<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
SIX-MONTH DISTRIBUTION HISTORY 5
TOP FIVE HOLDINGS 6
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 12
FINANCIAL STATEMENTS 19
NOTES TO FINANCIAL STATEMENTS 25
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 33
FUND OFFICERS AND IMPORTANT ADDRESSES 34
RESULTS OF SHAREHOLDER VOTES 35
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Investment Advisory Corp.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target 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 SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) .93% .48% .90%
- -------------------------------------------------------------------------
Six-month total return(2) (3.86%) (3.45%) (.08%)
- -------------------------------------------------------------------------
One-year total return(2) (7.34%) (7.18%) (4.01%)
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 3.88% 3.85% 4.19%
- -------------------------------------------------------------------------
Ten-year average annual total
return(2) 6.06% N/A N/A
- -------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 7.13% 3.92% 3.59%
- -------------------------------------------------------------------------
Commencement date 05/01/87 05/03/93 08/13/93
- -------------------------------------------------------------------------
Distribution rate(3) 5.04% 4.54% 4.55%
- -------------------------------------------------------------------------
Taxable-equivalent distribution
rate(4) 8.10% 7.30% 7.31%
- -------------------------------------------------------------------------
SEC Yield(5) 5.00% 4.51% 4.52%
- -------------------------------------------------------------------------
</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 Class A shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A shares of $1
million or more, a CDSC of 1% may be imposed on certain redemptions made within
one year of purchase. Returns for Class B shares are calculated without the
effect of the maximum 4% CDSC charged on certain redemptions made within one
year of purchase and declining thereafter to 0% after the sixth year. Returns
for Class C shares are calculated without the effect of the maximum 1% CDSC,
charged on certain redemptions made within one year of purchase. If the sales
charge was included, total returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
shares) or contingent deferred sales charge ("CDSC"). On purchases of Class A
shares of $1 million or more, a CDSC of 1% may be imposed on certain redemptions
made within one year of purchase. Returns for Class B shares are calculated with
the effect of the maximum 4% CDSC charged on certain redemptions made within one
year of purchase and declining thereafter to 0% after the sixth year. Returns
for Class C shares are calculated with the effect of the maximum 1% CDSC,
charged on certain redemptions made within one year of purchase.
(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.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 5
Continued from page 3.
(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, 2000.
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 is no guarantee of 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 in which the Fund invests 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.
4
<PAGE> 6
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
As of March 31, 2000
[PIE CHART]
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
--------------------
<S> <C>
AAA/Aaa 52.2
AA/Aa 10.7
A/A 8.2
BBB/Baa 10.5
BB/Ba 2.0
Non-Rated 16.4
</TABLE>
As of September 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
<S> <C>
AAA/Aaa 50.2
AA/Aa 12.2
A/A 9.6
BBB/Baa 10.2
BB/Ba 1.4
Non-Rated 16.4
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DISTRIBUTION HISTORY
(for the period ended March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.0775
11/99 0.0775
12/99 0.0730
1/00 0.0730
2/00 0.0730
3/00 0.0730
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
5
<PAGE> 7
TOP FIVE HOLDINGS
(as a percentage of long-term investments--March 31, 2000)
<TABLE>
<S> <C> <C>
Philadelphia, PA Authority Industrial Development Lease
Revenue 4.6%
- ---------------------------------------------------------------------
Saint Mary Hospital Authority Bucks PA Catholic Health
Initiative 3.0%
- ---------------------------------------------------------------------
Berks County, PA 2.8%
- ---------------------------------------------------------------------
Pennsylvania State Higher Education Facility Authority
Revenue Drexel University 2.4%
- ---------------------------------------------------------------------
Pennsylvania State Higher Education Assistance Agency
Student Loan Revenue 2.4%
- ---------------------------------------------------------------------
</TABLE>
TOP FIVE SECTORS
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
Health Care 14.40 14.50
Industrial Revenue 12.70 12.10
Public Building 12.60 11.60
Other Care 10.20 11.90
Public Education 8.20 9.50
</TABLE>
6
<PAGE> 8
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN
PENNSYLVANIA TAX FREE INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT
SHAPED THE MARKETS DURING THE PAST SIX MONTHS. THE REPRESENTATIVES INCLUDE
DENNIS S. PIETRZAK, PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE 1995 AND
HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1968. HE IS JOINED BY PETER W.
HEGEL, CHIEF INVESTMENT OFFICER FOR FIXED-INCOME INVESTMENTS. THE FOLLOWING
DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE DURING THE SIX MONTHS
ENDED MARCH 31, 2000.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE FUND DURING THE PREVIOUS SIX MONTHS?
A Steadily rising interest rates
throughout the period took their toll on fixed-income mutual funds of all kinds.
(The price of a bond is inversely related to its interest rate, so bond prices
rise as interest rates decline, and vice versa.) The Federal Reserve Board
increased short-term interest rates three times since last September, driving
the federal funds rate, a key short-term borrowing rate, to its highest level
since 1995.
Naturally, the bond market tries to anticipate these rate moves, but that's
an uncertain science, so it's no surprise that we saw some wild price swings. A
Treasury bond rally at the end of the reporting period may have been
strengthened by the government's plan to buy back a significant amount of its
outstanding Treasury debt.
Q HOW DID THE MUNICIPAL MARKET
RESPOND TO THE BOND RALLY?
A Unfortunately, municipals lagged
the Treasury market in the fourth quarter of 1999. Widespread year 2000 (Y2K)
jitters and a strong supply of municipal bond issuance put a damper on nearly
every sector of the municipal market.
Historically, January has been a good month for municipals, because
investors are typically making tax-related adjustments to their investment
program during that time. But this year, investors were worried about higher
interest rates and potential Y2K fallout early in the year, so they avoided or
pulled out of the municipal market. Consequently, many municipal bond funds had
negative returns for January.
Generally, municipal bond funds have been losing assets lately as they
compete with the soaring stock market
7
<PAGE> 9
for investors' interest. Also, investors were rattled by recent negative returns
from municipal bonds and the threat of even higher interest rates.
Q HAVE MARKET CONDITIONS
IMPROVED DURING THE REPORTING PERIOD?
A Yes, the markets started to snap
back in February and March. Over the first two months of 2000, we saw a
significant drop in new issuance--approximately 40 percent--compared to a year
ago. The combination of a strong Treasury bond market and the lack of supply in
municipals helped make February and March positive months for the fixed-income
markets.
Also, the income component of municipals is still very competitive relative
to Treasuries, as 30-year insured municipals have been providing 95 to 100
percent of the yield available on the 30-year Treasury bond. This suggests that
investors can enjoy the tax-exempt status of municipal bond investments while
still earning an attractive level of income.
Q DID YOU ENCOUNTER UNIQUE
CIRCUMSTANCES SPECIFIC TO THE PENNSYLVANIA MUNICIPAL MARKET?
A Yes. The Pennsylvania municipal
market tends to be somewhat generic because such a large portion is comprised of
insured bonds. This approach may have been triggered by the high-profile
bankruptcy of a local health-care organization, which negatively impacted the
health-care sector of the Pennsylvania municipal market. Since then, the demand
for insured Pennsylvania credits has grown.
With so many insured bonds available, we focused on a thorough analysis of
the lower-rated and nonrated bonds in the marketplace, intent on finding the
less obvious opportunities that could add value to the portfolio.
On the positive side, municipal funding in Pennsylvania has some bright
spots, such as the construction of two new sports stadiums that need funding,
and the strong economy is keeping state finances healthy. Also, residents of
Pennsylvania face a particularly onerous income tax, so the tax-exempt status of
the Fund's income distributions is especially attractive to Pennsylvania
investors.
Q WHICH SECTORS OF THE
MARKET WERE YOU MOST CONCERNED ABOUT?
A When yield spreads widened in the
fourth quarter of 1999, the health-care sector was viewed with particular
caution, especially the lower-rated portion of the market. Such skepticism is
significant to the Fund because the health-care sector has such a strong
presence within the Pennsylvania municipal market.
Lower-rated and nonrated bonds gave us a few headaches as interest rates
went up (driving prices down) and yield spreads widened significantly. For
example, the difference between the yield offered on a BBB rated municipal bond
and an insured AAA rated municipal bond increased from less than half a
percentage point to well over a full percentage point.
8
<PAGE> 10
In a nutshell, the prices of lower-rated and nonrated bonds dropped more sharply
than did those of higher-rated bonds.
This was especially true in the health-care sector. In fact, at one time we
saw BBB rated hospital bonds trading with a spread of 1.75 percentage points
over AAA rated insured hospital bonds. This is a reflection of the tough times
we've seen in the health-care sector. With the uncertainties involved in managed
care--who will pay for what and how much--and the rising cost of services, many
health-care providers are under tremendous pressure to remain profitable. In
this situation, investors have become concerned about the creditworthiness of
the bond issuers, and many of them have shied away from this sector of the
market.
Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?
A Credit research is paramount to
the success of the Fund. Even though we had roughly 52 percent of the Fund's
long-term investments in AAA rated bonds and about 11 percent in AA rated bonds,
we still had around 13 percent in bonds rated BBB or lower at the end of the
period. These investments can add substantially to the income component of the
portfolio, but they are made only after we perform a careful assessment of
potential risk and reward.
We have reduced our exposure in the health-care sector to approximately 14
percent of the portfolio (down from 20 percent earlier in the period), but have
maintained a mix of insured and investment-grade uninsured bonds. Even at these
higher credit ratings, the sector has negatively affected the Fund's total
return, due to the market's overall uneasiness about the health-care sector.
Q HOW DID THE FUND RESPOND IN
TERMS OF PERFORMANCE?
A The Fund's total return for the
past six months was roughly comparable to its peer group, with somewhat
higher-than-average income. This reflects our emphasis on lower-rated and
nonrated bonds, which tend to offer a higher level of income.
As of March 31, 2000, the Fund achieved a six-month total return of 0.93
percent (Class A shares at net asset value; if the maximum sales charge of 4.75
percent were included, the return would have been lower). By comparison, the
Lehman Brothers Municipal Bond Index produced a total return of 2.63 percent for
the same period.
This index is an unmanaged, broad-based statistical composite of municipal
bonds that does not include any commissions or sales charges that would be paid
by an investor purchasing the securities it represents. Such costs would lower
the performance of the index. It is not possible to invest directly in an index.
Please refer to the footnotes and chart on page 3 for additional Fund
performance results. Past performance does not guarantee future results.
9
<PAGE> 11
Q WHAT IS YOUR VIEW OF THE FUND'S
PERFORMANCE RELATIVE TO ITS OVERALL LONG-TERM OBJECTIVE?
A We believe when people tend to
invest in a fund like this with a long-term perspective, they often expect to
hold their shares for some time, seeking a steady source of monthly income that
is exempt from state and federal income tax, rather than investing for capital
appreciation.
Although the Fund's dividend was decreased in December 1999, the Fund
continues to provide shareholders with a competitive monthly dividend of $0.073
per Class A share. The Fund's current distribution rate of 5.04 percent is based
upon the maximum offering price as of March 31, 2000.
With this in mind, we'd like to point out that Pennsylvania investors would
have to earn a distribution rate of 8.10 percent on a taxable investment (for an
investor in the 37.8 percent combined federal and state income tax bracket) to
match the tax-exempt yield provided by the Fund.
Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?
A One of the key factors in the near
term will be the strength of the stock market. If we see continued volatility in
stocks, and perhaps a major correction, the competition for assets may swing in
favor of the fixed-income markets, such as Treasuries and municipals.
Going forward, we will continue to monitor the health-care sector. Although
our allocation in this sector is down from previous levels, we may take it even
lower, depending on how the markets react. As always, we will be selective and
seek out value in individual issues.
We've seen quite a few credit-rating upgrades in the national market,
indicating that the rating agencies are optimistic about the credit strength of
municipal bond issuers--most likely because the economy continues to be strong.
Ironically, since many bond issuers have surpluses from the strong economy,
there isn't much pressure to issue new debt. A continuation of weak supply could
lend price support to the municipal market as a whole.
While inflation is still at a reasonable level, the Fed has already signaled
its willingness to raise rates further in order to keep inflation and the strong
economy in check. Many market observers expect two or three further
interest-rate hikes within the next quarter or two. Overall, we will continue to
manage the Fund with a long-term perspective, positioning the portfolio to take
advantage of the cyclical nature of the markets.
10
<PAGE> 12
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at maturity
date.
CLASS A SHARES: The division of mutual funds, generally into three groupings,
called Class A, Class B, and Class C shares. The specific features of each is
dependent on varying fees/sales charges. In most cases, Class A shares will have
no redemption fee (contingent deferred sales charge).
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA-rated. Recently, an A-rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A-rated.
Insurance on the bonds does not relate to mutual fund shares, which will
fluctuate in price.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
YIELD: The rate of return on an investment, usually expressed as an annual
percentage rate.
11
<PAGE> 13
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.5%
PENNSYLVANIA 98.1%
$1,260 Allegheny Cnty, PA Arpt Auth Pittsburgh Intl
Arpt Rfdg................................... 5.625% 01/01/10 $ 1,289,308
3,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh
Intl Arpt Ser B (FSA Insd) (b).............. 6.625 01/01/22 3,583,825
1,625 Allegheny Cnty, PA C-34 Conv Cap Apprec..... 8.625 02/15/04 1,833,244
5,000 Allegheny Cnty, PA Ctfs Partn (AMBAC
Insd)....................................... 5.000 12/01/24 4,409,800
1,750 Allegheny Cnty, PA Higher Ed Bldg Auth Univ
Rev (AMBAC Insd)............................ 5.500 03/01/20 1,723,907
1,000 Allegheny Cnty, PA Higher Edl Bldg Auth Univ
Rev Duquesne Univ Proj (AMBAC Insd)......... 6.500 03/01/11 1,114,710
1,000 Allegheny Cnty, PA Hosp Dev Hlthcare Fac
Villa Saint Joseph.......................... 5.875 08/15/18 847,160
2,140 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth
Fac Allegheny Vly Sch....................... 7.750 02/01/15 2,410,132
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp
Saint Francis Med Cent Proj................. 5.500 05/15/06 959,850
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp
Saint Francis Med Cent Proj................. 5.500 05/15/07 949,130
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp
Saint Francis Med Cent Proj................. 5.600 05/15/08 943,390
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp
Saint Francis Med Cent Proj................. 5.750 05/15/09 941,500
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp
Saint Francis Med Cent Proj................. 5.750 05/15/10 929,020
885 Allegheny Cnty, PA Indl Dev Auth Med Cent
Rev Presbyterian Med Cent Rfdg (FHA Gtd).... 6.750 02/01/26 928,613
2,500 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt Ser A Rfdg............... 6.700 12/01/20 2,508,425
1,000 Allegheny Cnty, PA Industrial Dev Auth Lease
Rev......................................... 6.625 09/01/24 952,640
1,945 Allegheny Cnty, PA Res Mtg Fin Auth Rev
Single Family Ser Z (GNMA Collateralized)
(b)......................................... 6.875 05/01/26 1,992,808
6,000 Berks Cnty, PA (Inverse Fltg) (FGIC Insd)
(b)......................................... 8.382 11/10/20 6,645,000
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,000 Berks Cnty, PA Muni Auth Rev Highlands at
Wyomissing Proj B........................... 6.875% 10/01/17 $ 2,030,360
925 Berks Cnty, PA Muni Auth Rev Phoebe Berks
Vlg Inc Proj Rfdg (Prerefunded @
05/15/06)................................... 7.500 05/15/13 1,056,840
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks
Vlg Inc Proj Rfdg (Prerefunded @
05/15/06)................................... 7.700 05/15/22 1,153,440
2,000 Berks Cnty, PA Muni Auth Rev Phoebe Devitt
Homes Proj A1 Rfdg.......................... 5.500 05/15/15 1,656,640
2,750 Bradford Cnty, PA Indl Dev Auth Solid Waste
Disp Rev Intl Paper Co Proj A............... 6.600 03/01/19 2,750,550
1,100 Bucks Cnty, PA Indl Dev Auth Rev First Mtg
Hlthcare Fac Chandler....................... 6.100 05/01/14 995,456
1,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl
Rev Bethlehem Steel Corp Proj Rfdg.......... 7.500 09/01/15 1,013,320
1,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth
Sys Rev (AMBAC Insd)........................ 5.650 05/15/20 959,340
1,880 Chester Cnty, PA Hlth & Edl The Chester Cnty
Hosp (MBIA Insd)............................ 5.625 07/01/08 1,933,524
760 Chichester Sch Dist PA Ser 1989 (MBIA
Insd)....................................... * 06/01/01 721,027
860 Chichester Sch Dist PA Ser 1989 (MBIA
Insd)....................................... * 06/01/02 773,708
1,130 Clearfield Cnty, PA Indl Dev Auth Coml Dev
Rev First Mtg K Mart Corp Ser A Rfdg........ 7.200 07/01/07 1,155,866
1,250 Crawford Cnty, PA Hosp Auth Sr Living Fac
Rev......................................... 6.125 08/15/19 1,116,025
2,000 Dauphin Cnty, PA Genl Auth Rev Hotel & Conf
Cent Hyatt Regency.......................... 6.200 01/01/29 1,798,260
1,500 Dauphin Cnty, PA Genl Auth Rev Office & Pkg
Riverfront Office........................... 6.000 01/01/25 1,364,550
1,240 Delaware Cnty, PA Auth College Cabrini
College..................................... 5.750 07/01/23 1,203,544
500 Delaware Cnty, PA Auth Rev First Mtg Riddle
Vlg Proj Rfdg............................... 6.200 06/01/05 500,090
3,000 Delaware Cnty, PA Auth Rev First Mtg Riddle
Vlg Proj Rfdg............................... 7.000 06/01/26 2,863,290
1,500 East Whiteland Twp, PA Ser A (FSA Insd)..... 5.250 09/01/25 1,388,130
2,000 Erie Cnty, PA Hosp Auth Rev Saint Vincent
Hlth Cent Proj Ser A (MBIA Insd)............ 6.375 07/01/22 2,038,020
4,780 Erie, PA Sch Dist Cap Apprec Rfdg (FSA
Insd)....................................... * 09/01/24 1,110,059
3,000 Geisinger, PA Auth Hlth Sys Rev PA St
Geisinger Hlth Sys Ser A.................... 5.000 08/15/28 2,503,410
790 Grove City, PA Area Hosp Auth Hlth Fac Rev
Grove Manor Proj............................ 6.625 08/15/29 690,784
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$1,000 Harrisburg, PA Auth Office & Pkg Rev Ser
A........................................... 6.000% 05/01/19 $ 919,620
3,000 Harrisburg, PA Auth Rev Pooled Univ Pgm Ser
11 (MBIA Insd).............................. 5.625 09/15/17 3,010,770
1,865 Harveys Lake Gen Muni Auth PA College Rev
College Misericordia Proj (ACA Insd)........ 5.750 05/01/14 1,834,004
820 Hazleton, PA Hlth Svcs Auth Hosp Rev........ 5.500 07/01/07 787,635
650 Hazleton, PA Hlth Svcs Auth Saint Joseph Med
Cent Rfdg................................... 5.850 07/01/06 640,198
560 Indiana Cnty, PA Indl Dev Auth Rev Cap
Apprec Student Coop Assn B (AMBAC Insd)..... * 11/01/19 177,296
1,000 Indiana Cnty, PA Indl Dev Auth Pollutn Ctl
Rev Metropolitan Edison Co Proj A (AMBAC
Insd)....................................... 5.950 05/01/27 991,300
500 Indiana Cnty, PA Indl Dev Auth Rev Cap
Apprec Student Coop Assn B (AMBAC Insd)..... * 11/01/17 181,095
500 Indiana Cnty, PA Indl Dev Auth Rev Cap
Apprec Student Coop Assn B (AMBAC Insd)..... * 11/01/18 169,395
1,000 Lancaster Cnty, PA Hosp Auth Rev Hlth Cent
Saint Annes Home............................ 6.600 04/01/24 905,620
2,000 Lehigh Cnty, PA Genl Purp Auth Cedar Crest
College Rfdg................................ 6.700 04/01/26 2,011,420
1,000 Lehigh Cnty, PA Genl Purp Auth Rev First Mtg
Bible Fellowship Proj A..................... 6.000 12/15/23 843,980
1,760 Lehigh Cnty, PA Genl Purp Auth Rev Kidspeace
Oblig Group................................. 6.000 11/01/23 1,492,920
1,085 Lehigh Cnty, PA Indl Dev Auth Hlth Fac Rev
Lifepath Inc Proj........................... 6.300 06/01/28 905,161
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 1,037,480
2,000 Lycoming Cnty, PA Auth Hosp Lease Rev Divine
Providence Sisters Ser A.................... 6.500 07/01/22 2,038,340
2,000 McGuffey Sch Dist PA Ser B (AMBAC Insd)..... 4.750 08/01/28 1,679,540
1,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford
Hosp Proj (Crossover Rfdg @ 10/01/00)....... 8.875 10/01/20 1,040,620
2,000 McKeesport, PA Area Sch Dist Cap Apprec..... * 10/01/15 834,420
1,250 McKeesport, PA Area Sch Dist Cap Apprec Ser
A........................................... * 10/01/13 594,612
3,630 McKeesport, PA Area Sch Dist Cap Apprec Ser
C........................................... * 10/01/22 955,743
750 McKeesport, PA Indl Dev Auth Rev The Kroger
Corp Allegheny Cnty Rfdg.................... 8.650 06/01/11 787,170
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$1,000 Montgomery Cnty, PA Higher Edl & Hlth Auth
Rev......................................... 6.625% 07/01/19 $ 900,220
2,000 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev................................... 6.300 01/01/13 1,847,260
2,250 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev Adult Cmntys Total Svcs Ser B..... 5.625 11/15/12 2,123,595
3,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recov (LOC -Banque Paribas) (b)............. 7.500 01/01/12 3,086,520
990 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy.......................... 7.750 09/01/24 1,014,453
3,300 New Kensington Arnold, PA Sch Dist (FGIC
Insd)....................................... 5.500 05/15/26 3,165,261
800 North Penn, PA Wtr Auth Rev (FGIC Insd)..... 6.200 11/01/22 811,592
1,000 North Penn, PA Wtr Auth Rev (Prerefunded @
11/01/04) (FGIC Insd)....................... 6.875 11/01/19 1,090,520
2,500 Northampton Cnty, PA Indl Dev Auth Rev
Pollutn Ctl Bethlehem Steel Rfdg............ 7.550 06/01/17 2,534,900
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 1,073,220
1,750 Northeastern PA Hosp & Edl Auth Sch Rev WY
Seminary Proj (MBIA Insd)................... 4.750 10/01/28 1,468,880
2,175 Oil City, PA Towne Tower Proj (FHA Gtd)..... 6.750 05/01/20 2,190,215
1,500 Penn Cambria Sch Dist PA Cap Apprec......... * 08/15/21 418,755
1,500 Penn Cambria Sch Dist PA Cap Apprec......... * 08/15/22 391,935
3,000 Pennsylvania Econ Dev Fin Auth Res Recovery
Rev Colver Proj Ser D....................... 7.050 12/01/10 3,098,700
1,500 Pennsylvania Econ Dev Fin Auth Res Recovery
Rev Colver Proj Ser D....................... 7.125 12/01/15 1,561,380
5,000 Pennsylvania Econ Dev Fin Auth Res Recovery
Rev Northampton Generating Ser A............ 6.600 01/01/19 4,889,050
4,000 Pennsylvania Hsg Fin Agy (Inverse Fltg)..... 9.569 10/03/23 4,280,000
1,000 Pennsylvania Hsg Fin Agy Rental Hsg Rfdg
(FNMA Collateralized)....................... 6.500 07/01/23 1,010,940
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg
Ser 40...................................... 6.900 04/01/25 1,035,140
2,465 Pennsylvania Hsg Fin Agy Single Family Mtg
Ser 42...................................... 6.850 04/01/25 2,552,310
850 Pennsylvania Infrastructure Invt Auth Rev
Pennvest Subser B (Prerefunded @
09/01/02)................................... 6.800 09/01/10 904,918
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$4,000 Pennsylvania St Ctfs Partn (FSA Insd) (b)... 6.250% 05/01/16 $ 4,161,120
2,500 Pennsylvania St First Series (MBIA Insd).... 5.000 06/01/18 2,299,400
4,700 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Rfdg (Inverse Fltg) (AMBAC
Insd)....................................... 9.180 09/01/26 5,557,750
2,500 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser B (Inverse Fltg) (MBIA
Insd)....................................... 10.494 03/01/20 2,962,500
4,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser C (AMBAC Insd) (b)....... 6.400 03/01/22 4,066,440
1,200 Pennsylvania St Higher Edl Fac Auth College
& Univ Rev Bryn Mawr College (MBIA Insd).... 5.625 12/01/27 1,169,520
5,400 Pennsylvania St Higher Edl Fac Auth Rev
Drexel Univ Rfdg............................ 6.375 05/01/17 5,562,162
1,200 Pennsylvania St Tpk Commn Oil Franchise Tax
Rev (AMBAC Insd)............................ 4.750 12/01/27 1,009,956
5,075 Philadelphia, PA (FSA Insd)................. 5.000 03/15/28 4,439,914
2,505 Philadelphia, PA Auth for Indl Dev Rev Coml
Dev RMK Rfdg................................ 7.750 12/01/17 2,642,149
600 Philadelphia, PA Auth For Indl Dev Rev First
Mtg Crime Prevention Assn................... 6.125 04/01/19 554,454
1,000 Philadelphia, PA Auth Indl Dev Hlthcare Fac
Rev Baptist Home of Philadelphia Ser A...... 5.600 11/15/28 777,840
11,565 Philadelphia, PA Auth Indl Dev Lease Rev Ser
A (MBIA Insd) (b)........................... 5.375 02/15/27 10,786,097
4,760 Philadelphia, PA Gas Wks Rev Second Ser (FSA
Insd)....................................... 5.000 07/01/29 4,151,148
3,000 Philadelphia, PA Gas Wks Rev Ser 14 Rfdg
(FSA Insd) (b).............................. 6.250 07/01/08 3,163,890
760 Philadelphia, PA Hosps & Higher Edl Fac Auth
Rev......................................... 6.300 07/01/14 718,618
985 Philadelphia, PA Hosps & Higher Edl Fac Auth
Rev......................................... 6.400 07/01/17 902,733
450 Philadelphia, PA Hosps & Higher Edl Fac Auth
Rev......................................... 6.500 07/01/21 408,893
2,800 Philadelphia, PA Hosps & Higher Edl Fac Auth
Hosp Rev Chestnut Hill Hosp................. 6.500 11/15/22 2,503,900
1,500 Philadelphia, PA Muni Auth Rev Muni Svcs
Bldg Lease Cap Apprec (FSA Insd)............ * 03/15/08 987,840
3,750 Philadelphia, PA Muni Auth Rev Muni Svcs
Bldg Lease Cap Apprec (FSA Insd)............ * 03/15/11 2,078,400
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$3,775 Philadelphia, PA Muni Auth Rev Muni Svcs
Bldg Lease Cap Apprec (FSA Insd)............ * 03/15/12 $ 1,968,738
4,500 Philadelphia, PA Muni Auth Rev Muni Svcs
Bldg Lease Cap Apprec (FSA Insd)............ * 03/15/13 2,205,720
2,000 Philadelphia, PA Parking Auth Rev Arpt...... 5.250% 09/01/22 1,859,340
3,500 Philadelphia, PA Wtr & Wastewtr Rev Ser A
(a)......................................... 5.125 08/01/27 3,125,115
2,000 Philadelphia, PA Wtr & Wastewtr Rev Rfdg
(MBIA Insd) (b)............................. 5.625 06/15/08 2,072,920
1,500 Pittsburgh & Allegheny Cnty, PA Pub
Auditorium Auth Reg Asset Dist Sales Tax Rev
(AMBAC Insd)................................ 5.250 02/01/31 1,373,025
1,470 Pittsburgh, PA Urban Redev Auth Mtg Rev Ser
C1.......................................... 6.800 10/01/25 1,501,105
1,475 Pittsburgh, PA Urban Redev Auth Mtg Rev Ser
D........................................... 6.250 10/01/17 1,490,694
2,825 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys
Rev (FGIC Insd)............................. * 09/01/28 512,653
4,500 Pottsville, PA Hosps Auth Rev Pottsville
Hosp (ACA Insd)............................. 5.500 07/01/18 4,082,850
2,000 Radnor Twp, PA Sch Dist..................... 5.750 03/15/26 1,987,920
8,500 Saint Mary Hosp Auth Bucks PA Catholic Hlth
Init A...................................... 5.000 12/01/28 7,027,035
1,000 Scranton-Lackawanna, PA Hlth & Welfare Auth
Rev Marian Cmnty Hosp Proj Rfdg............. 7.125 01/15/13 993,230
355 Somerset Cnty, PA Indl Dev Auth Coml Dev Rev
First Mtg K Mart Corp Ser A Rfdg............ 7.200 04/01/07 362,757
2,055 Southeast Delco Sch Dist PA Cap Apprec (MBIA
Insd)....................................... * 02/01/16 829,830
2,005 Southeast Delco Sch Dist PA Cap Apprec (MBIA
Insd)....................................... * 02/01/18 709,610
1,305 Southeast Delco Sch Dist PA Cap Apprec (MBIA
Insd)....................................... * 02/01/24 313,813
1,000 Southeast Delco Sch Dist PA Cap Apprec (MBIA
Insd)....................................... * 02/01/25 225,970
1,210 State Pub Sch Bldg Auth PA College Rev
Montgomery Cnty Cmnty College Rfdg.......... 5.500 05/01/13 1,241,194
1,275 State Pub Sch Bldg Auth PA College Rev
Montgomery Cnty Cmnty College Rfdg.......... 5.500 05/01/14 1,303,203
1,735 State Pub Sch Bldg Auth PA Sch Rev Sch Dist
of NY Proj Ser A (FGIC Insd)................ 4.800 02/15/15 1,584,749
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,180 State Pub Sch Bldg Auth PA Sch Rev
Burgettstown Sch Dist Ser D (Prerefunded @
02/01/05) (MBIA Insd) (b)................... 6.500% 02/01/14 $ 2,329,766
1,750 West Mifflin, PA San Sewer Muni Auth Sewer
Rev (MBIA Insd)............................. 5.000 08/01/28 1,533,647
3,000 Westmoreland Cnty, PA Muni Auth Muni Svc Rev
Ser A (MBIA Insd)........................... * 08/15/22 790,710
------------
235,357,116
------------
GUAM 0.4%
1,000 Guam Arpt Auth Rev Ser B.................... 6.700 10/01/23 1,015,440
------------
TOTAL LONG-TERM INVESTMENTS 98.5%
(Cost $234,244,259)................................................... 236,372,556
SHORT-TERM INVESTMENTS 0.5%
(Cost $1,200,000)..................................................... 1,200,000
------------
TOTAL INVESTMENTS 99.0%
(Cost $235,444,259)................................................... 237,572,556
OTHER ASSETS IN EXCESS OF LIABILITIES 1.0%............................. 2,425,440
------------
NET ASSETS 100.0%...................................................... $239,997,996
============
</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 and open futures transactions.
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
18
<PAGE> 20
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $235,444,259)....................... $237,572,556
Cash........................................................ 252,302
Receivables:
Interest.................................................. 3,628,501
Investments Sold.......................................... 2,878,736
Fund Shares Sold.......................................... 184,935
Other....................................................... 26,714
------------
Total Assets............................................ 244,543,744
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,157,004
Income Distributions...................................... 447,908
Fund Shares Repurchased................................... 354,702
Distributor and Affiliates................................ 160,480
Investment Advisory Fee................................... 121,449
Variation Margin on Futures............................... 34,375
Trustees' Deferred Compensation and Retirement Plans........ 215,144
Accrued Expenses............................................ 54,686
------------
Total Liabilities....................................... 4,545,748
------------
NET ASSETS.................................................. $239,997,996
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $240,543,612
Net Unrealized Appreciation................................. 1,852,488
Accumulated Distributions in Excess of Net Investment
Income.................................................... (389,018)
Accumulated Net Realized Loss............................... (2,009,086)
------------
NET ASSETS.................................................. $239,997,996
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $190,692,861 and 11,524,345 shares of
beneficial interest issued and outstanding)............. $ 16.55
Maximum sales charge (4.75%* of offering price)......... .83
------------
Maximum offering price to public........................ $ 17.38
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $45,631,094 and 2,759,620 shares of
beneficial interest issued and outstanding)............. $ 16.54
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,674,041 and 222,344 shares of
beneficial interest issued and outstanding)............. $ 16.52
============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
19
<PAGE> 21
Statement of Operations
For the Six Months Ended March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 7,856,286
------------
EXPENSES:
Investment Advisory Fee..................................... 734,435
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $242,919, $237,051 and $20,562,
respectively)............................................. 500,532
Shareholder Services........................................ 101,503
Trustees' Fees and Related Expenses......................... 47,713
Custody..................................................... 39,224
Legal....................................................... 14,375
Other....................................................... 73,049
------------
Total Expenses............................................ 1,510,831
Less Credits Earned on Cash Balances...................... 11,412
------------
Net Expenses.............................................. 1,499,419
------------
NET INVESTMENT INCOME....................................... $ 6,356,867
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (732,933)
Futures................................................... (9,117)
------------
Net Realized Loss........................................... (742,050)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 5,946,903
------------
End of the Period:
Investments............................................. 2,128,297
Futures................................................. (275,809)
------------
1,852,488
------------
Net Unrealized Depreciation During the Period............... (4,094,415)
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (4,836,465)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,520,402
============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
Statement of Changes in Net Assets
For the Six Months Ended March 31, 2000 and the Year Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 6,356,867 $ 13,273,667
Net Realized Loss.................................. (742,050) (541,106)
Net Unrealized Depreciation........................ (4,094,415) (20,109,820)
------------ ------------
Change in Net Assets from Operations............... 1,520,402 (7,377,259)
------------ ------------
Distributions from Net Investment Income........... (6,356,867) (13,631,681)
Distribution in Excess of Net Investment Income.... (179,169) (209,849)
------------ ------------
Distributions from and in Excess of Net Investment
Income*.......................................... (6,536,036) (13,841,530)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... (5,015,634) (21,218,789)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................... 5,660,956 28,127,546
Net Asset Value of Shares Issued Through Dividend
Reinvestment..................................... 3,692,544 8,024,149
Cost of Shares Repurchased......................... (25,034,009) (30,301,078)
------------ ------------
CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..... (15,680,509) 5,850,617
------------ ------------
TOTAL DECREASE IN NET ASSETS....................... (20,696,143) (15,368,172)
NET ASSETS:
Beginning of the Period............................ 260,694,139 276,062,311
------------ ------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $389,018 and $209,849, respectively).......... $239,997,996 $260,694,139
============ ============
* Distributions by Class:
- ---------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares................................... $ (5,319,640) $(11,244,939)
Class B Shares................................... (1,119,670) (2,416,231)
Class C Shares................................... (96,726) (180,360)
------------ ------------
$ (6,536,036) $(13,841,530)
============ ============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 (A) 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................... $16.861 $18.240 $18.038 $17.490 $17.737 $16.081
------- ------- ------- ------- ------- -------
Net Investment Income......... .436 .894 .684 .928 .919 .946
Net Realized and Unrealized
Gain/Loss................... (.303) (1.343) .216 .528 (.263) 1.660
------- ------- ------- ------- ------- -------
Total from Investment
Operations.................... .133 (.449) .900 1.456 .656 2.606
Less Distributions from
and in Excess of Net
Investment Income............. .447 .930 .698 .908 .903 .950
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................ $16.547 $16.861 $18.240 $18.038 $17.490 $17.737
======= ======= ======= ======= ======= =======
Total Return* (b)............... .93%** (2.65%) 5.08%** 8.59% 3.86% 16.62%
Net Assets at End of the Period
(In millions)................. $ 190.7 $ 205.4 $ 219.3 $ 223.9 $ 227.4 $ 226.7
Ratio of Expenses to Average Net
Assets* (c)................... 1.05% 1.04% 1.03% 1.04% 1.09% 1.00%
Ratio of Net Investment Income
to Average Net Assets*........ 5.28% 5.03% 5.06% 5.27% 5.32% 5.57%
Portfolio Turnover.............. 12%** 53% 29%** 46% 57% 28%
* 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 N/A 1.09% 1.14%
Ratio of Net Investment Income
to Average Net Assets......... N/A N/A N/A N/A 5.31% 5.42%
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.
(c) 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
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 (A) 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................... $16.847 $18.228 $18.031 $17.484 $17.731 $16.080
------- ------- ------- ------- ------- -------
Net Investment Income........ .374 .758 .579 .791 .788 .819
Net Realized and Unrealized
Gain/Loss.................. (.303) (1.341) .217 .531 (.264) 1.659
------- ------- ------- ------- ------- -------
Total from Investment
Operations................... .071 (.583) .796 1.322 .524 2.478
Less Distributions from
and in Excess of Net
Investment Income............ .383 .798 .599 .775 .771 .827
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD....................... $16.535 $16.847 $18.228 $18.031 $17.484 $17.731
======= ======= ======= ======= ======= =======
Total Return* (b).............. .48%** (3.37%) 4.51%** 7.78% 3.07% 15.72%
Net Assets at End of the Period
(In millions)................ $ 45.6 $ 50.9 $ 53.5 $ 51.9 $ 48.4 $ 46.8
Ratio of Expenses to Average
Net Assets* (c).............. 1.80% 1.80% 1.79% 1.79% 1.85% 1.75%
Ratio of Net Investment Income
to Average Net Assets*....... 4.53% 4.28% 4.28% 4.51% 4.56% 4.81%
Portfolio Turnover............. 12%** 53% 29%** 46% 57% 28%
* 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 N/A 1.85% 1.89%
Ratio of Net Investment Income
to Average Net Assets........ N/A N/A N/A N/A 4.55% 4.66%
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 4%, charged on certain redemptions
made within one year of purchase and declining thereafter to 0% after the
sixth year. If the sales charge was included, total returns would be lower.
(c) 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
23
<PAGE> 25
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 (A) 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................... $16.848 $18.229 $18.031 $17.482 $17.729 $16.079
------- ------- ------- ------- ------- -------
Net Investment Income......... .374 .759 .576 .795 .788 .812
Net Realized and Unrealized
Gain/Loss................... (.315) (1.342) .221 .529 (.264) 1.665
------- ------- ------- ------- ------- -------
Total from Investment
Operations.................... .059 (.583) .797 1.324 .524 2.477
Less Distributions from
and in Excess of Net
Investment Income............. .383 .798 .599 .775 .771 .827
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................ $16.524 $16.848 $18.229 $18.031 $17.482 $17.729
======= ======= ======= ======= ======= =======
Total Return* (b)............... .90%** (3.37%) 4.51%** 7.78% 3.08% 15.72%
Net Assets at End of the Period
(In millions)................. $ 3.7 $ 4.3 $ 3.3 $ 3.0 $ 3.4 $ 3.4
Ratio of Expenses to Average Net
Assets* (c)................... 1.80% 1.79% 1.79% 1.79% 1.85% 1.75%
Ratio of Net Investment Income
to Average Net Assets*........ 4.53% 4.27% 4.29% 4.52% 4.56% 4.76%
Portfolio Turnover.............. 12%** 53% 29%** 46% 57% 28%
* 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 N/A 1.85% 1.90%
Ratio of Net Investment Income
to Average Net Assets......... N/A N/A N/A N/A 4.55% 4.61%
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1%, charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
returns would be lower.
(c) 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
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (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 3,
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, which approximates market value.
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
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 March 31, 2000, for federal income tax purposes, the cost of long- and
short-term investments is $235,444,259; the aggregate gross unrealized
appreciation is $7,730,143 and the aggregate gross unrealized depreciation is
$5,601,846, resulting in net unrealized appreciation on long- and short-term
investments of $2,128,297.
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 six months ended March 31, 2000, the Fund's
custody fee was reduced by $11,412 as a result of credits earned on overnight
cash balances.
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 DAILY 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, 2000, the Fund recognized expenses of
approximately $2,400 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, 2000, the Fund recognized expenses of
approximately $19,100 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., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the six months ended March 31,
2000, the Fund recognized expenses of approximately $74,000. 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.
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At March 31, 2000, capital aggregated $187,607,830, $48,905,616 and $4,030,166
for Classes A, B and C, respectively. For the six months ended March 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 179,858 $ 2,953,263
Class B................................................. 126,656 2,079,357
Class C................................................. 38,087 628,336
---------- ------------
Total Sales............................................... 344,601 $ 5,660,956
========== ============
Dividend Reinvestment:
Class A................................................. 181,426 $ 2,975,248
Class B................................................. 39,813 652,288
Class C................................................. 4,067 65,008
---------- ------------
Total Dividend Reinvestment............................... 225,306 $ 3,692,544
========== ============
Repurchases:
Class A................................................. (1,023,744) $(16,777,480)
Class B................................................. (430,568) (7,052,515)
Class C................................................. (73,931) (1,204,014)
---------- ------------
Total Repurchases......................................... (1,528,243) $(25,034,009)
========== ============
</TABLE>
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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>
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 and any dividend reinvestment plan Class B shares
received on such shares, automatically convert to Class A shares eight years
after the end of the calendar month in which the shares were purchased. Class B
shares purchased before June 1, 1996, and any dividend reinvestment plan Class B
shares received on such shares, automatically convert to Class A shares seven
years after the end of the calendar month in which the shares were purchased.
For the six months ended March 31, 2000 and the year ended September 30, 1999,
1,172 and 12,450 Class B shares automatically converted to Class A shares,
respectively, and are shown in the above tables as sales of Class A shares and
repurchases of Class B shares. Class C shares purchased before January 1, 1997,
and any dividend reinvestment plan C shares received thereon, automatically
convert to Class A shares ten years after the end of the calendar month in which
the shares are purchased. Class C shares purchased on or after January 1, 1997
do not possess a conversion feature. For the six months ended March 31, 2000 and
the year ended September 30, 1999, no Class C shares converted to Class A
shares. The CDSC will be imposed on most
29
<PAGE> 31
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
redemptions made within six years of the purchase for Class B Shares and one
year of the purchase for Class C Shares 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>
For the six months ended March 31, 2000, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $9,300 and CDSC on redeemed shares of approximately $62,100. 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 $30,950,753 and $55,161,877,
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.
30
<PAGE> 32
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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, 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). The risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
Transactions in futures contracts for the six months ended March 31, 2000,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... 0
Futures Opened.............................................. 200
Futures Closed.............................................. (100)
----
Outstanding at March 31, 2000............................... 100
====
</TABLE>
The futures contracts outstanding at March 31, 2000, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
NUMBER OF APPRECIATION/
CONTRACTS DEPRECIATION
<S> <C> <C>
SHORT CONTRACTS
Muni Bond Index Futures--June 2000
(Current notional value of $95,344 per contract).......... 100 $(275,809)
==== =========
</TABLE>
31
<PAGE> 33
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (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, as amended, 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, 2000, are payments retained by Van Kampen of
approximately $198,900.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered into a $650,000,000 committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
32
<PAGE> 34
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth*
Mid Cap 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
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
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 [COMPUTER ICON]
- - 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.
[PHONE ICON]
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
33
<PAGE> 35
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*(1)
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
PETER W. HEGEL*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. 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,
2000, the report must be accompanied by a quarterly performance update, if
applicable.
34
<PAGE> 36
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and the ratification
of KPMG LLP as the independent public accountants.
1) With regard to the election of the following trustees by shareholders:
<TABLE>
<CAPTION>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan..................................... 10,638,248 108,224
Jerry D. Choate....................................... 10,641,459 105,013
Linda Hutton Heagy.................................... 10,640,420 106,052
R. Craig Kennedy...................................... 10,640,420 106,052
Mitchell M. Merin..................................... 10,641,459 105,013
Jack E. Nelson........................................ 10,640,420 106,052
Richard F. Powers, III................................ 10,641,459 105,013
Phillip B. Rooney..................................... 10,639,811 106,661
Fernando Sisto........................................ 10,634,394 112,078
Wayne W. Whalen....................................... 10,640,420 106,052
Suzanne H. Woolsey.................................... 10,637,664 108,808
Paul G. Yovovich*..................................... 10,639,785 106,687
</TABLE>
* On April 14, 2000, Paul G. Yovovich resigned from the Board of Trustees.
2) With regard to the ratification of KPMG LLP as independent public accountants
for the Fund, 10,600,909 shares voted for the proposal, 22,617 shares voted
against and 122,946 shares abstained.**
**KPMG LLP has ceased being the Fund's independent accountants effective April
14, 2000. The cessation of the client-auditor relationship between the Fund and
KPMG was based solely on a possible future business relationship by KPMG with an
affiliate of the Fund's investment adviser.
35
<PAGE> 37
YOUR NOTES:
36
