VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST, N-30D, 1996-02-29

VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
N-30D, 1996-02-29

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<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders................. 1
Performance Results.................... 3
Performance Perspective................ 4
Portfolio Management Review............ 5
Portfolio of Investments............... 7
Statement of Assets and Liabilities.... 19
Statement of Operations................ 20
Statement of Changes in Net Assets..... 21
Financial Highlights................... 22
Notes to Financial Statements.......... 25
Independent Auditors' Report........... 30
</TABLE>

Letter to Shareholders

January 24, 1996

The rebound in the markets last year reinforces the importance of maintaining
a long-term perspective for your investments. While the environment for stocks
and bonds remains positive, it is unlikely that 1996 will see a repeat of the
markets' strong 1995 performance. However, over the long-term, stocks have
outperformed virtually all other types of investments, and bonds have met
the needs of investors who seek capital preservation and regular income.

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

Economic Overview
The U.S. economy grew throughout 1995, though the rate of growth slowed toward
year-end. The gross domestic product (the value of all goods and services
produced in the United States) grew at an annual rate of more than 4.2 percent
in the third quarter of 1995, but slowed to an estimated 2 to 3 percent in the
fourth quarter, with retail and auto sales particularly sluggish. The slower
growth rate eased concerns about a rise in inflation and allowed the Federal
Reserve Board to lower short-term interest rates by a quarter-percentage point
in late December. The reduction in rates during the latter half of 1995 is
expected to help generate moderate economic growth in 1996, just as the Fed's
raising of short-term rates in 1994 helped slow economic growth in 1995.
The cut in short-term rates, combined with modest growth forecasts, was viewed
by the financial markets as a positive event, pushing up both stock and bond
prices. For the year ended December 31, 1995, the Standard & Poor's 500-Stock
Index achieved a total return of 37.45 percent. The yield on 10-year Treasury
notes was 5.57 percent on December 31, compared to 7.83 percent at the
beginning of the year. Because bond prices and yields move in opposite
directions, bond prices rose. Many observers expect the Fed to cut rates
further if Congress and the President are able to reach an agreement on the
federal budget, provided economic conditions justify further easing.
With a low inflation, low interest rate environment, corporate earnings
remained quite strong during the year, helping to push stocks to new highs. The
strongest sectors were technology and finance, as these stocks benefited from
the impact of the Internet, telecommunications deregulation and bank mergers.
U.S. companies with global operations also did well, aided by a declining U.S.
dollar.

Continued on page two

Economic Outlook
Looking ahead, we are cautiously optimistic. We expect the economy to grow at
a rate of 2 to 3 percent throughout 1996, with growth stronger in the second
half of the year as the full impact of the Fed's rate cuts take effect. Lower
rates will have the greatest impact on interest-sensitive industries, such as
housing. Although inflation appears to be under control, there probably will be
some cyclical upward pressure in 1996.
The current economic conditions are ideal for stocks, especially those of
smaller companies, because they tend to be affected less by economic cycles. The
outlook for the fixed-income market -- including municipal bonds -- is positive,
too. In the near-term, we believe domestic markets will benefit from a stable
U.S. dollar and increased business activity driven in part by a number of
recently announced strategic reorganizations of some of the nation's blue chip
industry leaders.
During recent months, debate over tax reform and the federal deficit has
dominated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue in
Washington. There has been varied speculation about the impact tax reform could
have on the economy and on various types of investments. We are following the
tax reform debate very closely, and we will keep you updated on this issue
throughout the year. See the winter issue of "Your Portfolio" for a detailed
discussion of tax reform.
On the following pages, you can read about your Fund's performance in 1995, as
well as the portfolio management team's outlook for the Fund in the coming
months. We hope that you will find this information helpful.

Corporate News
As part of our commitment to helping you achieve your investment goals, Van
Kampen American Capital strives to provide shareholders with the best service in
the mutual fund industry. That is why we are especially pleased to have received
the 1995 Quality Tested Service Seal, which is awarded annually by DALBAR, Inc.,
an independent research firm. The Seal, which symbolizes the achievement of the
highest tier of service in the mutual fund industry, was awarded to American
Capital annually from 1990 to 1994 and we are honored that the service provided
by Van Kampen American Capital has achieved the same level of excellence.

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 December 31, 1995

Van Kampen American Capital Insured Tax Free Income Fund

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
One-year total return based on NAV<F1>.......... 17.49% 16.67% 16.60%
One-year total return<F2>....................... 11.91% 12.67% 15.60%
Five-year average annual total return<F2>....... 7.37% N/A N/A
Ten-year average annual total return<F2>........ 8.38% N/A N/A
Life-of-Fund average annual total return<F2>.... 9.60% 4.13% 4.57%
Commencement Date............................... 12/14/84 05/01/93 08/13/93

Distribution Rates and Yield
Distribution Rate<F3>........................... 5.00% 4.51% 4.51%
Taxable Equivalent Distribution Rate<F4>........ 7.81% 7.05% 7.05%
SEC Yield<F5>................................... 4.07% 3.48% 3.48%
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.

Putting Your Fund's Performance in Perspective

As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular
intervals. A good starting point is a comparison of your investment holdings
to an applicable benchmark, such as a broad-based market index. Such a
comparison can:

* Illustrate the general market environment in which your investments are being
managed

* Reflect the impact of favorable market trends or difficult market conditions

* Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Municipal Bond
Index over time. As a broad-based, unmanaged statistical composite, this
index does not reflect any commissions or fees which would be incurred by an
investor purchasing the securities it represents. Similarly, its performance
does not reflect any sales charges or other costs which would be applicable to
an actively managed portfolio, such as that of the Fund.

[GRAPH]

Growth of a Hypothetical $10,000 Investment
Van Kampen American Capital Insured Tax Free Income Fund vs. Lehman
Brothers Municipal Bond Index (December 1985 through December 1995)

Van Kampen American Capital Insured Tax Free Income Fund

Lehman Brothers
FUND Taken from LA
ENDING File of Historic
VALUE Lehman Muni B

Dec-85 31-Dec-85 9,525.10 10,000.00
31-Jan-86 10,053.90 10,589.00
28-Feb-86 10,540.90 11,009.38
31-Mar-86 10,634.70 11,012.69
30-Apr-86 10,584.40 11,020.39
31-May-86 10,407.90 10,840.76
30-Jun-86 10,536.60 10,944.83
31-Jul-86 10,572.80 11,010.50
31-Aug-86 11,023.00 11,503.77
30-Sep-86 10,956.20 11,532.53
31-Oct-86 11,200.90 11,732.05
30-Nov-86 11,416.10 11,964.34
Dec-86 31-Dec-86 11,404.50 11,930.84
31-Jan-87 11,628.90 12,289.96
28-Feb-87 11,721.60 12,350.18
31-Mar-87 11,670.90 12,219.27
30-Apr-87 10,958.30 11,605.86
31-May-87 10,868.20 11,547.83
30-Jun-87 11,092.70 11,887.34
31-Jul-87 11,179.50 12,008.59
31-Aug-87 11,287.50 12,036.21
30-Sep-87 10,862.60 11,592.07
31-Oct-87 10,922.20 11,633.80
30-Nov-87 11,176.20 11,937.45
Dec-87 31-Dec-87 11,435.50 12,110.54
31-Jan-88 11,836.40 12,541.67
29-Feb-88 11,978.90 12,674.61
31-Mar-88 11,734.90 12,526.32
30-Apr-S8 11,830.30 12,621.52
31-May-88 11,800.10 12,584.92
30-Jun-88 11,967.00 12,768.66
31-Jul-88 12,135.40 12,851.66
31-Aug-88 12,190.20 12,861.94
30-Sep-88 12,388.40 13,094.74
31-Oct-88 12,652.90 13,325.21
30-Nov-88 12,491.20 13,203.95
Dec-88 31-Dec-88 12,748.30 13,338.63
31-Jan-89 12,882.30 13,614.74
2S-Feb-89 12,791.50 13,459.53
31-Mar-89 12,737.50 13,427.23
30-Apr-89 12,966.50 13,746.79
31-May-89 13,279.40 14,031.35
30-Jun-89 13,480.30 14,222.18
31-Jul-89 13,599.20 14,415.60
31-Aug-89 13,452.20 14,274.33
29-Sep-89 13,388.30 14,231.50
31-Oct-89 13,540.00 14,406.55
30-Nov-89 13,793.80 14,658.67
Dec-89 31-Dec-89 13,942.90 14,775.57
31-Jan-90 13,870.50 14,709.41
28-Feb-90 13,978.80 14,840.32
31-Mar-90 14,000.50 14,844.77
30-Apr-90 13,807.30 14,737.59
31-May-90 14,069.60 15,059.15
30-Jun-90 14,180.30 15,191.70
31-Jul-90 14,405.00 15,415.01
31-Aug-90 14,150.40 15,191.50
30-Sep-90 14,156.50 15,200.61
31-Oct-90 14,409.60 15,477.26
30-Nov-90 14,788.60 15,788.36
Dec-90 31-Dec-90 14,928.00 15,856.25
31-Jan-91 15,093.30 16,065.72
25-Feb-91 15,268.00 16,205.52
31-Mar-91 15,223.50 16,213.35
30-Apr-91 15,357.50 16,430.64
31-May-91 15,517.80 16,576.87
30-Jun-91 15,481.40 16,560.29
31-JuI-91 15,643.60 16,762.33
31-Aug-91 15,850.20 16,983.59
30-Sep-91 15,994.30 17,204.35
31-Oct-91 16,139.40 17,359.22
30-Nov-91 16,196.80 17,407.83
Dec-91 31-Dec-91 16,512.80 17,752.09
31-Jan-92 16,651.30 17,522.99
29-Feb-92 16,625.50 17,828.34
31-Mar-92 16,606.30 17,835.47
30-Apr-92 16,728.50 17,994.21
31-May-92 16,961.40 15,206.54
30-Jun-92 17,268.50 15,512.41
31-Jul-92 18,028.80 19,067.75
31-Aug-92 17,700.20 18,552.52
30-Sep-92 17,758.70 19,005.56
30-Oct-92 17,435.70 15,819.31
30-Nov-92 17,575.60 19,156.17
Dec-92 31-Dec-92 18,054.10 19,351.56
29-Jan-93 15,291.50 19,576.04
26-Feb-93 19,141.30 20,284.70
31-Mar-93 15,794.50 20,069.68
30-Apr-93 19,035.00 20,272.38
31-May-93 19,089.10 20,385.91
30-Jun-93 19,440.50 20,726.35
31-Jul-93 19,391.90 20,753.30
31-Aug-93 19,872.70 21,184.96
30-Sep-93 20,144.90 21,426.47
29-Oct-93 20,166.10 21,467.18
30-Nov-93 19,863.10 21,278.27
Dec-93 31-Dec-93 20,312.20 21,727.24
31-Jan-94 20,576.00 21,974.93
28-Feb-94 20,029.60 21,405.78
31-Mar-94 19,078.20 20,534.57
30-Apr-94 19,179.90 20,709.11
31-May-94 19,386.20 20,889.28
30-Jun-94 19,279.50 20,761.86
31-Jul-94 19,656.10 21,141.80
31-Aug-94 19,696.20 21,215.79
30-Sep-94 19,301.30 20,903.92
31-Oct-94 18,904.50 20,531.83
30-Nov-94 18,484.10 20,160.21
Dec-94 31-Dec-94 19,031.60 20,603.73
31-Jan-95 19,644.20 21,193.00
28-Feb-95 20,281.50 21,809.71
31-Mar-95 20,429.70 22,060.53
28-Apr-95 20,413.80 22,087.00
31-May-95 21,070.90 22,791.57
30-Jun-95 20,822.10 22,593.29
31-Jul-95 20,939.60 22,807.92
31-Aug-95 21,124.80 23,097.58
29-Sep-95 21,243.30 23,243.10
31-Oct-95 21,621.90 23,580.12
30-Nov-95 22,058.90 23,971.55
Dec-95 29-Dec-95 22,361.30 24,201.68

The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions for the period ended December 31,
1995, and includes payment of the maximum sales charge (4.75% for A shares).

While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.

Portfolio Management Review

Van Kampen American Capital Insured Tax Free Income Fund

We recently spoke with the management team of the Van Kampen American Capital
Insured Tax Free Income Fund about the key events and economic forces which
shaped the markets during the past fiscal year. The team includes Joe Piraro,
portfolio manager, and Peter W. Hegel, executive vice president for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the twelve-month period ended December 31, 1995.

Q It appears that 1995 was a good year for fixed-income investors. How well
did the Fund perform in these markets?

A It did very well. Any time you have an insured, tax-free bond portfolio
generating a total return at net asset value of 17.49 percent<F1> (Class A
shares) over a twelve-month time period, you know you've just had a good
year.

The Fund continued to provide a respectable level of tax-exempt income,
with a distribution rate of 5.00 percent<F3> as of December 31, 1995. For an
investor in the 36 percent federal income tax bracket, that's the equivalent
of earning 7.81 percent<F4> on a taxable investment. Reflecting the lower
interest rate environment that we've seen since the first quarter of 1995,
the Fund's dividend was slightly decreased effective January 1, 1996. This
reduced dividend represents a distribution rate of 4.85 percent<F3> based
on the December 31, 1995 offer price of $20.52 for Class A shares.
Additionally, the Fund's net asset value closed the fiscal year at $19.55
per share, up from $17.57 per share at the end of fiscal year 1994.

In comparison to the total return of the Lehman Brother's Municipal Bond
Index, which was 17.46 percent for the twelve months through December 31,
1995, the Fund's performance was comparable with a return for Class A
shares of 17.49 percent<F1> over the same period. Overall, we are pleased
with the Fund's performance and feel that it was well positioned to take
advantage of the markets we encountered in 1995. (Please refer to the chart
on page three for additional Fund performance results.)

Q What were some of the important events or market conditions of 1995 and
how did the Fund respond?

Inflation continued to remain in check, with rates hovering around the 2
percent range, while the economy grew at a fairly steady but modest pace.
As a result, the Federal Reserve Board lowered its key lending rate (the
fed funds rate) by one-quarter percentage point in July of 1995 and again
by one-quarter of a percentage point in December. Naturally, bond prices
were driven higher as rates trended downward over the course of the year
(bond prices go up when rates go down, and vice versa).

Another factor that had been priced into the municipal market late in
the year was the expectation that a federal budget agreement was inevitable.
The market was looking for a positive budget compromise, no matter how long
it might take to come about. Even though the possibility of tax reform
weighed on the market to some extent, the belief that progress on the
federal budget deficit would be made helped to bolster municipal bonds,
especially at the longer end of the maturity spectrum.

The Fund responded well to the lower interest rate environment of the
past year. We maintained the Fund's investment strategy by continuing to
invest in a diversified portfolio of insured municipal securities.

Q What were some of the challenges you faced in managing the Fund?

A Perhaps one of the more interesting challenges we tackled in 1995 was the
task of assimilating the assets of the American Capital Tax Exempt Trust --
Insured Municipal Portfolio into the Fund. The combination of the Funds
went very smoothly.

In terms of the markets, we saw the supply of municipal securities
running a bit behind last year's pace, but a full 40 percent of the market
was in the insured sector. We really had no trouble putting the Fund's
assets to work in issues that we considered to be attractive.

We continued to rely on our strong internal credit research team to help
us identify the issues that appear to offer the greatest relative value.
As of December 31, 1995, the Fund held a significant portion of its assets
(23.83 percent) in issues from the health care industry, a sector in which
our research is especially strong.

[GRAPH]

<TABLE>
<CAPTION>
Portfolio Composition as of December 31, 1995
<S> <C>
Health Care ................................ 25.2%
Other* ..................................... 9.7
Retail Gas/Electric/Telephone .............. 9.2
General Purpose ............................ 9.0
Wholesale Electric ......................... 8.5
Public Building ............................ 7.8
Public Education ........................... 7.7
Tax District ............................... 6.6
Water and Sewer ............................ 6.5
Higher Education............................ 5.5
Transportation ............................. 4.3

*Other consists of 7 sectors each less than 4%.
</TABLE>

Q What is your outlook for the Fund and the market in the months ahead?

A We're confident that the investment environment will remain positive for
fixed-income securities in the near term. Inflation appears to be under
control and the economy shows no signs of overheating.

Additionally, the Fed seems to be pursuing a gradual easing of monetary
policy. In fact, we believe another cut or two in the fed funds rate during
the first half of 1996 may not be out of the question. There seems to be
room for short-term interest rates to trend lower, which is a good sign for
long-term rates as well.

We believe all of these factors add up to a favorable scenario in which
the Fund can pursue its investment objective.

Peter W. Hegel Joseph A. Piraro
Executive Vice President Portfolio Manager
Fixed-Income Investments

6 Please see footnotes on page three

Portfolio of Investments

Alaska 1.1%
3,000 Alaska St Hsg Fin Corp Ser A (MBIA Insd) ..................................... 5.875 12/01/24 3,024,150
7,000 Alaska St Hsg Fin Corp Ser A (MBIA Insd) ..................................... 5.875 12/01/30 7,026,390
3,200 Alaska St Hsg Fin Corp Ser A Rfdg (MBIA Insd) ................................ 5.850 06/01/15 3,217,568
2,355 Ketchikan, AK Muni Util Rev Ser R (FSA Insd) ................................. 6.600 12/01/07 2,660,538
------------
15,928,646
------------

Arizona 1.4%
11,000 Arizona St Ctfs Partn Ser B Rfdg (AMBAC Insd) <F3> ........................... 6.250 09/01/10 11,965,250
2,720 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig Irvington Proj Tucson Ser A
Rfdg (FSA Insd) .............................................................. 7.250 07/15/10 3,092,477
1,100 Santa Cruz Cnty, AZ Unified Sch Dist No 1 (AMBAC Insd) ....................... * 01/01/09 571,120
1,100 Santa Cruz Cnty, AZ Unified Sch Dist No 1 (AMBAC Insd) ....................... * 07/01/09 552,816
1,800 Tucson, AZ Street & Hwy User Rev Sr Lien Ser A (MBIA Insd) ................... 7.000 07/01/11 2,201,706
2,000 Tucson, AZ Street & Hwy User Rev Sr Lien Ser A (MBIA Insd) ................... 7.000 07/01/12 2,465,160
------------
20,848,529
------------

California 20.1%
2,750 Antioch Area, CA Pub Fac Fin Agy (AMBAC Insd) ................................ 5.300 08/01/20 2,721,895
4,290 Antioch Area, CA Pub Fac Fin Agy Cmnty Fac Dist No 1989 (AMBAC Insd).......... 5.300 08/01/15 4,251,090
2,835 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy Pool Rev Ser A (Cap Guar
Insd) ........................................................................ 6.000 12/15/14 2,997,105
5,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy Pool Rev Ser A (AMBAC Insd)
.............................................................................. 6.000 12/15/15 5,290,150
2,555 Berkeley, CA Unified Sch Dist Ser C (AMBAC Insd) ............................. 5.875 08/01/12 2,703,548
1,985 Berkeley, CA Unified Sch Dist Ser C (AMBAC Insd) ............................. 5.875 08/01/14 2,093,758
5,000 Beverly Hills, CA Pub Fin Auth Lease Rev Ser A (Inverse Fltg) (MBIA Insd) .... 5.650 06/01/15 5,014,200
1,000 Burbank, CA Wastewtr Treatment Rev Ser A (FGIC Insd) ......................... 5.500 06/01/25 1,002,900
1,025 California Edl Fac Auth Rev College of Osteopathic Rfdg (Connie Lee Insd) .... 5.650 06/01/07 1,080,576
5,000 California Hlth Fac Fin Auth Rev Kaiser Permanente Ser A (FSA Insd) .......... 5.550 08/15/25 5,003,250
10,000 California Hlth Fac Fin Auth Rev Sutter Hosp Ser A Rfdg (AMBAC Insd) ......... 6.700 01/01/13 10,700,900
3,605 California Pub Cap Impt Fin Auth Rev Pooled Proj Ser B (MBIA Insd) ........... 8.100 03/01/18 3,901,007
11,900 California St (FGIC Insd) .................................................... 6.000 08/01/16 12,622,211
10,875 California St (FGIC Insd) .................................................... 6.000 08/01/19 11,435,715
10,000 California St Pub Wks Brd Lease Rev Dept of Corrections CA St Prison D
Susanville (MBIA Insd) ....................................................... 5.375 06/01/18 9,999,500
1,645 California St Pub Wks Brd Lease Rev Dept of Justice Bldg Ser A (FSA Insd) .... 5.600 05/01/08 1,714,320
16,250 California St Pub Wks Brd Lease Rev Var Univ CA Projs Ser A (AMBAC Insd) ..... 6.400 12/01/16 17,583,637
600 California St Var Purp (FGIC Insd) ........................................... 6.500 09/01/10 690,834
4,210 California Statewide Cmnty Dev Auth Rev Ctfs Partn Sisters of Charity
Leavenworth (MBIA Insd) ...................................................... 5.375 12/01/12 4,243,638
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA Insd) ................................... 6.200 09/01/18 3,195,570
</TABLE>

7 See Notes to Financial Statements

Portfolio of Investments (Continued)

December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
Par
Amount Market
(000) Description Coupon Maturity Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (Continued)
$ 220 Concord, CA Redev Agy Tax Alloc Cent Concord Redev Proj Ser 3 (MBIA Insd)... 8.000% 07/01/18 $ 243,624
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 11,466,106
2,595 Contra Costa Cnty, CA Santn Dist No 7A Ctfs Partn Sub-Delta Diablo Fin Corp
(Prerefunded @ 12/01/98) (MBIA Insd) ....................................... 7.600 12/01/08 2,904,765
1,000 Corona Norco, CA Unified Sch Dist Lease Rev Partn Insd Land Acquis Ser A
(FSA Insd) ................................................................. 6.000 04/15/19 1,043,200
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs Partn Fac Refin (FGIC Insd) ............... 6.300 09/01/12 1,338,237
425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC Insd) ............................. 6.700 08/01/21 514,956
5,675 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent for the Arts Rfdg (AMBAC
Insd) ...................................................................... * 09/01/17 1,506,769
6,500 Grossmont, CA Union High Sch Dist Ctfs Partn (MBIA Insd) ................... * 11/15/21 1,218,165
1,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark Proj (FSA Insd) ............. 6.500 11/01/12 1,100,470
7,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark Proj (FSA Insd) ............. 6.625 11/01/22 7,693,490
500 Long Beach, CA Redev Agy Downtown Redev Proj Ser A (Prerefunded @ 11/01/98)
(AMBAC Insd) ............................................................... 7.750 11/01/10 560,325
3,500 Los Angeles Cnty, CA Cap Asset Lease Corp Leasehold Rev Rfdg (AMBAC Insd)... 6.000 12/01/16 3,673,495
3,000 Los Angeles, CA Cmnty Redev Agy Ser H Tax Alloc Bunker Hill Rfdg (FSA Insd). 6.500 12/01/14 3,285,270
1,830 Los Angeles, CA Ser A (FGIC Insd) .......................................... 6.125 09/01/13 1,946,370
6,420 Los Angeles, CA Unified Sch Dist Ctfs Partn Multi Ppty Proj Rfdg (FSA Insd). 5.625 11/01/13 6,420,000
3,500 Madera Cnty, CA Ctfs Partn Vly Children's Hosp (MBIA Insd) ................. 6.125 03/15/23 3,706,465
7,500 Manteca, CA Redev Agy Tax Alloc Redev Proj No 1 Ser A Rfdg (MBIA Insd)...... 6.700 10/01/21 8,277,675
1,000 Martinez, CA Ctfs Partn Martinez Pub Impt Corp (Prerefunded @ 12/01/98)
(AMBAC Insd) ............................................................... 7.700 12/01/18 1,131,040
1,290 Martinez, CA Unified Sch Dist Guar Ctfs Elig Rfdg (Cap Guar Insd) .......... 6.000 08/01/09 1,356,048
1,315 Mountain View, CA Ctfs Partn (MBIA Insd) ................................... 6.000 10/01/16 1,383,459
2,000 MSR Pub Pwr Agy CA San Juan Proj Rev Ser F Rfdg (AMBAC Insd) ............... 6.000 07/01/20 2,098,160
2,755 New Haven, CA Unified Sch Dist Cap Apprec Ser D (AMBAC Insd) ............... * 08/01/12 1,082,715
13,610 Norco, CA Redev Agy Tax Alloc Norco Redev Proj Area No 1 Rfdg (MBIA Insd)... 6.250 03/01/19 14,475,324
1,500 North City West, CA Sch Fac Fin Auth Spl Tax Ser B Rfdg (Cap Guar Insd) .... 6.000 09/01/19 1,588,050
4,885 Ontario, CA Redev Fin Auth Rev Proj No 1 Cent City Cimarron Proj (AMBAC
Insd) ...................................................................... 6.250 08/01/15 5,181,861
2,860 Orange Cnty, CA Ctfs Partn Juvenile Justice Cent Fac Rfdg (AMBAC Insd) ..... 6.000 06/01/17 2,958,127
6,220 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ............................ 6.000 06/01/10 6,660,687
2,760 Palmdale, CA Civic Auth Rev Merged Redev Proj Areas Ser A (MBIA Insd) ...... 6.000 09/01/15 3,056,838
2,450 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) .............................. 6.250 08/01/11 2,630,663
2,600 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) .............................. 6.250 08/01/12 2,783,274
2,765 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) .............................. 6.250 08/01/13 2,963,499
2,935 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) .............................. 6.250 08/01/14 3,145,704
3,120 Paramount, CA Redev Agy Tax Alloc (MBIA Insd) .............................. 6.250 08/01/15 3,339,929
2,180 Petaluma, CA City Jt Union High Sch Dist (Prerefunded @ 08/01/01) (FGIC
Insd) ...................................................................... * 08/01/18 506,152
2,500 Pomona, CA Pub Fin Auth Rev Ser H (Cap Mac Insd) ........................... 5.750 02/01/20 2,556,500
3,200 Rancho, CA Wtr Dist Fin Auth Rev Rfdg (FGIC Insd) .......................... 5.900 11/01/15 3,371,296
1,400 Reedley, CA Pub Fin Auth Lease Rev Wastewtr Treatment Plant Proj (AMBAC
Insd) ...................................................................... 6.050 05/01/15 1,470,392
1,200 Riverside, CA Redev Agy Tax Alloc Casa Blanca Proj Ser A Rfdg (MBIA Insd)
............................................................................ 5.625 08/01/23 1,212,132
4,000 Sacramento, CA Muni Util Dist Elec Rev Ser A Rfdg (MBIA Insd) .............. 5.750 08/15/13 4,109,320
</TABLE>

8 See Notes to Financial Statements

Portfolio of Investments (Continued)

Colorado 4.2%
12,750 Colorado Hlth Fac Auth Rev PSL Hlth Sys Proj Ser A (FSA Insd) ............... 7.250 02/15/16 14,706,870
2,090 Colorado Hlth Fac Auth Rev Sisters of Charity Hlth Care Ser A (MBIA Insd).... 6.000 05/15/13 2,157,047
1,000 Colorado Wtr Res & Pwr Dev Auth Small Wtr Res Rev Ser A (Prerefunded @
11/01/00) (FGIC Insd) ....................................................... 7.400 11/01/10 1,141,080
9,840 El Paso Cnty, CO Sch Dist No 49 Falcon (MBIA Insd) <F2> ..................... 6.500 12/01/15 11,070,197
2,000 Highlands Ranch, CO Metro Dist 2 Rfdg (AMBAC Insd) <F2> ..................... 5.000 06/15/16 1,849,820
10 Jefferson Cnty, CO Single Family Mtg Rev Ser A Rfdg (MBIA Insd) ............. 8.875 10/01/13 10,968
4,500 Mesa Cnty, CO (AMBAC Insd) .................................................. 5.000 10/15/08 4,489,155
1,500 Moffat Cnty, CO Pollutn Ctl Rev Tri-State Generation & Transmission
(AMBAC Insd) ................................................................ 6.125 01/01/07 1,503,075
1,000 Moffat Cnty, CO Pollutn Ctl Rev Tri-State Generation & Transmission
(Prerefunded @ 02/01/96) (AMBAC Insd) ....................................... 6.125 01/01/07 1,000,160
2,050 Thornton, CO Rfdg (FGIC Insd) ............................................... * 12/01/11 889,946
1,550 Thornton, CO Rfdg (FGIC Insd) ............................................... * 12/01/15 538,067
9,000 University of CO Hosp Auth Hosp Rev Ser A (AMBAC Insd) ...................... 6.250 11/15/12 9,718,020
8,600 University of CO Hosp Auth Hosp Rev Ser A (AMBAC Insd) ...................... 6.400 11/15/22 9,261,254
2,000 Westminster, CO Wtr & Wastewtr Util Enterprise Rev (AMBAC Insd) ............. 6.250 12/01/14 2,160,900
-------------
60,496,559
-------------

District of Columbia 0.0%
250 District of Columbia Ser B Rfdg (MBIA Insd) ................................. * 06/01/04 163,985
-------------

Florida 6.0%
4,125 Dade Cnty, FL Aviation Rev Miami Intl Arpt Ser C (MBIA Insd) ................ 5.750 10/01/25 4,258,114
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd) ............................ 8.000 10/01/03 1,247,754
690 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd) ............................ 8.000 10/01/04 863,956
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd) ............................ 8.000 10/01/05 1,490,045
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd) ............................ 8.000 10/01/06 1,622,552
1,375 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd) ............................ 8.000 10/01/07 1,767,067
2,095 Dade Cnty, FL Util Pub Impt Rfdg (FGIC Insd) ................................ 12.000 10/01/04 3,200,678
13,000 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC Insd) ................................. 5.750 10/01/22 13,419,510
285 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev Ser C (FGIC Insd) ......... 7.650 09/01/10 305,811
1,090 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev Ser C (FGIC Insd) ......... 7.700 09/01/24 1,167,325
</TABLE>

9 See Notes to Financial Statements

Portfolio of Investments (Continued)

Georgia 4.1%
1,250 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention Cent (MBIA Insd) ......... 6.250 12/01/08 1,388,888
1,750 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention Cent (MBIA Insd) ......... 6.250 12/01/17 1,870,103
6,500 Georgia Muni Elec Auth Pwr Rev Genl Ser B (MBIA Insd) ...................... * 01/01/07 3,836,690
4,750 Georgia Muni Elec Auth Pwr Rev Genl Ser B (MBIA Insd) ...................... * 01/01/08 2,637,770
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 9,389,755
10,000 Monroe Cnty, GA Dev Auth Pollutn Ctl Rev GA Pwr Co Scherer 3rd Ser (AMBAC
Insd) ...................................................................... 6.000 07/01/25 10,306,100
15,550 Municipal Elec Auth GA Spl Oblig 5th Crossover Ser Proj One (AMBAC Insd) ... 6.400 01/01/13 17,763,231
10,000 Municipal Elec Auth GA Spl Oblig 5th Crossover Ser Proj One (MBIA Insd) .... 6.500 01/01/17 11,670,800
-------------
58,863,337
-------------

Hawaii 1.0%
12,785 Hawaii St Arpt Sys Rev Ser 1993 Rfdg (MBIA Insd) ........................... 6.400 07/01/08 14,426,466
-------------

Illinois 10.4%
1,000 Berwyn, IL (MBIA Insd) ..................................................... 7.000 11/15/10 1,122,320
875 Chicago, IL Pub Bldg Comm Bldg Rev Cmnty College Dist No 508-B (BIGI Insd).. 8.750 01/01/07 963,567
9,000 Chicago, IL (AMBAC Insd) <F2> .............................................. 5.500 01/01/18 9,016,740
2,720 Chicago, IL Pub Bldg Comm Bldg Rev Chicago Transit Auth (AMBAC Insd) ....... 6.600 01/01/15 3,005,981
3,480 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA Insd) ....................... * 01/01/06 2,148,587
3,105 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA Insd) ....................... * 01/01/07 1,801,552
1,000 Chicago, IL Wastewtr Transmission Rev (Prerefunded @ 01/01/03) (FGIC Insd).. 6.300 01/01/12 1,126,280
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn (FGIC Insd) ..... 8.400 01/01/01 1,178,790
5,550 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn (FGIC Insd) ..... 8.750 01/01/03 6,923,625
8,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn (FGIC Insd) ..... 8.750 01/01/04 10,737,094
2,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn (FGIC Insd) ..... 8.750 01/01/05 3,167,914
3,500 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn (FGIC Insd) ..... 8.750 01/01/07 4,630,500
3,000 Cook Cnty, IL Cmnty Cons Sch Dist No 054 Schaumburg Twp Ser B (FGIC Insd)... * 01/01/10 1,323,180
10,000 Cook Cnty, IL Cmnty Cons Sch Dist No 054 Schaumburg Twp Ser B (FGIC Insd)... * 01/01/11 4,089,400
</TABLE>

10 See Notes to Financial Statements

Portfolio of Investments (Continued)

Indiana 2.0%
2,000 Indiana Bond Bank Spl Pgm Ser A (AMBAC Insd) .................................. 9.750 08/01/09 2,742,960
3,840 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps of IN (MBIA Insd) .............. 7.000 07/01/21 4,292,736
3,555 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps Proj (AMBAC Insd) <F2> ......... 5.600 05/15/14 3,559,479
8,500 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps Proj (AMBAC Insd) <F2> ......... 5.700 05/15/22 8,593,500
1,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps Proj (MBIA Insd) ............... 6.850 07/01/22 1,100,620
5,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps Proj Rfdg & Impt (MBIA Insd) ... 6.400 05/01/12 5,368,400
1,000 Marion Cnty, IN Convention & Recreational Fac Auth Excise Tax Rev Lease Rental
Ser A (AMBAC Insd) ............................................................ 7.000 06/01/21 1,124,720
1,000 Saint Joseph Cnty, IN Hosp Auth Hosp Fac Rev Mem Hosp South Bend Proj (MBIA
Insd) ......................................................................... 6.250 08/15/12 1,066,850
1,000 Saint Joseph Cnty, IN Hosp Auth Hosp Fac Rev Mem Hosp South Bend Ser A Rfdg
(MBIA Insd) ................................................................... 7.000 08/15/20 1,120,240
-------------
28,969,505
-------------
Kansas 3.3%
38,750 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co Proj Rfdg
(MBIA Insd) <F3> .............................................................. 7.000 06/01/31 43,942,112
2,015 Harvey Cnty, KS Unified Sch Dist (AMBAC Insd) <F2> ............................ 5.000 09/01/16 1,972,907
1,700 Kansas St Dev Fin Brd (AMBAC Insd) ............................................ 5.500 12/01/15 1,705,083
-------------
47,620,102
-------------

Kentucky 0.0%
80 Kentucky Cntys Single Family Mtg Presbyterian Homes Ser A Rfdg
(MBIA Insd) ................................................................... 8.625 09/01/15 85,474
-------------
</TABLE>

11 See Notes to Financial Statements

Portfolio of Investments (Continued)

Maine 0.3%
2,750 Easton, ME Indl Dev McCain Food Inc Proj Ser 1985 (AMBAC Insd) ................. 9.200 08/01/99 2,756,380
1,750 Maine Hlth & Higher Edl Fac Auth Rev Ser B (FSA Insd) .......................... 7.100 07/01/14 2,013,883
------------
4,770,263
------------

Maryland 0.0%
195 Baltimore, MD Ctfs Partn Ser C Rfdg (MBIA Insd) ................................ 7.200 04/01/10 218,757
55 Baltimore, MD Ctfs Partn Ser C Rfdg (Prerefunded @ 04/01/00) (MBIA Insd)........ 7.200 04/01/10 62,401
40 Maryland St Hlth & High Edl Fac Auth Rev North Arundel Hosp Issue
(Prerefunded @ 07/01/98) (MBIA Insd) ........................................... 7.875 07/01/21 44,436
------------
325,594
------------

Massachusetts 1.3%
4,975 Massachusetts St Hlth & Edl Fac Auth Rev Emerson Hosp Issue Ser D Rfdg
(FSA Insd) ..................................................................... 5.700 08/15/12 5,121,812
4,000 Massachusetts St Hlth & Edl Fac Auth Rev Emerson Hosp Issue Ser D Rfdg
(AMBAC Insd) ................................................................... 5.800 08/15/18 4,100,600
1,700 Massachusetts St Hlth & Edl Fac Auth Rev Mt Auburn Hosp Ser B1 (MBIA Insd ...... 6.250 08/15/14 1,823,386
4,000 Massachusetts St Hlth & Edl Fac Auth Rev Newton-Wellesley Hosp Issue Ser C
(MBIA Insd) .................................................................... 8.000 07/01/18 4,455,400
2,000 Massachusetts St Hlth & Edl Fac Auth Rev Newton-Wellesley Hosp Issue Ser
E (MBIA Insd) .................................................................. 5.875 07/01/15 2,107,820
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Univ Hosp Ser C (MBIA Insd) ........... 7.250 07/01/19 1,121,500
------------
18,730,518
------------
Michigan 3.2%
2,325 Bay City, MI (AMBAC Insd) ...................................................... * 06/01/15 824,910
1,000 Bay City, MI (AMBAC Insd) ...................................................... * 06/01/16 333,030
3,605 Detroit, MI Sewage Disp Rev Ser B Rfdg (MBIA Insd) ............................. 5.250 07/01/21 3,557,594
3,000 Detroit, MI Sewage Disp Rev Wtr Supply Sys Ser A (MBIA Insd) ................... 5.000 07/01/25 2,890,260
1,450 Detroit, MI Wtr Supply Sys Rev 2nd Lein Ser A (MBIA Insd) ...................... 5.200 07/01/08 1,489,629
500 Kalkaska, MI Pub Schs (AMBAC Insd) ............................................. * 05/01/15 178,355
14,750 Livonia, MI Pub Sch Dist Ser II (FGIC Insd) .................................... * 05/01/14 5,238,905
21,000 Livonia, MI Pub Sch Dist Ser II (FGIC Insd) .................................... * 05/01/21 4,539,990
17,125 Michigan Pub Pwr Agy Rev Belle River Proj Ser A Rfdg (MBIA Insd) ............... 5.250 01/01/18 16,937,824
2,500 Michigan St Hosp Fin Auth Rev Hosp Port Huron Hosp Oblig Rfdg (FSA Insd) ....... 5.375 07/01/12 2,513,850
1,535 Michigan St Hosp Fin Auth Rev Hosp Port Huron Hosp Oblig Rfdg (FSA Insd) ....... 5.500 07/01/15 1,530,441
2,000 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B (Embedded Swap) (AMBAC Insd) ..... 4.850 04/01/04 1,930,100
1,100 Milan, MI Area Schs (AMBAC Insd) ............................................... 5.000 05/01/10 1,086,085
5,000 Mount Clemens, MI Cmnty Sch Dist Cap Apprec (Prerefunded @ 05/01/07)
(MBIA Insd) .................................................................... * 05/01/17 1,425,700
</TABLE>

12 See Notes to Financial Statements

Portfolio of Investments (Continued)

Minnesota 1.4%
1,000 Brainerd, MN Rev Evangelical Lutheran Ser B Rfdg (Cap Guar Insd) .............. 6.650 03/01/17 1,106,710
5,600 Minneapolis-St Paul, MN Hsg & Redev Auth Hlth Care Sys Rev Health One
Ser A (MBIA Insd) ............................................................. 7.400 08/15/11 6,325,984
3,215 Minnesota St Hsg Fin Agy Rental Hsg Ser D (MBIA Insd) ......................... 5.800 08/01/11 3,278,046
3,000 Minnesota St Hsg Fin Agy Rental Hsg Ser D (MBIA Insd) ......................... 5.900 08/01/15 3,063,480
1,500 Minnesota St Hsg Fin Agy Rental Hsg Ser D (MBIA Insd) ......................... 6.000 02/01/22 1,526,655
5,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser B (FGIC Insd) ................. 5.000 01/01/13 4,940,800
------------
20,241,675
------------

Mississippi 0.2%
1,000 Alcorn Cnty Corinth, MS Hosp Rev Magnolia Regl Hlth Cent Rfdg
(AMBAC Insd) .................................................................. 5.750 10/01/13 1,042,910
1,000 Harrison Cnty, MS Wastewtr Mgmt Dist Rev Wastewtr Treatment Fac Ser A
Rfdg (FGIC Insd) .............................................................. 8.500 02/01/13 1,379,710
------------
2,422,620
------------
Missouri 2.5%
2,700 Central MO St Univ Rev Hsg Sys (Prerefunded @ 07/01/01) (MBIA Insd) ........... 7.000 07/01/14 3,105,351
4,760 Green Cnty, MO Single Family Mtg Rev (AMBAC Insd) ............................. * 12/01/16 611,565
420 Jackson Cnty, MO Pub Fac Auth Insd Leasehold Rev Cap Impt Proj Rfdg &
Impt (MBIA Insd) .............................................................. 6.125 12/01/15 446,048
1,090 Jackson Cnty, MO Single Family Mtg Rev Tax Exempt Multiplier Bond (MBIA
Insd) ......................................................................... * 12/01/16 140,043
2,250 Kansas City, MO Muni Assistance Corp Rev Leasehold H Roe Bartle Ser B1
Rfdg (AMBAC Insd) ............................................................. 7.125 04/15/16 2,548,350
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 2,435,821
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 2,670,446
5,650 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev SSM Hlth Care Proj Rfdg
(MBIA Insd) ................................................................... 6.250 06/01/16 6,008,606
9,250 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev SSM Hlth Care Proj Rfdg
(Prerefunded @ 06/01/98) (MBIA Insd) .......................................... 7.750 06/01/16 10,222,267
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 1,157,830
670 Saint Louis Cnty, MO Single Family Mtg Rev (AMBAC Insd) ....................... 9.250 10/01/16 723,754
1,550 Saint Louis, MO Muni Fin Corp Leasehold Rev Rfdg & Impt (FGIC Insd) ........... 6.250 02/15/12 1,678,402
2,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd) ........................................ 6.200 06/01/10 2,249,940
1,000 Springfield, MO Sch Dist No R12 Ser B Rfdg (FGIC Insd) ........................ 9.500 03/01/07 1,394,790
------------
35,393,213
------------
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 1,412,988
1,500 Douglas Cnty, NE Hosp Auth No 1 Rev Immanuel Med Cent Inc Rfdg (AMBAC Insd).... 7.000 09/01/21 1,691,745
------------
3,104,733
------------

Nevada 0.9%
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj C Rfdg (AMBAC Insd) ................ 7.200 10/01/22 2,289,860
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 3,684,788
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 5,587,745
3,720 Washoe Cnty, NV Rfdg & Impt (MBIA Insd) ....................................... * 07/01/07 2,086,362
------------
13,648,755
------------

</TABLE>
13 See Notes to Financial Statements

Portfolio of Investments (Continued)

New Jersey 3.3%
1,950 Camden Cnty, NJ Muni Util Auth Swr Rev (FGIC Insd) ............................ 8.250 12/01/17 2,135,426
5,500 Howell Twp, NJ Rfdg (FGIC Insd) ............................................... 6.800 01/01/14 6,161,485
3,625 Morristown, NJ Rfdg (FSA Insd) ................................................ 6.400 08/01/14 4,019,037
3,940 New Jersey St Hsg & Mtg Fin Agy Rev Home Mtg Ser B (MBIA Insd) ................ 8.100 10/01/17 4,209,220
22,500 New Jersey St Tran Trust Fund Auth Tran Sys Ser A Rfdg (MBIA Insd) ............ 5.500 06/15/11 23,145,300
3,250 Pleasantville, NJ Sch Dist Ctfs Partn Rfdg (MBIA Insd) ........................ 5.500 10/01/13 3,344,770
2,000 Port Auth NY & NJ Cons 102nd Ser (MBIA Insd) .................................. 5.625 10/15/17 2,020,540
2,250 Sussex Cnty, NJ Muni Util Auth Solid Waste Rev Ser A (Prerefunded @
12/01/98) (MBIA Insd) ......................................................... 7.875 12/01/13 2,531,520
------------
47,567,298
------------

New Mexico 0.1%
100 Farmington, NM Util Sys Rev (Prerefunded @ 05/15/96) (FGIC Insd) .............. 9.750 05/15/13 104,286
1,300 Santa Fe, NM Util Rev Ser A Rfdg (AMBAC Insd) ................................. 5.250 06/01/17 1,287,572
------------
1,391,858
------------
New York 5.4%
4,350 New York City Indl Dev Agy Civic Fac Rev USTA Natl Tennis Cent Proj (FSA Insd). 6.375 11/15/14 4,746,720
3,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser B (MBIA Insd) ........... 5.500 06/15/25 3,007,590
1,000 New York City Ser A (Prerefunded @ 11/01/97) (AMBAC Insd) ..................... 8.500 11/01/12 1,098,330
2,000 New York City Ser B (MBIA Insd) ............................................... 6.950 08/15/12 2,293,360
50 New York City Ser C Subser C1 (MBIA Insd) ..................................... 6.250 08/01/09 54,261
1,500 New York City Ser E Rfdg (MBIA Insd) .......................................... 6.200 08/01/08 1,673,280
5,000 New York St Dorm Auth Rev City Univ Sys 3rd Resolution (AMBAC Insd) ........... 6.250 07/01/18 5,401,900
2,365 New York St Dorm Auth Rev City Univ Sys 3rd Resolution Ser 1 (AMBAC Insd)
............................................................................... 6.250 07/01/16 2,563,069
3,950 New York St Dorm Auth Rev City Univ Sys Ser C (FGIC Insd) ..................... 7.000 07/01/14 4,409,029
1,500 New York St Dorm Auth Rev March of Dimes Fndtn (Prerefunded @ 07/01/97)
(AMBAC Insd) .................................................................. 9.200 07/01/12 1,647,660
675 New York St Med Care Fac Fin Agy Rev IBC Mental Hlth Svcs Ser A (MBIA Insd).... 7.750 08/15/10 769,223
1,000 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Ser E (Cap Guar Insd).... 6.500 08/15/15 1,104,060
5,000 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Ser F Rfdg (MBIA Insd)... 5.250 02/15/19 4,872,300
28,535 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg Ser A (AMBAC Insd)............ 6.750 08/15/14 32,599,811
3,000 New York St Med Care Fac Fin Agy Rev Presbyterian Hosp Ser A Rfdg (MBIA Insd).. 5.375 02/15/25 2,969,280
3,400 New York St Muni Bond Bank Agy Spl Pgm Rev Rochester Ser A (MBIA Insd)......... 6.625 03/15/06 3,739,456
1,500 New York St Twy Auth Hwy & Brdg Trust Fund Ser B (FGIC Insd) .................. 6.000 04/01/14 1,582,710
3,500 New York St Urban Dev Corp Rev Correctional Fac Rfdg (AMBAC Insd) ............. 5.250 01/01/18 3,461,745
------------
77,993,784
------------

North Carolina 1.0%
7,200 Charlotte, NC Ctfs Partn Convention Fac Proj Ser C Rfdg (AMBAC Insd) .......... 5.250 12/01/20 7,086,600
1,250 Franklin Cnty, NC Ctfs Partn Jail & Sch Projs (FGIC Insd) ..................... 6.625 06/01/14 1,398,700
500 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev Ser A (AMBAC Insd) .............. 12.900 01/01/97 545,465
5,000 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev Ser A Rfdg (AMBAC Insd)...... 5.375 01/01/20 4,973,300
------------
14,004,065
------------
North Dakota 0.4%
5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope Vly Station Rfdg (AMBAC Insd) ........ 7.200 06/30/13 6,229,450
------------
</TABLE>

14 See Notes to Financial Statements

Portfolio of Investments (Continued)

Oklahoma 0.8%
1,385 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA Insd) ......................... 5.250 12/01/16 1,371,925
655 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA Insd) ......................... 5.250 12/01/19 644,887
1,760 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA Insd) ......................... 5.250 12/01/20 1,732,280
1,865 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (AMBAC Insd) ....................... 5.250 12/01/21 1,842,788
1,000 Norman, OK Regl Hosp Auth Hosp Rev (MBIA Insd) ................................ 6.900 09/01/21 1,111,790
4,240 Oklahoma Hsg Fin Agy Single Family Rev Mtg Ser A (MBIA Insd) .................. 7.200 03/01/11 4,557,491
500 Tulsa, OK Arpts Impt Trust Genl Rev (MBIA Insd) ............................... 7.500 06/01/08 535,210
------------
11,796,371
------------

Oregon 0.8%
1,000 Ontario, OR Catholic Hlth Corp Hosp Fac Auth Hlth Fac Rev
Holy Rosary Med Ser C Rfdg (MBIA Insd) ........................................ 5.500 11/15/12 1,023,150
2,000 Oregon Hlth Sciences Univ Rev Ser A (MBIA Insd) <F2> ...............,.......... 5.250 07/01/25 1,974,860
7,000 Oregon Hlth Sciences Univ Rev Ser B (MBIA Insd) <F2> .......................... 5.250 07/01/15 6,945,120
1,000 Wasco Cnty, OR Vets Home (FSA Insd) ........................................... 6.200 06/01/13 1,081,830
------------
11,024,960
------------
Pennsylvania 2.6%
1,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Ohio Edison Co
Mansfield Rfdg (FGIC Insd) .................................................... 7.100 06/01/18 1,108,310
500 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Ohio Edison Proj Ser A
Rfdg (FGIC Insd) .............................................................. 7.750 09/01/24 560,260
2,000 Dauphin Cnty, PA Genl Auth Hosp Rev Hapsco Phoenixville Hosp Proj
Ser B (FGIC Insd) ............................................................. 6.125 07/01/10 2,139,480
5,250 Delaware River Port Auth PA (AMBAC Insd) ...................................... 5.500 01/01/26 5,293,628
1,000 Emmaus, PA Genl Auth Rev Var Loc Govt Bond Pool Pgm Ser B Var Rate
Cpn (BIGI Insd) ............................................................... 8.000 05/15/18 1,098,770
2,050 Harrisburg, PA Redev Auth Rev Cap Impt Ser A (FGIC Insd) ...................... 7.875 11/02/16 2,232,266
1,000 Lehigh Cnty, PA Indl Dev Auth Pollutn Ctl Rev PA Pwr & Lt Co Proj
Ser A Rfdg (MBIA Insd) ........................................................ 6.400 11/01/21 1,075,420
3,750 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn Ctl Ser E Rfdg (MBIA
Insd) ......................................................................... 6.700 12/01/21 4,140,300
1,300 New Kensington Arnold, PA (AMBAC Insd) <F2> ................................... 5.375 05/15/20 1,294,670
1,000 Northeastern PA Hosp & Edl Auth College Rev Gtd Luzerne Cnty Cmnty
College (AMBAC Insd) .......................................................... 6.625 08/15/15 1,122,920
6,875 Pennsylvania St Ctfs Partn Ser A Rfdg (AMBAC Insd) ............................ 5.250 07/01/11 6,897,962
2,250 Philadelphia, PA Gas Wks Rev 14th Ser A Rfdg (FSA Insd) ....................... 6.375 07/01/14 2,443,905
2,250 Philadelphia, PA Sch Dist Ser B (AMBAC Insd) .................................. 5.500 09/01/15 2,258,460

15 See Notes to Financial Statements
</TABLE>

Portfolio of Investments (Continued)

Rhode Island 1.7%
500 Rhode Island Depositors Econ Protection Corp Spl Oblig Ser A
(Prerefunded @ 08/01/02) (FSA Insd) .......................................... 6.625 08/01/19 572,375
2,000 Rhode Island St Hlth & Edl Bldg Corp Rev Higher Edl Fac Roger Williams
(Connie Lee Insd) ............................................................ 7.250 11/15/24 2,302,180
18,000 Rhode Island St Hlth & Edl Bldg Corp Rev RI Hosp (Inverse Fltg) (FGIC
Insd) <F3> ................................................................... 9.911 08/15/21 21,285,000
------------
24,159,555
------------

South Carolina 1.2%
1,000 Charleston Cnty, SC Ctfs Partn Charleston Pub Fac Corp (Prerefunded @
06/01/01) (MBIA Insd) ........................................................ 7.100 06/01/11 1,153,130
1,500 Charleston Cnty, SC Ctfs Partn Ser B (MBIA Insd) ............................. 6.875 06/01/14 1,716,135
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 3,417,810
1,000 Greenville, SC Hosp Sys Hosp Fac Rev Ser A (Prerefunded @ 05/01/98)
(FGIC Insd) .................................................................. 7.800 05/01/15 1,103,380
1,000 Marion Cnty, SC Hosp Dist (AMBAC Insd) ....................................... 5.500 11/01/10 1,000,780
2,000 Marion Cnty, SC Hosp Dist (AMBAC Insd) ....................................... 5.375 11/01/25 1,914,020
400 Rock Hill, SC Util Sys Rev (Prerefunded @ 01/01/98) (FGIC Insd) .............. 8.000 01/01/18 438,664
635 Saint Andrews, SC Pub Svcs Dist Swr Sys Rev (FGIC Insd) ...................... 7.750 01/01/18 690,061
5,750 South Carolina Jobs Econ Dev Auth Hosp Fac Rev Tuomey Regl Med Cent
Ser A (MBIA Insd) <F2> ....................................................... 5.750 11/01/15 5,896,050
------------
17,330,030
------------

South Dakota 0.8%
5,205 South Dakota St Lease Rev Trust Ctfs Ser A (Cap Guar Insd) ................... 6.625 09/01/12 6,066,271
4,000 South Dakota St Lease Rev Trust Ctfs Ser A (Cap Guar Insd) ................... 6.700 09/01/17 4,771,240
------------
10,837,511
------------

Tennessee 0.4%
2,000 Chattanooga-Hamilton Cnty, TN Hosp Auth Hosp Rev Erlanger
Med Cent Ser B (Inverse Fltg) (Prerefunded @ 05/01/01) (FSA Insd) ............ 9.774 05/25/21 2,542,500
3,320 Johnson City, TN Sch Sales Tax (AMBAC Insd) .................................. 6.700 05/01/18 3,746,720
------------
6,289,220
------------

Texas 6.6%
3,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains Baptist Hosp
(Inverse Fltg) (FSA Insd) ................................................... 8.683 01/01/22 3,442,500
1,000 Austin, TX Util Sys Rev (Prerefunded @ 05/15/02) (BIGI Insd) ................ 8.625 11/15/12 1,236,420
12,500 Austin, TX Util Sys Rev Ser A Rfdg (MBIA Insd) .............................. * 11/15/10 5,698,625
2,300 Brazoria Cnty, TX Hlth Fac Dev Corp Hosp Rev Brazosport Mem Hosp Rfdg
(FSA Insd) .................................................................. 5.500 07/01/13 2,339,146
6,500 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co (MBIA Insd) ............... 5.800 08/01/15 6,618,755
9,000 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co Proj B Rfdg (MBIA Insd).... 8.250 05/01/15 9,973,980
6,515 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co Proj C Rfdg (MBIA Insd).... 8.100 05/01/19 7,198,489
</TABLE>

16 See Notes to Financial Statements

Portfolio of Investments (Continued)

Utah 1.5%
5,085 Beaver Cnty, UT Sch Dist (Prerefunded @ 11/01/02) (AMBAC Insd) ............... 6.625 11/01/12 5,765,831
3,000 Payson City, UT Cnty UT Elec Pwr Rev (MBIA Insd) ............................. 8.000 08/15/03 3,296,850
750 Provo, UT Elec Rev 1984 Ser A Rfdg (AMBAC Insd) .............................. 10.375 09/15/15 1,104,555
3,500 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg (Inverse Fltg) (AMBAC Insd)..... 9.261 05/15/20 4,086,250
500 Uintah Cnty, UT Pollutn Ctl Rev Natl Rural Util Deseret Ser 1984 F
(Prerefunded @ 06/15/01) (AMBAC Insd) ........................................ 10.000 06/15/09 637,670
7,385 Utah St Muni Fin Coop Local Govt Rev Pool Cap Salt Lake (FSA Insd) ........... * 03/01/09 3,702,987
3,115 West Jordan, UT Multi-Family Rev Broadmoor Village Apts Proj Ser A Rfdg
(FSA Insd) ................................................................... 6.800 01/01/15 3,310,902
------------
21,905,045
------------
Virginia 0.7%
2,315 Chesapeake Bay Brdg & Tunl Comm VA Dist Rev Genl Resolution Rfdg (MBIA
Insd) ........................................................................ 6.375 07/01/22 2,470,059
4,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd) ....................................... 6.800 03/01/14 4,544,280
1,125 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke Mem Hosp Proj (Prerefunded @
07/01/00) (MBIA Insd) ........................................................ 6.500 07/01/25 1,232,629
750 University of VA Hosp Rev Ser C Rfdg (Prerefunded @ 06/01/00) (AMBAC
Insd) <F4> ................................................................... 0/9.375 06/01/07 812,497
1,500 Virginia St Peninsula Regl Jail Auth Regl Jail Fac Rev (MBIA Insd) ........... 5.500 10/01/18 1,506,510
------------
10,565,975
------------
</TABLE>

17 See Notes to Financial Statements

Portfolio of Investments (Continued)

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 1,386,436
------------

Wyoming 0.2%
2,000 Laramie Cnty, WY Hosp Rev Mem Hosp Proj (AMBAC Insd) .......................... 6.700 05/01/12 2,216,500
------------

Puerto Rico 0.8%
1,000 Puerto Rico Comwlth (AMBAC Insd) .............................................. 5.875 07/01/18 1,044,870
7,750 Puerto Rico Comwlth Rfdg (MBIA Insd) .......................................... 5.375 07/01/22 7,789,603
3,000 Puerto Rico Indl Tourist Edl Med & Environmental Ctl Fac Hosp Auxilio
(MBIA Insd).................................................................... 6.250 07/01/16 3,257,520
------------
12,091,993
------------

Total Long-Term Investments 99.7%
(Cost $1,308,250,979) <F1>.................................................................... 1,441,054,168

Short-Term Investments at Amortized Cost 2.3%.................................................. 34,300,000

Liabilities in Excess of Other Assets (2.0%)................................................... (29,568,710)
------------
Net Assets 100%................................................................................ $1,445,785,458
================
*Zero coupon bond

<FN>
<F1> At December 31, 1995, cost for federal income tax purposes is
$1,308,250,979; the aggregate gross unrealized appreciation is $133,596,887
and the aggregate gross unrealized depreciation is $793,698, resulting in
net unrealized appreciation of $132,803,189.

<F2> Securities purchased on a when issued or delayed delivery basis.

<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments.

<F4> Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
</TABLE>

The following table summarizes the portfolio composition at December 31, 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........................... 99.6%
AA............................ 0.2
BBB........................... 0.1
B............................. 0.1
=======
100.0%
=======
</TABLE>

18 See Notes to Financial Statements

Statement of Assets and Liabilities
December 31, 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at Market Value (Cost $1,308,250,979) (Note 1)............................... $ 1,441,054,168
Short-Term Investments (Note 1)........................................................... 34,300,000
Cash...................................................................................... 1,440,794
Receivables:
Investments Sold........................................................................ 24,020,546
Interest................................................................................ 22,992,856
Fund Shares Sold........................................................................ 636,476
Other..................................................................................... 53,765
-----------------
Total Assets......................................................................... 1,524,498,605
-----------------

Liabilities:
Payables:
Investments Purchased................................................................... 73,398,336
Income Distributions.................................................................... 1,934,434
Fund Shares Repurchased ................................................................ 1,164,652
Investment Advisory Fee (Note 2)........................................................ 604,455
Accrued Expenses.......................................................................... 1,611,270
-----------------
Total Liabilities.................................................................... 78,713,147
-----------------
Net Assets................................................................................ $ 1,445,785,458
=================

Net Assets Consist of:
Paid in Surplus (Note 3).................................................................. $ 1,318,535,381
Net Unrealized Appreciation on Investments................................................ 132,803,189
Accumulated Distributions in Excess of Net Investment Income.............................. (50,709)
Accumulated Net Realized Loss on Investments.............................................. (5,502,403)
-----------------
Net Assets................................................................................ $ 1,445,785,458
=================
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $1,365,380,085
and 69,845,771 shares of beneficial interest issued and outstanding) (Note 3)........ $ 19.55
Maximum sales charge (4.75%* of offering price)...................................... .97
-----------------
Maximum offering price to public.......................................................... $ 20.52
=================
Class B Shares:
Net asset value and offering price per share (Based on net assets of $75,278,779 and
3,850,770 shares of beneficial interest issued and outstanding) (Note 3)............. $ 19.55
=================
Class C Shares:
Net asset value and offering price per share (Based on net assets of $5,126,594 and
262,260 shares of beneficial interest issued and outstanding) (Note 3)............... $ 19.55
=================
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>

19 See Notes to Financial Statements

Statement of Operations
For the Year Ended December 31, 1995
- -----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest..................................................................... $ 80,236,681
----------------

Expenses:
Investment Advisory Fee (Note 2)............................................. 5,813,647
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of
$2,809,295, $441,670, $38,605 and $15, respectively) (Note 6) ............... 3,289,585
Shareholder Services (Note 2) ............................................... 1,517,092
Legal (Note 2)............................................................... 68,500
Trustees Fees and Expenses (Note 2).......................................... 38,004
Insurance (Note 1)........................................................... 36,426
Other........................................................................ 801,913
----------------
Total Expenses............................................................... 11,565,167
Less Expenses Reimbursed..................................................... 13,125
----------------
Net Expenses................................................................. 11,552,042
----------------
Net Investment Income........................................................ $ 68,684,639
================

Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales.......................................................... $ 885,555,764
Cost of Securities Sold...................................................... (882,920,002)
----------------
Net Realized Gain on Investments (Including realized loss on futures
transactions of $5,991,342).................................................. 2,635,762
----------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period...................................................... (3,089,839)
End of the Period............................................................ 132,803,189
----------------
Net Unrealized Appreciation on Investments During the Period................. 135,893,028
----------------
Net Realized and Unrealized Gain on Investments.............................. $ 138,528,790
================
Net Increase in Net Assets from Operations................................... $ 207,213,429
================
</TABLE>

20 See Notes to Financial Statements

Statement of Changes in Net Assets
For the Years Ended December 31, 1995 and 1994
- ---------------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income.............................................. $ 68,684,639 $ 68,012,858
Net Realized Gain on Investments................................... 2,635,762 6,340,550
Net Unrealized Appreciation/Depreciation on Investments
During the Period................................................ 135,893,028 (154,941,139)
----------------- -----------------
Change in Net Assets from Operations .............................. 207,213,429 (80,587,731)
----------------- -----------------
Distributions from Net Investment Income*.......................... (68,722,447) (68,248,932)
Distributions in Excess of Net Investment Income* (Note 1)......... (319,378) -0-
----------------- -----------------
Distributions from and in Excess of Net Investment Income*....... (69,041,825) (68,248,932)
----------------- -----------------
Net Change in Net Assets from Investment Activities................ 138,171,604 (148,836,663)
----------------- -----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold.......................................... 373,367,935 145,835,342
Net Asset Value of Shares Issued Through Dividend Reinvestment..... 47,663,019 46,938,996
Cost of Shares Repurchased......................................... (257,166,907) (155,893,379)
----------------- -----------------
Net Change in Net Assets from Capital Transactions................. 163,864,047 36,880,959
----------------- -----------------
Total Increase/Decrease in Net Assets.............................. 302,035,651 (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 $(50,709) and $37,808, respectively).......................... $ 1,445,785,458 $ 1,143,749,807
================= =================
</TABLE>

<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares............................................ $ (66,799,203) $ (66,735,561)
Class B Shares............................................ (2,061,251) (1,291,269)
Class C Shares............................................ (181,333) (222,010)
Class D Shares............................................ (38) (92)
----------------- -----------------
$ (69,041,825) $ (68,248,932)
================= =================
</TABLE>

21 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.
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

Year Ended December 31
-------------------------------------------------
Class A Shares 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period........................................................ $17.572 $19.857 $18.721 $18.478 $17.825
------- ------- ------- ------- -------
Net Investment Income.......................................................... 1.021 1.051 1.107 1.146 1.153
Net Realized and Unrealized
Gain/Loss on Investments.................................................... 1.982 (2.280) 1.145 .561 .681
------- ------- ------- ------- -------
Total from Investment Operations................................................. 3.003 (1.229) 2.252 1.707 1.834
------- ------- ------- ------- -------
Less:
Distributions from and in Excess of
Net Investment Income....................................................... 1.026 1.056 1.116 1.140 1.160
Distributions from Net
Realized Gain on Investments................................................ -0- -0- -0- .324 .021
------- ------- ------- ------- -------
Total Distributions.............................................................. 1.026 1.056 1.116 1.464 1.181
------- ------- ------- ------- -------
Net Asset Value, End of the Period............................................... $19.549 $17.572 $19.857 $18.721 $18.478
======= ======= ======= ======= =======

Total Return..................................................................... 17.49% (6.31%) 12.32% 9.51% 10.62%
Net Assets at End of the Period
(In millions).................................................................. $1,365.4 $1,110.2 $1,230.0 $ 999.9 $ 833.2
Ratio of Expenses to Average
Net Assets (Annualized)........................................................ .88%* .88% .84% .83% .88%
Ratio of Net Investment
Income to Average
Net Assets (Annualized)........................................................ 5.44%* 5.70% 5.69% 6.14% 6.39%
Portfolio Turnover............................................................... 70.12% 48.46% 78.73% 111.90% 113.25%
</TABLE>

* The Ratios of Expenses to Average Net Assets and Net Investment Income to
Average Net Assets were not affected by the assumption of certain expenses
by VKAC.

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.
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
May 1, 1993
(Commencement of
Year Ended Year Ended Distribution) to
Class B Shares December 31, 1995 December 31, 1994 December 31, 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of the Period.......................................... $17.563 $19.824 $19.320
------- ------- -------
Net Investment Income............................................ .890 .899 .619
Net Realized and Unrealized
Gain/Loss on Investments ..................................... 1.978 (2.276) .513
------- ------- -------
Total from Investment Operations................................... 2.868 (1.377) 1.132
Less Distributions from and in Excess of
Net Investment Income............................................ .882 .884 .628
------- ------- -------
Net Asset Value, End of the Period................................. $19.549 $17.563 $19.824
======= ======= =======

Total Return....................................................... 16.67% (7.03%) 5.92%*
Net Assets at End of the Period (In millions)...................... $ 75.3 $ 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).................................. 4.69%** 4.88% 4.25%
Portfolio Turnover................................................. 70.12% 48.46% 78.73%

</TABLE>

* Non-Annualized
** The Ratios of Expenses to Average Net Assets and Net Investment
Income to Average Net Assets were not affected by the assumption
of certain expenses by VKAC.

23 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.
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
August 13, 1993
(Commencement of
Year Ended Year Ended Distribution) to
Class C Shares December 31, 1995 December 31, 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of the Period.................................. $17.568 $19.823 $19.650
------- ------- -------
Net Investment Income.................................... .883 .908 .350
Net Realized and Unrealized
Gain/Loss on Investments............................ 1.979 (2.279) .181
------- ------- -------
Total from Investment Operations........................... 2.862 (1.371) .531
Less Distributions from and in Excess of
Net Investment Income.................................... .882 .884 .358
------- ------- -------
Net Asset Value, End of the Period......................... $19.548 $17.568 $19.823
======= ======= =======

Total Return............................................... 16.60% (6.98%) 2.70%*
Net Assets at End of the Period (In millions).............. $ 5.1 $ 3.5 $ 5.0
Ratio of Expenses to Average Net
Assets (Annualized)...................................... 1.67%** 1.70% 1.68%
Ratio of Net Investment Income to
Average Net Assets (Annualized).......................... 4.68%** 4.89% 4.21%
Portfolio Turnover......................................... 70.12% 48.46% 78.73%

</TABLE>

* Non-Annualized
** The Ratios of Expenses to Average Net Assets and Net Investment Income to
Average Net Assets were not affected by the assumption of certain expenses
by VKAC.

24 See Notes to Financial Statements

Notes to Financial Statements
December 31, 1995
- --------------------------------------------------------------------------------

1. Significant Accounting Policies
Van Kampen American Capital Insured Tax Free Income Fund (the "Fund") is
organized as a series of Van Kampen American Capital Tax-Free Fund (the
"Trust"),a Delaware business trust and is registered as a diversified
open-end management investment company under the Investment Company Act of
1940, as amended. The Fund's investment objective is to provide investors
with a high level of current income exempt from federal income taxes, with
liquidity and safety of principal, primarily through an investment in a
diversified portfolio of insured municipal securities. The Fund commenced
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.

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. 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 aredetermined 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 and Expenses--Interest income and expenses are recorded on
an accrual basis. Bond premium and original issue discount are amortized over
the expected life of each applicable security.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

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 loss and offset such losses against any future realized capital gains.
At December 31, 1995, the Fund had an accumulated capital loss carryforward for
tax purposes of $5,502,403. Of this amount, $91,852, $17,995, $110,103,
$595,553, $319,218 and $4,367,682 will expire on December 31, 1996, 1997, 2000,
2001, 2002 and 2003, respectively. On December 31, 1995, $5,073,610 of the
Fund's capital loss carryforward expired, resulting in a permanent book and tax
basis difference. Accordingly, this difference was reclassified from accumulated
net realized loss on investments to Class A share paid in surplus.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

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. Permanent book and tax basis differences relating to
shareholder distributions totaling $55,897 have been reclassified from
undistributed net investment income to accumulated net realized gain/loss
on investments. For Federal income tax purposes, expenses related to the
production of tax-exempt income do not reduce current earnings and profits,
thus creating permanent book and tax basis differences relating to the
recognition of expenses totaling $31,167. These differences in addition to
permanent differences relating to the recognition of expenses associated
with fund mergers (see note 3) totaling $190,000, have been reclassified
from accumulated undistributed net investment income to paid in surplus.

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 $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>

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 year ended December 31, 1995, the Fund recognized expenses of
approximately $323,700 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management, legal and certain shareholder services (prior to July, 1995)
to the Fund.
In July, 1995, the Fund began using ACCESS Investor Services, Inc., an
affiliate of the Adviser, as the transfer agent of the Fund. For the period
ended December 31, 1995, the Fund recognized expenses of approximately $614,500,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
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 December 31, 1995, was
approximately $53,900.
At December 31, 1995, VKAC owned 100 shares each of Classes B and C.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

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 December 31, 1995, paid in surplus aggregated $1,240,439,855, $72,835,537
and $5,259,989 for Classes A, B and C, respectively. For the year ended December
31, 1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 17,358,362 $ 324,651,466
Class B..................................... 2,506,874 46,741,719
Class C..................................... 105,778 1,974,750
Class D..................................... -0- -0-
------------ -------------
Total Sales.................................... 19,971,014 $ 373,367,935
============ =============

Dividend Reinvestment:
Class A..................................... 2,467,735 $ 46,428,605
Class B..................................... 56,865 1,075,245
Class C..................................... 8,455 159,166
Class D..................................... -0- 3
------------ -------------
Total Dividend Reinvestment.................... 2,533,055 $ 47,663,019
============ =============

Repurchases:
Class A..................................... (13,162,194) $(248,224,027)
Class B..................................... (422,533) (7,986,889)
Class C..................................... (51,141) (953,892)
Class D..................................... (111) (2,099)
------------ -------------
Total Repurchases.............................. (13,635,979) $(257,166,907)
============ =============
</TABLE>

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>

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

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.

<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 year ended December 31, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$601,200 and CDSC on the redeemed shares of Classes B, C and D of approximately
$150,500. Sales charges do not represent expenses of the Fund.
On September 27, 1995, the Fund acquired all of the assets and liabilities of
the Van Kampen American Capital Tax-Exempt Trust-Insured Municipal Portfolio
(the "AC Fund"), through a tax free reorganization approved by AC Fund share
holders on September 21, 1995. The Fund issued 3,513,425 Class A shares,
1,958,037 Class B shares and 73,421 Class C shares valued at $65,701,115,
$36,595,879 and $1,372,231, respectively, in exchange for AC Fund's net assets.
Included in these net assets was a capital loss carryforward of $6,195,557 which
is included in accumulated net realized gain/loss on investments and cumulative
book and tax basis timing differences of $8,395 which is a component of
undistributed net investment income. Shares issued in connection with this
reorganization are included in common share sales for the current period.
Combined net assets on the date of acquisition were $1,236,253,953.

4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the year ended December 31, 1995, were $1,049,348,266 and
$882,920,002, 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.

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.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

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
year ended December 31, 1995, were
as follows:

<TABLE>
<CAPTION>
Contracts
- --------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1994..................................... 735
Futures Opened....................................................... 7,750
Futures Closed....................................................... (8,485)
---------
Outstanding at December 31, 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 .25% of Class A shares and 1.00% each
of Class B and Class C shares are accrued daily. Included in these fees for
the year ended December 31, 1995, are payments to VKAC of approximately
$566,400.

Independent Auditors' Report
- --------------------------------------------------------------------------------

The Board of Trustees and Shareholders of
Van Kampen American Capital Insured Tax Free Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Insured Tax Free Income Fund (the "Fund"), including the
portfolio of investments, as of December 31, 1995, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen American Capital Insured Tax Free Income Fund as of December 31, 1995,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
January 30, 1996

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 adviser 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 American Capital Insured Tax Free Income Fund
- --------------------------------------------------------------------------------

Board of Trustees

J. Miles Branagan
Linda Hutton Heagy
Roger Hilsman
R. Craig Kennedy
Dennis J. McDonnell*
Donald C. Miller - Chairman
Jack E. Nelson
Don G. Powell*
Jerome L. Robinson
Fernando Sisto
Wayne W. Whalen*
William S.Woodside

Officers

Don G. Powell*
President and Chief Executive Officer

Dennis J. McDonnell*
Executive Vice President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Chief Financial Officer

Curtis W. Morell*
Vice President and Chief Accounting Officer

John L. Sullivan*
Treasurer

Tanya M. Loden*
Controller

William N. Brown*
Peter W. Hegel*
Robert C. Peck, Jr.*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents

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

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.

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.

<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders.................. 1
Performance Results..................... 3
Performance Perspective................. 4
Portfolio Management Review............. 5
Portfolio of Investments................ 7
Statement of Assets and Liabilities..... 15
Statement of Operations................. 16
Statement of Changes in Net Assets...... 17
Financial Highlights.................... 18
Notes to Financial Statements........... 21
Independent Auditors' Report............ 27
</TABLE>

Letter to Shareholders

January 24, 1996

Dear Shareholder,
For most investors, it would be hard to surpass the success enjoyed during
1995. The stock and bond markets achieved substantial gains, driven by a
combination of continuing economic growth and low inflation. The strength
of equity and fixed-income securities in 1995 was particularly impressive
because it followed a year in which both markets declined. People who
remained invested during 1995 generally shared in the growth of the markets,
while investors who retreated after 1994's downturn may have missed out on
the double-digit returns.
The rebound in the markets last year reinforces the importance of
maintaining a long-term perspective for your investments. While the
environment for stocks and bonds remains positive, it is unlikely that 1996
will see a repeat of the markets' strong 1995 performance. However, over the
long-term, stocks have outperformed virtually all other types of investments,
and bonds have met the needs of investors who seek capital preservation and
regular income.

[PHOTO]

Dennis J. McDonnell and Don G. Powell

Economic Overview
The U.S. economy grew throughout 1995, though the rate of growth slowed
toward year-end. The gross domestic product (the value of all goods and services
produced in the United States) grew at an annual rate of more than 4.2 percent
in the third quarter of 1995, but slowed to an estimated 2 to 3 percent in the
fourth quarter, with retail and auto sales particularly sluggish. The slower
growth rate eased concerns about a rise in inflation and allowed the Federal
Reserve Board to lower short-term interest rates by a quarter-percentage
point in late December. The reduction in rates during the latter half of 1995
is expected to help generate moderate economic growth in 1996, just as the Fed's
raising of short-term rates in 1994 helped slow economic growth in 1995.
The cut in short-term rates, combined with modest growth forecasts, was viewed
by the financial markets as a positive event, pushing up both stock and bond
prices. For the year ended December 31, 1995, the Standard & Poor's 500-Stock
Index achieved a total return of 37.45 percent. The yield on 10-year Treasury
notes was 5.57 percent on December 31, compared to 7.83 percent at the beginning
of the year. Because bond prices and yields move in opposite directions, bond
prices rose. Many observers expect the Fed to cut rates further if Congress and
the President are able to reach an agreement on the federal budget, provided
economic conditions justify further easing.
With a low inflation, low interest rate environment, corporate earnings
remained quite strong during the year, helping to push stocks to new highs. The
strongest sectors were technology and finance, as these stocks benefited from
the impact of the Internet, telecommunications deregulation and bank mergers.
U.S. companies with global operations also did well, aided by a declining U.S.
dollar.

1 Continued on page two

Economic Outlook

Looking ahead, we are cautiously optimistic. We expect the economy to grow at
a rate of 2 to 3 percent throughout 1996, with growth stronger in the second
half of the year as the full impact of the Fed's rate cuts take effect. Lower
rates will have the greatest impact on interest-sensitive industries, such as
housing. Although inflation appears to be under control, there probably will be
some cyclical upward pressure in 1996.
The current economic conditions are ideal for stocks, especially those of
smaller companies, because they tend to be affected less by economic cycles.
The outlook for the fixed-income market---including municipal bonds--is
positive, too. In the near-term, we believe domestic markets will benefit
from a stable U.S. dollar and increased business activity driven in part by
a number of recently announced strategic reorganizations of some of the
nation's blue chip industry leaders.
During recent months, debate over tax reform and the federal deficit has
dominated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue in
Washington. There has been varied speculation about the impact tax reform could
have on the economy and on various types of investments. We are following the
tax reform debate very closely, and we will keep you updated on this issue
throughout the year. See the winter issue of Your Portfolio for a detailed
discussion of tax reform.
On the following pages, you can read about your Fund's performance in 1995, as
well as the portfolio management team's outlook for the Fund in the coming
months. We hope that you will find this information helpful.

Corporate News
As part of our commitment to helping you achieve your investment goals, Van
Kampen American Capital strives to provide shareholders with the best service
in the mutual fund industry. That is why we are especially pleased to have
received the 1995 Quality Tested Service Seal, which is awarded annually by
DALBAR, Inc., an independent research firm. The Seal, which symbolizes the
achievement of the highest tier of service in the mutual fund industry, was
awarded to American Capital annually from 1990 to 1994 and we are honored
that the service provided by Van Kampen American Capital has achieved the
same level of excellence.

Sincerely,

Don G. Powell Dennis J. McDonnell
Chief Executive Officer President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

<TABLE>
<CAPTION>
Performance Results for the Period Ended December 31, 1995

Van Kampen American Capital Tax Free High Income Fund
- --------------------------------------------------------------------------------
Total Returns A Shares B Shares C Shares
<S> <C> <C> <C>
One-year total return based on NAV<F1>.......... 15.52% 14.62% 14.70%
One-year total return<F2>....................... 10.03% 10.62% 13.70%
Five-year average annual total return<F2>....... 5.64% N/A N/A
Ten-year average annual total return<F2>........ 7.51% N/A N/A
Life-of-Fund average annual total return<F2>.... 7.96% 5.94% 6.01%
Commencement date............................... 06/28/85 05/01/93 08/13/93

Distribution Rates and Yield

Distribution rate<F3>........................... 6.10% 5.65% 5.64%
Taxable equivalent distribution rate<F4>........ 9.53% 8.83% 8.81%
SEC Yield<F5>................................... 4.85% 4.30% 4.30%

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 for A shares or
contingent deferred sales charge for early withdrawal for B and 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 December 30, 1995. Had
certain expenses of the Fund not been assumed by the adviser, the SEC Yield
would have been 4.84%, 4.29% and 4.29% for Classes A, B and C, respectively, and
total returns would have been lower.
</TABLE>

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

Putting Your Fund's Performance in Perspective
- --------------------------------------------------------------------------------

As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:

* Illustrate the general market environment in which your investments are being
managed

* Reflect the impact of favorable market trends or difficult market conditions

* Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Municipal Bond
Index over time. As a broad-based, unmanaged statistical composite, this
index does not reflect any commissions or fees which would be incurred by an
investor purchasing the securities it represents. Similarly, its performance
does not reflect any sales charges or other costs which would be applicable
to an actively managed portfolio, such as that of the Fund.

[GRAPH]

Growth of a Hypothetical $10,000 Investment
Van Kampen American Capital Tax Free High Income Fund vs. Lehman Brothers
Municipal Bond Index (December 1985 through December 1995)

Fund Index

31-Dec-85 9,525.00 10,000.00
31-Jan-86 10,114.90 10,589.00
28-Feb-86 10,625.50 11,009.38
31-Mar-86 10,575.80 11,012.69
30-Apr-86 10,597.00 11,020.39
31-May-86 10,460.90 10,840.76
30-Jun-86 10,523.50 10,944.83
31-Jul-86 10,598.50 11,010.50
31-Aug-86 11,016.70 11,503.77
30-Sep-86 11,086.10 11,532.53
31-Oct-86 11,230.80 11,732.05
30-Nov-86 11,411.00 11,964.34
31-Dec-86 11,581.50 11,930.84
31-Jan-87 11,822.30 12,289.96
28-Feb-87 11,932.10 12,350.18
31-Mar-87 12,056.30 12,219.27
30-Apr-87 11,580.10 11,605.86
31-May-87 11,428.10 11,547.83
30-Jun-87 11,576.30 11,887.34
31-Jul-87 11,703.90 12,008.59
31-Aug-87 11,803.40 12,036.21
30-Sep-87 11,597.60 11,592.07
31-Oct-87 11,404.50 11,633.80
30-Nov-87 11,712.40 11,937.45
31-Dec-87 11,913.60 12,110.54
31-Jan-88 12,114.80 12,541.67
29-Feb-88 12,280.70 12,674.61
31-Mar-88 12,280.40 12,526.32
30-Apr-88 12,264.60 12,621.52
31-May-88 12,233.40 12,584.92
30-Jun-88 12,403.90 12,768.66
31-Jul-88 12,529.00 12,851.66
31-Aug-88 12,623.00 12,861.94
30-Sep-88 12,812.50 13,094.74
31-Oct-88 12,987.70 13,325.21
30-Nov-88 12,971.10 13,203.95
31-Dec-88 13,184.30 13,338.63
31-Jan-89 13,246.87 13,614.74
28-Feb-89 13,180.71 13,459.53
31-Mar-89 13,254.48 13,427.23
30-Apr-89 13,387.23 13,746.79
31-May-89 13,663.45 14,031.35
30-Jun-89 13,957.70 14,222.18
31-Jul-89 14,067.48 14,415.60
31-Aug-89 14,109.73 14,274.33
29-Sep-89 14,117.66 14,231.50
31-Oct-89 14,247.00 14,406.55
30-Nov-89 14,368.70 14,658.67
29-Dec-89 14,464.00 14,778.87
31-Jan-90 14,512.60 14,709.41
28-Feb-90 14,552.70 14,840.32
30-Mar-90 14,592.90 14,844.77
30-Apr-90 14,534.30 14,737.89
31-May-90 14,638.60 15,059.18
30-Jun-90 14,688.80 15,191.70
31-Jul-90 14,794.40 15,415.01
31-Aug-90 14,715.80 15,191.50
28-Sep-90 14,804.20 15,200.61
31-Oct-90 14,790.20 15,477.26
30-Nov-90 14,889.20 15,788.36
31-Dec-90 14,931.80 15,856.25
31-Jan-91 15,003.50 16,068.72
28-Feb-91 15,094.90 16,208.52
28-Mar-91 15,109.40 16,213.38
30-Apr-91 15,216.60 16,430.64
31-May-91 15,304.90 16,576.87
28-Jun-91 15,364.10 16,560.29
31-JuI-91 15,503.30 16,762.33
30-Aug-91 15,673.20 16,983.59
30-Sep-91 15,854.40 17,204.38
31-Oct-91 15,925.40 17,359.22
30-Nov-91 16,017.10 17,407.83
31-Dec-91 16,201.80 17,782.09
31-Jan-92 16,263.80 17,822.99
29-Feb-92 16,232.70 17,828.34
31-Mar-92 16,138.50 17,835.47
30-Apr-92 16,201.70 17,994.21
31-May-92 16,350.10 18,206.54
30-Jun-92 16,414.10 18,512.41
31-Jul-92 16,500.00 19,067.78
31-Aug-92 16,256.90 18,882.82
30-Sep-92 16,218.90 19,005.56
31-Oct-92 15,961.70 18,819.31
30-Nov-92 16,143.50 19,156.17
31-Dec-92 16,215.60 19,351.56
31-Jan-93 16,310.50 19,576.04
28-Feb-93 16,428.30 20,284.70
31-Mar-93 16,637.60 20,069.68
30-Apr-93 16,802.60 20,272.38
31-May-93 16,968.60 20,385.91
30-Jun-93 17,251.00 20,726.35
31-Jul-93 17,448.10 20,753.30
31-Aug-93 17,985.10 21,184.96
30-Sep-93 18,149.40 21,426.47
31-Oct-93 18,255.60 21,467.18
30-Nov-93 18,338.60 21,278.27
31-Dec-93 18,780.70 21,727.24
31-Jan-94 18,978.90 21,974.93
28-Feb-94 18,598.40 21,405.78
31-Mar-94 17,729.90 20,534.57
30-Apr-94 17,809.40 20,709.11
31-May-94 17,926.10 20,889.28
30-Jun-94 17,858.10 20,761.86
31-Jul-94 18,125.50 21,141.80
31-Aug-94 18,231.90 21,215.79
30-Sep-94 18,099.80 20,903.92
31-Oct-94 17,815.00 20,531.83
30-Nov-94 17,452.10 20,160.21
31-Dec-94 17,855.70 20,603.73
31-Jan-95 18,319.80 21,193.00
28-Feb-95 18,760.70 21,809.71
31-Mar-95 18,943.20 22,060.53
30-Apr-95 18,930.10 22,087.00
31-May-95 19,338.80 22,791.57
30-Jun-95 19,245.90 22,593.29
31-JuI-95 19,405.80 22,807.92
31-Aug-95 19,620.20 23,097.58
30-Sep-95 19,754.90 23,243.10
31-Oct-95 20,039.40 23,580.12
30-Nov-95 20,407.20 23,971.55
31-Dec-95 20,640.00 24,201.68

Fund's Total Return:
1 Year Average Annual.................10.03%
5 Year Average Annual................. 5.64%
10 Year Average Annual................. 7.51%
Inception Average Annual............... 7.96%

Portfolio Management Review

Van Kampen American Capital Tax Free High Income Fund
- --------------------------------------------------------------------------------

We recently spoke with the management team of the Van Kampen American Capital
Tax Free High Income Fund about the key events and economic forces which shaped
the markets during the past fiscal year. The team includes David C. Johnson,
portfolio manager, and Peter W. Hegel, executive vice president for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the twelve-month period ended December 31, 1995.

Q What were some of the important events or market conditions that had an
impact on the Fund's performance during 1995?

A The bond market in general was quite strong in 1995, and municipal
securities, of course, participated in the year's rally. Clearly, the
environment for investing in fixed-income securities was extremely
favorable across the board.
Inflation continued to remain in check, with rates hovering around the
2 percent range, while the economy grew at a fairly steady but modest pace.
As a result, the Federal Reserve Board lowered its key lending rate (the
federal funds rate) by one-quarter percentage point in July of 1995 and
again, by one-quarter of a percentage point, in December. Naturally, bond
prices were driven higher as rates trended downward over the course of the
year (bond prices go up when rates go down, and vice versa).
Another factor that had been priced into the municipal market late in
the year was the expectation that a federal budget agreement was inevitable.
The market anticipated a positive budget compromise, and reacted
accordingly. Even though the possibility of tax reform weighed on the
market to some extent, the belief that progress on the federal budget
deficit would be made helped to bolster municipal bonds, especially at the
longer end of the maturity spectrum.

Q How well did the Fund perform under these conditions?

A The Fund posted solid results for the fiscal year. Class A share
total return, at net asset value, for the twelve months ended
December 31, 1995, was 15.52 percent<F1>, compared to the total
return of the Lehman Brothers Municipal Bond Index, a broad-based,
unmanaged index, which was 17.46 percent for the same period. The
Fund's net asset value rose sharply to $14.98 per share, up from
$13.85 per share at the beginning of the year.
The Fund's Class A share tax-exempt distribution rate as of
December 31, 1995, was 6.10 percent<F3>, representing a
taxable-equivalent distribution rate of 9.53 percent<F4> for an
investor in the 36 percent federal income tax bracket. (Please
refer to the chart on page three for additional Fund performance
results.)

Q How was the Fund managed to take advantage of 1995 market conditions?

A The Fund maintained its portfolio which is barbelled from a rating
distribution perspective. While approximately 29 percent of assets are
AAA-rated (Standard & Poor's Ratings Group's highest rating), 38 percent
of the Fund's assets are invested in non-rated securities (as of
December 31, 1995). One of our challenges was to find the highest
relative value among the lower-rated debt issues in the marketplace. The
purpose of this barbell approach is twofold: the higher-yielding
securities provide strength on the income side, while the investment-grade
issues have provided price stability.

In that respect, we have a very strong internal credit research team
which helps evaluate municipal issues for the portfolio. The team includes
six analysts who focus on the high yield sector and dedicated analysts who
focus on the health care industry. The Fund's largest exposures are to the
health care industry (18.4 percent of assets) and to the industrial revenue
sector (14.7 percent of assets). Of total health care exposure, 60 percent
is investment-grade and 40 percent is lower-rated, higher-yielding
securities.

[PIE CHART]

Portfolio Composition by Credit Quality as of December 31, 1995

Other* ...................................22.8%
Health Care...............................18.4%
Industrial Revenue........................14.7%
Multi-Family Housing......................10.0%
Other Care................................ 9.2%
General Purpose........................... 7.7%
Tax District.............................. 6.5%
Water & Sewer............................. 6.2%
Public Building........................... 4.5%

*Other consists of 10 sectors each of less than 4.5%

Q What is your outlook for the Fund and the market in the months ahead?

A We're confident that the investment environment will remain positive for
fixed-income securities in the near-term. Inflation appears to be under
control and the economy shows no sign of overheating.
We anticipate the Fed will continue its accommodative monetary policy
and reduce the fed funds rate further during the first half of 1996.
Based on the historically high level of real interest rates (market rates
less the inflation rate), there seems to be room for short-term interest
rates to trend lower, which is a good sign for long-term rates as well.
We expect the supply of new municipal issues to be somewhat flat in
1996, but refunding activity should be high as the lower interest rate
environment makes it more attractive for municipalities to retire their
higher-yielding outstanding issues.
We remain confident that the portfolio is well positioned to take
advantage of what appears to be a continuation of the favorable
environment for investing in the municipal bond market.

Peter W. Hegel David C. Johnson
Executive Vice President Portfolio Manager
Fixed Income Investments

6 Please see footnotes on page three

<TABLE>

Portfolio of Investments
December 31, 1995
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds

Alabama 0.5%
$ 2,840 Birmingham-Carraway, AL Methodist Hlth Sys Ser A (Connie Lee Insd) ...... 5.875% 08/15/25 $ 2,929,148
1,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev Mobile Energy Svcs Co Proj
Rfdg .................................................................... 6.950 01/01/20 1,059,180
------------
3,988,328
------------

Alaska 0.4%
3,000 Alaska St Hsg Fin Corp Ser A (MBIA Insd) ................................ 5.875 12/01/24 3,024,150
------------

Arizona 2.1%
6,325 Chandler, AZ Indl Dev Auth Indl Dev Rev Chandler Fin Cent Proj <F4> ..... 9.875 12/01/16 5,376,250
7,775 Chandler, AZ Indl Dev Auth Indl Dev Rev SMP II Ltd Partnership Proj ..... 7.500 12/01/15 7,782,231
1,000 Maricopa Cnty, AZ Indl Dev Auth Indl Dev Rev Borden Inc Proj (Var Rate
Cpn)..................................................................... 5.040 10/01/12 1,008,070
2,700 Maricopa Cnty, AZ Unified Sch Dist No 41 Gilbert Rfdg (FGIC Insd) ....... * 01/01/08 1,485,378
1,245 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A .............................. 11.000 07/01/00 1,445,021
------------
17,096,950
------------

Arkansas 0.7%
2,130 Arkansas St Dev Fin Auth Single Family Mtg Rev Replacement Ser C ........ 8.600 02/01/17 2,280,059
2,645 Maumelle, AR Waterside Addition Muni Ppty Owners Multi-purp Impt Dist No
6 ....................................................................... 9.500 12/01/10 2,380,500
1,155 Maumelle, AR West Pointe Addition Muni Ppty Owners Multi-purp Impt Dist
No 7 .................................................................... 9.500 12/01/10 1,039,500
------------
5,700,059
------------

California 6.8%
1,310 California Edl Fac Auth Rev Univ of La Verne ............................ 6.375 04/01/13 1,349,510
2,250 California St Pub Wks Brd Lease Rev Dept Corrections CA St Prison Ser D
Susanville .............................................................. 5.375 06/01/18 2,173,163
2,000 California St Pub Wks Brd Lease Rev Dept of Justice Bldg Ser A (FSA
Insd) ................................................................... 5.800 05/01/15 2,078,200
8,000 California St Rfdg (Cap Guar Insd) <F3> ................................. 5.125 10/01/17 7,834,960
1,500 Colton, CA Pub Fin Auth Rev Elec Sys Impts .............................. 7.500 10/01/20 1,525,125
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev (MBIA Insd) ............. * 09/01/17 1,421,050
3,465 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent for the Arts (AMBAC
Insd) ................................................................... * 09/01/15 1,061,191
3,480 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent for the Arts (AMBAC
Insd) ................................................................... * 09/01/18 862,622
20,000 Foothill/Eastern Tran Agy Cap Apprec Sr Lien Ser A ...................... * 01/01/27 2,836,200
3,500 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev Multi Cap Fac Proj IV
(MBIA Insd) ............................................................. 5.000 12/01/07 3,526,460
2,000 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev Multi Cap Fac Proj IV ... 5.250 12/01/16 1,971,200
2,000 Metropolitan Wtr Dist Southern CA Wtrwks Rev ............................ 5.950 08/05/22 2,058,060
2,850 Riverside Cnty, CA Ctfs Partn Air Force Village West Inc A .............. 8.125 06/15/20 3,022,140
4,000 San Bernardino Cnty, CA Ctfs Partn Med Cent Fin Proj Ser A (MBIA Insd)... 5.500 08/01/15 3,997,400
7,395 San Diego, CA Swr Rev Ser A (AMBAC Insd) <F3> ........................... 5.000 05/15/13 7,230,831
4,000 San Francisco, CA City & Cnty Arpts Comm Intl Arpt Rev 2nd Ser Issue 8A
(FGIC Insd) ............................................................. 6.250 05/01/20 4,238,920
7,625 San Francisco, CA City & Cnty Redev Agy Lease Rev Gains (Crossover Rfdg
@ 07/01/04) <F7> ........................................................ 0/8.500 07/01/14 5,404,066
3,000 Westminster, CA Redev Agy Tax Alloc Rev Commercial Redev Proj No 1 ...... 6.200 08/01/23 3,034,590
------------
55,625,688
------------
</TABLE>

7 See Notes to Financial Statements

<TABLE>

Portfolio of Investments (Continued)
December 31, 1995
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colorado 9.2%
$ 12,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser C .......... *% 08/31/15 $ 3,113,880
19,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser C .......... * 08/31/26 2,095,890
66 Arapahoe Cnty, CO Centennial Downs Metro Dist Cash Payment Deficiency
Bond .................................................................... 8.090 12/01/34 63,044
336 Arapahoe Cnty, CO Centennial Downs Metro Dist Interest Certificate <F6>.. 6.00/8.09 12/01/34 319,369
650 Arapahoe Cnty, CO Centennial Downs Metro Dist Ltd Tax Bond Ser 1993 Rfdg. 8.090 12/01/34 617,869
1,000 Bowles Metro Dist CO <F2> ............................................... 7.750 12/01/15 996,990
6,470 Colorado Hlth Fac Auth Rev Christian Living Campus Proj ................. 10.500 01/01/19 7,075,139
6,200 Colorado Hlth Fac Auth Rev Christian Living Campus Proj ................. 9.000 01/01/25 6,541,248
2,982 Colorado Hlth Fac Auth Rev Univ Hills Christian Nursing Rfdg ............ 8.750 12/01/11 3,125,429
1,000 Colorado Hlth Fac Auth Rev Vail Vly Med Cent Proj Ser A Rfdg ............ 6.600 01/15/20 1,036,460
720 Colorado Hsg Fin Auth Single Family Residential Rev Ser C Rfdg .......... 8.750 09/01/17 770,803
1,000 Denver, CO City & Cnty Arpt Rev Ser A ................................... 6.900 11/15/98 1,061,210
1,175 Denver, CO City & Cnty Arpt Rev Ser A ................................... 8.400 11/15/98 1,291,971
3,000 Denver, CO City & Cnty Arpt Rev Ser A ................................... 8.875 11/15/12 3,576,900
5,000 Denver, CO City & Cnty Arpt Rev Ser A (MBIA Insd) ....................... 5.600 11/15/20 5,045,000
10,000 Denver, CO City & Cnty Arpt Rev Ser A ................................... 8.500 11/15/23 11,460,100
2,500 Denver, CO City & Cnty Arpt Rev Ser D ................................... 7.750 11/15/13 3,008,000
1,048 East River Regl Santn Dist CO Var Rfdg (Var Rate Cpn) ................... * 12/01/08 749,949
3,216 Gunnison Cnty, CO Indl Rev Bond Crested Butte Mtn Resort Inc ............ 9.250 10/01/07 3,250,668
4,408 Himalaya Wtr & Santn Dist Adams Cnty, CO Genl Oblig Ltd Tax Rfdg Bond
Ser 1995 ................................................................ 9.500 12/01/24 3,235,351
5,385 Littleton, CO Riverfront Auth Rev Rfdg <F5> ............................. 9.625 12/01/00 1,884,750
4,708 Skyland Metro Dist CO Gunnison Cnty Rfdg (Var Rate Cpn) ................. * 12/01/08 3,369,116
14,709 Tower Metro Dist Adams Cnty, CO Gen Oblig Ltd Tax Rfdg Bond Ser 1995 .... 9.500 12/01/24 10,796,447
------------
74,485,583
------------

Connecticut 0.5%
3,740 Connecticut St Hlth & Edl Fac Auth Rev Nursing Home Pgm
AHF/Windsor Proj ........................................................ 7.125 11/01/24 4,322,505
------------

District of Columbia 1.3%
1,700 District of Columbia Ser A1 Rfdg (MBIA Insd) <F3> ....................... 6.500 06/01/10 1,952,535
2,000 District of Columbia Ser E (FSA Insd) ................................... 6.000 06/01/11 2,086,100
6,000 Metropolitan WA, DC Arpt Auth Genl Arpt Rev Ser A (MBIA Insd) ........... 5.875 10/01/15 6,207,360
------------
10,245,995
------------

Florida 7.2%
2,000 Collier Cnty, FL Indl Dev Auth Indl Dev Rev Rfdg <F2> ................... 6.500 10/01/25 1,949,940
28,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec Ser A Rfdg (MBIA Insd) ..... * 02/01/18 7,869,680
5,265 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev Cent .................... 10.250 07/01/11 5,594,694
2,215 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev Cent Ser A .............. 10.250 07/01/11 2,353,703
12,000 Florida Hsg Fin Agy Hsg Bradley Park Apts Proj <F5> ..................... 9.750 12/01/19 5,485,200
5,000 Florida St Division Bond Fin Dept Genl Services Rev Dept Envirnmtl
Presrvtn 2000 Ser A (MBIA Insd) ......................................... 4.900 07/01/13 4,882,300
290 Largo, FL Sun Coast Hlth Sys Rev Hosp Rfdg .............................. 5.750 03/01/03 287,292
5,500 Miramar, FL Wastewater Impt Assmt Rev (FGIC Insd) ....................... 6.750 10/01/25 6,271,815
3,950 Monroe Cnty, FL Indl Dev Auth First Mtg Med Fac Rev Kennedy Dr Invt Ltd
Proj Rfdg ............................................................... 11.000 11/01/12 3,950,000
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 4,762,815
6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac Sunnyside Pptys <F2> ........... 6.700 07/01/25 5,747,880
16,065 Sun N Lake of Sebring, FL Impt Dist Spl Assmt Ser A <F5> ................ 10.000 12/15/11 9,478,350
------------
58,633,669
------------
</TABLE>

8 See Notes to Financial Statements

<TABLE>

Idaho 1.7%
8,000 Idaho Hlth Fac Auth Rev IHC Hosp Inc Rfdg (Inverse Fltg) ................ 6.760 02/15/21 9,031,440
4,300 Owyhee Cnty, ID Indl Dev Corp Indl Dev Rev Envirosafe Services of ID Inc. 8.250 11/01/02 4,471,742
------------
13,503,182
------------

Illinois 13.1%
1,000 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent Proj ................... 8.375 09/01/14 1,089,400
1,950 Bridgeview, IL Tax Increment Rev Rfdg ................................... 9.000 01/01/11 2,124,974
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev American Airls Inc Proj Ser A .. 7.875 11/01/25 3,277,920
24,875 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Proj Ser
84A <F3> ................................................................ 8.850 05/01/18 28,327,650
2,775 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Ser B ......... 8.950 05/01/18 3,189,252
4,250 Chicago, IL Rev Chatham Ridge Tax Increment ............................. 10.250 01/01/07 4,676,700
10,000 Chicago, IL Wastewater Transmission Rev (FGIC Insd) ..................... 5.125 01/01/25 9,706,200
2,000 Huntley, IL Incrmnt Alloc <F2> .......................................... 8.500 12/01/15 2,000,000
7,375 Illinois Dev Fin Auth Rev Mercy Hsg Corp Proj Rfdg ...................... 7.000 08/01/24 7,922,372
5,000 Illinois Dev Fin Auth Rev Sch Dist Pgm No 300 (FGIC Insd) ............... * 12/01/07 2,771,800
6,010 Illinois Dev Fin Auth Rev Sch Dist Pgm No 300 (FGIC Insd) ............... * 12/01/08 3,127,183
4,890 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D ...................... 9.500 11/15/15 5,812,303
3,825 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D (Prerefunded @11/15/00) 9.500 11/15/15 4,777,731
1,000 Illinois Hlth Fac Auth Rev Lifelink Corp Oblig Group B .................. 8.000 02/15/25 1,043,890
5,000 Illinois Hlth Fac Auth Rev Midwest Physician Group Ltd Proj ............. 8.100 11/15/14 5,430,150
995 Illinois Hlth Fac Auth Rev Mt Sinai Hosp Med Cent Chicago Ser A ......... 10.250 02/01/13 994,980
3,000 Illinois Hlth Fac Auth Rev Rfdg Fairview Oblig Group Ser A .............. 7.400 08/15/23 2,985,630
3,000 Illinois Hlth Fac Auth Rev Servantcor Ser A (Prerefunded @ 08/15/01) .... 8.000 08/15/21 3,581,610
1,250 Mill Creek Wtr Reclamation Dist IL Sewage Rev ........................... 8.000 03/01/10 1,282,225
750 Mill Creek Wtr Reclamation Dist IL Wtrwks Rev ........................... 8.000 03/01/10 769,335
2,095 Regional Tran Auth IL Ser B (AMBAC Insd) ................................ 8.000 06/01/17 2,825,673
8,000 Robbins, IL Res Recovery Rev Robbins Res Recovery Partners Ser A ........ 9.250 10/15/14 8,733,360
------------
106,450,338
------------

Kansas 0.1%
3,450 Kansas City, KS Crawford Cnty Leavenworth Single Family Mtg
Rev (AMBAC Insd) <F3> ................................................... * 04/01/16 374,394
------------
Kentucky 1.0%
5,025 Boone Cnty, KY Pollutn Ctl Rev Collateral Cincinnati Gas & Elec
Ser A Rfdg (MBIA Insd) .................................................. 5.500 01/01/24 5,053,793
2,700 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys Proj (Inverse Fltg)
(MBIA Insd) <F3> ........................................................ 8.394 10/01/08 3,179,250
------------
8,233,043
------------

Louisiana 1.6%
2,500 Louisiana Hsg Fin Agy Mtg Rev Single Family Ser C1 Rfdg (MBIA Insd) ..... 5.750 06/01/17 2,504,275
3,000 Louisiana Pub Fac Auth Rev Student Ln Subser A3 ......................... 7.000 09/01/06 3,250,500
12,500 New Orleans, LA Rfdg (AMBAC Insd) ....................................... * 09/01/17 3,865,000
10,000 Orleans Parish, LA Sch Brd Rfdg (FGIC Insd) ............................. * 02/01/15 3,490,900
------------
13,110,675
------------

Maine 0.2%
1,250 Maine Hlth & Higher Edl Fac Auth Rev Ser B (FSA Insd) .................... 7.000 07/01/24 1,435,563
------------
</TABLE>

9 See Notes to Financial Statements

<TABLE>

Massachusetts 5.4%
13,770 Canton, MA Hsg Auth Multi Family Hsg Mtg Rev Canton Arboretum Apts
(Var Rate Cpn) ............................................................. 6.500 09/01/19 13,081,500
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 4,290,800
1,670 Massachusetts St Hlth & Edl Fac Auth Rev Saint Annes Hosp Ser A ............ 9.375 07/01/14 1,676,329
10,415 Massachusetts St Hlth & Edl Fac Auth Rev Saint Mem Med Cent Ser A .......... 6.000 10/01/23 8,466,979
1,385 Massachusetts St Hlth & Edl Fac Auth Rev Saint Mem Med Cent Ser A Rfdg ..... 5.500 10/01/02 1,266,139
2,200 Massachusetts St Hsg Fin Agy Hsg Rev Insd Rental Ser A Rfdg (AMBAC Insd) ... 6.650 07/01/19 2,322,540
640 Massachusetts St Hsg Fin Agy Hsg Rev Ser A ................................. 9.000 12/01/18 679,379
575 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent .................. 8.000 12/01/06 598,092
1,085 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent .................. 8.375 12/01/13 1,148,049
675 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent .................. 8.500 12/01/20 715,507
7,300 Massachusetts St Indl Fin Agy Rev Swr Fac Res Ctl Composting ............... 9.250 06/01/10 7,963,424
1,525 Massachusetts St Indl Fin Agy Solid Waste Disp Rev Res Recovery Sys ........ 9.200 12/01/99 1,543,178
------------
43,751,916
------------

Michigan 4.2%
2,000 Battle Creek, MI Downtown Dev Auth Tax Increment Rev ....................... 7.600 05/01/16 2,249,340
3,955 Detroit, MI Wtr Supply Sys Rev Second Lien Bonds Ser A (MBIA Insd) ......... 5.500 07/01/25 3,962,792
8,100 Meridian, MI Econ Dev Corp Ltd Oblig Rev First Mtg Burcham Hills Ser A ..... 9.625 07/01/19 8,721,918
3,380 Michigan St Hosp Fin Auth Rev Garden City Hosp ............................. 8.300 09/01/02 3,592,061
1,000 Michigan St Hosp Fin Auth Rev Hosp Sinai Hosp Rfdg ......................... 6.700 01/01/26 1,012,330
10,000 Michigan St Strategic Fund Ltd Oblig Rev Great Lakes Pulp & Fibre Proj ..... 10.250 12/01/16 10,578,200
1,500 North Branch, MI Area Sch Lapeer Cnty Rfdg (AMBAC Insd) <F3> ............... 5.250 05/01/13 1,505,940
1,495 Pontiac, MI Hosp Fin Auth Hosp Rev NOMC Oblig Group Rfdg ................... 6.000 08/01/13 1,412,745
800 Saint Clair Cnty, MI Econ Dev Corp Kmart Proj .............................. 9.500 02/01/06 800,104
------------
33,835,430
------------

Minnesota 2.9%
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 ............ * 01/15/20 685,699
2,800 Minneapolis, MN Coml Dev Rev Holiday Inn Metrodome Proj Rfdg ............... 10.000 06/01/98 2,840,180
1,750 Minnesota St Hsg Fin Agy Single Family Mtg Ser D ........................... 8.800 07/01/16 1,874,530
25,460 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A (MBIA Insd) .............. * 01/01/20 7,183,539
5,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A (MBIA Insd) .............. * 01/01/21 1,336,350
21,160 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A (MBIA Insd) .............. * 01/01/23 5,074,379
------------
23,945,010
------------

Mississippi 0.1%
1,000 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res Inc Rfdg ................. 7.300 05/01/25 1,048,290
------------

Missouri 1.1%
1,000 Jefferson Cnty, MO Indl Dev Auth Indl Rev Cedars Hlthcare Cent
Proj Ser A Rfdg ............................................................ 8.250 12/01/15 1,005,910
1,250 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev Saint Lukes Hlth Sys Rfdg
(MBIA Insd) ................................................................ 5.125 11/15/19 1,201,675
4,925 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev Skaggs Cmnty Hosp Rfdg ........ 9.500 05/15/13 5,270,981

</TABLE>

10 See Notes to Financial Statements

<TABLE>

Montana 0.5%
4,000 Montana St Brd Invt Res Recovery Rev Yellowstone Energy L P Proj ......... 7.000 12/31/19 3,940,640
-----------

Nebraska 0.8%
2,500 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized) <F3> ............................................... 9.609 10/17/23 2,803,125
3,200 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg) (GNMA
Collateralized) <F3> ..................................................... 10.923 09/10/30 3,712,000
-----------
6,515,125
-----------

Nevada 0.2%
1,945 Reno, NV Redev Agy Tax Alloc Downtown Redev Proj Ser E Rfdg .............. 5.600 09/01/09 1,892,543
-----------

New Hampshire 1.4%
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev Havenwood Heritage Heights... 7.350 01/01/18 2,040,740
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev Havenwood Heritage Heights... 7.450 01/01/25 2,038,920
4,000 New Hampshire Higher Edl & Hlth Fac Auth Rev Hosp Catholic Med Cent Rfdg.. 8.250 07/01/13 4,377,640
3,000 New Hampshire St Indl Dev Auth Rev Pollutn Ctl Pub Svcs Co NH Proj C ..... 7.650 05/01/21 3,192,030
-----------
11,649,330
-----------
New Jersey 0.9%

6,710 New Jersey Econ Dev Auth First Mtg Gross Rev Oakridge Manor Proj Rfdg .... 9.500 11/01/14 7,087,035
-----------

New Mexico 0.5%
5,835 Albuquerque, NM Retirement Fac Rev OGL Retirement Fac Rfdg <F4> .......... 10.000 10/01/13 4,261,884
-----------

New York 8.4%
1,500 New York City Indl Dev Agy Rev Visy Paper Inc Proj <F2> .................. 7.950 01/01/28 1,534,695
1,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser A .................. 5.500 06/15/23 985,340
12,225 New York City Ser B Rfdg ................................................. 6.375 08/15/10 12,770,357
2,500 New York City Ser C Rfdg ................................................. 6.500 08/01/04 2,638,550
3,000 New York City Ser D ...................................................... 6.000 02/15/15 2,994,660
3,000 New York City Ser D Rfdg ................................................. 8.000 02/01/05 3,479,340
1,335 New York City Ser D Rfdg ................................................. 6.000 08/01/07 1,350,913
3,000 New York City Ser F <F2> ................................................. 5.750 02/01/12 2,974,980
5,000 New York St Dorm Auth Rev Saint Vincents Hosp & Med Cent (AMBAC Insd) .... 5.800 08/01/25 5,172,550
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev (Inverse Fltg) ............ 8.295 04/01/20 2,846,875
6,000 New York St Energy Resh & Dev Auth Gas Fac Rev Ser D (Inverse Fltg) (MBIA
Insd) .................................................................... 5.635 07/08/26 6,041,580
225 New York St Energy Resh & Dev Auth St Svc Contract Rev Western NY Nuclear
Svc Cent B ............................................................... 5.500 04/01/00 229,937
1,000 New York St Energy Resh & Dev Auth St Svc Contract Rev Western NY Nuclear
Svc Cent B ............................................................... 5.500 04/01/01 1,018,150
750 New York St Energy Resh & Dev Auth St Svc Contract Rev Western NY Nuclear
Svc Cent B ............................................................... 5.250 04/01/02 750,330
5,000 New York St Loc Govt Assistance Corp Ser C ............................... 5.500 04/01/22 4,927,800
10,000 New York St Med Care Fac Fin Agy Rev Presbyterian Hosp Ser A Rfdg (MBIA
Insd) .................................................................... 5.375 02/15/25 9,897,600
1,500 New York St Thruway Auth Hwy & Brdg Tr Fund Ser A ........................ 6.000 04/01/14 1,581,495

</TABLE>

11 See Notes to Financial Statements

<TABLE>

North Carolina 1.6%
8,450 Eastern Band Cherokee Indians NC Spl Oblig Rev Carolina Mirror Co Proj ..... 10.250 09/01/09 8,450,000
4,500 Martin Cnty, NC Indl Fac & Pollutn Ctl Fin Auth Rev ........................ 6.000 11/01/25 4,575,105
------------
13,025,105
------------

North Dakota 0.3%
2,100 Ward Cnty, ND Hlthcare Fac Rev Saint Joseph Hosp Corp Proj ................. 8.875 11/15/24 2,353,407
------------

Ohio 3.0%
2,000 East Liverpool, OH Hosp Rev East Liverpool City Hosp Ser A ................. 8.125 10/01/11 2,147,420
1,685 Franklin Cnty, OH First Mtg Rev Heinzerling Fndtn Proj Rfdg (Prerefunded @
08/01/96) .................................................................. 10.000 08/01/11 1,767,127
7,850 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B (Inverse Fltg) (GNMA
Collateralized) ............................................................ 9.477 03/31/31 8,684,062
1,200 Ohio St Solid Waste Rev Republic Engineered Steels Proj .................... 8.250 10/01/14 1,218,876
8,500 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev College Cleveland Elec Ser A Rfdg.. 8.000 10/01/23 9,228,620
1,500 Sandusky Cnty, OH Hosp Fac Rev Mem Hosp Proj ............................... 7.750 12/01/09 1,531,335
------------
24,577,440
------------

Oklahoma 0.8%
2,000 Oklahoma City, OK Indl & Cultr Hlth Fac (MBIA Insd) ........................ 5.875 06/01/21 2,080,960
4,000 Tulsa, OK Indl Auth Hosp Rev Tulsa Regional Med Cent ....................... 7.200 06/01/17 4,571,160
------------
6,652,120
------------

Pennsylvania 5.7%
2,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Collateral Toledo
Edison Co Proj Rfdg ........................................................ 7.625 05/01/20 2,145,060
1,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Collateral Toledo Edison Co
Ser A Rfdg ................................................................. 7.750 05/01/20 1,084,750
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 2,080,200
4,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev Bethlehem Steel Corp Proj
Rfdg ....................................................................... 7.500 09/01/15 4,218,800
2,000 Cumberland Cnty, PA Auth Rev First Mtg Carlisle Hosp & Hlth ................ 6.800 11/15/14 2,072,920
3,000 Lancaster Cnty, PA Solid Waste Mgmt Auth Res Recovery Sys Rev Ser A <F3> ... 8.500 12/15/10 3,248,250
2,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford Hosp Proj (Crossover Rfdg @
10/01/00) .................................................................. 8.875 10/01/20 2,403,000
3,800 Montgomery Cnty, PA Higher Edl & Hlth Auth Nursing Home Rev Delco Sys Svcs
Proj A ..................................................................... 9.875 11/01/18 3,860,344
8,100 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg Meadowood Corp Proj A
(Prerefunded @ 12/01/00) ................................................... 10.000 12/01/19 10,177,002
500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood Corp Rfdg .... 7.000 12/01/10 511,735
2,500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood Corp Rfdg .... 7.250 12/01/15 2,521,625
6,000 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The Meadowood Corp Rfdg .... 7.400 12/01/20 6,027,780
3,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev Macmillan Ltd Partnership
Proj ....................................................................... 7.600 12/01/20 3,373,710

</TABLE>

12 See Notes to Financial Statements

<TABLE>

Rhode Island 0.3%
2,000 Providence, RI Redev Agy Ctfs Partn Ser A ................................. 8.000 09/01/24 2,219,900
------------

South Carolina 0.5%
2,500 Charleston Cnty, SC Ctfs Partn Ser B (MBIA Insd) .......................... 7.000 06/01/19 2,877,800
1,000 Oconee Cnty, SC Indl Rev Bond Johnson Ctl Inc Ser 84 (Var Rate Cpn) ....... 6.344 06/15/04 1,010,000
------------
3,887,800
------------

Tennessee 3.7%
3,000 SCA Tax Exempt Trust Multi Family Mtg Memphis Hlth Edl Rev
Bond Receipt A6 (FSA Insd) ................................................ 7.350 01/01/30 3,271,740
4,665 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev ICF/MR Open Arms Dev Cent Ser A. 9.750 08/01/19 5,126,275
4,725 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev ICF/MR Open Arms Dev Cent Ser C. 9.750 08/01/19 5,192,208
2,500 Shelby Cnty, TN Hlth Edl Hosp Methodist Hlth Sys Inc ...................... 5.500 08/01/12 2,556,900
2,500 Shelby Cnty, TN Hlth Edl Hosp Methodist Hlth Sys Inc (MBIA Insd) .......... 5.250 08/01/15 2,474,250
6,155 Sullivan Cnty, TN Hlth Edl & Hsg Fac Brd Rev First Mtg RHA/Sullivan Inc
Fac Rev ................................................................... 9.750 09/01/19 6,780,164
4,505 Trenton, TN Hlth & Edl Fac Brd Rev ICF/MR RHA/Trenton Golden Door <F3> .... 10.000 05/01/19 4,963,834
------------
30,365,371
------------

Texas 3.9%
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains Baptist Hosp
(Inverse Fltg) (FSA Insd) <F3> ............................................ 8.683 01/01/22 2,295,000
3,905 Brazos, TX Higher Ed Auth Inc Student Ln Rev Subser C2 Rfdg ............... 5.875 06/01/04 4,037,028
665 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg .................................. * 08/01/00 474,338
1,165 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg .................................. * 08/01/01 771,160
335 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg .................................. * 08/01/02 205,579
1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg .................................. * 08/01/11 566,243
775 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg .................................. 8.750 08/01/11 847,401
2,670 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg .................................. 8.750 08/01/12 2,919,431
2,500 Garland, TX Indl Dev Auth Rev Bond Ashland Oil Proj Ser 84 Rfdg (Var Rate
Cpn) ...................................................................... 5.525 04/01/04 2,539,025
2,829 Texas Genl Svcs Comm Partn Int Lease Pur Ctfs ............................. 7.250 08/15/11 2,901,329
3,858 Texas St .................................................................. 6.350 12/01/13 3,965,005
2,000 Texas St Tpk Auth Dallas North Thruway Rev Addison Arpt Toll Tunnel Proj
(FGIC Insd) ............................................................... 6.750 01/01/15 2,273,020
2,000 Texas St Tpk Auth Dallas North Thruway Rev Addison Arpt Toll Tunnel Proj
(FGIC Insd) ............................................................... 6.600 01/01/23 2,236,020
5,000 West Side Calhoun Cnty, TX Navig Dist Solid Waste Disp Union Carbide Chem
& Plastics <F3> ........................................................... 8.200 03/15/21 5,711,050
------------
31,741,629
------------

Utah 0.7%
1,000 Hilldale, UT Elec Rev <F2> ................................................ 7.800 09/01/15 976,880
1,165 Hilldale, UT Elec Rev <F2> ................................................ 8.000 09/01/20 1,154,888
1,000 Hilldale, UT Elec Rev <F2> ................................................ 7.800 09/01/25 968,480
290 Saint George, UT Indl Dev Rev Kmart Corp Ser A 1984 ....................... 10.750 10/15/08 282,492
230 Utah St Hsg Fin Agy Single Family Mtg Sr Bond Ser A ....................... 8.400 07/01/08 246,995
1,925 Utah St Hsg Fin Agy Single Family Mtg Sr Bond Ser G2 (FHA Gtd) ............ 7.600 01/01/27 2,033,358
------------
5,663,093
------------
</TABLE>

13 See Notes to Financial Statements

<TABLE>

Washington 0.1%
1,000 Port Walla Walla, WA Pub Corp Solid Waste Recycling Rev
Ponderosa Fibres Proj ................................................. 9.125 01/01/26 1,037,300
------------

Wisconsin 1.2%
4,340 Wisconsin St Hlth & Edl Fac Auth Rev Chippewa Vly Hosp Ser F Rfdg ..... 9.500 11/15/12 5,146,198
2,235 Wisconsin St Hlth & Edl Fac Auth Rev Eau Claire Manor Refin ........... 9.625 06/01/13 2,330,323
1,975 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem Hosp Assn ............... 7.875 11/01/22 2,006,738
------------
9,483,259
------------

Puerto Rico 0.2%
2,000 Puerto Rico Elec Pwr Auth Pwr Rev Rfdg Ser Z .......................... 5.250 07/01/21 1,935,860
------------

Total Long-Term Investments 99.8%
(Cost $772,772,076) <F1>.......................................................................... 811,778,662

Short-Term Investments at Amortized Cost 0.3%...................................................... 2,696,750

Liabilities in Excess of Other Assets (0.1%)....................................................... (1,208,180)
------------
Net Assets 100%.................................................................................... $813,267,232
============
*Zero coupon bond

<FN>
<F1> At December 31, 1995, for federal income tax purposes, cost is
$774,772,307, the aggregate gross unrealized appreciation is $62,547,716
and the aggregate gross unrealized depreciation is $25,509,672, resulting
in net unrealized appreciation including open futures transactions of
$37,038,044.

<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>

<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
AAA........................... 29.0%
AA............................ 2.7
A............................. 4.9
BBB........................... 17.2
BB............................ 6.9
B............................. 1.4
Non-Rated..................... 37.9
-------
100.0%
=======
</TABLE>

14 See Notes to Financial Statements

Liabilities:
Payables:
Investments Purchased................................................................ 18,173,566
Income Distributions................................................................. 2,348,560
Fund Shares Repurchased ............................................................. 806,442
Investment Advisory Fee (Note 2)..................................................... 329,141
Margin on Futures (Note 5)........................................................... 26,602
Accrued Expenses....................................................................... 1,289,814
---------------
Total Liabilities................................................................. 22,974,125
---------------
Net Assets............................................................................. $ 813,267,232
===============

Net Assets Consist of:
Capital (Note 3)....................................................................... $ 862,907,580
Net Unrealized Appreciation on Investments............................................. 39,038,275
Accumulated Distributions in Excess of Net Investment Income (Note 1).................. (8,760,023)
Accumulated Net Realized Loss on Investments........................................... (79,918,600)
---------------
Net Assets............................................................................. $ 813,267,232
===============

Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$665,822,295 and 44,433,895 shares of capital stock issued and outstanding)(Note 3) $ 14.98
Maximum sales charge (4.75%* of offering price)................................... .75
---------------
Maximum offering price to public.................................................. $ 15.73
===============

Class B Shares:
Net asset value and offering price per share (Based on net assets of $137,933,467
and 9,205,700 shares of capital stock issued and outstanding) (Note 3)............ $ 14.98
===============

Class C Shares:
Net asset value and offering price per share (Based on net assets of $9,511,470
and 634,649 shares of capital stock issued and outstanding) (Note 3).............. $ 14.99
===============

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

15 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest.................................................................................. $ 61,183,874
----------------
Expenses:
Investment Advisory Fee (Note 2).......................................................... 3,705,007
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of $1,464,858,
$1,236,172, $80,827 and $1,586, respectively) (Note 6) ................................. 2,783,443
Shareholder Services (Note 2)............................................................. 820,689
Legal (Note 2) ........................................................................... 283,400
Trustees Fees and Expenses (Note 2)....................................................... 43,316
Other..................................................................................... 632,738
----------------
Total Expenses....................................................................... 8,268,593
Less Expenses Reimbursed............................................................. 13,125
----------------
Net Expenses......................................................................... 8,255,468
----------------
Net Investment Income..................................................................... $ 52,928,406
================
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales..................................................................... $ 427,357,154
Cost of Securities Sold (Including reorganization and restructuring costs of $777,059).. (445,800,940)
----------------
Net Realized Loss on Investments (Including realized gain on closed and expired option
transactions of $506,568 and realized loss on futures transactions of $7,466,141)....... (18,443,786)
----------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period................................................................. (36,382,788)
End of the Period (Including unrealized appreciation on open futures transactions of
$31,689)............................................................................. 39,038,275
----------------
Net Unrealized Appreciation on Investments During the Period.............................. 75,421,063
----------------
Net Realized and Unrealized Gain on Investments........................................... $ 56,977,277
================
Net Increase in Net Assets from Operations................................................ $ 109,905,683
================
</TABLE>

16 See Notes to Financial Statements

<TABLE>
Statement of Changes in Net Assets
For the Years Ended December 31, 1995 and 1994
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income................................................ $ 52,928,406 $ 46,265,509
Net Realized Loss on Investments..................................... (18,443,786) (55,616,722)
Net Unrealized Appreciation/Depreciation on Investments
During the Period.................................................. 75,421,063 (28,618,923)
---------------- -----------------

Change in Net Assets from Operations ................................ 109,905,683 (37,970,136)
----------------- -----------------
Distributions from Net Investment Income............................. (49,750,600) (46,265,509)
Distributions in Excess of Net Investment Income (Note 1)............ -0- (3,817,529)
----------------- -----------------
Total Distributions from and in Excess of Net Investment Income*... (49,750,600) (50,083,038)
----------------- -----------------
Net Change in Net Assets from Investment Activities.................. 60,155,083 (88,053,174)
----------------- -----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold............................................ 98,267,869 185,185,601
Net Asset Value of Shares Issued Through Dividend Reinvestment....... 21,929,512 22,347,994
Cost of Shares Repurchased........................................... (92,025,233) (92,646,623)
----------------- -----------------
Net Change in Net Assets from Capital Transactions................... 28,172,148 114,886,972
----------------- -----------------
Total Increase in Net Assets......................................... 88,327,231 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 $(8,760,023) and $(11,937,829), respectively)................... $ 813,267,232 $ 724,940,001
================= =================
</TABLE>

<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1995 December 31, 1994
--------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................... $ (42,013,439) $ (43,955,918)
Class B Shares...................... (7,196,226) (5,542,863)
Class C Shares...................... (469,250) (476,352)
Class D Shares...................... (71,685) (107,905)
----------------- -----------------
$ (49,750,600) $ (50,083,038)
================= =================
</TABLE>

17 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.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------------------
Class A Shares 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............................... $ 13.848 $ 15.629 $ 14.529 $ 15.687 $ 15.632
--------- ----------- --------- ---------- ---------
Net Investment Income................................................ 1.024 .956 1.052 1.064 1.173
Net Realized and Unrealized
Gain/Loss on Investments.......................................... 1.072 (1.717) 1.158 (1.047) .097
--------- ----------- --------- ---------- ---------
Total from Investment Operations....................................... 2.096 (.761) 2.210 .017 1.27
Less Distributions from and in Excess of Net Investment
Income (Note 1)...................................................... .960 1.020 1.110 1.175 1.215
--------- ----------- --------- ---------- ---------
Net Asset Value, End of the Period..................................... $ 14.984 $ 13.848 $ 15.629 $ 14.529 $ 15.687
========= =========== ========= ========== =========

Total Return........................................................... 15.52% (4.93%) 15.82% .08% 8.51%
Net Assets at End of the Period (In millions).......................... $ 665.8 $ 603.0 $ 636.2 $ 566.1 $ 626.7
Ratio of Expenses to Average Net Assets*............................... .95% .87% 1.03% 1.08% 1.09%
Ratio of Net Investment Income to Average Net Assets*.................. 7.05% 6.48% 6.95% 7.07% 7.54%
Portfolio Turnover..................................................... 58.76% 101.11% 90.82% 44.48% 65.39%

* The Ratios of Expenses and Net Investment Income to Average Net
Assets were not affected by the assumption of expenses by VKAC
</TABLE>

18 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.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
May 1, 1993
(Commencement of
Year Ended Year Ended Distribution) to
Class B Shares December 31, 1995 December 31, 1994 December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period................................ $ 13.850 $ 15.621 $ 14.670
----------------- ----------------- -----------------
Net Investment Income................................................. .908 .841 .656
Net Realized and Unrealized Gain/Loss on Investments.................. 1.071 (1.718) .945
----------------- ----------------- -----------------
Total from Investment Operations........................................ 1.979 (.877) 1.601
Less Distributions from and in Excess of Net
Investment Income (Note 1)............................................ .846 .894 .650
----------------- ----------------- -----------------
Net Asset Value, End of the Period...................................... $ 14.983 $ 13.850 $ 15.621
================= ================= =================
Total Return............................................................ 14.62% (5.69%) 11.12%**
Net Assets at End of the Period (In millions)........................... $ 137.9 $ 112.4 $ 56.6
Ratio of Expenses to Average Net Assets*................................ 1.70% 1.64% 1.74%
Ratio of Net Investment Income to Average Net Assets*................... 6.25% 5.70% 5.95%
Portfolio Turnover...................................................... 58.76% 101.11% 90.82%

* The Ratios of Expenses and Net Investment Income to Average Net
Assets were not affected by the assumption of expenses by VKAC.

** Non-Annualized
</TABLE>

19 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.
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
August 13, 1993
(Commencement of
Year Ended Year Ended Distribution) to
Class C Shares December 31, 1995 December 31, 1994 December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period................................ $ 13.846 $ 15.610 $ 15.030
----------------- ----------------- -----------------
Net Investment Income................................................. .910 .824 .369
Net Realized and Unrealized Gain/Loss on Investments ................. 1.077 (1.694) .580
----------------- ----------------- -----------------
Total from Investment Operations........................................ 1.987 (.870) .949
Less Distributions from and in Excess of Net Investment
Income (Note 1)....................................................... .846 .894 .369
----------------- ----------------- -----------------
Net Asset Value, End of the Period...................................... $ 14.987 $ 13.846 $ 15.610
================= ================= =================

Total Return............................................................ 14.70% (5.62%) 6.37%**
Net Assets at End of the Period (In millions)........................... $ 9.5 $ 7.6 $ 5.2
Ratio of Expenses to Average Net Assets*................................ 1.69% 1.64% 1.82%
Ratio of Net Investment Income to Average Net Assets*................... 6.19% 5.71% 5.21%
Portfolio Turnover...................................................... 58.76% 101.11% 90.82%

* The Ratios of Expenses and Net Investment Income to Average Net
Assets were not affected by the assumption of expenses by VKAC.

** Non-Annualized

20 See Notes to Financial Statements

</TABLE>

Notes to Financial Statements
December 31, 1995
- --------------------------------------------------------------------------------
1. Significant Accounting Policies

Van Kampen American Capital Tax Free High Income Fund (the "Fund") is organized
as a series of the Van Kampen American Capital Tax Free Trust, a Delaware
business trust (the "Trust") and is registered as a diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to provide investors with a high
level of current income exempt from federal income taxes primarily through
investment in a diversified portfolio of medium and lower grade municipal
securities. The Fund commenced investment operations on June 28, 1985. The
distribution of the Fund's Class B and Class C shares commenced on May 1, 1993
and August 13, 1993, respectively. On July 7, 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.

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 December 31,
1995, 17% 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 and Expenses-Interest income is recorded on an accrual
basis. Bond premium and original issue discount are amortized over the expected
life of each applicable security.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

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, 1995, the Fund had an accumulated capital loss
carryforward for tax purposes of $73,224,534. Of this amount, $1,295,852,
$42,680,935 and $29,247,747 will expire on December 31, 1999, 2002 and 2003,
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.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

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.

2. Investment Advisory Agreement and Other Transactions with Affiliates

For the year ended December 31, 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 year ended December 31, 1995, the Fund recognized expenses of
approximately $224,000 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management, legal and certain shareholder services (prior to July, 1995) to
the Fund.
In July, 1995, the Fund began using ACCESS Investor Services, Inc., an
affiliate of the Adviser, as the transfer agent of the Fund. For the year ended
December 31, 1995, the Fund recognized expenses of approximately $342,000,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
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 December 31, 1995, was
approximately $39,900.
At December 31, 1995, VKAC owned 100 shares each of Classes B and C.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

3. Capital Transactions

The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.
At December 31, 1995, capital aggregated $715,993,345, $137,196,174 and
$9,718,061 for Classes A, B and C, respectively. For the year ended December 31,
1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A........................ 4,222,270 $ 59,289,997
Class B........................ 2,414,527 35,122,032
Class C........................ 265,279 3,855,840
Class D........................ -0- -0-
------------ ----------------
Total Sales.................... 6,902,076 $ 98,267,869
============ ================

Dividend Reinvestment:
Class A........................ 1,304,961 $ 18,980,521
Class B........................ 181,510 2,642,279
Class C........................ 21,072 306,708
Class D........................ -0- 4
------------ ----------------
Total Dividend Reinvestment.... 1,507,543 $ 21,929,512
============ ================

Repurchases:
Class A........................ (4,634,819) $ (65,107,747)
Class B........................ (1,504,466) (21,894,277)
Class C........................ (197,847) (2,860,089)
Class D........................ (147,327) (2,163,120)
------------ ----------------
Total Repurchases.............. (6,484,459) $ (92,025,233)
============ ================
</TABLE>

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------
At December 31, 1994, capital 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>
Shares Value
- ------------------------------------------------------------------
<S> <C> <C>
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>

<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 year ended December 31, 1995, VKAC, as distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$203,200 and CDSC on the redeemed shares of Classes B and C of approximately
$434,900. Sales charges do not represent expenses of the Fund.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------
4. Investment Transactions

Aggregate purchases and cost of sales of investment securities, excluding
short-term notes and reorganization and restructuring costs, for the year ended
December 31, 1995, were $438,831,202 and $442,773,880, respectively.

5. Derivative Financial Instruments

A. Option Contracts-An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
Transactions in options for the year ended December 31, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts Premium
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994..................... -0- $ -0-
Options Written and Purchased (Net).................. 7,754 (1,872,675)
Options Terminated in Closing
Transactions (Net)................................. (3,976) 922,105
Options Expired (Net)................................ (3,228) 815,661
Options Exercised (Net).............................. (550) 134,909
--------- --------------
Outstanding at December 31, 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 year ended
December 31, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts
- --------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1994................................... 10,586
Futures Opened..................................................... 13,959
Futures Closed..................................................... (23,645)
------------
Outstanding at December 31, 1995................................... 900
============
</TABLE>

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------
The futures contracts outstanding as of December 31, 1995, and the
descriptions and unrealized appreciation/depreciation are as follows:

<TABLE>
<CAPTION>
Unrealized
Appreciation/
Contracts Depreciation
- --------------------------------------------------------------------------------
<S> <C> <C>
Five-Year US Treasury Note Futures
Mar 1996 - Sells to Open...................... 100 $ (147,677)
Municipal Bond Index Futures
Mar 1996 - Sells to Open...................... 400 (379,926)
US Treasury Bond Futures
Mar 1996 - Buys to Open....................... 400 559,292
--------- -------------
900 $ 31,689
========= =============
</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 .25% for Class A shares and 1.00% each
for Class B and Class C shares are accrued daily. Included in these fees for
the year ended December 31, 1995 are payments to VKAC of approximately
$1,016,600.

Independent Auditors' Report
- --------------------------------------------------------------------------------

The Board of Trustees and Shareholders of
Van Kampen American Capital Tax Free High Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Tax Free High Income Fund (the "Fund"), including the
portfolio of investments, as of December 31, 1995, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen American Capital Tax Free High Income Fund as of December 31, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
February 6, 1996

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 American Capital Tax Free High Income Fund
- --------------------------------------------------------------------------------

Board of Trustees

Officers

Don G. Powell*
President and Chief Executive Officer

Dennis J. McDonnell*
Executive Vice President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood III*
Vice President and Chief Financial Officer

Curtis W. Morell*
Vice President and Chief Accounting Officer

John L. Sullivan*
Treasurer

Tanya M. Loden*
Controller

William N. Brown*
Peter W. Hegel*
Robert C. Peck, Jr.*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents

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

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
Performance Perspective............... 4
Portfolio Management Review........... 5
Portfolio of Investments.............. 7
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
Independent Auditors' Report.......... 24
</TABLE>

Letter to Shareholders

January 30, 1996

Dear Shareholder,

For most investors, it would be hard to surpass the success enjoyed
during 1995. The stock and bond markets achieved substantial gains, driven
by a combination of continuing economic growth and low inflation. The
strength of equity and fixed-income securities in 1995 was particularly
impressive because it followed a year in which both markets declined. People
who remained invested during 1995 generally shared in the growth of the
markets, while investors who retreated after 1994's downturn may have missed
out on the double-digit returns.

The rebound in the markets last year reinforces the importance of maintaining
a long-term perspective for your investments. While the environment for stocks
and bonds remains positive, it is unlikely that 1996 will see a repeat of the
markets' strong 1995 performance. However, over the long-term, stocks have
outperformed virtually all other types of investments, and bonds have met the
needs of investors who seek capital preservation and regular income.

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

Economic Overview

The U.S. economy grew throughout 1995, though the rate of growth slowed toward
year-end. The gross domestic product (the value of all goods and services
produced in the United States) grew at an annual rate of more than 4.2 percent
in the third quarter of 1995, but slowed to an estimated 2 to 3 percent in the
fourth quarter, with retail and auto sales particularly sluggish. The slower
growth rate eased concerns about a rise in inflation and allowed the Federal
Reserve Board to lower short-term interest rates by a quarter-percentage point
in late December. The reduction in rates during the latter half of 1995 is
expected to help generate moderate economic growth in 1996, just as the Fed's
raising of short-term rates in 1994 helped slow economic growth in 1995.

The cut in short-term rates, combined with modest growth forecasts, was viewed
by the financial markets as a positive event, pushing up both stock and bond
prices. For the year ended December 31, 1995, the Standard & Poor's 500-Stock
Index achieved a total return of 37.45 percent. The yield on 10-year Treasury
notes was 5.57 percent on December 31, compared to 7.83 percent at the beginning
of the year. Because bond prices and yields move in opposite directions, bond
prices rose. Many observers expect the Fed to cut rates further if Congress and
the President are able to reach an agreement on the federal budget, provided
economic conditions justify further easing.

With a low inflation, low interest rate environment, corporate earnings
remained quite strong during the year, helping to push stocks to new highs. The
strongest sectors were technology and finance, as these stocks benefited from
the impact of the internet, telecommunications deregulation and bank mergers.
U.S. companies with global operations also did well, aided by a declining U.S.
dollar.

1 Continued on page two

Economic Outlook

The current economic conditions are ideal for stocks, especially those of
smaller companies, because they tend to be affected less by economic cycles. The
outlook for the fixed-income market--including municipal bonds--is positive,
too. In the near-term, we believe domestic markets will benefit from a stable
U.S. dollar and increased business activity driven in part by a number of
recently announced strategic reorganizations of some of the nation's blue chip
industry leaders.

During recent months, debate over tax reform and the federal deficit has
dominated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue in
Washington. There has been varied speculation about the impact tax reform could
have on the economy and on various types of investments. We are following the
tax reform debate very closely, and we will keep you updated on this issue
throughout the year. See the winter issue of Your Portfolio for a detailed
discussion of tax reform.

On the following pages, you can read about your Fund's performance in 1995, as
well as the portfolio management team's outlook for the Fund in the coming
months. We hope that you will find this information helpful.

Corporate News

As part of our commitment to helping you achieve your investment goals,
Van Kampen American Capital strives to provide shareholders with the best
service in the mutual fund industry. That is why we are especially pleased to
have received the 1995 Quality Tested Service Seal, which is awarded annually by
DALBAR, Inc., an independent research firm. The Seal, which symbolizes the
achievement of the highest tier of service in the mutual fund industry, was
awarded to American Capital annually from 1990 to 1994 and we are honored that
the service provided by Van Kampen American Capital has achieved the same level
of excellence.

Sincerely,

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

<TABLE>
<CAPTION>
Performance Results for the Period Ended December 31, 1995
Van Kampen American Capital California Insured Tax Free Fund
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
One-year total return based on NAV<F1>......... 18.28% 17.33% 17.40%
One-year total return <F2>.................. 14.44% 14.33% 16.40%
Five-year average annual total return<F2>...... 7.70% N/A N/A
Ten-year average annual total return<F2>....... 8.17% N/A N/A
Life-of-Fund average annual total return<F2>... 8.23% 4.35% 3.92%
Commencement date.............................. 12/13/85 05/01/93 08/13/93

Distribution Rates and Yield
Distribution rate<F3>.......................... 4.84% 4.29% 4.29%
Taxable equivalent distribution rate<F4>....... 8.49% 7.53% 7.53%
SEC Yield<F5>.................................. 4.12% 3.49% 3.49%
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 December 30, 1995. Had
certain expenses of the Fund not been assumed by VKAC, the SEC Yield would have
been 3.98%, 3.35% and 3.35% for Classes A, B and C, respectively and total
returns would have been lower.

Putting Your Fund's Performance in Perspective

As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:

* Illustrate the general market environment in which your investments are
being managed
* Reflect the impact of favorable market trends or difficult market conditions
* Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Municipal Bond
Index over time. As a broad-based, unmanaged statistical composite, this index
does not reflect any commissions or fees which would be incurred by an investor
purchasing the securities it represents. Similarly, its performance does not
reflect any sales charges or other costs which would be applicable to an
actively managed portfolio, such as that of the Fund.

Growth of a Hypothetical $10,000 Investment
Van Kampen American Capital California Insured Tax Free Fund vs. Lehman Brothers
Municipal Bond Index (December 1985 through December 1995)

[GRAPH]

California Lehman Brothers
Insured Tax Municipal Bond
Free Fund Index
31-Dec-85 9,675.04 10,000.00
31-Jan-86 10,176.86 10,589.00
2S-Feb-86 10,488.30 11,009.35
31-Mar-86 10,531.08 11,012.69
30-Apr-86 10,513.23 11,020.39
31-May-86 10,426.46 10,840.76
30-Jun-86 10,628.59 10,944.83
31-Jul-86 10,610.19 11,010.50
1-Aug-86 11,027.14 11,503.77
30-Sep-86 11,033.08 11,532.53
31-Oct-86 11,236.34 11,732.05
30-Nov-S6 11,476.50 11,964.34
31-Dec-86 11,610.92 11,930.84
31-Jan-87 11,845.76 12,289.96
28-Feb-87 11,880.47 12,350.18
31-Mar-87 11,828.34 12,219.27
30-Apr-87 10,996.79 11,605.86
31-May-87 10,790.23 11,547.83
30-Jun-87 11,068.35 11,887.34
31-Jul-87 11,132.85 12,008.59
31-Aug-87 11,243.65 12,036.21
30-Sep-87 10,644.22 11,592.07
31-Oct-87 10,772.29 11,633.80
30-Nov-87 11,030.50 11,937.45
31-Dec-87 11,294.66 12,110.54
31-Jan-88 11,785.70 12,541.67
29-Feb-88 11,879.63 12,674.61
31-Mar-88 11,486.13 12,526.32
30-Apr-88 11,620.16 12,621.52
31-May-88 11,535.69 12,584.92
30-Jun-85 11,727.01 12,768.66
31-Jul-85 11,800.11 12,851.66
31-Aug-88 11,841.48 12,861.94
30-Sep-88 12,059.18 13,094.74
31-Oct-88 12,480.05 13,325.21
30-Nov-88 12,230.38 13,203.95
31-Dec-88 12,481.29 13,338.63
31-Jan-89 12,692.66 13,614.74
28-Feb-89 12,545.93 13,459.53
31-Mar-89 12,473.10 13,427.23
30-Apr-89 12,849.76 13,746.79
31-May-89 13,195.11 14,031.35
30-Jun-89 13,305.85 14,222.18
31-Jul-89 13,425.98 14,415.60
31-Aug-89 13,274.63 14,274.33
29-Sep-89 13,182.15 14,231.50
31-Oct-89 13,295.38 14,406.55
30-Nov-89 13,513.26 14,658.67
29-Dec-89 13,631.90 14,778.87
31-Jan-90 13,476.84 14,709.41
28-Feb-90 13,689.75 14,840.32
30-Mar-90 13,691.96 14,844.77
30-Apr-90 13,507.91 14,737.89
31-May-90 13,822.46 15,059.18
30-Jun-90 13,905.45 15,191.70
31-Jul-90 14,124.20 15,415.01
31-Aug-90 13,890.80 15,191.50
28-Sep-90 13,865.74 15,200.61
31-Oct-90 14,124.60 15,477.26
30-Nov-90 14,476.97 15,788.36
31-Dec-90 14,646.05 15,856.25
31-Jan-91 14,704.25 16,068.72
28-Feb-91 14,856.34 16,208.52
28-Mar-91 14,821.00 16,213.38
30-Apr-91 15,040.87 16,430.64
31-May-91 15,185.91 16,576.87
28-Jun-91 15,073.70 16,560.29
31-Jul-91 15,297.00 16,762.33
30-Aug-91 15,569.87 16,983.59
30-Sep-91 15,737.23 17,204.38
31-Oct-91 15,837.17 17,359.22
30-Nov-91 15,878.82 17,407.83
31-Dec-91 16,107.97 17,782.09
31-Jan-92 16,199.55 17,822.99
29-Feb-92 16,201.98 17,828.34
31-Mar-92 16,274.49 17,835.47
30-Apr-92 16,427.94 17,994.21
31-May-92 16,612.42 18,206.54
30-Jun-92 16,838.43 18,512.41
31-Jul-92 17,443.53 19,067.78
31-Aug-92 17,322.98 18,882.82
30-Sep-92 17,346.16 19,005.56
31-Oct-92 17,048.21 18,819.31
30-Nov-92 17,488.18 19,156.17
31-Dec-92 17,731.49 19,351.56
31-Jan-93 17,955.03 19,576.04
28-Feb-93 18,908.88 20,284.70
31-Mar-93 18,603.60 20,069.68
30-Apr-93 18,830.30 20,272.38
31-May-93 18,929.44 20,385.91
30-Jun-93 19,341.33 20,726.35
31-Jul-93 19,257.56 20,753.30
31-Aug-93 19,890.59 21,184.96
30-Sep-93 20,174.50 21,426.47
31-Oct-93 20,119.65 21,467.18
30-Nov-93 19,734.25 21,278.27
31-Dec-93 20,320.56 21,727.24
31-Jan-94 20,593.79 21,974.93
28-Feb-94 19,864.16 21,405.75
31-Mar-94 18,772.84 20,534.57
30-Apr-94 18,757.15 20,709.11
31-May-94 18,956.17 20,889.28
30-Jun-94 18,849.49 20,761.86
31-Jul-94 19,198.68 21,141.80
31-Aug-94 19,239.59 21,215.79
30-Sep-94 18,878.32 20,903.92
31-Oct-94 18,480.41 20,531.83
30-Nov-94 18,103.85 20,160.21
31-Dec-94 18,543.04 20,603.73
31-Jan-95 19,204.93 21,193.00
28-Feb-95 19,810.83 21,809.71
31-Mar-95 19,957.63 22,060.53
30-Apr-95 19,962.43 22,087.00
31-May-95 20,648.21 22,791.57
30-Jun-95 20,305.09 22,593.29
31-Jul-95 20,454.55 22,807.92
31-Aug-95 20,701.50 23,097.55
29-Sep-95 20,815.53 23,243.10
31-Oct-95 21,199.27 23,580.12
30-Nov-95 21,657.86 23,971.55
31-Dec-95 21,933.74 24,201.68

Portfolio Management Review

Van Kampen American Capital California Insured Tax Free Fund

We recently spoke with the management team of the Van Kampen American Capital
California Insured Tax Free Fund about the key events and economic forces which
shaped the markets during the past fiscal year. The team includes Joseph A.
Piraro, portfolio manager, and Peter W. Hegel, executive vice president for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the twelve-month period ended December 31, 1995.

Q: What were some of the important events or market conditions that had an
impact on the Fund's performance during 1995?

A: The bond market in general was quite strong in 1995, and municipal
securities, of course, participated in the year's rally. Clearly, the
environment for investing in fixed-income securities was extremely favorable
across the board.

Inflation continued to remain in check, with rates hovering around the 2
percent range, while the economy grew at a fairly steady but modest pace. As a
result, the Federal Reserve Board lowered its key lending rate (the federal
funds rate) by one-quarter percentage point in July of 1995 and again, by
one-quarter of a percentage point, in December. Naturally, bond prices were
driven higher as rates trended downward over the course of the year (bond prices
and yields move in opposite directions).

Another factor that had been priced into the municipal market late in the
year was the expectation that a federal budget agreement was inevitable. The
market anticipated a positive budget compromise, and reacted accordingly. Even
though the possibility of tax reform weighed on the market to some extent, the
belief that progress on the federal budget deficit would be made helped to
bolster municipal bonds, especially at the longer end of the maturity spectrum.

Q: What were some of the challenges you faced in managing the Fund, and how was
it positioned to take advantage of market conditions?

A: In the California municipal market, the repercussions of the Orange County
situation continued to dissipate. The market seems confident that the Orange
County default was an isolated incident and that an orderly resolution is
imminent, probably in the first half of 1996.

Still, total issuance of municipal debt in the state was down by approximately
5 percent, though the volume is still the largest of any single state in the
nation. A large portion of that volume is in the insured sector, so we have
plenty of opportunity to put the Fund's assets to work.

We took advantage of the positive 1995 bond market by maintaining the Fund's
portfolio of 100 percent AAA-rated insured securities. We continued to rely on
our strong internal credit research team to help us identify the issues that
appeared to offer the greatest relative value. As of December 31, 1995, the Fund
held a significant portion of its assets (21.2 percent) in issues from the tax
district sector, an area in which our research is especially strong.

[PIE CHART]
Portfolio Composition as of December 31, 1995

Tax District 21.2%
Public Education 19.7%
Public Building 14.9%
Health Care 12.5%
Water and Sewer 11.9%
General Purpose 11.4%
Other 5.1%
Higher Education 3.3%

Q: How well did the Fund perform under these conditions?

A: We had a strong year, providing shareholders with a total return at net asset
value of 18.28 percent<F1> (Class A shares) over the twelve months ended
December 31, 1995.

The Fund continues to provide an attractive level of tax-exempt income,
with a Class A share distribution rate of 4.84 percent<F3> as of December 31,
1995. Since income for the Fund is exempt from federal and state income taxes,
it is important to compare the Fund's distribution rate to an equivalent taxable
rate. For example, for California residents in the combined marginal tax bracket
of 43 percent, the Fund's Class A share distribution rate represents a yield
equivalent to a taxable investment earning 8.49 percent<F4>. At the same time,
the Fund's Class A share net asset value closed the fiscal year at $17.74 per
share, up from $15.80 per share at the end of the last fiscal year.

In comparison to the total return of the Lehman Brothers Municipal Bond Index, a
broad-based, unmanaged index, which was 17.46 percent for the twelve months
through December 31, 1995, the Fund's performance at net asset value was
somewhat higher. (Please refer to the chart on page three for additional Fund
performance results.)

Q: What is your outlook for the Fund and the market in the months ahead?

As the Fed eases its monetary policy, we anticipate further cuts in the fed
funds rate during the first half of 1996. Based on the historically high level
of real interest rates (market rates less the inflation rate), there seems to
be room for short-term interest rates to trend lower, which is a good sign for
long-term rates as well.

In general, conditions appear positive for the continuation of a favorable
environment in which to invest in fixed-income securities.

Peter W. Hegel Joseph A. Piraro
Executive Vice President Portfolio Manager
Fixed Income Investments

6 Please see footnotes on page three

<TABLE>
<CAPTION>
Portfolio of Investments

December 31, 1995
- -------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Municipal Bonds 100.4%
$ 1,000 Alameda, CA Ctfs Partn Alameda Swr Impt Fin Corp(Prerefunded @
03/01/98) (AMBAC Insd)............................................ 7.400% 03/01/18 $ 1,092,770
4,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev (MBIA Insd)................ 6.450 12/28/18 4,411,280
3,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy Pool
Ser A2 (Cap Guar Insd)............................................ 6.400 12/15/14 3,280,620
750 Berkeley, CA Ctfs Partn Cap Imp Berkeley Civic Impt (AMBAC
Insd)............................................................. 7.500 06/01/19 819,878
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 1,057,990
1,300 California Edl Fac Auth Rev Univ San Diego Proj
Stanford Univ Ser I (MBIA Insd)................................... 6.750 10/01/15 1,426,971
2,000 California Hlth Fac Fin Auth Rev Adventist Hlth Ser A
Rfdg (MBIA Insd) <F3>............................................. 6.500 03/01/14 2,153,220
2,650 California Hlth Fac Fin Auth Rev Kaiser Permanente Ser A (AMBAC
Insd)............................................................. 5.550 08/15/25 2,636,458
2,000 California Hlth Fac Fin Auth Rev Kaiser Permanente Ser A
(FSA Insd)........................................................ 5.550 08/15/25 2,001,300
15 California Hsg Fin Agy Rev Hsg Ser B (MBIA Insd).................. 8.625 08/01/15 15,999
1,200 California Pub Cap Impt Fin Auth Rev Pooled Proj Ser B
(MBIA Insd) <F3>.................................................. 8.100 03/01/18 1,298,532
1,500 California St (FGIC Insd)......................................... 6.250 09/01/12 1,691,115
1,500 California St (FSA Insd).......................................... 5.150 10/01/19 1,452,930
3,650 California St Pub Wks Brd Lease Rev Dept of Corrections
CA St Prison Coalinga Ser B (MBIA Insd)........................... 5.375 12/01/19 3,649,817
3,170 California St Pub Wks Brd Lease Rev Dept of Corrections
CA St Prison Susanville Ser D (Cap Guar Insd)..................... 5.250 06/01/15 3,194,884
1,000 California St Pub Wks Brd Lease Rev Ser A (AMBAC Insd)............ 5.750 09/01/21 1,011,710
1,000 California St Univ Fresno Assn Inc Rev Auxiliary Residence
Student Proj (MBIA Insd).......................................... 6.250 02/01/17 1,072,230
1,000 California St Var Purp (MBIA Insd)................................ 6.000 10/01/10 1,100,760
5,000 California St Var Purp (MBIA Insd)................................ 6.000 10/01/14 5,240,400
1,000 California St Var Purp (FSA Insd)................................. 5.500 04/01/19 999,260
5,620 California Statewide Cmntys Dev Auth Rev Ctfs Partn
Good Samaritan Hlth Sys (Cap Mac Insd)............................ 6.250 05/01/14 6,028,743
2,000 Castaic Lake Wtr Agy CA Ctfs Partn Wtr Sys Impt Proj
Ser A Rfdg (MBIA Insd)............................................ 7.000 08/01/12 2,415,520
1,105 Chino, CA Ctfs Partn Redev Agy (MBIA Insd)........................ 6.200 09/01/18 1,177,035
2,350 Chino, CA Unified Sch Dist Ctfs Partn Master Lease Pgm
(FSA Insd)........................................................ 6.250 03/01/09 2,578,772
1,500 Chino, CA Unified Sch Dist Ctfs Partn Master Lease Pgm
(FSA Insd)........................................................ 6.000 03/01/14 1,561,860
1,200 Colton, CA Jt Unified Sch Dist Cmnty Fac Dist Spl Tax Southridge
Vlg Rfdg (Cap Guar Insd).......................................... 5.900 09/01/14 1,200,156
1,500 Compton, CA Cmnty Redev Agy Tax Alloc Walnut Indl Park
Ser A Rfdg (Prerefunded @ 08/01/99) (AMBAC Insd).................. 7.500 08/01/13 1,700,385
</TABLE>

7 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)

December 31, 1995
- -------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Municipal Bonds (Continued)
$ 20 Concord, CA Redev Agy Tax Alloc Cent Concord Redev Proj
Ser 3 (BIGI Insd)............................................... 8.000% 07/01/18 $ 22,148
1,000 Contra Costa Cnty, CA Ctfs Partn Contra Costa Cnty Pub
Fac Co (BIGI Insd) <F3>......................................... 7.800 06/01/06 1,123,600
500 Contra Costa Cnty, CA Ctfs Partn Contra Costa Cnty Pub
Fac Co (BIGI Insd).............................................. 7.800 06/01/07 561,800
1,000 Contra Costa Cnty, CA Santn Dist No 7A Ctfs Partn Sub-Delta
Diablo Fin Corp (Prerefunded @ 12/01/98) (MBIA Insd)............ 7.600 12/01/08 1,119,370
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 1,034,265
1,550 Contra Costa, CA Wtr Auth Wtr Treatment Rev Ser A Rfdg
(FGIC Insd)..................................................... 5.750 10/01/14 1,602,049
5,165 Corona, CA Redev Agy Tax Alloc Redev Proj Area A Ser A Rfdg
(FGIC Insd)..................................................... 6.250 09/01/13 5,593,437
2,000 Fairfield Suisun, CA Swr Dist Swr Rev Ser A Rfdg (MBIA Insd).... 6.250 05/01/16 2,112,240
1,000 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd)................... 6.000 10/01/12 1,046,650
1,400 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd)................... 6.000 10/01/19 1,462,328
2,000 Fresno Cnty, CA Fin Auth Solid Waste Rev American
Avenue Landfill Proj (MBIA Insd)................................ 5.750 05/15/14 2,063,080
1,745 Gilroy, CA Unified Sch Dist Ctfs Partn Measure J Cap
Projs Rfdg (FSA Insd)........................................... 5.875 09/01/06 1,898,612
1,810 Gilroy, CA Unified Sch Dist Ctfs Partn Measure J Cap
Projs Rfdg (FSA Insd)........................................... 6.250 09/01/12 1,961,678
20,000 Grossmont, CA Union High Sch Dist Ctfs Partn
(MBIA Insd)..................................................... * 11/15/21 3,748,200
1,750 Irwindale, CA Cmnty Redev Agy Tax Alloc Indl Dev Proj
Rfdg (AMBAC Insd)............................................... 7.000 08/01/15 1,835,645
1,835 Local Govt Fin Auth CA Rev Cap Apprec San Francisco Redev (MBIA
Insd)........................................................... * 08/01/08 920,895
2,000 Local Govt Fin Jt Pwrs Auth CA Rev Anaheim Redev Agy Ser A
(Prerefunded @ 09/01/98) (MBIA Insd) <F3>....................... 7.950 09/01/09 2,240,120
1,850 Loma Linda, CA Hosp Rev Loma Linda Univ Med Cent Proj B Rfdg
(AMBAC Insd).................................................... 7.000 12/01/15 2,052,297
2,500 Loma Linda, CA Hosp Rev Loma Linda Univ Med Cent Rfdg (MBIA
Insd)........................................................... 5.375 12/01/22 2,478,800
1,000 Long Beach, CA Redev Agy Downtown Redev Proj Ser A (Prerefunded
@ 11/01/98) (AMBAC Insd)........................................ 7.750 11/01/10 1,120,650
100 Los Angeles Cnty, CA Hlth Fac Auth Rev Olive View Med Ser A
(Prerefunded @ 04/01/99) (AMBAC Insd)........................... 9.100 04/01/01 117,187
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 99,852
824 Los Angeles Cnty, CA Tran Comm Lease Rev Dia RR Lease Ltd (FSA
Insd)........................................................... 7.375 12/15/06 942,079
1,295 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev
(FGIC Insd)..................................................... 5.875 01/15/07 1,383,889
6,000 Los Angeles, CA Unified Sch Dist Ctfs Partn Multi Ppty Proj
Rfdg(FSA Insd).................................................. 5.625 11/01/13 6,000,000
</TABLE>

8 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)

December 31, 1995
- ---------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Municipal Bonds (Continued)
$ 1,200 Los Angeles, CA Wastewtr Sys Rev (Prerefunded @ 08/01/98) (MBIA
Insd) <F3>.......................................................... 7.700% 08/01/18 $ 1,333,224
500 M-S-R Pub Pwr Agy CA San Juan Proj Rev Ser E (MBIA Insd)............ 6.000 07/01/22 515,200
1,300 Martinez, CA Ctfs Partn Martinez Pub Impt Corp
(Prerefunded @ 12/01/98) (AMBAC Insd)............................... 7.700 12/01/18 1,470,352
750 Mesa, CA Cons Wtr Dist Ctfs Partn Mesa Cons Wtr Impt
Co Cap Impt (AMBAC Insd)............................................ 7.625 03/15/08 823,185
4,075 New Haven, CA Unified Sch Dist Ser D (FGIC Insd).................... * 08/01/16 1,247,480
4,355 New Haven, CA Unified Sch Dist Ser D (FGIC Insd).................... * 08/01/17 1,254,371
1,250 North City West, CA Sch Fac Fin Auth Spl Tax Ser B
Rfdg (Cap Guar Insd)................................................ 5.750 09/01/15 1,287,925
1,640 North City West, CA Sch Fac Fin Auth Spl Tax Ser B Rfdg
(Cap Guar Insd)..................................................... 6.000 09/01/19 1,736,268
500 Northern CA Pwr Agy Pub Pwr Rev Combustion Turbine
Proj 1 Ser A Rfdg (MBIA Insd)....................................... 6.000 08/15/10 517,960
400 Northern CA Pwr Agy Pub Pwr Rev Hydro Elec Proj 1
Ser A Rfdg (Prerefunded @ 07/01/21) (AMBAC Insd).................... 7.500 07/01/23 507,764
2,760 Oakland, CA Unified Sch Dist Alameda Cnty Cap Apprec Ser A (FGIC
Insd)............................................................... * 08/01/13 1,013,527
3,475 Oakland, CA Unified Sch Dist Alameda Cnty Cap Apprec Ser A (FGIC
Insd)............................................................... * 08/01/14 1,192,828
750 Oceanside, CA Ctfs Partn Corp Yd Proj Fin (Prerefunded
@ 08/01/02) (AMBAC Insd)............................................ 7.300 08/01/21 890,160
1,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd)..................... 5.750 06/01/15 1,028,210
3,000 Palm Desert, CA Fin Auth Tax Alloc Rev (Inverse Fltg) (MBIA Insd)... 8.330 04/01/22 3,408,750
1,000 Perris, CA Sch Dist Ctfs Partn Rfdg (FSA Insd)...................... 6.100 03/01/16 1,057,760
1,945 Pittsburg, CA Unified Sch Dist Ctfs Partn (AMBAC Insd).............. 6.300 09/01/15 2,091,303
2,065 Pomona, CA Pub Fin Auth Rev Ser Q (MBIA Insd) <F2>.................. 5.900 12/01/25 2,100,270
1,360 Port Hueneme, CA Ctfs Partn Cap Impt Pgm Rfdg (MBIA Insd)........... 6.000 04/01/19 1,500,801
1,000 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho Redev Proj (MBIA
Insd)............................................................... 7.125 09/01/19 1,109,340
1,235 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho Redev Proj (MBIA
Insd)............................................................... 6.750 09/01/20 1,339,987
1,265 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho Redev Proj
(Prerefunded @ 09/01/99) (MBIA Insd)................................ 6.750 09/01/20 1,404,960
1,000 Redding, CA Elec Sys Rev Ctfs Partn (Inverse Fltg) (MBIA Insd)...... 8.295 07/08/22 1,295,000
2,495 Rio Linda, CA Univ Sch Dist Ser A (AMBAC Insd)...................... 6.250 08/01/15 2,654,056
2,000 Rohnert Park, CA Hsg Fin Auth Rev Rancho Feliz Mobile Home Park
(FSA Insd).......................................................... 5.600 12/01/15 2,015,480
2,000 Sacramento, CA Muni Util Dist Elec Rev Ser A Rfdg
(MBIA Insd)......................................................... 5.750 08/15/13 2,054,660
2,500 San Bernardino Cnty, CA Ctfs Partn Ser B (Embedded Swap) (MBIA
Insd)............................................................... 5.500 07/01/16 2,529,775
1,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec Ser A
(MBIA Insd)......................................................... 6.400 09/01/18 1,075,450
1,000 San Gabriel, CA Unified Sch Dist Ctfs Partn (FSA Insd).............. 6.000 09/01/15 1,050,920
</TABLE>

9 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)

* Zero coupon bond
<FN>

<F1> At December 31, 1995, cost for federal income tax purposes is
$160,321,399; the aggregate gross unrealized appreciation is $14,349,301
and the aggregate gross unrealized depreciation is $0, resulting in net
unrealized appreciation of $14,349,301.

<F2> Securities purchased on a when issued or delayed delivery basis.

<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments.

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

10 See Notes to Financial Statements

<TABLE>
Statement of Assets and Liabilities

December 31, 1995
- ----------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $160,321,399) (Note 1)........................... $ 174,670,700
Short-Term Investments (Note 1)..................................................... 4,200,000
Cash................................................................................ 85,328
Receivables:
Interest.......................................................................... 2,486,652
Fund Shares Sold.................................................................. 599,756
Other............................................................................... 6,403
---------------
Total Assets................................................................... 182,048,839
---------------

Liabilities:
Payables:
Investments Purchased............................................................. 7,142,923
Income Distributions.............................................................. 281,268
Investment Advisory Fee (Note 2).................................................. 218,351
Fund Shares Repurchased........................................................... 51,529
Accrued Expenses.................................................................... 347,446
---------------
Total Liabilities.............................................................. 8,041,517
---------------

Net Assets.......................................................................... $ 174,007,322
===============

Net Assets Consist of:
Capital (Note 3).................................................................... $ 167,003,524
Net Unrealized Appreciation on Investments.......................................... 14,349,301
Accumulated Net Realized Loss on Investments........................................ (7,345,503)
---------------
Net Assets.......................................................................... $ 174,007,322
===============

Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$147,556,165 and 8,319,584 shares of capital stock issued and outstanding)
(Note 3)....................................................................... $ 17.74
Maximum sales charge (3.25%* of offering price)................................ .60
---------------
Maximum offering price to public............................................... $ 18.34
===============

Class B Shares:
Net asset value and offering price per share (Based on net assets of
$24,613,802 and 1,387,788 shares of capital stock issued and outstanding)
(Note 3)....................................................................... $ 17.74
===============

Class C Shares:
Net asset value and offering price per share (Based on net assets of $1,837,355
and 103,597 shares of capital stock issued and outstanding) (Note 3)........... $ 17.74
===============

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

11 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Operations

For the Year Ended December 31, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest........................................................................... $ 9,958,924
---------------

Expenses:
Investment Advisory Fee (Note 2)................................................... 783,620
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$364,673,$201,044 and $25,540, respectively) (Note 6)............................ 591,257
Shareholder Services (Note 2)...................................................... 173,439
Custody............................................................................ 99,509
Trustees Fees and Expenses (Note 2)................................................ 41,429
Legal (Note 2)..................................................................... 22,858
Insurance (Note 1)................................................................. 741
Other.............................................................................. 155,787
---------------
Total Expenses................................................................ 1,868,640
Less Fees Waived and Expenses Reimbursed ($245,247 and $13,125,
respectively)............................................................... 258,372
---------------
Net Expenses.................................................................. 1,610,268
---------------
Net Investment Income.............................................................. $ 8,348,656
===============

Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales.............................................................. $ 68,415,612
Cost of Securities Sold.......................................................... (68,394,721)
---------------
Net Realized Gain on Investments (Including realized gain on futures
transactions of $269,845)........................................................ 20,891
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period.......................................................... (4,102,506)
End of the Period................................................................ 14,349,301
---------------
Net Unrealized Appreciation on Investments During the Period....................... 18,451,807
---------------
Net Realized and Unrealized Gain on Investments.................................... $ 18,472,698
===============
Net Increase in Net Assets from Operations......................................... $ 26,821,354
===============
</TABLE>

12 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Changes in Net Assets

For the Years Ended December 31, 1995 and 1994
- ------------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income........................................... $ 8,348,656 $ 8,832,987
Net Realized Gain/Loss on Investments........................... 20,891 (5,830,138)
Net Unrealized Appreciation/Depreciation on
Investments During the Period................................. 18,451,807 (18,824,986)
----------------- -----------------
Change in Net Assets from Operations............................ 26,821,354 (15,822,137)
----------------- -----------------
Distributions from Net Investment Income:
Class A Shares................................................ (7,355,019) (7,808,441)
Class B Shares................................................ (897,526) (811,323)
Class C Shares................................................ (115,024) (194,310)
----------------- -----------------
Total Distributions............................................. (8,367,569) (8,814,074)
----------------- -----------------
Net Change in Net Assets from Investment Activities............. 18,453,785 (24,636,211)
----------------- -----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold....................................... 24,793,274 31,539,463
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................................. 4,996,930 5,318,194
Cost of Shares Repurchased...................................... (24,371,464) (32,496,252)
----------------- -----------------
Net Change in Net Assets from Capital Transactions.............. 5,418,740 4,361,405
----------------- -----------------
Total Increase/Decrease in Net Assets........................... 23,872,525 (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 $0 and $18,913, respectively)....................... $ 174,007,322 $ 150,134,797
================= =================
</TABLE>

13 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights

Total Return*........................ 18.28% (8.75%) 14.54% 10.08% 9.98%
Net Assets at End of the Period
(In millions)...................... $ 147.6 $ 130.3 $ 151.1 $ 74.2 $ 60.2
Ratio of Expenses to Average
Net Assets* (Annualized)........... .89% .78% .69% .69% .55%
Ratio of Net Investment Income
to Average Net Assets*
(Annualized)....................... 5.23% 5.46% 5.37% 6.07% 6.20%
Portfolio Turnover................... 42.40% 56.38% 36.17% 60.70% 69.85%

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

Ratio of Expenses to Average
Net Assets (Annualized)............. 1.05% 1.08% 1.01% 1.08% 1.04%
Ratio of Net Investment Income to
Average Net Assets (Annualized)..... 5.07% 5.16% 5.05% 5.68% 5.71%
</TABLE>

14 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- -------------------------------------------------------------------------------------------
From May 1, 1993
(Commencement of
Year Ended Year Ended Distribution) to
Class B Shares December 31, 1995 December 31, 1994 December 31, 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of the Period......... $ 15.805 $ 18.266 $ 17.570
----------------- ----------------- -----------------
Net Investment Income............. .766 .785 .549
Net Realized and Unrealized
Gain/Loss on Investments........ 1.926 (2.482) .705
----------------- ----------------- -----------------
Total from Investment
Operations**.................... 2.692 (1.697) 1.254
Less Distributions from and in
Excess of Net Investment
Income.......................... .761 .764 .558
----------------- ----------------- -----------------
Net Asset Value,
End of the Period............... $ 17.736 $ 15.805 $ 18.266
================= ================= =================

Total Return*..................... 17.33% (9.39%) 7.25%**
Net Assets at End of the Period
(In millions)................... $ 24.6 $ 17.1 $ 15.3
Ratio of Expenses to Average
Net Assets* (Annualized)........ 1.61% 1.52% 1.45%
Ratio of Net Investment Income
to Average Net Assets*
(Annualized).................... 4.51% 4.71% 4.06%
Portfolio Turnover................ 42.40% 56.38% 36.17%

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

Ratio of Expenses to Average
Net Assets (Annualized)......... 1.77% 1.82% 1.77%
Ratio of Net Investment Income
to Average Net Assets
(Annualized).................... 4.35% 4.41% 3.74%
** Non-annualized
</TABLE>

15 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- ----------------------------------------------------------------------------------------------
From August 13, 1993
(Commencement of
Year Ended Year Ended Distribution) to
Class C Shares December 31, 1995 December 31, 1994 December 31, 1993
==============================================================================================
<S> <C> <C> <C>
Net Asset Value,
Beginning of the Period......... $ 15.798 $ 18.257 $ 18.010
----------------- ----------------- --------------------
Net Investment Income............. .758 .773 .307
Net Realized and Unrealized
Gain/Loss on Investments........ 1.941 (2.468) .258
----------------- ----------------- --------------------
Total from Investment
Operations**.................... 2.699 (1.695) .565
Less Distributions from and in
Excess of Net Investment
Income.......................... .761 .764 .318
----------------- ----------------- --------------------
Net Asset Value,
End of the Period............... $ 17.736 $ 15.798 $ 18.257
================= ================= ====================

Total Return*..................... 17.40% (9.40%) 3.17%**
Net Assets at End of the Period
(In millions)................... $ 1.8 $ 2.8 $ 4.0
Ratio of Expenses to Average
Net Assets* (Annualized)........ 1.60% 1.51% 1.45%
Ratio of Net Investment Income
to Average Net Assets*
(Annualized).................... 4.50% 4.71% 3.82%
Portfolio Turnover................ 42.40% 56.38% 36.17%

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

Ratio of Expenses to Average
Net Assets (Annualized)........ 1.75% 1.82% 1.76%
Ratio of Net Investment Income
to Average Net Assets
(Annualized)................... 4.34% 4.39% 3.52%
** Non-annualized
</TABLE>

16 See Notes to Financial Statements

Notes to Financial Statements

December 31, 1995
- --------------------------------------------------------------------------------

1. Significant Accounting Policies

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

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 and Expense--Interest income and expenses are recorded on
an accrual basis. Bond premium and original issue discount are amortized over
the expected life of each applicable security.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Notes to Financial Statements (Continued)

December 31, 1995
- --------------------------------------------------------------------------------

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, 1995, the Fund had an accumulated capital loss
carry forward for tax purposes of $7,345,503. Of this amount, $1,014,876,
$105,997, $5,623,922 and $600,708 will expire on December 31, 1996, 2001,
2002 and 2003, 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. On December 31, 1995, $100,459 of the Fund's
capital loss carryforward expired, resulting in a permanent book and tax
basis difference. Accordingly, this difference was reclassified from
accumulated net realized loss on investments to Class A share capital.

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:

<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>

Notes to Financial Statements (Continued)

December 31, 1995
- --------------------------------------------------------------------------------

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 year ended December 31, 1995, the Fund recognized expenses of
approximately $53,500 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management, legal and certain shareholder services (prior to July, 1995) to
the Fund.

In July, 1995, the Fund began using ACCESS Investor Services, Inc., an
affiliate of the Adviser, as the transfer agent of the Fund. For the year ended
December 31, 1995, the Fund recognized expenses of approximately $68,000,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.

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 December 31, 1995, was
approximately $46,000.

At December 31, 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 each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.

Notes to Financial Statements (Continued)

December 31, 1995
- --------------------------------------------------------------------------------

At December 31, 1995, capital aggregated $139,971,316, $24,804,730 and
$2,227,478 for Classes A, B and C, respectively. For the year ended December 31,
1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................... 986,569 $ 16,771,568
Class B..................... 434,181 7,401,889
Class C..................... 36,228 619,817
----------- -------------
Total Sales................... 1,456,978 $ 24,793,274
=========== =============

Dividend Reinvestment:
Class A..................... 258,526 $ 4,396,599
Class B..................... 31,979 544,950
Class C..................... 3,266 55,381
----------- -------------
Total Dividend Reinvestment... 293,771 $ 4,996,930
=========== =============

Repurchases:
Class A..................... (1,170,822) $(19,801,544)
Class B..................... (157,415) (2,652,072)
Class C..................... (112,218) (1,917,848)
----------- -------------
Total Repurchases............. (1,440,455) $(24,371,464)
=========== =============
</TABLE>

Notes to Financial Statements (Continued)

December 31, 1995
- --------------------------------------------------------------------------------

At December 31, 1994, capital 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)

December 31, 1995
- --------------------------------------------------------------------------------

For the year ended December 31, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$31,800 and CDSC on the redeemed shares of Classes B and C of approximately
$56,900. 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 year ended December 31, 1995 were $73,460,026 and
$68,394,721, 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.

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.

Transactions in futures contracts, each with a par value of $100,000, for the
year ended December 31, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts
- ----------------------------------------------------
<S> <C>
Outstanding at December 31, 1994......... 400
Futures Opened........................... 500
Futures Closed........................... (900)
---------
Outstanding at December 31, 1995......... -0-
=========
</TABLE>

Notes to Financial Statements (Continued)

December 31, 1995
- --------------------------------------------------------------------------------

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

Annual fees under the Plans of up to .25% of Class A shares and 1.00% each of
Class B and Class C shares are accrued daily. Included in these fees for the
year ended December 31, 1995, are payments to VKAC of approximately $192,000.

Independent Auditors' Report
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of the
Van Kampen American Capital California Insured Tax Free Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital California Insured Tax Free Fund (the "Fund"),
including the portfolio of investments, as of December 31, 1995, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen American Capital California Insured Tax Free Fund as of December 31,
1995, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
February 6, 1996

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 American Capital California Insured Tax Free Fund
- -------------------------------------------------------------------------------

Board of Trustees

J. Miles Branagan

Linda Hutton Heagy

Roger Hilsman

R. Craig Kennedy

Dennis J. McDonnell*

Donald C. Miller - Chairman

Jack E. Nelson

Don G. Powell*

Jerome L. Robinson

Fernando Sisto

Wayne W. Whalen*

William Stewart Woodside

Officers

Don G. Powell*
President and Chief Executive Officer

Dennis J. McDonnell*
Executive Vice President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood III*
Vice President and Chief Financial Officer

Curtis W. Morell*
Vice President and Chief Accounting Officer

John L. Sullivan*
Treasurer

Tanya M. Loden*
Controller

William N. Brown*
Peter W. Hegel*
Robert C. Peck, Jr.*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents

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

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.

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.

26
<TABLE>

Table of Contents

<S> <C>
Letter to Shareholders.................. 1
Performance Results..................... 3
Performance Perspective................. 4
Portfolio Management Review............. 5
Portfolio of Investments................ 7
Statement of Assets and Liabilities..... 20
Statement of Operations................. 21
Statement of Changes in Net Assets...... 22
Financial Highlights.................... 23
Notes to Financial Statements........... 26
Independent Auditors' Report............ 32
</TABLE>

MIF ANR 2/96

Letter to Shareholders

January 24, 1996

Dear Shareholder,

For most investors, it would be hard to surpass the success enjoyed during
1995. The stock and bond markets achieved substantial gains, driven by a
combination of continuing economic growth and low inflation. The strength
of equity and fixed-income securities in 1995 was particularly impressive
because it followed a year in which both markets declined. People who
remained invested during 1995 generally shared in the growth of the markets,
while investors who retreated after 1994's downturn may have missed out on
the double-digit returns.

The rebound in the markets last year reinforces the importance of
maintaining a long-term perspective for your investments. While the environment
for stocks and bonds remains positive, it is unlikely that 1996 will see a
repeat of the markets' strong 1995 performance. However, over the long-term,
stocks have outperformed virtually all other types of investments, and bonds
have met the needs of investors who seek capital preservation and regular
income.

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

Economic Overview

With a low inflation, low interest rate environment, corporate earnings
remained quite strong during the year, helping to push stocks to new highs. The
strongest sectors were technology and finance, as these stocks benefited from
the impact of the Internet, telecommunications deregulation and bank mergers.
U.S. companies with global operations also did well, aided by a declining U.S.
dollar.

Continued on page two

Economic Outlook

The current economic conditions are ideal for stocks, especially those of
smaller companies, because they tend to be affected less by economic cycles.
The outlook for the fixed-income market---including municipal bonds--is
positive, too. In the near-term, we believe domestic markets will benefit
from a stable U.S. dollar and increased business activity driven in part by
a number of recently announced strategic reorganizations of some of the
nation's blue chip industry leaders.

Corporate News

As part of our commitment to helping you achieve your investment goals, Van
Kampen American Capital strives to provide shareholders with the best service in
the mutual fund industry. That is why we are especially pleased to have received
the 1995 Quality Tested Service Seal, which is awarded annually by DALBAR, Inc.,
an independent research firm. The Seal, which symbolizes the achievement of the
highest tier of service in the mutual fund industry, was awarded to American
Capital annually from 1990 to 1994 and we are honored that the service provided
by Van Kampen American Capital has achieved the same level of excellence.

Sincerely,

Don G. Powell Dennis J. McDonnell
Chief Executive Officer President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

Performance Results for the Period Ended December 31, 1995
Van Kampen American Capital Municipal Income Fund

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
One-year total return based on NAV<F1>........... 15.61% 14.74% 14.74%
One-year total return<F2>........................ 10.12% 10.74% 13.74%
Five-year average annual total return<F2>........ 7.66% N/A N/A
Life-of-Fund average annual total return<F2>..... 7.55% 5.12% 3.99%
Commencement date................................ 08/01/90 08/24/92 08/13/93
Distribution Rates and Yield
Distribution rate<F3>............................ 5.40% 4.94% 4.94%
Taxable-equivalent distribution rate<F4>......... 8.44% 7.72% 7.72%
SEC Yield<F5>.................................... 4.61% 4.08% 4.08%
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%.

<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 December 30, 1995. Had
certain expenses of the Fund not been assumed by VKAC, the SEC Yield would have
been 4.60%, 4.07% and 4.07% for Classes A, B and C, respectively, and total
returns would have been lower.

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

Putting Your Fund's Performance in Perspective
- --------------------------------------------------------------------------------

As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison
can:

* Illustrate the general market environment in which your investments are being
managed

* Reflect the impact of favorable market trends or difficult market conditions

* Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Municipal Bond
Index over time. As a broad-based, unmanaged statistical composite, this index
does not reflect any commissions or fees which would be incurred by an
investor purchasing the securities it represents. Similarly, its performance
does not reflect any sales charges or other costs which would be applicable to
an actively managed portfolio, such as that of the Fund.

[GRAPH]

Growth of a Hypothetical $10,000 Investment

Van Kampen American Capital Municipal Income Fund vs.
Lehman Brothers Municipal Bond Index
(August 1990 through December 1995)

Fund's Total Return
1 Year Avg. Annual = 10.12%
5 Year Avg. Annual = 7.66%
Inception Avg. Annual = 7.55%

VKAC Lehman Brothers
Municipal Income Fund Municipal Bond Index

01-Aug-90 9,525.70 10,000.00
31-Aug-90 9,445.50 9,855.00
28-Sep-90 9,453.80 9,860.91
31-Oct-90 9,489.20 10,040.38
30-Nov-90 9,673.60 10,242.19
31-Dec-90 9,770.70 10,286.23
31-Jan-91 9,868.40 10,424.07
28-Feb-91 9,973.70 10,514.76
28-Mar-91 9,996.30 10,517.91
30-Apr-91 10,151.80 10,658.85
31-May-91 10,301.30 10,753.72
28-Jun-91 10,303.00 10,742.96
31-Jul-91 10,475.80 10,874.03
30-Aug-91 10,604.90 11,017.57
30-Sep-91 10,770.90 11,160.79
31-Oct-91 10,865.20 11,261.24
30-Nov-91 10,931.00 11,292.77
31-Dec-91 11,136.70 11,535.57
31-Jan-92 11,203.20 11,562.10
29-Feb-92 11,218.10 11,565.57
31-Mar-92 11,300.30 11,570.19
30-Apr-92 11,417.70 11,673.17
31-May-92 11,566.00 11,810.91
30-Jun-92 11,768.30 12,009.34
31-Jul-92 12,247.30 12,369.62
31-Aug-92 11,959.50 12,249.63
30-Sep-92 12,018.40 12,329.25
31-Oct-92 11,828.50 12,208.43
30-Nov-92 12,068.00 12,426.96
31-Dec-92 12,215.50 12,553.71
31-Jan-93 12,324.10 12,699.33
28-Feb-93 12,818.30 13,159.05
31-Mar-93 12,702.10 13,019.56
30-Apr-93 12,833.60 13,151.06
31-May-93 12,933.10 13,224.71
30-Jun-93 13,123.30 13,445.56
31-Jul-93 13,121.60 13,463.04
31-Aug-93 13,376.60 13,743.07
30-Sep-93 13,508.10 13,899.74
31-Oct-93 13,539.80 13,926.15
30-Nov-93 13,361.80 13,803.60
31-Dec-93 13,706.10 14,094.86
31-Jan-94 13,861.70 14,255.54
28-Feb-94 13,498.30 13,886.32
31-Mar-94 12,765.20 13,321.15
29-Apr-94 12,794.00 13,434.38
31-May-94 13,004.40 13,551.26
30-Jun-94 12,929.30 13,468.59
29-Jul-94 13,106.90 13,715.07
31-Aug-94 13,153.80 13,763.07
30-Sep-94 12,980.50 13,560.75
31-Oct-94 12,770.90 13,319.37
30-Nov-94 12,489.00 13,078.29
31-Dec-94 12,832.30 13,366.01
31-Jan-95 13,213.40 13,748.28
28-Feb-95 13,596.40 14,148.36
31-Mar-95 13,735.90 14,311.06
30-Apr-95 13,666.00 14,328.24
31-May-95 13,935.30 14,785.31
30-Jun-95 13,855.50 14,656.68
31-Jul-95 13,886.60 14,795.91
31-Aug-95 14,076.10 14,983.82
30-Sep-95 14,135.60 15,078.22
31-Oct-95 14,336.40 15,296.85
30-Nov-95 14,613.70 15,550.78
31-Dec-95 14,835.50 15,700.07

Portfolio Management Review
- --------------------------------------------------------------------------------

Van Kampen American Capital Municipal Income Fund

We recently spoke with the management team of the Van Kampen American Capital
Municipal Income Fund about the key events and economic forces which shaped the
markets during the past fiscal year. The team includes David C. Johnson,
portfolio manager, and Peter W. Hegel, executive vice president for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the twelve-month period ended December 31, 1995.

Q: What were some of the important events or market conditions that had an
impact on the Fund's performance during 1995?

Inflation continued to remain in check, with rates hovering around the 2
percent range, while the economy grew at a fairly steady but modest pace. As a
result, the Federal Reserve Board lowered its key lending rate (the federal
funds rate) by one quarter percentage point in July of 1995 and again, by
one-quarter of a percentage point, in December. Naturally, bond prices were
driven higher as rates trended downward over the course of the year (bond prices
go up when rates go down, and vice versa).

Another factor that had been priced into the municipal market late in the year
was the expectation that a federal budget agreement was inevitable. The market
anticipated a positive budget compromise, and reacted accordingly. Even though
the possibility of tax reform weighed on the market to some extent, the belief
that progress on the federal budget deficit would be made helped to bolster
municipal bonds, especially at the longer end of the maturity spectrum.

Q: How was the Fund positioned to take advantage of market conditions?

A: Van Kampen American Capital Municipal Bond Fund was merged into the Van
Kampen American Capital Municipal Income Fund earlier this year. The merger of
the two Funds went smoothly and did not significantly change the structure of
the portfolio.

In response to market challenges, the Fund maintained its portfolio and sought
to remain well diversified by sector concentration and rating distribution. As
of December 31, 1995, approximately 40 percent of total assets were rated AAA by
Standard & Poor's Ratings Group (their highest rating), while 20 percent were
non-rated securities.

Our strong internal credit research team includes six analysts who focus on
the high-yield sector, to help find the highest relative value available in the
market on lower-rated or non-rated issues. From a sector concentration
perspective, the Fund has exposure to eighteen different sectors---the largest
being health care (20.6 percent as of December 31, 1995). We have analysts
dedicated to researching the health care industry, and our proprietary research
database contains detailed financial information on hundreds of hospitals and
health care facilities across the nation.

[PIE CHART]
Portfolio Composition as of December 31, 1995

Health Care 20.6%
Other* 19.6%
Industrial Revenue 10.5%
Single Family Housing 7.2%
Transportation 7.0%
General Purpose 6.9%
Water & Sewer 6.5%
Wholesale Electric 6.0%
Retail/Electric/Gas/Telephone 5.3%
Higher Education 5.2%
Tax District 5.2%

*Other represents 8 sectors, each of which are less than 4%

Q: How well did the Fund perform under these conditions?

A: The Fund responded well to the market over the previous year, and turned in a
solid performance. The Fund's Class A share net asset value increased over the
course of 1995, closing the year at $15.55 per share, up from $14.26 per share
at the beginning of the year. Over the twelve-month period ended December
31, 1995, Class A share total return at net asset value, was 15.61 percent<F1>,
compared to the total return of the Lehman Brothers Municipal Bond Index, a
broad-based, unmanaged index, which was 17.46 percent for the same period.

The Fund's Class A share distribution rate stood at 5.40 percent<F3> as of
December 31, 1995, representing an attractive level of tax-exempt income. For an
investor in the 36 percent federal income tax bracket, that's the equivalent of
earning 8.44 percent<F4> on a taxable investment. (Please refer to the chart on
page three for additional Fund performance results.)

Q: What is your outlook for the Fund and the market in the months ahead?

We anticipate the Fed will continue its accomodative monetary policy and
reduce the fed funds rate further during the first half of 1996. Based on the
historically high level of real interest rates (market rates less the inflation
rate), there seems to be room for short-term interest rates to trend lower,
which is a good sign for long-term rates as well.

We expect the supply of new municipal issues to be somewhat low in 1996, but
refunding activity should be high as the lower interest rate environment makes
it more attractive for municipalities to retire their higher-yielding
outstanding issues.

In general, conditions appear positive for the continuation of a favorable
environment in which to invest in fixed-income securities.

Peter W. Hegel David C. Johnson
Executive Vice President Portfolio Manager
Fixed Income Investments

Please see footnotes on page three

<TABLE>
<CAPTION>
Portfolio of Investments
December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Alabama 2.1%
$ 2,805 Alabama Higher Edl Ln Corp (FSA Insd) ................................... 6.000% 09/01/07 $ 2,953,889
2,100 Alabama St Indl Dev Auth Rev (Var Rate Cpn) ............................. 7.500 09/15/11 2,131,122
3,000 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln Ser A (AMBAC Insd) ....... 6.750 08/15/17 3,408,150
5,055 Bay Minette, AL Indl Dev Brd Indl Dev Rev Coltec Inds Inc Rfdg <F3> ..... 6.500 02/15/09 5,166,918
2,000 Birmingham-Carraway, AL Methodist Hlth Sys Ser A (Connie Lee Insd) ...... 5.875 08/15/25 2,062,780
700 Citronelle, AL Util Brd Wtr Swr & Gas Rev (Prerefunded @ 05/01/97) ...... 9.000 05/01/13 729,505
1,050 IDB of the City of Bessemer, AL Rohn Inc Ser 91A (Var Rate Cpn) ......... 9.000 09/15/01 1,141,224
1,750 IDB of the City of Bessemer, AL Rohn Inc Ser 91A (Var Rate Cpn) ......... 9.500 09/15/11 2,106,615
2,045 Jefferson Cnty, AL Brd Edl Cap Outlay Sch (AMBAC Insd) .................. 5.875 02/15/20 2,123,835
1,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev Mobile Energy Svcs Co Proj
Rfdg .................................................................... 6.950 01/01/20 1,059,180
-----------------
22,883,218
-----------------
Alaska 0.8%
2,500 Alaska Energy Auth Pwr Rev First Ser Bradley Lake Proj (BIGI Insd) ...... 6.250 07/01/21 2,568,250
4,500 Alaska St Hsg Fin Corp Ser A (MBIA Insd) ................................ 5.875 12/01/24 4,536,225
1,000 Valdez, AK Marine Term Rev Sohio Pipeline Rfdg .......................... 7.125 12/01/25 1,106,650
-----------------
8,211,125
-----------------
Arizona 1.7%
1,000 Maricopa Cnty, AZ Indl Dev Auth Indl Dev Rev Borden Inc Proj ............ 5.040 10/01/12 1,008,070
1,000 Maricopa Cnty, AZ Indl Dev Auth Multi-Family Hsg Rev Rfdg ............... 6.500 07/01/09 1,050,480
1,000 Pima Cnty, AZ Indl Dev Auth Single Family Mtg Rev (GNMA Collateralized).. 6.625 11/01/14 1,050,680
5,220 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A .............................. 9.500 07/01/10 6,354,358
500 Scottsdale, AZ Indl Dev Auth Rev Mtg Westminster Village A .............. 8.250 06/01/15 538,745
500 Tempe, AZ Indl Dev Auth Indl Dev Rev Ser A .............................. 6.750 12/01/13 510,100
7,000 Tucson, AZ Arpt Auth Inc Spl Fac Rev Lockheed Aermod Cent Inc ........... 8.700 09/01/19 8,122,870
-----------------
18,635,303
-----------------
Arkansas 0.6%
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 9.4%
6,750 California Edl Fac Auth Rev College of Osteopathic Med Pacific
(Prerefunded @ 06/01/03) ................................................ 7.500 06/01/18 7,711,335
2,880 California Edl Fac Auth Rev Univ of La Verne ............................ 6.300 04/01/09 2,976,480
4,980 California Hlth Fac Fin Auth Rev Kaiser Permanente Med Cent ............. 5.450 10/01/13 4,904,404
11,175 California Pollutn Ctl Fin Auth Pollutn Ctl Rev Pacific Gas & Elec Co
Ser B (MBIA Insd) ....................................................... 5.850 12/01/23 11,423,308
2,000 California St Pub Wks Brd Lease Rev Dept of Justice Bldg Ser A (FSA
Insd) ................................................................... 5.800 05/01/15 2,078,200
2,000 California Statewide Cmntys Dev Auth Rev Ctfs Partn Sisters Charity ..... 4.875 12/01/10 1,914,000
2,000 Compton, CA Ctfs Partn Ser B ............................................ 7.500 08/01/15 2,139,760
4,285 Delano, CA Ctfs Partn Ser A ............................................. 9.250 01/01/22 4,932,464
1,000 El Centro, CA Ctfs Partn ................................................ 7.000 06/01/19 1,009,720
2,660 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd) ................... * 09/01/10 1,146,141
5,875 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd) ................... * 09/01/11 2,357,696
3,890 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd) ................... * 09/01/13 1,366,868
5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd) ................... * 09/01/14 1,780,388
975 Fairfield, CA Hsg Auth Mtg Rev Creekside Estates Proj Rfdg .............. 7.875 02/01/15 1,015,882
38,000 Foothill/Eastern Tran Agy Cap Apprec Sr Lien Ser A ...................... * 01/01/27 5,388,780
43,860 Foothill/Eastern Tran Corridor Agy CA Toll Road Rev Sr Lien Ser A ....... * 01/01/25 7,054,881
</TABLE>

See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (Continued)
$ 75,145 Foothill/Eastern Tran Corridor Agy CA Toll Road Rev Sr Lien Ser A ....... *% 01/01/29 $ 9,394,628
1,000 Los Angeles, CA Cmnty Redev Agy Cmnty Redev Fin Auth Rev Grand Cent Sq
Ser A ................................................................... 5.850 12/01/26 918,730
1,000 Los Angeles, CA Cmnty Redev Agy Cmnty Redev Fin Auth Rev Grand Cent Sq
Ser A ................................................................... 5.900 12/01/26 959,540
2,000 Los Angeles, CA Regional Arpts Impt Corp Lease Rev Fac Sublease West .... 11.250 11/01/25 2,062,180
1,000 Madera Cnty, CA Ctfs Partn Vly Children's Hosp (MBIA Insd) .............. 6.125 03/15/23 1,058,990
1,500 Madera Cnty, CA Ctfs Partn Vly Children's Hosp (MBIA Insd) .............. 5.750 03/15/28 1,534,080
1,100 Monterey, CA Regl Wastewater Fin Auth Wastewater Contract Rev (FSA
Insd) ................................................................... * 06/01/05 692,824
900 Monterey, CA Regl Wastewater Fin Auth Wastewater Contract Rev (FSA
Insd) ................................................................... * 06/01/10 408,078
800 Monterey, CA Regl Wastewater Fin Auth Wastewater Contract Rev (FSA
Insd) ................................................................... * 06/01/11 340,816
700 Monterey, CA Regl Wastewater Fin Auth Wastewater Contract Rev (FSA
Insd) ................................................................... * 06/01/12 282,163
700 Monterey, CA Regl Wastewater Fin Auth Wastewater Contract Rev (FSA
Insd) ................................................................... * 06/01/13 266,525
700 Monterey, CA Regl Wastewater Fin Auth Wastewater Contract Rev (FSA
Insd) ................................................................... * 06/01/14 251,251
500 Norco, CA Swr & Wtr Rev Rfdg ............................................ 6.700 10/01/13 507,390
500 Norco, CA Swr & Wtr Rev Rfdg ............................................ 7.200 10/01/19 521,405
300 Northern CA Pwr Agy Pub Pwr Rev Geothermal Proj No 3 Ser A .............. 5.000 07/01/09 292,809
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 3,801,632
4,000 Riverside Cnty, CA Ctfs Partn Air Force Village West Inc A .............. 8.125 06/15/20 4,241,600
6,030 San Bernardino Cnty, CA Ctfs Partn Med Cent Fin Proj Ser A (MBIA Insd)... 5.500 08/01/15 6,026,080
2,625 San Francisco, CA City & Cnty Arpts Comm Intl Arpt Rev 2nd Ser Issue 8A
(FGIC Insd) ............................................................. 6.250 05/01/20 2,781,791
950 San Jose, CA Fin Auth Rev Reassmt Ser C Rfdg ............................ 7.000 09/02/15 968,953
2,000 Shasta, CA Jt Pwrs Fin Auth Lease Rev Justice Cent Proj Ser A Rfdg ...... 5.900 09/01/14 1,989,740
5,000 Victor, CA Elem Sch Dist Cap Apprec Ser A (MBIA Insd) ................... * 06/01/20 1,309,150
----------------
99,810,662
----------------
Colorado 6.6%
2,840 Adams Cnty, CO Single Family Mtg Rev Ser A .............................. 8.875 08/01/10 3,966,287
3,985 Adams Cnty, CO Single Family Mtg Rev Ser A <F3> ......................... 8.875 08/01/12 5,683,367
13,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser C .......... * 08/31/15 3,503,115
29,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser C .......... * 08/31/26 3,198,990
1,330 Arapahoe Cnty, CO Single Family Mtg Rev Ser A (GNMA Collateralized) ..... 8.375 08/01/19 1,398,296
500 Berry Creek Metro Dist CO ............................................... 8.250 12/01/11 559,795
500 Boulder Cnty, CO Indl Dev Rev Boulder Med Cent Proj ..................... 8.875 01/01/17 521,800
1,000 Bowles Metro Dist CO <F2> ............................................... 7.750 12/01/15 996,990
500 Colorado Hlth Fac Auth Rev Cleo Wallace Cent Proj ....................... 7.000 08/01/15 515,655
3,400 Colorado Hlth Fac Auth Rev Hosp North CO Med Cent (MBIA Insd) ........... 6.000 05/15/20 3,552,150
1,500 Colorado Hlth Fac Auth Rev PSL Hlth Sys Proj Ser A (FSA Insd) ........... 6.250 02/15/21 1,661,745
800 Colorado Hlth Fac Auth Rev Rocky Mtn Adventist Rfdg ..................... 6.625 02/01/13 821,064
1,000 Colorado Hlth Fac Auth Rev Vail Vly Med Cent Proj Ser A ................. 6.500 01/15/13 1,040,740
2,000 Denver, CO City & Cnty Arpt Rev Ser A ................................... 7.000 11/15/99 2,143,640
8,550 Denver, CO City & Cnty Arpt Rev Ser A ................................... 8.500 11/15/23 9,798,386
5,000 Denver, CO City & Cnty Arpt Rev Ser A ................................... 8.000 11/15/25 5,612,700
5,000 Denver, CO City & Cnty Arpt Rev Ser C (MBIA Insd) ....................... 5.600 11/15/25 5,006,100
1,000 Dove Vly Metro Dist CO Arapahoe Cnty .................................... 9.500 12/01/08 1,025,430
1,000 Edgewater, CO Redev Auth Tax Increment Rev .............................. 6.750 12/01/08 1,084,180
</TABLE>

See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colorado (Continued)
$ 3,690 Jefferson Cnty, CO Residential Mtg Rev ..................................... 11.500% 09/01/12 $ 6,275,251
5,000 Meridian Metro Dist CO Peninsular & Oriental Steam Navig Co Rfdg ........... 7.500 12/01/11 5,435,300
630 Mountain Village Metro Dist CO San Miguel Cnty ............................. 7.950 12/01/03 700,251
500 Mountain Village Metro Dist CO San Miguel Cnty ............................. 8.100 12/01/11 563,110
5,000 University of CO Hosp Auth Hosp Rev Ser A (AMBAC Insd) ..................... 6.400 11/15/22 5,384,450
------------
70,448,792
------------
Connecticut 0.5%
5,005 Connecticut St Hlth & Edl Fac Auth Rev Nursing Home
Pgm AHF/Hartford ........................................................... 7.125 11/01/14 5,784,529
------------
Delaware 0.2%
2,000 Delaware St Econ Dev Auth Rev Osteopathic Hosp Assoc Delaware A ............ 6.900 01/01/18 1,951,440
------------
District of Columbia 0.2%
2,500 District of Columbia Rev Natl Pub Radio .................................... 7.700 01/01/23 2,661,775
------------
Florida 5.2%
500 Atlantic Beach, FL Rev Fleet Landing Proj Ser A Rfdg & Impt ................ 7.500 10/01/02 537,360
500 Atlantic Beach, FL Rev Fleet Landing Proj Ser A Rfdg & Impt ................ 7.875 10/01/08 559,035
1,000 Broward Cnty, FL Edl Fac Auth Rev Rfdg (Prerefunded @ 04/01/99) ............ 8.500 04/01/10 1,150,240
1,700 Broward Cnty, FL Res Recovery Rev .......................................... 7.950 12/01/08 1,925,386
2,220 Broward Cnty, FL Res Recovery Rev .......................................... 7.950 12/01/08 2,514,328
1,000 Charlotte Cnty, FL Hosp Rev Bon Secours Hlth St. Joseph Ser A (Prerefunded
@ 08/15/98) ................................................................ 8.250 08/15/18 1,124,300
4,000 Collier Cnty, FL Indl Dev Auth Indl Dev Rev Rfdg <F2> ...................... 6.500 10/01/25 3,899,880
24,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec Ser A Rfdg (MBIA Insd) ........ * 02/01/18 6,745,440
2,000 Dade Cnty, FL Prof Sports Franchise Fac Tax Rev (MBIA Insd) ................ * 10/01/24 437,100
560 Florida St Brd Edl Cap Outlay Pub Edl Ser A Rfdg ........................... 7.250 06/01/23 632,593
590 Florida St Brd Edl Cap Outlay Pub Edl Ser A Rfdg (Prerefunded @ 06/01/00)... 7.250 06/01/23 674,565
1,900 Florida St Brd Edl Cap Outlay Pub Edl Ser C (MBIA Insd) .................... 5.600 06/01/20 1,926,106
5,000 Florida St Div Bond Fin Dept Genl Svcs Rev Environmental Preservation 2000
Ser A (MBIA Insd) .......................................................... 4.750 07/01/10 4,844,550
2,255 Greater Orlando Aviation Auth Orlando FL Arpt Fac Rev ...................... 8.375 10/01/16 2,522,781
245 Greater Orlando Aviation Auth Orlando FL Arpt Fac Rev (Prerefunded @
10/01/98) .................................................................. 8.375 10/01/16 276,730
335 Largo, FL Sun Coast Hlth Sys Rev Hosp Rfdg ................................. 5.750 03/01/02 335,365
2,875 Martin Cnty, FL Indl Dev Auth Indl Dev Rev Indiantown Cogeneration Proj A
Rfdg ....................................................................... 7.875 12/15/25 3,314,041
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp Adventist Hlth Sys (AMBAC Insd) ..... 5.250 11/15/20 984,240
1,000 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC Insd) ........................... 6.000 10/01/16 1,031,740
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 5,956,474
1,000 Saint Petersburg, FL Hlth Fac Auth Rev (Prerefunded @ 12/01/99) ............ 7.750 12/01/15 1,152,350
4,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac Sunnyside Pptys <F2> .............. 6.700 07/01/25 3,831,920
4,265 Sarasota Cnty, FL Hlth Fac Auth Rev Hlthcare Kobernick/Meadow Park ......... 10.000 07/01/22 5,539,339
3,000 South Miami, FL Hlth Fac Baptist Hlth Sys Oblig Group Rfdg (MBIA Insd) ..... 5.500 10/01/20 3,006,150
670 Tampa, FL Cap Impt Pgm Rev Ser A ........................................... 8.250 10/01/18 735,908
------------
55,657,921
------------
Georgia 1.3%
3,000 Atlanta, GA Arpt Fac Rev ................................................... 6.250 01/01/21 3,123,150
1,000 Burke Cnty, GA Dev Auth Pollutn Ctl Rev .................................... 9.375 12/01/17 1,103,390
2,813 Cobb Cnty, GA Dev Auth Rev Grantor Tr Ctfs Franklin Forest Ser A ........... 8.000 06/01/22 2,875,725
850 Georgia Muni Elec Auth Pwr Rev Ser A ....................................... 6.000 01/01/20 850,145
1,250 Georgia Muni Elec Auth Pwr Rev Ser O ....................................... 8.125 01/01/17 1,362,500
1,750 Georgia Muni Elec Auth Pwr Rev Ser Q ....................................... 8.375 01/01/16 1,915,812
</TABLE>

9 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia (Continued)
$ 1,500 Muni Elec Auth Georgia Spl Oblig (MBIA Insd) ............................... 6.500% 01/01/20 $ 1,757,625
500 Rockdale Cnty, GA Dev Auth Solid Waste Disposal Rev ........................ 7.500 01/01/26 519,590
------------
13,507,937
------------
Hawaii 2.5%
4,055 Hawaii St Arpts Sys Rev Ser 1993 (MBIA Insd) <F3> .......................... 6.350 07/01/07 4,524,447
14,100 Hawaii St Dept Budget & Fin Spl Purp Rev Hawaiian Elec Co (MBIA Insd) ...... 6.550 12/01/22 15,293,001
220 Hawaii St Dept Tran Spl Fac Rev Continental Airls Inc ...................... 9.600 06/01/08 237,514
2,350 Hawaii St Dept Tran Spl Fac Rev Continental Airls Inc ...................... 9.700 06/01/20 2,538,400
1,475 Hawaii St Harbor Cap Impt Rev (FGIC Insd) .................................. 6.350 07/01/07 1,650,732
1,560 Hawaii St Harbor Cap Impt Rev (FGIC Insd) .................................. 6.400 07/01/08 1,760,288
500 Hawaii St Harbor Cap Impt Rev (MBIA Insd) .................................. 7.000 07/01/17 548,860
------------
26,553,242
------------
Illinois 9.2%
4,500 Bedford Park, IL Tax Increment Rev Sr Lien Bedford City Sq Proj <F3> ....... 9.250 02/01/12 5,066,145
1,350 Bridgeview, IL Tax Increment Rev Rfdg ...................................... 9.000 01/01/11 1,471,136
7,000 Broadview, IL Tax Increment Rev Sr Lien <F3> ............................... 8.250 07/01/13 7,661,010
1,000 Chicago, IL Gas Supply Rev Ser A ........................................... 8.100 05/01/20 1,138,140
1,000 Chicago, IL Metro Wtr Reclamation Dist Gtr Chicago ......................... 7.000 01/01/11 1,200,500
1,000 Chicago, IL O'Hare Intl Arpt Rev Ser A ..................................... 6.000 01/01/18 1,014,310
1,000 Chicago, IL O'Hare Intl Arpt Rev Ser B (MBIA Insd) ......................... 6.000 01/01/18 1,017,870
4,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc .................. 8.500 05/01/18 4,462,840
405 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Ser A ............ 8.400 05/01/18 446,407
5,035 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Ser B ............ 8.950 05/01/18 5,786,625
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn (FGIC Insd) ..... 8.750 01/01/07 1,323,000
1,700 Cook Cnty, IL Cmnty High Sch Dist No 233 Homewood & Flossmor Ser B (FGIC
Insd) ...................................................................... * 12/01/08 875,806
1,700 Cook Cnty, IL Cmnty High Sch Dist No 233 Homewood & Flossmor Ser B (FGIC
Insd) ...................................................................... * 12/01/09 825,129
1,665 Cook Cnty, IL Cmnty High Sch Dist No 233 Homewood & Flossmor Ser B (FGIC
Insd) ...................................................................... * 12/01/10 756,176
1,690 Cook Cnty, IL Cmnty High Sch Dist No 233 Homewood & Flossmor Ser B (FGIC
Insd) ...................................................................... * 12/01/11 722,374
1,700 Cook Cnty, IL Cmnty High Sch Dist No 233 Homewood & Flossmor Ser B (FGIC
Insd) ...................................................................... * 12/01/12 688,874
1,000 Crestwood, IL Tax Increment Rev Rfdg ....................................... 7.250 12/01/08 1,031,210
910 Hanover Park, IL Rev First Mtg Winsdor Park Manor Proj ..................... 9.250 12/01/07 994,657
1,300 Hodgkins, IL Tax Increment ................................................. 9.500 12/01/09 1,532,115
3,500 Hodgkins, IL Tax Increment (Prerefunded @ 12/01/01) ........................ 9.500 12/01/09 4,446,855
1,500 Hodgkins, IL Tax Increment Rev Ser A Rfdg .................................. 7.625 12/01/13 1,569,645
1,500 Huntley, IL Increment Alloc <F2> ........................................... 8.500 12/01/15 1,500,000
1,000 Illinois Dev Fin Auth Elderly Hsg Rev Libertyville Twrs A .................. 6.500 09/01/09 1,041,390
1,600 Illinois Edl Fac Auth Rev Chicago Zoological Society Ser A ................. 6.100 12/15/16 1,620,832
1,000 Illinois Edl Fac Auth Rev Lake Forest College (FSA Insd) ................... 6.750 10/01/21 1,096,530
1,000 Illinois Edl Fac Auth Rev Northwestern Univ Ser 1985 (Prerefunded @
12/01/01) .................................................................. 6.900 12/01/21 1,150,730
4,100 Illinois Hlth Fac Auth Rev Fairview Oblig Group Proj A (Prerefunded @
10/01/02) .................................................................. 9.500 10/01/22 5,296,954
2,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group Proj B ..................... 9.000 10/01/22 2,529,840
2,500 Illinois Hlth Fac Auth Rev Fairview Oblig Group Ser A Rfdg ................. 7.400 08/15/23 2,488,025
545 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D ......................... 9.500 11/15/15 647,792
425 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D (Prerefunded @ 11/15/00). 9.500 11/15/15 530,859
</TABLE>

10 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (Continued)
$ 1,000 Illinois Hlth Fac Auth Rev IL Masonic Med Cent Ser B (Prerefunded @
10/01/99) ................................................................. 7.700% 10/01/19 $ 1,143,090
1,000 Illinois Hlth Fac Auth Rev Mem Hosp ....................................... 7.250 05/01/22 1,053,490
500 Illinois Hlth Fac Auth Rev Mercy Cent for Hlth Care Serv .................. 6.625 10/01/12 518,915
4,000 Illinois Hlth Fac Auth Rev Mt Sinai Hosp Med Cent Chicago Ser A ........... 10.250 02/01/13 3,999,920
1,000 Illinois Hlth Fac Auth Rev Northwestern Mem Hosp .......................... 6.750 08/15/11 1,079,250
2,600 Illinois Hlth Fac Auth Rev United Med Cent (Prerefunded @ 07/01/03) ....... 8.375 07/01/12 3,218,878
6,100 Illinois Hsg Dev Auth Residential Mtg Rev (Inverse Fltg) .................. 9.177 02/13/18 6,793,875
1,250 Mill Creek Wtr Reclamation Dist IL Sew Rev ................................ 8.000 03/01/10 1,282,225
750 Mill Creek Wtr Reclamation Dist IL Wtrwrks Rev ............................ 8.000 03/01/10 769,335
2,800 Regional Tran Auth IL Ser A (AMBAC Insd) .................................. 8.000 06/01/17 3,776,556
7,000 Robbins, IL Res Recovery Rev Robbins Res Recovery Partners Ser A .......... 9.250 10/15/14 7,641,690
865 Round Lake Beach, IL Tax Increment Rev Rfdg ............................... 7.200 12/01/04 906,641
500 Round Lake Beach, IL Tax Increment Rev Rfdg ............................... 7.500 12/01/13 523,560
1,665 Saint Charles, IL Indl Dev Rev Tri City Proj .............................. 7.500 11/01/13 1,723,258
1,490 Southern IL Univ Rev Hsg & Aux Fac Sys Ser A (MBIA Insd) .................. 5.800 04/01/10 1,554,547
------------
97,919,006
------------
Indiana 1.1%
2,750 Elkhart Cnty, IN Hosp Auth Rev Elkhart Genl Hosp Inc ...................... 7.000 07/01/12 3,012,460
2,000 Indiana Tran Fin Auth Arpt Fac Lease Rev Ser A United Airls ............... 6.250 11/01/16 2,071,860
1,000 Indianapolis, IN Loc Pub Impt Bond Bank Ser A ............................. 6.000 02/01/20 1,017,850
550 Indianapolis, IN Loc Pub Impt Bond Bank Ser D ............................. 6.750 02/01/14 630,107
450 Indianapolis, IN Loc Pub Impt Bond Bank Ser D ............................. 6.500 02/01/22 460,116
1,000 Marion Cnty, IN Hosp Auth Hosp Fac Rev .................................... 6.500 09/01/13 1,061,670
1,500 Saint Joseph Cnty, IN Hosp Auth Hosp Fac Rev Mem Hosp South B (MBIA Insd).. 6.250 08/15/22 1,589,160
1,500 Wells Cnty, IN Hosp Auth Rev .............................................. 8.500 04/15/03 1,615,050
------------
11,458,273
------------
Iowa 0.5%
24,475 Iowa Hsg Fin Auth Single Family Hsg Rev 1984 Ser A (AMBAC Insd) ........... * 09/01/16 2,411,766
3,000 Muscatine, IA Elec Rev Rfdg ............................................... 5.000 01/01/08 2,985,270
145 Pocahontas, IA Indl Dev Rev Intl Harvester Co ............................. 10.250 10/01/00 146,962
------------
5,543,998
------------
Kansas 0.2%
1,000 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co Proj Rfdg (MBIA Insd) ..... 7.000 06/01/31 1,133,990
1,000 Newton, KS Hosp Rev Newton Hlthcare Corp Ser A ............................ 7.750 11/15/24 1,066,540
------------
2,200,530
------------
Kentucky 2.3%
1,000 Bowling Green, KY Indl Dev Rev Coltec Inds Inc Rfdg ....................... 6.550 03/01/09 1,040,550
2,800 Elizabethtown, KY Indl Dev Rev Coltec Inds Inc ............................ 9.875 10/01/10 2,854,348
10,950 Jefferson Cnty, KY Cap Projs Corp Rev Muni Multi-Lease Ser A .............. * 08/15/14 3,136,737
4,000 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys Proj (Inverse Fltg) (MBIA
Insd) ..................................................................... 8.394 10/01/08 4,710,000
1,250 Kentucky Econ Dev Fin Auth Med Cent Rev Ashland Hosp Corp Ser A Rfdg &
Impt (FSA Insd) ........................................................... 6.125 02/01/12 1,331,437
1,995 Kentucky Hsg Corp Hsg Rev Ser D (FHA/VA Gtd) .............................. 7.450 01/01/23 2,115,498
8,000 Kentucky St Tpk Auth Res Recovery Road Rev Ser A .......................... 5.000 07/01/08 7,981,600
1,000 Kentucky St Tpk Auth Toll Road Rev Ser A .................................. 5.500 07/01/07 1,002,140
------------
24,172,310
------------

</TABLE>

11 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- --------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Louisiana 1.2%
$ 1,000 Hodge, LA Util Rev ...................................................... 9.000% 03/01/10 $ 1,115,740
1,990 Lafayette, LA Econ Dev Auth Indl Dev Rev Advanced Polymer Proj Ser 1985.. 10.000 11/15/04 2,769,523
1,000 Lake Charles, LA Harbor & Terminal Dist Port Fac Rev Trunkline Rfdg ..... 7.750 08/15/22 1,143,200
460 Louisiana Pub Fac Auth Rev .............................................. 8.250 09/01/08 504,325
10,000 Orleans Parish, LA Sch Brd Rfdg (FGIC Insd) ............................. * 02/01/15 3,490,900
1,000 Port New Orleans, LA Indl Dev Rev Var Avondale Inds Inc Proj Rfdg ....... 8.250 06/01/04 1,077,130
1,000 Saint Charles Parish, LA Pollutn Ctl Rev Louisiana Pwr & Lt Co .......... 8.250 06/01/14 1,125,330
1,400 West Feliciana Parish, LA Pollutn Ctl Rev Gulf Sts Util Ser A ........... 7.500 05/01/15 1,517,166
------------
12,743,314
------------
Maine 0.2%
1,500 Maine Edl Ln Marketing Corp Student Ln Rev Ser A4 ....................... 5.450 11/01/99 1,548,555
1,000 Maine Edl Ln Marketing Corp Student Ln Rev Ser A4 ....................... 5.600 11/01/00 1,044,200
------------
2,592,755
------------
Maryland 0.8%
1,500 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem Steel Corp Proj
Ser A Rfdg .............................................................. 7.550 06/01/17 1,596,735
5,300 Baltimore, MD Cap Apprec Cons Pub Impt Ser (FGIC Insd) .................. * 10/15/10 2,342,229
1,000 Maryland St Energy Fin Admin Ltd Oblig Rev .............................. 7.400 09/01/19 1,058,420
3,000 Northeast MD Waste Disp Auth Solid Waste Rev Montgomery Cnty Res
Recovery Proj Ser A ..................................................... 6.200 07/01/10 3,135,990
------------
8,133,374
------------
Massachusetts 3.1%
1,000 Boston, MA Rev Boston City Hosp (FHA Gtd) ............................... 7.625 02/15/21 1,147,710
1,590 Massachusetts Edl Ln Auth Edl Ln Rev Issue E Ser A (AMBAC Insd) ......... 7.000 01/01/10 1,722,908
5,000 Massachusetts St Hlth & Edl Fac Auth Rev Emerson Hosp Issue Ser D Rfdg
(FSA Insd) .............................................................. 5.700 08/15/12 5,147,550
3,105 Massachusetts St Hlth & Edl Fac Auth Rev Emerson Hosp Issue Ser D Rfdg
(FSA Insd) .............................................................. 5.800 08/15/18 3,183,091
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 3,604,272
1,500 Massachusetts St Hlth & Edl Fac Auth Rev Newton Wellesley Hosp Issue Ser
E (MBIA Insd) ........................................................... 5.875 07/01/15 1,580,865
6,000 Massachusetts St Hlth & Edl Fac Auth Rev Saint Mem Med Cent Ser A ....... 5.750 10/01/06 5,294,040
1,000 Massachusetts St Hsg Fin Agy Multi-Family Residential Hsg Ser A ......... 8.750 08/01/08 1,073,280
550 Massachusetts St Hsg Fin Agy Residential Hsg Ser A ...................... 8.400 08/01/21 588,286
1,500 Massachusetts St Indl Fin Agy Hillcrest Edl Ctrs Inc Proj ............... 8.450 07/01/18 1,546,725
995 Massachusetts St Indl Fin Agy Rev Gtr Lynn Mental Hlth Assoc Proj ....... 8.800 06/01/14 1,055,038
1,000 Massachusetts St Indl Fin Agy Rev Reeds Landing ......................... 8.625 10/01/23 1,049,460
700 Massachusetts St Indl Fin Agy Rev Vinfen Corp Issue ..................... 7.100 11/15/18 714,854
1,000 Massachusetts St Indl Fin Agy Rev Wtr Treatment American Hingham ........ 6.600 12/01/15 1,035,000
2,000 Massachusetts St Wtr Res Auth Ser A (Prerefunded @ 04/01/00) ............ 7.500 04/01/16 2,292,300
2,000 Plymouth Cnty, MA Ctfs Partn Ser A ...................................... 7.000 04/01/22 2,248,620
------------
33,283,999
------------
Michigan 2.1%
1,000 Detroit, MI Area No 1 Ser A ............................................. 7.600 07/01/10 1,116,440
2,000 Grand Traverse Cnty, MI Hosp Fin Auth Hosp Rev Munson Hlthcare Ser A
Rfdg (AMBAC Insd) ....................................................... 6.250 07/01/12 2,140,740
2,600 Lowell, MI Area Schs Cap Apprec Rfdg (FGIC Insd) ........................ * 05/01/17 818,558
2,000 Michigan St Hosp Fin Auth Rev Garden City Hosp .......................... 8.300 09/01/02 2,125,480
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Hlth Sys Ser A Rfdg .......... 7.500 10/01/07 1,077,750
3,140 Michigan St Hosp Fin Auth Rev Hosp Port Huron Hosp Oblig Rfdg (FSA Insd). 5.375 07/01/12 3,157,396
1,000 Michigan St Hosp Fin Auth Rev Hosp Sinai Hosp Rfdg ...................... 6.700 01/01/26 1,012,330
</TABLE>

12 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- --------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan (Continued)
$ 5,600 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B (Embedded Swap) (AMBAC
Insd) ................................................................ 3.300% 04/01/04 $ 5,404,280
3,500 Michigan St Strategic Fund Ltd Oblig Rev Great Lakes Pulp & Fibre
Proj ................................................................. 10.250 12/01/16 3,702,370
1,000 Mount Clemens, MI Hsg Corp Multi-Family Rev Hsg Ser A Rfdg (FHA Gtd).. 6.600 06/01/13 1,058,130
1,000 Royal Oak, MI Hosp Fin Auth Hosp Rev Ser D ........................... 6.750 01/01/20 1,075,670
------------
22,689,144
------------
Minnesota 0.6%
1,000 North Saint Paul, MN Multi-Family Rev Cottages ....................... 9.250 02/01/22 1,083,720
2,500 Saint Paul, MN Port Auth Hsg & Redev Multi-Family Hsg Rev ............ 9.500 12/01/11 2,215,525
2,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A Rfdg ............... 5.000 01/01/16 1,911,100
1,250 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser C .................... 5.000 01/01/17 1,188,387
------------
6,398,732
------------
Mississippi 0.8%
1,500 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res Inc Rfdg ........... 7.300 05/01/25 1,572,435
5,000 Lowndes Cnty, MS Solid Waste Disp & Pollutn Ctl Rev Weyerhaeuser Co
Rfdg (Inverse Fltg) .................................................. 6.760 04/01/22 5,753,700
1,155 Ridgeland, MS Urban Renewal Rev Orchard Ltd Proj Ser A Rfdg .......... 7.750 12/01/15 1,217,578
------------
8,543,713
------------
Missouri 1.7%
2,535 Kansas City, MO Port Auth Fac Riverfront Park Proj Ser A <F2> ........ 5.750 10/01/04 2,480,269
2,835 Kansas City, MO Port Auth Fac Riverfront Park Proj Ser A <F2> ........ 5.750 10/01/06 2,774,728
2,000 Lees Summit, MO Indl Dev Auth Hlth Fac Rev John Knox Vlg Proj Rfdg &
Impt ................................................................. 7.125 08/15/12 2,152,500
1,810 Missouri St Econ Dev Export & Infrastructure Brd Med Office Fac Rev
(MBIA Insd) .......................................................... 7.250 06/01/04 2,101,229
3,920 Missouri St Econ Dev Export & Infrastructure Brd Med Office Fac Rev
(MBIA Insd) .......................................................... 7.250 06/01/14 4,517,487
1,000 Missouri St Hlth & Edl Fac Auth ...................................... 8.125 10/01/10 1,149,910
2,165 Saint Louis Cnty, MO Indl Dev Auth Nursing Home Rev Mary Queen &
Mother Proj Rfdg (GNMA Collateralized) ............................... 7.125 03/20/23 2,380,179
945 Saint Louis, MO Tax Increment Rev Ser A Scullin Redev Area ........... 10.000 08/01/10 1,120,987
------------
18,677,289
------------
Montana 0.6%
7,000 Montana St Brd Invt Res Recovery Rev Yellowstone Energy L P Proj ..... 7.000 12/31/19 6,896,120
------------
Nebraska 0.8%
5,000 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg) (GNMA
Collateralized) ...................................................... 9.609 10/17/23 5,606,250
850 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg) (GNMA
Collateralized) ...................................................... 9.099 09/15/24 926,500
1,600 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg) (GNMA
Collateralized) ...................................................... 10.923 09/10/30 1,856,000
------------
8,388,750
------------
Nevada 1.3%
4,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser A (FGIC Insd) <F3> .... 6.700 06/01/22 4,318,640
2,485 Henderson, NV Loc Impt Dist No T-4 Ser A ............................. 8.500 11/01/12 2,636,734
2,575 Humboldt Genl Hosp Dist NV ........................................... 6.125 06/01/13 2,610,046
2,220 Nevada Hsg Div Single Family Ser D <F2> .............................. 6.200 10/01/23 2,236,517
2,000 Washoe Cnty, NV Hosp Fac Rev Washoe Med Cent A Rfdg (FSA Insd) ....... 6.000 06/01/15 2,076,380
------------
13,878,317
------------
New Hampshire 0.9%
1,000 New Hampshire Higher Edl & Hlth Fac Auth Rev ......................... 7.500 06/01/05 1,059,450
1,555 New Hampshire Higher Edl & Hlth Fac Auth Rev ......................... 8.800 06/01/09 1,668,017
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev ......................... 7.625 07/01/16 2,217,720
1,000 New Hampshire St Business Fin Auth Elec Fac Rev ...................... 7.750 06/01/14 1,043,740
------------
</TABLE>

See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New Hampshire (Continued)
$ 1,000 New Hampshire St Indl Dev Auth Rev ................................... 10.750% 10/01/12 $ 1,130,320
1,000 New Hampshire St Indl Dev Auth Rev Pollutn Ctl New England Pwr Co .... 7.800 04/01/16 1,029,060
1,000 New Hampshire St Tpk Sys Rev Ser A Rfdg (FGIC Insd) .................. 6.750 11/01/11 1,162,660
------------
9,310,967
------------
New Jersey 1.2%
6,130 Middlesex Cnty, NJ Util Auth Swr Rev Ser A Rfdg (MBIA Insd) .......... 7.036 08/15/10 6,881,661
1,000 New Jersey Econ Dev Auth Econ Dev Rev ................................ 7.500 07/01/20 1,015,380
1,000 New Jersey Econ Dev Auth Econ Dev Rev United Methodist Homes ......... 7.500 07/01/25 1,027,920
3,200 New Jersey St Tpk Auth Rev Ser C Rfdg ................................ 6.500 01/01/16 3,599,936
------------
12,524,897
------------
New Mexico 0.3%
2,500 New Mexico St Hosp Equip Ln Council Hosp Rev San Juan
Regl Med Cent Inc Proj ............................................... 7.900 06/01/11 2,857,550
------------
New York 13.1%
3,415 Clifton Springs, NY Hosp & Clinic Hosp Rev Rfdg ...................... 8.000 01/01/20 3,543,370
2,500 Herkimer Cnty, NY Indl Dev Agy Indl Dev Rev Burrows Paper Corp
Recycling ............................................................ 8.000 01/01/09 2,690,750
5,000 Metropolitan Tran Auth NY Svcs Contract Tran Fac Ser 5 Rfdg .......... 7.000 07/01/12 5,515,400
1,500 Metropolitan Tran Auth NY Tran Fac Rev Ser G (MBIA Insd) ............. 5.500 07/01/15 1,500,990
1,000 New York City Indl Dev Agy Civic Fac Marymount Manhattan College Proj. 7.000 07/01/23 1,051,310
20,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev (MBIA Insd) ........ 5.350 06/15/12 19,956,000
1,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser A .............. 5.500 06/15/23 985,340
3,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser A (Prerefunded
@ 06/15/00) (MBIA Insd) .............................................. 7.250 06/15/15 3,420,510
1,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser A (Prerefunded
@ 06/15/97) .......................................................... 7.625 06/15/16 1,070,120
4,100 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser B .............. 5.000 06/15/17 3,816,649
2,500 New York City Ser B .................................................. 7.500 02/01/07 2,820,600
8,000 New York City Ser B (AMBAC Insd) ..................................... 7.250 08/15/07 9,686,560
5,000 New York City Ser C Rfdg ............................................. 6.500 08/01/04 5,277,100
7,500 New York City Ser C Subser C1 ........................................ 7.500 08/01/20 8,426,625
2,000 New York City Ser D Rfdg ............................................. 8.000 02/01/05 2,319,560
2,200 New York City Ser E .................................................. 5.700 08/01/08 2,167,880
3,000 New York City Ser F <F2> ............................................. 5.750 02/01/15 2,940,270
2,000 New York City Ser G <F2> ............................................. 5.750 02/01/17 1,958,040
14,600 New York St Dorm Auth Rev City Univ 3rd Genl Resources Ser E (MBIA
Insd) <F3> ........................................................... 6.750 07/01/24 16,582,680
3,500 New York St Dorm Auth Rev City Univ Sys Cons Ser A ................... 5.625 07/01/16 3,534,020
1,000 New York St Dorm Auth Rev City Univ Sys Cons Ser A (Prerefunded @
07/01/97) ............................................................ 8.125 07/01/17 1,082,990
2,750 New York St Dorm Auth Rev Court Fac Lease Ser A ...................... 5.500 05/15/10 2,721,565
3,250 New York St Dorm Auth Rev St Univ Edl Fac Ser A (Prerefunded @
05/15/00) ............................................................ 7.700 05/15/12 3,770,130
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev (Inverse Fltg) ........ 8.295 04/01/20 2,846,875
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 2,333,420
1,000 New York St Environmental Fac Corp Wtr Fac Rev Long Island Wtr Corp
Proj A ............................................................... 10.000 10/01/17 1,105,710
1,955 New York St Med Care Fac Fin Agy Rev Hosp & Nursing Home Mtg (FHA
Gtd) ................................................................. 7.250 02/15/09 2,127,626
490 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac Ser A ...... 7.750 08/15/11 554,401
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 1,556,742
</TABLE>

14 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (Continued)
$ 495 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac Ser C ............ 7.300% 02/15/21 $ 553,950
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 1,762,054
1,000 New York St Med Care Fac Fin Agy Rev Mtg Hosp Ser A Rfdg (Prerefunded @
08/18/97) (FHA Gtd) ........................................................ 8.000 02/15/25 1,087,270
1,000 New York St Med Care Fac Fin Agy Rev North Genl Hosp ....................... 7.400 02/15/19 1,061,750
3,000 New York St Med Care Fac Fin Agy Rev Presbyterian Hosp Ser A Rfdg (MBIA
Insd) ...................................................................... 5.375 02/15/25 2,969,280
2,400 New York St Urban Dev Corp Rev Correctional Fac Rfdg ....................... 5.625 01/01/07 2,426,160
2,000 New York St Urban Dev Corp Rev St Fac (Prerefunded @ 04/01/01) ............. 7.500 04/01/20 2,331,020
3,265 New York St Urban Dev Corp Rev Univ Fac Grants Rfdg ........................ 5.500 01/01/15 3,251,646
1,000 Port Auth NY & NJ Cons Ninety Fifth Ser .................................... 6.125 07/15/22 1,048,760
4,000 Port Auth NY & NJ Cons Rev Bonds (MBIA Insd) ............................... 5.750 09/15/12 4,171,160
1,000 Triborough Bridge & Tunnel Auth NY Rev Ser N (Prerefunded @ 01/01/98) ...... 7.875 01/01/18 1,090,870
1,000 Troy, NY Indl Dev Auth Lease Rev City of Troy Proj ......................... 8.000 03/15/22 1,084,670
-------------
140,201,823
-------------
North Carolina 1.2%
5,000 Martin Cnty, NC Indl Fac & Pollutn Ctl Fin Auth Rev ........................ 6.000 11/01/25 5,083,450
7,695 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev (Prerefunded @ 01/01/22) ..... 4.500 01/01/24 7,003,143
335 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev Ser A Rfdg (Prerefunded @
01/01/98) .................................................................. 8.000 01/01/21 367,793
-------------
12,454,386
-------------
North Dakota 0.6%
1,230 Mercer Cnty, ND Pollutn Ctl Rev Basin Elec Pwr E Convertible ............... 7.000 01/01/19 1,319,286
2,500 Mercer Cnty, ND Pollutn Ctl Rev Basin Elec Pwr Second Ser Rfdg (AMBAC Insd). 6.050 01/01/19 2,643,075
2,000 Ward Cnty, ND Hlthcare Fac Rev Saint Joseph's Hosp Corp Proj ............... 8.875 11/15/24 2,241,340
-------------
6,203,701
-------------
Ohio 2.1%
500 Cleveland, OH Pkg Fac Rev .................................................. 8.000 09/15/12 551,420
750 Coshocton Cnty, OH Solid Waste Disp Rev Stone Container Corp Proj Rfdg ..... 7.875 08/01/13 813,765
1,000 Cuyahoga Cnty, OH Hlth Care Fac Rev Jennings Hall .......................... 7.300 11/15/23 1,002,240
500 Fairfield, OH Econ Dev Rev Beverly Enterprises Proj ........................ 8.500 01/01/03 545,975
8,390 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B (Inverse Fltg) (GNMA
Collateralized) ............................................................ 9.477 03/31/31 9,281,437
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd Partnership Proj Rfdg
(AMBAC Insd) ............................................................... 6.375 04/01/29 1,095,580
1,000 Ohio St Solid Waste Rev Rep Engineered Steels Proj ......................... 8.250 10/01/14 1,015,730
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev Coll Cleveland Elec Ser A Rfdg .... 8.000 10/01/23 2,171,440
4,000 Ohio St Wtr Dev Auth Rev Pure Wtr Rfdg & Impt (AMBAC Insd) ................. 5.500 12/01/18 4,020,800
1,500 Sandusky Cnty, OH Hosp Fac Rev Mem Hosp Proj ............................... 7.750 12/01/09 1,531,335
-------------
22,029,722
-------------
Oklahoma 1.6%
7,685 Grand River Dam Auth OK Rev ................................................ 5.000 06/01/12 7,454,373
1,980 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA Insd) ...................... 5.250 12/01/22 1,956,003
2,745 Oklahoma Hsg Fin Agy Single Family Rev Mtg Class B (GNMA Collateralized) ... 7.997 08/01/18 3,037,699
1,635 Tulsa, OK Indl Auth Hosp Rev Tulsa Reg Med Cent ............................ 7.200 06/01/17 1,868,462
1,000 Tulsa, OK Muni Arpt Tran Rev American Airls Inc ............................ 7.600 12/01/30 1,090,490
1,500 Woodward, OK Muni Auth Sales Tax & Util (Prerefunded @ 11/01/97) ........... 8.000 11/01/12 1,617,225
-------------
17,024,252
-------------
</TABLE>

15 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- ---------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oregon 0.0%
$ 500 Salem, OR Hosp Fac Auth Rev Cap Manor Inc ............................ 7.500% 12/01/24 $ 526,240
------------
Pennsylvania 4.3%
3,000 Allentown, PA Area Hosp Auth Rev Sacred Heart Hosp Ser A Rfdg ........ 6.750 11/15/14 3,069,090
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 2,080,200
500 Chartiers Vly, PA Indl & Commercial Dev Auth First Mtg Rev ........... 7.250 12/01/11 515,930
500 Chartiers Vly, PA Indl & Commercial Dev Auth First Mtg Rev ........... 7.400 12/01/15 517,755
5,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth Sys Rev (AMBAC Insd) ....... 5.650 05/15/20 5,015,150
970 Clearfield, PA Hosp Auth Rev Clearfield Hosp Proj Rfdg ............... 6.875 06/01/16 979,622
2,000 Delaware Cnty, PA Auth Hosp Rev Cmnty Hosp Crozer-Chester Mem Cent ... 6.000 12/15/20 1,898,500
1,500 Delaware Cnty, PA Indl Dev Auth Rev Res Recovery Proj Ser A .......... 8.100 12/01/13 1,575,360
2,760 Delaware River Port Auth PA (FGIC Insd) .............................. 5.500 01/01/26 2,782,936
1,750 Emmaus, PA Genl Auth Rev Ser A (BIGI Insd) ........................... 8.150 05/15/18 1,929,603
2,500 Emmaus, PA Genl Auth Rev Ser C (BIGI Insd) ........................... 7.900 05/15/18 2,761,875
500 Erie Cnty, PA Hosp Auth Rev Metropolitan Hlth Cent ................... 7.250 07/01/12 485,060
845 Lebanon Cnty, PA Good Samaritan Hosp Auth Rev ........................ 5.850 11/15/07 829,359
1,000 Lebanon Cnty, PA Hlth Fac Auth Hlth Cent Rev United Church of Christ
Homes Rfdg ........................................................... 6.750 10/01/10 1,018,720
980 Lehigh Cnty, PA Indl Dev Auth Indl Dev Rev Rfdg ...................... 8.000 08/01/12 1,023,502
1,315 Luzerne Cnty, PA Indl Dev Auth First Mtg Gross Rev Rfdg .............. 7.875 12/01/13 1,348,953
1,500 McKean Cnty, PA Hosp Auth Hosp Rev Bradford Hosp Proj (Crossover Rfdg
@ 10/01/00) .......................................................... 8.875 10/01/20 1,802,250
1,000 McKeesport, PA Hosp Auth Rev McKeesport Hosp Proj Rfdg ............... 6.500 07/01/08 1,006,470
3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp Rev (Embedded Swap)
(AMBAC Insd) ......................................................... 6.500 06/01/12 3,127,500
1,000 Montgomery Cnty, PA Indl Dev Auth Retirement Cmnty Rev ............... 6.300 01/01/13 973,580
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Res Recovery ................... 7.500 01/01/12 1,096,730
500 Pennsylvania St Higher Edl Fac Auth College & Univ Rev Hahnemann Univ
Proj (MBIA Insd) ..................................................... 7.200 07/01/19 554,210
250 Pennsylvania St Higher Edl Fac Auth Rev Med College PA Ser A ......... 7.500 03/01/14 260,690
915 Philadelphia, PA Auth for Indl Dev Rev ............................... 6.125 02/15/03 921,478
695 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp Rev ................. 7.250 03/01/24 681,823
985 Philadelphia, PA Muni Auth Rev Lease Ser B Rfdg ...................... 6.400 11/15/16 1,020,273
1,825 Ridley Park, PA Hosp Auth Rev Hosp Auth Rev Ser 1993 A ............... 6.000 12/01/13 1,703,528
1,000 Scranton Lackawanna, PA Hlth & Welfare ............................... 7.375 07/15/08 1,053,500
500 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Moses Taylor Hosp
Proj ................................................................. 8.250 07/01/09 543,355
2,330 Somerset Cnty, PA Genl Auth Comwlth Lease Rev (Prerefunded @
10/15/01) (FGIC Insd) ................................................ 6.250 10/15/11 2,568,196
1,000 Washington Cnty, PA Hosp Auth Rev Hosp Canonsburg Genl Hosp Rfdg ..... 7.350 06/01/13 953,500
------------
46,098,698
------------
Rhode Island 0.7%
2,000 Providence, RI Redev Agy Ctfs Partn Ser A ............................ 8.000 09/01/24 2,219,900
2,345 Rhode Island Hsg & Mtg Fin Corp Rental Hsg Pgm Ser B (FHA Gtd) ....... 7.950 10/01/30 2,503,733
1,880 West Warwick, RI Ser A ............................................... 6.800 07/15/98 1,926,492
600 West Warwick, RI Ser A ............................................... 7.300 07/15/08 654,432
------------
7,304,557
------------
South Carolina 0.2%
1,070 Piedmont Muni Pwr Agy SC Elec Rev .................................... 5.000 01/01/25 953,948
500 South Carolina St Hsg Fin & Dev Auth Multi-Family Rev ................ 6.125 12/01/15 501,440
500 South Carolina St Hsg Fin & Dev Auth Multi-Family Rev ................ 6.200 12/01/20 502,480
------------
1,957,868
------------
</TABLE>

16 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- --------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
South Dakota 0.3%
$ 1,000 South Dakota St Hlth & Edl FAc Auth Rev Huron Reg Med Cent............... 7.250% 04/01/20 $ 1,046,980
150 South Dakota St Hlth & Edl Fac Auth Rev Sioux Vly Hosp................... 7.625 11/01/13 163,475
1,850 South Dakota St Hlth & Edl Fac Auth Rev Sioux Vly Hosp
(Prerefunded @ 11/01/98)................................................. 7.625 11/01/13 2,061,214
------------
3,271,669
------------
Texas 6.6%
1,000 Austin, TX Hsg Fin Corp Multi-Family Hsg Rev Stassney
Woods Apartment Rfdg .................................................... 6.750 04/01/19 1,031,960
1,000 Austin, TX Util Sys Rev Ser A (Prerefunded @ 11/15/98) .................. 7.800 11/15/12 1,121,570
2,380 Austin, TX Util Sys Rev Ser B ........................................... 7.800 11/15/12 2,621,618
500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev St Lukes Lutheran Hosp ........ 7.000 05/01/21 612,890
1,500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev St Lukes Lutheran Hosp
(Prerefunded @ 05/01/03) ................................................ 7.900 05/01/18 1,812,495
410 Bexar Cnty, TX Hsg Fin Corp Rev Ser A (GNMA Collateralized) ............. 8.200 04/01/22 435,297
410 Bexar Cnty, TX Hsg Fin Corp Rev Ser B (GNMA Collateralized) ............. 9.250 04/01/16 431,767
1,595 Capital Indl Dev Corp TX Pollutn Ctl .................................... 7.400 05/01/12 1,765,617
625 Clear Creek, TX Indpt Sch Dist (Prerefunded @ 02/01/01) ................. 6.250 02/01/11 681,931
940 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev American Airls Inc .... 7.500 11/01/25 1,008,780
125 El Paso, TX Ppty Fin Auth Inc Single Family Mtg Rev Ser A (GNMA
Collateralized) ......................................................... 8.700 12/01/18 135,266
500 Eldridge Rd Muni Util Dist TX Rfdg ...................................... 6.125 03/01/11 495,565
500 Fort Bend Cnty, TX Levee Impt Dist No 011 (Prerefunded @ 03/01/99) ...... 8.700 03/01/09 564,380
440 Fort Bend Cnty, TX Levee Impt Dist No 011 (Prerefunded @ 03/01/99) ...... 8.700 03/01/10 496,654
605 Fort Worth, TX Hsg Fin Corp Home Mtg Rev Ser A Rfdg ..................... 8.500 10/01/11 665,657
2,500 Garland, TX Econ Dev Auth Indl Dev Rev Yellow Freight Sys Inc Proj ...... 8.000 12/01/16 2,636,875
1,000 Harris Cnty, TX Hlth Fac Dev Corp Hosp Rev .............................. 7.125 06/01/15 1,102,980
665 Harris Cnty, TX Hsg Fin Corp Single Family Hsg Rev ...................... 10.125 07/15/03 668,378
500 Harris Cnty, TX Muni Util Dist No 157 Rfdg .............................. 7.300 03/01/14 520,810
620 Houston, TX Hsg Fin Corp Single Family Mtg Rev .......................... 10.000 09/15/14 619,826
770 Houston, TX Hsg Fin Corp Single Family Mtg Rev Ser A Rfdg (FSA Insd) .... 5.950 12/01/10 796,889
1,160 Jefferson Cnty, TX Hlth Fac Dev Corp Hosp Rev Baptist Hlth Care ......... 8.300 10/01/14 1,203,616
2,000 Matagorda Cnty, TX Navig Dist No 1 Rev Coll Houston Lt & Pwr Rfdg (MBIA
Insd) ................................................................... 5.800 10/15/15 2,035,140
1,000 Mills Road Muni Util Dist TX Util Bonds Rfdg ............................ 6.500 09/01/14 1,024,890
500 Mission Bend Muni Util Dist No 2 TX ..................................... 10.000 09/01/98 567,915
375 Mission Bend Muni Util Dist No 2 TX ..................................... 10.000 09/01/00 431,175
655 Montgomery Cnty, TX Util Dist No 4 (Prerefunded @ 09/01/98) ............. 8.900 09/01/02 733,744
3,500 North Cent, TX Hlth Fac Dev Corp Rev Ser C Presbyterian Hlthcare Sys
(Inverse Fltg) (MBIA Insd) .............................................. 8.720 06/22/21 4,103,750
500 North Mission Glen Muni Util Dist TX Ser 1993 ........................... 6.500 09/01/14 508,995
750 Northwest Harris Cnty Muni Util Dist No 23 TX ........................... 8.100 10/01/15 824,415
1,500 Richardson, TX Hosp Auth Hosp Rev ....................................... 6.750 12/01/23 1,524,810
1,750 Rusk Cnty, TX Hlth Fac Corp Hosp Rev .................................... 7.750 04/01/13 1,833,178
1,000 Sam Rayburn, TX Muni Pwr Agy Pwr Supply Sys Rev ......................... 6.750 10/01/14 950,000
1,000 Sam Rayburn, TX Muni Pwr Agy Pwr Supply Sys Rev Ser A Rfdg .............. 6.250 10/01/17 892,220
500 Texas Genl Serv Comm Partn Interests Office Bldg & Land Acquisition
Proj..................................................................... 7.000 08/01/19 515,045
500 Texas Genl Serv Comm Partn Interests Office Bldg & Land Acquisition
Proj .................................................................... 7.000 08/01/24 515,045
980 Texas Genl Serv Comm Partn Lease Purchase Cert .......................... 7.500 02/15/13 1,014,605
8,565 Texas Muni Pwr Agy Rev Rfdg ............................................. 5.500 09/01/13 8,567,655
3,882 Texas St ................................................................ 6.350 12/01/13 3,989,786
5,250 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev Coll Ser C Rfdg (Inverse
Fltg) (GNMA Collateralized) ............................................. 9.156 07/02/24 6,326,250
4,025 Texas St Higher Edl Coordinating Brd College Student Ln <F5> ............ 0/7.850 10/01/25 2,586,827
</TABLE>

17 See Notes to Financial Statements

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas (Continued)
$ 1,000 Texas St Superconducting Ser C .............................................. 5.500% 04/01/20 $ 1,000,500
1,420 Texas St Veterans Hsg Assistance (MBIA Insd) ................................ 6.800 12/01/23 1,506,109
245 Travis Cnty, TX Hsg Fin Corp Single Family Mtg Rev (GNMA Collateralized) .... 8.200 04/01/22 258,965
1,000 Tyler, TX Hlth Fac Dev Corp Hosp Rev ........................................ 6.750 11/01/25 1,023,680
1,000 Weslaco, TX Hlth Fac Dev Corp Hosp Rev Knapp Med Cen Rfdg (Connie Lee Insd).. 5.250 06/01/16 988,230
2,250 West Side Calhoun Cnty, TX Navig Dist Solid Waste Disp Union Carbide Chem &
Plastics .................................................................... 8.200 03/15/21 2,569,973
500 Willow Fork Drainage Dist TX ................................................ 7.000 03/01/12 540,245
500 Willow Fork Drainage Dist TX ................................................ 7.000 03/01/13 538,620
1,000 Winters, TX Wtrwrks & Swr Sys Rev (Prerefunded @ 08/01/03) .................. 8.500 08/01/17 1,256,150
------------
70,058,738
------------
Utah 2.9%
3,180 Bountiful, UT Hosp Rev South Davis Cmnty Hosp Proj .......................... 9.500 12/15/18 3,532,726
1,340 Hilldale, UT Elec Rev <F2> .................................................. 7.800 09/01/15 1,309,019
1,000 Hilldale, UT Elec Rev <F2> .................................................. 8.000 09/01/20 991,320
1,000 Hilldale, UT Elec Rev <F2> .................................................. 7.800 09/01/25 968,480
1,850 Intermountain Pwr Agy UT Pwr Supply Rev ..................................... 5.000 07/01/16 1,725,255
1,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser A ............................... 6.000 07/01/23 1,011,460
3,650 Intermountain Pwr Agy UT Pwr Supply Rev Ser B Rfdg .......................... 7.750 07/01/20 3,985,654
11,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg (Embedded Swap) ............... 5.660 02/15/12 11,569,140
1,000 Utah St Bldg Ownership Auth Lease Rev Dept Employment Security Proj
(Prerefunded @ 08/15/98) .................................................... 7.800 08/15/10 1,095,130
1,300 Utah St Bldg Ownership Auth Lease Rev Dept Employment Security Proj
(Prerefunded @ 08/15/98) .................................................... 7.800 08/15/11 1,423,669
1,260 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A1 (FHA Gtd) ................... 7.100 07/01/14 1,329,930
1,690 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A2 (FHA Gtd) ................... 7.200 01/01/27 1,790,149
------------
30,731,932
------------
Virginia 2.3%
2,000 Fairfax Cnty, VA Park Auth Park Fac Rev ..................................... 6.625 07/15/14 2,143,040
3,500 Fredericksburg, VA Indl Dev Auth Hosp Fac Rev (Inverse Fltg) (FGIC Insd) .... 6.600 08/15/23 3,740,415
3,000 Hanover Cnty, VA Indl Dev Auth Hosp Rev Mem Reg Med Cent Proj (MBIA Insd) ... 5.500 08/15/25 2,997,600
2,080 Loudoun Cnty, VA Ctfs Partn (FSA Insd) ...................................... 6.800 03/01/14 2,363,026
1,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd) ...................................... 6.900 03/01/19 1,143,450
5,000 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke Mem Hosp Carilion Hlth Sys Ser B
Rfdg (MBIA Insd) ............................................................ 4.700 07/01/20 4,876,350
1,250 Southeastern Pub Svc Auth VA Rev Sr Regl Solid Waste Sys .................... 6.000 07/01/17 1,236,463
5,000 Upper Occoquan Sewage Auth VA Reg Sew Rev Rfdg (FGIC Insd) .................. 5.000 07/01/21 4,842,450
1,250 Virginia Port Auth Comwlth Port Fund Rev .................................... 8.200 07/01/08 1,375,312
------------
24,718,106
------------
Washington 1.2%
1,000 Lewis Cnty, WA Pub Util Dist No 001 ......................................... 6.000 10/01/24 1,021,560
1,000 Port Walla Walla, WA Pub Corp Solid Waste Recycling Rev Ponderosa Fibres
Proj ........................................................................ 9.125 01/01/26 1,037,300
445 Washington St Pub Pwr Supply Sys Nuclear Proj No 1 Rev ...................... 15.000 07/01/17 482,892
1,250 Washington St Pub Pwr Supply Sys Nuclear Proj No 1 Rev (Prerefunded @
07/01/96) (FGIC Insd) ....................................................... 7.125 07/01/16 1,539,462
2,000 Washington St Pub Pwr Supply Sys Nuclear Proj No 2 Rev (Prerefunded @
01/01/01) ................................................................... 7.625 07/01/10 2,336,860
2,500 Washington St Pub Pwr Supply Sys Nuclear Proj No 2 Rev ...................... 7.000 07/01/12 2,744,300
</TABLE>

18 See Notes to Financial Statements

<FN>
<F1> At December 31, 1995, for federal income tax purposes cost is $965,153,852,
the aggregate gross unrealized appreciation is $101,335,448 and the
aggregate gross unrealized depreciation is $5,959,830, resulting in net
unrealized appreciation including options and futures transactions of
$95,375,618.

<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> Non-income producing security.

<F5> Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.
</TABLE>

Portfolio Composition by Credit Quality

AAA.......... 38.9%
AA........... 5.7
A............ 13.9
BBB.......... 17.3
BB........... 3.4
B............ 0.6
CCC.......... 0.2
Non-Rated.... 20.0
-------
100.0%
=======

19 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at Market Value (Cost $964,751,897) (Note 1).......................... $ 1,060,171,101
Short-Term Investments (Note 1).................................................... 7,000,000
Receivables:
Investments Sold................................................................. 36,519,175
Interest......................................................................... 17,507,019
Fund Shares Sold................................................................. 14,436,996
Margin on Futures (Note 5)....................................................... 764
Other.............................................................................. 4,412
-----------------
Total Assets.................................................................. 1,135,639,467
-----------------
Liabilities:
Payables:
Investments Purchased............................................................ 60,935,991
Income Distributions ............................................................ 2,272,903
Custodian Bank................................................................... 2,000,189
Fund Shares Repurchased.......................................................... 690,113
Investment Advisory Fee (Note 2)................................................. 424,442
Accrued Expenses................................................................... 1,834,905
-----------------
Total Liabilities.............................................................. 68,158,543
-----------------
Net Assets......................................................................... $ 1,067,480,924
=================
Net Assets Consist of:
Capital (Note 3)................................................................... $ 1,015,710,581
Net Unrealized Appreciation on Investments......................................... 95,777,573
Accumulated Distributions in Excess of Net Investment Income (Note 1).............. (553,439)
Accumulated Net Realized Loss on Investments....................................... (43,453,791)
-----------------
Net Assets......................................................................... $ 1,067,480,924
=================
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$839,677,283 and 54,003,132 shares of capital stock issued and outstanding)
(Note 3)....................................................................... $ 15.55
Maximum sales charge (4.75%* of offering price)................................ .78
-----------------
Maximum offering price to public............................................... $ 16.33
=================
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$216,592,629 and 13,929,963 shares of capital stock issued and outstanding)
(Note 3)....................................................................... $ 15.55
=================
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$11,211,012 and 721,187 shares of capital stock issued and outstanding)
(Note 3)....................................................................... $ 15.55
=================
</TABLE>

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

20 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest.................................................................................. $ 52,794,623
----------------
Expenses:
Investment Advisory Fee (Note 2).......................................................... 3,765,225
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of
$1,535,503, $1,796,842, $61,766 and $834, respectively) (Note 6) ....................... 3,394,945
Shareholder Services (Note 2) ............................................................ 847,159
Legal (Note 2)............................................................................ 54,760
Trustees Fees and Expenses (Note 2)....................................................... 46,069
Amortization of Organizational Expenses (Note 1).......................................... 17,688
Other..................................................................................... 892,083
----------------
Total Expenses........................................................................ 9,017,929
Less Expenses Reimbursed.............................................................. 13,125
----------------
Net Expenses.......................................................................... 9,004,804
----------------
Net Investment Income................................................................. $ 43,789,819
================
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales..................................................................... $ 466,580,640
Cost of Securities Sold (Including reorganization and restructuring costs of $207,213).. (479,588,928)
----------------
Net Realized Loss on Investments (Including realized loss on closed and expired option
and futures transactions of $832,026 and $18,905,655, respectively)..................... (13,008,288)
----------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period................................................................. (13,135,218)
End of the Period (Including unrealized appreciation on open futures transactions of
$358,369)............................................................................. 95,777,573
----------------
Net Unrealized Appreciation on Investments During the Period.............................. 108,912,791
----------------
Net Realized and Unrealized Gain on Investments........................................... $ 95,904,503
================
Net Increase in Net Assets from Operations................................................ $ 139,694,322
================
</TABLE>

21 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Years Ended December 31, 1995 and 1994
- ---------------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income.............................................. $ 43,789,819 $ 41,288,571
Net Realized Loss on Investments................................... (13,008,288) (15,519,375)
Net Unrealized Appreciation/Depreciation on Investments During the
Period........................................................... 108,912,791 (76,400,277)
----------------- -----------------
Change in Net Assets from Operations .............................. 139,694,322 (50,631,081)
----------------- -----------------
Distributions from Net Investment Income........................... (43,561,521) (41,020,921)
Distributions in Excess of Net Investment Income (Note 1).......... (826,976) -0-
----------------- -----------------
Distributions from and in Excess of Net Investment Income*......... (44,388,497) (41,020,921)
----------------- -----------------
Net Change in Net Assets from Investment Activities................ 95,305,825 (91,652,002)
----------------- -----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold.......................................... 406,337,419 76,732,460
Net Asset Value of Shares Issued Through Dividend Reinvestment..... 23,081,168 21,110,678
Cost of Shares Repurchased......................................... (116,597,602) (116,770,207)
----------------- -----------------
Net Change in Net Assets from Capital Transactions................. 312,820,985 (18,927,069)
----------------- -----------------
Total Increase/Decrease in Net Assets.............................. 408,126,810 (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 $(553,439) and $(228,298), respectively) ..................... $ 1,067,480,924 $ 659,354,114
================ =================
</TABLE>

<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares.......................................... $ (34,867,726) $ (32,205,506)
Class B Shares.......................................... (9,177,676) (8,547,628)
Class C Shares.......................................... (313,688) (212,571)
Class D Shares.......................................... (29,407) (55,216)
----------------- -----------------
$ (44,388,497) $ (41,020,921)
================= =================
</TABLE>

22 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-------------------------------------------------------
Class A Shares 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............................... $ 14.261 $ 16.164 $ 15.310 $ 15.071 $ 14.250
---------- ----------- ---------- ---------- ----------
Net Investment Income................................................ .874 .886 .964 1.041 1.066
Net Realized and Unrealized Gain/Loss on Investments................. 1.296 (1.907) .862 .374 .853
---------- ----------- ---------- ---------- ----------
Total from Investment Operations....................................... 2.170 (1.021) 1.826 1.415 1.919
---------- ----------- ---------- ---------- ----------
Less:
Distributions from and in Excess of Net Investment Income (Note 1)... .882 .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.................................................... .882 .882 .972 1.176 1.098
---------- ----------- ---------- ---------- ----------
Net Asset Value, End of the Period..................................... $ 15.549 $ 14.261 $ 16.164 $ 15.310 $ 15.071
========== =========== ========== ========== ==========
Total Return*.......................................................... 15.61% (6.37%) 12.20% 9.69% 13.98%
Net Assets at End of the Period (In millions).......................... $ 839.7 $ 495.8 $ 597.6 $ 463.6 $ 293.7
Ratio of Expenses to Average Net Assets*............................... .99% .99% .87% .86% .59%
Ratio of Net Investment Income to Average Net Assets*.................. 5.86% 5.93% 6.08% 6.76% 7.29%
Portfolio Turnover..................................................... 60.75% 74.96% 81.78% 91.57% 105.99%

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

Ratio of Expenses to Average Net Assets................................ .99% N/A .98% 1.00% 1.07%
Ratio of Net Investment Income to Average Net Assets................... 5.86% N/A 5.97% 6.62% 6.81%
</TABLE>

N/A = Not Applicable

23 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights (Continued)
- ------------------------------------------------------------------------------------------------------------------------
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- ------------------------------------------------------------------------------------------------------------------------
August 24, 1992
Year Ended December 31 (Commencement of
----------------------------------- Distribution) to
Class B Shares 1995 1994 1993 December 31, 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........................ $ 14.261 $ 16.139 $ 15.308 $ 15.481
---------- ----------- ---------- -----------
Net Investment Income......................................... .762 .780 .852 .320
Net Realized and Unrealized Gain/Loss on Investments.......... 1.294 (1.890) .845 (.033)
---------- ----------- ---------- -----------
Total from Investment Operations................................ 2.056 (1.110) 1.697 .287
---------- ----------- ---------- -----------
Less:
Distributions from and in Excess of Net Investment Income
(Note 1).................................................... .768 .768 .866 .328
Distributions from and in Excess of Net Realized Gain on
Investments (Note 1)....................................... -0- -0- -0- .132
---------- ----------- ---------- -----------
Total Distributions............................................. .768 .768 .866 .460
---------- ----------- ---------- -----------
Net Asset Value, End of the Period.............................. $ 15.549 $ 14.261 $ 16.139 $ 15.308
========== =========== ========== ===========
Total Return*................................................... 14.74% (6.96%) 11.33% 1.90%**
Net Assets at End of the Period (In millions)................... $ 216.6 $ 158.7 $ 168.2 $ 48.4
Ratio of Expenses to Average Net Assets*........................ 1.73% 1.70% 1.65% 1.66%
Ratio of Net Investment Income to Average Net Assets*........... 5.09% 5.22% 5.19% 5.23%
Portfolio Turnover.............................................. 60.75% 74.96% 81.78% 91.57%

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

Ratio of Expenses to Average Net Assets......................... 1.73% N/A 1.73% 2.42%
Ratio of Net Investment Income to Average Net Assets ........... 5.09% N/A 5.11% 4.48%
</TABLE>

**Non-Annualized
N/A = Not Applicable

24 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
August 13, 1993
(Commencement of
Year Ended Year Ended Distribution) to
Class C Shares December 31, 1995 December 31, 1994 December 31, 1993
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the Period.................................. $ 14.262 $ 16.141 $ 15.990
---------- ----------- ----------
Net Investment Income................................................... .771 .783 .300
Net Realized and Unrealized Gain/Loss on Investments.................... 1.280 (1.894) .171
---------- ----------- ----------
Total from Investment Operations.......................................... 2.051 (1.111) .471
Less Distributions from and in Excess of Net Investment Income (Note 1). .768 .768 .320
---------- ----------- ----------
Net Asset Value, End of the Period........................................ $ 15.545 $ 14.262 $ 16.141
========== =========== ==========
Total Return.............................................................. 14.74% (6.97%) 2.96%*
Net Assets at End of the Period (In millions)............................. $ 11.2 $ 3.9 $ 4.1
Ratio of Expenses to Average Net Assets** ................................ 1.72% 1.74% 1.85%
Ratio of Net Investment Income to Average Net Assets**.................... 5.24% 5.19% 3.95%
Portfolio Turnover........................................................ 60.75% 74.96% 81.78%
</TABLE>

*Non-Annualized
**The Ratios of Expenses to Average Net Assets were not affected by the
assumption of expenses by VKAC.

25 See Notes to Financial Statements

Notes to Financial Statements
December 31, 1995
- --------------------------------------------------------------------------------

1. Significant Accounting Policies

Van Kampen American Capital Municipal Income Fund (the "Fund") is organized as a
series of the Van Kampen American Capital Tax Free Trust, a Delaware business
trust, and is registered as a diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to provide a high level of current income exempt from federal
income tax, consistent with preservation of capital. The Fund commenced
investment operations on August 1, 1990. The distribution of the Fund's Class B
and Class C shares commenced on August 24, 1992 and August 13, 1993,
respectively. On July 6, 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 and Expenses-Interest income and expenses are recorded on
an accrual basis. Bond premium and original issue discount are amortized over
the expected life of each applicable security.

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

D. Organizational Expenses-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 in the amount of $152,425. These costs
were amortized over the 60 month period ending July 31, 1995.

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, 1995, the Fund had an accumulated capital loss
carryforward for tax purposes of $43,018,622. Of this amount, $2,340,989,
$30,738, $15,509, $12,455,739, $7,698,483 and $20,477,164 will expire on
December 31, 1996, 1998, 2000, 2001, 2002 and 2003, respectively. Net realized

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

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. Permanent book and tax differences relating to the recognition of
expenses associated with fund mergers (see note 3) totaling $300,500 have been
reclassified from accumulated undistributed net investment income to capital.

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>

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 year ended December 31, 1995, the Fund recognized expenses of
approximately $203,900 representing VKAC's cost of providing accounting, cash
management, legal and certain shareholder services (prior to July, 1995) to the
Fund.

In July, 1995, the Fund began using ACCESS Investor Services, Inc., an
affiliate of the Adviser, as the transfer agent of the Fund. For the year ended
December 31, 1995, the Fund recognized expenses of approximately $379,500,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.

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.

At December 31, 1995, VKAC owned 100 shares of Class C.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

3. Capital Transactions

The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.

At December 31, 1995, capital aggregated $793,389,808, $211,460,358 and
$10,860,415 for Classes A, B and C, respectively. For the year ended December
31, 1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................... 24,431,223 $ 346,409,490
Class B...................... 3,801,812 52,179,384
Class C...................... 533,838 7,748,545
Class D...................... -0- -0-
------------ -----------------
Total Sales.................... 28,766,873 $ 406,337,419
============ =================
Dividend Reinvestment:
Class A...................... 1,177,039 $ 17,764,127
Class B...................... 338,749 5,104,906
Class C...................... 12,019 181,673
Class D...................... 2,041 30,462
------------ -----------------
Total Dividend Reinvestment.... 1,529,848 $ 23,081,168
============ =================
Repurchases:
Class A...................... (6,373,222) $ (93,894,378)
Class B...................... (1,339,250) (20,151,942)
Class C...................... (94,687) (1,432,423)
Class D...................... (70,940) (1,118,859)
------------ -----------------
Total Repurchases.............. (7,878,099) $ (116,597,602)
============ =================
</TABLE>

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

At December 31, 1994, capital 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>

Contingent Deferred
Sales Charge
Year of Redemption Class B Class C

- --------------------------------------------------
First...................... 4.00% 1.00%
Second..................... 3.75% None
Third...................... 3.50% None
Fourth..................... 2.50% None
Fifth...................... 1.50% None
Sixth...................... 1.00% None
Seventh and Thereafter..... None None

For the year ended December 31, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$91,300 and CDSC on the redeemed shares of Classes B, C and D of approximately
$442,300. Sales charges do not represent expenses of the Fund.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

On September 22, 1995, the Fund acquired all of the assets and liabilities of
the Van Kampen American Capital Municipal Bond Fund (the "AC Fund"), through a
tax free reorganization approved by AC Fund shareholders on September 21, 1995.
The Fund issued 20,054,672, 2,774,312 and 471,489 shares of Classes A, B and C
valued at $301,019,346, $41,842,606 and $7,076,761, respectively, in exchange
for AC Fund's net assets. Included in these net assets was a capital loss
carryforward of $4,423,474 which is included in accumulated net realized
gain/loss on investments and cumulative book and tax basis differences related
to expenses not yet deductible for tax purposes of $26,963 which is a component
of undistributed net investment income. Shares issued in connection with this
reorganization are included in common share sales for the current period.
Combined net assets on the date of acquisition were $1,027,309,801.

4. Investment Transactions

5. Derivative Financial Instruments

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

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

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

Transactions in options for the year ended December 31, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts Premium
- ----------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994..... -0- $ -0-
Options Written and Purchased
(Net).............................. 16,260 (9,107,396)
Options Terminated in Closing
Transactions (Net)................... (8,001) 6,083,509
Options Expired (Net)................ (5,209) 2,050,050
Options Exercised (Net).............. (3,050) 973,837
--------- --------------
Outstanding at December 31, 1995..... -0- $ -0-
========= ==============
</TABLE>

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

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 year ended December 31, 1995, were
as follows:

<TABLE>
<CAPTION>
Contracts
- ------------------------------------------------
<S> <C>
Outstanding at December 31, 1994..... 19,084
Futures Opened....................... 34,228
Futures Closed....................... (52,212)
---------
Outstanding at December 31, 1995..... 1,100
=========
</TABLE>

The futures contracts outstanding at December 31, 1995, and the descriptions
and unrealized appreciation/depreciation are as follows:

<TABLE>
<CAPTION>
Unrealized
Appreciation/
Contracts Depreciation
- --------------------------------------------------------------
<S> <C> <C>
Five-year U.S. Treasury Note Futures
Mar 1996 - Sells to Open............ 700 $ (585,298)
U.S. Treasury Bond Futures
Mar 1996 - Buys to Open............. 400 943,667
--------- -------------
1,100 $ 358,369
========= =============
</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.

6. Distribution and Service Plans

Annual fees under the Plans of up to .25% for Class A and 1.00% each for Class
B and Class C shares are accrued daily. Included in these fees for the year
ended December 31, 1995, are payments to VKAC of approximately $1,409,000.

Independent Auditors' Report
- --------------------------------------------------------------------------------

The Board of Trustees and Shareholders of
Van Kampen American Capital Municipal Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Municipal Income Fund (the "Fund"), including the
portfolio of investments, as of December 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen American Capital Municipal Income Fund as of December 31, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP
Chicago, Illinois
February 6, 1996

Van Kampen American Capital Municipal Income Fund
- --------------------------------------------------------------------------------

Board of Trustees

Officers

Don G. Powell*
President and Chief Executive Officer

Dennis J. McDonnell*
Executive Vice President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood III*
Vice President and Chief Financial Officer

Curtis W. Morell*
Vice President and Chief Accounting Officer

John L. Sullivan*
Treasurer

Tanya M. Loden*
Controller

William N. Brown*
Peter W. Hegel*
Robert C. Peck, Jr.*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents

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

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>

Table of Contents

<CAPTION>
<S> <C>
Letter to Shareholders................. 1
Performance Results.................... 3
Performance Perspective................ 4
Portfolio Management Review............ 5
Portfolio of Investments............... 7
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
Independent Auditors' Report........... 22
</TABLE>

LTMF ANR 2/96

Letter to Shareholders

January 24, 1996

Dear Shareholder,

For most investors, it would be hard to surpass the success enjoyed during
1995. The stock and bond markets achieved substantial gains, driven by a
combination of continuing economic growth and low inflation. The strength of
equity and fixed-income securities in 1995 was particularly impressive
because it followed a year in which both markets declined. People who
remained invested during 1995 generally shared in the growth of the markets,
while investors who retreated after 1994's downturn may have missed out on
the double-digit returns.

The rebound in the markets last year reinforces the importance of maintaining a
long-term perspective for your investments. While the environment for stocks and
bonds remains positive, it is unlikely that 1996 will see a repeat of the
markets' strong 1995 performance. However, over the long-term, stocks have
outperformed virtually all other types of investments, and bonds have met the
needs of investors who seek capital preservation and regular income.

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

Economic Overview

The U.S. economy grew throughout 1995, though the rate of growth slowed toward
year end. The gross domestic product (the value of all goods and services
produced in the United States) grew at an annual rate of more than 4.2 percent
in the third quarter of 1995, but slowed to an estimated 2 to 3 percent in the
fourth quarter, with retail and auto sales particularly sluggish. The slower
growth rate eased concerns about a rise in inflation and allowed the Federal
Reserve Board to lower short-term interest rates by a quarter-percentage point
in late December. The reduction in rates during the latter half of 1995 is
expected to help generate moderate economic growth in 1996, just as the Fed's
raising of short-term rates in 1994 helped slow economic growth in 1995.

Continued on page two

the impact of the Internet, telecommunications deregulation and bank mergers.
U.S. companies with global operations also did well, aided by a declining U.S.
dollar.

Economic Outlook

The current economic conditions are ideal for stocks, especially those of
smaller companies, because they tend to be affected less by economic cycles. The
outlook for the fixed income market---including municipal bonds---is positive,
too. In the near-term, we believe domestic markets will benefit from a stable
U.S. dollar and increased business activity driven in part by a number of
recently announced strategic reorganizations of some of the nation's blue chip
industry leaders.

Corporate News

As part of our commitment to helping you achieve your investment goals, Van
Kampen American Capital strives to provide shareholders with the best service in
the mutual fund industry. That is why we are especially pleased to have received
the 1995 Quality Tested Service Seal, which is awarded annually by DALBAR, Inc.,
an independent research firm. The Seal, which symbolizes the achievement of the
highest tier of service in the mutual fund industry, was awarded to American
Capital annually from 1990 to 1994 and we are honored that the service provided
by Van Kampen American Capital has achieved the same level of excellence.

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 December 31, 1995
Van Kampen American Capital Limited Term Municipal Income Fund

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
One-year total return
based on NAV<F1>............. 15.31% 14.62% 14.74%
One-year total return<F2>.... 11.57% 11.62% 13.74%
Life-of-Fund average annual
total return<F2>............. 5.98% 5.89% 4.32%
Commencement date............ 05/28/93 05/28/93 10/19/93
Distribution Rates and Yield
Distribution rate<F3>........ 4.47% 3.92% 3.92%
Taxable equivalent
distribution rate<F4>........ 6.98% 6.13% 6.13%
SEC Yield<F5>................ 4.14% 3.52% 3.52%

<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 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 December 30, 1995. Had
certain expenses of the Fund not been assumed by VKAC, the SEC Yield would have
been 3.46%, 2.84% and 2.84% for Classes A, B and C, respectively, and the total
returns would have been lower.

Putting Your Fund's Performance in Perspective

As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:

* Illustrate the general market environment in which your investments are being
managed

* Reflect the impact of favorable market trends or difficult market conditions

* Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Municipal Bond
Index over time. As a broad-based, unmanaged statistical composite, this index
does not reflect any commissions or fees which would be incurred by an investor
purchasing the securities it represents. Similarly, its performance does not
reflect any sales charges or other costs which would be applicable to an
actively managed portfolio, such as that of the Fund.

Growth of a Hypothetical $10,000 Investment
VKAC Limited Term Municipal Income Fund vs. Lehman Brothers Municipal Bond Index
(May 1993 through December 1995)

[GRAPH]
FUND INDEX
31-May-93 9,700.00 10,000.00
30-Jun-93 9,881.00 10,167.00
31-Jul-93 9,883.00 10,180.22
31-Aug-93 10,166.81 10,391.97
30-Sep-93 10,290.11 10,510.43
29-Oct-93 10,322.58 10,530.40
30-Nov-93 10,253.29 10,437.74
31-Dec-93 10,452.11 10,657.97
31-Jan-94 10,588.04 10,779.47
28-Feb-94 10,393.65 10,500.29
31-Mar-94 10,032.31 10,072.92
30-Apr-94 10,107.40 10,158.54
31-May-94 10,203.76 10,246.92
30-Jun-94 10,216.38 10,184.42
31-Jul-94 10,363.72 10,370.79
31-Aug-94 10,405.64 10,407.09
30-Sep-94 10,287.92 10,254.10
31-Oct-94 10,105.59 10,071.58
30-Nov-94 9,879.52 9,889.29
31-Dec-94 10,105.51 10,106.85
31-Jan-95 10,344.79 10,395.91
28-Feb-95 10,626.20 10,698.43
31-Mar-95 10,723.61 10,821.46
30-Apr-95 10,755.89 10,834.44
31-May-95 11,073.60 11,180.06
30-Jun-95 10,995.90 11,082.80
31-Jul-95 11,083.90 11,188.08
31-Aug-95 11,205.50 11,330.17
30-Sep-95 11,294.10 11,401.55
31-Oct-95 11,405.60 11,566.87
30-Nov-95 11,517.40 11,758.89
31-Dec-95 11,618.30 11,871.77

Portfolio Management Review

Van Kampen American Capital Limited Term Municipal Income Fund
We recently spoke with the management team of the Van Kampen American Capital
Limited Term Municipal Income Fund about the key events and economic forces
which shaped the markets during the past fiscal year. The team includes David C.
Johnson, portfolio manager, and Peter W. Hegel, executive vice president for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the twelve-month period ended December 31, 1995.

Q: What were some of the important events or market conditions
that had an impact on the Fund's performance during 1995?

Inflation continued to remain in check, with rates hovering around the 2
percent range, while the economy grew at a fairly steady but modest pace. As a
result, the Federal Reserve Board lowered its key lending rate (the federal
funds rate) by one-quarter percentage point in July of 1995 and again, by
one-quarter of a percentage point, in December. Naturally, bond prices were
driven higher as rates trended downward over the course of the year (bond prices
go up when rates go down, and vice versa).

Another factor that had been priced into the municipal market late in the year
was the expectation that a federal budget agreement was inevitable. The market
anticipated a positive budget compromise, and reacted accordingly. Even though
the possibility of tax reform weighed on the market to some extent, the belief
that progress on the federal budget deficit would be made helped to bolster
municipal bonds, especially at the longer end of the maturity spectrum.

Q: How was the Fund managed to take advantage of 1995 market conditions?

A: In response to the above market conditions, we maintained the Fund's current
portfolio and investment objectives, and continued to rely on our strong
internal credit research team to help us identify the issues that appeared to
offer the greatest relative value. As of December 31, 1995, the Fund held a
significant portion of its assets (19.8 percent) in issues from the health care
industry, a sector in which our research is especially strong, and continued to
offer good returns.

Going forward, the Fund will be able to pursue additional investment
opportunities, as its non-fundamental investment policies have been recently
amended by the Fund's Board of Trustees. The Fund now has the ability to invest
up to 35 percent of its assets in below investment grade, or non-rated
securities, which should help to contribute to higher yields, but with
potentially higher risk. Additionally, the Fund will be required to maintain an
average weighted portfolio maturity of between 3 and 10 years. In an effort to
better identify the Fund's objectives, the name will be modified. Van Kampen
American Capital Limited Term Municipal Income Fund will be renamed Van Kampen
American Capital Intermediate Term Municipal Income Fund.

[PIE CHART]
Portfolio Composition as of December 31, 1995

Health Care 19.8%
Airport 14.1.%
General Purpose 13.2%
Multi-Family Housing 13.0%
Single Family Housing 9.9%
Water & Sewer 8.8%
Industrial Revenue 8.2%
Other 7.1%
Public Building 5.9%

Q: How well did the Fund perform under these conditions?

A: The Fund had a solid year of performance, particularly when compared to
similar funds with portfolios that are skewed toward an intermediate average
maturity.

The Fund's Class A share net asset value increased over the course of 1995,
closing the year at $10.26 per share, up from $9.33 per share at the beginning
of the year. Class A share total return at net asset value over the twelve-month
period ended December 31, 1995, was 15.31 percent<F1>, compared to the total
return of the Lehman Brothers Municipal Bond Index, a broad-based, unmanaged
index, which was 17.46 percent for the same period.

The Fund's Class A share distribution rate was at 4.47 percent<F3> as of
December 31, 1995, that is equal to earning 6.98 percent<F4> on a taxable
investment for an investor in the 36 percent federal income tax bracket. (Please
refer to the chart on page three for additional Fund performance results.)

Q: What is your outlook for the Fund and the market in the months ahead?

We expect the supply of new municipal issues to be somewhat flat in 1996, but
refunding activity should be high as the lower interest rate environment makes
it more attractive for municipalities to retire their higher-yielding
outstanding issues.

In general, conditions appear positive for the continuation of a favorable
environment in which to invest in fixed-income securities.

Peter W. Hegel David C. Johnson
Executive Vice President Portfolio Manager
Fixed Income Investments

Please see footnotes on page three

<TABLE>
<CAPTION>
Portfolio of Investments
December 31, 1995
- -----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C>
Municipal Bonds
Arizona 4.5%
$ 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 $ 1,705,410
------------
California 6.3%
1,000 California St Var Rate Cpn (AMBAC Insd) ............. 6.400 09/01/08 1,130,660
540 Montebello, CA Unified Sch Dist Ctfs Partn Cap Impts
Proj ................................................ 5.900 06/01/04 540,324
660 Pleasanton, CA Jt Pwrs Fin Auth Rev Ser A ........... 6.000 09/02/05 710,873
------------
2,381,857
------------
Colorado 6.3%
330 Colorado Hsg Fin Auth Access Pgm Single Family
Pgm Ser E ........................................... 8.125 12/01/24 374,929
1,000 Denver, CO City & Cnty Arpt Rev Ser A ............... 7.400 11/15/04 1,120,030
500 Montrose Cnty, CO Ctfs Partn ........................ 6.000 06/15/01 506,940
400 Montrose Cnty, CO Ctfs Partn ........................ 6.100 06/15/02 405,520
------------
2,407,419
------------
Florida 3.2%
1,150 Florida Hsg Fin Agy Maitland Club Apts Ser B 1
(AMBAC Insd) ........................................ 6.750 08/01/14 1,232,524
------------
Georgia 7.5%
1,050 Atlanta, GA Arpt Fac Rev ............................ 7.250 01/01/17 1,162,739
1,490 De Kalb Cnty, GA Hsg Auth Multi Family Hsg Rev North
Hill Apts Proj Rfdg (FNMA Collateralized) ........... 6.625 01/01/05 1,681,122
------------
2,843,861
------------
Hawaii 2.9%
1,000 Hawaii St Arpt Sys Rev Second Ser (FGIC Insd) ....... 7.500 07/01/20 1,122,000
------------
Illinois 10.8%
250 Bellevue, IL Indl Dev First Mtg Rev Kmart Corp
Proj Rfdg ........................................... 6.250 04/01/09 211,715
235 Danville, IL Single Family Mtg Rev Rfdg ............. 7.300 11/01/10 244,924
1,335 Illinois Dev Fin Auth Elderly Hsg Rev Libertyville
Twrs A .............................................. 6.500 09/01/09 1,390,256
750 Illinois Hlth Fac Auth Rev Holy Cross Hosp Proj Ser
94-A ................................................ 6.250 03/01/04 775,095
400 Illinois Hlth Fac Auth Rev Swedish Covenant Ser A
Rfdg & Impt ......................................... 5.800 08/01/03 422,048
340 Macon County, IL Rev Cap Apprec Millikin Univ (AMBAC
Insd) ............................................... * 10/01/06 198,846
370 Macon County, IL Rev Cap Apprec Millikin Univ (AMBAC
Insd) ............................................... * 10/01/07 203,751
410 Macon County, IL Rev Cap Apprec Millikin Univ (AMBAC
Insd) ............................................... * 10/01/08 213,356
</TABLE>

See Notes to Financial Statements
7

Portfolio of Investments (Continued)
December 31, 1995
- ---------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illinois (Continued)
$ 455 Macon County, IL Rev Cap Apprec Millikin Univ (AMBAC
Insd) ................................................ *% 10/01/09 $ 222,763
500 Macon County, IL Rev Cap Apprec Millikin Univ (AMBAC
Insd) ................................................ * 10/01/10 229,090
-----------
4,111,844
-----------
Kansas .6%
195 Labette Cnty, KS Single Family Mtg Rev Ser A Rfdg .... 8.400 12/01/11 213,504
-----------
Kentucky 1.0%
375 Jefferson Cnty, KY Multi Family Rev Hsg Whipps
Mill Proj Ser A Rfdg ................................. 5.875 06/01/04 385,028
-----------
Massachusetts 5.8%
470 Boston, MA Wtr & Swr Comm Rev Ser A .................. 9.250 01/01/11 654,456
400 Massachusetts St Hlth & Edl Fac Auth Rev Saint Mem
Med Cent Ser A ....................................... 5.750 10/01/06 352,936
1,000 South Essex, MA Swr Dist Ser B (MBIA Insd) ........... 7.500 06/01/05 1,200,930
-----------
2,208,322
-----------
Missouri 5.9%
1,500 Kansas City, MO Arpt Rev Genl Impt Ser A
(Cap Guar Insd) ...................................... 7.000 09/01/12 1,692,090

500 Missouri St Hsg Dev Comm Mtg Single Family Homeowner
Ser C (GNMA Collateralized) .......................... 7.250 09/01/26 552,020
-----------
2,244,110
-----------
New Hampshire .5%
200 New Hampshire Higher Edl & Hlth Fac Auth Rev Hosp
Nashua Mem Hosp ...................................... 5.500 10/01/02 202,908
-----------
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 1,169,500
-----------
New York 10.5%
390 Erie Cnty, NY Indl Dev Agy Civic Fac Rev
Mercy Hosp Buffalo Proj Ser A ........................ 5.900 06/01/03 402,738
1,185 New York St Environmental Fac Corp Pollutn Ctl Rev St
Wtr Revolving Fd ..................................... 7.000 06/15/12 1,325,991
1,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg Ser
A (AMBAC Insd) ....................................... 6.200 08/15/05 1,112,980
1,000 Niagara Falls, NY Pub Impt (MBIA Insd) ............... 6.900 03/01/20 1,146,370
-----------
3,988,079
-----------
Ohio 2.7%
1,000 Ohio St Air Quality Dev Auth Rev Owens Corning
Fiberglas Proj Rfdg .................................. 6.250 06/01/04 1,039,040
-----------
</TABLE>

8 See Notes to Financial Statements

Portfolio of Investments (Continued)
December 31, 1995
- ---------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Oklahoma 1.8%
$ 660 Shawnee, OK Hosp Auth Hosp Rev Midamerica
Hlthcare Inc Rfdg ................................... 5.750% 10/01/03 $ 676,520
----------
Pennsylvania 7.6%
1,000 Cumberland Cnty, PA Muni Auth Rev First Mtg
Carlisle Hosp & Hlth ................................ 5.500 11/15/98 1,007,330
225 Erie, PA Higher Edl Bldg Auth College Rev Mercyhurst
College Proj A Rfdg ................................. 5.300 03/15/03 230,121
1,000 Pennsylvania Intergovt Coop Auth Spl Tax Rev
Philadelphia Funding Pgm (FGIC Insd) ................ 6.750 06/15/21 1,136,680
500 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp Rev
Friends Hosp ........................................ 5.950 05/01/04 519,585
----------
2,893,716
----------
Texas 3.9%
500 Brazos Cnty, TX Hlth Fac Dev Corp Franciscan Svcs
Corp Rev Saint Joseph Rfdg .......................... 5.600 01/01/03 509,560
965 Texas St ............................................ 6.350 12/01/13 991,251
----------
1,500,811
----------
Utah 5.8%
2,080 Utah St Hsg Fin Agy Single Family Mtg Mezz
Ser A-1 (FHA Gtd) ................................... 7.150 07/01/12 2,200,203
----------
Guam 4.1%
1,550 Guam Govt Ser A ..................................... 5.500 09/01/01 1,568,677
----------
Total Long-Term Investments 94.8%
(Cost $33,858,657) <F1>...................................................... 36,095,333
Other Assets in Excess of Liabilities 5.2%.................................... 1,990,962
----------
Net Assets 100%............................................................... $38,086,295
===========

*Zero coupon bond
<FN>

<F1> At December 31, 1995, cost for federal income tax purposes is $33,858,657;
the aggregate gross unrealized appreciation is $2,312,522 and the
aggregate gross unrealized depreciation is $75,846, resulting in net
unrealized appreciation of $2,236,676.

<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
AAA..... 46.0%
AA...... 8.2
A....... 17.9
BBB..... 26.9
B....... 1.0
-------
100.0%
=======
</TABLE>

9 See Notes to Financial Statements

<TABLE>
Statement of Assets and Liabilities
December 31, 1995
- -------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $33,858,657) (Note 1).......................... $ 36,095,333
Cash.............................................................................. 1,442,369
Receivables:
Interest........................................................................ 728,320
Investments Sold................................................................ 90,105
Fund Shares Sold................................................................ 158
Unamortized Organizational Expenses and Initial Registration Costs (Note 1)....... 28,849
Other............................................................................. 820
--------------
Total Assets.................................................................. 38,385,954
--------------
Liabilities:
Payables:
Fund Shares Repurchased......................................................... 69,029
Income Distributions............................................................ 45,327
Accrued Expenses.................................................................. 185,303
--------------
Total Liabilities............................................................. 299,659
--------------
Net Assets........................................................................ $ 38,086,295
==============
Net Assets Consist of:
Capital (Note 3).................................................................. $ 36,760,721
Net Unrealized Appreciation on Investments........................................ 2,236,676
Accumulated Undistributed Net Investment Income................................... 122,028
Accumulated Net Realized Loss on Investments...................................... (1,033,130)
--------------
Net Assets........................................................................ $ 38,086,295
==============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$15,612,391 and 1,521,067 shares of capital stock issued and outstanding)
(Note 3)...................................................................... $ 10.26
Maximum sales charge (3.25%* of offering price)............................... .34
--------------
Maximum offering price to public.............................................. $ 10.60
==============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$17,530,702 and 1,708,127 shares of capital stock issued and outstanding)
(Note 3)...................................................................... $ 10.26
==============
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$4,943,202 and 481,795 shares of capital stock issued and outstanding)
(Note 3)...................................................................... $ 10.26
==============
</TABLE>

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

10 See Notes to Financial Statements

Statement of Operations
For the Year Ended December 31, 1995
- -----------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest............................................................................ $ 2,302,282
---------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of $43,057,
$173,591 and $45,692, respectively) (Note 5)...................................... 262,340
Investment Advisory Fee (Note 2).................................................... 188,923
Custody............................................................................. 61,482
Shareholder Services (Note 2)....................................................... 56,026
Trustees Fees and Expenses (Note 2)................................................. 46,654
Printing............................................................................ 43,190
Legal (Note 2)...................................................................... 16,772
Amortization of Organizational Expenses and Initial Registration Costs (Note 1)..... 11,994
Other............................................................................... 85,446
---------------
Total Expenses.................................................................. 772,827
Less Fees Waived and Expenses Reimbursed ($188,923 and $41,405, respectively)... 230,328
---------------
Net Expenses.................................................................... 542,499
---------------
Net Investment Income............................................................... $ 1,759,783
===============
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales............................................................. $ 31,006,266
Cost of Securities Sold......................................................... (30,420,474)
---------------
Net Realized Gain on Investments.................................................... 585,792
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period........................................................... (730,149)
End of the Period................................................................. 2,236,676
---------------
Net Unrealized Appreciation on Investments During the Period........................ 2,966,825
---------------
Net Realized and Unrealized Gain on Investments..................................... $ 3,552,617
===============
Net Increase in Net Assets from Operations.......................................... $ 5,312,400
===============
</TABLE>

11 See Notes to Financial Statements

Statement of Changes in Net Assets
For the Years Ended December 31, 1995 and 1994
- --------------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................. $ 1,759,783 $ 1,662,700
Net Realized Gain/Loss on Investments............................. 585,792 (1,618,922)
Net Unrealized Appreciation/Depreciation on Investments During
the Period...................................................... 2,966,825 (1,358,144)
----------------- -----------------
Change in Net Assets from Operations ............................. 5,312,400 (1,314,366)
----------------- -----------------
Distributions from Net Investment Income:
Class A Shares.................................................. (757,945) (787,021)
Class B Shares.................................................. (704,432) (749,473)
Class C Shares.................................................. (185,738) (121,533)
----------------- -----------------
Total Distributions........................................... (1,648,115) (1,658,027)
----------------- -----------------
Net Change in Net Assets from Investment Activities............... 3,664,285 (2,972,393)
----------------- -----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold......................................... 4,993,059 19,067,615
Net Asset Value of Shares Issued Through Dividend Reinvestment.... 1,091,043 1,096,122
Cost of Shares Repurchased........................................ (9,751,835) (7,289,151)
----------------- -----------------
Net Change in Net Assets from Capital Transactions................ (3,667,733) 12,874,586
----------------- -----------------
Total Increase/Decrease in Net Assets............................. (3,448) 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 $122,028 and $10,360, respectively) ......................... $ 38,086,295 $ 38,089,743
================= =================
</TABLE>

12 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- ------------------------------------------------------------------------------------------------
May 28, 1993
Year Year (Commencement
Ended Ended of Investment
December 31, December 31, Operations) to
Class A Shares 1995 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period ......... $ 9.330 $ 10.145 $ 9.700
------------ ------------ -----------------
Net Investment Income........................... .508 .489 .278
Net Realized and Unrealized Gain/Loss on
Investments................................... .900 (.815) .462
------------ ------------ -----------------
Total from Investment Operations.................. 1.408 (.326) .740
------------ ------------ -----------------
Less:
Distributions from Net Investment Income........ .474 .489 .273
Distributions from Net Realized Gain on
Investments................................... -0- -0- .022
------------ ------------ -----------------
Total Distributions............................... .474 .489 .295
------------ ------------ -----------------
Net Asset Value, End of the Period................ $ 10.264 $ 9.330 $ 10.145
============ ============ =================
Total Return*..................................... 15.31% (3.32%) 7.75%**
Net Assets at End of the Period (In millions)..... $ 15.6 $ 15.7 $ 14.0
Ratio of Expenses to Average Net
Assets* (Annualized)............................ 1.00% .67% .14%
Ratio of Net Investment Income to
Average Net Assets* (Annualized).................. 5.10% 5.07% 4.78%
Portfolio Turnover................................ 75.11% 274.43% 85.56%

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

Ratio of Expenses to Average Net
Assets (Annualized)............................. 1.61% 1.75% 2.21%
Ratio of Net Investment Income to
Average Net Assets (Annualized)................. 4.49% 3.99% 2.70%
</TABLE>

**Non-Annualized

13 See Notes to Financial Statements

<TABLE>
Financial Highlights (Continued)

<CAPTION>
May 28, 1993
Year Year (Commencement
Ended Ended of Investment
December 31, December 31, Operations) to
Class B Shares 1995 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period ......... $ 9.319 $ 10.137 $ 9.700
------------ ------------ -----------------
Net Investment Income........................... .430 .417 .233
Net Realized and Unrealized Gain/Loss on
Investments................................... .916 (.818) .460
------------ ------------ -----------------
Total from Investment Operations.................. 1.346 (.401) .693
------------ ------------ -----------------
Less:
Distributions from Net Investment Income........ .402 .417 .234
Distributions from Net Realized Gain on
Investments................................... -0- -0- .022
------------ ------------ -----------------
Total Distributions............................... .402 .417 .256
------------ ------------ -----------------
Net Asset Value, End of the Period................ $ 10.263 $ 9.319 $ 10.137
============ ============ =================
Total Return*..................................... 14.62% (4.04%) 7.23%**
Net Assets at End of the Period (In millions)..... $ 17.5 $ 17.7 $ 13.9
Ratio of Expenses to Average Net
Assets* (Annualized)............................ 1.75% 1.43% .92%
Ratio of Net Investment Income to
Average Net Assets* (Annualized).................. 4.33% 4.30% 3.95%
Portfolio Turnover................................ 75.11% 274.43% 85.56%

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

Ratio of Expenses to Average Net
Assets (Annualized)............................. 2.36% 2.50% 2.98%
Ratio of Net Investment Income to
Average Net Assets (Annualized)................. 3.72% 3.24% 1.89%
</TABLE>

**Non-Annualized

14 See Notes to Financial Statements

<TABLE>
Financial Highlights (Continued)

<CAPTION>
Year Year October 19, 1993
Ended Ended (Commencement
December 31, December 31, of Distribution) to
Class C Shares 1995 1994 December 31, 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period......... $ 9.314 $ 10.134 $ 10.250
------------ ------------ -------------------
Net Investment Income.......................... .430 .419 .091
Net Realized and Unrealized Gain/Loss on
Investments.................................. .918 (.822) (.098)
------------ ------------ -------------------
Total from Investment Operations................. 1.348 (.403) (.007)
------------ ------------ -------------------
Less:
Distributions from Net Investment Income....... .402 .417 .087
Distributions from Net Realized Gain on
Investments.................................. -0- -0- .022
------------ ------------ -------------------
Total Distributions.............................. .402 .417 .109
------------ ------------ -------------------
Net Asset Value, End of the Period............... $ 10.260 $ 9.314 $ 10.134
============ ============ ===================
Total Return*.................................... 14.74% (4.04%) (.10%)**
Net Assets at End of the Period (In millions).... $ 4.9 $ 4.7 $ .3
Ratio of Expenses to Average Net
Assets* (Annualized)........................... 1.74% 1.43% .97%
Ratio of Net Investment Income to
Average Net Assets* (Annualized)................. 4.36% 4.34% 4.05%
Portfolio Turnover............................... 75.11% 274.43% 85.56%

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

Ratio of Expenses to Average Net
Assets (Annualized)............................ 2.34% 2.46% 2.97%
Ratio of Net Investment Income to
Average Net Assets (Annualized)................ 3.75% 3.31% 2.06%
</TABLE>

**Non-Annualized

15 See Notes to Financial Statements

Notes to Financial Statements
December 31, 1995
- --------------------------------------------------------------------------------

1. Significant Accounting Policies

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

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

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. As of December 31, 1995, there were
no when issued or delayed delivery purchase commitments.

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

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

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
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.

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, 1995, the Fund had an accumulated capital loss carryforward of
$1,033,130, of which $849,643 and $183,487 will expire on December 31, 2002 and
2003, 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.

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:

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

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

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 year ended December 31, 1995, the Fund recognized expenses of
approximately $23,600 representing VKAC's cost of providing accounting, cash
management, legal and certain shareholder services (prior to July, 1995) to the
Fund.

In July, 1995, the Fund began using ACCESS Investor Services, Inc., an
affiliate of the Adviser, as the transfer agent of the Fund. For the year ended
December 31, 1995, the Fund recognized expenses of approximately $16,900,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.

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.

At December 31, 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 each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

At December 31, 1995, capital aggregated $15,073,760, $17,035,048 and
$4,651,913 for Classes A, B and C, respectively. For the year ended December 31,
1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................... 132,361 $ 1,315,355
Class B...................... 172,036 1,724,905
Class C...................... 197,244 1,952,799
---------- ---------------
Total Sales.................... 501,641 $ 4,993,059
========== ===============
Dividend Reinvestment:
Class A...................... 51,462 $ 512,479
Class B...................... 41,187 409,706
Class C...................... 16,979 168,858
---------- ---------------
Total Dividend Reinvestment.... 109,628 $ 1,091,043
========== ===============
Repurchases:
Class A...................... (346,026) $ (3,440,596)
Class B...................... (400,845) (3,959,338)
Class C...................... (238,970) (2,351,901)
---------- ---------------
Total Repurchases.............. (985,841) $ (9,751,835)
========== ===============
</TABLE>

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

At December 31, 1994, capital 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:

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
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.

<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)
December 31, 1995
- --------------------------------------------------------------------------------

For the year ended December 31, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$1,900 and CDSC on the redeemed shares of Classes B and C of approximately
$64,700. 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 year ended December 31, 1995, were $27,937,477 and
$30,420,474, respectively.

5. Distribution and Service Plans

Independent Auditors' Report
- --------------------------------------------------------------------------------

The Board of Trustees and Shareholders of
Van Kampen American Capital Limited Term Municipal Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Limited Term Municipal Income Fund (the "Fund"),
including the portfolio of investments, as of December 31, 1995, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen American Capital Limited Term Municipal Income Fund as of December 31,
1995, the results of its operations for the year then ended, and the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.

KPMG Peat Marwick LLP
Chicago, Illinois
February 6, 1996

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 American Capital Limited Term Municipal Income Fund
- --------------------------------------------------------------------------------

Board of Trustees

J. Miles Branagan

Linda Hutton Heagy

Roger Hilsman

R. Craig Kennedy

Dennis J. McDonnell*

Donald C. Miller - Chairman

Jack E. Nelson

Don G. Powell*

Jerome L. Robinson

Fernando Sisto

Wayne W. Whalen*

William Stewart Woodside

Officers

Don G. Powell*
President and Chief Executive Officer

Dennis J. McDonnell*
Executive Vice President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood III*
Vice President and Chief Financial Officer

Curtis W. Morell*
Vice President and Chief Accounting Officer

John L. Sullivan*
Treasurer

Tanya M. Loden*
Controller

William N. Brown*
Peter W. Hegel*
Robert C. Peck, Jr.*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents

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

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>
Table of Contents

<CAPTION>
<S> <C>
Letter to Shareholders................. 1
Performance Results.................... 3
Performance Perspective................ 4
Portfolio Management Review............ 5
Portfolio of Investments............... 7
Statement of Assets and Liabilities.... 9
Statement of Operations................ 10
Statement of Changes in Net Assets..... 11
Financial Highlights................... 12
Notes to Financial Statements.......... 15
Independent Auditors' Report........... 21
</TABLE>

FLI ANR 2/96

Letter to Shareholders

January 30, 1996

The rebound in the markets last year reinforces the importance of maintaining a
long-term perspective for your investments. While the environment for stocks and
bonds remains positive, it is unlikely that 1996 will see a repeat of the
markets' strong 1995 performance. However, over the long-term, stocks have
outperformed virtually all other types of investments, and bonds have met the
needs of investors who seek capital preservation and regular income.

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

Economic Overview
The U.S. economy grew throughout 1995, though the rate of growth slowed toward
yearend. The gross domestic product (the value of all goods and services
produced in the United States) grew at an annual rate of more than 4.2 percent
in the third quarter of 1995, but slowed to an estimated 2 to 3 percent in the
fourth quarter, with retail and auto sales particularly sluggish. The slower
growth rate eased concerns about a rise in inflation and allowed the Federal
Reserve Board to lower short-term interest rates by a quarter-percentage point
in late December. The reduction in rates during the latter half of 1995 is
expected to help generate moderate economic growth in 1996, just as the Fed's
raising of short-term rates in 1994 helped slow economic growth in 1995.
The cut in short-term rates, combined with modest growth forecasts, was viewed
by the financial markets as a positive event, pushing up both stock and bond
prices. For the year ended December 31, 1995, the Standard & Poor's 500-Stock
Index achieved a total return of 37.45 percent. The yield on 10-year Treasury
notes was 5.57 percent on December 31, compared to 7.83 percent at the
beginning of the year. Because bond prices and yields move in opposite
directions, bond prices rose. Many observers expect the Fed to cut rates
further if Congress and the President are able to reach an agreement on the
federal budget, provided economic conditions justify further easing.
With a low inflation, low interest rate environment, corporate earnings
remained quite strong during the year, helping to push stocks to new highs. The
strongest sectors were technology and finance, as these stocks benefited from
the impact of the Internet,

Continued on page two

telecommunications deregulation and bank mergers. U.S. companies with global
operations also did well, aided by a declining U.S. dollar.

Economic Outlook
Looking ahead, we are cautiously optimistic. We expect the economy to grow at
a rate of 2 to 3 percent throughout 1996, with growth stronger in the second
half of the year as the full impact of the Fed's rate cuts take effect. Lower
rates will have the greatest impact on interest sensitive industries, such as
housing. Although inflation appears to be under control, there probably will be
some cyclical upward pressure in 1996.
The current economic conditions are ideal for stocks, especially those of
smaller companies, because they tend to be affected less by economic cycles. The
outlook for the fixed income market---including municipal bonds---is positive,
too. In the near-term, we believe domestic markets will benefit from a stable
U.S. dollar and increased business activity driven in part by a number of
recently announced strategic reorganizations of some of the nation's blue chip
industry leaders.
During recent months, debate over tax reform and the federal deficit has
dominated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue in
Washington. There has been varied speculation about the impact tax reform could
have on the economy and on various types of investments. We are following the
tax reform debate very closely, and we will keep you updated on this issue
throughout the year. See the winter issue of Your Portfolio for a detailed
discussion of tax reform.
On the following pages, you can read about your Fund's performance in 1995, as
well as the portfolio management team's outlook for the Fund in the coming
months. We hope that you will find this information helpful.

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 December 31, 1995
Van Kampen American Capital Florida Insured Tax Free Income Fund

Total Returns
A Shares B Shares C Shares
<S> <C> <C> <C>
One-year total return based on NAV<F1>........... 16.29% 15.53% 15.61%
One-year total return<F2>........................ 10.77% 11.53% 14.61%
Life-of-Fund average annual total return<F2>..... 6.38% 6.75% 9.36%
Commencement date................................ 07/29/94 07/29/94 07/29/94
Distribution Rates and Yield
Distribution rate<F3>............................ 5.00% 4.55% 4.54%
Taxable equivalent distribution rate<F4>......... 7.81% 7.11% 7.09%
SEC Yield<F5>.................................... 4.93% 4.41% 4.41%

<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 December 30, 1995. Had
certain expenses of the Fund not been assumed by VKAC, the SEC Yield would have
been 3.60%, 3.08% and 3.08% for Classes A, B and C, respectively, and total
returns would have been lower.

</TABLE>

Putting Your Fund's Performance in Perspective

As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:

* Illustrate the general market environment in which your investments are being
managed

* Reflect the impact of favorable market trends or difficult market conditions

* Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Municipal Bond
Index over time. As a broad-based, unmanaged statistical composite, this index
does not reflect any commissions or fees which would be incurred by an investor
purchasing the securities it represents. Similarly, its performance does not
reflect any sales charges or other costs which would be applicable to an
actively managed portfolio, such as that of the Fund.

Growth of a Hypothetical $10,000 Investment

Van Kampen American Capital Florida Insured Tax Free Income Fund vs. Lehman
Brothers Municipal Bond Index (July 1994 through December 1995)

[GRAPH]

FUND INDEX
29-Jul-94 9,526.95 10,000.00
31-Aug-94 9,634.90 10,035.00
30-Sep-94 9,519.10 9,887.49
31-Oct-94 9,288.80 9,711.49
30-Nov-94 9,010.30 9,535.71
30-Dec-94 9,387.00 9,745.50
31-Jan-95 9,717.90 10,024.22
28-Feb-95 9,982.10 10,315.92
31-Mar-95 10,020.90 10,434.55
30-Apr-95 9,997.80 10,447.08
31-May-95 10,279.50 10,780.34
30-Jun-95 10,144.80 10,686.55
31-Jul-95 10,233.20 10,788.07
31-Aug-95 10,350.10 10,925.08
30-Sep-95 10,418.20 10,993.91
31-Oct-95 10,564.60 11,153.32
30-Nov-95 10,797.10 11,338.46
31-Dec-95 10,916.20 11,447.31

Portfolio Management Review

Van Kampen American Capital Florida Insured Tax Free Income Fund

We recently spoke with the management team of the Van Kampen American Capital
Florida Insured Tax Free Income Fund about the key events and economic forces
which shaped the markets during the past fiscal year. The team includes Joe
Piraro, portfolio manager, and Peter W. Hegel, executive vice president for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the twelve-month period ended December 31, 1995.

Q: What were some of the important events or market conditions
which had an impact on the Fund's performance during 1995?

A: The bond market in general was quite strong in 1995, and municipal
securities, of course, participated in the year's rally. Clearly, the
environment for investing in fixed income securities was extremely favorable
across the board.
Inflation continued to remain in check, with rates hovering around the 2
percent range, while the economy grew at a fairly steady but modest pace. As a
result, the Federal Reserve Board lowered its key lending rate (the fed funds
rate) by one-quarter percentage point in July of 1995 and again, by one-quarter
of a percentage point, in December. Naturally, bond prices were driven higher
as rates trended downward over the course of the year (bond prices go up when
rates go down, and vice versa).
Another factor that had been priced into the municipal market late in the year
was the expectation that a federal budget agreement was inevitable. The market
anticipated a positive budget compromise, and reacted accordingly. Even though
the possibility of tax reform weighed on the market to some extent, the belief
that progress on the federal budget deficit would be made helped to bolster
municipal bonds, especially at the longer end of the maturity spectrum.

Q: What were some of the challenges you faced in managing
the Fund?

A: The Florida municipal market is heavily skewed toward the insured
sector---more than 65 percent of the market volume involves insured municipal
bonds. This is due in large part to the high level of demand for insured issues
within the residents of the state.
The large supply means we have plenty of choices to make, and our challenge is
to find the issues that appear to offer the greatest relative value. We continue
to rely on our strong internal credit research team to help us do just that.

Q: How did the Fund perform, and how did you position the Fund
to take advantage of the market conditions of the past year?

A: We had a good year, providing Class A shares with a total return at net
asset value of 16.29 percent<F1> over the twelve months ended December 31, 1995.
The Fund continues to provide an attractive level of tax-exempt income, with a
Class A share distribution rate of 5.00 percent<F3> as of December 31, 1995.
Since income from the Fund is exempt from federal income tax, it is important to
compare the Fund's distribution rate to an equivalent taxable rate. For example,
for Florida residents in the marginal tax bracket of 36 percent, the Fund's
distribution rate represents a yield equivalent to a taxable investment earning
7.81 percent.<F4> At the same time, the Fund's Class A share net asset value
closed the fiscal year at $15.20 per share, up from $13.80 per share at the
beginning of the year.

In comparison to the total return of the Lehman Brothers Municipal Bond Index, a
broad-based, unmanaged index, which was 17.46 percent for the twelve months
through December 31, 1995, the Fund's performance was somewhat lower.
By maintaining the Fund's objectives and investing the majority of the
holdings in AAA-rated securities, we were able to take advantage of market
conditions and provide a good performance for our shareholders.

[PIE CHART]

Portfolio Composition by Credit Quality as of December 31, 1995

AAA 80.3%
AA 8.2%
A 6.4%
BBB 5.1%

Q: What is your outlook for the Fund and the market in the months
ahead?

A: We're confident that the investment environment will remain positive for
fixed-income securities in the near-term. Inflation appears to be under control
and the economy shows no signs of overheating.
We anticipate the Fed will continue its accommodative monetary policy and
reduce the fed funds rate further during the first half of 1996. Based on the
historically high level of real interest rates (market rates less the inflation
rate), there seems to be room for short-term interest rates to trend lower,
which is a good sign for long-term rates as well.
We expect the supply of new municipal issues to follow the trend of 1995 and
remain somewhat low in 1996. However, refunding activity should be high as the
lower interest rate environment makes it more attractive for municipalities to
retire their higher-yielding outstanding issues.
In general, conditions appear positive for the continuation of a favorable
environment in which to invest in fixed-income securities.

Peter W. Hegel Joseph A. Piraro
Executive Vice President Portfolio Manager
Fixed Income Investments

Please see footnotes on page three

Portfolio of Investments
December 31, 1995
- --------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Florida 80.5%
$ 900 Brevard Cnty, FL Hsg Fin Auth Single Family Mtg Rev
(GNMA Collateralized) .................................. 6.650% 09/01/21 $ 940,320
650 Brevard Cnty, FL Sales Tax Rev (MBIA Insd) ............. 5.750 12/01/13 682,292
500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp Ser A Rfdg
(FSA Insd) ............................................. 6.500 08/15/12 553,080
250 Clay Cnty, FL Hsg Fin Auth Rev Single Family Mtg (GNMA
Collateralized) ........................................ 6.500 09/01/21 259,425
1,155 Dade Cnty, FL Prof Sports Franchise Fac Tax Rev (MBIA
Insd)................................................... * 10/01/22 281,254
980 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA Insd) ..... 5.750 05/01/08 1,028,853
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA Insd) ..... 6.000 05/01/14 528,095
1,000 Dade Cnty, FL Wtr & Swr Syts Rev (FGIC Insd)............ 5.500 10/01/25 1,008,960
900 Daytona Beach, FL Wtr & Swr Rev Rfdg (AMBAC Insd)....... 5.750 11/15/10 944,244
600 Escambia Cnty, FL Pollutn Ctl Rev Champion Intl Corp
Proj ................................................... 6.900 08/01/22 649,662
1,400 Florida St Brd Edl Cap Outlay Pub Edl Ser B <F2> ....... 5.875 06/01/24 1,443,960
900 Florida St Brd Edl Cap Outlay Pub Edl Ser C............. 6.625 06/01/22 995,661

500 Hillsborough Cnty, FL Hosp Auth Hosp Rev Tampa Genl
Hosp Proj Rfdg (FSA Insd) .............................. 6.375 10/01/13 542,965
750 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl Rev
Tampa Elec Co Proj Rfdg (MBIA Insd)..................... 6.250 12/01/34 810,735
750 Hillsborough Cnty, FL Port Dist Rev Tampa Port Auth Ser
B Rfdg (FSA Insd)....................................... 5.400 06/01/07 785,483
1,000 Jacksonville, FL Elec Auth Rev Saint Johns Pwr-2 Ser 7
Rfdg (MBIA Insd) <F3>................................... 5.500 10/01/14 1,020,460
700 Jacksonville, FL Hlth Fac Auth Hosp Rev Baptist Med
Cent Proj Ser A Rfdg (MBIA Insd) <F3>................... 7.300 06/01/19 776,461
1,000 Jacksonville, FL Wtr & Swr Rev United Wtr Proj (AMBAC
Insd)................................................... 6.350 08/01/25 1,085,930
890 Martin Cnty, FL Cons Util Sys Rev Rfdg & Impt (FGIC
Insd) .................................................. 5.750 10/01/08 948,366
750 Martin Cnty, FL Indl Dev Auth Indl Dev Rev Indiantown
Cogeneration Proj A Rfdg ............................... 7.875 12/15/25 864,533
545 Melbourne, FL Arpt Rev Rfdg (MBIA Insd) <F2>............ 6.250 10/01/18 585,973
500 Miramar, FL Wastewtr Impt Assmt Rev (FGIC Insd) ........ 6.750 10/01/25 570,165
250 Orange Cnty, FL Hlth Fac Auth Rev Pooled Hosp Ln Ser B
Rfdg (BIGI Insd) ....................................... 7.875 12/01/25 267,670
1,000 Orange Cnty, FL Hsg Fin Auth Single Family Mtg Rev
(GNMA Collateralized) .................................. 6.550 10/01/21 1,039,440
900 Orange Cnty, FL Tourist Dev Tax Rev Ser B (AMBAC Insd)
........................................................ 6.500 10/01/19 990,756
</TABLE>

Portfolio of Investments
December 31, 1995
- ----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida (Continued)
$ 1,000 Osceola Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC
Insd).............................................. 5.500% 06/01/19 $ 1,011,290
1,000 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd)....................................... 5.375 08/01/15 1,003,370
750 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd) ...................................... 6.375 08/01/15 822,030
500 Saint Petersburg, FL Prof Sports Fac Sales Tax
Rev(MBIA Insd)..................................... 5.625 10/01/20 508,430
750 Sarasota Cnty, FL Util Sys Rev (FGIC Insd) ........ 6.500 10/01/14 837,225
760 Seacoast, FL Util Auth Wtr & Swr Util Sys Rev Rfdg
(FGIC Insd) ....................................... 5.500 03/01/10 780,079
1,000 South Miami, FL Hlth Fac Baptist Hlth Sys Oblig
Group Rfdg (MBIA Insd)............................. 5.375 10/01/11 1,015,600
1,000 Tampa, FL Rev Allegany Hlth Sys Saint Mary's
(MBIA Insd)........................................ 5.125 12/01/23 962,620
500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp Fac Mem
Hlth Rfdg & Impt (AMBAC Insd) ..................... 5.750 11/15/13 524,075
------------
27,069,462
------------
Puerto Rico 7.6%
600 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Ser V Rfdg ........................................ 6.375 07/01/07 649,254
670 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser V
Rfdg .............................................. 6.625 07/01/12 731,848
500 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser X
Rfdg .............................................. 5.500 07/01/19 495,765
650 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Ser M Rfdg (FSA Insd) ............................. 5.750 07/01/15 668,440
------------
2,545,307
------------

Total Long-Term Investments 88.1%
(Cost $27,608,096) <F1>........................................................ 29,614,769
------------
Short-Term Investments at Amortized Cost 5.4%
Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl Rev Tampa Elec Co Gannon Rfdg
($400,000 par, yielding 6.00%, maturing 01/02/96).............................. 400,000
Pinellas Cnty, FL Hlth Fac Dates Pooled Hosp Ln Pgm Rfdg ($1,400,000 par,
yielding 5.95%, maturing 01/02/96)............................................ 1,400,000
------------
Total Short-Term Investments at Amortized Cost.................................. 1,800,000
Other Assets in Excess of Liabilities 6.5%..................................... 2,195,971
------------
Net Assets 100%................................................................ $ 33,610,740
=============

*Zero coupon bond

<FN>
<F1> At December 31, 1995, cost for federal income tax purposes is $27,608,096;
the aggregate gross unrealized appreciation is $2,006,673 and the
aggregate gross unrealized depreciation is $-0-, resulting in net
unrealized appreciation of $2,006,673.

<F2> Securities purchased on a when issued or delayed delivery basis.

<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments.
</TABLE>

See Notes to Financial Statements

Statement of Assets and Liabilities
December 31, 1995
- ------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at Market Value (Cost $27,608,096) (Note 1).............................. $ 29,614,769
Short-Term Investments (Note 1)....................................................... 1,800,000
Cash.................................................................................. 3,359,309
Receivables:
Fund Shares Sold.................................................................... 543,688
Interest............................................................................ 418,934
Unamortized Organizational Expenses (Note 1).......................................... 85,760
--------------
Total Assets........................................................................ 35,822,460
--------------
Liabilities:
Payables:
Investments Purchased............................................................... 2,007,831
Income Distributions................................................................ 74,991
Organizational Expenses (Note 1).................................................... 50,430
Accrued Expenses...................................................................... 78,468
--------------
Total Liabilities................................................................... 2,211,720
--------------
Net Assets............................................................................ $ 33,610,740
==============
Net Assets Consist of:
Capital (Note 3)...................................................................... $ 31,876,000
Net Unrealized Appreciation on Investments............................................ 2,006,673
Accumulated Distributions in Excess of Net Investment Income.......................... (11,977)
Accumulated Net Realized Loss on Investments.......................................... (259,956)
--------------
Net Assets............................................................................ $ 33,610,740
==============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $16,205,600
and 1,065,925 shares of capital stock issued and outstanding) (Note 3)................ $ 15.20
Maximum sales charge (4.75%* of offering price)....................................... .76
--------------
Maximum offering price to public...................................................... $ 15.96
==============
Class B Shares:
Net asset value and offering price per share (Based on net assets of $16,943,301
and 1,114,583 shares of capital stock issued and outstanding) (Note 3)................ $ 15.20
==============
Class C Shares:
Net asset value and offering price per share (Based on net assets of $461,839 and
30,359 shares of capital stock issued and outstanding) (Note 3)....................... $ 15.21
==============
*On sales of $100,000 or more, the sales charge will be
reduced.

</TABLE>

See Notes to Financial Statements

Proceeds from Sales............................................................... $ 9,406,707

Cost of Securities Sold........................................................... (9,551,274)
--------------
Net Realized Loss on Investments (Including realized loss on futures transactions
of $357,995)........................................................................ (144,567)
--------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period........................................................... (443,602)
End of the Period................................................................. 2,006,673
--------------
Net Unrealized Appreciation on Investments During the Period........................ 2,450,275
--------------
Net Realized and Unrealized Gain on Investments..................................... $ 2,305,708
==============
Net Increase in Net Assets from Operations.......................................... $ 3,507,422
==============
</TABLE>

See Notes to Financial Statements

Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1995
and the Period July 29, 1994 (Commencement of Investment Operations)
to December 31, 1994
- --------------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................. $ 1,201,714 $ 304,664
Net Realized Loss on Investments.................................. (144,567) (115,389)
Net Unrealized Appreciation/Depreciation on Investments During
the Period........................................................ 2,450,275 (443,602)
----------------- -----------------
Change in Net Assets from Operations ............................. 3,507,422 (254,327)
----------------- -----------------
Distributions from Net Investment Income.......................... (1,204,444) (301,934)
Distribution in Excess of Net Investment Income (Note 1).......... (11,977) -0
----------------- -----------------
Distributions from and in Excess of Net Investment Income*........ (1,216,421) (301,934)
----------------- -----------------
Net Change in Net Assets from Investment Activities............... 2,291,001 (556,261)
----------------- -----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold......................................... 17,861,887 21,222,360
Net Asset Value of Shares Issued Through Dividend Reinvestment.... 447,813 90,281
Cost of Shares Repurchased........................................ (6,892,964) (857,667)
----------------- -----------------
Net Change in Net Assets from Capital Transactions ............... 11,416,736 20,454,974
----------------- -----------------
Total Increase in Net Assets...................................... 13,707,737 19,898,713

Net Assets:
Beginning of the Period........................................... 19,903,003 4,290
----------------- -----------------
End of the Period (Including undistributed net investment income
of $(11,977) and $2,730, respectively)............................ $ 33,610,740 $ 19,903,003
================= =================
</TABLE>

<TABLE>
<CAPTION>
Year Ended Period Ended
*Distributions by Class December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares.... $ (578,890) $ (128,551)
Class B Shares.... (634,695) (173,186)
Class C Shares.... (2,836) (197)
--------------- -------------
$ (1,216,421) $ (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.
- ------------------------------------------------------------------------------------------------------
July 29, 1994
(Commencement
of Investment
Year Ended Operations) to
Class A Shares December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period ....................... $ 13.796 $ 14.300
----------------- -----------------
Net Investment Income........................................... .789 .291
Net Realized and Unrealized Gain/Loss on Investments............ 1.416 (.507)
----------------- -----------------
Total from Investment Operations................................ 2.205 (.216)
Less Distributions from and in Excess of Net Investment Income
(Note 1)........................................................ .798 .288
----------------- -----------------
Net Asset Value, End of the Period.............................. $ 15.203 $ 13.796
================= =================
Total Return*................................................... 16.29% (1.47%)**
Net Assets at End of the Period (In millions)................... $ 16.2 $ 9.0
Ratio of Expenses to Average Net
Assets* <F1>.................................................... .44% .49%
Ratio of Net Investment Income to
Average Net Assets*............................................. 5.33% 5.13%
Portfolio Turnover.............................................. 41.10% 19.30%
*If certain expenses had not been assumed by VKAC, total
return would have been lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets <F1>.................... 1.70% 1.99%

Ratio of Net Investment Income to
Average Net Assets.............................................. 4.07% 3.64%

**Non-Annualized

<FN>
<F1> Beginning with the year ended December 31, 1995, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances. (Note 1)
</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.
- ------------------------------------------------------------------------------------------------------
July 29, 1994
(Commencement
of Investment
Year Ended Operations) to
Class B Shares December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period ....................... $ 13.792 $ 14.300
----------------- -----------------
Net Investment Income........................................... .685 .251
Net Realized and Unrealized Gain/Loss on Investments............ 1.415 (.509)
----------------- -----------------
Total from Investment Operations................................ 2.100 (.258)
Less Distributions from and in Excess of
Net Investment Income (Note 1).................................. .691 .250
----------------- -----------------
Net Asset Value, End of the Period.............................. $ 15.201 $ 13.792
================= =================
Total Return*................................................... 15.53% (1.81%)**
Net Assets at End of the Period (In millions)................... $ 16.9 $ 10.9
Ratio of Expenses to Average Net
Assets* <F1>.................................................... 1.12% 1.26%
Ratio of Net Investment Income to
Average Net Assets*............................................. 4.66% 4.31%
Portfolio Turnover.............................................. 41.10% 19.30%
*If certain expenses had not been assumed by VKAC, total
return would have been lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets <F1>.................... 2.38% 2.75%

Ratio of Net Investment Income to
Average Net Assets.............................................. 3.40% 2.81%

**Non-Annualized

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.
- ------------------------------------------------------------------------------------------------------
July 29, 1994
(Commencement
of Investment
Year Ended Operations) to
Class C Shares December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period ....................... $ 13.786 $ 14.300
----------------- -----------------
Net Investment Income........................................... .690 .249
Net Realized and Unrealized Gain/Loss on Investments............ 1.428 (.513)
----------------- -----------------
Total from Investment Operations................................ 2.118 (.264)
Less Distributions from and in Excess of
Net Investment Income (Note 1).................................. .691 .250
----------------- -----------------
Net Asset Value, End of the Period.............................. $ 15.213 $ 13.786
================= =================
Total Return*................................................... 15.61% (1.81%)**
Net Assets at End of the Period (In thousands).................. $ 461.8 $ 11.4
Ratio of Expenses to Average Net
Assets* <F1>.................................................... 1.13% 1.26%
Ratio of Net Investment Income to
Average Net Assets*............................................. 4.51% 4.28%
Portfolio Turnover.............................................. 41.10% 19.30%
*If certain expenses had not been assumed by VKAC, total
return would have been lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets <F1>.................... 2.39% 2.74%

Ratio of Net Investment Income to
Average Net Assets.............................................. 3.25% 2.81%

**Non-Annualized

See Notes to Financial Statements

Notes to Financial Statements
December 31, 1995
- --------------------------------------------------------------------------------

1. Significant Accounting Policies
Van Kampen American Capital Florida Insured Tax Free Income Fund (the "Fund") is
organized as a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust, and is registered as a non-diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to provide investors a high level of
current income exempt from federal income and Florida state intangibles taxes,
consistent with preservation of capital. Under normal market conditions, the
Fund will invest at least 80% of its assets in insured Florida municipal
securities. The Fund commenced investment operations on July 29, 1994.
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 and Expenses-Interest income and expenses are recorded on
an accrual basis. Bond premium and original issue discount on securities
purchased are amortized over the expected life of each applicable security.
During the year ended December 31, 1995, the Fund's custody fee was reduced by
approximately $5,500 as a result of credits earned on overnight cash balances.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

D. Organizational Expenses-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 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 unamortized organizational expenses 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, 1995, the Fund had an accumulated capital loss
carryforward for tax purposes of $259,956, of which $41,580 and $218,376 will
expire on December 31, 2002 and 2003, 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.

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. Due to inherent differences in the recognition of certain
expenses under generally accepted accounting principles and federal income tax
purposes, the amount of distributable net investment income may differ between
book and federal income tax purposes for a particular period. These differences
are temporary in nature, but may result in book basis distribution in excess of
net investment income for certain periods.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

<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.
For the year ended December 31, 1995, the Fund incurred expenses of
approximately $13,700 representing VKAC's cost of providing accounting, cash
management, legal and certain shareholder services to the Fund. All of these
expenses were waived by VKAC.
In July, 1995, the Fund began using ACCESS Investor Services, Inc., an
affiliate of the Adviser, as the transfer agent of the Fund. For the year ended
December 31, 1995, the Fund incurred expenses of approximately $3,900,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit, all of which was assumed by VKAC.
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 December 31, 1995, was
approximately $11,400.
At December 31, 1995, VKAC owned 100 shares each of Classes A, B and C.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

At December 31, 1995, capital aggregated $15,378,255, $16,043,043 and $454,702
for Classes A, B and C, respectively. For the year ended December 31, 1995,
transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................... 638,004 $ 9,423,423
Class B....................... 543,226 7,996,321
Class C....................... 29,482 442,143
---------- ---------------
Total Sales................... 1,210,712 $ 17,861,887
========== ===============
Dividend Reinvestment:
Class A....................... 13,418 $ 197,470
Class B....................... 16,884 248,162
Class C....................... 147 2,181
---------- ---------------
Total Dividend Reinvestment... 30,449 $ 447,813
========== ===============
Repurchases:
Class A....................... (240,707) $ (3,477,451)
Class B....................... (232,380) (3,414,090)
Class C....................... (96) (1,423)
---------- ---------------
Total Repurchases............. (473,183) $ (6,892,964)
========== ===============
</TABLE>

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

At December 31, 1994, capital 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:

Shares Value
- --------------------------------------------------------
<S> <C> <C>
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)
December 31, 1995
- --------------------------------------------------------------------------------

For the year ended December 31, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$31,800 and CDSC on the redeemed shares of Classes B and C of approximately
$73,100. 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 year ended December 31, 1995, were $18,477,597 and
$9,551,274, 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
year ended December 31, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts
- -----------------------------------------------
<S> <C>
Outstanding at December 31, 1994.... 25
Futures Opened...................... 25
Futures Closed...................... (50)
---------
Outstanding at December 31, 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 .25% of Class A shares and 1.00% each of
Class B and Class C shares are accrued daily. Included in these fees for the
year ended December 31, 1995, are payments to VKAC of approximately $100,400.

Independent Auditors' Report
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
Van Kampen American Capital Florida Insured Tax Free Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Florida Insured Tax Free Income Fund (the "Fund"),
including the portfolio of investments, as of December 31, 1995, the related
statement of operations for the year then ended, and the statement of changes
in net assets and financial highlights for the year then ended and for the
period July 29, 1994 (commencement of investment operations) through December
31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen American Capital Florida Insured Tax Free Income Fund as of December 31,
1995, the results of its operations for the year then ended, and the changes in
its net assets and financial highlights for the year then ended and for the
period July 29, 1994 (commencement of investment operations) through December
31, 1994, in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Chicago, Illinois
February 13, 1996

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 American Capital Florida Insured Tax Free Income Fund
- --------------------------------------------------------------------------------

Board of Trustees

Officers

Don G. Powell*
President and Chief Executive Officer

Dennis J. McDonnell*
Executive Vice President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood III*
Vice President and Chief Financial Officer

Curtis W. Morell*
Vice President and Chief Accounting Officer

John L. Sullivan*
Treasurer

Tanya M. Loden*
Controller

William N. Brown*
Peter W. Hegel*
Robert C. Peck, Jr.*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents

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

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 American Capital Florida Insured Tax Free Income Fund

This Page Intentionally Left Blank

<TABLE>

Table of Contents

NJTF ANR 2/96

Letter to Shareholders

January 30, 1996

Dear Shareholder,

For most investors, it would be hard to surpass the success enjoyed during
1995. The stock and bond markets achieved substantial gains, driven by a
combination of continuing economic growth and low inflation. The strength
of equity and fixed-income securities in 1995 was particularly impressive
because it followed a year in which both markets declined. People who remained
invested during 1995 generally shared in the growth of the markets, while
investors who retreated after 1994's downturn may have missed out on the
double-digit returns.

The rebound in the markets last year reinforces the importance of
maintaining a long-term perspective for your investments. While the
environment for stocks and bonds remains positive, it is unlikely that 1996
will see a repeat of the markets' strong 1995 performance. However, over the
long-term, stocks have outperformed virtually all other types of investments,
and bonds have met the needs of investors who seek capital preservation and
regular income.

[PHOTO]

Dennis J. McDonnell and Don G. Powell

Economic Overview

Continued on page two

the impact of the Internet, telecommunications deregulation and bank mergers.
U.S. companies with global operations also did well, aided by a declining U.S.
dollar.

Economic Outlook

During recent months, debate over tax reform and the federal deficit has
dominated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue in
Washington. There has been varied speculation about the impact tax reform could
have on the economy and on various types of investments. We are following the
tax reform debate very closely, and we will keep you updated on this issue
throughout the year. See the winter issue of "Your Portfolio" for a detailed
discussion of tax reform.

Corporate News

As part of our commitment to helping you achieve your investment goals, Van
Kampen American Capital strives to provide shareholders with the best service in
the mutual fund industry. That is why we are especially pleased to have received
the 1995 Quality Tested Service Seal, which is awarded annually by DALBAR, Inc.,
an independent research firm. The Seal, which symbolizes the achievement of the
highest tier of service in the mutual fund industry, was awarded to American
Capital annually from 1990 to 1994 and we are honored that the service provided
by Van Kampen American Capital has achieved the same level of excellence.

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 December 31, 1995
Van Kampen American Capital New Jersey Tax Free Income Fund

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

One-year total return
based on NAV<F1>........... 15.26% 14.43% 14.42%
One-year total return<F2>.... 9.78% 10.43% 13.42%
Life-of-Fund average
annual total return<F2>.... 5.45% 5.73% 8.35%
Commencement date............ 07/29/94 07/29/94 07/29/94

Distribution Rates and Yield

Distribution rate<F3>........ 4.91% 4.44% 4.44%
Taxable equivalent
distribution rate<F4>...... 8.21% 7.42% 7.42%
SEC Yield<F5>................ 4.95% 4.44% 4.44%

<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> The taxable-equivalent distribution rate is calculated assuming a 40.2%
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 December 30, 1995. Had
certain expenses of the Fund not been assumed by VKAC, the SEC Yield would have
been 2.99%, 2.48% and 2.48% for Classes A, B and C, respectively and total
returns would have been lower.

Putting Your Fund's Performance in Perspective
- --------------------------------------------------------------------------------

As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:

* Illustrate the general market environment in which your investments are being
managed

* Reflect the impact of favorable market trends or difficult market conditions

* Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Municipal Bond
Index over time. As a broad-based, unmanaged statistical composite, this index
does not reflect any commissions or fees which would be incurred by an investor
purchasing the securities it represents. Similarly, its performance does not
reflect any sales charges or other costs which would be applicable to an
actively managed portfolio, such as that of the Fund.

[GRAPH]

Growth of a Hypothetical $10,000 Investment

Van Kampen American Capital New Jersey Tax Free Income Fund vs. Lehman
Brothers Municipal Bond Index (July 1994 through December 1995)

Fund Index
29-Jul-94 9,526.95 10,000.00
31-Aug-94 9,628.40 10,035.00
30-Sep-94 9,499.60 9,887.49
31-Oct-94 9,336.70 9,711.49
30-Nov-94 9,105.70 9,535.71
30-Dec-94 9,354.10 9,745.50
31-Jan-95 9,651.40 10,024.22
28-Feb-95 9,881.80 10,315.92
31-Mar-95 9,941.50 10,434.55
30-Apr-95 9,904.80 10,447.08
31-May-95 10,145.40 10,780.34
30-Jun-95 10,025.00 10,686.55
31-Jul-95 10,106.80 10,788.07
31-Aug-95 10,224.20 10,925.08
30-Sep-95 10,278.50 10,993.91
31-Oct-95 10,446.60 11,153.32
30-Nov-95 10,649.30 11,338.46
31-Dec-95 10,781.40 11,447.31

Portfolio Management Review
- --------------------------------------------------------------------------------
Van Kampen American Capital New Jersey Tax Free Income Fund

We recently spoke with the management team of the Van Kampen American Capital
New Jersey Tax Free Income Fund about the key events and economic forces which
shaped the markets during the past fiscal year. The team includes Tim Haney,
portfolio manager, and Peter W. Hegel, executive vice president for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the twelve-month period ended December 31, 1995.

Q: What were some of the important events or market conditions which had an
impact on the Fund's performance during 1995?

Inflation continued to remain in check, with rates hovering around the 2
percent range, while the economy grew at a fairly steady but modest pace. As a
result, the Federal Reserve Board lowered its key lending rate (the fed funds
rate) by one-quarter percentage point in July of 1995 and again, by one-quarter
of a percentage point, in December. Naturally, bond prices were driven higher
as rates trended downward over the course of the year (bond prices go up when
rates go down, and vice versa).

Another factor that had been priced into the municipal market late in the year
was the expectation that a federal budget agreement was inevitable. The market
anticipated a positive budget compromise, and reacted accordingly. Even though
the possibility of tax reform weighed on the market to some extent, the belief
that progress on the federal budget deficit would be made helped to bolster
municipal bonds, especially at the longer end of the maturity spectrum.

Q: How well did the Fund perform, and how was it positioned to take advantage of
1995 market conditions?

A: We had a good year, providing Class A shares with a total return at net asset
value of 15.26 percent<F1> over the twelve months ended December 31, 1995.

The Fund continues to provide an attractive level of tax-exempt income, with a
Class A share distribution rate of 4.91 percent<F3> as of December 31, 1995.
Since income from the Fund is exempt from federal and state income taxes, it is
important to compare the Fund's distribution rate to an equivalent taxable rate.
For example, for New Jersey residents in the combined marginal tax bracket of
40.2 percent, the Fund's Class A share distribution rate represents a yield
equivalent to a taxable investment earning 8.21 percent.<F4> At the same time,
the Fund's Class A share net asset value closed the fiscal year at $15.00 per
share, up from $13.75 per share at the end of the last fiscal year. In
comparison, the total return of the Lehman Brothers Municipal Bond Index, a
broad-based, unmanaged index, was 17.46 percent for the twelve months through
December 31, 1995. During the same period, the category average for all
New Jersey municipal bond funds tracked by Lipper Analytical Services was 16.01
percent.

We took advantage of the positive 1995 bond market by maintaining the Fund's
portfolio, and investing the majority of assets in investment-grade securities.
In fact, as of December 31, 1995, 69.3 percent of the Fund's holdings are in New
Jersey securities rated AAA by Standard & Poor's Ratings Group.

In terms of the market, we continued to rely on our strong internal credit
research team to help us identify New Jersey securities offering the greatest
relative value. We feel the health care industry continues to remain a good
investment, and as of December 31, 1995, the Fund holds a significant portion of
its assets in the health care industry (30.4 percent).

Portfolio Composition as of December 31, 1995

[PIE CHART]

Health Care 30.4%
Other 12.7%
General Purpose 12.6%
Retail Electric/Gas/Telephone 10.4%
Public Building 9.1%
Transportation 7.0%
Public Education 6.7%
Single Family Housing 5.6%
Higher Education 5.5%

Q: What is your outlook for the Fund and the market in the months ahead?

A: We're confident that the investment environment will remain positive for
fixed-income securities in the near term. Inflation appears to be under control
and the economy shows no signs of overheating.

We expect the supply of new municipal issues to follow the trend of 1995 and
remain somewhat low in 1996. However, refunding activity should be high as the
lower interest rate environment makes it more attractive for municipalities to
retire their higher-yielding outstanding issues. In general, conditions appear
positive for the continuation of a favorable environment in which to invest in
fixed-income securities.

Peter W. Hegel Tim Haney
Executive Vice President Portfolio Manager
Fixed Income Investments

Please see footnotes on page three

<TABLE>
<CAPTION>
Portfolio of Investments
December 31, 1995
- --------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
New Jersey 86.9%
$ 400 Atlantic City, NJ Brd Edl Sch (AMBAC Insd) ........ 6.125% 12/01/11 $ 432,092
250 Camden Cnty, NJ Impt Auth Lease Rev Cnty Gtd (MBIA
Insd) ............................................. 6.150 10/01/14 270,103
250 Delaware River Port Auth PA & NJ (FGIC Insd) ...... 5.500 01/01/26 252,078
250 Essex Cnty, NJ Impt Auth Lease Jail & Youth House
Proj (AMBAC Insd) ................................. 6.600 12/01/07 283,167
370 Essex Cnty, NJ Ser A1 Rfdg (AMBAC Insd) ........... 5.375 09/01/10 377,533
250 Hudson Cnty, NJ Ctfs Partn Correctional Fac Rfdg
(MBIA Insd) ....................................... 6.600 12/01/21 274,822
250 Lacey Muni Util Auth NJ Wtr Rev (MBIA Insd) ....... 6.250 12/01/24 271,545
250 Mercer Cnty, NJ Impt Auth Rev ..................... * 04/01/11 112,723
400 Mercer Cnty, NJ Impt Auth Rev Solid Waste Ser A
Rfdg (FGIC Insd) .................................. 6.700 04/01/13 421,832
500 Millburn Twp, NJ Brd Edl .......................... 5.350 07/15/12 517,870
500 New Jersey Econ Dev Auth Dist Heating & Cooling
Rev Trigen Trenton Ser A .......................... 6.200 12/01/10 517,185
400 New Jersey Econ Dev Auth Holt Hauling and Warehsg
Rev Ser G Rfdg .................................... 8.400 12/15/15 427,852
300 New Jersey Econ Dev Auth Mkt Transition Fac Rev Sr
Lien Ser A (MBIA Insd) ............................ 5.800 07/01/09 316,791
210 New Jersey Econ Dev Auth Pollutn Ctl Rev Pub Svcs
Elec & Gas Co Proj A (MBIA Insd) .................. 6.400 05/01/32 227,405
350 New Jersey Econ Dev Auth Rev RWJ Hlth Care Corp
(FSA Insd) ........................................ 6.250 07/01/14 378,133
300 New Jersey Econ Dev Auth Wtr Fac Rev Hackensack
Wtr Co Proj B Rfdg (MBIA Insd) .................... 5.900 03/01/24 308,637
490 New Jersey Hlthcare Fac Fin Auth Rev Atlantic City
Med Cent Ser C Rfdg ............................... 6.800 07/01/11 539,108
700 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd) ..................... 7.000 07/01/04 806,512
400 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd) ..................... 7.000 07/01/06 467,800
250 New Jersey Hlthcare Fac Fin Auth Rev Englewood
Hosp & Med Cent ................................... 6.700 07/01/15 262,103
250 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd) ........................ 6.000 07/01/06 273,628
</TABLE>

7 See Notes to Financial Statements

8 See Notes to Financial Statements

*Zero coupon bond

<FN>
<F1> At December 31, 1995, cost for federal income tax purposes is $13,204,264;
the aggregate gross unrealized appreciation is $982,282 and the aggregate
gross unrealized depreciation is $-0-, resulting in net unrealized
appreciation of $982,282.
</TABLE>

Portfolio Composition by Credit Quality

AAA........... 69.3%
AA............ 2.3
A............. 10.9
BBB........... 13.0
Non-Rated..... 4.5
------
100.0%
======

9 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1995
- --------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at Market Value (Cost $13,204,264) (Note 1)........................... $ 14,186,546
Short-Term Investments (Note 1).................................................... 300,000
Cash .............................................................................. 33,430
Receivables:
Interest......................................................................... 311,438
Fund Shares Sold................................................................. 68,171
Unamortized Organizational Expenses (Note 1)....................................... 85,760
--------------
Total Assets................................................................... 14,985,345
--------------
Liabilities:
Payables:
Investments Purchased............................................................ 382,581
Income Distributions ............................................................ 30,014
Accrued Expenses................................................................... 46,476
--------------
Total Liabilities.............................................................. 459,071
--------------
Net Assets......................................................................... $ 14,526,274
==============
Net Assets Consist of:
Capital (Note 3)................................................................... $ 13,807,351
Net Unrealized Appreciation on Investments......................................... 982,282
Accumulated Distributions in Excess of Net Investment Income (Note 1).............. (4,253)
Accumulated Net Realized Loss on Investments....................................... (259,106)
--------------
Net Assets......................................................................... $ 14,526,274
==============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$5,843,399 and 389,565 shares of capital stock issued and outstanding) (Note 3) $ 15.00
Maximum sales charge (4.75%* of offering price)................................ .75
--------------
Maximum offering price to public............................................... $ 15.75
==============
Class B Shares:
Net asset value and offering price per share (Based on net assets of $8,218,396
and 548,211 shares of capital stock issued and outstanding) (Note 3)........... $ 14.99
==============
Class C Shares:
Net asset value and offering price per share (Based on net assets of $464,479
and 30,966 shares of capital stock issued and outstanding) (Note 3)............ $ 15.00
==============
</TABLE>

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

10 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest.......................................................................... $ 688,966
--------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$12,135, $72,539 and $3,252, respectively) (Note 6) ........................... 87,926
Investment Advisory Fee (Note 2) ................................................. 72,316
Printing ......................................................................... 52,045
Custody .......................................................................... 38,398
Legal (Note 2).................................................................... 27,255
Amortization of Organizational Expenses (Note 1).................................. 23,988
Audit............................................................................. 21,075
Shareholder Services (Note 2)..................................................... 17,355
Trustees Fees and Expenses (Note 2)............................................... 9,248
Other............................................................................. 7,763
--------------
Total Expenses................................................................ 357,369
Less Fees Waived and Expenses Reimbursed ($72,316 and $196,794, respectively). 269,110
--------------
Net Expenses.................................................................. 88,259
--------------
Net Investment Income............................................................. $ 600,707
==============
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales............................................................. $ 3,468,286
Cost of Securities Sold ........................................................ (3,639,871)
--------------
Net Realized Loss on Investments (Including realized loss on futures transactions
of $205,953).................................................................... (171,585)
--------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period......................................................... (225,534)
End of the Period............................................................... 982,282
--------------
Net Unrealized Appreciation on Investments During the Period...................... 1,207,816
--------------
Net Realized and Unrealized Gain on Investments................................... $ 1,036,231
==============
Net Increase in Net Assets from Operations........................................ $ 1,636,938
==============
</TABLE>

11 See Notes to Financial Statements

<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Year Ended December 31, 1995
and the Period July 29, 1994 (Commencement of Investment Operations)
to December 31, 1994
- --------------------------------------------------------------------------------------------------------
Year Ended Period Ended
December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................. $ 600,707 $ 146,897
Net Realized Loss on Investments.................................. (171,585) (87,521)
Net Unrealized Appreciation/Depreciation on Investments During
the Period...................................................... 1,207,816 (225,534)
----------------- -----------------
Change in Net Assets from Operations ............................. 1,636,938 (166,158)
----------------- -----------------
Distributions from Net Investment Income.......................... (601,952) (145,652)
Distributions in Excess of Net Investment Income (Note 1)..... (4,253) -0-
----------------- -----------------
Distributions from and in Excess of
Net Investment Income*...................................... (606,205) (145,652)
----------------- -----------------
Net Change in Net Assets from Investment Activities............... 1,030,733 (311,810)
----------------- -----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold......................................... 5,834,549 10,259,465
Net Asset Value of Shares Issued Through Dividend Reinvestment.... 296,757 71,306
Cost of Shares Repurchased........................................ (2,307,583) (351,433)
----------------- -----------------
Net Change in Net Assets from Capital Transactions................ 3,823,723 9,979,338
----------------- -----------------
Total Increase in Net Assets...................................... 4,854,456 9,667,528
Net Assets:
Beginning of the Period........................................... 9,671,818 4,290
----------------- -----------------
End of the Period (Including undistributed net investment income
of $(4,253) and $1,245, respectively) ............................ $ 14,526,274 $ 9,671,818
================= =================
</TABLE>

<TABLE>
<CAPTION>
Year Ended Period Ended
*Distributions by Class December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares................... $ (244,934) $ (48,787)
Class B Shares................... (345,970) (93,517)
Class C Shares................... (15,301) (3,348)
----------------- -----------------
$ (606,205) $ (145,652)
================= =================
</TABLE>

12 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- -------------------------------------------------------------------------------------------------
July 29, 1994
Year (Commencement
Ended of Investment
December 31, Operations) to
Class A Shares 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period........................ $ 13.754 $ 14.300
------------ -----------------
Net Investment Income......................................... .792 .295
Net Realized and Unrealized Gain/Loss on Investments.......... 1.253 (.551)
------------ -----------------
Total from Investment Operations................................ 2.045 (.256)
Less Distributions from and in Excess of Net Investment Income
(Note 1)...................................................... .799 .290
------------ -----------------
Net Asset Value, End of the Period.............................. $ 15.000 $ 13.754
============ =================
Total Return*................................................... 15.26% (1.81%)**
Net Assets at End of the Period (In millions)................... $ 5.8 $ 3.0
Ratio of Expenses to Average Net
Assets* (Annualized).......................................... .27% .17%
Ratio of Net Investment Income to
Average Net Assets* (Annualized).............................. 5.43% 5.16%
Portfolio Turnover.............................................. 31.45% 11.00%
* If certain expenses had not been assumed by VKAC, total return
would have been lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets (Annualized)........................................... 2.53% 3.17%
Ratio of Net Investment Income to
Average Net Assets (Annualized)............................... 3.17% 2.17%
</TABLE>

**Non-Annualized

13 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- -------------------------------------------------------------------------------------------------
July 29, 1994
Year (Commencement
Ended of Investment
December 31, Operations) to
Class B Shares 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period........................ $ 13.738 $ 14.300
------------ -----------------
Net Investment Income......................................... .685 .253
Net Realized and Unrealized Gain/Loss on Investments.......... 1.260 (.563)
------------ -----------------
Total from Investment Operations................................ 1.945 (.310)
Less Distributions from and in Excess of Net Investment Income
(Note 1)...................................................... .692 .252
------------ -----------------
Net Asset Value, End of the Period.............................. $ 14.991 $ 13.738
============ =================
Total Return*................................................... 14.43% (2.16%)**
Net Assets at End of the Period (In millions)................... $ 8.2 $ 6.5
Ratio of Expenses to Average Net
Assets* (Annualized).......................................... 1.01% .93%
Ratio of Net Investment Income to
Average Net Assets* (Annualized).............................. 4.73% 4.38%
Portfolio Turnover.............................................. 31.45% 11.00%
* If certain expenses had not been assumed by VKAC, total return
would have been lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets (Annualized)........................................... 3.23% 3.89%

Ratio of Net Investment Income to
Average Net Assets (Annualized)................................. 2.51% 1.41%
</TABLE>

**Non-Annualized

14 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights (Continued)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- -------------------------------------------------------------------------------------------------
July 29, 1994
Year (Commencement
Ended of Investment
December 31, Operations) to
Class C Shares 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period........................ $ 13.753 $ 14.300
------------ -----------------
Net Investment Income........................................... .706 .240
Net Realized and Unrealized Gain/Loss on Investments............ 1.233 (.535)
------------ -----------------
Total from Investment Operations................................ 1.939 (.295)
Less Distributions from and in Excess of Net Investment Income
(Note 1)...................................................... .692 .252
------------ -----------------
Net Asset Value, End of the Period.............................. $ 15.000 $ 13.753
============ =================
Total Return*................................................... 14.42% (2.09%)**
Net Assets at End of the Period (In millions)................... $ .5 $ .2
Ratio of Expenses to Average Net
Assets* (Annualized).......................................... 1.00% .91%
Ratio of Net Investment Income to
Average Net Assets* (Annualized).............................. 4.73% 4.39%
Portfolio Turnover.............................................. 31.45% 11.00%
* If certain expenses had not been assumed by VKAC, total return
would have been lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets (Annualized)............ 3.23% 3.85%
Ratio of Net Investment Income to
Average Net Assets (Annualized)................................. 2.50% 1.46%
</TABLE>

**Non-Annualized

15 See Notes to Financial Statements

Notes to Financial Statements
December 31, 1995
- --------------------------------------------------------------------------------

1. Significant Accounting Policies

Van Kampen American Capital New Jersey Tax Free Income Fund (the "Fund") is
organized as a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust, and is registered as a non-diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to provide investors with a high
level of current income exempt from federal income tax and New Jersey gross
income tax, consistent with preservation of capital. 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 December 31, 1995, there
were no when issued or delayed delivery purchase commitments.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

D. Organizational Expenses-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 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
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, 1995, the Fund had an accumulated capital loss
carryforward for tax purposes of $259,106, of which $11,885 and $247,221 will
expire on December 31, 2002 and 2003, 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.

<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)
December 31, 1995
- --------------------------------------------------------------------------------

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 year ended December 31, 1995, the Fund recognized expenses of
approximately $12,100 representing VKAC's cost of providing cash management,
legal and certain shareholder services (prior to July, 1995) to the Fund. All of
this cost has been waived by VKAC.

In July, 1995, the Fund began using ACCESS Investor Services, Inc., an
affiliate of the Adviser, as the transfer agent of the Fund. For the year ended
December 31, 1995, the Fund recognized expenses of approximately $2,640,
representing ACCESS's cost of providing transfer agency and shareholder services
plus a profit. All of this expense has been assumed by VKAC.

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 December 31, 1995, was approximately $8,000.

At December 31, 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 each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

At December 31, 1995, capital aggregated $5,565,936, $7,797,542 and $443,873
for Classes A, B and C, respectively. For the year ended December 31, 1995,
transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................... 207,068 $ 2,985,783
Class B...................... 184,393 2,661,480
Class C...................... 12,868 187,286
---------- ---------------
Total Sales.................... 404,329 $ 5,834,549
========== ===============
Dividend Reinvestment:
Class A...................... 8,428 $ 122,246
Class B...................... 11,009 159,264
Class C...................... 1,049 15,247
---------- ---------------
Total Dividend Reinvestment.... 20,486 $ 296,757
========== ===============
Repurchases:
Class A...................... (41,615) $ (605,336)
Class B...................... (117,446) (1,691,133)
Class C...................... (755) (11,114)
---------- ---------------
Total Repurchases.............. (159,816) $ (2,307,583)
========== ===============
</TABLE>

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

At December 31, 1994, capital 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)
December 31, 1995
- --------------------------------------------------------------------------------

<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.... 0.00% None
</TABLE>

For the year ended December 31, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$12,700 and CDSC on the redeemed shares of Classes B and C of approximately
$54,700. 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 year ended December 31, 1995, were $7,774,416 and
$3,639,871, respectively.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------

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
year ended December 31, 1995, were as follows:

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

6. Distribution and Service Plans

Independent Auditors' Report
- --------------------------------------------------------------------------------

The Board of Trustees and Shareholders of the
Van Kampen American Capital New Jersey Tax Free Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital New Jersey Tax Free Income Fund (the "Fund"), including
the portfolio of investments, as of December 31, 1995, and the related statement
of operations for the year then ended, and the statement of changes in net
assets and the financial highlights for the year then ended, and for the period
from July 29, 1994 (commencement of investment operations) through December 31,
1994. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen American Capital New Jersey Tax Free Income Fund as of December 31, 1995,
the results of its operations for the year then ended, and the changes in its
net assets and financial highlights for the year then ended and for the period
from July 29, 1994 (commencement of investment operations) through December 31,
1994, in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP
Chicago, Illinois
February 13, 1996

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

Van Kampen American Capital New Jersey Tax Free Income Fund
- --------------------------------------------------------------------------------

Board of Trustees

J. Miles Branagan

Linda Hutton Heagy

Roger Hilsman

R. Craig Kennedy

Dennis J. McDonnell*

Donald C. Miller - Chairman

Jack E. Nelson

Don G. Powell*

Jerome L. Robinson

Fernando Sisto

Wayne W. Whalen*

William Stewart Woodside

Officers

Don G. Powell*
President and Chief Executive Officer

Dennis J. McDonnell*
Executive Vice President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood III*
Vice President and Chief Financial Officer

Curtis W. Morell*
Vice President and Chief Accounting Officer

John L. Sullivan*
Treasurer

Tanya M. Loden*
Controller

William N. Brown*
Peter W. Hegel*
Robert C. Peck, Jr.*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents

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

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
Performance Perspective................ 4
Portfolio Management Review............ 5
Portfolio of Investments............... 7
Statement of Assets and Liabilities.... 9
Statement of Operations................ 10
Statement of Changes in Net Assets..... 11
Financial Highlights................... 12
Notes to Financial Statements.......... 15
Independent Auditors' Report........... 21

</TABLE>

Letter to Shareholders

January 30, 1996

The rebound in the markets last year reinforces the importance of maintaining a
long-term perspective for your investments. While the environment for stocks and
bonds remains positive, it is unlikely that 1996 will see a repeat of the
markets' strong 1995 performance. However, over the long-term, stocks have
outperformed virtually all other types of investments, and bonds have met the
needs of investors who seek capital preservation and regular income.

[PHOTO]

Dennis J. McDonnell and Don G. Powell

1 (Continued on page two)

nology and finance, as these stocks benefited from the impact of the Internet,
telecommunications deregulation and bank mergers. U.S. companies with global
operations also did well, aided by a declining U.S. dollar.

The current economic conditions are ideal for stocks, especially those of
smaller companies, because they tend to be affected less by economic cycles. The
outlook for the fixedincome market---including municipal bonds---is positive,
too. In the near-term, we believedomestic markets will benefit from a stable
U.S. dollar and increased business activity driven in part by a number of
recently announced strategic reorganizations of some of the nation's blue chip
industry leaders.

During recent months, debate over tax reform and the federal deficit has
dominated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue in
Washington. There has been varied speculation about the impact tax reform could
have on the economy and on various types of investments. We are following the
tax reform debate very closely, and we will keep you updated on this issue
throughout the year. See the winter issue of "Your Portfolio"
for a detailed discussion of tax reform.

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 December 31, 1995
Van Kampen American Capital New York Tax Free Income Fund

A Shares B Shares C Shares

<S> <C> <C> <C>
Total Returns

One-year total return based on NAV<F1> 17.33% 16.47% 16.39%
One-year total return<F2>......... 11.75% 12.47% 15.39%
Life-of-Fund average annual total
return<F2>........................ 5.93% 6.27% 8.78%
Life-of-Fund cumulative
total return based on NAV<F1>..... 13.89% 12.74% 12.67%
Commencement date................. 07/29/94 07/29/94 07/29/94

Distribution Rates and Yield
Distribution rate<F3>............. 5.05% 4.58% 4.59%
Taxable equivalent
distribution rate<F4>............. 8.54% 7.75% 7.77%
SEC Yield<F5>..................... 5.03% 4.52% 4.51%

<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 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 40.9% 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 December 30, 1995. Had
certain expenses of the Fund not been assumed by VKAC, the SEC Yield would have
been 3.30%, 2.79% and 2.78% for Classes A, B and C, respectively and total
returns would have been lower.

Putting Your Fund's Performance in Perspective

As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:

* Illustrate the general market environment in which your investments are being
managed

* Reflect the impact of favorable market trends or difficult market conditions

* Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured

For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Municipal Bond
Index over time. As a broad-based, unmanaged statistical composite, this index
does not reflect any commissions or fees which would be incurred by an investor
purchasing the securities it represents. Similarly, its performance does not
reflect any sales charges or other costs which would be applicable to an
actively managed portfolio, such as that of the Fund.

[GRAPH]

Growth of a Hypothetical $10,000 Investment
Van Kampen American Capital New York Tax Free Income Fund vs Lehman Brothers
Municipal Bond Index (July 1994 through December 1995)

NYTF
FUND Lehman Muni Bond Index
<S> <C> <C>
29-Jul-94 9,526.95 10,000.00
31-Aug-94 9,662.40 10,035.00
30-Sep-94 9,421.80 9,887.49
31-Oct-94 9,206.80 9,711.49
30-Nov-94 8,970.60 9,535.71
30-Dec-94 9,248.10 9,745.50
31-Jan-95 9,540.70 10,024.22
28-Feb-95 9,889.40 10,315.92
31-Mar-95 9,957.90 10,434.55
28-Apr-95 9,943.70 10,447.08
31-May-95 10,207.20 10,780.34
30-Jun-95 10,046.30 10,686.55
31-Jul-95 10,123.10 11,701.77
31-Aug-95 10,228.40 11,850.38
29-Sep-95 10,320.10 11,925.04
31-Oct-95 10,490.50 12,097.95
30-Nov-95 10,716.60 12,298.78
29-Dec-95 10,850.40 12,416.85
</TABLE>

Portfolio Management Review

Van Kampen American Capital New York Tax Free Income Fund

We recently spoke with the management team of the Van Kampen American Capital
New York Tax Free Income Fund about the key events and economic forces which
shaped the markets during the past fiscal year. The team includes
Dennis Pietrzak, portfolio manager, and Peter W. Hegel, executive vice
president for fixed-incomeinvestments. The following excerpts reflect
their views on the Fund's performance during the twelve-month
period ended December 31, 1995.

Q. What were some of the important events or market conditions
which had an impact on the Fund's performance during 1995?

A. The bond market in general was quite strong in 1995, and municipal
securities, of course, participated in the year's rally. Clearly,
the environment for investing in fixedincome securities was
extremely favorable across the board.Inflation continued to
remain in check, with rates hovering around the 2 percent range,
while the economy grew at a fairly steady but modest pace.
As a result, the Federal Reserve Board lowered its key lending rate
(the fed funds rate) by one-quarter percentage point in July of 1995
and again, by one-quarter of a percentage point, in December.
Naturally, bond prices were driven higher as rates trended downward
over the course of the year (bond prices go up when rates
go down, and vice versa).

Another factor that had been priced into the municipal market late in the
year was the expectation that a federal budget agreement was inevitable.
The market anticipated a positive budget compromise, and reacted
accordingly. Even though the possibility of tax reform weighed on the
market to some extent, the belief that progress on the federal budget
deficit would be made helped to bolster municipal bonds, especially
at the longer end of the maturity spectrum.

Q. What were some of the challenges you faced in managing the
Fund, and how was it positioned to take advantage of 1995
market conditions?

A. The New York municipal market has seen its share of turmoil over the years,
but recent developments have been positive. Constructive action has been
under way to streamline the state budget process, and to take initiatives
against crime and waste in order to create a better living environment.
In other words, anything that strengthens the municipalities which issue
debt can improve the environment for municipal investing.

By maintaining the Fund's portfolio, and investing the majority of assets
in investment-grade securities, we were able to take advantage of the
positive New York municipal environment. In fact, as of December 31, 1995,
45 percent of the Fund's holdings are in New York securities rated AAA by
Standard & Poor's Ratings Group. We feel we met our goal of finding the
issues that appeared to offer the greatest relative value by relying on
our strong internal credit research team to help us do just that.

Q. How well did the Fund perform under these conditions?

A. We had a good year, providing Class A shares with a total return at
net asset value of 17.33 percent<F1> over the twelve months ended
December 31, 1995. The Fund continues to provide an attractive level
of tax-exempt income, with a Class A share distribution rate of 5.05
percent<F3> as of December 31, 1995.
Since income from the Fund is exempt from federal and state income taxes,
it is important to compare the Fund's distribution rate to an equivalent
taxable rate. For example, for New York residents in the combined marginal
tax bracket of 40.9 percent, the Fund's Class A share distribution rate
represents a yield equivalent to a taxable investment earning
8.54 percent<F4>. At the same time, the Fund's Class A share net asset
value closed the fiscal year at $15.05 per share, up from $13.58 per
share at the end of the last fiscal year.

[PIE CHART]

Portfolio Composition as of December 31, 1995

<S> <C>
General Purpose.......26.7%
Public Building.......15.5%
Health Care...........14.9%
Industrial Revenue ...14.1%
Other.................11.5%
Water & Sewer......... 6.5%
Higher Education...... 6.1%
Transportation........ 4.7%
</TABLE>

Q. What is your outlook for the Fund and the market in the months
ahead?

A. We're confident that the investment environment will remain positive
for fixed-income securities in the near term. Inflation
appears to be under control and the economy shows no
signs of overheating.

We anticipate the Fed will continue its accommodative monetary policy and
reduce the fed funds rate further during the first half of 1996.
Based on the historically high level of real interest rates
(market rates less the inflation rate), there seems to be room for
short-term interest rates to trend lower, which is a good sign for
long-term rates as well. We expect the supply of new municipal issues to
follow the trend of 1995, and remain somewhat low in 1996. However,
refunding activity should be high as the lower interest rate environment
makes it more attractive for municipalities to
retire their higher-yielding outstanding issues.

In general, conditions appear positive for the continuation of a favorable
environment in which to invest in fixed-income securities.

Peter W. Hegel Dennis Pietrzak
Executive Vice President Portfolio Manager
Fixed Income Investments

6 Please see footnotes on page three

Portfolio of Investments
December 31, 1995
- ----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
New York 92.6%
$ 400 Battery Park City Auth NY Rev Sr Ser A Rfdg ............... 5.000% 11/01/13 $ 374,612
200 Broome Cnty, NY Ctfs Partn Pub Safety Fac (MBIA Insd) ..... 5.250 04/01/15 198,190
500 Buffalo, NY Swr Auth Rev Swr Sys Ser G Rfdg (FGIC Insd) ... 5.000 07/01/12 494,190
500 Essex Cnty, NY Indl Dev Agy Rev Solid Waste Disposal Intl
Paper Ser A ............................................... 5.800 12/01/19 501,680
400 New Rochelle, NY Ser B (MBIA Insd) ........................ 6.150 08/15/19 432,568
500 New York City Indl Dev Agy Rev Visy Paper Inc Proj <F2>.... 7.950 01/01/28 511,565
375 New York City Indl Dev Agy Spl Fac Rev Terminal One Group
Assn Proj ................................................. 5.700 01/01/04 378,596
500 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser B
(AMBAC Insd) <F3> ......................................... 5.375 06/15/19 499,325
350 New York City Ser A Rfdg .................................. 6.250 08/01/08 359,940
500 New York City Ser C ....................................... 7.250 08/15/24 543,200
500 New York City Ser H (Cap Guar Insd) ....................... 7.000 02/01/21 567,755
300 New York St Dorm Auth Rev City Univ Ser F ................. 5.000 07/01/14 276,339

350 New York St Dorm Auth Rev City Univ Sys Cons Ser A......... 5.625 07/01/16 353,402
500 New York St Dorm Auth Rev Court Fac Lease Ser A ........... 5.700 05/15/22 496,255
300 New York St Dorm Auth Rev St Univ Edl Fac B Rfdg .......... 6.000 05/15/17 301,980
500 New York St Energy Resh & Dev Auth Elec Fac Rev Cons
Edison Co NY Inc Proj Ser A (MBIA Insd) ................... 7.500 01/01/26 557,340
300 New York St Energy Resh & Dev Auth St Svc Contract Rev
Western NY Nuclear Svc Cent Proj .......................... 6.000 04/01/00 313,449
500 New York St Environmental Fac Corp Pollutn Ctl Rev St Wtr
Revolving Fund Ser D ...................................... 6.850 11/15/11 567,825
500 New York St Hsg Fin Agy Rev Insd Multi-Family Mtg Ser B
(AMBAC Insd) .............................................. 6.250 08/15/14 522,870
425 New York St Loc Govt Assistance Corp Ser B ................ 6.000 04/01/12 445,655
595 New York St Med Care Fac Fin Agy Rev North Shore Univ Glen
Cove Ser A (MBIA Insd) .................................... 5.125 11/01/12 590,978
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg Ser A
(AMBAC Insd) .............................................. 6.200 08/15/05 556,490
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg Ser A
(AMBAC Insd) .............................................. 6.600 02/15/11 566,165
300 New York St Med Care Fac Fin Agy Rev Presbyterian Hosp Mtg
Ser A Rfdg (FHA Gtd) ...................................... 5.250 08/15/14 294,564
500 New York St Mtg Agy Rev Homeowner Mtg Ser 30B ............. 6.650 10/01/25 521,185
300 New York St Thruway Auth Hwy & Brdg Tr Fund Ser A ......... 6.000 04/01/14 316,299
500 New York St Urban Dev Corp Rev Correctional Cap Fac Ser 5
(MBIA Insd) ............................................... 5.500 01/01/25 502,250
</TABLE>

7 See Notes to Financial Statements

Portfolio of Investments (Continued)
December 31, 1995
- ----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York (Continued)
$ 370 New York St Urban Dev Corp Rev Correctional
Fac Rfdg .................................... 5.625% 01/01/07 $ 374,033
300 New York St Urban Dev Corp Rev Correctional
Fac Rfdg .................................... 5.750 01/01/13 300,939
250 Newark Wayne Cmnty Hosp Inc NY Hosp Rev Hosp
Rev Ser A ................................... 7.600 09/01/15 261,270
420 Niagara Falls, NY Pub Impt (MBIA Insd) ...... 6.900 03/01/20 481,475
500 Oneida Cnty, NY Pub Impt <F3> ............... 5.850 03/15/12 508,350
400 Triborough Brdg & Tunl Auth NY Rev Genl Purp
Ser A Rfdg .................................. 5.000 01/01/12 390,740
------------
14,361,474
------------
Guam 3.3%
500 Guam Govt Ser A ............................. 5.500 09/01/01 506,025
------------

Puerto Rico 2.0%
300 Puerto Rico Comwlth Ser A Rfdg .............. 6.250 07/01/10 318,966
------------
Total Long-Term Investments 97.9%
(Cost $14,033,522) <F1>................................................ 15,186,465
Short-Term Investments at Amortized Cost 2.6%......................... 400,000

Liabilities in Excess of Other Assets (0.5%).......................... (72,851)
------------
Net Assets 100%....................................................... $ 15,513,614
=============

<FN>
<F1> At December 31, 1995, cost for federal income tax purposes is $14,033,522;
the aggregate gross unrealized appreciation is $1,152,943 and the
aggregate gross unrealized depreciation is $-0-, resulting in net
unrealized appreciation of $1,152,943.

<F2> Securities purchased on a when issued or delayed delivery basis.

<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments.

</TABLE>

Portfolio Composition by Credit Quality
<S> <C>
AAA........... 45.0%
AA............ 5.9
A............. 15.5
BBB........... 28.5
Non-Rated..... 5.1
=======
100%
=======
</TABLE>

8 See Notes to Financial Statements

<TABLE>
Statement of Assets and Liabilities
December 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $14,033,522) (Note 1)......................... $ 15,186,465
Short-Term Investments (Note 1).................................................. 400,000
Cash............................................................................. 141,539
Receivables:
Interest....................................................................... 308,367
Investments Sold............................................................... 285,015
Fund Shares Sold............................................................... 10,237
Unamortized Organizational Expenses (Note 1)..................................... 85,760
--------------
Total Assets..................................................................... 16,417,383
--------------
Liabilities:
Payables:
Investments Purchased.......................................................... 783,435
Income Distributions .......................................................... 30,040
Fund Shares Repurchased........................................................ 28,174
Accrued Expenses................................................................. 62,120
--------------
Total Liabilities............................................................ 903,769
--------------
Net Assets....................................................................... $ 15,513,614
==============
Net Assets Consist of:
Capital (Note 3)................................................................. $ 14,677,155
Net Unrealized Appreciation on Investments....................................... 1,152,943
Accumulated Distributions in Excess of Net Investment Income .................... (7,788)
Accumulated Net Realized Loss on Investments..................................... (308,696)
--------------
Net Assets....................................................................... $ 15,513,614
==============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$5,354,675 and 355,842 shares of capital stock issued and outstanding) (Note 3).. $ 15.05
Maximum sales charge (4.75%* of offering price).................................. .75
--------------
Maximum offering price to public................................................. $ 15.80
==============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$9,747,319 and 647,820 shares of capital stock issued and outstanding) (Note 3).. $ 15.05
==============
Class C Shares:
Net asset value and offering price per share (Based on net assets of $411,620
and 27,366 shares of capital stock issued and outstanding) (Note 3).............. $ 15.04
==============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>

9 See Notes to Financial Statements

<TABLE>
Statement of Operations
For the Year Ended December 31, 1995
- ----------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Investment Income:
Interest......................................................................... $ 788,239
--------------
Expenses:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$10,877, $92,362 and $2,634, respectively) (Note 6) ............................. 105,873
Investment Advisory Fee (Note 2)................................................. 81,041
Printing......................................................................... 42,680
Custodian........................................................................ 35,125
Amortization of Organizational Expenses (Note 1)................................. 23,988
Shareholder Services (Note 2).................................................... 17,870
Trustees Fees and Expenses (Note 2).............................................. 10,249
Legal (Note 2)................................................................... 9,125
Other............................................................................ 25,665
--------------
Total Expenses................................................................... 351,616
Less Fees Waived and Expenses Reimbursed ($81,041 and $173,563, respectively).... 254,604
--------------
Net Expenses..................................................................... 97,012
--------------
Net Investment Income............................................................ $ 691,227
==============
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales.............................................................. $ 6,484,208
Cost of Securities Sold.......................................................... (6,634,617)
--------------
Net Realized Loss on Investments (Including realized loss on futures
transactions of $271,427) ....................................................... (150,409)
--------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period.......................................................... (340,486)
End of the Period................................................................ 1,152,943
--------------
Net Unrealized Appreciation on Investments During the Period..................... 1,493,429
--------------
Net Realized and Unrealized Gain on Investments.................................. $ 1,343,020
==============
Net Increase in Net Assets from Operations....................................... $ 2,034,247
==============

</TABLE>

10 See Notes to Financial Statements

Proceeds from Shares Sold................................. 4,830,393 12,235,618
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 353,229 91,720
Cost of Shares Repurchased................................ (2,209,451) (628,644)
----------------- -----------------
Net Change in Net Assets from Capital Transactions........ 2,974,171 11,698,694
----------------- -----------------
Total Increase in Net Assets.............................. 4,309,188 11,200,136

Net Assets:

Beginning of the Period................................... 11,204,426 4,290
----------------- -----------------
End of the Period (Including undistributed net investment
income of $(7,788) and $215, respectively) .............. $ 15,513,614 $ 11,204,426
----------------- =================
</TABLE>

Year Ended Period Ended
*Distributions by Class December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares..................... $ (226,467) $ (50,186)
Class B Shares..................... (459,895) (136,720)
Class C Shares..................... (12,868) (3,086)
----------------- -----------------
$ (699,230) $ (189,992)
================= =================
</TABLE>

11 See Notes to Financial Statements

Financial Highlights

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- ----------------------------------------------------------------------------------------------------
July 29, 1994
Year (Commencement
Ended of Investment
December 31, Operations) to
Class A Shares 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period.............................. $ 13.579 $ 14.300
---------- -------------
Net Investment Income.............................................. .821 .302
Net Realized and Unrealized Gain/Loss on Investments............... 1.476 (.722)
---------- -------------
Total from Investment Operations...................................... 2.297 (.420)
Less Distributions from and in Excess of Net Investment Income (Note
1).................................................................... .828 .301
---------- -------------
Net Asset Value, End of the Period.................................... $ 15.048 $ 13.579
========== =============

Total Return*......................................................... 17.33% (2.93%)**
Net Assets at End of the Period (In millions)......................... $ 5.4 $ 2.9
Ratio of Expenses to Average Net Assets* (Annualized)................. .21% .26%
Ratio of Net Investment Income to Average Net Assets* (Annualized).... 5.63% 5.27%
Portfolio Turnover.................................................... 51.00% 68.11%

*If certain expenses had not been assumed by VKAC, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets (Annualized).................. 2.10% 2.73%
Ratio of Net Investment Income to Average Net Assets (Annualized)..... 3.74% 2.81%

**Non-Annualized

</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.
- ------------------------------------------------------------------------------------------------------
July 29, 1994
Year (Commencement
Ended of Investment
December 31, Operations) to
Class B Shares 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period.............................. $ 13.578 $ 14.300
---------- -------------
Net Investment Income.............................................. .713 .263
Net Realized and Unrealized Gain/Loss on Investments............... 1.476 (.722)
---------- -------------
Total from Investment Operations...................................... 2.189 (.459)
Less Distributions from and in Excess of Net Investment Income (Note
1).................................................................... .721 .263
---------- -------------
Net Asset Value, End of the Period.................................... $ 15.046 $ 13.578
========== =============

Total Return*......................................................... 16.47% (3.20%)**
Net Assets at End of the Period (In millions)......................... $ 9.7 $ 8.1
Ratio of Expenses to Average Net Assets* (Annualized)................. .93% .96%
Ratio of Net Investment Income to Average Net Assets* (Annualized).... 4.93% 4.58%
Portfolio Turnover.................................................... 51.00% 68.11%

*If certain expenses had not been assumed by VKAC, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets (Annualized).................. 2.82% 3.42%
Ratio of Net Investment Income to Average Net Assets (Annualized)..... 3.04% 2.12%

**Non-Annualized
</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.
- -------------------------------------------------------------------------------------------------------
July 29, 1994
Year (Commencement
Ended of Investment
December 31, Operations) to
Class C Shares 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period.............................. $ 13.579 $ 14.300
---------- -------------
Net Investment Income.............................................. .711 .267
Net Realized and Unrealized Gain/Loss on Investments............... 1.472 (.725)
---------- -------------
Total from Investment Operations...................................... 2.183 (.458)
Less Distributions from and in Excess of Net Investment Income (Note
1).................................................................... .721 .263
---------- -------------
Net Asset Value, End of the Period.................................... $ 15.041 $ 13.579
========== ==============

Total Return*......................................................... 16.39% (3.20%)**
Net Assets at End of the Period (In millions)......................... $ .4 $ .2
Ratio of Expenses to Average Net Assets* (Annualized)................. .98% .96%
Ratio of Net Investment Income to Average Net Assets* (Annualized).... 4.81% 4.58%
Portfolio Turnover.................................................... 51.00% 68.11%

*If certain expenses had not been assumed by VKAC, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets (Annualized).................. 2.86% 3.42%
Ratio of Net Investment Income to Average Net Assets (Annualized)..... 2.93% 2.12%

**Non-Annualized
</TABLE>

14 See Notes to Financial Statements

Notes to Financial Statements
December 31, 1995
- --------------------------------------------------------------------------------
1. Significant Accounting Policies

Van Kampen American Capital New York Tax Free Income Fund (the "Fund") is
organized as a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust, and is registered as a non-diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to provide investors with a high
level of current income exempt from federal, New York State and New York City
income taxes, consistent with preservation of capital. The Fund 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.

C. Investment Income and Expenses-Interest income and expenses are recorded on
anaccrual basis. Bond premium and original issue discount on securities
purchased are amortized over the expected life of each applicable security.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------
D. Organizational Expenses-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 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
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)
December 31, 1995
- --------------------------------------------------------------------------------
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:

Average Net Assets % Per Annum
- -----------------------------------
<S> <C>
First $500 million.... .600 of 1%
Over $500 million..... .500 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 year ended December 31, 1995, the Fund recognized expenses of
approximately $12,400 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management, legal services and certain shareholder services
(prior to July, 1995) to the Fund. All of this cost has been waived by VKAC.

In July, 1995, the Fund began using ACCESS Investor Services, Inc., an
affiliate of the Adviser, as the transfer agent of the Fund. For the period
ended December 31, 1995, the Fund recognized expenses of approximately
$3,400, representing ACCESS' cost of providing transfer agency and
shareholder services plus a profit. All of this expense has been assumed
by VKAC.

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.

At December 31, 1995, VKAC owned 100 shares each of Classes A, B and C.

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------
3. Capital Transactions

The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.

At December 31, 1995, capital aggregated $5,076,981, $9,203,670 and $396,504
for Classes A, B and C, respectively. For the year ended December 31, 1995,
transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------
<S> <C> <C>
Sales:
Class A......................... 178,498 $ 2,590,867
Class B......................... 139,452 2,015,988
Class C......................... 15,339 223,538
---------- ---------------
Total Sales..................... 333,289 $ 4,830,393
========= ===============
Dividend Reinvestment:
Class A......................... 9,002 $ 130,867
Class B......................... 14,956 216,684
Class C......................... 389 5,678
---------- ---------------
Total Dividend Reinvestment..... 24,347 $ 353,229
========== ===============
Repurchases:
Class A......................... (46,443) $ (668,258)
Class B......................... (104,963) (1,535,985)
Class C......................... (352) (5,208)
---------- ---------------
Total Repurchases............... (151,758) $ (2,209,451)
========== ================
</TABLE>

Notes to Financial Statements (Continued)
December 31, 1995
- --------------------------------------------------------------------------------
At December 31, 1994, capital 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.... .00% None
</TABLE>

Notes to Financial Statements (Continued)
December 31, 1995
- ----------------------------------------------------------------------------
For the year ended December 31, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$8,700 and CDSC on the redeemed shares of Classes B and C of approximately
$33,400. 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 year ended December 31, 1995, were $9,855,773 and
$6,634,617, respectively.

5. Derivative Financial Instruments

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
year ended December 31, 1995, were as follows:

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

6. Distribution and Service Plans

Independent Auditors' Report
- --------------------------------------------------------------------------------

The Board of Trustees and Shareholders of the
Van Kampen American Capital New York Tax Free Income Fund:

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital New York Tax Free Income Fund (the "Fund"), including
the portfolio of investments, as of December 31, 1995, and the related statement
of operations for the year then ended and the statement of changes in net assets
and the financial highlights for the year then ended and for the period from
July 29, 1994 (Commencement of Investment Operations) to December 31, 1994.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Van Kampen American Capital New York Tax Free Income Fund as of
December 31, 1995, the results of its operations for the year then ended and
the changes in its net assets and the financial highlights for the year
then ended and for the period from July 29, 1994 (Commencement of Investment
Operations) to December 31, 1994, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP
Chicago, Illinois
February 13, 1996

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 American Capital New York Tax Free Income Fund
- ------------------------------------------------------------------

Board of Trustees

Officers

Don G. Powell*
President and Chief Executive Officer

Dennis J. McDonnell*
Executive Vice President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood III*
Vice President and Chief Financial Officer

Curtis W. Morell*
Vice President and Chief Accounting Officer

John L. Sullivan*
Treasurer

Tanya M. Loden*
Controller

William N. Brown*

Peter W. Hegel*

Robert C. Peck, Jr.*

Alan T. Sachtleben*

Paul R. Wolkenberg*
Vice Presidents

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

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 American Capital New York Tax Free Income Fund
- --------------------------------------------------------------

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