<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Glossary of Terms................................ 5
Performance Results.............................. 7
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 15
Report of Independent Accountants................ 19
Dividend Reinvestment Plan....................... 20
</TABLE>
VPQ ANR 10/98
<PAGE> 2
LETTER TO SHAREHOLDERS
September 21, 1998
Dear Shareholder,
Recently, we decided to
consolidate all Van Kampen American
Capital funds under the single name
of Van Kampen Funds. This move
accompanies the change in the legal
name of our firm to Van Kampen Funds
Inc. Consequently, your Trust's name
was changed to Van Kampen [PHOTO]
Pennsylvania Quality Municipal Trust DENNIS J. MCDONNELL AND DON G. POWELL
on August 28. You can be assured that
the change in your Trust's name will not affect its management or daily
operations, and your Trust will continue to trade under its current ticker
symbol. If you have any questions regarding your investment or our new name,
please contact your financial adviser.
ECONOMIC OVERVIEW
The economy grew at a moderate rate for much of the past year, accompanied
by low inflation. During the three quarters that ended June 30, growth
accelerated at a 3.4 percent annual rate, while consumer prices rose 1.4
percent.
Beneath this tranquil scenario, however, lay periods of economic and
financial volatility. During the first quarter, for example, growth surged at a
5.5 percent annual rate, fueled by heavy consumer spending and business
inventory buildup. By the second quarter, growth had slowed to a sluggish 1.6
percent annual pace, due to the deepening Asian economic crisis and the General
Motors strike.
Despite the weakening economy, the dollar rallied as foreign investors
sought refuge from global turmoil by purchasing U.S. Treasury securities. The
strong dollar raised the price of U.S. exports and cut the price of imports. As
a result, U.S. companies found they could neither maintain their foreign sales
nor compete easily with cheap imports here. Corporate earnings fell, and U.S.
stock prices retreated. By August 31, the Dow Jones Industrial Average was down
19 percent from its mid-July high.
In Pennsylvania, moderate economic growth boosted sales tax and personal
income tax revenues. Combined with sound financial management, these revenues
expanded the state's general fund balances to $1.4 billion at the end of fiscal
1997. As a result, Moody's Investors Service upgraded Pennsylvania's general
obligation debt to Aa3 in October 1997. Some of the state's health care systems,
however, experienced credit downgrades due to increasing competition in the
health care market.
MARKET OVERVIEW
The stock market rout and foreign economic turmoil were nothing but good
news for bonds. The Federal Reserve refrained from raising interest rates to
avoid aggravating Asia's crisis, and investors worldwide aggressively bought
U.S. Treasury securities. Because
Continued on page 2
1
<PAGE> 3
these purchases occurred at a time when the supply of new Treasury issues was
declining, Treasury bond prices rocketed to record levels. On August 31, the Dow
Jones Industrial Average fell 512 points, and the 30-year Treasury bond yield,
which moves in the opposite direction of its price, fell to a record low of 5.25
percent. A year earlier, its yield was 6.61 percent.
Municipal bonds followed the gains in Treasuries but, true to form, they
didn't rally as strongly. While long-term Treasury bond yields fell 136 basis
points during the past year, the yield of the AAA-rated general obligation
municipal bond fell only 44 basis points to 4.86 percent on August 31, 1998,
from 5.30 percent a year earlier.
Municipal bonds were hampered by an excess of supply relative to demand.
State and local governments, taking advantage of the market's low interest
rates, issued $190 billion worth of bonds during the first seven months of this
year--47 percent more than they had issued during the comparable period last
year.
Despite an abundant supply from which to choose, U.S. investors were
reluctant to purchase municipal bonds because of their relatively low yields,
and foreign investors had even less interest because they had no need for the
tax-exempt income. Compounding the situation was the flood of insured issues,
which accounted for almost 60 percent of the new supply. As a result, fewer
lower-rated, higher-yielding bonds were issued, and the yield spread between
higher-rated and lower-rated bonds narrowed.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality*
as of August 31, 1998
<TABLE>
<CAPTION>
<S> <C>
AAA . . . . . . . . . 57.1%
AA. . . . . . . . . . 5.3%
A . . . . . . . . . . 14.5%
BBB . . . . . . . . . 14.9%
BB. . . . . . . . . . 4.6%
Non-Rated . . . . . . 3.6%
</TABLE>
* As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as issued by Standard & Poor's
or Moody's.
TRUST STRATEGY
We used the following strategies to manage the Trust during the period:
We replaced some of the bonds that had been prerefunded or repriced to their
first call dates due to the sharp drop in interest rates. Like most bonds in the
Trust, they were purchased when the Trust was created in 1991, a time of
significantly higher interest rates. Approximately 25 percent of the current
portfolio has been refunded and will be called between 1999 and 2002. We did not
replace these bonds, however, because their yields are substantially higher than
current market yields.
Our acquisitions emphasized long-term discount bonds in order to extend the
call protection of the Trust and enhance its potential for capital appreciation.
Discount bonds tend to appreciate faster than par or premium bonds during
periods of falling interest
Continued on page 3
2
<PAGE> 4
rates. They also have longer durations, which means they are more sensitive to
changing rates. Our purchases of discount bonds helped to offset some of the
decline in the Trust's duration due to prerefundings. As of August 31, the
duration of the Trust stood at 4.52 years, compared with 7.57 years for the
Lehman Brothers Municipal Bond Index (excluding bonds maturing in five years or
less).
We favored AAA-rated insured bonds because these bonds are readily available
and provide almost as much yield as lower-rated bonds but carry far less credit
risk. Approximately 70 percent of new municipal bonds in Pennsylvania are
insured, although the insurance does not remove market risk. We continue to
maintain a portfolio dominated by bonds rated A or higher.
TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR*
AS OF
AUGUST 31, 1998
Health Care.............................................. 25.5%
General Purpose.......................................... 21.2%
Water and Sewer.......................................... 10.4%
Student Loan............................................. 8.9%
Public Education......................................... 6.6%
*As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the 12-month period ended August 31, 1998, the Trust generated a total
return of 13.71 percent(1) at market price. This reflects a gain in market price
per common share from $16.8125 on August 31, 1997, to $18.0000 on August 31,
1998, plus reinvestment of all dividends. The Trust had a tax-exempt
distribution rate of 5.67 percent(3), based on the closing price of its common
shares. Because income from the Trust is exempt from federal and state income
taxes, this distribution rate is equivalent to a yield of 9.12 percent(4) on a
taxable investment (for investors in the combined federal and state income tax
bracket of 37.8 percent). Please refer to the chart on page 7 for additional
performance numbers.
[DISTRIBUTION HISTORY GRAPH]
Twelve-Month Distribution History
For The Period Ended August 31, 1998
<TABLE>
<CAPTION>
Distribution per Share
<S> <C>
Sep 1997 . . . . . . . . . $.0850
Oct 1997 . . . . . . . . . $.0850
Nov 1997 . . . . . . . . . $.0850
Dec 1997 . . . . . . . . . $.1076
Jan 1998 . . . . . . . . . $.0850
Feb 1998 . . . . . . . . . $.0850
Mar 1998 . . . . . . . . . $.0850
Apr 1998 . . . . . . . . . $.0850
May 1998 . . . . . . . . . $.0850
Jun 1998 . . . . . . . . . $.0850
Jul 1998 . . . . . . . . . $.0850
Aug 1998 . . . . . . . . . $.0850
</TABLE>
The distribution history represents past performance of the Trust and does not
predict the Trust's future distributions.
Continued on page 4
3
<PAGE> 5
ECONOMIC OUTLOOK
We believe the economy will rebound later this year, provided some stability
is restored in the stock market. Domestic economic activity remains strong
despite the market's decline and should overcome many of the negative effects of
the global economic crisis. In Asia, where the crisis began, there are signs of
potential rebounds. If the economic crisis in Asia, Russia, and other emerging
markets continues unabated, however, we believe the Fed will refrain from
raising rates and could even lower them. Fed Chairman Alan Greenspan
acknowledged as much in a recent speech, when he disclosed that Fed
policy-makers had abandoned their bias toward a rate hike in favor of a neutral
position. Due to events overseas, policy-makers are now more concerned about an
economic slowdown than about rising inflation, Greenspan indicated. The impact
of slower economic growth abroad should help to offset any acceleration in
domestic inflation.
We will closely monitor these global and domestic events and their effects
on the performance of the Trust, adjusting the portfolio when appropriate. We
remain committed to providing a high level of tax-exempt income while preserving
shareholders' capital. Thank you for your continued support and confidence in
Van Kampen and the management of your Trust.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
Please see footnotes on page 7
4
<PAGE> 6
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial call price is
usually higher than the face value of the bond. Bonds are usually called when
interest rates drop so significantly that the issuer can save money by issuing
new bonds at lower rates.
A callable bond is "priced to call" when it is selling at a premium,
because it is assumed that the issuer will redeem the bond at its call date,
rather than at maturity.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are two
companies that assign bond ratings. Standard & Poor's ratings range from a high
of AAA to a low of D, while Moody's ratings range from a high of Aaa to a low of
C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Normally, lower-quality issues provide higher yields to compensate investors for
the additional credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has more
potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways and
schools.
5
<PAGE> 7
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic indicator
that measures the change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA-rated. Recently, an A-rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A-rated.
MARKET PRICE: The price of a share of a closed-end fund trading on a stock
exchange. When the price is less than a fund's net asset value, the fund is
trading at a discount. When the price is more than the NAV, the fund is trading
at a premium.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding.
PREREFUNDING: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
6
<PAGE> 8
PERFORMANCE RESULTS FOR THE PERIOD ENDED AUGUST 31, 1998
VAN KAMPEN PENNSYLVANIA QUALITY MUNICIPAL TRUST
(NYSE TICKER SYMBOL-VPQ)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)............ 13.71%
One-year total return based on NAV(2)..................... 7.77%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................ 5.67%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)................................... 9.12%
SHARE VALUATIONS
Net asset value........................................... $ 17.31
Closing common stock price................................ $18.0000
One-year high common stock price (08/31/98)............... $18.1875
One-year low common stock price (10/29/97)................ $16.6875
Preferred share rate(5)................................... 3.449%
</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.
On August 20, 1998, the Trust's Board of Trustees voted to change the
Trust's fiscal year end from August 31 to October 31, effective at the close of
the August 31, 1998 fiscal year. As a result, the next fiscal year will commence
on September 1, 1998 and end on October 31, 1998; however, you will not receive
an annual report for the two-month transition period from August 31, 1998 to
October 31, 1998. Instead, the financial information for those two months will
appear in a separate column in the April 30, 1999 semiannual report. If you
would like to receive the audited financial statements for this two-month
period, please contact our Investor Services Department at 1-800-341-2929.
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.9%
PENNSYLVANIA 89.7%
$ 6,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)........................... 6.625% 01/01/22 $ 7,067,450
7,475 Allegheny Cnty, PA Hosp Dev Auth Rev Saint
Margaret Mem Hosp (Prerefunded @ 10/01/01)...... 7.125 10/01/21 8,182,285
2,575 Allegheny Cnty, PA San Auth Swr Rev Ser A (FGIC
Insd)........................................... * 12/01/08 1,622,070
2,580 Allegheny Cnty, PA San Auth Swr Rev Ser A (FGIC
Insd)........................................... * 06/01/09 1,572,381
1,645 Allegheny Cnty, PA San Auth Swr Rev Ser A (FGIC
Insd)........................................... * 12/01/09 979,713
2,475 Allentown, PA Area Hosp Auth Rev Sacred Heart
Hosp of Allentown............................... 7.500 07/01/06 2,687,949
2,690 Armstrong Cnty, PA Hosp Auth Hosp Rev Armstrong
Cnty Mem Hosp Ser A............................. 7.200 11/01/06 2,838,918
5,500 Armstrong Cnty, PA Hosp Auth Hosp Rev Armstrong
Cnty Mem Hosp Ser A............................. 7.500 11/01/16 5,831,815
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 1,124,370
1,150 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/03 954,661
1,130 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/03 918,848
1,195 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/04 946,703
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/04 946,256
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/05 922,906
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/05 903,300
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/06 877,656
1,020 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/06 717,835
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/07 836,456
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/07 818,095
1,190 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/08 775,392
1,205 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/08 767,669
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/09 735,013
7,310 Dauphin Cnty, PA Hosp Auth Rev Cmnty Genl
Osteopathic Hosp Rfdg........................... 7.375 06/01/16 8,003,207
1,000 Delaware Cnty, PA Auth First Mtg Rev Riddle Vlg
Proj Rfdg....................................... 6.875 06/01/16 1,051,890
6,000 Delaware Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Philadelphia Elec Co Proj....................... 7.375 04/01/21 6,495,300
1,000 Delaware Cnty, PA Indl Dev Auth Rev Res Recov
Fac Ser A Rfdg.................................. 6.200 07/01/19 1,092,130
18,000 Emmaus, PA Genl Auth Rev Local Govt Pool G (FGIC
Insd)........................................... 7.000 05/15/18 19,522,260
4,000 Falls Twp, PA Hosp Auth Hosp Rev Delaware Vly
Med Rfdg (FHA Gtd).............................. 7.000 08/01/22 4,438,480
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 780 Lancaster, PA Indl Dev Auth Coml Rev First Mtg
Kmart Corp Ser A Rfdg........................... 7.100% 09/15/07 $ 834,077
4,000 Lehigh Cnty, PA Genl Purp Auth Rev Good Shepherd
Rehab Hosp (Prerefunded @ 11/15/01)............. 7.500 11/15/21 4,508,760
5,000 Lehigh Cnty, PA Genl Purp Auth Rev Muhlenberg
Hosp Ser B (LOC-Summit Bank) (Prerefunded @
07/15/99)....................................... 8.100 07/15/10 5,293,800
1,000 Mars, PA Area Sch Dist (AMBAC Insd)............. 5.000 09/01/27 990,180
3,100 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Abington Hosp (AMBAC Insd).................. 6.000 06/01/16 3,372,552
655 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj................. 7.000 11/15/99 671,650
1,250 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj (Prerefunded @
11/15/01)....................................... 7.350 11/15/05 1,403,625
2,345 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj (Prerefunded @
11/15/01)....................................... 6.875 11/15/20 2,603,982
6,000 Montgomery Cnty, PA Indl Dev Auth Rev Res Recov
(LOC-Banque Paribas)............................ 7.500 01/01/12 6,586,380
1,395 North East, PA Sch Dist (FGIC Insd)............. 5.250 09/01/28 1,423,835
2,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
MacMillan Ltd Partnership Proj.................. 7.600 12/01/20 2,224,700
1,000 Pennsylvania Econ Dev Fin Auth Res Recov Rev
Colver Proj Ser D............................... 7.150 12/01/18 1,124,170
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
34B (FHA Gtd)................................... 7.000 04/01/24 1,074,060
2,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
42.............................................. 6.850 04/01/25 2,177,480
3,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
52B (FHA Gtd)................................... 6.250 10/01/24 3,188,670
1,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
53A............................................. 6.050 04/01/18 1,586,925
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
54A Rfdg (FHA Gtd).............................. 6.050 10/01/16 1,057,950
1,565 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
54A Rfdg (FHA Gtd).............................. 6.150 10/01/22 1,655,254
7,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia (Prerefunded @ 06/15/02)... 6.800 06/15/22 7,724,920
17,015 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser A (AMBAC Insd)............... 7.050 10/01/16 18,117,742
4,250 Philadelphia, PA Arpt Rev Ser A (AMBAC Insd).... 6.100 06/15/25 4,621,663
1,250 Philadelphia, PA Auth Indl Dev Hlth Care Fac Rev
Baptist Home of Philadelphia Ser A.............. 5.600 11/15/28 1,245,363
2,000 Philadelphia, PA Gas Wks Rev Ser 14 (FSA
Insd)........................................... 6.375 07/01/14 2,227,140
3,000 Philadelphia, PA Gas Wks Rev Ser 14 Rfdg (FSA
Insd)........................................... 6.250 07/01/08 3,330,720
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <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 $ 8,015,629
5,000 Philadelphia, PA Wtr & Swr Rev Ser 16
(Prerefunded @ 08/01/01)........................ 7.500 08/01/10 5,600,750
5,500 Philadelphia, PA Wtr & Swr Rev Ser 16
(Prerefunded @ 08/01/01)........................ 7.000 08/01/18 5,990,050
3,000 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (MBIA
Insd)........................................... 5.625 06/15/08 3,292,020
------------
185,575,055
------------
PUERTO RICO 7.1%
824 Centro de Recaudaciones de Ingresos Muni Ctfs
Partn PR........................................ 6.850 10/17/03 859,686
14,000 Puerto Rico Comwlth Pub Impt Rfdg............... * 07/01/04 11,017,160
1,560 Puerto Rico Elec Pwr Auth Pwr Rev Ser U Rfdg.... 6.000 07/01/14 1,707,482
990 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser K Rfdg.................................. 6.600 07/01/04 1,087,723
------------
14,672,051
------------
U.S. VIRGIN ISLANDS 2.1%
3,750 Virgin Islands Pub Fin Auth Rev Matching Fd Ln
Nts Ser A Rfdg (Prerefunded @ 10/01/02)......... 7.250 10/01/18 4,296,900
------------
TOTAL LONG-TERM INVESTMENTS 98.9%
(Cost $185,059,531)....................................................... 204,544,006
OTHER ASSETS IN EXCESS OF LIABILITIES 1.1%................................. 2,245,675
------------
NET ASSETS 100.0%.......................................................... $206,789,681
============
</TABLE>
* Zero coupon bond
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $185,059,531)....................... $204,544,006
Interest Receivable......................................... 3,396,825
Other....................................................... 3,528
------------
Total Assets.......................................... 207,944,359
------------
LIABILITIES:
Payables:
Custodian Bank............................................ 695,118
Investment Advisory Fee................................... 122,281
Income Distributions - Preferred Shares................... 116,699
Administrative Fee........................................ 34,937
Affiliates................................................ 13,313
Trustees' Deferred Compensation and Retirement Plans........ 91,696
Accrued Expenses............................................ 80,634
------------
Total Liabilities..................................... 1,154,678
------------
NET ASSETS.................................................. $206,789,681
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 1,300 issued with liquidation preference of
$50,000 per share)........................................ $ 65,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 8,193,233 shares issued and
outstanding).............................................. 81,932
Paid in Surplus............................................. 121,329,633
Net Unrealized Appreciation................................. 19,484,475
Accumulated Undistributed Net Investment Income............. 725,070
Accumulated Net Realized Gain............................... 168,571
------------
Net Assets Applicable to Common Shares................ 141,789,681
------------
NET ASSETS.................................................. $206,789,681
============
NET ASSET VALUE PER COMMON SHARE ($141,789,681 divided by
8,193,233 shares outstanding)............................. $ 17.31
============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 12,869,325
------------
EXPENSES:
Investment Advisory Fee..................................... 1,439,012
Administrative Fee.......................................... 411,146
Preferred Share Maintenance................................. 169,816
Trustees' Fees and Expenses................................. 26,572
Custody..................................................... 14,558
Legal....................................................... 8,698
Other....................................................... 202,463
------------
Total Expenses.......................................... 2,272,265
------------
NET INVESTMENT INCOME....................................... $ 10,597,060
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 168,571
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 17,355,372
End of the Period......................................... 19,484,475
------------
Net Unrealized Appreciation During the Period............... 2,129,103
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 2,297,674
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 12,894,734
============
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended August 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1998 August 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income...................................... $ 10,597,060 $ 10,565,273
Net Realized Gain.......................................... 168,571 234,110
Net Unrealized Appreciation During the Period.............. 2,129,103 4,546,702
------------ ------------
Change in Net Assets from Operations....................... 12,894,734 15,346,085
------------ ------------
Distributions from Net Investment Income:
Common Shares............................................ (8,329,449) (8,596,978)
Preferred Shares......................................... (2,314,304) (2,254,783)
------------ ------------
(10,643,753) (10,851,761)
------------ ------------
Distributions from Net Realized Gain:
Common Shares............................................ (184,268) (247,642)
Preferred Shares......................................... (49,842) (72,294)
------------ ------------
(234,110) (319,936)
------------ ------------
Total Distributions........................................ (10,877,863) (11,171,697)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES........ 2,016,871 4,174,388
------------ ------------
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment............................................. 689,852 424,967
------------ ------------
TOTAL INCREASE IN NET ASSETS............................... 2,706,723 4,599,355
NET ASSETS:
Beginning of the Period.................................... 204,082,958 199,483,603
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $725,070 and $770,099,
respectively)............................................ $206,789,681 $204,082,958
============ ============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
================================================================================
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 27, 1991
(Commencement
Year Ended August 31 of Investment
--------------------------------------------------------- Operations) to
1998 1997 1996 1995 1994 1993 August 31, 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period (a)......... $17.059 $16.546 $16.705 $16.431 $17.987 $16.387 $14.788
------- ------- ------- ------- ------- ------- -------
Net Investment Income..... 1.296 1.297 1.302 1.331 1.338 1.344 1.092
Net Realized and
Unrealized Gain/Loss.... .282 .588 (.064) .349 (1.544) 1.685 1.460
------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations................ 1.578 1.885 1.238 1.680 (.206) 3.029 2.552
------- ------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders.......... 1.020 1.056 1.092 1.092 1.092 1.042 .754
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders.......... .282 .277 .295 .312 .214 .186 .199
Distributions from Net
Realized Gain:
Paid to Common
Shareholders.......... .023 .030 .008 .002 .039 .161 -0-
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders.......... .006 .009 .002 -0- .005 .040 -0-
------- ------- ------- ------- ------- ------- -------
Total Distributions........ 1.331 1.372 1.397 1.406 1.350 1.429 .953
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $17.306 $17.059 $16.546 $16.705 $16.431 $17.987 $16.387
======= ======= ======= ======= ======= ======= =======
Market Price Per Share at
End of the Period......... $18.000 $16.813 $17.125 $16.250 $16.125 $17.625 $15.750
Total Investment Return at
Market Price (b).......... 13.71% 4.72% 12.52% 8.02% (2.22%) 20.26% 10.22%*
Total Return at Net Asset
Value (c)................. 7.77% 9.93% 5.71% 8.90% (2.45%) 17.85% 14.65%*
Net Assets at End of the
Period (In millions)...... $ 206.8 $ 204.1 $ 199.5 $ 200.3 $ 197.7 $ 210.0 $ 197.0
Ratio of Expenses to
Average Net Assets
Applicable to
Common Shares**........... 1.62% 1.66% 1.67% 1.73% 1.64% 1.64% 1.58%
Ratio of Net Investment
Income to Average Net
Assets Applicable to
Common Shares (d)......... 5.89% 6.08% 5.99% 6.37% 6.54% 6.85% 6.28%
Portfolio Turnover......... 4% 6% 13% 15% 1% 4% 55%*
* Non-Annualized
** Ratio of Expenses to
Average Net Assets
Including Preferred
Shares.................. 1.11% 1.12% 1.13% 1.15% 1.12% 1.11% 1.11%
</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.
See Notes to Financial Statements
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 August 31, 1998, there were no
when issued or delayed delivery purchase commitments.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
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. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
At August 31, 1998, for federal income tax purposes cost of long-term
investments is $185,059,531, the aggregate gross unrealized appreciation is
$19,484,475 and the aggregate gross unrealized depreciation is $0, resulting in
net unrealized appreciation of $19,484,475.
E. 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.
Due to the inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 1998 fiscal year have been identified and appropriately
reclassified. Permanent book and tax basis differences relating to expenses
which are not deductible for tax purposes totaling $1,664 were reclassified from
accumulated undistributed net investment income to capital.
For the year ended August 31, 1998, 100.0% of the income distributions made
by the Trust were exempt from federal income taxes. Additionally, during the
period the Trust designated and paid $48,254 as a 28% rate gain distribution.
These distributions, where applicable, were included on 1997's Form 1099-DIV
which was mailed to shareholders in January of 1998. In January, 1999 the Trust
will provide tax information to shareholders for the 1998 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Trust for an annual fee payable monthly of .70% of the average
net assets of the Trust. In addition, the Trust will pay a monthly
administrative fee to Van Kampen Funds Inc. or its affiliates
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
(collectively "Van Kampen"), 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.
For the year ended August 31, 1998, the Trust recognized expenses of
approximately $3,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the year ended August 31, 1998, the Trust recognized expenses of
approximately $74,000 representing Van Kampen's cost of providing accounting and
legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust has implemented deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service of the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At August 31, 1998 and 1997, paid in surplus related to common shares aggregated
$121,329,633 and $120,641,844, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1998 AUGUST 31, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares............................ 8,153,254 8,127,899
Shares Issued Through Dividend
Reinvestment.............................. 39,979 25,355
--------- ---------
Ending Shares............................... 8,193,233 8,153,254
========= =========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $7,552,555 and $8,247,756 respectively.
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
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 August 31, 1998, was 3.449% and for the year ended
August 31, 1998, the rates ranged from 3.449% to 4.169%.
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.
6. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Trust, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Trust with service at current levels. In
addition, it is possible that the securities markets in which the Trust invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
18
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Pennsylvania Quality Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Pennsylvania Quality Municipal Trust (the "Trust"), including the
portfolio of investments, as of August 31, 1998, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Pennsylvania Quality Municipal Trust as of August 31, 1998, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
October 6, 1998
19
<PAGE> 21
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-
8200. If you withdraw, you will receive, without charge, a share certificate
issued in your name for all full Common Shares credited to your account under
the Plan and a cash payment will be made for any fractional Common Share
credited to your account under the Plan. You may again elect to participate in
the Plan at any time by calling 1-800-341-2929 or writing to the Trust at:
Van Kampen Funds
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
20
<PAGE> 22
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
21
<PAGE> 23
VAN KAMPEN PENNSYLVANIA QUALITY MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL* - Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
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
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
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 Funds Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
22
<PAGE> 24
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on July 28, 1998,
where shareholders voted on the election of trustees and independent public
accountants.
1) With regard to the election of the following trustee by preferred
shareholders:
<TABLE>
<CAPTION>
# OF SHARES
----------------------
IN FAVOR AGAINST
- --------------------------------------------------------------------------
<S> <C> <C>
Theodore A. Meyers............................. 1,295 0
</TABLE>
2) With regard to the election of the following trustees by common
shareholders:
<TABLE>
<CAPTION>
# OF SHARES
-----------------------
IN FAVOR AGAINST
- --------------------------------------------------------------------------
<S> <C> <C>
Don G. Powell............................... 7,129,137 108,913
Hugo Sonnenschein........................... 7,130,682 107,369
</TABLE>
3) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for the trust, 7,151,305 shares voted in favor of the
proposal, 238,571 shares voted against, and 64,183 shares abstained.
23
<PAGE> 25
VAN KAMPEN PENNSYLVANIA QUALITY MUNICIPAL TRUST
THIS PAGE INTENTIONALLY LEFT BLANK
24
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 0
<NAME> PENN QUALITY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 185,059,531
<INVESTMENTS-AT-VALUE> 204,544,006
<RECEIVABLES> 3,396,825
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,528
<TOTAL-ASSETS> 207,944,359
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,154,678
<TOTAL-LIABILITIES> 1,154,678
<SENIOR-EQUITY> 65,000,000
<PAID-IN-CAPITAL-COMMON> 121,411,565
<SHARES-COMMON-STOCK> 8,193,233
<SHARES-COMMON-PRIOR> 8,153,254
<ACCUMULATED-NII-CURRENT> 725,070
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 168,571
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,484,475
<NET-ASSETS> 206,789,681
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12,869,325
<OTHER-INCOME> 0
<EXPENSES-NET> (2,272,265)
<NET-INVESTMENT-INCOME> 10,597,060
<REALIZED-GAINS-CURRENT> 168,571
<APPREC-INCREASE-CURRENT> 2,129,103
<NET-CHANGE-FROM-OPS> 12,894,734
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,643,770)
<DISTRIBUTIONS-OF-GAINS> 234,093
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 39,979
<NET-CHANGE-IN-ASSETS> 2,706,723
<ACCUMULATED-NII-PRIOR> 770,099
<ACCUMULATED-GAINS-PRIOR> 234,110
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,439,012
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,272,265
<AVERAGE-NET-ASSETS> 205,555,336
<PER-SHARE-NAV-BEGIN> 17.059
<PER-SHARE-NII> 1.296
<PER-SHARE-GAIN-APPREC> 0.281
<PER-SHARE-DIVIDEND> (1.302)
<PER-SHARE-DISTRIBUTIONS> (0.028)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.306
<EXPENSE-RATIO> 1.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
