VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST, 485BPOS, 1997-04-29

VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
485BPOS, 1997-04-29

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1997

REGISTRATION NOS. 2-99715
811-4386
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A

<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 40 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 41 [X]
</TABLE>

VAN KAMPEN AMERICAN CAPITAL
TAX FREE TRUST
(Exact Name of Registrant as Specified in Agreement and Declaration of Trust)

One Parkview Plaza, Oakbrook Terrace, Illinois 60181
(Address of Principal Executive Offices)

(630) 684-6000

(Registrant's Telephone Number)

Ronald A. Nyberg, Esq.
Executive Vice President,
General Counsel and Secretary,
Van Kampen American Capital, Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181
(Name and Address of Agent for Service)

Copies to:
Wayne W. Whalen, Esq.
Thomas A. Hale, Esq.

Skadden, Arps, Slate, Meagher & Flom (Illinois)

333 West Wacker Drive
Chicago, IL 60606
(312) 407-0700

Approximate Date of Proposed Public Offering: As soon as practicable
following effectiveness of this Registration Statement.
------------------------

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE: (CHECK APPROPRIATE
BOX)

[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)

[X] ON APRIL 30, 1997 PURSUANT TO PARAGRAPH (B)

[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(1)

[ ] ON (DATE) PURSUANT TO PARAGRAPH (A)(1)

[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)

[ ] ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485

IF APPROPRIATE CHECK THE FOLLOWING:
[ ] THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR
A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.

DECLARATION PURSUANT TO RULE 24F-2

REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE
SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT
OF 1940 AND INTENDS TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION A FORM
24F-2 FOR ITS FISCAL YEAR ENDING DECEMBER 31, 1997 ON OR ABOUT MARCH 30, 1998

================================================================================
<PAGE> 2

EXPLANATORY NOTE

This Registration Statement contains seven Prospectuses and eight
Statements of Additional Information describing eight series of the Registrant
(the "Applicable Series"). The Registration Statement is organized as follows:

Facing Page

Cross Reference Sheets with respect to the Applicable Series, in the
following order:

<TABLE>
<C> <S>
(i) Van Kampen American Capital Tax Free High Income Fund
(ii) Van Kampen American Capital Insured Tax Free Income Fund and Van
Kampen American Capital California Insured Tax Free Fund
(iii) Van Kampen American Capital Municipal Income Fund
(iv) Van Kampen American Capital Intermediate Term Municipal Income Fund
(v) Van Kampen American Capital Florida Insured Tax Free Income Fund
(vi) Van Kampen American Capital New Jersey Tax Free Income Fund
(vii) Van Kampen American Capital New York Tax Free Income Fund
</TABLE>

Prospectuses with respect to the Applicable Series, in the following order:

Statements of Additional Information with respect to the Applicable Series,
in the following order:

<TABLE>
<C> <S>
(i) Van Kampen American Capital Tax Free High Income Fund
(ii) Van Kampen American Capital Insured Tax Free Income Fund
(iii) Van Kampen American Capital California Insured Tax Free Fund
(iv) Van Kampen American Capital Municipal Income Fund
(v) Van Kampen American Capital Intermediate Term Municipal Income Fund
(vi) Van Kampen American Capital Florida Insured Tax Free Income Fund
(vii) Van Kampen American Capital New Jersey Tax Free Income Fund
(viii) Van Kampen American Capital New York Tax Free Income Fund
</TABLE>

Part C Information

Exhibits
-------------------------

The Prospectus and Statement of Additional Information with respect to each
of Van Kampen American Capital California Tax Free Income Fund, Van Kampen
American Capital Michigan Tax Free Income Fund, Van Kampen American Capital
Missouri Tax Free Income Fund and Van Kampen American Capital Ohio Tax Free
Income Fund, four other series of the Registrant, included in Post-Effective
Amendment No. 31 to the Registration Statement of the Registrant, are included
herein by reference and no changes thereto are affected hereby.
<PAGE> 3

VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND

CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)

<TABLE>
<CAPTION>
ITEM NUMBER OF
FORM N-1A LOCATION OR CAPTION
-------------- -------------------
<S> <C> <C>
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... PROSPECTUS SUMMARY; SHAREHOLDER TRANSACTION EXPENSES;
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
Item 3. Condensed Financial
Information..................... SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND
OPERATING EXPENSES AND EXAMPLE; FINANCIAL HIGHLIGHTS;
FUND PERFORMANCE; SHAREHOLDER SERVICES; ADDITIONAL
INFORMATION
Item 4. General Description of
Registrant...................... PROSPECTUS SUMMARY; THE FUND; INVESTMENT OBJECTIVE AND
POLICIES; MUNICIPAL SECURITIES; INVESTMENT PRACTICES;
SHAREHOLDER SERVICES; DESCRIPTION OF SHARES OF THE
FUND; ADDITIONAL INFORMATION
Item 5. Management of the Fund............ ANNUAL FUND OPERATING EXPENSES AND EXAMPLE; INVESTMENT
PRACTICES; INVESTMENT ADVISORY SERVICES; ALTERNATIVE
SALES ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; ADDITIONAL INFORMATION
Item 6. Capital Stock and
Other Securities................ DISTRIBUTIONS FROM THE FUND; REDEMPTION OF SHARES;
DISTRIBUTION AND SERVICE PLANS; TAX STATUS;
SHAREHOLDER SERVICES; DESCRIPTION OF SHARES OF THE
FUND; ADDITIONAL INFORMATION
Item 7. Purchase of Securities
Being Offered................... SHAREHOLDER TRANSACTION EXPENSES; ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; DISTRIBUTION AND
SERVICE PLANS; FUND PERFORMANCE; SHAREHOLDER SERVICES;
ADDITIONAL INFORMATION
Item 8. Redemption or Repurchase.......... ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
REDEMPTION OF SHARES; SHAREHOLDER SERVICES
Item 9. Pending Legal Proceedings......... Not Applicable
</TABLE>

(i)
<PAGE> 4

<TABLE>
<CAPTION>
PART B
Item 10. Cover Page....................... Cover Page
ITEM NUMBER OF
FORM N-1A LOCATION OR CAPTION
-------------- -------------------
<S> <C> <C>
Item 11. Table of Contents................ Table of Contents
Item 12. General Information
and History.................... The Fund and The Trust
Item 13. Investment Objectives
and Policies................... Investment Policies and Restrictions; Additional
Investment Considerations
Item 14. Management of the Fund........... Trustees and Officers
Item 15. Control Persons and Principal
Holders of Securities.......... Trustees and Officers
Item 16. Investment Advisory and
Other Services................. Contained in Prospectus under captions: ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; INVESTMENT ADVISORY SERVICES;
DISTRIBUTION AND SERVICE PLANS; Custodian and Independent Auditors;
Investment Advisory and Other Services; Trustees and Officers; The
Distributor; Distribution and Service Plans; Legal Counsel; Notes
to Financial Statements
Item 17. Brokerage Allocation............. Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities............... Contained in the Prospectus under caption: DESCRIPTION OF SHARES OF
THE FUND; The Fund and The Trust
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered........................ Contained in Prospectus under captions: ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER SERVICES; REDEMPTION
OF SHARES
Item 20. Tax Status....................... Contained in Prospectus under caption: TAX STATUS; Tax Status of
the Fund
Item 21. Underwriters..................... The Distributor; Notes to Financial Statements
Item 22. Calculations of Performance
Data........................... Continued in Prospectus under caption: FUND PERFORMANCE;
Performance Information
Item 23. Financial Statements............. Contained in the Prospectus under the caption: FINANCIAL
HIGHLIGHTS; Report of Independent Accountants; Financial
Statements; Notes to Financial Statements; Trustees and Officers
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.

(iii)
<PAGE> 5

VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND

CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)

<TABLE>
<CAPTION>
ITEM NUMBER OF LOCATION OR CAPTION
FORM N-1A -------------------
<S> <C> <C>
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... SHAREHOLDER TRANSACTION EXPENSES--INSURED FUND;
SHAREHOLDER TRANSACTION EXPENSES--
CALIFORNIA INSURED FUND; ANNUAL FUND OPERATING
EXPENSES AND EXAMPLES--
INSURED FUND; ANNUAL FUND OPERATING EXPENSES AND
EXAMPLES--CALIFORNIA INSURED FUND; FUND PERFORMANCE
Item 3. Condensed Financial
Information..................... FINANCIAL HIGHLIGHTS--INSURED FUND; FINANCIAL
HIGHLIGHTS--CALIFORNIA INSURED FUND
Item 4. General Description of
Registrant...................... PROSPECTUS SUMMARY; THE FUNDS; INVESTMENT OBJECTIVES
AND POLICIES; MUNICIPAL SECURITIES; INVESTMENT
PRACTICES; INSURANCE; SHAREHOLDER SERVICES; ADDITIONAL
INFORMATION
Item 5. Management of the Fund............ ANNUAL FUND OPERATING EXPENSES AND EXAMPLES--INSURED
FUND; ANNUAL FUND OPERATING EXPENSES AND EXAMPLES--
CALIFORNIA INSURED FUND; INVESTMENT PRACTICES;
INVESTMENT ADVISORY SERVICES; SHAREHOLDER SERVICES;
DISTRIBUTION AND SERVICE PLANS; DISTRIBUTIONS FROM THE
FUNDS
Item 6. Capital Stock and
Other Securities................ ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
SHAREHOLDER SERVICES; REDEMPTION OF SHARES;
DISTRIBUTION AND SERVICE PLANS; DISTRIBUTIONS FROM THE
FUNDS; TAX STATUS; DESCRIPTION OF SHARES OF THE FUND;
ADDITIONAL INFORMATION
Item 7. Purchase of Securities
Being Offered................... SHAREHOLDER TRANSACTION EXPENSES--INSURED FUND;
SHAREHOLDER TRANSACTION EXPENSES--CALIFORNIA INSURED
FUND; ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF
SHARES; SHAREHOLDER SERVICES; REDEMPTION OF SHARES;
DISTRIBUTION AND SERVICE PLANS; DISTRIBUTIONS FROM THE
FUNDS; FUND PERFORMANCE
Item 8. Redemption or Repurchase.......... SHAREHOLDER TRANSACTION EXPENSES--INSURED FUND;
SHAREHOLDER TRANSACTION EXPENSES--CALIFORNIA INSURED
FUND; ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF
SHARES; SHAREHOLDER SERVICES; REDEMPTION OF SHARES
Item 9. Pending Legal Proceedings......... Not Applicable
</TABLE>

(iii)
<PAGE> 6

<TABLE>
<S> <C> <C>
PART B
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Table of Contents
Item 12. General Information
and History..................... The Fund and The Trust
Item 13. Investment Objectives
and Policies.................... Investment Policies and Restrictions; Additional
Investment Considerations
Item 14. Management of the Fund............ Trustees and Officers
Item 15. Control Persons and Principal
Holders of Securities........... Trustees and Officers
Item 16. Investment Advisory and
Other Services.................. Contained in Prospectus under captions: INVESTMENT
ADVISORY SERVICES; ALTERNATIVE SALES ARRANGEMENTS;
PURCHASE OF SHARES; DISTRIBUTION AND SERVICE PLANS;
Investment Advisory and Other Services; Custodian and
Independent Auditors; Trustees and Officers; The
Distributor; Distribution and Service Plans; Legal
Counsel; Notes to Financial Statements
Item 17. Brokerage Allocation.............. Portfolio Transactions and Brokerage Allocations
Item 18. Capital Stock and
Other Securities................ The Fund and The Trust
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered......................... Contained in Prospectus under captions: ALTERNATIVE
SALES ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; REDEMPTION OF SHARES
Item 20. Tax Status........................ Contained in Prospectus under caption: TAX STATUS; Tax
Status of the Fund
Item 21. Underwriters...................... The Distributor; Notes to Financial Statements
Item 22. Calculations of Performance
Data............................ Continued in Prospectus under caption: FUND
PERFORMANCE; Performance Information
Item 23. Financial Statements.............. Contained in the Prospectus under the captions:
FINANCIAL HIGHLIGHTS--INSURED FUND; FINANCIAL
HIGHLIGHTS--CALIFORNIA INSURED FUND; Report of
Independent Accountants; Financial Statements; Notes
to Financial Statements; Trustees and Officers

</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.

(iv)
<PAGE> 7

VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND

CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)

<TABLE>
<CAPTION>
ITEM NUMBER OF LOCATION OR CAPTION
FORM N-1A -------------------
<S> <C> <C>
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND
OPERATING EXPENSES AND EXAMPLE; FUND PERFORMANCE
Item 3. Condensed Financial
Information..................... FINANCIAL HIGHLIGHTS
Item 4. General Description of
Registrant...................... PROSPECTUS SUMMARY; THE FUND; INVESTMENT OBJECTIVE AND
POLICIES; MUNICIPAL SECURITIES; INVESTMENT PRACTICES;
SPECIAL CONSIDERATIONS REGARDING THE FUND; SHAREHOLDER
SERVICES; DESCRIPTION OF SHARES OF THE FUND;
ADDITIONAL INFORMATION
Item 5. Management of the Fund............ ANNUAL FUND OPERATING EXPENSES AND EXAMPLES;
INVESTMENT PRACTICES; INVESTMENT ADVISORY SERVICES;
SHAREHOLDER SERVICES; DISTRIBUTION AND SERVICE PLANS;
DISTRIBUTIONS FROM THE FUND
Item 6. Capital Stock and
Other Securities................ ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
SHAREHOLDER SERVICES; REDEMPTION OF SHARES;
DISTRIBUTION AND SERVICE PLANS; DISTRIBUTIONS FROM THE
FUND; TAX STATUS; DESCRIPTION OF SHARES OF THE FUND;
ADDITIONAL INFORMATION
Item 7. Purchase of Securities
Being Offered................... SHAREHOLDER TRANSACTION EXPENSES; ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; REDEMPTION OF SHARES; DISTRIBUTION AND
SERVICE PLANS; DISTRIBUTIONS FROM THE FUND; FUND
PERFORMANCE
Item 8. Redemption or Repurchase.......... SHAREHOLDER TRANSACTION EXPENSES; ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; REDEMPTION OF SHARES
Item 9. Pending Legal Proceedings......... Not Applicable
</TABLE>

(v)
<PAGE> 8

(vi)

<TABLE>
<S> <C> <C>
PART B
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Table of Contents
Item 12. General Information
and History..................... The Fund and The Trust
Item 13. Investment Objectives
and Policies.................... Investment Policies and Restrictions; Additional
Investment Considerations
Item 14. Management of the Fund............ Trustees and Officers
Item 15. Control Persons and Principal
Holders of Securities........... Trustees and Officers
Item 16. Investment Advisory and
Other Services.................. Contained in Prospectus under captions: INVESTMENT
ADVISORY SERVICES; ALTERNATIVE SALES ARRANGEMENTS;
PURCHASE OF SHARES; DISTRIBUTION AND SERVICE PLANS;
Investment Advisory and Other Services; Trustees and
Officers; The Distributor; Distribution and Service
Plans; Legal Counsel; Notes to Financial Statements
Item 17. Brokerage Allocation.............. Portfolio Transactions and Brokerage Allocations
Item 18. Capital Stock and
Other Securities................ The Fund and The Trust
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered......................... Contained in Prospectus under captions: ALTERNATIVE
SALES ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; REDEMPTION OF SHARES
Item 20. Tax Status........................ Contained in Prospectus under caption: TAX STATUS; Tax
Status of the Fund
Item 21. Underwriters...................... The Distributor; Notes to Financial Statements
Item 22. Calculations of Performance
Data............................ Continued in Prospectus under caption: FUND
PERFORMANCE; Performance Information
Item 23. Financial Statements.............. Contained in the Prospectus under the captions:
FINANCIAL HIGHLIGHTS; Report of Independent
Accountants; Financial Statements; Notes to Financial
Statements; Trustees and Officers
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.

(vii)
<PAGE> 9

VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM MUNICIPAL INCOME FUND

CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)

<TABLE>
<CAPTION>
ITEM NUMBER OF
FORM N-1A LOCATION OR CAPTION
-------------- -------------------
<S> <C> <C>
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... PROSPECTUS SUMMARY; SHAREHOLDER TRANSACTION EXPENSES;
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
Item 3. Condensed Financial
Information..................... SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND
OPERATING EXPENSES AND EXAMPLE; FINANCIAL HIGHLIGHTS;
FUND PERFORMANCE; SHAREHOLDER SERVICES; ADDITIONAL
INFORMATION
Item 4. General Description of
Registrant...................... PROSPECTUS SUMMARY; THE FUND; INVESTMENT OBJECTIVE AND
POLICIES; MUNICIPAL SECURITIES; INVESTMENT PRACTICES;
SHAREHOLDER SERVICES; DESCRIPTION OF SHARES OF THE
FUND; ADDITIONAL INFORMATION
Item 5. Management of the Fund............ ANNUAL FUND OPERATING EXPENSES AND EXAMPLE; INVESTMENT
PRACTICES; INVESTMENT ADVISORY SERVICES; ALTERNATIVE
SALES ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; ADDITIONAL INFORMATION
Item 6. Capital Stock and
Other Securities................ DISTRIBUTIONS FROM THE FUND; REDEMPTION OF SHARES;
DISTRIBUTION AND SERVICE PLANS; TAX STATUS;
ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
SHAREHOLDER SERVICES; DESCRIPTION OF SHARES OF THE
FUND; ADDITIONAL INFORMATION
Item 7. Purchase of Securities
Being Offered................... SHAREHOLDER TRANSACTION EXPENSES; ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; DISTRIBUTION AND
SERVICE PLANS; FUND PERFORMANCE; SHAREHOLDER SERVICES;
ADDITIONAL INFORMATION
Item 8. Redemption or Repurchase.......... ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
REDEMPTION OF SHARES; SHAREHOLDER SERVICES
Item 9. Pending Legal Proceedings......... Not Applicable
</TABLE>

(vii)
<PAGE> 10

<TABLE>
<CAPTION>
ITEM NUMBER OF
FORM N-1A LOCATION OR CAPTION
-------------- -------------------
<S> <C> <C>
PART B
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Table of Contents
Item 12. General Information
and History..................... The Fund and the Trust
Item 13. Investment Objectives
and Policies.................... Investment Policies and Restrictions; Additional
Investment Considerations
Item 14. Management of the Fund............ Trustees and Officers
Item 15. Control Persons and Principal
Holders of Securities........... Shares of the Fund; Trustees and Officers
Item 16. Investment Advisory and
Other Services.................. Contained in Prospectus under captions: INVESTMENT
ADVISORY SERVICES; ALTERNATIVE SALES ARRANGEMENTS;
PURCHASE OF SHARES; DISTRIBUTION AND SERVICE PLANS;
Custodian and Independent Auditors; Investment
Advisory and Other Services; Trustees and Officers;
The Distributor; Distribution and Service Plans; Legal
Counsel; Notes to Financial Statements
Item 17. Brokerage Allocation.............. Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities................ Contained in the Prospectus under caption: DESCRIPTION
OF SHARES OF THE FUND; The Fund and the Trust
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered......................... Contained in Prospectus under captions: ALTERNATIVE
SALES ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; REDEMPTION OF SHARES
Item 20. Tax Status........................ Contained in Prospectus under captions: TAX STATUS;
Tax Status of the Fund
Item 21. Underwriters...................... The Distributor; Notes to Financial Statements
Item 22. Calculations of Performance
Data............................ Continued in Prospectus under caption: FUND
PERFORMANCE; Performance Information
Item 23. Financial Statements.............. Contained in the Prospectus under the caption:
FINANCIAL HIGHLIGHTS; Report of Independent
Accountants; Financial Statements; Notes to Financial
Statements; Trustees and Officers
</TABLE>

PART C

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.

(viii)
<PAGE> 11

VAN KAMPEN AMERICAN CAPITAL FLORIDA INSURED TAX FREE INCOME FUND

CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)

<TABLE>
<CAPTION>
ITEM NUMBER OF
FORM N-1A LOCATION OR CAPTION
-------------- -------------------
<S> <C> <C>
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... PROSPECTUS SUMMARY; SHAREHOLDER TRANSACTION EXPENSES;
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
Item 3. Condensed Financial
Information..................... SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND
OPERATING EXPENSES AND EXAMPLE; FINANCIAL HIGHLIGHTS;
FUND PERFORMANCE; SHAREHOLDER SERVICES; ADDITIONAL
INFORMATION
Item 4. General Description of
Registrant...................... PROSPECTUS SUMMARY; THE FUND; INVESTMENT
OBJECTIVE AND POLICIES; MUNICIPAL SECURITIES;
INVESTMENT PRACTICES; SPECIAL CONSIDERATIONS REGARDING
THE FUND; SHAREHOLDER SERVICES; DESCRIPTION OF SHARES
OF THE FUND; ADDITIONAL INFORMATION
Item 5. Management of the
Fund............................ ANNUAL FUND OPERATING EXPENSES AND EXAMPLE; INVESTMENT
PRACTICES; INVESTMENT ADVISORY SERVICES; ALTERNATIVE
SALES ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER
SERVICES; ADDITIONAL INFORMATION
Item 6. Capital Stock and Other
Securities...................... DISTRIBUTIONS FROM THE FUND; REDEMPTION OF SHARES;
DISTRIBUTION AND SERVICE PLANS; TAX STATUS;
SHAREHOLDER SERVICES; DESCRIPTION OF SHARES OF THE
FUND; ADDITIONAL INFORMATION
Item 7. Purchase of Securities
Being Offered................... SHAREHOLDER TRANSACTION EXPENSES; ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; DISTRIBUTION AND
SERVICE PLANS; FUND PERFORMANCE; SHAREHOLDER SERVICES;
ADDITIONAL INFORMATION
Item 8. Redemption or
Repurchase...................... ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
REDEMPTION OF SHARES; SHAREHOLDER SERVICES
Item 9. Pending Legal
Proceedings..................... Not Applicable
</TABLE>

(ix)
<PAGE> 12

<TABLE>
<S> <C> <C>
PART B
Item 10. Cover Page....................... Cover Page
Item 11. Table of Contents................ Table of Contents
Item 12. General Information
and History.................... Contained in Prospectus under caption: DESCRIPTION OF SHARES OF THE
FUND; The Fund and the Trust
Item 13. Investment Objectives
and Policies................... Investment Policies and Restrictions;
Additional Investment Considerations
Item 14. Management of the
Fund........................... Trustees and Officers
Item 15. Control Persons and
Principal Holders of
Securities..................... Contained in Prospectus under caption: DESCRIPTION OF SHARES OF THE
FUND; Trustees and Officers
Item 16. Investment Advisory and
Other Services................. Contained in Prospectus under captions: INVESTMENT ADVISORY
SERVICES; DISTRIBUTION AND SERVICE PLANS; Custodian and Independent
Auditors; Legal Counsel; Investment Advisory and Other Services;
Trustees and Officers; The Distributor; Distribution and Service
Plans; Notes to Financial Statements
Item 17. Brokerage Allocation............. Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities............... Contained in Prospectus under caption: DESCRIPTION OF SHARES OF THE
FUND; The Fund and the Trust
Item 19. Purchase, Redemption
and Pricing of
Securities Being
Offered........................ Contained in Prospectus under captions: ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER SERVICES; REDEMPTION
OF SHARES
Item 20. Tax Status....................... Contained in Prospectus under caption: TAX STATUS; Tax Status of
the Fund
Item 21. Underwriters..................... The Distributor; Notes to Financial Statements
Item 22. Calculations of
Performance Data............... Contained in Prospectus under caption: FUND PERFORMANCE; FINANCIAL
HIGHLIGHTS; Performance Information
Item 23. Financial Statements............. Contained in Prospectus under caption: FINANCIAL HIGHLIGHTS; Report
of Independent Accountants; Financial Statements; Notes to
Financial Statements; Trustees and Officers
PART C
</TABLE>

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.

(x)
<PAGE> 13

VAN KAMPEN AMERICAN CAPITAL NEW JERSEY TAX FREE INCOME FUND

CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)

<TABLE>
<CAPTION>
ITEM NUMBER OF
FORM N-1A LOCATION OR CAPTION
-------------- -------------------
<S> <C> <C>
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... PROSPECTUS SUMMARY; SHAREHOLDER TRANSACTION EXPENSES;
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
Item 3. Condensed Financial
Information..................... SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND
OPERATING EXPENSES AND EXAMPLE; FINANCIAL HIGHLIGHTS;
FUND PERFORMANCE; SHAREHOLDER SERVICES; ADDITIONAL
INFORMATION
Item 4. General Description of
Registrant...................... PROSPECTUS SUMMARY; THE FUND;
INVESTMENT OBJECTIVE AND POLICIES;
MUNICIPAL SECURITIES; INVESTMENT
PRACTICES; SPECIAL CONSIDERATIONS REGARDING THE FUND;
SHAREHOLDER SERVICES; DESCRIPTION OF SHARES OF THE
FUND; ADDITIONAL INFORMATION
Item 5. Management of the
Fund............................ ANNUAL FUND OPERATING EXPENSES
AND EXAMPLE; INVESTMENT PRACTICES; INVESTMENT ADVISORY
SERVICES; ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF
SHARES; SHAREHOLDER SERVICES; ADDITIONAL INFORMATION
Item 6. Capital Stock and Other
Securities...................... DISTRIBUTIONS FROM THE FUND; REDEMPTION OF SHARES;
DISTRIBUTION AND SERVICE PLANS; TAX STATUS;
SHAREHOLDER SERVICES; DESCRIPTION OF SHARES OF THE
FUND; ADDITIONAL INFORMATION
Item 7. Purchase of Securities
Being Offered................... SHAREHOLDER TRANSACTION EXPENSES; ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; DISTRIBUTION AND
SERVICE PLANS; FUND PERFORMANCE; SHAREHOLDER SERVICES;
ADDITIONAL INFORMATION
Item 8. Redemption or
Repurchase...................... ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
REDEMPTION OF SHARES; SHAREHOLDER SERVICES
Item 9. Pending Legal
Proceedings..................... Not Applicable
</TABLE>

(xi)
<PAGE> 14

<TABLE>
<S> <C> <C>
PART B
Item 10. Cover Page....................... Cover Page
Item 11. Table of Contents................ Table of Contents
Item 12. General Information
and History.................... Contained in Prospectus under the caption: DESCRIPTION OF SHARES OF
THE FUND; The Fund and the Trust
Item 13. Investment Objectives
and Policies................... Investment Policies and Restrictions;
Additional Investment Considerations
Item 14. Management of the
Fund........................... Trustees and Officers
Item 15. Control Persons and
Principal Holders of
Securities..................... Contained in Prospectus under caption: DESCRIPTION OF SHARES OF THE
FUND; Trustees and Officers
Item 16. Investment Advisory and
Other Services................. Contained in Prospectus under captions: ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; INVESTMENT ADVISORY SERVICES;
DISTRIBUTION AND SERVICE PLANS; Custodian and Independent Auditors;
Legal Counsel; Investment Advisory and Other Services; Trustees and
Officers; The Distributor; Distribution and Service Plans; Notes to
Financial Statements
Item 17. Brokerage Allocation............. Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities............... Contained in Prospectus under caption: DESCRIPTION OF SHARES OF THE
FUND; The Fund and the Trust
Item 19. Purchase, Redemption
and Pricing of
Securities Being
Offered........................ Contained in Prospectus under captions: ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER SERVICES; REDEMPTION
OF SHARES
Item 20. Tax Status....................... Contained in Prospectus under caption: TAX STATUS; Tax Status of
the Fund
Item 21. Underwriters..................... The Distributor; Notes to Financial Statements
Item 22. Calculations of
Performance Data............... Contained in Prospectus under caption: FUND PERFORMANCE; FINANCIAL
HIGHLIGHTS; Performance Information
Item 23. Financial Statements............. Contained in Prospectus under caption: FINANCIAL HIGHLIGHTS; Report
of Independent Accountants; Financial Statements; Notes to
Financial Statements; Trustees and Officers
PART C
</TABLE>

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.

(xii)
<PAGE> 15

VAN KAMPEN AMERICAN CAPITAL NEW YORK TAX FREE INCOME FUND

CROSS REFERENCE SHEET
(AS REQUIRED BY ITEM 501(B) OF REGULATION S-K)

<TABLE>
<CAPTION>
ITEM NUMBER OF
FORM N-1A LOCATION OR CAPTION
-------------- -------------------
<S> <C> <C>
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... PROSPECTUS SUMMARY; SHAREHOLDER TRANSACTION EXPENSES;
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
Item 3. Condensed Financial
Information..................... SHAREHOLDER TRANSACTION EXPENSES; ANNUAL FUND
OPERATING EXPENSES AND EXAMPLE; FINANCIAL HIGHLIGHTS;
FUND PERFORMANCE; SHAREHOLDER SERVICES; ADDITIONAL
INFORMATION
Item 4. General Description of
Registrant...................... PROSPECTUS SUMMARY; THE FUND;
INVESTMENT OBJECTIVES AND POLICIES;
MUNICIPAL SECURITIES; INVESTMENT
PRACTICES; SPECIAL CONSIDERATIONS REGARDING THE FUND;
SHAREHOLDER SERVICES; DESCRIPTION OF SHARES OF THE
FUND; ADDITIONAL INFORMATION
Item 5. Management of the
Funds........................... ANNUAL FUND OPERATING EXPENSES
AND EXAMPLE; INVESTMENT PRACTICES; INVESTMENT ADVISORY
SERVICES; ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF
SHARES; SHAREHOLDER SERVICES; ADDITIONAL INFORMATION
Item 6. Capital Stock and Other
Securities...................... DISTRIBUTIONS FROM THE FUND; REDEMPTION OF SHARES; THE
DISTRIBUTION AND SERVICE PLANS; TAX STATUS;
SHAREHOLDER SERVICES; DESCRIPTION OF SHARES OF THE
FUND; ADDITIONAL INFORMATION
Item 7. Purchase of Securities
Being Offered................... SHAREHOLDER TRANSACTION EXPENSES; ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; DISTRIBUTION AND
SERVICE PLANS; FUND PERFORMANCE; SHAREHOLDER SERVICES;
ADDITIONAL INFORMATION
Item 8. Redemption or
Repurchase...................... ALTERNATIVE SALES ARRANGEMENTS; PURCHASE OF SHARES;
REDEMPTION OF SHARES; SHAREHOLDER SERVICES
Item 9. Pending Legal
Proceedings..................... Not Applicable
PART B
Item 10. Cover Page........................ Cover Page
</TABLE>

(xiii)
<PAGE> 16

<TABLE>
<S> <C> <C>
Item 11. Table of Contents................ Table of Contents
Item 12. General Information
and History.................... Contained in Prospectus under the caption: DESCRIPTION OF SHARES OF
THE FUND; The Fund and the Trust
Item 13. Investment Objectives
and Policies................... Investment Policies and Restrictions;
Additional Investment Considerations
Item 14. Management of the
Funds.......................... Trustees and Officers
Item 15. Control Persons and
Principal Holders of
Securities..................... Contained in Prospectus under caption: DESCRIPTION OF SHARES OF THE
FUND; Trustees and Officers
Item 16. Investment Advisory and
Other Services................. Contained in Prospectus under captions: ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; INVESTMENT ADVISORY SERVICES;
DISTRIBUTION AND SERVICE PLANS; Custodian and Independent Auditors;
Legal Counsel; Investment Advisory and Other Services; Trustees and
Officers; The Distributor; Distribution and Service Plans; Notes to
Financial Statements
Item 17. Brokerage Allocation............. Portfolio Transactions and Brokerage Allocation
Item 18. Capital Stock and
Other Securities............... Contained in Prospectus under caption: DESCRIPTION OF SHARES OF THE
FUND; The Fund and the Trust
Item 19. Purchase, Redemption
and Pricing of
Securities Being
Offered........................ Contained in Prospectus under captions: ALTERNATIVE SALES
ARRANGEMENTS; PURCHASE OF SHARES; SHAREHOLDER SERVICES; REDEMPTION
OF SHARES
Item 20. Tax Status....................... Contained in Prospectus under caption: TAX STATUS; Tax Status of
the Fund
Item 21. Underwriters..................... The Distributor; Notes to Financial Statements
Item 22. Calculations of
Performance Data............... Contained in Prospectus under caption: FUND PERFORMANCE; FINANCIAL
HIGHLIGHTS; Performance Information
Item 23. Financial Statements............. Contained in Prospectus under caption: FINANCIAL HIGHLIGHTS; Report
of Independent Accountants; Financial Statements; Notes to
Financial Statements; Trustees and Officers
PART C
</TABLE>

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.

(xiv)
<PAGE> 17

- ------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
TAX FREE HIGH INCOME FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital Tax Free High Income Fund (the "Fund") is a
separate diversified mutual fund organized as a series of Van Kampen American
Capital Tax Free Trust. 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 may invest in medium and lower grade municipal
securities rated between BBB and B- (inclusive) by Standard & Poor's Ratings
Group, Baa and B3 (inclusive) by Moody's Investors Service, Inc., comparably
rated short-term municipal obligations and municipal securities determined by
the Fund's investment adviser to be of comparable quality. Municipal securities
in which the Fund may invest include conventional fixed-rate municipal
securities, variable rate municipal securities and other types of municipal
securities described herein. See "Municipal Securities." There is no assurance
that the Fund will achieve its investment objective.

The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp. This Prospectus sets forth certain information about the Fund
that a prospective investor should know before investing. Please read and retain
this Prospectus for future reference. The address of the Fund is One Parkview
Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number is (800)
421-5666.
------------------

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

A Statement of Additional Information, dated April 30, 1997, containing
additional information about the Fund has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference in its entirety into
this Prospectus. A copy of the Statement of Additional Information may be
obtained without charge, by calling (800) 421-5666 or for Telecommunications
Device for the Deaf at (800) 421-2833. The Statement of Additional Information
has been filed with the Securities and Exchange Commission ("SEC") and is
available along with other related Fund materials at the SEC's internet web site
(http//www.sec.gov). ------------------

VAN KAMPEN AMERICAN CAPITAL SM

------------------

THIS PROSPECTUS IS DATED APRIL 30, 1997.

<PAGE> 18

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Shareholder Transaction Expenses............................ 7
Annual Fund Operating Expenses and Example.................. 8
Financial Highlights........................................ 10
The Fund.................................................... 12
Investment Objective and Policies........................... 12
Municipal Securities........................................ 15
Investment Practices........................................ 20
Investment Advisory Services................................ 22
Alternative Sales Arrangements.............................. 24
Purchase of Shares.......................................... 26
Shareholder Services........................................ 36
Redemption of Shares........................................ 40
Distribution and Service Plans.............................. 43
Distributions from the Fund................................. 45
Tax Status.................................................. 46
Fund Performance............................................ 51
Description of Shares of the Fund........................... 52
Additional Information...................................... 53
Appendix A: Description of Municipal Securities Ratings..... 55
</TABLE>

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE ADVISER, OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE DISTRIBUTOR TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE FUND TO MAKE
SUCH AN OFFER IN SUCH JURISDICTION.

2
<PAGE> 19

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

THE FUND. Van Kampen American Capital Tax Free High Income Fund (the "Fund") is
a separate diversified series of Van Kampen American Capital Tax Free Trust (the
"Trust"), an open-end management investment company organized as a Delaware
business trust. See "The Fund."

MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum subsequent investment for each class of shares (or less as described
under "Purchase of Shares").

INVESTMENT OBJECTIVE. 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.

INVESTMENT POLICIES. Municipal securities in which the Fund may invest include
fixed and variable rate securities, municipal notes, municipal leases, tax
exempt commercial paper, custodial receipts, participation certificates and
derivative municipal securities the terms of which include elements of, or are
similar in effect to, certain Strategic Transactions (as defined herein) in
which the Fund may engage. The Fund may invest up to 15% of its total assets in
derivative variable rate securities such as inverse floaters, whose rates vary
inversely with changes in market rates of interest or range or capped floaters,
whose rates are subject to periodic or lifetime caps. The Fund may invest in
medium and lower grade municipal securities rated, at the time of investment,
between BBB and B- (inclusive) by Standard & Poor's Ratings Group ("S&P"), Baa
and B3 (inclusive) by Moody's Investors Service, Inc. ("Moody's"), comparably
rated short-term municipal obligations and municipal securities determined by
Van Kampen American Capital Investment Advisory Corp. (the "Adviser"), the
Fund's investment adviser, to be of comparable quality. There is no assurance
that the Fund will achieve its investment objective.

Medium grade municipal securities are those rated BBB by S&P or Baa by
Moody's, comparably rated short-term municipal obligations and municipal
securities determined by the Adviser to be of comparable quality. Municipal
securities rated BBB by S&P generally are regarded by S&P as having an adequate
capacity to pay interest and repay principal; adverse economic conditions or
changing circumstances are, however, more likely in S&P's view to lead to a
weakened capacity to pay interest and repay principal as compared with higher
rated municipal securities. Municipal securities rated Baa by Moody's generally
are considered by Moody's as medium grade obligations, i.e., they are neither
highly protected nor poorly secured. In Moody's view, interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. In

3
<PAGE> 20

Moody's view, such securities lack outstanding investment characteristics and
have speculative characteristics as well.

The Fund may invest in lower grade municipal securities rated, at the time of
investment, either not lower than B- by S&P or not lower than B3 by Moody's, in
comparably rated short-term municipal obligations and in municipal securities
determined by the Adviser to be of comparable quality. Municipal securities
rated B by S&P generally are regarded by S&P, on balance, as predominantly
speculative with respect to capacity to pay interest or repay principal in
accordance with the terms of the obligation. While such securities will likely
have some quality and protective characteristics, in S&P's view these are
outweighed by large uncertainties or major risk exposure to adverse conditions.
Securities rated B by Moody's are viewed by Moody's as generally lacking
characteristics of the desirable investment. In Moody's view, assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.

The Fund will not make initial investments in municipal securities rated, at
the time of investment, below B- by S&P and below B3 by Moody's, in comparably
rated short-term municipal obligations or in municipal securities determined by
the Adviser to be of comparable quality. The Fund may retain municipal
securities which are downgraded after investment. There is no minimum rating
with respect to municipal securities which may be retained in the Fund's
portfolio, and the Fund may thus hold securities that are in default, or with
respect to which payment of interest and/or repayment of principal is in
arrears. A complete description of the various S&P and Moody's rating categories
is included as Appendix A to this Prospectus.

Investment in medium and lower grade municipal securities involves special
risks as compared with investment in higher grade municipal securities,
including potentially greater sensitivity to a general economic downturn,
greater market price volatility and less liquid secondary market trading. The
Fund may not be an appropriate investment for all investors. The net asset value
per share of the Fund can be expected to increase or decrease depending on real
or perceived changes in the credit risks associated with its portfolio
investments, changes in interest rates and other factors affecting the municipal
credit markets. See "Investment Objective and Policies," "Municipal Securities"
and "Appendix A."

INVESTMENT PRACTICES. In certain circumstances the Fund may enter into when-
issued or delayed delivery transactions and various strategic transactions,
which practices entail certain risks. See "Investment Practices."

INVESTMENT RESULTS. The investment results of the Fund are shown in the table
of "Financial Highlights."

4
<PAGE> 21

consider such factors together with the amount of sales charges and accumulated
distribution and services fees with respect to each class of shares that may be
incurred over the anticipated duration of their investment in the Fund. To
assist investors in making this determination, the table under the caption
"Annual Fund Operating Expenses and Example" sets forth examples of the charges
applicable to each class of shares.

The Fund currently offers three classes of its shares which may be purchased
at a price equal to their net asset value per share plus sales charges which, at
the election of the investor, may be imposed either (i) at the time of purchase
("Class A Shares") or (ii) on a contingent deferred basis (Class A Share
accounts over $1 million, "Class B Shares" and "Class C Shares"). Class A Share
accounts over $1 million or otherwise subject to a contingent deferred sales
charge ("CDSC"), Class B Shares and Class C Shares sometimes are referred to
herein collectively as "CDSC Shares."

Class A Shares. Class A Shares are subject to an initial sales charge equal to
4.75% of the public offering price (4.99% of the net amount invested), reduced
on investments of $100,000 or more. Class A Shares are subject to ongoing
distribution and services fees at an aggregate annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A Shares. Certain
purchases of Class A Shares qualify for reduced or no initial sales charges and
may be subject to a CDSC.

Class B Shares. Class B Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within six years of
purchase. Class B Shares are subject to a CDSC equal to 4.00% of the lesser of
the then current net asset value or the original purchase price on Class B
Shares redeemed during the first year after purchase, which charge is reduced
each year thereafter. Class B Shares are subject to ongoing distribution and
service fees at an aggregate annual rate of up to 1.00% of the Fund's average
daily net assets attributable to the Class B Shares. Class B Shares
automatically convert to Class A Shares eight years after the end of the
calendar month in which the investor's order to purchase was accepted, in the
circumstances and subject to the qualifications described in this Prospectus.

Class C Shares. Class C Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within the first year
after purchase. Class C Shares are subject to a CDSC equal to 1.00% of the
lesser of the then current net asset value or the original purchase price on
Class C Shares redeemed within the first year after purchase. Class C Shares are
subject to ongoing distribution and service fees at an aggregate annual rate of
up to 1.00% of the Fund's aggregate average daily net assets attributable to the
Class C Shares.

5
<PAGE> 22

REDEMPTION. Class A Shares may be redeemed at net asset value, without charge,
subject to conditions set forth herein. CDSC Shares may be redeemed at net asset
value less a deferred sales charge which will vary among each class of CDSC
Shares and with the length of time a redeeming shareholder has owned such
shares. CDSC Shares redeemed after the expiration of the CDSC period applicable
to the respective class of CDSC Shares will not be subject to a deferred sales
charge. See "Redemption of Shares."

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the Fund's investment adviser.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.

DISTRIBUTIONS FROM THE FUND. Distributions from net investment income are
declared daily and paid monthly; net realized capital gains, if any, are
distributed annually. Distributions with respect to each class of shares will be
calculated in the same manner on the same day and will be in the same amount
except that the different distribution and service fees and administrative
expenses relating to each class of shares will be borne exclusively by the
respective class of shares. See "Distributions from the Fund."

The foregoing is qualified in its entirety by reference to the more detailed

information appearing elsewhere in this Prospectus.

6
<PAGE> 23

- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as percentage of the
offering price)................ 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of the offering
price)......................... None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser of the
original purchase price or
redemption proceeds)........... None(2) Year Year
1--4.00% 1--1.00%
Year After--None
2--3.75%
Year
3--3.50%
Year
4--2.50%
Year
5--1.50%
Year
6--1.00%
After--None
Redemption fees (as a percentage
of amount redeemed)............ None None None
Exchange fees.................... None None None
</TABLE>

- ------------------------------------------------------------------------------
(1) Reduced on investments of $100,000 or more. See "Purchase of Shares -- Class
A Shares."

(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class A Share Purchases of $1 Million or More."

(3) CDSC Shares received as reinvested dividends are subject to a 12b-1 fee, a
portion of which may indirectly pay for the initial sales commission
incurred on behalf of the investor. See "Distribution and Service Plans."

7
<PAGE> 24

- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of average
daily net assets).......................... 0.48% 0.48% 0.48%
12b-1 Fees(1) (as a percentage of average
daily net assets).......................... 0.23% 1.00% 1.00%
Other Expenses (as a percentage of average
daily net assets).......................... 0.28% 0.27% 0.27%
Total Expenses (as a percentage of average
daily net assets).......................... 0.99% 1.75% 1.75%
</TABLE>

- ------------------------------------------------------------------------------

(1) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund as compensation for ongoing services rendered to investors.
With respect to each class of shares, amounts in excess of 0.25%, if any,
represent an asset based sales charge. The asset based sales charge with
respect to Class C Shares includes 0.75% (as a percentage of net asset
value) paid to investors' broker-dealers as sales compensation.

8
<PAGE> 25

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 0.99% for Class
A Shares, 1.75% for Class B Shares, and
1.75% for Class C Shares, (ii) 5% annual
return and (iii) redemption at the end of
each time period:
Class A Shares............................. $57 $78 $100 $163
Class B Shares............................. $58 $90 $110 $186*
Class C Shares............................. $28 $55 $ 95 $206
You would pay the following expenses on the
same $1,000 investment assuming no
redemption at the end of each period:
Class A Shares............................. $57 $78 $100 $163
Class B Shares............................. $18 $55 $ 95 $186*
Class C Shares............................. $18 $55 $ 95 $206
</TABLE>

- ------------------------------------------------------------------------------

* Based on conversion to Class A Shares after eight years.

The purpose of the foregoing tables is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. The ten
year amount with respect to Class B Shares of the Fund reflects the lower
aggregate 12b-1 and service fees applicable to such shares after conversion to
Class A Shares. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESSER THAN THOSE SHOWN. For a more complete description of such
costs and expenses, see "Purchase of Shares," "Redemption of Shares,"
"Investment Advisory Services" and "Distribution and Service Plans."

9
<PAGE> 26

The following schedule presents financial highlights for one Class A Share, one
Class B Share and one Class C Share of the Fund outstanding throughout each of
the periods indicated. The financial highlights have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, for each of the periods
indicated and their report thereon appears in the Fund's related Statement of
Additional Information. This information should be read in conjunction with the
financial statements and related notes thereto included in the related Statement
of Additional Information.

<TABLE>
<CAPTION>
CLASS A SHARES
-------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1996 31, 1995 31, 1994 31, 1993 31, 1992 31, 1991 31, 1990 31, 1989
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $14.984 $13.848 $15.629 $14.529 $15.687 $15.632 $16.378 $16.183
------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income............. .963 1.024 .956 1.052 1.064 1.173 1.269 1.306
Net Realized and Unrealized
Gain/Loss on Securities......... (.513) 1.072 (1.717) 1.158 (1.047) .097 (.755) .205
------- ------- ------- ------- ------- ------- ------- -------
Total from Investment Operations... .450 2.096 (.761) 2.210 .017 1.27 .514 1.511
Less Distributions from and in
Excess of Net Investment Income... .960 0.960 1.020 1.110 1.175 1.215 1.260 1.316
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period............................ $14.474 $14.984 $13.848 $15.629 $14.529 $15.687 $15.632 $16.378
======= ======= ======= ======= ======= ======= ======= =======
Total Return(a).................... 3.21% 15.52% (4.93%) 15.82% 0.08% 8.51% 3.23% 9.71%
Net Assets at End of Period (in
millions)......................... $ 671.9 $ 665.8 $ 603.0 $ 636.2 $ 566.1 $ 626.7 $ 630.3 $ 623.0
Ratio of Expenses to Average Net
Assets(b)......................... .99% 0.95% .87% 1.03% 1.08% 1.09% 1.04% .90%
Ratio of Net Investment Income to
Average Net Assets(b)............. 6.60% 7.05% 6.48% 6.95% 7.07% 7.54% 7.95% 8.02%
Portfolio Turnover................. 59% 59% 101% 91% 44% 65% 97% 66%

<CAPTION>
CLASS A SHARES
-------------------
YEAR YEAR
ENDED ENDED
DECEMBER DECEMBER
31, 1988 31, 1987
-------- --------
<S> <C> <C>
Net Asset Value, Beginning of the
Period............................ $15.874 $16.769
------- -------
Net Investment Income............. 1.311 1.307
Net Realized and Unrealized
Gain/Loss on Securities......... .319 (.908)
------- -------
Total from Investment Operations... 1.630 .399
Less Distributions from and in
Excess of Net Investment Income... 1.321 1.294
------- -------
Net Asset Value, End of the
Period............................ $16.183 $15.874
======= =======
Total Return(a).................... 10.66% 2.87%
Net Assets at End of Period (in
millions)......................... $ 453.6 $ 336.8
Ratio of Expenses to Average Net
Assets(b)......................... .84% .74%
Ratio of Net Investment Income to
Average Net Assets(b)............. 8.16% 8.06%
Portfolio Turnover................. 79% 85%
</TABLE>

(Continued on following page)
- ---------------

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to the Adviser's reimbursement of expenses was less than
0.01%.

See Financial Statements and Notes Thereto

10
<PAGE> 27

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- continued (for a share outstanding throughout the
periods)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS B SHARES CLASS C SHARES
------------------------------------------------- ------------------------------
MAY 1, 1993
(COMMENCEMENT
YEAR YEAR YEAR OF DISTRIBUTION) YEAR YEAR YEAR
ENDED ENDED ENDED TO ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 1996 31, 1995 31, 1994 31, 1993 31, 1996 31, 1995 31, 1994
-------- -------- -------- ---------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $14.983 $13.850 $15.621 $14.670 $14.987 $13.846 $15.610
------- ------- ------- ------- ------- ------- -------
Net Investment Income............ .843 0.908 .841 .656 .851 0.910 .824
Net Realized and Unrealized
Gain/Loss on Securities........ (.506) 1.071 (1.718) .945 (.518) 1.077 (1.694)
------- ------- ------- ------- ------- ------- -------
Total from Investment Operations... .337 1.979 (.877) 1.601 .333 1.987 (.870)
Less Distributions from and in
Excess of Net Investment
Income........................... .846 0.846 .894 .650 .846 0.846 .894
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $14.474 $14.983 $13.850 $15.621 $14.474 $14.987 $13.846
======= ======= ======= ======= ======= ======= =======
Total Return(a).................... 2.40% 14.62% (5.69%) 11.12%* 2.33% 14.70% (5.62%)
Net Assets at End of Period (in
millions)........................ $ 173.8 $ 137.9 $ 112.4 $ 56.6 $ 18.8 $ 9.5 $ 7.6
Ratio of Expenses to Average Net
Assets(b)........................ 1.75% 1.70% 1.64% 1.74% 1.75% 1.69% 1.64%
Ratio of Net Investment Income to
Average Net Assets(b)............ 5.84% 6.25% 5.70% 5.95% 5.84% 6.19% 5.71%
Portfolio Turnover................. 59% 59% 101% 91% 59% 59% 101%

<CAPTION>
CLASS C SHARES
----------------
AUGUST 13, 1993
(COMMENCEMENT
OF DISTRIBUTION)
TO
DECEMBER
31, 1993
----------------
<S> <C>
Net Asset Value, Beginning of
Period........................... $15.030
-------
Net Investment Income............ .369
Net Realized and Unrealized
Gain/Loss on Securities........ .580
-------
Total from Investment Operations... .949
Less Distributions from and in
Excess of Net Investment
Income........................... .369
-------
Net Asset Value, End of the
Period........................... $15.610
=======
Total Return(a).................... 6.37%*
Net Assets at End of Period (in
millions)........................ $ 5.2
Ratio of Expenses to Average Net
Assets(b)........................ 1.82%
Ratio of Net Investment Income to
Average Net Assets(b)............ 5.21%
Portfolio Turnover................. 91%
</TABLE>

- ---------------

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to the Adviser's reimbursement of expenses was less than
0.01%.

* Non-Annualized.

See Financial Statements and Notes Thereto

11
<PAGE> 28

- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital Tax Free High Income Fund ("Fund") is a separate
diversified series of Van Kampen American Capital Tax Free Trust (the "Trust"),
which is an open-end management investment company, commonly known as a "mutual
fund," organized as a Delaware business trust. Mutual funds sell their shares to
investors and invest the proceeds in a portfolio of securities. A mutual fund
allows investors to pool their money with that of other investors in order to
obtain professional investment management. Mutual funds generally make it
possible for investors to obtain greater diversification of their investments
and to simplify their recordkeeping.

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser and its
affiliates also manage other mutual funds distributed by Van Kampen American
Capital Distributors, Inc. (the "Distributor"). To obtain prospectuses and other
information on any of these other funds, please call the telephone number on the
cover page of the Prospectus.

- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------

The investment objective of the Fund 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 may invest in medium and lower grade municipal securities rated, at the
time of investment, between BBB and B- (inclusive) by Standard & Poor's Ratings
Group ("S&P"), Baa and B3 (inclusive) by Moody's Investors Service, Inc.
("Moody's"), comparably rated short-term municipal obligations and municipal
securities determined by the Adviser to be of comparable quality. There is no
assurance that the Fund will achieve its investment objective. An investment in
the Fund may not be appropriate for all investors. The Fund is not intended to
be a complete investment program, and investors should consider their long-term
investment goals and financial needs when making an investment decision with
respect to the Fund. An investment in the Fund is intended to be a long-term
investment and should not be used as a trading vehicle.

The Fund generally invests its assets in municipal securities, the interest on
which, in the opinion of bond counsel or other counsel to the issuer of such
securities, is exempt from federal income tax. See "Municipal Securities." In
normal circumstances, up to 100%, but not less than 80%, of the Fund's net
assets will be invested in such municipal securities. The foregoing is a
fundamental policy and cannot be changed without shareholder approval. Any
"private activity" obligations in which the Fund may invest will not be treated
as municipal securities for purposes of the 80% test. The Fund also may invest
up to 10% of its assets in tax-exempt money market funds that invest in
securities rated comparably to those

12
<PAGE> 29

in which the Fund may invest. Such instruments will be treated as municipal
securities for purposes of the 80% test.

The Fund will not make initial investments in municipal securities rated, at
the time of investment, below B- by S&P and below B3 by Moody's, in comparably
rated short-term municipal obligations or in municipal securities determined by
the Adviser to be of comparable quality. The Fund may retain municipal
securities which are downgraded after investment. There is no minimum rating
with respect to municipal securities which may be retained in the Fund's
portfolio, and the Fund may thus hold securities that are in default or with
respect to which payment of interest and/or repayment of principal is in
arrears. A complete description of the various S&P and Moody's rating categories
is included as Appendix A to this Prospectus.

Investment in medium and lower grade securities involves special risks as
compared with investment in higher grade securities, including potentially
greater sensitivity to a general economic downturn, greater market price
volatility and less liquid secondary market trading. See "Municipal
Securities--Special Considerations

13
<PAGE> 30

and Risk Factors Regarding Medium and Lower Grade Municipal Securities." There
can be no assurance that the Fund will achieve its investment objective, and the
Fund may not be an appropriate investment for all investors. Furthermore,
interest on certain "private activity" obligations in which the Fund may invest
is treated as a preference item for the purpose of calculating the alternative
minimum tax and, accordingly, a portion of the income produced by the Fund may
be taxable under the alternative minimum tax. The Fund may not be a suitable
investment for investors who are already subject to the federal alternative
minimum tax or who would become subject to the federal alternative minimum tax
as a result of an investment in the Fund. See "Tax Status."

At times the Adviser may judge that conditions in the markets for medium and
lower grade municipal securities make pursuing the Fund's basic investment
strategy of investing primarily in such municipal securities inconsistent with
the best interests of shareholders. At such times, the Fund may invest all or a
portion of its assets in higher grade municipal securities and in municipal
securities determined by the Adviser to be of comparable quality. Although such
higher grade municipal securities generally entail less credit risk, such higher
grade municipal securities may have a lower yield than medium and lower grade
municipal securities and investment in such higher grade municipal securities
may result in a lower yield to Fund shareholders. The Adviser may also judge
that conditions in the markets for long- and intermediate-term municipal
securities in general make pursuing the Fund's basic investment strategy
inconsistent with the best interests of the Fund's shareholders. At such times,
the Fund may pursue strategies primarily designed to reduce fluctuations in the
value of the Fund's assets, including investing the Fund's assets in
high-quality, short-term municipal securities and in high-quality, short-term
taxable securities. See "Tax Status."

The table below sets forth the percentages of the Fund's assets invested
during the fiscal year ended December 31, 1996 in the various Moody's and S&P
rating categories and in unrated securities determined by the Adviser to be of
comparable quality. The percentages are based on the dollar-weighted average of
credit ratings

14
<PAGE> 31

of all municipal securities held by the Fund during the 1996 fiscal year,
computed on a monthly basis.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-------------------------------------------
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING AS A PERCENTAGE OF AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE PORTFOLIO VALUE
-------- ------------------ ---------------------
<S> <C> <C>
AAA/Aaa............................... 23.49% 1.54%
AA/Aa................................. 4.21 0.00
A/A................................... 4.28 0.31
BBB/Baa............................... 24.02 3.42
BB/Ba................................. 3.03 20.42
B/B................................... 1.09 12.21
CCC/Caa............................... 0.00 1.74
CC/Ca................................. 0.00 0.00
C/C................................... 0.00 0.00
D..................................... 0.00 0.24
------ ------
Percentage of Rated and Unrated
Securities.......................... 60.12% 39.88%
====== ======
</TABLE>

Securities rated D are in default, and payment of interest and/or repayment of
principal is in arrears. Securities that are in default or with respect to which
payment of interest and/or repayment of principal is in arrears present special
risk considerations. The Fund may incur additional expenses to the extent that
it is required to seek recovery of interest or principal, and the Fund may be
unable to obtain full recovery thereof. See "Municipal Securities--Special
Considerations and Risk Factors Regarding Medium and Lower Grade Municipal
Securities."

The portfolio composition shown in the table above reflects the allocation of
assets by the Fund during periods of relative instability in the market for
medium and lower grade securities. The percentage of the Fund's assets invested
in securities of various grades may from time to time vary substantially from
those set forth above.

- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES
- ------------------------------------------------------------------------------

GENERAL. Municipal securities in which the Fund may invest are debt
obligations issued by or on behalf of the governments of states, territories or
possessions of the United States, the District of Columbia and their political
subdivisions, agencies and instrumentalities, certain interstate agencies and
certain territories of the United States, the interest on which, in the opinion
of bond counsel or other counsel to the issuer of such securities, is exempt
from federal income tax.

15
<PAGE> 32

The two principal classifications of municipal securities are "general
obligation" and "revenue" securities. "General obligation" securities are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. "Revenue" securities are usually payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source. Industrial development bonds are usually revenue securities, the
credit quality of which is normally directly related to the credit standing of
the industrial user involved.

Within these principal classifications of municipal securities, there are a
variety of categories of municipal securities, including fixed and variable rate
securities, municipal bonds, municipal notes, municipal leases, custodial
receipts, participation certificates and derivative municipal securities the
terms of which include elements of, or are similar in effect to, certain
Strategic Transactions (as defined below) in which the Fund may engage. Variable
rate securities bear rates of interest that are adjusted periodically according
to formulae intended to reflect market rates of interest and include securities
whose rates vary inversely with changes in market rates of interest. The Fund
will not invest more than 15% of its total assets in derivative municipal
securities such as inverse floaters, whose rates vary inversely with changes in
market rates of interest, or range floaters or capped floaters whose rates are
subject to periodic or lifetime caps. Such securities may also pay a rate of
interest determined by applying a multiple to the variable rate. The extent of
increases and decreases in the value of securities whose rates vary inversely
with market rates of interest generally will be larger than comparable changes
in the value of an equal principal amount of a fixed rate municipal security
having similar credit quality, redemption provisions and maturity. Municipal
notes include tax, revenue and bond anticipation notes of short maturity,
generally less than three years, which are issued to obtain temporary funds for
various public purposes. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment and
facilities. Certain municipal lease obligations may include "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Custodial receipts are underwritten by
securities dealers or banks and evidence ownership of future interest payments,
principal payments or both on certain municipal securities. Participation
certificates are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
represent participations in a lease, an installment purchase contract, or a
conditional sales contract. Some municipal securities may not be backed by the
faith, credit and taxing power of the issuer. Certain of the municipal
securities in which the Fund may invest represent relatively recent innovations
in the municipal securities markets. While markets for such recent innovations
progress through stages of development, such markets may be less developed than
more fully developed markets for municipal securities. A more detailed
description of the types of

16
<PAGE> 33

municipal securities in which the Fund may invest is included in the Statement
of Additional Information.

The net asset value of each of the Funds will change with changes in the value
of their respective portfolio securities. Because the Funds will invest
primarily in fixed income municipal securities, the net asset value of each of
the Funds can be expected to change as general levels of interest rates
fluctuate. When interest rates decline, the value of a portfolio invested in
fixed income securities generally can be expected to rise. Conversely, when
interest rates rise, the value of a portfolio invested in fixed income
securities generally can be expected to decline. Volatility may be greater
during periods of general economic uncertainty.

From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the Fund
to pay tax-exempt interest dividends might be adversely affected.

SPECIAL CONSIDERATIONS AND RISK FACTORS REGARDING MEDIUM AND LOWER GRADE
MUNICIPAL SECURITIES. The Fund invests in medium and lower grade municipal
securities. Municipal securities which are in the medium and lower grade
categories generally offer a higher current yield than is offered by higher
grade municipal securities, but they also generally involve greater price
volatility and greater credit and market risk. Credit risk relates to the
issuer's ability to make timely payment of interest and principal when due.
Market risk relates to the changes in market value that occur as a result of
variation in the level of prevailing interest rates and yield relationships in
the municipal securities market. Debt securities rated BB or below by S&P and Ba
or below by Moody's are commonly referred to as "junk bonds." Although the Fund
primarily will invest in medium and lower grade municipal securities, the Fund
may invest in higher grade municipal securities for temporary defensive
purposes. Such investments may result in lower current income than if the Fund
were fully invested in medium and lower grade securities.

The value of the Fund's portfolio securities can be expected to fluctuate over
time. When interest rates decline, the value of a portfolio invested in fixed
income securities generally can be expected to rise. Conversely, when interest
rates rise, the value of a portfolio invested in fixed income securities
generally can be expected to decline. However, the secondary market prices of
medium and lower grade municipal securities are less sensitive to changes in
interest rates and are more sensitive to adverse economic changes or individual
issuer developments than are the secondary market prices of higher grade debt
securities. A significant increase in interest rates or a general economic
downturn could severely disrupt the market for medium and lower grade municipal
securities and adversely affect the market value of such securities. Such events
also could lead to a higher incidence of defaults by issuers of medium and lower
grade municipal securities as compared with historical default rates. In
addition, changes in interest rates and periods of economic uncertainty can be
expected to result in increased volatility in the market price of the municipal
securities in the Fund's portfolio and thus in the net asset value of the

17
<PAGE> 34

Fund. Also, adverse publicity and investor perceptions, whether or not based on
rational analysis, may affect the value and liquidity of medium and lower grade
municipal securities. The secondary market value of municipal securities
structured as zero coupon securities and payment-in-kind securities may be more
volatile in response to changes in interest rates than debt securities which pay
interest periodically in cash. Investment in such securities also involves
certain tax considerations. See "Tax Status."

Increases in interest rates and changes in the economy may adversely affect
the ability of issuers of medium and lower grade municipal securities to pay
interest and to repay principal, to meet projected financial goals and to obtain
additional financing. In the event that an issuer of securities held by the Fund
experiences difficulties in the timely payment of principal or interest and such
issuer seeks to restructure the terms of its borrowings, the Fund may incur
additional expenses and may determine to invest additional assets with respect
to such issuer or the project or projects to which the Fund's portfolio
securities relate. Further, the Fund may incur additional expenses to the extent
that it is required to seek recovery upon a default in the payment of interest
or the repayment of principal on its portfolio holdings, and the Fund may be
unable to obtain full recovery thereof.

To the extent that there is no established retail market for some of the
medium or lower grade municipal securities in which the Fund may invest, trading
in such securities may be relatively inactive. The Adviser is responsible for
determining the net asset value of the Fund, subject to the supervision of the
Board of Trustees of the Trust. During periods of reduced market liquidity and
in the absence of readily available market quotations for medium and lower grade
municipal securities held in the Fund's portfolio, the ability of the Adviser to
value the Fund's securities becomes more difficult and the Adviser's use of
judgment may play a greater role in the valuation of the Fund's securities due
to the reduced availability of reliable objective data. The effects of adverse
publicity and investor perceptions may be more pronounced for securities for
which no established retail market exists as compared with the effects on
securities for which such a market does exist. Further, the Fund may have more
difficulty selling such securities in a timely manner and at their stated value
than would be the case for securities for which an established retail market
does exist.

The Adviser seeks to minimize the risks involved in investing in medium and
lower grade municipal securities through portfolio diversification, careful
investment analysis, and attention to current developments and trends in the
economy and financial and credit markets. The Fund will rely on the Adviser's
judgment, analysis and experience in evaluating the creditworthiness of an
issue. In its analysis, the Adviser will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic conditions
and trends, its operating history, the quality of the issuer's management and
regulatory matters. The Adviser may consider the credit ratings of Moody's and
S&P in evaluating municipal securities, although it does not rely primarily on
these ratings. Such ratings evaluate

18
<PAGE> 35

only the safety of principal and interest payments, not market value risk.
Additionally, because the creditworthiness of an issuer may change more rapidly
than is able to be timely reflected in changes in credit ratings, the Adviser
continuously monitors the issuers of municipal securities held in the Fund's
portfolio.

Municipal securities generally are not listed for trading on any national
securities exchange, and many issuers of medium and lower grade municipal
securities choose not to have a rating assigned to their obligations by any
nationally recognized statistical rating organization. The amount of information
available about the financial condition of an issuer of unlisted or unrated
securities generally is not as extensive as that which is available with respect
to issuers of listed or rated securities. Because of the nature of medium and
lower rated municipal securities, achievement by the Fund of its investment
objective may be more dependent on the credit analysis of the Adviser than is
the case for an investment company which invests primarily in exchange listed,
higher grade securities.

SPECIAL CONSIDERATIONS REGARDING CERTAIN MUNICIPAL SECURITIES. The Fund may
invest in zero coupon and payment-in-kind municipal securities. Zero coupon
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or a specified date when the securities
begin paying current interest. They are issued and traded at a discount from
their face amounts or par value, which discount varies depending on the time
remaining until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. The Internal Revenue
Code of 1986, as amended (the "Code"), requires that regulated investment
companies distribute at least 90% of their net investment income each year,
including tax-exempt and non-cash income. Accordingly, although the Fund will
receive no coupon payments on zero coupon securities prior to their maturity,
the Fund is required, in order to maintain its desired tax treatment, to include
in its distributions to shareholders in each year any income attributable to
zero coupon securities that is in excess of 10% of the Fund's net investment
income in that year. The Fund may be required to borrow or to liquidate
portfolio securities at a time that it otherwise would not have done so in order
to make such distributions. Payment-in-kind securities are securities that pay
interest through the issuance of additional securities. Such securities
generally are more volatile in response to changes in interest rates and are
more speculative investments than are securities that pay interest periodically
in cash. As of December 31, 1996, approximately 3.79% and 0.04% of the Fund's
total net assets were invested in zero coupon securities and payment-in-kind
securities, respectively.

The Fund may invest in derivative municipal income securities such as inverse
floaters, range floaters and capped floaters. Investment in such securities
involves special risks as compared to investment in conventional floating or
variable rate municipal income securities. The extent of increases and decreases
in the value of such securities and the corresponding changes to the per share
net asset value of the Fund in response to changes in market rates of interest
generally will be larger than

19
<PAGE> 36

comparable changes in the value of an equal principal amount of a fixed rate
income security having similar credit quality, redemption provisions and
maturity. The markets for such securities may be less developed than the markets
for conventional floating or variable rate municipal income securities.

- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------

In connection with the investment policies described above, the Fund also may
engage in strategic transactions and purchase and sell securities on a "when
issued" and "delayed delivery" basis. These investments entail risk. Strategic
transactions generally will not be treated as investments in tax-exempt
municipal securities for purposes of the Fund's investment policy with respect
thereto.

STRATEGIC TRANSACTIONS. The Fund may purchase and sell derivative instruments
such as exchange-listed and over-the-counter put and call options on securities,
financial futures, fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and enter into various interest
rate transactions such as swaps, caps, floors or collars. Collectively, all of
the above are referred to as "Strategic Transactions." Strategic Transactions
may be used to attempt to protect against possible changes in the market value
of securities held in or to be purchased for the Fund's portfolio resulting from
securities markets, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.

20
<PAGE> 37

correlation between price movements of futures contracts and price movements in
the related portfolio position of the Fund creates the possibility that losses
on the hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the
contemplated use of these futures contracts and options thereon should tend to
minimize the risk of loss due to a decline in the value of the hedged position,
at the same time they tend to limit any potential gain which might result from
an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's Statement of Additional Information.

Income earned or deemed to be earned, if any, by the Fund from its Strategic
Transactions will be distributed to its shareholders in taxable distributions.
See "Tax Status."

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell municipal securities on a "when issued" and "delayed delivery" basis.
No income accrues to the Fund on municipal securities in connection with such
transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher than yields on the municipal securities obtained pursuant
to such transactions. Because the Fund relies on the buyer or seller, as the
case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or liquid securities having an aggregate value equal to
the amount of such purchase commitments until payment is made. The Fund will
make commitments to purchase municipal securities on such basis only with the
intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. No specific limitation exists as to the percentage of the Fund's
assets which may be used to acquire securities on a "when issued" or "delayed
delivery" basis. To the extent the Fund engages in "when issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with its investment objective and policies
and not for the purpose of investment leverage.

21
<PAGE> 38

OTHER PRACTICES. The Fund has no restrictions on the maturity of municipal
bonds in which it may invest. The Fund will seek to invest in municipal bonds of
such maturities that, in the judgment of the Fund and the Adviser, will provide
a high level of current income consistent with liquidity requirements and market
conditions.

The Fund may borrow amounts up to 5% of its net assets in order to pay for
redemptions when liquidation of portfolio securities is considered
disadvantageous or inconvenient and may pledge up to 10% of its net assets to
secure such borrowings.

It is possible that the Fund will invest more than 25% of its assets in a
particular segment of the municipal bond market, such as Hospital Revenue Bonds,
Housing Agency Bonds, Airport Bonds or Industrial Development Bonds. In such
circumstances, economic, business, political or other changes affecting one bond
might also affect other bonds in the same segment, thereby potentially
increasing market risk with respect to the bonds in such segment. Such changes
could include, but are not limited to, proposed or suggested legislation
involving the financing of projects within such segments, declining markets or
needs for such projects and shortages or price increases of materials needed for
such projects.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. In effecting purchases and
sales of the Fund's portfolio securities, the Adviser and the Fund may place
orders with and pay brokerage commissions to brokers, including brokers which
may be affiliated with the Fund, the Adviser, the Distributor or dealers
participating in the offering of the Fund's shares. In addition, in selecting
among firms to handle a particular transaction, the Adviser and the Fund may
take into account whether the firm has sold or is selling shares of the Fund.

- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------

THE ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for the Fund. The Adviser is a wholly-owned
subsidiary of Van Kampen American Capital, Inc. ("Van Kampen American Capital").
Van Kampen American Capital is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $57 billion under management or
supervision. Van Kampen American Capital's more than 40 open-end and 38
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen American
Capital Distributors, Inc., (the "Distributor") the distributor of the Fund and
sponsor of the funds mentioned above, is a wholly-owned subsidiary of Van Kampen
American Capital.

22
<PAGE> 39

Van Kampen American Capital is a wholly-owned subsidiary of VK/AC Holding,
Inc. VK/AC Holding, Inc. is a wholly-owned subsidiary of MSAM Holdings II, Inc.
which, in turn, is a wholly-owned subsidiary of Morgan Stanley Group Inc. The
Adviser's principal office is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.

Morgan Stanley Group Inc. and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley & Co. Incorporated, a registered broker-
dealer and investment adviser, and Morgan Stanley International, are engaged in
a wide range of financial services. Their principal businesses include
securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financial and
investing; and global custody, securities clearance services and securities
lending.

On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Subject to certain conditions being
met, it is currently anticipated that the transaction will close in mid-1997.
Thereafter, Van Kampen American Capital Investment Advisory Corp. will be an
indirect subsidiary of Morgan Stanley, Dean Witter, Discover & Co.

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

ADVISORY AGREEMENT. The business and affairs of the Fund are managed under
the direction of the Board of Trustees of the Trust, of which the Fund is a
separate series. Subject to their authority, the Adviser and the officers of the
Fund will supervise and implement the Fund's investment activities and will be
responsible for overall management of the Fund's business affairs. The Fund will
pay the Adviser a fee equal to a percentage of the average daily net assets of
the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
------------------------ -----------
<S> <C>
First $500 million.................................... 0.50 of 1.00%
Over $500 million..................................... 0.45 of 1.00%
</TABLE>

23
<PAGE> 40

costs of acquiring and disposing of portfolio securities, interest (if any) on
obligations incurred by the Fund, costs of share certificates, membership dues
in the Investment Company Institute or any similar organization, reports and
notices to shareholders, costs of registering shares of the Fund under the
federal securities laws, miscellaneous expenses and all taxes and fees to
federal, state or other governmental agencies. The Adviser reserves the right in
its sole discretion from time-to-time to waive all or a portion of its
management fee or to reimburse the Fund for all or a portion of its other
expenses.

PERSONAL INVESTING POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes permit directors, trustees, officers and
employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.

PORTFOLIO MANAGEMENT. David C. Johnson, a Senior Vice-President of the Adviser
has been primarily responsible for the day-to-day management of the Fund's
portfolio since April 1989. Mr. Johnson has been employed by the Adviser since
April 1989.

- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------

The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares, whether the investor wishes to receive dividends in cash or to reinvest
them in additional shares of the Fund, and other circumstances. Investors should
consider such factors together with the amount of sales charges and accumulated
distribution and service fees with respect to each class of shares that may be
incurred over the anticipated duration of their investment in the Fund.

The Fund offers three classes of shares, designated Class A Shares, Class B
Shares and Class C Shares. Shares of each class are offered at a price equal to
their net asset value per share plus a sales charge which, at the election of
the purchaser, may be imposed (a) at the time of purchase ("Class A Shares") or
(b) on a contingent deferred basis (Class A Share accounts over $1 million,
"Class B Shares" and "Class C Shares"). Class A Share accounts over $1 million
or otherwise subject to a contingent deferred sales charge ("CDSC"), Class B
Shares and Class C Shares sometimes are referred to herein collectively as
"Contingent Deferred Sales Charge Shares" or "CDSC Shares."

24
<PAGE> 41

amount of $1 million or more because it ordinarily will be more advantageous for
an investor making such an investment to purchase Class A Shares.

An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of shares is more beneficial for the investor to purchase. For example,
investors who would qualify for a significant purchase price discount from the
maximum sales charge on Class A Shares may determine that payment of such a
reduced front-end sales charge is superior to electing to purchase Class B
Shares or Class C Shares, each with no front-end sales charge but subject to a
CDSC and a higher aggregate distribution and service fee. However, because
initial sales charges are deducted at the time of purchase of Class A Share
accounts under $1 million, a purchaser of such Class A Shares would not have all
of his or her funds invested initially and, therefore, would initially own fewer
shares than if Class B Shares or Class C Shares had been purchased. On the other
hand, an investor whose purchase would not qualify for price discounts
applicable to Class A Shares and intends to remain invested until after the
expiration of the applicable CDSC may wish to defer the sales charge and have
all his or her funds initially invested in Class B Shares or Class C Shares. If
such an investor anticipates that he or she will redeem such shares prior to the
expiration of the CDSC period applicable to Class B Shares, the investor may
wish to acquire Class C Shares. Investors must weigh the benefits of deferring
the sales charge and having all of their funds invested against the higher
aggregate distribution and service fee applicable to Class B Shares and Class C
Shares (discussed below).

Each class of shares represents an interest in the same portfolio of
investments of the Fund and has the same rights, except each class of shares (i)
bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, (ii) has exclusive voting rights with respect to those provisions
of the Fund's Rule 12b-1 distribution plan which relate only to such class and
(iii) has a different exchange privilege. Generally, a class of shares subject
to a higher ongoing distribution and service fee or subject to the conversion
feature will have a higher expense ratio and pay lower dividends than a class of
shares subject to a lower ongoing distribution and service fee or not subject to
the conversion feature. The per share net asset values of the different classes
of shares are expected to be substantially the same; from time to time, however,
the per share net asset values of the classes may differ. The net asset value
per share of each class of shares of the Fund will be determined as described in
this Prospectus under "Purchase of Shares -- Net Asset Value."

25
<PAGE> 42

Commission (the "SEC") registration fees incurred by a class of shares; (iv) the
expense of administrative personnel and services as required to support the
shareholders of a specific class; (v) Trustees' fees or expense incurred as a
result of issues relating to one class of shares; (vi) accounting expenses
relating solely to one class of shares; and (vii) any other incremental expenses
subsequently identified that should be properly allocated to one or more classes
of shares. All such expenses incurred by a class will be borne on a pro rata
basis by the outstanding shares of such class. All allocations of administrative
expenses to a particular class of shares will be limited to the extent necessary
to preserve the Fund's qualification as a regulated investment company under the
Code.

- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------

The Fund offers three classes of shares for sale to the public on a continuous
basis through the Distributor, as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares also are offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
acting as securities dealers ("dealers") and through NASD members acting as
brokers for investors ("brokers") or eligible non-NASD members acting as agents
for investors ("financial intermediaries"). The Fund reserves the right to
suspend or terminate the continuous public offering of its shares at any time
and without prior notice.

The Fund's shares are offered at the net asset value per share next computed
after an investor places an order to purchase directly with the investor's
broker, dealer or financial intermediary or with the Distributor plus any
applicable sales charge. Sales personnel of brokers, dealers and financial
intermediaries distributing the Fund's shares may receive differing compensation
for selling different classes of shares. It is the responsibility of the
investor's broker, dealer or financial intermediary to transmit the order to the
Distributor. Because the Fund generally will determine net asset value once each
business day as of the close of business, purchase orders placed through an
investor's broker, dealer or financial intermediary must be transmitted to the
Distributor by such broker, dealer or financial intermediary prior to such time
in order for the investor's order to be fulfilled on the basis of the net asset
value to be determined that day. Any change in the purchase price due to the
failure of the Distributor to receive a purchase order prior to such time must
be settled between the investor and the broker, dealer or financial intermediary
submitting the order.

26
<PAGE> 43

intermediary at the public offering price during such programs. Other programs
provide, among other things and subject to certain conditions, for certain
favorable distribution arrangements for shares of the Fund. Also, the
Distributor in its discretion may from time to time, pursuant to objective
criteria established by it, pay fees to, and sponsor business seminars for,
qualifying brokers, dealers or financial intermediary for certain services or
activities which are primarily intended to result in sales of shares of the
Fund. Fees may include payment for travel expenses, including lodging, incurred
in connection with trips taken by invited registered representatives and members
of their families to locations within or outside of the United States for
meetings or seminars of a business nature. In some instances additional
compensation or promotional incentives may be offered to brokers, dealers or
financial intermediaries that have sold or may sell significant amounts of
shares during specified periods of time. The Distributor may provide additional
compensation to Edward D. Jones & Co. or an affiliate thereof based on a
combination of its sales of shares and increases in assets under management.
Such payments to brokers, dealers and financial intermediaries for sales
contests, other sales programs and seminars are made by the Distributor out of
its own assets and not out of the assets of the Fund. Such fees paid for such
services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. These programs will not change the price an investor will pay for shares
or the amount that the Fund will receive from such sale.

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between the investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor, the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has taken the position that
brokers, dealers or financial intermediaries who receive more than 90% or more
of the sales charge may be deemed to be "underwriters" as that term is defined
in the Securities Act of the 1933, as amended.

27
<PAGE> 44

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
---------------------------------- --------------
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AT OFFERING PRICE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000................ 4.75% 4.99% 4.25%
$100,000 but less than $250,000... 3.75 3.90 3.25
$250,000 but less than $500,000... 2.75 2.83 2.25
$500,000 but less than
$1,000,000...................... 2.00 2.04 1.75
$1,000,000 or more*............... * * *
</TABLE>

- ------------------------------------------------------------------------------

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission will
be paid to brokers, dealers or financial intermediaries who initiate and are
responsible for purchases of $1 million or more as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million and 0.50% on the excess
over $3 million. See "Purchase of Shares -- Deferred Sales Charge
Alternatives" for additional information with respect to CDSCs.

QUANTITY DISCOUNTS

Investors purchasing Class A Shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described below.

Investors, or their brokers, dealers or financial intermediaries, must notify
the Fund whenever a quantity discount is applicable to purchases. Upon such
notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their broker,
dealer or financial intermediary or the Distributor.

A person eligible for a reduced sales charge includes an individual, their
spouse and minor children under 21 years of age and any corporation,
partnership, or sole proprietorship which is 100% owned, either alone or in
combination by any of the foregoing; a trustee or other fiduciary of a single
trust estate or a single fiduciary account; or a "company" as defined is section
2(a)(8) of the 1940 Act.

As used herein, "Participating Funds" refers to certain open-end investment
companies advised by the Adviser or Van Kampen American Capital Asset
Management, Inc. and distributed by the Distributor. Additional funds may be
added from time to time as determined by the Fund's Board of Trustees as
Participating Funds.

28
<PAGE> 45

shares of other Participating Funds, although other Participating Funds may have
different sales charges.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
sales charge table may also be determined by combining the amount being invested
in Class A Shares of the Fund with other shares of the Fund and shares of
Participating Funds, plus the current offering price of all shares of the Fund
and other Participating Funds which have been previously purchased and are still
owned.

LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the amount being invested over a
13-month period to determine the sales charge as outlined in the preceding sales
charge table. The size of investment shown in the preceding table includes the
amount of intended purchases of Class A Shares of the Fund with other shares of
the Fund and shares of the Participating Funds plus the value of all shares of
the Fund and other Participating Funds previously purchased during such 13-month
period and still owned. An investor may elect to compute the 13-month period
starting up to 90 days before the date of execution of a Letter of Intent. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. If trades not initially made under a
Letter of Intent subsequently qualify for a lower sales charge through the
90-day back-dating provision, an adjustment will be made at the expiration of
the Letter of Intent to give effect to the lower charge. If the goal is not
achieved within the 13-month period, the investor must pay the difference
between the sales charge applicable to the purchases made and the sales charges
previously paid. When an investor signs a Letter of Intent, shares equal to at
least 5% of the total purchase amount of the level selected will be restricted
from sale or redemption by the investor until the Letter of Intent is satisfied
or any additional sales charges have been paid; if the Letter of Intent is not
satisfied by the investor and any additional sales charges are not paid,
sufficient restricted shares will be redeemed by the Fund to pay such charges.
Additional information is contained in the application accompanying this
Prospectus.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.

29
<PAGE> 46

Distributor. The total sales charge for all other investments made from unit
trust distributions will be 1.00% of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their broker, dealer, financial intermediary or the Distributor.

The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS' processing system.

As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.

NAV PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by the Fund,
by:

(1) Current or retired trustees or directors of funds advised by the Adviser
or Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.

(2) Current or retired directors, officers and employees of Morgan Stanley
Group Inc. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser; and such persons' families and their beneficial accounts.

(3) Directors, officers, employees and registered representatives of financial
institutions that have a selling group agreement with the Distributor and
their spouses and children under 21 years of age when purchasing for any
accounts they beneficially own, or, in the case of any such financial
institution, when purchasing for retirement plans for such institution's
employees.

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the

30
<PAGE> 47

aggregate amount invested in Class A Shares of the Fund alone, or any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a 12-month
period following such transaction.

(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $3 million or more and which
invest in multiple fund families through national wirehouse alliance
programs.

(6) Accounts as to which a broker, dealer or financial intermediary charges an
account management fee ("wrap accounts"), provided the broker, dealer or
financial intermediary has a separate agreement with the Distributor.

(7) Investors purchasing shares of the Fund with redemption proceeds from
other mutual fund complexes on which the investor has paid a front-end
sales charge or was subject to a deferred sales charge, whether or not
paid, if such redemption has occurred no more than 30 days prior to such
purchase.

(8) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of the Code, or custodial accounts
held by a bank created pursuant to Section 403(b) of the Code and
sponsored by non-profit organizations defined under Section 501(c)(3) of
the Code and assets held by an employer or trustee in connection with an
eligible deferred compensation plan under Section 457 of the Code. Such
plans will qualify for purchases at net asset value provided, for plans
initially establishing accounts with the Distributor in the Participating
Funds after February 1, 1997, that (1) the initial amount invested in the
Participating Funds is at least $500,000 or (2) such shares are purchased
by an employer sponsored plan with more than 100 eligible employees. Such
plans that have been established with a Participating Fund or have
received proposals from the Distributor prior to February 1, 1997 based on
net asset value purchase privileges previously in effect will be qualified
to purchase shares of the Participating Funds at net asset value for
accounts established on or before May 1, 1997. Section 403(b) and similar
accounts for which Van Kampen American Capital Trust Company served as
custodian will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from
time to time. Prior to February 1, 1997, a commission will be paid to
authorized dealers who initiate and are responsible for such purchases
within a rolling twelve-month period as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million and 0.25% on the excess over
$10 million. For purchases on February 1, 1997

31
<PAGE> 48

and thereafter, a commission will be paid as follows: 1.00% on sales to $2
million, plus 0.80% on the next $1 million, plus 0.50% on the next $47
million and 0.25% on the excess over $50 million.

(9) Individuals who are members of a "qualified group". For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
Fund and other Participating Funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economics of scale in distributing such shares. A qualified
group does not include one whose sole organizational nexus, for example,
is that its participants are credit card holders of the same institution,
policy holders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or other similar groups.
Shares purchased in each group's participants account in connection with
this privilege will be subject to a CDSC of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million and 0.50% on the excess over $3 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

Purchase orders made pursuant to clause (4) may be placed either through
authorized brokers, dealers or financial intermediaries as described above or
directly with ACCESS, the investment adviser, trust company or bank trust
department, provided that ACCESS receives federal funds for the purchase by the
close of business on the next business day following acceptance of the order. An
authorized broker, dealer or financial intermediary may charge a transaction fee
for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.

DEFERRED SALES CHARGE ALTERNATIVES

32
<PAGE> 49

by such brokers, dealers and financial intermediaries, which percentage rate
will be equal to (i) with respect to Class A Shares, 1.00% on sales to $2
million, plus 0.80% on the next million, plus 0.20% on the next $2 million and
0.08% on the excess over $5 million; (ii) 4.00% with respect to Class B Shares;
and (iii) 1.00% with respect to Class C Shares. Such compensation will not
change the price an investor will pay for CDSC Shares or the amount that the
Fund will receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed on CDSC Shares derived from reinvestment of dividends or
capital gains distributions. Solely for purposes of determining the number of
years from the time of any payment for the purchase of CDSC Shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.

Proceeds from the CDSC and the distribution fee applicable to a class of CDSC
Shares are paid to the Distributor and are used by the Distributor to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of shares of such class of CDSC Shares, such as the
payment of compensation to selected dealers and agents for selling such shares.
The combination of the CDSC and the distribution fees facilitates the ability of
the Fund to sell such CDSC Shares without a sales charge being deducted at the
time of purchase.

In determining whether a CDSC is applicable to a redemption of CDSC Shares, it
will be assumed that the redemption is made first of any CDSC Shares acquired
pursuant to reinvestment of dividends or distributions, second of CDSC Shares
that have been held for a sufficient period of time such that the CDSC no longer
is applicable to such shares, third of Class A Shares in the shareholder's Fund
account that have converted from Class B Shares or Class C Shares, if any, and
fourth of CDSC Shares held longest during the period of time that a CDSC is
applicable to such CDSC Shares. The charge will not be applied to dollar amounts
representing an increase in the net asset value per share since the time of
purchase.

To provide an example, assume an investor purchased 100 Class B Shares at $10
per share (at a cost of $1,000) and in the second year after purchase, the net
asset value per share is $12 and, during such time, the investor has acquired 10
additional Class B Shares upon dividend reinvestment. If at such time the
investor makes his first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to charge because of dividend reinvestment. With respect to
the remaining 40 shares, the charge is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption

33
<PAGE> 50

proceeds will be charged at a rate of 3.75% (the applicable rate in the second
year after purchase).

CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments in Class A Shares of $1 million or more,
although for such investments the Fund imposes a CDSC of 1.00% on redemptions
made within one year of the purchase. A commission will be paid to dealers who
initiate and are responsible for purchases of $1 million or more as follows:
1.00% on sales to $2 million, plus 0.80% on the next $1 million and 0.50% on the
excess over $3 million.

CLASS B SHARES. Class B Shares redeemed within six years of purchase generally
will be subject to a CDSC at the rates set forth below, charged as a percentage
of the dollar amount subject thereto:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
------------------- -------------------
<S> <C>
First.............................................. 4.00%
Second............................................. 3.75%
Third.............................................. 3.50%
Fourth............................................. 2.50%
Fifth.............................................. 1.50%
Sixth.............................................. 1.00%
Seventh and after.................................. 0.00%
</TABLE>

The CDSC generally is waived on redemptions of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services -- Systematic
Withdrawal Plan."

CLASS C SHARES. Class C Shares redeemed within the first 12 months of purchase
generally will be subject to a CDSC of 1.00% of the dollar amount subject
thereto. Class C Shares redeemed thereafter will not be subject to a CDSC.

CONVERSION FEATURE. Class B Shares purchased on or after June 1, 1996 and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Class C Shares purchased before January 1, 1997, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares ten years after the end of the calendar month in which such
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge.

The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the

34
<PAGE> 51

higher distribution and service fees and ACCESS costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Code, and (ii) that the conversion of such
shares does not constitute a taxable event under federal income tax law. The
conversion of Shares may be suspended if such an opinion is no longer available
and such shares might continue to be subject to the higher aggregate fees
applicable to such class of shares for an indefinite period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with required minimum
distributions from an IRA or other retirement plan, (iii) pursuant to the Fund's
systematic withdrawal plan but limited to 12% annually of the initial value of
the account, and (iv) effected pursuant to the right of the Fund to liquidate a
shareholder's account as described herein under "Redemption of Shares." The CDSC
also is waived on redemption of Class C Shares as it relates to the reinvestment
of redemption proceeds in shares of the same class of the Fund within 120 days
after redemption. See "Shareholder Services" and "Redemption of Shares" for
further discussion of the waiver provisions.

NET ASSET VALUE

The net asset value per share of the Fund is determined by calculating the
total value of the Fund's assets, deducting its total liabilities, and dividing
the result by the number of shares of the Fund outstanding. The net asset value
is computed once daily as of 5:00 p.m. Eastern time, Monday through Friday,
except on customary business holidays, or except on any day on which no purchase
or redemption orders are received, or there is not a sufficient degree of
trading in the Fund's portfolio securities such that the Fund's net asset value
per share might be materially affected. The Fund reserves the right to calculate
the net asset value and to adjust the public offering price based thereon more
frequently than once a day if deemed desirable.

Fixed income securities are valued by using market quotations, prices provided
by market makers or estimates of market values obtained from yield data relating
to instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Trustees of the Trust, of which the
Fund is a separate series. Short-term securities with remaining maturities of
less than 60 days are valued at amortized cost when amortized cost is determined
by or under the direction of the Board of Trustees of the Trust to be
representative of the fair value at which it is expected such securities may be
resold. Other assets are valued at fair value as determined in good faith by or
under the direction of the Trustees. The net asset value per share of the
different classes of shares are expected to be substantially the same; from time
to time, however, the per share net asset value of the different classes of
shares may differ.

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<PAGE> 52

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SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. Unless otherwise described below, each of these
services may be modified or terminated by the Fund at any time.

INVESTMENT ACCOUNT. ACCESS, transfer agent for the Fund and a wholly-owned
subsidiary of Van Kampen American Capital, performs bookkeeping, data processing
and administration services related to the maintenance of shareholder accounts.
Each shareholder has an investment account under which shares are held by
ACCESS. Except as described in this Prospectus, after each share transaction in
an account, the shareholder receives a statement showing the activity in the
account. Each shareholder will receive statements at least quarterly from ACCESS
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized brokers, dealers or
financial intermediaries or by mailing a check directly to ACCESS.

SHARE CERTIFICATES. Generally, the Fund will not issue share certificates.
However, upon written or telephone request to the Fund, a share certificate will
be issued, representing shares (with the exception of fractional shares) of the
Fund. A shareholder will be required to surrender such certificates upon
redemption thereof. In addition, if such certificates are lost the shareholder
must write to Van Kampen American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and to obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received
ACCESS will calculate a fee for replacing the lost certificate equal to no more
than 2.00% of the net asset value of the issued shares and bill the party to
whom the replacement certificate was mailed.

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the record date of such dividend or distribution. Unless the
shareholder instructs otherwise, the reinvestment plan is automatic. This
instruction may be made by telephone by calling (800) 421-5666 ((800) 421-2833
for the hearing impaired) or in writing to ACCESS. The investor may, on the
initial application or prior to any declaration, instruct that dividends be paid
in cash and capital gains distributions be reinvested at net asset value, or
that both dividends and capital gains distributions be paid in cash. For further
information, see "Distributions from the Fund."

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<PAGE> 53

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the Fund. Additional information is
available from the Distributor or authorized brokers, dealers or financial
intermediaries.

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 421-2833 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Fund invested into shares of the same class of any other
Participating Fund, Tax Free Money Fund or Reserve Fund so long as a
pre-existing account for such class of shares exists for such shareholder.

If the qualified pre-existing account does not exist, the shareholder must
establish a new account subject to minimum investment and other requirements of
the fund into which distributions would be invested. Distributions are invested
into the selected fund at its net asset value as of the payable date of the
distribution only if shares of such selected fund have been registered for sale
in the investor's state.

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund subject to certain limitations. Before effecting an exchange,
shareholders in the Fund should obtain and read a current prospectus of the fund
into which the exchange is to be made. SHAREHOLDERS MAY ONLY EXCHANGE INTO SUCH
OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE.

To be eligible for exchange, shares of the Fund must have been registered in
the shareholder's name for at least 30 days prior to an exchange. Shares of the
Fund registered in a shareholder's name for less than 30 days may only be
exchanged upon receipt of prior approval of the Adviser. Under normal
circumstances, it is the policy of the Adviser not to approve such requests.

Class A Shares of Van Kampen American Capital funds that generally impose an
initial sales charge are not subject to any sales charge upon exchange into the
Fund. Class A Shares of Van Kampen American Capital funds that generally do not
impose an initial sales charge are subject to the appropriate sales charge
applicable to Class A Shares of the Fund.

No sales charge is imposed upon the exchange of Class B Shares and Class C
Shares. The CDSC schedule and conversion schedule applicable to a Class B Share
or Class C Share acquired through the exchange privilege is determined by
reference to the Van Kampen American Capital fund from which such share
originally was purchased. The holding period of a Class B Share or Class C Share
acquired through the exchange privilege is determined by reference to the date
such share originally was purchased from a Van Kampen American Capital fund.

Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales

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<PAGE> 54

charge paid on such shares is not included in the tax basis of the exchanged
shares, but is carried over and included in the tax basis of the shares
acquired.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 421-2833 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. Exchanges are effected at the net asset value per share next
calculated after the request is received in good order with adjustment for any
additional sales charge. If reasonable procedures are employed, a shareholder
agrees that neither VKAC nor the Fund will be liable for following telephone
instructions which it reasonably believes to be genuine. VKAC and the Fund may
be liable for any losses due to unauthorized or fraudulent instructions if
reasonable procedures are not followed. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gains options
(except dividend diversification options) and broker, dealer or financial
intermediary of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or reinvest dividends from the new account
into another fund, an exchanging shareholder must file a specific written
request. The Fund reserves the right to reject any order to acquire its shares
through exchange. In addition, the Fund may modify, restrict or terminate the
exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.

A prospectus of any of these mutual funds may be obtained from any broker,
dealer or financial intermediary or the Distributor. An investor considering an
exchange to one of such funds should refer to the prospectus for additional
information regarding such fund prior to investing.

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<PAGE> 55

entire account, not only the income but also the capital, if necessary. Each
withdrawal constitutes a redemption of shares on which taxable gain or loss will
be recognized. The plan holder may arrange for monthly, quarterly, semi-annual,
or annual checks in any amount not less than $25.

Holders of Class B Shares and Class C Shares who establish a withdrawal plan
may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment at the time the election to
participate in the plan is made.

Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plan are reinvested in additional shares
at the next determined net asset value. If periodic withdrawals continuously
exceed reinvested dividends and capital gains distributions, the shareholder's
original investment will be correspondingly reduced and ultimately exhausted.
Withdrawals made concurrently with purchases of additional shares ordinarily
will be disadvantageous to the shareholder because of the duplication of sales
charges. The Fund reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.

CHECK WRITING PRIVILEGE. Holders of Class A Shares of the Fund for which
certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the Authorization for Redemption by Check
Form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to the agent, a supply of checks drawn on State Street Bank and Trust
Company ("State Street Bank") will be sent to such shareholder. These checks may
be made payable by the holder of Class A Shares to the order of any person in
any amount of $100 or more.

When a check is presented to State Street Bank for payment, full and
fractional Class A Shares required to cover the amount of the check are redeemed
from the shareholder's account by ACCESS at the next determined net asset value.
Check writing redemptions represent the sale of Class A Shares. Any gain or loss
realized on the sale of Class A Shares is a taxable event. See "Redemption of
Shares."

Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A Share account, the check
will be returned and the shareholder may be subject to additional charges.
Holders of Class A Shares may not liquidate the entire account by means of a
check. The check writing privilege may be terminated or suspended at any time by
the Fund or State Street Bank. Retirement plans and accounts that are subject to
backup withholding are not

39
<PAGE> 56

eligible for the privilege. A "stop payment" system is not available on these
checks. See the Statement of Additional Information for further information
regarding the establishment of the privilege.

AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS. Holders of Class A Shares can use
ACH to have redemption proceeds deposited electronically into their bank
accounts. Redemptions transferred to a bank account via the ACH plan are
available to be credited to the account on the second business day following
normal payment. In order to utilize this option, the shareholder's bank must be
a member of Automated Clearing House. In addition, the shareholder must fill out
the appropriate section of the account application. The shareholder must also
include a voided check or deposit slip from the bank account into which
redemptions are to be deposited together with the completed application. Once
ACCESS has received the application and the voided check or deposit slip, such
shareholder's designated bank account, following any redemption, will be
credited with the proceeds of such redemption. Once enrolled in the ACH plan, a
shareholder may terminate participation at any time by writing ACCESS.

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.

WRITTEN REDEMPTION REQUESTS. In the case of redemption requests sent directly
to ACCESS, the redemption request should indicate the number of shares to be
redeemed, the class designation of such shares, the account number and be signed
exactly as the shares are registered. Signatures must conform exactly to the
account registration. If the proceeds of the redemption would exceed $50,000, or
if the proceeds are not to be paid to the record owner at the record address, or
if the record address has changed within the previous 30 days, signature(s) must
be guaranteed by one of the following: a bank or trust company; a broker-dealer;
a credit union; a national securities exchange, registered securities
association or clearing agency; a savings and loan association; or a federal
savings bank. If certificates are held for the shares being redeemed, such
certificates must be endorsed for transfer or accompanied by an endorsed stock
power and sent with the redemption request. In the event the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 60 days must accompany the redemption request. The
redemption price is the net asset value per share next determined after the
request is received by ACCESS in proper form. Payment for

40
<PAGE> 57

shares redeemed (less any sales charge, if applicable) will ordinarily be made
by check mailed within three business days after acceptance by ACCESS of the
request and any other necessary documents in proper order. Such payments may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check, ACCESS
may delay mailing a redemption check until it confirms that the purchase check
has cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.

DEALER REDEMPTION REQUESTS. Shareholders may sell shares through their
securities dealer, who will telephone the request to the Distributor. Orders
received from dealers must be at least $500 unless transmitted via the FUNDSERV
network. The redemption price for such shares is the net asset value next
calculated after an order is received by a dealer provided such order is
transmitted to the Distributor prior to the Distributor's close of business on
such day. It is the responsibility of dealers to transmit redemption requests
received by them to the Distributor so they will be received prior to such time.
Any change in the redemption price due to failure of the Distributor to receive
a sell order prior to such time must be settled between the shareholder and
dealer. Shareholders must submit a written redemption request in proper form (as
described above under "Written Redemption Requests") to the dealer within three
business days after calling the dealer with the sell order. Payment for shares
redeemed (less any sales charge, if applicable) will ordinarily be made by check
mailed within three business days to the dealer.

TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the Fund at (800) 421-5666
((800) 421-2833 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC
and the Fund employ procedures considered by them to be reasonable to confirm
that instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, a shareholder agrees that neither VKAC nor the Fund
will be liable for following instructions which it reasonably believes to be
genuine. VKAC and the Fund may be liable for any losses due to unauthorized or
fraudulent instructions if reasonable procedures are not followed. Telephone
redemptions may not be available if the shareholder cannot reach ACCESS by
telephone, whether because all telephone lines are busy or for any other reason;
in such case, a shareholder would have to use the Fund's other redemption
procedures previously described. Requests received by ACCESS prior to 4:00 p.m.,
New York time, on a regular business day will be processed at the net asset
value per share determined that day. These privileges are

41
<PAGE> 58

available for all accounts other than retirement accounts. The telephone
redemption privilege is not available for shares represented by certificates. If
the shares to be redeemed have been recently purchased by check, ACCESS may
delay mailing a redemption check or wiring redemption proceeds until it confirms
that the purchase check has cleared, usually a period of up to 15 days. If an
account has multiple owners, ACCESS may rely on the instructions of any one
owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. The Fund reserves the right at any time to terminate, limit
or otherwise modify this telephone redemption privilege.

REDEMPTION UPON DISABILITY. The Fund will waive the CDSC on redemptions
following the disability of holders of Class B Shares and Class C Shares. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Code, which in pertinent part
defines a person as disabled if such person "is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
CDSC on Class B Shares and Class C Shares.

In cases of disability, the CDSCs on Class B Shares and Class C Shares will be
waived where the disabled person is either an individual shareholder or owns the
shares as a joint tenant with right of survivorship or is the beneficial owner
of a custodial or fiduciary account, and where the redemption is made within one
year of the initial determination of disability. This waiver of the CDSC on
Class B Shares and Class C Shares applies to a total or partial redemption, but
only to redemptions of shares held at the time of the initial determination of
disability.

GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset value on the date of the notice of redemption less than the
minimum investment as specified by the Trustees. At least 60 days advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable CDSC will be deducted from the proceeds of this redemption. Any
involuntary redemption may

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<PAGE> 59

only occur if the shareholder account is less than the minimum investment due to
shareholder redemptions.

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value (without sales charge except as described under "Shareholder Services --
Exchange Privilege") next determined after the order is received, which must be
within 180 days after the date of the redemption. See "Purchase of Shares --
Waiver of Contingent Deferred Sales Charge." Reinstatement at net asset value is
also offered to participants in those eligible retirement plans held or
administered by Van Kampen American Capital Trust Company for repayment of
principal (and interest) on their borrowings on such plans.

- ------------------------------------------------------------------------------

DISTRIBUTION AND SERVICE PLANS

- ------------------------------------------------------------------------------

CLASS A SHARES. The Fund may spend an aggregate amount up to 0.25% per year of
the average daily net assets attributable to the Class A Shares of the Fund
pursuant to the Distribution Plan and Service Plan. From such amount, the Fund
may spend up to 0.25% per year of the Fund's average daily net assets
attributable to the Class A Shares pursuant to the Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. The Fund pays
the Distributor the lesser of the balance of the 0.25% not paid to such brokers,
dealers or financial intermediaries or the amount of the Distributor's actual
distribution-related expense.

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<PAGE> 60

Service Plan in connection with the ongoing provision of services to holders of
such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.

CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A Shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A Shares, there is no
carryover of such reimbursement obligations to succeeding years.

The Distributor's actual expenses with respect to a class of CDSC Shares (for
purposes of this section, excluding any Class A Shares that may be subject to a
CDSC) for any given year may exceed the amounts payable to the Distributor with
respect to such class of CDSC Shares under the Distribution Plan, the Service
Plan and payments received pursuant to the CDSC. In such event, with respect to
any such class of CDSC Shares, any unreimbursed expenses will be carried forward
and paid by the Fund (up to the amount of the actual expenses incurred) in
future years so long as such Distribution Plan is in effect. Except as mandated
by applicable law, the Fund does not impose any limit with respect to the number
of years into the future that such unreimbursed expenses may be carried forward
(on a Fund level basis). Because such expenses are accounted on a Fund level
basis, in periods of extreme net asset value fluctuation such amounts with
respect to a particular CDSC Share may be greater or less than the amount of the
initial commission (including carrying cost) paid by the Distributor with
respect to such CDSC Share. In such circumstances, a shareholder of such CDSC
Share may be deemed to incur expenses attributable to other shareholders of such
class. As of December 31, 1996, there were $6,391,172 and $112,259 of
unreimbursed distribution expenses with respect to Class B Shares and Class C
Shares, respectively, representing 3.68% and 0.60% of the Fund's net assets
attributable to Class B Shares and Class C Shares, respectively. If the
Distribution Plan was terminated or not continued, the Fund

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<PAGE> 61

would not be contractually obligated to pay the Distributor for any expenses not
previously reimbursed by the Fund or recovered through CDSCs.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the CDSC applicable to a particular class of
shares to defray distribution related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

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DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------

The Fund's policy is to declare daily and pay monthly distributions of all or
substantially all net investment income of the Fund. Net investment income
consists of all or a portion of the interest income, dividends, other ordinary
income earned by the Fund on its portfolio assets, less all expenses of the
Fund. Expenses of the Fund are accrued each day. Net realized long- and
short-term capital gains, if any, are expected to be distributed, to the extent
permitted by applicable law, to shareholders at least annually. Distributions
cannot be assured, and the amount of each monthly distribution may vary.

Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee, service fee, or, where applicable,
the conversion feature will be lower than distributions with respect to a class
of shares subject to a lower distribution fee, service fee, or not subject to
the conversion feature.

Investors will be entitled to begin receiving dividends on their shares on the
business day after ACCESS receives payments for such shares. However, shares
become entitled to dividends on the day ACCESS receives payment for the shares
either through a fed wire or NSCC settlement. Shares remain entitled to
dividends through the day such shares are processed for payment on redemption.

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<PAGE> 62

Prospectus or available from Van Kampen American Capital Funds, c/o ACCESS P.O.
Box 418256, Kansas City, MO 64141-9256. After ACCESS receives this completed
form, distribution checks will be sent to the bank or other person so designated
by such shareholder.

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund will automatically
credit monthly distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the Fund valued
at net asset value, without a sales charge. Unless a shareholder instructs
otherwise the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or
in writing to ACCESS. See "Shareholder Services -- Reinvestment Plan."

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TAX STATUS
- ------------------------------------------------------------------------------

FEDERAL INCOME TAXATION. The Fund has qualified and intends to continue to
qualify each year and to elect to be treated as a regulated investment company
under Subchapter M of the Code. To qualify as a regulated investment company,
the Fund must comply with certain requirements of the Code relating to, among
other things, the source of its income and diversification of its assets.

If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including tax-exempt interest, taxable
income and net short-term capital gain, but not net capital gains, which are the
excess of net long-term capital gains over net short-term capital losses), it
will not be required to pay federal income taxes on any income distributed to
shareholders. The Fund intends to distribute at least the minimum amount of net
investment income necessary to satisfy the 90% distribution requirement. The
Fund will not be subject to federal income tax on any net capital gains
distributed to shareholders.

In order to avoid a 4% excise tax, the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31 of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.

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<PAGE> 63

investment company years and would be required to distribute such earnings and
profits to shareholders (less any interest charge). In addition, if the Fund
failed to qualify as a regulated investment company for its first taxable year
or, if immediately after qualifying as a regulated investment company for any
taxable year, it failed to qualify for a period greater than one taxable year,
the Fund would be required to recognize any net built-in gains (the excess of
aggregate gains, including items of income, over aggregate losses that would
have been realized if it had been liquidated) in order to qualify as a regulated
investment company in a subsequent year.

Some of the Fund's investment practices are subject to special provisions of
the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to mark-to-market some of the positions in its portfolio (i.e.,
treat them as if they were sold for fair market value at the end of the
tax-year), which may cause the Fund to recognize income without receiving cash
with which to make distributions in amounts necessary to satisfy the 90%
distribution requirement and the distribution requirements for avoiding income
and excise taxes. The Fund will monitor its transactions and may make certain
tax elections in order to mitigate the effect of these rules and prevent
disqualification of the Fund as a regulated investment company.

The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months.

Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold. A
portion of the discount relating to certain stripped tax-exempt obligations may
constitute taxable income when distributed to shareholders.

DISTRIBUTIONS. The Fund intends to invest in sufficient tax-exempt municipal
securities to permit payment of "exempt-interest dividends" (as defined in the
Code). Dividends paid by the Fund from the net tax-exempt interest earned from
municipal securities qualify as exempt-interest dividends if, at the close of
each quarter of its taxable year, at least 50% of the value of the total assets
of the Fund consists of municipal securities.

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<PAGE> 64

The Tax Reform Act of 1986 (the "Tax Reform Act") may have an adverse impact
upon the Fund and its shareholders. The Tax Reform Act imposed new limitations
on the use and investment of the proceeds of state and local government bonds
and other funds, which limitations must be satisfied in order to maintain the
exclusion from gross income for interest on such bonds. The provisions of the
Tax Reform Act generally apply to bonds issued after August 15, 1986. In light
of these requirements, bond counsel qualify their opinions as to the federal tax
status of bonds issued after August 15, 1986 by making them contingent on the
issuer's future compliance with these limitations. Any failure on the part of an
issuer to comply could cause the interest on its bonds to become taxable to
investors retroactive to the date the bonds were issued.

Except as provided below, exempt-interest dividends paid to shareholders
generally are not includable in the shareholders' gross income for federal
income tax purposes. The percentage of the total dividends paid by the Fund
during any taxable year that qualify as exempt-interest dividends will be the
same for all shareholders of the Fund receiving dividends during such year.

The Tax Reform Act also makes interest on certain "private-activity bonds" an
item of tax preference subject to the alternative minimum tax on individuals and
corporations. The Fund invests a portion of its assets in municipal securities
subject to this provision so that a portion of its exempt-interest dividends is
an item of tax preference to the extent such dividends represent interest
received from these private-activity bonds. Accordingly, investment in the Fund
could cause shareholders to be subject to (or result in an increased liability
under) the alternative minimum tax. The Tax Reform Act also imposed per capita
volume limitations on certain private-activity bonds which could limit the
amount of such bonds available for investment by the Fund.

Exempt-interest dividends are included in determining what portion, if any, of
a person's social security and railroad retirement benefits will be includable
in gross income subject to federal income tax.

Although exempt-interest dividends generally may be treated by Fund
shareholders as items of interest excluded from their gross income, each
shareholder is advised to consult his tax adviser with respect to whether
exempt-interest dividends retain this exclusion if the purchaser would be
treated as a "substantial user" (or a "related person" of a substantial user) of
the facilities financed with respect to any of the tax-exempt obligations held
by the Fund, or by the Trust if it is required to qualify as a regulated
investment company as described below. "Substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person who regularly uses in his
trade or business a part of any facilities financed with the tax-exempt
obligations and whose gross revenues derived from such facilities exceed five
percent of the total revenues derived from the facilities by all users, or who
occupies more than 5% of the useable area of the facilities or for whom the
facilities or a part thereof were specifically constructed, reconstructed or
acquired. Examples

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<PAGE> 65

of "related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S corporation and its
shareholders.

The Omnibus Budget Reconciliation Act of 1993 included certain provisions that
requires gains on dispositions of tax-exempt securities purchased at a market
discount be treated as ordinary income to the extent of the accrued market
discount, if the securities are acquired after April 30, 1993. Such securities
were exempt from the market discount rules under prior law. Interest on
indebtedness incurred or continued by a shareholder to purchase or carry shares
of the Fund is not deductible for federal income tax purposes if the Fund
distributes exempt-interest dividends during the shareholder's taxable year. If
a shareholder receives an exempt-interest dividend with respect to any shares
and such shares are held for six months or less, any short-term capital loss on
the sale or exchange of the shares will be disallowed to the extent of the
amount of such exempt-interest dividend.

While the Fund expects that a major portion of its net investment income will
constitute tax-exempt interest, a significant portion may consist of investment
company taxable income. Distributions of the Fund's net investment company
taxable income are taxable to shareholders as ordinary income to the extent of
the Fund's earnings and profits, whether paid in cash or reinvested in
additional shares. Distributions of the Fund's net capital gains ("capital gains
dividends"), if any, are taxable to shareholders as long-term capital gains
regardless of the length of time shares of the Fund have been held by such
shareholders. Interest on indebtedness which is incurred to purchase or carry
shares of a mutual fund which distributes exempt-interest dividends during the
year is not deductible for federal income tax purposes. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Tax-exempt shareholders not subject to federal income tax on
their income generally will not be taxed on distributions from the Fund.

Shareholders receiving distributions in the form of additional shares issued
by the Fund will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.

The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The aggregate
amount of dividends so designated cannot exceed, however, the amount of interest
exempt from tax under Section 103 of the Code received by the Fund during the
year over any amounts disallowed as deductions under Sections 265 and 171(a)(2)
of the Code. Since the percentage of dividends which are "exempt-interest"
dividends is determined on an average annual method for the fiscal year, the
percentage of income designated as tax-exempt for any particular dividend may be
substantially different from the percentage of the Fund's income that was tax
exempt during the period

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<PAGE> 66

covered by the dividend, Fund distributions generally will not qualify for the
dividends received deduction for corporations.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31 prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.

The Fund is required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Fund their correct taxpayer identification number (in the
case of individuals, their social security number) and certain required
certifications or who are otherwise subject to backup withholding.

SALE OF SHARES. The sale of shares (including transfers in connection with a
redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
shares and the amount received. If such shares are held as a capital asset, the
gain or loss will be a capital gain or loss and will be long-term if such shares
have been held for more than one year. Any loss realized upon a taxable
disposition of shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gains dividends received with respect
to such shares. For purposes of determining whether shares have been held for
six months or less, the holding period is suspended for any periods during which
the shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property or through certain
options or short sales.

STATE AND LOCAL TAXES. The exemption of interest income for federal income
tax purposes may not result in similar exemptions under the laws of a particular
state or local taxing authority. Income distributions may be taxable to
shareholders under state or local law as dividend income even though a portion
of such distributions may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such income taxes. It is
recommended that investors consult their tax advisers for information in this
regard. The Fund will report annually to its shareholders the percentage and
source, on a state-by-state basis, of interest income earned on municipal
securities received by the Fund during the preceding calendar year. Dividends
and distributions paid by the Fund from sources other than tax-exempt interest
are generally subject to taxation at the state and local levels.

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<PAGE> 67

GENERAL. The federal, state and local income tax discussion set forth above
is for general information only. Prospective investors should consult their
advisors regarding the specific federal tax consequences of holding and
disposing of shares, as well as the effects of state, local and foreign tax law
and any proposed tax law changes.

- ------------------------------------------------------------------------------

FUND PERFORMANCE
- ------------------------------------------------------------------------------

The Fund's yield quotation is determined for each class of the Fund's shares
on a monthly basis with respect to the immediately preceding 30 day period.
Yield is computed by dividing the Fund's net investment income per share earned
during such 30 day period by the Fund's maximum offering price per share on the
last day of such period. Net investment income per share for a class of shares
is determined by taking the interest earned by the Fund during the period and
allocable to the class of shares, subtracting the expenses (net of any
reimbursement) accrued for the period and allocable to the class of shares, and
dividing the result by the product of (a) the average daily number of such class
of the Fund's shares outstanding during the period that were entitled to receive
dividends and (b) the Fund's maximum offering price per share on the last day of
the period. The yield calculation formula assumes net investment income is
earned and reinvested at a constant rate and annualized at the end of a six
month period.

Tax-equivalent yield demonstrates the taxable yield required to produce an
after-tax yield equivalent to that of the Fund's yield. The Fund's
tax-equivalent yield quotation for a 30 day period as described above is
computed for each class of the Fund's shares by dividing that portion of the
yield of the Fund (as computed above) which is tax-exempt by a percentage equal
to 100% minus a stated percentage income tax rate and adding the result to that
portion of the Fund's yield, if any, that is not tax-exempt.

The Fund calculates average compounded total return for each class of the
Fund's shares by determining the redemption value at the end of specified
periods (after adding back all dividends and other distributions made during the
period) of a $1,000 investment in a class of shares of the Fund (less the
maximum sales charge) at the beginning of the period, annualizing the increase
or decrease over the

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<PAGE> 68

specified period with respect to such initial investment and expressing the
result as a percentage.

Total return figures utilized by the Fund are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share can be expected to fluctuate over time, and accordingly upon
redemption a shareholder's shares may be worth more or less than their original
cost.

The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
the Fund from a given date to a subsequent given date. Cumulative
non-standardized total return is calculated by measuring the value of an initial
investment in the Fund at a given time, deducting the maximum sales charge of
4.75%, determining the value of all subsequent reinvested distributions, and
dividing the net change in the value of the investment as of the end of the
period by the amount of the initial investment and expressing the result as a
percentage.

From time to time the Fund may include in its supplemental sales literature
and shareholder reports a quotation of the current "distribution rate" for the
Fund. Distribution rate is a measure of the level of income and short-term
capital gain dividends, if any, distributed for a specified period. Distribution
rate is determined by annualizing the distributions per share for a stated
period and dividing the result by the public offering price for the same period.
It differs from yield, which is a measure of the income actually earned by the
Fund's investments, and from total return, which is a measure of the income
actually earned by, plus the effect of any realized and unrealized appreciation
or depreciation of such investments during a stated period. Distribution rate
is, therefore, not intended to be a complete measure of the Fund's performance.
Distribution rate may sometimes be greater than yield since, for instance, it
may not include the effect of amortization of bond premiums, and may include
non-recurring short-term capital gains and premiums from futures transactions
engaged in by the Fund. Distribution rates will be calculated separately for
each class of the Fund's shares.

From time to time the Fund may compare its performance to certain securities
and unmanaged indices which may have different risk/reward characteristics than
the Fund. Such characteristics may include, but are not limited to, tax
features, guarantees, insurance and the fluctuation of principal and/or return.
In addition, from time to time, the Fund may utilize sales literature that
includes hypotheticals.

Further information about the Fund's performance is contained in the Fund's
Annual Report and the Fund's Statement of Additional Information, each of which
can be obtained without charge by calling (800) 421-5666 ((800) 421-2833 for the
hearing impaired).

- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------

The Fund is a separate series of the Van Kampen American Capital Tax Free
Trust, a Delaware business trust organized as of May 10, 1995 (the "Trust"). The

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<PAGE> 69

Fund was originally organized in 1985 under the name Van Kampen Merritt Tax Free
High Income Fund as a sub-trust of Van Kampen Merritt Tax Free Fund, a
Massachusetts business trust. The Fund was reorganized as a series of the Trust
on July 31, 1995. Shares of the Trust entitle their holders to one vote per
share; however, separate votes are taken by each series on matters affecting an
individual series.

The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into three classes,
designated Class A Shares, Class B Shares and Class C Shares. Each class of
shares represent an interest in the same assets of the Fund and are identical in
all respects except that each class bears certain distribution expenses and has
exclusive voting rights with respect to its distribution fee. See "Distribution
and Service Plans."

The Fund is permitted to issue an unlimited number of classes of shares. Each
class of share is equal as to earnings, assets and voting privileges, except as
noted above, and each class bears the expenses related to the distribution of
its shares. There are no conversion, preemptive or other subscription rights,
except with respect to the conversion of Class B Shares and certain Class C
Shares into Class A Shares as described above. In the event of liquidation, each
of the shares of the Fund is entitled to its portion of all of the Fund's net
assets after all debt and expenses of the Fund have been paid. Since Class B
Shares and Class C Shares pay higher distribution expenses, the liquidation
proceeds to holders of Class B Shares and Class C Shares are likely to be lower
than to holders of Class A Shares.

The Trust does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Trust will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
1940 Act. More detailed information concerning the Trust is set forth in the
Statement of Additional Information.

- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------

This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.

The fiscal year end of the Fund is December 31. The Fund sends to its
shareholders at least semi-annually, reports showing the Fund's portfolio and
other information. An annual report, containing financial statements audited by
the Fund's independent auditors, is sent to shareholders each year. After the
end of

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<PAGE> 70

each year, shareholders will receive federal income tax information regarding
dividends and capital gains distributions.

Shareholder inquiries should be directed to Van Kampen American Capital Tax
Free High Income Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181,
Attn: Correspondence.

For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and shareholder account information, dial (800) 847-2424. For
inquiries through Telecommunications Device for the Deaf (TDD) dial (800)
421-2833.

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<PAGE> 71

APPENDIX A

DESCRIPTION OF MUNICIPAL SECURITIES RATINGS

STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by S&P) follows:

1. DEBT

A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in, or unavailability of, such information,
or based on other circumstances.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is
extremely strong.

AA Debt rated 'AA' has a very strong capacity to pay
interest and repay principal and differs from the higher
rated issues only in small degree.

A Debt rated 'A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible
to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated
categories.
</TABLE>

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<PAGE> 72

BBB Debt rated 'BBB' is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category
than in higher rated categories.

BB Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded,
B on balance, as predominantly speculative with respect to
CCC capacity to pay interest and repay principal. 'BB'
CC indicates the least degree of speculation and 'C' the
C highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by
large uncertainties or large exposures to adverse
conditions.

BB Debt rated 'BB' has less near-term vulnerability to
default than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and
principal payments. The 'BB' rating category is also
used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.

B Debt rated 'B' has a greater vulnerability to default
but currently has the capacity to meet interest payments
and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B'
rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied 'BB'
or 'BB-' rating.

CCC Debt rated 'CCC' has a currently identifiable
vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial,
or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC'
rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied 'B' or
'B-' rating.

CC The rating 'CC' typically is applied to debt
subordinated to senior debt that is assigned an actual
or implied 'CCC' rating.

C The rating 'C' typically is applied to debt subordinated
to senior debt which is assigned an actual or implied
'CCC-' debt rating. The 'C' rating may be used to cover
a situation where a bankruptcy petition has been filed,
but debt service payments are continued.

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<PAGE> 73
CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.

D Debt rated 'D' is in payment default. The 'D' rating
category is used when interest payments or principal
payments are not made on the date due even if the
applicable grace period has not expired, unless S&P
believes that such payments will be made during such
grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition if debt service payments
are jeopardized.

PLUS (+) or MINUS (-): The ratings from 'AA' to 'CCC' may be
modified by the addition of a plus or minus sign to show relative
standing within the major categories.

C The letter 'c' indicates that the holder's option to
tender the security for purchase may be canceled under
certain prestated conditions enumerated in the tender
option documents.

L The letter 'L' indicates that the rating pertains to the
principal amount of these bonds to the extent that the
underlying deposit collateral is federally insured and
interest is adequately collateralized. In the case of
certificates of deposit, the letter 'L' indicates that
the deposit, combined with other deposits being held in
the same right and capacity, will be honored for
principal and accrued pre-default interest up to the
federal insurance limits within 30 days after closing of
the insured institution or, in the event that the
deposit is assumed by a successor insured institution,
upon maturity.

P The letter 'p' indicates that the rating is provisional.
A provisional rating assumes the successful completion
of the project being financed by the debt being rated
and indicates that payment of debt service requirements
is largely or entirely dependent upon the successful and
timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion.
The investor should exercise his own judgment with
respect to such likelihood and risk.

*Continuance of the rating is contingent upon S&P's
receipt of an executed copy of the escrow agreement or
closing documentation confirming investments and cash
flows.

NR Indicates that no public rating has been requested, that
there is insufficient information on which to base a
rating, or that S&P does not rate a particular type of
obligation as a matter of policy.

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<PAGE> 74

DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ('AAA', 'AA', 'A', 'BBB' commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments impose
certain rating or other standards for obligations eligible for investment by
savings banks, trust companies, insurance companies, and fiduciaries
generally.

2. MUNICIPAL NOTES

A S&P note rating reflects the liquidity factors and market access
risks unique to notes. Notes maturing in 3 years or less will likely
receive a note rating. Notes maturing beyond 3 years will most likely
receive a long-term debt rating.

The following criteria will be used in making that assessment:

-- Amortization schedule (the larger the final maturity relative to
other maturities, the more likely the issue be treated as a note).

-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).

The note rating symbols and definitions are as follows:

<TABLE>
<S> <C>
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are a
plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest,
with some vulnerability to adverse financial and
economic changes over the term of the notes.

SP-3 Speculative capacity to pay principal and interest.
</TABLE>

3. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the likelihood
of timely payment of debt having an original maturity of no more than 365
days.

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<PAGE> 75

Ratings are graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:

<TABLE>
<S> <C>
A-1 This highest category indicates that the degree of
safety regarding timely payment is strong. Those issues
determined to possess extremely strong safety
characteristics are denoted with a plus sign (+)
designation.

A-2 Capacity for timely payment on issues with this
designation is satisfactory. However, the relative
degree of safety is not as high as for issues designated
'A-1'.

A-3 Issues carrying this designation have adequate capacity
for timely payment. They are, however, more vulnerable
to the adverse effects of changes in circumstances than
obligations carrying the higher designations.

B Issues rated 'B' are regarded as having only speculative
capacity for timely payment.

C This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.

D Debt rated 'D' is in payment default. The 'D' rating
category is used when interest payments or principal
payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P
believes that such payments will be made during such
grace period.

A commercial paper rating is not a recommendation to purchase or
sell a security. The ratings are based on current information
furnished to S&P by the issuer or obtained from other sources it
considers reliable. The ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of, such
information.
</TABLE>

4. TAX-EXEMPT DUAL RATINGS

S&P assigns "dual" ratings to all debt issues that have a put option or
demand feature as part of their structure.

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature.
The long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, 'AAA/A-1+'). With short-term demand debt, S&P's note rating symbols
are used with the commercial paper rating symbols (for example, 'SP-
1+/A-1+').

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MOODY'S INVESTORS SERVICE--A brief description of the applicable Moody's
Investors Service ("Moody's") rating symbols and their meanings (as published by
Moody's) follows:

1. LONG-TERM MUNICIPAL BONDS

<TABLE>
<S> <C>
AAA Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edged."
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.

AA Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat
larger than the Aaa securities.

A Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility
to impairment some time in the future.

BAA Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected
nor poorly secured). Interest payments and principal
security appear adequate for the present but certain
protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.

BA Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as
well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in
this class.

B Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
</TABLE>

60
<PAGE> 77

CAA Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present
elements of danger with respect to principal or
interest.

CA Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.

CON (..) Bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are
rated conditionally and designed with the prefix "Con"
followed by the rating in parentheses. These are bonds
secured by: (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operating
experience, (c) rentals that begin when facilities are
completed, or (d) payments to which some other limiting
condition attaches. The parenthetical rating denotes the
probable credit stature upon completion of construction
or elimination of the basis of the condition.

(P) (..) When applied to forward delivery bonds, indicates that
the rating is provisional pending the delivery of the
bonds. The rating may be revised prior to delivery if
changes occur in the legal documents or the underlying
credit quality of the bonds.

NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each
generic rating classification from AA to B. The modifier
1 indicates that the company ranks in the higher end of
its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the
company ranks in the lower end of its generic rating
category.

ABSENCE OF RATING: Where no rating has been assigned or where a rating
has been suspended or withdrawn, it may be for reasons unrelated to the
quality of the issue.

Should no rating be assigned, the reason may be one of the following:

1. An application for rating was not received or accepted.

2. The issue or issuer belongs to a group of securities or
companies that are not rated as a matter of policy.

3. There is a lack of essential data pertaining to the issue or
issuer.

4. The issue was privately placed, in which case the rating is not
published in Moody's publications.

61
<PAGE> 78

Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be
formed; if a bond is called for redemption; or for other reasons.

2. SHORT-TERM EXEMPT NOTES

Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in
bond risk, long-term secular trends for example, may be less important over
the short run. A short-term rating may also be assigned on an issue having a
demand feature-variable rate demand obligation. Such ratings will be
designated as VMIG, SG or, if the demand feature is not rated, as NR.

Moody's short-term ratings are designated Moody's Investment Grade as
MIG 1 or VMIG 1 through MIG 4 or VMIG 4. As the name implies, when Moody's
assigns a MIG or VMIG rating, all categories define an investment grade
situation.

MIG 1/VMIG 1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.

MIG 2/VMIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

MIG 3/VMIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.

MIG 4/VMIG 4. This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is specific
risk.

SG. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

3. TAX-EXEMPT COMMERCIAL PAPER

Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity
in excess of nine months. Moody's makes no representation that such
obligations are exempt from registration under the Securities Act of 1933,
nor does it represent that any specific note is a valid obligation of a
rated issuer or issued in conformity with any applicable law.

62
<PAGE> 79

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:

Issuers rated Prime-1 (for related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:

- Leading market positions in well established industries.

- High rates of return on funds employed.

- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.

- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.

- Well established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

Issuers rated Prime-3 (or related supporting institutions) have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.

Issuers rated Not Prime do not fall within any of the Prime rating

categories.

63
<PAGE> 80

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE

NUMBER--(800) 341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)

DIAL (800) 421-2833.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 847-2424.

VAN KAMPEN AMERICAN CAPITAL
TAX FREE HIGH INCOME FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Adviser

VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Distributor

VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Transfer Agent

ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
Tax Free High Income Fund

Custodian

STATE STREET BANK AND
TRUST COMPANY

225 West Franklin Street, P.O. Box 1713

Boston, MA 02105-1713
Attn: Van Kampen American Capital
Tax Free High Income Fund

Legal Counsel

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 81

------------------------------------------------------------------------------

TAX FREE HIGH
INCOME FUND

------------------------------------------------------------------------------

P R O S P E C T U S

APRIL 30, 1997

- ------ ------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 82

- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND
- --------------------------------------------------------------------------------

INVESTORS SHOULD REFER TO THE SECTION OF THE PROSPECTUS ENTITLED "INSURANCE"
FOR A DISCUSSION OF THE NATURE AND LIMITATIONS OF THE INSURANCE APPLICABLE TO
MUNICIPAL SECURITIES HELD IN THE FUND'S PORTFOLIO.

Van Kampen American Capital Insured Tax Free Income Fund (the "Insured
Fund") is a separate diversified mutual fund, organized as a series of Van
Kampen American Capital Tax Free Trust. The Insured 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
investment in a diversified portfolio of insured municipal securities. Insured
municipal securities in which the Insured Fund may invest include conventional
fixed-rate municipal securities, variable rate municipal securities and other
types of municipal securities described herein. See "Municipal Securities." All
of the municipal securities in the Insured Fund's portfolio will be insured by
AMBAC Indemnity Corporation or by other municipal bond insurers whose
claims-paying ability is rated "AAA" by Standard & Poor's Ratings Group on the
date of purchase.
- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND
- --------------------------------------------------------------------------------

Van Kampen American Capital California Insured Tax Free Fund (the
"California Insured Fund") is a separate diversified mutual fund, organized as a
series of Van Kampen American Capital Tax Free Trust. The California Insured
Fund's investment objective is to
(Continued on next page.)
------------------

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

Statements of Additional Information, each dated April 30, 1997, containing
additional information about the Funds have been filed with the Securities and
Exchange Commission and are hereby incorporated by reference in their entirety
into this Prospectus. A copy of either Fund's respective Statement of Additional
Information may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device for the Deaf at (800) 421-2833. The Statements of
Additional Information have been filed with the Securities and Exchange
Commission ("SEC") and are available along with other materials related to each
Fund at the SEC's internet web site (http.//www.sec.gov).

------------------

VAN KAMPEN AMERICAN CAPITALSM
------------------

THIS PROSPECTUS IS DATED APRIL 30, 1997.

<PAGE> 83

(Continued from previous page.)

provide only California investors with a high level of current income exempt
from federal and California income taxes, with liquidity and safety of
principal, primarily through investment in a diversified portfolio of insured
California municipal securities. Insured municipal securities in which the
California Insured Fund may invest include conventional fixed-rate municipal
securities, variable rate municipal securities and other types of municipal
securities described herein. See "Municipal Securities." All of the municipal
securities in the California Insured Fund's portfolio will be insured by AMBAC
Indemnity Corporation or by other municipal bond insurers whose claims-paying
ability is rated "AAA" by Standard & Poor's Ratings Group on the date of
purchase.

Van Kampen American Capital Investment Advisory Corp. is the investment
adviser for both the Insured Fund and the California Insured Fund (each a "Fund"
or collectively the "Funds"). There is no assurance that the Funds will achieve
their respective investment objectives. This Prospectus sets forth certain
information about the Funds that a prospective investor should know before
investing in either of the Funds. Please read it carefully and retain it for
future reference. Each Fund's address is One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, and each Fund's telephone number is (800) 421-5666.

2
<PAGE> 84

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Shareholder Transaction Expenses -- Insured Fund............ 7
Annual Fund Operating Expenses and Example -- Insured
Fund...................................................... 8
Shareholder Transaction Expenses -- California Insured
Fund...................................................... 10
Annual Fund Operating Expenses and Example -- California
Insured Fund.............................................. 11
Financial Highlights -- Insured Fund........................ 13
Financial Highlights -- California Insured Fund............. 15
The Funds................................................... 17
Investment Objectives and Policies.......................... 17
Municipal Securities........................................ 18
Investment Practices........................................ 22
Insurance................................................... 25
Investment Advisory Services................................ 25
Alternative Sales Arrangements.............................. 27
Purchase of Shares.......................................... 29
Shareholder Services........................................ 40
Redemption of Shares........................................ 44
Distribution and Service Plans.............................. 47
Distributions from the Funds................................ 50
Tax Status.................................................. 51
Fund Performance............................................ 56
Additional Information...................................... 58
</TABLE>

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY EITHER OF THE FUNDS, THE ADVISER, OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUNDS OR BY THE
DISTRIBUTOR TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE
FUNDS TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.

3
<PAGE> 85

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

THE FUNDS. Van Kampen American Capital Insured Tax Free Income Fund (the
"Insured Fund") and Van Kampen American Capital California Insured Tax Free Fund
(the "California Insured Fund") are each separate diversified series of Van
Kampen American Capital Tax Free Trust, an open-end, diversified management
investment company organized as a Delaware business trust (the "Trust"). See
"The Funds."

MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum subsequent investment for each class of shares (or less as described
under "Purchase of Shares").

INVESTMENT OBJECTIVES. The INSURED 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 investment in a
diversified portfolio of insured municipal securities.

The CALIFORNIA INSURED FUND'S investment objective is to provide only
California investors with a high level of current income exempt from federal and
California income taxes, with liquidity and safety of principal, primarily
through investment in a diversified portfolio of insured California municipal
securities. THE CALIFORNIA INSURED FUND IS AVAILABLE ONLY TO CALIFORNIA
RESIDENTS. Distribution to corporations subject to the California franchise tax
will be included in such corporation's gross income for purposes of determining
the California franchise tax. In addition, corporations subject to the
California corporate income tax may, in certain circumstances, be subject to
such taxes with respect to distributions from the California Insured Fund.
Accordingly, an investment in shares of the California Insured Fund may not be
appropriate for corporations subject to either tax. See "Tax Status."

INVESTMENT POLICIES. Municipal securities in which the Insured Fund and
California Insured Fund (each a "Fund" or collectively the "Funds") may invest
include fixed and variable rate securities, municipal notes, municipal leases,
tax exempt commercial paper, custodial receipts, participation certificates and
derivative municipal securities the terms of which include elements of, or are
similar in effect to, certain Strategic Transactions (as defined herein) in
which the Funds may engage. Each Fund may invest up to 15% of its total assets
in derivative variable rate securities such as inverse floaters, whose rates
vary inversely with changes in market rates of interest or range or capped
floaters, whose rates are subject to periodic or lifetime caps. There is no
assurance that either Fund will achieve its investment objectives. The net asset
value per share of the Funds may increase or decrease depending on changes in
interest rates and other factors affecting the municipal credit markets. See
"Investment Objectives and Policies."

INVESTMENT PRACTICES. In certain circumstances the Funds may enter into when-
issued or delayed delivery transactions and various strategic transactions,
which entail certain risks. See "Municipal Securities" and "Investment
Practices."

4
<PAGE> 86

INSURANCE. Each municipal security in the portfolio of the respective Funds is
insured as to the timely payment of principal and interest under one or more
policies obtained by the issuer or purchased by such Fund. No representation is
made as to the ability of any insurer to perform its obligations. See
"Insurance."

INVESTMENT RESULTS. The investment results of the Funds are shown in the tables
under the captions "Financial Highlights -- Insured Fund" and "Financial
Highlights -- California Insured Fund."

ALTERNATIVE SALES ARRANGEMENTS. The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. Investors
should consider such factors together with the amount of sales charges and
accumulated distribution and service fees with respect to each class of shares
that may be incurred over the anticipated duration of their investment in the
Fund. To assist investors in making this determination, the tables under the
captions "Annual Fund Operating Expenses and Example -- Insured Fund" and
"Annual Fund Operating Expenses and Example -- California Insured Fund," set
forth examples of the charges applicable to each class of shares.

Each Fund currently offer three classes of shares which may be purchased at a
price equal to their net asset value per share plus sales charges which, at the
election of the investor, may be imposed either (i) at the time of purchase
("Class A Shares") or (ii) on a contingent deferred basis (Class A Share
accounts over $1 million, "Class B Shares" and "Class C Shares"). Class A Share
accounts over $1 million or otherwise subject to a contingent deferred sales
charge ("CDSC"), Class B Shares and Class C Shares sometimes are referred to
herein collectively as "CDSC Shares."

Class A Shares. Class A Shares of the Insured Fund are subject to an initial
sales charge equal to 4.75% of the public offering price (4.99% of the net
amount invested), reduced on investments of $100,000 or more. Class A Shares of
the California Insured Fund are subject to an initial sales charge equal to
3.25% of the public offering price (3.36% of the net amount invested), reduced
on investments of $25,000 or more. Class A Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 0.25% of the
respective Fund's average daily net assets attributable to the Class A Shares.
Certain purchases of Class A Shares qualify for reduced or no initial sales
charges and may be subject to a CDSC.

Class B Shares. Class B Shares do not incur a sales charge when they are
purchased. Class B Shares of the Insured Fund are subject to a CDSC if redeemed
within six years of purchase, which charge is equal to 4.00% of the lesser of
the then current net asset value or the original purchase price of such shares
in the first year after purchase and is reduced each year thereafter. Class B
Shares of the California Insured Fund are subject to a CDSC if redeemed within
four years of purchase, which charge is equal to 3.00% of the lesser of the then
current net asset value or

5
<PAGE> 87

the original purchase price of such shares in the first year after purchase and
is reduced each year thereafter. Class B Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 1.00% of the
respective Fund's average daily net assets attributable to the Class B Shares.
Class B Shares of each Fund automatically convert to Class A Shares of the
respective Fund eight years after the end of the calendar month in which the
investor's order to purchase was accepted.

Class C Shares. Class C Shares do not incur a sales charge when they are
purchased. Class C Shares are subject to a CDSC equal to 1.00% of the lesser of
the then current net asset value or the original purchase price on Class C
Shares redeemed during the first year after purchase. Class C Shares are subject
to ongoing distribution and service fees at an aggregate annual rate of up to
1.00% of the respective Fund's average daily net assets attributable to the
Class C Shares.

REDEMPTION. Class A Shares may be redeemed at net asset value without charge,
subject to conditions set forth herein. CDSC Shares may be redeemed at net asset
value less a deferred sales charge which will vary between the Funds and among
each class of CDSC Shares and with the length of time a redeeming shareholder
has owned such shares. CDSC Shares redeemed after the expiration of the CDSC
period applicable to the respective class of CDSC Shares will not be subject to
a deferred sales charge. See "Redemption of Shares."

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for each Fund.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the shares of each Fund.

DISTRIBUTIONS FROM THE FUNDS. Distributions from net investment income are
declared daily and paid monthly; net realized capital gains, if any, are
distributed annually. Distributions with respect to each class of shares will be
calculated in the same manner and the same day and will be in the same amount
except that the different distribution and service fees and administrative
expenses relating to each class of shares will be borne exclusively by the
respective class. See "Distributions from the Funds."

The foregoing is qualified in its entirety by reference to the more detailed

information appearing elsewhere in this Prospectus.

6
<PAGE> 88

- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES -- INSURED FUND
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed
on purchases (as
percentage of the offering
price).................... 4.75%(1) None None
Maximum sales charge imposed
on reinvested dividends
(as a percentage of the
offering price)........... None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser
of the original purchase
price or redemption
proceeds)................. None(2) Year Year
1--4.00% 1--1.00%
Year After--None
2--3.75%
Year
3--3.50%
Year
4--2.50%
Year
5--1.50%
Year
6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed)................. None None None
Exchange fees............... None None None
</TABLE>

- ------------------------------------------------------------------------------
(1) Reduced on investments of $100,000 or more. See "Purchase of Shares -- Class
A Shares".

7
<PAGE> 89

- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE -- INSURED FUND
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of average
daily net assets).......................... 0.50% 0.50% 0.50%
12b-1 Fees(1) (as a percentage of average
daily net assets).......................... 0.22%(2) 1.00% 1.00%
Other Expenses (as a percentage of average
daily net assets).......................... 0.23% 0.24% 0.24%
Total Expenses (as a percentage of average
daily net assets).......................... 0.95% 1.74% 1.74%
</TABLE>

- ------------------------------------------------------------------------------

(1) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Insured Fund as compensation for ongoing services rendered to
investors. With respect to each class of shares, amounts in excess of 0.25%,
if any, represent an asset based sales charge. The asset based sales charge
with respect to Class C Shares includes 0.75% (as a percentage of net asset
value) paid to investors' brokers, dealers or financial intermediaries as
sales compensation.

(2) The Insured Fund's distribution and service plans with respect to Class A
Shares provide that 12b-1 and service fees are charged only with respect to
Class A Shares of the Insured Fund sold after the implementation date of
such plans. Due to the incremental "phase-in" of such plans with respect to
Class A Shares, it is anticipated that 12b-1 and service fees attributable
to Class A Shares will increase in accordance with such plans to a maximum
aggregate amount of 0.25% of the net assets attributable to the Insured
Fund's Class A Shares. Accordingly, it is unlikely that future expenses will
remain consistent with those disclosed in the fee table. See "Distribution
and Service Plans."

8
<PAGE> 90

EXAMPLE:

You would pay the following expenses on a $1,000 investment in the Insured
Fund, assuming (i) an operating expense ratio of 0.95% for Class A Shares, 1.74%
for Class B Shares and 1.74% for Class C Shares, (ii) a 5% annual return and
(iii) redemption at the end of each time period. Insured Fund does not charge a
fee for redemptions (other than any applicable contingent deferred sales
charge):

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares.................... $57 $76 $ 98 $159
Class B Shares.................... 58 90 109 184*
Class C Shares.................... 28 55 94 205
</TABLE>

An investor would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of each period:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares.................... $57 $76 $98 $159
Class B Shares.................... 18 55 94 184*
Class C Shares.................... 18 55 94 205
</TABLE>

- ------------------------------------------------------------------------------

* Based on conversion to Class A Shares after eight years.

The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Insured Fund will bear
directly or indirectly. The "Example" reflects expenses based on the "Annual
Fund Operating Expenses" table as shown above carried out to future years. Due
to the incremental "phase-in" of the Insured Fund's 12b-1 plans and service
plans, it is anticipated that 12b-1 and service fees applicable to Insured Fund
will increase in accordance with such plans to a maximum amount of 0.25% of such
Fund's net assets. The ten year amount with respect to the Class B Shares of the
Insured Fund reflects the lower aggregate 12b-1 and service fees applicable to
such shares after conversion to Class A Shares. Class B Shares acquired through
the exchange privilege are subject to the deferred sales charge schedule
relating to the Class B Shares of the fund from which the purchase of Class B
Shares was originally made. Accordingly, future expenses as projected could be
higher than those determined in the above table if the investor's Class B Shares
were exchanged from a fund with a higher contingent deferred sales charge. THE
INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN. For a more complete description of such costs and
expenses, see "Purchase of Shares," "Redemption of Shares," "Investment Advisory
Services" and "Distribution and Service Plans."

9
<PAGE> 91

- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES -- CALIFORNIA INSURED FUND
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge
imposed on purchases (as
percentage of the
offering price).......... 3.25%(1) None None
Maximum sales charge
imposed on reinvested
dividends (as a
percentage of the
offering price).......... None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser
of the original purchase
price or redemption
proceeds)................ None(2) Year Year
1--3.00% 1--1.00%
Year After--None
2--2.50%
Year
3--2.00%
Year
4--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed)................ None None None
Exchange fees.............. None None None
</TABLE>

- ------------------------------------------------------------------------------
(1) Reduced on investments of $25,000 or more. See "Purchase of Shares -- Class
A Shares."

10
<PAGE> 92

- ------------------------------------------------------------------------------

ANNUAL FUND OPERATING EXPENSES AND EXAMPLE -- CALIFORNIA
INSURED FUND
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of average
daily net assets).......................... 0.48% 0.48% 0.48%
12b-1 Fees(1) (as a percentage of average
daily net assets)......................... 0.24% 1.00% 1.00%
Other Expenses(2) (as a percentage of
average daily net assets)................. 0.30% 0.31% 0.31%
Total Expenses(2) (as a percentage of
average daily net assets)................. 1.02% 1.79% 1.79%
</TABLE>

- ------------------------------------------------------------------------------

(1) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the California Insured Fund as compensation for ongoing services
rendered to investors. With respect to each class of shares, amounts in
excess of 0.25%, if any, represent an asset based sales charge. The asset
based sales charge with respect to Class C Shares includes 0.75% (as a
percentage of net asset value) paid to investors' broker, dealers or
financial intermediaries as sales compensation.

(2) A portion of "Other Expenses" were reimbursed by the Adviser during the
Fund's fiscal year ended December 31, 1996. Absent the Adviser's
reimbursement, "Other Expenses" would have been 0.31% for Class A Shares,
0.31% for Class B Shares and 0.31% for Class C Shares and "Total Expenses"
would have been 1.03% for Class A Shares, 1.79% for Class B Shares and 1.80%
for Class C Shares.

11
<PAGE> 93

EXAMPLES:

You would pay the following expenses on a $1,000 investment in the California
Insured Fund, assuming (i) an operating expense ratio of 1.02% for Class A
Shares, 1.79% for Class B Shares and 1.79% for Class C Shares, (ii) a 5% annual
return and (iii) redemption at the end of each time period. California Insured
Fund does not charge a fee for redemptions (other than any applicable contingent
deferred sales charge):

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares.................... $43 $64 $87 $153
Class B Shares.................... 48 76 97 172*
Class C Shares.................... 28 56 97 211
</TABLE>

An investor would pay the following expenses on the same $1,000 investment
assuming no redemption at the end of each period:

<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Class A Shares.................... $43 $64 $87 $153
Class B Shares.................... 18 56 97 172*
Class C Shares.................... 18 56 97 211
</TABLE>

- ------------------------------------------------------------------------------

* Based on conversion to Class A Shares after eight years.

The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the California Insured Fund
will bear directly or indirectly. The "Example" reflects expenses based on the
"Annual Fund Operating Expenses" table as shown above carried out to future
years. Additionally, as the California Insured Fund's assets increase, the fees
waived or expenses reimbursed by the Adviser are expected to decrease.
Accordingly, it is unlikely that future expenses as projected will remain
consistent with those determined based on the table of the "Annual Fund
Operating Expenses." The ten year amount with respect to the Class B Shares of
the California Insured Fund reflects the lower aggregate 12b-1 and service fees
applicable to such shares after conversion to Class A Shares. Class B Shares
acquired through the exchange privilege are subject to the deferred sales charge
schedule relating to the Class B Shares of the fund from which the purchase of
Class B Shares was originally made. Accordingly, future expenses as projected
could be higher than those determined in the above table if the investor's Class
B Shares were exchanged from a fund with a higher contingent deferred sales
charge. THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR
LESSER THAN THOSE SHOWN. For a more complete description of such costs and
expenses, see "Purchase of Shares," "Redemption of Shares," "Investment Advisory
Services" and "Distribution and Service Plans."

12
<PAGE> 94

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- INSURED FUND (for a share outstanding throughout the
periods)
- --------------------------------------------------------------------------------
The following financial highlights for one Class A Share, one Class B Share
and one Class C Share of the Insured Fund outstanding throughout each of the
periods indicated. The financial highlights have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, for each of the periods
indicated and their reports thereon appear in Insured Fund's related Statement
of Additional Information. This information should be read in conjunction with
the financial statements and related notes thereto included in the related
Statements of Additional Information.

<TABLE>
<CAPTION>
INSURED FUND -- CLASS A SHARES
-------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 19.549 $ 17.572 $ 19.587 $18.721 $18.478 $17.825
--------- -------- -------- ------- ------- -------
Net Investment Income............. .980 1.021 1.051 1.107 1.146 1.153
Net Realized and Unrealized
Gain/Loss on Investments........ (.304) 1.982 (2.280) 1.145 .561 .681
--------- -------- -------- ------- ------- -------
Total from Investment Operations... .676 3.003 (1.229) 2.252 1.707 1.834
--------- -------- -------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income........ .987 1.026 1.056 1.116 1.140 1.160
Distributions from Net Realized
Gain on Investments............. -0- -0- -0- -0- .324 .021
--------- -------- -------- ------- ------- -------
Total Distributions................ .987 1.026 1.056 1.116 1.464 1.181
--------- -------- -------- ------- ------- -------
Net Asset Value, End of Period..... $ 19.238 $ 19.549 $ 17.572 $19.857 $18.721 $18.478
========= ======== ======== ======= ======= =======
Total Return(1).................... 3.65% 17.49% (6.31%) 12.32% 9.51% 10.62%
Net Assets, End of Period (in
millions)......................... $1,283.70 $1,365.4 $1,110.2 $1,230.0 $ 999.9 $ 833.2
Ratio of Expenses to Average Net
Assets (Annualized)(2)............ .95% .88% .88% .84% .83% .88%
Ratio of Net Investment Income to
Average Net Assets
(Annualized)(2)................... 5.11% 5.44% 5.70% 5.69% 6.14% 6.39%
Portfolio Turnover................. 92% 70.12% 48.46% 78.73% 111.90% 113.25%

<CAPTION>
INSURED FUND -- CLASS A SHARES
-------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------
1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $17.798 $17.394 $16.700 $17.945
------- ------- ------- -------
Net Investment Income............. 1.160 1.182 1.184 1.198
Net Realized and Unrealized
Gain/Loss on Investments........ .037 .391 .682 (1.226)
------- ------- ------- -------
Total from Investment Operations... 1.197 1.573 1.866 (.028)
------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income........ 1.170 1.169 1.172 1.215
Distributions from Net Realized
Gain on Investments............. -0- -0- -0- .002
------- ------- ------- -------
Total Distributions................ 1.170 1.169 1.172 1.217
------- ------- ------- -------
Net Asset Value, End of Period..... $17.825 $17.798 $17.394 $16.700
======= ======= ======= =======
Total Return(1).................... 7.07% 9.37% 11.48% .27%
Net Assets, End of Period (in
millions)......................... $ 701.7 $ 634.0 $ 555.3 $ 502.5
Ratio of Expenses to Average Net
Assets (Annualized)(2)............ .87% .88% .85% .71%
Ratio of Net Investment Income to
Average Net Assets
(Annualized)(2)................... 6.63% 6.73% 6.92% 7.04%
Portfolio Turnover................. 107.79% 81.28% 132.85% 119.89%
</TABLE>

(1) Total Return does not reflect the affect of sales charges.

(2) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to the Adviser's reimbursement of certain expenses was less
than 0.01%.

(Table continued on following page)
See Financial Statements and Notes Thereto

13
<PAGE> 95

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CONTINUED (for a share outstanding throughout the periods)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INSURED FUND
----------------------------------------------------------------
CLASS B SHARES
----------------------------------------------------------------
MAY 1, 1993
(COMMENCEMENT
OF DISTRIBUTION)
TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 19.549 $ 17.563 $ 19.824 $19.320
------------- ------------- ------------- ------
Net Investment Income............. .832 .890 .899 .619
Net Realized and Unrealized
Gain/Loss on Investments........ (.304) 1.978 (2.276) .513
------------- ------------- ------------- ------
Total from Investment Operations... .528 2.868 (1.377) 1.132
Less Distributions from and in
Excess of Net Investment Income... .837 .882 .884 .628
------------- ------------- ------------- ------
Net Asset Value, End of the
Period............................ $ 19.240 $ 19.549 $ 17.563 $19.824
============= ============= ============= ======
Total Return(1).................... 2.83% 16.67% (7.03%) 5.92%(2)
Net Assets at End of Period (in
millions)(3)...................... $ 71.6 $ 75.3 $ 30.0 $ 20.8
Ratio of Expenses to Average Net
Assets (Annualized)(3)............ 1.74% 1.67% 1.71% 1.68%
Ratio of Net Investment Income to
Average Net Assets (Annualized)... 4.38% 4.69% 4.88% 4.25%
Portfolio Turnover................. 92% 70.12% 48% 78.73%

<CAPTION>
INSURED FUND
----------------------------------------------------------------
CLASS C SHARES
----------------------------------------------------------------
AUGUST 13, 1993
(COMMENCEMENT
OF DISTRIBUTION)
TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 19.548 $ 17.568 $ 19.823 $19.650
------------- ------------- ------------- ------
Net Investment Income............. .830 .883 .908 .350
Net Realized and Unrealized
Gain/Loss on Investments........ (.302) 1.979 (2.279) .181
------------- ------------- ------------- ------
Total from Investment Operations... .528 2.862 (1.371) .531
Less Distributions from and in
Excess of Net Investment Income... .837 .882 .884 .358
------------- ------------- ------------- ------
Net Asset Value, End of the
Period............................ $ 19.239 $ 19.548 $ 17.568 $19.823
============= ============= ============= ======
Total Return(1).................... 2.83% 16.60% (6.98%) 2.70%(2)
Net Assets at End of Period (in
millions)(3)...................... $ 4.9 $ 5.1 $ 3.5 $ 5.0
Ratio of Expenses to Average Net
Assets (Annualized)(3)............ 1.74% 1.67% 1.70% 1.68%
Ratio of Net Investment Income to
Average Net Assets (Annualized)... 4.37% 4.68% 4.89% 4.21%
Portfolio Turnover................. 92% 70.12% 48% 78.73%
</TABLE>

- ---------------
(1) Total Return does not reflect the effect of sales charges.
(2) Non-Annualized.

(3) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to the Adviser's reimbursement of certain expenses was less
than 0.01%.

See Financial Statements and Notes Thereto

14
<PAGE> 96

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CALIFORNIA INSURED FUND (for a share outstanding
throughout the periods)
- --------------------------------------------------------------------------------

The following financial highlights for one Class A Share, one Class B Share and
one Class C Share of the California Insured Fund outstanding throughout each of
the periods indicated. The financial highlights have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, for each of the periods
indicated and their reports thereon appear in California Insured Fund's related
Statement of Additional Information. This information should be read in
conjunction with the financial statements and related notes thereto included in
the related Statements of Additional Information.

<TABLE>
<CAPTION>
CALIFORNIA INSURED FUND -- CLASS A SHARES
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $17.736 $15.802 $18.286 $16.858 $16.259 $15.730
------- ------- ------- ------- ------- -------
Net Investment Income............ .857 .884 .912 .967 1.004 .990
Net Realized and Unrealized
Gain/Loss on Investments....... (.145) 1.938 (2.484) 1.441 .585 .529
------- ------- ------- ------- ------- -------
Total from Investment
Operations....................... .712 2.822 (1.572) 2.408 1.589 1.519
Less Distributions from and in
Excess of Net Investment
Income........................... .843 .888 .912 .980 .990 .990
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period.... $17.605 $17.736 $15.802 $18.286 $16.858 $16.259
======= ======= ======= ======= ======= =======
Total Return(1)(2)................ 4.20% 18.28% (8.75%) 14.54% 10.08% 9.98%
Net Assets at End of Period (in
millions)........................ $ 142.5 $ 147.6 $ 130.3 $ 151.1 $ 74.2 $ 60.2
Ratio of Expenses to Average Net
Assets(1) (Annualized)........... 1.02% .89% .78% .69% .69% .55%
Ratio of Net Investment Income to
Average Net Assets(1)
(Annualized)..................... 4.94% 5.23% 5.46% 5.37% 6.07% 6.20%
Portfolio Turnover................ 35% 42.40% 56.38% 36.17% 60.70% 69.85%

<CAPTION>
CALIFORNIA INSURED FUND -- CLASS A SHARES
----------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------
1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $15.607 $15.227 $14.719 $16.274
------- ------- ------- -------
Net Investment Income............ .990 .988 .981 1.041
Net Realized and Unrealized
Gain/Loss on Investments....... .123 .381 .519 (1.566)
------- ------- ------- -------
Total from Investment
Operations....................... 1.113 1.369 1.500 (.525)
Less Distributions from and in
Excess of Net Investment
Income........................... .990 .989 .992 1.030
------- ------- ------- -------
Net Asset Value, End of Period.... $15.730 $15.607 $15.227 $14.719
======= ======= ======= =======
Total Return(1)(2)................ 7.44% 9.22% 10.51% (2.72%)
Net Assets at End of Period (in
millions)........................ $ 50.6 $ 46.6 $ 37.3 $ 31.5
Ratio of Expenses to Average Net
Assets(1) (Annualized)........... .69% .75% .65% .14%
Ratio of Net Investment Income to
Average Net Assets(1)
(Annualized)..................... 6.42% 6.38% 6.53% 7.02%
Portfolio Turnover................ 34.03% 32.18% 100.50% 68.82%
</TABLE>

- ----------------
(1) If certain expenses had not been assumed by the Adviser, Total Return would
have been lower and the ratios would have been as follows:

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets
(Annualized)................................... 1.03% 1.05% 1.08% 1.01% 1.08% 1.04%
Ratio of net investment income to average net
assets (Annualized)............................ 4.94% 5.07% 5.16% 5.05% 5.68% 5.71%

<CAPTION>
<S> <C> <C> <C> <C>
Ratio of expenses to average net assets
(Annualized)................................... 1.06% 1.10% 1.11% .97%
Ratio of net investment income to average net
assets (Annualized)............................ 6.05% 6.04% 6.08% 6.19%
</TABLE>

(2) Total Return does not reflect the effect of sales charges.

(Table continued on following page)
See Financial Statements and Notes Thereto

15
<PAGE> 97

<TABLE>
<CAPTION>
CALIFORNIA INSURED FUND
-------------------------------------------------------------------------------------------
CLASS B SHARES CLASS C SHARES
------------------------------------------------------------- ---------------------------
MAY 1, 1993
(COMMENCEMENT
YEAR ENDED OF DISTRIBUTION) YEAR ENDED
DECEMBER 31, TO DECEMBER 31,
--------------------------- DECEMBER 31, ---------------------------
1996 1995 1994 1993 1996 1995
---- ---- ---- ---------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $17.736 $15.805 $18.266 $17.570 $17.736 $15.798
------- ------- ------- ------ ------- -------
Net Investment Income............. .720 .766 .785 .549 .722 .758
Net Realized and Unrealized
Gain/Loss on Investments........ (.142) 1.926 (2.482) .705 (.145) 1.941
------- ------- ------- ------ ------- -------
Total from Investment Operations... .578 2.692 (1.697) 1.254 .577 2.699
Less Distributions from and in
Excess of Net Investment Income... .711 .761 .764 .558 .711 .761
------- ------- ------- ------ ------- -------
Net Asset Value, End of Period..... $17.603 $17.736 $15.805 $18.266 $17.602 $17.736
======= ======= ======= ====== ======= =======
Total Return(1)(2)................. 3.35% 17.33% (9.39%) 7.25%(3) 3.35% 17.40%
Net Assets at End of Period (in
millions)......................... $ 28.6 $ 24.6 $ 17.1 $ 15.3 $ 2.2 $ 1.80
Ratio of Expenses to Average Net
Assets(1) (Annualized)............ 1.79% 1.61% 1.52% 1.45% 1.79% 1.60%
Ratio of Net Investment Income to
Average Net Assets(1)
(Annualized)...................... 4.17% 4.51% 4.71% 4.06% 4.16% 4.50%
Portfolio Turnover................. 35% 42.40% 56.38% 36.17% 35% 42.40%

<CAPTION>
CALIFORNIA INSURED FUND
-------------------------------
CLASS C SHARES
-------------------------------
AUGUST 13, 1993
(COMMENCEMENT
OF DISTRIBUTION)
TO
DECEMBER 31,
1994 1993
---- ----------------
<S> <C> <C>
Net Asset Value, Beginning of
Period............................ $18.257 $18.010
------- ------
Net Investment Income............. .773 .307
Net Realized and Unrealized
Gain/Loss on Investments........ (2.486) .258
------- ------
Total from Investment Operations... (1.695) .565
Less Distributions from and in
Excess of Net Investment Income... .764 .318
------- ------
Net Asset Value, End of Period..... $15.798 $18.257
======= ======
Total Return(1)(2)................. (9.40%) 3.17%(3)
Net Assets at End of Period (in
millions)......................... $ 2.8 $ 4.0
Ratio of Expenses to Average Net
Assets(1) (Annualized)............ 1.51% 1.45%
Ratio of Net Investment Income to
Average Net Assets(1)
(Annualized)...................... 4.71% 3.82%
Portfolio Turnover................. 56.38% 36.17%
</TABLE>

- ----------------
(1) If certain expenses had not been assumed by the Adviser, Total Return would
have been lower and the ratios would have been as follows:

<TABLE>
<S> <C> <C> <C> <C>
Ratio of expenses to average net assets (Annualized)........ 1.79% 1.77% 1.82% 1.77%
Ratio of net investment income to average net assets
(Annualized)............................................... 4.16% 4.35% 4.41% 3.74%

<CAPTION>
<S> <C> <C> <C> <C>
Ratio of expenses to average net assets (Annualized)........ 1.80% 1.75% 1.82% 1.76%

Ratio of net investment income to average net assets

(Annualized)............................................... 4.16% 4.34% 4.39% 3.52%

</TABLE>

(2) Total Return does not reflect the effect of sales charges
(3) Non-Annualized

See Financial Statements and Notes Thereto

16
<PAGE> 98

- ------------------------------------------------------------------------------
THE FUNDS
- ------------------------------------------------------------------------------

Van Kampen American Capital Insured Tax Free Income Fund (the "Insured Fund")
and Van Kampen American Capital California Insured Tax Free Fund (the
"California Insured Fund") are each separate diversified series of the Van
Kampen American Capital Tax Free Trust (the "Trust"), an open-end management
investment company, commonly known as a "mutual fund," which is organized as a
Delaware business trust.

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Insured Fund and
California Insured Fund (each a "Fund" and collectively the "Funds"). The
Adviser and its affiliates also manage other mutual funds distributed by Van
Kampen American Capital Distributors, Inc. (the "Distributor"). To obtain
prospectuses and other information on any of these other funds, please call the
telephone number on the cover page of the Prospectus.

- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------

INSURED FUND. The investment objective of the Insured Fund is to provide
investors with a high level of current income exempt from federal income taxes,
with liquidity and safety of principal, primarily through investment in a
diversified portfolio of insured municipal securities. All of the municipal
securities in the Insured Fund's portfolio, except for investments in tax exempt
money market funds as noted below, will be insured as to timely payment of both
principal and interest. However, there are market risks inherent in all
investments in securities; accordingly there can be no assurance that the
Insured Fund will achieve its objective.

The Insured Fund will generally invest all of its assets in municipal
securities, the interest on which, in the opinion of bond counsel or other
counsel to the issuer of such securities, is exempt from federal income tax. See
"Municipal Securities." From time to time the Insured Fund temporarily may also
invest up to 10% of its assets in tax exempt money market funds. Such
instruments will be treated as investments in municipal securities.

CALIFORNIA INSURED FUND. The investment objective of the California Insured
Fund is to provide only California investors with a high level of current income
exempt from federal and California income taxes, with liquidity and safety of
principal, primarily through investment in a diversified portfolio of insured
California municipal securities. All of the municipal securities in the
California Insured Fund's portfolio, except for investments in tax exempt money
funds as noted below, will be insured as to timely payment of both principal and
interest. However, there are market risks inherent in all investments in
securities; and accordingly there can be no assurance that the California
Insured Fund will achieve its objective. THE CALIFORNIA INSURED FUND IS
AVAILABLE ONLY TO RESIDENTS OF CALIFORNIA.

17
<PAGE> 99

The California Insured Fund will generally invest all of its assets in
California municipal securities, the interest on which, in the opinion of bond
counsel or other counsel to the issuer of such securities, is exempt from
federal and California income tax. Distribution to corporations subject to the
California franchise tax will be included in such corporation's gross income for
purposes of determining the California franchise tax. In addition, corporations
subject to the California corporate income tax may, in certain circumstances, be
subject to such taxes with respect to distributions from the California Insured
Fund. Accordingly, an investment in shares of the California Insured Fund may
not be appropriate for corporations subject to either tax. See "Municipal
Securities" and "Tax Status." From time to time the California Insured Fund
temporarily may also invest up to 10% of its assets in California tax exempt
money market funds. Such instruments will be treated as investments in municipal
securities.

Investments in the Funds may not be appropriate for all investors. The Funds
are not intended to be a complete investment program, and investors should
consider their long-term investment goals and financial needs when making an
investment decision with respect to the Funds. Investments in the Funds are
intended to be long-term investments and should not be used as trading vehicles.

- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES
- ------------------------------------------------------------------------------

GENERAL. Tax-exempt municipal securities are debt obligations issued by or on
behalf of the governments of states, territories or possessions of the United
States, the District of Columbia and their political subdivisions, agencies and
instrumentalities, certain interstate agencies and certain territories of the
United States, the interest on which, in the opinion of bond counsel or other
counsel to the issuer of such securities, is exempt from federal income tax.
Under normal market conditions, up to 100% but not less than 80%, of each of the
Fund's assets will be invested in such municipal securities. The foregoing is a
fundamental policy of each of the Funds and cannot be changed without approval
of the shareholders of the respective Fund.

18
<PAGE> 100

of, or are similar in effect to, certain Strategic Transactions (as defined
below) in which the Funds may engage. Variable rate securities bear rates of
interest that are adjusted periodically according to formulae intended to
reflect market rates of interest and include securities whose rates vary
inversely with changes in market rates of interest. Neither Fund will invest
more than 15% of its total assets in derivative municipal securities such as
inverse floaters, whose rates vary inversely with changes in market rates of
interest, or range floaters or capped floaters whose rates are subject to
periodic or lifetime caps. Such securities may also pay a rate of interest
determined by applying a multiple to the variable rate. The extent of increases
and decreases in the value of securities whose rates vary inversely with market
rates of interest generally will be larger than comparable changes in the value
of an equal principal amount of a fixed rate municipal security having similar
credit quality, redemption provisions and maturity. Municipal notes include tax,
revenue and bond anticipation notes of short maturity, generally less than three
years, which are issued to obtain temporary funds for various public purposes.
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Some municipal securities may not be backed by the faith,
credit and taxing power of the issuer. Custodial receipts are underwritten by
securities dealers or banks and evidence ownership of future interest payments,
principal payments or both on certain municipal securities. Participation
certificates are obligations issued by state or local governments or authorities
to finance the acquisition of equipment and facilities. They may represent
participations in a lease, an installment purchase contract or a conditional
sales contract. Some municipal securities may not be backed by the faith, credit
and taxing power of the issuer. Certain of the municipal securities in which the
Funds may invest represent relatively recent innovations in the municipal
securities markets. While markets for such recent innovations progress through
stages of development, such markets may be less developed than more fully
developed markets for municipal securities. A more detailed description of the
types of municipal securities in which the Funds may invest is included in each
Fund's Statement of Additional Information.

From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
municipal

19
<PAGE> 101

securities. If such a proposal were enacted, the ability of the Funds to pay tax
exempt interest dividends might be adversely affected.

INSURED MUNICIPAL SECURITIES. With respect to its investments in municipal
securities, each of the Insured Fund and the California Insured Fund may invest
only in municipal securities insured under one of the insurance policies meeting
the standards described in this Prospectus. See "Insurance." Although each
insurer's quality standards may vary from time to time, such insurers generally
insure only those municipal securities that are rated at the date of purchase
(1) in the case of long-term debt, in the four highest ratings by Standard &
Poor's Ratings Group (S&P) (AAA, AA, A and BBB) or by Moody's Investors Service,
Inc. (Moody's) (Aaa, Aa, A and Baa); (2) in the case of short-term notes, SP-1+
through SP-2 by S&P or MIG 1 through MIG 4 by Moody's; or (3) in the case of
tax-exempt commercial paper, A-1+ through A-2 by S&P or Prime-1 through Prime-2
by Moody's. Such ratings are relative and subjective and are not absolute
standards of quality. Any insurer may also insure, and each of the Insured Fund
and California Insured Fund may invest in, unrated municipal securities of
similar quality, as determined by the Adviser, if such securities meet the
insurance standards of such insurer. The Insured Fund and California Insured
Fund may invest, without limitation as to rating category, in any securities for
which such Funds obtain insurance coverage. For a description of such ratings
see the respective Fund's Statement of Additional Information incorporated by
reference into this Prospectus.

SPECIAL CONSIDERATIONS REGARDING CALIFORNIA MUNICIPAL SECURITIES. Investors
should be aware of certain factors that might affect the financial condition of
the issuers of California municipal securities. With respect to an investment in
the Fund, through popular initiative and legislative activity, the ability of
the State of California (the "State") and its local governments to raise money
through property taxes and to increase spending has been the subject of
considerable debate and change in recent years. Various State Constitutional
amendments, for example, have been adopted which have the effect of limiting
property tax and spending increases, while legislation has sometimes added to
these limitations and has at other times sought to reduce their impact. To date,
these Constitutional, legislative and budget developments do not appear to have
severely decreased the ability of the State and local governments to pay
principal and interest on their obligations. It can be expected that similar
types of State legislation or Constitutional proposals will continue to be
introduced. The impact of future developments in these areas is unclear.

From 1990 until 1994, the State experienced the worst economic, fiscal and
budget conditions since the 1930's. The recession seriously affected State tax
revenues and caused increased expenditures for health and welfare programs. As a
result, the State faced several budget imbalances and used up many of its
available cash resources. Accordingly, rating agencies have reduced the State's
credit ratings several times during recent years.

20
<PAGE> 102

Although revenue obligations of the State of California or its political
subdivisions may be payable from a specific project or source, including lease
rentals, there can be no assurance that future economic difficulties and the
resulting impact on State and local government finances will not adversely
affect the market value of the portfolio of the Fund or the ability of the
respective obligors to make timely payments of principal and interest on such
obligations.

More detailed information concerning California municipal securities is
included in the California Insured Fund's Statement of Additional Information.

SELECTION OF INVESTMENTS. The Adviser will buy and sell securities for each
Fund's portfolio with a view to seeking a high level of current income exempt
from federal income tax and will select securities which the Adviser believes
entail reasonable credit risk considered in relation to the particular
investment policies of such Fund. As a result, the Funds will not necessarily
invest in the highest yielding tax-exempt municipal securities permitted by
their respective investment policies if the Adviser determines that market risks
or credit risks associated with such investments would subject a Fund's
portfolio to excessive risk. The potential for realization of capital gains
resulting from possible changes in interest rates will not be a major
consideration. There is no limitation as to the maturity of municipal securities
in which a Fund may invest. The Adviser may adjust the average maturity of a
Fund's portfolio from time to time, depending on its assessment of the relative
yields available on securities of different maturities and its expectations of
future changes in interest rates. Other than for tax purposes, frequency of
portfolio turnover will generally not be a limiting factor if any of the Funds
considers it advantageous to purchase or sell securities. The Funds may have
annual portfolio turnover rates in excess of 100%. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses or
dealer costs than a lower rate, which expenses and costs must be borne by the
respective Fund and its shareholders. High portfolio turnover may also result in
the realization of substantial net short-term capital gains and any
distributions resulting from such gains will be taxable. See "Tax Status."

DEFENSIVE STRATEGIES. At times conditions in the markets for tax-exempt
municipal securities may, in the Adviser's judgment, make pursuing a Fund's
basic investment strategy inconsistent with the best interests of its
shareholders. At such times, the Adviser may use alternative strategies
primarily designed to reduce fluctuations in the value of such Fund's assets. In
implementing these "defensive" strategies, a Fund may invest to a substantial
degree in high-quality, short-term municipal obligations. If these high-quality,
short-term municipal obligations are not available or, in the Adviser's
judgment, do not afford sufficient protection against adverse market conditions,
such Fund may invest in taxable obligations. Such taxable obligations may
include: obligations of the U.S. Government, its agencies or instrumentalities;
other debt securities rated within the four highest grades by either S&P or
Moody's; commercial paper rated in the highest grade by either rating service;
certificates of deposit and bankers' acceptances; repurchase

21
<PAGE> 103

agreements with respect to any of the foregoing investments; or any other fixed-
income securities that the Adviser considers consistent with such strategy.

- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------

In connection with the investment policies described above, the Funds also may
engage in strategic transactions and purchase and sell securities on a "when
issued" and "delayed delivery" basis. These investments entail risks. Strategic
transactions generally will not be treated as investments in tax-exempt
municipal securities for purposes of the Funds' 80% investment policy with
respect thereto.

STRATEGIC TRANSACTIONS. The Funds may purchase and sell derivative
instruments such as exchange-listed and over-the-counter put and call options on
securities, financial futures, fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and enter into
various interest rate transactions such as swaps, caps, floors or collars.
Collectively, all of the above are referred to as "Strategic Transactions."
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for a
Fund's portfolio resulting from securities markets, to protect such Fund's
unrealized gains in the value of its portfolio securities, to facilitate the
sale of such securities for investment purposes, to manage the effective
maturity or duration of such Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Any or all of these investment techniques may be used at
any time and there is no particular strategy that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of a Fund to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The
Funds will comply with applicable regulatory requirements when implementing
these strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.

22
<PAGE> 104

options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the contemplated use of these futures contracts and
options thereon should tend to minimize the risk of loss due to a decline in the
value of the hedged position, at the same time they tend to limit any potential
gain which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized. The Strategic Transactions that a Fund may use and some of
their risks are described more fully in the respective Fund's Statement of
Additional Information.

Income earned or deemed to be earned, if any, by a Fund from its Strategic
Transactions will be distributed to its shareholders in taxable distributions.
See "Tax Status."

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Funds may also
purchase and sell municipal securities on a "when issued" and "delayed delivery"
basis. No income accrues to the Funds on municipal securities in connection with
such purchase transactions prior to the date the Funds actually take delivery of
such securities. These transactions are subject to market fluctuation; the value
of the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher or lower than yields on the municipal securities obtained
pursuant to such transactions. Because the Funds rely on the buyer or seller, as
the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Funds missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Funds are the
buyer in such a transaction, however, they will maintain, in a segregated
account with their custodian, cash or liquid securities having an aggregate
value equal to the amount of such purchase commitments until payment is made.
The Funds will make commitments to purchase municipal securities on such basis
only with the intention of actually acquiring these securities, but the Funds
may sell such securities prior to the settlement date if such sale is considered
to be advisable. No specific limitation exists as to the percentage of each
Fund's assets which may be used to acquire securities on a "when issued" or
"delayed delivery" basis. To the extent a Fund engages in "when issued" and
"delayed delivery" transactions, they will do so for the purpose of acquiring
securities for the respective Fund's portfolio consistent with such Fund's
respective investment objectives and policies and not for the purposes of
investment leverage. No specific limitation exists as to the percentage of a
Fund's assets which may be used to acquire securities on a "when issued" or
"delayed delivery" basis.

23
<PAGE> 105

OTHER PRACTICES. The Funds have no restrictions on the maturity of municipal
bonds in which they may invest. Each Fund will seek to invest in municipal bonds
of such maturities that, in the judgment of such Fund and the Adviser, will
provide a high level of current income consistent with liquidity requirements
and market conditions.

The Funds may borrow amounts up to 5% of their respective net assets in order
to pay for redemptions when liquidation of portfolio securities is considered
disadvantageous or inconvenient and may pledge up to 10% of their respective net
assets to secure such borrowings.

A Fund generally will not invest more than 25% of its total assets in any
industry, nor will a Fund generally invest more than 5% of its assets in the
securities of any single issuer. Governmental issuers of municipal securities
are not considered part of any "industry." However, municipal securities backed
only by the assets and revenues of nongovernmental users may for this purpose be
deemed to be issued by such nongovernmental users, and the 25% limitation would
apply to such obligations. It is nonetheless possible that a Fund may invest
more than 25% of its assets in a broader segment of the municipal securities
market, such as revenue obligations of hospitals and other health care
facilities, housing agency revenue obligations, or airport revenue obligations
if the Advisor determines that the yields available from obligations in a
particular segment of the market justified the additional risks associated with
a large investment in such segment. Although such obligations could be supported
by the credit of governmental users, or by the credit of nongovernmental users
engaged in a number of industries, economic, business, political and other
developments generally affecting the revenues of such users (for example,
proposed legislation or pending court decisions affecting the financing of such
projects and market factors affecting the demand for their services or products)
may have a general adverse effect on all municipal securities in such a market
segment. The Insured Fund reserves the right to invest more than 25% of its
assets in industrial development bonds or in issuers located in the same state,
although it has no present intention to invest more than 25% of its assets in
issuers located in the same state. If the Insured Fund were to invest more than
25% of its assets in issuers located in the same state, it would be more
susceptible to adverse economic, business, or regulatory conditions in that
state. The California Insured Fund invests primarily in a diversified portfolio
of insured California municipal securities.

ALLOCATION OF BROKERAGE TRANSACTIONS. In effecting purchases and sales of the
Funds' portfolio securities, the Adviser and the Funds may place orders with and
pay brokerage commissions to brokers, including brokers which may be affiliated
with the Funds, the Adviser and the Distributor or dealers participating in the
offering of the Funds' shares. In addition, in selecting among firms to handle a
particular transaction, the Adviser and the Funds may take into account whether
the firm has sold or is selling shares of the Funds.

24
<PAGE> 106

- ------------------------------------------------------------------------------
INSURANCE
- ------------------------------------------------------------------------------

All of the municipal securities in the portfolios of the Insured Fund and the
California Insured Fund will be insured by municipal bond insurers whose claims-
paying ability is rated "AAA" by S&P on the date of purchase. Timely payment of
all principal and interest of each municipal security in the portfolios of the
Insured Fund and the California Insured Fund either will be pre-insured under a
policy obtained for such securities prior to the purchase of the securities by
such Funds or will be insured under policies obtained by such Funds to cover
otherwise uninsured securities. With respect to municipal securities that are
not pre-insured, the Insured Fund and the California Insured Fund have each
obtained a mutual fund portfolio insurance policy from AMBAC Indemnity
Corporation ("AMBAC") whose claims-paying ability is rated "AAA" by S&P. The
Insured Fund and the California Insured Fund may obtain portfolio insurance from
other insurers in the future. No representation is made as to any insurer's
ability to meet its commitments.

Each insurance policy guarantees the timely payment of all principal and
interest on the municipal securities. Each policy provides, in general, that in
the event of nonpayment of interest or principal, when due, in respect of an
insured municipal security, the insurer is obligated to make such payment not
later than 30 days after it has been notified by the respective Fund that such
nonpayment has occurred (but not earlier than the date when such payment is
due). For these purposes, a payment of principal is due only at scheduled
maturity, including required sinking fund payments and mandatory redemptions, of
the security and not at any earlier time. The insurance does not guarantee the
market value of the municipal securities or the value of the shares of the
Funds.

More detailed information concerning such insurance policies, and concerning
AMBAC, is included in the respective Fund's Statement of Additional Information.

- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------

THE ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for the Funds. The Adviser is a
wholly-owned subsidiary of Van Kampen American Capital, Inc. ("Van Kampen
American Capital"). Van Kampen American Capital is a diversified asset
management company with more than two million retail investor accounts,
extensive capabilities for managing institutional portfolios, and more than $57
billion under management or supervision. Van Kampen American Capital's more than
40 open-end and 38 closed-end funds and more than 2,500 unit investment trusts
are professionally distributed by leading financial advisers nationwide. Van
Kampen American Capital Distributors, Inc.(the "Distributor"), the distributor
of the Funds and sponsor of the funds mentioned above, is a wholly-owned
subsidiary of Van Kampen American Capital.

25
<PAGE> 107

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

ADVISORY AGREEMENT. The business and affairs of each of the Funds will be
managed under the direction of the Board of Trustees of the Trust, of which each
Fund is a separate series. Subject to their authority, the Adviser and the
respective officers of the Funds will supervise and implement the Funds'
investment activities and will be responsible for overall management of the
Funds' business affairs. Each Fund will pay the Adviser a fee equal to a
percentage of the average daily net assets of the respective Fund as follows:

<TABLE>
<CAPTION>
INSURED FUND CALIFORNIA FUND
- ----------------------------------- -----------------------------------
AVERAGE DAILY NET AVERAGE DAILY NET
ASSETS % PER ANNUM ASSETS % PER ANNUM
- ---------------------- ----------- ---------------------- ------
<S> <C> <C> <C>
First $500 million.... 0.525% First $100 million.... 0.500%
Next $500 million..... 0.500% Next $150 million..... 0.450%
Next $500 million..... 0.475% Next $250 million..... 0.425%
Over $1,500 million... 0.450% Over $500 million..... 0.400%
</TABLE>

Under its investment advisory agreement with the Adviser, each Fund has agreed
to assume and pay the charges and expenses of the Fund's operation, including
the compensation of the Trustees of the Trust (other than those who are
affiliated persons, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), of the Adviser, the Distributor, or Van Kampen American
Capital),

26
<PAGE> 108

the charges and expenses of independent accountants, legal counsel, transfer
agent (ACCESS Investor Services, Inc. ("ACCESS"), a wholly-owned subsidiary of
Van Kampen American Capital), or dividend disbursing agent and the custodian
(including fees for safekeeping of securities), costs of calculating net asset
value, costs of acquiring and disposing of portfolio securities, interest (if
any) on obligations incurred by such Fund, costs of share certificates,
membership dues in the Investment Company Institute or any similar organization,
reports and notices to shareholders, costs of registering shares under the
federal securities laws, miscellaneous expenses and all taxes and fees to
federal, state or other governmental agencies. The Adviser reserves the right in
its sole discretion from time-to-time to waive all or a portion of its
management fee or to reimburse a Fund for all or a portion of its other
expenses.

PERSONAL INVESTING POLICIES. The Funds and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between each Fund and
the Adviser and its employees. The Codes permit directors, trustees, officers
and employees to buy and sell securities for their personal accounts subject to
certain restrictions. Persons with access to certain sensitive information are
subject to preclearance and other procedures designed to prevent conflicts of
interest.

PORTFOLIO MANAGEMENT. Joseph A. Piraro, a Vice President of the Adviser, has
been primarily responsible for the day-to-day management of each Fund's
portfolio since May 1992. Mr. Piraro has been employed by the Adviser since May
1992. Prior to May 1992, Mr. Piraro was employed by First Chicago Capital
Markets.

- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------

The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor, taking into account
the amount of the purchase, the length of time the investor expects to hold the
shares, whether the investor wishes to receive dividends in cash or to reinvest
them in additional shares of the Funds, and other circumstances. Investors
should consider such factors together with the amount of sales charges and
accumulated distribution and service fees with respect to each class of shares
that may be incurred over the anticipated duration of their investment in the
Funds.

Each Fund offers three classes of shares, designated Class A Shares, Class B
Shares and Class C Shares. Shares of each class are offered at a price equal to
their net asset value per share plus a sales charge which, at the election of
the purchaser, may be imposed (a) at the time of purchase ("Class A Shares") or
(b) on a contingent deferred basis (Class A Share accounts over $1 million,
"Class B Shares" and "Class C Shares"). Class A Share accounts over $1 million
or otherwise subject to a contingent deferred sales charge ("CDSC"), Class B
Shares and Class C Shares sometimes are referred to herein collectively as
"Contingent Deferred Sales Charge Shares" or "CDSC Shares."

27
<PAGE> 109

The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor not to accept any order for Class
B Shares in an amount of $500,000 or more and not accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

Each class of shares represents an interest in the same portfolio of
investments of a Fund and has the same rights, except each class of shares (i)
bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, (ii) has exclusive voting rights with respect to those provisions
of the respective Fund's Rule 12b-1 distribution plan which relate only to such
class and (iii) has a different exchange privilege. Generally, a class of shares
subject to a higher ongoing distribution and service fee or subject to the
conversion feature will have a higher expense ratio and pay lower dividends than
a class of shares subject to a lower ongoing distribution and service fee or not
subject to the conversion feature. The per share net asset values of the
different classes of shares are expected to be substantially the same; from time
to time, however, the per share net asset values of the classes may differ. The
net asset value per share of each class of shares of the Funds will be
determined as described in this Prospectus under "Purchase of Shares -- Net
Asset Value."

The administrative expenses that may be allocated to a specific class of
shares will consist of (i) ACCESS' expenses attributable to a specific class of
shares,

28
<PAGE> 110

which expenses typically will be higher with respect to classes of shares
subject to the conversion feature; (ii) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxy statements to current shareholders of a specific class; (iii)
Securities and Exchange Commission (the "SEC") registration fees incurred by a
class of shares; (iv) the expense of administrative personnel and services as
required to support the shareholders of a specific class; (v) Trustees' fees or
expense incurred as a result of issues relating to one class of shares; (vi)
accounting expenses relating solely to one class of shares; and (vii) any other
incremental expenses subsequently identified that should be properly allocated
to one or more classes of shares. All such expenses incurred by a class will be
borne on a pro rata basis by the outstanding shares of such class. All
allocations of administrative expenses to a particular class of shares will be
limited to the extent necessary to preserve the respective Fund's qualification
as a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code").

- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------

Shares of the Funds are continuously offered through the Distributor, as
principal underwriter, which is located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181. Shares are also offered through members of the National
Association of Securities Dealers, Inc. ("NASD") acting as securities dealers
("dealers") and through NASD members acting as brokers for investors ("brokers")
or eligible non-NASD members acting as agents for investors ("financial
intermediaries"). Each of the Funds reserves the right to suspend or terminate
the continuous public offering of its shares at any time and without prior
notice.

The Funds' shares are offered at the net asset value per share next computed
after an investor places an order to purchase directly with the investor's
broker, dealer or financial intermediary or with the Distributor plus any
applicable sales charge. Sales personnel of brokers, dealers and financial
intermediaries distributing the Funds' shares may receive differing compensation
for selling different classes of shares. It is the responsibility of the
investor's broker, dealer or financial intermediary to transmit the order to the
Distributor. Because the Funds generally will determine net asset value once
each business day as of the close of business, purchase orders placed through an
investor's broker, dealer or financial intermediary must be transmitted to the
Distributor by such broker, dealer or financial intermediary prior to such time
in order for the investor's order to be fulfilled on the basis of the net asset
value to be determined that day. Any change in the purchase price due to the
failure of the Distributor to receive a purchase order prior to such time must
be settled between the investor and the broker, dealer or financial intermediary
submitting the order.

The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal

29
<PAGE> 111

awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Funds. Also, the Distributor in its discretion may from time to time, pursuant
to objective criteria established by it, pay fees to, and sponsor business
seminars for, qualifying brokers, dealers or financial intermediaries for
certain services or activities which are primarily intended to result in sales
of shares of the Funds. Fees may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. In some
instances additional compensation or promotional incentives may be offered to
brokers, dealers or financial intermediaries that have sold or may sell
significant amounts of shares during specified periods of time. The Distributor
may provide additional compensation to Edward D. Jones & Co. or an affiliate
thereof based on a combination of its sales of shares and increases in assets
under management. Such payments to brokers, dealers and financial intermediaries
for sales contests, other sales programs and seminars are made by the
Distributor out of its own assets and not out of the assets of the Funds. Such
fees paid for such services and activities with respect to a Fund will not
exceed in the aggregate 1.25% of the average total daily net assets of such Fund
on an annual basis. These programs will not change the price an investor will
pay for shares or the amount that the respective Fund will receive from such
sale.

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The tables below with
respect to the Funds show total sales charges and dealer concessions reallowed
to dealers and agency commissions paid to brokers with respect to sales of Class
A Shares. The sales charge is allocated between the investor's broker, dealer or
financial intermediary and the Distributor. As indicated previously, at the
discretion of the Distributor, the entire sales charge may be reallowed to such
broker, dealer or financial intermediary. The staff of the SEC has taken the
position that brokers, dealers and financial intermediaries who receive more
than 90% or more of the sales charge may be deemed to be "underwriters" as that
term is defined in the Securities Act of 1933, as amended.

30
<PAGE> 112

SALES CHARGE TABLES
- ------------------------------------------------------------------------------
INSURED FUND
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
------------------------- -----------
PERCENTAGE PERCENTAGE PERCENTAGE
SIZE OF TRANSACTION OF OFFERING OF NET OF OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000................. 4.75% 4.99% 4.25%
$100,000 but less than $250,000.... 3.75 3.90 3.25
$250,000 but less than $500,000.... 2.75 2.83 2.25
$500,000 but less than
$1,000,000....................... 2.00 2.04 1.75
$1,000,000 or more*................ * * *
</TABLE>

- ------------------------------------------------------------------------------
CALIFORNIA INSURED FUND
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
------------------------- -----------
PERCENTAGE PERCENTAGE PERCENTAGE
SIZE OF TRANSACTION OF OFFERING OF NET OF OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $25,000.................. 3.25% 3.36% 3.00%
$25,000 but less than $250,000..... 2.75 2.83 2.50
$250,000 but less than $500,000.... 1.75 1.78 1.50
$500,000 but less than
$1,000,000....................... 1.50 1.52 1.25
$1,000,000 or more*................ * * *
</TABLE>

- ------------------------------------------------------------------------------

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Funds imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid to brokers, dealers or financial intermediaries who initiate
and are responsible for purchases of $1 million or more as follows: 1.00%
on sales to $2 million, plus 0.80% on the next $1 million and 0.50% on the
excess over $3 million. See "Purchase of Shares -- Deferred Sales Charge
Alternatives" for additional information with respect to CDSCs.

QUANTITY DISCOUNTS

Investors, or their brokers, dealers or financial intermediaries, must notify
the respective Fund whenever a quantity discount is applicable to purchases.
Upon such

31
<PAGE> 113

notification, an investor will receive the lowest applicable sales charge.
Quantity discounts may be modified or terminated at any time. For more
information about quantity discounts, investors should contact their broker,
dealer or financial intermediary or the Distributor.

A person eligible for a reduced sales charge includes an individual, their
spouse and minor children under 21 years of age and any corporation, partnership
or sole proprietorship which is 100% owned, either alone or in combination, by
any of the foregoing; a trustee or other fiduciary of a single trust estate or a
single fiduciary account; or a "company" as defined is section 2(a)(8) of the
1940 Act.

VOLUME DISCOUNTS. The size of investment shown in the preceding sales charge
tables applies to the total dollar amount being invested by any person at any
one time in Class A Shares of a Fund, or in any combination of shares of the
Fund and shares of other Participating Funds, although other Participating Funds
may have different sales charges.

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
sales charge tables may also be determined by combining the amount being
invested in Class A Shares of a Fund with other shares of such Fund and shares
of Participating Funds, plus the current offering price of all shares of such
Fund and other Participating Funds which have been previously purchased and are
still owned.

LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor
to obtain a reduced sales charge by aggregating the amount being invested over a
13-month period to determine the sales charge as outlined in the preceding sales
charge tables. The size of investment shown in the preceding table includes the
amount of intended purchases of Class A Shares of a Fund with other shares of
such Fund and shares of the Participating Funds plus the value of all shares of
such Fund and other Participating Funds previously purchased during such
13-month period and still owned. An investor may elect to compute the 13-month
period starting up to 90 days before the date of execution of a Letter of
Intent. Each investment made during the period receives the reduced sales charge
applicable to the total amount of the investment goal. If trades not initially
made under a Letter of Intent subsequently qualify for a lower sales charge
through the 90-day back-dating provision, an adjustment will be made at the
expiration of the Letter of Intent to give effect to the lower charge. If the
goal is not achieved within the 13-month period, the investor must pay the
difference between the sales charge applicable to the purchases made and the
sales charges previously paid. When an investor signs a Letter of Intent, shares
equal to at least 5% of the total purchase

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<PAGE> 114

amount of the level selected will be restricted from sale or redemption by the
investor until the Letter of Intent is satisfied or any additional sales charges
have been paid; if the Letter of Intent is not satisfied by the investor and any
additional sales charges are not paid, sufficient restricted shares will be
redeemed by the Fund to pay such charges. Additional information is contained in
the application accompanying this Prospectus.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the respective Fund or the Distributor. The Funds reserve the right to
modify or terminate these arrangements at any time.

UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. Each of the Funds permits
unitholders of unit investment trusts to reinvest distributions from such trusts
in Class A Shares of such Fund at net asset value with no minimum initial or
subsequent investment requirement if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by such Fund and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the broker, dealer or financial intermediary, if any, through which such
participation in the qualifying program was initiated 0.50% of the offering
price as a dealer concession or agency commission. Persons desiring more
information with respect to this program, including the applicable terms and
conditions thereof, should contact their broker, dealer, financial intermediary
or the Distributor.

The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
respective Fund during each distribution period by all investors who choose to
invest in such Fund through the program and (2) provide ACCESS with appropriate
backup data for each participating investor in a computerized format fully
compatible with ACCESS processing system.

As further requirements for obtaining these special benefits, the respective
Fund also requires that all dividends and other distributions by such Fund be
reinvested in additional shares without any systematic withdrawal program. There
will be no minimum for reinvestments from unit investment trusts. The Fund will
send account activity statements to such participants on a monthly basis only,
even if their investments are made more frequently. The Fund reserves the right
to modify or terminate this program at any time.

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<PAGE> 115

NAV PURCHASE OPTIONS. Class A Shares of a Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment purposes
and that the shares will not be resold except through redemption by such Fund,
by:

(1) Current or retired trustees or directors of funds advised by the Adviser
or Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of a Fund alone, or any
combination of shares of such Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a 12-month
period following such transaction.

(7) Investors purchasing shares of a Fund with redemption proceeds from other
mutual fund complexes on which the investor has paid a front-end sales
charge or was subject to a deferred sales charge, whether or not paid, if
such redemption has occurred no more than 30 days prior to such purchase.

34
<PAGE> 116

held by an employer or trustee in connection with an eligible deferred
compensation plan under Section 457 of the Code. Such plans will qualify
for purchases at net asset value provided, for plans initially
establishing accounts with the Distributor in the Participating Funds
after February 1, 1997, that (1) the initial amount invested in the
Participating Funds is at least $500,000 or (2) such shares are purchased
by an employer sponsored plan with more than 100 eligible employees. Such
plans that have been established with a Participating Fund or have
received proposals from the Distributor prior to February 1, 1997 based on
net asset value purchase privileges previously in effect will be qualified
to purchase shares of the Participating Funds at net asset value for
accounts established on or before May 1, 1997. Section 403(b) and similar
accounts for which Van Kampen American Capital Trust Company served as
custodian will not be eligible for net asset value purchases based on the
aggregate investment made by the plan or the number of eligible employees,
except under certain uniform criteria established by the Distributor from
time to time. Prior to February 1, 1997, a commission will be paid to
authorized dealers who initiate and are responsible for such purchases
within a rolling twelve-month period as follows: 1.00% on sales to $5
million, plus 0.50% on the next $5 million and 0.25% on the excess over
$10 million. For purchases on February 1, 1997 and thereafter, a
commission will be paid as follows: 1.00% on sales to $2 million, plus
0.80% on the next $1 million, plus 0.50% on the next $47 million and 0.25%
on the excess over $50 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

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<PAGE> 117

Purchase orders made pursuant to clause (4) may be placed either through
authorized brokers, dealers or financial intermediaries as described above or
directly with ACCESS, the investment adviser, trust company or bank trust
department, provided that ACCESS receives federal funds for the purchase by the
close of business on the next business day following acceptance of the order. An
authorized broker, dealer or financial intermediary may charge a transaction fee
for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. The Funds may terminate,
or amend the terms of, offering shares of the Funds at net asset value to such
groups at any time.

DEFERRED SALES CHARGE ALTERNATIVES

Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or Class C Shares. The
public offering price of a CDSC Share is equal to the net asset value per share
without the imposition of a sales charge at the time of purchase. CDSC Shares
are sold without an initial sales charge so that the Funds may invest the full
amount of the investor's purchase payment. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of the
assets of the respective Fund, at a percentage rate of the dollar value of the
CDSC Shares purchased from such Fund by such brokers, dealers and financial
intermediaries, which percentage rate will be equal to (i) with respect to Class
A Shares, 1.00% on sales to $2 million, plus 0.80% on the next $1 million and
0.50% on the excess over $3 million; (ii) 4.00% with respect to Class B Shares
of the Insured Fund; (iii) 3.00% with respect to Class B Shares of the
California Insured Fund; and (iv) 1.00% with respect to Class C Shares of each
Fund. Such compensation will not change the price an investor will pay for CDSC
Shares or the amount that the respective Fund will receive from such sale.

Proceeds from the CDSC and the distribution fee applicable to a class of CDSC
Shares are paid to the Distributor and are used by the Distributor to defray its

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<PAGE> 118

expenses related to providing distribution related services to the respective
Fund in connection with the sale of shares of such class of CDSC Shares, such as
the payment of compensation to selected dealers and agents for selling such
shares. The combination of the CDSC and the distribution fees facilitates the
ability of the respective Fund to sell such CDSC Shares without a sales charge
being deducted at the time of purchase.

To provide an example, assume an investor purchased 100 Class B Shares of the
Insured Fund (as set forth below) at $10 per share (at a cost of $1,000) and in
the second year after purchase, the net asset value per share is $12 and, during
such time, the investor has acquired 10 additional Class B Shares upon dividend
reinvestment. If at such time the investor makes his first redemption of 50
shares (proceeds of $600), 10 shares will not be subject to charge because of
dividend reinvestment. With respect to the remaining 40 shares, the charge is
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds
will be charged at a rate of 3.75% (the applicable rate in the second year after
purchase).

CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments in Class A Shares of $1 million or more,
although for such investments the respective Fund may impose a CDSC of 1.00% on
redemptions made within one year of the purchase. A commission will be paid to
dealers who initiate and are responsible for purchases of $1 million or more as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million and
0.50% on the excess over $3 million.

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<PAGE> 119

CLASS B SHARES. Class B Shares redeemed within the number of years of purchase
set forth below generally will be subject to a CDSC at the rates set forth
below, charged as a percentage of the dollar amount subject thereto:

- ------------------------------------------------------------------------------
INSURED FUND
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------- -------------------
<S> <C>
First................................ 4.00%
Second............................... 3.75%
Third................................ 3.50%
Fourth............................... 2.50%
Fifth................................ 1.50%
Sixth................................ 1.00%
Seventh and after.................... 0.00%
</TABLE>

- ------------------------------------------------------------------------------
CALIFORNIA INSURED FUND
- ------------------------------------------------------------------------------

The CDSC generally is waived on redemptions of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services -- Systematic
Withdrawal Plan."

CLASS C SHARES. Class C Shares of each Fund redeemed within the first twelve
months of purchase generally will be subject to a CDSC of 1.00% of the dollar
amount subject thereto. Class C Shares redeemed thereafter will not be subject
to a contingent deferred sales charge.

CONVERSION FEATURE. Class B Shares of each Fund purchased on or after June 1,
1996 and any dividend reinvestment plan shares received thereon, automatically
convert to Class A Shares eight years after the end of the calendar month in
which the shares were purchased. Class B Shares of the Insured Fund purchased
before June 1, 1996, and any dividend reinvestment shares received thereon,
automatically convert to Class A Shares seven years after the end of the
calendar month in which

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<PAGE> 120

the shares were purchased. Class B Shares of the California Insured Fund
purchased before June 1, 1996, and any dividend reinvestment plan shares
received thereon, automatically convert to Class A Shares six years after the
end of the calendar month in which the shares were purchased. Class C Shares of
each Fund purchased before January 1, 1997, and any dividend reinvestment plan
shares received thereon, automatically convert to Class A Shares ten years after
the end of the calendar month in which such shares were purchased. Such
conversion will be on the basis of the relative net asset values per share,
without the imposition of any sales load, fee or other charge.

The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution and service fees and ACCESS costs with respect to such
shares does not result in a Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) that the conversion of such shares does not constitute a
taxable event under federal income tax law. The conversion may be suspended if
such an opinion is no longer available and such shares might continue to be
subject to the higher aggregate Fees applicable to such class of shares for an
indefinite period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with required minimum
distributions from an IRA or other retirement plan, (iii) pursuant to the Fund's
systematic withdrawal plan but limited to 12% annually of the initial value of
the account and (iv) effected pursuant to the right of the Fund to liquidate a
shareholder's account as described herein under "Redemption of Shares." The CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See "Shareholder Services" and "Redemption of
Shares" for further discussion of the waiver provisions.

NET ASSET VALUE

The net asset value per share of each of the Funds is determined by
calculating the total value of such Fund's assets, deducting its total
liabilities, and dividing the result by the number of shares of such Fund
outstanding. The net asset value is computed once daily as of 5:00 p.m. Eastern
time, Monday through Friday, except on customary business holidays, or except on
any day on which no purchase or redemption orders are received, or there is not
a sufficient degree of trading in such Fund's portfolio securities such that the
Fund's net asset value per share might be materially affected. Each of the Funds
reserves the right to calculate the net asset value and to adjust the public
offering price based thereon more frequently than once a day if deemed
desirable.

Fixed income securities are valued by using market quotations, prices provided
by market makers or estimates of market values obtained from yield data relating
to

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<PAGE> 121

instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Trustees of the Trust, of which each
Fund is a separate series. Short-term securities with remaining maturities of
less than 60 days are valued at amortized cost when amortized cost is determined
in good faith by or under the direction of the Board of Trustees of the Trust to
be representative of the fair value at which it is expected such securities may
be resold. Other assets are valued at fair value as determined in good faith by
or under direction of the Trustees. The net asset values per share of the
different classes of shares are expected to be substantially the same; from time
to time, however, the per share net asset value of the different classes of
shares may differ.

- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

Each of the Funds offers a number of shareholder services designed to
facilitate investment in its shares at little or no extra cost to the investor.
Below is a description of such services. Unless otherwise described below, each
of these services may be modified or terminated by the respective Fund at any
time.

INVESTMENT ACCOUNT. ACCESS, transfer agent for the Funds and a wholly-owned
subsidiary of Van Kampen American Capital, performs bookkeeping, data processing
and administration services related to the maintenance of shareholder accounts.
Each shareholder has an investment account under which shares are held by
ACCESS. Except as described in this Prospectus, after each share transaction in
an account, the shareholder receives a statement showing the activity in the
account. Each shareholder will receive statements at least quarterly from ACCESS
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized brokers, dealers or
financial intermediaries or by mailing a check directly to ACCESS.

SHARE CERTIFICATES. Generally, the Funds will not issue share certificates.
However, upon written or telephone request to the respective Fund, a share
certificate will be issued, representing shares (with the exception of
fractional shares) of such Fund. A shareholder will be required to surrender
such certificates upon redemption thereof. In addition, if such certificates are
lost the shareholder must write to Van Kampen American Capital Funds, c/o
ACCESS, P.O. Box 418256, Kansas City, MO 64141-9256, requesting an "affidavit of
loss" and to obtain a Surety Bond in a form acceptable to ACCESS. On the date
the letter is received ACCESS will calculate a fee for replacing the lost
certificate equal to no more than 2.00% of the net asset value of the issued
shares and bill the party to whom the replacement certificate was mailed.

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<PAGE> 122

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the respective Fund. Such shares are acquired at net asset value per share
(without sales charge) on the record date of such dividend or distribution.
Unless the shareholder instructs otherwise, the reinvestment plan is automatic.
This instruction may be made by telephone by calling (800) 421-5666 ((800)
421-2833 for the hearing impaired) or in writing to ACCESS. The investor may, on
the initial application or prior to any declaration, instruct that dividends be
paid in cash and capital gains distributions be reinvested at net asset value,
or that both dividends and capital gains distributions be paid in cash. For
further information, see "Distributions from the Funds."

AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under
which a shareholder can authorize ACCESS to charge a bank account on a regular
basis to invest pre-determined amounts in the respective Fund. Additional
information is available from the Distributor or authorized brokers, dealers or
financial intermediaries.

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 421-2833 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the respective Fund invested into shares of the same class of any
other Participating Fund, Tax Free Money Fund or Reserve Fund so long as a pre-
existing account for such class of shares exists for such shareholder.

EXCHANGE PRIVILEGE. Shares of a Fund may be exchanged with shares of another
Participating Fund, subject to certain limitations. Before effecting an
exchange, shareholders in the Fund should obtain and read a current prospectus
of the fund into which the exchange is to be made. SHAREHOLDERS MAY ONLY
EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE.

To be eligible for exchange, shares of a Fund must have been registered in the
shareholder's name for at least 30 days prior to an exchange. Shares of a Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. Under normal circumstances, it is
the policy of the Adviser not to approve such requests.

Class A Shares of Van Kampen American Capital funds that generally impose an
initial sales charge are not subject to any sales charge upon exchange into a
Fund. Class A Shares of Van Kampen American Capital funds that generally do not

41
<PAGE> 123

impose an initial sales charge are subject to the appropriate sales charge
applicable to Class A Shares of a Fund.

Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is not included in the tax basis of
the exchanged shares, but is carried over and included in the tax basis of the
shares acquired.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 421-2833 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Funds employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither VKAC nor the respective Fund will be liable for following telephone
instructions which it reasonably believes to be genuine. VKAC and the respective
Fund may be liable for any losses due to unauthorized or fraudulent instructions
if reasonable procedures are not followed. Exchanges are effected at the net
asset value per share next calculated after the request is received in good
order with adjustment for any additional sales charge. If the exchanging
shareholder does not have an account in the fund whose shares are being
acquired, a new account will be established with the same registration, dividend
and capital gains options (except dividend diversification options) and broker,
dealer or financial intermediary of record as the account from which shares are
exchanged, unless otherwise specified by the shareholder. In order to establish
a systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, an exchanging shareholder must file a specific
written request. Each of the Funds reserves the right to reject any order to
acquire shares through exchange. In addition, each of the Funds may

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<PAGE> 124

modify, restrict or terminate the exchange privilege at any time on 60 days'
notice to its shareholders of any termination or material amendment.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. Any investor whose shares in a single account total $5,000 or
more at the offering price next computed after receipt of instructions may
establish a quarterly, semi-annual or annual withdrawal plan. This plan provides
for the orderly use of the entire account, not only the income but also the
capital, if necessary. Each withdrawal constitutes a redemption of shares on
which taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.

Under the plan, sufficient shares of a Fund are redeemed to provide the amount
of the periodic withdrawal payment. Dividends and capital gains distributions on
shares held under the plan are reinvested in additional shares at the next
determined net asset value. If periodic withdrawals continuously exceed
reinvested dividends and capital gains distributions, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. Withdrawals
made concurrently with purchases of additional shares ordinarily will be
disadvantageous to the shareholder because of the duplication of sales charges.
Each of the Funds reserves the right to amend or terminate the systematic
withdrawal program on thirty days' notice to its shareholders.

CHECK WRITING PRIVILEGE. Holders of Class A Shares of the Funds for which
certificates have not been issued and which are in a non-escrow status may
appoint ACCESS as agent by completing the Authorization for Redemption by Check
Form and the appropriate section of the application and returning the form and
the application to ACCESS. Once the form is properly completed, signed and
returned to the agent, a supply of checks drawn on State Street Bank and Trust
Company ("State Street Bank") will be sent to such shareholder. These checks may
be made payable by the holder of Class A Shares to the order of any person in
any amount of $100 or more.

When a check is presented to State Street Bank for payment, full and
fractional Class A Shares required to cover the amount of the check are redeemed
from the

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<PAGE> 125

shareholder's account by ACCESS at the next determined net asset value. Check
writing redemptions represent the sale of Class A Shares. Any gain or loss
realized on the sale of Class A Shares is a taxable event. See "Redemption of
Shares."

Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A Share account, the check
will be returned and the shareholder may be subject to additional charges.
Holders of Class A Shares may not liquidate the entire account by means of a
check. The check writing privilege may be terminated or suspended at any time by
the respective Fund or State Street Bank. Retirement plans and accounts that are
subject to backup withholding are not eligible for the privilege. A "stop
payment" system is not available on these checks. See the Statements of
Additional Information for further information regarding the establishment of
the privilege.

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

Shareholders may redeem for cash some or all of their shares without charge by
the respective Fund (other than, with respect to CDSC Shares, the applicable
contingent deferred sales charge) at any time by sending a written request in
proper form directly to ACCESS, P. O. Box 418256, Kansas City, Missouri
64141-9256, by placing the redemption request through an authorized dealer or by
calling the respective Fund.

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<PAGE> 126

record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
If certificates are held for the shares being redeemed, such certificates must
be endorsed for transfer or accompanied by an endorsed stock power and sent with
the redemption request. In the event the redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator, and the
name and title of the individual(s) authorizing such redemption is not shown in
the account registration, a copy of the corporate resolution or other legal
documentation appointing the authorized signer and certified within the prior 60
days must accompany the redemption request. The redemption price is the net
asset value per share next determined after the request is received by ACCESS in
proper form. Payment for shares redeemed (less any sales charge, if applicable)
will ordinarily be made by check mailed within three business days after
acceptance by ACCESS of the request and any other necessary documents in proper
order. Such payments may be postponed or the right of redemption suspended as
provided by the rules of the SEC. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check until
it confirms that the purchase check has cleared, usually a period of up to 15
days. Any gain or loss realized on the redemption of shares is a taxable event.

TELEPHONE REDEMPTION REQUESTS. Each of the Funds permits redemption of shares
by telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application accompanying this Prospectus or call the respective Fund at (800)
421-5666 ((800) 421-2833 for the hearing impaired) to request that a copy of the
Telephone Redemption Authorization form be sent to them for completion. To
redeem shares, contact the telephone transaction line at (800) 421-5684. VKAC
and the Funds employ procedures considered by them to be reasonable to confirm
that instructions

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<PAGE> 127

communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed, a
shareholder agrees that neither VKAC nor the respective Fund will be liable for
following instructions which it reasonably believes to be genuine. VKAC and the
respective Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. Telephone redemptions
may not be available if the shareholder cannot reach ACCESS by telephone,
whether because all telephone lines are busy or for any other reason; in such
case, a shareholder would have to use the respective Fund's other redemption
procedures previously described. Requests received by ACCESS prior to 4:00 p.m.,
New York time, on a regular business day will be processed at the net asset
value per share determined that day. These privileges are available for all
accounts other than retirement accounts. The telephone redemption privilege is
not available for shares represented by certificates. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check or wiring redemption proceeds until it confirms that the
purchase check has cleared, usually a period of up to 15 days. If an account has
multiple owners, ACCESS may rely on the instructions of any one owner.

For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check sent to the shareholders'
address of record and amounts of at least $1,000 and up to $1 million may be
redeemed daily if the proceeds are to be paid by wire sent to the shareholder's
bank account of record. The proceeds must be payable to the shareholder(s) of
record. Proceeds from redemptions to be paid by check will ordinarily be mailed
within three business days to the shareholder's address of record. Proceeds from
redemptions to be paid by wire will ordinarily be wired on the next business day
to the shareholder's bank account of record. This privilege is not available if
the address of record has been changed within 30 days prior to a telephone
redemption request. Each of the Funds reserves the right at any time to
terminate, limit or otherwise modify this telephone redemption privilege.

REDEMPTION UPON DISABILITY. The Funds will waive the CDSC on redemptions
following the disability of holders of Class B Shares and Class C Shares. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Code, which in pertinent part
defines a person as disabled if such person "is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration." While the Funds do not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of disability before it determines to waive the
CDSC on Class B Shares and Class C Shares.

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<PAGE> 128

GENERAL REDEMPTION INFORMATION. The respective Fund may redeem any shareholder
account with a net asset value on the date of the notice of redemption less than
the minimum investment as specified by the Trustees. At least 60 days advance
written notice of any such involuntary redemption is required and the
shareholder is given an opportunity to purchase the required value of additional
shares at the next determined net asset value without sales charge. Any
applicable CDSC will be deducted from the proceeds of this redemption. Any
involuntary redemption may only occur if the shareholder account is less than
the minimum investment due to shareholder redemptions.

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the respective Fund may reinstate any portion or all of the
net proceeds of such redemption in Class A Shares of such Fund. Holders of Class
C Shares who have redeemed shares of the respective Fund may reinstate any
portion or all of the net proceeds of such redemption in Class C Shares of such
Fund with credit given for any CDSC paid upon such redemption. Such
reinstatement is made at the net asset value (without sales charge except as
described under "Shareholder Services -- Exchange Privilege") next determined
after the order is received, which must be within 180 days after the date of the
redemption. See "Purchase of Shares -- Waiver of Contingent Deferred Sales
Charge." Reinstatement at net asset value is also offered to participants in
those eligible retirement plans held or administered by Van Kampen American
Capital Trust Company for repayment of principal (and interest) on their
borrowings on such plans.

- ------------------------------------------------------------------------------

DISTRIBUTION AND SERVICE PLANS

- ------------------------------------------------------------------------------

Each of the Funds has adopted a distribution plan (the "Distribution Plan")
with respect to each class of its shares pursuant to Rule 12b-1 under the 1940
Act. Each of the Funds also has adopted a service plan (the "Service Plan") with
respect to each class of shares. The Distribution Plan and Service Plan of each
Fund provide that the respective Fund may spend a portion of such Fund's average
daily net assets attributable to each class of its shares in connection with the
distribution of respective class of shares and in connection with the provision
of ongoing services to shareholders of each class. Each Distribution Plan and
Service Plan is being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers and financial

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intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.

CLASS A SHARES. Each of the Funds may spend an aggregate amount up to 0.25%
per year of the average daily net assets attributable to the Class A Shares of
the respective Fund pursuant to its Distribution Plan and Service Plan. From
such amount, the respective Fund may spend up to 0.25% per year of the average
daily net assets attributable to its Class A Shares pursuant to its Service Plan
in connection with the ongoing provision of services to holders of such shares
by the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts. Each of the
Funds pays the Distributor the lesser of the balance of the 0.25% not paid to
such brokers, dealers or financial intermediaries or the amount of the
Distributor's actual distribution-related expense.

CLASS B SHARES. Each of the Funds may spend up to 0.75% per year of the
average daily net assets attributable to the Class B Shares of the respective
Fund pursuant to the Distribution Plan. In addition, each of the Funds may spend
up to 0.25% per year of such Fund's average daily net assets attributable to the
Class B Shares of the respective Fund pursuant to its Service Plan in connection
with the ongoing provision of services to holders of such shares by the
Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

CLASS C SHARES. Each of the Funds may spend up to 0.75% per year of the
average daily net assets attributable to the Class C Shares of the respective
Fund pursuant to the Distribution Plan. From such amount, each of the Funds, or
the Distributor as agent for the respective Fund, pays brokers, dealers or
financial intermediaries in connection with the distribution of the Class C
Shares up to 0.75% of the respective Fund's average daily net assets
attributable to Class C Shares maintained in such Fund more than one year by
such broker's, dealer's or financial intermediary's customers. Each of the Funds
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense. In addition, each of the Funds may spend up
to 0.25% per year of the average daily net assets attributable to the Class C
Shares of the respective Fund pursuant to its Service Plan in connection with
the ongoing provision of services to holders of such shares by the Distributor
and by brokers, dealers or financial intermediaries and in connection with the
maintenance of such shareholders' accounts.

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<PAGE> 130

The Distributor's actual expenses with respect to a class of CDSC Shares (for
purposes of this section, excluding any Class A Shares that may be subject to a
CDSC) for any given year may exceed the amounts payable to the Distributor with
respect to such class of CDSC Shares under the Distribution Plan, the Service
Plan and payments received pursuant to the CDSC. In such event, with respect to
any such class of CDSC Shares, any unreimbursed expenses will be carried forward
and paid by the respective Fund (up to the amount of the actual expenses
incurred) in future years so long as such Distribution Plan is in effect. Except
as mandated by applicable law, the Funds do not impose any limit with respect to
the number of years into the future that such unreimbursed expenses may be
carried forward (on a fund level basis). Because such expenses are accounted on
a fund level basis, in periods of extreme net asset value fluctuation such
amounts with respect to a particular CDSC Share may be greater or less than the
amount of the initial commission (including carrying cost) paid by the
Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. As of December 31, 1996, there were $1,243,753
and $12,975 of unreimbursed distribution expenses with respect to Class B Shares
and Class C Shares, respectively of the Insured Fund, representing 1.74% and
less than 0.26% of the Insured Fund's net assets attributable to Class B Shares
and Class C Shares, respectively. As of December 31, 1996, there were $555,803
and $6,908 of unreimbursed distribution expenses with respect to Class B Shares
and Class C Shares, respectively of the California Insured Fund, representing
1.94% and less than 0.31% of the California Insured Fund's net assets
attributable to Class B Shares and Class C Shares, respectively. If the
Distribution Plan was terminated or not continued, the Funds would not be
contractually obligated to pay the Distributor for any expenses not previously
reimbursed by the Fund or recovered through CDSCs.

Because each of the Funds is a series of the Trust, amounts paid to the
Distributor as reimbursement for expenses of one series of the Trust may
indirectly benefit the other funds which are series of the Trust. The
Distributor will endeavor to allocate such expenses among such funds in an
equitable manner. The Distributor will not use the proceeds from the CDSC
applicable to a particular class of shares to defray distribution-related
expenses attributable to any other class of shares. Various federal and state
laws prohibit national banks and some state-chartered commercial banks from
underwriting or dealing in the Funds' shares. In addition, state securities laws
on this issue may differ from the interpretations of federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
law. In the unlikely event that a court were to find that these laws prevent
such banks from providing such services described above, the Funds would seek
alternate providers and expects that shareholders would not experience any
disadvantage.

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<PAGE> 131

- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUNDS
- ------------------------------------------------------------------------------

Each Fund's policy is to declare daily and pay monthly distributions of all or
substantially all net investment income of such Fund. Each Fund's net recognized
investment income consists of all of its respective interest income, dividends
and other ordinary income earned by such Fund on its portfolio assets, less all
expenses of such Fund. Expenses of the Funds are accrued each day. Net long- and
short-term capital gains, if any, are expected to be distributed, to the extent
permitted by applicable law, to shareholders at least annually. Distributions
cannot be assured, and the amount of each monthly distribution may vary.

Distribution checks may be sent to parties other than the shareholder in whose
name the account is registered. Persons wishing to utilize this service should
complete the appropriate section of the account application accompanying this
Prospectus or available from Van Kampen American Capital Funds, c/o ACCESS, P.O.
Box 418256, Kansas City, MO 64141-9256. After ACCESS receives this completed
form, distribution checks will be sent to the bank or other person so designated
by such shareholder.

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. Each Fund will
automatically credit dividend distributions and any net long-term capital gain
distributions to a shareholder's account in additional shares of the respective
Fund valued at net asset value, without a sales charge. Unless a shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing
impaired) or in writing to ACCESS. See "Shareholder Services -- Reinvestment
Plan."

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<PAGE> 132

- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------

FEDERAL INCOME TAXATION. The Funds have qualified and intend to continue to
qualify each year and to elect to be treated as a regulated investment companies
under Subchapter M of the Code. To qualify as a regulated investment company,
the Funds must comply with certain requirements of the Code relating to, among
other things, the source of its income and diversification of its assets.

If the Funds so qualify and distribute each year to their respective
shareholders at least 90% of its net investment income (including tax-exempt
interest, taxable income and net short-term capital gain, but not net capital
gains, which are the excess of net long-term capital gains over net short-term
capital losses), they will not be required to pay federal income taxes on any
income distributed to shareholders. The Funds intend to distribute at least the
minimum amount of net investment income necessary to satisfy the 90%
distribution requirement. The Funds will not be subject to federal income tax on
any net capital gains distributed to shareholders.

In order to avoid a 4% excise tax, the Funds will be required to distribute,
by December 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31 of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Funds will be treated as having been distributed.

If either Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, such Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, a Fund may be required to pay
an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
a Fund failed to qualify as a regulated investment company for its first taxable
year or, if immediately after qualifying as a regulated investment company for
any taxable year, it failed to qualify for a period greater than one taxable
year, such Fund would be required to recognize any net built-in gains (the
excess of aggregate gains, including items of income, over aggregate losses that
would have been realized if it had been liquidated) in order to qualify as a
regulated investment company in a subsequent year.

Certain of each Fund's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of
such Fund and affect the holding period of the securities held by such Fund and
the character

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<PAGE> 133

of the gains or losses realized by the Fund. These provisions may also require
each Fund to mark-to-market some of the positions in its portfolio (i.e., treat
them as if they were sold for fair market value at the end of the tax-year),
which may cause such Fund to recognize income without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Funds will monitor their transactions and may make certain tax
elections in order to mitigate the effect of these rules and prevent
disqualification of the Funds as a regulated investment companies.

Each Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months.

Investments of the Funds in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Funds will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Funds may
have to dispose of securities that it would otherwise have continued to hold. A
portion of the discount relating to certain stripped tax-exempt obligations may
constitute taxable income when distributed to shareholders.

DISTRIBUTIONS. The Funds intend to invest in sufficient tax-exempt municipal
securities to permit payment of "exempt-interest dividends" (as defined in the
Code). Dividends paid by the Funds from the net tax-exempt interest earned from
municipal securities qualify as exempt-interest dividends if, at the close of
each quarter of its taxable year, at least 50% of the value of the total assets
of each respective Fund consists of municipal securities.

The Tax Reform Act of 1986 (the "Tax Reform Act") may have an adverse impact
upon the Funds and their shareholders. The Tax Reform Act imposed new
limitations on the use and investment of the proceeds of state and local
government bonds and other funds, which limitations must be satisfied in order
to maintain the exclusion from gross income for interest on such bonds. The
provisions of the Tax Reform Act generally apply to bonds issued after August
15, 1986. In light of these requirements, bond counsel qualify their opinions as
to the federal tax status of bonds issued after August 15, 1986 by making them
contingent on the issuer's future compliance with these limitations. Any failure
on the part of an issuer to comply could cause the interest on its bonds to
become taxable to investors retroactive to the date the bonds were issued.

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<PAGE> 134

Except as provided below, exempt-interest dividends paid to shareholders
generally are not includable in the shareholders' gross income for federal
income tax purposes. The percentage of the total dividends paid by a Fund during
any taxable year that qualify as exempt-interest dividends will be the same for
all shareholders of such Fund receiving dividends during such year.

The Tax Reform Act also makes interest on certain "private-activity bonds" an
item of tax preference subject to the alternative minimum tax on individuals and
corporations. The Funds invest a portion of their assets in municipal securities
subject to this provision so that a portion of its exempt-interest dividends is
an item of tax preference to the extent such dividends represent interest
received from these private-activity bonds. Accordingly, investment in either
Fund could cause shareholders to be subject to (or result in an increased
liability under) the alternative minimum tax. The Tax Reform Act also imposed
per capita volume limitations on certain private-activity bonds which could
limit the amount of such bonds available for investment by the Funds.

Although exempt-interest dividends generally may be treated by shareholders as
items of interest excluded from their gross income, each shareholder is advised
to consult his tax adviser with respect to whether exempt-interest dividends
retain this exclusion if the purchaser would be treated as a "substantial user"
(or a "related person" of a substantial user) of the facilities financed with
respect to any of the tax-exempt obligations held by either Fund, or by the
Trust if it is required to qualify as a regulated investment company as
described below. "Substantial user" is defined under U.S. Treasury Regulations
to include a non-exempt person who regularly uses in his trade or business a
part of any facilities financed with the tax-exempt obligations and whose gross
revenues derived from such facilities exceed 5% of the total revenues derived
from the facilities by all users, or who occupies more than 5% of the useable
area of the facilities or for whom the facilities or a part thereof were
specifically constructed, reconstructed or acquired. Examples of "related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.

The Omnibus Budget Reconciliation Act of 1993 included certain provisions that
requires gains on dispositions of tax-exempt securities purchased at a market
discount be treated as ordinary income to the extent of the accrued market
discount, if the securities are acquired after April 30, 1993. Such securities
were exempt from the market discount rules under prior law. Interest on
indebtedness incurred or continued by a shareholder to purchase or carry shares
of either Fund is not deductible for federal income tax purposes if such Fund
distributes exempt-interest dividends during the shareholder's taxable year. If
a shareholder receives an exempt-interest dividend with respect to any shares
and such shares are held for six months or less, any

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<PAGE> 135

short-term capital loss on the sale or exchange of the shares will be disallowed
to the extent of the amount of such exempt-interest dividend.

While the Funds expect that a major portion of their net investment income
will constitute tax-exempt interest, a significant portion may consist of
investment company taxable income. Distributions of each Fund's net investment
company taxable income are taxable to shareholders as ordinary income to the
extent of such Fund's earnings and profits, whether paid in cash or reinvested
in additional shares. Distributions of each Fund's net capital gains ("capital
gains dividends"), if any, are taxable to shareholders as long-term capital
gains regardless of the length of time shares of such Fund have been held by
such shareholders. Interest on indebtedness which is incurred to purchase or
carry shares of a mutual fund which distributes exempt-interest dividends during
the year is not deductible for federal income tax purposes. Distributions in
excess of each Fund's earnings and profits will first reduce the adjusted tax
basis of a holder's shares and, after such adjusted tax basis is reduced to
zero, will constitute capital gains to such holder (assuming such shares are
held as a capital asset). Tax-exempt shareholders not subject to federal income
tax on their income generally will not be taxed on distributions from the Funds.

Shareholders receiving distributions in the form of additional shares issued
by the Funds will be treated for federal income tax purposes as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the distribution date. The basis of such shares will equal the
fair market value on the distribution date.

The Funds will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. The aggregate
amount of dividends so designated cannot exceed, however, the amount of interest
exempt from tax under Section 103 of the Code received by either Fund during the
year over any amounts disallowed as deductions under Sections 265 and 171(a)(2)
of the Code. Since the percentage of dividends which are "exempt-interest"
dividends is determined on an average annual method for the fiscal year, the
percentage of income designated as tax-exempt for any particular dividend may be
substantially different from the percentage of each Fund's income that was tax
exempt during the period covered by the dividend, Fund distributions generally
will not qualify for the dividends received deduction for corporations.

Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Funds and
received by the shareholders on the December 31 prior to the date of payment. In
addition, certain other distributions made after the close of a taxable year of
each Fund may be "spilled back" and treated as paid by such Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.

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The Funds are required, in certain circumstances, to withhold 31% of dividends
and certain other payments, including redemptions, paid to shareholders who do
not furnish to the Funds their correct taxpayer identification number (in the
case of individuals, their social security number) and certain required
certifications or who are otherwise subject to backup withholding.

CALIFORNIA TAX STATUS. Under existing California income tax law, if at the
close of each quarter of the California Insured Fund's taxable year at least 50%
of the value of its total assets consists of obligations of the State of
California and its political subdivisions, shareholders of the California
Insured Fund who are subject to the California personal income tax will not be
subject to such tax on distributions with respect to their shares of the
California Insured Fund to the extent that such distributions are attributable
to such tax-exempt interest from such obligations (less expenses applicable
thereto). If such distributions are received by a corporation subject to the
California franchise tax, however, the distributions will be includable in its
gross income for purposes of determining its California franchise tax.
Corporations subject to the California corporate income tax may be subject to
such taxes with respect to distributions from the California Insured Fund.
Accordingly, an investment in shares of the California Insured Fund may not be
appropriate for corporations subject to either tax. Under California personal
property tax law, securities owned by the California Insured Fund and any
interest thereon are exempt from such personal property tax. Any proceeds paid
to the California Insured Fund under the insurance policy which represents
matured interest on defaulted obligations should be exempt from California
personal income tax if, and to the same extent as, such interest would have been
exempt if paid by the issuer of such defaulted obligations. Recent amendments to
California tax laws substantially incorporate those provisions of the Code
governing the treatment of regulated investment companies.

GENERAL. The federal and California income tax discussions set forth above are
for general information only. Prospective investors should consult their tax
advisors

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<PAGE> 137

regarding the specific federal and California tax consequences of holding and
disposing of shares as well as the effects of other state, local and foreign tax
laws.

- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------

From time to time advertisements and other sales materials for each respective
Fund may include information concerning the historical performance of such Fund.
Any such information will include the average total return of such Fund
calculated on a compounded basis for specified periods of time. Such
advertisements and sales material may also include a yield quotation as of a
current period. In each case, such total return and yield information, if any,
will be calculated pursuant to rules established by the SEC and will be computed
separately for each class of a Fund's shares. In lieu of or in addition to total
return and yield calculations, such information may include performance rankings
and similar information from independent organizations such as Lipper Analytical
Services, Inc. or nationally recognized financial publications.

The yield quotations are determined for each class of a Fund's shares on a
monthly basis with respect to the immediately preceding 30 day period. Yield is
computed by dividing the respective Fund's net investment income per share
earned during such 30 day period by such Fund's maximum offering price per share
on the last day of such period. Net investment income per share for a class of
shares is determined by taking the interest earned by the respective Fund during
the period and allocable to the class of shares, subtracting the expenses (net
of reimbursements) accrued for the period and allocable to the class of shares,
and dividing the result by the product of (a) the average daily number of such
class of shares of the respective Fund outstanding during the period that were
entitled to receive dividends and (b) such Fund's maximum offering price per
share on the last day of the period. The yield calculation formula assumes net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six month period.

Tax-equivalent yield demonstrates the taxable yield required to produce an
after-tax yield equivalent to that of a Fund's yield. A tax-equivalent yield
quotation for a 30 day period as described above is computed for each class of a
Fund's shares by dividing that portion of the yield of such Fund (as computed
above) which is tax-exempt by a percentage equal to 100% minus a stated
percentage income tax rate and adding the result to that portion of such Fund's
yield, if any, that is not tax-exempt.

The average compounded total return for each class of a Fund's shares is
calculated by determining the redemption value at the end of specified periods
(after adding back all dividends and other distributions made during the period)
of a $1,000 investment in a class of shares of such Fund (less the maximum sales
charge) at the beginning of the period, annualizing the increase or decrease
over the specified period with respect to such initial investment and expressing
the result as a percentage.

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<PAGE> 138

Total return figures utilized by each Fund are based on historical performance
and are not intended to indicate future performance. Total return and net asset
value per share can be expected to fluctuate over time, and accordingly upon
redemption a shareholder's shares may be worth more or less than their original
cost.

Each of the Funds may, in supplemental sales literature, advertise
non-standardized total return figures representing the cumulative,
non-annualized total return of such Fund from a given date to a subsequent given
date. Cumulative non-standardized total return is calculated by measuring the
value of an initial investment in such Fund at a given time, including or
excluding any applicable sales charge as indicated, deducting the respective
Fund's maximum sales charge, determining the value of all subsequent reinvested
distributions, and dividing the net change in the value of the investment as of
the end of the period by the amount of the initial investment and expressing the
result as a percentage.

From time to time either Fund may include in its supplemental sales literature
and shareholder reports a quotation of the current "distribution rate" for the
respective Fund. Distribution rate is a measure of the level of income and
short-term capital gain dividends, if any, distributed for a specified period.
Distribution rate is determined by annualizing the distributions per share for a
stated period and dividing the result by the public offering price for the same
period. It differs from yield, which is a measure of the income actually earned
by a Fund's investments, and from total return, which is a measure of the income
actually earned by, plus the effect of any realized and unrealized appreciation
or depreciation of such investments during a stated period. Distribution rate
is, therefore, not intended to be a complete measure of a Fund's performance.
Distribution rate may sometimes be greater than yield since, for instance, it
may not include the effect of amortization of bond premiums, and may include
non-recurring short-term capital gains and premiums from futures transactions
engaged in by a Fund. Distribution rates will be calculated separately for each
class of a Fund's shares.

From time to time, a Fund may compare its performance to certain securities
and unmanaged indices which may have different risk/reward characteristics than
the Fund. Such characteristics may include, but are not limited to, tax
features, guarantees, insurance and the fluctuation of principal and/or return.
In addition, from time to time, a Fund may utilize sales literature that
includes hypotheticals.

Further information about the respective Fund's performance is contained in
its Annual Report and its Statement of Additional Information each of which can
be obtained without charge by calling (800) 421-5666 ((800) 421-2833 for the
hearing impaired).

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- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------

Shareholders will receive annual and semiannual reports with financial
statements, as well as proxy statements for shareholders' meetings, if any. Each
Fund is a separate series of the Trust, a Delaware business trust. The Insured
Fund was originally organized as a Maryland corporation under the name Van
Kampen Merritt Insured Tax Free Fund Inc., was subsequently reorganized into a
sub-trust of Van Kampen Merritt Tax Free Fund, a Massachusetts business trust,
under the name Van Kampen Merritt Insured Tax Free Income Fund as of February
22, 1988 and was again reorganized as a series of the Trust on July 31, 1995.
The California Insured Fund was organized under the name Van Kampen Merritt
California Insured Tax Free Fund as a sub-trust of Van Kampen Merritt Tax Free
Fund and was reorganized as a series of the Trust on July 31, 1995. Shares of
the Trust entitle their holders to one vote per share; however, separate votes
are taken by each series on matters affecting an individual series. The Trust
does not contemplate holding regular meetings of shareholders to elect Trustees
or otherwise. However, the holders of 10% or more of the outstanding shares may
by written request require a meeting to consider the removal of Trustees by a
vote of two-thirds of the shares then outstanding cast in person or by proxy at
such meeting. The Trust will assist such holders in communicating with other
shareholders of the Funds to the extent required by the 1940 Act. More detailed
information concerning the Trust is set forth in the Statement of Additional
Information of each Fund.

Each Fund's fiscal year end is December 31. Each of the Funds send to their
shareholders, at least semi-annually, reports showing the respective Fund's
portfolio and other information. An annual report, containing financial
statements audited by independent public accountants, is sent to shareholders
each year. After the end of each year, shareholders will receive federal income
tax information regarding dividends and capital gains distributions.

Shareholder inquiries should be directed to the Van Kampen American Capital
Insured Tax Free Income Fund or Van Kampen American Capital California Insured
Tax Free Fund, as applicable, One Parkview Plaza, Oakbrook Terrace, Illinois
60181.

For Automated Telephone Service which provides 24 hour direct dial access to
fund facts and shareholder account information dial (800) 847-2424. For
inquiries through Telecommunications Device for the Deaf (TDD) Dial (800)
421-2833.

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<PAGE> 140

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE

NUMBER--(800) 341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)

DIAL (800) 421-2833

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 847-2424.

VAN KAMPEN AMERICAN CAPITAL
INSURED TAX FREE INCOME FUND

VAN KAMPEN AMERICAN CAPITAL
CALIFORNIA INSURED TAX FREE FUND

One Parkview Plaza
Oakbrook Terrace, IL 60181

Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Distributor
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
Insured Tax Free Income Fund
or Van Kampen American Capital
California Insured Tax Free Fund

Custodian
STATE STREET BANK AND
TRUST COMPANY

225 West Franklin Street, P.O. Box 1713

Boston, MA 02105-1713
Attn: Van Kampen American Capital
Insured Tax Free Income Fund
or Van Kampen American Capital
California Insured Tax Free Fund

Legal Counsel
SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 141

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INSURED TAX FREE
INCOME FUND
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CALIFORNIA INSURED
TAX FREE FUND
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P R O S P E C T U S

APRIL 30, 1997

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 142

- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------

Van Kampen American Capital Municipal Income Fund (the "Fund") is a separate
diversified mutual fund, organized as a series of Van Kampen American Capital
Tax Free Trust. 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 seeks to achieve its investment objective by investing at
least 80% of its assets in a diversified portfolio of tax-exempt municipal
securities rated investment grade at the time of investment. Investment grade
securities are securities rated BBB or higher by Standard & Poor's Ratings Group
("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's"). Up to
20% of the Fund's total assets may consist of tax-exempt municipal securities
rated below investment grade (but not rated lower than B- by S&P or B3 by
Moody's) and unrated tax-exempt municipal securities believed by the Fund's
investment adviser to be of comparable quality, which involve special risk
considerations. Municipal securities in which the Fund may invest include
conventional fixed-rate municipal securities, variable rate municipal securities
and other types of municipal securities described herein. See "Municipal
Securities." The Fund may invest a substantial portion of its assets in
municipal securities that pay interest that is subject to the alternative
minimum tax. There is no assurance that the Fund will achieve its investment
objective.

The investment adviser for the Fund is Van Kampen American Capital
Investment Advisory Corp. This Prospectus sets forth the information about the
Fund that a prospective investor should know before investing in the Fund.
Please read it carefully and retain it for future reference. The address of the
Fund is One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone
number is (800) 421-5666.
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE REGULATORS NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

A Statement of Additional Information, dated April 30, 1997, containing
additional information about the Fund has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference in its entirety into
this Prospectus. A copy of the Fund's Statement of Additional Information may be
obtained without charge by calling (800) 421-5666 or for Telecommunications
Device for the Deaf at (800) 421-2833. The Statement of Additional Information
has been filed with the Securities and Exchange Commission ("SEC") and is
available along with other related Fund materials at the SEC's internet web site
(http.//www.sec.gov).

------------------
VAN KAMPEN AMERICAN CAPITALSM

------------------

THIS PROSPECTUS IS DATED APRIL 30, 1997.

<PAGE> 143

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Shareholder Transaction Expenses............................ 6
Annual Fund Operating Expenses and Example.................. 7
Financial Highlights........................................ 9
The Fund.................................................... 11
Investment Objective and Policies........................... 11
Municipal Securities........................................ 12
Investment Practices........................................ 15
Special Considerations Regarding the Fund................... 19
Investment Advisory Services................................ 20
Alternative Sales Arrangements.............................. 22
Purchase of Shares.......................................... 24
Shareholder Services........................................ 34
Redemption of Shares........................................ 38
Distribution and Service Plans.............................. 41
Distributions from the Fund................................. 43
Tax Status.................................................. 44
Fund Performance............................................ 49
Description of Shares of the Fund........................... 50
Additional Information...................................... 51
</TABLE>

2
<PAGE> 144

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

THE FUND. Van Kampen American Capital Municipal Income Fund (the "Fund") is a
separate diversified series of Van Kampen American Capital Tax Free Trust (the
"Trust"), an open-end management investment company organized as a Delaware
business trust. See "The Fund."

MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum subsequent investment for each class of shares (or less as described
under "Purchase of Shares").

INVESTMENT OBJECTIVE. The Fund's investment objective is to provide investors
with a high level of current income exempt from federal income tax, consistent
with preservation of capital.

INVESTMENT POLICY. The Fund seeks to achieve its investment objective by
investing at least 80% of its assets in a diversified portfolio of tax-exempt
municipal securities rated investment grade at the time of investment.
Investment grade securities are securities rated BBB or higher by Standard &
Poor's Ratings Group ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's") in the case of long-term obligations, and have equivalent ratings in
the case of short-term obligations. Up to 20% of the Fund's total assets may be
invested in tax-exempt municipal securities rated, at the time of investment,
between BB and B-(inclusive) by S&P or between Ba and B3 (inclusive) by Moody's
(or equivalently rated short-term obligations) and unrated tax-exempt municipal
securities that the Fund's investment adviser believes are of comparable
quality. See "Special Considerations Regarding the Fund."

Municipal securities in which the Fund may invest include fixed and variable
rate securities, municipal notes, municipal leases, tax exempt commercial paper,
custodial receipts, participation certificates and derivative municipal
securities the terms of which include elements of, or are similar in effect to,
certain Strategic Transactions (as defined herein) in which the Fund may engage.
The Fund may invest up to 15% of its total assets in derivative variable rate
securities such as inverse floaters, whose rates vary inversely with changes in
market rates of interest or range or capped floaters, whose rates are subject to
periodic of lifetime caps. There is no assurance that the Fund will achieve its
investment objective. Debt securities rated below investment grade are commonly
referred to as "junk bonds." The net asset value per share of the Fund may
increase or decrease depending on changes in interest rates and other factors
affecting the municipal credit markets. See "Investment Objective and Policies."

INVESTMENT PRACTICES. The Fund also may use various investment techniques
including engaging in risk management transactions and entering into when-issued
or delayed delivery transactions and various strategic transactions. Such
transactions entail certain risks. See "Municipal Securities" and "Investment
Practices." The Fund may invest a substantial portion of its assets in municipal
securities that

3
<PAGE> 145

pay interest that is subject to the federal alternative minimum tax. The Fund
may not be a suitable investment for investors who are already subject to the
federal alternative minimum tax or who would become subject to the federal
alternative minimum tax as a result of an investment in the Fund. See "Tax
Status."

INVESTMENT RESULTS. The investment results of the Fund are shown in the table
of "Financial Highlights."

ALTERNATIVE SALES ARRANGEMENTS. The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. Investors
should consider such factors together with the amount of sales charges and
accumulated distribution and service fees with respect to each class of shares
that may be incurred over the anticipated duration of their investment in the
Fund. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares.

The Fund offers three classes of its shares which may be purchased at a price
equal to their net asset value per share plus sales charges which, at the
election of the investor, may be imposed either (i) at the time of purchase
("Class A Shares") or (ii) on a contingent deferred basis (Class A Share
accounts over $1 million, "Class B Shares," and "Class C Shares"). Class A Share
accounts over $1 million or otherwise subject to a contingent deferred sales
charge ("CDSC"), Class B Shares, and Class C Shares sometimes are referred to
herein collectively as "CDSC Shares."

Class A Shares. Class A Shares are subject to an initial sales charge equal to
4.75% of the public offering price (4.99% of the net amount invested), reduced
on investments of $100,000 or more. Class A Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A Shares. Certain
purchases of Class A Shares qualify for reduced or no initial sales charges and
may be subject to a CDSC.

4
<PAGE> 146

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the Fund's investment adviser.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.

The foregoing is qualified in its entirety by reference to the more detailed

information appearing elsewhere in this Prospectus.

5
<PAGE> 147

- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed
on purchases (as a
percentage of the offering
price).................... 4.75%(1) None None
Maximum sales charge imposed
on reinvested dividends
(as a percentage of the
offering price)........... None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser
of the original purchase
price or redemption
proceeds)................. None(2) Year Year
1--4.00% 1--1.00%
Year After--None
2--3.75%
Year
3--3.50%
Year
4--2.50%
Year
5--1.50%
Year
6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed)................. None None None
Exchange fees............... None None None
</TABLE>

- ------------------------------------------------------------------------------
(1) Reduced on investments of $100,000 or more. See "Purchase of Shares -- Class
A Shares."

6
<PAGE> 148

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of
average daily net assets).............. 0.47% 0.47% 0.47%
12b-1 Fees (as a percentage of average
daily net assets)(1)................... 0.25% 1.00% 1.00%
Other Expenses (as a percentage of
average daily net assets).............. 0.22% 0.23% 0.23%
Total Expenses (as a percentage of
average daily net assets).............. 0.94% 1.70% 1.70%
</TABLE>

- ------------------------------------------------------------------------------

7
<PAGE> 149

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 0.94% for Class
A Shares, 1.70% for Class B Shares and
1.70% for Class C Shares, (ii) 5% annual
return and (iii) redemption at the end of
each time period:
Class A Shares............................ $57 $76 $ 97 $157
Class B Shares............................ $57 $89 $107 $181*
Class C Shares............................ $27 $54 $ 92 $201
You would pay the following expenses on the
same $1,000 investment assuming no
redemption at the end of each period:
Class A Shares............................ $57 $76 $ 97 $157
Class B Shares............................ $17 $54 $ 92 $181*
Class C Shares............................ $17 $54 $ 92 $201
</TABLE>

- ------------------------------------------------------------------------------

* Based on conversion to Class A Shares after eight years.

8
<PAGE> 150

<TABLE>
<CAPTION>
CLASS A SHARES
---------------------------------------------------------------------------------------

YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $15.549 $14.261 $16.164 $15.310 $15.071 $14.250
Net Investment Income....... .898 .874 .886 .964 1.041 1.066
Net Realized and Unrealized
Gain/Loss on Investments... (.298) 1.296 (1.907) .862 .374 .853
------- ------- ------- ------- ------- -------
Total from Investment
Operations.................. .600 2.170 (1.021) 1.826 1.415 1.919
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income(2).................. .882 .882 .882 .972 1.044 1.098
Distributions from and in
Excess of Net Realized
Gains(2)................... 0 0 .000 .000 .132 .000
------- ------- ------- ------- ------- -------
Total Distributions.......... .882 .882 .882 .972 1.176 1.098
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $15.267 $15.549 $14.261 $16.164 $15.310 $15.071
======= ======= ======= ======= ======= =======
Total Return(1).............. 4.07% 15.61% (6.37%) 12.20% 9.69% 13.98%
Net Assets at End of Period
(in millions)............... $ 792.3 $ 839.7 $ 495.8 $ 597.6 $ 463.6 $ 293.7

<CAPTION>
CLASS A SHARES CLASS B SHARES
---------------- ----------------------------------------------------------------------------
AUGUST 1, 1990
(COMMENCEMENT OF AUGUST 24, 1992
INVESTMENT (COMMENCEMENT OF
OPERATIONS) TO YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DISTRIBUTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1990 1996 1995 1994 1993 1992
---------------- ------------ ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $14.263 $15.549 $14.261 $16.139 $15.308 $15.481
Net Investment Income....... .406 .783 .762 .780 .852 .320
Net Realized and Unrealized
Gain/Loss on Investments... (.049) (.297) 1.294 (1.890) .845 (.033)
----- ------- ------- ------- ------- -------
Total from Investment
Operations.................. .357 .486 2.056 (1.110) 1.697 .287
----- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income(2).................. .370 .768 .768 .768 .866 .328
Distributions from and in
Excess of Net Realized
Gains(2)................... .000 0 .000 0 .000 .132
----- ------- ------- ------- ------- -------
Total Distributions.......... .370 .768 .768 .768 .866 .460
----- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $14.250 $15.267 $15.549 $14.261 $16.139 $15.308
===== ======= ======= ======= ======= =======
Total Return(1).............. 2.57%* 3.29% 14.74% (6.96%) 11.33% 1.90%*
Net Assets at End of Period
(in millions)............... $ 146.6 $ 211.0 $ 216.6 $ 158.7 $ 168.2 $ 48.4

<CAPTION>
CLASS C SHARES
-------------------------------------------------------------

AUGUST 13, 1993
(COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED DISTRIBUTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $15.545 $14.262 $16.141 $15.990
Net Investment Income....... .782 .771 .783 .300
Net Realized and Unrealized
Gain/Loss on Investments... (.305) 1.280 (1.894) .171
------- ------- ------- -------
Total from Investment
Operations.................. .477 2.051 (1.111) .471
------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income(2).................. .768 .768 .768 .320
Distributions from and in
Excess of Net Realized
Gains(2)................... 0 0 .000 .000
------- ------- ------- -------
Total Distributions.......... .768 .768 .768 .320
------- ------- ------- -------
Net Asset Value, End of the
Period...................... $15.254 $15.545 $14.262 $16.141
======= ======= ======= =======
Total Return(1).............. 3.16% 14.74% (6.97%) 2.96%*
Net Assets at End of Period
(in millions)............... $ 12.9 $ 11.2 $ 3.9 $ 4.1
</TABLE>

(Continued on following page)

See Financial Statements and Notes Thereto

9
<PAGE> 151

<TABLE>
<CAPTION>
CLASS A SHARES
---------------------------------------------------------------------------------------

<CAPTION>
CLASS C SHARES
-------------------------------------------------------------

- ----------------

(1) Total Return does not reflect the effect of sales charges. During the time
period noted for Class C Shares, no expenses were assumed by the Adviser. If
certain expenses had not been waived or assumed by the Adviser for Class A
Shares and Class B Shares, total return would have been lower and the ratios
would have been as follows:

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio of Expenses to Average
Net Assets (annualized).... .94% .99% .99% .98% 1.00% 1.07%
Ratio of Net Investment
Income to Average Net
Assets (annualized)........ 5.93% 5.86% 5.93% 5.97% 6.62% 6.81%

<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Ratio of Expenses to Average
Net Assets (annualized).... 1.19% 1.70% 1.73% 1.20% 1.73% 2.42%
Ratio of Net Investment
Income to Average Net
Assets (annualized)........ 6.81% 5.17% 5.09% 5.22% 5.11% 4.48%

<CAPTION>
<S> <C> <C> <C> <C>
Ratio of Expenses to Average
Net Assets (annualized).... -- -- -- --
Ratio of Net Investment
Income to Average Net
Assets (annualized)........ -- -- -- --
</TABLE>

(2) Distributions in excess result from temporary differences inherent in the
recognition of interest income and capital gains under generally accepted
accounting principles and for federal income tax purposes.

* Non-Annualized.

See Financial Statements and Notes Thereto

10
<PAGE> 152

- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital Municipal Income Fund (the "Fund") is a separate
diversified series of Van Kampen American Capital Tax Free Trust (the "Trust"),
which is an open-end management investment company, commonly known as a "mutual
fund," organized as a Delaware business trust. Mutual funds sell their shares to
investors and invest the proceeds in a portfolio of securities. A mutual fund
allows investors to pool their money with that of other investors in order to
obtain professional investment management. Mutual funds generally make it
possible for investors to obtain greater diversification of their investments
and to simplify their recordkeeping.

- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------

The investment objective of the Fund is to provide investors with a high level
of current income exempt from federal income tax, consistent with preservation
of capital. The Fund's investment objective is a fundamental policy and may not
be changed without shareholder approval. Under normal market conditions, the
Fund invests at least 80% of its total assets in tax-exempt municipal securities
rated investment grade. The Fund's policy with respect to ratings is not a
fundamental policy, and thus may be changed by the Trustees without shareholder
approval. See "Municipal Securities." The Fund intends, however, to maintain at
all times at least 80% of its total assets in tax-exempt municipal securities
rated investment grade or deemed by the investment adviser to be of comparable
quality at the time of investment. Investment grade securities are securities
rated BBB or higher by Standard & Poor's Ratings Group ("S&P") or Baa or higher
by Moody's Investors Service, Inc. ("Moody's") in the case of long-term
obligations, and have equivalent ratings in the case of short-term obligations.
According to published guidelines, securities rated BBB by S&P are regarded by
S&P as having an adequate capacity to pay interest and repay principal. Whereas
such securities normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely, in the opinion of
S&P, to lead to a weakened capacity to pay interest and repay principal for debt
in this category than in higher rated categories. According to published
guidelines, securities rated Baa by Moody's are considered by Moody's as medium
grade obligations. Such securities are, in the opinion of Moody's, neither
highly protected nor poorly secured. Interest payments and principal security
appear to Moody's to be adequate for the present but certain

11
<PAGE> 153

protective elements may be lacking or may be characteristically unreliable over
any great length of time. In the opinion of Moody's they lack outstanding
investment characteristics and in fact have speculative characteristics as well.

Up to 20% of the Fund's total assets may be invested in tax-exempt municipal
securities rated, at the time of investment, between BB and B- (inclusive) by
S&P or between Ba and B3 (inclusive) by Moody's (or equivalently rated
short-term obligations) and unrated tax-exempt securities that the Adviser
considers to be comparable quality. These securities are below investment grade
and are regarded by S&P, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation. While in the opinion of S&P such securities will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. These securities
are regarded by Moody's as generally lacking characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the securities' contract over any long period of time may, in the
opinion of Moody's, be small. Debt securities rated below investment grade are
commonly referred to as "junk bonds." For a description of S&P's and Moody's
ratings see the Statement of Additional Information. From time to time the Fund
temporarily may also invest up to 10% of its assets in tax exempt money market
funds. Such instruments will be treated as investments in municipal securities.

An investment in the Fund may not be appropriate for all investors. The Fund
is not intended to be a complete investment program, and investors should
consider their long-term investment goals and financial needs when making an
investment decision with respect to the Fund. An investment in the Fund is
intended to be a long-term investment and should not be used as a trading
vehicle.

- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES
- ------------------------------------------------------------------------------

GENERAL. Tax-exempt municipal securities are debt obligations issued by or on
behalf of the governments of states, territories or possessions of the United
States, the District of Columbia and their political subdivisions, agencies and
instrumentalities, certain interstate agencies and certain territories of the
United States, the interest on which, in the opinion of bond counsel or other
counsel to the issuer of such securities, is exempt from federal income tax.
Under normal market conditions, up to 100% but not less than 80%, of the Fund's
assets will be invested in municipal securities. The foregoing is a fundamental
policy of the Fund and cannot be changed without approval of the shareholders of
the Fund.

12
<PAGE> 154

special excise tax or other specific revenue source. Industrial development
bonds are usually revenue securities, the credit quality of which is normally
directly related to the credit standing of the industrial user involved.

Within these principal classifications of municipal securities there are a
variety of categories of municipal securities, including fixed and variable rate
securities, municipal bonds, municipal notes, municipal leases, custodial
receipts, participation certificates and derivative municipal securities the
terms of which include elements of, or are similar in effect to, certain
Strategic Transactions (as defined below) in which the Fund may engage. Variable
rate securities bear rates of interest that are adjusted periodically according
to formulae intended to reflect market rates of interest and include securities
whose rates vary inversely with changes in market rates of interest. The Fund
will not invest more than 15% of its total assets in derivative municipal
securities such as inverse floaters, whose rates vary inversely with changes in
market rates of interest or range floaters or capped floaters whose rates are
subject to periodic or lifetime caps. Such securities may also pay a rate of
interest determined by applying a multiple to the variable rate. The extent of
increases and decreases in the value of securities whose rates vary inversely
with market rates of interest generally will be larger than comparable changes
in the value of such municipal securities generally will fluctuate in response
to changes in market rates of interest to a greater extent than the value of an
equal principal amount of a fixed rate municipal security having similar credit
quality, redemption provisions and maturity. Municipal notes include tax,
revenue and bond anticipation notes of short maturity, generally less than three
years, which are issued to obtain temporary funds for various public purposes.
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Custodial receipts are underwritten by securities dealers or
banks and evidence ownership of future interest payments, principal payments or
both on certain municipal securities. Participation certificates are obligations
issued by state or local governments or authorities to finance the acquisition
of equipment and facilities. They may represent participations in a lease, an
installment purchase contract, or a conditional sales contract. Some municipal
securities may not be backed by the faith, credit and taxing power of the
issuer. Certain of the municipal securities in which the Fund may invest
represent relatively recent innovations in the municipal securities markets.
While markets for such recent innovations progress through stages of
development, such markets may be less developed than more fully developed
markets for municipal securities. A more detailed description of the types of
municipal securities in which the Fund may invest is included in the Statement
of Additional Information.

The net asset value of the Fund will change with changes in the value of its
portfolio securities. Because the Fund will invest primarily in fixed income
municipal securities, the net asset value of the Fund can be expected to change
as general

13
<PAGE> 155

levels of interest rates fluctuate. When interest rates decline, the value of a
portfolio invested in fixed income securities generally can be expected to rise.
Conversely, when interest rates rise, the value of a portfolio invested in fixed
income securities generally can be expected to decline. Volatility may be
greater during periods of general economic uncertainty.

From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the Fund
to pay tax exempt interest dividends might be adversely affected.

LOWER GRADE MUNICIPAL SECURITIES. The Fund may invest up to 20% of its total
assets in lower grade tax-exempt municipal securities or in unrated municipal
securities considered by the Adviser to be of comparable quality. Lower grade
municipal securities are rated between BB and B- by S&P or between Ba and B3 by
Moody's, in each case inclusive of such rating categories. Higher yields are
generally available from municipal securities of such grade. With respect to
such 20% of the Fund's total assets, the Fund has not established any limit on
the percentage of its portfolio which may be invested in securities in any one
rating category.

Investors should carefully consider the risks of owning shares of an
investment company which invests in lower grade municipal securities before
making an investment in the Fund. The higher yield on certain securities held by
the Fund reflects a greater possibility that the financial condition of the
issuer, or adverse changes in general economic conditions, or both, may impair
the ability of the issuer to make payments of income and principal. See "Special
Considerations Regarding the Fund."

The Adviser seeks to minimize the risks involved in investing in lower grade
municipal securities through diversification and careful investment analysis. To
the extent that there is no established retail market for some of the lower
grade municipal securities in which the Fund may invest, trading in such
securities may be relatively inactive. The Adviser is responsible for
determining the net asset value of the Fund, subject to the supervision of the
Board of Trustees of the Trust. During periods of reduced market liquidity and
in the absence of readily available market quotations for lower grade municipal
securities held in the Fund's portfolio, the ability of the Adviser to value the
Fund's securities becomes more difficult and the Adviser's use of judgment may
play a greater role in the valuation of the Fund's securities due to the reduced
availability of reliable objective data. The effects of adverse publicity and
investor perceptions may be more pronounced for securities for which no
established retail market exists as compared with the effects on securities for
which such a market does exist. Further, the Fund may have more difficulty
selling such securities in a timely manner and at their stated value than would
be the case for securities for which an established retail market does exist.
See "Special Considerations Regarding the Fund."

14
<PAGE> 156

SELECTION OF INVESTMENTS. The Adviser will buy and sell securities for the
Fund's portfolio with a view to seeking a high level of current income exempt
from federal income tax and will select securities which the Adviser believes
entail reasonable credit risk considered in relation to the investment policies
of the Fund. As a result, the Fund will not necessarily invest in the highest
yielding tax-exempt municipal securities permitted by the investment policies if
the Adviser determines that market risks or credit risks associated with such
investments would subject the Fund's portfolio to excessive risk. The potential
for realization of capital gains resulting from possible changes in interest
rates will not be a major consideration. There is no limitation as to the
maturity of municipal securities in which the Fund may invest. The Adviser may
adjust the average maturity of the Fund's portfolio from time to time, depending
on its assessment of the relative yields available on securities of different
maturities and its expectations of future changes in interest rates. Other than
for tax purposes, frequency of portfolio turnover will generally not be a
limiting factor if the Fund considers it advantageous to purchase or sell
securities. The Fund may have annual portfolio turnover rates in excess of 100%.
A high rate of portfolio turnover involves correspondingly greater brokerage
commission expenses or dealer costs than a lower rate, which expenses and costs
must be borne by the Fund and its shareholders. High portfolio turnover may also
result in the realization of substantial net short-term capital gains and any
distributions resulting from such gains will be taxable. See "Tax Status" in
this Prospectus and "Investment Policies and Restrictions" in the Statement of
Additional Information.

DEFENSIVE STRATEGIES. At times conditions in the markets for tax-exempt
municipal securities may, in the Adviser's judgment, make pursuing the Fund's
basic investment strategy inconsistent with the best interests of its
shareholders. At such times, the Adviser may use alternative strategies
primarily designed to reduce fluctuations in the value of the Fund's assets. In
implementing these "defensive" strategies, the Fund may invest to a substantial
degree in high-quality, short-term municipal obligations. If these high-quality,
short-term municipal obligations are not available or, in the Adviser's
judgment, do not afford sufficient protection against adverse market conditions,
the Fund may invest in taxable obligations. Such taxable obligations may
include: obligations of the U.S. Government, its agencies or instrumentalities;
other debt securities rated within the four highest grades by either S&P or
Moody's; commercial paper rated in the highest grade by either rating service;
certificates of deposit and bankers' acceptances; repurchase agreements with
respect to any of the foregoing investments; or any other fixed-income
securities that the Adviser considers consistent with such strategy.

- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------

15
<PAGE> 157

generally will not be treated as investments in tax-exempt municipal securities
for purposes of the Fund's 80% investment policy with respect thereto.

Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale of portfolio securities at inopportune times or for prices
other than at current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing

16
<PAGE> 158

potential financial risk than would purchases of options, where the exposure is
limited to the cost of the initial premium. Losses resulting from the use of
Strategic Transactions would reduce net asset value, and possibly income, and
such losses can be greater than if the Strategic Transactions had not been
utilized. The Strategic Transactions that the Fund may use and some of their
risks are described more fully in the Fund's Statement of Additional
Information.

Income earned or deemed to be earned, if any, by the Fund from its Strategic
Transactions will generally be taxable income of the Fund. See "Tax Status."

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell municipal securities on a "when issued" and "delayed delivery" basis.
No income accrues to the Fund on municipal securities in connection with such
purchase transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher or lower than yields on the municipal securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or liquid securities having an aggregate value equal to
the amount of such purchase commitments until payment is made. The Fund will
make commitments to purchase municipal securities on such basis only with the
intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objective and
policies and not for the purposes of investment leverage. No specific limitation
exists as to the percentage of the Fund's assets which may be used to acquire
securities on a "when issued" or "delayed delivery" basis.

17
<PAGE> 159

The Fund generally will not invest more than 25% of its total assets in any
industry, nor will the Fund generally invest more than 5% of its assets in the
securities of any single issuer. Governmental issuers of municipal securities
are not considered part of any "industry." However, municipal securities backed
only by the assets and revenues of nongovernmental users may for this purpose be
deemed to be issued by such nongovernmental users, and the 25% limitation would
apply to such obligations. It is nonetheless possible that the Fund may invest
more than 25% of its assets in a broader segment of the municipal securities
market, such as revenue obligations of hospitals and other health care
facilities, housing agency revenue obligations, or airport revenue obligations
if the Adviser determines that the yields available from obligations in a
particular segment of the market justified the additional risks associated with
a large investment in such segment. Although such obligations could be supported
by the credit of governmental users, or by the credit of nongovernmental users
engaged in a number of industries, economic, business, political and other
developments generally affecting the revenues of such users (for example,
proposed legislation or pending court decisions affecting the financing of such
projects and market factors affecting the demand for their services or products)
may have a general adverse effect on all municipal securities in such a market
segment. The Fund reserves the right to invest more than 25% of its assets in
industrial development bonds or in issuers located in the same state, although
it has no present intention to invest more than 25% of its assets in issuers
located in the same state. If the Fund were to invest more than 25% of its
assets in issuers located in the same state, it would be more susceptible to
adverse economic, business, or regulatory conditions in that state.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. The Adviser is responsible
for decisions to buy and sell securities for the Fund, the selection of brokers
and dealers to effect the transactions and the negotiation of prices and any
brokerage commissions. The securities in which the Fund invests are traded
principally in the over-the-counter market. In the over-the-counter market,
securities are generally traded on a net basis with dealers acting as principal
for their own accounts without a stated commission, although the price of the
security usually includes a mark-up to the dealer. Securities purchased in
underwritten offerings generally include, in the price, a fixed amount of
compensation for the managers, underwriters and dealers. The Fund may also
purchase certain money market instruments directly from an issuer, in which case
no commissions or discounts are paid. Purchases and sales of bonds on a stock
exchange are effected through brokers who charge a commission for their
services.

18
<PAGE> 160

when, in the judgment of the Adviser, more than one firm can offer comparable
execution services. In selecting among such firms, consideration is given to
those firms which supply research and other services in addition to execution
services. However, it is not the policy of the Adviser, absent special
circumstances, to pay higher commissions to a firm because it has supplied such
services.

In effecting purchases and sales of the Fund's portfolio securities, the
Adviser and the Fund may place orders with and pay brokerage commissions to
brokers, including brokers which may be affiliated with the Fund, the Adviser
and the Distributor or dealers participating in the offering of the Fund's
shares. In addition, in selecting among firms to handle a particular
transaction, the Adviser and the Fund may take into account whether the firm has
sold or is selling shares of the Fund. See "Portfolio Transactions and Brokerage
Allocation" in the Statement of Additional Information for more information.

- ------------------------------------------------------------------------------
SPECIAL CONSIDERATIONS REGARDING THE FUND
- ------------------------------------------------------------------------------

In normal circumstances, the Fund may invest up to 20% of its total assets in
lower grade tax-exempt municipal securities or in unrated municipal securities
considered by the Adviser to be of comparable quality. Lower grade municipal
securities are rated between BB and B- by S&P or between Ba and B3 by Moody's,
in each case inclusive of such rating categories. Investment in lower grade
municipal securities involves special risks as compared with investment in
higher grade municipal securities. The market for lower grade municipal
securities is considered to be less liquid than the market for investment grade
municipal securities which may adversely affect the ability of the Fund to
dispose of such securities in a timely manner at a price which reflects the
value of such security in the Adviser's judgement. The market price for less
liquid securities tends to be more volatile than the market price for more
liquid securities. Illiquid securities and the absence of readily available
market quotations with respect thereto may make the Adviser's valuation of such
securities more difficult, and the Adviser's judgment may play a greater role in
the valuation of the Fund's securities. Lower grade municipal securities
generally involve greater credit risk than higher grade municipal securities and
are more sensitive to adverse economic changes, significant increases in
interest rates and individual issuer developments. Because issuers of lower
grade municipal securities frequently choose not to seek a rating of their
municipal securities, the Fund will rely more heavily on the Adviser's ability
to determine the relative investment quality of such securities than if the Fund
invested exclusively in higher grade municipal securities. The Fund may, if
deemed appropriate by the Adviser, retain a security whose rating has been
downgraded below B- by S&P or below B3 by Moody's, or whose rating has been
withdrawn. More detailed information concerning the risks associated with
instruments in lower grade municipal securities is included in the Fund's
Statement of Additional Information.

19
<PAGE> 161

The Fund may invest a substantial portion of its assets in municipal
securities that pay interest that is subject to the federal alternative minimum
tax. The Fund may not be a suitable investment for investors who are already
subject to the federal alternative minimum tax or who would become subject to
the federal alternative minimum tax as a result of an investment in the Fund.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
--------------------------------------------------
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING AS A PERCENTAGE OF AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE PORTFOLIO VALUE
-------- ------------------ ---------------------
<S> <C> <C>
AAA/Aaa............................ 38.20% 3.01%
AA/Aa.............................. 7.83 0.00
A/A................................ 12.40 0.92
BBB/Baa............................ 18.18 5.41
BB/Ba.............................. 1.69 7.27
B/B................................ 0.37 3.98
CCC/Caa............................ 0.05 0.67
CC/Ca.............................. 0.00 0.00
C/C................................ 0.00 0.00
D.................................. 0.00 0.02
------ ------
Percentage of Rated and Unrated
Securities....................... 78.72% 21.28%
====== ======
</TABLE>

The portfolio composition shown in the table above reflects the allocation of
assets by the Fund during periods of relative instability in the market for
lower grade securities. The percentage of the Fund's assets invested in
securities of various grades may from time to time vary substantially from those
set forth above.

- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------

20
<PAGE> 162

38 closed-end funds and more than 2,500 unit investment trusts are
professionally distributed by leading financial advisers nationwide. Van Kampen
American Capital Distributors, Inc. (the "Distributor"), the distributor of the
Fund and sponsor of the funds mentioned above, is a wholly-owned subsidiary of
Van Kampen American Capital.

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

ADVISORY AGREEMENT. The business and affairs of the Fund will be managed under
the direction of the Board of Trustees of the Trust, of which the Fund is a
separate series. Subject to their authority, the Adviser and the respective
officers of the Fund will supervise and implement the Fund's investment
activities and will be responsible for overall management of the Fund's business
affairs. The Fund will pay the Adviser a fee equal to a percentage of the
average daily net assets of the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
------------------------ -------------
<S> <C>
First $500 million...................................... 0.50 of 1.00%
Over $500 million....................................... 0.45 of 1.00%
</TABLE>

21
<PAGE> 163

"1940 Act"), of the Adviser, the Distributor or Van Kampen American Capital),
the charges and expenses of independent accountants, legal counsel, transfer
agent (ACCESS Investor Services, Inc. ("ACCESS"), a wholly-owned subsidiary of
Van Kampen American Capital), or dividend disbursing agent and the custodian
(including fees for safekeeping of securities), costs of calculating net asset
value, costs of acquiring and disposing of portfolio securities, interest (if
any) on obligations incurred by the Fund, costs of share certificates,
membership dues in the Investment Company Institute or any similar organization,
reports and notices to shareholders, costs of registering shares of the Fund
under the federal securities laws, miscellaneous expenses and all taxes and fees
to federal, state or other governmental agencies. The Adviser reserves the right
in its sole discretion from time-to-time to waive all or a portion of its
management fee or to reimburse the Fund for all or a portion of its other
expenses.

PORTFOLIO MANAGEMENT. David C. Johnson, a Senior Vice President of the
Adviser has been primarily responsible for the day-to-day management of the
Fund's portfolio since August, 1990. Mr. Johnson has been employed by the
Adviser since April 1989.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------

22
<PAGE> 164

The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor not to accept any order for Class
B Shares in an amount of $500,000 or more and not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

The administrative expenses that may be allocated to a specific class of
shares may consist of (i) ACCESS' expenses attributable to a specific class of
shares,

23
<PAGE> 165

which expenses typically will be higher with respect to classes of shares
subject to the conversion feature; (ii) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxy statements to current shareholders of a specific class; (iii)
Securities and Exchange Commission (the "SEC") registration fees incurred by a
class of shares; (iv) the expense of administrative personnel and services as
required to support the shareholders of a specific class; (v) Trustees' fees or
expense incurred as a result of issues relating to one class of shares; (vi)
accounting expenses relating solely to one class of shares; and (vii) any other
incremental expenses subsequently identified that should be properly allocated
to one or more classes of shares. All such expenses incurred by a class will be
borne on a pro rata basis by the outstanding shares of such class. All
allocations of administrative expenses to a particular class of shares will be
limited to the extent necessary to preserve the Fund's qualification as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").

- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------

The Fund offers three classes of shares for sale to the public on a continuous
basis through the Distributor, as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares are also offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
acting as securities dealers ("dealers") and through NASD members acting as
brokers for investors ("brokers") or eligible non-NASD members acting as agents
for investors ("financial intermediaries"). The Fund reserves the right to
suspend or terminate the continuous public offering of its shares at any time
and without prior notice.

The Fund's shares are offered at the net asset value per share next computed
after an investor places an order to purchase directly with the investor's
broker, dealer or financial intermediary or directly with the Distributor plus
any applicable sales charge. Sales personnel or brokers, dealers and financial
intermediaries distributing the Fund's shares may receive different compensation
for selling different classes of shares. It is the responsibility of the
investor's broker, dealer or financial intermediary to transmit the order to the
Distributor. Because the Fund generally will determine net asset value once each
business day as of the close of business, purchase orders placed through an
investor's broker, dealer or financial intermediary must be transmitted to the
Distributor by such broker, dealer or financial intermediary prior to such time
in order for the investor's order to be fulfilled on the basis of the net asset
value to be determined that day. Any change in the purchase price due to the
failure of the Distributor to receive a purchase order prior to such time must
be settled between the investor and the broker, dealer or financial intermediary
submitting the order.

The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal

24
<PAGE> 166

awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by it, pay fees to, and sponsor business seminars
for, qualifying brokers, dealers or financial intermediaries for certain
services or activities which are primarily intended to result in sales of shares
of the Fund. Fees may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its sales of shares and increases in assets under
management. Such payments to brokers, dealers and financial intermediaries for
sales contests, other sales programs and seminars are made by the Distributor
out of its own assets and not out of the assets of the Fund. Such fees paid for
such services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. These programs will not change the price an investor pays for shares or
the amount that the Fund will receive from such sale.

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between the investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor, the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has taken the position that
brokers, dealers or financial intermediaries who receive 90% or more of the
sales charge may be deemed to be "underwriters" as that term is defined in the
Securities Act of 1933, as amended.

25
<PAGE> 167

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
---------------------------------- --------------
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AT OFFERING PRICE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000................. 4.75% 4.99% 4.25%
$100,000 but less than $250,000.... 3.75 3.90 3.25
$250,000 but less than $500,000.... 2.75 2.83 2.25
$500,000 but less than
$1,000,000....................... 2.00 2.04 1.75
$1,000,000 or more*................ * * *
</TABLE>

- ------------------------------------------------------------------------------

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC
of 1.00% on redemptions made within one year of the purchase. A
commission will be paid to brokers, dealers or financial intermediaries
who initiate and are responsible for purchases of $1 million or more as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million
and 0.50% on the excess over $3 million. See "Purchase of Shares --
Deferred Sales Charge Alternatives" for additional information with
respect to CDSCs.

QUANTITY DISCOUNTS

A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age and any corporation, partnership, or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary of a single trust estate or a
single fiduciary account; or a "company" as defined is section 2(a)(8) of the
1940 Act.

VOLUME DISCOUNTS. The size of investment shown in the preceding sales charge
table applies to the total dollar amount being invested by any person at any one
time

26
<PAGE> 168

in Class A Shares of the Fund, or in any combination of shares of the Fund and
shares of other Participating Funds, although other Participating Funds may have
different sales charges.

OTHER PURCHASE PROGRAMS

27
<PAGE> 169

(1) Current or retired trustees or directors of funds advised by the Adviser
or Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the

28
<PAGE> 170

29
<PAGE> 171

and thereafter, a commission will be paid as follows: 1.00% on sales to $2
million, plus 0.80% on the next $1 million, plus 0.50% on the next $47
million and 0.25% on the excess over $50 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

DEFERRED SALES CHARGE ALTERNATIVES

30
<PAGE> 172

by such brokers, dealers and financial intermediaries which percentage rate will
be equal to (i) with respect to Class A Shares, 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million; (ii)
4.00% with respect to Class B Shares; and (iii) 1.00% with respect to Class C
Shares. Such compensation will not change the price an investor will pay for
CDSC Shares or the amount that the Fund will receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed on CDSC Shares derived from reinvestment of dividends or
capital gains distributions. Solely for purposes of determining the number of
years from the time of any payment for the purchases of CDSC Shares, all
payments during a month will be aggregated and deemed to have been made on the
last day of the month.

Proceeds from the CDSC and the distribution fee applicable to a class of CDSC
Shares are paid to the Distributor and are used by the Distributor to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of shares of such class of CDSC Shares, such as the
payment of compensation to selected dealers and agents and for selling such
shares. The combination of the CDSC and the distribution fees facilitates the
ability of the Fund to sell such CDSC Shares without a sales charge being
deducted at the time of purchase.

31
<PAGE> 173

increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 3.75% (the applicable rate in
the second year after purchase).

CLASS A SHARE PURCHASES OF $1 MILLION OR MORE. No sales charge is payable at
the time of purchase on investments in Class A Shares of $1 million or more,
although for such investments the Fund imposes a CDSC of 1.00% on redemptions
made within one year of the purchase. A commission will be paid to dealers who
initiate and are responsible for purchases of $1 million or more as follows: 1%
on sales to $2 million, plus 0.80% on the next $1 million and 0.50% on the
excess over $3 million.

CLASS B SHARES. Class B Shares redeemed within six years of purchase generally
will be subject to a CDSC at the rates set forth below, charged as a percentage
of the dollar amount subject thereto:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
------------------- -------------------
<S> <C>
First............................................... 4.00%
Second.............................................. 3.75%
Third............................................... 3.50%
Fourth.............................................. 2.50%
Fifth............................................... 1.50%
Sixth............................................... 1.00%
Seventh and after................................... 0.00%
</TABLE>

The CDSC generally is waived on redemptions of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services -- Systematic
Withdrawal Plan."

CONVERSION FEATURE. Class B Shares purchased on or after June 1, 1996 and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares six years after the end of the calendar month in which the shares
were purchased. Class C Shares purchased before January 1, 1997, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares ten years after the end of the calendar month in which such
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge.

32
<PAGE> 174

The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution and service fees and ACCESS' costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Code, and (ii) that the conversion of such
shares does not constitute a taxable event under federal income tax law. The
conversion may be suspended if such an opinion is no longer available and such
shares might continue to be subject to the higher aggregate fees applicable to
such class of shares for an indefinite period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with required minimum
distributions from an IRA or other retirement plan, (iii) pursuant to the Fund's
systematic withdrawal plan but limited to 12% annually of the initial value of
the account, and (iv) effected pursuant to the right of the Fund to liquidate a
shareholder's account as described herein under "Redemption of Shares." The CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See "Shareholder Services" and "Redemption of
Shares" for further discussion of the waiver provisions.

NET ASSET VALUE

The net asset value per share of the Fund will be determined separately for
each class of shares. The net asset value per share of a given class of shares
of the Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares, and dividing the result by the number of
shares of such class outstanding. The net asset value for the Fund is computed
once daily as of 5:00 p.m. Eastern time Monday through Friday, except on
customary business holidays, or except on any day on which no purchase or
redemption orders are received, or there is not a sufficient degree of trading
in the Fund's portfolio securities such that the Fund's net asset value per
share might be materially affected. The Fund reserves the right to calculate the
net asset value and to adjust the public offering price based thereon more
frequently than once a day if deemed desirable. The net asset value per share of
the different classes of shares are expected to be substantially the same; from
time to time, however, the per share net asset value of the different classes of
shares may differ.

33
<PAGE> 175

direction of the Board of Trustees of the Trust to be representative of the fair
value at which it is expected such securities may be resold. Any securities or
other assets for which current market quotations are not readily available are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Board of Trustees of the
Trust.

- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

34
<PAGE> 176

in writing to ACCESS. The investor may, on the initial application or prior to
any declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 421-2833 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Fund invested into shares of the same class of any other
Participating Fund so long as a pre-existing account for such class of shares
exists for such shareholder.

No sales charge is imposed upon the exchange of Class B Shares and Class C
Shares. The CDSC schedule and conversion schedule applicable to a Class B Share
and Class C Share acquired through the exchange privilege is determined by
reference to the Van Kampen American Capital fund from which such share
originally was purchased. The holding period of a Class B Share and Class C
Share

35
<PAGE> 177

acquired through the exchange privilege is determined by reference to the date
such share originally was purchased from a Van Kampen American Capital fund.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 421-2833 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. Exchanges are effected at the net asset value per share next
calculated after the request is received in good order with adjustment for any
additional sales charge. If reasonable procedures are employed, a shareholder
agrees that neither VKAC nor the Fund will be liable for following telephone
instructions which it reasonably believes to be genuine. VKAC and the Fund may
be liable for any losses due to unauthorized or fraudulent instructions if
reasonable procedures are not followed. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gains options
(except dividend diversification options) and broker, dealer or financial
intermediary of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or reinvest dividends from the new account
into another fund, an exchanging shareholder must file a specific written
request. The Fund reserves the right to reject any order to acquire shares
through exchange. In addition, the Fund may modify, restrict or terminate the
exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.

A prospectus of any of these mutual funds may be obtained from any broker,
dealer, financial intermediary or the Distributor. An investor considering an
exchange to one of such funds should refer to the prospectus for additional
information regarding such fund prior to investing.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of

36
<PAGE> 178

instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. Any investor whose shares in a single account total $5,000 or
more at the offering price next computed after receipt of instructions may
establish a quarterly, semi-annual or annual withdrawal plan. This plan provides
for the orderly use of the entire account, not only the income but also the
capital, if necessary. Each withdrawal constitutes a redemption of shares on
which taxable gain or loss will be recognized. The plan holder may arrange for
monthly, quarterly, semi-annual, or annual checks in any amount not less than
$25.

37
<PAGE> 179

and the shareholder may be subject to additional charges. Holders of Class A
Shares may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or
State Street Bank. Retirement plans and accounts that are subject to backup
withholding are not eligible for the privilege. A "stop payment" system is not
available on these checks. See the Statement of Additional Information for
further information regarding the establishment of the privilege.

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.

38
<PAGE> 180

a copy of the corporate resolution or other legal documentation appointing the
authorized signer and certified within the prior 60 days must accompany the
redemption request. The redemption price is the net asset value per share next
determined after the request is received by ACCESS in proper form. Payment for
shares redeemed (less any sales charge, if applicable) will ordinarily be made
by check mailed within three business days after acceptance by ACCESS of the
request and any other necessary documents in proper order. Such payments may be
postponed or the right of redemption suspended as provided by the rules of the
SEC. If the shares to be redeemed have been recently purchased by check, ACCESS
may delay mailing a redemption check until it confirms that the purchase check
has cleared, usually a period of up to 15 days. Any gain or loss realized on the
redemption of shares is a taxable event.

39
<PAGE> 181

lines are busy or for any other reason; in such case, a shareholder would have
to use the Fund's other redemption procedures previously described. Requests
received by ACCESS prior to 4:00 p.m., New York time, on a regular business day
will be processed at the net asset value per share determined that day. These
privileges are available for all accounts other than retirement accounts. The
telephone redemption privilege is not available for shares represented by
certificates. If the shares to be redeemed have been recently purchased by
check, ACCESS may delay mailing a redemption check or wiring redemption proceeds
until it confirms that the purchase check has cleared, usually a period of up to
15 days. If an account has multiple owners, ACCESS may rely on the instructions
of any one owner.

40
<PAGE> 182

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value (without sales charge except as described under "Shareholder Services --
Exchange Privilege") next determined after the order is received, which must be
within 180 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge." Reinstatement at net
asset value is also offered to participants in those eligible retirement plans
held or administered by Van Kampen American Capital Trust Company for repayment
of principal (and interest) on their borrowings on such plans.

- ------------------------------------------------------------------------------

DISTRIBUTION AND SERVICE PLANS

- ------------------------------------------------------------------------------

41
<PAGE> 183

shareholders' accounts. The Fund pays the Distributor the lesser of the balance
of the 0.25% not paid to such brokers, dealers or financial intermediaries or
the amount of the Distributor's actual distribution-related expense.

CLASS B SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class B Shares of the Fund pursuant to the
Distribution Plan. In addition, the Fund may spend up to 0.25% per year of the
Fund's average daily net assets attributable to the Class B Shares pursuant to
the Service Plan in connection with the ongoing provision of services to holders
of such shares by the Distributor and by brokers, dealers or financial
intermediaries and in connection with the maintenance of such shareholders'
accounts.

CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

42
<PAGE> 184

carrying cost) paid by the Distributor with respect to such CDSC Share. In such
circumstances, a shareholder of such CDSC Share may be deemed to incur expenses
attributable to other shareholders of such class. As of December 31, 1996, there
were $4,213,746 and $51,726 of unreimbursed distribution expenses with respect
to Class B Shares and Class C Shares, respectively, representing 2.00% and 0.40%
of the Fund's net assets attributable to Class B Shares and Class C Shares,
respectively. If the Distribution Plan was terminated or not continued, the Fund
would not be contractually obligated to pay the Distributor for any expenses not
previously reimbursed by the Fund or recovered through CDSCs.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the CDSC applicable to a particular class of
shares to defray distribution-related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare daily and pay monthly distributions of all or
substantially all net investment income of the Fund. Net investment income
consists of all interest income and dividends, less all expenses of the Fund
attributable to the class of shares in question. Net short-term capital gains,
if any, may be distributed throughout the year. Expenses of the Fund are accrued
each day. Net realized long-term capital gains, if any, are expected to be
distributed, to the extent permitted by applicable law, to shareholders at least
annually. Distributions cannot be assured, and the amount of each monthly
distribution may vary.

Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee, service fee, or where applicable,
the conversion feature will be lower than distributions with respect to a class
of shares subject to a lower distribution fee, service fee, or not subject to
the conversion feature.

43
<PAGE> 185

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund will automatically
credit monthly distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the Fund valued
at net asset value, without a sales charge. Unless a shareholder instructs
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or
in writing to ACCESS. See "Shareholder Services -- Reinvestment Plan."

- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------

44
<PAGE> 186

net income retained by, and subject to federal income tax in the hands of, the
Fund will be treated as having been distributed.

If the Fund failed to qualify as a regulated investment company or failed to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income (even if such income were
distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.

45
<PAGE> 187

otherwise have continued to hold. A portion of the discount relating to certain
stripped tax-exempt obligations may constitute taxable income when distributed
to shareholders.

46
<PAGE> 188

"related person" of a substantial user) of the facilities financed with respect
to any of the tax-exempt obligations held by the Fund, or by the Trust if it is
required to qualify as a regulated investment company as described below.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses in his trade or business a part of any
facilities financed with the tax-exempt obligations and whose gross revenues
derived from such facilities exceed five percent of the total revenues derived
from the facilities by all users, or who occupies more than 5% of the useable
area of the facilities or for whom the facilities or a part thereof were
specifically constructed, reconstructed or acquired. Examples of "related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.

47
<PAGE> 189

48
<PAGE> 190

realized directly, would be exempt from such income taxes. It is recommended
that investors consult their tax advisers for information in this regard. The
Fund will report annually to its shareholders the percentage and source, on a
state-by-state basis, of interest income earned on municipal securities received
by the Fund during the preceding calendar year. Dividends and distributions paid
by the Fund from sources other than tax-exempt interest are generally subject to
taxation at the state and local levels.

- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------

From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate is determined by annualizing the
distributions per share for a stated period and dividing the result by the
public offering price for the same period. It differs from yield, which is a
measure of the income actually earned by the Fund's investments, and from total
return, which is a measure of the income actually earned by, plus the effect of
any realized and unrealized appreciation or depreciation of such investments
during a stated period. Distribution rate is, therefore, not intended to be a
complete measure of the Fund's performance. Distribution rate may sometimes be
greater than yield since, for instance, it may not include the effect of
amortization of bond premiums, and may include non-recurring short-term capital
gains and premiums from futures transactions engaged in by the Fund.
Distribution rates will be computed separately for each class of the Fund's
shares.

49
<PAGE> 191

guarantees, insurance and the fluctuation of principal and/or return. In
addition, from time to time, the Fund may utilize sales literature that includes
hypotheticals.

- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------

The Fund is a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized as a sub-trust of a Massachusetts business trust by a
Declaration of Trust dated August 15, 1985, under the name Van Kampen Merritt
Municipal Income Fund and was reorganized as a series of the Trust on July 31,
1995. Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series.

The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into three classes,
designated Class A Shares, Class B Shares and Class C Shares. Each class of
shares represents an interest in the same assets of the Fund and are identical
in all respects except that each class bears certain distribution expenses and
has exclusive voting rights with respect to its distribution fee. See
"Distribution and Service Plans."

The Fund is permitted to issue an unlimited number of classes of shares. Each
class of shares is equal as to earnings, assets and voting privileges, except as
noted above, and each class bears the expenses related to the distribution of
its shares. There are no conversion, preemptive or other subscription rights,
except with respect to the conversion of Class B Shares and certain Class C
Shares into Class A Shares as described above. In the event of liquidation, each
of the shares of the Fund is entitled to its portion of all of the Fund's net
assets after all debt and expenses of the Fund have been paid. Since Class B
Shares and Class C Shares pay higher distribution expenses, the liquidation
proceeds to holders of Class B Shares and Class C Shares are likely to be lower
than to other shareholders.

50
<PAGE> 192

- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------

The fiscal year end of the Fund is December 31. The Fund sends to its
shareholders, at least semi-annually, reports showing the Fund's portfolio and
other information. An annual report, containing financial statements audited by
the Fund's independent auditors, is sent to shareholders each year. After the
end of each year, shareholders will receive federal income tax information
regarding dividends and capital gains distributions.

Shareholder inquiries should be directed to Van Kampen American Capital
Municipal Income Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

51
<PAGE> 193

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE

NUMBER--(800) 341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)

DIAL (800) 421-2833.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 847-2424.

VAN KAMPEN AMERICAN CAPITAL
MUNICIPAL INCOME FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181

Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Distributor
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
Municipal Income Fund

Custodian
STATE STREET BANK AND
TRUST COMPANY

225 West Franklin Street, P.O. Box 1713

Boston, MA 02105-1713
Attn: Van Kampen American Capital
Municipal Income Fund

Legal Counsel
SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 194

------------------------------------------------------------------------------

MUNICIPAL INCOME
FUND

------------------------------------------------------------------------------

P R O S P E C T U S

APRIL 30, 1997

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 195

- ------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
INTERMEDIATE TERM MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital Intermediate Term Municipal Income Fund (the
"Fund"), is a separate diversified series of Van Kampen American Capital Tax
Free Trust, an open-end management investment company, commonly known as a
mutual fund. 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 will seek to achieve its investment objective by investing at least 65%
of its total assets in a diversified portfolio of municipal securities rated
investment grade at the time of investment. Investment grade securities are
securities rated BBB or higher by Standard & Poor's Ratings Group or Baa or
higher by Moody's Investors Service, Inc. or comparably rated by any other
nationally recognized statistical ratings organization. The Fund may invest the
remainder of its total assets in municipal securities rated below investment
grade and in unrated municipal securities believed by the Fund's investment
adviser to be of comparable quality, which involve special risk considerations.

(Continued on next page.)
------------------

A Statement of Additional Information, dated April 30, 1997, containing
additional information about the Fund has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference in its entirety into
this Prospectus. A copy of the Fund's Statement of Additional Information may be
obtained without charge by calling (800) 421-5666 or for Telecommunications
Device for the Deaf at (800) 421-2833. The Statement of Additional Information
has been filed with the Securities and Exchange Commission ("SEC") and is
available along with other related Fund materials at the SEC's internet web site
(http.//www.sec.gov).

------------------
VAN KAMPEN AMERICAN CAPITAL SM

------------------

THIS PROSPECTUS IS DATED APRIL 30, 1997.

<PAGE> 196

(Continued from previous page.)

Under normal market conditions, the Fund anticipates that it will maintain a
dollar-weighted average life of its portfolio to between three and ten years.
Municipal securities in which the Fund may invest include conventional
fixed-rate municipal securities, variable rate municipal securities and other
types of municipal securities described herein. See "Municipal Securities." The
Fund may invest a substantial portion of its assets in municipal securities that
pay interest that is subject to the alternative minimum tax. There is no
assurance that the Fund will achieve its investment objective.

The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp. This Prospectus sets forth certain information about the Fund
that a prospective investor should know before investing in the Fund. Please
read it carefully and retain it for future reference. The address of the Fund is
One Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number
is (800) 421-5666.

2
<PAGE> 197

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Shareholder Transaction Expenses............................ 7
Annual Fund Operating Expenses and Example.................. 8
Financial Highlights........................................ 10
The Fund.................................................... 11
Investment Objective and Policies........................... 11
Municipal Securities........................................ 13
Investment Practices........................................ 18
Investment Advisory Services................................ 22
Alternative Sales Arrangements.............................. 23
Purchase of Shares.......................................... 25
Shareholder Services........................................ 35
Redemption of Shares........................................ 39
Distribution and Service Plans.............................. 42
Distributions from the Fund................................. 44
Tax Status.................................................. 45
Fund Performance............................................ 50
Description of Shares of the Fund........................... 51
Additional Information...................................... 52
</TABLE>

3
<PAGE> 198

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

THE FUND. Van Kampen American Capital Intermediate Term Municipal Income Fund
(the "Fund") is a separate diversified series of Van Kampen American Capital Tax
Free Trust (the "Trust"), which is an open-end management investment company
organized as a Delaware business trust. See "The Fund."

MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum subsequent investment for each class of shares (or less as described
under "Purchase of Shares").

INVESTMENT OBJECTIVE. The Fund's investment objective is to seek a high level
of current income exempt from federal income tax, consistent with preservation
of capital.

INVESTMENT POLICIES. The Fund will seek to achieve its investment objective by
investing at least 65% of its total assets in a diversified portfolio of
municipal securities rated investment grade at the time of investment.
Investment grade securities are securities rated BBB or higher by Standard &
Poor's Ratings Group ("S&P") or Baa or higher by Moody's Investors Service, Inc.
("Moody's") or comparably rated by any other nationally recognized statistical
ratings organization ("NRSRO"). The Fund may invest the remainder of its total
assets in municipal securities rated below investment grade and in unrated
municipal securities believed by the Fund's investment adviser to be of
comparable quality, which involve special risk considerations. Securities rated
below investment grade and unrated securities determined by the Fund's
investment adviser to be of comparable quality commonly are referred to as "junk
bonds". Under normal market conditions, the Fund anticipates that it will limit
the dollar-weighted average life of its portfolio to between three and ten
years. There is no assurance that the Fund will achieve its investment
objective. See "Investment Objective and Policies."

Municipal securities in which the Fund may invest include fixed and variable
rate securities, municipal notes, municipal leases, tax exempt commercial paper,
custodial receipts, participation certificates and derivative municipal
securities the terms of which include elements of, or are similar in effect to,
certain Strategic Transactions (as defined herein) in which the Fund may engage.
The Fund may invest up to 15% of its total assets in derivative variable rate
securities such as inverse floaters, whose rates vary inversely with changes in
market rates of interest or range or capped floaters, whose rates are subject to
periodic or lifetime caps. The net asset value per share of the Fund may
increase or decrease depending on changes in interest rates and other factors
affecting the municipal securities markets. See "Municipal Securities."

INVESTMENT PRACTICES. The Fund also may use various investment techniques
including engaging in Strategic Transactions and entering into when-issued or
delayed delivery transactions. Such transactions entail certain risks. See
"Municipal Securities" and "Investment Practices." The Fund may invest an
unlimited portion

4
<PAGE> 199

of its assets in municipal securities that pay interest that is subject to the
federal alternative minimum tax. The Fund may not be a suitable investment for
investors who are already subject to the federal alternative minimum tax or who
would become subject to the federal alternative minimum tax as a result of an
investment in the Fund. See "Tax Status."

INVESTMENT RESULTS. The investment results of the Fund are shown in the table
of "Financial Highlights."

ALTERNATIVE SALES ARRANGEMENTS. The Alternative Sales Arrangements permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. Investors
should consider such factors together with the amount of sales charges and
accumulated distribution and service fees with respect to each class of shares
that may be incurred over the anticipated duration of their investment in the
Fund. To assist investors in making this determination, the table under the
caption "Annual Fund Operating Expenses and Example" sets forth examples of the
charges applicable to each class of shares.

The Fund offers three classes of shares which may be purchased at a price
equal to their net asset value per share, plus a sales charge which, at the
election of the investor, may be imposed either (i) at the time of the purchase
("Class A Shares") or (ii) on a contingent deferred basis (Class A Share
accounts over $1 million, "Class B Shares" and "Class C Shares"). Class A Share
accounts over $1 million or otherwise subject to a contingent deferred sales
charge ("CDSC"), Class B Shares and Class C Shares sometimes are referred to
herein collectively as "CDSC Shares".

Class A Shares. Class A Shares are subject to an initial sales charge equal to
3.25% of the public offering price (3.36% of the net amount invested), reduced
on investments of $25,000 or more. Class A Shares are subject to ongoing
distribution and service fees at an aggregate annual rate of up to 0.25% of the
Fund's average daily net assets attributable to the Class A Shares. Certain
purchases of Class A Shares qualify for reduced or no initial sales charges and
may be subject to a CDSC.

Class B Shares. Class B Shares do not incur a sales charge when they are
purchased, but generally are subject to a sales charge if redeemed within four
years of purchase. Class B Shares are subject to a CDSC equal to 3.00% of the
lesser of the then current net asset value or the original purchase price on
Class B Shares redeemed during the first year after purchase, which charge is
reduced each year thereafter. Class B Shares are subject to ongoing distribution
and service fees at an aggregate annual rate of up to 1.00% of the Fund's
average daily net assets attributable to the Class B Shares. Class B Shares
automatically convert to Class A Shares eight years after the end of the
calendar month in which the investor's order to purchase was accepted.

5
<PAGE> 200

Class C Shares. Class C Shares do not incur a sales charge when they are
purchased, but are subject to a sales charge if redeemed within the first year
after purchase. Class C Shares are subject to a CDSC equal to 1.00% of the
lesser of the then current net asset value or the original purchase price on
Class C Shares redeemed during the first year after purchase. Class C Shares are
subject to ongoing distribution and service fees at an aggregate annual rate of
up to 1.00% of the Fund's average daily net assets attributable to the Class C
Shares.

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser"), is the Fund's investment adviser.

DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the
"Distributor"), distributes the Fund's shares.

The foregoing is qualified in its entirety by reference to the more detailed
information appearing elsewhere in this Prospectus.

6
<PAGE> 201

- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge
imposed on purchases (as
a percentage of the
offering price)......... 3.25%(1) None None
Maximum sales charge
imposed on reinvested
dividends (as a
percentage of the
offering price)......... None None(3) None(3)
Deferred sales charge (as
a percentage of the
lesser of the original
purchase price or
redemption proceeds).... None(2) Year Year
1--3.00% 1--1.00%
Year After--None
2--2.50%
Year
3--2.00%
Year
4--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed)............... None None None
Exchange fees............. None None None
</TABLE>

- ------------------------------------------------------------------------------
(1) Reduced on investments of $25,000 or more. See "Purchase of Shares -- Class
A Shares."

7
<PAGE> 202

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management fees(1) (as a percentage of
average daily net assets)................. 0.50% 0.50% 0.50%
12b-1 fees (as a percentage of average daily
net assets)(2)............................ 0.25% 1.00% 1.00%
Other expenses(1) (as a percentage of
average daily net assets)................. 0.81% 0.82% 0.82%
Total expenses(1) (as a percentage of
average daily net assets)................. 1.56% 2.32% 2.32%
</TABLE>

- ------------------------------------------------------------------------------

(1) Expenses include an assumption of "Other expenses" of $64,338 by the
Adviser. If the Adviser did not waive expenses for the fiscal year ending
December 31, 1996, the "Other expenses" would have been 0.99% for Class A
Shares, 1.00% for Class B Shares and 1.00% for Class C Shares and "Total
expenses" would have been 1.74% for Class A Shares, 2.50% for Class B Shares
and 2.50% for Class C Shares.

(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund as compensation for ongoing services rendered to investors.
With respect to each class of shares, amounts in excess of 0.25% represent an
asset based sales charge. The asset based sales charge with respect to Class
C Shares includes 0.75% (as a percentage of net asset value) paid to
investors' broker-dealers as sales compensation.

8
<PAGE> 203

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 1.56% for Class
A Shares, 2.32% for Class B Shares and
2.32% for Class C Shares (ii) 5% annual
return and (iii) redemption at the end of
each time period:
Class A Shares............................. $48 $80 $115 $212
Class B Shares............................. $54 $92 $124 $229*
Class C Shares............................. $34 $72 $124 $266
You would pay the following expenses on the
same $1,000 investment assuming no
redemption at the end of each period:
Class A Shares............................. $48 $80 $115 $212
Class B Shares............................. $24 $72 $124 $229*
Class C Shares............................. $24 $72 $124 $266
</TABLE>

- ------------------------------------------------------------------------------

* Based on conversion to Class A Shares after eight years.

The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. As Fund
assets increase, the fees waived or expenses reimbursed by the Adviser are
expected to decrease. Accordingly, it is unlikely that future expenses as
projected will remain consistent with those determined based on the "Annual Fund
Operating Expenses" table. The ten year amount with respect to Class B Shares of
the Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A Shares. Class B Shares acquired through the
exchange privilege are subject to the deferred sales charge schedule relating to
the Class B Shares of the Fund from which the purchase of Class B Shares was
originally made. Accordingly, future expenses as projected could be higher than
those determined in the above table if the investor's Class B Shares were
exchanged from a fund with a higher contingent deferred sales charge. THE
INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER
THAN OR LESS THAN THOSE SHOWN. For a more complete description of such costs and
expenses, see "Purchase of Shares," "Redemption of Shares," "Investment Advisory
Services" and "Distribution and Service Plans."

9
<PAGE> 204

The following schedule presents financial highlights for one Class A Share, one
Class B Share and one Class C Share of the Fund outstanding throughout each of
the periods indicated. The financial highlights have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, for each of the periods
indicated and their reports thereon appear in the Fund's related Statement of
Additional Information. This information should be read in conjunction with the
financial statements and related notes thereto included in the related Statement
of Additional Information.

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHAR
----------------------------------------------------------- ------------
MAY 28, 1993
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993 1996
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period..... $10.264 $ 9.330 $10.145 $ 9.700 $10.263
------- ------- ------- ------- -------
Net Investment Income....................... 0.455 0.508 0.489 0.278 0.375
Net Realized and Unrealized Gain/Loss on
Investments............................... (0.032) 0.900 (0.815) 0.462 (0.027)
------- ------- ------- ------- -------
Total from Investment Operations............. 0.423 1.408 (0.326) 0.740 0.348
------- ------- ------- ------- -------
Less:
Distributions from Net Investment Income.... 0.474 0.474 0.489 0.273 0.402
Distributions from Net Realized Gain on
Investments............................... -- -- -- 0.022 --
------- ------- ------- ------- -------
Total Distributions.......................... 0.474 0.474 0.489 0.295 0.402
------- ------- ------- ------- -------
Net Asset Value, End of Period............... $10.213 $10.264 $ 9.330 $10.145 $10.209
======= ======= ======= ======= =======
Total Return (Non-annualized)(1)(2).......... 4.27% 15.31% (3.32%) 7.75% 3.54%
Net Assets at End of the Period (In
millions)................................... $ 12.5 $ 15.6 $ 15.7 $ 14.0 $ 16.4
Ratio of Expenses to Average Net Assets(1)
(annualized)................................ 1.56% 1.00% .67% .14% 2.32%
Ratio of Net Investment Income to Average Net
Assets(1) (annualized)...................... 4.45% 5.10% 5.07% 4.78% 3.69%
Portfolio Turnover........................... 45% 75.11% 274.43% 85.56% 45%

<CAPTION>
CLASS B SHARES
--------------------------------------------
MAY 28, 1993
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period..... $ 9.319 $10.137 $ 9.700
------- ------- -------
Net Investment Income....................... 0.430 0.417 0.233
Net Realized and Unrealized Gain/Loss on
Investments............................... 0.916 (0.818) 0.460
------- ------- -------
Total from Investment Operations............. 1.346 (0.401) 0.693
------- ------- -------
Less:
Distributions from Net Investment Income.... 0.402 0.417 0.234
Distributions from Net Realized Gain on
Investments............................... -- -- 0.022
------- ------- -------
Total Distributions.......................... 0.402 0.417 0.256
------- ------- -------
Net Asset Value, End of Period............... $10.263 $ 9.319 $10.137
======= ======= =======
Total Return (Non-annualized)(1)(2).......... 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(1)
(annualized)................................ 1.75% 1.43% .92%
Ratio of Net Investment Income to Average Net
Assets(1) (annualized)...................... 4.33% 4.30% 3.95%
Portfolio Turnover........................... 75.11% 274.43% 85.56%

<CAPTION>
CLASS C SHARES
-------------------------------------------------------------
OCTOBER 19, 1993
(COMMENCEMENT
OF DISTRIBUTION)
YEAR ENDED YEAR ENDED YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period..... $10.260 $ 9.314 $10.134 $10.250
------- ------- ------- ------
Net Investment Income....................... 0.374 0.430 0.419 0.091
Net Realized and Unrealized Gain/Loss on
Investments............................... (0.026) 0.918 (0.822) (0.098)
------- ------- ------- ------
Total from Investment Operations............. 0.348 1.348 (0.403) (0.007)
------- ------- ------- ------
Less:
Distributions from Net Investment Income.... 0.402 0.402 0.417 0.087
Distributions from Net Realized Gain on
Investments............................... -- -- -- 0.022
------- ------- ------- ------
Total Distributions.......................... 0.402 0.402 0.417 0.109
------- ------- ------- ------
Net Asset Value, End of Period............... $10.206 $10.260 $ 9.314 $10.134
======= ======= ======= ======
Total Return (Non-annualized)(1)(2).......... 3.54% 14.74% (4.04%) (.10%)
Net Assets at End of the Period (In
millions)................................... $ 5.8 $ 4.9 $ 4.7 $ 0.3
Ratio of Expenses to Average Net Assets(1)
(annualized)................................ 2.32% 1.74% 1.43% .97%
Ratio of Net Investment Income to Average Net
Assets(1) (annualized)...................... 3.70% 4.36% 4.34% 4.05%
Portfolio Turnover........................... 45% 75.11% 274.43% 85.56%
</TABLE>

- ----------------

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

<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets
(annualized)............................. 1.74% 1.61% 1.75% 2.21% 2.50%
Ratio of Net Investment Income to Average
Net Assets (annualized).................. 4.27% 4.49% 3.99% 2.70% 3.51%

<CAPTION>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets
(annualized)............................. 2.36% 2.50% 2.98% 2.50% 2.34%
Ratio of Net Investment Income to Average
Net Assets (annualized).................. 3.72% 3.24% 1.89% 3.52% 3.75%

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

(2) Total Return does not reflect the effect of sales charges.
See Financial Statements and Notes Thereto

10
<PAGE> 205

- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital Intermediate Term Municipal Income Fund (the
"Fund") is a separate diversified series of Van Kampen American Capital Tax Free
Trust (the "Trust"), which is an open-end management investment company,
commonly known as a "mutual fund," organized as a Delaware business trust.
Mutual funds sell their shares to investors and invest the proceeds in a
portfolio of securities. A mutual fund allows investors to pool their money with
that of other investors in order to obtain professional investment management.
Mutual funds generally make it possible for investors to obtain greater
diversification of their investments and to simplify their recordkeeping.

- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------

The investment objective of the Fund is to seek a high level of current income
exempt from federal income tax, consistent with preservation of capital. The
Fund's investment objective may not be changed without shareholder approval. The
Fund will seek to achieve its investment objective by investing at least 65% of
its total assets in a diversified portfolio of municipal securities rated
investment grade at the time of investment. The Fund may invest the remainder of
its total assets in municipal securities rated below investment grade and in
unrated municipal securities believed by the Fund's investment adviser to be
comparable quality, which involve special risk considerations. Securities rated
below investment grade and unrated securities determined by the Fund's
investment adviser to be of comparable quality commonly are referred to as "junk
bonds". Under normal market conditions, the Fund anticipates that it will limit
the dollar-weighted average life of its portfolio to between three and ten
years. There is no limit with respect to the expected life or stated maturity of
individual municipal securities in which the Fund may invest. The Fund's
policies with respect to ratings and portfolio life are not fundamental
policies, and thus may be changed by the Trustees without shareholder approval.
See "Municipal Securities."

The Fund intends to invest at least 65% of its total assets in municipal
securities rated investment grade at the time of investment. Investment grade
securities are securities rated BBB or higher by Standard & Poor's Ratings Group
("S&P") or Baa or higher by Moody's Investors Service, Inc. ("Moody's") or
comparably rated by any other nationally recognized statistical rating
organization ("NRSRO") in the case of long-term obligations, and have equivalent
ratings in the case of short-term

11
<PAGE> 206

obligations. Securities rated BBB by S&P are regarded by S&P as having an
adequate capacity to pay interest and repay principal. Whereas such securities
normally exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely, in the opinion of S&P, to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories. According to published guidelines, securities
rated Baa by Moody's are considered by Moody's as medium grade obligations. Such
securities are, in the opinion of Moody's, neither highly protected nor poorly
secured. Interest payments and principal security appear to Moody's to be
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. In the opinion
of Moody's they lack outstanding investment characteristics and in fact have
speculative characteristics as well. For a description of S&P's and Moody's
ratings see the Statement of Additional Information. From time to time, the Fund
also may invest up to 10% of its assets in tax exempt money market funds for
cash management purposes. Such instruments will be treated as investments in
municipal securities.

The Fund may invest the remainder of its total assets in municipal securities
rated below investment grade at the time of investment and unrated municipal
securities that the Adviser considers to be of comparable quality to such
securities. According to published guidelines, securities rated below investment
grade are regarded by S&P, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation. While in the opinion of S&P such securities will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions. According to
published guidelines, securities rated below investment grade are regarded by
Moody's as generally lacking characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the securities' contract over any long period of time may, in the opinion of
Moody's, be small. Securities rated below investment grade commonly are referred
to as "junk bonds." For a description of S&P's and Moody's ratings see the
Statement of Additional Information.

The foregoing policies with respect to credit quality of portfolio investments
will apply only at the time of purchase of a security, and the Fund will not be
required to dispose of a security in the event that S&P or Moody's (or any other
NRSRO) downgrades its assessment of the credit characteristics of a particular
issuer. In determining whether the Fund will retain or sell such a security, the
Adviser may consider such factors as the Adviser's assessment of the credit
quality of the issuer of such security, the price at which such security could
be sold and the rating, if any, assigned to such security by other NRSRO.

Under current market conditions, the Fund anticipates that it will limit the
dollar-weighted average life of its portfolio to between three and ten years.
Generally, a portfolio of municipal securities having intermediate
dollar-weighted average life tends to produce a higher level of income than a
portfolio of municipal

12
<PAGE> 207

securities having a shorter dollar-weighted average life and has less net asset
value volatility than a portfolio of municipal securities having a longer
dollar-weighted average life, although such differences cannot be assured. In
addition, market prices of municipal securities with intermediate maturities
generally fluctuate more in response to changes in interest rates than do market
prices of municipal securities with shorter maturities but generally fluctuate
less than market prices of municipal securities with longer maturities. Based on
the foregoing, the Adviser believes that under current market conditions the
yield and price characteristics of a municipal securities portfolio with a
dollar-weighted average life of three to ten years generally offer an attractive
balance between income and interest rate risk. In certain market conditions,
however, such a portfolio may be less attractive because of differences in yield
between municipal securities of different maturities due to supply and demand
forces, monetary and tax policies and investor expectations. In the event of
sustained market conditions that make it less desirable to maintain a dollar-
weighted average portfolio life of three to ten years, the Board of Trustees of
the Trust, after consultation with the Adviser, may change the investment policy
of the Fund with respect to the dollar-weighted average life of the portfolio.
The Fund's investment policy with respect to the dollar-weighted average life of
its portfolio is not a fundamental policy, and may be changed by the Trustees
without obtaining shareholder approval. There is no limitation with respect to
the expected life or stated maturity of individual municipal securities in the
Fund's portfolio.

- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES
- ------------------------------------------------------------------------------

GENERAL. Municipal securities are debt obligations issued by or on behalf of
the governments of states, territories or possessions of the United States, the
District of Columbia and their political subdivisions, agencies and
instrumentalities, certain interstate agencies and certain territories of the
United States, the interest on which, in the opinion of bond counsel or other
counsel to the issuer of such securities, is exempt from federal income tax.
Under normal market conditions, up to 100% but not less than 80%, of the Fund's
net assets will be invested in municipal securities. The foregoing is a
fundamental policy of the Fund and cannot be changed without approval of the
shareholders of the Fund.

13
<PAGE> 208

Within these principal classifications of municipal securities, there are a
variety of types of municipal securities, including fixed and variable rate
securities, municipal notes, municipal leases, custodial receipts, participation
certificates and derivative municipal securities the terms of which include
elements of, or are similar in effect to, certain Strategic Transactions (as
defined below) in which the Fund may engage. Variable rate securities bear rates
of interest that are adjusted periodically according to formulae intended to
reflect market rates of interest and include securities whose rates vary
inversely with changes in market rates of interest. The Fund will not invest
more than 15% of its total assets in derivative municipal securities such as
inverse floaters, whose rates vary inversely with changes in market rates of
interest, or range floaters or capped floaters, whose rates are subject to
periodic or lifetime caps. Such securities may also pay a rate of interest
determined by applying a multiple to the variable rate. The extent of increases
and decreases in the value of securities whose rates vary inversely with market
rates of interest generally will be larger than comparable changes in the value
of an equal principal amount of a fixed rate municipal security having similar
credit quality, redemption provisions and maturity. Municipal notes include tax,
revenue and bond anticipation notes of short maturity, generally less than three
years, which are issued to obtain temporary funds for various public purposes.
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. Certain
municipal lease obligations may include "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. Custodial receipts are underwritten by securities dealers or
banks and evidence ownership of future interest payments, principal payments or
both on certain municipal securities. Participation certificates are obligations
issued by state and local governments or authorities to finance the acquisition
of equipment and facilities. They may represent participations in a lease, an
installment purchase contract, or a conditional sales contract. Municipal
securities may not be backed by the faith, credit and taxing power of the
issuer. Certain of the municipal securities in which the Fund may invest
represent relatively recent innovations in the municipal securities markets, and
the markets for such securities may be less developed than the market for
conventional fixed rate municipal securities. A more detailed description of the
types of municipal securities in which the Fund may invest is included in the
Statement of Additional Information.

The net asset value of the Fund will change with changes in the value of its
portfolio securities. Because the Fund will invest primarily in fixed-income
municipal securities, the net asset value of the Fund can be expected to change
as general levels of interest rates fluctuate. When interest rates decline, the
value of a portfolio invested in fixed-income securities generally can be
expected to rise. Conversely,

14
<PAGE> 209

when interest rates rise, the value of a portfolio invested in fixed-income
securities generally can be expected to decline. Volatility may be greater
during periods of general economic uncertainty.

The Fund will invest at least 65% of its total assets in municipal securities
rated investment grade at the time of investment; however, such municipal
securities, like other debt obligations, are subject to the risk of non-payment.
The ability of issuers of municipal securities to make timely payments of
interest and principal may be adversely impacted in general economic downturns
and as relative governmental cost burdens are allocated and reallocated among
federal, state and local governmental units. Such non-payment would result in a
reduction of income to the Fund, and could result in a reduction in the value of
the municipal security experiencing non-payment and a potential decrease in the
net asset value of the Fund.

The Fund may invest the remainder of its total assets in municipal securities
rated at the time of investment below investment grade or in unrated municipal
securities considered by the Adviser to be of comparable quality to such
securities. Securities rated below investment grade commonly are referred to as
"junk bonds". Higher yields generally are available from such municipal
securities. Investment in such lower grade municipal securities involves special
risks as compared with investment in investment grade municipal securities. The
market for lower grade municipal securities is considered to be less liquid than
the market for investment grade municipal securities, which may adversely affect
the ability of the Fund to dispose of such securities in a timely manner at a
price which, in the Adviser's judgment, reflects the value of such security. The
market price for less liquid securities tends to be more volatile than the
market price for more liquid securities. Illiquid securities and the absence of
readily available market quotations with respect thereto may make the Adviser's
valuation of such securities more difficult, and the Adviser's judgment may play
a greater role in the valuation of the Fund's securities. Lower grade municipal
securities generally involve greater credit risk than investment grade municipal
securities and are more sensitive to adverse economic changes, significant
increases in interest rates and individual issuer developments. Because issuers
of lower grade municipal securities frequently choose not to seek a rating of
their municipal securities, the Fund will rely more heavily on the Adviser's
ability to determine the relative investment quality of such securities than if
the Fund invested exclusively in investment grade municipal securities. More
detailed information concerning the risks associated with instruments in lower
grade municipal securities is included in the Fund's Statement of Additional
Information.

15
<PAGE> 210

periods of reduced market liquidity and in the absence of readily available
market quotations for lower grade municipal securities held in the Fund's
portfolio, the ability of the Adviser to value the Fund's securities becomes
more difficult and the Adviser's use of judgment may play a greater role in the
valuation of the Fund's securities due to the reduced availability of reliable
objective data. The effects of adverse publicity and investor perceptions may be
more pronounced for securities for which no established retail market exists as
compared with the effects on securities for which such a market does exist.
Further, the Fund may have more difficulty selling such securities in a timely
manner and at their stated value than would be the case for securities for which
an established retail market does exist.

The table below sets forth the percentages of the Fund's assets invested as of
December 31, 1996 in the various S&P and Moody's rating categories and in
unrated securities determined by the Adviser to be of comparable quality. The
percentages are based on the dollar-weighted average of credit ratings of all
debt securities held by the Fund during the 1996 fiscal year computed on a
monthly basis.

<TABLE>
<CAPTION>
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING (AS A PERCENTAGE OF (AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE) PORTFOLIO VALUE)
-------- -------------------- ----------------------
<S> <C> <C>
AAA/Aaa........................... 49.43% 0.00%
AA/Aa............................. 5.15% 0.00%
A/A............................... 10.52% 0.00%
BBB/Baa........................... 31.43% 0.52%
BB/Ba............................. 0.83% 1.48%
B/B............................... 0.31% 0.33%
CCC/Caa........................... 0.00% 0.00%
CC/Ca............................. 0.00% 0.00%
CC................................ 0.00% 0.00%
D................................. 0.00% 0.00%
------ ---
Percentage of Rated and Unrated
Debt Securities................. 97.67% 2.33%
====== ===
</TABLE>

The portfolio composition shown in the table above reflects the allocation of
assets by the Fund during a period in which the Fund did not acquire debt
securities rated below BBB by S&P and Baa by Moody's. The Fund currently may
acquire such debt securities. Accordingly, the percentage of the Fund's assets
invested in securities of various grades may from time to time vary
substantially from those set forth in the above table.

The Fund has not established any limit on the percentage of its portfolio that
may be invested in municipal securities subject to the alternative minimum tax
provisions of federal tax law, and a substantial portion of the income produced
by the Fund may be taxable under the alternative minimum tax. The Fund may not
be a suitable investment for investors who are already subject to the federal
alternative minimum tax or who would become subject to the federal alternative
minimum tax

16
<PAGE> 211

as a result of an investment in the Fund. In addition, income earned or deemed
to be earned with respect to the Fund's Strategic Transactions, if any, will be
taxable. See "Tax Status."

From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the Fund
to pay tax exempt interest dividends might be adversely affected.

SELECTION OF INVESTMENTS. The Adviser will buy and sell securities for the
Fund's portfolio with a view to seeking a high level of current income exempt
from federal income tax and will select securities which the Adviser believes
entail reasonable credit risk considered in relation to the investment policies
of the Fund. As a result, the Fund will not necessarily invest in the highest
yielding tax-exempt municipal securities permitted by the investment policies if
the Adviser determines that market risks or credit risks associated with such
investments would subject the Fund's portfolio to excessive risk. The potential
for realization of capital gains resulting from possible changes in interest
rates will not be a major consideration. Other than for tax purposes, frequency
of portfolio turnover generally will not be a limiting factor if the Fund
considers it advantageous to purchase or sell securities. The Fund may have
annual portfolio turnover rates in excess of 100%. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses or
dealer costs than a lower rate, which expenses and costs must be borne by the
Fund and its shareholders. High portfolio turnover may also result in the
realization of substantial net short-term capital gains and any distributions
resulting from such gains will be taxable. See "Tax Status" in this Prospectus
and "Investment Policies and Restrictions" in the Statement of Additional
Information.

TEMPORARY DEFENSIVE STRATEGIES. At times conditions in the markets for tax-
exempt municipal securities may, in the Adviser's judgment, make pursuing the
Fund's basic investment strategy inconsistent with the best interests of its
shareholders. At such times, the Adviser may use alternative strategies
primarily designed to reduce fluctuations in the value of the Fund's assets. In
implementing these "defensive" strategies, the Fund may invest to a substantial
degree in high-quality, short-term municipal obligations. If these high-quality,
short-term municipal obligations are not available or, in the Adviser's
judgment, do not afford sufficient protection against adverse market conditions,
the Fund may invest in taxable obligations. Such taxable obligations may
include: obligations of the U.S. Government, its agencies or instrumentalities;
other debt securities rated within the four highest grades by either S&P or
Moody's (or comparably rated by any other NRSRO); commercial paper rated in the
highest grade by either rating service (or comparably rated by any other NRSRO);
certificates of deposit and bankers' acceptances; repurchase agreements with
respect to any of the foregoing investments; or any other fixed-income
securities that the Adviser considers consistent with such strategy. To the
extent that the Fund invests a substantial portion of its assets in taxable
securities for temporary defensive purposes, the Fund will not be

17
<PAGE> 212

invested in a manner primarily designed to achieve a high level of current
income exempt from federal income tax.

- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------

In connection with the investment policies described above, the Fund also may
engage in strategic transactions and purchase and sell securities on a "when
issued" and "delayed delivery" basis. These investments entail risks. Strategic
transactions generally will not be treated as investments in tax-exempt
municipal securities for purposes of the Fund's 80% investment policy with
respect thereto.

18
<PAGE> 213

markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.

Income earned or deemed to be earned, if any, by the Fund from its Strategic
Transactions will generally be taxable income of the Fund. See "Tax Status."

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell municipal securities on a "when issued" and "delayed delivery" basis.
No income accrues to the Fund on municipal securities in connection with such
purchase transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher or lower than yields on the municipal securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or liquid securities having an aggregate value equal to
the amount of such purchase commitments until payment is made. The Fund will
make commitments to purchase municipal securities on such basis only with the
intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objectives and
policies and not for the purposes of investment leverage. No specific limitation
exists as to the percentage of the Fund's assets which may be used to acquire
securities on a "when issued" or "delayed delivery" basis.

19
<PAGE> 214

expenses than does the sale of securities eligible for trading on national
securities exchanges or in the over-the-counter markets. Restricted securities
may sell at a price lower than similar securities that are not subject to
restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (under which guidelines
the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules.

OTHER PRACTICES. The Fund may borrow amounts up to 5% of its net assets in
order to pay for redemptions when liquidation of portfolio securities is
considered disadvantageous or inconvenient and may pledge up to 10% of its net
assets to secure such borrowings.

20
<PAGE> 215

INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"). See "Investment Policies and Restrictions" in the
Statement of Additional Information.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. The Adviser is responsible
for decisions to buy and sell securities for the Fund, the selection of brokers
and dealers to effect the transactions and the negotiation of prices and any
brokerage commissions. The securities in which the Fund invests are traded
principally in the over-the-counter market. In the over-the-counter market,
securities generally are traded on a net basis with dealers acting as principal
for their own accounts without a stated commission, although the price of the
security usually includes a mark-up to the dealer. Securities purchased in
underwritten offerings generally include, in the price, a fixed amount of
compensation for the managers, underwriters and dealers. The Fund may also
purchase certain money market instruments directly from an issuer, in which case
no commissions or discounts are paid. Purchases and sales of bonds on a stock
exchange are effected through brokers who charge a commission for their
services.

The Adviser is responsible for effecting securities transactions of the Fund
and will do so in a manner deemed fair and reasonable to shareholders of the
Fund and not according to any formula. The Adviser's primary considerations in
selecting the manner of executing securities transactions for the Fund will be
prompt execution of orders, the size and breadth of the market for the security,
the reliability, integrity and financial condition and execution capability of
the firm, the size of and difficulty in executing the order, and the best net
price. There are many instances when, in the judgment of the Adviser, more than
one firm can offer comparable execution services. In selecting among such firms,
consideration is given to those firms which supply research and other services
in addition to execution services. However, it is not the policy of the Adviser,
absent special circumstances, to pay higher commissions to a firm because it has
supplied such services.

21
<PAGE> 216

- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------

THE ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for the Fund. The Adviser is a wholly-owned
subsidiary of Van Kampen American Capital, Inc. ("Van Kampen American Capital").
Van Kampen American Capital is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $57 billion under management or
supervision. Van Kampen American Capital's more than 40 open-end and 38
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen American
Capital Distributors, Inc. (the "Distributor"), the distributor of the Fund and
sponsor of the funds mentioned above, is a wholly-owned subsidiary of Van Kampen
American Capital.

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

ADVISORY AGREEMENT. The business and affairs of the Fund will be managed
under the direction of the Board of Trustees of the Trust, of which the Fund is
a separate series. Subject to their authority, the Adviser and the respective
officers of the Fund will supervise and implement the Fund's investment
activities and will be responsible for overall management of the Fund's business
affairs. The Fund will pay the

22
<PAGE> 217

Adviser a fee equal to a percentage of the average daily net assets of the Fund
as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
------------------------ --------------
<S> <C>
First $500 million..................................... 0.500 of 1.00%
Over $500 million...................................... 0.450 of 1.00%
</TABLE>

Under its investment advisory agreement with the Adviser, the Fund has agreed
to assume and pay the charges and expenses of the Fund's operations, including
the compensation of the Trustees of the Trust (other than those who are
affiliated persons, as defined in the 1940 Act, of the Adviser, the Distributor
or Van Kampen American Capital), the charges and expenses of independent
accountants, legal counsel, transfer agent (ACCESS Investor Services, Inc.
("ACCESS"), a wholly-owned subsidiary of Van Kampen American Capital), or
dividend disbursing agent and the custodian (including fees for safekeeping of
securities), costs of calculating net asset value, costs of acquiring and
disposing of portfolio securities, interest (if any) on obligations incurred by
the Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, reports and notices to shareholders,
costs of registering shares of the Fund under the federal securities laws,
miscellaneous expenses and all taxes and fees to federal, state or other
governmental agencies. The Adviser reserves the right in its sole discretion
from time-to-time to waive all or a portion of its management fee or to
reimburse the Fund for all or a portion of its other expenses.

PORTFOLIO MANAGEMENT. David C. Johnson, a Senior Vice President of the
Adviser, has been primarily responsible for the day-to-day management of the
Fund's portfolio since June 1995. Mr. Johnson has been employed by the Adviser
since April 1989.

- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------

23
<PAGE> 218

The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor, not to accept any order for Class
B Shares in an amount of $500,000 or more and not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of shares is more beneficial for the investor to purchase. For example,
investors who would qualify for a significant purchase price discount from the
maximum sales charge on Class A Shares may determine that payment of such a
reduced front-end sales charge is superior to electing to purchase Class B
Shares or Class C Shares, each with no front-end sales charge but subject to a
CDSC and a higher aggregate distribution and service fee. However, because
initial sales charges are deducted at the time of purchase of Class A Share
accounts under $1 million, a purchaser of such Class A Shares would not have all
of his or her funds invested initially and therefore, would initially own fewer
shares than if Class B Shares or Class C Shares had been purchased. On the other
hand, an investor whose purchase would not qualify for price discounts
applicable to Class A Shares and intends to remain invested until after the
expiration of the applicable CDSC may wish to defer the sales charge and have
all his or her funds initially invested in Class B Shares or Class C Shares. If
such an investor anticipates that he or she will redeem such shares prior to the
expiration of the CDSC period applicable to Class B Shares, the investor may
wish to acquire Class C Shares. Investors must weigh the benefit of deferring
the sales charge and having all of their funds invested against the higher
aggregate distribution and service fee applicable to Class B Shares and Class C
Shares (discussed below).

24
<PAGE> 219

or subject to the conversion feature will have a higher expense ratio and pay
lower dividends than a class of shares subject to a lower ongoing distribution
and service fee or not subject to the conversion feature. The per share net
asset values of the different classes of shares are expected to be substantially
the same; from time to time, however, the per share net asset values of the
classes may differ. The net asset value per share of each class of shares of the
Fund will be determined as described in this Prospectus under "Purchase of
Shares -- Net Asset Value."

The administrative expenses that may be allocated to a specific class of
shares may consist of (i) ACCESS' expenses attributable to a specific class of
shares, which expenses typically will be higher with respect to classes of
shares subject to the conversion feature; (ii) printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxy statements to current shareholders of a specific class;
(iii) Securities and Exchange Commission (the "SEC") registration fees incurred
by a class of shares; (iv) the expense of administrative personnel and services
as required to support the shareholders of a specific class; (v) Trustees' fees
or expense incurred as a result of issues relating to one class of shares; (vi)
accounting expenses relating solely to one class of shares; and (vii) any other
incremental expenses subsequently identified that should be properly allocated
to one or more classes of shares. All such expenses incurred by a class will be
borne on a pro rata basis by the outstanding shares of such class. All
allocations of administrative expenses to a particular class of shares will be
limited to the extent necessary to preserve the Fund's qualification as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").

- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------

The Fund offers three classes of shares to the public on a continuous basis
through the Distributor, as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. Shares also are offered
through members of the National Association of Securities Dealers, Inc. ("NASD")
acting as securities dealers ("dealers") and through NASD members acting as
brokers for investors ("brokers") or eligible non-NASD members acting as agents
for investors ("financial intermediaries"). The Fund reserves the right to
suspend or terminate the continuous public offering of its shares at any time
and without prior notice.

25
<PAGE> 220

placed through an investor's broker, dealer or financial intermediary must be
transmitted to the Distributor by such broker, dealer or financial intermediary
prior to such time in order for the investor's order to be fulfilled on the
basis of the net asset value to be determined that day. Any change in the
purchase price due to the failure of the Distributor to receive a purchase order
prior to such time must be settled between the investor and the broker, dealer
or financial intermediary submitting the order.

The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things, and subject to
certain conditions, for certain favorable distribution arrangements for shares
of the Fund. Also, the Distributor in its discretion may from time to time,
pursuant to objective criteria established by it, pay fees to, and sponsor
business seminars for, qualifying brokers, dealers or financial intermediary for
certain services or activities which are primarily intended to result in sales
of shares of the Fund. Fees may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. In some
instances additional compensation or promotional incentives may be offered to
brokers, dealers or financial intermediaries that have sold or may sell
significant amounts of shares during specified periods of time. The Distributor
may provide additional compensation to Edward D. Jones & Co. or an affiliate
thereof based on a combination of its sales of shares and increases in assets
under management. Such payments to brokers, dealers and financial intermediaries
for sales contests, other sales programs and seminars are made by the
Distributor out of its own assets and not out of the assets of the Fund. Such
fees paid for such services and activities with respect to the Fund will not
exceed in the aggregate 1.25% of the average total daily net assets of the Fund
on an annual basis. These programs will not change the price an investor will
pay for shares or the amount that the Fund will receive from such sale.

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between the investor's broker, dealer or financial
intermediary and the Distributor. As indicated above, at the discretion of the
Distributor, the entire sales charge may be reallowed to such broker, dealer or
financial intermediary. The staff of the SEC has taken the

26
<PAGE> 221

position that brokers, dealers or financial intermediaries who receive more than
90% of the sales charge may be deemed to be "underwriters" as that term is
defined in the Securities Act of 1933, as amended.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
---------------------------- -----------
PERCENTAGE PERCENTAGE PERCENTAGE
SIZE OF TRANSACTION OF OFFERING OF NET OF OFFERING
AT OFFERING PRICE PRICE ASSET VALUE PRICE
------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Less than $25,000.................... 3.25% 3.36% 3.00%
$25,000 but less than $250,000....... 2.75 2.83 2.50
$250,000 but less than $500,000...... 1.75 1.78 1.50
$500,000 but less than $1,000,000.... 1.50 1.52 1.25
$1,000,000 or more*.................. * * *
</TABLE>

- ------------------------------------------------------------------------------

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC
of 1.00% on redemptions made within one year of the purchase. A
commission will be paid to brokers, dealers or financial intermediaries
who initiate and are responsible for purchases of $1 million or more as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1
million and 0.50% on the excess over $3 million. See "Purchase of
Shares -- Deferred Sales Charge Alternatives" for additional
information with respect to CDSCs.

QUANTITY DISCOUNTS

A person eligible for a reduced sales charge includes an individual, their
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary of a single trust estate or a
single fiduciary account; or a "company" as defined is section 2(a)(8) of the
1940 Act.

27
<PAGE> 222

added from time to time as determined by the Fund's Board of Trustees as
Participating Funds.

VOLUME DISCOUNTS. The size of investment shown in the preceding sales charge
table applies to the total dollar amount being invested by any person at any one
time in Class A Shares of the Fund, or in any combination of shares of the Fund
and shares of other Participating Funds, although other Participating Funds may
have different sales charges.

OTHER PURCHASE PROGRAMS

28
<PAGE> 223

UNIT INVESTMENT TRUST REINVESTMENT PROGRAMS. The Fund permits unitholders of
unit investment trusts to reinvest distributions from such trusts in Class A
Shares of the Fund at net asset value with no minimum initial or subsequent
investment requirement if the administrator of an investor's unit investment
trust program meets certain uniform criteria relating to cost savings by the
Fund and the Distributor. The total sales charge for all other investments made
from unit trust distributions will be 1.00% of the offering price (1.01% of net
asset value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their broker, dealer, financial intermediary or the Distributor.

(1) Current or retired trustees or directors of funds advised by the Adviser
or Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.

29
<PAGE> 224

institution, when purchasing for retirement plans for such institution's
employees.

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a 12-month
period following such transaction.

30
<PAGE> 225

criteria established by the Distributor from time to time. Prior to February 1,
1997, a commission will be paid to authorized dealers who initiate and are
responsible for such purchases within a rolling twelve-month period as follows:
1.00% on sales to $5 million, plus 0.50% on the next $5 million and 0.25%
on the excess over $10 million. For purchases on February 1, 1997 and
thereafter, a commission will be paid as follows: 1.00% on sales to $2
million, plus 0.80% on the next $1 million, plus 0.50% on the next $47
million and 0.25% on the excess over $50 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

DEFERRED SALES CHARGE ALTERNATIVES

31
<PAGE> 226

sold without an initial sales charge so that the Fund will receive the full
amount of the investor's purchase payment. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of the
assets of the Fund, at a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries,
which percentage rate will be equal to (i) with respect to Class A Shares, 1.00%
on sales to $2 million, plus 0.80% on the next $1 million and 0.50% on the
excess over $3 million; (ii) 3.00% with respect to Class B Shares; and (iii)
1.00% with respect to Class C Shares. Such compensation will not change the
price an investor will pay for CDSC Shares or the amount that the Fund will
receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no contingent deferred sales charge
will be imposed on increases in net asset value above the initial purchase
price. In addition, no CDSC will be assessed on CDSC Shares derived from
reinvestment of dividends or capital gains distributions. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
CDSC Shares, all payments during a month will be aggregated and deemed to have
been made on the last day of the month.

To provide an example, assume an investor purchased 100 Class B Shares at $10
per share (at a cost of $1,000) and in the second year after purchase, the net

32
<PAGE> 227

asset value per share is $12 and, during such time, the investor has acquired 10
additional Class B Shares upon dividend reinvestment. If at such time the
investor makes his first redemption of 50 shares (proceeds of $600), 10 shares
will not be subject to charge because of dividend reinvestment. With respect to
the remaining 40 shares, the charge is applied only to the original cost of $10
per share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds will be charged at a rate of 2.5% (the
applicable rate in the second year after purchase).

CLASS B SHARES. Class B Shares redeemed within four years of purchase
generally will be subject to a CDSC at the rates set forth below, charged as a
percentage of the dollar amount subject thereto:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
------------------- -------------------
<S> <C>
First............................................... 3.00%
Second.............................................. 2.50%
Third............................................... 2.00%
Fourth.............................................. 1.00%
Fifth and after..................................... 0.00%
</TABLE>

The CDSC generally is waived on redemptions of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services -- Systematic
Withdrawal Plan."

CONVERSION FEATURE. Class B Shares purchased on or after June 1, 1996 and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares six years after the end of the calendar month in which the shares
were purchased. Class C Shares purchased before January 1, 1997, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares ten years

33
<PAGE> 228

after the end of the calendar month in which such shares were purchased. Such
conversion will be on the basis of the relative net asset values per share,
without the imposition of any sales load, fee or other charge.

The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution and service fees and ACCESS costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) the conversion of such shares does not constitute a
taxable event under federal income tax law. The conversion may be suspended if
such an opinion is no longer available and such shares might continue to be
subject to the higher aggregate fees applicable to such class of shares for an
indefinite period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with required minimum
distributions from an IRA or other retirement plan, (iii) pursuant to the Fund's
systematic withdrawal plan but limited to 12% annually of the initial value of
the account and (iv) effected pursuant to the right of the Fund to liquidate a
shareholder's account as described herein under "Redemption of Shares." The CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See "Shareholder Services" and "Redemption of
Shares" for further discussion of the waiver provisions.

NET ASSET VALUE

Portfolio securities are valued by using market quotations, prices provided by
market makers or estimates of market values obtained from yield data relating to

34
<PAGE> 229

instruments or securities with similar characteristics in accordance with
procedures established in good faith by the Board of Trustees of the Trust, of
which the Fund is a series. Securities with remaining maturities of 60 days or
less are valued at amortized cost when amortized cost is determined in good
faith by or under the direction of the Board of Trustees of the Trust to be
representative of the fair value at which it is expected such securities may be
resold. Any securities or other assets for which current market quotations are
not readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Trustees of the Trust.

- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the

35
<PAGE> 230

Fund. Such shares are acquired at net asset value (without sales charge) on the
record date of such dividend or distribution. Unless the shareholder instructs
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or
in writing to ACCESS. The investor may, on the initial application or prior to
any declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."

36
<PAGE> 231

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 421-2833 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. Exchanges are effected at the net asset value per share next
calculated after the request is received in good order with adjustment for any
additional sales charge. If reasonable procedures are employed, a shareholder
agrees that neither VKAC nor the Fund will be liable for following telephone
instructions which it reasonably believes to be genuine. VKAC and the Fund may
be liable for any losses due to unauthorized or fraudulent instructions if
reasonable procedures are not followed. If the exchanging shareholder does not
have an account in the fund whose shares are being acquired, a new account will
be established with the same registration, dividend and capital gains options
(except dividend diversification options) and broker, dealer or financial
intermediary of record as the account from which shares are exchanged, unless
otherwise specified by the shareholder. In order to establish a systematic
withdrawal plan for the new account or reinvest dividends from the new account
into another fund, an exchanging shareholder must file a specific written
request. The Fund reserves the right to reject any order to acquire shares
through exchange. In addition, the Fund may modify restrict or terminate the
exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.

A prospectus of any of these mutual funds may be obtained from any broker,
dealer or financial intermediary or the Distributor. An investor considering an

37
<PAGE> 232

exchange to one of such funds should refer to the prospectus for additional
information regarding such fund prior to investing.

38
<PAGE> 233

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.

39
<PAGE> 234

certificates are held for the shares being redeemed, such certificates must be
endorsed for transfer or accompanied by an endorsed stock power and sent with
the redemption request. In the event the redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator, and the
name and title of the individual(s) authorizing such redemption is not shown in
the account registration, a copy of the corporate resolution or other legal
documentation appointing the authorized signer and certified within the prior 60
days must accompany the redemption request. The redemption price is the net
asset value per share next determined after the request is received by ACCESS in
proper form. Payment for shares redeemed (less any sales charge, if applicable)
will ordinarily be made by check mailed within three business days after
acceptance by ACCESS of the request and any other necessary documents in proper
order. Such payments may be postponed or the right of redemption suspended as
provided by the rules of the SEC. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check until
it confirms that the purchase check has cleared, usually a period of up to 15
days. Any gain or loss realized on the redemption of shares is a taxable event.

40
<PAGE> 235

shareholder agrees that neither VKAC nor the Fund will be liable for following
instructions which it reasonably believes to be genuine. VKAC and the Fund may
be liable for any losses due to unauthorized or fraudulent instructions if
reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS by telephone, whether because
all telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's other redemption procedures previously
described. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares represented by certificates. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check or
wiring redemption proceeds until it confirms that the purchase check has
cleared, usually a period of up to 15 days. If an account has multiple owners,
ACCESS may rely on the instructions of any one owner.

41
<PAGE> 236

and Class C Shares applies to a total or partial redemption, but only to
redemptions of shares held at the time of the initial determination of
disability.

- ------------------------------------------------------------------------------

DISTRIBUTION AND SERVICE PLANS

- ------------------------------------------------------------------------------

CLASS A SHARES. The Fund may spend an aggregate amount of up to 0.25% per year
of the average daily net assets attributable to the Class A Shares of the Fund
pursuant to the Distribution Plan and the Service Plan. From such amount, the
Fund may spend up to 0.25% per year of its average daily net assets attributable
to the Class A Shares pursuant to the Service Plan in connection with the
ongoing

42
<PAGE> 237

provision of services to holders of such shares by the Distributor and by
brokers, dealers or financial intermediaries and in connection with the
maintenance of shareholders' accounts. The Fund pays the Distributor the lesser
of the balance of the 0.25% not paid to such brokers, dealers or financial
intermediaries or the amount of the Distributor's actual distribution-related
expenses.

CLASS B SHARES. The Fund may spend up to 0.75% per year of its average daily
net assets attributable to the Class B Shares pursuant to the Distribution Plan.
In addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class B Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

The Distributor's actual expenses with respect to the CDSC Shares (for
purposes of this section, excluding any Class A Shares that may be subject to a
CDSC) for any given year may exceed the amounts payable to the Distributor with
respect to the CDSC Shares under the Distribution Plan, the Service Plan and
payments received pursuant to the CDSC. In such event, with respect to the CDSC
Shares, any unreimbursed expenses will be carried forward and paid by the Fund
(up to the amount of the actual expenses incurred) in future years so long as
such Distribution Plan is in effect. Except as mandated by applicable law, the
Fund does not impose any limit with respect to the number of years into the
future that such unreimbursed distribution expenses may be carried forward (on a
Fund level basis). Because such expenses are accounted on a Fund level basis, in
periods of extreme net asset value

43
<PAGE> 238

fluctuation such amounts with respect to a particular CDSC Share may be greater
or less than the amount of the initial commission (including carrying cost) paid
by the Distributor with respect to such CDSC Share. In such circumstances, a
shareholder of such CDSC Share may be deemed to incur expenses attributable to
other shareholders of such class. As of December 31, 1996, there were $111,106
and $25,606 of unreimbursed distribution related expenses with respect to Class
B Shares and Class C Shares, respectively, representing 0.68% and less than
0.44% of the Fund's net assets attributable to Class B Shares and Class C
Shares, respectively. If the Distribution Plan was terminated or not continued,
the Fund would not be contractually obligated to pay the Distributor for any
expenses not previously reimbursed by the Fund or recovered through CDSCs.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the CDSC with respect to a particular class of
shares to defray distribution-related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare daily and pay monthly distributions of all or
substantially all net investment income of the Fund. Net investment income
consists of all interest income, dividends and other ordinary income earned by
the Fund, less all expenses of the Fund attributable to the class of shares in
question. Net short-term capital gains, if any, may be distributed throughout
the year. Expenses of the Fund are accrued each day. Net realized long-term
capital gains, if any, are expected to be distributed, to the extent permitted
by applicable law, to shareholders at least annually. Distributions cannot be
assured, and the amount of each monthly distribution may vary.

44
<PAGE> 239

distributions with respect to a class of shares subject to a higher distribution
fee, service fee, or, where applicable, the conversion feature will be lower
than distributions with respect to a class of shares subject to a lower
distribution fee, service fee, or not subject to the conversion feature.

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund will automatically
credit monthly distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the Fund valued
at net asset value, without a sales charge. Unless a shareholder instructs
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or
in writing to ACCESS. See "Shareholder Services -- Reinvestment Plan."

- ------------------------------------------------------------------------------

TAX STATUS

- ------------------------------------------------------------------------------

In order to avoid a 4% excise tax, the Fund will be required to distribute, by
December 31 of each year, at least 98% of its ordinary income (not including

45
<PAGE> 240

tax-exempt income) for such year and at least 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31 of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.

46
<PAGE> 241

each year in order to maintain its qualification as a regulated investment
company and to avoid income and excise taxes. In order to generate sufficient
cash to make distributions necessary to satisfy the 90% distribution requirement
and to avoid income and excise taxes, the Fund may have to dispose of securities
that it would otherwise have continued to hold. A portion of the discount
relating to certain stripped tax-exempt obligations may constitute taxable
income when distributed to shareholders.

47
<PAGE> 242

Shareholders receiving distributions in the form of additional shares issued
by the Fund will be treated for federal income tax purposes as receiving a
distribution in an

48
<PAGE> 243

amount equal to the fair market value of the shares received, determined as of
the distribution date. The basis of such shares will equal the fair market value
on the distribution date.

49
<PAGE> 244

- ------------------------------------------------------------------------------

FUND PERFORMANCE

- ------------------------------------------------------------------------------

From time to time advertisements and other sales materials for the Fund may
include information concerning the historical performance of the Fund. Any such
information will include the average total return of the Fund calculated on a
compounded basis for specified periods of time. Such advertisements and sales
material may also include a yield quotation as of a current period. In each
case, such total return and yield information, if any, will be calculated
pursuant to rules established by the SEC and will be computed separately for
each class of the Fund's Shares. In lieu of or in addition to total return and
yield calculations, such information may include performance rankings and
similar information from independent organizations such as Lipper Analytical
Services, Inc. or nationally recognized financial publications. From time to
time, the Fund may compare its performance to certain securities and unmanaged
indices which may have different risk/reward characteristics than the Fund. Such
characteristics may include, but are not limited to, tax features, guarantees,
insurance and fluctuation of principal and/or return. In addition, from time to
time, the Fund may utilize sales literature that includes hypotheticals.

50
<PAGE> 245

Fund's investments plus the effect of any realized and unrealized appreciation
or depreciation of such investments during a stated period. Distribution rate
is, therefore, not intended to be a complete measure of the Fund's performance.
Distribution rate may sometimes be greater than yield since, for instance, it
may not include the effect of amortization of bond premiums, and may include
non-recurring short-term capital gains and premiums from futures transactions
engaged in by the Fund. Distribution rates will be computed separately for each
class of the Fund's Shares.

- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------

The Fund is a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized in 1993 under the name Van Kampen Merritt Limited Term
Municipal Income Fund as a sub-trust of Van Kampen Merritt Tax Free Fund, a
Massachusetts business trust. The Fund was reorganized as a series of the Trust
as of July 31, 1995. Shares of the Trust entitle their holders to one vote per
share; however, separate votes are taken by each series on matters affecting an
individual series.

51
<PAGE> 246

by a vote of two-thirds of the shares then outstanding cast in person or by
proxy at such meeting. The Trust will assist such holders in communicating with
other shareholders of the Fund to the extent required by the 1940 Act. More
detailed information concerning the Trust is set forth in the Statement of
Additional Information.

- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------

The fiscal year end of the Fund is December 31. The Fund sends to its
shareholders at least semi-annually reports showing the Fund's portfolio and
other information. An annual report, containing financial statements audited by
the Fund's independent auditors, is sent to shareholders each year. After the
end of each year, shareholders will receive federal income tax information
regarding dividends and capital gains distributions.

Shareholder inquiries should be directed to Van Kampen American Capital
Intermediate Term Municipal Income Fund, One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.

For Automated Telephone Service which provides 24-hour direct dial access to
Fund facts and Shareholder account information, dial (800) 847-2424. For
inquiries through Telecommunications Device for the Deaf (TDD) dial (800)
421-2833.

52
<PAGE> 247

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE

NUMBER--(800) 341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS, OR
REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)

DIAL (800) 421-2833.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 847-2424.

VAN KAMPEN AMERICAN CAPITAL
INTERMEDIATE TERM
MUNICIPAL INCOME FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181

Investment Adviser

VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Distributor

VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Transfer Agent

ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
Intermediate Term Municipal
Income Fund

Custodian

STATE STREET BANK AND
TRUST COMPANY

225 West Franklin Street, P.O. Box 1713

Boston, MA 02105-1713
Attn: Van Kampen American Capital
Intermediate Term Municipal
Income Fund

Legal Counsel

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 248

------------------------------------------------------------------------------

INTERMEDIATE TERM
MUNICIPAL INCOME
FUND

------------------------------------------------------------------------------

P R O S P E C T U S

APRIL 30, 1997

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 249

- --------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
FLORIDA INSURED TAX FREE INCOME FUND
- --------------------------------------------------------------------------------

Van Kampen American Capital Florida Insured Tax Free Income Fund (the
"Fund") is a non-diversified mutual fund, organized as a separate series of Van
Kampen American Capital Tax Free Trust. The Fund's investment objective is to
provide investors a high level of current income exempt from federal income tax
and Florida intangible personal property taxes, consistent with preservation of
capital. The Fund is designed for investors who are residents of Florida for tax
purposes. Under normal market conditions, the Fund seeks to achieve its
investment objective by investing at least 80% of its assets in a portfolio of
Florida municipal securities that are insured as to timely payment of both
principal and interest by an entity whose claims-paying ability is rated AAA by
Standard & Poor's Ratings Group ("S&P") or Aaa by Moody's Investors Service,
Inc. ("Moody's") or an equivalent rating from another nationally recognized
statistical rating organization. Insured municipal securities in which the Fund
may invest include conventional fixed-rate municipal securities, variable rate
municipal securities and other types of municipal securities described herein.
Up to 20% of the Fund's total assets may consist of uninsured Florida municipal
securities rated investment grade at the time of investment. See "Municipal
Securities." There is no assurance that the Fund will achieve its investment
objective.

------------------

A Statement of Additional Information, dated April 30, 1997, containing
additional information about the Fund has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference in its entirety into
this Prospectus. A copy of the Fund's Statement of Additional Information may be
obtained without charge by calling (800) 421-5666 or for Telecommunications
Device for the Deaf at (800) 421-2833. The Statement of Additional Information
has been filed with the Securities and Exchange Commission ("SEC") and is
available along with other related Fund materials at the SEC's Internet web site
(http://www.sec.gov).

------------------
VAN KAMPEN AMERICAN CAPITAL [SM]

------------------

THIS PROSPECTUS IS DATED APRIL 30, 1997.

<PAGE> 250

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Shareholder Transaction Expenses............................ 5
Annual Fund Operating Expenses and Example.................. 6
Financial Highlights........................................ 8
The Fund.................................................... 9
Investment Objective and Policies........................... 9
Municipal Securities........................................ 11
Investment Practices........................................ 14
Special Considerations Regarding the Fund................... 17
Investment Advisory Services................................ 19
Alternative Sales Arrangements.............................. 21
Purchase of Shares.......................................... 23
Shareholder Services........................................ 33
Redemption of Shares........................................ 37
Distribution and Service Plans.............................. 40
Distributions from the Fund................................. 42
Tax Status.................................................. 43
Fund Performance............................................ 49
Description of Shares of the Fund........................... 49
Additional Information...................................... 50
</TABLE>

2
<PAGE> 251

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

THE FUND. Van Kampen American Capital Florida Insured Tax Free Income Fund (the
"Fund") is a non-diversified mutual fund, organized as a separate series of Van
Kampen American Capital Tax Free Trust. See "The Fund."

INVESTMENT OBJECTIVE. The Fund's investment objective is to provide investors
with a high level of current income exempt from federal income tax and Florida
intangible personal property taxes, consistent with preservation of capital. The
Fund is designed for investors who are residents of Florida for tax purposes.

INVESTMENT POLICIES. Under normal market conditions, the Fund seeks to achieve
its investment objective by investing at least 80% of its assets in a portfolio
of Florida municipal securities that are insured as to timely payment of both
principal and interest by an entity whose claims-paying ability is rated AAA by
Standard & Poor's Ratings Group ("S&P") or Aaa by Moody's Investors Service,
Inc. ("Moody's") or an equivalent rating from another nationally recognized
statistical rating organization ("NRSRO"). Up to 20% of the Fund's total assets
may consist of uninsured Florida municipal securities rated investment grade at
the time of investment. Investment grade securities are securities rated BBB or
higher by S&P or Baa or higher by Moody's or an equivalent rating from another
NRSRO. Up to 20% of the Fund's assets may be invested in municipal securities
that are subject to federal alternative minimum tax. See "Investment Objectives
and Policies," "Municipal Securities" and "Special Considerations Regarding the
Fund."

INVESTMENT RESULTS. The investment results of the Fund are shown in the table
of "Financial Highlights."

PURCHASE OF SHARES. Shares of the Fund are offered through Van Kampen American
Capital Distributors, Inc. (the "Distributor"), as principal underwriter, and
through selected brokers and dealers. The offering price is the net asset value
per share next determined following receipt of an order plus a sales charge
which, at the option of the investor, may be imposed at the time of purchase or
on a contingent deferred basis. Investors may elect to purchase Class A Shares,
Class B Shares or Class C Shares, each with different sales charges and
expenses. The minimum initial investment is $500 for each class of shares and
the minimum subsequent investment is $25 for each class of shares (or less as
described under "Purchase of Shares"). The different classes of shares permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. See "Purchase
of Shares."

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the Fund's investment adviser.

3
<PAGE> 252

SPECIAL RISK FACTORS. The Fund may invest up to 20% of its assets in certain
derivative securities such as inverse floaters. Investment in such derivative
securities involves significant risks. Under normal market conditions, the Fund
will invest substantially all of its assets in insured Florida municipal
securities, and therefore it will be more susceptible to factors adversely
affecting issuers of Florida municipal securities than a municipal securities
fund that does not invest in Florida municipal securities to this degree. There
can be no assurance that the Fund will achieve its objective. See "Special
Considerations Regarding the Fund."

The foregoing is qualified in its entirety by reference to the more detailed

information appearing elsewhere in this Prospectus.

4
<PAGE> 253

- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
the offering price).......... 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of the
offering price).............. None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser of
original purchase price or
redemption proceeds)......... None(2) Year Year
1--4.00% 1--1.00%
Year After--None
2--3.75%
Year
3--3.50%
Year
4--2.50%
Year
5--1.50%
Year
6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed).................... None None None
Exchange fees.................. None None None
</TABLE>

- ------------------------------------------------------------------------------
(1) Reduced on investments of $100,000 or more. See "Purchase of Shares -- Class
A Shares."

(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchase of Shares -- Deferred Sales
Charge Alternative -- Class A Share Purchases of $1 Million or More."

5
<PAGE> 254

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management fees(1) (as a
percentage of average daily net
assets)......................... 0.00% 0.00% 0.00%
12b-1 fees(1)(2) (as a percentage
of average daily net assets).... 0.25% 1.00% 1.00%
Other expenses(1) (as a percentage
of average daily net assets).... 0.13% 0.13% 0.13%
Total expenses(1) (as a percentage
of average daily net assets).... 0.38% 1.13% 1.13%
</TABLE>

- ------------------------------------------------------------------------------

(1) Expenses include a waiver of $171,268 of "Management fees" and assumption of
$235,222 of "Other expenses" by the Adviser. If the Adviser did not waive
fees for the fiscal year ending December 31, 1996, the "Management fees"
would have been 0.50% for each class of shares, "Other expenses" would have
been 0.72% for each class of shares and "Total expenses" would have been
1.47% for Class A Shares, 2.22% for Class B Shares and 2.22% for Class C
Shares.

(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund as compensation for ongoing services rendered to investors.
With respect to each class of shares, amounts in excess of 0.25%, if any,
represent an asset based sales charge. The asset based sales charge with
respect to Class C Shares includes 0.75% (as a percentage of net asset
value) paid to investors' broker-dealers as sales compensation.

6
<PAGE> 255

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses
on a $1,000 investment, assuming (i)
an operating expense ratio of 0.38%
for Class A Shares, 1.13% for Class
B Shares and 1.13% for Class C
Shares, (ii) 5% annual return and
(iii) redemption at the end of each
time period:
Class A Shares...................... $51 $60 $69 $ 96
Class B Shares...................... $52 $72 $79 $120*
Class C Shares...................... $22 $37 $64 $141
You would pay the following expenses
on the same $1,000 investment
assuming no
redemption at the end of each
period:
Class A Shares...................... $51 $60 $69 $ 96
Class B Shares...................... $12 $37 $64 $120*
Class C Shares...................... $12 $37 $64 $141
</TABLE>

- ------------------------------------------------------------------------------

* Based on conversion to Class A Shares after eight years.

The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. As Fund
assets increase, the fees waived or expenses reimbursed by the Adviser are
expected to decrease. Accordingly, it is unlikely that future expenses as
projected will remain consistent with those determined based on the "Annual Fund
Operating Expenses" table. The ten year amount with respect to Class B Shares of
the Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A Shares. THE INFORMATION CONTAINED IN THE
ABOVE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more
complete description of such costs and expenses, see "Purchase of Shares,"
"Redemption of Shares," "Investment Advisory Services" and "Distribution and
Service Plans."

7
<PAGE> 256

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (for a share outstanding throughout the periods)
- --------------------------------------------------------------------------------
The following schedule presents financial highlights for one Class A Share,
one Class B Share and one Class C Share of the Fund outstanding throughout each
of the periods indicated. The financial highlights have been audited by KPMG
Peat Marwick LLP, independent certified public accountants, for each of the
periods indicated and their report thereon appears in the Statement of
Additional Information. This information should be read in conjunction with the
financial statements and related notes thereto included in the Statement of
Additional Information.

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------------------------------------- --------------------------------------------
JULY 29, 1994 JULY 29, 1994
(COMMENCEMENT (COMMENCEMENT
OF INVESTMENT OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) TO YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996 1995 1994
------------ ------------ -------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.203 $13.796 $14.300 $15.201 $13.792 $14.300
------- ------- ------- ------- ------- -------
Net Investment Income............ .784 .789 .291 .677 .685 .251
Net Realized and Unrealized
Gain/Loss on Securities........ (.153) 1.416 (.507) (.154) 1.415 (.509)
------- ------- ------- ------- ------- -------
Total from Investment
Operations....................... .631 2.205 (.216) .523 2.100 (.258)
Less:
Distributions from and in excess
of Net Investment Income(1).... .774 .798 .288 .660 .691 .250
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $15.060 $15.203 $13.796 $15.064 $15.201 $13.792
======= ======= ======= ======= ======= =======
Total Return(2)(3)................ 4.37% 16.29% (1.47%)(5) 3.58% 15.53% (1.81%)(5)
Net Assets at End of Period (in
millions) Class C is in
thousands........................ $ 22.2 $ 16.2 $ 9.0 $ 18.9 $ 16.9 $ 10.9
Ratio of Expenses to Average Net
Assets(2)(4)..................... .28% .44% .49% 1.03% 1.12% 1.26%
Ratio of Net Investment Income to
Average Net Assets(2)(4)......... 5.31% 5.33% 5.13% 4.56% 4.66% 4.31%
Portfolio Turnover................ 73% 41% 19% 73% 41% 19%

<CAPTION>
CLASS C SHARES
--------------------------------------------
JULY 29, 1994
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.213 $13.786 $14.300
------- ------- -------
Net Investment Income............ .668 .690 .249
Net Realized and Unrealized
Gain/Loss on Securities........ (.140) 1.428 (.513)
------- ------- -------
Total from Investment
Operations....................... .528 2.118 (.264)
Less:
Distributions from and in excess
of Net Investment Income(1).... .660 .691 .250
------- ------- -------
Net Asset Value, End of the
Period........................... $15.081 $15.213 $13.786
======= ======= =======
Total Return(2)(3)................ 3.65% 15.61% (1.81%)(5)
Net Assets at End of Period (in
millions) Class C is in
thousands........................ $ 849.2 $ 461.8 $ 11.4
Ratio of Expenses to Average Net
Assets(2)(4)..................... 1.03% 1.13% 1.26%
Ratio of Net Investment Income to
Average Net Assets(2)(4)......... 4.56% 4.51% 4.28%
Portfolio Turnover................ 73% 41% 19%
</TABLE>

- ----------------
(1) See Note 1 to the Financial Statements.

(2) If certain expenses had not been waived or assumed by the Adviser, total
return would have been lower and the ratios would have been as follows:

<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets(4)........... 1.47% 1.70% 1.99% 2.22% 2.38%
Ratio of Net Investment Income to Average Net
Assets............................................... 4.13% 4.07% 3.64% 3.38% 3.40%

<CAPTION>
<S> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets(4)........... 2.75% 2.22% 2.39% 2.74%
Ratio of Net Investment Income to Average Net
Assets............................................... 2.81% 3.38% 3.25% 2.87%
</TABLE>

(3) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(4) 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.

(5) Non-Annualized.

See Financial Statements and Notes Thereto

8
<PAGE> 257

- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital Florida Insured Tax Free Income Fund (the "Fund")
is a non-diversified, separate series of Van Kampen American Capital Tax Free
Trust (the "Trust"), an open-end management investment company, commonly known
as a "mutual fund," organized as a Delaware business trust. Mutual funds sell
their shares to investors and invest the proceeds in a portfolio of securities.
A mutual fund allows investors to pool their money with that of other investors
in order to obtain professional investment management. Mutual funds generally
make it possible for investors to obtain greater diversification of their
investments and to simplify their recordkeeping.

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser and its
affiliates act as investment adviser to other mutual funds distributed by Van
Kampen American Capital Distributors, Inc. ("the Distributor"). To obtain
prospectuses and other information on any of these other funds, please call the
telephone number on the cover page of the Prospectus.

- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------

The investment objective of the Fund is to provide investors a high level of
current income exempt from federal income tax and Florida intangible personal
property taxes, consistent with preservation of capital. The Fund is designed
for investors who are residents of Florida for tax purposes. The Fund's
investment objective is a fundamental policy and may not be changed without
shareholder approval of the holders of a majority of the Fund's outstanding
voting securities, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). Under normal market conditions, the Fund will invest up to 80%
of its assets in Florida municipal securities that are insured as to timely
payment of both principal and interest by an entity whose claims-paying ability
is rated AAA by Standard & Poor's Ratings Group ("S&P") or Aaa by Moody's
Investors Service, Inc. ("Moody's") or an equivalent rating from another
nationally recognized statistical rating organization ("NRSRO"). Up to 20% of
the Fund's total assets may consist of uninsured Florida municipal securities
rated investment grade at the time of investment. Investment grade securities
are securities rated BBB or higher by S&P or Baa or higher by Moody's, or an
equivalent rating by another NRSRO. There are market risks inherent in all
investments in securities; and accordingly there can be no assurance the Fund
will achieve its investment objective. An investment in the Fund may not be
appropriate for all investors. The Fund is not intended to be a complete
investment program, and investors should consider their long-term investment
goals and financial needs when making an investment decision with respect to the
Fund. An investment in the Fund is intended to be a long-term investment and
should not be used as a trading vehicle.

9
<PAGE> 258

For a description of S&P's and Moody's claims-paying ability ratings and
municipal securities ratings see the Statement of Additional Information. From
time to time, the Fund temporarily may invest up to 10% of its assets in tax
exempt money market funds. Such instruments will be treated as investments in
municipal securities.

SELECTION OF INVESTMENTS. The Adviser will buy and sell securities for the
Fund's portfolio with a view to seeking a high level of current income exempt
from federal income tax and Florida intangible personal property taxes and will
select securities which the Adviser believes entail reasonable credit risk
considered in relation to the investment policies of the Fund. As a result, the
Fund will not necessarily invest in the highest yielding Florida municipal
securities permitted by its investment policies if the Adviser determines that
market risks or credit risks associated with such investments would subject the
Fund's portfolio to undue risk. The potential for realization of capital gains
resulting from possible changes in interest rates will not be a major
consideration. Other than for tax purposes, frequency of portfolio turnover
generally will not be a limiting factor if the Fund considers it advantageous to
purchase or sell securities. The Fund anticipates that its annual portfolio
turnover rate normally will be less than 200%. A high rate of portfolio turnover
involves correspondingly greater brokerage commission expenses or dealer costs
than a lower rate, which expenses and costs must be borne by the Fund and its
shareholders. High portfolio turnover may also result in the realization of
substantial net short-term capital gains and any distributions resulting from
such gains will be taxable. See "Tax Status" in this Prospectus and "Investment
Policies and Restrictions" in the Statement of Additional Information.

TEMPORARY DEFENSIVE STRATEGIES. At times, conditions in the markets for
Florida insured municipal securities may, in the Adviser's judgment, make
pursuing the Fund's basic investment strategy inconsistent with the best
interests of its shareholders. At such times, the Adviser may use alternative
strategies primarily designed to reduce fluctuations in the value of the Fund's
assets. In implementing these "defensive" strategies, the Fund may invest to a
substantial degree in high-quality, short-term Florida municipal obligations. If
such municipal obligations are not available or, in the Adviser's judgment, do
not afford sufficient protection against adverse market conditions, the Fund may
invest in high-quality, municipal securities of issuers other than issuers of
Florida municipal securities. Furthermore, if such high-quality securities are
not available or, in the Adviser's judgment, do not afford sufficient protection
against adverse market conditions, the Fund may invest in taxable obligations.
Such taxable obligations may include: obligations of the U.S. Government, its
agencies or instrumentalities; other debt securities rated within the four
highest categories by either S&P or Moody's (or comparably rated by another
NRSRO); commercial paper rated in the highest grade by either rating service (or
comparably rated by another NRSRO); certificates of deposit and bankers'
acceptances; repurchase agreements with respect to any of the foregoing
investments; or any other fixed-income securities that the Adviser considers
consistent with such strategy. To the extent that the Fund invests a substantial
portion of its assets in

10
<PAGE> 259

municipal securities other than Florida municipal securities or taxable
securities for temporary defensive purposes, the Fund will not be invested in a
manner primarily designed to achieve a high level of current income exempt from
federal income tax and Florida intangible personal property taxes. The Fund may
invest in insured and uninsured securities for temporary defensive purposes.

- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES
- ------------------------------------------------------------------------------

GENERAL. Municipal securities are obligations issued by or on behalf of
states, territories or possessions of the United States, the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest on which, in the opinion of bond counsel or other counsel to the issuer
of such securities is, at the time of issuance, exempt from federal income tax.
Florida municipal securities are municipal securities the interest on which, in
the opinion of bond counsel or other counsel to the issuers of such securities,
is at the time of issuance exempt from Florida intangible personal property
taxes. Under normal market conditions, at least 80% of the Fund's assets will be
invested in Florida municipal securities. The policy stated in the foregoing
sentence is a fundamental policy of the Fund and cannot be changed without
approval of the shareholders of the Fund. Up to 20% of the Fund's assets may be
invested in securities that are subject to federal alternative minimum tax.

11
<PAGE> 260

will be larger than comparable changes in the value of an equal principal amount
of a fixed rate municipal security having similar credit quality, redemption
provisions and maturity. The Fund will not invest more than 20% of its total
assets in securities whose rates vary inversely with changes in market rates of
interest.

Municipal notes include tax, revenue and bond anticipation notes of short
maturity, generally less than three years, which are issued to obtain temporary
funds for various public purposes. Municipal leases are obligations issued by
state and local governments or authorities to finance the acquisition of
equipment and facilities. Certain municipal lease obligations may include
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Custodial receipts are
underwritten by securities dealers or banks and evidence ownership of future
interest payments, principal payments or both on certain municipal securities.
Participation certificates are obligations issued by state or local governments
or authorities to finance the acquisition of equipment and facilities. They may
represent participations in a lease, an installment purchase contract, or a
conditional sales contract. Municipal securities may not be backed by the faith,
credit and taxing power of the issuer. Other than as set forth above, there is
no limitation with respect to the amount of the Fund's assets that may be
invested in the foregoing types of municipal securities. Certain of the
municipal securities in which the Fund may invest represent relatively recent
innovations in the municipal securities markets and the markets for such
securities may be less developed than the market for conventional fixed rate
municipal securities. A more detailed description of the types of municipal
securities in which the Fund may invest is included in the Statement of
Additional Information.

Under normal market conditions, longer term municipal securities generally
provide a higher yield than shorter term municipal securities, and therefore the
Fund generally expects to invest primarily in longer term municipal securities.
The Fund will, however, invest in shorter term municipal securities when it
believes market conditions warrant such investments. The net asset value of the
Fund will change with changes in the value of its portfolio securities. Because
the Fund will invest primarily in fixed income municipal securities, the net
asset value of the Fund can be expected to change as general levels of interest
rates fluctuate. When interest rates decline, the value of a portfolio invested
in fixed income securities generally can be expected to rise. Conversely, when
interest rates rise, the value of a portfolio invested in fixed income
securities generally can be expected to decline. The prices of longer term
municipal securities generally are more volatile with respect to changes in
interest rates than the prices of shorter term municipal securities. Volatility
may be greater during periods of general economic uncertainty.

12
<PAGE> 261

tax or who would become subject to the federal alternative minimum tax as a
result of an investment in the Fund. In addition, income earned or deemed to be
earned with respect to the Fund's Strategic Transactions, if any, will be
taxable. See "Tax Status."

From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the Fund
to pay tax exempt interest dividends might be adversely affected.

INSURED MUNICIPAL SECURITIES. Insured Florida municipal securities in which
the Fund may invest will be covered by Original Issue Insurance, Secondary
Market Insurance or Portfolio Insurance. Original Issue Insurance is purchased
with respect to a particular issue of municipal securities by the issuer thereof
or a third party in conjunction with the original issue of such municipal
securities. Secondary Market Insurance is purchased by the Fund or a third party
subsequent to the time of original issuance of a municipal security. Both
Original Issue Insurance and Secondary Market Insurance remain in effect as long
as the municipal securities covered thereby remain outstanding and the insurer
remains in business, regardless of whether the Fund ultimately disposes of such
municipal securities. Portfolio Insurance may be purchased by the Fund with
respect to municipal securities which the Fund intends to purchase or already
owns and would generally terminate when the municipal security is sold by the
Fund or redeemed. There is no limitation on the percentage of the Fund's assets
that may be invested in Florida municipal securities insured by any given
insurer.

Original Issue Insurance, Secondary Market Insurance and Portfolio Insurance
generally do not insure payment on an accelerated basis, the payment of any
redemption premium (except with respect to certain premium payments in the case
of certain small issue industrial development and pollution control municipal
securities), the value of the Fund's shares or the market value of the Fund's
portfolio securities. Such insurance also does not insure against nonpayment of
principal of or interest on municipal securities resulting from the insolvency,
negligence or any other act or omission of the trustee or other paying agent for
such obligations.

The Fund's policy of investing in Florida municipal securities insured by
insurers whose claims-paying ability is rated Aaa by Moody's, AAA by S&P or the
equivalent by another NRSRO will apply only at the time of the Fund's investment
in a Florida municipal security. A subsequent downgrade by Moody's, S&P or
another NRSRO of an insurer's claims-paying ability would result in a downgrade
of the rating assigned to the Florida municipal securities insured by such
insurer, although the Florida municipal securities may have an independent
rating that is higher than the new rating assigned to the insurer's
claims-paying ability. The securities could experience a decrease in market
price as a result of such a downgrade. In the event the ratings assigned to such
municipal securities decline to below investment grade, such municipal
securities would probably become less

13
<PAGE> 262

liquid or even illiquid. There can be no assurance that an insurer will be able
to honor its obligations with respect to Florida municipal securities in the
Fund's portfolio. For a description of S&P's and Moody's claims-paying ability
ratings of insurers, see the Statement of Additional Information.

- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------

In connection with the investment policies described above, the Fund also may
engage in strategic transactions and purchase and sell securities on a "when
issued" and "delayed delivery" basis. These investments entail risks. Strategic
transactions generally will not be treated as investments in tax-exempt
municipal securities for purposes of the Fund's 80% investment policy with
respect thereto.

14
<PAGE> 263

addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the contemplated use of these futures
contracts and options thereon should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.

Income earned or deemed to be earned by the Fund from, among other things, its
Strategic Transactions and temporary defensive strategies, if any, generally
will be taxable income of the Fund. See "Tax Status."

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell municipal securities on a "when issued" and "delayed delivery" basis.
No income accrues to the Fund on municipal securities in connection with such
purchase transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher or lower than yields on the municipal securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or liquid securities having an aggregate value equal to
the amount of such purchase commitments until payment is made. The Fund will
make commitments to purchase municipal securities on such basis only with the
intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objectives and
policies and not for the purposes of investment leverage. No specific limitation
exists as to the percentage of the Fund's assets which may be used to acquire
securities on a "when issued" or "delayed delivery" basis.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities including securities the disposition of which is
subject to

15
<PAGE> 264

substantial legal or contractual restrictions on resale and securities that are
not readily marketable. The sale of restricted and illiquid securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of securities eligible for trading
on national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale.

Under normal market conditions, the Fund will invest substantially all of its
assets in insured Florida municipal securities. The Fund generally will not
invest more than 25% of its total assets in any industry. Governmental issuers
of municipal securities are not considered part of any "industry." However,
municipal securities backed only by the assets and revenues of nongovernmental
users may for this purpose be deemed to be issued by such nongovernmental users,
and the 25% limitation would apply to such obligations. It is therefore possible
that the Fund may invest more than 25% of its assets in a broader segment of the
municipal securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations, or airport revenue
obligations if the Adviser determines that the yields available from obligations
in a particular segment of the market justifies the additional risks associated
with a large investment in such segment. Although such obligations could be
supported by the credit of governmental users, or by the credit of
nongovernmental users engaged in a number of industries, economic, business,
political and other developments generally affecting the revenues of such users
(for example, proposed legislation or pending court decisions affecting the
financing of such projects and market factors affecting the demand for their
services or products) may have a general adverse effect on all municipal
securities in such a market segment.

From time to time, the Fund's investments may include securities as to which
the Fund, by itself or together with other funds or accounts managed by the
Adviser, holds a major portion or all of an issue of Florida municipal
securities. Because there may be relatively few potential purchasers for such
investments and, in some cases, there may be contractual restrictions on
resales, the Fund may find it more difficult to sell such securities at a time
when the Adviser believes it is advisable to do so.

INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act. See "Investment
Policies and Restrictions" in the Statement of Additional Information.

16
<PAGE> 265

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. The Adviser is responsible
for decisions to buy and sell securities for the Fund, the selection of brokers
and dealers to effect the transactions and the negotiation of prices and any
brokerage commissions. The income securities in which the Fund invests are
traded principally in the over-the-counter market. In the over-the-counter
market, securities are generally traded on a net basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a mark-up to the dealer. Securities purchased
in underwritten offerings generally include, in the price, a fixed amount of
compensation for the managers, underwriters and dealers. The Fund may also
purchase certain money market instruments directly from an issuer, in which case
no commissions or discounts are paid. Purchases and sales of bonds on a stock
exchange are effected through brokers who charge a commission for their
services.

GENERAL. The Fund may invest up to 20% of its total assets in derivative
variable rate securities such as inverse floaters whose rates of interest vary
inversely with changes in market rates of interest. When market rates of
interest decrease, the change in value of such securities will have a positive
effect on the net asset value of the Fund and when market rates of interest
increase, the change in value of such securities will have a negative effect on
the net asset value of the Fund. Investment in such securities involve special
risks as compared to a fixed rate municipal

17
<PAGE> 266

security. The extent of increases and decreases in the value of inverse floaters
and the corresponding change to per share net asset value of the Fund generally
will be larger than comparable changes in the value of an equal principal amount
of a fixed rate municipal security having similar credit quality, redemption
provisions and maturity. The markets for inverse variable rate securities may be
less developed than the market for conventional fixed rate municipal securities.

SPECIAL CONSIDERATIONS REGARDING FLORIDA MUNICIPAL SECURITIES. As described in
this Prospectus, under normal market conditions the Fund will invest
substantially all of its assets in Florida municipal securities. The Fund is
therefore susceptible to political, economic, regulatory or other factors
affecting issuers of Florida municipal securities. Investors should be aware of
certain factors that might affect the financial condition of the issuers of
Florida municipal securities.

The following information is a summary of a more detailed description of
certain factors affecting Florida municipal securities which is contained in the
Statement of Additional Information. Investors should obtain a copy of the
Statement of Additional Information for the more detailed discussion of such
factors. Such information is derived from certain official statements of the
State of Florida published in connection with the issuance of specific Florida
municipal securities, as well as from other publicly available documents. Such
information has not been independently verified by the Fund and may not apply to
all Florida municipal securities acquired by the Fund. The Fund assumes no
responsibility for the completeness or accuracy of such information.

Florida state and local government obligations may be adversely affected by
political and economic conditions and developments within the State of Florida
and the nation as a whole.

Florida's economic outlook is projected generally to reflect the national
economic outlook and is expected to experience steady if unspectacular growth
over the next couple of years. Historically, Florida's unemployment rate has
generally tracked below that of the nation; however, in recent years, as the
State's economic growth has slowed from its previous highs, the unemployment
rate has tracked above the national average. The average rate of unemployment
for Florida since 1986 is 6.2% while the national average during the same time
period is also 6.2%. Florida's unemployment rate is forecasted at 5.3% for
fiscal year 1996-97 and fiscal year 1997-98.

For the State fiscal year which ended June 30, 1996, receipts from the sales
and use tax, the greatest single source of tax revenue to the State of Florida,
were $11,461 million, an increase of 7.4% from fiscal year 1994-95.

Tourism is one of Florida's most important industries. Approximately 40.7
million people visited the State in 1995. Tourist arrivals are expected to
increase 2.7% this fiscal year and 3.2% next fiscal year. By the end of fiscal
year 1996-97 42.6 million domestic and international tourists are expected to
have visited the state. In 1997-98, tourist arrivals should approximate 43.9
million.

18
<PAGE> 267

County and municipal governments in Florida depend primarily upon ad valorem
property taxes, sales, motor fuel and other local excise taxes and miscellaneous
revenue sources, including revenues from utilities services. Florida school
districts derive substantially all of their revenues from local property taxes.
The overall level of revenue from these sources is in part dependent upon the
local, state and national economies. Local government obligations held by the
Fund may constitute general obligations or may be special obligations payable
solely from one or more specified revenue sources. The ability of the local
governments to repay their obligations on a timely basis will be dependent upon
the continued strength of the revenues pledged and of the overall fiscal status
of the local government.

Voters at the general election in November 1994 approved an amendment to the
Constitution of the State of Florida limiting future state revenues. It is
unclear what effect, if any, such amendment would have on state or local
government debt obligations.

The value of Florida municipal instruments may also be affected by general
conditions in the money markets or the municipal bond markets, the levels of
federal income tax rates, the supply of tax-exempt bonds, the credit quality and
rating of the issues and perceptions with respect to the level of interest
rates.

There can be no assurance that there will not be a decline in economic
conditions or that particular Florida municipal securities in the portfolio of
the Fund will not be adversely affected by any such changes.

More detailed information concerning Florida municipal securities and the
State of Florida is included in the Statement of Additional Information.

- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------

THE ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for the Fund. The Adviser is a wholly-owned
subsidiary of Van Kampen American Capital, Inc. ("Van Kampen American Capital").
Van Kampen American Capital is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $57 billion under management or
supervision. Van Kampen American Capital's more than 40 open-end and 38
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen American
Capital Distributors, Inc. (the "Distributor"), the distributor of the Fund and
sponsor of the funds mentioned above, is a wholly-owned subsidiary of Van Kampen
American Capital.

19
<PAGE> 268

The Adviser's principal office is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

ADVISORY AGREEMENT. The business and affairs of the Fund will be managed
under the direction of the Board of Trustees of the Trust, of which the Fund is
a separate series. Subject to their authority, the Adviser and the respective
officers of the Fund will supervise and implement the Fund's investment
activities and will be responsible for overall management of the Fund's business
affairs. The Fund will pay the Adviser a fee equal to a percentage of the
average daily net assets of the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ------------------------ -----------
<S> <C>
First $500 million..................................... 0.500 of 1.00%
Over $500 million...................................... 0.450 of 1.00%
</TABLE>

20
<PAGE> 269

notices to shareholders, costs of registering shares of the Fund under the
federal securities laws, miscellaneous expenses and all taxes and fees to
federal, state or other governmental agencies. The Adviser reserves the right in
its sole discretion from time-to-time to waive all or a portion of its
management fee, or to reimburse the Fund for all or a portion of its other
expenses.

PORTFOLIO MANAGEMENT. David C. Johnson, a Senior Vice President of the
Adviser, supervises the Adviser's municipal securities practice area and
coordinates the Adviser's investment policy regarding such securities. Mr.
Johnson has been employed by the Adviser since April 1989. Mr. Piraro, a Vice
President of the Adviser, has been primarily responsible for the day-to-day
management of the Fund's portfolio since August 1995. Mr. Piraro has been
employed by the Adviser since May 1992. Prior to May 1992, Mr. Piraro was
employed by First Chicago Capital Markets.

- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------

The Fund offers three classes of shares, designated Class A Shares, Class B
Shares and Class C Shares. Shares of each class are offered at a price equal to
their net asset value per share plus a sales charge which, at the election of
the purchaser, may be imposed (a) at the time of purchase ("Class A Shares") or
(b) on a contingent deferred basis (Class A Share accounts over $1 million,
"Class B Shares" and "Class C Shares"). Class A Shares accounts over $1 million
or otherwise subject to a contingent deferred sales charge ("CDSC"), Class B
Shares and Class C Shares sometimes are referred to herein collectively as
"Contingent Deferred Sales Charge Shares" or "CDSC Shares."

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<PAGE> 270

Shares in an amount of $500,000 or more and not to accept any order for Class C
Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

An investor should carefully consider the sales charges applicable to each
class of shares and the estimated period of their investment to determine which
class of shares is more beneficial for the investor to purchase. For example,
investors who would qualify for a significant purchase price discount from the
maximum sales charge on Class A Shares may determine that payment of such a
reduced front-end sales charge is superior to electing to purchase Class B
Shares or Class C Shares, each with no front-end sales charge but subject to a
CDSC and a higher aggregate distribution and service fee. However, because
initial sales charges are deducted at the time of purchase of Class A Share
accounts under $1 million, a purchaser of such Class A Shares would not have all
of his or her funds invested initially and therefore, would initially own fewer
shares than if Class B Shares or Class C Shares had been purchased. On the other
hand, an investor whose purchase would not qualify for price discounts
applicable to Class A Shares and intends to remain invested until after the
expiration of the applicable CDSC may wish to defer the sales charge and have
all his or her funds initially invested in Class B Shares or Class C Shares. If
such an investor anticipates that he or she will redeem such shares prior to the
expiration of the CDSC period applicable to Class B Shares, the investor may
wish to acquire Class C Shares. Investors must weigh the benefit of deferring
the sales charge and having all of their funds invested against the higher
aggregate distribution and service fee applicable to Class B Shares and Class C
Shares (discussed below).

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distributing materials such as shareholder reports, prospectuses and proxy
statements to current shareholders of a specific class; (iii) Securities and
Exchange Commission (the"SEC") registration fees incurred by a class of shares;
(iv) the expense of administrative personnel and services as required to support
the shareholders of a specific class; (v) Trustees' fees or expense incurred as
a result of issues relating to one class of shares; (vi) accounting expenses
relating solely to one class of shares; and (vii) any other incremental expenses
subsequently identified that should be properly allocated to one or more classes
of shares. All such expenses incurred by a class will be borne on a pro rata
basis by the outstanding shares of such class. All allocations of administrative
expenses to a particular class of shares will be limited to the extent necessary
to preserve the Fund's qualification as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code").

- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------

The Fund's shares are offered at the net asset value per share next computed
after an investor places an order to purchase directly with the investor's
broker, dealer or financial intermediary or directly with the Distributor plus
any applicable sales charge. Sales personnel or brokers, dealers and financial
intermediaries distributing the Fund's shares may receive different compensation
for selling different classes of shares. It is the responsibility of the
investor's broker, dealer or financial intermediary to transmit the order to the
Distributor. Because the Fund generally will determine net asset value once each
business day as of the close of business, purchase orders placed through an
investor's broker, dealer or financial intermediary must be transmitted to the
Distributor by such broker, dealer or financial intermediary prior to such time
in order for the investor's order to be fulfilled on the basis of the net asset
value to be determined that day. Any change in the purchase price due to the
failure of the Distributor to receive a purchase order prior to such time must
be settled between the investor and the broker, dealer or financial intermediary
submitting the order.

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<PAGE> 272

programs conforming to criteria established by the Distributor, or participates
in sales programs sponsored by the Distributor, an amount not exceeding the
total applicable sales charges on the sales generated by the broker, dealer or
financial intermediary at the public offering price during such programs. Other
programs provide, among other things and subject to certain conditions, for
certain favorable distribution arrangements for shares of the Fund. Also, the
Distributor in its discretion may from time to time, pursuant to objective
criteria established by it, pay fees to, and sponsor business seminars for,
qualifying brokers, dealers or financial intermediaries for certain services or
activities which are primarily intended to result in sales of shares of the
Fund. Fees may include payment for travel expenses, including lodging, incurred
in connection with trips taken by invited registered representatives and members
of their families to locations within or outside of the United States for
meetings or seminars of a business nature. In some instances additional
compensation or promotional incentives may be offered to brokers, dealers or
financial intermediaries that have sold or may sell significant amounts of
shares during specified periods of time. The Distributor may provide additional
compensation to Edward D. Jones & Co. or an affiliate thereof based on a
combination of its sales of shares and increases in assets under management.
Such payments to brokers, dealers and financial intermediaries for sales
contests, other sales programs and seminars are made by the Distributor out of
its own assets and not out of the assets of the Fund. Such fees paid for such
services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. These programs will not change the price an investor pays for shares or
the amount that the Fund will receive from such sale.

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between the investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has taken the position that
dealers who receive 90% or more of the sales charge may be deemed to be
"underwriters" as that term is defined in the Securities Act of 1933, as
amended.

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SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
---------------------------------- --------------
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AT OFFERING PRICE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
------------------- -------------- --------------- --------------
<S> <C> <C> <C>
Less than $100,000............... 4.75% 4.99% 4.25%
$100,000 but less than
$250,000....................... 3.75 3.90 3.25
$250,000 but less than
$500,000....................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000..................... 2.00 2.04 1.75
$1,000,000 or more*.............. * * *
</TABLE>

- ------------------------------------------------------------------------------

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid to brokers, dealers or financial intermediaries who initiate
and are responsible for purchases of $1 million or more as follows: 1.00%
on sales to $2 million, plus 0.80% on the next $1 million and 0.50% on the
excess over $3 million. See "Purchase of Shares--Deferred Sales Charge
Alternatives" for additional information with respect to CDSCs.

QUANTITY DISCOUNTS

As used herein, "Participating Funds" refers to all open-end investment
companies advised by the Adviser or Van Kampen American Capital Asset
Management, Inc. and distributed by the Distributor. Additional funds may be
added from time to time as determined by the Fund's Board of Trustees as
Participating Funds.

VOLUME DISCOUNTS. The size of investment shown in the preceding sales charge
table applies to the total dollar amount being invested by any person at any one
time

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<PAGE> 274

in Class A Shares of the Fund, or in any combination of shares of the Fund and
shares of other Participating Funds, although other Participating Funds may have
different sales charges.

OTHER PURCHASE PROGRAMS

26
<PAGE> 275

meets certain uniform criteria relating to cost savings by the Fund and the
Distributor. The total sales charge for all other investments made from unit
trust distributions will be 1.00% of the offering price (1.01% of net asset
value). Of this amount, the Distributor will pay to the broker, dealer or
financial intermediary, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their broker, dealer, financial intermediary or the Distributor.

(1) Current or retired trustees or directors of funds advised by the Adviser
or Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.

27
<PAGE> 276

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a 12-month
period following such transaction.

28
<PAGE> 277

follows: 1.00% on sales to $5 million, plus 0.50% on the next $5 million
and 0.25% on the excess over $10 million. For purchases on February 1,
1997 and thereafter, a commission will be paid as follows: 1.00% on sales
to $2 million, plus 0.80% on the next $1 million, plus 0.50% on the next
$47 million and 0.25% on the excess over $50 million.

(9) Individuals who are members of a "qualified group". For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the fund or
similar investments, (iii) has given and continues to give its endorsement
or authorization, on behalf of the group, for purchase of shares of the
fund and other Participating funds, (iv) has a membership that the
authorized dealer can certify as to the group's members and (v) satisfies
other uniform criteria established by the Distributor for the purpose of
realizing economics of scale in distributing such shares. A qualified
group does not include one whose sole organizational nexus, for example,
is that its participants are credit card holders of the same institution,
policy holders of an insurance company, customers of a bank or
broker-dealer, clients of an investment adviser or other similar groups.
Shares purchased in each group's participants account in connection with
this privilege will be subject to a CDSC of 1.00% in the event of
redemption within one year of purchase, and a commission will be paid to
authorized dealers who initiate and are responsible for such sales to each
individual as follows: 1.00% on sales to $2 million, plus 0.80% on the
next $1 million and 0.50% on the excess over $3 million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

DEFERRED SALES CHARGE ALTERNATIVE

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<PAGE> 278

CDSC Shares out of its own assets, and not out of assets of the Fund, as a
percentage rate of the dollar value of the CDSC Shares purchased from the Fund
by such brokers, dealers and financial intermediaries, which percentage rate
will be equal to (i) with respect to Class A Shares, 1.00% on sales to $2
million, plus 0.80% on the next $1 million and 0.50% on the excess over $3
million; (ii) 4.00% with respect to Class B Shares; and (iii) 1.00% with respect
to Class C Shares. Such compensation will not change the price an investor will
pay for CDSC Shares or the amount that the Fund will receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed on CDSC Shares derived from reinvestment of dividends or
capital gains distributions. Solely for purposes of determining the number of
years from the time of any payment for the purchases of CDSC Shares, all
payments during a month will be aggregated and deemed to have been made on the
last day of the month.

Proceeds from the CDSC and the distribution fee applicable to a class of CDSC
Shares are paid to the Distributor and are used by the Distributor to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of shares of such class of CDSC Shares, such as the
payment of compensation to selected dealers and agents and for selling such
shares. The combination of the CDSC and the distribution fees facilitates the
ability of the Fund to sell such CDSC Shares without a sales charge being
deducted at the time of purchase.

30
<PAGE> 279

charge because of dividend reinvestment. With respect to the remaining 40
shares, the charge is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 3.75% (the applicable rate in
the second year after purchase).

CLASS B SHARES. Class B Shares redeemed within seven years of purchase
generally will be subject to a CDSC at the rates set forth below, charged as a
percentage of the dollar amount subject thereto:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
- ------------------- -------------------
<S> <C>
First.................................................. 4.00%
Second................................................. 3.75%
Third.................................................. 3.50%
Fourth................................................. 2.50%
Fifth.................................................. 1.50%
Sixth.................................................. 1.00%
Seventh and after...................................... 0.00%
</TABLE>

The CDSC generally is waived on redemptions of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services--Systematic Withdrawal
Plan."

CONVERSION FEATURE. Class B Shares purchased on or after June 1, 1996 and any
dividend reinvestment plan shares received thereon automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A shares seven years after the end of the calendar month in which the
shares were purchased. Class C Shares purchased before January 1, 1997, and any
dividend reinvestment plan shares received thereon automatically convert to
Class A Shares ten years after the end of the calendar month in which such
shares were purchased. Such

31
<PAGE> 280

conversion will be on the basis of the relative net asset values per share,
without the imposition of any sales load, fee or other charge.

The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution and service fees and ACCESS costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Code, and (ii) that the conversion of such
shares does not constitute a taxable event under federal income tax law. The
conversion may be suspended if such an opinion is no longer available and such
shares might continue to be subject to the higher aggregate fees applicable to
such class of shares for an indefinite period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with required minimum
distributions from an IRA or other retirement plan, (iii) pursuant to the Fund's
systematic withdrawal plan but limited to 12% annually of the initial value of
the account, and (iv) effected pursuant to the right of the Fund to liquidate a
shareholder's account as described herein under "Redemption of Shares." The CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See "Shareholder Services" and "Redemption of
Shares" for further discussion of the waiver provisions.

NET ASSET VALUE

The net asset value per share of the Fund will be determined separately for
each class of shares. The net asset value per share of a given class of shares
of the Fund is determined by calculating the total value of the Fund's assets
attributable to such class of shares, deducting its total liabilities
attributable to such class of shares, and dividing the result by the number of
shares of such class outstanding. The net asset value for the Fund is computed
once daily as of 5:00 p.m. Eastern time Monday through Friday, except on
customary business holidays, or except on any day on which no purchase or
redemption orders are received, or there is not a sufficient degree of trading
in the Fund's portfolio securities such that the Fund's net asset value per
share might be materially affected. The Fund reserves the right to calculate the
net asset value and to adjust the public offering price based thereon more
frequently than once a day if deemed desirable. The net asset value per share of
the different class of shares are expected to be substantially the same; from
time to time, however, the per share net asset value of the different class of
shares may differ.

32
<PAGE> 281

a series. Securities with remaining maturities of 60 days or less are valued at
amortized cost when amortized cost is determined in good faith by or under the
direction of the Board of Trustees of the Trust to be representative of the fair
value at which it is expected such securities may be resold. Any securities or
other assets for which current market quotations are not readily available are
valued at their fair value as determined in good faith under procedures
established by and under the general supervision of the Board of Trustees of the
Trust.

- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

33
<PAGE> 282

otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or
in writing to ACCESS. The investor may, on the initial application or prior to
any declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."

DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanied by this
Prospectus or by calling (800) 421-5666 ((800) 421-2833 for the hearing
impaired), elect to have all dividends and other distributions paid on a class
of shares of the Fund invested into shares of the same class of any other
Participating Fund so long as a pre-existing account for such class of shares
exists for such shareholder.

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund, subject to certain limitations. Before effecting an
exchange, shareholders in the Fund should obtain and read a current prospectus
of the fund into which the exchange is to be made. SHAREHOLDERS MAY ONLY
EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE.

34
<PAGE> 283

reference to the Van Kampen American Capital fund from which such share
originally was purchased. The holding period of a Class B Share or Class C Share
acquired through the exchange privilege is determined by reference to the date
such share originally was purchased from a Van Kampen American Capital fund.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 421-2833 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither VKAC nor the Fund will be liable for following telephone instructions
which it reasonably believes to be genuine. VKAC and the Fund may be liable for
any losses due to unauthorized or fraudulent instructions if reasonable
procedures are not followed. Exchanges are effected at the net asset value per
share next calculated after the request is received in good order with
adjustment for any additional sales charge. If the exchanging shareholder does
not have an account in the fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gains
options (except dividend diversification options) and broker, dealer or
financial intermediary of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, an exchanging shareholder must file a specific
written request. The Fund reserves the right to reject any order to acquire
shares through exchange. In addition, the Fund may modify, restrict or terminate
the exchange privilege at any time on 60 days' notice to its shareholders of any
termination or material amendment.

35
<PAGE> 284

36
<PAGE> 285

check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A Share account, the check
will be returned and the shareholder may be subject to additional charges.
Holders of Class A Shares may not liquidate the entire account by means of a
check. The check writing privilege may be terminated or suspended at any time by
the Fund or State Street Bank. Retirement plans and accounts that are subject to
backup withholding are not eligible for the privilege. A "stop payment" system
is not available on these checks. See the Statement of Additional Information
for further information regarding the establishment of the privilege.

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.

37
<PAGE> 286

partnership, trust, fiduciary, executor or administrator, and the name and title
of the individual(s) authorizing such redemption is not shown in the account
registration, a copy of the corporate resolution or other legal documentation
appointing the authorized signer and certified within the prior 60 days must
accompany the redemption request. The redemption price is the net asset value
per share next determined after the request is received by ACCESS in proper
form. Payment for shares redeemed (less any sales charge, if applicable) will
ordinarily be made by check mailed within three business days after acceptance
by ACCESS of the request and any other necessary documents in proper order. Such
payments may be postponed or the right of redemption suspended as provided by
the rules of the SEC. If the shares to be redeemed have been recently purchased
by check, ACCESS may delay mailing a redemption check until it confirms that the
purchase check has cleared, usually a period of up to 15 days. Any gain or loss
realized on the redemption of shares is a taxable event.

38
<PAGE> 287

procedures are not followed. Telephone redemptions may not be available if the
shareholder cannot reach ACCESS by telephone, whether because all telephone
lines are busy or for any other reason; in such case, a shareholder would have
to use the Fund's other redemption procedures previously described. Requests
received by ACCESS prior to 4:00 p.m., New York time, on a regular business day
will be processed at the net asset value per share determined that day. These
privileges are available for all accounts other than retirement accounts. The
telephone redemption privilege is not available for shares represented by
certificates. If the shares to be redeemed have been recently purchased by
check, ACCESS may delay mailing a redemption check or wiring redemption proceeds
until it confirms that the purchase check has cleared, usually a period of up to
15 days. If an account has multiple owners, ACCESS may rely on the instructions
of any one owner.

39
<PAGE> 288

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value (without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 180 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge." Reinstatement at net
asset value is also offered to participants in those eligible retirement plans
held or administered by Van Kampen American Capital Trust Company for repayment
of principal (and interest) on their borrowings on such plans.

- ------------------------------------------------------------------------------

DISTRIBUTION AND SERVICE PLANS

- ------------------------------------------------------------------------------

40
<PAGE> 289

CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

41
<PAGE> 290

carrying cost) paid by the Distributor with respect to such CDSC Share. In such
circumstances, a shareholder of such CDSC Share may be deemed to incur expenses
attributable to other shareholders of such class. As of December 31, 1996, there
were $809,471 and $3,825 of unreimbursed distribution-related expenses with
respect to Class B Shares and Class C Shares, respectively, representing 4.29%
and 0.45% of the Fund's net assets attributable to Class B Shares and Class C
Shares, respectively. If the Distribution Plan was terminated or not continued,
the Fund would not be contractually obligated to pay the Distributor for any
expenses not previously reimbursed by the Fund or recovered through CDSCs.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the CDSC applicable to a particular class of
shares to defray distribution-related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare daily and pay monthly distributions of all or
substantially all net investment income of the Fund. Net investment income
consists of all interest income and dividends, other ordinary income earned by
the Fund, less all expenses of the Fund attributable to the class of shares in
question. Net short-term capital gains, if any, may be distributed throughout
the year. Expenses of the Fund are accrued each day. Net realized long-term
capital gains, if any, are expected to be distributed, to the extent permitted
by applicable law, to shareholders at least annually. Distributions cannot be
assured, and the amount of each monthly distribution may vary.

Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee will be lower than distributions
with respect to a class of shares subject to a lower distribution fee.

42
<PAGE> 291

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund will automatically
credit monthly distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the Fund valued
at net asset value, without a sales charge. Unless a shareholder elects
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or
in writing to ACCESS. See "Shareholder Services -- Reinvestment Plan."

- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------

FLORIDA TAXATION

The following Florida tax discussion is based on the advice of Squire, Sanders
& Dempsey L.L.P., special counsel to the Fund for Florida tax matters.

Under existing Florida law, shares of the Fund will not be subject to the
Florida intangible personal property tax for any year if, on the last business
day of the previous calendar year, the Fund's portfolio consisted solely of (1)
notes, bonds and other obligations issued by the State of Florida or its
municipalities, counties, and other taxing districts, or by the United States
Government and its agencies, or by the governments of Puerto Rico, Guam or the
U.S. Virgin Islands, or (2) other intangible personal property exempt from the
Florida intangible personal property tax. (FOR THIS PURPOSE, OBLIGATIONS ISSUED
BY A NONPROFIT CORPORATION FORMED UNDER THE GENERAL NONPROFIT CORPORATION LAW OF
A STATE ARE NOT EXEMPT FROM THE FLORIDA INTANGIBLE PERSONAL PROPERTY TAX EVEN IF
THEY ARE CONSIDERED FOR FEDERAL INCOME TAX PURPOSES TO BE OBLIGATIONS ISSUED "ON
BEHALF OF" A GOVERNMENTAL UNIT THE INTEREST ON WHICH IS EXEMPT FROM FEDERAL
INCOME TAX.) Shares of the Fund will generally be subject to the Florida
intangible personal property tax for any year if, on the last business day of
the previous calendar year, the Fund's portfolio consists of any asset that is
not exempt from the Florida intangible property tax.

43
<PAGE> 292

The State of Florida and its political subdivisions do not impose income taxes
on individuals, and therefore individual shareholders of the Fund will not be
subject to a Florida income tax on distributions from the Fund or on gain from
the sale or other disposition of shares of the Fund.

Corporations (and certain other entities treated as corporations under the
Florida Income Tax Code) that are subject to the Florida income tax will be
taxable on distributions from the Fund and on gain from the sale or other
disposition of shares of the Fund to the extent such income or gain is allocated
or apportioned to Florida. Accordingly, investment in shares of the Fund may not
be appropriate for such corporations.

The transfer of shares of the Fund will not be subject to the Florida
documentary stamp tax. Shares of the Fund will be included in assets subject to
Florida estate tax.

Under current Florida tax law, the Florida intangible personal property tax
rate is $2.00 per $1,000 of taxable intangible property. Shareholders subject to
taxation in a state other than Florida may realize a lower after-tax rate of
return than Florida shareholders if the dividends distributed by the Fund are
not exempt from taxation in such other state.

FEDERAL TAXATION

The following federal income tax discussion is based on the advice of Skadden,
Arps, Slate, Meagher & Flom (Illinois).

44
<PAGE> 293

taxable years. For purposes of the excise tax, any ordinary income or capital
gain net income retained by, and subject to federal income tax in the hands of,
the Fund will be treated as having been distributed.

45
<PAGE> 294

income and excise taxes, the Fund may have to dispose of securities that it
would otherwise have continued to hold. A portion of the discount relating to
certain stripped tax-exempt obligations may constitute taxable income when
distributed to shareholders.

46
<PAGE> 295

retain this exclusion if the purchaser would be treated as a "substantial user"
(or a "related person" of a substantial user) of the facilities financed with
respect to any of the tax-exempt obligations held by the Fund, or by the Trust
if it is required to qualify as a regulated investment company as described
below. "Substantial user" is defined under U.S. Treasury Regulations to include
a non-exempt person who regularly uses in his trade or business a part of any
facilities financed with the tax-exempt obligations and whose gross revenues
derived from such facilities exceed five percent of the total revenues derived
from the facilities by all users, or who occupies more than 5% of the useable
area of the facilities or for whom the facilities or a part thereof were
specifically constructed, reconstructed or acquired. Examples of "related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.

47
<PAGE> 296

48
<PAGE> 297

- ------------------------------------------------------------------------------
FUND PERFORMANCE
- ------------------------------------------------------------------------------

From time to time, the Fund may compare its performance to certain securities
and unmanaged indices which may have different risk/reward characteristics than
the Fund. Such characteristics may include, but are not limited to, tax
features, guarantees, insurance and the fluctuation of principal or return. In
addition, from time to time, the Fund may utilize sales literature that includes
hypotheticals.

- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------

The Fund is a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was

49
<PAGE> 298

originally organized in 1994 under the name Van Kampen Merritt Florida Insured
Tax Free Fund as a sub-trust of the Van Kampen Merritt Tax Free Fund, a
Massachusetts business trust. The Fund was reorganized as a series of the Trust
as of July 31, 1995. Shares of the Trust entitle their holders to one vote per
share; however, separate votes are taken by each series on matters affecting an
individual series.

The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into three classes,
designated Class A Shares, Class B Shares and Class C Shares. Each class of
shares represents an interest in the same assets of the Fund and are identical
in all respects except that each class bears certain distribution expenses and
has exclusive voting rights with respect to its distribution fee. See
"Distribution and Service Plans."

- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------

This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933, as amended. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the office of the SEC in Washington, D.C.

50
<PAGE> 299

each year, shareholders will receive federal income tax information regarding
dividends and capital gains distributions.

Shareholder inquiries should be directed to Van Kampen American Capital
Florida Insured Tax Free Income Fund, One Parkview Plaza, Oakbrook Terrace,
Illinois 60181, Attn: Correspondence.

51
<PAGE> 300

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE

NUMBER--(800) 341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)

DIAL (800) 421-2833.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 847-2424.

VAN KAMPEN AMERICAN CAPITAL
FLORIDA INSURED TAX FREE
INCOME FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181

Investment Adviser

VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Distributor

VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Transfer Agent

ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
Florida Insured Tax Free Income Fund

Custodian

STATE STREET BANK AND
TRUST COMPANY

225 West Franklin Street, P.O. Box 1713

Boston, MA 02105-1713
Attn: Van Kampen American Capital
Florida Insured Tax Free Income Fund

Legal Counsel

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 301

------------------------------------------------------------------------------

FLORIDA INSURED
TAX FREE
INCOME FUND

------------------------------------------------------------------------------

P R O S P E C T U S

APRIL 30, 1997

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 302

- ------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
NEW JERSEY TAX FREE INCOME FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital New Jersey Tax Free Income Fund (the "Fund") is
a non-diversified mutual fund, organized as a separate series of Van Kampen
American Capital Tax Free Trust. The Fund's investment objective is to provide
investors a high level of current income exempt from federal income tax and New
Jersey gross income tax, consistent with preservation of capital. The Fund is
designed for investors who are residents of New Jersey for tax purposes. Under
normal market conditions, the Fund seeks to achieve its investment objective by
investing at least 80% of its assets in a portfolio of New Jersey municipal
securities rated investment grade at the time of investment. Investment grade
securities are securities rated BBB or higher by Standard & Poor's Ratings Group
("S&P"), Baa or higher by Moody's Investors Service, Inc. ("Moody's") or an
equivalent rating by another nationally recognized statistical rating
organization ("NRSRO"). Up to 20% of the Fund's total assets may consist of New
Jersey municipal securities rated below investment grade (but not rated lower
than B- by S&P, B3 by Moody's or an equivalent rating by another NRSRO) and
unrated New Jersey municipal securities believed by the Fund's investment
adviser to be of comparable quality, which involve special risk considerations.
See "Municipal Securities." There is no assurance that the Fund will achieve its
investment objective.
(Continued on next page.)
------------------

A Statement of Additional Information, dated April 30, 1997, containing
additional information about the Fund has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference in its entirety into
this Prospectus. A copy of the Fund's Statement of Additional Information may be
obtained without charge by calling (800) 421-5666 or for Telecommunications
Device for the Deaf at (800) 421-2833. The Statement of Additional Information
has been filed with the Securities and Exchange Commission ("SEC") and is
available along with other related Fund materials at the SEC's internet web site
(http://www.sec.gov).

------------------
VAN KAMPEN AMERICAN CAPITAL (SM)

------------------

THIS PROSPECTUS IS DATED APRIL 30, 1997.

<PAGE> 303

(Continued from previous page.)

The Fund's investment adviser is Van Kampen American Capital Investment
Advisory Corp. This Prospectus sets forth the information about the Fund that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number is
(800) 421-5666.

- ------------------------------------------------------------------------------

PROPOSED REORGANIZATION

- ------------------------------------------------------------------------------

On July 25, 1996, the Trustees of the Fund approved an Agreement and Plan of
reorganization between the Fund and Van Kampen American Capital Municipal Income
Fund (the "Municipal Fund"), also a series of the Tax Free Trust and advised by
Van Kampen American Capital Investment Advisory Corp., providing for the
transfer of assets and liabilities of the Fund to the Municipal Fund in exchange
for shares of beneficial interest of the Municipal Fund at its net asset value
per share (the "Reorganization").

The Reorganization is subject to approval by the holders of a majority of the
outstanding shares of the Fund. Further details of the proposed Reorganization
will be contained in the proxy statement/prospectus expected to be mailed to
shareholders in 1997.

The Municipal Fund's net assets as of December 31, 1996 were approximately
$1.02 billion. Its objective is to provide investors with a high level of
current income exempt from federal income tax, consistent with preservation of
capital. The investment objective of the Fund is to provide investors a high
level of current income exempt from federal income tax and New Jersey gross
income tax, consistent with preservation of capital. The primary difference
between the two investment objectives is that the Fund seeks income exempt from
New Jersey state income tax, but the Municipal Fund does not. The Trustees,
however, believe that the benefits to the Fund shareholders from the
Reorganization, including the potentially lower operating costs and potentially
higher yield from the Municipal Fund relative to the Fund, more than offset the
loss of the exemption from New Jersey state income tax.

The Fund will continue its normal operations prior to the Reorganization.

2
<PAGE> 304

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Shareholder Transaction Expenses............................ 6
Annual Fund Operating Expenses and Example.................. 7
Financial Highlights........................................ 9
The Fund.................................................... 10
Investment Objective and Policies........................... 10
Municipal Securities........................................ 12
Investment Practices........................................ 16
Special Considerations Regarding the Fund................... 19
Investment Advisory Services................................ 21
Alternative Sales Arrangements.............................. 23
Purchase of Shares.......................................... 25
Shareholder Services........................................ 35
Redemption of Shares........................................ 39
Distribution and Service Plans.............................. 42
Distributions from the Fund................................. 44
Tax Status.................................................. 45
Fund Performance............................................ 52
Description of Shares of the Fund........................... 53
Additional Information...................................... 53
</TABLE>

3
<PAGE> 305

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

THE FUND. Van Kampen American Capital New Jersey Tax Free Income Fund (the
"Fund") is a non-diversified mutual fund, organized as a separate series of Van
Kampen American Capital Tax Free Trust. See "The Fund."

INVESTMENT OBJECTIVE. The Fund's investment objective is to provide investors a
high level of current income exempt from federal income tax and New Jersey gross
income tax, consistent with preservation of capital. The Fund is designed for
investors who are residents of New Jersey for tax purposes.

INVESTMENT POLICIES. Under normal market conditions, the Fund seeks to achieve
its investment objective by investing at least 80% of its assets in a portfolio
of New Jersey municipal securities rated investment grade at the time of
investment. Investment grade securities are securities rated BBB or higher by
Standard & Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or an equivalent rating by another nationally
recognized statistical rating organization ("NRSRO"). Up to 20% of the Fund's
total assets may consist of New Jersey municipal securities rated below
investment grade (but not rated lower than B- by S&P, B3 by Moody's or an
equivalent rating by another NRSRO) and unrated New Jersey municipal securities
that the Fund's investment adviser believes are of comparable quality, which
involve special risk considerations. Up to 20% of the Fund's assets may be
invested in municipal securities that are subject to federal alternative minimum
tax. See "Investment Objective and Policies," "Municipal Securities" and
"Special Considerations Regarding the Fund."

INVESTMENT RESULTS. The investment results of the Fund are shown in the table
of "Financial Highlights."

PURCHASE OF SHARES. Shares of the Fund are offered through Van Kampen American
Capital Distributors, Inc. (the "Distributor"), as principal underwriter, and
through selected brokers and dealers. The offering price is the net asset value
per share next determined followed receipt of an order plus a sales charge
which, at the option of the investor, may be imposed at the time of purchase or
on a contingent deferred basis. Investors may elect to purchase Class A Shares,
Class B Shares or Class C Shares, each with different sales charges and
expenses. The minimum initial investment is $500 for each class of shares and
the minimum subsequent investment is $25 for each class of shares (or less as
described under "Purchase of Shares"). The different classes of shares permit an
investor to choose the method of purchasing shares that is more beneficial to
the investor, taking into account the amount of the purchase, the length of time
the investor expects to hold the shares and other circumstances. See "Purchase
of Shares."

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the Fund's investment adviser.

4
<PAGE> 306

SPECIAL RISK FACTORS. Up to 20% of the Fund's assets may consist of New Jersey
municipal securities rated below investment grade (but not rated lower than B-
by S&P, B3 by Moody's or an equivalent rating by another NRSRO) and in unrated
New Jersey municipal securities considered by the Adviser to be of comparable
quality. In addition, the Fund may invest up to 20% of its assets in certain
derivative securities such as inverse floaters. Investment in such lower grade
municipal securities and derivative securities involves significant risks.
Furthermore, under normal market conditions, the Fund will invest substantially
all of its assets in New Jersey municipal securities, and therefore it will be
more susceptible to factors adversely affecting issuers of New Jersey municipal
securities than a municipal securities fund that does not invest in New Jersey
municipal securities to this degree. There can be no assurance that the Fund
will achieve its objective. See "Special Considerations Regarding the Fund."

The foregoing is qualified in its entirety by reference to the more detailed

information appearing elsewhere in this Prospectus.

5
<PAGE> 307

- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
the offering price).......... 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of the
offering price).............. None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser of
the original purchase price
or redemption proceeds)...... None(2) Year 1--4.00% Year 1--1.00%
Year 2--3.75% After--None
Year 3--3.50%
Year 4--2.50%
Year 5--1.50%
Year 6--1.00%
After--None
Redemption fees (as a
percentage of amount
redeemed).................... None None None
Exchange fees.................. None None None
</TABLE>

- ------------------------------------------------------------------------------
(1) Reduced on investments of $100,000 or more. See "Purchase of Shares -- Class
A Shares."

(2) Investments of $1 million or more are subject to a substantially reduced or
no sales charge at the time of purchase, but a CDSC of 1.00% may be imposed
on redemptions made within one year of the purchase. See "Purchase of Shares
-- Deferred Sales Charge Alternatives -- Class A Share Purchases of $1
Million or More."

6
<PAGE> 308

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of average
daily net assets)(1)........................ 0.00% 0.00% 0.00%
12b-1 Fees (as a percentage of average daily
net assets)(1)(2)........................... 0.00% 0.75% 0.75%
Other Expenses(1) (as a percentage of average
daily net assets)........................... 0.38% 0.38% 0.38%
Total Expenses (as a percentage of average
daily net assets)(1)........................ 0.38% 1.13% 1.13%
</TABLE>

- ------------------------------------------------------------------------------

(1) Expenses include a waiver of $97,956 of "Management Fees" and assumption of
$152,228 of "Other Expenses" and "12b-1 Fees" by the Adviser. If the Adviser
did not waive fees for the fiscal year ending December 31, 1996, the
"Management Fees" would have been 0.60% for each class of shares, "12b-1
Fees" would have been 0.25% for Class A Shares and 1.00% each for Class B
Shares and Class C Shares, "Other Expenses" would have been 1.06% for each
class of shares and "Total Expenses" would have been 1.91% for Class A
Shares, 2.66% for Class B Shares and 2.66% for Class C Shares.

(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund as compensation for ongoing services rendered to investors.
With respect to each class of shares, amounts in excess of 0.25%, if any,
represent an asset based sales charge. The asset based sales charge with
respect to Class C Shares includes 0.75% (as a percentage of net asset
value) paid to investors' broker-dealers as sales compensation.

7
<PAGE> 309

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 0.38% for Class
A Shares, 1.13% for Class B Shares and
1.13% for Class C Shares, (ii) 5% annual
return and (iii) redemption at the end of
each time period:
Class A Shares............................ $51 $59 $68 $ 93
Class B Shares............................ $52 $71 $77 $116*
Class C Shares............................ $22 $36 $62 $137
You would pay the following expenses on the
same $1,000 investment assuming no
redemption at the end of each period:
Class A Shares............................ $51 $59 $68 $ 93
Class B Shares............................ $12 $36 $62 $116*
Class C Shares............................ $12 $36 $62 $137
</TABLE>

- ------------------------------------------------------------------------------

* Based on conversion to Class A Shares after eight years.

The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. As Fund
assets increase, the fees waived or expenses reimbursed by the Adviser are
expected to decrease. Accordingly, it is unlikely that future expenses as
projected will remain consistent with those determined based on the "Annual Fund
Operating Expenses" table. The ten year amounts with respect to Class B Shares
of the Fund reflects the lower aggregate 12b-1 and service fees applicable to
such shares after conversion to Class A Shares. THE INFORMATION CONTAINED IN THE
ABOVE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more
complete description of such costs and expenses, see "Purchase of Shares,"
"Redemption of Shares," "Investment Advisory Services" and "Distribution and
Service Plans."

8
<PAGE> 310

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------------------------------------- --------------------------------------------
JULY 29, 1994 JULY 29, 1994
(COMMENCEMENT (COMMENCEMENT
OF INVESTMENT OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) TO YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996 1995 1994
------------ ------------ -------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $15.000 $13.754 $14.300 $14.991 $13.738 $14.300
------- ------- ------- ------- ------- -------
Net Investment Income............ .786 .792 .295 .675 .685 .253
Net Realized and Unrealized
Gain/Loss on Investments....... (.173) 1.253 (.551) (.174) 1.260 (.563)
------- ------- ------- ------- ------- -------
Total from Investment
Operations....................... .613 2.045 (.256) .501 1.945 (.310)
------- ------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment
Income(1)...................... .774 .799 .290 .666 .692 .252
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $14.839 $15.000 $13.754 $14.826 $14.991 $13.738
======= ======= ======= ======= ======= =======
Total Return(2)(3)................ 4.28% 15.26% (1.81%)* 3.52% 14.43% (2.16%)*
Net Assets at End of the Period
(In millions).................... $ 7.6 $ 5.8 $ 3.0 $ 9.0 $ 8.2 $ 6.5
Ratio of Expenses to Average Net
Assets(2) (annualized)........... .38% .27% .17% 1.13% 1.01% .93%
Ratio of Net Investment Income to
Average Net Assets(2)
(annualized)..................... 5.35% 5.43% 5.16% 4.60% 4.73% 4.38%
Portfolio Turnover................ 11% 31.45% 11.00% 11% 31.45% 11.00%

<CAPTION>
CLASS C SHARES
--------------------------------------------
JULY 29, 1994
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $15.000 $13.753 $14.300
------- ------- -------
Net Investment Income............ .673 .706 .240
Net Realized and Unrealized
Gain/Loss on Investments....... (.178) 1.233 (.535)
------- ------- -------
Total from Investment
Operations....................... .495 1.939 (2.95)
------- ------- -------
Less:
Distributions from and in Excess
of Net Investment
Income(1)...................... .666 .692 .252
------- ------- -------
Net Asset Value, End of the
Period........................... $14.829 $15.000 $13.753
======= ======= =======
Total Return(2)(3)................ 3.45% 14.42% (2.09%)*
Net Assets at End of the Period
(In millions).................... $ .7 $ .5 $ .2
Ratio of Expenses to Average Net
Assets(2) (annualized)........... 1.13% 1.00% .91%
Ratio of Net Investment Income to
Average Net Assets(2)
(annualized)..................... 4.58% 4.73% 4.39%
Portfolio Turnover................ 11% 31.45% 11.00%
</TABLE>

- ----------------
(1)See Note 1 to the Financial Statements.

(2)If certain expenses had not been waived by the Adviser, total return would
have been lower and the ratios would have been as follows:

<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets............. 1.91% 2.53% 3.17% 2.66% 3.23%
Ratio of Net Investment Income to Average Net
Assets.............................................. 3.82% 3.17% 2.17% 3.07% 2.51%

<CAPTION>
<S> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets............. 3.89% 2.66% 3.23% 3.85%
Ratio of Net Investment Income to Average Net
Assets.............................................. 1.41% 3.05% 2.50% 1.46%
</TABLE>

(3)Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

* Non-Annualized

See Financial Statements and Notes Thereto

9
<PAGE> 311

- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital New Jersey Tax Free Income Fund (the "Fund") is a
non-diversified separate series of Van Kampen American Capital Tax Free Trust
(the "Trust"), an open-end management investment company, commonly known as a
"mutual fund," organized as a Delaware business trust. Mutual funds sell their
shares to investors and invest the proceeds in a portfolio of securities. A
mutual fund allows investors to pool their money with that of other investors in
order to obtain professional investment management. Mutual funds generally make
it possible for investors to obtain greater diversification of their investments
and to simplify their recordkeeping.

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser and its
affiliates also act as investment adviser to other mutual funds distributed by
Van Kampen American Capital Distributors, Inc. (the "Distributor"). To obtain
prospectuses and other information on any of these other funds, please call the
telephone number on the cover page of the Prospectus.

- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------

The investment objective of the Fund is to provide investors a high level of
current income exempt from federal income tax and New Jersey gross income tax,
consistent with preservation of capital. The Fund's investment objective is a
fundamental policy and may not be changed without shareholder approval of the
holders of a majority of the Fund's outstanding voting securities, as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"). The Fund is
designed for investors who are residents of New Jersey for tax purposes. An
investment in the Fund may not be appropriate for all investors. The Fund is not
intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision with respect to the Fund. An investment in the Fund is intended to be a
long-term investment and should not be used as a trading vehicle.

Under normal market conditions, the Fund will invest at least 80% of its total
assets in New Jersey municipal securities rated investment grade at the time of
investment. Investment grade securities are securities rated BBB or higher by
Standard & Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or an equivalent rating by another nationally
recognized statistical rating organization ("NRSRO") in the case of long-term
obligations, and have equivalent ratings in the case of short-term obligations.
According to published guidelines, securities rated BBB by S&P are regarded by
S&P as having an adequate capacity to pay interest and repay principal. Whereas
such securities normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely, in the opinion of
S&P, to lead to a

10
<PAGE> 312

weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories. According to published guidelines, securities
rated Baa by Moody's are considered by Moody's as medium grade obligations. Such
securities are, in the opinion of Moody's, neither highly protected nor poorly
secured. Interest payments and principal security appear to Moody's to be
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. In the opinion
of Moody's, they lack outstanding investment characteristics and in fact have
speculative characteristics as well. The Fund's policy with respect to ratings
is not a fundamental policy, and thus may be changed by the Trustees without
shareholder approval.

Up to 20% of the Fund's total assets may be invested in New Jersey municipal
securities rated below investment grade (but not rated below B- by S&P, B3 by
Moody's or an equivalent rating by another NRSRO) and unrated New Jersey
municipal securities that the Adviser considers to be of comparable quality to
such securities. According to published guidelines, securities rated below
investment grade are regarded by S&P, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. While in the opinion of S&P such securities will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. According to
published guidelines, securities rated below investment grade are regarded by
Moody's as generally lacking characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the securities' contract over any long period of time may, in the opinion of
Moody's, be small. Debt securities rated below investment grade are commonly
referred to as "junk bonds." For a description of S&P's and Moody's ratings see
the Statement of Additional Information. From time to time the Fund temporarily
may also invest up to 10% of its assets in tax exempt money market funds. Such
instruments will be treated as investments in municipal securities.

The Adviser will buy and sell securities for the Fund's portfolio with a view
to seeking a high level of current income exempt from federal income tax and New
Jersey gross income tax and will select securities which the Adviser believes
entail reasonable credit risk considered in relation to the investment policies
of the Fund. As a result, the Fund will not necessarily invest in the highest
yielding New Jersey municipal securities permitted by its investment policies if
the Adviser determines that market risks or credit risks associated with such
investments would subject the Fund's portfolio to undue risk. The potential for
realization of capital gains resulting from possible changes in interest rates
will not be a major consideration. Other than for tax purposes, frequency of
portfolio turnover generally will not be a limiting factor if the Fund considers
it advantageous to purchase or sell securities. The Fund anticipates that its
annual portfolio turnover rate normally will be less than 200%. A high rate of
portfolio turnover involves correspondingly greater brokerage commission
expenses or dealer costs than a lower rate, which expenses and costs must be
borne by the Fund and its shareholders. High portfolio turnover may also result
in

11
<PAGE> 313

the realization of substantial net short-term capital gains and any
distributions resulting from such gains will be taxable. See "Tax Status" in
this Prospectus and "Investment Policies and Restrictions" in the Statement of
Additional Information.

At times, conditions in the markets for New Jersey municipal securities may,
in the Adviser's judgment, make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times, the
Adviser may use alternative strategies primarily designed to reduce fluctuations
in the value of the Fund's assets. In implementing these "defensive" strategies,
the Fund may invest to a substantial degree in high-quality, short-term New
Jersey municipal obligations. If these high-quality, short-term New Jersey
municipal obligations are not available or, in the Adviser's judgment, do not
afford sufficient protection against adverse market conditions, the Fund may
invest in high-quality municipal securities of issuers other than issuers of New
Jersey municipal securities. Furthermore, if such high-quality municipal
securities are not available or, in the Adviser's judgment do not afford
sufficient protection against adverse market conditions, the Fund may invest in
taxable obligations. Such taxable obligations may include: obligations of the
U.S. Government, its agencies or instrumentalities; other debt securities rated
within the four highest categories by either S&P or Moody's (or comparably rated
by another NRSRO); commercial paper rated in the highest grade by either rating
service (or comparably rated by another NRSRO); certificates of deposit and
bankers' acceptances; repurchase agreements with respect to any of the foregoing
investments; or any other fixed-income securities that the Adviser considers
consistent with such strategy. To the extent that the Fund invests a substantial
portion of its assets in municipal securities other than New Jersey municipal
securities or in taxable securities for temporary defensive purposes, the Fund
will not be invested in a manner primarily designed to achieve a high level of
current income exempt from federal income tax and New Jersey gross income tax.
In addition, under New Jersey tax law, to qualify as a "qualified investment
fund", at the close of each quarter the Fund must have not less than 80% of the
aggregate principal amount of all of its investments, excluding certain
investments, in New Jersey municipal securities, or any other obligations the
interest or gains on which is exempt from New Jersey gross income tax. See "Tax
Status -- New Jersey Taxation."

- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES
- ------------------------------------------------------------------------------

12
<PAGE> 314

securities is includable in gross income for federal income tax purposes or the
interest on New Jersey municipal securities is not exempt from New Jersey gross
income tax, the Fund may not qualify as a "qualified investment fund" under New
Jersey tax law. See "Tax Status -- New Jersey Taxation." Under normal market
conditions, at least 80% of the Fund's assets will be invested in New Jersey
municipal securities. The policy stated in the foregoing sentence is a
fundamental policy of the Fund and cannot be changed without approval of the
shareholders of the Fund. Up to 20% of the Fund's assets may be invested in
municipal securities that are subject to federal alternative minimum tax.

13
<PAGE> 315

dealers or banks and evidence ownership of future interest payments, principal
payments or both on certain municipal securities. Participation certificates are
obligations issued by state or local governments or authorities to finance the
acquisition of equipment and facilities. They may represent participations in a
lease, an installment purchase contract, or a conditional sales contract.
Municipal securities may not be backed by the faith, credit and taxing power of
the issuer. Other than as set forth above, there is no limitation with respect
to the amount of the Fund's assets that may be invested in the foregoing types
of municipal securities. Certain of the municipal securities in which the Fund
may invest represent relatively recent innovations in the municipal securities
markets and the markets for such securities may be less developed than the
market for conventional fixed rate municipal securities. A more detailed
description of the types of municipal securities in which the Fund may invest is
included in the Statement of Additional Information.

Although at least 80% of the municipal securities in which the Fund may invest
will be rated investment grade at the time of investment, municipal securities,
like other debt obligations, are subject to the risk of non-payment. The ability
of issuers of municipal securities to make timely payments of interest and
principal may be adversely impacted in general economic downturns and as
relative governmental cost burdens are allocated and reallocated among federal,
state and local governmental units. Such non-payment would result in a reduction
of income to the Fund, and could result in a reduction in the value of the
municipal securities experiencing non-payment and a potential decrease in the
net asset value of the Fund.

Up to 20% of the Fund's assets may be invested in municipal securities that
are subject to federal alternative minimum tax. The Fund may not be a suitable
investment for investors who are already subject to the federal alternative
minimum tax or who would become subject to the federal alternative minimum tax
as a result of an investment in the Fund. In addition, income earned or deemed
to be earned

14
<PAGE> 316

with respect to the Fund's Strategic Transactions, if any, will be taxable. See
"Tax Status."

From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the Fund
to pay tax exempt interest dividends might be adversely affected.

LOWER GRADE MUNICIPAL SECURITIES. The Fund may invest up to 20% of its total
assets in New Jersey municipal securities rated below investment grade (but not
rated lower than B- by S&P, B3 by Moody's or an equivalent rating by another
NRSRO) or in unrated municipal securities considered by the Adviser to be of
comparable quality to such securities. Higher yields are generally available
from municipal securities of such grade. With respect to such 20% of the Fund's
total assets, the Fund has not established any limit on the percentage of its
portfolio which may be invested in securities in any one rating category or
comparable unrated securities.

15
<PAGE> 317

- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------

In connection with the investment policies described above, the Fund also may
engage in strategic transactions and purchase and sell securities on a "when
issued" and "delayed delivery" basis. These investments entail risks. Strategic
transactions generally will not be treated as investments in New Jersey
municipal securities for purposes of the Fund's 80% investment policy with
respect thereto.

STRATEGIC TRANSACTIONS. The Fund may purchase and sell derivative instruments
such as exchange-listed and over-the-counter put and call options on securities,
financial futures, fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and enter into various interest
rate transactions such as swaps, caps, floors or collars. Collectively, all of
the above are referred to as "Strategic Transactions." Under current New Jersey
tax law, the Fund may purchase and sell exchange listed and over-the-counter put
and call options and purchase and sell financial futures. See "Tax Status -- New
Jersey Taxation." The Fund also reserves the right to engage in swaps, caps,
floors or collars. However, current New Jersey tax law may limit the Fund's
ability to enter into such transactions. Strategic Transactions may be used to
attempt to protect against possible changes in the market value of securities
held in or to be purchased for the Fund's portfolio resulting from securities
markets, to protect the Fund's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes,
to manage the effective maturity or duration of the Fund's portfolio, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments.

16
<PAGE> 318

Income earned or deemed to be earned by the Fund from, among other things, its
Strategic Transactions and temporary defensive strategies, if any, will
generally be taxable income of the Fund. See "Tax Status."

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell municipal securities on a "when issued" and "delayed delivery" basis.
No income accrues to the Fund on municipal securities in connection with such
purchase transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher or lower than yields on the municipal securities obtained
pursuant to such transactions. Because the Fund relies on the buyer or seller,
as the case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or liquid securities having an aggregate value equal to
the amount of such purchase commitments until payment is made. The Fund will
make commitments to purchase municipal securities on such basis only with the
intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objectives and
policies and not for the purposes of investment leverage. No specific limitation
exists as to the percentage of the Fund's assets which may be used to acquire
securities on a "when issued" or "delayed delivery" basis.

17
<PAGE> 319

readily marketable. The sale of restricted and illiquid securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of securities eligible for trading
on national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale.

Under normal market conditions, the fund will invest substantially all of its
assets in New Jersey municipal securities. The Fund generally will not invest
more than 25% of its total assets in any industry. Governmental issuers of
municipal securities are not considered part of any "industry." However,
municipal securities backed only by the assets and revenues of nongovernmental
users may for this purpose be deemed to be issued by such nongovernmental users,
and the 25% limitation would apply to such obligations. It is therefore possible
that the Fund may invest more than 25% of its assets in a broader segment of the
municipal securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations, or airport revenue
obligations if the Adviser determines that the yields available from obligations
in a particular segment of the market justifies the additional risks associated
with a large investment in such segment. Although such obligations could be
supported by the credit of governmental users, or by the credit of
nongovernmental users engaged in a number of industries, economic, business,
political and other developments generally affecting the revenues of such users
(for example, proposed legislation or pending court decisions affecting the
financing of such projects and market factors affecting the demand for their
services or products) may have a general adverse effect on all municipal
securities in such a market segment.

From time to time, the Fund's investments may include securities as to which
the Fund, by itself or together with other funds or accounts managed by the
Adviser, holds a major portion or all of an issue of New Jersey municipal
securities. Because there may be relatively few potential purchasers for such
investments and, in some cases, there may be contractual restrictions on
resales, the Fund may find it more difficult to sell such securities at a time
when the Adviser believes it is advisable to do so.

INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act. See "Investment
Policies and Restrictions" in the Statement of Additional Information.

18
<PAGE> 320

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. The Adviser is responsible
for decisions to buy and sell securities for the Fund, the selection of brokers
and dealers to effect the transactions and the negotiation of prices and any
brokerage commissions. The income securities in which the Fund invests are
traded principally in the over-the-counter market. In the over-the-counter
market, securities are generally traded on a net basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a mark-up to the dealer. Securities purchased
in underwritten offerings generally include, in the price, a fixed amount of
compensation for the managers, underwriters and dealers. The Fund may also
purchase certain money market instruments directly from an issuer, in which case
no commissions or discounts are paid. Purchases and sales of bonds on a stock
exchange are effected through brokers who charge a commission for their
services.

GENERAL. In normal circumstances, the Fund may invest up to 20% of its total
assets in New Jersey municipal securities rated below investment grade (but not
lower than B- by S&P, B3 by Moody's or an equivalent rating by another NRSRO) or
in unrated New Jersey municipal securities considered by the Adviser to be of
comparable quality to such securities. Investment in such lower grade municipal
securities involves special risks as compared with investment in higher grade
municipal securities. The market for lower grade municipal securities is

19
<PAGE> 321

considered to be less liquid than the market for investment grade municipal
securities which may adversely affect the ability of the Fund to dispose of such
securities in a timely manner at a price which reflects the value of such
security in the Adviser's judgement. The market price for less liquid securities
tends to be more volatile than the market price for more liquid securities.
Illiquid securities and the absence of readily available market quotations with
respect thereto may make the Adviser's valuation of such securities more
difficult, and the Adviser's judgment may play a greater role in the valuation
of the Fund's securities. Lower grade municipal securities generally involve
greater credit risk than higher grade municipal securities and are more
sensitive to adverse economic changes, significant increases in interest rates
and individual issuer developments. Because issuers of lower grade municipal
securities frequently choose not to seek a rating of their municipal securities,
the Fund will rely more heavily on the Adviser's ability to determine the
relative investment quality of such securities than if the Fund invested
exclusively in higher grade municipal securities. The Fund may, if deemed
appropriate by the Adviser, retain a security whose rating has been downgraded
below B- by S&P, below B3 by Moody's or an equivalent rating by another NRSRO,
or whose rating has been withdrawn. More detailed information concerning the
risks associated with instruments in lower grade municipal securities is
included in the Fund's Statement of Additional Information.

The Fund may invest up to 20% of its total assets in derivative variable rate
securities such as inverse floaters whose rates of interest vary inversely with
changes in market rates of interest. When market rates of interest decrease, the
change in value of such securities will have a positive effect on the net asset
value of the Fund and when market rates of interest increase, the change in
value of such securities will have a negative effect on the net asset value of
the Fund. Investment in such securities involve special risks as compared to a
fixed rate municipal security. The extent of increases and decreases in the
value of inverse floaters and the corresponding change to per share net asset
value of the Fund generally will be larger than comparable changes in the value
of an equal principal amount of a fixed rate municipal security having similar
credit quality, redemption provisions and maturity. The markets for inverse
variable rate securities may be less developed than the market for conventional
fixed rate municipal securities.

SPECIAL CONSIDERATIONS REGARDING NEW JERSEY MUNICIPAL SECURITIES. Investors
should be aware of certain factors that might affect the financial condition of
the issuers of New Jersey municipal securities. New Jersey's economic base is
diversified, consisting of a variety of manufacturing, construction and service
industries, supplemented by rural areas with selective commercial agriculture.
By the beginning of the national recession in 1990, construction activity had
already been declining in New Jersey for nearly two years. The onset of
recession caused an acceleration of New Jersey's job losses in construction and
manufacturing, as well as an employment downturn in such previously growing
sectors as wholesale trade, retail trade, finance, utilities and trucking and
warehousing. Reflecting the downturn, the rate of unemployment in the State rose
from a peacetime low of 3.6%

20
<PAGE> 322

during the first quarter of 1989 to a recessionary peak of 8.5% during 1992.
Since then, the unemployment rate fell to an average of 6.4% in 1995 and 6.1%
for the four month period from May 1996 through August 1996.

New Jersey operates under an annual budget which is formulated and submitted
for legislative approval by the Governor by the third Tuesday following the
first meeting of the State Legislature in each year. After a process of
legislative committee review, the budget, in the form of an appropriations bill,
must be approved by the Senate and Assembly and must be approved and signed by
the Governor before any expenditure may be made in a fiscal year. At the time of
signing the bill, the Governor may revise the estimate of anticipated revenues
and may delete or reduce appropriation items contained in the bill. Like any
gubernatorial veto, that action may be reversed by a two-thirds vote of each
House of the New Jersey Legislature. In addition to anticipated revenues, the
appropriations act also provides for the appropriation of non-budgeted revenue
to the extent such revenue may be received and permits the corresponding
increase of appropriation balances from which expenditures may be made. New
Jersey operates on a fiscal year beginning July 1 and ending June 30.

On July 3, 1991, S&P downgraded New Jersey general obligation bonds to "AA+."
On August 26, 1992, Moody's downgraded New Jersey general obligation bonds to
"Aa1." The issuance of the $526,800,000 State of New Jersey General Obligation
Bonds, Refunding Bonds (Series E) and $270,000,000 State of New Jersey General
Obligation Bonds (Various Purposes), on May 1, 1996, was rated AA+ by S&P and
Aa1 by Moody's. Local municipalities issuing New Jersey municipal securities,
although impacted in general by the economic condition of the State, have credit
ratings that are determined with reference to the economic condition of such
local municipalities.

Although revenue obligations of the State of New Jersey or its political
subdivisions may be payable from a specific project or source, including lease
rentals, there can be no assurance that future economic difficulties and the
resulting impact on State and local government finances will not adversely
affect the market value of the portfolio of the Fund or the ability of the
respective obligors to make timely payments of principal and interest on such
obligations.

More detailed information concerning New Jersey municipal securities and the
State of New Jersey is included in the Statement of Additional Information.

- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------

21
<PAGE> 323

for managing institutional portfolios, and more than $57 billion under
management or supervision. Van Kampen American Capital's more than 40 open-end
and 38 closed-end funds and more than 2,500 unit investment trusts are
professionally distributed by leading financial advisers nationwide. Van Kampen
American Capital Distributors, Inc. (the "Distributor"), the distributor of the
Fund and sponsor of the funds mentioned above, is a wholly-owned subsidiary of
Van Kampen American Capital.

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
- ------------------------ --------------
<S> <C>
First $500 million..................................... 0.600 of 1.00%
Over $500 million...................................... 0.500 of 1.00%
</TABLE>

22
<PAGE> 324

Under its investment advisory agreement with the Adviser, the Fund has agreed
to assume and pay the charges and expenses of the Fund's operation, including
the compensation of the Trustees of the Trust (other than those who are
affiliated persons, as defined in the 1940 Act, of the Adviser, the Distributor
or Van Kampen American Capital), the charges and expenses of independent
accountants, legal counsel, transfer agent (ACCESS Investor Services, Inc.
("ACCESS"), a wholly owned subsidiary of Van Kampen American Capital), or
dividend disbursing agent and the custodian (including fees for safekeeping of
securities), costs of calculating net asset value, costs of acquiring and
disposing of portfolio securities, interest (if any) on obligations incurred by
the Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, reports and notices to shareholders,
costs of registering shares of the Fund under the federal securities laws,
miscellaneous expenses and all taxes and fees to federal, state or other
governmental agencies. The Adviser reserves the right in its sole discretion
from time-to-time to waive all or a portion of its management fee or to
reimburse the Fund for all or a portion of its other expenses.

PORTFOLIO MANAGEMENT. David C. Johnson, a Senior Vice President of the
Adviser, supervises the Adviser's municipal securities practice area and
coordinates the Adviser's investment policy regarding such securities. Mr.
Johnson has been employed by the Adviser since April 1989. Timothy D. Haney,
Assistant Vice President and municipal portfolio manager of the Adviser, has
been primarily responsible for the day-to-day management of the Fund's portfolio
since August 1995. From 1992 to 1995 Mr. Haney was employed by the Distributor
as a unit trust bond buyer. Prior to 1992, Mr. Haney was employed by the Adviser
as a municipal analyst.

- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------

23
<PAGE> 325

The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor not to accept any order for Class
B Shares in an amount of $500,000 or more and not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

24
<PAGE> 326

fee or subject to the conversion feature have a higher expense ratio and pay
lower dividends than a class of shares subject to a lower ongoing distribution
and service fee or not subject to the conversion feature. The per share net
asset values of the different classes of shares are expected to be substantially
the same; from time to time, however, the per share net asset values of the
classes may differ. The net asset value per share of each class of shares of the
Fund will be determined as described in this Prospectus under "Purchase of
Shares -- Net Asset Value."

- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------

25
<PAGE> 327

purchase orders placed through an investor's broker, dealer or financial
intermediary must be transmitted to the Distributor by such broker, dealer or
financial intermediary prior to such time in order for the investor's order to
be fulfilled on the basis of the net asset value to be determined that day. Any
change in the purchase price due to the failure of the Distributor to receive a
purchase order prior to such time must be settled between the investor and the
broker, dealer or financial intermediary submitting the order.

The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by it, pay fees to, and sponsor business seminars
for, qualifying brokers, dealers or financial intermediaries for certain
services or activities which are primarily intended to result in sales of shares
of the Fund. Fees may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its sales of shares and increases in assets under
management. Such payments to brokers, dealers and financial intermediaries for
sales contests, other sales programs and seminars are made by the Distributor
out of its own assets and not out of the assets of the Fund. Such fees paid for
such services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily net assets of the Fund on an annual
basis. These programs will not change the price an investor pays for shares or
the amount that the Fund will receive from such sale.

CLASS A SHARES

26
<PAGE> 328

previously, at the discretion of the Distributor, the entire sales charge may be
reallowed to such broker, dealer or financial intermediary. The staff of the SEC
has taken the position that dealers who receive 90% or more of the sales charge
may be deemed to be "underwriters" as that term is defined in the Securities Act
of 1933, as amended.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
----------------------------------- --------------
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AT OFFERING PRICE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000............... 4.75% 4.99% 4.25%
$100,000 but less than
$250,000....................... 3.75 3.90 3.25
$250,000 but less than
$500,000....................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000..................... 2.00 2.04 1.75
$1,000,000 or more*.............. * * *
- ------------------------------------------------------------------------------
</TABLE>

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid to brokers, dealers or financial intermediaries who initiate
and are responsible for purchases of $1 million or more as follows: 1.00%
on sales to $2 million, plus 0.80% on the next $1 million and 0.50% on the
excess over $3 million. See "Purchase of Shares -- Deferred Sales Charge
Alternatives" for additional information with respect to CDSC.

QUANTITY DISCOUNTS

27
<PAGE> 329

CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the preceding
sales charge table may also be determined by combining the amount being invested
in Class A Shares of the Fund with other shares of the Fund and shares of
Participating Funds plus the current offering price of all shares of the Fund
and other Participating Funds, which have been previously purchased and are
still owned.

OTHER PURCHASE PROGRAMS

Purchasers of Class A Shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs and purchases by

28
<PAGE> 330

registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.

(1) Current or retired trustees or directors of funds advised by the Adviser
or Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.

29
<PAGE> 331

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a 12-month
period following such transaction.

30
<PAGE> 332

May 1, 1997. Section 403(b) and similar accounts for which Van Kampen
American Capital Trust Company served as custodian will not be eligible
for net asset value purchases based on the aggregate investment made by
the plan or the number of eligible employees, except under certain uniform
criteria established by the Distributor from time to time. Prior to
February 1, 1997, a commission will be paid to authorized dealers who
initiate and are responsible for such purchases within a rolling
twelve-month period as follows: 1.00% on sales to $5 million, plus 0.50%
on the next $5 million and 0.25% on the excess over $10 million. For
purchases on February 1, 1997 and thereafter, a commission will be paid as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million,
plus 0.50% on the next $47 million and 0.25% on the excess over $50
million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

31
<PAGE> 333

DEFERRED SALES CHARGE ALTERNATIVE

Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or Class C Shares. The
public offering price of a CDSC Share is equal to the net asset value per share
without the imposition of a sales charge at the time of purchase. CDSC Shares
are sold without an initial sales charge so that the Fund may invest the full
amount of the investor's purchase payment. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of assets
of the Fund, as a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and financial intermediaries
which percentage rate will be equal to (i) with respect to Class A Shares, 1.00%
on sales to $2 million, plus 0.80% on the next $1 million and 0.50% on the
excess over $3 million; (ii) 4.00% with respect to Class B Shares; and (iii)
1.00% with respect to Class C Shares. Such compensation will not change the
price an investor will pay for CDSC Shares or the amount that the Fund will
receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed on CDSC Shares derived from reinvestment of dividends or
capital gains distributions. Solely for purposes of determining the number of
years from the time of any payment for the purchases of CDSC Shares, all
payments during a month will be aggregated and deemed to have been made on the
last day of the month.

Proceeds from the CDSC and the distribution fee applicable to a class of CDSC
Shares are paid to the Distributor and are used by the Distributor to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of shares of such class of CDSC Shares, such as the
payment of compensation to selected dealers and agents and for selling such
shares. The combination of the CDSC and the distribution fee facilitates the
ability of the Fund to sell such CDSC Shares without a sales charge being
deducted at the time of purchase.

32
<PAGE> 334

CDSC Shares held longest during the period of time that a CDSC is applicable to
such CDSC Shares. The charge will not be applied to dollar amounts representing
an increase in the net asset value since the time of purchase.

CLASS B SHARES. Class B Shares redeemed within seven years of purchase
generally will be subject to a CDSC at the rates set forth below, charged as a
percentage of the dollar amount subject thereto:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
------------------- -------------------
<S> <C>
First.......................................... 4.00%
Second......................................... 3.75%
Third.......................................... 3.50%
Fourth......................................... 2.50%
Fifth.......................................... 1.50%
Sixth.......................................... 1.00%
Seventh and after.............................. 0.00%
</TABLE>

The CDSC generally is waived on redemptions of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services -- Systematic
Withdrawal Plan."

33
<PAGE> 335

The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution and service fees and ACCESS costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) that the conversion of such shares does not constitute a
taxable event under federal income tax law. The conversion may be suspended if
such an opinion is no longer available and such shares might continue to be
subject to the higher aggregate fees applicable to such class of shares for an
indefinite period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with required minimum
distributions from an IRA or other retirement plan, (iii) pursuant to the Fund's
systematic withdrawal plan but limited to 12% annually of the initial value of
the account and (iv) effected pursuant to the right of the Fund to liquidate a
shareholder's account as described herein under "Redemption of Shares." The CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See "Shareholder Services" and "Redemption of
Shares" for further discussion of the waiver provisions.

NET ASSET VALUE

34
<PAGE> 336

calculate the net asset value and to adjust the public offering price based
thereon more frequently than once a day if deemed desirable. The net asset value
per share of the different class of shares are expected to be substantially the
same; from time to time, however, the per share net asset value of the different
class of shares may differ.

Portfolio securities are valued by using market quotations, prices provided by
market makers or estimates of market values 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 of the Trust, of
which the Fund is a series. Securities with remaining maturities of 60 days or
less are valued at amortized cost when amortized cost is determined in good
faith by or under the direction of the Board of Trustees of the Trust to be
representative of the fair value at which it is expected such securities may be
resold. Any securities or other assets for which current market quotations are
not readily available are valued at their fair value as determined in good faith
under procedures established by and under the general supervision of the Board
of Trustees of the Trust.

- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

35
<PAGE> 337

64141-9256, requesting an "affidavit of loss" and to obtain a Surety Bond in a
form acceptable to ACCESS. On the date the letter is received ACCESS will
calculate a fee for replacing the lost certificate equal to no more than 2.00%
of the net asset value of the issued shares and bill the party to whom the
replacement certificate was mailed.

36
<PAGE> 338

No sales charge is imposed upon the exchange of a Class B Shares or Class C
Shares. The CDSC schedule and conversion schedule applicable to a Class B Share
or Class C Share acquired through the exchange privilege is determined by
reference to the Van Kampen American Capital fund from which such share
originally was purchased. The holding period of a Class B Share or Class C Share
acquired through the exchange privilege is determined by reference to the date
such share originally was purchased from a Van Kampen American Capital fund.

A shareholder wishing to make an exchange may do so by sending a written
request to ACCESS or by contacting the telephone transaction line at (800)
421-5684 ((800) 421-2833 for the hearing impaired). A shareholder automatically
has telephone exchange privileges unless otherwise designated in the application
form accompanied by this Prospectus. The exchange will take place at the
relative net asset values of the shares next determined after receipt of such
request with adjustment for any additional sales charge. Any shares exchanged
begin earning dividends on the next business day after the exchange is affected.
Van Kampen American Capital and its subsidiaries, including ACCESS
(collectively, "VKAC"), and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include requiring certain personal identification information
prior to acting upon telephone instructions, tape recording telephone
communications, and providing written confirmation of instructions communicated
by telephone. If reasonable procedures are employed, a shareholder agrees that
neither VKAC nor the Fund will be liable for following telephone instructions
which it reasonably believes to be genuine. VKAC and the Fund may be liable for
any losses due to unauthorized or fraudulent instructions if reasonable
procedures are not followed. Exchanges are effected at the net asset value per
share next calculated after the request is received in good order with
adjustment for any additional sales charges. If the exchanging shareholder does
not have an account in the fund whose shares are being acquired, a new account
will be established with the same registration, dividend and capital gains
options (except dividend diversification options) and broker, dealer or
financial intermediary of record as the account from which shares are exchanged,
unless otherwise specified by the shareholder. In order to establish a
systematic withdrawal plan for the new account or reinvest dividends from the
new account into another fund, an exchanging shareholder must file a specific
written request. The Fund reserves the right to reject any order to acquire
shares through

37
<PAGE> 339

exchange. In addition, the Fund may modify, restrict or terminate the exchange
privilege at any time on 60 days' notice to its shareholders of any termination
or material amendment.

SYSTEMATIC WITHDRAWAL PLAN. Any investor whose shares in a single account
total $10,000 or more at the offering price next computed after receipt of
instructions may establish a monthly, quarterly, semi-annual or annual
withdrawal plan. Any investor whose shares in a single account total $5,000 or
more at the offering price next computed after receipt of instructions may
establish a quarterly, semi-annual or annual or annual withdrawal plan. This
plan provides for the orderly use of the entire account, not only the income but
also the capital, if necessary. Each withdrawal constitutes a redemption of
shares on which taxable gain or loss will be recognized. The plan holder may
arrange for monthly, quarterly, semi-annual, or annual checks in any amount not
less than $25.

38
<PAGE> 340

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.

39
<PAGE> 341

proceeds are not to be paid to the record owner at the record address, or if the
record address has changed within the previous 30 days, signature(s) must be
guaranteed by one of the following: a bank or trust company; a broker-dealer; a
credit union; a national securities exchange, registered securities association
or clearing agency; a savings and loan association; or a federal savings bank.
If certificates are held for the shares being redeemed, such certificates must
be endorsed for transfer or accompanied by an endorsed stock power and sent with
the redemption request. In the event the redemption is requested by a
corporation, partnership, trust, fiduciary, executor or administrator, and the
name and title of the individual(s) authorizing such redemption is not shown in
the account registration, a copy of the corporate resolution or other legal
documentation appointing the authorized signer and certified within the prior 60
days must accompany the redemption request. The redemption price is the net
asset value per share next determined after the request is received by ACCESS in
proper form. Payment for shares redeemed (less any sales charge, if applicable)
will ordinarily be made by check mailed within three business days after
acceptance by ACCESS of the request and any other necessary documents in proper
order. Such payments may be postponed or the right of redemption suspended as
provided by the rules of the SEC. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check until
it confirms that the purchase check has cleared, usually a period of up to 15
days. Any gain or loss realized on the redemption of shares is a taxable event.

40
<PAGE> 342

procedures considered by them to be reasonable to confirm that instructions
communicated by telephone are genuine. Such procedures include requiring certain
personal identification information prior to acting upon telephone instructions,
tape recording telephone communications, and providing written confirmation of
instructions communicated by telephone. If reasonable procedures are employed, a
shareholder agrees that neither VKAC nor the Fund will be liable for following
instructions which it reasonably believes to be genuine. VKAC and the Fund may
be liable for any losses due to unauthorized or fraudulent instructions if
reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS by telephone, whether because
all telephone lines are busy or for any other reason; in such case, a
shareholder would have to use the Fund's other redemption procedures previously
described. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares represented by certificates. If the shares to be redeemed have been
recently purchased by check, ACCESS may delay mailing a redemption check or
wiring redemption proceeds until it confirms that the purchase check has
cleared, usually a period of up to 15 days. If an account has multiple owners,
ACCESS may rely on the instructions of any one owner.

41
<PAGE> 343

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value (without sales charge except as described under "Shareholder Services --
Exchange Privilege") next determined after the order is received, which must be
within 180 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge." Reinstatement at net
asset value is also offered to participants in those eligible retirement plans
held or administered by Van Kampen American Capital Trust Company for repayment
of principal (and interest) on their borrowings on such plans.

- ------------------------------------------------------------------------------

DISTRIBUTION AND SERVICE PLANS

- ------------------------------------------------------------------------------

42
<PAGE> 344

CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.

43
<PAGE> 345

paid by the Fund (up to the amount of the actual expenses incurred) in future
years so long as such Distribution Plan is in effect. Except as mandated by
applicable law, the Fund does not impose any limit with respect to the number of
years into the future that such unreimbursed expenses may be carried forward (on
a Fund level basis). Because such expenses are accounted on a Fund level basis,
in periods of extreme net asset value fluctuation such amounts with respect to a
particular CDSC Share may be greater or less than the amount of the initial
commission (including carrying cost) paid by the Distributor with respect to
such CDSC Share. In such circumstances, a shareholder of such CDSC Share may be
deemed to incur expenses attributable to other shareholders of such class. As of
December 31, 1996, there were $408,097 and $6,707 of unreimbursed distribution
related expenses with respect to Class B Shares and Class C Shares,
respectively, representing 4.52% and 0.94% of the Fund's net assets attributable
to Class B Shares and Class C Shares, respectively. If the Distribution Plan was
terminated or not continued, the Fund would not be contractually obligated to
pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through CDSCs.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the CDSC applicable to a particular class of
shares to defray distribution-related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare daily and pay monthly distributions of all or
substantially all net investment income of the Fund. Net investment income
consists of all interest income, dividends, and other ordinary income earned by
the Fund, less all expenses of the Fund attributable to the class of shares in
question. Net short-term capital gains, if any, may be distributed throughout
the year. Expenses of the Fund are accrued each day. Net realized long-term
capital gains, if any, are expected to be distributed, to the extent permitted
by applicable law, to shareholders at least annually. Distributions cannot be
assured, and the amount of each monthly distribution may vary.

44
<PAGE> 346

Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee will be lower than distributions
with respect to a class of shares subject to a lower distribution fee.

Distribution checks may be sent to parties other than the shareholder in whose
name the account is registered. Persons wishing to utilize this service should
complete the appropriate section of the account application accompanying this
Prospectus or available from Van Kampen American Capital Funds, c/o ACCESS P.O.
Box 418256, Kansas City, MO 64141-9256. After ACCESS receives this completed
form, distribution checks will be sent to the bank or other person so designated
by such shareholder.

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund will automatically
credit monthly distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the Fund valued
at net asset value, without a sales charge. Unless a shareholder instructs
otherwise, the reinvestment plan is automatic. This instruction may be made by
telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or
in writing to ACCESS. See "Shareholder Services -- Reinvestment Plan."

- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------

NEW JERSEY TAXATION

The following New Jersey income tax discussion is based on the advice of
Crummy, Del Deo, Dolan, Griffinger & Vecchione, special New Jersey tax counsel
to the Fund.

Individual shareholders of the Fund, including trusts and estates, who are
subject to the New Jersey Gross Income Tax will not be required to include in
their New Jersey gross income distributions from the Fund which the Fund clearly
identifies as directly attributable to interest or gains from New Jersey
municipal securities, obligations of the United States or any other obligations,
the interest and gain on which is exempt from New Jersey Gross Income Tax under
New Jersey law or federal law, provided that the Fund qualifies as a "qualified
investment fund."

45
<PAGE> 347

The Fund will qualify as a "qualified investment fund" if, for any calendar
year in which a distribution is paid: (1) the Fund has no investments, other
than interest-bearing obligations, obligations issued at a discount and cash and
cash items, including receivables and financial options, futures, forward
contracts, or other similar financial instruments related to interest-bearing
obligations, obligations issued at a discount or bond indexes related thereto;
(2) at the close of each quarter of the taxable year the Fund has not less than
80% of the aggregate principal amount of all of its investments (excluding
financial options, futures, forward contracts, or other similar financial
instruments related to interest-bearing obligations, obligations issued at a
discount or bond indexes related thereto to the extent such instruments are
authorized by Section 851(b) of the Internal Revenue Code of 1986, cash and cash
items, which cash items shall include receivables) in New Jersey municipal
securities, or any other obligations, including United States obligations, the
interest or gains on which is exempt from New Jersey Gross Income Tax pursuant
to New Jersey law or federal law; (3) the Fund does not engage in any prohibited
Strategic Transactions (see "Investment Practices"); and (4) the Fund satisfies
the certification and reporting requirements imposed by regulations promulgated
by the New Jersey Division of Taxation. The Fund intends to so qualify. The Fund
must certify annually on or before February 15 to the New Jersey Division of
Taxation that for the preceding calendar year the Fund is a "qualified
investment fund." The Fund must also advise the Division of Taxation as to
amounts distributed for the preceding calendar year to shareholders from income
or gain derived from New Jersey and federal obligations. The Fund must also
advise its shareholders on or before February 15 of each calendar year that its
distributions qualify for exclusion pursuant to New Jersey law regarding
qualified investment funds.

Distributions to individual shareholders, including trusts and estates, who
are subject to the New Jersey Gross Income Tax, attributable to interest or
gains on municipal obligations issued by states other than New Jersey, including
municipalities or authorities in such other states, or any other obligations the
interest on which is not exempt from New Jersey Gross Income Tax pursuant to New
Jersey law or federal law, will be included as New Jersey gross income for
purposes of calculating the New Jersey Gross Income Tax.

Individual shareholders of the Fund, including trusts and estates, who are
subject to the New Jersey Gross Income Tax, will not be required to include in
gross income net gains attributable to the sale of shares provided that the Fund
qualifies as a "qualified investment fund." Any loss realized on such sale may
not be utilized to offset gains realized by such shareholder on the sale of
assets the gain on which is subject to the New Jersey Gross Income Tax.

If an individual holder of shares dies a domiciliary of New Jersey, New Jersey
Inheritance Tax and New Jersey Estate Tax may be imposed as a result of the
ownership of such shares.

46
<PAGE> 348

If a shareholder is a corporation subject to the New Jersey Corporation
Business Tax or the New Jersey Corporation Income Tax, distributions of interest
or gains, or both, from the Fund will be includable in its entire net income for
purposes of the New Jersey Corporation Business Tax or New Jersey Corporation
Income Tax, less any interest expense incurred to carry such investment to the
extent such interest expense has not been deducted in computing federal taxable
income. Net gains derived by such corporation on the sale of its shares will be
included in its entire net income for purposes of the New Jersey Corporation
Business Tax or New Jersey Corporation Income Tax.

New Jersey S corporations that are shareholders of the Fund generally will be
subject to the Corporation Business Tax at a rate of 2.63% of their entire net
income. New Jersey S corporations with entire net income of $100,000 or less for
tax years beginning on or after July 1, 1996 will be subject to tax at a rate of
1.13%. However, New Jersey S corporations that are taxed under certain
provisions of federal tax law will be subject to the Corporation Business Tax at
a rate of 9.0% of their entire net income. Entire net income will include
distributions of the Fund and gains on the sale of shares of the Fund.

The foregoing is a general, abbreviated summary of certain of the provisions
of New Jersey law presently in effect as they directly govern the taxation of
shareholders of the Fund. The provisions are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions.

FEDERAL TAXATION

The following federal income tax discussion is based on the advice of Skadden,
Arps, Slate, Meagher & Flom (Illinois), and reflects applicable federal tax
laws.

The Fund has qualified and intends to continue to qualify each year and to
elect to be treated as a regulated investment company under Subchapter M of the
Code. To qualify as a regulated investment company, the Fund must comply with
certain requirements of the Code relating to, among other things, the source of
its income and diversification of its assets.

47
<PAGE> 349

latter of which generally is computed on the basis of the one-year period ending
on October 31 of such year), plus any amounts that were not distributed in
previous taxable years. For purposes of the excise tax, any ordinary income or
capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.

48
<PAGE> 350

and to avoid income and excise taxes. In order to generate sufficient cash to
make distributions necessary to satisfy the 90% distribution requirement and to
avoid income and excise taxes, the Fund may have to dispose of securities that
it would otherwise have continued to hold. A portion of the discount relating to
certain stripped tax-exempt obligations may constitute taxable income when
distributed to shareholders.

49
<PAGE> 351

Shareholders receiving distributions in the form of additional shares issued
by the Fund will be treated for federal income tax purposes as receiving a
distribution in an

50
<PAGE> 352

amount equal to the fair market value of the shares received, determined as of
the distribution date. The basis of such shares will equal the fair market value
on the distribution date.

51
<PAGE> 353

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FUND PERFORMANCE
- ------------------------------------------------------------------------------

52
<PAGE> 354

- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------

The Fund is a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized in 1994 under the name Van Kampen Merritt New Jersey Tax
Free Income Fund as a sub-trust of Van Kampen Merritt Tax Free Fund, a
Massachusetts business trust. The Fund was reorganized as a series of the Trust
as of July 31, 1995. Shares of the Trust entitle their holders to one vote per
share; however, separate votes are taken by each series on matters affecting an
individual series.

The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into three classes,
designated Class A Shares, Class B Shares and Class C Shares. Each class of
shares represents an interest in the same assets of the Fund and are identical
in all respects except that each class bears certain distribution expenses and
has exclusive voting rights with respect to its distribution fee. See
"Distribution and Service Plans."

- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------

This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933, as amended. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the office of the SEC in Washington, D.C.

53
<PAGE> 355

Shareholder inquiries should be directed to Van Kampen American Capital New
Jersey Tax Free Income Fund, One Parkview Plaza, Oakbrook Terrace, Illinois
60181, Attn: Correspondence.

54
<PAGE> 356

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE

NUMBER--(800) 341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)

DIAL (800) 421-2833.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 847-2424.

VAN KAMPEN AMERICAN CAPITAL
NEW JERSEY TAX FREE
INCOME FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181

Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
New Jersey Tax Free Income Fund

Custodian
STATE STREET BANK AND
TRUST COMPANY

225 West Franklin Street, P.O. Box 1713

Boston, MA 02105-1713
Attn: Van Kampen American Capital
New Jersey Tax Free Income Fund

Legal Counsel
SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 357

------------------------------------------------------------------------------

NEW JERSEY TAX FREE
INCOME FUND

------------------------------------------------------------------------------

P R O S P E C T U S

APRIL 30, 1997

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 358

- ------------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
NEW YORK TAX FREE INCOME FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital New York Tax Free Income Fund (the "Fund") is a
non-diversified mutual fund, organized as a separate series of Van Kampen
American Capital Tax Free Trust. The Fund's investment objective is to provide
investors 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 is
designed for investors who are residents of New York for tax purposes. Under
normal market conditions, the Fund seeks to achieve its investment objective by
investing at least 80% of its assets in a portfolio of New York municipal
securities rated investment grade at the time of investment. Investment grade
securities are securities rated BBB or higher by Standard & Poor's Ratings Group
("S&P"), Baa or higher by Moody's Investors Service, Inc. ("Moody's") or an
equivalent rating by another nationally recognized statistical ratings
organization ("NRSRO"). Up to 20% of the Fund's total assets may consist of New
York municipal securities rated below investment grade (but not rated lower than
B- by S&P, B3 by Moody's or an equivalent rating by another NRSRO) and unrated
(Continued on next page.)
------------------

------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

A Statement of Additional Information, dated April 30, 1997, containing
additional information about the Fund has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference in its entirety into
this Prospectus. A copy of the Fund's Statement of Additional Information may be
obtained without charge by calling (800) 421-5666 or for Telecommunications
Device for the Deaf at (800) 421-2833. The Statement of Additional Information
has been filed with the Securities and Exchange Commission ("SEC") and is
available along with other related Fund materials at the SEC's internet web site
(http.//www.sec.gov).

------------------
VAN KAMPEN AMERICAN CAPITAL (SM)

------------------

THIS PROSPECTUS IS DATED APRIL 30, 1997.

<PAGE> 359

(Continued from previous page.)

New York municipal securities believed by the Fund's investment adviser to be of
comparable quality, which involve special risk considerations. Municipal
securities in which the Fund may invest include conventional fixed-rate
municipal securities, variable rate municipal securities and other types of
municipal securities described herein. See "Municipal Securities." There is no
assurance that the Fund will achieve its investment objective.

The investment adviser for the Fund is Van Kampen American Capital Investment
Advisory Corp. This Prospectus sets forth the information about the Fund that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, and its telephone number is
(800) 421-5666.

2
<PAGE> 360

- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Shareholder Transaction Expenses............................ 6
Annual Fund Operating Expenses and Example.................. 7
Financial Highlights........................................ 9
The Fund.................................................... 10
Investment Objective and Policies........................... 10
Municipal Securities........................................ 13
Investment Practices........................................ 16
Special Considerations Regarding the Fund................... 20
Investment Advisory Services................................ 22
Alternative Sales Arrangements.............................. 24
Purchase of Shares.......................................... 25
Shareholder Services........................................ 35
Redemption of Shares........................................ 39
Distribution and Service Plans.............................. 43
Distributions from the Fund................................. 45
Tax Status.................................................. 46
Description of Shares of the Fund........................... 51
Additional Information...................................... 52
</TABLE>

3
<PAGE> 361

- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------

THE FUND. Van Kampen American Capital New York Tax Free Income Fund (the
"Fund") is a non-diversified mutual fund organized as a separate series of Van
Kampen American Capital Tax Free Trust (the "Trust").

INVESTMENT OBJECTIVE. The Fund's investment objective is to provide investors a
high level of current income exempt from federal, New York State and New York
City income taxes, consistent with preservation of capital.

INVESTMENT POLICIES. The Fund is designed for investors who are residents of
New York for tax purposes. Under normal market conditions, the Fund seeks to
achieve its investment objective by investing at least 80% of its assets in a
portfolio of New York municipal securities rated investment grade at the time of
investment. Investment grade securities are securities rated BBB or higher by
Standard & Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or an equivalent rating by another nationally
recognized statistical rating organization ("NRSRO"). Up to 20% of the Fund's
total assets may consist of New York municipal securities rated below investment
grade (but not rated lower than B- by S&P, B3 by Moody's or an equivalent rating
by another NRSRO) and unrated New York municipal securities that the Fund's
investment adviser believes are of comparable quality, which involve special
risk considerations. Up to 20% of the Fund's assets may be invested in municipal
securities that are subject to federal alternative minimum tax. See "Investment
Objective and Policies," "Municipal Securities" and "Special Considerations
Regarding the Fund."

INVESTMENT RESULTS. The investment results of the Fund are shown in table of
"Financial Highlights".

PURCHASE OF SHARES. Shares of the Fund are offered through Van Kampen American
Capital Distributors, Inc. (the "Distributor"), as principal underwriter, and
through selected brokers and dealers. The offering price is the net asset value
per share next determined following receipt plus a sales charge which, at the
option of the investor, may be imposed at the time of purchase or on a
contingent deferred basis. Investors may elect to purchase Class A Shares, Class
B Shares or Class C Shares, each with different sales charges and expenses. The
minimum initial investment is $500 for each class of shares and the minimum for
each subsequent investment is $25 for each class of shares (or less as described
under "Purchase of Shares"). The different classes of shares permit an investor
to choose the method of purchasing shares that is more beneficial to the
investor, taking into account the amount of the purchase, the length of time the
investor expects to hold the shares and other circumstances. See "Purchase of
Shares."

INVESTMENT ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the Fund's investment adviser.

4
<PAGE> 362

SPECIAL RISK FACTORS. Up to 20% of the Fund's assets may consist of New York
securities rated below investment grade (but not rated lower than B- by S&P, B3
by Moody's or an equivalent rating by another NRSRO) and unrated New York
municipal securities considered by the Adviser to be of comparable quality. In
addition, the Fund may invest up to 20% of its assets in certain derivative
securities such as inverse floaters. Investment in such lower grade New York
municipal securities and derivative securities involves significant risks.
Furthermore, under normal market conditions, the Fund will invest substantially
all of its assets in New York municipal securities, and therefore it will be
more susceptible to factors adversely affecting issuers of New York municipal
securities than a municipal securities fund that does not invest in New York
municipal securities to this degree. There can be no assurance that the Fund
will achieve its objective. See "Special Considerations Regarding the Fund."

The foregoing is qualified in its entirety by reference to the more detailed

information appearing elsewhere in this Prospectus.

5
<PAGE> 363

- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
the offering price)........... 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of the offering
price)........................ None None(3) None(3)
Deferred sales charge (as a
percentage of the lesser of
the original purchase price or
redemption proceeds).......... None(2) Year Year
1--4.00% 1--1.00%
Year After--None
2--3.75%
Year
3--3.50%
Year
4--2.50%
Year
5--1.50%
Year
6--1.00%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
Exchange fees................... None None None
</TABLE>

- ------------------------------------------------------------------------------
(1) Reduced on investments of $100,000 or more. See "Purchase of Shares -- Class
A Shares."

(2) Investments of $1 million or more are not subject to a sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchases of Shares -- Deferred Sales
Charge Alternative -- Class A Share Purchases of $1 Million or More".

6
<PAGE> 364

<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of average
daily net assets)(1)........................ 0.00% 0.00% 0.00%
12b-1 Fees (as a percentage of average daily
net assets)(1)(2)........................... 0.25% 1.00% 1.00%
Other Expenses (as a percentage of average
daily net assets)(1)........................ 0.15% 0.16% 0.16%
Total Expenses (as a percentage of average
daily net assets)(1)........................ 0.40% 1.16% 1.16%
</TABLE>

- ------------------------------------------------------------------------------

(1) Expenses include a waiver of $101,692 of "Management Fees" and assumption of
$156,322 of "Other Expenses" by the Adviser. If the Adviser did not waive
fees for the fiscal year ending December 31, 1996, the "Management Fees"
would have been 0.60% for each class of shares "Other Expenses" would have
been 0.97% for Class A Shares, 1.00% for Class B Shares and 1.01% for Class
C Shares and "Total Expenses" would have been 1.82% for Class A Shares,
2.60% for Class B Shares and 2.61% for Class C Shares.

(2) Includes a service fee of up to 0.25% (as a percentage of net asset value)
paid by the Fund as compensation for ongoing services rendered to investors.
With respect to each class of shares, amounts in excess of 0.25%, if any,
represent an asset based sales charge. The asset based sales charge with
respect to Class C Shares includes 0.75% (as a percentage of net asset
value) paid to investors' broker-dealers as sales compensation.

7
<PAGE> 365

EXAMPLE:

<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 0.40% for
Class A Shares, 1.16% for Class B
Shares and 1.16% for Class C Shares,
(ii) 5% annual return and (iii)
redemption at the end of each time
period:
Class A Shares......................... $51 $60 $69 $ 96
Class B Shares......................... $52 $72 $79 $120*
Class C Shares......................... $22 $37 $64 $141
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each period:
Class A Shares......................... $51 $60 $69 $ 96
Class B Shares......................... $12 $37 $64 $120*
Class C Shares......................... $12 $37 $64 $141
</TABLE>

- ------------------------------------------------------------------------------

* Based on conversion to Class A Shares after eight years.

The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years. As Fund
assets increase, the fees waived or expenses reimbursed by the Adviser are
expected to decrease. Accordingly, it is unlikely that future expenses as
projected will remain consistent with those determined based on the "Annual Fund
Operating Expense" table. The ten year amount with respect to Class B Shares of
the Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A Shares. THE INFORMATION CONTAINED IN THE
ABOVE TABLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES
AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. For a more
complete description of such costs and expenses, see "Purchase of Shares,"
"Redemption of Shares," "Investment Advisory Services" and "Distribution and
Service Plans."

8
<PAGE> 366

<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------------------------------------- --------------------------------------------
JULY 29, 1994 JULY 29, 1994
(COMMENCEMENT (COMMENCEMENT
OF INVESTMENT OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) TO YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996 1995 1994
------------ ------------ -------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $15.048 $13.579 $14.300 $15.046 $13.578 $14.300
------- ------- ------- ------- ------- -------
Net Investment Income........... .816 .821 .302 .704 .713 .263
Net Realized and Unrealized
Gain/Loss on Investments...... (.074) 1.476 (.722) (.068) 1.476 (.722)
------- ------- ------- ------- ------- -------
Total from Investment
Operations...................... .742 2.297 (.420) .636 2.189 (.459)
Less Distributions from and in
Excess of Net Investment Income
(Note 1)........................ .798 .828 .301 .690 .721 .263
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period... $14.992 $15.048 $13.579 $14.992 $15.046 $13.578
======= ======= ======= ======= ======= =======
Total Return(a)(b)............... 5.14% 17.33% (2.93%)(c) 4.37% 16.47% (3.20%)(c)
Net Assets at End of Period (in
millions)....................... $ 7.7 $ 5.4 $ 2.9 $ 10.1 $ 9.7 $ 8.1
Ratio of Expenses to Average Net
Assets(a)....................... .31% .21% .26% 1.07% .93% .96%
Ratio of Net Investment Income to
Average Net Assets(a)........... 5.56% 5.63% 5.27% 4.79% 4.93% 4.58%
Portfolio Turnover............... 126% 51% 68%(c) 126% 51% 68%(c)
(a) If certain expenses had not been assumed by the Adviser, total return would have been lower and the ratios would have
been as follows:
Ratio of Expenses to Average Net
Assets.......................... 1.82% 2.10% 2.73% 2.60% 2.82% 3.42%
Ratio of Net Investment Income to
Average Net Assets.............. 4.04% 3.74% 2.81% 3.26% 3.04% 2.12%

<CAPTION>
CLASS C SHARES
--------------------------------------------
JULY 29, 1994
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $15.041 $13.579 $14.300
------- ------- -------
Net Investment Income........... .701 .711 .267
Net Realized and Unrealized
Gain/Loss on Investments...... (.060) 1.472 (.725)
------- ------- -------
Total from Investment
Operations...................... .641 2.183 (.458)
Less Distributions from and in
Excess of Net Investment Income
(Note 1)........................ .690 .721 .263
------- ------- -------
Net Asset Value, End of Period... $14.992 $15.041 $13.579
======= ======= =======
Total Return(a)(b)............... 4.44% 16.39% (3.20%)(c)
Net Assets at End of Period (in
millions)....................... $ .4 $ .4 $ .2
Ratio of Expenses to Average Net
Assets(a)....................... 1.08% .98% .96%
Ratio of Net Investment Income to
Average Net Assets(a)........... 4.78% 4.81% 4.58%
Portfolio Turnover............... 126% 51% 68%(c)
(a) If certain expenses had not b
been as follows:
Ratio of Expenses to Average Net
Assets.......................... 2.61% 2.86% 3.42%
Ratio of Net Investment Income to
Average Net Assets.............. 3.25% 2.93% 2.12%
</TABLE>

- -------------------

(b) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

9
<PAGE> 367

- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------

Van Kampen American Capital New York Tax Free Income Fund (the "Fund") is a
non-diversified, separate series of Van Kampen American Capital Tax Free Trust
(the "Trust"), an open-end management investment company, commonly known as a
"mutual fund," organized as a Delaware business trust. Mutual funds sell their
shares to investors and invest the proceeds in a portfolio of securities. A
mutual fund allows investors to pool their money with that of other investors in
order to obtain professional investment management. Mutual funds generally make
it possible for investors to obtain greater diversification of their investments
and to simplify their recordkeeping.

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser and its
affiliates also act as investment adviser to other mutual funds distributed by
Van Kampen American Capital Distributors, Inc. (the "Distributor"). To obtain
prospectuses and other information on any of these other funds, please call the
telephone number on the cover page of the Prospectus.

- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES
- ------------------------------------------------------------------------------

The investment objective of the Fund is to provide investors 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's investment objective
is a fundamental policy and may not be changed without shareholder approval of
the holders of a majority of the Fund's outstanding voting securities, as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). The
Fund is designed for investors who are residents of New York for tax purposes.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision with respect to the Fund. An investment in the Fund is intended to be a
long-term investment and should not be used as a trading vehicle.

Under normal market conditions, the Fund will invest at least 80% of its total
assets in New York municipal securities rated investment grade at the time of
investment. Investment grade securities are securities rated BBB or higher by
Standard & Poor's Ratings Group ("S&P"), Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or have an equivalent rating by another nationally
recognized statistical rating organization ("NRSRO") in the case of long-term
obligations, and have equivalent ratings in the case of short-term obligations.
According to published guidelines, securities rated BBB by S&P are regarded by
S&P as having an adequate capacity to pay interest and repay principal. Whereas
such securities normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely, in the opinion of
S&P, to lead

10
<PAGE> 368

to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories. According to published guidelines,
securities rated Baa by Moody's are considered by Moody's as medium grade
obligations. Such securities are, in the opinion of Moody's, neither highly
protected nor poorly secured. Interest payments and principal security appear to
Moody's to be adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
In the opinion of Moody's they lack outstanding investment characteristics and
in fact have speculative characteristics as well. The Fund's policy with respect
to ratings is not a fundamental policy, and thus may be changed by the Trustees
without shareholder approval.

Up to 20% of the Fund's total assets may be invested in New York municipal
securities rated below investment grade (but not rated lower than B- by S&P, B3
by Moody's or an equivalent rating by another NRSRO) and unrated New York
municipal securities that the Adviser considers to be of comparable quality to
such securities. According to published guidelines, securities rated below
investment grade are regarded by S&P, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. While in the opinion of S&P such securities will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions. According to
published guidelines, securities rated below investment grade are regarded by
Moody's as generally lacking characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the securities' contract over any long period of time may, in the opinion of
Moody's, be small. Debt securities rated below investment grade are commonly
referred to as "junk bonds." For a description of S&P's and Moody's ratings see
the Statement of Additional Information. From time to time the Fund temporarily
may also invest up to 10% of its assets in tax exempt money market funds. Such
instruments will be treated as investments in municipal securities.

The Adviser will buy and sell securities for the Fund's portfolio with a view
to seeking a high level of current income exempt from federal, New York State
and New York City income taxes and will select securities which the Adviser
believes entail reasonable credit risk considered in relation to the investment
policies of the Fund. As a result, the Fund will not necessarily invest in the
highest yielding New York municipal securities permitted by its investment
policies if the Adviser determines that market risks or credit risks associated
with such investments would subject the Fund's portfolio to undue risk. The
potential for realization of capital gains resulting from possible changes in
interest rates will not be a major consideration. Other than for tax purposes,
frequency of portfolio turnover generally will not be a limiting factor if the
Fund considers it advantageous to purchase or sell securities. The Fund
anticipates that its annual portfolio turnover rate normally will be less than
200%. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expenses or dealer costs than a lower rate, which expenses
and costs must be borne by the Fund and its shareholders. High portfolio
turnover

11
<PAGE> 369

may also result in the realization of substantial net short-term capital gains
and any distributions resulting from such gains will be taxable. See "Tax
Status" in this Prospectus and "Investment Policies and Restrictions" in the
Statement of Additional Information.

At times, conditions in the markets for New York municipal securities may, in
the Adviser's judgment, make pursuing the Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At such times, the
Adviser may use alternative strategies primarily designed to reduce fluctuations
in the value of the Fund's assets. In implementing these "defensive" strategies,
the Fund may invest to a substantial degree in high-quality, short-term New York
municipal obligations. If these high-quality, short-term New York municipal
obligations are not available or, in the Adviser's judgment, do not afford
sufficient protection against adverse market conditions, the Fund may invest in
high quality municipal securities of issuers other than issuers of New York
municipal securities. Furthermore, if such high-quality municipal securities are
not available or, in the Adviser's judgment, do not afford sufficient protection
against adverse market conditions, the Fund may invest in taxable obligations.
Such taxable obligations may include: obligations of the U.S. Government, its
agencies or instrumentalities; other debt securities rated within the four
highest categories by either S&P or Moody's (or comparably rated by another
NRSRO); commercial paper rated in the highest grade by either rating service (or
comparably rated by another NRSRO); certificates of deposit and bankers'
acceptances; repurchase agreements with respect to any of the foregoing
investments; or any other fixed-income securities that the Adviser considers
consistent with such strategy. To the extent that the Fund invests a substantial
portion of its assets in municipal securities other than New York municipal
securities or in taxable securities for temporary defensive purposes, the Fund
will not be invested in a manner primarily designed to achieve a high level of
current income exempt from federal, New York State and New York City income
taxes.

12
<PAGE> 370

of all Municipal Securities held by the Fund during the fiscal year ended
December 31, 1996, computed on a monthly basis.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
------------------------------------------
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING AS A PERCENTAGE OF AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE PORTFOLIO VALUE
-------- ------------------ ---------------------
<S> <C> <C>
AAA/Aaa.......................... 46.0% 0.0%
AA/Aa............................ 9.0% 0.0%
A/A.............................. 6.9% 0.0%
BBB/Baa.......................... 26.4% 2.5%
BB/Ba............................ 0.0% 9.2%
B/B.............................. 0.0% 0.0%
CCC/Caa.......................... 0.0% 0.0%
CC/Ca............................ 0.0% 0.0%
C/C.............................. 0.0% 0.0%
D................................ 0.0% 0.0%
------ ------
Percentage of Rated and Unrated
Securities..................... 88.3% 11.7%
====== ======
</TABLE>

Securities rated D are in default, and payment of interest or repayment of
principal is in arrears. Securities that are in default or with respect to which
payment of interest or repayment of principal is in arrears present special risk
considerations. The Fund may incur additional expenses to the extent that it is
required to seek recovery of interest or principal, and the Fund may be unable
to obtain full recovery thereof. See "Municipal Securities--Special
Considerations Regarding Medium and Lower Grade Municipal Securities."

The portfolio composition shown in the table above reflects the allocation of
assets by the Fund during a period of relative instability in the market for
medium and lower grade securities. The percentage of the Fund's assets invested
in securities of various grades may from time to time vary substantially from
those set forth above.

- ------------------------------------------------------------------------------
MUNICIPAL SECURITIES
- ------------------------------------------------------------------------------

GENERAL. Municipal securities are obligations issued by or on behalf of
states, territories or possessions of the United States, the District of
Columbia and their political subdivisions, agencies and instrumentalities, the
interest on which, in the opinion of bond counsel or other counsel to the issuer
of such securities is, at the time of issuance, exempt from federal income tax.
New York municipal securities are municipal securities the interest on which, in
the opinion of bond counsel or other counsel to the issuers of such securities,
is at the time of issuance exempt from New York State and New York City
individual income tax. Under normal market conditions, at least 80% of the
Fund's assets will be invested in New York municipal securities. The policy
stated in the foregoing sentence is a fundamental policy of the Fund and cannot
be changed without approval of the shareholders of

13
<PAGE> 371

the Fund. Up to 20% of the Fund's assets may be invested in municipal securities
that are subject to the federal alternative minimum tax.

14
<PAGE> 372

Fund's assets that may be invested in the foregoing types of municipal
securities. Certain of the municipal securities in which the Fund may invest
represent relatively recent innovations in the municipal securities markets and
the markets for such securities may be less developed than the market for
conventional fixed rate municipal securities. A more detailed description of the
types of municipal securities in which the Fund may invest is included in the
Statement of Additional Information.

Up to 20% of the Fund's assets may be invested in municipal securities that
are subject to the federal alternative minimum tax. The Fund may not be a
suitable investment for investors who are already subject to the federal
alternative minimum tax or who would become subject to the federal alternative
minimum tax as a result of an investment in the Fund. In addition, income earned
or deemed to be earned with respect to the Fund's Strategic Transactions, if
any, will be taxable. See "Tax Status."

From time to time, proposals have been introduced before Congress that would
have the effect of reducing or eliminating the federal tax exemption on
municipal securities. If such a proposal were enacted, the ability of the Fund
to pay tax exempt interest dividends might be adversely affected.

15
<PAGE> 373

LOWER GRADE MUNICIPAL SECURITIES. The Fund may invest up to 20% of its total
assets in New York municipal securities rated below investment grade (but not
rated lower than B- by S&P or B3 by Moody's or an equivalent rating by another
NRSRO) or in unrated New York municipal securities considered by the Adviser to
be of comparable quality to such securities. Higher yields are generally
available from municipal securities of such grade. With respect to such 20% of
the Fund's total assets, the Fund has not established any limit on the
percentage of its portfolio which may be invested in securities in any one
rating category or comparable unrated securities.

- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------

In connection with the investment policies described above, the Fund also may
engage in strategic transactions and purchase and sell securities on a "when
issued" and "delayed delivery" basis. These investments entail risks. Strategic
transactions generally will not be treated as investments in New York municipal
securities for purposes of the Fund's 80% investment policy with respect
thereto.

STRATEGIC TRANSACTIONS. The Fund may purchase and sell derivative instruments
such as exchange-listed and over-the-counter put and call options on securities,

16
<PAGE> 374

financial futures, fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and enter into various interest
rate transactions such as swaps, caps, floors or collars. Collectively, all of
the above are referred to as "Strategic Transactions." Strategic Transactions
may be used to attempt to protect against possible changes in the market value
of securities held in or to be purchased for the Fund's portfolio resulting from
securities markets, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the Fund's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. Any or all of these investment
techniques may be used at any time and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments.

17
<PAGE> 375

Income earned or deemed to be earned, by the Fund from, among other things,
its Strategic Transactions and temporary defensive strategies, if any, generally
will be taxable income of the Fund. See "Tax Status."

"WHEN ISSUED" AND "DELAYED DELIVERY" TRANSACTIONS. The Fund may also purchase
and sell municipal securities on a "when issued" and "delayed delivery" basis.
No income accrues to the Fund on municipal securities in connection with such
transactions prior to the date the Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher than yields on the municipal securities obtained pursuant
to such transactions. Because the Fund relies on the buyer or seller, as the
case may be, to consummate the transaction, failure by the other party to
complete the transaction may result in the Fund missing the opportunity of
obtaining a price or yield considered to be advantageous. When the Fund is the
buyer in such a transaction, however, it will maintain, in a segregated account
with its custodian, cash or liquid securities having an aggregate value equal to
the amount of such purchase commitments until payment is made. The Fund will
make commitments to purchase municipal securities on such basis only with the
intention of actually acquiring these securities, but the Fund may sell such
securities prior to the settlement date if such sale is considered to be
advisable. To the extent the Fund engages in "when issued" and "delayed
delivery" transactions, it will do so for the purpose of acquiring securities
for the Fund's portfolio consistent with the Fund's investment objectives and
policies and not for the purposes of investment leverage. No specific limitation
exists as to the percentage of the Fund's assets which may be used to acquire
securities on a "when issued" or "delayed delivery" basis.

RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 15% of its net
assets in illiquid securities including securities the disposition of which is
subject to substantial legal or contractual restrictions on resale and
securities that are not readily marketable. The sale of restricted and illiquid
securities often requires more time and results in higher brokerage charges or
dealer discounts and other selling expenses than does the sale of securities
eligible for trading on national securities exchanges or in the over-the-counter
markets. Restricted securities may sell at a price lower than similar securities
that are not subject to restrictions on resale.

Under normal market conditions, the Fund will invest substantially all of its
assets in New York municipal securities. The Fund generally will not invest more
than 25% of its total assets in any industry. Governmental issuers of municipal
securities are not considered part of any "industry." However, municipal
securities

18
<PAGE> 376

backed only by the assets and revenues of nongovernmental users may for this
purpose be deemed to be issued by such nongovernmental users, and the 25%
limitation would apply to such obligations. It is therefore possible that the
Fund may invest more than 25% of its assets in a broader segment of the
municipal securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations, or airport revenue
obligations if the Adviser determines that the yields available from obligations
in a particular segment of the market justifies the additional risks associated
with a large investment in such segment. Although such obligations could be
supported by the credit of governmental users, or by the credit of
nongovernmental users engaged in a number of industries, economic, business,
political and other developments generally affecting the revenues of such users
(for example, proposed legislation or pending court decisions affecting the
financing of such projects and market factors affecting the demand for their
services or products) may have a general adverse effect on all municipal
securities in such a market segment.

From time to time, the Fund's investments may include securities as to which
the Fund, by itself or together with other funds or accounts managed by the
Adviser, holds a major portion or all of an issue of New York municipal
securities. Because there may be relatively few potential purchasers for such
investments and, in some cases, there may be contractual restrictions on
resales, the Fund may find it more difficult to sell such securities at a time
when the Adviser believes it is advisable to do so.

INVESTMENT RESTRICTIONS. The Fund is subject to certain investment
restrictions which constitute fundamental policies. Fundamental policies cannot
be changed without the approval of the holders of a majority of the Fund's
outstanding voting securities, as defined in the 1940 Act. See "Investment
Policies and Restrictions" in the Statement of Additional Information.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. The Adviser is responsible
for decisions to buy and sell securities for the Fund, the selection of brokers
and dealers to effect the transactions and the negotiation of prices and any
brokerage commissions. The income securities in which the Fund invests are
traded principally in the over-the-counter market. In the over-the-counter
market, securities are generally traded on a net basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a mark-up to the dealer. Securities purchased
in underwritten offerings generally include, in the price, a fixed amount of
compensation for the managers, underwriters and dealers. The Fund may also
purchase certain money market instruments directly from an issuer, in which case
no commissions or discounts are paid. Purchases and sales of bonds on a stock
exchange are effected through brokers who charge a commission for their
services.

19
<PAGE> 377

manner of executing securities transactions for the Fund will be prompt
execution of orders, the size and breadth of the market for the security, the
reliability, integrity and financial condition and execution capability of the
firm, the size of and difficulty in executing the order, and the best net price.
There are many instances when, in the judgment of the Adviser, more than one
firm can offer comparable execution services. In selecting among such firms,
consideration is given to those firms which supply research and other services
in addition to execution services. However, it is not the policy of the Adviser,
absent special circumstances, to pay higher commissions to a firm because it has
supplied such services.

GENERAL. In normal circumstances, the Fund may invest up to 20% of its total
assets in New York municipal securities rated below investment grade (but not
rated lower than B- by S&P, B3 by Moody's or an equivalent rating by another
NRSRO) or in unrated New York municipal securities considered by the Adviser to
be of comparable quality to such securities. Investment in such lower grade
municipal securities involves special risks as compared with investment in
higher grade municipal securities. The market for lower grade municipal
securities is considered to be less liquid than the market for investment grade
municipal securities which may adversely affect the ability of the Fund to
dispose of such securities in a timely manner at a price which reflects the
value of such security in the Adviser's judgement. The market price for less
liquid securities tends to be more volatile than the market price for more
liquid securities. Illiquid securities and the absence of readily available
market quotations with respect thereto may make the Adviser's valuation of such
securities more difficult, and the Adviser's judgement may play a greater role
in the valuation of the Fund's securities. Lower grade municipal securities
generally involve greater credit risk than higher grade municipal securities and
are more sensitive to adverse economic changes, significant increases in
interest rates and individual issuer developments. Because issuers of lower
grade municipal securities frequently choose not to seek a rating of their
municipal securities, the Fund will rely more heavily on the Adviser's ability
to determine the relative investment quality of such securities than if the Fund
invested exclusively in higher grade municipal securities. The Fund may, if
deemed appropriate by the Adviser, retain a security whose rating has been
downgraded below B- by S&P, below B3 by Moody's or an equivalent rating by
another

20
<PAGE> 378

NRSRO, or whose rating has been withdrawn. More detailed information concerning
the risks associated with instruments in lower grade municipal securities is
included in the Fund's Statement of Additional Information.

SPECIAL CONSIDERATIONS REGARDING NEW YORK MUNICIPAL SECURITIES. Investors
should be aware of certain factors that might affect the financial condition of
the issuers of New York municipal securities. The State of New York has
historically been one of the wealthiest states in the nation. For decades,
however, the economy of the State of New York has grown more slowly than that of
the nation as a whole, and the result has been a gradual erosion of the State's
relative economic affluence. New York City, for example, has faced greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in New York City.

The State of New York has for many years had a very high state and local tax
burden. The burden of state and local taxation, in combination with the many
other causes of regional economic dislocations, has contributed to the decisions
of some businesses and individuals to relocate outside, or not locate within,
the State of New York.

There can be no assurance that the State of New York and its political
subdivisions will not face substantial potential budget gaps in future years
resulting from a significant disparity between tax revenues projected from a
lower recurring receipts base and the spending required to maintain programs at
current levels. To address any potential budgetary imbalance, the State of New
York and such subdivisions may need to take significant actions to align
recurring receipts and disbursements in future fiscal years.

Although revenue obligations of the State of New York or its political
subdivisions may be payable from a specific project or source, including lease
rentals, there can be no assurance that future economic difficulties and the
resulting impact on State and local government finances will not adversely
affect the market value of

21
<PAGE> 379

the portfolio of the Fund or the ability of the respective obligors to make
timely payments of principal and interest on such obligations.

More detailed information concerning New York municipal securities and the
State of New York is included in the Statement at Additional Information.

- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------

THE ADVISER. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") is the investment adviser for the Fund. The Adviser is a wholly-owned
subsidiary of Van Kampen American Capital, Inc. ("Van Kampen American Capital").
Van Kampen American Capital is a diversified asset management company with more
than two million retail investor accounts, extensive capabilities for managing
institutional portfolios, and more than $57 billion under management or
supervision. Van Kampen American Capital's more than 40 open-end and 38
closed-end funds and more than 2,500 unit investment trusts are professionally
distributed by leading financial advisers nationwide. Van Kampen American
Capital Distributors, Inc. (the "Distributor"), the distributor of the Fund and
sponsor of the funds mentioned above, is a wholly-owned subsidiary of Van Kampen
American Capital.

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

22
<PAGE> 380

ADVISORY AGREEMENT. The business and affairs of the Fund will be managed
under the direction of the Board of Trustees of the Trust, of which the Fund is
a separate series. Subject to their authority, the Adviser and the respective
officers of the Fund will supervise and implement the Fund's investment
activities and will be responsible for the overall management of the Fund's
business affairs. The Fund will pay the Adviser a fee equal to a percentage of
the average daily net assets of the Fund as follows:

<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
------------------------ --------------
<S> <C>
First $500 million..................................... 0.600 of 1.00%
Over $500 million...................................... 0.500 of 1.00%
</TABLE>

Under its investment advisory agreement with the Adviser, the Fund has agreed
to assume and pay the charges and expenses of the Fund's operation, including
the compensation of the Trustees of the Trust (other than those who are
affiliated persons, as defined in the 1940 Act, of the Adviser, the Distributor
or Van Kampen American Capital), the charges and expenses of independent
accountants, legal counsel, transfer agent (ACCESS Investor Services, Inc.
("ACCESS"), a wholly-owned subsidiary of Van Kampen American Capital), or
dividend disbursing agent and the custodian (including fees for safekeeping of
securities), costs of calculating net asset value, costs of acquiring and
disposing of portfolio securities, interest (if any) on obligations incurred by
the Fund, costs of share certificates, membership dues in the Investment Company
Institute or any similar organization, reports and notices to shareholders,
costs of registering shares of the Fund under the federal securities laws,
miscellaneous expenses and all taxes and fees to federal, state or other
governmental agencies. The Adviser reserves the right in its sole discretion
from time-to-time to waive all or a portion of its management fee or to
reimburse the Fund for all or a portion of its other expenses.

PORTFOLIO MANAGEMENT. David C. Johnson, a Senior Vice President of the
Adviser, supervises the Adviser's municipal securities practice area and
coordinates the Adviser's investment policy regarding such securities. Mr.
Johnson has been employed by the Adviser since April 1989. Dennis S. Pietrzak, a
Vice President of the Adviser, has been primarily responsible for the day-to-day
management of the Fund's portfolio since August 1995. Mr. Pietrzak has been
employed by the Adviser since August, 1995. Prior to joining the Adviser, Mr.
Pietrzak was employed by Merrill Lynch where he was in charge of municipal
underwriting and trading in Merrill Lynch's midwest region.

23
<PAGE> 381

- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------

The minimum initial investment with respect to each class of shares is $500.
The minimum subsequent investment with respect to each class of shares is $25.
It is presently the policy of the Distributor not to accept any order for Class
B Shares in an amount of $500,000 or more and not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.

24
<PAGE> 382

investor may wish to acquire Class C Shares. Investors must weigh the benefits
of deferring the sales charge and having all of their funds invested against the
higher aggregate distribution and service fee applicable to Class B Shares and
Class C Shares (discussed below).

- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------

25
<PAGE> 383

investors ("brokers") or eligible non-NASD members acting as agents for
investors ("financial intermediaries"). The Fund reserves the right to suspend
or terminate the continuous public offering of its shares at any time and
without prior notice.

The Fund's shares are offered at the net asset value per share next computed
after an investor places an order to purchase directly with the investor's
broker, dealer or financial intermediary or directly with the Distributor plus
any applicable sales charge. Sales personnel or brokers, dealers and financial
intermediaries distributing the Fund's shares may receive different compensation
for selling different classes of shares. It is the responsibility of the
investor's broker, dealer or financial intermediary to transmit the order to the
Distributor. Because the Fund generally will determine net asset value once each
business day as of the close of business, purchase orders placed through an
investor's broker, dealer or financial intermediary must be transmitted to the
Distributor by such broker, dealer or financial intermediary prior to such time
in order for the investor's order to be fulfilled on the basis of the net asset
value to be determined that day. Any change in the purchase price due to the
failure of the Distributor to receive a purchase order prior to such time must
be settled between the investor and the broker, dealer or financial intermediary
submitting the order.

The Distributor may from time to time implement programs under which a broker,
dealer or financial intermediary's sales force may be eligible to win nominal
awards for certain sales efforts or under which the Distributor will reallow to
any broker, dealer or financial intermediary that sponsors sales contests or
recognition programs conforming to criteria established by the Distributor, or
participates in sales programs sponsored by the Distributor, an amount not
exceeding the total applicable sales charges on the sales generated by the
broker, dealer or financial intermediary at the public offering price during
such programs. Other programs provide, among other things and subject to certain
conditions, for certain favorable distribution arrangements for shares of the
Fund. Also, the Distributor in its discretion may from time to time, pursuant to
objective criteria established by it, pay fees to, and sponsor business seminars
for, qualifying brokers, dealers or financial intermediaries for certain
services or activities which are primarily intended to result in sales of shares
of the Fund. Fees may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. In some instances
additional compensation or promotional incentives may be offered to brokers,
dealers or Financial intermediaries that have sold or may sell significant
amounts of shares during specified periods of time. The Distributor may provide
additional compensation to Edward D. Jones & Co. or an affiliate thereof based
on a combination of its sales of shares and increases in assets under
management. Such payments to brokers, dealers and financial intermediaries for
sales contests, other sales programs and seminars are made by the Distributor
out of its own assets and not out of the assets of the Fund. Such fees paid for
such services and activities with respect to the Fund will not exceed in the
aggregate 1.25% of the average total daily

26
<PAGE> 384

net assets of the Fund on an annual basis. These programs will not change the
price an investor pays for shares or the amount that the Fund will receive from
such sale.

CLASS A SHARES

The public offering price of Class A Shares is equal to the net asset value
per share plus an initial sales charge which is a variable percentage of the
offering price depending upon the amount of the sale. The table below shows
total sales charges and dealer concessions reallowed to dealers and agency
commissions paid to brokers with respect to sales of Class A Shares. The sales
charge is allocated between the investor's broker, dealer or financial
intermediary and the Distributor. As indicated previously, at the discretion of
the Distributor, the entire sales charge may be reallowed to such broker, dealer
or financial intermediary. The staff of the SEC has taken the position that
dealers who receive 90% or more of the sales charge may be deemed to be
"underwriters" as that term is defined in the Securities Act of 1933, as
amended.

SALES CHARGE TABLE

<TABLE>
<CAPTION>
DEALER
CONCESSION
OR AGENCY
TOTAL SALES CHARGE COMMISSION
----------------------------------- --------------
SIZE OF TRANSACTION PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AT OFFERING PRICE OFFERING PRICE NET ASSET VALUE OFFERING PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000.............. 4.75% 4.99% 4.25%
$100,000 but less than
$250,000...................... 3.75 3.90 3.25
$250,000 but less than
$500,000...................... 2.75 2.83 2.25
$500,000 but less than
$1,000,000.................... 2.00 2.04 1.75
$1,000,000 or more*............. * * *
- ------------------------------------------------------------------------------
</TABLE>

* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid to brokers, dealers or financial intermediaries who initiate
and are responsible for purchases of $1 million or more as follows: 1.00%
on sales to $2 million, plus 0.80% on the next $1 million and 0.50% on the
excess over $3 million. See "Purchase of Shares--Deferred Sales Charge
Alternatives" for additional information with respect to CDSCs.

QUANTITY DISCOUNTS

27
<PAGE> 385

may be modified or terminated at any time. For more information about quantity
discounts, investors should contact their broker, dealer or financial
intermediary or the Distributor.

As used herein, "Participating Funds" refers to all open-end investment
companies advised by the Adviser or Van Kampen American Capital Asset
Management, Inc. and distributed by the Distributor. Additional Funds may be
added from time to time as determined by the Fund's Board of Trustees as
Participating Funds.

28
<PAGE> 386

investor until the Letter of Intent is satisfied or any additional sales charges
have been paid; if the Letter of Intent is not satisfied by the investor and any
additional sales charges are not paid, sufficient restricted shares will be
redeemed by the Fund to pay such charges. Additional information is contained in
the application accompanying this Prospectus.

OTHER PURCHASE PROGRAMS

NAV PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at net asset
value, upon written assurance that the purchase is made for investment

29
<PAGE> 387

purposes and that the shares will not be resold except through redemption by the
Fund, by:

(1) Current or retired trustees or directors of funds advised by the Adviser
or Van Kampen American Capital Asset Management, Inc. and such persons'
families and their beneficial accounts.

(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in Class A Shares of the Fund alone, or any
combination of shares of the Fund and shares of other Participating Funds
as described herein under "Purchase of Shares -- Class A Shares --
Quantity Discounts," during the 13-month period commencing with the first
investment pursuant hereto equals at least $1 million. The Distributor may
pay brokers, dealers or financial intermediaries through which purchases
are made an amount up to 0.50% of the amount invested, over a 12-month
period following such transaction.

30
<PAGE> 388

accounts with the Distributor in the Participating Funds after February 1,
1997, that (1) the initial amount invested in the Participating Funds is
at least $500,000 or (2) such shares are purchased by an employer
sponsored plan with more than 100 eligible employees. Such plans that have
been established with a Participating Fund or have received proposals from
the Distributor prior to February 1, 1997 based on net asset value
purchase privileges previously in effect will be qualified to purchase
shares of the Participating Funds at net asset value for accounts
established on or before May 1, 1997. Section 403(b) and similar accounts
for which Van Kampen American Capital Trust Company served as custodian
will not be eligible for net asset value purchases based on the aggregate
investment made by the plan or the number of eligible employees, except
under certain uniform criteria established by the Distributor from time to
time. Prior to February 1, 1997, a commission will be paid to authorized
dealers who initiate and are responsible for such purchases within a
rolling twelve-month period as follows: 1.00% on sales to $5 million, plus
0.50% on the next $5 million and 0.25% on the excess over $10 million. For
purchases on February 1, 1997 and thereafter, a commission will be paid as
follows: 1.00% on sales to $2 million, plus 0.80% on the next $1 million,
plus 0.50% on the next $47 million and 0.25% on the excess over $50
million.

The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.

31
<PAGE> 389

provided that ACCESS receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized broker, dealer or financial intermediary may charge a transaction fee
for placing an order to purchase shares pursuant to this provision or for
placing a redemption order with respect to such shares. The Fund may terminate,
or amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.

DEFERRED SALES CHARGE ALTERNATIVES

Investors choosing the deferred sales charge alternative may purchase Class A
Shares in an amount of $1 million or more, Class B Shares or Class C Shares. The
public offering price of a CDSC Share is equal to the net asset value per share
without the imposition of a sales charge at the time of purchase. CDSC Shares
are sold without an initial sales charge so that the Fund may invest the full
amount of the investor's purchase payment. The Distributor will compensate
brokers, dealers and financial intermediaries participating in the continuous
public offering of the CDSC Shares out of its own assets, and not out of assets
of the Fund, as a percentage rate of the dollar value of the CDSC Shares
purchased from the Fund by such brokers, dealers and other financial
intermediaries which percentage rate will be equal to (i) with respect to Class
A Shares, 1.00% on sales to $2 million, plus 0.80% on the next $1 million and
0.50% on the excess over $3 million; (ii) 4.00% with respect to Class B Shares;
and (iii) 1.00% with respect to Class C Shares. Such compensation will not
change the price an investor will pay for CDSC Shares or the amount that the
Fund will receive from such sale.

CDSC Shares redeemed within a specified period of time generally will be
subject to a CDSC at the rates set forth below charged as a percentage of the
dollar amount subject thereto. The amount of the CDSC will vary depending on (i)
the class of CDSC Shares to which such shares belong and (ii) the number of
years from the time of payment for the purchase of the CDSC Shares until the
time of their redemption. The charge will be assessed on an amount equal to the
lesser of the then current market value or the original purchase price of the
CDSC Shares being redeemed. Accordingly, no sales charge will be imposed on
increases in net asset value above the initial purchase price. In addition, no
CDSC will be assessed on CDSC Shares derived from reinvestment of dividends or
capital gains distributions. Solely for purposes of determining the number of
years from the time of any payment for the purchases of CDSC Shares, all
payments during a month will be aggregated and deemed to have been made on the
last day of the month.

Proceeds from the CDSC and the distribution fee applicable to a class of CDSC
Shares are paid to the Distributor and are used by the Distributor to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of shares of such class of CDSC Shares, such as the
payment of compensation to selected dealers and agents and for selling such
shares. The combination of the CDSC and the distribution fee facilitates the
ability of the Fund

32
<PAGE> 390

to sell such CDSC Shares without a sales charge being deducted at the time of
purchase.

CLASS B SHARES. Class B Shares redeemed within seven years of purchase
generally will be subject to a CDSC at the rates set forth below, charged as a
percentage of the dollar amount subject thereto:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR SINCE PURCHASE SUBJECT TO CHARGE
------------------- -------------------
<S> <C>
First............................................. 4.00%
Second............................................ 3.75%
Third............................................. 3.50%
Fourth............................................ 2.50%
Fifth............................................. 1.50%
Sixth............................................. 1.00%
Seventh and after................................. 0.00%
</TABLE>

33
<PAGE> 391

The CDSC generally is waived on redemptions of Class B Shares made pursuant to
the Systematic Withdrawal Plan. See "Shareholder Services--Systematic Withdrawal
Plan."

Conversion Feature. Class B Shares purchased on or after June 1, 1996 and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares seven years after the end of the calendar month in which the
shares were purchased. Class C Shares purchased before January 1, 1997, and any
dividend reinvestment plan shares received thereon, automatically convert to
Class A Shares ten years after the end of the calendar month in which such
shares were purchased. Such conversion will be on the basis of the relative net
asset values per share, without the imposition of any sales load, fee or other
charge.

The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution and service fee and ACCESS costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) that the conversion of such shares does not constitute a
taxable event under federal income tax law. The conversion may be suspended if
such an opinion is no longer available and such shares might continue to be
subject to the higher aggregate fees applicable to such class of shares for an
indefinite period.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC is waived on redemptions
of Class B Shares and Class C Shares (i) following the death or disability (as
defined in the Code) of a shareholder, (ii) in connection with required minimum
distributions from an IRA or other retirement plan, (iii) pursuant to the Fund's
systematic withdrawal plan but limited to 12% annually of the initial value of
the account and (iv) effected pursuant to the right of the Fund to liquidate a
shareholder's account as described herein under "Redemption of Shares." The CDSC
also is waived on redemptions of Class C Shares as it relates to the
reinvestment of redemption proceeds in shares of the same class of the Fund
within 120 days after redemption. See "Shareholder Services" and "Redemption of
Shares" for further discussion of the waiver provisions.

NET ASSET VALUE

34
<PAGE> 392

class of shares, deducting its total liabilities attributable to such class of
shares, and dividing the result by the number of shares of such class
outstanding. The net asset value for the Fund is computed once daily as of 5:00
p.m. Eastern time Monday through Friday, except on customary business holidays,
or except on any day on which no purchase or redemption orders are received, or
there is not a sufficient degree of trading in the Fund's portfolio securities
such that the Fund's net asset value per share might be materially affected. The
Fund reserves the right to calculate the net asset value and to adjust the
public offering price based thereon more frequently than once a day if deemed
desirable. The net asset value per share of the different class of shares are
expected to be substantially the same; from time to time, however, the per share
net asset value of the different class of shares may differ.

- ------------------------------------------------------------------------------
SHAREHOLDER SERVICES
- ------------------------------------------------------------------------------

35
<PAGE> 393

purchasing shares through authorized brokers, dealers or financial
intermediaries or by mailing a check directly to ACCESS.

REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value (without sales charge) on
the record date of such dividend or distribution. Unless the shareholder
instructs otherwise, the reinvestment plan is automatic. This instruction may be
made by telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing
impaired) or in writing to ACCESS. The investor may, on the initial application
or prior to any declaration, instruct that dividends be paid in cash and capital
gains distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash. For further information, see
"Distributions from the Fund."

EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged with shares of another
Participating Fund, subject to certain limitations. Before effecting an

36
<PAGE> 394

exchange, shareholders in the Fund should obtain and read a current prospectus
of the fund into which the exchange is to be made. SHAREHOLDERS MAY ONLY
EXCHANGE INTO SUCH OTHER FUNDS AS ARE LEGALLY AVAILABLE FOR SALE IN THEIR STATE.

No sales charge is imposed upon the exchange of Class B Shares or Class C
Shares. The CDSC schedule and conversion schedule applicable to a Class B Share
or Class C Share acquired through the exchange privilege is determined by
reference to the Van Kampen American Capital fund from which such share
originally was purchased. The holding period of a Class B Share or Class C Share
acquired through the exchange privilege is determined by reference to the date
such share originally was purchased from a Van Kampen American Capital fund.

37
<PAGE> 395

request is received in good order with adjustment for any additional sales
charges. If the exchanging shareholder does not have an account in the fund
whose shares are being acquired, a new account will be established with the same
registration, dividend and capital gains options (except dividend
diversification options) and broker, dealer or financial intermediary of record
as the account from which shares are exchanged, unless otherwise specified by
the shareholder. In order to establish a systematic withdrawal plan for the new
account or reinvest dividends from the new account into another fund an
exchanging shareholder must file a specific written request. The Fund reserves
the right to reject any order to acquire shares through exchange. In addition,
the Fund may modify, restrict or terminate the exchange privilege at any time on
60 days' notice to its shareholders of any termination or material amendment.

38
<PAGE> 396

39
<PAGE> 397

- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------

Shareholders may redeem for cash some or all of their shares without charge by
the Fund (other than, with respect to CDSC Shares, the applicable contingent
deferred sales charge) at any time by sending a written request in proper form
directly to ACCESS, P. O. Box 418256, Kansas City, Missouri 64141-9256, by
placing the redemption request through an authorized dealer or by calling the
Fund.

40
<PAGE> 398

shareholder and dealer. Shareholders must submit a written redemption request in
proper form (as described above under "Written Redemption Requests") to the
dealer within three business days after calling the dealer with the sell order.
Payment for shares redeemed (less any sales charge, if applicable) will
ordinarily be made by check mailed within three business days to the dealer.

41
<PAGE> 399

The Fund reserves the right at any time to terminate, limit or otherwise modify
this telephone redemption privilege.

REINSTATEMENT PRIVILEGE. Holders of Class A Shares or Class B Shares who have
redeemed shares of the Fund may reinstate any portion or all of the net proceeds
of such redemption in Class A Shares of the Fund. Holders of Class C Shares who
have redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any CDSC paid upon such redemption. Such reinstatement is made at the net asset
value (without sales charge except as described under "Shareholder Services --
Exchange Privilege") next determined after the order is received, which must be
within 180 days after the date of the redemption. See "Purchase of
Shares -- Waiver of Contingent Deferred Sales Charge." Reinstatement at net
asset value is also offered to participants in those eligible retirement plans
held or administered by Van Kampen American Capital Trust Company for repayment
of principal (and interest) on their borrowings on such plans.

42
<PAGE> 400

- ------------------------------------------------------------------------------

DISTRIBUTION AND SERVICE PLANS

- ------------------------------------------------------------------------------

CLASS C SHARES. The Fund may spend up to 0.75% per year of the average daily
net assets attributable to the Class C Shares of the Fund pursuant to the
Distribution Plan. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C Shares up to 0.75% of the Fund's average daily
net assets attributable to Class C Shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C Shares. In
addition, the Fund may spend up to 0.25% per year of the Fund's average daily
net assets attributable to the Class C Shares pursuant to the Service Plan in
connection with the ongoing provision of services to holders of such shares by
the Distributor and by brokers, dealers or financial

43
<PAGE> 401

intermediaries and in connection with the maintenance of such shareholders'
accounts.

The Distributor's actual expenses with respect to a class of CDSC Shares (for
purposes of this section, excluding any Class A Shares that may be subject to a
CDSC) for any given year may exceed the amounts payable to the Distributor with
respect to such class of CDSC Shares under the Distribution Plan, the Service
Plan and payments received pursuant to the CDSC. In such event, with respect to
any such class of CDSC Shares, any unreimbursed expenses will be carried forward
and paid by the Fund (up to the amount of the actual expenses incurred) in
future years so long as such Distribution Plan is in effect. Except as mandated
by applicable law, the Fund does not impose any limit with respect to the number
of years into the future that such unreimbursed expenses may be carried forward
(on a Fund level basis). Because such expenses are accounted on a Fund level
basis, in periods of extreme net asset value fluctuation such amounts with
respect to a particular CDSC Share may be greater or less than the amount of the
initial commission (including carrying cost) paid by the Distributor with
respect to such CDSC Share. In such circumstances, a shareholder of such CDSC
Share may be deemed to incur expenses attributable to other shareholders of such
class. As of December 31, 1996, there were $448,111 and $4,777 of unreimbursed
distribution related expenses with respect to Class B Shares and Class C Shares,
respectively, representing 4.42% and 1.35% of the Fund's net assets attributable
to Class B Shares and Class C Shares, respectively. If the Distribution Plan was
terminated or not continued, the Fund would not be contractually obligated to
pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through CDSCs.

Because the Fund is a series of the Trust, amounts paid to the Distributor as
reimbursement for expenses of one series of the Trust may indirectly benefit the
other funds which are series of the Trust. The Distributor will endeavor to
allocate such expenses among such funds in an equitable manner. The Distributor
will not use the proceeds from the CDSC applicable to a particular class of
shares to defray distribution-related expenses attributable to any other class
of shares. Various federal and state laws prohibit national banks and some
state-chartered commercial banks from underwriting or dealing in the Fund's
shares. In addition, state securities laws on this issue may differ from the
interpretations of federal law, and banks and financial institutions may be
required to register as dealers pursuant to state law. In the unlikely event
that a court were to find that these laws prevent such banks from providing such
services described above, the Fund would seek alternate providers and expects
that shareholders would not experience any disadvantage.

44
<PAGE> 402

- ------------------------------------------------------------------------------
DISTRIBUTIONS FROM THE FUND
- ------------------------------------------------------------------------------

The Fund's present policy, which may be changed at any time by the Board of
Trustees, is to declare daily and pay monthly distributions of all or
substantially all net investment income of the Fund. Net investment income
consists of all interest income, dividends, and other ordinary income earned by
the Fund, less all expenses of the Fund attributable to the class of shares in
question. Net short-term capital gains, if any, may be distributed throughout
the year. Expenses of the Fund are accrued each day. Net realized long-term
capital gains, if any, are expected to be distributed, to the extent permitted
by applicable law, to shareholders at least annually. Distributions cannot be
assured, and the amount of each monthly distribution may vary.

Distributions with respect to each class of shares will be calculated in the
same manner on the same day and will be in the same amount, except that the
different distribution and service fees and any incremental administrative
expenses relating to each class of shares will be borne exclusively by the
respective class and may cause the distributions relating to the different
classes of shares to differ. Generally, distributions with respect to a class of
shares subject to a higher distribution fee will be lower than distributions
with respect to a class of shares subject to a lower distribution fee.

Distribution checks may be sent to parties other than the shareholder in whose
name the account is registered. Persons wishing to utilize this service should
complete the appropriate section of the account application accompanying this
Prospectus or available from Van Kampen American Capital Funds, c/o ACCESS P.O.
Box 418256, Kansas City, MO 64141-9256. After ACCESS receives this completed
form, distribution checks will be sent to the bank or other person so designated
by such shareholder.

PURCHASE OF ADDITIONAL SHARES WITH DISTRIBUTIONS. The Fund will automatically
credit monthly distributions and any annual net long-term capital gain
distributions to a shareholder's account in additional shares of the Fund valued
at net asset value, without a sales charge. Unless a shareholder instructs
otherwise, the Reinvestment Plan is automatic. Instruction may be made by
telephone by calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or
in writing to ACCESS. See "Shareholder Services -- Reinvestment Plan."

45
<PAGE> 403

- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------

NEW YORK TAXATION. Individual shareholders will not be subject to New York
State or New York City income tax on distributions attributable to interest on
New York municipal securities. Individual shareholders will be subject to New
York State or New York City income tax on distributions attributable to other
income of the Fund (including net capital gain), and on gain on the sale of
shares of the Fund. Corporations should note that all or a part of any
distribution from the Fund, and gain on the sale of shares of the Fund, may be
subject to the New York State corporate franchise tax and the New York City
general corporation tax.

Under currently applicable New York State law, the highest marginal New York
State income tax rate imposed on individuals for taxable years beginning in 1994
is 7.875%, which is currently scheduled to decline to approximately 7.59% for
taxable years beginning in 1995 and to 7.125% for taxable years beginning
thereafter. The highest marginal New York City income tax rate currently imposed
on individuals is 4.57%. In addition, individual taxpayers with New York
adjusted gross income in excess of $100,000 must pay a supplemental tax to
recognize the benefit of graduated tax rates. Due to the ongoing budgetary
problems of both New York State and New York City, these income tax rates are
subject to change at any time. Shareholders subject to taxation in a state other
than New York will realize a lower after-tax rate of return if distributions
from the Fund are not exempt from taxation in such other state.

46
<PAGE> 404

net income retained by, and subject to federal income tax in the hands of, the
Fund will be treated as having been distributed.

47
<PAGE> 405

otherwise have continued to hold. A portion of the discount relating to certain
stripped tax-exempt obligations may constitute taxable income when distributed
to shareholders.

48
<PAGE> 406

49
<PAGE> 407

50
<PAGE> 408

- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------

The Fund is a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust organized as of May 10, 1995 (the "Trust"). The Fund was
originally organized in 1994 under the name Van Kampen Merritt New York Tax Free
Income Fund as a sub-trust of Van Kampen Merritt Tax Free Fund, a Massachusetts
business trust. The Fund was reorganized as a series of the Trust as of July 31,
1995. Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series.

The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, $0.01 par value, divided into three classes,
designated Class A Shares, Class B Shares and Class C Shares. Each class of
shares represents an interest in the same assets of the Fund and are identical
in all respects except that each class bears certain distribution expenses and
has exclusive voting rights with respect to its distribution fee. See
"Distribution and Service Plans."

51
<PAGE> 409

- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------

Shareholder inquiries should be directed to Van Kampen American Capital New
York Tax Free Income Fund, One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

52
<PAGE> 410

EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE

NUMBER--(800) 341-2911.

PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666.

DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666.

FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)

DIAL (800) 421-2833.

FOR AUTOMATED TELEPHONE

SERVICES DIAL (800) 847-2424.

VAN KAMPEN AMERICAN CAPITAL
NEW YORK TAX FREE
INCOME FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181

Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Distributor
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181

Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
New York Tax Free Income Fund

Custodian
STATE STREET BANK AND
TRUST COMPANY

225 West Franklin Street, P.O. Box 1713

Boston, MA 02105-1713
Attn: Van Kampen American Capital
New York Tax Free Income Fund

Legal Counsel
SKADDEN, ARPS, SLATE,

MEAGHER & FLOM (ILLINOIS)

333 West Wacker Drive
Chicago, IL 60606

Independent Accountants

KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601
<PAGE> 411

------------------------------------------------------------------------------

NEW YORK TAX FREE INCOME FUND

------------------------------------------------------------------------------

P R O S P E C T U S

APRIL 30, 1997

------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 412

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND

Van Kampen American Capital Tax Free High Income Fund, formerly known as Van
Kampen Merritt Tax Free High Income Fund (the "Fund") is a separate diversified
series of Van Kampen American Capital Tax Free Trust, a Delaware business trust
(the "Trust"), an open-end management investment company commonly known as a
mutual fund. The Fund's investment objective is to attempt 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's portfolio is managed by Van Kampen American
Capital Investment Advisory Corp. (the "Adviser").

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Prospectus for the Fund dated April 30, 1997 (the
"Prospectus"). This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing shares
of the Fund, and investors should obtain and read the Prospectus prior to
purchasing shares. A copy of the Prospectus may be obtained without charge by
writing or calling Van Kampen American Capital Distributors, Inc. at One
Parkview Plaza, Oakbrook Terrace, IL 60181 at (800) 421-5666 (or (800) 421-2833
for the hearing impaired). This Statement of Additional Information incorporates
by reference the entire Prospectus.

The Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the Securities
and Exchange Commission, Washington, D.C. (the "SEC"). This omitted information
may be obtained from the SEC upon payment of the fee prescribed, or inspected at
the SEC's office at no charge.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and The Trust...................................... B-2
Investment Policies and Restrictions........................ B-2
Additional Investment Considerations........................ B-4
Trustees and Officers....................................... B-11
Investment Advisory and Other Services...................... B-20
Custodian and Independent Accountants....................... B-22
Portfolio Transactions and Brokerage Allocation............. B-22
Tax Status of the Fund...................................... B-23
The Distributor............................................. B-23
Distribution and Service Plans.............................. B-24
Legal Counsel............................................... B-25
Performance Information..................................... B-25
Report of Independent Accountants........................... B-27
Financial Statements........................................ B-28
Notes to Financial Statements............................... B-40
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 30, 1997.

B-1
<PAGE> 413

THE FUND AND THE TRUST

Van Kampen American Capital Tax Free High Income Fund (the "Fund") is a
separate diversified series of the Trust. The Trust is an unincorporated
business trust established under the laws of the State of Delaware by an
Agreement and Declaration of Trust dated as of May 10, 1995 ("Declaration of
Trust"). At present, the Fund, Van Kampen American Capital Insured Tax Free
Income Fund, Van Kampen American Capital California Insured Tax Free Fund, Van
Kampen American Capital Municipal Income Fund, Van Kampen American Capital
Intermediate Term Municipal Income Fund, Van Kampen American Capital Florida
Insured Tax Free Income Fund, Van Kampen American Capital New Jersey Tax Free
Income Fund and Van Kampen American Capital New York Tax Free Income Fund have
been organized as series of the Trust and have commenced investment operations.
Van Kampen American Capital California Tax Free Income Fund, Van Kampen Merritt
American Capital Michigan Tax Free Income Fund, Van Kampen American Capital
Missouri Tax Free Income Fund and Van Kampen American Capital Ohio Tax Free
Income Fund have been organized as series of the Trust but have not commenced
investment operations. Other series may be organized and offered in the future.
The Fund originally was organized as a Maryland corporation under the name Van
Kampen Merritt Tax Free High Income Fund Inc. and was reorganized under the name
Van Kampen Merritt Tax Free High Income Fund as a sub-trust of the Van Kampen
Merritt Tax Free Fund, a Massachusetts business trust. The Fund was reorganized
as a series of the Trust and adopted its present name as of July 31, 1995.

The Declaration of Trust permits the Trustees to create one or more separate
investment portfolios and issue a series of shares for each portfolio. The
Trustees can further sub-divide each series of shares into one or more classes
of shares for each portfolio. The Trust can issue an unlimited number of shares,
$0.01 par value (prior to July 31, 1995, the shares had no par value). Each
share of the Trust represents an equal proportionate interest in the assets of
its respective series with each other share in such series and no interest in
any other series. No series is subject to the liabilities of any other series.
The Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Except as described in the
Prospectus, shares do not have cumulative voting rights, preemptive rights or
any conversion or exchange rights other than those described in the prospectus.
The Trust does not contemplate holding regular meetings of shareholders to elect
Trustees or otherwise. However, the holders of 10% or more of the outstanding
shares may by written request require a meeting to consider the removal of
Trustees by a vote of two-thirds of the shares then outstanding cast in person
or by proxy at such meeting.

The Trustees may amend the Declaration of Trust (including with respect to any
series) in any manner without shareholder approval, except that the Trustees may
not adopt any amendment adversely affecting the rights of shareholders of any
series without approval by a majority of the shares of each affected series
present at a meeting of shareholders (or such higher vote as may be required by
the Investment Company Act of 1940, as amended (the "1940 Act") or other
applicable law) and except that the Trustees cannot amend the Declaration of
Trust to impose any liability on shareholders, make any assessment on shares or
impose liabilities on the Trustees without approval from each affected
shareholder or Trustee, as the case may be.

Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.

INVESTMENT POLICIES AND RESTRICTIONS

The investment objective of the Fund is set forth in the Prospectus under the
caption "Investment Objectives and Policies." There can be no assurance that the
Fund will achieve its objective.

B-2
<PAGE> 414

Fundamental investment restrictions limiting the investments of the Fund
provide that the Fund may not:

1. Purchase any securities (other than tax exempt obligations guaranteed by
the United States Government or by its agencies or instrumentalities), if
as a result more than 5% of the Fund's total assets (taken at current
value) would then be invested in securities of a single issuer or if as a
result the Fund would hold more than 10% of the outstanding voting
securities of any single issuer, except that the Fund may purchase
securities of other investment companies to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time,
or (iii) an exemption or other relief from the provisions of the 1940 Act.

2. Invest more than 25% of its assets in a single industry. (As described in
the Prospectus, the Fund may from time to time invest more than 25% of its
assets in a particular segment of the municipal bond market; however, the
Fund will not invest more than 25% of its assets in industrial development
bonds in a single industry), except that the Fund may purchase securities
of other investment companies to the extent permitted by (i) the 1940 Act,
as amended from time to time, (ii) the rules and regulations promulgated
by the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.

3. Borrow money, except from banks for temporary purposes and then in amounts
not in excess of 5% of the total asset value of the Fund, or mortgage,
pledge or hypothecate any assets except in connection with a borrowing and
in amounts not in excess of 10% of the total asset value of the Fund.
Borrowings may not be made for investment leverage, but only to enable the
Fund to satisfy redemption requests where liquidation of portfolio
securities is considered disadvantageous or inconvenient. In this
connection, the Fund will not purchase portfolio securities during any
period that such borrowings exceed 5% of the total asset value of the
Fund. Notwithstanding this investment restriction, the Fund may enter into
"when issued" and "delayed delivery" transactions as described in the
Prospectus.

4. Make loans of money or property to any person, except to the extent the
securities in which the Fund may invest are considered to be loans and
except that the Fund may lend money or property in connection with
maintenance of the value of, or the Fund's interest with respect to, the
securities owned by the Fund.

5. Buy any securities "on margin." The deposit of initial or maintained
margin in connection with interest rate or other financial futures or
index contracts or related options is not considered the purchase of a
security on margin.

6. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell interest rate or other financial
futures or index contracts or related options, except as hedging
transactions in accordance with the requirements of the Securities and
Exchange Commission and the Commodity Futures Trading Commission.

7. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in their respective portfolios.

8. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to securities owned by the Fund would be deemed
to constitute such control or participation, except that the Fund may
purchase securities of other investment companies to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.

9. Invest in securities issued by other investment companies except as part
of a merger, reorganization or other acquisition and extent permitted by
(i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.

10. Invest in equity interests in oil, gas or other mineral exploration of
development programs.

11. Purchase or sell real estate, commodities or commodity contracts, except
to the extent the securities the Fund may invest in are considered to be
interest in real estate, commodities or commodity contracts or to the
extent the Fund exercises its rights under agreements relating to such
securities (in which case the Fund may own, hold, foreclose, liquidate or
otherwise dispose of real estate acquired as a result of a default on a
mortgage), and except to the extent the options and futures and index
contracts in which

B-3
<PAGE> 415

such Funds may invest for hedging and risk management purposes are
considered to be commodities or commodities contracts.

The Fund may not change any of these investment restrictions nor any other
fundamental policy as they apply to the Fund without the approval of the lesser
of (i) more than 50% of the Fund's outstanding shares or (ii) 67% of the Fund's
shares present at a meeting at which the holders of more than 50% of the
outstanding shares are present in person or by proxy. As long as the percentage
restrictions described above are satisfied at the time of the investment or
borrowing, the Fund will be considered to have abided by those restrictions even
if, at a later time, a change in values or net assets causes an increase or
decrease in percentage beyond that allowed. Certain of the medium and lower
grade municipal securities in which the Fund may invest may be, subsequent to
the Fund's investment in such securities, downgraded by Moody's or S&P or may be
deemed by the Adviser to be of a lower quality as a result of impairment of the
creditworthiness of the issuer of such securities or of the project the revenues
from which are the source of payment of interest and repayment of principal with
respect to such securities. In such instances, the secondary market for such
municipal securities may become less liquid, with the possibility that more than
10% of the Fund's assets would be invested in securities which are not readily
marketable. In such event, the Fund will take reasonable and appropriate steps
to reduce the percentage of the Fund's portfolio represented by securities that
are not readily marketable, together with any other securities subject to
investment restriction eight above, to less than 10% of the Fund's assets as
soon as is reasonably practicable.

The Fund generally will not engage in the trading of securities for the
purpose of realizing short-term profits, but it will adjust its portfolio as
deemed advisable in view of prevailing or anticipated market conditions to
accomplish the Fund's investment objectives. For example, the Fund may sell
portfolio securities in anticipation of a movement in interest rates. Frequency
of portfolio turnover will not be a limiting factor if the Fund considers it
advantageous to purchase or sell securities. Portfolio turnover is calculated by
dividing the lesser of purchases or sales of portfolio securities by the monthly
average value of the securities in the portfolio during the year. Securities,
including options, whose maturity or expiration date at the time of acquisition
were one year or less are excluded from such calculation. The Fund anticipates
that its annual portfolio turnover rate will normally be less than 100%.

Interest on certain "private activity" obligations issued after August 7, 1986
is treated as a preference item for the purpose of calculating the alternative
minimum tax. The Fund may invest up to 20% of its assets in such "private
activity" obligations. To the extent that the Fund does invest, in such "private
activity" obligations, dividends paid to an investor who is subject to the
alternative minimum tax might not be completely tax exempt or might cause an
investor to be subject to such tax.

ADDITIONAL INVESTMENT CONSIDERATIONS

MUNICIPAL SECURITIES.

Municipal securities include long-term obligations, which are often called
municipal bonds, as well as shorter term municipal notes, municipal leases, and
tax-exempt commercial paper. Under normal market conditions, longer term
municipal securities generally provide a higher yield than shorter term
municipal securities, and therefore the Fund generally expects to be invested
primarily in longer term municipal securities. The Fund will, however, invest in
shorter term municipal securities when yields are greater than yields available
on longer term municipal securities, for temporary defensive purposes and when
redemption requests are expected. The two principal classifications of municipal
bonds are "general obligation" and "revenue" or "special obligation" bonds,
which include "industrial revenue bonds." General obligation bonds are secured
by the issuer's pledge of its faith, credit, and taxing power for the payment of
principal and interest. Revenue or special obligation bonds are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special tax or other specific revenue
source such as from the user of the facility being financed. Municipal leases
are obligations issued by state and local governments or authorities to finance
the acquisition of equipment and facilities. They may take the form of a lease,
an installment purchase contract, a conditional sales contract, or a
participation certificate in any of the above. Some municipal leases and
participation certificates may not be considered readily marketable. Such
non-marketable municipal leases, together with other restricted or
non-marketable securities in the Fund's portfolio will not at the time of
purchase exceed 10% of the total assets of the Fund. The "issuer" of

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municipal securities is generally deemed to be the governmental agency,
authority, instrumentality or other political subdivision, or the
non-governmental user of a facility, the assets and revenues of which will be
used to meet the payment obligations, or the guarantee of such payment
obligations, of the municipal securities.

The Fund may purchase floating and variable rate demand notes, which are
municipal securities normally having a stated maturity in excess of one year,
but which permit the holder to demand payment of principal at any time, or at
specified intervals. The issuer of such notes normally has a corresponding
right, after a given period, to prepay at its discretion upon notice to the
noteholders the outstanding principal amount of the notes plus accrued interest.
The interest rate on a floating rate demand note is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand note is adjusted
automatically at specified intervals. There generally is no secondary market for
these notes, although they are redeemable at face value. Each note purchase by
the Fund will meet the criteria established for the purchase of municipal
securities.

The Fund also may invest up to 15% of its total assets in derivative variable
rate municipal securities such as inverse floaters whose rates vary inversely
with changes in market rates of interest. Such derivative variable rate
municipal securities may pay a rate of interest determined by applying a
multiple to the variable rate. The extent of increases and decreases in the
value of derivative municipal securities whose rates vary inversely with changes
in market rates of interest in response to such changes in market rates
generally will be larger than comparable changes in the value of an equal
principal amount of a fixed rate municipal security having similar credit
quality, redemption provisions and maturity. In addition, the Fund may invest in
derivative municipal securities the terms of which include elements of, or are
similar in effect to, certain Strategic Transactions in which the Fund may
engage. Such municipal securities may by their terms, for example, have economic
characteristics comparable to, among other things, a swap, cap, floor or collar
transaction with respect to such security for a period of time prior to its
stated maturity. See "Additional Investment Considerations -- Strategic
Transactions" in this Statement of Additional Information.

MEDIUM AND LOWER GRADE MUNICIPAL SECURITIES. Discussion concerning the
special risk factors relating to the Fund's investments in medium and lower
grade municipal securities appears in the "Municipal Securities" section of the
Prospectus under the subheading "Special Considerations and Risk Factors
Regarding Medium and Lower Grade Municipal Securities."

INVESTMENT PRACTICES.

If the Adviser deems it appropriate to seek to hedge any of the Fund's
portfolio against market value changes, the Fund may buy or sell derivative
instruments such as financial futures contracts and related options, such as
municipal bond index futures contracts and the related put or call options
contracts on such index futures. A tax exempt bond index fluctuates with changes
in the market values of the tax exempt bonds included in the index. An index
future is an agreement pursuant to which two parties agree to receive or deliver
at settlement an amount of cash equal to a specified dollar amount multiplied by
the difference between the value of the index at the close of the last trading
day of the contract and the price at which the future was originally written. A
financial future is an agreement between two parties to buy and sell a security
for a set price on a future date. An index future has similar characteristics to
a financial future except that settlement is made through delivery of cash
rather than the underlying securities. An example is the Long-Term Municipal
Bond futures contract traded on the Chicago Board of Trade. It is based on the
Bond Buyer's Municipal Bond Index, which represents an adjusted average price of
the forty most recent long-term municipal issues of $50 million or more ($75
million in the instance of housing issues) rated A or better by either Moody's
Investors Service, Inc. ("Moody's")or Standard & Poor's Ratings Group ("S&P"),
maturing in no less than nineteen years, having a first call in no less than
seven nor more than sixteen years, and callable at par.

The Fund may engage in "when issued" and "delayed delivery" transactions and
utilize futures contracts and options thereon for hedging purposes. The
Securities and Exchange Commission ("SEC") generally requires that when mutual
funds, such as the Fund, effect transactions of the foregoing nature, such funds
must either segregate cash or readily marketable portfolio securities with its
custodian in an amount of its obligations under the foregoing transactions, or
cover such obligations by maintaining positions in portfolio securities, futures
contracts or options that would serve to satisfy or offset the risk of such
obligations. When

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effecting transactions of the foregoing nature, the Fund will comply with such
segregation or cover requirements.

When the Fund engages in the purchase or sale of futures contracts or the sale
of options thereon it will deposit the initial margin required for such
contracts in a segregated account maintained with the Fund's custodian, in the
name of the futures commission merchant with whom the Fund maintains the related
account. Thereafter, if the Fund is required to make maintenance margin payments
with respect to the futures contracts, or mark-to-market payments with respect
to such option sale positions, the Fund will make such payments directly to such
futures commission merchant. The SEC currently requires mutual funds to demand
promptly the return of any excess maintenance margin or mark-to- market credits
in its account with futures commission merchants. Each Fund will comply with SEC
requirements concerning such excess margin.

The Fund may invest up to 15% of its total assets in illiquid securities,
securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933, as amended, that are determined to be liquid by the
Adviser under guidelines adopted by the Board of Trustees of the Trust (under
which guidelines the Adviser will consider factors such as trading activities
and the availability of price quotations), will not be treated as restricted
securities by the Fund pursuant to such rules. The Fund may, from time to time,
adopt a more restrictive limitation with respect to investment in illiquid and
restricted securities in order to comply with the most restrictive state
securities law, currently 10%. This policy does not include restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended, which the Board of Trustees or the Fund's investment adviser
has determined under Board-approved guidelines to be liquid.

STRATEGIC TRANSACTIONS.

In the course of pursuing these investment strategies, the Fund may purchase
and sell derivative instruments such as exchange-listed and over-the-counter put
and call options on securities, fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options thereon,
enter into various interest rate transactions such as swaps, caps, floors or
collars (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used to attempt to protect against possible
changes in the market value of securities held in or to be purchased for the
Fund's portfolio resulting from securities markets fluctuations, to protect the
Fund's unrealized gains in the value of its portfolio securities, to facilitate
the sale of such securities for investment purposes, to manage the effective
maturity or duration of the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities.

Any or all of these investment techniques may be used at any time and there is
no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of the Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.

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Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation between
price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. Income earned or deemed to be
earned, if any, by the Fund from its Strategic Transactions will generally be
taxable income of the Fund. See "Tax Status" in the Prospectus.

GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of Fund assets in special accounts, as
described below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a premium, the
right to sell, and the writer the obligation to buy, the underlying security,
commodity, index, or other instrument at the exercise price. For instance, the
Fund's purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the Fund the right
to sell such instrument at the option exercise price. A call option, upon
payment of a premium, gives the purchaser of the option the right to buy, and
the seller the obligation to sell, the underlying instrument at the exercise
price. The Fund's purchase of a call option on a security, financial future,
index, or other instrument might be intended to protect the Fund against an
increase in the price of the underlying instrument that it intends to purchase
in the future by fixing the price at which it may purchase such instrument. An
American style put or call option may be exercised at any time during the option
period while a European style put or call option may be exercised only upon
expiration or during a fixed period prior thereto. The Fund is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as a paradigm, but is also applicable to other financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

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absence of a liquid option market on an exchange are: (i) insufficient trading
interest in certain options; (ii) restrictions on transactions imposed by an
exchange; (iii) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities
including reaching daily price limits; (iv) interruption of the normal
operations of the OCC or an exchange; (v) inadequacy of the facilities of an
exchange or OCC to handle current trading volume; or (vi) a decision by one or
more exchanges to discontinue the trading of options (or a particular class or
series of options), in which event the relevant market for that option on that
exchange would cease to exist, although outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. The Fund expects generally to enter
into OTC options that have cash settlement provisions, although it is not
required to do so.

Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make or
take delivery of the security, or other instrument underlying an OTC option it
has entered into with the Fund or fails to make a cash settlement payment due in
accordance with the terms of that option, the Fund will lose any premium it paid
for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
The Fund will engage in OTC option transactions only with United States
government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received (or the guarantors of the obligation
of which have received) a short-term credit rating of "A-1" from S&P or "P-1"
from Moody's or an equivalent rating from any other nationally recognized
statistical rating organization ("NRSRO"). The staff of the SEC currently takes
the position that, in general, OTC options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities "covering"
the amount of the Fund's obligation pursuant to an OTC option sold by it (the
cost of the sell-back plus the in-the-money amount, if any) are illiquid, and
are subject to the Fund's limitation on investing no more than 15% of its assets
in illiquid securities.

If the Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell call options on securities, including U.S.
Treasury and agency securities, municipal obligations, mortgage-backed
securities and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets. All calls sold by the
Fund must be "covered" (i.e., the Fund must own the securities or futures
contract subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. Even though the Fund will
receive the option premium to help protect it against loss, a call sold by the
Fund exposes the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.

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assets would be required to be segregated to cover its potential obligations
under such put options other than those with respect to futures and options
thereon. In selling put options, there is a risk that the Fund may be required
to buy the underlying security at a disadvantageous price above the market
price.

GENERAL CHARACTERISTICS OF FUTURES. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or fixed-income market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The purchase of a futures contract
creates a firm obligation by the Fund, as purchaser, to take delivery from the
seller the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). The sale of a futures contract
creates a firm obligation by the Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such option.

The Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires the Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except for
closing transactions) if, immediately thereafter, the sum of the amount of its
initial margin and premiums on open futures contracts and options thereon would
exceed 5% of the Fund's total assets (taken at current value); however, in the
case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

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futures, options and interest rate transactions ("component" transactions),
instead of a single Strategic Transaction, as part of a single or combined
strategy when, in the opinion of the Adviser, it is in the best interests of the
Fund to do so. A combined transaction will usually contain elements of risk that
are present in each of its component transactions. Although combined
transactions are normally entered into based on the Adviser's judgment that the
combined strategies will reduce risk or otherwise more effectively achieve the
desired portfolio management goal, it is possible that the combination will
instead increase such risks or hinder achievement of the portfolio management
objective.

SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which
the Fund may enter are interest rate and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two payment
streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least "A" by S&P or Moody's or has an equivalent
equity rating from an NRSRO or is determined to be of equivalent credit quality
by the Adviser. If there is a default by the Counterparty, the Fund may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

USE OF SEGREGATED AND OTHER SPECIAL ACCOUNTS. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid
high-grade assets with its custodian to the extent Fund obligations are not
otherwise "covered" through ownership of the underlying security, financial
instrument or currency. In general, either the full amount of any obligation by
the Fund to pay or deliver securities or assets must be covered at all times by
the securities, instruments or currency required to be delivered, or, subject to
any regulatory restrictions, an amount of cash or liquid securities at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by the Fund will require the Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate liquid
securities equal to the excess of the index value over the exercise price on a
current basis. A put option written by the Fund requires the Fund to segregate
liquid securities assets equal to the exercise price.

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OTC options entered into by the Fund, including those on securities, financial
instruments or indices and OCC issued and exchange listed index options, will
generally provide for cash settlement. As a result, when the Fund sells these
instruments it will only segregate an amount of assets equal to its accrued net
obligations, as there is no requirement for payment or delivery of amounts in
excess of the net amount. These amounts will equal 100% of the exercise price in
the case of a non cash-settled put, the same as an OCC guaranteed listed option
sold by the Fund, or the in-the-money amount plus any sell-back formula amount
in the case of a cash-settled put or call. In addition, when the Fund sells a
call option on an index at a time when the in-the-money amount exceeds the
exercise price, the Fund will segregate, until the option expires or is closed
out, cash or cash equivalents equal in value to such excess. OCC issued and
exchange listed options sold by the Fund other than those above generally settle
with physical delivery, and the Fund will segregate an amount of assets equal to
the full value of the option. OTC options settling with physical delivery, or
with an election of either physical delivery or cash settlement, will be treated
the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index-based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.

With respect to swaps, the Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

The Fund's activities involving Strategic Transactions may be limited by the
requirements of Subchapter M of the Code for qualification as a regulated
investment company. See "Tax Status" in the Prospectus.

TRUSTEES AND OFFICERS

The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and other executive officers of the Fund's investment
adviser and their principal occupations for the last five years and their
affiliations, if any, with VK/AC Holding, Inc. ("VKAC Holding"), Van Kampen
American Capital, Inc. ("Van Kampen American Capital" or "VKAC"), Van Kampen
American Capital Investment Advisory Corp. ("Advisory Corp."), Van Kampen
American Capital Asset Management, Inc. ("Asset Management"), Van Kampen
American Capital Distributors, Inc., the distributor of the Fund's shares (the
"Distributor") and ACCESS Investors Services Inc., the Fund's transfer agent
("ACCESS"). Advisory Corp. and Asset Management sometimes are referred to herein
collectively as the "Advisers". For purposes hereof, the term "Fund Complex"
includes each of the open-end investment companies advised by the Advisory Corp.
and each of the open-end investment companies advised by the Asset Management
(excluding the American Capital Exchange Fund and the Common Sense Trust).

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TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment. Trustee of each of the funds in the
Fund Complex.
Linda Hutton Heagy........................ Partner, Ray & Berndtson, Inc. An executive recruiting
Sears Tower and management consulting firm. Formerly, Executive Vice
233 South Wacker Drive President of ABN AMRO, N.A., a Dutch bank holding
Suite 4020 company. Prior to 1992, Executive Vice President of La
Chicago, IL 60606 Salle National Bank. Trustee of each of the funds in the
Date of Birth: 06/03/48 Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the funds in the Fund Complex.
Dennis J. McDonnell*...................... President and a Director of VKAC. President, Chief
One Parkview Plaza Operating Officer and a Director of the Advisers.
Oakbrook Terrace, IL 60181 Director or officer of certain other subsidiaries of
Date of Birth: 05/20/42 VKAC. Prior to November 1996, Executive Vice President
and a Director of VKAC Holding. President and Trustee of
each of the funds in the Fund Complex. President,
Chairman of the Board and Trustee of other investment
companies advised by the Advisers or their affiliates.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee of each of the funds
in the Fund Complex.
Jerome L. Robinson........................ President, Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director, Pacesetter Software, a software
Date of Birth: 10/10/22 programming company specializing in white collar
productivity. Director, Panasia Bank. Trustee of each of
the funds in the Fund Complex.
Phillip B. Rooney......................... Private investor. Director, Illinois Tool Works, Inc., a
348 East Third Street manufacturing company; Director, The Servicemaster
Hinsdale, IL 60521 Company, a business and consumer services company;
Date of Birth: 07/08/44 Director, Urban Shopping Centers Inc., a retail mall
management company; Director, Stone Container Corp., a
paper manufacturing company. Trustee, University of Notre
Dame. Formerly, President and Chief Executive Officer,
WMX Technologies Inc., an environmental services company,
and prior to that President and Chief Operating Officer,
WMX Technologies Inc. Trustee of each of the funds in the
Fund Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee of each of the funds in the
Fund Complex.
</TABLE>

B-12
<PAGE> 424

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, open-end funds advised by Van Kampen American
Date of Birth: 08/22/39 Capital Management, Inc. and closed-end funds advised by
Advisory Corp. Trustee of each of the funds in the Fund
Complex, open-end funds advised by Van Kampen Capital
Management, Inc. and closed-end funds advised by Advisory
Corp.
</TABLE>

- ---------------

* Such trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. McDonnell is an interested person of the Advisers and
the Fund by reason of his positions with VKAC and its affiliates. Mr. Whalen
is an interested person of the Fund by reason of his firm currently acting as
legal counsel to the Fund and is an interested person of Asset Management with
respect to certain funds advised by Asset Management by reason of his firm in
the past acting as legal counsel to Asset Management.

OFFICERS

Messrs. Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin, Wetherell and Hill are
located at One Parkview Plaza, Oakbrook Terrace, IL 60181. The Fund's other
officers are located at 2800 Post Oak Blvd., Houston, TX 77056.

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Peter W. Hegel.............. Vice President Executive Vice President of the Advisers.
Date of Birth: 06/25/56 Director of Asset Management. Officer of
certain other subsidiaries of VKAC. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.

Curtis W. Morell............ Vice President and Chief Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 Accounting Officer President and Chief Accounting Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.

B-13
<PAGE> 425

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Don G. Powell Chairman, President, Chief Executive
2800 Post Oak Blvd. Officer and a Director of VKAC. Chairman,
Houston, TX 77056 Chief Executive Officer and a Director of
Date of Birth: 10/19/39 the Advisers and the Distributor. Chairman
and a Director of ACCESS. Director or
officer of certain other subsidiaries of
VKAC. Chairman of the Board of Governors
and the Executive Committee of the
Investment Company Institute. Prior to
November, 1996, President, Chief Executive
Officer and a Director of VKAC Holding.
President, Chief Executive Officer and a
Trustee/Director of certain investment
companies advised by Asset Management and
prior to July 1996, President, Chief
Executive Officer and a Trustee of the
funds in the Fund Complex and closed-end
investment companies advised by Advisory
Corp.

Alan T. Sachtleben.......... Vice President Executive Vice President of the Advisers.
Date of Birth: 04/20/42 Director of Asset Management. Director or
officer of certain other subsidiaries of
VKAC. Vice President of each of the funds
in the Fund Complex and certain other
investment companies advised by the
Advisers or their affiliates.

Paul R. Wolkenberg.......... Vice President Executive Vice President of the VKAC, the
Date of Birth: 11/10/44 Advisers and the Distributor. President,
Chief Executive Officer and a Director of
ACCESS. Director or officer of certain
other subsidiaries of VKAC. Vice President
of each of the funds in the Fund Complex
and certain other investment companies
advised by the Advisers or their
affiliates.

Edward C. Wood III.......... Vice President and Chief Senior Vice President of the Advisers. Vice
Date of Birth: 01/11/56 Financial Officer President and Chief Financial Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.

John L. Sullivan............ Treasurer First Vice President of the Advisers.
Date of Birth: 08/20/55 Treasurer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.

Tanya M. Loden.............. Controller Vice President of the Advisers. Controller
Date of Birth: 11/19/59 of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.
</TABLE>

B-14
<PAGE> 426

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Nicholas Dalmaso............ Assistant Secretary Assistant Vice President and Senior
Date of Birth: 03/01/65 Attorney of VKAC. Assistant Vice President
and Assistant Secretary of the Advisers and
the Distributor. Officer of certain other
subsidiaries of VKAC. Assistant Secretary
of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.

Huey P. Falgout, Jr......... Assistant Secretary Assistant Vice President and Senior
Date of Birth: 11/15/63 Attorney of VKAC. Assistant Vice President
and Assistant Secretary of the Advisers,
the Distributor and ACCESS. Officer of
certain other subsidiaries of VKAC.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.

Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of VKAC.
Senior Vice President, Deputy General
Counsel and Secretary of the Advisers, the
Distributor and ACCESS. Officer of certain
other subsidiaries of VKAC. Prior to
November 1996, Senior Vice President,
Deputy General Counsel and Assistant
Secretary of VKAC Holding. Assistant
Secretary of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or the affiliates.

Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of VKAC, the
Advisers and the Distributor. Officer of
certain other subsidiaries of VKAC.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.

Steven M. Hill.............. Assistant Treasurer Assistant Vice President of the Advisers.
Date of Birth: 10/16/64 Assistant Treasurer of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.

M. Robert Sullivan.......... Assistant Controller Assistant Vice President of the Advisers.
Date of Birth: 03/30/33 Assistant Controller of each of the funds
in the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
</TABLE>

B-15
<PAGE> 427

Each of the trustees holds the same position with each of the funds in the
Fund Complex. As of December 31, 1996, there were 51 funds in the Fund Complex.
Each trustee who is not an affiliated person of VKAC, the Advisers, the
Distributor, ACCESS or Morgan Stanley (each a "Non-Affiliated Trustee") is
compensated by an annual retainer and meeting fees for services to the funds in
the Fund Complex. Each fund in the Fund Complex provides a deferred compensation
plan to its Non-Affiliated Trustees that allows trustees to defer receipt of
their compensation and earn a return on such deferred amounts based upon the
return of the common shares of the funds in the Fund Complex as more fully
described below. Each fund in the Fund Complex also provides a retirement plan
to its Non-Affiliated Trustees that provides Non-Affiliated Trustees with
compensation after retirement, provided that certain eligibility requirements
are met as more fully described below.

The compensation of each Non-Affiliated Trustee from each fund in the Fund
Complex advised by Advisory Corp. (each a "VK Fund" and collectively the "VK
Funds") includes an annual retainer in an amount equal to $2,500 per calendar
year, due in four quarterly installments on the first business day of each
calendar quarter. Each Non-Affiliated Trustee receives a per meeting fee from
each VK Fund in the amount of $125 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Each Non-Affiliated Trustee receives a per meeting fee
from each VK Fund in the amount of $125 per special meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee, provided that no compensation will be paid in connection
with certain telephonic special meetings.

The compensation of each Non-Affiliated Trustee from the funds in the Fund
Complex advised by Asset Management (each an "AC Fund" or collectively the "AC
Funds") includes an annual retainer in an amount equal to $35,000 per calendar
year, due in four quarterly installments on the first business day of each
calendar quarter. The AC Funds pay each Non-Affiliated Trustee a per meeting fee
in the amount of $2,000 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Payment of the annual retainer and the regular meeting
fee is allocated among the AC Funds (i) 50% on the basis of the relative net
assets of each AC Fund to the aggregate net assets of all the AC Funds and (ii)
50% equally to each AC Fund, in each case as of the last business day of the
preceding calendar quarter. Each AC Fund which is the subject of a special
meeting of the trustees generally pays each Non-Affiliated Trustee a per meeting
fee in the amount of $125 per special meeting attended by the Non-Affiliated
Trustee, due on the date of such meeting, plus reasonable expenses incurred by
the Non-Affiliated Trustee in connection with his or her services as a trustee,
provided that no compensation will be paid in connection with certain telephonic
special meetings.

The trustees approved an aggregate compensation cap with respect to funds in
the Fund Complex of $84,000 per Non-Affiliated Trustee per year (excluding any
retirement benefits) for the period July 22, 1995 through December 31, 1996,
subject to the net assets and the number of funds in the Fund Complex as of July
21, 1995 and certain other exceptions. For the calendar year ended December 31,
1996, certain trustees received aggregate compensation from the funds in the
Fund Complex over $84,000 due to compensation received but not subject to the
cap, including compensation from new funds added to the Fund Complex after July
22, 1995 and certain special meetings in 1996. In addition, each of Advisory
Corp. or Asset Management, as the case may be, agreed to reimburse each fund in
the Fund Complex through December 31, 1996 for any increase in the aggregate
trustee's compensation over the aggregate compensation paid by such fund in its
1994 fiscal year, provided that if a fund did not exist for the entire 1994
fiscal year appropriate adjustments will be made.

Each Non-Affiliated Trustee generally can elect to defer receipt of all or a
portion of the compensation earned by such Non-Affiliated Trustee until
retirement. Amounts deferred are retained by the Fund and earn a rate of return
determined by reference to the return on the common shares of such Fund or other
funds in the Fund Complex as selected by the respective Non-Affiliated Trustee,
with the same economic effect as if such Non-Affiliated Trustee had invested in
one or more funds in the Fund Complex. To the extent permitted by the 1940 Act,
the Fund may invest in securities of those funds selected by the Non-Affiliated
Trustees in

B-16
<PAGE> 428

order to match the deferred compensation obligation. The deferred compensation
plan is not funded and obligations thereunder represent general unsecured claims
against the general assets of the Fund.

Each fund in the Fund Complex has adopted a retirement plan. Under the Fund's
retirement plan, a Non-Affiliated Trustee who is receiving trustee's
compensation from the Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such trustee's retirement from the Fund. Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from the Fund. Each
trustee has served as a member of the Board of Trustees since he or she was
first appointed or elected in the year set forth below. The retirement plan
contains a Fund Complex retirement benefit cap of $60,000 per year. Asset
Management has reimbursed each AC Fund for the expenses related to the
retirement plan through December 31, 1996.

Additional information regarding compensation and benefits for trustees is set
forth below. As indicated in the notes accompanying the table, the amounts
relate to either the Trust's most recently completed fiscal year or the Fund
Complex' most recently completed calendar year ended December 31, 1996.

1996 COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR ESTIMATED MAXIMUM BEFORE DEFERRAL
AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS FROM FUND
BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE TRUST UPON COMPLEX PAID
NAME(1) TRUST(2) EXPENSES(3) RETIREMENT(4) TO TRUSTEE(5)
------- ------------------------ ------------------- ------------------- ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan* $20,000 $ 4,229 $20,000 $104,875
Philip P. Gaughan 3,750 7,529 6,750 16,875
Linda Hutton Heagy* 20,000 490 20,000 104,875
Dr. Roger Hilsman 20,000 0 0 103,750
R. Craig Kennedy* 20,000 380 20,000 104,875
Donald C. Miller 20,000 13,241 9,250 104,875
Jack E. Nelson* 20,000 2,636 20,000 97,875
David Rees 4,750 0 0 22,000
Jerome L. Robinson* 20,000 11,665 7,250 101,625
Lawrence J. Sheehan 4,750 0 0 22,000
Dr. Fernando Sisto* 20,000 7,056 12,000 104,875
Wayne W. Whalen* 20,000 1,834 20,000 104,875
William S. Woodside 20,000 0 0 104,875
</TABLE>

- ---------------

* Currently a member of the Board of Trustees. Mr. Phillip B. Rooney also is a
current member of the Board of Trustees but is not included in the
compensation table because he did not serve on the Board of Trustees or
receive any compensation from the Trust prior to April 14, 1997. Messrs.
McDonnell and Powell, also trustees of the Trust during all or a portion of
the Trust's last fiscal year, are not included in the compensation table
because they are affiliated persons of the Advisers and are not eligible for
compensation or retirement benefits from the Trust.

(1) Persons not designated by an asterisk are not currently members of the Board
of Trustees, but were members of the Board of Trustees during the Trust's
most recently completed fiscal year. Messrs. Gaughan and Rees retired from
the Board of Trustees on January 26, 1996 and January 29, 1996,
respectively. Mr. Sheehan was removed from the Board of Trustees effective
January 29, 1996. Messrs. Hilsman, Miller and Woodside retired from the
Board of Trustees on December 31, 1996.

B-17
<PAGE> 429

The detail of aggregate compensation before deferral for each series,
including the Fund, are shown in Table A below. Certain trustees deferred
compensation from the Trust during the fiscal year ended December 31, 1996;
the aggregate compensation deferred from all eight series of the Trust,
including the Fund, is as follows: Mr. Branagan, $5,750; Mr. Gaughan,
$3,750; Ms. Heagy, $15,000; Mr. Kennedy, $9,500; Mr. Miller, $20,000; Mr.
Nelson, $20,000; Mr. Robinson, $18,000; and Mr. Whalen, $19,625. The details
of amounts deferred for each series, including the Fund, are shown in Table
B below. Amounts deferred are retained by the respective fund and earn a
rate of return determined by reference to either the return on the common
shares of such fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, each fund may invest in
securities of those funds selected by the Non-Affiliated Trustees in order
to match the deferred compensation obligation. The cumulative deferred
compensation (including interest) accrued with respect to each trustee from
all eight series of the Trust, including the Fund, as of the Trust's fiscal
year ended December 31, 1996 is as follows: Mr. Branagan, $5,678; Mr.
Gaughan, $20,094; Ms. Heagy, $20,472; Mr. Kennedy, $47,294; Mr. Miller,
$55,827; Mr. Nelson, $57,771; Mr. Robinson, $54,847; and Mr. Whalen,
$49,269. The details of cumulative deferred compensation (including
interest) for each series, including the Fund, are shown in Table C below.
The deferred compensation plan is described above the Compensation Table.

(3) The amounts shown in this column represent the retirement benefits accrued
by all eight series of the Trust, including the Fund, with respect to the
Trust's fiscal year ended December 31, 1996. The details of retirement
benefits accrued for each series, including the Fund, are shown in Table D
below. The retirement plan is described above the Compensation Table.

(4) This is the estimated maximum annual benefits payable by the Trust in each
year of the 10-year period commencing in the year of such trustee's
retirement from the Trust. The estimated maximum annual benefit, except for
trustees who have retired or are near retirement, is based upon $2,500 per
series assuming: the trustee has 10 or more years of service on the Board of
Trustees (including years of service prior to the adoption of the retirement
plan) and retires at or after attaining the age of 60. Trustees retiring
prior to the age of 60 or with fewer than 10 years of service for a series
of the Trust may receive reduced retirement benefits from such series. The
actual annual benefit may be less if the trustee is subject to the Fund
Complex retirement benefit cap or if the trustee is not fully vested at the
time of retirement. Each Non-Affiliated Trustee of the Board of Trustees has
served as a member of the Board of Trustees since he or she was first
appointed or elected in the year set forth in Table E below.

(5) The amounts shown in this column represent the aggregate compensation paid
by all 51 of the investment companies in the Fund Complex as of December 31,
1996 before deferral by the trustees under the deferred compensation plan.
Certain trustees deferred all or a portion of their aggregate compensation
from the Fund Complex during the calendar year ended December 31, 1996. The
deferred compensation earns a rate of return determined by reference to the
return on the shares of the funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund
Complex. To the extent permitted by the 1940 Act, the Fund may invest in
securities of those investment companies selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
trustees' Fund Complex compensation cap covered the period July 22, 1995
through December 31, 1996. For the calendar year ended December 31, 1996,
certain trustees received compensation over $84,000 in the aggregate due to
compensation received but not subject to the cap, including compensation
from new funds added to the Fund Complex after July 22, 1995 and certain
special meetings in 1996. The Advisers and their affiliates also serve as
investment adviser for other investment companies; however, with the
exception of Messrs. McDonnell, Powell and Whalen, the trustees were not
trustees of such investment companies. Combining the Fund Complex with other
investment companies advised by the Advisers and their affiliates, Mr.
Whalen received Total Compensation of $243,375 during the calendar year
ended December 31, 1996.

As of April 4, 1997, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

B-18
<PAGE> 430

TABLE A

1996 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL ----------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN GAUGHAN HEAGY HILSMAN KENNEDY MILLER NELSON REES
--------- -------- -------- ------- ----- ------- ------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund.... 12/31 $ 3,125 $ 625 $3,125 $3,125 $3,125 $ 3,125 $ 3,125 $ 750
Tax Free High Income Fund....... 12/31 3,125 625 3,125 3,125 3,125 3,125 3,125 750
California Insured Tax Free
Income Fund................... 12/31 3,125 625 3,125 3,125 3,125 3,125 3,125 750
Municipal Income Fund........... 12/31 3,125 625 3,125 3,125 3,125 3,125 3,125 750
Intermediate Term Municipal
Income Fund................... 12/31 3,125 625 3,125 3,125 3,125 3,125 3,125 750
Florida Insured Tax Free Income
Fund.......................... 12/31 3,125 625 3,125 3,125 3,125 3,125 3,125 750
New Jersey Tax Free Income
Fund.......................... 12/31 625 0 625 625 625 625 625 125
New York Tax Free Income Fund... 12/31 625 0 625 625 625 625 625 125
Trust Total................... 20,000 3,750 20,000 20,000 20,000 20,000 20,000 4,750

<CAPTION>
TRUSTEE
------------------------------------------------
FUND NAME ROBINSON SHEEHAN SISTO WHALEN WOODSIDE
--------- -------- ------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund.... $3,125 $ 750 $3,125 $ 3,125 $3,125
Tax Free High Income Fund....... 3,125 750 3,125 3,125 3,125
California Insured Tax Free
Income Fund................... 3,125 750 3,125 3,125 3,125
Municipal Income Fund........... 3,125 750 3,125 3,125 3,125
Intermediate Term Municipal
Income Fund................... 3,125 750 3,125 3,125 3,125
Florida Insured Tax Free Income
Fund.......................... 3,125 750 3,125 3,125 3,125
New Jersey Tax Free Income
Fund.......................... 625 125 625 625 625
New York Tax Free Income Fund... 625 125 625 625 625
Trust Total................... 20,000 4,750 20,000 20,000 20,000
</TABLE>

TABLE B

1996 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL -----------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN GAUGHAN HEAGY HILSMAN KENNEDY MILLER NELSON REES ROBINSON
--------- -------- -------- ------- ----- ------- ------- ------ ------ ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund..... 12/31 $ 875 $ 625 $2,500 $0 $1,500 $3,125 $3,125 $0 $3,125
Tax Free High Income Fund........ 12/31 875 625 2,500 0 1,500 3,125 3,125 0 3,125
California Insured Tax Free
Income Fund.................... 12/31 875 625 2,500 0 1,500 3,125 3,125 0 1,500
Municipal Income Fund............ 12/31 875 625 2,500 0 1,500 3,125 3,125 0 3,125
Intermediate Term Municipal
Income Fund.................... 12/31 875 625 2,500 0 1,500 3,125 3,125 0 3,125
Florida Insured Tax Free Income
Fund........................... 12/31 875 625 2,500 0 1,500 3,125 3,125 0 3,125
New Jersey Tax Free Income
Fund........................... 12/31 250 0 0 0 250 625 625 0 625
New York Tax Free Income Fund.... 12/31 250 0 0 0 250 625 625 0 250
Trust Total.................... 5,750 3,750 15,000 0 9,500 20,000 20,000 0 18,000

<CAPTION>
TRUSTEE
-----------------------------------
FUND NAME SHEEHAN SISTO WHALEN WOODSIDE
--------- ------- ----- ------ --------
<S> <C> <C> <C> <C>
Insured Tax Free Income Fund..... $0 $0 $3,125 $0
Tax Free High Income Fund........ 0 0 3,125 0
California Insured Tax Free
Income Fund.................... 0 0 3,125 0
Municipal Income Fund............ 0 0 3,125 0
Intermediate Term Municipal
Income Fund.................... 0 0 3,125 0
Florida Insured Tax Free Income
Fund........................... 0 0 3,125 0
New Jersey Tax Free Income
Fund........................... 0 0 625 0
New York Tax Free Income Fund.... 0 0 250 0
Trust Total.................... 0 0 19,625 0
</TABLE>

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST

AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL -----------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN GAUGHAN HEAGY HILSMAN KENNEDY MILLER NELSON REES ROBINSON
--------- -------- -------- ------- ----- ------- ------- ------ ------ ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund..... 12/31 $ 864 $3,486 $3,412 $0 $7,792 $9,083 $9,476 $0 $8,925
Tax Free High Income Fund........ 12/31 864 3,486 3,412 0 7,792 9,083 9,476 0 8,925
California Insured Tax Free
Income Fund.................... 12/31 864 3,486 3,412 0 7,792 9,083 9,476 0 8,925
Municipal Income Fund............ 12/31 864 3,486 3,412 0 7,792 9,083 9,083 0 8,925
Intermediate Term Municipal
Income Fund.................... 12/31 864 3,486 3,412 0 7,792 9,083 9,476 0 8,925
Florida Insured Tax Free Income
Fund........................... 12/31 864 1,628 3,412 0 4,228 5,766 5,912 0 5,648
New Jersey Tax Free Income
Fund........................... 12/31 247 518 0 0 2,053 2,323 2,436 0 2,287
New York Tax Free Income Fund.... 12/31 247 518 0 0 2,053 2,323 2,436 0 2,287
Trust Total.................... 5,678 20,094 20,472 0 47,294 55,827 57,771 0 54,847

<CAPTION>
TRUSTEE
-----------------------------------
FUND NAME SHEEHAN SISTO WHALEN WOODSIDE
--------- ------- ----- ------ --------
<S> <C> <C> <C> <C>
Insured Tax Free Income Fund..... $0 $0 $7,967 $0
Tax Free High Income Fund........ 0 0 7,967 0
California Insured Tax Free
Income Fund.................... 0 0 7,967 0
Municipal Income Fund............ 0 0 7,967 0
Intermediate Term Municipal
Income Fund.................... 0 0 7,967 0
Florida Insured Tax Free Income
Fund........................... 0 0 5,486 0
New Jersey Tax Free Income
Fund........................... 0 0 1,974 0
New York Tax Free Income Fund.... 0 0 1,974 0
Trust Total.................... 0 0 49,269 0
</TABLE>

TABLE D

1996 RETIREMENT BENEFITS ACCRUED AS PART OF EXPENSES FOR THE TRUST

AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL --------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN GAUGHAN HEAGY HILSMAN KENNEDY MILLER NELSON REES
--------- -------- -------- ------- ----- ------- ------- ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund..... 12/31 499 2,086 56 0 48 3,503 394 0
Tax Free High Income Fund........ 12/31 499 2,039 56 0 48 3,532 383 0
California Insured Tax Free
Income Fund.................... 12/31 499 1,950 56 0 47 3,440 373 0
Municipal Income Fund............ 12/31 499 1,454 56 0 46 2,766 315 0
Intermediate Term Municipal
Income Fund.................... 12/31 499 0 56 0 41 0 259 0
Florida Insured Tax Free Income
Fund........................... 12/31 578 0 70 0 50 0 304 0
New Jersey Tax Free Income
Fund........................... 12/31 578 0 70 0 50 0 304 0
New York Tax Free Income Fund.... 12/31 578 0 70 0 50 0 304 0
Trust Total.................... 4,229 7,529 490 0 380 13,241 2,636 0

<CAPTION>
TRUSTEE
-----------------------------------------------
FUND NAME ROBINSON SHEEHAN SISTO WHALEN WOODSIDE
--------- -------- ------- ----- ------ --------
<S> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund..... 2,490 0 861 283 0
Tax Free High Income Fund........ 2,472 0 861 272 0
California Insured Tax Free
Income Fund.................... 2,439 0 861 265 0
Municipal Income Fund............ 2,346 0 861 219 0
Intermediate Term Municipal
Income Fund.................... 1,918 0 861 177 0
Florida Insured Tax Free Income
Fund........................... 0 0 917 206 0
New Jersey Tax Free Income
Fund........................... 0 0 917 206 0
New York Tax Free Income Fund.... 0 0 917 206 0
Trust Total.................... 11,665 0 7,056 1,834 0
</TABLE>

B-19
<PAGE> 431

TABLE E

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

<TABLE>
<CAPTION>
TRUSTEE
-------------------------------------------------------------------------
FUND NAME BRANAGAN HEAGY KENNEDY NELSON ROONEY ROBINSON SISTO WHALEN
- --------- -------- ----- ------- ------ ------ -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund......................... 1995 1995 1993 1984 1997 1992 1995 1984
Tax Free High Income Fund............................ 1995 1995 1993 1985 1997 1992 1995 1985
California Insured Tax Free Income Fund.............. 1995 1995 1993 1985 1997 1992 1995 1985
Municipal Income Fund................................ 1995 1995 1993 1990 1997 1992 1995 1990
Intermediate Term Municipal Income Fund.............. 1995 1995 1993 1993 1997 1993 1995 1993
Florida Insured Tax Free Income Fund................. 1995 1995 1994 1994 1997 1994 1995 1994
New Jersey Tax Free Income Fund...................... 1995 1995 1994 1994 1997 1994 1995 1994
New York Tax Free Income Fund........................ 1995 1995 1994 1994 1997 1994 1995 1994
</TABLE>

As of April 4, 1997, no person was known by the Fund to own beneficially or to
hold of record as much as 5% of the outstanding Class A Shares, Class B Shares
or Class C Shares of the Fund, except as follows:

<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP
AT CLASS OF PERCENTAGE
NAME AND ADDRESS OF HOLDER APRIL 4, 1997 SHARES OF OWNERSHIP
- -------------------------- ------------- -------- ------------
<S> <C> <C> <C>
MLPF&S for the Sole Benefit of its Customers................ 262,859 C 17.39%
ATTN Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-6484
</TABLE>

INVESTMENT ADVISORY AND OTHER SERVICES

The Adviser is the Fund's investment adviser. The Adviser was incorporated as
a Delaware corporation in 1982 (and through December 31, 1987 transacted
business under the name of American Portfolio Advisory Service Inc.).

The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("VKAC"), which is a wholly-owned subsidiary of VK/AC Holding, Inc. VK/AC
Holding, Inc. is a wholly-owned subsidiary of MSAM Holdings II, Inc. which, in
turn, is a wholly-owned subsidiary of Morgan Stanley Group Inc. The principal
office of the Fund, the Adviser, the Distributor and VKAC is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181.

Morgan Stanley Group Inc. and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending.

On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Subject to certain conditions being
met, it is currently anticipated that the transaction will close in mid-1997.
Thereafter, Van Kampen American Capital Asset Management, Inc. will be an
indirect subsidiary of Morgan Stanley, Dean Witter, Discover & Co.

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

B-20
<PAGE> 432

business affairs of the Fund, furnishes offices, necessary facilities and
equipment, provides administrative services, and permits its officers and
employees to serve without compensation as officers of the Fund and trustees of
the Trust if duly elected to such positions.

The agreement provides that the Adviser shall not be liable for any error of
judgment or of law, or for any loss suffered by the Fund in connection with the
matters to which the agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under the agreement.

The Adviser's activities are subject to the review and supervision of the
Board of Trustees of the Trust, of which the fund is a series, to whom the
Adviser renders periodic reports of the Fund's investment activities.

The investment advisory agreement for the Fund will continue in effect from
year to year if specifically approved by the trustees of the Trust, of which the
Fund is a separate series (or by the Fund's shareholders), and by the
disinterested trustees in compliance with the requirements of the 1940 Act. The
agreement may be terminated without penalty upon 60 days' written notice by
either party thereto and will automatically terminate in the event of
assignment.

The investment advisory agreement specifies that the Adviser will reimburse
the Fund for annual expenses of the Fund which exceed the most stringent limit
prescribed by any State in which the Fund's shares are offered for sale.
Currently, the most stringent limit in any State would require such
reimbursement to the extent that aggregate operating expenses of the Fund
(excluding interest, taxes and other expenses which may be excludable under
applicable state law) exceed in any fiscal year 2 1/2% of the average annual net
assets of the Fund up to $30 million, 2% of the average annual net assets of the
Fund of the next $70 million and 1 1/2% of the remaining average annual net
assets of the Fund. In addition to making any required reimbursements, the
Adviser may in its discretion, but is not obligated to, waive all or any portion
of its fee or assume all or any portion of the expenses of any of the Fund.

For the years ended December 31, 1996, 1995 and 1994, the Fund paid advisory
expenses of $3,953,376, $3,705,007 and $3,519,429, respectively.

OTHER AGREEMENTS

ACCOUNTING SERVICES AGREEMENT. The Fund has entered into an accounting
services agreement pursuant to which the Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares with the other Van Kampen American Capital mutual funds in the
cost of providing such services, with 25% of such costs shared proportionately
based on the respective number of classes of securities issued per fund and the
remaining 75% of such cost based proportionally on their respective net assets.

For the years ended December 31, 1996, 1995 and 1994, the Fund paid expenses
of approximately $39,200, $33,600 and $18,300, respectively, representing the
Adviser's cost of providing accounting services.

LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the Adviser and distributed by the Distributor have
entered into Legal Services Agreements pursuant to which Van Kampen American
Capital provides legal services, including without limitation: accurate
maintenance of the fund's minute books and records, preparation and oversight of
the fund's regulatory reports, and other information provided to shareholders,
as well as responding to day-to-day legal issues on behalf of the funds. Payment
by the Fund for such services is made on a cost basis for the salary and salary
related benefits, including but not limited to bonuses, group insurances and
other regular wages for the employment of personnel, as well as overhead and the
expenses related to the office space and the equipment necessary to render the
legal services. Other funds distributed by the Distributor also receive legal
services from Van Kampen American Capital. Of the total costs for legal services
provided to funds distributed by the Distributor, one half of such costs are
allocated equally to each fund and the remaining one half of such costs are
allocated to specific funds based on monthly time records.

B-21
<PAGE> 433

For the years ended December 31, 1996, 1995 and 1994, the Fund paid expenses
of approximately $27,100, $40,000 and $40,000, respectively, representing Van
Kampen American Capital's cost of providing legal services.

CUSTODIAN AND INDEPENDENT ACCOUNTANTS

State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1713,
Boston, MA 02105-1713, is the custodian of the Fund and has custody of all
securities and cash of the Fund. The custodian, among other things, attends to
the collection of principal and income, and payment for and collection of
proceeds of securities bought and sold by the Fund.

The independent accountants for the Fund are KPMG Peat Marwick LLP, Chicago,
Illinois. The selection of independent accountants will be subject to
ratification by the shareholders of the Fund at any annual meeting of
shareholders.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser will place orders for portfolio transactions for the Fund with
broker-dealer firms giving consideration to the quality, quantity and nature of
each firms' professional services. These services include execution, clearance
procedures, wire service quotations and statistical and other research
information provided to the Fund and the investment adviser, including
quotations necessary to determine the value of the Fund's net assets. Any
research benefits derived are available for all clients of the investment
adviser. Since statistical and other research information is only supplementary
to the research efforts of the Adviser and still must be analyzed and reviewed
by its staff, the receipt of research information is not expected to materially
reduce its expenses.

If it is believed to be in the best interests of the Fund, the Adviser may
place portfolio transactions with brokers who provide the types of research
service described above, even if it means the Fund will have to pay a higher
commission (or, if the broker's profit is part of the cost of the security, will
have to pay a higher price for the security) than would be the case if no weight
were given to the broker's furnishing of those research services. This will be
done, however, only if, in the opinion of the Adviser, the amount of additional
commission or increased cost is reasonable in relation to the value of such
services.

If purchases or sales of securities of the Fund and of one or more other
investment companies or clients advised by the Adviser are considered at or
about the same time, transactions in such securities will be allocated among the
several investment companies and clients in a manner deemed equitable to all by
the Adviser, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. Although it is possible that in
some cases this procedure could have a detrimental effect on the price or volume
of the security as far as the Fund is concerned, it is also possible that the
ability to participate in volume transactions and to negotiate lower brokerage
commissions will be beneficial to the Fund.

While the Adviser will be primarily responsible for the placement of the
Fund's business, the policies and practices in this regard must be consistent
with the foregoing and will at all times be subject to review by the Trustees of
the Trust, of which the Fund is a separate series.

The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the SEC under the 1940 Act which requires that the commission
paid to the Distributor and other affiliates of the Fund must be reasonable and
fair compared to the commissions, fees or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time. The rule and procedures
also contain review requirements and require the Adviser to furnish reports to
the Trustees and to maintain records in connection with such reviews. After
consideration

B-22
<PAGE> 434

of all factors deemed relevant, the Trustees will consider from time to time
whether the advisory fee will be reduced by all or a portion of the brokerage
commission given to brokers that are affiliated with the Fund.

State securities laws may differ from the interpretations of federal law
expressed herein, and banks and financial institutions may be required to
register as dealers pursuant to state law.

TAX STATUS OF THE FUND

The Trust and any of its series, including the Fund, will be treated as
separate corporations for federal income tax purposes. The Fund intends to
qualify each year and to elect to be treated as a regulated investment company
under the Code. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income (including tax-exempt
interest, taxable income and net short-term capital gain, but not net capital
gains, which are the excess of long-term capital gains over net short-term
capital losses) in each year, it will not be required to pay federal income
taxes on any income distributed to shareholders. The Fund intends to distribute
at least the minimum amount of net investment income necessary to satisfy the
90% distribution requirement. The Fund will not be subject to federal income tax
on any net capital gains distributed to shareholders.

THE DISTRIBUTOR

The Distributor offers one of the industry's broadest lines of investments --
encompassing mutual funds, closed-end funds and unit investment trusts -- and is
currently the nation's 5th largest broker-sold mutual fund group according to
Strategic Insight, July 1995. VKAC manages or supervises more than $57 billion
in mutual funds, closed-end funds and unit investment trusts -- assets which
have been entrusted to VKAC in more than 2 million investor accounts. VKAC has
one of the largest research teams (outside of the rating agencies) in the
country, with more than 80 analysts devoted to various specializations. Each of
our high yield analysts, based either in San Francisco, Chicago, Houston or
Boston, has the responsibility to cover a specific region of the country. This
regional focus enables each high yield analyst to provide more specialized
coverage of the market and alert the portfolio manager to issues of local
importance.

Shares of the Fund are offered on a continuous basis through the Distributor.
The Distributor is a wholly-owned subsidiary of Van Kampen American Capital,
which is a subsidiary of VK/AC Holding, Inc. VK/AC Holding, Inc. is a
wholly-owned subsidiary of MSAM Holdings II, Inc. which, in turn, is a
wholly-owned subsidiary of Morgan Stanley Group Inc. The principal office of the
Fund, the Adviser, the Distributor and VKAC is located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181.

Morgan Stanley Group Inc. and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending.

On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Subject to certain conditions being
met, it is currently anticipated that the transaction will close in mid-1997.
Thereafter, Van Kampen American Capital Asset Management, Inc. will be an
indirect subsidiary of Morgan Stanley, Dean Witter, Discover & Co.

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

B-23
<PAGE> 435

has received purchase orders. A discussion of how to purchase and redeem the
Fund's shares and how the Fund's shares are priced is contained in the
Prospectus.

DISTRIBUTION AND SERVICE PLANS

The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through an agreement (the "Distribution and Service Agreement") with the
Distributor of each class of the Fund's shares, sub-agreements between the
Distributor and members of the NASD who are acting as securities dealers and
NASD members or eligible non-members who are acting as brokers or agents and
similar agreements between the Fund and financial intermediaries who are acting
as brokers (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance, which may include, but not
be limited to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."

Under the Distribution and Service Agreement and the Selling Agreements,
financial intermediaries that sold shares prior to July 1, 1987, or prior to the
beginning of the calendar quarter in which the Selling Agreement between the
Fund and such financial intermediary was approved by the Fund's Board of
Trustees (an "Implementation Date") are not eligible to receive compensation
pursuant to such Distribution and Service Agreement or Selling Agreement. To the
extent that there remain outstanding shares of the Fund that were purchased
prior to all Implementation Dates, the percentage of the total average daily net
asset value of a class of shares that may be utilized pursuant to the
Distribution and Service Agreement will be less than the maximum percentage
amount permissible with respect to such class of shares under the Distribution
and Service Agreement.

The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to either class of shares without approval by a vote of a majority of
the outstanding voting shares of such class, and all material amendments to
either of the Plans must be approved by the Trustees and also by the
disinterested Trustees. Each of the Plans may be terminated with respect to
either class of shares at any time by a vote of a majority of the disinterested
Trustees or by a vote of a majority of the outstanding voting shares of such
class.

For the fiscal year ended December 31, 1996, the Fund's aggregate expenses
under the Plans for Class A Shares were $1,486,310 or 0.25% of the Class A
shares' average net assets. Such expenses were paid to reimburse the Distributor
for payments made to financial intermediaries for servicing Fund shareholders
and for administering the Plans. For the fiscal year ended December 31, 1996,
the Fund's aggregate expenses under the Plans for Class B Shares were $1,517,563
or 1.00% of the Class B shares' average net assets. Such expenses were paid to
reimburse the Distributor for the following payments: $1,138,172 for commissions
and transaction fees paid to financial intermediaries in respect of sales of
Class B shares of the Fund and $379,391 for fees paid to financial
intermediaries for servicing Class B shareholders and administering the Plans.
For the fiscal year ended December 31, 1996, the Fund's aggregate expenses under
the Plans for Class C shares were 131,653 or 1.00% of the Class C shares'
average net assets. Such expenses were paid to reimburse the

B-24
<PAGE> 436

Distributor for the following payments: $75,517 for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class C shares of
the Fund and $56,136 for fees paid to financial intermediaries for servicing
Class C shareholders and administering the Plans.

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).

PERFORMANCE INFORMATION

CLASS A SHARES

From time to time marketing materials may provide a portfolio manager update,
an adviser update or discuss general economic conditions and outlooks. The
Fund's marketing materials may also show the Fund's asset class diversification,
top five sectors, ten largest holdings and other Fund asset structures, such as
duration, maturity, coupon, NAV, rating breakdown, AMT exposure and number of
issues in the portfolio. Materials may also mention how Van Kampen American
Capital believes the Fund compares relative to other Van Kampen American Capital
funds. Materials may also discuss the Dalbar Financial Services study from 1984
to 1994 which studied investor cash flow into and out of all types of mutual
funds. The ten year study found that investors who bought mutual fund shares and
held such shares outperformed investors who bought and sold. The Dalbar study
conclusions were consistent regardless of if shareholders purchased their funds
in direct or sales force distribution channels. The study showed that investors
working with a professional representative have tended over time to earn higher
returns than those who invested directly. The Fund will also be marketed on the
Internet.

The average total return, including payment of the maximum sales charge, with
respect to the Class A Shares for (i) the one year period ended December 31,
1996 was (1.72%); (ii) the 5 year period ended December 31, 1996 was 4.59%; and
(iii) the approximately 11 year, 6 month period from June 28, 1985 (the
commencement of investment operations of the Fund) through December 31, 1996 was
7.53%.

The Fund's yield with respect to the Class A Shares for the 30 day period
ending December 30, 1996 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 5.44%. The tax-equivalent yield for
the 30 day period ending December 30, 1996 (calculated in the manner described
in the Prospectus under the heading "Fund Performance" and assuming a 36% tax
rate) was 8.50%. The Fund's current distribution rate with respect to the Class
A Shares for the month ending December 31, 1996 (calculated in the manner
described in the Prospectus under the heading "Fund Performance") was 6.32%.

The Class A Share's cumulative non-standardized total return, including
payment of the maximum sales charge, with respect to the Class A Shares from its
inception to the end of the current period was 130.65%.

The Class A Share's cumulative non-standardized total return, excluding
payment of the maximum sales charge, with respect to the Class A Shares from its
inception to the end of the current period was 142.12%.

CLASS B SHARES

The average annual total return, including payment of the CDSC, with respect
to the Class B Shares for (i) the one year period ended December 31, 1996 was
(1.47%) and (ii) the approximately 3 year, 8 month period from May 1, 1993
(commencement of distribution) through December 31, 1996 was 5.22%.

The Class B Share's yield for the 30 day period ending December 30, 1995
(calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 4.92%. The tax-equivalent yield for the 30 day period ending
December 30, 1996 (calculated in the manner described in the Prospectus under
the heading "Fund Performance" and assuming a 36% tax rate) was 7.69%. The Class
B Share's current distribution rate for the month ending December 31, 1996
(calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 5.85%.

B-25
<PAGE> 437

The Class B Share's cumulative non-standardized total return including payment
of the CDSC from its inception to the end of the current period was 20.54%.

The Class B Share's cumulative non-standardized total return excluding payment
of the CDSC from its inception to the end of the current period was 23.00%.

CLASS C SHARES

The average total annual return, including payment of the CDSC, with respect
to the Class C Shares for (i) the one year period ended December 31, 1996 was
1.36% and (ii) the approximately 3 year, 5 month period from August 13, 1993
(commencement of distribution) through December 31, 1996 was 4.96%.

The Class C Share's yield for the 30 day period ending December 30, 1996
(calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 4.92%. The tax-equivalent yield for the 30 day period ending
December 30, 1995 (calculated in the manner described in the Prospectus under
the heading "Fund Performance" and assuming a 36% tax rate) was 7.69%. The Class
C Share's current distribution rate for the month ending December 31, 1996
(calculated in the manner described in the Prospectus under the heading "Fund
Performance") was 5.85%.

The Class C Share's cumulative non-standardized total return, including
payment of the CDSC from its inception to the end of the current period was
17.83%.

The Class C Share's cumulative non-standardized total return, excluding
payment of the CDSC from its inception to the end of the current period was
17.83%.

B-26
<PAGE> 438

REPORT OF INDEPENDENT ACCOUNTANTS

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, 1996, 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, 1996, 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, 1996, 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 7, 1997

B-27

<PAGE> 439

PORTFOLIO OF INVESTMENTS

December 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 0.7%
$ 5,000 Alabama St Indl Dev Auth Solid Waste Disp Rev Pine City
Fiber Co (b)................................................ 6.450% 12/01/23 $ 5,016,550
1,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev Mobile Energy
Svcs Co Proj Rfdg........................................... 6.950 01/01/20 1,065,640
------------
6,082,190
------------
ALASKA 0.3%
2,250 Seward, AK Rev AK Sealife Cent Proj......................... 7.650 10/01/16 2,304,968
------------
ARIZONA 1.0%
6,325 Chandler, AZ Indl Dev Auth Rev Chandler Fin Cent Proj Ser
1986 (d).................................................... 9.875 12/01/16 5,376,250
1,000 Maricopa Cnty, AZ Indl Dev Auth Indl Dev Rev Borden Inc Proj
(Var Rate Cpn).............................................. 5.040 10/01/12 999,340
2,700 Maricopa Cnty, AZ Unified Sch Dist No 41 Gilbert Rfdg (FGIC
Insd)....................................................... * 01/01/08 1,515,429
1,045 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A.................. 11.000 07/01/00 1,161,904
------------
9,052,923
------------
ARKANSAS 0.3%
2,085 Arkansas St Dev Fin Auth Single Family Mtg Rev Replacement
Ser C....................................................... 8.600 02/01/17 2,179,388
------------
CALIFORNIA 5.4%
1,310 California Edl Fac Auth Rev Univ of La Verne................ 6.375 04/01/13 1,339,305
1,950 California Hlth Fac Auth Rev Vly Presbytern Hosp Proj Ser A
Rfdg........................................................ 9.000 05/01/12 2,008,500
1,500 California St Pub Wks Lease CA St Univ Proj Ser A Rfdg
(AMBAC Insd)................................................ 5.375 10/01/17 1,470,465
1,500 Colton, CA Pub Fin Auth Rev Elec Sys Impts.................. 7.500 10/01/20 1,573,710
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev (MBIA
Insd)....................................................... * 09/01/17 1,500,400
2,500 Corona, CA Ctfs Partn Vista Hosp Sys Inc Ser C.............. 8.375 07/01/11 2,756,925
3,465 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent for the
Arts (AMBAC Insd)........................................... * 09/01/15 1,106,201
3,480 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent for the
Arts (AMBAC Insd)........................................... * 09/01/18 905,705
3,000 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev Multi-Cap
Fac Proj IV (MBIA Insd)..................................... 5.250 12/01/16 2,879,970
2,850 Riverside Cnty, CA Air Force Village West Inc Ser A Rfdg.... 8.125 06/15/20 3,043,315
2,000 San Diego Cnty, CA Ctfs Partn (AMBAC Insd).................. 5.500 08/15/10 2,045,580
1,900 San Diego Cnty, CA Ctfs Partn (AMBAC Insd).................. 5.500 08/15/11 1,935,017
7,625 San Francisco, CA City & Cnty Redev Agy Lease Rev Gains
(Crossover Rfdg @ 07/01/04) (g)............................. 0/8.500 07/01/14 6,056,614
3,300 San Francisco, CA City & Cnty Redev Fin Auth Tax Alloc
Rev......................................................... 5.250 08/01/21 3,057,549
3,000 Santa Ana, CA Cmnty Redev Agy Tax Ser B Rfdg................ 7.500 09/01/16 3,051,300
9,250 Stanislaus Cnty, CA Ctfs Partn Cap Impt Pgm Ser A Rfdg (MBIA
Insd)....................................................... 5.250 05/01/18 8,821,447
3,000 Westminster, CA Redev Agy Tax Alloc Rev Commercial Redev
Proj No 1................................................... 6.200 08/01/23 3,027,750
------------
46,579,753
------------
COLORADO 8.0%
11,920 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy................... * 08/31/10 5,008,784
19,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser
C........................................................... * 08/31/26 2,299,950
66 Arapahoe Cnty, CO Centennial Downs Metro Dist Cash Payment
Deficiency Bond............................................. 8.090 12/01/34 63,044
356 Arapahoe Cnty, CO Centennial Downs Metro Dist Interest
Certificate (f)............................................. 6.00/8.09 12/01/34 338,531
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........................................ 7.750 12/01/15 1,027,870
6,395 Colorado Hlth Fac Auth Rev Christian Living Campus Proj..... 10.500 01/01/19 6,901,804
6,200 Colorado Hlth Fac Auth Rev Christian Living Campus Proj..... 9.000 01/01/25 6,731,340
2,880 Colorado Hlth Fac Auth Rev Univ Hills Christian Nursing
Rfdg........................................................ 8.750 12/01/11 2,970,633
555 Colorado Hsg Fin Auth Single Family Residential Rev Ser C
Rfdg........................................................ 8.750 09/01/17 578,998
1,000 Denver, CO City & Cnty Arpt Rev Ser A....................... 6.900 11/15/98 1,044,020
1,175 Denver, CO City & Cnty Arpt Rev Ser A....................... 8.400 11/15/98 1,257,344
3,000 Denver, CO City & Cnty Arpt Rev Ser A....................... 8.875 11/15/12 3,563,460
10,000 Denver, CO City & Cnty Arpt Rev Ser A....................... 8.500 11/15/23 11,418,800
2,500 Denver, CO City & Cnty Arpt Rev Ser D....................... 7.750 11/15/13 3,015,375
930 East River Regl Santn Dist CO Var Rfdg (Var Rate Cpn)....... 4.000 12/01/08 665,150
3,016 Gunnison Cnty, CO Indl Rev Bond Crested Butte Mtn Resort
Inc......................................................... 9.250 10/01/07 3,086,152
4,163 Himalaya Wtr & Santn Dist Adams Cnty, CO Genl Oblig Ltd Tax
Bond Ser 1995............................................... 9.500 12/01/24 3,055,521
5,385 Littleton, CO Riverfront Auth Rev Rfdg (e).................. 9.625 12/01/00 1,884,750
4,605 Skyland Metro Dist Gunnison Cnty CO Rfdg (Var Rate Cpn)..... 4.000 12/01/08 3,295,052
13,868 Tower Metro Dist Adams Cnty, CO Genl Oblig Ltd Tax Bond Ser
1995........................................................ 9.500 12/01/24 10,179,153
------------
69,003,600
------------
CONNECTICUT 1.0%
3,740 Connecticut St Hlth & Edl Fac Auth Rev Nursing Home Pgm
AHF/Windsor Proj............................................ 7.125 11/01/24 4,223,507
4,000 Mashantucket Western Pequot Tribe CT Spl Rev Ser A.......... 6.400 09/01/11 4,093,680
------------
8,317,187
------------
</TABLE>

See Notes to Financial Statements

B-28

<PAGE> 440

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DISTRICT OF COLUMBIA 0.5%
$ 1,700 District of Columbia Ser A1 Rfdg (MBIA Insd)................ 6.500% 06/01/10 $ 1,880,200
2,000 District of Columbia Ser E (FSA Insd)....................... 6.000 06/01/11 2,051,640
------------
3,931,840
------------
FLORIDA 8.9%
2,700 Brevard Cnty, FL Sch Brd Ctfs Ser A (AMBAC Insd)............ 5.100 07/01/07 2,740,581
28,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec Ser A Rfdg
(MBIA Insd) (c)............................................. * 02/01/18 8,013,040
5,115 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev Cent........ 10.250 07/01/11 4,859,250
2,155 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev Cent Ser
A........................................................... 10.250 07/01/11 2,047,250
1,135 Fishhawk Cmnty Dev Dist FL Spl.............................. 7.625 05/01/18 1,136,952
1,800 Florida Hsg Fin Agy Crossings Indian Run Apts V (MBIA
Insd)....................................................... 6.200 12/01/36 1,811,934
10,315 Florida St Muni Pwr Agy Rev (AMBAC Insd).................... 4.500 10/01/27 8,560,625
1,000 Lake Saint Charles, FL Cmnty Dev Dist Spl Assmt Rev......... 7.875 05/01/17 997,320
5,500 Miramar, FL Wastewater Impt Assmt Rev (FGIC Insd) (c)....... 6.750 10/01/25 6,154,720
3,860 Monroe Cnty, FL Indl Dev Auth 1st Mtg Med Fac Rev Kennedy Dr
Invt Ltd Proj Rfdg.......................................... 11.000 11/01/12 3,860,000
1,500 Orange Cnty, FL Hlth Fac Auth Rev 1st Mtg Orlando Lutheran
Tower....................................................... 8.750 07/01/26 1,588,125
1,300 Orange Cnty, FL Hlth Fac Auth Rev 1st Mtg Orlando Lutheran
Tower Rfdg.................................................. 8.625 07/01/20 1,363,674
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 4,593,354
7,500 Santa Rosa Bay Bridge Auth FL............................... 6.250 07/01/28 7,423,575
6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac Sunnyside Prty..... 6.700 07/01/25 5,741,340
16,065 Sun N Lake of Sebring, FL Impt Dist Spl Assmt Ser A (e)..... 10.000 12/15/11 11,044,687
1,000 Tampa Palms, FL Open Space & Transn Cmnty Dev Dist Rev Cap
Impt Area 7 Proj............................................ 8.500 05/01/17 996,070
2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg....... 7.500 11/01/16 2,007,160
2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg....... 7.625 11/01/26 2,007,100
------------
76,946,757
------------
GEORGIA 2.4%
19,000 Class A Ctfs relating to Atlanta, GA Urban Residential Fin
Auth Multi-Family Hsg Rev Renaissance on Peachtree Apts Proj
Ser 85...................................................... 8.500 04/01/26 18,050,000
3,000 Georgia St Hsg & Fin Auth................................... 6.450 12/01/27 3,072,840
------------
21,122,840
------------
IDAHO 1.5%
8,000 Idaho Hlth Fac Auth Rev IHC Hosp Inc Rfdg (Inverse Fltg)
(c)......................................................... 8.900 02/15/21 8,860,000
4,300 Owyhee Cnty, ID Indl Dev Corp Indl Dev Rev Envirosafe
Services of ID Inc.......................................... 8.250 11/01/02 4,420,701
------------
13,280,701
------------
ILLINOIS 11.5%
1,000 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent Proj
(Prerefunded @ 09/01/99).................................... 8.375 09/01/14 1,106,940
1,950 Bridgeview, IL Tax Increment Rev Rfdg....................... 9.000 01/01/11 2,154,496
4,500 Chicago, IL Emergency Telephone Sys (FGIC Insd)............. 5.800 01/01/13 4,583,205
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev American Airls Inc
Proj Ser A.................................................. 7.875 11/01/25 3,251,190
24,440 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc
Proj Ser 84A (c)............................................ 8.850 05/01/18 27,491,578
2,730 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc
Ser B....................................................... 8.950 05/01/18 3,109,033
4,250 Chicago, IL Rev Chatham Ridge Tax Increment................. 10.250 01/01/07 4,632,500
1,000 Chicago, IL Tax Increment................................... 7.250 01/01/14 990,770
2,000 Huntley, IL Increment Alloc Rev Huntley Redev Proj Ser A.... 8.500 12/01/15 2,068,300
1,405 Illinois Dev Fin Auth Rev Cmnty Fac Clinic Altgeld Proj..... 8.000 11/15/16 1,415,425
7,290 Illinois Dev Fin Auth Rev Mercy Hsg Corp Proj Rfdg.......... 7.000 08/01/24 7,708,810
1,000 Illinois Edl Fac Auth Rev Peace Mem Ministries Proj......... 7.500 08/15/26 1,008,510
3,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group Ser A
Rfdg........................................................ 7.400 08/15/23 3,047,520
4,730 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D.......... 9.500 11/15/15 5,392,957
3,825 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D
(Prerefunded @ 11/15/00).................................... 9.500 11/15/15 4,567,777
1,000 Illinois Hlth Fac Auth Rev Lifelink Corp Oblig Group Ser
B........................................................... 8.000 02/15/25 1,054,080
5,000 Illinois Hlth Fac Auth Rev Midwest Physician Group Ltd
Proj........................................................ 8.100 11/15/14 5,514,800
3,630 Illinois Hlth Fac Auth Rev Riverside Hlth Sys Series A Rfdg
A........................................................... 6.000 11/15/15 3,613,483
3,000 Illinois Hlth Fac Auth Rev Servantcor Ser A (Var Rate Cpn)
(Prerefunded @ 08/15/01).................................... 8.000 08/15/21 3,466,710
1,250 Mill Creek Wtr Reclamation Dist IL Swr Rev.................. 8.000 03/01/10 1,288,313
750 Mill Creek Wtr Reclamation Dist IL Wtrwks Rev............... 8.000 03/01/10 772,988
1,800 Peoria, IL Spl Tax Weaverridge Spl Svc Area................. 8.050 02/01/17 1,803,096
2,095 Regional Tran Auth IL Ser B (AMBAC Insd).................... 8.000 06/01/17 2,734,122
6,000 Robbins, IL Res Recovery Rev................................ 8.375 10/15/16 6,213,300
------------
98,989,903
------------
</TABLE>

See Notes to Financial Statements

B-29

<PAGE> 441

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

INDIANA 0.5%
$ 2,000 East Chicago, IN Exempt Fac Inland Steel Co Proj No 14...... 6.700% 11/01/12 $ 2,011,980
2,000 Indiana St Dev Fin Auth Envir USX Corp Proj Rfdg & Impt..... 6.250 07/15/30 2,026,780
------------
4,038,760
------------
KANSAS 0.0%
2,500 Kansas City, KS Crawford Cnty Leavenworth Single Family Mtg
Rev (AMBAC Insd)............................................ * 04/01/16 322,300
------------
KENTUCKY 0.4%
2,700 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys Proj (Inverse
Fltg) (MBIA Insd)........................................... 8.648 10/09/08 3,111,750
------------
LOUISIANA 1.2%
3,000 Louisiana Pub Fac Auth Rev Student Ln Subser A3............. 7.000 09/01/06 3,162,090
12,500 New Orleans, LA Rfdg (AMBAC Insd)........................... * 09/01/17 3,889,125
10,000 Orleans Parish, LA Sch Brd Rfdg (FGIC Insd)................. * 02/01/15 3,600,200
------------
10,651,415
------------
MAINE 0.2%
1,250 Maine Hlth & Higher Edl Fac Auth Rev Ser B (FSA Insd)....... 7.000 07/01/24 1,418,238
------------
MARYLAND 0.5%
1,440 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Multi-Family Hsg Rev Ser A Rfdg............................. 8.300 05/15/17 1,480,493
1,725 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev Rev Single
Family Pgm Seventh Ser...................................... 7.300 04/01/25 1,823,256
1,000 Maryland St Energy Fin Admin Ltd Oblig Rev Cogeneration AES
Warrior Run................................................. 7.400 09/01/19 1,056,440
------------
4,360,189
------------
MASSACHUSETTS 5.3%
13,770 Canton, MA Hsg Auth Multi-Family Hsg Mtg Rev Canton
Arboretum Apts.............................................. 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 4,336,000
1,670 Massachusetts St Hlth & Edl Fac Auth Rev Saint Anne's Hosp
Ser A....................................................... 9.375 07/01/14 1,688,153
9,415 Massachusetts St Hlth & Edl Fac Auth Rev Saint Mem Med Cent
Ser A....................................................... 6.000 10/01/23 8,127,687
2,200 Massachusetts St Hsg Fin Agy Hsg Rev Insd Rental Ser A Rfdg
(AMBAC Insd)................................................ 6.650 07/01/19 2,287,890
640 Massachusetts St Hsg Fin Agy Hsg Rev Ser A.................. 9.000 12/01/18 666,374
4,000 Massachusetts St Indl Fin Agy Rev Cent For Autism........... 9.500 11/01/17 4,388,680
575 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent... 8.000 12/01/06 609,874
1,085 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent... 8.375 12/01/13 1,169,923
675 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent... 8.500 12/01/20 730,661
6,900 Massachusetts St Indl Fin Agy Rev Swr Fac Res Ctl
Composting.................................................. 9.250 06/01/10 7,371,270
1,000 Massachusetts St Indl Fin Agy Solid Waste Disp Rev Res
Recovery Sys................................................ 9.200 12/01/99 1,011,150
------------
45,469,162
------------
MICHIGAN 4.1%
2,000 Battle Creek, MI Downtown Dev Auth Tax Increment Rev........ 7.600 05/01/16 2,266,280
7,000 Detroit, MI Water Supply Sys Rev Rfdg (FGIC Insd)........... 5.000 07/01/23 6,356,350
2,390 Meridian, MI Econ Dev Corp Ltd Oblig Rev 1st Mtg Burcham
Hills Ser A................................................. 7.500 07/01/13 2,451,447
3,430 Meridian, MI Econ Dev Corp Ltd Oblig Rev 1st Mtg Burcham
Hills Ser A................................................. 7.750 07/01/19 3,557,390
8,005 Meridian, MI Econ Dev Corp Ltd Oblig Rev 1st Mtg Burcham
Hills Ser A (Prerefunded @ 07/01/97)........................ 9.625 07/01/19 8,475,454
3,005 Michigan St Hosp Fin Auth Rev Garden City Hosp.............. 8.300 09/01/02 3,159,097
12,500 Michigan St Strategic Fd Ltd Oblig Rev Great Lakes Pulp &
Fibre Proj (e).............................................. 10.250 12/01/16 7,093,625
1,500 North Branch, MI Area Sch Lapeer Cnty Rfdg (AMBAC Insd)..... 5.250 05/01/13 1,451,175
745 Saint Clair Cnty, MI Econ Dev Corp Kmart Proj............... 9.500 02/01/06 746,296
------------
35,557,114
------------
MINNESOTA 1.2%
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 Cap Apprec............................................ * 01/15/20 757,796
2,800 Minneapolis, MN Coml Dev Rev Holiday Inn Metrodome Proj
Rfdg........................................................ 10.000 06/01/98 2,811,928
1,750 Minnesota St Hsg Fin Agy Single Family Mtg Ser D............ 8.800 07/01/16 1,833,352
------------
10,353,409
------------
MISSISSIPPI 0.1%
1,000 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res Inc
Rfdg........................................................ 7.300 05/01/25 1,049,540
------------
MISSOURI 0.8%
980 Jefferson Cnty, MO Indl Dev Auth Indl Rev Cedars Hlthcare
Cent Proj Ser A Rfdg........................................ 8.250 12/01/15 985,126
4,815 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev Skaggs Cmnty
Hosp Rfdg................................................... 9.500 05/15/13 5,010,585
1,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)...................... 6.000 06/01/15 1,071,230
------------
7,066,941
------------
</TABLE>

See Notes to Financial Statements

B-30

<PAGE> 442

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

MONTANA 0.5%
$ 4,000 Montana St Brd Invt Res Recovery Rev Yellowstone Energy L P
Proj........................................................ 7.000% 12/31/19 $ 3,907,200
------------
NEBRASKA 0.7%
2,300 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized)....................................... 9.913 10/17/23 2,501,250
2,800 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized)....................................... 11.429 09/10/30 3,125,500
------------
5,626,750
------------
NEVADA 0.8%
5,120 Nevada Hsg Division Amt Single Family Mtg Sr D2............. 6.350 04/01/28 5,185,075
1,945 Reno, NV Redev Agy Tax Alloc Downtown Redev Proj Ser E
Rfdg........................................................ 5.600 09/01/09 1,863,330
------------
7,048,405
------------
NEW HAMPSHIRE 2.4%
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights.................................. 7.350 01/01/18 2,032,400
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights.................................. 7.450 01/01/25 2,030,720
4,000 New Hampshire Higher Edl & Hlth Fac Auth Rev Hosp Catholic
Med Cent Rfdg............................................... 8.250 07/01/13 4,291,000
3,480 New Hampshire Higher Edl & Hlth Fac Auth Rev Vly Regl
Hosp........................................................ 7.350 04/01/23 3,341,079
1,440 New Hampshire Higher Edl & Hlth Franklin Pierce College
Issue....................................................... 7.000 10/01/16 1,473,955
2,160 New Hampshire Higher Edl & Hlth Franklin Pierce College
Issue....................................................... 7.125 10/01/26 2,209,723
2,000 New Hampshire St Business Fin Auth Pollutn Ctl & Solid Waste
Disposal Rev................................................ 7.750 01/01/22 2,110,520
3,000 New Hampshire St Indl Dev Auth Rev Pollutn Ctl Pub Svcs Co
of NH Proj Ser C............................................ 7.650 05/01/21 3,088,920
------------
20,578,317
------------
NEW JERSEY 1.4%
6,570 New Jersey Econ Dev Auth Rev 1st Mtg Gross Rev Oakridge
Manor Proj Rfdg............................................. 9.500 11/01/14 6,780,043
1,000 New Jersey Econ Dev Auth Rev 1st Mtg Winchester Gardens Ser
A........................................................... 8.500 11/01/16 1,036,220
1,500 New Jersey Econ Dev Auth Rev 1st Mtg Winchester Gardens Ser
A........................................................... 8.625 11/01/25 1,562,655
3,000 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen Proj Ser A... 8.750 05/15/26 3,150,180
------------
12,529,098
------------
NEW MEXICO 1.3%
2,250 Albuquerque, NM Retirement Fac Rev La Vida Llena Proj Ser A
Rfdg........................................................ 8.850 02/01/23 2,423,002
5,835 Albuquerque, NM Retirement Fac Rev OGL Retirement Fac Rfdg
(d)......................................................... 10.000 10/01/13 4,261,884
4,900 Farmington, NM Pollutn Ctl Rev San Juan Proj Ser A Rfdg..... 6.400 08/15/23 4,932,095
------------
11,616,981
------------
NEW YORK 10.7%
1,315 Clifton Springs, NY Hosp & Clinic Ser B Rfdg & Impt......... 7.000 01/01/05 1,339,617
1,500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY Institute of
Technology Rfdg............................................. 7.500 03/01/26 1,564,320
2,950 New York City Indl Dev Agy Civic Fac Rev Nightingale Bamford
Sch Proj.................................................... 5.850 01/15/20 2,959,646
1,500 New York City Indl Dev Agy Rev Visy Paper Inc Proj.......... 7.950 01/01/28 1,599,885
5,000 New York City Ser A......................................... 7.000 08/01/07 5,531,900
3,000 New York City Ser D Rfdg.................................... 8.000 02/01/05 3,490,320
3,500 New York City Ser E......................................... 6.000 08/01/26 3,412,360
3,750 New York City Tran Auth Tran Fac Livingston Plaza Proj Rfdg
(FSA Insd).................................................. 5.400 01/01/18 3,705,937
5,000 New York St Dorm Auth Rev City Univ Ser F................... 5.500 07/01/12 4,833,100
5,000 New York St Dorm Auth Rev City Univ Ser F................... 5.000 07/01/20 4,337,650
8,340 New York St Dorm Auth Rev St Univ Edl Fac Ser C............. 5.400 05/15/23 7,685,977
2,500 New York St Dorm Auth Rev Upstate Cmnty Colleges Ser A...... 5.700 07/01/21 2,384,350
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev (Inverse
Fltg)....................................................... 8.721 04/01/20 2,750,000
6,000 New York St Energy Resh & Dev Auth Gas Fac Rev Ser D
(Inverse Fltg) (MBIA Insd) (c).............................. 5.635 07/08/26 5,754,780
225 New York St Energy Resh & Dev Auth St Svc Contract Rev
Western NY Nuclear Svc Cent Ser B........................... 5.500 04/01/00 229,127
1,000 New York St Energy Resh & Dev Auth St Svc Contract Rev
Western NY Nuclear Svc Cent Ser B........................... 5.500 04/01/01 1,016,930
750 New York St Energy Resh & Dev Auth St Svc Contract Rev
Western NY Nuclear Svc Cent Ser B........................... 5.250 04/01/02 753,180
1,750 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Rfdg
(MBIA Insd)................................................. 5.250 02/15/19 1,656,830
10,000 New York St Med Care Fac Fin Agy Rev Presbyterian Hosp Ser A
Rfdg (MBIA Insd) (c)........................................ 5.375 02/15/25 9,512,900
1,500 New York St Thruway Auth Hwy & Brdg Tr Fund Ser A........... 6.000 04/01/14 1,561,935
13,000 New York St Urban Dev Corp Rev Correctional Fac Ser A
Rfdg........................................................ 5.500 01/01/16 12,261,990
3,000 New York, NY City Indl Dev Agy Civic Fac Rev USTA Natl
Tennis Cent Proj (FSA Insd)................................. 6.250 11/15/06 3,305,790
1,500 New York, NY City Indl Dev Agy Civic Fac Rev USTA Natl
Tennis Cent Proj (FSA Insd)................................. 6.375 11/15/07 1,656,720
2,000 New York, NY City Indl Dev Agy Civic Fac Rev USTA Natl
Tennis Cent Proj (FSA Insd)................................. 6.500 11/15/09 2,222,300
7,775 Triborough Bridge And Tunnel Auth NY Rev Ser 1994A.......... 4.750 01/01/19 6,851,019
------------
92,378,563
------------
NORTH CAROLINA 0.9%
8,155 Eastern Band Cherokee Indians NC Spl Oblig Rev Carolina
Mirror Co Proj.............................................. 10.250 09/01/09 8,155,000
------------
NORTH DAKOTA 0.3%
$ 2,100 Ward Cnty, ND Hlthcare Fac Rev Saint Joseph Hosp Corp
Proj........................................................ 8.875% 11/15/24 $ 2,337,321
------------

</TABLE>

See Notes to Financial Statements

B-31

<PAGE> 443

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO 1.9%
$ 2,000 East Liverpool, OH Hosp Rev East Liverpool City Hosp Ser
A........................................................... 8.125% 10/01/11 $ 2,127,700
7,500 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B (Inverse Fltg)
(GNMA Collateralized) (c)................................... 9.849 03/31/31 8,221,875
3,700 Ohio St Solid Waste Rev Rep Engineered Steels Proj.......... 8.250 10/01/14 3,804,895
1,000 Ohio St Solid Waste Rev Rep Engineered Steels Proj.......... 9.000 06/01/21 1,068,650
1,500 Sandusky Cnty, OH Hosp Fac Rev Mem Hosp Proj Rfdg........... 7.750 12/01/09 1,509,690
------------
16,732,810
------------
OKLAHOMA 0.5%
4,000 Tulsa, OK Indl Auth Hosp Rev Tulsa Regl Med Cent
(Prerefunded @ 06/01/03).................................... 7.200 06/01/17 4,611,680
------------
PENNSYLVANIA 7.0%
6,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Collateral
Toledo Edison Co Ser A Rfdg................................. 7.750 05/01/20 6,580,320
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks Village Inc Proj
Rfdg........................................................ 7.700 05/15/22 1,010,800
4,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev Bethlehem
Steel Corp Proj Rfdg........................................ 7.500 09/01/15 4,242,600
1,775 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp Proj....... 8.500 07/01/13 1,961,411
2,000 Cumberland Cnty, PA Auth Rev 1st Mtg Carlisle Hosp & Hlth... 6.800 11/15/14 2,079,500
1,500 Delaware County, PA Auth 1st Mtg Rev Riddle Vlg Proj........ 7.000 06/01/21 1,506,735
3,000 Lancaster Cnty, PA Solid Waste Mgmt Auth Res Recovery Sys
Rev Ser A................................................... 8.500 12/15/10 3,152,640
2,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford Hosp Proj
(Crossover Rfdg @ 10/01/00)................................. 8.875 10/01/20 2,318,140
3,750 Montgomery Cnty, PA Higher Edl & Hlth Auth Nursing Home Rev
Delco Sys Svcs Proj A....................................... 9.875 11/01/18 3,830,062
8,100 Montgomery Cnty, PA Indl Dev Auth Rev 1st Mtg The Meadowood
Corp Proj Ser A (Prerefunded @ 12/01/00).................... 10.000 12/01/19 9,768,519
500 Montgomery Cnty, PA Indl Dev Auth Rev 1st Mtg The Meadowood
Corp Rfdg................................................... 7.000 12/01/10 508,540
2,500 Montgomery Cnty, PA Indl Dev Auth Rev 1st Mtg The Meadowood
Corp Rfdg................................................... 7.250 12/01/15 2,508,175
6,000 Montgomery Cnty, PA Indl Dev Auth Rev 1st Mtg The Meadowood
Corp Rfdg................................................... 7.400 12/01/20 5,996,100
3,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev MacMillan Ltd
Partnership Proj............................................ 7.600 12/01/20 3,356,760
1,500 Pennsylvania Econ Dev Fin Auth Recycling Rev Ponderosa
Fibres Proj Ser A........................................... 9.250 01/01/22 1,393,455
3,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev Colver Proj
Ser D....................................................... 7.050 12/01/10 3,207,210
2,300 Pennsylvania Econ Dev Fin Auth Res Recovery Rev Northampton
Generating Ser A............................................ 6.500 01/01/13 2,276,149
5,000 Philadelphia, PA Auth for Indl Dev Rev Long-Term Care
Maplewood................................................... 8.000 01/01/24 5,181,300
------------
60,878,416
------------
RHODE ISLAND 0.2%
2,000 Providence, RI Redev Agy Ctfs Partn Ser A................... 8.000 09/01/24 2,114,740
------------
SOUTH CAROLINA 0.5%
115 Charleston Cnty, SC Ctfs Partn Ser B (MBIA Insd)............ 7.000 06/01/19 129,663
2,385 Charleston Cnty, SC Ctfs Partn Ser B (Prerefunded @
06/01/04) (MBIA Insd)....................................... 7.000 06/01/19 2,774,351
1,000 Oconee Cnty, SC Indl Rev Bond Johnson Ctl Inc Ser 84 (Var
Rate Cpn)................................................... 6.157 06/15/04 1,000,000
------------
3,904,014
------------
TENNESSEE 3.1%
3,000 SCA Tax Exempt Trust Multi-Family Mtg Memphis Hlth Edl Rev
Bond Receipt Ser A6 (FSA Insd).............................. 7.350 01/01/30 3,265,800
4,610 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev ICF/MR Open Arms
Dev Cent Ser A.............................................. 9.750 08/01/19 4,960,498
4,670 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev ICF/MR Open Arms
Dev Cent Ser C.............................................. 9.750 08/01/19 5,025,060
2,000 Springfield, TN Hlth & Edl Fac Brd Hosp Rev Jesse Holman
Jones Hosp Proj............................................. 8.250 04/01/12 2,150,900
6,085 Sullivan Cnty, TN Hlth Edl & Hsg Fac Brd Rev 1st Mtg
RHA/Sullivan Inc Fac Rev.................................... 9.750 09/01/19 6,579,954
4,455 Trenton, TN Hlth & Edl Fac Brd Rev ICF/MR RHA/Trenton Golden
Door........................................................ 10.000 05/01/19 4,798,570
------------
26,780,782
------------
TEXAS 3.1%
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains Baptist Hosp
(Inverse Fltg) (FSA Insd)................................... 9.149 01/01/22 2,302,500
665 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... * 08/01/00 508,147
1,165 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... * 08/01/01 824,016
335 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... * 08/01/02 219,703
1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... * 08/01/11 598,764
775 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... 8.750 08/01/11 826,669
2,670 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... 8.750 08/01/12 2,849,985
2,500 Garland, TX Indl Dev Auth Rev Bond Ashland Oil Proj Ser 84
Rfdg (Var Rate Cpn)......................................... 5.363 04/01/04 2,502,475
3,000 Harris Cnty, TX Hlth Fac Dev Corp Spl Fac Rev TX Med Cent
Proj (MBIA Insd)............................................ 5.900 05/15/20 3,068,400
2,728 Texas Genl Svcs Comm Partn Int Lease Purch Ctfs............. 7.250 08/15/11 2,784,773
2,000 Texas St Tpk Auth Dallas North Thruway Rev Addison Arpt Toll
Tunnel Proj (FGIC Insd)..................................... 6.750 01/01/15 2,237,800
2,000 Texas St Tpk Auth Dallas North Thruway Rev Addison Arpt Toll
Tunnel Proj (FGIC Insd)..................................... 6.600 01/01/23 2,215,520
5,000 West Side Calhoun Cnty, TX Navig Dist Solid Waste Disp Union
Carbide Chem & Plastics..................................... 8.200 03/15/21 5,595,750
------------
26,534,502
------------
UTAH 1.9%
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.............. 7.800 09/01/15 996,720
1,165 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.............. 8.000 09/01/20 1,175,158
</TABLE>

See Notes to Financial Statements

B-32

<PAGE> 444

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

UTAH (CONTINUED)
$ 1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.............. 7.800% 09/01/25 $ 990,230
4,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser B Rfdg (MBIA
Insd) (b)................................................... 5.750 07/01/19 3,922,520
5,000 Murray City, UT Hosp Rev Inc Hlth Svc Inc Rfdg (MBIA
Insd)....................................................... 4.750 05/15/20 4,387,450
280 Saint George, UT Indl Dev Rev Kmart Corp Ser 1984A.......... 10.750 10/15/08 285,211
3,270 Salt Lake County, UT Hsg Auth Multi-Family Hsg Rev.......... 6.375 11/01/33 3,288,541
1,600 Utah St Hsg Fin Agy Single Family Mtg Mezz A1 (AMBAC
Insd)....................................................... 6.100 07/01/13 1,632,112
------------
16,677,942
------------
VIRGINIA 0.7%
2,650 Fairfax Cnty, VA Park Auth Park Fac Rev..................... 6.625 07/15/20 2,762,015
3,000 Loudoun Cnty, VA Indl Dev Auth (FSA Insd)................... 5.800 06/01/20 3,014,970
------------
5,776,985
------------
WASHINGTON 0.3%
1,000 Port Walla Walla, WA Pub Corp Solid Waste Recycling Rev
Ponderosa Fibres Proj....................................... 9.125 01/01/26 915,050
5,500 Washington St Pub Pwr Supply Comp Interest Ser C Rfdg (MBIA
Insd)....................................................... * 07/01/17 1,663,255
------------
2,578,305
------------
WISCONSIN 2.3%
6,840 Wisconsin Hsg & Econ Dev Auth Home Ownership Rev Ser D...... 6.450 09/01/27 6,985,487
4,225 Wisconsin St Hlth & Edl Fac Auth Rev Chippewa Vly Hosp Ser F
Rfdg........................................................ 9.500 11/15/12 4,856,046
2,185 Wisconsin St Hlth & Edl Fac Auth Rev Eau Claire Manor....... 9.625 06/01/13 2,253,849
1,150 Wisconsin St Hlth & Edl Fac Auth Rev Gundersen Clinic
LaCrosse Inc (FSA Insd)..................................... 5.625 12/01/16 1,149,253
1,975 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem Hosp Assn..... 7.875 11/01/22 1,987,521
3,000 Wisconsin St Hlth & Edl Milwaukee Catholic Home Proj........ 7.500 07/01/26 3,075,900
------------
20,308,056
------------
PUERTO RICO 0.2%
2,000 Centro De Recaudaciones De Ingresos Municipales Ctfs Partn
Puerto Rico................................................. 6.850 10/17/03 2,048,700
------------
TOTAL LONG-TERM INVESTMENTS 96.5%
(Cost $807,605,260)(a)..................................................................... 834,315,435
SHORT-TERM INVESTMENTS AT AMORTIZED COST 3.0%............................................... 25,978,572
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%.................................................. 4,253,874
------------
NET ASSETS 100.0%........................................................................... $864,547,881
============

*Zero coupon bond

</TABLE>

(a) At December 31, 1996, for federal income tax purposes, cost is $809,858,010;
the aggregate gross unrealized appreciation is $49,569,224 and the aggregate
gross unrealized depreciation is $25,111,799, resulting in net unrealized
appreciation of $24,457,425.

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

(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.

(d) Interest is accruing at less than the stated coupon.

(e) Non-income producing security.

(f) Currently is a payment-in-kind security which will convert to a cash paying
security with a higher coupon at a predetermined date.

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

See Notes to Financial Statements

B-33

<PAGE> 445

STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $807,605,260)
(Note 1).................................................. $834,315,435
Short-Term Investments (Note 1)............................. 25,978,572
Cash........................................................ 42,716
Receivables:
Interest.................................................. 16,720,954
Fund Shares Sold.......................................... 1,631,010
Securities Sold........................................... 145,583
Other....................................................... 69,061
------------
Total Assets.......................................... 878,903,331
------------
LIABILITIES:
Payables:
Securities Purchased...................................... 8,800,000
Income Distributions...................................... 2,653,668
Fund Shares Repurchased................................... 1,379,612
Distributor and Affiliates (Notes 2 and 6)................ 556,193
Investment Advisory Fee (Note 2).......................... 350,047
Variation Margin on Futures (Note 5)...................... 295,000
Accrued Expenses............................................ 238,526
Deferred Compensation and Retirement Plans (Note 2)......... 82,404
------------
Total Liabilities..................................... 14,355,450
------------
NET ASSETS.................................................. $864,547,881
============
NET ASSETS CONSIST OF:
Capital (Note 3)............................................ $941,822,660
Net Unrealized Appreciation on Securities................... 26,675,438
Accumulated Distributions in Excess of Net Investment Income
(Note 1).................................................. (8,821,755)
Accumulated Net Realized Loss on Securities................. (95,128,462)
------------
NET ASSETS.................................................. $864,547,881
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $671,856,857 and 46,419,769 shares of
beneficial interest issued and outstanding)............ $ 14.47
Maximum sales charge (4.75%* of offering price)......... .72
------------
Maximum offering price to public........................ $ 15.19
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $173,844,037 and 12,010,543 shares of
beneficial interest issued and outstanding)............ $ 14.47
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $18,846,987 and 1,302,119 shares of
beneficial interest issued and outstanding)............ $ 14.47
============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>

See Notes to Financial Statements

B-34

<PAGE> 446

STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 62,456,702
------------
EXPENSES:
Investment Advisory Fee (Note 2)............................ 3,953,376
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,486,310, $1,517,563 and $131,653,
respectively) (Note 6).................................... 3,135,526
Shareholder Services (Note 2)............................... 868,460
Legal (Note 2).............................................. 817,150
Custody..................................................... 224,323
Trustees Fees and Expenses (Note 2)......................... 34,968
Other....................................................... 396,397
------------
Total Expenses.......................................... 9,430,200
Less Expenses Reimbursed (Note 2)....................... 10,028
------------
Net Expenses............................................ 9,420,172
------------
NET INVESTMENT INCOME....................................... $ 53,036,530
============
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments (Including reorganization and restructuring
costs of $705,947)...................................... $(10,287,555)
Options................................................... (463,090)
Futures................................................... (4,459,217)
------------
Net Realized Loss on Securities............................. (15,209,862)
------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period................................... 39,038,275
------------
End of the Period:
Investments............................................. 26,710,175
Futures................................................. (34,737)
------------
26,675,438
------------
Net Unrealized Depreciation on Securities During the
Period.................................................... (12,362,837)
------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES.............. $(27,572,699)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 25,463,831
============
</TABLE>

See Notes to Financial Statements

B-35

<PAGE> 447

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 53,036,530 $ 52,928,406
Net Realized Loss on Securities............................. (15,209,862) (18,443,786)
Net Unrealized Appreciation/Depreciation on
Securities During the Period.............................. (12,362,837) 75,421,063
-------------- ---------------
Change in Net Assets from Operations........................ 25,463,831 109,905,683
-------------- ---------------
Distributions from Net Investment Income.................... (53,036,530) (49,750,600)
Distributions in Excess of Net Investment Income (Note 1)... (228,957) -0-
-------------- ---------------
Total Distributions from and in Excess of Net Investment
Income*................................................. (53,265,487) (49,750,600)
-------------- ---------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (27,801,656) 60,155,083
-------------- ---------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................................... 164,096,198 98,267,869
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 22,996,285 21,929,512
Cost of Shares Repurchased.................................. (108,010,178) (92,025,233)
-------------- ---------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 79,082,305 28,172,148
-------------- ---------------
TOTAL INCREASE IN NET ASSETS................................ 51,280,649 88,327,231
NET ASSETS:
Beginning of the Period..................................... 813,267,232 724,940,001
------------- ---------------
End of the Period (Including accumulated distributions in
excess of net investment income of $8,821,755 and
$8,760,023, respectively)................................. $ 864,547,881 $813,267,232
============== ===============
</TABLE>

<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares................................. $(43,633,838) $(42,013,439)
Class B Shares................................. (8,865,546) (7,196,226)
Class C Shares................................. (766,103) (469,250)
Class D Shares................................. -- (71,685)
------------ ------------
$(53,265,487) $(49,750,600)
============ ============
</TABLE>

See Notes to Financial Statements

B-36

<PAGE> 448

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 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $14.984 $13.848 $15.629 $14.529 $15.687
-------- -------- -------- -------- --------
Net Investment Income..................................... .963 1.024 .956 1.052 1.064
Net Realized and Unrealized Gain/Loss on Securities....... (.513) 1.072 (1.717) 1.158 (1.047)
-------- -------- -------- -------- --------
Total from Investment Operations............................ .450 2.096 (.761) 2.210 .017
Less Distributions from and in Excess of Net Investment
Income (Note 1)........................................... .960 .960 1.020 1.110 1.175
-------- -------- -------- -------- --------
Net Asset Value, End of the Period.......................... $14.474 $14.984 $13.848 $15.629 $14.529
======== ======== ======== ======== ========
Total Return(a)............................................. 3.21% 15.52% (4.93%) 15.82% .08%
Net Assets at End of the Period (In millions)............... $671.9 $665.8 $603.0 $636.2 $566.1
Ratio of Expenses to Average Net Assets(b).................. .99% .95% .87% 1.03% 1.08%
Ratio of Net Investment Income to Average Net Assets(b)..... 6.60% 7.05% 6.48% 6.95% 7.07%
Portfolio Turnover.......................................... 59% 59% 101% 91% 44%
</TABLE>

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.

See Notes to Financial Statements

B-37

<PAGE> 449

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
May 1, 1993
Year Ended December 31, (Commencement of
----------------------------- Distributions) to
Class B Shares 1996 1995 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $14.983 $13.850 $15.621 $14.670
-------- -------- -------- ---------
Net Investment Income..................................... .843 .908 .841 .656

Net Realized and Unrealized Gain/Loss on Securities....... (.506) 1.071 (1.718) .945
-------- -------- -------- ---------

Total from Investment Operations............................ .337 1.979 (.877) 1.601

Less Distributions from and in Excess of Net Investment
Income (Note 1)........................................... .846 .846 .894 .650
-------- -------- -------- ---------

Net Asset Value, End of the Period.......................... $14.474 $14.983 $13.850 $15.621
======== ======== ======== =========
Total Return(a)............................................. 2.40% 14.62% (5.69%) 11.12%*
Net Assets at End of the Period (In millions)............... $ 173.8 $ 137.9 $ 112.4 $ 56.6
Ratio of Expenses to Average Net Assets(b).................. 1.75% 1.70% 1.64% 1.74%
Ratio of Net Investment Income to Average Net Assets(b)..... 5.84% 6.25% 5.70% 5.95%
Portfolio Turnover.......................................... 59% 59% 101% 91%*
</TABLE>

* Non-Annualized

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.

See Notes to Financial Statements

B-38

<PAGE> 450

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
August 13, 1993
Year Ended December 31, (Commencement of
--------------------------- Distribution) to
Class C Shares 1996 1995 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $14.987 $13.846 $15.610 $15.030
-------- ------- ------- --------
Net Investment Income..................................... .851 .910 .824 .369
Net Realized and Unrealized Gain/Loss on Securities....... (.518) 1.077 (1.694) .580
-------- ------- -------- --------
Total from Investment Operations............................ .333 1.987 (.870) .949
Less Distributions from and in Excess of Net Investment
Income (Note 1)........................................... .846 .846 .894 .369
------- -------- -------- --------
Net Asset Value, End of the Period.......................... $14.474 $14.987 $13.846 $15.610
======== ======== ======== ========
Total Return(a)............................................. 2.33% 14.70% (5.62%) 6.37%*
Net Assets at End of the Period (In millions)............... $18.8 $9.5 $7.6 $5.2
Ratio of Expenses to Average Net Assets(b).................. 1.75% 1.69% 1.64% 1.82%
Ratio of Net Investment Income to Average Net Assets(b)..... 5.84% 6.19% 5.71% 5.21%
Portfolio Turnover.......................................... 59% 59% 101% 91%*
</TABLE>

* Non-Annualized

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.

See Notes to Financial Statements

B-39

<PAGE> 451

NOTES TO FINANCIAL STATEMENTS

December 31, 1996
- --------------------------------------------------------------------------------

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, 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.

The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

A. SECURITY VALUATION--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,
1996, 18% of the Fund's net assets consisted of such securities. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.

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

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

The Fund intends to utilize provisions of the federal income tax laws
which allow it to carry a realized capital loss forward for eight years
following the year of the loss and offset such losses against any future
realized capital gains. At December 31, 1996, the Fund had an accumulated
capital loss carryforward for tax purposes of $82,799,196 which expires between
December 31, 1999 and December 31, 2004. Net realized gains or losses may differ
for financial reporting and tax purposes primarily as a result of the deferral
of post October 31 losses, gains or losses recognized for tax purposes on open
futures positions and the capitalization of reorganization and restructuring
costs for tax purposes.

B-40

<PAGE> 452

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

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.

For the year ended December 31, 1996, 99.1% of the income distributions
made by the Fund were exempt from federal income taxes.

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. Permanent book and tax basis differences relating to the
recognition of certain expenses which are not deductible for tax purposes
totaling $167,225 were reclassified from accumulated distributions in excess of
net investment income to capital.

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:

For the year ended December 31, 1996, the Fund recognized expenses of
approximately $54,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the year ended December 31, 1996, the Fund recognized expenses of
approximately $66,300 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management and legal services to the Fund.

ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the year ended
December 31, 1996, the Fund recognized expenses of approximately $673,900,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.

Additionally, for the year ended December 31, 1996, the Fund reimbursed
VKAC approximately $161,200 related to the cost of consolidating the VKAC
open-end fund complex. Payment was contingent upon the realization by the Fund
of cost efficiencies in certain expense categories resulting from the
consolidation.

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. For the year ended December 31, 1996, the Adviser reimbursed the Fund
for certain trustees' compensation in connection with the July 1995 increase in
the number of trustees of the Fund.

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.

B-41

<PAGE> 453

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

3. CAPITAL TRANSACTIONS

The Fund has outstanding three classes of shares of beneficial interest, 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, 1996, capital aggregated $744,740,084, $177,733,309 and
$19,349,267 for Classes A, B and C, respectively. For the year ended December
31, 1996, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................................... 6,370,895 $ 92,301,711
Class B................................................... 4,180,416 60,439,439
Class C................................................... 787,103 11,355,048
--------- ------------
Total Sales................................................. 11,338,414 $ 164,096,198
========= ============
Dividend Reinvestment:
Class A................................................... 1,326,707 $ 19,189,337
Class B................................................... 229,488 3,317,782
Class C................................................... 33,851 489,166
--------- ------------
Total Dividend Reinvestment................................. 1,590,046 $ 22,996,285
========= ============
Repurchases:
Class A................................................... (5,711,728) $ (82,614,355)
Class B................................................... (1,605,061) (23,186,460)
Class C................................................... (153,484) (2,209,363)
--------- ------------
Total Repurchases........................................... (7,470,273) $(108,010,178)
========= ============
</TABLE>

B-42

<PAGE> 454

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

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>

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, 1996, VKAC, as distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$362,700 and CDSC on redeemed shares of approximately $504,700. Sales charges do
not represent expenses of the Fund.

B-43

<PAGE> 455

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $518,452,919 and $475,606,658,
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 when exercising an
option contract or taking delivery of a security underlying a futures contract.
In these instances, the recognition of gain or loss is postponed until the
disposal of the security underlying the option or futures contract.

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, 1996, were as
follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995............................ -0- $ -0-
Options Written and Purchased (Net)......................... 7,010 (815,589)
Options Terminated in Closing Transactions (Net)............ (2,240) 421,422
Options Expired (Net)....................................... (4,420) 239,857
Options Exercised (Net)..................................... (350) 154,310
--------- --------
Outstanding at December 31, 1996............................ -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.

Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).

B-44

<PAGE> 456

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

Transactions in futures contracts for the year ended December 31, 1996,
were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995............................ 900
Futures Opened.............................................. 12,929
Futures Closed.............................................. (13,403)
---------
Outstanding at December 31, 1996............................ 426
=========
</TABLE>

The futures contracts outstanding as of June 30, 1996, and the
descriptions and unrealized appreciation/depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- -----------------------------------------------------------------------------------
<S> <C> <C>
Municipal Bond Index Futures
Mar 1997 - Sells to Open (Current Notional Value
$116,063 per contract)................................ 100 $(44,554)
US Treasury Bond Futures
Mar 1997 - Buys to Open (Current Notional Value
$112,625 per contract)................................ 326 9,817
------ -----------
426 $(34,737)
====== ===========
</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. These instruments
are typically used by the Fund to enhance the yield of the portfolio.

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

Annual fees under the Plans of up to .25% for Class A net assets and
1.00% each for Class B and Class C net assets are accrued daily. Included in
these fees for the year ended December 31, 1996 are payments to VKAC of
approximately $1,163,200.

B-45

<PAGE> 457

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND

Van Kampen American Capital Insured Tax Free Income Fund, formerly known as
Van Kampen Merritt Insured Tax Free Income Fund (the "Fund"), is a separate
diversified series of Van Kampen American Capital Tax Free Trust, a Delaware
business trust (the "Trust"). The Trust is an open-end management investment
company, commonly known as a mutual fund. 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 investment in a
diversified portfolio of insured municipal securities. All of the municipal
securities in the portfolios of the Fund will be insured by AMBAC Indemnity
Corporation or by other municipal bond insurers whose claims-paying ability is
rated "AAA" by Standard & Poor's Ratings Group on the date of purchase. The
Fund's portfolio is managed by Van Kampen American Capital Investment Advisory
Corp. (the "Adviser").

The Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the Securities
and Exchange Commission, Washington, D.C. This omitted information may be
obtained from the Commission upon payment of the fee prescribed, or inspected at
the Commission's office at no charge.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and The Trust...................................... B-2

Investment Policies and Restrictions........................ B-2

Additional Investment Considerations........................ B-4

Description of Municipal Securities Ratings................. B-15

Trustees and Officers....................................... B-21

Investment Advisory and Other Services...................... B-30

Custodian and Independent Accountants....................... B-31

Portfolio Transactions and Brokerage Allocations............ B-32

Tax Status of the Fund...................................... B-32

The Distributor............................................. B-33

Distribution and Service Plans.............................. B-33

Legal Counsel............................................... B-34

Performance Information..................................... B-35

Report of Independent Accountants........................... B-37

Financial Statements........................................ B-38

Notes to Financial Statements............................... B-54
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 30, 1997.

B-1
<PAGE> 458

THE FUND AND THE TRUST

Van Kampen American Capital Insured Tax Free Income Fund (the "Fund") is a
separate diversified series of the Trust is an unincorporated business trust
established under the laws of the State of Delaware by an Agreement and
Declaration of Trust dated as of May 10, 1995, (the "Declaration of Trust"). The
Declaration of Trust permits the Trustees to create one or more separate
investment portfolios and issue a series of shares for each portfolio. The
Trustees can further sub-divide each series of shares into one or more classes
of shares for each portfolio. At present, the Fund, Van Kampen American Capital
Tax Free High Income Fund, Van Kampen American Capital California Insured Tax
Free Fund, Van Kampen American Capital Municipal Income Fund, Van Kampen
American Capital Intermediate Term Municipal Income Fund, Van Kampen American
Capital Florida Insured Tax Free Income Fund, Van Kampen American Capital New
Jersey Tax Free Income Fund and Van Kampen American Capital New York Tax Free
Income Fund have been organized as series of the Trust and have commenced
investment operations. Van Kampen American Capital California Tax Free Income
Fund, Van Kampen American Capital Michigan Tax Free Income Fund, Van Kampen
American Capital Missouri Tax Free Income Fund and Van Kampen American Capital
Ohio Tax Free Income Fund have been organized as series of the Trust but have
not commenced investment operations. Other series may be organized and offered
in the future. The Fund was originally organized as a Maryland corporation under
the name Van Kampen Merritt Insured Tax Free Fund Inc., was subsequently
reorganized into a sub-trust of Van Kampen Merritt Tax Free Fund, a
Massachusetts business trust, under the name Van Kampen Merritt Insured Tax Free
Income Fund as of February 22, 1988. The Fund was again reorganized as a series
of the Trust and adopted its present name as of July 31, 1995.

Each share in a series of the Trust represents an equal proportionate interest
in the assets of such series with each other share in such series and no
interest in any other series. No series is subject to the liabilities of any
other series. The Declaration of Trust provides that shareholders are not liable
for any liabilities of the Trust or any of its series, requires inclusion of a
clause to that effect in every agreement entered into by the Trust or any of its
series and indemnifies shareholders against any such liability.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Except as described in the
Prospectus, shares do not have cumulative voting rights, preemptive rights or
any conversion or exchange rights other than those described in the Prospectus.
The Trust does not contemplate holding regular meetings of shareholders to elect
Trustees or otherwise. However, the holders of 10% or more of the outstanding
shares may by written request require a meeting to consider the removal of
Trustees by a vote of two-thirds of the shares then outstanding cast in person
or by proxy at such meeting.

Statements contained in this Statement of Additional Information to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.

INVESTMENT POLICIES AND RESTRICTIONS

The investment objective of the Fund is set forth in the Prospectus under the
caption "Investment Objectives and Policies." There can be no assurance that the
Fund will achieve its objective.

Fundamental investment restrictions limiting the investments of the Fund
provide that the Fund may not:

B-2
<PAGE> 459

may purchase securities of other investment companies to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act.

4. Make loans, except to the extent the tax exempt obligations the Fund may
invest in are considered to be loans.

7. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.

8. Make investments for the purpose of exercising control or participation in
management, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.

10. Invest in equity interests in oil, gas or other mineral exploration of
development programs.

11. Purchase or sell real estate, commodities or commodity contracts, except
as set forth in item 6 above and except to the extent the municipal
securities the Fund may invest in are considered to be interests in real
estate.

B-3
<PAGE> 460

The Fund does not intend to invest in certain "private activity" obligations
issued after August 7, 1986. Interest on such "private activity" obligations is
treated as a preference item for the purpose of calculating the alternative
minimum tax. If the Fund were to invest in such "private activity" obligations,
dividends paid to an investor who is subject to the alternative minimum tax
might not be completely tax exempt or might cause an investor to be subject to
such tax.

ADDITIONAL INVESTMENT CONSIDERATIONS

MUNICIPAL SECURITIES. Municipal securities include long-term obligations,
which are often called municipal bonds, as well as shorter term municipal notes,
municipal leases, and tax-exempt commercial paper. Under normal market
conditions, longer term municipal securities generally provide a higher yield
than shorter term municipal securities, and therefore the Fund generally expects
to be invested primarily in longer term municipal securities. The Fund will,
however, invest in shorter term municipal securities when yields are greater
than yields available on longer term municipal securities, for temporary
defensive purposes and when redemption requests are expected. The two principal
classifications of municipal bonds are "general obligation" and "revenue" or
"special obligation" bonds, which include "industrial revenue bonds." General
obligation bonds are secured by the issuer's pledge of its faith, credit, and
taxing power for the payment of principal and interest. Revenue or special
obligation bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special tax or other specific revenue source such as from the user of the
facility being financed.

Also included within the general category of municipal securities are
participations in lease obligations or installment purchase contract obligations
(hereinafter collectively called "lease obligations") of municipal authorities
or entities used to finance the acquisition of equipment and facilities.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. Although
"non-appropriation" lease obligations are often secured by the underlying
property, disposition of the property in the event of foreclosure might prove
difficult. There is no limitation on the percentage of the Fund's assets that
may be invested in "non-appropriation" lease obligations. In evaluating such
lease obligations, the Adviser will consider such factors as it deems
appropriate, which factors may include (a) whether the lease can be cancelled,
(b) the ability of the lease obligee to direct the sale of the underlying
assets, (c) the general creditworthiness of the lease obligor, (d) the
likelihood that the municipality will discontinue appropriating funding for the
leased property in the event such property is no longer considered essential by
the municipality, (e) the legal recourse of the lease obligee in the event of
such a failure to appropriate funding and (f) any limitations which are imposed
on the lease obligor's ability to utilize substitute property or services than
those covered by the lease obligation.

Also included within the term Municipal Securities are participation
certificates issued by state and local governments or authorities to finance the
acquisition of equipment and facilities. They may represent

B-4
<PAGE> 461

participations in a lease, an installment purchase contract, or a conditional
sales contract. Some municipal leases and participation certificates may not be
readily marketable.

The "issuer" of municipal securities generally is deemed to be the
governmental agency, authority, instrumentality or other political subdivision,
or the non-governmental user of a revenue bond-financed facility, the assets and
revenues of which will be used to meet the payment obligations, or the guarantee
of such payment obligations, of the municipal securities.

The Fund may also acquire custodial receipts or certificates underwritten by
securities dealers or banks that evidence ownership of future interest payments,
principal payments or both on certain municipal securities. The underwriter of
these certificates or receipts typically purchases municipal securities and
deposits the securities in an irrevocable trust or custodial account with a
custodian bank, which then issues receipts or certificates that evidence
ownership of the periodic unmatured coupon payments and the final principal
payment on the obligations. Although under the terms of a custodial receipt, the
Fund typically would be authorized to assert its rights directly against the
issuer of the underlying obligation, the Fund could be required to assert
through the custodian bank those rights as may exist against the underlying
issuer. Thus, in the event the underlying issuer fails to pay principal and/or
interest when due, the Fund may be subject to delays, expenses and risks that
are greater than those that would have been involved if the Fund had purchased a
direct obligation of the issuer. In addition, in the event that the trust or
custodial account in which the underlying security has been deposited is
determined to be an association taxable as a corporation, instead of a
non-taxable entity, the yield on the underlying security would be reduced in
recognition of any taxes paid.

Although the municipal securities in which the Fund may invest will be insured
as to timely payment of both principal and interest, municipal securities, like
other debt obligations, are subject to the risk of non-payment. The ability of
issuers of municipal securities to make timely payments of interest and
principal may be adversely impacted in general economic downturns and as
relative governmental cost burdens are allocated and reallocated among federal,
state and local governmental units. Such non-payment would result in a reduction
of income to the Fund, and could result in a reduction in the value of the
municipal security experiencing non-payment and a potential decrease in the net
asset value of the Fund. Issuers of municipal securities might seek protection
under the bankruptcy laws. In the event of bankruptcy of such an issuer, the
Fund could experience delays and limitations with respect to the collection of
principal and interest on such municipal securities and the Fund may not, in all
circumstances, be able to collect all principal and interest to which it is
entitled. To enforce its rights in the event of a default in the payment of
interest or repayment of principal, or both, the Fund may take possession of and
manage the assets securing the issuer's obligations on such securities, which
may increase the Fund's operating expenses and adversely affect the net asset
value of

B-5
<PAGE> 462

the Fund. Any income derived from the Fund's ownership or operation of such
assets may not be tax-exempt. In addition, the Fund's intention to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"), may limit the extent to which the Fund may exercise its
rights by taking possession of such assets, because as a regulated investment
company the Fund is subject to certain limitations on its investments and on the
nature of its income.

INVESTMENT PRACTICES. If the Adviser deems it appropriate to seek to hedge
the Fund's portfolio against market value changes, the Fund may buy or sell
derivative instruments such as financial futures contracts and related options,
such as municipal bond index futures contracts and the related put or call
options contracts on such index futures. A tax exempt bond index fluctuates with
changes in the market values of the tax exempt bonds included in the index. An
index future is an agreement pursuant to which two parties agree to receive or
deliver at settlement an amount of cash equal to a specified dollar amount
multiplied by the difference between the value of the index at the close of the
last trading day of the contract and the price at which the future was
originally written. A financial future is an agreement between two parties to
buy and sell a security for a set price on a future date. An index future has
similar characteristics to a financial future except that settlement is made
through delivery of cash rather than the underlying securities. An example is
the Long-Term Municipal Bond futures contract traded on the Chicago Board of
Trade. It is based on the Bond Buyer's Municipal Bond Index, which represents an
adjusted average price of the forty most recent long-term municipal issues of
$50 million or more ($75 million in the instance of housing issues) rated A or
better by either Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Group ("S&P"), maturing in no less than nineteen years, having a
first call in no less than seven nor more than sixteen years, and callable at
par.

STRATEGIC TRANSACTIONS.

B-6
<PAGE> 463

assured. The Fund will comply with applicable regulatory requirements when
implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not for speculative purposes.

Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation between
price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. Income earned or deemed to be
earned, if any, by the Fund from its Strategic Transactions will generally be
taxable income of the Fund. See "Tax Status" in the Prospectus.

B-7
<PAGE> 464

options are closed by entering into offsetting purchase or sale transactions
that do not result in ownership of the new option.

The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

B-8
<PAGE> 465

security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.

The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, municipal
obligations and Eurodollar instruments (whether or not it holds the above
securities in its portfolio.) The Fund will not sell put options if, as a
result, more than 50% of the Fund's assets would be required to be segregated to
cover its potential obligations under such put options other than those with
respect to futures and options thereon. In selling put options, there is a risk
that the Fund may be required to buy the underlying security at a
disadvantageous price above the market price.

B-9
<PAGE> 466

on an index depends on price movements in the instruments making up the market,
market segment, industry or other composite on which the underlying index is
based, rather than price movements in individual securities, as is the case with
respect to options on securities.

COMBINED TRANSACTIONS. The Fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple interest rate transactions and any combination of futures, options and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

B-10
<PAGE> 467

sufficient to purchase and deliver the securities if the call is exercised. A
call option sold by the Fund on an index will require the Fund to own portfolio
securities which correlate with the index or to segregate liquid securities
equal to the excess of the index value over the exercise price on a current
basis. A put option written by the Fund requires the Fund to segregate liquid
securities equal to the exercise price.

In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index- based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.

Illiquid Securities. The Fund may invest up to 15% of its total assets in
illiquid securities, securities the disposition of which is subject to
substantial legal or contractual restrictions on resale and securities that are
not readily marketable. The sale of restricted and illiquid securities often
requires more time and results in higher brokerage charges or dealer discounts
and other selling expenses than does the sale of securities eligible for trading
on national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (under which guidelines
the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules. The Fund may, from time to time, adopt a
more restrictive limitation with respect to investment in illiquid and
restricted securities in order to comply with the most restrictive state
securities law, currently 10%. This policy does not include restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of

B-11
<PAGE> 468

1933, as amended, which the Board of Trustees or the Fund's investment adviser
has determined under Board-approved guidelines to be liquid.

INSURANCE. As described in the Prospectus, the Fund will generally invest
only in municipal securities which are either pre-insured under a policy
obtained for such securities prior to the purchase of such securities or will be
insured under policies obtained by the Fund to cover otherwise uninsured
securities.

Original Issue Insurance. Original Issue Insurance is purchased with respect
to a particular issue of municipal securities by the issuer thereof or a third
party in conjunction with the original issuance of such municipal securities.
Under such insurance, the insurer unconditionally guarantees to the holder of
the insured municipal security the timely payment of principal and interest on
such obligation when and as such payments shall become due but shall not be paid
by the issuer, except that in the event of any acceleration of the due date of
the principal by reason of mandatory or optional redemption (other than
acceleration by reason of a mandatory sinking fund payment), default or
otherwise, the payments insured may be made in such amounts and at such times as
payments of principal would have been due had there not been such acceleration.
The insurer is responsible for such payments less any amounts received by the
holder from any trustee for the municipal security issuers or from any other
source. Original Issue Insurance generally does not insure payment on an
accelerated basis, the payment of any redemption premium (except with respect to
certain premium payments in the case of certain small issue industrial
development and pollution control municipal securities), the value of the Shares
of the Fund or the market value of municipal securities, or payments of any
under purchase price upon the tender of the municipal securities. Original Issue
Insurance does not insure against nonpayment of principal of or interest on
municipal securities resulting from the insolvency, negligence or any other act
or omission of the trustee or other paying agent for such obligations.

In the event that interest on or principal of a municipal security covered by
insurance is due for payment but is unpaid by reason of nonpayment by the issuer
thereof, the applicable insurer will make payments to its fiscal agent (the
"Fiscal Agent") equal to such unpaid amounts of principal and interest not later
than one business day after the insurer has been notified that such nonpayment
has occurred (but not earlier than the date such payment is due). The Fiscal
Agent will disburse to the Fund the amount of principal and interest which is
then due for payment but is unpaid upon receipt by the Fiscal Agent of (i)
evidence of the Fund's right to receive payment of such principal and interest
and (ii) evidence, including any appropriate instruments of assignment, that all
of the rights of payment of such principal or interest then due for payment
shall thereupon vest in the insurer. Upon payment by the insurer of any
principal or interest payments with respect to any municipal securities, the
insurer shall succeed to the rights of the Fund with respect to such payment.

Original Issue Insurance remains in effect as long as the municipal securities
covered thereby remain outstanding and the insurer remains in business,
regardless of whether the Fund ultimately disposes of such municipal securities.
Consequently, Original Issue Insurance may be considered to represent an element
of market value with respect to the municipal securities so insured, but the
exact effect, if any, of this insurance on such market value cannot be
estimated.

Secondary Market Insurance. Subsequent to the time of original issuance of a
municipal security, the Fund or a third party may, upon the payment of a single
premium, purchase insurance on such municipal security. Secondary Market
Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance and, as is the case with Original Issue Insurance,
Secondary Market Insurance remains in effect as long as the municipal securities
covered thereby remain outstanding and the insurer remains in business,
regardless of whether the Fund ultimately disposes of such municipal securities.
All premiums respecting municipal securities covered by Original Issue Insurance
or Secondary Market Insurance are paid in advance by the issuer or other party
obtaining the insurance.

One of the purposes of acquiring Secondary Market Insurance with respect to a
particular municipal security would be to enable the Fund to enhance the value
of such municipal security. The Fund, for example, might seek to purchase a
particular municipal security and obtain Secondary Market Insurance with respect
thereto if, in the opinion of the Adviser, the market value of such municipal
security, as insured, would exceed the current value of the municipal security
without insurance plus the cost of the Secondary Market Insurance. Similarly, if
the Fund owns but wishes to sell a municipal security that is then covered by
Portfolio Insurance, the Fund might seek to obtain Secondary Market Insurance
with respect thereto if, in the opinion

B-12
<PAGE> 469

of the Adviser, the net proceeds of a sale by the Fund of such obligation, as
insured, would exceed the current value of such obligation plus the cost of the
Secondary Market Insurance.

Portfolio Insurance. The portfolio insurance policies obtained by the Fund
would insure the payment of principal and interest on specified eligible
municipal securities purchased by the Fund. Except as described below, Portfolio
Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance or Secondary Market Insurance. Municipal securities
insured under one Portfolio Insurance policy generally would not be insured
under any other policy purchased by the Fund. A municipal security is eligible
for coverage under a policy if it meets certain requirements of the insurer.
Portfolio Insurance is intended to reduce financial risk, but the cost thereof,
and compliance with investment restrictions imposed under the policy will reduce
the yield to shareholders of the Fund. If a municipal security already is
covered by Original Issue Insurance or Secondary Market Insurance, the Fund is
not required to additionally insure any such municipal security under any policy
of Portfolio Insurance that the Fund may purchase.

Portfolio Insurance policies are effective only as to municipal securities
owned and held by the Fund, and do not cover municipal securities for which the
contract for purchase fails. A "when-issued" municipal security will be covered
under a Portfolio Insurance policy upon the settlement date of the issue of such
"when-issued" municipal security.

In determining whether to insure municipal securities held by the Fund, an
insurer will apply its own standards, which correspond generally to the
standards it has established for determining the insurability of new issues of
municipal securities. See "Original Issue Insurance" above.

Each Portfolio Insurance policy will be non-cancellable and will remain in
effect so long as the Fund is in existence, the municipal securities covered by
the policy continue to be held by the Fund, and the Fund pays the premiums for
the policy. Each insurer generally will reserve the right at any time upon 90
days written notice to the Fund to refuse to insure any additional securities
purchased by the Fund after the effective date of such notice. The Board of
Trustees of the Fund generally will reserve the right to terminate each policy
upon seven days written notice to an insurer if it determines that the cost of
such policy is not reasonable in relation to the value of the insurance to the
Fund.

Each Portfolio Insurance policy shall terminate as to any municipal security
that has been redeemed from or sold by the Fund on the date of such redemption
or the settlement date of such sale, and an insurer shall not have any liability
thereafter under a policy as to any such municipal security, except that if the
date of such redemption or the settlement date of such sale occurs after a
record date and before the related payment date with respect to any such
municipal security, the policy will terminate as to such municipal security on
the business day immediately following such payment date. Each policy will
terminate as to all municipal securities covered thereby on the date on which
the last of the covered municipal securities mature, are redeemed or are sold by
the Fund.

One or more policies of Portfolio Insurance may provide the Fund, pursuant to
an irrevocable commitment of the insurer, with the option to exercise the right
to obtain permanent insurance ("Permanent Insurance") with respect to a
municipal security that is to be sold by the Fund. The Fund would exercise the
right to obtain Permanent Insurance upon payment of a single, predetermined
insurance premium payable from the proceeds of the sale of such municipal
security. It is expected that the Fund will exercise the right to obtain
Permanent Insurance for a municipal security only if, in the opinion of the
Adviser, upon such exercise the net proceeds from the sale by the Fund of such
obligation, as insured, would exceed the proceeds from the sale of such
obligation without insurance. The Permanent Insurance premium with respect to
each such obligation is determined based upon the insurability of each such
obligation of the date of purchase by the Fund and will not be increased or
decreased for any change in the creditworthiness of such obligation unless such
obligation is in default as to payment of principal or interest, or both. In
such event, the Permanent Insurance premium shall be subject to an increase
predetermined at the date of purchase by the Fund.

Because such Portfolio Insurance policy will terminate as to municipal
securities sold by the Fund on the date of sale, in which event the insurer will
be liable only for those payments of principal and interest that are then due
and owing (unless Permanent Insurance is obtained by the Fund), the provision
for this insurance will not enhance the marketability of securities held by the
Fund, whether or not the securities are in default or

B-13
<PAGE> 470

in significant risk of default. On the other hand, since Original Issue
Insurance and Secondary Market Insurance will remain in effect as long as
municipal securities covered thereby are outstanding, such insurance may enhance
the marketability of such securities even when such securities are in default or
in significant risk of default, but the exact effect, if any, on the
marketability cannot be estimated. Accordingly, the Fund may determine to retain
or, alternatively, to sell municipal securities by Original Issue Insurance or
Secondary Market Insurance that are in default or in significant risk of
default.

It is anticipated that certain of the municipal securities to be purchased by
the Fund will be insured under policies obtained by persons other than the Fund.
In instances in which the Fund purchases municipal securities insured under
policies obtained by persons other than the Fund, the Fund does not pay the
premiums for such policies; rather the cost of such policies may be reflected in
a higher purchase price for such municipal securities. Accordingly, the yield on
such municipal securities may be lower than that on similar uninsured municipal
securities. Premiums for a Portfolio Insurance Policy generally are paid by the
Fund monthly, and are adjusted for purchases and sales of municipal securities
covered by the policy during the month. The yield on the Fund's portfolio is
reduced to the extent of the insurance premiums paid by the Fund which, in turn,
will depend upon the characteristics of the covered municipal securities held by
the Fund. In the event the Fund were to purchase Secondary Market Insurance with
respect to any municipal securities then covered by a Portfolio Insurance
policy, the coverage and the obligation of the Fund to pay monthly premiums
under such policy would cease with such purchase.

There can be no assurance that insurance of the kind described above will
continue to be available to the Fund. In the event that such insurance is no
longer available or that the cost of such insurance outweighs the benefits to
the Fund in the view of the Board of Trustees, the Board will consider whether
to modify the investment policies of the Fund, which may require the approval of
shareholders. In the event the claims-paying ability rating of an insurer of
municipal securities in the Fund's portfolio were to be lowered from AAA by S&P,
or if the Adviser anticipates such a lowering or otherwise does not believe an
insurer's claims-paying ability merits its existing triple-A rating, the Fund
could seek to obtain additional insurance from an insurer whose claims-paying
ability is rated AAA by S&P or, if the Adviser determines that the cost of
obtaining such additional insurance outweigh the benefits, the Fund may elect
not to obtain additional insurance. In making such determination, the Adviser
will consider the cost of the additional insurance, the new claims-paying
ability rating and financial condition of the existing insurer and the
creditworthiness of the issuer and/or guarantor of the underlying municipal
securities. The Adviser also may determine not to purchase additional insurance
in such circumstances if it believes that the insurer is taking steps which will
cause its triple-A claims-paying ability rating to be restored promptly.

Although the Adviser periodically reviews the financial condition of each
insurer, there can be no assurance that the insurers will be able to honor their
obligations under all circumstances. In that regard, it should be noted that the
claims-paying abilities and debt ratings of several large insurers (at least one
of which insured municipal securities) recently have been lowered by one or more
of the nationally recognized securities rating agencies and that many insurers
currently are experiencing adverse results in their investment portfolios. In
addition, certain insurers' operations recently have been assumed by their state
regulatory agencies. The Fund cannot predict the consequences of a state
takeover of an insurer's obligations and, in particular, whether such an insurer
(or its state regulatory agency) could or would honor all of the insurer's
contractual obligations including any outstanding insurance contracts insuring
the timely payment of principal and interest on municipal securities. The Fund
cannot predict the impact which such events might have on the market values of
such municipal security. In the event of a default by an insurer on its
obligations with respect to any municipal securities in the Fund's portfolio,
the Fund would look to the issuer and/or guarantor of the relevant municipal
securities for payments of principal and interest and such issuer and/or
guarantor may not be rated AAA by S&P. Accordingly, the Fund could be exposed to
greater risk of non-payment in such circumstances which could adversely affect
the Fund's net asset value and the market price per Share. Alternatively, the
Fund could elect to dispose of such municipal securities; however, the market
prices for such municipal securities may be lower than the Fund's purchase price
for them and the Fund could sustain a capital loss as a result.

B-14
<PAGE> 471

scheduled payments of principal or interest), insured municipal securities
remain subject to market risk (i.e., fluctuations in market value as a result of
changes in prevailing interest rates). Accordingly, insurance on municipal
securities does not insure the market value of the Fund's assets or the net
asset value or the market price for the Shares.

AMBAC Indemnity Corporation. AMBAC Indemnity is a Wisconsin-domiciled stock
insurance corporation regulated by the Insurance Department of the State of
Wisconsin and licensed to do business in 50 states and the District of Columbia.
On December 31, 1991, AMBAC Indemnity had admitted assets of approximately
$1,431,000,000, total liabilities of approximately $684,400,000 and statutory
capital of approximately $830,000,000. Statutory capital consists of AMBAC
Indemnity's policyholders' surplus and statutory contingency reserve. AMBAC
Indemnity was formerly a wholly-owned subsidiary of Citicorp Financial Guaranty
Holdings, Inc. ("Holdings") (formerly known as AMBAC Inc.), a financial holding
company and itself a wholly-owned subsidiary of Citibank, N.A. ("Citibank").
According to Best Insurance Report (1991 edition), AMBAC Indemnity's aggregate
exposure under all Class I (municipal bond insurance) financial guaranty bonds,
the only class set forth therein, in force as of December 31, 1990 was
$86,200,000,000.

On May 1, 1991, AMBAC Inc. ("AMBAC Inc."), a financial holding company formed
by Holdings, registered for sale with the Securities and Exchange Commission
17,600,000 shares of its common stock. The registration statement with respect
to such sale was declared effective on July 11, 1991. As a result of the sale,
Citibank, through its affiliate Holdings, owns approximately 49% of the total
equity of AMBAC Inc., with a right to cast 20% of the total number of votes of
all shares of outstanding common stock of AMBAC Inc. until such time as
Citibank, including its affiliates, reduces its equity ownership to less than
25% of AMBAC Inc. (at which time the shares owned by it become non-voting). As
of the date of the consummation of the sale of common stock, AMBAC Indemnity
became a direct wholly owned subsidiary of AMBAC Inc. The Wisconsin Insurance
Department has stated that the sale of common stock described herein does not
require its prior approval. Both Moody's and S&P have reaffirmed that the sale
of the common stock of AMBAC Inc. does not affect AMBAC Indemnity's triple-A
claims-paying ability ratings.

AMBAC Indemnity has entered into pro rata reinsurance agreements under which a
percentage of the insurance underwritten pursuant to certain municipal bond
insurance programs of AMBAC Indemnity has been and will be assumed by a number
of foreign and domestic unaffiliated reinsurers.

Copies of AMBAC Indemnity's financial statements prepared in accordance with
statutory accounting standards are available from AMBAC Indemnity. The address
of AMBAC Indemnity's administrative offices and its telephone number are One
State Street Plaza, 17th Floor, New York, New York 10004 and (212) 668-0340.

DESCRIPTION OF MUNICIPAL SECURITIES RATINGS

STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by S&P) follows:

1. DEBT

A S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely
on unaudited financial information. The ratings may be changed, suspended
or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.

B-15
<PAGE> 472

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.

A Debt rated 'A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.

BBB Debt rated 'BBB' is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.

BB Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded, on
B balance, as predominantly speculative with respect to
CCC capacity to pay interest and repay principal. 'BB' indicates
CC the least degree of speculation and 'C' the highest. While
C such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or large exposures to adverse conditions.

BB Debt rated 'BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments. The 'BB' rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'BBB-' rating.

B Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B'
rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied 'BB' or 'BB-'
rating.

CCC Debt rated 'CCC' has a currently identifiable vulnerability
to default, and is dependent upon favorable business,
financial, and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay
principal. The 'CCC' rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.

CC The rating 'CC' typically is applied to debt subordinated to
senior debt that is assigned an actual or implied 'CCC'
rating.

C The rating 'C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied 'CCC-'
debt rating. The 'C' rating may be used to cover a situation
where a bankruptcy petition has been filed, but debt service
payments are continued.

CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.
</TABLE>

B-16
<PAGE> 473
<TABLE>
<S> <C>
D Debt rated 'D' is in payment default. The 'D' rating
category is used when interest payments or principal
payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.

PLUS (+) or MINUS (-): The ratings from 'AA' to 'CCC' may be
modified by the addition of a plus or minus sign to show
relative standing within the major categories.

C The letter "c" indicates that the holder's option to tender
the security for purchase may be canceled under certain
prestated conditions enumerated in the tender option
documents.

I The letter "i" indicates the rating is implied. Such ratings
are assigned only on request to entities that do not have
specific debt issues to be rated. In addition, implied
ratings are assigned to governments that have not requested
explicit ratings for specific debt issues. Implied ratings
on governments represent the sovereign ceiling or upper
limit for ratings on specific debt issues of entities
domiciled in the country.

L The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the
underlying deposit collateral is federally insured and
interest is adequately collateralized. In the case of
certificates of deposit, the letter "L" indicates that the
deposit, combined with other deposits being held in the same
right and capacity, will be honored for principal and
accrued pre-default interest up to the federal insurance
limits within 30 days after closing of the insured
institution or, in the event that the deposit is assumed by
a successor insured institution, upon maturity.

P The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or
entirely dependent upon the successful and timely completion
of the project. This rating, however, while addressing
credit quality subsequent to completion of the project,
makes no comment on the likelihood of, or the risk of
default upon failure of, such completion. The investor
should exercise his own judgement with respect to such
likelihood and risk.

* Continuance of the rating is contingent upon S&P's receipt
of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.

NR Indicates that no public rating has been requested, that
there is insufficient information on which to base a rating,
or that S&P does not rate a particular type of obligation as
a matter of policy.
</TABLE>

DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS
TERRITORIES are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not
take into account currency exchange and related uncertainties.

BOND INVESTMENT QUALITY STANDARDS--Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the
top four categories ("AAA", "AA", "A", "BBB", commonly known as "investment
grade" ratings) are generally regarded as eligible for bank investment. In
addition, the laws of various states governing legal investments impose
certain rating or other standards for obligations eligible for investment
by savings banks, trust companies, insurance companies, and fiduciaries
generally.

2. MUNICIPAL NOTES

A S&P note rating reflects the liquidity concerns and market access
risks unique to notes. Notes maturing in 3 years or less will likely
receive a note rating. Notes maturing beyond 3 years will most likely
receive a long-term debt rating.

The following criteria will be used in making that assessment.

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<PAGE> 474

-- Amortization schedule (the larger the final maturity relative to
other maturities, the more likely the issue is to be treated as a
note).

-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note).

Note rating symbols are as follows:

<TABLE>
<S> <C>
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are a plus
(+) designation.

SP-2 Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes
over the term of the notes.

SP-3 Speculative capacity to pay principal and interest.
</TABLE>

3. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days.

Ratings are graded into several categories, ranging from 'A-1' for the
highest-quality obligations to 'D' for the lowest. These categories are as
follows:

<TABLE>
<S> <C>
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are
denoted with a plus (+) sign designation.

A-2 Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is
not as high as for issues designated 'A-1'.

A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.

B Issues rated 'B' are regarded as having only speculative
capacity for timely payment.

C This rating is assigned to short-term debt obligations with
a doubtful capacity for payment.

D Debt rated 'D' is in payment default. The 'D' rating
category is used when interest payments or principal
payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period.

A commercial paper rating is not a recommendation to purchase, sell a
security. The ratings are based on current information furnished to S&P
by the issuer or obtained by S&P from other sources it considers
reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in or unavailability of, such information.
</TABLE>

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<PAGE> 475

4. TAX-EXEMPT DUAL RATINGS

S&P assigns "dual" ratings to all debt issues that have a put option
or demand feature as part of their structure.

The first rating addresses the likelihood of repayment of principal
and interest as due, and the second rating addresses only the demand
feature. The long-term debt rating symbols are used for bonds to denote the
long-term maturity and the commercial paper rating symbols for the put
option (for example, 'AAA/A-1+'). With short-term demand debt, S&P's note
rating symbols are used with the commercial paper symbols (for example,
'SP-1+/A-1+').

MOODY'S INVESTORS SERVICE--A brief description of the applicable Moody's
Investors Service ("Moody's") rating symbols and their meanings (as published by
Moody's) follows:

1. LONG-TERM MUNICIPAL BONDS

<TABLE>
<S> <C>
AAA Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edged." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long-term risk
appear somewhat larger than the Aaa securities.

A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some
time in the future.

BAA Bonds which are rated Baa are considered as medium-grade
obligations, (i.e., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.

BA Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may
be very moderate, and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.

CAA Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.

CA Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.

C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
</TABLE>

B-19
<PAGE> 476

CON (..) Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated
conditionally and designated with the prefix "Con" followed
by the rating in parentheses. These are bonds secured by:
(a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals
which begin when facilities are completed, or (d) payments
to which some other limiting condition attaches the
parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of
condition.

(P) (..) When applied to forward delivery bonds, indicates that the
rating is provisional pending the delivery of the bonds. The
rating may be revised prior to delivery if changes occur in
the legal documents or the underlying credit quality of the
bonds.

NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each
generic rating classification from AA to B. The modifier 1
indicates that the company ranks in the higher end of its
generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the
company ranks in the lower end of its generic rating
category.

2. SHORT-TERM EXEMPT NOTES

Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements
are critical in short-term ratings, while other factors of major importance
in bond risk, long-term secular trends for example, may be less important
over the short run. A short-term rating may also be assigned on an issue
having a demand feature-variable rate demand obligation. Such ratings will
be designated as VMIG, SG or, if the demand feature is not rated, as NR.

MIG 2/VMIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

SG. This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

3. TAX-EXEMPT COMMERCIAL PAPER

B-20
<PAGE> 477

Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated
issuers:

- Leading market positions in well established industries.

- High rates of return on funds employed.

- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.

- Broad margins in earning coverage of fixed financial charges and high
internal cash generation.

- Well established access to a range of financial markets and assured
sources of alternate liquidity.

Issuers rated Not Prime do not fall within any of the Prime rating
categories.

TRUSTEES AND OFFICERS

TRUSTEES

B-21
<PAGE> 478

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>

Linda Hutton Heagy........................ Partner, Ray & Berndtson, Inc. An executive recruiting
Sears Tower and management consulting firm. Formerly, Executive Vice
233 South Wacker Drive President of ABN AMRO, N.A., a Dutch bank holding
Suite 4020 company. Prior to 1992, Executive Vice President of La
Chicago, IL 60606 Salle National Bank. Trustee of each of the funds in the
Date of Birth: 06/03/48 Fund Complex.

R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the funds in the Fund Complex.

Dennis J. McDonnell*...................... President and a Director of VKAC. President, Chief
One Parkview Plaza Operating Officer and a Director of the Advisers.
Oakbrook Terrace, IL 60181 Director or officer of certain other subsidiaries of
Date of Birth: 05/20/42 VKAC. Prior to November 1996, Executive Vice President
and a Director of VKAC Holding. President and Trustee of
each of the funds in the Fund Complex. President,
Chairman of the Board and Trustee of other investment
companies advised by the Advisers or their affiliates.

Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee of each of the funds
in the Fund Complex.

Jerome L. Robinson........................ President, Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director, Pacesetter Software, a software
Date of Birth: 10/10/22 programming company specializing in white collar
productivity. Director, Panasia Bank. Trustee of each of
the funds in the Fund Complex.

Phillip B. Rooney......................... Private investor. Director, Illinois Tool Works, Inc., a
348 East Third Street manufacturing company; Director, The Servicemaster
Hinsdale, IL 60521 Company, a business and consumer services company;
Date of Birth: 07/08/44 Director, Urban Shopping Centers Inc., a retail mall
management company; Director, Stone Container Corp., a
paper manufacturing company. Trustee, University of Notre
Dame. Formerly, President and Chief Executive Officer,
WMX Technologies Inc., an environmental services company,
and prior to that President and Chief Operating Officer,
WMX Technologies Inc. Trustee of each of the funds in the
Fund Complex.

Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee of each of the funds in the
Fund Complex.
</TABLE>

B-22
<PAGE> 479

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>

Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, open-end funds advised by Van Kampen American
Date of Birth: 08/22/39 Capital Management, Inc. and closed-end funds advised by
Advisory Corp. Trustee of each of the funds in the Fund
Complex, open-end funds advised by Van Kampen Capital
Management, Inc. and closed-end funds advised by Advisory
Corp.
</TABLE>

- ---------------

OFFICERS

B-23
<PAGE> 480

B-24
<PAGE> 481

B-25
<PAGE> 482

B-26
<PAGE> 483

order to match the deferred compensation obligation. The deferred compensation
plan is not funded and obligations thereunder represent general unsecured claims
against the general assets of the Fund.

1996 COMPENSATION TABLE

- ---------------

B-27
<PAGE> 484

As of April 4, 1997, the trustees and officers of the Fund as a group owned
less than 1% of the shares of the Fund.

B-28
<PAGE> 485

TABLE A

1996 AGGREGATE COMPENSATION FROM THE TRUST AND EACH SERIES

TABLE B

1996 AGGREGATE COMPENSATION DEFERRED FROM THE TRUST AND EACH SERIES

TABLE C

CUMULATIVE COMPENSATION DEFERRED (PLUS INTEREST) FROM THE TRUST

AND EACH SERIES

<TABLE>
<CAPTION>
TRUSTEE
FISCAL -----------------------------------------------------------------------------------
FUND NAME YEAR-END BRANAGAN GAUGHAN HEAGY HILSMAN KENNEDY MILLER NELSON REES ROBINSON
--------- -------- -------- ------- ----- ------- ------- ------ ------ ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured Tax Free Income Fund..... 12/31 $ 864 $3,486 $3,412 $0 $7,792 $9,083 $9,476 $0 $8,925
Tax Free High Income Fund........ 12/31 864 3,486 3,412 0 7,792 9,083 9,476 0 8,925
California Insured Tax Free
Income Fund.................... 12/31 864 3,486 3,412 0 7,792 9,083 9,476 0 8,925
Municipal Income Fund............ 12/31 864 3,486 3,412 0 7,792 9,083 9,083 0 8,925
Intermediate Term Municipal
Income Fund.................... 12/31 864 3,486 3,412 0 7,792 9,083 9,476 0 8,925
Florida Insured Tax Free Income
Fund........................... 12/31 864 1,628 3,412 0 4,228 5,766 5,912 0 5,648
New Jersey Tax Free Income
Fund........................... 12/31 247 518 0 0 2,053 2,323 2,436 0 2,287
New York Tax Free Income Fund.... 12/31 247 518 0 0 2,053 2,323 2,436 0 2,287
Trust Total.................... 5,678 20,094 20,472 0 47,294 55,827 57,771 0 54,847

<CAPTION>
TRUSTEE
-----------------------------------
FUND NAME SHEEHAN SISTO WHALEN WOODSIDE
--------- ------- ----- ------ --------
<S> <C> <C> <C> <C>
Insured Tax Free Income Fund..... $0 $0 $7,967 $0
Tax Free High Income Fund........ 0 0 7,967 0
California Insured Tax Free
Income Fund.................... 0 0 7,967 0
Municipal Income Fund............ 0 0 7,967 0
Intermediate Term Municipal
Income Fund.................... 0 0 7,967 0
Florida Insured Tax Free Income
Fund........................... 0 0 5,486 0
New Jersey Tax Free Income
Fund........................... 0 0 1,974 0
New York Tax Free Income Fund.... 0 0 1,974 0
Trust Total.................... 0 0 49,269 0
</TABLE>

TABLE D

1996 RETIREMENT BENEFITS ACCRUED AS PART OF EXPENSES FOR THE TRUST

AND EACH SERIES

B-29
<PAGE> 486

TABLE E

YEAR OF ELECTION OR APPOINTMENT TO EACH SERIES OF THE TRUST

As of April 4, 1997, no person was known by the Fund to own beneficially or to
hold of record as much as 5% of the outstanding Class A Shares, Class B Shares
or Class C Shares of the Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser was incorporated as a Delaware
corporation in 1982 (and through December 31, 1987 transacted business under the
name of American Portfolio Advisory Service Inc.).

Morgan Stanley Group Inc. and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending.

On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Subject to certain conditions being
met, it is currently anticipated that the transaction will close in mid-1997.
Thereafter, Van Kampen American Capital Asset Management, Inc. will be an
indirect subsidiary of Morgan Stanley, Dean Witter, Discover & Co.

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

The investment advisory agreement between the Adviser and the Fund provides
that the Adviser will supply investment research and portfolio management,
including the selection of securities for the Fund to purchase, hold or sell and
the selection of brokers through whom the Fund's portfolio transactions are
executed. The Adviser also administers the business affairs of the Fund,
furnishes offices, necessary facilities and equipment, provides administrative
services, and permits its officers and employees to serve without compensation
as trustees of the Trust and officers of the Fund if duly elected to such
positions.

B-30
<PAGE> 487

The Adviser's activities are subject to the review and supervision of the
Board of Trustees of the Trust, of which the Fund is a series, to whom the
Adviser renders periodic reports of the Fund's investment activities.

The advisory agreement will continue in effect from year to year if
specifically approved by the Trustees of the Trust, of which the Fund is a
separate series, (or by the Fund's shareholders) and by the disinterested
Trustees in compliance with the requirements of the 1940 Act. The agreement may
be terminated without penalty upon 60 days written notice by either party and
will automatically terminate in the event of assignment.

The investment advisory agreement specifies that the Adviser will reimburse
each of the Funds for annual expenses of such Funds which exceed the most
stringent limit prescribed by any State in which the Fund's shares are offered
for sale. Currently, the most stringent limit in any State would require such
reimbursement to the extent that aggregate operating expenses of the Fund
(excluding interest, taxes and other expenses which may be excludable under
applicable state law) exceed in any fiscal year 2 1/2% of the average annual net
assets of the Fund up to $30 million, 2% of the average annual net assets of the
Fund of the next $70 million and 1 1/2% of the remaining average annual net
assets of the Fund. In addition to making any required reimbursements, the
Adviser may in its discretion, but is not obligated to, waive all or any portion
of its fee or assume all or any portion of the expenses of any of the Funds.

For the years ended December 31, 1996, 1995 and 1994, the Fund paid advisory
expenses of $6,928,017, $5,813,647 and $5,028,401, respectively.

OTHER AGREEMENTS.

ACCOUNTING SERVICES AGREEMENT. The Fund has entered into an accounting
services agreement pursuant to which the Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares with the other Van Kampen American Capital funds in the cost of
providing such services, with 25% of such costs shared proportionately based on
the number of outstanding classes of securities per Fund and with the remaining
75 percent of such cost being paid by the Fund and such other Van Kampen
American Capital funds based proportionally on their respective net assets.

For the years ended December 31, 1996, 1995 and 1994, the Fund paid expenses
of approximately $43,872, $42,800 and $31,650, respectively, representing the VK
Adviser's cost of providing accounting services.

LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the Adviser and distributed by the Distributor have
entered into Legal Services Agreements pursuant to which Van Kampen American
Capital provides legal services, including without limitation: accurate
maintenance of the funds' minute books and records, preparation and oversight of
the funds' regulatory reports, and other information provided to shareholders,
as well as responding to day-to-day legal issues on behalf of the funds. Payment
by the Fund for such services is made on a cost basis for the salary and salary
related benefits, including but not limited to bonuses, group insurances and
other regular wages for the employment of personnel, as well as overhead and the
expenses related to the office space and the equipment necessary to render the
legal services. Other funds distributed by the Distributor also receive legal
services from Van Kampen American Capital. Of the total costs for legal services
provided to funds distributed by the Distributor, one half of such costs are
allocated equally to each fund and the remaining one half of such costs are
allocated to specific funds based on monthly time records.

For the years ended December 31, 1996, 1995 and 1994, the Fund paid expenses
of approximately $28,317, $39,400 and $25,100, respectively, representing Van
Kampen American Capital's cost of providing legal services.

CUSTODIAN AND INDEPENDENT ACCOUNTANTS

B-31
<PAGE> 488

things, attends to the collection of principal and income, and payment for and
collection of proceeds of securities bought and sold by the Fund.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS

The Trustees have adopted certain policies incorporating the standards of Rule
17e-1 issued by the Securities and Exchange Commission under the 1940 Act which
requires that the commission paid to the Distributor and other affiliates of the
Fund must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the Trustees will consider from time to time whether the advisory fee
will be reduced by all or a portion of the brokerage commission given to brokers
that are affiliated with the Fund.

TAX STATUS OF THE FUND

B-32
<PAGE> 489

investment company under the Code. If the Fund so qualifies and distributes each
year to its shareholders at least 90% of its net investment income (including
tax-exempt interest, taxable income and net short-term capital gain, but not net
capital gains, which are the excess of long-term capital gains over net
short-term capital losses) in each year, it will not be required to pay federal
income taxes on any income distributed to shareholders. The Fund intends to
distribute at least the minimum amount of net investment income necessary to
satisfy the 90% distribution requirement. The Fund will not be subject to
federal income tax on any net capital gains distributed to shareholders.

THE DISTRIBUTOR

Shares of the Fund are offered on a continuous basis through the Distributor.
The Distributor is a wholly owned subsidiary of Van Kampen American Capital,
Inc., which is a subsidiary of VK/AC Holding, Inc., VK/AC Holding, Inc. is a
wholly-owned subsidiary of MSAM Holdings II, Inc. which, in turn, is a wholly-
owned subsidiary of Morgan Stanley Group Inc. The principal office of the Fund,
the Adviser, the Distributor and VKAC is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.

Morgan Stanley Group Inc. and various of its directly or indirectly owned
subsidiaries, including Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange, commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; and global custody, securities clearance services and securities
lending.

On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
announced that they had entered into an Agreement and Plan of Merger to form
Morgan Stanley, Dean Witter, Discover & Co. Subject to certain conditions being
met, it is currently anticipated that the transaction will close in mid-1997.
Thereafter, Van Kampen American Capital Asset Management, Inc. will be an
indirect subsidiary of Morgan Stanley, Dean Witter, Discover & Co.

Dean Witter, Discover & Co. is a financial services company with three major
businesses; full service brokerage, credit services and asset management.

Pursuant to a distribution agreement, the Distributor will purchase shares of
the Fund for resale to the public, either directly or through securities
dealers, and is obligated to purchase only those shares for which it has
received purchase orders. A discussion of how to purchase and redeem the Fund's
shares and how the Fund's shares are priced is contained in the Prospectus.

DISTRIBUTION AND SERVICE PLANS

B-33
<PAGE> 490

daily net assets attributable to each class of shares in connection with
distribution of the respective class of shares and in connection with the
provision of ongoing services to shareholders of such class, respectively. The
Plans are being implemented through an agreement (the "Distribution and Service
Agreement") with the Distributor and sub-agreements between the Distributor and
members of the NASD who are acting as securities dealers and NASD members or
eligible non-members who are acting as brokers or agents and similar agreements
between the Fund and financial intermediaries who are acting as brokers
(collectively, "Selling Agreements") that may provide for their customers or
clients certain services or assistance, which may include, but not be limited
to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."

The Distributor must submit quarterly reports to the Board of Trustees of the
Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Plans and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Trustees. The Plans provide that they will
continue in full force and effect from year to year so long as such continuance
is specifically approved by a vote of the Trustees, and also by a vote of the
disinterested Trustees, cast in person at a meeting called for the purpose of
voting on the Plans. Each of the Plans may not be amended to increase materially
the amount to be spent for the services described therein with respect to either
class of shares without approval by a vote of a majority of the outstanding
voting shares of such class, and all material amendments to either of the Plans
must be approved by the Trustees and also by the disinterested Trustees. Each of
the Plans may be terminated with respect to either class of shares at any time
by a vote of a majority of the disinterested Trustees or by a vote of a majority
of the outstanding voting shares of such class.

For the fiscal year ended December 31, 1996, the Fund's aggregate expenses
under the Plans for Class A shares were $2,897,029 or 0.24% of the Class A
shares' average net assets. Such expenses were paid to reimburse the Distributor
for payments made to financial intermediaries for servicing Fund shareholders
and for administering the Plans. For the fiscal year ended December 31, 1996,
the Fund's aggregate expenses under the Plans for Class B shares were $721,697
or 1.00% of the Class B shares' average net assets. Such expenses were paid to
reimburse the Distributor for the following payments: $541,272 for commissions
and transaction fees paid to financial intermediaries in respect of sales of
Class B shares of the Fund and $180,425 for fees paid to financial
intermediaries for servicing Class B shareholders and administering the Plans.
For the fiscal year ended December 31, 1996, the Fund's aggregate expenses under
the Plans for Class C shares were $46,640 or 1.00% of the Class C shares'
average net assets. Such expenses were paid to reimburse the Distributor for the
following payments: $15,738 for commissions and transaction fees paid to
financial intermediaries in respect of sales of Class C shares of the Fund and
$30,902 for fees paid to financial intermediaries for servicing Class C
shareholders and administering the Plans.

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).

B-34
<PAGE> 491

PERFORMANCE INFORMATION

CLASS A SHARES

The average total return, including payment of the maximum sales charge, with
respect to the Class A Shares for (i) the one year period ended December 31,
1996 was (1.25)%; (ii) the five year period ended December 31, 1996 was 5.98%;
(iii) the ten year period ended December 31, 1996 was 6.82%; and (iv) the period
from December 14, 1984 (the commencement of investment operations of the Fund)
through December 31, 1996 was 9.05%.

The Fund's yield with respect to the Class A Shares for the 30 day period
ending December 30, 1996 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 4.16%. The tax-equivalent yield for
the 30 day period ending December 30, 1996 (calculated in the manner described
in the Prospectus under the heading "Fund Performance" and assuming a 36% tax
rate) was 6.50%. The Fund's current distribution rate with respect to the Class
A Shares for the 31 day period ending December 31, 1996 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") was
4.84%.

The Fund's cumulative non-standardized total return, including payment of the
maximum sales charge, with respect to the Class A Shares from its inception to
the end of the current period was 184.19%.

The Fund's cumulative non-standardized total return, excluding payment of the
maximum sales charge, with respect to the Class A Shares from its inception to
the end of the current period was 198.31%.

CLASS B SHARES

The average total return, including payment of CDSC, with respect to the Class
B Shares for (i) the one year period ended December 31, 1996 was (1.10)% and
(ii) the approximately three year, eight month period from May 1, 1993 (the
commencement of distribution) through December 31, 1996 was 4.04%.

The Fund's yield with respect to the Class B Shares for the 30 day period
ending December 30, 1996 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.57%. The tax-equivalent yield for
the 30 day period ending December 30, 1996 (calculated in the manner described
in the Prospectus under the heading "Fund Performance" and assuming a 36% tax
rate) was 5.58%. The Fund's current distribution rate with respect to the Class
B Shares for the 31 day period ending December 31, 1996 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") was
4.30%.

The Fund's cumulative non-standardized total return, including payment of the
CDSC, with respect to the Class B Shares from its inception to the end of the
current period was 15.65%.

The Fund's cumulative non-standardized total return, excluding payment of the
CDSC, with respect to the Class B Shares from its inception to the end of the
current period was 18.14%.

B-35
<PAGE> 492

CLASS C SHARES

The average total return, including payment of CDSC, with respect to the Class
C Shares for (i) the one year period ended December 31, 1996 was 1.85% and (ii)
the approximately three year, five month period from August 13, 1993
(commencement of distribution) through December 31, 1996 was 4.09%.

The Fund's yield with respect to the Class C Shares for the 30 day period
ending December 30, 1996 (calculated in the manner described in the Prospectus
under the heading "Fund Performance") was 3.57%. The tax-equivalent yield for
the 30 day period ending December 30, 1996 (calculated in the manner described
in the Prospectus under the heading "Fund Performance" and assuming a 36% tax
rate) was 5.58%. The Fund's current distribution rate with respect to the Class
C Shares for the 31 day period ending December 31, 1996 (calculated in the
manner described in the Prospectus under the heading "Fund Performance") was
4.30%.

The Fund's cumulative non-standardized total return, including payment of the
CDSC, with respect to the Class C Shares from its inception to the end of the
current period was 14.54%.

The Fund's cumulative non-standardized total return, excluding payment of the
CDSC, with respect to the Class C Shares from its inception to the end of the
current period was 14.54%.

B-36
<PAGE> 493

REPORT OF INDEPENDENT ACCOUNTANTS

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, 1996, 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, 1996, 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, 1996,
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, 1997

B-37

<PAGE> 494

PORTFOLIO OF INVESTMENTS

December 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Market
Amount Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 2.3%
$ 2,250 Alabama St Brd Edl Rev Shelton St Cmnty College (MBIA
Insd)....................................................... 6.000% 10/01/14 $ 2,357
2,000 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln Ser A (AMBAC
Insd)....................................................... 6.750 08/15/17 2,223
2,900 Birmingham-Carraway, AL Methodist Hlth Sys Ser A (Connie Lee
Insd)....................................................... 5.875 08/15/25 2,948
2,500 Jefferson Cnty, AL Brd Edl Cap Outlay Sch (AMBAC Insd)...... 5.875 02/15/20 2,551
5,500 Limestone Cnty, AL Wtr Auth Wtr Rev (FGIC Insd)............. 7.700 12/01/19 5,858
5,500 Morgan Cnty Decatur, AL Hlthcare Auth Hosp Rev Decatur Genl
Hosp Rfdg (Connie Lee Insd)................................. 6.250 03/01/13 5,852
2,400 Muscle Shoals, AL Util Brd Wtr & Swr Rev (FSA Insd)......... 6.500 04/01/16 2,643
1,800 West Morgan East Lawrence Wtr Auth AL Wtr Rev (FGIC Insd)... 5.625 08/15/16 1,803
2,400 West Morgan East Lawrence Wtr Auth AL Wtr Rev (FGIC Insd)... 5.625 08/15/21 2,404
1,400 West Morgan East Lawrence Wtr Auth AL Wtr Rev (FGIC Insd)... 5.625 08/15/25 1,402
1,600 West Morgan East Lawrence Wtr Auth AL Wtr Rev (Prerefunded @
08/15/04) (FSA Insd)........................................ 6.800 08/15/14 1,833
----------
31,874
----------
ALASKA 0.2%
2,355 Ketchikan, AK Muni Util Rev Ser R (FSA Insd)................ 6.600 12/01/07 2,615
----------
ARIZONA 1.5%
11,000 Arizona St Ctfs Partn Ser B Rfdg (AMBAC Insd)............... 6.250 09/01/10 11,794
1,880 Maricopa Cnty, AZ Indl Dev Madera Pointe Apts Proj Ser A
Rfdg (FSA Insd)............................................. 5.800 06/01/15 1,888
2,260 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig Irvington
Proj Tucson Ser A Rfdg (FSA Insd)........................... 7.250 07/15/10 2,520
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd) (b)............................................ 6.000 09/01/12 1,921
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd) (b)............................................ 6.125 09/01/17 1,796
----------
19,919
----------
CALIFORNIA 19.9%
4,290 Antioch Area, CA Pub Fac Fin Agy Cmnty Fac Dist No 1989
(FGIC Insd)................................................. 5.300 08/01/15 4,164
2,835 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy Pool Rev
Ser A (FSA Insd)............................................ 6.000 12/15/14 2,944
2,555 Berkeley, CA Unified Sch Dist Ser C (AMBAC Insd)............ 5.875 08/01/12 2,646
1,985 Berkeley, CA Unified Sch Dist Ser C (AMBAC Insd)............ 5.875 08/01/14 2,045
5,000 Beverly Hills, CA Pub Fin Auth Lease Rev Ser A (Inverse
Fltg) (MBIA Insd)........................................... 5.650 06/01/15 4,904
10,000 California Edl Fac Auth Rev Chapman Univ (Connie Lee
Insd)....................................................... 5.125 10/01/26 9,227
10,000 California Hlth Fac Fin Auth Rev Sutter Hosp Ser A Rfdg
(AMBAC Insd)................................................ 6.700 01/01/13 10,501
3,545 California Pub Cap Impt Fin Auth Rev Pooled Proj Ser B (BIGI
Insd)....................................................... 8.100 03/01/18 3,756
10,000 California St Pub Wks Brd Lease Rev Dept of Corrections CA
St Prison D Susanville (MBIA Insd).......................... 5.375 06/01/18 9,678
16,250 California St Pub Wks Brd Lease Rev Var Univ CA Projs Ser A
(AMBAC Insd)................................................ 6.400 12/01/16 17,878
2,440 Chino Hills, CA Ctfs Partn Wtr Sys Refin Proj (FGIC Insd)... 5.600 06/01/18 2,408
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA Insd).................. 6.200 09/01/18 3,184
220 Concord, CA Redev Agy Tax Alloc Cent Concord Redev Proj Ser
3 (BIGI Insd)............................................... 8.000 07/01/18 236
1,000 Corona Norco, CA Unified Sch Dist Lease Rev Partn Insd Land
Acquis Ser A (FSA Insd)..................................... 6.000 04/15/19 1,035
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs Partn Fac Refin (FGIC
Insd)....................................................... 6.300 09/01/12 1,329
3,000 Culver City, CA Ctfs Partn CA Tran Fin Corp Ser A (AMBAC
Insd)....................................................... 5.750 01/01/16 3,030
425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC Insd).............. 6.700 08/01/21 499
5,675 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent for the
Arts Rfdg (AMBAC Insd)...................................... * 09/01/17 1,577
6,500 Grossmont, CA Union High Sch Dist Ctfs Partn (MBIA Insd).... * 11/15/21 1,266
1,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark Proj (FSA
Insd)....................................................... 6.500 11/01/12 1,096
7,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark Proj (FSA
Insd)....................................................... 6.625 11/01/22 7,717
3,160 La Quinta, CA Fin Auth Lease Rev La Quinta City Hall Proj
Rfdg (MBIA Insd)............................................ 5.550 10/01/18 3,178
3,500 Los Angeles Cnty, CA Cap Asset Lease Corp Leasehold Rev Rfdg
(AMBAC Insd)................................................ 6.000 12/01/16 3,623
13,480 Los Angeles Cnty, CA Metro Tran Prop A 2nd Tier Rfdg (MBIA
Insd)....................................................... 6.000 07/01/21 14,043
2,000 Los Angeles Cnty, CA Public Wks Sr Lien Ser A Rfdg (FSA
Insd)....................................................... 5.500 10/01/18 1,996
3,000 Los Angeles, CA Cmnty Redev Agy Tax Alloc Bunker Hill Ser H
Rfdg (FSA Insd)............................................. 6.500 12/01/14 3,321
</TABLE>

See Notes to Financial Statements

B-38

<PAGE> 495

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

CALIFORNIA (CONTINUED)
$ 7,635 Los Angeles, CA Convention & Exhibition Cent Auth Lease Rev
(MBIA Insd)................................................. 5.125% 08/15/13 $ 7,353
13,770 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev 2nd Issue Rfdg
(AMBAC Insd)................................................ 5.375 11/15/11 13,706
2,475 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev 2nd Issue Rfdg
(AMBAC Insd)................................................ 5.400 11/15/31 2,368
1,830 Los Angeles, CA Ser A (FGIC Insd)........................... 6.125 09/01/13 1,913
2,500 Madera Cnty, CA Ctfs Partn Vly Children's Hosp (MBIA
Insd)....................................................... 6.125 03/15/23 2,620
7,500 Manteca, CA Redev Agy Tax Alloc Redev Proj No 1 Ser A Rfdg
(MBIA Insd)................................................. 6.700 10/01/21 8,288
1,290 Martinez, CA Unified Sch Dist Guar Ctfs Elig Rfdg (FSA
Insd)....................................................... 6.000 08/01/09 1,345
2,000 MSR Pub Pwr Agy CA San Juan Proj Rev Ser F Rfdg (AMBAC
Insd)....................................................... 6.000 07/01/20 2,065
2,755 New Haven, CA Unified Sch Dist Cap Apprec Ser D (FGIC
Insd)....................................................... * 08/01/12 1,129
13,610 Norco, CA Redev Agy Tax Alloc Norco Redev Proj Area No 1
Rfdg (MBIA Insd)............................................ 6.250 03/01/19 14,359
1,500 North City West, CA Sch Fac Fin Auth Spl Tax Ser B Rfdg (FSA
Insd)....................................................... 6.000 09/01/19 1,563
2,860 Orange Cnty, CA Ctfs Partn Juvenile Justice Cent Fac Rfdg
(AMBAC Insd)................................................ 6.000 06/01/17 2,956
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA Insd)............. 6.000 07/01/07 5,405
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA Insd)............. 6.000 07/01/08 5,379
2,760 Palmdale, CA Civic Auth Rev Merged Redev Proj Areas Ser A
(MBIA Insd)................................................. 6.000 09/01/15 2,961
2,160 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)............... 6.250 08/01/11 2,328
2,295 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)............... 6.250 08/01/12 2,462
2,435 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)............... 6.250 08/01/13 2,620
2,585 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)............... 6.250 08/01/14 2,768
2,750 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)............... 6.250 08/01/15 2,933
2,000 Perris, CA Pub Fin Auth Local Agy Rev Parity Ser F (FSA
Insd)....................................................... 5.850 09/01/24 2,038
2,180 Petaluma, CA City Jt Union High Sch Dist (Prerefunded @
08/01/01) (FGIC Insd)....................................... * 08/01/18 561
1,400 Reedley, CA Pub Fin Auth Lease Rev Wastewtr Treatment Plant
Proj (AMBAC Insd)........................................... 6.050 05/01/15 1,451
4,000 Sacramento, CA Muni Util Dist Elec Rev Ser A Rfdg (MBIA
Insd)....................................................... 5.750 08/15/13 4,056
13,800 San Bernardino Cnty, CA Ctfs Partn Ser B (Embedded Swap)
(MBIA Insd)................................................. 7.650 07/01/16 13,741
1,250 San Diego, CA Cmnty College (MBIA Insd)..................... 6.125 12/01/16 1,323
1,000 San Jose, CA Fin Auth Rev Convention Cent Proj Ser C Rfdg
(FSA Insd).................................................. 6.300 09/01/09 1,070
2,500 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac Replacement
Proj Ser A (AMBAC Insd)..................................... 6.875 11/15/14 2,849
1,000 Santa Rosa, CA Wastewtr Svc Fac Dist Rfdg & Impt (AMBAC
Insd)....................................................... 6.200 07/02/09 1,073
2,000 Santa Rosa, CA Wtr Rev Ser B Rfdg (FGIC Insd)............... 6.200 09/01/09 2,129
2,510 Solano Cnty, CA Ctfs Partn Solano Park Hosp Proj (FSA
Insd)....................................................... 5.750 08/01/14 2,559
12,600 Southern CA Pub Pwr Auth Transmission Proj Rev (FSA Insd)... 6.000 07/01/12 13,053
2,500 Temecula Vly, CA Unified Sch Dist Ctfs Partn Rfdg (FSA
Insd)....................................................... 6.000 09/01/25 2,605
1,000 Temecula Vly, CA Unified Sch Dist Ser B Rfdg (FGIC Insd).... 6.000 09/01/12 1,043
2,460 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg (MBIA Insd).... 6.750 01/01/12 2,514
11,900 University of CA Ctfs Partn Ser A (MBIA Insd)............... 5.550 06/01/10 12,034
3,845 Vista, CA Unified Sch Dist Ctfs Partn Ser A Rfdg (FSA
Insd)....................................................... * 11/01/17 1,110
2,000 William S Hart CA Jt Sch Fin Auth Spl Tax Rev Cmnty Fac Rfdg
(FSA Insd).................................................. 6.500 09/01/14 2,198
----------
271,209
----------
COLORADO 2.9%
12,750 Colorado Hlth Fac Auth Rev PSL Hlth Sys Proj Ser A
(Prerefunded @ 02/15/01) (FSA Insd)......................... 7.250 02/15/16 14,285
2,090 Colorado Hlth Fac Auth Rev Sisters of Charity Hlth Care Ser
A (MBIA Insd)............................................... 6.000 05/15/13 2,137
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 1,108
10 Jefferson Cnty, CO Single Family Mtg Rev Ser A Rfdg (MBIA
Insd)....................................................... 8.875 10/01/13 11
2,050 Thornton, CO Rfdg (FGIC Insd)............................... * 12/01/11 919
1,350 Thornton, CO Rfdg (FGIC Insd)............................... * 12/01/15 474
9,000 University of CO Hosp Auth Hosp Rev Ser A (AMBAC Insd)...... 6.250 11/15/12 9,571
8,600 University of CO Hosp Auth Hosp Rev Ser A (AMBAC Insd)...... 6.400 11/15/22 9,119

</TABLE>

See Notes to Financial Statements

B-39

<PAGE> 496

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
<TABLE>
<CAPTION>

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

COLORADO (CONTINUED)
$ 2,000 Westminster, CO Wtr & Wastewtr Util Enterprise Rev (AMBAC
Insd)....................................................... 6.250% 12/01/14 $ 2,138
----------
39,762
----------
DISTRICT OF COLUMBIA 0.0%
250 District of Columbia Ser B Rfdg (MBIA Insd)................. * 06/01/04 172
----------
FLORIDA 6.2%
2,500 Altamonte Springs, FL Hlth Fac Auth Hosp Rev Adventist Hlth
Sunbelt Ser B (AMBAC Insd).................................. 5.375 11/15/23 2,384
19,000 Broward Cnty, FL Professional Sports Fac Tax Rev (MBIA
Insd)....................................................... 5.750 09/01/21 19,232
3,850 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC Insd)......... 5.500 05/01/25 3,793
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)............ 8.000 10/01/03 1,212
690 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)............ 8.000 10/01/04 840
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)............ 8.000 10/01/05 1,454
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)............ 8.000 10/01/06 1,587
1,375 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)............ 8.000 10/01/07 1,717
5,000 Dade Cnty, FL Solid Waste Spl Oblig Rfdg (AMBAC Insd) (b)... 5.125 10/01/10 4,844
2,095 Dade Cnty, FL Util Pub Impt Rfdg (FGIC Insd)................ 12.000 10/01/04 3,074
260 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev Ser C
(FGIC Insd)................................................. 7.650 09/01/10 276
1,065 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev Ser C
(FGIC Insd)................................................. 7.700 09/01/24 1,130
1,410 Florida St Dept Corrections Ctfs Partn Okeechobee
Correctional (AMBAC Insd)................................... 6.250 03/01/15 1,509
13,000 Hillsborough Cnty, FL Sch Brd Ctfs Partn Master Lease Pgm
(MBIA Insd)................................................. 5.250 07/01/17 12,627
2,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd) (b).......... 6.100 10/01/18 2,064
1,000 Key West, FL Util Brd Elec Rev Ser D (AMBAC Insd)........... * 10/01/13 400
4,000 Lee Cnty, FL Hosp Brd Dir Hosp Rev (Inverse Fltg) (MBIA
Insd)....................................................... 9.418 04/01/20 4,565
6,000 Orange Cnty, FL Hlth Fac Auth Rev (Inverse Fltg) (MBIA
Insd)....................................................... 9.121 10/29/21 7,177
2,000 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC Insd)... 6.375 08/01/15 2,139
1,090 Sarasota Cnty, FL Util Sys Rev (Prerefunded @ 10/01/04)
(FGIC Insd)................................................. 6.500 10/01/14 1,239
10,000 Tallahassee, FL Hlth Fac Rev Tallahassee Mem Regl Med Ser A
Rfdg (MBIA Insd)............................................ 6.625 12/01/13 11,017
----------
84,280
----------
GEORGIA 5.1%
1,250 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention Cent (MBIA
Insd)....................................................... 6.250 12/01/08 1,354
1,750 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention Cent (MBIA
Insd)....................................................... 6.250 12/01/17 1,858
25,000 Chatham Cnty, GA Hosp Auth Rev Rfdg & Impt Hosp Mem Med Cent
Ser A (AMBAC Insd).......................................... 5.500 01/01/21 24,591
4,000 Clarke Cnty, GA Hosp Auth Rev Hosp Athens Regl Med Cent Proj
(MBIA Insd)................................................. 5.000 01/01/22 3,677
3,500 Clarke Cnty, GA Hosp Auth Rev Hosp Athens Regl Med Cent Proj
(MBIA Insd)................................................. 5.000 01/01/27 3,194
6,500 Georgia Muni Elec Auth Pwr Rev Genl Ser B (BIGI Insd)....... * 01/01/07 3,909
4,750 Georgia Muni Elec Auth Pwr Rev Genl Ser B (BIGI Insd)....... * 01/01/08 2,686
15,550 Municipal Elec Auth GA Spl Oblig 5th Crossover Ser Proj One
(AMBAC Insd)................................................ 6.400 01/01/13 17,175
10,000 Municipal Elec Auth GA Spl Oblig 5th Crossover Ser Proj One
(MBIA Insd)................................................. 6.500 01/01/17 11,395
----------
69,839
----------
HAWAII 1.0%
12,785 Hawaii St Arpt Sys Rev Ser 1993 Rfdg (MBIA Insd)............ 6.400 07/01/08 14,077
----------
ILLINOIS 14.3%
1,000 Berwyn, IL (MBIA Insd)...................................... 7.000 11/15/10 1,100
25,725 Chicago, IL Brd Ed Chicago Sch Reform (MBIA Insd)........... 6.000 12/01/26 26,418
1,250 Chicago, IL O'Hare Intl Arpt Rev Passenger Fac Ser A (AMBAC
Insd)....................................................... 5.625 01/01/14 1,254
2,720 Chicago, IL Pub Bldg Comm Bldg Rev Chicago Transit Auth
(AMBAC Insd)................................................ 6.600 01/01/15 2,968
3,480 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA Insd)........ * 01/01/06 2,189
3,105 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA Insd)........ * 01/01/07 1,837
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd) (c)............................................. 8.400 01/01/01 1,140
5,550 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd)................................................. 8.750 01/01/03 6,701
8,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd)................................................. 8.750 01/01/04 10,395

See Notes to Financial Statements
</TABLE>

B-40

<PAGE> 497

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
<TABLE>
<CAPTION>

ILLINOIS (CONTINUED)
$ 2,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd)................................................. 8.750% 01/01/05 $ 3,070
3,500 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd)................................................. 8.750 01/01/07 4,472
12,400 Cook Cnty, IL Cmnty Cons Sch Dist No 054 Schaumburg Twp Rfdg
(FGIC Insd) (c)............................................. 5.000 01/01/09 12,175
1,280 Cook Cnty, IL Cmnty High Sch Dist No 233 Homewood & Flossmor
(AMBAC Insd)................................................ * 12/01/05 816
8,280 Cook Cnty, IL Cnty Juvenile Detention Ser A (AMBAC Insd).... * 11/01/08 4,474
2,500 Des Plaines, IL Hosp Fac Rev Holy Family Hosp Rfdg (AMBAC
Insd)....................................................... 9.250 01/01/14 2,588
1,400 Evanston, IL Residential Mtg Rev (AMBAC Insd)............... 6.375 01/01/09 1,474
10,000 Illinois Dev Fin Auth Pollutn Ctl Rev Comwlth Edison Co Proj
Ser D Rfdg (AMBAC Insd)..................................... 6.750 03/01/15 11,042
1,650 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co Proj Ser A
1st Mtg Rfdg (MBIA Insd).................................... 5.700 02/01/24 1,635
35,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co Proj Ser A
1st Mtg Rfdg (MBIA Insd).................................... 7.400 12/01/24 40,870
2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford Sch 205 (FSA
Insd)....................................................... 6.650 02/01/11 2,262
5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford Sch 205 Rfdg
(FSA Insd).................................................. 6.650 02/01/12 5,523
1,261 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm Ser B (MBIA
Insd)....................................................... 7.900 08/15/03 1,290
220 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm Ser B Rfdg
(MBIA Insd)................................................. 7.900 08/15/03 250
7,615 Illinois Hlth Fac Auth Rev Decatur Mem Hosp Rfdg (MBIA
Insd)....................................................... 5.375 11/15/16 7,327
7,465 Illinois Hlth Fac Auth Rev Decatur Mem Hosp Rfdg (MBIA
Insd)....................................................... 5.375 11/15/21 7,054
5,000 Illinois Hlth Fac Auth Rev Hosp Sisters Svcs (Inverse Fltg)
(MBIA Insd)................................................. 9.487 06/19/15 5,813
5,000 Illinois Hlth Fac Auth Rev Methodist Hlth Proj (Inverse
Fltg) (AMBAC Insd).......................................... 9.831 05/18/21 5,813
3,400 Illinois Hlth Fac Auth Rev Rush Presbyterian Saint Luke Hosp
(Inverse Fltg) (MBIA Insd).................................. 9.797 10/01/24 3,961
3,000 Illinois Hlth Fac Auth Rev Sarah Bush Lincoln Hlth Rfdg
(AMBAC Insd)................................................ 6.000 01/01/27 3,064
4,000 Illinois Hlth Fac Auth Rev Trinity Med Cent (FSA Insd)...... 5.875 07/01/16 4,060
1,040 Kane, Cook & Du Page Cntys, IL Sch Dist No 46 Elgin Ser B
(FSA Insd).................................................. * 01/01/11 479
1,300 Kane, Cook & Du Page Cntys, IL Sch Dist No 46 Elgin Ser B
(FSA Insd).................................................. * 01/01/12 562
2,095 Kane, Cook & Du Page Cntys, IL Sch Dist No 46 Elgin Ser B
(FSA Insd).................................................. * 01/01/13 848
6,110 Rosemont, IL Tax Increment 3 (FGIC Insd).................... * 12/01/06 3,665
3,000 Rosemont, IL Tax Increment 3 (FGIC Insd).................... * 12/01/07 1,691
1,285 Saint Clair Cnty, IL Ctfs Partn (MBIA Insd)................. 8.000 12/01/05 1,569
1,185 Saint Clair Cnty, IL Ctfs Partn Indl Dev Rev (MBIA Insd).... 8.000 12/01/04 1,432
1,500 Will Cnty, IL Cmnty Unit Sch Dist No 201-u Crete Monee (FSA
Insd)....................................................... * 10/01/13 582
1,000 Will Cnty, IL Cmnty Unit Sch Dist No 201-u Crete Monee (FSA
Insd)....................................................... * 10/01/14 364
----------
194,227
----------
INDIANA 1.3%
2,000 Indiana Bond Bank Spl Pgm Ser A (AMBAC Insd)................ 9.750 08/01/09 2,612
3,840 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps of IN
(Prerefunded @ 07/01/01) (MBIA Insd)........................ 7.000 07/01/21 4,296
5,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps Proj Rfdg &
Impt (MBIA Insd)............................................ 6.400 05/01/12 5,341
1,000 Marion Cnty, IN Convention & Rectl Fac Auth Excise Tax Rev
Lease Rental Ser A (AMBAC Insd)............................. 7.000 06/01/21 1,107
1,000 Saint Joseph Cnty, IN Hosp Auth Hosp Fac Rev Mem Hosp South
Bend Proj (MBIA Insd)....................................... 6.250 08/15/12 1,061
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 1,112
2,440 Vincennes, IN Cmnty Sch Bldg Corp (FSA Insd)................ 5.000 07/01/15 2,336
----------
17,865
----------
KANSAS 4.4%
38,750 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co Proj Rfdg
(MBIA Insd) (c)............................................. 7.000 06/01/31 42,888
6,300 Kansas St Dev Fin Auth Hlth Saint Luke's Shawnee Mission Ser
N (MBIA Insd)............................................... 5.375 11/15/16 6,224
5,485 Kansas St Dev Fin Auth Hlth Saint Luke's Shawnee Mission Ser
N (MBIA Insd)............................................... 5.375 11/15/21 5,374
5,670 Kansas St Dev Fin Auth Hlth Saint Luke's Shawnee Mission Ser
P (MBIA Insd)............................................... 5.375 11/15/26 5,530
----------
60,016
----------
KENTUCKY 0.0%
60 Kentucky Cntys Single Family Mtg Presbyterian Homes Ser A
Rfdg (MBIA Insd)............................................ 8.625 09/01/15 62
----------

See Notes to Financial Statements

</TABLE>

B-41

<PAGE> 498

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

LOUISIANA 1.6%
$ 4,065 Calcasieu Parish, LA Mem Hosp Svcs Dist Hosp Rev Lake
Charles Mem Hosp Proj Ser A (Connie Lee Insd)............... 6.375% 12/01/12 $ 4,349
5,530 Calcasieu Parish, LA Mem Hosp Svcs Dist Hosp Rev Lake
Charles Mem Hosp Proj Ser A (Connie Lee Insd)............... 6.500 12/01/18 6,248
310 Louisiana Pub Fac Auth Rev Med Cent LA at New Orleans Proj
(Connie Lee Insd)........................................... 6.250 10/15/10 327
4,150 Louisiana Pub Fac Auth Rev Pgm Hlth & Edl Cap Fac Our Lady
Med Cent Ser C (BIGI Insd) (c).............................. 8.200 12/01/15 4,514
5,000 Louisiana Pub Fac Auth Rev Tulane Univ of LA (AMBAC Insd)... 6.050 10/01/25 5,246
10,000 New Orleans, LA Home Mtg Auth Single Family Mtg Rev 1985 Ser
A (MBIA Insd)............................................... * 09/15/16 1,331
----------
22,015
----------
MAINE 0.4%
2,750 Easton, ME Indl Dev McCain Food Inc Proj Ser 1985 (AMBAC
Insd)....................................................... 9.200 08/01/99 2,758
1,750 Maine Hlth & Higher Edl Fac Auth Rev Ser B (FSA Insd)....... 7.100 07/01/14 2,013
----------
4,771
----------
MASSACHUSETTS 0.3%
1,700 Massachusetts St Hlth & Edl Fac Auth Rev Mt Auburn Hosp Ser
B1 (MBIA Insd).............................................. 6.250 08/15/14 1,822
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Univ Hosp Ser C
(MBIA Insd)................................................. 7.250 07/01/19 1,100
1,710 Massachusetts St Indl Fin Agy Rev Assumption College Issue
(Connie Lee Insd)........................................... 5.875 07/01/18 1,736
----------
4,658
----------
MICHIGAN 2.6%
2,325 Bay City, MI (AMBAC Insd)................................... * 06/01/15 829
1,000 Bay City, MI (AMBAC Insd)................................... * 06/01/16 334
2,135 Detroit, MI Ser A Rfdg (FGIC Insd).......................... 5.375 04/01/11 2,109
3,795 Detroit, MI Ser B Rfdg (FGIC Insd).......................... 5.375 04/01/11 3,748
4,000 Detroit, MI Ser B Rfdg (FGIC Insd).......................... 5.375 04/01/12 3,928
2,220 Detroit, MI Ser B Rfdg (FGIC Insd).......................... 5.375 04/01/13 2,167
4,000 Eastern MI University Rev (FGIC Insd) (b)................... 5.500 06/01/27 3,939
14,750 Livonia, MI Pub Sch Dist Ser II (FGIC Insd)................. * 05/01/14 5,416
21,000 Livonia, MI Pub Sch Dist Ser II (FGIC Insd)................. * 05/01/21 4,731
5,000 Michigan St Hosp Fin Auth Rev Hosp Sparrow Oblig Group (MBIA
Insd)....................................................... 6.000 11/15/36 5,173
2,000 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B (Embedded
Swap) (AMBAC Insd).......................................... 4.290 04/01/04 1,940
5,000 Mount Clemens, MI Cmnty Sch Dist Cap Apprec (Prerefunded @
05/01/07) (MBIA Insd)....................................... * 05/01/17 1,483
----------
35,797
----------
MINNESOTA 0.5%
1,000 Brainerd, MN Rev Evangelical Lutheran Ser B Rfdg (FSA
Insd)....................................................... 6.650 03/01/17 1,081
5,600 Minneapolis-St Paul, MN Hsg & Redev Auth Hlth Care Sys Rev
Hlth One Ser A (MBIA Insd).................................. 7.400 08/15/11 6,199
----------
7,280
----------
MISSISSIPPI 0.1%
1,000 Harrison Cnty, MS Wastewtr Mgmt Dist Rev Wastewtr Treatment
Fac Ser A Rfdg (FGIC Insd).................................. 8.500 02/01/13 1,328
----------
MISSOURI 1.0%
2,700 Central MO St Univ Rev Hsg Sys (Prerefunded @ 07/01/01)
(MBIA Insd)................................................. 7.000 07/01/14 3,024
3,830 Green Cnty, MO Single Family Mtg Rev (AMBAC Insd)........... * 12/01/16 531
545 Jackson Cnty, MO Single Family Mtg Rev Tax Exempt Multiplier
Bond (AMBAC Insd)........................................... * 12/01/16 70
2,250 Kansas City, MO Muni Assistance Corp Rev Leasehold H Roe
Bartle Ser B1 Rfdg (Prerefunded @ 04/15/00) (AMBAC Insd).... 7.125 04/15/16 2,482
5,650 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev SSM Hlth Care
Proj Rfdg (MBIA Insd)....................................... 6.250 06/01/16 5,952
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 1,125
320 Saint Louis Cnty, MO Single Family Mtg Rev (AMBAC Insd)..... 9.250 10/01/16 336
----------
13,520
----------

See Notes to Financial Statements

</TABLE>

B-42

<PAGE> 499

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

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 $ 1,385
1,500 Douglas Cnty, NE Hosp Auth No 1 Rev Immanuel Med Cent Inc
Rfdg (AMBAC Insd)........................................... 7.000 09/01/21 1,669
----------
3,054
----------
NEVADA 1.0%
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj C Rfdg (AMBAC
Insd)....................................................... 7.200 10/01/22 2,260
3,125 Reno, NV Hosp Rev Dates Saint Mary's Hosp Inc Ser B
(Prerefunded @ 01/01/00) (BIGI Insd)........................ 7.750 07/01/15 3,436
4,695 Reno, NV Hosp Rev Dates Saint Mary's Hosp Inc Ser C
(Prerefunded @ 01/01/00) (BIGI Insd)........................ 7.750 07/01/15 5,212
3,720 Washoe Cnty, NV Rfdg & Impt (MBIA Insd)..................... * 07/01/07 2,154
----------
13,062
----------
NEW HAMPSHIRE 0.6%
5,000 New Hampshire Higher Edl & Hlth Fac Auth Rev (AMBAC Insd)... 6.000 10/01/26 5,112
2,500 New Hampshire St Tpk Sys Rev Rfdg (Inverse Fltg) (FGIC
Insd)....................................................... 9.779 11/01/17 3,087
----------
8,199
----------
NEW JERSEY 1.8%
765 Camden Cnty, NJ Muni Utils Auth Swr Rev (FGIC Insd)......... 8.250 12/01/17 809
3,450 Essex Cnty, NJ Rfdg Ser A 1 (FGIC Insd) (b)................. 5.000 11/15/09 3,390
2,500 Essex Cnty, NJ Rfdg Ser A 1 (FGIC Insd) (b)................. 5.250 11/15/10 2,486
1,000 Essex Cnty, NJ Rfdg Ser A 1 (FGIC Insd) (b)................. 5.000 11/15/11 966
5,500 Howell Twp, NJ Rfdg (FGIC Insd)............................. 6.800 01/01/14 6,049
3,625 Morristown, NJ Rfdg (FSA Insd).............................. 6.400 08/01/14 3,942
3,940 New Jersey St Hsg & Mtg Fin Agy Rev Home Mtg Ser B (MBIA
Insd)....................................................... 8.100 10/01/17 4,137
2,250 Sussex Cnty, NJ Muni Util Auth Solid Waste Rev Ser A
(Prerefunded @ 12/01/98) (BIGI Insd)........................ 7.875 12/01/13 2,454
----------
24,233
----------
NEW MEXICO 1.0%
13,000 Farmington, NM Pollutn Ctl Rev Southern CA Edison Co Ser A
Rfdg (MBIA Insd)............................................ 5.875 06/01/23 13,267
----------
NEW YORK 5.6%
4,350 New York City Indl Dev Agy Civic Fac Rev USTA Natl Tennis
Cent Proj (FSA Insd)........................................ 6.375 11/15/14 4,704
2,000 New York City Ser B (MBIA Insd)............................. 6.950 08/15/12 2,260
50 New York City Ser C Subser C1 (FSA Insd).................... 6.250 08/01/09 53
5,000 New York City Ser G (FGIC Insd)............................. 5.750 02/01/14 5,073
3,565 New York St Dorm Auth Rev Dept of Ed (CAPMAC Insd).......... 5.750 07/01/21 3,558
2,200 New York St Dorm Auth Rev Mental Hlth Svcs Fac Impt Ser E
(AMBAC Insd) (b)............................................ 5.250 08/15/11 2,154
5,000 New York St Dorm Auth Rev City Univ Sys 3rd Resolution
(AMBAC Insd)................................................ 6.250 07/01/18 5,330
6,500 New York St Dorm Auth Rev City Univ Sys Cons 2nd Ser A(FGIC
Insd)....................................................... 5.375 07/01/14 6,427
3,950 New York St Dorm Auth Rev City Univ Sys Ser C (FGIC Insd)... 7.000 07/01/14 4,316
675 New York St Med Care Fac Fin Agy Rev IBC Mental Hlth Svcs
Ser A (MBIA Insd)........................................... 7.750 08/15/10 747
1,000 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Ser E
(FSA Insd).................................................. 6.500 08/15/15 1,085
28,535 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg Ser A
(AMBAC Insd) (c)............................................ 6.750 08/15/14 31,558
3,400 New York St Muni Bond Bank Agy Spl Pgm Rev Rochester Ser A
(MBIA Insd)................................................. 6.625 03/15/06 3,694
1,500 New York St Twy Auth Hwy & Brdg Trust Fund Ser B (FGIC
Insd)....................................................... 6.000 04/01/14 1,562
3,500 New York St Urban Dev Corp Rev Correctional Fac Rfdg (AMBAC
Insd)....................................................... 5.250 01/01/18 3,315
----------
75,836
----------
NORTH CAROLINA 0.1%
1,250 Franklin Cnty, NC Ctfs Partn Jail & Sch Projs (FGIC Insd)... 6.625 06/01/14 1,373
500 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev Ser A (AMBAC
Insd)....................................................... 12.900 01/01/97 500
----------
1,873
----------
NORTH DAKOTA 0.4%
5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope Vly Station Rfdg
(AMBAC Insd)................................................ 7.200 06/30/13 5,984
----------

See Notes to Financial Statements

</TABLE>

B-43

<PAGE> 500

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Market
Amount Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO 2.0%
$ 3,600 Akron Bath Copley, OH St Twp Hosp Dist Rev Akron Genl Med
Cent Proj (AMBAC Insd)...................................... 6.500% 01/01/19 $ 3,826
1,000 Akron Bath Copley, OH St Twp Hosp Dist Rev Children's Hosp
Med Cent Akron (Prerefunded @ 11/15/00) (AMBAC Insd)........ 7.450 11/15/20 1,128
5,000 Clermont Cnty, OH Hosp Fac Rev (Inverse Fltg) (AMBAC
Insd)....................................................... 9.341 10/05/21 6,087
2,010 Cleveland, OH (MBIA Insd)................................... 6.500 11/15/09 2,240
2,285 Cleveland, OH (MBIA Insd)................................... 6.500 11/15/10 2,539
4,625 Hamilton, OH Elec Sys Mtg Rev Mtg City of Hamilton Ser B
(Prerefunded @ 10/15/98) (FGIC Insd)........................ 8.000 10/15/22 5,036
1,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl Cleveland Co
Proj Rfdg (FGIC Insd)....................................... 8.000 12/01/13 1,755
2,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl OH Edison Ser A
Rfdg (FGIC Insd)............................................ 7.450 03/01/16 2,754
2,000 University of Cincinnati OH Ctfs Partn Univ of Cincinnati
Univ Ctr Proj (MBIA Insd)................................... 5.125 06/01/24 1,893
----------
27,258
----------
OKLAHOMA 2.1%
1,385 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA Insd)....... 5.250 12/01/16 1,362
1,760 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA Insd)....... 5.250 12/01/20 1,708
1,865 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA Insd)....... 5.250 12/01/21 1,808
4,510 Norman, OK Regl Hosp Auth Hosp Rev Ser A Rfdg (MBIA Insd)... 5.625 09/01/16 4,446
1,000 Norman, OK Regl Hosp Auth Hosp Rev (Prerefunded @ 09/01/01)
(MBIA Insd)................................................. 6.900 09/01/21 1,118
2,200 Oklahoma City, OK (MBIA Insd)............................... 5.100 03/01/15 2,120
2,200 Oklahoma City, OK (MBIA Insd)............................... 5.100 03/01/16 2,118
3,735 Oklahoma Hsg Fin Agy Single Family Rev Mtg Ser A (MBIA
Insd)....................................................... 7.200 03/01/11 3,958
500 Tulsa, OK Arpts Impt Trust Genl Rev (MBIA Insd)............. 7.500 06/01/08 520
9,780 Tulsa, OK Tulsa Indl Auth Rev Univ of Tulsa Ser A Rfdg (MBIA
Insd)....................................................... 5.000 10/01/22 9,142
----------
28,300
----------
OREGON 0.1%
1,000 Wasco Cnty, OR Vets Home (FSA Insd)......................... 6.200 06/01/13 1,059
----------
PENNSYLVANIA 2.8%
3,625 Allegheny Cnty, PA Hosp Dev Auth Rev Pittsburgh Mercy Hlth
Sys Inc (AMBAC Insd)........................................ 5.625 08/15/26 3,573
2,000 Dauphin Cnty, PA Genl Auth Hosp Rev Hapsco Phoenixville Hosp
Proj Ser B (FGIC Insd)...................................... 6.125 07/01/10 2,107
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 1,062
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 1,067
3,750 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn Ctl Ser E Rfdg
(MBIA Insd)................................................. 6.700 12/01/21 4,114
2,000 Northeastern PA Hosp & Edl Auth Wyoming Valley Hlth Care Ser
A (AMBAC Insd).............................................. 5.250 01/01/26 1,902
1,000 Northeastern PA Hosp & Edl Auth College Rev Gtd Luzerne Cnty
Cmnty College (AMBAC Insd).................................. 6.625 08/15/15 1,096
3,040 Pennsylvania St Higher Edl Fac Allegheny DE Vly Oblig (MBIA
Insd)....................................................... 5.875 11/15/21 3,118
5,000 Pennsylvania St Higher Edl Fac Allegheny DE Vly Oblig Ser A
(MBIA Insd)................................................. 5.875 11/15/21 5,129
3,000 Philadelphia, PA Auth Indl Dev Lease Rev Ser A (MBIA
Insd)....................................................... 5.375 02/15/27 2,875
2,250 Philadelphia, PA Gas Wks Rev 14th Ser A Rfdg (FSA Insd)..... 6.375 07/01/14 2,424
6,000 Philadelphia, PA Hosps & Higher Edl Fac Auth Hosp Rev
Children's Hosp Ser A Rfdg (MBIA Insd)...................... 5.000 02/15/21 5,449
1,000 Saint Mary's Hosp Auth Bucks Cnty, PA Rev Franciscan Hlth
Saint Mary Ser A (MBIA Insd)................................ 6.500 07/01/22 1,077
1,000 Saint Mary's Hosp Auth Bucks Cnty, PA Rev Franciscan Hlth
Sys Ser B (MBIA Insd)....................................... 6.500 07/01/12 1,084
1,000 Sayre, PA Hlth Care Fac Auth Rev VHA Cap Asset Fin Pgm Ser
H2 (AMBAC Insd)............................................. 7.625 12/01/15 1,109
1,000 State Pub Sch Bldg Auth PA Sch Rev Burgettstown Sch Dist Ser
D (MBIA Insd)............................................... 6.500 02/01/14 1,093
----------
38,279
----------
RHODE ISLAND 2.3%
4,175 Rhode Island St Hlth & Edl Bldg Higher Edl Roger Williams
Univ (Connie Lee Insd)...................................... 5.250 11/15/16 3,970
4,225 Rhode Island St Hlth & Edl Bldg Higher Edl Roger Williams
Univ (Connie Lee Insd)...................................... 5.375 11/15/24 4,020
2,000 Rhode Island St Hlth & Edl Bldg Higher Edl Roger Williams
Univ (Connie Lee Insd)...................................... 7.250 11/15/24 2,365
18,000 Rhode Island St Hlth & Edl Bldg Corp Rev RI Hosp (Inverse
Fltg) (FGIC Insd) (c)....................................... 9.822 08/15/21 21,217
----------
31,572
----------
</TABLE>

See Notes to Financial Statements

B-44

<PAGE> 501

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

SOUTH CAROLINA 0.4%
$ 70 Charleston Cnty, SC Ctfs Partn Ser B (MBIA Insd)............ 6.875% 06/01/14 $ 78
1,430 Charleston Cnty, SC Ctfs Partn Ser B (Prerefunded @
06/01/04) (MBIA Insd)....................................... 6.875 06/01/14 1,652
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 3,322
635 Saint Andrews, SC Pub Svcs Dist Swr Sys Rev (FGIC Insd)..... 7.750 01/01/18 669
----------
5,721
----------
SOUTH DAKOTA 0.8%
5,205 South Dakota St Lease Rev Trust Ctfs Ser A (FSA Insd)....... 6.625 09/01/12 5,894
4,000 South Dakota St Lease Rev Trust Ctfs Ser A (FSA Insd)....... 6.700 09/01/17 4,656
----------
10,550
----------
TENNESSEE 0.5%
2,000 Chattanooga-Hamilton Cnty, TN Hosp Auth Hosp Rev Erlanger
Med Cent Ser B (Inverse Fltg) (Prerefunded @ 05/01/01) (FSA
Insd)....................................................... 9.875 05/25/21 2,427
3,320 Johnson City, TN Sch Sales Tax (AMBAC Insd)................. 6.700 05/01/18 3,678
----------
6,105
----------
TEXAS 5.2%
3,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains Baptist Hosp
(Inverse Fltg) (FSA Insd)................................... 9.149 01/01/22 3,454
1,000 Austin, TX Util Sys Rev (Prerefunded @ 05/15/02) (BIGI
Insd)....................................................... 8.625 11/15/12 1,194
2,500 Austin, TX Util Sys Rev Rfdg (AMBAC Insd) (b)............... 6.500 11/15/05 2,663
12,500 Austin, TX Util Sys Rev Ser A Rfdg (MBIA Insd).............. * 11/15/10 5,873
2,300 Brazoria Cnty, TX Hlth Fac Dev Corp Hosp Rev Brazosport Mem
Hosp Rfdg (FSA Insd)........................................ 5.500 07/01/13 2,290
9,000 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co Proj B
Rfdg (BIGI Insd)............................................ 8.250 05/01/15 9,626
6,515 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co Proj C
Rfdg (BIGI Insd)............................................ 8.100 05/01/19 6,955
3,120 Corpus Christi, TX Hsg Fin Corp Single Family Mtg Rev Ser A
Rfdg (MBIA Insd)............................................ 7.700 07/01/11 3,345
6,525 Dallas Cnty, TX Util & Reclamation Dist (MBIA Insd)......... * 02/15/07 3,455
6,780 Dallas Cnty, TX Util & Reclamation Dist (MBIA Insd)......... * 02/15/08 3,322
7,705 Dallas Cnty, TX Util & Reclamation Dist (MBIA Insd)......... * 02/15/09 3,478
13,525 El Paso, TX Hsg Fin Corp Mtg Rev Single Family (FGIC
Insd)....................................................... * 11/01/16 1,708
3,595 Galveston Cnty, TX Hlth Fac Devereux Fndtn (MBIA Insd)...... 5.000 11/01/14 3,406
1,630 Galveston Cnty, TX Hlth Fac Devereux Fndtn (MBIA Insd)...... 5.000 11/01/19 1,516
2,745 Harris Cnty, TX Hlth Fac Dev Corp Spl Fac Rev TX Med Cent
Proj (Prerefunded @ 05/15/00) (MBIA Insd)................... 7.375 05/15/20 3,053
1,250 Harris Cnty, TX Hlth Fac Dev Corp Thermal Util Rev Teco Proj
Ser A (AMBAC Insd).......................................... 7.250 02/15/15 1,365
4,615 Harris Cnty, TX Toll Rd Tax & Sub Lien Ser A Rfdg (FGIC
Insd)....................................................... * 08/15/07 2,656
245 Henderson, TX (AMBAC Insd).................................. 9.125 05/15/04 313
2,500 North Central TX Hlth Fac Dev Hosp Zale Lipshy Univ Proj
(FSA Insd) (b).............................................. 5.450 04/01/19 2,402
2,000 Plano, TX Muni Drainage Util Sys Rev (AMBAC Insd)........... 5.250 05/15/16 1,937
1,000 San Antonio, TX Indt Sch Dist Pub Fac Corp Lease Rev (AMBAC
Insd)....................................................... 5.850 10/15/10 1,047
3,330 Tarrant Cnty, TX Hlth Fac Rfdg & Impt Fort Worth Osteopathic
(MBIA Insd)................................................. 5.500 05/15/16 3,293
1,975 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth Sys Rev Ser A (FGIC
Insd)....................................................... 5.000 09/01/15 1,829
----------
70,180
----------

See Notes to Financial Statements

</TABLE>

B-45

<PAGE> 502

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Par Market
Amount Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTAH 2.5%
$ 3,335 Intermountain Pwr Agy UT Pwr Supply Rev (FSA Insd).......... 6.250% 07/01/08 $ 3,704
1,545 Intermountain Pwr Agy UT Pwr Supply Rev (FSA Insd).......... 6.250 07/01/09 1,712
13,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser B Rfdg (MBIA
Insd) (b)................................................... 5.750 07/01/19 12,748
2,720 Payson City, UT Cnty UT Elec Pwr Rev (BIGI Insd)............ 8.000 08/15/03 2,925
750 Provo, UT Elec Rev 1984 Ser A Rfdg (AMBAC Insd)............. 10.375 09/15/15 1,038
3,500 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg (Inverse Fltg)
(AMBAC Insd)................................................ 9.515 05/15/20 4,073
7,385 Utah St Muni Fin Co-op Local Govt Rev Pool Cap Salt Lake
(FSA Insd).................................................. * 03/01/09 3,807
3,115 West Jordan, UT Multi-Family Rev Broadmoor Village Apts Proj
Ser A Rfdg (FSA Insd)....................................... 6.800 01/01/15 3,286
----------
33,293
----------
VIRGINIA 1.0%
2,315 Chesapeake Bay Brdg & Tunl Comm VA Dist Rev Genl Resolution
Rfdg (Prerefunded @ 07/01/01) (MBIA Insd)................... 6.375 07/01/22 2,536
2,250 Fredericksburg, VA Indl Dev Medicorp Hlth Sys Oblig Rfdg
(AMBAC Insd)................................................ 5.250 06/15/16 2,174
4,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)...................... 6.800 03/01/14 4,499
750 University of VA Hosp Rev Ser C Rfdg (Prerefunded @
06/01/00) (AMBAC Insd) (d).................................. 0/9.375 06/01/07 842
3,750 Virginia Beach, VA Dev Auth Hosp Fac Rev VA Beach Genl Hosp
Proj (AMBAC Insd)........................................... 5.125 02/15/18 3,569
----------
13,620
----------
WASHINGTON 3.6%
1,250 Franklin Cnty, WA Pub Util Dist No 1 Elec Rev (Prerefunded @
09/01/01) (AMBAC Insd)...................................... 7.100 09/01/08 1,389
350 Pierce Cnty, WA Swr Rev Ser A (MBIA Insd)................... 9.000 02/01/05 432
1,000 Snohomish Cnty, WA Solid Waste Rev (MBIA Insd).............. 7.000 12/01/10 1,116
5,000 Spokane, WA Regl Solid Waste Mgmt Sys Rev (AMBAC Insd)...... 6.250 12/01/11 5,360
160 University of WA Univ Rev (MBIA Insd)....................... 7.000 12/01/21 178
1,000 Washington St Hlth Care Fac Auth Rev VA Mason Med Cent (MBIA
Insd)....................................................... 8.000 07/01/15 1,039
3,090 Washington St Pub Pwr Supply Sys Nuclear Proj No 1 Rev Ser A
Rfdg (AMBAC Insd)........................................... 5.700 07/01/09 3,161
9,435 Washington St Pub Pwr Supply Sys Nuclear Proj No 1 Rev Ser C
Rfdg (Prerefunded @ 07/01/00) (FGIC Insd)................... 7.750 07/01/08 10,647
2,500 Washington St Pub Pwr Supply Sys Nuclear Proj No 2 Rev Ser A
Rfdg (AMBAC Insd)........................................... 5.700 07/01/11 2,515
13,000 Washington St Pub Pwr Supply Sys Nuclear Proj No 2 Rev Ser A
Rfdg (MBIA Insd)............................................ 5.700 07/01/12 13,087
3,015 Washington St Pub Pwr Supply Sys Nuclear Proj No 2 Rev Ser C
Rfdg (MBIA Insd)............................................ * 07/01/04 2,067
6,500 Washington St Pub Pwr Supply Sys Nuclear Proj No 2 Rev Ser C
Rfdg (Prerefunded @ 01/01/01) (FGIC Insd)................... 7.375 07/01/11 7,285
----------
48,276
----------
WISCONSIN 0.2%
2,300 Wisconsin St Hlth & Edl Fac of the Medical College WI Inc
Proj (MBIA Insd)............................................ 5.500 12/01/26 2,229
----------
WYOMING 0.2%
2,000 Laramie Cnty, WY Hosp Rev Mem Hosp Proj (AMBAC Insd)........ 6.700 05/01/12 2,200
----------

See Notes to Financial Statements

</TABLE>

B-46

<PAGE> 503

PORTFOLIO OF INVESTMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par Market
Amount Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PUERTO RICO 0.2%
$ 3,000 Puerto Rico Indl Tourist Edl Med & Environmental Ctl Fac
Hosp Auxilio (MBIA Insd).................................... 6.250% 07/01/16 $ 3,206
----------
TOTAL LONG-TERM INVESTMENTS 100.2%
(Cost $1,262,735,599) (a)................................................................. 1,362,642
SHORT-TERM INVESTMENTS AT AMORTIZED COST 2.3%............................................ 31,700
LIABILITIES IN EXCESS OF OTHER ASSETS (2.5%)............................................. (34,100)
----------
NET ASSETS 100.0%........................................................................ $1,360,242
---------
</TABLE>

* Zero coupon bond

(a) At December 31, 1996, cost for federal income tax purposes is
$1,262,735,599; the aggregate gross unrealized appreciation is $100,536,631
and the aggregate gross unrealized depreciation is $629,737, resulting in
net unrealized appreciation of $99,906,894.

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

(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.

(d) Security is currently a zero coupon bond which will convert to a coupon
paying bond at a predetermined date.

AMBAC--AMBAC Indemnity Corporation

BIGI--Bond Investor Guaranty Inc.

CAPMAC--Capital Markets Assurance Corp.

Connie Lee--Connie Lee Insurance Company

FGIC--Financial Guaranty Insurance Company

FSA--Financial Security Assurance Inc.

MBIA--Municipal Bond Investors Assurance Corp.

See Notes to Financial Statements

B-47

<PAGE> 504

STATEMENT OF ASSETS AND LIABILITIES

December 31, 1996
All amounts, except for Maximum Offering Price information, reported in
thousands
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $1,262,736)
(Note 1).................................................. $1,362,642
Short-Term Investments (Note 1)............................. 31,700
Cash........................................................ 855
Receivables:
Interest.................................................. 20,506
Securities Sold........................................... 4,178
Fund Shares Sold.......................................... 728
Variation Margin on Futures (Note 5)...................... 27
Other....................................................... 41
------------
Total Assets.......................................... 1,420,677
------------
LIABILITIES:
Payables:
Securities Purchased...................................... 40,514
Fund Shares Repurchased................................... 16,645
Income Distributions...................................... 1,840
Distributor and Affiliates (Notes 2 and 6)................ 614
Investment Advisory Fee (Note 2).......................... 580
Accrued Expenses............................................ 142
Deferred Compensation and Retirement Plans (Note 2)......... 100
------------
Total Liabilities..................................... 60,435
------------
NET ASSETS.................................................. $1,360,242
============
NET ASSETS CONSIST OF:
Capital (Note 3)............................................ $1,255,253
Net Unrealized Appreciation on Securities................... 99,934
Accumulated Net Realized Gain on Securities................. 5,144
Accumulated Distributions in Excess of Net Investment
Income.................................................... (89)
------------
NET ASSETS.................................................. $1,360,242
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,283,668,498 and 66,727,067 shares of
beneficial interest issued and outstanding)............. $ 19.24
Maximum sales charge (4.75%* of offering price)......... .96
------------
Maximum offering price to public........................ $ 20.20
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $71,630,619 and 3,723,056 shares of
beneficial interest issued and outstanding)............. $ 19.24
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,943,225 and 256,937 shares of
beneficial interest issued and outstanding)............. $ 19.24
============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>

See Notes to Financial Statements

B-48

<PAGE> 505

STATEMENT OF OPERATIONS

For the Year Ended December 31, 1996
All amounts reported in thousands
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 84,388
----------
EXPENSES:
Investment Advisory Fee (Note 2)............................ 6,928
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of
$2,897, $721 and $47, respectively) (Note 6).............. 3,665
Shareholder Services (Note 2)............................... 1,714
Legal (Note 2).............................................. 156
Insurance (Note 1).......................................... 49
Trustees Fees and Expenses (Note 2)......................... 36
Other....................................................... 1,266
----------
Total Expenses.......................................... 13,814
Less Expenses Reimbursed (Note 2)....................... 10
----------
Net Expenses............................................ 13,804
----------
NET INVESTMENT INCOME....................................... $ 70,584
==========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments............................................... $ 11,171
Options................................................... 15
Futures................................................... (540)
----------
Net Realized Gain on Securities............................. 10,646
----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period................................... 132,803
----------
End of the Period:
Investments............................................. 99,907
Futures................................................. 27
----------
99,934
----------
Net Unrealized Depreciation on Securities During the
Period.................................................... (32,869)
----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES.............. $(22,223)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 48,361
==========
</TABLE>

See Notes to Financial Statements

B-49

<PAGE> 506

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended December 31, 1996 and 1995
All amounts reported in thousands

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Year Ended Year Ended
December 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 70,584 $ 68,684
Net Realized Gain on Securities............................. 10,646 2,636
Net Unrealized Appreciation/Depreciation on Securities
During the Period......................................... (32,869) 135,893
------------ ------------
Change in Net Assets from Operations........................ 48,361 207,213
------------ ------------
Distributions from Net Investment Income*................... (70,584) (68,723)
Distributions in Excess of Net Investment Income* (Note 1).. (468) (319)
------------ ------------
Distributions from and in Excess of Net Investment
Income*................................................. (71,052) (69,042)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (22,691) 138,171
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................................... 579,040 373,368
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 48,358 47,663
Cost of Shares Repurchased.................................. (690,250) (257,167)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (62,852) 163,864
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... (85,543) 302,035
NET ASSETS:
Beginning of the Period..................................... 1,445,785 1,143,750
------------ ------------
End of the Period (Including accumulated distributions in
excess of net investment income of $89 and $51,
respectively)............................................. $1,360,242 $1,445,785
========== ==========
</TABLE>

<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment
Income:
Class A Shares........................................ $(67,667) $(66,800)
Class B Shares........................................ (3,179) (2,061)
Class C Shares........................................ (206) (181)
--------- --------
$(71,052) $(69,042)
========= ========

See Notes to Financial Statements

</TABLE>

B-50

<PAGE> 507

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 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $ 19.549 $ 17.572 $ 19.857 $ 18.721 $18.478
--------- --------- --------- --------- --------
Net Investment Income..................................... .980 1.021 1.051 1.107 1.146
Net Realized and Unrealized Gain/Loss on Securities....... (.304) 1.982 (2.280) 1.145 .561
--------- --------- --------- --------- --------
Total from Investment Operations............................ .676 3.003 (1.229) 2.252 1.707
--------- --------- --------- --------- --------
Less:
Distributions from and in Excess of Net Investment Income
(Note 1)................................................ .987 1.026 1.056 1.116 1.140
Distributions from Net Realized Gain on Securities (Note
1)...................................................... -0- -0- -0- -0- .324
--------- --------- --------- --------- --------
Total Distributions......................................... .987 1.026 1.056 1.116 1.464
--------- --------- --------- --------- --------
Net Asset Value, End of the Period.......................... $ 19.238 $ 19.549 $ 17.572 $ 19.857 $18.721
========= ========= ========= ========= ========
Total Return (a)............................................ 3.65% 17.49% (6.31%) 12.32% 9.51%
Net Assets at End of the Period (In millions)............... $1,283.7 $1,365.4 $1,110.2 $1,230.0 $ 999.9
Ratio of Expenses to Average Net Assets (b)................. .95% .88% .88% .84% .83%
Ratio of Net Investment Income to Average Net Assets (b).... 5.11% 5.44% 5.70% 5.69% 6.14%
Portfolio Turnover.......................................... 92% 70% 48% 79% 112%
</TABLE>

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of certain expenses was less than
0.01%.

See Notes to Financial Statements

B-51

<PAGE> 508

FINANCIAL HIGHLIGHTS (CONTINUED)

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

<TABLE>
<CAPTION>
May 1, 1993
Year Ended December 31 (Commencement of
----------------------------- Distribution) to
Class B Shares 1996 1995 1994 December 31, 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $19.549 $17.563 $19.824 $19.320
-------- -------- -------- -------
Net Investment Income..................................... .832 .890 .899 .619

Net Realized and Unrealized Gain/Loss on Securities....... (.304) 1.978 (2.276) .513
-------- -------- -------- -------

Total from Investment Operations............................ .528 2.868 (1.377) 1.132

Less Distributions from and in Excess of Net Investment
Income (Note 1)........................................... .837 .882 .884 .628
-------- -------- -------- -------

Net Asset Value, End of the Period.......................... $19.240 $19.549 $17.563 $19.824

======== ======== ======== =======

Total Return (a)............................................ 2.83% 16.67% (7.03%) 5.92%*
Net Assets at End of the Period (In millions)............... $ 71.6 $ 75.3 $ 30.0 $ 20.8
Ratio of Expenses to Average Net Assets (b)................. 1.74% 1.67% 1.71% 1.68%
Ratio of Net Investment Income to Average Net Assets (b).... 4.38% 4.69% 4.88% 4.25%
Portfolio Turnover.......................................... 92% 70% 48% 79%
</TABLE>

* Non-Annualized

(a) Total Return is based upon net asset value which does not include payment of
the maximum sale charge or contingent deferred sales charge.

(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of certain expenses was less than
0.01%.

See Notes to Financial Statements

B-52

<PAGE> 509

FINANCIAL HIGHLIGHTS (CONTINUED)

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

<TABLE>
<CAPTION>
August 13, 1993
Year Ended December 31 (Commencement of
----------------------------- Distribution) to
Class C Shares 1996 1995 1994 December 31, 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $19.548 $17.568 $19.823 $19.650
-------- -------- -------- ---------

Net Investment Income..................................... .830 .883 .908 .350

Net Realized and Unrealized Gain/Loss on Securities....... (.302) 1.979 (2.279) .181
-------- -------- -------- --------

Total from Investment Operations............................ .528 2.862 (1.371) .531

Less Distributions from and in Excess of Net Investment
Income (Note 1)........................................... .837 .882 .884 .358
-------- -------- -------- ---------

Net Asset Value, End of the Period.......................... $19.239 $19.548 $17.568 $19.823

======== ======== ======== =======
Total Return (a)............................................ 2.83% 16.60% (6.98%) 2.70%*
Net Assets at End of the Period (In millions)............... $ 4.9 $ 5.1 $ 3.5 $ 5.0
Ratio of Expenses to Average Net Assets (b)................. 1.74% 1.67% 1.70% 1.68%
Ratio of Net Investment Income to Average Net Assets (b).... 4.37% 4.68% 4.89% 4.21%
Portfolio Turnover.......................................... 92% 70% 48% 79%
</TABLE>

* Non-Annualized

(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.

(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of certain expenses was less than
0.01%.

See Notes to Financial Statements

B-53

<PAGE> 510

NOTES TO FINANCIAL STATEMENTS

December 31, 1996
- --------------------------------------------------------------------------------
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 Trust (the
"Trust"), a Delaware business trust and is registered as a diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to provide investors with a high
level of current income exempt from federal income taxes, with liquidity and
safety of principal, primarily through an investment in a diversified portfolio
of insured municipal securities. The Fund commenced 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. 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.

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

B-54

<PAGE> 511

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

Net realized losses differ for financial reporting and tax purposes as a
result of losses recognized for tax purposes on open futures positions at
December 31, 1996.

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. For the year ended December 31, 1996, 99.8% of the income
distributions made by the Fund were exempt from federal income taxes.

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

Permanent book and tax basis differences relating to the recognition of
expenses associated with fund mergers (see Note 3) totaling $430,096 have been
reclassified from accumulated undistributed net investment income to capital.

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>

For the year ended December 31, 1996, the Adviser reimbursed the Fund for
certain trustees' compensation in connection with the July 1995 increase in the
number of trustees of the Fund.

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, 1996, the Fund recognized expenses of
approximately $103,800 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management and legal services to the Fund.

B-55

<PAGE> 512

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the year ended
December 31, 1996, the Fund recognized expenses of approximately $1,272,800,
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.

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, 1996, capital aggregated $1,179,723,178, $70,392,984 and
$5,137,291 for Classes A, B and C, respectively. For the year ended December 31,
1996, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................................. 29,859,557 $ 567,772,788
Class B.................................................. 504,537 9,594,322
Class C.................................................. 88,189 1,673,061
------------ ------------
Total Sales................................................ 30,452,283 $ 579,040,171
============ ============
Dividend Reinvestment:
Class A.................................................. 2,446,455 $ 46,553,726
Class B.................................................. 86,458 1,644,731
Class C.................................................. 8,358 159,069
------------ ------------
Total Dividend Reinvestment................................ 2,541,271 $ 48,357,526
============ ============
Repurchases:
Class A.................................................. (35,424,716) $(674,636,862)
Class B.................................................. (718,709) (13,659,358)
Class C.................................................. (101,870) (1,953,309)
------------ ------------
Total Repurchases.......................................... (36,245,295) $(690,249,529)
============ ============
</TABLE>

B-56

<PAGE> 513

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

At December 31, 1995, capital 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>

B-57

<PAGE> 514

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

For the year ended December 31, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$405,200 and CDSC on redeemed shares of approximately $233,200. 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 shareholders 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. Shares issued in connection with this reorganization are included in
common share sales for the year ended December 31, 1995. Combined net assets on
the date of acquisition were $1,236,253,953.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $1,258,779,404 and $1,320,020,635,
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 securities. Upon disposition, a
realized gain or loss is recognized accordingly, except when exercising an
option contract or taking delivery of a security underlying a futures contract.
In these instances, the recognition of gain or loss is postponed until the
disposal of the security underlying the option or futures contract.

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

Transactions in options for the year ended December 31, 1996 were as
follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995........................... -0- $ -0-
Options Written and Purchased (Net)........................ 4,650 (2,397,668)
Options Terminated in Closing Transactions (Net)........... (4,650) 2,397,668
------- ---------
Outstanding at December 31, 1996........................... -0- $ -0-
======= ==========
</TABLE>

B-58

<PAGE> 515

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

December 31, 1996
- --------------------------------------------------------------------------------

Transactions in futures contracts for the year ended December 31, 1996,
were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995............................ -0-
Futures Opened.............................................. 10,990
Futures Closed.............................................. (10,890)
--------
Outstanding at December 31, 1996............................ 100
========
</TABLE>

The futures contracts outstanding as of December 31, 1996, and the
description and unrealized appreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
- ------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond Futures
March 1997--Sells to Open (Current Notional Value of
$112,655 per contract).................................. 100 $27,321
=== =======
</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 Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.

6. DISTRIBUTION AND SERVICE PLANS

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

Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended December 31, 1996, are payments to VKAC of approximately
$750,000.

B-59

<PAGE> 516

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND

Van Kampen American Capital California Insured Tax Free Fund, formerly known
as Van Kampen Merritt California Insured Tax Free Fund (the "Fund"), is a
separate diversified series of Van Kampen American Capital Tax Free Trust, a
Delaware business trust (the "Trust"). The Trust is an open-end management
investment company, commonly known as a mutual fund. The Fund's investment
objective is to provide 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. All of the municipal securities in the portfolio of the
Fund will be insured by AMBAC Indemnity Corporation or by other municipal bond
insurers whose claims-paying ability is rated "AAA" by Standard & Poor's Ratings
Group on the date of purchase. The Fund's portfolio is managed by Van Kampen
American Capital Advisory Corp. (the "Adviser").

The Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the Securities
and Exchange Commission, Washington, D.C. This omitted information may be
obtained from the Commission upon payment of the fee prescribed, or inspected at
the Commission's office at no charge.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Fund and The Trust...................................... B-2

Investment Policies and Restrictions........................ B-2

Additional Investment Considerations........................ B-4

Description of Municipal Securities Ratings................. B-22

Trustees and Officers....................................... B-27

Investment Advisory and Other Services...................... B-36

Custodian and Independent Accountants....................... B-38

Portfolio Transactions and Brokerage Allocation............. B-38

Tax Status of the Fund...................................... B-39

The Distributor............................................. B-39

Distribution and Service Plans.............................. B-40

Legal Counsel............................................... B-41

Performance Information..................................... B-41

Report of Independent Accountants........................... B-43

Financial Statements........................................ B-44

Notes to Financial Statements............................... B-55
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED APRIL 30, 1997.

B-1
<PAGE> 517

THE FUND AND THE TRUST

Van Kampen American Capital California Insured Tax Free Fund (the "Fund") is a
separate diversified series of the Trust, an open-end diversified management
investment company commonly known as a mutual fund. The Trust is an
unincorporated business trust established under the laws of the State of
Delaware by an Agreement and Declaration of Trust dated as of May 10, 1995 (the
"Declaration of Trust"). The Declaration of Trust permits the Trustees to create
one or more separate investment portfolios and have a series of shares for each
portfolio. The Trustees can further sub-divide each series of shares into one or
more classes of shares for each portfolio. At present, the Fund, Van Kampen
American Capital Tax Free High Income Fund, Van Kampen American Capital
Municipal Income Fund, Van Kampen American Capital Insured Tax Free Income Fund,
Van Kampen American Capital Intermediate Term Municipal Income Fund, Van Kampen
American Capital Florida Insured Tax Free Income Fund, Van Kampen American
Capital New Jersey Tax Free Income Fund and Van Kampen American Capital New York
Tax Free Income Fund have been organized as series of the Trust and have
commercial investment operations. Van Kampen American Capital California Tax
Free Income Fund, Van Kampen American Capital Michigan Tax Free Income Fund, Van
Kampen American Capital Missouri Tax Free Income Fund and Van Kampen American
Capital Ohio Tax Free Income Fund have been organized as series of the Trust but
have not commenced investment operations. Other series may be organized and
offered in the future. The Fund was originally organized under the name Van
Kampen Merritt California Insured Tax Free Fund as a sub-trust of Van Kampen
Merritt Tax Free Fund, a Massachusetts business trust. The Fund was reorganized
as a series of the Trust and adopted its present name as of July 31, 1995.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting an individual
series. For example, a change in investment policy for a series would be voted
upon by shareholders of only the series involved. Except as described in the
Prospectus, shares do not have cumulative voting rights, preemptive rights or
any conversion or exchange rights other than those described in the Prospectus.
The Trust does not contemplate holding regular meetings of shareholders to elect
Trustees or otherwise. However, the holders of 10% or more of the outstanding
shares may by written request require a meeting to consider the removal of
Trustees by a vote of two-thirds of the shares then outstanding cast in person
or by proxy at such meeting.

INVESTMENT POLICIES AND RESTRICTIONS

The investment objective of the Fund is set forth in the Prospectus under the
caption "Investment Objectives and Policies." There can be no assurance that the
Fund will achieve its objective.

Fundamental investment restrictions limiting the investments of the Fund
provide that the Fund may not:

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(taken at current value) would then be invested in securities of a single
issuer or if as a result the Fund would hold more than 10% of the
outstanding voting securities or any single issuer, except that up to 25%
of the Fund's total assets may be invested without regard to such
limitation, except that the Fund may purchase securities of other
investment companies to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.

4. Make loans, except to the extent the tax exempt obligations the Fund may
invest in are considered to be loans.

7. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.

10. Invest in equity interests in oil, gas or other mineral exploration of
development programs.

11. Purchase or sell real estate commodities or commodity contracts, except as
set forth in item 6 above and except to the extent the municipal
securities in which the Fund may invest are considered to be interests in
real estate.

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if, at a later time, a change in values or net assets causes an increase or
decrease in percentage beyond that allowed.

ADDITIONAL INVESTMENT CONSIDERATIONS

Also included within the general category of municipal securities are
participations in lease obligations or installment purchase contract obligations
(hereinafter collectively called "lease obligations") of municipal authorities
or entities used to finance the acquisition of equipment and facilities.
Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged a lease
obligation is ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation. However,
certain lease obligations contain "non-appropriation" clauses which provide that
the municipality has no obligation to make lease or installment purchase
payments in future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet developed the
depth of marketability associated with more conventional bonds. Although
"non-appropriation" lease obligations are often secured by the underlying
property, disposition of the property in the event of foreclosure might prove
difficult. There is no limitation on the percentage of the Fund's assets that
may be invested in "non-appropriation" lease obligations. In evaluating such
lease obligations, the Adviser will consider such factors as it deems
appropriate, which factors may include (a) whether the lease can be cancelled,
(b) the ability of the lease obligee to direct the sale of the underlying
assets, (c) the general creditworthiness of the lease obligor, (d) the
likelihood that the municipality will discontinue appropriating funding for the
leased property in the event such property is no longer considered essential by
the municipality, (e) the legal recourse of the lease obligee in the event of
such a failure to appropriate funding and (f) any limitations which are imposed
on the lease obligor's ability to utilize substitute property or services than
those covered by the lease obligation.

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Also included in the term municipal securities are participation certificates
issued by state and local governments or authorities to finance the acquisition
of equipment and facilities. They may represent participations in a lease, an
installment purchase contract, or a conditional sales contract. Some municipal
leases and participation certificates may not be readily marketable.

Although the municipal securities in which the Fund may invest will be insured
as to timely payment of principal and interest, municipal securities, like other
debt obligations, are subject to the risk of non-payment. The ability of issuers
of municipal securities to make timely payments of interest and principal may be
adversely impacted in general economic downturns and as relative governmental
cost burdens are allocated and reallocated among federal, state and local
governmental units. Such non-payment would result in a reduction of income to
the Fund, and could result in a reduction in the value of the municipal security
experiencing non-payment and a potential decrease in the net asset value of the
Fund. Issuers of municipal securities might seek protection under the bankruptcy
laws. In the event of bankruptcy of such an issuer, the Fund could experience
delays and limitations with respect to the collection of principal and interest
on such municipal securities and the Fund may not, in all circumstances, be able
to collect all principal and interest to which it is entitled. To enforce its
rights in the event of a default in the payment of interest or repayment of

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The Fund may invest up to 15% of its total assets in illiquid securities,
securities the disposition of which is subject to substantial legal or
contractual restrictions on resale and securities that are not readily
marketable. The sale of restricted and illiquid securities often requires more
time and results in higher brokerage charges or dealer discounts and other
selling expenses than does the sale of securities eligible for trading on
national securities exchanges or in the over-the-counter markets. Restricted
securities may sell at a price lower than similar securities that are not
subject to restrictions on resale. Restricted securities salable among qualified
institutional buyers without restriction pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Adviser under
guidelines adopted by the Board of Trustees of the Trust (under which guidelines
the Adviser will consider factors such as trading activities and the
availability of price quotations), will not be treated as restricted securities
by the Fund pursuant to such rules. The Fund may, from time to time, adopt a
more restrictive limitation with respect to investment in illiquid and
restricted securities in order to comply with the most restrictive state
securities law, currently 10%. This policy does not include restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933, as amended, which the Board of Trustees or the Fund's investment adviser
has determined under Board-approved guidelines to be liquid.

SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA MUNICIPAL SECURITIES. As
described in the Prospectus, except during temporary periods, the Fund will
invest substantially all of its assets in California municipal securities. The
portfolio of the Fund may include securities issued by the State of California
(the "State"), by its various public bodies (the "Agencies") and/or by other
municipal entities located within the State (securities of all such entities are
referred to herein as "California municipal securities").

In addition, the specific California municipal securities in which the Fund
will invest will change from time to time. The Fund is therefore susceptible to
political, economic, regulatory or other factors affecting issuers of California
municipal securities. The following information constitutes only a brief summary
of a number of the complex factors which may impact issuers of California
municipal securities and does not purport to be a complete or exhaustive
description of all adverse conditions to which issuers of California municipal
securities may be subject. Such information is derived from official statements
utilized in connection with the issuance of California municipal securities, as
well as from other publicly available documents. Such information has not been
independently verified by the Fund and the Fund assumes no responsibility for
the completeness or accuracy of such information. Additionally, many factors,
including national, economic, social and environmental policies and conditions,
which are not within the control of such issuers, could have an adverse impact
on the financial condition of such issuers. The Fund cannot predict whether or
to what extent such factors or other factors may affect the issuers of
California municipal securities, the market value or marketability of such
securities or the ability of the respective issuers of such securities acquired
by the Fund to pay interest on or principal of such securities. The
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State of
California, and there is no assurance on the part of the State of California to
make payments on such local obligations. There may be specific factors that are
applicable in connection with investment in the obligations of particular
issuers located within California, and it is possible the Fund will invest in
obligations of particular issuers as to which such specific factors are
applicable. However, the information set forth below is intended only as a
general summary and not as a discussion of any specific factors that may affect
any particular issuer of California municipal securities.

Constitutional Limits on Spending and Taxes. Certain California municipal
securities may be obligations of issuers which rely in whole or in part,
directly or indirectly, on ad valorem real property taxes as a source of
revenue. In 1978, California voters approved an amendment to the California
Constitution known as Proposition 13, the Jarvis/Gann Initiative, which added
Article XIIIA to the California Constitution. The effect of Article XIIIA is to
limit ad valorem taxes on real property and to restrict the ability of taxing
entities

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to increase real property tax revenues. On June 18, 1992, the United States
Supreme Court upheld the constitutionality of Article XIIIA.

In 1979, the voters of California passed an amendment adding Article XIIIB to
the California Constitution, the effect of which is to significantly limit
spending by State government and by "local government" (defined as "any city,
county, city and county, school district, special district, authority, or other
political subdivision of or within the state"). Excluded from these limitations
on government entities is "debt service" (defined as "appropriations required to
pay the cost of interest and redemption charges, including the funding of any
reserve or sinking fund required in connection therewith, on indebtedness
existing or legally authorized as of January 1, 1979 or on bonded indebtedness
thereafter approved" by the voters of the issuing entity).

In November 1986, California voters approved an amendment to the California
Government Code known as Proposition 62 which added Article 3.7 to Title 5,
Division 2, Chapter 4 of the California Government Code. The effect of Article
3.7 is to limit the abilities of local governments to impose new taxes or
increase existing taxes by requiring certain legislative and voter approvals
prior to the imposition of certain taxes by any local government (defined as any
county, city, city and county, including a chartered city or county, or any
public or municipal corporation) or district (defined as any agency of the
state, formed pursuant to general law or special act, for the local performance
of governmental or proprietary functions within limited boundaries). Article 3.7
can be amended only by a vote of the electorate of the State of California. In
particular, Article 3.7, among other things, requires (i) two-thirds approval of
all members of the applicable legislative body followed by majority approval of
the voters voting in an election in order for a local government or district to
impose any general tax (defined as any tax imposed for general governmental
purposes), and (ii) two-thirds approval of the voters voting in an election in
order for a local government or district to impose any special tax (defined as
any tax imposed for a specific purpose). Those voting requirements do not apply
to ad valorem taxes to pay interest and redemption charges on any indebtedness
approved by the voters prior to the effective date of Article XIIIA of the
California Constitution. Article 3.7 requires (1) that the revenues from a
special tax be used only for the purpose or service for which the tax was
imposed, and (2) any tax subject to the measure imposed by any local government
or district on or after August 1, 1985 be ratified by majority vote of the
voters voting in an election held within two years after the effective date of
the measure in order for the tax to continue to be imposed on and after November
15, 1988. Article 3.7 contains a provision which diminishes the property tax
revenues allocated to a local government or district to the extent that the
local government or district imposed any tax not in compliance with Article 3.7.
Article 3.7 also provides that no local government or district may impose any ad
valorem tax on real property other than as permitted by Section 1 of Article
XIIIA of the California Constitution, and that no local government or district
may impose any transaction tax or sales tax on the sale of real property within
the city, county or district. A 1988 decision of the Fourth Appellate District
of the California Court of Appeals declared that the requirement of local voter
ratification provided for in Article 3.7 violated the California Constitution.
An initiative proposed to re-enact the ratification provisions of Article 3.7 as
a constitutional amendment was defeated by the voters in November 1990, but such
a proposal may be renewed in the future.

On December 19, 1991, the California Supreme Court declared a 1988 San Diego
County Ballot measure that raised sales taxes for the purpose of financing
construction of criminal detention and courthouse facilities unconstitutional
because it was not passed with two-thirds voter approval. The court concluded
that the agency established to finance the facilities is a special district
created to circumvent Article XIIIA. However, in May 1992, the California
Supreme Court let stand two lower court decisions involving sales tax increases
passed by a majority vote. The lower courts had held that the Los Angeles County
Transportation Commission and the Orange County Transportation Authority, the
agencies entitled to collect the taxes, were not formed to circumvent Article
XIIIA, and that, therefore, the taxes were validly passed. On November 10, 1993,
in a closely watched case involving a Santa Clara County transportation
authority created with the parameters of the California Supreme Court's 1991
decision in mind, a California Court of Appeal overturned a sales tax approved
by less than two-thirds of the voters. In a September 1995 decision, the State
Supreme Court affirmed the Court of Appeal, declaring Proposition 62
constitutional under the California Constitution. The petitioners have filed for
a rehearing. The decision limited itself to cities organized by the State and
left unresolved whether Proposition 62 is constitutional as applied to cities
organized under a charter. Approximately half the population of the State
resides in charter cities. In March 1996, a Superior Court held that

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charter cities do not have to submit taxes to voter approval despite the State
Supreme Court's Proposition 62 ruling . These decisions may continue to cast
doubt on other projects around the State that have been financed with sales tax
increases imposed without two-thirds voter approval. Soon after the State
Supreme Court decision, Moody's Investors Services, Inc. indicated that the
ruling has broad negative implications on the ability of the State's cities and
counties to raise revenue and issue debt supported by general fund revenues.

On November 5, 1996, voters approved Proposition 218, entitled the "Right to
Vote on Taxes Act," which incorporates new Articles XIIIC and XIIID into the
California Constitution. These new provisions enact limitations on the ability
of local government agencies to impose or raise various taxes, fees, charges and
assessments without voter approval. Certain "general taxes" imposed after
January 1, 1995 must be approved by voters in order to remain in effect. In
addition, Article XIIIC clarifies the right of local voters to reduce taxes,
fees, assessments or charges through local initiatives.

Proposition 218 does not affect the State or its ability to levy or collect
taxes. There are a number of ambiguities concerning the Proposition and its
impact on local governments and their bonded debt which will require
interpretation by the courts or the Legislature. The Legislative Analyst
estimated that enactment of Proposition 218 would reduce local government
revenues statewide by over $100 million a year, and that over time revenues to
local government would be reduced by several hundred million dollars a year
under this Proposition.

Because of the complex nature of Articles XIIIA-D, the ambiguities and
possible inconsistencies in their respective terms, and the applicability of
their respective exemptions and exceptions and the impossibility of predicting
future appropriations, it is not presently possible to determine the impact of
Article XIIIA-D or any implementing or related legislation on the California
municipal securities in which the Fund may invest, or the abilities of State or
local governments to pay the interest on, or repay the principal of such
California municipal securities.

Proposition 98. On November 8, 1988, voters approved Proposition 98, a
combined initiative constitutional amendment and statute called the "Classroom
Instructional Improvement and Accountability Act" (the "Act"). The Act changes
State funding of public education below the university level and the operation
of the State's Appropriations Limit. The Act, as amended, guarantees State
funding for K-12 school districts and community college districts at a level
equal to the greater of (a) in general, a fixed percentage of General Fund
revenues, (b) the amount actually appropriated to such districts from the
General Fund in the previous fiscal year, adjusted for either changes in the
cost of living, or (c) a third test which would replace the test in (b) if the
percentage growth in per capita of General Fund revenues in the prior year plus
one half of one percent is less than the percentage growth in California per
capita personal income. Under the test in (c), the schools would receive the
amount appropriated in the prior year adjusted for changes in enrollment and
General Fund revenues. The Act permits the legislature, by two-thirds vote of
both houses, with the Governor's concurrence, to suspend this formula for a
one-year period. The Act could cause increasing pressure on the State's budget
over future years, potentially reducing resources available for other State
programs, especially to the extent the Article XIIIB spending limit would
restrain the State's ability to fund such other programs by raising taxes. The
Act also changes how tax revenues in excess of the State's Appropriations Limit
are distributed. Any excess State tax revenues up to a specified amount would,
instead of being returned to taxpayers, be transferred to K-12 school and
community college districts. Such transfer would be excluded from the
Appropriations Limit for K-14 school districts, and the K-14 school
Appropriations Limits for the next year would be automatically increased by the
amount of such transfer. These additional moneys would enter the base funding
calculation for K-14 schools for subsequent years, creating further pressure on
other portions of the state budget, particularly if revenues decline in a year
following such a transfer.

Local Governments. The fiscal condition of local governments has been
constrained since the enactment of "Prospectus 13" in 1978, which reduced and
limited the future growth of property taxes, and limited the ability of local
government to impose "special taxes" (those devoted to a specific purpose)
without two-thirds voter approval.

Counties, in particular, have had fewer options to raise revenues than many
other local government entities, and have been required to maintain many
services. The entire statewide welfare system will be changed in

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response to the change in federal welfare law enacted in 1996. It is yet not
known how the final system will affect county finances. Under current law,
counties are required to provide "general assistance" aid to certain persons who
cannot obtain welfare from other programs, but this mandate may be eliminated as
part of the overhaul.

In the aftermath of Proposition 13, the State provided aid from the General
Fund to make up some of the loss of property tax moneys, including taking over
the principal responsibility for funding local K-12 schools and community
colleges. Under the pressure of the recent recession, the Legislature has
eliminated the remnants of this post-Proposition 13 aid to entities other than
K-14 education districts, although it has also provided additional funding
sources (such as sales taxes) and reduced mandates for local services. Many
counties continue to be under severe fiscal stress. While such stress has in
recent years most often been experienced by smaller, rural counties, larger
urban counties, such as Los Angeles, have also been affected.

In November of 1994, Standard & Poor's Rating Group downgraded the credit
rating of several California counties, including San Francisco, San Diego,
Marin, Los Angeles and San Bernadino. In December of 1994 and January of 1995,
Standard & Poor's Rating Group and Moody's Investors Services, Inc.,
respectively, downgraded Orange County to below investment grade as a result of
its bankruptcy filing (see discussion below). In August of 1995, Standard &
Poor's Rating Group again downgraded the credit rating of Los Angeles County and
placed it on CreditWatch. Moody's Investors Services, Inc. also downgraded Los
Angeles County. In October of 1995, Standard & Poor's Rating Group placed San
Diego County's $449.3 million in general fund-supported debt issues on
CreditWatch. Since the passage of Proposition 218 in November 1997, five of the
seven California cities reviewed by the major rating agencies have been
downgraded (Los Angeles, Sacramento, San Diego, Fresno and Anaheim).

On December 6, 1994, Orange County, California (the "County"), together with
its pooled investment funds (the "Funds") filed for protection under Chapter 9
of the federal Bankruptcy Code, after reports that the Funds had suffered
significant market losses in their investments, causing a liquidity crisis for
the Funds and the County. More than 200 other public entities, most of which,
but not all, are located in the County, were also depositors in the Funds. As of
mid-January, 1995, following a restructuring of most of the Funds' assets to
increase their liquidity and reduce their exposure to interest rate increases,
the County estimated the Funds' loss at about $1.69 billion, or 23% of their
initial deposits of approximately $7.5 billion. Many of the entities which
deposited moneys in the Funds, including the County, are facing cash flow
difficulties because of the bankruptcy filing and may be required to reduce
programs or capital projects. This may also affect their ability to meet their
outstanding obligations. In June, 1996, Orange County emerged from bankruptcy
protection as part of a fiscal recovery plan that included the issuance of new
recovery bonds and sharp reductions in services and personnel. Moody's gave the
insured recovery bonds an underlying rating of Baa and the county's general
obligation bonds a Ba rating. Standard & Poor's gave the recovery bonds a B
underlying rating and Fitch Investors Service assigned the bonds as underlying
rating of BBB.

State Finances. From 1990 until 1994 the State experienced the worst economic
fiscal, and budget conditions since the 1930's. Construction, manufacturing
(especially aerospace), and financial services, among others, have all been
severely affected. Job losses were the worst of any post-war recession.

The recession seriously affected State tax revenues, which basically mirror
economic conditions. It also caused increased expenditures for health and
welfare programs. The State has also been facing a structural imbalance in its
budget with the largest programs supported by the General Fund -- K-14
education, health, welfare and corrections -- growing at rates significantly
higher than the growth rates for the principal revenue sources of the General
Fund. As a result, the State entered a period of chronic budget imbalance.

A further consequence of the large budget imbalances in the 1990-91 and
1991-92 fiscal years was that the State used up all of its available cash
resources. In late June, 1992, the State was required to issue $475 million of
short-term revenue anticipation warrants to cover General Fund obligations
coming due on June 30. These warrants were repaid on July 24, 1992. With the
failure of the Governor and Legislature to adopt a budget for the 1992-93 fiscal
year on time (to allow the State to carry out its usual cash flow borrowing for
the fiscal year), the shortfall of cash forced the State Controller after July
1, 1992 to issue interest-bearing "registered warrants" in lieu of regular
warrants redeemable for cash to many State vendors, suppliers, and employees and
to local government agencies. Until the State budget was adopted on September 2,
1992, the

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Controller issued registered warrants totaling approximately $3.8 billion to pay
valid obligations from the prior fiscal year, and to pay continuing obligations
after July 1 based on special appropriations or court orders. Certain
constitutionally mandated obligations, such as debt service on bonds and revenue
anticipation warrants, were paid with available cash. Registered warrants had
not been issued by the State since the 1930s. State employees successfully sued
the State alleging that payment of their salaries with registered warrants
violated federal labor laws.

As a result of the deterioration in the State's budget and cash situation
since the 1991-92 fiscal year, rating agencies reduced the State's credit
rating. Between October 1991 and October 1992, the rating on the general
obligation bonds was reduced by Standard & Poor's Ratings Group from "AAA" to
"A+", by Moody's Investors Services, Inc. from "Aaa" to "Aa" and by Fitch
Investors Services, Inc. from "AAA" to "AA". On July 15, 1994, all three of the
rating agencies rating the State's long-term debt again lowered their ratings of
the State's general obligation bonds. Moody's Investors Services, Inc. lowered
its rating from "Aa" to "A1", Standard & Poor's Ratings Group lowered its rating
from "A+" to "A", and Fitch Investors Service lowered its rating from "AA" to
"A". In July 1996, Standard & Poor's raised its rating to A+ from A. Fitch
Investors Service also rated its rating last year to A+ from A. There can be no
assurance that such ratings will continue for any given period of time or that
they will not in the future be further revised or withdrawn. It should be noted
that the creditworthiness of obligations issued by local California issuers may
be unrelated to the creditworthiness of obligations issued by the State of
California, and there is no obligation on the part of the State to make payment
on such obligations in the event of default.

The 1996-97 Budget Act was signed by the Governor on July 15, 1996, along with
various implementing bills. The Governor vetoed about $82 million of
appropriations (both General Fund and Special Fund). With the signing of the
Budget Act, the State implemented its regular cash flow borrowing program with
the issuance of $3.0 billion of Revenue Anticipation Notes to mature on June 30,
1997. The Budget Act appropriated a modest budget reserve in the Special Fund
for Economic Uncertainties of $305 million, as of June 30, 1997. The Department
of Finance projected that, on June 30, 1997, the State's available internal
borrowable (cash) resources will be $2.9 billion, after payment of all
obligations due by that date, so that no cross-fiscal year borrowing will be
needed.

With the continued strong economic recovery in the State, the Department of
Finance has estimated, in connection with the release of the Governor's 1997-98
Budget Proposal, that revenues for the 1996-97 Fiscal Year will exceed initial
projections by about $760 million. This increase will be offset by higher
expenditures for K-14 school aid (pursuant to Proposition 98) and for health and
welfare costs, because federal law changes and other federal actions did not
provide as much assistance to the State as was initially planned in the Budget
Act. The Department's updated projections show a balance in the Special Fund for
Economic Uncertainties of $197 million, slightly lower than projected in July,
1996. The Department also projects the State's cash position will be stronger
than originally estimated, with unused internal borrowable resources at June 30,
1997 of about $4.3 billion.

On January 9, 1997, the Governor released his proposed budget for the 1997-98
Fiscal Year (the "Governor's Budget"). The Governor's Budget projects General
Fund revenues and transfers in 1997-98 of $50.7 billion, a 4.6% increase from
revised 1996-97 figures. The Governor proposes expenditures of $50.3 billion, a
3.9% increase from 1996-97. The Governor's Budget projects a balance in the
Special Fund for Economic Uncertainties of $553 million on June 30, 1998. The
Governor's Budget also anticipates about $3 billion of external borrowing for
cash flow purposes during the year, with no requirements for cross-fiscal year
borrowing.

It is not presently possible (1) to know whether, and to what extent, the
State General Fund or any Special Funds will have surplus or deficit balances in
the 1995-1996 fiscal year or in any subsequent fiscal year, or (2) to determine
the overall impact of any deficits on future allocations of the State revenues
to local governments or on the abilities of State or local governments to pay
the interest on, or repay the principal of, any California municipal securities
in which the Fund may invest.

Litigation. At any given time, including the present, there are numerous civil
actions pending against the State (including, but not limited to, those
discussed in the preceding paragraphs and below), which could, if

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determined adversely to the State, affect the State's expenditures and, in some
cases, its revenues. The following are certain of the more significant lawsuits
pending against the State.

The State is involved in a lawsuit. Thomas Hayes v. Commission on State
Mandates, related to state-mandated costs. The action involves an appeal by the
Director of Finance from a 1984 decision by the State Board of Control (now
succeeded by the Commission on State Mandates (Commission)). The Board of
Control decided in favor of local school districts' claims for reimbursement for
special education programs for handicapped students. The case was then brought
to the trial court by the State and later remanded to the Commission for
redetermination. The Commission has since expanded the claim to include
supplemental claims filed by seven other educational institutions; the issuance
of a final consolidated decision is anticipated sometime in early 1997. To date,
the Legislature has not appropriated funds. The liability to the State, if all
potentially eligible school districts pursue timely claims, has been estimated
by the Department of Finance at more than $1 billion.

The State is involved in a lawsuit related to contamination at the
Stringfellow toxic waste site. In United States, People of the State of
California v. J. B. Stringfellow, Jr., et al., the State is seeking recovery for
past costs of cleanup of the site, a declaration that the defendants are jointly
and severally liable for future costs, and an injunction ordering completion of
the cleanup. However, the defendants have filed a counterclaim against the State
for alleged negligent acts. Because the State is the present owner of the site,
the State may be found liable. Present estimates of the cleanup range from $200
million to $800 million.

The State is a defendant in a coordinated action involving 3,000 plaintiffs
seeking recovery for damages caused by the Yuba River flood of February 1986.
The trial court has found liability in inverse condemnation and awarded damages
of $500,000 to a sample of plaintiffs. The State's potential liability to the
remaining plaintiffs ranges from $800 million to $1.5 billion. An appeal has
been filed.

The State is a defendant in California State Employees Association v. Wilson,
where the petitioners are challenging several budget appropriations in the 1994
and 1995 Budget Acts. The appropriations mandate the transfer of funds from the
State Highway Account to the General Fund to reimburse the General Fund for debt
service costs on two rail bond measures. The petitioners contend that the
transfers violate the bond acts themselves and are requesting the monies be
returned. The loss to the State's General Fund could be up to $227 million.

In a similar case, Professional Engineers in California Government v. Wilson,
the petitioners are challenging several appropriations in the 1993, 1994, and
1995 Budget Acts. The appropriations mandate the transfer of approximately $262
million from the State Highway Account and $113 million from the Motor Vehicle
Account to the General Fund and appropriate approximately $6 million from the
State Highway Account to fund a highway-grade crossing program administered by
the Public Utilities Commission. Petitioners contend that the transfers violate
several constitutional provisions and request that the moneys be returned to the
State Highway Account and Motor Vehicle Account.

The State is a defendant in Just Say No To Tobacco Dough Campaign v. State of
California, where the petitioners challenge the appropriation of approximately
$186 million of Proposition 99 funds in the Cigarette and Tobacco Products
Surtax Fund for years ended June 30, 1990, through June 30, 1995 for programs
which were allegedly not health education or tobacco-related disease research.
If the State loses, the General Fund and funds from other sources would be used
to reimburse the Cigarette and Tobacco Products Surtax Fund for approximately
$186 million.

The State is a defendant in the case of Kurt Hathaway, et al. v. Wilson, et
al., where the plaintiffs are challenging the legality of various budget action
transfers and appropriations from particular special funds for years ended June
30, 1995, and June 30, 1996. The plaintiffs allege that the transfers and
appropriations are contrary to the substantive law establishing the funds and
providing for interest accruals to the fund, violate the single subject
requirement of the State Commission, and is an invalid "special law." Plaintiffs
seek to have monies totaling approximately $355 million returned to the special
funds.

The State is a defendant in two related cases, Beno vs. Sullivan (Beno) and
Welch vs. Anderson (Welch), concerning reductions in Aid to Families with
Dependent Children (AFDC) grant payments. In the Beno case, plaintiffs seek to
invalidate AFDC grant reductions and in the Welch case, plaintiffs contend that
AFDC

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grant reductions are not authorized by state law. The Beno case concerns the
total grant reductions while the Welch case concerns the period of time the
State did not have a waiver for those reductions. The State's potential
liability for retroactive AFDC grant reductions is estimated at $831 million if
the plaintiffs are awarded the full amount in both cases.

In the case of Board of Administration, California Public Employees'
Retirement System, et al. v. Pete Wilson, Governor, et al., plaintiffs
challenged the constitutionality of legislation which deferred payment of the
State's employer contribution to the Public Employees' Retirement System
beginning in Fiscal Year 1992-93. On January 11, 1995, the Sacramento County
Superior Court entered a judgment finding that the legislation
unconstitutionally impaired the vested contract rights of PERS members. The
judgment provides for issuance of a writ of mandate directing State defendants
to disregard the provisions of the legislation, to implement the statute
governing employer contributions that existed before the changes in the
legislation found to be unconstitutional, and to transfer to PERS the 1993-94
and 1994-95 contributions that are unpaid to date. The State defendants have
appealed. A hearing before the State Court of Appeal took place in January 1997.

Recent Legislation. Recently, legislation has been enacted which (1)
increases, in limited instances, the abilities of both county boards of
supervisors and redevelopment agencies to impose new special taxes; (2) repeals
the existing limitations on the amount of notes of the State of California which
may be sold; (3) eliminates certain restrictions on repayment of general
obligations bonds; (4) allows revenue anticipation notes to be repaid in a
succeeding fiscal year and generally facilitates their issuance; (5) increases
the ability of community redevelopment agencies to issue revenue bonds for the
purpose of refunding bonds of other political subdivisions of the State; (6) cut
corporate tax rates by 5% a year; and (7) automatically and proportionately
reduces programmed General Fund appropriations for the next fiscal year (except
those mandated by the Constitution) up to 4%, if the State Director of Finance,
with concurrence of the Commission on State Finance, certifies that revenues for
such fiscal year were not expected to meet programmed budgetary requirements.

Additional legislation has been or may be introduced which would create new
regional agencies with the ability to tax and issue debt, alter the definition
of ownership changes that trigger reassessment of business property under
Article XIIIA, modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively would increase the abilities of
State and local governments to impose new taxes, increase existing taxes
(including sales tax increases to fund earthquake relief), or issue bonds or
other debt instruments. It is not currently possible to predict the extent to
which any such legislation will be enacted. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Nor is it currently
possible to determine the impact of any recently enacted or proposed legislation
on California municipal securities in which the Fund may invest or future
allocations of State revenues to local governments.

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STRATEGIC TRANSACTIONS. The Fund may, but is not required to, utilize various
other investment strategies as described below to hedge various market risks
(such as interest rates and broad or specific market movements) or to manage the
effective maturity or duration of the Fund's fixed-income securities. Such
strategies are generally accepted by modern portfolio managers and are regularly
utilized by many mutual funds and other institutional investors. Techniques and
instruments may change over time as new instruments and strategies are developed
or regulatory changes occur.

Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market movements is incorrect, the risk that
the use of such Strategic Transactions could result in losses greater than if
they had not been used. Use of put and call options may result in losses to the
Fund, force the sale or purchase of portfolio securities at inopportune times or
for prices other than current market values, limit the amount of appreciation
the Fund can realize on its investments or cause the Fund to hold a security it
might otherwise sell. The use of options and futures transactions entails
certain other risks. In particular, the variable degree of correlation between
price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in value of
such position. Finally, the daily variation margin requirements for futures
contracts would create a greater ongoing potential financial risk than would
purchases of options, where the exposure is limited to the cost of the initial
premium. Losses resulting from the use of Strategic Transactions would reduce
net asset value, and possibly income, and such losses can be greater than if the
Strategic Transactions had not been utilized. Income earned or deemed to be
earned, if any, by the Fund from its Strategic Transactions will generally be
taxable income of the Fund. See "Tax Status" in the Prospectus.

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seven days. The Fund expects generally to enter into OTC options that have cash
settlement provisions, although it is not required to do so.

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management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of options on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price nor that delivery will occur.

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rate or amount. The purchase of a floor entitles the purchaser to receive
payments on a notional principal amount from the party selling such floor to the
extent that a specified index falls below a predetermined interest rate or
amount. A collar is a combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates or values.

In the case of a futures contract or an option thereon, the Fund must deposit
initial margin and possible daily variation margin in addition to segregating
assets sufficient to meet its obligation to purchase or provide securities or
currencies, or to pay the amount owed at the expiration of an index- based
futures contract. Such assets may consist of cash, cash equivalents, liquid debt
or equity securities or other acceptable assets.

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having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.

Original Issue Insurance. Original Issue Insurance is purchased with respect
to a particular issue of municipal securities by the issuer thereof or a third
party in conjunction with the original issuance of such municipal securities.
Under such insurance, the insurer unconditionally guarantees to the holder of
the insured municipal security the timely payment of principal and interest on
such obligation when and as such payments shall become due but shall not be paid
by the issuer, except that in the event of any acceleration of the due date of
the principal by reason of mandatory or optional redemption (other than
acceleration by reason of a mandatory sinking fund payment), default or
otherwise, the payments insured may be made in such amounts and at such times as
payments of principal would have been due had there not been such acceleration.
The insurer is responsible for such payments less any amounts received by the
holder from any trustee for the municipal security issuers or from any other
source. Original Issue Insurance generally does not insure payment on an
accelerated basis, the payment of any redemption premium (except with respect to
certain premium payments in the case of certain small issue industrial
development and pollution control municipal securities), the value of the Shares
of the Fund or the market value of municipal securities, or payments of any
tender purchase price upon the tender of the municipal securities. Original
Issue Insurance also does not insure against nonpayment of principal of or
interest on municipal securities resulting from the insolvency, negligence or
any other act or omission of the trustee or other paying agent for such
obligations.

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security. Secondary Market Insurance generally provides the same type of
coverage as is provided by Original Issue Insurance and, as is the case with
Original Issue Insurance, Secondary Market Insurance remains in effect as long
as the municipal securities covered thereby remain outstanding and the insurer
remains in business, regardless of whether the Fund ultimately disposes of such
municipal securities. All premiums respecting municipal securities covered by
Original Issue Insurance or Secondary Market Insurance are paid in advance by
the issuer or other party obtaining the insurance.

Portfolio Insurance. The Portfolio Insurance policies obtained by the Fund
would insure the payment of principal and interest on specified eligible
municipal securities purchased by the Fund. Except as described below, Portfolio
Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance or Secondary Market Insurance. Municipal securities
insured under one Portfolio Insurance policy generally would not be insured
under any other policy purchased by the Fund. A municipal security is eligible
for coverage under a policy if it meets certain requirements of the insurer.
Portfolio Insurance is intended to reduce financial risk, but the cost thereof
and compliance with investment restrictions imposed under the policy will reduce
the yield to shareholders of the Fund. If a municipal security already is
covered by Original Issue Insurance of Secondary Market Insurance, the Fund is
not required to additionally insure any such municipal security under any policy
of Portfolio Insurance that the Fund may purchase.

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with respect to a municipal security that is to be sold by the Fund. The Fund
would exercise the right to obtain Permanent Insurance upon payment of a single,
predetermined insurance premium payable from the proceeds of the sale of such
municipal security. It is expected that the Fund will exercise the right to
obtain Permanent Insurance for a municipal security only if, in the opinion of
the Adviser, upon such exercise the net proceeds from the sale by the Fund of
such obligation, as insured, would exceed the proceeds from the sale of such
obligation without insurance. The Permanent Insurance premium with respect to
each such obligation is determined based upon the insurability of each such
obligation as of the date of purchase by the Fund and will not be increased or
decreased for any change in the creditworthiness of such obligation unless such
obligation is in default as to payment of principal or interest, or both. In
such event, the Permanent Insurance premium shall be subject to an increase
predetermined at the date of purchase by the Fund.

Because each Portfolio Insurance policy will terminate as to municipal
securities sold by the Fund on the date of sale, in which event the insurer will
be liable only for those payments of principal and interest that are then due
and owing (unless Permanent Insurance is obtained by the Fund), the provision
for this insurance will not enhance the marketability of securities held by the
Fund, whether or not the securities are in default or in significant risk of
default. On the other hand, since Original Issue Insurance and Secondary Market
Insurance will remain in effect as long as municipal securities covered thereby
are outstanding, such insurance may enhance the marketability of such securities
even when such securities are in default or in significant risk of default, but
the exact effect, if any, on the marketability cannot be estimated. Accordingly,
the Fund may determine to retain or, alternatively, to sell municipal securities
covered by Original Issue Insurance or Secondary Market Insurance that are in
default or in significant risk of default.

There can be no assurance that insurance of the kind described above will
continue to be available to the Fund. In the event that such insurance is no
longer available or that the cost of such insurance outweighs the benefits to
the Fund in the view of the Board of Trustees, the Board will consider whether
to modify the investment policies of the Fund, which may require the approval of
shareholders. In the event the claims-paying ability rating of an insurer of
municipal securities in the Fund's portfolio were to be lowered from AAA by S&P,
or if the Adviser anticipates such a lowering or otherwise does not believe an
insurer's claims-paying ability merits its existing triple-A rating, the Fund
could seek to obtain additional insurance from an insurer whose claims-paying
ability is rated AAA by S&P, or if the Adviser determines that the cost of
obtaining such additional insurance outweigh the benefits, the Fund may elect
not to obtain additional insurance. In making such determination, the Adviser
will consider the cost of the additional insurance, the new claims-paying
ability rating and financial condition of the existing insurer and the
creditworthiness of the issuer and/or guarantor of the underlying municipal
securities. The Adviser also may determine not to purchase additional insurance
in such circumstances if it believes that the insurer is taking steps which will
cause its triple-A claims paying ability rating to be restored promptly.

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addition, certain insurers' operations recently have been assumed by their state
regulatory agencies. The Fund cannot predict the consequences of a state
takeover of an insurer's obligations and, in particular, whether such an insurer
(or its state regulatory agency) could or would honour all of the insurer's
contractual obligations including any outstanding insurance contracts insuring
the timely payment of principal and interest on municipal securities. The Fund
cannot predict the impact which such events might have on the market values of
such municipal security. In the event of a default by an insurer on its
obligations with respect to any municipal securities in the Fund's portfolio,
the Fund would look to the issuer and/or guarantor of the relevant municipal
securities for payments of principal and interest and such issuer and/or
guarantor may not be rated AAA by S&P. Accordingly, the Fund could be exposed to
greater risk of non-payment in such circumstances which could adversely affect
the Fund's net asset value and the market price per Common Share. Alternatively,
the Fund could elect to dispose of such municipal securities; however, the
market prices for such municipal securities may be lower than the Fund's
purchase price for them and the Fund could sustain a capital loss as a result.

Although the insurance on municipal securities reduces financial or credit
risk in respect of the insured obligations (i.e., the possibility that owners of
the insured municipal securities will not receive timely scheduled payments of
principal or interest), insured municipal securities remain subject to market
risk (i.e., fluctuations in market value as a result of changes in prevailing
interest rates). Accordingly, insurance on municipal securities does not insure
the market value of the Fund's assets or the net asset value or the market price
for the Common Shares.

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DESCRIPTION OF MUNICIPAL SECURITIES RATINGS

STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by S&P) follows:

1. DEBT

A S&P corporate or municipal debt rating is a current assessment of
the creditworthiness of an obligor with respect to a specific obligation.
This assessment may take into consideration obligors such as guarantors,
insurers, or lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.

The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform any audit in connection with any rating and may, on occasion, rely
on unaudited financial information. The ratings may be changed, suspended
or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;

2. Nature of and provisions of the obligation;

3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.

<TABLE>
<S> <C>
AAA Debt rated 'AAA' has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.

AA Debt rated 'AA' has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues
only in small degree.

A Debt rated 'A' has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.

BBB Debt rated 'BBB' is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.

BB Debt rated 'BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments. The 'BB' rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'BBB-' rating.

B Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B'
rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied 'BB' or 'BB-'
rating.
</TABLE>

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CCC Debt rated 'CCC' has a currently identifiable vulnerability
to default, and is dependent upon favorable business,
financial, and economic conditions to meet timely payment of
interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not
likely to have the capacity to pay interest and repay
principal. The 'CCC' rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied 'B' or 'B-' rating.

CC The rating 'CC' typically is applied to debt subordinated to
senior debt that is assigned an actual or implied 'CCC'
rating.

C The rating 'C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied 'CCC-'
debt rating. The 'C' rating may be used to cover a situation
where a bankruptcy petition has been filed, but debt service
payments are continued.

CI The rating 'CI' is reserved for income bonds on which no
interest is being paid.

D Debt rated 'D' is in payment default. The 'D' rating
category is used when interest payments or principal
payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The 'D'
rating also will be used upon the filing of a bankruptcy
petition if debt service payments are jeopardized.

PLUS (+) or MINUS (-): The ratings from 'AA' to 'CCC' may be
modified by the addition of a plus or minus sign to show
relative standing within the major categories.

<TABLE>
<S> <C>
C The letter "c" indicates that the holder's option to tender
the security for purchase may be canceled under certain
prestated conditions enumerated in the tender option
documents.

* Continuance of the rating is contingent upon S&P's receipt
of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.

NR Indicates that no public rating has been requested, that
there is insufficient information on which to base a rating,
or that S&P does not rate a particular type of obligation as
a matter of policy.
</TABLE>

DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.

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BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.

2. MUNICIPAL NOTES

The following criteria will be used in making that assessment.

-- Amortization schedule (the larger the final maturity relative to
other maturities, the more likely it will be treated as a note).

-- Source of payment (the more the issue depends on the market for its
refinancing, the more likely it will be treated as a note).

The note rating symbols and definitions are as follows:

<TABLE>
<S> <C>
SP-1 Strong capacity to pay principal and interest. Issues
determined to possess very strong characteristics are a plus
(+) designation.

SP-2 Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes
over the term of the notes.

SP-3 Speculative capacity to pay principal and interest.
</TABLE>

3. COMMERCIAL PAPER

A S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more
than 365 days.

Ratings are graded into several categories, ranging from 'A-1' for the
highest-quality obligations to 'D' for the lowest. These categories are as
follows:

<TABLE>
<S> <C>
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are
denoted with a plus (+) sign designation.

A-2 Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is
not as high as for issues designated 'A-1'.

A-3 Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.

B Issues rated 'B' are regarded as having only speculative
capacity for timely payment.

C This rating is assigned to short-term debt obligations with
a doubtful capacity for payment.

D Debt rated 'D' is in payment default. The 'D' rating
category is used when interest payments or principal
payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes
that such payments will be made during such grace period.
</TABLE>

A commercial paper rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to S&P by
the issuer or obtained by S&P from other sources it considers reliable. The
ratings may be changed, suspended, or withdrawn as a result of changes in
or unavailability of, such information.

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