<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 5
Portfolio of Investments......................... 6
Statement of Assets and Liabilities.............. 9
Statement of Operations.......................... 10
Statement of Changes in Net Assets............... 11
Financial Highlights............................. 12
Notes to Financial Statements.................... 13
</TABLE>
VPQ SAR 4/97
<PAGE> 2
LETTER TO SHAREHOLDERS
March 21, 1997
Dear Shareholder,
As mentioned in your previous
report, VK/AC Holding, Inc., the parent
company of Van Kampen American Capital,
Inc., was acquired by Morgan Stanley
Group Inc., a world leader in asset
management and investment banking. The [PHOTO]
transaction was completed in October,
and we look forward to exploring the
opportunities it creates for investors. DENNIS J. MCDONNELL AND DON G. POWELL
As part of the acquisition, Van Kampen
American Capital became the distributor
of Morgan Stanley retail funds on January 2, 1997.
More recently, on February 5, 1997, it was announced that Morgan Stanley
Group Inc. and Dean Witter, Discover & Co. agreed to merge. The combined company
will be a preeminent global financial services firm, with leading market
positions in securities, asset management and credit services. As the financial
industry continues to witness unprecedented consolidations and new partnerships,
we believe those firms that want to offer investors the greatest opportunities
and services in the next century must be market leaders in all facets of their
business.
ECONOMIC REVIEW
Due to fears that strong economic growth would trigger higher inflation and
cause the Federal Reserve Board to raise interest rates, bond prices dropped
sharply in the first few months of 1996. The Fed ultimately decided to take no
action, however, and bond prices responded with a rally in May. The rally
continued through the latter part of 1996, with bonds regaining much of the loss
they had experienced earlier in the year. Election-year politics further
strengthened the municipal market; the flat federal income tax proposal lost
support, and the status quo of a split government (a Democratic president and a
Republican Congress) was maintained.
Fixed-income prices showed some volatility in the first two months of 1997,
but remained unchanged from year end. During the six-month reporting period,
municipal bond yields decreased an average of 25 basis points. In comparison,
taxable yields decreased 30 to 35 basis points over the same period. The Trust
performed well in this environment in which interest rates declined and the
price of bonds increased.
Continued on page two
1
<PAGE> 3
FUND STRATEGY
We employed the following strategies in managing the Trust:
- - We invested 55 percent of the Trust's long-term investments in AAA-rated
securities, and 22 percent in BBB-rated or non-rated (with an equivalent
rating of investment grade at the time of purchase) securities as of
February 28, 1997. Typically, we attempt to enhance the Trust's yield and
balance the rating distribution by exchanging a portion of the higher-rated
holdings for lower-rated, higher-yielding assets. While the AAA-rated
securities have provided safety of principal and total return opportunities,
lower-rated and non-rated bonds provide income potential and have tended to
exhibit lower price volatility as interest rates change.
The majority of the Trust's AAA-rated holdings, however, are owned at yields
much higher than what is currently available in the tax-exempt market. As we
identify lower-rated bonds, they will be purchased to replace the
higher-quality, AAA-rated bonds that are subject to early redemption in the
near future.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality as a Percentage of Long-Term
Investments as of February 28, 1997.
<TABLE>
<S> <C>
AAA........... 55.1%
AA............ 5.2%
A............. 12.8%
BBB........... 19.3%
BB............ 4.5%
Non-Rated..... 3.1%
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For Moody's
rating is used.
- - Rather than focusing on market timing, we attempt to identify securities
that we believe will outperform within a sector and which can be acquired at
an attractive price. This "bottom-up" approach to security selection, aided
by our research team, provides significant added value to the portfolio.
- - At the end of the reporting period, about 4 percent of the Trust's assets
were rated below investment grade, consisting primarily of Armstrong County
Hospital, which was downgraded in 1994. The creditworthiness of the hospital
has substantially improved over time, and we are comfortable with its
progress.
- - We adjusted the Trust's duration to seek to manage volatility. Duration,
which is expressed in years, is a measurement of the portfolio's volatility
to interest rate movements. Portfolios with shorter durations have tended to
perform better when interest rates are rising. At the end of the period, the
Trust's duration stood at 5.17 years, comparatively shorter than the Lehman
Brothers Municipal Bond Index benchmark of 7.59 years. While the shorter
duration boosted the Trust's performance in the first half of 1996, it
prevented the Trust from taking full advantage of the decline in interest
rates during the latter half.
Continued on page three
2
<PAGE> 4
[BAR GRAPH]
Six-month Distribution History
For the Period Ended February 28, 1997
<TABLE>
<S> <C>
Sep 1996 .................... $.0910
Oct 1996 .................... $.0910
Nov 1996 .................... $.0910
Dec 1996 .................... $.1215
Jan 1997 .................... $.0910
Feb 1997 .................... $.0910
</TABLE>
The dividend and/or capital gains history represents past performance of the
Trust and does not predict the Trust's future distributions.
PERFORMANCE SUMMARY
We are pleased to report that the Van Kampen American Capital Pennsylvania
Quality Municipal Trust continued its positive performance over the first half
of its fiscal year. For the six-month period ended February 28, 1997, the Trust
generated a total return at market price of 4.99 percent(1), including
reinvestment of income dividends totaling $.5460 and capital gains of $.0305 per
share. 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 28,
1997. Because income from the Trust is exempt from federal and state income tax,
this distribution rate represents a yield equivalent to taxable investment
earning 10.10 percent(4) (for Pennsylvania investors in the 37.8 percent
combined federal and state income tax bracket).
<TABLE>
<CAPTION>
TOP 5 PORTFOLIO INDUSTRY HOLDINGS BY SECTOR*
AS OF
FEBRUARY 28, 1997
<S> <C>
Health Care.................................................... 25.1%
General Purpose................................................ 21.3%
Water and Sewer................................................ 10.4%
Student Loan................................................... 9.1%
Airport........................................................ 5.7%
</TABLE>
*As a Percentage of Long-Term Investments
MUNICIPAL MARKET OUTLOOK
The outlook for the Commonwealth is slightly negative, reflecting
Pennsylvania's slow employment growth and highly cyclical economy. The
Commonwealth's economic vulnerability is illustrated by employment growth and
home sales, which slightly lagged national averages. Although municipal supply
should continue to be limited, we will utilize our extensive credit analysis to
identify issues with attractive yields and minimal credit risk.
Continued on page four
3
<PAGE> 5
Nationwide, we continue to see signs of a strengthening economy. As a
result, we believe it is more likely that interest rates will rise rather than
decline, although we do not expect to see a drastic move in either direction. We
are, however, maintaining a defensive posture with the Trust by maintaining a
relatively short duration in the event of an increase in interest rates.
Relatively stable interest rates are favorable for the leveraged structure
of our closed-end funds, which involves borrowing short term funds to purchase
long term municipal securities. The leveraged capital structure of the Trust has
continued to provide common shareholders with above-market levels of dividend
income. It should be noted, however, that a significant rise in short-term
interest rates would have an unfavorable effect on the dividend-paying ability
of the common shares, and would also negatively impact the price.
We believe the Trust is positioned to perform well in the coming months, and
do not anticipate major changes in the portfolio's characteristics. We will
continue to seek to balance the Trust's total return and dividend income. At the
same time, we seek to manage the volatility of the Trust by adjusting the
duration when necessary, and to continue to add value through security
selection. Thank you for your confidence in Van Kampen American Capital and in
your Trust's management team.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page five
4
<PAGE> 6
PERFORMANCE RESULTS FOR THE PERIOD ENDED FEBRUARY 28, 1997
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
(NYSE TICKER SYMBOL-VPQ)
COMMON SHARE TOTAL RETURNS
<TABLE>
<S> <C>
Six-month total return based on market price(1)............ 4.99%
Six-month total return based on NAV(2)..................... 5.29%
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............................................ $ 16.84
Closing common stock price................................. $17.375
Six-month high common stock price (02/27/97)............... $17.500
Six-month low common stock price (10/22/96)................ $16.375
Preferred share rate(5).................................... 3.36%
</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 common 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.
Market forecasts provided in this report may not necessarily come to pass.
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
February 28, 1997 (Unaudited)
<TABLE>
- ------------------------------------------------------------------------------------------
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
PENNSYLVANIA 89.8%
$ 6,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)........................... 6.625% 01/01/22 $ 6,976,905
7,475 Allegheny Cnty, PA Hosp Dev Auth Rev Saint
Margaret Mem Hosp............................... 7.125 10/01/21 7,772,131
2,575 Allegheny Cnty, PA San Auth Swr Rev Ser A (FGIC
Insd)........................................... * 12/01/08 1,401,650
2,580 Allegheny Cnty, PA San Auth Swr Rev Ser A (FGIC
Insd)........................................... * 06/01/09 1,352,255
1,645 Allegheny Cnty, PA San Auth Swr Rev Ser A (FGIC
Insd)........................................... * 12/01/09 839,773
2,475 Allentown, PA Area Hosp Auth Rev Sacred Heart
Hosp of Allentown............................... 7.500 07/01/06 2,639,662
2,690 Armstrong Cnty, PA Hosp Auth Hosp Rev Armstrong
Cnty Mem Hosp Ser A............................. 7.200 11/01/06 2,697,075
5,500 Armstrong Cnty, PA Hosp Auth Hosp Rev Armstrong
Cnty Mem Hosp Ser A............................. 7.500 11/01/16 5,428,555
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 1,128,270
1,150 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/03 867,871
1,130 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/03 833,036
1,195 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/04 854,688
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/04 851,950
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/05 825,342
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/05 805,456
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/06 779,153
1,020 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/06 635,409
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/07 734,123
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/07 715,725
1,190 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/08 673,373
1,205 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/08 664,449
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/09 631,069
7,310 Dauphin Cnty, PA Hosp Auth Rev Cmnty Genl
Osteopathic Hosp Rfdg........................... 7.375 06/01/16 7,797,139
1,000 Delaware Cnty, PA Auth First Mtg Rev Riddle Vlg
Proj Rfdg....................................... 6.875 06/01/16 1,000,190
6,000 Delaware Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Philadelphia Elec Co Proj....................... 7.375 04/01/21 6,407,160
18,000 Emmaus, PA Genl Auth Rev Local Govt Pool G (FGIC
Insd)........................................... 7.000 05/15/18 19,719,180
4,000 Falls Twp, PA Hosp Auth Hosp Rev Delaware Vly
Med Rfdg (FHA Gtd).............................. 7.000 08/01/22 4,247,640
780 Lancaster, PA Indl Dev Auth Coml Rev First Mtg
Kmart Corp Ser A Rfdg........................... 7.100 09/15/07 790,249
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 4,000 Lehigh Cnty, PA Genl Purp Auth Rev Good Shepherd
Rehab Hosp...................................... 7.500% 11/15/21 $ 4,268,000
5,500 Lehigh Cnty, PA Genl Purp Auth Rev Muhlenberg
Hosp Ser B (Prerefunded @ 07/15/99)............. 8.100 07/15/10 6,091,360
3,100 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Abington Hosp (AMBAC Insd).................. 6.000 06/01/16 3,163,333
950 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj................. 7.000 11/15/99 1,000,768
1,250 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj................. 7.350 11/15/05 1,343,400
2,345 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj................. 6.875 11/15/20 2,432,515
1,000 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev Adult Cmntys Total Svcs Ser B......... 5.750 11/15/17 974,520
6,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recovery........................................ 7.500 01/01/12 6,451,680
2,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
MacMillan Ltd Partnership Proj.................. 7.600 12/01/20 2,236,040
1,000 Pennsylvania Econ Dev Fin Auth Res Recov Rev
Colver Proj Ser D............................... 7.150 12/01/18 1,053,820
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg 54A
Rfdg (FHA Gtd).................................. 6.050 10/01/16 1,007,390
1,565 Pennsylvania Hsg Fin Agy Single Family Mtg 54A
Rfdg (FHA Gtd).................................. 6.150 10/01/22 1,576,503
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
34B (FHA Gtd)................................... 7.000 04/01/24 1,048,190
2,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
42.............................................. 6.850 04/01/25 2,109,040
3,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
52B (FHA Gtd)................................... 6.250 10/01/24 3,050,190
1,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
53A............................................. 6.050 04/01/18 1,506,105
7,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia (Prerefunded @ 06/15/02)... 6.800 06/15/22 7,762,860
17,015 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser A (AMBAC Insd)............... 7.050 10/01/16 18,189,716
1,000 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Hahnemann Univ Proj (Prerefunded @
07/01/99) (MBIA Insd)........................... 7.200 07/01/19 1,087,950
2,200 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/99)....... 8.375 03/01/11 2,422,530
4,250 Philadelphia, PA Arpt Rev Ser A (AMBAC Insd).... 6.100 06/15/25 4,322,633
3,000 Philadelphia, PA Gas Wks Rev Ser 14 (FSA
Insd)........................................... 6.250 07/01/08 3,232,530
2,000 Philadelphia, PA Gas Wks Rev Ser 14 (Cap Guar
Insd)........................................... 6.375 07/01/14 2,160,500
7,165 Philadelphia, PA Muni Auth Rev Justice Lease Ser
B (Prerefunded @ 11/15/01) (FGIC Insd).......... 7.125 11/15/18 8,110,708
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 5,000 Philadelphia, PA Wtr & Swr Rev Ser 16
(Prerefunded @ 08/01/01)........................ 7.500% 08/01/10 $ 5,702,600
5,500 Philadelphia, PA Wtr & Swr Rev Ser 16
(Prerefunded @ 08/01/01)........................ 7.000 08/01/18 6,074,860
3,000 Philadelphia, PA Wtr & Wastewtr Rev (MBIA
Insd)........................................... 5.625 06/15/08 3,137,670
------------
181,586,889
------------
PUERTO RICO 6.7%
1,000 Centro De Recaudaciones De Ingresos Muni Ctfs
Partn PR........................................ 6.850 10/17/03 1,026,630
14,000 Puerto Rico Comwlth Pub Impt Rfdg............... * 07/01/04 9,847,740
1,560 Puerto Rico Elec Pwr Auth Pwr Rev Ser U Rfdg.... 6.000 07/01/14 1,584,929
990 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser K Rfdg.................................. 6.600 07/01/04 1,078,179
------------
13,537,478
------------
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 4,061,662
------------
TOTAL LONG-TERM INVESTMENTS 98.5%
(Cost $183,617,235)(a).................................................... 199,186,029
OTHER ASSETS IN EXCESS OF LIABILITIES 1.5%................................. 3,010,266
------------
NET ASSETS 100%............................................................ $202,196,295
============
</TABLE>
* Zero coupon bond
(a) At February 28, 1997, cost for federal income tax purposes is $183,617,235;
the aggregate gross unrealized appreciation is $15,579,587 and the aggregate
gross unrealized depreciation is $10,793, resulting in net unrealized
appreciation of $15,568,794.
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $183,617,235)
(Note 1).................................................. $199,186,029
Interest Receivable......................................... 3,395,336
Other....................................................... 5,185
------------
Total Assets.......................................... 202,586,550
------------
LIABILITIES:
Payables:
Investment Advisory Fee (Note 2).......................... 108,568
Custodian Bank............................................ 103,255
Administrative Fee (Note 2)............................... 31,019
Income Distributions - Common and Preferred Shares........ 11,967
Affiliates (Note 2)....................................... 16,516
Accrued Expenses............................................ 61,470
Deferred Compensation and Retirement Plans (Note 2)......... 57,460
------------
Total Liabilities..................................... 390,255
------------
NET ASSETS.................................................. $202,196,295
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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, 8,147,758 shares issued and
outstanding) (Note 3)..................................... 81,478
Paid in Surplus............................................. 120,551,127
Net Unrealized Appreciation on Investments.................. 15,568,794
Accumulated Undistributed Net Investment Income............. 770,319
Accumulated Net Realized Gain on Investments................ 224,577
------------
Net Assets Applicable to Common Shares................ 137,196,295
------------
NET ASSETS.................................................. $202,196,295
============
NET ASSET VALUE PER COMMON SHARE ($137,196,295 divided by
8,147,758 shares outstanding)............................. $ 16.84
============
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF OPERATIONS
For the Six Months Ended February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 6,351,373
-----------
EXPENSES:
Investment Advisory Fee (Note 2)............................ 698,624
Administrative Fee (Note 2)................................. 199,607
Preferred Share Maintenance (Note 5)........................ 89,640
Custody..................................................... 27,945
Trustees Fees and Expenses (Note 2)......................... 13,166
Legal (Note 2).............................................. 9,050
Amortization of Organizational Expenses (Note 1)............ 428
Other....................................................... 91,173
-----------
Total Expenses.......................................... 1,129,633
-----------
NET INVESTMENT INCOME....................................... $ 5,221,740
===========
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Net Realized Gain on Investments............................ $ 224,577
-----------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period................................... 12,808,670
End of the Period......................................... 15,568,794
-----------
Net Unrealized Appreciation on Investments During the
Period.................................................... 2,760,124
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS............. $ 2,984,701
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 8,206,441
===========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended February 28, 1997
and the Year Ended August 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 28, 1997 August 31, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 5,221,740 $ 10,562,636
Net Realized Gain on Investments......................... 224,577 319,936
Net Unrealized Appreciation/Depreciation on Investments
During the Period...................................... 2,760,124 (851,139)
------------ ------------
Change in Net Assets from Operations..................... 8,206,441 10,031,433
------------ ------------
Distributions from Net Investment Income:
Common Shares.......................................... (4,439,551) (8,851,145)
Preferred Shares....................................... (1,068,093) (2,392,144)
------------ ------------
(5,507,644) (11,243,289)
------------ ------------
Distributions from Net Realized Gain on Investments:
Common Shares.......................................... (247,642) (64,224)
Preferred Shares....................................... (72,294) (19,611)
------------ ------------
(319,936) (83,835)
------------ ------------
Total Distributions...................................... (5,827,580) (11,327,124)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 2,378,861 (1,295,691)
FROM CAPITAL TRANSACTIONS (NOTE 3):
Value of Common Shares Issued Through Dividend
Reinvestment........................................... 333,831 521,036
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS.................... 2,712,692 (774,655)
NET ASSETS:
Beginning of the Period.................................. 199,483,603 200,258,258
------------ ------------
End of the Period (Including undistributed net investment
income of $770,319 and $1,056,223, respectively)....... $202,196,295 $199,483,603
============ ============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
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 28, ------------------------------------- Operations) to
1997 1996 1995 1994 1993 August 31, 1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period
(a)...................... $16.546 $16.705 $16.431 $17.987 $16.387 $14.788
------- ------- ------- ------- ------- -------
Net Investment Income...... .642 1.302 1.331 1.338 1.344 1.092
Net Realized and Unrealized
Gain/Loss on
Investments.............. .367 (.064) .349 (1.544) 1.685 1.460
------- ------- ------- ------- ------- -------
Total from Investment
Operations................. 1.009 1.238 1.680 (.206) 3.029 2.552
------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders........... .546 1.092 1.092 1.092 1.042 .754
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders........... .131 .295 .312 .214 .186 .199
Distributions from Net
Realized Gain on
Investments:
Paid to Common
Shareholders........... .030 .008 .002 .039 .161 -0-
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders........... .009 .002 -0- .005 .040 -0-
------- ------- ------- ------- ------- -------
Total Distributions.......... .716 1.397 1.406 1.350 1.429 .953
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period..................... $16.839 $16.546 $16.705 $16.431 $17.987 $16.387
======= ======= ======= ======= ======= =======
Market Price Per Share at End
of the Period.............. $17.375 $17.125 $16.250 $16.125 $17.625 $15.750
Total Investment Return at
Market Price (b)........... 4.99%* 12.52% 8.02% (2.22%) 20.26% 10.22%*
Total Return at Net Asset
Value (c).................. 5.29%* 5.71% 8.90% (2.45%) 17.85% 14.65%*
Net Assets at End of the
Period (In millions)....... $ 202.2 $ 199.5 $ 200.3 $ 197.7 $ 210.0 $ 197.0
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares.............. 1.66% 1.67% 1.73% 1.64% 1.64% 1.58%
Ratio of Expenses to Average
Net Assets (d)............. 1.12% 1.13% 1.15% 1.12% 1.11% 1.11%
Ratio of Net Investment
Income to Average Net
Assets Applicable to Common
Shares (d)................. 6.09% 5.99% 6.37% 6.54% 6.85% 6.28%
Portfolio Turnover........... 5%* 13% 15% 1% 4% 55%*
</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
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
February 28, 1997 (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 60 days or less 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. As of February 28, 1997, there were
no when issued or delayed delivery purchase commitments.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997 (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 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 were amortized on a straight line basis over the 60
month period ended September 26, 1996.
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, Van Kampen
American Capital Investment Advisory Corp. (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
(Illinois), counsel to the Trust, of which a trustee of the Trust is an
affiliated person.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended February 28, 1997, the Trust recognized expenses of
approximately $8,100 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.
3. CAPITAL TRANSACTIONS
At February 28, 1997 and August 31, 1996, paid in surplus related to common
shares aggregated $120,551,127 and $120,217,495, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1997 AUGUST 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares....................... 8,127,899 8,096,647
Shares Issued Through Dividend
Reinvestment......................... 19,859 31,252
--------- ---------
Ending Shares.......................... 8,147,758 8,127,899
========= =========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $9,089,350 and $11,263,610 respectively.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
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, 1997, was 3.36% and for the six months
ended February 28, 1997, the rates ranged from 3.36% to 4.16%.
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.
16
<PAGE> 18
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL* - Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
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 (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
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., 1997
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
RESULTS OF SHAREHOLDER VOTES
A Special Meeting of Shareholders of the Trust was held on October 23, 1996,
where shareholders voted on a new investment advisory agreement and changes to
investment policies. With regard to the approval of a new investment advisory
agreement between Van Kampen American Capital Investment Advisory Corp. and the
Trust, 6,280,966 shares voted for the proposal, 145,635 shares voted against,
204,225 shares abstained and 376,792 shares represented broker non-votes. With
regard to the approval of certain changes to the Trust's fundamental investment
policies with respect to investments in other investment companies, 4,042,621
shares voted for the proposal, 208,250 shares voted against, 241,216 shares
abstained and 2,542,532 shares represented broker non-votes.
17
