<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 6
Portfolio of Investments......................... 7
Statement of Assets and Liabilities.............. 10
Statement of Operations.......................... 11
Statement of Changes in Net Assets............... 12
Financial Highlights............................. 13
Notes to Financial Statements.................... 14
</TABLE>
VPQ SAR 4/98
<PAGE> 2
LETTER TO SHAREHOLDERS
March 23, 1998
Dear Shareholder,
The new year ushered in what
promises to be an exciting and
challenging time for investors. The
Taxpayer Relief Act of 1997, signed
into law by President Clinton in
August, creates many new opportunities
for you and your family to take a more [PHOTO]
active role in achieving your long-term
financial goals. DENNIS J. MCDONNELL AND DON G. POWELL
Most Americans will benefit from
the bill's $95 billion in tax cuts over
five years. The so-called Kiddie Credit
gives parents $400 in immediate tax
relief for every child under age 17, and families will find it easier to save
for their children's college expenses with the new Education IRA. The bill also
cuts capital gains tax rates for the first time in more than a decade and
loosens restrictions on tax-deductible IRA contributions. Perhaps the most
exciting feature is the new Roth IRA, which allows investment earnings to grow
tax free, not just tax deferred.
This year, more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
ECONOMIC REVIEW
The U.S. economy sustained its forward momentum throughout 1997, growing at
a moderate rate of 3.8 percent, as measured in terms of gross domestic product.
Despite this continuing growth trend, inflation not only remained low but was on
a decline.
Nevertheless, market watchers remained alert for signs of surging prices.
One cause of concern was the extremely tight labor market. The percentage of
unemployed Americans fell to a 24-year low of 4.6 percent in February, as the
strong economy created more jobs than expected and wages continued to rise. To
date, increased productivity has allowed the U.S. economy to absorb this
increase in the workforce without overheating or driving prices higher.
Pennsylvania's credit outlook is stable, reflecting recent job growth, low
unemployment, and conservative budgetary practices. In response to improved
economic and financial performance, Moody's and Fitch upgraded Pennsylvania's
rating to Aa3 and AA, respectively, in 1997.
Continued on page two
1
<PAGE> 3
MARKET REVIEW
The bond market rally continued during the past six months, with both
taxable and tax-exempt yields gradually drifting downward with minimal
volatility. Bond prices move in the opposite direction of bond yields, so as
bond yields fell during the period, bond prices were on the rise. Thirty-year
Treasury yields declined from 6.61 percent on August 29, 1997 to 5.91 percent on
February 27, 1998. In addition, the currency crisis in Asia helped spark the
domestic bond market, as U.S. Treasuries enjoyed an increase in demand from both
foreign and U.S. investors.
As is typical during bond market rallies, municipal bond yields also
declined, although municipals did not perform as strongly as taxable bonds.
Heavy supply and low yield levels contributed to the weaker performance of the
municipal market. Generic general obligation 30-year AAA-rated municipal yields
dropped from 5.30 percent to 4.96 percent at the end of the period.
Credit spreads--the difference in yield between high-quality issues and
low-quality issues--remained extremely tight during the past six months. Under
normal circumstances, low-quality issues provide higher yields in order to
compensate investors for additional credit risk. In 1997, close to 49 percent of
newly issued municipal bonds were insured--causing a scarcity of
higher-yielding, lower-rated securities. This shortage, combined with low yields
in the municipal market, resulted in very narrow credit spreads.
Municipal yields continued to be very attractive compared to taxable yields.
For example, the Bond Buyer Revenue Bond Index, composed of 25 revenue bonds
with an average rating of single-A and an average maturity of 30 years, is
representative of the bonds we typically purchase for the Trust. The Index was
yielding 5.36 percent at the end of the reporting period, while the 30-year
Treasury bond was yielding 5.91 percent. In other words, the difference between
municipal bonds yields and long-term Treasury yields is historically very
narrow.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality*
As of February 28, 1998
<TABLE>
<S> <C>
AAA................... 70.7%
AA.................... 8.1%
A..................... 5.3%
BBB................... 7.7%
Non-Rated............. 8.2%
</TABLE>
* As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings
as issued by Standard & Poor's or Moody's.
Continued on page three
2
<PAGE> 4
TRUST STRATEGY
We employed the following strategies in managing the Trust over the period:
- - At the inception of the Trust in 1991, we were able to invest the Trust's
initial assets in bonds with attractive coupons and yields, and many of
these securities remain in the portfolio today. These securities, with
coupons much higher than current market levels, are approaching their
10-year call date and are at risk of being either pre-refunded or called. If
this happens, we will need to replace them with new bonds at current lower
coupons.
To help minimize this risk as the call dates approach, we gradually reduced
the Trust's holdings of pre-refunded securities and replaced them with
longer-term discount securities or securities priced near face value. If the
bond market continues to rally, discount securities are more likely to rise
in price than premium securities.
- - Duration was also a major focus. At the end of the reporting period, the
duration of the portfolio stood at 4.89 years. Duration is a measurement
used to express the sensitivity of a bond's price to changes in interest
rates. Each year of duration represents an expected one-percent change in
the price of a bond for every one-percent change in interest rates.
Typically, funds with short durations perform better when interest rates are
rising, while funds with long durations perform better when rates are
declining. Our interest rate outlook, described in more detail below, is
moderately optimistic. However, lengthening the duration of the Trust would
significantly impact the dividend, so we will maintain a somewhat short
duration in order to support the Trust's high dividend.
- - Due to the high yield of existing holdings and the strong credit quality of
the portfolio (70.7 percent of assets are AAA-rated), turnover in the
portfolio was low because current market offerings did not add value over
existing holdings. However, we were able to acquire several non-insured
issues, such as Delaware County Industrial Development Authority (Baa1/A),
at attractive yields.
TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR*
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28, 1998
<S> <C>
Health Care............................................. 25.1%
General Purpose......................................... 21.0%
Water & Sewer........................................... 10.3%
Student Loan............................................ 8.8%
Public Education........................................ 6.2%
</TABLE>
*As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the six months ended February 28, 1998, the Van Kampen American Capital
Pennsylvania Quality Municipal Trust generated a total return at market price of
6.57 percent(1), including reinvestment of dividends and capital gains totaling
$.5326 per share. The Trust offered a tax-exempt distribution rate of 5.87
percent(3), based on the
Continued on page four
3
<PAGE> 5
closing common stock price of $17.375 per share on February 28, 1998. Because
income from the Trust is exempt from federal income tax, this distribution rate
represents a yield equivalent to a taxable investment earning 9.44 percent(4)
(for investors in the 37.8 percent combined federal and state income tax
bracket).
[DIVIDEND HISTORY GRAPH]
SIX-MONTH DISTRIBUTION HISTORY
FOR THE PERIOD ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
Capital
Dividends Gains
<S> <C> <C>
Sep 1997 $.0850
Oct 1997 $.0850
Nov 1997 $.0850
Dec 1997 $.0850 $.0226
Jan 1998 $.0850
Feb 1998 $.0850
</TABLE>
The distribution history represents past performance of the Trust and
does not predict the Trust's future distributions.
OUTLOOK
We expect the U.S. economy and the demand for products and services to
remain strong in the coming months. However, the impact of the Asian financial
crisis is a looming question. The fallout from Asian currency devaluations in
late 1997 occurred at a time when the U.S. dollar was extremely strong against
most major foreign currencies. If Asia's purchasing power is sharply reduced due
to weakened currencies, analysts fear that U.S. export sales will slump. At the
same time, as Asian goods become cheaper relative to American goods, domestic
companies could face a period of price competition versus imported goods. Taken
together, these developments could cut into the earnings of U.S. corporations.
There is no debate that the Federal Reserve Board believes low inflation is
the ideal environment for the economy. Because inflation is low, it is unlikely
that the Fed will change short-term rates in the near future. While the Fed
continues to give credence to signs of economic strength, we believe it will
wait to determine the impact of the Asian situation before taking any action.
Longer term, interest rates need to be high enough to control economic growth.
With a focus on inflation rather than growth, the Fed will probably take any
necessary actions to keep inflation from rising. We will expect a rate increase
by the Fed only if there are signs of an acceleration in inflation.
Regarding the municipal bond market, we believe yields will remain near
current levels through at least mid-summer. This will depend not only on the
general economy and the taxable bond market, but also tax-exempt bond supply and
demand levels. Given
Continued on page five
4
<PAGE> 6
what we have seen this year, the market appears to be in a solid equilibrium
position, with strong demand to accommodate record municipal supply.
We believe the Trust is positioned to perform well in the coming months and
do not anticipate making major changes to the structure of the portfolio. We
continue to seek a balance between the Trust's total return and its dividend
income, as well as to add value through security selection. The Trust continues
to benefit from its leveraged capital structure, which provides common
shareholders with above-market levels of dividend income. While we believe it is
unlikely that short-term interest rates will rise, this event would have an
unfavorable effect on the dividend-paying ability of the common shares and would
also negatively impact the price.
We appreciate your continued confidence in Van Kampen American Capital and
your Trust's portfolio manager.
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 six
5
<PAGE> 7
PERFORMANCE RESULTS FOR THE PERIOD ENDED FEBRUARY 28, 1998
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA QUALITY MUNICIPAL TRUST
(NYSE TICKER SYMBOL-VPQ)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
Six-month total return based on market price(1)........... 6.57%
Six-month total return based on NAV(2).................... 4.75%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................ 5.87%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)................................... 9.44%
SHARE VALUATIONS
Net asset value........................................... $ 17.33
Closing common stock price................................ $17.3750
Six-month high common stock price (01/22/98).............. $18.1250
Six-month low common stock price (10/29/97)............... $16.6875
Preferred share rate(5)................................... 3.500%
</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.
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 99.4%
PENNSYLVANIA 90.4%
$ 6,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)........................... 6.625% 01/01/22 $ 7,094,100
7,475 Allegheny Cnty, PA Hosp Dev Auth Rev Saint
Margaret Mem Hosp (Prerefunded @ 10/01/01)...... 7.125 10/01/21 8,219,286
2,575 Allegheny Cnty, PA San Auth Swr Rev Ser A (FGIC
Insd)........................................... * 12/01/08 1,580,123
2,580 Allegheny Cnty, PA San Auth Swr Rev Ser A (FGIC
Insd)........................................... * 06/01/09 1,539,176
1,645 Allegheny Cnty, PA San Auth Swr Rev Ser A (FGIC
Insd)........................................... * 12/01/09 959,117
2,475 Allentown, PA Area Hosp Auth Rev Sacred Heart
Hosp of Allentown............................... 7.500 07/01/06 2,703,121
2,690 Armstrong Cnty, PA Hosp Auth Hosp Rev Armstrong
Cnty Mem Hosp Ser A............................. 7.200 11/01/06 2,838,999
5,500 Armstrong Cnty, PA Hosp Auth Hosp Rev Armstrong
Cnty Mem Hosp Ser A............................. 7.500 11/01/16 5,835,885
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 1,126,360
1,150 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/03 930,569
1,130 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/03 895,265
1,195 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/04 921,536
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/04 920,697
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/05 897,932
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/05 878,510
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/06 856,159
1,020 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/06 700,159
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/07 815,533
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/07 797,502
1,190 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 03/01/08 755,507
1,205 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/08 747,871
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)........ * 09/01/09 719,532
7,310 Dauphin Cnty, PA Hosp Auth Rev Cmnty Genl
Osteopathic Hosp Rfdg........................... 7.375 06/01/16 8,025,868
1,000 Delaware Cnty, PA Auth First Mtg Rev Riddle Vlg
Proj Rfdg....................................... 6.875 06/01/16 1,042,340
6,000 Delaware Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Philadelphia Elec Co Proj....................... 7.375 04/01/21 6,547,680
1,000 Delaware Cnty, PA Indl Dev Auth Rev Res Recov
Fac Ser A Rfdg.................................. 6.200 07/01/19 1,082,460
18,000 Emmaus, PA Genl Auth Rev Local Govt Pool G (FGIC
Insd)........................................... 7.000 05/15/18 19,596,060
4,000 Falls Twp, PA Hosp Auth Hosp Rev Delaware Vly
Med Rfdg (FHA Gtd).............................. 7.000 08/01/22 4,449,280
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<S> <C> <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 $ 831,964
4,000 Lehigh Cnty, PA Genl Purp Auth Rev Good Shepherd
Rehab Hosp (Prerefunded @ 11/15/01)............. 7.500 11/15/21 4,535,120
5,500 Lehigh Cnty, PA Genl Purp Auth Rev Muhlenberg
Hosp Ser B (Prerefunded @ 07/15/99)............. 8.100 07/15/10 5,919,210
1,000 Mars, PA Area Sch Dist (AMBAC Insd) (a)......... 5.000 09/01/27 971,450
3,100 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Abington Hosp (AMBAC Insd).................. 6.000 06/01/16 3,347,814
655 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj................. 7.000 11/15/99 685,510
1,250 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj................. 7.350 11/15/05 1,368,075
2,345 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj................. 6.875 11/15/20 2,530,841
6,000 Montgomery Cnty, PA Indl Dev Auth Rev Res Recov
(LOC-Banque Paribas)............................ 7.500 01/01/12 6,649,440
1,000 Parkland, PA Sch Dist (FGIC Insd) (a)........... 5.000 09/01/18 979,890
2,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
MacMillan Ltd Partnership Proj.................. 7.600 12/01/20 2,245,280
1,000 Pennsylvania Econ Dev Fin Auth Res Recov Rev
Colver Proj Ser D............................... 7.150 12/01/18 1,119,120
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
34B (FHA Gtd)................................... 7.000 04/01/24 1,063,450
2,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
42.............................................. 6.850 04/01/25 2,169,700
3,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
52B (FHA Gtd)................................... 6.250 10/01/24 3,162,810
1,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
53A............................................. 6.050 04/01/18 1,572,855
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
54A Rfdg (FHA Insd)............................. 6.050 10/01/16 1,048,570
1,565 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
54A Rfdg (FHA Gtd).............................. 6.150 10/01/22 1,640,637
7,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia (Prerefunded @ 06/15/02)... 6.800 06/15/22 7,746,620
17,015 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser A (AMBAC Insd) (b)........... 7.050 10/01/16 18,143,435
2,200 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/99)....... 8.375 03/01/11 2,344,892
4,250 Philadelphia, PA Arpt Rev Ser A (AMBAC Insd).... 6.100 06/15/25 4,605,513
2,000 Philadelphia, PA Gas Wks Rev Ser 14 (FSA
Insd)........................................... 6.375 07/01/14 2,214,820
3,000 Philadelphia, PA Gas Wks Rev Ser 14 Rfdg (FSA
Insd)........................................... 6.250 07/01/08 3,322,740
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<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 $ 8,047,656
5,000 Philadelphia, PA Wtr & Swr Rev Ser 16
(Prerefunded @ 08/01/01)........................ 7.500 08/01/10 5,638,150
5,500 Philadelphia, PA Wtr & Swr Rev Ser 16
(Prerefunded @ 08/01/01)........................ 7.000 08/01/18 6,018,815
3,000 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (MBIA
Insd)........................................... 5.625 06/15/08 3,279,420
------------
186,680,424
------------
PUERTO RICO 7.0%
884 Centro de Recaudaciones de Ingresos Muni Ctfs
Partn PR........................................ 6.850 10/17/03 920,439
14,000 Puerto Rico Comwlth Pub Impt Rfdg............... * 07/01/04 10,661,700
1,560 Puerto Rico Elec Pwr Auth Pwr Rev Ser U Rfdg.... 6.000 07/01/14 1,678,092
990 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser K Rfdg.................................. 6.600 07/01/04 1,088,277
------------
14,348,508
------------
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 4,209,675
------------
TOTAL LONG-TERM INVESTMENTS 99.4%
(Cost $185,544,663)....................................................... 205,238,607
TOTAL SHORT-TERM INVESTMENTS 0.1%
(Cost $100,000)........................................................... 100,000
------------
TOTAL INVESTMENTS 99.5%
(Cost $185,644,663)....................................................... 205,338,607
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%................................. 1,111,461
------------
NET ASSETS 100.0%.......................................................... $206,450,068
============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open option and open futures transactions.
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $185,644,663)....................... $205,338,607
Cash........................................................ 86,854
Interest Receivable......................................... 3,382,836
Other....................................................... 5,853
------------
Total Assets.......................................... 208,814,150
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,945,686
Investment Advisory Fee................................... 111,068
Income Distributions - Common and Preferred Shares........ 103,218
Administrative Fee........................................ 31,734
Affiliates................................................ 9,460
Trustees' Deferred Compensation and Retirement Plans........ 82,753
Accrued Expenses............................................ 80,163
------------
Total Liabilities..................................... 2,364,082
------------
NET ASSETS.................................................. $206,450,068
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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, 8,164,454 shares issued and
outstanding).............................................. 81,645
Paid in Surplus............................................. 120,836,106
Net Unrealized Appreciation................................. 19,693,944
Accumulated Undistributed Net Investment Income............. 742,330
Accumulated Net Realized Gain............................... 96,043
------------
Net Assets Applicable to Common Shares................ 141,450,068
------------
NET ASSETS.................................................. $206,450,068
============
NET ASSET VALUE PER COMMON SHARE ($141,450,068 divided by
8,164,454 shares outstanding)............................. $ 17.33
============
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF OPERATIONS
For the Six Months Ended February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 6,387,383
-----------
EXPENSES:
Investment Advisory Fee..................................... 713,747
Administrative Fee.......................................... 203,928
Preferred Share Maintenance................................. 84,210
Trustees' Fees and Expenses................................. 13,573
Custody..................................................... 8,138
Legal....................................................... 5,112
Other....................................................... 88,133
-----------
Total Expenses.......................................... 1,116,841
-----------
NET INVESTMENT INCOME....................................... $ 5,270,542
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 96,026
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 17,355,372
End of the Period......................................... 19,693,944
-----------
Net Unrealized Appreciation During the Period............... 2,338,572
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 2,434,598
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 7,705,140
===========
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended February 28, 1998 and
the Year Ended August 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 28, 1998 August 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 5,270,542 $ 10,565,273
Net Realized Gain........................................ 96,026 234,110
Net Unrealized Appreciation During the Period............ 2,338,572 4,546,702
------------- ------------
Change in Net Assets from Operations..................... 7,705,140 15,346,085
------------- ------------
Distributions from Net Investment Income:
Common Shares.......................................... (4,159,355) (8,596,978)
Preferred Shares....................................... (1,138,956) (2,254,783)
------------- ------------
(5,298,311) (10,851,761)
------------- ------------
Distributions from Net Realized Gain:
Common Shares.......................................... (184,251) (247,642)
Preferred Shares....................................... (49,842) (72,294)
------------- ------------
(234,093) (319,936)
------------- ------------
Total Distributions...................................... (5,532,404) (11,171,697)
------------- ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 2,172,736 4,174,388
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment........................................... 194,374 424,967
------------- ------------
TOTAL INCREASE IN NET ASSETS............................. 2,367,110 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 $742,330 and $770,099,
respectively).......................................... $206,450,068 $204,082,958
============= ============
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
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
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........ .647 1.297 1.302 1.331 1.338 1.344 1.092
Net Realized and Unrealized
Gain/Loss.................. .298 .588 (.064) .349 (1.544) 1.685 1.460
-------- ----- ----- ----- ----- ----- --------
Total from Investment
Operations................... .945 1.885 1.238 1.680 (.206) 3.029 2.552
-------- ----- ----- ----- ----- ----- --------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders.............. .510 1.056 1.092 1.092 1.092 1.042 .754
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders.... .140 .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........... .679 1.372 1.397 1.406 1.350 1.429 .953
-------- ----- ----- ----- ----- ----- -------
Net Asset Value, End of the
Period....................... $17.325 $17.059 $16.546 $16.705 $16.431 $17.987 $16.387
======== ======= ======= ======= ======= ======= =======
Market Price Per Share at End
of the Period................ $17.375 $16.813 $17.125 $16.250 $16.125 $17.625 $15.750
Total Investment Return at
Market Price (b)............. 6.57%* 4.72% 12.52% 8.02% (2.22%) 20.26% 10.22%*
Total Return at Net Asset
Value (c).................... 4.75%* 9.93% 5.71% 8.90% (2.45%) 17.85% 14.65%*
Net Assets at End of the
Period (In millions)......... $206.5 $ 204.1 $ 199.5 $ 200.3 $ 197.7 $ 210.0 $ 197.0
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares**.............. 1.60% 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).......................... 5.92% 6.08% 5.99% 6.37% 6.54% 6.85% 6.28%
Portfolio Turnover............ 2%* 6% 13% 15% 1% 4% 55%*
* Non-Annualized
** Ratio of Expenses to
Average
Net Assets Including
Preferred Shares........... 1.10% 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
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
February 28, 1998 (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.
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.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 February 28, 1998, for federal income tax purposes cost of long-term
investments is $185,544,663, the aggregate gross unrealized appreciation is
$19,693,944 and the aggregate gross unrealized depreciation is $0, resulting in
net unrealized appreciation of $19,693,944.
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.
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.
For the six months ended February 28, 1998, the Trust recognized expenses of
approximately $3,000 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 six months ended February 28, 1998, the Trust recognized expenses of
approximately $25,000 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 who are not officers of VKAC. Under the deferred compensation plan,
trustees
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 Fund. The maximum annual
benefit per trustee under the plan is equal to the trustees' annual retainer
fee, which is currently $2,500.
3. CAPITAL TRANSACTIONS
At February 28, 1998 and August 31, 1997, paid in surplus related to common
shares aggregated $120,836,106 and $120,641,844, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1998 AUGUST 31, 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares....................... 8,153,254 8,127,899
Shares Issued Through Dividend
Reinvestment......................... 11,200 25,355
--------- ---------
Ending Shares.......................... 8,164,454 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 $3,972,410 and $3,389,708 respectively.
5. PREFERRED SHARES
The Trust has outstanding 1,300 Auction Preferred Shares ("APS"). Dividends are
cumulative and the rate is currently reset through an auction process every 28
days. The rate in effect on February 28, 1998, was 3.500% and for the six months
ended February 28, 1998, the rates ranged from 3.500% 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.
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
STEVEN MULLER
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., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
17
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> PENN QUALITY
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 185,644,663
<INVESTMENTS-AT-VALUE> 205,338,607
<RECEIVABLES> 3,382,836
<ASSETS-OTHER> 5,853
<OTHER-ITEMS-ASSETS> 86,854
<TOTAL-ASSETS> 208,814,150
<PAYABLE-FOR-SECURITIES> 1,945,686
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 418,396
<TOTAL-LIABILITIES> 2,364,082
<SENIOR-EQUITY> 65,000,000
<PAID-IN-CAPITAL-COMMON> 120,917,751
<SHARES-COMMON-STOCK> 8,164,454
<SHARES-COMMON-PRIOR> 8,153,254
<ACCUMULATED-NII-CURRENT> 742,330
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 96,043
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,693,944
<NET-ASSETS> 206,450,068
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,387,383
<OTHER-INCOME> 0
<EXPENSES-NET> (1,116,841)
<NET-INVESTMENT-INCOME> 5,270,542
<REALIZED-GAINS-CURRENT> 96,026
<APPREC-INCREASE-CURRENT> 2,338,572
<NET-CHANGE-FROM-OPS> 7,705,140
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,298,311)
<DISTRIBUTIONS-OF-GAINS> (234,093)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 11,200
<NET-CHANGE-IN-ASSETS> 2,367,110
<ACCUMULATED-NII-PRIOR> 770,099
<ACCUMULATED-GAINS-PRIOR> 234,110
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 713,747
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,116,841
<AVERAGE-NET-ASSETS> 205,649,515
<PER-SHARE-NAV-BEGIN> 17.059
<PER-SHARE-NII> 0.647
<PER-SHARE-GAIN-APPREC> 0.298
<PER-SHARE-DIVIDEND> (0.650)
<PER-SHARE-DISTRIBUTIONS> (0.029)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.325
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
