<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
TWELVE-MONTH DIVIDEND HISTORY 5
TOP FIVE SECTORS 6
NET ASSET VALUE AND MARKET PRICE 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 12
FINANCIAL STATEMENTS 17
NOTES TO FINANCIAL STATEMENTS 22
REPORT OF INDEPENDENT AUDITORS 25
DIVIDEND REINVESTMENT PLAN 26
TRUST OFFICERS AND IMPORTANT ADDRESSES 28
RESULTS OF SHAREHOLDER VOTES 29
</TABLE>
Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
November 20, 2000
Dear Shareholder,
The first three quarters of 2000 proved to be especially volatile, with all of
the major markets declining in the spring and spending the following months
trying to recover. To manage one's portfolio during such unpredictable times
requires investment-management experience, and the following pages should give
you some insight into how we have performed in this difficult environment.
In this report, the portfolio managers will explain how your investment
performed during the reporting period and describe the strategies they used to
manage your trust during that span. The report will also show you how your
investment has performed over time. Helpful charts summarize the trust's largest
investments, and you can examine the complete portfolio to see all of your
trust's holdings as of the end of your trust's reporting period.
At Van Kampen, we place a high priority on providing you and
your financial advisor with the information you need to help
you monitor your investments during all types of markets. With
nearly four generations of investment-management experience,
we've been around long enough to understand that by investing
with Van Kampen you're entrusting us with much more than your
money. Your investments may help make it possible to afford your next house,
keep up with rising college costs, or enjoy a comfortable retirement.
No matter what your reasons for investing, we're thankful that you've chosen to
place your investments with Van Kampen. We will continue to apply our
generations of money-management experience to helping you pursue life's true
wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED RELATIVELY STRONG DURING THE REPORTING PERIOD,
UNDERPINNED BY LOW UNEMPLOYMENT AND RISING PRODUCTIVITY, YET THERE WERE SIGNS
THAT A HEALTHY SLOWDOWN WAS UNDERWAY. GROSS DOMESTIC PRODUCT, THE PRIMARY
MEASURE OF ECONOMIC GROWTH, INCREASED AT A 2.4 PERCENT ANNUALIZED RATE FOR THE
THIRD QUARTER OF 2000. FOLLOWING RELATIVELY MILD FIRST- AND SECOND-QUARTER DATA,
THIS THIRD-QUARTER FIGURE OFFERS FURTHER EVIDENCE THAT GROWTH MIGHT BE SETTLING
BACK TO A MORE MODERATE AND SUSTAINABLE PACE THAN ITS RAPID RATE IN LATE 1999.
CONSUMER SPENDING AND EMPLOYMENT
CONCERNS ABOUT INFLATION REMAINED AT BAY DUE IN PART TO A GRADUAL SLOWDOWN IN
CONSUMER SPENDING. RISING INTEREST RATES, HIGHER ENERGY COSTS, AND A
DISAPPOINTING STOCK MARKET BEGAN TO TEMPER RETAIL SALES, WHICH LEVELED OFF FROM
THE BLISTERING PACE OF LATE 1999 AND EARLY 2000. AND WHILE CONSUMER SPENDING WAS
BRISK, THE OVERALL TREND HAS BEEN DOWNWARD THIS YEAR.
THE JOBLESS RATE CONTINUED TO BE EXTREMELY LOW BY HISTORICAL STANDARDS, BUT A
RECENT DECLINE IN NEW JOB CREATION SUPPORTS THE POPULAR BELIEF THAT THE ECONOMY
IS MODERATING. ALTHOUGH EMPLOYER COSTS SUCH AS WAGES AND BENEFITS WERE RISING AT
THE END OF 1999 AND THE BEGINNING OF 2000, OVER THE PAST SIX MONTHS THE
EMPLOYMENT COST INDEX HAS SHOWN MARKED DECELERATION, WHICH SHOULD HELP EASE
INFLATION CONCERNS.
INTEREST RATES AND INFLATION
THE FEDERAL RESERVE BOARD (THE FED) RAISED INTEREST RATES FOUR TIMES DURING THE
LAST 12 MONTHS IN AN EFFORT TO WARD OFF INFLATION BY CURBING ECONOMIC GROWTH.
OVER THE SAME PERIOD, THE CONSUMER PRICE INDEX ROSE 3.5 PERCENT, WHICH INDICATED
THAT INFLATION GENERALLY REMAINS UNDER CONTROL.
THE FED HAS ACKNOWLEDGED THE RISK OF RISING INFLATION AND WILL STAY ON GUARD, AS
RISING ENERGY COSTS AND LOW UNEMPLOYMENT THREATEN TO PROPEL THIS FIGURE UPWARD
IN THE COMING MONTHS. AS LONG AS INFLATION IS CONTAINED AND THE PACE OF ECONOMIC
GROWTH REMAINS FAVORABLE, THE FED IS LIKELY TO HOLD INTEREST RATES STEADY IN THE
SHORT TERM, WHICH COULD HELP STABILIZE THE STOCK AND BOND MARKETS.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998--September 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.40
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(October 31, 1998--October 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Oct 98 5.00 1.50
4.75 1.50
4.75 1.60
Jan 99 4.75 1.70
4.75 1.60
4.75 1.70
Apr 99 4.75 2.30
4.75 2.10
5.00 2.00
Jul 99 5.00 2.10
5.25 2.30
5.25 2.60
Oct 99 5.25 2.60
5.50 2.60
5.50 2.70
Jan 00 5.50 2.70
5.75 3.20
6.00 3.70
Apr 00 6.00 3.00
6.50 3.10
6.50 3.70
Jul 00 6.50 3.70
6.50 3.30
6.50 3.50
Oct 00 6.50 3.50
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of October 31, 2000)
<TABLE>
<CAPTION>
----------------------------------------------------------------------
<S> <C> <C>
NYSE Ticker Symbol VPQ
----------------------------------------------------------------------
One-year total return based on market price(1) 2.09%
----------------------------------------------------------------------
One-year total return based on NAV(2) 6.82%
----------------------------------------------------------------------
Distribution rate as a % of closing common stock
price(3) 6.44%
----------------------------------------------------------------------
Taxable-equivalent distribution rate as a % of closing
common stock price(4) 10.35%
----------------------------------------------------------------------
Net asset value $16.12
----------------------------------------------------------------------
Closing common stock price $14.2500
----------------------------------------------------------------------
One-year high common stock price (7/11/00) $15.4375
----------------------------------------------------------------------
One-year low common stock price (3/13/00) $13.6875
----------------------------------------------------------------------
Preferred share rate(5) 4.1100%
----------------------------------------------------------------------
</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 is no guarantee of future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust
shares, when sold, may be worth more or less than their original cost.
4
<PAGE> 6
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<TABLE>
<CAPTION>
As of October 31, 2000
<S> <C> <C>
- AAA/Aaa............ 62.7%
- AA/Aa.............. 8.0%
- A/A................ 17.1%
- BBB/Baa............ 1.9%
- BB/Ba.............. 4.1%
- Non-Rated.......... 6.2%
[PIE CHART]
<CAPTION>
As of October 31, 1999
<S> <C> <C>
- AAA/Aaa............ 59.5%
- AA/Aa.............. 3.3%
- A/A................ 18.1%
- BBB/Baa............ 9.5%
- BB/Ba.............. 4.6%
- Non-Rated.......... 5.0%
[PIE CHART]
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
TWELVE-MONTH DIVIDEND HISTORY
(for the period ended October 31, 2000, for common shares)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS CAPITAL GAINS
--------- -------------
<S> <C> <C>
11/99 0.0850
12/99 0.0850 0.0027
1/00 0.0850
2/00 0.0850
3/00 0.0850
4/00 0.0850
5/00 0.0850
6/00 0.0835
7/00 0.0835
8/00 0.0835
9/00 0.0765
10/00 0.0765
</TABLE>
The dividend history represents past performance of the trust and is no
guarantee of the trust's future dividends.
5
<PAGE> 7
TOP FIVE SECTORS
(as a percentage of long-term investments)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
OCTOBER 31, 2000 OCTOBER 31, 1999
---------------- ----------------
<S> <C> <C>
General Purpose 21.70 21.00
Health Care 17.60 24.20
Student Loan 9.40 9.00
Water & Sewer 8.90 10.70
Public Building 7.40 5.50
</TABLE>
NET ASSET VALUE AND MARKET PRICE
(based upon quarter-end values--September 1991 through October 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NET ASSET VALUE MARKET PRICE
--------------- ------------
<S> <C> <C>
9/91 14.9700 15.0000
15.2200 15.0000
15.1700 15.1250
15.8400 15.5000
9/92 16.4100 16.0000
16.2900 15.5000
17.1100 16.8750
17.6500 16.8750
9/93 18.1700 17.8750
17.8500 17.5000
16.2500 16.5000
16.2000 16.5000
9/94 15.9000 15.1250
15.2100 14.1250
16.1700 16.2500
16.4300 16.1250
9/95 16.7400 16.3750
17.3300 17.1250
16.7000 17.1250
16.5600 16.3750
9/96 16.7100 16.5000
16.8300 16.8750
16.5800 16.8750
16.9100 16.5625
9/97 17.1800 17.1875
17.3200 17.1875
17.2500 17.1250
17.2100 17.6875
9/98 17.4300 17.7500
17.1500 18.0000
17.0600 17.1875
16.6100 17.0000
9/99 16.3300 15.3125
15.8200 14.2500
15.9300 14.1875
15.8500 14.8125
15.9800 14.6875
10/00 16.1200 14.2500
</TABLE>
The solid line above represents the trust's net asset value (NAV), which
indicates overall changes in value among the trust's underlying securities. The
trust's market price is represented by the dashed line, which indicates the
price the market is willing to pay for shares of the trust at a given time.
Market price is influenced by a range of factors, including supply and demand
and market conditions.
6
<PAGE> 8
[PHOTO]
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGER OF THE VAN KAMPEN
PENNSYLVANIA QUALITY MUNICIPAL TRUST ABOUT THE KEY EVENTS AND ECONOMIC FORCES
THAT SHAPED THE MARKETS AND INFLUENCED THE TRUST'S RETURN DURING THE 12 MONTHS
ENDED OCTOBER 31, 2000. DENNIS S. PIETRZAK, SENIOR PORTFOLIO MANAGER, HAS
MANAGED THE TRUST SINCE AUGUST 1995 AND HAS WORKED IN THE INVESTMENT INDUSTRY
SINCE 1968. THE FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE TRUST'S
PERFORMANCE.
Q WHAT WERE THE MOST IMPORTANT
DEVELOPMENTS IN THE FIXED-INCOME MARKETS AND HOW DID THE TRUST PERFORM
DURING THE REPORTING PERIOD?
A The key factor in the market's
behavior during the past fiscal year has been generally rising interest rates,
especially at the short end of the maturity spectrum. This rate environment
stemmed from the Federal Reserve Board's commitment to keeping inflation in
check by ratcheting up short-term interest rates whenever the economy threatened
to overheat and push the prices of goods and services higher. In fact, the Fed
increased short-term rates four times during the reporting period, with the last
hike occurring in May 2000.
The strength of the economy, and the accompanying Federal Reserve activity,
caused interest rates to rise across the board for the first half of the
reporting period. In the spring of 2000, the bond market rallied as investors
began to anticipate an end to the Fed's rate-tightening cycle. By the end of
October, short-term rates remained high, but rates in the intermediate to long
maturity segments of the market had actually declined from the levels we had
seen at the start of the reporting period.
Because the trust is leveraged, higher short-term rates placed pressure on
the trust's dividend, as the increased cost of borrowing cut into the fund's
earnings. However, the relatively high long-term rates that prevailed for part
of the reporting period allowed the trust to add new holdings at attractive
yields, partially offsetting the decline in income that occurred as short-term
rates climbed.
After the steady increase in short-term interest rates over the past year,
we have seen a more stable environment in recent months, as the Fed has reacted
to slower economic growth, more efficient workforce output, and moderate price
gains by keeping target lending rates unchanged. The inflation rate, as measured
by the consumer price index, peaked in March 2000 at 3.8 percent and has since
dropped back below the 3 percent level.
At the state level, Pennsylvania has established a strong financial base,
7
<PAGE> 9
growing reserves, a diverse economy, and a moderate debt burden. The
unemployment rate has been below 5 percent since January 1998, and jobs climbed
by 33,800 over the course of the year, with the service sector accounting for 79
percent of the state's nonfarm employment.
Supply in the Pennsylvania municipal market was sharply lower, as higher
interest rates have made it unattractive for municipalities to retire existing
debt. At the same time, strong economic activity has allowed many municipalities
to generate a budget surplus, enabling them to cover spending that would
normally require municipal bond financing. From January through September of
2000, municipal bond issuance in Pennsylvania dropped 53 percent from the
comparable period in 1999, creating a shortage in Pennsylvania bonds. Still,
Pennsylvania's total municipal bond issuance for the first nine months of 2000
totaled $4.17 billion, ninth highest in the nation.
Because demand has remained strong, the lack of new issuance in the primary
market helped support bond prices, although the somewhat limited selection of
available securities required us to be very selective in choosing new bonds for
the trust's portfolio. In many cases, we found attractive values in the
secondary market, buying and selling bonds that have been in the market for a
while.
The trust continued to provide shareholders with an attractive level of
income, even though its dividend was reduced twice during the reporting period.
Its monthly dividend of $0.0765 per share translates to a distribution rate of
6.44 percent based on the trust's closing market price on October 31, 2000.
Because income from the trust is exempt from federal and state income taxes,
this distribution rate is equivalent to a yield of 10.35 percent for an investor
in the 37.8 percent combined federal and state income tax bracket.
For the 12 months through October 31, 2000, the trust produced a total
return of 2.09 percent based on market price. At the same time, the market price
decreased from $14.9375 per share on October 31, 1999, to $14.2500 per share on
October 31, 2000. Of course, past performance is no guarantee of future results.
As a result of recent market activity, current performance may vary from the
figures shown. By comparison, the Lehman Brothers Pennsylvania Municipal Bond
Index posted a total return of 8.31 percent for the same period. This
broad-based, unmanaged index, which reflects the general performance of
Pennsylvania municipal securities with maturities greater than five years, does
not reflect any commissions or fees that would be paid by an investor purchasing
the securities it represents. Such costs would lower the performance of the
index. It is not possible to invest directly in an index. For additional
performance results, please refer to the chart and footnotes on page 4.
Q HOW DID YOU REACT TO THE
MARKET CONDITIONS YOU ENCOUNTERED IN MANAGING THE TRUST?
A Much of the activity in the trust's
portfolio during the reporting period
8
<PAGE> 10
was guided by a strategic direction we adopted in February of 2000 and have
gradually implemented since then. It was our goal to lengthen the duration of
the portfolio (a measure of its sensitivity to changes in interest rates) so
that it more closely mirrored the
benchmark indicators we use to gauge the trust's performance. At the time, we
felt the market had solid upside potential, and a longer duration would allow
the trust to more fully participate in the gains of the market if it rallied
over time.
As we began implementing this strategy, we caught the market at a good time.
Early in the year, the market presented us with attractive yields on
long-duration securities, particularly those priced at deep discounts. We
purchased some of these bonds and sold prerefunded securities and bonds with
short calls--many of which were scheduled to be called or refunded within the
next year or two. In effect, this strategy helped capture additional par value
and the potential for capital appreciation, all while achieving the desired
effect of extending the portfolio's duration. This strategy was a positive in
terms of the trust's performance, especially during the market rally that
occurred in the second and third quarters of 2000.
Q HOW DID THIS STRATEGY AFFECT THE
COMPOSITION OF THE PORTFOLIO?
A A by-product of this market
activity--and the trust's positioning within the market--was an increase in the
overall credit quality of the portfolio. Typically, the rally was strongest at
the high end of the quality spectrum, so these securities saw solid price gains
while the valuations of nonrated and lower-rated securities, such as those rated
BBB or lower, remained fairly flat or decreased.
Over the course of the reporting period, the portfolio composition came to
reflect this trend, as the trust's allocation to securities rated A or better
increased to 87.8 percent of long-term investments (up from 80.9 percent at the
start of the period) and its BBB allocation declined to 1.9 percent (down from
9.5 percent). In general, our bias toward high-quality securities was a boost to
portfolio performance, though some income potential was given up in the process
of lengthening the portfolio's duration.
The trust remained well diversified by industry sector and issuer, with the
portfolio retaining a similar overall composition throughout the reporting
period. We are keeping a close eye on the trust's holdings in the struggling
health-care sector, focusing primarily on insured and other high-quality
securities.
Q THE TRUST'S DIVIDEND WAS
REDUCED DURING THE REPORTING PERIOD. CAN YOU EXPLAIN WHY?
A A combination of factors made it
necessary to cut the trust's dividend during the period. First, as a leveraged
portfolio, the trust must pay interest on money borrowed at short-term rates,
while investing these funds in longer-term securities. As short-term rates rose
more significantly than longer-term rates, the cost of this leverage increased
during the reporting period and reduced the trust's income stream.
9
<PAGE> 11
Second, as we took advantage of higher rates in long-maturity bonds, we
tended to sell older, higher-yielding bonds that had strengthened the trust's
income stream but were susceptible to being called out of the portfolio in the
near future. Essentially, we exchanged their near-term contribution to the
trust's income for an improvement in the portfolio's overall structure and
long-term income potential.
Q WHAT DO YOU SEE AHEAD FOR
THE ECONOMY AND THE MUNICIPAL MARKET?
A The outlook for the municipal
bond market will be closely tied to the prospects of the U.S. economy and the
Fed's reaction to key economic indicators. While interest rates have been fairly
steady of late, the Fed's next move will be based on whether inflation shows
signs of heating up. We believe inflation appears to be under control at this
time, but the Fed will be watching economic growth statistics, the labor market,
and the prices of key commodities, such as crude oil, for signs of inflationary
pressures.
Clearly, the direction of interest rates will be determined by the Fed's
reaction to inflationary signals, so we feel it would be imprudent to make a bet
on the direction of interest rates in terms of how we position the trust.
Consequently, we will seek to maintain a neutral stance with respect to the
portfolio's duration in the near term.
We believe the demand for municipal securities should remain healthy. This
will hopefully bode well for the trust, although it will be competing with a
range of investment options, such as individual bonds, mutual funds, and managed
accounts, for investor assets. Also, the stock market may continue to attract
assets away from bonds, depending on its return prospects and price volatility.
Bond supply should remain tight, helping to support prices, as
municipalities continue to operate with budget surpluses that can be used for
construction projects, education funding, road improvements, and other
expenditures typically financed by new bond issuance.
Overall, the outlook for Pennsylvania is moderately positive. According to
Standard & Poor's, total employment is projected to grow at the somewhat
sluggish annual pace of 1.0 percent over the next five years. While unemployment
has been declining and state coffers are healthy, one concern that remains is
the financially weakening health-care sector. We will continue to monitor this
sector closely.
We will continue to search for securities that have the potential to enhance
the trust's long-term performance. If our analysis indicates that it would be
advantageous to sell certain bonds--or as bonds are prerefunded, mature
according to schedule, or are called from the portfolio--we will strive to
replace them with bonds that offer the best relative value available at the
time.
10
<PAGE> 12
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CALL FEATURE: Allows a bond issuer to buy back a bond on specific dates at set
prices before the bond's maturity date. These dates and prices are set when the
bond is issued. To compensate the bondholder for the potential loss of income
and ownership, a bond's 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.
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 bond's duration, the greater the effect of interest-rate
movements on its price. Typically, funds with shorter durations perform better
in rising-rate environments, while funds with longer durations perform better
when rates decline.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond. Typically, short-term bonds mature in
five years or less, intermediate-term bonds mature in five to ten years, and
long-term bonds mature after ten years.
PREREFUNDING: The process of issuing new bonds to refinance an outstanding bond
issue prior to its maturity or call date. The proceeds from the new bonds are
generally invested in U.S. government securities. Prerefunding typically occurs
when interest rates decline and an issuer replaces its higher-yielding bonds
with current lower-yielding issues.
SECONDARY MARKET: A market where securities are traded after they are initially
offered.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower credit ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
11
<PAGE> 13
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
October 31, 2000
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.3%
PENNSYLVANIA 90.7%
$2,000 Allegheny Cnty, PA Arpt Auth Pittsburgh
Intl Arpt Rfdg (FGIC Insd)................. 5.750% 01/01/18 $ 2,008,220
1,500 Allegheny Cnty, PA Arpt Rev Pittsburgh Intl
Arpt Ser B Rfdg (MBIA Insd)................ 5.000 01/01/19 1,417,875
6,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh
Intl Arpt Ser B (FSA Insd)................. 6.625 01/01/22 6,714,500
2,000 Allegheny Cnty, PA Port Auth Spl Rev Trans
(MBIA Insd)................................ 6.000 03/01/24 2,081,700
1,300 Allegheny Cnty, PA Redev Auth Tax Increment
Rev Robinson Mall Proj Ser A............... 7.000 11/01/17 1,305,096
3,000 Allegheny Cnty, PA San Auth Swr (MBIA
Insd)...................................... 5.500 12/01/30 2,954,310
2,575 Allegheny Cnty, PA San Auth Swr Rev Ser A
(FGIC Insd)................................ * 12/01/08 1,735,653
2,580 Allegheny Cnty, PA San Auth Swr Rev Ser A
(FGIC Insd)................................ * 06/01/09 1,690,003
1,645 Allegheny Cnty, PA San Auth Swr Rev Ser A
(FGIC Insd)................................ * 12/01/09 1,051,320
2,395 Armstrong Cnty, PA Hosp Auth Hosp Rev
Armstrong Cnty Mem Hosp Ser A.............. 7.200 11/01/06 2,423,189
5,500 Armstrong Cnty, PA Hosp Auth Hosp Rev
Armstrong Cnty Mem Hosp Ser A.............. 7.500 11/01/16 5,542,350
3,000 Berks Cnty, PA Muni Auth Hosp Reading Hosp
& Med Cent Proj (FSA Insd)................. 6.000 11/01/29 3,121,320
1,500 Berks Cnty, PA Muni Auth Phoebe Devitt
Homes Proj A1 Rfdg......................... 5.500 05/15/15 1,309,110
1,000 Carbon Cnty, PA Indl Dev Auth Panther Creek
Partners Proj Rfdg......................... 6.650 05/01/10 1,017,950
1,000 Chartiers Vly, PA Indl & Coml Dev Auth
First Mtg Rev Ashbury Hlth Cent Rfdg....... 6.375 12/01/19 890,890
1,000 Chartiers Vly, PA Indl & Coml Dev Auth
First Mtg Rev Ashbury Hlth Cent Rfdg....... 6.375 12/01/24 878,900
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR TRUST'S INVESTMENTS
October 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$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 $ 1,057,920
1,150 Chichester Sch Dist PA Ser B (FGIC Insd)... * 03/01/03 1,032,102
1,130 Chichester Sch Dist PA Ser B (FGIC Insd)... * 09/01/03 990,908
1,195 Chichester Sch Dist PA Ser B (FGIC Insd)... * 03/01/04 1,022,239
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)... * 09/01/04 1,019,456
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)... * 03/01/05 993,751
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)... * 09/01/05 970,510
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)... * 03/01/06 945,341
1,020 Chichester Sch Dist PA Ser B (FGIC Insd)... * 09/01/06 771,691
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)... * 03/01/07 898,420
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)... * 09/01/07 876,973
1,190 Chichester Sch Dist PA Ser B (FGIC Insd)... * 03/01/08 832,012
1,205 Chichester Sch Dist PA Ser B (FGIC Insd)... * 09/01/08 822,184
1,220 Chichester Sch Dist PA Ser B (FGIC Insd)... * 09/01/09 789,364
1,500 Crawford Cnty, PA Hosp Auth Sr Living Facs
Rev Wesbury Utd Methodist Cmnty............ 6.250 08/15/29 1,354,440
7,310 Dauphin Cnty, PA Hosp Auth Rev Cmnty Genl
Osteopathic Hosp Rfdg (Prerefunded @
06/01/02).................................. 7.375 06/01/16 7,749,112
1,000 Delaware Cnty, PA Auth White Horse Vlg Proj
Ser A...................................... 7.625 07/01/30 1,015,210
2,000 Delaware Cnty, PA Auth College Cabrini
College.................................... 5.750 07/01/23 2,001,840
1,000 Delaware Cnty, PA Auth First Mtg Rev Riddle
Vlg Proj Rfdg.............................. 6.875 06/01/16 982,600
1,750 Delaware Cnty, PA Indl Dev Auth Rev Wtr Fac
(FGIC Insd)................................ 6.000 06/01/29 1,777,283
16,500 Emmaus, PA Genl Auth Rev Loc Govt Pool Ser
G (FGIC Insd).............................. 7.000 05/15/18 16,829,505
1,200 Erie, PA Pkg Auth Pkg Facs Ser B Rfdg (MBIA
Insd)...................................... 5.125 09/01/20 1,141,956
4,000 Falls Twp, PA Hosp Auth Hosp Rev DE Vly Med
Rfdg (FHA Gtd)............................. 7.000 08/01/22 4,201,640
1,900 Geisinger, PA Auth Hlth Sys PA St Geisinger
Hlth Sys Ser A............................. 5.000 08/15/28 1,644,184
1,000 Harveys Lake Genl Muni Auth PA College Rev
College Misericordia Proj (ACA Insd)....... 6.000 05/01/19 1,006,560
1,440 Lehigh Cnty, PA Genl Purp Auth Rev First
Mtg Bible Fellowship Proj A................ 6.000 12/15/23 1,211,227
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR TRUST'S INVESTMENTS
October 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,000 Lehigh Cnty, PA Genl Purpose Auth Hosp
Lehigh Vly Hlth Network Ser C (MBIA
Insd)...................................... 5.000% 07/01/28 $ 1,762,240
2,500 Mercer Cnty, PA Indl Dev Auth Wtr Facs Rev
Consumers PA Wtr Co Shenango (MBIA Insd)... 6.000 07/01/30 2,539,125
1,045 Montgomery Cnty, PA Higher Edl & Hlth Auth
Hosp Rev Pottstown Mem Med Cent Proj
(Prerefunded @ 11/15/01)................... 7.350 11/15/05 1,096,247
6,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recov (LOC: Banque Paribas)................ 7.500 01/01/12 6,153,300
2,345 Moon Indl Dev Auth PA Ed Fac Rev Ellis Sch
Proj....................................... 5.800 03/01/25 2,304,291
915 Northampton Cnty, PA Indl Dev Auth Rev
First Mtg Kirkland Vlg Rfdg................ 5.625 12/15/19 740,537
1,000 Pennsylvania Econ Dev Fin Auth Res Recovery
Rev Colver Proj Ser D...................... 7.150 12/01/18 1,020,600
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg
Rev Ser 70A................................ 5.900 04/01/31 2,501,050
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg
Ser 66A.................................... 5.650 04/01/29 2,431,000
1,985 Pennsylvania Hsg Fin Agy Single Family Mtg
Ser 67A.................................... 5.900 10/01/30 1,991,153
1,965 Pennsylvania Hsg Fin Agy Single Family Mtg
Ser 42..................................... 6.850 04/01/25 2,053,189
2,000 Pennsylvania Hsg Fin Agy Single Family Mtg
Ser 61A.................................... 5.500 04/01/29 1,903,480
5,500 Pennsylvania Intergvtl Coop Auth Spl Tax
Rev City of Philadelphia (Prerefunded @
06/15/02).................................. 6.800 06/15/22 5,705,260
17,015 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser A (Prerefunded @
10/01/01) (AMBAC Insd)..................... 7.050 10/01/16 18,354,251
1,500 Pennsylvania St Higher Edl Fac Auth Rev
Drexel Univ................................ 6.000 05/01/24 1,509,420
1,750 Pennsylvania St Higher Edl Fac Auth Rev
Drexel Univ................................ 6.000 05/01/29 1,762,145
3,600 Pennsylvania St Higher Edl UPMC Hlth Sys
Ser A ( FSA Insd).......................... 5.000 08/01/29 3,237,480
3,500 Pennsylvania St Tpk Commn Oil Franchise Tax
Rev Ser A (AMBAC Insd)..................... 4.750 12/01/27 3,050,775
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR TRUST'S INVESTMENTS
October 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$1,250 Philadelphia, PA Auth Indl Dev Hlth care
Fac Rev Baptist Home of Philadelphia Ser
A.......................................... 5.600% 11/15/28 $ 990,438
1,000 Philadelphia, PA Auth Indl Dev Revs Amern
Clg Of Physicians.......................... 5.500 06/15/27 959,490
3,250 Philadelphia, PA Gas Wks Rev Second Ser
(FSA Insd)................................. 5.250 07/01/29 3,068,422
1,350 Philadelphia, PA Gas Wks Rev Ser 14 (FSA
Insd)...................................... 6.375 07/01/14 1,426,491
1,000 Philadelphia, PA Hosp & Higher Ed Fac Auth
Rev Chestnut Hill College.................. 6.000 10/01/29 902,200
2,000 Philadelphia, PA Pkg Auth Rev Ser A (AMBAC
Insd)...................................... 5.250 02/15/29 1,890,740
1,400 Philadelphia, PA Sch Dist Ser A (MBIA
Insd)...................................... 4.750 04/01/27 1,209,726
3,000 Philadelphia, PA Wtr & Wastewtr Rev Rfdg
(MBIA Insd)................................ 5.625 06/15/08 3,170,970
1,000 Philadelphia, PA Wtr & Wastewtr Rev Ser A
(AMBAC Insd)............................... 5.125 08/01/27 931,700
6,500 Pittsburgh & Allegheny Cnty, PA Pub
Auditorium Auth Excise Tax Rev (AMBAC
Insd)...................................... 4.500 02/01/29 5,417,880
4,000 Pittsburgh & Allegheny Cnty, PA Pub
Auditorium Auth Regl Asset Dist Sales Tax
(AMBAC Insd)............................... 5.000 02/01/24 3,682,440
3,000 Pittsburgh, PA Ser A (FGIC Insd)........... 5.750 09/01/22 3,054,810
1,000 Pittsburgh, PA Urban Redev Auth Cent
Triangle Tax Increment Ser A............... 6.100 05/01/19 1,014,750
1,500 Washington Cnty, PA Auth Rev Cap Fdg Cap
Proj & Equip Pgm (AMBAC Insd).............. 6.150 12/01/29 1,630,215
------------
179,546,629
------------
PUERTO RICO 6.3%
487 Centro de Recaudaciones de Ingresos Muni
Ctfs Partn PR.............................. 6.850 10/17/03 497,277
14,000 Puerto Rico Comwlth Pub Impt Rfdg.......... * 07/01/04 11,862,480
------------
12,359,757
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR TRUST'S INVESTMENTS
October 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
U. S. VIRGIN ISLANDS 1.3%
$1,500 Virgin Islands Pub Fin Auth Rev Gross Rcpts
Taxes Ln Nt Ser A.......................... 6.500% 10/01/24 $ 1,551,450
1,000 Virgin Islands Pub Fin Auth Rev Matching Fd
Ln Nts Ser A Rfdg (Prerefunded @
10/01/02).................................. 7.250 10/01/18 1,075,850
------------
2,627,300
------------
TOTAL LONG-TERM INVESTMENTS 98.3%
(Cost $186,419,983).................................................. 194,533,686
SHORT-TERM INVESTMENTS 0.3%
(Cost $600,000)...................................................... 600,000
------------
TOTAL INVESTMENTS 98.6%
(Cost $187,019,983).................................................. 195,133,686
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%............................ 2,789,797
------------
NET ASSETS 100.0%..................................................... $197,923,483
============
</TABLE>
* Zero coupon bond
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Administration
FSA--Financial Security Assurance Inc.
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
16
<PAGE> 18
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $187,019,983)....................... $195,133,686
Cash........................................................ 18,436
Receivables:
Interest.................................................. 2,847,483
Investments Sold.......................................... 500,000
Other....................................................... 4,588
------------
Total Assets............................................ 198,504,193
------------
LIABILITIES:
Payables:
Income Distributions--Preferred Shares.................... 197,613
Investment Advisory Fee................................... 116,851
Administrative Fee........................................ 33,386
Affiliates................................................ 8,720
Trustees' Deferred Compensation and Retirement Plans........ 119,136
Accrued Expenses............................................ 105,004
------------
Total Liabilities....................................... 580,710
------------
NET ASSETS.................................................. $197,923,483
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 2,600 issued with liquidation preference of
$25,000 per share)........................................ $ 65,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 8,244,720 shares issued and
outstanding).............................................. 82,447
Paid in Surplus............................................. 122,208,033
Net Unrealized Appreciation................................. 8,113,703
Accumulated Net Realized Gain............................... 2,371,638
Accumulated Undistributed Net Investment Income............. 147,662
------------
Net Assets Applicable to Common Shares.................. 132,923,483
------------
NET ASSETS.................................................. $197,923,483
============
NET ASSET VALUE PER COMMON SHARE ($132,923,483 divided by
8,244,720 shares outstanding)............................. $ 16.12
============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
Statement of Operations
For the Year Ended October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $12,583,865
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,371,548
Administrative Fee.......................................... 391,870
Preferred Share Maintenance................................. 174,964
Trustees' Fees and Related Expenses......................... 22,660
Legal....................................................... 16,872
Custody..................................................... 13,467
Other....................................................... 214,732
-----------
Total Expenses.......................................... 2,206,113
-----------
NET INVESTMENT INCOME....................................... $10,377,752
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 2,371,723
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 9,532,000
End of the Period......................................... 8,113,703
-----------
Net Unrealized Depreciation During the Period............... (1,418,297)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 953,426
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $11,331,178
===========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
Statement of Changes in Net Assets
For the Years Ended October 31, 2000 and 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 10,377,752 $ 10,429,390
Net Realized Gain................................... 2,371,723 27,662
Net Unrealized Depreciation During the Period....... (1,418,297) (9,502,520)
------------ ------------
Change in Net Assets from Operations................ 11,331,178 954,532
------------ ------------
Distributions from Net Investment Income:
Common Shares..................................... (8,231,384) (8,391,653)
Preferred Shares.................................. (2,635,445) (2,070,996)
------------ ------------
(10,866,829) (10,462,649)
------------ ------------
Distributions from Net Realized Gain:
Common Shares..................................... (22,261) (634,295)
Preferred Shares.................................. (5,485) (179,441)
------------ ------------
(27,746) (813,736)
------------ ------------
Total Distributions................................. (10,894,575) (11,276,385)
------------ ------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............................. 436,603 (10,321,853)
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through
Dividend Reinvestment............................. -0- 713,127
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS............... 436,603 (9,608,726)
NET ASSETS:
Beginning of the Period............................. 197,486,880 207,095,606
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $147,662
and $636,739, respectively)....................... $197,923,483 $197,486,880
============ ============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, TWO MONTHS
------------------- ENDED -------
2000 1999 OCT. 31, 1998 1998
---------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD (A).............................. $ 16.07 $ 17.32 $ 17.31 $ 17.06
-------- -------- ------- -------
Net Investment Income................... 1.26 1.27 .21 1.30
Net Realized and Unrealized
Gain/Loss............................. .11 (1.15) .02 .28
-------- -------- ------- -------
Total from Investment Operations.......... 1.37 .12 .23 1.58
-------- -------- ------- -------
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders........... 1.00 1.02 .17 1.02
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders........................ .32 .25 .05 .28
Distributions from Net Realized Gain:
Paid to Common Shareholders........... -0- .08 -0- .02
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders........................ -0- .02 -0- .01
-------- -------- ------- -------
Total Distributions....................... 1.32 1.37 .22 1.33
-------- -------- ------- -------
NET ASSET VALUE, END OF THE PERIOD........ $ 16.12 $ 16.07 $ 17.32 $ 17.31
======== ======== ======= =======
Market Price Per Share at End of the
Period.................................. $14.2500 $14.9375 $17.875 $18.000
Total Investment Return at Market
Price (b)............................... 2.09% -10.76% .28%* 13.71%
Total Return at Net Asset Value (c)....... 6.82% -.99% 1.04%* 7.77%
Net Assets at End of the Period (In
millions)............................... $ 197.9 $ 197.5 $ 207.1 $ 206.8
Ratio of Expenses to Average Net Assets
Applicable to Common Shares**........... 1.69% 1.65% 1.67% 1.62%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common
Shares (d).............................. 5.91% 6.03% 5.63% 5.89%
Portfolio Turnover........................ 29% 15% 4%* 4%
* Non-Annualized
** Ratio of Expenses to Average Net Assets
Including Preferred Shares............. 1.13% 1.12% 1.15% 1.15%
</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 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.
(c) 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.
(d) Net Investment Income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
20
<PAGE> 22
<TABLE>
<CAPTION>
SEPTEMBER 27, 1991
(COMMENCEMENT OF
YEAR ENDED AUGUST 31, INVESTMENT
---------------------------------------------------- OPERATIONS) TO
1997 1996 1995 1994 1993 AUGUST 31, 1992
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 16.55 $ 16.71 $ 16.43 $ 17.99 $ 16.39 $ 14.79
------- ------- ------- ------- ------- -------
1.30 1.30 1.33 1.34 1.34 1.09
.59 (.06) .35 (1.55) 1.69 1.46
------- ------- ------- ------- ------- -------
1.89 1.24 1.68 (.21) 3.03 2.55
------- ------- ------- ------- ------- -------
1.06 1.09 1.09 1.09 1.04 .75
.28 .30 .31 .21 .19 .20
.03 .01 -0- .04 .16 -0-
.01 -0- -0- .01 .04 -0-
------- ------- ------- ------- ------- -------
1.38 1.40 1.40 1.35 1.43 .95
------- ------- ------- ------- ------- -------
$ 17.06 $ 16.55 $ 16.71 $ 16.43 $ 17.99 $ 16.39
======= ======= ======= ======= ======= =======
$16.613 $17.125 $16.250 $16.125 $17.625 $15.750
4.72% 12.52% 8.02% -2.22% 20.26% 10.22%*
9.93% 5.71% 8.90% -2.45% 17.85% 14.65%*
$ 204.1 $ 199.5 $ 200.3 $ 197.7 $ 210.0 $ 197.0
1.66% 1.67% 1.73% 1.64% 1.64% 1.58%
6.08% 5.99% 6.37% 6.54% 6.85% 6.28%
6% 13% 15% 1% 4% 55%*
1.12% 1.13% 1.15% 1.12% 1.11% 1.11%
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
NOTES TO
FINANCIAL STATEMENTS
October 31, 2000
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 accounting principles
generally accepted in the United States of America 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 Municipal bonds are valued by independent pricing services
or dealers using the mean of the bid and asked prices or, in the absence of
market quotations, at fair value based upon yield data relating to municipal
bonds with similar characteristics and general market conditions. Securities
which are not valued by independent pricing services are valued at fair value
using 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, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when-issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when-issued or delayed delivery
purchase commitments until payment is made. At October 31, 2000, there were no
when-issued or delayed delivery purchase commitments.
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
October 31, 2000
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
premium is amortized and original issue discount is accreted 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 October 31, 2000, for federal income tax purposes, cost of long and
short-term investments is $187,019,983, the aggregate gross unrealized
appreciation is $9,197,785 and the aggregate gross unrealized depreciation is
$1,084,082, resulting in net unrealized appreciation on long and short-term
investments of $8,113,703.
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
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 (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 October 31, 2000, the Trust recognized expenses of
approximately $4,600 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.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each Trust. For the year ended October
31, 2000, the Trust recognized expenses of approximately $31,600 representing
Van Kampen's
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
October 31, 2000
cost of providing accounting and legal services to the Trust which are reported
as part of other and legal expenses, respectively, in the statement of
operations.
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 October 31, 2000 and 1999, paid in surplus related to common shares
aggregated $122,208,033. Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares.................................. 8,244,720 8,202,775
Shares Issued Through Dividend Reinvestment....... -0- 41,945
--------- ---------
Ending Shares..................................... 8,244,720 8,244,720
========= =========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $56,252,147 and $64,631,164,
respectively.
5. PREFERRED SHARES
The Trust has outstanding 2,600 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 October 31, 2000 was 4.110% and for the year ended
October 31, 2000, the rates ranged from 3.465% to 4.500%.
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 $25,000 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.
24
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
To 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 October 31, 2000, and the related statements of
operations, changes in net assets and the financial highlights for the year then
ended. 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
audit. The Trust's financial statements and financial highlights for the periods
ended prior to October 31, 2000 were audited by other auditors whose report,
dated December 13, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 October 31, 2000, by correspondence with the Trust's
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 audit provides 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 October 31, 2000, the results
of its operations, the changes in its net assets and the financial highlights
for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 6, 2000
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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
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<PAGE> 28
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
changes 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
prorata 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 Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
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<PAGE> 29
TRUST OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN PENNSYLVANIA QUALITY MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer,
and Chief Financial Officer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS(1)
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
For Federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
October 31, 2000. The Trust designated 99.9% of the income distributions as a
tax-exempt income distribution. Additionally, during the period, the Trust
designated and paid $27,746 as a 20% rate gain distribution. These
distributions, where applicable, were included on 1999's Form 1099-Div which
was mailed to shareholders in January of 2000. In January, 2001, the Trust will
provide tax information to shareholders for the 2000 calendar year.
(1) Independent auditors for the Trust perform an annual audit of the Trust's
financial statements. The Board of Trustees has engaged Deloitte & Touche
LLP to be the Trust's independent auditors.
KPMG LLP, located at 303 West Wacker Drive, Chicago, IL 60601 ("KPMG"),
ceased being the Trust's independent accountants effective April 14, 2000.
The cessation of the client- auditor relationship between the Trust and KPMG
was based solely on a possible future business relationship by KPMG with an
affiliate of the Trust's investment adviser.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
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<PAGE> 30
RESULTS OF
SHAREHOLDER VOTES
An Annual Meeting of Shareholders of the Trust was held on June 21, 2000, where
shareholders voted on the election of trustees and the ratification of Deloitte
& Touche LLP as the independent auditors.
1) With regard to the election of the following trustees by preferred
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
----------------------------
IN FAVOR WITHHELD
<S> <C> <C>
Rod Dammeyer............................................. 2,256 -0-
</TABLE>
2) With regard to the election of the following trustees by common shareholders
of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
<S> <C> <C>
Wayne W. Whalen........................................ 7,303,898 79,832
</TABLE>
The other trustees whose term did not expire in 2000 were: Richard F. Powers,
III, Theodore A. Myers, Hugo F. Sonnenschein, David C. Arch and Howard J Kerr.
3) With regards to the ratification of Deloitte & Touche LLP as the independent
auditors for the Trust, 7,309,980 common shares and 2,256 preferred shares voted
in favor of the proposal, 17,293 shares voted against and 56,457 shares
abstained.
29
