UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-6732
Van Kampen Advantage Pennsylvania Municipal Income Trust
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas NY NY 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas
New York, NY 10020
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
-----------------------------
Date of fiscal year end: 10/31/03
-----------
Date of reporting period: 04/30/03
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Item 1. Report to Shareholders
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of April 30, 2003)
- ------------------------------
NYSE Ticker Symbol - VAP
- ------------------------------
<Table>
- -----------------------------------------------------------------------
Six-month total return(1) 6.40%
- -----------------------------------------------------------------------
One-year total return(1) 11.63%
- -----------------------------------------------------------------------
Five-year average annual total return(1) 6.90%
- -----------------------------------------------------------------------
Ten-year average annual total return(1) 7.54%
- -----------------------------------------------------------------------
Life-of-Trust average annual total return(1) 7.59%
- -----------------------------------------------------------------------
Commencement date 09/25/1992
- -----------------------------------------------------------------------
Distribution rate as a % of closing common share
market price(2) 6.74%
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Taxable-equivalent distribution rate as a % of closing
common share market price(3) 11.29%
- -----------------------------------------------------------------------
Preferred share rate(4) 1.200%
- -----------------------------------------------------------------------
Net asset value $17.45
- -----------------------------------------------------------------------
Closing common share market price $16.73
- -----------------------------------------------------------------------
Six-month high common share market price (04/04/03) $17.40
- -----------------------------------------------------------------------
Six-month low common share market price (11/22/02) $15.65
- -----------------------------------------------------------------------
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
1
(1) Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common share market price at the end of the
period indicated.
(2) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(3) The taxable-equivalent distribution rate is calculated assuming the maximum
40.3% combined federal and state income tax rate effective for the calender
year 2003, which takes into consideration the deductibility of individual
state taxes paid.
(4) See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject
to the federal alternative minimum tax (AMT).
Past performance is no guarantee of future results. Investment return,
common share market price and net asset value will fluctuate and Trust
shares, when sold, may be worth more or less than their original cost. An
investment in the Trust is subject to investment risks, and you could lose
money on your investment in the Trust. As a result of recent market
activity, current performance may vary from the figures shown. For more
up-to-date information, please visit vankampen.com or speak with your
financial advisor.
2
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
AAA/Aaa........................... 73.3%
AA/Aa............................. 11.8%
A/A............................... 12.2%
BBB/Baa........................... 2.7%
</Table>
TOP FIVE SECTORS
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
Water & Sewer..................... 18.4%
Health Care....................... 16.6%
Public Education.................. 12.7%
General Purpose................... 11.3%
Multi-Family Housing.............. 10.1%
</Table>
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
NET ASSET VALUE AND COMMON SHARE MARKET PRICE
(based upon quarter-end values--April 1993 through April 2003)
[LINE GRAPH]
<Table>
<Caption>
NET ASSET VALUE COMMON SHARE MARKET PRICE
--------------- -------------------------
4/93 $16.2500 $15.3750
6/93 $16.7000 $15.3750
$17.4300 $15.8750
$17.4700 $15.5000
$15.6400 $14.2500
6/94 $15.4500 $14.0000
$15.2800 $13.0000
$14.6000 $12.2500
$16.0100 $13.6250
6/95 $16.1800 $14.3750
$16.4100 $14.1250
$17.2300 $15.3750
$16.4600 $14.8750
6/96 $16.2700 $14.6250
$16.5500 $15.1250
$16.7900 $15.6250
$16.4400 $15.5000
6/97 $16.8800 $15.2500
$17.1900 $16.3125
$17.4400 $16.7500
$17.4500 $16.2500
6/98 $17.4400 $16.8125
$17.7400 $17.5625
$17.5900 $17.5625
$17.4200 $16.7500
6/99 $16.8200 $16.1250
$16.4600 $15.5000
$15.9400 $13.6250
$16.0700 $13.5625
6/00 $16.0500 $14.3750
$16.2000 $14.9375
$16.8000 $15.3125
$16.8600 $15.5600
6/01 $16.6900 $15.2400
$17.1000 $15.6200
$16.5300 $15.5500
$16.3600 $16.3900
6/02 $16.9400 $17.0300
$17.8900 $17.7300
$17.3100 $16.6300
$17.3000 $17.2900
4/03 $17.4500 $16.7300
</Table>
The solid line above represents the trust's net asset value (NAV), which
indicates overall changes in value among the trust's underlying securities. The
trust's common share market price is represented by the dashed line, which
indicates the price the market is willing to pay for shares of the trust at a
given time. Common share market price is influenced by a range of factors,
including supply and demand and market conditions.
3
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF VAN KAMPEN ADVANTAGE PENNSYLVANIA
MUNICIPAL INCOME TRUST ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS AND INFLUENCED THE TRUST'S RETURN DURING THE SIX MONTHS ENDED APRIL 30,
2003. DENNIS PIETRZAK, PORTFOLIO MANAGER, HAS MANAGED THE TRUST SINCE 1995 AND
HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1968. THE FOLLOWING DISCUSSION
REFLECTS HIS VIEWS ON THE TRUST'S PERFORMANCE.
Q WHAT WAS THE MARKET
ENVIRONMENT OF THE PAST SIX MONTHS?
A The environment over the past six
months has been defined by two major themes. The first of these was the level of
interest rates. The period began with interest rates at levels not seen in over
three decades and, surprisingly for many, ended with rates slightly lower. The
Federal Reserve Board (the Fed) helped keep rates low with a widely anticipated
rate cut in November, driven by economic uncertainty and geopolitical risk. The
low level of rates led to a boom in issuance by municipalities seeking to lock
in low financing costs. As a result, issuance reached a record level of $354
billion in 2002 and continued to be exceptional in the first quarter of 2003.
The other theme in the market during the period was the relative
attractiveness of municipal bonds, which produced enough demand to absorb the
record issuance. Investors, wary of volatility in the equity market and in the
geopolitical arena, flocked to perceived safe haven investments. Their risk
aversion counteracted growing expectations for economic recovery and rising
interest rates, and was a key factor in keeping interest rates at historically
low levels. In their ongoing preference for low-risk assets, investors bid
Treasury prices up to such high levels that municipal bonds became as
attractively valued as they have ever been relative to Treasuries. Insurance
companies also moved heavily into municipal bonds as their mainstay corporate
bond holdings became less attractive. At the same time, issuers recognized
investor concerns over economic weakness by insuring roughly 50 percent of all
issuance. This credit enhancement feature made municipal bonds even more
attractive to risk-averse investors.
While lower financing costs were a boon to municipal issuers, the continuing
weakness in the economy had a negative impact on municipal credit quality,
particularly in the first quarter of 2003. Moody's upgrades barely exceeded the
number of downgrades in the first quarter, with credit quality facing continued
pressure
4
from rising social service costs and weak national and regional economic
conditions. As a result, municipalities face enormous deficits in 2003, when
their combined shortfall is expected to reach $90 billion.
Performance along the yield curve was varied. The Fed's November rate cut
fueled a rally in short-term bonds that helped pull yields lower at the front
end of the curve. Despite that rally, the best performing segment of the curve
was the long-intermediate portion, where performance was largely driven by
buying activity among institutional investors drawn to the bonds' attractive
total return potential.
While it has been slow, the Pennsylvania economy has fared relatively well
compared to many other big states. Pennsylvania's government has a history of
fiscal restraint that has served the state well in such situations. The state
also has a long tradition of actively refinancing its debt to lock in lower
financing rates during periods of low or falling interest rates, and the past
six months were no exception.
Q HOW DID THE TRUST PERFORM IN
THIS ENVIRONMENT?
A The portfolio continued to offer a
competitive level of tax-exempt income. The trust's monthly dividend of $0.0940
per share translated to a distribution rate of 6.74 percent based on the trust's
closing common share market price on April 30, 2003. Based on these figures,
investors would have to earn a distribution rate of 11.29 percent on a taxable
investment (for an investor in the 40.30 percent combined federal and state
income tax bracket) to match the tax-exempt yield provided by the trust.
For the six months ended April 30, 2003, the trust produced a total return
of 6.40 percent based on common share market price. By comparison, the Lehman
Brothers Pennsylvania Municipal Bond Index posted a total return of 3.79 percent
for the same period. Of course, past performance is no guarantee of future
results. Investment return, common share market price and net asset value will
fluctuate and trust shares, when sold, may be worth more or less than their
original cost. As a result of recent market activity, current performance may
vary from the figures shown. For more up-to-date information, please visit
vankampen.com or speak with your financial advisor.
The Lehman Brothers Pennsylvania Municipal Bond Index is an unmanaged,
broad-based statistical composite of municipal bonds. Index returns do not
include any sales charges or fees that would be paid by an investor purchasing
the securities the index represents. Such costs would lower performance. It is
not possible to invest directly in an index. For additional information, please
refer to the performance summary section.
Q WHAT STRATEGIES DID YOU PURSUE
IN MANAGING THE TRUST?
A With yields hovering near record
lows, we were focused on trying to protect the portfolio from the potential
adverse effects of rising interest rates while maintaining the trust's yield.
One of our primary methods for doing this was to purchase premium bonds with
maturities of between 15 and 20 years. Our quantitative analysis showed that
5
this segment of the yield curve offered the optimal combination of total return
potential as well as downside protection in the form of a comfortable yield
cushion and an intermediate maturity profile.
The funds for these purchases came from a number of sources. Some of the
portfolio's holdings were called by their issuers due to refunding activity. We
also trimmed the fund's exposure to deep discount bonds with coupons below 5
percent when retail investors bid their prices up to attractive levels.
While the fund remained well diversified, our trading activity did have some
effect on the portfolio's sector composition. For example, we took advantage of
heavy issuance by purchasing some attractively structured higher education bonds
when they came to market at compelling yields. By contrast, the fund's holdings
of waste disposal bonds fell as a result of heavy call activity in that sector.
6
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MUNICIPAL BONDS 150.7%
PENNSYLVANIA 147.9%
$1,000 Allegheny Cnty, PA Higher Ed Bldg Carnegie
Mellon Univ................................ 5.125% 03/01/32 $ 1,031,470
1,500 Allegheny Cnty, PA Higher Ed Bldg Carnegie
Mellon Univ................................ 5.250 03/01/32 1,560,645
3,250 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth
Cent Dev Inc Proj Rfdg (MBIA Insd)......... 6.300 09/01/13 3,327,772
985 Allegheny Cnty, PA Residential Mtg Single
Family Ser KK-2 (GNMA Collateralized)...... 5.750 05/01/33 1,031,492
1,000 Allegheny Cnty, PA San Auth Swr (MBIA
Insd)...................................... 5.750 12/01/13 1,158,740
1,830 Allegheny Cnty, PA San Auth Swr (MBIA
Insd)...................................... 5.750 12/01/18 2,095,716
2,000 Allegheny Cnty, PA San Auth Swr Rev (MBIA
Insd)...................................... 5.500 12/01/24 2,175,400
2,640 Bensalem Twp, PA Sch Dist (FGIC Insd)...... 5.000 08/15/18 2,829,288
1,150 Bucks Cnty, PA Wtr & Swr Rev Neshaminy
Interceptor Ser A (AMBAC Insd)............. 5.375 06/01/14 1,292,083
1,215 Bucks Cnty, PA Wtr & Swr Rev Neshaminy
Interceptor Ser A (AMBAC Insd)............. 5.375 06/01/15 1,359,233
945 Carbon Cnty, PA Indl Dev Auth Panther Creek
Partn Proj Rfdg (LOC: Paribas & Union Bk of
CA Intl)................................... 6.650 05/01/10 988,810
1,115 Chichester Sch Dist PA (FGIC Insd)......... * 03/01/19 547,253
5,000 Dauphin Cnty, PA Genl Auth Hosp Rev Hapsco
Western PA Hosp Proj B Rfdg (Escrowed to
Maturity) (MBIA Insd)...................... 6.250 07/01/16 6,023,300
1,000 Delaware Cnty, PA Auth College Neumann
College Rfdg............................... 6.000 10/01/31 1,027,520
1,000 Delaware Cnty, PA Cap Apprec Rfdg.......... * 11/15/10 760,130
1,045 Delaware Cnty, PA Cap Apprec Rfdg.......... * 11/15/11 749,704
1,225 Delaware Cnty, PA Cap Apprec Rfdg.......... * 11/15/12 833,539
</Table>
See Notes to Financial Statements
7
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
PENNSYLVANIA (CONTINUED)
$1,500 Delaware Vly, PA Regl Fin Auth............. 5.750% 07/01/17 $ 1,763,025
1,000 East Allegheny, PA Sch Dist Rfdg (FGIC
Insd)...................................... 5.000 04/01/25 1,033,020
2,000 Greater Latrobe, PA Sch Auth (FGIC Insd)... 5.250 04/01/17 2,193,000
4,500 Lehigh Cnty, PA Genl Purp Auth Rev Hosp
Muhlenberg Hosp Cent Ser A (Prerefunded @
07/15/04).................................. 6.600 07/15/22 4,790,385
1,000 Lycoming Cnty, PA Auth College Rev PA
College of Technology (AMBAC Insd)......... 5.350 07/01/26 1,054,090
1,095 Mars, PA Area Sch Dist Ser AA (MBIA
Insd)...................................... * 09/01/17 591,267
1,095 Mars, PA Area Sch Dist Ser AA (MBIA
Insd)...................................... * 09/01/18 557,957
1,095 Mars, PA Area Sch Dist Ser AA (MBIA
Insd)...................................... * 09/01/19 525,501
1,095 Mars, PA Area Sch Dist Ser AA (MBIA
Insd)...................................... * 09/01/20 493,965
1,095 Mars, PA Area Sch Dist Ser AA (MBIA
Insd)...................................... * 09/01/21 464,247
2,500 Mercer Cnty, PA Indl Dev Auth Wtr Facs
Philadelphia Sub Corp (MBIA Insd).......... 6.000 07/01/30 2,715,475
1,205 Monroeville, PA Muni Auth San Ser B (MBIA
Insd)...................................... 5.250 12/01/18 1,319,391
1,350 Monroeville, PA Muni Auth San Ser B (MBIA
Insd)...................................... 5.250 12/01/20 1,458,095
2,000 Montgomery Cnty, PA Higher Edl & Hlth Auth
Hosp Rev Abington Mem Hosp Ser A........... 5.125 06/01/32 1,967,220
1,000 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev Adult Cmntys Total
Svcs Ser B................................. 5.625 11/15/12 1,057,060
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Rec Montenay Proj Ser A (MBIA Insd)........ 5.250 11/01/14 1,132,610
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg
Ser 53A.................................... 6.000 10/01/15 1,058,290
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg
Ser 66A.................................... 5.650 04/01/29 2,583,025
2,000 Pennsylvania St Higher Ed Fac Auth Rev
Drexel Univ................................ 5.500 05/01/17 2,188,060
1,000 Pennsylvania St Higher Ed Fac Auth Rev
Thomas Jefferson Univ...................... 5.375 01/01/25 1,052,300
1,850 Pennsylvania St Higher Ed UPMC Hlth Sys Ser
A.......................................... 6.000 01/15/31 1,933,324
</Table>
See Notes to Financial Statements
8
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
PENNSYLVANIA (CONTINUED)
$3,015 Pennsylvania St Tpk Commn Ser T Rfdg (FGIC
Insd)...................................... 5.500% 12/01/10 $ 3,486,848
1,970 Pennsylvania St Univ Rfdg.................. 5.250 03/01/18 2,154,254
1,500 Philadelphia, PA (FSA Insd)................ 5.250 09/15/25 1,577,385
1,005 Philadelphia, PA Auth Indl Dev Amern
College Of Physicians...................... 5.500 06/15/27 1,047,461
2,500 Philadelphia, PA Auth Indl Dev Philadelphia
Arpt Sys Proj Ser A (FGIC Insd)............ 5.250 07/01/28 2,558,275
4,250 Philadelphia, PA Gas Wks Rev 12th Ser B
(Escrowed to Maturity) (MBIA Insd) (a)..... 7.000 05/15/20 5,415,860
2,735 Philadelphia, PA Redev Auth Fin Corp Mtg
Rev Multi-Family Mtg Chinatown Ser B Rfdg
(FNMA Collateralized)...................... 6.750 09/01/22 2,756,989
4,250 Philadelphia, PA Redev Auth Fin Corp Mtg
Rev Multi-Family Mtg Cobbs Creek Ser A Rfdg
(FNMA Collateralized)...................... 6.750 08/01/24 4,256,843
4,560 Philadelphia, PA Redev Auth Multi-Family
Hsg Rev Mtg Washington Square Ser C Rfdg
(FNMA Collateralized) (b).................. 6.950 11/15/24 4,611,619
4,905 Philadelphia, PA Wtr & Swr Rev Cap Apprec
14th Ser (MBIA Insd)....................... * 10/01/07 4,398,755
5,000 Pittsburgh & Allegheny Cnty, PA Pub Aud
Regl Asset Dist Sales Tax (AMBAC Insd)..... 5.000 02/01/24 5,142,000
2,500 Pittsburgh, PA Ser A (AMBAC Insd).......... 5.500 09/01/17 2,803,375
2,000 Pittsburgh, PA Ser A (Prerefunded @
09/01/09) (FGIC Insd)...................... 5.750 09/01/21 2,344,340
2,000 Pittsburgh, PA Wtr & Swr Rfdg (FGIC
Insd)...................................... 6.500 09/01/13 2,484,060
1,000 Southcentral, PA Gen Auth Rev Wellspan Hlth
Oblig (MBIA Insd).......................... 5.375 05/15/28 1,050,060
1,905 State Pub Sch Bldg Auth PA Conneaut Sch
Dist Proj (FGIC Insd) (b).................. 5.250 11/01/18 2,099,843
1,850 Trinity Area Sch Dist PA (FGIC Insd) (b)... 5.250 11/01/20 2,014,428
1,035 Unity Twp, PA Muni Auth Gtd Swr Cap Apprec
(AMBAC Insd)............................... * 11/01/14 655,911
1,075 Wilson, PA Sch Dist Second Ser (FSA
Insd)...................................... 5.375 05/15/16 1,203,957
------------
112,785,665
------------
</Table>
See Notes to Financial Statements
9
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
PUERTO RICO 1.4%
$1,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl &
Hlth Fac Ser M Rfdg (Prerefunded @
07/01/03).................................. 5.750% 07/01/15 $ 1,021,750
------------
U. S. VIRGIN ISLANDS 1.4%
1,000 Virgin Islands Pub Fin Auth Rev Gross Rcpt
Taxes Ln Nt Ser A (ACA Insd)............... 6.125 10/01/29 1,076,230
------------
TOTAL LONG-TERM INVESTMENTS 150.7%
(Cost $105,134,410)................................................... 114,883,645
------------
SHORT-TERM INVESTMENTS 5.2%
1,550 Delaware Cnty, PA Indl Dev Auth Dates
United Parcel Svc Proj (Variable Rate
Coupon) (c)................................ 1.110 12/01/15 $ 1,550,000
900 Lehigh Cnty, PA Gen Purp Auth Hosp Lehigh
Vly Hlth Network Ser A (Variable Rate
Coupon) (c)................................ 1.280 07/01/28 900,000
1,500 South Fork Muni Auth PA Hosp Conemaugh Hlth
Sys Ser A (Variable Rate Coupon) (c)....... 1.280 07/01/28 1,500,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $3,950,000)..................................................... 3,950,000
------------
TOTAL INVESTMENTS 155.9%
(Cost $109,084,410)................................................... 118,833,645
LIABILITIES IN EXCESS OF OTHER ASSETS (3.4%)........................... (2,576,560)
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (52.5%)............. (40,007,889)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.......................... $ 76,249,196
============
</Table>
* Zero coupon bond
(a) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments.
(b) Securities purchased on a when-issued or delayed delivery basis.
See Notes to Financial Statements
10
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
(c) Security includes a put feature allowing the fund to periodically put the
security back to the issuer at amortized cost on specified put dates. The
interest rate shown represents the current interest rate earned by the Fund
based on the most recent reset date.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
FGIC--Financial Guaranty Insurance Co.
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
11
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2003 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $109,084,410)....................... $118,833,645
Cash........................................................ 39,496
Receivables:
Interest.................................................. 1,617,556
Investments Sold.......................................... 70,000
Other....................................................... 218
------------
Total Assets............................................ 120,560,915
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 4,049,910
Investment Advisory Fee................................... 56,947
Administrative Fee........................................ 4,746
Affiliates................................................ 3,752
Trustees' Deferred Compensation and Retirement Plans........ 148,687
Accrued Expenses............................................ 39,788
------------
Total Liabilities....................................... 4,303,830
Preferred Shares (including accrued distributions).......... 40,007,889
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 76,249,196
============
NET ASSET VALUE PER COMMON SHARE ($76,249,196 divided by
4,368,552 shares outstanding)............................. $ 17.45
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 4,368,552 shares issued and
outstanding).............................................. $ 43,686
Paid in Surplus............................................. 64,237,439
Net Unrealized Appreciation................................. 9,749,235
Accumulated Net Realized Gain............................... 1,611,636
Accumulated Undistributed Net Investment Income............. 607,200
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 76,249,196
------------
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 1,600 issued with liquidation preference of
$25,000 per share)........................................ $ 40,000,000
------------
NET ASSETS INCLUDING PREFERRED SHARES....................... $116,249,196
============
</Table>
See Notes to Financial Statements
12
Statement of Operations
For the Six Months Ended April 30, 2003 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................... $2,999,500
----------
EXPENSES:
Investment Advisory Fee..................................... 342,439
Preferred Share Maintenance................................. 57,202
Administrative Fee.......................................... 28,536
Trustees' Fees and Related Expenses......................... 22,436
Legal....................................................... 8,531
Custody..................................................... 3,885
Other....................................................... 65,044
----------
Total Expenses.......................................... 528,073
Less Credits Earned on Cash Balances.................... 353
----------
Net Expenses............................................ 527,720
----------
NET INVESTMENT INCOME....................................... $2,471,780
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $1,612,884
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 9,318,857
End of the Period......................................... 9,749,235
----------
Net Unrealized Appreciation During the Period............... 430,378
----------
NET REALIZED AND UNREALIZED GAIN............................ $2,043,262
==========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (254,633)
==========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $4,260,409
==========
</Table>
See Notes to Financial Statements
13
Statements of Changes in Net Assets
(Unaudited)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 2,471,780 $ 5,193,550
Net Realized Gain................................. 1,612,884 984,476
Net Unrealized Appreciation/Depreciation During
the Period...................................... 430,378 (627,512)
Distributions to Preferred Shareholders:
Net Investment Income........................... (156,955) (518,158)
Net Realized Gain............................... (97,678) (121,194)
----------- -----------
Change in Net Assets Applicable to Common Shares
from Operations................................. 4,260,409 4,911,162
Distributions to Common Shareholders:
Net Investment Income........................... (2,448,278) (4,588,520)
Net Realized Gain............................... (887,690) (482,426)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM INVESTMENT ACTIVITIES............... 924,441 (159,784)
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment.................................... -0- 112,866
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS APPLICABLE
TO COMMON SHARES................................ 924,441 (46,918)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period........................... 75,324,755 75,371,673
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of $607,200
and $740,653, respectively)..................... $76,249,196 $75,324,755
=========== ===========
</Table>
See Notes to Financial Statements
14
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX
MONTHS
ENDED
APRIL 30, -----------------------------
2003 2002 (e) 2001 2000
-----------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD..... $ 17.24 $ 17.28 $ 16.40 $ 16.18
------- ------- ------- --------
Net Investment Income...................... .57 1.19 1.21 1.27
Net Realized and Unrealized Gain/Loss...... .46 .08 1.15 .28
Common Share Equivalent of Distributions
Paid to Preferred Shareholders:
Net Investment Income.................... (.04) (.12) (.25) (.37)
Net Realized Gain........................ (.02) (.03) (.09) -0-
------- ------- ------- --------
Total from Investment Operations............. .97 1.12 2.02 1.18
Distributions Paid to Common Shareholders:
Net Investment Income.................... (.56) (1.05) (.93) (.96)
Net Realized Gain........................ (.20) (.11) (.21) -0-
------- ------- ------- --------
NET ASSET VALUE, END OF THE PERIOD........... $ 17.45 $ 17.24 $ 17.28 $ 16.40
======= ======= ======= ========
Common Share Market Price at End of the
Period..................................... $ 16.73 $ 16.45 $ 15.75 $14.9375
Total Return (a)............................. 6.40%* 11.96% 13.31% 9.10%
Net Assets Applicable to Common Shares at End
of the Period (In millions)................ $ 76.2 $ 75.3 $ 75.4 $ 71.5
Ratio of Expenses to Average Net Assets
Applicable to Common Shares (b)............ 1.42% 1.50% 1.71% 1.78%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (b)..... 6.64% 7.02% 7.12% 7.89%
Portfolio Turnover........................... 16%* 19% 17% 31%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets
Including Preferred Shares (b)............. .93% .97% 1.10% 1.13%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (c)..... 6.21% 6.32% 5.70% 5.59%
SENIOR SECURITIES:
Total Preferred Shares Outstanding........... 1,600 1,600 1,600 1,600
Asset Coverage Per Preferred Share (d)....... $72,661 $72,101 $72,107 $ 69,704
Involuntary Liquidating Preference Per
Preferred Share............................ $25,000 $25,000 $25,000 $ 25,000
Average Market Value Per Preferred Share..... $25,000 $25,000 $25,000 $ 25,000
</Table>
* Non-Annualized
(a) Total return assumes an investment at the common share market price at the
beginning of the period indicated, reinvestment of all distributions for the
period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common share market price at the end of the
period indicated.
(b) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(c) Ratios reflect the effect of dividend payments to preferred shareholders.
(d) Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
(e) As required, effective November 1, 2001, the Trust has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began accreting market discount on fixed income securities. The effect
of this change for the year ended October 31, 2002 was to increase net
investment income per share by less than $.01, decrease net realized and
unrealized gains and losses per share by less than $.01 and increase the
ratio of net investment income to average net assets by .02%. Per share,
ratios and supplemental data for periods prior to October 31, 2002 have not
been restated to reflect this change in presentation.
15
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
- -----------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------
$ 17.66 $ 17.23 $ 16.72 $ 16.69 $ 14.63 $ 17.33 $ 14.44
------- -------- -------- -------- -------- -------- --------
1.24 1.24 1.25 1.24 1.25 1.25 1.22
(1.46) .47 .54 .04 2.06 (2.77) 2.77
(.30) (.32) (.32) (.32) (.36) (.27) (.30)
-0- -0- -0- -0- -0- (.01) -0-
------- -------- -------- -------- -------- -------- --------
(.52) 1.39 1.47 .96 2.95 (1.80) 3.69
(.96) (.96) (.96) (.93) (.89) (.88) (.80)
-0- -0- -0- -0- -0- (.02) -0-
------- -------- -------- -------- -------- -------- --------
$ 16.18 $ 17.66 $ 17.23 $ 16.72 $ 16.69 $ 14.63 $ 17.33
======= ======== ======== ======== ======== ======== ========
$14.625 $ 17.25 $16.4375 $ 15.125 $ 14.00 $ 12.125 $ 16.125
-10.14% 11.03% 15.38% 14.85% 23.03% -19.94% 18.14%
$ 70.6 $ 77.0 $ 75.2 $ 72.9 $ 72.8 $ 63.8 $ 75.6
1.69% 1.67% 1.70% 1.77% 1.77% 1.80% 1.79%
7.22% 7.11% 7.41% 7.48% 7.96% 7.75% 7.54%
7% 3% 2% 2% 9% 5% 12%
1.10% 1.10% 1.10% 1.14% 1.12% 1.15% 1.14%
5.45% 5.25% 5.48% 5.52% 5.68% 6.05% 5.70%
1,600 800 800 800 800 800 800
$69,097 $146,292 $143,968 $141,175 $141,025 $129,764 $144,472
$25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
</Table>
See Notes to Financial Statements
16
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Advantage Pennsylvania Municipal Income Trust (the "Trust") is
registered as a non-diversified, closed-end management investment company under
the Investment Company Act of 1940, as amended. The Trust's investment objective
is to provide a high level of current income exempt from federal and
Pennsylvania income taxes and, where possible under local law, local income and
personal property taxes, consistent with preservation of capital. The Trust will
invest substantially all of its assets in Pennsylvania municipal securities
rated investment grade at the time of investment. The Trust commenced investment
operations on September 25, 1992.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 or dealers 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
Trust 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 Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when-issued or delayed delivery
purchase commitments until payment is made. At April 30, 2003, the Trust had
$4,049,910 of when-issued and delayed delivery purchase commitments.
17
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
premium is amortized and discount is accreted over the expected life of each
applicable security.
D. FEDERAL INCOME TAXES It is the Trust'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 to its shareholders.
Therefore, no provision for federal income taxes is required.
At April 30, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $108,985,186
============
Gross tax unrealized appreciation........................... $ 9,849,453
Gross tax unrealized depreciation........................... (994)
------------
Net tax unrealized appreciation on investments.............. $ 9,848,459
============
</Table>
E. DISTRIBUTION OF INCOME AND GAINS The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.
The tax character of distributions paid during the year ended October 31,
2002 was as follows:
<Table>
<Caption>
2002
Distributions paid from:
Ordinary income........................................... $170,739
Long-term capital gain.................................... 464,935
--------
$635,674
========
</Table>
As of October 31, 2002, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $ 43,590
Undistributed long-term capital gain........................ 961,982
</Table>
F. EXPENSE REDUCTIONS During the six months ended April 30, 2003, the Trust's
custody fee was reduced by $353 as a result of credits earned on cash balances.
18
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Trust for an annual fee payable monthly of .60% of the average
daily net assets of the Trust. In addition, the Trust will pay a monthly
administrative fee to Van Kampen Investments Inc. or its affiliates
(collectively "Van Kampen"), the Trust's Administrator, at an annual rate of
..05% of the average daily net assets of the Trust. The administrative services
provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and preferred shares and
providing certain services to shareholders.
For the six months ended April 30, 2003, the Trust recognized expenses of
approximately $3,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each trust. For the six months ended
April 30, 2003, the Trust recognized expenses of approximately $13,400
representing Van Kampen's cost of providing accounting and legal services to the
Trust, which are reported as part of "Other" and "Legal" expenses, respectively,
in the Statement of Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust 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 upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At April 30, 2003 and October 31, 2002, paid in surplus related to common
shares aggregated $64,237,439.
19
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
Transactions in common shares were as follows:
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
Beginning Shares.................................. 4,368,552 4,361,902
--------- ---------
Shares Issued Through Dividend.................... -0- 6,650
--------- ---------
Reinvestment Ending Shares........................ 4,368,552 4,368,552
========= =========
</Table>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $18,211,424 and $20,777,779,
respectively.
5. PREFERRED SHARES
The Trust has outstanding 1,600 Auction Preferred Shares ("APS"). Dividends are
cumulative and the dividend rate is currently reset every 28 days through an
auction process. The rate in effect on April 30, 2003 was 1.200%. During the six
months ended April 30, 2003, the rates ranged from 0.999% to 1.599%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of "Preferred Share
Maintenance" expense in the Statement of Operations.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $25,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
6. DERIVATIVE FINANCIAL INFORMATION
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 Trust may seek to manage the portfolio's interest rate exposure in a
changing interest rate environment by engaging in transactions involving
interest rate swaps, caps, floors or collars. The Trust expects to enter into
these transactions primarily as a hedge against anticipated interest rate or
fixed-income market changes, for duration management purposes or for risk
management purposes but may also enter into these transactions to generate
additional income. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contracts or agreements. During the
six months ended April 30, 2003, the Trust did not enter into any of these
transactions.
20
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER, & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
21
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you make with us,
our affiliates, or third parties. We may also collect information you provide
when using our web site, and text files (a.k.a. "cookies") may be placed on your
computer to help us to recognize you and to facilitate transactions you
initiate. We do not disclose any nonpublic personal information about you or any
of our former customers to anyone, except as permitted by law. For instance, so
that we may continue to offer you Van Kampen investment products and services
that meet your investing needs, and to effect transactions that you request or
authorize, we may disclose the information we collect to companies that perform
services on our behalf, such as printers and mailers that assist us in the
distribution of investor materials. These companies will use this information
only for the services for which we hired them, and are not permitted to use or
share this information for any other purpose. To protect your nonpublic personal
information internally, we permit access to it only by authorized employees, and
maintain physical, electronic and procedural safeguards to guard your nonpublic
personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van
Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as
well as the many Van Kampen mutual funds and Van Kampen unit investment
trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2003 Van Kampen Funds Inc. All rights reserved.
VAP SAR 6/03 Member NASD/SIPC.
11177F03-AS-6/03
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semi-annual reports.
Item 8. [Reserved.]
Item 9.
The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits.
(a) Code of Ethics - Not applicable for semi-annual reports.
(b) Certifications of Principal Executive Officer and Principal Financial
Officer attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen Advantage Pennsylvania Municipal Income Trust
-------------------------------------------------------------------
By: /s/ Ronald E. Robison
----------------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: June 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
----------------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: June 23, 2003
By: /s/ John L. Sullivan
----------------------------------------------------------------------------
Name: John Sullivan
Title: Principal Financial Officer
Date: June 23, 2003