VAN KAMPEN MERRITT TAX FREE FUND /IL/, N-30D, 1995-08-29

VAN KAMPEN MERRITT TAX FREE FUND /IL/
N-30D, 1995-08-29

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<TABLE>

<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio Management Review .......... 4
Portfolio of Investments ............. 6
Statement of Assets and Liabilities ... 24
Statement of Operations .............. 25
Statement of Changes in Net Assets .... 26
Financial Highlights ................. 27
Notes to Financial Statements ......... 30

</TABLE>

Letter to Shareholders

August 3, 1995

Dear Shareholder:
The first half of 1995 has been a very positive
one for most investors. Both the fixed-income and
stock markets have made considerable gains for
the period ended June 30, 1995. This year has
been particularly rewarding for investors after
weathering the difficult markets of 1994.
The first six months of 1995 serve as a
reminder of just how quickly markets can move,
and how difficult it can be to predict the timing of
those movements. Moreover, this year reinforces
the importance of maintaining a long-term perspective,
and reaffirms the principle that it is
time---not timing---that leads to investment success.

[PHOTO]
Dennis J. McDonnell and Don G. Powell

Economic Overview
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially lower than
its first quarter of 2.7 percent and fourth quarter 1994 rate of 5.1 percent.
While other key economic data, including unemployment rates and housing
starts, have shown mixed signs during recent weeks, the general trend for the
first half of the year suggested a "soft landing" scenario. Subsequently,
concern over inflation has subsided, as its annualized rate has run at a
modest pace of 3.2 percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to
6.62 percent at the end of June, while prices on the "long bond" rose 18
percent. Likewise, the yield on the Bond Buyer's Municipal Bond Index fell from
7.28 percent to 6.37 percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

(Continued on page two)

Economic Outlook
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously before easing again, waiting for further signs that the
economy has settled into a slow growth pattern. We anticipate that the economy
will grow at an annual rate between 2 and 3 percent in the second half of the
year and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon a generally slow growth and low inflation outlook, we
believe fixed income markets will continue to make positive gains as interest
rates fall. We look for stocks to perform well, but perhaps not as strongly as
in the first half of the year, as some companies may find it difficult to
maintain their strong earnings momentum.

During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At this
point, no one knows for sure what will happen or when it might actually take
place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.

Once again, it is important to remember that financial markets will inevitably
experience highs and lows, but by maintaining a long-term investment
perspective, it may allow you to ride the ups and downs of the markets more
easily as you pursue your investment goals.
On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the
question-and-answer section helpful.

Corporate News
Along with your Fund's shareholder report, we are pleased to introduce a new
shareholder publication called Your Portfolio. The purpose of this publication
is to provide you with additional information about your mutual fund investment,
as well as offer helpful insights regarding long-term investment strategies and
trends in the marketplace. The publication will be mailed twice a year with your
June and December shareholder reports. This premier issue focuses on our various
shareholder services and privileges designed to make mutual fund investing
easier for you.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.

Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.
2

Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt Insured Tax Free Income Fund

<TABLE>
<CAPTION>
A Shares B Shares C Shares
Total Returns
<S> <C> <C> <C>
Six-month total return
based on NAV<F1> ............. 9.41% 8.99% 8.99%
Six-month total return<F2> ... 4.21% 4.99% 7.99%
One-year total return<F2> .... 2.87% 3.19% 6.19%
Five-year average
annual total return<F2> ...... 6.94% N/A N/A
Ten-year average
annual total return<F2> ...... 8.43% N/A N/A
Life-of-Fund average
annual total return<F2> ...... 9.34% 1.80% 2.13%
Commencement Date ........... 12/14/84 05/01/93 08/13/93
Distribution Rates and Yield
Distribution Rate<F3> ........ 5.23% 4.72% 4.72%
Taxable Equivalent
Distribution Rate<F4> ........ 8.17% 7.38% 7.38%
SEC Yield<F5> ................ 4.52% 3.93% 3.93%
N/A = Not Applicable
<FN>
<F1>Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).

<F2>Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for A shares) or
contingent deferred sales charge for early withdrawal (4% for B shares and 1%
for C shares).

<F3>Distribution rate represents the monthly annualized
distributions of the Fund at the end of the period and not the earnings of the
Fund.

<F4>Taxable equivalent calculations reflect a federal income tax rate of 36%.

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.

See the Fund Performance section of the current prospectus. Past performance
does not guarantee 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.

Portfolio Management Review
Van Kampen Merritt Insured Tax Free Income Fund

The following is an interview with the management team of the Van Kampen Merritt
Insured Tax Free Income Fund, including Joseph A. Piraro, portfolio manager, and
Peter W. Hegel, executive vice president, Van Kampen American Capital Investment
Advisory Corp.

Q.What market conditions had the greatest impact on the Fund's
performance during the six months ended June 30, 1995?
A.The municipal bond market experienced a significant rally during the last six
months.
The speed and strength of the market's recovery---after the 1994 downturn due
to the sharp increase in interest rates---was impressive. (Rising interest rates
have a negative effect on the value of municipal bonds, while falling interest
rates cause their value to rise.)
When it became apparent at the beginning of the year that the economy was
slowing down, and interest rates had likely peaked---there was a positive impact
on the bond market, and in turn, on the Fund.
The overall supply and demand scenario has also remained positive. The
availability of new municipal bonds (supply) is down approximately 45 percent
from 1994 levels. However, we feel demand waned somewhat. This is due to several
factors including the strong U.S. stock market, the increased attractiveness of
alternative investments (like CDs), and wariness about the possibility of tax
reform. However, the general supply and demand ratio still favors the market and
contributes to its overall price stability.
Finally, although the entire municipal bond market felt repercussions from the
bankruptcy of Orange County, CA late in 1994, the insured municipal bond market
was cushioned from credit difficulties. Additionally, the Orange County incident
has heightened both the supply of--and the demand for---insured municipal bonds.

Q.How did you position the Fund in response to the events of the
past six months?
A.The focus remained on delivering a competitive, high level of tax-free income
through investments in insured municipal bonds (insured for timely payment of
principal and interest).
Since there is little credit risk in this fund, we try to maintain a balance
of insurers (insurance companies backing the bonds) to further diversify the
Fund. Additionally, we continue to monitor the insurers to be sure their capital
bases are strong.
The portfolio remains invested in a combination of "national" as well as
"specialty state" securities. Specialty states, in which the debt is exempt from
state as well as federal income taxes, include California, New York, Colorado,
Missouri, New Jersey and Ohio. These securities benefit from very strong supply
and demand fundamentals (low supply coupled with strong demand helps to increase
price stability). "National" issues do not provide dual tax exemption, but
generally come to market with higher yields because there isn't as much demand
for them.
The Fund's average weighted maturity remained in the 20-year range, while its
duration was reduced to about 7.5 years from 8.7 years in January. (A lower
duration helps increase NAV stability, by reducing its sensitivity to changes in
interest rates.)

Q.How did the Fund perform during the six months ended
June 30, 1995?
A.For the six-month period ending June 30, 1995, the Fund's Class A share total
return, at net asset value, was 9.41 percent<F1>. During the same period, the
category average for all insured municipal debt funds tracked by Lipper
Analytical Services was 9.22 percent.
Finally, we continued to provide investors with an attractive level of
tax-free income. At its current annualized dividend level of $1.026 per share,
the Fund provides shareholders with a tax-free distribution rate of 5.23
percent<F3> (Class A shares) as of June 30, 1995. At this distribution rate, the
Fund provides shareholders in the 36 percent federal income tax bracket with a
yield equivalent to a taxable investment earning 8.17 percent<F4>. (Please refer
to the chart on page three for additional Fund performance.)

Q.What is your outlook for the remainder of 1995, and how will the
Fund be positioned?
A.We anticipate that the economy will grow slowly, and that inflation will
remain low. As a result, we believe that the fixed-income markets---including
municipal bonds---will continue to make modest gains.
Tax-free municipal bonds are currently yielding about 90 percent of taxable
U.S. Treasury securities, which is helping to bolster demand. (Typically,
tax-free bonds yield about 80 percent of Treasuries.) We believe that the impact
of tax reform and Orange County will diminish over the short term, and that
municipal bonds will return to their normal yield relationship with Treasury
securities. In other words, this could be a true buying
opportunity---particularly for the insured issues in which the Fund invests.
Sector-wise, we anticipate a continued focus on the "essential services"
sectors--- that is, services for which demand is relatively constant---and
resilient to economic conditions and/or political events. Health care is an
example of an "essential service" sector, and an area in which Van Kampen
American Capital's bond analysis capabilities have proven to be especially
strong. As such, we maintain a significant position in that sector---currently
about 24 percent of
net assets.
In addition, the Board of Directors of the Van Kampen American Capital
Tax-Exempt Trust---Insured Municipal Portfolio, has approved the merger of the
Fund into the Van Kampen Merritt Insured Tax Free Income Fund, pending
shareholder approval. The combination should generate greater economies of scale
and eliminate many of the costs of operation of each of the funds separately.

Peter W. Hegel Joseph A. Piraro
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.
5 Please see footnotes on page three

Portfolio of Investments
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
Municipal Bonds
Alabama 2.1%
<S> <C> <C> <C> <C>
$ 2,250 Alabama St Brd Edl Rev Shelton St Cmnty
College (MBIA Insd) .................................. 6.000% 10/01/14 $ 2,247,187
2,000 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd) .................................... 6.750 08/15/17 2,145,360
5,500 Limestone Cnty, AL Wtr Auth Wtr Rev (FGIC Insd) ....... 7.700 12/01/19 6,058,415
2,930 Montgomery, AL BMC Spl Care Fac Fin Auth Rev
Baptist Med Cent (AMBAC Insd) ........................ 9.750 10/01/15 3,026,661
5,500 Morgan Cnty Decatur, AL Hlthcare Auth Hosp Rev
Decatur Genl Hosp Rfdg (Connie Lee Insd) ............. 6.250 03/01/13 5,580,630
2,100 Muscle Shoals, AL Util Brd Wtr & Swr Rev (FSA Insd) ... 6.400 04/01/13 2,175,705
2,400 Muscle Shoals, AL Util Brd Wtr & Swr Rev (FSA Insd) ... 6.500 04/01/16 2,501,520
1,600 West Morgan East Lawrence Wtr Auth AL Wtr Rev
(FSA Insd) ........................................... 6.800 08/15/14 1,717,456
-----------
25,452,934
-----------
</TABLE>
<TABLE>
<CAPTION>
Alaska 0.2%
<S> <C> <C> <C> <C>
2,355 Ketchikan, AK Muni Util Rev Ser R (FSA Insd) ........... 6.600 12/01/07 2,551,431
-----------
Arizona 1.9%
11,000 Arizona St Ctfs Partn Ser B Rfdg (AMBAC Insd) .......... 6.250 09/01/10 11,530,310
1,500 Maricopa Cnty, AZ Unified Sch Dist No 80 Chandler
(FGIC Insd) ............................................ 5.800 07/01/09 1,529,895
1,000 Maricopa Cnty, AZ Unified Sch Dist No 80 Chandler
(FGIC Insd) ............................................ 5.900 07/01/10 1,018,080
2,000 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd) ........... 7.250 07/15/10 2,205,300
1,100 Santa Cruz Cnty, AZ Unified Sch Dist No 1
(AMBAC Insd) .......................................... * 01/01/09 489,962
1,100 Santa Cruz Cnty, AZ Unified Sch Dist No 1
(AMBAC Insd) .......................................... * 07/01/09 475,497
1,725 Tucson, AZ Loc Dev Business Dev Fin Corp Lease
Rev Rfdg (FGIC Insd) .................................. 6.250 07/01/12 1,782,494
1,800 Tucson, AZ Street & Hwy User Rev Sr Lien Ser A
(MBIA Insd) ........................................... 7.000 07/01/11 2,070,270
2,000 Tucson, AZ Street & Hwy User Rev Sr Lien Ser A
(MBIA Insd) ........................................... 7.000 07/01/12 2,304,480
-----------
23,406,288
-----------
</TABLE>

<TABLE>
<CAPTION>
California 25.2%
<S> <C> <C> <C> <C>
5,000 Bay Area Govt Assn CA Rev Ser A (AMBAC Insd) <F2> ....... 6.000 12/15/15 4,901,750
2,835 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy
Pool Ser A (Cap Guar Insd) .............................. 6.000 12/15/14 2,783,857
2,555 Berkeley, CA Unified Sch Dist Ser C (AMBAC Insd) ....... 5.875 08/01/12 2,554,821
1,985 Berkeley, CA Unified Sch Dist Ser C (AMBAC Insd) ....... 5.875 08/01/14 1,948,059
6 See Notes to Financial Statements

</TABLE>

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
California (Continued)
<S> <C> <C> <C> <C>
$ 5,000 Beverly Hills, CA Pub Fin Auth Lease Rev
Ser A (Inverse Fltg) (MBIA Insd) ................... 5.650% 06/01/15 $ 4,786,750
1,025 California Edl Fac Auth Rev College of Osteopathic
Rfdg (Connie Lee Insd) ............................. 5.650 06/01/07 1,032,903
1,900 California Hlth Fac Fin Auth Rev Insd Mills Peninsula
Ser A Rfdg (Connie Lee Insd) ....................... 5.750 01/15/15 1,791,548
10,000 California Hlth Fac Fin Auth Rev Sutter Hosp
Ser A Rfdg (AMBAC Insd) ............................. 6.700 01/01/13 10,476,500
3,605 California Pub Cap Impt Fin Auth Rev Pooled Proj
Ser B (MBIA Insd) ................................... 8.100 03/01/18 3,893,472
15,000 California St (FGIC Insd) ........................... 6.000 08/01/15 14,895,150
16,900 California St (FGIC Insd) ........................... 6.000 08/01/16 16,778,996
10,875 California St (FGIC Insd) ........................... 6.000 08/01/19 10,724,381
2,185 California St Pub Wks Brd Energy Efficiency Rev
Ser A (FSA Insd) .................................... 5.250 05/01/08 2,121,307
15,000 California St Pub Wks Brd Lease Rev
Dept of Corrections CA St Prison Susanville
Ser D (Cap Guar Insd) ............................... 5.250 06/01/15 13,669,200
1,645 California St Pub Wks Brd Lease Rev Dept of Justice
Bldg Ser A (FSA Insd) ............................... 5.600 05/01/08 1,634,456
16,250 California St Pub Wks Brd Lease Rev Var Univ CA
Projs Ser A (AMBAC Insd) ........................... 6.400 12/01/16 16,640,975
600 California St Var Purp (FGIC Insd) .................. 6.500 09/01/10 652,074
3,700 California St Var Purp (MBIA Insd) ................. 6.000 10/01/10 3,830,832
4,210 California Statewide Cmnty Dev Auth Rev Ctfs Partn
Sisters Charity Leavenworth (MBIA Insd) ............. 5.375 12/01/12 3,982,155
3,000 California Statewide Cmntys Ctfs Sutter Hlth
Oblig Group (MBIA Insd) ............................. 5.500 08/15/22 2,740,320
7,500 Castaic Lake Wtr Agy CA Ctfs Partn Wtr Sys Impt
Proj Ser A Rfdg (MBIA Insd) ........................ 6.000 08/01/18 7,398,075
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA Insd) .......... 6.200 09/01/18 3,036,630
200 Concord, CA Redev Agy Tax Alloc Cent Concord
Redev Proj (Prerefunded @ 07/01/96) (AMBAC Insd) ... 9.000 07/01/13 214,154
220 Concord, CA Redev Agy Tax Alloc Cent Concord
Redev Proj Ser 3 (MBIA Insd) ....................... 8.000 07/01/18 244,200
10,280 Concord, CA Redev Agy Tax Alloc Cent Concord Redev
Proj Ser 3 (Prerefunded @ 07/01/98) (MBIA Insd) ..... 8.000 07/01/18 11,574,560
2,595 Contra Costa Cnty, CA Santn Dist No 7 A Ctfs Partn
Sub-Delta Diablo Fin Corp (Prerefunded @ 12/01/98)
(MBIA Insd) ........................................ 7.600 12/01/08 2,922,645
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs Partn Fac
Refinancing (FGIC Insd) ............................ 6.300 09/01/12 1,277,038
7 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
California (Continued)
<S> <C> <C> <C> <C>
$ 6,500 Grossmont, CA Union High Sch Dist Ctfs Partn
(MBIA Insd) ............................................ *% 11/15/21 $ 1,076,985
399 Kern Cnty, CA Home Mtg Rev Ser A (MBIA Insd) ............ * 03/01/14 55,363
1,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark
Proj (FSA Insd) ......................................... 6.500 11/01/12 1,045,410
7,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark
Proj (FSA Insd) ......................................... 6.625 11/01/22 7,457,800
500 Long Beach, CA Redev Agy Downtown Redev Proj
Ser A (Prerefunded @ 11/01/98) (AMBAC Insd) ............ 7.750 11/01/10 564,215
3,500 Los Angeles Cnty, CA Cap Asset Lease Corp
Leasehold Rev Rfdg (AMBAC Insd) ........................ 6.000 12/01/16 3,458,245
6,420 Los Angeles, CA Unified Sch Dist Ctfs Partn Multi
Ppty Proj Rfdg (FSA Insd) ............................... 5.625 11/01/13 6,223,163
7,500 Manteca, CA Redev Agy Tax Alloc Redev Proj No 1
Ser A Rfdg (MBIA Insd) .................................. 6.700 10/01/21 8,016,225
1,000 Martinez, CA Ctfs Partn Martinez Pub Impt Corp
(Prerefunded @ 12/01/98) (AMBAC Insd) .................. 7.700 12/01/18 1,138,100
1,290 Martinez, CA Unified Sch Dist Gty Ctfs Elig Rfdg
(Cap Guar Insd) ........................................ 6.000 08/01/09 1,313,723
5,830 Moreno Vly, CA Spl Tax Towngate Cmnty Fac 87-1-A
Rfdg (Cap Guar Insd) ................................... 5.875 12/01/15 5,697,601
13,610 Norco, CA Redev Agy Tax Alloc Norco Redev Proj Area
No 1 Rfdg (MBIA Insd) .................................. 6.250 03/01/19 13,756,307
2,860 Orange Cnty, CA Ctfs Partn Juvenile Justice Cent Fac
Rfdg (AMBAC Insd) ...................................... 6.000 06/01/17 2,781,750
6,220 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ........ 6.000 06/01/10 6,135,284
10,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ........ 5.750 06/01/15 9,337,200
2,000 Oroville Wyandotte, CA Irrig Dist Rev Ctfs Partn Oroville
Wyandotte Pipeline Proj (AMBAC Insd) .................... 5.500 04/01/09 1,967,620
2,760 Palmdale, CA Civic Auth Rev Merged Redev Proj
Areas Ser A (MBIA Insd) ................................. 6.000 09/01/15 2,800,186
2,450 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) ........... 6.250 08/01/11 2,506,178
2,600 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) ........... 6.250 08/01/12 2,652,884
2,765 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) ........... 6.250 08/01/13 2,821,240
2,935 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) ........... 6.250 08/01/14 2,982,077
3,120 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) ........... 6.250 08/01/15 3,159,374
2,180 Petaluma, CA City Jt Union High Sch Dist Formerly
Petaluma CA City High Sch Dist Ser B (FGIC Insd) ....... * 08/01/18 479,927
3,500 Rancho, CA Wtr Dist Fin Auth Rev Rfdg (FGIC Insd) <F2> ... 5.900 11/01/15 3,433,535
1,400 Reedley, CA Pub Fin Auth Lease Rev Wastewtr
Treatment Plant Proj (AMBAC Insd) ....................... 6.050 05/01/15 1,382,360
8 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
California (Continued)
<S> <C> <C> <C> <C>
$ 1,000 Riverside, CA Swr Rev (Prerefunded @ 08/01/97)
(AMBAC Insd) ......................................... 7.700% 08/01/12 $ 1,091,280
4,000 Sacramento, CA Muni Util Dist Elec Rev Ser A
Rfdg (MBIA Insd) ..................................... 5.750 08/15/13 3,933,400
4,680 San Bernardino Cnty, CA Ctfs Partn Med Cent Fin
Proj Ser A (MBIA Insd) ............................... 5.500 08/01/15 4,403,459
13,800 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd) .......................... 6.940 07/01/16 13,377,582
7,455 San Francisco, CA City & Cnty Ctfs Partn
San Francisco Courthouse Proj (Cap Guar Insd) ........ 5.600 04/01/16 7,085,977
1,000 San Jose, CA Fin Auth Rev Convention Cent Rfdg
Proj Ser C (Cap Guar Insd) ........................... 6.300 09/01/09 1,033,380
1,775 San Jose, CA Redev Agy Tax Alloc Merged Area
Redev Proj (MBIA Insd) ................................ 6.000 08/01/15 1,800,844
2,500 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (AMBAC Insd) .................. 6.875 11/15/14 2,703,975
1,000 Santa Rosa, CA Wastewtr Svc Fac Dist Rfdg & Impt
(AMBAC Insd) ......................................... 6.200 07/02/09 1,027,040
2,000 Santa Rosa, CA Wtr Rev Ser B Rfdg (FGIC Insd) ........ 6.200 09/01/09 2,067,560
2,050 Santee, CA Redev Agy Tax Alloc Santee Cmnty Redev
Proj Rfdg (MBIA Insd) ................................. 7.900 11/01/13 2,195,202
2,510 Solano Cnty, CA Ctfs Partn Solano Park Hosp Proj
(FSA Insd) ........................................... 5.750 08/01/14 2,414,294
12,600 Southern CA Pub Pwr Auth (FSA Insd) .................. 6.000 07/01/12 12,560,058
1,000 Southern CA Rapid Tran Dist CA Rev Spl Benefit
Assmt Dist Ser A1 (AMBAC Insd) ....................... 5.500 09/01/09 982,550
2,460 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg
(MBIA Insd) .......................................... 6.750 01/01/12 2,560,688
2,000 University of CA Rev Ser A (Connie Lee Insd) ......... 5.700 09/01/14 1,903,600
1,000 Vallecito, CA Union Sch Dist Ctfs Partn (FSA Insd) ... 5.700 09/01/10 989,900
3,845 Vista, CA Unified Sch Dist Ctfs Partn Ser A Rfdg
(FSA Insd) ........................................... * 11/01/17 905,459
2,000 William S Hart CA Jt Sch Fin Auth Spl Tax Rev Cmnty
Fac Rfdg (Cap Guar Insd) ............................. 6.500 09/01/14 2,088,780
1,960 Y S Sch Fac Fin Auth CA Spl Tax Rev Sweetwater
Rfdg (MBIA Insd) ..................................... 5.850 09/01/08 1,968,742
2,250 Y S Sch Fac Fin Auth CA Spl Tax Rev Sweetwater Rfdg
(MBIA Insd) .......................................... 5.950 09/01/09 2,258,325
------------
310,101,655
------------
9 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
District of Columbia 0.1%
<S> <C> <C> <C> <C>
250 District of Columbia Ser B Rfdg (MBIA Insd) ............. * 06/01/04 152,092
500 District of Columbia Ser C (Prerefunded @ 06/01/98)
(AMBAC Insd) ............................................ 8.000 06/01/08 560,965
--------
713,057
--------
</TABLE>
<TABLE>

<CAPTION>
Florida 3.7%
<S> <C> <C> <C> <C>
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd) ... 8.000 10/01/03 1,221,847
690 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd) ... 8.000 10/01/04 842,338
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd) ... 8.000 10/01/05 1,451,518
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd) ... 8.000 10/01/06 1,574,842
1,375 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd) ... 8.000 10/01/07 1,704,862
2,095 Dade Cnty, FL Util Pub Impt Rfdg (FGIC Insd) ....... 12.000 10/01/04 3,164,351
295 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev
Ser C (FGIC Insd) ................................... 7.650 09/01/10 318,314
10 See Notes to Financial Statements
</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<CAPTION>
<S> <C> <C> <C> <C>
Georgia 3.9%
1,250 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention Cent
(MBIA Insd) ........................................... 6.250 12/01/08 1,316,250
1,750 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention Cent
(MBIA Insd) ........................................... 6.250 12/01/17 1,782,270
2,500 Fayette Cnty, GA Wtr Rev (Prerefunded @ 10/01/97)
(AMBAC Insd) .......................................... 8.000 10/01/20 2,754,300
6,500 Georgia Muni Elec Auth Pwr Rev Genl Ser B
(MBIA Insd) ........................................... * 01/01/07 3,405,220
4,750 Georgia Muni Elec Auth Pwr Rev Genl Ser B
(MBIA Insd) ........................................... * 01/01/08 2,323,985
8,430 Metropolitan Atlanta Rapid Tran Auth GA Sales Tax Rev
Bonds Ser J (Prerefunded @ 07/01/98) (FGIC Insd) ...... 8.000 07/01/18 9,471,105
15,550 Municipal Elec Auth GA Spl Oblig Fifth Crossover Ser
Proj One (AMBAC Insd) ................................. 6.400 01/01/13 16,567,125
10,000 Municipal Elec Auth, GA Spl Oblig Fifth Crossover Ser
Proj One (MBIA Insd) .................................. 6.500 01/01/17 10,776,600
-----------
48,396,855
-----------
Hawaii 1.1%
12,785 Hawaii St Arpt Sys Rev Ser 1993 Rfdg (MBIA Insd) ...... 6.400 07/01/08 13,570,255
-----------
11 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois 10.7%
$ 565 Aurora, IL Hosp Fac Rev Mercy Cent Hlthcare Svcs
Ser A (AMBAC Insd) ................................... 9.625% 10/01/09 $ 584,063
1,000 Bolingbrook, IL (FSA Insd) .......................... 6.000 01/01/15 977,540
1,000 Chicago, IL Gas Supply Rev Peoples Gas Lt & Coke
Proj Ser D (AMBAC Insd) ............................. 10.250 03/01/15 1,025,500
2,720 Chicago, IL Pub Bldg Comm Bldg Rev Chicago
Transit Auth (AMBAC Insd) ........................... 6.600 01/01/15 2,845,555
3,480 Chicago, IL Pub Bldg Comm Bldg Rev Ser A
(MBIA Insd) ......................................... * 01/01/06 1,906,970
3,105 Chicago, IL Pub Bldg Comm Bldg Rev Ser A
(MBIA Insd) ......................................... * 01/01/07 1,587,121
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd) ............................... 8.400 01/01/01 1,172,820
5,550 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd) <F3>. ......................... 8.750 01/01/03 6,834,880
8,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd) ............................... 8.750 01/01/04 10,552,327
2,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd) ............................... 8.750 01/01/05 3,099,846
3,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd) ............................... 8.750 01/01/07 3,837,840
3,000 Cook Cnty, IL Cmnty Cons Sch Dist No 054
Schaumburg Twp Ser B (FGIC Insd) .................... * 01/01/10 1,203,510
10,000 Cook Cnty, IL Cmnty Cons Sch Dist No 054
Schaumburg Twp Ser B (FGIC Insd) .................... * 01/01/11 3,714,100
1,280 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor (AMBAC Insd) .................... * 12/01/05 712,666
8,280 Cook Cnty, IL Cnty Juvenile Detention A
(AMBAC Insd) ......................................... * 11/01/08 3,788,266
2,500 Des Plaines, IL Hosp Fac Rev Holy Family Hosp Rfdg
(AMBAC Insd) ........................................ 9.250 01/01/14 2,608,800
40 Eastern IL Univ Rev Aux Fac Sys Rfdg (AMBAC Insd) ... 9.500 04/01/16 41,142
10,000 Illinois Dev Fin Auth Pollutn Ctl Rev Comwlth Edison
Co Proj Ser D Rfdg (AMBAC Insd) ..................... 6.750 03/01/15 10,673,800
35,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co Proj
Ser A 1st Mtg Rfdg (MBIA Insd) ...................... 7.400 12/01/24 40,311,600
2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford
Sch 205 (FSA Insd) ................................... 6.650 02/01/11 2,177,040
5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford
Sch 205 Rfdg (FSA Insd) .............................. 6.650 02/01/12 5,372,579
1,332 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm
Ser B (MBIA Insd) .................................... 7.900 08/15/03 1,365,420
12 See Notes to Financial Statements
</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
Illinois (Continued)
<S> <C> <C> <C> <C>
$ 20 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm
Ser B (Prerefunded @ 08/15/95) (MBIA Insd) ..... 7.900% 08/15/03 $ 20,484
210 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm
Ser B Rfdg (MBIA Insd) .......................... 7.900 08/15/03 243,991
2,085 Illinois Hlth Fac Auth Rev Hlth Fac SSM Hlth Care
Ser A (MBIA Insd) <F2> ......................... 5.750 06/01/12 2,006,416
5,000 Illinois Hlth Fac Auth Rev Hosp Sisters Svcs
(Inverse Fltg) (MBIA Insd) ...................... 8.937 06/01/15 5,512,500
5,000 Illinois Hlth Fac Auth Rev Methodist Hlth Proj
(Inverse Fltg) (MBIA Insd) ...................... 9.060 05/01/21 5,575,000
3,400 Illinois Hlth Fac Auth Rev Rush Presbyterian
Saint Luke Hosp (Inverse Fltg) (MBIA Insd) ...... 9.260 10/01/24 3,765,500
6,110 Rosemont, IL Tax Increment 3 (FGIC Insd) ........ * 12/01/06 3,176,895
3,000 Rosemont, IL Tax Increment 3 (FGIC Insd) ........ * 12/01/07 1,453,590
1,185 Saint Clair Cnty, IL Ctfs Partn (MBIA Insd) ..... 8.000 12/01/04 1,428,577
1,285 Saint Clair Cnty, IL Ctfs Partn (MBIA Insd) ..... 8.000 12/01/05 1,557,664
-----------
131,134,002
-----------
</TABLE>
<TABLE>
<CAPTION>
Indiana 1.0%
<S> <C> <C> <C> <C>
2,000 Indiana Bond Bank Spl Pgm Ser A (AMBAC Insd) ..... 9.750 08/01/09 2,524,920
3,840 Indiana Hlth Fac Fin Auth Hosp Rev
Cmnty Hosp of IN (MBIA Insd) ..................... 7.000 07/01/21 4,129,306
5,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosp
Proj Rfdg & Impt (MBIA Insd) ..................... 6.400 05/01/12 5,135,100
1,000 Saint Joseph Cnty, IN Hosp Auth Hosp Fac Rev
Mem Hosp of South Bend Ser A Rfdg (MBIA Insd) ..... 7.000 08/15/20 1,076,730
-----------
12,866,056
-----------
Kansas 3.2%
36,250 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co
Proj Rfdg (MBIA Insd) <F3> ...................... 7.000 06/01/31 39,895,300
-----------
Kentucky 0.2%
500 Daviess Cnty, KY Hosp Rev Mercy Hlth Care Sys Ser A
(Prerefunded @ 09/01/97) (AMBAC Insd) ........... 9.750 09/01/11 557,905
85 Kentucky Cntys, 1987 Single Family Mtg Rev Rfdg
(MBIA Insd) ..................................... 8.625 09/01/15 92,008
2,000 Kentucky St Tpk Auth Res Rec Rd Rev 1985 Ser A
Rfdg (FGIC Insd) ................................. 6.000 07/01/09 2,003,080
-----------
2,652,993
-----------
Louisiana 1.2%
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 4,284,510
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 5,860,639
13 See Notes to Financial Statements

</TABLE>

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
Louisiana (Continued)
<S> <C> <C> <C> <C>
$ 3,150 Louisiana Pub Fac Auth Rev Pgm Hlth & Edl Cap Fac
Our Lady Med Cent Ser C (MBIA Insd) ............ 8.200% 12/01/15 $ 3,541,671
10,000 New Orleans, LA Home Mtg Auth Single Family Mtg
Rev 1985 Ser A (MBIA Insd) ..................... * 09/15/16 1,062,400
-----------
14,749,220
-----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Maine 0.4%
2,750 Easton, ME Indl Dev McCain Food Inc Proj Ser 1985
(AMBAC Insd) ......................................... 9.200 08/01/99 2,762,100
1,750 Maine Hlth & Higher Edl Fac Auth Rev Ser B
(FSA Insd) ........................................... 7.100 07/01/14 1,918,997
-----------
4,681,097
-----------
Maryland 0.8%
500 Baltimore, MD Ctfs Partn Ser A Rfdg
(Prerefunded @ 04/01/00) (MBIA Insd) ................. 7.200 04/01/10 562,365
1,000 Baltimore, MD Ctfs Partn Ser B (MBIA Insd) .......... 5.250 04/01/16 920,450
195 Baltimore, MD Ctfs Partn Ser C Rfdg (MBIA Insd) ..... 7.200 04/01/10 213,578
55 Baltimore, MD Ctfs Partn Ser C Rfdg
(Prerefunded @ 04/01/00) (MBIA Insd) ................. 7.200 04/01/10 61,860
2,345 Gaithersburg, MD Hosp Fac Rev Shady Grove
Rfdg & Impt (FSA Insd) <F2> ......................... 5.500 09/01/15 2,180,194
40 Maryland St Hlth & High Edl Fac Auth Rev North Arundel
Hosp Issue (Prerefunded @ 07/01/98) (MBIA Insd) ...... 7.875 07/01/21 44,776
6,570 Takoma Park, MD Hosp Fac Rev WA Adventist Hosp
Rfdg & Impt (FSA Insd) <F2> ......................... 5.500 09/01/15 6,166,142
-----------
10,149,365
-----------
Massachusetts 1.1%
1,540 Lowell, MA (Cap Guar Insd) .......................... 6.625 04/01/15 1,636,188
1,400 Massachusetts St Hlth & Edl Fac Auth Rev Mt Auburn
Hosp Ser A (Prerefunded @ 07/01/98) (MBIA Insd) ...... 7.875 07/01/18 1,567,174
1,700 Massachusetts St Hlth & Edl Fac Auth Rev Mt Auburn
Hosp Ser B-1 (MBIA Insd) ............................ 6.250 08/15/14 1,727,081
4,000 Massachusetts St Hlth & Edl Fac Auth Rev
Newton-Wellesley Hosp Issue C (MBIA Insd) ............ 8.000 07/01/18 4,441,200
3,800 Massachusetts St Hsg Fin Agy Hsg Proj Ser A
(AMBAC Insd) ........................................ 6.150 10/01/15 3,813,338
-----------
13,184,981
-----------
Michigan 1.3%
2,325 Bay City, MI (AMBAC Insd) ............................ * 06/01/15 670,600
1,000 Bay City, MI (AMBAC Insd) ............................ * 06/01/16 270,980
1,135 Iosco Cnty, MI Swr Sys No 3 East Tawas Rfdg
(AMBAC Insd) ........................................ 5.900 11/01/09 1,146,781
500 Kalkaska, MI Pub Schs (AMBAC Insd) ................... * 05/01/15 144,965
14 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
Michigan (Continued)
<S> <C> <C> <C> <C>
$ 14,750 Livonia, MI Pub Sch Dist Ser II
(Crossover Refunding @ 05/01/07) (FGIC Insd)..... *% 05/01/14 $4,802,010
21,000 Livonia, MI Pub Sch Dist Ser II
(Crossover Refunding @ 05/01/07) (FGIC Insd) .. * 05/01/21 4,194,960
2,000 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B
(Embedded Swap) (AMBAC Insd) .................. 4.390 04/01/04 1,855,380
1,500 Monroe Cnty, MI Pollutn Ctl Rev Insd Detroit Edison Co
Ser A (AMBAC Insd) ............................. 9.625 12/01/15 1,579,200
5,000 Mount Clemens, MI Cmnty Sch Dist Cap Apprec
(Prerefunded @ 05/01/07) (MBIA Insd) ........... * 05/01/17 1,306,250
-----------
15,971,126
-----------
</TABLE>

<TABLE>
<CAPTION>
Minnesota 0.8%
<S> <C> <C> <C> <C>
1,000 Brainerd, MN Rev Evangelical Lutheran Ser B Rfdg
(Cap Guar Insd) ..................................... 6.650 03/01/17 1,064,870
5,600 Minneapolis-Saint Paul, MN Hsg & Redev Auth
Hlthcare Sys Rev Hlth One Ser A (MBIA Insd) ......... 7.400 08/15/11 6,230,952
2,030 Southern MN Muni Pwr Agy Pwr Supply Sys Rev
Ser A (MBIA Insd) .................................... 5.750 01/01/18 1,977,545
----------
9,273,367
----------
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 1,296,420
----------
Missouri 3.0%
2,700 Central MO St Univ Rev Hsg Sys
(Prerefunded @ 07/01/01) (MBIA Insd) ................ 7.000 07/01/14 3,063,906
5,540 Green Cnty, MO Single Family Mtg Rev
(AMBAC Insd) ....................................... * 12/01/16 654,329
920 Jackson Cnty, MO Pub Fac Auth Insd Leasehold Rev
Cap Impts Proj Rfdg & Impt (MBIA Insd) .............. 6.125 12/01/15 938,069
1,510 Jackson Cnty, MO Single Family Mtg Rev Tax Exempt
Multiplier Bond (MBIA Insd) ........................ * 12/01/16 175,824
2,250 Kansas City, MO Muni Assistance Corp Rev
Leasehold H Roe Bartle Ser B1 Rfdg (AMBAC Insd) ..... 7.125 04/15/16 2,456,528
2,150 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev
Christian Hlth Ser A Rfdg & Impt
(Prerefunded @ 02/15/01) (FGIC Insd) ............... 6.800 02/15/06 2,404,990
2,350 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev
Christian Hlth Ser A Rfdg & Impt
(Prerefunded @ 02/15/01) (FGIC Insd) ............... 6.875 02/15/21 2,637,334
5,650 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev SSM
Hlthcare Proj Rfdg (MBIA Insd) ...................... 6.250 06/01/16 5,769,554
9,250 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev SSM
Hlthcare Proj Rfdg (Prerefunded @ 06/01/98)
(MBIA Insd) ........................................ 7.750 06/01/16 10,309,495
15 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
Missouri (Continued)
<S> <C> <C> <C> <C>
$ 1,000 Missouri St Hlth & Edl Fac Auth Rev Saint Luke's
Hosp KC Proj Rfdg & Impt (Prerefunded @ 11/15/01)
(MBIA Insd) ................................... 7.000% 11/15/13 $ 1,140,830
670 Saint Louis Cnty, MO Single Family Mtg Rev
(AMBAC Insd) .................................. 9.250 10/01/16 724,438
1,550 Saint Louis, MO Muni Fin Corp Leasehold Rev
Rfdg & Impt (FGIC Insd) ........................ 6.250 02/15/12 1,613,519
1,000 Saint Louis, MO Wtr Rev Rfdg & Impt (FGIC Insd) . 6.000 07/01/14 1,008,810
2,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd) ......... 6.200 06/01/10 2,139,020
1,000 Springfield, MO Sch Dist No R12 Ser B Rfdg
(FGIC Insd) .................................... 9.500 03/01/07 1,370,400
-----------
36,407,046
-----------
Nebraska 0.2%
1,250 Douglas Cnty, NE Hosp Auth No 1 Rev Immanuel Med
Cent Inc Rfdg (AMBAC Insd) ........................ 6.900 09/01/11 1,365,825
1,500 Douglas Cnty, NE Hosp Auth No 1 Rev Immanuel Med
Cent Inc Rfdg (AMBAC Insd) ........................ 7.000 09/01/21 1,635,195
-----------
3,001,020
-----------
Nevada 1.2%
1,705 Las Vegas, NV Downtown Redev Agy Tax Increment
Rev Parity Lien Ser A Rfdg (CM Insd) ............. 5.600 06/01/09 1,674,225
2,040 Las Vegas, NV Ltd Tax Remarketed Rfdg
(Prerefunded @ 11/01/97) (MBIA Insd) <F3> ........ 7.625 11/01/02 2,235,575
3,225 Reno, NV Hosp Rev Dates Saint Mary's Hosp Inc Ser B
(Prerefunded @ 01/01/00) (MBIA Insd) .............. 7.750 07/01/15 3,642,831
4,865 Reno, NV Hosp Rev Dates Saint Mary's Hosp Inc Ser C
(Prerefunded @ 01/01/00) (MBIA Insd) .............. 7.750 07/01/15 5,555,781
3,720 Washoe Cnty, NV Rfdg & Impt (MBIA Insd) .......... * 07/01/07 1,846,831
-----------
14,955,243
-----------
New Hampshire 0.2%
2,500 New Hampshire St Tpk Sys Rev Rfdg (Inverse Fltg)
(FGIC Insd) ....................................... 9.171 11/01/17 2,896,875
-----------
New Jersey 1.9%
2,620 Atlantic Cnty, NJ Util Auth Swr Rev Formerly Atlantic
Cnty, NJ Sewage Auth Ser A Rfdg (AMBAC Insd) ...... 5.850 01/15/15 2,595,844
1,950 Camden Cnty, NJ Muni Util Auth Swr Rev (FGIC Insd) . 8.250 12/01/17 2,144,142
5,500 Howell Twp, NJ Rfdg (FGIC Insd) ................... 6.800 01/01/14 5,970,030
1,250 Middlesex Cnty, NJ Ctfs Partn (MBIA Insd) ......... 6.000 08/15/14 1,269,513
3,625 Morristown, NJ Rfdg (FSA Insd) .................... 6.400 08/01/14 3,799,000
1,000 New Jersey Hlthcare Fac Fin Auth Rev Burdette
Tomlin Mem Hosp Ser C (Prerefunded @ 07/01/97)
(FGIC Insd) ....................................... 8.125 07/01/12 1,095,480
16 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
New Jersey (Continued)
<S> <C> <C> <C> <C>
$3,940 New Jersey St Hsg & Mtg Fin Agy Rev (MBIA Insd) ...... 8.100% 10/01/17 $ 4,252,166
2,250 Sussex Cnty, NJ Muni Util Auth Solid Waste Rev Ser A
(Prerefunded @ 12/01/98) (MBIA Insd) ............... 7.875 12/01/13 2,547,427
------------
23,673,602
------------
New York 7.4%
4,350 New York City Indl Dev Agy Civic Fac Rev USTA Natl
Tennis Cent Proj (FSA Insd) ......................... 6.375 11/15/14 4,479,064
5,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A (Prerefunded @ 06/15/97) (MBIA Insd) .......... 8.750 06/15/10 5,541,500
6,800 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser B (AMBAC Insd) ................................... 5.375 06/15/07 6,755,392
2,250 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser B (Prerefunded @ 06/15/97) (MBIA Insd) .......... 8.250 06/15/16 2,472,660
1,000 New York City Ser A (Prerefunded @ 11/01/97)
(AMBAC Insd) ........................................ 8.500 11/01/12 1,112,990
2,000 New York City Ser B (MBIA Insd) ...................... 6.950 08/15/12 2,198,240
50 New York City Ser C Subser C-1 (MBIA Insd) .......... 6.250 08/01/09 51,854
1,500 New York City Ser E Rfdg (MBIA Insd) ................. 6.200 08/01/08 1,604,190
5,000 New York St Dorm Auth Rev City Univ Sys 3rd Resolution
(AMBAC Insd) ........................................ 6.250 07/01/18 5,079,450
3,950 New York St Dorm Auth Rev City Univ Sys Ser C
(FGIC Insd) .......................................... 7.000 07/01/14 4,342,788
2,090 New York St Dorm Auth Rev Insd Mercy College
(AMBAC Insd) <F2> .................................... 5.625 07/01/16 1,973,315
1,500 New York St Dorm Auth Rev March of Dimes Fndtn
(Prerefunded @ 07/01/97) (AMBAC Insd) ............... 9.200 07/01/12 1,676,085
7,500 New York St Energy Resh & Dev Auth Pollutn Ctl Rev
NY St Elec & Gas Rfdg (MBIA Insd) .................... 5.900 12/01/06 7,848,675
675 New York St Med Care Fac Fin Agy Rev IBC Mental
Hlth Svcs Ser A (MBIA Insd) .......................... 7.750 08/15/10 755,541
435 New York St Med Care Fac Fin Agy Rev IBC Mental Hlth
Svcs Ser A (Prerefunded @ 02/15/00) (MBIA Insd) ..... 7.750 08/15/10 499,698
1,000 New York St Med Care Fac Fin Agy Rev Mental Hlth
Ser E (Cap Guar Insd) ................................ 6.500 08/15/15 1,035,960
28,535 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd) ................................... 6.750 08/15/14 30,477,663
50 New York St Med Care Fac Fin Agy Rev Saint Mary's
Hosp Private Ins Pgm (Prerefunded @ 11/01/95)
(AMBAC Insd) ........................................ 8.375 11/01/14 51,794
3,400 New York St Muni Bond Bank Agy Spl Pgm Rev
Rochester Ser A (MBIA Insd) .......................... 6.625 03/15/06 3,678,834
1,500 New York St Twy Auth Hwy & Brdg Trust Fd Ser B
(FGIC Insd) .......................................... 6.000 04/01/14 1,498,155
17 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
New York (Continued)
<S> <C> <C> <C> <C>
$6,000 New York St Twy Auth Svc Contract Rev Loc
Hwy & Brdg (MBIA Insd) ............................... 5.750% 04/01/13 $ 5,901,120
1,100 New York St Urban Dev Corp Rev Higher Edl
Tech Grants (MBIA Insd) .............................. 5.600 04/01/07 1,097,547
1,165 New York St Urban Dev Corp Rev Higher Edl
Tech Grants (MBIA Insd) .............................. 5.750 04/01/08 1,166,852
-----------
91,299,367
-----------
North Carolina 0.3%
1,295 Concord, NC Utils Sys Rev (MBIA Insd) ............... 5.500 12/01/14 1,232,646
1,250 Franklin Cnty, NC Ctfs Partn Jail & Sch Projs
(FGIC Insd) .......................................... 6.625 06/01/14 1,324,175
500 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev Ser A
(AMBAC Insd) ........................................ 12.900 01/01/97 564,275
------------
3,121,096
------------
North Dakota 0.5%
5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope Vly Station
Rfdg (AMBAC Insd) ................................... 7.200 06/30/13 5,775,650
------------
Ohio 3.1%
3,600 Akron Bath Copley, OH St Twp Hosp Dist Rev Akron
Genl Med Cent Proj (AMBAC Insd) ..................... 6.500 01/01/19 3,796,884
1,000 Akron Bath Copley, OH St Twp Hosp Dist Rev
Children's Hosp Med Cent Akron
(Prerefunded @ 11/15/00) (AMBAC Insd) ............... 7.450 11/15/20 1,148,650
250 Clermont Cnty, OH Hosp Fac Rev Mercy Hlthcare Sys
Prov Cincinnati Ser A (AMBAC Insd) ................... 9.750 09/01/13 257,455
5,000 Clermont Cnty, OH Hosp Fac Rev Muni (Inverse Fltg)
(AMBAC Insd) ........................................ 9.031 10/05/21 5,687,500
2,010 Cleveland, OH (MBIA Insd) ........................... 6.500 11/15/09 2,217,151
2,285 Cleveland, OH (MBIA Insd) ........................... 6.500 11/15/10 2,511,558
1,000 Cuyahoga Cnty, OH Hosp Rev Richmond Heights
Genl Hosp Rfdg (AMBAC Insd) ......................... 10.000 12/01/11 946,210
1,400 Dover, OH Muni Elec Sys Rev (FGIC Insd) .............. 5.950 12/01/14 1,398,306
1,050 Fairfield, OH City Sch Dist (FGIC Insd) ............. 7.200 12/01/11 1,198,911
2,000 Fairfield, OH City Sch Dist (FGIC Insd) ............. 6.100 12/01/15 2,033,800
8,625 Hamilton, OH Elec Sys Mtg Rev Mtg City of Hamilton
Ser B (Prerefunded @ 10/15/98) (FGIC Insd) ........... 8.000 10/15/22 9,769,537
3,110 Kings Local Sch Dist OH (FGIC Insd) ................. 7.500 12/01/16 3,770,844
2,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl OH Edison
Ser A Rfdg (FGIC Insd) .............................. 7.450 03/01/16 2,772,925
650 Richland Cnty, OH Hosp Impt Mtg Rev Mansfield Genl
Hosp Rfdg (AMBAC Insd) .............................. 9.375 12/01/09 677,254
------------
38,186,985
------------
18 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oklahoma 0.8%
$ 1,000 Norman, OK Regl Hosp Auth Hosp Rev (MBIA Insd) . 6.900% 09/01/21 $ 1,074,090
3,890 Oklahoma City, OK Indl & Cultr Hlth Fac
(MBIA Insd) <F2> ................................ 5.875 06/01/21 3,737,395
4,425 Oklahoma Hsg Fin Agy Single Family Rev Mtg Ser A
(MBIA Insd) .................................... 7.200 03/01/11 4,730,945
------------
9,542,430
------------
</TABLE>
<TABLE>
<CAPTION>
Oregon 0.3%
<S> <C> <C> <C> <C>
1,960 Tillamook Cnty, OR (FGIC Insd) ..................... 6.250 01/01/14 2,026,620
1,000 Wasco Cnty, OR Vets Home (FSA Insd) ............... 6.200 06/01/13 1,037,420
----------
3,064,040
----------
Pennsylvania 1.7%
1,155 Commodore Perry Sch Dist PA Rfdg (MBIA Insd) ...... 5.500 02/01/16 1,096,326
2,000 Dauphin Cnty, PA Genl Auth Hosp Rev Hapsco
Phoenixville Hosp Proj B (FGIC Insd) .............. 6.125 07/01/10 2,046,480
1,000 Emmaus, PA Genl Auth Rev Var Loc Govt Bond Pool
Pgm Ser B Var Rate Cpn (MBIA Insd) ................ 8.000 05/15/18 1,098,030
2,050 Harrisburg, PA Redev Auth Rev Cap Impt Ser A
(FGIC Insd) ........................................ 7.875 11/02/16 2,209,900
3,250 Indiana Cnty, PA Indl Dev Auth Pollutn Ctl Rev NY St
Elec & Gas Corp Ser A Rfdg (MBIA Insd) ............. 6.000 06/01/06 3,425,565
3,750 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn Ctl
Ser E Rfdg (MBIA Insd) ............................. 6.700 12/01/21 4,010,700
1,000 Northeastern PA Hosp & Edl Auth College Rev Gtd
Luzerne Cnty Cmnty College (AMBAC Insd) ........... 6.625 08/15/15 1,059,350
2,250 Philadelphia, PA Gas Wks Rev 14th Ser A Rfdg
(FSA Insd) ........................................ 6.375 07/01/14 2,314,462
1,000 Saint Mary Hosp Auth Bucks Cnty, PA Rev Franciscan
Hlth Saint Mary Ser A (MBIA Insd) ................. 6.500 07/01/22 1,044,280
1,000 Saint Mary Hosp Auth Bucks Cnty, PA Rev Franciscan
Hlth Sys Ser B (MBIA Insd) ......................... 6.500 07/01/12 1,044,990
1,000 State Pub Sch Bldg Auth PA Sch Rev Burgettstown
Sch Dist Ser D (MBIA Insd) ......................... 6.500 02/01/14 1,043,380
----------
20,393,463
----------
Rhode Island 1.8%
2,000 Rhode Island St Hlth & Edl Bldg Corp Rev Higher Edl
Fac Roger Williams (Connie Lee Insd) ............... 7.250 11/15/24 2,233,760
18,000 Rhode Island St Hlth & Edl Bldg Corp Rev RI Hosp
(Inverse Fltg) (FGIC Insd) <F3> .................... 9.056 08/15/21 20,452,500
----------
22,686,260
----------
</TABLE>
19 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
South Carolina 2.8%
<S> <C> <C> <C> <C>
$1,500 Charleston Cnty, SC Ctfs Partn Ser B (MBIA Insd) ..... 6.875% 06/01/14 $ 1,626,465
1,500 Chesterfield Cnty, SC Sch Dist Ctfs Partn Chesterfield
Sch Fac Inc (MBIA Insd) .............................. 5.900 07/01/11 1,508,970
3,000 Florence Cnty, SC Pub Fac Corp Ctfs Partn
Law Enforcement Proj Civic Cent
(Prerefunded @ 03/01/00) (AMBAC Insd) ............... 7.600 03/01/14 3,394,920
1,000 Greenville, SC Hosp Sys Hosp Fac Rev Ser A
(Prerefunded @ 05/01/98) (FGIC Insd) ................ 7.800 05/01/15 1,113,280
1,500 Greenwood Cnty, SC Hosp Rev Self Mem Hosp
Ser A (Prerefunded @ 10/01/97) (MBIA Insd) .......... 8.375 10/01/17 1,664,550
1,700 Greenwood Cnty, SC Hosp Rev Self Mem Hosp
Ser B (Prerefunded @ 10/01/97) (MBIA Insd) .......... 8.375 10/01/17 1,886,490
2,000 Hilton Head Pub Svc Dist No 1 SC Wtrwks & Swr Sys
Rev (MBIA Insd) ..................................... 5.500 08/01/15 1,899,700
2,000 Lexington Cnty, SC Sch Dist No 1 Ctfs Partn Pgm
Ser A (FGIC Insd) ................................... 6.000 09/01/09 2,036,300
1,235 Piedmont Muni Pwr Agy SC Elec Rev Rfdg
(FGIC Insd) .......................................... 6.750 01/01/20 1,359,871
635 Saint Andrews, SC Pub Svcs Dist Swr Sys Rev
(FGIC Insd) .......................................... 7.750 01/01/18 690,905
17,705 South Carolina St Pub Svc Auth Ser A Rfdg
(MBIA Insd) <F2> ..................................... 5.750 01/01/13 16,948,997
----------
34,130,448
----------
South Dakota 0.7%
4,205 South Dakota St Lease Rev Trust Ctfs Ser A
(Cap Guar Insd) ..................................... 6.625 09/01/12 4,597,831
4,000 South Dakota St Lease Rev Trust Ctfs Ser A
(Cap Guar Insd) ..................................... 6.700 09/01/17 4,387,240
----------
8,985,071
----------
Tennessee 0.6%
1,000 Chattanooga, TN Swr & Sewage Fac (FGIC Insd) <F2> ... 5.600 06/01/13 973,490
2,000 Chattanooga-Hamilton Cnty, TN Hosp Auth Hosp Rev
Erlanger Med Cent Ser B (Inverse Fltg)
(Prerefunded @ 05/01/01) (FSA Insd) .................. 9.206 05/25/21 2,482,500
3,320 Johnson City, TN Sch Sales Tax (AMBAC Insd) ......... 6.700 05/01/18 3,576,935
----------
7,032,925
----------
Texas 5.9%
3,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains
Baptist Hosp (Inverse Fltg) (FSA Insd) ................ 8.430 01/03/22 3,240,000
12,500 Austin, TX Util Sys Rev Comb Ser A Rfdg (MBIA Insd) ... * 11/15/10 4,896,125
1,210 Baytown, TX Wtr & Swr Rev (MBIA Insd) <F2> ........... 5.950 02/01/14 1,197,852
6,500 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co
(MBIA Insd) <F2> ...................................... 5.800 08/01/15 6,217,575
20 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
Texas (Continued)
<S> <C> <C> <C> <C>
$ 9,000 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co
Proj B Rfdg (MBIA Insd) <F3> .......................... 8.250% 05/01/15 $ 9,995,940
6,515 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co
Proj C Rfdg (MBIA Insd) ................................ 8.100 05/01/19 7,210,281
3,840 Corpus Christi, TX Hsg Fin Corp Single Family Mtg
Rev Ser A Rfdg (MBIA Insd) ............................ 7.700 07/01/11 4,184,640
6,525 Dallas Cnty, TX Util & Reclamation Dist (MBIA Insd) ... * 02/15/07 3,111,577
6,780 Dallas Cnty, TX Util & Reclamation Dist (MBIA Insd) ... * 02/15/08 2,985,980
7,705 Dallas Cnty, TX Util & Reclamation Dist (MBIA Insd) ... * 02/15/09 3,112,049
475 Dallas Cnty, TX Util & Reclamation Dist
(Prerefunded @ 02/15/00) (MBIA Insd) ................... * 02/15/07 235,363
470 Dallas Cnty, TX Util & Reclamation Dist
(Prerefunded @ 02/15/00) (MBIA Insd) ................... * 02/15/08 216,698
895 Dallas Cnty, TX Util & Reclamation Dist
(Prerefunded at 02/15/00) (MBIA Insd) ................. * 02/15/09 381,342
8,000 Dallas-Fort Wrth, TX Regl Arpt Jt Dallas-Fort Worth
Intl Ser F Rfdg (FGIC Insd) <F2> ....................... 5.625 11/01/15 7,631,440
3,500 East TX Criminal Justice Fac Fin Corp Mtg Rev
City of Henderson Proj (AMBAC Insd) .................... 6.125 11/01/14 3,532,970
26,115 El Paso, TX Hsg Fin Corp Mtg Rev Single Family
(FGIC Insd) ............................................ * 11/01/16 2,782,814
2,745 Harris Cnty, TX Hlth Fac Dev Corp Spl Fac Rev TX
Med Cent Proj (MBIA Insd) .............................. 7.375 05/15/20 3,051,122
4,615 Harris Cnty, TX Toll Rd Tax & Sub Lien Ser A Rfdg
(FGIC Insd) ............................................ * 08/15/07 2,290,978
2,500 Houston, TX Hotel Occupancy Tax Rev Sr Lien Rfdg
(FSA Insd) ............................................ 5.500 07/01/15 2,363,850
1,625 Northwest Harris Cnty Muni Util Wtrwks & Swr Sys
Rfdg (MBIA Insd) <F2> .................................. 5.900 10/01/15 1,591,005
1,975 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth Sys Rev
Ser A (FGIC Insd) ..................................... 5.000 09/01/15 1,751,904
400 Texas Muni Pwr Agy Rev (Prerefunded @ 09/01/95)
(AMBAC Insd) .......................................... 7.000 09/01/14 402,248
----------
72,383,753
----------
Utah 1.7%
5,085 Beaver Cnty, UT Sch Dist (Prerefunded @ 11/01/02)
(AMBAC Insd) .......................................... 6.625 11/01/12 5,652,740
3,260 Payson City, UT Cnty UT Elec Pwr Rev (MBIA Insd) ....... 8.000 08/15/03 3,585,315
750 Provo, UT Elec Rev 1984 Ser A Rfdg (AMBAC Insd) ........ 10.375 09/15/15 1,062,247
3,500 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg
(Inverse Fltg) (AMBAC Insd) ........................... 9.008 05/15/20 3,898,125
500 Uintah Cnty, UT Pollutn Ctl Rev Natl Rural Util Deseret
Ser 1984 F (Prerefunded @ 06/15/01) (AMBAC Insd) ..... 10.000 06/15/09 635,710
21 See Notes to Financial Statements

</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
Utah (Continued)
<S> <C> <C> <C> <C>
$ 5 Utah St Hsg Fin Agy Single Family Mtg Private
Insd Mtg Ser A (AMBAC Insd) ...................... 10.750% 07/01/08 $ 5,062
7,385 Utah St Muni Fin Coop Loc Govt Rev Pool Cap
Salt Lake (FSA Insd) ............................ * 03/01/09 3,205,312
3,115 West Jordan, UT Multi-Family Rev Ser A Rfdg
(FSA Insd) ...................................... 6.800 01/01/15 3,252,216
----------
21,296,727
----------
Virginia 0.7%
2,315 Chesapeake Bay Brdg & Tunl Comm VA Dist Rev
Genl Resolution Rfdg (MBIA Insd) ................. 6.375 07/01/22 2,366,578
4,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd) .......... 6.800 03/01/14 4,321,080
1,125 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke Mem
Hosp Proj (Prerefunded @ 07/01/00) (MBIA Insd) ... 6.500 07/01/25 1,218,251
750 University of VA Hosp Rev Ser C Rfdg
(Prerefunded @ 06/01/00) (AMBAC Insd) ........... * 06/01/07 772,508
----------
8,678,417
----------
Washington 2.3%
1,250 Franklin Cnty, WA Pub Util Dist No 1 Elec Rev
(Prerefunded @ 09/01/01) (AMBAC Insd) ........... 7.100 09/01/08 1,409,650
350 Pierce Cnty, WA Swr Rev Ser A (MBIA Insd) ....... 9.000 02/01/05 437,913
1,000 Snohomish Cnty, WA Solid Waste Rev (MBIA Insd) .. 7.000 12/01/10 1,098,830
5,000 Spokane, WA Regl Solid Waste Mgmt Sys Rev
(AMBAC Insd) .................................... 6.250 12/01/11 5,139,300
9,435 Washington St Pub Pwr Supply Sys Nuclear Proj No 1
Rev Ser C Rfdg (FGIC Insd) ....................... 7.750 07/01/08 10,637,680
3,015 Washington St Pub Pwr Supply Sys Nuclear Proj No 2
Rev Ser C Rfdg (MBIA Insd) ...................... * 07/01/04 1,825,733
6,500 Washington St Pub Pwr Supply Sys Nuclear Proj No 2
Rev Ser C Rfdg (Prerefunded @ 01/01/01) (FGIC Insd) 7.375 07/01/11 7,438,535
----------
27,987,641
----------
West Virginia 0.1%
1,235 South Charleston, WV Hosp Rev Herbert J Thomas Mem
Hosp Rfdg (Prerefunded @ 10/01/98) (MBIA Insd) .. 8.000 10/01/10 1,397,341
----------
Wisconsin 0.1%
1,000 Wisconsin St Hlth & Edl Fac Hlth Fac SSM Hlth Care
Ser A (MBIA Insd) <F2> ......................... 5.875 06/01/20 959,510
----------

22 See Notes to Financial Statements
</TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

*Zero coupon bond

<FN>

<F1> At June 30, 1995, cost for federal income tax purposes is $1,160,224,293;
the aggregate gross unrealized appreciation is $82,102,472 and the
aggregate gross unrealized depreciation is $3,345,748, resulting in net
unrealized appreciation including open futures transactions of
$78,756,724.
<F2> Securities purchased on a when issued or delayed delivery basis.
<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments and open futures transactions.

</FN>
</TABLE>
23 See Notes to Financial Statements

Statement of Assets and Liabilities
June 30, 1995 (Unaudited)

Assets:
<S> <C>
Investments, at Market Value (Cost $1,160,224,293) (Note 1) .............................. $ 1,238,341,705
Short-Term Investments (Note 1) .......................................................... 33,300,000
Cash .................................................................................... 79,788
Receivables:
Interest ............................................................................... 20,336,265
Investments Sold ...................................................................... 16,073,996
Fund Shares Sold ....................................................................... 449,983
Other ................................................................................... 27,600
----------------
Total Assets ............................................................................. 1,308,609,337
----------------
Liabilities:
Payables:
Investments Purchased .................................................................. 74,138,233
Income Distributions .................................................................. 1,712,956
Fund Shares Repurchased ............................................................... 1,476,780
Investment Advisory Fee (Note 2) ...................................................... 430,036
Margin on Futures (Note 5) ............................................................ 154,687
Accrued Expenses ......................................................................... 1,490,099
----------------
Total Liabilities ........................................................................ 79,402,791
----------------
Net Assets ............................................................................... $ 1,229,206,546
----------------
Net Assets Consist of:
Paid in Surplus (Note 3) ................................................................. $ 1,165,552,472
Net Unrealized Appreciation on Investments .............................................. 78,756,724
Accumulated Undistributed Net Investment Income ......................................... 203,925
Accumulated Net Realized Loss on Investments ............................................. (15,306,575)
----------------
Net Assets ............................................................................... $ 1,229,206,546
----------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $1,191,921,625 and
63,729,971 shares of beneficial interest issued and outstanding) (Note 3) ............... $ 18.70
Maximum sales charge (4.75%* of offering price) .......................................... .93
----------------
Maximum offering price to public ......................................................... $ 19.63
----------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $33,968,772 and
1,817,267 shares of beneficial interest issued and outstanding) (Note 3) ................ $ 18.69
----------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $3,316,149 and
177,365 shares of beneficial interest issued and outstanding) (Note 3) .................. $ 18.70
----------------
*On sales of $100,000 or more, the sales charge will be reduced.

</TABLE>
24 See Notes to Financial Statements

Statement of Assets and Liabilities
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>

Investment Income:
<S> <C>
Interest .................................................................... $ 39,052,434
---------------
Expenses:
Investment Advisory Fee (Note 2) ........................................... 2,522,852
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of
$1,458,095, $162,598, $17,665 and $15, respectively) (Note 6) .............. 1,638,373
Shareholder Services ....................................................... 791,595
Legal (Note 2) ............................................................. 36,200
Insurance (Note 1) ......................................................... 27,256
Trustees Fees and Expenses (Note 2) ......................................... 12,644
Other ...................................................................... 373,424
---------------
Total Expenses .............................................................. 5,402,344
---------------
Net Investment Income ....................................................... $ 33,650,090
---------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ......................................................... $ 390,649,112
Cost of Securities Sold ..................................................... (398,995,366)
---------------
Net Realized Loss on Investments (Including realized loss on
futures transactions of $5,435,187) ......................................... (8,346,254)
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period .................................................... (3,089,839)
End of the Period (Including unrealized appreciation on
open futures transactions of $639,312) ...................................... 78,756,724
---------------
Net Unrealized Appreciation on Investments During the Period ................ 81,846,563
---------------
Net Realized and Unrealized Gain on Investments ............................. $ 73,500,309
---------------
Net Increase in Net Assets from Operations ................................. $ 107,150,399
---------------

</TABLE>
25 See Notes to Financial Statements

<TABLE>
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1995 and
the Year Ended December 31, 1994 (Unaudited)
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 33,650,090 $ 68,012,858
Net Realized Gain/Loss on Investments ............................. (8,346,254) 6,340,550
Net Unrealized Appreciation/Depreciation on Investments
During the Period ................................................ 81,846,563 (154,941,139)
---------------- ----------------
Change in Net Assets from Operations ............................. 107,150,399 (80,587,731)
---------------- ----------------
Distributions from Net Investment Income:
Class A Shares ................................................... (32,618,847) (66,735,561)
Class B Shares ................................................... (780,052) (1,291,269)
Class C Shares ................................................... (85,036) (222,010)
Class D Shares ................................................... (38) (92)
---------------- ----------------
Total Distributions .............................................. (33,483,973) (68,248,932)
---------------- ----------------
Net Change in Net Assets from Investment Activities .............. 73,666,426 (148,836,663)
---------------- ----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ........................................ 82,864,400 145,835,342
Net Asset Value of Shares Issued Through Dividend Reinvestment .... 23,183,481 46,938,996
Cost of Shares Repurchased ........................................ (94,257,568) (155,893,379)
---------------- ----------------
Net Change in Net Assets from Capital Transactions ............... 11,790,313 36,880,959
---------------- ----------------
Total Increase/Decrease in Net Assets ............................. 85,456,739 (111,955,704)
Net Assets:
Beginning of the Period .......................................... 1,143,749,807 1,255,705,511
---------------- ----------------
End of the Period (Including undistributed net investment income of
$203,925 and $37,808, respectively) .............................. $ 1,229,206,546 $ 1,143,749,807
---------------- ----------------

26 See Notes to Financial Statements

</TABLE>
Financial Highlights
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
Year Ended December 31
Six Months Ended ----------------------------------------------------
Class A Shares June 30, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................ $ 17.572 $ 19.857 $ 18.721 $ 18.478 $ 17.825
------------ ---------- ---------- --------- ---------
Net Investment Income ............. .516 1.051 1.107 1.146 1.153
Net Realized and Unrealized
Gain/Loss on Investments ........... 1.128 (2.280) 1.145 .561 .681
------------ ---------- ---------- --------- ---------
Total from Investment Operations ... 1.644 (1.229) 2.252 1.707 1.834
------------ ---------- ---------- --------- ---------
Less:
Distributions from Net
Investment Income ................. .513 1.056 1.116 1.140 1.160
Distributions from Net
Realized Gain on Investments ...... -0- -0- -0- .324 .021
------------ ---------- ---------- --------- ---------
Total Distributions ............... .513 1.056 1.116 1.464 1.181
------------ ---------- ---------- --------- ---------
Net Asset Value, End of Period ..... $ 18.703 $ 17.572 $ 19.857 $ 18.721 $ 18.478
------------ ---------- ---------- --------- ---------
Total Return (Non-Annualized) ..... 9.41% (6.31%) 12.32% 9.51% 10.62%
Net Assets at End of Period
(In millions) ..................... $ 1,191.9 $ 1,110.2 $ 1,230.0 $ 999.9 $ 833.2
Ratio of Expenses to Average
Net Assets (Annualized) ............ .87% .88% .84% .83% .88%
Ratio of Net Investment
Income to Average
Net Assets (Annualized) ............ 5.60% 5.70% 5.69% 6.14% 6.39%
Portfolio Turnover ................ 33.23% 48.46% 78.73% 111.90% 113.25%

27 See Notes to Financial Statements

</TABLE>

Financial Highlights (Continued)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
May 1, 1993
(Commencement of
Six Months Ended Year Ended Distribution) to
Class B Shares June 30, 1995 December 31, 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period .................... $ 17.563 $ 19.824 $ 19.320
--------------- --------------- ----------------
Net Investment Income .................. .441 .899 .619
Net Realized and Unrealized
Gain/Loss on Investments ............... 1.129 (2.276) .513
--------------- --------------- ----------------
Total from Investment Operations ....... 1.570 (1.377) 1.132
Less Distributions from
Net Investment Income .................. .441 .884 .628
--------------- --------------- ----------------
Net Asset Value, End of Period ......... $ 18.692 $ 17.563 $ 19.824
--------------- --------------- ----------------
Total Return (Non-Annualized) ........... 8.99% (7.03%) 5.92%
Net Assets at End of Period (In millions) $ 34.0 $ 30.0 $ 20.8
Ratio of Expenses to Average Net
Assets (Annualized) .................... 1.67% 1.71% 1.68%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ......... 4.78% 4.88% 4.25%
Portfolio Turnover ...................... 33.23% 48.46% 78.73%

28 See Notes to Financial Statements

</TABLE>

Financial Highlights (Continued)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
August 13, 1993
(Commencement of
Six Months Ended Year Ended Distribution) to
Class C Shares June 30, 1995 December 31, 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period .................... $ 17.568 $ 19.823 $ 19.650
--------------- --------------- ----------------
Net Investment Income ................... .445 .908 .350
Net Realized and Unrealized
Gain/Loss on Investments ............... 1.125 (2.279) .181
--------------- --------------- ----------------
Total from Investment Operations ....... 1.570 (1.371) .531
Less Distributions from
Net Investment Income ................... .441 .884 .358
--------------- --------------- ----------------
Net Asset Value, End of Period ......... $ 18.697 $ 17.568 $ 19.823
--------------- --------------- ----------------
Total Return (Non-Annualized) .......... 8.99% (6.98%) 2.70%
Net Assets at End of Period (In millions) $ 3.3 $ 3.5 $ 5.0
Ratio of Expenses to Average Net
Assets (Annualized) .................... 1.66% 1.70% 1.68%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ......... 4.78% 4.89% 4.21%
Portfolio Turnover ...................... 33.23% 48.46% 78.73%

29 See Notes to Financial Statements

</TABLE>

Notes to Financial Statements
June 30, 1995 (Unaudited)

1. Significant Accounting Policies
Van Kampen Merritt Insured Tax Free Income Fund (the "Fund") was incorporated
under Maryland law on July 1, 1984, and is registered as a diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on December 14, 1984, and was
reorganized as a sub-trust of Van Kampen Merritt Tax Free Fund (the "Trust"), a
Massachusetts business trust as of February 22, 1988. The Fund commenced the
distribution of its Class B and Class C shares on May 1, 1993 and August 13,
1993, respectively. On May 2, 1995, all Class D shareholders redeemed their
shares and the class was eliminated. The Fund will no longer offer Class D
shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

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. Investment Income-Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of
each applicable security.

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 December 31, 1994, the Fund had an

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

accumulated capital loss carryforward for tax purposes of $12,774 which will
expire on December 31, 2001. Net realized gains or losses may differ for
financial and tax reporting purposes primarily as a result of post October 31
losses which are not recognized for tax purposes until the first day of the
following fiscal year.

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.

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.

2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital 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 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>

On July 21, 1995, the Fund's shareholders approved a change to the Investment
Advisory Agreement. The terms of the new agreement are as follows:

<TABLE>
<CAPTION>
Average 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>
31

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended June 30, 1995, the Fund recognized expenses of
approximately $300,500 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
legal and certain shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC. The Fund's liability under the
deferred compensation and retirement plans at June 30, 1995, was approximately
$21,500.
At June 30, 1995, VKAC owned 100 shares each of Classes B and C.

3. Capital Transactions
The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized.
32

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

At June 30, 1995, paid in surplus aggregated $1,126,872,714, $35,002,603 and
$3,677,155 for Classes A, B and C, respectively. For the six months ended June
30, 1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 4,242,069 $ 78,858,248
Class B ...................... 204,763 3,774,832
Class C ...................... 12,363 231,320
Class D ...................... -0- -0-
----------- ---------------
Total Sales................... 4,459,195 $ 82,864,400
----------- ---------------
Dividend Reinvestment:
Class A ...................... 1,222,159 $ 22,690,054
Class B ...................... 22,453 416,721
Class C ...................... 4,136 76,703
Class D ...................... -0- 3
----------- ---------------
Total Dividend Reinvestment... 1,248,748 $ 23,183,481
----------- ---------------
Repurchases:
Class A ...................... (4,916,125) $ (91,338,391)
Class B ...................... (119,513) (2,205,491)
Class C ...................... (38,302) (711,587)
Class D ...................... (111) (2,099)
----------- ---------------
Total Repurchases ............ (5,074,051) $ (94,257,568)
----------- ---------------

</TABLE>
33

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

At December 31, 1994, paid in surplus aggregated $1,116,662,803, $33,016,541,
$4,080,719 and $2,096 for Classes A, B, C and D, respectively. For the year
ended December 31, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 6,865,303 $ 128,013,313
Class B ...................... 806,590 15,092,543
Class C ...................... 151,670 2,727,397
Class D ...................... 111 2,089
----------- ----------------
Total Sales................... 7,823,674 $ 145,835,342
----------- ----------------
Dividend Reinvestment:
Class A ...................... 2,505,940 $ 45,999,603
Class B ...................... 41,052 750,173
Class C ...................... 10,294 189,213
Class D ...................... -0- 7
----------- ----------------
Total Dividend Reinvestment... 2,557,286 $ 46,938,996
----------- ----------------
Repurchases:
Class A ...................... (8,130,723) $ (148,756,423)
Class B ...................... (185,936) (3,383,930)
Class C ...................... (213,783) (3,753,026)
Class D ...................... -0- -0
----------- ----------------
Total Repurchases ............ (8,530,442) $ (155,893,379)
----------- ----------------

</TABLE>

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 for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
34

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
Contingent Deferred
Sales 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 six months ended June 30, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$271,400 and CDSC on the redeemed shares of Classes B, C and D of approximately
$43,500. Sales charges do not represent expenses of the Fund.
The board of directors has approved the acquisition of the assets and
liabilities of the American Capital Tax-Exempt Trust-Insured Municipal Portfolio
(the "AC Fund"), which currently has net assets of $105.4 million. This
transaction, subject to approval by shareholders of the AC Fund, is expected to
be completed in September 1995. As a result of this transaction, the Fund will
issue new fund shares equal in value to the net assets of the AC Fund.

4. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended June 30, 1995, were $419,566,668 and
$398,995,366, 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 on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
35

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

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.
The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.
Transactions in futures contracts, each with a par value of $100,000, for the
six months ended June 30, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts
- -----------------------------------------------
<S> <C>
Outstanding at December 31, 1994 ... 735
Futures Opened .................... 3,350
Futures Closed ..................... (3,535)
---------
Outstanding at June 30, 1995 ....... 550
---------
</TABLE>

The futures contracts outstanding as of June 30, 1995, and the description and
unrealized appreciation is as follows:

<TABLE>
<CAPTION>
Unrealized
Contracts Appreciation
- -------------------------------------------------------
<S> <C> <C>
Municipal Bond Index Futures
Sept 1995 - Sells to Open ... 550 $ 639,312
--------- ------------

</TABLE>

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

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. 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.

6. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "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 .30% each of Class A and Class D shares
and 1.00% each of Class B and Class C shares are accrued daily. Included in
these fees for the six months ended June 30, 1995, are payments to VKAC of
approximately $319,300.
37

Funds Distributed by Van Kampen American Capital

GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund

EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund

FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income

TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund

THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund

Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.

Van Kampen Merritt Insured Tax Free Income Fund

Board of Trustees

Philip P. Gaughan

R. Craig Kennedy

Dennis J. McDonnell*

Donald C. Miller - Chairman

Jack E. Nelson

Jerome L. Robinson

Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10, 1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

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

(C)Van Kampen American Capital Distributors, Inc., 1995
All rights reserved.

SM denotes a service mark of
Van Kampen American Capital Distributors, 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.

Van Kampen Merritt Insured Tax Free Income Fund

This Page Intentionally Left Blank

<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio Management Review .......... 4
Portfolio of Investments ............. 6
Statement of Assets and Liabilities ... 17
Statement of Operations .............. 18
Statement of Changes in Net Assets .... 19
Financial Highlights ................. 20
Notes to Financial Statements ......... 24
</TABLE>

Letter to Shareholders

August 3, 1995

[PHOTO]
Dennis J. McDonnell and Don G. Powell

Economic Overview

Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply
in 1994, the economy has slowed significantly this year. Evidence of this guided
slowdown was reflected in gross domestic product for the second quarter, which
grew at an annual rate of 0.5 percent, substantially lower than its first
quarter of 2.7 percent and fourth quarter 1994 rate of 5.1 percent. While other
key economic data, including unemployment rates and housing starts, have shown
mixed signs during recent weeks, the general trend for the first half of the
year suggested a "soft landing" scenario. Subsequently, concern over inflation
has subsided, as its annualized rate has run at a modest pace of 3.2 percent
year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to
6.62 percent at the end of June, while prices on the "long bond" rose 18
percent. Likewise, the yield on the Bond Buyer's Municipal Bond Index fell from
7.28 percent to 6.37 percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

(Continued on page two)

Economic Outlook

Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously before easing again, waiting for further signs that the
economy has settled into a slow growth pattern. We anticipate that the economy
will grow at an annual rate between 2 and 3 percent in the second half of the
year and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon a generally slow growth and low inflation outlook, we
believe fixed income markets will continue to make positive gains as interest
rates fall. We look for stocks to perform well, but perhaps not as strongly as
in the first half of the year, as some companies may find it difficult to
maintain their strong earnings momentum.

Corporate News

Along with your Fund's shareholder report, we are pleased to introduce a new
shareholder publication called Your Portfolio. The purpose of this publication
is to provide you with additional information about your mutual fund investment,
as well as offer helpful insights regarding long-term investment strategies and
trends in the marketplace. The publication will be mailed twice a year with your
June and December shareholder reports. This premier issue focuses on our various
shareholder services and privileges designed to make mutual fund investing
easier for you.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.

Sincerely,

Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt Tax Free High Income Fund

<TABLE>
<CAPTION>
A Shares B Shares C Shares D Shares
<S> <C> <C> <C> <C>
Total Returns

Six-month total return
based on NAV<F1> ............. 7.79% 7.36% 7.36% 7.73%
Six-month total return<F2> ... 2.67% 3.36% 6.36% 6.98%
One-year total return<F2> .... 2.65% 2.87% 5.95% 7.02%
Five-year average annual
total return<F2> ............ 4.53% N/A N/A N/A
Ten-year average annual
total return<F2> ............ 7.62% N/A N/A N/A
Life-of-Fund average annual
total return<F2> ............ 7.63% 4.09% 3.99% 4.61%
Commencement Date ........... 06/28/85 05/01/93 08/13/93 03/14/94

Distribution Rates and Yield

Distribution Rate<F3> ........ 6.33% 5.86% 5.86% 6.55%
Taxable Equivalent
Distribution Rate<F4> ........ 9.89% 9.16% 9.16% 10.23%
SEC Yield<F5> ................ 4.98% 4.44% 4.44% 5.14%
N/A=Not Applicable
<FN>
<F1>Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares; 1% for C shares and .75% for
D shares).
<F2>Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for A shares) or
contingent deferred sales charge for early withdrawal (4% for B shares; 1% for C
shares;.75% for D shares).
<F3>Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
<F4>Taxable equivalent calculations reflect a federal income tax rate of 36%.
<F5>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 June 30, 1995.
</TABLE>

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

Portfolio Management Review

Van Kampen Merritt Tax Free High Income Fund

The following is an interview with the management team of the Van Kampen Merritt
Tax Free High Income Fund, including David C. Johnson, portfolio manager, and
Peter W. Hegel, executive vice president, Van Kampen American Capital Investment
Advisory Corp.

Q.What market conditions had the greatest impact on the municipal bond
market during the six months ended June 30, 1995?

A.The economy was on our side. When it became apparent at the beginning of the
year that the economy was slowing down, and interest rates had likely
peaked---there was a positive impact on the bond market, and in turn, on the
Fund. This positive economic scenario went a long way toward helping us to
minimize the effects of several negative events that impacted the municipal
market. For example . . .
*The Orange County, California bankruptcy had an adverse impact on the entire
municipal bond market in the second quarter when it became apparent that the
situation wasn't going to be resolved quickly. (The good news is, the Orange
County situation did not have a greater impact on the lower-rated securities
contained in this fund.)
*In addition, a very strong stock market diverted investment dollars away from
municipal issues. This temporarily subdued the long-term positive supply and
demand situation the market has enjoyed.
*Finally, Washington proposals to change the income tax system also had an
adverse impact on the municipal bond market.
The demand for municipals finally resurged in June, when extremely attractive
municipal yields---more than 90 percent of the yield offered by taxable U.S.
Treasury securities (this ratio is normally about 80 percent)---drew investors
back to the market.

Q.How was the Fund positioned in response to the events of the
past six months?

A.The portfolio's weightings remained relatively unchanged during the period.
The goal of the Fund is to provide a higher yield than a general municipal
fund would provide. When investing for higher income, the challenge is to
make up for the tradeoff between credit quality and high income---trying to
strike a balance between the two ends of the spectrum.
We seek to accomplish this through a "barbell" investment strategy. That is,
we balance the portfolio between the two distinctly different types of
securities: 1) higher quality bonds which add upside performance in market
rallies; and 2) lower-rated securities offering high yield. This mixture can
offer more stability in adverse interest rate environments, but not as much
performance in a positive interest rate environment such as the one in early
1995.
We're still buying primarily AAA-rated securities, but have marginally
increased our BBB-rated holdings as "spreads" (the difference in yields between
credit and rating levels) have widened. This means yields on the lower-rated
bonds have increased significantly relative to higher-quality issues. In effect,
you're being compensated with higher yields for assuming a higher degree of
credit risk.

Q.How did the Fund perform during the six months ended
June 30, 1995?

A.As mentioned above, the higher-yielding lower-and non-rated securities in
which the fund invests tend not to be as sensitive to interest rate changes
as higher rated securities. Due to the extent of the non-rated portion of the
portfolio---about 36 percent---the fund underperformed higher quality funds
during the first half of the year when interest rates fell. This is typical in
bull markets.
For the six-month period ending June 30, 1995, the Fund's Class A share total
return, at net asset value, was 7.79 percent<F1>. During the same period, the
category average for all high yield municipal debt funds tracked by Lipper
Analytical Services was 8.73 percent.
Most important, we continued to provide investors with an attractive level of
tax-free income. At its current annualized dividend level of $.96 per share, the
Fund provides shareholders with a tax-free distribution rate of 6.33 percent<F3>
(Class A shares) as of June 30, 1995. At this distribution rate, the Fund
provides shareholders in the 36 percent federal income tax bracket with a yield
equivalent to a taxable investment earning 9.89 percent<F4>. (Please refer to
the chart on page three for additional Fund performance.)

Q.After the significant rally during the first half of 1995, what is
your outlook going forward,and how will you position the Fund?

A.We anticipate that the economy will grow slowly, and that inflation will
remain low. As a result, we believe that fixed-income markets---including
municipal bonds---will continue to make modest gains.
In terms of investments, we expect to continue our "barbell" strategy for the
near term. Further, we'll likely stay in the 20-year maturity range where we see
the best value on the yield curve. Sector-wise, we plan to concentrate on
"essential services" sectors. That is, services for which demand is relatively
constant---and resilient to economic conditions and/or political events. Health
care is a particular area of expertise for Van Kampen American Capital and a
good example of an "essential service" sector. (See the chart below for a
portfolio breakdown.)

Portfolio Holdings by Sector as of June 30, 1995

[PIE CHART]

General Purpose 7.7%
Multi-Family Housing 8.3%
Other 20.3%
Tax District 7.4%
Health Care 18.7%
Public Building 5.2%
Industrial Revenue 14.2%
Water and Sewage 7.0%
Other Care 11.2%

Peter W. Hegel David C. Johnson
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

5 Please see footnotes on page three

Portfolio of Investments
Municipal Bonds

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alaska 0.5%
$ 3,790 Kasaan, AK Lease Rev ........................... 8.000% 08/15/16 $ 4,127,310
-----------
Arizona 2.9%
6,410 Chandler, AZ Indl Dev Auth Indl Dev Rev Chandler
Fin Cent Proj <F4> ............................. 9.875 12/01/16 6,025,400
7,775 Chandler, AZ Indl Dev Auth Indl Dev Rev SMP II
Ltd Partnership Proj .......................... 7.500 12/01/15 7,745,844
1,000 Maricopa Cnty, AZ Indl Dev Auth Indl Dev Rev
Borden Inc Proj ................................ 5.040 10/01/12 988,360
8,000 Maricopa Cnty, AZ Unified Sch Dist No 41
Gilbert Rfdg (FGIC Insd) ...................... * 01/01/07 4,116,720
2,700 Maricopa Cnty, AZ Unified Sch Dist No 41
Gilbert Rfdg (FGIC Insd) ...................... * 01/01/08 1,294,002
1,425 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A ..... 11.000 07/01/00 1,636,270
-----------
21,806,596
-----------
Arkansas 0.8%
2,130 Arkansas St Dev Fin Auth Single Family Mtg Rev
Replacement Ser C .............................. 8.600 02/01/17 2,298,802
2,740 Maumelle, AR Waterside Addition Muni Ppty Owners
Multi-purp Impt Dist No 6 ....................... 9.500 12/01/10 2,466,000
1,190 Maumelle, AR West Pointe Addition Muni Ppty Owners
Multi-purp Impt Dist No 7 ....................... 9.500 12/01/10 1,071,000
-----------
5,835,802
-----------
California 9.1%
2,250 California St Pub Wks Brd Lease Rev Dept Corrections
CA St Prison Ser D Susanville ................... 5.375 06/01/18 1,964,813
2,000 California St Pub Wks Brd Lease Rev Dept of Justice
Bldg Ser A (FSA Insd) ........................... 5.800 05/01/15 1,947,000
8,000 California St Rfdg (Cap Guar Insd) ............. 5.125 10/01/17 7,145,600
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg
Rev (MBIA Insd) ................................ * 09/01/17 1,160,000
3,465 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA
Cent for the Arts (AMBAC Insd) .................. * 09/01/15 929,729
3,480 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA
Cent for the Arts (AMBAC Insd) .................. * 09/01/18 764,382
8,000 Foothill/Eastern Tran Corridor Agy CA Toll Road
Rev Sr Lien Ser A .............................. 6.000 01/01/34 7,332,320
10,000 Foothill/Eastern Tran Corridor Agy CA Toll Road
Rev Sr Lien Ser A .............................. 5.000 01/01/35 7,683,700
3,500 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev
Multi Cap Fac Proj IV (MBIA Insd) .............. 5.000 12/01/07 3,374,315
2,000 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev
Multi Cap Fac Proj IV (MBIA Insd) .............. 5.250 12/01/16 1,829,360
</TABLE>

6 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (Continued)
$6,610 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev
2nd Issue (MBIA Insd) ................................. 4.750% 10/15/20 $ 5,466,536
7,000 Metro Wtrwks Dist Southern CA ......................... 5.808 08/05/22 6,816,040
5,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ....... 5.750 06/01/15 4,668,600
4,000 San Bernardino Cnty, CA Ctfs Partn Med Cent Fin
Proj Ser A (MBIA Insd) <F2> ........................... 5.500 08/01/15 3,763,640
7,395 San Diego, CA Swr Rev Ser A (AMBAC Insd) <F3> ......... 5.000 05/15/13 6,590,350
7,625 San Francisco, CA City & Cnty Redev Agy Lease Rev
Gains (Crossover Rfdg @ 07/01/04) <F7> ................ 0/8.500 07/01/14 5,186,601
3,000 Westminster, CA Redev Agy Tax Alloc Rev Commercial
Redev Proj No 1 ....................................... 6.200 08/01/23 2,768,490
----------
69,391,476
----------
Colorado 7.5%
66 Arapahoe Cnty, CO Centennial Downs Metro Dist
Cash Payment Deficiency Bond ........................... 8.090 12/01/34 63,044
317 Arapahoe Cnty, CO Centennial Downs Metro Dist
Interest Certificate <F6> .............................. 6.00/8.09 12/01/34 301,291
650 Arapahoe Cnty, CO Centennial Downs Metro Dist Ltd
Tax Bond Ser 1993 Rfdg ................................ 8.090 12/01/34 617,869
6,540 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj ............................................ 10.500 01/01/19 7,163,785
6,200 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj ............................................ 9.000 01/01/25 6,392,510
3,059 Colorado Hlth Fac Auth Rev Univ Hills Christian
Nursing Rfdg .......................................... 8.750 12/01/11 3,211,794
765 Colorado Hsg Fin Auth Single Family Residential
Rev Ser C Rfdg ......................................... 8.750 09/01/17 812,086
1,000 Denver, CO City & Cnty Arpt Rev Ser A ................. 6.900 11/15/98 1,056,170
1,175 Denver, CO City & Cnty Arpt Rev Ser A ................. 8.400 11/15/98 1,294,486
3,000 Denver, CO City & Cnty Arpt Rev Ser A ................. 8.875 11/15/12 3,423,480
10,000 Denver, CO City & Cnty Arpt Rev Ser A ................. 8.500 11/15/23 11,112,700
2,500 Denver, CO City & Cnty Arpt Rev Ser D .................. 7.750 11/15/13 2,903,050
1,088 East River Regl Santn Dist CO Var Rfdg (Var Rate Cpn) ... * 12/01/08 778,573
3,316 Gunnison Cnty, CO Indl Rev Bond Crested Butte
Mtn Resort Inc ........................................ 9.250 10/01/07 3,282,840
4,408 Himalaya Wtr & Santn Dist Adams Cnty, CO Gen
Oblig Ltd Tax Rfdg Bond Ser 1995 ....................... 9.500 12/01/24 2,180,750
5,385 Littleton, CO Riverfront Auth Rev Rfdg <F5> ........... 9.625 12/01/00 1,884,750
</TABLE>

7 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
Colorado (Continued)
<S> <C> <C> <C> <C>
$ 4,735 Skyland Metro Dist CO Gunnison Cnty Rfdg
(Var Rate Cpn) ................................. *% 12/01/08 $ 3,388,438
14,709 Tower Metro Dist Adams Cnty, CO Gen Oblig Ltd Tax
Rfdg Bond Ser 1995 ............................. 9.500 12/01/24 7,361,250
-----------
57,228,866
-----------
Connecticut 0.5%
3,740 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Windsor Proj ....................... 7.125 11/01/24 4,125,407
-----------
District of Columbia 1.3%
1,700 District of Columbia Ser A1 Rfdg (MBIA Insd) ... 6.500 06/01/10 1,807,117
2,000 District of Columbia Ser E (FSA Insd) .......... 6.000 06/01/11 1,977,680
6,000 Metropolitan WA, DC Arpts Auth Genl Arpt Rev
Ser A (MBIA Insd) ............................... 5.875 10/01/15 5,836,740
-----------
9,621,537
-----------
Florida 7.7%
28,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec
Ser A Rfdg (MBIA Insd) .......................... * 02/01/18 7,163,800
7,000 Dade Cnty, FL Wtr & Swr Sys Rev Rfdg (FGIC Insd).. 5.000 10/01/13 6,373,850
5,265 Escambia Cnty, FL Rev ICF/MR Pensacola Care
Dev Cent ........................................ 10.250 07/01/11 5,265,000
2,215 Escambia Cnty, FL Rev ICF/MR Pensacola Care
Dev Cent Ser A .................................. 10.250 07/01/11 2,215,000
12,000 Florida Hsg Fin Agy Hsg Bradley Park Apts Proj <F5> 9.750 12/01/19 6,325,200
2,750 Florida Hsg Fin Agy Multi Family Mtg Lincoln
Plz Ser K <F5> .................................. 9.375 12/01/19 28
5,000 Florida St Division Bond Fin Dept Genl Services Rev
Dept Envirnmtl Presrvtn 2000 Ser A (MBIA Insd) ... 4.900 07/01/13 4,490,950
290 Largo, FL Sun Coast Hlth Sys Rev Hosp Rfdg ..... 5.750 03/01/03 276,993
850 Largo, FL Sun Coast Hlth Sys Rev Hosp Ser 1993 Rfdg 5.750 03/01/04 801,176
5,500 Miramar, FL Wastewtr Impt Assmt Rev (FGIC Insd)... 6.750 10/01/25 5,980,205
4,030 Monroe Cnty, FL Indl Dev Auth First Mtg Med Fac
Rev Kennedy Dr Invt Ltd Proj Rfdg ............... 11.000 11/01/12 4,030,000
4,030 Pinellas Cnty, FL Hlth Fac Auth Sun Coast Hlth
Sys Rev
Sun Coast Hosp Ser A (Prerefunded @ 03/01/00) .. 8.500 03/01/20 4,750,322
16,065 Sun N Lake of Sebring, FL Impt Dist Spl Assmt
Ser A <F5> ...................................... 10.000 12/15/11 10,602,900
-----------
58,275,424
-----------
Georgia 1.9%
15,000 Atlanta, GA Urban Residential Fin Auth Multi Family
Mtg Rev Hsg Peachtree Apts Proj <F5> ............ 10.500 12/01/10 14,125,500
-----------
</TABLE>

8 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Idaho 1.7%
$8,000 Idaho Hlth Fac Auth Rev IHC Hosp Inc Rfdg
(Inverse Fltg) .......................................... 8.190% 02/15/21 $ 8,685,680
4,000 Owyhee Cnty, ID Indl Dev Corp Indl Dev Rev
Envirosafe Services of ID Inc ............................ 8.250 11/01/02 4,076,120
----------
12,761,800
----------
Illinois 11.6%
1,000 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent Proj .... 8.375 09/01/14 1,063,830
2,000 Bridgeview, IL Tax Increment Rev Rfdg .................... 9.000 01/01/11 2,111,220
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Ser A ........................... 7.875 11/01/25 3,188,040
24,875 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Proj Ser 84A <F3> ...................... 8.850 05/01/18 27,833,632
2,775 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B .................................. 8.950 05/01/18 3,112,052
4,400 Chicago, IL Rev Chatham Ridge Tax Increment .............. 10.250 01/01/07 4,792,040
7,435 Illinois Dev Fin Auth Rev Mercy Hsg Corp Proj Rfdg ...... 7.000 08/01/24 7,851,211
5,365 Illinois Dev Fin Auth Rev Sch Dist Pgm No 300
(FGIC Insd) .............................................. * 12/01/07 2,599,503
6,010 Illinois Dev Fin Auth Rev Sch Dist Pgm No 300
(FGIC Insd) .............................................. * 12/01/08 2,707,926
5,040 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D ...... 9.500 11/15/15 5,872,457
3,825 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D
(Prerefunded @ 11/15/00) ................................ 9.500 11/15/15 4,766,026
1,000 Illinois Hlth Fac Auth Rev Lifelink Corp Oblig Group B ... 8.000 02/15/25 980,980
5,000 Illinois Hlth Fac Auth Rev Midwest Physician Group
Ltd Proj ................................................ 8.100 11/15/14 5,177,800
995 Illinois Hlth Fac Auth Rev Mt Sinai Hosp Med Cent
Chicago Ser A ............................................ 10.250 02/01/13 984,453
3,000 Illinois Hlth Fac Auth Rev Servantcor Ser A
(Var Rate Cpn) (Prerefunded @ 08/15/01) .................. 8.000 08/15/21 3,552,360
1,725 Illinois Hsg Dev Auth Residential Mtg Rev 1983 Ser B ..... * 02/01/15 228,563
2,095 Regional Tran Auth IL Ser B (AMBAC Insd) ................ 8.000 06/01/17 2,625,999
8,000 Robbins, IL Res Recovery Rev Robbins Res Recovery
Partners Ser A ........................................... 9.250 10/15/14 8,749,920
----------
88,198,012
----------
Kansas 0.8%
4,070 Kansas City, KS Crawford Cnty Leavenworth
Single Family Mtg Rev (AMBAC Insd) ....................... * 04/01/16 432,315
5,500 Kansas City, KS Util Sys Rev Rfdg & Impt (FGIC Insd) ..... 6.375 09/01/23 5,697,230
----------
6,129,545
----------
</TABLE>

9 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kentucky .4%
$ 2,700 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys Proj
(Inverse Fltg) (MBIA Insd) <F3> ................... 8.090% 10/01/08 $ 3,017,250
-----------
Louisiana 1.2%
3,000 Louisiana Pub Fac Auth Rev Student Ln Subser A3 ... 7.000 09/01/06 3,159,150
12,500 New Orleans, LA Rfdg (AMBAC Insd) ................. * 09/01/17 3,126,250
10,000 Orleans Parish, LA Sch Brd Rfdg (FGIC Insd) ........ * 02/01/15 2,846,000
-----------
9,131,400
-----------
Maine 0.2%
1,250 Maine Hlth & Higher Edl Fac Auth Rev Ser B
(FSA Insd) ........................................ 7.000 07/01/24 1,358,862
-----------
Maryland 1.8%
7,900 Baltimore, MD Cap Apprec Cons Pub Impt Ser A
(FGIC Insd) ......................................... * 10/15/11 2,926,160
8,000 Gaithersburg, MD Hosp Fac Rev Shady Grove
Rfdg & Impt (FSA Insd) <F2> ........................ 5.500 09/01/15 7,437,760
1,440 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty
Dev Multi-Family Hsg Rev Ser A Rfdg ................ 8.300 05/15/17 1,526,818
1,750 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty
Dev Rev Single Family Pgm 7th Ser .................. 7.300 04/01/25 1,872,237
-----------
13,762,975
-----------
Massachusetts 4.8%
13,770 Canton, MA Hsg Auth Multi-Family Hsg Mtg Rev
Canton Arboretum Apts (Var Rate Cpn) .............. 6.500 09/01/19 11,566,800
5,000 Massachusetts St Hlth & Edl Fac Auth Rev New England
Med Cent Hosp Ser G (Embedded Swap) (MBIA Insd) ... 3.100 07/01/13 4,036,300
9,250 Massachusetts St Hlth & Edl Fac Auth Rev Saint Mem
Med Cent Ser A .................................... 6.000 10/01/23 6,903,367
2,415 Massachusetts St Hlth & Edl Fac Auth Rev Saint Mem
Med Cent Ser A Rfdg ............................... 5.500 10/01/02 1,988,656
2,200 Massachusetts St Hsg Fin Agy Hsg Rev Insd Rental
Ser A Rfdg (AMBAC Insd) ............................ 6.650 07/01/19 2,278,100
640 Massachusetts St Hsg Fin Agy Hsg Rev Ser A ........ 9.000 12/01/18 688,730
7,300 Massachusetts St Indl Fin Agy Rev Swr Fac Res
Ctl Composting ..................................... 9.250 06/01/10 7,879,328
1,525 Massachusetts St Indl Fin Agy Solid Waste Disp Rev
Res Recovery Sys .................................. 9.200 12/01/99 1,533,433
-----------
36,874,714
-----------
Michigan 3.7%
2,000 Battle Creek, MI Downtown Dev Auth Tax
Increment Rev ...................................... 7.600 05/01/16 2,140,040
8,105 Meridian, MI Econ Dev Corp Ltd Oblig Rev First Mtg
Burcham Hills Ser A ............................... 9.625 07/01/19 8,909,826
3,725 Michigan St Hosp Fin Auth Rev Garden City Hosp ..... 8.300 09/01/02 3,856,940
</TABLE>

10 See Notes to Financial Statements

Minnesota 1.4%
5,490 Eden Prairie, MN Multi Family Hsg Rev Sterling Ponds
Proj Ser A ......................................... 10.000 01/15/20 4,950,333
495 Eden Prairie, MN Multi Family Hsg Rev Sterling Ponds
Proj Ser B ......................................... * 01/15/20 646,940
2,800 Minneapolis, MN Coml Dev Rev Holiday Inn
Metrodome Proj Rfdg ............................... 10.000 06/01/98 2,855,664
1,750 Minnesota St Hsg Fin Agy Single Family Mtg Ser D ... 8.800 07/01/16 1,883,613
----------
10,336,550
----------
Mississippi 0.1%
1,000 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy
Res Inc Rfdg ....................................... 7.300 05/01/25 1,015,940
Missouri 1.1%
1,250 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev
Saint Lukes Hlth Sys Rfdg (MBIA Insd) ............. 5.125 11/15/19 1,104,938
4,925 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev
Skaggs Cmnty Hosp Rfdg ............................ 9.500 05/15/13 5,337,813
905 Oak Grove, MO Combined Wtrwks & Swr Sys Rev
Rfdg (Prerefunded @ 11/01/96) ..................... 9.250 11/01/07 992,378
615 Oak Grove, MO Combined Wtrwks & Swr Sys Rev
Rfdg (Prerefunded @ 11/01/96) ..................... 9.375 11/01/12 675,368
----------
8,110,497
----------
Montana 0.5%
4,000 Montana St Brd Invt Res Recovery Rev Yellowstone
Energy L P Proj .................................... 7.000 12/31/19 3,807,240
Nebraska 0.9%
2,600 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) .................................... 9.355 09/19/23 2,827,500
3,400 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) .................................... 10.770 09/10/30 3,880,250
----------
6,707,750
----------
</TABLE>

11 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nevada 1.2%
$ 5,000 Clark Cnty, NV Passenger Fac Las Vegas Macarran
International Arpt (MBIA Insd) <F2> ............. 5.750% 07/01/23 $ 4,628,100
1,945 Reno, NV Redev Agy Tax Alloc Downtown Redev
Proj Ser E Rfdg .................................. 5.600 09/01/09 1,789,361
3,145 Reno, NV Redev Agy Tax Alloc Downtown Redev
Proj Ser E Rfdg .................................. 5.650 09/01/13 2,735,144
----------
9,152,605
----------
New Hampshire 1.0%
4,000 New Hampshire Higher Edl & Hlth Fac Auth Rev Hosp
Catholic Med Cent Rfdg .......................... 8.250 07/01/13 4,260,040
3,000 New Hampshire St Indl Dev Auth Rev Pollutn Ctl Pub
Svcs Co NH Proj C ................................ 7.650 05/01/21 3,164,310
----------
7,424,350
----------
New Jersey 1.0%
6,835 New Jersey Econ Dev Auth First Mtg Gross Rev
Oakridge Manor Proj Rfdg ......................... 9.500 11/01/14 7,317,961
----------
New Mexico 0.6%
5,835 Albuquerque, NM Retirement Fac Rev OGL
Retirement Fac Rfdg <F4> ......................... 10.000 10/31/13 4,261,884
----------
New York 5.2%
2,500 New York City Ser C Rfdg ........................ 6.500 08/01/04 2,578,050
3,000 New York City Ser D Rfdg ........................ 8.000 02/01/05 3,427,620
1,335 New York City Ser D Rfdg ........................ 6.000 08/01/07 1,310,209
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev
(Inverse Fltg) .................................. 8.143 04/01/20 2,612,500
6,000 New York St Energy Resh & Dev Auth Gas Fac Rev
Ser D (Inverse Fltg) (MBIA Insd) ................ 5.635 07/08/26 5,558,820
3,900 New York St Energy Resh & Dev Auth St Svc Contract
Rev Western NY Nuclear Svc Cent Proj ............ 5.200 04/01/97 3,967,431
5,000 New York St Loc Govt Assistance Corp Ser C ...... 5.500 04/01/22 4,569,450
8,450 New York St Med Care Fac Fin Agy Rev NY Hosp
Mtg Ser A (AMBAC Insd) <F2> ...................... 6.500 08/15/29 8,763,326
3,000 New York, NY City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd) ........... 6.250 11/15/06 3,230,280
1,500 New York, NY City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd) ........... 6.375 11/15/07 1,616,355
2,000 New York, NY City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd) ........... 6.500 11/15/09 2,139,320
----------
39,773,361
----------
North Carolina 1.1%
8,765 Eastern Band Cherokee Indians NC Spl Oblig Rev
Carolina Mirror Co Proj ......................... 10.250 09/01/09 8,765,000
----------
</TABLE>

12 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North Dakota 0.3%
$2,100 Ward Cnty, ND Hlthcare Fac Rev Saint Joseph's
Hosp Corp Proj ........................................ 8.875% 11/15/24 $ 2,277,030
-----------
Ohio 3.7%
2,000 East Liverpool, OH Hosp Rev East Liverpool
City Hosp Ser A ...................................... 8.125 10/01/11 2,088,000
1,730 Franklin Cnty, OH First Mtg Rev Heinzerling Fndtn
Proj Rfdg ............................................ 10.000 08/01/11 1,858,228
5,000 Lucas Cnty, OH Econ Dev Rev Rossford Geriatric
Care Proj ............................................ 10.125 12/01/06 4,750,000
2,000 Montgomery Cnty, OH Hlthcare Fac Rev First Mtg
Friendship Vlg Dayton (Prerefunded @ 11/01/95) ....... 11.750 11/01/15 2,112,580
7,900 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B
(Inverse Fltg) ....................................... 9.330 03/31/31 8,443,125
8,500 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev College
Cleveland Elec Ser A Rfdg ............................. 8.000 10/01/23 8,837,280
-----------
28,089,213
-----------
Oklahoma 0.2%
2,000 Oklahoma City, OK Indl & Cultr Hlth Fac
(MBIA Insd) <F2> ....................................... 5.875 06/01/21 1,921,540
-----------
Pennsylvania 5.0%
2,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Collateral
Toledo Edison Co Proj Rfdg ............................ 7.625 05/01/20 2,025,320
2,000 Butler Cnty, PA Indl Dev Auth First Mtg Rev Sherwood
Oaks Proj Ser A Rfdg (Crossover Rfdg @ 06/01/96) ...... 8.750 06/01/16 2,117,740
4,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Bethlehem Steel Corp Proj Rfdg ........................ 7.500 09/01/15 4,112,040
1,000 Chartiers Vly, PA Indl & Coml Dev Auth First Mtg Rev
United Methodist Home (Prerefunded @ 10/01/95) ........ 12.000 10/01/15 1,050,360
2,000 Cumberland Cnty, PA Auth Rev First Mtg Carlisle
Hosp & Hlth ........................................... 6.800 11/15/14 1,972,280
1,800 Lackawanna Cnty, PA Indl Dev Auth Indl Dev Rev
Nytronics Inc Proj ..................................... 12.000 09/01/05 1,841,922
3,000 Lancaster Cnty, PA Solid Waste Mgmt Auth Res
Recovery Sys Rev Ser A ................................ 8.500 12/15/10 3,201,960
2,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford
Hosp Proj (Crossover Rfdg @ 10/01/00) .................. 8.875 10/01/20 2,395,020
3,845 Montgomery Cnty, PA Higher Edl & Hlth Auth
Nursing Home Rev Delco Sys Svcs Proj A ................. 9.875 11/01/18 3,915,171
8,100 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
Meadowood Corp Proj A .................................. 10.000 12/01/19 8,816,607
463 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
Meadowood Corp Proj B .................................. * 12/01/20 38,680
</TABLE>

13 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (Continued)
$ 500 Northampton Cnty, PA Indl Dev Auth Rev Pollutn Ctl
Metro Edison Co Ser A ........................... 10.500% 09/01/95 $ 507,010
3,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
Macmillan Ltd Partnership Proj ................... 7.600 12/01/20 3,244,740
1,500 Pennsylvania Econ Dev Fin Auth Recycling Rev
Ponderosa Fibres Proj Ser A ..................... 9.250 01/01/22 1,548,210
1,630 Philadelphia, PA Auth for Indl Dev Rev Baptist
Home of Philadelphia (Prerefunded 10/01/95) ..... 10.000 04/01/02 1,651,646
----------
38,438,706
----------
Rhode Island 0.9%
2,000 Providence, RI Redev Agy Ctfs Partn Ser A ....... 8.000 09/01/24 2,089,800
4,295 Rhode Island Hsg & Mtg Fin Corp Issues
Homeownership Oppty Ser 1B ....................... 8.400 10/01/21 4,472,341
----------
6,562,141
----------
South Carolina 0.5%
2,500 Charleston Cnty, SC Ctfs Partn Ser B (MBIA Insd) ... 7.000 06/01/19 2,762,325
1,000 Oconee Cnty, SC Indl Rev Bond Johnson Ctl Inc
Ser 84 Var Rate Cpn ............................... 6.717 06/15/04 998,750
----------
3,761,075
----------
Tennessee 3.3%
3,000 SCA Tax Exempt Trust Multi Family Mtg Memphis
Hlth Edl Rev Bond Receipt A6 (FSA Insd) ............ 7.350 01/01/30 3,199,290
4,710 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev ICF/MR
Open Arms Dev Cent Ser A .......................... 9.750 08/01/19 5,137,527
4,775 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev ICF/MR
Open Arms Dev Cent Ser C ........................... 9.750 08/01/19 5,208,427
6,220 Sullivan Cnty, TN Hlth Edl & Hsg Fac Brd Rev First
Mtg RHA/Sullivan Inc Fac Rev ....................... 9.750 09/01/19 6,666,285
4,505 Trenton, TN Hlth & Edl Fac Brd Rev
ICF/MR RHA/Trenton Golden Door .................... 10.000 05/01/19 4,935,903
----------
25,147,432
----------
Texas 6.2%
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains
Baptist Hosp (Inverse Fltg) (FSA Insd) ............. 8.430 01/03/22 2,160,000
3,905 Brazos, TX Higher Ed Auth Inc Student Ln Rev
Subser C2 Rfdg .................................... 5.875 06/01/04 3,938,466
13,400 Coastal Bend Hlth Fac Dev Corp TX Incarnate
Wd Hlth Service Ser C (AMBAC Insd) ................ 5.929 11/15/13 13,176,756
665 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg ........... * 08/01/00 451,621
1,165 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg ........... * 08/01/01 731,539
335 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg ........... * 08/01/02 194,880
1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg ........... * 08/01/11 528,739
</TABLE>

14 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas (Continued)
$ 775 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg ............... 8.750% 08/01/11 $ 817,904
2,670 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg ............... 8.750 08/01/12 2,817,811
2,500 Garland, TX Indl Dev Auth Rev Bond Ashland Oil
Proj Ser 84 Rfdg ....................................... 5.850 04/01/04 2,561,200
3,250 Houston, TX Hotel Occupancy Tax Rev Sr Lien Rfdg
(FSA Insd) ............................................ 5.500 07/01/15 3,073,005
2,877 Texas Genl Svcs Comm Partn Int Lease Purchase Cert ..... 7.250 08/15/11 2,876,766
3,888 Texas St .............................................. 6.350 12/01/13 3,823,611
2,000 Texas St Tpk Auth Dallas North Thruway Rev Addison
Arpt Toll Tunnel Proj (FGIC Insd) ...................... 6.750 01/01/15 2,143,980
2,000 Texas St Tpk Auth Dallas North Thruway Rev Addison
Arpt Toll Tunnel Proj (FGIC Insd) ...................... 6.600 01/01/23 2,102,060
5,000 West Side Calhoun Cnty, TX Navig Dist Solid Waste
Disp Union Carbide Chem & Plastics .................... 8.200 03/15/21 5,513,950
----------
46,912,288
----------
Utah 0.5%
1,500 Utah St Hsg Fin Agy Single Family Mtg Ser F2
(FHA Insd) ............................................ 7.000 07/01/27 1,561,875
260 Utah St Hsg Fin Agy Single Family Mtg Sr Bond Ser A .... 8.400 07/01/08 273,910
2,000 Utah St Hsg Fin Agy Single Family Mtg Sr Ser G2
(FHA Insd) ............................................ 7.600 01/01/27 2,133,720
----------
3,969,505
----------
Virginia 1.0%
2,650 Fairfax Cnty, VA Park Auth Park Fac Rev ............... 6.625 07/15/20 2,681,826
5,310 Upper Occoquan Sewage Auth VA Regl Sewage
Rev Rfdg (FGIC Insd) .................................. 5.000 07/01/15 4,758,822
----------
7,440,648
----------
</TABLE>
15 See Notes to Financial Statements

<FN>
<F1> At June 30, 1995, cost for federal income tax purposes including
short-term investments is $756,133,271, and the aggregate gross
unrealized appreciation is $33,624,490 and the aggregate gross unrealized
depreciation is $37,431,907, resulting in net unrealized depreciation
including open futures transactions of $3,807,417.
<F2> Securities purchased on a when issued or delayed delivery basis.
<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments and open futures transactions.
<F4> Security is producing income of less than the stated coupon.
<F5> Non-Income producing security.
<F6> Currently is a Payment-in-Kind security which will convert to a cash
paying security with a higher coupon at a predetermined date.
<F7> Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.
</TABLE>

The following table summarizes the portfolio composition at June 30, 1995, based
upon quality ratings issued by Standard & Poor's. For securities not rated by
Standard & Poor's, the Moody's rating is used.

<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
AAA .......... 29.0%
AA .......... 4.2
A ........... 7.2
BBB ......... 12.1
BB .......... 9.9
B ........... 1.2
Non-Rated ... 36.4
-----
100.0%
-----
</TABLE>

16 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Assets and Liabilities
June 30, 1995 (Unaudited)
<S> <C>
Assets:
Investments, at Market Value (Cost $727,644,688) (Note 1) ............................. $ 726,187,679
Short-Term Investments (Cost $26,196,750) (Note 1) ................................... 26,249,971
Cash ................................................................................. 109,952
Receivables:
Interest ............................................................................ 17,665,075
Investments Sold ................................................................... 16,217,620
Fund Shares Sold .................................................................... 1,128,231
Other ................................................................................ 18,567
------------
Total Assets ........................................................................ 787,577,095
------------
Liabilities:
Payables:
Investments Purchased ............................................................... 22,593,519
Income Distributions ............................................................... 2,308,661
Fund Shares Repurchased ............................................................ 824,428
Investment Advisory Fee (Note 2) ................................................... 304,124
Margin on Futures (Note 5) ......................................................... 59,375
Accrued Expenses ...................................................................... 1,204,614
------------
Total Liabilities ................................................................... 27,294,721
------------
Net Assets ............................................................................ $ 760,282,374
------------
Net Assets Consist of:
Paid in Surplus (Note 3) .............................................................. $ 838,962,667
Net Unrealized Depreciation on Investments ........................................... (1,515,584)
Accumulated Distributions in Excess of Net Investment Income (Note 1) ................ (13,329,032)
Accumulated Net Realized Loss on Investments .......................................... (63,835,677)
------------
Net Assets ............................................................................ $ 760,282,374
------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $630,421,323 and
43,659,808 shares of beneficial interest issued and outstanding) (Note 3) ............ $ 14.44
Maximum sales charge (4.75%* of offering price) ....................................... .72
------------

Maximum offering price to public ...................................................... $ 15.16
------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $120,552,367 and
8,348,858 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 14.44
------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $7,183,006 and
497,462 shares of beneficial interest issued and outstanding) (Note 3) ............... $ 14.44
------------
Class D Shares:
Net asset value and offering price per share (Based on net assets of $2,125,678 and
147,213 shares of beneficial interest issued and outstanding) (Note 3) ............... $ 14.44
------------
*On sales of $100,000 or more, the sales charge will be reduced.

</TABLE>

17 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended June 30, 1995 (Unaudited)
<S> <C>
Investment Income:
Interest .................................................................................. $ 27,404,580
--------------
Expenses:
Investment Advisory Fee (Note 2) ......................................................... 1,813,501
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of
$840,716, $597,639, $38,860 and $3,147, respectively) (Note 6) ......................... 1,480,362
Shareholder Services (Note 2) ........................................................... 428,213
Legal (Note 2) ........................................................................... 50,400
Trustees Fees and Expenses (Note 2) ....................................................... 9,216
Other .................................................................................... 221,264
--------------
Total Expenses .......................................................................... 4,002,956
--------------
Net Investment Income ..................................................................... $ 23,401,624
--------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ..................................................................... $ 240,189,497
Cost of Securities Sold (Including reorganization and restructuring costs of $352,599) .. (242,550,360)
--------------
Net Realized Loss on Investments (Including realized gain on closed and expired option
transactions of $1,003,061 and realized loss on futures transactions of $5,023,748)...... (2,360,863)
--------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ................................................................ (36,382,788)
End of the Period (Including unrealized depreciation on
open futures transactions of $111,796) ................................................ (1,515,584)
--------------
Net Unrealized Appreciation on Investments During the Period .............................. 34,867,204
--------------
Net Realized and Unrealized Gain on Investments ........................................... $ 32,506,341
--------------
Net Increase in Net Assets from Operations ............................................... $ 55,907,965
--------------
</TABLE>

18 See Notes to Financial Statements

<TABLE>
Statement of Changes in Net Assets

For the Six Months Ended June 30, 1995 and
the Year Ended December 31, 1994 (Unaudited)
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 23,401,624 $ 46,265,509
Net Realized Loss on Investments .................................. (2,360,863) (55,616,722)
Net Unrealized Appreciation/Depreciation on
Investments During the Period .................................... 34,867,204 (28,618,923)
-------------- ---------------
Change in Net Assets from Operations ............................. 55,907,965 (37,970,136)
-------------- ---------------
Distributions from Net Investment Income* ......................... (23,401,624) (46,265,509)
Distributions in Excess of Net Investment Income* (Note 1) ........ (1,391,203) (3,817,529)
-------------- ---------------
Total Distributions* ........................................... (24,792,827) (50,083,038)
-------------- ---------------
Net Change in Net Assets from Investment Activities .............. 31,115,138 (88,053,174)
-------------- ---------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ........................................ 37,600,761 185,185,601
Net Asset Value of Shares Issued Through Dividend Reinvestment .... 10,933,618 22,347,994
Cost of Shares Repurchased ........................................ (44,307,144) (92,646,623)
-------------- ---------------
Net Change in Net Assets from Capital Transactions ............... 4,227,235 114,886,972
-------------- ---------------
Total Increase in Net Assets ..................................... 35,342,373 26,833,798
Net Assets:
Beginning of the Period .......................................... 724,940,001 698,106,203
-------------- ---------------
End of the Period (Including undistributed net investment income of
$(13,329,032) and $(11,937,829), respectively) ................... $ 760,282,374 $ 724,940,001
-------------- ---------------

</TABLE>

Six Months Ended Year Ended
*Distributions by Class June 30, 1995 December 31, 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares .................... $ (20,943,459) $ (43,955,918)
Class B Shares .................... (3,549,162) (5,542,863)
Class C Shares ..................... (230,567) (476,352)
Class D Shares ..................... (69,639) (107,905)
--------------- -------------
$ (24,792,827) $ (50,083,038)
--------------- -------------
</TABLE>
19 See Notes to Financial Statements

Financial Highlights

<CAPTION>
Year Ended December 31
Six Months Ended
Class A Shares June 30, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 13.848 $ 15.629 $ 14.529 $ 15.687 $ 15.632
----------- -------- -------- -------- --------
Net Investment Income ................. .453 .956 1.052 1.064 1.173
Net Realized and Unrealized
Gain/Loss on Investments ............... .618 (1.717) 1.158 (1.047) .097
----------- -------- -------- -------- --------
Total from Investment Operations ....... 1.071 (.761) 2.210 .017 1.27
Less Distributions from and in
Excess of Net Investment Income
(Note 1) .............................. .480 1.020 1.110 1.175 1.215
----------- -------- -------- -------- --------
Net Asset Value, End of Period ......... $ 14.439 $ 13.848 $ 15.629 $ 14.529 $ 15.687
----------- -------- -------- -------- --------
Total Return (Non-Annualized) .......... 7.79% (4.93%) 15.82% .08% 8.51%
Net Assets at End of Period
(In millions) ......................... $ 630.4 $ 603.0 $ 636.2 $ 566.1 $ 626.7
Ratio of Expenses to
Average Net Assets (Annualized) ....... .94% .87% 1.03% 1.08% 1.09%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ....... 6.33% 6.48% 6.95% 7.07% 7.54%
Portfolio Turnover .................... 27.13% 101.11% 90.82% 44.48% 65.39%
</TABLE>

20 See Notes to Financial Statements

Financial Highlights (Continued)

<TABLE>
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<CAPTION>
Six Months Year May 1, 1993
Ended Ended (Commencement of
June 30, December 31, Distribution) to
Class B Shares 1995 1994 December 31, 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $ 13.850 $ 15.621 $ 14.670
-------- --------- --------------
Net Investment Income ....................... .400 .841 .656
Net Realized and Unrealized
Gain/Loss on Investments ..................... .612 (1.718) .945
-------- --------- --------------

Total from Investment Operations ............. 1.012 (.877) 1.601
Less Distributions from and in Excess of
Net Investment Income (Note 1) ............... .423 .894 .650
-------- --------- --------------
Net Asset Value, End of Period ............... $ 14.439 $ 13.850 $ 15.621
-------- --------- --------------
Total Return (Non-Annualized) ................ 7.36% (5.69%) 11.12%
Net Assets at End of Period (In millions) ... $ 120.6 $ 112.4 $ 56.6
Ratio of Expenses to Average Net
Assets (Annualized) .......................... 1.67% 1.64% 1.74%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ............. 5.61% 5.70% 5.95%
Portfolio Turnover .......................... 27.13% 101.11% 90.82%
</TABLE>

21 See Notes to Financial Statements

Financial Highlights (Continued)

<TABLE>
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- -------------------------------------------------------------------------------------------
<CAPTION>
Six Months Year August 13, 1993
Ended Ended (Commencement of
June 30, December 31, Distribution) to
Class C Shares 1995 1994 December 31, 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ......... $ 13.846 $ 15.610 $ 15.030
-------- --------- ---------------
Net Investment Income ....................... .394 .824 .369
Net Realized and Unrealized
Gain/Loss on Investments ................... .622 (1.694) .580
-------- --------- ---------------
Total from Investment Operations ............. 1.016 (.870) .949
Less Distributions from and in Excess
of Net Investment Income (Note 1) ............ .423 .894 .369
-------- --------- ---------------
Net Asset Value, End of Period ............... $ 14.439 $ 13.846 $ 15.610
-------- --------- ---------------
Total Return (Non-Annualized) ................ 7.36% (5.62%) 6.37%
Net Assets at End of Period (In millions) ... $ 7.2 $ 7.6 $ 5.2
Ratio of Expenses to Average Net
Assets (Annualized) .......................... 1.73% 1.64% 1.82%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ............. 5.60% 5.71% 5.21%
Portfolio Turnover .......................... 27.13% 101.11% 90.82%
</TABLE>

22 See Notes to Financial Statements

Financial Highlights (Continued)

<TABLE>
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- ------------------------------------------------------------------------------------------
<CAPTION>
Six Months March 14, 1994
Ended (Commencement of
June 30, Distribution) to
Class D Shares 1995 December 31, 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period .................... $ 13.846 $ 14.870
-------- ------------------
Net Investment Income .................................. .450 .755
Net Realized and Unrealized Gain/Loss on Investments ... .616 (.970)
-------- ------------------
Total from Investment Operations ....................... 1.066 (.215)
Less Distributions from and in Excess of
Net Investment Income (Note 1) ......................... .473 .809
-------- ------------------
Net Asset Value, End of Period ......................... $ 14.439 $ 13.846
-------- ------------------
Total Return (Non-Annualized) ........................... 7.73% (1.43%)
Net Assets at End of Period (In millions) .............. $ 2.1 $ 2.0
Ratio of Expenses to Average Net
Assets (Annualized) .................................... 1.00% .94%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ......................... 6.28% 6.38%
Portfolio Turnover ...................................... 27.13% 101.11%
</TABLE>

23 See Notes to Financial Statements

Notes to Financial Statements

June 30, 1995 (Unaudited)

1. Significant Accounting Policies

Van Kampen Merritt Tax Free High Income Fund (the "Fund") was incorporated under
Maryland law on March 6, 1985, and is registered as a diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund commenced investment operations on June 28, 1985 and was
reorganized as a sub-trust of Van Kampen Merritt Tax Free Fund, a Massachusetts
business trust (the "Trust") as of February 22, 1988. The distribution of the
Fund's Class B, Class C and Class D shares commenced on May 1, 1993, August 13,
1993 and March 14, 1994, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

A. Security Valuation-Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Investments
valued using estimates of market value are generally those non-rated securities
in which the Fund owns over 90% of the original bond issue. At June 30, 1995,
18% of the Fund's net assets consisted of such securities. Short-term securities
with remaining maturities of less than 60 days are valued at amortized cost.

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. Investment Income-Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

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 December
31, 1994, the Fund had an accumulated capital loss carryforward for tax purposes
of $43,939,891. Of this amount, $438,972 and $43,500,919 will expire on December
31, 1999 and 2002, respectively. Net realized gains or losses may differ for
financial and tax reporting purposes primarily as a result of the deferral of
post October 31 losses and the capitalization of reorganization and
restructuring costs for tax purposes.

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, for those securities which the Fund has placed on non-accrual status,
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.

<TABLE>
<CAPTION>
Average Net Assets % Per Annum
- -------------------------------------
<S> <C>
First $500 million ... .50 of 1%
Over $500 million .... .45 of 1%
</TABLE>

For the six months ended June 30, 1995, the Fund recognized expenses of
approximately $27,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom, counsel to the Fund, of which a trustee of the Fund is an
affiliated person.
For the six months ended June 30, 1995, the Fund recognized expenses of
approximately $164,600 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
legal and certain shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees.

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

Under the deferred compensation plan, trustees may elect to defer all or a
portion of their compensation to a later date. The retirement plan covers those
trustees who are not officers of VKAC. The Fund's liability under the deferred
compensation and retirement plans at June 30, 1995, was approximately $21,300.
At June 30, 1995, VKAC owned 100 shares each of Classes B, C and D.

3. Capital Transactions

The Fund has outstanding four classes of common shares, Classes A, B, C and D.
There are an unlimited number of shares of each class without par value
authorized.
At June 30, 1995, paid in surplus aggregated $704,514,864, $124,576,368,
$7,709,957 and $2,161,478 for Classes A, B, C and D, respectively. For the six
months ended June 30, 1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 1,596,771 $ 22,914,994
Class B ...................... 953,859 13,676,327
Class C ....................... 71,112 1,009,440
Class D ....................... -0- -0-
--------- --------------
Total Sales ................... 2,621,742 $ 37,600,761
--------- --------------
Dividend Reinvestment:
Class A ...................... 660,943 $ 9,512,371
Class B ...................... 88,171 1,269,257
Class C ....................... 10,563 151,987
Class D ....................... -0- 3
--------- --------------
Total Dividend Reinvestment ... 759,677 $ 10,933,618
--------- --------------
Repurchases:
Class A ...................... (2,139,389) $ (30,743,075)
Class B ...................... (807,301) (11,695,356)
Class C ....................... (130,358) (1,867,072)
Class D ....................... (114) (1,641)
--------- --------------
Total Repurchases ............ (3,077,162) $ (44,307,144)
--------- --------------
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

At December 31, 1994, paid in surplus aggregated $702,830,574, $121,326,140,
$8,415,602 and $2,163,116 for Classes A, B, C and D, respectively. For the year
ended December 31, 1994, transactions were as follows:

<TABLE>
<CAPTION>
<S> <C> <C>
Shares Value
- ------------------------------------------------------------------------------
Sales:
Class A ...................................... 6,540,259 $ 96,207,344
Class B ...................................... 5,443,468 79,716,260
Class C ........................................ 489,407 7,098,890
Class D ........................................ 147,327 2,163,107
---------- ------------
Total Sales .................................... 12,620,461 $ 185,185,601
---------- ------------
Dividend Reinvestment:
Class A ...................................... 1,375,201 $ 19,853,939
Class B ...................................... 153,310 2,201,274
Class C ........................................ 20,355 292,772
Class D ........................................ -0- 9
---------- ------------
Total Dividend Reinvestment .................... 1,548,866 $ 22,347,994
---------- ------------
Repurchases:
Class A ...................................... (5,083,863) $ (72,707,633)
Class B ...................................... (1,108,781) (15,819,604)
Class C ........................................ (298,471) (4,119,386)
Class D ........................................ -0- -0-
---------- ------------
Total Repurchases ............................. (6,491,115) $ (92,646,623)
---------- ------------
</TABLE>

Class B, C and D 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 for Class B and one
year of the purchase for Classes C and D as detailed in the following schedule.
The Class B, C and D shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C Class D
<S> <C> <C> <C>
- ------------------------------------------------------
First ..................... 4.00% 1.00% 0.75%
Second .................... 3.75% None None
Third .................... 3.50% None None
Fourth ................... 2.50% None None
Fifth ..................... 1.50% None None
Sixth .................... 1.00% None None
Seventh and Thereafter ... None None None
</TABLE>

For the six months ended June 30, 1995, VKAC, as distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$88,500 and CDSC on the redeemed shares of Classes B, C and D of approximately
$188,100. Sales charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes and reorganization and restructuring costs, for the six months
ended June 30, 1995, were $198,744,021 and $242,197,761, 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 on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
Summarized below are the specific types of derivative financial instruments
used by
the Fund.

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

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 six months ended June 30, 1995, were as
follows:

<TABLE>
<CAPTION>
Contracts Premium
- ----------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994 ..... -0- $ -0-
Options Written and Purchased (Net) ... 3,902 (690,653)
Options Terminated in Closing
Transactions (Net) .................... (2,350) 557,640
Options Expired (Net) ................ (1,352) 81,399
Options Exercised (Net) ............... (200) 51,614
-------- ---------
Outstanding at June 30, 1995 ......... -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.
The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire. Transactions in futures contracts for the six months ended
June 30, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts
- -----------------------------------------------
<S> <C>
Outstanding at December 31, 1994 ... 10,586
Futures Opened .................... 8,431
Futures Closed ..................... (18,717)
--------
Outstanding at June 30, 1995 ....... 300
--------

</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

The futures contracts outstanding as of June 30, 1995, and the descriptions
and unrealized appreciation/depreciation are as follows:

<TABLE>
<CAPTION>
Unrealized
Appreciation/
Contracts Depreciation
- -----------------------------------------------------------
<S> <C> <C>
Ten-Year US Treasury Note Futures
Sept 1995 - Sells to Open ....... 200 $ 79,636
Municipal Bond Index Futures
Sept 1995 - Buys to Open ........ 100 $ (191,432)
-------- ------------
300 $ (111,796)
-------- ------------

</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.
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
security's fixed swap rate and the floating swap index. 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.

6. Distribution and Service Plans

The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "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 .30% each for Class A and Class D shares
and 1.00% each for Class B and Class C shares are accrued daily. Included in
these fees for the six months ended June 30, 1995 are payments to VKAC of
approximately $549,300.

Funds Distributed by Van Kampen American Capital

GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund

EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund

THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund

Van Kampen Merritt Tax Free High Income Fund

Board of Trustees

Philip P. Gaughan

R. Craig Kennedy

Dennis J. McDonnell*

Donald C. Miller - Chairman

Jack E. Nelson

Jerome L. Robinson

Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10, 1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

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

SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.

Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio Management Review .......... 4
Portfolio of Investments ............. 6
Statement of Assets and Liabilities ... 11
Statement of Operations .............. 12
Statement of Changes in Net Assets .... 13
Financial Highlights ................. 14
Notes to Financial Statements ......... 17
</TABLE>

Letter to Shareholders

August 3, 1995

Dear Shareholder:

The first half of 1995 has been a very positive one for most investors. Both
the fixed-income and stock markets have made considerable gains for the period
ended June 30, 1995. This year has been particularly rewarding for investors
after weathering the difficult markets of 1994.
The first six months of 1995 serve as a reminder of just how quickly markets
can move, and how difficult it can be to predict the timing of those movements.
Moreover, this year reinforces the importance of maintaining a long-term
perspective, and reaffirms the principle that it is time---not timing---that
leads to investment success.

[PHOTO]

Dennis J. McDonnell and Don G. Powell

Economic Overview

Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially lower than
its first quarter of 2.7 percent and fourth quarter 1994 rate of 5.1 percent.
While other key economic data, including unemployment rates and housing starts,
have shown mixed signs during recent weeks, the general trend for the first
half of the year suggested a "soft landing" scenario. Subsequently, concern
over inflation has subsided, as its annualized rate has run at a modest pace of
3.2 percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to
6.62 percent at the end of June, while prices on the "long bond" rose 18
percent. Likewise, the yield on the Bond Buyer's Municipal Bond Index fell from
7.28 percent to 6.37 percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

(Continued on page two)

Economic Outlook

Corporate News

Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

Performance Results for the Period Ended June 30, 1995

Van Kampen Merritt California Insured Tax Free Fund

A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
Six-month total return
based on NAV<F1> ............. 9.50% 9.02% 9.09%
Six-month total return<F2> ... 5.94% 6.02% 8.09%
One-year total return<F2> .... 4.22% 3.83% 5.96%
Five-year average
annual total return<F2> ...... 7.16% N/A N/A
Life-of-Fund average
annual total return<F2> ...... 7.80% 1.84% 1.02%
Commencement Date ........... 12/13/85 05/01/93 08/13/93
Distribution Rates and Yield
Distribution Rate<F3> ........ 5.10% 4.52% 4.52%
Taxable Equivalent
Distribution Rate<F4> ........ 8.95% 7.93% 7.93%
SEC Yield<F5> ................ 4.58% 3.98% 3.98%
N/A = Not Applicable

<FN>
<F1>Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (3.25% for A shares) or contingent deferred
sales charge for early withdrawal (3% for B shares and 1% for C shares).

<F2>Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (3.25% for A shares) or
contingent deferred sales charge for early withdrawal (3% for B shares and 1%
for C shares).

<F3>Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.

<F4>Taxable equivalent calculations reflect a combined federal and state income tax
rate of 43%, which takes into consideration the deductibility of individual
state taxes paid.

<F5>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 June 30, 1995. Had certain
expenses of the Fund not been assumed by the Adviser, the SEC Yield would have
been 4.45%, 3.85% and 3.85% for Classes A, B and C, respectively and total
returns would have been lower.

Portfolio Management Review

Van Kampen Merritt California Insured Tax Free Fund
The following is an interview with the management team of the Van Kampen Merritt
California Insured Tax Free Fund, including Joseph A. Piraro, portfolio manager,
and Peter W. Hegel, executive vice president, Van Kampen American Capital
Investment Advisory Corp.

Q. What market conditions had the greatest impact on the Fund's performance
during the six months ended June 30, 1995?
A. When it became apparent at the beginning of the year that the economy was
slowing down, and interest rates had likely peaked---there was a very positive
impact on the bond market, and in turn, on the Fund. As interest rates began
to fall, AAA-rated, insured municipal bonds---which make up 100 percent of the
Fund's holdings---were quick to benefit. (Price movements in the municipal
market are generally experienced first by higher-rated bonds, then by lower
quality issues.)
On the positive side of the state news, California's economy finally emerged
from recession, lagging the nation by two to three years. Going forward, this
should favorably impact the financial positions of the municipalities issuing
bonds.
On the negative side, the California municipal bond market is still feeling
the repercussions of the bankruptcy of Orange County on December 6, 1994, and
the subsequent failure of the voters to pass a half-cent increase in the sales
tax to pay the county's obligations. In addition, Los Angeles County and the
State of California continue to experience budget difficulties. While the
insured municipal bond market is cushioned from credit difficulties, we will be
carefully watching how the situation evolves.

Q. How did you position the Fund in response to the events of the past six
months?
A. Our ultimate mission is to deliver an attractive level of current income
without compromising our strict credit standards and, in effect, maintain a
relatively stable net asset value.
As such, we maintained our ongoing philosophy of investing in AAA-rated,
California insured municipal bonds. Such bonds provide a strong degree of
cushion against virtually any credit risk---a particularly desirable feature
while the California muni market works toward resolution of its difficulties.
Additionally, we continue to monitor the progress of the insurance companies
backing these bonds and are quite confident that these insurance companies'
capital bases are strong.
Sector-wise, we remained focused on the "essential services" sectors---that
is, services for which demand is relatively constant---and resilient to economic
conditions and/or political events. (See the chart on the following page for a
portfolio breakdown.)
Finally, we plan to stay in the 15- to 20-year maturity range, where yields
are close to those of longer-term bonds, with lower volatility. Additionally,
issues in this range have very positive supply and demand fundamentals---which
further helps to keep prices stable.

Q. How did the Fund perform during the six months ended June 30, 1995?
A. Shareholders will be glad to know that the value of bond insurance really
proved its worth after the Orange County situation. The insured, AAA-rated
bonds (in which the Fund invests) held up much better than uninsured issues
during the period.

For the six-month period ending June 30, 1995, the Fund's Class A share total
return was 9.50 percent<F1> at net asset value. During the same period, the
category average for all California municipal bond funds tracked by Lipper
Analytical Services was 9.70 percent.
Finally, we continued to provide investors with an attractive level of
tax-free income. At its current annualized dividend level of $.888 per share,
the Fund provides shareholders with a taxfree distribution rate of 5.10
percent<F3> (Class A shares) as of June 30, 1995. At this distribution rate, the
Fund provides shareholders in the 43 percent combined federal and state income
tax bracket with a yield equivalent to a taxable investment earning 8.95
percent <F4>. (Please refer to the chart on page three for additional Fund
performance.)

Q. What is your outlook for the remainder of 1995?
A. We anticipate that the economy will grow slowly, and that inflation will
remain low. As a result, we believe that fixed-income markets---including
municipal bonds---will continue to make attractive gains as interest rates
fall.

[PIE CHART]

Portfolio Holdings as of June 30, 1995

Public Building 15.2%
Water & Sewer 13.8%
Other 11.2%
General Purpose 11.9%
Tax District 22.2%
Health Care 9.4%
Public Education 16.3%

In California, it appears that issuance is going to stay below 1994 levels,
which is keeping the supply of bonds at low levels. Additionally, demand has
waned somewhat. As a result, in order to attract investors, tax-free municipal
bonds are yielding about 90 percent of taxable U.S. Treasury securities.
(Typically, tax-free bonds yield about 80 percent of Treasuries.) We believe
that the impact of tax reform and Orange County will diminish over the short
term, and that municipal bonds will return to their normal yield relationship
with Treasury securities. In other words, this could be a true buying
opportunity---particularly for the insured issues in which the Fund invests.

Peter W. Hegel Joseph A. Piraro
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

5 Please see footnotes on page three

Portfolio of Investments
June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
California Municipal Bonds 98.5%
$ 3,000 Alameda Cnty, CA Ctfs Partn Santa Rita Jail
Proj Rfdg (MBIA Insd) ................................. 5.700% 12/01/14 $ 2,887,440
1,000 Alameda, CA Ctfs Partn Alameda Swr Impt
Fin Corp (AMBAC Insd) ................................ 7.400 03/01/18 1,092,600
4,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev (MBIA Insd) .... 6.450 12/28/18 4,143,560
3,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy
Pool Ser A2 (Cap Guar Insd) ........................... 6.400 12/15/14 3,083,280
750 Berkeley, CA Ctfs Partn (AMBAC Insd) .................. 7.500 06/01/19 821,662
1,000 Brea & Olinda, CA Unified Sch Dist Ctfs Partn Sr
High Sch Pgm Ser A Rfdg (Cap Guar Insd) .............. 6.000 08/01/09 1,008,640
500 Calexico, CA Cmnty Redev Agy Tax Alloc Cent Bus
Dist & Residential Rfdg (Prerefunded @ 04/01/97)
(AMBAC Insd) ......................................... 8.000 04/01/17 543,345
1,300 California Edl Fac Auth Rev Univ San Diego Proj
(MBIA Insd) .......................................... 6.750 10/01/15 1,392,053
2,000 California Hlth Fac Fin Auth Rev Adventist Hlth
Ser A Rfdg (MBIA Insd) ................................ 6.500 03/01/14 2,071,700
20 California Hsg Fin Agy Rev Hsg Ser B (MBIA Insd) ..... 8.625 08/01/15 21,142
1,200 California Pub Cap Impt Fin Auth Rev Pooled Proj
Ser B (MBIA Insd) ..................................... 8.100 03/01/18 1,296,024
1,500 California St (FGIC Insd) ............................. 6.250 09/01/12 1,592,835
2,000 California St Pub Wks Brd Energy Efficiency Rev
Ser A (FSA Insd) ...................................... 5.250 05/01/08 1,941,700
3,500 California St Pub Wks Brd Lease Rev Dept of Corrections
CA St Prison Coalinga Ser B (MBIA Insd) .............. 5.375 12/01/19 3,212,895
5,170 California St Pub Wks Brd Lease Rev Dept of Corrections
CA St Prison Susanville Ser D (Cap Guar Insd) ........ 5.250 06/01/15 4,711,318
1,000 California St Univ Fresno Assn Inc Rev Auxiliary
Residence Student Proj (MBIA Insd) ................... 6.250 02/01/17 1,010,720
1,000 California St Var Purp (MBIA Insd) ................... 6.000 10/01/10 1,035,360
5,000 California St Var Purp (MBIA Insd) ................... 6.000 10/01/14 4,965,600
5,620 California Statewide Cmntys Dev Auth Rev Ctfs Partn
Good Samaritan Hlth Sys (Cap Mac Insd) ............... 6.250 05/01/14 5,681,089
2,000 Castaic Lake Wtr Agy CA Ctfs Partn Wtr Sys Impt Proj
Ser A Rfdg (MBIA Insd) ................................ 7.000 08/01/12 2,269,580
1,105 Chino, CA Ctfs Partn Redev Agy (MBIA Insd) ............ 6.200 09/01/18 1,118,492
2,350 Chino, CA Unified Sch Dist Ctfs Partn Master Lease
Pgm (FSA Insd) ....................................... 6.250 03/01/09 2,436,809
1,500 Chino, CA Unified Sch Dist Ctfs Partn Master Lease
Pgm (FSA Insd) ....................................... 6.000 03/01/14 1,475,055
1,500 Compton, CA Cmnty Redev Agy Tax Alloc Walnut Indl
Park Ser A Rfdg (AMBAC Insd) ......................... 7.500 08/01/13 1,659,705
</TABLE>

6 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
$ 20 Concord, CA Redev Agy Tax Alloc Cent Concord
Redev Proj Ser 3 (BIGI Insd) ......................... 8.000% 07/01/18 $ 22,200
880 Concord, CA Redev Agy Tax Alloc Cent Concord Redev
Proj Ser 3 (Prerefunded @ 07/01/98) (BIGI Insd) ....... 8.000 07/01/18 990,818
1,000 Contra Costa Cnty, CA Ctfs Partn Contra Costa Cnty
Pub Fac Co (BIGI Insd) ................................ 7.800 06/01/06 1,118,760
500 Contra Costa Cnty, CA Ctfs Partn Contra Costa Cnty
Pub Fac Co (BIGI Insd) ................................ 7.800 06/01/07 559,380
1,000 Contra Costa Cnty, CA Santn Dist No 7 A Ctfs Partn
Sub-Delta Diablo Fin Corp (Prerefunded @ 12/01/98)
(MBIA Insd) .......................................... 7.600 12/01/08 1,126,260
3,820 Contra Costa, CA Sch Fin Auth Rev Vista Unified Sch
Dist Sch Sites Ser A (Prerefunded @ 09/01/02)
(FSA Insd) ........................................... * 09/01/17 960,730
1,550 Contra Costa, CA Wtr Auth Wtr Treatment Rev Ser A
Rfdg (FGIC Insd) ...................................... 5.750 10/01/14 1,500,787
5,165 Corona, CA Redev Agy Tax Alloc Redev Proj Area A
Ser A Rfdg (FGIC Insd) ............................... 6.250 09/01/13 5,251,617
2,000 Fairfield Suisun, CA Swr Dist Swr Rev Ser A Rfdg
(MBIA Insd) .......................................... 6.250 05/01/16 2,023,220
1,000 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd) ........ 6.000 10/01/12 998,820
1,400 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd) ........ 6.000 10/01/19 1,380,484
2,000 Fresno Cnty, CA Fin Auth Solid Waste Rev (MBIA Insd) ... 5.750 05/15/14 1,898,380
1,615 Gilroy, CA Unified Sch Dist Ctfs Partn Measure J Cap
Projs Rfdg (FSA Insd) ................................. 5.750 09/01/05 1,680,440
1,745 Gilroy, CA Unified Sch Dist Ctfs Partn Measure J Cap
Projs Rfdg (FSA Insd) ................................. 5.875 09/01/06 1,822,618
1,810 Gilroy, CA Unified Sch Dist Ctfs Partn Measure J Cap
Projs Rfdg (FSA Insd) ................................. 6.250 09/01/12 1,847,738
900 Grossmont, CA Hosp Dist Rev Ser A
(Prerefunded @ 11/15/97) (MBIA Insd) .................. 8.000 11/15/17 997,110
20,000 Grossmont, CA Union High Sch Dist Ctfs Partn
(MBIA Insd) .......................................... * 11/15/21 3,313,800
460 Industry, CA (Prerefunded @ 07/01/99) (MBIA Insd) .... 8.000 07/01/04 523,310
1,750 Irwindale, CA Cmnty Redev Agy Tax Alloc Indl Dev
Proj Rfdg (AMBAC Insd) ................................ 7.000 08/01/15 1,838,585
215 Kern Cnty, CA Home Mtg Rev Ser A (MBIA Insd) .......... * 03/01/14 29,811
1,835 Local Govt Fin Auth CA Rev Cap Apprec San Francisco
Redev (MBIA Insd) .................................... * 08/01/08 825,750
2,000 Local Govt Fin Jt Pwrs Auth CA Rev Anaheim Redev
Agy Ser A (Prerefunded @ 09/01/98) (MBIA Insd) ........ 7.950 09/01/09 2,258,480
1,850 Loma Linda, CA Hosp Rev Loma Linda Univ Med Cent
Proj B Rfdg (AMBAC Insd) ............................. 7.000 12/01/15 2,011,653
</TABLE>

7 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>

$ 1,000 Long Beach, CA Redev Agy Downtown Redev Proj
Ser A (Prerefunded @ 11/01/98) (AMBAC Insd) ......... 7.750% 11/01/10 $ 1,128,430
100 Los Angeles Cnty, CA Hlth Fac Auth Rev Olive View
Med Ser A (Prerefunded @ 04/01/99) (AMBAC Insd) ...... 9.100 04/01/01 117,859
85 Los Angeles Cnty, CA Hlth Fac Auth Rev Olive View
Med Ser A (Prerefunded @ 04/01/99) (AMBAC Insd) ...... 9.200 04/01/02 100,471
852 Los Angeles Cnty, CA Tran Comm Lease Rev Dia RR
Lease Ltd (FSA Insd) ................................. 7.375 12/15/06 959,301
3,295 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev
(FGIC Insd) .......................................... 5.875 01/15/07 3,398,002
6,000 Los Angeles, CA Unified Sch Dist Ctfs Partn Multi Ppty
Proj Rfdg (FSA Insd) ................................. 5.625 11/01/13 5,816,040
1,200 Los Angeles, CA Wastewtr Sys Rev
(Prerefunded @ 08/01/98) (MBIA Insd) ................. 7.700 08/01/18 1,343,280
500 M-S-R Pub Pwr Agy CA San Juan Proj Rev Ser E
(MBIA Insd) ......................................... 6.000 07/01/22 492,765
1,300 Martinez, CA Ctfs Partn Martinez Pub Impt Corp
(Prerefunded @ 12/01/98) (AMBAC Insd) ............... 7.700 12/01/18 1,479,530
750 Mesa, CA Cons Wtr Dist Ctfs Partn Mesa Cons Wtr
Impt Co Cap Impt (AMBAC Insd) ........................ 7.625 03/15/08 817,118
500 Northern CA Pwr Agy Pub Pwr Rev Combustion Turbine
Proj 1 Ser A Rfdg (MBIA Insd) ........................ 6.000 08/15/10 500,135
400 Northern CA Pwr Agy Pub Pwr Rev Hydro Elec Proj 1
Ser A Rfdg (Prerefunded @ 07/01/21) (AMBAC Insd) .... 7.500 07/01/23 464,996
500 Oakland, CA Redev Agy Ctfs Partn Oakland Museum
Ser A (Prerefunded @ 04/01/97) (AMBAC Insd) ......... 8.125 04/01/12 544,395
2,760 Oakland, CA Unified Sch Dist Alameda Cnty Cap
Apprec Ser A (FGIC Insd) ............................ * 08/01/13 866,364
3,475 Oakland, CA Unified Sch Dist Alameda Cnty Cap
Apprec Ser A (FGIC Insd) ............................ * 08/01/14 1,017,480
750 Oceanside, CA Ctfs Partn Corp Yd Proj Fin
(Prerefunded @ 08/01/03) (AMBAC Insd) ............... 7.300 08/01/21 876,127
3,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ..... 5.750 06/01/15 2,801,160
3,000 Palm Desert, CA Fin Auth Tax Alloc Rev (Inverse Fltg)
(MBIA Insd) ......................................... 8.155 04/01/22 3,150,000
1,000 Perris, CA Sch Dist Ctfs Partn Rfdg (FSA Insd) ...... 6.100 03/01/16 996,980
1,945 Pittsburg, CA Unified Sch Dist Ctfs Partn
(AMBAC Insd) ........................................ 6.300 09/01/15 1,979,835
1,360 Port Hueneme, CA Ctfs Partn Cap Impt Pgm Rfdg
(MBIA Insd) ......................................... 6.000 04/01/19 1,377,109
1,000 Port Oakland, CA Port Rev Ser B (MBIA Insd) ......... 7.250 11/01/16 1,065,190
1,000 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (MBIA Insd) ............................... 7.125 09/01/19 1,092,890
</TABLE>

8 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>

$ 1,235 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (MBIA Insd) .................................. 6.750% 09/01/20 $ 1,316,152
1,265 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (Prerefunded @ 09/01/99) (MBIA Insd) ........ 6.750 09/01/20 1,399,141
1,000 Redding, CA Elec Sys Rev Ctfs Partn (Inverse Fltg)
(MBIA Insd) ............................................ 8.650 07/01/22 1,105,000
2,000 Sacramento, CA Muni Util Dist Elec Rev Ser A Rfdg
(MBIA Insd) ............................................ 5.750 08/15/13 1,966,700
1,100 Sacramento, CA Muni Util Dist Elec Rev Ser S
(Prerefunded @ 02/01/97) (FGIC Insd) ................... 7.125 02/01/11 1,173,623
530 San Bernardino Cnty, CA Ctfs Partn Rfdg & Cap
Impt Proj (MBIA Insd) ................................... 7.600 07/01/15 560,162
2,500 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd) ............................ 6.940 07/01/16 2,423,475
1,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec A
(MBIA Insd) ............................................ 6.400 09/01/18 1,022,130
1,000 San Gabriel, CA Unified Sch Dist Ctfs Partn (FSA Insd) ... 6.000 09/01/15 981,560
5,750 San Jose, CA Fin Auth Rev Convention Proj C
(Cap Guar Insd) ........................................ 6.375 09/01/13 5,901,972
2,000 San Mateo Cnty, CA Jt Pwrs Fin Auth Lease Rev
San Mateo Cnty Hlth Care Cent A (FSA Insd) .............. 6.000 07/15/09 2,033,840
2,000 San Mateo Cnty, CA Transit Dist Sales Tax Rev
Crossover Rfdg Ser A (MBIA Insd) ....................... 5.000 06/01/08 1,915,420
1,000 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (AMBAC Insd) .................... 6.875 11/15/14 1,081,590
1,990 South Cnty, CA Regl Wastewtr Auth Rev Regl Wastewtr
Fac Proj Ser A (FGIC Insd) ............................. 6.000 08/01/14 1,976,468
3,735 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev Sr
Lien Ser A Rfdg (MBIA Insd) ............................. 7.000 09/01/08 4,239,636
3,000 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev Sr
Lien Ser A Rfdg (MBIA Insd) ............................. 7.000 09/01/09 3,394,110
1,050 Stockton, CA Rev Ctfs Partn Wastewtr Treatment Plant
Expansion Ser A (FGIC Insd) ............................. 6.400 09/01/07 1,132,530
1,015 Stockton, CA Rev Ctfs Partn Wastewtr Treatment Plant
Expansion Ser A (FGIC Insd) ............................. 6.500 09/01/08 1,094,373
</TABLE>

9 See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
$ 2,000 Sunnyvale, CA Fin Auth Utils Rev Wastewtr Reuse &
Sludge Ser A (MBIA Insd) ........................ 6.300% 10/01/17 $ 2,025,260
2,000 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg
(MBIA Insd) .................................... 6.750 01/01/12 2,081,860
3,000 University of CA Rev Multi Purp Proj Ser D
(MBIA Insd) .................................... 6.300 09/01/14 3,075,180
------------
</TABLE>

<S> <C>
Total Long-Term Investments 98.5%
(Cost $153,992,087) <F1> ................................................... 160,738,994
Short-Term Investments at Amortized Cost 0.3% ............................... 600,000
Other Assets in Excess of Liabilities 1.2% ................................. 1,894,465
------------
Net Assets 100% ............................................................ $ 163,233,459
------------

*Zero coupon bond

<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $153,992,087;
the aggregate gross unrealized appreciation is $7,421,076 and the
aggregate gross unrealized depreciation is $674,169, resulting in net
unrealized appreciation of $6,746,907.
</TABLE>

Portfolio Composition by Credit Quality
<S> <C>
AAA .............................. 100%
----
</TABLE>

10 See Notes to Financial Statements

Statement of Assets and Liabilities

June 30, 1995 (Unaudited)

Assets:
<S> <C>
Investments, at Market Value (Cost $153,992,087) (Note 1) ............................. $ 160,738,994
Short-Term Investments (Note 1) ....................................................... 600,000
Cash ................................................................................. 137,901
Receivables:
Interest ............................................................................ 2,506,964
Fund Shares Sold .................................................................... 69,874
Other ................................................................................ 3,176
--------------
Total Assets .......................................................................... 164,056,909
--------------
Liabilities:
Payables:
Income Distributions ............................................................... 278,951
Investment Advisory Fee (Note 2) ................................................... 131,890
Fund Shares Repurchased ............................................................ 120,767
Accrued Expenses ...................................................................... 291,842
--------------
Total Liabilities ..................................................................... 823,450
--------------
Net Assets ............................................................................ $ 163,233,459
--------------
Net Assets Consist of:
Paid in Surplus (Note 3) .............................................................. $ 164,913,425
Net Unrealized Appreciation on Investments ........................................... 6,746,907
Accumulated Undistributed Net Investment Income ...................................... 45,669
Accumulated Net Realized Loss on Investments .......................................... (8,472,542)
--------------
Net Assets ............................................................................ $ 163,233,459
--------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $141,087,914 and
8,372,685 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 16.85
Maximum sales charge (3.25%* of offering price) ....................................... .57
--------------
Maximum offering price to public ...................................................... $ 17.42
--------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $19,387,361 and
1,150,531 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 16.85
--------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $2,758,184 and
163,683 shares of beneficial interest issued and outstanding) (Note 3) ............... $ 16.85
--------------
*On sales of $25,000 or more, the sales charge will be reduced.
</TABLE>

11 See Notes to Financial Statements

Statement of Operations

For the Six Months Ended June 30, 1995 (Unaudited)

Investment Income:
<S> <C>
Interest .......................................................................... $ 4,927,984
--------------
Expenses:
Investment Advisory Fee (Note 2) ................................................. 380,093
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of $195,199,
$91,486 and $14,070, respectively) (Note 6) ....................................... 300,755
Shareholder Services (Note 2) ..................................................... 82,466
Custody .......................................................................... 49,986
Legal (Note 2) ................................................................... 15,610
Trustees Fees and Expenses (Note 2) ............................................... 9,929
Insurance (Note 1) ............................................................... 718
Other ............................................................................ 48,486
--------------
Total Expenses .................................................................... 888,043
Less Fees Deferred ................................................................ 135,970
--------------
Net Expenses ...................................................................... 752,073
--------------
Net Investment Income ............................................................. $ 4,175,911
--------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ............................................................... $ 41,157,037
Cost of Securities Sold ........................................................... (42,162,726)
--------------
Net Realized Loss on Investments (Including realized gain
on futures transactions of $269,845) .............................................. (1,005,689)
--------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period .......................................................... (4,102,506)
End of the Period ................................................................ 6,746,907
--------------
Net Unrealized Appreciation on Investments During the Period ...................... 10,849,413
--------------
Net Realized and Unrealized Gain on Investments ................................... $ 9,843,724
--------------
Net Increase in Net Assets from Operations ....................................... $ 14,019,635
--------------
</TABLE>

12 See Notes to Financial Statements

Statement of Changes in Net Assets

For the Six Months Ended June 30, 1995 and
the Year Ended December 31, 1994 (Unaudited)

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
---------------- -----------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 4,175,911 $ 8,832,987
Net Realized Loss on Investments .................................. (1,005,689) (5,830,138)
Net Unrealized Appreciation/Depreciation on Investments
During the Period ................................................ 10,849,413 (18,824,986)
---------------- -----------------
Change in Net Assets from Operations ............................. 14,019,635 (15,822,137)
---------------- -----------------
Distributions from Net Investment Income:
Class A Shares ................................................... (3,666,059) (7,808,441)
Class B Shares ................................................... (418,499) (811,323)
Class C Shares ................................................... (64,597) (194,310)
---------------- -----------------
Total Distributions .............................................. (4,149,155) (8,814,074)
---------------- -----------------
Net Change in Net Assets from Investment Activities .............. 9,870,480 (24,636,211)
---------------- -----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ........................................ 11,449,658 31,539,463
Net Asset Value of Shares Issued Through Dividend Reinvestment .... 2,470,145 5,318,194
Cost of Shares Repurchased ........................................ (10,691,621) (32,496,252)
---------------- -----------------
Net Change in Net Assets from Capital Transactions ............... 3,228,182 4,361,405
---------------- -----------------
Total Increase/Decrease in Net Assets ............................. 13,098,662 (20,274,806)
Net Assets:
Beginning of the Period .......................................... 150,134,797 170,409,603
---------------- -----------------
End of the Period (Including undistributed net investment income of
$45,669 and $18,913, respectively) ............................... $ 163,233,459 $ 150,134,797
---------------- -----------------
</TABLE>
13 See Notes to Financial Statements

Financial Highlights

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
Year Ended December 31
Six Months Ended
Class A Shares June 30, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................. $ 15.802 $ 18.286 $ 16.858 $ 16.259 $ 15.730
--------- --------- --------- --------- ---------
Net Investment Income .............. .446 .912 .967 1.004 .990
Net Realized and Unrealized
Gain/Loss on Investments ............ 1.047 (2.484) 1.441 .585 .529
--------- --------- --------- --------- ---------
Total from Investment Operations .... 1.493 (1.572) 2.408 1.589 1.519
Less Distributions from Net
Investment Income .................. .444 .912 .980 .990 .990
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ...... $ 16.851 $ 15.802 $ 18.286 $ 16.858 $ 16.259
--------- --------- --------- --------- ---------
Total Return* (Non-Annualized) ..... 9.50% (8.75%) 14.54% 10.08% 9.98%
Net Assets at End of Period
(In millions) ...................... $ 141.1 $ 130.3 $ 151.1 $ 74.2 $ 60.2
Ratio of Expenses to Average Net
Assets* (Annualized) ................ .85% .78% .69% .69% .55%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ... 5.37% 5.46% 5.37% 6.07% 6.20%
Portfolio Turnover ................. 26.27% 56.38% 36.17% 60.70% 69.85%

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

Ratio of Expenses to Average Net
Assets (Annualized) ................. 1.02% 1.08% 1.01% 1.08% 1.04%
Ratio of Net Investment Income to
Average Net Assets (Annualized) .... 5.20% 5.16% 5.05% 5.68% 5.71%
</TABLE>

14 See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
From May 1, 1993
(Commencement of
Six Months Ended Year Ended Distribution) to
Class B Shares June 30, 1995 December 31, 1994 December 31, 1993
<S> <C> <C> <C>
--------------- --------------- ----------------
Net Asset Value, Beginning of Period ... $ 15.805 $ 18.266 $ 17.570
--------------- --------------- ----------------
Net Investment Income .................. .385 .785 .549
Net Realized and Unrealized
Gain/Loss on Investments ................ 1.041 (2.482) .705
--------------- --------------- ----------------
Total from Investment Operations ........ 1.426 (1.697) 1.254
Less Distributions from
Net Investment Income .................. .380 .764 .558
--------------- --------------- ----------------
Net Asset Value, End of Period .......... $ 16.851 $ 15.805 $ 18.266
--------------- --------------- ----------------
Total Return* (Non-Annualized) .......... 9.02% (9.39%) 7.25%
Net Assets at End of Period
(In millions) .......................... $ 19.4 $ 17.1 $ 15.3
Ratio of Expenses to Average Net
Assets* (Annualized) .................... 1.57% 1.52% 1.45%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ....... 4.63% 4.71% 4.06%
Portfolio Turnover ..................... 26.27% 56.38% 36.17%

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

Ratio of Expenses to Average
Net Assets (Annualized) ............... 1.74% 1.82% 1.77%
Ratio of Net Investment Income
to Average Net Assets (Annualized) ... 4.46% 4.41% 3.74%
</TABLE>

15 See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
From August 13, 1993
(Commencement of
Six Months Ended Year Ended Distribution) to
Class C Shares June 30, 1995 December 31, 1994 December 31, 1993
<S> <C> <C> <C>
--------------- --------------- ----------------
Net Asset Value, Beginning of Period ... $ 15.798 $ 18.257 $ 18.010
--------------- --------------- ----------------
Net Investment Income ................. .383 .773 .307
Net Realized and Unrealized
Gain/Loss on Investments ............... 1.050 (2.468) .258
--------------- --------------- ----------------
Total from Investment Operations ....... 1.433 (1.695) .565
Less Distributions from
Net Investment Income ................. .380 .764 .318
--------------- --------------- ----------------
Net Asset Value, End of Period ......... $ 16.851 $ 15.798 $ 18.257
--------------- --------------- ----------------
Total Return* (Non-Annualized) ......... 9.09% (9.40%) 3.17%
Net Assets at End of Period
(In millions) ......................... $ 2.8 $ 2.8 $ 4.0
Ratio of Expenses to Average Net
Assets* (Annualized) ................... 1.61% 1.51% 1.45%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ...... 4.62% 4.71% 3.82%
Portfolio Turnover .................... 26.27% 56.38% 36.17%

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

Ratio of Expenses to Average
Net Assets (Annualized) ............... 1.79% 1.82% 1.76%
Ratio of Net Investment Income
to Average Net Assets (Annualized) ... 4.45% 4.39% 3.52%
</TABLE>

16 See Notes to Financial Statements

Notes to Financial Statements

June 30, 1995 (Unaudited)

1. Significant Accounting Policies

Van Kampen Merritt California Insured Tax Free Fund (the "Fund") was organized
as a subtrust of the Van Kampen Merritt Tax Free Fund, a Massachusetts business
trust, on August 15, 1985, and is registered as a diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. 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.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

B. Security Transactions-Security transactions are recorded on a trade date
basis. Realizedgains 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. At June 30, 1995, there were no when
issued or delayed delivery purchase commitments.

C. Investment Income-Interest income is recorded on an accrual basis. Bond
premiumand original issue discount are amortized over the expected life of each
applicable security.

D. Federal Income Taxes-It is the Fund's policy to comply with the requirements
of theInternal 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 December 31, 1994, the Fund had an accumulated capital loss
carryforward for tax purposes of $6,845,254. Of this amount,

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

$100,459, $1,014,876, $105,997 and $5,623,922 will expire on December 31, 1995,
1996, 2001 and 2002, respectively. Net realized gains or losses may differ for
financial and tax reporting purposes primarily as a result of post October 31
losses which are not recognized for tax purposes until the first day of the
following fiscal year.

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.

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.

2. Investment Advisory Agreement and Other Transactions with Affiliates

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

Average 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>

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended June 30, 1995, the Fund recognized expenses of
approximately $36,950 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
legal and certain shareholder services to the Fund.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their com-

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

pensation to a later date. The retirement plan covers those trustees who are not
officers of VKAC. The Fund's liability under the deferred compensation and
retirement plans at June 30, 1995, was approximately $22,000.
At June 30, 1995, VKAC owned 100 shares each of Classes B and C.

3. Capital Transactions

The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized.
At June 30, 1995, paid in surplus aggregated $140,929,318, $20,726,905 and
$3,257,202 for Classes A, B and C, respectively. For the six months ended June
30, 1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Sales:
Class A ...................... 537,295 $ 9,029,719
Class B ...................... 126,353 2,117,938
Class C....................... 17,822 302,001
-------- ---------------
Total Sales................... 681,470 $ 11,449,658
-------- ---------------
Dividend Reinvestment:
Class A ...................... 130,364 $ 2,184,840
Class B ...................... 15,151 254,088
Class C....................... 1,863 31,217
-------- ---------------
Total Dividend Reinvestment... 147,378 $ 2,470,145
-------- ---------------
Repurchases:
Class A ...................... (540,285) $ (8,990,393)
Class B ...................... (70,016) (1,155,084)
Class C....................... (32,323) (546,144)
-------- ---------------
Total Repurchases ............ (642,624) $ (10,691,621)
-------- ---------------
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

At December 31, 1994, paid in surplus aggregated $138,705,152, $19,509,963 and
$3,470,128 for Classes A, B and C, respectively. For the year ended December 31,
1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Sales:
Class A ...................... 1,342,809 $ 23,002,264
Class B ...................... 414,834 7,100,815
Class C....................... 82,157 1,436,384
--------- ----------------
Total Sales................... 1,839,800 $ 31,539,463
--------- ----------------
Dividend Reinvestment:
Class A ...................... 281,094 $ 4,667,614
Class B ...................... 30,434 504,221
Class C....................... 8,764 146,359
--------- ----------------
Total Dividend Reinvestment... 320,292 $ 5,318,194
--------- ----------------
Repurchases:
Class A ...................... (1,641,222) $ (27,094,273)
Class B ...................... (206,014) (3,292,413)
Class C....................... (132,758) (2,109,566)
--------- ----------------
Total Repurchases ............ (1,979,994) $ (32,496,252)
--------- ----------------
</TABLE>

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 four years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.

<TABLE>
<CAPTION>
Contingent Deferred
Sales 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>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

For the six months ended June 30, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$4,300 and CDSC on the redeemed shares of Classes B and C of approximately
$25,100. Sales charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended June 30, 1995 were $41,109,077 and
$42,162,726, 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 on investments. Upon disposition, a realized gain or
loss is recognized accordingly.
Summarized below are the specific types of derivative financial instruments
used by the Fund.

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

Transactions in futures contracts, each with a par value of $100,000, for the
six months ended June 30, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts
<S> <C>
Outstanding at December 31, 1994 ... 400
Futures Opened .................... 500
Futures Closed ..................... (900)
---------
Outstanding at June 30, 1995 ....... -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. 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.

6. Distribution and Service Plans

The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "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 .30% of Class A shares and 1.00% each of
Class B and Class C shares are accrued daily. Included in these fees for the six
months ended June 30, 1995, are payments to VKAC of approximately $112,300.

Funds Distributed by Van Kampen American Capital

GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund

EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund

TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund

THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund

Van Kampen Merritt California Insured Tax Free Fund

Board of Trustees
Philip P. Gaughan
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Jerome L. Robinson
Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10, 1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

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

SM denotes a service mark of Van Kampen American Capital Distributors, Inc.

</TABLE>

Letter to Shareholders

August 3, 1995

Dear Shareholder:

The first six months of 1995 serve as a reminder of just how
quickly markets can move, and how difficult it can be to predict
the timing of those movements. Moreover, this year reinforces
the importance of maintaining a long-term perspective, and
reaffirms the principle that it is time---not timing---that
leads to investment success.

[PHOTO]

Dennis J. McDonnell and Don G. Powell

Economic Overview

Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at
the end of June, while prices on the "long bond" rose 18 percent. Likewise,
the yield on the Bond Buyer's Municipal Bond Index fell from 7.28 percent to
6.37 percent during the same period.

Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

(Continued on page two)

Economic Outlook

Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously before easing again, waiting for further signs that the
economy has settled into a slow growth pattern. We anticipate that the economy
will grow at an annual rate between 2 and 3 percent in the second half of the
year and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon a generally slow growth and low inflation outlook, we
believe fixed-income markets will continue to make positive gains as interest
rates fall. We look for stocks to perform well, but perhaps not as strongly as
in the first half of the year, as some companies may find it difficult to
maintain their strong earnings momentum.

On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the
question-and-answer section helpful.

Corporate News

We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.

Sincerely,

Dennis J. McDonnell Don G. Powell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

<TABLE>
Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt Municipal Income Fund

<CAPTION>
A Shares B Shares C Shares D Shares
<S> <C> <C> <C> <C>
Total Returns
Six-month total return
based on NAV<F1> ............. 7.97% 7.57% 7.56% 7.95%
Six-month total return<F2> ... 2.85% 3.57% 6.56% 7.20%
One-year total return<F2> .... 2.07% 2.49% 5.34% 6.29%
Life-of-Fund average
annual total return<F2> .... 6.86% 3.37% 1.57% 4.16%
Commencement Date ........... 08/01/90 08/24/92 08/13/93 03/14/94
Distribution Rates and Yield
Distribution Rate<F3> ........ 5.62% 5.14% 5.14% 5.85%
Taxable-Equivalent
Distribution Rate<F4> ........ 8.78% 8.03% 8.03% 9.14%
SEC Yield<F5> ................ 5.09% 4.63% 4.58% 5.28%

<FN>
<F1>Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares; 1% for C shares and .75% for
D shares). Had certain expenses of the Fund not been assumed by the Adviser,
total returns would have been lower.

<F3>Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.

<F4>Taxable-equivalent calculations reflect a federal income tax rate of 36%.

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

Portfolio Management Review

Van Kampen Merritt Municipal Income Fund

The following is an interview with the management team of the Van Kampen Merritt
Municipal Income Fund, including David C. Johnson, portfolio manager, and Peter
W. Hegel, executive vice president, Van Kampen American Capital Investment
Advisory Corp.

Q What market conditions had the greatest impact on the municipal
bond market during the six months ended June 30, 1995?

A The economy was on our side. When it became apparent at the beginning of the
year that the economy was slowing down, and interest rates had likely
peaked---there was a very positive impact on the bond market, and in turn, on
the Fund. This positive economic scenario went a long way toward helping us to
minimize the effects of several negative events that impacted the municipal
market. For example...

*In addition, a very strong stock market diverted investment dollars away from
municipal issues. This temporarily subdued the long-term positive supply and
demand situation the market has enjoyed.

*Finally, Washington proposals to change the income tax system also had an
adverse impact on the municipal bond market.

The demand for municipals resurged in June, when extremely attractive
municipal yields---more than 90 percent of the yield offered by taxable U.S.
Treasury securities (this ratio is normally about 80 percent)---drew investors
back to the market.

Q How was the Fund positioned in response to the events of the
past six months?

A As always, our primary goal was to deliver an attractive level of current
income exempt from federal income taxes---consistent with preservation of
capital.

For the most part, the portfolio's overall strategy remained unchanged. One of
the nice characteristics about this fund is that it is free to invest in the
entire municipal bond market (80 percent of the portfolio's securities must be
investment grade, rated BBB or better)---throughout the U.S. Currently, half the
fund is invested in triple-A securities. The rest is a mixture of triple-B and
non-rated bonds. It's called a "barbell" strategy: high quality (AA or better),
liquid, performance-oriented securities on the one hand---balanced with the
higher-yielding, lower quality securities on the other. This strategy helps us
generate attractive income while seeking to manage credit risk.

Our average maturity range has also remained fairly constant---in the 20-year
range. In fact, we particularly like securities in the 15-to 20-year maturity
range. They provide yields close to those of longer maturities, with less risk
potential---right in line with our goal of seeking high current yields
consistent with capital preservation.

Q How did the Fund perform during the six months ended June 30, 1995?

A For the six-month period ending June 30, 1995, the Fund's Class A share total
return, at net asset value, was 7.97 percent<F1>. During the same period, the
category average for all general municipal debt funds tracked by Lipper
Analytical Services was 9.01 percent.

Most important, we continued to provide investors with an attractive level of
tax-free income. At its current annualized dividend level of $.882 per share,
the Fund provides shareholders with a tax-free distribution rate of 5.62
percent<F3> (Class A shares) as of June 30, 1995. At this distribution rate, the
Fund provides shareholders in the 36 percent federal income tax bracket with a
yield equivalent to a taxable investment earning 8.78 percent<F4>. (Please refer
to the chart on page three for additional Fund performance.)

Q After the significant rally during the first half of 1995, what is
your outlook going forward,and how will you position the Fund?

A There may be a modest correction in the market at some point. In general
though, we anticipate that the economy will grow slowly, and that inflation will
remain low. As a result, we believe that fixed-income markets---including
municipal bonds---will continue to make modest gains.

In terms of investment strategy, we may increase our focus on BBB-rated bonds.
That's because the "spreads" (the difference in yields) between the credit
rating categories widened significantly over the period. This means that
BBB-rated bonds began offering notably higher yields relative to higher quality
bonds. In effect, they offer attractive compensation for assuming a bit of
additional credit risk.

Further, we'll likely stay in the 20-year maturity range where we see the best
value on the yield curve. And finally, we anticipate a continued focus on
"essential services" sectors. That is, services for which demand is relatively
constant---and resilient to economic conditions and/or political events. Health
care is a particular area of expertise for Van Kampen American Capital and a
good example of an "essential service" sector.

In addition, the Board of Directors of the Van Kampen American Capital
Municipal Bond Fund has approved the merger of the Fund into the Van Kampen
Merritt Municipal Income Fund, pending shareholder approval. The combination
should generate greater economies of scale and eliminate many of the costs of
operating each of the funds separately.

Peter W. Hegel David C. Johnson
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

Please see footnotes on page three

<TABLE>
Portfolio of Investments
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Alabama 2.4%
$ 2,805 Alabama Higher Edl Ln Corp (FSA Insd) ............ 6.000% 09/01/07 $ 2,845,757
2,100 Alabama St Indl Dev Auth Rev (Var Rate Cpn) ...... 7.500 09/15/11 2,100,000
3,000 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd) ................................ 6.750 08/15/17 3,218,040
5,055 Bay Minette, AL Indl Dev Brd Indl Dev Rev Coltec
Inds Inc Rfdg .................................... 6.500 02/15/09 4,864,780
1,225 IDB of the City of Bessemer, AL Rohn Inc Ser 91A
(Var Rate Cpn) ................................... 9.000 09/15/01 1,346,765
1,750 IDB of the City of Bessemer, AL Rohn Inc Ser 91A
(Var Rate Cpn) ................................... 9.500 09/15/11 2,087,400
----------
16,462,742
----------
Alaska 1.6%
5,690 Kasaan, AK Lease Rev <F3> ........................ 8.000 08/15/16 6,196,410
8,000 North Slope Borough, AK Cap Appreciation Ser B
(Cap Guar Insd) .................................. * 06/30/04 4,845,200
----------
11,041,610
----------
Arizona 2.2%
1,000 Maricopa Cnty, AZ Indl Dev Auth Indl Dev Rev
Borden Inc Proj ................................... 5.040 10/01/12 988,360
5,220 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A ........ 9.500 07/01/10 6,265,566
7,000 Tucson, AZ Arpt Auth Inc Spl Fac Rev Lockheed
Aermod Cent Inc <F3> ............................. 8.700 09/01/19 7,969,500
----------
15,223,426
----------
Arkansas 1.0%
5,470 Dogwood Addition PRD Muni Ppty Owners Multi Purp
Impt Dist No 8 AR Impt Ser A <F4> ................. 9.750 07/01/12 3,440,630
5,470 Dogwood Addition PRD Muni Ppty Owners Multi Purp
Impt Dist No 8 AR Impt Ser B <F4> ................. 9.750 07/01/12 3,440,630
----------
6,881,260
----------
California 11.1%
6,750 California Edl Fac Auth Rev College of Osteopathic
Med Pacific ...................................... 7.500 06/01/18 7,564,927
4,980 California Hlth Fac Fin Auth Rev Kaiser Permanente
Med Cent ......................................... 5.450 10/01/13 4,549,280
9,175 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Pacific Gas & Elec Co Ser B (MBIA Insd) ........... 5.850 12/01/23 8,620,004
2,000 California St Pub Wks Brd Lease Rev Dept of
Justice Bldg Ser A (FSA Insd) .................... 5.800 05/01/15 1,947,000
1,500 California Statewide Cmntys Ctfs Sutter Hlth Oblig
Group (MBIA Insd) <F2> ........................... 5.500 08/15/22 1,370,160
2,000 California Statewide Cmntys Dev Auth Rev Ctfs Partn
Sisters Charity .................................. 4.875 12/01/10 1,762,740
</TABLE>

6 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (Continued)
$ 4,325 Delano, CA Ctfs Partn Ser A ......................... 9.250% 01/01/22 $ 4,764,853
2,660 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd) ........................................ * 09/01/10 1,005,054
5,875 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd) ........................................ * 09/01/11 2,124,518
3,890 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd) ........................................ * 09/01/13 1,203,955
5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd) ........................................ * 09/01/14 1,563,840
985 Fairfield, CA Hsg Auth Mtg Rev Creekside Estates
Proj Rfdg ........................................... 7.875 02/01/15 985,000
38,000 Foothill/Eastern Tran Agy Cap Apprec Sr Lien Ser A ... * 01/01/27 4,055,740
43,860 Foothill/Eastern Tran Corridor Agy CA Toll Road Rev
Sr Lien Ser A ....................................... * 01/01/25 5,395,657
10,000 Foothill/Eastern Tran Corridor Agy CA Toll Road Rev
Sr Lien Ser A ....................................... 5.000 01/01/35 7,683,700
1,000 Los Angeles, CA Cmnty Redev Agy Cmnty Redev Fin
Auth Rev Grand Cent Sq Ser A ........................ 5.850 12/01/26 910,860
1,000 Los Angeles, CA Cmnty Redev Agy Cmnty Redev Fin
Auth Rev Grand Cent Sq Ser A ........................ 5.900 12/01/26 916,270
1,100 Monterey, CA Regl Wastewater Fin Auth Wastewater
Contract Rev (FSA Insd) ............................. * 06/01/05 622,655
900 Monterey, CA Regl Wastewater Fin Auth Wastewater
Contract Rev (FSA Insd) ............................. * 06/01/10 353,133
800 Monterey, CA Regl Wastewater Fin Auth Wastewater
Contract Rev (FSA Insd) ............................. * 06/01/11 293,456
700 Monterey, CA Regl Wastewater Fin Auth Wastewater
Contract Rev (FSA Insd) ............................. * 06/01/12 239,911
700 Monterey, CA Regl Wastewater Fin Auth Wastewater
Contract Rev (FSA Insd) ............................. * 06/01/13 224,028
700 Monterey, CA Regl Wastewater Fin Auth Wastewater
Contract Rev (FSA Insd) ............................. * 06/01/14 209,076
3,200 Orange Cnty, CA Cmnty Fac Dist Spl Tax No 88-1
Aliso Viejo Ser A (Prerefunded @ 08/15/02) .......... 7.350 08/15/18 3,754,112
5,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ..... 5.750 06/01/15 4,668,600
7,000 Sacramento, CA City Fin Auth Lease Rev Ser A Rfdg
(AMBAC Insd) ........................................ 5.400 11/01/20 6,498,800
970 San Jose, CA Fin Auth Rev Reassmt Ser C Rfdg ......... 7.000 09/02/15 991,844
2,000 Shasta, CA Jt Pwrs Fin Auth Lease Rev Justice Cent
Proj Ser A Rfdg ...................................... 5.900 09/01/14 1,834,520
----------
76,113,693
----------
</TABLE>

7 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colorado 7.5%
$ 2,840 Adams Cnty, CO Single Family Mtg Rev Ser A .......... 8.875% 08/01/10 $ 3,799,721
3,985 Adams Cnty, CO Single Family Mtg Rev Ser A .......... 8.875 08/01/12 5,392,024
3,400 Colorado Hlth Fac Auth Rev Hosp North CO
Med Cent (MBIA Insd) ............................... 6.000 05/15/20 3,404,726
2,000 Denver, CO City & Cnty Arpt Rev Ser A .............. 7.000 11/15/99 2,126,620
8,550 Denver, CO City & Cnty Arpt Rev Ser A .............. 8.500 11/15/23 9,501,358
5,000 Denver, CO City & Cnty Arpt Rev Ser A .............. 8.000 11/15/25 5,373,000
9,750 Denver, CO City & Cnty Sch Dist No 1 Ser A Rfdg ..... * 12/01/06 5,035,875
3,690 Jefferson Cnty, CO Residential Mtg Rev <F3> ........ 11.500 09/01/12 6,019,202
5,000 Meridian Metro Dist CO Peninsular & Oriental Steam
Navig Co Rfdg ...................................... 7.500 12/01/11 5,321,500
5,000 University of CO Hosp Auth Hosp Rev Ser A
(AMBAC Insd) ....................................... 6.400 11/15/22 5,203,150
----------
51,177,176
----------
Connecticut 0.8%
5,005 Connecticut St Hlth & Edl Fac Auth Rev Nursing Home
Pgm AHF/Hartford .................................... 7.125 11/01/14 5,501,696
---------
Florida 4.4%
30,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec
Ser A Rfdg (MBIA Insd) ............................... * 02/01/18 7,675,500
3,000 Emerald Coast, FL Hsg Corp Hsg Rev Ser A 1991 ....... 9.500 01/01/22 3,000,000
5,000 Florida St Div Bond Fin Dept Genl Svcs Rev
Environmental Preservation 2000 Ser A (MBIA Insd) ... 4.750 07/01/10 4,534,650
335 Largo, FL Sun Coast Hlth Sys Rev Hosp Rfdg .......... 5.750 03/01/02 321,714
2,875 Martin Cnty, FL Indl Dev Auth Indl Dev Rev Indiantown
Cogeneration Proj A Rfdg ............................ 7.875 12/15/25 3,110,951
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp
Adventist Hlth Sys (AMBAC Insd) ..................... 5.250 11/15/20 899,220
5,040 Pinellas Cnty, FL Hlth Fac Auth Sun Coast Hlth Sys
Rev Sun Coast Hosp Ser A (Prerefunded @ 03/01/00) .... 8.500 03/01/20 5,940,849
4,265 Sarasota Cnty, FL Hlth Fac Auth Rev Hlthcare
Kobernick/Meadow Park ............................... 10.000 07/01/22 4,686,553
----------
30,169,437
----------
Georgia 2.8%
16,810 Atlanta, GA Arpt Fac Rev Ser B (AMBAC Insd) ........... 6.000 01/01/21 16,319,148
2,813 Cobb Cnty, GA Dev Auth Rev Grantor Tr Ctfs Franklin
Forest Ser A ......................................... 8.000 06/01/22 2,868,750
----------
19,187,898
----------
Hawaii 3.7%
4,055 Hawaii St Arpts Sys Rev Ser 1993 (MBIA Insd) <F3> ..... 6.350 07/01/07 4,336,782
14,100 Hawaii St Dept Budget & Fin Spl Purp Rev
Hawaiian Elec Co (MBIA Insd) .......................... 6.550 12/01/22 14,599,563
</TABLE>

8 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hawaii (Continued)
$ 220 Hawaii St Dept Tran Spl Fac Rev Continental Airls Inc ... 9.600% 06/01/08 $ 234,648
2,350 Hawaii St Dept Tran Spl Fac Rev Continental Airls Inc ... 9.700 06/01/20 2,508,930
1,475 Hawaii St Harbor Cap Impt Rev (FGIC Insd) ................ 6.350 07/01/07 1,568,132
1,560 Hawaii St Harbor Cap Impt Rev (FGIC Insd) ................ 6.400 07/01/08 1,655,815
----------
24,903,870
----------
Illinois 13.5%
4,500 Bedford Park, IL Tax Increment Rev Sr Lien
Bedford City Sq Proj <F3> ............................... 9.250 02/01/12 4,983,210
1,380 Bridgeview, IL Tax Increment Rev Rfdg .................... 9.000 01/01/11 1,456,742
7,000 Broadview, IL Tax Increment Rev Sr Lien <F3> ............. 8.250 07/01/13 7,469,770
5,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev Intl Terminal
(MBIA Insd) <F3> ......................................... 6.750 01/01/18 5,257,100
4,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc ......................................... 8.500 05/01/18 4,354,280
405 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser A .................................. 8.400 05/01/18 438,404
5,035 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B .................................. 8.950 05/01/18 5,646,551
1,700 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor Ser B (FGIC Insd) .................... * 12/01/08 765,969
1,700 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor Ser B (FGIC Insd) .................... * 12/01/09 710,753
1,665 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor Ser B (FGIC Insd) .................... * 12/01/10 644,588
1,690 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor Ser B (FGIC Insd) .................... * 12/01/11 612,270
1,700 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor Ser B (FGIC Insd) .................... * 12/01/12 576,045
1,300 Hodgkins, IL Tax Increment ............................... 9.500 12/01/09 1,473,628
3,500 Hodgkins, IL Tax Increment (Prerefunded @ 12/01/01) ...... 9.500 12/01/09 4,388,685
1,500 Hodgkins, IL Tax Increment Rev Ser A Rfdg ............... 7.625 12/01/13 1,533,090
4,100 Illinois Hlth Fac Auth Rev Fairview Oblig Group Proj A ... 9.500 10/01/22 4,413,240
2,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group Proj B ... 9.000 10/01/22 2,090,040
560 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D ...... 9.500 11/15/15 652,495
425 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D
(Prerefunded @ 11/15/00) ................................ 9.500 11/15/15 529,559
2,150 Illinois Hlth Fac Auth Rev Holy Cross Hosp Proj ......... 6.700 03/01/14 2,110,483
4,000 Illinois Hlth Fac Auth Rev Mt Sinai Hosp Med Cent
Chicago Ser A ............................................ 10.250 02/01/13 3,957,600
9,000 Illinois Hlth Fac Auth Rev Servantcor Proj Ser A
(Cap Guar Insd) ......................................... 6.250 08/15/15 9,088,920
</TABLE>

9 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (Continued)
$ 7,000 Illinois Hlth Fac Auth Rev Servantcor Proj Ser A
(Cap Guar Insd) ........................................ 6.375% 08/15/21 $ 7,091,140
2,600 Illinois Hlth Fac Auth Rev United Med Cent
(Prerefunded @ 07/01/01) ............................... 8.375 07/01/12 3,125,356
6,100 Illinois Hsg Dev Auth Residential Mtg Rev
(Inverse Fltg) ......................................... 9.187 02/01/18 6,534,625
2,800 Regional Tran Auth IL Ser A (AMBAC Insd) ............... 8.000 06/01/17 3,509,688
7,000 Robbins, IL Res Recovery Rev Robbins Res
Recovery Partners Ser A ................................ 9.250 10/15/14 7,656,180
1,490 Southern IL Univ Rev Hsg & Aux Fac Sys Ser A
(MBIA Insd) ............................................ 5.800 04/01/10 1,475,294
----------
92,545,705
----------
Indiana 0.4%
2,750 Elkhart Cnty, IN Hosp Auth Rev Elkhart Genl Hosp Inc ... 7.000 07/01/12 2,923,415
----------
Iowa 0.4%
25,000 Iowa Hsg Fin Auth Single Family Hsg Rev 1984 Ser A ..... * 09/01/16 2,389,000
----------
Kentucky 1.7%
1,000 Bowling Green, KY Indl Dev Rev Coltec Inds Inc Rfdg .... 6.550 03/01/09 1,011,710
2,800 Elizabethtown, KY Indl Dev Rev Coltec Inds Inc ......... 9.875 10/01/10 2,845,948
4,000 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys Proj
(Inverse Fltg) (MBIA Insd) .............................. 8.212 10/01/08 4,470,000
1,250 Kentucky Econ Dev Fin Auth Med Cent Rev Ashland
Hosp Corp Ser A Rfdg & Impt (FGIC Insd) ................. 6.125 02/01/12 1,286,875
2,105 Kentucky Hsg Corp Hsg Rev Ser D (FHA/VA Insd) .......... 7.450 01/01/23 2,230,942
----------
11,845,475
----------
Louisiana 0.8%
2,500 Lafayette, LA Econ Dev Auth Indl Dev Rev Advanced
Polymer Proj Ser 1985 .................................. 10.000 12/31/00 2,569,850
10,000 Orleans Parish, LA Sch Brd Rfdg (FGIC Insd) ............. * 02/01/15 2,846,000
----------
5,415,850
----------
Maine 0.5%
1,500 Maine Edl Ln Marketing Corp Student Ln Rev Ser A4 ....... 5.450 11/01/99 1,531,770
2,000 Maine Edl Ln Marketing Corp Student Ln Rev Ser A4 ....... 5.600 11/01/00 2,042,300
----------
3,574,070
----------
Maryland 1.0%
1,500 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem Steel
Corp Proj Ser A Rfdg .................................... 7.550 06/01/17 1,530,000
5,300 Baltimore, MD Cap Apprec Cons Pub Impt Ser
(FGIC Insd) .............................................. * 10/15/10 2,114,541
3,000 Northeast MD Waste Disp Auth Solid Waste Rev
Montgomery Cnty Res Recovery Proj Ser A ................. 6.200 07/01/10 2,997,090
----------
6,641,631
----------
</TABLE>

10 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Massachusetts 1.8%
$ 1,615 Massachusetts Edl Ln Auth Edl Ln Rev Issue E
Ser A (AMBAC Insd) ............................... 7.000% 01/01/10 $ 1,709,219
4,200 Massachusetts St Hlth & Edl Fac Auth Rev
New England Med Cent Hosp Ser G (Embedded Swap)
(MBIA Insd) ..................................... 3.100 07/01/13 3,390,492
6,000 Massachusetts St Hlth & Edl Fac Auth Rev Saint Mem
Med Cent Ser A .................................. 5.750 10/01/06 4,856,100
2,000 Plymouth Cnty, MA Ctfs Partn Ser A .............. 7.000 04/01/22 2,156,740
----------
12,112,551
----------
Michigan 1.9%
2,000 Grand Traverse Cnty, MI Hosp Fin Auth Hosp Rev
Munson Hlthcare Ser A Rfdg (AMBAC Insd) ........... 6.250 07/01/12 2,045,540
2,205 Michigan St Hosp Fin Auth Rev Garden City Hosp ..... 8.300 09/01/02 2,283,101
5,600 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B
(Embedded Swap) (AMBAC Insd) ...................... 5.670 04/01/04 5,195,064
3,500 Michigan St Strategic Fund Ltd Oblig Rev Great Lakes
Pulp & Fibre Proj ................................. 10.250 12/01/16 3,711,365
----------
13,235,070
----------
Mississippi 1.0%
1,000 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy
Res Inc Rfdg ....................................... 7.300 05/01/25 1,015,940
5,000 Lowndes Cnty, MS Solid Waste Disp & Pollutn Ctl
Rev Var Weyerhaeuser Co Rfdg (Inverse Fltg) ........ 7.890 04/01/22 5,527,600
----------
6,543,540
----------
Missouri 2.1%
2,000 Lees Summit, MO Indl Dev Auth Hlth Fac Rev
John Knox Vlg Proj Rfdg & Impt ................... 7.125 08/15/12 2,061,820
1,810 Missouri St Econ Dev Export & Infrastructure Brd
Med Office Fac Rev (MBIA Insd) ................... 7.250 06/01/04 2,043,074
3,920 Missouri St Econ Dev Export & Infrastructure Brd
Med Office Fac Rev (MBIA Insd) ................... 7.250 06/01/14 4,260,844
3,500 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev Hlth
Midwest Ser B (MBIA Insd) ......................... 6.250 02/15/22 3,560,270
2,165 Saint Louis Cnty, MO Indl Dev Auth Nursing Home
Rev Mary Queen & Mother Proj Rfdg ................. 7.125 03/20/23 2,309,405
----------
14,235,413
----------
Montana 0.8%
6,000 Montana St Brd Invt Res Recovery Rev Yellowstone
Energy L P Proj ................................... 7.000 12/31/19 5,710,860
----------
</TABLE>

11 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nebraska 1.2%
$ 5,100 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) ................................... 9.811% 10/17/23 $5,546,250
1,700 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) ................................... 11.126 09/10/30 1,940,125
850 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized) ............. 8.665 09/15/24 892,500
---------
8,378,875
---------
Nevada 1.9%
4,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser A
(FGIC Insd) <F3> ................................. 6.700 06/01/22 4,188,160
2,495 Henderson, NV Loc Impt Dist No T-4 Ser A ......... 8.500 11/01/12 2,635,119
2,575 Humboldt Genl Hosp Dist NV ....................... 6.125 06/01/13 2,497,287
4,020 Reno, NV Redev Agy Tax Alloc Downtown Redev
Proj Ser E Rfdg ................................... 5.750 09/01/17 3,421,904
----------
12,742,470
----------
New Hampshire 0.5%
3,000 New Hampshire St Indl Dev Auth Rev Pollutn Ctl
Pub Svcs Co NH Proj C ............................. 7.650 05/01/21 3,164,310
----------
New Jersey 1.1%
6,130 Middlesex Cnty, NJ Util Auth Swr Rev Ser A Rfdg
(MBIA Insd) ....................................... 8.634 08/15/10 6,570,563
1,000 New Jersey Econ Dev Auth Econ Dev Rev United
Methodist Homes ................................... 7.500 07/01/25 982,440
----------
7,553,003
----------
New Mexico 0.4%
2,500 New Mexico St Hosp Equip Ln Council Hosp Rev
San Juan Regl Med Cent Inc Proj .................. 7.900 06/01/11 2,775,400
----------
New York 12.6%
3,715 Clifton Springs, NY Hosp & Clinic Hosp Rev Rfdg ... 8.000 01/01/20 3,663,993
2,500 Herkimer Cnty, NY Indl Dev Agy Indl Dev Rev Burrows
Paper Corp Recycling ............................. 8.000 01/01/09 2,643,725
5,000 Metropolitan Tran Auth NY Svcs Contract Tran Fac
Ser 5 Rfdg ....................................... 7.000 07/01/12 5,255,750
5,000 New York City Indl Dev Agy Spl Fac Rev Terminal
One Group Assn Proj .............................. 6.000 01/01/19 4,723,800
20,000 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev (MBIA Insd) ............................... 5.350 06/15/12 18,974,400
2,500 New York City Ser B .............................. 7.500 02/01/07 2,702,650
5,000 New York City Ser C Rfdg ......................... 6.500 08/01/04 5,156,100
</TABLE>

12 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (Continued)
$ 7,500 New York City Ser C Subser C1 ......................... 7.500% 08/01/20 $ 8,044,350
2,000 New York City Ser D Rfdg ............................. 8.000 02/01/05 2,285,080
2,200 New York City Ser E .................................. 5.700 08/01/08 2,074,028
14,600 New York St Dorm Auth Rev City Univ 3rd Genl
Resources Ser E (MBIA Insd) <F3> ...................... 6.750 07/01/24 15,679,524
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev
(Inverse Fltg) ....................................... 8.450 04/01/20 2,612,500
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 2,242,140
490 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Fac Ser A ....................................... 7.750 08/15/11 539,377
1,320 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Fac Ser A (Prerefunded @ 02/15/01) ............... 7.750 08/15/11 1,543,635
495 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Fac Ser C ........................................ 7.300 02/15/21 529,160
1,505 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Fac Ser C (Prerefunded @ 08/15/01) .............. 7.300 02/15/21 1,741,556
2,400 New York St Urban Dev Corp Rev Correctional
Fac Rfdg .............................................. 5.625 01/01/07 2,300,976
2,000 New York St Urban Dev Corp Rev St Fac ................ 7.500 04/01/20 2,149,040
1,000 Troy, NY Indl Dev Auth Lease Rev City of Troy Proj ... 8.000 03/15/22 1,063,550
----------
85,925,334
----------
North Dakota 0.3%
2,000 Ward Cnty, ND Hlthcare Fac Rev Saint Joseph's
Hosp Corp Proj ......................................... 8.875 11/15/24 2,168,600
----------
Ohio 1.8%
8,490 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B
(Inverse Fltg) ........................................ 9.294 03/31/31 9,073,687
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd
Partnership Proj Rfdg (AMBAC Insd) ..................... 6.375 04/01/29 1,031,070
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev College
Cleveland Elec Ser A Rfdg .............................. 8.000 10/01/23 2,079,360
----------
12,184,117
----------
Oklahoma 0.4%
2,775 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B (GNMA Collateralized) ......................... 7.997 08/01/18 2,941,500
----------
</TABLE>

13 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania 2.2%
$ 3,000 Allentown, PA Area Hosp Auth Rev Sacred Heart
Hosp Ser A Rfdg ................................... 6.750% 11/15/14 $ 2,880,900
5,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth Sys Rev
Registered Fixed Airs (AMBAC Insd) ............... 5.650 05/15/20 4,731,850
2,000 Delaware Cnty, PA Auth Hosp Rev Cmnty Hosp
Crozer-Chester Mem Cent ........................... 6.000 12/15/20 1,770,220
1,500 McKean Cnty, PA Hosp Auth Hosp Rev Bradford
Hosp Proj (Crossover Rfdg @ 10/01/00) ............. 8.875 10/01/20 1,796,265
3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev (Embedded Swap) (AMBAC Insd) ................. 8.170 06/01/12 2,994,390
995 Philadelphia, PA Muni Auth Rev Lease Ser B Rfdg ... 6.400 11/15/16 965,628
----------
15,139,253
----------
Rhode Island 1.3%
2,000 Providence, RI Redev Agy Ctfs Partn Ser A ........ 8.000 09/01/24 2,089,800
1,500 Rhode Island Depositors Econ Protn Corp Spl
Oblig Ser A (Prerefunded @ 08/01/02) ............. 6.950 08/01/22 1,713,135
2,345 Rhode Island Hsg & Mtg Fin Corp Rental Hsg Pgm
Ser B ............................................. 7.950 10/01/30 2,478,947
1,880 West Warwick, RI Ser A ............................. 6.800 07/15/98 1,963,359
600 West Warwick, RI Ser A ............................. 7.300 07/15/08 627,888
----------
8,873,129
----------
South Carolina 4.7%
34,245 South Carolina St Pub Service Auth Rfdg Ser A
(MBIA Insd) <F2> ................................... 5.750 01/01/22 32,116,331
----------
Tennessee 0.3%
1,500 Memphis-Shelby Cnty, TN Arpt Auth Spl Fac & Proj
Rev Federal Express Corp Rfdg ..................... 7.875 09/01/09 1,643,640
----------
Texas 4.4%
8,270 Dallas-Fort Worth, TX Regl Arpt Rev Jt
Dallas-Fort Worth Intl Rfdg (FGIC Insd) <F2> ...... 5.600 11/01/12 8,023,967
2,500 Garland, TX Econ Dev Auth Indl Dev Rev Yellow
Freight Sys Inc Proj .............................. 8.000 12/01/16 2,639,350
3,500 North Cent, TX Hlth Fac Dev Corp Rev Ser C
Presbyterian Hlthcare Sys (Inverse Fltg) (MBIA Insd) 9.075 06/22/21 3,845,625
993 Texas Genl Services Comm Partn Lease Purchase Cert 7.500 02/15/13 993,303
3,912 Texas St .......................................... 6.213 12/01/13 3,847,508
5,250 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev
Coll Ser C Rfdg (Inverse Fltg) .................... 9.288 07/02/24 5,893,125
4,025 Texas St Higher Edl Coordinating Brd College
Student Ln <F5> .................................... 0/7.850 10/01/25 2,489,624
2,250 West Side Calhoun Cnty, TX Navig Dist Solid Waste
Disp Union Carbide Chem & Plastics ................ 8.200 03/15/21 2,481,278
----------
30,213,780
----------
</TABLE>

14 See Notes to Financial Statements

15 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wisconsin .5%
$ 3,200 Wisconsin Hsg & Econ Dev Auth Home Ownership
Rev Rfdg (Inverse Fltg) ................... 9.611% 10/25/22 $ 3,484,000
------------
Total Long-Term Investments 103.8%
(Cost $675,470,056) <F1> ................................................ 709,364,717
Short-Term Investments at Amortized Cost 0.4% ......................... 2,700,000
Liabilities in Excess of Other Assets (4.2%) .......................... (28,555,166)
--------------
Net Assets 100% ........................................................ $ 683,509,551
==============

*Zero coupon bond

<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $675,726,258;
the aggregate gross unrealized appreciation is $45,025,878 and the
aggregate gross unrealized depreciation is $8,795,714, resulting in net
unrealized appreciation including option and futures transactions of
$36,230,164.
<F2> Securities purchased on a when issued or delayed delivery basis.
<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments, open option and open futures transactions.
<F4> Non-Income producing security.
<F5> Currently a zero coupon bond which will convert to a coupon paying bond at
a predetermined date.
</TABLE>

<TABLE>
Portfolio Composition by Credit Quality
<CAPTION>
<S> <C>
AAA .......... 49.5%
AA .......... 3.5
A ........... 13.1
BBB ......... 9.7
BB .......... 7.0
B ........... 0.8
Non-Rated ... 16.4
------
100.0%
======
</TABLE>

16 See Notes to Financial Statements

<TABLE>
Statement of Assets and Liabilities
June 30, 1995 (Unaudited)
<CAPTION>

<S> <C>
Assets:
Investments, at Market Value (Cost $675,470,056) (Note 1) ......................... $ 709,364,717
Short-Term Investments (Note 1) ................................................... 2,700,000
Cash ............................................................................. 6,472,719
Receivables:
Interest ........................................................................ 11,929,930
Investments Sold ............................................................... 1,305,906
Fund Shares Sold ................................................................ 305,458
Options at Market Value (Net premiums paid of $238,410) (Note 5) .................. 234,375
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) ...... 672
Other ............................................................................ 1,907
--------------
Total Assets .................................................................... 732,315,684
--------------
Liabilities:
Payables:
Investments Purchased ........................................................... 44,652,739
Income Distributions ........................................................... 1,581,732
Margin on Futures (Note 5) ..................................................... 642,187
Fund Shares Repurchased ........................................................ 481,950
Investment Advisory Fee (Note 2) ............................................... 276,874
Accrued Expenses .................................................................. 1,170,651
--------------
Total Liabilities ............................................................... 48,806,133
--------------
Net Assets ........................................................................ $ 683,509,551
==============
Net Assets Consist of:
Paid in Surplus (Note 3) .......................................................... $ 691,097,597
Net Unrealized Appreciation on Investments ....................................... 36,486,366
Accumulated Distributions in Excess of Net Investment Income (Note 1) ............ (652,376)
Accumulated Net Realized Loss on Investments ...................................... (43,422,036)
--------------
Net Assets ........................................................................ $ 683,509,551
==============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $509,149,591
and 34,065,072 shares of beneficial interest issued and outstanding) (Note 3) ..... $ 14.95
Maximum sales charge (4.75%* of offering price) ................................... .75
--------------
Maximum offering price to public .................................................. $ 15.70
==============
Class B Shares:
Net asset value and offering price per share (Based on net assets of $168,855,793
and 11,293,396 shares of beneficial interest issued and outstanding) (Note 3) ..... $ 14.95
==============
Class C Shares:
Net asset value and offering price per share (Based on net assets of $4,445,626
and 297,372 shares of beneficial interest issued and outstanding) (Note 3) ....... $ 14.95
==============
Class D Shares:
Net asset value and offering price per share (Based on net assets of $1,058,541
and 70,826 shares of beneficial interest issued and outstanding) (Note 3) ........ $ 14.95
==============
</TABLE>

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

17 See Notes to Financial Statements

<TABLE>
Statement of Operations
For the Six Months Ended June 30, 1995 (Unaudited)
<CAPTION>
<S> <C>
Investment Income:
Interest ................................................................................. $ 23,263,276
---------------
Expenses:
Investment Advisory Fee (Note 2) ........................................................ 1,653,947
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $764,262,
$826,339, $20,911 and $1,546, respectively) (Note 6) ................................... 1,613,058
Shareholder Services (Note 2) .......................................................... 448,231
Legal (Note 2) .......................................................................... 54,300
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) ......... 15,110
Trustees Fees and Expenses (Note 2) ...................................................... 14,454
Other ................................................................................... 231,289
---------------
Total Expenses ........................................................................... 4,030,389
---------------
Net Investment Income .................................................................... $ 19,232,887
===============
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ...................................................................... $ 165,773,548
Cost of Securities Sold (Including reorganization and restructuring costs of $61,460) ... (183,173,555)
---------------
Net Realized Loss on Investments (Including realized loss on closed and expired
option and futures transactions of $562,705 and $16,635,949, respectively) .............. (17,400,007)
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ................................................................. (13,135,218)
End of the Period (Including unrealized appreciation on open futures
transactions of $2,595,740 and unrealized depreciation on open option
transactions of $4,035) ................................................................. 36,486,366
---------------
Net Unrealized Appreciation on Investments During the Period ............................. 49,621,584
---------------
Net Realized and Unrealized Gain on Investments .......................................... $ 32,221,577
===============
Net Increase in Net Assets from Operations .............................................. $ 51,454,464
===============
</TABLE>

18 See Notes to Financial Statements

<TABLE>
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1995
and the Year Ended December 31, 1994 (Unaudited)
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................ $ 19,232,887 $ 41,288,571
Net Realized Loss on Investments ................................. (17,400,007) (15,519,375)
Net Unrealized Appreciation/Depreciation on
Investments During the Period ................................... 49,621,584 (76,400,277)
--------------- ----------------
Change in Net Assets from Operations ............................ 51,454,464 (50,631,081)
--------------- ----------------
Distributions from Net Investment Income* ........................ (19,232,887) (41,020,921)
Distributions in Excess of Net Investment Income* (Note 1) ....... (424,078) -0-
--------------- ----------------
Total Distributions ............................................. (19,656,965) (41,020,921)
--------------- ----------------
Net Change in Net Assets from Investment Activities ............. 31,797,499 (91,652,002)
--------------- ----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ....................................... 32,600,609 76,732,460
Net Asset Value of Shares Issued Through Dividend Reinvestment ... 10,110,010 21,110,678
Cost of Shares Repurchased ....................................... (50,352,681) (116,770,207)
--------------- ----------------
Net Change in Net Assets from Capital Transactions .............. (7,642,062) (18,927,069)
--------------- ----------------
Total Increase/Decrease in Net Assets ............................ 24,155,437 (110,579,071)
Net Assets:
Beginning of the Period ......................................... 659,354,114 769,933,185
--------------- ----------------
End of the Period (Including undistributed net investment income
of $(652,376) and $(228,298), respectively) .................... $ 683,509,551 $ 659,354,114
=============== ================
</TABLE>

<TABLE>

Six Months Ended Year Ended
*Distributions by Class June 30, 1995 December 31, 1994
- ------------------------------------------------------------------------
<CAPTION>
Distributions from and in Excess of
Net Investment Income:
<S> <C> <C>
Class A Shares ................... $ (15,224,640) $ (32,205,506)
Class B Shares ................... (4,294,557) (8,547,628)
Class C Shares ................... (108,361) (212,571)
Class D Shares ................... (29,407) (55,216)
------------- --------------
$ (19,656,965) $ (41,020,921)
------------- --------------

</TABLE>

19 See Notes to Financial Statements

<TABLE>
Financial Highlights

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
<CAPTION>
Six Months Ended Year Ended December 31
Class A Shares June 30, 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 14.261 $16.164 $ 15.310 $ 15.071 $ 14.250
----------- ------ -------- -------- --------
Net Investment Income ................. .430 .886 .964 1.041 1.066
Net Realized and Unrealized
Gain/Loss on Investments ............... .696 (1.907) .862 .374 .853
----------- ------ -------- -------- --------
Total from Investment Operations ....... 1.126 (1.021) 1.826 1.415 1.919
----------- ------ -------- -------- --------
Less:
Distributions from and in Excess of
Net Investment Income (Note 1) ........ .441 .882 .972 1.044 1.098
Distributions from and in Excess
of Net Realized Gain on
Investments (Note 1) ................. -0- -0- -0- .132 -0-
----------- ------ -------- -------- --------
Total Distributions .................... .441 .882 .972 1.176 1.098
----------- ------ -------- -------- --------
Net Asset Value, End of Period ......... $ 14.946 $ 14.261 $ 16.164 $ 15.310 $ 15.071
----------- ------ -------- -------- --------
Total Return* (Non-Annualized) ........ 7.97% (6.37%) 12.20% 9.69% 13.98%
Net Assets at End of Period
(In millions) ......................... $ 509.1 $ 495.8 $ 597.6 $ 463.6 $ 293.7
Ratio of Expenses to Average Net
Assets* (Annualized) ................... 1.01% .99% .87% .86% .59%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ...... 5.82% 5.93% 6.08% 6.76% 7.29%
Portfolio Turnover .................... 26.92% 74.96% 81.78% 91.57% 105.99%

</TABLE>

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net
Assets (Annualized) .................... N/A N/A .98% 1.00% 1.07%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ....... N/A N/A 5.97% 6.62% 6.81%
N/A = Not Applicable
</TABLE>

20 See Notes to Financial Statements

<TABLE>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
<CAPTION>
Six Months Year Year August 24, 1992
Ended Ended Ended (Commencement of
June 30, December 31, December 31, Distribution) to
Class B Shares 1995 1994 1993 December 31, 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............... $ 14.261 $ 16.139 $ 15.308 $ 15.481
-------- --------- ---------- --------------
Net Investment Income ............. .378 .780 .852 .320
Net Realized and
Unrealized Gain/Loss
on Investments ................... .697 (1.890) .845 (.033)
-------- --------- ---------- --------------
Total from Investment
Operations ........................ 1.075 (1.110) 1.697 .287
-------- --------- ---------- --------------
Less:
Distributions from and in
Excess of Net Investment
Income (Note 1) .................. .384 .768 .866 .328
Distributions from and in
Excess of Net Realized
Gain on Investments
(Note 1) ......................... -0- -0- -0- .132
-------- --------- ---------- --------------
Total Distributions .............. .384 .768 .866 .460
-------- --------- ---------- --------------
Net Asset Value, End of Period .... $ 14.952 $ 14.261 $ 16.139 $ 15.308
-------- --------- ---------- --------------
Total Return* (Non-Annualized) ... 7.57% (6.96%) 11.33% 1.90%
Net Assets at End of Period
(In millions) .................... $ 168.9 $ 158.7 $ 168.2 $ 48.4
Ratio of Expenses to Average
Net Assets* (Annualized) ......... 1.71% 1.70% 1.65% 1.66%
Ratio of Net Investment Income
to Average Net Assets*
(Annualized) ..................... 5.10% 5.22% 5.19% 5.23%
Portfolio Turnover ............... 26.92% 74.96% 81.78% 91.57%

</TABLE>

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

<TABLE>
<CAPTION>
Ratio of Expenses to Average
<S> <C> <C> <C> <C>
Net Assets (Annualized) .......... N/A N/A 1.73% 2.42%
Ratio of Net Investment
Income to Average
Net Assets (Annualized) .......... N/A N/A 5.11% 4.48%
N/A = Not Applicable
</TABLE>

21 See Notes to Financial Statements

<TABLE>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
<CAPTION>
Six Months Year August 13, 1993
Ended Ended (Commencement of
June 30, December 31, Distribution) to
Class C Shares 1995 1994 December 31, 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ....................... $ 14.262 $ 16.141 $ 15.990
-------- --------- ----------------
Net Investment Income ..................................... .376 .783 .300
Net Realized and Unrealized Gain/Loss
on Investments ............................................. .696 (1.894) .171
-------- --------- ----------------
Total from Investment Operations .......................... 1.072 (1.111) .471
Less Distributions from and in Excess of
Net Investment Income (Note 1) ............................ .384 .768 .320
-------- --------- ----------------
Net Asset Value, End of Period ............................ $ 14.950 $ 14.262 $ 16.141
-------- --------- ----------------
Total Return* (Non-Annualized) ............................. 7.56% (6.97%) 2.96%
Net Assets at End of Period (In millions) ................. $ 4.4 $ 3.9 $ 4.1
Ratio of Expenses to Average Net
Assets* (Annualized) ...................................... 1.75% 1.74% 1.85%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) .......................... 5.05% 5.19% 3.95%
Portfolio Turnover ......................................... 26.92% 74.96% 81.78%
</TABLE>

*During the time periods noted, no expenses were assumed by the Adviser.

22 See Notes to Financial Statements

<TABLE>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
<CAPTION>
Six Months March 14, 1994
Ended (Commencement of
June 30, Distribution) to
Class D Shares 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ................................... $ 14.262 $ 15.290
-------- ------------------
Net Investment Income ................................................. .442 .701
Net Realized and Unrealized Gain/Loss on Investments .................. .679 (1.031)
-------- ------------------
Total from Investment Operations ....................................... 1.121 (.330)
Less Distributions from and in Excess of
Net Investment Income (Note 1) ......................................... .437 .698
-------- ------------------
Net Asset Value, End of Period ........................................ $ 14.946 $ 14.262
-------- ------------------
Total Return* (Non-Annualized) ......................................... 7.95% (2.19%)
Net Assets at End of Period (In millions) ............................. $ 1.1 $ 1.0
Ratio of Expenses to Average Net
Assets* (Annualized) ................................................... 1.06% 1.05%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ...................................... 5.76% 5.88%
Portfolio Turnover .................................................... 26.92% 74.96%
</TABLE>

*During the time periods noted, no expenses were assumed by the Adviser.

23 See Notes to Financial Statements

Notes to Financial Statements

June 30, 1995 (Unaudited)

1. Significant Accounting Policies

Van Kampen Merritt Municipal Income Fund (the "Fund") was organized as a
sub-trust of the Van Kampen Merritt Tax Free Fund, a Massachusetts business
trust, and is registered as a diversified open-end management investment
company under the Investment Company Act of 1940, as amended. The Fund
commenced investment operations on August 1, 1990. The distribution of the
Fund's Class B, Class C and Class D shares commenced on August 24, 1992,
August 13, 1993 and March 14, 1994, respectively.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

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. Investment Income-Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.

D. Organizational Expenses and Initial Registration Costs-The Fund has reim-
bursed Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC") for costs incurred in connection with the Fund's
organization and initial registration in the amount of $152,425. These costs are
being amortized on a straight line basis over the 60 month period ending July
31, 1995. Van Kampen American Capital Investment Advisory Corp. (the "Adviser")
has agreed that in the event any of the initial shares of the Fund originally
purchased by

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

VKAC are redeemed during the amortization period, the Fund will be reimbursed
for any unamortized organizational expenses and initial registration costs in
the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.

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 December 31, 1994, the Fund had an accumulated capital loss
carryforward for tax purposes of $18,151,198. Of this amount, $10,452,715 and
$7,698,483 will expire on December 31, 2001 and 2002, respectively. Net realized
gains or losses may differ for financial and tax reporting purposes primarily as
a result of the deferral of post October 31 losses and the capitalization of
reorganization and restructuring costs for tax purposes.

F. 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 interest income
under generally accepted accounting principles and federal income tax purposes,
for those securities which the Fund has placed on non-accrual status, 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 distribution in excess of net investment
income for certain periods.

2. Investment Advisory Agreement and Other Transactions with Affiliates

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

<TABLE>
<CAPTION>
Average Net Assets % Per Annum
- -----------------------------------
<S> <C>
First $500 million ... .50 of 1%
Over $500 million .... .45 of 1%
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.

For the six months ended June 30, 1995, the Fund recognized expenses of
approximately $201,000 representing VKAC's cost of providing accounting, legal
and certain shareholder services to the Fund.

Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.

The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers
of VKAC. The Fund's liability under the deferred compensation and retirement
plans at June 30, 1995, was approximately $20,600.

At June 30, 1995, VKAC owned 387, 105, 100 and 100 shares of Classes A, B, C
and D, respectively.

3. Capital Transactions

The Fund has outstanding four classes of common shares, Classes A, B, C and D.
There are an unlimited number of shares of each class without par value
authorized.

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

At June 30, 1995, paid in surplus aggregated $508,354,507,
$176,850,821, $4,775,105 and $1,117,164 for Classes A, B, C
and D, respectively. For the six months ended June 30, 1995,
transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ---------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ........................ 1,643,954 $ 24,547,374
Class B ........................ 503,248 7,499,897
Class C ........................ 37,001 553,338
Class D ........................ -0- -0-
--------- --------------
Total Sales ................... 2,184,203 $ 32,600,609
--------- --------------
Dividend Reinvestment:
Class A ........................ 509,836 $ 7,609,109
Class B ........................ 160,712 2,399,408
Class C ........................ 4,757 71,031
Class D ........................ 2,041 30,462
--------- --------------
Total Dividend Reinvestment ... 677,346 $ 10,110,010
--------- --------------
Repurchases:
Class A ........................ (2,856,810) $ (42,703,539)
Class B ........................ (499,216) (7,432,595)
Class C ........................ (14,403) (214,852)
Class D ........................ (114) (1,695)
--------- --------------
Total Repurchases ............. (3,370,543) $ (50,352,681)
--------- --------------
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

At December 31, 1994, paid in surplus aggregated $518,901,563, $174,384,111,
$4,365,588 and $1,088,397 for Classes A, B, C and D, respectively. For the year
ended December 31, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------------
<S> <C> <C>
Sales:
Class A ........................ 2,891,335 $ 43,601,705
Class B ........................ 1,909,204 28,989,319
Class C ........................ 141,638 2,139,693
Class D ........................ 133,104 2,001,743
--------- --------------
Total Sales ................... 5,075,281 $ 76,732,460
--------- --------------
Dividend Reinvestment:
Class A ........................ 1,085,808 $ 16,133,995
Class B ........................ 325,032 4,818,852
Class C ........................ 9,020 133,759
Class D ........................ 1,671 24,072
--------- --------------
Total Dividend Reinvestment ... 1,421,531 $ 21,110,678
--------- --------------
Repurchases:
Class A ........................ (6,182,355) $ (91,457,676)
Class B ........................ (1,527,736) (22,372,124)
Class C ........................ (134,564) (2,002,989)
Class D ........................ (65,876) (937,418)
--------- --------------
Total Repurchases ............. (7,910,531) $ (116,770,207)
--------- --------------
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C Class D
- -----------------------------------------------------------
<S> <C> <C> <C>
First .................... 4.00% 1.00% 0.75%
Second .................... 3.75% None None
Third .................... 3.50% None None
Fourth ................... 2.50% None None
Fifth .................... 1.50% None None
Sixth .................... 1.00% None None
Seventh and Thereafter ... None None None
</TABLE>

For the six months ended June 30, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$55,000 and CDSC on the redeemed shares of Classes B and C of approximately
$180,300. Sales charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and sales of investment securities, excluding short-term
notes and reorganization and restructuring costs, for the six months ended June
30, 1995, were $190,297,225 and $183,112,095, 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 on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.

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

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

A. Option Contracts-An option contract gives the buyer the right, but not the
obligation tobuy (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 six months ended June 30, 1995, were as
follows:

<TABLE>
<CAPTION>
Contracts Premium
- ----------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994 ... -0- $ -0-
Options Written and
Purchased (Net) ..................... 11,902 (7,803,278)
Options Terminated in Closing
Transactions (Net) ................. (6,000) 5,569,530
Options Expired (Net) ............... (2,702) 1,104,796
Options Exercised (Net) ............ (2,700) 890,542
---------- -----------
Outstanding at June 30, 1995 ........ 500 $ (238,410)
---------- -----------
</TABLE>

The related futures contracts of the outstanding option transactions as of
June 30, 1995, and the description and market value is as follows:

<TABLE>
<CAPTION>
Exp. Month/ Market Value
Contracts Exercise Price of Option
- -------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond
Sept 1995 - Purchased Calls ... 500 Sept/111 $ 234,375
----- -------------
</TABLE>

The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

Transactions in futures contracts for the six months ended June 30, 1995, were
as follows:

<TABLE>
<CAPTION>
Contracts
- ------------------------------------------------
<S> <C>
Outstanding at December 31, 1994 ... 19,084
Futures Opened ..................... 16,325
Futures Closed .................... (32,519)
--------
Outstanding at June 30, 1995 ...... 2,890
--------
</TABLE>

The futures contracts outstanding at June 30, 1995, and the descriptions and
unrealized appreciation are as follows:

<TABLE>
<CAPTION>
Unrealized
Contracts Appreciation
- -------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond Futures
Sept 1995 - Sells to Open ......... 340 $ 542,881
Sept 1995 - Buys to Open .......... 500 761,590
Five-year U.S. Treasury Note Futures
Sept 1995 - Sells to Open ......... 1,000 273,180
Ten-year U.S. Treasury Note Futures
Sept 1995 - Sells to Open ......... 500 74,090
Municipal Bond Index Futures
Sept 1995 - Sells to Open ......... 550 943,999
------ -----------
2,890 $ 2,595,740
------ -----------

</TABLE>

C. Indexed Securities-These instruments are identified in the portfolio of
investments. Theprice 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.

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

6. Distribution and Service Plans

Annual fees under the Plans of up to .30% each for Class A and Class D shares
and 1.00% each for Class B and Class C shares are accrued daily. Included in
these fees for the six months ended June 30, 1995, are payments to VKAC of
approximately $702,300.

Van Kampen Merritt Municipal Income Fund

Board of Trustees
Philip P. Gaughan
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Jerome L. Robinson
Wayne W. Whalen*

Officers
Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10, 1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

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

SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.

Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio Management Review .......... 4
Portfolio of Investments ............. 6
Statement of Assets and Liabilities ... 10
Statement of Operations .............. 11
Statement of Changes in Net Assets .... 12
Financial Highlights ................. 13
Notes to Financial Statements ......... 16
</TABLE>

LTMF SAR 8/95

Letter to Shareholders

August 3, 1995

Dear Shareholder:

[PHOTO]
Dennis J. McDonnell and Don G. Powell

Economic Overview

Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially lower than
its first quarter of 2.7 percent and fourth quarter 1994 rate of 5.1 percent.
While other key economic data, including unemployment rates and housing starts,
have shown mixed signs during recent weeks, the general trend for the first half
of the year suggested a "soft landing" scenario. Subsequently, concern over
inflation has subsided, as its annualized rate has run at a modest pace of 3.2
percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent. Likewise, the
yield on the Bond Buyer's Municipal Bond Index fell from 7.28 percent to 6.37
percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

(Continued on page two)

Economic Outlook

Corporate News

Sincerely,

Don G. Powell Dennis J. McDonnell
Chairman President
Van Kempen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

Performance Results for the Period Ended June 30, 1995

Van Kampen Merritt Limited Term Municipal Income Fund

A Shares B Shares C Shares
<S> <C> <C> <C>
Total Return
Six-month total return
based on NAV<F1> ............. 9.14% 8.75% 8.75%
Six-month total return<F2> ... 5.59% 5.75% 7.75%
One-year total return<F2> .... 4.44% 4.16% 6.17%
Life-of-Fund average
annual total return<F2> ...... 4.66% 4.64% 2.41%
Commencement Date ........... 05/28/93 05/28/93 10/19/93
Distribution Rates and Yield
Distribution Rate<F3> ........ 4.62% 4.05% 4.05%
Taxable Equivalent
Distribution Rate<F4> ........ 7.22% 6.33% 6.33%
SEC Yield<F5> ................ 4.46% 3.86% 3.86%

<F3>Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.

<F4>Taxable equivalent calculations reflect a federal income tax rate of 36%.

<F5>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 June 30, 1995. Had certain
expenses of the Fund not been assumed by the Adviser and VKAC, the SEC Yield
would have been 4.04%, 3.44% and 3.44% for Classes A, B and C, respectively, and
the total returns would have been lower.

Portfolio Management Review

Van Kampen Merritt Limited Term Municipal Income Fund

The following is an interview with the management team of the Van Kampen Merritt
Limited Term Municipal Income Fund, including David C. Johnson, portfolio
manager, and Peter W. Hegel, executive vice president, Van Kampen American
Capital Investment Advisory Corp.

*The Orange County, California bankruptcy had an adverse impact on the entire
municipal bond market in the second quarter when it became apparent that the
situation wasn't going to be resolved quickly.
*In addition, a very strong stock market diverted investment dollars away from
municipal issues. This temporarily subdued the long-term positive supply and
demand situation the market has enjoyed.
*Finally, Washington proposals to change the income tax system also had an
adverse impact on the municipal bond market.
The demand for municipals resurged in June, when extremely attractive
municipal yields---more than 90 percent of the yield offered by taxable U.S.
Treasury securities (this ratio is normally about 80 percent)---drew investors
back to the market.

Q. How was the Fund positioned in response to the events of the past six
months?
A. As the term "Limited Term" would suggest, this portfolio purchases municipal
bonds with relatively short maturities. The advantage of this strategy is that
the investor receives nearly as much yield as that obtained on a longer-term
maturity; at the same time, the investment is not as volatile when interest
rates fluctuate. In addition, the portfolio includes bonds that are
"callable"---usually within ten years. This call feature means that the bonds
can be retired if interest rates change significantly. Such bonds trade with
less volatility than bonds without the call feature.
That said, there were only minor changes in the portfolios weightings during
the reporting period. Most notable, we reduced our AAA-rated holdings (to 47.6
percent of net assets as opposed to 58.7 percent six months earlier) in favor of
higher yielding AA- and A-rated securities. Through extensive (and ongoing)
research, we were able to identify securities that, we believe, offer very
attractive yields coupled with strong credit characteristics. Our average
maturity range has also remained fairly constant---in the 13-year range.

Q. How did the Fund perform during the six months ended June 30, 1995?
A. For the six-month period ending June 30, 1995, the Fund's Class A share
total return, at net asset value, was 9.14 percent<F1>. During the same period,
the category average for all general municipal debt funds tracked by Lipper
Analytical Services was 9.01 percent.
Most important, we continued to provide investors with an attractive level of
tax-free income. At its current annualized dividend level of $.474 per share,
the Fund provides shareholders with a tax-free distribution rate of 4.62
percent<F3> (Class A shares) as of June 30, 1995. At this distribution rate, the
Fund provides shareholders in the 36 percent federal income tax bracket with a
yield equivalent to a taxable investment earning 7.22 percent<F4>. (Please refer
to the chart on page three for additional Fund performance.)

Q. After the significant rally during the first half of 1995,what is your
outlook going forward,and how will you position the Fund?
A. There may be a mild correction in the market at some point. In general
though, we anticipate that the economy will grow slowly, and that inflation
will remain low. As a result, we believe that fixed-income markets---including
municipal bonds---will continue to make modest gains.
Finally, we expect to maintain our focus on "essential services" sectors. That
is, services for which demand is relatively constant---and resilient to economic
conditions and/or political events. Health care is a particular area of
expertise for Van Kampen American Capital and a good example of an "essential
service" sector. (See the chart below for a portfolio breakdown.)

[This is a pie chart]

Portfolio Holdings by Sector as of June 30, 1995

Multi-Family Housing 8.9%
Single-Family Housing 8.8%
Industrial Revenue 11.1%
Water & Sewer 8.6%
General Purpose 12.8%
Health Care 19.3%
Public Building 8.3%
Airport 13.8%
Other 8.4%

Peter W. Hegel David C. Johnson
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.
5 Please see footnotes on page three

Portfolio of Investments

June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value

<S> <C> <C> <C> <C>
Municipal Bonds
Arizona 4.4%
$ 1,500 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease
Oblig Irvington Proj Tucson Ser A Rfdg (FSA Insd) ... 7.250% 07/15/10 $ 1,653,975
-----------
California 6.3%
1,000 California St Var Rate Cpn (AMBAC Insd) ............. 6.400 09/01/08 1,083,450
540 Montebello, CA Unified Sch Dist Ctfs
Partn Cap Impts Proj ................................. 5.900 06/01/04 520,058
740 Pleasanton, CA Jt Pwrs Fin Auth Rev Ser A ........... 6.000 09/02/05 743,818
-----------
2,347,326
-----------
Colorado 6.3%
340 Colorado Hsg Fin Auth Access Pgm
Single Family Pgm Ser E .............................. 8.125 12/01/24 379,984
1,000 Denver, CO City & Cnty Arpt Rev Ser A ............... 7.400 11/15/04 1,087,980
500 Montrose Cnty, CO Ctfs Partn ........................ 6.000 06/15/01 499,240
400 Montrose Cnty, CO Ctfs Partn ........................ 6.100 06/15/02 398,420
-----------
2,365,624
-----------
Florida 3.2%
1,150 Florida Hsg Fin Agy Maitland Club
Apts Ser B1 (AMBAC Insd) ............................ 6.750 08/01/14 1,203,579
-----------
Georgia 7.4%
1,050 Atlanta, GA Arpt Fac Rev ............................. 7.250 01/01/17 1,128,466
1,495 De Kalb Cnty, GA Hsg Auth Multi Family Hsg
Rev North Hill Apts Proj Rfdg (FNMA Collateralized) . 6.625 01/01/25 1,634,379
-----------
2,762,845
-----------
Hawaii 3.0%
1,000 Hawaii St Arpt Sys Rev Second Ser (FGIC Insd) ........ 7.500 07/01/20 1,101,680
-----------
Illinois 7.0%
250 Bellevue, IL Indl Dev First Mtg Rev Kmart
Corp Proj Rfdg ...................................... 6.250 04/01/09 248,150
265 Danville, IL Single Family Mtg Rev Rfdg ............. 7.300 11/01/10 286,547
750 Illinois Hlth Fac Auth Rev Holy Cross
Hosp Proj Ser 94-A ................................... 6.250 03/01/04 743,280
400 Illinois Hlth Fac Auth Rev Swedish
Covenant Ser A Rfdg & Impt .......................... 5.800 08/01/03 404,344
340 Macon County, IL Rev Cap Apprec
Millikin University (AMBAC Insd) .................... * 10/01/06 178,480
</TABLE>

6 See Notes to Financial Statements

Portfolio of Investments (Continued)

June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
Illinois (Continued)
$ 370 Macon County, IL Rev Cap Apprec
Millikin University (AMBAC Insd) .................. *% 10/01/07 $ 181,030
410 Macon County, IL Rev Cap Apprec
Millikin University (AMBAC Insd) .................. * 10/01/08 186,570
455 Macon County, IL Rev Cap Apprec
Millikin University (AMBAC Insd) .................. * 10/01/09 192,160
500 Macon County, IL Rev Cap Apprec
Millikin University (AMBAC Insd) .................. * 10/01/10 195,565
---------
2,616,126
---------
Indiana 2.9%
1,000 Jasper Cnty, IN Pollutn Ctl Rev Collateral
Northern IN Pub Svc Rfdg (MBIA Insd) ............... 7.100 07/01/17 1,078,240
---------
Kansas 0.6%
215 Labette Cnty, KS Single Family Mtg Rev Ser A Rfdg ... 8.400 12/01/11 233,484
---------
Kentucky 1.0%
375 Jefferson Cnty, KY Multi Family Rev Hsg
Whipps Mill Proj Ser A Rfdg ......................... 5.875 06/01/23 382,054
---------
Massachusetts 5.7%
470 Boston, MA Wtr & Swr Comm Rev Ser A ................. 9.250 01/01/11 635,515
400 Massachusetts St Hlth & Edl Fac Auth
Rev Saint Mem Med Cent Ser A ....................... 5.750 10/01/06 323,740
1,000 South Essex, MA Swr Dist Ser B (MBIA Insd) ......... 7.500 06/01/05 1,171,940
---------
2,131,195
---------
Missouri 4.4%
1,500 Kansas City, MO Arpt Rev Genl Impt Ser A
(Cap Guar Insd) .................................... 7.000 09/01/12 1,646,550
---------
New Hampshire 0.5%
200 New Hampshire Higher Edl & Hlth Fac Auth
Rev Hosp Nashua Mem Hosp ........................... 5.500 10/01/02 200,574
---------
New Jersey 3.1%
1,000 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd) .................. 7.000 07/01/06 1,141,250
---------
</TABLE>

7 See Notes to Financial Statements

Portfolio of Investments (Continued)

June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
New York 12.8%
$ 390 Erie Cnty, NY Indl Dev Agy Civic Fac Rev Mercy
Hosp Buffalo Proj Ser A ........................... 5.900% 06/01/03 $ 386,580
1,185 New York St Environmental Fac Corp Pollutn
Ctl Rev St Wtr Revolving Fd ....................... 7.000 06/15/12 1,283,509
1,000 New York St Med Care Fac Fin Agy Rev NY
Hosp Mtg Ser A (AMBAC Insd) ........................ 6.200 08/15/05 1,075,420
1,000 New York St Urban Dev Corp Rev
Correctional Fac Rfdg ............................. 5.625 01/01/07 958,740
1,000 Niagara Falls, NY Pub Impt (MBIA Insd) ............ 6.900 03/01/20 1,084,010
---------
4,788,259
---------
Ohio 2.7%
1,000 Ohio St Air Quality Dev Auth Rev Owens
Corning Fiberglas Proj Rfdg ....................... 6.250 06/01/04 1,006,720
---------
Oklahoma 1.9%
720 Shawnee, OK Hosp Auth Hosp Rev
Midamerica Hlthcare Inc Rfdg ...................... 5.750 10/01/03 697,428
---------
Pennsylvania 7.5%
1,000 Cumberland Cnty, PA Muni Auth Rev
First Mtg Carlisle Hosp & Hlth .................... 5.500 11/15/98 998,370
225 Erie, PA Higher Edl Bldg Auth College
Rev Mercyhurst College Proj A Rfdg ................ 5.300 03/15/03 220,455
1,000 Pennsylvania Intergovt Coop Auth Spl Tax
Rev Philadelphia Funding Pgm (FGIC Insd) ........... 6.750 06/15/21 1,071,850
500 Philadelphia, PA Hosp & Higher Edl Fac
Auth Hosp Rev Friends Hosp ......................... 5.950 05/01/04 496,040
---------
2,786,715
---------
South Dakota 1.7%
600 South Dakota Student Ln Assistance Corp
Student Ln Rev Ser B (MBIA Insd) ................... 7.625 08/01/06 651,294
---------
Texas 3.9%
500 Brazos Cnty, TX Hlth Fac Dev Corp Franciscan
Svcs Corp Rev Saint Joseph Rfdg ................... 5.600 01/01/03 502,730
973 Texas St .......................................... 6.350 12/01/13 957,356
---------
1,460,086
---------
</TABLE>

8 See Notes to Financial Statements

Portfolio of Investments (Continued)

June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
Utah 6.0%
$ 2,150 Utah St Hsg Fin Agy Single Family Mtg
Mezz Ser A-1 (FHA Insd) ........................... 7.150% 07/01/12 $ 2,256,640
----------
Guam 4.1%
1,550 Guam Govt Ser A .................................. 5.500 09/01/01 1,545,861
----------
</TABLE>

<S> <C>
Total Long-Term Investments 96.4%
(Cost $34,884,572) <F1> ........................................................ 36,057,505

Other Assets in Excess of Liabilities 3.6% .................................... 1,350,992
------------
Net Assets 100% ............................................................... $ 37,408,497
------------

*Zero coupon bond

<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $34,884,572; the
aggregate gross unrealized appreciation is $1,340,138 and the aggregate
gross unrealized depreciation is $167,205, resulting in net unrealized
appreciation of $1,172,933.
</TABLE>

Portfolio Composition by Credit Quality

<TABLE>

9 See Notes to Financial Statements

Statement of Assets and Liabilities

June 30, 1995 (Unaudited)

Assets:
<S> <C>
Investments, at Market Value (Cost $34,884,572) (Note 1) ......................... $ 36,057,505
Receivables:
Investments Sold .............................................................. 1,530,554
Interest ....................................................................... 746,296
Fund Shares Sold ............................................................... 3,893
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) ..... 34,895
-----------
Total Assets ..................................................................... 38,373,143
-----------
Liabilities:
Payables:
Custodian Bank ................................................................ 721,836
Income Distributions .......................................................... 46,257
Fund Shares Repurchased ....................................................... 20,758
Accrued Expenses ................................................................. 175,795
-----------
Total Liabilities ................................................................ 964,646
-----------
Net Assets ....................................................................... $ 37,408,497
-----------
Net Assets Consist of:
Paid in Surplus (Note 3) ......................................................... $ 37,293,549
Net Unrealized Appreciation on Investments ...................................... 1,172,933
Accumulated Undistributed Net Investment Income ................................. 75,612
Accumulated Net Realized Loss on Investments ..................................... (1,133,597)
-----------
Net Assets ....................................................................... $ 37,408,497
-----------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $15,903,348
and 1,599,224 shares of beneficial interest issued and outstanding) (Note 3) ..... $ 9.94
Maximum sales charge (3.25%* of offering price) .................................. .33
-----------
Maximum offering price to public ................................................. $ 10.27
-----------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $17,008,392
and 1,712,143 shares of beneficial interest issued and outstanding) (Note 3) ..... $ 9.93
-----------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $4,496,757
and 453,141 shares of beneficial interest issued and outstanding) (Note 3) ...... $ 9.92
-----------
*On sales of $25,000 or more, the sales charge will be reduced.
</TABLE>

10 See Notes to Financial Statements

Statement of Assets and Liabilities

June 30, 1995 (Unaudited)

Investment Income:
<S> <C>
Interest ........................................................................... $ 1,179,084
--------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$23,794, $86,700 and $23,340, respectively) (Note 5) ............................... 133,834
Investment Advisory Fee (Note 2) .................................................. 94,677
Shareholder Services (Note 2) ...................................................... 37,890
Custody ........................................................................... 36,894
Printing .......................................................................... 22,195
Trustees Fees and Expenses (Note 2) ................................................ 13,929
Legal (Note 2) .................................................................... 8,326
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) ... 5,948
Other ............................................................................. 28,459
--------------
Total Expenses ..................................................................... 382,152
Less Fees Deferred and Expenses Reimbursed ($94,677 and $20,280, respectively) ..... 114,957
--------------
Net Expenses ....................................................................... 267,195
--------------
Net Investment Income .............................................................. $ 911,889
--------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ................................................................ $ 26,993,647
Cost of Securities Sold ............................................................ (26,508,322)
--------------
Net Realized Gain on Investments .................................................. 485,325
--------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ........................................................... (730,149)
End of the Period ................................................................. 1,172,933
--------------
Net Unrealized Appreciation on Investments During the Period ....................... 1,903,082
--------------
Net Realized and Unrealized Gain on Investments .................................... $ 2,388,407
--------------
Net Increase in Net Assets from Operations ........................................ $ 3,300,296
--------------
</TABLE>

11 See Notes to Financial Statements

Statement of Changes in Net Assets

For the Six Months Ended June 30, 1995 and
the Year Ended December 31, 1994 (Unaudited)

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................ $ 911,889 $ 1,662,700
Net Realized Gain/Loss on Investments ............................ 485,325 (1,618,922)
Net Unrealized Appreciation/Depreciation
on Investments During the Period ................................. 1,903,082 (1,358,144)
-------------- -----------
Change in Net Assets from Operations ............................ 3,300,296 (1,314,366)
-------------- -----------
Distributions from Net Investment Income:
Class A Shares .................................................. (388,291) (787,021)
Class B Shares .................................................. (360,934) (749,473)
Class C Shares .................................................. (97,412) (121,533)
-------------- -----------
Total Distributions .............................................. (846,637) (1,658,027)
-------------- -----------
Net Change in Net Assets from Investment Activities ............. 2,453,659 (2,972,393)
-------------- -----------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ....................................... 2,149,296 19,067,615
Net Asset Value of Shares Issued Through Dividend Reinvestment ... 562,555 1,096,122
Cost of Shares Repurchased ....................................... (5,846,756) (7,289,151)
-------------- -----------
Net Change in Net Assets from Capital Transactions .............. (3,134,905) 12,874,586
-------------- -----------
Total Increase/Decrease in Net Assets ............................ (681,246) 9,902,193
Net Assets:
Beginning of the Period ......................................... 38,089,743 28,187,550
-------------- -----------
End of the Period (Including undistributed net investment
income of $75,612 and $10,360, respectively) .................... $ 37,408,497 $ 38,089,743
-------------- -----------
</TABLE>

12 See Notes to Financial Statements

Financial Highlights

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
May 28, 1993
Six Months Year (Commencement
Ended Ended of Investment
June 30, December 31, Operations) to
Class A Shares 1995 1994 December 31, 1993
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 9.330 $ 10.145 $ 9.700
-------- --------- ---------------
Net Investment Income ....................... .255 .489 .278
Net Realized and Unrealized
Gain/Loss on Investments ................... .596 (.815) .462
-------- --------- ---------------
Total from Investment Operations ........... .851 (.326) .740
-------- --------- ---------------
Less:
Distributions from Net Investment Income .... .237 .489 .273
Distributions from Net Realized
Gain on Investments ......................... -0- -0- .022
-------- --------- ---------------
Total Distributions ........................ .237 .489 .295
-------- --------- ---------------
Net Asset Value, End of Period ............. $ 9.944 $ 9.330 $ 10.145
-------- --------- ---------------
Total Return* (Non-Annualized) .............. 9.14% (3.32%) 7.75%
Net Assets at End of Period (In millions) ... $ 15.9 $ 15.7 $ 14.0
Ratio of Expenses to Average Net
Assets* (Annualized) ....................... .97% .67% .14%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ............ 5.21% 5.07% 4.78%
Portfolio Turnover .......................... 66.76% 274.43% 85.56%
</TABLE>

*If certain expenses had not been assumed by the Adviser and VKAC, total return
would have been lower and the ratios would have been as follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ratio of Expenses to Average Net
Assets (Annualized) ......................... 1.57% 1.75% 2.21%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ............. 4.61% 3.99% 2.70%
</TABLE>

13 See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
May 28, 1993
Six Months Year (Commencement
Ended Ended of Investment
June 30, December 31, Operations) to
Class B Shares 1995 1994 December 31, 1993
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 9.319 $ 10.137 $ 9.700
-------- --------- ---------------
Net Investment Income ....................... .218 .417 .233
Net Realized and Unrealized
Gain/Loss on Investments ................... .598 (.818) .460
-------- --------- ---------------
Total from Investment Operations ........... .816 (.401) .693
-------- --------- ---------------
Less:
Distributions from Net Investment Income .... .201 .417 .234
Distributions from Net Realized
Gain on Investments ......................... -0- -0- .022
-------- --------- ---------------
Total Distributions ........................ .201 .417 .256
-------- --------- ---------------
Net Asset Value, End of Period ............. $ 9.934 $ 9.319 $ 10.137
-------- --------- ---------------
Total Return* (Non-Annualized) .............. 8.75% (4.04%) 7.23%
Net Assets at End of Period (In millions) ... $ 17.0 $ 17.7 $ 13.9
Ratio of Expenses to Average Net
Assets* (Annualized) ....................... 1.71% 1.43% .92%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ............ 4.46% 4.30% 3.95%
Portfolio Turnover .......................... 66.76% 274.43% 85.56%
</TABLE>

*If certain expenses had not been assumed by the Adviser and VKAC, total return
would have been lower and the ratios would have been as follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ratio of Expenses to Average Net
Assets (Annualized) ........................ 2.32% 2.50% 2.98%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ............ 3.86% 3.24% 1.89%
</TABLE>

14 See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
Six Months Year October 19, 1993
Ended Ended (Commencement
June 30, December 31, of Distribution) to
Class C Shares 1995 1994 December 31, 1993
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ....... $ 9.314 $ 10.134 $ 10.250
-------- --------- ----------------
Net Investment Income ....................... .221 .419 .091
Net Realized and Unrealized
Gain/Loss on Investments ................... .590 (.822) (.098)
-------- --------- -----------------
Total from Investment Operations ........... .811 (.403) (.007)
-------- --------- -----------------
Less:
Distributions from Net Investment Income .... .201 .417 .087
Distributions from Net Realized
Gain on Investments ......................... -0- -0- .022
-------- --------- -----------------
Total Distributions ........................ .201 .417 .109
-------- --------- -----------------
Net Asset Value, End of Period ............. $ 9.924 $ 9.314 $ 10.134
-------- --------- -----------------
Total Return* (Non-Annualized) .............. 8.75% (4.04%) (0.10%)
Net Assets at End of Period (In millions) ... $ 4.5 $ 4.7 $ 0.3
Ratio of Expenses to Average Net
Assets* (Annualized) ....................... 1.72% 1.43% .97%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ............ 4.57% 4.34% 4.05%
Portfolio Turnover .......................... 66.76% 274.43% 85.56%
</TABLE>

*If certain expenses had not been assumed by the Adviser and VKAC, total return
would have been lower and the ratios would have been as follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ratio of Expenses to Average Net
Assets (Annualized) ........................ 2.33% 2.46% 2.97%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ............ 3.96% 3.31% 2.06%
</TABLE>

15 See Notes to Financial Statements

Notes to Financial Statements

June 30, 1995 (Unaudited)

1. Significant Accounting Policies

Van Kampen Merritt Limited Term Municipal Income Fund (the "Fund") was organized
as a sub-trust of Van Kampen Merritt Tax Free Fund (the "Trust"), a
Massachusetts business trust, as of February 12, 1993, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. 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.

B. Security Transactions-Security transactions are recorded on a trade date
basis. Realizedgains 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. As of June 30, 1995, there were no
when issued or delayed delivery purchase commitments.

C. Investment Income-Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.

D. Organizational Expenses and Initial Registration Costs-The Fund has
reimbursed Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC") for costs incurred in connection with the Fund's
organization and initial registration in the amount of $60,000. These costs are
being amortized on a straight line basis over the 60 month period ending May
27, 1998. Van Kampen American Capital Investment Advisory Corp. (the "Adviser")
has agreed that in the event any of the initial shares of the Fund originally

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

purchased by VKAC are redeemed during the amortization period, the Fund will be
reimbursed for any unamortized organizational expenses and initial registration
costs in the same proportion as the number of shares redeemed bears to the
number of initial shares held at the time of redemption.

E. 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 loss and offset such losses against any future realized capital gains.
At December 31, 1994, the Fund had an accumulated capital loss carryforward of
$849,643 which will expire on December 31, 2002. Net realized gains or losses
may differ for financial and tax reporting purposes primarily as a result of
post October 31 losses which are not recognized for tax purposes until the first
day of the following fiscal year.

2. Investment Advisory Agreement and Other Transactions with Affiliates

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

Average Net Assets % Per Annum
<S> <C>
First $500 million ... .500 of 1%
Over $500 million ..... .450 of 1%
</TABLE>

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended June 30, 1995 the Fund recognized expenses of
approximately $15,500, representing VKAC's cost of providing accounting, legal
and certain shareholder services to the Fund.

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC .
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC. The Fund's liability under the
deferred compensation and retirement plans at June 30, 1995, was approximately
$18,400.
At June 30, 1995, VKAC owned 1,000, 100 and 100 shares of beneficial interest
of Classes A, B and C, respectively.
3. Capital Transactions
The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized.
At June 30, 1995, paid in surplus aggregated $15,867,094, $17,072,430 and
$4,354,025 for Classes A, B and C, respectively. For the six months ended June
30, 1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Sales:
Class A ...................... 47,571 $ 464,389
Class B ...................... 41,509 405,020
Class C ....................... 130,873 1,279,887
-------- -------------
Total Sales ................... 219,953 $ 2,149,296
-------- -------------
Dividend Reinvestment:
Class A ...................... 27,074 $ 265,683
Class B ...................... 21,549 211,043
Class C ....................... 8,764 85,829
-------- -------------
Total Dividend Reinvestment ... 57,387 $ 562,555
-------- -------------
Repurchases:
Class A ...................... (158,691) $ (1,549,500)
Class B ...................... (246,664) (2,403,408)
Class C ....................... (193,038) (1,893,848)
-------- -------------
Total Repurchases ............ (598,393) $ (5,846,756)
-------- -------------
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

At December 31, 1994, paid in surplus aggregated $16,686,522, $18,859,775 and
$4,882,157 for Classes A, B and C, respectively. For the year ended December 31,
1994, transactions were as follows:

<S> <C> <C>
Shares Value
Sales:
Class A ...................... 611,527 $ 5,970,329
Class B ...................... 794,014 7,783,860
Class C ....................... 555,340 5,313,426
-------- -------------
Total Sales ................... 1,960,881 $ 19,067,615
-------- -------------
Dividend Reinvestment:
Class A ...................... 54,779 $ 528,311
Class B ...................... 48,361 465,700
Class C ....................... 10,697 102,111
-------- -------------
Total Dividend Reinvestment ... 113,837 $ 1,096,122
-------- -------------
Repurchases:
Class A ...................... (359,335) $ (3,439,466)
Class B ...................... (316,420) (2,980,786)
Class C ....................... (92,860) (868,899)
-------- -------------
Total Repurchases ............ (768,615) $ (7,289,151)
-------- -------------
</TABLE>

Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC for Class B and
Class C shares will be imposed on most redemptions made within four years of the
purchase for Class B and one year of the purchase for Class C as detailed in the
following schedule. The Class B and Class C shares bear the expense of their
respective deferred sales arrangements, including higher distribution and
service fees and incremental transfer agency costs.

Contingent Deferred
Sales 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>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

For the six months ended June 30, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of $54 and CDSC
on the redeemed shares of Classes B and C of approximately $44,400. Sales
charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended June 30, 1995, were $25,058,977 and
$26,508,322, respectively.

5. Distribution and Service Plans

The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "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 .30% of Class A shares and 1.00% each of
Class B and Class C shares are accrued daily. Included in these fees for the six
months ended June 30, 1995, are payments to VKAC of approximately $80,600.

Van Kampen Merritt Limited Term Municipal Income Fund

Board of Trustees
Philip P. Gaughan
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Jerome L. Robinson
Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10, 1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

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

SM denotes a service mark of Van Kampen American Capital Distributors, Inc.

<TABLE>

<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio Management Review .......... 4
Portfolio of Investments ............. 6
Statement of Assets and Liabilities ... 8
Statement of Operations .............. 9
Statement of Changes in Net Assets .... 10
Financial Highlights ................. 11
Notes to Financial Statements ......... 14

</TABLE>

Letter to Shareholders

August 3, 1995

Dear Shareholder:
The first half of 1995 has been a very positive
one for most investors. Both the fixed-income and
stock markets have made considerable gains for
the period ended June 30, 1995. This year has
been particularly rewarding for investors after
weathering the difficult markets of 1994.
The first six months of 1995 serve as a
reminder of just how quickly markets can move,
and how difficult it can be to predict the timing of
those movements. Moreover, this year reinforces
the importance of maintaining a long-term perspective, and
reaffirms the principle that it is time---not timing---that
leads to investment success.

[PHOTO]

Dennis J. McDonnell and Don G. Powell

Economic Overview
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of this
guided slowdown was reflected in gross domestic product for the second quarter,
which grew at an annual rate of 0.5 percent, substantially lower than its first
quarter of 2.7 percent and fourth quarter 1994 rate of 5.1 percent. While other
key economic data, including unemployment rates and housing starts, have shown
mixed signs during recent weeks, the general trend for the first half of the
year suggested a "soft landing" scenario. Subsequently, concern over inflation
has subsided, as its annualized rate has run at a modest pace of 3.2 percent
year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to
6.62 percent at the end of June, while prices on the "long bond" rose 18
percent. Likewise, the yield on the Bond Buyer's Municipal Bond Index fell from
7.28 percent to 6.37 percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

(Continued on page two)

Economic Outlook
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously before easing again, waiting for further signs that the
economy has settled into a slow growth pattern. We anticipate that the economy
will grow at an annual rate between 2 and 3 percent in the second half of the
year and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon a generally slow growth and low inflation outlook, we
believe fixed-income markets will continue to make positive gains as interest
rates fall. We look for stocks to perform well, but perhaps not as strongly as
in the first half of the year, as some companies may find it difficult to
maintain their strong earnings momentum.

Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt Florida Insured Tax Free Income Fund

<TABLE>

<CAPTION>
A Shares B Shares C Shares
Total Returns
<S> <C> <C> <C>
Six-month total return
based on NAV<F1> ................. 8.07% 7.75% 7.68%
Six-month total return<F2> ....... 2.94% 3.75% 6.68%
Life-of-Fund cumulative
total return based on NAV<F1> ... 6.49% 5.80% 5.73%
Life-of-Fund cumulative
total return<F2> ................ 1.45% 1.80% 4.73%
Commencement Date ............... 07/29/94 07/29/94 07/29/94
Distribution Rates and Yield
Distribution Rate<F3> ............ 5.24% 4.76% 4.77%
Taxable Equivalent
Distribution Rate<F4> ............ 8.19% 7.44% 7.45%
SEC Yield<F5> .................... 4.90% 4.38% 4.38%

<F2>Standardized total return. Assumes reinvestment of all distributions for the period and includes payment of the
maximum sales charge (4.75% for A shares) or contingent deferred sales charge for early withdrawal (4% for B shares
and 1% for C shares).

<F3>Distribution rate represents the monthly annualized distributions of the Fund at the end of the
period and not the earnings of the Fund.

<F4>Taxable equivalent calculations reflect a federal income tax rate of 36%.

<F5>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 June 30, 1995.
Had certain expenses of the Fund not been assumed by the Adviser, the SEC Yield would have been 3.81%, 3.29% and
3.29% for Classes A, B and C, respectively, and total returns would have been lower.
</TABLE>

Portfolio Management Review

Van Kampen Merritt Florida Insured Tax Free Income Fund

The following is an interview with the management team of the Van Kampen Merritt
Florida Insured Tax Free Income Fund, including David C. Johnson, portfolio
manager, and Peter W. Hegel, executive vice president, Van Kampen American
Capital Investment Advisory Corp.

Q. What market conditions had the greatest impact on the Fund's
performance during the six months ended June 30, 1995?
A. The economy was on our side. When it became apparent at the beginning
of the year that the economy was slowing down, and interest rates had likely
peaked---there was a very positive impact on the bond market, and in turn, on
the Fund. As interest rates began to fall, AAA-rated, insured municipal
bonds---which make up at least 80 percent of the Fund's holdings---were quick
to benefit. (Price movements in the municipal market are generally experienced
first by higher-rated bonds, then by lower quality issues.)
This positive economic scenario went a long way toward helping us to
minimize the effects of several negative events that impacted the municipal
market. For example . . .
* The Orange County, California bankruptcy had an adverse impact on the
entire municipal bond market in the second quarter when it became apparent that
the situation wasn't going to be resolved quickly.
* In addition, a very strong stock market diverted investment dollars away
from municipal issues. This temporarily subdued the long-term positive supply
and demand situation the market has enjoyed.
* Finally, Washington proposals to change the income tax system also had an
adverse impact on the municipal bond market.
The demand for municipals resurged in June, when extremely attractive
municipal yields--more than 90 percent of the yield offered by taxable U.S.
Treasury securities (this ratio is normally about 80 percent)---drew investors
back to the market.

Q. How did you position the Fund in response to the events of the
past six months?
A. As always our primary goal was to deliver an attractive level of current
income without compromising our strict credit standards and, in effect,
maintain a relatively stable net asset value. As such, we maintained our
ongoing philosophy of investing primarily in AAA- rated, insured municipal
bonds. Such bonds provide a strong degree of cushion against virtually any
credit risk---a particularly desirable feature now, in the wake of Orange
County.
The good news for the Florida municipal bond market is that it operates
in a very strong economic environment. As a result, a high percentage of bonds
are issued with high ratings. However, these bonds do not typically offer the
highest yields in the marketplace. One way we seek to enhance the fund's
yield---without sacrificing credit quality---is to buy insured bonds that,
without the insurance, would not have triple-A ratings. In doing so, we are
able to capture higher yields, while still feeling comfortable with the level
of credit risk.
Our average maturity range has also remained fairly constant---in the
15- to 20-year range. This maturity range provided yields close to those of
longer maturities, with less risk potential---a much better value in our
opinion.
This is somewhat contrary to popular belief that---in a period of declining
interest rates--it is best to own municipal bonds with the longest maturities
available. Depending on your

Fund's objectives, that's not always true. For example, in this market,
extending maturities beyond 20 years would not have produced significantly
higher yields, but it would have increased interest rate risk. Obviously,
that's not consistent with this Fund's conservative mission.

Q. How did the Fund perform during the six months ended
June 30, 1995?
A. For the six-month period ending June 30, 1995, the Fund's Class A share
total return, at net asset value, was 8.07 percent <F1>. During the same
period, the category average for all Florida municipal debt funds tracked
by Lipper Analytical Services was 9.52 percent.
We also continued to provide investors with an attractive level of tax-free
income. At its current annualized dividend level of $.798 per share, the Fund
provides shareholders with a tax free distribution rate of 5.24 percent<F3>
(Class A shares) as of June 30, 1995. At this distribution rate, the Fund
provides shareholders in the 36 percent federal income tax bracket with a yield
equivalent to a taxable investment earning 8.19 percent <F4>. (Please refer
to the chart on page three for additional Fund performance.)

Q. After the significant rally during the first half of 1995,what is your
outlook going forward, and how will you position the Fund?
A mild correction in the municipal market would not be a surprise. In
general though, we anticipate that the economy will grow slowly, and that
inflation will remain low. As a result, we believe that fixed-income
markets---including municipal bonds---will continue to make modest gains.

[PIE CHART]

Portfolio Holdings as of June 30, 1995
Transportation 14.1% Water & Sewer 17.6%
Single-Family Housing 10.0% Industrial Revenue 6.5%
General Purpose 10.8% Health Care 14.8%
Other 11.6% Public Education 14.6%

In terms of investments, we plan to concentrate on "essential services" sectors.
That is, services for which demand is relatively constant---and resilient to
economic conditions and/or political events. Health care is a particular area of
expertise for Van Kampen American Capital and a good example of an "essential
service" sector. (See the chart above for a portfolio breakdown.)

Peter W. Hegel David C. Johnson
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

Please see footnotes on page three.

Portfolio of Investments
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------
Municipal Bonds
Florida 82.1%
<S> <C> <C> <C> <C>
$ 900 Brevard Cnty, FL Hsg Fin Auth Single Family Mtg Rev ... 6.650% 09/01/21 $ 927,144
650 Brevard Cnty, FL Sales Tax Rev (MBIA Insd) ........... 5.750 12/01/13 646,314
500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp
Ser A Rfdg (FSA Insd) ................................. 6.500 08/15/12 526,295
250 Clay Cnty, FL Hsg Fin Auth Rev Single Family Mtg
(GNMA Collateralized) ................................ 6.500 09/01/21 253,853
1,000 Dade Cnty, FL Aviation Rev (MBIA Insd) ............... 5.750 10/01/12 986,450
750 Dade Cnty, FL Genl Oblig Seaport Bonds
(AMBAC Insd) ......................................... 6.500 10/01/26 787,590
980 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA Insd) ... 5.750 05/01/08 998,110
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA Insd) ... 6.000 05/01/14 503,910
900 Daytona Beach, FL Wtr & Swr Rev Rfdg (AMBAC Insd) ...... 5.750 11/15/10 903,807
600 Escambia Cnty, FL Pollutn Ctl Rev Champion
Intl Corp Proj ....................................... 6.900 08/01/22 622,548
900 Florida St Brd Edl Cap Outlay Pub Edl Ser C .......... 6.625 06/01/22 950,643
750 Hillsborough Cnty, FL Port Dist Rev Tampa Port Auth
Ser B Rfdg (FSA Insd) ................................. 5.400 06/01/07 753,892
500 Hillsborough Cnty, FL Hosp Auth Hosp Rev Tampa
Genl Hosp Proj Rfdg (FSA Insd) ....................... 6.375 10/01/13 519,940
1,000 Jacksonville, FL Elec Auth Rev Saint Johns Pwr-2
Ser 7 Rfdg (MBIA Insd) ................................ 5.500 10/01/14 956,450
700 Jacksonville, FL Hlth Fac Auth Hosp Rev Baptist
Med Cent Proj Ser A Rfdg (MBIA Insd) ................. 7.300 06/01/19 765,275
600 Lee Cnty, FL Tran Fac Rev (MBIA Insd) ................ 5.750 10/01/22 579,144
890 Martin Cnty, FL Cons Util Sys Rev Rfdg & Impt
(FGIC Insd) ........................................... 5.750 10/01/08 911,396
750 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj A Rfdg .................. 7.875 12/15/25 811,552
500 Miramar, FL Wastewtr Impt Assmt Rev (FGIC Insd) ...... 6.750 10/01/25 543,655
725 Orange Cnty, FL Hlth Fac Auth Rev Hosp Adventist
Hlth Sys (AMBAC Insd) ................................. 5.750 11/15/25 694,869
250 Orange Cnty, FL Hlth Fac Auth Rev Pooled Hosp
Ln Ser B Rfdg (BIGI Insd) ............................ 7.875 12/01/25 269,313
1,000 Orange Cnty, FL Hsg Fin Auth Single Family Mtg
Rev (GNMA Collateralized) ............................ 6.550 10/01/21 1,017,910
900 Orange Cnty, FL Tourist Dev Tax Rev Ser B
(AMBAC Insd) ......................................... 6.500 10/01/19 953,766
750 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd) ......................................... 6.375 08/01/15 773,865
750 Sarasota Cnty, FL Util Sys Rev (FGIC Insd) ........... 6.500 10/01/14 789,690
</TABLE>

See Notes to Financial Statements

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
Florida (Continued)
<S> <C> <C> <C> <C>
$ 760 Seacoast, FL Util Auth Wtr & Swr Util Sys Rev Rfdg
(FGIC Insd) ...................................... 5.500% 03/01/10 $ 745,697
500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp Fac
Mem Hlth Rfdg & Impt (AMBAC Insd) ................ 5.750 11/15/13 491,615
-------------
19,684,693
-------------
Puerto Rico 10.1%
600 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Ser V Rfdg ...................................... 6.375 07/01/07 619,680
670 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Ser V Rfdg ...................................... 6.625 07/01/12 698,328
500 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Ser X Rfdg ...................................... 5.500 07/01/19 457,745
650 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Ser M Rfdg (FSA Insd) ........................... 5.750 07/01/15 644,657
-------------
2,420,410
-------------
Total Long-Term Investments 92.2%
(Cost $21,290,974) <F1> ................................. 22,105,103
Short-Term Investments at Amortized Cost 3.3% ........... 800,000
Other Assets in Excess of Liabilities 4.5% .............. 1,085,146
-------------
Net Assets 100% ......................................... $ 23,990,249
-------------
-------------

<FN>

<F1> At June 30, 1995, cost for federal income tax purposes is $21,290,974; the
aggregate gross unrealized appreciation is $818,049 and the aggregate
gross unrealized depreciation is $3,920, resulting in net unrealized
appreciation including options and futures transactions of $814,129.
</FN>
</TABLE>

<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
AAA ................ 81.2%
AA ................ 4.3
A ................. 8.0
BBB ............... 6.5
--------
100.0%
--------
</TABLE>

See Notes to Financial Statements

Statement of Assets and Liabilities
June 30, 1995 (Unaudited)

Assets:
<S> <C>
Investments, at Market Value (Cost $21,290,974) (Note 1) ............................. $ 22,105,103
Short-Term Investments (Note 1) ...................................................... 800,000
Cash ................................................................................ 710,971
Receivables:
Interest ........................................................................... 364,043
Fund Shares Sold ................................................................... 85,925
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) ......... 97,852
-------------
Total Assets ......................................................................... 24,163,894
-------------
Liabilities:
Payables:
Income Distributions .............................................................. 63,539
Organizational Expenses and Initial Registration Costs (Note 1) .................... 50,430
Fund Shares Repurchased ........................................................... 7,128
Accrued Expenses ..................................................................... 52,548
-------------
Total Liabilities .................................................................... 173,645
-------------
Net Assets ........................................................................... $ 23,990,249
-------------
Net Assets Consist of:
Paid in Surplus (Note 3) ............................................................. $ 23,556,319
Net Unrealized Appreciation on Investments .......................................... 814,129
Accumulated Distributions in Excess of Net Investment Income ........................ (12,749)
Accumulated Net Realized Loss on Investments ......................................... (367,450)
-------------
Net Assets ........................................................................... $ 23,990,249
-------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $10,500,328 and
723,563 shares of beneficial interest issued and outstanding) (Note 3) .............. $ 14.51
Maximum sales charge (4.75%* of offering price) ...................................... .72
-------------
Maximum offering price to public ..................................................... $ 15.23
-------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $13,447,537 and
927,061 shares of beneficial interest issued and outstanding) (Note 3) .............. $ 14.51
-------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $42,384 and
2,923 shares of beneficial interest issued and outstanding) (Note 3) ................ $ 14.50
-------------
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>

See Notes to Financial Statements

Statement of Operations
For the Six Months Ended June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest ........................................................................... $ 637,509
-------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of $13,810,
$61,248 and $173, respectively) (Note 6) .......................................... 75,231
Investment Advisory Fee (Note 2) .................................................. 53,727
Shareholder Services (Note 2) ...................................................... 35,364
Custodian .......................................................................... 12,555
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) ... 11,895
Trustees Fees and Expenses (Note 2) ................................................ 6,953
Legal (Note 2) .................................................................... 4,525
Other ............................................................................. 24,435
-------------
Total Expenses ..................................................................... 224,685
Less Fees Deferred and Expenses Reimbursed ($53,727 and $65,366, respectively) ..... 119,093
-------------
Net Expenses ....................................................................... 105,592
-------------
Net Investment Income .............................................................. $ 531,917
-------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ................................................................ $ 5,482,454
Cost of Securities Sold ............................................................ (5,734,515)
-------------
Net Realized Loss on Investments (Including realized loss on
futures transactions of $357,995) ................................................. (252,061)
-------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ........................................................... (443,602)
End of the Period ................................................................. 814,129
-------------
Net Unrealized Appreciation on Investments During the Period ....................... 1,257,731
-------------
Net Realized and Unrealized Gain on Investments .................................... $ 1,005,670
-------------
Net Increase in Net Assets from Operations ........................................ $ 1,537,587
-------------
</TABLE>

See Notes to Financial Statements

Statement of Changes in Net Assets

For the Six Months Ended June 30, 1995
and the Period July 29, 1994 (Commencement of Investment Operations)
to December 31, 1994 (Unaudited)

<TABLE>
<CAPTION>
Six Months Ended Period Ended
June 30, 1995 December 31, 1994
From Investment Activities:
<S> <C> <C>
Operations:
Net Investment Income ............................................ $ 531,917 $ 304,664
Net Realized Loss on Investments ................................. (252,061) (115,389)
Net Unrealized Appreciation/Depreciation on Investments
During the Period ............................................... 1,257,731 (443,602)
--------------- ----------------
Change in Net Assets from Operations ............................ 1,537,587 (254,327)
--------------- ----------------
Distributions from Net Investment Income* ........................ (534,647) (301,934)
Distribution in Excess of Net Investment Income* ................ (12,749) -0
--------------- ----------------
Distributions from and in Excess of Net Investment Income* ...... (547,396) (301,934)
--------------- ----------------
Net Change in Net Assets from Investment Activities ............. 990,191 (556,261)
--------------- ----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ....................................... 6,762,945 21,222,360
Net Asset Value of Shares Issued Through Dividend Reinvestment ... 187,501 90,281
Cost of Shares Repurchased ....................................... (3,853,391) (857,667)
--------------- ----------------
Net Change in Net Assets from Capital Transactions ............. 3,097,055 20,454,974
--------------- ----------------
Total Increase in Net Assets .................................... 4,087,246 19,898,713
Net Assets:
Beginning of the Period ......................................... 19,903,003 4,290
--------------- ----------------
End of the Period (Including undistributed net investment income
of $(12,749) and $2,730, respectively) .......................... $ 23,990,249 $ 19,903,003
--------------- ----------------
</TABLE>

Six Months Ended Period Ended
*Distributions by Class June 30, 1995 December 31, 1994
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares .................... $ (253,943) $ (128,551)
Class B Shares .................... (292,646) (173,186)
Class C Shares .................... (807) (197)
---------------- -----------
$ (547,396) $ (301,934)
---------------- -----------
</TABLE>

See Notes to Financial Statements

Financial Highlights

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)

July 29, 1994
(Commencement
of Investment
Six Months Ended Operations) to
Class A Shares June 30, 1995 December 31, 1994
<S> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 13.796 $ 14.300
--------------- ---------------
Net Investment Income ................................................ .390 .291
Net Realized and Unrealized Gain/Loss on Investments ................. .725 (.507)
--------------- ---------------
Total from Investment Operations .................................... 1.115 (.216)
Less Distributions from and in Excess of
Net Investment Income ............................................. .399 .288
--------------- ---------------
Net Asset Value, End of Period ....................................... $ 14.512 $ 13.796
--------------- ---------------
Total Return* (Non-Annualized) ...................................... 8.07% (1.47%)
Net Assets at End of Period (In millions) ............................ $ 10.5 $ 9.0
Ratio of Expenses to Average Net
Assets* (Annualized) ................................................ .55% .49%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ..................................... 5.33% 5.13%
Portfolio Turnover .................................................. 28.02% 19.30%
*If certain expenses had not been assumed by the Adviser, total return
would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets (Annualized) .................................................. 1.65% 1.99%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ..................................... 4.23% 3.64%
</TABLE>

See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)

July 29, 1994
(Commencement
of Investment
Six Months Ended Operations) to
Class B Shares June 30, 1995 December 31, 1994
<S> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 13.792 $ 14.300
--------------- ---------------
Net Investment Income ................................................ .336 .251
Net Realized and Unrealized Gain/Loss on Investments ................. .724 (.509)
--------------- ---------------
Total from Investment Operations .................................... 1.060 (.258)
Less Distributions from and in Excess of
Net Investment Income ............................................. .346 .250
--------------- ---------------
Net Asset Value, End of Period ....................................... $ 14.506 $ 13.792
--------------- ---------------
Total Return* (Non-Annualized) ...................................... 7.75% (1.81%)
Net Assets at End of Period (In millions) ............................ $ 13.4 $ 10.9
Ratio of Expenses to Average Net
Assets* (Annualized) ................................................ 1.30% 1.26%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ..................................... 4.60% 4.31%
Portfolio Turnover .................................................. 28.02% 19.30%
*If certain expenses had not been assumed by the Adviser, total return
would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets (Annualized) .................................................. 2.40% 2.75%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ..................................... 3.50% 2.81%
</TABLE>

See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)

July 29, 1994
(Commencement
of Investment
Six Months Ended Operations) to
Class C Shares June 30, 1995 December 31, 1994
<S> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 13.786 $ 14.300
--------------- ---------------
Net Investment Income ................................................ .333 .249
Net Realized and Unrealized Gain/Loss on Investments ................. .727 (.513)
--------------- ---------------
Total from Investment Operations .................................... 1.060 (.264)
Less Distributions from and in Excess of
Net Investment Income ............................................. .346 .250
--------------- ---------------
Net Asset Value, End of Period ....................................... $ 14.500 $ 13.786
--------------- ---------------
Total Return* (Non-Annualized) ...................................... 7.68% (1.81%)
Net Assets at End of Period (In thousands) ........................... $ 42.4 $ 11.4
Ratio of Expenses to Average Net
Assets* (Annualized) ................................................ 1.29% 1.26%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ..................................... 4.37% 4.28%
Portfolio Turnover .................................................. 28.02% 19.30%
*If certain expenses had not been assumed by the Adviser, total return
would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets (Annualized) .................................................. 2.35% 2.74%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ..................................... 3.31% 2.81%
</TABLE>

See Notes to Financial Statements

Notes to Financial Statements

June 30, 1995 (Unaudited)

1. Significant Accounting Policies
Van Kampen Merritt Florida Insured Tax Free Income Fund (the "Fund") was
organized as a subtrust of the Van Kampen Merritt Tax Free Fund, a Massachusetts
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 commenced investment operations on July 29, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

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. At June 30, 1995, there were no when
issued or delayed delivery purchase commitments.

C. Investment Income-Interest income is recorded on an accrual basis. Bond
premium and original issue discount on securities purchased are amortized over
the expected life of each applicable security.

D. Organizational Expenses and Initial Registration Costs-The Fund will
reimburse Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC") for costs incurred in connection with the Fund's
organization and initial registration in the amount of $120,000. These costs are
being amortized on a straight line basis over the 60 month period ending July
28, 1999. Van Kampen American Capital Investment Advisory Corp. (the "Adviser")
has agreed that in the event any of the initial shares of the Fund originally
purchased by VKAC are redeemed during the amortization period, the Fund will be
reimbursed for any

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

unamortized organizational expenses and initial registration costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.

E. 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 December 31, 1994, the Fund had an accumulated capital loss
carryforward for tax purposes of $41,580 which will expire on December 31, 2002.
Net realized gains or losses may differ for financial and tax reporting purposes
primarily as a result of post October 31 losses which are not recognized for tax
purposes until the first day of the following fiscal year.

F. 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.

2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:

<TABLE>
<CAPTION>
Average Net Assets % Per Annum
<S> <C>
First $500 million ............... .500 of 1%
Over $500 million ................ .450 of 1%
</TABLE>

Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

of VKAC. The Fund's liability under the deferred compensation and retirement
plans at June 30, 1995, was approximately $4,400.
At June 30, 1995, VKAC owned 100 shares each of Classes A, B and C.

3. Capital Transactions
The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized.
At June 30, 1995, paid in surplus aggregated $10,261,884, $13,252,575 and
$41,860 for Classes A, B and C, respectively. For the six months ended June 30,
1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
Sales:
Class A ...................... 243,517 $ 3,536,398
Class B ...................... 219,343 3,197,047
Class C....................... 2,059 29,500
--------- --------------
Total Sales................... 464,919 $ 6,762,945
--------- --------------
Dividend Reinvestment:
Class A ...................... 5,466 $ 79,253
Class B ...................... 7,425 107,689
Class C....................... 38 559
--------- --------------
Total Dividend Reinvestment... 12,929 $ 187,501
--------- --------------
Repurchases:
Class A ...................... (180,630) $ (2,588,580)
Class B ...................... (86,560) (1,264,811)
Class C....................... -0- -0-
--------- --------------
Total Repurchases ............ (267,190) $ (3,853,391)
--------- --------------
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

At December 31, 1994, paid in surplus aggregated $9,234,813, $11,212,650 and
$11,801 for Classes A, B and C, respectively. For the period ended December 31,
1994, transactions were as follows:

<TABLE>
<CAPTION>
<S> <C> <C>
Shares Value
Sales:
Class A ...................... 670,002 $ 9,435,244
Class B ...................... 827,493 11,776,916
Class C....................... 713 10,200
--------- ------------
Total Sales................... 1,498,208 $ 21,222,360
--------- ------------
Dividend Reinvestment:
Class A ...................... 2,618 $ 36,073
Class B ...................... 3,917 54,037
Class C....................... 13 171
--------- ------------
Total Dividend Reinvestment... 6,548 $ 90,281
--------- ------------
Repurchases:
Class A ...................... (17,510) $ (237,934)
Class B ...................... (44,657) (619,733)
Class C....................... -0- -0-
--------- ------------
Total Repurchases ............ (62,167) $ (857,667)
--------- ------------
</TABLE>

<TABLE>
<CAPTION>
Contingent Deferred
Sales 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>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

For the six months ended June 30, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$15,100 and CDSC on the redeemed shares of Classes B and C of approximately
$12,900. Sales charges do not represent expenses of the Fund.

4. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended June 30, 1995, were $8,342,559 and
$5,734,515, 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 utilizes futures contracts to manage the portfolio's
effective maturity or duration.
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.
The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.
Transactions in futures contracts, each with a par value of $100,000, for the
six months ended June 30, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts
<S> <C>
Outstanding at December 31, 1994 ... 25
Futures Opened .................... 25
Futures Closed ..................... (50)
--------
Outstanding at June 30, 1995 ....... -0-
--------
</TABLE>

6. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "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 .30% of Class A shares and 1.00% each of
Class B and Class C shares are accrued daily. Included in these fees for the six
months ended June 30, 1995, are payments to VKAC of approximately $48,700.

Funds Distributed by Van Kampen American Capital

GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund

EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund

THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund

Van Kampen Merritt Florida Insured Tax Free Income Fund

Board of Trustees

Philip P. Gaughan

R. Craig Kennedy

Dennis J. McDonnell*

Donald C. Miller - Chairman

Jack E. Nelson

Jerome L. Robinson

Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10, 1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

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

SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.

<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio Management Review .......... 4
Portfolio of Investments ............. 6
Statement of Assets and Liabilities ... 8
Statement of Operations .............. 9
Statement of Changes in Net Assets .... 10
Financial Highlights ................. 11
Notes to Financial Statements ......... 14
</TABLE>

Letter to Shareholders

August 3, 1995

Dear Shareholder:
The first half of 1995 has been a very positive
one for most investors. Both the fixed-income and
stock markets have made considerable gains for
the period ended June 30, 1995. This year has
been particularly rewarding for investors after
weathering the difficult markets of 1994.
The first six months of 1995 serve as a
reminder of just how quickly markets can move,
and how difficult it can be to predict the timing of
those movements. Moreover, this year reinforces
the importance of maintaining a long-term perspective, and reaffirms the
principle that it is time---not timing---that leads to investment success.

[PHOTO]
Dennis J. McDonnell and Don G. Powell

Economic Overview

Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially lower than
its first quarter of 2.7 percent and fourth quarter 1994 rate of 5.1 percent.
While other key economic data, including unemployment rates and housing starts,
have shown mixed signs during recent weeks, the general trend for the first
half of the year suggested a "soft landing" scenario. Subsequently, concern
over inflation has subsided, as its annualized rate has run at a modest pace
of 3.2 percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at
the end of June, while prices on the "long bond" rose 18 percent. Likewise,
the yield on the Bond Buyer's Municipal Bond Index fell from 7.28 percent
to 6.37 percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

1 (Continued on page two)

Economic Outlook

Corporate News

Sincerely,

Dennis J. McDonnell Don G. Powell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

<TABLE>
Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt New Jersey Tax Free Income Fund
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns

Six-month total return
based on NAV<F1> ............. 7.17% 6.71% 6.78%
Six-month total return<F2> ... 2.08% 2.71% 5.78%
Life-of-Fund cumulative
total return<F2> ............ .25% .41% 3.55%
Commencement Date ........... 07/29/94 07/29/94 07/29/94

Distribution Rates and Yield

Distribution Rate<F3> ........ 5.35% 4.87% 4.87%
Taxable Equivalent
Distribution Rate<F4> ........ 8.99% 8.18% 8.18%
SEC Yield<F5> ................ 5.45% 4.96% 4.96%

<F3>Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.

<F4>The taxable-equivalent distribution rate is calculated assuming a 40.5%
combined effective federal and state tax bracket, which takes into consideration
the deductibility of individual state taxes paid.

<F5>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 June 30, 1995. Had certain
expenses of the Fund not been assumed by the Adviser and VKAC, the SEC Yield
would have been 3.25%, 2.76% and 2.76% for Classes A, B and C, respectively and
total returns would have been lower.
</TABLE>

Portfolio Management Review

Van Kampen Merritt New Jersey Tax Free Income Fund

The following is an interview with the management team of the Van Kampen Merritt
New Jersey Tax Free Income Fund, including David C. Johnson, portfolio manager,
and Peter W. Hegel, executive vice president, Van Kampen American Capital
Investment Advisory Corp.

Q: What market conditions had the greatest impact on the municipal
bond market during the six months ended June 30, 1995?

A: The economy was on our side. When it became apparent at the beginning of
the year that the economy was slowing down, and interest rates had likely
peaked---there was a very positive impact on the bond market, and in turn, on
the Fund. This positive economic scenario went a long way toward helping us to
minimize the effects of several negative events that impacted the municipal
market. For example . . .
* The Orange County, California bankruptcy had an adverse impact on the entire
municipal bond market in the second quarter when it became apparent that the
situation wasn't going to be resolved quickly.
* In addition, a very strong stock market diverted investment dollars away
from municipal issues. This temporarily subdued the long-term positive supply
and demand situation the market has enjoyed. (Demand resurged in June, as
investors took advantage of extremely attractive muni yields---approximately 90
percent of the yields offered on U.S. Treasury securities.)
* Finally, Washington proposals to change the income tax system also had an
adverse impact on the municipal bond market.
In New Jersey, the supply and demand situation was temporarily affected by a
new regulation requiring state authorities to submit debt management plans to
the state treasurer---many of them missed the deadline. As a result, first
quarter 1995 saw municipal bond issuance down 90 percent compared with (already
low) levels one year earlier. New issuance is back up however, and given the
earlier supply drought, demand for tax exempt securities is strong. Again, this
positive supply and demand scenario helps to support price stability in the
market.

Q: How did you position the Fund in response to the events of the
past six months?

A: As always our primary goal was to deliver an attractive level of current
income exempt from federal and New Jersey income taxes, consistent with
preservation of capital.
Our heaviest weighting remained in the highest quality, AAA-rated municipal
bonds--currently at 62.5 percent of the portfolio. One notable change: We
increased focus on BBB-rated bonds during the period. In that sector, we moved
from a 7.5 percent BBB position in December 1994 to a 13.1 percent position at
the end of the reporting period.
The reason for the shift was that the "spreads" (the difference in yields)
between the credit rating categories widened during the period. This meant that
BBB-rated bonds began offering notably higher yields relative to higher quality
bonds. In effect, they offered attractive compensation for assuming a bit of
additional credit risk.
Our average maturity range has also remained fairly constant---in the 15-to
20-year range. This maturity range provided yields close to those of longer
maturities, with less risk potential---right in line with our goal of seeking
high yields consistent with capital preservation.

Q: How did the Fund perform during the six months ended June 30, 1995?

A: For the six-month period ending June 30, 1995, the Fund's Class A share
total return was 7.17 percent<F1> at net asset value. During the same period,
the category average for all New Jersey municipal debt funds tracked by Lipper
Analytical Services was 8.80 percent.
We continued to provide investors with an attractive level of tax-free income.
At its current annualized dividend level of $.804 per share, the Fund provides
shareholders with a tax-free distribution rate of 5.35 percent<F3> (Class A
shares) as of June 30, 1995. At this distribution rate, the Fund provides
shareholders in the 40.5 percent combined federal and state income tax bracket
with a yield equivalent to a taxable investment earning 8.99 percent<F4>.
(Please refer to the chart on page three for additional Fund performance.)

Q: After the significant rally during the first half of 1995,what is your
outlook going forward, and how will you position the Fund?

A: A mild correction in the municipal market would not be a surprise. In
general though, we anticipate that the economy will grow slowly, and that
inflation will remain low. As a result, we believe that fixed-income markets---
including municipal bonds---will continue to make gains, albeit modest ones.

[Pie Chart]

Portfolio Holdings as of June 30, 1995

Water & Sewer 4.9%
Retail Electric/Gas/Telephone 12.5%
Public Building 11.2%
Health Care 34.6%
General Purpose 6.4%
Transportation 13.6%
Other 16.8%

Sector-wise, we plan to concentrate on "essential services" sectors. That is,
services for which demand is relatively constant---and resilient to economic
conditions and/or political events. Health care is a particular area of
expertise for Van Kampen American Capital and a good example of an "essential
service" sector. (See the chart above for a portfolio breakdown.)

Peter W. Hegel David C. Johnson
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

5 Please see footnotes on page three.

<TABLE>
Portfolio of Investments
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
Municipal Bonds
New Jersey 82.5%
$ 400 Atlantic City, NJ Brd Edl Sch (AMBAC Insd) .... 6.125% 12/01/11 $ 409,600
250 Camden Cnty, NJ Impt Auth Lease
Rev Cnty Gtd (MBIA Insd) ....................... 6.150 10/01/14 256,298
250 Essex Cnty, NJ Impt Auth Lease Jail & Youth
House Proj (AMBAC Insd) ........................ 6.600 12/01/07 274,155
250 Hudson Cnty, NJ Ctfs Partn Correctional
Fac Rfdg (MBIA Insd) .......................... 6.600 12/01/21 265,390
250 Lacey Muni Util Auth NJ Wtr Rev (MBIA Insd) .... 6.250 12/01/24 257,390
400 Mercer Cnty, NJ Impt Auth Rev Solid
Waste Ser A Rfdg (FGIC Insd) .................. 6.700 04/01/13 419,076
500 New Jersey Econ Dev Auth Dist Heating &
Cooling Rev Trigen Trenton Ser A .............. 6.200 12/01/10 491,215
300 New Jersey Econ Dev Auth Mkt Transition
Fac Rev Sr Lien Ser A (MBIA Insd) ............. 5.800 07/01/09 301,938
210 New Jersey Econ Dev Auth Pollutn Ctl Rev Pub
Svcs Elec & Gas Co Proj A (MBIA Insd) ......... 6.400 05/01/32 215,422
350 New Jersey Econ Dev Auth Rev RWJ
Hlth Care Corp (FSA Insd) ..................... 6.250 07/01/14 358,386
300 New Jersey Econ Dev Auth Wtr Fac Rev
Hackensack Wtr Co Proj B Rfdg (MBIA Insd) ...... 5.900 03/01/24 292,284
490 New Jersey Hlthcare Fac Fin Auth Rev
Atlantic City Med Cent Ser C Rfdg .............. 6.800 07/01/11 511,080
400 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd) ............. 7.000 07/01/06 456,500
250 New Jersey Hlthcare Fac Fin Auth Rev
Englewood Hosp & Med Cent ..................... 6.700 07/01/15 251,933
250 New Jersey Hlthcare Fac Fin Auth Rev Genl
Hosp Cent at Passaic (FSA Insd) ................ 6.000 07/01/06 263,595
250 New Jersey Hlthcare Fac Fin Auth Rev Genl
Hosp Cent at Passaic (FSA Insd) ................ 6.750 07/01/19 271,237
250 New Jersey Hlthcare Fac Fin Auth Rev Hackensack
Med Cent (FGIC Insd) ........................... 6.625 07/01/17 265,187
400 New Jersey Hlthcare Fac Fin Auth Rev Jersey
Shore Med Cent (AMBAC Insd) .................... 6.250 07/01/21 408,612
250 New Jersey Hlthcare Fac Fin Auth Rev Robert Wood
Johnson Univ Hosp Ser B (MBIA Insd) ........... 6.625 07/01/16 265,188
350 New Jersey Hlthcare Fac Fin Auth Rev Saint
Clares Riverside Med Cent (MBIA Insd) .......... 5.750 07/01/14 340,543
500 New Jersey Hlthcare Fac Fin Auth Rev
Southern Ocean Cnty Hosp Ser A ................ 6.125 07/01/13 472,180
400 New Jersey Sports & Exposition Auth
Convention Cent Luxury Tax Rev Ser A Rfdg
(MBIA Insd) ................................... 6.250 07/01/20 409,948

</TABLE>
6 See Notes to Financial Statements

<TABLE>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
<S> <C> <C> <C> <C>
New Jersey (Continued)
$ 200 New Jersey St Edl Fac Auth Rev
Caldwell College Ser A ........................ 7.250% 07/01/25 $ 196,166
250 New Jersey St Edl Fac Auth Rev Glassboro
St College Ser A (MBIA Insd) .................. 6.700 07/01/21 268,767
270 New Jersey St Hsg & Mtg Fin Agy Rev
Home Buyer Ser K (MBIA Insd) ................... 6.375 10/01/26 274,587
280 New Jersey St Tpk Auth Rev Ser C Rfdg .......... 6.500 01/01/16 300,524
200 Port Auth NY & NJ Cons Ninety Fifth Ser ....... 6.125 07/15/22 198,556
500 Port Auth NY & NJ Cons Nts Ser SS .............. 4.900 09/01/97 500,170
400 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth
Rev Pub Svc Elec & Gas Co Proj C Rfdg
(MBIA Insd) ................................... 6.200 08/01/30 405,088
---------
9,601,015
---------
Guam 2.1%
250 Guam Govt Ser A ................................ 5.750 09/01/04 246,135
---------
Puerto Rico 11.3%
300 Puerto Rico Comwlth Hwy & Tran
Auth Hwy Rev Ser V Rfdg ........................ 6.375 07/01/08 307,317
200 Puerto Rico Comwlth Hwy & Tran
Auth Hwy Rev Ser V Rfdg ........................ 6.625 07/01/12 208,456
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser T ........ 6.375 07/01/24 253,250
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser U Rfdg ... 6.000 07/01/14 244,460
300 Puerto Rico Pub Bldgs Auth Gtd Pub Edl &
Hlth Fac Ser M Rfdg (FSA Insd) ................. 5.750 07/01/15 297,534
---------
1,311,017
---------
Total Long-Term Investments 95.9%
(Cost $10,769,590) <F1> ............................................ 11,158,167
Other Assets in Excess of Liabilities 4.1% ........................ 478,636
----------
Net Assets 100% ................................................... $11,636,803
-----------
<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $10,769,590; the
aggregate gross unrealized appreciation is $394,108 and the aggregate
gross unrealized depreciation is $5,531, resulting in net unrealized
appreciation of $388,577.
</TABLE>

<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
AAA .......... 62.5%
AA .......... 6.3
A ........... 16.3
BBB ......... 13.1
Non-Rated ... 1.8
------
100.0%
------
</TABLE>

7 See Notes to Financial Statements

<TABLE>
Statement of Assets and Liabilities
June 30, 1995 (Unaudited)
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $10,769,590) (Note 1) .......................... $ 11,158,167
Cash ............................................................................. 139,552
Receivables:
Interest ........................................................................ 262,835
Fund Shares Sold ................................................................ 48,852
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) ...... 97,852
----------
Total Assets ...................................................................... 11,707,258
----------
Liabilities:
Payables:
Income Distributions Payable ................................................... 25,254
Fund Shares Repurchased ........................................................ 15,718
Accrued Expenses .................................................................. 29,483
----------
Total Liabilities ................................................................. 70,455
----------
Net Assets ........................................................................ $ 11,636,803
----------
Net Assets Consist of:
Paid in Surplus (Note 3) .......................................................... $ 11,541,174
Net Unrealized Appreciation on Investments ....................................... 388,577
Accumulated Distributions in Excess of Net Investment Income ..................... (3,231)
Accumulated Net Realized Loss on Investments ...................................... (289,717)
----------
Net Assets ........................................................................ $ 11,636,803
----------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $4,303,223
and 300,329 shares of beneficial interest issued and outstanding) (Note 3) ....... $ 14.33
Maximum sales charge (4.75%* of offering price) ................................... .71
----------
Maximum offering price to public .................................................. $ 15.04
----------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $7,021,682 and
490,670 shares of beneficial interest issued and outstanding) (Note 3) ........... $ 14.31
----------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $311,898 and
21,771 shares of beneficial interest issued and outstanding) (Note 3) ............ $ 14.33
----------
</TABLE>

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

8 See Notes to Financial Statements

<TABLE>
Statement of Operations
For the Six Months Ended June 30, 1995 (Unaudited)
<CAPTION>

<S> <C>
Investment Income:
Interest ........................................................................... $ 313,935
------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of $5,581,
$34,361 and $1,416, respectively) (Note 6) ....................................... 41,358
Investment Advisory Fee (Note 2) .................................................. 32,628
Shareholder Services (Note 2) ...................................................... 23,533
Custody .......................................................................... 12,686
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) ... 11,895
Printing .......................................................................... 10,317
Audit ............................................................................. 9,955
Trustees Fees and Expenses (Note 2) ................................................ 6,953
Legal (Note 2) .................................................................... 4,525
Other ............................................................................. 4,163
------------
Total Expenses ..................................................................... 158,013
Less Fees Deferred and Expenses Reimbursed
($32,628 and $86,063, respectively) ................................................ 118,691
------------
Net Expenses ....................................................................... 39,322
------------
Net Investment Income .............................................................. $ 274,613
------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ................................................................ $ 951,186
Cost of Securities Sold .......................................................... (1,153,382)
------------
Net Realized Loss on Investments (Including realized loss on
futures transactions of $205,953) ................................................. (202,196)
------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ........................................................... (225,534)
End of the Period ................................................................. 388,577
------------
Net Unrealized Appreciation on Investments During the Period ....................... 614,111
------------
Net Realized and Unrealized Gain on Investments .................................... $ 411,915
------------
Net Increase in Net Assets from Operations ........................................ $ 686,528
------------
</TABLE>

9 See Notes to Financial Statements

Statement of Changes in Net Assets

For the Six Months Ended June 30, 1995
and the Period July 29, 1994 (Commencement of Investment Operations)
to December 31, 1994 (Unaudited)

<TABLE>
<CAPTION>
Six Months Ended Period Ended
June 30, 1995 December 31, 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ........................................... $ 274,613 $ 146,897
Net Realized Loss on Investments ................................. (202,196) (87,521)
Net Unrealized Appreciation/Depreciation on
Investments During the Period ................................... 614,111 (225,534)
-------------- ------------
Change in Net Assets from Operations ............................ 686,528 (166,158)
-------------- ------------
Distributions from Net Investment Income* ........................ (275,858) (145,652)

Distributions in Excess of Net Investment Income* ............... (3,231) -0-
-------------- ------------
Distributions from and in Excess of
Net Investment Income* ........................................... (279,089) (145,652)
-------------- ------------

Net Change in Net Assets from Investment Activities ............. 407,439 (311,810)
-------------- ------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ....................................... 2,827,147 10,259,465
Net Asset Value of Shares Issued Through Dividend Reinvestment ... 143,963 71,306
Cost of Shares Repurchased ....................................... (1,413,564) (351,433)
-------------- ------------
Net Change in Net Assets from Capital Transactions .............. 1,557,546 9,979,338
-------------- ------------
Total Increase in Net Assets .................................... 1,964,985 9,667,528
Net Assets:
Beginning of the Period ......................................... 9,671,818 4,290
-------------- ------------
End of the Period (Including undistributed net
investment income of $(3,231) and $1,245, respectively) ......... $ 11,636,803 $ 9,671,818
-------------- ------------

</TABLE>

<TABLE>
<CAPTION>
Six Months Ended Period Ended
*Distributions by Class June 30, 1995 December 31, 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares .................... $ (104,226) $ (48,787)
Class B Shares .................... (167,968) (93,517)
Class C Shares ................... (6,895) (3,348)
--------------- -----------
$ (279,089) $ (145,652)
--------------- -----------
</TABLE>
10 See Notes to Financial Statements

<TABLE>
Financial Highlights

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- -------------------------------------------------------------------------------------------------
<CAPTION>
July 29, 1994
Six Months (Commencement
Ended of Investment
June 30, Operations) to
Class A Shares 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ............................ $ 13.754 $ 14.300
-------- -------------
Net Investment Income ............................................ .396 .295
Net Realized and Unrealized Gain/Loss on Investments ............. .580 (.551)
-------- -------------
Total from Investment Operations ................................ .976 (.256)
Less Distributions from and in Excess of Net Investment Income ... .402 .290
-------- -------------
Net Asset Value, End of Period ................................... $ 14.328 $ 13.754
-------- -------------
Total Return* (Non-Annualized) .................................. 7.17% (1.81%)
Net Assets at End of Period (In millions) ........................ $ 4.3 $ 3.0
Ratio of Expenses to Average Net
Assets* (Annualized) ............................................ .23% .17%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ................................. 5.50% 5.16%
Portfolio Turnover .............................................. 11.24% 11.00%

*If certain expenses had not been assumed by the Adviser and VKAC,
total return would have been lower and the ratios would have been
as follows:

Ratio of Expenses to Average Net
Assets (Annualized) .............................................. 2.39% 3.17%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ................................. 3.33% 2.17%
</TABLE>

11 See Notes to Financial Statements

<TABLE>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- -------------------------------------------------------------------------------------------------
<CAPTION>
July 29, 1994
Six Months (Commencement
Ended of Investment
June 30, Operations) to
Class B Shares 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ............................ $ 13.738 $ 14.300
-------- --------------
Net Investment Income ............................................ .343 .253
Net Realized and Unrealized Gain/Loss on Investments ............. .578 (.563)
-------- --------------
Total from Investment Operations ................................ .921 (.310)
Less Distributions from and in Excess of Net Investment Income ... .349 .252
-------- --------------
Net Asset Value, End of Period ................................... $ 14.310 $ 13.738
-------- --------------
Total Return* (Non-Annualized) .................................. 6.71% (2.16%)
Net Assets at End of Period (In millions) ........................ $ 7.0 $ 6.5
Ratio of Expenses to Average Net
Assets* (Annualized) ............................................ .98% .93%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ................................. 4.82% 4.38%
Portfolio Turnover .............................................. 11.24% 11.00%

*If certain expenses had not been assumed by the Adviser and VKAC,
total return would have been lower and the ratios would have been
as follows:

Ratio of Expenses to Average Net
Assets (Annualized) .............................................. 3.18% 3.89%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ................................. 2.63% 1.41%
</TABLE>
12 See Notes to Financial Statements

<TABLE>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- -------------------------------------------------------------------------------------------------
<CAPTION>
July 29, 1994
Six Months (Commencement
Ended of Investment
June 30, Operations) to
Class C Shares 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ............................ $ 13.753 $ 14.300
-------- --------------
Net Investment Income ............................................ .346 .240
Net Realized and Unrealized Gain/Loss on Investments ............. .576 (.535)
-------- --------------
Total from Investment Operations ................................ .922 (.295)
Less Distributions from and in Excess of Net Investment Income ... .349 .252
-------- --------------
Net Asset Value, End of Period ................................... $ 14.326 $ 13.753
-------- --------------
Total Return* (Non-Annualized) .................................. 6.78% (2.09%)
Net Assets at End of Period (In millions) ........................ $ 0.3 $ 0.2
Ratio of Expenses to Average Net
Assets* (Annualized) ............................................ .98% .91%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ................................. 4.79% 4.39%
Portfolio Turnover .............................................. 11.24% 11.00%

*If certain expenses had not been assumed by the Adviser and VKAC,
total return would have been lower and the ratios would have been
as follows:

Ratio of Expenses to Average Net
Assets (Annualized) .............................................. 3.16% 3.85%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ................................. 2.61% 1.46%
</TABLE>
13 See Notes to Financial Statements

Notes to Financial Statements
June 30, 1995 (Unaudited)

1. Significant Accounting Policies

Van Kampen Merritt New Jersey Tax Free Income Fund (the "Fund") was organized as
a subtrust of the Van Kampen Merritt Tax Free Fund, a Massachusetts 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 commenced
investment operations on July 29, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

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. At June 30, 1995, there were no when
issued or delayed delivery purchase commitments.

C. Investment Income-Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.

D. Organizational Expenses and Initial Registration Costs-The Fund will
reimburse Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC") for costs incurred in connection with the Fund's
organization and initial registration in the amount of $120,000. These costs are
being amortized on a straight line basis over the 60 month period ending July
28, 1999. Van Kampen American Capital Investment Advisory Corp. (the "Adviser")
has agreed that in the event any of the initial shares of the Fund originally
purchased by VKAC are redeemed by the Fund during the amortization period, the
Fund will be reimbursed for any unamortized organizational expenses and initial
registration costs in the same proportion as the number of shares redeemed bears
to the number of initial shares held at the time of redemption.

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

E. 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 December 31, 1994, the Fund had an accumulated capital loss
carryforward for tax purposes of $11,885 which will expire on December 31, 2002.
Net realized gains or losses may differ for financial and tax reporting purposes
primarily as a result of post October 31 losses which are not recognized for tax
purposes until the first day of the following fiscal year.

F. 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.

2. Investment Advisory Agreement and Other Transactions with Affiliates

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

<TABLE>
<CAPTION>
Average Net Assets % Per Annum
- ------------------------------------
<S> <C>
First $500 million ... .600 of 1%
Over $500 million ..... .500 of 1%
</TABLE>

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

3. Capital Transactions

The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized.
At June 30, 1995, paid in surplus aggregated $4,274,704, $6,957,157 and
$309,313 for Classes A, B and C, respectively. For the six months ended June 30,
1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 91,278 $ 1,307,047
Class B ...................... 102,719 1,470,100
Class C ....................... 3,489 50,000
------- -------------
Total Sales ................... 197,486 $ 2,827,147
------- -------------
Dividend Reinvestment:
Class A ...................... 4,076 $ 58,515
Class B ...................... 5,496 78,589
Class C ....................... 478 6,859
------- -------------
Total Dividend Reinvestment ... 10,050 $ 143,963
------- -------------
Repurchases:
Class A ...................... (10,709) $ (154,101)
Class B ...................... (87,800) (1,259,463)
Class C ....................... -0- -0-
------- -------------
Total Repurchases ............ (98,509) $ (1,413,564)
------- -------------
</TABLE>

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

At December 31, 1994, paid in surplus aggregated $3,063,243, $6,667,931 and
$252,454 for Classes A, B and C, respectively. For the period ended December 31,
1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ---------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 221,890 $ 3,146,645
Class B ...................... 484,535 6,865,118
Class C ....................... 17,462 247,702
------- -------------
Total Sales ................... 723,887 $ 10,259,465
------- -------------
Dividend Reinvestment:
Class A ...................... 2,136 $ 29,495
Class B ...................... 2,787 38,489
Class C ....................... 242 3,322
------- -------------
Total Dividend Reinvestment ... 5,165 $ 71,306
------- -------------
Repurchases:
Class A ...................... (8,442) $ (114,327)
Class B ...................... (17,167) (237,106)
Class C ....................... -0- -0-
------- -------------
Total Repurchases ............ (25,609) $ (351,433)
------- -------------
</TABLE>

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
Contingent Deferred
Sales 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 ... .00% None
</TABLE>

For the six months ended June 30, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$5,200 and CDSC on the redeemed shares of Classes B and C of approximately
$39,400. Sales charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended June 30, 1995, were $2,847,735 and
$1,153,382, respectively.

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

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 utilizes futures contracts to manage the portfolio's
effective maturity or duration.
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
The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.
Transactions in futures contracts, each with a par value of $100,000, for the
six months ended June 30, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts
- -----------------------------------------------
<S> <C>
Outstanding at December 31, 1994 ... 15
Futures Opened .................... 15
Futures Closed ..................... (30)
-------
Outstanding at June 30, 1995 ....... -0-
-------
</TABLE>

6. Distribution and Service Plans

The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "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 .30% of Class A shares and 1.00% each of
Class B and Class C shares are accrued daily. Included in these fees for the six
months ended June 30, 1995, are payments to VKAC of approximately $24,100.

Funds Distributed by Van Kampen American Capital

GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund

EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund

Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund

THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund

Van Kampen Merritt New Jersey Tax Free Income Fund

Board of Trustees

Philip P. Gaughan
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Jerome L. Robinson
Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10, 1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

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

SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.

21
<TABLE>
<CAPTION>

Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio Management Review .......... 4
Portfolio of Investments ............. 6
Statement of Assets and Liabilities ... 8
Statement of Operations .............. 9
Statement of Changes in Net Assets .... 10
Financial Highlights ................. 11
Notes to Financial Statements ......... 14
</TABLE>

NYTF SAR 8/95

Letter to Shareholders

August 3, 1995

Dear Shareholder:
The first half of 1995 has been a very positive one for most investors. Both
the fixed-income and stock markets have made considerable gains for the period
ended June 30, 1995. This year has been particularly rewarding for investors
after weathering the difficult markets of 1994.
The first six months of 1995 serve as a reminder of just how quickly markets
can move, and how difficult it can be to predict the timing of those movements.
Moreover, this year reinforces the importance of maintaining a long-term
perspective, and reaffirms the principle that it is time---not timing---that
leads to investment success.

[PHOTO]
Dennis J. McDonnell and Don G. Powell

Economic Overview
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially lower than
its first quarter of 2.7 percent and fourth quarter 1994 rate of 5.1 percent.
While other key economic data, including unemployment rates and housing starts,
have shown mixed signs during recent weeks, the general trend for the first
half of the year suggested a "soft landing" scenario. Subsequently, concern
over inflation has subsided, as its annualized rate has run at a modest pace
of 3.2 percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to
6.62 percent at the end of June, while prices on the "long bond" rose 18
percent. Likewise, the yield on the Bond Buyer's Municipal Bond Index fell from
7.28 percent to 6.37 percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

(Continued on page two)

Economic Outlook

Corporate News

Sincerely,

Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

Performance Results for the Period Ended June 30, 1995

Van Kampen Merritt New York Tax Free Income Fund

A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
Six-month total return
based on NAV<F1> ................. 8.63% 8.23% 8.23%
Six-month total return<F2> ....... 3.47% 4.23% 7.23%
Life-of-Fund average
annual total return<F2> .......... .51% .84% 4.12%
Life-of-Fund cumulative
total return based on NAV<F1> ... 5.45% 4.77% 4.77%
Commencement Date ............... 07/29/94 07/29/94 07/29/94
Distribution Rates and Yield
Distribution Rate<F3> ............ 5.55% 5.07% 5.07%
Taxable Equivalent
Distribution Rate<F4> ............ 9.41% 8.59% 8.59%
SEC Yield<F5> .................... 5.22% 4.77% 4.72%

<F2>Standardized total return. Assumes reinvestment of all distributions for the
period ended and includes payment of the maximum sales charge (4.75% for A
shares) or contingent deferred sales charge for early withdrawal (4% for B
shares and 1% for C shares).

<F3>Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.

<F4>Taxable equivalent calculations reflect a combined federal and state income tax
rate of 41% which takes into consideration the deductibility of individual state
taxes paid.

<F5>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 June 30, 1995. Had certain
expenses of the Fund not been assumed by the Adviser and VKAC, the SEC Yield
would have been 3.39%, 2.94% and 2.89% for Classes A, B and C, respectively and
total returns would have been lower.

Portfolio Management Review

Van Kampen Merritt New York Tax Free Income Fund
The following is an interview with the management team of the Van Kampen Merritt
New York Tax Free Income Fund, including David C. Johnson, portfolio manager,
and Peter W. Hegel, executive vice president, Van Kampen American Capital
Investment Advisory Corp.

Q. What market conditions had the greatest impact on the municipal bond market
during the six months ended June 30, 1995?
A. The economy was on our side. When it became apparent at the beginning of the
year that the economy was slowing down, and interest rates had likely peaked
- ---there was a very positive impact on the bond market, and in turn, on the
Fund. This positive economic scenario went a long way toward helping us to
minimize the effects of several negative events that impacted the municipal
market. For example . . .
* The Orange County, California bankruptcy had an adverse impact on the entire
municipal bond market in the second quarter when it became apparent that the
situation wasn't going to be resolved quickly.
* In addition, a very strong stock market diverted investment dollars away
from municipal issues. This temporarily subdued the long-term positive supply
and demand situation the market has enjoyed.
* Finally, Washington proposals to change the income tax system also had an
adverse impact on the municipal bond market.
The demand for municipals resurged in June, when extremely attractive
municipal yields--more than 90 percent of the yield offered by taxable U.S.
Treasury securities (this ratio is normally about 80 percent)---drew investors
back to the market.

Q. How did you position the Fund in response to the events of the past six
months?
A. As always our primary goal was to deliver an attractive level of current
income exempt from federal and New York state income taxes, consistent with
preservation of capital.
Our heaviest weighting remained in the highest quality, AAA-rated municipal
bonds--currently at 47 percent of the portfolio (as opposed to 52 percent at the
end of December 1994). The biggest change in the portfolio was our increased
focus on BBB-rated bonds during the period. In that sector, we moved from a 14.5
percent BBB position in December 1994, to a
26 percent position at the end of the reporting period.
The reason for the shift was that the "spreads" (the difference in yields)
between the credit rating categories widened during the period. This meant that
BBB-rated bonds began offering notably higher yields relative to higher quality
bonds. In effect, they offered attractive compensation for assuming a bit of
additional credit risk.
Our average maturity range has also remained fairly constant---in the 15- to
20-year range. In fact, New York City municipal bonds are particularly
attractive because you can purchase bonds of medium maturity---and still receive
most of the yield of a longer maturity--without the volatility. This is right in
line with our goal of seeking high yields consistent with capital preservation.

Q. How did the Fund perform during the six months ended June 30, 1995?
A. For the six-month period ending June 30, 1995, the Fund's Class A share
total return was 8.63 percent<F1> at net asset value. During the same period,
the category average for all New York municipal debt funds tracked by Lipper
Analytical Services was 9.00 percent.
We continued to provide investors with an attractive level of tax-free income.
At its current annualized dividend level of $.834 per share, the Fund provides
shareholders with a tax-free distribution rate of 5.55 percent<F3> (Class A
Shares) as of June 30, 1995. At this distribution rate, the Fund provides
shareholders in the 41 percent combined federal and New York state income tax
bracket with a yield equivalent to a taxable investment earning 9.41 percent
<F4>. (Please refer to the chart on page three for additional Fund
performance.)

Q. After the significant rally during the first half of 1995,what is your
outlook going forward, and how will you position the Fund?
A. A mild correction in the municipal market would not be a surprise. In general
though, we anticipate that the economy will grow slowly, and that inflation will
remain low. As a result, we believe that fixed-income markets---including
municipal bonds---will continue to make modest gains.

[Pie Chart]

Portfolio Holdings as of June 30, 1995

Industrial Revenue 8.3%
General Purpose 29.7%
Water & Sewer 7.0%
Public Building 15.5%
Transportation 7.9%
Other 9.3%
Health Care 14.5%
Multi-Family Housing 7.8%

Peter W. Hegel David C. Johnson
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.

5 Please see footnotes on page three

<TABLE>

Portfolio of Investments
June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
New York 87.7%
$ 400 Battery Park City Auth NY Rev Sr Ser A Rfdg ........ 5.000% 11/01/13 $ 349,800
500 Buffalo, NY Swr Auth Rev Swr Sys Ser G Rfdg
(FGIC Insd) ......................................... 5.000 07/01/12 459,145
400 New Rochelle, NY Ser B (MBIA Insd) .................. 6.150 08/15/19 410,008
375 New York City Indl Dev Agy Spl Fac Rev Terminal
One Group Assn Proj ................................ 5.700 01/01/04 373,751
500 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser B (AMBAC Insd) .............................. 5.375 06/15/19 462,325
350 New York City Ser A Rfdg ........................... 6.250 08/01/08 346,588
500 New York City Ser C ................................ 7.250 08/15/24 519,155
500 New York City Ser H (Cap Guar Insd) ................ 7.000 02/01/21 547,345
300 New York St Dorm Auth Rev City Univ Ser F .......... 5.000 07/01/14 255,369
500 New York St Dorm Auth Rev Court Fac Lease Ser A .... 5.700 05/15/22 454,735
300 New York St Dorm Auth Rev St Univ Edl Fac B Rfdg .... 6.000 05/15/17 285,273
500 New York St Energy Resh & Dev Auth Elec Fac Rev
Cons Edison Co NY Inc Proj Ser A (MBIA Insd) ........ 7.500 01/01/26 543,530
300 New York St Energy Resh & Dev Auth St Svc Contract
Rev Western NY Nuclear Svc Cent Proj ............... 6.000 04/01/00 312,009
500 New York St Environmental Fac Corp Pollutn Ctl Rev
St Wtr Revolving Fund Ser D ......................... 6.850 11/15/11 547,940
500 New York St Hsg Fin Agy Rev Insd Multi-Family Mtg
Ser B (AMBAC Insd) .................................. 6.250 08/15/14 507,560
425 New York St Loc Govt Assistance Corp Ser B .......... 6.000 04/01/12 422,288
595 New York St Med Care Fac Fin Agy Rev North Shore
Univ Glen Cove Ser A (MBIA Insd) ................... 5.125 11/01/12 546,829
500 New York St Med Care Fac Fin Agy Rev NY Hosp
FHA Insd Mtg Ser A (AMBAC Insd) ..................... 6.200 08/15/05 537,710
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd) .................................. 6.600 02/15/11 532,135
300 New York St Med Care Fac Fin Agy Rev Presbyterian
Hosp FHA Insd Mtg Ser A Rfdg ........................ 5.250 08/15/14 281,391
500 New York St Mtg Agy Rev Homeowner Mtg Ser 30B ....... 6.650 10/01/25 512,835
300 New York St Thruway Auth Hwy & Brdg Tr Fund Ser A ... 6.000 04/01/14 295,818
870 New York St Urban Dev Corp Rev Correctional
Fac Rfdg ............................................. 5.625 01/01/07 834,104
300 New York St Urban Dev Corp Rev Correctional
Fac Rfdg ............................................ 5.750 01/01/13 279,942

6 See Notes to Financial Statements

</TABLE>

<TABLE>

Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)

Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (Continued)
$ 420 Niagara Falls, NY Pub Impt (MBIA Insd) .... 6.900% 03/01/20 $ 455,284
500 Oneida Cnty, NY Pub Impt ................... 5.850 03/15/12 475,410
400 Triborough Brdg & Tunl Auth NY Rev Genl Purp
Ser A Rfdg ................................ 5.000 01/01/12 361,960
------------
11,910,239
------------
Guam 6.4%
500 Guam Govt Ser A ........................... 5.500 09/01/01 498,665
365 Guam Pwr Auth Rev Ser A .................... 4.500 10/01/98 363,613
------------
862,278
------------
Puerto Rico 2.2%
300 Puerto Rico Comwlth Ser A Rfdg ............. 6.250 07/01/10 304,116
------------
Total Long-Term Investments 96.3%
(Cost $12,622,847) <F1> ................................................ 13,076,633
Other Assets in Excess of Liabilities 3.7% .......................... 499,000
------------
Net Assets 100% ....................................................... $ 13,575,633
------------

<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $12,622,847; the
aggregate gross unrealized appreciation is $464,939 and the aggregate
gross unrealized depreciation is $11,153, resulting in net unrealized
appreciation of $453,786.
</TABLE>

Portfolio Composition by Credit Quality

June 30, 1995 (Unaudited)

<TABLE>
<CAPTION>
<S> <C>
AAA .... 47.4%
AA .... 6.6
A ..... 20.0
BBB ... 26.0
------
100.0%
------

</TABLE>

7 See Notes to Financial Statements

Statement of Assets and Liabilities
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>

Assets:
<S> <C>
Investments, at Market Value (Cost $12,622,847) (Note 1) ........................ $ 13,076,633
Receivables:
Investments Sold ............................................................. 373,868
Interest ...................................................................... 308,194
Fund Shares Sold .............................................................. 108,373
Unamortized Organizational Expenses and Initial Registration Costs (Note 1) .... 97,852
--------------
Total Assets .................................................................... 13,964,920
--------------
Liabilities:
Payables:
Custodian Bank ............................................................... 293,857
Income Distributions ......................................................... 28,556
Fund Shares Repurchased ...................................................... 19,422
Accrued Expenses ................................................................ 47,452
--------------
Total Liabilities ............................................................... 389,287
--------------
Net Assets ...................................................................... $ 13,575,633
--------------
Net Assets Consist of:
Paid in Surplus (Note 3) ........................................................ $ 13,471,515
Net Unrealized Appreciation on Investments ..................................... 453,786
Accumulated Distributions in Excess of Net Investment Income ................... (5,105)
Accumulated Net Realized Loss on Investments .................................... (344,563)
--------------
Net Assets ...................................................................... $ 13,575,633
--------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $4,210,753
and 293,981 shares of beneficial interest issued and outstanding) (Note 3) ..... $ 14.32
Maximum sales charge (4.75%* of offering price) ................................. .71
--------------
Maximum offering price to public ................................................ $ 15.03
--------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $9,083,085
and 634,013 shares of beneficial interest issued and outstanding) (Note 3) ..... $ 14.33
--------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $281,795
and 19,676 shares of beneficial interest issued and outstanding) (Note 3) ...... $ 14.32
--------------
*On sales of $100,000 or more, the sales charge will be reduced.

</TABLE>

8 See Notes to Financial Statements

Statement of Operations
For the Six Months Ended June 30, 1995 (Unaudited)

Investment Income:
<S> <C>
Interest ........................................................................... $ 364,262
-------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$5,037, $43,776 and $953, respectively) (Note 6) ................................. 49,766
Investment Advisory Fee (Note 2) .................................................. 36,911
Shareholder Services (Note 2) ...................................................... 15,682
Printing .......................................................................... 13,575
Trustees Fees and Expenses (Note 2) ................................................ 12,021
Amortization of Organizational Expenses and Initial Registration Costs (Note 1) ... 11,895
Audit ............................................................................. 9,050
Legal (Note 2) .................................................................... 4,525
Other ............................................................................. 9,284
-------------
Total Expenses ..................................................................... 162,709
Less Fees Deferred and Expenses Reimbursed ($36,911 and $82,288, respectively) ..... 119,199
-------------
Net Expenses ....................................................................... 43,510
-------------
Net Investment Income .............................................................. $ 320,752
-------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ................................................................ $ 5,328,971
Cost of Securities Sold ............................................................ (5,515,247)
-------------
Net Realized Loss on Investments (Including realized loss on
futures transactions of $271,427) ................................................. (186,276)
-------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ........................................................... (340,486)
End of the Period ................................................................. 453,786
-------------
Net Unrealized Appreciation on Investments During the Period ....................... 794,272
-------------
Net Realized and Unrealized Gain on Investments .................................... $ 607,996
-------------
Net Increase in Net Assets from Operations ........................................ $ 928,748
-------------

</TABLE>

9 See Notes to Financial Statements

Statement of Changes in Net Assets

For the Six Months Ended June 30, 1995
and the Period July 29, 1994 (Commencement of Investment Operations)
to December 31, 1994 (Unaudited)

<TABLE>
<CAPTION>
Six Months
Ended
June 30, Period Ended
1995 December 31, 1994
------------- -----------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................ $ 320,752 $ 190,207
Net Realized Loss on Investments ................................. (186,276) (158,287)
Net Unrealized Appreciation/Depreciation on
Investments During the Period ................................... 794,272 (340,486)
-------------- -----------------
Change in Net Assets from Operations ............................ 928,748 (308,566)
-------------- -----------------
Distributions from Net Investment Income* ........................ (320,967) (189,992)
Distributions in Excess of Net Investment Income* ............... (5,105) -0-
-------------- -----------------
Distributions from and in Excess of Net Investment Income* ...... (326,072) (189,992)
-------------- -----------------
Net Change in Net Assets from Investment Activities ............. 602,676 (498,558)
-------------- -----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ....................................... 2,578,939 12,235,618
Net Asset Value of Shares Issued Through Dividend Reinvestment ... 163,870 91,720
Cost of Shares Repurchased ....................................... (974,278) (628,644)
-------------- -----------------
Net Change in Net Assets from Capital Transactions .............. 1,768,531 11,698,694
-------------- -----------------
Total Increase in Net Assets .................................... 2,371,207 11,200,136
Net Assets:
Beginning of the Period ......................................... 11,204,426 4,290
-------------- -----------------
End of the Period (Including undistributed net investment
income of $(5,105) and $215, respectively) .................... $ 13,575,633 $ 11,204,426
-------------- -----------------
</TABLE>

Six Months Ended Period Ended
*Distributions by Class June 30, 1995 December 31, 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares .................... $ (97,273) $ (50,186)
Class B Shares .................... (224,020) (136,720)
Class C Shares ................... (4,779) (3,086)
-------------- ------------
$ (326,072) $ (189,992)
-------------- ------------
</TABLE>

10 See Notes to Financial Statements

Financial Highlights

The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
July 29, 1994
Six Months (Commencement
Ended of Investment
June 30, Operations) to
Class A Shares 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 13.579 $ 14.300
--------- -----------------
Net Investment Income ............................................... .409 .302
Net Realized and Unrealized Gain/Loss on Investments ................. .752 (.722)
--------- -----------------
Total from Investment Operations .................................... 1.161 (.420)
Less Distributions from and in Excess of Net Investment Income ..... .417 .301
--------- -----------------
Net Asset Value, End of Period ....................................... $ 14.323 $ 13.579
--------- -----------------
Total Return* (Non-Annualized) ...................................... 8.63% (2.93%)
Net Assets at End of Period (In millions) ............................ $ 4.2 $ 2.9
Ratio of Expenses to Average Net Assets* (Annualized) ................ .20% .26%
Ratio of Net Investment Income to Average Net Assets* (Annualized) ... 5.70% 5.27%
Portfolio Turnover .................................................. 46.28% 68.11%
</TABLE>

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

<TABLE>

<CAPTION>
<S> <C> <C>
Ratio of Expenses to Average Net Assets (Annualized) ................ 2.13% 2.73%
Ratio of Net Investment Income to Average Net Assets (Annualized) ... 3.76% 2.81%
</TABLE>

11 See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
July 29, 1994
Six Months (Commencement
Ended of Investment
June 30, Operations) to
Class B Shares 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 13.578 $ 14.300
--------- -----------------
Net Investment Income ............................................... .359 .263
Net Realized and Unrealized Gain/Loss on Investments ................. .753 (.722)
--------- -----------------
Total from Investment Operations .................................... 1.112 (.459)
Less Distributions from and in Excess of Net Investment Income ..... .364 .263
--------- -----------------
Net Asset Value, End of Period ....................................... $ 14.326 $ 13.578
--------- -----------------
Total Return* (Non-Annualized) ...................................... 8.23% (3.20%)
Net Assets at End of Period (In millions) ............................ $ 9.1 $ 8.1
Ratio of Expenses to Average Net Assets* (Annualized) ................ .90% .96%
Ratio of Net Investment Income to Average Net Assets* (Annualized) ... 5.06% 4.58%
Portfolio Turnover .................................................. 46.28% 68.11%
</TABLE>

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

<TABLE>
<CAPTION>
<S> <C> <C>
Ratio of Expenses to Average Net Assets (Annualized) ................. 2.85% 3.42%
Ratio of Net Investment Income to Average Net Assets (Annualized) .... 3.11% 2.12%
</TABLE>

12 See Notes to Financial Statements

Financial Highlights (Continued)

The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated. (Unaudited)

<TABLE>
<CAPTION>
July 29, 1994
Six Months (Commencement
Ended of Investment
June 30, Operations) to
Class C Shares 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period ................................ $ 13.579 $ 14.300
--------- -----------------
Net Investment Income ............................................... .356 .267
Net Realized and Unrealized Gain/Loss on Investments ................. .751 (.725)
--------- -----------------
Total from Investment Operations .................................... 1.107 (.458)
Less Distributions from and in Excess of Net Investment Income ..... .364 .263
--------- -----------------
Net Asset Value, End of Period ....................................... $ 14.322 $ 13.579
--------- -----------------
Total Return* (Non-Annualized) ...................................... 8.23% (3.20%)
Net Assets at End of Period (In millions) ............................ $ .3 $ .2
Ratio of Expenses to Average Net Assets* (Annualized) ................ .94% .96%
Ratio of Net Investment Income to Average Net Assets* (Annualized) ... 4.87% 4.58%
Portfolio Turnover .................................................. 46.28% 68.11%
</TABLE>

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

<S> <C> <C>
Ratio of Expenses to Average Net Assets (Annualized) ................. 2.86% 3.42%
Ratio of Net Investment Income to Average Net Assets (Annualized) .... 2.96% 2.12%

13 See Notes to Financial Statements

</TABLE>

Notes to Financial Statements

June 30, 1995 (Unaudited)

1. Significant Accounting Policies

Van Kampen Merritt New York Tax Free Income Fund (the "Fund") was organized as a
subtrust of the Van Kampen Merritt Tax Free Fund, a Massachusetts 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 commenced
investment operations on July 29, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.

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. At June 30, 1995, there were no when
issued or delayed delivery purchase commitments.

D. Organizational Expenses and Initial Registration Costs-The Fund will
reimburse Van Kampen American Capital Distributors, Inc. or its affiliates
(collectively "VKAC") for costs incurred in connection with the Fund's
organization and initial registration in the amount of $120,000. These costs are
being amortized on a straight line basis over the 60 month period ending July
28, 1999. Van Kampen American Capital Investment Advisory Corp. (the "Adviser")
has agreed that in the event any of the initial shares of the Fund originally
purchased by VKAC are redeemed by the Fund during the amortization period, the
Fund will be reimbursed for any unamortized organizational expenses and initial
registration costs in the same proportion as the number of shares redeemed bears
to the number of initial shares held at the time of redemption.

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

E. 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 December 31, 1994, the Fund had an accumulated capital loss
carryforward for tax purposes of $116,417 which will expire on December 31,
2002. Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year.

F. 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.

Average Net Assets % Per Annum
<S> <C>
First $500 million ... .600 of 1%
Over $500 million .... .500 of 1%

</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

3. Capital Transactions

The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized.
At June 30, 1995, paid in surplus aggregated $4,169,180, $9,018,470 and
$283,865 for Classes A, B and C, respectively. For the six months ended June 30,
1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ---------------------------------------------------------
<S> <C> <C>
Sales:
Class A ........................ 101,465 $ 1,459,285
Class B ........................ 70,147 1,009,633
Class C ........................ 7,592 110,021
------- ------------
Total Sales ................... 179,204 $ 2,578,939
------- ------------
Dividend Reinvestment:
Class A ........................ 3,681 $ 52,785
Class B ........................ 7,655 109,737
Class C ........................ 94 1,348
------- ------------
Total Dividend Reinvestment ... 11,430 $ 163,870
------- ------------
Repurchases:
Class A ........................ (25,950) $ (366,395)
Class B ........................ (42,164) (607,883)
Class C ........................ -0- -0-
------- ------------
Total Repurchases ............. (68,114) $ (974,278)
------- ------------
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

At December 31, 1994, paid in surplus aggregated $3,023,505, $8,506,983 and
$172,496 for Classes A, B and C, respectively. For the period ended December 31,
1994, transactions were as follows:

Shares Value
- ---------------------------------------------------------
<S> <C> <C>
Sales:
Class A ........................ 248,445 $ 3,473,866
Class B ........................ 604,458 8,591,335
Class C ........................ 11,843 170,417
------- ------------
Total Sales ................... 864,746 $ 12,235,618
------- ------------
Dividend Reinvestment:
Class A ........................ 1,907 $ 25,968
Class B ........................ 4,774 65,103
Class C ........................ 47 649
------- ------------
Total Dividend Reinvestment ... 6,728 $ 91,720
------- ------------
Repurchases:
Class A ........................ (35,667) $ (477,759)
Class B ........................ (10,957) (150,885)
Class C ........................ -0- -0-
------- ------------
Total Repurchases ............. (46,624) $ (628,644)
------- ------------
</TABLE>

Contingent Deferred
Sales 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 .................. 0.00% None
</TABLE>

Notes to Financial Statements (Continued)

June 30, 1995 (Unaudited)

For the six months ended June 30, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$5,300 and CDSC on the redeemed shares of Classes B and C of approximately
$14,800. Sales charges do not represent expenses of the Fund.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended June 30, 1995, were $7,331,238 and
$5,515,247, 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 utilizes futures contracts to manage the portfolio's
effective maturity or duration.
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.
The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.
Transactions in futures contracts, each with a par value of $100,000, for the
six months ended June 30, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts
- -----------------------------------------------
<S> <C>
Outstanding at December 31, 1994 ... 20
Futures Opened ..................... 20
Futures Closed .................... (40)
--------
Outstanding at June 30, 1995 ...... -0-
--------
</TABLE>

6. Distribution and Service Plans

The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "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 .30% of Class A shares and 1.00% each of
Class B and Class C shares are accrued daily. Included in these fees for the six
months ended June 30, 1995, are payments to VKAC of approximately $30,600.

Funds Distributed by Van Kampen American Capital

GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund

EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund

THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund

Van Kampen Merritt New York Tax Free Income Fund

Board of Trustees

Philip P. Gaughan
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Jerome L. Robinson
Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

Investment Adviser

Van Kampen American Capital
Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Distributor

Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181

Transfer Agent (Effective July 10, 1995)

ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256

Custodian

State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105

Legal Counsel

Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606

Independent Auditors

KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601

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

SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.

Van Kampen Merritt New York Tax Free Income Fund

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