<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 5
Portfolio of Investments......................... 6
Statement of Assets and Liabilities.............. 9
Statement of Operations.......................... 10
Statement of Changes in Net Assets............... 11
Financial Highlights............................. 12
Notes to Financial Statements.................... 13
Report of Independent Accountants................ 16
Dividend Reinvestment Plan....................... 17
</TABLE>
VTP ANR 12/97
<PAGE> 2
LETTER TO SHAREHOLDERS
December 4, 1997
Dear Shareholder,
In the past year, we have been
participants in and witnesses to two
mergers that we believe have positioned
our company at the forefront of the
financial industry's evolution. Our [PHOTO]
latest announcement continues our
forward progress. I am pleased to
announce that Philip N. Duff, formerly
the chief financial officer of Morgan
Stanley, has joined Van Kampen American
Capital as president and chief DENNIS J. MCDONNELL AND DON G. POWELL
executive officer. I will continue as
chairman of the firm. Together, we will continue to work to the benefit of our
fund shareholders as Van Kampen American Capital advances toward the next
century.
ECONOMIC REVIEW
The last quarter of 1996 brought renewed strength and rumblings of
inflation, which continued to feed investors' uncertainties about the direction
of interest rates. This was reflected in the volatility of taxable yields, with
the 30-year Treasury ranging from a high of 6.70 percent to a low of 6.35
percent, and ending the period at 6.64 percent.
The bond market advanced in price during the first 10 months of 1997, but
its ascension was not a smooth ride. Bond prices fell early in the period as
economic growth soared, fueling concerns about rising inflation and a potential
interest rate hike by the Federal Reserve Board. When the Fed did raise interest
rates by a modest 0.25 percent in late March, bond prices fell further, sending
the yield of the 30-year U.S. Treasury bond above 7.0 percent for the first time
in six months. By mid-April, however, the market's mood had changed, reflecting
few signs of price pressures despite the economy's strength. Bonds also
benefited from continued heavy purchases by foreign investors and concerns that
the stock market rally was nearing an end. The 7.0 percent slump in the Dow
Jones Industrial Average on October 27 reinforced the benefit of owning bonds
for diversification. By the end of October, the yield on the 30-year Treasury
bond was near its lowest level in 20 months, at 6.15 percent.
Throughout 1997, municipal bond prices moved in the same direction as the
Treasury bond market, but gained less when Treasury prices rallied and lost less
when Treasuries fell. Between December 31, 1996 and October 31, 1997, the yield
on the long-term municipal revenue bond index fell 36 basis points as the yield
on the 30-year Treasury bond fell 48 basis points. Because yields move in the
opposite direction of prices, the smaller yield decline of municipal bonds
indicates that their prices did not rise as much as Treasuries.
In Pennsylvania, the economy grew at a modest rate, exceeding expectations.
By the end of the state's fiscal year, general fund surpluses were more than
double the level that
Continued on page two
1
<PAGE> 3
had been forecasted. As a result, we upgraded our outlook for the Commonwealth's
economy from negative to stable.
[PIE CHART]
Portfolio Composition by Credit Quality*
as of October 31, 1997
<TABLE>
<S> <C>
AAA................... 81.5%
AA.................... 11.3%
A..................... 3.1%
BBB................... 2.7%
BB.................... 1.4%
</TABLE>
* As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as issued by Standard & Poor's
or Moody's.
TRUST STRATEGY
In managing the Trust, we used the following strategies:
We maintained a portfolio heavily weighted toward high-quality bonds. The
high concentration in AAA-rated securities reflects the proliferation of insured
bonds, which currently comprise well over half of new issues in the municipal
bond market and about 70 percent of new issues in Pennsylvania. Bonds rated AAA
are extremely liquid and carry minimal credit risk. When interest rates fall, as
they did for most of the second half of the fiscal year, AAA-rated bonds tend to
outperform lower-rated securities. Bonds rated BBB, the lowest investment grade
credit rating assigned by Standard & Poor's, or below BBB tend to perform better
when rates are rising, and have the potential to provide additional income.
Portfolio turnover during the fiscal year was minimal due to market
conditions that afforded few opportunities to add value to existing holdings.
Supplies of new municipal bond issues in Pennsylvania were limited, and the
average yield of bonds in the Trust's portfolio was higher than average market
yields. As a result, there was little incentive to replace bonds in the
portfolio, because such trades would have reduced the Trust's dividend-paying
ability.
Trading was also restrained due to tight spreads between yields of AAA-rated
bonds and lower-rated securities. These spreads have compressed to historically
narrow levels due to the increasing number of insured bonds in the municipal
market. In such an environment, it is difficult to justify purchasing
lower-rated securities and assuming additional credit risk. Attempting to reduce
credit risk also helps to offset market risk the Trust might face as a result of
its leveraged structure.
Trades that we initiated during the second half of the period focused on
enhancing the Trust's call protection. In other words, we tried to limit the
number of bonds that could be "called" at any one time. As a result, we
purchased new long-term discount securities that will not be callable for at
least 10 years. A discount bond sells for a price below its face value, which is
also known as its par value. These bonds also helped to enhance the price
appreciation of the Trust during the second half of the fiscal year, when
interest
Continued on page three
2
<PAGE> 4
rates declined. Approximately 14 percent of bonds in the current portfolio have
been prerefunded, which means they will be redeemed at their first call date. In
the meantime, they trade as if they are short-term securities, with lower yields
and less potential price appreciation than other long-term bonds. These holdings
are viewed as sales candidates with the proceeds used to purchase discount bonds
with longer calls.
When searching for new securities for the Trust's portfolio, we try to
identify bonds that we believe will outperform within a particular sector and
that can be purchased at an attractive price. We believe this "bottom-up"
approach, supported by our research, provides significant added value to the
portfolio.
During the second half of the fiscal year, the duration of the portfolio
declined slightly due to the market rally, which caused some bonds to trade to
their call dates rather than their maturity dates. Duration, which is expressed
in years, is a measure of a portfolio's sensitivity to interest rate movements.
Portfolios with long durations tend to perform better when interest rates are
declining, which was the case the second half of the fiscal year. Conversely,
portfolios with short durations tend to do better when rates are rising. While
interest rates declined, the portfolio's shorter duration hindered the Trust's
performance, but its leveraged structure worked to the Trust's benefit. As of
October 31, the duration of the Trust's bond portfolio stood at 6.24 years,
compared to 7.34 years for the Lehman Brothers Municipal Bond Index. Because of
the longer-term nature of the Trust, the calculation of this index's duration
has been adjusted to eliminate bonds with maturities of five years or less.
Efforts going forward will be made to lengthen duration closer to the index.
Top Five Portfolio Industry Holdings by Sector as of October 30, 1997*
Health Care....................... 24.6%
General Purpose................... 17.4%
Public Education.................. 13.0%
Water & Sewer...................... 9.2%
Higher Education................... 6.3%
*As a percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the one-year period ended October 31, 1997, the Van Kampen American
Capital Trust for Investment Grade Pennsylvania Municipals generated a total
return at market price of 11.80 percent(1). The Trust offered a tax-exempt
distribution rate of 5.91 percent(3), based on the closing common stock price on
October 31, 1997. At the end of the reporting period, the closing share price of
the Trust traded at $16.4375, a 5.9 percent discount to its net asset value of
$17.47. Because income from the Trust is exempt from federal and Pennsylvania
income taxes, this distribution rate represents a yield equivalent to a taxable
investment earning 9.50 percent(4) (for investors in the combined 37.8 federal
and state income tax bracket).
Due to declining interest rates and a number of positions that were called
from the Trust, the earnings power of the Trust declined. As a result, the Board
of Trustees approved a decrease in its monthly dividend from $0.0830 to $0.0810
per common share payable March 31, 1997. The Trust declared a capital gains
distribution of $0.0011 per share paid December 31, 1996, as a result of the
sale of some assets that had appreciated in value.
Continued on page four
3
<PAGE> 5
Twelve-month Dividend History
For the Period Ended October 31, 1997
Distribution per Common Share
<TABLE>
<CAPTION>
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
1996 1996 1997 1997 1997 1997 1997 1997 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Gains
Dividends $.0830 $.0841 $.0830 $.0830 $.0810 $.0810 $.0810 $.0810 $.0810 $.0810 $.0810 $.0810
</TABLE>
The distribution history represents past performance of the Trust and does not
predict the Trust's future distributions.
OUTLOOK
We expect the economy to remain strong in the coming months, although the
growth rate might slow to a more moderate pace. The weakness in the Far East,
which was the impetus for the recent volatility in world stock markets, will
most likely reduce U.S. exports to the region. In turn, this could trim U.S.
economic growth as well as the earnings of many U.S. companies. As a result, we
believe there is little chance that the Fed will raise interest rates in the
coming months. A rate hike reemerges as a possibility if inflation picks up, or
if growth continues at its current brisk pace.
As a result of this outlook, we expect that the yield on the 30-year
Treasury bond will trade within a range of 5.75 percent and 6.50 percent for the
next six months, possibly falling further in mid-1998. A decline in rates would
not only boost the prices of long-term investments in the portfolio, but could
also positively affect the Trust as a result of its leveraged structure. That
structure, which involves borrowing short-term funds to purchase long-term
municipal bonds, provides common shareholders with above-market levels of
dividend income. It should be noted, however, that if short-term rates rise,
borrowing costs would increase; this would negatively impact the income and
performance of common shares.
We will continue to seek a balance between the Trust's total return and its
dividend income, and to add value through our investment strategies and bond
selection. Thank you for your continued confidence in Van Kampen American
Capital and your Trust's portfolio manager.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page five
4
<PAGE> 6
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1997
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)............ 11.80%
One-year total return based on NAV(2)..................... 9.26%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 5.91%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 9.50%
SHARE VALUATIONS
Net asset value........................................... $ 17.47
Closing common stock price................................ $16.4375
One-year high common stock price (09/30/97)............... $ 16.750
One-year low common stock price (04/21/97)................ $ 15.125
Preferred share rate(5)................................... 3.550%
</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.
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 99.1%
PENNSYLVANIA 94.1%
$1,000 Allegheny Cnty, PA Arpt Rev Rfdg Amt Pittsburgh
Intl Arpt A (MBIA Insd).......................... 5.750% 01/01/10 $ 1,072,390
9,000 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)............................ 6.625 01/01/22 9,714,420
1,000 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt USX Corp Proj Rfdg............ 6.100 07/15/20 1,044,490
1,090 Allegheny Cnty, PA Residential Fin Auth Mtg Rev
Single Family (GNMA Collateralized).............. 7.100 05/01/24 1,156,872
1,755 Allegheny Cnty, PA San Auth Swr Rev (FGIC
Insd)............................................ * 12/01/15 675,517
1,000 Allegheny Cnty, PA San Auth Swr Rev Ser C
(Prerefunded @ 12/01/01)(FGIC Insd).............. 6.500 12/01/16 1,086,810
4,070 Armstrong Cnty, PA Hosp Auth Hlth Cent Rev
Canterbury Pl Proj Rfdg (MBIA Insd).............. 6.500 12/01/21 4,351,563
2,675 Armstrong Cnty, PA Hosp Auth Hosp Rev Armstrong
Cnty Mem Hosp Ser A.............................. 7.500 11/01/16 2,831,621
2,000 Armstrong Cnty, PA Hosp Auth Hosp Rev Saint
Francis Med Cent Proj A Rfdg (AMBAC Insd)........ 6.250 06/01/13 2,159,580
1,310 Bangor, PA Area Sch Dist (AMBAC Insd)............ 5.375 03/01/15 1,323,729
1,000 Beaver Cnty, PA Hosp Auth Rev Med Cent of Beaver
Cnty Inc (AMBAC Insd)............................ 6.625 07/01/10 1,095,840
5,000 Berks Cnty, PA Muni Auth Rev Highlands at
Wyomissing Proj B................................ 6.875 10/01/17 5,385,900
3,000 Bethleham, PA Auth Wtr Rev (Prerefunded @
11/15/01) (MBIA Insd)............................ 6.250 11/15/21 3,230,250
2,880 Blair Cnty, PA Hosp Auth Rev Altoona Hosp Proj
(AMBAC Insd)..................................... 6.500 07/01/22 3,141,101
5,630 Blairsville-Saltsburg Sch Dist PA Ser 1992
(Prerefunded @ 05/15/02) (MBIA Insd)............. 6.500 05/15/16 6,149,030
5,000 Bristol Twp, PA Sch Dist Ser A (Prerefunded @
02/15/02) (MBIA Insd)............................ 6.625 02/15/12 5,545,250
1,200 Delaware Cnty, PA Cap Apprec Rfdg................ * 11/15/04 876,084
2,150 Delaware Cnty, PA Cap Apprec Rfdg................ * 11/15/05 1,489,284
1,565 Delaware Cnty, PA Cap Apprec Rfdg................ * 11/15/07 979,768
1,000 Delaware Cnty, PA Cap Apprec Rfdg................ * 11/15/08 591,100
1,665 Delaware Cnty, PA Cap Apprec Rfdg................ * 11/15/09 927,438
815 Delaware Cnty, PA Cap Apprec Rfdg................ * 11/15/10 426,970
1,270 Delaware Cnty, PA Cap Apprec Rfdg................ * 11/15/11 624,548
1,030 Delaware Cnty, PA Cap Apprec Rfdg................ * 11/15/12 478,033
1,800 Exeter Twp, PA Sch Dist (FGIC Insd).............. * 11/15/13 781,524
5,200 Falls Twp, PA Hosp Auth Hosp Rev Delaware Vly Med
Rfdg (FHA Gtd)................................... 7.000 08/01/22 5,668,104
4,000 Franklin Cnty, PA Indl Dev Auth Hosp Rev
Chambersburg Hosp Proj (FGIC Insd)............... 6.250 07/01/22 4,248,360
2,500 Governor Mifflin PA Sch Dist (Prerefunded @
02/01/02) (AMBAC Insd)........................... 6.500 02/01/13 2,716,925
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,500 Interboro Sch Dist PA Delaware Cnty Rfdg
(Prerefunded @ 10/01/02) (MBIA Insd)............. 6.600% 10/01/12 $ 2,772,700
5,250 Lancaster Cnty, PA Hosp Auth Rev Lancaster Genl
Hosp Proj Rfdg (AMBAC Insd)...................... 6.125 07/01/12 5,501,580
1,600 Lancaster, PA Higher Edl Auth College Rev
Franklin & Marshall College Proj (MBIA Insd)..... 6.700 04/15/12 1,737,280
2,715 Langhorn Manor Boro, PA Higher Edl & Hlth Auth
Rev Woods Sch (Connie Lee Insd).................. 6.500 11/15/14 2,906,869
4,000 Lehigh Cnty, PA Genl Purp Auth Rev Good Shepherd
Rehab Hosp (Prerefunded @ 11/15/01).............. 7.500 11/15/21 4,547,600
2,000 Lehigh Cnty, PA Genl Purp Auth Rev Lehigh Vly
Hosp Inc Ser A Rfdg (MBIA Insd).................. 6.500 07/01/10 2,181,320
1,000 Lower Providence Twp, PA Swr Auth Swr Rev
(Prerefunded @ 05/01/02)......................... 6.750 05/01/22 1,098,630
2,000 Luzerne Cnty, PA Ser B (FGIC Insd)............... 6.000 09/15/11 2,060,840
4,250 Media Boro, PA Gtd Wtr Rev Rfdg (MBIA Insd)...... 6.600 01/01/22 4,647,417
3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Abington Hosp (AMBAC Insd)................... 6.000 06/01/16 3,142,920
1,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj.................. 7.350 11/15/05 1,083,850
1,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Pottstown Mem Med Cent Proj.................. 6.875 11/15/20 1,061,490
4,500 Montgomery Cnty, PA Higher Edl & Hlth Auth Rev
Saint Josephs Univ (Connie Lee Insd)............. 6.500 12/15/22 4,924,800
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn Ctl
Ser E Rfdg (MBIA Insd)........................... 6.700 12/01/21 1,093,150
5,000 North Allegheny, PA Sch Dist Ser A Rfdg (AMBAC
Insd)............................................ 6.350 11/01/12 5,398,450
1,000 North Penn, PA Wtr Auth Wtr Rev (Prerefunded @
11/01/04) (FGIC Insd)............................ 6.875 11/01/19 1,154,770
350 Northeastern York Cnty, PA Sch Dist Ser B (FGIC
Insd)............................................ * 09/01/09 195,783
500 Northeastern York Cnty, PA Sch Dist Ser B (FGIC
Insd)............................................ * 03/01/10 269,645
885 Northeastern York Cnty, PA Sch Dist Ser B (FGIC
Insd)............................................ * 09/01/10 465,466
500 Northeastern York Cnty, PA Sch Dist Ser B (FGIC
Insd)............................................ * 03/01/11 253,165
4,820 Northhampton Cnty, PA Hosp Auth Rev Easton Hosp
Ser A Rfdg (MBIA Insd)........................... 6.250 01/01/11 5,209,167
9,000 Northumberland Cnty, PA Auth Comwlth Lease Rev
Correctional Fac (MBIA Insd)..................... * 10/15/11 4,405,500
2,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D................................ 7.050 12/01/10 2,198,280
5,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
34B (FHA Gtd).................................... 7.000 04/01/24 5,314,250
1,750 Pennsylvania Infrastructure Invt Auth Rev
Pennvest Subser B................................ 6.800 09/01/10 1,924,667
2,750 Pennsylvania Intergvtl Coop Auth Spl Tax Rev City
of Philadelphia Funding Pgm (Prerefunded @
06/15/02)........................................ 6.800 06/15/12 3,041,912
6,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev City
of Philadelphia Funding Pgm (MBIA Insd).......... 5.600 06/15/15 6,108,900
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$5,700 Pennsylvania St Higher Edl Assistance Agy Student
Ln Rev Ser C (AMBAC Insd)........................ 6.400% 03/01/22 $ 5,886,903
2,660 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Temple Univ First Ser (MBIA Insd)....... 6.500 04/01/21 2,874,955
3,000 Pennsylvania St Ser 1............................ 6.375 09/15/12 3,245,430
1,020 Pennsylvania St Ser A (Prerefunded @ 11/15/01)... 6.500 11/15/10 1,120,633
5,000 Philadelphia, PA Gas Wks Rev 14th Ser (FSA
Insd)............................................ 6.250 07/01/08 5,489,600
750 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Frankford Hosp Rfdg (Connie Lee Insd)........ 5.750 01/01/19 769,268
500 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Temple Univ Hosp Ser A....................... 6.625 11/15/23 540,325
2,980 Philadelphia, PA Redev Auth Hsg Rev Rfdg (GNMA
Collateralized).................................. 6.875 02/01/24 3,171,763
500 Pittsburgh, PA Urban Redev Mtg Ser C Rfdg........ 6.500 10/01/23 529,455
1,710 Pottstown Boro, PA Auth Swr Rev Gtd (FGIC
Insd)............................................ * 11/01/13 743,953
750 Reading, PA (Prerefunded @ 11/15/02) (AMBAC
Insd)............................................ 6.500 11/15/12 825,983
5,000 Saint Mary Hosp Auth Bucks Cnty, PA Rev
Franciscan Hlth Saint Mary Ser A (MBIA Insd)..... 6.500 07/01/22 5,453,300
2,220 Silver Spring Twp Auth, PA Swr Rev Gtd (FGIC
Insd)............................................ 6.700 07/15/21 2,353,955
1,035 Unity Twp, PA Muni Auth Gtd Swr Rev Cap Apprec
(AMBAC Insd)..................................... * 11/01/15 400,141
1,750 West Allegheny, PA Sch Dist Ser AA (AMBAC
Insd)............................................ 6.250 02/01/14 1,864,887
7,090 Westmoreland Cnty, PA (AMBAC Insd)............... * 08/01/15 2,770,276
3,545 Westmoreland Cnty, PA (AMBAC Insd)............... * 08/01/16 1,301,759
7,090 Westmoreland Cnty, PA (AMBAC Insd)............... * 08/01/17 2,444,490
2,000 Wilkinsburg, PA Jt Wtr Auth Wtr Rev Ser B (AMBAC
Insd)............................................ * 08/15/12 931,380
1,670 Yough Sch Dist, PA Cap Apprec (MBIA Insd)........ * 10/01/14 687,021
------------
187,878,379
------------
PUERTO RICO 5.0%
6,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser T
(Prerefunded @ 07/01/02)......................... 6.500 07/01/22 6,667,860
2,000 Puerto Rico Comwlth Pub Impt (Prerefunded @
07/01/02)........................................ 6.800 07/01/21 2,247,840
1,000 Puerto Rico Pub Bldgs Auth Rev Gtd Ser K
(Prerefunded @ 07/01/02)......................... 6.875 07/01/21 1,127,070
------------
10,042,770
------------
TOTAL INVESTMENTS 99.1%
(Cost $178,391,191)......................................................... 197,921,149
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%................................... 1,737,180
------------
NET ASSETS 100.0%............................................................ $199,658,329
============
</TABLE>
*Zero coupon bond
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $178,391,191)....................... $197,921,149
Interest Receivable......................................... 3,353,782
Other....................................................... 1,877
------------
Total Assets.......................................... 201,276,808
------------
LIABILITIES:
Payables:
Custodian Bank............................................ 1,221,872
Investment Advisory Fee................................... 109,872
Income Distributions--Common and Preferred Shares......... 89,749
Administrative Fee........................................ 33,807
Affiliates................................................ 7,381
Accrued Expenses............................................ 83,376
Trustees Deferred Compensation and Retirement Plans......... 72,422
------------
Total Liabilities..................................... 1,618,479
------------
NET ASSETS.................................................. $199,658,329
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 1,400 issued with liquidation preference of
$50,000 per share)........................................ $ 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................................. 19,529,958
Accumulated Undistributed Net Investment Income............. 546,592
Accumulated Net Realized Gain............................... 84,469
------------
Net Assets Applicable to Common Shares................ 129,658,329
------------
NET ASSETS.................................................. $199,658,329
============
NET ASSET VALUE PER COMMON SHARE ($129,658,329 divided
by 7,420,972 shares outstanding).......................... $ 17.47
============
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $11,763,510
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,278,336
Administrative Fee.......................................... 393,334
Preferred Share Maintenance................................. 186,103
Trustees' Fees and Expenses................................. 27,076
Legal....................................................... 14,815
Custody..................................................... 12,796
Amortization of Organizational Costs........................ 2,001
Other....................................................... 164,372
-----------
Total Expenses.......................................... 2,078,833
-----------
NET INVESTMENT INCOME....................................... $ 9,684,677
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 84,469
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 15,506,082
End of the Period......................................... 19,529,958
-----------
Net Unrealized Appreciation During the Period............... 4,023,876
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 4,108,345
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $13,793,022
===========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 9,684,677 $ 9,677,648
Net Realized Gain....................................... 84,469 10,791
Net Unrealized Appreciation During the Period........... 4,023,876 288,963
------------ ------------
Change in Net Assets from Operations.................... 13,793,022 9,977,402
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (7,272,240) (7,391,361)
Preferred Shares...................................... (2,510,697) (2,480,595)
------------ ------------
(9,782,937) (9,871,956)
------------ ------------
Distributions from Net Realized Gain:
Common Shares......................................... (8,015) (187,473)
Preferred Shares...................................... (2,776) (74,998)
------------ ------------
(10,791) (262,471)
------------ ------------
Total Distributions..................................... (9,793,728) (10,134,427)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 3,999,294 (157,025)
NET ASSETS:
Beginning of the Period................................. 195,659,035 195,816,060
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $546,592 and $644,852,
respectively)......................................... $199,658,329 $195,659,035
============ ============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 27, 1992
(Commencement
Year Ended October 31 of Investment
-------------------------------------------------- Operations) to
1997 1996 1995 1994 1993 October 31, 1992
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period (a)................ $ 16.933 $16.954 $15.017 $17.889 $14.914 $14.763
-------- ------- ------- ------- ------- -------
Net Investment Income....... 1.305 1.304 1.312 1.327 1.324 .598
Net Realized and Unrealized
Gain/Loss................. .553 .040 1.997 (2.906) 2.942 .100
-------- ------- ------- ------- ------- -------
Total from Investment
Operations.................. 1.858 1.344 3.309 (1.579) 4.266 .698
-------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders............ .980 .996 .996 .996 .996 .415
Common Share Equivalent of
Distributions Paid to
Preferred
Shareholders............ .338 .334 .376 .255 .282 .132
Distributions from Net
Realized Gain:
Paid to Common
Shareholders............ .001 .025 -0- .033 .010 -0-
Common Share Equivalent of
Distributions Paid to
Preferred
Shareholders............ -0- .010 -0- .009 .003 -0-
-------- ------- ------- ------- ------- -------
Total Distributions........... 1.319 1.365 1.372 1.293 1.291 .547
-------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $ 17.472 $16.933 $16.954 $15.017 $17.889 $14.914
======== ======= ======= ======= ======= =======
Market Price Per Share at End
of the Period............... $16.4375 $15.625 $15.000 $12.875 $17.250 $15.000
Total Investment Return at
Market Price (b)............ 11.80% 11.14% 24.53% (20.21%) 22.29% 2.72%*
Total Return at Net Asset
Value (c)................... 9.26% 6.10% 20.03% (10.65%) 27.39% 2.56%*
Net Assets at End of the
Period (In millions)........ $199.7 $195.7 $195.8 $181.4 $202.8 $180.6
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares............... 1.64% 1.69% 1.67% 1.66% 1.60% 1.53%
Ratio of Expenses to Average
Net Assets.................. 1.06% 1.08% 1.05% 1.06% 1.02% 1.09%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common
Shares (d).................. 5.66% 5.76% 5.83% 6.45% 6.25% 5.09%
Portfolio Turnover............ 2% 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
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- --------------------------------------------------------------------------------
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, 1997, 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.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL COSTS--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
were amortized on a straight line basis over the 60 month period ended March 26,
1997.
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.
At October 31, 1997, for federal income tax purposes, cost of long-term
investments is $178,391,191; the aggregate gross unrealized appreciation is
$19,529,958 and the aggregate gross unrealized depreciation is $0, resulting in
net unrealized appreciation of $19,529,958.
F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to common shareholders. 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, 1997, 99.98% of the Income distributions made
by the Trust were exempt from federal Income taxes. Additionally, during the
period, the Trust paid a 28% rate gain distribution of $10,791. In January,
1998, the Trust will provide tax information to shareholders for the 1997
calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
investment advice and facilities to the Trust for an annual fee payable monthly
of .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.
For the year ended October 31, 1997, the Trust recognized expenses of
approximately $2,700 representing legal services provided by Skadden, Arps,
Slate,
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of the Trust
is an affiliated person.
For the year ended October 31, 1997, the Trust recognized expenses of
approximately $62,300 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 provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. 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 to the Trust. The maximum annual
benefit under the plan is equal to the trustee's annual retainer fee, which is
currently $2,500.
At October 31, 1997, VKAC owned -0- 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 $4,705,348 and $4,883,938, 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, 1997, was 3.55%. During the
year ended October 31, 1997, the rates ranged from 3.350% to 4.025%.
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. CAPITAL GAIN DISTRIBUTION
On December 1, 1997, the Trust declared a capital gain of $0.0084 per common
share, of which 17.9% is long-term and 82.1% is short-term, to common
shareholders of record on December 15, 1997 which will be payable on December
31, 1997.
15
<PAGE> 17
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, 1997, 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, 1997, 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, 1997, 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, 1997
16
<PAGE> 18
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
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
17
<PAGE> 19
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds or
Morgan Stanley funds.
18
<PAGE> 20
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 (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
19
<PAGE> 21
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on May 28, 1997,
where shareholders voted on a new investment advisory agreement, the election of
Trustees whose terms expired in 1997 and the selection of independent public
accountants.
1) With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Trust,
6,068,782 shares voted for the proposal, 92,016 shares voted against, 285,421
shares abstained and 0 shares represented broker non-votes.
2) With regard to the election of Rod Dammeyer as elected trustee by the
preferred shareholders of the Trust 1,029 shares voted in favor and 1 share
withheld.
3) With regard to the election of Wayne W. Whalen as elected trustee by the
common shareholders of the Trust 6,308,479 shares voted in favor and 136,710
shares withheld.
4) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for the Trust, 6,302,641 shares voted for the proposal,
46,332 shares voted against, 97,246 shares abstained and 0 shares represented
broker non-votes.
20
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 178,391,191
<INVESTMENTS-AT-VALUE> 197,921,149
<RECEIVABLES> 3,353,782
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,877
<TOTAL-ASSETS> 201,276,808
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,618,479
<TOTAL-LIABILITIES> 1,618,479
<SENIOR-EQUITY> 70,000,000
<PAID-IN-CAPITAL-COMMON> 109,497,310
<SHARES-COMMON-STOCK> 7,420,972
<SHARES-COMMON-PRIOR> 7,420,972
<ACCUMULATED-NII-CURRENT> 546,592
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 84,469
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,529,958
<NET-ASSETS> 199,658,329
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,763,510
<OTHER-INCOME> 0
<EXPENSES-NET> (2,078,833)
<NET-INVESTMENT-INCOME> 9,684,677
<REALIZED-GAINS-CURRENT> 84,469
<APPREC-INCREASE-CURRENT> 4,023,876
<NET-CHANGE-FROM-OPS> 13,793,022
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,782,937)
<DISTRIBUTIONS-OF-GAINS> (10,791)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,999,294
<ACCUMULATED-NII-PRIOR> 644,852
<ACCUMULATED-GAINS-PRIOR> 10,791
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,278,336
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,078,833
<AVERAGE-NET-ASSETS> 126,767,593
<PER-SHARE-NAV-BEGIN> 16.933
<PER-SHARE-NII> 1.305
<PER-SHARE-GAIN-APPREC> 0.553
<PER-SHARE-DIVIDEND> (1.318)
<PER-SHARE-DISTRIBUTIONS> (0.001)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.472
<EXPENSE-RATIO> 1.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
