VAN KAMPEN MERRITT PENNSYLVANIA TAX FREE INCOME FUND, N-30D, 1995-08-29

VAN KAMPEN MERRITT PENNSYLVANIA TAX FREE INCOME FUND
N-30D, 1995-08-29

Previous: VOYAGEUR INSURED FUNDS INC, N-30D, 1995-08-29

Next: VAN KAMPEN MERRITT PENNSYLVANIA TAX FREE INCOME FUND, NSAR-A, 1995-08-29

<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio Management Review .......... 4
Portfolio of Investments ............. 6
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>

Letter to Shareholders

August 3, 1995

Dear Shareholder:
The first half of 1995 has been a very positive
one for most investors. Both the fixed-income and
stock markets have made considerable gains for
the period ended June 30, 1995. This year has
been particularly rewarding for investors after
weathering the difficult markets of 1994.
The first six months of 1995 serve as a
reminder of just how quickly markets can move,
and how difficult it can be to predict the timing of
those movements. Moreover, this year reinforces
the importance of maintaining a long-term perspective,
and reaffirms the principle that it is
time---not timing---that leads to investment success.

[PHOTO]
Dennis J. McDonnell and Don G. Powell

Economic Overview
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of this
guided slowdown was reflected in gross domestic product for the second quarter,
which grew at an annual rate of 0.5 percent, substantially lower than its first
quarter of 2.7 percent and fourth quarter 1994 rate of 5.1 percent. While other
key economic data, including unemployment rates and housing starts, have shown
mixed signs during recent weeks, the general trend for the first half of the
year suggested a "soft landing" scenario. Subsequently, concern over inflation
has subsided, as its annualized rate has run at a modest pace of 3.2 percent
year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent. Likewise, the
yield on the Bond Buyer's Municipal Bond Index fell from 7.28 percent to 6.37
percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market---and in big
"capitalization" stocks. As the U.S. dollar plunged against several
international currencies, companies---typically large ones---which had
diversified overseas were able to capture additional earnings, while technology
stocks benefited from booming growth in computers and telecommunications
throughout the world.

(Continued on page two)
1

Economic Outlook
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously before easing again, waiting for further signs that the
economy has settled into a slow growth pattern. We anticipate that the economy
will grow at an annual rate between 2 and 3 percent in the second half of the
year and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon a generally slow growth and low inflation outlook, we
believe fixed income markets will continue to make positive gains as interest
rates fall. We look for stocks to perform well, but perhaps not as strongly as
in the first half of the year, as some companies may find it difficult to
maintain their strong earnings momentum.

During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At this
point, no one knows for sure what will happen or when it might actually take
place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.

Once again, it is important to remember that financial markets will inevitably
experience highs and lows, but by maintaining a long-term investment
perspective, it may allow you to ride the ups and downs of the markets more
easily as you pursue your investment goals.
On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the
question-and-answer section helpful.

Corporate News
Along with your Fund's shareholder report, we are pleased to introduce a new
shareholder publication called Your Portfolio. The purpose of this publication
is to provide you with additional information about your mutual fund investment,
as well as offer helpful insights regarding long-term investment strategies and
trends in the marketplace. The publication will be mailed twice a year with your
June and December shareholder reports. This premier issue focuses on our various
shareholder services and privileges designed to make mutual fund investing
easier for you.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.

Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.

Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt 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<F1> ............. 8.03% 7.64% 7.64%
Six-month total return<F2> ... 2.90% 3.64% 6.64%
One-year total return<F2> .... 2.17% 2.54% 5.54%
Five-year average
annual total return<F2> ...... 7.22% N/A N/A
Life-of-Fund average
annual total return<F2> ...... 8.43% 1.94% 1.98%
Commencement Date ........... 05/01/87 05/01/93 08/13/93
Distribution Rates and Yield
Distribution Rate<F3> ........ 5.36% 4.90% 4.90%
Taxable Equivalent
Distribution Rate<F4> ........ 8.62% 7.88% 7.88%
SEC Yield<F5> ................ 4.76% 4.28% 4.28%
N/A = Not Applicable

<FN>
<F1>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).

<F2>Standardized total return. Assumes reinvestment of all distributions for the
period and includes 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).

<F3>Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.

<F4>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.

<F5>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, 1995. Had certain
expenses of the Fund not been assumed by the Adviser, the SEC Yield would have
been 4.67%, 4.19% and 4.19% for Classes A, B and C, respectively, and the total
returns would have been lower.

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.
</TABLE>
3

Portfolio Management Review
Van Kampen Merritt Pennsylvania Tax Free Income Fund

The following is an interview with the management team of the Van Kampen Merritt
Pennsylvania Tax Free Income Fund, including David C. Johnson, portfolio
manager, and Peter W. Hegel, executive vice president, Van Kampen American
Capital Investment Advisory Corp.

Q.What market conditions had the greatest impact on the municipal bond market
during the six-months ended June 30, 1995?
A.The economy was on our side. When it became apparent at the beginning of the
year that the economy was slowing down, and interest rates had likely
peaked---there was a very positive impact on the bond market, and in turn, on
the Fund. This positive economic scenario went a long way toward helping us to
minimize the effects of several negative events that impacted the municipal
market. For example . . .
* The Orange County, California bankruptcy had an adverse impact on the entire
municipal bond market in the second quarter when it became apparent that the
situation wasn't going to be resolved quickly.
* In addition, a very strong stock market diverted investment dollars away
from municipal issues. This temporarily subdued the long-term positive supply
and demand situation the market has enjoyed.
* Finally, Washington proposals to change the income tax system also had an
adverse impact on the municipal bond market.
The demand for municipals resurged in June, when extremely attractive
municipal yields---more than 90 percent of the yield offered by taxable U.S.
Treasury securities (this ratio is normally about 80 percent)---drew investors
back to the market and helped to renew positive momentum.

Q.How did you position the Fund in response to these events?
A.There were no significant changes in the portfolio during the reporting
period. As always, our primary goal was to deliver an attractive level of
tax-free income, consistent with preservation of capital. As such, the
portfolio's largest weighting remains in high quality, AAA-rated municipal
bonds---currently at 54 percent of the portfolio.
Our average maturity range has also remained fairly constant---in the 15- to
20-year range. Although Pennsylvania's yield curve is currently "steep" (the
longer a bond's maturity, the higher its yield) we prefer not to invest in the
longest maturities. Rather, we find that securities in the 15- to 20-year
maturity range provide yields close to those of longer maturities, with less
risk potential. This is right in line with our goal of seeking high yields
consistent with capital preservation.

Q.How did the Fund perform during the six months ended June 30, 1995?
A.For the six-month period ending June 30, 1995, the Fund's Class A share total
return was 8.03 percent<F1> at net asset value. During the same period, the
category average for all Pennsylvania municipal debt funds tracked by Lipper
Analytical Services was 9.34 percent.
We continued to provide investors with an attractive level of tax-free income.
At its current annualized dividend level of $.9504 per share, the Fund provides
shareholders with a tax-free

distribution rate of 5.36 percent<F3> (Class A Shares) as of June 30, 1995. At
this distribution rate, the Fund provides shareholders in the 37.8 percent
combined federal and state tax bracket with a yield equivalent to a taxable
investment earning 8.62 percent<F4>. (Please refer to the chart on page
three for additional Fund performance.)

Q.After the significant rally during the first half of 1995,what is your
outlook going forward, and how will you position the Fund?
A.A mild correction in the municipal market would not be a surprise. In general
though, we anticipate that the economy will grow slowly, and that inflation
will remain low. As a result, we believe that fixed-income markets---including
municipal bonds---will continue to make gains, albeit modest ones.
In terms of our near-term investment strategy, we'll maintain a majority
weighting in high quality, AAA-rated bonds, with a secondary emphasis on
higher-yielding BBB-rated securities. Further, we'll likely stay in the 15- to
20-year maturity range where we see the best value on the yield curve.
Sector-wise, we plan to concentrate on "essential services" sectors. That is,
services for which demand is relatively constant---and resilient to economic
conditions and/or political events. Health care is a particular area of
expertise for Van Kampen American Capital and a good example of an "essential
service" sector. If there is an adequate supply of issues we like, you may see
additions there. (See the chart below for a portfolio breakdown.)

[PIE CHART]

Portfolio Holdings as of June 30, 1995
Single-Family Housing 5.1%
Industrial Revenue 6.5%
Other 24.3%
Health Care 26.0%
Water & Sewer 10.9%
General Purpose 9.7%
Public Building 9.0%
Public Education 8.5%

Peter W. Hegel David C. Johnson
Executive Vice President Portfolio Manager
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page three.
5

<TABLE>
<CAPTION>
Portfolio of Investments
June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
Pennsylvania 97.9%
<S> <C> <C> <C> <C>
$ 3,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd) <F3> ......................... 6.625% 01/01/22 $ 3,648,750
500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser C (MBIA Insd) ............................. 8.250 01/01/16 551,105
1,000 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser C (FSA Insd) ............................. 5.625 01/01/23 927,030
1,625 Allegheny Cnty, PA C-34 Conv Cap Apprec <F4> ...... 0/8.625 02/15/04 1,621,100
265 Allegheny Cnty, PA Hosp Dev Auth Rev .............. 7.375 04/01/15 274,810
2,500 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Presbyterian Univ Ser A (MBIA Insd) ................ 6.000 11/01/12 2,497,075
2,500 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Presbyterian Univ Ser A (MBIA Insd) ................ 6.250 11/01/23 2,524,575
2,140 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Fac
Allegheny Vly Sch .................................. 7.750 02/01/15 2,099,682
1,000 Allegheny Cnty, PA Indl Dev Auth Med Cent Rev
Presbyterian Med Cent Rfdg (FHA Insd) .............. 6.750 02/01/26 1,020,990
2,500 Allegheny Cnty, PA Indl Dev Auth Rev Environmental
Impt Ser A Rfdg ................................... 6.700 12/01/20 2,513,250
3,560 Allegheny Cnty, PA Residential Fin Auth Mtg
Rev 1983 Ser B ..................................... * 10/01/15 424,067
2,000 Allegheny Cnty, PA Residential Fin Auth Mtg Rev
Single Family Ser Z (GNMA Collateralized) ......... 6.875 05/01/26 2,079,600
2,380 Allegheny Cnty, PA San Auth Swr Rev (FGIC Insd) .... * 12/01/10 938,077
1,365 Allegheny Cnty, PA San Auth Swr Rev (FGIC Insd) .... * 12/01/11 504,067
2,350 Allegheny Cnty, PA San Auth Swr Rev (FGIC Insd) .... * 12/01/13 760,460
2,835 Allegheny Cnty, PA San Auth Swr Rev (FGIC Insd) .... * 12/01/14 858,041
2,500 Allentown, PA Area Hosp Auth Rev Sacred Heart
Hosp Ser A Rfdg .................................... 6.750 11/15/14 2,400,750
2,060 Allentown, PA Area Hosp Auth Rev Sacred Heart
Hosp Ser B ......................................... 6.750 11/15/15 1,955,167
1,000 Antrim Twp, PA Muni Auth Gtd Swr Rev (AMBAC Insd) ... 5.800 05/01/20 964,250
2,000 Beaver Cnty, PA Hosp Auth Rev Med Cent Beaver, PA
Inc Ser A (AMBAC Insd) ............................ 6.250 07/01/22 2,023,300
1,000 Beaver Cnty, PA Indl Dev Auth Environmental Impt Rev
PA Pwr Co Proj A Rfdg (FSA Insd) .................. 5.400 10/01/13 944,470
4,500 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev OH
Edison Proj Ser A Rfdg ............................ 7.750 09/01/24 4,677,480
1,940 Bedford, PA Area Sch Dist (MBIA Insd) ............. 5.500 04/15/17 1,838,499
6,000 Berks Cnty, PA (Inverse Fltg) (FGIC Insd) .......... 7.075 11/10/20 7,177,500
3,300 Berks Cnty, PA Muni Auth College Rev Albright
College (Cap Guar Insd) ........................... 5.250 10/01/13 3,061,905

6 See Notes to Financial Statements

</TABLE>

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
Pennsylvania (Continued)
<S> <C> <C> <C> <C>
$ 2,000 Berks Cnty, PA Muni Auth Rev Highlands at
Wyomissing Proj B ..................................... 6.875% 10/01/17 $ 2,084,740
5,000 Berks Cnty, PA Second Ser (FGIC Insd) ................. * 05/15/18 1,209,900
1,500 Berks Cnty, PA Solid Waste Auth Cnty Gtd Rev
(FGIC Insd) ........................................... 6.000 04/01/17 1,489,020
1,500 Bradford Cnty, PA Indl Dev Auth Solid Waste Disposal
Rev Intl Paper Co Proj A ............................. 6.600 03/01/19 1,529,160
2,600 Bristol Twp, PA Sch Dist Ser A (MBIA Insd) ............ 5.250 02/15/12 2,459,158
500 Bucks Cnty, PA Wtr & Swr Auth Rev Neshaminy
Interceptor Sys (Prerefunded @ 12/01/98) (FGIC Insd) ... 7.500 12/01/13 551,520
1,650 Butler Cnty, PA Indl Dev Auth First Mtg Rev
Sherwood Oaks Proj Ser A Rfdg
(Crossover Rfdg @ 06/01/96) <F3> ..................... 8.750 06/01/16 1,747,136
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 1,148,250
1,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Bethlehem Steel Corp Proj Rfdg ....................... 7.500 09/01/15 1,028,010
1,000 Cambria Cnty, PA Indl Dev Auth Res Recovery Rev
Cambria Cogen Proj Ser F ............................. 7.750 09/01/19 1,068,100
1,550 Cambria Cnty, PA Ser A (FGIC Insd) ................... 6.625 08/15/14 1,649,696
835 Canon McMillan Sch Dist PA (AMBAC Insd) ............... * 02/01/13 284,359
575 Canon McMillan Sch Dist PA (AMBAC Insd) ............... * 02/01/14 183,184
1,000 Canon McMillan Sch Dist PA (AMBAC Insd) ............... * 02/01/15 297,870
1,000 Chartiers Vly, PA Indl & Coml Dev Auth First Mtg Rev
United Methodist Home (Prerefunded @ 10/01/95) ........ 12.000 10/01/15 1,050,360
1,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth Sys Rev
Registered Fixed Airs (AMBAC Insd) ................... 5.650 05/15/20 946,370
90 Chester Cnty, PA Hosp Auth Rev Brandywine Hosp ....... 7.000 07/01/10 91,154
760 Chichester Sch Dist PA Ser 1989 (MBIA Insd) ........... * 06/01/01 562,461
860 Chichester Sch Dist PA Ser 1989 (MBIA Insd) ........... * 06/01/02 600,443
500 Clearfield Cnty, PA Indl Dev Auth Coml Dev Rev First
Mtg Kmart Corp Ser A Rfdg ............................. 7.200 07/01/07 523,915
2,230 Cumberland Cnty, PA Muni Auth Rev First Mtg
Carlisle Hosp & Hlth .................................. 6.800 11/15/23 2,102,043
2,000 Delaware Cnty, PA Auth Hosp Rev Cmnty Hosp Crozer
Chester Mem Hosp ...................................... 6.000 12/15/20 1,770,220
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 2,305,680
3,000 Delaware Cnty, PA Auth Hosp Rev Crozer Chester
Med Cent (MBIA Insd) ................................. 5.300 12/15/20 2,702,370
2,475 Delaware Cnty, PA Auth Rev Elwyn Inc Proj ............ 8.350 06/01/15 2,723,044

7 See Notes to Financial Statements

</TABLE>
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
Pennsylvania (Continued)
<S> <C> <C> <C> <C>
$ 2,500 Delaware Cnty, PA Auth Univ Rev Villanova Univ
(MBIA Insd) ...................................... 5.625% 08/01/13 $ 2,424,025
1,900 Delaware Cnty, PA Rfdg ............................ 6.000 11/15/22 1,912,198
2,000 Erie Cnty, PA Hosp Auth Rev Saint Vincent Hlth Cent
Proj Ser A (MBIA Insd) ........................... 6.375 07/01/22 2,040,440
2,245 Erie, PA Higher Edl Bldg Auth Univ Rev Gannon
Univ Proj Ser D Rfdg .............................. 5.850 06/01/15 1,997,219
105 Erie, PA Pkg Auth Pkg Fac Rev Bonds Rfdg
(Prerefunded @ 09/01/97) (AMBAC Insd) ............ 6.875 09/01/13 111,004
2,130 Erie, PA Sch Dist Ser C (Cap Guar Insd) .......... * 09/01/09 911,597
2,210 Greene Cnty, PA Unlimited Tax
(Prerefunded @ 08/01/00) ......................... 8.500 08/01/10 2,565,257
1,045 Harrisburg, PA Wtr & Swr Auth Swr Rev Second
Ser Rfdg (FGIC Insd) .............................. * 10/15/08 481,839
1,840 Hollidaysburg, PA Area Sch Dist (MBIA Insd) ...... * 10/15/11 684,774
1,840 Hollidaysburg, PA Area Sch Dist (MBIA Insd) ...... * 10/15/12 641,222
1,840 Hollidaysburg, PA Area Sch Dist (MBIA Insd) ...... * 10/15/13 600,098
1,840 Hollidaysburg, PA Area Sch Dist (MBIA Insd) ...... * 10/15/14 561,292
1,000 Hollidaysburg, PA Area Sch Dist (MBIA Insd) ...... * 10/15/15 285,150
1,840 Hollidaysburg, PA Area Sch Dist (MBIA Insd) ...... * 10/15/16 493,212
1,880 Johnsonburg, PA Area Sch Dist Elk Cnty
(AMBAC Insd) ..................................... 5.100 05/15/18 1,685,852
1,260 Lackawanna Cnty, PA Multi-Purp Stadium Auth
Stadium Rev Gtd (Prerefunded @ 08/15/98) ......... 8.625 08/15/07 1,417,412
3,000 Lancaster Cnty, PA Hosp Auth Rev Hlth Cent Masonic
Homes Proj Rfdg (AMBAC Insd) ..................... 5.000 11/15/20 2,586,900
1,000 Lancaster Cnty, PA Solid Waste Mgmt Auth Res
Recovery Sys Rev Ser A ........................... 8.375 12/15/04 1,052,980
2,000 Lancaster Cnty, PA Solid Waste Mgmt Auth Res
Recovery Sys Rev Ser A ........................... 8.500 12/15/10 2,134,640
400 Lehigh Cnty, PA Genl Purp Auth Rev Horizon Hlth
Sys Inc Ser B Rfdg (Prerefunded @ 07/01/97) ....... 8.250 07/01/13 433,844
4,100 Lehigh Cnty, PA Genl Purp Auth Rev Muhlenberg
Hosp Ser A Rfdg ................................... 8.100 07/15/10 4,344,975
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 1,022,430
2,500 Lycoming Cnty, PA Auth Hosp Lease Rev Divine
Providence Sisters Ser A .......................... 7.750 07/01/16 2,697,975
2,000 Lycoming Cnty, PA Auth Hosp Lease Rev Divine
Providence Sisters Ser A .......................... 6.500 07/01/22 1,960,120
400 Lycoming Cnty, PA Auth Hosp Lease Rev Williamsport
Hosp Ser B (AMBAC Insd) .......................... 7.000 11/01/15 419,420

8 See Notes to Financial Statements

</TABLE>
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
Pennsylvania (Continued)
<S> <C> <C> <C> <C>
$ 1,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford
Hosp Proj (Crossover Rfdg @ 10/01/00) ............... 8.875% 10/01/20 $ 1,197,510
750 McKeesport, PA Indl Dev Auth Rev The Kroger Corp
Allegheny Cnty Rfdg ................................ 8.650 06/01/11 826,335
400 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Bryn Mawr Hosp Proj (Prerefunded @ 12/01/97) ... 9.375 12/01/19 455,456
500 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Suburban Genl Hosp Bonds (AMBAC Insd) ........... 7.250 05/01/16 531,770
420 Montgomery Cnty, PA Higher Edl & Hlth Auth Nursing
Home Rev Delco Sys Svcs Proj A ..................... 9.875 11/01/18 427,665
2,500 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn Ctl
Philadelphia Elec Co Ser A Rfdg .................... 7.600 04/01/21 2,693,200
3,000 Montgomery Cnty, PA Indl Dev Auth Rev Res Recovery ... 7.500 01/01/12 3,208,920
1,000 North Penn, PA Wtr Auth Wtr Rev (FGIC Insd) ........ 6.875 11/01/19 1,136,700
1,500 North Penn, PA Wtr Auth Wtr Rev (FGIC Insd) ........ 6.200 11/01/22 1,517,340
1,000 Northampton Cnty, PA Indl Dev Auth Rev Moravian Hall
Square Proj Rfdg .................................... 7.450 06/01/14 1,060,010
2,500 Northampton Cnty, PA Indl Dev Auth Rev Pollutn Ctl
Bethlehem Steel Rfdg ............................... 7.550 06/01/17 2,557,575
1,000 Northeastern PA Hosp & Edl Auth College Rev Gtd
Luzerne Cnty Cmnty College (AMBAC Insd) ............ 6.625 08/15/15 1,059,350
2,381 Oil City, PA Towne Tower Proj ...................... 6.750 05/01/20 2,184,896
1,465 Penn Hills, PA Ser B Rfdg (AMBAC Insd) ............. * 12/01/08 670,487
1,465 Penn Hills, PA Ser B Rfdg (AMBAC Insd) ............. * 12/01/09 622,874
1,100 Penn Hills, PA Ser B Rfdg (AMBAC Insd) ............. * 12/01/11 406,208
2,000 Pennsylvania Convention Cent Auth Rev Ser A
(FGIC Insd) ......................................... 6.000 09/01/19 2,031,840
2,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
Macmillan Ltd Partnership Proj ...................... 7.600 12/01/20 2,163,160
3,000 Pennsylvania Econ Dev Fin Auth Recycling Rev
Ponderosa Fibres Proj Ser A ........................ 9.250 01/01/22 3,096,420
1,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Northampton Generating Ser A ....................... 6.600 01/01/19 939,980
4,000 Pennsylvania Hsg Fin Agy (Inverse Fltg) ............ 9.305 10/01/23 4,340,000
1,000 Pennsylvania Hsg Fin Agy Rental Hsg Rfdg
(FNMA Collateralized) ............................... 6.500 07/01/23 1,022,530
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser 40 ... 6.900 04/01/25 1,040,270
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser 42 ... 6.850 04/01/25 2,594,000
850 Pennsylvania Infrastructure Invt Auth Rev Pennvest
Subser B ............................................ 6.800 09/01/10 916,717
2,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia Funding Pgm (MBIA Insd) ....... 5.600 06/15/15 1,912,040

9 See Notes to Financial Statements

</TABLE>

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
Pennsylvania (Continued)
<S> <C> <C> <C> <C>
$ 1,500 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia Funding Pgm (MBIA Insd) ......... 5.625% 06/15/23 $ 1,414,485
4,000 Pennsylvania St Ctfs Partn ........................... 6.250 05/01/16 4,064,440
1,000 Pennsylvania St Ctfs Partn Ser A Rfdg (AMBAC Insd) ... 5.000 07/01/15 891,890
2,000 Pennsylvania St Higher Edl Assistance Agy Student Ln
Rev Rfdg (Inverse Fltg) (AMBAC Insd) .................. 9.034 09/03/26 2,157,500
2,500 Pennsylvania St Higher Edl Assistance Agy Student Ln
Rev Ser B (Inverse Fltg) (MBIA Insd) .................. 10.341 03/01/20 2,825,000
4,000 Pennsylvania St Higher Edl Assistance Agy Student Ln
Rev Ser C (AMBAC Insd) ............................... 6.400 03/01/22 4,018,800
80 Pennsylvania St Higher Edl Fac Auth College & Univ
Rev Drexel Univ First Ser (Prerefunded @ 11/01/95)
(MBIA Insd) .......................................... 7.700 05/01/12 82,666
60 Pennsylvania St Higher Edl Fac Auth College & Univ
Rev Drexel Univ First Ser (MBIA Insd) ................. 7.700 05/01/12 61,922
105 Pennsylvania St Higher Edl Fac Auth College & Univ
Rev Trustees Univ Ser A .............................. 6.625 01/01/17 107,501
1,000 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A ..................................... 8.375 03/01/11 1,072,620
650 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A ..................................... 7.500 03/01/14 660,654
575 Pennsylvania St Tpk Comm Tpk Rev Ser A
(Prerefunded @ 12/01/96) ............................. 7.875 12/01/15 616,952
2,500 Pennsylvania St Tpk Comm Tpk Rev Ser P
(AMBAC Insd) ......................................... 5.750 12/01/12 2,466,050
555 Philadelphia, PA Auth for Indl Dev Rev Baptist
Home of Philadelphia (Prefunded 10/01/95) ............ 10.000 04/01/02 562,370
3,000 Philadelphia, PA Gas Wks Rev 14th Ser (FSA Insd) ..... 6.250 07/01/08 3,157,170
250 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Albert Einstein Med Cent ......................... 7.000 10/01/21 258,173
2,800 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Chestnut Hill Hosp ................................ 6.500 11/15/22 2,785,524
1,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Frankford Hosp Rfdg (Connie Lee Insd) ............. 5.750 01/01/19 931,850
4,500 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Frankford Hosp Ser A .............................. 6.000 06/01/23 3,863,295
4,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Friends Hosp ..................................... 6.200 05/01/11 3,794,960
4,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Temple Univ Hosp Ser A ............................ 6.625 11/15/23 4,021,920
1,750 Philadelphia, PA Muni Auth Rev Lease Ser D Rfdg ....... 6.300 07/15/17 1,673,770
1,500 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (Cap Guar Insd) ..................... * 03/15/08 710,250

10 See Notes to Financial Statements

</TABLE>

<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
Pennsylvania (Continued)
<S> <C> <C> <C> <C>
$ 3,750 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (Cap Guar Insd) ..................... *% 03/15/11 $ 1,445,888
3,775 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (Cap Guar Insd) ..................... * 03/15/12 1,363,190
4,500 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (Cap Guar Insd) ..................... * 03/15/13 1,521,045
2,155 Philadelphia, PA Muni Auth Rev Rfdg
(Prerefunded @ 04/01/00) (FGIC Insd) ................. 7.800 04/01/18 2,437,327
220 Philadelphia, PA Muni Auth Rev Rfdg
(Prerefunded @ 04/01/98) (FGIC Insd) ................. 7.800 04/01/18 251,944
775 Philadelphia, PA Muni Auth Rev Rfdg
(Prerefunded @ 07/15/97) ............................. 7.875 07/15/17 845,982
1,150 Philadelphia, PA Rfdg (Prerefunded @ 02/15/96)
(FGIC Insd) ........................................... 8.250 02/15/09 1,204,798
2,210 Philadelphia, PA Wtr & Swr Rev 11th Ser Subser A
(Prerefunded @ 12/01/95) ............................. 8.400 12/01/96 2,297,626
1,800 Philadelphia, PA Wtr & Swr Rev 16th Ser .............. 7.500 08/01/10 2,082,006
2,000 Philadelphia, PA Wtr & Wastewtr Rev Reg Fixed Airs
(FGIC Insd) ........................................... 5.650 06/15/12 1,948,900
2,000 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (MBIA Insd) ... 5.625 06/15/08 2,009,980
5,000 Philadelphia, PA Wtr & Wastewtr Rev Rfdg
(Cap Guar Insd) ...................................... 5.500 06/15/14 4,681,400
1,425 Pittsburgh, PA Sch Dist Ser B (AMBAC Insd) ............ * 08/01/08 664,962
4,070 Pittsburgh, PA Sch Dist Ser B (AMBAC Insd) ............ * 08/01/09 1,764,996
50 Pittsburgh, PA Urban Redev Auth Mtg Rev Ser A ........ 8.750 10/01/19 53,725
1,500 Pittsburgh, PA Urban Redev Auth Mtg Rev Ser C-1 ...... 6.800 10/01/25 1,531,920
960 Pittsburgh, PA Urban Redev Auth Single Family
Mtg Rev Ser A ........................................ 8.000 12/01/20 1,027,075
2,000 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev
Ser A Rfdg (FGIC Insd) ............................... * 09/01/06 1,088,660
1,000 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev
Ser A Rfdg (FGIC Insd) ............................... * 09/01/07 504,610
1,500 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev
Ser A Rfdg (FGIC Insd) ............................... * 09/01/08 706,440
1,500 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser A ...... 6.125 12/01/20 1,259,805

11 See Notes to Financial Statements

</TABLE>

12 See Notes to Financial Statements

</TABLE>

<TABLE>
<CAPTION>
<S> <C>
Total Long-Term Investments 99.0%
(Cost $247,372,138) <F1> ................................................... 257,317,585
Other Assets in Excess of Liabilities 1.0% ............................... 2,520,361
-------------
Net Assets 100% ........................................................... $ 259,837,946
-------------
*Zero coupon bond

<FN>

<F1> At June 30, 1995, cost for federal income tax purposes is $247,372,138;
the aggregate gross unrealized appreciation is $13,873,689 and the
aggregate gross unrealized depreciation is $3,910,299, resulting in net
unrealized appreciation including futures transactions of $9,963,390.
<F2> Securities purchased on a when issued or delayed delivery basis.
<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments and open futures transactions.
<F4> Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.

</FN>
</TABLE>

The following table summarizes the portfolio composition at June 30, 1995, based
upon quality ratings issued by Standard & Poor's. For securities not rated by
Standard & Poor's, the Moody's rating is used.

Portfolio Composition by Credit Quality

<TABLE>
<CAPTION>
<S> <C>
AAA .......... 54.2%
AA .......... 6.1
A ........... 11.3
BBB ......... 19.6
BB .......... 3.9
Non-Rated ... 4.9
-------
100.0%
-------

13 See Notes to Financial Statements

</TABLE>

Statement of Assets and Liabilties
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $247,372,138) (Note 1) ............................. $ 257,317,585
Receivables:
Interest ............................................................................ 3,538,725
Investments Sold ................................................................... 1,023,078
Fund Shares Sold .................................................................... 292,327
Other ................................................................................ 1,777
-------------
Total Assets .......................................................................... 262,173,492
-------------
Liabilities:
Payables:
Investments Purchased ............................................................... 896,585
Income Distributions ............................................................... 470,026
Investment Advisory Fee (Note 2) ................................................... 192,647
Fund Shares Repurchased ............................................................ 169,130
Custodian Bank ..................................................................... 117,922
Margin on Futures (Note 5) ......................................................... 46,875
Accrued Expenses ...................................................................... 442,361
-------------
Total Liabilities ..................................................................... 2,335,546
-------------
Net Assets ............................................................................ $ 259,837,946
-------------
Net Assets Consist of:
Paid in Surplus (Note 3) .............................................................. $ 255,070,714
Net Unrealized Appreciation on Investments ........................................... 9,963,390
Accumulated Undistributed Net Investment Income ...................................... 43,012
Accumulated Net Realized Loss on Investments .......................................... (5,239,170)
-------------
Net Assets ............................................................................ $ 259,837,946
-------------
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of $214,678,342 and
12,712,409 shares of beneficial interest issued and outstanding) (Note 3) ............ $ 16.89
Maximum sales charge (4.75%* of offering price) ....................................... .84
-------------
Maximum offering price to public ...................................................... $ 17.73
-------------
Class B Shares:
Net asset value and offering price per share (Based on net assets of $42,382,365 and
2,509,586 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 16.89
-------------
Class C Shares:
Net asset value and offering price per share (Based on net assets of $2,777,239 and
164,439 shares of beneficial interest issued and outstanding) (Note 3) ............. $ 16.89
-------------
*On sales of $100,000 or more, the sales charge will be reduced.

</TABLE>
14 See Notes to Financial Statements

Statement of Operations
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest ........................................................................................ $ 8,506,304
-------------
Expenses:
Investment Advisory Fee (Note 2) ............................................................... 762,056
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, C and D of
$316,581, $202,157, $12,660 and $2, respectively) (Note 6) .................................. 531,400
Shareholder Services (Note 2) ................................................................. 163,838
Trustees Fees and Expenses (Note 2) ............................................................. 9,944
Legal (Note 2) ................................................................................. 5,080
Other .......................................................................................... 118,947
-------------
Total Expenses ................................................................................ 1,591,265
Less Fees Deferred ............................................................................ 127,009
-------------
Net Expenses .................................................................................. 1,464,256
-------------
Net Investment Income ........................................................................... $ 7,042,048
-------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ............................................................................. $ 11,257,592
Cost of Securities Sold ......................................................................... (16,487,231)
-------------
Net Realized Loss on Investments (Including realized loss on futures
transactions of $4,600,312) .................................................................... (5,229,639)
-------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ........................................................................ (7,446,092)
End of the Period (Including unrealized appreciation on open futures transactions of $17,943) ... 9,963,390
-------------
Net Unrealized Appreciation on Investments During the Period .................................... 17,409,482
-------------
Net Realized and Unrealized Gain on Investments ................................................. $ 12,179,843
-------------
Net Increase in Net Assets from Operations ..................................................... $ 19,221,891
-------------

</TABLE>
15 See Notes to Financial Statements

Statement of Changes in Net Assets
For the Six Months Ended June 30, 1995 and
the Year Ended December 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net Investment Income ............................................. $ 7,042,048 $ 14,167,689
Net Realized Gain/Loss on Investments ............................. (5,229,639) 1,589,125
Net Unrealized Appreciation/Depreciation on
Investments During the Period .................................... 17,409,482 (31,188,136)
--------------- ----------------
Change in Net Assets from Operations ............................. 19,221,891 (15,431,322)
--------------- ----------------
Distributions from Net Investment Income:
Class A Shares ................................................... (6,005,665) (12,279,314)
Class B Shares ................................................... (998,480) (1,704,000)
Class C Shares ................................................... (62,154) (120,704)
Class D Shares ................................................... (36) (86)
--------------- ----------------
Total Distributions .............................................. (7,066,335) (14,104,104)
--------------- ----------------
Net Change in Net Assets from Investment Activities .............. 12,155,556 (29,535,426)
--------------- ----------------
From Capital Transactions (Note 3):
Proceeds from Shares Sold ........................................ 14,323,964 45,228,180
Net Asset Value of Shares Issued Through Dividend Reinvestment .... 4,297,809 8,518,915
Cost of Shares Repurchased ........................................ (13,843,660) (32,797,611)
--------------- ----------------
Net Change in Net Assets from Capital Transactions ............... 4,778,113 20,949,484
--------------- ----------------
Total Increase/Decrease in Net Assets ............................. 16,933,669 (8,585,942)
Net Assets:
Beginning of the Period .......................................... 242,904,277 251,490,219
--------------- ----------------
End of the Period (Including undistributed net investment income of
$43,012 and $67,299, respectively) ............................... $ 259,837,946 $ 242,904,277
--------------- ----------------

16 See Notes to Financial Statements

</TABLE>

<TABLE>
<CAPTION>
Financial Highlights
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------------------------------
Year Ended December 31
Six Months Ended ------------------------------------------------
Class A Shares June 30, 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ... $ 16.081 $ 18.062 $ 16.899 $ 16.373 $ 15.716
------------ --------- --------- --------- ---------
Net Investment Income ................. .473 .965 1.027 1.074 1.081
Net Realized and Unrealized Gain/Loss
on Investments ......................... .808 (1.985) 1.164 .525 .696
------------ --------- --------- --------- ---------
Total from Investment Operations ....... 1.281 (1.020) 2.191 1.599 1.777
------------ --------- --------- --------- ---------
Less:
Distributions from Net
Investment Income ..................... .475 .961 1.028 1.073 1.080
Distributions from Net Realized
Gain on Investments .................. -0- -0- -0- -0- .040
------------ --------- --------- --------- ---------
Total Distributions .................... .475 .961 1.028 1.073 1.120
------------ --------- --------- --------- ---------
Net Asset Value, End of Period ......... $ 16.887 $ 16.081 $ 18.062 $ 16.899 $ 16.373
------------ --------- --------- --------- ---------
Total Return* (Non-Annualized) ........ 8.03% (5.72%) 13.25% 10.09% 11.64%
Net Assets at End of Period
(In millions) ......................... $ 214.7 $ 203.2 $ 221.7 $ 153.8 $ 103.1
Ratio of Expenses to Average Net
Assets* (Annualized) ................... 1.03% .90% .71% .72% .70%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ...... 5.65% 5.73% 5.80% 6.41% 6.70%
Portfolio Turnover .................... 6.64% 7.94% 1.35% 9.87% 48.47%

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

Ratio of Expenses to Average Net
Assets (Annualized) .................... 1.13% 1.17% 1.09% 1.17% 1.26%
Ratio of Net Investment Income to
Average Net Assets (Annualized) ....... 5.55% 5.46% 5.41% 5.95% 6.13%
</TABLE>

17 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------------
August 13, 1993
Six Months Year (Commencement of
Ended Ended Distribution) to
June 30, December 31, December 31,
Class B Shares 1995 1994 1993
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ............. $ 16.080 $ 18.055 $ 17.460
--------- --------- ---------
Net Investment Income ........................... .413 .841 .586
Net Realized and Unrealized
Gain/Loss on Investments ......................... .808 (1.985) .603
--------- --------- ---------
Total from Investment Operations ................. 1.221 (1.144) 1.189
Less Distributions from Net Investment Income ... .413 .831 .594
--------- --------- ---------
Net Asset Value, End of Period .................. $ 16.888 $ 16.080 $ 18.055
--------- --------- ---------
Total Return* (Non-Annualized) ................... 7.64% (6.39%) 6.81%
Net Assets at End of Period (In millions) ....... $ 42.4 $ 37.6 $ 27.7
Ratio of Expenses to Average Net
Assets* (Annualized) ............................. 1.74% 1.64% 1.48%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ................ 4.92% 4.98% 4.47%
Portfolio Turnover ............................... 6.64% 7.94% 1.35%

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

Ratio of Expenses to Average Net
Assets (Annualized) .............................. 1.84% 1.90% 1.82%
Ratio of Net Investment Income to
Average Net Assets (Annualized) .................. 4.82% 4.71% 4.13%
</TABLE>

18 See Notes to Financial Statements

<TABLE>
<CAPTION>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- ---------------------------------------------------------------------------------------------
August 13, 1993
Six Months Year (Commencement of
Ended Ended Distribution) to
June 30, December 31, December 31,
Class C Shares 1995 1994 1993
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ............. $ 16.079 $ 18.045 $ 17.850
--------- ---------- ---------------
Net Investment Income ........................... .419 .850 .325
Net Realized and Unrealized
Gain/Loss on Investments ......................... .804 (1.985) .208
--------- ---------- ---------------
Total from Investment Operations ................. 1.223 (1.135) .533
Less Distributions from Net Investment Income ... .413 .831 .338
--------- ---------- ---------------
Net Asset Value, End of Period .................. $ 16.889 $ 16.079 $ 18.045
--------- ---------- ---------------
Total Return* (Non-Annualized) ................... 7.64% (6.34%) 2.98%
Net Assets at End of Period (In millions) ....... $ 2.8 $ 2.2 $ 2.1
Ratio of Expenses to Average Net
Assets* (Annualized) ............................. 1.74% 1.63% 1.54%
Ratio of Net Investment Income to
Average Net Assets* (Annualized) ................ 4.91% 4.97% 4.08%
Portfolio Turnover ............................... 6.64% 7.94% 1.35%
</TABLE>

*If certain expenses had not been assumed by the Adviser, total return would
have been lower and the ratios would have been as follows:

<TABLE>
<CAPTION>
<S> <C><C> <C> <C>
Ratio of Expenses to Average Net
Assets (Annualized) .............................. 1.84% 1.90% 1.89%
Ratio of Net Investment Income to
Average Net Assets (Annualized) .................. 4.81% 4.70% 3.73%

19 See Notes to Financial Statements
</TABLE>

Notes to Financial Statements
June 30, 1995 (Unaudited)

1. Significant Accounting Policies
Van Kampen Merritt Pennsylvania Tax Free Income Fund (the "Fund") was organized
as a Pennsylvania trust on January 28, 1987, and is registered as a
non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. 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.

A. Security Valuation-Investments are stated at value using market quotations
or, if suchvaluations 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.

C. Investment Income-Interest income is recorded on an accrual basis. Bond
premiumand 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, 1994, the Fund had an accumulated capital loss carryforward for
tax purposes of $9,531 which will expire on December 31, 2001.

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

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.

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>

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, 1995, the Fund recognized expenses of
approximately $61,000 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
legal and certain shareholder services to the Fund.
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. The Fund's liability under the
deferred compensation and retirement plans at June 30, 1995, was approximately
$21,700.
At June 30, 1995, VKAC owned 100 shares each of Classes B and C.

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

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, 1995, paid in surplus aggregated $208,078,235,
$44,054,759 and $2,937,720 for Classes A, B and C, respectively. For the six
months ended June 30, 1995, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------
<S> <C> <C>
Sales:
Class A ...................... 585,922 $ 9,893,456
Class B ...................... 235,998 3,976,147
Class C....................... 26,996 454,361
Class D....................... -0- -0-
--------- ---------------
Total Sales................... 848,916 $ 14,323,964
--------- ---------------
Dividend Reinvestment:
Class A ...................... 217,474 $ 3,668,551
Class B ...................... 34,637 584,275
Class C....................... 2,666 44,980
Class D....................... -0- 3
--------- ---------------
Total Dividend Reinvestment... 254,777 $ 4,297,809
--------- ---------------
Repurchases:
Class A ...................... (724,486) $ (12,191,307)
Class B ...................... (97,613) (1,646,223)
Class C....................... (246) (4,200)
Class D....................... (112) (1,930)
--------- ---------------
Total Repurchases ............ (822,457) $ (13,843,660)
--------- ---------------
</TABLE>

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

At December 31, 1994, paid in surplus aggregated $206,707,535, $41,140,560,
$2,442,579 and $1,927 for Classes A, B, C and D, respectively. For the year
ended December 31, 1994, transactions were as follows:

<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Sales:
Class A........................ 1,647,629 $ 28,038,358
Class B........................ 919,103 15,718,097
Class C........................ 85,268 1,469,806
Class D........................ 112 1,919
--------- ---------------
Total Sales ................... 2,652,112 $ 45,228,180
--------- ---------------
Dividend Reinvestment:
Class A........................ 444,194 $ 7,432,733
Class B........................ 59,918 998,687
Class C........................ 5,238 87,487
Class D........................ -0- 8
--------- ---------------
Total Dividend Reinvestment ... 509,350 $ 8,518,915
--------- ---------------
Repurchases:
Class A........................ (1,733,757) $ (28,705,184)
Class B........................ (177,182) (2,922,282)
Class C........................ (70,025) (1,170,145)
Class D........................ -0- -0-
--------- ---------------
Total Repurchases ............. (1,980,964) $ (32,797,611)
--------- ---------------
</TABLE>

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

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

<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C
- ----------------------------------------------------------
<S> <C> <C>
First ................... 4.00% 1.00%
Second .................. 3.75% None
Third .................... 3.50% None
Fourth ................... 2.50% None
Fifth ................... 1.50% None
Sixth .................... 1.00% None
Seventh and Thereafter ... None None

</TABLE>
For the six months ended June 30, 1995, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$47,000 and CDSC
on the redeemed shares of Classes B and C of approximately $44,700. Sales
charges do not represent expenses of the Fund.

4. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended June 30, 1995, were $20,945,057 and
$16,487,231, 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.

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

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

A. Futures Contracts-A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.
Transactions in futures contracts, each with a par value of $100,000, for the
six months ended June 30, 1995, were as follows:

<TABLE>
<CAPTION>
Contracts
- -----------------------------------------------
<S> <C>
Outstanding at December 31, 1994 ... 300
Futures Opened .................... 400
Futures Closed ..................... (600)
-------
Outstanding at June 30, 1995 ....... 100
-------

</TABLE>

The futures contracts outstanding as of June 30, 1995, and the description and
unrealized appreciation is as follows:

<TABLE>
<CAPTION>
Unrealized
Contracts Appreciation
- --------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond Futures
Sept. 1995 - Sells to Open ... 100 $ 17,943
--------- ------------
</TABLE>

Notes to Financial Statements (Continued)
June 30, 1995 (Unaudited)

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

6. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan (the
"Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 and a service plan (the "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 .30% 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, 1995, are payments to VKAC of approximately $214,100.

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
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
Limited 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 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.

Van Kampen Merritt Pennsylvania Tax Free Income Fund

Board of Trustees

Philip P. Gaughan

R. Craig Kennedy

Dennis J. McDonnell*

Donald C. Miller - Chairman

Jack E. Nelson

Jerome L. Robinson

Wayne W. Whalen*

Officers

Dennis J. McDonnell*
President

Ronald A. Nyberg*
Vice President and Secretary

Edward C. Wood, III*
Vice President and Treasurer

Peter W. Hegel*
Vice President

John L. Sullivan*
Controller

Nicholas Dalmaso*

Scott E. Martin*

Weston B. Wetherell*
Assistant Secretaries

Steven M. Hill*
Assistant Treasurer

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

Transfer Agent (Effective July 10, 1995)

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 Auditors

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

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

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

This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data.