<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 6
Portfolio Highlights............................. 9
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
</TABLE>
PATF SAR 8/98
<PAGE> 2
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we
distribute under the single name of [PHOTO]
Van Kampen Funds. This move
accompanies the change in our legal
name to Van Kampen Funds Inc.
You can be assured that the
change in your fund's name will not
affect its management or daily DENNIS J. MCDONNELL AND DON G. POWELL
operations. You will begin seeing the
application of this change with this
report. In addition, as of August 31,
your fund will be listed in the daily newspapers by share class under the
heading "Van Kampen Funds." For your convenience, we have enclosed a separate
brochure that covers additional details related to these changes.
ECONOMIC REVIEW
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
MARKET REVIEW
Tax-exempt bonds benefited from the growing perception that the domestic
economy was slowing as a result of the turmoil in Asia. Interest rates fell
during the last six months of 1997 as the crisis in the Far East lowered
inflationary expectations in the United States. Bond yields then rose slightly
during the spring amid signs that some Asian economies
Continued on page two
1
<PAGE> 3
were beginning to recover. When weakness in the Japanese yen undercut that
recovery, long-term interest rates resumed their decline.
The year-to-date supply of new tax-exempt issues is at record levels, almost
51 percent greater than that of the same period in 1997. Despite low absolute
yields, these securities saw their demand keep pace with supply, as the ratio of
tax-exempt yields to Treasuries remained extremely attractive. At the end of the
reporting period, the Bond Buyer 40 Revenue Index--a widely used benchmark that
consists of 40 actively traded, long-term investment grade securities--yielded
5.22 percent, while long-term Treasuries yielded 5.62 percent. This represents a
taxable equivalent yield of 7.57 percent and 8.16 percent, respectively, for
individuals in the 31 percent and 36 percent income tax brackets.
OUTLOOK
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, the Federal Reserve could raise short-term interest rates by the end of
the year.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1998
VAN KAMPEN PENNSYLVANIA
TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A B C
SHARES SHARES SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on
NAV(1)................................ 2.55% 2.18% 2.18%
Six-month total return(2)............... (2.32%) (1.82%) 1.18%
One-year total return(2)................ 3.37% 3.67% 6.73%
Five-year average annual total
return(2)............................. 4.85% 4.85% N/A
Ten-year average annual total
return(2)............................. 8.05% N/A N/A
Life-of-Fund average annual total
return(2)............................. 8.23% 5.27% 4.97%
Commencement date....................... 05/01/87 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3).................... 4.91% 4.43% 4.43%
Taxable equivalent distribution
rate(4)............................... 7.89% 7.12% 7.12%
SEC Yield(5)............................ 4.05% 3.50% 3.50%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable equivalent calculations reflect a combined federal and state income
tax rate of 37.8%, which takes into consideration the deductibility of
individual state taxes paid.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1998.
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.
The types of securities the Fund invests in generally provide yields based upon
a higher degree of credit and market risk. An investment in medium- and
lower-rated securities involves the risk of potentially greater sensitivity to
an economic downturn which would affect the issuer's ability to make timely
payments of interest and principal.
3
<PAGE> 5
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial call price is
usually higher than the face value of the bond. Bonds are usually called when
interest rates drop so significantly that the issuer can save money by issuing
new bonds at lower rates.
A callable bond is "priced to the call" when it is selling at a premium, because
it is assumed that the issuer will redeem the bond at its call date, rather than
at maturity.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load"). There is
no redemption fee (Contingent Deferred Sales Charge).
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Normally, lower-quality issues provide higher yields to compensate investors for
the additional credit risk.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a 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 decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the U.S.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways and
schools.
4
<PAGE> 6
GLOSSARY OF TERMS (CONTINUED)
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
PREREFUNDING: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
5
<PAGE> 7
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen Pennsylvania Tax
Free Income Fund about the key events and economic forces that shaped the
markets during the first half of the Fund's fiscal year. The team includes
Dennis Pietrzak, portfolio manager, and Peter W. Hegel, chief investment officer
for fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the six-month period ended June 30, 1998.
Q HOW WOULD YOU DESCRIBE THE PREVAILING MARKET CONDITIONS DURING THE PAST
SIX MONTHS?
A The markets have been in a fairly modest trading range, which is what you
might expect in the persistently benign market environment of low interest
rates, low inflation, and moderate economic growth we've seen so far this
year. The Federal Reserve Board has held short-term interest rates steady, so
any market movement we've seen has been a function of investors trying to
anticipate how the Fed might react to economic conditions as they change over
time.
Because of supply-and-demand fundamentals and the impact of the Asian
financial crisis, municipal bonds did not perform as well as Treasuries. As the
U.S. dollar has risen in value relative to Asian currencies, the demand for U.S.
Treasury securities has increased. At the same time, the federal budget surplus
has reduced the government's need to issue new debt (such as Treasury bonds). As
a result, fewer bonds are available to meet this increased demand. Consequently,
as bond prices were driven up, the yield on the 30-year Treasury declined during
the period--from 5.92 percent on December 31, 1997, to 5.62 percent on June 30,
1998--after reaching an all-time low of 5.57 percent.
The fundamental factors at work in the municipal market have created the
opposite situation: historically low interest rates have fueled refundings as
well as new borrowings, resulting in a 51 percent increase in the supply of new
bond issues compared to the same period last year. Although these lower interest
rates were not quite as attractive to investors seeking yield, investor demand
did keep pace with supply. Because the yields available on municipal securities
were nearly as high as Treasury yields, the market attracted a high level of
activity among casualty insurance companies and banks, as well as "crossover"
buyers (institutions that typically purchase taxable securities). At the end of
the reporting period, the Bond Buyer 40 Index (an index of 40 actively traded,
long-term investment grade securities) had a yield of 5.22 percent, or 93
percent of the yield available from long-term Treasuries. In addition, the
difference between the yields on municipal securities of varying credit quality
has been very narrow.
6
<PAGE> 8
Q HOW HAS THE PORTFOLIO CHANGED OVER THE LAST SIX MONTHS?
A As a significant amount of new issuance in the Commonwealth comes to
market insured, the Pennsylvania municipal market tends to be fairly
generic. That means there is little differentiation in yield from one
issue to the next, and the yield spreads between sectors tend to be rather
narrow.
While we continued to have a significant allocation to the health care
sector (approximately 24 percent of net assets), we feel this sector calls for a
watchful eye. Aging state demographics, dependence on Medicare reimbursement,
transition to managed care, and overbedded markets are responsible for increased
pressures on health care providers. As a result, we anticipate some hospital
credit rating downgrades during the months ahead. Much of our exposure, however,
is insured, although this insurance does not protect against changes in the
market value of a security.
Our allocation to AAA-rated securities remained fairly steady at
approximately 47 percent of the portfolio. At the end of the reporting period,
the portion of assets allocated to higher-yielding, non-rated issues stood at 13
percent of the portfolio, unchanged from the beginning of the period.
Our portfolio holdings were widely varied, with the largest sector
exposures in health care (24 percent), industrial revenue issues (13 percent),
and public education (9 percent). For additional Fund portfolio
highlights, please refer to page nine.
Q HOW WOULD YOU DESCRIBE THE FUND'S PERFORMANCE DURING THE PERIOD?
A The Fund's year-to-date total return is 2.55 percent(1) (Class A shares at
net asset value), while its distribution rate was 4.91 percent(3) as of
June 30, 1998. By comparison, the Lehman Brothers Municipal Bond Index
produced a total return of 2.69 percent for the same period. This index is a
broad-based index of municipal bonds and does not reflect any commissions that
would be paid by an investor purchasing the securities it represents. The Fund's
distribution rate translates into a taxable-equivalent rate of 7.89 percent(4)
for an investor in the 37.8 percent combined federal and state income tax
bracket. The Fund's dividend remained unchanged at $0.0775 per share during the
period. Please refer to the chart on page three for additional Fund performance
results.
Q WHAT DO YOU SEE ON THE HORIZON FOR THE MARKETS AND THE FUND?
A We expect the low interest-rate environment to continue in the near term,
but we are not overly bullish on the market as a whole. While low
inflation and controlled economic growth have been the norm, the Fed will
continue to weigh the impact of raising interest rates in the second half of the
year if the economy gains steam and threatens to drive inflation higher.
7
<PAGE> 9
The municipal market is likely to bounce around within its recent trading
range in the weeks ahead, unless the taxable market makes a significant move.
The supply of bond issues looks like it will remain strong, possibly setting an
annual record for the industry. Currently, it's on pace to break the volume
record of almost $300 billion set in 1993. A drop in rates of 25 basis points
(0.25 percentage points) could spark further refunding of outstanding bond
issues and bring new bond issues into the marketplace ahead of their original
schedule.
The U.S. dollar looks like it will remain strong relative to other
currencies, making our bond market more appealing to foreign investors. Already,
the U.S. market has higher interest rates than any other country among the
world's seven largest industrial nations (the "G-7" countries). Combine these
factors with our declining federal budget deficit, which shrinks the supply of
government debt, and it's likely that demand will keep pace with the supply of
municipal bonds and lend support to bond prices.
Overall credit prospects for state and local bonds issued in the
Commonwealth of Pennsylvania are positive, reflecting healthy job growth,
relatively low unemployment, and favorable tax conditions. We will rely on
keeping the portfolio widely varied and performing diligent credit research as
we seek to provide our shareholders with income and a value-oriented portfolio.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Dennis S. Pietrzak
Portfolio Manager
Please see footnotes on page three
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Philadelphia, PA Authority Industrial
Development Lease Revenue ................... 4.3%
Saint Mary Hospital Authority Bucks PA Catholic
Health Initiative ........................... 3.0%
Berks County, PA .............................. 2.7%
Pennsylvania State Higher Education Facility
Authority Revenue Drexel University ......... 2.1%
Pennsylvania Economic Development Financing
Authority Recovery Revenue Northampton
Generating .................................. 2.0%
Pennsylvania State Higher Education Facility
Authority Health Services Revenue Allegheny
Delaware Valley Obligation .................. 1.8%
Beaver County, PA Industrial Development
Authority Pollution Control Revenue
Collateral Toledo Edison Co Project ......... 1.7%
Pottsville, PA Hospital Authority Revenue
Pottsville Hospital ......................... 1.7%
Pennsylvania Housing Finance Agency ........... 1.7%
Philadelphia, PA Hospital & Higher Education
Facility Authority Hospital Revenue Temple
University Hospital ......................... 1.6%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <S> <C>
AAA.............. 46.7% AAA.............. 49.0%
AA............... 11.9% AA............... 9.2%
A................ 14.6% [PIE CHART] A................ 14.3% [PIE CHART]
BBB.............. 12.6% BBB.............. 12.6%
BB............... 1.5% BB............... 1.4%
Non-Rated........ 12.7% Non-Rated........ 13.5%
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
Health Care............ 23.8% Health Care............ 21.2%
Industrial Revenue..... 13.4% Industrial Revenue..... 13.8%
Public Education....... 9.0% Public Education....... 11.1%
Other Care............. 8.7% Other Care............. 8.3%
Public Building........ 8.4% Public Building........ 7.5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C>
Duration 6.95 years 7.00 years
</TABLE>
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 99.5%
PENNSYLVANIA 99.5%
$3,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)........................... 6.625% 01/01/22 $ 3,793,090
1,625 Allegheny Cnty, PA C-34 Conv Cap Apprec......... 8.625 02/15/04 1,969,549
1,000 Allegheny Cnty, PA Higher Edl Bldg Auth Univ Rev
Duquesne Univ Proj (AMBAC Insd)................. 6.500 03/01/11 1,178,170
2,500 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Presbyterian Univ Ser A (MBIA Insd)............. 6.000 11/01/12 2,685,250
2,500 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Presbyterian Univ Ser A (MBIA Insd)............. 6.250 11/01/23 2,709,825
2,140 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Fac
Allegheny Vly Sch............................... 7.750 02/01/15 2,380,643
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp Saint
Francis Med Cent Proj........................... 5.500 05/15/06 1,050,410
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp Saint
Francis Med Cent Proj........................... 5.500 05/15/07 1,051,890
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp Saint
Francis Med Cent Proj........................... 5.600 05/15/08 1,060,250
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp Saint
Francis Med Cent Proj........................... 5.750 05/15/09 1,070,500
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp Saint
Francis Med Cent Proj........................... 5.750 05/15/10 1,063,560
1,160 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp Saint
Francis Med Cent Proj........................... 5.750 05/15/17 1,211,922
935 Allegheny Cnty, PA Indl Dev Auth Med Cent Rev
Presbyterian Med Cent Rfdg (FHA Gtd)............ 6.750 02/01/26 1,029,154
2,500 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt Ser A Rfdg................... 6.700 12/01/20 2,767,575
630 Allegheny Cnty, PA Res Fin Auth Mtg Rev 1983 Ser
B............................................... * 10/01/15 102,866
1,945 Allegheny Cnty, PA Res Mtg Comp Int Single
Family Ser Z.................................... 6.875 05/01/26 2,076,171
2,000 Beaver Cnty, PA Hosp Auth Rev Med Cent Beaver PA
Inc Ser A (AMBAC Insd).......................... 6.250 07/01/22 2,164,980
4,500 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Collateral Toledo Edison Co Proj Ser A Rfdg..... 7.750 09/01/24 4,737,870
6,000 Berks Cnty, PA (Inverse Fltg) (FGIC Insd)....... 8.532 11/10/20 7,230,000
2,000 Berks Cnty, PA Muni Auth Rev Highlands at
Wyomissing Proj B............................... 6.875 10/01/17 2,170,940
965 Berks Cnty, PA Muni Auth Rev Phoebe Berks Vlg
Inc Proj Rfdg................................... 7.500 05/15/13 1,074,547
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks Vlg
Inc Proj Rfdg................................... 7.700 05/15/22 1,121,600
2,750 Bradford Cnty, PA Indl Dev Auth Solid Waste Disp
Rev Intl Paper Co Proj A........................ 6.600 03/01/19 3,058,660
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$1,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Bethlehem Steel Corp Proj Rfdg.................. 7.500% 09/01/15 $ 1,125,200
1,000 Cambria Cnty, PA Indl Dev Auth Res Recovery Rev
Cambria Cogen Proj Ser F........................ 7.750 09/01/19 1,004,990
1,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth Sys
Rev (AMBAC Insd)................................ 5.650 05/15/20 1,032,290
1,880 Chester Cnty, PA Hlth & Edl The Chester Cnty
Hosp
(MBIA Insd)..................................... 5.625 07/01/08 2,026,753
760 Chichester Sch Dist PA Ser 1989 (MBIA Insd)..... * 06/01/01 672,957
860 Chichester Sch Dist PA Ser 1989 (MBIA Insd)..... * 06/01/02 727,637
915 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp
Proj (Prerefunded @ 07/01/01)................... 8.500 07/01/13 1,027,948
1,000 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp
Proj (Prerefunded @ 07/01/01)................... 8.500 07/01/21 1,139,460
1,130 Clearfield Cnty, PA Indl Dev Auth Coml Dev Rev
First Mtg K Mart Corp Ser A Rfdg................ 7.200 07/01/07 1,216,219
2,230 Cumberland Cnty, PA Muni Auth Rev First Mtg
Carlisle Hosp & Hlth............................ 6.800 11/15/23 2,440,111
1,000 Dauphin Cnty, PA Genl Auth Rev Office & Pkg
Riverfront Office............................... 6.000 01/01/25 999,340
2,500 Deer Lakes Sch Dist PA Ser A (FSA Insd)......... 5.000 01/15/23 2,439,525
2,475 Delaware Cnty, PA Auth Rev Elwyn Inc Proj
(Prerefunded @ 06/01/00)........................ 8.350 06/01/15 2,719,456
1,500 Delaware Cnty, PA Auth Rev First Mtg Riddle Vlg
Proj (Prerefunded @ 06/01/02)................... 9.250 06/01/22 1,793,940
3,000 Delaware Cnty, PA Auth Rev First Mtg Riddle Vlg
Proj Rfdg....................................... 7.000 06/01/26 3,158,730
500 Delaware Cnty, PA Auth Rev First Mtg Riddle Vlg
Proj Rfdg....................................... 6.200 06/01/05 523,575
2,000 Erie Cnty, PA Hosp Auth Rev Saint Vincent Hlth
Cent Proj Ser A (MBIA Insd)..................... 6.375 07/01/22 2,174,060
4,780 Erie, PA Sch Dist Cap Apprec Rfdg (FSA Insd).... * 09/01/24 1,240,984
1,985 Greene Cnty, PA Unlimited Tax (Prerefunded @
08/01/00)....................................... 8.500 08/01/10 2,142,807
1,000 Harrisburg, PA Auth Office & Pkg Rev Ser A...... 6.000 05/01/19 1,003,220
3,000 Harrisburg, PA Auth Rev Pooled Univ Pgm Ser 11
(MBIA Insd)..................................... 5.625 09/15/17 3,142,410
900 Hazleton, PA Hlth Svcs Auth Hosp Rev............ 5.500 07/01/07 942,930
650 Hazleton, PA Hlth Svcs Auth Saint Joseph Med
Cent Rfdg....................................... 5.850 07/01/06 695,357
1,750 Indiana Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Metro Edison Co Proj A (AMBAC Insd)............. 5.950 05/01/27 1,874,775
570 Indiana Cnty, PA Indl Dev Auth Rev Cap Apprec
Student Coop Assn B (AMBAC Insd)................ * 11/01/13 266,469
560 Indiana Cnty, PA Indl Dev Auth Rev Cap Apprec
Student Coop Assn B (AMBAC Insd)................ * 11/01/19 186,508
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 570 Indiana Cnty, PA Indl Dev Auth Rev Cap Apprec
Student Coop Assn B (AMBAC Insd)................ * 11/01/14 $ 251,570
500 Indiana Cnty, PA Indl Dev Auth Rev Cap Apprec
Student Coop Assn B (AMBAC Insd)................ * 11/01/15 208,130
490 Indiana Cnty, PA Indl Dev Auth Rev Cap Apprec
Student Coop Assn B (AMBAC Insd)................ * 11/01/16 192,188
500 Indiana Cnty, PA Indl Dev Auth Rev Cap Apprec
Student Coop Assn B (AMBAC Insd)................ * 11/01/17 185,300
500 Indiana Cnty, PA Indl Dev Auth Rev Cap Apprec
Student Coop Assn B (AMBAC Insd)................ * 11/01/18 175,330
2,500 Jim Thorpe, PA Area Sch Dist Ser A (MBIA
Insd)........................................... 5.375% 03/15/22 2,547,050
1,800 Kiski, PA Area Sch Dist (FGIC Insd)............. 5.300 03/01/17 1,825,218
2,000 Lehigh Cnty, PA Genl Purp Auth Cedar Crest
College Rfdg.................................... 6.700 04/01/26 2,176,540
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 1,097,160
2,000 Lycoming Cnty, PA Auth Hosp Lease Rev Divine
Providence Sisters Ser A........................ 6.500 07/01/22 2,167,640
2,500 Lycoming Cnty, PA Auth Hosp Lease Rev Divine
Providence Sisters Ser A (Prerefunded @
07/01/00)....................................... 7.750 07/01/16 2,724,150
1,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford Hosp
Proj (Crossover Rfdg @ 10/01/00)................ 8.875 10/01/20 1,119,550
750 McKeesport, PA Indl Dev Auth Rev The Kroger Corp
Allegheny Cnty Rfdg............................. 8.650 06/01/11 845,145
3,000 Monroeville, PA Hosp Auth Hosp Rev Forbes Hlth
Sys Rfdg........................................ 6.250 10/01/15 3,195,870
500 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Suburban Genl Hosp Bonds (AMBAC Insd)....... 7.250 05/01/16 506,255
2,000 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev....................................... 6.300 01/01/13 2,028,000
2,250 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev Adult Cmntys Total Svcs Ser B......... 5.625 11/15/12 2,337,682
2,500 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn
Ctl Philadelphia Elec Co Ser A Rfdg............. 7.600 04/01/21 2,712,975
3,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recov........................................... 7.500 01/01/12 3,287,940
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Wordsworth
Academy......................................... 7.750 09/01/24 1,115,110
1,415 New Kensington Arnold, PA Sch Dist (FGIC
Insd)........................................... 5.500 05/15/17 1,464,610
3,300 New Kensington Arnold, PA Sch Dist (FGIC
Insd)........................................... 5.500 05/15/26 3,403,752
1,500 North Penn, PA Wtr Auth Wtr Rev (FGIC Insd)..... 6.200 11/01/22 1,620,615
1,000 North Penn, PA Wtr Auth Wtr Rev (Prerefunded @
11/01/04) (FGIC Insd)........................... 6.875 11/01/19 1,153,560
2,500 Northampton Cnty, PA Indl Dev Auth Rev Pollutn
Ctl Bethlehem Steel Rfdg........................ 7.550 06/01/17 2,810,300
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,000 Northeastern PA Hosp & Edl Auth College Rev Gtd
Luzerne Cnty Cmnty College (Prerefunded @
02/15/05) (AMBAC Insd).......................... 6.625% 08/15/15 $ 1,132,430
2,258 Oil City, PA Towne Tower Proj................... 6.750 05/01/20 2,451,143
1,335 Penn Hills, PA (FGIC Insd)...................... 5.800 12/01/13 1,436,300
1,600 Penn Hills, PA (FGIC Insd)...................... 5.850 12/01/14 1,725,664
1,335 Penn Hills, PA (FGIC Insd)...................... 5.900 12/01/17 1,435,218
2,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
MacMillan Ltd Partnership Proj.................. 7.600 12/01/20 2,237,520
3,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D............................... 7.050 12/01/10 3,346,110
1,500 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D............................... 7.125 12/01/15 1,676,505
5,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Northampton Generating Ser A.................... 6.600 01/01/19 5,361,900
1,360 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
62A............................................. 5.500 10/01/22 1,370,418
4,000 Pennsylvania Hsg Fin Agy (Inverse Fltg)......... 9.853 10/03/23 4,550,000
1,000 Pennsylvania Hsg Fin Agy Rental Hsg Rfdg (FNMA
Collateralized)................................. 6.500 07/01/23 1,069,090
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
40.............................................. 6.900 04/01/25 1,082,250
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
42.............................................. 6.850 04/01/25 2,710,475
850 Pennsylvania Infrastructure Invt Auth Rev
Pennvest SubSer B............................... 6.800 09/01/10 937,967
2,000 Pennsylvania Intergvtl Co-op Auth Spl Tax Rev
City of Philadelphia (MBIA Insd)................ 5.600 06/15/15 2,085,920
4,000 Pennsylvania St Ctfs Partn (FSA Insd)........... 6.250 05/01/16 4,303,960
2,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Rfdg (Inverse Fltg) (AMBAC
Insd)........................................... 9.520 09/01/26 2,325,000
2,500 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser B (Inverse Fltg) (MBIA
Insd)........................................... 10.717 03/01/20 2,828,125
4,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser C (AMBAC Insd)............... 6.400 03/01/22 4,182,640
1,200 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Bryn Mawr College (MBIA Insd).......... 5.625 12/01/27 1,259,892
4,595 Pennsylvania St Higher Edl Fac Auth Hlth Svcs
Rev Allegheny Delaware Vly Oblig A (MBIA
Insd)........................................... 5.600 11/15/10 4,872,997
5,400 Pennsylvania St Higher Edl Fac Auth Rev Drexel
Univ Rfdg....................................... 6.375 05/01/17 5,832,810
1,000 Philadelphia, PA Auth For Indl Dev Hlth Care Fac
Rev............................................. 5.750 05/15/18 1,000,780
2,505 Philadelphia, PA Auth for Indl Dev Rev Coml Dev
RMK Rfdg........................................ 7.750 12/01/17 2,831,401
3,000 Philadelphia, PA Auth for Indl Dev Rev Long-Term
Care Maplewood.................................. 8.000 01/01/24 3,336,060
11,565 Philadelphia, PA Auth Indl Dev Lease Rev Ser A
(MBIA Insd)..................................... 5.375 02/15/27 11,808,443
3,000 Philadelphia, PA Gas Wks Rev 14th Ser Rfdg (FSA
Insd)........................................... 6.250 07/01/08 3,309,300
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 250 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Albert Einstein Med Cent.................... 7.000% 10/01/21 $ 270,445
2,800 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Chestnut Hill Hosp.......................... 6.500 11/15/22 3,015,600
4,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Temple Univ Hosp Ser A...................... 6.625 11/15/23 4,306,120
760 Philadelphia, PA Hosps & Higher Edl Fac Auth
Rev............................................. 6.300 07/01/14 772,456
985 Philadelphia, PA Hosps & Higher Edl Fac Auth
Rev............................................. 6.400 07/01/17 1,001,105
450 Philadelphia, PA Hosps & Higher Edl Fac Auth
Rev............................................. 6.500 07/01/21 458,141
1,500 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/08 960,930
3,750 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/11 2,034,562
3,775 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/12 1,925,967
4,500 Philadelphia, PA Muni Auth Rev Muni Svcs Bldg
Lease Cap Apprec (FSA Insd)..................... * 03/15/13 2,170,215
2,155 Philadelphia, PA Muni Auth Rev Rfdg (Prerefunded
@ 04/01/00) (FGIC Insd)......................... 7.800 04/01/18 2,297,553
1,800 Philadelphia, PA Wtr & Swr Rev Ser 16
(Prerefunded @ 08/01/01)........................ 7.500 08/01/10 2,012,688
2,000 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (MBIA
Insd)........................................... 5.625 06/15/08 2,179,780
1,470 Pittsburgh, PA Urban Redev Auth Mtg Rev Ser
C1.............................................. 6.800 10/01/25 1,563,257
1,475 Pittsburgh, PA Urban Redev Auth Mtg Rev Ser D... 6.250 10/01/17 1,565,491
795 Pittsburgh, PA Urban Redev Auth Single Family
Mtg Rev Ser A (GNMA Collateralized)............. 8.000 12/01/20 823,389
4,500 Pottsville, PA Hosp Auth Rev Pottsville Hosp ACA
CBI............................................. 5.500 07/01/18 4,595,445
2,665 Radnor Twp, PA Sch Dist......................... 5.750 03/15/19 2,818,957
3,000 Randor Twp, PA Sch Dist......................... 5.750 03/15/26 3,162,450
8,500 Saint Mary Hosp Auth Bucks PA Catholic Hlth Init
A............................................... 5.000 12/01/28 8,184,820
1,000 Scranton-Lackawanna, PA Hlth & Welfare Auth Rev
Marian Cmnty Hosp Proj Rfdg..................... 7.125 01/15/13 1,086,370
2,000 Shaler, PA Area Sch Dist Cap Apprec Ser A (FGIC
Insd)........................................... * 11/15/22 569,560
2,650 Sharon, PA Regl Hlth Sys Auth Hosp Rev Sharon
Regl Hlth Sys Proj A Rfdg (Prerefunded @
12/01/02)....................................... 6.875 12/01/09 2,985,808
355 Somerset Cnty, PA Indl Dev Auth Coml Dev Rev
First Mtg K Mart Corp Ser A Rfdg................ 7.200 04/01/07 380,773
650 Springfield Twp, PA Swr Auth Guaranteed......... 5.800 10/15/18 656,195
1,000 Springfield Twp, PA Swr Auth Guaranteed......... 6.000 10/15/27 1,013,260
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,180 State Pub Sch Bldg Auth PA Sch Rev Burgettstown
Sch Dist Ser D (Prerefunded @ 02/01/05) (MBIA
Insd)........................................... 6.500% 02/01/14 $ 2,423,397
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 1,640,850
2,935 West Shore, PA Area Auth Hlth Cent Rev United
Methodist Homes Aging Inc (Prerefunded @
06/01/01)....................................... 7.400 06/01/16 3,253,359
1,000 West Shore, PA Area Hosp Auth Hosp Rev Holy
Spirit Hosp Proj (MBIA Insd).................... 5.700 01/01/22 1,048,400
350 Westmoreland Cnty, PA Indl Dev Auth Rev Citizens
Genl Hosp Proj A Rfdg........................... 8.250 07/01/13 355,324
------------
271,661,698
------------
TOTAL INVESTMENTS 99.5%
(Cost $247,468,734)......................................................... 271,661,698
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%................................... 1,270,331
------------
NET ASSETS 100.0%............................................................ $272,932,029
============
</TABLE>
*Zero coupon bond
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $247,468,734)....................... $271,661,698
Receivables:
Interest.................................................. 3,861,186
Fund Shares Sold.......................................... 740,563
Investments Sold.......................................... 285,000
Other....................................................... 19,801
------------
Total Assets.......................................... 276,568,248
------------
LIABILITIES:
Payables:
Custodian Bank............................................ 1,597,209
Income Distributions...................................... 1,141,583
Fund Shares Repurchased................................... 357,798
Distributor and Affiliates................................ 198,973
Investment Advisory Fee................................... 134,907
Trustees' Deferred Compensation and Retirement Plans........ 129,328
Accrued Expenses............................................ 76,421
------------
Total Liabilities..................................... 3,636,219
------------
NET ASSETS.................................................. $272,932,029
============
NET ASSETS CONSIST OF:
Paid in Surplus............................................. $250,380,889
Net Unrealized Appreciation................................. 24,192,964
Accumulated Undistributed Net Investment Income............. 471,304
Accumulated Net Realized Loss............................... (2,113,128)
------------
NET ASSETS.................................................. $272,932,029
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $217,285,351 and 12,050,007 shares of
beneficial interest issued and outstanding)............. $ 18.03
Maximum sales charge (4.75%* of offering price)......... .90
------------
Maximum offering price to public........................ $ 18.93
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $52,260,544 and 2,899,791 shares of
beneficial interest issued and outstanding)............. $ 18.02
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,386,134 and 187,879 shares of
beneficial interest issued and outstanding)............. $ 18.02
============
</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 Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 8,372,429
-----------
EXPENSES:
Investment Advisory Fee..................................... 822,661
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $271,600, $259,808 and $16,003,
respectively)............................................. 547,411
Shareholder Services........................................ 94,736
Trustees' Fees and Expenses................................. 10,157
Legal....................................................... 6,183
Custody..................................................... 1,606
Other....................................................... 91,191
-----------
Total Expenses.......................................... 1,573,945
-----------
NET INVESTMENT INCOME....................................... $ 6,798,484
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 927,647
Futures................................................... (51,614)
-----------
Net Realized Gain........................................... 876,033
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 25,057,255
End of the Period:
Investments............................................. 24,192,964
-----------
Net Unrealized Depreciation During the Period............... (864,291)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 11,742
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 6,810,226
===========
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and the
Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 6,798,484 $ 14,063,081
Net Realized Gain.................................... 876,033 1,048,949
Net Unrealized Appreciation/Depreciation............. (864,291) 7,094,335
------------ ------------
Change in Net Assets from Operations................. 6,810,226 22,206,365
------------ ------------
Distributions from Net Investment Income:
Class A Shares..................................... (5,698,414) (11,483,502)
Class B Shares..................................... (1,159,415) (2,162,615)
Class C Shares..................................... (71,289) (132,920)
------------ ------------
Total Distributions.............................. (6,929,118) (13,779,037)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... (118,892) 8,427,328
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 10,237,329 20,080,197
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 3,971,342 7,972,553
Cost of Shares Repurchased........................... (19,979,425) (36,874,447)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... (5,770,754) (8,821,697)
------------ ------------
TOTAL DECREASE IN NET ASSETS......................... (5,889,646) (394,369)
NET ASSETS:
Beginning of the Period.............................. 278,821,675 279,216,044
------------ ------------
End of the Period (including accumulated
undistributed net investment income of $471,304 and
$601,938, respectively)............................ $272,932,029 $278,821,675
============ ============
</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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
Six Months Ended -------------------------------------
Class A Shares June 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $18.038 $17.490 $17.737 $16.081 $18.062
------- ------- ------- ------- -------
Net Investment Income......... .458 .928 .919 .946 .965
Net Realized and Unrealized
Gain/Loss................... .001 .528 (.263) 1.660 (1.985)
------- ------- ------- ------- -------
Total from Investment
Operations.................. .459 1.456 .656 2.606 (1.020)
Less Distributions from and in
Excess of Net Investment
Income...................... .465 .908 .903 .950 .961
------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $18.032 $18.038 $17.490 $17.737 $16.081
======= ======= ======= ======= =======
Total Return* (a)............. 2.55%** 8.59% 3.86% 16.62% (5.72%)
Net Assets at End of the
Period (In millions)........ $217.3 $223.9 $227.4 $226.7 $203.2
Ratio of Expenses to Average
Net Assets*................. 1.00% 1.04% 1.09% 1.00% .90%
Ratio of Net Investment Income
to Average Net Assets*...... 5.11% 5.27% 5.32% 5.57% 5.73%
Portfolio Turnover............ 20%** 46% 57% 28% 8%
</TABLE>
*If certain expenses had not been assumed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average
Net Assets.................. N/A N/A 1.09% 1.14% 1.17%
Ratio of Net Investment Income
to Average Net Assets....... N/A N/A 5.31% 5.42% 5.46%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not applicable
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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended ----------------------------------------
Class B Shares June 30, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $18.031 $17.484 $17.731 $16.080 $18.055
------- ------- ------- ------- -------
Net Investment Income.............. .389 .791 .788 .819 .841
Net Realized and Unrealized
Gain/Loss........................ .001 .531 (.264) 1.659 (1.985)
------- ------- ------- ------- -------
Total from Investment Operations... .390 1.322 .524 2.478 (1.144)
Less Distributions from and in
Excess of Net Investment
Income........................... .399 .775 .771 .827 .831
------- ------- ------- ------- -------
Net Asset Value,
End of the Period................ $18.022 $18.031 $17.484 $17.731 $16.080
======= ======= ======= ======= =======
Total Return* (a).................. 2.18%** 7.78% 3.07% 15.72% (6.39%)
Net Assets at End of the Period (In
millions)........................ $52.2 $51.9 $48.4 $46.8 $37.6
Ratio of Expenses to Average Net
Assets*.......................... 1.75% 1.79% 1.85% 1.75% 1.64%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.35% 4.51% 4.56% 4.81% 4.98%
Portfolio Turnover................. 20%** 46% 57% 28% 8%
</TABLE>
* If certain expenses had not been assumed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net
Assets........................... N/A N/A 1.85% 1.89% 1.90%
Ratio of Net Investment Income to
Average Net Assets............... N/A N/A 4.55% 4.66% 4.71%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
20
<PAGE> 22
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended ----------------------------------------
Class C Shares June 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $18.031 $17.482 $17.729 $16.079 $18.045
------- ------- ------- ------- -------
Net Investment Income........ .385 .795 .788 .812 .850
Net Realized and Unrealized
Gain/Loss.................. .006 .529 (.264) 1.665 (1.985)
------- ------- ------- ------- -------
Total from Investment
Operations................. .391 1.324 .524 2.477 (1.135)
Less Distributions from and
in Excess of Net Investment
Income..................... .399 .775 .771 .827 .831
------- ------- ------- ------- -------
Net Asset Value, End of the
Period..................... $18.023 $18.031 $17.482 $17.729 $16.079
======= ======= ======= ======= =======
Total Return* (a)............ 2.18%** 7.78% 3.08% 15.72% (6.34%)
Net Assets at End of the
Period (In millions)....... $3.4 $3.0 $3.4 $3.4 $2.2
Ratio of Expenses to Average
Net Assets*................ 1.75% 1.79% 1.85% 1.75% 1.63%
Ratio of Net Investment
Income to Average Net
Assets*.................... 4.34% 4.52% 4.56% 4.76% 4.97%
Portfolio Turnover........... 20%** 46% 57% 28% 8%
</TABLE>
* If certain expenses had not been assumed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average
Net Assets................. N/A N/A 1.85% 1.90% 1.90%
Ratio of Net Investment
Income to Average Net
Assets..................... N/A N/A 4.55% 4.61% 4.70%
</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.
N/A = Not Applicable
See Notes to Financial Statements
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Pennsylvania Tax Free Income Fund, formerly known as 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.
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. At June 30, 1998, there were no when
issued or delayed delivery purchase commitments.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
of shares, except for distribution and service fees and transfer agency costs
which are unique to each class of shares.
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, 1997, the Fund had an accumulated capital loss carryforward for
tax purposes of $2,989,161 which expires on December 31, 2003.
At June 30, 1998, for federal income tax purposes, the cost of long-term
investments is $247,468,734; the aggregate gross unrealized appreciation is
$24,203,631 and the aggregate gross unrealized depreciation is $10,667,
resulting in net unrealized appreciation of $24,192,964.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays dividends
monthly from net investment income. Net realized gains, if any, are distributed
annually.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
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>
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $3,100 representing legal services provided by Skadden, Arps,
Slate, Meagher, & Flom (Illinois), counsel to the Fund, of which a trustee of
the Fund is an affiliated person.
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $41,400 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
June 30, 1998,
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
the Fund recognized expenses of approximately $61,500. Beginning in 1998, the
transfer agency fees are determined through negotiations with the Fund's Board
of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
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 June 30, 1998, paid in surplus aggregated $196,113,943, $50,922,383 and
$3,344,563 for Classes A, B and C, respectively. For the six months ended June
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 344,442 $ 6,211,042
Class B.......................................... 187,423 3,382,829
Class C.......................................... 35,623 643,458
---------- ------------
Total Sales........................................ 567,488 $ 10,237,329
========== ============
Dividend Reinvestment:
Class A.......................................... 179,951 $ 3,242,487
Class B.......................................... 37,743 679,671
Class C.......................................... 2,731 49,184
---------- ------------
Total Dividend Reinvestment........................ 220,425 $ 3,971,342
========== ============
Repurchases:
Class A.......................................... (888,756) $(16,023,880)
Class B.......................................... (204,379) (3,672,822)
Class C.......................................... (15,696) (282,723)
---------- ------------
Total Repurchases.................................. (1,108,831) $(19,979,425)
========== ============
</TABLE>
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1997, paid in surplus aggregated $202,684,294, $50,532,705
and $2,934,644 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 692,357 $ 12,191,057
Class B.......................................... 417,052 7,341,964
Class C.......................................... 31,224 547,176
---------- ------------
Total Sales........................................ 1,140,633 $ 20,080,197
========== ============
Dividend Reinvestment:
Class A.......................................... 377,505 $ 6,642,967
Class B.......................................... 70,331 1,237,722
Class C.......................................... 5,226 91,864
---------- ------------
Total Dividend Reinvestment........................ 453,062 $ 7,972,553
========== ============
Repurchases:
Class A.......................................... (1,659,697) $(29,155,783)
Class B.......................................... (377,046) (6,611,488)
Class C.......................................... (63,577) (1,107,176)
---------- ------------
Total Repurchases.................................. (2,100,320) $(36,874,447)
========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. 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.
<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>
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $23,600 and CDSC on redeemed shares of approximately $32,900.
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 $55,606,572 and $60,340,344, 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 a call 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.
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.
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).
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts, for the six months ended June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997.......................... -0-
Futures Opened............................................ 100
Futures Closed............................................ (100)
----
Outstanding at June 30, 1998.............................. -0-
====
</TABLE>
B. INVERSE FLOATING SECURITY--These instruments, which are identified in the
portfolio of investments, have a coupon which is inversely indexed to a
short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these securities may be more
volatile than the price of a comparable fixed rate security. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended June 30, 1998, are payments retained by Van Kampen of
approximately $174,293.
27
<PAGE> 29
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
Global Equity
Global Equity Allocation
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation and
Senior Loan Fund
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our web site at
WWW.VAN-KAMPEN.COM -- to view prospectuses, select Investors' Place, then
Download a Prospectus
- call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- e-mail us by visiting
WWW.VAN-KAMPEN.COM and selecting Investors' Place
28
<PAGE> 30
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
VAN KAMPEN 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 Funds Inc., 1998
All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
29
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> PA TAX FREE CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 247,468,734 <F1>
<INVESTMENTS-AT-VALUE> 271,661,698 <F1>
<RECEIVABLES> 4,886,749 <F1>
<ASSETS-OTHER> 19,801 <F1>
<OTHER-ITEMS-ASSETS> 0 <F1>
<TOTAL-ASSETS> 276,568,248 <F1>
<PAYABLE-FOR-SECURITIES> 0 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 3,636,219 <F1>
<TOTAL-LIABILITIES> 3,636,219 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 196,113,943
<SHARES-COMMON-STOCK> 12,050,007
<SHARES-COMMON-PRIOR> 12,414,370
<ACCUMULATED-NII-CURRENT> 471,304 <F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (2,113,128)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 24,192,964 <F1>
<NET-ASSETS> 217,285,351
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 8,372,429 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (1,573,945)<F1>
<NET-INVESTMENT-INCOME> 6,798,484 <F1>
<REALIZED-GAINS-CURRENT> 876,033 <F1>
<APPREC-INCREASE-CURRENT> (864,291)<F1>
<NET-CHANGE-FROM-OPS> 6,810,226 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (5,698,414)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 344,442
<NUMBER-OF-SHARES-REDEEMED> (888,756)
<SHARES-REINVESTED> 179,951
<NET-CHANGE-IN-ASSETS> (6,647,129)
<ACCUMULATED-NII-PRIOR> 601,938 <F1>
<ACCUMULATED-GAINS-PRIOR> (2,989,161)<F1>
<OVERDISTRIB-NII-PRIOR> 0 <F1>
<OVERDIST-NET-GAINS-PRIOR> 0 <F1>
<GROSS-ADVISORY-FEES> 822,661 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 1,573,945 <F1>
<AVERAGE-NET-ASSETS> 220,860,728
<PER-SHARE-NAV-BEGIN> 18.038
<PER-SHARE-NII> 0.458
<PER-SHARE-GAIN-APPREC> 0.001
<PER-SHARE-DIVIDEND> (0.465)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.032
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 12
<NAME> PA TAX FREE CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 247,468,734 <F1>
<INVESTMENTS-AT-VALUE> 271,661,698 <F1>
<RECEIVABLES> 4,886,749 <F1>
<ASSETS-OTHER> 19,801 <F1>
<OTHER-ITEMS-ASSETS> 0 <F1>
<TOTAL-ASSETS> 276,568,248 <F1>
<PAYABLE-FOR-SECURITIES> 0 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 3,636,219 <F1>
<TOTAL-LIABILITIES> 3,636,219 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,922,383
<SHARES-COMMON-STOCK> 2,899,791
<SHARES-COMMON-PRIOR> 2,879,004
<ACCUMULATED-NII-CURRENT> 471,304 <F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (2,113,128)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 24,192,964 <F1>
<NET-ASSETS> 52,260,544
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 8,372,429 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (1,573,945)<F1>
<NET-INVESTMENT-INCOME> 6,798,484 <F1>
<REALIZED-GAINS-CURRENT> 876,033 <F1>
<APPREC-INCREASE-CURRENT> (864,291)<F1>
<NET-CHANGE-FROM-OPS> 6,810,226 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (1,159,415)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 187,423
<NUMBER-OF-SHARES-REDEEMED> (204,379)
<SHARES-REINVESTED> 37,743
<NET-CHANGE-IN-ASSETS> 350,518
<ACCUMULATED-NII-PRIOR> 601,938 <F1>
<ACCUMULATED-GAINS-PRIOR> (2,989,161)<F1>
<OVERDISTRIB-NII-PRIOR> 0 <F1>
<OVERDIST-NET-GAINS-PRIOR> 0 <F1>
<GROSS-ADVISORY-FEES> 822,661 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 1,573,945 <F1>
<AVERAGE-NET-ASSETS> 52,400,103
<PER-SHARE-NAV-BEGIN> 18.031
<PER-SHARE-NII> 0.389
<PER-SHARE-GAIN-APPREC> 0.001
<PER-SHARE-DIVIDEND> (0.399)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.022
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> PA TAX FREE CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 247,468,734 <F1>
<INVESTMENTS-AT-VALUE> 271,661,698 <F1>
<RECEIVABLES> 4,886,749 <F1>
<ASSETS-OTHER> 19,801 <F1>
<OTHER-ITEMS-ASSETS> 0 <F1>
<TOTAL-ASSETS> 276,568,248 <F1>
<PAYABLE-FOR-SECURITIES> 0 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 3,636,219 <F1>
<TOTAL-LIABILITIES> 3,636,219 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,344,563
<SHARES-COMMON-STOCK> 187,879
<SHARES-COMMON-PRIOR> 165,221
<ACCUMULATED-NII-CURRENT> 471,304 <F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (2,113,128)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 24,192,964 <F1>
<NET-ASSETS> 3,386,134
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 8,372,429 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (1,573,945)<F1>
<NET-INVESTMENT-INCOME> 6,798,484 <F1>
<REALIZED-GAINS-CURRENT> 876,033 <F1>
<APPREC-INCREASE-CURRENT> (864,291)<F1>
<NET-CHANGE-FROM-OPS> 6,810,226 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (71,289)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,623
<NUMBER-OF-SHARES-REDEEMED> (15,696)
<SHARES-REINVESTED> 2,731
<NET-CHANGE-IN-ASSETS> 406,965
<ACCUMULATED-NII-PRIOR> 601,938 <F1>
<ACCUMULATED-GAINS-PRIOR> (2,989,161)<F1>
<OVERDISTRIB-NII-PRIOR> 0 <F1>
<OVERDIST-NET-GAINS-PRIOR> 0 <F1>
<GROSS-ADVISORY-FEES> 822,661 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 1,573,945 <F1>
<AVERAGE-NET-ASSETS> 3,227,247
<PER-SHARE-NAV-BEGIN> 18.031
<PER-SHARE-NII> 0.385
<PER-SHARE-GAIN-APPREC> 0.006
<PER-SHARE-DIVIDEND> (0.399)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.023
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
