<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Performance in Perspective....................... 6
Portfolio Management Review...................... 7
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 16
Statement of Operations.......................... 17
Statement of Changes in Net Assets............... 18
Financial Highlights............................. 19
Notes to Financial Statements.................... 22
Report of Independent Accountants................ 30
</TABLE>
PATF ANR 2/97
<PAGE> 2
LETTER TO SHAREHOLDERS
January 31, 1997
Dear Shareholder,
We are pleased to report that the
Van Kampen American Capital
Pennsylvania Tax Free Income Fund has
continued to generate positive
investment performance. As noted in
earlier reports, VK/AC Holding Inc., [PHOTO]
the parent company of Van Kampen
American Capital, Inc., was acquired
by Morgan Stanley Group Inc., a world
leader in asset management and DENNIS J. MCDONNELL AND DON G. POWELL
investment banking. The transaction
was completed in October, and we are excited about the opportunities it creates
for investors. As part of the acquisition, Van Kampen American Capital became
the distributor of Morgan Stanley retail funds on January 2, 1997.
ECONOMIC REVIEW
The U.S. economy experienced moderate growth and low inflation during the
reporting period. At the beginning of 1996, economists were concerned that the
slower economic pace of late 1995 might continue, possibly leading to a
recession by year end. That assumption soon came into question, however, when
non-farm payrolls increased by a stunning 705,000 in February, the biggest
one-month jump in 13 years. Then, a larger-than-expected 4.7 percent rate in
real GDP (the nation's gross domestic product, adjusted for inflation) during
the second quarter confirmed that the economy was back in a strong-growth mode.
By summer, the earlier talk of recession and rate cuts had changed to concerns
about economic overheating and the possibility of interest rate hikes.
Despite mounting evidence of inflation, the Federal Reserve held to a stable
monetary policy, believing the supply-and-demand imbalances in the commodity
markets were temporary and that burdensome consumer debt load would eventually
slow the economy without the need for higher interest rates. Events during the
second half of 1996 proved the wisdom of Federal Reserve policy; real GDP growth
moderated to 2.0 percent in the third quarter while commodity prices receded.
For the year, core producer prices rose by 0.6 percent, the second-lowest annual
increase on record. Including the volatile food and energy sectors, however,
prices at the retail level rose by 3.3 percent.
MARKET REVIEW
Shifting expectations and modest returns characterized the fixed-income
markets in 1996. The year began with long-term interest rates near their lowest
level since the 1960s, reflecting the view that the U.S. economy was weakening
and that a series of rate cuts by the Fed would be forthcoming. But the Fed's
quarter-percentage point reduction in the federal funds rate on January 31 would
be the only monetary easing during 1996, and long-term rates
Continued on page two
1
<PAGE> 3
soon began rising amid signs of a tightening labor market and
stronger-than-expected economic growth. Fears that the Fed would reverse course
and raise short-term rates became widespread after the economy experienced
strong growth in the second quarter. By July, the yield on the Treasury's
benchmark 30-year bond had reached 7.2 percent, up from 5.95 percent at the
beginning of the year.
The last half of 1996 was spent recovering about half of the ground lost
over the first six months. Economic growth moderated, commodity prices declined,
and inflation remained tame. As the Fed held short-term rates steady, long-term
Treasury yields gradually fell back to 6.64 percent by year end.
Compared to 1995, when most sectors of the fixed-income market generated
double-digit gains, 1996 was a year of generally lackluster performance.
Tax-exempt bonds outperformed most sectors of the taxable market, with the
Lehman Brothers Municipal Bond Index returning 4.43 percent for the 12-month
period ended December 31, 1996, versus 1.56 percent for long-term AA-rated
corporate bonds and a 0.81 percent loss for long-term Treasuries. Within the
various industry sectors, hospitals and transportation were the top performers
for the year, returning 5.56 percent and 5.05 percent, respectively. The
tax-exempt market was aided by the economic recovery in California (California
is the largest issuer of tax-exempt securities, accounting for approximately 14
percent of national volume), and the failure of major tax reform to gain
widespread political support.
MARKET OUTLOOK
We expect interest rates during 1997 to repeat last years moderate up and
down pattern. Stronger-than-expected U.S. economic growth and faint rumblings of
inflationary pressures over the first half of the year could prompt a series of
modest credit tightenings by the Fed. We anticipate that by the fourth quarter
the economy will moderate enough to discourage any lingering concerns about
inflation and allow interest rates to decline across the maturity spectrum.
One of the political issues that worried tax-exempt investors in recent
years has been put to rest. Proposals for a flat tax or the removal of the
federal tax exemption from municipal-bond interest is postponed for the
foreseeable future. We also anticipate that the trend toward increased use of
insurance in the municipal market should continue. The possibility that revenue
districts plagued by disastrous weather, or cities such as Miami, Florida, which
are experiencing financial difficulties, could default, underscores the
importance of professional portfolio management and diversification in the
tax-exempt market.
While domestic economic fundamentals may keep fixed-income prices relatively
stable, the risks of external shocks to the market is growing. We cannot look at
the U.S. economy in isolation. If global economies catch fire in 1997 and impact
the U.S. government market, this impact could very well have an effect on
tax-exempt rates.
Continued on page three
2
<PAGE> 4
Additional details about your Fund, including a question and answer section
with your portfolio management team, are provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1996
VAN KAMPEN AMERICAN CAPITAL
PENNSYLVANIA TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A B C
SHARES SHARES SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return based on NAV(1)... 3.86% 3.07% 3.08%
One-year total return(2)................ (1.05%) (.87%) 2.09%
Five-year average annual total
return(2)............................. 6.28% N/A N/A
Life-of-Fund average annual total
return(2)............................. 8.35% 4.31% 4.22%
Commencement date....................... 05/01/87 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3).................... 4.87% 4.36% 4.36%
Taxable equivalent distribution
rate(4)............................... 7.83% 7.01% 7.01%
SEC Yield(5)............................ 4.48% 3.94% 3.94%
</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 December 30, 1996.
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.
4
<PAGE> 6
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
TOP TEN HOLDINGS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Berks County, PA ..................................... 2.64%
Pennsylvania Economic Development Finance
Authority Resource Recovery Revenue
Northampton Generating ............................. 1.84%
Lycoming County, PA Authority Hospital Revenue
Divine Providence Hospital ......................... 1.77%
Beaver County, PA Industrial Development
Authority Pollution Control Revenue OH Edison
Project ............................................ 1.75%
Pennsylvania State Higher Education Facility
Authority Health Services Revenue Allegheny
DE Valley .......................................... 1.74%
Harrisburg, PA Parking Authority Revenue
Guaranteed ......................................... 1.74%
Philadelphia, PA Authority Industrial
Development Lease Revenue .......................... 1.70%
Lehigh County, PA General Purpose Authority
Revenue Muhlenberg Hospital ........................ 1.65%
Pennsylvania Housing Finance Agency .................. 1.63%
Lower Providence Township, PA Sewer Authority
Sewer Revenue Guaranteed ........................... 1.61%
</TABLE>
[PIE CHART]
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
<S> <C>
AAA........ 51.5%
AA......... 6.5%
A.......... 11.5%
BBB........ 16.6%
BB......... 3.4%
Non-Rated... 10.5%
</TABLE>
PIE CHART
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996(1)
<S> <C>
AAA......... 54.2%
AA.......... 8.5%
A........... 8.8%
BBB......... 15.2%
BB.......... 3.7%
B........... 0.5%
Non-Rated... 9.1%
</TABLE>
PIE CHART
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 SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
<S> <C>
Health Care ........... 24.7%
Industrial Revenue .... 10.4%
Public Building ....... 9.0%
Public Education ...... 7.8%
Other Care ............ 7.5%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996(1)
<S> <C>
Health Care .......... 24.2%
Public Education ..... 10.1%
Water and Sewer ...... 9.5%
Public Building ...... 8.2%
Higher Education ..... 7.7%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996(1) AS OF JUNE 30, 1996(1)
<S> <C> <C>
Duration 7.90 years 8.23 years
</TABLE>
(1) Unaudited
5
<PAGE> 7
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Illustrate the general market environment in which your investments are
being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Municipal Bond
Index over time. As a broad-based, unmanaged statistical composite, this index
does not reflect any commissions or fees which would be incurred by an investor
purchasing the securities it represents. Similarly, its performance does not
reflect any sales charges or other costs which would be applicable to an
actively managed portfolio, such as that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Pennsylvania Tax Free Income Fund vs. Lehman
Brothers
Municipal Bond Index (May 1, 1987 through December 31, 1996)
INVESTMENT PERFORMANCE CHART
<TABLE>
<CAPTION>
MAY DEC DEC DEC DEC DEC DEC DEC DEC DEC DEC
1987 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- VKAC Pennsylvania Tax
Free Income Fund 9,526 10,029 11,487 12,731 13,664 15,255 16,794 19,019 17,932 20,913 21,720
- -- Lehman Brothers
Municipal Bond Index 9,950 10,433.8 11,493 12,732.7 13,661 15,320.2 16,670.7 18,717.2 17,749.4 20,848.9 21,774
Fund's Total Return
1 Year Avg. Annual =-1.05%
5 Year Avg. Annual = 6.28%
Inception Avg. Annual = 8.35%
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
6
<PAGE> 8
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 past fiscal year. The team includes Dennis S.
Pietrzak, portfolio manager, and Peter W. Hegel, chief investment officer for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the 12-month period ended December 31, 1996.
Q WHAT ECONOMIC FACTORS INFLUENCED THE FUND'S PERFORMANCE IN 1996?
A The economy showed signs of surprising strength during the first half of
the year, which triggered concerns that rising inflation would
eventually lead to rising interest rates. With investors anticipating an upward
move in interest rates by the Federal Reserve Board, municipal interest rates
rose sharply, beginning in February and lasting through May. When the Fed
ultimately decided to take no action, bond prices rallied through the end of
the year.
Although this rally in the second half offset most of the drop in prices
experienced during the first six months, both municipal bonds and Treasuries
ended the year slightly lower than in 1995, with municipal bond prices declining
less than Treasuries. At year end, tax-exempt yields remained attractive
relative to taxable securities, with municipal bond yields averaging
approximately 90 percent of Treasuries.
Q WHAT OTHER FACTORS WERE TAKEN INTO CONSIDERATION IN MANAGING THE FUND OVER
THE PAST YEAR?
A Election-year politics played a major role. In the first quarter, the
biggest issue facing the municipal bond market was Steve Forbes'
presidential campaign and his platform of a flat federal income tax, which
would have eliminated the tax-preferred advantage of municipal bonds. By late
spring, the flat tax proposal was losing steam, and tax-exempt prices joined
the early stages of a fairly strong rally.
The results of the presidential election were positive for the municipal
market. Major tax reform seems unlikely under the Clinton administration.
Additionally, any negative changes in federal legislation for infrastructure
programs are expected to be minor.
Another 1996 trend that had an impact on the Fund was the rising number of
issues that came to the market insured. Insured issuance has grown steadily from
1989's level of 25 percent to nearly 50 percent of total volume in 1996. This
was due, in part, to an increasing appetite for safety from investors concerned
about municipalities with financial difficulties. Also, drastic cuts in
insurance costs over the past three years have made yields on insured offerings
much more attractive when compared to lower-rated quality securities.
7
<PAGE> 9
Q HOW WAS THE FUND STRUCTURED IN RESPONSE TO THESE EVENTS?
A The Fund seeks to provide Pennsylvania investors with a high level of
current income exempt from federal and Pennsylvania state income taxes.
We continued to accomplish the Fund's objective primarily by maintaining a
varied portfolio of municipal securities.
Almost 52 percent of the Fund's long-term investments are AAA-rated, the
highest credit rating assigned to bonds by Standard & Poor's Ratings Group.
These bonds typically involve little credit risk, are highly liquid, and
typically respond quickly as interest rates change. Approximately 31 percent of
Fund assets are non-rated or rated BBB or below. While high-quality holdings may
provide a stabilizing component and total return opportunities, lower-rated and
non-rated bonds provide income potential and tend to exhibit lower price
volatility to interest rate changes. A combination of high-quality holdings and
lower-rated holdings may help balance the portfolio's relative volatility. To
establish and monitor the Fund's exposure to lower-rated holdings, we rely on
our credit research staff to identify relative value and specific securities
which meet our internal credit standards.
Pennsylvania is the fifth largest issuer of municipal securities, with a
total volume of $8.7 billion in 1996. This provides a wide variety of securities
across many sectors. We focused on health care and industrial revenue
securities, as these sectors have provided some of the most attractive yields in
the tax-exempt markets. Health care, which is beginning to reap the rewards of
managed care and consolidations, was the best performing sector last year.
We seek to manage the volatility of the Fund by adjusting the duration of
the portfolio when necessary. Duration, which is expressed in years, is a
measurement of the portfolio's price sensitivity to interest rate fluctuations.
The longer the Fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates are declining. At year end, the Fund's duration
was 7.90 years, as compared to the Lehman Brothers Pennsylvania Municipal Bond
Index duration of 8.49 years.
We also found value in the intermediate range of the yield curve. Because we
did not feel that long-term securities offered enough yield advantage to justify
the higher levels of volatility, we concentrated on municipal bonds that matured
in 10 to 20 years, with a special emphasis on the 15- to 18-year range. The
yield on securities in this maturity range was almost 90 percent of long-term
yields, with about two-thirds of the volatility. For additional Fund portfolio
highlights, please refer to page five.
Q HOW DID THE FUND PERFORM IN 1996?
A For the 12-month period ended December 31, 1996, the Fund generated a
total return of 3.86 percent(1) (Class A shares at net asset value),
placing it in the top half of the Pennsylvania Municipal Debt category as
tracked by Lipper Analytical Services. In comparison, the market in general, as
represented by the Lehman Brothers Municipal
8
<PAGE> 10
Bond Index, returned 4.43 percent for the same period. This index is a
broad-based, unmanaged index of municipal bonds and does not reflect any
commissions, sales charges, or fees that would be paid by an investor purchasing
the securities it represents.
Despite one dividend reduction during the year, the Fund continued to meet
its goal of providing a competitive level of tax-exempt current income. Its
distribution rate was 4.87 percent(3) as of December 31, 1996, based on a
monthly dividend of $.0745 per Class A share and a maximum public offering price
of $18.36. For investors in the 37.8 percent combined federal and state income
tax bracket, the Fund's distribution rate was equivalent to a taxable investment
earning 7.83 percent(4). Please refer to the chart on page four for additional
Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE FUND AND THE PENNSYLVANIA MUNICIPAL BOND
MARKET IN THE UPCOMING MONTHS?
A The outlook for the Commonwealth is slightly negative, reflecting
Pennsylvania's slow employment growth and highly cyclical economy. The
Commonwealth's economic vulnerability is illustrated by employment growth and
home sales, which slightly lag national averages. Although municipal supply
should continue to be limited, we will use our extensive credit analysis team
to identify issues with attractive yields and minimal credit risk.
Nationwide, the economy continued its moderate growth in late 1996, and most
forecasters expect this trend to continue through the first several months of
1997. As a result, we believe it is more likely that interest rates will rise
rather than decline, although we do not expect to see a drastic move in either
direction. We are, however, taking a slightly defensive posture with the Fund as
we enter the new year by keeping its duration at a neutral or slightly short
level to brace for any increases in interest rates. We may also begin to look
for bonds with shorter maturities if economic growth is especially strong and
inflation becomes a factor.
The bond market should find continued support from the results of the
November national elections. The combination of a Democratic president and a
Republican Congress should help restrain potential spending increases and tax
cuts, thereby keeping the budget deficit under control. While we expect some
type of tax reform bill during 1997, it will probably be very subtle. The stock
market could also influence the performance of bonds this year. If stocks suffer
a protracted setback, the demand for bonds, including municipal securities,
could increase and cause bond prices to rise.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Dennis S. Pietrzak
Portfolio Manager
Please see footnotes on page four
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
PENNSYLVANIA 96.1%
$3,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)........................... 6.625% 01/01/22 $ 3,744,895
500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser C (MBIA Insd).......................... 8.250 01/01/16 528,485
1,625 Allegheny Cnty, PA C-34 Conv Cap Apprec (b)..... 0/8.625 02/15/04 1,802,401
1,000 Allegheny Cnty, PA Higher Edl Bldg Auth Univ Rev
(AMBAC Insd).................................... 6.500 03/01/11 1,126,410
1,495 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp South
Hills Hlth Sys A (MBIA Insd).................... 5.500 05/01/10 1,514,390
2,500 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Presbyterian Univ Ser A (MBIA Insd)............. 6.000 11/01/12 2,568,950
2,500 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Presbyterian Univ Ser A (MBIA Insd)............. 6.250 11/01/23 2,608,075
2,140 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Fac
Allegheny Vly Sch............................... 7.750 02/01/15 2,197,716
2,100 Allegheny Cnty, PA Hosp Dev Auth Rev Pittsburgh
Mercy Hlth Sys Inc (AMBAC Insd)................. 5.625 08/15/26 2,070,054
965 Allegheny Cnty, PA Indl Dev Auth Med Cent Rev
Presbyterian Med Cent Rfdg (FHA Gtd)............ 6.750 02/01/26 1,011,204
2,500 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt Ser A Rfdg................... 6.700 12/01/20 2,607,900
1,810 Allegheny Cnty, PA Residential Fin Auth Mtg Rev
1983 Ser B...................................... * 10/01/15 254,106
1,950 Allegheny Cnty, PA Residential Fin Auth Mtg Rev
Single Family Ser Z (GNMA Collateralized)....... 6.875 05/01/26 2,036,853
2,000 Beaver Cnty, PA Hosp Auth Rev Med Cent Beaver,
PA Inc Ser A (AMBAC Insd)....................... 6.250 07/01/22 2,106,860
4,500 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev OH
Edison Proj Ser A Rfdg.......................... 7.750 09/01/24 4,743,810
3,195 Bellefonte, PA Area Sch Dist (MBIA Insd)........ 5.400 05/15/20 3,122,218
6,000 Berks Cnty, PA (Inverse Fltg) (FGIC Insd)....... 8.631 11/10/20 7,162,500
2,000 Berks Cnty, PA Muni Auth Rev Highlands at
Wyomissing Proj B............................... 6.875 10/01/17 2,080,360
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks
Village Inc Proj Rfdg........................... 7.500 05/15/13 1,027,120
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks
Village Inc Proj Rfdg........................... 7.700 05/15/22 1,010,800
1,000 Boyertown, PA Area Sch Dist (AMBAC Insd)........ 5.250 02/01/17 957,480
2,750 Bradford Cnty, PA Indl Dev Auth Solid Waste Disp
Rev Intl Paper Co Proj A........................ 6.600 03/01/19 2,906,090
1,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Bethlehem Steel Corp Proj Rfdg.................. 7.500 09/01/15 1,060,650
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$1,000 Cambria Cnty, PA Indl Dev Auth Res Recovery Rev
Cambria Cogen Proj Ser F........................ 7.750% 09/01/19 $ 1,033,520
2,685 Central Greene, PA Sch Dist Ser AA Rfdg (AMBAC
Insd)........................................... 5.250 02/15/24 2,567,128
1,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth Sys
Rev (AMBAC Insd)................................ 5.650 05/15/20 978,360
1,880 Chester Cnty, PA Hlth & Edl The Chester Cnty
Hosp (MBIA Insd)................................ 5.625 07/01/08 1,959,261
90 Chester Cnty, PA Hosp Auth Rev Brandywine
Hosp............................................ 7.000 07/01/10 92,474
760 Chichester Sch Dist PA Ser 1989 (MBIA Insd)..... * 06/01/01 622,774
860 Chichester Sch Dist PA Ser 1989 (MBIA Insd)..... * 06/01/02 668,315
975 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp
Proj............................................ 8.500 07/01/13 1,077,394
1,000 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp
Proj............................................ 8.500 07/01/21 1,105,020
1,130 Clearfield Cnty, PA Indl Dev Auth Coml Dev Rev
First Mtg Kmart Corp Ser A Rfdg................. 7.200 07/01/07 1,167,923
2,230 Cumberland Cnty, PA Muni Auth Rev First Mtg
Carlisle Hosp & Hlth............................ 6.800 11/15/23 2,302,051
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 2,261,540
2,475 Delaware Cnty, PA Auth Rev Elwyn Inc Proj
(Prerefunded @ 06/01/01)........................ 8.350 06/01/15 2,817,565
1,500 Delaware Cnty, PA Auth Rev First Mtg Riddle
Village Proj (Prerefunded @ 06/01/02)........... 9.250 06/01/22 1,842,540
3,000 Delaware Cnty, PA Auth Rev First Mtg Riddle
Village Proj Rfdg............................... 7.000 06/01/26 2,987,520
2,000 Erie Cnty, PA Hosp Auth Rev Saint Vincent Hlth
Cent Proj Ser A (MBIA Insd)..................... 6.375 07/01/22 2,131,920
2,065 Greene Cnty, PA Unlimited Tax (Prerefunded @
08/01/00)....................................... 8.500 08/01/10 2,318,066
3,250 Harrisburg, PA Auth Rev Pooled Bond Pgm Ser I
(MBIA Insd)..................................... 5.625 04/01/19 3,229,297
5,000 Harrisburg, PA Pkg Auth Rev Gtd Ser H Rfdg
(AMBAC Insd).................................... 5.125 08/01/16 4,710,950
1,045 Harrisburg, PA Wtr & Swr Auth Swr Rev Second Ser
Rfdg (FGIC Insd)................................ * 10/15/08 562,733
650 Hazleton, PA Hlth Svcs Auth Saint Joseph Med
Cent Rfdg....................................... 5.850 07/01/06 653,855
1,000 Lancaster Cnty, PA Solid Waste Mgmt Auth Res
Recovery Sys Rev Ser A.......................... 8.375 12/15/04 1,048,080
2,000 Lancaster Cnty, PA Solid Waste Mgmt Auth Res
Recovery Sys Rev Ser A.......................... 8.500 12/15/10 2,101,760
2,000 Lehigh Cnty, PA Genl Purp Auth Cedar Crest
College Rfdg.................................... 6.700 04/01/26 2,054,600
4,100 Lehigh Cnty, PA Genl Purp Auth Rev Muhlenberg
Hosp Ser A Rfdg................................. 8.100 07/15/10 4,476,585
1,000 Lehigh Cnty, PA Indl Dev Auth Pollutn Ctl Rev PA
Pwr & Lt Co Proj Ser A Rfdg (MBIA Insd)......... 6.400 11/01/21 1,067,370
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$4,570 Lower Providence Township PA Swr Auth Swr Rev
Gtd (MBIA Insd)................................. 5.250% 05/01/22 $ 4,375,364
2,000 Lycoming Cnty, PA Auth Hosp Lease Rev Divine
Providence Sisters Ser A........................ 6.500 07/01/22 2,130,420
2,500 Lycoming Cnty, PA Auth Hosp Lease Rev Divine
Providence Sisters Ser A (Prerefunded @
07/01/00)....................................... 7.750 07/01/16 2,795,000
5,000 Lycoming Cnty, PA Auth Hosp Rev Divine
Providence Hosp Rfdg (Connie Lee Insd).......... 5.250 11/15/15 4,811,450
1,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford Hosp
Proj (Crossover Rfdg @ 10/01/00)................ 8.875 10/01/20 1,159,070
750 McKeesport, PA Indl Dev Auth Rev The Kroger Corp
Allegheny Cnty Rfdg............................. 8.650 06/01/11 845,085
3,000 Monroeville, PA Hosp Auth Hosp Rev Forbes Hlth
Sys Rfdg........................................ 6.250 10/01/15 3,058,920
500 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Suburban Genl Hosp Bonds (AMBAC Insd)....... 7.250 05/01/16 515,175
410 Montgomery Cnty, PA Higher Edl & Hlth Auth
Nursing Home Rev Delco Sys Svcs Proj A.......... 9.875 11/01/18 418,754
2,250 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev Adult Cmntys Total Svcs Ser B......... 5.625 11/15/12 2,169,787
3,000 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev Adult Cmntys Total Svcs Ser B......... 5.750 11/15/17 2,878,440
2,500 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn
Ctl Philadelphia Elec Co Ser A Rfdg............. 7.600 04/01/21 2,688,800
3,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recovery........................................ 7.500 01/01/12 3,230,220
4,225 New Kensington Arnold, PA Sch Dist Rfdg (AMBAC
Insd)........................................... 5.375 05/15/26 4,079,618
1,500 North Penn, PA Wtr Auth Wtr Rev (FGIC Insd)..... 6.200 11/01/22 1,572,480
1,000 North Penn, PA Wtr Auth Wtr Rev (Prerefunded @
11/01/04) (FGIC Insd)........................... 6.875 11/01/19 1,150,510
2,500 Northampton Cnty, PA Indl Dev Auth Rev Pollutn
Ctl Bethlehem Steel Rfdg........................ 7.550 06/01/17 2,657,550
1,000 Northeastern PA Hosp & Edl Auth College Rev Gtd
Luzerne Cnty Cmnty College (AMBAC Insd)......... 6.625 08/15/15 1,096,480
2,323 Oil City, PA Towne Tower Proj................... 6.750 05/01/20 2,425,398
3,000 Penn Manor Sch Dist PA (FGIC Insd).............. 5.200 06/01/16 2,888,100
2,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
MacMillan Ltd Partnership Proj.................. 7.600 12/01/20 2,237,840
3,000 Pennsylvania Econ Dev Fin Auth Recycling Rev
Ponderosa Fibres Proj Ser A..................... 9.250 01/01/22 2,786,910
3,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D............................... 7.050 12/01/10 3,207,210
1,500 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D............................... 7.125 12/01/15 1,586,160
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$5,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Northampton Generating Ser A.................... 6.600% 01/01/19 $ 4,981,050
4,000 Pennsylvania Hsg Fin Agy (Inverse Fltg)......... 9.964 10/03/23 4,430,000
1,000 Pennsylvania Hsg Fin Agy Rental Hsg Rfdg (FNMA
Collateralized)................................. 6.500 07/01/23 1,034,720
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
40.............................................. 6.900 04/01/25 1,051,460
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
42.............................................. 6.850 04/01/25 2,635,950
1,365 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
47.............................................. 6.750 10/01/09 1,527,749
1,455 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
47.............................................. 6.750 10/01/10 1,622,718
850 Pennsylvania Infrastructure Invt Auth Rev
Pennvest Subser B............................... 6.800 09/01/10 924,052
2,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia Funding Pgm (MBIA Insd).... 5.600 06/15/15 1,973,920
4,000 Pennsylvania St Ctfs Partn (FSA Insd)........... 6.250 05/01/16 4,206,920
2,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Rfdg (Inverse Fltg) (AMBAC
Insd)........................................... 9.540 09/01/26 2,295,000
2,500 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser B (Inverse Fltg) (MBIA
Insd)........................................... 10.990 03/01/20 2,915,625
4,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser C (AMBAC Insd)............... 6.400 03/01/22 4,155,200
2,000 Pennsylvania St Higher Edl Fac Auth Hlth Svcs
Rev Allegheny Delaware Vly Oblig A (MBIA
Insd)........................................... 5.000 11/15/06 2,006,060
4,595 Pennsylvania St Higher Edl Fac Auth Hlth Svcs
Rev Allegheny Delaware Vly Oblig A (MBIA
Insd)........................................... 5.600 11/15/10 4,731,150
60 Pennsylvania St Higher Edl Fac Auth Rev Drexel
Univ First Ser (MBIA Insd)...................... 7.700 05/01/12 60,791
3,950 Pennsylvania St Higher Edl Fac Auth Rev Drexel
Univ Rfdg....................................... 6.375 05/01/17 4,125,854
1,590 Pennsylvania St Indl Dev Auth Rev Econ Dev
(AMBAC Insd).................................... 6.000 07/01/06 1,724,721
1,250 Philadelphia, PA Auth for Indl Dev Coml Dev
Philadelphia Arpt Rev Rfdg...................... 7.750 12/01/17 1,345,000
3,000 Philadelphia, PA Auth for Indl Dev Rev Long Term
Care Maplewood.................................. 8.000 01/01/24 3,108,780
2,500 Philadelphia, PA Auth Indl Dev Lease Rev Ser A
(MBIA Insd)..................................... 5.400 02/15/17 2,429,650
4,815 Philadelphia, PA Auth Indl Dev Lease Rev Ser A
(MBIA Insd)..................................... 5.375 02/15/27 4,613,974
3,000 Philadelphia, PA Gas Wks Rev Fourteenth Ser (FSA
Insd)........................................... 6.250 07/01/08 3,229,500
3,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Childrens Hosp Ser A Rfdg (MBIA Insd)....... 5.000 02/15/21 2,724,510
250 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Albert Einstein Med Cent.................... 7.000 10/01/21 264,600
2,800 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Chestnut Hill Hosp.......................... 6.500 11/15/22 2,864,540
1,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Frankford Hosp Ser A........................ 6.000 06/01/14 995,130
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$4,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Friends Hosp................................ 6.200% 05/01/11 $ 4,037,640
4,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Temple Univ Hosp Ser A...................... 6.625 11/15/23 4,146,040
1,500 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/08 832,875
3,750 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/11 1,730,212
3,775 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/12 1,637,255
4,500 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/13 1,829,970
2,155 Philadelphia, PA Muni Auth Rev Rfdg (Prerefunded
@ 04/01/00) (FGIC Insd)......................... 7.800 04/01/18 2,379,508
1,800 Philadelphia, PA Wtr & Swr Rev Sixteenth Ser
(Prerefunded @ 08/01/01)........................ 7.500 08/01/10 2,056,716
2,000 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (MBIA
Insd)........................................... 5.625 06/15/08 2,092,840
1,425 Pittsburgh, PA Sch Dist Ser B (AMBAC Insd)...... * 08/01/08 775,684
4,070 Pittsburgh, PA Sch Dist Ser B (AMBAC Insd)...... * 08/01/09 2,076,555
1,475 Pittsburgh, PA Urban Redev Auth Mtg Rev Ser D... 6.250 10/01/17 1,504,072
1,470 Pittsburgh, PA Urban Redev Auth Mtg Rev Ser
C1.............................................. 6.800 10/01/25 1,517,496
910 Pittsburgh, PA Urban Redev Auth Single Family
Mtg Rev Ser A (GNMA Collateralized)............. 8.000 12/01/20 958,512
2,000 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev
Ser A Rfdg (FGIC Insd).......................... * 09/01/06 1,232,640
1,000 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev
Ser A Rfdg (FGIC Insd).......................... * 09/01/07 584,390
1,500 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev
Ser A Rfdg (FGIC Insd).......................... * 09/01/08 824,115
250 Scranton-Lackawanna, PA Hlth & Welfare Auth Rev
Cmnty Med Cent Proj (BIGI Insd)................. 7.875 07/01/10 267,485
2,650 Sharon, PA Regl Hlth Sys Auth Hosp Rev Sharon
Regl Hlth Sys Proj A Rfdg....................... 6.875 12/01/09 2,793,391
355 Somerset Cnty, PA Indl Dev Auth Coml Dev Rev
First Mtg Kmart Corp Ser A Rfdg................. 7.200 04/01/07 366,552
3,000 South Fork Muni Auth PA Hosp Good Samaritan Med
Cent Ser B Rfdg (MBIA Insd)..................... 5.250 07/01/26 2,876,400
1,250 State Pub Sch Bldg Auth PA College Rev Reading
Area College Cap Proj A (MBIA Insd)............. 5.100 02/15/14 1,202,287
2,180 State Pub Sch Bldg Auth PA Sch Rev Burgettstown
Sch Dist Ser D (MBIA Insd)...................... 6.500 02/01/14 2,382,260
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$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 $ 1,687,215
2,935 West Shore, PA Area Auth Hlth Cent Rev United
Methodist Homes Aging Inc (Prerefunded @
06/01/01)....................................... 7.400 06/01/16 3,325,003
350 Westmoreland Cnty, PA Indl Dev Auth Rev Citizens
Genl Hosp Proj A Rfdg........................... 8.250 07/01/13 360,892
------------
268,309,298
------------
GUAM 1.0%
2,750 Guam Govt Ser A................................. 5.750 09/01/04 2,767,518
------------
PUERTO RICO 0.1%
205 Puerto Rico Comwlth Pub Impt Rfdg............... 7.125 07/01/02 211,734
------------
TOTAL LONG-TERM INVESTMENTS 97.2%
(Cost $253,325,630) (a)..................................................... 271,288,550
SHORT-TERM INVESTMENTS AT AMORTIZED COST 1.8%................................ 5,100,000
OTHER ASSETS IN EXCESS OF LIABILITIES 1.0%................................... 2,827,494
------------
NET ASSETS 100.0%............................................................ $279,216,044
============
</TABLE>
*Zero coupon bond
(a) At December 31, 1996, for federal income tax purposes, cost is $253,325,630,
the aggregate gross unrealized appreciation is $18,281,606 and the aggregate
gross unrealized depreciation is $318,686, resulting in net unrealized
appreciation of $17,962,920.
(b) Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $253,325,630)
(Note 1).................................................. $271,288,550
Short-Term Investments (Note 1)............................. 5,100,000
Receivables:
Interest.................................................. 3,997,093
Fund Shares Sold.......................................... 61,916
Other....................................................... 4,337
------------
Total Assets.......................................... 280,451,896
------------
LIABILITIES:
Payables:
Income Distributions...................................... 482,074
Distributor and Affiliates (Notes 2 and 6)................ 207,430
Fund Shares Repurchased................................... 151,685
Investment Advisory Fee (Note 2).......................... 141,756
Custodian Bank............................................ 31,703
Accrued Expenses............................................ 129,718
Deferred Compensation and Retirement Plans (Note 2)......... 91,486
------------
Total Liabilities..................................... 1,235,852
------------
NET ASSETS.................................................. $279,216,044
============
NET ASSETS CONSIST OF:
Paid in Surplus (Note 3).................................... $264,973,340
Net Unrealized Appreciation on Securities................... 17,962,920
Accumulated Undistributed Net Investment Income............. 317,894
Accumulated Net Realized Loss on Securities................. (4,038,110)
------------
NET ASSETS.................................................. $279,216,044
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $227,444,837 and 13,004,205 shares of
beneficial interest issued and outstanding)............. $ 17.49
Maximum sales charge (4.75%* of offering price)......... .87
------------
Maximum offering price to public........................ $ 18.36
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $48,408,634 and 2,768,667 shares of
beneficial interest issued and outstanding)............. $ 17.48
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,362,573 and 192,348 shares of
beneficial interest issued and outstanding)............. $ 17.48
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $17,777,434
-----------
EXPENSES:
Investment Advisory Fee (Note 2)............................ 1,665,021
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $561,373, $477,471 and $33,962,
respectively) (Note 6).................................... 1,072,806
Shareholder Services (Note 2)............................... 336,116
Custody..................................................... 108,110
Legal (Note 2).............................................. 35,980
Trustees Fees and Expenses (Note 2)......................... 34,948
Other....................................................... 169,749
-----------
Total Expenses.......................................... 3,422,730
Less Expenses Reimbursed (Note 2)....................... 10,028
-----------
Net Expenses............................................ 3,412,702
-----------
NET INVESTMENT INCOME....................................... $14,364,732
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments............................................... $ 2,074,777
Options................................................... (102,594)
Futures................................................... (365,681)
-----------
Net Realized Gain on Securities............................. 1,606,502
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period................................... 23,582,229
End of the Period:
Investments............................................. 17,962,920
-----------
Net Unrealized Depreciation on Securities During the
Period.................................................... (5,619,309)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES.............. $(4,012,807)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $10,351,925
===========
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 14,364,732 $ 14,192,265
Net Realized Gain/Loss on Securities................. 1,606,502 (5,635,081)
Net Unrealized Appreciation/Depreciation on
Securities During the
Period............................................. (5,619,309) 31,028,321
------------ ------------
Change in Net Assets from Operations................. 10,351,925 39,585,505
------------ ------------
Distributions from Net Investment Income............. (14,101,435) (14,259,564)
Distributions in Excess of Net Investment Income
(Note 1)........................................... -0- (7,423)
------------ ------------
Distributions from and in Excess of Net Investment
Income*............................................ (14,101,435) (14,266,987)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... (3,749,510) 25,318,518
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................ 35,010,881 27,514,827
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 8,324,756 8,632,984
Cost of Shares Repurchased........................... (37,239,983) (27,500,706)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... 6,095,654 8,647,105
------------ ------------
TOTAL INCREASE IN NET ASSETS......................... 2,346,144 33,965,623
NET ASSETS:
Beginning of the Period.............................. 276,869,900 242,904,277
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $317,894 and
$(7,423), respectively)............................ $279,216,044 $276,869,900
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares..................... $(11,821,553) $(12,063,809)
Class B Shares..................... (2,128,485) (2,062,857)
Class C Shares..................... (151,397) (140,285)
Class D Shares..................... -- (36)
------------ ------------
$(14,101,435) $(14,266,987)
============ ============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------
Class A Shares 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.............................. $17.737 $16.081 $18.062 $16.899 $16.373
------- ------- ------- ------- -------
Net Investment Income................. .919 .946 .965 1.027 1.074
Net Realized and Unrealized Gain/Loss
on Securities....................... (.263) 1.660 (1.985) 1.164 .525
------- ------- ------- ------- -------
Total from Investment Operations...... .656 2.606 (1.020) 2.191 1.599
Less Distributions from and in Excess
of Net Investment Income (Note 1)... .903 .950 .961 1.028 1.073
------- ------- ------- ------- -------
Net Asset Value, End of the Period.... $17.490 $17.737 $16.081 $18.062 $16.899
======= ======= ======= ======= =======
Total Return* (a)..................... 3.86% 16.62% (5.72%) 13.25% 10.09%
Net Assets at End of the Period (In
millions)........................... $227.4 $226.7 $203.2 $221.7 $153.8
Ratio of Expenses to Average Net
Assets*............................. 1.09% 1.00% .90% .71% .72%
Ratio of Net Investment Income to
Average Net Assets*................. 5.32% 5.57% 5.73% 5.80% 6.41%
Portfolio Turnover.................... 57% 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.............................. 1.09% 1.14% 1.17% 1.09% 1.17%
Ratio of Net Investment Income to
Average Net Assets.................. 5.31% 5.42% 5.46% 5.41% 5.95%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
19
<PAGE> 21
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 1, 1993
Year Ended December 31, (Commencement of
----------------------------- Distribution) to
Class B Shares 1996 1995 1994 December 31, 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $17.731 $16.080 $18.055 $17.460
------- ------- ------- -------
Net Investment Income................ .788 .819 .841 .586
Net Realized and Unrealized Gain/Loss
on Securities...................... (.264) 1.659 (1.985) .603
------- ------- ------- -------
Total from Investment Operations..... .524 2.478 (1.144) 1.189
Less Distributions from and in Excess
of Net Investment Income (Note
1)................................. .771 .827 .831 .594
------- ------- ------- -------
Net Asset Value,
End of the Period.................. $17.484 $17.731 $16.080 $18.055
======= ======= ======= =======
Total Return* (a).................... 3.07% 15.72% (6.39%) 6.81%**
Net Assets at End of the Period (In
millions).......................... $48.4 $46.8 $37.6 $ 27.7
Ratio of Expenses to Average Net
Assets*............................ 1.85% 1.75% 1.64% 1.48%
Ratio of Net Investment Income to
Average Net Assets*................ 4.56% 4.81% 4.98% 4.47%
Portfolio Turnover................... 57% 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............................. 1.85% 1.89% 1.90% 1.82%
Ratio of Net Investment Income to
Average Net Assets................. 4.55% 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.
See Notes to Financial Statements
20
<PAGE> 22
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Year Ended December 31, (Commencement of
---------------------------- Distribution) to
Class C Shares 1996 1995 1994 December 31, 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $17.729 $16.079 $18.045 $17.850
------- ------ ------ ------
Net Investment Income............... .788 .812 .850 .325
Net Realized and Unrealized
Gain/Loss on Securities........... (.264) 1.665 (1.985) .208
------- ------ ------ ------
Total from Investment Operations.... .524 2.477 (1.135) .533
Less Distributions from and in
Excess of Net Investment Income
(Note 1).......................... .771 .827 .831 .338
------- ------ ------ ------
Net Asset Value, End of the
Period............................ $17.482 $17.729 $16.079 $18.045
======= ======= ======= =======
Total Return* (a)................... 3.08% 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*........................... 1.85% 1.75% 1.63% 1.54%
Ratio of Net Investment Income to
Average Net Assets*............... 4.56% 4.76% 4.97% 4.08%
Portfolio Turnover.................. 57% 28% 8% 1%
</TABLE>
* If certain expenses had not been assumed by VKAC, total return would have
been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Ratio of Expenses to Average Net
Assets............................ 1.85% 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.
See Notes to Financial Statements
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
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 60 days or less 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. As of December 31, 1996, there were
no when issued or delayed delivery purchase commitments.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
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, 1996, the Fund had an accumulated capital loss carryforward for
tax purposes of $4,038,110 which expires on December 31, 2003.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Due to inherent differences in the recognition of certain
expenses under generally accepted accounting principles and for 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. Permanent book and tax
basis differences relating to the recognition of certain expenses which are not
deductible for tax purposes totaling $62,020 have been reclassified from
accumulated undistributed net investment income to paid in surplus.
For the year ended December 31, 1996, 99.87% of the income distributions
made by the Fund were exempt from federal income taxes.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .600 of 1%
Over $500 million....................................... .500 of 1%
</TABLE>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the year ended December 31, 1996, the Fund recognized expenses of
approximately $30,900 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management and legal services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
December 31, 1996, the Fund recognized expenses of approximately $250,100,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Additionally, for the year ended December 31, 1996, the Fund reimbursed VKAC
approximately $62,000 related to the direct cost of consolidating the VKAC
open-end fund complex. Payment was contingent upon the realization by the Fund
of cost efficiencies in certain expense categories resulting from the
consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC. During the year, the Adviser reimbursed the Fund for certain trustee's
compensation in connection with the July, 1995 increase in the number of
trustees of the Fund.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C. There are an unlimited number of shares of each class without par
value authorized. At December 31, 1996, paid in surplus aggregated $213,006,053,
$48,564,507 and
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
$3,402,780 for Classes A, B and C, respectively. For the year ended December 31,
1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 1,590,112 $ 27,397,512
Class B.......................................... 406,876 7,067,219
Class C.......................................... 31,825 546,150
---------- -------------
Total Sales........................................ 2,028,813 $ 35,010,881
========== =============
Dividend Reinvestment:
Class A.......................................... 402,847 $ 6,971,101
Class B.......................................... 72,020 1,245,925
Class C.......................................... 6,228 107,730
---------- -------------
Total Dividend Reinvestment........................ 481,095 $ 8,324,756
========== =============
Repurchases:
Class A.......................................... (1,768,713) $(30,558,627)
Class B.......................................... (349,466) (6,031,703)
Class C.......................................... (37,401) (649,653)
---------- -------------
Total Repurchases.................................. (2,155,580) $(37,239,983)
========== =============
</TABLE>
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
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
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
the expense of their respective deferred sales arrangements, including higher
distribution and service fees and incremental transfer agency costs.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 4.00% 1.00%
Second............................................. 3.75% None
Third.............................................. 3.50% None
Fourth............................................. 2.50% None
Fifth.............................................. 1.50% None
Sixth.............................................. 1.00% None
Seventh and Thereafter............................. None None
</TABLE>
For the year ended December 31, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$69,800 and CDSC on redeemed shares of approximately $133,600. 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 $158,923,000 and $157,502,077,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on securities. Upon disposition, a realized gain or
loss is recognized accordingly, except when exercising an option contract or
taking delivery of a security underlying a futures contract. In these instances
the recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
Transactions in options for the year ended December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995................ -0- -0-
Options Written and Purchased (Net)............. 175 (102,585)
Options Expired (Net)........................... (175) 102,585
---- --------
Outstanding at December 31, 1996................ -0- -0-
==== ========
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
Transactions in futures contracts, for the year ended December 31, 1996,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995.......................... 0
Futures Opened............................................ 875
Futures Closed............................................ (875)
----
Outstanding at December 31, 1996.......................... 0
====
</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
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
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 net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended December 31, 1996, are payments to VKAC of approximately
$370,500.
29
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Pennsylvania Tax Free Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Pennsylvania Tax Free Income Fund (the "Fund"),
including the portfolio of investments, as of December 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. 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 Pennsylvania Tax Free Income Fund as of December 31,
1996, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 4, 1997
30
<PAGE> 32
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
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
MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds, or
1-800-282-4404 for Morgan Stanley retail funds.
31
<PAGE> 33
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
JACK E. NELSON
JEROME L. ROBINSON
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data.
RESULTS OF SHAREHOLDER VOTES
A Special Meeting of Shareholders of the Fund was held on October 25, 1996 where
shareholders voted on a new investment advisory agreement, changes to investment
policies and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
11,687,243 shares voted for the proposal, 257,607 shares voted against and
610,970 shares abstained. With regard to the approval of certain changes to the
Fund's fundamental investment policies with respect to investment in other
investment companies, 9,572,107 shares voted for the proposal, 342,659 shares
voted against and 626,431 shares abstained. With regard to the ratification of
KPMG Peat Marwick LLP as independent public accountants for the Fund, 11,866,431
shares voted for the proposal, 127,042 shares voted against and 562,346 shares
abstained.
32
