fac Auth Rev
Willamette View Inc Proj Ser A.............. 7.500 11/01/29 2,046,640
1,245 Clatsop Care Cent Hlth Dist OR Rev Sr Hsg... 6.000 08/01/14 1,100,393
2,145 Clatsop Care Cent Hlth Dist OR Rev Sr Hsg... 6.875 08/01/28 1,857,120
4,000 Oregon St Hlth Hsg Edl & Cultural Facs
Auth........................................ 7.250 06/01/28 3,803,240
------------
8,807,393
------------
PENNSYLVANIA 8.7%
2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser
B........................................... 9.250 11/15/15 1,983,580
2,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser
B........................................... 9.250 11/15/22 1,891,580
1,000 Allegheny Cnty, PA Hosp Dev Hlth Sys Ser
B........................................... 9.250 11/15/30 935,540
2,000 Allegheny Cnty, PA Indl Dev Auth Lease
Rev......................................... 6.625 09/01/24 1,823,060
6,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl
Rev Collateral Toledo Edison Co Proj Ser A
Rfdg........................................ 7.750 05/01/20 6,441,780
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks
Vlg Inc Proj Rfdg (Prerefunded @
05/15/06)................................... 7.700 05/15/22 1,152,810
1,900 Bucks Cnty, PA Indl Dev Auth Rev First Mtg
Hlth Care Fac Chandler...................... 6.200 05/01/19 1,655,508
3,500 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl
Rev Bethlehem Steel Corp Proj Rfdg.......... 7.500 09/01/15 3,530,380
2,500 Cliff House Ctf Trust Var Sts Variable Ctfs
Partn Ser A................................. 6.625 06/01/27 2,267,500
2,000 Cumberland Cnty, PA Indl Dev Auth Rev First
Mtg Woods Cedar Run Ser A Rfdg.............. 6.500 11/01/28 1,671,040
5,000 Dauphin Cnty, PA Genl Auth Rev Hotel & Conf
Cent Hyatt Regency.......................... 6.200 01/01/29 4,492,800
3,000 Dauphin Cnty, PA Genl Auth Rev Office & Pkg
Riverfront Office........................... 6.000 01/01/25 2,823,000
1,500 Delaware Cnty, PA Auth First Mtg Rev Riddle
Vlg Proj.................................... 7.000 06/01/21 1,469,355
1,000 Grove City, PA Area Hosp Auth Hlth Fac
Rev......................................... 6.625 08/15/29 892,850
3,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg)
(FGIC Insd)................................. 7.270 06/18/15 3,657,500
</TABLE>

See Notes to Financial Statements

28
<PAGE> 76

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$1,000 Lancaster Cnty, PA Hosp Auth Rev Hlth Cent
Saint Anne's Home........................... 6.625% 04/01/28 $ 887,670
2,000 Lehigh Cnty, PA Genl Purp Auth Rev Kidspeace
Oblig Group Rfdg (a)........................ 6.000 11/01/23 1,646,540
1,000 Lehigh Cnty, PA Indl Dev Auth Hlth Fac Rev
Lifepath Inc Proj........................... 6.100 06/01/18 850,160
1,000 Lehigh Cnty, PA Indl Dev Auth Hlth Fac Rev
Lifepath Inc Proj........................... 6.300 06/01/28 824,900
2,000 Montgomery Cnty, PA Higher Ed & Hlth Auth
Rev......................................... 6.750 07/01/29 1,755,140
7,100 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Proj Ser A
(Prerefunded @ 12/01/00).................... 10.000 12/01/19 7,302,847
500 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Rfdg................. 7.000 12/01/10 490,340
2,500 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Rfdg................. 7.250 12/01/15 2,470,250
6,000 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Rfdg................. 7.400 12/01/20 5,980,440
970 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy.......................... 7.750 09/01/24 988,313
1,485 Northeastern PA Hosp & Ed Auth Hlthcare
Rev......................................... 7.125 10/01/29 1,423,729
3,000 Pennsylvania Econ Dev Fin Auth Res Recovery
Rev Colver Proj Ser D....................... 7.050 12/01/10 3,071,730
5,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Rfdg (Inverse Fltg) (AMBAC
Insd)....................................... 8.963 09/01/26 5,962,500
1,000 Pennsylvania St Higher Edl Fac Auth College
& Univ Rev.................................. 4.500 07/15/21 825,630
1,000 Pennsylvania St Higher Edl Student Assn Inc
Proj Ser A.................................. 6.750 09/01/32 959,220
2,150 Philadelphia, PA Auth Indl Dev Rev Coml Dev
Rfdg (a).................................... 7.750 12/01/17 2,267,777
1,500 Scranton Lackawanna, PA Hlth & Welfare Auth
Rev Rfdg.................................... 7.250 01/15/17 1,395,075
2,000 Scranton Lackawanna, PA Hlth & Welfare Auth
Rev Rfdg.................................... 7.350 01/15/22 1,834,460
------------
77,625,004
------------
</TABLE>

See Notes to Financial Statements

29
<PAGE> 77

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
RHODE ISLAND 0.4%
$1,930 Providence, RI Redev Agy Ctfs Partn Ser A... 8.000% 09/01/24 $ 1,991,991
1,825 Rhode Island St Econ Dev Corp Rev Oblig
Providence Place............................ 7.250 07/01/20 1,725,775
------------
3,717,766
------------
SOUTH CAROLINA 1.4%
115 Charleston Cnty, SC Ctfs Partn Ser B (MBIA
Insd)....................................... 7.000 06/01/19 124,476
2,385 Charleston Cnty, SC Ctfs Partn Ser B
(Prerefunded @ 06/01/04) (MBIA Insd)........ 7.000 06/01/19 2,619,517
3,500 Charleston Cnty, SC Indl Rev Zeigler Coal
Hldgs Rfdg.................................. 6.950 08/10/28 1,715,000
1,000 Oconee Cnty, SC Indl Rev Bond Johnson Ctl
Inc Ser 84 (Var Rate Cpn)................... 8.250 06/15/04 988,440
2,000 South Carolina Jobs Econ Dev First Mtg
Westley Commons Proj........................ 7.750 10/01/24 1,925,400
1,250 South Carolina Jobs Econ Impt Palmetto Hlth
Alliance Ser A.............................. 7.125 12/15/15 1,268,650
4,000 South Carolina St Hsg Fin & Dev Auth Multi-
Family Rev.................................. 6.750 05/01/28 3,812,720
------------
12,454,203
------------
SOUTH DAKOTA 0.3%
805 Keystone, SD Econ Dev Rev Wtr Quality Mgmt
Corp Ser A.................................. 5.500 12/15/08 764,863
1,810 Keystone, SD Econ Dev Rev Wtr Quality Mgmt
Corp Ser A.................................. 6.000 12/15/18 1,630,212
------------
2,395,075
------------
TENNESSEE 2.5%
1,000 Chattanooga, TN Indl Dev Brd Indl Rev Dev
Mkt Street Proj Rfdg........................ 7.000 12/15/12 974,220
5,000 Chattanooga, TN Indl Dev Brd Indl Rev Dev
Mkt Street Proj Rfdg........................ 7.000 12/15/12 4,871,100
3,000 Elizabethton, TN Hlth & Edl Fac Brd Rev
Rfdg........................................ 7.750 07/01/29 2,950,620
3,000 SCA Tax Exempt Trust Multi-Family Mtg
Memphis Hlth Edl Rev Bond Receipt Ser A6
(FSA Insd).................................. 7.350 01/01/30 3,213,030
6,065 Sullivan Cnty, TN Hlth Edl & Hsg Facs Brd
Rev......................................... 8.410 11/01/19 6,581,799
</TABLE>

See Notes to Financial Statements

30
<PAGE> 78

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TENNESSEE (CONTINUED)
$3,150 Trenton, TN Hlth & Edl Facs Brd Rev Inc Proj
Ser A....................................... 10.000% 11/01/19 $ 3,399,700
1,160 Trenton, TN Hlth & Edl Facs Brd Rev Inc Proj
Ser B (d)................................... 10.000 11/01/20 150,823
------------
22,141,292
------------
TEXAS 10.9%
1,000 Abia Dev Corp TX Arpt Facs Rev Austin Belly
Port Dev LLC Proj Ser A..................... 6.250 10/01/08 955,030
3,000 Abia Dev Corp TX Arpt Facs Rev Austin Belly
Port Dev LLC Proj Ser A..................... 6.500 10/01/23 2,756,490
1,500 Abilene, TX Hlth Facs Dev Sears Methodist
Retirement Ser A............................ 5.875 11/15/18 1,261,695
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev High
Plains Baptist Hosp (Inverse Fltg) (FSA
Insd)....................................... 8.277 01/03/22 2,162,500
1,000 Atlanta, TX Hosp Auth Hosp Fac Rev.......... 6.700 08/01/19 914,680
2,035 Atlanta, TX Hosp Auth Hosp Fac Rev.......... 6.750 08/01/29 1,832,517
1,000 Austin, TX Bergstorm Landhost Entmt Sr Ser
A........................................... 6.750 04/01/27 942,370
1,995 Bell Cnty, TX Indl Dev Corp Solid Waste
Disposal Rev................................ 7.600 12/01/17 1,874,961
1,000 Bexar Cnty, TX Hlth Fac Dev Corp Rev Baptist
Hlth Sys Ser A Rfdg (MBIA Insd)............. 6.000 11/15/12 1,067,050
2,370 Bexar Cnty, TX Hlth Fac Dev Corp Rev Baptist
Hlth Sys Ser A Rfdg (MBIA Insd)............. 6.000 11/15/13 2,521,846
1,165 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.... * 08/01/01 914,525
335 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.... * 08/01/02 262,975
1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.... * 08/01/11 647,875
775 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg
(d)......................................... 8.750 08/01/11 685,875
2,670 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg
(d)......................................... 8.750 08/01/12 2,362,950
3,205 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev American Airls Inc................. 6.375 05/01/35 3,119,811
2,500 Garland, TX Indl Dev Auth Rev Bond Ashland
Oil Proj Ser 84 Rfdg (Var Rate Cpn)......... 8.920 04/01/04 2,502,100
3,275 Grapevine Colleyville Indpt Sch Dist TX..... * 08/15/14 1,517,635
6,900 Houston, TX Arpt Sys Rev Spl Fac Continental
Airls....................................... 6.125 07/15/17 6,314,604
5,000 Houston, TX Arpt Sys Rev Spl Facs Contl Ser
C........................................... 5.700 07/15/29 4,124,750
2,655 Leander, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Insd).................................. * 08/15/18 909,975
</TABLE>

See Notes to Financial Statements

31
<PAGE> 79

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$4,820 Leander, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Insd).................................. * 08/15/21 $ 1,347,190
8,880 Lower Co River Auth TX Rev Ser A Rfdg (FSA
Insd Insd).................................. 5.976% 05/15/14 9,620,681
3,750 Lower Co River Auth TX Rev Ser A Rfdg (FSA
Insd Insd).................................. 5.976 05/15/15 4,028,475
1,500 Lubbock, TX Hlth Facs Dev Corp Rev First Mtg
Carillon Proj A............................. 6.500 07/01/19 1,326,045
2,500 Matagorda Cnty, TX Navigation Dist No 1
Houton Lighting Pwr Co Rfdg (AMBAC Insd).... 5.125 11/01/28 2,253,600
3,355 Meadow Parc Dev Inc TX Multi-Family Rev Hsg
Meadow Parc Apts Proj....................... 6.500 12/01/30 3,105,589
7,800 Port Corpus Christi, TX Indl Valero Conv Ser
C Rfdg...................................... 5.400 04/01/18 6,851,520
1,180 Pottsboro, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Insd).................................. * 08/15/17 432,222
1,175 Pottsboro, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Insd).................................. * 08/15/20 351,114
1,175 Pottsboro, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Insd).................................. * 08/15/23 287,452
6,000 Rockwall, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Insd).................................. * 08/15/18 2,056,440
250 San Antonio, TX Hlth Fac Dev Corp Rev Encore
Nursing Cent Partn (a)...................... 8.250 12/01/19 262,255
2,278 Texas Gen Svcs Comm Partn Interests......... 7.250 08/15/11 2,329,676
8,000 Texas St Dept Hsg & Cmnty Affairs Home Mtg
Rev (GNMA Collateralized) (Inverse Fltg).... 6.900 07/02/24 8,453,680
2,985 Texas St Higher Edl Coordinating Brd College
Student Ln (e).............................. 0/7.850 10/01/25 3,042,252
2,000 Texas St Tpk Auth Dallas North Thruway Rev
Addison Arpt Toll Tunnel Proj (Prerefunded @
01/01/05) (FGIC Insd)....................... 6.750 01/01/15 2,196,840
2,000 Texas St Tpk Auth Dallas North Thruway Rev
Addison Arpt Toll Tunnel Proj (Prerefunded @
01/01/05) (FGIC Insd)....................... 6.600 01/01/23 2,185,380
5,000 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics.... 8.200 03/15/21 5,149,850
2,500 Woodhill Pub Fac Corp TX Hsg-Woodhill Apts
Proj........................................ 7.500 12/01/29 2,496,675
------------
97,429,150
------------
</TABLE>

See Notes to Financial Statements

32
<PAGE> 80

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
UTAH 0.5%
$1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................ 7.800% 09/01/15 $ 885,260
1,165 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................ 8.000 09/01/20 1,030,548
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................ 7.800 09/01/25 857,030
225 Saint George, UT Indl Dev Rev Kmart Corp Ser
1984A....................................... 10.750 10/15/08 230,168
2,500 Tooele Cnty, UT Pollutn Ctl Rev Laidlaw
Environmental Ser A Rfdg (d)................ 7.550 07/01/27 95,000
900 Utah St Hsg Fin Agy Single Family Mtg Mezz
A1 (AMBAC Insd)............................. 6.100 07/01/13 938,196
------------
4,036,202
------------
VERMONT 0.4%
1,000 Vermont Edl & Hlth Bldgs Fin Agy Rev VT
Council Dev Mental.......................... 6.000 12/15/09 940,700
1,000 Vermont Edl & Hlth Bldgs Fin Agy Rev Health
Ser A....................................... 6.125 12/15/14 895,380
1,015 Vermont Edl & Hlth Bldgs Fin Agy Rev
Hlthcare Fac Copley Manor Proj.............. 6.250 04/01/29 866,566
1,000 Vermont Edl & Hlth Bldgs Fin Agy Rev
Bennington College Proj..................... 6.625 10/01/29 990,460
------------
3,693,106
------------
VIRGINIA 1.6%
5,000 Alexandria, VA Redev & Hsg Auth 3001 Pk Cent
Apts Ser A Rfdg............................. 6.375 04/01/34 4,601,050
2,650 Fairfax Cnty, VA Park Auth Park Fac Rev..... 6.625 07/15/20 2,712,832
1,000 Greensville Cnty, VA Indl Dev Wheeling Steel
Proj Ser A.................................. 7.000 04/01/14 903,080
5,000 Peninsula Ports Auth VA Rev Port Fac Zeigler
Coal Rfdg................................... 6.900 05/02/22 2,450,000
1,500 Pittsylvania Cnty, VA Indl Dev Auth Rev
Exempt Fac Ser A............................ 7.450 01/01/09 1,543,710
1,700 Virginia Small Business Fin Auth Rev Indl
Dev SIL Clean Wtr Proj...................... 7.250 11/01/24 1,703,043
------------
13,913,715
------------
</TABLE>

See Notes to Financial Statements

33
<PAGE> 81

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
WASHINGTON 0.9%
$1,000 King Cnty, WA Pub Hosp Dist No 004
Snoqualmie Valley Hosp...................... 7.250% 12/01/15 $ 982,740
3,500 Spokane Cnty, WA Indl Dev Corp Solid Waste
Disp Rev.................................... 7.600 03/01/27 3,483,480
2,000 Tacoma, WA Hsg Auth Rev Hsg Wedgewood Homes
Proj........................................ 6.000 04/01/28 1,789,840
5,500 Washington St Pub Pwr Supply Comp Interest
Ser C Rfdg (MBIA Insd)...................... * 07/01/17 2,117,005
------------
8,373,065
------------
WISCONSIN 1.7%
800 Baldwin, WI Hosp Rev Mtg Ser A.............. 6.125 12/01/18 712,744
2,590 Baldwin, WI Hosp Rev Mtg Ser A.............. 6.375 12/01/28 2,270,368
3,825 Wisconsin St Hlth & Edl Fac Auth Rev
Chippewa Vly Hosp Ser F Rfdg................ 9.500 11/15/12 3,930,608
2,070 Wisconsin St Hlth & Edl Fac Auth Rev Eau
Claire Manor (d)............................ 9.625 06/01/13 1,700,588
1,115 Wisconsin St Hlth & Edl Fac Auth Rev Spl
Term Middleton Glen Inc Proj................ 5.750 10/01/18 960,818
2,485 Wisconsin St Hlth & Edl Fac Auth Rev Spl
Term Middleton Glen Inc Proj................ 5.750 10/01/28 2,054,847
360 Wisconsin St Hlth & Edl Facs Auth Rev Spl
Term Middleton Glen Inc Proj................ 5.900 10/01/28 304,153
3,000 Wisconsin St Hlth & Edl Milwaukee Catholic
Home Proj................................... 7.500 07/01/26 3,039,720
------------
14,973,846
------------
PUERTO RICO 0.1%
1,117 Centro de Recaudaciones de Ingresos Muni
Ctfs Partn PR............................... 6.850 10/17/03 1,141,984
------------

TOTAL MUNICIPAL BONDS 96.7%.................................. 862,223,086

TAXABLE NOTE 0.2%
2,000 Divine Family Trust (g)..................... 6.000 10/29/04 2,000,000
------------
TOTAL LONG-TERM INVESTMENTS 96.9%
(Cost $916,454,355)................................................... 864,223,086

SHORT-TERM INVESTMENTS 1.0%
(Cost $9,130,000)..................................................... 9,130,000
------------
</TABLE>

See Notes to Financial Statements

34
<PAGE> 82

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<C> <S> <C> <C> <C>
TOTAL INVESTMENTS 97.9%
(Cost $925,584,355)................................................... $873,353,086
OTHER ASSETS IN EXCESS OF LIABILITIES 2.1%............................. 18,649,613
------------

NET ASSETS 100.0%...................................................... $892,002,699
============
</TABLE>

* Zero coupon bond

(a) Securities purchased on a when-issued or delayed delivery basis.

(b) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments.

(d) Non-Income producing security.

(e) Security is a "step up" bond where the coupon increases or steps up at a
predetermined date.

(f) 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
transactions with qualified institutional buyers.

(g) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.

(h) Interest only strip.

AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Public School Fund

See Notes to Financial Statements

35
<PAGE> 83

FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2000

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $925,584,355)....................... $ 873,353,086
Cash........................................................ 9,294
Receivables:
Interest.................................................. 18,695,288
Investments Sold.......................................... 6,367,866
Fund Shares Sold.......................................... 596,035
Other....................................................... 40,702
--------------
Total Assets............................................ 899,062,271
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,469,358
Income Distributions...................................... 1,902,959
Fund Shares Repurchased................................... 1,233,842
Distributor and Affiliates................................ 569,012
Investment Advisory Fee................................... 353,216
Trustees' Deferred Compensation and Retirement Plans........ 274,065
Accrued Expenses............................................ 257,120
--------------
Total Liabilities....................................... 7,059,572
--------------
NET ASSETS.................................................. $ 892,002,699
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,067,662,574
Accumulated Distributions in Excess of Net Investment
Income.................................................... (8,990,901)
Net Unrealized Depreciation................................. (52,231,269)
Accumulated Net Realized Loss............................... (114,437,705)
--------------
NET ASSETS.................................................. $ 892,002,699
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $621,537,406 and 46,835,417 shares of
beneficial interest issued and outstanding)............. $ 13.27
Maximum sales charge (4.75%* of offering price)......... .66
--------------
Maximum offering price to public........................ $ 13.93
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $221,362,668 and 16,684,872 shares of
beneficial interest issued and outstanding)............. $ 13.27
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $49,102,625 and 3,701,319 shares of
beneficial interest issued and outstanding)............. $ 13.27
==============
</TABLE>

* On sales of $100,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

36
<PAGE> 84

Statement of Operations
For the Year Ended September 30, 2000

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 65,794,526
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,568,962, $2,490,866 and $553,533,
respectively)............................................. 4,613,361
Investment Advisory Fee..................................... 4,597,639
Shareholder Services........................................ 630,424
Legal....................................................... 148,100
Trustees' Fees and Related Expenses......................... 107,044
Custody..................................................... 95,618
Other....................................................... 784,577
------------
Total Operating Expenses................................ 10,976,763
Less Credit Earned Cash Balances........................ 54,911
------------
Net Operating Expenses.................................. 10,921,852
Interest Expense........................................ 130,939
------------
NET INVESTMENT INCOME....................................... $ 54,741,735
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments (Including reorganization and restructuring
costs of $28,638)....................................... $ (9,221,904)
Options................................................... 181,514
Futures................................................... (1,392,019)
------------
Net Realized Loss........................................... (10,432,409)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (13,964,340)
End of the Period:
Investments............................................. (52,231,269)
------------
Net Unrealized Depreciation During the Period............... (38,266,929)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(48,699,338)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 6,042,397
============
</TABLE>

See Notes to Financial Statements

37
<PAGE> 85

Statement of Changes in Net Assets
For the Years Ended September 30, 2000 and 1999

Distributions from Net Investment Income...... (53,887,116) (59,506,011)
Distributions in Excess of Net Investment
Income...................................... -0- (851,426)
-------------- --------------
Total Distributions from and in Excess of Net
Investment Income*.......................... (53,887,116) (60,357,437)
-------------- --------------

NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................. (47,844,719) (91,523,131)
-------------- --------------

FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold..................... 109,779,988 277,570,061
Net Asset Value of Shares Issued Through
Dividend Reinvestment....................... 28,158,832 28,001,367
Cost of Shares Repurchased.................... (287,349,348) (238,997,282)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................ (149,410,528) 66,574,146
-------------- --------------
TOTAL DECREASE IN NET ASSETS.................. (197,255,247) (24,948,985)
NET ASSETS:
Beginning of the Period....................... 1,089,257,946 1,114,206,931
-------------- --------------
End of the Period (Including accumulated
distributions in excess of net investment
income of $8,990,901 and $9,871,263,
respectively)............................... $ 892,002,699 $1,089,257,946
============== ==============

* Distributions by Class
----------------------------------------------

Distributions from and in Excess of Net
Investment Income:
Class A Shares.............................. $ (38,524,208) $ (43,068,954)
Class B Shares.............................. (12,570,099) (14,016,298)
Class C Shares.............................. (2,792,809) (3,272,185)
-------------- --------------
$ (53,887,116) $ (60,357,437)
============== ==============
</TABLE>

See Notes to Financial Statements

38
<PAGE> 86

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................... $13.91 $15.08 $14.85 $14.47 $14.98 $13.85
------ ------ ------ ------ ------ ------
Net Investment Income......... .77 .81 .64 .90 .96 1.02
Net Realized and Unrealized
Gain/Loss................... (.63) (1.17) .22 .38 (.51) 1.07
------ ------ ------ ------ ------ ------
Total from Investment
Operations.................... .14 (.36) .86 1.28 .45 2.09
Less Distributions from and in
Excess of Net Investment
Income........................ .78 .81 .63 .90 .96 .96
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................ $13.27 $13.91 $15.08 $14.85 $14.47 $14.98
====== ====== ====== ====== ====== ======

Total Return (a)................ 1.27% -2.51% 6.00%* 9.05% 3.21% 15.52%
Net Assets at End of the Period
(In millions)................. $621.5 $745.2 $771.4 $706.3 $671.9 $665.8
Ratio of Expenses to Average Net
Assets (b).................... .91% .96% .92% .94% .99% .95%
Ratio of Net Investment Income
to Average Net Assets (b)..... 5.91% 5.46% 5.66% 6.09% 6.60% 7.05%
Portfolio Turnover.............. 37% 77% 66%* 63% 59% 59%
</TABLE>

* Non-Annualized

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.

(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.

See Notes to Financial Statements

39
<PAGE> 87

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................... $13.90 $15.07 $14.84 $14.47 $14.98 $13.85
------ ------ ------ ------ ------ ------
Net Investment Income......... .69 .69 .55 .77 .84 .91
Net Realized and Unrealized
Gain/Loss................... (.64) (1.16) .23 .39 (.50) 1.07
------ ------ ------ ------ ------ ------
Total from Investment
Operations.................... .05 (.47) .78 1.16 .34 1.98
Less Distributions from and in
Excess of Net Investment
Income........................ .68 .70 .55 .79 .85 .85
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................ $13.27 $13.90 $15.07 $14.84 $14.47 $14.98
====== ====== ====== ====== ====== ======

Total Return (a)................ .48% -3.25% 5.35%* 8.23% 2.40% 14.62%
Net Assets at End of the Period
(In millions)................. $221.4 $282.5 $279.6 $229.6 $173.8 $137.9
Ratio of Expenses to Average Net
Assets (b).................... 1.67% 1.73% 1.68% 1.71% 1.75% 1.70%
Ratio of Net Investment Income
to Average Net Assets (b)..... 5.15% 4.70% 4.90% 5.30% 5.84% 6.25%
Portfolio Turnover.............. 37% 77% 66%* 63% 59% 59%
</TABLE>

* Non-Annualized

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 4%, charged on certain redemptions
made within one year of purchase and declining to 0% after the sixth year.
If the sales charge was included, total returns would be lower.

See Notes to Financial Statements

40
<PAGE> 88

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................... $13.90 $15.07 $14.84 $14.47 $14.99 $13.85
------ ------ ------ ------ ------ ------
Net Investment Income......... .69 .69 .55 .78 .85 .91
Net Realized and Unrealized
Gain/Loss................... (.64) (1.16) .23 .38 (.52) 1.08
------ ------ ------ ------ ------ ------
Total from Investment
Operations.................... .05 (.47) .78 1.16 .33 1.99
Less Distributions from and in
Excess of Net Investment
Income........................ .68 .70 .55 .79 .85 .85
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................ $13.27 $13.90 $15.07 $14.84 $14.47 $14.99
====== ====== ====== ====== ====== ======

Total Return (a)................ .48% -3.25% 5.35%* 8.23% 2.33% 14.70%
Net Assets at End of the Period
(In millions)................. $ 49.1 $ 61.5 $ 63.2 $ 38.6 $ 18.8 $ 9.5
Ratio of Expenses to Average Net
Assets (b).................... 1.67% 1.73% 1.68% 1.71% 1.75% 1.69%
Ratio of Net Investment Income
to Average Net Assets (b)..... 5.15% 4.69% 4.90% 5.24% 5.84% 6.19%
Portfolio Turnover.............. 37% 77% 66%* 63% 59% 59%
</TABLE>

* Non-Annualized

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1%, charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
returns would be lower.

See Notes to Financial Statements

41
<PAGE> 89

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen Tax Free High Income Fund (the "Fund") is organized as a series of
the Van Kampen Tax Free Trust, a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to provide investors
with a high level of current income exempt from federal income tax primarily
through investment in a diversified portfolio of medium and lower grade
municipal securities. The Fund commenced investment operations on June 28, 1985.
The distribution of the Fund's Class B and Class C Shares commenced on May 1,
1993 and August 13, 1993, respectively.

C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Bond
premium is amortized and original issue discount is accreted over the expected
life of each applicable security. Income and expenses of the Fund are allocated
on

42
<PAGE> 90

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

a pro rata basis to each class of shares, except for distribution and service
fees and transfer agency costs which are unique to each class of shares.

The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 2000, the Fund had an accumulated capital loss
carryforward for tax purposes of $101,816,639 which expires between September
30, 2002 and September 30, 2008. Net realized gains or losses may differ for
financial reporting and tax purposes primarily as a result of the capitalization
of reorganization and restructuring costs for tax purposes, post October losses
which are not recognized for tax purposes until the first day of the following
fiscal year and the deferral of losses related to wash sale transactions.

At September 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $927,471,949, the aggregate gross unrealized
appreciation is $24,936,333 and the aggregate gross unrealized depreciation is
$79,055,196 resulting in net unrealized depreciation on long- and short-term
investments of $54,118,863.

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.

Due to inherent differences in the recognition of interest income under
generally accepted accounting principles and federal income tax purposes, the
amount of distributable net investment income may differ between book and
federal income tax purposes for a particular period. These differences are
temporary in nature, but may result in book basis distributions in excess of net
investment income for certain periods. Permanent differences between financial
and tax basis reporting for the 2000 fiscal year have been identified and
appropriately reclassified. Permanent book and tax basis differences relating to
the recognition of market discount on bonds totaling $25,743, were reclassified
from accumulated net realized gain/loss to accumulated distributions in excess
of net investment income.

43
<PAGE> 91

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

F. EXPENSE REDUCTIONS During the year ended September 30, 2000, the Fund's
custody fee was reduced by $54,911 as a result of credits earned on overnight
cash balances.

2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .50 of 1%
Over $500 million........................................... .45 of 1%
</TABLE>

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $30,400 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $60,600 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.

Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
2000, the Fund recognized expenses of approximately $401,500. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.

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.

44
<PAGE> 92

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

3. CAPITAL TRANSACTIONS

At September 30, 2000, capital aggregated $759,608,947, $251,849,650 and
$56,203,977 for Classes A, B and C, respectively. For the year ended September
30, 2000, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 5,738,237 $ 77,297,640
Class B............................................... 1,708,319 23,070,944
Class C............................................... 696,187 9,411,404
----------- -------------
Total Sales............................................. 8,142,743 $ 109,779,988
=========== =============
Dividend Reinvestment:
Class A............................................... 1,581,326 $ 21,157,427
Class B............................................... 405,084 5,426,298
Class C............................................... 120,681 1,575,107
----------- -------------
Total Dividend Reinvestment............................. 2,107,091 $ 28,158,832
=========== =============
Repurchases:
Class A............................................... (14,062,902) $(189,643,694)
Class B............................................... (5,747,388) (77,082,705)
Class C............................................... (1,539,604) (20,622,949)
----------- -------------
Total Repurchases....................................... (21,349,894) $(287,349,348)
=========== =============
</TABLE>

45
<PAGE> 93

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

At September 30, 1999, capital aggregated $850,797,574, $300,435,113 and
$65,840,415 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 13,253,619 $ 192,139,108
Class B............................................... 4,333,895 63,782,837
Class C............................................... 1,466,836 21,648,116
----------- -------------
Total Sales............................................. 19,054,350 $ 277,570,061
=========== =============
Dividend Reinvestment:
Class A............................................... 1,403,007 $ 20,426,304
Class B............................................... 394,154 5,741,611
Class C............................................... 125,823 1,833,452
----------- -------------
Total Dividend Reinvestment............................. 1,922,984 $ 28,001,367
=========== =============
Repurchases:
Class A............................................... (12,242,352) $(176,483,940)
Class B............................................... (2,963,915) (42,910,916)
Class C............................................... (1,363,307) (19,602,426)
----------- -------------
Total Repurchases....................................... (16,569,574) $(238,997,282)
=========== =============
</TABLE>

Class B and C Shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B Shares purchased
on or after June 1, 1996 and any dividend reinvestment plan Class B Shares
received on such shares, automatically convert to Class A Shares eight years
after the end of the calendar month in which the shares were purchased. Class B
Shares purchased before June 1, 1996, and any dividend reinvestment plan Class B
Shares received on such shares, automatically convert to Class A Shares seven
years after the end of the calendar month in which the shares were purchased.
For the years ended September 30, 2000 and 1999, 703,436 and -0- Class B Shares
automatically converted to Class A Shares, respectively, and are shown in the
above tables as sales of Class A Shares and repurchases of Class B Shares. Class
C Shares purchased before January 1, 1997, and any dividend reinvestment plan C
Shares received thereon, automatically convert to Class A Shares ten years after
the end of the calendar month in which the shares are purchased. Class C Shares
purchased on or after January 1, 1997 do not possess a conversion feature. For
the year ended September 30, 2000 and the year ended September 30, 1999, no
Class C Shares converted to Class A Shares. The CDSC for Class B and C Shares
will be imposed

46
<PAGE> 94

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

on most redemptions made within six years of the purchase for Class B Shares and
one year of the purchase for Class C Shares as detailed in the following
schedule.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
------------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First................................................... 4.00% 1.00%
Second.................................................. 3.75% None
Third................................................... 3.50% None
Fourth.................................................. 2.50% None
Fifth................................................... 1.50% None
Sixth................................................... 1.00% None
Seventh and Thereafter.................................. None None
</TABLE>

For the year ended September 30, 2000, Van Kampen, as distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $86,200 and CDSC on redeemed shares of approximately $828,700.
Sales charges do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $351,448,181 and $569,566,610,
respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

Summarized below are the specific types of derivative financial instruments
used by the Fund.

47
<PAGE> 95

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

A. OPTION CONTRACTS An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.

Transactions in options for the year ended September 30, 2000, were as
follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
<S> <C> <C>
Outstanding at September 30, 1999........................... 500 $ 15,486
Options Written and Purchased (Net)......................... 11,900 63,536
Options Terminated in Closing Transactions (Net)............ (1,525) (422,449)
Options Expired (Net)....................................... (10,875) 343,427
------- ---------
Outstanding at September 30, 2000........................... -0- $ -0-
======= =========
</TABLE>

B. 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 futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.

Transactions in futures contracts for the year ended September 30, 2000,
were as follows:

<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... 590
Futures Opened.............................................. 5,667
Futures Closed.............................................. (6,257)
------
Outstanding at September 30, 2000........................... -0-
======
</TABLE>

C. INDEXED SECURITIES These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.

48
<PAGE> 96

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

coupon is increased. These instruments are typically used by the Fund to enhance
the yield of the portfolio.

An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the security's fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.

6. DISTRIBUTION AND SERVICE PLANS

The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, and a service plan
(collectively the "Plans"). The Plans govern payments for the distribution of
the Fund's shares, ongoing shareholder services and maintenance of shareholder
accounts.

Annual fees under the Plans of up to .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the year ended September 30, 2000, are payments retained by Van Kampen
of approximately $2,111,800.

7. BORROWINGS

The average daily balance of bank borrowings for the year ended September
30, 2000 was approximately $2,189,600 with an average interest rate of 5.98%. At
September 30, 2000, the Fund did not have any outstanding borrowings under this
agreement.

49
<PAGE> 97

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of Van Kampen Tax Free High Income
Fund

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Van Kampen Tax Free High Income Fund (the
"Fund"), as of September 30, 2000, and the related statements of operations,
changes in net assets and financial highlights for the year 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 based on our audit. The statement of changes in net assets
of the Fund for the year ended September 30, 1999, and the financial highlights
for each of the five years in the period then ended were audited by other
auditors whose report dated November 9, 1999, expressed an unqualified opinion
on those statements.

SIG

Chicago, Illinois
November 8, 2000

50
<PAGE> 98

VAN KAMPEN FUNDS

THE VAN KAMPEN
FAMILY OF FUNDS

Growth

Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology

Growth and Income

Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value

Global/International

Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income*
Tax Managed Global Franchise
Worldwide High Income

Income

Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income

Capital Preservation

Reserve
Tax Free Money

Senior Loan

Prime Rate Income Trust
Senior Floating Rate

Tax Free

To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:

- visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]

- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.

[PHONE ICON]

- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us

[MAIL ICON]

* Closed to new investors

** Open to new investors for a limited time

51
<PAGE> 99

FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN TAX FREE HIGH INCOME FUND

BOARD OF TRUSTEES

OFFICERS

RICHARD F. POWERS, III*
President

STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer

A. THOMAS SMITH III*
Vice President and Secretary

JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer

RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER

VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

DISTRIBUTOR

VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

SHAREHOLDER SERVICING AGENT

VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256

CUSTODIAN

STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

LEGAL COUNSEL

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606

INDEPENDENT AUDITORS(1)

ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606

For the year ended September 30, 2000, 98.9% of the income distributions made
by the Fund were exempt from federal income taxes. In January, 2001 the Fund
will provide tax information to the shareholders for the 2000 calendar year.

(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP
to be the Fund's independent auditors. KPMG LLP ceased being the Fund's
independent auditors effective April 14, 2000. The cessation of the
client-auditor relationship between the Fund and KPMG was based solely on a
possible future business relationship by KPMG with an affiliate of the
fund's investment adviser.

* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.

(SM) denotes a service mark of Van Kampen Funds Inc.

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales
charge, and other pertinent data. After February 28, 2001, the report, if used
with prospective investors, must be accompanied by a quarterly performance
update.

52
<PAGE> 100

<TABLE>
<S> <C>
Table of Contents

OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2

PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 6

PORTFOLIO AT A GLANCE
CREDIT QUALITY 7
TWELVE-MONTH DIVIDEND HISTORY 7
TOP FIVE HOLDINGS 8
TOP FIVE SECTORS 8
Q&A WITH YOUR PORTFOLIO MANAGERS 9
GLOSSARY OF TERMS 12

BY THE NUMBERS
YOUR FUND'S INVESTMENTS 13
FINANCIAL STATEMENTS 19
NOTES TO FINANCIAL STATEMENTS 25
REPORT OF INDEPENDENT AUDITORS 33
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 34
FUND OFFICERS AND IMPORTANT ADDRESSES 35
</TABLE>

Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 101

OVERVIEW

LETTER TO SHAREHOLDERS
October 20, 2000

Dear Shareholder,

Sincerely,

[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments

1
<PAGE> 102

ECONOMIC SNAPSHOT

2
<PAGE> 103

U.S. GROSS DOMESTIC PRODUCT

SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998 -- September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.70
</TABLE>

Source: Bureau of Economic Analysis

INTEREST RATES AND INFLATION

(September 30, 1998 -- September 30, 2000)

[LINE GRAPH]

3
<PAGE> 104

PERFORMANCE SUMMARY

RETURN HIGHLIGHTS

(as of September 30, 2000)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 7.20% 6.63% 6.57%
-------------------------------------------------------------------------
One-year total return(2) 3.72% 3.63% 5.57%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 4.97% 4.90% 4.89%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 6.70% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 7.14% 4.38%(3) 4.02%
-------------------------------------------------------------------------
Commencement date 12/13/85 05/01/93 08/13/93
-------------------------------------------------------------------------
Distribution rate(4) 4.40% 3.82% 3.82%
-------------------------------------------------------------------------
Taxable-equivalent distribution
rate(5) 7.59% 6.59% 6.59%
-------------------------------------------------------------------------
SEC Yield(6) 4.34% 3.72% 3.73%
-------------------------------------------------------------------------
</TABLE>

N/A = Not Applicable

(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (3.25% for Class A Shares) or
contingent deferred sales charge ("CDSC") for Class B and C Shares. On
purchases of Class A Shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B Shares are calculated without the effect of the maximum 3% CDSC,
charged on certain redemptions made within one year of purchase and
declining to 0% after the fourth year. Returns for Class C Shares are
calculated without the effect of the maximum 1% CDSC, charged on certain
redemptions made within one year of purchase. If the sales charges were
included, total returns would be lower. These returns do include Rule 12b-1
fees of up to .25% for Class A Shares and 1% for Class B and Class C Shares.

(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (3.25% for Class A
Shares) or contingent deferred sales charge ("CDSC") for Class B and C
Shares and Rule 12b-1 fee. On purchases of Class A Shares of $1 million or
more, a CDSC of 1% may be imposed on certain redemptions made within one
year of purchase. Returns for Class B Shares are calculated with the effect
of the maximum 3% CDSC, charged on certain redemptions made within one year
of purchase and declining to 0% after the fourth year. Returns for Class C
Shares are calculated with the effect of the maximum 1% CDSC, charged on
certain redemptions made within one year of purchase. The Rule 12b-1 fee for
Class A Shares is up to .25% and for Class B and Class C Shares is 1%.

(3) The total return reflects the conversion of Class B Shares into Class A
Shares six years after the end of the calendar month in which the shares
were purchased. See footnote 3 in the Notes to Financial Statements for
additional information.

4
<PAGE> 105

(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.

(5) Taxable-equivalent calculations reflect a combined federal and state income
tax rate of 42%, which takes into consideration the deductibility of
individual state taxes paid.

The terms of the insurance are more fully described in the Fund's
prospectus; no representation is made as to any insurer's ability to meet
its commitments. The insurance does not remove market risk since it does not
apply to the value of the securities in the Fund's portfolio, and the Fund's
net asset value may fluctuate depending on changes in interest rates and
other factors affecting the municipal credit market.

Income may subject certain individuals to the federal alternative minimum
tax (AMT).

Market forecasts provided in this report may not necessarily come to pass.

5
<PAGE> 106

GROWTH OF A $10,000 INVESTMENT

(September 30, 1990--September 30, 2000)

[INVESTMENT PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
LEHMAN BROTHERS MUNICIPAL BOND INDEX
is an unmanaged, broad-based statistical
CALIFORNIA INSURED TAX FREE FUND* composite of municipal bonds.+
--------------------------------- ----------------------------------------
<S> <C> <C>
9/90 9674 10000
10218 10431
10340 10667
10517 10895
9/91 10980 11318
11238 11698
11355 11733
11748 12179
9/92 12102 12502
12371 12730
12980 13202
13494 13634
9/93 14076 14094
14177 14292
13098 13508
13151 13657
9/94 13171 13751
12937 13553
13924 14511
14167 14862
9/95 14523 15289
15303 15920
14992 15728
15091 15849
9/96 15507 16213
15945 16627
15807 16588
16406 17160
9/97 16864 17677
17369 18157
17550 18366
17822 18644
9/98 18478 19218
18469 19333
18608 19504
18122 19160
9/99 17842 19083
17529 18934
18319 19489
18546 19784
9/00 19126 20262
Fund's Total Return
1 Year Total Return 3.72%
5 Year Avg. Annual 4.97%
10 Year Avg. Annual 6.70%
Inception Avg. Annual 7.14%
</TABLE>

This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index over time.

The above chart reflects the performance of Class A shares of the fund. The
performance of Class A shares will differ from that of other share classes of
the fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (3.25% for Class A shares) and an annual 12b-1 fee of up to 0.25
percent.

Source:
* Hypo(R) Provided by Towers Data, Bethesda, MD

(+) Lehman Brothers

6
<PAGE> 107

PORTFOLIO AT A GLANCE

CREDIT QUALITY

(as a percentage of long-term investments)

<TABLE>
<CAPTION>
As of September 30, 2000
<S> <C> <C>
- AAA/Aaa............ 100%

[PIE CHART]
<CAPTION>
As of September 30, 1999
<S> <C> <C>
- AAA/Aaa............ 100%

[PIE CHART]
</TABLE>

Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.

TWELVE-MONTH DIVIDEND HISTORY

(for the period ended September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.0690
11/99 0.0690
12/99 0.0690
1/00 0.0670
2/00 0.0670
3/00 0.0670
4/00 0.0670
5/00 0.0670
6/00 0.0670
7/00 0.0670
8/00 0.0670
9/00 0.0670
</TABLE>

The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.

7
<PAGE> 108

TOP FIVE HOLDINGS

(as a percentage of long-term investments--September 30, 2000)

<TABLE>
<S> <C> <C>
California Educational Facilities Authority Revenue
University Of The Pacific 3.9%
---------------------------------------------------------------------
California State Refunding 3.9%
---------------------------------------------------------------------
San Mateo County, CA Joint Powers Finance Authority Lease
Revenue Capital Projects Refunding 3.5%
---------------------------------------------------------------------
San Jose, CA Finance Authority Revenue Convention Project 3.2%
---------------------------------------------------------------------
Corona, CA Redevelopment Agency Tax Allocation
Redevelopment Project Area A Refunding 3.0%
---------------------------------------------------------------------
</TABLE>

TOP FIVE SECTORS

(as a percentage of long-term investments)
[BAR GRAPH]

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Tax District 22.3 25.2
Public Education 18.9 20.0
Public Building 13.8 13.6
General Purpose 10.8 9.1
Water & Sewer 10.3 6.2
</TABLE>

8
<PAGE> 109

[PHOTO]

Q&A WITH YOUR PORTFOLIO MANAGERS

WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN CALIFORNIA
INSURED TAX FREE FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT
SHAPED THE MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED
SEPTEMBER 30, 2000. THE TEAM IS LED BY JOSEPH PIRARO, PORTFOLIO MANAGER, WHO HAS
MANAGED THE FUND SINCE 1992 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE
1971. THE FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE FUND'S PERFORMANCE.

Q HOW WOULD YOU CHARACTERIZE
THE MARKET ENVIRONMENT YOU FACED IN MANAGING THE FUND DURING THE PAST 12
MONTHS, AND HOW DID THE FUND PERFORM IN THAT ENVIRONMENT?

Short-term interest rates climbed steadily as the Federal Reserve Board
increased key short-term lending rates four times over the past 12 months,
reacting to strong economic growth, rising commodities prices, and a tight labor
market. Rising yields at the short end of the maturity spectrum caused prices to
fall, which was a minor damper on the fund's net asset value during the period.
Fortunately, the fund had only a small percentage of its assets in securities
with maturities of 5 years or less.

One of the positive aspects of this market volatility was the widening of
the yield spread between insured municipals and lower-rated, higher-
yielding/high-risk municipals. As investors sensed the market's uncertainty,
fewer assets flowed into high-yielding municipal bonds, which are perceived to
be more risky. This development favored the high-quality, insured holdings of
the fund, as demand for California municipal securities remained strong, even
though overall demand for municipal bonds was down.

At the same time, supply in the municipal market has been sharply lower,
especially in California, and fewer new bonds were insured (around 42 percent of
all new California bonds, compared to more than 50 percent a

9
<PAGE> 110

year ago). Issuance of new municipal debt has declined because higher interest
rates made it less attractive for municipalities to refund existing bond issues;
instead, they have been more likely to buy back outstanding debt and retire it
from the marketplace. Also, the strong economy has allowed municipalities such
as state governments to accumulate sizable budget surpluses, which has reduced
the need to raise money through debt offerings.

This was especially true in California, where the state economy is booming
and the state has built up a surplus of around $12 billion. The state's fiscal
scenario is quite rosy, with a growing population, a well-diversified economy,
and improving personal wealth indicators, such as rising personal income and
strong real estate values.

For the reporting period, the fund's relative performance was strong,
primarily because we reduced the fund's holdings in the struggling health-care
sector and took advantage of opportunities in the secondary market and of better
relative values in selected state-specific issues. As of September 30, 2000, the
fund achieved a 12-month total return of 7.20 percent (Class A shares at net
asset value; if the maximum sales charge of 3.25 percent were included, the
return would be lower). Of course, past performance is no guarantee of future
results. As a result of recent market activity, current performance may vary
from the figures shown. By comparison, the Lehman Brothers Municipal Bond Index
produced a total return of 6.17 percent for the same period. This index is an
unmanaged, broad-based statistical composite of municipal bonds that does not
include any commissions or sales charges that would be paid by an investor
purchasing the securities it represents. Such costs would lower the performance
of the index. It is not possible to invest directly in an index. Please refer to
the footnotes and chart on page 4 for additional fund performance results.

The fund's dividend was fairly stable, having been reduced once during the
reporting period. And although the fund's monthly tax-exempt dividend was
decreased to $.0670 from $.0690 per Class A share over the past 12 months, its
distribution rate stood at 4.40 percent at the end of the reporting period. With
this in mind, we'd like to point out that investors would have to earn a
distribution rate of 7.59 percent on a taxable investment (for an investor in
the 42 percent combined federal and state income tax bracket) to match the
tax-exempt yield provided by the fund.

Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?

A With supply down and demand
still strong, we saw rising prices among California municipal bonds, so we had
to rely on our research capabilities to find the best investment opportunities.
At one point, the fund had a small position in bonds issued by municipalities of
Puerto Rico and the Virgin Islands. These bonds were trading at a premium, so we
chose to sell them and reinvest those assets when discounted issues or other
attractive values presented themselves. Otherwise, the portfolio structure
remained fairly

10
<PAGE> 111

constant over the past fiscal year, with few significant changes in the
portfolio's allocation by market sector.

Because of the low supply of bonds entering the primary market, we were more
active in the secondary market. For example, early in 2000, the uncertainty
surrounding the year 2000 transition created opportunities to buy deeply
discounted bonds that had become oversold. We were able to pick up some good
values in this sector of the market.

Q WHICH SECTORS OF THE MARKET WERE
YOU MOST CONCERNED ABOUT?

A Since we're dealing with insured
bonds, we are comfortable with the credit quality of the portfolio, so we focus
our attention to managing the fund's duration and market-based price and yield
considerations. For example, the health-care sector has struggled, which was
reflected in declining prices, so we were careful to protect the portfolio from
excessive exposure to this sector. By the end of the reporting period, we had
reduced the fund's holdings in health care to approximately 3 percent of the
portfolio, down from roughly 7 percent at the start of the period.

Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?

A Because the level of interest rates
has such an influence on the value of municipal bonds, the market will be
carefully watching the actions of the Federal Reserve Board. It appears that
economic growth may be moderating, making it less likely that the Fed will
increase rates again in the very near future. In fact, some market-watchers are
expecting the Fed to decrease rates by the end of the year. In light of the
current market conditions, we will remain neutral with respect to our
interest-rate outlook.

We anticipate that total bond issuance may be stable to lower through
year-end, as municipalities continue to be flush with cash and remain reluctant
to issue new debt or refund outstanding debt at current market rates. We feel
that the cost of insuring municipal bonds may be rising, which could further
limit the supply of new insured bonds.

Going forward, we will continue to rely on our strong research capabilities,
seeking to achieve the fund's investment objectives over the long term.

11
<PAGE> 112

GLOSSARY OF TERMS

A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.

PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.

SECONDARY MARKET: A market where securities are traded after they are initially
offered.

12
<PAGE> 113

BY THE NUMBERS

YOUR FUND'S INVESTMENTS

September 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS 94.7%
$1,925 Alhambra, CA City Elem Sch Dist Cap Apprec
Ser A (FSA Insd)............................ * 09/01/20 $ 626,472
5,000 Anaheim, CA Pub Fin Auth Lease Rev Cap
Apprec Sub Pub Impts Proj Ser (FSA Insd).... * 09/01/27 1,052,650
2,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev
(Inverse Fltg) (MBIA Insd).................. 8.370% 12/28/18 2,345,000
3,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev
Agy Pool Ser A2 (FSA Insd) (b).............. 6.400 12/15/14 3,272,610
1,125 California Cmnty College Fin Auth Lease Rev
Ser A (MBIA Insd)........................... 4.625 10/01/19 1,014,143
7,000 California Edl Fac Auth Rev Univ Of The
Pacific (MBIA Insd)......................... 5.875 11/01/20 7,364,140
2,000 California Hlth Fac Fin Auth Rev Adventist
Hlth Ser A Rfdg (MBIA Insd)................. 6.500 03/01/14 2,056,800
2,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A (FSA Insd)................. 5.550 08/15/25 1,999,600
1,085 California Pub Cap Impt Fin Auth Rev Pooled
Proj Ser B (BIGI Insd)...................... 8.100 03/01/18 1,099,062
1,050 California Spl Dist Assn Fin Corp Ctfs Partn
Spl Dists Fin Pgm Ser DD (FSA Insd)......... 5.625 01/01/27 1,060,248
1,250 California St (FGIC Insd)................... 6.250 09/01/12 1,429,563
2,000 California St (FGIC Insd)................... 4.500 12/01/21 1,736,840
7,750 California St Rfdg (FGIC Insd).............. 5.000 02/01/23 7,297,245
4,125 California St Public Wks Brd Lease Rev CA St
Univ Ser A Rfdg (AMBAC Insd)................ 5.500 10/01/14 4,291,402
1,000 California Statewide Cmntys Dev Auth Ctfs
Partn San Diego St Univ Fndtn Rfdg (AMBAC
Insd)....................................... 5.250 03/01/22 979,180
1,095 Cambell, CA Uni Sch Dist Rfdg (FGIC Insd)... * 08/01/18 407,756
2,000 Castaic Lake Wtr Agy CA Ctfs Partn Wtr Sys
Impt Proj Ser A Rfdg (MBIA Insd)............ 7.000 08/01/12 2,416,920
2,195 Castaic Lake Wtr Agy CA Rev Ctfs Partn Wtr
Sys Impt Proj (AMBAC Insd).................. * 08/01/30 386,627
2,335 Chaffey, CA Union High Sch Dist Ser B (FGIC
Insd)....................................... 5.500 08/01/16 2,418,756
</TABLE>

See Notes to Financial Statements

13
<PAGE> 114

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,205 Channel Islands Beach CA Cmnty Svcs Dist
Ctfs Partn (FSA Insd)....................... 5.700% 09/01/21 $ 1,235,932
1,105 Chino, CA Ctfs Partn Redev Agy (MBIA
Insd)....................................... 6.200 09/01/18 1,159,686
2,350 Chino, CA Uni Sch Dist Ctfs Partn Master
Lease Pgm (FSA Insd)........................ 6.250 03/01/09 2,523,618
1,500 Chino, CA Uni Sch Dist Ctfs Partn Master
Lease Pgm (FSA Insd)........................ 6.000 03/01/14 1,599,045
2,010 Clayton, CA Redev Agy Tax Alloc Rev (AMBAC
Insd)....................................... 5.000 08/01/24 1,886,124
1,000 Clovis, CA Pub Fin Auth Refuse Disp Rev
Ldfill Improv Proj Rfdg (AMBAC Insd)........ 5.000 09/01/18 971,720
1,550 Contra Costa, CA Wtr Auth Wtr Treatment Rev
Ser A Rfdg (FGIC Insd)...................... 5.750 10/01/14 1,598,810
1,500 Corona, CA Pub Fin Auth Wtr Rev (FGIC
Insd)....................................... 4.750 09/01/18 1,396,200
5,165 Corona, CA Redev Agy Tax Alloc Redev Proj
Area A Ser A Rfdg (FGIC Insd)............... 6.250 09/01/13 5,583,881
1,000 El Monte, CA Ctfs Partn Dept Pub Social Svcs
Fac (AMBAC Insd)............................ 4.750 06/01/30 875,660
2,000 Fairfield Suison, CA Swr Dist Swr Rev Ser A
Rfdg (MBIA Insd) (b)........................ 6.250 05/01/16 2,061,160
1,000 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC
Insd)....................................... 6.000 10/01/12 1,048,860
1,400 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC
Insd)....................................... 6.000 10/01/19 1,458,576
2,000 Folsom, CA Spl Tax Cmnty Fac Dist No 2 Rfdg
(Connie Lee Insd)........................... 5.250 12/01/19 1,986,700
3,000 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev (MBIA Insd).......................... * 01/15/17 1,197,750
4,000 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev (MBIA Insd).......................... * 01/15/18 1,491,840
1,250 Fresno, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd)....................................... 4.750 09/01/18 1,163,500
590 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA
Insd)....................................... 5.900 08/01/17 643,920
630 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA
Insd)....................................... 5.900 08/01/18 683,966
675 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA
Insd)....................................... 5.900 08/01/19 726,611
</TABLE>

See Notes to Financial Statements

14
<PAGE> 115

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 720 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA
Insd)....................................... 5.900% 08/01/20 $ 769,910
20,000 Grossmont, CA Union High Sch Dist Ctfs Partn
(MBIA Insd)................................. * 11/15/21 4,903,600
1,750 Hacienda, La Puente, CA Uni Sch Dist Ser A
(MBIA Insd)................................. 5.50 08/01/20 1,780,608
765 Hanford, CA Jt Un High Sch Dist Cap Apprec
Ser B (MBIA Insd)........................... * 08/01/16 326,173
500 Hanford, CA Jt Un High Sch Dist Cap Apprec
Ser B (MBIA Insd)........................... * 08/01/15 228,910
510 Hanford, CA Jt Un High Sch Dist Cap Apprec
Ser B (MBIA Insd)........................... * 08/01/18 188,924
805 Hanford, CA Jt Un High Sch Dist Cap Apprec
Ser B (MBIA Insd)........................... * 08/01/22 232,669
1,250 Hemet, CA Uni Sch Dist Ctfs Partn Nutrition
Ctr Proj (FSA Insd)......................... 5.875 04/01/27 1,292,900
2,000 Inglewood, CA Redev Agy Tax Alloc Merged
Redev Proj Ser A Rfdg (AMBAC Insd).......... 5.250 05/01/23 1,952,100
1,000 Lancaster, CA Redev Agy Lease Rev Pub Cap
Impt Proj Rfdg (AMBAC Insd)................. 5.000 12/01/28 929,400
2,000 Long Beach, CA Bond Fin Auth Lease Rev
Rainbow Harbor Refing Proj A (AMBAC Insd)... 5.250 05/01/24 1,951,040
5,835 Los Angeles Cnty, CA Ctfs Partn Disney Pkg
Proj Rfdg (AMBAC Insd)...................... 4.750 03/01/23 5,222,908
3,000 Los Angeles Cnty, CA Met Tran Auth Sales Tax
Rev Ref Prop A First Tier Sr Ser C (AMBAC
Insd)....................................... 5.000 07/01/23 2,823,060
2,020 Los Angeles Cnty, CA Schs Regionalized
Business Svcs Ctfs Partn (AMBAC Insd)....... * 08/01/18 749,602
1,265 Los Angeles Cnty, CA Schs Regionalized
Business Svcs Ctfs Partn (AMBAC Insd)....... * 08/01/24 320,349
1,320 Los Angeles Cnty, CA Schs Regionalized
Business Svcs Ctfs Partn (AMBAC Insd)....... * 08/01/25 314,041
2,460 Los Angeles Cnty, CA Schs Regionalized
Business Svcs Ctfs Partn (AMBAC Insd)....... * 08/01/28 489,417
510 Los Angeles Cnty, CA Tran Comm Lease Rev Dia
RR Lease Ltd (FSA Insd)..................... 7.375 12/15/06 523,403
4,500 Los Angeles, CA Cmnty College Ser A Rfdg
(FSA Insd).................................. 6.000 08/15/20 4,682,295
2,380 Los Angeles, CA Mtg Rev FHA Security 8 Asstd
Proj Ser A Rfdg (MBIA Insd)................. 6.100 07/01/25 2,395,803
</TABLE>

See Notes to Financial Statements

15
<PAGE> 116

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$2,000 Los Angeles, CA Muni Impt Corp Lease Rev
Central Library Proj Ser B Rfdg (MBIA
Insd)....................................... 5.375% 06/01/15 $ 2,030,340
1,000 Los Angeles, CA Uni Sch Dist Ser B (FGIC
Insd)....................................... 5.375 07/01/15 1,029,760
2,625 Los Angeles, CA Uni Sch Dist Ser D (FGIC
Insd) (a)................................... 5.500 07/01/13 2,769,742
3,100 Los Angeles, CA Uni Sch Dist Ser D (FGIC
Insd) (a)................................... 5.625 07/01/15 3,261,324
3,750 Los Angeles, CA Wstwtr Sys Rev Ser A (FGIC
Insd)....................................... 5.000 06/01/28 3,482,250
500 M-S-R Pub Pwr Agy CA San Juan Proj Rev Adj
Sub Lien Ser E (MBIA Insd).................. 6.000 07/01/22 502,640
1,000 Marin, CA Emergency Radio Auth Rev Pub
Safety & Emergency Radio (AMBAC Insd)....... 4.750 08/15/21 905,780
1,250 North City West, CA Sch Fac Fin Auth Spl Tax
Ser B Rfdg (FSA Insd)....................... 5.750 09/01/15 1,314,400
400 Northern, CA Pwr Agy Pub Pwr Rev Hydro Elec
Proj 1 Ser A Rfdg (Prerefunded @ 07/01/21)
(AMBAC Insd)................................ 7.500 07/01/23 489,156
5,000 Orange Cnty, CA Recovery Ctfs Partn Ser A
(MBIA Insd)................................. 5.800 07/01/16 5,242,650
3,000 Palm Desert, CA Fin Auth Tax Alloc Rev
(Inverse Fltg) (MBIA Insd).................. 8.155 04/01/22 3,250,320
1,000 Perris, CA Sch Dist Ctfs Partn Rfdg (FSA
Insd)....................................... 6.100 03/01/16 1,055,420
1,360 Port Hueneme, CA Ctfs Partn Cap Impt Pgm
Rfdg (MBIA Insd)............................ 6.000 04/01/19 1,478,973
1,680 Rancho, CA Wtr Dist Spl Tax Cmnty Fac Dist
883 Ser A Rfdg (AMBAC Insd)................. 6.000 09/01/17 1,789,788
1,000 Redding, CA Jt Pwrs Fin Auth Ser A
(AMBAC Insd)................................ 5.500 06/01/11 1,053,920
1,000 Redding, CA Elec Sys Rev Ctfs Partn (Inverse
Fltg) (MBIA Insd)........................... 8.548 07/01/22 1,167,500
2,485 Redlands, CA Redev Agy Tax Alloc Redev Proj
Ser A Rfdg (MBIA Insd)...................... 4.750 08/01/21 2,251,062
2,000 Rialto, CA Spl Tax Cmnty Fac Dist 87-1 Rfdg
(FSA Insd).................................. 5.625 09/01/18 2,052,560
1,000 Riverside Cnty, CA Ctfs Partn Historic
Courthouse Proj (MBIA Insd)................. 5.875 11/01/27 1,035,670
1,755 Rohnert Pk, CA Cmnty Dev Agy Tax Alloc
Rohnert Redev Proj (MBIA Insd).............. * 08/01/31 292,260
</TABLE>

See Notes to Financial Statements

16
<PAGE> 117

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,755 Rohnert Pk, CA Cmnty Dev Agy Tax Alloc
Rohnert Redev Proj (MBIA Insd).............. * 08/01/33 $ 259,600
1,755 Rohnert Pk, CA Cmnty Dev Agy Tax Alloc
Rohnert Redev Proj (MBIA Insd).............. * 08/01/35 230,151
1,000 Roseville, CA Fin Auth Loc Agy Rev Northeast
Cmnty Fac Dist Bd Ser A Rfdg (FSA Insd)..... 5.000% 09/01/21 950,780
1,310 Rowland, CA Uni Sch Dist Ser A (FSA Insd)... 5.500 09/01/20 1,333,082
1,000 Sacramento Cnty, CA Ctfs Part Pub Fac Proj
Rfdg (AMBAC Insd)........................... 4.750 10/01/27 883,380
1,000 Sacramento, CA City Fin Auth Lease Rev
(AMBAC Insd)................................ 4.750 05/01/23 895,890
2,500 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd)................. 5.100 07/01/16 2,511,550
2,000 San Diego Cnty, CA Wtr Rev Ctfs Ser A (FGIC
Insd)....................................... 4.750 05/01/18 1,858,840
1,000 San Diego, CA Indl Dev Rev San Diego Gas &
Elec Ser A (MBIA Insd)...................... 6.400 09/01/18 1,054,920
2,000 San Diego, CA Pub Fac Fin Auth Swr Rev Ser A
(AMBAC Insd) (a)............................ 5.000 05/15/29 1,855,180
5,000 San Diego, CA Uni Sch Dist Cap Apprec Ser A
(FGIC Insd)................................. * 07/01/19 1,753,650
1,045 San Francisco, CA Uni Sch Dist (AMBAC
Insd)....................................... 4.750 08/01/24 931,973
2,000 San Jose, CA Redev Tax Alloc Merged Area
Redev Proj (AMBAC Insd)..................... 4.750 08/01/23 1,790,580
5,750 San Jose, CA Fin Auth Rev Convention Proj
Ser C (FSA Insd) (b)........................ 6.375 09/01/13 5,967,695
5,080 San Marcos, CA Redev Agy Tax Alloc (FSA
Insd)....................................... 5.375 08/01/25 5,024,679
7,250 San Mateo Cnty, CA Jt Pwrs Fin Auth Lease
Rev Cap Proj Ser A Rfdg (FSA Insd).......... 4.750 07/15/23 6,491,505
1,500 San Rafael, CA Redev Agency Tax Alloc (AMBAC
Insd)....................................... 5.000 12/01/22 1,416,390
1,660 Santa Clara Cnty, CA Fin Auth Multiple Fac
Proj Ser B (AMBAC Insd)..................... 5.500 05/15/07 1,772,249
570 Temecula Vly, CA Uni Sch Dist Ctfs Partn
Rfdg (FSA Insd)............................. 6.000 09/01/18 613,634
</TABLE>

See Notes to Financial Statements

17
<PAGE> 118

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
MARKET
VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$2,000 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg
(MBIA Insd)................................. 6.750% 01/01/12 $ 2,017,200
4,620 Westlands, CA Wtr Dist Rev Ctfs Partn Ser A
(AMBAC Insd)................................ 5.000 03/01/29 4,274,054
------------
186,968,182
------------
TOTAL LONG-TERM INVESTMENTS 94.7%
(Cost $179,773,259)................................................... 186,968,182
SHORT-TERM INVESTMENTS 4.6%
(Cost $9,085,000)..................................................... 9,085,000
------------
TOTAL INVESTMENTS 99.3%
(Cost $188,858,259)................................................... 196,053,182
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7%............................. 1,347,667
------------

NET ASSETS 100.0%...................................................... $197,400,849
============
</TABLE>

* Zero coupon bond

(a) Securities purchased on a when-issued or delayed delivery basis.

(b) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments.

AMBAC--AMBAC Indemnity Corporation
BIGI--Bond investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.

See Notes to Financial Statements

18
<PAGE> 119

FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2000

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $188,858,259)....................... $196,053,182
Cash........................................................ 69,764
Receivables:
Interest.................................................. 2,036,067
Investments Sold.......................................... 1,852,429
Fund Shares Sold.......................................... 529,233
Other....................................................... 20,209
------------
Total Assets............................................ 200,560,884
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,881,373
Fund Shares Repurchased................................... 446,220
Income Distributions...................................... 289,267
Distributor and Affiliates................................ 122,217
Investment Advisory Fee................................... 77,585
Trustees' Deferred Compensation and Retirement Plans........ 240,501
Accrued Expenses............................................ 102,872
------------
Total Liabilities....................................... 3,160,035
------------
NET ASSETS.................................................. $197,400,849
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $193,645,653
Net Unrealized Appreciation................................. 7,194,923
Accumulated Distributions in Excess of Net Investment
Income.................................................... (155,665)
Accumulated Net Realized Loss............................... (3,284,062)
------------
NET ASSETS.................................................. $197,400,849
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $152,529,270 and 8,631,259 shares of
beneficial interest issued and outstanding)............. $ 17.67
Maximum sales charge (3.25%* of offering price)......... .59
------------
Maximum offering price to public........................ $ 18.26
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $38,272,454 and 2,163,997 shares of
beneficial interest issued and outstanding)............. $ 17.69
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $6,599,125 and 373,270 shares of
beneficial interest issued and outstanding)............. $ 17.68
============
</TABLE>

* On sales of $25,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

19
<PAGE> 120

Statement of Operations
For the Year Ended September 30, 2000

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $11,364,753
-----------
EXPENSES:
Investment Advisory Fee..................................... 939,386
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $362,798, $416,282 and $65,560,
respectively)............................................. 844,640
Shareholder Services........................................ 146,696
Trustees' Fees and Related Expenses......................... 88,859
Custody..................................................... 43,588
Legal....................................................... 20,875
Other....................................................... 208,062
-----------
Total Expenses.......................................... 2,292,106
Less Credits Earned on Cash Balances.................... 22,591
-----------
Net Expenses............................................ 2,269,515
-----------
NET INVESTMENT INCOME....................................... $ 9,095,238
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (755,486)
Futures................................................... (891,458)
-----------
Net Realized Loss........................................... (1,646,944)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,324,073
End of the Period:
Investments............................................. 7,194,923
-----------
Net Unrealized Appreciation During the Period............... 5,870,850
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 4,223,906
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $13,319,144
===========
</TABLE>

See Notes to Financial Statements

20
<PAGE> 121

Statement of Changes in Net Assets
For the Years Ended September 30, 2000 and 1999

NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... 4,336,524 (17,684,764)
------------ -------------

FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................ 46,650,493 169,414,699
Net Asset Value of Shares Issued Through Dividend
Reinvestment................................... 5,357,180 5,772,779
Cost of Shares Repurchased....................... (73,656,938) (138,683,257)
------------ -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................... (21,649,265) 36,504,221
------------ -------------
TOTAL INCREASE/DECREASE IN NET ASSETS............ (17,312,741) 18,819,457
NET ASSETS:
Beginning of the Period.......................... 214,713,590 195,894,133
------------ -------------
End of the Period (Including accumulated
distributions in excess of net investment
income of $155,665 and $276,952,
respectively).................................. $197,400,849 $ 214,713,590
============ =============

* Distributions by Class
-------------------------------------------------

Distributions from and in Excess of Net
Investment Income:
Class A Shares................................. $ (7,071,334) $ (7,590,523)
Class B Shares................................. (1,651,422) (1,810,361)
Class C Shares................................. (259,864) (266,538)
------------ -------------
$ (8,982,620) $ (9,667,422)
============ =============
</TABLE>

See Notes to Financial Statements

21
<PAGE> 122

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS YEAR ENDED
ENDED ENDED ENDED DECEMBER 31,
CLASS A SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $17.28 $18.77 $18.29 $17.61 $17.74 $15.80
------ ------ ------ ------ ------ ------
Net Investment Income.................. .82 .83 .64 .88 .86 .89
Net Realized and Unrealized
Gain/Loss............................ .38 (1.45) .50 .65 (.15) 1.94
------ ------ ------ ------ ------ ------
Total from Investment Operations........ 1.20 (.62) 1.14 1.53 .71 2.83
Less Distributions from and in Excess of
Net Investment Income.................. .81 .87 .66 .85 .84 .89
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
THE PERIOD............................. $17.67 $17.28 $18.77 $18.29 $17.61 $17.74
====== ====== ====== ====== ====== ======

Total Return (a)........................ 7.20% -3.44% 6.38%** 8.93% 4.20% 18.28%
Net Assets at End of the Period (In
millions).............................. $152.5 $162.0 $151.0 $140.7 $142.5 $147.6
Ratio of Expenses to Average Net
Assets* (b)............................ .98% .92% .88% .96% 1.02% .89%
Ratio of Net Investment Income to
Average Net Assets*.................... 4.79% 4.52% 4.66% 4.96% 4.94% 5.23%
Portfolio Turnover...................... 52% 44% 21%** 46% 35% 42%
* If certain expenses had not been reimbursed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets (b)......................... N/A N/A N/A N/A 1.03% 1.05%
Ratio of Net Investment Income to
Average Net Assets..................... N/A N/A N/A N/A 4.94% 5.07%
** Non-Annualized
</TABLE>

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 3.25% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a contingent
deferred sales charge of 1% may be imposed on certain redemptions made
within one year of purchase. If the sales charges were included, total
returns would be lower.

(b) The Ratios of Expenses to Average Net Assets do not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratios would decrease by .01% for the year ended September
30, 2000.

See Notes to Financial Statements

22
<PAGE> 123

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS YEAR ENDED
ENDED ENDED ENDED DECEMBER 31,
CLASS B SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $17.26 $18.76 $18.29 $17.60 $17.74 $15.81
------ ------ ------ ------ ------ ------
Net Investment Income.................. .68 .68 .53 .74 .72 .76
Net Realized and Unrealized
Gain/Loss............................ .43 (1.45) .50 .67 (.15) 1.93
------ ------ ------ ------ ------ ------
Total from Investment Operations........ 1.11 (.77) 1.03 1.41 .57 2.69
Less Distributions from and in Excess of
Net Investment Income.................. .68 .73 .56 .72 .71 .76
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD...... $17.69 $17.26 $18.76 $18.29 $17.60 $17.74
====== ====== ====== ====== ====== ======

Total Return (a)........................ 6.63% -4.20% 5.76%** 8.19% 3.35% 17.33%
Net Assets at End of the Period (In
millions).............................. $ 38.3 $ 45.3 $ 40.1 $ 31.0 $ 28.6 $ 24.6
Ratio of Expenses to Average Net
Assets* (b)............................ 1.74% 1.68% 1.64% 1.72% 1.79% 1.61%
Ratio of Net Investment Income to
Average Net Assets*.................... 4.03% 3.76% 3.89% 4.18% 4.17% 4.51%
Portfolio Turnover...................... 52% 44% 21%** 46% 35% 42%
* If certain expenses had not been reimbursed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets
(b).................................... N/A N/A N/A N/A 1.79% 1.77%
Ratio of Net Investment Income to
Average Net Assets..................... N/A N/A N/A N/A 4.16% 4.35%
** Non-Annualized
</TABLE>

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 3%,
charged on certain redemptions made within one year of purchase and
declining to 0% after the fourth year. If the sales charge was included,
total returns would be lower.

See Notes to Financial Statements

23
<PAGE> 124

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS YEAR ENDED
ENDED ENDED ENDED DECEMBER 31,
CLASS C SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $17.26 $18.75 $18.29 $17.60 $17.74 $15.80
------ ------ ------ ------ ------ ------
Net Investment Income.................. .68 .69 .53 .74 .72 .76
Net Realized and Unrealized
Gain/Loss............................ .42 (1.45) .49 .67 (.15) 1.94
------ ------ ------ ------ ------ ------
Total from Investment Operations........ 1.10 (.76) 1.02 1.41 .57 2.70
Less Distributions from and in Excess of
Net Investment Income.................. .68 .73 .56 .72 .71 .76
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
THE PERIOD............................. $17.68 $17.26 $18.75 $18.29 $17.60 $17.74
====== ====== ====== ====== ====== ======

Total Return (a)........................ 6.57% -4.15% 5.70%** 8.19% 3.35% 17.40%
Net Assets at End of the Period (In
millions).............................. $ 6.6 $ 7.4 $ 4.8 $ 3.8 $ 2.2 $ 1.8
Ratio of Expenses to Average Net
Assets*................................ 1.74% 1.69% 1.63% 1.71% 1.79% 1.60%
Ratio of Net Investment Income to
Average Net Assets* (b)................ 4.03% 3.75% 3.87% 4.15% 4.16% 4.50%
Portfolio Turnover...................... 52% 44% 21%** 46% 35% 42%
* If certain expenses had not been reimbursed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets
(b).................................... N/A N/A N/A N/A 1.80% 1.75%
Ratio of Net Investment Income to
Average Net Assets..................... N/A N/A N/A N/A 4.16% 4.34%
** Non-Annualized
</TABLE>

See Notes to Financial Statements

24
<PAGE> 125

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

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 business trust, and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide California investors with a high level of current income exempt from
federal and California income taxes, with liquidity and safety of principal,
primarily through investment in a diversified portfolio of insured California
municipal securities. The Fund commenced investment operations on December 13,
1985. The distribution of the Fund's Class B shares and Class C shares commenced
on May 1, 1993 and August 13, 1993, respectively.

C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Bond
premium is amortized and original issue discount is accreted over the expected
life

25
<PAGE> 126

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.

The Fund intends to utilize provisions of the Federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 2000, the Fund had an accumulated capital loss
carryforward for tax purposes of $2,777,401, which will expire between September
30, 2002 and September 30, 2008. Net realized gains or losses may differ for
financial and tax reporting purposes primarily as a result of post-October
losses which may not be recognized for tax purposes until the first day of the
following fiscal year and the deferral of losses relating to wash sale
transactions.

At September 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $188,894,817; the aggregate gross unrealized
appreciation is $8,219,796 and the aggregate gross unrealized depreciation is
$1,061,431, resulting in net unrealized appreciation on long- and short-term
investments of $7,158,365.

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.

Due to inherent differences in the recognition of expenses under generally
accepted accounting principles and federal income tax purposes, the amount of
distributed net investment income may differ for a particular period. These
differences are temporary in nature, but may result in book basis distribution
in excess of net investment income for certain periods. Permanent differences
between financial and tax basis reporting for the 2000 fiscal year have been
identified and appropriately reclassified. Permanent book and tax basis
differences relating to the recognition of market discount on bonds totaling
$8,669 were reclassified from accumulated net realized gain/loss to accumulated
distributions in excess of net investment income.

26
<PAGE> 127

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

F. INSURANCE EXPENSE The Fund typically invests in insured bonds. Any portfolio
securities not specifically covered by a primary insurance policy are insured
secondarily through the Fund's portfolio insurance policy. Insurance premiums
are based on the daily balances of uninsured bonds in the portfolio of
investments and are charged to expense on an accrual basis. The insurance policy
guarantees the timely payment of principal and interest on the securities in the
Fund's portfolio.

G. EXPENSE REDUCTIONS During the year ended September 30, 2000, the Fund's
custody fee was reduced by $22,591 as a result of credits earned on overnight
cash balances.

2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $100 million.......................................... .500 of 1%
Next $150 million........................................... .450 of 1%
Next $250 million........................................... .425 of 1%
Over $500 million........................................... .400 of 1%
</TABLE>

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $8,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $45,600 representing Van Kampen Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.

Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
2000, the Fund recognized expenses of approximately $95,000. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.

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

27
<PAGE> 128

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.

3. CAPITAL TRANSACTIONS

At September 30, 2000, capital aggregated $147,083,676, $39,358,259 and
$7,203,718 for Classes A, B and C, respectively. For the year ended September
30, 2000, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 2,095,832 $ 35,682,723
Class B................................................. 493,919 8,429,915
Class C................................................. 146,104 2,537,855
---------- ------------
Total Sales............................................... 2,735,855 $ 46,650,493
========== ============
Dividend Reinvestment:
Class A................................................. 240,626 $ 4,121,605
Class B................................................. 63,203 1,081,388
Class C................................................. 9,022 154,187
---------- ------------
Total Dividend Reinvestment............................... 312,851 $ 5,357,180
========== ============
Repurchases:
Class A................................................. (3,080,034) $(52,627,822)
Class B................................................. (1,018,649) (17,373,389)
Class C................................................. (212,943) (3,655,727)
---------- ------------
Total Repurchases......................................... (4,311,626) $(73,656,938)
========== ============
</TABLE>

28
<PAGE> 129

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

At September 30, 1999, capital aggregated $159,907,170, $47,220,345 and
$8,167,403 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................ 8,206,388 $ 147,459,959
Class B................................................ 905,506 16,519,855
Class C................................................ 298,867 5,434,885
---------- -------------
Total Sales.............................................. 9,410,761 $ 169,414,699
========== =============
Dividend Reinvestment:
Class A................................................ 243,776 $ 4,426,154
Class B................................................ 65,547 1,188,606
Class C................................................ 8,719 158,019
---------- -------------
Total Dividend Reinvestment.............................. 318,042 $ 5,772,779
========== =============
Repurchases:
Class A................................................ (7,118,589) $(127,545,738)
Class B................................................ (486,135) (8,765,169)
Class C................................................ (131,471) (2,372,350)
---------- -------------
Total Repurchases........................................ (7,736,195) $(138,683,257)
========== =============
</TABLE>

Class B Shares purchased on or after June 1, 1996 and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan Class B Shares received on such shares, automatically
convert to Class A Shares six years after the end of the calendar month in which
the shares were purchased. For the years ended September 30, 2000 and 1999,
416,653 and 9,117 Class B Shares automatically converted to Class A Shares,
respectively, and are shown in the above tables as sales of Class A Shares and
repurchases of Class B Shares. Class C Shares purchased before January 1, 1997,
and any dividend reinvestment plan C Shares received thereon, automatically
convert to Class A Shares ten years after the end of the calendar month in which
the shares are purchased. Class C Shares purchased on or after January 1, 1997
do not possess a conversion feature. For the years ended September 30, 2000 and
1999, no Class C Shares converted to Class A Shares. Classes B and C Shares are
offered without a front end sales charge, but are subject to a contingent
deferred sales charge (CDSC). The CDSC will be imposed on most redemptions made
within

29
<PAGE> 130

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

four years of the purchase for Class B Shares and one year of the purchase for
Class C Shares as detailed in the following schedule.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE OF
DOLLAR AMOUNT SUBJECT
TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First...................................................... 3.00% 1.00%
Second..................................................... 2.50% None
Third...................................................... 2.00% None
Fourth..................................................... 1.00% None
Fifth and Thereafter....................................... None None
</TABLE>

For the year ended September 30, 2000, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $10,700 and CDSC on redeemed shares of approximately $87,000.
Sales charges do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $99,365,940 and $128,867,983,
respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when taking delivery of a security underlying a
futures contract. In this instance the recognition of gain or loss is postponed
until the disposal of the security underlying the futures contract.

Summarized below are the specific types of derivative financial instruments
used by the Fund.

A. FUTURES CONTRACTS A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund

30
<PAGE> 131

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

generally invests in futures on U.S. Treasury Bonds and the Municipal Bond Index
and typically closes the contract prior to the delivery date. These contracts
are generally used to manage the portfolio's effective maturity and duration.

Transactions in futures contracts, each with a par value of $100,000, for
the year ended September 30, 2000, were as follows:

<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... -0-
Futures Opened.............................................. 665
Futures Closed.............................................. (665)
----
Outstanding at September 30, 2000........................... -0-
====
</TABLE>

B. INDEXED SECURITIES These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.

6. DISTRIBUTION AND SERVICE PLANS

31
<PAGE> 132

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

7. BORROWINGS

In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each fund incurs based on its pro-rate percentage of
quarterly net assets. The Fund has not borrowed against the credit facility
during the period.

32
<PAGE> 133

REPORT OF INDEPENDENT AUDITORS

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, including
the portfolio of investments of Van Kampen California Insured Tax Free Fund (the
"Fund"), as of September 30, 2000, and the related statements of operations,
changes in net assets and financial highlights for the year 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 based on our audit. The statement of changes in net assets
of the Fund for the year ended September 30, 1999, and the financial highlights
for each of the five years in the period then ended were audited by other
auditors whose report dated November 11, 1999, expressed an unqualified opinion
on those statements.

ERNST & YOUNG LOGO

Chicago, Illinois
November 8, 2000

33
<PAGE> 134

VAN KAMPEN FUNDS

THE VAN KAMPEN
FAMILY OF FUNDS

Growth

Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology

Growth and Income

Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value

Global/International

Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income*
Tax Managed Global Franchise
Worldwide High Income

Income

Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income

Capital Preservation

Reserve
Tax Free Money

Senior Loan

Prime Rate Income Trust
Senior Floating Rate

Tax Free

To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:

- visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]

- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.

[PHONE ICON]

- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us

[MAIL ICON]

* Closed to new investors

** Open to new investors for a limited time

34
<PAGE> 135

FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND

BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY

OFFICERS

RICHARD F. POWERS, III*
President

STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer

A. THOMAS SMITH III*
Vice President and Secretary

JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer

RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents

INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256

CUSTODIAN

STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

LEGAL COUNSEL

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606

INDEPENDENT AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606

For the year ended September 30, 2000, 99.99% of the income distributions made
by the Fund were exempt from federal income taxes. In January, 2001 the Fund
will provide tax information to shareholders for the 2000 calendar year.

(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP
to be the Fund's independent auditors.

(SM) denotes a service mark of Van Kampen Funds Inc.

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charges on
shares of the Fund, and other
pertinent data. After February 28, 2001, the report if used with prospective
investors, must be accompanied by a monthly performance update.

35
<PAGE> 136

<TABLE>
<S> <C>
Table of Contents

OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2

PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 6

PORTFOLIO AT A GLANCE
CREDIT QUALITY 7
TWELVE-MONTH DIVIDEND HISTORY 7
TOP FIVE STATES 8
TOP FIVE SECTORS 8
Q&A WITH YOUR PORTFOLIO MANAGERS 9
GLOSSARY OF TERMS 12

BY THE NUMBERS
YOUR FUND'S INVESTMENTS 13
FINANCIAL STATEMENTS 35
NOTES TO FINANCIAL STATEMENTS 41
REPORT OF INDEPENDENT AUDITORS 49
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 50
FUND OFFICERS AND IMPORTANT ADDRESSES 51
</TABLE>

Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 137

OVERVIEW

LETTER TO SHAREHOLDERS
October 20, 2000

Dear Shareholder,

At Van Kampen, we place a high priority on providing you and your financial
advisor with the information you need to help you monitor your investments
during all types of markets. With nearly four generations of
investment-management experience, we've been around long enough to understand
that by investing with Van Kampen you're entrusting us with much more than your
money. Your investments may help make it possible to afford your next house,
keep up with rising college costs, or enjoy a comfortable retirement.

Sincerely,

[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments

1
<PAGE> 138

ECONOMIC SNAPSHOT

2
<PAGE> 139

U.S. GROSS DOMESTIC PRODUCT

SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998 -- September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.70
</TABLE>

Source: Bureau of Economic Analysis

INTEREST RATES AND INFLATION

(September 30, 1998 -- September 30, 2000)

[LINE GRAPH]

3
<PAGE> 140

PERFORMANCE SUMMARY

RETURN HIGHLIGHTS

(as of September 30, 2000)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on
NAV(1) 2.69% 1.90% 1.91%
-------------------------------------------------------------------------
One-year total return(2) -2.17% -1.97% 0.94%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 3.35% 3.33% 3.56%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 5.83% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 5.66% 4.23%(3) 3.18%
-------------------------------------------------------------------------
Commencement date 08/01/90 08/24/92 08/13/93
-------------------------------------------------------------------------
Distribution rate(4) 5.16% 4.70% 4.70%
-------------------------------------------------------------------------
Taxable-equivalent distribution
rate(5) 8.06% 7.34% 7.34%
-------------------------------------------------------------------------
SEC Yield(6) 5.11% 4.60% 4.61%
-------------------------------------------------------------------------
</TABLE>

(3) The total return reflects the conversion of Class B shares into Class A
shares six years after the end of the calendar month in which the shares
were purchased. See footnote 3 in the Notes to Financial Statements for
additional information.

(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.

(5) Taxable-equivalent calculations reflect a federal income tax rate of 36%.

4
<PAGE> 141

Income may subject certain individuals to the federal alternative minimum
tax (AMT).

Market forecasts provided in this report may not necessarily come to pass.

5
<PAGE> 142

GROWTH OF A $10,000 INVESTMENT

(September 30, 1990 - September 30, 2000)

[INVESTMENT PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
LEHMAN BROTHERS MUNICIPAL BOND INDEX
is an unmanaged, broad-based statistical
MUNICIPAL INCOME FUND* composite of municipal bonds.+
---------------------- ----------------------------------------
<S> <C> <C>
9/90 9526 10000
9845 10431
10072 10667
10381 10895
9/91 10853 11318
11221 11698
11386 11733
11858 12179
9/92 12110 12502
12308 12730
12799 13202
13223 13634
9/93 13610 14094
13810 14292
12862 13508
13027 13657
9/94 13079 13751
12930 13553
13840 14511
13961 14862
9/95 14243 15289
14948 15920
14716 15728
14835 15849
9/96 15194 16213
15556 16627
15553 16588
16074 17160
9/97 16516 17677
16977 18157
17162 18366
17395 18644
9/98 17931 19218
17854 19333
17889 19504
17473 19160
9/99 17169 19083
16886 18934
17205 19489
17334 19784
9/00 17631 20262
Fund's Total Return
1 Year Total Return -2.17%
5 Year Avg. Annual 3.35%
10 Year Avg. Annual 5.83%
Inception Avg. Annual 5.66%
</TABLE>

This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index over time.

Source:
* Hypo(R) Provided by Towers Data, Bethesda, MD

(+) Lehman Brothers

6
<PAGE> 143

PORTFOLIO AT A GLANCE

CREDIT QUALITY

(as a percentage of long-term investments)

<TABLE>
<CAPTION>
As of September 30, 2000
<S> <C> <C>
- AAA/Aaa............ 53.8%
- AA/Aa.............. 5.6%
- A/A................ 9.2%
- BBB/Baa............ 8.6%
- BB/Ba.............. 1.1%
- B/B................ 0.1%
- Non-Rated.......... 21.6%

[PIE CHART]
<CAPTION>
As of September 30, 1999
<S> <C> <C>
- AAA/Aaa............ 47.0%
- AA/Aa.............. 7.5%
- A/A................ 8.6%
- BBB/Baa............ 12.5%
- BB/Ba.............. 1.2%
- Non-Rated.......... 23.2%

[PIE CHART]
</TABLE>

Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.

TWELVE-MONTH DIVIDEND HISTORY

(for the period ended September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.0705
11/99 0.0705
12/99 0.0705
1/00 0.0675
2/00 0.0675
3/00 0.0675
4/00 0.0675
5/00 0.0675
6/00 0.0675
7/00 0.0635
8/00 0.0635
9/00 0.0635
</TABLE>

The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.

7
<PAGE> 144

TOP FIVE STATES

(as a percentage of long-term investments - September 30, 2000)

<TABLE>
<S> <C> <C>
Illinois 13.5%
---------------------------------------------------------------------
New York 9.2%
---------------------------------------------------------------------
Texas 9.0%
---------------------------------------------------------------------
California 6.9%
---------------------------------------------------------------------
Pennsylvania 6.1%
---------------------------------------------------------------------
</TABLE>

TOP FIVE SECTORS

(as a percentage of long-term investments)
[BAR GRAPH]

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Health Care 16.90 15.00
General Purpose 11.20 7.70
Industrial Revenue 10.40 11.90
Transportation 9.20 9.30
Public Education 8.50 4.20
</TABLE>

8
<PAGE> 145

[PHOTO]

Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN MUNICIPAL
INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND
INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED SEPTEMBER 30, 2000. THE
TEAM IS LED BY TIMOTHY D. HANEY, PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND
SINCE JANUARY 2000 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1988. THE
FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE FUND'S PERFORMANCE.

Q HOW WOULD YOU CHARACTERIZE THE MARKET ENVIRONMENT YOU FACED IN MANAGING THE
FUND, AND HOW DID THE FUND PERFORM IN THAT ENVIRONMENT?

A The market had its share of volatility over the past year. The much-dreaded
year 2000 transition came and went without making a significant impact on the
markets, other than a bit of overcautious defensive selling in late 1999 and
early 2000.

Short-term interest rates climbed steadily as the Federal Reserve Board
increased key short-term lending rates four times over the past 12 months,
reacting to strong economic growth, rising commodities prices, and a tight labor
market. Rising yields at the short end of the maturity spectrum caused increased
volatility, affecting long-term rates as well as credit spreads across all
fixed-income products.

Long-term municipal bonds were on a bit of a roller-coaster ride, declining
and then rallying twice during the 12-month period, with yields finally settling
at virtually the same level as they began the period. Prices climbed strongly
going into September 2000 but eased off by month's end, as the yield on the
30-year general obligation bond rose to about 7.22 percent.

One effect of this market volatility was the widening of the yield spread
between high-quality municipals and lower-rated, higher-yielding municipals. As
investors sensed the market's uncertainty, tax-exempt mutual funds experienced
outflows of investor assets. This meant that demand for higher-yielding
municipal bonds was reduced. As a result, prices in this sector of the market
fell sharply and the fund--which had placed a significant emphasis on yield,
compared to similar funds--was hurt by its relatively high concentration of
nonrated and lower-rated bonds.

9
<PAGE> 146

which has reduced the need to raise money through debt offerings. Also, higher
interest rates made it less attractive for municipalities to refund existing
bond issues; instead, they have been more likely to buy back outstanding debt
and retire it from the marketplace.

For the reporting period, the fund's total return lagged the average for its
peer group, primarily due to the higher allocation of nonrated or lower-rated
securities as noted above. While these securities provided a higher yield, they
were also more vulnerable to price declines amid market volatility. Credit
concerns on five holdings in the portfolio also contributed to the fund's
weaker-than-expected performance.

As of September 30, 2000, the fund achieved a 12-month total return of 2.69
percent (Class A shares at net asset value; if the maximum sales charge of 4.75
percent were included, the return would have been lower). Of course, past
performance is no guarantee of future results. As a result of recent market
activity, current performance will vary from the figures shown. By comparison,
the fund's benchmark, the Lehman Brothers Municipal Bond Index (maturities
greater than 5 years), produced a total return of 5.48 percent for the same
period. This index is an unmanaged, broad-based statistical composite of
municipal bonds that does not include any commissions or sales charges that
would be paid by an investor purchasing the securities it represents. Such costs
would lower the performance of the index. It is not possible to invest directly
in an index. Please refer to the footnotes and chart on page 4 for additional
fund performance results.

The fund's dividend was reduced twice during the period, though it is still
quite competitive within its peer group. Also, even though the fund's monthly
tax-exempt dividend was decreased to $.0635 from $.0705 per Class A share over
the past 12 months, its distribution rate stood at 5.16 percent at the end of
the reporting period. With this in mind, we'd like to point out that investors
would have to earn a distribution rate of 8.06 percent on a taxable investment
(for an investor in the 36 percent federal income tax bracket) to match the
tax-exempt yield provided by the fund.

Q HOW DID THESE FACTORS AFFECT TH WAY YOU MANAGED THE PORTFOLIO?

A Because of the low supply of bonds entering the primary market, we were
more active in the secondary market. For example, early in 2000 the market's
pessimistic tone created opportunities to buy deeply discounted bonds that had
become oversold. We were able to acquire attractively priced holdings in this
segment of the market.

In response to the fund's lagging performance in relation to its peer group,
we made a number of decisions that changed the portfolio structure. For example,
over the past six months we have reduced the fund's holdings in zero-coupon
bonds, which tend to be more volatile than traditional municipal bonds, and
increased the fund's allocation to higher-grade municipal bonds. This is
especially true in the intermediate maturity range.

As of September 30, 2000, we had increased the fund's high-quality, AAA

10
<PAGE> 147

rated holdings to roughly 54 percent of long-term investments, up from 47
percent at the start of the 12-month reporting period. The prices of high-
quality bonds are typically less vulnerable to market volatility than those of
lower-rated bonds. Also, the fund's average adjusted duration was reduced to
8.04 years, down from 9.06 years as of September 30, 1999, which may help make
the fund less sensitive to interest-rate changes.

In terms of maturities, we have reduced the fund's holdings at the longer
end of the spectrum and moved assets into the shorter maturity ranges,
particularly the intermediate-term segment. The fund's weighted average maturity
is now at 15.11 years, down from 17.86 years when the period began.

More assets have been allocated to the intermediate-term sector than in the
past, because the yield opportunities were quite attractive and the intermediate
portion of the yield curve tends to offer a favorable risk/reward tradeoff. In
other words, it is believed that the fund can earn a reasonable level of income
with less volatility through intermediate-term securities than through those
with longer maturities.

Q WHICH SECTORS OF THE MARKET WERE YOU MOST CONCERNED ABOUT?

A There was no particular concern about specific market sectors, but we did
have a few isolated situations involving credit problems. Over the course of the
12-month reporting period, five separate bonds held by the fund--a coal company,
a waste incinerator project, a pulp and paper plant, and two steel mill
operations--experienced severe financial distress.

These situations are still unfolding. In the meantime, of course, the prices
of these holdings have dropped sharply, causing the fund's net asset value to
decline.

Q WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?

A Because the level of interest rates has such an influence on the value of
municipal bonds, the market will be carefully watching the actions of the
Federal Reserve Board. It appears that economic growth may be moderating, making
it less likely that the Fed will increase rates again in the very near future.
In fact, some market-watchers are expecting the Fed to decrease rates by the end
of the year. In light of the current market conditions, we remain neutral with
respect to our interest-rate outlook.

Going forward, we will continue to rely on our strong research capabilities,
seeking to achieve the fund's investment objective over the long term.

11
<PAGE> 148

GLOSSARY OF TERMS

A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.

CREDIT RATING: An evaluation of a bond issuer's credit history and capability of
repaying debt obligations. Standard & Poor's Ratings Group and Moody's Investors
Service are two companies that assign credit ratings. Standard & Poor's ratings
range from a high of AAA to a low of D, while Moody's ratings range from a high
of Aaa to a low of C.

CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Normally, lower-quality issues provide higher yields to compensate investors for
the additional credit risk.

ZERO-COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed for full face
value at maturity.

12
<PAGE> 149

BY THE NUMBERS

YOUR FUND'S INVESTMENTS

September 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.0%
ALABAMA 1.1%
$2,100 Alabama St Indl Dev Auth Rev UNR-ROHN Inc
Expansion Proj............................. 7.500% 09/15/11 $ 2,171,211
2,930 Alabama Wtr Pollutn Ctl Auth Revolving Fd
Ln Ser A (AMBAC Insd)...................... 6.750 08/15/17 3,143,421
175 Bessemer, AL Indl Dev Brd ROHN Inc Proj.... 9.000 09/15/01 177,569
1,750 Bessemer, AL Indl Dev Brd ROHN Inc Proj.... 9.500 09/15/11 1,981,035
240 Mobile, AL Indl Dev Brd Solid Waste Disp
Rev Mobile Energy Svcs Co Proj Rfdg (e).... 6.950 01/01/20 65,464
2,000 West Jefferson Cnty, AL Amusement & Pub Pk
Auth First Mtg Visionland Proj............. 6.375 02/01/29 1,203,400
------------
8,742,100
------------
ALASKA 0.3%
10 Alaska Energy Auth Pwr Rev Bradley Lake
Proj Ser 1 (BIGI Insd)..................... 6.250 07/01/21 10,005
1,650 Juneau, AK City & Borough Nonrecourse Rev.. 6.875 12/01/25 1,517,291
1,000 Valdez, AK Marine Term Rev Sohio Pipeline
Rfdg (b)................................... 7.125 12/01/25 1,051,720
------------
2,579,016
------------
ARIZONA 2.1%
1,000 Maricopa Cnty, AZ Indl Dev Auth
Multi-Family Hsg Rev Rfdg.................. 6.500 07/01/09 1,031,760
3,000 Maricopa Cnty, AZ Pollutn Ctl Rfdg......... 6.150 12/01/14 3,002,370
560 Pima Cnty, AZ Indl Dev Auth Single Family
Mtg Rev (GNMA Collateralized).............. 6.625 11/01/14 569,475
335 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser
A.......................................... 9.500 07/01/10 345,687
500 Scottsdale, AZ Indl Dev Auth Rev First Mtg
Westminster Vlg Ser A Rfdg................. 8.250 06/01/15 526,000
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd) (b)........... 6.000 09/01/12 2,000,906
</TABLE>

See Notes to Financial Statements

13
<PAGE> 150

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ARIZONA (CONTINUED)
$1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)............... 6.125% 09/01/17 $ 1,838,182
7,000 Tucson, AZ Arpt Auth Inc Spl Fac Rev
Lockheed Aermod Cent Inc (b)............... 8.700 09/01/19 7,155,400
------------
16,469,780
------------
ARKANSAS 1.0%
4,935 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt Ser A
(d)........................................ 7.500 01/31/06 4,241,139
5,470 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt Ser B (d)
(e)........................................ 7.500 01/31/06 1,367,500
1,740 Jackson Cnty, AR Hlthcare Fac Brd First Mtg
Hosp Rev Newport Hosp & Clinic Inc (b)..... 7.375 11/01/11 1,679,987
------------
7,288,626
------------
CALIFORNIA 6.7%
4,865 California Edl Fac Auth Rev College of
Osteopathic Med Pacific (Prerefunded @
06/01/03).................................. 7.500 06/01/18 5,253,178
4,170 Delano, CA Ctfs Partn Ser A (Prerefunded @
01/01/03) (b).............................. 9.250 01/01/22 4,670,984
2,160 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)............................... * 09/01/10 1,257,552
5,875 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)............................... * 09/01/11 3,183,897
3,890 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)............................... * 09/01/13 1,829,273
5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)............................... * 09/01/14 2,371,172
840 Fairfield, CA Hsg Auth Mtg Rev Creekside
Estates Proj Rfdg (Prerefunded @
08/01/02).................................. 7.875 02/01/15 910,039
3,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Cap Apprec Rfdg (MBIA Insd)............ * 01/15/17 1,197,750
21,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Cap Apprec Rfdg........................ * 01/15/24 4,967,970
15,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Cap Apprec Rfdg........................ * 01/15/30 2,406,600
54,635 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Cap Apprec Rfdg........................ * 01/15/32 7,724,296
2,825 Midpeninsula Regl Dist CA Fin Auth Rev Cap
Apprec (AMBAC Insd)........................ * 09/01/15 1,282,070
</TABLE>

See Notes to Financial Statements

14
<PAGE> 151

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$1,155 Midpeninsula Regl Open Space Dist CA Dist
CA Fin Auth Rev Cap Apprec (AMBAC Insd).... * 09/01/19 $ 400,600
1,265 Midpeninsula Regl Open Space Dist CA Dist
CA Fin Auth Rev Cap Apprec (AMBAC Insd).... * 09/01/22 360,044
1,380 Midpeninsula Regl Open Space Dist CA Dist
CA Fin Auth Rev Cap Apprec (AMBAC Insd).... * 09/01/25 326,743
5,255 Murrieta Vly, CA Uni Sch Dist Ser A (FGIC
Insd)...................................... * 09/01/22 1,498,884
1,650 Riverside Cnty, CA Air Force Vlg West Inc
Ser A Rfdg (Prerefunded @ 06/15/02)........ 8.125% 06/15/20 1,787,363
9,035 San Diego Cnty, CA Wtr Auth Rev Ctfs Partn
Ser A (FGIC Insd).......................... 4.500 05/01/24 7,747,422
6,805 San Ramon Vly, CA Uni Sch Dist Ser A (FGIC
Insd)...................................... * 07/01/17 2,721,592
------------
51,897,429
------------
COLORADO 3.2%
2,840 Adams Cnty, CO Single Family Mtg Rev Ser A
(b)........................................ 8.875 08/01/11 3,696,033
3,985 Adams Cnty, CO Single Family Mtg Rev Ser A
(b)........................................ 8.875 08/01/12 5,282,237
300 Berry Creek Metro Dist CO Rfdg & Impt...... 8.250 12/01/11 311,274
200 Berry Creek Metro Dist CO Rfdg & Impt
(Prerefunded @ 12/01/01)................... 8.250 12/01/11 210,774
1,400 Douglas Cnty, CO Sch Dist NO 001........... * 12/15/11 785,652
1,000 Edgewater, CO Redev Auth Tax Increment Rev
(Prerefunded @ 12/01/03)................... 6.750 12/01/08 1,066,630
1,320 El Paso Cnty, CO Sch Dist No 003 Widefield
Ser A (Prerefunded @ 12/15/05) (MBIA
Insd)...................................... * 12/15/14 622,116
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield
Ser A (Prerefunded @ 12/15/05) (MBIA
Insd)...................................... * 12/15/15 630,863
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield
Ser A (Prerefunded @ 12/15/05) (MBIA
Insd)...................................... * 12/15/16 591,487
1,330 El Paso Cnty, CO Sch Dist No 003 Widefield
Ser A (Prerefunded @ 12/15/05) (MBIA
Insd)...................................... * 12/15/18 487,073
</TABLE>

See Notes to Financial Statements

15
<PAGE> 152

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$3,690 Jefferson Cnty, CO Residential Mtg Rev
(b)........................................ 11.500% 09/01/12 $ 5,733,448
5,000 Meridian Metro Dist CO Peninsular &
Oriental Steam Navig Co Rfdg (LOC: Meridian
Assoc East)................................ 7.500 12/01/11 5,177,550
------------
24,595,137
------------
CONNECTICUT 1.2%
3,005 Connecticut St Hlth & Edl Fac Auth Rev
Nursing Home Pgm AHF/Hartford (Prerefunded
@ 11/01/04)................................ 7.125 11/01/14 3,336,421
495 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A--Private Placement (a)..... 6.500 09/01/06 543,119
2,530 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A--Private Placement (a)..... 6.400 09/01/11 2,657,942
2,470 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A--Private Placement
(Prerefunded @ 09/01/07) (a)............... 6.400 09/01/11 2,739,502
------------
9,276,984
------------
DISTRICT OF COLUMBIA 0.7%
2,500 District of Columbia Rev Natl Pub Radio Ser
A.......................................... 7.700 01/01/23 2,582,000
3,000 Washington Dist Of Columbia Convention Cent
Auth Dedicated Tax Rev (AMBAC Insd)........ 5.250 10/01/12 3,015,060
------------
5,597,060
------------
FLORIDA 4.2%
500 Atlantic Beach, FL Rev Fleet Landing Proj
Ser A Rfdg & Impt (Prerefunded @
10/01/04).................................. 7.875 10/01/08 560,025
180 Atlantic Beach, FL Rev Fleet Landing Proj
Ser A Rfdg & Impt.......................... 7.500 10/01/02 185,089
1,405 Broward Cnty, FL Res Recovery Rev Waste
Energy North Proj (b)...................... 7.950 12/01/08 1,449,862
1,840 Broward Cnty, FL Res Recovery Rev Waste
Energy South Proj (b)...................... 7.950 12/01/08 1,898,751
2,500 Cocoa, FL Wtr & Swr Rev Rfdg (FGIC Insd)... 4.500 10/01/22 2,086,625
9,000 Dade Cnty, FL Gtd Entitlement Rev Cap
Apprec Ser A Rfdg (MBIA Insd).............. * 02/01/18 3,216,510
5,000 Escambia Cnty, FL Hlth Fac Rev (AMBAC
Insd)...................................... 5.950 07/01/20 5,148,350
5,670 Florida St Brd Ed Lottery Rev Ser A (FGIC
Insd) (c).................................. 5.500 07/01/09 5,956,788
500 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg.................. 8.625 07/01/20 541,625
</TABLE>

See Notes to Financial Statements

16
<PAGE> 153

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 595 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC
Insd)...................................... 6.000% 10/01/16 $ 595,244
4,040 Sarasota Cnty, FL Hlth Fac Auth Rev
Hlthcare Kobernick/Meadow Pk (Prerefunded @
07/01/02) (b).............................. 10.000 07/01/22 4,459,958
5,000 Sarasota Cnty, FL Pub Hosp Brd Miles
Sarasota Mem Hosp Proj Ser A (Embedded Cap)
(MBIA Insd)................................ 4.440 10/01/21 4,688,700
815 Tampa Palms, FL Open Space & Tran Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.............. 8.500 05/01/17 870,542
955 Tampa Palms, FL Open Space & Tran Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.............. 7.500 05/01/18 993,792
------------
32,651,861
------------
GEORGIA 4.1%
2,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg
Rev........................................ 6.500 02/01/28 1,887,940
2,000 George L Smith II GA Wrld Congress Cent
Auth Rev Domed Stadium Proj Rfdg (MBIA
Insd)...................................... 5.500 07/01/20 1,951,600
24,000 Georgia Loc Govt Ctfs Partn Grantor Tr Ser
A (MBIA Insd).............................. 4.750 06/01/28 20,696,640
6,280 Georgia St Ser D........................... 6.300 11/01/09 6,998,809
------------
31,534,989
------------
HAWAII 1.2%
4,055 Hawaii St Arpts Sys Rev Ser 1993 (MBIA
Insd) (b).................................. 6.350 07/01/07 4,286,743
2,365 Hawaii St Dept Trans Spl Fac Continental
Airls Inc. ................................ 5.625 11/15/27 1,949,919
1,475 Hawaii St Harbor Cap Impt Rev (FGIC
Insd)...................................... 6.350 07/01/07 1,562,645
1,560 Hawaii St Harbor Cap Impt Rev (FGIC Insd)
(b)........................................ 6.400 07/01/08 1,654,692
------------
9,453,999
------------
ILLINOIS 13.3%
4,035 Bedford Park, IL Tax Increment Rev Sr Lien
Bedford City Sq Proj (b)................... 9.250 02/01/12 4,293,079
1,310 Bridgeview, IL Tax Increment Rev Rfdg
(Prerefunded @ 01/01/04)................... 9.000 01/01/11 1,496,072
6,145 Broadview, IL Tax Increment Rev Sr Lien
(Prerefunded @ 07/01/04) (b)............... 8.250 07/01/13 6,811,425
3,000 Chicago, IL Lakefront Millennium Pkg Fac
(MBIA Insd) (f)............................ 0/5.650 01/01/19 2,143,980
</TABLE>

See Notes to Financial Statements

17
<PAGE> 154

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$13,600 Chicago, IL Brd Ed Cap Apprec Sch Reform
B-1 (FGIC Insd)............................ * 12/01/22 $ 3,666,696
6,800 Chicago, IL Brd Edl Cap Apprec Sch Reform
Ser A (FGIC Insd).......................... * 12/01/19 2,234,412
5,000 Chicago, IL Brd Edl Cap Apprec Sch Reform
Ser A (FGIC Insd).......................... * 12/01/20 1,535,200
6,375 Chicago, IL Brd Edl Cap Apprec Sch Reform
Ser A (FGIC Insd).......................... * 12/01/21 1,834,725
1,000 Chicago, IL Metro Wtr Reclamation Dist Gtr
Chicago.................................... 7.000% 01/01/11 1,160,150
6,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Proj Ser B.................... 5.200 04/01/11 5,445,120
4,555 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B (b)................. 8.950 05/01/18 4,700,942
3,210 Chicago, IL Proj & Rfdg Ser C (FGIC
Insd)...................................... 5.750 01/01/16 3,283,349
1,700 Chicago, IL Single Family Mtg Rev Ser A
(GNMA Collateralized)...................... 7.000 09/01/27 1,848,495
405 Chicago, IL Tax Increment Alloc Santn Drain
& Ship Canal Ser A......................... 7.375 01/01/05 413,298
1,000 Chicago, IL Tax Increment Alloc Santn Drain
& Ship Canal Ser A......................... 7.750 01/01/14 1,045,240
1,000 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd)............. 8.750 01/01/07 1,208,630
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)............................ * 12/01/07 1,587,199
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)............................ * 12/01/08 1,508,014
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)............................ * 12/01/09 1,428,400
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)............................ * 12/01/10 1,350,302
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)............................ * 12/01/11 1,269,465
1,000 Crestwood, IL Tax Increment Rev Rfdg....... 7.250 12/01/08 1,032,630
1,000 Hodgkins, IL Tax Increment................. 9.500 12/01/09 1,081,900
1,500 Hodgkins, IL Tax Increment Ser A Rfdg...... 7.625 12/01/13 1,588,890
1,500 Huntley, IL Increment Alloc Rev Huntley
Redev Proj Ser A........................... 8.500 12/01/15 1,653,555
505 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj............................... 8.000 11/15/06 521,569
</TABLE>

See Notes to Financial Statements

18
<PAGE> 155

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$2,000 Illinois Dev Fin Auth Solid Waste Disposal
Rev........................................ 5.950% 12/01/24 $ 1,851,520
1,000 Illinois Edl Fac Auth Rev Lake Forest
College (Prerefunded @ 10/01/01) (FSA
Insd)...................................... 6.750 10/01/21 1,042,260
1,000 Illinois Edl Fac Auth Rev Northwestern Univ
Ser 1985 (Prerefunded @ 12/01/01).......... 6.900 12/01/21 1,047,000
1,440 Illinois Hlth Fac Auth Rev Silver Cross
Hosp & Med Rfdg............................ 5.500 08/15/19 1,262,592
2,000 Illinois Hlth Fac Auth Rev Silver Cross
Hosp & Med Rfdg............................ 5.500 08/15/25 1,699,420
1,970 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Proj B (Prerefunded @ 10/01/02)
(b)........................................ 9.000 10/01/22 2,173,087
4,050 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Proj Ser A (Prerefunded @ 10/01/02)
(b)........................................ 9.500 10/01/22 4,467,110
460 Illinois Hlth Fac Auth Rev Glenoaks Med
Cent Ser D................................. 9.500 11/15/15 472,701
1,000 Illinois Hlth Fac Auth Rev Northwestern Mem
Hosp (b)................................... 6.750 08/15/11 1,036,980
2,600 Illinois Hlth Fac Auth Rev Utd Med Cent
(Prerefunded @ 07/01/03) (b)............... 8.375 07/01/12 2,837,978
100 Illinois Hsg Dev Auth Residential Mtg Rev
(Inverse Fltg)............................. 9.025 02/01/18 105,500
6,815 Illinois St Civic Cent (FSA Insd).......... 5.375 12/15/12 6,943,122
5,750 Metropolitan Pier & Expo Auth IL Dedicated
St Tax Rev McCormick Pl Expn Proj (FGIC
Insd)...................................... 5.250 12/15/28 5,324,098
3,555 Metropolitan Pier & Expo Auth IL Dedicated
St Tax Rev Cap Apprec McCormick Ser A
Rfdg....................................... * 12/15/15 1,530,036
2,800 Regional Tran Auth IL Ser A (AMBAC Insd)... 8.000 06/01/17 3,587,836
3,773 Robbins, IL Res Recovery Rev Restructuring
Proj Ser A (e)............................. 8.375 10/15/16 981,094
1,477 Robbins, IL Res Recovery Rev Restructuring
Proj Ser B (e)............................. 8.375 10/15/16 383,906
2,532 Robbins, IL Res Recovery Rev Restructuring
Proj Ser C................................. 7.250 10/15/24 2,322,787
586 Robbins, IL Res Recovery Rev Restructuring
Proj Ser C................................. 7.250 10/15/09 556,262
1,175 Robbins IL Res Recovery Rev Restructuring
Proj Ser D................................. * 10/15/09 549,421
</TABLE>

See Notes to Financial Statements

19
<PAGE> 156

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 650 Round Lake Beach, IL Tax Increment Rev
Rfdg....................................... 7.200% 12/01/04 $ 677,001
500 Round Lake Beach, IL Tax Increment Rev
Rfdg....................................... 7.500 12/01/13 518,805
1,470 Saint Charles, IL Indl Dev Rev Tri-City
Cent Proj.................................. 7.500 11/01/13 1,486,817
1,000 Southern IL Univ Rev Cap Apprec Hsg & Aux
Ser A (MBIA Insd).......................... * 04/01/18 368,180
2,370 Will Cnty, IL Fst Presv Dist Ser B (FGIC
Insd)...................................... * 12/01/14 1,090,958
4,270 Will Cnty, IL Fst Presv Dist Ser B (FGIC
Insd)...................................... * 12/01/15 1,841,694
------------
102,300,902
------------
INDIANA 1.8%
1,000 East Chicago, IN Exempt Fac Inland Steel Co
Proj No 14................................. 6.700 11/01/12 918,460
570 Elkhart Cnty, IN Hosp Auth Rev Elkhart Genl
Hosp Inc................................... 7.000 07/01/12 600,313
2,180 Elkhart Cnty, IN Hosp Auth Rev Elkhart Genl
Hosp Inc (Prerefunded @ 07/01/02).......... 7.000 07/01/12 2,309,797
3,125 Indiana Bond Bank Spl Pgm Hendricks Redev
Ser B (LOC: Canadian Imperial Bank Insd)... 6.200 02/01/23 3,183,062
1,990 Indiana Hlth Fac Fin Auth Rev Hoosier Care
Proj Ser A................................. 7.125 06/01/34 1,794,104
970 Indiana Hlth Fac Fin Auth Rev Metro Hlth/IN
Inc Proj................................... 6.300 12/01/23 828,283
2,000 Indiana Hlth Fac Fin Auth Rev Metro Hlth/IN
Inc Proj................................... 6.400 12/01/33 1,678,280
550 Indianapolis, IN Loc Pub Impt Bond Bank Ser
D.......................................... 6.750 02/01/14 623,211
140 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev B............................ * 06/30/11 58,810
140 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B........................ * 06/30/12 54,253
135 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B........................ * 06/30/13 48,261
130 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B........................ * 06/30/14 42,878
130 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B........................ * 06/30/15 39,382
</TABLE>

See Notes to Financial Statements

20
<PAGE> 157

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
INDIANA (CONTINUED)
$ 135 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B........................ * 06/30/16 $ 37,716
225 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B........................ * 06/30/17 57,983
1,500 Wells Cnty, IN Hosp Auth Rev Caylor-Nickel
Med Cent Inc Rfdg (b)...................... 8.500% 04/15/03 1,632,705
------------
13,907,498
------------
IOWA 0.6%
1,905 Iowa Fin Auth Hosp Fac Rev Trinity Regl
Hosp Proj (FSA Insd) (b)................... 6.000 07/01/07 2,031,435
2,400 Iowa Fin Auth Hosp Fac Rev Trinity Regl
Hosp Proj (FSA Insd)....................... 5.750 07/01/17 2,420,280
------------
4,451,715
------------
KANSAS 2.6%
1,000 Newton, KS Hosp Rev Newton Hlthcare Corp
Ser A (Prerefunded @ 11/15/04)............. 7.750 11/15/24 1,124,240
5,350 Sedgwick Cnty, KS Uni Sch Dist No 259
Wichita (MBIA Insd) (c).................... 5.750 09/01/10 5,731,990
6,150 Sedgwick Cnty, KS Uni Sch Dist No 259
Wichita (MBIA Insd) (c).................... 5.500 09/01/12 6,366,049
6,600 Sedgwick Cnty, KS Uni Sch Dist No 259
Wichita (MBIA Insd) (c).................... 5.625 09/01/13 6,848,688
------------
20,070,967
------------
KENTUCKY 0.9%
1,000 Bowling Green, KY Indl Dev Rev Coltec Inds
Inc Rfdg................................... 6.550 03/01/09 981,590
2,800 Jefferson Cnty, KY Hosp Rev (Inverse Fltg)
(MBIA Insd) (b)............................ 8.395 10/01/08 3,055,500
1,200 Jefferson Cnty, KY Hosp Rev (Inverse Fltg)
(Prerefunded @ 10/01/02) (MBIA Insd)....... 8.445 10/01/08 1,317,000
715 Kentucky Hsg Corp Hsg Rev Ser D (FHA/ VA
Gtd)....................................... 7.450 01/01/23 734,627
155 Kentucky St Tpk Auth Toll Rd Rev Ser A
(Prerefunded @ 07/01/07)................... 5.500 07/01/07 161,535
845 Kentucky St Tpk Auth Toll Rd Rev Ser A..... 5.500 07/01/07 846,428
------------
7,096,680
------------
LOUISIANA 1.9%
500 Hodge, LA Util Rev Stone Container Corp Ser
1990....................................... 9.000 03/01/10 510,720
5,755 Jefferson, LA Sales Tax Dist Spl Sales Tax
Rev (FSA Insd)............................. * 12/01/15 2,493,239
</TABLE>

See Notes to Financial Statements

21
<PAGE> 158

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
LOUISIANA (CONTINUED)
$1,990 Lafayette, LA Econ Dev Auth Indl Dev Rev
Advanced Polymer Proj Ser 1985............. 10.000% 11/15/04 $ 2,341,494
1,000 Lake Charles, LA Harbor & Terminal Dist
Port Fac Rev Trunkline Rfdg................ 7.750 08/15/22 1,071,470
2,065 Louisiana Pub Fac Auth Rev Indl Dev Beverly
Enterprises Inc Rfdg....................... 8.250 09/01/08 2,150,759
3,000 Louisiana St Hlth Edl Auth Rev Lambeth
House Ser A Rfdg........................... 5.250 01/01/05 2,883,480
1,000 New Orleans, LA Rfdg (FGIC Insd)........... 5.500 12/01/21 990,660
575 Port New Orleans, LA Indl Dev Rev Avondale
Inds Inc Proj Rfdg......................... 8.250 06/01/04 598,770
1,400 West Feliciana Parish, LA Pollutn Ctl Rev
Gulf States Util Co Proj Ser A............. 7.500 05/01/15 1,462,972
------------
14,503,564
------------
MASSACHUSETTS 2.9%
1,185 Massachusetts Edl Ln Auth Rev Edl Ln Rev
Muni Forwards Issue E Ser A (AMBAC Insd)... 7.000 01/01/10 1,231,298
4,700 Massachusetts St Hlth & Edl Fac Auth Rev
New England Med Cent Hosp Ser G (MBIA Insd)
(f)........................................ 3.1/5.0 07/01/13 4,551,057
1,500 Massachusetts St Indl Fin Agy Hillcrest Edl
Cent Inc Proj (Prerefunded @ 07/01/05)..... 8.450 07/01/18 1,743,165
5,355 Massachusetts St Indl Fin Agy Rev First Mtg
Reeds Landing Proj (c)..................... 7.100 10/01/28 4,975,919
955 Massachusetts St Indl Fin Agy Rev Gtr Lynn
Mental Hlth Assoc Proj (Prerefunded @
06/01/04).................................. 8.800 06/01/14 1,164,766
9,000 Route 3 North Trans Impt Assoc MA Lease Rev
(MBIA Insd)................................ 5.375 06/15/33 8,561,250
------------
22,227,455
------------
MICHIGAN 2.2%
3,500 Detroit, MI Downtown Dev Auth Tax Increment
Rev (Prerefunded @ 07/01/06) (b)........... 6.200 07/01/17 3,821,825
985 Detroit, MI Loc Dev Fin Auth Ser C......... 6.850 05/01/21 964,729
650 Grand Traverse Cnty, MI Hosp Fin Auth Hosp
Rev Ser A Rfdg (AMBAC Insd)................ 6.250 07/01/12 676,806
1,350 Grand Traverse Cnty, MI Hosp Fin Auth Hosp
Rev Ser A Rfdg (Prerefunded @ 07/01/02)
(AMBAC Insd)............................... 6.250 07/01/12 1,414,193
1,500 Grand Valley, MI St Univ Rev Gen (FGIC
Insd)...................................... 5.500 02/01/18 1,515,780
</TABLE>

See Notes to Financial Statements

22
<PAGE> 159

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MICHIGAN (CONTINUED)
$1,400 Hillsdale, MI Hosp Fin Auth Hosp Rev
Hillsdale Cmty Hlth Cent................... 5.250% 05/15/26 $ 1,019,886
2,000 Michigan St Bldg Auth Rev Fac Proj Ser II
(AMBAC Insd)............................... * 10/15/11 1,133,260
7,710 Michigan St Strategic Fd Ltd Oblig Rev
Great Lakes Pulp & Fiber Proj (e).......... 8.000 12/01/27 1,542,018
4,500 Michigan St Strategic Fd Solid Waste Disp
Rev Genesee Pwr Station Proj............... 7.500 01/01/21 4,637,340
------------
16,725,837
------------
MISSISSIPPI 0.9%
5,000 Lowndes Cnty, MS Solid Waste Disp & Pollutn
Ctl Rev Weyerhaeuser Co Rfdg............... 6.700 04/01/22 5,403,850
1,090 Ridgeland, MS Urban Renewal Rev The Orchard
Ltd Proj Ser A Rfdg........................ 7.750 12/01/15 1,128,041
------------
6,531,891
------------
MISSOURI 1.4%
2,835 Kansas City, MO Port Auth Fac Riverfront
Park Proj Ser A............................ 5.750 10/01/06 2,935,954
1,895 Lees Summit, MO Indl Dev Auth Hlth Fac Rev
John Knox Vlg Proj Rfdg & Impt (b)......... 7.125 08/15/12 1,934,625
945 Missouri St Econ Dev Export &
Infrastructure Brd Med Office Fac Rev (MBIA
Insd)...................................... 7.250 06/01/04 993,771
3,920 Missouri St Econ Dev Export &
Infrastructure Brd Med Office Fac Rev
(Prerefunded @ 06/01/04) (MBIA Insd)....... 7.250 06/01/14 4,338,225
760 Saint Louis, MO Tax Increment Rev Scullin
Redev Area Ser A........................... 10.000 08/01/10 903,359
------------
11,105,934
------------
NEBRASKA 0.6%
700 Nebraska Invt Fin Auth Single Family Mtg
Rev (Inverse Fltg) (GNMA Collateralized)... 10.517 09/10/30 727,125
2,900 Nebraska Invt Fin Auth Single Family Mtg
Rev (Inverse Fltg) (GNMA Collateralized)... 9.305 10/17/23 3,059,500
750 Nebraska Invt Fin Auth Single Family Mtg
Rev (Inverse Fltg) (GNMA Collateralized)
(c)........................................ 8.502 09/15/24 782,812
------------
4,569,437
------------
NEVADA 0.6%
5,000 Director St Nev Dept Business & Industry
Las Vegas Monorail Proj.................... 5.375 01/01/40 4,646,550
------------
</TABLE>

See Notes to Financial Statements

23
<PAGE> 160

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW HAMPSHIRE 1.1%
$1,555 New Hampshire Higher Edl & Hlth Fac Auth
Rev (b).................................... 8.800% 06/01/09 $ 1,699,537
890 New Hampshire Higher Edl & Hlth Fac Auth
Rev Daniel Webster College Issue Rfdg...... 6.100 07/01/09 876,588
1,985 New Hampshire Higher Edl & Hlth Fac Auth
Rev Daniel Webster College Issue Rfdg
(Prerefunded @ 07/01/04)................... 7.625 07/01/16 2,187,311
1,000 New Hampshire Higher Edl & Hlth Fac Auth
Rev New London Hosp Assn Proj.............. 7.500 06/01/05 1,047,630
920 New Hampshire St Business Fin Auth Elec Fac
Rev Plymouth Cogeneration.................. 7.750 06/01/14 936,569
1,000 New Hampshire St Business Fin Auth Rev
Alice Peck Day Hlth Sys Ser A.............. 6.875 10/01/19 932,920
1,000 New Hampshire St Tpk Sys Rev Ser A Rfdg
(FGIC Insd)................................ 6.750 11/01/11 1,105,360
------------
8,785,915
------------
NEW JERSEY 5.0%
400 Atlantic City, NJ Brd Edl Sch (Prerefunded
@ 12/01/02) (AMBAC Insd)................... 6.125 12/01/11 420,924
250 Camden Cnty, NJ Impt Auth Lease Rev Cnty
Gtd (Prerefunded @ 10/01/04) (MBIA Insd)... 6.150 10/01/14 268,720
2,000 Camden Cnty, NJ Impt Auth Lease Rev
Dockside Refrig............................ 8.400 04/01/24 1,947,720
250 Essex Cnty, NJ Impt Auth Lease Jail & Youth
House Proj (Prerefunded @ 12/01/04) (AMBAC
Insd)...................................... 6.600 12/01/07 273,450
370 Essex Cnty, NJ Ser A1 Rfdg (AMBAC Insd).... 5.375 09/01/10 382,939
250 Hudson Cnty, NJ Ctfs Partn Correctional Fac
Rfdg (MBIA Insd)........................... 6.600 12/01/21 260,818
250 Lacey Muni Util Auth NJ Wtr Rev
(Prerefunded @ 12/01/04) (MBIA Insd)....... 6.250 12/01/24 270,160
3,250 Landis, NJ Sew Auth Swr Rev (Inverse Fltg)
(FGIC Insd)................................ 6.520 09/19/19 3,367,812
6,130 Middlesex Cnty, NJ Util Auth Swr Rev Ser A
Rfdg (MBIA Insd)........................... 6.250 08/15/10 6,663,371
500 New Jersey Econ Dev Auth Dist Heating &
Cooling Rev Trigen Trenton Ser A........... 6.200 12/01/10 492,550
2,000 New Jersey Econ Dev Auth Holt Hauling &
Warehsg Rev Ser G Rfdg..................... 8.400 12/15/15 1,950,460
210 New Jersey Econ Dev Auth Pollutn Ctl Rev
Pub Svcs Elec & Gas Co Proj A (MBIA
Insd)...................................... 6.400 05/01/32 219,263
</TABLE>

See Notes to Financial Statements

24
<PAGE> 161

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$1,900 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A................... 8.500% 11/01/16 $ 1,997,622
350 New Jersey Econ Dev Auth Rev RWJ Hlthcare
Corp (FSA Insd)............................ 6.250 07/01/14 371,399
1,000 New Jersey Econ Dev Auth Rev United
Methodist Homes (Prerefunded @ 07/01/05)... 7.500 07/01/20 1,130,580
1,000 New Jersey Econ Dev Auth Rev United
Methodist Homes Oblig Ser A (Prerefunded @
07/01/05).................................. 7.500 07/01/25 1,130,580
170 New Jersey Hlthcare Fac Fin Auth Rev (AMBAC
Insd)...................................... 6.250 07/01/21 178,119
230 New Jersey Hlthcare Fac Fin Auth Rev
(Prerefunded @ 07/01/04) (AMBAC Insd)...... 6.250 07/01/21 246,687
490 New Jersey Hlthcare Fac Fin Auth Rev
Atlantic City Med Cent Ser C Rfdg.......... 6.800 07/01/11 512,486
700 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd)......... 7.000 07/01/04 756,399
400 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd)......... 7.000 07/01/06 444,928
250 New Jersey Hlthcare Fac Fin Auth Rev Genl
Hosp Cent at Passaic (FSA Insd)............ 6.000 07/01/06 267,045
250 New Jersey Hlthcare Fac Fin Auth Rev Genl
Hosp Cent at Passaic (FSA Insd)............ 6.750 07/01/19 283,057
400 New Jersey Sports & Exposition Auth
Convention Cent Luxury Tax Rev Ser A Rfdg
(Prerefunded @ 07/01/02) (MBIA Insd)....... 6.250 07/01/20 419,504
250 New Jersey St Edl Fac Auth Rev Glassboro St
College Ser A (Prerefunded @ 07/01/01)
(MBIA Insd)................................ 6.700 07/01/21 259,148
265 New Jersey St Hsg & Mtg Fin Agy Rev Home
Buyer Ser K (MBIA Insd).................... 6.375 10/01/26 272,338
500 New Jersey St Hsg & Mtg Fin Agy Rev Home
Buyer Ser O (MBIA Insd).................... 6.300 10/01/23 513,935
3,480 New Jersey St Tpk Auth Tpk Rev Ser C Rfdg
(MBIA Insd)................................ 6.500 01/01/16 3,906,961
2,700 New Jersey St Tran Tr Fd Auth Tran Sys Ser
A.......................................... 5.250 06/15/11 2,752,056
</TABLE>

See Notes to Financial Statements

25
<PAGE> 162

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$5,735 New Jersey Str Tran Corp Fed Tran Admin
Grants Ser A............................... 5.750% 09/15/10 $ 6,125,726
300 Union City, NJ (FSA Insd).................. 6.375 11/01/10 338,061
------------
38,424,818
------------
NEW YORK 9.0%
5,000 Metropolitan Tran Auth NY Svcs Contract
Tran Fac Ser 5 Rfdg........................ 7.000 07/01/12 5,175,900
1,000 New York City Indl Dev Agy Civic Fac
Marymount Manhattan College Proj
(Prerefunded @ 07/01/03)................... 7.000 07/01/23 1,066,040
4,100 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Ser B.............................. 5.000 06/15/17 3,828,580
5,000 New York City Ser A........................ 7.000 08/01/07 5,562,150
21,860 New York City Ser B (c).................... 5.875 08/01/15 22,875,397
945 New York City Ser C (Prerefunded @
08/01/02).................................. 6.500 08/01/04 992,619
4,055 New York City Ser C........................ 6.500 08/01/04 4,232,568
640 New York City Ser C Subser C1 (Prerefunded
@ 08/01/02)................................ 7.500 08/01/20 683,546
2,000 New York City Ser D Rfdg................... 8.000 02/01/05 2,258,240
2,200 New York City Ser E........................ 5.700 08/01/08 2,293,258
2,295 New York St Dorm Auth Rev Mental Hlth Svcs
Fac Ser A.................................. 5.750 02/15/11 2,385,216
2,285 New York St Dorm Auth Rev Mental Hlth Svcs
Fac Ser A.................................. 5.750 02/15/12 2,360,702
2,500 New York St Energy Resh & Dev Auth Gas Fac
Rev (Inverse Fltg)......................... 8.001 04/01/20 2,737,500
3,000 New York St Energy Resh & Dev Auth Gas Fac
Rev Brooklyn Union Gas Co Ser B (Inverse
Fltg)...................................... 9.077 07/01/26 3,431,250
2,000 New York St Energy Resh & Dev Auth Pollutn
Ctl Rev Niagara Mohawk Pwr Corp Ser A Rfdg
(FGIC Insd)................................ 7.200 07/01/29 2,175,860
185 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser A........................ 7.750 08/15/11 190,613
175 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser C........................ 7.300 02/15/21 181,865
3,000 New York St Twy Auth Svcs Rev Loc Hwy &
Brdg (AMBAC Insd) (c)...................... 5.500 04/01/11 3,122,670
</TABLE>

See Notes to Financial Statements

26
<PAGE> 163

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$2,400 New York St Urban Dev Corp Rev Correctional
Cap Fac Rfdg............................... 5.625% 01/01/07 $ 2,466,360
1,200 Port Auth NY & NJ Cons 95th Ser............ 6.125 07/15/22 1,233,984
------------
69,254,318
------------
OHIO 0.7%
500 Cleveland, OH Pkg Fac Rev Impt (Prerefunded
@ 09/15/02)................................ 8.000 09/15/12 541,205
220 Fairfield, OH Econ Dev Rev Beverly
Enterprises Inc Proj Rfdg.................. 8.500 01/01/03 224,600
1,750 Franklin Cnty, OH Hlthcare Friendship Vlg
Dublin, OH Rfdg............................ 5.625 11/01/22 1,476,143
1,000 Ohio St Air Quality Dev Auth Rev JMG
Funding Ltd Partn Proj Rfdg (AMBAC Insd)... 6.375 04/01/29 1,033,150
2,000 Ohio St Solid Waste Rev CSC Ltd Proj (e)... 8.500 08/01/22 560,000
4,000 Ohio St Solid Waste Rev Rep Engineered
Steels Proj (b)............................ 8.250 10/01/14 793,200
2,000 Ohio St Solid Waste Rev Rep Engineered
Steels Proj................................ 9.000 06/01/21 395,280
------------
5,023,578
------------
OKLAHOMA 0.6%
1,980 McAlester, OK Pub Wks Auth Rev Rfdg & Impt
(Prerefunded @ 12/01/09) (FSA Insd)........ 5.250 12/01/22 2,063,397
1,560 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B (GNMA Collateralized).............. 7.997 08/01/18 1,719,916
1,000 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc........................................ 7.600 12/01/30 1,027,940
------------
4,811,253
------------
OREGON 1.7%
13,000 Portland, OR Swr Sys Rev Ser A (FGIC
Insd)...................................... 5.750 08/01/18 13,347,750
------------

PENNSYLVANIA 6.0%
5,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth
Sys Rev (AMBAC Insd) (b)................... 5.650 05/15/20 4,895,200
2,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg)
(FGIC Insd)................................ 7.270 06/18/15 2,612,500
845 Lehigh Cnty, PA Indl Dev Auth Rev Rfdg..... 8.000 08/01/12 870,806
1,180 Luzerne Cnty, PA Indl Dev Auth First Mtg
Gross Rev Rfdg............................. 7.875 12/01/13 1,213,453
1,000 Montgomery Cnty, PA Higher Edl & Hlth Auth
Rev........................................ 6.750 07/01/29 877,570
</TABLE>

See Notes to Financial Statements

27
<PAGE> 164

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth
Hosp Rev (Embedded Swap) (AMBAC Insd)...... 5.380% 06/01/12 $ 3,146,070
1,000 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev....................... 6.300 01/01/13 928,160
5,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Rfdg (Inverse Fltg) (AMBAC
Insd)...................................... 8.963 09/01/26 5,962,500
3,500 Pennsylvania St Higher Edl Fac Auth College
& Univ Rev................................. 4.500 07/15/21 2,889,705
660 Philadelphia, PA Hosp & Higher Edl Fac Auth
Hosp Rev................................... 7.250 03/01/24 635,540
4,000 Philadelphia, PA Sch Dist Ser D Rfdg (MBIA
Insd) (c).................................. 5.625 03/01/10 4,215,040
11,000 Pittsburgh & Allegheny Cnty, PA Pub
Auditorium Auth Excise Tax Rev (AMBAC
Insd)...................................... 4.500 02/01/29 8,936,620
5,465 Pittsburgh, PA Wtr & Swr Auth Rev Ser C
(FSA Insd)................................. 5.125 09/01/23 5,011,241
1,450 Ridley Park, PA Hosp Auth Rev Taylor Hosp
Ser A...................................... 6.000 12/01/13 1,548,499
1,000 Scranton Lackawanna, PA Hlth & Welfare Auth
Rev Allied Svcs Rehab Hosp Ser A........... 7.375 07/15/08 1,040,720
500 Scranton Lackawanna, PA Hlth & Welfare Auth
Rev Moses Taylor Hosp Proj (Prerefunded @
07/01/01).................................. 8.250 07/01/09 523,310
965 Southern Chester Cnty, PA Hlth & Higher Edl
Auth Mtg Southern Chester Cnty Med Ser A... 6.100 06/01/03 957,888
------------
46,264,822
------------
RHODE ISLAND 0.6%
1,930 Providence, RI Redev Agy Ctfs Partn Ser
A.......................................... 8.000 09/01/24 1,991,991
1,820 Rhode Island St Econ Dev Corp Rev.......... 7.250 07/01/10 1,812,174
505 West Warwick, RI Ser A..................... 7.300 07/15/08 539,310
------------
4,343,475
------------
SOUTH CAROLINA 0.6%
3,000 Charleston Cnty, SC Hlth Fac Rev........... 5.400 04/01/04 2,910,300
2,000 Charleston Cnty, SC Indl Rev Zeigler Coal
Hldg....................................... 6.950 08/10/28 980,000
1,070 Piedmont Muni Pwr Agy SC Elec Rev.......... 5.000 01/01/25 860,901
------------
4,751,201
------------
</TABLE>

See Notes to Financial Statements

28
<PAGE> 165

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
SOUTH DAKOTA 0.1%
$1,000 South Dakota St Hlth & Edl Fac Auth Rev
Huron Regl Med Cent........................ 7.250% 04/01/20 $ 1,011,980
------------

TENNESSEE 0.8%
4,000 Elizabethton, TN Hlth & Edl Fac Brd Rev
Hosp First Mtg Ser B....................... 7.750 07/01/29 3,934,160
2,000 Springfield, TN Hlth & Edl Jesse Holman
Jones Hosp Proj (Prerefunded @ 04/01/06)
(b)........................................ 8.500 04/01/24 2,398,040
------------
6,332,200
------------
TEXAS 8.8%
5,730 Austin, TX Rev Sub Ser A Rfdg (MBIA
Insd)...................................... * 05/15/16 2,355,488
120 Bell Cnty, TX Hlth Fac Dev Corp Rev Hosp
Proj....................................... 9.250 07/01/08 122,617
1,995 Bell Cnty, TX Indl Dev Corp Solid Waste
Disposal Rev............................... 7.600 12/01/17 1,874,961
500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Saint Luke's Lutheran Hosp................. 7.000 05/01/21 586,570
1,500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Saint Luke's Lutheran Hosp (Prerefunded @
05/01/03) (b).............................. 7.900 05/01/18 1,613,010
222 Bexar Cnty, TX Hsg Fin Corp Rev Ser A (GNMA
Collateralized)............................ 8.200 04/01/22 226,718
3,100 Brazos River Auth TX Rev Houston Inds Inc
Proj Ser D Rfdg (MBIA Insd) (b)............ 4.900 10/01/15 2,867,128
1,675 Cedar Hill, TX Indpt Sch Dist Cap Apprec
Rfdg....................................... * 08/15/15 702,445
625 Clear Creek, TX Indpt Sch Dist (Prerefunded
@ 02/01/01)................................ 6.250 02/01/11 628,863
250 Coastal Wtr Auth TX Conveyance Sys Rev
(AMBAC Insd)............................... 6.250 12/15/17 252,478
940 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev American Airls Inc................ 7.500 11/01/25 960,699
2,000 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev American Airls Inc................ 6.375 05/01/35 1,946,840
250 El Paso, TX Hsg Auth Multi-Family Rev Ser
A.......................................... 6.250 12/01/09 254,575
60 Galveston, TX Ppty Fin Auth Single Family
Mtg Rev Ser A.............................. 8.500 09/01/11 64,798
7,350 Grapevine Colleyville Indpt Sch Dist TX.... * 08/15/11 4,165,098
</TABLE>

See Notes to Financial Statements

29
<PAGE> 166

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$1,250 Harris Cnty, TX Hlth Fac Dev Corp Mem Hosp
Sys Proj Rfdg.............................. 7.125% 06/01/15 $ 1,323,937
250 Harris Cnty, TX Muni Util Dist No 120
(Prerefunded @ 08/01/01)................... 8.000 08/01/14 257,175
375 Harris Cnty, TX Sch Hlthcare Corp Sys Rev
(Prerefunded @ 07/01/01)................... 7.100 07/01/21 389,621
250 Lockhart, TX Correctional Fac Fin Corp Rev
(Prerefunded @ 04/01/01) (MBIA Insd)....... 6.625 04/01/12 252,808
7,500 Lower Co River Auth TX Rev Ser A Rfdg
(Inverse Fltg) (FSA Insd Insd)............. 5.976 05/15/14 8,125,575
6,250 Lower Co River Auth TX Rev Ser A Rfdg
(Inverse Fltg) (FSA Insd Insd)............. 5.976 05/15/15 6,714,125
3,250 Lower Co River Auth TX Rev Ser A Rfdg
(Inverse Fltg) (FSA Insd Insd)............. 5.976 05/15/16 3,461,737
2,000 Montgomery Cnty, TX Muni Util Dist No 47
Wtrwks & Swr (AMBAC Insd).................. 4.750 10/01/24 1,709,660
3,500 North Central TX Hlth Fac Dev Corp Rev
Presbyterian Hlthcare Sys Ser C (Inverse
Fltg) (Prerefunded @ 06/19/01) (MBIA
Insd)...................................... 8.795 06/22/21 3,736,250
750 Northwest Harris Cnty, TX Muni Util Dist No
23 (Prerefunded @ 04/01/01)................ 8.100 10/01/15 763,658
250 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp Rev
Rfdg & Impt................................ 7.000 05/15/28 237,990
250 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp Rev
Rfdg & Impt (Prerefunded @ 05/15/03)....... 7.000 05/15/28 268,368
211 Texas Genl Svcs Cmnty Partn Interests
Office Bldg & Land Acquisition Proj........ 7.000 08/01/09 215,589
500 Texas Genl Svcs Cmnty Partn Interests
Office Bldg & Land Acquisition Proj........ 7.000 08/01/19 510,715
500 Texas Genl Svcs Cmnty Partn Interests
Office Bldg & Land Acquisition Proj........ 7.000 08/01/24 510,715
819 Texas Genl Svcs Cmnty Partn Lease Purchase
Ctfs....................................... 7.500 02/15/13 838,004
20 Texas Hsg Agy Single Family Mtg Rev Ser A
Rfdg....................................... 7.150 09/01/12 20,616
5,430 Texas St College Student Ln................ 5.000 08/01/23 4,768,300
6,000 Texas St Dept Hsg & Cmnty Affairs Home Mtg
Rev Coll Ser C Rfdg (Inverse Fltg) (GNMA
Collateralized) (b)........................ 8.953 07/02/24 6,675,000
105 Texas St Higher Edl Brd College Sr Lien.... 7.700 10/01/25 107,886
</TABLE>

See Notes to Financial Statements

30
<PAGE> 167

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$4,025 Texas St Higher Edl Coordinating Brd
College Student Ln......................... * 10/01/25 $ 4,102,199
990 Texas St Vet Hsg Assist (MBIA Insd)........ 6.800% 12/01/23 1,030,451
2,250 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics... 8.200 03/15/21 2,317,432
1,000 Woodhill Pub Fac Corp TX Hsg-Woodhill Apts
Proj....................................... 7.500 12/01/29 998,670
------------
67,958,769
------------
UTAH 2.4%
2,965 Bountiful, UT Hosp Rev South Davis Cmnty
Hosp Proj (Prerefunded @ 06/15/04) (b)..... 9.500 12/15/18 3,529,121
1,340 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj....................................... 7.800 09/01/15 1,186,248
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj....................................... 8.000 09/01/20 884,590
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj....................................... 7.800 09/01/25 857,030
11,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc
Rfdg....................................... 6.150 02/15/12 11,737,110
255 Utah St Hsg Fin Agy Single Family Mtg Sr
Ser A1 (FHA Gtd)........................... 7.100 07/01/14 259,937
345 Utah St Hsg Fin Agy Single Family Mtg Sr
Ser A2 (FHA Gtd)........................... 7.200 01/01/27 359,287
------------
18,813,323
------------
VERMONT 0.1%
1,000 Vermont Edl & Hlth Bldgs Fing Agy Rev
Bennington College Proj.................... 6.625 10/01/29 990,460
------------

VIRGINIA 2.4%
4,000 Alexandria, VA Redev & Hsg Auth 3001 Pk
Cent Apts Ser A Rfdg (b)................... 6.375 04/01/34 3,680,840
3,850 Charles City Cnty, VA Indl Dev Auth Solid
Waste Disp Fac Rev Waste Mgmt VA Inc Proj
Rfdg....................................... 4.875 02/01/09 3,395,007
1,750 Fredericksburg, VA Indl Dev Auth Hosp Facs
Rev (Inverse Fltg) (Prerefunded @ 08/15/01)
(FGIC Insd)................................ 8.455 08/15/23 1,874,687
2,080 Loudoun Cnty, VA Ctfs Partn (FSA Insd)..... 6.800 03/01/14 2,232,464
1,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)..... 6.900 03/01/19 1,075,430
</TABLE>

See Notes to Financial Statements

31
<PAGE> 168

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
VIRGINIA (CONTINUED)
$3,000 Peninsula Ports Auth VA Rev Port Fac
Zeigler Coal Rfdg.......................... 6.900% 05/02/22 $ 1,470,000
5,000 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke
Mem Hosp Ser B Rfdg (MBIA Insd) (b)........ 6.250 07/01/20 5,105,650
------------
18,834,078
------------
WASHINGTON 0.9%
1,250 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev (FGIC Insd).................. 7.125 07/01/16 1,461,063
1,555 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev Ser C Rfdg (FSA Insd)........ 5.375 07/01/15 1,534,614
3,750 Washington St Pub Pwr Supply Sys Nuclear
Proj No 3 Rev Ser C Rfdg (FSA Insd)........ 5.375 07/01/15 3,700,837
------------
6,696,514
------------
WEST VIRGINIA 1.0%
4,000 West VA St Hosp Fin Auth Hosp Rev Bears &
Bulls WV Univ Med Corp Rfdg (MBIA Insd).... 6.100 01/01/18 4,056,080
1,500 West VA St Hosp Fin Auth Hosp Rev Hosp Rev
Bulls (Embedded Swap) (MBIA Insd).......... 5.000 01/01/18 1,553,325
5,150 West Virginia Str Cap Apprec-
Infrastructure Ser A....................... * 11/01/19 1,732,305
------------
7,341,710
------------
WISCONSIN 0.3%
750 Jefferson, WI Swr Sys Wtrwrks & Elec Sys
Mtg Rev (Prerefunded @ 07/01/01)........... 7.400 07/01/16 766,155
1,050 Wisconsin Hsg & Econ Dev Auth Home
Ownership Rev Rfdg (Inverse Fltg).......... 9.550 10/25/22 1,111,687
480 Wisconsin St Hlth & Edl Fac Auth Rev Hess
Mem Hosp Assn (ACA Insd)................... 7.200 11/01/05 498,269
------------
2,376,111
------------
GUAM 0.0%
250 Guam Govt Ser A............................ 5.750 09/01/04 250,648
------------
</TABLE>

See Notes to Financial Statements

32
<PAGE> 169

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PUERTO RICO 0.3%
$1,250 Puerto Rico Comwlth Hwy & Tran Auth Tran
Rev Ser A.................................. 4.750% 07/01/38 $ 1,048,900
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser T
(Prerefunded @ 07/01/04)................... 6.375 07/01/24 272,557
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser U
Rfdg....................................... 6.000 07/01/14 261,015
300 Puerto Rico Pub Bldgs Auth Gtd Pub Edl &
Hlth Fac Ser M Rfdg (FSA Insd)............. 5.750 07/01/15 308,181
------------
1,890,653
------------
MARIANA ISLANDS 0.1%
150 Northern Mariana Islands Pub Sch Sys Proj
Ser A...................................... 5.125 10/01/07 155,900
400 Northern Mariana Islands Pub Sch Sys Proj
Ser A...................................... 5.125 10/01/08 416,240
------------
572,140
------------
TOTAL LONG-TERM INVESTMENTS 98.0%
(Cost $761,761,169)................................................... 756,301,127
SHORT-TERM INVESTMENTS 3.5%
(Cost $26,970,000).................................................... 26,970,000
------------
TOTAL INVESTMENTS 101.5%
(Cost $788,731,169)................................................... 783,271,127
LIABILITIES IN EXCESS OF OTHER ASSETS (1.5)%........................... (11,642,732)
------------

NET ASSETS 100.0%...................................................... $771,628,395
============
</TABLE>

* Zero coupon bond.

(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may not be
resold except in transactions exempt from registration which are normally
transactions with qualified institutional buyers.

(b) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments.

(d) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.

See Notes to Financial Statements

33
<PAGE> 170

YOUR FUND'S INVESTMENTS

September 30, 2000

(e) Non-income producing security.

(f) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.

ACA--American Capital Access
AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.

See Notes to Financial Statements

34
<PAGE> 171

FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2000

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $788,731,169)....................... $783,271,127
Cash........................................................ 54,507
Receivables:
Interest.................................................. 11,778,569
Investments Sold.......................................... 8,375,816
Fund Shares Sold.......................................... 127,699
Other....................................................... 35,824
------------
Total Assets............................................ 803,643,542
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 27,782,589
Income Distributions...................................... 1,423,045
Fund Shares Repurchased................................... 1,201,748
Distributor and Affiliates................................ 811,881
Investment Advisory Fee................................... 308,339
Trustees' Deferred Compensation and Retirement Plans........ 324,377
Accrued Expenses............................................ 163,168
------------
Total Liabilities....................................... 32,015,147
------------
NET ASSETS.................................................. $771,628,395
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $808,732,755
Accumulated Distributions in Excess of Net Investment
Income.................................................... (566,519)
Net Unrealized Depreciation................................. (5,460,042)
Accumulated Net Realized Loss............................... (31,077,799)
------------
NET ASSETS.................................................. $771,628,395
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $688,301,544 and 48,960,567 shares of
beneficial interest issued and outstanding)............. $ 14.06
Maximum sales charge (4.75%* of offering price)......... .70
------------
Maximum offering price to public........................ $ 14.76
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $69,508,559 and 4,946,318 shares of
beneficial interest issued and outstanding)............. $ 14.05
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $13,818,292 and 984,208 shares of
beneficial interest issued and outstanding)............. $ 14.04
============
</TABLE>

* On sales of $100,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

35
<PAGE> 172

Statement of Operations
For the Year Ended September 30, 2000

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 52,805,644
------------
EXPENSES:
Investment Advisory Fee..................................... 3,916,970
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,741,963, $827,809 and $154,317).......... 2,724,089
Shareholder Services........................................ 505,347
Trustees' Fees and Related Expenses......................... 121,222
Custody..................................................... 104,107
Legal....................................................... 82,114
Other....................................................... 581,360
------------
Total Operating Expenses................................ 8,035,209
Less Credits Earned on Cash Balances.................... 67,953
------------
Net Operating Expenses.................................. 7,967,256
Interest Expense........................................ 88,086
------------
NET INVESTMENT INCOME....................................... $ 44,750,302
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(14,910,163)
Options................................................... 12,713
Futures................................................... 983,206
------------
Net Realized Loss........................................... (13,914,244)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 6,301,745
End of the Period:
Investments............................................. (5,460,042)
------------
Net Unrealized Depreciation During the Period............... (11,761,787)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(25,676,031)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 19,074,271
============
</TABLE>

See Notes to Financial Statements

36
<PAGE> 173

Statement of Changes in Net Assets
For the Years Ended September 30, 2000 and 1999

Distributions from Net Investment Income........ (45,441,909) (51,629,129)
Distributions in Excess of Net Investment
Income........................................ (607,917) -0-
------------- --------------
Total Distributions from and in Excess of Net
Investment Income*............................ (46,049,826) (51,629,129)
------------- --------------

NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................... (26,975,555) (92,065,935)
------------- --------------

FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold....................... 122,371,500 753,276,652
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................... 27,736,194 27,273,773
Cost of Shares Repurchased...................... (253,088,708) (789,074,743)
------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................. (102,981,014) (8,524,318)
------------- --------------
TOTAL DECREASE IN NET ASSETS.................... (129,956,569) (100,590,253)
NET ASSETS:
Beginning of the Period......................... 901,584,964 1,002,175,217
------------- --------------
End of the Period (Including accumulated
undistributed net investment income of
($566,519) and $691,607, respectively)........ $ 771,628,395 $ 901,584,964
============= ==============

* Distributions by Class:
------------------------------------------------

Distributions from and in Excess of Net
Investment Income:
Class A Shares................................ $ (41,154,914) $ (43,701,298)
Class B Shares................................ (4,125,174) (7,150,083)
Class C Shares................................ (769,738) (777,748)
------------- --------------
$ (46,049,826) $ (51,629,129)
============= ==============
</TABLE>

See Notes to Financial Statements

37
<PAGE> 174

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS YEAR ENDED
ENDED ENDED ENDED DECEMBER 31,
CLASS A SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD.............................. $14.50 $15.99 $15.77 $15.27 $15.55 $14.26
------ ------ ------ ------ ------ ------
Net Investment Income............... .79 .82 .66 .85 .90 .87
Net Realized and Unrealized
Gain/Loss......................... (.42) (1.46) .20 .50 (.30) 1.30
------ ------ ------ ------ ------ ------
Total from Investment Operations...... .37 (.64) .86 1.35 .60 2.17
Less Distributions from and in Excess
of Net Investment Income............ .81 .85 .64 .85 .88 .88
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.... $14.06 $14.50 $15.99 $15.77 $15.27 $15.55
====== ====== ====== ====== ====== ======

Total Return (a)...................... 2.69% -4.25% 5.62%* 9.14% 4.07% 15.61%
Net Assets at End of the Period (In
millions)........................... $688.3 $777.5 $788.7 $766.2 $792.3 $839.7
Ratio of Operating Expenses to Average
Net Assets (b)...................... .89% .88% .84% .89% .94% .99%
Ratio of Interest Expense to Average
Net Assets.......................... .01% .17% .03% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets (b).............. 5.58% 5.34% 5.63% 5.54% 5.93% 5.86%
Portfolio Turnover.................... 45% 116% 89%* 104% 73% 61%
</TABLE>

* Non-Annualized

N/A = Not Applicable

See Notes to Financial Statements

38
<PAGE> 175

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS YEAR ENDED
ENDED ENDED ENDED DECEMBER 31,
CLASS B SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $14.49 $15.98 $15.76 $15.27 $15.55 $14.26
------ ------ ------ ------ ------ ------
Net Investment Income.............. .68 .71 .57 .73 .78 .76
Net Realized and Unrealized
Gain/Loss........................ (.42) (1.47) .20 .50 (.29) 1.30
------ ------ ------ ------ ------ ------
Total from Investment Operations..... .26 (.76) .77 1.23 .49 2.06
Less Distributions from and in Excess
of Net Investment Income........... .70 .73 .55 .74 .77 .77
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD... $14.05 $14.49 $15.98 $15.76 $15.27 $15.55
====== ====== ====== ====== ====== ======

Total Return (a)..................... 1.90% -4.95% 5.05%* 8.27% 3.29% 14.74%
Net Assets at End of the Period (In
millions).......................... $ 69.5 $106.6 $197.9 $211.2 $211.0 $216.6
Ratio of Operating Expenses to
Average Net Assets (b)............. 1.67% 1.63% 1.62% 1.65% 1.70% 1.73%
Ratio of Interest Expense to Average
Net Assets......................... .01% .17% .03% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets (b)............. 4.86% 4.57% 4.85% 4.78% 5.17% 5.09%
Portfolio Turnover................... 45% 116% 89%* 104% 73% 61%
</TABLE>

* Non-Annualized

N/A = Not Applicable

See Notes to Financial Statements

39
<PAGE> 176

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS YEAR ENDED
ENDED ENDED ENDED DECEMBER 31,
CLASS C SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $14.48 $15.96 $15.75 $15.25 $15.55 $14.26
------ ------ ------ ------ ------ ------
Net Investment Income.............. .68 .70 .57 .73 .78 .77
Net Realized and Unrealized
Gain/Loss........................ (.42) (1.45) .19 .51 (.31) 1.29
------ ------ ------ ------ ------ ------
Total from Investment Operations..... .26 (.75) .76 1.24 .47 2.06
Less Distributions from and in Excess
of Net Investment Income........... .70 .73 .55 .74 .77 .77
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD... $14.04 $14.48 $15.96 $15.75 $15.25 $15.55
====== ====== ====== ====== ====== ======

Total Return (a)..................... 1.91% -4.90% 4.99%* 8.34% 3.16% 14.74%
Net Assets at End of the Period (In
millions).......................... $ 13.8 $ 17.5 $ 15.5 $ 15.3 $ 12.9 $ 11.2
Ratio of Operating Expenses to
Average Net Assets (b)............. 1.66% 1.63% 1.62% 1.66% 1.70% 1.72%
Ratio of Interest Expense to Average
Net Assets......................... .01% .17% .03% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets (b)............. 4.84% 4.55% 4.86% 4.75% 5.17% 5.24%
Portfolio Turnover................... 45% 116% 89%* 104% 73% 61%
</TABLE>

* Non-Annualized

N/A = Not Applicable

See Notes to Financial Statements

40
<PAGE> 177

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

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 business trust, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to provide a high
level of current income exempt from federal income tax, consistent with
preservation of capital. The Fund commenced investment operations on August 1,
1990. The distribution of the Fund's Class B and Class C shares commenced on
August 24, 1992 and August 13, 1993, respectively.

41
<PAGE> 178

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

pro rata basis to each class of shares, except for distribution and service fees
and transfer agency costs which are unique to each class of shares.

The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 2000, the Fund had an accumulated capital loss
carryforward for tax purposes of $21,362,107 which will expire between September
30, 2003 and September 30, 2008. Net realized gains or losses may differ for
financial reporting and tax reporting purposes primarily as a result of
post-October losses which may not be recognized for tax purposes until the first
day of the following fiscal year.

At September 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $788,731,169; the aggregate gross unrealized
appreciation is $30,951,701 and the aggregate gross unrealized depreciation is
$36,411,743, resulting in net unrealized depreciation on long- and short-term
investments of $5,460,042.

Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of distributed net investment income may differ for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods. Permanent
differences between financial and tax basis reporting for the 2000 fiscal year
have been identified and appropriately reclassified. Permanent book and tax
basis differences relating to the recognition of market discount on bonds
totaling $41,398, were reclassified from accumulated net realized gain/loss to
accumulated distributions in excess of net investment income.

F. EXPENSE REDUCTIONS During the year ended September 30, 2000, the Fund's
custody fee was reduced by $67,953 as a result of credits earned on overnight
cash balances.

42
<PAGE> 179

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $47,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $76,100 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.

Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
2000, the Fund recognized expenses of approximately $430,900. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.

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.

43
<PAGE> 180

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

3. CAPITAL TRANSACTIONS

At September 30, 2000, capital aggregated $718,378,933, $75,171,676 and
$15,182,146 for Classes A, B and C, respectively. For the year ended September
30, 2000, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................ 7,623,934 $ 107,246,548
Class B................................................ 896,369 12,634,470
Class C................................................ 176,919 2,490,482
----------- -------------
Total Sales.............................................. 8,697,222 122,371,500
=========== =============
Dividend Reinvestment:
Class A................................................ 1,782,054 $ 25,019,151
Class B................................................ 158,622 2,229,310
Class C................................................ 34,722 487,733
----------- -------------
Total Dividend Reinvestment.............................. 1,975,398 27,736,194
=========== =============
Repurchases:
Class A................................................ (14,055,390) $(198,258,492)
Class B................................................ (3,462,689) (48,701,589)
Class C................................................ (436,485) (6,128,627)
----------- -------------
Total Repurchases........................................ (17,954,564) $(253,088,708)
=========== =============
</TABLE>

44
<PAGE> 181

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

At September 30, 1999, capital aggregated $784,371,726, $109,009,485 and
$18,332,558 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 46,553,762 $ 718,745,672
Class B............................................... 1,694,567 26,081,104
Class C............................................... 554,621 8,449,876
----------- -------------
Total Sales............................................. 48,802,950 $ 753,276,652
=========== =============
Dividend Reinvestment:
Class A............................................... 1,513,632 $ 23,151,168
Class B............................................... 240,540 3,697,605
Class C............................................... 27,857 425,000
----------- -------------
Total Dividend Reinvestment............................. 1,782,029 $ 27,273,773
=========== =============
Repurchases:
Class A............................................... (43,778,916) $(676,460,122)
Class B............................................... (6,966,979) (107,374,098)
Class C............................................... (345,002) (5,240,523)
----------- -------------
Total Repurchases....................................... (51,090,897) $(789,074,743)
=========== =============
</TABLE>

Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan Class B Shares received thereon, automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan Class B Shares received thereon, automatically
convert to Class A Shares six years after the end of the calendar month in which
the shares were purchased. For the years ended September 30, 2000 and 1999,
1,785,014 and 5,171,230 Class B Shares converted to Class A Shares, respectively
and are shown in the above tables as sales of Class A Shares and repurchases of
Class B Shares. Class C Shares purchased before January 1, 1997, and any
dividend reinvestment plan Class C Shares received thereon, automatically
convert to Class A Shares ten years after the end of the calendar month in which
such shares were purchased. Class C Shares purchased on or after January 1, 1997
do not possess a conversion feature. For the years ended September 30, 2000 and
1999, no Class C Shares converted to Class A Shares. Class B and C Shares are
offered without a front end sales charge, but are subject to a contingent
deferred sales charge (CDSC). The CDSC will be imposed on most redemptions made
within six years of the purchase

45
<PAGE> 182

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

for Class B Shares and one year of the purchase for Class C Shares as detailed
in the following schedule.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First...................................................... 4.00% 1.00%
Second..................................................... 3.75% None
Third...................................................... 3.50% None
Fourth..................................................... 2.50% None
Fifth...................................................... 1.50% None
Sixth...................................................... 1.00% None
Seventh and Thereafter..................................... None None
</TABLE>

For the year ended September 30, 2000, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $61,700 and CDSC on redeemed shares of approximately $220,800.
Sales charges do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $359,059,326 and $559,516,603,
respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising a call option contract or 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 option or futures contract.

46
<PAGE> 183

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

Summarized below are the specific types of derivative financial instruments
used by the Fund.

Transactions in options for the year ended September 30, 2000, were as
follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
<S> <C> <C>
Outstanding at September 30, 1999........................... 500 $ 15,486
Options Written and Purchased (Net)......................... 10,750 104,069
Options Terminated in Closing Transactions (Net)............ (750) (302,531)
Options Expired (Net)....................................... (10,500) 182,976
------- ---------
Outstanding at September 30, 2000........................... -0- $ -0-
======= =========
</TABLE>

Transactions in futures contracts for the year ended September 30, 2000 were
as follows:

<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... 525
Futures Opened.............................................. 2,085
Futures Closed.............................................. (2,610)
------
Outstanding at September 30, 2000........................... -0-
======
</TABLE>

C. INDEXED SECURITIES These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.

47
<PAGE> 184

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level.

6. DISTRIBUTION AND SERVICE PLANS

7. BORROWINGS

The average daily balance of bank borrowings for the year ended September
30, 2000 was approximately $1,474,186 with an average interest rate of 5.98%. At
September 30, 2000, the Fund did not have any outstanding borrowings under the
agreement.

48
<PAGE> 185

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of Van Kampen Municipal Income Fund

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Van Kampen Municipal Income Fund (the "Fund"),
as of September 30, 2000, and the related statements of operations, changes in
net assets and financial highlights for the year 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 based on our audit. The statement of changes in net assets of the
Fund for the year ended September 30, 1999, and the financial highlights for
each of the five years in the period then ended were audited by other auditors
whose report dated November 9, 1999, expressed an unqualified opinion on those
statements.

[ERNST & YOUNG LLP LOGO]

Chicago, Illinois
November 8, 2000

49
<PAGE> 186

VAN KAMPEN FUNDS

THE VAN KAMPEN
FAMILY OF FUNDS

Growth

Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology

Growth and Income

Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value

Global/International

Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income*
Tax Managed Global Franchise
Worldwide High Income

Income

Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income

Capital Preservation

Reserve
Tax Free Money

Senior Loan

Prime Rate Income Trust
Senior Floating Rate

Tax Free

To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:

- visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]

- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.

[PHONE ICON]

- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us

[MAIL ICON]

* Closed to new investors

** Open to new investors for a limited time

50
<PAGE> 187

FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN MUNICIPAL INCOME FUND

BOARD OF TRUSTEES

OFFICERS

RICHARD F. POWERS, III*
President

STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer

A. THOMAS SMITH III*
Vice President and Secretary

JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer

RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents

INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256

CUSTODIAN

STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

LEGAL COUNSEL

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606

INDEPENDENT AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606

For the year ended September 30, 2000, 99.62% of the income distributions made
by the Fund were exempt from federal income taxes, In January, 2001, the Fund
will provide tax information to shareholders for the 2000 calendar year.

(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP
to be the Fund's independent auditors.

PricewaterhouseCoopers LLP has ceased being the Fund's independent auditors
effective May 18, 2000. The cessation of the client-auditor relationship
between the Fund and PricewaterhouseCoopers was based solely on a possible
future business relationship by PricewaterhouseCoopers with an affiliate of
the Fund's investment adviser.

* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.

(SM) denotes a service mark of Van Kampen Funds Inc.

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charges on
shares of the Fund, and other pertinent data. After February 28, 2001, the
report if used with prospective investors, must be accompanied by a monthly
performance update.

51
<PAGE> 188

<TABLE>
<S> <C>
Table of Contents

OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2

PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 6

PORTFOLIO AT A GLANCE
CREDIT QUALITY 7
TWELVE-MONTH DIVIDEND HISTORY 7
TOP FIVE STATES 8
TOP FIVE SECTORS 8
Q&A WITH YOUR PORTFOLIO MANAGERS 9
GLOSSARY OF TERMS 12

Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 189

OVERVIEW

LETTER TO SHAREHOLDERS
October 20, 2000

Dear Shareholder,

Sincerely,

[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments

1
<PAGE> 190

ECONOMIC SNAPSHOT

2
<PAGE> 191

U.S. GROSS DOMESTIC PRODUCT

SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998--September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.70
</TABLE>

Source: Bureau of Economic Analysis

INTEREST RATES AND INFLATION

(September 30, 1998--September 30, 2000)

[LINE GRAPH]

3
<PAGE> 192

PERFORMANCE SUMMARY

RETURN HIGHLIGHTS

(as of September 30, 2000)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 4.13% 3.46% 3.36%
-------------------------------------------------------------------------
One-year total return(2) 0.78% 0.48% 2.36%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 4.21% 4.17% 4.17%
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 5.04% 4.90%(3) 3.98%
-------------------------------------------------------------------------
Commencement date 05/28/93 05/28/93 10/19/93
-------------------------------------------------------------------------
Distribution rate(4) 4.35% 3.79% 3.79%
-------------------------------------------------------------------------
Taxable-equivalent distribution
rate(5) 6.80% 5.92% 5.92%
-------------------------------------------------------------------------
SEC Yield(6) 4.70% 4.09% 4.09%
-------------------------------------------------------------------------
</TABLE>

(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (3.25% for Class A shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A shares of
$1 million or more, a CDSC of 1% may be imposed on certain redemptions made
within one year of purchase. Returns for Class B shares are calculated
without the effect of the maximum 3% CDSC, charged on certain redemptions
made within one year of purchase and declining to 0% after the fourth year.
Returns for Class C shares are calculated without the effect of the maximum
1% CDSC, charged on certain redemptions made within one year of purchase. If
the sales charges were included, total returns would be lower. These returns
do include Rule 12b-1 fees of up to .25% for Class A Shares and 1% for Class
B and Class C Shares.

(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (3.25% for Class A
shares) or contingent deferred sales charge ("CDSC") for Class B and C
shares and Rule 12b-1 fee. On purchases of Class A shares of $1 million or
more, a CDSC of 1% may be imposed on certain redemptions made within one
year of purchase. Returns for Class B shares are calculated with the effect
of the maximum 3% CDSC, charged on certain redemptions made within one year
of purchase and declining to 0% after the fourth year. Returns for Class C
shares are calculated with the effect of the maximum 1% CDSC, charged on
certain redemptions made within one year of purchase. The Rule 12b-1 fee for
Class A Shares is .25% and for Class B and Class C Shares is 1%.

(3) The total return reflects the conversion of Class B shares into Class A
shares six years after the end of the calendar month in which the shares
were purchased.

(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.

(5) Taxable-equivalent calculations reflect a federal income tax rate of 36%.

4
<PAGE> 193

A portion of the interest income may be taxable for investors subject to the
federal alternative minimum tax (AMT).

Investing in high-yield, lower-rated securities involves certain risks,
which may include the potential for greater sensitivity to general economic
downturns and greater market price volatility.

See the Comparative Performance section of the current prospectus. Past
performance is no guarantee of future results. Investment return and net
asset value will fluctuate with market conditions. Fund shares, when
redeemed, may be worth more or less than their original cost.

The share value of the Fund will generally fluctuate more than the value of
short-term investments particularly if there is a rise in short-term rates.

Market forecasts provided in this report may not necessarily come to pass.

As a result of recent market activity, current performance may vary from the
figures shown.

5
<PAGE> 194

GROWTH OF A $10,000 INVESTMENT

(May 28, 1993 - September 30, 2000)

[INVESTMENT PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
LEHMAN BROTHERS MUNICIPAL BOND INDEX
INTERMEDIATE TERM MUNICIPAL is an unmanaged, broad-based statistical
INCOME FUND* composite of municipal bonds.+
--------------------------- ----------------------------------------
<S> <C> <C>
5/93 9671 10000
9851 10167
10259 10510
12/93 10421 10658
10002 10073
10186 10184
10257 10254
12/94 10075 10107
10724 10821
10996 11083
11294 11402
12/95 11618 11872
11525 11729
11615 11819
11858 12091
12/96 12115 12399
12124 12370
12448 12796
12787 13182
12/97 13094 13540
13270 13695
13461 13903
13796 14331
12/98 13875 14417
13997 14545
13823 14288
13782 14230
12/99 13659 14119
13826 14533
14051 14753
9/00 14351 15109
Fund's Total Return
1 Year Total Return 0.78%
5 Year Avg. Annual 4.21%
Inception Avg. Annual 5.04%

</TABLE>

This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index over time.

The above chart reflects the performance of Class A shares of the fund. The
performance of Class A shares will differ from that of other share classes of
the fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (3.25% for Class A shares) and an annual 12b-1 fee of up to 0.25
percent.

Source:
* Hypo(R) Provided by Towers Data, Bethesda, MD

(+) Lehman Brothers

6
<PAGE> 195

PORTFOLIO AT A GLANCE

CREDIT QUALITY

(as a percentage of long-term investments)

<TABLE>
<CAPTION>
As of September 30, 2000
<S> <C> <C>
- AAA/Aaa............ 49.7%
- AA/Aa.............. 6.3%
- A/A................ 5.2%
- BBB/Baa............ 11.4%
- BB/Ba.............. 2.3%
- CCC/Caa............ 0.4%
- Non-Rated.......... 24.7%

[PIE CHART]
<CAPTION>
As of September 30, 1999
<S> <C> <C>
- AAA/Aaa............ 39.4%
- AA/Aa.............. 7.2%
- A/A................ 5.4%
- BBB/Baa............ 20.9%
- BB/Ba.............. 0.8%
- CCC/Caa............ 0.4%
- Non-Rated.......... 25.9%

[PIE CHART]
</TABLE>

Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.

TWELVE-MONTH DIVIDEND HISTORY

(for the period ended September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.0430
11/99 0.0430
12/99 0.0430
1/00 0.0405
2/00 0.0405
3/00 0.0405
4/00 0.0405
5/00 0.0405
6/00 0.0405
7/00 0.0380
8/00 0.0380
9/00 0.0380
</TABLE>

The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.

7
<PAGE> 196

TOP FIVE STATES

(as a percentage of long-term investments--September 30, 2000)

<TABLE>
<S> <C> <C>
Colorado 12.1%
---------------------------------------------------------------------
Ohio 9.0%
---------------------------------------------------------------------
New Jersey 8.9%
---------------------------------------------------------------------
New York 7.2%
---------------------------------------------------------------------
Virginia 5.9%
---------------------------------------------------------------------
</TABLE>

TOP FIVE SECTORS

(as a percentage of long-term investments)
[BAR GRAPH]

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
General Purpose 23.30 10.20
Industrial Revenue 15.80 13.10
Health Care 14.90 19.50
Multi-Family Housing 10.50 12.60
Airport 6.30 9.00
</TABLE>

8
<PAGE> 197

[PHOTO]

Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGER OF THE VAN KAMPEN
INTERMEDIATE TERM MUNICIPAL INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC
FORCES THAT SHAPED THE MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE 12
MONTHS ENDED SEPTEMBER 30, 2000. TIMOTHY D. HANEY HAS MANAGED THE FUND SINCE
1997 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1988. THE FOLLOWING
DISCUSSION REFLECTS HIS VIEWS ON THE FUND'S PERFORMANCE.

Q HOW WOULD YOU CHARACTERIZE
THE MARKET ENVIRONMENT YOU FACED IN MANAGING THE FUND, AND HOW DID THE FUND
PERFORM IN THAT ENVIRONMENT?

Short-term interest rates climbed steadily as the Federal Reserve Board
increased key short-term lending rates four times over the past 12 months,
reacting to strong economic growth, rising commodities prices, and a tight labor
market. Rising yields at the short end of the maturity spectrum caused increased
volatility, affecting long-term rates as well as credit spreads across virtually
all fixed-income products. This hampered fund performance, as nearly a quarter
of the fund's assets were invested in securities with maturities of 5 years or
less.

The persistent rise in interest-rates made it a tough year, but we did see
some price support in bonds with maturities in the 10- to 15-year range over the
course of the reporting period.

One effect of this market volatility was the widening of the yield spread
between high-rated municipals and lower-rated, higher-yielding municipals. As
investors sensed the market's uncertainty, many municipal-bond mutual funds
experienced outflows of assets. This meant that demand for higher-yielding
municipal bonds was reduced. As a result, prices in this sector of the market
fell more sharply than in the higher-grade securities segment. While the fund
was invested largely in higher-grade securities (with over 60 percent of its net
assets in securities rated at least A or better), it held more high-yield bonds
than comparable funds. This reduced fund performance as prices in the

9
<PAGE> 198

high-yield sector underperformed higher-
grade securities.

At the same time, supply in the municipal market has been sharply lower,
which helped offset reduced demand and provided some support for prices.
Issuance of new municipal debt has declined because the strong economy has
allowed municipalities such as state governments to accumulate sizable budget
surpluses, which has reduced the need to raise money through debt offerings.
Also, higher interest rates made it less attractive for municipalities to refund
existing bond issues; instead, they have been more likely to buy back
outstanding debt and retire it from the marketplace.

For the reporting period, the fund's total return was below the benchmark
return, primarily because the portfolio had a higher allocation of high-
yield/high-risk securities compared to similar funds. While these securities
provided a higher yield, they underperformed relative to high-grade securities
as demand for high-yield bonds declined in response to market volatility.

As of September 30, 2000, the fund achieved a 12-month total return of 4.13
percent (Class A shares at net asset value; if the maximum sales charge of 3.25
percent were included, the return would have been lower). Of course, past
performance is no guarantee of future results. As a result of recent market
activity, current performance may vary from the figures shown. By comparison,
the Lehman Brothers Municipal Bond Index produced a total return of 6.17 percent
for the same period. This index is an unmanaged, broad-based statistical
composite of municipal bonds that does not include any commissions or sales
charges that would be paid by an investor purchasing the securities it
represents. Such costs would lower the performance of the index. It is not
possible to invest directly in an index. Please refer to the footnotes and chart
on page 4 for additional fund performance results.

The fund's dividend was reduced twice during the period, in January and
July. Even though the fund's monthly tax-exempt dividend was decreased to $0.038
from $0.043 per Class A share over the past 12 months, its distribution rate
stood at 4.35 percent at the end of the reporting period. With this in mind,
we'd like to point out that investors would have to earn a distribution rate of
6.80 percent on a taxable investment (for an investor in the 36 percent federal
income tax bracket) to match the tax-exempt yield provided by the fund.

Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?

A Because of the low supply of bonds
entering the primary market, we were more active in the secondary market. We
actively pursued a relative-value trading strategy, particularly in the
high-grade sector, where various states and coupons frequently come in and out
of favor. This strategy involves buying or selling issues which appear to be
undervalued or overvalued based upon historical analysis.

Part of our strategy has been to seek yield opportunities in the middle
portion of the yield curve, emphasizing maturities of 5 to 15 years, while
maintaining our dollar-weighted average portfolio life of 3 to 10 years. We have
pursued this approach with

10
<PAGE> 199

some success in the past, and we continue to believe it makes sense in today's
market.

Another tactic that worked to our advantage was our decision to move assets
out of the BBB rated sector and into the high-grade sector, because these
higher-quality securities performed better than the lower-rated portion of the
market as yield spreads widened. Also, we grew uncomfortable with the
risk/reward balance of the BBB rated credits. As of September 30, 2000, we had
increased the fund's high-quality, AAA rated holdings to roughly 50 percent of
the long-term portfolio, while decreasing its allocation to BBB rated securities
to just 11 percent, down from nearly 21 percent one year earlier.

We believe the fund is well positioned in the intermediate-term sector. It
has a favorable balance of high-grade and high-yield securities. The high-grade
bonds are used to capitalize on relative-value trading opportunities, while the
high-yield portion of the portfolio exploits the attractive risk/reward tradeoff
for lower-quality paper in the short- to intermediate-term portion of the yield
curve.

Q WHICH SECTORS OF THE MARKET WERE
YOU MOST CONCERNED ABOUT?

A We continued to be cautious when
investing in the health-care sector. Many hospitals and nursing homes have been
hit hard by changes in the government's Medicare reimbursement policies, so we
closely scrutinized the bonds issued by these types of facilities before we
invested. In general, we are more optimistic about the prospects for
continuing-care retirement communities, which have tended to be stronger than
other areas of the
health-care sector.

Over the fiscal year, we reduced the fund's holdings in the health-care
sector to roughly 15 percent of net assets, down from about 17 percent at the
start of the period.

Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?

A Because the level of interest rates
has such an influence on the value of municipal bonds, the market will be
carefully watching the actions of the Federal Reserve Board. It appears that
economic growth may be moderating, making it less likely that the Fed will
increase rates again in the very near future. In fact, some market-watchers are
expecting the Fed to decrease rates by the end of the year. In light of the
current market conditions, we will remain neutral with respect to our
interest-rate outlook.

We anticipate that total bond issuance may be stable to lower through
year-end, as municipalities continue to be flush with cash and are reluctant to
issue new debt or refund outstanding debt at current market rates. We will
continue to look for opportunities to increase the credit quality of the
portfolio, possibly allocating more assets to the higher-grade sector of the
market.

Going forward, we will continue to rely on our strong research capabilities,
seeking to achieve the fund's investment objective over the long term.

11
<PAGE> 200

GLOSSARY OF TERMS

A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.

SECONDARY MARKET: A market where securities are traded after they are initially
offered.

YIELD CURVE: The pattern that results from viewing the yields of U.S. Treasury
securities maturing in 1, 5, 10, and 30 years. When grouped together and
graphed, a pattern of increasing yield is often reflected as the time to
maturity extends. This pattern creates an upward sloping "curve." A "flat" yield
curve represents little difference between short-and long-term interest rates.

12
<PAGE> 201

BY THE NUMBERS

YOUR FUND'S INVESTMENTS

September 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 103.7%
ALABAMA 1.2%
$ 465 West Jefferson Cnty, AL Amusement & Pub Pk
Auth (Prerefunded @ 12/01/08)............... 7.500% 12/01/08 $ 512,416
-----------

ALASKA 0.6%
250 Seward, AK Rev AK Sealife Cent Proj......... 7.100 10/01/05 252,358
-----------

ARIZONA 3.7%
500 Maricopa Cnty, AZ Indl Dev Auth Sr Living
Fac Rev..................................... 7.250 04/01/05 506,005
990 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease
Oblig Irvington Proj Tucson Ser A Rfdg (FSA
Insd)....................................... 7.250 07/15/10 1,042,836
-----------
1,548,841
-----------
CALIFORNIA 3.5%
305 California Edl Fac Auth Rev Pacific Grad
School...................................... 6.950 11/01/07 313,927
1,000 California St (AMBAC Insd).................. 6.400 09/01/08 1,134,300
-----------
1,448,227
-----------
COLORADO 12.5%
290 Colorado Hlth Fac Auth Rev Sr Living Fac
Eaton Terrace Ser A......................... 6.800 07/01/09 285,557
74 Colorado Hsg Fin Auth Access Pgm Single
Family Pgm Ser E............................ 8.125 12/01/24 77,206
1,000 Denver, CO City & Cnty Ctfs Partn Ser B
(AMBAC Insd)................................ 5.000 12/01/11 999,510
1,000 Denver, CO City & Cnty Arpt Rev Ser A....... 7.400 11/15/04 1,088,080
1,630 Lakewood, CO Ctfs Partn (AMBAC Insd)........ 5.125 12/01/14 1,597,726
1,160 Lakewood, CO Ctfs Partn (AMBAC Insd)........ 5.250 12/01/15 1,147,368
-----------
5,195,447
-----------
</TABLE>

See Notes to Financial Statements

13
<PAGE> 202

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CONNECTICUT 1.4%
$ 145 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A (Escrowed to Maturity), 144A--Private
Placement (a)............................... 6.500% 09/01/06 $ 159,096
415 New Haven, CT Indl Fac Rev Adj Govt Cent
Thermal Energies............................ 7.250 07/01/09 416,996
-----------
576,092
-----------
FLORIDA 5.5%
1,150 Florida Hsg Fin Agy Hsg Maitland Club Apts
Ser B1 (AMBAC Insd)......................... 6.750 08/01/14 1,206,522
190 Lee Cnty, FL Indl Dev Auth Econ Rev Encore
Nursing Cent Partner Rfdg................... 8.125 12/01/07 198,404
200 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg................... 8.125 07/01/06 208,224
300 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg................................... 7.125 11/01/06 325,983
340 Westchase East Cmnty Dev Dist FL Cap Impt
Rev......................................... 7.250 05/01/03 347,742
-----------
2,286,875
-----------
GEORGIA 4.7%
1,430 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg
Rev North Hill Apts Proj Rfdg (FNMA
Collateralized) (c)......................... 6.625 01/01/25 1,494,550
475 Forsyth Cnty, GA Hosp Auth Rev Antic Ctfs GA
Baptist Hlth Care Sys Proj.................. 6.000 10/01/08 453,240
-----------
1,947,790
-----------
ILLINOIS 4.8%
350 Bedford Park, IL Tax Increment 71st & Cicero
Proj Rfdg................................... 7.000 01/01/06 360,315
405 Chicago, IL Tax Increment Allocation San
Drainage & Ship Canal A..................... 7.375 01/01/05 413,298
545 Clay Cnty, IL Hosp Rev...................... 5.500 12/01/10 481,802
90 Danville, IL Single Family Mtg Rev Rfdg..... 7.300 11/01/10 92,448
330 Huntley, IL Spl Svc Area No 7 Spl Tax....... 6.000 03/01/09 327,703
300 Peoria, IL Spl Tax WeaverRidge Spl Svc
Area........................................ 7.625 02/01/08 311,691
-----------
1,987,257
-----------
</TABLE>

See Notes to Financial Statements

14
<PAGE> 203

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
LOUISIANA 1.7%
$ 200 Iberia Parish, LA Hosp Svc Dist No 1 Hosp
Rev......................................... 7.500% 05/26/06 $ 202,424
500 Louisiana Hsg Fin Agy Rev Multi-Family Hsg
Plantation Ser A............................ 7.200 01/01/03 500,545
-----------
702,969
-----------
MASSACHUSETTS 3.4%
500 Massachusetts St Hlth & Edl Fac Auth Rev
Cent New England Hlth Sys Ser A............. 6.125 08/01/13 442,200
400 Massachusetts St Hlth & Edl North Adams Regl
Hosp Ser C.................................. 6.250 07/01/04 411,760
170 Massachusetts St Indl Fin Agy East Boston
Neighborhood Proj........................... 7.250 07/01/06 161,491
430 Massachusetts St Indl Fin Agy Rev Grtr Lynn
Mental Hlth, 144A--Private Placement (a).... 6.200 06/01/08 402,437
-----------
1,417,888
-----------
MICHIGAN 4.2%
440 John Tolfree Health Sys Corp Mich Mtg Rev... 5.450 09/15/06 417,098
1,500 Michigan St Strategic Fd Ltd Oblig Rev
United Waste Sys Proj....................... 5.200 04/01/10 1,332,045
-----------
1,749,143
-----------
MINNESOTA 1.8%
500 Dakota Cnty, MN Hsg & Redev Auth
Multi-Family Hsg Rev Affordable Hsg View
Pointe Proj................................. 6.000 11/01/09 478,060
255 Minneapolis, MN Multi-Family Rev Hsg Belmont
Apts Proj................................... 7.000 11/01/06 259,134
-----------
737,194
-----------
MISSOURI 3.9%
1,500 Kansas City, MO Arpt Rev Genl Impt Ser A
(FSA Insd) (c).............................. 7.000 09/01/12 1,618,770
-----------

MONTANA 1.2%
500 Crow Fin Auth MT Tribal Purp Rev,
144A--Private Placement (a)................. 5.400 10/01/07 508,300
-----------

NEBRASKA 2.1%
1,000 American Pub Energy Agy NE Gas Sup Rev NE
Pub Gas Agy Proj Ser A (AMBAC Insd)......... 4.375 06/01/10 865,020
-----------
</TABLE>

See Notes to Financial Statements

15
<PAGE> 204

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY 9.2%
$ 500 Camden Cnty, NJ Impt Auth Lease Rev Kaighn
Pt Marine Terminal A........................ 7.375% 06/01/07 $ 479,950
250 New Jersey Econ Dev Auth Rev Sr Mtg Arbor
Glen Proj Ser A (Escrowed to Maturity)...... 8.000 05/15/04 273,160
100 New Jersey Health Care Facs Fing Auth
Rev--Palisades.............................. 7.500 07/01/06 103,321
200 New Jersey Health Care Facs Fing Auth
Rev--Palisades (Prerefunded @ 07/01/02)..... 7.500 07/01/06 210,776
1,000 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd).......... 7.000 07/01/06 1,112,320
455 Rahway, NJ Ctfs Partn (MBIA Insd)........... 5.500 02/15/16 463,436
565 Rahway, NJ Ctfs Partn (MBIA Insd)........... 5.600 02/15/17 576,774
600 West Orange, NJ............................. 5.450 02/15/14 612,546
-----------
3,832,283
-----------
NEW YORK 7.5%
400 Brookhaven, NY Indl Dev Agy Sr Residential
Hsg Rev Woodcrest Estates Fac Ser A......... 5.875 12/01/09 388,036
500 New York City Ser A......................... 7.000 08/01/07 556,215
1,000 New York St Med Care Fac Fin Agy Rev NY Hosp
Mtg Ser A (Prerefunded @ 02/15/05) (AMBAC
Insd)....................................... 6.200 08/15/05 1,080,980
1,000 Niagara Falls, NY Pub Impt (MBIA Insd)
(c)......................................... 6.900 03/01/20 1,080,360
-----------
3,105,591
-----------
NORTH CAROLINA 1.6%
630 North Carolina Eastn Mun Pwr Agy Pwr Sys Rev
Ser D....................................... 6.450 01/01/14 650,336
-----------

OHIO 9.3%
1,000 Akron Ohio Swr Sys Rev San--Spl (AMBAC
Insd)....................................... 5.250 12/01/17 969,670
455 Cleveland--Cuyahoga Cnty, OH Port Auth Rev
Dev--Port Cleveland Bd Fd B................. 6.500 05/15/05 461,779
500 Dayton, OH Spl Facs Rev Afco Cargo Day LLC
Proj........................................ 6.000 04/01/09 468,960
95 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp
Rfdg........................................ 6.375 05/15/11 92,389
400 Montgomery Cnty, OH Hosp Rev Grandview Hosp
& Med Cent Rfdg............................. 5.250 12/01/01 403,568
</TABLE>

See Notes to Financial Statements

16
<PAGE> 205

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$1,000 Ohio St Air Quality Dev Auth Rev Owens
Corning Fiberglass Proj Rfdg (c)............ 6.250% 06/01/04 $ 983,700
520 Sandusky Cnty, OH Hosp Fac Rev Rfdg Mem
Hosp........................................ 5.000 01/01/06 497,890
-----------
3,877,956
-----------
OKLAHOMA 0.3%
110 Shawnee, OK Hosp Auth Hosp Rev Midamerica
Hlthcare Inc Rfdg........................... 5.750 10/01/03 108,469
-----------

OREGON 5.8%
1,005 Columbia Riv, OR Peoples Util Dist Elec Sys
Rev Ser B (MBIA Insd)....................... 5.350 12/01/16 1,001,372
1,465 Multnomah Cnty, OR Ctfs Partn Ser A......... 4.200 08/01/08 1,389,948
-----------
2,391,320
-----------
PENNSYLVANIA 1.5%
225 Erie, PA Higher Edl Bldg Auth College Rev
Mercyhurst College Proj A Rfdg.............. 5.300 03/15/03 226,080
395 Southern Chester Cnty, PA Hlth & Higher Ed
Auth Mtg Ser A.............................. 6.100 06/01/03 392,089
-----------
618,169
-----------
SOUTH CAROLINA 0.8%
350 Charleston Cnty, SC Hlth Facs Rev........... 5.400 04/01/04 339,535
-----------

TENNESSEE 3.2%
1,500 Franklin, TN Spl Sch Dist Cap Apprec (FSA
Insd)....................................... * 06/01/15 665,145
775 Municipal Energy Acq Corp TN Gas Rev (FSA
Insd)....................................... 4.125 03/01/09 659,006
-----------
1,324,151
-----------
TEXAS 0.7%
300 San Antonio, TX Hsg Fin Corp Multi-Family
Hsg Rev Beverly Oaks Arpt Proj Ser A........ 7.500 02/01/10 304,575
-----------

UTAH 1.5%
620 Utah St Hsg Fin Agy Single Family Mtg Mezz
Ser A (FHA Gtd)............................. 7.150 07/01/12 639,716
-----------
</TABLE>

See Notes to Financial Statements

17
<PAGE> 206

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
VIRGINIA 6.1%
$ 500 Pittsylvania Cnty, VA Indl Dev Auth Rev
Exempt Fac Ser A............................ 7.450% 01/01/09 $ 514,570
2,000 Richmond, VA (FSA Insd) (b)................. 5.125 01/15/04 2,036,200
-----------
2,550,770
-----------
TOTAL LONG-TERM INVESTMENTS 103.7%
(Cost $42,693,903).................................................... 43,097,458
SHORT-TERM INVESTMENTS 0.2%
(Cost $100,000)....................................................... 100,000
-----------
TOTAL INVESTMENTS 103.9%
(Cost $42,793,903).................................................... 43,197,458
LIABILITIES IN EXCESS OF OTHER ASSETS (3.9%)........................... (1,631,685)
-----------

NET ASSETS 100.0%...................................................... $41,565,773
===========
</TABLE>

* Zero coupon bond

(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may be resold
only in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.

(b) Securities purchased on a when-issued or delayed delivery basis.

AMBAC--AMBAC Indemnity Corporation
Connie Lee--Connie Lee Insurance Company
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
FHA--Federal Housing Administration

See Notes to Financial Statements

18
<PAGE> 207

FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2000

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $42,793,903)........................ $43,197,458
Cash........................................................ 41,789
Receivables:
Interest.................................................. 625,136
Fund Shares Sold.......................................... 91,402
Investments Sold.......................................... 30,000
Other....................................................... 349
-----------
Total Assets............................................ 43,986,134
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,021,540
Income Distributions...................................... 60,826
Distributor and Affiliates................................ 34,665
Fund Shares Repurchased................................... 22,582
Investment Advisory Fee................................... 17,120
Trustees' Deferred Compensation and Retirement Plans........ 184,643
Accrued Expenses............................................ 78,985
-----------
Total Liabilities....................................... 2,420,361
-----------
NET ASSETS.................................................. $41,565,773
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $41,316,174
Net Unrealized Appreciation................................. 403,555
Accumulated Net Realized Gain............................... 26,976
Accumulated Distributions in Excess of Net Investment
Income.................................................... (180,932)
-----------
NET ASSETS.................................................. $41,565,773
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $26,574,784 and 2,619,612 shares of
beneficial interest issued and outstanding)............. $ 10.14
Maximum sales charge (3.25%* of offering price)......... .34
-----------
Maximum offering price to public........................ $ 10.48
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $8,630,813 and 851,878 shares of
beneficial interest issued and outstanding)............. $ 10.13
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $6,360,176 and 628,375 shares of
beneficial interest issued and outstanding)............. $ 10.12
===========
</TABLE>

* On sales of $25,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

19
<PAGE> 208

Statement of Operations
For the Year Ended September 30, 2000

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $2,581,588
----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $69,180, $91,595 and $55,548,
respectively)............................................. 216,323
Investment Advisory Fee..................................... 211,521
Trustees' Fees and Related Expenses......................... 62,369
Shareholder Reports......................................... 48,150
Shareholder Services........................................ 43,213
Legal....................................................... 14,778
Custody..................................................... 7,056
Other....................................................... 120,141
----------
Total Expenses.......................................... 723,551
Less Credits Earned on Cash Balances.................... 1,158
----------
Net Expenses............................................ 722,393
----------
NET INVESTMENT INCOME....................................... $1,859,195
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 288,209
Futures................................................... (79,672)
----------
Net Realized Gain........................................... 208,537
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 892,640
End of the Period......................................... 403,555
----------
Net Unrealized Depreciation During the Period............... (489,085)
----------
NET REALIZED AND UNREALIZED LOSS............................ $ (280,548)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,578,647
==========
</TABLE>

See Notes to Financial Statements

20
<PAGE> 209

Statement of Changes in Net Assets
For the Years Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
---------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 1,859,195 $ 1,848,623
Net Realized Gain................................ 208,537 118,720
Net Unrealized Depreciation During the Period.... (489,085) (2,191,813)
------------ ------------
Change in Net Assets from Operations............. 1,578,647 (224,470)
------------ ------------
Distributions from Net Investment Income......... (1,859,195) (1,881,557)
Distributions in Excess of Net Investment
Income......................................... (86,591) (94,570)
------------ ------------
Distributions from and in Excess of Net
Investment Income*............................. (1,945,786) (1,976,127)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... (367,139) (2,200,597)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................ 18,339,022 22,415,763
Net Asset Value of Shares Issued Through Dividend
Reinvestment................................... 1,226,136 1,287,591
Cost of Shares Repurchased....................... (23,163,962) (15,031,256)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................... (3,598,804) 8,672,098
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS............ (3,965,943) 6,471,501

NET ASSETS:
Beginning of the Period.......................... 45,531,716 39,060,215
------------ ------------
End of the Period (Including accumulated
distributions in excess of net investment
income of $180,932 and $94,570,
respectively).................................. $ 41,565,773 $ 45,531,716
============ ============

* Distributions by Class
-------------------------------------------------

Distributions from and in Excess of
Net Investment Income:
Class A Shares................................. $ (1,343,777) $ (1,205,493)
Class B Shares................................. (375,861) (581,561)
Class C Shares................................. (226,148) (189,073)
------------ ------------
$ (1,945,786) $ (1,976,127)
============ ============
</TABLE>

See Notes to Financial Statements

21
<PAGE> 210

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD......................... $10.22 $10.73 $10.54 $10.21 $10.26 $ 9.33
------ ------ ------ ------ ------ ------
Net Investment Income.......... .46 .47 .36 .48 .45 .50
Net Realized and Unrealized
Gain/Loss.................... (.05) (.48) .20 .32 (.03) .90
------ ------ ------ ------ ------ ------
Total from Investment
Operations..................... .41 (.01) .56 .80 .42 1.40
Less Distributions from and in
Excess of Net Investment
Income......................... .49 .50 .37 .47 .47 .47
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD......................... $10.14 $10.22 $10.73 $10.54 $10.21 $10.26
====== ====== ====== ====== ====== ======

Total Return* (a)................ 4.13% -0.10% 5.36%** 8.08% 4.27% 15.31%
Net Assets at End of the Period
(In millions).................. $ 26.6 $ 29.5 $ 20.6 $ 12.9 $ 12.5 $ 15.6
Ratio of Expenses to Average Net
Assets*........................ 1.44% 1.28% 1.30% 1.52% 1.56% 1.00%
Ratio of Net Investment Income to
Average Net Assets*............ 4.65% 4.49% 4.61% 4.67% 4.45% 5.10%
Portfolio Turnover............... 85% 65% 15%** 37% 45% 75%
* If certain expenses had not been reimbursed by Van Kampen, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets.................... N/A N/A N/A 1.67% 1.74% 1.61%
Ratio of Net Investment Income
to Average Net Assets......... N/A N/A N/A 4.52% 4.27% 4.49%
</TABLE>

** Non-Annualized

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 3.25% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.

N/A = Not Applicable

See Notes to Financial Statements

22
<PAGE> 211

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................... $10.20 $10.71 $10.52 $10.21 $10.26 $ 9.32
------ ------ ------ ------ ------ ------
Net Investment Income......... .38 .39 .31 .40 .38 .43
Net Realized and Unrealized
Gain/Loss................... (.04) (.47) .19 .32 (.03) .91
------ ------ ------ ------ ------ ------
Total from Investment
Operations.................... .34 (.08) .50 .72 .35 1.34
Less Distributions from and in
Excess of Net Investment
Income........................ .41 .43 .31 .41 .40 .40
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................ $10.13 $10.20 $10.71 $10.52 $10.21 $10.26
====== ====== ====== ====== ====== ======

Total Return* (a)............... 3.46% -0.81% 4.74%** 7.23% 3.54% 14.62%
Net Assets at End of the Period
(In millions)................. $ 8.6 $ 10.4 $ 15.2 $ 16.4 $ 16.4 $ 17.5
Ratio of Expenses to Average Net
Assets*....................... 2.20% 1.97% 2.06% 2.28% 2.32% 1.75%
Ratio of Net Investment Income
to Average Net Assets*........ 3.90% 3.80% 3.90% 3.91% 3.69% 4.33%
Portfolio Turnover.............. 85% 65% 15%** 37% 45% 75%
* If certain expenses had not been reimbursed by Van Kampen, Total Return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................... N/A N/A N/A 2.42% 2.50% 2.36%
Ratio of Net Investment Income
to Average Net Assets........ N/A N/A N/A 3.77% 3.51% 3.72%
** Non-Annualized
</TABLE>

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 3%, charged on certain redemptions
made within one year of purchase and declining thereafter to 0% after the
fourth year. If the sales charge was included, total returns would be lower.

N/A = Not Applicable

See Notes to Financial Statements

23
<PAGE> 212

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES SEPT. 30, SEPT. 30, SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD......................... $10.20 $10.71 $10.52 $10.20 $10.26 $ 9.31
------ ------ ------ ------ ------ ------
Net Investment Income.......... .39 .40 .31 .40 .37 .43
Net Realized and Unrealized
Gain/Loss.................... (.06) (.48) .19 .32 (.03) .92
------ ------ ------ ------ ------ ------
Total from Investment
Operations..................... .33 (.08) .50 .72 .34 1.35
Less Distributions from and in
Excess of Net Investment
Income......................... .41 .43 .31 .40 .40 .40
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD......................... $10.12 $10.20 $10.71 $10.52 $10.20 $10.26
====== ====== ====== ====== ====== ======

Total Return* (a)................ 3.36% -0.81% 4.74%** 7.23% 3.54% 14.74%
Net Assets at End of the Period
(In millions).................. $ 6.4 $ 5.6 $ 3.3 $ 3.1 $ 5.8 $ 4.9
Ratio of Expenses to Average Net
Assets*........................ 2.20% 2.02% 2.06% 2.29% 2.32% 1.74%
Ratio of Net Investment Income to
Average Net Assets*............ 3.90% 3.75% 3.89% 3.88% 3.70% 4.36%
Portfolio Turnover............... 85% 65% 15%** 37% 45% 75%
* If certain expenses had not been reimbursed by Van Kampen, Total Return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets.................... N/A N/A N/A 2.43% 2.50% 2.34%
Ratio of Net Investment Income
to Average Net Assets......... N/A N/A N/A 3.74% 3.52% 3.75%
</TABLE>

** Non-Annualized

N/A = Not Applicable

See Notes to Financial Statements

24
<PAGE> 213

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen Intermediate Term Municipal Income Fund (the "Fund") is organized as
a series of Van Kampen Tax Free Trust (the "Trust"), a Delaware business trust,
and is registered as a diversified open-end management investment company under
the Investment Company Act of 1940, as amended. The Fund's investment objective
is to seek a high level of current income exempt from federal income tax,
consistent with preservation of capital. The Fund commenced investment
operations on May 28, 1993 with two classes of common shares, Class A and Class
B shares. The distribution of the Fund's Class C shares commenced on October 19,
1993.

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 accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amount 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.

25
<PAGE> 214

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

pro rata basis to each class of shares, except for distribution and service fees
and transfer agency costs which are unique to each class of shares.

At September 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $42,793,903; the aggregate gross unrealized
appreciation is $1,155,122 and the aggregate gross unrealized depreciation is
$751,567, resulting in net unrealized appreciation on long- and short-term
investments of $403,555.

E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays dividends
monthly from net investment income. Net realized gains, if any, are distributed
annually.

Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 2000 fiscal year have been identified and appropriately reclassified.
For the year ended September 30, 2000, permanent book and tax differences of
$229 relating to market discount on bonds sold were reclassified from
accumulated net realized gain to accumulated distributions in excess of net
investment income.

F. EXPENSE REDUCTIONS During the year ended September 30, 2000 the Fund's
custody fee was reduced by $1,158 as a result of credits earned on overnight
cash balances.

26
<PAGE> 215

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .500 of 1%
Over $500 million........................................... .450 of 1%
</TABLE>

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $1,400 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $39,500 representing Van Kampen's cost of providing accounting and
legal services to the Fund.

Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended September 30,
2000, the Fund recognized expenses of approximately $26,900. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.

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.

27
<PAGE> 216

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

3. CAPITAL TRANSACTIONS

At September 30, 2000, capital aggregated $26,947,511, $8,234,173 and $6,134,490
for Classes A, B and C, respectively. For the year ended September 30, 2000,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 1,064,994 $ 10,687,773
Class B................................................. 463,760 4,641,788
Class C................................................. 302,034 3,009,461
---------- ------------
Total Sales............................................... 1,830,788 $ 18,339,022
========== ============
Dividend Reinvestment:
Class A................................................. 85,440 $ 856,863
Class B................................................. 20,237 202,572
Class C................................................. 16,652 166,701
---------- ------------
Total Dividend Reinvestment............................... 122,329 $ 1,226,136
========== ============
Repurchases:
Class A................................................. (1,417,160) $(14,223,944)
Class B................................................. (655,558) (6,550,781)
Class C................................................. (238,373) (2,389,237)
---------- ------------
Total Repurchases......................................... (2,311,091) $(23,163,962)
========== ============
</TABLE>

28
<PAGE> 217

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

At September 30, 1999, capital aggregated $29,626,819, $9,940,594 and
$5,347,565 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 1,523,720 $ 16,094,310
Class B................................................. 283,297 2,990,396
Class C................................................. 315,962 3,331,057
---------- ------------
Total Sales............................................... 2,122,979 $ 22,415,763
========== ============
Dividend Reinvestment:
Class A................................................. 77,116 $ 810,720
Class B................................................. 30,595 322,125
Class C................................................. 14,739 154,746
---------- ------------
Total Dividend Reinvestment............................... 122,450 $ 1,287,591
========== ============
Repurchases:
Class A................................................. (633,044) $ (6,690,021)
Class B................................................. (708,231) (7,395,119)
Class C................................................. (89,710) (946,116)
---------- ------------
Total Repurchases......................................... (1,430,985) $(15,031,256)
========== ============
</TABLE>

29
<PAGE> 218

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased. Class B shares
purchased before June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares six years after the
end of the calendar month in which the shares were purchased. For the year ended
September 30, 2000, 581,461 Class B shares converted to Class A shares and are
shown in the above table as sales of Class A shares and repurchases of Class B
shares. Class C shares purchased before January 1, 1997, and any dividend
reinvestment plan Class C shares received thereon, automatically convert to
Class A shares ten years after the end of the calendar month in which such
Shares were purchased. Class C shares purchased on or after January 1, 1997 do
not possess a conversion feature. For the year ended September 30, 2000 no Class
C shares converted to Class A shares. The CDSC for Class B and Class C shares
will be imposed on most redemptions made within four years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First...................................................... 3.00% 1.00%
Second..................................................... 2.50% None
Third...................................................... 2.00% None
Fourth..................................................... 1.00% None
Fifth and Thereafter....................................... None None
</TABLE>

For the year ended September 30, 2000, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $2,500 and CDSC on redeemed shares of approximately $22,800. Sales
charges do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $36,618,792 and $40,848,824,
respectively.

30
<PAGE> 219

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

5. DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
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.

The Fund may invest 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. These contracts are generally used to manage the
portfolio's effective maturity and duration.

Transactions in futures contracts for the year ended September 30, 2000 were
as follows:

<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... -0-
Futures opened.............................................. 30
Futures closed.............................................. (30)
---
Outstanding at September 30, 2000........................... -0-
===
</TABLE>

6. DISTRIBUTION AND SERVICE PLANS

31
<PAGE> 220

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

7. BORROWINGS

In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered into a $650,000,000 committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.

32
<PAGE> 221

REPORT OF INDEPENDENT AUDITORS

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, including
the portfolio of investments, of Van Kampen Intermediate Term Municipal Income
Fund (the "Fund"), as of September 30, 2000, and the related statements of
operations, changes in net assets and financial highlights for the year 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 based on our audit. The statement of
changes in net assets of the Fund for the year ended September 30, 1999, and the
financial highlights for each of the five years in the period then ended were
audited by other auditors whose report dated November 9, 1999, expressed an
unqualified opinion on those statements.

In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund at September 30, 2000, the results of its operations,
changes in net assets and financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States.

SIG

Chicago, Illinois
November 11, 2000

33
<PAGE> 222

VAN KAMPEN FUNDS

THE VAN KAMPEN
FAMILY OF FUNDS

Growth

Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology

Growth and Income

Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value

Global/International

Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income*
Tax Managed Global Franchise
Worldwide High Income

Income

Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income

Capital Preservation

Reserve
Tax Free Money

Senior Loan

Prime Rate Income Trust
Senior Floating Rate

Tax Free

To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:

- visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]

- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.

[PHONE ICON]

- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us

[MAIL ICON]

* Closed to new investors

** Open to new investors for a limited time

34
<PAGE> 223

FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND

OFFICERS

RICHARD F. POWERS, III*
President

STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer

A. THOMAS SMITH III*
Vice President and Secretary

JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer

RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents

INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

DISTRIBUTOR

VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64121-9256

CUSTODIAN

STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

LEGAL COUNSEL

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606

INDEPENDENT AUDITORS(1)

ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606

For the year ended September 30, 2000, 100% of the income distributions made by
the Fund were exempt from federal income taxes. In January, 2001, the Fund will
provide tax information to shareholders for the 2000 calendar year.

(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP to be
the Fund's independent auditors. KPMG LLP ceased being the Fund's independent
auditors effective April 14, 2000. The cessation of the client-auditor
relationship between the Fund and KPMG was based solely on a possible future
business relationship by KPMG with an affiliate of the Fund's investment
adviser.

* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.

(SM) denotes a service mark of Van Kampen Funds Inc.

of the Fund which contains additional information on how to purchase shares, the
sales charges on shares of the Fund, and other pertinent data. After February
28, 2001, the report, if used with prospective investors, must be accompanied by
a quarterly performance update.

35
<PAGE> 224

<TABLE>
<S> <C>
Table of Contents

OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2

PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 6

PORTFOLIO AT A GLANCE
CREDIT QUALITY 7
TWELVE-MONTH DIVIDEND HISTORY 7
TOP FIVE HOLDINGS 8
TOP FIVE SECTORS 8
Q&A WITH YOUR PORTFOLIO MANAGERS 9
GLOSSARY OF TERMS 12

BY THE NUMBERS
YOUR FUND'S INVESTMENTS 13
FINANCIAL STATEMENTS 17
NOTES TO FINANCIAL STATEMENTS 23
REPORT OF INDEPENDENT AUDITORS 31
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 32
FUND OFFICERS AND IMPORTANT ADDRESSES 33
</TABLE>

Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 225

OVERVIEW

LETTER TO SHAREHOLDERS
October 20, 2000

Dear Shareholder,

Sincerely,

[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments

1
<PAGE> 226

ECONOMIC SNAPSHOT

2
<PAGE> 227

U.S. GROSS DOMESTIC PRODUCT

SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998--September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.70
</TABLE>

Source: Bureau of Economic Analysis

INTEREST RATES AND INFLATION

(September 30, 1998--September 30, 2000)

[LINE GRAPH]

3
<PAGE> 228

PERFORMANCE SUMMARY

RETURN HIGHLIGHTS

(as of September 30, 2000)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 5.89% 5.06% 5.13%
-------------------------------------------------------------------------
One-year total return(2) 0.84% 1.06% 4.13%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 4.17% 4.16% 4.45%
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 4.88% 4.92% 4.94%
-------------------------------------------------------------------------
Commencement date 07/29/94 07/29/94 07/29/94
-------------------------------------------------------------------------
Distribution rate(3) 4.67% 4.13% 4.12%
-------------------------------------------------------------------------
Taxable-equivalent distribution
rate(4) 7.30% 6.45% 6.44%
-------------------------------------------------------------------------
SEC Yield(5) 4.93% 4.42% 4.41%
-------------------------------------------------------------------------
</TABLE>

(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for Class A Shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A Shares of $1
million or more, a CDSC of 1% may be imposed on certain redemptions made within
one year of purchase. Returns for Class B Shares are calculated without the
effect of the maximum 4% CDSC, charged on certain redemptions made within one
year of purchase and declining thereafter to 0% after the sixth year. Returns
for Class C Shares are calculated without the effect of the maximum 1% CDSC,
charged on certain redemptions made within one year of purchase. If the sales
charges were included, total returns would be lower. These returns do include
Rule 12b-1 fees of up to .25% for Class A Shares and 1% for Class B and Class C
Shares.

(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
Shares) or contingent deferred sales charge ("CDSC") and Rule 12b-1 fee. On
purchases of Class A Shares of $1 million or more, a CDSC of 1% may be imposed
on certain redemptions made within one year of purchase. Returns for Class B
Shares are calculated with the effect of the maximum 4% CDSC, charged on certain
redemptions made within one year of purchase and declining thereafter to 0%
after the sixth year. Returns for Class C Shares are calculated with the effect
of the maximum 1% CDSC, charged on certain redemptions made within one year of
purchase. The Rule 12b-1 fee for Class A Shares is up to .25% and for Class B
and Class C Shares is 1%.

(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.

(4) Taxable-equivalent calculations reflect a federal income tax rate of 36%.

4
<PAGE> 229

(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 2000. Had
certain expenses of the Fund not been assumed by Van Kampen, the SEC Yield would
have been 4.20%, 3.65%, and 3.64% for Classes A, B and C, respectively, and
total returns would have been lower.

A portion of the interest income from the Fund may be taxable for those
investors subject to the federal alternative minimum tax (AMT).

An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary of
the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results. Investment return and net asset value will
fluctuate with market conditions.

No representation is made as to any insurer's ability to meet its commitments.
While the Fund attempts to achieve its investment objective by investing
primarily in a portfolio of Florida municipal securities that are insured at the
time of purchase, this insurance does not remove market risk since it does not
apply to the value of the securities in the Fund's portfolio, and the Fund's net
asset value may fluctuate depending on changes in interest rates and other
factors affecting the municipal credit market.

Market forecasts provided in this report may not necessarily come to pass.

5
<PAGE> 230

GROWTH OF A $10,000 INVESTMENT

(July 29, 1994--September 30, 2000)

[INVESTMENT PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
LEHMAN BROTHERS MUNICIPAL BOND
INDEX IS AN UNMANAGED,
FLORIDA INSURED TAX FREE INCOME BROAD-BASED STATISTICAL
FUND COMPOSITE OF MUNICIPAL BONDS+.
------------------------------- ------------------------------
<S> <C> <C>
7/94 9527.00 10000.00
9519.00 9887.00
12/94 9387.00 9746.00
10021.00 10435.00
10145.00 10687.00
10418.00 10994.00
12/95 10916.00 11447.00
10658.00 11309.00
10749.00 11396.00
11092.00 11656.00
12/96 11394.00 11955.00
11335.00 11928.00
11715.00 12337.00
12021.00 12711.00
12/97 12386.00 13056.00
12510.00 13206.00
12708.00 13406.00
13162.00 13819.00
12/98 13207.00 13902.00
13260.00 14025.00
12947.00 13777.00
12670.00 13721.00
12/99 12539.00 13614.00
12983.00 14013.00
13164.00 14225.00
9/00 13416.00 14569.00

Fund's Total Return
1 year Total Return 0.84%
5 year Avg. Annual 4.17%
Inception Avg. Annual 4.88%
</TABLE>

This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index over time.

Source:
* Hypo(R) Provided by Towers Data, Bethesda, MD
(+) Lehman Brothers

6
<PAGE> 231

PORTFOLIO AT A GLANCE

CREDIT QUALITY

(as a percentage of long-term investments)

<TABLE>
<CAPTION>
As of September 30, 2000
<S> <C> <C>
- AAA/Aaa............ 96.1%
- AA/Aa.............. 2.1%
- BBB/Baa............ 1.8%

[PIE CHART]
<CAPTION>
As of September 30, 1999
<S> <C> <C>
- AAA/Aaa............ 86.1%
- AA/Aa.............. 2.9%
- A/A................ 4.6%
- BBB/Baa............ 6.4%

[PIE CHART]
</TABLE>

Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.

TWELVE-MONTH DIVIDEND HISTORY

(for the period ended September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.06
11/99 0.06
12/99 0.06
1/00 0.06
2/00 0.06
3/00 0.06
4/00 0.06
5/00 0.06
6/00 0.06
7/00 0.06
8/00 0.06
9/00 0.06
</TABLE>

The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.

7
<PAGE> 232

TOP FIVE HOLDINGS

(as a percentage of long-term investments--September 30, 2000)

<TABLE>
<S> <C> <C>
Sunrise, Florida, Utility System Revenue Refunding 6.2%
---------------------------------------------------------------------
Florida State Board of Education Lottery Revenue Series B 5.3%
---------------------------------------------------------------------
Florida State Board of Education Capital Outlay Public
Education Series A Refunding 4.4%
---------------------------------------------------------------------
Florida State Turnpike Authority Turnpike Revenue Series A 3.3%
---------------------------------------------------------------------
Florida State Board of Education Capital Outlay Public
Education Series C 3.3%
---------------------------------------------------------------------
</TABLE>

TOP FIVE SECTORS

(as a percentage of long-term investments)
[BAR GRAPH]

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Public Education 18.90 18.50
Water & Sewer 14.60 12.00
Transportation 11.60 9.80
Retail Electric/Gas/Telephone 10.10 9.40
Public Building 8.20 3.50
</TABLE>

8
<PAGE> 233

[PHOTO]

Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN FLORIDA
INSURED TAX FREE INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES
THAT SHAPED THE MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS
ENDED SEPTEMBER 30, 2000. THE TEAM IS LED BY THOMAS M. BYRON, PORTFOLIO MANAGER,
WHO HAS MANAGED THE FUND SINCE 1997 AND HAS WORKED IN THE INVESTMENT INDUSTRY
SINCE 1981. THE FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE FUND'S
PERFORMANCE.

Q HOW WOULD YOU CHARACTERIZE
THE MARKET ENVIRONMENT YOU FACED IN MANAGING THE FUND DURING THE PAST 12
MONTHS, AND HOW DID THE FUND PERFORM IN THE ENVIRONMENT?

Short-term interest rates climbed steadily as the Federal Reserve Board
increased key short-term lending rates four times over the past 12 months,
reacting to strong economic growth, rising commodities prices, and a tight labor
market. Rising yields at the short end of the maturity spectrum caused prices to
fall, which was a minor damper on the fund's net asset value during the period.

Long-term insured municipal bonds, on the other hand, were on a bit of a
roller-coaster ride, declining and then rallying twice during the 12-month
period, with yields finally settling at virtually the same level as they began
the period. Prices climbed strongly going into September 2000 but eased off by
month's end, as the yield on the 30-year insured municipal bond rose to about
5.85 percent.

One key aspect of these trading patterns was the widening of the yield
spread between insured municipals and lower-rated, higher-yielding municipals.
As investors sensed the market's uncertainty, fewer assets flowed into high-
yielding municipal bonds, which carry higher risk. This development favored the
high-quality, insured holdings of the fund, as demand for these securities
remained stable even though overall demand in the municipal bond market was
down.

Actually, demand for Florida bonds was very strong throughout the reporting
period. Despite the repeal of the state's intangibles tax--and no state income
tax--investors are still eager to invest in municipal bonds issued within their
home state.

At the same time, supply in the Florida municipal market has gone down,
though it hasn't dropped as

9
<PAGE> 234

much as the national market, and a declining percentage of Florida bonds came to
market insured (around 54 percent of all new Florida bonds, compared to more
than 70 percent a year ago). Issuance of new municipal debt has gone down
because the strong economy has allowed many municipalities to accumulate sizable
budget surpluses, which has reduced the need to raise money through debt
offerings. Also, higher interest rates made it less attractive for
municipalities to refund existing bond issues; instead, they have been more
likely to buy back outstanding debt and retire it from the marketplace.

The combination of strong demand and lower supply helped support the prices
of insured Florida municipal bonds across the board.

For the reporting period, the fund's relative performance was strong,
primarily because we reduced the fund's holdings in the struggling health-care
sector and took advantage of better relative values in intermediate-term
securities and in high-grade, insured issues. As of September 30, 2000, the fund
achieved a 12-month total return of 5.89 percent (Class A shares at net asset
value; if the maximum sales charge of 4.75 percent were included, the return
would have been lower). Of course, past performance is no guarantee of future
results. As a result of recent market activity, current performance may vary
from the figures shown. By comparison, the Lehman Brothers Municipal Bond Index
produced a total return of 6.17 percent for the same period. Another commonly
used index, the Lehman Brothers Florida Insured Municipal Bond Index (maturities
greater than 5 years), produced a total return of 5.75 percent for the same
period. These indexes are unmanaged, broad-based statistical composites of
municipal bonds that do not include any commissions or sales charges that would
be paid by an investor purchasing the securities they represent. Such costs
would lower the performance of these indexes. It is not possible to invest
directly in an index. Please refer to the footnotes and chart on page 4 for
additional fund performance results.

The fund's dividend was stable during the period at $0.0600 per Class A
share, and its distribution rate stood at 4.67 percent at the end of the
reporting period. With this in mind, we'd like to point out that investors would
have to earn a distribution rate of 7.30 percent on a taxable investment (for an
investor in the 36 percent federal income tax bracket) to match the tax-exempt
yield provided by the fund.

Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?

Part of our strategy has been to structure the fund's portfolio to more
closely match the Lehman Brothers Florida Insured Municipal Bond Index. In
reshaping the portfolio, we upgraded the overall credit quality of the fund,
increasing its allocation of AAA rated insured bonds to 96 percent

10
<PAGE> 235

of long-term investments, up from about 86 percent earlier in the period.

While a slightly lower credit-quality profile gave the fund's yield a boost,
it also made the fund more susceptible to price declines when credit spreads
widened. As it turned out, this shift toward higher-quality bonds had a positive
effect on the fund's performance.

In March, we began investing a greater allocation of fund assets in
intermediate-term securities (those ranging from 5 to 15 years in maturity), and
the fund was able to benefit from favorable yields in this segment of the
market.

Q WHICH SECTORS OF THE
MARKET WERE YOU MOST CONCERNED ABOUT?

A Because 96 percent of the fund's
assets are insured, the fund has minimal credit concerns. This allowed us to
turn our attention to price considerations. For example, the health-care sector
has struggled, which was reflected in declining prices, so we were careful to
protect the portfolio from excessive exposure to this sector. By the end of the
reporting period, we had reduced the fund's holdings in health care to just over
5 percent of the portfolio, down from roughly 8 percent at the start of the
period.

Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?

A Because the level of interest rates
has such an influence on the value of municipal bonds, the market will be
carefully watching the actions of the Federal Reserve Board. It appears that
economic growth may be moderating, making it less likely that the Fed will
increase rates again in the very near future. In fact, some market-watchers are
expecting the Fed to decrease rates by the end of the year. In light of the
current market conditions, we will remain neutral with respect to our
interest-rate outlook.

Powered by a thriving tourism industry and continued popularity as a
retirement destination, Florida's economy should remain strong, bolstering the
state's budget surplus. Also, we see Floridians continuing to look to familiar
names and locations for municipal bond investments, sustaining the strong demand
for the state's bond offerings.

We anticipate that total bond issuance will be stable to lower through
year-end, as municipalities continue to be flush with cash and are
understandably reluctant to issue new debt or refund outstanding debt at current
market rates. We feel that the cost of insuring municipal bonds may be rising,
which could further limit the supply of new insured bonds.

Going forward, we will continue to rely on our strong research capabilities,
seeking to achieve the fund's investment objective over the long term.

11
<PAGE> 236

GLOSSARY OF TERMS

A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.

SECONDARY MARKET: A market where securities are traded after they are initially
offered.

12
<PAGE> 237

BY THE NUMBERS

YOUR FUND'S INVESTMENTS

September 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 97.3%
FLORIDA 96.3%
$ 690 Bay Cnty, FL Sch Brd Ctfs Partn
(AMBAC Insd)................................. 4.750% 07/01/17 $ 620,821
410 Brevard Cnty, FL Hsg Fin Auth Single Family
Mtg Rev (GNMA Collateralized)................ 6.650 09/01/21 428,442
650 Brevard Cnty, FL Sales Tax Rev (MBIA Insd)... 5.750 12/01/13 666,127
1,000 Brevard Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd)................................. 5.400 07/01/12 1,023,440
500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp
Ser A Rfdg (FSA Insd)........................ 6.500 08/15/12 523,965
1,000 Dade Cnty, FL Aviation Rev Ser B
(MBIA Insd).................................. 5.600 10/01/26 996,600
1,000 Dade Cnty, FL Edl Fac Auth Rev Univ of Miami
Ser B (MBIA Insd)............................ 5.750 04/01/20 1,016,120
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 05/01/04) (MBIA Insd)......... 6.000 05/01/14 528,415
750 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC
Insd)........................................ 5.375 10/01/16 748,402
900 Daytona Beach, FL Wtr & Swr Rev
(AMBAC Insd)................................. 5.750 11/15/10 930,087
1,250 Escambia Cnty, FL Hlth Fac Rev FL Hlthcare
Fac (AMBAC Insd)............................. 5.950 07/01/20 1,287,087
1,000 Escambia Cnty, FL Util Auth Util Sys Rev Ser
B (FGIC Insd)................................ * 01/01/15 456,000
1,200 Florida Ports Fin Comm Rev St Trans Trust Fd
Intermodal Pgm (FGIC Insd)................... 5.500 10/01/29 1,153,812
3,250 Florida St Brd Of Edl Cap Outlay Pub Edl Ser
A Rfdg (FGIC Insd)........................... 4.500 06/01/23 2,700,880
2,000 Florida St Brd Of Edl Cap Outlay Pub Edl Ser
C (FGIC Insd)................................ 5.750 06/01/29 2,026,080
1,000 Florida St Brd Of Edl Lottery Rev Ser A (FGIC
Insd)........................................ 6.000 07/01/14 1,070,710
3,250 Florida St Brd Of Edl Lottery Rev Ser B (FGIC
Insd)........................................ 5.250 07/01/13 3,271,255
2,000 Florida St Brd Regts Univ Sys Impt Rev (AMBAC
Insd)........................................ 4.500 07/01/23 1,661,480
</TABLE>

See Notes to Financial Statements

13
<PAGE> 238

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
$1,750 Florida St Div Bond Fin Dept Genl Svcs Rev
Dept Envrnmtl Protn Presvtn 2000 Ser A (AMBAC
Insd)........................................ 5.000% 07/01/12 $ 1,752,660
1,000 Florida St Div Bond Fin Dept Genl Svcs Rev
Dept Envrnmtl Protn Presvtn 2000 Ser A Rfdg
(FSA Insd)................................... 5.500 07/01/09 1,049,850
1,500 Florida St Div Bond Fin Dept Genl Svcs Rev
Dept Envrnmtl Protn Presvtn 2000 Ser B (FSA
Insd)........................................ 5.250 07/01/11 1,529,940
1,750 Florida St Tpk Auth Tpk Rev Dept Trans Ser A
Rfdg (FGIC Insd)............................. 5.500 07/01/05 1,819,860
1,250 Florida St Tpk Auth Tpk Rev Dept Trans Ser B
(MBIA Insd).................................. 5.000 07/01/16 1,194,100
2,500 Florida St Tpk Auth Tpk Rev Ser A (FSA
Insd)........................................ 4.500 07/01/28 2,044,600
1,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA
Insd)........................................ 6.100 10/01/18 1,040,990
1,500 Inland Protn Fin Corp FL Spl Oblig Rev (FSA
Insd)........................................ 5.000 01/01/03 1,517,250
1,000 Jacksonville, FL Elec Auth Rev Saint John's
Pwr-2 Ser 7 Rfdg (MBIA Insd)................. 5.500 10/01/14 1,004,800
1,250 Jacksonville, FL Sales Tax Rev River City
Renaissance Proj (FGIC Insd)................. 6.000 10/01/04 1,315,925
1,000 Jacksonville, FL Wtr & Swr Rev Utd Wtr FL
Proj (AMBAC Insd)............................ 6.350 08/01/25 1,050,660
1,000 Lakeland, FL Elec & Wtr Rev Ser A Rfdg (MBIA
Insd)........................................ 5.000 10/01/28 903,410
570 Lee Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Multi-Cnty Pgm Ser A (GNMA
Collateralized).............................. 7.450 09/01/27 632,615
865 Manatee Cnty, FL Hsg Fin Auth Mtg Rev (GNMA
Collateralized).............................. 6.875 11/01/26 925,031
835 Martin Cnty, FL Consolidated Util Sys Rev
(FGIC Insd).................................. 5.750 10/01/08 878,854
545 Melbourne, FL Arpt Rev Rfdg (MBIA Insd)...... 6.250 10/01/18 578,071
500 Miramar, FL Wastewtr Impt Assmt Rev
(Prerefunded @ 10/01/04) (FGIC Insd)......... 6.750 10/01/25 544,135
775 Orange Cnty, FL Hsg Fin Auth Single Family
Mtg Rev (GNMA Collateralized)................ 6.550 10/01/21 799,777
1,000 Orange Cnty, FL Sch Brd Ctfs Partn Ser A
(MBIA Insd).................................. 5.000 08/01/20 923,530
900 Orange Cnty, FL Tourist Dev Tax Rev Ser B
(Prerefunded @ 10/01/02) (AMBAC Insd)........ 6.500 10/01/19 951,417
</TABLE>

See Notes to Financial Statements

14
<PAGE> 239

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
$ 750 Palm Beach Cnty, FL Hlth Fac Auth Rev Abbey
Delray South Proj Rfdg....................... 5.500% 10/01/11 $ 703,500
450 Palm Beach Cnty, FL Hlth Fac Auth Rev
Waterford Proj Rfdg.......................... 5.500 10/01/15 404,811
750 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 08/01/04) (AMBAC Insd)........ 6.375 08/01/15 804,652
1,000 Polk Cnty, FL Indl Dev Auth Solid Waste Disp
Fac Rev Tampa Elec Co Proj (AMBAC Insd)...... 5.850 12/01/30 1,010,120
1,100 Port Saint Lucie, FL Spl Assmt Rev Util Svc
Area No 3 & 4A (MBIA Insd)................... 5.000 10/01/18 1,032,262
1,000 Port Saint Lucie, FL Util Rev Rfdg & Impt Ser
A (MBIA Insd)................................ 5.125 09/01/27 924,130
1,000 Reedy Creek, FL Impt Dist FL Util Rev Ser
1991-1 (Prerefunded @ 10/01/01) (MBIA
Insd)........................................ 6.500 10/01/16 1,030,650
1,000 Reedy Creek, FL Impt Dist FL Util Rev Ser 2A
Rfdg (MBIA Insd)............................. 5.500 10/01/13 1,027,490
750 Sarasota Cnty, FL Util Sys Rev (Prerefunded @
10/01/04) (FGIC Insd)........................ 6.500 10/01/14 816,247
4,000 Sunrise, FL Util Sys Rev Rfdg (AMBAC Insd)... 5.200 10/01/22 3,798,520
1,000 Tallahassee, FL Energy Sys Rev Ser A Rfdg
(FSA Insd)................................... 4.750 10/01/26 865,300
1,000 Tampa Bay, FL Wtr Util Sys Rev Ser B (FGIC
Insd)........................................ 4.750 10/01/27 862,610
1,000 Volusia Cnty, FL Edl Fac Auth Rev Edl Facs
Embry Riddle Ser B Rfdg (AMBAC Insd)......... 5.250 10/15/19 965,540
1,000 Volusia Cnty, FL Edl Fac Auth Rev Edl Facs
Embry Riddle Ser B Rfdg (AMBAC Insd)......... 5.250 10/15/22 951,720
500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp Fac
Mem Hlth Rfdg & Impt (AMBAC Insd)............ 5.750 11/15/13 512,525
1,340 West Palm Beach, FL.......................... 5.250 03/01/17 1,313,227
-----------
60,590,502
-----------
</TABLE>

See Notes to Financial Statements

15
<PAGE> 240

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PUERTO RICO 1.0%
$ 650 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser M Rfdg (FSA Insd).................... 5.750% 07/01/15 $ 667,725
-----------
TOTAL LONG-TERM INVESTMENTS 97.3%
(Cost $59,640,361)..................................................... 61,258,227
SHORT-TERM INVESTMENTS 1.1%
(Cost $700,000)........................................................ 700,000
-----------
TOTAL INVESTMENTS 98.4%
(Cost $60,340,361)..................................................... 61,958,227
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%.............................. 982,871
-----------

NET ASSETS 100.0%....................................................... $62,941,098
===========
</TABLE>

* Zero coupon bond
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
GNMA--Guaranteed National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.

See Notes to Financial Statements

16
<PAGE> 241

FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2000

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $60,340,361)........................ $61,958,227
Cash........................................................ 271,989
Receivables:
Interest.................................................. 1,198,839
Fund Shares Sold.......................................... 37,508
Other....................................................... 2,093
-----------
Total Assets............................................ 63,468,656
-----------
LIABILITIES:
Payables:
Income Distributions...................................... 131,173
Distributor and Affiliates................................ 91,778
Fund Shares Repurchased................................... 31,395
Trustees' Deferred Compensation and Retirement Plans........ 160,879
Accrued Expenses............................................ 112,333
-----------
Total Liabilities....................................... 527,558
-----------
NET ASSETS.................................................. $62,941,098
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $64,475,416
Net Unrealized Appreciation................................. 1,617,866
Accumulated Undistributed Net Investment Income............. 27,612
Accumulated Net Realized Loss............................... (3,179,796)
-----------
NET ASSETS.................................................. $62,941,098
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $31,239,149 and 2,126,256 shares of
beneficial interest issued and outstanding)............. $ 14.69
Maximum sales charge (4.75%* of offering price)......... .73
-----------
Maximum offering price to public........................ $ 15.42
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $29,505,448 and 2,008,053 shares of
beneficial interest issued and outstanding)............. $ 14.69
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $2,196,501 and 149,294 shares of
beneficial interest issued and outstanding)............. $ 14.71
===========
</TABLE>

* On sales of $100,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

17
<PAGE> 242

Statement of Operations
For the Year Ended September 30, 2000

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 3,609,969
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $82,420, $292,604, and $23,381,
respectively)............................................. 398,405
Investment Advisory Fee..................................... 322,416
Trustees' Fees and Related Expenses......................... 69,164
Shareholder Reports......................................... 55,888
Shareholder Services........................................ 38,535
Legal....................................................... 13,460
Custody..................................................... 13,271
Other....................................................... 111,151
-----------
Total Expenses.......................................... 1,022,290
Expense Reduction ($322,416 related to Investment
Advisory Fees and $141,534 related to Other
Expenses)............................................. 463,950
Less Credits Earned on Cash Balances.................... 3,073
-----------
Net Expenses............................................ 555,267
-----------
NET INVESTMENT INCOME....................................... $ 3,054,702
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(1,866,940)
Futures................................................... (78,375)
-----------
Net Realized Loss........................................... (1,945,315)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (456,651)
End of the Period:
Investments............................................. 1,617,866
-----------
Net Unrealized Appreciation During the Period............... 2,074,517
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 129,202
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 3,183,904
===========
</TABLE>

See Notes to Financial Statements

18
<PAGE> 243

Statement of Changes in Net Assets
For the Years Ended September 30, 2000 and 1999

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income...................................... $ 3,054,702 $ 2,958,169
Net Realized Loss.......................................... (1,945,315) (950,468)
Net Unrealized Appreciation/Depreciation During the
Period................................................... 2,074,517 (5,047,000)
------------ ------------
Change in Net Assets from Operations....................... 3,183,904 (3,039,299)
------------ ------------

Distributions from Net Investment Income:
Class A Shares........................................... (1,645,156) (1,709,865)
Class B Shares........................................... (1,227,060) (1,147,849)
Class C Shares........................................... (98,183) (100,301)
------------ ------------
Total Distributions........................................ (2,970,399) (2,958,015)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES........ 213,505 (5,997,314)
------------ ------------

FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold.................................. 18,770,175 40,933,657
Net Asset Value of Shares Issued Through Dividend
Reinvestment............................................. 1,361,508 1,349,269
Cost of Shares Repurchased................................. (29,312,792) (16,727,671)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS......... (9,181,109) 25,555,255
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS...................... (8,967,604) 19,557,941
NET ASSETS:
Beginning of the Period.................................... 71,908,702 52,350,761
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $27,612 and $(57,917),
respectively)............................................ $ 62,941,098 $ 71,908,702
============ ============
</TABLE>

See Notes to Financial Statements

19
<PAGE> 244

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES --------------- SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $14.58 $15.92 $15.55 $15.06 $15.20 $13.80
------ ------ ------ ------ ------ ------
Net Investment Income............ 0.73 0.78 0.56 0.76 0.78 0.79
Net Realized and Unrealized
Gain/Loss...................... 0.10 (1.35) 0.39 0.51 (0.15) 1.41
------ ------ ------ ------ ------ ------
Total from Investment Operations... 0.83 (0.57) 0.95 1.27 0.63 2.20
------ ------ ------ ------ ------ ------
Less:
Distributions from and in Excess
of Net Investment Income....... 0.72 0.77 0.58 0.77 0.77 0.80
Distributions from Net Realized
Gain........................... -0- -0- -0- 0.01 -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions................ 0.72 0.77 0.58 0.78 0.77 0.80
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................... $14.69 $14.58 $15.92 $15.55 $15.06 $15.20
====== ====== ====== ====== ====== ======

Total Return* (a).................. 5.89% -3.74% 6.26%** 8.72% 4.37% 16.29%
Net Assets at End of the Period (In
millions)........................ $ 31.2 $ 39.8 $ 27.1 $ 29.3 $ 22.2 $ 16.2
Ratio of Expenses to Average Net
Assets*.......................... .48% .37% .60% .59% .28% .44%
Ratio of Net Investment Income to
Average Net Assets*.............. 5.11% 4.98% 4.85% 5.05% 5.31% 5.33%
Portfolio Turnover................. 61% 101% 50%** 48% 73% 41%
* If certain expenses had not been 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........................... 1.20% 1.10% 1.30% 1.29% 1.47% 1.70%
Ratio of Net Investment Income to
Average Net Assets............... 4.39% 4.25% 4.15% 4.35% 4.13% 4.07%
</TABLE>

** Non-Annualized

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales were included, total returns would be lower.

See Notes to Financial Statements

20
<PAGE> 245

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES --------------- SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $14.58 $15.93 $15.55 $15.06 $15.20 $13.79
------ ------ ------ ------ ------ ------
Net Investment Income............ 0.62 0.66 0.48 0.65 0.67 0.68
Net Realized and Unrealized
Gain/Loss...................... 0.10 (1.35) 0.39 0.51 (0.15) 1.42
------ ------ ------ ------ ------ ------
Total from Investment Operations... 0.72 (0.69) 0.87 1.16 0.52 2.10
------ ------ ------ ------ ------ ------
Less:
Distributions from and in Excess
of Net Investment Income....... 0.61 0.66 0.49 0.66 0.66 0.69
Distributions from Net Realized
Gain........................... -0- -0- -0- 0.01 -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions................ 0.61 0.66 0.49 0.67 0.66 0.69
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................... $14.69 $14.58 $15.93 $15.55 $15.06 $15.20
====== ====== ====== ====== ====== ======

Total Return* (a).................. 5.06% -4.51% 5.74%** 7.91% 3.58% 15.53%
Net Assets at End of the Period (In
millions)........................ $ 29.5 $ 29.0 $ 23.6 $ 22.5 $ 18.9 $ 16.9
Ratio of Expenses to Average Net
Assets*.......................... 1.26% 1.13% 1.35% 1.33% 1.03% 1.12%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.33% 4.23% 4.09% 4.30% 4.56% 4.66%
Portfolio Turnover................. 61% 101% 50%** 48% 73% 41%
* If certain expenses had not been 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........................... 1.98% 1.86% 2.05% 2.03% 2.22% 2.38%
Ratio of Net Investment Income to
Average Net Assets............... 3.61% 3.50% 3.39% 3.60% 3.38% 3.40%
</TABLE>

** Non-Annualized

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the sixth year. If the sales charge was
included, total returns would be lower.

See Notes to Financial Statements

21
<PAGE> 246

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES --------------- SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $14.59 $15.94 $15.58 $15.08 $15.21 $13.79
------ ------ ------ ------ ------ ------
Net Investment Income............ 0.63 0.66 0.48 0.67 0.67 0.69
Net Realized and Unrealized
Gain/Loss...................... 0.10 (1.35) 0.37 0.50 (0.14) 1.42
------ ------ ------ ------ ------ ------
Total from Investment Operations... 0.73 (0.69) 0.85 1.17 0.53 2.11
------ ------ ------ ------ ------ ------
Less:
Distributions from and in Excess
of Net Investment Income....... 0.61 0.66 0.49 0.66 0.66 0.69
Distribution from Net Realized
Gain........................... -0- -0- -0- 0.01 -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions................ 0.61 0.66 0.49 0.67 0.66 0.69
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................... $14.71 $14.59 $15.94 $15.58 $15.08 $15.21
====== ====== ====== ====== ====== ======

Total Return* (a).................. 5.13% -4.51% 5.60%** 7.97% 3.65% 15.61%
Net Assets at End of the Period (In
millions)........................ $ 2.2 $ 3.1 $ 1.6 $ 1.2 $ .8 $ .5
Ratio of Expenses to Average Net
Assets*.......................... 1.22% 1.14% 1.32% 1.37% 1.03% 1.13%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.37% 4.28% 4.08% 4.38% 4.56% 4.51%
Portfolio Turnover................. 61% 101% 50%** 48% 73% 41%
* If certain expenses had not been 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........................... 1.94% 1.87% 2.03% 2.06% 2.22% 2.39%
Ratio of Net Investment Income to
Average Net Assets............... 3.65% 3.55% 3.38% 3.68% 3.38% 3.25%
</TABLE>

** Non-Annualized

See Notes to Financial Statements

22
<PAGE> 247

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen Florida Insured Tax Free Income Fund (the "Fund") is organized as a
series of the Van Kampen Tax Free Trust, a Delaware business trust, and is
registered as a non-diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide investors a high level of current income exempt from federal income
tax and Florida intangible personal property taxes, consistent with preservation
of capital. Under normal market conditions, the Fund will invest at least 80% of
its assets in insured Florida municipal securities. The Fund commenced
investment operations on July 29, 1994.

23
<PAGE> 248

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

pro rata basis to each class of shares, except for distribution and service fees
and transfer agency costs which are unique to each class of shares.

D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.

The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of loss and offset such losses against any future realized capital gains.
At September 30, 2000, the Fund had an accumulated capital loss carryforward for
tax purposes of $2,315,103 which will expire between September 30, 2005 and
September 30, 2008. Net realized gains or losses differ for financial reporting
and tax purposes primarily as a result of post October 31 losses which are not
realized for tax purposes until the first day of the following fiscal year.

At September 30, 2000, for federal income tax purposes the cost of long- and
short-term investments is $60,340,361, the aggregate gross unrealized
appreciation is $2,060,196 and the aggregate gross unrealized depreciation is
$442,330, resulting in net unrealized appreciation on long- and short-term
investments of $1,617,866.

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.

Due to inherent differences in the recognition of income, expenses and
realized gains/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting have been identified and appropriately
reclassified. A permanent difference relating to market discount totaling $1,226
has been reclassified from accumulated net realized loss to accumulated net
investment income.

G. EXPENSE REDUCTIONS During the year ended September 30, 2000, the Fund's
custody fee was reduced by $3,073 as a result of credits earned on overnight
cash balances.

24
<PAGE> 249

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES

Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Advisor") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:

For the year ended September 30, 2000, the Adviser voluntarily waived
$322,416 of its investment advisory fees and assumed $141,534 of the Fund's
other expenses. This waiver is voluntary in nature and can be discontinued at
the Adviser's discretion.

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $2,500 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $37,400 representing Van Kampen's cost of providing accounting and
legal services to the Fund. All of these expenses were assumed by Van Kampen.

Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
2000, the Fund recognized expenses of approximately $21,500. All of these
expenses were assumed by Van Kampen. Transfer agency fees are determined through
negotiations with the Fund's Board of Trustees and are based on competitive
market benchmarks.

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.

25
<PAGE> 250

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

3. CAPITAL TRANSACTIONS

At September 30, 2000, capital aggregated $32,307,912, $29,804,600 and
$2,362,904 for Classes A, B and C, respectively. For the year ended September
30, 2000, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 762,556 $ 10,937,026
Class B................................................. 491,604 7,097,963
Class C................................................. 51,035 735,186
---------- ------------
Total Sales............................................... 1,305,195 $ 18,770,175
========== ============
Dividend Reinvestment:
Class A................................................. 55,849 $ 805,848
Class B................................................. 35,909 518,765
Class C................................................. 2,557 36,895
---------- ------------
Total Dividend Reinvestment............................... 94,315 $ 1,361,508
========== ============
Repurchases:
Class A................................................. (1,423,436) $(20,319,270)
Class B................................................. (508,265) (7,319,747)
Class C................................................. (117,202) (1,673,775)
---------- ------------
Total Repurchases......................................... (2,048,903) $(29,312,792)
========== ============
</TABLE>

26
<PAGE> 251

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

At September 30, 1999, capital aggregated $40,884,308, $29,507,619 and
$3,264,598 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 1,535,773 $ 23,866,507
Class B................................................. 915,485 14,180,809
Class C................................................. 186,134 2,886,341
---------- ------------
Total Sales............................................... 2,637,392 $ 40,933,657
========== ============
Dividend Reinvestment:
Class A................................................. 52,779 $ 808,309
Class B................................................. 32,141 494,596
Class C................................................. 3,009 46,364
---------- ------------
Total Dividend Reinvestment............................... 87,929 $ 1,349,269
========== ============
Repurchases:
Class A................................................. (560,294) $ (8,714,774)
Class B................................................. (441,657) (6,786,954)
Class C................................................. (78,013) (1,225,943)
---------- ------------
Total Repurchases......................................... (1,079,964) $(16,727,671)
========== ============
</TABLE>

Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan Class B Shares received thereon, automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan Class B Shares received thereon, automatically
convert to Class A Shares seven years after the end of the calendar month in
which the shares were purchased. For the year ended September 30, 2000, 25,095
Class B Shares converted to Class A Shares. For the year September 30, 1999, no
Class B Shares converted to Class A Shares. Class C Shares purchased before
January 1, 1997, and any dividend reinvestment plan Class C Shares received
thereon, automatically convert to Class A Shares ten years after the end of the
calendar month in which such shares were purchased. Class C Shares purchased on
or after January 1, 1997 do not possess a conversion feature. For the years
ended September 30, 2000 and 1999, no Class C Shares converted to Class A
Shares. Class B and C Shares are offered without a front end sales charge, but
are subject to a contingent deferred sales charge (CDSC). The CDSC will be
imposed on most redemptions made

27
<PAGE> 252

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

within six years of the purchase for Class B Shares and one year of the purchase
for Class C Shares as detailed in the following schedule.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First...................................................... 4.00% 1.00%
Second..................................................... 3.75% None
Third...................................................... 3.50% None
Fourth..................................................... 2.50% None
Fifth...................................................... 1.50% None
Sixth...................................................... 1.00% None
Seventh and Thereafter..................................... None None
</TABLE>

For the year ended September 30, 2000, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $10,900 and CDSC on redeemed shares of approximately $93,500.
Sales charges do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $38,273,277 and $45,282,598,
respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in unrealized
appreciation/ depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when taking delivery of a security underlying a
futures contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the futures contract.

During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a

28
<PAGE> 253

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

specified future date at an agreed upon price. The Fund generally invests in
futures on U.S. Treasury Bonds and the Municipal Bond Index and typically closes
the contract prior to the delivery date.

Transactions in futures contracts, each with a par value of $100,000, for
the year ended September 30, 2000, were as follows.

<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... -0-
Futures Opened.............................................. 58
Futures Closed.............................................. (58)
---
Outstanding at September 30, 2000........................... -0-
===
</TABLE>

6. DISTRIBUTION AND SERVICE PLANS

29
<PAGE> 254

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

7. BORROWINGS

In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each fund incurs based on its pro-rata percentage of
quarterly net assets. The Fund has not borrowed against the credit facility
during the period.

30
<PAGE> 255

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Trustees of Van Kampen Florida Insured Tax Free
Income Fund

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Van Kampen Florida Insured Tax Free Income Fund
(the "Fund"), as of September 30, 2000, and the related statements of
operations, changes in net assets and financial highlights for the year 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 based on our audit. The statement of
changes in net assets of the Fund for the year ended September 30, 1999, and the
financial highlights for each of the five years in the period then ended were
audited by other auditors whose report dated November 11, 1999, expressed an
unqualified opinion on those statements.

In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund at September 30, 2000, the results of its operations,
changes in net assets and financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States.

SIG

Chicago, Illinois
November 8, 2000

31
<PAGE> 256

VAN KAMPEN FUNDS

THE VAN KAMPEN
FAMILY OF FUNDS

Growth

Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology

Growth and Income

Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value

Global/International

Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income*
Tax Managed Global Franchise
Worldwide High Income

Income

Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income

Capital Preservation

Reserve
Tax Free Money

Senior Loan

Prime Rate Income Trust
Senior Floating Rate

Tax Free

To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:

- visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]

- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.

[PHONE ICON]

- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us

[MAIL ICON]

* Closed to new investors

** Open to new investors for a limited time

32
<PAGE> 257

FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND

OFFICERS

RICHARD F. POWERS, III*
President

STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer

A. THOMAS SMITH III*
Vice President and Secretary

JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer

RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents

INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR

VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64121-9256

CUSTODIAN

STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

LEGAL COUNSEL

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606

INDEPENDENT AUDITORS(1)

ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606

TAX NOTICE TO CORPORATE SHAREHOLDERS
For the year ended September 30, 2000, the Fund designated 100% of the income
distributions as a tax-exempt income distribution. In January, 2001, the Fund
will provide tax information to Shareholders for the 2000 calendar year.

(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP to be
the Fund's independent auditors. KPMG LLP ceased being the Fund's independent
auditors effective April 14, 2000. The cessation of the client-auditor
relationship between the Fund and KPMG was based solely on a possible future
business relationship by KPMG with an affiliate of the Fund's investment
adviser.

* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.

(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus

33
<PAGE> 258

<TABLE>
<S> <C>
Table of Contents

OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2

PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 6

PORTFOLIO AT A GLANCE
CREDIT QUALITY 7
TWELVE-MONTH DIVIDEND HISTORY 7
TOP FIVE HOLDINGS 8
TOP FIVE SECTORS 8
Q&A WITH YOUR PORTFOLIO MANAGERS 9
GLOSSARY OF TERMS 12

BY THE NUMBERS
YOUR FUND'S INVESTMENTS 13
FINANCIAL STATEMENTS 18
NOTES TO FINANCIAL STATEMENTS 24
REPORT OF INDEPENDENT AUDITORS 32
FUND OFFICERS AND IMPORTANT ADDRESSES 33
</TABLE>

Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 259

OVERVIEW

LETTER TO SHAREHOLDERS
October 20, 2000

Dear Shareholder,

Sincerely,

[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments

1
<PAGE> 260

ECONOMIC SNAPSHOT

2
<PAGE> 261

U.S. GROSS DOMESTIC PRODUCT

SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998 -- September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.70
</TABLE>

Source: Bureau of Economic Analysis

INTEREST RATES AND INFLATION

(September 30, 1998 -- September 30, 2000)

[LINE GRAPH]

3
<PAGE> 262

PERFORMANCE SUMMARY

RETURN HIGHLIGHTS

(as of September 30, 2000)

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on
NAV(1) 4.91% 4.17% 4.24%
-------------------------------------------------------------------------
One-year total return(2) -0.10% 0.18% 3.24%
-------------------------------------------------------------------------
Five-year total return(2) 5.04% 5.04% 5.30%
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 5.42% 5.48% 5.49%
-------------------------------------------------------------------------
Commencement date 07/29/94 07/29/94 07/29/94
-------------------------------------------------------------------------
Distribution rate(3) 4.68% 4.15% 4.14%
-------------------------------------------------------------------------
Taxable-equivalent distribution
rate(4) 7.85% 6.96% 6.95%
-------------------------------------------------------------------------
SEC Yield(5) 3.91% 3.36% 3.36%
-------------------------------------------------------------------------
</TABLE>

(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.

(4) Taxable-equivalent calculations reflect a combined federal and state income
tax rate of 40.4% which takes into consideration the deductibility of
individual state taxes paid.

4
<PAGE> 263

(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio
should theoretically generate for the 30-day period ended September 30,
2000. Had certain expenses of the Fund not been assumed by Van Kampen, the
SEC Yield would have been 3.09%, 2.49%, and 2.49% for Classes A, B and C
Shares, respectively, and total returns would have been lower.

A portion of the interest income may be taxable for those investors subject
to the federal alternative minimum tax (AMT).

Market forecasts provided in this report may not necessarily come to pass.

5
<PAGE> 264

GROWTH OF A $10,000 INVESTMENT

(July 29, 1994--September 30, 2000)

[INVESTMENT PERFORMANCE GRAPH]

<TABLE>
<CAPTION>
LEHMAN BROTHERS MUNICIPAL BOND INDEX
is an unmanaged, broad-based statistical
NEW YORK TAX FREE INCOME FUND* composite of municipal bonds.+
------------------------------ ----------------------------------------
<S> <C> <C>
7/94 9527 10000
9422 9887
12/94 9248 9746
9958 10435
10046 10687
10320 10994
12/95 10850 11447
10624 11309
10735 11396
11077 11658
12/96 11408 11955
11430 11928
11833 12339
12247 12711
12/97 12654 13056
12852 13206
13090 13406
13554 13819
12/98 13602 13902
13713 14025
13443 13777
13200 13721
12/99 12937 13614
13292 14013
13470 14225
9/00 13849 14569
Fund's Total Return
1 Year Total Return -0.10%
5 Year Avg. Annual 5.04%
Inception Avg. Annual 5.42%
</TABLE>

This chart compares your fund's performance to that of the Lehman Brothers
Municipal Bond Index over time.

Source:
* Hypo(R) Provided by Towers Data, Bethesda, MD

(+) Lehman Brothers

6
<PAGE> 265

PORTFOLIO AT A GLANCE

CREDIT QUALITY

(as a percentage of long-term investments)

<TABLE>
<CAPTION>
As of September 30, 2000
<S> <C> <C>
- AAA/Aaa............ 37.7%
- AA/Aa.............. 19.2%
- A/A................ 18.3%
- BBB/Baa............ 15.0%
- BB/Ba.............. 0.6%
- Non-Rated.......... 9.2%

[PIE CHART]
<CAPTION>
As of September 30, 1999
<S> <C> <C>
- AAA/Aaa............ 43.3%
- AA/Aa.............. 7.4%
- A/A................ 8.3%
- BBB/Baa............ 24.5%
- BB/Ba.............. 0.7%
- Non-Rated.......... 15.8%

[PIE CHART]
</TABLE>

Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.

TWELVE-MONTH DIVIDEND HISTORY

(for the period ended September 30, 2000)
[BAR GRAPH]

<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.061
11/99 0.061
12/99 0.061
1/00 0.061
2/00 0.061
3/00 0.061
4/00 0.061
5/00 0.061
6/00 0.061
7/00 0.061
8/00 0.061
9/00 0.061
</TABLE>

The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.

7
<PAGE> 266

TOP FIVE HOLDINGS

(as a percentage of long-term investments -- September 30, 2000)

<TABLE>
<S> <C> <C>
New York St Dorm Authority Revenue State University
Educational Facility Series B 2.8%
---------------------------------------------------------------------
Metropolitan Transportation Authority NY Commuter Facility
Revenue 2.7%
---------------------------------------------------------------------
New York St Thruway Authority General Revenue Series E 2.6%
---------------------------------------------------------------------
Monroe County, NY Individual Development Agency 2.6%
---------------------------------------------------------------------
New York St Medical Care Facility Hospital & Nursing Home 2.6%
---------------------------------------------------------------------
</TABLE>

TOP FIVE SECTORS

(as a percentage of long-term investments)
[BAR GRAPH]

<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Higher Education 32.30 25.50
General Purpose 14.80 12.50
Transportation 10.30 10.70
Other Care 9.40 7.80
Industrial Revenue 7.20 9.30
</TABLE>

8
<PAGE> 267

[PHOTO]

Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN NEW YORK TAX
FREE INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED SEPTEMBER
30, 2000. THE TEAM IS LED BY DENNIS PIETRZAK, SENIOR PORTFOLIO MANAGER, WHO HAS
MANAGED THE FUND SINCE 1995 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE
1968. THE FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE FUND'S PERFORMANCE.

Q HOW WOULD YOU CHARACTERIZE THE
MARKET ENVIRONMENT YOU FACED IN MANAGING THE FUND, AND HOW DID THE FUND
PERFORM IN THE ENVIRONMENT?

Short-term interest rates climbed steadily as the Federal Reserve Board
increased key short-term lending rates four times over the past 12 months,
reacting to strong economic growth, rising commodities prices, and a tight labor
market. Rising yields at the short end of the maturity spectrum caused increased
volatility, affecting long-term rates as well as credit spreads across all
fixed-income products.

Long-term municipal bonds were on a bit of a roller-coaster ride, declining
and then rallying twice during the 12-month period, with yields finally settling
at virtually the same level as at the beginning of the period. Prices climbed
strongly going into September 2000, but eased off by month's end, as the yield
on the 30-year general obligation bond rose to about 7.22 percent.

One effect of this market volatility was the widening of the yield spread
between high-rated municipals and lower-rated, higher-yielding/higher-risk
municipals. As investors sensed the market's uncertainty, municipal-bond mutual
funds experienced outflows of investor assets. This meant that demand for
higher-yielding municipal bonds in general was somewhat reduced, though demand
for New York municipals held up quite well. Still, prices in this sector of the
market fell sharply and the fund--which had placed a significant emphasis on
yield, compared to similar funds--was hurt by its relatively high concentration
of nonrated and lower-rated bonds.

Supply in the municipal market has been sharply lower, which provided some
support for prices. Issuance of new municipal debt has declined because the
strong economy has allowed municipalities such as state governments to
accumulate sizable budget surpluses, which has reduced

9
<PAGE> 268

the need to raise money through debt offerings. Also, higher interest rates made
it less attractive for municipalities to refund existing bond issues; instead,
they were more likely to buy back outstanding debt and retire it from the
marketplace.

The strength of New York municipal finances was reflected in continued
upgrades in the credit-quality ratings of select New York issues.

For the reporting period, the fund's total return lagged its peer group,
primarily because the portfolio had a higher allocation of nonrated or
lower-rated securities than similar funds. While these securities provided a
higher yield, they were also more vulnerable to price declines during market
volatility.

As of September 30, 2000, the fund had achieved a 12-month total return of
4.91 percent (Class A shares at net asset value; if the maximum sales charge of
4.75 percent were included, the return would have been lower). Of course, past
performance is no guarantee of future results. As a result of recent market
activity, current performance will vary from the figures shown. By comparison,
the fund's benchmark, the Lehman Brothers Municipal Bond Index, produced a total
return of 6.17 percent, and the Lehman Brothers New York Municipal Bond Index
(maturities greater than five years), which we believe closely resembles the
fund, returned 6.24 percent for the same time period. The Lehman Brothers
Municipal Bond Index is an unmanaged, broad-based statistical composite of
municipal bonds, and the Lehman Brothers New York Municipal Bond Index reflects
a statistical composite of New York investment-grade municipal bonds. These
indexes do not include any commissions or sales charges that would be paid by an
investor purchasing the securities they represent. Such costs would lower the
performance of the indexes. It is not possible to invest directly in an index.
Please refer to the footnotes and chart on page 4 for additional fund
performance results.

The fund's dividend remained stable throughout the period at $0.061 per
Class A share. As a result, its distribution rate stood at 4.68 percent at the
end of the reporting period. Please note that investors would have to earn a
distribution rate of 7.85 percent on a taxable investment (for an investor in
the 40.4 percent combined federal and state income tax bracket) to match the
tax-exempt yield provided by the fund.

Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?

A Because of the low supply of bonds
entering the primary market, we were more active in the secondary market. For
example, early in 2000 the market's pessimistic tone created opportunities to
buy deeply discounted bonds that had become oversold. We were able to acquire
several securities at attractive prices in this segment of the market.

In response to widening credit spreads, we reduced the fund's exposure to
nonrated and noninvestment-grade securities to less than 10 percent of long-term
investments, down from 16 percent at the start of the reporting period, and
increased the fund's allocation to higher-grade municipal bonds, improving the
overall

10
<PAGE> 269

credit quality of the portfolio. The prices of high-quality bonds are typically
less vulnerable to market volatility than those of lower-rated bonds. As of
September 30, 2000, we had increased the fund's high-quality, AA rated holdings
to 19.2 percent of long-term investments, up from 7.4 percent at the start of
the 12-month reporting period. Keep in mind that not all bonds in the portfolio
performed favorably, and there is no guarantee that any of these bonds will
perform as well or will be held by the portfolio in the future.

Other changes revolved around our decision to align the portfolio's duration
more closely with that of another commonly used index, the Lehman Brothers New
York Municipal Bond Index. Consequently, the fund's average adjusted duration
was reduced to 8.19 years, down from its duration of 9.55 years as of September
30, 1999, which may help make the fund less sensitive to interest-rate changes.

Q WHICH SECTORS OF THE MARKET
WERE YOU MOST CONCERNED ABOUT?

A There was no particular concern
about specific market sectors, but we did keep our eye on the health-care
sector. This market segment has struggled, which is reflected in declining
prices, so we were careful to protect the portfolio from excessive exposure to
this sector. By the end of the reporting period, we had reduced the fund's
holdings in health care to 3.17 percent of long-term investments, down from 5.63
percent at the start of the period.

Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?

A Because the level of interest rates
has such an influence on the value of municipal bonds, the market will be
carefully watching the actions of the Federal Reserve Board. It appears that
economic growth may be moderating, making it less likely that the Fed will
increase rates again in the very near future. In fact, some market-watchers are
expecting the Fed to decrease rates by the end of the year. In light of the
current market conditions, we remain neutral with respect to our interest-rate
outlook.

We anticipate that total bond issuance will be stable to lower through
year-end, as municipalities continue to be flush with cash and are reluctant to
issue new debt or refund outstanding debt at current market rates. We will
continue to look for opportunities to increase the credit quality of the
portfolio, possibly allocating more assets to the higher-grade sector of the
market.

It appears that the New York economy may continue to remain strong, keeping
state finances solid. Demand for the state's municipal bonds should remain
stable, as New York is a high-tax state.

Going forward, we will continue to rely on our strong research capabilities,
seeking to achieve the fund's investment objective over the long term.

11
<PAGE> 270

GLOSSARY OF TERMS

A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.

12
<PAGE> 271

BY THE NUMBERS

YOUR FUND'S INVESTMENTS

September 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 97.1%
NEW YORK 93.6%
$ 330 Bethlehem, NY Indl Dev Agy Sr Hsg Rev Van
Allen Proj Ser A............................. 6.875% 06/01/39 $ 302,894
1,630 Clifton Park, NY Wtr Auth Sys Rev Ser A (FGIC
Insd)........................................ 5.000 10/01/29 1,451,107
500 Erie Cnty, NY Indl Dev Agy Civic Fac Rev
Depaul Ppty Inc Proj Ser A................... 5.750 09/01/28 430,655
250 Erie Cnty, NY Indl Dev Agy Life Care Cmnty
Rev Episcopal Church Home Ser A (b).......... 6.000 02/01/28 206,650
700 Essex Cnty, NY Indl Dev Agy Environmental
Impt Rev Intl Paper Corp Proj Ser A.......... 6.450 11/15/23 717,248
500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg (b)............. 7.500 03/01/26 568,525
1,250 Long Island Power Auth, NY Elec Sys Rev Gen
Ser A (AMBAC Insd)........................... 5.500 12/01/09 1,309,025
1,000 Long Island Power Auth, NY Elec Sys Rev Gen
Ser A (FSA Insd)............................. 5.000 12/01/18 934,750
1,645 Metropolitan Tran Auth NY Commuter Fac Rev
(b).......................................... 5.500 07/01/14 1,645,461
500 Monroe Cnty, NY Indl Dev Agy Rev Indl Dev
Empire Sports Proj Ser A (b)................. 6.250 03/01/28 382,810
1,155 Monroe Cnty, NY Indl Dev Agy Saint John
Fisher College Proj (b)...................... 5.375 06/01/09 1,178,978
95 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................. 4.650 04/01/06 91,970
310 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................. 4.700 04/01/07 298,505
325 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................. 4.800 04/01/08 312,572
170 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................. 4.900 04/01/09 163,691
395 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................. 5.150 04/01/12 374,519
1,705 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................. 5.250 04/01/19 1,557,023
</TABLE>

See Notes to Financial Statements

13
<PAGE> 272

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 375 Mount Vernon, NY Indl Dev Agy Wartburg Sr Hsg
Inc Meadowview (b)........................... 6.000% 06/01/09 $ 352,391
1,000 Nassau Cnty, NY Ser F........................ 7.000 03/01/03 1,046,550
1,100 New York City Indl Dev Agy Brooklyn
Navy Yard.................................... 5.650 10/01/28 1,001,121
490 New York City Indl Dev Agy Civic Fac Rev
Cmnty Res Developmentally Disabled........... 7.500 08/01/26 499,996
500 New York City Indl Dev Agy Civic Fac Rev
College of New Rochelle Proj................. 5.750 09/01/17 501,530
375 New York City Indl Dev Agy Spl Fac Rev
Terminal One Group Assn Proj................. 5.700 01/01/04 385,995
350 New York City Indl Dev Civic Touro College
Proj Ser A................................... 6.350 06/01/29 335,255
500 New York City Indl Dev Civic YMCA Greater NY
Proj......................................... 6.000 08/01/07 523,170
500 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser B (AMBAC Insd) (b)................... 5.375 06/15/19 487,860
1,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser B (FSA Insd)......................... 5.250 06/15/29 929,370
1,325 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser B.................................... 6.000 06/15/33 1,369,825
500 New York City Ser B.......................... 5.700 08/15/07 528,015
1,000 New York City Ser B (a)...................... 5.875 08/01/15 1,046,450
500 New York City Ser C (Prerefunded @
08/15/01).................................... 7.250 08/15/24 512,560
1,255 New York City Ser H.......................... 5.000 03/15/29 1,097,774
500 New York City Ser H (Prerefunded @ 02/01/02)
(FSA Insd)................................... 7.000 02/01/21 523,880
1,250 New York City Tran Fin Auth Rev Ser B (FGIC
Insd)........................................ 4.750 11/01/23 1,081,950
510 New York St Dorm Auth Lease Rev Insd St
Judicial Inst At Pace........................ 5.500 07/01/09 534,679
600 New York St Dorm Auth Lease Rev Insd St
Judicial Inst At Pace........................ 5.500 07/01/10 628,788
1,000 New York St Dorm Auth Rev City Univ Cons
Third Ser 1 (FGIC Insd)...................... 5.250 07/01/25 938,710
1,230 New York St Dorm Auth Rev City Univ Ser D
(FSA Insd)................................... 5.750 07/01/12 1,308,449
300 New York St Dorm Auth Rev City Univ Ser F.... 5.000 07/01/14 284,661
750 New York St Dorm Auth Rev City Univ Sys Cons
Ser A........................................ 5.625 07/01/16 764,482
</TABLE>

See Notes to Financial Statements

14
<PAGE> 273

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 600 New York St Dorm Auth Rev City Univ Sys Third
Genl Res 2 Rfdg.............................. 6.000% 07/01/05 $ 632,976
500 New York St Dorm Auth Rev Court Fac Lease Ser
A............................................ 5.700 05/15/22 489,325
750 New York St Dorm Auth Rev FHA Nursing Home
Menorah (FHA Gtd)............................ 5.950 02/01/17 772,012
1,245 New York St Dorm Auth Rev Long Island Univ... 5.000 09/01/16 1,180,098
1,200 New York St Dorm Auth Rev Miriam Osborn Mem
Home Ser B................................... 6.375 07/01/29 1,236,912
1,000 New York St Dorm Auth Rev Mount Sinai Health
Ser A........................................ 5.625 07/01/04 1,028,130
830 New York St Dorm Auth Rev NY Univ Ser A
(AMBAC Insd) (a)............................. 5.250 07/01/06 850,891
1,245 New York St Dorm Auth Rev NY Univ Ser A
(AMBAC Insd) (a)............................. 5.250 07/01/07 1,278,279
1,000 New York St Dorm Auth Rev Second Hosp
Interfaith Med Cent Ser D.................... 5.750 02/15/08 1,050,460
500 New York St Dorm Auth Rev St Univ Edl Fac.... 5.750 05/15/10 523,670
1,000 New York St Dorm Auth Rev St Univ Edl Fac Ser
A (MBIA Insd)................................ 4.750 05/15/25 857,930
1,665 New York St Dorm Auth Rev St Univ Edl Facs
Ser B (FSA Insd)............................. 5.250 05/15/13 1,688,710
1,000 New York St Dorm Auth Rev St Univ Fac 1989
Res (MBIA Insd).............................. 6.000 05/15/15 1,063,290
500 New York St Energy Resh & Dev Auth Gas Fac
Rev Brooklyn Union Gas Co Ser B (Inverse
Fltg) (c).................................... 9.077 07/01/26 571,875
500 New York St Environmental Fac Corp Pollutn
Ctl Rev St Wtr Revolving Fund Ser D.......... 6.850 11/15/11 545,365
490 New York St Hsg Fin Agy Rev Insd Multi-Family
Mtg Ser B (AMBAC Insd)....................... 6.250 08/15/14 505,974
1,350 New York St Loc Govt Assist Ser E Rfdg....... 6.000 04/01/14 1,458,634
500 New York St Med Care Fac Fin Agy Rev NY Hosp
Mtg Ser A (Prerefunded @ 02/15/05) (AMBAC
Insd)........................................ 6.200 08/15/05 540,490
1,500 New York St Med Care Fac Fin Hosp & Nursing
Home Ser D................................... 6.200 02/15/28 1,543,065
500 New York St Mtg Agy Rev Homeowner Mtg Ser 30B
(b).......................................... 6.650 10/01/25 512,235
730 New York St Mtg Agy Rev Homeowner Mtg Ser 58
(b).......................................... 6.400 04/01/27 755,375
</TABLE>

See Notes to Financial Statements

15
<PAGE> 274

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$1,000 New York St Mtg Agy Rev Homeowner Mtg Ser
71........................................... 5.400% 04/01/29 $ 935,060
1,000 New York St Mtg Agy Rev Homeowner Mtg Ser
90........................................... 6.350 10/01/30 1,042,290
1,750 New York St Thruway Auth Gen Rev Ser E Rfdg.. 4.750 01/01/19 1,558,165
1,000 New York St Thruway Auth Svc Contract Rev Loc
Hwy & Brdg................................... 6.000 04/01/07 1,068,390
290 New York St Thruway Auth Svc Contract Rev Loc
Hwy & Brdg................................... 5.750 04/01/09 304,120
1,000 New York St Thruway Auth Svc Contract Rev Loc
Hwy & Brdg (AMBAC Insd) (a).................. 5.500 04/01/11 1,040,890
370 New York St Urban Dev Corp Rev Correctional
Cap Fac Rfdg................................. 5.625 01/01/07 380,231
300 New York St Urban Dev Corp Rev Correctional
Cap Fac Rfdg................................. 5.750 01/01/13 303,291
500 New York St Urban Dev Corp Rev Correctional
Cap Fac Ser A Rfdg........................... 5.500 01/01/14 504,880
420 Niagara Falls, NY Pub Impt (MBIA Insd)....... 6.900 03/01/20 453,751
325 Oneida Cnty, NY Indl Dev Agy Civic Fac St
Elizabeth Med Ser A.......................... 5.875 12/01/29 262,119
455 Orange Cnty, NY Indl Dev Agy Life Care The
Glen Arden Inc Proj.......................... 5.625 01/01/18 373,118
300 Port Auth NY & NJ Spl Oblig.................. 7.000 10/01/07 313,038
555 Rockland Cnty, NY Indl Dev Agy Civic Fac Rev
Dominican College Proj 144A Private Placement
(d).......................................... 6.250 05/01/28 484,698
400 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev
Spellman High Voltage Fac Ser A.............. 6.375 12/01/17 374,096
225 Syracuse, NY Hsg Auth Rev Sub Proj Loretto
Rest Ser B................................... 7.500 08/01/10 213,019
300 Triborough Brdg & Tunl Auth NY Rev Genl Purp
Ser A Rfdg................................... 5.000 01/01/12 296,799
350 Ulster Cnty, NY Indl Dev Agy Civic Fac Rev
Benedictine Hosp Proj Ser A.................. 6.250 06/01/08 332,056
500 Utica, NY Indl Dev Agy Civic Fac Rev Utica
College Proj Ser A........................... 5.750 08/01/28 471,870
-----------
58,407,421
-----------
GUAM 0.8%
500 Guam Arpt Auth Rev Ser B..................... 6.700 10/01/23 518,145
-----------
</TABLE>

See Notes to Financial Statements

16
<PAGE> 275

YOUR FUND'S INVESTMENTS

September 30, 2000

<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
U. S. VIRGIN ISLANDS 2.7%
$1,000 Virgin Islands Pub Fin Auth Rev Gross Rcpts
Taxes Loan Ser A............................. 6.375% 10/01/19 $ 1,025,030
650 Virgin Islands Pub Fin Auth Rev Sr Lien Fd Ln
Nts Ser C.................................... 5.500 10/01/07 656,578
-----------
1,681,608
-----------
TOTAL LONG-TERM INVESTMENTS 97.1%
(Cost $60,097,794)..................................................... 60,607,174
-----------
SHORT-TERM INVESTMENTS 6.6%
1,900 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser C.................................... 5.550 06/15/23 1,900,000
2,200 New York St Energy Resh & Dev Auth Pollutn
Ctl Rev NY St Elec & Gas Ser C............... 5.400 06/01/29 2,200,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $4,100,000)...................................................... 4,100,000
-----------

TOTAL INVESTMENTS 103.7%
(Cost $64,197,794)..................................................... 64,707,174

LIABILITIES IN EXCESS OF OTHER ASSETS (3.7%)............................ (2,285,107)
-----------

NET ASSETS 100.0%....................................................... $62,422,067
===========
</TABLE>

(a) Securities purchased on a when-issued or delayed delivery basis.

(b) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments and open futures transactions.

(c) An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by
the Fund to enhance the yield of the portfolio. The price of these
securities may be more volatile than the price of a comparable fixed rate
security.

(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
transactions with qualified institutional buyers.

AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Administration
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.

See Notes to Financial Statements

17
<PAGE> 276

FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2000

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $64,197,794)........................ $64,707,174
Cash........................................................ 107,673
Receivables:
Interest.................................................. 1,057,645
Fund Shares Sold.......................................... 271,750
Other....................................................... 1,998
-----------
Total Assets............................................ 66,146,240
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,180,666
Fund Shares Repurchased................................... 132,297
Investment Advisory Fee................................... 75,731
Income Distributions...................................... 74,270
Distributor and Affiliates................................ 71,523
Accrued Expenses............................................ 106,198
Trustees' Deferred Compensation and Retirement Plans........ 83,488
-----------
Total Liabilities....................................... 3,724,173
-----------
NET ASSETS.................................................. $62,422,067
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $64,501,013
Net Unrealized Appreciation................................. 509,380
Accumulated Net Investment Income........................... 165,615
Accumulated Net Realized Loss............................... (2,753,941)
-----------
NET ASSETS.................................................. $62,422,067
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $28,963,479 and 1,942,222 shares of
beneficial interest issued and outstanding)............. $ 14.91
Maximum sales charge (4.75%* of offering price)......... .74
-----------
Maximum offering price to public........................ $ 15.65
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $28,852,812 and 1,936,838 shares of
beneficial interest issued and outstanding)............. $ 14.90
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,605,776 and 308,987 shares of
beneficial interest issued and outstanding)............. $ 14.91
===========
</TABLE>

* On sales of $100,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

18
<PAGE> 277

Statement of Operations
For the Year Ended September 30, 2000

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 3,704,569
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $77,080, $273,870 and $48,687,
respectively)............................................. 399,637
Investment Advisory Fee..................................... 378,581
Shareholder Reports......................................... 86,845
Trustees' Fees and Related Expenses......................... 36,654
Legal....................................................... 18,251
Custody..................................................... 7,941
Other....................................................... 146,369
-----------
Total Expenses.......................................... 1,074,278
Expense Reduction ($378,581 Investment Advisory Fee and
$67,713 Other)........................................ 446,294
Less Credits Earned on Cash Balances.................... 1,911
-----------
Net Expenses............................................ 626,073
-----------
NET INVESTMENT INCOME....................................... $ 3,078,496
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(2,399,758)
Futures................................................... (237,906)
-----------
Net Realized Loss........................................... (2,637,664)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (1,711,632)
End of the Period:
Investments............................................. 509,380
-----------
Net Unrealized Appreciation During the Period............... 2,221,012
-----------
NET REALIZED AND UNREALIZED LOSS............................ $ (416,652)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 2,661,844
===========
</TABLE>

See Notes to Financial Statements

19
<PAGE> 278

Statement of Changes in Net Assets
For the Years Ended September 30, 2000 and 1999

Distributions from Net Investment Income........ (2,907,125) (2,758,315)
Distributions in Excess of Net Investment
Income........................................ -0- (16,019)
------------ ------------
Distributions from and in Excess of Net
Investment Income*............................ (2,907,125) (2,774,334)
Distributions from Net Realized Gains*.......... -0- (280,511)
------------ ------------
Total Distributions............................. (2,907,125) (3,054,845)
------------ ------------

NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................... (245,281) (5,256,039)
------------ ------------

FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold....................... 14,105,208 37,031,717
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................... 1,952,433 2,056,860
Cost of Shares Repurchased...................... (23,345,078) (10,970,966)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................. (7,287,437) 28,117,611
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS........... (7,532,718) 22,861,572
NET ASSETS:
Beginning of the Period......................... 69,954,785 47,093,213
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$165,615 and ($31,689), respectively)......... $ 62,422,067 $ 69,954,785
============ ============

* Distributions by Class
------------------------------------------------

Distributions from and in Excess of Net
Investment Income:
Class A Shares................................ $ (1,546,701) $ (1,566,371)
Class B Shares................................ (1,154,454) (1,029,529)
Class C Shares................................ (205,970) (178,434)
------------ ------------
$ (2,907,125) $ (2,774,334)
============ ============
Distributions from Net Realized Gain:
Class A Shares................................ $ -0- $ (147,076)
Class B Shares................................ -0- (116,190)
Class C Shares................................ -0- (17,245)
------------ ------------
$ -0- $ (280,511)
============ ============
</TABLE>

See Notes to Financial Statements

20
<PAGE> 279

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
SEPTEMBER 30 ENDED YEAR ENDED DECEMBER 31
CLASS A SHARES --------------- SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $14.94 $16.22 $15.73 $14.99 $15.05 $13.58
------ ------ ------ ------ ------ ------
Net Investment Income.............. .77 .79 .60 .79 .82 .82
Net Realized and Unrealized
Gain/Loss........................ (.07) (1.19) .51 .79 (.08) 1.48
------ ------ ------ ------ ------ ------
Total from Investment Operations..... .70 (.40) 1.11 1.58 .74 2.30
------ ------ ------ ------ ------ ------
Less:
Distributions from and in Excess of
Net Investment Income............ .73 .79 .60 .80 .80 .83
Distributions from Net Realized
Gain............................. -0- .09 .02 .04 -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions.................. .73 .88 .62 .84 .80 .83
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD... $14.91 $14.94 $16.22 $15.73 $14.99 $15.05
====== ====== ====== ====== ====== ======

Total Return* (a).................... 4.91% -2.61% 7.11%** 10.92% 5.14% 17.33%
Net Assets at End of the Period (In
millions).......................... $ 29.0 $ 36.6 $ 25.0 $ 18.0 $ 7.7 $ 5.4
Ratio of Expenses to Average Net
Assets*............................ .61% .33% .39% .64% .31% .21%
Ratio of Net Investment Income to
Average Net Assets*................ 5.26% 5.03% 5.01% 5.16% 5.56% 5.63%
Portfolio Turnover................... 58% 67% 53%** 60% 126% 51%
* If certain expenses had not been 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............................. 1.32% 1.23% 1.43% 1.47% 1.82% 2.10%
Ratio of Net Investment Income to
Average Net Assets................. 4.56% 4.13% 3.97% 4.33% 4.04% 3.74%
</TABLE>

** Non-Annualized

(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.

See Notes to Financial Statements

21
<PAGE> 280

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
SEPTEMBER 30 ENDED YEAR ENDED DECEMBER 31
CLASS B SHARES --------------- SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $14.92 $16.21 $15.73 $14.99 $15.05 $13.58
------ ------ ------ ------ ------ ------
Net Investment Income.............. .66 .68 .51 .69 .70 .71
Net Realized and Unrealized
Gain/Loss........................ (.06) (1.20) .51 .78 (.07) 1.48
------ ------ ------ ------ ------ ------
Total from Investment Operations..... .60 (.52) 1.02 1.47 .63 2.19
------ ------ ------ ------ ------ ------
Less:
Distributions from and in Excess of
Net Investment Income............ .62 .68 .52 .69 .69 .72
Distributions from Net Realized
Gain............................. -0- .09 .02 .04 -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions.................. .62 .77 .54 .73 .69 .72
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD... $14.90 $14.92 $16.21 $15.73 $14.99 $15.05
====== ====== ====== ====== ====== ======

Total Return* (a).................... 4.17% -3.34% 6.58%** 10.07% 4.37% 16.47%
Net Assets at End of the Period (In
millions).......................... $ 28.8 $ 28.2 $ 19.0 $ 13.1 $ 10.1 $ 9.7
Ratio of Expenses to Average Net
Assets*............................ 1.36% 1.08% 1.14% 1.36% 1.07% .93%
Ratio of Net Investment Income to
Average Net Assets*................ 4.51% 4.27% 4.26% 4.49% 4.79% 4.93%
Portfolio Turnover................... 58% 67% 53%** 60% 126% 51%
* If certain expenses had not been 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............................. 2.07% 1.98% 2.19% 2.18% 2.60% 2.82%
Ratio of Net Investment Income to
Average Net Assets................. 3.81% 3.37% 3.21% 3.67% 3.26% 3.04%
</TABLE>

** Non-Annualized

See Notes to Financial Statements

22
<PAGE> 281

Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.

<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
SEPTEMBER 30 ENDED YEAR ENDED DECEMBER 31
CLASS C SHARES --------------- SEPT. 30, ------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $14.92 $16.20 $15.73 $14.99 $15.04 $13.58
------ ------ ------ ------ ------ ------
Net Investment Income.............. .68 .68 .51 .68 .70 .71
Net Realized and Unrealized
Gain/Loss........................ (.07) (1.19) .50 .79 (.06) 1.47
------ ------ ------ ------ ------ ------
Total from Investment Operations..... .61 (.51) 1.01 1.47 .64 2.18
------ ------ ------ ------ ------ ------
Less:
Distributions from and in Excess of
Net Investment Income............ .62 .68 .52 .69 .69 .72
Distributions from Net Realized
Gain............................. -0- .09 .02 .04 -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions.................. .62 .77 .54 .73 .69 .72
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD... $14.91 $14.92 $16.20 $15.73 $14.99 $15.04
====== ====== ====== ====== ====== ======

Total Return* (a).................... 4.24% -3.28% 6.51%** 10.07% 4.44% 16.39%
Net Assets at End of the Period (In
millions).......................... $ 4.6 $ 5.1 $ 3.1 $ 1.0 $ .4 $ .4
Ratio of Expenses to Average Net
Assets*............................ 1.36% 1.08% 1.14% 1.41% 1.08% .98%
Ratio of Net Investment Income to
Average Net Assets*................ 4.52% 4.28% 4.22% 4.37% 4.78% 4.81%
Portfolio Turnover................... 58% 67% 53%** 60% 126% 51%
* If certain expenses had not been 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............................. 2.07% 1.98% 2.18% 2.23% 2.61% 2.86%
Ratio of Net Investment Income to
Average Net Assets................. 3.81% 3.38% 3.17% 3.55% 3.25% 2.93%
</TABLE>

** Non-Annualized

See Notes to Financial Statements

23
<PAGE> 282

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

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 business trust, and is registered
as a non-diversified open-end management investment company under the Investment
Company Act of 1940, 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 rated
investment grade at the time of purchase. The Fund commenced investment
operations on July 29, 1994, with three classes of common shares, Class A, Class
B and Class C.

C. INCOME AND EXPENSES Interest income is recorded on an accrual basis. Bond
premium is amortized and original issue discount is accreted over the expected
life

24
<PAGE> 283

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.

The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 2000, the Fund had an accumulated capital loss
carryforward for tax purposes of $912,578 which expires September 30, 2008. Net
realized gains or losses may differ for financial reporting and tax reporting
purposes primarily as a result of post-October losses which may not be
recognized for tax purposes until the first day of the following fiscal year,
and the deferral of losses related to wash sale transactions.

At September 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $64,255,381; the aggregate gross unrealized
appreciation is $1,470,318 and the aggregate gross unrealized depreciation is
$1,018,525, resulting in net unrealized appreciation on long- and short-term
investments of $451,793.

Due to inherent differences in the recognition of expenses under generally
accepted accounting principles and federal income tax purposes, the amount of
distributed net investment income may differ for a particular period. These
differences are temporary in nature, but may result in book basis distribution
in excess of net investment income for certain periods. Permanent differences
between financial and tax basis reporting for the 2000 fiscal year have been
identified and appropriately reclassified. Permanent book and tax basis
differences relating to the recognition of market discount on bonds totaling
$25,933 were reclassified from accumulated net realized gain/loss to accumulated
undistributed net investment income.

25
<PAGE> 284

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

F. EXPENSE REDUCTIONS During the year ended September 30, 2000, the Fund's
custody fee was reduced by $1,911 as a result of credits earned on overnight
cash balances.

2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES

Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser"), will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .60 of 1%
Over $500 million........................................... .50 of 1%
</TABLE>

For the year ended September 30, 2000, the Adviser voluntarily waived
$378,581 of its investment advisory fee and assumed $67,713 of the Fund's other
expenses. This waiver is voluntary in nature and can be discontinued at the
Adviser's discretion.

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $4,600, representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person. All of this expense has been assumed by Van
Kampen.

For the year ended September 30, 2000, the Fund recognized expenses of
approximately $38,800 representing Van Kampen's cost of providing accounting and
legal services to the Fund. A portion of this cost has been assumed by Van
Kampen.

Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
2000, the Fund recognized expenses of approximately $27,100. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.

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.

26
<PAGE> 285

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

3. CAPITAL TRANSACTIONS

At September 30, 2000, capital aggregated $30,297,930, $29,317,979, and
$4,885,104 for Classes A, B and C, respectively. For the year ended September
30, 2000, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 441,969 $ 6,454,775
Class B................................................. 463,481 6,776,777
Class C................................................. 59,464 873,656
---------- ------------
Total Sales............................................... 964,914 $ 14,105,208
========== ============
Dividend Reinvestment:
Class A................................................. 76,519 $ 1,118,570
Class B................................................. 47,021 687,193
Class C................................................. 10,041 146,670
---------- ------------
Total Dividend Reinvestment............................... 133,581 $ 1,952,433
========== ============
Repurchases:
Class A................................................. (1,026,835) $(15,010,842)
Class B................................................. (465,344) (6,811,266)
Class C................................................. (104,564) (1,522,970)
---------- ------------
Total Repurchases......................................... (1,596,743) $(23,345,078)
========== ============
</TABLE>

27
<PAGE> 286

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

At September 30, 1999, capital aggregated $37,735,427, $28,665,275 and
$5,387,748 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 1,174,020 $ 18,522,207
Class B................................................. 984,624 15,451,431
Class C................................................. 195,063 3,058,079
--------- ------------
Total Sales............................................... 2,353,707 $ 37,031,717
========= ============
Dividend Reinvestment:
Class A................................................. 82,755 $ 1,297,421
Class B................................................. 39,877 624,335
Class C................................................. 8,638 135,104
--------- ------------
Total Dividend Reinvestment............................... 131,270 2,056,860
========= ============
Repurchases:
Class A................................................. (347,401) $ (5,425,572)
Class B................................................. (302,183) (4,719,677)
Class C................................................. (53,303) (825,717)
--------- ------------
Total Repurchases......................................... (702,887) $(10,970,966)
========= ============
</TABLE>

Class B Shares purchased on or after June 1, 1996 and any dividend
reinvestment plan Class B Shares received on such shares, automatically convert
to Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan Class B Shares received on such shares, automatically
convert to Class A Shares seven years after the end of the calendar month in
which the shares were purchased. For the years ended September 30, 2000 and
1999, 13,791 and -0-Class B Shares automatically converted to Class A Shares,
respectively, and are shown in the above tables as sales of Class A Shares and
repurchases of Class B Shares. Class C Shares purchased before January 1, 1997,
and any dividend reinvestment plan C Shares received thereon, automatically
convert to Class A Shares ten years after the end of the calendar month in which
the shares are purchased. Class C Shares purchased on or after January 1, 1997
do not possess a conversion feature. For the years ended September 30, 2000 and
1999, no Class C Shares converted to Class A Shares. Class B and C Shares are
offered without a front end sales charge, but are subject to a contingent
deferred sales charge (CDSC). The CDSC will be imposed on most redemptions made
within six

28
<PAGE> 287

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

years of the purchase for Class B Shares and one year of the purchase for Class
C Shares as detailed in the following schedule.

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First....................................................... 4.00% 1.00%
Second...................................................... 3.75% None
Third....................................................... 3.50% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth....................................................... 1.00% None
Seventh and Thereafter...................................... None None
</TABLE>

For the year ended September 30, 2000, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A Shares of
approximately $13,800 and CDSC on redeemed shares of approximately $97,000.
Sales charges do not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $36,801,982 and $47,773,244,
respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.

The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/ depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising an option contract or 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 option or futures contract.

During the period the Fund invested in future contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a

29
<PAGE> 288

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

specified future date at an agreed upon price. The Fund generally invests in
futures on U.S. Treasury Bonds and the Municipal Bond Index and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.

Upon entering into future contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to broker based upon changes in the value of
the contract (the variation margin).

Transactions in futures contracts, each with a par value of $100,000, for
the year ended September 30, 2000, were as follows:

<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... -0-
Futures Opened.............................................. 180
Futures Closed.............................................. (180)
----
Outstanding at September 30, 2000........................... -0-
====
</TABLE>

6. DISTRIBUTION AND SERVICE PLANS

7. BORROWINGS

In accordance with its investment policies, the fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a

30
<PAGE> 289

NOTES TO
FINANCIAL STATEMENTS

September 30, 2000

rate of 0.50% above the federal funds rate per annum. An annual commitment fee
of 0.09% per annum is charged on the unused portion of the credit facility,
which each fund incurs based on its pro-rata percentage of quarterly net assets.
The Fund had no borrowings on September 30, 2000. The Fund has not borrowed
against the credit facility during the period.

31
<PAGE> 290

REPORT OF INDEPENDENT AUDITORS

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, including
the portfolio of investments, of Van Kampen New York Tax Free Income Fund (the
"Fund"), as of September 30, 2000, and the related statements of operations,
changes in net assets and financial highlights for the year 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 based on our audit. The statement of changes in net assets
of the Fund for the year ended September 30, 1999, and the financial highlights
for each of the five years in the period then ended were audited by other
auditors whose report dated November 11, 1999, expressed an unqualified opinion
on those statements.

SIG

Chicago, Illinois
November 8, 2000

32
<PAGE> 291

FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN NEW YORK TAX FREE INCOME FUND

BOARD OF TRUSTEES

OFFICERS

RICHARD F. POWERS, III*
President

STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer

A. THOMAS SMITH III*
Vice President and Secretary

JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer

RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER

VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

DISTRIBUTOR

VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555

SHAREHOLDER SERVICING AGENT

VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256

CUSTODIAN

STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

LEGAL COUNSEL

SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606

INDEPENDENT AUDITORS(1)

ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606

* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.

(SM) denotes a service mark of Van Kampen Funds Inc.

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales
charge, and other pertinent data. After March 31, 2001, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.