<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
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
Report of Independent Accountants................ 32
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
October 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the Asian crisis appears to be behind us, new concerns are always
emerging. In the coming months, we'll likely hear more about how the year 2000
computer problem may affect the markets or that we're overdue for a correction.
While the markets could undoubtedly suffer as a result of these or any number of
other events, we encourage you to focus on your long-term investment goals.
Although nothing is certain, history has shown us that over time, the markets
tend to recover--and most investors want to be positioned to take advantage of
any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree, keeping the economy growing at a
healthy pace. High levels of consumer confidence fueled this heavy retail
purchasing activity, pushing the personal savings rate down to a record low as
spending rates outpaced income growth. Although we experienced a slowdown during
the second quarter of 1999, economic growth accelerated toward the end of the
reporting period. The growth rate of the nation's gross domestic product (GDP)
dipped to 1.6 percent for the second quarter of 1999, but climbed back up to 4.8
percent in the third quarter.
EMPLOYMENT SITUATION
The strong job market helped to support the health of the economy. During
the reporting period, the unemployment rate reached its lowest level in almost
30 years, and wages continued to climb. The wage pressures were balanced
somewhat by productivity gains, but they ultimately pushed the cost of labor
higher, as evidenced by the sharp jump in the Employment Cost Index in the
second quarter of 1999.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index (CPI) report. The Federal Reserve remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
two of its interest rate cuts from the fall of 1998, raising rates in June and
August 1999 to keep the economy from overheating.
INTEREST RATES AND INFLATION
September 30, 1997, through September 30, 1999
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Dec 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Mar 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
Jun 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Sep 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Dec 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Mar 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
Jun 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Sep 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1).... (2.65%) (3.37%) (3.37%)
One-year total return(2)................. (7.28%) (7.07%) (4.29%)
Five-year average annual total
return(2).............................. 4.78% 4.78% 5.01%
Ten-year average annual total
return(2).............................. 6.49% N/A N/A
Life-of-Fund average annual total
return(2).............................. 7.35% 4.26% 3.74%
Commencement date........................ 05/01/87 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 5.26% 4.74% 4.74%
Taxable equivalent distribution
rate(4)................................ 8.46% 7.62% 7.62%
SEC Yield(5)............................. 4.56% 4.04% 4.12%
</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 September 30, 1999.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
See the Comparative 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
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of Lehman
Brothers Municipal Bond Index over time.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Pennsylvania Tax Free Income Fund vs. the Lehman Brothers
Municipal Bond Index (September 30, 1989 through September 30, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- ------------------------------
Fund's Total Return
1 Year Total Annual = -7.28%
5 Year Avg. Annual = 4.78%
10 Year Avg. Annual = 6.49%
- ------------------------------
<TABLE>
<CAPTION>
VAN KAMPEN PENNSYLVANIA TAX FREE LEHMAN BROTHERS MUNICIPAL BOND
INCOME FUND INDEX
-------------------------------- ------------------------------
<S> <C> <C>
Sep 1989 9525 10000
9624 10122
9761 10299.1
9896 10383.6
9878 10334.8
9979 10426.8
10011 10429.9
9889 10364.8
10050 10580.5
10122 10673.6
10291 10630.5
10127 10673.5
Sep 1990 10154 10679.9
10267 10873.2
10480 11091.8
10621 11140.6
10736 11289.9
10879 11388.1
10865 11392.6
10989 11544.1
11134 11646.9
11058 11635.2
11191 11777.2
11380 11932.6
Sep 1991 11529 12087.8
11621 12196.6
11678 12230.7
11858 12493.7
11981 12522.4
12018 12526.2
12047 12531.2
12157 12842.7
12313 12791.9
12484 13006.8
12918 13397
12707 13265.7
Sep 1992 12783 13351.9
12601 13221.1
12866 13457.8
13055 13695
13222 13752.7
13786 14250.6
13557 14099.5
13758 14241.9
13850 14321.7
14133 14560.8
14082 14579.8
14431 14883
Sep 1993 14627 15052.7
14646 15081.3
14455 14948.6
14784 15264
14973 15438
14563 15038.2
13878 14428.1
13962 14548.7
14121 14675.3
14038 14585.8
14307 14852.7
14349 14904.7
Sep 1994 14144 14685.6
13870 14424.2
13578 14163.1
13939 14474.7
14346 14888.7
14781 15321.9
14903 15498.1
14867 15516.7
15264 16011.7
15059 15872.4
15174 16023.2
15388 16226.7
Sep 1995 15432 16328.9
15712 16565.7
16075 16840.7
16256 17002.4
16317 17131.6
16203 17015.1
15977 16797.3
15908 16750.2
15942 16743.5
16060 16926.1
16243 17080.1
16238 17076.7
Sep 1996 16479 17315.7
16646 17511.4
16937 17831.9
16884 17757
16850 17790.7
16980 17954.4
16819 17715.5
16931 17864.4
17163 18132.4
17326 18326.4
17808 18834
17655 18657
Sep 1997 17850 18879
17967 18999.8
18063 19111.9
18334 19391
18494 19590.7
18522 19596.6
18540 19614.2
18445 19526.9
18732 19634.5
18802 19911.8
18810 19961.6
19059 20271
Sep 1998 19266 20524.4
19200 20524.4
19283 20596.2
19301 20647.7
19491 20893.4
19435 20801.5
19454 20830.6
19505 20882.7
19383 20761.6
19117 20462.6
19115 20536.3
18847 20372
Sep 1999 18756 20380.1
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
PENNSYLVANIA TAX FREE INCOME FUND
We recently spoke with Dennis S. Pietrzak, portfolio manager of the Van Kampen
Pennsylvania Tax Free Income Fund, about the key events and economic forces that
shaped the markets during the past year. Mr. Pietrzak has managed the Fund since
1995 and worked in the investment industry since 1968. He is joined by Peter
W. Hegel, chief investment officer for fixed-income investments. The following
comments reflect their views on the Fund's performance during the 12 months
ended September 30, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types suffered price declines over the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve's two interest
rate increases during the summer, the bond market was hurt by the nation's
strong economic growth because it continually sparked inflation fears, which
caused concern about future rate hikes. Because of low demand for municipal
bonds during the period, these conditions hurt municipals more than their
taxable counterparts--corporate and Treasury bonds. The yields on newly issued
30-year AAA municipal bonds leaped almost a full percentage point during the
12-month period, so the prices of existing bonds dropped concurrently.
The interest rate increases also served to suppress municipal bond supply.
Many municipalities chose not to issue new bonds or refinance outstanding bonds
because of the higher interest rates they would have to pay in the current
marketplace. In fact, the supply of new bonds was down more than 20 percent
during the first nine months of 1999 compared with the previous year. Supply was
down in almost every sector, although electric utilities, environment-related,
and health-care bonds saw the most significant drops. The lower supply helped
support bond prices somewhat because that meant more competition for available
bonds.
The Pennsylvania municipal market remained active and strong, as
greater-than-expected tax revenues continued to increase budget surpluses. The
health-care industry remains the one trouble spot in the bright economic
picture, with increasing numbers of Pennsylvania hospitals and health systems
experiencing financial pressures.
Q DID MUNICIPAL BONDS BENEFIT FROM THE STRONG ECONOMY?
A Yes. The effects of the healthy economy were reflected in the good credit
conditions in the municipal market. With the exception of the health-care
sector, overall credit quality remained high, and we witnessed a number of
credit upgrades as tax revenues kept municipal finances strong. In addition,
municipal bond yields remained very attractive compared with Treasury bonds,
especially when considering the tax advantages of municipals. At the end of the
reporting period, AAA-rated municipals were offering yields that were about 90
percent of comparable Treasury yields, making municipals very attractive for
investors in higher income tax brackets.
5
<PAGE> 7
Another positive effect was that credit spreads--the difference in yields
between higher- and lower-quality bonds--widened toward the end of the reporting
period. We have considerable experience in researching and selecting those
lower-quality bonds that we feel have been undervalued, so this gave us a much
wider range from which to choose. While we are always looking for bonds in this
area that might benefit the Fund, the widening of credit spreads meant that the
Fund received better yields from these bonds than we had earlier in the
reporting period.
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE FUND IN THESE CONDITIONS?
A We increased the Fund's overall credit quality by purchasing a large
proportion of AAA bonds, which comprised more than 50 percent of the
portfolio at the end of September. Earlier in the reporting period, credit
spreads remained tight, meaning that the difference in yields between
high-quality and lower-quality bonds was minimal. As a result, we favored AAA
bonds because they provided almost as much yield as lower-rated bonds, but have
less credit risk. These securities temporarily hurt the Fund because they
reacted more strongly to the recent interest-rate increases and therefore
suffered greater price declines than lower-rated bonds did. However, the heavy
AAA-bond allocation should benefit the Fund if interest rates decline in the
future.
Another major strategy for the Fund was to increase its duration, or
sensitivity to interest-rate changes. We feel that this strategy will work well
in a declining interest-rate environment because it should allow the Fund to
participate more fully in a market rally. In the short term, however, the longer
duration negatively affected the Fund's total return as interest rates climbed.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE TO YOU?
A Some health-care issues remain attractive, although we significantly
reduced our allocation of these bonds because of the challenges faced by
many hospitals and health care organizations as a result of managed care
and changing Medicare reimburse-ment policies. There are still a number of
strong, financially healthy issuers in this sector, so we retained our
high-quality holdings and sold many of our lower-rated health care securities as
the sector weakened. Health care, at 14.5 percent of the portfolio, remained the
Fund's largest sector at the end of the reporting period. Although we gave up
some higher-yielding bonds, reducing the health care exposure ultimately
benefited the Fund's net asset value because that sector continued to experience
price volatility during the period.
While we reduced our health-care exposure, we did find some very attractive
issues that are being used to support continuing care retirement centers. These
bonds have generally offered very attractive yields, and we believe that they
have strong underlying credit quality. In addition, we were pleased with some
public building bonds we purchased that will be used to finance state-leased
office space near the capitol. For additional portfolio highlights, please refer
to page 9.
6
<PAGE> 8
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A The Fund's total return performance was disappointing because of the
overall downturn in bond prices and the Fund's longer duration. For the
one-year period ended September 30, 1999, the Fund's Class A shares
returned -2.65 percent(1) at net asset value. By comparison, the Lehman Brothers
Municipal Bond Index produced a -0.70 percent total return for the same period.
This index is an unmanaged, broad-based statistical composite of municipal bonds
and does not reflect any commissions that would be paid by an investor
purchasing the securities it represents.
On the positive side, the Fund's dividend remained unchanged over the past
12 months even though many other municipal bond funds experienced dividend
decreases. The Fund's monthly tax-exempt dividend of $0.0775 per Class A share
translates to a distribution rate of 5.26 percent(3), which is equivalent to a
yield of 8.46 percent(4) for an investor in the 37.8 percent combined federal
and state income tax bracket. Please refer to the chart and footnotes on page 3
for additional performance results. Past performance does not guarantee future
performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A We will probably continue to see a slowing economy in the fourth quarter
of 1999, which may be partly the result of year 2000 concerns. Wage
increases will likely keep inflation concerns at the forefront, although
increasing productivity should be able to offset higher wage costs for
employers. With those factors in mind, we are positioning the Fund to perform
well in a lower interest-rate environment by keeping its duration longer than
its benchmark. This would make the Fund better able to participate in a market
rally.
Preparations for the turn of the millennium may also limit new issuance and
general market activity as we near the end of the year. Many municipal issuers
may postpone issuing bonds until they feel certain that any potential computer
problems have been avoided, meaning that we will probably see very low levels of
new issuance in November and December. In the meantime, we will continue to
focus on finding attractive higher-yielding bonds and protecting the Fund from
bond calls as much as possible. We will also use our research capabilities to
monitor the health-care sector for attractive opportunities throughout the
coming months.
[SIG.]
Dennis S. Pietrzak
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 9
GLOSSARY OF TERMS
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.
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.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
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 (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
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.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 1999*
Philadelphia, PA Authority Industrial Development
Lease Revenue..................................... 4.1%
Saint Mary Hospital Authority Bucks PA Catholic
Health Initiative................................. 2.8%
Berks County, PA.................................... 2.6%
Pennsylvania State Higher Education Facility
Authority Revenue Drexel University............... 2.1%
Pennsylvania State Higher Education Assistance
Agency Student Loan Revenue....................... 2.1%
CREDIT QUALITY*
AS OF SEPTEMBER 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA BB/BA
------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C>
As of September 30, 1999 50.2 12.2 9.6 10.2 1.4
<CAPTION>
NON-RATED
---------
<S> <C>
As of September 30, 1999 16.4
</TABLE>
AS OF SEPTEMBER 30, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA BB/BA
------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C>
As of September 30, 1998 43.6 14 13.1 12.2 2.5
<CAPTION>
NON-RATED
---------
<S> <C>
As of September 30, 1998 14.6
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY FOR THE PERIOD ENDED SEPTEMBER 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDEND
--------
<S> <C>
Oct 1998 0.0775
Nov 1998 0.0775
Dec 1998 0.0775
Jan 1999 0.0775
Feb 1999 0.0775
Mar 1999 0.0775
Apr 1999 0.0775
May 1999 0.0775
Jun 1999 0.0775
Jul 1999 0.0775
Aug 1999 0.0775
Sep 1999 0.0775
</TABLE>
The dividend history represents past performance of the Fund's Class A shares
and does not predict the Fund's future distributions.
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Health Care 14.5 24.2
Industrial Revenue 12.1 13.2
Other Care 11.9 9.7
Public Building 11.6 9.3
Public Education 9.5 8.8
</TABLE>
*As a Percentage of Long-Term Investments
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 101.6%
PENNSYLVANIA 101.2%
$ 2,845 Allegheny Cnty, PA Ser C-49 (MBIA
Insd) (a)............................ 5.000% 04/01/07 $ 2,830,860
3,500 Allegheny Cnty, PA Arpt Rev Gtr
Pittsburgh Intl Arpt Ser B (FSA
Insd)................................ 6.625 01/01/22 3,689,175
1,625 Allegheny Cnty, PA C-34 Conv Cap
Apprec............................... 8.625 02/15/04 1,880,905
5,000 Allegheny Cnty, PA Ctfs Partn (AMBAC
Insd)................................ 5.000 12/01/24 4,369,050
1,000 Allegheny Cnty, PA Higher Edl Bldg
Auth Univ Rev Duquesne Univ Proj
(AMBAC Insd)......................... 6.500 03/01/11 1,114,950
1,000 Allegheny Cnty, PA Hosp Dev Hlthcare
Fac Villa St Joseph.................. 5.875 08/15/18 913,270
2,140 Allegheny Cnty, PA Hosp Dev Auth Rev
Hlth Fac Allegheny Vly Sch........... 7.750 02/01/15 2,273,707
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.500 05/15/06 987,990
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.500 05/15/07 980,500
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.600 05/15/08 979,870
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.750 05/15/09 984,060
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev
Hosp Saint Francis Med Cent Proj..... 5.750 05/15/10 975,510
900 Allegheny Cnty, PA Indl Dev Auth Med
Cent Rev Presbyterian Med Cent Rfdg
(FHA Gtd)............................ 6.750 02/01/26 955,539
2,500 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt Ser A Rfdg........ 6.700 12/01/20 2,571,125
1,000 Allegheny Cnty, PA Industrial Dev
Auth Lease Rev....................... 6.625 09/01/24 986,730
1,945 Allegheny Cnty, PA Res Mtg Comp Int
Single Family Ser Z (GNMA
Collateralized)...................... 6.875 05/01/26 2,015,856
6,000 Berks Cnty, PA (Inverse Fltg) (FGIC
Insd)................................ 8.630 11/10/20 6,885,000
2,000 Berks Cnty, PA Muni Auth Rev Phoebe
Devitt Homes Proj A1 Rfdg............ 5.500 05/15/15 1,809,040
2,000 Berks Cnty, PA Muni Auth Rev
Highlands at Wyomissing Proj B....... 6.875 10/01/17 2,086,100
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 3,000 Berks Cnty, PA Muni Auth Rev Hlthcare
Pooled Fin Proj...................... 5.000% 03/01/28 $ 2,583,930
925 Berks Cnty, PA Muni Auth Rev Phoebe
Berks Vlg Inc Proj Rfdg (Prerefunded
@ 05/15/06).......................... 7.500 05/15/13 1,082,204
1,000 Berks Cnty, PA Muni Auth Rev Phoebe
Berks Vlg Inc Proj Rfdg (Prerefunded
@ 05/15/06).......................... 7.700 05/15/22 1,181,690
2,750 Bradford Cnty, PA Indl Dev Auth Solid
Waste Disp Rev Intl Paper Co Proj
A.................................... 6.600 03/01/19 2,856,617
1,100 Bucks Cnty, PA Indl Dev Auth Rev
First Mtg Hlth Care Fac Chandler..... 6.100 05/01/14 1,037,817
1,000 Cambria Cnty, PA Indl Dev Auth
Pollutn Ctl Rev Bethlehem Steel Corp
Proj Rfdg............................ 7.500 09/01/15 1,049,840
1,000 Chester Cnty, PA Hlth & Edl Fac Auth
Hlth Sys Rev (AMBAC Insd)............ 5.650 05/15/20 976,160
1,880 Chester Cnty, PA Hlth & Edl The
Chester Cnty Hosp (MBIA Insd)........ 5.625 07/01/08 1,959,392
760 Chichester Sch Dist PA Ser 1989 (MBIA
Insd)................................ * 06/01/01 707,340
860 Chichester Sch Dist PA Ser 1989 (MBIA
Insd)................................ * 06/01/02 763,869
1,130 Clearfield Cnty, PA Indl Dev Auth
Coml Dev Rev First Mtg K Mart Corp
Ser A Rfdg........................... 7.200 07/01/07 1,176,692
1,250 Crawford Cnty, PA Hosp Auth Senior
Living Fac Rev....................... 6.125 08/15/19 1,215,638
2,000 Dauphin Cnty, PA Genl Auth Rev Hotel
& Conf Cent Hyatt Regency............ 6.200 01/01/29 1,867,360
1,500 Dauphin Cnty, PA Genl Auth Rev Office
& Pkg Riverfront Office.............. 6.000 01/01/25 1,404,735
1,240 Delaware Cnty, PA Auth College
Cabrini College (a).................. 5.750 07/01/23 1,192,545
1,500 Delaware Cnty, PA Auth Rev First Mtg
Riddle Vlg Proj (Prerefunded @
06/01/02)............................ 9.250 06/01/22 1,704,225
500 Delaware Cnty, PA Auth Rev First Mtg
Riddle Vlg Proj Rfdg................. 6.200 06/01/05 509,845
3,000 Delaware Cnty, PA Auth Rev First Mtg
Riddle Vlg Proj Rfdg................. 7.000 06/01/26 3,025,770
3,000 Delaware Cnty, PA Pollutn Ctl Peco
Energy Co. Proj Ser A Rfdg........... 5.200 04/01/21 3,000,000
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,500 East Whiteland Twp, PA Ser A (FSA
Insd)................................ 5.250% 09/01/25 $ 1,385,280
2,000 Erie Cnty, PA Hosp Auth Rev Saint
Vincent Hlth Cent Proj Ser A (MBIA
Insd)................................ 6.375 07/01/22 2,101,880
4,780 Erie, PA Sch Dist Cap Apprec Rfdg
(FSA Insd)........................... * 09/01/24 1,093,712
790 Grove City, PA Area Hosp Auth Hlth
Fac Rev Grove Manor Proj............. 6.625 08/15/29 731,730
1,000 Harrisburg, PA Auth Office & Pkg Rev
Ser A................................ 6.000 05/01/19 948,690
3,000 Harrisburg, PA Auth Rev Pooled Univ
Pgm Ser 11 (MBIA Insd)............... 5.625 09/15/17 2,979,810
820 Hazleton, PA Hlth Svcs Auth Hosp
Rev.................................. 5.500 07/01/07 815,736
650 Hazleton, PA Hlth Svcs Auth Saint
Joseph Med Cent Rfdg................. 5.850 07/01/06 661,453
560 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/19 173,146
1,750 Indiana Cnty, PA Indl Dev Auth
Pollutn Ctl Rev Metropolitan Edison
Co Proj A (AMBAC Insd)............... 5.950 05/01/27 1,750,525
570 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/14 243,071
500 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/15 199,940
490 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/16 183,559
500 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/17 175,605
500 Indiana Cnty, PA Indl Dev Auth Rev
Cap Apprec Student Coop Assn B (AMBAC
Insd)................................ * 11/01/18 164,510
1,800 Kiski, PA Area Sch Dist (FGIC
Insd)................................ 5.300 03/01/17 1,719,702
1,000 Lancaster Cnty, PA Hosp Auth Str
Annes Home........................... 6.600 04/01/24 955,690
2,000 Lehigh Cnty, PA Genl Purp Auth Cedar
Crest College Rfdg................... 6.700 04/01/26 2,076,680
1,000 Lehigh Cnty, PA Genl Purp Auth Rev
First Mtg Bible Fellowship Proj A.... 6.000 12/15/23 918,830
1,760 Lehigh Cnty, PA Genl Purp Auth Rev
Kidspeace Oblig Group................ 6.000 11/01/23 1,635,568
1,085 Lehigh Cnty, PA Indl Dev Auth Hlth
Fac Rev Lifepath Inc Proj............ 6.300 06/01/28 960,551
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 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 $ 1,055,670
2,000 Lycoming Cnty, PA Auth Hosp Lease Rev
Divine Providence Sisters Ser A...... 6.500 07/01/22 2,054,160
2,000 McGuffey Sch Dist PA Ser B (AMBAC
Insd)................................ 4.750 08/01/28 1,666,120
1,000 McKean Cnty, PA Hosp Auth Hosp Rev
Bradford Hosp Proj (Crossover Rfdg @
10/01/00)............................ 8.875 10/01/20 1,065,690
2,000 McKeesport, PA Area Sch Dist Cap
Apprec............................... * 10/01/15 803,560
1,250 McKeesport, PA Area Sch Dist Cap
Apprec Ser A......................... * 10/01/13 572,900
750 McKeesport, PA Indl Dev Auth Rev The
Kroger Corp Allegheny Cnty Rfdg...... 8.650 06/01/11 802,268
1,000 Montgomery Cnty, PA Higher Edl & Hlth
Auth Rev............................. 6.625 07/01/19 945,770
2,000 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev................. 6.300 01/01/13 1,920,880
2,250 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev Adult Cmntys
Total Svcs Ser B..................... 5.625 11/15/12 2,192,850
2,500 Montgomery Cnty, PA Indl Dev Auth Rev
Pollutn Ctl Philadelphia Elec Co Ser
A Rfdg............................... 7.600 04/01/21 2,640,525
3,000 Montgomery Cnty, PA Indl Dev Auth Rev
Res Recov (LOC -Banque Paribas)...... 7.500 01/01/12 3,140,970
990 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy................... 7.750 09/01/24 1,047,826
3,300 New Kensington Arnold, PA Sch Dist
(FGIC Insd).......................... 5.500 05/15/26 3,168,462
800 North Penn, PA Wtr Auth Rev (FGIC
Insd)................................ 6.200 11/01/22 837,824
1,000 North Penn, PA Wtr Auth Rev
(Prerefunded @ 11/01/04) (FGIC
Insd)................................ 6.875 11/01/19 1,114,730
700 North Penn, PA Wtr Auth Rev
(Prerefunded @ 11/01/02) (FGIC
Insd)................................ 6.200 11/01/22 744,541
2,500 Northampton Cnty, PA Indl Dev Auth
Rev Pollutn Ctl Bethlehem Steel
Rfdg................................. 7.550 06/01/17 2,634,400
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 1,091,670
1,750 Northeastern PA Hosp & Edl Auth Sch
Rev WY Seminary Proj (MBIA Insd)..... 4.750 10/01/28 1,456,263
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,200 Oil City, PA Towne Tower Proj (FHA
Gtd)................................. 6.750% 05/01/20 $ 2,286,221
1,500 Penn Cambria Sch Dist PA Cap
Apprec............................... * 08/15/21 406,725
1,500 Penn Cambria Sch Dist PA Cap
Apprec............................... * 08/15/22 382,320
1,300 Penn Hills, PA (FGIC Insd)........... 5.850 12/01/14 1,329,250
300 Penn Hills, PA (Prerefunded
@12/01/07) (FGIC Insd)............... 5.850 12/01/14 321,375
75 Penn Hills, PA (FGIC Insd)........... 5.900 12/01/17 76,125
1,260 Penn Hills, PA (Prerefunded
@12/01/07) (FGIC Insd)............... 5.900 12/01/17 1,354,500
335 Penn Hills, PA (Prerefunded
@12/01/07) (FGIC Insd)............... 5.800 12/01/13 357,978
3,000 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D....... 7.050 12/01/10 3,232,800
1,500 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D....... 7.125 12/01/15 1,614,375
5,000 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Northampton Generating
Ser A................................ 6.600 01/01/19 5,144,750
4,000 Pennsylvania Hsg Fin Agy (Inverse
Fltg)................................ 9.761 10/03/23 4,350,000
1,000 Pennsylvania Hsg Fin Agy Rental Hsg
Rfdg (FNMA Collateralized)........... 6.500 07/01/23 1,048,360
1,000 Pennsylvania Hsg Fin Agy Single
Family Mtg Ser 40.................... 6.900 04/01/25 1,047,870
2,500 Pennsylvania Hsg Fin Agy Single
Family Mtg Ser 42.................... 6.850 04/01/25 2,620,050
850 Pennsylvania Infrastructure Invt Auth
Rev Pennvest Subser B (Prerefunded @
09/01/02)............................ 6.800 09/01/10 922,497
2,500 Pennsylvania Intergvtl Coop Auth Spl
Tax Rev (FGIC Insd).................. 4.750 06/15/19 2,155,650
4,000 Pennsylvania St Ctfs Partn (FSA Insd)
(b).................................. 6.250 05/01/16 4,176,400
4,700 Pennsylvania St Higher Edl Assistance
Agy Student Ln Rev Rfdg (Inverse
Fltg) (AMBAC Insd)................... 9.267 09/01/26 5,469,625
2,500 Pennsylvania St Higher Edl Assistance
Agy Student Ln Rev Ser B (Inverse
Fltg) (MBIA Insd).................... 10.808 03/01/20 2,959,375
4,000 Pennsylvania St Higher Edl Assistance
Agy Student Ln Rev Ser C (AMBAC
Insd)................................ 6.400 03/01/22 4,293,480
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,200 Pennsylvania St Higher Edl Fac Auth
College & Univ Rev Bryn Mawr College
(MBIA Insd).......................... 5.625% 12/01/27 $ 1,168,488
5,400 Pennsylvania St Higher Edl Fac Auth
Rev Drexel Univ Rfdg................. 6.375 05/01/17 5,607,198
5,075 Philadelphia, PA (FSA Insd).......... 5.000 03/15/28 4,445,548
1,000 Philadelphia, PA Auth for Indl Dev
Hlthcare Fac Rev..................... 5.750 05/15/18 900,650
600 Philadelphia, PA Auth For Indl Dev
Rev First Mtg Crime Prevention
Assn................................. 6.125 04/01/19 571,512
2,505 Philadelphia, PA Auth for Indl Dev
Rev Coml Dev RMK Rfdg................ 7.750 12/01/17 2,710,485
3,000 Philadelphia, PA Auth for Indl Dev
Rev Long-Term Care Maplewood......... 8.000 01/01/24 3,202,800
11,565 Philadelphia, PA Auth Indl Dev Lease
Rev Ser A (MBIA Insd) (b)............ 5.375 02/15/27 10,751,980
4,760 Philadelphia, PA Gas Wks Rev Second
Ser (FSA Insd)....................... 5.000 07/01/29 4,153,195
3,000 Philadelphia, PA Gas Wks Rev Ser 14
Rfdg (FSA Insd)...................... 6.250 07/01/08 3,218,070
2,800 Philadelphia, PA Hosp & Higher Edl
Fac Auth Hosp Rev Chestnut Hill
Hosp................................. 6.500 11/15/22 2,822,120
760 Philadelphia, PA Hosps & Higher Edl
Fac Auth Rev......................... 6.300 07/01/14 761,429
985 Philadelphia, PA Hosps & Higher Edl
Fac Auth Rev......................... 6.400 07/01/17 983,946
450 Philadelphia, PA Hosps & Higher Edl
Fac Auth Rev......................... 6.500 07/01/21 450,725
1,500 Philadelphia, PA Muni Auth Rev Muni
Svcs Bldg Lease Cap Apprec (FSA
Insd)................................ * 03/15/08 973,260
3,750 Philadelphia, PA Muni Auth Rev Muni
Svcs Bldg Lease Cap Apprec (FSA
Insd)................................ * 03/15/11 2,025,112
3,775 Philadelphia, PA Muni Auth Rev Muni
Svcs Bldg Lease Cap Apprec (FSA
Insd)................................ * 03/15/12 1,908,640
4,500 Philadelphia, PA Muni Auth Rev Muni
Svcs Bldg Lease Cap Apprec (FSA
Insd)................................ * 03/15/13 2,125,980
2,000 Philadelphia, PA Parking Auth Rev
Airport.............................. 5.250 09/01/22 1,862,600
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,000 Philadelphia, PA Wtr & Wastewtr Rev
Rfdg (MBIA Insd)..................... 5.625% 06/15/08 $ 2,086,500
2,500 Pittsburgh & Allegheny Cnty, PA Pub
Auditorium Auth Excise Tax Rev (AMBAC
Insd)................................ 5.000 02/01/24 2,215,500
1,500 Pittsburgh & Allegheny Cnty, PA Pub
Auditorium Auth Reg Asset Dist Sales
Tax Rev (AMBAC Insd)................. 5.250 02/01/31 1,351,515
1,470 Pittsburgh, PA Urban Redev Auth Mtg
Rev Ser C1........................... 6.800 10/01/25 1,516,114
1,475 Pittsburgh, PA Urban Redev Auth Mtg
Rev Ser D............................ 6.250 10/01/17 1,509,131
2,000 Pittsburgh, PA Urban Redev Mtg Amt
Series C............................. 5.600 04/01/20 1,904,080
2,825 Pittsburgh, PA Wtr & Swr Auth Wtr &
Swr Sys Rev (FGIC Insd).............. * 09/01/28 506,127
4,500 Pottsville, PA Hosp Auth Rev
Pottsville Hosp (ACA Insd)........... 5.500 07/01/18 4,231,440
2,665 Radnor Twp, PA Sch Dist.............. 5.750 03/15/19 2,660,283
3,000 Radnor Twp, PA Sch Dist.............. 5.750 03/15/26 2,989,800
8,500 Saint Mary Hosp Auth Bucks PA
Catholic Hlth Init A................. 5.000 12/01/28 7,340,430
1,000 Scranton-Lackawanna, PA Hlth &
Welfare Auth Rev Marian Cmnty Hosp
Proj Rfdg............................ 7.125 01/15/13 1,029,600
2,000 Shaler, PA Area Sch Dist Cap Apprec
Ser A (FGIC Insd).................... * 11/15/22 510,960
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 2,895,204
355 Somerset Cnty, PA Indl Dev Auth Coml
Dev Rev First Mtg K Mart Corp Ser A
Rfdg................................. 7.200 04/01/07 369,044
2,035 Southeast Delco Sch Dist PA Cap
Apprec (MBIA Insd)................... * 02/01/15 844,240
2,055 Southeast Delco Sch Dist PA Cap
Apprec (MBIA Insd)................... * 02/01/16 798,635
2,005 Southeast Delco Sch Dist PA Cap
Apprec (MBIA Insd)................... * 02/01/18 684,246
1,305 Southeast Delco Sch Dist PA Cap
Apprec (MBIA Insd)................... * 02/01/24 305,892
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,000 Southeast Delco Sch Dist PA Cap
Apprec (MBIA Insd)................... * 02/01/25 $ 220,290
1,580 Spring Ford Area Sch Dist PA......... 4.750% 03/01/25 1,330,328
650 Springfield Twp, PA Swr Auth Gtd..... 5.800 10/15/18 634,693
1,000 Springfield Twp, PA Swr Auth Gtd..... 6.000 10/15/27 985,950
1,210 State Pub Sch Bldg Auth PA College
Rev Montgomery Cnty Cmnty College
Rfdg................................. 5.500 05/01/13 1,231,405
1,275 State Pub Sch Bldg Auth PA College
Rev Montgomery Cnty Cmnty College
Rfdg................................. 5.500 05/01/14 1,289,624
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 2,371,164
1,750 West Mifflin, PA San Sewer Muni Auth
Sewer Rev (MBIA Insd)................ 5.000 08/01/28 1,531,740
3,000 Westmoreland Cnty, PA Muni Auth Svc
Rev Ser A (MBIA Insd)................ * 08/15/23 723,630
------------
263,678,682
------------
GUAM 0.4%
1,000 Guam Arpt Auth Rev Ser B............. 6.700 10/01/23 1,067,060
------------
TOTAL INVESTMENTS 101.6%
(Cost $258,798,839)................................................ 264,745,742
LIABILITIES IN EXCESS OF OTHER ASSETS (1.6%)........................ (4,051,603)
------------
NET ASSETS 100.0%................................................... $260,694,139
============
</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.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Administration
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $258,798,839)....................... $264,745,742
Cash........................................................ 445,821
Receivables:
Interest.................................................. 3,900,775
Investments Sold.......................................... 2,947,156
Fund Shares Sold.......................................... 115,908
Other....................................................... 29,336
------------
Total Assets.......................................... 272,184,738
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 10,169,742
Income Distributions...................................... 501,613
Fund Shares Repurchased................................... 240,040
Distributor and Affiliates................................ 196,053
Investment Advisory Fee................................... 129,370
Trustees' Deferred Compensation and Retirement Plans........ 175,477
Accrued Expenses............................................ 78,304
------------
Total Liabilities..................................... 11,490,599
------------
NET ASSETS.................................................. $260,694,139
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $256,224,121
Net Unrealized Appreciation................................. 5,946,903
Accumulated Distributions in Excess of Net Investment
Income.................................................... (209,849)
Accumulated Net Realized Loss............................... (1,267,036)
------------
NET ASSETS.................................................. $260,694,139
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $205,472,450 and 12,186,805 shares of
beneficial interest issued and outstanding)............. $ 16.86
Maximum sales charge (4.75%* of offering price)......... .84
------------
Maximum offering price to public........................ $ 17.70
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $50,940,397 and 3,023,719 shares of
beneficial interest issued and outstanding)............. $ 16.85
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,281,292 and 254,121 shares of
beneficial interest issued and outstanding)............. $ 16.85
============
</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 Year Ended September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 16,489,086
Other....................................................... 37,500
------------
Total Income............................................ 16,526,586
------------
EXPENSES:
Investment Advisory Fee..................................... 1,634,814
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $533,531, 537,168 and 40,096,
respectively)............................................. 1,110,795
Shareholder Services........................................ 230,307
Trustees' Fees and Related Expenses......................... 39,428
Legal....................................................... 30,504
Custody..................................................... 19,435
Other....................................................... 204,317
------------
Total Expenses............................................ 3,269,600
Less Credits Earned on Cash Balances...................... 16,681
------------
Net Expenses.............................................. 3,252,919
------------
NET INVESTMENT INCOME....................................... $ 13,273,667
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 126,055
Futures................................................... (667,161)
------------
Net Realized Loss........................................... (541,106)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 26,056,723
End of the Period:
Investments............................................. 5,946,903
------------
Net Unrealized Depreciation During the Period............... (20,109,820)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(20,650,926)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (7,377,259)
============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended September 30, 1999, the Nine Months Ended September 30, 1998
and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Year Ended
September 30, 1999 September 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........... $13,273,667 $10,088,914 $14,063,081
Net Realized Gain/Loss.......... (541,106) 2,263,231 1,048,949
Net Unrealized
Appreciation/Depreciation..... (20,109,820) 999,468 7,094,335
----------- ----------- -----------
Change in Net Assets from
Operations.................... (7,377,259) 13,351,613 22,206,365
----------- ----------- -----------
Distributions from Net
Investment Income............. (13,631,681) (10,332,838) (13,779,037)
Distribution in Excess of Net
Investment Income............. (209,849) -0- -0-
----------- ----------- -----------
Distributions from and in Excess
of Net Investment Income*..... (13,841,530) (10,332,838) (13,779,037)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES......... (21,218,789) 3,018,775 8,427,328
----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold....... 28,127,546 14,901,436 20,080,197
Net Asset Value of Shares Issued
Through Dividend
Reinvestment.................. 8,024,149 5,939,810 7,972,553
Cost of Shares Repurchased...... (30,301,078) (26,619,385) (36,874,447)
----------- ----------- -----------
CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS.......... 5,850,617 (5,778,139) (8,821,697)
----------- ----------- -----------
TOTAL DECREASE IN NET ASSETS.... (15,368,172) (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
$(209,849), $358,014 and
$601,938, respectively)....... $260,694,139 $276,062,311 $278,821,675
=========== =========== ===========
*Distributions by Class:
Distributions from and in Excess
of Net Investment Income:
Class A Shares................ $(11,244,939) $ (8,483,120) $(11,483,502)
Class B Shares................ (2,416,231) (1,740,891) (2,162,615)
Class C Shares................ (180,360) (108,827) (132,920)
----------- ----------- -----------
$(13,841,530) $(10,332,838) $(13,779,037)
=========== =========== ===========
</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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended December 31
September 30, Nine Months Ended -------------------------------------
Class A Shares 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... .894 .684 .928 .919 .946 .965
Net Realized and
Unrealized
Gain/Loss............. (1.343) .216 .528 (.263) 1.660 (1.985)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............ (.449) .900 1.456 .656 2.606 (1.020)
Less Distributions from
and in Excess of Net
Investment Income..... .930 .698 .908 .903 .950 .961
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............ $16.861 $18.240 $18.038 $17.490 $17.737 $16.081
======= ======= ======= ======= ======= =======
Total Return* (a)....... (2.65%) 5.08%** 8.59% 3.86% 16.62% (5.72%)
Net Assets at End of the
Period (In
millions)............. $ 205.4 $ 219.3 $ 223.9 $ 227.4 $ 226.7 $ 203.2
Ratio of Expenses to
Average Net Assets*
(b)................... 1.04% 1.03% 1.04% 1.09% 1.00% .90%
Ratio of Net Investment
Income to Average Net
Assets*............... 5.03% 5.06% 5.27% 5.32% 5.57% 5.73%
Portfolio Turnover...... 53% 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.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the period ended
September 30, 1999.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31
September 30, September 30, -------------------------------------
Class B Shares 1999 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....... .758 .579 .791 .788 .819 .841
Net Realized and Unrealized
Gain/Loss................. (1.341) .217 .531 (.264) 1.659 (1.985)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ (.583) .796 1.322 .524 2.478 (1.144)
Less Distributions from and
in Excess of Net
Investment Income......... .798 .599 .775 .771 .827 .831
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $16.847 $18.228 $18.031 $17.484 $17.731 $16.080
======= ======= ======= ======= ======= =======
Total Return* (a)........... (3.37%) 4.51%** 7.78% 3.07% 15.72% (6.39%)
Net Assets at End of the
Period (In millions)...... $ 50.9 $ 53.5 $ 51.9 $ 48.4 $ 46.8 $ 37.6
Ratio of Expenses to Average
Net Assets* (b)........... 1.80% 1.79% 1.79% 1.85% 1.75% 1.64%
Ratio of Net Investment
Income to Average Net
Assets*................... 4.28% 4.28% 4.51% 4.56% 4.81% 4.98%
Portfolio Turnover.......... 53% 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.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the period ended September
30, 1999.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31
September 30, September 30, -------------------------------------
Class C Shares 1999 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....... .759 .576 .795 .788 .812 .850
Net Realized and Unrealized
Gain/Loss................. (1.342) .221 .529 (.264) 1.665 (1.985)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ (.583) .797 1.324 .524 2.477 (1.135)
Less Distributions from and
in Excess of Net
Investment Income......... .798 .599 .775 .771 .827 .831
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $16.848 $18.229 $18.031 $17.482 $17.729 $16.079
======= ======= ======= ======= ======= =======
Total Return* (a)........... (3.37%) 4.51%** 7.78% 3.08% 15.72% (6.34%)
Net Assets at End of the
Period (In millions)...... $ 4.3 $ 3.3 $ 3.0 $ 3.4 $ 3.4 $ 2.2
Ratio of Expenses to Average
Net Assets* (b)........... 1.79% 1.79% 1.79% 1.85% 1.75% 1.63%
Ratio of Net Investment
Income to Average Net
Assets*................... 4.27% 4.29% 4.52% 4.56% 4.76% 4.97%
Portfolio Turnover.......... 53% 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.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would not decrease for the period ended September 30,
1999.
N/A = Not Applicable
See Notes to Financial Statements
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
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.
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.
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
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
applicable security. Income and 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, 1999, the Fund had an accumulated capital loss carryforward for
tax purposes of 964,149 which will expire between September 30, 2003 and
September 30, 2007. Net realized gains or losses may differ for financial
reporting and tax purposes primarily as a result of post October losses which
may not be recognized for tax purposes until the first day of the following
fiscal year.
At September 30, 1999, for federal income tax purposes, the cost of
long-term investments is $258,798,839; the aggregate gross unrealized
appreciation is $10,844,465 and the aggregate gross unrealized depreciation is
$4,897,562, resulting in net unrealized appreciation on long-term investments of
$5,946,903.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.
Due to inherent differences in the recognition of expenses under generally
accepted accounting principles and federal income tax purposes, the amount of
distributed net investment income may differ for a particular period. These
differences are temporary in nature, but may result in book basis distribution
in excess of net investment income for certain periods.
F. EXPENSE REDUCTIONS--During the year ended September 30, 1999, the Fund's
custody fee was reduced by $16,681 as a result of credits earned on overnight
cash balances.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
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 year ended September 30, 1999, the Fund recognized expenses of
approximately $16,600 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 year ended September 30, 1999, the Fund recognized expenses of
approximately $112,300 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 year ended
September 30, 1999, the Fund recognized expenses of approximately $158,100.
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.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At September 30, 1999, capital aggregated $198,456,799, $53,226,486 and
$4,540,836 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 1,013,797 $ 17,885,630
Class B.......................................... 442,312 7,880,964
Class C.......................................... 132,516 2,360,952
----------- ------------
Total Sales........................................ 1,588,625 $ 28,127,546
=========== ============
Dividend Reinvestment:
Class A.......................................... 366,668 $ 6,492,879
Class B.......................................... 80,232 1,419,058
Class C.......................................... 6,374 112,212
----------- ------------
Total Dividend Reinvestment........................ 453,274 $ 8,024,149
=========== ============
Repurchases:
Class A.......................................... (1,215,422) $(21,535,502)
Class B.......................................... (433,752) (7,630,639)
Class C.......................................... (64,827) (1,134,937)
----------- ------------
Total Repurchases.................................. (1,714,001) $ 30,301,078
=========== ============
</TABLE>
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
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>
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
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 purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the seventh year following
purchase. For the year ended September 30, 1999, 12,450 Class B shares
automatically converted to Class A shares. 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.
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 4.00% 1.00%
Second............................................. 3.75% None
Third.............................................. 3.50% None
Fourth............................................. 2.50% None
Fifth.............................................. 1.50% None
Sixth.............................................. 1.00% None
Seventh and Thereafter............................. None None
</TABLE>
For the year ended September 30, 1999, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $38,400 and CDSC on redeemed shares of approximately $85,600.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $157,697,539 and $144,618,217,
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
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
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, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin).
Transactions in futures contracts for the year ended September 30, 1999,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998......................... 0
Futures Opened............................................ 120
Futures Closed............................................ (120)
----
Outstanding at September 30, 1997......................... 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 year ended September 30, 1999, are payments retained by Van Kampen of
approximately $438,400.
31
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Pennsylvania Tax Free Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Pennsylvania Tax Free Income Fund (the "Fund"), including the portfolio
of investments, as of September 30, 1999, the related statement of operations
for the year then ended, the statement of changes in net assets for the year
then ended, for the nine-month period ended September 30, 1998, and for the year
ended December 31, 1997, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Pennsylvania Tax Free Income Fund as of September 30, 1999, the results
of its operations for the year then ended, the changes in its net assets for the
year then ended, for the nine-month period ended September 30, 1998, and for the
year ended December 31, 1997, and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
KPMG LLP SIG
Chicago, Illinois
November 11, 1999
32
<PAGE> 34
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
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
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 ongoing 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
* Closed to new investors
33
<PAGE> 35
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief
Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
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 218256
Kansas City, Missouri 64121-8256
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
For the year ended September 30, 1999, 100% of the income distributions made by
the Fund were exempt from federal income taxes. In January 2000, the Fund will
provide tax information to shareholders for the 1999 calendar year.
* "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 February 29, 2000, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
34
<PAGE> 36
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.
35
<PAGE> 37
VAN KAMPEN FUNDS
YOUR NOTES:
36
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> PA TAX FREE CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999<F1>
<PERIOD-START> OCT-01-1998<F1>
<PERIOD-END> SEP-30-1999<F1>
<INVESTMENTS-AT-COST> 258,798,839<F1>
<INVESTMENTS-AT-VALUE> 264,745,742<F1>
<RECEIVABLES> 6,963,839<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 475,157<F1>
<TOTAL-ASSETS> 272,184,738<F1>
<PAYABLE-FOR-SECURITIES> 10,169,742<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,320,857<F1>
<TOTAL-LIABILITIES> 11,490,599<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 198,456,799
<SHARES-COMMON-STOCK> 12,186,805
<SHARES-COMMON-PRIOR> 12,021,762
<ACCUMULATED-NII-CURRENT> (209,849)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,267,036)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 5,946,903<F1>
<NET-ASSETS> 205,472,450
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 16,489,086<F1>
<OTHER-INCOME> 37,500<F1>
<EXPENSES-NET> (3,252,919)<F1>
<NET-INVESTMENT-INCOME> 13,273,667<F1>
<REALIZED-GAINS-CURRENT> (541,106)<F1>
<APPREC-INCREASE-CURRENT> (20,109,820)<F1>
<NET-CHANGE-FROM-OPS> (7,377,259)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (11,244,939)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,013,797
<NUMBER-OF-SHARES-REDEEMED> (1,215,422)
<SHARES-REINVESTED> 366,668
<NET-CHANGE-IN-ASSETS> (13,809,702)
<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> 1,634,814<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,269,600<F1>
<AVERAGE-NET-ASSETS> 214,604,934
<PER-SHARE-NAV-BEGIN> 18.240
<PER-SHARE-NII> 0.894
<PER-SHARE-GAIN-APPREC> (1.343)
<PER-SHARE-DIVIDEND> (0.930)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 16.861
<EXPENSE-RATIO> 1.03
<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
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999<F1>
<PERIOD-START> OCT-01-1998<F1>
<PERIOD-END> SEP-30-1999<F1>
<INVESTMENTS-AT-COST> 258,798,839<F1>
<INVESTMENTS-AT-VALUE> 264,745,742<F1>
<RECEIVABLES> 6,963,839<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 475,157<F1>
<TOTAL-ASSETS> 272,184,738<F1>
<PAYABLE-FOR-SECURITIES> 10,169,742<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,320,857<F1>
<TOTAL-LIABILITIES> 11,490,599<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,226,486
<SHARES-COMMON-STOCK> 3,023,719
<SHARES-COMMON-PRIOR> 2,934,927
<ACCUMULATED-NII-CURRENT> (209,849)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,267,036)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 5,946,903<F1>
<NET-ASSETS> 50,940,397
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 16,489,086<F1>
<OTHER-INCOME> 37,500<F1>
<EXPENSES-NET> (3,252,919)<F1>
<NET-INVESTMENT-INCOME> 13,273,667<F1>
<REALIZED-GAINS-CURRENT> (541,106)<F1>
<APPREC-INCREASE-CURRENT> (20,109,820)<F1>
<NET-CHANGE-FROM-OPS> (7,377,259)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,416,231)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 442,312
<NUMBER-OF-SHARES-REDEEMED> (433,752)
<SHARES-REINVESTED> 80,232
<NET-CHANGE-IN-ASSETS> (2,557,457)
<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> 1,634,814<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,269,600<F1>
<AVERAGE-NET-ASSETS> 53,698,238
<PER-SHARE-NAV-BEGIN> 18.228
<PER-SHARE-NII> 0.758
<PER-SHARE-GAIN-APPREC> (1.341)
<PER-SHARE-DIVIDEND> (0.798)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 16.847
<EXPENSE-RATIO> 1.79
<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
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999<F1>
<PERIOD-START> OCT-01-1998<F1>
<PERIOD-END> SEP-30-1999<F1>
<INVESTMENTS-AT-COST> 258,798,839<F1>
<INVESTMENTS-AT-VALUE> 264,745,742<F1>
<RECEIVABLES> 6,963,839<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 475,157<F1>
<TOTAL-ASSETS> 272,184,738<F1>
<PAYABLE-FOR-SECURITIES> 10,169,742<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,320,857<F1>
<TOTAL-LIABILITIES> 11,490,599<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,540,836
<SHARES-COMMON-STOCK> 254,121
<SHARES-COMMON-PRIOR> 180,058
<ACCUMULATED-NII-CURRENT> (209,849)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,267,036)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 5,946,903<F1>
<NET-ASSETS> 4,281,292
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 16,489,086<F1>
<OTHER-INCOME> 37,500<F1>
<EXPENSES-NET> (3,252,919)<F1>
<NET-INVESTMENT-INCOME> 13,273,667<F1>
<REALIZED-GAINS-CURRENT> (541,106)<F1>
<APPREC-INCREASE-CURRENT> (20,109,820)<F1>
<NET-CHANGE-FROM-OPS> (7,377,259)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (180,360)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 132,516
<NUMBER-OF-SHARES-REDEEMED> (64,827)
<SHARES-REINVESTED> 6,374
<NET-CHANGE-IN-ASSETS> 998,987
<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> 1,634,814<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,269,600<F1>
<AVERAGE-NET-ASSETS> 4,008,305
<PER-SHARE-NAV-BEGIN> 18.229
<PER-SHARE-NII> 0.759
<PER-SHARE-GAIN-APPREC> (1.342)
<PER-SHARE-DIVIDEND> (0.798)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 16.848
<EXPENSE-RATIO> 1.79
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
