<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
Statement of Assets and Liabilities.............. 8
Statement of Operations.......................... 9
Statement of Changes in Net Assets............... 10
Financial Highlights............................. 11
Notes to Financial Statements.................... 12
</TABLE>
VPQ SAR 4/96
<PAGE> 2
LETTER TO SHAREHOLDERS
April 15, 1996
Dear Shareholder,
We are pleased to report that the
Van Kampen American Capital
Pennsylvania Quality Municipal Trust
(formerly Van Kampen Merritt
Pennsylvania Quality Municipal Trust) [PHOTO DENNIS J. MCDONNELL
continued its strong performance over AND DON G. POWELL]
the first half of its fiscal year,
having achieved a total return at
market price of 10.43 percent(1) for
the six months ended February 29, 1996.
Additionally, the Trust offered a
tax-exempt distribution rate of 6.28
percent( 3), based on the closing common stock price of $17.375 per share on
February 29, 1996. Because income from the Trust is exempt from federal and
state income taxes, this distribution rate represents a yield equivalent to a
taxable investment earning 10.10 percent(4) (for Pennsylvania residents in the
37.8 percent combined marginal income tax bracket).
CUMULATIVE TOTAL RETURN
While the six-month results are attractive for investors, the return for
each period will vary according to changing market conditions. It is important,
therefore, to look at the Trust's cumulative results to see the full benefit of
its long-term investment approach.
Since beginning operations on September 27, 1991, the Trust's cumulative
total return at net asset value was 52.08 percent. The Trust's performance
demonstrates the value of experienced portfolio management, as well as the
importance of reinvesting distributions. Together, these factors reinforce our
confidence in the long-term approach we utilize in managing the Trust.
EXTENSIVE EXPERIENCE IN MUNICIPAL BONDS
This year, we will celebrate 22 years of experience in investing in
municipal bonds for our clients. Thanks to our long-term investment record, Van
Kampen American Capital Investment Advisory Corp. today manages over $12 billion
in municipal bonds. We attribute much of our success to skillful, in-depth
credit analysis of the securities in which we invest, conducted by one of the
largest municipal research departments in the industry. Over the years, careful
attention to the Trust's overall credit composition (refer to the pie chart on
page 2), average bond maturity, duration and coupon structure also have
benefited the Trust's performance.
Continued on page two
1
<PAGE> 3
MUNICIPAL MARKET OVER THE PAST SIX MONTHS
The slowdown in the economy continued through the end of 1995, reflected by
weak consumer demand and disappointing retail sales during the holiday season.
Severe winter weather in many parts of the country further dampened retail
activity and hindered distribution and manufacturing.
These conditions helped to keep inflation in check, prompting the
Federal Reserve Board to continue easing short-term interest rates. In turn,
long-term interest rates declined, causing the price of bonds to increase.
Municipal bond yields declined in concert with other interest rates, with the
yield on the Bond Buyer's 40 Municipal Bond Index dropping by 40 basis points
to 5.71 percent. At the same time, the Index increased by 3.5 percent to 118.72.
The beginning of 1996 was marked by an increase in market volatility, which
effectively ended the decline in muni yields. This volatility was triggered in
part by three factors: fiscal uncertainty caused by two unprecedented shutdowns
of the federal government, presidential primary debates about impending tax
reform, and an unexpected reversal in a number of key economic indicators, which
consequently sent the market mixed signals on the direction of the economy.
Still, due to the government shutdowns and the unusually harsh weather, the
market remained skeptical of the predictive value of economic statistics issued
for January and February. Interest rates have fluctuated as the market attempts
to determine whether the economy will remain slow throughout 1996.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of February 29, 1996
<TABLE>
<S> <C>
AAA............ 55.8%
AA............. 4.0%
A.............. 13.4%
BBB............ 20.4%
BB............. 0.4%
B.............. 4.0%
Non-Rated...... 2.0%
</TABLE>
OUTLOOK FOR THE MUNICIPAL MARKET
In general, we anticipate a pickup in economic activity during the first
half of the year, with possibilities of an increase in inflation and an economic
slowdown toward the end of the year. We believe the Fed will be cautious in its
monetary policy toward short-term interest rates, as mixed economic news
continues to be reported.
The Fed is expected to maintain its focus on growing the economy at an
annual rate of 2 to 3 percent, while striving to keep inflation at bay. Interest
rates are likely to remain within the range experienced over the past several
years, with a continuation of historically low rates.
This type of market environment (of relatively low rates) typically lends
itself to the use of an investment technique called leveraging, which involves
borrowing short-term funds to purchase long-term municipal securities. The
yields available on these long-term securities (which are typically much higher
than those on short-term securities) have enabled our portfolio management team
to cover the cost of the Trust's short-term borrowing by a substantial margin.
The additional income earned by the Trust through leveraging has been reflected
in its ability to maintain a highly attractive distribution rate in
Continued on page three
2
<PAGE> 4
relation to similar--but non-leveraged--investment vehicles. (Conversely, a rise
in interest rates may tend to produce an unfavorable effect on the Trust's
common share performance and would likely cause the Trust to underperform a
non-leveraged portfolio.)
PENNSYLVANIA MUNICIPAL BONDS
The Commonwealth has a well-diversified economy that provides a strong tax
base. Through improved revenue collections and stricter spending controls
installed over the past five years, Pennsylvania has been able to create a
budget surplus, which in 1995 was approximately $688 million (currently rated A1
by Moody's and AA- by Standard & Poor's).
The Trust's current duration of 5.87 years (a measure of the portfolio's
sensitivity to interest rate changes) is expected to enhance the Trust's ability
to perform well should interest rates rise during the next stage of the interest
rate cycle. The majority of the portfolio is of high credit quality, with 73.2
percent of the Trust's portfolio rated single-A or higher.
TOP 5 INDUSTRY HOLDINGS BY SECTOR AS OF FEBRUARY 29, 1996
Health Care.............................................. 26.4%
General Purpose.......................................... 20.5%
Water & Sewer............................................ 10.9%
Student Loan............................................. 9.1%
Retail Electric / Gas / Telephone........................ 6.7%
RESEARCH AND LONG-TERMS RETURNS
We believe that the cumulative return of the Trust--and performance achieved
by many of our other municipal bond funds--demonstrates the full benefit of our
commitment to thorough research and a long-term, value-oriented investment
approach.
Thank you for your confidence in Van Kampen American Capital and in your
Trust's management team.
Sincerely,
DON G. POWELL
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
DENNIS J. McDONNELL
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED FEBRUARY 29, 1996
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
(NYSE TICKER SYMBOL-VPQ)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
Six-month total return based on market price(1)............ 10.43%
Six-month total return based on NAV(2)..................... 5.95%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock price(3).. 6.28%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 10.10%
SHARE VALUATIONS
Net asset value............................................ $ 17.15
Closing common stock price................................. $17.375
Six-month high common stock price (12/12/95)............... $17.500
Six-month low common stock price (10/19/95)................ $16.000
Preferred share rate(5).................................... 3.40%
</TABLE>
(1) 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.
(2) 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 NAV.
(3) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(4) 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.
(5) 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 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.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
PENNSYLVANIA 90.5%
$ 6,500 Allegheny Cnty, PA Arpt Rev Gtr
Pittsburgh Intl Arpt Ser B (FSA Insd).... 6.625% 01/01/22 $ 6,960,135
7,475 Allegheny Cnty, PA Hosp Dev Auth Rev
Saint Margaret Mem Hosp.................. 7.125 10/01/21 7,798,593
2,575 Allegheny Cnty, PA San Auth Swr Rev Ser A
(FGIC Insd).............................. * 12/01/08 1,314,744
2,580 Allegheny Cnty, PA San Auth Swr Rev Ser A
(FGIC Insd).............................. * 06/01/09 1,266,574
1,645 Allegheny Cnty, PA San Auth Swr Rev Ser A
(FGIC Insd).............................. * 12/01/09 786,178
2,475 Allentown, PA Area Hosp Auth Rev Sacred
Heart Hosp of Allentown.................. 7.500 07/01/06 2,651,864
2,690 Armstrong Cnty, PA Hosp Auth Hosp Rev
Armstrong Cnty Mem Hosp Ser A............ 7.200 11/01/06 2,702,966
5,500 Armstrong Cnty, PA Hosp Auth Hosp Rev
Armstrong Cnty Mem Hosp Ser A............ 7.500 11/01/16 5,445,055
2,000 Cambria County, PA Indl Dev Auth Pollutn
Ctl Rev PA Elec Co Proj Ser B Rfdg (MBIA
Insd).................................... 6.050 11/01/25 2,059,740
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 1,155,700
1,150 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 03/01/03 828,828
1,130 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 09/01/03 795,599
1,195 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 03/01/04 812,337
1,220 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 09/01/04 809,580
1,220 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 03/01/05 783,386
1,220 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 09/01/05 764,354
1,220 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 03/01/06 741,858
1,020 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 09/01/06 602,167
1,220 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 03/01/07 696,400
1,220 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 09/01/07 676,600
1,190 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 03/01/08 637,281
1,205 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 09/01/08 623,407
1,220 Chichester Sch Dist PA Ser B (FGIC
Insd).................................... * 09/01/09 590,944
7,310 Dauphin Cnty, PA Hosp Auth Rev Cmnty Genl
Osteopathic Hosp Rfdg.................... 7.375 06/01/16 7,695,968
6,000 Delaware Cnty, PA Indl Dev Auth Pollutn
Ctl Rev Philadelphia Elec Co Proj........ 7.375 04/01/21 6,489,540
18,000 Emmaus, PA Genl Auth Rev Local Govt Pool
G (FGIC Insd)............................ 7.000 05/15/18 20,059,920
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 4,000 Falls Twp, PA Hosp Auth Hosp Rev Delaware
Vly Med Rfdg (FHA Gtd)................... 7.000% 08/01/22 $ 4,265,280
780 Lancaster, PA Indl Dev Auth Coml Rev
First Mtg Kmart Corp Ser A Rfdg.......... 7.100 09/15/07 694,847
4,000 Lehigh Cnty, PA Genl Purp Auth Rev Good
Shepherd Rehab Hosp...................... 7.500 11/15/21 4,183,560
5,500 Lehigh Cnty, PA Genl Purp Auth Rev
Muhlenberg Hosp Ser B (Prerefunded @
07/15/99)................................ 8.100 07/15/10 6,294,200
3,100 Montgomery Cnty, PA Higher Edl & Hlth
Auth Hosp Rev Abington Hosp (Embedded
Cap) (AMBAC Insd)........................ 6.000 06/01/16 3,223,163
950 Montgomery Cnty, PA Higher Edl & Hlth
Auth Hosp Rev Pottstown Mem Med Cent
Proj..................................... 7.000 11/15/99 1,004,644
1,250 Montgomery Cnty, PA Higher Edl & Hlth
Auth Hosp Rev Pottstown Mem Med Cent
Proj..................................... 7.350 11/15/05 1,333,550
2,345 Montgomery Cnty, PA Higher Edl & Hlth
Auth Hosp Rev Pottstown Mem Med Cent
Proj..................................... 6.875 11/15/20 2,379,636
6,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recovery................................. 7.500 01/01/12 6,522,600
2,000 Pennsylvania Econ Dev Fin Auth Exempt Fac
Rev Macmillan Ltd Partnership Proj....... 7.600 12/01/20 2,257,520
1,000 Pennsylvania Hsg Fin Agy Single Family
Mtg Ser 34B (FHA Gtd).................... 7.000 04/01/24 1,047,620
2,000 Pennsylvania Hsg Fin Agy Single Family
Mtg Ser 42............................... 6.850 04/01/25 2,088,620
2,000 Pennsylvania Hsg Fin Agy Single Family
Mtg Ser 47............................... 5.700 10/01/26 1,949,060
7,000 Pennsylvania Intergvtl Coop Auth Spl Tax
Rev City of Philadelphia (Prerefunded @
06/15/02)................................ 6.800 06/15/22 7,938,980
17,015 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser A (AMBAC Insd)........ 7.050 10/01/16 18,352,889
1,000 Pennsylvania St Higher Edl Fac Auth
College & Univ Rev Hahnemann Univ Proj
(MBIA Insd).............................. 7.200 07/01/19 1,102,130
3,000 Pennsylvania St Higher Edl Fac Auth
College & Univ Rev Trustees Univ Ser A... 6.625 01/01/17 3,047,820
2,200 Pennsylvania St Higher Edl Fac Auth Rev
Med College PA Ser A..................... 8.375 03/01/11 2,385,856
4,250 Philadelphia, PA Arpt Rev Ser A (AMBAC
Insd).................................... 6.100 06/15/25 4,402,277
3,000 Philadelphia, PA Gas Wks Rev Ser 14 (FSA
Insd).................................... 6.250 07/01/08 3,253,110
2,000 Philadelphia, PA Gas Wks Rev Ser 14 (Cap
Guar Insd)............................... 6.375 07/01/14 2,148,200
3,000 Philadelphia, PA Hosp & Higher Edl Fac
Auth Hosp Rev Frankford Hosp Ser A....... 6.000 06/01/14 3,002,820
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 7,165 Philadelphia, PA Muni Auth Rev Justice
Lease Ser B (Prerefunded @ 11/15/01)
(FGIC Insd).............................. 7.125% 11/15/18 $ 8,315,914
5,000 Philadelphia, PA Wtr & Swr Rev Ser 16
(Prerefunded @ 08/01/01)................. 7.500 08/01/10 5,861,650
5,500 Philadelphia, PA Wtr & Swr Rev Ser 16
(Prerefunded @ 08/01/01)................. 7.000 08/01/18 6,228,200
3,000 Philadelphia, PA Wtr & Wastewtr Rev (MBIA
Insd).................................... 5.625 06/15/08 3,161,940
2,000 Philadelphia, PA Wtr & Wastewtr Rev Reg
Fixed Airs (FGIC Insd)................... 5.650 06/15/12 2,009,840
1,035 Unity Township, PA Muni Auth Gtd Swr Cap
Apprec (AMBAC Insd)...................... * 11/01/19 264,939
------------
184,470,583
------------
PUERTO RICO 6.3%
14,000 Puerto Rico Comwlth Pub Impt Rfdg........ * 07/01/04 9,289,280
1,560 Puerto Rico Elec Pwr Auth Pwr Rev Ser U
Rfdg..................................... 6.000 07/01/14 1,607,720
1,000 Puerto Rico Elec Pwr Auth Pwr Rev Ser Z
Rfdg..................................... 5.500 07/01/13 979,150
990 Puerto Rico Pub Bldgs Auth Gtd Pub Edl &
Hlth Fac Ser K Rfdg...................... 6.600 07/01/04 1,067,428
------------
12,943,578
------------
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 4,047,225
------------
TOTAL LONG-TERM INVESTMENTS 98.8%
(Cost $184,222,383) (a).................................................. 201,461,386
OTHER ASSETS IN EXCESS OF LIABILITIES 1.2%................................ 2,469,369
------------
NET ASSETS 100%........................................................... $203,930,755
============
</TABLE>
* Zero coupon bond
(a) At February 29, 1996, cost for federal income tax purposes is $184,222,383;
the aggregate gross unrealized appreciation is $17,298,655 and the aggregate
gross unrealized depreciation is $59,652, resulting in net unrealized
appreciation of $17,239,003.
See Notes to Financial Statements
7
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
February 29, 1996 (Unaudited)
------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $184,222,383) (Note 1).............. $ 201,461,386
Interest Receivable.................................................... 3,343,291
Unamortized Organizational Expenses (Note 1)........................... 3,449
Other.................................................................. 3,700
-------------
Total Assets..................................................... 204,811,826
-------------
LIABILITIES:
Payables:
Custodian Bank....................................................... 597,393
Investment Advisory Fee (Note 2)..................................... 113,934
Administrative Fee (Note 2).......................................... 32,553
Income Distributions - Common and Preferred Shares................... 6,088
Accrued Expenses....................................................... 131,103
-------------
Total Liabilities................................................ 881,071
-------------
NET ASSETS............................................................. $ 203,930,755
=============
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, 8,102,830 shares issued and outstanding) (Note 3)........ 81,028
Paid in Surplus........................................................ 119,807,346
Net Unrealized Appreciation on Investments............................. 17,239,003
Accumulated Undistributed Net Investment Income........................ 1,359,623
Accumulated Net Realized Gain on Investments........................... 443,755
-------------
Net Assets Applicable to Common Shares........................... 138,930,755
-------------
NET ASSETS............................................................. $ 203,930,755
=============
NET ASSET VALUE PER COMMON SHARE ($138,930,755 divided by 8,102,830
shares outstanding).................................................. $ 17.15
=============
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF OPERATIONS
For the Six Months Ended February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................ $ 6,416,845
------------
EXPENSES:
Investment Advisory Fee (Note 2)........................................ 707,357
Administrative Fee (Note 2)............................................. 202,102
Preferred Share Maintenance (Note 5).................................... 89,481
Trustees Fees and Expenses (Note 2)..................................... 11,688
Legal (Note 2).......................................................... 11,065
Amortization of Organizational Expenses (Note 1)........................ 2,988
Other................................................................... 122,096
------------
Total Expenses...................................................... 1,146,777
------------
NET INVESTMENT INCOME................................................... $ 5,270,068
============
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Realized Gain/Loss on Investments:
Proceeds from Sales................................................... $ 15,724,452
Cost of Securities Sold............................................... (15,280,697)
------------
Net Realized Gain on Investments........................................ 443,755
------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period............................................... 13,659,809
End of the Period..................................................... 17,239,003
------------
Net Unrealized Appreciation on Investments During the Period............ 3,579,194
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS......................... $ 4,022,949
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.............................. $ 9,293,017
============
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended February 29, 1996
and the Year Ended August 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 29, 1996 August 31, 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................... $ 5,270,068 $ 10,771,552
Net Realized Gain on Investments............... 443,755 83,835
Net Unrealized Appreciation on Investments
During the Period............................ 3,579,194 2,757,155
------------ ------------
Change in Net Assets from Operations........... 9,293,017 13,612,542
------------ ------------
Distributions from Net Investment Income:
Common Shares................................ (4,420,322) (8,829,797)
Preferred Shares............................. (1,222,407) (2,525,157)
------------ ------------
(5,642,729) (11,354,954)
------------ ------------
Distributions from Net Realized Gain on
Investments:
Common Shares................................ (64,224) (16,968)
Preferred Shares............................. (19,611) (3,068)
------------ ------------
(83,835) (20,036)
------------ ------------
Total Distributions............................ (5,726,564) (11,374,990)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... 3,566,453 2,237,552
FROM CAPITAL TRANSACTIONS (NOTE 3):
Value of Common Shares Issued Through Dividend
Reinvestment................................. 106,044 335,636
------------ ------------
TOTAL INCREASE IN NET ASSETS................... 3,672,497 2,573,188
NET ASSETS:
Beginning of the Period........................ 200,258,258 197,685,070
------------ ------------
End of the Period (Including undistributed net
investment income of $1,359,623 and $1,732,284,
respectively)................................ $203,930,755 $200,258,258
============ ============
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 27, 1991
Six Months (Commencement
Ended Year Ended August 31 of Investment
February 29, -------------------------- Operations) to
1996 1995 1994 1993 August 31, 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period (a).... $16.705 $16.431 $17.987 $16.387 $14.788
------- ------- ------- ------- -------
Net Investment Income.......... .651 1.331 1.338 1.344 1.092
Net Realized and Unrealized
Gain/Loss on Investments..... .497 .349 (1.544) 1.685 1.460
------- ------- ------- ------- -------
Total from Investment
Operations..................... 1.148 1.680 (.206) 3.029 2.552
------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders............... .546 1.092 1.092 1.042 .754
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders..... .151 .312 .214 .186 .199
Distributions from Net Realized
Gain on Investments:
Paid to Common
Shareholders............... .008 .002 .039 .161 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders..... .002 -0- .005 .040 -0-
------- ------- ------- ------- -------
Total Distributions............. .707 1.406 1.350 1.429 .953
------- ------- ------- ------- -------
Net Asset Value, End of the
Period......................... $17.146 $16.705 $16.431 $17.987 $16.387
======= ======= ======= ======= =======
Market Price Per Share at End of
the Period..................... $17.375 $16.250 $16.125 $17.625 $15.750
Total Investment Return at
Market Price (b)............... 10.43%* 8.02% (2.22%) 20.26% 10.22%*
Total Return at Net Asset Value
(c)............................ 5.95%* 8.90% (2.45%) 17.85% 14.65%*
Net Assets at End of the Period
(In millions).................. $ 203.9 $ 200.3 $ 197.7 $ 210.0 $ 197.0
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares......................... 1.66% 1.73% 1.64% 1.64% 1.58%
Ratio of Expenses to Average Net
Assets......................... 1.13% 1.15% 1.12% 1.11% 1.11%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common Shares
(d)............................ 5.87% 6.37% 6.54% 6.85% 6.28%
Portfolio Turnover.............. 7.59% 14.69% .96% 4.38% 55.37%
</TABLE>
(a) Net asset value at September 27, 1991, is adjusted for common and preferred
share offering costs of $.212 per common share.
(b) 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.
(c) Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
(d) Net investment income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
See Notes to Financial Statements
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital 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'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 in a portfolio consisting substantially of Pennsylvania municipal
obligations rated investment grade at the time of investment, but may invest up
to 20% of its assets in unrated securities which are believed to be of
comparable quality to those rated investment grade. 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. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--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 29, 1996, there were no
when issued or delayed delivery purchase commitments.
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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. or its affiliates (collectively "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.
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 may not be
recognized for tax purposes until the first day of the following fiscal year.
F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from
net investment income to common shareholders monthly. 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
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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 29, 1996, the Trust recognized expenses of
approximately $10,500 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 29, 1996, was
approximately $36,100.
At February 29, 1996, VKAC owned 6,700 common shares of the Trust.
3. CAPITAL TRANSACTIONS
At February 29, 1996 and August 31, 1995, paid in surplus related to common
shares aggregated $119,807,346 and $119,701,364, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares...................... 8,096,647 8,075,216
Shares Issued Through Dividend
Reinvestment........................ 6,183 21,431
--------- ---------
Ending Shares......................... 8,102,830 8,096,647
========= =========
</TABLE>
4. INVESTMENT TRANSACTIONS
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended February 29, 1996, were $15,232,874
and $15,280,697, 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
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 (Unaudited)
- --------------------------------------------------------------------------------
rate in effect on February 29, 1996, was 3.40% and for the six months ended
February 29, 1996, the rates ranged from 3.40% to 4.45%.
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.
15
<PAGE> 17
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
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.
16
<PAGE> 18
VAN KAMPEN AMERICAN CAPITAL 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
NICHOLAS DALMASO*
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., 1996
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
17
