VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST, N-30D, 1997-08-27

VAN KAMPEN AMERICAN CAPITAL TAX FREE TRUST
N-30D, 1997-08-27

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<PAGE> 1

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Portfolio Management Review...................... 6
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 24
Statement of Operations.......................... 25
Statement of Changes in Net Assets............... 26
Financial Highlights............................. 27
Notes to Financial Statements.................... 30
</TABLE>

TFIN SAR 8/97
<PAGE> 2

LETTER TO SHAREHOLDERS

July 24, 1997

Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan
Stanley Group Inc., a world leader in
asset management. Earlier this year,
Morgan Stanley Group Inc. and Dean
Witter, Discover & Co. agreed to
merge. The merger was completed on [PHOTO]
May 31, creating the combined company
of Morgan Stanley, Dean Witter, DENNIS J. MCDONNELL AND DON G. POWELL
Discover & Co. Additionally, we are
very pleased to announce that Philip
N. Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.

Continued on page two

1
<PAGE> 3

rose by a mere 2.2 percent during the 12 months through May. A strong rally in
the U.S. dollar helped dampen inflationary pressures resulting from the vigorous
domestic economy by making imported goods less expensive. At the same time,
continued moderation in the cost of employee benefit packages offset mild upward
pressure on wages.

In March, the inflationary implications of a tight labor market caused the
Federal Reserve Board to raise its target for a key lending rate by one-quarter
of a percentage point, the first hike in short-term interest rates in two years.
Signs that economic growth slowed markedly in the second quarter, however, led
Fed policymakers to leave rates unchanged at subsequent meetings.

MARKET OVERVIEW

Within the tax-exempt municipal market, long-term general obligation bonds
returned nearly four percent during the past six months. The supply of municipal
bonds remained tight, as a number of older bonds were called and new issuance
was less than anticipated. As of June 30, long-term AA-rated general obligation
bonds yielded 5.49 percent, which is equivalent to a 9.09 percent yield on
taxable securities for investors in the 39.6 percent federal income tax bracket.

OUTLOOK

We are fortunate to be experiencing a rare combination of sustained economic
growth, low inflation, and highly favorable performance in the financial market.
Along with our shareholders, we celebrate the seemingly best of economic times.
Once again, we encourage you to review your portfolio with an eye toward
correcting allocation imbalances.

Continued on page three

2
<PAGE> 4

Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.

Sincerely,

[SIG.]
Don G. Powell

Chairman
Van Kampen American Capital
Investment Advisory Corp.

[SIG.]
Dennis J. McDonnell

President
Van Kampen American Capital
Investment Advisory Corp.

3
<PAGE> 5

PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997

VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS

Six-month total return based on NAV(1)..... 2.36% 1.96% 1.96%
Six-month total return(2).................. (2.50%) (2.02%) 0.96%
One-year total return(2)................... 2.77% 2.98% 6.03%
Five-year average annual total return(2)... 5.53% N/A N/A
Ten-year average annual total return(2).... 7.37% N/A N/A
Life-of-Fund average annual total
return(2)................................ 8.89% 4.26% 4.08%
Commencement Date.......................... 12/14/84 05/01/93 08/13/93

DISTRIBUTION RATES AND YIELD

Distribution Rate(3)....................... 4.87% 4.33% 4.33%
Taxable Equivalent Distribution Rate(4).... 7.61% 6.77% 6.77%
SEC Yield(5)............................... 4.33% 3.76% 3.79%
</TABLE>

N/A = Not Applicable

(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).

(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).

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

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

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

See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.

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

4
<PAGE> 6

PORTFOLIO HIGHLIGHTS

VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND

TOP TEN STATES AS OF JUNE 30, 1997

<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
California............ 16.6%
Illinois.............. 16.0%
New York.............. 7.6%
Pennsylvania.......... 5.9%
Texas................. 5.9%
Colorado.............. 4.7%
Florida............... 4.1%
Alabama............... 3.8%
Kansas................ 3.2%
Washington............ 3.0%
</TABLE>

CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS

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

TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
<S> <C>
Health Care................ 29.7%
Retail Electric / Gas /
Telephone................ 11.1%
Public Building............ 8.3%
General Purpose............ 8.1%
Higher Education........... 7.9%
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
<S> <C>
Health Care................ 27.7%
Higher Education........... 10.1%
Retail Electric / Gas /
Telephone................ 10.0%
Public Building............ 8.9%
General Purpose............ 8.5%
</TABLE>

DURATION

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C>
Duration 7.78 years 8.02 years
</TABLE>

5
<PAGE> 7

PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND

We recently spoke with the management team of the Van Kampen American Capital
Insured Tax Free Income Fund about the key events and economic forces that
shaped the markets during the first half of the Fund's fiscal year. The team
includes Joseph A. Piraro, portfolio manager, and Peter W. Hegel, chief
investment officer for fixed-income investments. The following excerpts reflect
their views concerning the Fund's performance during the six-month period ended
June 30, 1997.

Q WHAT FACTORS AFFECTED THE FUND FOR THE FIRST HALF OF THIS YEAR?

A Interest rates and the economy had a positive impact on the Fund's
performance. The U.S. economy has been expanding for several years, and
this prosperity is unequaled in history, with unemployment at a 27-year
low and few signs of inflation. The downward trend in interest rates in recent
years has given us a boost in terms of price appreciation, but also makes it
somewhat difficult to build the income component of the Fund.
In addition, supply and demand of tax-exempt securities impacted our
investment technique. Year to date, supply was lower than anticipated, although
it rose slightly toward the end of the period. This diminished supply is
primarily due to interest rates remaining in the same range throughout much of
the 1990s, significantly decreasing the volume of refunding issues coming to
market. More importantly, the percentage of triple-A insured issues coming to
market has increased steadily, currently making up approximately 52 percent of
total volume. In large part, this is attributable to an increasing appetite for
safety from investors concerned about municipalities with financial
difficulties. Combined with drastic cuts in insurance costs over the past four
years, yields on insured offerings are much more attractive when compared to
those of riskier, lower-rated securities. The attractiveness of insured triple-A
bonds resulted in superior price appreciation in this sector, and the increased
issuance provides a greater selection for the Fund.

Q WHAT CHANGES HAVE YOU MADE TO THE PORTFOLIO OVER THE PERIOD?

A We continue to keep the Fund well-diversified across industry sectors and
states. Because of our strong research abilities in the health-care
sector, we were able to extract value from that industry, and it is our
largest sector concentration. California bonds are one of the largest
state-specific concentration, due in large part to the volume and attractiveness
of bonds issued there. At the end of period, we had allocated 16.6 percent of
the Fund's long-term investments to California issues. See the chart on page
five for more detailed sector and state information.
The actions of the Federal Reserve Board influenced the Fund and prompted us
to make several changes. The Fed preemptively tightened rates in March after
improving economic data caused speculation that inflation could start to rise.
Later, data showing a tempering of economic activity led to a bond market rally
and no further change in rates

6
<PAGE> 8

by the Fed. We had anticipated that the Fed would raise rates to head off
inflation; as a result, we lowered our duration to 7.68 years, slightly shorter
than the Lehman Brothers Municipal Bond Index duration of 7.83 years. Because of
the longer-term nature of the Fund, the calculation of this index's duration has
been adjusted to eliminate bonds with maturities of five years or less.
Duration, expressed in years, is a measurement of the Fund's sensitivity to
interest rate movements. The shorter its duration, the less sensitive the Fund
is expected to be to interest rate changes. Our timely adjustment proved
beneficial for the Fund, because the shorter duration reduced the Fund's
relative volatility from changes in interest rates. We maintained a defensive
stance with a shorter duration in May when the Fed decided to remain neutral,
and our return suffered slightly. After readjusting duration to a more neutral
stance, we recovered our earlier losses in June. For additional Fund portfolio
highlights, please refer to page five.

Q HOW HAS THE FUND PERFORMED OVER THE SIX-MONTH PERIOD?

A For the six months ended June 30, 1997, the Fund generated a total return
of 2.36 percent(1) (Class A shares at net asset value). By comparison, the
Lehman Brothers Municipal Bond Index produced a total return of 3.20
percent over the same period. This index is a broad-based, unmanaged index of
municipal bonds and does not reflect any commissions or fees that would be paid
by an investor purchasing the securities it represents. The Fund's Class A Share
net asset value closed the reporting period at $19.12, down from $19.24 per
share six months ago.
The Fund continued to meet its goal of providing a competitive level of
tax-exempt current income. Its Class A share distribution rate was 4.87
percent(3) as of June 30, 1997, based on a monthly dividend of $.0815 per share
and a maximum public offering price of $20.07. For investors in the 36 percent
federal income tax bracket, the Fund's distribution rate was equivalent to a
taxable investment earning 7.61 percent(4). Please refer to the chart on page
four for additional Fund performance results.

Q TO WHAT WOULD YOU ATTRIBUTE THE FUND'S SUCCESS?

A We have always managed the portfolio with long-term performance in mind.
We strive for consistency and focus on providing relative net asset value
stability and a competitive current yield. It is an approach that has
worked well for us throughout a wide range of market conditions.
Also, we are supported by a very strong research team and a research
philosophy that has proven itself over the long term. Our research allows us to
get a thorough read on regional economies and build strong relationships and
information networks among the issuers and traders we deal with on a daily
basis. This gives us a head start in identifying attractive insured
high-yielding municipal bond issues. In addition, we continue to pursue
municipal bonds issued by specialty states including California, Florida, and
New York, providing favorable returns for our shareholders.

7
<PAGE> 9

Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?

A We anticipate that demand for insured municipal bonds may continue to be a
relevant issue in the coming months when the "June/July effect" comes into
play. During the months of June and July, a large number of bonds usually
are redeemed or called before maturity, resulting in increased demand for bonds.
Demand for new bonds should also be heavily influenced by some of the more
seasoned California insured mutual funds. Many have considerable positions in
high-yielding bonds issued in the late 1980s that will soon be called or
redeemed by their issuers. These bond funds will create an environment of heavy
demand for insured bonds as they seek to replace redeemed bonds. We hope to take
advantage of this situation by holding our California insured bonds with good
call protection and selling less desirable bonds.
We feel confident that we have positioned the Fund for solid, consistent
performance. We will continue to manage the Fund with the philosophy we have
applied since the Fund's inception, as we seek to achieve our objective of
providing shareholders with a high level of current income, exempt from federal
income taxes.

[SIG.]
Peter W. Hegel

Chief Investment Officer
Fixed Income Investments

[SIG.]
Joseph A. Piraro

Portfolio Manager

Please see footnotes on page four

8
<PAGE> 10

PORTFOLIO OF INVESTMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 2.2%
$ 2,250 Alabama St Brd Edl Rev Shelton St Cmnty College
(MBIA Insd)...................................... 6.000% 10/01/14 $ 2,356
2,000 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd)............................... 6.750 08/15/17 2,205
1,900 Birmingham-Carraway, AL Methodist Hlth Sys Ser A
(Connie Lee Insd)................................ 5.875 08/15/25 1,926
2,500 Jefferson Cnty, AL Brd Edl Cap Outlay Sch (AMBAC
Insd)............................................ 5.875 02/15/20 2,543
2,000 Lauderdale Cnty & Florence AL Hlthcare Auth Rev
Eliza Coffee Mem Hosp Rfdg (MBIA Insd)........... 5.750 07/01/19 2,014
5,500 Limestone Cnty, AL Wtr Auth Wtr Rev (FGIC
Insd)............................................ 7.700 12/01/19 5,780
5,500 Morgan Cnty Decatur, AL Hlthcare Auth Hosp Rev
Decatur Genl Hosp Rfdg (Connie Lee Insd)......... 6.250 03/01/13 5,853
2,400 Muscle Shoals, AL Util Brd Wtr & Swr Rev (FSA
Insd)............................................ 6.500 04/01/16 2,632
1,400 West Morgan East Lawrence Wtr Auth AL Wtr Rev
(FGIC Insd)...................................... 5.625 08/15/21 1,393
1,000 West Morgan East Lawrence Wtr Auth AL Wtr Rev
(FGIC Insd)...................................... 5.625 08/15/25 994
1,600 West Morgan East Lawrence Wtr Auth AL Wtr Rev
(Prerefunded @ 08/15/04) (FSA Insd).............. 6.800 08/15/14 1,831
----------
29,527
----------
ALASKA 0.2%
2,355 Ketchikan, AK Muni Util Rev Ser R (FSA Insd)..... 6.600 12/01/07 2,599
----------
ARIZONA 1.3%
11,000 Arizona St Ctfs Partn Ser B Rfdg (AMBAC Insd).... 6.250 09/01/10 11,740
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 2,506
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp
Ser A Rfdg (AMBAC Insd).......................... 6.000 09/01/12 1,971
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp
Ser A Rfdg (AMBAC Insd).......................... 6.125 09/01/17 1,842
----------
18,059
----------
CALIFORNIA 16.7%
4,290 Antioch Area, CA Pub Fac Fin Agy Cmnty Fac Dist
No 1989 (FGIC Insd).............................. 5.300 08/01/15 4,244
2,835 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy
Pool Rev Ser A (FSA Insd)........................ 6.000 12/15/14 2,969
2,555 Berkeley, CA Unified Sch Dist Ser C (AMBAC
Insd)............................................ 5.875 08/01/12 2,674
1,985 Berkeley, CA Unified Sch Dist Ser C (AMBAC
Insd)............................................ 5.875 08/01/14 2,052
5,000 Beverly Hills, CA Pub Fin Auth Lease Rev Ser A
(Inverse Fltg) (MBIA Insd)....................... 5.650 06/01/15 4,944
10,000 California Hlth Fac Fin Auth Rev Sutter Hosp Ser
A Rfdg (AMBAC Insd).............................. 6.700 01/01/13 10,411
</TABLE>

See Notes to Financial Statements

9
<PAGE> 11

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 3,480 California Pub Cap Impt Fin Auth Rev Pooled Proj
Ser B (BIGI Insd)................................ 8.100% 03/01/18 $ 3,637
10,000 California St Pub Wks Brd Lease Rev Dept of
Corrections CA St Prison D Susanville (MBIA
Insd)............................................ 5.375 06/01/18 9,647
16,770 Capistrano, CA Unified Pub Fin Auth Spl Tax Rev
First Lien Ser A Rfdg (AMBAC Insd)............... 5.700 09/01/16 17,000
1,225 Chico, CA Pub Fin Auth Rev Tax Alloc Merged Redev
Proj Area (FSA Insd)............................. 5.500 04/01/25 1,198
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA Insd)....... 6.200 09/01/18 3,194
220 Concord, CA Redev Agy Tax Alloc Cent Concord
Redev Proj Ser 3 (BIGI Insd)..................... 8.000 07/01/18 232
805 Corona Norco, CA Unified Sch Dist Lease Rev Partn
Insd Land Acquis Ser A (FSA Insd)................ 6.000 04/15/19 831
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs Partn Fac Refin
(FGIC Insd)...................................... 6.300 09/01/12 1,331
425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC Insd)... 6.700 08/01/21 496
5,675 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent
for the Arts Rfdg (AMBAC Insd)................... * 09/01/17 1,653
6,500 Grossmont, CA Union High Sch Dist Ctfs Partn
(MBIA Insd)...................................... * 11/15/21 1,315
3,530 Hollister, CA Redev Agy Tax Alloc Cmnty Dev Proj
Rfdg (AMBAC Insd)................................ 5.375 10/01/13 3,555
1,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark
Proj (FSA Insd).................................. 6.500 11/01/12 1,085
7,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark
Proj (FSA Insd).................................. 6.625 11/01/22 7,615
3,500 Los Angeles Cnty, CA Cap Asset Lease Corp
Leasehold Rev Rfdg (AMBAC Insd).................. 6.000 12/01/16 3,606
13,480 Los Angeles Cnty, CA Metro Tran Prop A Second
Tier Rfdg (MBIA Insd)............................ 6.000 07/01/21 14,003
3,000 Los Angeles, CA Cmnty Redev Agy Tax Alloc Bunker
Hill Ser H Rfdg (FSA Insd)....................... 6.500 12/01/14 3,289
3,635 Los Angeles, CA Convention & Exhibition Cent Auth
Lease Rev (MBIA Insd)............................ 5.125 08/15/13 3,568
2,475 Los Angeles, CA Dept Wtr & Pwr Plant Rev Second
Issue Rfdg (AMBAC Insd).......................... 5.400 11/15/31 2,365
1,830 Los Angeles, CA Ser A (FGIC Insd)................ 6.125 09/01/13 1,923
2,500 Madera Cnty, CA Ctfs Partn Vly Children's Hosp
(MBIA Insd)...................................... 6.125 03/15/23 2,609
7,500 Manteca, CA Redev Agy Tax Alloc Redev Proj No 1
Ser A Rfdg (MBIA Insd)........................... 6.700 10/01/21 8,225
1,290 Martinez, CA Unified Sch Dist Guar Ctfs Elig Rfdg
(FSA Insd)....................................... 6.000 08/01/09 1,348
2,000 MSR Pub Pwr Agy CA San Juan Proj Rev Ser F Rfdg
(AMBAC Insd)..................................... 6.000 07/01/20 2,061
2,755 New Haven, CA Unified Sch Dist Cap Apprec Ser D
(FGIC Insd)...................................... * 08/01/12 1,194
</TABLE>

See Notes to Financial Statements

10
<PAGE> 12

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$13,610 Norco, CA Redev Agy Tax Alloc Norco Redev Proj
Area No 1 Rfdg (MBIA Insd)....................... 6.250% 03/01/19 $ 14,429
1,500 North City West, CA Sch Fac Fin Auth Spl Tax Ser
B Rfdg (FSA Insd)................................ 6.000 09/01/19 1,559
2,860 Orange Cnty, CA Ctfs Partn Juvenile Justice Cent
Fac Rfdg (AMBAC Insd)............................ 6.000 06/01/17 2,950
2,760 Palmdale, CA Civic Auth Rev Merged Redev Proj
Areas Ser A (MBIA Insd).......................... 6.000 09/01/15 2,985
2,160 Paramount, CA Redev Agy Tax Alloc (MBIA Insd).... 6.250 08/01/11 2,339
2,295 Paramount, CA Redev Agy Tax Alloc (MBIA Insd).... 6.250 08/01/12 2,475
2,435 Paramount, CA Redev Agy Tax Alloc (MBIA Insd).... 6.250 08/01/13 2,624
2,585 Paramount, CA Redev Agy Tax Alloc (MBIA Insd).... 6.250 08/01/14 2,782
2,750 Paramount, CA Redev Agy Tax Alloc (MBIA Insd).... 6.250 08/01/15 2,946
2,000 Perris, CA Pub Fin Auth Local Agy Rev Parity Ser
F (FSA Insd)..................................... 5.850 09/01/24 2,040
1,400 Reedley, CA Pub Fin Auth Lease Rev Wastewtr
Treatment Plant Proj (AMBAC Insd)................ 6.050 05/01/15 1,449
4,000 Sacramento, CA Muni Util Dist Elec Rev Ser A Rfdg
(MBIA Insd)...................................... 5.750 08/15/13 4,077
13,800 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd)...................... 6.570 07/01/16 13,939
1,250 San Diego, CA Cmnty College (MBIA Insd).......... 6.125 12/01/16 1,313
1,000 San Jose, CA Fin Auth Rev Convention Cent Proj
Ser C Rfdg (FSA Insd)............................ 6.300 09/01/09 1,072
2,500 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (AMBAC Insd).............. 6.875 11/15/14 2,805
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 2,133
2,510 Solano Cnty, CA Ctfs Partn Solano Park Hosp Proj
(FSA Insd)....................................... 5.750 08/01/14 2,570
12,600 Southern CA Pub Pwr Auth Transmission Proj Rev
(FSA Insd)....................................... 6.000 07/01/12 13,073
3,370 Stockton, CA Pub Fin Auth Rev Ser A Rfdg (FSA
Insd)............................................ 5.875 09/02/16 3,458
2,500 Temecula Vly, CA Unified Sch Dist Ctfs Partn Rfdg
(FSA Insd)....................................... 6.000 09/01/25 2,598
1,000 Temecula Vly, CA Unified Sch Dist Ser B Rfdg
(FGIC Insd)...................................... 6.000 09/01/12 1,048
2,460 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg
(MBIA Insd)...................................... 6.750 01/01/12 2,515
5,100 University of CA Ctfs Partn Ser A (MBIA Insd).... 5.550 06/01/10 5,190
3,845 Vista, CA Unified Sch Dist Ctfs Partn Ser A Rfdg
(FSA Insd)....................................... * 11/01/17 1,158
2,000 William S Hart CA Jt Sch Fin Auth Spl Tax Rev
Cmnty Fac Rfdg (FSA Insd)........................ 6.500 09/01/14 2,215
----------
223,089
----------
</TABLE>

See Notes to Financial Statements

11
<PAGE> 13

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO 4.7%
$12,750 Colorado Hlth Fac Auth Rev PSL Hlth Sys Proj Ser
A (Prerefunded @ 02/15/01) (FSA Insd)............ 7.250% 02/15/16 $ 14,183
2,090 Colorado Hlth Fac Auth Rev Sisters of Charity
Hlthcare Ser A (MBIA Insd)....................... 6.000 05/15/13 2,139
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 1,096
17,750 Denver, CO City & Cnty Arpt Rev Ser A (MBIA
Insd)............................................ 5.700 11/15/25 17,797
6,000 Denver, CO City & Cnty Arpt Rev Ser D (MBIA
Insd)............................................ 5.500 11/15/25 5,877
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).................... * 12/01/11 947
1,100 Thornton, CO Rfdg (FGIC Insd).................... * 12/01/15 400
9,000 University of CO Hosp Auth Hosp Rev Ser A (AMBAC
Insd)............................................ 6.250 11/15/12 9,524
8,600 University of CO Hosp Auth Hosp Rev Ser A (AMBAC
Insd)............................................ 6.400 11/15/22 9,248
2,000 Westminster, CO Wtr & Wastewtr Util Enterprise
Rev (AMBAC Insd)................................. 6.250 12/01/14 2,147
----------
63,369
----------
DISTRICT OF COLUMBIA 0.0%
250 District of Columbia Ser B Rfdg (MBIA Insd)...... * 06/01/04 178
----------
FLORIDA 4.1%
2,350 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC
Insd)............................................ 5.500 05/01/25 2,315
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)
(b).............................................. 8.000 10/01/03 1,200
690 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)............................................ 8.000 10/01/04 833
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)............................................ 8.000 10/01/05 1,444
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)............................................ 8.000 10/01/06 1,582
1,375 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)............................................ 8.000 10/01/07 1,713
2,095 Dade Cnty, FL Util Pub Impt Rfdg (FGIC Insd)..... 12.000 10/01/04 3,015
225 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev
Ser C (FGIC Insd)................................ 7.650 09/01/10 240
985 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev
Ser C (FGIC Insd)................................ 7.700 09/01/24 1,046
1,410 Florida St Dept Corrections Ctfs Partn Okeechobee
Correctional (AMBAC Insd)........................ 6.250 03/01/15 1,500
2,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd)... 6.100 10/01/18 2,097
1,000 Key West, FL Util Brd Elec Rev Ser D (AMBAC
Insd)............................................ * 10/01/13 412
4,000 Lee Cnty, FL Hosp Brd Dir Hosp Rev (Inverse Fltg)
(MBIA Insd)...................................... 9.266 04/01/20 4,560
5,000 Martin Cnty, Fl Hlth Facs Auth Hosp Rev Martin
Mem Med Cent Proj Ser A (MBIA Insd) (a).......... 5.250 11/15/17 4,875
6,835 Martin Cnty, Fl Hlth Facs Auth Hosp Rev Martin
Mem Med Cent Ser B Rfdg (MBIA Insd) (a).......... 5.250 11/15/17 6,664
6,000 Orange Cnty, FL Hlth Fac Auth Rev (Inverse Fltg)
(MBIA Insd)...................................... 8.999 10/29/21 7,192

</TABLE>
See Notes to Financial Statements

12
<PAGE> 14

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 2,000 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd)..................................... 6.375% 08/01/15 $ 2,136
1,090 Sarasota Cnty, FL Util Sys Rev (Prerefunded @
10/01/04) (FGIC Insd)............................ 6.500 10/01/14 1,232
10,000 Tallahassee, FL Hlth Fac Rev Tallahassee Mem Regl
Med Ser A Rfdg (MBIA Insd)....................... 6.625 12/01/13 10,962
----------
55,018
----------
GEORGIA 2.9%
1,250 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention
Cent (MBIA Insd)................................. 6.250 12/01/08 1,345
1,750 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention
Cent (MBIA Insd)................................. 6.250 12/01/17 1,846
6,500 Georgia Muni Elec Auth Pwr Rev Genl Ser B (BIGI
Insd)............................................ * 01/01/07 4,017
4,750 Georgia Muni Elec Auth Pwr Rev Genl Ser B (BIGI
Insd)............................................ * 01/01/08 2,776
15,550 Municipal Elec Auth GA Spl Oblig Fifth Crossover
Ser Proj One (AMBAC Insd)........................ 6.400 01/01/13 17,334
10,000 Municipal Elec Auth GA Spl Oblig Fifth Crossover
Ser Proj One (MBIA Insd)......................... 6.500 01/01/17 11,336
----------
38,654
----------
HAWAII 1.1%
12,785 Hawaii St Arpt Sys Rev Ser 1993 Rfdg (MBIA
Insd)............................................ 6.400 07/01/08 14,072
----------
ILLINOIS 16.1%
1,000 Berwyn, IL (MBIA Insd)........................... 7.000 11/15/10 1,090
5,000 Chicago, IL (FGIC Insd).......................... 5.500 01/01/21 4,868
1,400 Chicago, IL Brd of Ed Chicago Sch Reform (AMBAC
Insd)............................................ 5.750 12/01/20 1,401
25,725 Chicago, IL Brd of Ed Chicago Sch Reform (MBIA
Insd)............................................ 6.000 12/01/26 26,463
16,000 Chicago, IL Brd of Ed Chicago Sch Reform (AMBAC
Insd)............................................ 5.750 12/01/27 16,006
2,720 Chicago, IL Pub Bldg Comm Bldg Rev Chicago
Transit Auth (AMBAC Insd)........................ 6.600 01/01/15 2,971
3,480 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA
Insd)............................................ * 01/01/06 2,287
3,105 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA
Insd)............................................ * 01/01/07 1,929
16,845 Chicago, IL Sales Tax Rev (FGIC Insd)............ 5.375 01/01/27 16,219
2,000 Chicago, IL Wastewtr Transmission Rev (FGIC
Insd)............................................ 5.125 01/01/25 1,866
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd) (b)....................... 8.400 01/01/01 1,126
5,550 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)........................... 8.750 01/01/03 6,624
8,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)........................... 8.750 01/01/04 10,269
2,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)........................... 8.750 01/01/05 3,050
3,500 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)........................... 8.750 01/01/07 4,462
</TABLE>

See Notes to Financial Statements

13
<PAGE> 15

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,280 Cook Cnty, IL Cmnty High Sch Dist No 233 Homewood
& Flossmor (AMBAC Insd).......................... * 12/01/05 $ 846
8,280 Cook Cnty, IL Cnty Juvenile Detention Ser A
(AMBAC Insd)..................................... * 11/01/08 4,642
2,000 Deerfield, IL Rev Jewish Fedn Metro Chicago
(AMBAC Insd)..................................... 5.375% 08/15/20 1,903
2,500 Des Plaines, IL Hosp Fac Rev Holy Family Hosp
Rfdg (AMBAC Insd)................................ 9.250 01/01/14 2,588
1,315 Evanston, IL Residential Mtg Rev (AMBAC Insd).... 6.375 01/01/09 1,383
10,000 Illinois Dev Fin Auth Pollutn Ctl Rev Comwlth
Edison Co Proj Ser D Rfdg (AMBAC Insd)........... 6.750 03/01/15 11,114
650 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co
Proj Ser A First Mtg Rfdg (MBIA Insd)............ 5.700 02/01/24 646
35,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co
Proj Ser A First Mtg Rfdg (MBIA Insd)............ 7.400 12/01/24 40,366
2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford
Sch 205 (FSA Insd)............................... 6.650 02/01/11 2,279
5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford
Sch 205 Rfdg (FSA Insd).......................... 6.650 02/01/12 5,531
1,204 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm
Ser B (MBIA Insd)................................ 7.900 08/15/03 1,232
220 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm
Ser B Rfdg (MBIA Insd)........................... 7.900 08/15/03 249
6,715 Illinois Hlth Fac Auth Rev Decatur Mem Hosp Rfdg
(MBIA Insd)...................................... 5.375 11/15/21 6,374
860 Illinois Hlth Fac Auth Rev Highland Park Hosp
Proj Ser A (MBIA Insd)........................... 5.750 10/01/26 856
5,000 Illinois Hlth Fac Auth Rev Hosp Sisters Svcs
(Inverse Fltg) (MBIA Insd)....................... 9.207 06/19/15 5,775
5,000 Illinois Hlth Fac Auth Rev Methodist Hlth Proj
(Inverse Fltg) (AMBAC Insd)...................... 9.780 05/18/21 5,756
3,400 Illinois Hlth Fac Auth Rev Rush Presbyterian
Saint Luke Hosp (Inverse Fltg) (MBIA Insd)....... 9.564 10/01/24 3,927
3,000 Illinois Hlth Fac Auth Rev Sarah Bush Lincoln
Hlth Rfdg (AMBAC Insd)........................... 6.000 01/01/27 3,057
4,235 Madison Macoupin Et Cetera Cntys IL Cmnty Coll
Dist No 536 Rfdg (FGIC Insd)..................... 5.500 11/01/20 4,129
6,110 Rosemont, IL Tax Increment 3 (FGIC Insd)......... * 12/01/06 3,792
3,000 Rosemont, IL Tax Increment 3 (FGIC Insd)......... * 12/01/07 1,752
1,285 Saint Clair Cnty, IL Ctfs Partn (MBIA Insd)...... 8.000 12/01/05 1,559
1,185 Saint Clair Cnty, IL Ctfs Partn Indl Dev Rev
(MBIA Insd)...................................... 8.000 12/01/04 1,421
2,100 University IL Univ Rev Aux Fac Sys (MBIA Insd)... 5.600 10/01/22 2,062
</TABLE>

See Notes to Financial Statements

14
<PAGE> 16

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,500 Will Cnty, IL Cmnty Unit Sch Dist No 201 Ser C
(FSA Insd)....................................... * 10/01/13 $ 608
1,000 Will Cnty, IL Cmnty Unit Sch Dist No 201 Ser C
(FSA Insd)....................................... * 10/01/14 381
----------
214,859
----------
INDIANA 1.4%
2,000 Indiana Bond Bank Spl Pgm Ser A (AMBAC Insd)..... 9.750% 08/01/09 2,618
3,840 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps of
IN (Prerefunded @ 07/01/01) (MBIA Insd).......... 7.000 07/01/21 4,268
5,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps
Proj Rfdg & Impt (MBIA Insd)..................... 6.400 05/01/12 5,352
1,000 Marion Cnty, IN Convention & Rectl Fac Auth
Excise Tax Rev Lease Rental Ser A (AMBAC Insd)... 7.000 06/01/21 1,092
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 1,089
3,440 Vincennes, IN Cmnty Sch Bldg Corp (FSA Insd)..... 5.000 07/01/15 3,281
----------
18,761
----------
KANSAS 3.2%
38,750 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co
Proj Rfdg (MBIA Insd) (b)........................ 7.000 06/01/31 42,353
----------
KENTUCKY 0.1%
60 Kentucky Cntys Single Family Mtg Presbyterian
Homes Ser A Rfdg (MBIA Insd)..................... 8.625 09/01/15 61
1,400 Kentucky Econ Dev Fin Auth Hosp Fac Rev Rfdg
(Connie Lee Insd)................................ 5.700 02/01/28 1,385
----------
1,446
----------
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 4,359
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 6,262
310 Louisiana Pub Fac Auth Rev Med Cent LA at New
Orleans Proj (Connie Lee Insd)................... 6.250 10/15/10 326
4,150 Louisiana Pub Fac Auth Rev Pgm Hlth & Edl Cap Fac
Our Lady Med Cent Ser C (BIGI Insd) (b).......... 8.200 12/01/15 4,451
5,000 Louisiana Pub Fac Auth Rev Tulane Univ of LA
(AMBAC Insd)..................................... 6.050 10/01/25 5,213
10,000 New Orleans, LA Home Mtg Auth Single Family Mtg
Rev 1985 Ser A (MBIA Insd)....................... * 09/15/16 1,397
----------
22,008
----------
MAINE 0.4%
2,750 Easton, ME Indl Dev McCain Food Inc Proj Ser 1985
(AMBAC Insd)..................................... 9.200 08/01/99 2,759
</TABLE>

See Notes to Financial Statements

15
<PAGE> 17

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MAINE (CONTINUED)
$ 1,750 Maine Hlth & Higher Edl Fac Auth Rev Ser B (FSA
Insd)............................................ 7.100% 07/01/14 $ 1,979
----------
4,738
----------
MASSACHUSETTS 0.5%
1,700 Massachusetts St Hlth & Edl Fac Auth Rev Mt
Auburn Hosp Ser B1 (MBIA Insd)................... 6.250 08/15/14 1,807
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Univ
Hosp Ser C (MBIA Insd)........................... 7.250 07/01/19 1,085
3,500 Massachusetts St Wtr Res Auth Genl Ser A (FGIC
Insd)............................................ 5.500 11/01/21 3,442
----------
6,334
----------
MICHIGAN 2.6%
2,325 Bay City, MI (AMBAC Insd)........................ * 06/01/15 869
1,000 Bay City, MI (AMBAC Insd)........................ * 06/01/16 354
1,750 Central MI Univ Rev (FGIC Insd).................. 5.500 10/01/17 1,751
3,250 Central MI Univ Rev (FGIC Insd).................. 5.625 10/01/22 3,245
1,000 Central MI Univ Rev (FGIC Insd).................. 5.500 10/01/26 982
1,850 Eastern MI Univ Rev (FGIC Insd).................. 5.500 06/01/27 1,817
10,000 Ecorse, MI Pub Sch Dist (FGIC Insd).............. 5.500 05/01/27 9,805
3,000 Lake Shore, MI Pub Schs Macomb Cnty (FSA Insd)... 5.500 05/01/20 2,940
21,000 Livonia, MI Pub Sch Dist Ser II (FGIC Insd)...... * 05/01/07 4,982
5,000 Michigan St Hosp Fin Auth Rev Hosp Sparrow Oblig
Group (MBIA Insd)................................ 6.000 11/15/36 5,134
2,000 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B
(Embedded Swap) (AMBAC Insd)..................... 4.250 04/01/04 1,975
5,000 Mount Clemens, MI Cmnty Sch Dist Cap Apprec
(Prerefunded @ 05/01/07) (MBIA Insd)............. * 05/01/17 1,544
----------
35,398
----------
MINNESOTA 0.5%
1,000 Brainerd, MN Rev Evangelical Lutheran Ser B Rfdg
(FSA Insd)....................................... 6.650 03/01/17 1,080
5,600 Minneapolis-St Paul, MN Hsg & Redev Auth Hlthcare
Sys Rev Health One Ser A (MBIA Insd)............. 7.400 08/15/11 6,110
----------
7,190
----------
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 1,330
----------
MISSOURI 1.0%
2,700 Central MO St Univ Rev Hsg Sys (Prerefunded @
07/01/01) (MBIA Insd)............................ 7.000 07/01/14 3,001
3,000 Green Cnty, MO Single Family Mtg Rev (AMBAC
Insd)............................................ * 12/01/16 437
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 2,458
</TABLE>

See Notes to Financial Statements

16
<PAGE> 18

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI (CONTINUED)
$ 5,650 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev SSM
Hlthcare Proj Rfdg (MBIA Insd)................... 6.250% 06/01/16 $ 5,909
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 1,119
290 Saint Louis Cnty, MO Single Family Mtg Rev (AMBAC
Insd)............................................ 9.250 10/01/16 305
----------
13,229
----------
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 1,357
1,500 Douglas Cnty, NE Hosp Auth No 1 Rev Immanuel Med
Cent Inc Rfdg (AMBAC Insd)....................... 7.000 09/01/21 1,635
----------
2,992
----------
NEVADA 1.0%
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser C
Rfdg (AMBAC Insd)................................ 7.200 10/01/22 2,236
3,030 Reno, NV Hosp Rev Dates Saint Mary's Hosp Inc Ser
B (Prerefunded @ 01/01/00) (BIGI Insd)........... 7.750 07/01/15 3,291
4,525 Reno, NV Hosp Rev Dates Saint Mary's Hosp Inc Ser
C (Prerefunded @ 01/01/00) (BIGI Insd)........... 7.750 07/01/15 4,973
3,720 Washoe Cnty, NV Rfdg & Impt (MBIA Insd).......... * 07/01/07 2,230
----------
12,730
----------
NEW HAMPSHIRE 0.6%
5,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
(AMBAC Insd)..................................... 6.000 10/01/26 5,100
2,500 New Hampshire St Tpk Sys Rev Rfdg (Inverse Fltg)
(FGIC Insd)...................................... 9.833 11/01/17 3,044
----------
8,144
----------
NEW JERSEY 1.1%
765 Camden Cnty, NJ Muni Utils Auth Swr Rev (FGIC
Insd)............................................ 8.250 12/01/17 795
5,500 Howell Twp, NJ Rfdg (FGIC Insd).................. 6.800 01/01/14 5,998
3,625 Morristown, NJ Rfdg (FSA Insd)................... 6.400 08/01/14 3,958
3,940 New Jersey St Hsg & Mtg Fin Agy Rev Home Mtg Ser
B (MBIA Insd).................................... 8.100 10/01/17 4,110
----------
14,861
----------
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 13,180
----------
NEW YORK 7.6%
8,000 Metropolitan Tran Auth NY Commuter Fac Rev Ser A
(MBIA Insd)...................................... 5.625 07/01/27 7,954
2,090 New York City Ser G (MBIA Insd).................. 5.750 02/01/14 2,126
4,350 New York City Indl Dev Agy Civic Fac Rev USTA
Natl Tennis Cent Proj (FSA Insd)................. 6.375 11/15/14 4,748
2,000 New York City Ser B (MBIA Insd).................. 6.950 08/15/12 2,233
</TABLE>

See Notes to Financial Statements

17
<PAGE> 19

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 50 New York City Ser C Subser C1 (FSA Insd)......... 6.250% 08/01/09 $ 54
18,000 New York City Ser G (FGIC Insd).................. 5.750 02/01/14 18,313
3,000 New York St Dorm Auth Lease Rev Muni Hlth Fac
Impt Pgm Ser A (FSA Insd)........................ 5.500 05/15/25 2,939
500 New York St Dorm Auth Rev Dept of Edl (CAPMAC
Insd)............................................ 5.750 07/01/21 497
3,950 New York St Dorm Auth Rev City Univ Sys Ser C
(FGIC Insd)...................................... 7.000 07/01/14 4,278
5,000 New York St Dorm Auth Rev City Univ Sys Third
Resolution (AMBAC Insd).......................... 6.250 07/01/18 5,357
4,700 New York St Dorm Auth Rev Insd Pace Univ Rfdg
(MBIA Insd)...................................... 5.750 07/01/26 4,747
170 New York St Med Care Fac Fin Agy Rev IBC Mental
Hlth Svcs Ser A (MBIA Insd)...................... 7.750 08/15/10 185
505 New York St Med Care Fac Fin Agy Rev IBC Mental
Hlth Svcs Ser A (Prerefunded @ 02/15/00) (MBIA
Insd)............................................ 7.750 08/15/10 558
1,000 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Ser E (FSA Insd)............................ 6.500 08/15/15 1,086
28,535 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd) (b)........................... 6.750 08/15/14 31,379
3,400 New York St Muni Bond Bank Agy Spl Pgm Rev
Rochester Ser A (MBIA Insd) (b).................. 6.625 03/15/06 3,681
1,500 New York St Twy Auth Hwy & Brdg Trust Fund Ser B
(FGIC Insd)...................................... 6.000 04/01/14 1,561
8,480 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 5 (MBIA Insd)............................ 5.500 01/01/25 8,321
1,500 New York St Urban Dev Corp Rev Correctional Fac
Rfdg (AMBAC Insd)................................ 5.250 01/01/18 1,429
----------
101,446
----------
NORTH CAROLINA 0.1%
1,250 Franklin Cnty, NC Ctfs Partn Jail & Sch Projs
(FGIC Insd)...................................... 6.625 06/01/14 1,368
----------
NORTH DAKOTA 1.5%
2,240 Fargo, ND Hlth Sys Rev Meritcare Oblig Group Rfdg
(MBIA Insd)...................................... 5.375 06/01/27 2,147
1,225 Grand Forks, ND Hlthcare Sys Rev Altru Hlth Sys
Oblig Group (MBIA Insd).......................... 5.400 08/15/12 1,212
6,000 Grand Forks, ND Hlthcare Sys Rev Altru Hlth Sys
Oblig Group (MBIA Insd).......................... 5.625 08/15/27 5,889
5,095 Grand Forks, ND Sales Tax Rev Aurora Proj Ser A
(MBIA Insd)...................................... 5.625 12/15/29 5,005
5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope Vly
Station Rfdg (AMBAC Insd)........................ 7.200 06/30/13 5,974
----------
20,227
----------
OHIO 1.9%
3,600 Akron Bath Copley, OH St Twp Hosp Dist Rev Akron
Genl Med Cent Proj (AMBAC Insd).................. 6.500 01/01/19 3,915
</TABLE>

See Notes to Financial Statements

18
<PAGE> 20

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$ 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 $ 1,116
5,000 Clermont Cnty, OH Hosp Fac Rev Muni (Inverse
Fltg) (AMBAC Insd)............................... 9.681 10/05/21 6,056
2,010 Cleveland, OH (MBIA Insd)........................ 6.500 11/15/09 2,222
2,285 Cleveland, OH (MBIA Insd)........................ 6.500 11/15/10 2,527
4,625 Hamilton, OH Elec Sys Mtg Rev Mtg City of
Hamilton Ser B (Prerefunded @ 10/15/98) (FGIC
Insd) (b)........................................ 8.000 10/15/22 4,948
1,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl
Cleveland Co Proj Rfdg (FGIC Insd)............... 8.000 12/01/13 1,734
2,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl OH
Edison Ser A Rfdg (FGIC Insd).................... 7.450 03/01/16 2,718
----------
25,236
----------
OKLAHOMA 0.9%
1,760 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA
Insd)............................................ 5.250 12/01/20 1,688
1,865 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA
Insd)............................................ 5.250 12/01/21 1,787
1,000 Norman, OK Regl Hosp Auth Hosp Rev (Prerefunded @
09/01/01) (MBIA Insd)............................ 6.900 09/01/21 1,111
3,485 Oklahoma Hsg Fin Agy Single Family Rev Mtg Ser A
(MBIA Insd)...................................... 7.200 03/01/11 3,682
4,400 Oklahoma St Inds Auth Rev Hlth Sys Integris
Baptist Rfdg (AMBAC Insd)........................ 5.000 08/15/14 4,143
----------
12,411
----------
OREGON 0.1%
1,000 Wasco Cnty, OR Vets Home (FSA Insd).............. 6.200 06/01/13 1,063
----------
PENNSYLVANIA 5.9%
13,780 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Univ Pittsburgh Med Cent Sys (MBIA Insd)......... 5.375 12/01/25 13,199
5,625 Allegheny Cnty, PA Hosp Dev Auth Rev Pittsburgh
Mercy Hlth Sys Inc (AMBAC Insd).................. 5.625 08/15/26 5,538
4,500 Allegheny Cnty, PA San Auth Swr Rev (MBIA Insd)
(a).............................................. 5.375 12/01/24 4,350
2,750 Chester Cnty, PA Hlth & Ed Fac Auth Rev (MBIA
Insd)............................................ 5.500 05/01/27 2,681
32,500 Dauphin Cnty, PA Genl Auth Hlth Sys Rev Pinnacle
Hlth Sys Proj Rfdg (MBIA Insd)................... 5.500 05/15/27 31,638
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 1,046
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 1,084
3,750 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn Ctl
Ser E Rfdg (MBIA Insd)........................... 6.700 12/01/21 4,083
</TABLE>

See Notes to Financial Statements

19
<PAGE> 21

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,000 New Kensington Arnold, PA Sch Dist (FGIC Insd)... 5.500% 05/15/26 $ 1,964
1,000 Northeastern PA Hosp & Edl Auth College Rev Gtd
Luzerne Cnty Cmnty College (AMBAC Insd).......... 6.625 08/15/15 1,091
2,000 Northeastern PA Hosp & Edl Auth Wyoming Vly
Hlthcare Ser A (AMBAC Insd)...................... 5.250 01/01/26 1,891
1,000 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Bryn Mawr College (MBIA Insd)........... 5.625 12/01/27 993
2,250 Philadelphia, PA Gas Wks Rev 14th Ser A Rfdg (FSA
Insd)............................................ 6.375 07/01/14 2,426
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 1,077
1,000 Sayre, PA Hlthcare Fac Auth Rev VHA Cap Asset Fin
Pgm Ser H2 (AMBAC Insd).......................... 7.625 12/01/15 1,095
1,000 State Pub Sch Bldg Auth PA Sch Rev Burgettstown
Sch Dist Ser D (MBIA Insd)....................... 6.500 02/01/14 1,091
1,000 West Shore, PA Area Hosp Auth Hosp Rev Holy
Spirit Hosp Proj Rfdg (MBIA Insd)................ 5.550 01/01/12 1,005
----------
79,436
----------
RHODE ISLAND 1.8%
2,000 Rhode Island St Hlth & Edl Bldg Corp Rev Higher
Edl Fac Roger Williams (Prefunded @ 11/15/04)
(Connie Lee Insd)................................ 7.250 11/15/04 2,352
18,000 Rhode Island St Hlth & Edl Bldg Corp Rev RI Hosp
(Inverse Fltg) (FGIC Insd) (b)................... 9.487 08/15/21 21,892
----------
24,244
----------
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 1,638
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 3,277
635 Saint Andrews, SC Pub Svcs Dist Swr Sys Rev (FGIC
Insd)............................................ 7.750 01/01/98 660
----------
5,653
----------
SOUTH DAKOTA 0.8%
5,205 South Dakota St Lease Rev Trust Ctfs Ser A (FSA
Insd)............................................ 6.625 09/01/12 5,920
4,000 South Dakota St Lease Rev Trust Ctfs Ser A (FSA
Insd)............................................ 6.700 09/01/17 4,626
----------
10,546
----------
</TABLE>
See Notes to Financial Statements

20
<PAGE> 22

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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

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).............. 10.333% 05/25/21 $ 2,410
3,320 Johnson City, TN Sch Sales Tax (Prerefunded
@05/01/06) (AMBAC Insd).......................... 6.700 05/01/06 3,653
----------
6,063
----------
TEXAS 5.9%
3,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains
Baptist Hosp (Inverse Fltg) (FSA Insd)........... 9.017 01/01/22 3,427
1,000 Austin, TX Util Sys Rev (Prerefunded @ 05/15/02)
(BIGI Insd)...................................... 8.625 11/15/12 1,179
2,500 Austin, TX Util Sys Rev Rfdg (AMBAC Insd) (a).... 6.500 11/15/05 2,720
12,500 Austin, TX Util Sys Rev Ser A Rfdg (MBIA Insd)... * 11/15/10 6,161
9,000 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co
Proj B Rfdg (BIGI Insd).......................... 8.250 05/01/15 9,474
6,515 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co
Proj C Rfdg (BIGI Insd).......................... 8.100 05/01/19 6,850
2,940 Corpus Christi, TX Hsg Fin Corp Single Family Mtg
Rev Ser A Rfdg (MBIA Insd)....................... 7.700 07/01/11 3,201
6,525 Dallas Cnty, TX Util & Reclamation Dist (MBIA
Insd)............................................ * 02/15/07 3,558
6,780 Dallas Cnty, TX Util & Reclamation Dist (MBIA
Insd)............................................ * 02/15/08 3,427
7,705 Dallas Cnty, TX Util & Reclamation Dist (MBIA
Insd)............................................ * 02/15/09 3,590
10,520 El Paso, TX Hsg Fin Corp Mtg Rev Single Family
(FGIC Insd)...................................... * 11/01/16 1,395
3,370 Galveston Cnty, TX Hlth Fac Devereux Fndtn (MBIA
Insd)............................................ 5.000 11/01/14 3,221
1,400 Galveston Cnty, TX Hlth Fac Devereux Fndtn (MBIA
Insd)............................................ 5.000 11/01/19 1,286
1,000 Harris Cnty, TX Hlth Fac Dev Corp Hosp Rev
Memorial Hosp Sys Proj Ser A Rfdg (MBIA Insd).... 5.500 06/01/17 984
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 3,020
1,250 Harris Cnty, TX Hlth Fac Dev Corp Thermal Util
Rev Teco Proj Ser A (AMBAC Insd)................. 7.250 02/15/15 1,346
4,615 Harris Cnty, TX Toll Rd Tax & Sub Lien Ser A Rfdg
(FGIC Insd)...................................... * 08/15/07 2,763
245 Henderson, TX (AMBAC Insd)....................... 9.125 05/15/04 309
3,500 Houston, TX Wtr & Swr Sys Rev Jr Lien Ser A Rfdg
(FGIC Insd)...................................... 5.375 12/01/27 3,393
3,005 Houston, TX Wtr & Swr Sys Rev Jr Lien Ser C (FGIC
Insd)............................................ 5.375 12/01/27 2,913
1,000 San Antonio, TX Indt Sch Dist Pub Fac Corp Lease
Rev (AMBAC Insd)................................. 5.850 10/15/10 1,054
1,750 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth Sys Rev
Ser A (FGIC Insd)................................ 5.000 09/01/15 1,641
2,000 Tyler, TX Hlth Fac Dev Corp Hosp Rev East TX Med
Cent Proj Ser B (FSA Insd) (a)................... 5.500 11/01/17 1,973

</TABLE>
See Notes to Financial Statements

21
<PAGE> 23

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 5,000 Tyler, TX Hlth Fac Dev Corp Hosp Rev East TX Med
Cent Proj Ser B (FSA Insd) (a)................... 5.600% 11/01/27 $ 4,903
3,100 Tyler, TX Hlth Fac Dev Corp Hosp Rev East TX Med
Cent Proj Ser C (FSA Insd) (a)................... 5.500 11/01/17 3,059
2,240 Tyler, TX Hlth Fac Dev Corp Hosp Rev East TX Med
Cent Proj Ser C (FSA Insd) (a)................... 5.600 11/01/27 2,197
----------
79,044
----------
UTAH 3.3%
21,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg (MBIA Insd)................................. 5.750 07/01/19 21,045
2,720 Payson City, UT Cnty UT Elec Pwr Rev (BIGI
Insd)............................................ 8.000 08/15/03 2,885
750 Provo, UT Elec Rev 1984 Ser A Rfdg (AMBAC
Insd)............................................ 10.375 09/15/15 1,058
3,500 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg
(Inverse Fltg) (AMBAC Insd)...................... 9.261 05/15/20 4,082
8,000 Utah Assd Muni Pwr Sys Rev Hunter Proj Ser A Rfdg
(AMBAC Insd)..................................... 5.500 07/01/12 8,000
7,385 Utah St Muni Fin Co-op Local Govt Rev Pool Cap
Salt Lake (FSA Insd)............................. * 03/01/09 3,997
3,115 West Jordan, UT Multi-Family Rev Broadmoor
Village Apts Proj Ser A Rfdg (FSA Insd).......... 6.800 01/01/15 3,283
----------
44,350
----------
VIRGINIA 0.4%
4,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)........... 6.800 03/01/14 4,402
750 University of VA Hosp Rev Ser C Rfdg (Prerefunded
@ 06/01/00) (AMBAC Insd)......................... 9.375 06/01/07 861
----------
5,263
----------
WASHINGTON 3.0%
1,250 Franklin Cnty, WA Pub Util Dist No 1 Elec Rev
(Prerefunded @ 09/01/01) (AMBAC Insd)............ 7.100 09/01/08 1,379
2,335 Grant Cnty, WA Pub Util Dist No 2 Priest Rapids
Hydro Elec Rev Second Ser C Rfdg (AMBAC Insd)
(a).............................................. 6.000 01/01/13 2,407
2,995 Grant Cnty, WA Pub Util Dist No 2 Priest Rapids
Hydro Elec Rev Second Ser C Rfdg (AMBAC Insd)
(a).............................................. 6.000 01/01/17 3,041
1,315 Grant Cnty, WA Pub Util Dist No 2 Wanapum Hydro
Elec Rev Second Ser C Rfdg (AMBAC Insd) (a)...... 6.000 01/01/13 1,356
1,025 Grant Cnty, WA Pub Util Dist No 2 Wanapum Hydro
Elec Rev Second Ser C Rfdg (AMBAC Insd) (a)...... 6.000 01/01/17 1,041
350 Pierce Cnty, WA Swr Rev Ser A (MBIA Insd)........ 9.000 02/01/05 430
1,000 Snohomish Cnty, WA Solid Waste Rev (MBIA Insd)... 7.000 12/01/10 1,101
5,000 Spokane, WA Regl Solid Waste Mgmt Sys Rev (AMBAC
Insd)............................................ 6.250 12/01/11 5,369
160 University of WA Univ Rev (MBIA Insd)............ 7.000 12/01/21 176
1,000 Washington St Hlthcare Fac Auth Rev VA Mason Med
Cent (MBIA Insd)................................. 8.000 07/01/15 1,023

</TABLE>
See Notes to Financial Statements

22
<PAGE> 24

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WASHINGTON (CONTINUED)
$ 3,090 Washington St Pub Pwr Supply Sys Nuclear Proj No
1 Rev Ser A Rfdg (AMBAC Insd).................... 5.700% 07/01/09 $ 3,199
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 10,516
3,015 Washington St Pub Pwr Supply Sys Nuclear Proj No
2 Rev Ser C Rfdg (MBIA Insd)..................... * 07/01/04 2,136
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 7,248
----------
40,422
----------
WISCONSIN 1.1%
12,490 Wisconsin St Hlth & Edl Fac Auth Rev Aurora Med
Group Inc Proj (FSA Insd)........................ 5.750 11/15/25 12,428
1,000 Wisconsin St Hlth & Edl Fac Auth Rev Med College
of WI Inc Proj (MBIA Insd)....................... 5.500 03/01/17 981
1,000 Wisconsin St Hlth & Edl Fac Auth Rev Med College
of WI Inc Proj (MBIA Insd)....................... 5.750 03/01/27 998
----------
14,407
----------
WYOMING 0.2%
2,000 Laramie Cnty, WY Hosp Rev Mem Hosp Proj (AMBAC
Insd)............................................ 6.700 05/01/12 2,180
----------
PUERTO RICO 0.2%
3,000 Puerto Rico Indl Tourist Edl Med & Environmental
Ctl Fac Hosp Aux (MBIA Insd)..................... 6.250 07/01/16 3,173
----------
TOTAL LONG-TERM INVESTMENTS 100.2%
(Cost $1,245,910,669)........................................................ 1,340,650
SHORT-TERM INVESTMENTS 0.8%
(Cost $11,000,000)........................................................... 11,000
----------
TOTAL INVESTMENTS 101.0%
(Cost $1,256,910,669)........................................................ 1,351,650
LIABILITIES IN EXCESS OF OTHER ASSETS (1.0%).................................. (13,229)
----------
NET ASSETS 100.0%............................................................. $1,338,421
==========
</TABLE>

* Zero coupon bond

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

(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.

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

23
<PAGE> 25

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997 (Unaudited)
All amounts, except for Maximum Offering Price information,
reported in thousands
- --------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,256,911)......................... $1,351,650
Cash........................................................ 28
Receivables:
Interest.................................................. 19,749
Investments Sold.......................................... 12,164
Fund Shares Sold.......................................... 4,369
Other....................................................... 41
----------
Total Assets.......................................... 1,388,001
----------
LIABILITIES:
Payables:
Investments Purchased..................................... 41,392
Income Distributions...................................... 5,735
Fund Shares Repurchased................................... 901
Distributor and Affiliates................................ 691
Investment Advisory Fee................................... 559
Variation Margin on Futures............................... 55
Deferred Compensation and Retirement Plans.................. 125
Accrued Expenses............................................ 122
----------
Total Liabilities..................................... 49,580
----------
NET ASSETS.................................................. $1,338,421
==========
NET ASSETS CONSIST OF:
Capital..................................................... $1,241,313
Net Unrealized Appreciation................................. 94,684
Accumulated Net Realized Gain............................... 2,777
Accumulated Distributions in Excess of Net Investment
Income.................................................... (353)
-----------
NET ASSETS.................................................. $1,338,421
==========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:

Net asset value and redemption price per share (Based on
net assets of $1,265,205,170 and 66,185,904 shares of
beneficial interest issued and outstanding)............. $ 19.12
Maximum sales charge (4.75%* of offering price)......... .95
----------
Maximum offering price to public........................ $ 20.07
==========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $68,533,936 and 3,584,477 shares of
beneficial interest issued and outstanding)............. $ 19.12
==========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,681,637 and 244,905 shares of
beneficial interest issued and outstanding)............. $ 19.12
==========
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>

See Notes to Financial Statements

24
<PAGE> 26

STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 1997 (Unaudited)
All amounts reported in thousands
- ------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $40,432
-------
EXPENSES:
Investment Advisory Fee..................................... 3,341
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $1,418, $345 and $24, respectively)........ 1,787
Shareholder Services........................................ 709
Custody..................................................... 89
Legal....................................................... 54
Insurance................................................... 20
Trustees Fees and Expenses.................................. 15
Other....................................................... 469
-------
Total Expenses.......................................... 6,484
-------
NET INVESTMENT INCOME....................................... $33,948
=======
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 6,580
Options................................................... (848)
Futures................................................... (2,924)
-------
Net Realized Gain........................................... 2,808
-------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 99,934
-------
End of the Period:
Investments............................................. 94,739
Futures................................................. (55)
-------
94,684
-------
Net Unrealized Depreciation During the Period............... (5,250)
-------
NET REALIZED AND UNREALIZED LOSS............................ $(2,442)
=======
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $31,506
=======
</TABLE>

See Notes to Financial Statements

25
<PAGE> 27

STATEMENT OF CHANGES IN NET ASSETS

For the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996 (Unaudited)
All amounts reported in thousands
- ---------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 33,948 $ 70,584
Net Realized Gain....................................... 2,808 10,646
Net Unrealized Depreciation During the Period........... (5,250) (32,869)
---------- ----------
Change in Net Assets from Operations.................... 31,506 48,361
---------- ----------
Distributions from Net Investment Income*............... (33,948) (70,584)
Distributions in Excess of Net Investment Income*....... (264) (468)
---------- ----------
Distributions from and in Excess of Net Investment
Income*............................................... (34,212) (71,052)
Distributions from Net Realized Gain*................... (5,175) 0
---------- ----------
Total Distributions*.................................. (39,387) 0
---------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... (7,881) (22,691)
---------- ----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................... 361,019 579,040
Net Asset Value of Shares Issued Through Dividend
Reinvestment.......................................... 27,249 48,358
Cost of Shares Repurchased.............................. (402,208) (690,250)
---------- ----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS...... (13,940) (62,852)
---------- ----------
TOTAL DECREASE IN NET ASSETS............................ (21,821) (85,543)
NET ASSETS:
Beginning of the Period................................. 1,360,242 1,445,785
---------- ----------
End of the Period (Including accumulated distributions
in excess of net investment income of $353 and $89,
respectively)......................................... $1,338,421 $1,360,242
============= ==============
</TABLE>

<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1997 December 31, 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares......................... $ (32,592) $ (67,667)
Class B Shares......................... (1,515) (3,179)
Class C Shares......................... (105) (206)
--------- ---------
$ (34,212) $ (71,052)
========= =========
Distributions from Net Realized Gain:
Class A Shares......................... $ (4,884) $ 0
Class B Shares......................... (273) 0
Class C Shares......................... (18) 0
--------- ---------
$ (5,175) $ 0
========= =========
</TABLE>

See Notes to Financial Statements

26
<PAGE> 28

FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
Six Months Ended -----------------------------------------
Class A Shares June 30, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $ 19.238 $ 19.549 $ 17.572 $ 19.857 $ 18.721
------- -------- -------- -------- --------
Net Investment Income............ .485 .980 1.021 1.051 1.107
Net Realized and Unrealized
Gain/Loss...................... (.043) (.304) 1.982 (2.280) 1.145
------- -------- -------- -------- --------
Total from Investment Operations... .442 .676 3.003 (1.229) 2.252
------- -------- -------- -------- --------
Less:
Distributions from and in Excess
of Net Investment Income....... .489 .987 1.026 1.056 1.116
Distributions from Net Realized
Gain........................... .075 -0- -0- -0- -0-
------- -------- -------- -------- --------
Total Distributions................ .564 .987 1.026 1.056 1.116
------- -------- -------- -------- --------
Net Asset Value, End of the
Period........................... $ 19.116 $ 19.238 $ 19.549 $ 17.572 $ 19.857
======== ======== ========= ======== ========
Total Return (a)................... 2.36%* 3.65% 17.49% (6.31%) 12.32%
Net Assets at End of the Period (In
millions)........................ $1,265.2 $1,283.7 $1,365.4 $1,110.2 $1,230.0
Ratio of Expenses to Average Net
Assets (b)....................... .93% .95% .88% .88% .84%
Ratio of Net Investment Income to
Average Net Assets (b)........... 5.15% 5.11% 5.44% 5.70% 5.69%
Portfolio Turnover................. 50%* 92% 70% 48% 79%
</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) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to VKAC's
reimbursement of certain expenses was less than 0.01%.

* Non-Annualized

See Notes to Financial Statements

27
<PAGE> 29

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
Six Months May 1, 1993
Ended Year Ended December 31 (Commencement of
June 30, --------------------------- Distribution) to
Class B Shares 1997 1996 1995 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $19.240 $19.549 $17.563 $19.824 $19.320
------- ------- ------- ------- -------
Net Investment Income........... .413 .832 .890 .899 .619
Net Realized and Unrealized
Gain/Loss..................... (.044) (.304) 1.978 (2.276) .513
------- ------- ------- ------- -------
Total from Investment
Operations...................... .369 .528 2.868 (1.377) 1.132
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income...... .414 .837 .882 .884 .628
Distributions from Net Realized
Gain.......................... .075 -0- -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions............... .489 .837 .882 .884 .628
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.......................... $19.120 $19.240 $19.549 $17.563 $19.824
======= ======= ======= ======= =======
Total Return (a).................. 1.96%* 2.83% 16.67% (7.03%) 5.92%*
Net Assets at End of the Period
(In millions)................... $ 68.5 $ 71.6 $ 75.3 $ 30.0 $ 20.8
Ratio of Expenses to Average
Net Assets (b).................. 1.71% 1.74% 1.67% 1.71% 1.68%
Ratio of Net Investment Income to
Average Net Assets (b).......... 4.37% 4.38% 4.69% 4.88% 4.25%
Portfolio Turnover................ 50%* 92% 70% 48% 79%
</TABLE>

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

* Non-Annualized

See Notes to Financial Statements

28
<PAGE> 30

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
Six Months August 13, 1993
Ended Year Ended December 31 (Commencement of
June 30, --------------------------- Distribution) to
Class C Shares 1997 1996 1995 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $19.239 $19.548 $17.568 $19.823 $19.650
------- ------- ------- ------- -------
Net Investment Income........... .412 .830 .883 .908 .350
Net Realized and Unrealized
Gain/Loss..................... (.046) (.302) 1.979 (2.279) .181
------- ------- ------- ------- -------
Total from Investment
Operations...................... .366 .528 2.862 (1.371) .531
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income...... .414 .837 .882 .884 .358
Distributions from Net Realized
Gain.......................... .075 -0- -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions............... .489 .837 .882 .884 .358
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.......................... $19.116 $19.239 $19.548 $17.568 $19.823
======= ======= ======= ======= =======
Total Return (a).................. 1.96%* 2.83% 16.60% (6.98%) 2.70%*
Net Assets at End of the Period
(In millions)................... $ 4.7 $ 4.9 $ 5.1 $ 3.5 $ 5.0
Ratio of Expenses to Average Net
Assets (b)...................... 1.71% 1.74% 1.67% 1.70% 1.68%
Ratio of Net Investment Income to
Average Net Assets (b).......... 4.39% 4.37% 4.68% 4.89% 4.21%
Portfolio Turnover................ 50%* 92% 70% 48% 79%
</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.

* Non-Annualized

See Notes to Financial Statements

29
<PAGE> 31

NOTES TO FINANCIAL STATEMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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.

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.

B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.

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

30
<PAGE> 32

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At June 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $1,256,910,669; the aggregate gross unrealized
appreciation is $95,140,992 and the aggregate gross unrealized depreciation is
$456,759, resulting in net unrealized appreciation including open future
transactions of $94,684,233.

E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.

Due to inherent differences in the recognition of 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.

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>

31
<PAGE> 33

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $29,800 representing legal expenses provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $123,900 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 six months ended
June 30, 1997, the Fund recognized expenses of approximately $496,000,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.

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

The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per Trustee under the plan is equal to $2,500.

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.

32
<PAGE> 34

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $1,168,646,617, $67,761,342 and
$4,904,977 for Classes A, B and C, respectively. For the six months ended June
30, 1997, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................... 18,791,315 $ 356,325,308
Class B............................... 191,206 3,634,028
Class C............................... 55,859 1,059,412
----------- -------------
Total Sales............................. 19,038,380 $ 361,018,748
=========== =============
Dividend Reinvestment:
Class A............................... 1,378,730 $ 26,192,530
Class B............................... 50,691 962,978
Class C............................... 4,904 93,158
----------- -------------
Total Dividend Reinvestment............. 1,434,325 $ 27,248,666
=========== =============
Repurchases:
Class A............................... (20,711,208) $(393,594,399)
Class B............................... (380,476) (7,228,648)
Class C............................... (72,795) (1,384,884)
----------- -------------
Total Repurchases....................... (21,164,479) $(402,207,931)
=========== =============
</TABLE>

33
<PAGE> 35

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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>

34
<PAGE> 36

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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 six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$124,900 and CDSC on redeemed shares of approximately $102,200. Sales charges do
not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $655,643,068 and $681,169,089,
respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

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

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

Summarized on the next page are the specific types of derivative financial
instruments used by the Fund.

35
<PAGE> 37

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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

Transactions in options for the six months ended June 30, 1997 were as
follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996........ -0- $ -0-
Options Written and Purchased (Net)..... 2,500 (1,492,056)
Options Terminated in Closing
Transactions (Net).................... (2,500) 1,492,056
------- -----------

Outstanding at June 30, 1997............ -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).

Transactions in futures contracts for the six months ended June 30, 1997,
were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- -------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996.......................... 100
Futures Opened............................................ 13,520
Futures Closed............................................ (13,310)
-------
Outstanding at June 30, 1997.............................. 310
=======
</TABLE>

36
<PAGE> 38

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

The futures contracts outstanding as of June 30, 1997, and the description
and unrealized depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond Futures
September 1997--Short Contract (Current
Notional Value of $111,063 per contract).... 310 $(55,002)
=== ========
</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 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 six months ended June 30, 1997, are payments to VKAC of approximately
$368,600.

37
<PAGE> 39

FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL

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

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

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

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

MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund

Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds or
Morgan Stanley retail funds.

38
<PAGE> 40

VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND

BOARD OF TRUSTEES

J. MILES BRANAGAN

RICHARD M. DEMARTINI*

LINDA HUTTON HEAGY

R. CRAIG KENNEDY

JACK E. NELSON

DON G. POWELL*

JEROME L. ROBINSON

PHILLIP B. ROONEY

FERNANDO SISTO

WAYNE W. WHALEN* - Chairman

OFFICERS

DENNIS J. MCDONNELL*
President

RONALD A. NYBERG*
Vice President and Secretary

EDWARD C. WOOD, III*
Vice President and Chief Financial Officer

CURTIS W. MORELL*
Vice President and Chief Accounting Officer

JOHN L. SULLIVAN*
Treasurer

TANYA M. LODEN*
Controller

PETER W. HEGEL*

ALAN T. SACHTLEBEN*

PAUL R. WOLKENBERG*
Vice Presidents

INVESTMENT ADVISER

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

DISTRIBUTOR

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

SHAREHOLDER SERVICING AGENT

ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256

CUSTODIAN

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

LEGAL COUNSEL

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

INDEPENDENT ACCOUNTANTS

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

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

(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1997, the report must be accompanied by
a quarterly performance update, if applicable.

39
<PAGE> 41

RESULT OF SHAREHOLDER VOTES

A Special Meeting of Shareholders of the Fund was held on May 28, 1997 where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
39,581,246 shares voted for the proposal, 847,853 shares voted against and
2,061,866 shares abstained. With regard to the election of J. Miles Branagan as
elected trustee of the Fund, 41,464,471 shares voted in his favor and 1,026,492
shares withheld. With regard to the election of Richard M. DeMartini as elected
trustee of the Fund, 41,446,711 shares voted in his favor and 1,044,253 shares
withheld. With regard to the election of Linda Hutton Heagy as elected trustee
of the Fund, 41,444,464 shares voted in her favor and 1,046,500 shares withheld.
With regard to the election of R. Craig Kennedy as elected trustee of the Fund,
41,438,907 shares voted in his favor and 1,052,057 shares withheld. With regard
to the election of Jack E. Nelson as elected trustee of the Fund, 41,545,116
shares voted in his favor and 1,036,848 shares withheld. With regard to the
election of Don G. Powell as elected trustee of the Fund 41,464,110 shares voted
in his favor and 1,026,854 shares withheld. With regard to the election of
Jerome L. Robinson as elected trustee of the Fund, 41,422,017 shares voted in
his favor and 1,068,947 shares withheld. With regard to the election of Phillip
B. Rooney as elected trustee of the Fund, 41,455,085 shares voted in his favor
and 1,035,879 shares withheld. With regard to the election of Fernando Sisto as
elected trustee of the Fund, 41,414,191 shares voted in his favor and 1,076,773
shares withheld. With regard to the election of Wayne W. Whalen as elected
trustee of the Fund, 41,460,817 shares voted in his favor and 1,030,147 shares
withheld. With regard to the ratification of KPMG Peat Marwick LLP as
independent public accountants for the Fund, 40,424,104 shares voted for the
proposal, 378,327 shares voted against and 1,688,532 shares abstained.

40
<PAGE> 42

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Portfolio Management Review...................... 6
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 22
Statement of Operations.......................... 23
Statement of Changes in Net Assets............... 24
Financial Highlights............................. 25
Notes to Financial Statements.................... 28
</TABLE>

TFHI SAR 8/97
<PAGE> 43
LETTER TO SHAREHOLDERS

July 24, 1997

Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan
Stanley Group Inc., a world leader in
asset management. Earlier this year,
Morgan Stanley Group Inc. and Dean
Witter, Discover & Co. agreed to [PHOTO]
merge. The merger was completed on
May 31, creating the combined company
of Morgan Stanley, Dean Witter, DENNIS J. MCDONNELL AND DON G. POWELL
Discover & Co. Additionally, we are
very pleased to announce that Philip
N. Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.

ECONOMIC OVERVIEW
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Meanwhile, consumer confidence
soared to its highest reading in 27 years, while unemployment fell as low as 4.8
percent, the lowest level since 1973.
Despite the robust pace of economic activity, there was little evidence of
troublesome inflation. Wholesale prices actually fell during each of the first
five months of 1997, the longest stretch of consecutive monthly declines in 45
years. At the consumer level, prices rose by a mere 2.2 percent during the 12
months through May. A strong rally in the U.S.

Continued on page two

1
<PAGE> 44

dollar helped dampen inflationary pressures resulting from the vigorous domestic
economy by making imported goods less expensive. At the same time, continued
moderation in the cost of employee benefit packages offset mild upward pressure
on wages.
In March, the inflationary implications of a tight labor market caused the
Federal Reserve Board to raise its target for a key lending rate by one-quarter
of a percentage point, the first hike in short-term interest rates in two years.
Signs that economic growth slowed markedly in the second quarter, however, led
Fed policymakers to leave rates unchanged at subsequent meetings.

MARKET OVERVIEW
The strong economy and tight labor market combined to put mild upward
pressure on bond yields during the first half of 1997. For several weeks during
the spring, it appeared that economic growth was too robust and that inflation
could reemerge. The Federal Reserve's quarter-point increase in short-term
interest rates, as well as worries about inflation, pushed yields on long-term
government bonds up to 7.17 percent in April. When subsequent data showed the
economy to be decelerating during the second quarter, bond yields gradually fell
back to 6.78 percent at the end of June, slightly above where they stood at the
beginning of the year.
Within the tax-exempt municipal market, long-term general obligation bonds
returned nearly four percent during the past six months. The supply of municipal
bonds remained tight, as a number of older bonds were called and new issuance
was less than anticipated. As of June 30, long-term AA-rated general obligation
bonds yielded 5.49 percent, which is equivalent to a 8.58 percent yield on
taxable securities for investors in the 36 percent federal income tax bracket.

OUTLOOK
We expect the pace of economic activity during the remainder of 1997 to
accelerate modestly from the sluggish rate that prevailed during the second
quarter. While we do not believe that economic growth will be rapid enough to
reignite inflation, some warning signs are present, including a tight labor
market and high consumer confidence. In this environment, at least one
additional Federal Reserve interest rate hike remains a possibility. We
anticipate that long-term interest rates will remain within a relatively narrow
range for the remainder of the year.
We are fortunate to be experiencing a rare combination of sustained economic
growth, low inflation, and highly favorable performance in the financial market.
Along with our shareholders, we celebrate the seemingly best of economic times.
Once again, we encourage you to review your portfolio with an eye toward
correcting allocation imbalances.

Continued on page three

2
<PAGE> 45

Sincerely,

[SIG]
Don G. Powell

Chairman
Van Kampen American Capital
Investment Advisory Corp.

[SIG]
Dennis J. McDonnell

President
Van Kampen American Capital
Investment Advisory Corp.

3
<PAGE> 46

PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997

VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS

Six-month total return based on NAV(1)... 3.21% 2.81% 2.81%
Six-month total return(2)................ (1.68%) (1.19%) 1.81%
One-year total return(2)................. 2.51% 2.90% 5.83%
Five-year average annual total
return(2).............................. 4.98% N/A N/A
Ten-year average annual total
return(2).............................. 6.10% N/A N/A
Life-of-Fund average annual total
return(2).............................. 7.49% 5.51% 5.07%
Commencement date........................ 06/28/85 05/01/93 08/13/93

DISTRIBUTION RATES AND YIELD

Distribution rate(3)..................... 6.00% 5.53% 5.53%
Taxable equivalent distribution
rate(4)................................ 9.38% 8.64% 8.64%
SEC Yield(5)............................. 5.45% 4.89% 4.95%
</TABLE>

N/A = Not Applicable

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

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

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

An investment in medium- and lower-grade securities involves the risk of
potentially greater sensitivity to an economic downturn which would affect the
issuer's ability to make timely payment of principal and interest.

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

4
<PAGE> 47
PORTFOLIO HIGHLIGHTS

VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND

TOP TEN STATES AS OF JUNE 30, 1997

<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Illinois ...................... 12.3%
Colorado ...................... 9.1%
Florida ....................... 7.9%
New York ...................... 7.9%
Pennsylvania .................. 7.2%
Texas ......................... 6.7%
California .................... 5.2%
Massachusetts ................. 4.9%
Tennessee ..................... 3.2%
Michigan ...................... 3.0%
</TABLE>

CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS

AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C> <C>
AAA.............. 20.6% AAA............... 22.1%
AA............... 6.3% AA................ 4.3%
A................ 3.6% [PIE CHART] A................. 3.7% [PIE CHART]
BBB.............. 21.1% BBB............... 23.4%
BB............... 3.9% BB................ 3.4%
B................ 0.4% B................. 1.0%
Non-Rated........ 44.1% Non-Rated......... 42.1%
</TABLE>

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

TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
Industrial Revenue .................. 16.9% Industrial Revenue .................. 17.1%
Health Care ......................... 15.2% Health Care ......................... 16.7%
Other Care .......................... 12.0% Other Care .......................... 11.2%
Multi-Family Housing ................ 9.4% Multi-Family Housing ................ 9.2%
Public Building ..................... 7.1% Tax District ........................ 6.8%
</TABLE>

DURATION

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C>
Duration 6.85 years 7.47 years
</TABLE>

5
<PAGE> 48

PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND

We recently spoke with the management team of the Van Kampen American Capital
Tax Free High Income Fund about the key events and economic forces that shaped
the markets during the first half of the Fund's fiscal year. The team includes
David C. Johnson, portfolio manager, and Peter W. Hegel, chief investment
officer for fixed-income investments. The following excerpts reflect their views
concerning the Fund's performance during the six-month period ended June 30,
1997.

Q WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND
DURING THE FIRST HALF OF THIS YEAR?

A Interest rate changes and the state of the economy played major roles in
the Fund's performance. This economic prosperity is unequaled in
history--with unemployment at a 27-year low, first quarter growth at its
highest level since 1987 and few signs of inflation. The downward trend in
interest rates in recent years has given us a boost in terms of price
appreciation, but also makes it more difficult to add to the income component of
the Fund.
Another factor impacting the Fund is the percentage of issues coming to
market triple-A insured. Year to date, the percentage of insured issuance
totaled 55 percent of new issue volume. In large part, this is due to an
increasing appetite for safety from investors concerned about municipalities
with financial difficulties. Combined with drastic cuts in insurance costs over
the past four years, yields on insured offerings are much more than lower rated
investment grade securities.
The perceived credit risk associated with the lower- and non-rated bonds has
diminished considerably, due in part to the strong economy. Investors seeking
high yields purchased large positions of non-rated bonds, resulting in limited
supply and ultimately allowing bond issues to offer bonds at lower yields. As
non-rated bonds gained market acceptance, their yields adjusted closer to
investment grade bond levels, making higher yields increasingly elusive.
Finally, supply was lower than anticipated during most of the period,
picking up only in the last six weeks. This was primarily due to interest rates
remaining in the same range throughout most of the 1990's significantly
decreasing the volume of refunding issues coming to market. Additionally,
certain states such as California and Pennsylvania had substantially lower new
issue volume than previous periods, negatively impacting supply as well.

Q HAS THE FUND'S PERFORMANCE SUFFERED FROM THE TIGHT SUPPLY AND NARROWING
SPREADS?

A Fortunately, no. Almost 21 percent of the Fund's assets are triple-A
rated, a sector that experienced superior price appreciation during the
period. Triple-A rated securities are very liquid and tend to perform well
when interest rates are declining. Another 70 percent of assets are triple-B or
lower/non-rated. This sector of the market enhances the yield of the Fund and
tends to outperform when interest rates increase, as

6
<PAGE> 49

the price of these securities is based more on credit quality than market
movements. Together, this barbelled rating distribution minimizes volatility in
the Fund.
For the six months ended June 30, 1997, the Fund generated a total return of
3.21 percent(1) for Class A shares at net asset value. By comparison, the Lehman
Brothers Municipal Bond Index produced a total return of 3.20 percent over the
same period. Please keep in mind that this index is a broad-based, unmanaged
index of municipal bonds and does not reflect any commissions or fees that would
be paid by an investor purchasing the securities it represents. The Fund's net
asset value closed the reporting period unchanged at $14.47 per Class A share.
The Fund's tax-exempt distribution rate for Class A shares as of June 30,
1997, was 6.00 percent(3), representing a taxable-equivalent distribution rate
of 9.38 percent(4) for an investor in the 36 percent federal income tax bracket.
Please refer to the chart on page four for additional Fund performance results.

Q TO WHAT WOULD YOU ATTRIBUTE THE FUND'S SUCCESS?

A We have always managed the Fund with long-term performance in mind. We
strive for consistency, and focus on providing relative net asset value
(NAV) stability and a competitive current yield. It is an approach that
has worked well for us throughout a wide range of market conditions.
We are also supported by a very strong research team that has proven itself
over the long term. With analysts in four regions of the country--based in
southern California, Chicago, Houston, and Boston--we are able to get a better
read on regional economies and build strong relationships and information
networks among the issuers and traders we deal with on a daily basis. This gives
us a head start in identifying attractive high-yielding municipal bond issues.

Q WHAT CHANGES HAVE YOU MADE IN THE FUND'S PORTFOLIO OVER THE PAST SIX
MONTHS?

A We continue to keep the Fund well diversified with no more than 25 percent
in any one sector. Health care continues to be one of our largest sector
concentrations. This is due to our strong emphasis on research in the sector
that enables us to identify value in health care bonds. Non-hospital health-care
issues--senior citizen residences, nursing homes, and assisted care centers--are
also very attractive and provide excellent yield opportunities.
In the first half of the reporting period, we were able to add to our
holdings in the transportation sector with two large New York Port Authority
issues. Historically, the Port Authority has provided good credit quality and
value because it is generally priced lower when it comes to market than it would
be if it traded in the secondary market. Additionally, New York and New Jersey
residents benefit from state tax exemption from these bonds. For additional Fund
portfolio highlights, please refer to page five.

7
<PAGE> 50

Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?

A We are fairly optimistic about the remainder of the year for the following
reasons. First, inflation continues to be held well in check. And second,
the days of deficit spending appear to be gone, and the U.S. deficit has
been dramatically reduced. This combination of low inflation and a declining
deficit should bring about lower interest rates, which makes for a bullish
environment for the fixed income market. We believe that the Federal Reserve
Board will leave rates unchanged throughout at least the fourth quarter.
The Fund is positioned to track well with the market, regardless of what
happens in the economy. At June 30, 1997, the duration of the Fund stood at 6.85
years, shorter than our benchmark, the Lehman Brothers Municipal Bond Index, of
7.98 years. Because of the longer-term nature of the Fund, the index has been
adjusted to eliminate bonds with maturities of five years or less. Duration,
which is expressed in years, is a measure of the Fund's sensitivity to interest
rate movements. Portfolios with shorter durations tend to perform better in
rising rate environments, while portfolios with longer durations perform better
when rates decline. If our outlook on interest rates continues to remain
positive, we would seek to lengthen our exposure to lower-rated, higher-yielding
bonds greatly decreases the volatility of the Fund's performance. In the event
that inflation picks up and the Fed responds with one or more rate hikes, we
will adjust the portfolio's duration and some of our holdings. Until that time,
we will maintain a neutral posture as we enter the second half of 1997.

[SIG.]
Peter W. Hegel

Chief Investment Officer
Fixed Income Investments

[SIG.]
David C. Johnson

Portfolio Manager

Please see footnotes on page four

8
<PAGE> 51

PORTFOLIO OF INVESTMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.7%
ALABAMA 1.0%
$ 5,000 Alabama St Indl Dev Auth Solid Waste Disp Rev
Pine City Fiber Co............................ 6.450% 12/01/23 $ 5,119,900
1,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg............... 6.950 01/01/20 1,071,940
3,000 West Jefferson Cnty, AL Amusement & Pub Pk
Auth.......................................... 8.000 12/01/26 3,018,630
------------
9,210,470
------------
ALASKA 0.3%
2,250 Seward, AK Rev AK Sealife Cent Proj........... 7.650 10/01/16 2,326,455
------------
ARIZONA 1.3%
6,325 Chandler, AZ Indl Dev Auth Rev Chandler Finl
Cent Proj Ser 1986 (c)........................ 7.125 12/01/16 5,376,249
1,000 Maricopa Cnty, AZ Indl Dev Auth Indl Dev Rev
Borden Inc Proj (Var Rate Cpn)................ 5.040 10/01/12 999,190
2,605 Maricopa Cnty, AZ Indl Dev Auth Sr Living Fac
Rev........................................... 7.750 04/01/15 2,626,100
2,700 Maricopa Cnty, AZ Unified Sch Dist No 41
Gilbert Rfdg (FGIC Insd)...................... * 01/01/08 1,579,581
1,045 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A.... 11.000 07/01/00 1,146,177
------------
11,727,297
------------
ARKANSAS 0.2%
2,005 Arkansas St Dev Fin Auth Single Family Mtg Rev
Replacement Ser C............................. 8.600 02/01/17 2,073,371
------------
CALIFORNIA 4.7%
1,310 California Edl Fac Auth Rev Univ of La
Verne......................................... 6.375 04/01/13 1,347,715
1,900 California Hlth Fac Auth Rev Vly Presbyterian
Hosp Proj Ser A Rfdg.......................... 9.000 05/01/12 1,957,000
1,000 Capistrano, CA Unified Sch Dist Cmnty Fac Dist
Spl Tax....................................... 7.100 09/01/21 1,050,230
1,500 Colton, CA Pub Fin Auth Rev Elec Sys Impts
(Prerefunded @ 10/01/03)...................... 7.500 10/01/20 1,757,235
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg
Rev (MBIA Insd)............................... * 09/01/17 1,581,250
2,500 Corona, CA Ctfs Partn Vista Hosp Sys Inc Ser
C............................................. 8.375 07/01/11 2,660,325
2,000 Culver City, CA Redev Fin Auth Rev Tax Alloc
Rfdg (AMBAC Insd)............................. 5.500 11/01/14 2,039,140
3,465 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA
Cent for the Arts (AMBAC Insd)................ * 09/01/15 1,162,646
3,480 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA
Cent for the Arts (AMBAC Insd)................ * 09/01/18 949,274
2,000 Port Oakland, CA Port Rev Ser G (MBIA Insd)... 5.375 11/01/25 1,910,340
6,350 Riverside Cnty, CA Air Force Vlg West Inc Ser
A Rfdg........................................ 8.125 06/15/20 6,834,759
2,000 San Diego Cnty, CA Ctfs Partn (AMBAC Insd)
(b)........................................... 5.500 08/15/10 2,064,580
1,900 San Diego Cnty, CA Ctfs Partn (AMBAC Insd).... 5.500 08/15/11 1,953,238
7,625 San Francisco, CA City & Cnty Redev Agy Lease
Rev Gains (Crossover Rfdg @ 07/01/04) (f)..... 0/8.500 07/01/14 6,274,918
</TABLE>

See Notes to Financial Statements

9
<PAGE> 52

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 3,300 San Francisco, CA City & Cnty Redev Fin Auth
Tax Alloc Rev................................. 5.250% 08/01/21 $ 3,096,324
3,000 Santa Ana, CA Cmnty Redev Agy Tax Ser B
Rfdg.......................................... 7.500 09/01/16 3,069,180
3,000 Westminster, CA Redev Agy Tax Alloc Rev
Commercial Redev Proj No 1.................... 6.200 08/01/23 3,034,890
------------
42,743,044
------------
COLORADO 8.4%
11,920 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy..... * 08/31/10 5,446,487
19,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C.............................. * 08/31/26 2,494,890
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 (e)...................... 5.700 12/01/34 338,532
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 1,033,530
6,200 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj................................... 9.000 01/01/25 7,186,048
6,395 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj (Prerefunded @ 01/01/99).......... 10.500 01/01/19 7,147,436
2,880 Colorado Hlth Fac Auth Rev Univ Hills
Christian Nursing Rfdg........................ 8.750 12/01/11 2,970,086
495 Colorado Hsg Fin Auth Single Family
Residential Rev Ser C Rfdg.................... 8.750 09/01/17 511,820
1,000 Denver, CO City & Cnty Arpt Rev Ser A (b)..... 6.900 11/15/98 1,033,990
1,175 Denver, CO City & Cnty Arpt Rev Ser A......... 8.400 11/15/98 1,237,404
3,000 Denver, CO City & Cnty Arpt Rev Ser A......... 8.875 11/15/12 3,542,070
10,000 Denver, CO City & Cnty Arpt Rev Ser A......... 8.500 11/15/23 11,331,600
2,500 Denver, CO City & Cnty Arpt Rev Ser D......... 7.750 11/15/13 3,036,150
930 East River Regl Santn Dist CO Var Rfdg (Var
Rate Cpn)..................................... 4.000 12/01/08 665,150
5,570 Greeley, CO Multi-Family Rev Hsg Mtg Creek
Stone (FHA Guaranteed) (a).................... 6.050 07/01/37 5,544,991
3,016 Gunnison Cnty, CO Indl Rev Bond Crested Butte
Mtn Resort Inc................................ 9.250 10/01/07 3,089,259
4,163 Himalaya Wtr & Santn Dist Adams Cnty, CO Genl
Oblig Ltd Tax Bond Ser 1995................... 9.500 12/01/24 2,886,343
1,590 Residential Funding Mtg Security Cnduit Rfdg
First Mtg Christian Living Ser A.............. 6.850 01/01/15 1,603,960
1,060 Residential Funding Mtg Security Cnduit Rfdg
First Mtg Christian Living Ser A.............. 7.050 01/01/19 1,068,968
</TABLE>

See Notes to Financial Statements

10
<PAGE> 53

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 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 9,615,555
------------
75,760,234
------------
CONNECTICUT 1.2%
3,740 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Windsor Proj (b)................. 7.125 11/01/24 4,199,796
6,000 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A......................................... 6.400 09/01/11 6,299,880
------------
10,499,676
------------
DISTRICT OF COLUMBIA 0.4%
1,700 District of Columbia Ser A1 Rfdg (MBIA Insd)
(b)........................................... 6.500 06/01/10 1,887,306
2,000 District of Columbia Ser E (FSA Insd)......... 6.000 06/01/11 2,067,280
------------
3,954,586
------------
FLORIDA 7.3%
2,700 Brevard Cnty, FL Sch Brd Ctfs Ser A (AMBAC
Insd)......................................... 5.100 07/01/07 2,755,782
28,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec
Ser A Rfdg (MBIA Insd)........................ * 02/01/18 8,573,320
4,955 Escambia Cnty, FL Rev ICF/MR Pensacola Care
Dev Cent...................................... 10.250 07/01/11 4,707,250
2,085 Escambia Cnty, FL Rev ICF/MR Pensacola Care
Dev Cent Ser A................................ 10.250 07/01/11 1,980,750
1,135 Fishhawk Cmnty Dev Dist FL Spl Assmt Rev...... 7.625 05/01/18 1,151,946
9,815 Florida St Muni Pwr Agy Rev (AMBAC Insd)...... 4.500 10/01/27 8,217,707
1,000 Lake Saint Charles, FL Cmnty Dev Dist Spl
Assmt Rev..................................... 7.875 05/01/17 1,010,380
5,500 Miramar, FL Wastewater Impt Assmt Rev (FGIC
Insd)......................................... 6.750 10/01/25 6,083,825
3,860 Monroe Cnty, FL Indl Dev Auth First Mtg Med
Fac Rev Kennedy Dr Invt Ltd Proj Rfdg......... 11.000 11/01/12 3,859,035
1,500 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Tower........................ 8.750 07/01/26 1,601,430
1,300 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg..................... 8.625 07/01/20 1,375,439
2,395 Pinellas Cnty, FL Edl Fac Auth Rev College
Harbor Proj Ser A............................. 8.250 12/01/21 2,436,242
6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac
Sunnyside Prty................................ 6.700 07/01/25 5,983,440
16,065 Sun N Lake of Sebring, FL Impt Dist Spl Assmt
Ser A (d)..................................... 10.000 12/15/11 11,044,687
1,000 Tampa Palms, FL Open Space & Tran Cmnty Dev
Dist Rev Cap Impt Area 7 Proj................. 8.500 05/01/17 1,068,720
1,930 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg..................................... 7.500 11/01/16 1,955,727
2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg..................................... 7.625 11/01/26 2,026,480
------------
65,832,160
------------
GEORGIA 2.0%
19,000 Class A Ctfs relating to Atlanta, GA Urban
Residential Fin Auth Multi-Family Hsg
Renaissance on Peachtree Apts Proj Ser 85..... 8.500 04/01/26 18,050,000
------------
</TABLE>

See Notes to Financial Statements

11
<PAGE> 54

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
IDAHO 1.5%
$ 8,000 Idaho Hlth Fac Auth Rev IHC Hosp Inc Rfdg
(Inverse Fltg)................................ 7.820% 02/15/21 $ 9,122,000
4,300 Owyhee Cnty, ID Indl Dev Corp Indl Dev Rev
Envirosafe Services of ID Inc................. 8.250 11/01/02 4,437,256
------------
13,559,256
------------
ILLINOIS 11.3%
1,000 Alton, IL Hosp Fac Rev Saint Anthony's Hlth
Cent Proj (Prerefunded @ 09/01/99)............ 8.375 09/01/14 1,090,370
1,950 Bridgeview, IL Tax Increment Rev Rfdg......... 9.000 01/01/11 2,186,769
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Ser A................. 7.875 11/01/25 3,268,800
23,975 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Proj Ser 84A (b)............. 8.850 05/01/18 26,804,769
2,680 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B........................ 8.950 05/01/18 3,038,128
4,075 Chicago, IL Rev Chatham Ridge Tax Increment... 10.250 01/01/07 4,329,687
5,270 Chicago, IL Ser B (AMBAC Insd)................ 5.000 01/01/12 5,129,554
1,000 Chicago, IL Tax Increment..................... 7.250 01/01/14 1,013,220
2,000 Huntley, IL Increment Alloc Rev Huntley Redev
Proj Ser A.................................... 8.500 12/01/15 2,093,180
1,405 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj.................................. 8.000 11/15/16 1,428,337
7,290 Illinois Dev Fin Auth Rev Mercy Hsg Corp Proj
Rfdg.......................................... 7.000 08/01/24 7,759,768
1,000 Illinois Edl Fac Auth Rev Peace Mem Ministries
Proj.......................................... 7.500 08/15/26 1,018,060
3,730 Illinois Edl Fac Auth Rev Trinity Med Cent
(FSA Insd).................................... 6.000 07/01/28 3,803,742
3,000 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Ser A Rfdg.............................. 7.400 08/15/23 3,164,940
4,730 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D......................................... 9.500 11/15/15 5,570,001
3,825 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D (Prerefunded @ 11/15/00)................ 9.500 11/15/15 4,502,293
1,000 Illinois Hlth Fac Auth Rev Lifelink Corp Oblig
Group Ser B................................... 8.000 02/15/25 1,059,340
5,000 Illinois Hlth Fac Auth Rev Midwest Physician
Group Ltd Proj................................ 8.100 11/15/14 5,534,300
3,000 Illinois Hlth Fac Auth Rev Servantcor Ser A
(Var Rate Cpn) (Prerefunded @ 08/15/01)....... 8.000 08/15/21 3,436,710
1,250 Mill Creek Wtr Reclamation Dist IL Swr Rev.... 8.000 03/01/10 1,306,700
750 Mill Creek Wtr Reclamation Dist IL Wtrwks
Rev........................................... 8.000 03/01/10 784,020
1,500 Palatine, IL Tax Increment Rev Rand Dundee
Cent Proj..................................... 7.750 01/01/17 1,506,780
1,800 Peoria, IL Spl Tax Weaverridge Spl Svc Area... 8.050 02/01/17 1,841,994
2,095 Regional Tran Auth IL Ser B (AMBAC Insd)...... 8.000 06/01/17 2,743,801
7,000 Robbins, IL Res Recovery Rev.................. 8.375 10/15/16 7,274,820
------------
101,690,083
------------
</TABLE>

See Notes to Financial Statements

12
<PAGE> 55

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA 0.9%
$ 2,000 East Chicago, IN Exempt Fac Inland Steel Co
Proj No 14.................................... 6.700% 11/01/12 $ 2,037,260
3,585 Highland, IN Sch Bldg Corp Rfdg First Mtg..... 5.250 07/05/14 3,452,247
3,190 Kokomo Cent IN Sch Bldg Corp First Mtg (AMBAC
Insd)......................................... 4.125 07/15/17 2,642,596
------------
8,132,103
------------
KANSAS 0.3%
2,220 Kansas City, KS Crawford Cnty Leavenworth
Single Family Mtg Rev (AMBAC Insd)............ * 04/01/16 300,965
1,000 Lawrence, KS Commercial Dev Rev Var Holiday
Inn Sr Ser A Rfdg............................. 8.000 07/01/16 1,036,600
1,000 Manhattan, KS Commercial Dev Rev Var Holiday
Inn Sr Ser A Rfdg............................. 8.000 07/01/16 1,036,600
------------
2,374,165
------------
KENTUCKY 0.3%
2,700 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys
Proj (Inverse Fltg) (MBIA Insd)............... 8.566 10/09/08 3,111,750
------------
LOUISIANA 0.4%
3,000 Louisiana Pub Fac Auth Rev Student Ln Subser
A3............................................ 7.000 09/01/06 3,184,050
------------
MAINE 0.2%
1,250 Maine Hlth & Higher Edl Fac Auth Rev Ser B
(FSA Insd).................................... 7.000 07/01/24 1,406,363
------------
MARYLAND 0.7%
1,440 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty
Dev Multi-Family Hsg Rev Ser A Rfdg........... 8.300 05/15/17 1,472,386
1,725 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty
Dev Rev Single Family Pgm Seventh Ser......... 7.300 04/01/25 1,831,122
3,000 Prince Georges Cnty, MD Spl Oblig Spl Assmt
Woodview Ser A................................ 8.000 07/01/26 3,027,600
------------
6,331,108
------------
MASSACHUSETTS 4.5%
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 4,517,650
1,670 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Anne's Hosp Ser A............................. 9.375 07/01/14 1,673,440
3,415 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A............................ 6.000 10/01/23 3,066,158
2,200 Massachusetts St Hsg Fin Agy Hsg Rev Insd
Rental Ser A Rfdg (AMBAC Insd)................ 6.650 07/01/19 2,309,274
640 Massachusetts St Hsg Fin Agy Hsg Rev Ser A.... 9.000 12/01/18 659,520
4,000 Massachusetts St Indl Fin Agy Rev Cent For
Autism........................................ 9.500 11/01/17 4,369,120
575 Massachusetts St Indl Fin Agy Rev Dimmock
Cmnty Hlth Cent............................... 8.000 12/01/06 613,882
1,085 Massachusetts St Indl Fin Agy Rev Dimmock
Cmnty Hlth Cent............................... 8.375 12/01/13 1,199,912
</TABLE>

See Notes to Financial Statements

13
<PAGE> 56

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 675 Massachusetts St Indl Fin Agy Rev Dimmock
Cmnty Hlth Cent............................... 8.500% 12/01/20 $ 737,039
6,900 Massachusetts St Indl Fin Agy Rev Swr Fac Res
Ctl Composting................................ 9.250 06/01/10 7,323,798
1,000 Massachusetts St Indl Fin Agy Solid Waste Disp
Rev Res Recovery Sys.......................... 9.200 12/01/99 1,011,780
------------
40,563,073
------------
MICHIGAN 2.7%
2,000 Battle Creek, MI Downtown Dev Auth Tax
Increment Rev................................. 7.600 05/01/16 2,294,280
7,000 Detroit, MI Wtr Supply Sys Rev Rfdg (FGIC
Insd)......................................... 5.000 07/01/23 6,379,380
2,390 Meridian, MI Econ Dev Corp Ltd Oblig Rev 1st
Mtg Burcham Hills Ser A....................... 7.500 07/01/13 2,473,411
3,430 Meridian, MI Econ Dev Corp Ltd Oblig Rev 1st
Mtg Burcham Hills Ser A....................... 7.750 07/01/19 3,587,883
3,005 Michigan St Hosp Fin Auth Rev Garden City
Hosp.......................................... 8.300 09/01/02 3,164,926
12,500 Michigan St Strategic Fd Ltd Oblig Rev Great
Lakes Pulp & Fibre Proj (d)................... 10.250 12/01/16 5,987,750
715 Saint Clair Cnty, MI Econ Dev Corp Kmart
Proj.......................................... 9.500 02/01/06 716,544
------------
24,604,174
------------
MINNESOTA 1.2%
5,490 Eden Prairie, MN Multi-Family Hsg Rev Sterling
Ponds Proj Ser A.............................. 10.000 01/15/20 5,017,618
495 Eden Prairie, MN Multi-Family Hsg Rev Sterling
Ponds Proj Ser B Cap Apprec................... * 01/15/20 777,051
2,800 Minneapolis, MN Coml Dev Rev Holiday Inn
Metrodome Proj Rfdg........................... 10.000 06/01/98 2,812,236
1,750 Minnesota St Hsg Fin Agy Single Family Mtg Ser
D............................................. 8.800 07/01/16 1,818,548
------------
10,425,453
------------
MISSISSIPPI 0.1%
1,000 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy
Res Inc Rfdg.................................. 7.300 05/01/25 1,053,670
------------
MISSOURI 0.8%
980 Jefferson Cnty, MO Indl Dev Auth Indl Rev
Cedars Hlthcare Cent Proj Ser A Rfdg.......... 8.250 12/01/15 993,818
4,695 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev
Skaggs Cmnty Hosp Rfdg........................ 9.500 05/15/13 4,847,071
1,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)........ 6.000 06/01/15 1,083,320
------------
6,924,209
------------
MONTANA 0.4%
4,000 Montana St Brd Invt Res Recovery Rev
Yellowstone Energy L P Proj................... 7.000 12/31/19 3,800,800
------------
</TABLE>

See Notes to Financial Statements

14
<PAGE> 57

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEBRASKA 0.6%
$ 2,500 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized).......... 11.257% 09/10/30 $ 2,784,375
2,200 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized).......... 9.659 10/17/23 2,403,500
------------
5,187,875
------------
NEVADA 0.2%
1,945 Reno, NV Redev Agy Tax Alloc Downtown Redev
Proj Ser E Rfdg............................... 5.600 09/01/09 1,884,005
------------
NEW HAMPSHIRE 1.5%
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights.................... 7.350 01/01/18 2,070,680
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights.................... 7.450 01/01/25 2,085,480
4,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Hosp Catholic Med Cent Rfdg................... 8.250 07/01/13 4,262,280
3,435 New Hampshire Higher Edl & Hlth Fac Auth Rev
Vly Regl Hosp................................. 7.350 04/01/23 3,347,030
2,000 New Hampshire St Business Fin Auth Pollutn Ctl
& Solid Waste Disposal Rev.................... 7.750 01/01/22 2,118,800
------------
13,884,270
------------
NEW JERSEY 1.7%
2,240 Camden Cnty, NJ Impt Auth Lease Rev Dockside
Refrigerated.................................. 8.400 04/01/24 2,378,857
6,570 New Jersey Econ Dev Auth Rev First Mtg Gross
Rev Oakridge Manor Proj Rfdg.................. 9.500 11/01/14 6,751,135
1,000 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A...................... 8.500 11/01/16 1,038,750
1,500 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A...................... 8.625 11/01/25 1,566,240
3,000 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen
Proj Ser A.................................... 8.750 05/15/26 3,205,920
------------
14,940,902
------------
NEW MEXICO 1.3%
2,250 Albuquerque, NM Retirement Fac Rev La Vida
Llena Proj Ser A Rfdg......................... 8.850 02/01/23 2,403,180
5,835 Albuquerque, NM Retirement Fac Rev OGL
Retirement Fac Rfdg (c)....................... 8.000 10/01/13 4,261,884
1,000 Bernalillo Cnty, NM Mult-Family Rev Hsg Topke
Commons/Arbors Proj Ser D..................... 7.700 04/01/27 1,012,150
3,600 Farmington, NM Pollutn Ctl Rev Pub Svc Co San
Juan Proj D Rfdg.............................. 6.375 04/01/22 3,699,432
------------
11,376,646
------------
</TABLE>

See Notes to Financial Statements

15
<PAGE> 58

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK 7.2%
$ 1,315 Clifton Springs, NY Hosp & Clinic Ser B Rfdg &
Impt.......................................... 7.000% 01/01/05 $ 1,348,467
1,500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg.................. 7.500 03/01/26 1,577,610
1,500 New York City Indl Dev Agy Rev Visy Paper Inc
Proj.......................................... 7.950 01/01/28 1,659,870
5,000 New York City Ser A........................... 7.000 08/01/07 5,625,950
3,000 New York City Ser D Rfdg...................... 8.000 02/01/05 3,504,450
10,330 New York City Subser A1 (Embedded Swap)....... 5.210 08/01/12 10,020,100
4,250 New York City Tran Auth Tran Fac Livingston
Plaza Proj Rfdg (FSA Insd).................... 5.400 01/01/18 4,226,540
5,000 New York St Dorm Auth Rev City Univ Ser F..... 5.500 07/01/12 4,944,700
5,000 New York St Dorm Auth Rev City Univ Ser F..... 5.000 07/01/20 4,457,650
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev
(Inverse Fltg)................................ 8.001 04/01/20 2,725,000
6,000 New York St Energy Resh & Dev Auth Gas Fac Rev
Ser D (MBIA Insd)............................. 5.635 07/08/26 5,804,640
225 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent Ser
B............................................. 5.500 04/01/00 230,047
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 1,024,390
750 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent Ser
B............................................. 5.250 04/01/02 760,950
1,750 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Rfdg (MBIA Insd).................... 5.250 02/15/19 1,655,815
1,500 New York St Thruway Auth Hwy & Brdg Tr Fund
Ser A......................................... 6.000 04/01/14 1,559,325
3,000 New York, NY City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd)......... 6.250 11/15/06 3,292,860
1,500 New York, NY City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd)......... 6.375 11/15/07 1,672,785
2,000 New York, NY City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd)......... 6.500 11/15/09 2,211,440
7,775 Triborough Bridge & Tunnel Auth NY Rev Ser
1994A......................................... 4.750 01/01/19 6,923,559
------------
65,226,148
------------
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
------------
OHIO 2.3%
2,000 East Liverpool, OH Hosp Rev East Liverpool
City Hosp Ser A............................... 8.125 10/01/11 2,189,920
7,100 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B
(Inverse Fltg) (GNMA Collateralized).......... 9.447 03/31/31 7,756,750
3,700 Ohio St Solid Waste Rev Republic Engineered
Steels Proj................................... 8.250 10/01/14 3,644,833
1,000 Ohio St Solid Waste Rev Republic Engineered
Steels Proj................................... 9.000 06/01/21 1,021,810
</TABLE>

See Notes to Financial Statements

16
<PAGE> 59

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$ 4,490 Reynoldsburg, OH Hlth Care Fac Rev Wesley
Ridge Proj (GNMA Collateralized).............. 6.150% 10/20/38 $ 4,579,306
1,500 Sandusky Cnty, OH Hosp Fac Rev Mem Hosp Proj
Rfdg.......................................... 7.750 12/01/09 1,505,115
------------
20,697,734
------------
OKLAHOMA 0.6%
1,000 Oklahoma Cnty, OK Fin Auth Epworth Villa Proj
Ser A Rfdg.................................... 7.000 04/01/25 987,910
4,000 Tulsa, OK Indl Auth Hosp Rev Tulsa Regl Med
Cent (Prerefunded @ 06/01/03)................. 7.200 06/01/17 4,602,400
------------
5,590,310
------------
PENNSYLVANIA 6.7%
6,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Collateral Toledo Edison Co Proj Ser A Rfdg... 7.750 05/01/20 6,636,540
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks Vlg
Inc Proj Rfdg................................. 7.700 05/15/22 1,020,070
4,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Bethlehem Steel Corp Proj Rfdg................ 7.500 09/01/15 4,270,840
1,725 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion
Hosp Proj..................................... 8.500 07/01/13 1,900,829
2,000 Cumberland Cnty, PA Auth Rev First Mtg
Carlisle Hosp & Hlth.......................... 6.800 11/15/14 2,112,840
1,500 Delaware Cnty, PA Auth First Mtg Rev Riddle
Vlg Proj...................................... 7.000 06/01/21 1,519,305
2,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford
Hosp Proj (Crossover Rfdg @ 10/01/00)......... 8.875 10/01/20 2,286,560
3,750 Montgomery Cnty, PA Higher Edl & Hlth Auth
Nursing Home Rev Delco Sys Svcs Proj A........ 9.875 11/01/18 3,873,038
8,100 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Proj Ser A (Prerefunded
@ 12/01/00)................................... 10.000 12/01/19 9,643,131
500 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Rfdg................... 7.000 12/01/10 513,120
2,500 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Rfdg................... 7.250 12/01/15 2,531,475
6,000 Montgomery Cnty, PA Indl Dev Auth Rev First
Mtg The Meadowood Corp Rfdg................... 7.400 12/01/20 6,053,160
1,000 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy............................ 7.750 09/01/24 1,012,480
3,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
MacMillan Ltd Partnership Proj................ 7.600 12/01/20 3,417,420
1,500 Pennsylvania Econ Dev Fin Auth Recycling Rev
Ponderosa Fibres Proj Ser A................... 9.250 01/01/22 1,091,895
3,000 Pennsylvania Econ Dev Fin Auth Res Recovery
Rev Colver Proj Ser D......................... 7.050 12/01/10 3,242,340
5,000 Philadelphia, PA Auth for Indl Dev Rev
Long-Term Care Maplewood...................... 8.000 01/01/24 5,221,600
1,500 Scranton Lackawanna, PA Hlth & Welfare Auth
Rev Rfdg...................................... 7.250 01/15/17 1,526,670
2,000 Scranton Lackawanna, PA Hlth & Welfare Auth
Rev Rfdg...................................... 7.350 01/15/22 2,021,280
------------
59,894,593
------------
</TABLE>

See Notes to Financial Statements

17
<PAGE> 60

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RHODE ISLAND 0.2%
$ 2,000 Providence, RI Redev Agy Ctfs Partn Ser A..... 8.000% 09/01/24 $ 2,168,980
------------
SOUTH CAROLINA 0.4%
115 Charleston Cnty, SC Ctfs Partn Ser B (MBIA
Insd)......................................... 7.000 06/01/19 128,187
2,385 Charleston Cnty, SC Ctfs Partn Ser B
(Prerefunded @ 06/01/04) (MBIA Insd).......... 7.000 06/01/19 2,750,263
1,000 Oconee Cnty, SC Indl Rev Bond Johnson Ctl Inc
Ser 84 (Var Rate Cpn)......................... 6.335 06/15/04 1,000,000
------------
3,878,450
------------
TENNESSEE 3.0%
3,000 SCA Tax Exempt Trust Multi-Family Mtg Memphis
Hlth Edl Rev Bond Receipt Ser A6 (FSA Insd)... 7.350 01/01/30 3,269,310
4,610 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev
ICF/MR Open Arms Dev Cent Ser A............... 9.750 08/01/19 4,934,544
4,670 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev
ICF/MR Open Arms Dev Cent Ser C............... 9.750 08/01/19 4,998,768
2,000 Springfield, TN Hlth & Edl Fac Brd Hosp Rev
Jesse Holman Jones Hosp Proj.................. 8.250 04/01/12 2,165,860
6,085 Sullivan Cnty, TN Hlth Edl & Hsg Fac Brd Rev
First Mtg RHA/Sullivan Inc Fac Rev............ 9.750 09/01/19 6,542,409
4,400 Trenton, TN Hlth & Edl Fac Brd Rev ICF/MR
RHA/Trenton Golden Door....................... 10.000 05/01/19 4,708,044
------------
26,618,935
------------
TEXAS 6.2%
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev High
Plains Baptist Hosp (Inverse Fltg) (FSA
Insd)......................................... 8.814 01/01/22 2,285,000
1,000 Bexar Cnty, TX Hlth Fac Dev Corp Rev Rfdg
Baptist Hlth Sys Ser A (MBIA Insd) (a)........ 6.000 11/15/12 1,070,180
2,370 Bexar Cnty, TX Hlth Fac Dev Corp Rev Rfdg
Baptist Hlth Sys Ser A (MBIA Insd) (a)........ 6.000 11/15/13 2,529,786
3,000 Bexar Cnty, TX Hlth Fac Dev Corp Rev Rfdg
Baptist Hlth Sys Ser A (MBIA Insd) (a)........ 5.250 11/15/17 2,887,260
665 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg...... * 08/01/00 526,534
1,165 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg...... * 08/01/01 853,537
335 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg...... * 08/01/02 227,445
1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg...... * 08/01/11 593,143
775 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg...... 8.750 08/01/11 817,927
2,670 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg...... 8.750 08/01/12 2,815,221
2,500 Garland, TX Indl Dev Auth Rev Bond Ashland Oil
Proj Ser 84 Rfdg (Var Rate Cpn)............... 5.800 04/01/04 2,521,725
2,500 Houston, TX Arpt Sys Rev Spl Fac Continental
Airl Term Impt Ser B.......................... 6.125 07/15/27 2,491,725
5,000 Lower CO Rvr Auth TX Polltn Ctl Rev Samsung
Austin Semiconductor.......................... 6.375 04/01/27 5,143,150
9,810 Sam Rayburn, TX Muni Pwr Agy Pwr Supply Sys
Rev........................................... 6.750 10/01/14 9,474,792
</TABLE>

See Notes to Financial Statements

18
<PAGE> 61

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 2,675 Texas Genl Svcs Comm Partn Int Lease Purch
Ctfs.......................................... 7.250% 08/15/11 $ 2,712,987
8,000 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev
(GNMA Collateralized)......................... 6.900 07/02/24 8,830,640
2,000 Texas St Tpk Auth Dallas North Thruway Rev
Addison Arpt Toll Tunnel Proj (FGIC Insd)..... 6.750 01/01/15 2,223,720
2,000 Texas St Tpk Auth Dallas North Thruway Rev
Addison Arpt Toll Tunnel Proj (FGIC Insd)..... 6.600 01/01/23 2,203,940
5,000 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics...... 8.200 03/15/21 5,568,250
------------
55,776,962
------------
UTAH 1.9%
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj.......................................... 7.800 09/01/15 1,007,440
1,165 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj.......................................... 8.000 09/01/20 1,186,634
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj.......................................... 7.800 09/01/25 1,003,400
4,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg (MBIA Insd).............................. 5.750 07/01/19 4,008,600
5,000 Murray City, UT Hosp Rev Inc Hlth Svc Inc Rfdg
(MBIA Insd)................................... 4.750 05/15/20 4,365,000
270 Saint George, UT Indl Dev Rev KMart Corp Ser
1984A......................................... 10.750 10/15/08 272,733
3,270 Salt Lake Cnty, UT Hsg Auth Multi-Family Hsg
Rev (FHA Gtd)................................. 6.375 11/01/33 3,342,463
1,580 Utah St Hsg Fin Agy Single Family Mtg Mezz A1
(AMBAC Insd).................................. 6.100 07/01/13 1,616,893
------------
16,803,163
------------
VIRGINIA 0.5%
2,650 Fairfax Cnty, VA Park Auth Park Fac Rev....... 6.625 07/15/20 2,779,293
1,500 Pittsylvania Cnty, VA Indl Dev Auth Rev Exempt
Fac Ser A..................................... 7.450 01/01/09 1,584,405
------------
4,363,698
------------
WASHINGTON 2.8%
20,980 King Cnty, WA Ser B........................... 5.850 12/01/13 21,528,837
1,000 Port Walla Walla, WA Pub Corp Solid Waste
Recycling Rev Ponderosa Fibres Proj........... 9.125 01/01/26 767,600
1,000 Spokane Cnty, WA Indl Dev Corp Solid Waste
Disp Rev...................................... 7.600 03/01/27 1,044,000
5,500 Washington St Pub Pwr Supply Comp Interest Ser
C Rfdg (MBIA Insd)............................ * 07/01/17 1,745,810
------------
25,086,247
------------
WISCONSIN 1.4%
4,225 Wisconsin St Hlth & Edl Fac Auth Rev Chippewa
Vly Hosp Ser F Rfdg........................... 9.500 11/15/12 5,076,084
2,130 Wisconsin St Hlth & Edl Fac Auth Rev Eau
Claire Manor.................................. 9.625 06/01/13 2,176,306
1,975 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem
Hosp Assn..................................... 7.875 11/01/22 2,005,178
3,000 Wisconsin St Hlth & Edl Milwaukee Catholic
Home Proj..................................... 7.500 07/01/26 3,103,650
------------
12,361,218
------------
</TABLE>

See Notes to Financial Statements

19
<PAGE> 62

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WYOMING 0.5%
$ 2,195 Afton, WY National Rural Utilities Cooperative
Fin Corp Gas Supply Rev....................... 5.875% 05/01/26 $ 2,179,701
2,500 Jackson, WY National Rural Utilities
Cooperative Fin Corp Gas Supply Rev........... 5.875 05/01/26 2,486,000
------------
4,665,701
------------
PUERTO RICO 0.2%
1,886 Centro De Recaudaciones De Ingresos Muni Ctfs
Partn PR...................................... 6.850 10/17/03 1,918,742
------------
TOTAL LONG-TERM INVESTMENTS 92.2%
(Cost $800,270,347).......................................................... 829,817,129
------------
SHORT-TERM INVESTMENTS 6.5%
Burke Cnty, Georgia Dev Auth Pollutn Ctl Rev ($1,300,000 par, yielding 4.00%,
maturing 07/01/97)............................................................. 1,300,000
California Pollutn Ctl Fin Auth Ser 1986 A So CA Edison ($7,500,000 par,
yielding 5.20%, maturing 07/01/97)............................................. 7,500,000
Charleston Cnty, SC Indl Rev Massey Coal Terminal SC Corp Rfdg ($3,000,000 par,
yielding 4.05%, maturing 07/01/97)............................................. 3,000,000
Delaware St Econ Dev Auth Rev Var Gas Fac Delmarva Pwr & Light ($1,200,000 par,
yielding 4.20%, maturing 07/01/97)............................................. 1,200,000
Illinois Hlth Fac Auth Rev Elmhurst Mem Hosp Ser A ($1,200,000 par, yielding
4.20%, maturing 07/01/97)...................................................... 1,200,000
Jackson Cnty, MS Port Fac Rev Chevron Inc Proj Rfdg ($3,800,000 par, yielding
4.00%, maturing 07/01/97)...................................................... 3,800,000
Lincoln Cnty, WY Pollutn Ctl Rev Exxon Proj C ($2,500,000 par, yielding 4.10%,
maturing 07/01/97)............................................................. 2,500,000
Los Angeles, CA Regional Arpts Impt Corp Lease Rev ($5,300,000 par, yielding
4.10%, maturing 07/01/97)...................................................... 5,300,000
Maricopa Cnty, AZ Indl Dev Auth Hosp Fac Rev Samaritan Hlth Svc Hosp Ser B2
(Gtd: Bank America) ($3,800,000 par, yielding 4.05%, maturing 07/01/97)........ 3,800,000
Massachusetts St Ser B (Gtd: Natl Westminster Bank) ($9,900,000 par, yielding
4.00%, maturing 07/01/97)...................................................... 9,900,000
New York City Muni Wtr Fin Auth Rev ($5,800,000 par, yielding 4.05%, maturing
07/01/97)...................................................................... 5,800,000
New York City Muni Wtr Fin Auth Ser A ($2,000,000 par, yielding 5.50%, maturing
07/01/97)...................................................................... 2,000,000
New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev ($7,000,000 par, yielding
4.15%, maturing 07/01/97)...................................................... 7,000,000
SAA Inc. Promissory Note 1995 Var Rate Cpn ($2,000,000 par, yielding 8.41%,
maturing 02/28/98)............................................................. 2,000,000
SAA Inc. Promissory Note 1995 Var Rate Cpn ($750,000 par, yielding 8.50%,
maturing 02/28/98)............................................................. 750,000
South Carolina Jobs Econ Dev Auth Rev St Francis Hosp ($865,000 par, yielding
4.10%, maturing 07/01/97)...................................................... 865,000
</TABLE>

See Notes to Financial Statements

20
<PAGE> 63

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
Washington St Hlth Care Fac Auth Rev Sisters Providence D ($1,100,000 par,
yielding 4.05%, maturing 07/01/97)............................................. $ 1,100,000
------------
TOTAL SHORT-TERM INVESTMENTS 6.5%
(Cost $59,015,000)........................................................... 59,015,000
------------
TOTAL INVESTMENTS 98.7%
(Cost $859,285,347).......................................................... 888,832,129
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3%.................................... 11,603,781
------------
NET ASSETS 100.0%............................................................. $900,435,910
------------
</TABLE>

* Zero coupon bond

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

(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.

(d) Non-income producing security.

(e) Currently is a payment-in-kind security which will convert to a cash paying
security with a higher coupon at a predetermined date.

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

See Notes to Financial Statements

21
<PAGE> 64

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $859,285,347)....................... $888,832,129
Cash........................................................ 378,995
Receivables:
Interest.................................................. 15,959,253
Investments Sold.......................................... 8,571,850
Fund Shares Sold.......................................... 3,152,802
Other....................................................... 479,328
------------
Total Assets.......................................... 917,374,357
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 12,138,913
Income Distributions...................................... 2,599,244
Fund Shares Repurchased................................... 827,785
Distributor and Affiliates................................ 606,197
Investment Advisory Fee................................... 351,087
Variation Margin on Futures............................... 16,432
Accrued Expenses............................................ 288,959
Deferred Compensation and Retirement Plans.................. 109,830
------------
Total Liabilities..................................... 16,938,447
------------
NET ASSETS.................................................. $900,435,910
============
NET ASSETS CONSIST OF:
Capital..................................................... $978,025,863
Net Unrealized Appreciation................................. 29,473,293
Accumulated Distributions in Excess of Net Investment
Income.................................................... (9,672,929)
Accumulated Net Realized Loss............................... (97,390,317)
------------
NET ASSETS.................................................. $900,435,910
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $676,262,276 and 46,750,652 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 $198,478,609 and 13,721,092 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 $25,695,025 and 1,776,340 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

22
<PAGE> 65

STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $30,872,695
-----------
EXPENSES:
Investment Advisory Fee..................................... 2,067,102
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $753,269, $915,219 and $108,925,
respectively)............................................. 1,777,413
Shareholder Services........................................ 470,677
Legal....................................................... 288,000
Custody..................................................... 62,065
Trustees Fees and Expenses.................................. 17,692
Other....................................................... 220,076
-----------
Total Expenses.......................................... 4,903,025
-----------
NET INVESTMENT INCOME....................................... $25,969,670
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments (Including reorganization and restructuring
costs of $232,828)...................................... $ (282,990)
Options................................................... (419,825)
Futures................................................... (1,559,040)
-----------
Net Realized Loss........................................... (2,261,855)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 26,675,438
-----------
End of the Period:
Investments............................................. 29,546,782
Futures................................................. (73,489)
-----------
29,473,293
-----------
Net Unrealized Appreciation During the Period............... 2,797,855
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 536,000
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $26,505,670
===========
</TABLE>

See Notes to Financial Statements

23
<PAGE> 66
STATEMENT OF CHANGES IN NET ASSETS

For the Six Months Ended June 30, 1997 and
the Year Ended December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 25,969,670 $ 53,036,530
Net Realized Loss................................... (2,261,855) (15,209,862)
Net Unrealized Appreciation/Depreciation During the
Period............................................ 2,797,855 (12,362,837)
------------ -------------
Change in Net Assets from Operations................ 26,505,670 25,463,831
------------ -------------
Distributions from Net Investment Income............ (25,969,670) (53,036,530)
Distributions in Excess of Net Investment Income.... (851,174) (228,957)
------------ -------------
Total Distributions from and in Excess of Net
Investment Income*.............................. (26,820,844) (53,265,487)
------------ -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ (315,174) (27,801,656)
------------ -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 84,620,933 164,096,198
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 11,488,490 22,996,285
Cost of Shares Repurchased.......................... (59,906,220) (108,010,178)
------------ -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS...................................... 36,203,203 79,082,305
------------ -------------
TOTAL INCREASE IN NET ASSETS........................ 35,888,029 51,280,649
NET ASSETS:
Beginning of the Period............................. 864,547,881 813,267,232
------------ -------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $9,672,929 and $8,821,755, respectively)....... $900,435,910 $ 864,547,881
============ =============

<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment
Income:
Class A Shares.................................... $(21,134,363) $(43,633,838)
Class B Shares.................................... (5,078,583) (8,865,546)
Class C Shares.................................... (607,898) (766,103)
------------ ------------
$(26,820,844) $(53,265,487)
============ ============
</TABLE>

See Notes to Financial Statements

24
<PAGE> 67
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class A Shares June 30, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.............................. $14.474 $14.984 $13.848 $15.629 $14.529
------- ------- ------- ------- -------
Net Investment Income............... .444 .963 1.024 .956 1.052
Net Realized and Unrealized
Gain/Loss......................... .003 (.513) 1.072 (1.717) 1.158
------- ------- ------- ------- -------
Total from Investment Operations...... .447 .450 2.096 (.761) 2.210
Less Distributions from and in Excess
of Net Investment Income (Note 1)... .456 .960 .960 1.020 1.110
------- ------- ------- ------- -------
Net Asset Value, End of the Period.... $14.465 $14.474 $14.984 $13.848 $15.629
======= ======= ======= ======= =======
Total Return (a)...................... 3.21%* 3.21% 15.52% (4.93%) 15.82%
Net Assets at End of the Period (In
millions)........................... $ 676.3 $ 671.9 $665.8 $603.0 $636.2
Ratio of Expenses to Average Net
Assets (b).......................... .95% .99% .95% .87% 1.03%
Ratio of Net Investment Income to
Average Net Assets (b).............. 6.19% 6.60% 7.05% 6.48% 6.95%
Portfolio Turnover.................... 29%* 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 certain expenses was less than
0.01%.

See Notes to Financial Statements

25
<PAGE> 68

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
May 1, 1993
Six Months Year Ended December 31, (Commencement of
Ended --------------------------- Distributions) to
Class B Shares June 30, 1997 1996 1995 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................... $14.474 $14.983 $13.850 $15.621 $14.670
------- ------- ------- ------- -------
Net Investment Income......... .384 .843 .908 .841 .656
Net Realized and Unrealized
Gain/Loss................... .007 (.506) 1.071 (1.718) .945
------- ------- ------- ------- -------
Total from Investment
Operations.................... .391 .337 1.979 (.877) 1.601
Less Distributions from and in
Excess of Net Investment
Income (Note 1)............... .400 .846 .846 .894 .650
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................ $14.465 $14.474 $14.983 $13.850 $15.621
======= ======= ======= ======= =======
Total Return (a)................ 2.81%* 2.40% 14.62% (5.69%) 11.12%*
Net Assets at End of the Period
(In millions)................. $ 198.5 $ 173.8 $ 137.9 $ 112.4 $ 56.6
Ratio of Expenses to Average
Net Assets (b)................ 1.73% 1.75% 1.70% 1.64% 1.74%
Ratio of Net Investment Income
to Average Net Assets (b)..... 5.39% 5.84% 6.25% 5.70% 5.95%
Portfolio Turnover.............. 29%* 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 certain expenses was less than
0.01%.

See Notes to Financial Statements

26
<PAGE> 69

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
August 13, 1993
(Commencement of
Six Months Year Ended December 31, Distribution) to
Ended --------------------------- December 31,
Class C Shares June 30, 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $14.474 $14.987 $13.846 $15.610 $15.030
------- ------- ------- ------- -------
Net Investment Income........... .388 .851 .910 .824 .369
Net Realized and Unrealized
Gain/Loss..................... .003 (.518) 1.077 (1.694) .580
------- ------- ------- ------- -------
Total from Investment
Operations...................... .391 .333 1.987 (.870) .949
Less Distributions from and in
Excess of Net Investment Income
(Note 1)........................ .400 .846 .846 .894 .369
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.......................... $14.465 $14.474 $14.987 $13.846 $15.610
======= ======= ======= ======= =======
Total Return (a).................. 2.81%* 2.33% 14.70% (5.62%) 6.37%*
Net Assets at End of the Period
(In millions)................... $25.7 $18.8 $9.5 $7.6 $5.2
Ratio of Expenses to Average Net
Assets (b)...................... 1.72% 1.75% 1.69% 1.64% 1.82%
Ratio of Net Investment Income to
Average Net Assets (b).......... 5.38% 5.84% 6.19% 5.71% 5.21%
Portfolio Turnover................ 29%* 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 certain expenses was less than
0.01%.

See Notes to Financial Statements

27
<PAGE> 70

NOTES TO FINANCIAL STATEMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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.

A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Investments
valued using estimates of market value are generally those non-rated securities
in which the Fund owns over 90% of the original bond issue. At June 30, 1997,
17% 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.

28
<PAGE> 71

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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.

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.

At June 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $861,512,410, the aggregate gross unrealized
appreciation is $50,410,382 and the aggregate gross unrealized depreciation is
$23,164,152, resulting in net unrealized appreciation including open futures
transactions of $27,246,230.

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

Due to inherent differences in the recognition of interest income under
generally accepted accounting principles and federal income tax purposes, for
those securities which the Fund has placed on non-accrual status, the amount of
distributable net investment income may differ between book and federal income
tax purposes for a particular period. These differences are temporary in nature,
but may result in book basis distributions in excess of net investment income
for certain periods.

29
<PAGE> 72

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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................................... .50 of 1%
Over $500 million.................................... .45 of 1%
</TABLE>

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $24,000 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 six months ended June 30, 1997, the Fund recognized expenses of
approximately $90,900 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 six months ended
June 30, 1997, the Fund recognized expenses of approximately $314,600,
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 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.

30
<PAGE> 73

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $749,497,012, $202,352,320 and
$26,176,531 for Classes A, B and C, respectively. For the six months ended June
30, 1997, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 2,941,499 $ 42,350,237
Class B.......................................... 2,396,502 34,491,710
Class C.......................................... 540,482 7,778,986
---------- ------------
Total Sales........................................ 5,878,483 $ 84,620,933
========== ============
Dividend Reinvestment:
Class A.......................................... 643,039 $ 9,256,502
Class B.......................................... 131,990 1,900,249
Class C.......................................... 23,043 331,739
---------- ------------
Total Dividend Reinvestment........................ 798,072 $ 11,488,490
========== ============
Repurchases:
Class A.......................................... (3,253,655) $(46,849,811)
Class B.......................................... (817,943) (11,772,948)
Class C.......................................... (89,304) (1,283,461)
---------- ------------
Total Repurchases.................................. (4,160,902) $(59,906,220)
========== ============
</TABLE>

31
<PAGE> 74

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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>

32
<PAGE> 75

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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 six months ended June 30, 1997, VKAC, as distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$148,600 and CDSC on redeemed shares of approximately $240,600. Sales charges do
not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $245,261,314 and $253,467,474,
respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

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

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

33
<PAGE> 76

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

Transactions in options for the six months ended June 30, 1997, were as
follows:

<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ----------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996............... -0- $ -0-
Options Written and Purchased (Net)............ 2,250 22,858
Options Terminated in Closing Transactions
(Net)........................................ (2,000) (61,985)
Options Expired (Net).......................... (250) 39,127
------ --------
Outstanding at June 30, 1997................... -0- $ -0-
====== ========
</TABLE>

Transactions in futures contracts for the six months ended June 30, 1997,
were as follows:

<TABLE>
<CAPTION>
Contracts
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996........................... 426
Futures Opened............................................. 848
Futures Closed............................................. (1,074)
------
Outstanding at June 30, 1997............................... 200
======
</TABLE>

34
<PAGE> 77

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

The futures contracts outstanding as of June 30, 1997, and the descriptions
and unrealized depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
Long Contracts -- U.S. Treasury Bond Futures
September 1997
(Current notional value $111,063 per
contract).................................... 100 $47,682
Short Contracts -- Municipal Bond Index Futures
September 1997
(Current notional value $116,500 per
contract).................................... 100 25,807
--- -------
200 $73,489
=== =======
</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 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 six months ended June 30, 1997 are payments to VKAC of
approximately $776,600.

35
<PAGE> 78
VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND

BOARD OF TRUSTEES

J. MILES BRANAGAN

RICHARD M. DEMARTINI*

LINDA HUTTON HEAGY

R. CRAIG KENNEDY

JACK E. NELSON

DON G. POWELL*

JEROME L. ROBINSON

PHILLIP G. ROONEY

FERNANDO SISTO

WAYNE W. WHALEN* - Chairman

OFFICERS

DENNIS J. MCDONNELL*
President

RONALD A. NYBERG*
Vice President and Secretary

EDWARD C. WOOD, III*
Vice President and Chief Financial Officer

CURTIS W. MORELL*
Vice President and Chief Accounting Officer

JOHN L. SULLIVAN*
Treasurer

TANYA M. LODEN*
Controller

PETER W. HEGEL*

ALAN T. SACHTLEBEN*

PAUL R. WOLKENBERG*
Vice Presidents

INVESTMENT ADVISER

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

DISTRIBUTOR

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

SHAREHOLDER SERVICING AGENT

ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256

CUSTODIAN

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

LEGAL COUNSEL

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

INDEPENDENT ACCOUNTANTS

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

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

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

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1997, the report must be accompanied by
a quarterly performance update, if applicable.

36
<PAGE> 79

RESULT OF SHAREHOLDER VOTES

A Special Meeting of Shareholders of the Fund was held on May 28, 1997 where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
39,852,754 shares voted for the proposal, 547,218 shares voted against and
1,580,368 shares abstained. With regard to the election of J. Miles Branagan as
elected trustee of the Fund, 41,227,455 shares voted in his favor and 752,885
shares withheld. With regard to the election of Richard M. DeMartini as elected
trustee of the Fund, 41,230,321 shares voted in his favor and 750,020 shares
withheld. With regard to the election of Linda Hutton Heagy as elected trustee
of the Fund, 41,192,175 shares voted in her favor and 788,165 shares withheld.
With regard to the election of R. Craig Kennedy as elected trustee of the Fund,
41,221,898 shares voted in his favor and 758,443 shares withheld. With regard to
the election of Jack E. Nelson as elected trustee of the Fund, 41,236,707 shares
voted in his favor and 743,633 shares withheld. With regard to the election of
Don G. Powell as elected trustee of the Fund 41,234,819 shares voted in his
favor and 745,522 shares withheld. With regard to the election of Jerome L.
Robinson as elected trustee of the Fund, 41,224,438 shares voted in his favor
and 755,903 shares withheld. With regard to the election of Phillip B. Rooney as
elected trustee of the Fund, 41,215,608 shares voted in his favor and 764,732
shares withheld. With regard to the election of Fernando Sisto as elected
trustee of the Fund, 41,209,786 shares voted in his favor and 770,554 shares
withheld. With regard to the election of Wayne W. Whalen as elected trustee of
the Fund, 41, 206,431 shares voted in his favor and 773,909 shares withheld.
With regard to the ratification of KPMG Peat Marwick LLP as independent public
accountants for the Fund, 40,439,473 shares voted for the proposal, 182,328
shares voted against and 1,358,539 shares abstained.

37
<PAGE> 80

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Portfolio Management Review...................... 6
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 14
Statement of Operations.......................... 15
Statement of Changes in Net Assets............... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 20
</TABLE>

CAI SAR 8/97
<PAGE> 81

LETTER TO SHAREHOLDERS

July 24, 1997

Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan
Stanley Group Inc., a world leader in
asset management. Earlier this year,
Morgan Stanley Group Inc. and Dean
Witter, Discover & Co. agreed to
merge. The merger was completed on [PHOTO]
May 31, creating the combined company
of Morgan Stanley, Dean Witter, DENNIS J. MCDONNELL AND DON G. POWELL
Discover & Co. Additionally, we are very
pleased to announce that Philip N. Duff,
formerly the chief financial officer of Morgan Stanley Group Inc., has joined
Van Kampen American Capital as president and chief executive officer. I will
continue as chairman of the firm. We are confident that the partnership of Van
Kampen American Capital and Morgan Stanley will continue to work to the benefit
of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.

Continued on page two

1
<PAGE> 82

by making imported goods less expensive. At the same time, continued moderation
in the cost of employee benefit packages offset mild upward pressure on wages.
In March, the inflationary implications of a tight labor market caused the
Federal Reserve Board to raise its target for a key lending rate by one-quarter
of a percentage point, the first hike in short-term interest rates in two years.
Signs that economic growth slowed markedly in the second quarter, however, led
Fed policymakers to leave rates unchanged at subsequent meetings.

Continued on page three

2
<PAGE> 83

Sincerely,

[SIG]
Don G. Powell

Chairman
Van Kampen American Capital
Investment Advisory Corp.

[SIG]
Dennis J. McDonnell

President
Van Kampen American Capital
Investment Advisory Corp.

3
<PAGE> 84

PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997

VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV(1)... 2.89% 2.56% 2.56%
Six-month total return(2)................ (0.44%) (0.44%) 1.56%
One-year total return(2)................. 5.20% 4.90% 6.90%
Five-year average annual total
return(2).............................. 6.21% N/A N/A
Ten-year average annual total return(2).. 7.47% N/A N/A
Life-of-Fund average annual total
return(2).............................. 7.79% 4.66% 3.97%
Commencement date........................ 12/13/85 05/01/93 08/13/93

DISTRIBUTION RATES AND YIELD

Distribution rate(3)..................... 4.66% 4.07% 4.07%
Taxable equivalent distribution rate(4).. 8.18% 7.14% 7.14%
SEC Yield(5)............................. 4.21% 3.59% 3.58%
N/A = Not Applicable

</TABLE>

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

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

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

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

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

4
<PAGE> 85
S
PORTFOLIO HIGHLIGHTS

VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND

TOP TEN HOLDINGS AS OF JUNE 30, 1997

<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
South Orange County, CA Public Finance Authority
Special Tax Revenue Senior Lien ........................... 4.8%
Bakersfield, CA Certificates of Participation
Convention Center Expansion Project ....................... 4.1%
San Jose, CA Finance Authority Revenue Convention
Project ................................................... 3.8%
Corona, CA Redevelopment Agency Tax Allocation
Redevelopment Project Area A .............................. 3.4%
California St Various Purpose ............................... 2.9%
Anaheim, CA Public Finance Authority Tax
Allocation Revenue ............................ ........... 2.6%
Chino, CA Unified School District Certificates of
Participation Master Lease Program ........................ 2.5%
California Housing Finance Agency Revenue Home Mortgage ..... 2.5%
Grossmont, CA Union High School District
Certificates of Participation ............................. 2.5%
Los Angeles, CA Unified School District
Certificates of Participation Multiple-Property Projects .. 2.4%
</TABLE>

CREDIT QUALITY

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

TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <S> <C>
Tax District ......... 23.0% Tax District .......... 21.5%
Public Education ..... 19.6% General Purpose ....... 20.1%
General Purpose ...... 15.4% Public Education ...... 19.5%
Public Building ...... 13.8% Public Building ....... 10.3%
Water & Sewer ........ 7.7% Health Care ........... 8.4%
</TABLE>

DURATION

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C>
Duration 7.84 years 7.68 years
</TABLE>

5
<PAGE> 86

PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND

We recently spoke with the management team of the Van Kampen American Capital
California Insured Tax Free Fund about the key events and economic forces that
shaped the markets during the first half of the Fund's fiscal year. The team
includes Joseph A. Piraro, portfolio manager, and Peter W. Hegel, chief
investment officer for fixed-income investments. The following excerpts reflect
their views concerning the Fund's performance during the six-month period ended
June 30, 1997.

Q WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE PAST SIX-MONTH
PERIOD?

A One of the biggest factors affecting the California municipal bond market
was the passage of Proposition 218 in November 1996. Proposition 218 has
put municipalities on the defensive, making it more difficult to gain
approval for newly issued bonds, and resulting in a 26 percent decline in
California issuance thus far in 1997. Greater demand chasing a diminished supply
has resulted in strong price appreciation in the California market.
Another major factor is the percentage of issues coming to market triple-A
insured. In California, the percentage of triple-A insured issuance has
increased from 45 percent in 1996 to 55 percent of total volume in 1997. In
large part, this is due to an increasing appetite for safety from investors
concerned about municipalities with financial difficulties. Combined with
drastic cuts in insurance costs over the past four years, yields on insured
offerings are much more attractive when compared to those of riskier lower-rated
securities. The increase in insured issuance and the scarcity of uninsured
investment grade bonds has compressed the yield spreads between triple-A rated
insured securities and lower-rated bonds. In response to this narrowing,
acquisitions have emphasized quality, as we feel the investor is not adequately
rewarded for the additional risk of uninsured bonds.
Interest rates and the state of the economy also played major roles in the
Fund's performance. The United States economy has been expanding for several
periods. This economic prosperity is unequaled in history--with unemployment at
a 27-year low and few signs of inflation. California's fiscal situation is in
excellent shape; the state dominates the nation in employment gains, and service
related industries are thriving, making investments in the state more
attractive.
The downward trend in interest rates in recent years has given us a boost in
terms of price appreciation, but also makes it somewhat more difficult to build
the income component of the Fund.

Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE FACTORS?

A Because of the increased supply of insured bond, we concentrated on adding
only those bonds with the highest yields and strong call protection.
Investing in bonds with a variety of call dates and maturities should help
the Fund's performance on both a short- and long-term horizon.

6
<PAGE> 87

During the first quarter, when all signs pointed to an increase in interest
rates, we adjusted duration to 8.20 years in March, lower than the Lehman
Brothers Municipal Bond Index of 9.11 years. Because of the longer-term nature
of the Fund, the calculation of this index's duration has been adjusted to
eliminate bonds with maturities of five years or less. Additionally, the index
is considered the most broadly acceptable index that provides the most
up-to-date information about price, duration, and security holdings. By
comparing our investments with this Index, we are better able to calculate our
market risk and interest rate sensitivity. For our fund shareholders, this
ensures that our returns and style remain consistent. Duration, which is
expressed in years, is a measurement of the portfolio's sensitivity to interest
rate fluctuations. The shorter the duration of a portfolio, the less sensitive
it is to interest rate changes. When the Fed raised short-term interest rates in
March, the market responded negatively, but rebounded in May when rates were not
increased. Our adjustment of the duration during the first quarter was a
positive tactic for the Fund's total return. However, we did not adjust duration
to the more neutral, or benchmark level when yields fell after the March hike.
The Fund is currently structured neutrally as we believed the Fed would not
raise rates in July. For additional Fund portfolio highlights, please refer to
page five.

Q FOCUSING ON THE PAST SIX MONTHS, HOW WOULD YOU EVALUATE THE FUND'S
PERFORMANCE?

A The Fund has performed well. The Fund generated a total return of 2.89
percent(1) (Class A shares at net asset value) for the six months ended
June 30. By comparison, the Lehman Brothers Municipal Bond Index returned
3.20 percent over the same period. The Fund's net asset value closed the
reporting period at $17.69 per Class A share, up slightly from $17.61 per share
six months ago. The tax-exempt distribution rate at the end of June, was 4.66
percent(3), representing a taxable-equivalent distribution rate of 8.18
percent(4) for an investor in the 43 percent combined federal and state income
tax bracket. Please refer to the chart on page four for additional Fund
performance results.

Q WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS?

A California's economy remains the seventh largest in the world. Now that
the economy has turned around, the outlook for the state is very positive
with continued emphasis on employment growth and service sector
prosperity.
Aside from a continuing thriving economy, we anticipate that demand for
insured municipal bonds may be an issue in the coming months when the "June/July
effect" comes into play. During the months of June and July, a great deal of
bonds are redeemed or called before maturity, resulting in increased demand for
bonds.
Demand for new bonds will also be heavily influenced by some of the more
seasoned California insured mutual funds whose considerable positions in
high-yielding bonds issued in the late 1980s will be called or redeemed by their
issuers. These seasoned bond funds will create an environment of consistent and
heavy demand for insured bonds as they seek to replace redeemed bonds. We hope
to take advantage of this situation by holding bonds with good call protection.

7
<PAGE> 88
The last issue of concern will be the effects of Proposition 218. The next
six to twelve months will help illustrate how things will eventually play out.
Regardless of what happens, we feel confident that we have positioned the
Fund for solid, consistent performance. We will continue to manage the Fund in a
manner consistent with the philosophy we have applied since the Fund's
inception, as we seek to achieve our objective of providing shareholders with a
high level of current income, exempt from federal and California state income
taxes.

[SIG]
Peter W. Hegel

Chief Investment Officer
Fixed Income Investments

[SIG]

Joseph A. Piraro
Portfolio Manager

Please see footnotes on page four

8
<PAGE> 89
PORTFOLIO OF INVESTMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS 98.2%
$ 4,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev (MBIA
Insd)........................................... 6.450% 12/28/18 $ 4,340,080
1,000 Antioch Area Pub Fac Fin Agy CA Spl Tax Cmnty
Fac Dist (FGIC Insd)............................ 5.000 08/01/18 927,990
3,675 Bakersfield, CA Ctfs Partn Convention Cent
Expansion Proj (MBIA Insd)...................... 5.800 04/01/17 3,746,809
3,000 Bakersfield, CA Ctfs Partn Convention Cent
Expansion Proj (MBIA Insd)...................... 5.875 04/01/22 3,064,440
1,000 Banning, CA Ctfs Partn Administration Bldg Proj
Ser A Rfdg (MBIA Insd).......................... 5.500 11/01/20 982,510
3,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy
Pool Ser A2 (FSA Insd).......................... 6.400 12/15/14 3,291,360
750 Berkeley, CA Ctfs Partn Cap Imp Berkeley Civic
Impt (AMBAC Insd)............................... 7.500 06/01/19 785,760
1,000 Brea & Olinda, CA Unified Sch Dist Ctfs Partn Sr
High Sch Pgm Ser A Rfdg (FSA Insd).............. 6.000 08/01/09 1,058,090
2,320 California Cmnty College Fin Auth Lease Rev
(MBIA Insd)..................................... 5.500 05/01/17 2,320,812
1,300 California Edl Fac Auth Rev Univ San Diego Proj
Stanford Univ Ser I (MBIA Insd)................. 6.750 10/01/15 1,404,416
2,000 California Hlth Fac Fin Auth Rev Adventist Hlth
Ser A Rfdg (MBIA Insd).......................... 6.500 03/01/14 2,130,900
2,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A (FSA Insd)..................... 5.550 08/15/25 1,943,060
4,000 California Hsg Fin Agy Rev Home Mtg Ser A (MBIA
Insd)........................................... 5.850 08/01/16 4,084,160
15 California Hsg Fin Agy Rev Hsg Ser B (MBIA
Insd)........................................... 8.625 08/01/15 15,732
1,160 California Pub Cap Impt Fin Auth Rev Pooled Proj
Ser B (BIGI Insd)............................... 8.100 03/01/18 1,212,374
1,050 California Spl Dist Assn Fin Corp Ctfs Partn
(FSA Insd)...................................... 5.625 01/01/27 1,045,506
1,250 California St (FGIC Insd)....................... 6.250 09/01/12 1,391,325
1,000 California St Pub Wks Brd Lease Rev Ser A (AMBAC
Insd)........................................... 5.750 09/01/21 1,004,130
1,000 California St Univ Fresno Assn Inc Rev Auxiliary
Residence Student Proj (MBIA Insd).............. 6.250 02/01/17 1,067,280
4,500 California St Var Purp (MBIA Insd).............. 6.000 10/01/14 4,680,360
2,460 California Statewide Cmntys Ctfs Devereux Fndtn
(MBIA Insd)..................................... 5.250 11/01/19 2,355,352
1,570 California Statewide Cmntys Dev Auth Rev Ctfs
Partn Insd Children's Hosps Rfdg (MBIA Insd).... 6.000 06/01/10 1,710,986
2,000 Castaic Lake Wtr Agy CA Ctfs Partn Wtr Sys Impt
Proj Ser A Rfdg (MBIA Insd)..................... 7.000 08/01/12 2,376,540
1,205 Channel Islands Beach CA Cmnty Svcs Dist Ctfs
Partn (FSA Insd)................................ 5.700 09/01/21 1,211,724
</TABLE>

See Notes to Financial Statements

9
<PAGE> 90

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 1,105 Chino, CA Ctfs Partn Redev Agy (MBIA Insd)...... 6.200% 09/01/18 $ 1,176,571
2,350 Chino, CA Unified Sch Dist Ctfs Partn Master
Lease Pgm (FSA Insd)............................ 6.250 03/01/09 2,543,593
1,500 Chino, CA Unified Sch Dist Ctfs Partn Master
Lease Pgm (FSA Insd)............................ 6.000 03/01/14 1,566,270
445 Colton, CA Jt Unified Sch Dist Cmnty Fac Dist
Spl Tax Southridge Village Rfdg (FSA Insd)...... 5.900 09/01/14 445,147
1,500 Compton, CA Cmnty Redev Agy Tax Alloc Walnut
Indl Park Ser A Rfdg (Prerefunded @ 08/01/99)
(AMBAC Insd).................................... 7.500 08/01/13 1,631,685
20 Concord, CA Redev Agy Tax Alloc Cent Concord
Redev Proj Ser 3 (BIGI Insd).................... 8.000 07/01/18 21,132
1,000 Contra Costa Cnty, CA Ctfs Partn Contra Costa
Cnty Pub Fac Co (BIGI Insd)..................... 7.800 06/01/06 1,077,670
500 Contra Costa Cnty, CA Ctfs Partn Contra Costa
Cnty Pub Fac Co (BIGI Insd)..................... 7.800 06/01/07 538,835
1,550 Contra Costa, CA Wtr Auth Wtr Treatment Rev Ser
A Rfdg (FGIC Insd).............................. 5.750 10/01/14 1,580,659
5,165 Corona, CA Redev Agy Tax Alloc Redev Proj Area A
Ser A Rfdg (FGIC Insd).......................... 6.250 09/01/13 5,578,148
1,150 El Centro, CA Redev Agy Tax El Centro Redev Proj
Rfdg (MBIA Insd)................................ 5.500 11/01/26 1,129,369
2,000 Fairfield Suisun, CA Swr Dist Swr Rev Ser A Rfdg
(MBIA Insd)..................................... 6.250 05/01/16 2,133,340
1,000 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd)... 6.000 10/01/12 1,048,650
1,400 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd)... 6.000 10/01/19 1,439,158
1,745 Gilroy, CA Unified Sch Dist Ctfs Partn Measure J
Cap Projs Rfdg (FSA Insd)....................... 5.875 09/01/06 1,896,239
1,810 Gilroy, CA Unified Sch Dist Ctfs Partn Measure J
Cap Projs Rfdg (FSA Insd)....................... 6.250 09/01/12 1,940,917
20,000 Grossmont, CA Union High Sch Dist Ctfs Partn
(MBIA Insd)..................................... * 11/15/21 4,047,600
3,500 Hayward, CA Ctfs Partn Civic Cent Proj (MBIA
Insd)........................................... 5.250 08/01/26 3,332,175
1,250 Hemet, CA Unified Sch Dist Ctfs Partn Nutrition
Cent Proj (FSA Insd)............................ 5.875 04/01/27 1,278,637
1,225 Lincoln, CA Unified Sch Dist (MBIA Insd)........ 5.600 09/01/26 1,215,323
1,835 Local Govt Fin Auth CA Rev Cap Apprec San
Francisco Redev (MBIA Insd)..................... * 08/01/08 1,010,791
850 Loma Linda, CA Hosp Rev Loma Linda Univ Med Cent
Proj B Rfdg (AMBAC Insd)........................ 7.000 12/01/15 910,886
1,000 Long Beach, CA Redev Agy Downtown Redev Proj Ser
A (Prerefunded @ 11/01/98) (AMBAC Insd)......... 7.750 11/01/10 1,069,440
</TABLE>
See Notes to Financial Statements

10
<PAGE> 91
PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 100 Los Angeles Cnty, CA Hlth Fac Auth Rev Olive
View Med Ser A (Prerefunded @ 04/01/99) (AMBAC
Insd)........................................... 9.100% 04/01/01 $ 110,284
85 Los Angeles Cnty, CA Hlth Fac Auth Rev Olive
View Med Ser A (Prerefunded @ 04/01/99) (AMBAC
Insd)........................................... 9.200 04/01/02 93,881
730 Los Angeles Cnty, CA Tran Comm Lease Rev Dia RR
Lease Ltd (FSA Insd)............................ 7.375 12/15/06 808,154
2,380 Los Angeles, CA Mtg Rev FHA Security 8 Asstd
Proj Ser A Rfdg (MBIA Insd)..................... 6.100 07/01/25 2,416,081
4,000 Los Angeles, CA Unified Sch Dist Ctfs Partn
Multi-Ppty Proj Rfdg (FSA Insd)................. 5.625 11/01/13 4,000,240
500 M-S-R Pub Pwr Agy CA San Juan Proj Rev Ser E
(MBIA Insd)..................................... 6.000 07/01/22 508,425
1,300 Martinez, CA Ctfs Partn Martinez Pub Impt Corp
(Prerefunded @ 12/01/98) (AMBAC Insd)........... 7.700 12/01/18 1,405,300
1,250 North City West, CA Sch Fac Fin Auth Spl Tax Ser
B Rfdg (FSA Insd)............................... 5.750 09/01/15 1,280,437
1,640 North City West, CA Sch Fac Fin Auth Spl Tax Ser
B Rfdg (FSA Insd)............................... 6.000 09/01/19 1,704,140
500 Northern CA Pwr Agy Pub Pwr Rev Combustion
Turbine Proj 1 Ser A Rfdg (MBIA Insd)........... 6.000 08/15/10 509,070
400 Northern CA Pwr Agy Pub Pwr Rev Hydro Elec Proj
1 Ser A Rfdg (Prerefunded @ 07/01/21) (AMBAC
Insd)........................................... 7.500 07/01/23 499,972
2,760 Oakland, CA Unified Sch Dist Alameda Cnty Cap
Apprec Ser A (FGIC Insd)........................ * 08/01/13 1,107,008
3,475 Oakland, CA Unified Sch Dist Alameda Cnty Cap
Apprec Ser A (FGIC Insd)........................ * 08/01/14 1,300,275
1,220 Oceanside, CA Cmnty Dev Mtg FHA North River Club
Ser A Rfdg (MBIA Insd).......................... 5.850 07/01/16 1,236,275
750 Oceanside, CA Ctfs Partn Corp Yard Proj Fin
(Prerefunded @ 08/01/02) (AMBAC Insd)........... 7.300 08/01/21 864,413
1,500 Orange, CA Redev Agy Tax Alloc Rev (MBIA
Insd)........................................... 5.500 09/01/16 1,503,180
1,000 Pajaro Valley, CA Unified Sch Dist Ctfs Partn
Sch Fac Brdg Fdg Prog (FSA Insd)................ 5.850 09/01/32 1,021,310
3,000 Palm Desert, CA Fin Auth Tax Alloc Rev (Inverse
Fltg) (MBIA Insd)............................... 8.995 04/01/22 3,412,500
1,000 Perris, CA Sch Dist Ctfs Partn Rfdg (FSA
Insd)........................................... 6.100 03/01/16 1,044,700
1,945 Pittsburg, CA Unified Sch Dist Ctfs Partn (AMBAC
Insd)........................................... 6.300 09/01/15 2,069,130
1,360 Port Hueneme, CA Ctfs Partn Cap Impt Pgm Rfdg
(MBIA Insd)..................................... 6.000 04/01/19 1,450,005
1,000 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (MBIA Insd).......................... 7.125 09/01/19 1,076,400
</TABLE>
See Notes to Financial Statements

11
<PAGE> 92
PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 1,235 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (MBIA Insd).......................... 6.750% 09/01/20 $ 1,319,857
1,265 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (Prerefunded @ 09/01/99) (MBIA
Insd)........................................... 6.750 09/01/20 1,359,673
1,680 Rancho, CA Wtr Dist Spl Tax Cmnty Fac Dist 883
Ser A Rfdg (AMBAC Insd)......................... 6.000 09/01/17 1,747,939
1,000 Redding, CA Elec Sys Rev Ctfs Partn (Inverse
Fltg) (MBIA Insd)............................... 8.467 07/08/22 1,225,000
2,000 Rialto, CA Spl Tax Cmnty Fac Dist 87-1 Rfdg (FSA
Insd)........................................... 5.625 09/01/18 1,999,820
3,000 Riverside Cnty, CA Ctfs Partn Historic
Courthouse Proj (MBIA Insd)..................... 5.875 11/01/27 3,071,160
2,000 Sacramento, CA Muni Util Dist Elec Rev Ser A
Rfdg (MBIA Insd)................................ 5.750 08/15/13 2,038,440
2,500 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd)..................... 6.570 07/01/16 2,525,250
1,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (MBIA Insd)............................... 6.400 09/01/18 1,082,060
1,110 San Francisco, CA St Bldg Auth Lease Rev (AMBAC
Insd)........................................... 5.250 12/01/16 1,082,905
1,000 San Gabriel, CA Unified Sch Dist Ctfs Partn (FSA
Insd)........................................... 6.000 09/01/15 1,044,400
5,750 San Jose, CA Fin Auth Rev Convention Proj Ser C
(FSA Insd)...................................... 6.375 09/01/13 6,181,307
2,000 San Mateo Cnty, CA Jt Pwrs Fin Auth Lease Rev
San Mateo Cnty Hlthcare Cent Ser A (FSA Insd)... 6.000 07/15/09 2,135,000
1,000 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (AMBAC Insd)............. 6.875 11/15/14 1,122,020
1,000 Shasta Lake, CA Ctfs Partn (FSA Insd)........... 6.000 04/01/16 1,039,170
1,990 South Cnty, CA Regl Wastewtr Auth Rev Regl
Wastewtr Fac Proj Ser A (FGIC Insd)............. 6.000 08/01/14 2,064,744
3,735 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev
Sr Lien Ser A Rfdg (MBIA Insd).................. 7.000 09/01/08 4,408,495
3,000 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev
Sr Lien Ser A Rfdg (MBIA Insd).................. 7.000 09/01/09 3,549,330
1,050 Stockton, CA Rev Ctfs Partn Wastewtr Treatment
Plant Expansion Ser A (FGIC Insd)............... 6.400 09/01/07 1,163,390
1,015 Stockton, CA Rev Ctfs Partn Wastewtr Treatment
Plant Expansion Ser A (FGIC Insd)............... 6.500 09/01/08 1,124,163
1,710 Temecula Vly, CA Unified Sch Dist Ctfs Partn
Rfdg (FSA Insd)................................. 6.000 09/01/18 1,710,462
</TABLE>

See Notes to Financial Statements

12
<PAGE> 93

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 2,000 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg
(MBIA Insd)..................................... 6.750% 01/01/12 $ 2,044,740
3,000 University of CA Rev Multi Purp Proj Ser D (MBIA
Insd)........................................... 6.300 09/01/14 3,232,650
------------
TOTAL LONG-TERM INVESTMENTS 98.2%
(Cost $153,699,886)........................................................ 164,457,086
SHORT-TERM INVESTMENTS 0.6%
(Cost $1,000,000).......................................................... 1,000,000
------------
TOTAL INVESTMENTS 98.8%
(Cost $154,699,886)........................................................ 165,457,086
OTHER ASSETS IN EXCESS OF LIABILITIES 1.2%.................................. 2,007,805
------------
NET ASSETS 100.0%........................................................... $167,464,891
============
</TABLE>

*Zero coupon bond

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

See Notes to Financial Statements

13
<PAGE> 94
STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $154,699,886)....................... $165,457,086
Cash........................................................ 12,722
Receivables:
Interest.................................................. 2,662,202
Fund Shares Sold.......................................... 601,814
Other....................................................... 4,670
------------
Total Assets.......................................... 168,738,494
------------
LIABILITIES:
Payables:
Income Distributions...................................... 653,017
Fund Shares Repurchased................................... 187,134
Distributor and Affiliates................................ 132,951
Investment Advisory Fee................................... 66,080
Accrued Expenses............................................ 117,443
Deferred Compensation and Retirement Plans.................. 116,978
------------
Total Liabilities..................................... 1,273,603
------------
NET ASSETS.................................................. $167,464,891
============
NET ASSETS CONSIST OF:
Capital..................................................... $160,915,290
Net Unrealized Appreciation................................. 10,757,200
Accumulated Undistributed Net Investment Income............. 387,626
Accumulated Net Realized Loss............................... (4,595,225)
------------
NET ASSETS.................................................. $167,464,891
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $134,949,328 and 7,626,882 shares of
beneficial interest issued and outstanding)............. $ 17.69
Maximum sales charge (3.25%* of offering price)......... .59
------------
Maximum offering price to public........................ $ 18.28
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $29,974,205 and 1,694,333 shares of
beneficial interest issued and outstanding)............. $ 17.69
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $2,541,358 and 143,651 shares of
beneficial interest issued and outstanding)............. $ 17.69
============
*On sales of $25,000 or more, the sales charge will be
reduced.
</TABLE>

See Notes to Financial Statements

14
<PAGE> 95

STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 5,098,208
-----------
EXPENSES:
Investment Advisory Fee..................................... 402,191
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $165,405, $142,301
and $11,561, respectively)................................ 319,267
Shareholder Services........................................ 106,097
Trustees Fees and Expenses.................................. 23,679
Custody..................................................... 17,784
Legal....................................................... 13,032
Insurance................................................... 2,130
Other....................................................... 85,889
-----------
Total Expenses.......................................... 970,069
-----------
NET INVESTMENT INCOME....................................... $ 4,128,139
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 553,033
Futures................................................... (78,038)
-----------
Net Realized Gain........................................... 474,995
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 10,633,466
End of the Period:
Investments............................................. 10,757,200
-----------
Net Unrealized Appreciation During the Period............... 123,734
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 598,729
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 4,726,868
===========
</TABLE>

See Notes to Financial Statements

<PAGE> 96
STATEMENT OF CHANGES IN NET ASSETS

For the Six Months Ended June 30, 1997 and the
Year Ended December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 4,128,139 $ 8,319,890
Net Realized Gain................................. 474,995 2,275,283
Net Unrealized Appreciation/Depreciation
During the Period............................... 123,734 (3,715,835)
------------ ------------
Change in Net Assets from Operations.............. 4,726,868 6,879,338
------------ ------------
Distributions from Net Investment Income:
Class A Shares.................................. (3,322,410) (7,012,876)
Class B Shares.................................. (580,149) (1,094,958)
Class C Shares.................................. (47,294) (79,245)
------------ ------------
Total Distributions............................... (3,949,853) (8,187,079)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... 777,015 (1,307,741)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......................... 10,406,897 25,623,230
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 2,414,981 4,933,967
Cost of Shares Repurchased........................ (19,421,618) (29,969,162)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... (6,599,740) 588,035
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS............. (5,822,725) (719,706)
NET ASSETS:
Beginning of the Period........................... 173,287,616 174,007,322
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $387,626
and $209,340, respectively)..................... $167,464,891 $173,287,616
============ ============
</TABLE>

See Notes to Financial Statements

16
<PAGE> 97
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31
June 30, -------------------------------------
Class A Shares 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................ $17.605 $17.736 $15.802 $18.286 $16.858
------- ------- ------- ------- -------
Net Investment Income................... .440 .857 .884 .912 .967
Net Realized and Unrealized Gain/Loss... .069 (.145) 1.938 (2.484) 1.441
------- ------- ------- ------- -------
Total from Investment Operations........ .509 .712 2.822 (1.572) 2.408
Less Distributions from and in Excess of
Net Investment Income................. .420 .843 .888 .912 .980
------- ------- ------- ------- -------
Net Asset Value, End of the Period...... $17.694 $17.605 $17.736 $15.802 $18.286
======= ======= ======= ======= =======
Total Return* (a)....................... 2.89%** 4.20% 18.28% (8.75%) 14.54%
Net Assets at End of the Period (In
millions)............................. $134.9 $142.5 $147.6 $130.3 $151.1
Ratio of Expenses to Average Net
Assets*............................... 1.02% 1.02% .89% .78% .69%
Ratio of Net Investment Income to
Average Net Assets*................... 5.06% 4.94% 5.23% 5.46% 5.37%
Portfolio Turnover...................... 19%** 35% 42% 56% 36%

* If certain expenses had not been reimbursed
by VKAC, total return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets................................ N/A 1.03% 1.05% 1.08% 1.01%
Ratio of Net Investment Income to
Average Net Assets.................... N/A 4.94% 5.07% 5.16% 5.05%
</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.

N/A = Not Applicable

See Notes to Financial Statements

17
<PAGE> 98
FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
Six Months From May 1, 1993
Ended Year Ended December 31, (Commencement of
June 30, --------------------------- Distribution) to
Class B Shares 1997 1996 1995 1994 December 31, 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $17.603 $17.736 $15.805 $18.266 $17.570
------- ------- ------- ------- -------
Net Investment Income......... .370 .720 .766 .785 .549
Net Realized and Unrealized
Gain/Loss................... .072 (.142) 1.926 (2.482) .705
------- ------- ------- ------- -------
Total from Investment
Operations.................. .442 .578 2.692 (1.697) 1.254
Less Distributions from and in
Excess of Net Investment
Income...................... .354 .711 .761 .764 .558
------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $17.691 $17.603 $17.736 $15.805 $18.266
======= ======= ======= ======= =======

Total Return* (a)............. 2.56%** 3.35% 17.33% (9.39%) 7.25%**
Net Assets at End of the
Period (In millions)........ $30.0 $28.6 $24.6 $17.1 $15.3
Ratio of Expenses to Average
Net Assets*................. 1.78% 1.79% 1.61% 1.52% 1.45%
Ratio of Net Investment Income
to Average Net Assets*...... 4.28% 4.17% 4.51% 4.71% 4.06%
Portfolio Turnover............ 19%** 35% 42% 56% 36%
* If certain expenses had not been
reimbursed by VKAC, total return
would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average
Net Assets.................. N/A 1.79% 1.77% 1.82% 1.77%
Ratio of Net Investment Income
to Average Net Assets....... N/A 4.16% 4.35% 4.41% 3.74%
</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.

N/A = Not Applicable

See Notes to Financial Statements

18
<PAGE> 99

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
From
Six Months August 13, 1993
Ended Year Ended December 31, (Commencement of
June 30, ----------------------- Distribution) to
Class C Shares 1997 1996 1995 1994 December 31, 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $17.602 $17.736 $15.798 $18.257 $18.010
------- ------- ------- ------- -------
Net Investment Income......... .368 .722 .758 .773 .307
Net Realized and Unrealized
Gain/Loss................... .075 (.145) 1.941 (2.468) .258
------- ------- ------- ------- -------
Total from Investment
Operations.................. .443 .577 2.699 (1.695) .565
Less Distributions from and in
Excess of Net Investment
Income...................... .354 .711 .761 .764 .318
------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $17.691 $17.602 $17.736 $15.798 $18.257
======= ======= ======= ======= =======
Total Return* (a)............. 2.56%** 3.35% 17.40% (9.40%) 3.17%**
Net Assets at End of the
Period
(In millions)............... $2.5 $2.2 $1.8 $2.8 $4.0
Ratio of Expenses to Average
Net Assets*................. 1.78% 1.79% 1.60% 1.51% 1.45%
Ratio of Net Investment Income
to Average Net Assets*...... 4.28% 4.16% 4.50% 4.71% 3.82%
Portfolio Turnover............ 19%** 35% 42% 56% 36%
* If certain expenses had not
been reimbursed by VKAC, total
return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets.................. N/A 1.80% 1.75% 1.82% 1.76%
Ratio of Net Investment Income
to Average Net Assets....... N/A 4.16% 4.34% 4.39% 3.52%
</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.

N/A = Not Applicable

See Notes to Financial Statements

20
<PAGE> 100

NOTES TO FINANCIAL STATEMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

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

20
<PAGE> 101

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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.

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 $5,070,220, which will expire between December
31, 2002 and December 31, 2003.

At June 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $154,699,886; the aggregate gross unrealized
appreciation is $10,768,323 and the aggregate gross unrealized depreciation is
$11,123, resulting in net unrealized appreciation of $10,757,200.

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

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

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

21
<PAGE> 102

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $7,500 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $40,800, 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.

ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1997, the Fund recognized expenses of approximately $63,500,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.

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

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.

22
<PAGE> 103

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $127,913,307, $30,079,180 and
$2,922,803 for Classes A, B and C, respectively. For the six months ended June
30, 1997, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 344,077 $ 6,013,409
Class B.......................................... 224,007 3,904,936
Class C.......................................... 27,758 488,552
---------- ------------
Total Sales........................................ 595,842 $ 10,406,897
========== ============
Dividend Reinvestment:
Class A.......................................... 115,172 $ 2,013,125
Class B.......................................... 21,306 372,480
Class C.......................................... 1,680 29,376
---------- ------------
Total Dividend Reinvestment........................ 138,158 $ 2,414,981
========== ============
Repurchases:
Class A.......................................... (924,155) $(16,138,738)
Class B.......................................... (176,321) (3,077,037)
Class C.......................................... (11,812) (205,843)
---------- ------------
Total Repurchases.................................. (1,112,288) $(19,421,618)
========== ============
</TABLE>

23
<PAGE> 104

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At December 31, 1996, capital aggregated $136,025,511, $28,878,801 and
$2,610,718 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.......................................... 986,895 $ 17,165,507
Class B.......................................... 439,621 7,596,970
Class C.......................................... 49,675 860,753
---------- ------------
Total Sales........................................ 1,476,191 $ 25,623,230
========== ============
Dividend Reinvestment:
Class A.......................................... 242,651 $ 4,210,865
Class B.......................................... 38,588 669,630
Class C.......................................... 3,082 53,472
---------- ------------
Total Dividend Reinvestment........................ 284,321 $ 4,933,967
========== ============
Repurchases:
Class A.......................................... (1,457,342) $(25,258,344)
Class B.......................................... (240,656) (4,180,690)
Class C.......................................... (30,329) (530,128)
---------- ------------
Total Repurchases.................................. (1,728,327) $(29,969,162)
========== ============
</TABLE>

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

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

25
<PAGE> 105

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

For the six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$14,200 and CDSC on redeemed shares of approximately $32,700. Sales charges do
not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $31,399,033 and $36,457,906,
respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

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

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

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

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

25
<PAGE> 106

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

Transactions in futures contracts for the six months ended June 30, 1997,
were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996........................... -0-
Futures Opened............................................. 1,350
Futures Closed............................................. (1,350)
------
Outstanding at June 30, 1997............................... -0-
======
</TABLE>

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

6. DISTRIBUTION AND SERVICE PLANS

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.

26
<PAGE> 107

FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL

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

27
<PAGE> 108

VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND

BOARD OF TRUSTEES

J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman

OFFICERS

DENNIS J. MCDONNELL*
President

RONALD A. NYBERG*
Vice President and Secretary

EDWARD C. WOOD, III*
Vice President and Chief Financial Officer

CURTIS W. MORELL*
Vice President and Chief Accounting Officer

JOHN L. SULLIVAN*
Treasurer

TANYA M. LODEN*
Controller

PETER W. HEGEL*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents

INVESTMENT ADVISER

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

DISTRIBUTOR

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

SHAREHOLDER SERVICING AGENT

ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256

CUSTODIAN

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

LEGAL COUNSEL

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

INDEPENDENT ACCOUNTANTS

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

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

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

28
<PAGE> 109

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Portfolio Management Review...................... 6
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 26
Statement of Operations.......................... 27
Statement of Changes in Net Assets............... 28
Financial Highlights............................. 29
Notes to Financial Statements.................... 32
</TABLE>

MIF SAR 8/97
<PAGE> 110

LETTER TO SHAREHOLDERS

July 24, 1997

Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan
Stanley Group Inc., a world leader in
asset management. Earlier this year,
Morgan Stanley Group Inc. and Dean
Witter, Discover & Co. agreed to
merge. The merger was completed on [PHOTO]
May 31, creating the combined company
of Morgan Stanley, Dean Witter, DENNIS J. MCDONNELL AND DON G. POWELL
Discover & Co. Additionally, we are very
pleased to announce that Philip N. Duff,
formerly the chief financial officer of Morgan Stanley Group Inc., has joined
Van Kampen American Capital as president and chief executive officer. I will
continue as chairman of the firm. We are confident that the partnership of Van
Kampen American Capital and Morgan Stanley will continue to work to the benefit
of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.

ECONOMIC OVERVIEW

Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Meanwhile, consumer confidence
soared to its highest reading in 27 years, while unemployment fell as low as 4.8
percent, the lowest level since 1973.
Despite the robust pace of economic activity, there was little evidence of
troublesome inflation. Wholesale prices actually fell during each of the first
five months of 1997, the longest stretch of consecutive monthly declines in 45
years. At the consumer level, prices rose by a mere 2.2 percent during the 12
months through May. A strong rally in the U.S. dollar helped dampen inflationary
pressures resulting from the vigorous domestic economy

Continued on page two

<PAGE> 111

MARKET OVERVIEW

The strong economy and tight labor market combined to put mild upward
pressure on bond yields during the first half of 1997. For several weeks during
the spring, it appeared that economic growth was too robust and that inflation
could reemerge. The Federal Reserve's quarter-point increase in short-term
interest rates, as well as worries about inflation, pushed yields on long-term
government bonds up to 7.17 percent in April. When subsequent data showed the
economy to be decelerating during the second quarter, bond yields gradually fell
back to 6.78 percent at the end of June, slightly above where they stood at the
beginning of the year.
Within the tax-exempt municipal market, long-term general obligation bonds
returned nearly four percent during the past six months. The supply of municipal
bonds remained tight, as a number of older bonds were called and new issuance
was less than anticipated. As of June 30, long-term AA-rated general obligation
bonds yielded 5.49 percent, which is equivalent to a 8.58 percent yield on
taxable securities for investors in the 36 percent federal income tax bracket.

OUTLOOK

We expect the pace of economic activity during the remainder of 1997 to
accelerate modestly from the sluggish rate that prevailed during the second
quarter. While we do not believe that economic growth will be rapid enough to
reignite inflation, some warning signs are present, including a tight labor
market and high consumer confidence. In this environment, at least one
additional Federal Reserve interest rate hike remains a possibility. We
anticipate that long-term interest rates will remain within a relatively narrow
range for the remainder of the year.
We are fortunate to be experiencing a rare combination of sustained economic
growth, low inflation, and highly favorable performance in the financial market.
Along with our shareholders, we celebrate the seemingly best of economic times.
Once again, we encourage you to review your portfolio with an eye toward
correcting allocation imbalances.

Continued on page three

2
<PAGE> 112

Sincerely,

[SIG]
Don G. Powell

Chairman
Van Kampen American Capital
Investment Advisory Corp.

[SIG]
Dennis J. McDonnell

President
Van Kampen American Capital
Investment Advisory Corp.

<PAGE> 113

PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997

VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... 3.33% 2.94% 2.94%
Six-month total return(2)................ (1.57%) (1.06%) 1.94%
One-year total return(2)................. 3.19% 3.55% 6.48%
Five-year average annual total
return(2).............................. 5.24% N/A N/A
Life-of-Fund average annual total
return(2).............................. 6.98% 5.10% 4.07%
Commencement date........................ 08/01/90 08/24/92 08/13/93

DISTRIBUTION RATES AND YIELD

Distribution rate(3)..................... 5.25% 4.77% 4.78%
Taxable-equivalent distribution
rate(4)................................ 8.20% 7.45% 7.47%
SEC Yield(5)............................. 4.74% 4.22% 4.24%
</TABLE>

N/A = Not Applicable

(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).

(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).

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

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

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

Investments in lower-rated, higher-yielding municipal securities involve a
higher degree of risk. Investments in derivative securities will subject the
Fund to greater risk.

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

4
<PAGE> 114

PORTFOLIO HIGHLIGHTS

VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND
TOP TEN STATES AS OF JUNE 30, 1997

<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
New York.................. 16.0%
Illinois.................. 10.3%
Florida................... 6.3%
California................ 5.8%
Colorado.................. 5.8%
Texas..................... 5.1%
Pennsylvania.............. 4.6%
New Jersey................ 3.6%
Michigan.................. 3.0%
Washington................ 3.0%
</TABLE>

CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
AAA........... 39.6% AAA ............ 41.7%
AA............ 10.3% AA.............. 7.7%
A............. 11.8% [PIE CHART] A............... 12.2% [PIE CHART]
BBB........... 15.3% BBB............. 16.5%
BB............ 1.3% BB.............. 1.1%
Non-Rated..... 21.7% B............... 0.4%
Non-Rated....... 20.4%
</TABLE>

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

TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF JUNE 30, 1996
<S> <C> <S> <C>
Health Care.................... 16.3% Health Care.................... 17.9%
Industrial Revenue............. 11.0% Industrial Revenue............. 12.5%
Transportation................. 8.4% General Purpose................ 10.7%
Public Building................ 8.4% Single Family Housing.......... 9.9%
General Purpose................ 8.1% Tax District................... 5.9%
</TABLE>

DURATION

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C>
Duration 7.44 years 7.80 years
</TABLE>

5
<PAGE> 115

PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND

We recently spoke with the management team of the Van Kampen American Capital
Municipal Income Fund about the key events and economic forces that shaped the
markets during the first half of the Fund's fiscal year. The team includes David
C. Johnson, portfolio manager, and Peter W. Hegel, chief investment officer for
fixed-income investments. The following excerpts reflect their views concerning
the Fund's performance during the six-month period ended June 30, 1997.

Q WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND
DURING THE FIRST HALF OF THIS YEAR?

Q HAS THE FUND'S PERFORMANCE SUFFERED FROM THE TIGHT SUPPLY AND NARROWING
SPREADS?

A Fortunately, no. Almost 40 percent of the Fund's assets are triple-A
rated, a sector that experienced superior price appreciation during the
period. Triple-A rated securities are very liquid and tend to perform well
when interest rates are declining. Another 38 percent of assets are triple-B or
lower/non-rated. This sector of the market has helped enhance the yield of the
Fund and has tended to outperform when interest

6
<PAGE> 116

rates increase, as the price of these securities is based more on credit quality
than market movements. Together, this barbelled rating distribution has helped
minimize volatility in the Fund.
For the six months ended June 30, 1997, the Fund generated a total return of
3.33 percent(1) for Class A shares at net asset value, which compares favorably
to the 3.20 percent return of the Lehman Brothers Municipal Bond Index over the
same period. Please keep in mind that this index is a broad-based, unmanaged
index of municipal bonds and does not reflect any commissions or fees that would
be paid by an investor purchasing the securities it represents. The Fund's net
asset value closed the reporting period at $15.34 per Class A share, up from
$15.27 per share six months ago.
The Fund's tax-exempt distribution rate for Class A shares as of June 30,
1997, was 5.25 percent(3), representing a taxable-equivalent distribution rate
of 8.20 percent(4) for an investor in the 36 percent federal income tax bracket.
Please refer to the chart on page four for additional Fund performance results.

Q TO WHAT WOULD YOU ATTRIBUTE THE FUND'S SUCCESS?

Q WHAT CHANGES HAVE YOU MADE IN THE FUND'S PORTFOLIO OVER THE PAST SIX
MONTHS?

A We continue to keep the Fund well diversified with no more than 25 percent
in any one sector. Health care continues to be our largest sector
concentration. This is due to our strong emphasis on research in the
sector that enables us to identify value in health care bonds. Non-hospital
health-care issues--senior citizen residences, nursing homes, and assisted care
centers--are also very attractive and provide excellent yield opportunities.
In the first half of the reporting period, we were able to add to our
holdings in the transportation sector with two large New York Port Authority
issues. Historically, the Port Authority has provided good credit quality and
value because it is generally priced lower when it comes to market than it would
be if it traded in the secondary market. Additionally, our New York and New
Jersey residents benefit from state tax exemption from these bonds. For
additional Fund portfolio highlights, please refer to page five.

7
<PAGE> 117

Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?

A We are fairly optimistic about the remainder of the year for the following
reasons. First, inflation continues to be held well in check. And second,
the days of deficit spending appear to be gone, and the U.S. deficit has
been dramatically reduced. This combination of low inflation and a declining
deficit should bring about lower interest rates, which makes for a bullish
environment for the fixed income market. We believe that the Federal Reserve
Board will leave rates unchanged throughout at least the fourth quarter.
The Fund is positioned to track well with the market, regardless of what
happens in the economy. At June 30, 1997, the duration of the Fund stood at 7.44
years, slightly shorter than the Fund's benchmark, the Lehman Brothers Municipal
Bond Index, of 7.98 years. Because of the longer-term nature of the Fund, the
calculation of this index has been adjusted to eliminate bonds with maturities
of five years or less. Duration, which is expressed in years, is a measure of
the Fund's sensitivity to interest rate movements. Portfolios with shorter
durations tend to perform better in rising rate environments, while portfolios
with longer durations perform better when rates decline. If our outlook on
interest rates continues to remain positive, however, we would seek to lengthen
the duration of the Fund. In the event that inflation picks up and the Fed
responds with one or more rate hikes, we will shorten the portfolio's duration
and adjust some of our holdings. Until that time, we will maintain a neutral
posture as we enter the second half of 1997.

[SIG.]
Peter W. Hegel

Chief Investment Officer
Fixed Income Investments

[SIG.]
David C. Johnson

Portfolio Manager

Please see footnotes on page four

8
<PAGE> 118

PORTFOLIO OF INVESTMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 97.1%
ALABAMA 7.1%
$ 2,100 Alabama St Indl Dev Auth Rev UNR-ROHN Inc
Expansion Proj................................. 7.500% 09/15/11 $ 2,125,914
3,000 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd) (b)......................... 6.750 08/15/17 3,307,860
875 Bessemer, AL Indl Dev Brd ROHN Inc Proj........ 9.000 09/15/01 933,258
1,750 Bessemer, AL Indl Dev Brd ROHN Inc Proj........ 9.500 09/15/11 2,092,317
1,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg................ 6.950 01/01/20 1,071,940
5,150 West Jefferson Cnty, AL Amusement & Pub Pk
Auth........................................... 8.000 12/01/26 5,181,981
--------------
14,713,270
--------------
ALASKA 0.4%
2,500 Alaska Energy Auth Pwr Rev Bradley Lake Proj
Ser 1 (BIGI Insd).............................. 6.250 07/01/21 2,585,075
1,000 Valdez, AK Marine Term Rev Sohio Pipeline
Rfdg........................................... 7.125 12/01/25 1,110,560
--------------
3,695,635
--------------
ARIZONA 2.2%
1,000 Maricopa Cnty, AZ Indl Dev Auth Indl Dev Rev
Borden Inc Proj................................ 5.040 10/01/12 999,190
1,000 Maricopa Cnty, AZ Indl Dev Auth Multi-Family
Hsg Rev Rfdg................................... 6.500 07/01/09 1,041,440
665 Pima Cnty, AZ Indl Dev Auth Single Family Mtg
Rev (GNMA Collateralized)...................... 6.625 11/01/14 694,041
5,220 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A..... 9.500 07/01/10 6,229,339
500 Scottsdale, AZ Indl Dev Auth Rev First Mtg
Westminster Vlg Ser A Rfdg..................... 8.250 06/01/15 546,810
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................... 6.000 09/01/12 1,970,812
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................... 6.125 09/01/17 1,841,980
7,000 Tucson, AZ Arpt Auth Inc Spl Fac Rev Lockheed
Aermod Cent Inc................................ 8.700 09/01/19 7,874,160
--------------
21,197,772
--------------
ARKANSAS 0.7%
5,355 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt Ser A........ 7.500 01/31/06 5,140,800
5,470 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt Ser B........ 7.500 01/31/06 1,641,000
--------------
6,781,800
--------------
CALIFORNIA 5.7%
5,230 California Edl Fac Auth Rev College of
Osteopathic Med Pacific (Prerefunded @
06/01/03)...................................... 7.500 06/01/18 5,864,085
2,880 California Edl Fac Auth Rev Univ of La Verne... 6.300 04/01/09 2,987,683
</TABLE>

See Notes to Financial Statements

9
<PAGE> 119

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 2,000 Compton, CA Ctfs Partn Ser B (b)............... 7.500% 08/01/15 $ 2,120,120
4,285 Delano, CA Ctfs Partn Ser A.................... 9.250 01/01/22 4,986,712
2,660 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/10 1,270,070
5,875 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/11 2,614,551
3,890 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/13 1,503,913
5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/14 1,953,823
3,500 Escondido, CA Union High Sch Dist Cap Apprec
(MBIA Insd).................................... * 11/01/19 1,001,770
5,000 Escondido, CA Union High Sch Dist Cap Apprec
(MBIA Insd).................................... * 11/01/20 1,328,800
935 Fairfield, CA Hsg Auth Mtg Rev Creekside
Estates Proj Rfdg.............................. 7.875 02/01/15 963,723
2,800 Los Angeles Cnty, CA Ctfs Partn................ 6.100 11/01/01 2,939,664
8,075 Los Angeles, CA Elec Plant Rev Rfdg (MBIA
Insd).......................................... 4.750 11/15/19 7,143,952
3,065 Los Angeles, CA Wastewater Sys Rev Ser A (FGIC
Insd).......................................... 5.000 02/01/13 2,979,211
1,000 Madera Cnty, CA Ctfs Partn Vly Children's Hosp
(MBIA Insd).................................... 6.125 03/15/23 1,043,750
2,825 Midpeninsula Regl Dist CA Fin Auth Rev (AMBAC
Insd).......................................... * 09/01/15 1,033,809
1,155 Midpeninsula Regl Open Space CA (AMBAC Insd)... * 09/01/19 330,099
1,265 Midpeninsula Regl Open Space CA (AMBAC Insd)... * 09/01/22 298,527
1,380 Midpeninsula Regl Open Space CA (AMBAC Insd)... * 09/01/25 272,826
900 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/10 448,182
800 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/11 374,904
700 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/12 308,413
700 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/13 289,674
700 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/14 272,258
500 Norco, CA Swr & Wtr Rev Rfdg................... 7.200 10/01/19 538,100
3,200 Orange Cnty, CA Cmnty Fac Dist Spl Tax No 88-1
Aliso Viejo Ser A (Prerefunded @ 08/15/02)..... 7.350 08/15/18 3,698,304
4,000 Riverside Cnty, CA Air Force Vlg West Inc Ser A
Rfdg........................................... 8.125 06/15/20 4,305,360
2,000 Santa Ana, CA Cmnty Redev Agy Tax Ser B Rfdg... 7.500 09/01/16 2,046,120
--------------
54,918,403
--------------
COLORADO 5.7%
2,840 Adams Cnty, CO Single Family Mtg Rev Ser A..... 8.875 08/01/10 3,784,499
3,985 Adams Cnty, CO Single Family Mtg Rev Ser A
(b)............................................ 8.875 08/01/12 5,433,946
10,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C............................... * 08/31/26 1,378,755

</TABLE>

See Notes to Financial Statements

10
<PAGE> 120

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLORADO (CONTINUED)
$ 925 Arapahoe Cnty, CO Single Family Mtg Rev Ser A
(GNMA Collateralized).......................... 8.375% 08/01/19 $ 959,290
500 Berry Creek Metro Dist CO Rfdg & Impt.......... 8.250 12/01/11 550,900
500 Boulder Cnty, CO Indl Dev Rev Boulder Med Cent
Proj........................................... 8.875 01/01/17 513,805
1,000 Bowles Metro Dist CO........................... 7.750 12/01/15 1,033,530
1,500 Colorado Hlth Fac Auth Rev PLS Hlth Sys Proj
Ser A (Prerefunded @ 02/15/01) (FSA Insd)...... 6.250 02/15/21 1,618,890
2,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 7.000 11/15/99 2,104,840
8,550 Denver, CO City & Cnty Arpt Rev Ser A (b)...... 8.500 11/15/23 9,688,518
5,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.000 11/15/25 5,550,550
2,200 Denver, CO City & Cnty Spl Fac Arpt Rev United
Airls Proj Ser A............................... 6.875 10/01/32 2,316,600
1,000 Edgewater, CO Redev Auth Tax Increment Rev..... 6.750 12/01/08 1,078,060
1,320 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/14 492,571
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/15 495,977
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/16 466,371
1,330 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/18 383,053
3,690 Jefferson Cnty, CO Residential Mtg Rev......... 11.500 09/01/12 6,034,958
5,000 Meridian Metro Dist CO Rfdg.................... 7.500 12/01/11 5,495,250
5,000 University of CO Hosp Auth Hosp Rev Ser A
(AMBAC Insd)................................... 6.400 11/15/22 5,376,950
--------------
54,757,313
--------------
CONNECTICUT 1.2%
5,005 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Hartford (b)...................... 7.125 11/01/14 5,636,631
1,000 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A.......................................... 6.500 09/01/06 1,076,760
5,000 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A.......................................... 6.400 09/01/11 5,249,900
--------------
11,963,291
--------------
DISTRICT OF COLUMBIA 0.3%
2,500 District of Columbia Rev Natl Pub Radio Ser
A.............................................. 7.700 01/01/23 2,669,825
--------------
FLORIDA 6.1%
500 Atlantic Beach, FL Rev Fleet Landing Proj Ser A
Rfdg & Impt.................................... 7.500 10/01/02 525,045
500 Atlantic Beach, FL Rev Fleet Landing Proj Ser A
Rfdg & Impt.................................... 7.875 10/01/08 558,700
2,000 Brevard Cnty, FL Sch Brd Ctfs Ser B (AMBAC
Insd).......................................... 5.500 07/01/21 1,972,460

</TABLE>

See Notes to Financial Statements

11
<PAGE> 121

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,635 Broward Cnty, FL Res Recovery Rev Waste Energy
North Proj..................................... 7.950% 12/01/08 $ 1,782,935
2,140 Broward Cnty, FL Res Recovery Rev Waste Energy
South Proj..................................... 7.950 12/01/08 2,331,573
24,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec
Ser A Rfdg (MBIA Insd)......................... * 02/01/18 7,348,560
14,465 Dade Cnty, FL Spl Oblig Cap Apprec Ser B Rfdg
(AMBAC Insd)................................... * 10/01/21 3,492,863
560 Florida St Brd Edl Cap Outlay Pub Edl Ser A
Rfdg........................................... 7.250 06/01/23 607,880
590 Florida St Brd Edl Cap Outlay Pub Edl Ser A
Rfdg (Prerefunded @ 06/01/00).................. 7.250 06/01/23 648,782
9,500 Florida St Muni Pwr Agy Rev (AMBAC Insd) (a)... 4.500 10/01/27 7,953,970
2,255 Greater Orlando Aviation Auth Orlando FL Arpt
Fac Rev........................................ 8.375 10/01/16 2,398,531
2,875 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj A Rfdg............ 7.875 12/15/25 3,285,866
1,500 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr........................... 8.750 07/01/26 1,601,430
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp
Adventist Hlth Sys (AMBAC Insd)................ 5.250 11/15/20 950,250
1,000 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC
Insd).......................................... 6.000 10/01/16 1,027,930
5,300 Palm Bay, FL Util Rev Palm Bay Util Corp Proj
Rfdg (MBIA Insd)............................... 5.000 10/01/22 4,862,432
5,000 Saint John's River Wtr Mgmt Dist FL Land
Acquisition Rev Rfdg (FSA Insd)................ 5.125 07/01/16 4,794,900
4,185 Sarasota Cnty, FL Hlth Fac Auth Rev Hlthcare
Kobernick/Meadow Pk (Prerefunded @ 07/01/02)... 10.000 07/01/22 5,181,239
5,000 Sarasota Cnty, FL Public Hosp Brd Miles
Sarasota Mem Hosp Proj Ser A (Var Rate Cpn).... (d) 10/01/21 4,993,750
1,000 Tampa Palms, FL Open Space & Tran Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.................. 7.500 05/01/18 1,003,980
1,000 Tampa Palms, FL Open Space & Tran Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.................. 8.500 05/01/17 1,068,720
670 Tampa, FL Cap Impt Pgm Rev Ser A............... 8.250 10/01/18 702,080
--------------
59,093,876
--------------
GEORGIA 0.8%
3,000 Atlanta, GA Arpt Fac Rev....................... 6.250 01/01/21 3,104,880
1,250 Georgia Muni Elec Auth Pwr Rev Ser
(Crossover Refunding @ 01/01/98)............... 8.125 01/01/17 1,299,438
1,750 Georgia Muni Elec Auth Pwr Rev Ser Q........... 8.375 01/01/16 1,820,560
1,500 Georgia Muni Elec Auth Pwr Rev Ser X (MBIA
Insd).......................................... 6.500 01/01/20 1,703,865
--------------
7,928,743
--------------

</TABLE>

See Notes to Financial Statements

12
<PAGE> 122

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HAWAII 2.7%
$ 4,055 Hawaii St Arpts Sys Rev Ser 1993 (MBIA Insd)... 6.350% 07/01/07 $ 4,457,175
14,100 Hawaii St Dept Budget & Fin Spl Purp Rev
Hawaiian Elec Co (MBIA Insd)................... 6.550 12/01/22 15,142,836
2,350 Hawaii St Dept Tran Spl Fac Rev Continental
Airls Inc...................................... 9.700 06/01/20 2,655,171
1,475 Hawaii St Harbor Cap Impt Rev (FGIC Insd)...... 6.350 07/01/07 1,621,290
1,560 Hawaii St Harbor Cap Impt Rev (FGIC Insd)...... 6.400 07/01/08 1,711,882
500 Hawaii St Harbor Cap Impt Rev (MBIA Insd)...... 7.000 07/01/17 537,420
--------------
26,125,774
--------------
ILLINOIS 10.0%
4,425 Bedford Park, IL Tax Increment Rev Sr Lien
Bedford City Sq Proj........................... 9.250 02/01/12 5,013,392
1,350 Bridgeview, IL Tax Increment Rev Rfdg.......... 9.000 01/01/11 1,513,917
6,790 Broadview, IL Tax Increment Rev Sr Lien........ 8.250 07/01/13 7,451,482
1,000 Chicago, IL Gas Supply Rev Ser A............... 8.100 05/01/20 1,098,870
1,000 Chicago, IL Metro Wtr Reclamation Dist Gtr
Chicago........................................ 7.000 01/01/11 1,169,350
4,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc...................................... 8.500 05/01/18 4,395,680
4,865 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Ser B................................ 8.950 05/01/18 5,515,110
2,000 Chicago, IL Single Family Mtg Rev Ser A (GNMA
Collateralized)................................ 7.000 09/01/27 2,191,020
500 Chicago, IL Tax Increment Alloc San Drain &
Ship Canal Ser A............................... 7.375 01/01/05 505,580
1,000 Chicago, IL Tax Increment Alloc San Drain &
Ship Canal Ser A............................... 7.750 01/01/14 1,015,960
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)......................... 8.750 01/01/07 1,274,800
1,000 Crestwood, IL Tax Increment Rev Rfdg........... 7.250 12/01/08 1,036,330
870 Hanover Park, IL Rev First Mtg Winsdor Park
Manor Proj (Prerefunded @ 12/01/97)............ 9.250 12/01/07 926,280
1,200 Hodgkins, IL Tax Increment..................... 9.500 12/01/09 1,400,268
3,400 Hodgkins, IL Tax Increment (Prerefunded @
12/01/01)...................................... 9.500 12/01/09 4,137,630
1,500 Hodgkins, IL Tax Increment Rev Ser A Rfdg...... 7.625 12/01/13 1,565,250
1,500 Huntley, IL Increment Alloc Rev Huntley Redev
Proj Ser A..................................... 8.500 12/01/15 1,569,885
1,000 Illinois Dev Fin Auth Elderly Hsg Rev
Libertyville Towers Ser A...................... 6.500 09/01/09 1,039,660
650 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj................................... 8.000 11/15/06 657,755
1,000 Illinois Edl Fac Auth Rev Lake Forest College
(FSA Insd)..................................... 6.750 10/01/21 1,088,240
2,575 Illinois Edl Fac Auth Rev Lewis University
Rfdg........................................... 6.000 10/01/24 2,549,147
1,000 Illinois Edl Fac Auth Rev Northwestern Univ Ser
1985 (Prerefunded @ 12/01/01).................. 6.900 12/01/21 1,116,080

</TABLE>

See Notes to Financial Statements

13
<PAGE> 123

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,000 Illinois Edl Fac Auth Rev Peace Mem Ministries
Proj........................................... 7.500% 08/15/26 $ 1,018,060
4,100 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Proj A (Prerefunded @ 10/01/02)................ 9.500 10/01/22 5,083,385
2,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Proj B (Prerefunded @ 10/01/02)................ 9.000 10/01/22 2,434,100
2,500 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Ser A Rfdg..................................... 7.400 08/15/23 2,637,450
525 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D.......................................... 9.500 11/15/15 618,235
425 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D (Prerefunded @ 11/15/00)................. 9.500 11/15/15 500,255
1,000 Illinois Hlth Fac Auth Rev IL Masonic Med Cent
Ser B (Prerefunded @ 10/01/99)................. 7.700 10/01/19 1,093,400
1,000 Illinois Hlth Fac Auth Rev Mem Hosp............ 7.250 05/01/22 1,060,480
1,000 Illinois Hlth Fac Auth Rev Northwestern Mem
Hosp........................................... 6.750 08/15/11 1,068,560
2,600 Illinois Hlth Fac Auth Rev United Med Cent
(Prerefunded @ 07/01/03)....................... 8.375 07/01/12 3,094,884
5,900 Illinois Hsg Dev Auth Residential Mtg Rev
(Inverse Fltg)................................. 9.595 02/13/18 6,379,375
2,000 Illinois St.................................... 5.375 02/01/22 1,938,900
1,250 Mill Creek Wtr Reclamation Dist IL Swr Rev..... 8.000 03/01/10 1,306,700
750 Mill Creek Wtr Reclamation Dist IL Wtrwrks
Rev............................................ 8.000 03/01/10 784,020
1,000 Palatine, IL Tax Increment Rev Rand Dundee Cent
Proj........................................... 7.750 01/01/17 1,004,520
2,800 Regional Tran Auth IL Ser A (AMBAC Insd)....... 8.000 06/01/17 3,667,132
7,500 Robbins, IL Res Recovery Rev................... 8.375 10/15/16 7,794,450
3,000 Robbins, IL Res Recovery Rev Recreation Robbins
Res Partn Ser B................................ 8.375 10/15/16 3,117,780
820 Round Lake Beach, IL Tax Increment Rev Rfdg.... 7.200 12/01/04 872,824
500 Round Lake Beach, IL Tax Increment Rev Rfdg.... 7.500 12/01/13 528,705
1,620 Saint Charles, IL Indl Dev Rev Tri-City Cent
Proj........................................... 7.500 11/01/13 1,668,843
1,240 Southern IL Univ Rev Hsg & Aux Fac Sys Ser A
(MBIA Insd).................................... 5.800 04/01/10 1,282,780
--------------
97,186,524
--------------
INDIANA 1.3%
1,000 East Chicago, IN Exempt Fac Inland Steel Co
Proj No 14..................................... 6.700 11/01/12 1,018,630
2,750 Elkhart Cnty, IN Hosp Auth Rev Elkhart Genl
Hosp Inc....................................... 7.000 07/01/12 2,999,865
1,650 Indiana Bond Bank Spl Pgm Hendricks Redev Ser
B.............................................. 6.125 02/01/17 1,695,392
3,125 Indiana Bond Bank Spl Pgm Hendricks Redev Ser
B.............................................. 6.200 02/01/23 3,211,937
550 Indianapolis, IN Loc Pub Impt Bond Bank Ser
D.............................................. 6.750 02/01/14 631,631
450 Indianapolis, IN Loc Pub Impt Bond Bank Ser
D.............................................. 6.500 02/01/22 454,230

</TABLE>

See Notes to Financial Statements

14
<PAGE> 124

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDIANA (CONTINUED)
$ 1,000 Marion Cnty, IN Hosp Auth Hosp Fac Rev......... 6.500% 09/01/13 $ 1,080,370
1,500 Wells Cnty, IN Hosp Auth Rev Caylor-Nickel Med
Cent Inc Rfdg.................................. 8.500 04/15/03 1,685,175
--------------
12,777,230
--------------
IOWA 1.0%
2,045 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp
Proj (FSA Insd)................................ 6.000 07/01/07 2,201,095
2,500 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp
Proj (FSA Insd)................................ 5.750 07/01/17 2,511,825
2,000 Iowa Fin Auth Multi-Family Rev Hsg Hamlet Apts
Proj A Rfdg (GNMA Collateralized).............. 6.150 05/01/32 2,035,140
2,855 Muscatine, IA Elec Rev Rfdg.................... 5.000 01/01/08 2,803,581
--------------
9,551,641
--------------
KANSAS 0.1%
1,000 Newton, KS Hosp Rev Newton Hlthcare Corp Ser
A.............................................. 7.750 11/15/24 1,088,130
--------------
KENTUCKY 2.2%
1,000 Bowling Green, KY Indl Dev Rev Coltec Inds Inc
Rfdg........................................... 6.550 03/01/09 1,027,210
10,950 Jefferson Cnty, KY Cap Projs Corp Rev Muni
Multi-Lease Ser A.............................. * 08/15/14 3,410,158
4,000 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys
Proj (Inverse Fltg) (MBIA Insd)................ 8.496 10/09/08 4,610,000
1,250 Kentucky Econ Dev Fin Auth Med Cent Rev Ashland
Hosp Corp Ser A Rfdg & Impt (FSA Insd)......... 6.125 02/01/12 1,315,650
1,605 Kentucky Hsg Corp Hsg Rev Ser D (FHA/VA Gtd)... 7.450 01/01/23 1,694,447
8,000 Kentucky St Tpk Auth Res Recovery Rd Rev Ser
A.............................................. 5.000 07/01/08 7,923,280
1,000 Kentucky St Tpk Auth Toll Rd Rev Ser A......... 5.500 07/01/07 1,003,560
--------------
20,984,305
--------------
LOUISIANA 1.1%
500 Hodge, LA Util Rev Stone Container Corp Ser
1990........................................... 9.000 03/01/10 533,590
1,990 Lafayette, LA Econ Dev Auth Indl Dev Rev
Advanced Polymer Proj Ser 1985................. 10.000 11/15/04 2,554,842
1,000 Lake Charles, LA Harbor & Terminal Dist Port
Fac Rev Trunkline Rfdg......................... 7.750 08/15/22 1,138,010
445 Louisiana Pub Fac Auth Rev Indl Dev Beverly
Enterprises Inc Rfdg........................... 8.250 09/01/08 490,078
10,000 Orleans Parish, LA Sch Brd Rfdg (FGIC Insd).... * 02/01/15 3,646,200
900 Port New Orleans, LA Indl Dev Rev Avondale Inds
Inc Proj Rfdg.................................. 8.250 06/01/04 977,247
1,400 West Feliciana Parish, LA Pollutn Ctl Rev Gulf
States Util Co Proj Ser A...................... 7.500 05/01/15 1,520,274
--------------
10,860,241
--------------

</TABLE>

See Notes to Financial Statements

15
<PAGE> 125

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARYLAND 0.2%
$ 1,500 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem
Steel Corp Proj Ser A Rfdg..................... 7.550% 06/01/17 $ 1,604,595
--------------
MASSACHUSETTS 2.0%
1,000 Boston, MA Rev Boston City Hosp Ser A (FHA Gtd)
(Prerefunded @ 08/15/00)....................... 7.625 02/15/21 1,113,540
1,455 Massachusetts Edl Ln Auth Rev Issue E Ser A
(AMBAC Insd)................................... 7.000 01/01/10 1,513,913
4,200 Massachusetts St Hlth & Edl Fac Auth Rev New
England Med Cent Hosp Ser G (Embedded Swap)
(MBIA Insd).................................... 3.100 07/01/13 3,794,826
1,000 Massachusetts St Hsg Fin Agy Multi-Family
Residential Hsg Ser A.......................... 8.750 08/01/08 1,034,540
1,500 Massachusetts St Indl Fin Agy Hillcrest Edl
Cent Inc Proj.................................. 8.450 07/01/18 1,555,680
5,000 Massachusetts St Indl Fin Agy Rev First Mtg
Reeds Landing Proj............................. 8.625 10/01/23 5,507,250
980 Massachusetts St Indl Fin Agy Rev Gtr Lynn
Mental Hlth Assoc Proj......................... 8.800 06/01/14 1,092,230
1,000 Massachusetts St Indl Fin Agy Rev Wtr Treatment
American Hingham............................... 6.600 12/01/15 1,034,020
2,000 Plymouth Cnty, MA Ctfs Partn Ser A............. 7.000 04/01/22 2,220,800
--------------
18,866,799
--------------
MICHIGAN 2.9%
1,000 Detroit, MI Area No 1 Ser A (Prerefunded @
07/01/99)...................................... 7.600 07/01/10 1,083,970
3,500 Detroit, MI Downtown Dev Auth Tax Increment
Rev............................................ 6.200 07/01/17 3,637,235
2,000 Grand Traverse Cnty, MI Hosp Fin Auth Hosp Rev
Munson Hlthcare Ser A Rfdg (AMBAC Insd)........ 6.250 07/01/12 2,111,740
1,775 Michigan St Hosp Fin Auth Rev Garden City
Hosp........................................... 8.300 09/01/02 1,869,465
1,750 Michigan St Hosp Fin Auth Rev Mercy Hlth Svcs
Ser R (AMBAC Insd)............................. 5.375 08/15/26 1,677,900
5,600 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B
(Embedded Swap) (AMBAC Insd)................... 4.250 04/01/04 5,528,992
11,000 Michigan St Strategic Fd Ltd Oblig Rev Great
Lakes Pulp & Fibre Proj (c).................... 10.250 12/01/16 5,269,220
4,500 Michigan St Strategic Fd Solid Waste Disp Rev
Genesee Pwr.................................... 7.500 01/01/21 4,711,230
1,000 Mount Clemens, MI Hsg Corp Multi-Family Rev Hsg
Ser A Rfdg (FHA Gtd)........................... 6.600 06/01/13 1,050,160
1,000 Royal Oak, MI Hosp Fin Auth Hosp Rev Ser D
(Prerefunded @ 01/01/01)....................... 6.750 01/01/20 1,093,890
--------------
28,033,802
--------------

</TABLE>

See Notes to Financial Statements

16
<PAGE> 126

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MINNESOTA 0.4%
$ 1,000 North Saint Paul, MN Multi-Family Rev Hsg
Cottages North Saint Paul Rfdg.................. 9.250% 02/01/22 $ 1,069,410
2,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser
A Rfdg.......................................... 5.000 01/01/16 1,868,300
1,250 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser
C............................................... 5.000 01/01/17 1,162,388
--------------
4,100,098
--------------
MISSISSIPPI 0.7%
5,000 Lowndes Cnty, MS Solid Waste Disp & Pollutn Ctl
Rev Weyerhaeuser Co Rfdg (Inverse Fltg)......... 7.820 04/01/22 5,784,000
1,155 Ridgeland, MS Urban Renewal Rev The Orchard Ltd
Proj Ser A Rfdg................................. 7.750 12/01/15 1,214,240
--------------
6,998,240
--------------
MISSOURI 1.6%
2,835 Kansas City, MO Port Auth Fac Riverfront Park
Proj Ser A...................................... 5.750 10/01/06 2,927,081
2,000 Lees Summit, MO Indl Dev Auth Hlth Fac Rev John
Knox Vlg Proj Rfdg & Impt....................... 7.125 08/15/12 2,126,180
1,500 Missouri St Econ Dev Export & Infrastructure Brd
Med Office Fac Rev (MBIA Insd).................. 7.250 06/01/04 1,696,410
3,920 Missouri St Econ Dev Export & Infrastructure Brd
Med Office Fac Rev (MBIA Insd).................. 7.250 06/01/14 4,457,628
1,000 Missouri St Hlth & Edl Fac Auth Rfdg & Impt..... 8.125 10/01/10 1,098,210
2,165 Saint Louis Cnty, MO Indl Dev Auth Nursing Home
Rev Mary Queen & Mother Proj Rfdg (GNMA
Collateralized)................................. 7.125 03/20/23.. 2,328,024
915 Saint Louis, MO Tax Increment Rev Scullin Redev
Area Ser A...................................... 10.000 08/01/10 1,102,392
--------------
15,735,925
--------------
NEBRASKA 0.8%
1,300 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)............ 11.278 09/10/30 1,447,875
800 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)............ 9.314 09/15/24 854,000
4,600 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)............ 9.976 10/17/23 5,025,500
--------------
7,327,375
--------------
NEVADA 0.7%
4,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser A
(FGIC Insd) (b)................................. 6.700 06/01/22 4,311,280
2,385 Henderson, NV Loc Impt Dist No T-4 Ser A........ 8.500 11/01/12 2,496,809
--------------
6,808,089
--------------

</TABLE>

See Notes to Financial Statements

17
<PAGE> 127

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW HAMPSHIRE 0.7%
$ 1,555 New Hampshire Higher Edl & Hlth Fac Auth Rev... 8.800% 06/01/09 $ 1,680,520
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Daniel Webster College Issue Rfdg.............. 7.625 07/01/16 2,109,060
1,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
New London Hosp Assn Proj...................... 7.500 06/01/05 1,105,060
1,000 New Hampshire St Business Fin Auth Elec Fac Rev
Plymouth Cogeneration.......................... 7.750 06/01/14 1,039,170
1,000 New Hampshire St Tpk Sys Rev Ser A Rfdg (FGIC
Insd).......................................... 6.750 11/01/11 1,131,760
--------------
7,065,570
--------------
NEW JERSEY 3.5%
2,000 Camden Cnty, NJ Impt Auth Lease Rev Dockside
Refrigerated................................... 8.400 04/01/24 2,123,980
6,130 Middlesex Cnty, NJ Util Auth Swr Rev Ser A Rfdg
(MBIA Insd).................................... 7.450 08/15/97 6,831,823
1,600 New Jersey Econ Dev Auth Holt Hauling & Warehsg
Rev Ser G Rfdg................................. 8.400 12/15/15 1,690,576
1,900 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A....................... 8.500 11/01/16 1,973,625
1,000 New Jersey Econ Dev Auth Rev United Methodist
Homes.......................................... 7.500 07/01/20 1,074,080
1,000 New Jersey Econ Dev Auth Rev United Methodist
Homes Oblig Ser A.............................. 7.500 07/01/25 1,027,870
3,200 New Jersey St Tpk Auth Tpk Rev Ser C Rfdg (MBIA
Insd).......................................... 6.500 01/01/16 3,622,784
14,935 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth Rev
Pub Svc Elec & Gas Co Proj C Rfdg (MBIA
Insd).......................................... 6.200 08/01/30 15,843,795
--------------
34,188,533
--------------
NEW MEXICO 0.3%
2,500 New Mexico St Hosp Equip Ln Council Hosp Rev
San Juan Regl Med Cent Inc Proj................ 7.900 06/01/11 2,774,950
--------------
NEW YORK 15.5%
3,100 Clifton Springs, NY Hosp & Clinic Hosp Rev
Rfdg........................................... 8.000 01/01/20 3,298,183
2,500 Herkimer Cnty, NY Indl Dev Agy Indl Dev Rev
Burrows Paper Corp Recycling................... 8.000 01/01/09 2,487,225
5,000 Metropolitan Tran Auth NY Svcs Contract Tran
Fac Ser 5 Rfdg................................. 7.000 07/01/12 5,403,850
3,500 Metropolitan Tran Auth NY Svcs Contract Tran
Fac Ser 7 Rfdg................................. 4.750 07/01/19 2,994,145
1,500 Metropolitan Tran Auth NY Tran Fac Rev Ser G
(MBIA Insd).................................... 5.500 07/01/15 1,499,895
1,000 New York City Indl Dev Agy Civic Fac Marymount
Manhattan College Proj......................... 7.000 07/01/23 1,043,790
3,000 New York City Muni Wtr Fin Auth Ser B.......... 5.750 06/15/29 2,983,830
4,100 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser B...................................... 5.000 06/15/17 3,767,244
5,000 New York City Ser A............................ 7.000 08/01/07 5,625,950
2,500 New York City Ser B............................ 7.500 02/01/07 2,787,975
5,000 New York City Ser C Rfdg....................... 6.500 08/01/04 5,377,200
</TABLE>

See Notes to Financial Statements

18
<PAGE> 128

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 640 New York City Ser C Subser C1.................. 7.500% 08/01/20 $ 715,290
6,860 New York City Ser C Subser C1 (Prerefunded @
08/01/02)...................................... 7.500 08/01/20 7,903,475
2,000 New York City Ser D Rfdg....................... 8.000 02/01/05 2,336,300
2,200 New York City Ser E............................ 5.700 08/01/08 2,242,042
5,000 New York St Dorm Auth Rev City Univ Ser F...... 5.500 07/01/12 4,944,700
2,750 New York St Dorm Auth Rev Court Fac Lease Ser
A.............................................. 5.500 05/15/10 2,739,770
2,295 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser A.......................................... 5.750 02/15/11 2,327,864
2,285 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser A.......................................... 5.750 02/15/12 2,311,872
4,000 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser B.......................................... 5.500 08/15/17 3,869,800
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev
(Inverse Fltg)................................. 8.579 04/01/20 2,725,000
3,000 New York St Energy Resh & Dev Auth Gas Fac Rev
Brooklyn Union Gas Co Ser B (Inverse Fltg)..... 9.442 07/01/26 3,611,250
2,000 New York St Energy Resh & Dev Auth Pollutn Ctl
Rev Niagara Mohawk Pwr Corp Ser A Rfdg (FGIC
Insd).......................................... 7.200 07/01/29 2,270,940
1,000 New York St Environmental Fac Corp Wtr Fac Rev
Long Island Wtr Corp Proj A.................... 10.000 10/01/17 1,031,620
1,955 New York St Med Care Fac Fin Agy Rev Hosp &
Nursing Home Mtg (FHA Gtd) (Prerefunded @
02/15/99)...................................... 7.250 02/15/09 2,086,493
185 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser A............................ 7.750 08/15/11 206,553
1,625 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser A (Prerefunded @ 02/15/01)... 7.750 08/15/11 1,838,184
175 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser C............................ 7.300 02/15/21 192,505
1,825 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser C (Prerefunded @ 08/15/01)... 7.300 02/15/21 2,057,103
1,000 New York St Med Care Fac Fin Agy Rev North Genl
Hosp........................................... 7.400 02/15/19 1,049,750
9,720 New York St Thruway Auth Genl Rev Ser D........ 5.500 01/01/14 9,790,081
2,400 New York St Urban Dev Corp Rev Correctional Cap
Fac Rfdg....................................... 5.625 01/01/07 2,458,200
20,500 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser A Rfdg (FSA Insd)...................... 5.250 01/01/14 20,444,035
2,000 New York St Urban Dev Corp Rev Fac (Prerefunded
@ 04/01/01).................................... 7.500 04/01/20 2,254,640
1,000 Port Auth NY & NJ Cons 95th Ser................ 6.125 07/15/22 1,035,740
28,500 Port Auth NY & NJ Cons 109th Ser............... 5.375 01/15/32 27,293,595
3,125 Yonkers, NY Ser C (AMBAC Insd)................. 5.125 08/01/09 3,104,031
--------------
150,110,120
--------------

</TABLE>

See Notes to Financial Statements

19
<PAGE> 129

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NORTH CAROLINA 0.6%
$ 3,000 Martin Cnty, NC Indl Fac & Pollutn Ctl Fin Auth
Rev Solid Waste Weyerhaeuser Co................ 5.650% 12/01/23 $ 2,924,730
3,000 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev
Ser A Rfdg (MBIA Insd)......................... 5.700 01/01/13 3,050,640
--------------
5,975,370
--------------
OHIO 2.2%
500 Cleveland, OH Pkg Fac Rev Impt (Prerefunded @
09/15/02)...................................... 8.000 09/15/12 586,925
750 Coshocton Cnty, OH Solid Waste Disp Rev Stone
Container Corp Proj Rfdg....................... 7.875 08/01/13 797,055
1,000 Cuyahoga Cnty, OH Hlthcare Fac Rev Jennings
Hall........................................... 7.300 11/15/23 1,036,970
435 Fairfield, OH Econ Dev Rev Beverly Enterprises
Inc Proj Rfdg.................................. 8.500 01/01/03 472,780
2,045 Montgomery Cnty, OH Hosp Rev Dayton Osteopathic
Hosp Proj Rfdg................................. 6.000 12/01/12 2,029,867
7,540 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B
(Inverse Fltg) (GNMA Collateralized)........... 9.669 03/31/31 8,237,450
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding
Ltd Partnership Proj Rfdg (AMBAC Insd)......... 6.375 04/01/29 1,054,160
4,000 Ohio St Solid Waste Rev Republic Engineered
Steels Proj.................................... 8.250 10/01/14 3,940,360
1,500 Ohio St Solid Waste Rev Republic Engineered
Steels Proj.................................... 9.000 06/01/21 1,532,715
1,500 Sandusky Cnty, OH Hosp Fac Rev Mem Hosp Proj
Rfdg........................................... 7.750 12/01/09 1,505,115
--------------
21,193,397
--------------
OKLAHOMA 1.4%
7,685 Grand River Dam Auth OK Rev.................... 5.000 06/01/12 7,429,781
1,980 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA
Insd).......................................... 5.250 12/01/22 1,895,593
2,665 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B (GNMA Collateralized).................. 7.997 08/01/18 2,987,785
1,000 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc............................................ 7.600 12/01/30 1,091,020
--------------
13,404,179
--------------
OREGON 0.3%
2,000 Oregon St Econ Dev Rev Georgia Pacific Corp.... 6.350 08/01/25 2,059,540
500 Salem, OR Hosp Fac Auth Rev Cap Manor Inc...... 7.500 12/01/24 526,285
--------------
2,585,825
--------------

</TABLE>

See Notes to Financial Statements

20
<PAGE> 130

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA 4.5%
$ 500 Chartiers Vly, PA Indl & Commercial Dev Auth
First Mtg Rev.................................. 7.250% 12/01/11 $ 512,900
5,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth Sys
Rev (AMBAC Insd) (b)........................... 5.650 05/15/20 4,880,550
1,750 Emmaus, PA Genl Auth Rev Ser A (BIGI Insd)..... 8.150 05/15/18 1,834,315
2,500 Emmaus, PA Genl Auth Rev Ser C (BIGI Insd)..... 7.900 05/15/18 2,639,900
1,000 Lebanon Cnty, PA Hlth Fac Auth Hlth Cent Rev
United Church of Christ Homes Rfdg............. 6.750 10/01/10 1,014,290
955 Lehigh Cnty, PA Indl Dev Auth Rev Rfdg......... 8.000 08/01/12 1,003,094
1,315 Luzerne Cnty, PA Indl Dev Auth First Mtg Gross
Rev Rfdg....................................... 7.875 12/01/13 1,390,060
1,500 McKean Cnty, PA Hosp Auth Hosp Rev Bradford
Hosp Proj (Crossover Rfdg @ 10/01/00).......... 8.875 10/01/20 1,714,920
2,000 McKeesport, PA Hosp Auth Rev McKeesport Hosp
Proj Rfdg...................................... 6.500 07/01/08 2,065,120
3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev (Embedded Swap) (AMBAC Insd)............... 7.450 06/01/12 3,153,300
1,000 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev...................................... 6.300 01/01/13 977,210
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recovery....................................... 7.500 01/01/12 1,088,080
8,740 Pennsylvania St Ctfs Partn Ser A Rfdg (AMBAC
Insd).......................................... 5.000 07/01/15 8,254,143
500 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Hahnemann Univ Proj (Prerefunded @
07/01/99) (MBIA Insd).......................... 7.200 07/01/19 538,480
3,150 Philadelphia, PA Auth for Indl Dev Coml Dev
Philadelphia Arpt Rev Rfdg..................... 7.750 12/01/17 3,432,429
685 Philadelphia, PA Hosp & Higher Edl Fac Auth
Hosp Rev....................................... 7.250 03/01/24 680,979
1,450 Ridley Park, PA Hosp Auth Rev Hosp Auth Rev Ser
1993A.......................................... 6.000 12/01/13 1,435,892
1,000 Scranton Lackawanna, PA Hlth & Welfare Auth Rev
Allied Svcs Rehab Hosp Ser A................... 7.375 07/15/08 1,077,290
500 Scranton Lackawanna, PA Hlth & Welfare Auth Rev
Moses Taylor Hosp Proj (Prerefunded @
07/01/01)...................................... 8.250 07/01/09 576,355
4,230 Southeastern PA Trans Auth (FGIC Insd)......... 5.450 03/01/11 4,283,256
1,000 Washington Cnty, PA Hosp Auth Rev Hosp
Canonsburg Genl Hosp Rfdg...................... 7.350 06/01/13 993,250
--------------
43,545,813
--------------
RHODE ISLAND 0.5%
2,000 Providence, RI Redev Agy Ctfs Partn Ser A...... 8.000 09/01/24 2,168,980
2,345 Rhode Island Hsg & Mtg Fin Corp Rental Hsg Pgm
Ser B (FHA Gtd)................................ 7.950 10/01/30 2,485,325
600 West Warwick, RI Ser A......................... 7.300 07/15/08 648,846
--------------
5,303,151
--------------
</TABLE>

See Notes to Financial Statements

21
<PAGE> 131

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH CAROLINA 0.4%
$ 3,000 Charleston Cnty, SC Arpt Dist Rfdg (MBIA
Insd).......................................... 4.750% 07/01/15 $ 2,703,660
1,070 Piedmont Muni Pwr Agy SC Elec Rev.............. 5.000 01/01/25 944,371
--------------
3,648,031
--------------
SOUTH DAKOTA 0.1%
1,000 South Dakota St Hlth & Edl Fac Auth Rev Huron
Regl Med Cent.................................. 7.250 04/01/20 1,067,610
150 South Dakota St Hlth & Edl Fac Auth Rev Sioux
Vly Hosp....................................... 7.625 11/01/13 164,009
--------------
1,231,619
--------------
TENNESSEE 0.2%
2,000 Springfield, TN Hlth & Edl Jesse Holman Jones
Hosp Proj...................................... 8.500 04/01/24 2,175,040
--------------
TEXAS 5.0%
1,000 Austin, TX Arpt Sys Rev Prior Lien Ser A (MBIA
Insd).......................................... 6.125 11/15/25 1,030,890
1,000 Austin, TX Util Sys Rev Rfdg (AMBAC Insd)
(a)............................................ 6.500 11/15/05 1,087,820
500 Baytown, TX Pptys Mgmt & Dev Corp Ser A (FNMA
Collateralized)................................ 6.100 08/15/21 507,855
150 Bell Cnty, TX Hlth Fac Dev Corp Rev Hosp
Proj........................................... 9.250 07/01/08 163,290
500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev Saint
Luke's Lutheran Hosp........................... 7.000 05/01/21 587,540
1,500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev Saint
Luke's Lutheran Hosp (Prerefunded @
05/01/03)...................................... 7.900 05/01/18 1,743,465
355 Bexar Cnty, TX Hsg Fin Corp Rev Ser A (GNMA
Collateralized)................................ 8.200 04/01/22 373,645
520 Bexar Cnty, TX Hsg Fin Corp Rev Ser B (GNMA
Collateralized)................................ 9.250 04/01/16 536,801
1,675 Cedar Hill, TX Indpt Sch Dist Cap Apprec
Rfdg........................................... * 08/15/15 585,211
625 Clear Creek, TX Indpt Sch Dist (Prerefunded @
02/01/01)...................................... 6.250 02/01/11 664,544
250 Coastal Wtr Auth TX Conveyance Sys Rev (AMBAC
Insd).......................................... 6.250 12/15/17 267,860
940 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev American Airls Inc......................... 7.500 11/01/25 1,013,611
250 El Paso, TX Hsg Auth Multi-Family Rev Ser A.... 6.250 12/01/09 257,148
110 Galveston, TX Ppty Fin Auth Single Family Mtg
Rev Ser A...................................... 8.500 09/01/11 119,054
250 Guadalupe Blanco River Auth TX Indl Dev Corp
Pollutn Ctl Rev................................ 6.350 07/01/22 266,023
1,250 Harris Cnty, TX Hlth Fac Dev Corp Mem Hosp Sys
Proj Rfdg...................................... 7.125 06/01/15 1,406,575
100 Harris Cnty, TX Hsg Fin Corp Single Family Hsg
Rev 1983 Ser A................................. 10.375 07/15/14 100,353
250 Harris Cnty, TX Muni Util Dist No 120
(Prerefunded @ 08/01/01)....................... 8.000 08/01/14 282,463
375 Harris Cnty, TX Sch Hlthcare Corp Sys Rev
(Prerefunded @ 07/01/01)....................... 7.100 07/01/21 418,312
680 Houston, TX Hsg Fin Corp Single Family Mtg Rev
Ser A Rfdg (FSA Insd).......................... 5.950 12/01/10 696,327
250 Lockhart, TX Correctional Fac Fin Corp Rev
(MBIA Insd).................................... 6.625 04/01/12 266,138
</TABLE>

See Notes to Financial Statements

22
<PAGE> 132

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 5,500 Lower Colorado Rvr Auth TX Polltn Ctrl Rev
Samsung Austin Semiconductor................... 6.375% 04/01/27 $ 5,657,465
500 Mission Bend Muni Util Dist No 2 TX............ 10.000 09/01/98 531,980
145 Montgomery Cnty, TX Hlth Fac Dev Corp Hosp Mtg
Rev Woodlands Med Cent Proj Rfdg (Prerefunded @
08/15/99)...................................... 8.850 08/15/14 158,605
3,500 North Central TX Hlth Fac Dev Corp Rev
Presbyterian Hlthcare Sys Ser C (Inverse Fltg)
(Prerefunded @ 06/19/01) (MBIA Insd)........... 9.345.. 06/22/21 4,169,375
750 Northwest Harris Cnty, TX Muni Util Dist No 23
(Prerefunded @ 04/01/01)....................... 8.100 10/01/15 844,485
1,000 Sam Rayburn, TX Muni Pwr Agy Pwr Supply Sys
Rev............................................ 6.750 10/01/14 965,830
1,000 Sam Rayburn, TX Muni Pwr Agy Pwr Supply Sys Rev
Ser A Rfdg..................................... 6.250 10/01/17 909,780
5,000 Sam Rayburn, TX Muni Pwr Agy Pwr Supply Sys Rev
Ser B Rfdg..................................... 5.500 10/01/20 4,058,750
250 San Antonio, TX Hlth Fac Dev Corp Rev Encore
Nursing Cent Partn............................. 8.250 12/01/19 276,295
250 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp Rev
Rfdg & Impt.................................... 7.000 05/15/28 268,048
250 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp Rev
Rfdg & Impt (Prerefunded @ 05/15/03)........... 7.000 05/15/28 283,907
271 Texas Genl Svcs Cmnty Partn Interests Office
Bldg & Land Acquisition Proj................... 7.000 08/01/09 278,815
500 Texas Genl Svcs Cmnty Partn Interests Office
Bldg & Land Acquisition Proj................... 7.000 08/01/19 515,025
500 Texas Genl Svcs Cmnty Partn Interests Office
Bldg & Land Acquisition Proj................... 7.000 08/01/24 515,025
935 Texas Genl Svcs Cmnty Partn Lease Purchase
Ctfs........................................... 7.500 02/15/13 950,093
115 Texas Hsg Agy Single Family Mtg Rev Ser A
Rfdg........................................... 7.150 09/01/12 120,636
5,250 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev
Coll Ser C Rfdg (Inverse Fltg) (GNMA
Collateralized)................................ 9.612 07/02/24 6,339,375
305 Texas St Higher Edl Brd College Sr Lien........ 7.700 10/01/25 323,959
4,025 Texas St Higher Edl Coordinating Brd College
Student Ln..................................... 7.850 10/01/25 3,597,303
250 Texas St Rfdg.................................. 6.500 12/01/21 266,300
1,000 Texas St Veterans Hsg Assist................... 6.800 12/01/10 1,056,130
1,300 Texas St Veterans Hsg Assist (MBIA Insd)....... 6.800 12/01/23 1,367,873
2,250 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics....... 8.200 03/15/21 2,505,712
--------------
48,335,691
--------------

</TABLE>

See Notes to Financial Statements

23
<PAGE> 133

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTAH 2.8%
$ 3,120 Bountiful, UT Hosp Rev South Davis Cmnty Hosp
Proj........................................... 9.500% 12/15/18 $ 3,505,414
1,340 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 7.800 09/01/15 1,349,970
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 8.000 09/01/20 1,018,570
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 7.800 09/01/25 1,003,400
1,850 Intermountain Pwr Agy UT Pwr Supply Rev Ser
86B............................................ 5.000 07/01/16 1,697,874
3,650 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg........................................... 7.750 07/01/20 3,843,194
11,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg
(Embedded Swap)................................ 6.720 02/15/12 11,866,910
1,065 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A1
(FHA Gtd)...................................... 7.100 07/01/14 1,133,053
1,430 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A2
(FHA Gtd)...................................... 7.200 01/01/27 1,520,977
--------------
26,939,362
--------------
VIRGINIA 1.9%
2,000 Fairfax Cnty, VA Park Auth Park Fac Rev........ 6.625 07/15/14 2,117,280
3,500 Fredericksburg, VA Indl Dev Auth Hosp Fac Rev
(Prerefunded @ 08/15/01) (FGIC Insd)........... 6.600 08/15/23 3,846,745
2,080 Loudoun Cnty, VA Ctfs Partn (FSA Insd)......... 6.800 03/01/14 2,289,310
1,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)......... 6.900 03/01/19 1,106,200
5,000 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke Mem
Hosp Carilion Hlth Sys Ser B Rfdg (MBIA
Insd).......................................... 4.700 07/01/20 5,051,550
1,000 Virginia Port Auth Comwlth Port Fund Rev....... 8.200 07/01/08 1,053,740
2,650 Virginia St Pub Bldg Auth Ser A................ 5.500 08/01/16 2,669,663
--------------
18,134,488
--------------
WASHINGTON 2.9%
10,000 King Cnty, WA Ser B............................ 5.900 12/01/14 10,269,900
2,000 King Cnty, WA Ser D............................ 5.700 12/01/10 2,079,600
1,000 Port Walla Walla, WA Pub Corp Solid Waste
Recycling Rev Ponderosa Fibres Proj............ 9.125 01/01/26 767,600
1,250 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev (FGIC Insd)........................... 7.125 07/01/16 1,490,088
3,555 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev Ser C Rfdg (FSA Insd)................. 5.375 07/01/15 3,484,753
2,000 Washington St Pub Pwr Supply Sys Nuclear Proj
No 2 Rev (Prerefunded @ 01/01/01).............. 7.625 07/01/10 2,246,140
1,000 Washington St Pub Pwr Supply Sys Nuclear Proj
No 2 Rev (Prerefunded @ 07/01/00).............. 7.375 07/01/12 1,104,110
2,500 Washington St Pub Pwr Supply Sys Nuclear Proj
No 2 Rev Rfdg (Prerefunded @ 07/01/00)......... 7.000 07/01/12 2,734,100
3,750 Washington St Pub Pwr Supply Sys Nuclear Proj
No 3 Rev Ser C Rfdg (FSA Insd)................. 5.375 07/01/15 3,642,637
--------------
27,818,928
--------------

</TABLE>
See Notes to Financial Statements

24
<PAGE> 134

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WEST VIRGINIA 0.8%
$ 6,750 South Charleston, WV Indl Dev Rev Union Carbide
Chem & Plastics Ser A.......................... 8.000% 08/01/20 $ 7,279,335
--------------
WISCONSIN 1.2%
750 Jefferson, WI Swr Sys Wtrwrks & Elec Sys Mtg
Rev (Prerefunded @ 07/01/01)................... 7.400 07/01/16 832,770
1,250 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev (MBIA Insd)...................... * 12/15/21 311,987
1,250 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev (MBIA Insd)...................... * 12/15/22 294,338
1,250 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev.................................. * 12/15/23 277,650
1,000 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev (MBIA Insd)...................... * 12/15/26 189,280
3,500 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev (MBIA Insd)...................... * 12/15/27 616,700
3,500 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev.................................. * 12/15/28 582,365
3,500 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev (MBIA Insd)...................... * 12/15/29 549,920
2,440 Wisconsin Hsg & Econ Dev Auth Home Ownership
Rev Rfdg (Inverse Fltg)........................ 10.006 10/25/22 2,693,150
600 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem
Hosp Assn...................................... 7.200 11/01/05 604,542
1,800 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem
Hosp Assn...................................... 7.875 11/01/22 1,827,504
1,000 Wisconsin St Hlth & Edl Fac Auth Rev United
Lutheran Proj Aging Inc........................ 8.500 03/01/19 1,046,140
2,000 Wisconsin St Hlth & Edl Milwaukee Catholic Home
Proj........................................... 7.500 07/01/26 2,069,100
--------------
11,895,446
--------------
TOTAL LONG-TERM INVESTMENTS 97.1%
(Cost $879,568,701)....................................................... 939,373,544
SHORT-TERM INVESTMENTS 1.7%
(Cost $15,800,000)........................................................ 15,800,000
--------------
TOTAL INVESTMENTS 98.8%
(Cost $895,368,701)....................................................... 955,173,544
OTHER ASSETS IN EXCESS OF LIABILITIES 1.2%................................. 12,002,036
--------------
NET ASSETS 100.0%.......................................................... $ 967,175,580
==============

</TABLE>

*Zero coupon bond

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

(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open option and open futures transactions.

(d) Security purchased on a when issued basis. The security's coupon, which
fluctuates based upon an index, will be determined upon the settlement of
the purchase.
See Notes to Financial Statements

25
<PAGE> 135

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $895,368,701)....................... $955,173,544
Cash........................................................ 154,140
Receivables:
Investments Sold.......................................... 21,098,594
Interest.................................................. 11,400,171
Fund Shares Sold.......................................... 524,911
Variation Margin on Futures............................... 13,960
------------
Total Assets.......................................... 988,365,320
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 14,104,745
Income Distributions...................................... 4,429,429
Distributor and Affiliates................................ 981,846
Fund Shares Repurchased................................... 812,858
Investment Advisory Fee................................... 387,078
Options at Market Value (Net premiums received of
$548,636)................................................. 246,094
Deferred Compensation and Retirement Plans.................. 132,611
Accrued Expenses............................................ 95,079
------------
Total Liabilities..................................... 21,189,740
------------
NET ASSETS.................................................. $967,175,580
============
NET ASSETS CONSIST OF:
Capital..................................................... $928,803,291
Net Unrealized Appreciation................................. 59,862,871
Accumulated Undistributed Net Investment Income............. 491,351
Accumulated Net Realized Loss............................... (21,981,933)
------------
NET ASSETS.................................................. $967,175,580
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $751,355,790 and 48,991,662 shares of
beneficial interest issued and outstanding)........... $ 15.34
Maximum sales charge (4.75%* of offering price)......... .76
------------
Maximum offering price to public........................ $ 16.10
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $203,968,786 and 13,299,947 shares of
beneficial interest issued and outstanding)........... $ 15.34
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $11,851,004 and 773,454 shares of
beneficial interest issued and outstanding)........... $ 15.32
============
</TABLE>

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

See Notes to Financial Statements

26
<PAGE> 136

STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 32,363,608
------------
EXPENSES:
Investment Advisory Fee..................................... 2,343,649
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $962,384, $1,021,576 and $61,316,
respectively)............................................. 2,045,276
Shareholder Services........................................ 471,055
Legal....................................................... 74,775
Custody..................................................... 68,135
Trustees Fees and Expenses.................................. 25,485
Other....................................................... 213,971
------------
Total Expenses.......................................... 5,242,346
------------
NET INVESTMENT INCOME....................................... $ 27,121,262
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments (Including reorganization and restructuring
costs of $121,054)...................................... $ 6,016,868
Options................................................... (1,030,527)
Futures................................................... 955,948
------------
Net Realized Gain........................................... 5,942,289
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 60,847,273
------------
End of the Period:
Investments............................................. 59,804,843
Options................................................. 302,542
Futures................................................. (244,514)
------------
59,862,871
------------
Net Unrealized Depreciation During the Period............... (984,402)
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 4,957,887
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 32,079,149
============
</TABLE>

See Notes to Financial Statements

27
<PAGE> 137

STATEMENT OF CHANGES IN NET ASSETS

For the Six Months Ended June 30, 1997 and
the Year Ended December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 27,121,262 $ 58,599,526
Net Realized Gain................................ 5,942,289 15,529,569
Net Unrealized Depreciation During the Period.... (984,402) (34,930,300)
------------- --------------
Change in Net Assets from Operations............. 32,079,149 39,198,795
------------- --------------
Distributions from Net Investment Income:
Class A Shares................................. (21,939,224) (46,362,424)
Class B Shares................................. (5,049,307) (10,564,184)
Class C Shares................................. (303,625) (607,911)
------------- --------------
Total Distributions.......................... (27,292,156) (57,534,519)
------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... 4,786,993 (18,335,724)
------------- --------------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold........................ 287,817,342 448,529,529
Net Asset Value of Shares Issued Through Dividend
Reinvestment................................... 11,623,555 29,896,737
Cost of Shares Repurchased....................... (353,294,262) (511,329,514)
------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................... (53,853,365) (32,903,248)
------------- --------------
TOTAL DECREASE IN NET ASSETS..................... (49,066,372) (51,238,972)
NET ASSETS:
Beginning of the Period.......................... 1,016,241,952 1,067,480,924
------------- --------------
End of the Period (Including accumulated
undistributed net investment income of $491,351
and $662,245, respectively).................... $ 967,175,580 $1,016,241,952
============= ==============
</TABLE>

See Notes to Financial Statements

28
<PAGE> 138

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -------------------------------------
Class A Shares June 30, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.............................. $15.267 $15.549 $14.261 $16.164 $15.310
------- ------- ------- ------- -------
Net Investment Income............... .427 .898 .874 .886 .964
Net Realized and Unrealized
Gain/Loss......................... .071 (.298) 1.296 (1.907) .862
------- ------- ------- ------- -------
Total from Investment Operations...... .498 .600 2.170 (1.021) 1.826
Less Distributions from Net Investment
Income.............................. .429 .882 .882 .882 .972
------- ------- ------- ------- -------
Net Asset Value, End of the Period.... $15.336 $15.267 $15.549 $14.261 $16.164
======= ======= ======= ======= =======
Total Return (a)...................... 3.33%* 4.07% 15.61% (6.37%) 12.20%
Net Assets at End of the Period (In
millions)........................... $751.4 $792.3 $839.7 $495.8 $597.6
Ratio of Expenses to Average Net
Assets.............................. .90% .94% .99% .99% .87%**
Ratio of Net Investment Income to
Average Net Assets.................. 5.66% 5.93% 5.86% 5.93% 6.08%**
Portfolio Turnover.................... 46%* 73% 61% 75% 82%
</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.

*Non-Annualized.

**If certain expenses had not been assumed by VKAC, the Ratios of Expenses to
Average Net Assets and Net Investment Income to Average Net Assets would have
been .98% and 5.97%, respectively, for the year ended December 31, 1993.

See Notes to Financial Statements

29
<PAGE> 139

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -------------------------------------
Class B Shares June 30, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.267 $15,549 $14.261 $16.139 $15.308
------- ------- ------- ------- -------
Net Investment Income............ .369 .783 .762 .780 .852
Net Realized and Unrealized
Gain/Loss...................... .072 (.297) 1.294 (1.890) .845
------- ------- ------- ------- -------
Total from Investment Operations... .441 .486 2.056 (1.110) 1.697
Less Distributions from Net
Investment Income................ .372 .768 .768 .768 .866
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $15.336 $15.267 $15.549 $14.261 $16.139
======= ======== ======== ======== ========
Total Return (a)................... 2.94%* 3.29% 14.74% (6.96%) 11.33%
Net Assets at End of the Period (In
millions)........................ $204.0 $211.0 $216.6 $158.7 $168.2
Ratio of Expenses to Average Net
Assets........................... 1.65% 1.70% 1.73% 1.70% 1.65%**
Ratio of Net Investment Income to
Average Net Assets............... 4.91% 5.17% 5.09% 5.22% 5.19%**
Portfolio Turnover................. 46%* 73% 61% 75% 82%
</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.

*Non-Annualized

**If certain expenses had not been assumed by VKAC, the Ratios of Expenses to
Average Net Assets and Net Investment Income to Average Net Assets would have
been 1.73% and 5.11%, respectively, for the year ended December 31, 1993.

See Notes to Financial Statements

30
<PAGE> 140

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
August 13, 1993
Year Ended December 31, (Commencement of
Six Months Ended ----------------------------- Distribution) to
Class C Shares June 30, 1997 1996 1995 1994 December 31, 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $ 15.254 $ 15.545 $ 14.262 $16.141 $15.990
-------- -------- -------- ------- -------
Net Investment Income..... .369 .782 .771 .783 .300
Net Realized and
Unrealized Gain/Loss.... .071 (.305) 1.280 (1.894) .171
-------- -------- -------- ------- -------
Total from Investment
Operations................ .440 .477 2.051 (1.111) .471
Less Distributions from Net
Investment Income......... .372 .768 .768 .768 .320
-------- -------- -------- ------- -------
Net Asset Value, End of the
Period.................... $ 15.322 $ 15.254 $ 15.545 $14.262 $16.141
======== ======== ======== ======= =======
Total Return (a)............ 2.94%* 3.16% 14.74% (6.97%) 2.96%*
Net Assets at End of the
Period (In millions)...... $11.9 $12.9 $11.2 $3.9 $4.1
Ratio of Expenses to Average
Net Assets (b)............ 1.67% 1.70% 1.72% 1.74% 1.85%
Ratio of Net Investment
Income to Average Net
Assets (b)................ 4.89% 5.17% 5.24% 5.19% 3.95%
Portfolio Turnover.......... 46%* 73% 61% 75% 82%
</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 certain expenses was less than
0.01%.

*Non-Annualized

See Notes to Financial Statements

31
<PAGE> 141

NOTES TO FINANCIAL STATEMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital Municipal Income Fund (the "Fund") is organized as a
series of the Van Kampen American Capital Tax Free Trust, a Delaware business
trust, and is registered as a diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to provide a high level of current income exempt from federal
income tax, consistent with preservation of capital. The Fund commenced
investment operations on August 1, 1990. The distribution of the Fund's Class B
and Class C shares commenced on August 24, 1992 and August 13, 1993,
respectively.
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.

32
<PAGE> 142

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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 $28,118,805 which will expire between December
31, 2002 and December 31, 2003. Net realized gains or losses differ for
financial reporting and tax purposes primarily as a result of the deferral of
losses for tax purposes resulting from wash sale transactions and the
capitalization for tax purposes of reorganization and restructuring costs.
At June 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $895,394,367; the aggregate gross unrealized
appreciation is $71,036,648 and the aggregate gross unrealized depreciation is
$11,199,443, resulting in net unrealized appreciation including open option and
futures transactions of $59,837,205.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $35,000 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 six months ended June 30, 1997, the Fund recognized expenses of
approximately $84,300 representing Van Kampen American Capital Distributors,
Inc.'s or

33
<PAGE> 143

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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 six months ended
June 30, 1997, the Fund recognized expenses of approximately $357,600,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is equal to $2,500.
At June 30, 1997, VKAC owned 6,894 Class A shares of the Fund.

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.

34
<PAGE> 144

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $715,399,633, $201,756,136 and
$11,647,522 for Classes A, B and C, respectively. For the six months ended June
30, 1997, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................. 18,404,838 $ 278,717,862
Class B................................. 509,066 7,730,614
Class C................................. 90,201 1,368,866
----------- -------------
Total Sales............................... 19,004,105 $ 287,817,342
=========== =============
Dividend Reinvestment:
Class A................................. 611,112 $ 9,267,531
Class B................................. 146,928 2,228,227
Class C................................. 8,433 127,797
----------- -------------
Total Dividend Reinvestment............... 766,473 $ 11,623,555
=========== =============
Repurchases:
Class A................................. (21,923,811) $(332,840,608)
Class B................................. (1,175,823) (17,842,537)
Class C................................. (172,011) (2,611,117)
----------- -------------
Total Repurchases......................... (23,271,645) $(353,294,262)
=========== =============
</TABLE>

35
<PAGE> 145

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At December 31, 1996, capital aggregated $760,254,848, $209,639,832 and
$12,761,976 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.......................................... 27,650,131 $ 418,053,766
Class B.......................................... 1,641,964 24,779,007
Class C.......................................... 375,923 5,696,756
----------- -------------
Total Sales........................................ 29,668,018 $ 448,529,529
=========== =============
Dividend Reinvestment:
Class A.......................................... 1,572,959 $ 23,855,458
Class B.......................................... 375,855 5,699,914
Class C.......................................... 22,531 341,365
----------- -------------
Total Dividend Reinvestment........................ 1,971,345 $ 29,896,737
=========== =============
Repurchases:
Class A.......................................... (31,326,699) $(474,926,518)
Class B.......................................... (2,128,006) (32,268,288)
Class C.......................................... (272,810) (4,134,708)
----------- -------------
Total Repurchases.................................. (33,727,515) $(511,329,514)
=========== =============
</TABLE>

36
<PAGE> 146

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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 six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$54,000 and CDSC on redeemed shares of approximately $248,800. Sales charges do
not represent expenses of the Fund.

On October 25, 1996, the Fund acquired all of the assets and liabilities of
the Van Kampen American Capital Texas Tax Free Income Fund (the "TX Fund"),
through a tax free reorganization approved by TX Fund shareholders on October
15, 1996. The Fund issued 605,902, 421,195 and 53,444 shares of Classes A, B and
C valued at $9,179,415, $6,381,107 and $809,140, respectively, in exchange for
TX Fund's net assets. Shares issued in connection with this reorganization are
included in common share sales for the current period. Combined net assets on
the day of acquisition were $1,003,018,474.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $446,079,383 and $525,253,397,
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.

37
<PAGE> 147

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
Contracts Premium
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996................ 750 $ (659,624)
Options Written and Purchased (Net)............. 6,100 (947,274)
Options Terminated in Closing Transactions
(Net)......................................... (3,150) 758,624
Options Expired (Net)........................... (2,950) 1,396,910
------ -----------
Outstanding at June 30, 1997.................... 750 $ 548,636
======= ===========
</TABLE>

The related futures contracts of the outstanding option transactions as of
June 30, 1997, and the description and market value are as follows:

<TABLE>
<CAPTION>
Market
Exp. Month/ Value
Contracts Exercise Price of Options
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond Futures
September 1997 - Written Puts
(Current notional value of
$111,063 per contract)............ 750 Sep./112 $(246,094)
=== =========
</TABLE>

38
<PAGE> 148

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

closes the contract prior to the delivery date. These contracts are generally
used to manage the portfolio's effective maturity and duration.

Transactions in futures contracts for the six months ended June 30, 1997,
were as follows:

<TABLE>
<CAPTION>
Contracts
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996........................... 251
Futures Opened............................................. 7,609
Futures Closed............................................. (6,410)
-------
Outstanding at June 30, 1997............................... 1,450
========
</TABLE>

The futures contracts outstanding at June 30, 1997, and the descriptions and
unrealized appreciation/depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- -------------------------------------------------------------
<S> <C> <C>
Long Contracts - U.S. Treasury
Bond Futures
September 1997
(Current notional value $111,063
per contract)................... 650 $ 661,942
Short Contracts - Municipal Bond
Index Futures
September 1997
(Current notional value $116,500
per contract)................... 800 (906,456)
----- ---------
1,450 $(244,514)
======= =========
</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

39
<PAGE> 149

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

coupon is reduced. Conversely, as the floating rate declines, the coupon is
increased. These instruments are typically used by the Fund to enhance the yield
of the portfolio.

6. DISTRIBUTION AND SERVICE PLANS

The Fund and its shareholders have adopted a distribution plan 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.

40
<PAGE> 150

FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL

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

41
<PAGE> 151

VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND

BOARD OF TRUSTEES

J. MILES BRANAGAN

RICHARD M. DEMARTINI*

LINDA HUTTON HEAGY

R. CRAIG KENNEDY

JACK E. NELSON

DON G. POWELL*

JEROME L. ROBINSON

PHILLIP B. ROONEY

FERNANDO SISTO

WAYNE W. WHALEN* - Chairman

OFFICERS

DENNIS J. MCDONNELL*
President

RONALD A. NYBERG*
Vice President and Secretary

EDWARD C. WOOD, III*
Vice President and Chief Financial Officer

CURTIS W. MORELL*
Vice President and Chief Accounting Officer

JOHN L. SULLIVAN*
Treasurer

TANYA M. LODEN*
Controller

PETER W. HEGEL*

ALAN T. SACHTLEBEN*

PAUL R. WOLKENBERG*
Vice Presidents

INVESTMENT ADVISER

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

DISTRIBUTOR

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

SHAREHOLDER SERVICING AGENT

ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256

CUSTODIAN

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

LEGAL COUNSEL

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

INDEPENDENT ACCOUNTANTS

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

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

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

42
<PAGE> 152

RESULTS OF SHAREHOLDER VOTES

A Special Meeting of Shareholders of the Fund was held on May 28, 1997 where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
39,816,469 shares voted for the proposal, 560,978 shares voted against and
1,802,615 shares abstained. With regard to the election of J. Miles Branagan as
elected trustee of the Fund, 41,424,902 shares voted in his favor and 755,160
shares withheld. With regard to the election of Richard M. DeMartini as elected
trustee of the Fund, 41,422,174 shares voted in his favor and 757,888 shares
withheld. With regard to the election of Linda Hutton Heagy as elected trustee
of the Fund, 41,420,703 shares voted in her favor and 759,358 shares withheld.
With regard to the election of R. Craig Kennedy as elected trustee of the Fund,
41,408,967 shares voted in his favor and 771,095 shares withheld. With regard to
the election of Jack E. Nelson as elected trustee of the Fund, 41,407,376 shares
voted in his favor and 772,686 shares withheld. With regard to the election of
Don G. Powell as elected trustee of the Fund, 41,425,917 shares voted in his
favor and 754,145 shares withheld. With regard to the election of Jerome L.
Robinson as elected trustee of the Fund, 41,418,480 shares voted in his favor
and 761,582 shares withheld. With regard to the election of Phillip B. Rooney as
elected trustee of the Fund, 41,415,701 shares voted in his favor and 764,361
shares withheld. With regard to the election of Fernando Sisto as elected
trustee of the Fund, 41,411,703 shares voted in his favor and 768,359 shares
withheld. With regard to the election of Wayne W. Whalen as elected trustee of
the Fund, 41,413,430 shares voted in his favor and 766,631 shares withheld. With
regard to the ratification of KPMG Peat Marwick LLP as independent public
accountants for the Fund, 40,396,192 shares voted for the proposal, 233,442
shares voted against and 1,550,428 shares abstained.

43
<PAGE> 153

VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND

THIS PAGE INTENTIONALLY LEFT BLANK

44
<PAGE> 154

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 17
</TABLE>

INF SAR 8/97
<PAGE> 155

LETTER TO SHAREHOLDERS

July 24, 1997

Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan
Stanley Group Inc., a world leader in
asset management. Earlier this year,
Morgan Stanley Group Inc. and Dean [PHOTO]
Witter, Discover & Co. agreed to
merge. The merger was completed on
May 31, creating the combined company
of Morgan Stanley, Dean Witter, DENNIS J. MCDONNELL AND DON G. POWELL
Discover & Co. Additionally, we are
very pleased to announce that Philip
N. Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.

ECONOMIC OVERVIEW
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Meanwhile, consumer confidence
soared to its highest reading in 27 years, while unemployment fell as low as 4.8
percent, the best level since 1973.
Despite the robust pace of economic activity, there was little evidence of
troublesome inflation. Wholesale prices actually fell during each of the first
five months of 1997, the longest stretch of consecutive monthly declines in 45
years. At the consumer level, prices rose by a mere 2.2 percent during the 12
months through May. A strong rally in the U.S. dollar helped dampen inflationary
pressures resulting from the vigorous domestic economy by making imported goods
less expensive. At the same time, continued moderation in the cost of employee
benefit packages offset mild upward pressure on wages.

Continued on page two

1
<PAGE> 156

MARKET OVERVIEW
The strong economy and tight labor market combined to put mild upward
pressure on bond yields during the first half of 1997. For several weeks during
the spring, it appeared that economic growth was too robust and that inflation
could reemerge. The Federal Reserve's quarter-point increase in short-term
interest rates, as well as worries about inflation, pushed yields on long-term
government bonds up to 7.17 percent in April. When subsequent data showed the
economy to be decelerating during the second quarter, bond yields gradually fell
back to 6.78 percent at the end of June, slightly above where they stood at the
beginning of the year.
Within the tax-exempt municipal market, long-term general obligation bonds
returned nearly 4 percent during the past six months. The supply of municipal
bonds remained tight, as a number of older bonds were called and new issuance
was less than anticipated. As of June 30, long-term AA-rated general obligation
bonds yielded 5.49 percent, which is equivalent to a 9.09 percent yield on
taxable securities for investors in the 39.6 percent federal income tax bracket.

Sincerely,

[SIG]
Don G. Powell

Chairman
Van Kampen American Capital
Investment Advisory Corp.

[SIG]
Dennis J. McDonnell

President
Van Kampen American Capital
Investment Advisory Corp.

2
<PAGE> 157

PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997

VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM MUNICIPAL INCOME FUND

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS

Six-month total return based on NAV(1)... 2.75% 2.39% 2.29%
Six-month total return(2)................ (0.56%) (0.61%) 1.29%
One-year total return(2)................. 3.65% 3.42% 5.32%
Life-of-Fund average annual total
return(2)................................ 5.50% 5.62% 4.21%
Commencement date........................ 05/28/93 05/28/93 10/19/93

DISTRIBUTION RATES AND YIELD

Distribution rate(3)..................... 4.48% 3.92% 3.93%
Taxable equivalent distribution
rate(4).................................. 7.00% 6.13% 6.14%
SEC Yield(5)............................. 3.97% 3.35% 3.38%
</TABLE>

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

(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).

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

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

(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1997. Had certain
expenses of the Fund not been assumed by VKAC, total returns would have been
lower and the SEC Yield would have been 3.83%, 3.21% and 3.24% for Classes A, B
and C, respectively.

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

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

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

3
<PAGE> 158

PORTFOLIO HIGHLIGHTS

VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM MUNICIPAL INCOME FUND

TOP TEN STATES AS OF JUNE 30, 1997

<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Illinois............... 13.3%
New York............... 9.2%
California............. 8.5%
Florida................ 7.6%
Ohio................... 6.9%
New Jersey............. 6.9%
Arizona................ 5.6%
Utah................... 5.6%
Missouri............... 5.5%
Georgia................ 4.8%
</TABLE>

CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS

AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <S> <C>
AAA........... 20.1% AAA............... 45.1%
AA............ 2.0% AA................ 7.4%
A............. 2.4% [PIE CHART] A................. 7.7% [PIE CHART]
BBB........... 27.6% BBB............... 29.1%
BB............ 9.7% BB................ 2.5%
Non-Rated..... 38.2% Non-Rated......... 8.2%
</TABLE>

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

TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 6, 1996
<S> <C> <S> <C>
Health Care.................. 21.3% Health Care............... 20.8%
Multi-Family Housing......... 16.0% Multi-Family Housing...... 15.3%
Industrial Revenue........... 14.7% General Purpose........... 13.7%
General Purpose.............. 13.1% Industrial Revenue........ 9.0%
Airport...................... 9.9% Other Care................ 8.1%
</TABLE>

DURATION

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C>
Duration 6.26 years 6.51 years
</TABLE>

4
<PAGE> 159

PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM MUNICIPAL INCOME FUND

We recently spoke with the management team of the Van Kampen American Capital
Intermediate Term Municipal Income Fund about the key events and economic forces
that shaped the markets during the first half of the Fund's fiscal year. The
team includes Timothy D. Haney, portfolio manager, and Peter W. Hegel, chief
investment officer for fixed-income investments. The following excerpts reflect
their views concerning the Fund's performance during the six-month period ended
June 30, 1997.

Q WHAT MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND DURING THE
FIRST HALF OF THIS YEAR?

A The actions of the Federal Reserve Board during the period had a major
impact on the fixed-income market. The Fed pre-emptively tightened rates
in March in response to improving economic data. Later, data showing a
tempering of economic activity led to a bond market rally and no further change
in rates by the Fed at its May meeting.
The most significant condition impacting the municipal market during the
period was the rising number of insured bonds that came to market. Insured
issuance has grown steadily, and now amounts to nearly 55 percent of all new
issue municipal bonds. In large part, this is due to an increasing appetite for
safety from investors concerned about municipalities with financial
difficulties. Drastic cuts in insurance costs over the past four years have made
yields on insured offerings much more attractive when compared to those of the
riskier lower-rated securities. The scarcity of the lower- and non-rated bonds
makes it difficult to achieve the higher yields necessary to maintain
consistently high dividends.

Q HAS THE FUND'S PERFORMANCE SUFFERED FROM THE TIGHT SUPPLY OF
HIGHER-YIELDING SECURITIES?

A To some extent, yes. While we have been able to find and purchase
municipal bonds with attractive yields that maintain a positive influence
on the Fund's total return and dividend-paying ability, we have been
forced to work a little harder to achieve our goals.
For the six months ended June 30, 1997, the Fund generated a total return
of 2.75 percent(1) (Class A shares at net asset value). By comparison, the
Lehman Brothers Municipal Bond Index produced a total return of 3.20 percent
over the same period. Please keep in mind that this index is a broad-based,
unmanaged index of municipal bonds and does not reflect any commissions or fees
that would be paid by an investor purchasing the securities it represents.
The Fund's net asset value closed the reporting period at $10.25 per
Class A share, up from $10.21 per share six months ago. The Fund's tax-exempt
distribution rate for Class A shares as of June 30, 1997, was 4.48 percent(3),
representing a taxable-equivalent distribution rate of 7.00 percent(4) for an
investor in the 36 percent federal income tax bracket. Please refer to the
chart on page three for additional Fund performance results.

5
<PAGE> 160

Q TO WHAT WOULD YOU ATTRIBUTE THE FUND'S SUCCESS?

A We have always managed the portfolio with long-term performance in mind.
We strive for consistency, and we focus on providing relative net asset
value stability and a competitive dividend yield. It is an approach that
has worked well for us throughout a wide range of market conditions.
We are also supported by a very strong research team and a research
philosophy that has proven itself over the long term. With analysts in four
regions of the country--based in southern California, Chicago, Houston, and
Boston--we are able to get a better read on regional economies and build strong
relationships and information networks among the issuers and traders we deal
with on a daily basis. This gives us a head start in identifying attractive
high-yielding municipal bond issues.

Q WHAT CHANGES TO THE FUND DID YOU MAKE DURING THE PERIOD?

A The first six months of 1997 concluded with competitive performance. Our
emphasis over the period was directed toward swapping out of longer
duration, higher-quality holdings and increasing exposure in shorter
duration, lower-rated bonds. Because the Fund seeks to provide income and yield,
the shorter duration and lower-rated bonds help us continually boost the yield
and maintain the relatively high dividend.
We continue to keep the Fund well diversified, with no more than 25
percent of assets in any one sector. Health care continues to be our largest
sector concentration. This is due to our strong emphasis on research in the
industry that enables us to identify value in health care bonds. Non-hospital
health-care issues senior citizen residences, nursing homes and assisted care
centers--are very attractive and provide excellent yield opportunities. For
additional Fund portfolio highlights, please refer to page four.

Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?

A We anticipate that the supply of uninsured, higher-yielding bonds will
continue to be an issue as we enter the second half of 1997. As a result,
we will rely heavily on our research team to find the most attractive and
appropriate high-yielding bonds to add to the Fund.
We will closely monitor any new developments in the financial markets and
in Washington in order to evaluate their potential impact on the Fund.
Regardless of what happens, we feel confident that we have positioned the Fund
for solid, consistent performance. The Fund will be managed in a manner
consistent with the philosophy we

6
<PAGE> 161

have applied since the Fund's inception, as we seek to achieve our objective of
providing shareholders with a high level of current income exempt from federal
income taxes.

[SIG]
Peter W. Hegel

Chief Investment Officer
Fixed Income Investments
Timothy D. Haney

[SIG]
Timothy D. Haney

Portfolio Manager

Please see footnotes on page three

<PAGE> 162

PORTFOLIO OF INVESTMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 1.5%
$ 500 West Jefferson Cnty, AL Amusement & Pub Pk
Auth............................................ 7.500% 12/01/08 $ 503,230
-----------
ALASKA 0.8%
250 Seward, AK Rev AK Sealife Cent Proj............. 7.100 10/01/05 257,773
-----------
ARIZONA 5.7%
500 Maricopa Cnty, AZ Indl Dev Auth Senior Living
Fac Rev......................................... 7.250 04/01/05 502,710
1,245 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)..... 7.250 07/15/10 1,380,630
-----------
1,883,340
-----------
CALIFORNIA 8.6%
360 California Edl Fac Auth Rev Pacific Grad
School.......................................... 6.950 11/01/07 357,419
1,000 California St (AMBAC Insd)...................... 6.400 09/01/08 1,130,990
240 Del Mar, CA Race Track Auth Rev Rfdg............ 6.000 08/15/06 247,200
500 Los Angeles Cnty, CA Ctfs Partn................. 6.100 11/01/01 524,940
555 Pleasanton, CA Jt Pwrs Fin Auth Rev Reassessment
Ser A........................................... 6.000 09/02/05 578,954
-----------
2,839,503
-----------
COLORADO 4.3%
260 Colorado Hsg Fin Auth Access Pgm Single Family
Pgm Ser E....................................... 8.125 12/01/24 286,283
1,000 Denver, CO City & Cnty Arpt Rev Ser A........... 7.400 11/15/04 1,128,690
-----------
1,414,973
-----------
CONNECTICUT 2.5%
300 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A............................................... 6.500 09/01/06 323,028
500 New Haven, CT Indl Fac Rev Adj Govt Cent Thermal
Energies (a).................................... 7.250 07/01/09 500,000
-----------
823,028
-----------
FLORIDA 7.7%
1,150 Florida Hsg Fin Agy Hsg Maitland Club Apts Ser
B1 (AMBAC Insd)................................. 6.750 08/01/14 1,232,892
200 Lee Cnty, FL Indl Dev Auth Econ Rev Encore
Nursing Cent Partner Rfdg....................... 8.125 12/01/07 219,722
250 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg....................... 8.125 07/01/06 257,315
300 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj
Rfdg............................................ 7.125 11/01/06 303,564
535 Westchase East Cmnty Dev Dist FL Cap Impt Rev... 7.250 05/01/03 537,263
-----------
2,550,756
-----------
GEORGIA 4.9%
1,470 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg Rev
North Hill Apts Proj Rfdg (FNMA Collateralized)
(b)............................................. 6.625 01/01/25 1,600,668
-----------
ILLINOIS 13.4%
500 Bedford Park, IL Tax Increment 71st & Cicero
Proj Rfdg....................................... 7.000 01/01/06 505,415
500 Carol Stream, IL First Mtg Rev Windsor Pk Mnr
Proj............................................ 6.500 12/01/07 500,865
500 Chicago, IL Tax Increment Allocation San
Drainage & Ship Canal A......................... 7.375 01/01/05 505,580
185 Danville, IL Single Family Mtg Rev Rfdg......... 7.300 11/01/10 195,238
</TABLE>

See Notes to Financial Statements

8
<PAGE> 163

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 250 Hoffman Estates, IL Multi-Family Rev Hsg Pk Pl
Apts Proj Rfdg (FNMA Collateralized)............ 5.750% 06/01/21 $ 258,330
1,335 Illinois Dev Fin Auth Elderly Hsg Rev
Libertyville Towers Ser A....................... 6.500 09/01/09 1,387,946
750 Illinois Hlth Fac Auth Rev Holy Cross Hosp Proj
Ser 94-A........................................ 6.250 03/01/04 777,172
300 Peoria, IL Spl Tax Weaverridge Spl Svc Area..... 7.625 02/01/08 305,085
-----------
4,435,631
-----------
KENTUCKY 1.6%
500 Kenton Cnty, KY Arpt Brd Rev (MBIA Insd) (a).... 5.900 03/01/05 520,960
-----------
LOUISIANA 0.8%
250 Iberia Parish, LA Hosp Svc Dist No 1 Hosp Rev... 7.500 05/26/06 255,105
-----------
MASSACHUSETTS 3.8%
500 Massachusetts St Hlth & Edl Fac Auth Rev Cent
New England Hlth Sys Ser A...................... 6.125 08/01/13 487,845
500 Massachusetts St Hlth & Edl North Adams Regl
Hosp Ser C...................................... 6.250 07/01/04 518,615
230 Massachusetts St Indl Fin Agy East Boston
Neighborhood Proj............................... 7.250 07/01/06 232,875
-----------
1,239,335
-----------
MICHIGAN 0.8%
250 Michigan St Hosp Fin Auth Rev Detroit Macomb
Hosp Corp Ser A Rfdg............................ 7.300 06/01/01 252,605
-----------
MINNESOTA 1.0%
330 Minneapolis, MN Multi-Family Rev Hsg Belmont
Apts Proj....................................... 7.000 11/01/06 331,300
-----------
MISSOURI 5.6%
1,500 Kansas City, MO Arpt Rev Genl Impt Ser A (FSA
Insd)........................................... 7.000 09/01/12 1,661,100
180 St. Louis Cnty, MO Indl Dev Auth Indl Rev....... 5.700 10/01/08 170,534
-----------
1,831,634
-----------
NEW JERSEY 7.0%
500 Camden Cnty, NJ Impt Auth Lease Rev Kaighn Pt
Marine Terminal A............................... 7.375 06/01/07 503,270
250 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen
Proj Ser A...................................... 8.000 05/15/04 257,475
1,000 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd)................... 7.000 07/01/06 1,149,830
375 New Jersey Hlthcare Fac Fin Auth Rev Palisades
Med Cent........................................ 7.500 07/01/06 390,956
-----------
2,301,531
-----------
NEW YORK 9.4%
310 Erie Cnty, NY Indl Dev Agy Civic Fac Rev Mercy
Hosp Buffalo Proj Ser A......................... 5.900 06/01/03 319,235
500 New York City Ser A............................. 7.000 08/01/07 562,595
1,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd).............................. 6.200 08/15/05 1,094,270
1,000 Niagara Falls, NY Pub Impt (MBIA Insd).......... 6.900 03/01/20 1,115,190
-----------
3,091,290
-----------
</TABLE>

See Notes to Financial Statements

9
<PAGE> 164

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO 7.0%
$ 500 Cuyahoga Cnty, OH Hlthcare Fac Rev Judson
Retirement Cmnty Ser A Rfdg..................... 7.000% 11/15/10 $ 512,075
500 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp Rfdg... 5.900 05/15/04 517,355
250 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp Rfdg... 6.375 05/15/11 257,208
1,000 Ohio St Air Quality Dev Auth Rev Owens Corning
Fiberglas Proj Rfdg............................. 6.250 06/01/04 1,038,720
-----------
2,325,358
-----------
OKLAHOMA 1.8%
590 Shawnee, OK Hosp Auth Hosp Rev Midamerica
Hlthcare Inc Rfdg............................... 5.750 10/01/03 601,594
-----------
PENNSYLVANIA 2.2%
225 Erie, PA Higher Edl Bldg Auth College Rev
Mercyhurst College Proj A Rfdg.................. 5.300 03/15/03 228,634
500 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Friends Hosp................................ 5.950 05/01/04 508,305
-----------
736,939
-----------
TEXAS 3.8%
500 Austin, TX Util Sys Rev Rfdg (AMBAC Insd) (a)... 6.500 11/15/05 543,910
405 Mesquite, TX Hlth Fac Dev Retirement Fac
Christian Ser A................................. 6.100 02/15/08 413,570
300 San Antonio, TX Hsg Fin Corp Multi-Family Hsg
Rev Beverly Oaks Arpt Proj Ser A................ 7.500 02/01/10 301,668
-----------
1,259,148
-----------
UTAH 5.7%
1,765 Utah St Hsg Fin Agy Single Family Mtg Mezz Ser
A-1 (FHA Gtd)................................... 7.150 07/01/12 1,877,536
-----------
VIRGINIA 1.6%
500 Pittsylvania Cnty, VA Indl Dev Auth Rev Exempt
Fac Ser A....................................... 7.450 01/01/09 528,135
-----------
TOTAL LONG-TERM INVESTMENTS 101.5%
(Cost $31,766,349)......................................................... 33,461,372
SHORT-TERM INVESTMENTS 1.5%
(Cost $500,408)............................................................ 500,408
-----------
TOTAL INVESTMENTS 103.0%
(Cost $32,266,757)......................................................... 33,961,780
LIABILITIES IN EXCESS OF OTHER ASSETS (3.0%)................................ (980,696)
-----------
NET ASSETS 100.0%........................................................... $32,981,084
==========
</TABLE>
*Zero coupon bond

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

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

See Notes to Financial Statements

10
<PAGE> 165

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $32,266,757)........................ $33,961,780
Cash........................................................ 157,281
Receivables:
Interest.................................................. 644,314
Investments Sold.......................................... 105,000
Fund Shares Sold.......................................... 15,077
Unamortized Organizational Cost............................. 10,874
Other....................................................... 77,956
-----------
Total Assets.......................................... 34,972,282
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,530,761
Fund Shares Repurchased................................... 78,399
Distributor and Affiliates................................ 56,254
Income Distributions...................................... 40,254
Investment Advisory Fee................................... 13,762
Accrued Expenses............................................ 181,739
Deferred Compensation and Retirement Plans.................. 90,029
-----------
Total Liabilities..................................... 1,991,198
-----------
NET ASSETS.................................................. $32,981,084
===========
NET ASSETS CONSIST OF:
Capital..................................................... $31,729,189
Net Unrealized Appreciation................................. 1,695,023
Accumulated Undistributed Net Investment Income............. 8,696
Accumulated Net Realized Loss............................... (451,824)
-----------
NET ASSETS.................................................. $32,981,084
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $11,713,842 and 1,142,599 shares of
beneficial interest issued and outstanding)............. $ 10.25
Maximum sales charge (3.25%* of offering price)......... .34
-----------
Maximum offering price to public........................ $ 10.59
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $15,731,370 and 1,535,419 shares of
beneficial interest issued and outstanding)............. $ 10.25
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $5,535,872 and 540,368 shares of
beneficial interest issued and outstanding)............. $ 10.24
===========
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.

See Notes to Financial Statements

11
<PAGE> 166

STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,034,232
----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $14,598, $79,351 and $29,587,
respectively)............................................. 123,536
Investment Advisory Fee..................................... 83,670
Registration................................................ 25,702
Shareholder Reports......................................... 24,435
Shareholder Services........................................ 23,528
Trustees Fees and Expenses.................................. 19,028
Custody..................................................... 14,944
Legal....................................................... 7,240
Amortization of Organizational Costs........................ 5,948
Other....................................................... 40,195
----------
Total Expenses.......................................... 368,226
Less Expenses Reimbursed................................ 23,311
----------
Net Expenses............................................ 344,915
----------
NET INVESTMENT INCOME....................................... $ 689,317
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................. $ 243,441
Futures................................................. (9,378)
----------
Net Realized Gain........................................... 234,063
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................. 1,782,271
End of the Period....................................... 1,695,023
----------
Net Unrealized Depreciation During the Period............... (87,248)
----------
NET REALIZED AND UNREALIZED GAIN............................ $ 146,815
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 836,132
==========
</TABLE>

See Notes to Financial Statements

12
<PAGE> 167

STATEMENT OF CHANGES IN NET ASSETS

For the Six Months Ended June 30, 1997 and the
Year Ended December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 689,317 $ 1,413,175
Net Realized Gain..................................... 234,063 347,243
Net Unrealized Depreciation During the Period......... (87,248) (454,405)
----------- -----------
Change in Net Assets from Operations.................. 836,132 1,306,013
----------- -----------
Distributions from Net Investment Income:
Class A Shares...................................... (274,405) (656,307)
Class B Shares...................................... (316,389) (666,673)
Class C Shares...................................... (117,769) (184,281)
----------- -----------
Total Distributions............................... (708,563) (1,507,261)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 127,569 (201,248)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................. 2,384,217 4,946,191
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 458,686 972,957
Cost of Shares Repurchased............................ (4,670,077) (9,123,506)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (1,827,174) (3,204,358)
----------- -----------
TOTAL DECREASE IN NET ASSETS.......................... (1,699,605) (3,405,606)
NET ASSETS:
Beginning of the Period............................... 34,680,689 38,086,295
----------- -----------
End of the Period (Including accumulated undistributed
net investment income of $8,696 and $27,942,
respectively)....................................... $32,981,084 $34,680,689
============= ===========
</TABLE>

See Notes to Financial Statements

13
<PAGE> 168

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
May 28, 1993
Six Months (Commencement
Ended Year Ended December 31, of Investment
June 30, --------------------------- Operations) to
Class A Shares 1997 1996 1995 1994 December 31, 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $10.213 $10.264 $ 9.330 $10.145 $ 9.700
------- ------- ------- ------- -------
Net Investment Income.............. .234 .455 .508 .489 .278
Net Realized and Unrealized
Gain/Loss........................ .042 (.032) .900 (.815) .462
------- ------- ------- ------- -------
Total from Investment Operations..... .276 .423 1.408 (.326) .740
------- ------- ------- ------- -------
Less:
Distributions from Net Investment
Income........................... .237 .474 .474 .489 .273
Distributions from Net Realized
Gain............................. -0- -0- -0- -0- .022
------- ------- ------- ------- -------
Total Distributions.................. .237 .474 .474 .489 .295
------- ------- ------- ------- -------
Net Asset Value, End of the Period... $10.252 $10.213 $10.264 $ 9.330 $10.145
======= ======= ======= ======= =======
Total Return* (a).................... 2.75%** 4.27% 15.31% (3.32%) 7.75%**
Net Assets at End of the Period (In
millions).......................... $ 11.7 $ 12.5 $ 15.6 $ 15.7 $ 14.0
Ratio of Expenses to Average Net
Assets*............................ 1.57% 1.56% 1.00% .67% .14%
Ratio of Net Investment Income to
Average Net Assets*................ 4.61% 4.45% 5.10% 5.07% 4.78%
Portfolio Turnover................... 31%** 45% 75% 274% 86%**
*If certain expenses had not been reimbursed by VKAC, Total Return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................. 1.71% 1.74% 1.61% 1.75% 2.21%
Ratio of Net Investment Income to
Average
Net Assets......................... 4.47% 4.27% 4.49% 3.99% 2.70%
</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.

See Notes to Financial Statements

14
<PAGE> 169

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
May 28, 1993
Six Months (Commencement
Ended Year Ended December 31, of Investment
June 30, --------------------------- Operations) to
Class B Shares 1997 1996 1995 1994 December 31, 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $10.209 $10.263 $ 9.319 $10.137 $ 9.700
------- ------- ------- ------- -------
Net Investment Income................ .194 .375 .430 .417 .233
Net Realized and Unrealized
Gain/Loss.......................... .044 (.027) .916 (.818) .460
------- ------- ------- ------- -------
Total from Investment Operations..... .238 .348 1.346 (.401) .693
------- ------- ------- ------- -------
Less:
Distributions from Net Investment
Income........................... .201 .402 .402 .417 .234
Distributions from Net Realized
Gain............................. -0- -0- -0- -0- .022
------- ------- ------- ------- -------
Total Distributions.................. .201 .402 .402 .417 .256
------- ------- ------- ------- -------
Net Asset Value, End of the Period... $10.246 $10.209 $10.263 $ 9.319 $10.137
======= ======= ======= ======= =======
Total Return* (a).................... 2.39%** 3.54% 14.62% (4.04%) 7.23%**
Net Assets at End of the Period (In
millions).......................... $ 15.7 $ 16.4 $ 17.5 $ 17.7 $ 13.9
Ratio of Expenses to Average Net
Assets*............................ 2.32% 2.32% 1.75% 1.43% .92%
Ratio of Net Investment Income to
Average Net Assets*................ 3.85% 3.69% 4.33% 4.30% 3.95%
Portfolio Turnover................... 31%** 45% 75% 274% 86%**
*If certain expenses had not been reimbursed by VKAC, Total Return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................. 2.46% 2.50% 2.36% 2.50% 2.98%
Ratio of Net Investment Income to
Average Net Assets................. 3.72% 3.51% 3.72% 3.24% 1.89%
</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.

See Notes to Financial Statements

15
<PAGE> 170

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
Six Months October 19, 1993
Ended Year Ended December 31, (Commencement of
June 30, --------------------------- Distribution) to
Class C Shares 1997 1996 1995 1994 December 31, 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $10.206 $10.260 $ 9.314 $10.134 $10.250
------- ------- ------- ------- -------
Net Investment Income................ .194 .374 .430 .419 .091
Net Realized and Unrealized
Gain/Loss.......................... .045 (.026) .918 (.822) (.098)
------- ------- ------- ------- -------
Total from Investment Operations..... .239 .348 1.348 (.403) (.007)
------- ------- ------- ------- -------
Less:
Distributions from Net Investment
Income........................... .201 .402 .402 .417 .087
Distributions from Net Realized
Gain............................. -0- -0- -0- -0- .022
------- ------- ------- ------- -------
Total Distributions.................. .201 .402 .402 .417 .109
------- ------- ------- ------- -------
Net Asset Value, End of the Period... $10.244 $10.206 $10.260 $ 9.314 $10.134
======= ======= ======= ======= =======
Total Return* (a).................... 2.29%** 3.54% 14.74% (4.04%) (.10%)**
Net Assets at End of the Period (In
millions).......................... $ 5.5 $ 5.8 $ 4.9 $ 4.7 $ .3
Ratio of Expenses to Average Net
Assets*............................ 2.32% 2.32% 1.74% 1.43% .97%
Ratio of Net Investment Income to
Average Net Assets*................ 3.86% 3.70% 4.36% 4.34% 4.05%
Portfolio Turnover................... 31%** 45% 75% 274% 86%**
*If certain expenses had not been reimbursed by VKAC, Total Return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................. 2.46% 2.50% 2.34% 2.46% 2.97%
Ratio of Net Investment Income to
Average Net Assets................. 3.72% 3.52% 3.75% 3.31% 2.06%
</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.

See Notes to Financial Statements

16
<PAGE> 171

NOTES TO FINANCIAL STATEMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

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

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

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.

17
<PAGE> 172

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $60,000. These costs
are being amortized on a straight line basis over the 60 month period ending May
27, 1998. Van Kampen American Capital Investment Advisory Corp. (the "Adviser")
has agreed that in the event any of the initial shares of the Fund originally
purchased by VKAC are redeemed during the amortization period, the Fund will be
reimbursed for any unamortized organizational costs in the same proportion as
the number of shares redeemed bears to the number of initial shares held at the
time of redemption.

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

The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of loss and offset such losses against any future realized capital gains.
At December 31, 1996, the Fund had an accumulated capital loss carryforward for
tax purposes of $685,887 which will expire between December 31, 2002 and
December 31, 2003.

At June 30, 1997, for federal income tax purposes, cost of long- and short
term investments is $32,266,757; the aggregate gross unrealized appreciation is
$1,697,604 and the aggregate gross unrealized depreciation is $2,581, resulting
in net unrealized appreciation of $1,695,023.

F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

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

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

18
<PAGE> 173

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

For the six months ended June 30, 1997, VKAC has agreed to assume the Fund's
registration and filing fees. This waiver is voluntary and may be discontinued
at any time.

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $3,700 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 six months ended June 30, 1997, the Fund recognized expenses of
approximately $19,100 representing VKAC's 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 for the Fund. For the six months ended
June 30, 1997, the Fund recognized expenses of approximately $16,600,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.

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

At June 30, 1997, VKAC owned 1,000, 100 and 100 shares of beneficial
interest of Classes A, B and C, respectively.

3. CAPITAL TRANSACTIONS

The Fund has outstanding three classes of 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.

19
<PAGE> 174

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $11,229,375, $15,278,649 and
$5,221,165 for Classes A, B and C, respectively. For the six months ended June
30, 1997, transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 75,039 $ 761,384
Class B....................................... 41,162 418,115
Class C....................................... 118,810 1,204,718
-------- -----------
Total Sales..................................... 235,011 $ 2,384,217
======== ===========
Dividend Reinvestment:
Class A....................................... 17,298 $ 176,098
Class B....................................... 17,564 178,712
Class C....................................... 10,211 103,876
-------- -----------
Total Dividend Reinvestment..................... 45,073 $ 458,686
======== ===========
Repurchases:
Class A....................................... (170,402) $(1,735,120)
Class B....................................... (128,263) (1,304,816)
Class C....................................... (159,871) (1,630,141)
-------- -----------
Total Repurchases............................... (458,536) $(4,670,077)
======== ===========
</TABLE>

20
<PAGE> 175

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At December 31, 1996, capital aggregated $12,027,013, $15,986,638 and
$5,542,712 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....................................... 103,746 $ 1,052,973
Class B....................................... 139,700 1,404,638
Class C....................................... 245,967 2,488,580
-------- -----------
Total Sales..................................... 489,413 $ 4,946,191
======== ============
Dividend Reinvestment:
Class A....................................... 40,990 $ 414,943
Class B....................................... 38,800 392,637
Class C....................................... 16,324 165,377
-------- -----------
Total Dividend Reinvestment..................... 96,114 $ 972,957
======== ============
Repurchases:
Class A....................................... (445,139) $(4,514,663)
Class B....................................... (281,671) (2,845,685)
Class C....................................... (172,868) (1,763,158)
-------- -----------
Total Repurchases............................... (899,678) $(9,123,506)
======== ============
</TABLE>

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

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

21
<PAGE> 176

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

For the six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately $250
and CDSC on redeemed shares of approximately $10,400. Sales charges do not
represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $10,540,771 and $15,003,593,
respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

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

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

During the six months ended June 30, 1997, the Fund invested in futures
contracts, a type of derivative. A futures contract is an agreement involving
the delivery of a particular asset on a specified future date at an agreed upon
price. The Fund generally invests in futures on U.S. Treasury Bonds and the
Municipal Bond Index and typically closes the contract prior to the delivery
date. These contracts are generally used to manage the Fund's effective maturity
and duration.

22
<PAGE> 177

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

Transactions in futures contracts for the six months ended June 30, 1997,
were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- -------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996....................... 0
Futures Opened......................................... 6
Futures Closed......................................... (6)
--
Outstanding at June 30, 1997........................... 0
==
</TABLE>

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.

23
<PAGE> 178
VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM MUNICIPAL INCOME FUND

BOARD OF TRUSTEES

J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman

OFFICERS

DENNIS J. MCDONNELL*
President

RONALD A. NYBERG*
Vice President and Secretary

EDWARD C. WOOD, III*
Vice President and Chief Financial Officer

CURTIS W. MORELL*
Vice President and Chief Accounting Officer

JOHN L. SULLIVAN*
Treasurer

TANYA M. LODEN*
Controller

PETER W. HEGEL*

ALAN T. SACHTLEBEN*

PAUL R. WOLKENBERG*
Vice Presidents

INVESTMENT ADVISER

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

DISTRIBUTOR

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

SHAREHOLDER SERVICING AGENT

ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256

CUSTODIAN

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

LEGAL COUNSEL

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

INDEPENDENT ACCOUNTANTS

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

* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1997, this report must be accompanied
by a quarterly performance update, if applicable.

24
<PAGE> 179

RESULTS OF SHAREHOLDER VOTES

A Special Meeting of Shareholders of the Fund was held on May 28, 1997 where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
2,071,127 shares voted for the proposal, 38,466 shares voted against and 53,202
shares abstained. With regard to the election of J. Miles Branagan as elected
trustee of the Fund, 2,125,882 shares voted in his favor and 36,913 shares
withheld. With regard to the election of Richard M. DeMartini as elected trustee
of the Fund, 2,125,882 shares voted in his favor and 36,913 shares withheld.
With regard to the election of Linda Hutton Heagy as elected trustee of the
Fund, 2,125,882 shares voted in her favor and 36,913 shares withheld. With
regard to the election of R. Craig Kennedy as elected trustee of the Fund,
2,125,882 shares voted in his favor and 36,913 shares withheld. With regard to
the election of Jack E. Nelson as elected trustee of the Fund, 2,125,882 shares
voted in his favor and 36,913 shares withheld. With regard to the election of
Don G. Powell as elected trustee of the Fund, 2,125,882 shares voted in his
favor and 36,913 shares withheld. With regard to the election of Jerome L.
Robinson as elected trustee of the Fund, 2,125,882 shares voted in his favor and
36,913 shares withheld. With regard to the election of Phillip B. Rooney as
elected trustee of the Fund, 2,125,882 shares voted in his favor and 36,913
shares withheld. With regard to the election of Fernando Sisto as elected
trustee of the Fund, 2,125,882 shares voted in his favor and 36,913 shares
withheld. With regard to the election of Wayne W. Whalen as elected trustee of
the Fund, 2,125,882 shares voted in his favor and 36,913 shares withheld. With
regard to the ratification of KPMG Peat Marwick LLP as independent public
accountants for the Fund, 2,120,981 shares voted for the proposal, 6,115 shares
voted against and 35,699 shares abstained.

25
<PAGE> 180

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Portfolio Management Review...................... 6
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 17
</TABLE>

FLI SAR 8/97
<PAGE> 181

LETTER TO SHAREHOLDERS

July 24, 1997

Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan
Stanley Group Inc., a world leader in
asset management. Earlier this year,
Morgan Stanley Group Inc. and Dean
Witter, Discover & Co. agreed to [PHOTO]
merge. The merger was completed on
May 31, creating the combined company
of Morgan Stanley, Dean Witter, DENNIS J. MCDONNELL AND DON G. POWELL
Discover & Co. Additionally, we are
very pleased to announce that Philip
N. Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.

Continued on page two

1
<PAGE> 182

Continued on page three

2
<PAGE> 183

Sincerely,

[SIG]
Don G. Powell

Chairman
Van Kampen American Capital
Investment Advisory Corp.

[SIG]
Dennis J. McDonnell

President
Van Kampen American Capital
Investment Advisory Corp.

3
<PAGE> 184

PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997

VAN KAMPEN AMERICAN CAPITAL FLORIDA INSURED TAX FREE INCOME FUND

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS

Six-month total return based on
NAV(1)................................ 2.82% 2.50% 2.43%
Six-month total return(2)............... (2.06%) (1.50%) 1.43%
One-year total return(2)................ 3.79% 4.24% 7.23%
Life-of-Fund average annual total
return(2)............................. 5.56% 5.50% 6.60%
Commencement date....................... 07/29/94 07/29/94 07/29/94

DISTRIBUTION RATES AND YIELD

Distribution rate(3).................... 4.89% 4.37% 4.37%
Taxable equivalent distribution
rate(4)............................... 7.64% 6.83% 6.83%
SEC Yield(5)............................ 4.88% 4.37% 4.34%
</TABLE>

(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or
contingent deferred sales charge for early withdrawal (4% for B shares and 1%
for C shares).

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

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

(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1997. Had certain
expenses of the Fund not been assumed by VKAC, the SEC Yield would have been
3.90%, 3.34% and 3.32% for Classes A, B and C, respectively, and total returns
would have been lower.

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

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

4
<PAGE> 185

PORTFOLIO HIGHLIGHTS

VAN KAMPEN AMERICAN CAPITAL FLORIDA INSURED TAX FREE INCOME FUND

CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C> <C>
AAA.............. 85.4% AAA.............. 81.2%
AA............... 4.6% [PIE CHART] AA............... 7.7% [PIE CHART]
A................ 5.1% A................ 6.4%
BBB.............. 4.3% BBB.............. 4.7%
Non-Rated........ 0.6%
</TABLE>

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

TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C> <C>
Health Care ........... 21.5% Health Care .............. 33.3%
Public Education ...... 17.7% Public Education ......... 11.2%
Water and Sewer ....... 11.6% Water and Sewer .......... 11.1%
Single-Family Single-Family
Housing ............. 11.5% Housing ................ 9.5%
Higher Education ...... 9.2% Retail
Electric/Gas/Telephone ... 7.1%
</TABLE>

DURATION

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C>
Duration 8.46 years 9.44 years
</TABLE>

5
<PAGE> 186

PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL FLORIDA INSURED TAX FREE INCOME FUND

We recently spoke with the management team of the Van Kampen American Capital
Florida Insured Tax Free Income Fund about the key events and economic forces
that shaped the markets during the first half of the Fund's fiscal year. The
team includes Thomas M. Byron, portfolio manager, and Peter W. Hegel, chief
investment officer for fixed-income investments. The following excerpts reflect
their views concerning the Fund's performance during the six-month period ended
June 30, 1997.

Q WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND
DURING THE FIRST HALF OF THIS YEAR?

A Interest rate changes and the state of the economy played major roles in
the Fund's performance. The United States economy has been expanding for
several periods. This economic prosperity is unequaled in history--with
unemployment at a 27-year low and few signs of inflation. The downward trend in
interest rates in recent years has given us a boost in terms of price
appreciation, but also makes it more difficult to add to the income component of
the Fund.
Another factor impacting the Fund is the percentage of issues coming to
market triple-A insured. In large part, this is due to an increasing appetite
for safety from investors concerned about municipalities with financial
difficulties. Combined with drastic cuts in insurance costs over the past four
years, yields on insured bonds are much more attractive when compared to those
of riskier lower-rated securities. The increase in insured issuance and the
scarcity of uninsured investment grade securities has compressed the yield
spreads between triple-A rated securities and lower-rated bonds. In response to
this narrowing, acquisitions have emphasized quality as we feel the investor is
not adequately rewarded for the additional credit risk on uninsured bonds.

Q HOW DID THE FUND RESPOND TO THESE MARKET CONDITIONS?

A Overall, the Fund responded well to the somewhat volatile interest rate
and limited supply environment. The growing economy and low unemployment
rates led us to believe that the Federal Reserve Board would raise rates
in March. As a result, we adjusted the portfolio's duration at the end of March
to 8.19 years, slightly lower than the Lehman Brothers Bond Index of 8.43 years
in an attempt to limit the susceptibility of a rise in rates affecting the Fund
negatively. This proved successful. Because of the longer-term nature of the
Fund, the calculation of this index's duration has been adjusted to eliminate
bonds with maturities of five years or less. Duration, which is expressed in
years, is a measurement of the portfolio's price sensitivity to interest rates.
The shorter the duration of a portfolio, the less sensitive it is to interest
rate changes.
Towards the end of the period, with indications that the economy was
slowing, we adjusted duration to a neutral position in line with the benchmark,
resulting in a positive influence on the Fund's total return.

6
<PAGE> 187

Q WHAT CHANGES HAVE YOU MADE IN THE FUND'S PORTFOLIO OVER THE PAST SIX
MONTHS?

A We decreased our investments in the health-care sector as traditional
yield spreads have narrowed between health care and essential service
sector bonds such as water and sewer and education bonds. Our limited
exposure to the sector was an attempt to restructure the Fund by extending call
dates--selling shorter calls and buying longer calls--but was not an indication
that we wanted to pull out of health care as a sector concentration. In fact,
historically, insured health-care bonds have proven to be one of the best
performing sectors, offering relatively higher yields.
Because of the narrowing spreads between insured and uninsured investment
grade bonds, we have increased our percentage of insured bonds which provide
better liquidity. The yield advantage of uninsured investment-grade bonds over
insured bonds has virtually disappeared as yield spreads tightened.
It was our intention to increase our position in uninsured investment grade
bonds to add more yield to the Fund. Currently the spread between insured and
AAA-rated securities is too narrow, offering little opportunity to exercise this
decision. For additional Fund portfolio highlights, please refer to page five.

Q HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED JUNE 30, 1997?

A For the six-month period ended June 30, 1997, the Fund's total return was
2.82 percent(1) (Class A shares at net asset value). By comparison, the
market in general, as represented by the Lehman Brothers Municipal Bond
Index, returned 3.20 percent over the same six-month period. Longer term, the
Fund generated a one-year total return of 8.99 percent(1) (Class A shares at net
asset value) through June 30, 1997. The Lehman Index is a broad-based, unmanaged
index of municipal bonds and does not reflect any commissions or fees that would
be paid by an investor purchasing the securities it represents.
At its current monthly annualized dividend level of $0.774 per share, the
Fund generated a tax-free distribution rate of 4.89 percent(3) (Class A shares)
as of June 30, 1997. At this distribution rate, the Fund provides shareholders
in the 36 percent federal income tax bracket with a yield equivalent to a
taxable investment earning 7.64 percent(4). Please refer to the chart on page
four for additional Fund performance results.

Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?

A The Fund is positioned to track well with the market. In the event that
inflation picks up and the Fed responds with one or more rate hikes, we
will adjust the portfolio's duration and some of our bond holdings. Until
that time, we will maintain a neutral posture as we enter the second half of
1997.
Presently, Florida's economy is doing well with growth outpacing the
national average, and should gradually come in line with the rest of the
country. Municipal bond issuance for Florida is likely to remain consistent with
past years.

7
<PAGE> 188

We will closely monitor any new developments in the financial markets as
well as Florida's economy in order to evaluate their potential impact on the
Fund. We feel confident that we have positioned the Fund for solid, consistent
performance.

[SIG]
Peter W. Hegel

Chief Investment Officer
Fixed Income Investments

[SIG]
Thomas M. Byron

Portfolio Manager

Please see footnotes on page four

8
<PAGE> 189

PORTFOLIO OF INVESTMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
FLORIDA 94.9%
$ 470 Brevard Cnty, FL Hsg Fin Auth Single Family Mtg
Rev (GNMA Collateralized)........................ 6.650% 09/01/21 $ 492,819
650 Brevard Cnty, FL Sales Tax Rev (MBIA Insd)....... 5.750 12/01/13 666,302
1,000 Brevard Cnty, FL Sch Brd Ctfs Ser A (AMBAC Insd)
(b).............................................. 5.400 07/01/12 1,022,650
500 Broward Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Rfdg Ser A (GNMA Collateralized)............. 6.100 10/01/19 510,890
750 Broward Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Rfdg Ser A (GNMA Collateralized)............. 6.200 04/01/30 767,520
500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp Ser
A Rfdg (FSA Insd) (b)............................ 6.500 08/15/12 539,260
1,000 Dade Cnty, FL Aviation Rev Ser B (MBIA Insd)..... 5.600 10/01/26 992,080
1,000 Dade Cnty, FL Edl Fac Auth Rev Univ of Miami Ser
B (MBIA Insd).................................... 5.750 04/01/20 1,014,720
980 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 5.750 05/01/08 1,027,001
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 6.000 05/01/14 521,115
750 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC Insd)...... 5.375 10/01/16 747,263
900 Daytona Beach, FL Wtr & Swr Rev Rfdg (AMBAC
Insd)............................................ 5.750 11/15/10 928,548
2,500 Florida St Brd Edl Cap Outlay Pub Edl Ser C (MBIA
Insd)............................................ 5.600 06/01/20 2,488,675
1,750 Florida St Brd Regt Univ Sys Impt Rev (MBIA
Insd)............................................ 5.625 07/01/19 1,757,122
1,750 Florida St Division Bond Fin Dept Genl Services
Rev (AMBAC Insd)................................. 5.000 07/01/12 1,698,777
500 Hillsborough Cnty, FL Hosp Auth Hosp Rev Tampa
Genl Hosp Proj Rfdg (FSA Insd)................... 6.375 10/01/13 536,560
750 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Rfdg (MBIA Insd).......... 6.250 12/01/34 804,847
1,300 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd)... 5.700 10/01/15 1,328,158
1,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd)... 6.100 10/01/18 1,048,460
1,000 Jacksonville, FL Elec Auth Rev Saint John's Pwr-2
Ser 7 Rfdg (MBIA Insd) (b)....................... 5.500 10/01/14 1,003,310
700 Jacksonville, FL Hlth Fac Auth Hosp Rev Baptist
Med Cent Proj Ser A Rfdg (MBIA Insd)............. 7.300 06/01/19 746,802
1,000 Jacksonville, FL Wtr & Swr Rev United Wtr Proj
(AMBAC Insd)..................................... 6.350 08/01/25 1,055,170
1,000 Lee Cnty, FL Hsg Fin Auth Single Family
Multi-Cnty Pgm Ser A (GNMA Collateralized) (b)... 7.450 09/01/27 1,110,960
990 Manatee Cnty, FL Hsg Fin Auth Mtg Rev (GNMA
Collateralized).................................. 6.875 11/01/26 1,079,041
890 Martin Cnty, FL Cons Util Sys Rev Rfdg & Impt
(FGIC Insd)...................................... 5.750 10/01/08 941,931
250 Martin Cnty, FL Hlth Hosp Martin Med Cent Ser B
Rfdg (MBIA Insd) (a)............................. 5.250 11/15/20 238,813
</TABLE>

See Notes to Financial Statements

9
<PAGE> 190

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 750 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj A Rfdg.............. 7.875% 12/15/25 $ 857,182
545 Melbourne, FL Arpt Rev Rfdg (MBIA Insd).......... 6.250 10/01/18 577,722
500 Miramar, FL Wastewtr Impt Assmt Rev (FGIC
Insd)............................................ 6.750 10/01/25 553,075
2,000 Naples, FL Hosp Rev Naples Cmnty Hosp Inc (MBIA
Insd)............................................ 5.500 10/01/26 1,966,960
1,500 North Broward, FL Hosp Dist Rev Rfdg & Impt (MBIA
Insd)............................................ 5.375 01/15/24 1,448,580
1,000 Orange Cnty, FL Hsg Fin Auth Single Family Mtg
Rev (GNMA Collateralized)........................ 6.550 10/01/21 1,045,300
1,680 Orange Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 5.375 08/01/17 1,645,577
250 Orange Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 5.375 08/01/22 242,293
900 Orange Cnty, FL Tourist Dev Tax Rev Ser B (AMBAC
Insd)............................................ 6.500 10/01/19 979,632
1,550 Palm Beach Cnty, FL Hlth Fac Auth Rev Retirement
Cmnty............................................ 5.625 11/15/20 1,522,208
750 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd)..................................... 6.375 08/01/15 801,105
250 Pinellas Cnty, FL Edl Fac Auth Rev College Harbor
Proj Ser B....................................... 6.500 12/01/14 253,253
1,000 Polk Cnty, FL Indl Dev Auth Tampa Elec Co Proj... 5.850 12/01/30 1,002,920
1,000 Santa Rosa Bay Bridge Auth FL Rev................ 6.250 07/01/28 1,009,100
750 Sarasota Cnty, FL Util Sys Rev (Prerefunded @
10/01/04) (FGIC Insd)............................ 6.500 10/01/14 848,002
1,000 Volusia Cnty, FL Edl Fac Auth Rev Stetson Univ
Proj Ser A (MBIA Insd)........................... 5.500 06/01/26 989,240
500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp Fac Mem
Hlth Rfdg & Impt (AMBAC Insd).................... 5.750 11/15/13 514,375
1,000 Volusia Cnty, FL Hlth Fac Auth Rev John Knox Hlth
Care Rfdg........................................ 6.000 06/01/17 1,011,920
-----------
42,337,238
-----------
PUERTO RICO 3.1%
670 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser V
Rfdg............................................. 6.625 07/01/12 721,047
650 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Ser M Rfdg (FSA Insd)............................ 5.750 07/01/15 665,685
-----------
1,386,732
-----------
TOTAL LONG-TERM INVESTMENTS 98.0%
(Cost $41,861,103)......................................................... 43,723,970
OTHER ASSETS IN EXCESS OF LIABILITIES 2.0%.................................. 914,629
-----------
NET ASSETS 100.0%........................................................... $44,638,599
===========
</TABLE>

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

(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.

See Notes to Financial Statements

10
<PAGE> 191

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $41,861,103)........................ $43,723,970
Cash........................................................ 100,036
Receivables:
Interest.................................................. 600,676
Fund Shares Sold.......................................... 592,422
Expense Reimbursement from Adviser........................ 34,388
Variation Margin on Futures............................... 16,875
Unamortized Organizational Costs............................ 29,053
-----------
Total Assets.......................................... 45,097,420
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 240,043
Income Distributions...................................... 94,180
Distributor and Affiliates................................ 34,573
Fund Shares Repurchased................................... 33,806
Deferred Compensation and Retirement Plans.................. 55,143
Accrued Expenses............................................ 1,076
-----------
Total Liabilities..................................... 458,821
-----------
NET ASSETS.................................................. $44,638,599
===========
NET ASSETS CONSIST OF:
Capital..................................................... $43,049,011
Net Unrealized Appreciation................................. 1,800,750
Accumulated Undistributed Net Investment Income............. 110,878
Accumulated Net Realized Loss............................... (322,040)
-----------
NET ASSETS.................................................. $44,638,599
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $23,900,390 and 1,584,722 shares of
beneficial interest issued and outstanding)........... $ 15.08
Maximum sales charge (4.75%* of offering price)......... .75
-----------
Maximum offering price to public........................ $ 15.83
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $20,126,923 and 1,334,061 shares of
beneficial interest issued and outstanding)........... $ 15.09
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $611,286 and
40,472 shares of beneficial interest issued and
outstanding).......................................... $ 15.10
===========
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>

See Notes to Financial Statements

11
<PAGE> 192

STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,214,185
----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $27,959, $97,091 and $2,992,
respectively)............................................. 128,042
Investment Advisory Fee..................................... 105,934
Custody..................................................... 35,806
Shareholder Reports......................................... 23,259
Registration and Filing Fees................................ 19,005
Trustees Fees and Expenses.................................. 18,676
Auditing.................................................... 9,050
Shareholder Services........................................ 8,205
Legal....................................................... 4,525
Other....................................................... 8,415
Recapture of Excess Organizational Costs.................... (17,347)
----------
Total Expenses............................................ 343,570
Less Fees Deferred and Expenses Reimbursed ($105,934 and
$141,477, respectively)................................. 247,411
----------
Net Expenses............................................ 96,159
----------
NET INVESTMENT INCOME....................................... $1,118,026
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (270,829)
Futures................................................... (50,661)
----------
Net Realized Loss........................................... (321,490)
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,459,008
----------
End of the Period:
Investments............................................. 1,862,867
Futures................................................. (62,117)
----------
1,800,750
----------
Net Unrealized Appreciation During the Period............... 341,742
----------
NET REALIZED AND UNREALIZED GAIN............................ $ 20,252
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,138,278
==========
</TABLE>

See Notes to Financial Statements

12
<PAGE> 193

STATEMENT OF CHANGES IN NET ASSETS

For the Six Months Ended June 30, 1997 and
the Year Ended December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 1,118,026 $ 1,687,363
Net Realized Gain/Loss................................. (321,490) 287,514
Net Unrealized Appreciation/Depreciation During the
Period............................................... 341,742 (547,665)
----------- -----------
Change in Net Assets from Operations................... 1,138,278 1,427,212
----------- -----------
Distributions from Net Investment Income:
Class A Shares....................................... (582,994) (868,212)
Class B Shares....................................... (431,886) (768,924)
Class C Shares....................................... (13,239) (17,279)
----------- -----------
(1,028,119) (1,654,415)
----------- -----------
Distributions from Net Realized Gain:
Class A Shares....................................... (14,898) -0-
Class B Shares....................................... (12,813) -0-
Class C Shares....................................... (397) -0-
----------- -----------
(28,108) -0-
----------- -----------
Total Distributions.................................... (1,056,227) (1,654,415)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 82,051 (227,203)
----------- -----------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold.............................. 6,406,788 16,047,069
Net Asset Value of Shares Issued Through Dividend
Reinvestment......................................... 494,368 701,942
Cost of Shares Repurchased............................. (4,221,747) (8,255,409)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..... 2,679,409 8,493,602
----------- -----------
TOTAL INCREASE IN NET ASSETS........................... 2,761,460 8,266,399
NET ASSETS:
Beginning of the Period................................ 41,877,139 33,610,740
----------- -----------
End of the Period (Including accumulated undistributed
net investment income of $110,878 and $20,971,
respectively)........................................ $44,638,599 $41,877,139
=========== ===========
</TABLE>

See Notes to Financial Statements

13
<PAGE> 194

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Year Ended Operations) to
June 30, December 31, December 31, December 31,
Class A Shares 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $15.060 $15.203 $13.796 $14.300
------- ------- ------- -------
Net Investment Income.......... .417 .784 .789 .291
Net Realized and Unrealized
Gain/Loss.................... .002 (.153) 1.416 (.507)
------- ------- ------- -------
Total from Investment
Operations..................... .419 .631 2.205 (.216)
------- ------- ------- -------
Less:
Distributions from Net
Investment
Income....................... .387 .774 .798 .288
Distributions from Net Realized
Gain......................... .010 -0- -0- -0-
------- ------- ------- -------
Total Distributions.............. .397 .774 .798 .288
------- ------- ------- -------
Net Asset Value, End of the
Period......................... $15.082 $15.060 $15.203 $13.796
======= ======= ======= =======
Total Return* (a)................ 2.82%** 4.37% 16.29% (1.47%)**
Net Assets at End of the Period
(In millions).................. $23.9 $22.2 $16.2 $9.0
Ratio of Expenses to Average Net
Assets*........................ .10% .28% .44% .49%
Ratio of Net Investment Income to
Average Net Assets*............ 5.64% 5.31% 5.33% 5.13%
Portfolio Turnover............... 40%** 73% 41% 19%**
* If certain expenses had not
been assumed by VKAC, total
return would have been lower
and the ratios would have been
as follows:
Ratio of Expenses to Average Net
Assets......................... 1.27% 1.47% 1.70% 1.99%
Ratio of Net Investment Income to
Average Net Assets............. 4.47% 4.13% 4.07% 3.64%
</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.

See Notes to Financial Statements

14
<PAGE> 195

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Year Ended Operations) to
June 30, December 31, December 31, December 31,
Class B Shares 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $15.064 $15.201 $13.792 $14.300
------- ------- ------- -------
Net Investment Income.......... .359 .677 .685 .251
Net Realized and Unrealized
Gain/Loss.................... .004 (.154) 1.415 (.509)
------- ------- ------- -------
Total from Investment
Operations..................... .363 .523 2.100 (.258)
------- ------- ------- -------
Less:
Distributions from Net
Investment
Income....................... .330 .660 .691 .250
Distributions from Net Realized
Gain......................... .010 -0- -0- -0-
------- ------- ------- -------
Total Distributions.............. .340 .660 .691 .250
------- ------- ------- -------
Net Asset Value, End of the
Period......................... $15.087 $15.064 $15.201 $13.792
======= ======= ======= =======
Total Return* (a)................ 2.50%** 3.58% 15.53% (1.81%)**
Net Assets at End of the Period
(In millions).................. $20.1 $18.9 $16.9 $10.9
Ratio of Expenses to Average Net
Assets*........................ .85% 1.03% 1.12% 1.26%
Ratio of Net Investment Income to
Average Net Assets*............ 4.86% 4.56% 4.66% 4.31%
Portfolio Turnover............... 40%** 73% 41% 19%**
* If certain expenses had not
been assumed by VKAC, total
return would have been lower
and the ratios would have been
as follows:
Ratio of Expenses to Average Net
Assets......................... 2.02% 2.22% 2.38% 2.75%
Ratio of Net Investment Income to
Average Net Assets............. 3.69% 3.38% 3.40% 2.81%
</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.

See Notes to Financial Statements

15
<PAGE> 196

FINANCIAL HIGHLIGHTS (CONTINUED)

<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Year Ended Operations) to
June 30, December 31, December 31, December 31,
Class C Shares 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $15.081 $15.213 $13.786 $14.300
------- ------- ------- -------
Net Investment Income.......... .378 .668 .690 .249
Net Realized and Unrealized
Gain/Loss.................... (.015) (.140) 1.428 (.513)
------- ------- ------- -------
Total from Investment
Operations..................... .363 .528 2.118 (.264)
------- ------- ------- -------
Less:
Distributions from Net
Investment
Income....................... .330 .660 .691 .250
Distribution from Net Realized
Gain......................... .010 -0- -0- -0-
------- ------- ------- -------
Total Distributions.............. .340 .660 .691 .250
------- ------- ------- -------
Net Asset Value, End of the
Period......................... $15.104 $15.081 $15.213 $13.786
======= ======= ======= =======
Total Return* (a)................ 2.43%** 3.65% 15.61% (1.81%)**
Net Assets at End of the Period
(In thousands)................. $611.3 $849.2 $461.8 $11.4
Ratio of Expenses to Average Net
Assets*........................ .87% 1.03% 1.13% 1.26%
Ratio of Net Investment Income to
Average Net Assets*............ 5.12% 4.56% 4.51% 4.28%
Portfolio Turnover............... 40%** 73% 41% 19%**
* If certain expenses had not
been assumed by VKAC, total
return would have been lower
and the ratios would have been
as follows:
Ratio of Expenses to Average Net
Assets......................... 2.04% 2.22% 2.39% 2.74%
Ratio of Net Investment Income to
Average Net Assets............. 3.95% 3.38% 3.25% 2.87%
</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.

See Notes to Financial Statements

16
<PAGE> 197

NOTES TO FINANCIAL STATEMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital Florida Insured Tax Free Income Fund (the "Fund") is
organized as a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust, and is registered as a non-diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to provide investors a high level of
current income exempt from federal income and Florida state intangibles taxes,
consistent with preservation of capital. Under normal market conditions, the
Fund will invest at least 80% of its assets in insured Florida municipal
securities. The Fund commenced investment operations on July 29, 1994.

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

17
<PAGE> 198

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization. During the period, the original
estimate of organizational costs of $120,000 was reduced to $70,000, reflecting
the actual costs incurred. The amortization of these costs have been
retroactively revised with the current year amortization expense adjusted
accordingly. These costs are being amortized on a straight line basis over the
60 month period ending July 28, 1999. Van Kampen American Capital Investment
Advisory Corp. (the "Adviser") has agreed that in the event any of the initial
shares of the Fund originally purchased by VKAC are redeemed during the
amortization period, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.

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

At June 30, 1997, for federal income tax purposes, cost of long-term
investments is $41,861,103; the aggregate gross unrealized appreciation is
$1,864,672 and the aggregate gross unrealized depreciation is $63,922, resulting
in net unrealized appreciation including open futures transactions of
$1,800,750.

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

18
<PAGE> 199

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

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

<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .500 of 1%

Over $500 million....................................... .450 of 1%
</TABLE>

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $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 six months ended June 30, 1997, the Fund incurred expenses of
approximately $9,000 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund. All of these expenses were assumed by
VKAC.

ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1997, the Fund incurred expenses of approximately $3,900, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit. All of this expense was assumed by VKAC.

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

At June 30, 1997, VKAC owned 100 shares each of Classes A, B and C.

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.

19
<PAGE> 200

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $23,133,425, $19,310,586 and $605,000
for Classes A, B and C, respectively. For the six months ended June 30, 1997,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................... 245,998 $ 3,684,688
Class B............................... 172,693 2,576,172
Class C............................... 9,758 145,928
--------- -----------
Total Sales............................. 428,449 $ 6,406,788
========= ===========
Dividend Reinvestment:
Class A............................... 19,605 $ 292,974
Class B............................... 12,870 192,409
Class C............................... 600 8,985
--------- -----------
Total Dividend Reinvestment............. 33,075 $ 494,368
========= ===========
Repurchases:
Class A............................... (151,965) $(2,272,664)
Class B............................... (104,297) (1,556,006)
Class C............................... (26,197) (393,077)
--------- -----------
Total Repurchases....................... (282,459) $(4,221,747)
========= ===========
</TABLE>

20
<PAGE> 201

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At December 31, 1996, capital aggregated $21,428,427, $18,098,011 and
$843,164 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..................................... 662,550 $ 9,888,850
Class B..................................... 371,733 5,505,878
Class C..................................... 43,663 652,341
--------- -----------
Total Sales................................... 1,077,946 $16,047,069
========= ===========
Dividend Reinvestment:
Class A..................................... 24,754 $ 367,510
Class B..................................... 21,677 321,647
Class C..................................... 858 12,785
--------- -----------
Total Dividend Reinvestment................... 47,289 $ 701,942
========= ===========
Repurchases:
Class A..................................... (282,145) $(4,206,188)
Class B..................................... (255,198) (3,772,557)
Class C..................................... (18,569) (276,664)
--------- -----------
Total Repurchases............................. (555,912) $(8,255,409)
========= ===========
</TABLE>

21
<PAGE> 202

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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 six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$7,300 and CDSC on redeemed shares of approximately $28,600. Sales charges do
not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, for the six months ended June 30, 1997, were
$21,288,491 and $16,631,630, respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

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

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

During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in futures on U.S.

22
<PAGE> 203

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

Treasury Bonds and the Municipal Bond Index and typically closes the contract
prior to the delivery date.

Transactions in futures contracts for the six months ended June 30, 1997,
were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996........................... -0-
Futures Opened............................................. 191
Futures Closed............................................. (161)
----
Outstanding at June 30, 1997............................... 30
====
</TABLE>

The futures contracts outstanding at June 30, 1997, and the description and
unrealized depreciation are as follows:

<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
Short Contracts -- U.S. Treasury Bond Futures
September 1997
(Current Notional Value $111,063 per
contract).................................... 30 $62,117
== ========

</TABLE>

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.

23
<PAGE> 204

VAN KAMPEN AMERICAN CAPITAL FLORIDA INSURED TAX FREE INCOME FUND

BOARD OF TRUSTEES

J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* -- Chairman

OFFICERS

DENNIS J. MCDONNELL*
President

RONALD A. NYBERG*
Vice President and Secretary

EDWARD C. WOOD, III*
Vice President and Chief Financial Officer

CURTIS W. MORELL*
Vice President and Chief Accounting Officer

JOHN L. SULLIVAN*
Treasurer

TANYA M. LODEN*
Controller

PETER W. HEGEL*

ALAN T. SACHTLEBEN*

PAUL R. WOLKENBERG*
Vice Presidents

INVESTMENT ADVISER

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

DISTRIBUTOR

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

SHAREHOLDER SERVICING AGENT

ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256

CUSTODIAN

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

LEGAL COUNSEL

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

INDEPENDENT ACCOUNTANTS

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

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

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

24
<PAGE> 205

RESULTS OF SHAREHOLDER VOTES

A Special Meeting of Shareholders of the Fund was held on May 28, 1997 where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
2,117,746 shares voted for the proposal, 13,861 shares voted against and 58,433
shares abstained. With regard to the election of J. Miles Branagan as elected
trustee of the Fund, 2,172,091 shares voted in his favor and 17,949 shares
withheld. With regard to the election of Richard M. DeMartini as elected trustee
of the Fund, 2,170,694 shares voted in favor and 19,346 shares withheld. With
regard to the election of Linda Hutton Heagy as elected trustee of the Fund,
2,172,091 shares voted in her favor and 17,949 shares withheld. With regard to
the election of R. Craig Kennedy as elected trustee of the Fund, 2,172,090
shares voted in his favor and 17,949 shares withheld. With regard to the
election of Jack E. Nelson as elected trustee of the Fund, 2,173,091 shares
voted in his favor and 16,949 shares withheld. With regard to the election of
Don G. Powell as elected trustee of the Fund, 2,173,091 shares voted in his
favor and 16,949 shares withheld. With regard to the election of Jerome L.
Robinson as elected trustee of the Fund, 2,173,091 shares voted in his favor and
16,949 shares withheld. With regard to the election of Phillip B. Rooney as
elected trustee of the Fund, 2,173,091 shares voted in his favor and 16,949
shares withheld. With regard to the election of Fernando Sisto as elected
trustee of the Fund, 2,172,091 shares voted in his favor and 17,949 shares
withheld. With regard to the election of Wayne W. Whalen as elected trustee of
the Fund, 2,172,091 shares voted in his favor and 17,949 shares withheld. With
regard to the ratification of KPMG Peat Marwick LLP as independent public
accountants for the Fund, 2,141,255 shares voted for the proposal, 12,271 shares
voted against and 38,514 shares abstained.

25
<PAGE> 206
TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Portfolio Management Review...................... 6
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 10
Statement of Operations.......................... 11
Statement of Changes in Net Assets............... 12
Financial Highlights............................. 13
Notes to Financial Statements.................... 16
</TABLE>

NJTF SAR 8/97
<PAGE> 207

LETTER TO SHAREHOLDERS

July 24, 1997

Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan Stanley
Group Inc., a world leader in asset
management. Earlier this year, Morgan
Stanley Group Inc. and Dean Witter,
Discover & Co. agreed to merge. The [PHOTO]
merger was completed on May 31,
creating the combined company of
Morgan Stanley, Dean Witter, Discover
& Co. Additionally, we are very DENNIS J. MCDONNELL AND DON G. POWELL
pleased to announce that Philip N.
Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.

ECONOMIC REVIEW
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Meanwhile, consumer confidence
soared to its highest reading in 27 years, while unemployment fell as low as 4.8
percent, the lowest level since 1973.
Despite the robust pace of economic activity, there was little evidence of
troublesome inflation. Wholesale prices actually fell during each of the first
five months of 1997, the longest stretch of consecutive monthly declines in 45
years. At the consumer level, prices rose by a mere 2.2 percent during the 12
months through May. A strong rally in the U.S. dollar helped dampen inflationary
pressures resulting from the vigorous domestic economy

Continued on page two

1
<PAGE> 208

MARKET REVIEW
The strong economy and tight labor market combined to put mild upward
pressure on bond yields during the first half of 1997. For several weeks during
the spring, it appeared that economic growth was too robust and that inflation
could reemerge. The Federal Reserve's quarter-point increase in short-term
interest rates, as well as worries about inflation, pushed yields on long-term
government bonds up to 7.17 percent in April. When subsequent data showed the
economy to be decelerating during the second quarter, bond yields gradually fell
back to 6.78 percent at the end of June, slightly above where they stood at the
beginning of the year.
Within the tax-exempt municipal market, long-term general obligation bonds
returned nearly four percent during the past six months. The supply of municipal
bonds remained tight, as a number of older bonds were called and new issuance
was less than anticipated. As of June 30, long-term AA-rated general obligation
bonds yielded 5.49 percent, which is equivalent to a 9.09 percent yield on
taxable securities for investors in the 39.6 percent federal income tax bracket.

Continued on page three

2
<PAGE> 209

Sincerely,

[SIG]
Don G. Powell

Chairman
Van Kampen American Capital
Investment Advisory Corp.

[SIG]
Dennis J. McDonnell

President
Van Kampen American Capital
Investment Advisory Corp.

3
<PAGE> 210

PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997

VAN KAMPEN AMERICAN CAPITAL NEW JERSEY TAX FREE INCOME FUND

TOTAL RETURNS

<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Six-month total return based on NAV(1).... 3.20% 2.83% 2.90%
Six-month total return(2)................. (1.70%) (1.17%) 1.90%
One-year total return(2).................. 3.37% 3.72% 6.72%
Life-of-Fund average annual total
return(2)............................... 5.22% 5.12% 6.21%
Commencement date......................... 07/29/94 07/29/94 07/29/94

DISTRIBUTION RATES AND YIELD

Distribution rate(3)..................... 4.94% 4.47% 4.46%
Taxable equivalent distribution
rate(4)................................ 8.25% 7.46% 7.45%
SEC Yield(5)............................. 5.09% 4.58% 4.58%
</TABLE>

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

(4) The taxable-equivalent distribution rate is calculated assuming a 40.1%
combined effective federal and state tax bracket, which takes into consideration
the deductibility of individual state taxes paid.

(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1997. Had certain
expenses of the Fund not been assumed by VKAC, total return would have been
lower and the SEC Yield would have been 3.51%, 3.00% and 3.00% for Classes A, B
and C, respectively.

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

Investing in lower-rated securities involves a higher degree of credit and
market risk. Investments in derivative securities will subject the Fund to
greater risks.

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

4
<PAGE> 211

PORTFOLIO HIGHLIGHTS

VAN KAMPEN AMERICAN CAPITAL NEW JERSEY TAX FREE INCOME FUND

CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1997
<S> <C> <S> <C>
AAA................... 71.6% AAA................... 71.0%
AA.................... 7.2% AA.................... 6.1%
A..................... 4.3% [PIE CHART] A..................... 5.7% [PIE CHART]
BBB................... 13.3% BBB................... 13.5%
Non-Rated............. 3.6% Non-Rated............. 3.7%

</TABLE>

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

TOP FIVE PORTFOLIO HOLDINGS BY SECTOR AS A PERCENTAGE OF LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF JUNE 30, 1997
<S> <C> <S> <C>
Health Care............ 22.4% Health Care............ 23.1%
Public Building........ 17.7% Public Building........ 18.2%
General Purpose........ 12.9% Single Family
Single Family Housing.............. 10.5%
Housing.............. 10.3% General Purpose........ 10.4%
Retail Retail
Elec/Gas/Telephone... 8.4% Elec/Gas/Telephone... 8.6%
</TABLE>

DURATION

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C>
Duration 8.11 years 7.72 years
</TABLE>

5
<PAGE> 212

PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL NEW JERSEY TAX FREE INCOME FUND

We recently spoke with the management team of the Van Kampen American Capital
New Jersey Tax Free Income Fund about the key events and economic forces that
shaped the markets during the first half of the Fund's fiscal year. The team
includes Timothy D. Haney, portfolio manager, and Peter W. Hegel, chief
investment officer for fixed-income investments. The following excerpts reflect
their views concerning the Fund's performance during the six-month period ended
June 30, 1997.

Q WHAT MARKET FACTORS INFLUENCED THE FUND DURING THE FIRST SIX MONTHS OF
1997?

A The most significant issue affecting the Fund during the period was the
limited supply of new bonds. New bond issuance remained stagnant in the
first quarter of 1997 and improved only slightly during the second
quarter. As a result, New Jersey bonds were priced at a premium compared to
general market levels.
The limited supply of new issues, combined with the fact that most new
issues were insured, significantly limited the availability of high-yielding,
lower-rated bonds. Historically, these lower-rated bonds have provided the yield
that has enabled the Fund to pay consistently high dividends.
On a national level, bond prices fell when the Federal Reserve Board
increased short-term interest rates in March in response to the rapidly
expanding economy and the fear of rising inflation. Bonds, however, rallied back
when the Fed held rates steady after economic data released in April and May
indicated that inflation was not growing out of control.

Q HOW HAVE YOU MANAGED THE FUND IN LIGHT OF THIS SITUATION?

A Our trading activity has been relatively light over the past six months,
due in large part to the limited supply and premium prices of municipal
bonds. However, in an effort to add incremental value, we purchased
several new issues and turned them around to gain short-term profits.
Although the Fund is not sector-driven, our positions in health-care and
industrial development issues have consistently provided a high level of yield.
The attractive yields provided by these holdings and the very tight market of
lower-rated issues helped these securities to be among the portfolio's
best-performing holdings during the period.
Throughout the period, the Fund's duration has been slightly longer than the
Lehman Brothers Municipal Bond Index. At the end of the six-month reporting
period, the Fund's duration stood at 8.11 years, compared to the 7.76 years for
the Lehman Brothers Municipal Bond Index. Because of the longer-term nature of
the Fund, the calculation of this index's duration has been adjusted to
eliminate bonds with maturities of five years or less. Duration, which is
expressed in years, is a measurement of the portfolio's sensitivity to interest
rate fluctuations. The shorter the duration of a portfolio, the less sensitive
it is to interest rate changes. Despite the Fund's longer duration and a rise in
interest rates in March, our performance remained positive because New Jersey
municipal bonds typically

6
<PAGE> 213

remain in high demand and are less sensitive to interest rate changes. As rates
began to fall after the March up-tick, the Fund's long duration position served
it well. For additional Fund portfolio highlights, please refer to page five.

Q HOW DID THE FUND PERFORM DURING THE FIRST HALF OF 1997?

A For the six months ended June 30, 1997, the Fund generated a total return
of 3.20 percent(1) (Class A shares at net asset value). By comparison, the
Lehman Brothers Municipal Bond Index produced a total return of 3.20
percent over the same period. The Lehman Brothers Municipal Bond Index is a
broad-based, unmanaged index of municipal bonds and does not reflect any
commissions or fees that would be paid by an investor purchasing the securities
it represents.
The Fund's net asset value closed the reporting period at $14.92 per Class A
share, up from $14.84 per share six months ago. The Fund also continued to meet
its goal of providing a competitive level of current tax-exempt income for the
six-month period. Its Class A share tax-exempt distribution rate was 4.94
percent(3) as of June 30, based on a monthly dividend of $.0645 per share and a
maximum public offering price of $15.66. For investors in the 40.1 percent
combined federal and state income tax bracket, the Fund's distribution rate was
equivalent to a taxable investment earning 8.25 percent(4). Please refer to the
chart on page four for additional Fund performance results.

Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?

A Right now, we are cautiously optimistic about the future. The New Jersey
economy, though lagging the national average, is doing well. State tax
cuts are likely later in the year, which will eventually put the squeeze
on state agencies and municipalities. We anticipate that this will increase the
supply of new bond issuance in an effort to meet financing needs once met by
taxes.
Although a Fed tightening is likely if price inflation is indicated later in
the year, effects of the tightening will not be immediate, but will play a role
in the Fund's return towards the end of the year and into 1998.
It is anticipated that at the end of 1997, the New Jersey Tax Free Income
Fund will be consolidated into the Municipal Income Fund in an effort to
continue providing shareholders with a high level of current income exempt from
federal income tax, consistent with the preservation of capital. The two funds
hold similar bond issues--eighty percent investment grade securities and up to
twenty percent invested in securities rated below investment grade--and seek
relatively the same investment objectives. More information about the merger
will be forwarded to you in the near future.

[SIG]
Peter W. Hegel

Chief Investment Officer
Fixed Income Investments

[SIG]
Timothy D. Haney

Portfolio Manager

Please see footnotes on page four

7
<PAGE> 214

PORTFOLIO OF INVESTMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
NEW JERSEY 84.1%
$ 400 Atlantic City, NJ Brd Edl Sch (AMBAC Insd)......... 6.125% 12/01/11 $ 422,896
250 Camden Cnty, NJ Impt Auth Lease Rev Cnty Gtd (MBIA
Insd).............................................. 6.150 10/01/14 263,880
150 Delaware River Port Auth PA & NJ (FGIC Insd)....... 5.500 01/01/26 148,403
500 Essex Cnty, NJ Impt Auth Lease Cnty Jail Proj A
(MBIA Insd)........................................ 5.600 12/01/16 503,540
250 Essex Cnty, NJ Impt Auth Lease Jail & Youth House
Proj (Prerefunded @ 12/01/04) (AMBAC Insd)......... 6.600 12/01/07 284,262
375 Essex Cnty, NJ Impt Auth Lease Jail & Youth House
Proj Rfdg (AMBAC Insd)............................. 5.350 12/01/24 363,709
370 Essex Cnty, NJ Ser A1 Rfdg (AMBAC Insd)............ 5.375 09/01/10 374,307
250 Hudson Cnty, NJ Ctfs Partn Correctional Fac Rfdg
(MBIA Insd)........................................ 6.600 12/01/21 269,672
250 Lacey Muni Util Auth NJ Wtr Rev (MBIA Insd)........ 6.250 12/01/24 267,708
250 Mercer Cnty, NJ Impt Auth Rev Cap Apprec........... * 04/01/11 121,273
250 Mercer Cnty, NJ Impt Auth Rev Ewing Brd Edl Lease
Proj Rfdg (MBIA Insd).............................. 5.000 11/15/16 238,495
500 Millburn Twp, NJ Brd Edl........................... 5.350 07/15/12 508,845
500 Monmouth Cnty, NJ Impt Auth Rev Govtl Ln (MBIA
Insd).............................................. 5.125 12/01/16 482,685
1,000 New Jersey Bldg Auth St Bldg Rev................... 5.000 06/15/18 928,250
500 New Jersey Econ Dev Auth Dist Heating & Cooling Rev
Trigen Trenton Ser A............................... 6.200 12/01/10 514,150
400 New Jersey Econ Dev Auth Holt Hauling & Warehsg Rev
Ser G Rfdg......................................... 8.400 12/15/15 422,644
300 New Jersey Econ Dev Auth Mkt Transition Fac Rev Sr
Lien Ser A (MBIA Insd)............................. 5.800 07/01/09 312,942
200 New Jersey Econ Dev Auth Pollutn Ctl Rev (AMBAC
Insd).............................................. 7.100 07/01/15 221,264
210 New Jersey Econ Dev Auth Pollutn Ctl Rev Pub Svcs
Elec & Gas Co Proj A (MBIA Insd)................... 6.400 05/01/32 224,204
350 New Jersey Econ Dev Auth Rev RWJ Hlth Care Corp
(FSA Insd)......................................... 6.250 07/01/14 371,889
300 New Jersey Econ Dev Auth Wtr Fac Rev Hackensack Wtr
Co Proj B Rfdg (MBIA Insd)......................... 5.900 03/01/24 302,502
490 New Jersey Hlthcare Fac Fin Auth Rev Atlantic City
Med Cent Ser C Rfdg................................ 6.800 07/01/11 526,672
700 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd)...................... 7.000 07/01/04 791,561
400 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd)...................... 7.000 07/01/06 459,932
250 New Jersey Hlthcare Fac Fin Auth Rev Englewood Hosp
& Med Cent......................................... 6.700 07/01/15 266,165
250 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp Cent
at Passaic (FSA Insd).............................. 6.000 07/01/06 270,862
250 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp Cent
at Passaic (FSA Insd).............................. 6.750 07/01/19 274,675
400 New Jersey Hlthcare Fac Fin Auth Rev Jersey Shore
Med Cent (AMBAC Insd).............................. 6.250 07/01/21 424,136
500 New Jersey Hlthcare Fac Fin Auth Rev Southern Ocean
Cnty Hosp Ser A.................................... 6.125 07/01/13 508,270
</TABLE>

See Notes to Financial Statements

8
<PAGE> 215

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 400 New Jersey Sports & Exposition Auth Convention Cent
Luxury Tax Rev Ser A Rfdg (MBIA Insd).............. 6.250% 07/01/20 $ 425,664
200 New Jersey St Edl Fac Auth Rev Caldwell College Ser
A.................................................. 7.250 07/01/25 212,190
250 New Jersey St Edl Fac Auth Rev Glassboro St College
Ser A (MBIA Insd).................................. 6.700 07/01/21 275,627
300 New Jersey St Edl Fac Auth Rev Montclair St Univ
Ser F (AMBAC Insd)................................. 5.400 07/01/25 293,016
270 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer Ser
K (MBIA Insd)...................................... 6.375 10/01/26 278,667
500 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer Ser
O (MBIA Insd)...................................... 6.300 10/01/23 514,780
500 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer Ser
S.................................................. 6.000 10/01/21 508,810
280 New Jersey St Tpk Auth Tpk Rev Ser C Rfdg (MBIA
Insd).............................................. 6.500 01/01/16 316,994
200 Port Auth NY & NJ Cons 95th Ser.................... 6.125 07/15/22 207,148
500 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)........................ 5.750 12/01/25 500,165
400 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth Rev Pub
Svc Elec & Gas Co Proj C Rfdg (MBIA Insd).......... 6.200 08/01/30 424,340
300 Union City, NJ (FSA Insd).......................... 6.375 11/01/10 337,434
-----------
15,364,628
-----------
GUAM 1.4%
250 Guam Govt Ser A.................................... 5.750 09/01/04 251,952
-----------
PUERTO RICO 9.7%
200 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser V
Rfdg............................................... 6.625 07/01/12 215,238
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser T............ 6.375 07/01/24 266,922
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser U Rfdg....... 6.000 07/01/14 258,512
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser Z Rfdg....... 5.500 07/01/14 246,878
470 Puerto Rico Hsg Bank & Fin Agy Single Family Mtg
Rev (GNMA Collateralized).......................... 6.250 04/01/29 482,366
300 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Ser M Rfdg (FSA Insd).............................. 5.750 07/01/15 307,239
-----------
1,777,155
-----------
TOTAL LONG-TERM INVESTMENTS 95.2%
(Cost $16,486,185).......................................................... 17,393,735
SHORT-TERM INVESTMENTS 1.6%
(Cost $300,000)............................................................. 300,000
-----------
TOTAL INVESTMENTS 96.8%
(Cost $16,786,185).......................................................... 17,693,735
OTHER ASSETS IN EXCESS OF LIABILITIES 3.2%................................... 582,624
-----------
NET ASSETS 100.0%............................................................ $18,276,359
===========
</TABLE>

* Zero coupon bond

See Notes to Financial Statements

9
<PAGE> 216

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $16,786,185)........................ $17,693,735
Cash........................................................ 143,690
Receivables:
Interest.................................................. 331,263
Fund Shares Sold.......................................... 146,111
Unamortized Organizational Costs............................ 36,071
-----------
Total Assets.......................................... 18,350,870
-----------
LIABILITIES:
Payables:
Income Distributions...................................... 36,959
Distributor and Affiliates................................ 22,975
Accrued Expenses............................................ 133
Deferred Compensation and Retirement Plans.................. 14,444
-----------
Total Liabilities..................................... 74,511
-----------
NET ASSETS.................................................. $18,276,359
===========
NET ASSETS CONSIST OF:
Capital..................................................... $17,582,731
Net Unrealized Appreciation................................. 907,550
Accumulated Undistributed Net Investment Income............. 27,352
Accumulated Net Realized Loss............................... (241,274)
-----------
NET ASSETS.................................................. $18,276,359
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $7,744,737 and 518,922 shares of
beneficial interest issued and outstanding)........... $ 14.92
Maximum sales charge (4.75%* of offering price)......... .74
-----------
Maximum offering price to public........................ $ 15.66
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $9,584,302 and 642,718 shares of
beneficial interest issued and outstanding)........... $ 14.91
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $947,320 and 63,513 shares of beneficial
interest issued and outstanding)...................... $ 14.92
===========
</TABLE>

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

See Notes to Financial Statements

10
<PAGE> 217

STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $498,988
--------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $9,495, $45,445 and $4,255, respectively)... 59,195
Investment Advisory Fee..................................... 52,608
Custody..................................................... 26,304
Printing.................................................... 14,480
Shareholder Services........................................ 12,129
Audit....................................................... 9,955
Legal....................................................... 7,240
Trustees Fees and Expenses.................................. 4,246
Recapture of Excess Organizational Costs.................... (7,467)
Other....................................................... 5,718
--------
Total Expenses.......................................... 184,408
Less Fees Deferred and Expenses Reimbursed ($52,608 and
$80,782, respectively)................................ 133,390
--------
Net Expenses............................................ 51,018
--------
NET INVESTMENT INCOME....................................... $447,970
========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 12,535
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 827,120
End of the Period:
Investments............................................. 907,550
--------
Net Unrealized Appreciation During the Period............... 80,430
--------
NET REALIZED AND UNREALIZED GAIN............................ $ 92,965
========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $540,935
========
</TABLE>

See Notes to Financial Statements

11
<PAGE> 218

STATEMENT OF CHANGES IN NET ASSETS

For the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 447,970 $ 803,275
Net Realized Gain................................. 12,535 5,297
Net Unrealized Appreciation/Depreciation During
the Period...................................... 80,430 (155,162)
----------- -----------
Change in Net Assets from Operations.............. 540,935 653,410
----------- -----------
Distributions from Net Investment Income:
Class A Shares.................................. (201,164) (368,826)
Class B Shares.................................. (206,909) (392,001)
Class C Shares.................................. (19,275) (31,465)
----------- -----------
Total Distributions........................... (427,348) (792,292)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... 113,587 (138,882)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......................... 1,863,434 4,761,510
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 208,852 379,068
Cost of Shares Repurchased........................ (1,295,083) (2,142,401)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... 777,203 2,998,177
----------- -----------
TOTAL INCREASE IN NET ASSETS...................... 890,790 2,859,295
NET ASSETS:
Beginning of the Period........................... 17,385,569 14,526,274
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of $27,352
and $6,730, respectively)....................... $18,276,359 $17,385,569
=========== ===========
</TABLE>

See Notes to Financial Statements

12
<PAGE> 219

FINANCIAL HIGHLIGHTS

July 29, 1994
Six Months (Commencement
Ended Year Ended Year Ended of Investment
June 30, December 31, December 31, Operations) to
Class A Shares 1997 1996 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................. $14.839 $15.000 $13.754 $14.300
------- ------- ------- -------
Net Investment Income.................. .405 .786 .792 .295
Net Realized and Unrealized
Gain/Loss............................ .067 (.173) 1.253 (.551)
------- ------- ------- -------
Total from Investment Operations......... .472 .613 2.045 (.256)
Less Distributions from and in Excess of
Net Investment Income.................. .387 .774 .799 .290
------- ------- ------- -------
Net Asset Value, End of the Period....... $14.924 $14.839 $15.000 $13.754
======= ======= ======= =======
Total Return* (a)........................ 3.20%** 4.28% 15.26% (1.81%)**
Net Assets at End of the Period (In
millions).............................. $7.7 $7.6 $5.8 $3.0
Ratio of Expenses to Average Net
Assets*................................ .15% .38% .27% .17%
Ratio of Net Investment Income to Average
Net Assets*............................ 5.54% 5.35% 5.43% 5.16%
Portfolio Turnover....................... 10%** 11% 31% 11%**
*If certain expenses had not been assumed
by VKAC, Total Return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets................................. 1.72% 1.91% 2.53% 3.17%
Ratio of Net Investment Income to Average
Net Assets............................. 3.98% 3.82% 3.17% 2.17%
</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.

See Notes to Financial Statements

13
<PAGE> 220

FINANCIAL HIGHLIGHTS (CONTINUED)

July 29, 1994
Six Months (Commencement
Ended Year Ended Year Ended of Investment
June 30, December 31, December 31, Operations) to
Class B Shares 1997 1996 1995 December 31, 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $14.826 $14.991 $13.738 $14.300
------- ------- ------- -------
Net Investment Income........... .349 .675 .685 .253
Net Realized and Unrealized
Gain/Loss..................... .070 (.174) 1.260 (.563)
------- ------- ------- -------
Total from Investment
Operations...................... .419 .501 1.945 (.310)
Less Distributions from and in
Excess of Net Investment
Income.......................... .333 .666 .692 .252
------- ------- ------- -------
Net Asset Value, End of the
Period.......................... $14.912 $14.826 $14.991 $13.738
======= ======= ======= =======

Total Return* (a)................. 2.83%** 3.52% 14.43% (2.16%)**
Net Assets at End of the Period
(In millions)................... $9.6 $9.0 $8.2 $6.5
Ratio of Expenses to Average Net
Assets*......................... .91% 1.13% 1.01% .93%
Ratio of Net Investment Income to
Average Net Assets*............. 4.78% 4.60% 4.73% 4.38%
Portfolio Turnover................ 10%** 11% 31% 11%**
*If certain expenses had not been
assumed by VKAC, Total Return
would have been lower and the
ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets.......................... 2.47% 2.66% 3.23% 3.89%
Ratio of Net Investment Income to
Average Net Assets.............. 3.22% 3.07% 2.51% 1.41%
</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.

See Notes to Financial Statements

14
<PAGE> 221

FINANCIAL HIGHLIGHTS (CONTINUED)

July 29, 1994
Six Months (Commencement
Ended Year Ended Year Ended of Investment
June 30, December 31, December 31, Operations) to
Class C Shares 1997 1996 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $14.829 $15.000 $13.753 $14.300
------- ------- ------- -------
Net Investment Income............. .345 .673 .706 .240
Net Realized and Unrealized
Gain/Loss....................... .074 (.178) 1.233 (.535)
------- ------- ------- -------
Total from Investment Operations.... .419 .495 1.939 (.295)
Less Distributions from and in
Excess of Net Investment Income... .333 .666 .692 .252
------- ------- ------- -------
Net Asset Value, End of the
Period............................ $14.915 $14.829 $15.000 $13.753
======= ======= ======= =======
Total Return* (a)................... 2.90%** 3.45% 14.42% (2.09%)**
Net Assets at End of the Period (In
millions)......................... $.9 $.7 $.5 $.2
Ratio of Expenses to Average Net
Assets*........................... .91% 1.13% 1.00% .91%
Ratio of Net Investment Income to
Average Net Assets*............... 4.75% 4.58% 4.73% 4.39%
Portfolio Turnover.................. 10%** 11% 31% 11%**
*If certain expenses had not been
assumed by VKAC, Total Return would
have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets............................ 2.47% 2.66% 3.23% 3.85%
Ratio of Net Investment Income to
Average Net Assets................ 3.18% 3.05% 2.50% 1.46%
</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.

See Notes to Financial Statements

15
<PAGE> 222

NOTES TO FINANCIAL STATEMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital New Jersey Tax Free Income Fund (the "Fund") is
organized as a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust, and is registered as a non-diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to provide investors with a high
level of current income exempt from federal income tax and New Jersey gross
income tax, consistent with preservation of capital. The Fund commenced
investment operations on July 29, 1994.

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.

16
<PAGE> 223

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

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

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

At June 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $16,786,185; the aggregate gross unrealized
appreciation is $931,969 and the aggregate gross unrealized depreciation is
$24,419, resulting in net unrealized appreciation of $907,550.

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 $245,890 which will expire on December 31,
2003. Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of post October 31 losses which may not be
recognized for tax purposes until the first day of the following year.

F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Due to inherent differences in the recognition of certain
expenses under generally accepted accounting principles and federal income tax
purposes, the amount of distributable net investment income may differ between
book and federal income tax purposes for a particular period. These differences
are temporary in nature, but may result in book basis distribution in excess of
net investment income for certain periods.

17
<PAGE> 224

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

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

<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .600 of 1%

Over $500 million....................................... .500 of 1%
</TABLE>

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $500 represents legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person. All of this expense has been assumed by VKAC.

For the six months ended June 30, 1997, the Fund incurred expenses of
approximately $5,200 representing VKAC's cost of providing cash management and
legal services to the Fund. All of this cost has been assumed by VKAC.

ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
June 30, 1997, the Fund incurred expenses of approximately $6,900, representing
ACCESS's cost of providing transfer agency and shareholder services plus a
profit. All of this expense has been assumed by VKAC.

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

The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit per trustee under the plan is equal to $2,500.

At June 30, 1997, VKAC owned 100 shares each of Classes A, B and C.

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.

18
<PAGE> 225

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $7,467,104, $9,186,271 and $929,356 for
Classes A, B and C, respectively. For the six months ended June 30, 1997,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 37,321 $ 549,470
Class B....................................... 74,292 1,093,781
Class C....................................... 14,779 220,183
------- -----------
Total Sales..................................... 126,392 $ 1,863,434
======= ===========
Dividend Reinvestment:
Class A....................................... 6,061 $ 89,536
Class B....................................... 7,268 107,255
Class C....................................... 817 12,061
------- -----------
Total Dividend Reinvestment..................... 14,146 $ 208,852
======= ===========
Repurchases:
Class A....................................... (39,441) $ (583,279)
Class B....................................... (48,034) (710,428)
Class C....................................... (91) (1,376)
------- -----------
Total Repurchases............................... (87,566) $(1,295,083)
======= ===========
</TABLE>

19
<PAGE> 226

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At December 31, 1996, capital aggregated $7,411,377, $8,695,663 and $698,488
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.................................... 150,230 $ 2,207,610
Class B.................................... 151,165 2,223,721
Class C.................................... 22,132 330,179
-------- -----------
Total Sales.................................. 323,527 $ 4,761,510
======== ===========
Dividend Reinvestment:
Class A.................................... 11,166 $ 163,918
Class B.................................... 12,797 187,745
Class C.................................... 1,867 27,405
-------- -----------
Total Dividend Reinvestment.................. 25,830 $ 379,068
======== ===========
Repurchases:
Class A.................................... (35,980) $ (526,087)
Class B.................................... (102,981) (1,513,345)
Class C.................................... (6,957) (102,969)
-------- -----------
Total Repurchases............................ (145,918) $(2,142,401)
======== ===========
</TABLE>

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

20
<PAGE> 227

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

For the six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$1,388 and CDSC on redeemed shares of approximately $17,910. Sales charges do
not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $2,132,348 and $1,690,350, respectively.

5. 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.

21
<PAGE> 228

FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL

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

22
<PAGE> 229

VAN KAMPEN AMERICAN CAPITAL NEW JERSEY TAX FREE INCOME FUND

BOARD OF TRUSTEES

J. MILES BRANAGAN

RICHARD M. DEMARTINI*

LINDA HUTTON HEAGY

R. CRAIG KENNEDY

JACK E. NELSON

DON G. POWELL*

JEROME L. ROBINSON

FERNANDO SISTO

WAYNE W. WHALEN* - Chairman

OFFICERS

DENNIS J. MCDONNELL*
President

RONALD A. NYBERG*
Vice President and Secretary

EDWARD C. WOOD, III*
Vice President and Chief Financial Officer

CURTIS W. MORELL*
Vice President and Chief Accounting Officer

JOHN L. SULLIVAN*
Treasurer

TANYA M. LODEN*
Controller

PETER W. HEGEL*

ALAN T. SACHTLEBEN*

PAUL R. WOLKENBERG*
Vice Presidents

INVESTMENT ADVISER

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

DISTRIBUTOR

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

SHAREHOLDER SERVICING AGENT

ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256

CUSTODIAN

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

LEGAL COUNSEL

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

INDEPENDENT ACCOUNTANTS

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

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

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

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1997, this report must be accompanied
by a quarterly performance update, if applicable.

23
<PAGE> 230

RESULTS OF SHAREHOLDER VOTES

A Special Meeting of Shareholders of the Fund was held on May 28, 1997 where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
873,493 shares voted for the proposal, 24,953 shares voted against and 30,133
shares abstained. With regard to the election of J. Miles Branagan as elected
trustee of the Fund, 912,636 shares voted in his favor and 15,944 shares
withheld. With regard to the election of Richard M. DeMartini as elected trustee
of the Fund, 912,636 shares voted in his favor and 15,944 shares withheld. With
regard to the election of Linda Hutton Heagy as elected trustee of the Fund,
912,636 shares voted in her favor and 15,944 shares withheld. With regard to the
election of R. Craig Kennedy as elected trustee of the Fund, 912,636 shares
voted in his favor and 15,944 shares withheld. With regard to the election of
Jack E. Nelson as elected trustee of the Fund, 912,636 shares voted in his favor
and 15,944 shares withheld. With regard to the election of Don G. Powell as
elected trustee of the Fund 912,636 shares voted in his favor and 15,944 shares
withheld. With regard to the election of Jerome L. Robinson as elected trustee
of the Fund, 912,636 shares voted in his favor and 15,944 shares withheld. With
regard to the election of Phillip B. Rooney as elected trustee of the Fund,
912,636 shares voted in his favor and 15,944 shares withheld. With regard to the
election of Fernando Sisto as elected trustee of the Fund, 912,636 shares voted
in his favor and 15,944 shares withheld. With regard to the election of Wayne W.
Whalen as elected trustee of the Fund, 912,636 shares voted in his favor and
15,944 shares withheld. With regard to the ratification of KPMG Peat Marwick LLP
as independent public accountants for the Fund, 891,167 shares voted for the
proposal, 13,116 shares voted against and 24,296 shares abstained.

24
<PAGE> 231

TABLE OF CONTENTS

<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Portfolio Management Review...................... 6
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 17
</TABLE>

NYTF SAR 8/97
<PAGE> 232

LETTER TO SHAREHOLDERS

July 24, 1997

Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan Stanley
Group Inc., a world leader in asset
management. Earlier this year, Morgan
Stanley Group Inc. and Dean Witter, [PHOTO]
Discover & Co. agreed to merge. The
merger was completed on May 31,
creating the combined company of
Morgan Stanley, Dean Witter, Discover DENNIS J. MCDONNELL AND DON G. POWELL
& Co. Additionally, we are very
pleased to announce that Philip N.
Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.

Continued on page two

1
<PAGE> 233

MARKET OVERVIEW
The strong economy and tight labor market combined to put mild upward
pressure on bond yields during the first half of 1997. For several weeks during
the spring, it appeared that economic growth was too robust and that inflation
could reemerge. The Federal Reserve's quarter-point increase in short-term
interest rates, as well as worries about inflation, pushed yields on long-term
government bonds up to 7.17 percent in April. When subsequent data showed the
economy to be decelerating during the second quarter, bond yields gradually fell
back to 6.78 percent at the end of June, slightly above where they stood at the
beginning of the year.
Within the tax-exempt municipal market, long-term general obligation bonds
returned nearly four percent during the past six months. The supply of municipal
bonds remained tight, as a number of older bonds were called and new issuance
was less than anticipated. As of June 30, long-term AA-rated general obligation
bonds yielded 5.49 percent, which is equivalent to a 9.09 percent yield on
taxable securities for investors in the 39.6 percent federal income tax bracket.

Continued on page three

2
<PAGE> 234

Sincerely,

[SIG]

Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.

[SIG]

Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.

3
<PAGE> 235

PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997

VAN KAMPEN AMERICAN CAPITAL NEW YORK TAX FREE INCOME FUND

<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... 3.73% 3.35% 3.35%
Six-month total return(2)................ (1.22%) (0.65%) 2.35%
One-year total return(2)................. 5.00% 5.36% 8.36%
Life-of-Fund average annual total
return(2)................................ 5.93% 5.87% 6.93%
Commencement date........................ 07/29/94 07/29/94 07/29/94
</TABLE>

DISTRIBUTION RATES AND YIELD

<TABLE>
<S> <C> <C> <C>
Distribution rate(3)..................... 5.02% 4.56% 4.56%
Taxable equivalent distribution
rate(4).................................. 8.45% 7.68% 7.68%
SEC Yield(5)............................. 4.71% 4.20% 4.20%
</TABLE>

(2) Standardized total return. Assumes reinvestment of all distributions for the
period ended and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).

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

(4) Taxable equivalent calculations reflect a combined federal and state income
tax rate of 40.6% which takes into consideration the deductibility of individual
state taxes paid.

(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1997. Had certain
expenses of the Fund not been assumed by VKAC, the SEC Yield would have been
3.91%, 3.36%, and 3.36% for Classes A, B and C, respectively, and total returns
would have been lower.

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

Investing in lower-rated securities involves a higher degree of credit and
market risk. Investments in derivative securities will subject the Fund to
greater risks.

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

4
<PAGE> 236

PORTFOLIO HIGHLIGHTS

VAN KAMPEN AMERICAN CAPITAL NEW YORK TAX FREE INCOME FUND

CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS

AS OF JUNE 30, 1997
<S> <C>
AAA................. 36.4%
AA.................. 9.3%
A................... 4.4% [PIE CHART]
BBB................. 37.7%
Non-Rated........... 12.2%
</TABLE>

AS OF DECEMBER 31, 1996
<S> <C>
AAA................. 43.8%
AA.................. 11.4%
A................... 4.9% [PIE CHART]
BBB................. 25.1%
Non-Rated........... 14.8%
</TABLE>

Based upon the highest credit quality rating as determined by Standard & Poor's
or Moody's.

TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS

AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <S> <C>
Higher Education ..... 16.9% General Purpose ....... 15.3%
Industrial Revenue ... 16.0% Health Care ........... 15.2%
Health Care .......... 11.9% Industrial Revenue .... 13.8%
Transportation ....... 11.8% Public Education ...... 12.5%
General Purpose ...... 11.2% Housing ............... 10.1%
</TABLE>

DURATION

<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996
<S> <C> <C>
Duration 8.08 years 8.27 years
</TABLE>

5
<PAGE> 237

PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL NEW YORK TAX FREE INCOME FUND

We recently spoke with the management team of the Van Kampen American Capital
New York Tax Free Income Fund about the key events and economic forces that
shaped the markets during the first half of the Fund's fiscal year. The team
includes Dennis S. Pietrzak, portfolio manager, and Peter W. Hegel, executive
vice president for fixed-income investments. The following excerpts reflect
their views concerning the Fund's performance during the six-month period ended
June 30, 1997.

Q WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND DURING
THE FIRST HALF OF THIS YEAR?

A Interest rate changes, combined with the expanding economy, proved to have
the greatest impact on the Fund during the period. In response to economic
data that reported a rapidly growing economy and unemployment at a 27-year
low, the Federal Reserve Board elected to raise short-term interest rates by
one-quarter of a percentage point in March, causing a short decline in the bond
market. However, the bond market rallied when the Fed elected not to raise rates
in May.
While the downward trend in interest rates in recent years has given us a
boost in terms of price appreciation, it also makes it somewhat more difficult
to build the income component of the Fund's portfolio.
New York, the second largest issuer of municipal bonds in the United States,
did not experience any unusual supply or demand pressures during the period.
Although the supply is available, the yield spreads between bonds continues to
compress.

Q HOW DID YOU STRUCTURE THE FUND IN LIGHT OF THIS ENVIRONMENT?

A We anticipated that the Fed would step in to head off inflation. As a
result, we lowered our duration at the end of March to 7.10 years, slightly
shorter than the Lehman Brothers Municipal Bond Index duration of 8.16
years. Because of the longer-term nature of the Fund, the calculation of this
index's duration has been adjusted to eliminate bonds with maturities of five
years or less. Duration, which is expressed in years, is a measurement of the
portfolio's price sensitivity to interest rate fluctuations. The shorter the
duration of a portfolio, the less sensitive it is to interest rate changes.
This preemptive move proved beneficial for the Fund, because the shorter
duration reduced the Fund's volatility from changes in interest rates.
We maintained a defensive stance with a shorter duration when the Fed
decided to remain neutral, and our return suffered slightly in May. After
readjusting duration to a more neutral stance, we recovered our earlier losses
in June.
During March, we readjusted the portfolio by selling bonds with shorter call
protection and lower yields and purchased bonds with longer calls and more
attractive yields. Holding a slightly larger cash position than normal left the
Fund a little underinvested, but proved beneficial when the market fell after
the March up-tick. For additional Fund portfolio highlights, please refer to
page five.

6
<PAGE> 238

Q WHICH BOND PURCHASES ARE PROVING TO BE GOOD BUYS FOR THE FUND?

A In the first half of the reporting period, we were able to increase our
holdings in the transportation sector by purchasing bonds in two New York
Port Authority issues. Historically, the Port Authority has provided credit
quality and good value because it is generally priced attractively. Other
strong additions to the Fund include the New York City Water Authority, New
York General Obligation bonds, and several New York State Dormitory Authority
issues.

Q HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED JUNE 30, 1997?

A According to Lipper Analytical Services, Inc., the Fund consistently ranks
in the top quartile of funds in its peer group. For the six-month period
ended June 30, 1997, the Fund's total return was 3.73 percent(1) (Class A
shares at net asset value). By comparison, the market in general, as represented
by the Lehman Brothers Municipal Bond Index, returned 3.20 percent over the same
period. This index is a broad-based, unmanaged index of municipal bonds and does
not reflect any commissions or fees that would be paid by an investor purchasing
the securities it represents.
Longer term, the Fund generated a one-year total return of 10.22 percent(1)
(Class A shares at net asset value) through June 30. At its current monthly
annualized dividend level of $.798 per share, the Fund generated a tax-free
distribution rate of 5.02 percent(3) (Class A shares) as of June 30. At this
distribution rate, the Fund provides shareholders in the 40.6 percent combined
federal and state income tax bracket with a yield equivalent to a taxable
investment earning 8.45 percent(4). Please refer to the chart on page four for
additional Fund performance results.

Q WHAT IS YOUR OUTLOOK FOR THE REST OF THE YEAR?

A Right now, we are cautiously optimistic about the future. The success of
the stock market and Wall Street often dictates the success of the State's
economy. New York's economy continues to improve because of low unemployment
and other indications of growth. However, many are beginning to wonder how long
this prosperity will last.
Due to the manageable size and nature of the Fund, supply and demand will
have little to no effect during the second half of the year as we will continue
to be selective with new additions to the Fund. We will continue to manage the
Fund in a manner consistent with the philosophy we have applied since the Fund's
inception, as we seek to

7
<PAGE> 239

achieve our objective of providing shareholders with a high level of current
income exempt from federal and state income taxes.

[SIG]

Peter W. Hegel
Chief Investment Officer
Fixed Income Investments

[SIG]

Dennis Pietrzak
Portfolio Manager

Please See footnotes on Page 4

8
<PAGE> 240

PORTFOLIO OF INVESTMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
($000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK MUNICIPAL BONDS 94.3%
$400 Battery Park City Auth NY Rev Sr Ser A Rfdg...... 5.000% 11/01/13 $ 377,564
500 Buffalo, NY Swr Auth Rev Swr Sys Ser G Rfdg (FGIC
Insd)............................................ 5.000 07/01/12 482,855
750 Clifton Springs, NY Hosp & Clinic Ser A Rfdg &
Impt............................................. 7.650 01/01/12 774,555
500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg..................... 7.500 03/01/26 525,870
800 Metropolitan Tran Auth NY Commuter Fac Rev Ser A
(MBIA Insd)...................................... 5.625 07/01/27 795,408
500 New York City Indl Dev Agy Civic Fac Rev Cmnty
Res Developmentally Disabled..................... 7.500 08/01/26 513,120
500 New York City Indl Dev Agy Civic Fac Rev College
of New Rochelle Proj............................. 5.750 09/01/17 491,465
515 New York City Indl Dev Agy Civic Fac Rev YMCA
Greater NY Proj.................................. 5.800 08/01/16 511,565
500 New York City Indl Dev Agy Civic Fac Rev YMCA
Greater NY Proj Rfdg............................. 6.000 08/01/07 525,450
500 New York City Indl Dev Agy Rev Visy Paper Inc
Proj............................................. 7.950 01/01/28 553,290
375 New York City Indl Dev Agy Spl Fac Rev Terminal
One Group Assn Proj.............................. 5.700 01/01/04 384,195
500 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser B (AMBAC Insd)............................... 5.375 06/15/19 479,475
500 New York City Ser B.............................. 5.700 08/15/07 513,905
360 New York City Ser C.............................. 7.250 08/15/24 386,021
140 New York City Ser C (Prerefunded @ 08/15/01)..... 7.250 08/15/24 155,310
500 New York City Ser H.............................. 7.000 02/01/21 547,885
300 New York St Dorm Auth Rev City Univ Ser F........ 5.000 07/01/14 273,216
600 New York St Dorm Auth Rev City Univ Sys 3rd Genl
Res 2 Rfdg....................................... 6.000 07/01/05 635,526
750 New York St Dorm Auth Rev Cons City Univ Sys Ser
A................................................ 5.625 07/01/16 749,130
500 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.700 05/15/22 486,050
570 New York St Dorm Auth Rev Dept Ed St of NY Issue
Ser A............................................ 5.800 07/01/22 565,172
750 New York St Dorm Auth Rev FHA Nursing Home
Menorah.......................................... 5.950 02/01/17 760,927
500 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser B............................................ 5.500 08/15/17 483,725
500 New York St Dorm Auth Rev St Univ Edl Fac........ 5.750 05/15/10 508,455
500 New York St Energy Resh & Dev Auth Elec Fac Rev
Cons Edison Co NY Inc Proj Ser A (MBIA Insd)..... 7.500 01/01/26 534,520
500 New York St Energy Resh & Dev Auth Gas Fac Rev
Brooklyn Union Gas Co Ser B (Inverse Fltg) (a)... 10.071 07/01/26 601,875
300 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent Proj.... 6.000 04/01/00 310,563
</TABLE>

See Notes to Financial Statements

9
<PAGE> 241

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Par
Amount
($000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

NEW YORK MUNICIPAL BONDS (CONTINUED)
$500 New York St Environmental Fac Corp Pollutn Ctl
Rev St Wtr Revolving Fund Ser D.................. 6.850% 11/15/11 $ 570,885
500 New York St Hsg Fin Agy Rev Insd Multi-Family Mtg
Ser B (AMBAC Insd)............................... 6.250 08/15/14 518,235
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.200 08/15/05 547,135
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.600 02/15/11 549,160
300 New York St Med Care Fac Fin Agy Rev Presbyterian
Hosp Mtg Ser A Rfdg (FHA Gtd).................... 5.250 08/15/14 288,033
500 New York St Mtg Agy Rev Homeowner Mtg Ser 30B.... 6.650 10/01/25 525,960
750 New York St Mtg Agy Rev Homeowner Mtg Ser 58..... 6.400 04/01/27 786,727
290 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.750 04/01/09 297,456
370 New York St Urban Dev Corp Rev Correctional Cap
Fac Rfdg......................................... 5.625 01/01/07 378,973
450 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 7........................................ 5.700 01/01/27 440,258
300 New York St Urban Dev Corp Rev Correctional Fac
Rfdg............................................. 5.750 01/01/13 299,847
420 Niagara Falls, NY Pub Impt (MBIA Insd)........... 6.900 03/01/20 468,380
500 Oneida Cnty, NY Pub Impt......................... 5.850 03/15/12 503,610
300 Port Auth NY & NJ Spl Oblig...................... 7.000 10/01/07 330,912
750 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/25 750,247
625 Rockland Cnty, NY Solid Waste Mgmt Auth Ser B
(AMBAC Insd)..................................... 5.550 12/15/16 625,769
400 Triborough Brdg & Tunl Auth NY Rev Genl Purp Ser
A Rfdg........................................... 5.000 01/01/12 382,692
-----------
TOTAL LONG-TERM INVESTMENTS 94.3%
(Cost $21,068,829)......................................................... 22,191,371
SHORT-TERM INVESTMENTS 0.9%................................................. 200,000
-----------
TOTAL INVESTMENTS 95.2%
(Cost $21,268,829)......................................................... 22,391,371
OTHER ASSETS IN EXCESS OF LIABILITIES 4.8%.................................. 1,129,116
-----------
NET ASSETS 100.0%........................................................... $23,520,487
===========
</TABLE>

(a) An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by
the Fund to enhance the yield of the portfolio. The price of these
securities may be more volatile than the price of a comparable fixed rate
security.

See Notes to Financial Statements

10
<PAGE> 242

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $21,268,829)........................ $22,391,371
Cash...................................................... 599,937
Receivables:
Interest.................................................. 446,464
Fund Shares Sold.......................................... 270,282
Unamortized Organizational Costs............................ 31,137
-----------
Total Assets.......................................... 23,739,191
-----------
LIABILITIES:
Payables:
Income Distributions...................................... 93,661
Fund Shares Repurchased................................... 87,288
Distributor and Affiliates................................ 5,221
Accrued Expenses............................................ 17,965
Deferred Compensation and Retirement Plans.................. 14,569
-----------
Total Liabilities..................................... 218,704
-----------
NET ASSETS.................................................. $23,520,487
===========
NET ASSETS CONSIST OF:
Capital..................................................... $22,417,703
Net Unrealized Appreciation................................. 1,122,542
Accumulated Undistributed Net Investment Income............. 52,849
Accumulated Net Realized Loss............................... (72,607)
-----------
NET ASSETS.................................................. $23,520,487
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $11,650,149 and 769,378 shares of
beneficial interest issued and outstanding)........... $ 15.14
Maximum sales charge (4.75%* of offering price)......... .76
-----------
Maximum offering price to public........................ $ 15.90
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $11,382,107 and 751,794 shares of
beneficial interest issued and outstanding)........... $ 15.14
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $488,231 and 32,248 shares of beneficial
interest issued and outstanding)...................... $ 15.14
===========
</TABLE>

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

See Notes to Financial Statements

11
<PAGE> 243

STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 598,649
----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $11,247, $52,796 and $2,063, respectively).. 66,106
Investment Advisory Fee..................................... 59,799
Custody..................................................... 24,479
Shareholder Reports......................................... 10,860
Audit....................................................... 9,955
Shareholder Services........................................ 7,323
Registration and Filing Fees................................ 4,415
Trustees Fees and Expenses.................................. 4,306
Legal....................................................... 3,620
Other....................................................... 3,177
Recapture of Excess Organizational Costs.................... (14,431)
----------
Total Expenses.......................................... 179,609
Less Fees Deferred and Expenses Reimbursed ($59,799 and
$59,548, respectively)................................ 119,347
----------
Net Expenses............................................ 60,262
----------
NET INVESTMENT INCOME....................................... $ 538,387
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 94,295
Futures................................................... (36,578)
----------
Net Realized Gain........................................... 57,717
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 967,758
End of the Period......................................... 1,122,542
----------
Net Unrealized Appreciation During the Period............... 154,784
----------
NET REALIZED AND UNREALIZED GAIN............................ $ 212,501
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 750,888
==========
</TABLE>

See Notes to Financial Statements

12
<PAGE> 244

STATEMENT OF CHANGES IN NET ASSETS

For the Six Months Ended June 30, 1997 and
the Year Ended December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 538,387 $ 861,604
Net Realized Gain.................................... 57,717 178,372
Net Unrealized Appreciation/Depreciation During the
Period............................................. 154,784 (185,185)
----------- -----------
Change in Net Assets from Operations................. 750,888 854,791
----------- -----------
Distributions from Net Investment Income:
Class A Shares..................................... (241,205) (354,322)
Class B Shares..................................... (245,210) (471,468)
Class C Shares..................................... (9,550) (17,599)
----------- -----------
(495,965) (843,389)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... 254,923 11,402
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 7,347,123 5,845,364
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 262,358 429,768
Cost of Shares Repurchased........................... (2,525,523) (3,618,542)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... 5,083,958 2,656,590
----------- -----------
TOTAL INCREASE IN NET ASSETS......................... 5,338,881 2,667,992
NET ASSETS:
Beginning of the Period.............................. 18,181,606 15,513,614
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of $52,849 and
$10,427, respectively)............................. $23,520,487 $18,181,606
=========== ===========
</TABLE>

See Notes to Financial Statements

13
<PAGE> 245

FINANCIAL HIGHLIGHTS

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Year Ended Operations) to
June 30, December 31, December 31, December 31,
Class A Shares 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................. $14.992 $15.048 $13.579 $14.300
-------- ------- ------- -------
Net Investment Income.................. .419 .816 .821 .302
Net Realized and Unrealized
Gain/Loss............................ .130 (.074) 1.476 (.722)
-------- ------- ------- -------
Total from Investment Operations......... .549 .742 2.297 (.420)
Less Distributions from and in Excess of
Net Investment Income.................. .399 .798 .828 .301
-------- ------- ------- -------
Net Asset Value, End of the Period....... $15.142 $14.992 $15.048 $13.579
======== ======= ======= =======
Total Return*(a)......................... 3.73** 5.14% 17.33% (2.93%)**
Net Assets at End of the Period (In
millions).............................. $11.7 $7.7 $5.4 $2.9
Ratio of Expenses to Average Net
Assets*................................ .21% .31% .21% .26%
Ratio of Net Investment Income to Average
Net Assets*............................ 5.78% 5.56% 5.63% 5.27%
Portfolio Turnover....................... 27%** 126% 51% 68%**
*If certain expenses had not been assumed by VKAC, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets................................. 1.40% 1.82% 2.10% 2.73%
Ratio of Net Investment Income to Average
Net Assets............................. 4.59% 4.04% 3.74% 2.81%
</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.

See Notes to Financial Statements

14
<PAGE> 246

FINANCIAL HIGHLIGHTS (CONTINUED)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Year Ended Operations) to
June 30, December 31, December 31, December 31,
Class B Shares 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................. $14.992 $15.046 $13.578 $14.300
------- ---------- ---------- ----------
Net Investment Income.................. .375 .704 .713 .263
Net Realized and Unrealized
Gain/Loss............................ .118 (.068) 1.476 (.722)
------- ---------- ---------- ----------
Total from Investment Operations......... .493 .636 2.189 (.459)
Less Distributions from and in Excess of
Net Investment Income.................. .345 .690 .721 .263
------- ---------- ---------- ----------
Net Asset Value, End of the Period....... $15.140 $14.992 $15.046 $13.578
======= ========== ========== ==========
Total Return*(a)......................... 3.35%** 4.37% 16.47% (3.20%)**
Net Assets at End of the Period (In
millions).............................. $ 11.4 $ 10.1 $ 9.7 $ 8.1
Ratio of Expenses to Average Net
Assets*................................ .93% 1.07% .93% .96%
Ratio of Net Investment Income to Average
Net Assets*............................ 5.08% 4.79% 4.93% 4.58%
Portfolio Turnover....................... 27%** 126% 51% 68%**
*If certain expenses had not been assumed by VKAC, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets................................. 2.13% 2.60% 2.82% 3.42%
Ratio of Net Investment Income to Average
Net Assets............................. 3.88% 3.26% 3.04% 2.12%
</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.

See Notes to Financial Statements

15
<PAGE> 247

FINANCIAL HIGHLIGHTS (CONTINUED)

The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Year Ended Operations) to
June 30, December 31, December 31, December 31,
Class C Shares 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................. $14.992 $15.041 $13.579 $14.300
------- ------- ------- -------
Net Investment Income.................. .370 .701 .711 .267
Net Realized and Unrealized
Gain/Loss............................ .123 (.060) 1.472 (.725)
------- ------- ------- -------
Total from Investment Operations......... .493 .641 2.183 (.458)
Less Distributions from and in Excess of
Net Investment Income.................. .345 .690 .721 .263
------- ------- ------- -------
Net Asset Value, End of the Period....... $15.140 $14.992 $15.041 $13.579
======= ======= ======= =======
Total Return*(a)......................... 3.35%** 4.44% 16.39% (3.20%)**
Net Assets at End of the Period (In
millions).............................. $ .5 $ .4 $ .4 $ .2
Ratio of Expenses to Average Net
Assets*................................ .94% 1.08% .98% .96%
Ratio of Net Investment Income to Average
Net Assets*............................ 5.04% 4.78% 4.81% 4.58%
Portfolio Turnover....................... 27%** 126% 51% 68%**
*If certain expenses had not been assumed by VKAC, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets................................. 2.14% 2.61% 2.86% 3.42%
Ratio of Net Investment Income to Average
Net Assets............................. 3.84% 3.25% 2.93% 2.12%
</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.

See Notes to Financial Statements

16
<PAGE> 248

NOTES TO FINANCIAL STATEMENTS

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital New York Tax Free Income Fund (the "Fund") is
organized as a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust, and is registered as a non-diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to provide investors with a high
level of current income exempt from federal, New York State and New York City
income taxes, consistent with preservation of capital. The Fund 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. The Fund commenced investment operations on July 29, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. 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.

17
<PAGE> 249

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization. During the period, the original
estimate of organizational costs of $120,000 was reduced to $75,000, reflecting
the actual costs incurred. The amortization of these costs has been
retroactively revised with the current year amortization expense adjusted
accordingly. These costs are being amortized on a straight line basis over the
60 month period ending July 28, 1999. Van Kampen American Capital Investment
Advisory Corp. (the "Adviser") has agreed that in the event any of the initial
shares of the Fund originally purchased by VKAC are redeemed during the
amortization period, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.

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

At June 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $21,268,829; the aggregate gross unrealized
appreciation is $1,133,757 and the aggregate gross unrealized depreciation is
$11,215, resulting in net unrealized appreciation of $1,122,542.

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

2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:

<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ----------------------------------------------------------------------
<S> <C>
First $500 million........................................ .600 of 1%
Over $500 million......................................... .500 of 1%
</TABLE>

18
<PAGE> 250

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $900 representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person. All of this expense has been assumed by VKAC.

For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $15,600 representing VKAC's cost of providing accounting services,
cash management and legal services to the Fund. All of this cost has been
assumed by VKAC.

ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1997, the Fund recognized expenses of approximately $3,700,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit. All of this expense has been assumed by VKAC.

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

At June 30, 1997, VKAC owned 100 shares each of Classes A, B and C.

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.

19
<PAGE> 251

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At June 30, 1997, capital aggregated $11,226,076, $10,721,234, and $470,393
for Classes A, B and C, respectively. For the six months ended June 30, 1997,
transactions were as follows:

<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 283,409 $ 4,250,344
Class B...................................... 197,957 2,946,489
Class C...................................... 10,063 150,290
-------- -----------
Total Sales.................................... 491,429 $ 7,347,123
======== ===========
Dividend Reinvestment:
Class A...................................... 10,208 $ 152,869
Class B...................................... 6,872 102,870
Class C...................................... 441 6,619
-------- -----------
Total Dividend Reinvestment.................... 17,521 $ 262,358
======== ===========
Repurchases:
Class A...................................... (37,864) $ (568,104)
Class B...................................... (128,647) (1,930,599)
Class C...................................... (1,797) (26,820)
-------- -----------
Total Repurchases.............................. (168,308) $(2,525,523)
======== ===========
</TABLE>

20
<PAGE> 252

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

At December 31, 1996, capital aggregated $7,390,967, $9,602,474 and $340,304
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...................................... 221,959 $ 3,267,016
Class B...................................... 167,902 2,467,305
Class C...................................... 7,482 111,043
-------- -----------
Total Sales.................................... 397,343 $ 5,845,364
======== ===========
Dividend Reinvestment:
Class A...................................... 14,548 $ 214,270
Class B...................................... 13,908 204,781
Class C...................................... 727 10,717
-------- -----------
Total Dividend Reinvestment.................... 29,183 $ 429,768
======== ===========
Repurchases:
Class A...................................... (78,724) $(1,167,300)
Class B...................................... (154,018) (2,273,282)
Class C...................................... (12,034) (177,960)
-------- -----------
Total Repurchases.............................. (244,776) $(3,618,542)
======== ===========
</TABLE>

21
<PAGE> 253

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ----------------------------------------------------------------------------
<S> <C> <C>
First............................................. 4.00% 1.00%
Second............................................ 3.75% None
Third............................................. 3.50% None
Fourth............................................ 2.50% None
Fifth............................................. 1.50% None
Sixth............................................. 1.00% None
Seventh and Thereafter............................ .00% None
</TABLE>

For the six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$5,000 and CDSC on redeemed shares of approximately $39,800. Sales charges do
not represent expenses of the Fund.

4. INVESTMENT TRANSACTIONS

During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $9,216,570 and $5,252,379.

5. DERIVATIVE FINANCIAL INSTRUMENTS

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

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

22
<PAGE> 254

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------

Transactions in futures contracts for the six months ended June 30, 1997,
were as follows:

<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996........................... -0-
Futures Opened............................................. 30
Futures Closed............................................. (30)
---------
Outstanding at June 30, 1997............................... -0-
=========
</TABLE>

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.

23
<PAGE> 255

VAN KAMPEN AMERICAN CAPITAL NEW YORK TAX FREE INCOME FUND

BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman

OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents

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

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

SHAREHOLDER SERVICING AGENT
ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256

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

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

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

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

24
<PAGE> 256

RESULTS OF SHAREHOLDER VOTES

A Special Meeting of Shareholders of the Fund was held on May 28, 1997 where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
1,024,546 shares voted for the proposal, 0 shares voted against and 36,026
shares abstained. With regard to the election of J. Miles Branagan as elected
trustee of the Fund, 1,053,489 shares voted in his favor and 7,083 shares
withheld. With regard to the election of Richard M. DeMartini as elected trustee
of the Fund, 1,052,059 shares voted in his favor and 8,513 shares withheld. With
regard to the election of Linda Hutton Heagy as elected trustee of the Fund,
1,053,489 shares voted in her favor and 7,083 shares withheld. With regard to
the election of R. Craig Kennedy as elected trustee of the Fund, 1,053, 489
shares voted in his favor and 7,083 shares withheld. With regard to the election
of Jack E. Nelson as elected trustee of the Fund, 1,053,489 shares voted in his
favor and 7,083 shares withheld. With regard to the election of Don G. Powell as
elected trustee of the Fund 1,053,489 shares voted in his favor and 7,083 shares
withheld. With regard to the election of Jerome L. Robinson as elected trustee
of the Fund, 1,053,489 shares voted in his favor and 7,083 shares withheld. With
regard to the election of Phillip B. Rooney as elected trustee of the Fund,
1,053,489 shares voted in his favor and 7,083 shares withheld. With regard to
the election of Fernando Sisto as elected trustee of the Fund, 1,053,489 shares
voted in his favor and 7,083 shares withheld. With regard to the election of
Wayne W. Whalen as elected trustee of the Fund, 1,053,489 shares voted in his
favor and 7,083 shares withheld. With regard to the ratification of KPMG Peat
Marwick LLP as independent public accountants for the Fund, 1,039,903 shares
voted for the proposal, 759 shares voted against and 19,911 shares abstained.