<TABLE>
Table of Contents
<CAPTION>
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio of Investments .............. 4
Statement of Assets and Liabilities ... 7
Statement of Operations ............... 8
Statement of Changes in Net Assets .... 9
Financial Highlights .................. 10
Notes to Financial Statements ......... 11
</TABLE>
Letter to Shareholders
March 27, 1995
Dear Shareholder:
During the six-month period covered by this report, September 1, 1994
through February 28, 1995, we saw the close of a challenging and
difficult year in the financial markets -- and the beginning of a new
year, with renewed optimism and strength on many fronts.
(PHOTOGRAPH INSERTED HERE)
Dennis J. McDonnell and Don G. Powell
Market Overview
In an effort to moderate economic growth and keep inflation under control,
the Federal Reserve Board (the "Fed") has raised the federal funds rate
(the rate banks charge each other for overnight loans) seven times over a
12-month period. As a result, the fed funds rate doubled from 3 percent to 6
percent, its highest level in three years. Intermediate and long-term interest
rates quickly followed the Fed's lead and moved significantly higher as well.
The yield on 30-year Treasury securities, for example, began 1994 at 6.35
percent and increased to a high of 8.16 percent, before retreating to 7.89
percent at the end of the year. However, since yields and prices move in
opposite directions, this had a negative impact on prices of fixed-income
securities, including municipal bonds.
Stock market investors did not fare much better during this rising interest
rate environment, despite the robust economy and stronger corporate earnings.
Concerned that higher interest rates and the prospect for continued rate hikes
might altogether extinguish the prolonged economic expansion, the equity market
sputtered for most of 1994. The S&P 500 Index, for example, produced a 1.36
percent total return for 1994, while the average price change for the year for
all stocks listed on the New York Stock Exchange was down 20 percent.
In contrast, 1995 began more positively, as the bond market got a boost from
growing sentiment that the Fed appeared to have stabilized economic growth while
keeping inflation under control, and that it may be near the end of its
tightening cycle. Subsequently, the Bond Buyer's Municipal Index rose to 90.97
at the end of February -- an increase of more than
12 percent from its low of 80.81 in November.
The stock market responded in late February with the Dow Jones Industrial
Average breaking through the 4000 mark, setting a new record high and raising
expectations for a stronger market in 1995. At the same time, almost all other
major stock indexes rose, including the S&P 500 Index, the New York Stock
Exchange Composite Index, and the Nasdaq Composite Index.
Additionally, the Van Kampen American Capital Index of Investor Intentions for
February reached 233 -- an increase of 17 percent over January's level of 200 --
its largest monthly increase since February 1994. The index, computed from an
independently conducted survey and published by Van Kampen American Capital,
measures the investment climate (investors' confidence) by asking 1,000
investors about what they intend to do with their money over the next 60-90
days. A total of 45.6 percent of investors said the next 60-90 days would be a
"good" time to invest.
(Continued on page two)
1
Performance
At its current annualized dividend level of $1.092 per common share, the Trust
provides a current distribution rate of 6.83 percent <F3> based upon the closing
price of $16.00 per share on February 28, 1995. For shareholders who purchased
the Trust at its initial offering price of $15 per share, their current
distribution rate is 7.28 percent <F3>. At these distribution rates, the Trust
provides Pennsylvania residents in the combined marginal tax bracket of 37.8
percent with a yield equivalent to a taxable investment earning 10.98 percent
<F4> and 11.70 percent <F4>, respectively.
The Trust's closing stock price of $16.00 per share for the period ended
February 28, 1995, is up significantly from its six-month low of $12.50 per
share on November 17, 1994, reflecting a stronger municipal market at the start
of 1995. Moreover, the Trust generated a six-month total return of 1.88 percent
<F2>, based on net asset value, for the period ended February 28, 1995.
Outlook
To date, the Fed appears to have been relatively successful in engineering the
"soft landing" that it has labored to promote over the last 12 months. Inflation
appears to be under control and, while the nation's current pace of economic
growth exceeds the Fed's target rate of 2.5 percent, such a goal appears
achievable and reasonable. Moreover, there are no pressing signs that suggest
that the Fed has over-corrected to this point and will drive the economy into
premature recession.
Regarding the municipal market, we remain optimistic about the current supply
and demand relationship. With much of the refinancing by municipal issuers
behind us, we expect new issue supply to remain low in 1995 and demand for
municipals to grow as confidence in the economy increases. As confidence is
renewed, we believe many investors will begin to move off the sidelines and into
domestic markets in pursuit of high credit quality and stable income.
Additionally, we believe the Trust will continue to provide shareholders with
long-term value, as we seek to maintain a high level of current income and
consistent dividends over time.
Corporate News
As you may have already noticed, we have adopted a new design for our
shareholder reports that begins to reflect our new identity as Van Kampen
American Capital. Going forward, we will continue to look for new ways to
improve upon the presentation of information in your Trust's report. In
addition, we have developed a new corporate ad campaign introducing Van Kampen
American Capital. Full page ads appeared in The Wall Street Journal in February
- -- watch for more advertising throughout the year.
We look forward to communicating with you on a regular basis, providing
information about your Trust's performance, new investment opportunities, and
our newly created company. We appreciate your continued confidence in your Trust
and Van Kampen American Capital.
Sincerely,
Don G. Powell
Chief Executive Officer
Van Kampen American Capital
Investment Advisory Corp.
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<TABLE>
Performance Results for the Period Ended February 28, 1995
Van Kampen Merritt Pennsylvania Quality Municipal Trust
(NYSE Ticker Symbol-VPQ)
<CAPTION>
<S> <C>
Total Returns
Six-month total return based on market price<F1> .................................. 2.87%
Six-month total return based on NAV<F2> ........................................... 1.88%
Distribution Rates
Distribution rate as a % of initial offer stock price<F3> ......................... 7.28%
Taxable-equivalent distribution rate as a % of initial offer stock price<F4> ...... 11.70%
Distribution rate as a % of 02/28/95 closing stock price<F3> ...................... 6.83%
Taxable-equivalent distribution rate as a % of 02/28/95 closing stock price<F4> ... 10.98%
Share Valuations
Net asset value as of 02/28/95 .................................................... $ 16.16
Preferred share rate as of 02/28/95<F5> ........................................... 4.25%
Closing stock price as of 02/28/95 ............................................... $ 16.00
Six-month high common stock price (02/24/95) ..................................... $ 16.25
Six-month low common stock price (11/17/94) ...................................... $ 12.50
<FN>
<F1> Total return based on market price assumes an investment at the 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 stock price at
the end of the period indicated.
<F2> Total return based on Net Asset Value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at net asset value.
<F3> Distribution rate represents the monthly annualized distributions of the
Trust at the end of February 1995, and not the earnings of the Trust.
<F4> The taxable-equivalent distribution rate is calculated assuming a 37.8%
combined federal and state tax bracket, which takes into consideration the
deductibility of individual state taxes paid.
<F5> 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 alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
</FN>
</TABLE>
3
<TABLE>
Portfolio of Investments
February 28,1995 (Unaudited)
- ----------------------------------------------------------------------------------------------
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Pennsylvania 88.3%
$ 6,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh
Intl Arpt Ser B (FSA Insd) ...................... 6.625% 01/01/22 $ 6,676,215
7,475 Allegheny Cnty, PA Hosp Dev Auth Rev
Saint Margaret Mem Hosp .......................... 7.125 10/01/21 7,633,395
2,575 Allegheny Cnty, PA San Auth Swr Rev
Ser A (FGIC Insd) ................................ * 12/01/08 1,156,999
2,580 Allegheny Cnty, PA San Auth Swr
Rev Ser A (FGIC Insd) ............................ * 06/01/09 1,112,083
1,645 Allegheny Cnty, PA San Auth Swr
Rev Ser A (FGIC Insd) ............................ * 12/01/09 688,449
2,475 Allentown, PA Area Hosp Auth Rev
Sacred Heart Hosp of Allentown .................. 7.500 07/01/06 2,561,303
2,690 Armstrong Cnty, PA Hosp Auth Hosp Rev
Armstrong Cnty Mem Hosp Ser A ................... 7.200 11/01/06 2,524,350
5,500 Armstrong Cnty, PA Hosp Auth Hosp Rev
Armstrong Cnty Mem Hosp Ser A ................... 7.500 11/01/16 5,075,345
1,000 Cambria Cnty, PA Ser A (FGIC Insd) .............. 6.625 08/15/14 1,058,890
1,000 Chester Cnty, PA Hlth & Edl Fac Auth Hosp Rev Bryn
Mawr Rehab Hosp Rfdg (Prerefunded @ 07/01/02) ... 6.900 07/01/07 1,118,230
1,150 Chichester Sch District PA Ser B (FGIC Insd) ..... * 03/01/03 742,969
1,130 Chichester Sch District PA Ser B (FGIC Insd) ..... * 09/01/03 710,408
1,195 Chichester Sch District PA Ser B (FGIC Insd) ..... * 03/01/04 727,863
1,220 Chichester Sch District PA Ser B (FGIC Insd) ..... * 09/01/04 722,923
1,220 Chichester Sch District PA Ser B (FGIC Insd) ..... * 03/01/05 699,877
1,220 Chichester Sch District PA Ser B (FGIC Insd) ..... * 09/01/05 680,723
1,220 Chichester Sch District PA Ser B (FGIC Insd) ..... * 03/01/06 655,738
1,020 Chichester Sch District PA Ser B (FGIC Insd) ..... * 09/01/06 532,991
1,220 Chichester Sch District PA Ser B (FGIC Insd) ..... * 03/01/07 613,294
1,220 Chichester Sch District PA Ser B (FGIC Insd) ..... * 09/01/07 595,982
1,190 Chichester Sch District PA Ser B (FGIC Insd) ..... * 03/01/08 558,527
1,205 Chichester Sch District PA Ser B (FGIC Insd) ..... * 09/01/08 549,360
1,220 Chichester Sch District PA Ser B (FGIC Insd) ..... * 09/01/09 518,171
7,310 Dauphin Cnty, PA Hosp Auth Rev Cmnty
Genl Osteopathic Hosp Rfdg ...................... 7.375 06/01/16 7,389,240
6,000 Delaware Cnty, PA Indl Dev Auth Pollutn
Ctl Rev Philadelphia Elec Co Proj ............... 7.375 04/01/21 6,219,000
</TABLE>
4 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
February 28,1995 (Unaudited)
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (Continued)
$ 18,000 Emmaus, PA Genl Auth Rev Local
Govt Pool G (FGIC Insd) ............................... 7.000% 05/15/18 $ 19,041,660
4,000 Falls Twp, PA Hosp Auth Hosp Rev
Delaware Vly Med Rfdg (FHA Insd) ..................... 7.000 08/01/22 4,156,120
500 Lancaster, PA Indl Dev Auth Coml Rev
First Mtg Kmart Corp Ser A Rfdg ....................... 7.100 09/15/07 522,150
4,000 Lehigh Cnty, PA Genl Purp Auth Rev
Good Shepherd Rehab Hosp .............................. 7.500 11/15/21 4,063,120
5,500 Lehigh Cnty, PA Genl Purp Auth Rev
Muhlenberg Hosp Ser B ................................ 8.100 07/15/10 5,800,630
3,100 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp Rev
Abington Hosp (Embedded Cap) (AMBAC Insd) <F2> ....... 6.000 06/01/16 3,055,670
950 Montgomery Cnty, PA Higher Edl & Hlth Auth
Hosp Rev Pottstown Mem Med Cent Proj ................. 7.000 11/15/99 987,202
1,250 Montgomery Cnty, PA Higher Edl & Hlth Auth
Hosp Rev Pottstown Mem Med Cent Proj ................. 7.350 11/15/05 1,296,113
2,345 Montgomery Cnty, PA Higher Edl & Hlth Auth
Hosp Rev Pottstown Mem Med Cent Proj ................. 6.875 11/15/20 2,219,355
6,000 Montgomery Cnty, PA Indl Dev Auth
Rev Res Recovery ...................................... 7.500 01/01/12 6,333,180
2,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev ......... 7.600 12/01/20 2,096,380
2,750 Pennsylvania Hsg Fin Agy Single Family Mtg Ser 27 .... 8.100 10/01/10 2,951,547
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser 34B ... 7.000 04/01/24 1,031,760
2,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser 42 .... 6.850 04/01/25 2,043,140
7,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia (Prerefunded @ 06/15/02) ........ 6.800 06/15/22 7,676,620
21,015 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser A (AMBAC Insd) .................... 7.050 10/01/16 22,318,560
1,000 Pennsylvania St Higher Edl Fac Auth Coll &
Univ Rev Hahnemann Univ Proj (MBIA Insd) .............. 7.200 07/01/19 1,072,140
3,000 Pennsylvania St Higher Edl Fac Auth Coll &
Univ Rev Trustees Univ Ser A ......................... 6.625 01/01/17 3,023,070
2,200 Pennsylvania St Higher Edl Fac Auth Rev
Med Coll PA Ser A .................................... 8.375 03/01/11 2,315,456
3,000 Philadelphia, PA Gas Wks Rev 14th Ser (FSA Insd) ..... 6.250 07/01/08 3,117,780
3,860 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp Rev
Childrens Hosp Ser A (Prerefunded @ 07/01/97) ......... 7.000 07/01/15 4,054,351
7,165 Philadelphia, PA Muni Auth Rev Justice Lease
Ser B (Prerefunded @ 11/15/01) (FGIC Insd) ............ 7.125 11/15/18 8,069,438
5,000 Philadelphia, PA Wtr & Swr Rev Ser 16 ................ 7.500 08/01/10 5,320,050
</TABLE>
5 See Notes to Financial Statements
<TABLE>
Portfolio of Investments (Continued)
February 28,1995 (Unaudited)
- -----------------------------------------------------------------------------------------------
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pennsylvania (Continued)
$ 5,500 Philadelphia, PA Wtr & Swr Rev Ser 16 ............ 7.000% 08/01/18 $ 5,659,555
3,000 Philadelphia, PA Wtr & Wastewtr Rev (MBIA Insd) ... 5.625 06/15/08 2,999,700
------------
172,747,072
------------
Puerto Rico 7.7%
2,985 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev ...... 5.000 07/01/02 2,865,600
14,000 Puerto Rico Comwlth Pub Impt Rfdg ................ * 07/01/04 8,319,220
1,560 Puerto Rico Elec Pwr Auth Pwr Rev ................ 6.000 07/01/14 1,540,531
2,190 Puerto Rico Pub Blds Auth Gtd
Pub Ed & Hlth Fac Ser K Rfdg ...................... 6.600 07/01/04 2,354,360
------------
15,079,711
------------
U. S. Virgin Islands 2.0%
3,750 Virgin Islands Pub Fin Auth Rev Matching
Fd Ln Nts Ser A Rfdg ............................. 7.250 10/01/18 3,880,463
------------
Total Long-Term Investments 98.0%
(Cost $182,597,552) <F1> ...................................................... 191,707,246
Other Assets in Excess of Liabilities 2.0% ................................... 3,877,312
------------
Net Assets 100% ........................................................... $195,584,558
------------
*Zero coupon bond
<FN>
<F1> At February 28, 1995, cost for federal income tax purposes is $182,597,552; the aggregate
gross unrealized appreciation is $9,606,737 and the aggregate gross unrealized depreciation
is $497,043, resulting in net unrealized appreciation of $9,109,694.
<F2> An Embedded Cap security includes a cap strike level such that the coupon payment may be
supplemented by cap payments if the floating rate index upon which the cap is based rises above
the strike level. The Trust invests in these instruments as a hedge against a rise in the short-term
interest rates which it pays on its preferred shares.
</FN>
</TABLE>
The following table summarizes the portfolio composition at February 28, 1995,
based upon quality ratings issued by Standard & Poor's. For securities not rated
by Standard & Poor's, the Moody's rating is used.
<TABLE>
Portfolio Composition
<CAPTION>
<S> <C>
AAA ......... 49.9%
AA .......... 4.7
A ........... 15.2
BBB ......... 24.2
BB .......... 4.0
Non-Rated ... 2.0
-------
100.0%
-------
</TABLE>
6 See Notes to Financial Statements
<TABLE>
Statement of Assets and Liabilities
February 28,1995 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Assets:
Investments, at Market Value (Cost $182,597,552) (Note 1) .................................... $ 191,707,246
Cash ........................................................................................ 2,472,431
Receivables:
Investments Sold ............................................................................. 3,862,758
Interest ..................................................................................... 3,554,114
Unamortized Organizational Expenses (Note 1) ................................................ 9,459
---------------
Total Assets ................................................................................. 201,606,008
---------------
Liabilities:
Payables:
Investments Purchased ........................................................................ 5,476,020
Income Distributions - Common and Preferred Shares .......................................... 318,340
Investment Advisory Fee (Note 2) ............................................................. 103,984
Administrative Fee (Note 2) ................................................................. 29,710
Accrued Expenses ............................................................................. 93,396
---------------
Total Liabilities ............................................................................ 6,021,450
---------------
Net Assets ................................................................................... $ 195,584,558
---------------
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 1,300 issued with liquidation
preference of $50,000 per share) (Note 5) .................................................... $ 65,000,000
---------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
8,082,838 shares issued and outstanding) (Note 3) ............................................ 80,828
Paid in Surplus ............................................................................. 119,478,824
Net Unrealized Appreciation on Investments .................................................. 9,109,694
Accumulated Undistributed Net Investment Income ............................................. 2,215,494
Accumulated Net Realized Loss on Investments ................................................. (300,282)
---------------
Net Assets Applicable to Common Shares ....................................................... 130,584,558
---------------
Net Assets ................................................................................... $ 195,584,558
---------------
Net Asset Value Per Common Share($130,584,558 divided
by 8,082,838 shares outstanding) ............................................................. $ 16.16
---------------
</TABLE>
7 See Notes to Financial Statements
<TABLE>
Statement of Operations
For the Six Months Ended February 28,1995 (Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C>
Investment Income:
Interest ....................................................... $ 6,576,655
---------------
Expenses:
Investment Advisory Fee (Note 2) .............................. 660,111
Administrative Fee (Note 2) .................................... 188,603
Preferred Share Maintenance (Note 5) ........................... 90,545
Legal (Note 2) ................................................ 10,860
Trustees Fees and Expenses (Note 2) ............................ 9,050
Amortization of Organizational Expenses (Note 1) .............. 2,972
Other .......................................................... 105,744
---------------
Total Expenses ................................................. 1,067,885
---------------
Net Investment Income .......................................... $ 5,508,770
---------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ............................................ $ 16,777,301
Cost of Securities Sold ........................................ (17,077,583)
---------------
Net Realized Loss on Investments ............................. (300,282)
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ....................................... 10,902,654
End of the Period .............................................. 9,109,694
---------------
Net Unrealized Depreciation on Investments During the Period ... (1,792,960)
---------------
Net Realized and Unrealized Loss on Investments ................ $ (2,093,242)
---------------
Net Increase in Net Assets from Operations ..................... $ 3,415,528
---------------
</TABLE>
8 See Notes to Financial Statements
<TABLE>
Statement of Changes in Net Assets
For the Six Months Ended February 28,1995 and
the Year Ended August 31,1994 (Unaudited)
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended
February 28,1995 August 31,1994
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 5,508,770 $ 10,793,624
Net Realized Gain/Loss on Investments ............................. (300,282) 20,025
Net Unrealized Depreciation on Investments During the Period ..... (1,792,960) (12,467,120)
---------------- ---------------
Change in Net Assets from Operations ............................. 3,415,528 (1,653,471)
---------------- ---------------
Distributions from Net Investment Income:
Common Shares ..................................................... (4,411,067) (8,806,930)
Preferred Shares ................................................. (1,197,895) (1,726,520)
---------------- ---------------
(5,608,962) (10,533,450)
---------------- ---------------
Distributions from Net Realized Gain on Investments:
Common Shares ..................................................... (16,968) (310,345)
Preferred Shares ................................................. (3,068) (43,060)
---------------- ---------------
(20,036) (353,405)
---------------- ---------------
Total Distributions .............................................. (5,628,998) (10,886,855)
---------------- ---------------
Net Change in Net Assets from Investment Activities ............... (2,213,470) (12,540,326)
---------------- ---------------
From Capital Transactions (Note 3):
Value of Common Shares Issued Through Dividend Reinvestment ....... 112,958 232,244
---------------- ---------------
Total Decrease in Net Assets ...................................... (2,100,512) (12,308,082)
Net Assets:
Beginning of the Period .......................................... 197,685,070 209,993,152
---------------- ---------------
End of the Period (Including undistributed net investment income of
$2,215,494 and $2,315,686, respectively) ......................... $ 195,584,558 $ 197,685,070
---------------- ---------------
</TABLE>
9 See Notes to Financial Statements
<TABLE>
Statement of Changes in Net Assets
The following schedule presents financial highlights for one common share of the
Trust outstanding throughout the periods indicated.(Unaudited)
- -----------------------------------------------------------------------------------------------
<CAPTION>
September 27,1991
Six Months Year Year (Commencement
Ended Ended Ended of Investment
February 28, August 31, August 31, Operations) to
1995 1994 1993 August 31,1992
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period <F1> ............ $ 16.431 $ 17.987 $ 16.387 $ 14.788
------------ ----------- ---------- -----------------
Net Investment Income ............... .681 1.338 1.344 1.092
Net Realized and Unrealized
Gain/Loss on Investments ........... (.260) (1.544) 1.685 1.460
------------ ----------- ---------- -----------------
Total from Investment Operations ... .421 (.206) 3.029 2.552
------------ ----------- ---------- -----------------
Less:
Distributions from Net
Investment Income:
Paid to Common Shareholders ......... .546 1.092 1.042 .754
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders .............. .148 .214 .186 .199
Distributions from Net Realized
Gain on Investments:
Paid to Common Shareholders ......... .002 .039 .161 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders .............. -0- .005 .040 -0-
------------ ----------- ---------- -----------------
Total Distributions ................. .696 1.350 1.429 .953
------------ ----------- ---------- -----------------
Net Asset Value, End of Period ..... $ 16.156 $ 16.431 $ 17.987 $ 16.387
------------ ----------- ---------- -----------------
Market Price Per Share
at End of Period .................... $ 16.00 $ 16.125 $ 17.625 $ 15.750
Total Investment Return at
Market Price (Non-Annualized) (b .... 2.87% (2.22%) 20.26% 10.22%
Total Return at Net Asset Value
(Non-Annualized) <F3> .............. 1.88% (2.45%) 17.85% 14.65%
Net Assets at End of Period
(In millions) ....................... $ 195.6 $ 197.7 $ 210.0 $ 197.0
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares (Annualized) .......... 1.69% 1.64% 1.64% 1.58%
Ratio of Expenses to Average
Net Assets (Annualized) ............ 1.12% 1.12% 1.11% 1.11%
Ratio of Net Investment Income to
Average Net Assets
Applicable to Common Shares
(Annualized) <F4> ................... 6.84% 6.54% 6.85% 6.28%
Portfolio Turnover .................. 8.73% .96% 4.38% 55.37%
<FN>
<F1> Net asset value at September 27, 1991, is adjusted for common and preferred
share offering costs of $.212 per common share.
<F2> Total Investment Return at market price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends in
accordance with the Trust's dividend reinvestment plan.
<F3> Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
<F4> Net investment income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
</FN>
</TABLE>
10 See Notes to Financial Statements
Notes to Financial Statements
February 28,1995 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen Merritt Pennsylvania Quality Municipal 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 commenced investment
operations on September 27, 1991.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements.
A. Security Valuation -- Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. Security Transactions -- Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
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 February 28, 1995, there were no
when issued or delayed delivery purchase commitments.
C. Investment Income -- Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
D. Organizational Expenses -- The Trust has reimbursed Van Kampen American
Capital Distributors, Inc. ("VKAC") for costs incurred in connection with the
Trust's organization and initial registration in the amount of $30,000. These
costs are being amortized on a straight line basis over the 60 month period
ending September 26, 1996. Van Kampen American Capital Investment Advisory
Corp. (the "Adviser") has agreed that in the event any of the initial shares
of the Trust originally purchased by VKAC are redeemed during the amortization
period, the Trust will be reimbursed for any unamortized organizational
expenses in the same proportion as the number of shares redeemed bears to the
number of initial shares held at the time of redemption.
11
Notes to Financial Statements (Continued)
February 28,1995 (Unaudited)
- --------------------------------------------------------------------------------
E. 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.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year.
F. 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.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .70% of the average net assets of the Trust. In addition, the Trust
will pay a monthly administrative fee to VKAC, the Trust's Administrator, at an
annual rate of .20% of the average 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.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.
For the six months ended February 28, 1995, the Trust recognized expenses of
approximately $9,400 representing VKAC's cost of providing accounting and legal
services to the Trust.
Certain officers and trustees of the Trust are also officers and directors of
VKAC. The Trust does not compensate its officers or trustees who are officers of
VKAC.
The Trust has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those Trustees who are not officers of VKAC. The Trust's liability under the
deferred compensation and retirement plans at February 28, 1995, was
approximately $11,700.
12
Notes to Financial Statements (Continued)
February 28,1995 (Unaudited)
- --------------------------------------------------------------------------------
At February 28, 1995, VKAC owned 6,700 common shares of the Trust.
3. Capital Transactions
At February 28, 1995 and August 31, 1994, paid in surplus related to common
shares aggregated $119,478,824 and $119,365,942, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 28,1995 August 31,1994
<S> <C> <C>
Beginning Shares......... 8,075,216 8,060,902
Shares Issued Through
Dividend Reinvestment ... 7,622 14,314
---------------- --------------
Ending Shares............ 8,082,838 8,075,216
---------------- --------------
</TABLE>
4. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended February 28, 1995, were $16,448,932
and $17,077,583, respectively.
5. Preferred Shares
The Trust has outstanding 1,300 Auction Preferred Shares ("APS"). Dividends are
cumulative and the rate is currently reset through an auction process every 28
days. The rate in effect on February 28, 1995, was 4.25% and for the six months
ended February 28, 1995, the rates ranged from 3.15% to 4.25%.
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.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 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.
13
Funds Distributed by Van Kampen American Capital
GLOBAL AND
INTERNATIONAL
Govett Emerging Markets Fund
AC Global Equity Fund
Govett Global Government Income Fund
AC Global Government Securities
AC Global Managed Assets Fund
Govett International Equity Fund
Govett Latin America Fund
Govett Pacific Strategy Fund
EQUITY
Growth
AC Emerging Growth Fund
AC Enterprise Fund
AC Pace Fund
Govett Smaller Companies Fund
Growth & Income
VKM Balanced Fund
AC Comstock Fund
AC Equity Income Fund
AC Growth and Income Fund
VKM Growth and Income Fund
AC Harbor Fund
AC Real Estate Securities Fund
VKM Strategic Income Fund
VKM Utility Fund
AC Utilities Income Fund
FIXED INCOME
VKM Adjustable Rate U.S. Government Fund
AC Corporate Bond Fund
AC Federal Mortgage Trust
AC Government Securities
VKM High Yield Fund
AC High Yield Investments
VKM Money Market Fund
VKM Prime Rate Income Trust
AC Reserve Fund
VKM Short-Term Global Income Fund
VKM U.S. Government Fund
AC U.S. Government Trust for Income
TAX-FREE
VKM California Insured Tax Free Fund
VKM Florida Insured Tax Free Income Fund
VKM Insured Tax Free Income Fund
VKM Limited Term Municipal Income Fund
AC Municipal Bond Fund
VKM Municipal Income Fund
VKM New Jersey Tax Free Income Fund
VKM New York Tax Free Income Fund
VKM Pennsylvania Tax Free Income Fund
AC Tax-Exempt Trust
-- High Yield Municipal Portfolio
-- Insured Municipal Portfolio
VKM Tax Free High Income Fund
VKM Tax Free Money Fund
AC Texas Municipal Securities
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
14
Van Kampen Merritt Pennsylvania Quality Municipal Trust
Officers and Trustees
Don G. Powell*
Chairman and Trustee
Dennis J. McDonnell*
President and Trustee
David C. Arch
Trustee
Rod Dammeyer
Trustee
Howard J Kerr
Trustee
Theodore A. Myers
Trustee
Hugo F. Sonnenschein
Trustee
Wayne W. Whalen*
Trustee
Peter W. Hegel*
Vice President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Treasurer
Scott E. Martin*
Assistant Secretary
Weston B. Wetherell*
Assistant Secretary
John L. Sullivan*
Controller
Steven M. Hill*
Assistant Treasurer
Investment Adviser
Van Kampen American Capital Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Custodian and Transfer Agent
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive Chicago, Illinois 60606
Independent Auditors
KPMG Peat Marwick LLP
Peat Marwick Plaza
303 East Wacker Drive Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1995 All rights reserved.
SM denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Trust. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Trust
which contains additional information on how to purchase shares, the sales
charge, and other pertinent data.
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Van Kampen Merritt Pennsylvania Quality Municipal Trust
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