<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
Statement of Assets and Liabilities.............. 8
Statement of Operations.......................... 9
Statement of Changes in Net Assets............... 10
Financial Highlights............................. 11
Notes to Financial Statements.................... 12
Report of Independent Accountants................ 15
Dividend Reinvestment Plan....................... 16
</TABLE>
VTP ANR 12/96
<PAGE> 2
LETTER TO SHAREHOLDERS
December 10, 1996
Dear Shareholder,
The first ten months of 1996 have
been a mixed experience for most
municipal bond fund investors. The
continuation of the 1995 rally at the
beginning of this year was thwarted
early on as the economy gained [PHOTO]
momentum, causing the bond market to
sell off. But by the second half of the
year, the pattern reversed. Growth DENNIS J. MCDONNELL AND DON G. POWELL
slowed and bonds recovered much of
their earlier losses.
This kind of volatility is not
unusual, but it is difficult to predict and serves as a reminder to investors to
maintain their long-term outlook. Bailing out during price declines and
re-entering after market rebounds is often a losing strategy. We believe it is
time in the market, not timing the market, that potentially maximizes long-term
investment gains.
Additionally, we believe our recent acquisition by Morgan Stanley Group Inc.
will further help investors achieve their long-term goals. Morgan Stanley's
strong global presence and commitment to superior investment performance
complement our broad range of investment products, money management
capabilities, and high level of service that we currently offer.
ECONOMIC OVERVIEW
The economy has grown at a moderate pace this year, despite the second
quarter's 4.7 percent surge. By the third quarter, growth slowed to 2.0 percent,
near the level that prevailed early in the year. This moderation of economic
activity, coupled with continued low inflation, eased fears of an interest rate
hike by the Federal Reserve Board--fears that had dominated the market in early
summer and pushed long-term bond yields above 7.0 percent.
Once the market realized that the economy's pace had slowed, bond prices
rose from their 1996 lows and yields fell as they moved in the opposite
direction of bond prices. By the end of October, the 30-year Treasury bond yield
was near 6.5 percent.
During this recovery, municipal bonds rebounded even more than Treasuries,
due to a steady demand that outpaced supply. Pennsylvania issues were especially
scarce. It is expected that on a nationwide basis there will be little or no
increase in the total number of municipal bonds outstanding this year. The
volume of new issues is expected to almost equal the volume of bonds that were
redeemed or called.
Continued on page two
1
<PAGE> 3
[PIE CHART]
PORTFOLIO COMPOSITION BY CREDIT QUALITY AS OF OCTOBER 31, 1996
<TABLE>
<S> <C>
AAA 81.0%
AA 8.9%
A 3.8%
BBB 4.9%
BB 1.4%
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.
PERFORMANCE SUMMARY
Many closed-end municipal bond funds, such as this one, are currently
offering higher after-tax yields than taxable income alternatives. The Trust
generated a tax-exempt distribution of 6.37 percent(3), based on the closing
stock price of $15.625 per common share as of October 31, 1996. For Pennsylvania
residents in the combined federal and state income tax bracket of 37.8 percent,
this distribution is equivalent to a yield of 10.24 percent(4) on a taxable
investment.
The Trust's one-year total return was 11.14 percent(1), including
reinvestment of all dividends, reflecting a 4.2 percent increase in market price
for the period ended October 31, 1996.
Top Five Portfolio Holdings by Industry as of October
31, 1996
Health Care....................... 24.6%
General Purpose................... 17.5%
Public Education.................. 13.1%
Water & Sewer...................... 9.3%
Higher Education................... 6.9%
ECONOMIC OUTLOOK
We believe Fed policy will remain unchanged through the end of the year. We
look for the long Treasury bond to trade within a range of 6.25 and 6.75 percent
and the 5-year Treasury to trade between 5.75 percent and 6.25 percent for the
remainder of 1996. After that, interest rates could rise moderately if the
economy rebounds to a 3.0 percent annual growth rate and inflation edges higher.
Based upon this view of moderate growth and slightly higher inflation, we
believe the outlook for fixed-income markets remains positive.
Relatively stable interest rates early next year would be favorable for the
leveraged structure of our closed-end funds, which involves borrowing short-term
funds to purchase long-term municipal securities. Depending on the difference
between long-term and short-term market rates, this structure provides
opportunities for additional earnings over time.
Continued on page three
2
<PAGE> 4
The leveraged capital structure of the Trust continues to provide common
shareholders with above-market levels of dividend income. It should be noted,
however, that the rise in short-term rates would have an unfavorable effect on
common share performance.
The bond market should find continued support from the results of the recent
national elections. With a Democratic president and a Republican Congress, there
should be checks on potential spending increases and tax cuts so the budget
deficit does not balloon out of control. This split government should also help
minimize chances of major tax reform, which would likely affect investment
markets, including municipal bonds.
The stock market is another factor that could influence the performance of
the bond market in the coming year. If stocks suffer a protracted setback, the
demand for bonds, including municipals, could increase.
We will closely monitor any new developments in Washington and in the
financial markets in order to evaluate their potential impact on the Trust. We
believe that in the coming year, the municipal market will continue to be an
attractive investment choice for investors seeking high current income. Thank
you for your continued confidence in your investment with Van Kampen American
Capital and for the privilege of working with you to help you achieve your
financial goals.
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.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1996
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE
PENNSYLVANIA MUNICIPALS
(NYSE TICKER SYMBOL--VTP)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)............. 11.14%
One-year total return based on NAV(2)...................... 6.10%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 6.37%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 10.24%
SHARE VALUATIONS
Net asset value............................................ $ 16.93
Closing common stock price................................. $15.625
One-year high common stock price (02/13/96)................ $16.375
One-year low common stock price (12/19/95)................. $14.875
Preferred share rate(5).................................... 3.43%
</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 income tax bracket, which takes into consideration
the deductibility of individual state taxes paid.
(5)See "Notes to Financial Statements" footnote #4, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS
PENNSYLVANIA 92.9%
$9,000 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)........................... 6.625% 01/01/22 $ 9,556,650
1,090 Allegheny Cnty, PA Residential Fin Auth Mtg Rev
Single Family (GNMA Collateralized)............. 7.100 05/01/24 1,143,443
1,755 Allegheny Cnty, PA San Auth Swr Rev (FGIC
Insd)........................................... * 12/01/15 594,910
1,000 Allegheny Cnty, PA San Auth Swr Rev Ser C
(Prerefunded @ 12/01/01) (FGIC Insd)............ 6.500 12/01/16 1,091,590
4,070 Armstrong Cnty, PA Hosp Auth Hlth Cent Rev
Canterbury Pl Proj Rfdg (MBIA Insd)............. 6.500 12/01/21 4,321,160
2,675 Armstrong Cnty, PA Hosp Auth Hosp Rev Armstrong
Cnty Mem Hosp Ser A............................. 7.500 11/01/16 2,615,000
2,000 Armstrong Cnty, PA Hosp Auth Hosp Rev Saint
Francis Med Cent Proj A Rfdg (AMBAC Insd)....... 6.250 06/01/13 2,097,560
1,310 Bangor PA Area Sch Dist (AMBAC Insd)............ 5.375 03/01/15 1,287,429
1,000 Beaver Cnty, PA Hosp Auth Rev Med Cent of Beaver
Cnty Inc (AMBAC Insd)........................... 6.625 07/01/10 1,078,650
5,000 Berks Cnty, PA Muni Auth Rev Highlands at
Wyomissing Proj B............................... 6.875 10/01/17 5,196,000
3,000 Bethlehem, PA Auth Wtr Rev (Prerefunded @
11/15/01) (MBIA Insd)........................... 6.250 11/15/21 3,239,190
2,880 Blair Cnty, PA Hosp Auth Rev Altoona Hosp Proj
(AMBAC Insd).................................... 6.500 07/01/22 3,106,742
5,630 Blairsville-Saltsburg Sch Dist PA Ser 1992
(Prerefunded @ 05/15/02) (MBIA Insd)............ 6.500 05/15/16 6,157,756
5,000 Bristol Twp, PA Sch Dist Ser A (Prerefunded @
02/15/02) (MBIA Insd)........................... 6.625 02/15/12 5,556,200
1,000 Cumberland Cnty, PA Muni Auth College Rev
Messiah College Proj (AMBAC Insd)............... 5.125 10/01/15 950,000
1,200 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/04 809,964
2,150 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/05 1,369,808
1,565 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/07 883,223
1,000 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/08 529,610
1,665 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/09 825,890
815 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/10 380,499
1,270 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/11 555,879
1,030 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/12 423,423
1,800 Exeter Twp, PA Sch Dist (FGIC Insd)............. * 11/15/13 690,840
5,200 Falls Twp, PA Hosp Auth Hosp Rev Delaware Vly
Med Rfdg (FHA Gtd).............................. 7.000 08/01/22 5,434,364
4,000 Franklin Cnty, PA Indl Dev Auth Hosp Rev
Chambersburg Hosp Proj (FGIC Insd).............. 6.250 07/01/22 4,173,800
2,500 Governor Mifflin PA Sch Dist (Prerefunded @
02/01/02) (AMBAC Insd).......................... 6.500 02/01/13 2,723,350
2,500 Interboro Sch Dist PA Delaware Cnty Rfdg
(Prerefunded @ 10/01/02) (MBIA Insd)............ 6.600 10/01/12 2,760,525
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$5,250 Lancaster Cnty, PA Hosp Auth Rev Lancaster Genl
Hosp Proj (AMBAC Insd).......................... 6.125% 07/01/12 $ 5,434,537
1,600 Lancaster, PA Higher Edl Auth College Rev
Franklin & Marshall College Proj (MBIA Insd).... 6.700 04/15/12 1,751,168
2,715 Langhorne Manor Boro, PA Higher Edl & Hlth Auth
Rev Woods Sch (Connie Lee Insd)................. 6.500 11/15/14 2,880,886
4,000 Lehigh Cnty, PA Genl Purp Auth Rev Good Shepherd
Rehab Hosp...................................... 7.500 11/15/21 4,169,800
2,000 Lehigh Cnty, PA Genl Purp Auth Rev Lehigh Vly
Hosp Inc Ser A Rfdg (MBIA Insd)................. 6.500 07/01/10 2,157,460
1,000 Lower Providence Twp, PA Swr Auth Swr Rev
(Prerefunded @ 05/01/02)........................ 6.750 05/01/22 1,102,670
2,000 Luzerne Cnty, PA Ser B (FGIC Insd).............. 6.000 09/15/11 2,047,240
4,250 Media Boro, PA Gtd Wtr Rev Rfdg (MBIA Insd)..... 6.600 01/01/22 4,626,847
3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Abington Hosp (AMBAC Insd).................. 6.000 06/01/16 3,023,790
1,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj................. 7.350 11/15/05 1,062,360
1,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj................. 6.875 11/15/20 1,016,820
4,500 Montgomery Cnty, PA Higher Edl & Hlth Auth Rev
Saint Josephs Univ (Connie Lee Insd)............ 6.500 12/15/22 4,865,085
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn
Ctl Ser E Rfdg (MBIA Insd)...................... 6.700 12/01/21 1,094,060
5,000 North Allegheny, PA Sch Dist Ser A Rfdg (AMBAC
Insd)........................................... 6.350 11/01/12 5,289,200
1,000 North Penn, PA Wtr Auth Wtr Rev (Prerefunded @
11/01/04) (FGIC Insd)........................... 6.875 11/01/19 1,142,270
350 Northeastern York Cnty, PA Sch Dist Ser B (FGIC
Insd)........................................... * 09/01/09 175,543
500 Northeastern York Cnty, PA Sch Dist Ser B (FGIC
Insd)........................................... * 03/01/10 242,540
885 Northeastern York Cnty, PA Sch Dist Ser B (FGIC
Insd)........................................... * 09/01/10 417,809
500 Northeastern York Cnty, PA Sch Dist Ser B (FGIC
Insd)........................................... * 03/01/11 227,500
4,820 Northhampton Cnty, PA Hosp Auth Rev Easton Hosp
Ser A (MBIA Insd)............................... 6.250 01/01/11 5,109,682
9,000 Northumberland Cnty, PA Auth Comwlth Lease Rev
Correctional Fac (MBIA Insd).................... * 10/15/11 3,957,390
2,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D............................... 7.050 12/01/10 2,129,760
5,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
34B (FHA Gtd)................................... 7.000 04/01/24 5,246,700
1,750 Pennsylvania Infrastructure Invt Auth Rev
Pennvest Subser B............................... 6.800 09/01/10 1,900,815
2,750 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia Funding Pgm (Prerefunded @
06/15/02)....................................... 6.800 06/15/12 3,050,135
6,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia Funding Pgm (MBIA Insd).... 5.600 06/15/15 5,927,880
5,700 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser C (AMBAC Insd)............... 6.400 03/01/22 5,870,715
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,660 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Temple Univ 1st Ser (MBIA Insd)........ 6.500% 04/01/21 $ 2,866,150
1,020 Pennsylvania St Ser A........................... 6.500 11/15/10 1,084,076
3,000 Pennsylvania St Ser 1........................... 6.375 09/15/12 3,190,770
5,000 Philadelphia, PA Gas Wks Rev Ser 14 (FSA
Insd)........................................... 6.250 07/01/08 5,356,700
1,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Frankford Hosp Rfdg (Connie Lee Insd)....... 5.750 01/01/19 996,810
500 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Temple Univ Hosp Ser A...................... 6.625 11/15/23 521,365
2,980 Philadelphia, PA Redev Auth Hsg Rev Rfdg
(GNMA Collateralized)........................... 6.875 02/01/24 3,139,341
500 Pittsburgh, PA Urban Redev Mtg Ser C............ 6.500 10/01/23 505,790
1,710 Pottstown Boro, PA Auth Swr Rev Gtd (FGIC
Insd)........................................... * 11/01/13 657,734
750 Reading, PA (Prerefunded @ 11/15/02) (AMBAC
Insd)........................................... 6.500 11/15/12 825,825
5,000 Saint Mary Hosp Auth Bucks Cnty, PA Rev
Franciscan Hlth Saint Mary Ser A (MBIA Insd).... 6.500 07/01/22 5,393,650
2,220 Silver Spring Twp Auth, PA Swr Rev Gtd (FGIC
Insd)........................................... 6.700 07/15/21 2,368,807
1,035 Unity Twp, PA Muni Auth Gtd Swr Rev Cap Apprec
(AMBAC Insd).................................... * 11/01/15 352,511
1,750 West Allegheny, PA Sch Dist Ser AA (AMBAC
Insd)........................................... 6.250 02/01/14 1,825,583
7,090 Westmoreland Cnty, PA (AMBAC Insd).............. * 08/01/15 2,435,840
3,545 Westmoreland Cnty, PA (AMBAC Insd).............. * 08/01/16 1,146,737
7,090 Westmoreland Cnty, PA (AMBAC Insd).............. * 08/01/17 2,160,819
2,000 Wilkinsburg, PA Jt Wtr Auth Wtr Rev Ser B (AMBAC
Insd)........................................... * 08/15/12 833,640
1,670 Yough Sch Dist, PA Cap Apprec (MBIA Insd)....... * 10/01/14 604,807
------------
181,741,072
------------
GUAM 0.5%
1,000 Guam Govt Ser A................................. 5.625 09/01/02 1,006,310
------------
PUERTO RICO 5.2%
6,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser
T (Prerefunded @ 07/01/02)...................... 6.500 07/01/22 6,690,960
2,000 Puerto Rico Comwlth Pub Impt (Prerefunded @
07/01/02)....................................... 6.800 07/01/21 2,259,040
1,000 Puerto Rico Pub Bldgs Auth Rev Gtd Ser K
(Prerefunded @ 07/01/02)........................ 6.875 07/01/21 1,133,240
------------
10,083,240
------------
TOTAL LONG-TERM INVESTMENTS 98.6%
(Cost $177,324,540)(a)....................................................... 192,830,622
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%.................................... 2,828,413
------------
NET ASSETS 100.0%............................................................. $195,659,035
============
</TABLE>
*Zero coupon bond
(a) At October 31, 1996, cost for federal income tax purposes is $177,324,540;
the aggregate gross unrealized appreciation is $15,568,428 and the aggregate
gross unrealized depreciation is $62,346, resulting in net unrealized
appreciation of $15,506,082.
See Notes to Financial Statements
7
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $177,324,540) (Note 1)............... $192,830,622
Interest Receivable..................................................... 3,343,577
Unamortized Organizational Expenses (Note 1)............................ 2,001
Other................................................................... 2,803
------------
Total Assets...................................................... 196,179,003
------------
LIABILITIES:
Payables:
Custodian Bank........................................................ 127,750
Investment Advisory Fee (Note 2)...................................... 107,239
Income Distributions--Common and Preferred Shares..................... 92,368
Administrative Fee (Note 2)........................................... 32,997
Affiliates (Note 2)................................................... 2,376
Accrued Expenses........................................................ 107,782
Deferred Compensation and Retirement Plans (Note 2)..................... 49,456
------------
Total Liabilities................................................. 519,968
------------
NET ASSETS.............................................................. $195,659,035
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 1,400
issued with liquidation preference of $50,000 per share) (Note 4)..... $ 70,000,000
------------
Common Shares ($.01 par value with an unlimited number of shares
authorized, 7,420,972 shares issued and outstanding).................. 74,210
Paid in Surplus......................................................... 109,423,100
Net Unrealized Appreciation on Securities............................... 15,506,082
Accumulated Undistributed Net Investment Income......................... 644,852
Accumulated Net Realized Gain on Securities............................. 10,791
------------
Net Assets Applicable to Common Shares............................ 125,659,035
------------
NET ASSETS.............................................................. $195,659,035
============
NET ASSET VALUE PER COMMON SHARE ($125,659,035 divided
by 7,420,972 shares outstanding)...................................... $ 16.93
============
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................ $11,786,572
-----------
EXPENSES:
Investment Advisory Fee (Note 2)........................................ 1,266,716
Administrative Fee (Note 2)............................................. 389,759
Preferred Share Maintenance (Note 4).................................... 191,967
Trustees Fees and Expenses (Note 2)..................................... 30,517
Legal (Note 2).......................................................... 15,640
Amortization of Organizational Expenses (Note 1)........................ 5,010
Other................................................................... 209,315
-----------
Total Expenses...................................................... 2,108,924
-----------
NET INVESTMENT INCOME................................................... $ 9,677,648
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments........................................ $ 10,791
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period............................................... 15,217,119
End of the Period:
Investments......................................................... 15,506,082
-----------
Net Unrealized Appreciation on Securities During the Period............. 288,963
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.......................... $ 299,754
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.............................. $ 9,977,402
===========
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 9,677,648 $ 9,737,641
Net Realized Gain on Securities......................... 10,791 317,833
Net Unrealized Appreciation on Securities During the
Period................................................ 288,963 14,502,110
------------ ------------
Change in Net Assets from Operations.................... 9,977,402 24,557,584
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (7,391,361) (7,391,153)
Preferred Shares...................................... (2,480,595) (2,789,395)
------------ ------------
(9,871,956) (10,180,548)
------------ ------------
Distributions from Net Realized Gain on Securities:
Common Shares......................................... (187,473) -0-
Preferred Shares...................................... (74,998) -0-
------------ ------------
(262,471) -0-
------------ ------------
Total Distributions..................................... (10,134,427) (10,180,548)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... (157,025) 14,377,036
NET ASSETS:
Beginning of the Period................................. 195,816,060 181,439,024
------------ ------------
End of the Period (Including undistributed net
investment income of $644,852 and $839,160,
respectively)......................................... $195,659,035 $195,816,060
============ ============
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 27, 1992
(Commencement
Year Ended October 31 of Investment
---------------------------------------- Operations) to
1996 1995 1994 1993 October 31, 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period (a)... $16.954 $15.017 $17.889 $14.914 $14.763
------- ------- ------- ------- -------
Net Investment Income......... 1.304 1.312 1.327 1.324 .598
Net Realized and Unrealized
Gain/Loss on Securities..... .040 1.997 (2.906) 2.942 .100
------- ------- ------- ------- -------
Total from Investment
Operations.................... 1.344 3.309 (1.579) 4.266 .698
------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders.............. .996 .996 .996 .996 .415
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders.... .334 .376 .255 .282 .132
Distributions from Net
Realized Gain on Securities
(Note 1):
Paid to Common
Shareholders.............. .025 -0- .033 .010 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders.... .010 -0- .009 .003 -0-
------- ------- ------- ------- -------
Total Distributions............. 1.365 1.372 1.293 1.291 .547
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................ $16.933 $16.954 $15.017 $17.889 $14.914
======= ======= ======= ======= =======
Market Price Per Share at End of
the Period.................... $15.625 $15.000 $12.875 $17.250 $15.000
Total Investment Return at
Market Price (b).............. 11.14% 24.53% (20.21%) 22.29% 2.72%*
Total Return at Net Asset
Value (c)..................... 6.10% 20.03% (10.65%) 27.39% 2.56%*
Net Assets at End of the Period
(In millions)................. $195.7 $195.8 $181.4 $202.8 $180.6
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares........................ 1.69% 1.67% 1.66% 1.60% 1.53%
Ratio of Expenses to Average Net
Assets........................ 1.08% 1.05% 1.06% 1.02% 1.09%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common
Shares (d).................... 5.76% 5.83% 6.45% 6.25% 5.09%
Portfolio Turnover.............. 4% 5% 5% 4% 4%*
</TABLE>
(a) Net asset value at March 27, 1992, is adjusted for common and preferred
share offering costs of $.237 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 the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
See Notes to Financial Statements
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Trust for Investment Grade Pennsylvania Municipals
(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 substantially all of its assets in Pennsylvania
municipal securities rated investment grade at the time of investment. The Trust
commenced investment operations on March 27, 1992.
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. At October 31, 1996, there were no
when issued or delayed delivery purchase commitments.
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.
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL EXPENSES--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization in the amount of $25,000. These costs
are being amortized on a straight line basis over the 60 month period ending
March 26, 1997. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Trust
originally purchased by VKAC are redeemed during the amortization period, the
Trust will be reimbursed for any unamortized organizational expenses in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains which are included as ordinary income for tax
purposes.
For the year ended October 31, 1996, 100% of the income distributions made
by the Trust were exempt from federal income taxes. Additionally during the
period, the Trust paid long-term capital gains of $262,471. In January, 1997,
the Trust will provide tax information to shareholders for the 1996 calendar
year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .65% of the average net assets of the Trust. In addition, the Trust
will pay a monthly administrative fee to VKAC, the Trust's Administrator, at an
annual rate of .20% of the average net assets of the Trust. The administrative
services provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and preferred shares and
providing certain services to shareholders.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
For the year ended October 31, 1996, the Trust recognized expenses of
approximately $15,300 representing VKAC's cost of providing accounting and legal
services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At October 31, 1996, VKAC owned 6,700 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $8,091,868 and $9,917,007, respectively.
4. PREFERRED SHARES
The Trust has outstanding 1,400 Auction Preferred Shares ("APS"). Dividends are
cumulative and the dividend rate is currently reset every 28 days through an
auction process. The rate in effect on October 31, 1996, was 3.43%. During the
year ended October 31, 1996, the rates ranged from 3.390% to 4.625%.
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.
5. SUBSEQUENT EVENT
The Trust declared a long-term capital gain distribution of $.00108 per common
share to shareholders of record on December 13, 1996 which will be payable on
December 31, 1996.
14
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Trust for Investment Grade Pennsylvania Municipals:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Trust for Investment Grade Pennsylvania Municipals (the
"Trust"), including the portfolio of investments, as of October 31, 1996, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital Trust for Investment Grade Pennsylvania Municipals as of
October 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 11, 1996
15
<PAGE> 17
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, of if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
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
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-
8200. If you withdraw, you will receive, without charge, a share certificate
issued in your name for all full Common Shares credited to your account under
the Plan and a cash payment will be made for any fractional Common Share
credited to your account under the Plan. You may again elect to participate in
the Plan at any time by calling 1-800-341-2929 or writing to the Trust at:
Van Kampen American Capital
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
16
<PAGE> 18
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE PENNSYLVANIA MUNICIPALS
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND
TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
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., 1996 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
RESULTS OF SHAREHOLDER VOTES
An Annual Meeting of Shareholders of the Trust was held on May 23, 1996, where
shareholders voted on the election of trustees and the selection of independent
public accountants. With regard to the election of David C. Arch as elected
trustee by the common shareholders of the Trust, 5,272,361 shares voted in his
favor, 71,386 withheld. With regard to the election of Howard J Kerr as elected
trustee by the common shareholders of the Trust, 5,273,433 shares voted in his
favor, 70,314 withheld. With regard to the election of Dennis J. McDonnell as
elected trustee by the common shareholders of the Trust, 5,274,661 shares voted
in his favor, 69,086 withheld. With regard to the ratification of KPMG Peat
Marwick LLP as independent public accountants for the Trust, 5,240,214 voted in
favor, 40,931 voted against and 63,732 abstained.
A Special Meeting of Shareholders of the Trust was held on October 23, 1996,
where shareholders voted on a new investment advisory agreement and changes to
investment policies. With regard to the approval of a new investment advisory
agreement between Van Kampen American Capital Investment Advisory Corp. and the
Trust, 5,654,842 shares voted for the proposal, 103,583 voted against and
192,518 abstained. With regard to the approval of certain changes to the Trust's
fundamental investment policies with respect to investment in other investment
companies, 3,484,130 shares voted for the proposal, 166,181 voted against and
201,486 abstained.
17
