VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND, 497, 1996-11-01

VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND
497, 1996-11-01

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<PAGE> 1

STATEMENT OF ADDITIONAL INFORMATION

VAN KAMPEN AMERICAN CAPITAL TAX FREE MONEY FUND

Van Kampen American Capital Tax Free Money Fund (the "Fund") seeks to provide
a high level of current income exempt from federal income taxes consistent with
the preservation of capital and liquidity through investment in a diversified
portfolio of municipal securities that will mature within 12 months of the date
of purchase. There is no assurance that the Fund will achieve its investment
objective.

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the current Prospectus for the Fund dated the date
hereof (the "Prospectus"). This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund, and investors should obtain and read the
Prospectus prior to purchasing shares. A copy of the Prospectus may be obtained
without charge by calling the Fund at (800) 421-5666. This Statement of
Additional Information incorporates by reference the entire Prospectus.

The Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the Securities
and Exchange Commission ("SEC"), Washington, D.C. This omitted information may
be obtained from the SEC upon payment of the fee prescribed or inspected at the
SEC's office at no charge.

TABLE OF CONTENTS

<TABLE>
<S> <C>
The Fund and the Trust............................................................... B-2
Investment Policies and Restrictions................................................. B-2
Trustees and Officers................................................................ B-3
Legal Counsel........................................................................ B-12
Investment Advisory and Other Services............................................... B-12
Custodian and Independent Accountants................................................ B-13
Portfolio Transactions and Brokerage Allocation...................................... B-14
The Distributor...................................................................... B-14
Yield Information.................................................................... B-15
Dividends............................................................................ B-16
Appendix............................................................................. B-17
Independent Accountants' Report...................................................... B-19
Financial Statements................................................................. B-20
Notes to Financial Statements........................................................ B-25
</TABLE>

THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED OCTOBER 28, 1996.
<PAGE> 2

THE FUND AND THE TRUST

The Fund is an open-end diversified management investment company organized as
an unincorporated business trust established under the laws of the State of
Delaware by an Agreement and Declaration of Trust ("Declaration of Trust") dated
as of May 10, 1995. The Fund was originally organized in 1986 as a Massachusetts
business trust under the name Van Kampen Merritt Tax Free Income Fund. The Fund
was reorganized as a Delaware business trust as of July 31, 1995. The Fund can
issue an unlimited number of shares at par value $0.01 per share.

The Fund's Declaration of Trust provides that shareholders are not liable for
any liabilities of the Fund and requires inclusion of a clause to that effect in
every agreement entered into by the Fund and indemnifies shareholders against
any such liability. Shares of the Fund entitle their holders to one vote per
share. Except as described in the Prospectus, shares do not have cumulative
voting rights, preemptive rights or any conversion or exchange rights. The Fund
does not contemplate holding regular meetings of shareholders to elect Trustees
or otherwise. However, the holders of 10% or more of the outstanding shares may
by written request require a meeting to consider the removal of Trustees by a
vote of two-thirds of the shares then outstanding cast in person or by proxy at
such meeting. The Fund will assist such holders in communicating with other
shareholders of the Fund to the extent required by the Investment Company Act of
1940, as amended (the "1940 Act").

The Trustees may amend the Declaration of Trust in any manner without
shareholder approval, except that the Trustees may not adopt any amendment
adversely affecting the rights of shareholders without approval by a majority of
the shares present at a meeting of shareholders (or such higher vote as may be
required by the 1940 Act or other applicable law) and except that the Trustees
cannot amend the Declaration of Trust to impose any liability on shareholders,
make any assessment on shares or impose liabilities on the Trustees without
approval from each affected shareholder or Trustee, as the case may be.

Statements contained in this Statement of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms as part, each such statement
being qualified in all respects by such reference.

INVESTMENT POLICIES AND RESTRICTIONS

The investment objective of the Fund is to provide a high level of current
income exempt from federal income taxes, consistent with the preservation of
capital and liquidity through investment in a diversified portfolio of municipal
securities. The Fund will invest only in the municipal securities denominated in
U.S. dollars and must either (i) mature or have been called for redemption
within one year of the date purchased or (ii) be subject to repurchase
agreements maturing within one year. There can be no assurance that the Fund
will achieve its objective. The foregoing is a fundamental policy and cannot be
changed without approval of the shareholders of the Fund.

Fundamental investment restrictions limiting the investments of the Fund
provide that the Fund may not:

1. Purchase any securities (other than obligations issued or guaranteed by
the United States Government or by its agencies or instrumentalities) if,
as a result, more than 5% of the Fund's total assets (taken at current
value) would then be invested in securities of a single issuer or if, as a
result, the Fund would hold more than 10% of the outstanding voting
securities of an issuer except, that up to 25% of the Fund's total assets
may be invested without regard to such limitations.

2. Borrow money, except from banks for temporary or emergency purposes or in
reverse repurchase transactions as described in the Prospectus and then
not in amounts in excess of 10% of its net assets at the time of
borrowing. It can mortgage or pledge its assets only in connection with
such borrowing and in amounts not in excess of 20% of the value of its net
assets at the time of such borrowing. The Fund will not purchase any
securities while it has any outstanding borrowings.

3. Buy any securities "on margin" or sell any securities "short."

B-2
<PAGE> 3

4. Make investments for the purpose of exercising control or management.

5. Purchase any security which is restricted as to disposition under federal
securities laws or by contract or which are not readily marketable, or
enter into a repurchase agreement maturing in more than seven days with
respect to any security if, as a result, more than 10% of the Fund's total
assets would be invested in such securities.

6. Invest in securities of other investment companies, except as part of a
merger, consolidation or other acquisition.

7. Invest in interests in oil, gas or other mineral exploration or
development programs.

8. Make loans, except that the Fund can purchase and hold those publicly
distributed debt securities which it is permitted to buy, and enter into
repurchase agreements.

9. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.

10. Purchase or sell real estate, commodities or commodity contracts.

The Fund may not change any of these investment restrictions without the
approval of the lesser of (i) more than 50% of the Fund's outstanding shares or
(ii) 67% of the Fund's shares present at a meeting at which the holders of more
than 50% of such outstanding shares are present in person or by proxy. As long
as the percentage restrictions described above are satisfied at the time of the
investment or borrowing, the Fund will be considered to have abided by those
restrictions even if, at a later time, a change in values or net assets causes
an increase or decrease in percentage.

From time to time, the Fund may adopt more stringent investment restrictions
in order to satisfy rules and regulations promulgated by the SEC or to be able
to offer its shares to residents in particular states. The Fund may amend or
revoke such investment restrictions if the SEC amends or revokes such rules and
regulations. In addition, in order to offer its shares to residents in
particular states, the Fund has committed that it will not purchase or sell
options and that it will not invest in warrants. The Fund may revoke any such
commitments at any time so long as it thereafter ceases to offer its shares in
the state or states involved or such commitment is no longer required by such
state or states.

TRUSTEES AND OFFICERS

The tables below list the trustees and officers of the Fund and their
principal occupations for the last five years and their affiliations, if any,
with Van Kampen American Capital Investment Advisory Corp. (the "VK Adviser"),
Van Kampen American Capital Asset Management, Inc. (the "AC Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), Van Kampen
American Capital, Inc. ("Van Kampen American Capital"), VK/AC Holding, Inc. or
ACCESS Investor Services, Inc. ("ACCESS"). For purposes hereof, the terms "Van
Kampen American Capital Funds" or "Fund Complex" includes each of the open-end
investment companies advised by the VK Adviser (excluding The Explorer
Institutional Trust) and each of the open-end investment companies advised by
the AC Adviser (excluding the Van Kampen American Capital Exchange Fund and the
Common Sense Trust).

TRUSTEES

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
J. Miles Branagan.................. Co-founder, Chairman, Chief Executive Officer and
1632 Morning Mountain Road President of MDT Corporation, a company which develops
Raleigh, NC 27614 manufactures, markets and services medical and scientific
Date of Birth: 07/14/32 equipment. Trustee of each of the Van Kampen American
Capital Funds.
</TABLE>

B-3
<PAGE> 4

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Linda Hutton Heagy................. Managing Partner, Paul Ray Berndtson, an executive
10 South Riverside Plaza recruiting and management consulting firm. Formerly,
Suite 720 Executive Vice President of ABN AMRO, N.A., a Dutch bank
Chicago, IL 60606 holding company. Prior to 1992, Executive Vice President
Date of Birth: 06/03/49 of La Salle National Bank. Trustee of each of the Van
Kampen American Capital Funds.
Roger Hilsman...................... Professor of Government and International Affairs
251-1 Hamburg Cove Emeritus, Columbia University. Trustee of each of the Van
Lyme, CT 06371 Kampen American Capital Funds.
Date of Birth: 11/23/19
R. Craig Kennedy................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and member of the Investment Committee
of the Joyce Foundation, a private foundation. Trustee of
each of the Van Kampen American Capital Funds.
Dennis J. McDonnell*............... President, Chief Operating Officer and a Director of the
One Parkview Plaza VK Adviser, the AC Adviser, Van Kampen American Capital
Oakbrook Terrace, IL 60181 Advisors, Inc. and Van Kampen American Capital
Date of Birth: 05/20/42 Management, Inc. Executive Vice President and a Director
of VK/AC Holding, Inc. and Van Kampen American Capital.
President and Director of Van Kampen Merritt Equity
Advisors Corp. Director of Van Kampen Merritt Equity
Holdings Corp. Director of McCarthy, Crisanti & Maffei,
Inc. Prior to September 1996, Chief Executive Officer
McCarthy, Crisanti & Maffei, Inc. and Chairman and
Director of MCM Asia Pacific Company, Limited. Prior to
July 1996, President, Chief Operating Officer and Trustee
of VSM Inc. and VCJ Inc. President, Chief Executive
Officer and Trustee of each of the Van Kampen American
Capital Funds. President, Chairman of the Board and
Trustee of other investment companies advised by the VK
Adviser. Executive Vice President of other investment
companies advised by the AC Adviser.
Donald C. Miller................... Prior to 1992, Director of Royal Group, Inc., a company
415 North Adams in insurance related businesses. Formerly Vice Chairman
Hinsdale, IL 60521 and Director of Continental Illinois National Bank and
Date of Birth: 03/31/20 Trust Company of Chicago and Continental Illinois
Corporation. Trustee and Co-Chairman of each of the Van
Kampen American Capital Funds.
Jack E. Nelson..................... President of Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President of Nelson Investment Brokerage
Date of Birth: 02/13/36 Services Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD") and Securities
Investors Protection Corp. ("SIPC"). Trustee of each of
the Van Kampen American Capital Funds.
Jerome L. Robinson................. President of Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director of Pacesetter Software, a
Date of Birth: 10/10/22 software programming company specializing in white collar
productivity. Director of Panasia Bank. Trustee of each
of the Van Kampen American Capital Funds.
</TABLE>

B-4
<PAGE> 5

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- ----------------------------------- ---------------------------------------------------------
<S> <C>
Fernando Sisto..................... George M. Bond Chaired Professor and, prior to 1995, Dean
155 Hickory Lane of Graduate School and Chairman, Department of Mechanical
Closter, NJ 07624-2322 Engineering, Stevens Institute of Technology. Director of
Date of Birth: 08/02/24 Dynalysis of Princeton, a firm engaged in engineering
research. Trustee and Co-Chairman of each of the Van
Kampen American Capital Funds.

Wayne W. Whalen*................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the Van Kampen
Chicago, IL 60606 American Capital Funds, The Explorer Institutional Trust
Date of Birth: 08/22/39 and the closed-end investment companies advised by the VK
Adviser. Trustee of each of the Van Kampen American
Capital Funds, The Explorer Institutional Trust and the
closed-end investment companies advised by the VK
Adviser.

William S. Woodside................ Vice Chairman of the Board of LSG Sky Chefs, Inc., a
712 Fifth Avenue caterer of airline food. Formerly, Director of Primerica
40th Floor Corporation (currently known as The Traveler's Inc.).
New York, NY 10019 Formerly, Director of James River Corporation, a producer
Date of Birth: 01/31/22 of paper products. Trustee, and former President of
Whitney Museum of American Art. Formerly, Chairman of
Institute for Educational Leadership, Inc., Board of
Visitors, Graduate School of The City University of New
York, Academy of Political Science. Trustee of Committee
for Economic Development. Director of Public Education
Fund Network, Fund for New York City Public Education.
Trustee of Barnard College. Member of Dean's Council,
Harvard School of Public Health. Member of Mental Health
Task Force, Carter Center. Trustee of each of the Van
Kampen American Capital Funds.
</TABLE>

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

* Such trustees are "interested persons" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. McDonnell is an interested person of the VK Adviser, the
AC Adviser and the Fund by reason of his positions with the VK Adviser and the
AC Adviser. Mr. Whalen is an interested person of the Fund by reason of his
firm acting as legal counsel to the Fund.

B-5
<PAGE> 6

OFFICERS

The address for William N. Brown, Curtis W. Morell, Robert C. Peck, Jr., Alan
T. Sachtleben, Paul R. Wolkenberg, Tanya M. Loden, Huey P. Falgout, Jr. and
Robert Sullivan is 2800 Post Oak Blvd., Houston, TX 77056. The address for Peter
W. Hegel, Ronald A. Nyberg, Edward C. Wood III, John L. Sullivan, Nicholas
Dalmaso, Scott E. Martin, Weston B. Wetherell and Steven M. Hill is One Parkview
Plaza, Oakbrook Terrace, IL 60181.

B-6
<PAGE> 7

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------ ----------------------- -------------------------------------------
<S> <C> <C>
Adviser.Robert C. Peck, Vice President Executive Vice President of the VK Adviser
Jr.................... and Van Kampen American Capital Management,
Date of Birth: Inc. Executive Vice President and Director
10/01/46 of the AC Adviser and Van Kampen American
Capital Advisors, Inc. Vice President of
each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Alan T. Sachtleben...... Vice President Executive Vice President of the VK Adviser
Date of Birth: and Van Kampen American Capital Management,
04/20/42 Inc. Executive Vice President and a
Director of the AC Adviser and Van Kampen
American Capital Advisors, Inc. Vice
President of each of the Van Kampen
American Capital Funds and other investment
companies advised by the VK Adviser and AC
Adviser.
Paul R. Wolkenberg...... Vice President Executive Vice President of VK/AC Holding,
Date of Birth: Inc., Van Kampen American Capital, the
11/10/44 Distributor and the AC Adviser. President,
Chief Executive Officer and a Director of
Van Kampen American Capital Trust Company
and ACCESS. Director of American Capital
Contractual Services, Inc. Vice President
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Edward C. Wood III...... Vice President and Senior Vice President of the VK Adviser,
Date of Birth: Chief Financial Officer the AC Adviser and Van Kampen American
01/11/56 Capital Management, Inc. Vice President and
Chief Financial Officer of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
</TABLE>

B-7
<PAGE> 8

<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
- ------------------------ ----------------------- -------------------------------------------
<S> <C> <C>
John L. Sullivan........ Treasurer First Vice President of the VK Adviser and
Date of Birth: the AC Adviser. Treasurer of each of the
08/20/55 Van Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
Tanya M. Loden.......... Controller Vice President of the VK Adviser and the AC
Date of Birth: Adviser. Controller of each of the Van
11/19/59 Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and AC Adviser.
Nicholas Dalmaso........ Assistant Secretary Assistant Vice President and Senior
Date of Birth: Attorney of Van Kampen American Capital.
03/01/65 Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser and Van Kampen
American Capital Management, Inc. Assistant
Vice President of Van Kampen American
Capital Advisors, Inc. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and the AC
Adviser. Prior to May 1992, attorney for
Cantwell & Cantwell, a Chicago law firm.
Huey P. Falgout, Jr..... Assistant Secretary Assistant Vice President and Senior
Date of Birth: Attorney of Van Kampen American Capital.
11/15/63 Assistant Vice President and Assistant
Secretary of the Distributor, the VK
Adviser, the AC Adviser, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation and ACCESS. Assistant Secretary
of each of the Van Kampen American Capital
Funds and other investment companies
advised by the VK Adviser and AC Adviser.
Scott E. Martin......... Assistant Secretary Senior Vice President, Deputy General
Date of Birth: Counsel and Assistant Secretary of Van
08/20/56 Kampen American Capital and VK/AC Holding,
Inc. Senior Vice President, Deputy General
Counsel and Secretary of the VK Adviser,
the AC Adviser, the Distributor, Van Kampen
American Capital Management, Inc., Van
Kampen American Capital Advisors, Inc.,
American Capital Contractual Services,
Inc., Van Kampen American Capital Exchange
Corporation, Van Kampen American Capital
Services, Inc., ACCESS, Van Kampen Merritt
Equity Advisors Corp. and Van Kampen
Merritt Equity Holdings Corp. Prior to
September 1996, Deputy General Counsel and
Secretary of McCarthy, Crisanti & Maffei,
Inc. Prior to July 1996, Senior Vice
President, Deputy General Counsel and
Secretary of VSM Inc. and VCJ Inc.
Assistant Secretary of each of the Van
Kampen American Capital Funds and other
investment companies advised by the VK
Adviser and the AC Adviser.
</TABLE>

B-8
<PAGE> 9

Each of the foregoing trustees and officers holds the same position with each
of the funds in the Fund Complex. As of December 31, 1995, there were 50 funds
in the Fund Complex. Each trustee who is not an affiliated person of the VK
Adviser, the AC Adviser, the Distributor or Van Kampen American Capital (each a
"Non-Affiliated Trustee") is compensated by an annual retainer and meeting fees
for services to the funds in the Fund Complex. Each fund in the Fund Complex
provides a deferred compensation plan to its Non-Affiliated Trustees that allows
trustees to defer receipt of his or her compensation and earn a return on such
deferred amounts based upon the return of the common shares of the funds in the
Fund Complex as more fully described below. Each fund in the Fund Complex also
provides a retirement plan to its Non-Affiliated Trustees that provides
Non-Affiliated Trustees with compensation after retirement, provided that
certain eligibility requirements are met as more fully described below.

The compensation of each Non-Affiliated Trustee includes a retainer from the
Fund in an amount equal to $2,500 per calendar year, due in four quarterly
installments on the first business day of each calendar quarter. Each
Non-Affiliated Trustee receives a per meeting fee from the Fund in the amount of
$125 per regular quarterly meeting attended by the Non-Affiliated Trustee, due
on the date of such meeting, plus reasonable expenses incurred by the
Non-Affiliated Trustee in connection with his or her services as a trustee. Each
Non-Affiliated Trustee receives a per meeting fee from the Fund in the amount of
$125 per special meeting attended by the Non-Affiliated Trustee, due on the date
of such meeting, plus reasonable expenses incurred by the Non-Affiliated Trustee
in connection with his or her services as a trustee, provided that no
compensation will be paid in connection with certain telephonic special
meetings.

The trustees have approved an aggregate compensation cap with respect to funds
in the Fund Complex of $84,000 per Non-Affiliated Trustee per year (excluding
any retirement benefits) for the period July 22, 1995 through December 31, 1996,
subject to the net assets and the number of funds in the Fund Complex as of July
21, 1995 and certain other exceptions. In addition, each of the VK Adviser or
the AC Adviser, as the case may be, has agreed to reimburse each fund in the
Fund Complex through December 31, 1996 for any increase in the aggregate
trustee's compensation over the aggregate compensation paid by such fund in its
1994 fiscal year, provided that if a fund did not exist for the entire 1994
fiscal year appropriate adjustments will be made.

Each Non-Affiliated Trustee can elect to defer receipt of all or a portion of
the compensation earned by such Non-Affiliated Trustee until retirement. Amounts
deferred are retained by the Fund and earn a rate of return determined by
reference to the return on the common shares of the Fund or other funds in the
Fund Complex as selected by the respective Non-Affiliated Trustee. To the extent
permitted by the 1940 Act, the Fund may invest in securities of those funds
selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.

B-9
<PAGE> 10

The Fund adopted a retirement plan on July 21, 1994. Under the Fund's
retirement plan, a Non-Affiliated Trustee who is receiving trustee's fees from
the Fund prior to such Non-Affiliated Trustee's retirement, has at least ten
years of service and retires at or after attaining the age of 60, is eligible to
receive a retirement benefit equal to $2,500 per year for each of the ten years
following such trustee's retirement. Trustees retiring prior to the age of 60 or
with fewer than 10 years but more than 5 years of service may receive reduced
retirement benefits from a series. The retirement plan contains a Fund Complex
retirement benefit cap of $60,000 per year.

Additional information regarding compensation and benefits for trustees is set
forth below. The "Registrant" is the Fund. As indicated in the notes
accompanying the table, the amounts relate to either the Registrant's last
fiscal year ended June 30, 1996 or the Fund Complex' last calendar year ended
December 31, 1995.

COMPENSATION TABLE

<TABLE>
<CAPTION>
ESTIMATED TOTAL
PENSION OR ANNUAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS BEFORE DEFERRAL
COMPENSATION BENEFITS ACCRUED FROM FROM REGISTRANT
BEFORE DEFERRAL AS PART OF REGISTRANT AND FUND
FROM REGISTRANT UPON COMPLEX PAID TO
NAME(1) REGISTRANT(2) EXPENSES(3) RETIREMENT(4) TRUSTEE(5)
- --------------------------------------- ---------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
J. Miles Branagan...................... $3,000 $ 499 $ 2,250 $84,250
Dr. Richard E. Caruso.................. 2,000 -0- -0- 57,250
Philip P. Gaughan...................... 2,000 2,244 1,750 76,500
Linda Hutton Heagy..................... 3,000 56 2,500 38,417
Dr. Roger Hilsman...................... 3,000 -0- -0- 91,250
R. Craig Kennedy....................... 3,250 45 2,500 92,625
Donald C. Miller....................... 3,250 3,830 2,500 94,625
Jack E. Nelson......................... 3,250 369 2,500 93,625
David Rees............................. 2,250 -0- -0- 83,250
Jerome L. Robinson..................... -0- -0- -0- 89,375
Lawrence J. Sheehan.................... 3,000 -0- -0- 91,250
Dr. Fernando Sisto..................... 3,000 861 1,250 98,750
Wayne W. Whalen........................ 3,250 284 2,500 93,375
William S. Woodside.................... 3,000 -0- -0- 79,125
</TABLE>

- ---------------
(1) Mr. McDonnell, a trustee of the Fund, is an affiliated person of the VK
Adviser and AC Adviser and is not eligible for compensation or retirement
benefits from the Registrant. Messrs. Branagan, Caruso, Hilsman, Powell,
Rees, Sheehan, Sisto and Woodside were elected by shareholders to the Board
of Trustees on July 21, 1995. Ms. Heagy was appointed to the Board of
Trustees on September 7, 1995. Mr. Don G. Powell resigned from the Board of
Trustees on August 15, 1996, and did not receive any compensation or
benefits from the Fund while a trustee because he was an affiliated person
of the VK Adviser and AC Adviser. Messrs. Gaughan and Rees retired from the
Board of Trustees on January 26, 1996 and January 29, 1996, respectively.
Messrs. Caruso and Sheehan were removed from the Board of Trustees effective
September 7, 1995 and January 29, 1996, respectively.

(2) The amounts shown in this column are the compensation paid during the
Registrant's fiscal year ended June 30, 1996 before deferral by the trustees
under the deferred compensation plan. The following trustees deferred all or
a portion of their compensation from the Registrant during the fiscal year
ended June 30, 1996: Dr. Caruso, $0; Mr. Gaughan, $1,375; Ms. Heagy, $1,250;
Mr. Kennedy, $3,250; Mr. Miller, $3,250; Mr. Nelson, $3,250; Mr. Rees, $0;
Mr. Robinson, $0; Dr. Sisto, $0; and Mr. Whalen, $3,250. The cumulative
deferred compensation (including interest) accrued with respect to each
trustee from the Registrant as of June 30, 1996 is as follows: Dr. Caruso,
$0; Mr. Gaughan, $3,385; Ms. Heagy, $1,279; Mr. Kennedy, $7,078; Mr. Miller,
$6,729; Mr. Nelson, $7,078; Mr. Rees, $0; Mr. Robinson, $0; Dr. Sisto, $0;
and Mr. Whalen, $5,565. The deferred compensation plan is described above
the Compensation Table. Amounts deferred are retained by the Fund and earn a
rate of return determined by reference to either the return on the common
shares of the Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee. To the extent permitted by the 1940 Act,
the Fund may invest in securities of those funds selected by the
Non-Affiliated Trustees in order to match the deferred compensation
obligation.

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<PAGE> 11

(3) The amounts shown in this column are the Retirement Benefits accrued by each
series in operation during the Registrant's fiscal year ended June 30, 1996.
The Retirement Plan is described above the Compensation Table.

(4) The amounts shown in this column are the estimated annual benefits payable
by the Registrant in each year of the 10-year period commencing in the year
of such trustee's retirement from the Registrant assuming: the trustee has
10 or more years of service on the Board and retires at or after attaining
the age of 60. The actual annual benefit may be less if the trustee is
subject to the Fund Complex retirement benefit cap or if the trustee is not
fully vested at the time of retirement.

(5) The amounts shown in this column represent the aggregate compensation paid
by all of the funds in the Fund Complex as of December 31, 1995, before
deferral by the trustees under the deferred compensation plan. The following
trustees deferred compensation paid by the Registrant and the Fund Complex
during the calendar year ended December 31, 1995; Dr. Caruso, $41,750; Mr.
Gaughan, $57,750; Ms. Heagy, $8,750; Mr. Kennedy, $65,875; Mr. Miller,
$65,875; Mr. Nelson, $65,875; Mr. Rees, $8,375; Mr. Robinson, $62,375; Dr.
Sisto, $30,260; and Mr. Whalen, $65,625. The deferred compensation earns a
rate of return determined by reference to the return on the common shares of
the Fund or other funds in the Fund Complex as selected by the respective
Non-Affiliated Trustee. To the extent permitted by the 1940 Act, the Fund
may invest in securities of those funds selected by the Non-Affiliated
Trustees in order to match the deferred compensation obligation. The
trustees' Fund Complex compensation cap commenced on July 22, 1995 and
covered the period between July 22, 1995 and December 31, 1995. Compensation
received prior to July 22, 1995 was not subject to the cap. For the calendar
year ended December 31, 1995, while certain trustees received compensation
over $84,000 in the aggregate, no trustee received compensation in excess of
the pro rata amount of the Fund Complex cap for the period July 22, 1995
through December 31, 1995. In addition to the amounts set forth above,
certain trustees received lump sum retirement benefit distributions not
subject to the cap in 1995 related to three mutual funds that ceased
investment operations during 1995 as follows: Mr. Gaughan, $22,136; Mr.
Miller, $33,205; Mr. Nelson, $30,851; Mr. Robinson, $11,068; and Mr. Whalen,
$27,332. The VK Adviser, AC Adviser and their affiliates also serve as
investment adviser for other investment companies; however, with the
exception of Messrs. McDonnell and Whalen, the trustees were not trustees of
such investment companies. Combining the Fund Complex with other investment
companies advised by the VK Adviser, AC Adviser and their affiliates, Mr.
Whalen received Total Compensation of $268,857 during the calendar year
ended December 31, 1995.

Excluding Mr. Robinson as shown below, as of October 17, 1996, the trustees
and officers of the Fund as a group owned less than 1% of the shares of the
Fund. As of October 17, 1996, no trustee or officer of the Fund owns or would be
able to acquire 5% or more of the common stock of VK/AC Holding, Inc. Mr.
McDonnell owns, or has the opportunity to purchase, an equity interest in VK/AC
Holding, Inc., the parent company of Van Kampen American Capital, and has
entered into an employment contract (for a term until February 17, 1998) with
Van Kampen American Capital.

B-11
<PAGE> 12

As of October 17, 1996, no person was known by the Fund to own beneficially or
to hold of record as much as 5% of the outstanding shares of the Fund, except as
follows:

<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT PERCENTAGE
NAME AND ADDRESS OF HOLDER OCTOBER 17, 1996 OWNERSHIP
------------------------------------------------------ ---------------- ---------
<S> <C> <C>
Richard A. Kraemer.................................... 4,098,244 11.28%
730 Oak Ln.
Franklin Lakes, NJ 07417-2309
Jerome L. Robinson.................................... 7,132,555 19.63%
c/o Robinson Tech Products Corp.
Re: Merchants Bank of New York
P.O. Box 350-115 River Rd.
Edgewater, NJ 07020-1007
</TABLE>

LEGAL COUNSEL

Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom (Illinois).

INVESTMENT ADVISORY AND OTHER SERVICES

Van Kampen American Capital Investment Advisory Corp. (the "Adviser") is the
Fund's investment adviser. The Adviser was incorporated as a Delaware
corporation in 1982 (and through December 31, 1987 transacted business under the
name of American Portfolio Advisory Service Inc.). The Adviser's principal
office is located at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.

The Adviser is a wholly-owned subsidiary of Van Kampen American Capital, Inc.
("Van Kampen American Capital"), which in turn is a wholly-owned subsidiary of
VK/AC Holding, Inc. VK/AC Holding, Inc. is controlled, through the ownership of
a substantial majority of its common stock, by The Clayton & Dubilier Private
Equity Fund IV Limited Partnership ("C&D L.P."), a Connecticut limited
partnership, C&D L.P. is managed by Clayton, Dubilier & Rice, Inc., a New York
based private investment firm. The General Partner of C&D L.P. is Clayton &
Dubilier Associates IV Limited Partnership ("C&D Associates L.P."). The general
partners of C&D Associates L.P. are Joseph L. Rice, III, B. Charles Ames,
William A. Barbe, Alberto Cribiore, Donald J. Gogel, Leon J. Hendrix, Jr.,
Hubbard C. Howe and Andrall E. Pearson each of whom is a principal of Clayton,
Dubilier & Rice, Inc. In addition, certain officers, directors and employees of
Van Kampen American Capital own, in the aggregate, not more than 6% of the
common stock of VK/AC Holding, Inc. and have the right to acquire, upon the
exercise of options, approximately an additional 12% of the common stock of
VK/AC Holding, Inc. Presently, and after giving effect to the exercise of such
options, no officer or trustee of the Fund owns or would own 5% or more of the
common stock of VK/AC Holding, Inc. Presently, and after giving effect to the
exercise of such options, no officer or trustee of the Fund owns or would own 5%
or more of the common stock of VK/AC Holding, Inc.

The investment advisory agreement provides that the Adviser will supply
investment research and portfolio management, including the selection of
securities for the Fund to purchase, hold or sell and the selection of brokers
through whom the Fund's portfolio transactions are executed. The Adviser also
administers the business affairs of the Fund, furnishes offices, necessary
facilities and equipment, provides administrative services, and permits its
officers and employees to serve without compensation as trustees and officers of
the Fund if duly elected to such positions.

The Adviser's activities are subject to the review and supervision of the
Trustees, to whom the Adviser renders periodic reports of the Fund's investment
activities.

The agreement remains in effect from year to year if specifically approved by
the Trustees or the Fund shareholders, as the case may be, and by the
disinterested Trustees in compliance with the requirements of the 1940 Act. The
agreement may be terminated without penalty upon 60 days written notice by
either party and will automatically terminate in the event of assignment.

B-12
<PAGE> 13

The Adviser has undertaken to reimburse the Fund for annual expenses which
exceed the most stringent limit prescribed by any State in which the Fund's
shares are offered for sale. Currently, the most stringent limit in any State
would require such reimbursement to the extent that aggregate operating expenses
of the Fund (excluding interest, taxes and other expenses which may be
excludable under applicable state law) exceed in any fiscal year 2 1/2% of the
average annual net assets of the Fund up to $30 million. 2% of the average
annual net assets of the Fund of the next $70 million, and 1 1/2% of the
remaining average annual net assets of the Fund. In addition to making any
required reimbursements, the Adviser may in its discretion, but is not obligated
to, waive all or any portion of its fee or assume all or any portion of the
expenses of the Fund.

For the years ended June 30, 1996, 1995 and 1994, the Fund recognized advisory
expenses of $0, $6,443 and $4,391, respectively.

OTHER AGREEMENTS

SUPPORT SERVICES AGREEMENT. Under a support services agreement with the
Distributor which terminated as of July 10, 1995 concurrent with the Fund's
change in transfer agent, the Fund received support services for shareholders,
including the handling of all written and telephonic communications, except
initial order entry and other distribution related communications. Payment by
the Fund for such services was made on cost basis for the employment of the
personnel and the equipment necessary to render the support services. At such
time, the Fund, and the other Van Kampen American Capital mutual funds
distributed by the Distributor, shared such costs proportionately among
themselves based upon their respective net asset values.

For the years ended June 30, 1996, 1995 and 1994, the Fund recognized expenses
of approximately $0, $16,300 and $16,800, respectively, representing the
Distributor's cost of providing certain support services.

ACCOUNTING SERVICES AGREEMENT. The Fund has entered into an accounting
services agreement pursuant to which the Adviser provides accounting services
supplementary to those provided by the Custodian. Such services are expected to
enable the Fund to more closely monitor and maintain its accounts and records.
The Fund shares together with the other Van Kampen American Capital mutual funds
advised by the Adviser and distributed by the Distributor in the cost of
providing such services, with 25% of such costs shared proportionately based on
the number of outstanding classes of securities per fund and with the remaining
75% of such cost based proportionally on their respective net assets per fund.

For the years ended June 30, 1996, 1995 and 1994, the Fund recognized expenses
of approximately $1,800, $1,800 and $2,000, respectively, representing the
Adviser's cost of providing accounting services.

LEGAL SERVICES AGREEMENT. The Fund and each of the other Van Kampen American
Capital funds advised by the Adviser and distributed by the Distributor have
entered into Legal Services Agreements pursuant to which Van Kampen American
Capital provides legal services, including without limitation: accurate
maintenance of the funds' minute books and records, preparation and oversight of
the funds' regulatory reports, and other information provided to shareholders,
as well as responding to day-to-day legal issues on behalf of the funds. Payment
by the Fund for such services is made on a cost basis for the salary and salary
related benefits, including but not limited to bonuses, group insurances and
other regular wages for the employment of personnel, as well as overhead and the
expenses related to the office space and the equipment necessary to render the
legal services. Other funds distributed by the Distributor also receive legal
services from Van Kampen American Capital. Of the total costs for legal services
provided to funds distributed by the Distributor, one half of such costs are
allocated equally to each fund and the remaining one half of such costs are
allocated to specific funds based on monthly time records.

For the years ended June 30, 1996, 1995 and 1994, the Fund recognized expenses
of approximately $8,200, $9,000 and $8,200, respectively, representing Van
Kampen American Capital's cost of providing legal services.

CUSTODIAN AND INDEPENDENT ACCOUNTANTS

State Street Bank and Trust Company, 225 Franklin Street, P.O. Box 1713,
Boston, MA 02105-1713, is the custodian of the Fund and has custody of all
securities and cash of the Fund. The custodian, among other

B-13
<PAGE> 14

things, attends to the collection of principal and income, and payment for and
collection of proceeds of securities bought and sold by the Fund.

The independent accountants for the Fund are KPMG Peat Marwick LLP, Chicago,
Illinois. The selection of independent accountants will be subject to
ratification by the shareholders of the Fund at any annual meeting of
shareholders.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION

The Adviser is responsible for decisions to buy and sell securities for the
Fund and broker-dealer selection. The primary consideration in effecting a
securities transaction will be execution at the most favorable securities price.
A substantial majority of the Fund's portfolio transactions may be transacted
with primary market makers acting as principal on a net basis, with no brokerage
commissions being paid by the Fund. Such principal transactions may, however,
result in a profit to the market makers. In certain instances the Adviser may
make purchases of underwritten issues at prices which include underwriting fees.
In selecting a broker-dealer to execute each particular transaction, the Adviser
will take the following into consideration: the best securities price available;
the reliability, integrity and financial condition of the broker-dealer; the
size of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on a
continuing basis. Accordingly, the price to the Fund in any transaction may be
less favorable than that available from another broker-dealer if the difference
is reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Trustees of the Fund may determine, the
Adviser may cause the Fund to pay a broker-dealer that provides brokerage and
research services an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker-dealer would
have charged for effecting that transaction, if the Adviser determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker-dealer, viewed in
terms of either that particular transaction or the Adviser's overall
responsibilities with respect to the Fund. The Adviser may also allocate the
orders placed by it on behalf of the Fund to such broker-dealers who provide
research or statistical material, or other services to the Fund or the Adviser.
Such allocation shall be in such amounts and proportions as the Adviser shall
determine, and the Adviser will report on said allocations regularly to the
Trustees, indicating the brokers to whom such allocations have been made and the
basis therefor.

While the Adviser will be primarily responsible for the placement of the
Fund's business, the policies and practices in this regard must be consistent
with the foregoing and will at all times be subject to review by the Trustees of
the Fund.

THE DISTRIBUTOR

The Distributor offers one of the industry's broadest lines of investments --
encompassing mutual funds, closed-end funds and unit investment trusts -- and is
currently the nation's 5th largest broker-sold mutual fund group according to
Strategic Insight. Van Kampen American Capital's roots in money management
extend back to 1926. Today, Van Kampen American Capital manages or supervises
more than $57 billion in mutual funds, closed-end funds and unit investment
trusts -- assets which have been entrusted to Van Kampen American Capital in
more than 2 million investor accounts. Van Kampen American Capital has one of
the largest research teams (outside of the rating agencies) in the country, with
more than 80 analysts devoted to various specializations.

The Fund has adopted a distribution plan (the "Distribution Plan") pursuant to
Rule 12b-1 under the 1940 Act. The Fund also has adopted a service plan (the
"Service Plan"). The Distribution Plan and the Service Plan sometimes are
referred to herein as the "Plans." The Plans provide that the Fund may spend a
portion of the Fund's average daily net assets in connection with the
distribution of shares and in connection with the provision of ongoing services
to shareholders. The Plans are being implemented through an agreement (the
"Distribution and Service Agreement") with the Distributor and sub-agreements
between the Distributor and members of the NASD who are acting as securities
dealers and NASD members or eligible non-members who are acting as brokers or
agents for investors (collectively, "Selling Agreements") that may

B-14
<PAGE> 15

provide for their customers or clients certain services or assistance, which may
include, but not be limited to, processing purchase and redemption transactions,
establishing and maintaining shareholder accounts regarding the Fund, and such
other services as may be agreed to from time to time and as may be permitted by
applicable statute, rule or regulation. Brokers, dealers and financial
intermediaries that have entered into sub-agreements with the Distributor and
sell shares of the Fund are referred to herein as "financial intermediaries."

The Distributor must submit quarterly reports to the Board of Trustees of the
Fund setting forth all amounts paid under the Distribution Plan and the purposes
for which such expenditures were made, together with such other information as
from time to time is reasonably requested by the Trustees. The Plans provide
that they will continue in full force and effect from year to year so long as
such continuance is specifically approved by a vote of the Trustees, and also by
a vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein without
approval by a vote of a majority of the outstanding voting shares and all
material amendments to either of the Plans must be approved by the Trustees and
also by the disinterested Trustees. Each of the Plans may be terminated at any
time by a vote of a majority of the disinterested Trustees or by a vote of a
majority of the outstanding voting shares.

For the years ended June 30, 1996, 1995 and 1994, the Fund has recognized
expenses under the Plans of $88,120, $81,152 and $96,015, respectively, of which
$70,558, $86,763 and $93,964, respectively, representing payments to financial
intermediaries under the Selling Agreements. For the years ended June 30, 1996,
1995 and 1994, the Fund has reimbursed the Distributor for $0, $0 and $1,055,
respectively, for advertising expenses, and $0, $0 and $839, respectively, for
compensation of the Distributor's sales personnel.

YIELD INFORMATION

There are two methods by which the Fund's yield for a specified period of time
is calculated. Normally a seven day period will be used in determining yields in
published or mailed advertisements.

The first method, which results in an amount referred to as the "current
yield," assumes an account containing exactly one share at the beginning of the
period. (The net asset value of this share will be $1.00 except under
extraordinary circumstances.) The net change in the value of the account during
the period is then determined by subtracting this beginning value from the value
of the account at the end of the period; however, capital changes and unrealized
appreciation or depreciation of the Fund's portfolio are excluded from this
calculation. This net change in the account value is then divided by the value
of the account at the beginning of the period (i.e., normally $1.00 as discussed
above) and the resulting figure (referred to as the "base period return") is
then annualized by multiplying it by 365 and dividing by the seven days of the
period; the result is the "current yield," usually expressed to the nearest
one-hundredth of one percent.

The second method results in an amount referred to as the "compounded
effective yield." This represents an annualization of the current yield with
dividends reinvested daily. This compounded effective yield, calculated again
for a seven day period, would be computed by compounding the unannualized base
period return by adding one to the base period return, raising the sum to a
power equal to 365 divided by seven and subtracting one from the result.

In addition to using the yields in advertisements or information furnished to
present or prospective stockholders, the Fund also may quote rankings, yields or
returns as published by recognized statistical services or publishers, such as
Lipper Analytical Services, Inc. or nationally recognized financial
publications.

Yield information may be useful to investors in reviewing the performance of
the Fund. However, a number of factors should be taken into account before using
yield information as a basis for comparison with alternative investments. An
investment in the Fund is not insured and its yields are not guaranteed. They
normally will fluctuate on a daily basis. Accordingly they cannot be compared to
yields on those savings accounts or other investment alternatives which provide
a guaranteed fixed yield for a stated period of time and which may be insured by
a government agency. The yields for any given past period are not an indication
or representation by the Fund of future yields or rates of return on a Fund's
shares. Previously, the Adviser has waived a portion of its management fee and
the Adviser may in its discretion elect to discontinue waiving all or

B-15
<PAGE> 16

any portion of its fee and assuming all or any portion of the expenses of the
Fund. In the event that the Adviser elects to discontinue waiving its fee and
assuming the expenses of the Fund, the Fund's yield will be less than it
otherwise would have been. In comparing the yields of one money market fund to
another, consideration should be given to each fund's investment policy,
portfolio quality, portfolio maturity, type of instruments held and operating
expenses.

DIVIDENDS

On each day, including a Saturday, Sunday or other holiday, a dividend of all
of the Fund's net income since the last declaration is declared. The Fund's net
income for dividend purposes consists of all interest income accrued on the
Fund's portfolio, less the Fund's expenses.

Under the procedures which the Fund's Board of Trustees have adopted relating
to amortized cost valuation, the calculation of the Fund's daily dividends will
change from that indicated above in certain circumstances. If on any date the
deviation between net asset value determined on an amortized cost basis and that
determined using market quotations is 0.5% or more, the amount of such deviation
will be added to or subtracted from the daily dividend to the extent necessary
to reduce such deviation to within 0.5%.

B-16
<PAGE> 17

APPENDIX

STANDARD & POOR'S RATINGS
TAX-EXEMPT NOTES

A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes maturing beyond 3 years will most likely
receive a long-term debt rating. Notes maturing in 3 years or less will likely
receive a note rating. The following criteria will be used in making that
assessment:

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

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

Note rating symbols are as follows:

SP-1. Strong capacity to pay principal and interest. Issues determined to
possess very strong safety characteristics are given a plus (+) designation.

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

TAX-EXEMPT COMMERCIAL PAPER

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. Ratings are graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:

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

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

TAX-EXEMPT VARIABLE RATE DEMAND OBLIGATIONS

Standard & Poor's assigns "dual" ratings to all debt issues that have a put
option or demand feature as part of their structure.

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

B-17
<PAGE> 18

MOODY'S RATINGS

TAX-EXEMPT SHORT TERM LOAN RATINGS

Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade or (MIG). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.

A short-term rating may also be assigned on an issue having a demand
feature--variable rate demand obligation (VRDO). Such ratings will be designated
as VMIG or, if the demand feature is not rated, as NR.

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

The purpose of the MIG or VMIG ratings is to provide investors with a simple
system by which the relative investment qualities of short-term obligations may
be evaluated.

Gradations of investment quality are indicated by rating symbols, with each
symbol representing a group in which the quality characteristics are broadly the
same.

MIG 1/VMIG 1

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

MIG 2/VMIG 2

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

Issues or the features associated with MIG or VMIG ratings are identified by
date of issue, date of maturity or maturities or rating expiration date and
description to distinguish each rating from other ratings. Each rating
designation is unique with no implication as to any other similar issue of the
same obligor. MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issue's specific structural or
credit features.

TAX-EXEMPT COMMERCIAL PAPER

Moody's Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:

Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

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

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

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

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

B-18
<PAGE> 19

INDEPENDENT ACCOUNTANTS' REPORT

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

We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Tax Free Money Fund (the "Fund"), including the
portfolio of investments, as of June 30, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital Tax Free Money Fund as of June 30, 1996, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP
Chicago, Illinois
July 30, 1996

B-19
<PAGE> 20

PORTFOLIO OF INVESTMENTS

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Discount
Par Yield on
Amount Maturity Date of Amortized
(000) Security Description Date Purchase Cost
---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
DATES 23.6%
$1,800 Louisiana St Recovery Dist Sales Tax Rev Ser
1988 (FGIC Insd).............................. 07/01/96 3.650% $ 1,800,000
1,800 New York City Muni Wtr Fin Auth Wtr Swr Sys
Ser 95 A (FGIC Insd).......................... 07/01/96 3.750 1,800,000
1,200 New York City Ser B (FGIC Insd)............... 07/01/96 3.750 1,200,000
1,300 New York City Ser B (FGIC Insd)............... 07/01/96 3.750 1,300,000
2,300 New York City Ser B (FGIC Insd)............... 07/01/96 3.750 2,300,000
------------
Total Dates................................... 8,400,000
------------
7 DAY FLOATERS 40.0%
500 Utah St Brd Regents Student Ln Rev Ser 1993 A
(Gtd: Student Ln Marketing Assoc)............. 07/02/96 3.400 500,000
600 Washington St Hsg Fin Comm Multi Family Mtg
Rev Rfdg (LOC: Harris Trust & Savings Bank)... 07/02/96 3.400 600,000
1,400 City of Chillicothe, IA Pollutn Ctl Rev Ser
1993 A Rfdg (Gtd: Midwest Power Systems
Inc.)......................................... 07/03/96 3.400 1,400,000
1,600 Dade Cnty, FL Fltg Capital Asset Acquisition
Ser S (LOC: Sanwa Bank)....................... 07/03/96 3.600 1,600,000
1,110 Fort Bend, TX Indl Dev Corp Indl Dev Rev Rfdg
(Gtd: W.W. Grainger, Inc.).................... 07/03/96 3.400 1,110,000
1,100 Illinois Dev Fin Auth Indl Dev Rev Field
Container Corp Rfdg (LOC: Amer Nat'l Bank &
Trust of Chicago)............................. 07/03/96 3.400 1,100,000
1,000 Illinois Dev Fin Auth Rev Roosevelt Univ Ser
1995 (LOC: Amer Nat'l Bank & Trust of
Chicago)...................................... 07/03/96 3.400 1,000,000
1,100 Illinois Dev Fin Auth Rev Ser 1994 Lake Forest
Academy (LOC: The Northern Trust Company)..... 07/03/96 3.400 1,100,000
1,500 Iowa Hsg Fin Auth Small Bus Ln Proj Ser 1985 A
(LOC: Federal Home Loan Bank of Des Moines)... 07/03/96 3.550 1,500,000
1,000 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev
Ser 1995 B (MBIA Insd)........................ 07/03/96 3.350 1,000,000
1,000 St Paul, MN Hsg & Redev Auth Rev Ser 1985 A
(LOC: Federal Home Loan Bank of Des Moines)... 07/03/96 3.500 1,000,000
1,000 Calhoun Cnty, MI Econ Dev Corp Rev (LOC:
Comerica Bank)................................ 07/04/96 3.300 1,000,000
955 City of Sterling Heights, MI Econ Dev Corp Rev
Rfdg (LOC: First Chicago/NBD Corp)............ 07/04/96 3.500 955,000
400 Minnesota St Higher Edl Coordinating Brd Ser
1995 A Rfdg (LOC: Norwest Bank)............... 07/04/96 3.450 400,000
------------
Total 7 Day Floaters.......................... 14,265,000
------------
UPDATES (COMMERCIAL PAPER) 11.2%
1,500 West Orange Mem Hosp Tax Dist FL Rev Updates
Ser 1991 A-2 (LOC: Robobank-Nederland)........ 07/22/96 3.600 1,500,000
</TABLE>

See Notes to Financial Statements

B-20
<PAGE> 21

PORTFOLIO OF INVESTMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Discount
Par Yield on
Amount Maturity Date of Amortized
(000) Security Description Date Purchase Cost
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UPDATES (COMMERCIAL PAPER) (CONTINUED)
$1,000 Wayne Cnty, MI Downriver Sewage Disp Sys
(LOC: Comerica Bank).......................... 08/02/96 3.700% $ 1,000,000
1,500 York Cnty, SC Pollutn Ctl Rev Ser 1990 Rfdg
(Gtd: Duke Power Co.)......................... 08/05/96 3.600 1,500,000
-----------
Total Updates (Commercial Paper).............. 4,000,000
-----------
BONDS/NOTES 24.9%
1,000 Illinois St (FGIC Insd)....................... 07/01/96 5.250 1,000,000
1,100 Texas St Tax & Rev Antic Nts Ser A............ 08/30/96 4.750 1,101,297
1,000 Michigan St Genl Oblig Nts.................... 09/30/96 4.000 1,002,449
1,000 City of Chicago Genl Oblig Tender Notes Ser
1995 A (LOC: Morgan Guaranty & Trust Co.)..... 10/31/96 3.650 1,000,000
910 City of Ashdown, AR Indl Dev Rev Ser 1981
(Gtd: Allied Signal Corp.).................... 11/01/96 4.100 910,000
1,000 Washoe Cnty, NV Ser A Rfdg (AMBAC Insd)....... 12/01/96 4.000 1,002,015
1,515 Port Seattle, WA Rev Ser 1995 A Rfdg (AMBAC
Insd)......................................... 02/01/97 5.500 1,530,930
325 Trenton, NJ Wtr Util Ser B (FSA Insd)......... 04/15/97 5.300 328,859
1,000 Washington St Hsg Fin Comm Single Family Prog
Ser 1A-S (FGIC Insd).......................... 06/01/97 3.800 1,000,000
-----------
Total Bonds/Notes............................. 8,875,550
-----------
TOTAL INVESTMENTS 99.7% (A)................................................. 35,540,550
OTHER ASSETS IN EXCESS OF LIABILITIES 0.3%.................................. 92,327
-----------
NET ASSETS 100.0%........................................................... $35,632,877
===========
</TABLE>

(a) At June 30, 1996, cost is identical for both book and federal income tax
purposes.

See Notes to Financial Statements

B-21
<PAGE> 22

STATEMENT OF ASSETS AND LIABILITIES

June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
Investments, at Amortized Cost which Approximates Market (Note 1)........ $35,540,550
Cash..................................................................... 46,478
Receivables:
Interest............................................................... 222,275
Fund Shares Sold....................................................... 28,638
Other.................................................................... 5,993
-----------
Total Assets....................................................... 35,843,934
-----------
LIABILITIES:
Payables:
Distributor and Affiliates (Notes 2 and 4)............................. 47,219
Fund Shares Repurchased................................................ 23,373
Income Distributions................................................... 20,338
Accrued Expenses......................................................... 63,183
Deferred Compensation and Retirement Plans (Note 2)...................... 56,944
-----------
Total Liabilities.................................................. 211,057
-----------
NET ASSETS............................................................... $35,632,877
---------
NET ASSETS CONSIST OF:
Capital (Note 3)......................................................... $35,657,455
Accumulated Net Realized Loss on Investments............................. (24,578)
-----------
NET ASSETS (Equivalent to $1.00 per share for 35,657,455 shares
outstanding)........................................................... $35,632,877
===========
</TABLE>

See Notes to Financial Statements

B-22
<PAGE> 23

STATEMENT OF OPERATIONS

For the Year Ended June 30, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................................... $ 1,318,881
-------------
EXPENSES:
Investment Advisory Fee (Note 2)....................................... 176,240
Distribution (12b-1) and Service Fees (Note 4)......................... 88,120
Shareholder Services (Note 2).......................................... 77,414
Printing............................................................... 40,850
Registration........................................................... 39,952
Trustees Fees and Expenses (Note 2).................................... 37,218
Legal (Note 2)......................................................... 12,240
Other.................................................................. 66,196
-------------
Total Expenses..................................................... 538,230
Less Fees Waived and Expenses Reimbursed ($176,240 and $62,508,
respectively).................................................... 238,748
-------------
Net Expenses....................................................... 299,482
-------------
NET INVESTMENT INCOME.................................................. $ 1,019,399
=============
NET REALIZED GAIN ON SECURITIES........................................ $ -0-
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............................. $ 1,019,399
=============
</TABLE>

See Notes to Financial Statements

B-23
<PAGE> 24

STATEMENT OF CHANGES IN NET ASSETS

For the Years Ended June 30, 1996 and 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1996 June 30, 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 1,019,399 $ 938,971
Distributions from Net Investment Income................ (1,019,399) (938,971)
--------- ---------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... -0- -0-
--------- ---------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................... 67,200,916 23,885,907
Net Asset Value of Shares Issued Through Dividend
Reinvestment.......................................... 762,564 685,467
Cost of Shares Repurchased.............................. (65,505,643) (28,779,907)
--------- ---------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS...... 2,457,837 (4,208,533)
--------- ---------
TOTAL INCREASE/DECREASE IN NET ASSETS................... 2,457,837 (4,208,533)
NET ASSETS:
Beginning of the Period................................. 33,175,040 37,383,573
--------- ---------
End of the Period....................................... $35,632,877 $33,175,040
========= ==========
</TABLE>

See Notes to Financial Statements

B-24
<PAGE> 25

NOTES TO FINANCIAL STATEMENTS

June 30, 1996
- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Van Kampen American Capital Tax Free Money Fund (the "Fund") is organized as a
Delaware business trust. The Fund is an open-end diversified management
investment company registered 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 taxes consistent with the preservation of
capital and liquidity through investment in a broad range of municipal
securities that will mature within 12 months of the date of purchase. The Fund
commenced investment operations on November 5, 1986.

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

A. SECURITY VALUATION--Investments are valued at amortized cost, which
approximates market. Under this valuation method, a portfolio instrument is
valued at cost and any discount or premium is amortized on a straight-line basis
to the maturity of the instrument.

B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
Interest income is recorded on an accrual basis.

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

The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1996, the Fund had an accumulated capital loss carryforward
of $24,578. Of this amount, $6,277, $4,541 and $13,760 will expire on June 30,
1998, 1999 and 2001, respectively. Net realized gains or losses may differ for
financial and tax reporting purposes primarily as a result of post October 31
losses which are not recognized for tax purposes until the first day of the
following fiscal year.

B-25
<PAGE> 26

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

D. DISTRIBUTION OF INCOME AND GAINS--The Fund declares dividends from net
investment income daily and automatically reinvests such dividends daily. Net
realized gains, if any, are distributed annually. Shareholders can elect to
receive the cash equivalent of their daily dividends at each month end.

For the year ended June 30, 1996, 100% of the income distributions made by
the Fund were exempt from Federal income taxes. In January, 1997, the Fund will
provide tax information to shareholders for the 1996 calendar year.

2. INVESTMENT ADVISORY FEES 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 facilities and
investment advice to the Fund for an annual fee payable monthly as follows:

<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million...................................... .500 of 1%
Next $500 million....................................... .475 of 1%
Next $500 million....................................... .425 of 1%
Over $1.5 billion....................................... .375 of 1%
</TABLE>

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

For the year ended June 30, 1996, the Fund recognized expenses of
approximately $14,800 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. Of this amount, approximately
$4,800 has been assumed by VKAC.

In July, 1995, the Fund began using ACCESS Investor Services, Inc.
("ACCESS"), an affiliate of the Adviser, as the shareholder servicing agent for
the Fund. For the year ended June 30, 1996, the Fund recognized expenses of
approximately $48,200, representing ACCESS' cost of providing transfer agency
and shareholder services plus a profit. Of this amount, approximately $2,300 has
been assumed by VKAC.

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

The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.

B-26
<PAGE> 27

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1996
- --------------------------------------------------------------------------------

3. CAPITAL TRANSACTIONS

The Fund is authorized to issue an unlimited number of shares of capital stock
with a par value of $.01 per share. At June 30, 1996 and 1995, capital
aggregated $35,657,455 and $33,199,618, respectively. Transactions in shares
were as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares............................. 33,199,618 37,408,151
---------- ----------
Shares Sold.................................. 67,200,916 23,885,907
Shares Issued Through Dividend
Reinvestment............................... 762,564 685,467
Shares Repurchased........................... (65,505,643) (28,779,907)
---------- ----------
Net Change in Shares Outstanding............. 2,457,837 (4,208,533)
---------- ----------
Ending Shares................................ 35,657,455 33,199,618
========== ==========
</TABLE>

4. 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 the Fund's average net assets are
accrued daily. Included in these fees for the year ended June 30, 1996, are
payments to VKAC of approximately $24,800.

B-27