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, New York, New York 10020
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas, New York, New York 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
Date of reporting period: 4/30/04
Item 1. Report to Shareholders.
The Trust's semi-annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Advantage Pennsylvania Municipal Income Trust performed during the
semiannual period. The portfolio management team will provide an overview
of the market conditions and discuss some of the factors that affected
investment performance during the reporting period. In addition, this
report includes the trust's financial statements and a list of trust
investments as of April 30, 2004.
Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the trust will achieve its investment
objective. Trusts are subject to market risk, which is the possibility
that the market values of securities owned by the trust will decline and
that the value of trust shares may therefore be less than what you paid
for them. Accordingly, you can lose money investing in this trust.
Income may subject certain individuals to the federal Alternative Minimum
Tax (AMT).
<Table>
<Caption>
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NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
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</Table>
Performance Summary as of 04/30/04
<Table>
<Caption>
ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
SYMBOL: VAP
- ------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (09/25/92) 7.63% 6.48%
10-Year 7.53 7.40
5-year 6.45 5.18
1-Year 2.87 -4.66
6-Month 1.40 -4.79
- ------------------------------------------------------
</Table>
Past performance is no guarantee of future results. Investment return, net asset
value (NAV) and common share market price 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. NAV per share is determined by dividing the
value of the trust's portfolio securities, cash and other assets, less all
liabilities, by the total number of common shares outstanding. The common share
market price is 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. Total return assumes an
investment at the beginning of the period, reinvestment of all distributions for
the period in accordance with the trust's dividend reinvestment plan, and sale
of all shares at the end of the period.
The Lehman Brothers Pennsylvania Municipal Bond Index is a broad-based
statistical composite of Pennsylvania municipal bonds. The index is unmanaged
and does not include any sales charges or fees. Such costs would lower
performance. It is not possible to invest directly in an index.
1
Trust Report
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2004
Van Kampen Advantage Pennsylvania Municipal Income Trust is managed by the
adviser's Municipal Fixed Income team.(1) Current members include Dennis
Pietrzak, Executive Director; Robert Wimmel, Vice President; and John
Reynoldson, Executive Director.
MARKET CONDITIONS
The state of the U.S. economy remained mixed over the six-month period under
review. On the positive side, economic growth continued to be robust, with Gross
Domestic Product growth topping 4 percent in both the last quarter of 2003 and,
preliminarily, the first quarter of this year. While this strength in output has
historically triggered fears of rising interest rates, yields remained
stubbornly low across the municipal curve. These low yields were partly the
result of the continued low levels of observed inflation in the U.S. economy.
Unfortunately, they also reflected continuing weakness in the job market, which
remained soft throughout most of the period. The soft job numbers, coupled with
persistently low inflation, led the Federal Open Market Committee (the Fed) to
maintain its accommodative stance throughout the period.
The surprisingly rapid job growth data released in April, coupled with rapidly
rising commodity and high oil prices, led many investors to fear that the Fed
would be forced to raise interest rates earlier than the market initially
expected. As a result, bond yields across all major sectors spiked in April.
Supply of new municipal bonds in calendar 2003 hit record levels as
municipalities moved to take advantage of historically low interest rates. Many
cities and states sought to reduce expenditures by refinancing existing debt and
replacing it with lower-yielding bonds. In other cases, municipalities attempted
to meet current and future funding needs by issuing new debt. This activity
slowed in the first months of 2004.
The low interest rates that prevailed over much of the period also had an impact
on the demand for municipal bonds. Retail and institutional investor activity
slowed as holders of municipal bonds saw little reason to sell bonds purchased
at higher yield levels and reinvest at lower yields. However, the period was
marked by rising activity among non-traditional investors, such as hedge funds
and insurance companies seeking to take advantage of the attractiveness of
municipal bonds relative to some taxable securities. Additionally, investors'
search for yield led to significant outperformance by lower-rated bonds with
greater credit risk. Sectors such as health care, with a preponderance of
lower-rated issues, performed particularly well.
(1) Team members may change without notice at any time.
2
While other states suffered during the period, Pennsylvania's economy remained
strong thanks to its ongoing tradition of fiscal discipline. The bulk of the
state's issuance continued to be in the education sector, which has over time
tended to be active in its issuance of new as well as refunded debt. The weakest
segment of the state economy was Pittsburgh, which was downgraded from
investment grade to BB/Ba because of revenue shortfalls.
PERFORMANCE ANALYSIS
Closed-end fund returns can be calculated based upon either the market price or
the net asset value (NAV) of its shares. NAV per share is determined by dividing
the value of the trust's portfolio securities, cash and other assets, less all
liabilities, by the total number of common shares outstanding, while market
price reflects the supply and demand for the shares. As a result, the two
returns can differ significantly. On an NAV basis, the trust outperformed its
benchmark, the Lehman Brothers Pennsylvania Municipal Bond Index, but
underperformed on a market-price basis. (See table below.)
The trust uses leverage to enhance its dividend to common shareholders. The
trust borrows money at short-term rates through the issuance of preferred
shares. The proceeds are typically reinvested in longer-term securities, taking
advantage of the difference between short- and longer-term rates. With short-
term rates at historic lows for much of the period, the difference between
short-and longer-term rates was relatively high. This made using leverage a
particularly profitable approach in the early months of the period, and added to
the trust's returns.
As yields rose toward the end of the period, the prices of bonds declined. The
trust's use of leverage magnified this negative movement. However, the portfolio
saw strong relative performance from its higher-yielding holdings during the
period, which counterbalanced the effects of the leverage and helped produce a
total return on an NAV basis higher than that of the benchmark, which is not
leveraged.
The trust's performance was also modestly hampered by its bias, relative to the
benchmark, toward high-quality securities. Municipal bond investors during the
period responded to the improving economy by reducing the yield spreads between
higher and lower-rated bonds (yield spreads reflect the premium
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2004
<Table>
<Caption>
- ----------------------------------------------------------
LEHMAN BROTHERS
BASED ON BASED ON PENNSYLVANIA
NAV MARKET PRICE MUNICIPAL BOND INDEX
1.40% -4.79% 1.13%
- ----------------------------------------------------------
</Table>
Past performance is no guarantee of future results. Investment return, net asset
value and common share market price will fluctuate and trust shares, when sold,
may be worth more or less than their original cost. See Performance Summary for
additional performance information and index definition.
3
demanded by investors to buy lower-rated bonds). As a result, lower-quality
bonds outperformed. The portfolio had approximately 86 percent exposure to bonds
rated AA/Aa or higher at the end of the period.
One of our key strategies in managing the trust was to adjust the portfolio's
term structure in anticipation of rising interest rates. Our research showed
that the intermediate portion of the curve offered the most promising
total-return potential. As a result, we focused our purchases on the 15- to
20-year segment of the curve. Many of the securities we identified had the added
appeal of premium coupons and 10-year call dates, which served to add income to
the portfolio while limiting its interest-rate exposure.
The trust's trading activity during the period was below traditional norms
because we wanted to avoid having to reinvest into securities with low yields.
That said, we were able to make selective relative-value trades among securities
and sectors as they moved into and out of fair value. Some of these acquisitions
were funded by the proceeds of housing bonds that were called away by their
issuers during the period. In other cases we sold bonds that met their
performance objectives during the period. We reinvested this cash into
securities with more promising total-return characteristics.
The trust's portfolio remained well diversified during the period, with its
holdings spread across all major municipal bond sectors. This long-standing
strategy helps to minimize the risk of over-concentration in any single sector,
while also giving the portfolio exposure to as many potential sources of return
as possible. The three largest sector exposures at the end of the period were
water and sewer, public education and higher education.
Looking ahead, it is impossible to predict whether interest rates will continue
to trend upward, but we believe that the trust is well positioned to weather
further increases in interest rates. We look forward to becoming more active in
seeking attractive structures and relative-value trading opportunities now that
rates have moved into a more normal range.
<Table>
TOP 5 SECTORS AS OF 4/30/04 RATINGS ALLOCATION AS OF 4/30/04
Water & Sewer 17.9% AAA/Aaa 72.8%
Public Education 17.2 AA/Aa 12.9
Higher Education 15.9 A/A 8.4
Health Care 13.2 BBB/Baa 5.9
General Purpose 10.0
</Table>
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the sectors shown above. All percentages are as a percentage of
long-term investments. Securities are classified by sectors that represent broad
groupings of related industries. Ratings allocations based upon ratings as
issued by Standard and Poor's and Moody's. Van Kampen is a wholly owned
subsidiary of a global securities firm which is engaged in a wide range of
financial services including, for example, securities trading and brokerage
activities, investment banking, research and analysis, financing and financial
advisory services.
4
PROXY VOTING POLICIES AND PROCEDURES
A description of the trust's policies and procedures with respect to the
voting of proxies relating to the trust's portfolio securities is
available without charge, upon request, by calling 1-800-847-2424. This
information is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
5
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED)
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
MUNICIPAL BONDS 153.9%
PENNSYLVANIA 152.4%
$1,000 Allegheny Cnty, PA Higher Ed Bldg Carnegie
Mellon Univ..................................... 5.125% 03/01/32 $ 1,004,930
1,500 Allegheny Cnty, PA Higher Ed Bldg Carnegie
Mellon Univ..................................... 5.250 03/01/32 1,519,395
3,250 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Dev Inc Proj Rfdg (MBIA Insd)................... 6.300 09/01/13 3,294,265
905 Allegheny Cnty, PA Residential Mtg Single Family
Ser KK-2 (AMT) (GNMA Collateralized)............ 5.750 05/01/33 926,005
1,000 Allegheny Cnty, PA San Auth Swr (MBIA Insd)..... 5.750 12/01/13 1,121,810
1,830 Allegheny Cnty, PA San Auth Swr (MBIA Insd)..... 5.750 12/01/18 2,039,553
2,000 Allegheny Cnty, PA San Auth Swr Rev (MBIA
Insd)........................................... 5.500 12/01/24 2,116,600
2,640 Bensalem Twp, PA Sch Dist (FGIC Insd)........... 5.000 08/15/18 2,749,824
1,150 Bucks Cnty, PA Wtr & Swr Rev Neshaminy
Interceptor Ser A (AMBAC Insd).................. 5.375 06/01/14 1,251,844
1,215 Bucks Cnty, PA Wtr & Swr Rev Neshaminy
Interceptor Ser A (AMBAC Insd).................. 5.375 06/01/15 1,315,250
870 Carbon Cnty, PA Indl Dev Auth Panther Creek
Partn Proj Rfdg (AMT) (LOC: Paribas & Union Bk
of CA Intl)..................................... 6.650 05/01/10 937,956
1,500 Central Dauphin, PA Sch Dist (FSA Insd) (a)..... 5.000 12/01/19 1,564,545
1,115 Chichester Sch Dist PA (FGIC Insd).............. * 03/01/19 548,056
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 5,817,300
1,000 Delaware Cnty, PA Auth College Neumann College
Rfdg............................................ 6.000 10/01/31 1,012,820
1,000 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/10 779,870
1,045 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/11 768,326
1,225 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/12 848,055
1,500 Delaware Vly, PA Regl Fin Auth.................. 5.750 07/01/17 1,695,060
2,735 Exeter Twp, PA Sch Dist (FGIC Insd)............. 5.000 05/15/25 2,760,764
2,000 Greater Latrobe, PA Sch Auth (FGIC Insd)........ 5.250 04/01/17 2,126,180
1,500 Harrisburg, PA Res Gtd Sub Ser D 2 (FSA Insd)... 5.000 12/01/33 1,593,360
1,000 Lycoming Cnty, PA Auth College Rev PA College of
Technology (AMBAC Insd)......................... 5.350 07/01/26 1,030,600
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/19 525,490
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/20 492,213
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/21 459,287
2,500 Mercer Cnty, PA Indl Dev Auth Wtr Facs
Philadelphia Sub Corp (AMT) (MBIA Insd)......... 6.000 07/01/30 2,660,425
1,000 Monroe Cnty, PA Hosp Auth Rev Hosp Pocono Med
Ctr............................................. 6.000 01/01/43 1,020,330
1,205 Monroeville, PA Muni Auth San Ser B (MBIA
Insd)........................................... 5.250 12/01/18 1,277,445
1,350 Monroeville, PA Muni Auth San Ser B (MBIA
Insd)........................................... 5.250 12/01/20 1,428,786
</Table>
6 See Notes to Financial Statements
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
PENNSYLVANIA (CONTINUED)
$1,500 Montgomery Cnty, PA Higher Ed & Hlth Auth Hosp
Rev Abington Mem Hosp Ser A..................... 5.125% 06/01/32 $ 1,466,295
1,000 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev Adult Cmntys Total Svcs Ser B......... 5.625 11/15/12 1,045,070
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Res Rec
Montenay Proj Ser A (MBIA Insd)................. 5.250 11/01/14 1,093,320
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
53A (AMT)....................................... 6.000 10/01/15 1,037,560
2,450 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
66A (AMT)....................................... 5.650 04/01/29 2,489,004
2,000 Pennsylvania St Higher Ed Fac Auth Rev Drexel
Univ............................................ 5.500 05/01/17 2,126,220
1,000 Pennsylvania St Higher Ed Fac Auth Rev La Salle
Univ............................................ 5.500 05/01/34 1,004,370
1,000 Pennsylvania St Higher Ed Fac Auth Rev Thomas
Jefferson....................................... 5.375 01/01/25 1,029,240
1,500 Pennsylvania St Higher Ed Fac Clarion Univ Fndtn
Inc Ser A (XLCA Insd)........................... 5.250 07/01/18 1,585,395
1,500 Pennsylvania St Higher Ed Fac Clarion Univ Fndtn
Inc Ser A (XLCA Insd)........................... 5.000 07/01/33 1,482,870
1,000 Pennsylvania St Higher Ed Fac Messiah College
Ser AA3 (Radian Insd)........................... 5.500 11/01/22 1,037,840
1,560 Pennsylvania St Higher Ed Fac Philadelphia
College Osteopathic Med......................... 5.000 12/01/16 1,609,202
1,850 Pennsylvania St Higher Ed UPMC Hlth Sys Ser A... 6.000 01/15/31 1,943,444
3,015 Pennsylvania St Tpk Commn Ser T Rfdg (FGIC
Insd)........................................... 5.500 12/01/10 3,388,920
1,970 Pennsylvania St Univ Rfdg....................... 5.250 03/01/18 2,108,491
1,500 Philadelphia, PA (FSA Insd)..................... 5.250 09/15/25 1,535,070
1,005 Philadelphia, PA Auth Indl Dev Amern College Of
Physicians...................................... 5.500 06/15/27 1,028,929
2,500 Philadelphia, PA Auth Indl Dev Philadelphia Arpt
Sys Proj Ser A (AMT) (FGIC Insd)................ 5.250 07/01/28 2,523,450
4,250 Philadelphia, PA Gas Wks Rev 12th Ser B
(Escrowed to Maturity) (MBIA Insd).............. 7.000 05/15/20 5,194,903
4,200 Philadelphia, PA Wtr & Swr Rev Cap Apprec 14th
Ser (MBIA Insd)................................. * 10/01/07 3,835,860
5,000 Pittsburgh & Allegheny Cnty, PA Pub Aud Regl
Asset Dist Sales Tax (AMBAC Insd)............... 5.000 02/01/24 5,039,650
2,500 Pittsburgh, PA Ser A (AMBAC Insd)............... 5.500 09/01/17 2,662,550
2,000 Pittsburgh, PA Ser A (Prerefunded @ 09/01/09)
(FGIC Insd)..................................... 5.750 09/01/21 2,250,460
2,000 Pittsburgh, PA Wtr & Swr Rfdg (FGIC Insd)....... 6.500 09/01/13 2,363,820
1,000 Southcentral, PA Gen Auth Rev Wellspan Hlth
Oblig (MBIA Insd)............................... 5.375 05/15/28 1,029,290
</Table>
See Notes to Financial Statements 7
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
PENNSYLVANIA (CONTINUED)
$1,905 State Pub Sch Bldg Auth PA Conneaut Sch Dist
Proj (FGIC Insd)................................ 5.250% 11/01/18 $ 2,047,265
1,205 State Pub Sch Bldg Auth PA Sch Tuscarora Sch
Dist Proj (FSA Insd)............................ 5.250 04/01/20 1,277,565
1,270 State Pub Sch Bldg Auth PA Sch Tuscarora Sch
Dist Proj (FSA Insd)............................ 5.250 04/01/21 1,341,679
1,500 Susquehanna Area Regl Arpt Auth PA Arpt Ser D... 5.375 01/01/18 1,477,785
1,850 Trinity Area Sch Dist PA (FGIC Insd)............ 5.250 11/01/20 1,967,364
535 Unity Twp, PA Muni Auth Gtd Swr Cap Apprec
(AMBAC Insd).................................... * 11/01/14 342,036
1,075 Wilson, PA Sch Dist Second Ser (FSA Insd)....... 5.375 05/15/16 1,160,119
1,100 York Cnty, PA (AMBAC Insd)...................... 5.000 06/01/20 1,137,697
------------
109,349,077
------------
U. S. VIRGIN ISLANDS 1.5%
1,000 Virgin Islands Pub Fin Auth Rev Gross Rcpt Taxes
Ln Nt Ser A (ACA Insd).......................... 6.125 10/01/29 1,070,410
------------
TOTAL LONG-TERM INVESTMENTS 153.9%
(Cost $104,027,234)....................................................... 110,419,487
SHORT-TERM INVESTMENT 1.9%
(Cost $1,400,000)......................................................... 1,400,000
------------
TOTAL INVESTMENTS 155.8%
(Cost $105,427,234)....................................................... 111,819,487
LIABILITIES IN EXCESS OF OTHER ASSETS (0.1%)............................... (43,305)
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (55.7%)................. (40,009,189)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.............................. $ 71,766,993
============
</Table>
* Zero coupon bond
(a) Security purchased on a when-issued or delayed delivery basis.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
FGIC--Financial Guaranty Insurance Co.
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
Radian--Radian Asset Assurance
XLCA--XL Capital Assurance Inc.
8 See Notes to Financial Statements
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2004 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $105,427,234)....................... $111,819,487
Cash........................................................ 54,509
Receivables:
Interest.................................................. 1,712,052
Investments Sold.......................................... 85,000
Other....................................................... 673
------------
Total Assets............................................ 113,671,721
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,567,315
Investment Advisory Fee................................... 55,731
Income Distributions--Common Shares....................... 22,068
Other Affiliates.......................................... 7,092
Administrative Fee........................................ 4,644
Trustees' Deferred Compensation and Retirement Plans........ 194,798
Accrued Expenses............................................ 43,891
------------
Total Liabilities....................................... 1,895,539
Preferred Shares (including accrued distributions).......... 40,009,189
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 71,766,993
============
NET ASSET VALUE PER COMMON SHARE ($71,766,993 divided by
4,368,552 shares outstanding)............................. $ 16.43
============
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............................................. 64,236,073
Net Unrealized Appreciation................................. 6,392,253
Accumulated Net Realized Gain............................... 656,862
Accumulated Undistributed Net Investment Income............. 438,119
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 71,766,993
============
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....................... $111,766,993
============
</Table>
See Notes to Financial Statements 9
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended April 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................... $ 2,818,985
-----------
EXPENSES:
Investment Advisory Fee..................................... 344,088
Preferred Share Maintenance................................. 57,277
Trustees' Fees and Related Expenses......................... 37,893
Administrative Fee.......................................... 28,673
Legal....................................................... 9,604
Custody..................................................... 4,016
Other....................................................... 65,944
-----------
Total Expenses.......................................... 547,495
-----------
NET INVESTMENT INCOME....................................... $ 2,271,490
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 656,930
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 8,168,124
End of the Period......................................... 6,392,253
-----------
Net Unrealized Depreciation During the Period............... (1,775,871)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(1,118,941)
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (218,592)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 933,957
===========
</Table>
10 See Notes to Financial Statements
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
<Table>
<Caption>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31, 2003
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 2,271,490 $ 4,823,820
Net Realized Gain....................................... 656,930 2,009,409
Net Unrealized Depreciation During the Period........... (1,775,871) (1,150,733)
Distributions to Preferred Shareholders:
Net Investment Income................................. (77,379) (341,199)
Net Realized Gain..................................... (141,213) (97,678)
----------- -----------
Change in Net Assets Applicable to Common Shares from
Operations............................................ 933,957 5,243,619
Distributions to Common Shareholders:
Net Investment Income................................. (2,223,420) (4,748,108)
Net Realized Gain..................................... (1,876,119) (887,691)
----------- -----------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES............................ (3,165,582) (392,180)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................. 74,932,575 75,324,755
----------- -----------
End of the Period (Including accumulated undistributed
net investment income of $438,119 and $467,428,
respectively)......................................... $71,766,993 $74,932,575
=========== ===========
</Table>
See Notes to Financial Statements 11
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
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, -------------------
2004 2003 2002 (e)
---------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $ 17.15 $ 17.24 $ 17.28
------- ------- -------
Net Investment Income.................................... .52 1.11 1.19
Net Realized and Unrealized Gain/Loss.................... (.25) .19 .08
Common Share Equivalent of Distributions Paid to Preferred
Shareholders:
Net Investment Income.................................... (.02) (.08) (.12)
Net Realized Gain........................................ (.03) (.02) (.03)
------- ------- -------
Total from Investment Operations........................... .22 1.20 1.12
Distributions Paid to Common Shareholders:
Net Investment Income.................................... (.51) (1.09) (1.05)
Net Realized Gain........................................ (.43) (.20) (.11)
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD......................... $ 16.43 $ 17.15 $ 17.24
======= ======= =======
Common Share Market Price at End of the Period............. $ 14.60 $ 16.23 $ 16.45
Total Return (a)........................................... -4.79%* 6.54% 11.96%
Net Assets Applicable to Common Shares at End of the Period
(In millions)............................................ $ 71.8 $ 74.9 $ 75.3
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (b)........................................ 1.46% 1.43% 1.50%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (b).......................... 6.06% 6.40% 7.02%
Portfolio Turnover......................................... 3%* 31% 19%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including Preferred
Shares (b)............................................... .95% .93% .97%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c).......................... 5.85% 5.95% 6.32%
SENIOR SECURITIES:
Total Preferred Shares Outstanding......................... 1,600 1,600 1,600
Asset Coverage Per Preferred Share (d)..................... $69,860 $71,846 $72,101
Involuntary Liquidating Preference Per Preferred Share..... $25,000 $25,000 $25,000
Average Market Value Per Preferred Share................... $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.
12
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
- ----------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
$ 16.40 $ 16.18 $ 17.66 $ 17.23 $ 16.72 $ 16.69 $ 14.63 $ 17.33
------- -------- ------- -------- -------- -------- -------- --------
1.21 1.27 1.24 1.24 1.25 1.24 1.25 1.25
1.15 .28 (1.46) .47 .54 .04 2.06 (2.77)
(.25) (.37) (.30) (.32) (.32) (.32) (.36) (.27)
(.09) -0- -0- -0- -0- -0- -0- (.01)
------- -------- ------- -------- -------- -------- -------- --------
2.02 1.18 (.52) 1.39 1.47 .96 2.95 (1.80)
(.93) (.96) (.96) (.96) (.96) (.93) (.89) (.88)
(.21) -0- -0- -0- -0- -0- -0- (.02)
------- -------- ------- -------- -------- -------- -------- --------
$ 17.28 $ 16.40 $ 16.18 $ 17.66 $ 17.23 $ 16.72 $ 16.69 $ 14.63
======= ======== ======= ======== ======== ======== ======== ========
$ 15.75 $14.9375 $14.625 $ 17.25 $16.4375 $ 15.125 $ 14.00 $ 12.125
13.31% 9.10% -10.14% 11.03% 15.38% 14.85% 23.03% -19.94%
$ 75.4 $ 71.5 $ 70.6 $ 77.0 $ 75.2 $ 72.9 $ 72.8 $ 63.8
1.71% 1.78% 1.69% 1.67% 1.70% 1.77% 1.77% 1.80%
7.12% 7.89% 7.22% 7.11% 7.41% 7.48% 7.96% 7.75%
17% 31% 7% 3% 2% 2% 9% 5%
1.10% 1.13% 1.10% 1.10% 1.10% 1.14% 1.12% 1.15%
5.70% 5.59% 5.45% 5.25% 5.48% 5.52% 5.68% 6.05%
1,600 1,600 1,600 800 800 800 800 800
$72,107 $ 69,704 $69,097 $146,292 $143,968 $141,175 $141,025 $129,764
$25,000 $ 25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $ 25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
</Table>
See Notes to Financial Statements 13
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (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. Effective November 30, 2003, the Trust's
investment adviser, Van Kampen Investment Advisory Corp., merged into its
affiliate, Van Kampen Asset Management.
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
segregate assets with the custodian 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, 2004, the Trust had $1,567,315 of when-issued and
delayed delivery purchase commitments.
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.
14
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (UNAUDITED) continued
At April 30, 2004, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $105,326,880
============
Gross tax unrealized appreciation........................... $ 6,750,139
Gross tax unrealized depreciation........................... (257,532)
------------
Net tax unrealized appreciation on investments.............. $ 6,492,607
============
</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,
2003 was as follows:
<Table>
<Caption>
2003
Distributions paid from:
Ordinary income........................................... $ 43,589
Long-term capital gain.................................... 962,055
----------
$1,055,644
==========
</Table>
As of October 31, 2003, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $ 155,602
Undistributed long-term capital gain........................ $1,897,803
</Table>
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen Asset
Management (the "Adviser") provides 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 pays 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. Effective June 1, 2004, the administrative fee was reduced from
..05% to .00%.
For the six months ended April 30, 2004, the Trust recognized expenses of
approximately $3,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, 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, 2004, the Trust recognized expenses of approximately $13,300
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.
15
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (UNAUDITED) continued
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. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $3,209,760 and $7,153,096, respectively.
4. 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, 2004 was 1.048%. During the six
months ended April 30, 2004, the rates ranged from 0.880% to 1.320%.
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.
16
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
J. MILES BRANAGAN
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
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 LLP
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.
17
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 conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "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 Asset Management, Van
Kampen Advisors Inc., Van Kampen Funds Inc., Van Kampen Investor Services
Inc., 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)2004 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC.
VAP SAR 6/04 RN04-00732P-Y04/04
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.
Item 8. [Reserved.]
Item 9. Controls and Procedures
(a) 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.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) Code of Ethics -- Not applicable for semi-annual reports.
(b)(1) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(b)(2) A certification for the Principal Financial Officer of the registrant is
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 22, 2004
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 22, 2004
By: /s/ John L. Sullivan
--------------------
Name: John L. Sullivan
Title: Principal Financial Officer
Date: June 22, 2004