<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.............. 18
Statement of Operations.......................... 19
Statement of Changes in Net Assets............... 20
Financial Highlights............................. 21
Notes to Financial Statements.................... 24
</TABLE>
PATF SAR 5/99
<PAGE> 2
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 3
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. The high-yield market rebounded late
in 1998 as investors saw that the economy was performing well and that the
global financial crisis was on its way to recovery. The prices of most
investment-grade bonds experienced similar though much less dramatic movement
during this period. However, municipal bonds--particularly high-quality
municipals--saw very little price movement during this time.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
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 share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
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 MARCH 31, 1999
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... .97% .61% .61%
Six-month total return(2)................ (3.83%) (3.33%) (.38%)
One-year total return(2)................. (.07%) .18% 3.17%
Five-year average annual total
return(2)................................ 5.96% 5.96% 6.21%
Ten-year average annual total
return(2)................................ 7.51% N/A N/A
Life-of-Fund average annual total
return(2)................................ 8.00% 5.10% 4.83%
Commencement date........................ 05/01/87 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 4.93% 4.45% 4.45%
Taxable equivalent distribution
rate(4)................................ 7.93% 7.15% 7.15%
SEC Yield(5)............................. 3.96% 3.39% 3.39%
</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 March 31, 1999.
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
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's 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.
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"). In
most cases, there is no redemption fee (contingent deferred sales charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA. Municipal
bond insurance applies to specific securities held in the portfolio. It does
not protect the shareholder against changes in the value of Fund shares.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY DATE: The date a bond expires, usually at face value.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1998
and maturing in 2008 is a 10-year bond.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
in some states, from state and local income taxes.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
4
<PAGE> 6
YIELD CURVE: A result of viewing the yields of 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.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
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 reporting period. The team includes Dennis S. Pietrzak,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following interview discusses the Fund's performance during the
six months ended March 31, 1999.
Q HOW WOULD YOU DESCRIBE THE CONDITIONS IN THE MUNICIPAL MARKET DURING THE
PAST SIX MONTHS?
A Although most of the financial markets experienced significant volatility
during the period, the municipal market remained relatively stable. For
the majority of the six months, municipal bond yields remained within a
range of about 5.1 to 5.3 percent, even as the Federal Reserve cut interest
rates and the 30-year U.S. Treasury bond reached its lowest yield on record.
Much of the stability in the municipal market can be attributed to its isolation
from turbulence abroad. Concerns about the financial conditions in Asia and
Latin America hurt the stock and high-yield bond markets last fall, but had
little effect on municipals.
The positive economic and market conditions encouraged more municipalities
to take advantage of low interest rates and issue new bonds. In 1998 we
experienced the second-heaviest level of municipal issuance ever. Although the
amount of municipal debt increased, the credit quality of many issuers was not
compromised--in fact, it improved as the positive economic environment led to
stronger balance sheets. As a result, we saw more issuers financing special
growth and expansion projects, as opposed to using municipal bonds to finance
their regular operations.
The proportion of higher-yielding municipal bonds also increased during the
period as the number of insured bonds declined. Because bond insurers tightened
their underwriting criteria, more issuers came to market without insurance and
offered higher yields to compensate bondholders for the increased credit risk.
This benefited the Fund because it allowed our experienced research staff to
seek out those higher-yielding bonds that we felt had strong underlying quality.
Q WHY WERE MUNICIPAL BONDS SO ATTRACTIVE RELATIVE TO COMPARABLE TREASURY
BONDS?
A Toward the end of 1998, the yields on 30-year insured municipal bonds and
comparable U.S. Treasury bonds reached equivalent levels, which is a rare
occurrence. Typically, investment-grade municipal bonds have offered about 80 to
90 percent as much yield as comparable Treasury bonds because their interest
payments are exempt from federal income taxes. However, as Treasury yields fell
and municipal yields remained stable, the yield difference between the two types
of bonds shrank. Early in 1999, investors realized the tremendous opportunities
available in the municipal market, and demand for municipals began to increase.
In conjunction with a recent slowdown in
6
<PAGE> 8
supply, this boost in municipal demand pushed the municipal-to-Treasury yield
ratio back to more traditional but still attractive levels.
Due to Pennsylvania's favorable economic conditions and conservative fiscal
management, the state's bond rating was upgraded in November from AA- to AA by
Standard & Poor's. The state issued $4.4 billion of municipal bond debt during
the first quarter of 1999 (ranking the state third nationwide), up nearly 8
percent over the same period in 1998.
Q HOW DID YOU MANAGE THE FUND'S PORTFOLIO DURING THE PAST SIX MONTHS?
A In light of a number of problems with Pennsylvania's health care
industry--including pressures due to aging state demographics, dependence
on Medicare reimbursement, transition to managed care, and overbedded
markets--we reduced our exposure to that sector. Despite these challenges,
health care bonds are still a fairly significant part of the Fund's holdings
because health care remains a very prominent industry in Pennsylvania. Much of
our exposure to the health care industry is insured. Municipal bond insurance
provides some additional protection to our position, as it guarantees that the
insurer will make principal and interest payments on time in the event the
issuer is unable to do so. Please note, however, that municipal bond insurance
applies to specific securities held in the portfolio. It does not protect the
shareholder against changes in the value of Fund shares.
While we reduced our holdings in health care, we picked up some public
education bonds, slightly increasing our exposure to that sector. Otherwise, the
industry composition of the Fund did not change substantially during the period.
The Fund's largest weightings by sector included health care (19 percent);
industrial revenue (12 percent); public education (11 percent); other care (11
percent); and public building (8 percent).
During the reporting period, we continued to favor higher-rated bonds
because the yield spreads between AAA rated and lower-rated bonds continued to
be extremely narrow by historical standards. Our investment strategy normally
leads us to favor medium- and lower-grade municipal securities, which contribute
to the Fund's ability to pay dividends. However, given current market
conditions, we believed that shareholders' interests were best served by
investing a higher-than-usual percentage of the Fund's assets in higher-grade
securities.
Toward that end, we increased our weighting in AAA rated holdings, ending
the reporting period at about 48 percent of long-term investments. We also
focused on maintaining our exposure to the BBB rated and nonrated sectors. This
"barbell" structure--with most assets weighted toward the ends of the
credit-quality spectrum--should help reduce volatility. Lower-rated bonds
typically do not fluctuate in price as much as higher-rated bonds, while AAA
rated bonds help provide liquidity to the Fund. For additional Fund portfolio
highlights, please refer to page 9.
7
<PAGE> 9
Q HOW WELL DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A For the six months ended March 31, 1999, the Fund's total return was 0.97
percent(1) (Class A shares at net asset value). By comparison, the Lehman
Brothers Municipal Bond Index returned 1.49 percent over the same period. This
broad-based index of municipal bonds does not reflect any commissions that would
be paid by an investor purchasing the securities it represents. Past performance
does not guarantee future results.
The Fund's distribution rate was 4.93 percent(3) as of March 31, 1999,
representing a taxable-equivalent rate of 7.93 percent(4) for an investor in the
37.8 percent combined federal and state income tax bracket. The Fund's monthly
dividend of $0.0775 per Class A share was unchanged during the reporting period.
Income may subject certain individuals to the federal alternative minimum tax.
Please refer to the chart and footnotes on page 3 for additional Fund
performance results.
Q WHAT DO YOU SEE AHEAD FOR THE MUNICIPAL MARKET?
A Strong economic performance continues to bolster the credit conditions of
municipal issuers--a trend we expect to persist. As we mentioned earlier,
economic strength has made issuers more likely to issue debt for special
projects rather than for general operating financing. We believe that as long as
municipalities remain economically healthy, this situation is likely to
continue.
Although insured debt has been increasing in recent years, we have started
to see a reversal of this trend, as municipal bond insurers have become more
cautious as of late. If, as anticipated, this caution continues, credit spreads
may widen as the proportion of higher-yielding uninsured bonds increases.
We see the potential for changes in traditional economic activity toward the
end of the year because of investor concerns about the year 2000 computer
problem. These temporary concerns, however, may result in attractive investment
opportunities that our research staff can explore to uncover potential value.
In Pennsylvania we continue to see healthy employment growth, historically
low unemployment rates, and sound fiscal management. This provides a favorable
atmosphere for municipal debt issuance. Health care bonds remain the one concern
in the state, as the hospital industry struggles to deal with the aftermath of
increased competitive pressures and several high-profile bankruptcy
filings--leading to a number of credit downgrades statewide. We will continue to
depend on our skilled research analysts to help identify the bonds we believe
will present the best value.
[SIG]
Dennis S. Pietrzak
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
TOP TEN HOLDINGS AS OF MARCH 31, 1999
<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........................................... 2.9%
Berks County, PA ...................................... 2.6%
Philadelphia, PA School District ...................... 2.5%
Pennsylvania State Higher Education Assistance Agency
Student Loan Revenue ................................ 2.1%
Pennsylvania State Higher Education Facility Authority
Revenue Drexel University ........................... 2.1%
Pennsylvania Economic Development Financing Authority
Recovery Revenue Northampton Generating ............. 1.9%
Beaver County, PA Industrial Development Authority
Pollution Control Revenue Collateral Toledo Edison
Co. ................................................. 1.7%
Pottsville, PA Hospital Authority Revenue Pottsville
Hospital ............................................ 1.6%
Pennsylvania Housing Financing Agency ................. 1.6%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[PIE CHART]
<TABLE>
<CAPTION>
AAA AA A BBB BB NON-RATED
--- -- - --- -- ---------
<S> <C> <C> <C> <C> <C> <C>
3/31/99 47.5 13.9 8.6 12.9 1.4 15.7
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
AAA AA A BBB BB NON-RATED
--- -- - --- -- ---------
<S> <C> <C> <C> <C> <C> <C>
9/30/98 43.6 14 13.1 12.2 2.5 14.6
</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 MARCH 31, 1999 AS OF SEPTEMBER 30, 1998
<S> <C> <S> <C>
Health Care........... 19.3% Health Care............ 24.2%
Industrial Revenue.... 11.8% Industrial Revenue..... 13.2%
Public Education...... 10.9% Other Care............. 9.7%
Other Care............ 10.7% Public Building........ 9.3%
Public Building....... 8.3% Public Education....... 8.8%
</TABLE>
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 100.7%
PENNSYLVANIA 100.3%
$ 3,500 Allegheny Cnty, PA Arpt Rev Gtr
Pittsburgh Intl Arpt Ser B (FSA
Insd)................................ 6.625% 01/01/22 $ 3,777,095
1,625 Allegheny Cnty, PA C-34 Conv Cap
Apprec............................... 8.625 02/15/04 1,952,600
1,000 Allegheny Cnty, PA Higher Edl Bldg
Auth Univ Rev Duquesne Univ Proj
(AMBAC Insd)......................... 6.500 03/01/11 1,178,310
2,140 Allegheny Cnty, PA Hosp Dev Auth Rev
Hlth Fac Allegheny Vly Sch........... 7.750 02/01/15 2,348,222
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.500 05/15/06 1,053,520
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.500 05/15/07 1,054,130
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.600 05/15/08 1,063,040
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.750 05/15/09 1,074,650
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.750 05/15/10 1,067,050
1,160 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.750 05/15/17 1,189,441
1,000 Allegheny Cnty, PA Hosp Dev Hlth Care
Fac Villa St Joseph.................. 5.875 08/15/18 975,660
910 Allegheny Cnty, PA Indl Dev Auth Med
Cent Rev Presbyterian Med Cent Rfdg
(FHA Gtd)............................ 6.750 02/01/26 1,004,467
2,500 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt Ser A Rfdg........ 6.700 12/01/20 2,711,450
1,945 Allegheny Cnty, PA Res Mtg Comp Int
Single Family Ser Z (GNMA
Collateralized)...................... 6.875 05/01/26 2,078,388
2,000 Beaver Cnty, PA Hosp Auth Rev Med
Cent Beaver PA Inc Ser A (Prerefunded
@ 07/01/02) (AMBAC Insd)............. 6.250 07/01/22 2,187,920
4,500 Beaver Cnty, PA Indl Dev Auth Pollutn
Ctl Rev Collateral Toledo Edison Co
Proj Ser A Rfdg...................... 7.750 09/01/24 4,640,355
6,000 Berks Cnty, PA (Inverse Fltg) (FGIC
Insd)................................ 8.970 11/10/20 7,260,000
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,000 Berks Cnty, PA Muni Auth Rev
Highlands at Wyomissing Proj B....... 6.875% 10/01/17 $ 2,144,560
3,000 Berks Cnty, PA Muni Auth Rev Hlth
Care Pooled Fin Proj................. 5.000 03/01/28 2,882,460
965 Berks Cnty, PA Muni Auth Rev Phoebe
Berks Vlg Inc Proj Rfdg (Prerefunded
@ 05/15/06).......................... 7.500 05/15/13 1,166,010
1,000 Berks Cnty, PA Muni Auth Rev Phoebe
Berks Vlg Inc Proj Rfdg (Prerefunded
@ 05/15/06).......................... 7.700 05/15/22 1,220,940
2,000 Berks Cnty, PA Muni Auth Rev Phoebe
Devitt Homes Proj A1 Rfdg............ 5.500 05/15/15 1,931,460
2,750 Bradford Cnty, PA Indl Dev Auth Solid
Waste Disp Rev Intl Paper Co Proj
A.................................... 6.600 03/01/19 2,991,725
1,000 Cambria Cnty, PA Indl Dev Auth
Pollutn Ctl Rev Bethlehem Steel Corp
Proj Rfdg............................ 7.500 09/01/15 1,083,190
1,000 Chester Cnty, PA Hlth & Edl Fac Auth
Hlth Sys Rev (AMBAC Insd)............ 5.650 05/15/20 1,039,650
1,880 Chester Cnty, PA Hlth & Edl The
Chester Cnty Hosp (MBIA Insd)........ 5.625 07/01/08 2,035,814
760 Chichester Sch Dist PA Ser 1989 (MBIA
Insd)................................ * 06/01/01 701,609
860 Chichester Sch Dist PA Ser 1989 (MBIA
Insd)................................ * 06/01/02 761,134
915 Clarion Cnty, PA Hosp Auth Hosp Rev
Clarion Hosp Proj (Prerefunded @
07/01/01)............................ 8.500 07/01/13 1,017,791
1,000 Clarion Cnty, PA Hosp Auth Hosp Rev
Clarion Hosp Proj (Prerefunded @
07/01/01)............................ 8.500 07/01/21 1,119,880
1,130 Clearfield Cnty, PA Indl Dev Auth
Coml Dev Rev First Mtg K Mart Corp
Ser A Rfdg........................... 7.200 07/01/07 1,200,376
2,230 Cumberland Cnty, PA Muni Auth Rev
First Mtg Carlisle Hosp & Hlth....... 6.800 11/15/23 2,410,831
2,000 Dauphin Cnty, PA Genl Auth Rev Hotel
& Conf Cent Hyatt Regency............ 6.200 01/01/29 1,983,660
1,000 Dauphin Cnty, PA Genl Auth Rev Office
& Pkg Riverfront Office.............. 6.000 01/01/25 1,001,650
1,500 Delaware Cnty, PA Auth Rev First Mtg
Riddle Vlg Proj (Prerefunded @
06/01/02)............................ 9.250 06/01/22 1,762,305
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 500 Delaware Cnty, PA Auth Rev First Mtg
Riddle Vlg Proj Rfdg................. 6.200% 06/01/05 $ 522,890
3,000 Delaware Cnty, PA Auth Rev First Mtg
Riddle Vlg Proj Rfdg................. 7.000 06/01/26 3,127,140
2,000 Erie Cnty, PA Hosp Auth Rev Saint
Vincent Hlth Cent Proj Ser A (MBIA
Insd)................................ 6.375 07/01/22 2,173,000
4,780 Erie, PA Sch Dist Cap Apprec Rfdg
(FSA Insd)........................... * 09/01/24 1,280,849
2,500 Geisinger, PA Auth Hlth Sys Rev PA St
Geisinger Hlth Sys Ser A............. 5.000 08/15/28 2,401,350
790 Grove City, PA Area Hosp Auth Hlth
Fac Rev Grove Manor Proj............. 6.625 08/15/29 787,354
1,000 Harrisburg, PA Auth Office & Pkg Rev
Ser A................................ 6.000 05/01/19 1,005,150
3,000 Harrisburg, PA Auth Rev Pooled Univ
Pgm Ser 11 (MBIA Insd)............... 5.625 09/15/17 3,156,450
900 Hazleton, PA Hlth Svcs Auth Hosp
Rev.................................. 5.500 07/01/07 939,564
650 Hazleton, PA Hlth Svcs Auth Saint
Joseph Med Cent Rfdg................. 5.850 07/01/06 690,417
1,750 Indiana Cnty, PA Indl Dev Auth
Pollutn Ctl Rev Metro Edison Co Proj
A (AMBAC Insd)....................... 5.950 05/01/27 1,875,318
570 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/13 279,374
570 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/14 263,625
500 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/15 217,960
490 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/16 201,434
500 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/17 194,000
500 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/18 182,965
560 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/19 194,275
2,500 Jim Thorpe, PA Area Sch Dist Ser A
(MBIA Insd).......................... 5.375 03/15/22 2,554,425
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,800 Kiski, PA Area Sch Dist (FGIC
Insd)................................ 5.300% 03/01/17 $ 1,841,598
1,000 Lackawanna Cnty, PA Ser A (FGIC Insd)
(a).................................. 5.000 01/01/22 982,500
2,000 Lancaster, PA Ser A (FGIC Insd)...... 4.500 05/01/28 1,817,620
2,000 Lehigh Cnty, PA Genl Purp Auth Cedar
Crest College Rfdg................... 6.700 04/01/26 2,168,300
1,000 Lehigh Cnty, PA Genl Purp Auth Rev
First Mtg Bible Fellowship Proj A.... 6.000 12/15/23 984,700
1,760 Lehigh Cnty, PA Genl Purp Auth Rev
Kidspeace Oblig Group................ 6.000 11/01/23 1,757,870
1,085 Lehigh Cnty, PA Indl Dev Auth Hlth
Fac Rev Lifepath Inc Proj............ 6.300 06/01/28 1,032,898
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 1,095,460
2,000 Lycoming Cnty, PA Auth Hosp Lease Rev
Divine Providence Sisters Ser A...... 6.500 07/01/22 2,138,240
2,500 Lycoming Cnty, PA Auth Hosp Lease Rev
Divine Providence Sisters Ser A
(Prerefunded @ 07/01/00)............. 7.750 07/01/16 2,677,950
3,330 McGuffey Sch Dist PA Ser B (AMBAC
Insd)................................ 4.750 08/01/28 3,150,979
1,000 McKean Cnty, PA Hosp Auth Hosp Rev
Bradford Hosp Proj (Crossover Rfdg @
10/01/00)............................ 8.875 10/01/20 1,095,080
750 McKeesport, PA Indl Dev Auth Rev The
Kroger Corp Allegheny Cnty Rfdg...... 8.650 06/01/11 823,883
2,000 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev................. 6.300 01/01/13 2,013,400
2,250 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev Adult Cmntys
Total Svcs Ser B..................... 5.625 11/15/12 2,329,290
2,500 Montgomery Cnty, PA Indl Dev Auth Rev
Pollutn Ctl Philadelphia Elec Co Ser
A Rfdg............................... 7.600 04/01/21 2,684,175
3,000 Montgomery Cnty, PA Indl Dev Auth Rev
Res Recov (LOC -Banque Paribas)...... 7.500 01/01/12 3,168,780
1,000 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy................... 7.750 09/01/24 1,100,900
1,430 Montour, PA Sch Dist Notes (FGIC
Insd) (a)............................ 4.000 01/01/06 1,417,001
1,200 Montour, PA Sch Dist Notes (FGIC
Insd) (a)............................ 4.200 01/01/09 1,175,940
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 3,300 New Kensington Arnold, PA Sch Dist
(FGIC Insd).......................... 5.500% 05/15/26 $ 3,418,866
1,415 New Kensington Arnold, PA Sch Dist
(Prerefunded @ 05/15/07) (FGIC
Insd)................................ 5.500 05/15/17 1,541,940
1,500 North Penn, PA Wtr Auth Wtr Rev (FGIC
Insd)................................ 6.200 11/01/22 1,622,895
1,000 North Penn, PA Wtr Auth Wtr Rev
(Prerefunded @ 11/01/04) (FGIC
Insd)................................ 6.875 11/01/19 1,155,720
2,500 Northampton Cnty, PA Indl Dev Auth
Rev Pollutn Ctl Bethlehem Steel
Rfdg................................. 7.550 06/01/17 2,712,900
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 1,133,040
2,224 Oil City, PA Towne Tower Proj (FHA
Gtd)................................. 6.750 05/01/20 2,441,389
1,335 Penn Hills, PA (FGIC Insd)........... 5.800 12/01/13 1,447,647
1,600 Penn Hills, PA (FGIC Insd)........... 5.850 12/01/14 1,738,064
1,335 Penn Hills, PA (FGIC Insd)........... 5.900 12/01/17 1,440,278
3,000 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D....... 7.050 12/01/10 3,292,980
1,500 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D....... 7.125 12/01/15 1,649,610
5,000 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Northampton Generating
Ser A................................ 6.600 01/01/19 5,296,000
4,000 Pennsylvania Hsg Fin Agy (Inverse
Fltg)................................ 10.268 10/03/23 4,480,000
1,000 Pennsylvania Hsg Fin Agy Rental Hsg
Rfdg (FNMA Collateralized)........... 6.500 07/01/23 1,067,640
1,000 Pennsylvania Hsg Fin Agy Single
Family
Mtg Ser 40........................... 6.900 04/01/25 1,080,290
2,500 Pennsylvania Hsg Fin Agy Single
Family
Mtg Ser 42........................... 6.850 04/01/25 2,707,825
850 Pennsylvania Infrastructure Invt Auth
Rev Pennvest Subser B (Prerefunded @
09/01/02)............................ 6.800 09/01/10 935,799
2,000 Pennsylvania Intergvtl Coop Auth Spl
Tax Rev City of Philadelphia
(Prerefunded @ 06/15/03)
(MBIA Insd).......................... 5.600 06/15/15 2,139,780
4,000 Pennsylvania St Ctfs Partn (FSA Insd)
(b).................................. 6.250 05/01/16 4,298,360
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 4,700 Pennsylvania St Higher Edl Assistance
Agy Student Ln Rev Rfdg (Inverse
Fltg) (AMBAC Insd)................... 10.149% 09/01/26 $ 5,839,750
2,500 Pennsylvania St Higher Edl Assistance
Agy Student Ln Rev Ser B (Inverse
Fltg) (MBIA Insd).................... 11.447 03/01/20 2,840,625
4,000 Pennsylvania St Higher Edl Assistance
Agy Student Ln Rev Ser C (AMBAC
Insd)................................ 6.400 03/01/22 4,296,440
1,200 Pennsylvania St Higher Edl Fac Auth
College & Univ Rev Bryn Mawr College
(MBIA Insd).......................... 5.625 12/01/27 1,264,500
5,400 Pennsylvania St Higher Edl Fac Auth
Rev Drexel Univ Rfdg................. 6.375 05/01/17 5,828,922
1,000 Philadelphia, PA Auth for Indl Dev
Hlth Care Fac Rev.................... 5.750 05/15/18 979,050
2,505 Philadelphia, PA Auth for Indl Dev
Rev Coml Dev RMK Rfdg................ 7.750 12/01/17 2,789,443
3,000 Philadelphia, PA Auth for Indl Dev
Rev Long-Term Care Maplewood......... 8.000 01/01/24 3,293,760
11,565 Philadelphia, PA Auth Indl Dev Lease
Rev Ser A (MBIA Insd)................ 5.375 02/15/27 11,849,152
3,000 Philadelphia, PA Gas Wks Rev Ser 14
Rfdg (FSA Insd)...................... 6.250 07/01/08 3,309,420
2,800 Philadelphia, PA Hosp & Higher Edl
Fac Auth Hosp Rev Chestnut Hill
Hosp................................. 6.500 11/15/22 2,919,196
760 Philadelphia, PA Hosps & Higher Edl
Fac
Auth Rev............................. 6.300 07/01/14 774,622
985 Philadelphia, PA Hosps & Higher Edl
Fac
Auth Rev............................. 6.400 07/01/17 1,005,961
450 Philadelphia, PA Hosps & Higher Edl
Fac
Auth Rev............................. 6.500 07/01/21 459,959
1,500 Philadelphia, PA Muni Auth Rev Muni
Svcs Bldg Lease Cap Apprec (FSA
Insd)................................ * 03/15/08 1,004,310
3,750 Philadelphia, PA Muni Auth Rev Muni
Svcs Bldg Lease Cap Apprec (FSA
Insd)................................ * 03/15/11 2,126,887
3,775 Philadelphia, PA Muni Auth Rev Muni
Svcs Bldg Lease Cap Apprec (FSA
Insd)................................ * 03/15/12 2,018,795
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 4,500 Philadelphia, PA Muni Auth Rev Muni
Svcs Bldg Lease Cap Apprec (FSA
Insd)................................ * 03/15/13 $ 2,274,345
7,625 Philadelphia, PA Sch Dist Ser A (MBIA
Insd)................................ 4.500% 04/01/23 7,000,741
2,300 Philadelphia, PA Sch Dist Ser A (MBIA
Insd)................................ 4.750 04/01/27 2,179,043
1,800 Philadelphia, PA Wtr & Swr Rev Ser 16
(Prerefunded @ 08/01/01)............. 7.500 08/01/10 1,990,134
2,000 Philadelphia, PA Wtr & Wastewtr Rev
Ser 1999 Rfdg (AMBAC Insd) (a)....... 5.000 12/15/06 2,086,620
2,000 Philadelphia, PA Wtr & Wastewtr Rev
Rfdg (MBIA Insd) (b)................. 5.625 06/15/08 2,186,040
1,470 Pittsburgh, PA Urban Redev Auth Mtg
Rev Ser C1........................... 6.800 10/01/25 1,560,361
1,475 Pittsburgh, PA Urban Redev Auth Mtg
Rev
Ser D................................ 6.250 10/01/17 1,573,191
745 Pittsburgh, PA Urban Redev Auth
Single Family Mtg Rev Ser A (GNMA
Collateralized)...................... 8.000 12/01/20 762,068
4,500 Pottsville, PA Hosp Auth Rev
Pottsville Hosp (ACA-CBI Insd)....... 5.500 07/01/18 4,527,135
2,665 Radnor Twp, PA Sch Dist.............. 5.750 03/15/19 2,831,616
3,000 Randor Twp, PA Sch Dist.............. 5.750 03/15/26 3,185,520
8,500 Saint Mary Hosp Auth Bucks PA
Catholic Hlth Init A................. 5.000 12/01/28 8,163,145
1,000 Scranton-Lackawanna, PA Hlth &
Welfare Auth Rev Marian Cmnty Hosp
Proj Rfdg............................ 7.125 01/15/13 1,073,830
2,000 Shaler, PA Area Sch Dist Cap Apprec
Ser A (FGIC Insd).................... * 11/15/22 590,040
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 2,978,759
355 Somerset Cnty, PA Indl Dev Auth Coml
Dev Rev First Mtg K Mart Corp Ser A
Rfdg................................. 7.200 04/01/07 375,941
650 Springfield Twp, PA Swr Auth Gtd..... 5.800 10/15/18 660,160
1,000 Springfield Twp, PA Swr Auth Gtd..... 6.000 10/15/27 1,018,260
1,210 State Pub Sch Bldg Auth PA College
Rev Montgomery Cnty Cmnty College
Rfdg................................. 5.500 05/01/13 1,312,100
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,275 State Pub Sch Bldg Auth PA College
Rev Montgomery Cnty Cmnty College
Rfdg................................. 5.500% 05/01/14 $ 1,380,672
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 2,460,304
2,935 West Shore, PA Area Auth Hlth Cent
Rev United Methodist Homes Aging Inc
(Prerefunded @ 06/01/01) (LOC -- Bank
of Scotland)......................... 7.400 06/01/16 3,216,026
1,000 West Shore, PA Area Hosp Auth Hosp
Rev Holy Spirit Hosp Proj (MBIA
Insd)................................ 5.700 01/01/22 1,045,040
------------
277,208,353
------------
GUAM 0.4%
1,000 Guam Arpt Auth Rev Ser B............. 6.700 10/01/23 1,101,000
------------
TOTAL INVESTMENTS 100.7%
(Cost $257,326,638)................................................ 278,309,353
LIABILITIES IN EXCESS OF OTHER ASSETS (0.7%)........................ (2,066,255)
------------
NET ASSETS 100%..................................................... $276,243,098
============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $257,326,638)....................... $278,309,353
Cash........................................................ 847,134
Receivables:
Interest.................................................. 4,033,141
Investments Sold.......................................... 1,042,287
Fund Shares Sold.......................................... 194,143
Other....................................................... 17,424
------------
Total Assets.......................................... 284,443,482
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 6,672,327
Income Distributions...................................... 483,178
Fund Shares Repurchased................................... 471,984
Distributor and Affiliates................................ 198,891
Investment Advisory Fee................................... 140,312
Trustees' Deferred Compensation and Retirement Plans........ 158,243
Accrued Expenses............................................ 75,449
------------
Total Liabilities..................................... 8,200,384
------------
NET ASSETS.................................................. $276,243,098
============
NET ASSETS CONSIST OF:
Capital..................................................... $254,905,848
Net Unrealized Appreciation................................. 20,982,715
Accumulated Net Realized Gain............................... 215,810
Accumulated Undistributed Net Investment Income............. 138,725
------------
NET ASSETS.................................................. $276,243,098
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $217,782,124 and 12,129,444 shares of
beneficial interest issued and outstanding)............. $ 17.95
Maximum sales charge (4.75%* of offering price)......... .90
------------
Maximum offering price to public........................ $ 18.85
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $54,695,287 and 3,048,790 shares of
beneficial interest issued and outstanding)............. $ 17.94
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,765,687 and 209,902 shares of
beneficial interest issued and outstanding)............. $ 17.94
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 8,251,710
Other....................................................... 37,500
-----------
Total Income............................................ 8,289,210
-----------
EXPENSES:
Investment Advisory Fee..................................... 824,607
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $269,958, $268,299 and $17,621,
respectively)............................................. 555,878
Shareholder Services........................................ 113,647
Legal....................................................... 15,231
Trustees' Fees and Expenses................................. 13,331
Custody..................................................... 924
Other....................................................... 98,651
-----------
Total Expenses.......................................... 1,622,269
-----------
NET INVESTMENT INCOME....................................... $ 6,666,941
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 941,740
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 26,056,723
End of the Period:
Investments............................................. 20,982,715
-----------
Net Unrealized Depreciation During the Period............... (5,074,008)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(4,132,268)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 2,534,673
===========
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 1999, the Nine Months Ended September 30,
1998 and the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
March 31, 1999 September 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............. $ 6,666,941 $10,088,914 $14,063,081
Net Realized Gain................. 941,740 2,263,231 1,048,949
Net Unrealized
Appreciation/Depreciation....... (5,074,008) 999,468 7,094,335
----------- ----------- -----------
Change in Net Assets from
Operations...................... 2,534,673 13,351,613 22,206,365
----------- ----------- -----------
Distributions from Net Investment
Income:
Class A Shares.................. (5,619,308) (8,483,120) (11,483,502)
Class B Shares.................. (1,189,006) (1,740,891) (2,162,615)
Class C Shares.................. (77,916) (108,827) (132,920)
----------- ----------- -----------
Total Distributions........... (6,886,230) (10,332,838) (13,779,037)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES........... (4,351,557) 3,018,775 8,427,328
----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......... 13,517,887 14,901,436 20,080,197
Net Asset Value of Shares Issued
Through Dividend Reinvestment... 4,001,318 5,939,810 7,972,553
Cost of Shares Repurchased........ (12,986,861) (26,619,385) (36,874,447)
----------- ----------- -----------
CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................... 4,532,344 (5,778,139) (8,821,697)
----------- ----------- -----------
TOTAL INCREASE/DECREASE IN NET
ASSETS.......................... 180,787 (2,759,364) (394,369)
NET ASSETS:
Beginning of the Period........... 276,062,311 278,821,675 279,216,044
----------- ----------- -----------
End of the Period (including
accumulated undistributed net
investment income of $138,725,
$358,014 and $601,938,
respectively)................... $276,243,098 $276,062,311 $278,821,675
============ ============ ============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
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 Nine Months Ended -------------------------------------
Class A Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $18.240 $18.038 $17.490 $17.737 $16.081 $18.062
------- ------- ------- ------- ------- -------
Net Investment Income... .451 .684 .928 .919 .946 .965
Net Realized and
Unrealized
Gain/Loss............. (.272) .216 .528 (.263) 1.660 (1.985)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............ .179 .900 1.456 .656 2.606 (1.020)
Less Distributions from
and in Excess of Net
Investment Income..... .465 .698 .908 .903 .950 .961
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............ $17.954 $18.240 $18.038 $17.490 $17.737 $16.081
======= ======= ======= ======= ======= =======
Total Return* (a)....... .97%** 5.08%** 8.59% 3.86% 16.62% (5.72%)
Net Assets at End of the
Period (In
millions)............. $ 217.8 $ 219.3 $ 223.9 $ 227.4 $ 226.7 $ 203.2
Ratio of Expenses to
Average Net Assets*... 1.02% 1.03% 1.04% 1.09% 1.00% .90%
Ratio of Net Investment
Income to Average Net
Assets*............... 5.01% 5.06% 5.27% 5.32% 5.57% 5.73%
Portfolio Turnover...... 21%** 29%** 46% 57% 28% 8%
*If certain expenses had
not been assumed by Van
Kampen, total return would
have been lower and the
ratios would have been as
follows:
Ratio of Expenses to
Average Net Assets.... N/A N/A N/A 1.09% 1.14% 1.17%
Ratio of Net Investment
Income to Average Net
Assets................ N/A 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
21
<PAGE> 23
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 Nine Months Ended -------------------------------------
Class B Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $18.228 $18.031 $17.484 $17.731 $16.080 $18.055
------- ------- ------- ------- ------- -------
Net Investment Income... .383 .579 .791 .788 .819 .841
Net Realized and
Unrealized
Gain/Loss............. (.272) .217 .531 (.264) 1.659 (1.985)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............ .111 .796 1.322 .524 2.478 (1.144)
Less Distributions from
and in Excess of Net
Investment Income..... .399 .599 .775 .771 .827 .831
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............ $17.940 $18.228 $18.031 $17.484 $17.731 $16.080
======= ======= ======= ======= ======= =======
Total Return* (a)....... .61%** 4.51%** 7.78% 3.07% 15.72% (6.39%)
Net Assets at End of the
Period (In
millions)............. $ 54.7 $ 53.5 $ 51.9 $ 48.4 $ 46.8 $ 37.6
Ratio of Expenses to
Average Net Assets*... 1.78% 1.79% 1.79% 1.85% 1.75% 1.64%
Ratio of Net Investment
Income to Average Net
Assets*............... 4.25% 4.29% 4.51% 4.56% 4.81% 4.98%
Portfolio Turnover...... 21%** 29%** 46% 57% 28% 8%
* If certain expenses had
not been assumed by Van
Kampen, total return would
have been lower and the
ratios would have been as
follows:
Ratio of Expenses to
Average Net Assets.... N/A N/A N/A 1.85% 1.89% 1.90%
Ratio of Net Investment
Income to Average Net
Assets................ N/A 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
22
<PAGE> 24
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 Nine Months Ended -------------------------------------
Class C Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $18.229 $18.031 $17.482 $17.729 $16.079 $18.045
------- ------- ------- ------- ------- -------
Net Investment Income... .382 .576 .795 .788 .812 .850
Net Realized and
Unrealized
Gain/Loss............. (.272) .221 .529 (.264) 1.665 (1.985)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............ .110 .797 1.324 .524 2.477 (1.135)
Less Distributions from
and in Excess of Net
Investment Income..... .399 .599 .775 .771 .827 .831
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............ $17.940 $18.229 $18.031 $17.482 $17.729 $16.079
======= ======= ======= ======= ======= =======
Total Return* (a)....... .61%** 4.51%** 7.78% 3.08% 15.72% (6.34%)
Net Assets at End of the
Period (In
millions)............. $ 3.8 $ 3.3 $ 3.0 $ 3.4 $ 3.4 $ 2.2
Ratio of Expenses to
Average Net Assets*... 1.78% 1.79% 1.79% 1.85% 1.75% 1.63%
Ratio of Net Investment
Income to Average Net
Assets*............... 4.23% 4.29% 4.52% 4.56% 4.76% 4.97%
Portfolio Turnover...... 21%** 29%** 46% 57% 28% 8%
*If certain expenses had
not been assumed by Van
Kampen, total return would
have been lower and the
ratios would have been as
follows:
Ratio of Expenses to
Average Net Assets.... N/A N/A N/A 1.85% 1.90% 1.90%
Ratio of Net Investment
Income to Average Net
Assets................ N/A 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
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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. In July, 1998, the Fund's Board of
Trustees approved a change in the Fund's fiscal year end from December 31 to
September 30.
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--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using 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.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 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 September 30, 1998, the Fund had an accumulated capital loss carryforward for
tax purposes of $725,930 which expires on September 30, 2003.
At March 31, 1999, for federal income tax purposes, the cost of long-term
investments is $257,326,638; the aggregate gross unrealized appreciation is
$21,120,455 and the aggregate gross unrealized depreciation is $137,740,
resulting in net unrealized appreciation on long-term investments of
$20,982,715.
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.
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 March 31, 1999, the Fund recognized expenses of
approximately $7,700 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 March 31, 1999, the Fund recognized expenses of
approximately $56,900 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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
March 31, 1999, the Fund recognized expenses of approximately $76,400. 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 March 31, 1999, capital aggregated $197,557,017, $53,611,177 and
$3,737,654 for Classes A, B and C, respectively. For the six months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 456,343 $ 8,238,052
Class B.......................................... 244,271 4,407,053
Class C.......................................... 48,449 872,782
-------- ------------
Total Sales........................................ 749,063 $ 13,517,887
======== ============
Dividend Reinvestment:
Class A.......................................... 180,407 $ 3,257,489
Class B.......................................... 38,735 698,834
Class C.......................................... 2,494 44,995
-------- ------------
Total Dividend Reinvestment........................ 221,636 $ 4,001,318
======== ============
Repurchases:
Class A.......................................... (529,068) $ (9,552,316)
Class B.......................................... (169,143) (3,051,813)
Class C.......................................... (21,099) (382,732)
-------- ------------
Total Repurchases.................................. (719,310) $(12,986,861)
======== ============
</TABLE>
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $195,613,792, $51,557,103 and
$3,202,609 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 520,818 $ 9,392,200
Class B.......................................... 265,723 4,794,537
Class C.......................................... 39,580 714,699
---------- ------------
Total Sales........................................ 826,121 $ 14,901,436
========== ============
Dividend Reinvestment:
Class A.......................................... 268,259 $ 4,841,424
Class B.......................................... 56,752 1,023,605
Class C.......................................... 4,146 74,781
---------- ------------
Total Dividend Reinvestment........................ 329,157 $ 5,939,810
========== ============
Repurchases:
Class A.......................................... (1,181,685) $(21,304,126)
Class B.......................................... (266,552) (4,793,744)
Class C.......................................... (28,889) (521,515)
---------- ------------
Total Repurchases.................................. (1,477,126) $(26,619,385)
========== ============
</TABLE>
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1997, capital 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>
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months months ended March 31, 1999, Van Kampen as Distributor
for the Fund, received commissions on sales of the Fund's Class A shares of
approximately $21,800 and CDSC on redeemed shares of approximately $32,900.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the six month period ending March 31, 1999, the cost of purchases and
proceeds from sales of investments, excluding short-term investments were
$69,156,947 and $57,959,940, 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
that may be 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).
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 March 31, 1999, are payments retained by Van Kampen of
approximately $214,800.
30
<PAGE> 32
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
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
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
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial advisor 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.VANKAMPEN.COM--to view a prospectus, select Download
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.VANKAMPEN.COM and selecting Contact Us
31
<PAGE> 33
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
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief
Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 PARKVIEW PLAZA
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
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 LLP
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., 1999 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 August 31, 1999, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
32
<PAGE> 34
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> PA TAX FREE CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999<F1>
<PERIOD-START> OCT-01-1998<F1>
<PERIOD-END> MAR-31-1999<F1>
<INVESTMENTS-AT-COST> 257,326,638<F1>
<INVESTMENTS-AT-VALUE> 278,309,353<F1>
<RECEIVABLES> 5,269,571<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 864,558<F1>
<TOTAL-ASSETS> 284,443,482<F1>
<PAYABLE-FOR-SECURITIES> 6,672,327<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,528,057<F1>
<TOTAL-LIABILITIES> 8,200,384<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197,557,017
<SHARES-COMMON-STOCK> 12,129,444
<SHARES-COMMON-PRIOR> 12,021,762
<ACCUMULATED-NII-CURRENT> 138,725<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 215,810<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 20,982,715<F1>
<NET-ASSETS> 217,782,124
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 8,251,710<F1>
<OTHER-INCOME> 37,500<F1>
<EXPENSES-NET> (1,622,269)<F1>
<NET-INVESTMENT-INCOME> 6,666,941<F1>
<REALIZED-GAINS-CURRENT> 941,740<F1>
<APPREC-INCREASE-CURRENT> (5,074,008)<F1>
<NET-CHANGE-FROM-OPS> 2,534,673<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (5,619,308)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 456,343
<NUMBER-OF-SHARES-REDEEMED> (529,068)
<SHARES-REINVESTED> 180,407
<NET-CHANGE-IN-ASSETS> (1,500,028)
<ACCUMULATED-NII-PRIOR> 358,014<F1>
<ACCUMULATED-GAINS-PRIOR> (725,930)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 824,607<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,622,269<F1>
<AVERAGE-NET-ASSETS> 218,256,622
<PER-SHARE-NAV-BEGIN> 18.240
<PER-SHARE-NII> 0.451
<PER-SHARE-GAIN-APPREC> (0.272)
<PER-SHARE-DIVIDEND> (0.465)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.954
<EXPENSE-RATIO> 1.02
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> PA TAX FREE CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999<F1>
<PERIOD-START> OCT-01-1998<F1>
<PERIOD-END> MAR-31-1999<F1>
<INVESTMENTS-AT-COST> 257,326,638<F1>
<INVESTMENTS-AT-VALUE> 278,309,353<F1>
<RECEIVABLES> 5,269,571<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 864,558<F1>
<TOTAL-ASSETS> 284,443,482<F1>
<PAYABLE-FOR-SECURITIES> 6,672,327<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,528,057<F1>
<TOTAL-LIABILITIES> 8,200,384<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,611,177
<SHARES-COMMON-STOCK> 3,048,790
<SHARES-COMMON-PRIOR> 2,934,927
<ACCUMULATED-NII-CURRENT> 138,725<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 215,810<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 20,982,715<F1>
<NET-ASSETS> 54,695,287
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 8,251,710<F1>
<OTHER-INCOME> 37,500<F1>
<EXPENSES-NET> (1,622,269)<F1>
<NET-INVESTMENT-INCOME> 6,666,941<F1>
<REALIZED-GAINS-CURRENT> 941,740<F1>
<APPREC-INCREASE-CURRENT> (5,074,008)<F1>
<NET-CHANGE-FROM-OPS> 2,534,673<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,189,006)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 244,271
<NUMBER-OF-SHARES-REDEEMED> (169,143)
<SHARES-REINVESTED> 38,735
<NET-CHANGE-IN-ASSETS> 1,197,433
<ACCUMULATED-NII-PRIOR> 358,014<F1>
<ACCUMULATED-GAINS-PRIOR> (725,930)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 824,607<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,622,269<F1>
<AVERAGE-NET-ASSETS> 53,795,214
<PER-SHARE-NAV-BEGIN> 18.228
<PER-SHARE-NII> 0.383
<PER-SHARE-GAIN-APPREC> (0.272)
<PER-SHARE-DIVIDEND> (0.399)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.940
<EXPENSE-RATIO> 1.78
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> PA TAX FREE CLASS C
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999<F1>
<PERIOD-START> OCT-01-1998<F1>
<PERIOD-END> MAR-31-1999<F1>
<INVESTMENTS-AT-COST> 257,326,638<F1>
<INVESTMENTS-AT-VALUE> 278,309,353<F1>
<RECEIVABLES> 5,269,571<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 864,558<F1>
<TOTAL-ASSETS> 284,443,482<F1>
<PAYABLE-FOR-SECURITIES> 6,672,327<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,528,057<F1>
<TOTAL-LIABILITIES> 8,200,384<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,737,654
<SHARES-COMMON-STOCK> 209,902
<SHARES-COMMON-PRIOR> 180,058
<ACCUMULATED-NII-CURRENT> 138,725<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 215,810<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 20,982,715<F1>
<NET-ASSETS> 3,765,687
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 8,251,710<F1>
<OTHER-INCOME> 37,500<F1>
<EXPENSES-NET> (1,622,269)<F1>
<NET-INVESTMENT-INCOME> 6,666,941<F1>
<REALIZED-GAINS-CURRENT> 941,740<F1>
<APPREC-INCREASE-CURRENT> (5,074,008)<F1>
<NET-CHANGE-FROM-OPS> 2,534,673<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (77,916)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48,449
<NUMBER-OF-SHARES-REDEEMED> (21,099)
<SHARES-REINVESTED> 2,494
<NET-CHANGE-IN-ASSETS> 483,382
<ACCUMULATED-NII-PRIOR> 358,014<F1>
<ACCUMULATED-GAINS-PRIOR> (725,930)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 824,607<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,622,269<F1>
<AVERAGE-NET-ASSETS> 3,533,234
<PER-SHARE-NAV-BEGIN> 18.229
<PER-SHARE-NII> 0.382
<PER-SHARE-GAIN-APPREC> (0.272)
<PER-SHARE-DIVIDEND> (0.399)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.940
<EXPENSE-RATIO> 1.78
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
