<PAGE> 1
- ---------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 7
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>
PATF SAR 8/96
<PAGE> 2
LETTER TO SHAREHOLDERS
[PHOTO OF MCDONNELL & POWELL
DENNIS J. MCDONNELL AND DON G.
POWELL]
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC
Holding, Inc., the parent company of
Van Kampen American Capital, Inc., to
be acquired by the Morgan Stanley
Group Inc. While this announcement
may appear commonplace in an
ever-changing financial industry, we
believe it represents an exciting
opportunity for shareholders of our
investment products.
With Morgan Stanley's global
leadership in investment banking and
asset management and Van Kampen American Capital's reputation for competitive
long-term performance and superior investor services, together we will offer a
broader range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
ECONOMIC REVIEW AND OUTLOOK
The economy demonstrated an acceleration in growth during the six-month
reporting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew by 4.2 percent in
the second quarter, partly reflecting a recovery from the effects of labor
strikes earlier in the year and extreme weather conditions across the country.
Upward momentum has been assisted by consumer spending, as indicated by a 5.6
percent rise in retail sales in the first five months of this year versus the
comparable 1995 period.
In the manufacturing sector, economic reports, such as the National
Association of Purchasing Managers Index, suggested a continued rebound in
production from last winter's lower levels. In June, this index reached its
highest level since early 1995. Strong levels of exports and a replenishing of
inventories have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings at a
moderate 2.7 percent. In general, recent reports have suggested an upward creep
in labor-related costs, while indicating that prices of many commodities have
begun to decline.
Continued on page two
1
<PAGE> 3
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at more moderate rates than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in the
coming months. That suggests an upward bias for short-term interest rates and
for yields on long-term bonds to remain steady at current levels. In particular,
we expect 10-year Treasury yields to trade within a range of 5.7 and 6.3
percent, particularly when compared to taxable investments.
MUNICIPAL MARKET REVIEW AND OUTLOOK
We witnessed significant movement in municipal bond yields during the first
six months of 1996. Early in the period, the Fed lowered rates in order to
energize the economy, and bond prices increased. By late February, however, the
markets became concerned that the Fed could reverse its strategy direction and
raise rates. As a result, yields, as measured by the Bond Buyer 40 Municipal
Bond Index, rose from 5.6 percent to 6.0 percent during the period.
We believe market conditions for municipal bonds are poised for improvement
in the second half of 1996. Three major factors contribute to our optimism:
- - Near-term concerns about the implementation of a major tax reform have
faded. In early 1996, the municipal market was wary of the growing
political momentum for tax reform, which could have eroded the value of the
market's tax-exempt status. However, the momentum slowed substantially and
now appears to be on the back burner until after the 1996 presidential
election. This has added stability to the market.
- - For high-income households, tax-exempt bonds provide an attractive after-tax
alternative. Municipal bond yields have elevated to a point where taxable
equivalent yields range between 8.5 and 10 percent for investors in the 31
percent tax bracket or higher.
- - Recent volatility in the equity markets coupled with rising interest rates
are leading individual investors, as well as institutions, to reexamine
their allocation of assets. In general, this translates into an increased
emphasis on fixed-income, which should lend support to the municipal
market.
Looking ahead, inflation fears and concerns about economic growth may
continue to influence the municipal bond market and fund performance results.
Nevertheless, we are optimistic that tax-exempt securities will produce
attractive results for investors during the remainder of 1996.
Additional details about your Fund, including a question and answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
Don G. Powell
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
Dennis J. Mcdonnell
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL
PENNSYLVANIA 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).............................. (1.21%) (1.58%) (1.58%)
Six-month total return(2)............. (5.88%) (5.43%) (2.55%)
One-year total return(2).............. 1.60% 1.81% 4.81%
Five-year average annual total
return(2)........................... 6.71% N/A N/A
Life-of-Fund average annual total
return(2)........................... 8.24% 3.48% 3.32%
Commencement date..................... 05/01/87 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3).................. 5.09% 4.57% 4.57%
Taxable equivalent distribution
rate(4)............................. 8.18% 7.35% 7.35%
SEC Yield(5).......................... 4.83% 4.31% 4.31%
</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 combined federal and state income
tax rate of 37.8%, 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, 1996. Had certain
expenses of the Fund not been assumed by VKAC, the SEC Yield would have been
4.82%, 4.30% and 4.30% for Classes A, B and C, respectively, and the 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).
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.
3
<PAGE> 5
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Berks County, PA .............................. 2.5%
PA Economic Development Financial Authority
Resource Recovery Revenue Northampton
Generating .................................. 1.7%
Beaver County, PA Industrial Development
Authority Pollution Control Revenue OH Edison
Project ..................................... 1.7%
Lycoming County, PA Authority Hospital Revenue
Divine Providence Hospital .................. 1.7%
Cumberland County, PA Municipal Authority
College Revenue Messiah College Project ..... 1.7%
PA State Higher Educational Facility Authority
Health Services Revenue Allegheny DE
Valley ...................................... 1.7%
Harrisburg, PA Parking Authority Revenue
Guaranteed .................................. 1.7%
Lehigh County, PA General Purpose Authority
Revenue Muhlenberg Hospital ................. 1.6%
PA Housing Finance Agency ..................... 1.5%
PA State Certificates of Participation ........ 1.5%
</TABLE>
CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C> <C> <C>
/ / AAA....... 54.2%
/ / AA........ 8.5%
/ / A......... 8.8%
/ / BBB....... 15.2% [PIE CHART]
/ / BB........ 3.7%
/ / B......... 0.5%
/ / Non-Rated... 9.1% Pie Chart
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C> <C> <C>
/ / AAA....... 49.1%
/ / AA........ 7.2%
/ / A......... 14.6% [PIE CHART]
/ / BBB....... 18.7%
/ / BB........ 3.9%
/ / Non-Rated... 6.5% Pie Chart
</TABLE>
Based on credit quality ratings issued by Standard & Poor's. For securities not
rated by Standard & Poor's, the Moody's rating is used.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
Health Care .......... 24.2%
Public Education ..... 10.1%
Water and Sewer ...... 9.5%
Public Building ...... 8.2%
Higher Education ..... 7.7%
<CAPTION>
AS OF DECEMBER 31,
1995
<S> <C>
Health Care .......... 28.2%
Water and Sewer ...... 10.4%
Industrial Revenue ... 9.8%
Public Education ..... 7.3%
Public Building ...... 7.0%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995
<S> <C> <C>
Duration 8.23 years 7.75 years
</TABLE>
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Pennsylvania 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 Pietrzak, portfolio manager, and Peter W. Hegel, executive vice
president for fixed-income investments. The following excerpts reflect their
views on the Fund's performance during the six-month period ended June 30, 1996.
Q
WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND
DURING THE FIRST HALF OF THIS YEAR?
A
Early in the year, indicators pointing to a stronger, expanding economy
sparked concern over inflation and expectations that the Federal Reserve
Board would increase short-term interest rates in order to keep the
economy from overheating. The prospect of higher rates was a concern to the
market, which responded by trading toward lower prices and higher yields.
On the other hand, municipal market concerns that major tax reform proposals
would gain acceptance--and potentially erode the tax-exempt status associated
with municipals--eased in the first half of 1996. So, even though bond prices
generally declined, they did so to a lesser extent in the municipal market.
Q
HOW WAS THE FUND'S PORTFOLIO STRUCTURED IN LIGHT OF
THESE CONDITIONS?
A
Our focus has been on securities in the 15-year maturity range, which we
felt offered the best relative value on a risk and return basis.
In terms of supply, the Pennsylvania municipal market is heavily skewed
toward the healthcare and education sectors, so the Fund has a fairly large
concentration in these areas. To provide more balance, we have reduced the
Fund's exposure to the healthcare sector from over 28 percent of the Fund's
total assets at the beginning of the reporting period to over 24 percent on June
30, 1996. We have also increased our holdings in education. Please refer to page
four for Fund portfolio highlights.
Q
HOW DID THE FUND PERFORM DURING THE PERIOD?
A
The Fund's total return (Class A shares at net asset value) over the
six-month period ended June 30, 1996, was -1.21 percent(1). In comparison,
the market in general, as represented by the Lehman Brothers Municipal
Bond Index, was -0.45 percent for the same period. Longer term, the Fund
generated a one-year total return of 6.65 percent(1) (Class A shares at net
asset value) through June 30, 1996. 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. Please refer to
the chart on page three for additional Fund performance results.
5
<PAGE> 7
From an income perspective, the Fund's Class A shares ended the period with
an annualized dividend of $0.912 per share. The Fund's Board of Trustees
approved a reduction in the monthly dividend from $.0760 to $.0745 per
share (Class A shares), effective July 1, 1996. Based upon this reduced
dividend level, the Fund continues to provide a respectable level of tax-exempt
income with a distribution rate of 4.99 percent based on the maximum offering
price as of June 30, 1996--the equivalent of a 8.02 percent taxable
distribution rate for investors in the 37.8 percent combined federal and state
income tax bracket.
Q
WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE MONTHS AHEAD?
A
We expect to see continued low inflation, and the economy is likely to
grow at a more moderate pace than the second quarter's swift pace. After
sharp increases in the first half of 1996, we expect yields to remain in a
trading range around current levels.
The Pennsylvania economy is generally sound, though, as mentioned earlier,
is heavily influenced by the healthcare industry. Changes in the economic
environment for hospitals and other providers--such as reimbursement trends or
distribution of services--could have an impact on the market. We could see an
increase in mergers and acquisitions, which might lessen the supply of bonds in
this sector. Because the Fund's portfolio has a large exposure to healthcare
issues, we will continue to monitor this industry closely for any developments.
We expect to see an increase in the supply of investment-grade municipal
bonds due to the resurgence of Philadelphia. The city could not issue debt six
or seven years ago because of budget problems. Now, with financial conditions in
better order, they are coming to the market as higher-rated securities. Going
forward, we will be looking at these new issues as possible acquisitions.
Peter W. Hegel
Peter W. Hegel
Executive Vice President
Fixed Income Investments
Dennis Pietrzak
Dennis Pietrzak
Portfolio Manager
Please see footnotes on page three
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
PENNSYLVANIA 98.4%
$3,050 Albert Gallatin, PA Area Sch Dist Ser A (MBIA
Insd)........................................... 6.300% 09/01/24 $ 3,140,859
3,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)........................... 6.625 01/01/22 3,644,585
500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser C (MBIA Insd).......................... 8.250 01/01/16 533,020
1,625 Allegheny Cnty, PA C-34 Conv Cap Apprec (d)..... 0/8.625 02/15/04 1,734,525
1,000 Allegheny Cnty, PA Higher Edl Bldg Auth Univ Rev
(AMBAC Insd).................................... 6.500 03/01/11 1,103,440
1,495 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp South
Hills Hlth Sys A (MBIA Insd).................... 5.500 05/01/10 1,470,019
2,500 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Presbyterian Univ Ser A (MBIA Insd)............. 6.000 11/01/12 2,537,225
2,500 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Presbyterian Univ Ser A (MBIA Insd)............. 6.250 11/01/23 2,523,800
2,140 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Fac
Allegheny Vly Sch............................... 7.750 02/01/15 2,165,937
265 Allegheny Cnty, PA Hosp Dev Auth Rev Mercy Hosp
Pittsburgh Rfdg................................. 7.375 04/01/15 270,186
975 Allegheny Cnty, PA Indl Dev Auth Med Cent Rev
Presbyterian Med Cent Rfdg (FHA Gtd)............ 6.750 02/01/26 999,619
2,500 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt Ser A Rfdg................... 6.700 12/01/20 2,534,150
2,345 Allegheny Cnty, PA Residential Fin Auth Mtg Rev
1983 Ser B...................................... * 10/01/15 309,306
1,950 Allegheny Cnty, PA Residential Fin Auth Mtg Rev
Single Family Ser Z (GNMA Collateralized)....... 6.875 05/01/26 2,016,085
2,380 Allegheny Cnty, PA San Auth Swr Rev (FGIC
Insd)........................................... * 12/01/10 1,042,678
1,365 Allegheny Cnty, PA San Auth Swr Rev (FGIC
Insd)........................................... * 12/01/11 560,879
2,350 Allegheny Cnty, PA San Auth Swr Rev (FGIC
Insd)........................................... * 12/01/13 846,000
2,835 Allegheny Cnty, PA San Auth Swr Rev (FGIC
Insd)........................................... * 12/01/14 962,454
2,000 Beaver Cnty, PA Hosp Auth Rev Med Cent Beaver,
PA Inc Ser A (AMBAC Insd)....................... 6.250 07/01/22 2,023,180
4,500 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev OH
Edison Proj Ser A Rfdg.......................... 7.750 09/01/24 4,745,115
3,195 Bellefonte, PA Area Sch Dist (MBIA Insd)........ 5.400 05/15/20 2,997,357
1,600 Bensalem Twp, PA Sch Dist (FGIC Insd) (b)....... 5.875 07/15/16 1,602,352
6,000 Berks Cnty, PA (Inverse Fltg) (FGIC Insd)....... 8.730 11/10/20 6,945,000
2,000 Berks Cnty, PA Muni Auth Rev Highlands at
Wyomissing
Proj B.......................................... 6.875 10/01/17 2,081,380
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks
Village Inc Proj Rfdg........................... 7.500 05/15/13 1,006,830
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks
Village Inc Proj Rfdg........................... 7.700% 05/15/22 $ 986,630
1,975 Boyertown, PA Area Sch Dist (AMBAC Insd)........ 5.250 02/01/17 1,828,554
1,500 Bradford Cnty, PA Indl Dev Auth Solid Waste Disp
Rev Intl Paper Co Proj.......................... 6.600 03/01/19 1,549,725
500 Bucks Cnty, PA Wtr & Swr Auth Rev Neshaminy
Interceptor Sys (Prerefunded @ 12/01/98) (FGIC
Insd)........................................... 7.500 12/01/13 537,105
1,000 Cambria Cnty, PA Hosp Dev Auth Hosp Rev
Conemaugh Vly Mem Hosp Ser B Rfdg (Prerefunded @
07/01/98)....................................... 8.875 07/01/18 1,106,200
1,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Bethlehem Steel Corp Proj Rfdg.................. 7.500 09/01/15 1,024,340
1,000 Cambria Cnty, PA Indl Dev Auth Res Recovery Rev
Cambria Cogen Proj Ser F........................ 7.750 09/01/19 1,048,970
835 Canon McMillan Sch Dist PA (AMBAC Insd)......... * 02/01/13 315,647
575 Canon McMillan Sch Dist PA (AMBAC Insd)......... * 02/01/14 204,982
1,000 Canon McMillan Sch Dist PA (AMBAC Insd)......... * 02/01/15 336,190
1,685 Central Greene, PA Sch Dist Ser AA Rfdg (AMBAC
Insd)........................................... 5.250 02/15/24 1,541,809
1,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth Sys
Rev (AMBAC Insd)................................ 5.650 05/15/20 940,150
1,880 Chester Cnty, PA Hlth & Edl The Chester Cnty
Hosp (MBIA Insd) (b)............................ 5.625 07/01/08 1,897,973
1,985 Chester Cnty, PA Hlth & Edl The Chester Cnty
Hosp (MBIA Insd) (b)............................ 5.625 07/01/09 1,984,980
1,675 Chester Cnty, PA Hlth & Edl The Chester Cnty
Hosp (MBIA Insd) (b)............................ 5.625 07/01/10 1,666,977
90 Chester Cnty, PA Hosp Auth Rev Brandywine
Hosp............................................ 7.000 07/01/10 93,069
760 Chichester Sch District PA Ser 1989 (MBIA
Insd)........................................... * 06/01/01 599,762
860 Chichester Sch District PA Ser 1989 (MBIA
Insd)........................................... * 06/01/02 640,717
975 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp
Proj............................................ 8.500 07/01/13 1,053,565
1,000 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp
Proj............................................ 8.500 07/01/21 1,078,380
1,130 Clearfield Cnty, PA Indl Dev Auth Coml Dev Rev
First Mtg Kmart Corp Ser A Rfdg................. 7.200 07/01/07 1,091,795
5,000 Cumberland Cnty, PA Muni Auth College Rev
Messiah College Proj (AMBAC Insd)............... 5.125 10/01/15 4,635,750
2,230 Cumberland Cnty, PA Muni Auth Rev First Mtg
Carlisle Hosp & Hlth............................ 6.800 11/15/23 2,205,202
2,000 Delaware Cnty, PA Auth Hosp Rev Crozer Chester
Med Cent Ser A, B & C (Prerefunded @ 12/15/00)
(MBIA Insd)..................................... 7.500 12/15/20 2,256,900
2,475 Delaware Cnty, PA Auth Rev Elwyn Inc Proj....... 8.350 06/01/15 2,697,106
1,500 Delaware Cnty, PA Auth Rev First Mtg Riddle
Village Proj.................................... 9.250 06/01/22 1,622,760
3,000 Delaware River Port Auth PA & NJ Rev (FGIC
Insd)........................................... 5.400 01/01/15 2,876,370
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,000 Erie Cnty, PA Hosp Auth Rev Saint Vincent Hlth
Cent Proj Ser A (MBIA Insd)..................... 6.375% 07/01/22 $ 2,058,000
2,140 Greene Cnty, PA Unlimited Tax (Prerefunded @
08/01/00)....................................... 8.500 08/01/10 2,420,575
5,000 Harrisburg, PA Pkg Auth Rev Gtd Ser H Rfdg
(AMBAC Insd).................................... 5.125 08/01/16 4,588,450
1,045 Harrisburg, PA Wtr & Swr Auth Swr Rev Second Ser
Rfdg (FGIC Insd)................................ * 10/15/08 527,955
1,840 Hollidaysburg, PA Area Sch Dist (MBIA Insd)
(c)............................................. * 10/15/11 761,631
1,840 Hollidaysburg, PA Area Sch Dist (MBIA Insd)
(c)............................................. * 10/15/12 713,294
1,840 Hollidaysburg, PA Area Sch Dist (MBIA Insd)
(c)............................................. * 10/15/13 667,368
1,840 Hollidaysburg, PA Area Sch Dist (MBIA Insd)..... * 10/15/14 629,372
1,000 Hollidaysburg, PA Area Sch Dist (MBIA Insd)..... * 10/15/15 322,570
1,840 Hollidaysburg, PA Area Sch Dist (MBIA Insd)..... * 10/15/16 554,245
1,260 Lackawanna Cnty, PA Multi-Purp Stadium Auth
Stadium Rev Gtd (Prerefunded @ 08/15/98)........ 8.625 08/15/07 1,379,813
1,000 Lancaster Cnty, PA Solid Waste Mgmt Auth Res
Recovery Sys Rev Ser A.......................... 8.375 12/15/04 1,053,730
2,000 Lancaster Cnty, PA Solid Waste Mgmt Auth Res
Recovery Sys Rev Ser A (c)...................... 8.500 12/15/10 2,122,240
2,000 Lehigh Cnty, PA Genl Purp Auth Cedar Crest Coll
Rfdg............................................ 6.700 04/01/26 1,980,620
4,100 Lehigh Cnty, PA Genl Purp Auth Rev Muhlenberg
Hosp Ser A Rfdg................................. 8.100 07/15/10 4,398,890
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 1,034,130
3,820 Lower Providence Township PA Swr Auth Swr Rev
Gtd (MBIA Insd)................................. 5.250 05/01/22 3,499,578
2,000 Lycoming Cnty, PA Auth Hosp Lease Rev Divine
Providence Sisters Ser A........................ 6.500 07/01/22 2,139,580
2,500 Lycoming Cnty, PA Auth Hosp Lease Rev Divine
Providence Sisters Ser A (Prerefunded @
07/01/00) (c)................................... 7.750 07/01/16 2,791,325
400 Lycoming Cnty, PA Auth Hosp Lease Rev
Williamsport Hosp Ser B (Prerefunded @ 11/01/96)
(AMBAC Insd).................................... 7.000 11/01/15 412,408
5,000 Lycoming Cnty, PA Auth Hosp Rev Divine
Providence Hosp Rfdg (Connie Lee Insd).......... 5.250 11/15/15 4,646,350
1,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford Hosp
Proj (Crossover Rfdg @ 10/01/00)................ 8.875 10/01/20 1,162,220
750 McKeesport, PA Indl Dev Auth Rev The Kroger Corp
Allegheny Cnty Rfdg............................. 8.650 06/01/11 831,937
3,000 Monroeville, PA Hosp Auth Hosp Rev Forbes Hlth
Sys Rfdg........................................ 6.250 10/01/15 2,914,710
500 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Suburban Genl Hosp Bonds (AMBAC Insd)....... 7.250 05/01/16 521,225
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 415 Montgomery Cnty, PA Higher Edl & Hlth Auth
Nursing Home Rev Delco Sys Svcs Proj A.......... 9.875% 11/01/18 $ 421,416
2,500 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn
Ctl Philadelphia Elec Co Ser A Rfdg............. 7.600 04/01/21 2,668,925
3,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recovery (c).................................... 7.500 01/01/12 3,193,050
1,500 Moon Twp, PA Muni Auth Wtr & Swr Rev Rfdg (MBIA
Insd)........................................... 5.500 12/01/19 1,430,670
4,225 New Kensington Arnold, PA Sch Dist Rdfg (AMBAC
Insd)........................................... 5.375 05/15/26 3,928,870
1,000 North Penn, PA Wtr Auth Wtr Rev (FGIC Insd)..... 6.875 11/01/19 1,130,590
1,500 North Penn, PA Wtr Auth Wtr Rev (FGIC Insd)..... 6.200 11/01/22 1,526,805
1,000 Northampton Cnty, PA Indl Dev Auth Rev Moravian
Hall Square Proj Rfdg (Prerefunded @
06/01/99)....................................... 7.450 06/01/14 1,098,240
2,500 Northampton Cnty, PA Indl Dev Auth Rev Pollutn
Ctl Bethlehem Steel Rfdg........................ 7.550 06/01/17 2,579,500
1,000 Northeastern PA Hosp & Edl Auth College Rev Gtd
Luzerne Cnty Cmnty College (AMBAC Insd)......... 6.625 08/15/15 1,061,230
2,343 Oil City, PA Towne Tower Proj................... 6.750 05/01/20 2,397,733
3,000 Penn Manor Sch Dist PA (FGIC Insd).............. 5.200 06/01/16 2,777,160
2,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
MacMillan Ltd Partnership Proj.................. 7.600 12/01/20 2,197,620
3,000 Pennsylvania Econ Dev Fin Auth Recycling Rev
Ponderosa Fibres Proj Ser A..................... 9.250 01/01/22 2,908,320
1,500 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D............................... 7.050 12/01/10 1,569,750
5,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Northampton Generating Ser A.................... 6.600 01/01/19 4,768,450
4,000 Pennsylvania Hsg Fin Agy (Inverse Fltg)......... 10.023 10/03/23 4,215,000
1,000 Pennsylvania Hsg Fin Agy Rental Hsg Rfdg
(FNMA Collateralized)........................... 6.500 07/01/23 1,028,220
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
37b (b)......................................... 5.600 10/01/25 2,279,575
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
40.............................................. 6.900 04/01/25 1,041,630
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
42.............................................. 6.850 04/01/25 2,597,625
1,365 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
47.............................................. 6.750 10/01/09 1,477,066
1,455 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
47.............................................. 6.750 10/01/10 1,572,957
1,980 Pennsylvania Infrastructure Invt Auth Rev
Pennvest Subser B (MBIA Insd)................... 6.000 09/01/06 2,086,960
850 Pennsylvania Infrastructure Invt Auth Rev
Pennvest Subser B............................... 6.800 09/01/10 915,322
2,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
(FGIC Insd)..................................... 5.500 06/15/16 1,926,100
2,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia Funding Pgm (MBIA Insd).... 5.600 06/15/15 1,948,700
4,000 Pennsylvania St Ctfs Partn (FSA Insd)........... 6.250 05/01/16 4,080,880
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Rfdg (Inverse Fltg) (AMBAC
Insd)........................................... 9.622% 09/01/26 $ 2,187,500
2,500 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser B (Inverse Fltg) (MBIA
Insd)........................................... 11.033 03/01/20 2,840,625
4,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser C (AMBAC Insd)............... 6.400 03/01/22 4,005,840
60 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Drexel Univ First Ser (MBIA Insd)...... 7.700 05/01/12 61,379
105 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Trustees Univ Ser A.................... 6.625 01/01/17 106,548
2,000 Pennsylvania St Higher Edl Fac Auth Hlth Svcs
Rev Allegheny Delaware Vly Oblig A (MBIA
Insd)........................................... 5.000 11/15/06 1,933,860
4,595 Pennsylvania St Higher Edl Fac Auth Hlth Svcs
Rev Allegheny Delaware Vly Oblig A (MBIA
Insd)........................................... 5.600 11/15/10 4,601,433
3,950 Pennsylvania St Higher Edl Fac Auth Rev Drexel
Univ Rfdg....................................... 6.375 05/01/17 3,986,735
1,000 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/99)....... 8.375 03/01/11 1,113,350
650 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/99)....... 7.500 03/01/14 697,977
1,250 Philadelphia, PA Auth for Indl Dev Coml Dev
Philadelphia Arpt Rev Rfdg...................... 7.750 12/01/17 1,302,775
2,000 Philadelphia, PA Auth for Indl Dev Rev Long Term
Care............................................ 8.000 01/01/24 2,078,580
3,000 Philadelphia, PA Gas Wks Rev Fourteenth Ser (FSA
Insd)........................................... 6.250 07/01/08 3,161,400
250 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Albert Einstein Med Cent.................... 7.000 10/01/21 260,405
2,800 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Chestnut Hill Hosp.......................... 6.500 11/15/22 2,820,384
2,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Frankford Hosp Ser A........................ 6.000 06/01/14 1,941,200
3,500 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Frankford Hosp Ser A........................ 6.000 06/01/23 3,331,895
4,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Friends Hosp................................ 6.200 05/01/11 3,864,280
4,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Temple Univ Hosp Ser A...................... 6.625 11/15/23 4,035,720
1,500 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/08 782,775
3,750 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/11 1,605,337
3,775 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/12 1,513,888
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$4,500 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/13 $ 1,688,940
220 Philadelphia, PA Muni Auth Rev Rfdg (Prerefunded
@ 04/01/98) (FGIC Insd)......................... 7.800% 04/01/18 237,574
2,155 Philadelphia, PA Muni Auth Rev Rfdg (Prerefunded
@ 04/01/00) (FGIC Insd)......................... 7.800 04/01/18 2,367,828
1,800 Philadelphia, PA Wtr & Swr Rev Sixteenth Ser
(Prerefunded @ 08/01/01)........................ 7.500 08/01/10 2,050,218
2,000 Philadelphia, PA Wtr & Wastewtr Rev (FGIC
Insd)........................................... 5.650 06/15/12 1,948,700
2,000 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (MBIA
Insd)........................................... 5.625 06/15/08 2,036,580
1,425 Pittsburgh, PA Sch Dist Ser B (AMBAC Insd)...... * 08/01/08 728,204
4,070 Pittsburgh, PA Sch Dist Ser B (AMBAC Insd)...... * 08/01/09 1,942,611
1,470 Pittsburgh, PA Urban Redev Auth Mtg Rev Ser
C-1............................................. 6.800 10/01/25 1,502,840
960 Pittsburgh, PA Urban Redev Auth Single Family
Mtg Rev Ser A (GNMA Collateralized)............. 8.000 12/01/20 1,013,386
2,000 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev
Ser A Rfdg (FGIC Insd).......................... * 09/01/06 1,170,720
1,000 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev
Ser A Rfdg (FGIC Insd).......................... * 09/01/07 548,330
1,500 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev
Ser A Rfdg (FGIC Insd).......................... * 09/01/08 769,335
250 Scranton-Lackawanna, PA Hlth & Welfare Auth Rev
Cmnty Med Cent Proj (BIGI Insd)................. 7.875 07/01/10 269,673
2,650 Sharon, PA Regl Hlth Sys Auth Hosp Rev Sharon
Regl Hlth Sys Proj A Rfdg....................... 6.875 12/01/09 2,753,535
355 Somerset Cnty, PA Indl Dev Auth Coml Dev Rev
First Mtg Kmart Corp Ser A Rfdg................. 7.200 04/01/07 337,271
1,250 State Pub Sch Bldg Auth PA College Rev Reading
Area College Cap Proj A (MBIA Insd)............. 5.100 02/15/14 1,156,700
2,180 State Pub Sch Bldg Auth PA Sch Rev Burgettstown
Sch Dist Ser D (MBIA Insd)...................... 6.500 02/01/14 2,294,755
2,725 Upper Merion, PA Muni Util Auth Swr Rev Gtd..... 6.000 08/15/16 2,777,729
1,500 Washington Cnty, PA Auth Lease Rev Muni Fac Pool
Cap Ser C Subser C-1D (Prerefunded @ 06/15/00)
(AMBAC Insd).................................... 7.450 12/15/18 1,686,105
2,935 West Shore, PA Area Auth Hlth Cent Rev United
Methodist Homes Aging Inc (Prerefunded @
06/01/01)....................................... 7.400 06/01/16 3,315,669
350 Westmoreland Cnty, PA Indl Dev Auth Rev Citizens
Genl Hosp Proj A Rfdg........................... 8.250 07/01/13 363,804
------------
273,772,562
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GUAM 1.0%
$2,750 Guam Govt Ser A................................. 5.750% 09/01/04 $ 2,691,948
------------
PUERTO RICO 0.1%
205 Puerto Rico Comwlth Pub Impt Rfdg A............. 7.125 07/01/02 213,081
------------
TOTAL LONG-TERM INVESTMENTS 99.5%
(Cost $262,647,990) (a).................................................... 276,677,591
SHORT-TERM INVESTMENTS AT AMORTIZED COST 1.8%............................... 5,000,000
LIABILITIES IN EXCESS OF OTHER ASSETS (1.3%)................................ (3,488,461)
------------
NET ASSETS 100%............................................................. $278,189,130
============
</TABLE>
*Zero coupon bond
(a) At June 30, 1996, cost for federal income tax purposes is $262,647,990; the
aggregate gross unrealized appreciation is $14,716,036 and the aggregate
gross unrealized depreciation is $1,018,492, resulting in net unrealized
appreciation including open futures transactions of $13,697,544.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.
(d) Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $262,647,990) (Note 1)............... $276,677,591
Short-Term Investments (Note 1)......................................... 5,000,000
Cash.................................................................... 3,127,773
Receivables:
Interest.............................................................. 4,074,861
Fund Shares Sold...................................................... 308,575
Securities Sold....................................................... 25,000
Other................................................................... 8,036
------------
Total Assets...................................................... 289,221,836
------------
LIABILITIES:
Payables:
Securities Purchased.................................................. 9,346,640
Income Distributions.................................................. 497,615
Fund Shares Repurchased............................................... 435,239
Distributor and Affiliates (Notes 2 and 6)............................ 304,032
Investment Advisory Fee (Note 2)...................................... 135,582
Variation Margin on Futures (Note 5).................................. 112,500
Accrued Expenses........................................................ 135,047
Deferred Compensation and Retirement Plans (Note 2)..................... 66,051
------------
Total Liabilities................................................. 11,032,706
------------
NET ASSETS.............................................................. $278,189,130
============
NET ASSETS CONSIST OF:
Paid in Surplus (Note 3)................................................ $270,808,484
Net Unrealized Appreciation on Securities............................... 13,697,544
Accumulated Distributions in Excess of Net Investment Income (Note 1)... (4,133)
Accumulated Net Realized Loss on Securities............................. (6,312,765)
------------
NET ASSETS.............................................................. $278,189,130
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $227,306,110 and 13,317,832 shares of beneficial interest issued
and outstanding) (Note 3)........................................... $ 17.07
Maximum sales charge (4.75%* of offering price)..................... .85
------------
Maximum offering price to public.................................... $ 17.92
============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$47,494,003 and 2,783,571 shares of beneficial interest issued and
outstanding) (Note 3)............................................... $ 17.06
============
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$3,389,017 and 198,655 shares of beneficial interest issued and
outstanding) (Note 3)............................................... $ 17.06
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................ $ 8,835,450
------------
EXPENSES:
Investment Advisory Fee (Note 2)........................................ 824,107
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C
of $277,959, $236,228 and $16,482, respectively) (Note 6)............. 530,669
Shareholder Services (Note 2)........................................... 174,231
Custody (Note 1)........................................................ 69,629
Trustees Fees and Expenses (Note 2)..................................... 16,905
Legal (Note 2).......................................................... 14,560
Other................................................................... 120,656
------------
Total Expenses...................................................... 1,750,757
Less: Expenses Reimbursed........................................... 4,987
Earnings Credits on Cash Balances (Note 1)...................... 3,700
------------
Net Expenses........................................................ 1,742,070
------------
NET INVESTMENT INCOME................................................... $ 7,093,380
============
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments........................................................... $ (857,566)
Options............................................................... (102,594)
Futures............................................................... 292,007
------------
Net Realized Loss on Securities......................................... (668,153)
------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period............................................... 23,582,229
------------
End of the Period:
Investments......................................................... 14,029,601
Futures............................................................. (332,057)
------------
13,697,544
------------
Net Unrealized Depreciation on Securities During the Period............. (9,884,685)
------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES.......................... $(10,552,838)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.............................. $ (3,459,458)
============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1996 and
the Year Ended December 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 7,093,380 $ 14,192,265
Net Realized Gain/Loss on Securities.................. (668,153) (5,635,081)
Net Unrealized Appreciation/Depreciation on Securities
During the Period................................... (9,884,685) 31,028,321
------------ ------------
Change in Net Assets from Operations.................. (3,459,458) 39,585,505
------------ ------------
Distributions from Net Investment Income.............. (7,090,090) (14,259,564)
Distributions in Excess of Net Investment Income (Note
1).................................................. -0- (7,423)
------------ ------------
Distributions from and in Excess of Net Investment
Income*............................................. (7,090,090) (14,266,987)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (10,549,548) 25,318,518
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................. 26,433,819 27,514,827
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 4,226,950 8,632,984
Cost of Shares Repurchased............................ (18,791,991) (27,500,706)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... 11,868,778 8,647,105
------------ ------------
TOTAL INCREASE IN NET ASSETS.......................... 1,319,230 33,965,623
NET ASSETS:
Beginning of the Period............................... 276,869,900 242,904,277
------------ ------------
End of the Period (Including undistributed net
investment income of $(4,133) and $(7,423),
respectively)....................................... $278,189,130 $276,869,900
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1996 December 31, 1995
------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares...................... $(5,944,011) $(12,063,809)
Class B Shares...................... (1,071,222) (2,062,857)
Class C Shares...................... (74,857) (140,285)
Class D Shares...................... -- (36)
----------- ------------
$(7,090,090) $(14,266,987)
=========== ============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
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, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Net Asset Value, Beginning
of the Period................. $17.737 $16.081 $18.062 $16.899 $16.373
------- ------- ------- ------- -------
Net Investment Income........... .456 .946 .965 1.027 1.074
Net Realized and Unrealized
Gain/Loss on Securities....... (.669) 1.660 (1.985) 1.164 .525
------- ------- ------- ------- -------
Total from Investment
Operations.................... (.213) 2.606 (1.020) 2.191 1.599
------- ------- ------- ------- -------
Less Distributions from and in
Excess of Net Investment
Income (Note 1)............... .456 .950 .961 1.028 1.073
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................ $17.068 $17.737 $16.081 $18.062 $16.899
======= ======= ======= ======= =======
Total Return* (a)............... (1.21%)** 16.62% (5.72%) 13.25% 10.09%
Net Assets at End of the Period
(In millions)................. $227.3 $226.7 $203.2 $221.7 $153.8
Ratio of Expenses to Average Net
Assets* (b)................... 1.13% 1.00% .90% .71% .72%
Ratio of Net Investment Income
to Average Net Assets*........ 5.30% 5.57% 5.73% 5.80% 6.41%
Portfolio Turnover.............. 32%** 28% 8% 1% 10%
*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 (b).................... 1.14% 1.14% 1.17% 1.09% 1.17%
Ratio of Net Investment Income
to Average Net Assets......... 5.30% 5.42% 5.46% 5.41% 5.95%
</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) Beginning with the year ended December 31, 1995, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned, if any, on overnight cash balances. (Note 1)
See Notes to Financial Statements
17
<PAGE> 19
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months May 1, 1993
Ended Year Ended Year Ended (Commencement of
June 30, December 31, December 31, Distribution) to
Class B Shares 1996 1995 1994 December 31, 1993
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Net Asset Value,
Beginning of the
Period................... $17.731 $16.080 $18.055 $17.460
------- ------- ------- -------
Net Investment Income...... .391 .819 .841 .586
Net Realized and Unrealized
Gain/Loss on
Securities............... (.670) 1.659 (1.985) .603
------- ------- ------- -------
Total from Investment
Operations............... (.279) 2.478 (1.144) 1.189
Less Distributions from and
in Excess of Net
Investment Income (Note
1)....................... .390 .827 .831 .594
------- ------- ------- -------
Net Asset Value,
End of the Period........ $17.062 $17.731 $16.080 $18.055
======= ======= ======= =======
Total Return* (a).......... (1.58%)** 15.72% (6.39%) 6.81%**
Net Assets at End of the
Period (In millions)..... $47.5 $46.8 $37.6 $27.7
Ratio of Expenses to
Average
Net Assets* (b).......... 1.89% 1.75% 1.64% 1.48%
Ratio of Net Investment
Income to Average Net
Assets*.................. 4.54% 4.81% 4.98% 4.47%
Portfolio Turnover......... 32%** 28% 8% 1%
*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 (b)... 1.89% 1.89% 1.90% 1.82%
Ratio of Net Investment
Income to Average Net
Assets................... 4.54% 4.66% 4.71% 4.13%
</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) Beginning with the year ended December 31, 1995, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned, if any, on overnight cash balances. (Note 1)
See Notes to Financial Statements
18
<PAGE> 20
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months August 13, 1993
Ended Year Ended Year Ended (Commencement of
June 30, December 31, December 31, Distribution) to
Class C Shares 1996 1995 1994 December 31, 1993
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Net Asset Value,
Beginning of the
Period................... $17.729 $16.079 $18.045 $17.850
------- ------- ------- -------
Net Investment Income...... .391 .812 .850 .325
Net Realized and Unrealized
Gain/Loss on
Securities............... (.670) 1.665 (1.985) .208
------- ------- ------- -------
Total from Investment
Operations............... (.279) 2.477 (1.135) .533
Less Distributions from and
in
Excess of Net Investment
Income (Note 1).......... .390 .827 .831 .338
------- ------- ------- -------
Net Asset Value,
End of the Period........ $17.060 $17.729 $16.079 $18.045
======= ======= ======= =======
Total Return* (a).......... (1.58%)** 15.72% (6.34%) 2.98%**
Net Assets at End of the
Period
(In millions)............ $ 3.4 $ 3.4 $ 2.2 $ 2.1
Ratio of Expenses to
Average
Net Assets* (b).......... 1.89% 1.75% 1.63% 1.54%
Ratio of Net Investment
Income to Average Net
Assets*.................. 4.55% 4.76% 4.97% 4.08%
Portfolio Turnover......... 32%** 28% 8% 1%
*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 (b)... 1.89% 1.90% 1.90% 1.89%
Ratio of Net Investment
Income to Average Net
Assets................... 4.55% 4.61% 4.70% 3.73%
</TABLE>
** Non-Annualized
(a) Total return is based upon the net asset value which does not include
payment of the maximum sales charge or contingent deferred sales charge.
(b) Beginning with the year ended December 31, 1995, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned, if any, on overnight cash balances. (Note 1)
See Notes to Financial Statements
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Pennsylvania Tax Free Income Fund (the "Fund") is
organized as a Pennsylvania 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 Pennsylvania investors
a high level of current income exempt from federal and Pennsylvania state income
taxes and, where possible under local law, local income and personal property
taxes, through investment primarily in a varied portfolio of medium and lower
grade municipal securities. The Fund commenced investment operations on May 1,
1987. The distribution of the Fund's Class B and Class C shares commenced on May
1, 1993, and August 13, 1993, respectively. On May 2, 1995, all Class D
shareholders redeemed their shares and the class was eliminated. The Fund will
no longer offer Class D shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses 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.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (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.
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, 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 loss and offset such losses against any future realized capital gains.
At December 31, 1995, the Fund had an accumulated capital loss carryforward for
tax purposes of $5,644,612, of which $9,531 and $5,635,081 will expire on
December 31, 2001 and 2003, respectively. Net realized gains or losses may
differ for financial and tax reporting purposes primarily as a result of post
October 31 losses which are not recognized for tax purposes until the first day
of the following fiscal year.
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 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. EXPENSE REDUCTIONS--During the six months ended June 30, 1996, the Fund's
custody fee was reduced by $3,700 as a result of credits earned on overnight
cash balances.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (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 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...................................... .600 of 1%
Over $500 million....................................... .500 of 1%
</TABLE>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended June 30, 1996, the Fund recognized expenses of
approximately $19,100 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 for the Fund. For the six months ended
June 30, 1996, the Fund recognized expenses of approximately $131,500,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Additionally, for the six months ended June 30, 1996, the Fund reimbursed
VKAC approximately $39,400 related to the cost of consolidating the VKAC
open-end fund complex. The reimbursement represents savings realized by the Fund
as a result of the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
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.
At June 30, 1996, VKAC owned 100 shares each of Classes B and C.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C.
There are an unlimited number of shares of each class without par value
authorized. At June 30, 1996, paid in surplus aggregated $218,461,637,
$48,831,257 and $3,515,590 for
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Classes A, B and C, respectively. For the six months ended June 30, 1996,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------
Sales:
Class A.................................. 1,251,429 $ 21,541,594
Class B.................................. 265,456 4,625,543
Class C.................................. 15,605 266,682
---------- ------------
Total Sales................................ 1,532,490 $ 26,433,819
========== =============
Dividend Reinvestment:
Class A.................................. 205,286 $ 3,544,453
Class B.................................. 36,483 629,556
Class C.................................. 3,067 52,941
---------- ------------
Total Dividend Reinvestment................ 244,836 $ 4,226,950
========== =============
Repurchases:
Class A.................................. (918,842) $(15,870,994)
Class B.................................. (157,605) (2,717,664)
Class C.................................. (11,713) (203,333)
---------- ------------
Total Repurchases.......................... (1,088,160) $(18,791,991)
========== =============
</TABLE>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1995, paid in surplus aggregated $209,246,584, $46,293,822
and $3,399,300 for Classes A, B and C, respectively. For the year ended December
31, 1995, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------
Sales:
Class A.................................. 1,119,488 $ 19,063,890
Class B.................................. 432,811 7,360,052
Class C.................................. 64,263 1,090,885
Class D.................................. -0- -0-
---------- ------------
Total Sales................................ 1,616,562 $ 27,514,827
========== =============
Dividend Reinvestment:
Class A.................................. 429,117 $ 7,328,175
Class B.................................. 70,444 1,203,406
Class C.................................. 5,929 101,400
Class D.................................. -0- 3
---------- ------------
Total Dividend Reinvestment................ 505,490 $ 8,632,984
========== =============
Repurchases:
Class A.................................. (1,402,145) $(23,853,016)
Class B.................................. (200,582) (3,410,196)
Class C.................................. (13,519) (235,564)
Class D.................................. (112) (1,930)
---------- ------------
Total Repurchases.......................... (1,616,358) $(27,500,706)
========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within six years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (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, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$45,100 and CDSC on redeemed shares of approximately $57,600. 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 $102,635,023 and $88,425,608,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on investments. Upon disposition, a realized gain or
loss is recognized accordingly.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. 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
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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, 1996 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
<S> <C> <C>
- -------------------------------------------------------------------------
Outstanding at December 31, 1995................ -0- -0-
Options Written and Purchased (Net)............. 175 (102,585)
Options Expired (Net)........................... (175) 102,585
---- --------
Outstanding at June 30, 1996.................... -0- -0-
==== ========
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). Upon the closing settlement of a
contract, gains or losses are realized. The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended June 30, 1996, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
- ----------------------------------------------------------------------
Outstanding at December 31, 1995.......................... 0
Futures Opened............................................ 450
Futures Closed............................................ (350)
----
Outstanding at June 30, 1996.............................. 100
====
</TABLE>
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The futures contracts outstanding as of June 30, 1996, and the description
and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
<S> <C> <C>
- -------------------------------------------------------------------------
U.S. Treasury Long Bond Future
Sept. 1996--Sells to Open.................. 100 $332,057
========
</TABLE>
C. INVERSE FLOATING SECURITY--These instruments, which are identified in the
portfolio of investments, have a coupon which 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. The price of these securities may be more
volatile than the price of a comparable fixed rate security. 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 shares and 1.00% each
of Class B and Class C shares are accrued daily. Included in these fees for the
six months ended June 30, 1996, are payments to VKAC of approximately $188,900.
27
<PAGE> 29
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
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
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
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
28
<PAGE> 30
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
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
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., 1996
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.
29
