<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
Statement of Assets and Liabilities.............. 7
Statement of Operations.......................... 8
Statement of Changes in Net Assets............... 9
Financial Highlights............................. 10
Notes to Financial Statements.................... 11
</TABLE>
VAP SAR 6/96
<PAGE> 2
LETTER TO SHAREHOLDERS
May 15, 1996
Dear Shareholder,
While interest rates drifted
downward during the fourth quarter of
last year, such was not the case in the
first quarter of 1996. Early in the
quarter, municipal bond prices
demonstrated increased volatility in [PHOTO]
conjunction with February's economic
announcements, which revealed a revival
in economic growth, impressive DENNIS J. MCDONNELL AND DON G. POWELL
employment levels, and moderate
inflation. This positive economic
environment, however, did not translate
into positive movement for the bond markets. Instead, the markets became wary,
because inflation often accompanies economic growth.
Other factors influencing the municipal bond market early in the year
included:
- Intense weather conditions, which hindered distribution and manufacturing,
were experienced by much of the United States and affected certain
municipal bond sectors.
- The expectation that a federal budget agreement was forthcoming helped
bolster municipal bonds, especially at the longer end of the spectrum.
- The proposal of tax reform--and the threat of municipal bonds having
diminished tax-exempt status--continued to dampen demand for municipals,
resulting in lower bond prices.
We believe the beginning of 1996 reflected the market's reaction to the
possibility of a return to long-term economic growth. This, coupled with
continued low inflationary conditions, has served to put the Federal Reserve
Board in a neutral policy mode, bringing relative calm to the market--although
currently at higher interest rate levels.
PERFORMANCE SUMMARY
The Van Kampen American Capital Advantage Pennsylvania Municipal Income
Trust's (ticker symbol VAP) common stock price was up 7 percent during the
six-month period, closing at $15.00, while the general municipal bond market was
down 4 percent for the same period, according to the Bond Buyer's 40 Municipal
Bond Index.
For the six months ended April 30, 1996, the Trust achieved a total return
of 10.45 percent(1), based on market price. Longer term, the Trust achieved a
one-year total return of 13.92 percent(1), based on market price for the period
ended April 30, 1996, including reinvestment of dividends.
Continued on page two
1
<PAGE> 3
As a result of the Trust's improved earnings, the Trust's Board of Trustees
approved a slight increase in its monthly dividend from $0.0750 to $0.0775 per
common share which was effective December 1, 1995 and first payable December 31,
1995.
Many closed-end municipal bond funds are currently offering higher after-tax
yields than taxable income alternatives, and your Trust is no exception. Based
on the closing common stock price on April 30, 1996, the Advantage Pennsylvania
Municipal Income Trust had a tax-exempt distribution rate of 6.20 percent (3).
In other words, Pennsylvania residents in the 37.8 percent combined marginal
income tax bracket would have to earn a yield of 9.97 percent (4) on a taxable
investment to equal your Trust's tax-exempt distribution rate.
MARKET OUTLOOK
The economy rebounded in the first quarter of 1996, despite poor weather in
the East and the remnants of a slow fourth quarter of 1995, which was hindered
by weak construction activity, two government shutdowns, and a strike at Boeing.
We believe the momentum of the first quarter can carry into the second, due in
part to renewed auto production in the aftermath of the General Motors strike
and an end to the budget stalemate between the White House and Congress. We
expect a modest slowdown in the summer months, as higher interest rates could
slow activity in interest-sensitive sectors of the economy, such as housing.
Top 5 Portfolio Holdings by Industry as of April 30,
1996
Health Care....................... 26.7%
General Purpose................... 19.9%
Multi-Family Housing.............. 11.2%
Public Building................... 10.8%
Retail Electric/Gas/Telephone..... 10.8%
The Fed's protracted period of easing, and relatively neutral stance, favors
the growth we are currently experiencing. Given the strong employment situation
and commodity price increases, we think the Fed will await further economic
evidence before adjusting interest rates again--probably summertime at the
earliest. So far, guides such as the Consumer Price Index continue to indicate
modest levels of inflation. More importantly, we continue to see few signs of
emerging inflation in either unit labor costs, hourly earnings or the employment
cost index.
- --------------------------------------------------------------------------------
INVESTMENT TERM: REVENUE BONDS
Revenue bonds are one of the three most common types of municipal bonds--the
other two are general obligation bonds and municipal notes. Revenue bonds
are issued to finance income-generating projects such as turnpikes, toll
bridges and airports. The revenues these projects bring in are used to pay
interest and principal to bondholders.
- --------------------------------------------------------------------------------
Continued on page three
2
<PAGE> 4
Finally, as the November elections approach, the debate on tax reform may
grow. We believe the outcome in the long run will be positive, or at
worst neutral, for municipal bonds. That's good news for the market, which was
concerned that flat tax proposals could threaten the tax-exempt status of
municipal bonds. While the debate may not be over and legislation may be
forthcoming, the market should be more confident.
Indeed, we expect investor demand for municipal securities to exceed supply,
which should add price stability to the general market. And with municipal bond
yields currently at attractive levels relative to Treasuries, investor demand
for tax-exempt securities should increase.
In summary, our view of the general municipal market is positive. From the
decreasing likelihood of tax reform in the near term to specific market
conditions, we believe the market is on solid ground. With our dedication to
comprehensive research and long-term investment perspective, we believe your
Trust is in a position to benefit in the coming months.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of April 30, 1996
<TABLE>
<S> <C>
AAA...................... 81.2%
AA....................... 4.8%
A........................ 14.0%
</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.
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 APRIL 30, 1996
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE
PENNSYLVANIA MUNICIPAL INCOME TRUST
(NYSE TICKER SYMBOL--VAP)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
Six-month total return based on market price(1)........... 10.45%
Six-month total return based on NAV(2).................... .00%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................ 6.20%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)................................... 9.97%
SHARE VALUATIONS
Net asset value........................................... $ 16.24
Closing common stock price................................ $15.000
Six-month high common stock price (01/03/96).............. $15.500
Six-month low common stock price (11/02/95)............... $13.875
Preferred share rate(5)................................... 3.460%
</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
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
PENNSYLVANIA 90.5%
$2,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)........................... 6.625% 01/01/22 $ 2,572,250
3,250 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Dev Inc Proj Rfdg (MBIA Insd)................... 6.300 09/01/13 3,356,990
3,750 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Presbyterian Univ Ser A (MBIA Insd)............. 6.250 11/01/23 3,808,912
2,000 Allegheny Cnty, PA San Auth Swr Rev (FGIC
Insd)........................................... 6.000 12/01/12 2,042,220
1,400 Bensalem Twp, PA Wtr & Swr Rev Ser A (FSA
Insd)........................................... 6.500 12/01/14 1,458,660
5,000 Dauphin Cnty, PA Genl Auth Hosp Rev Hapsco
Western PA Hosp Proj B Rfdg (MBIA Insd)......... 6.250 07/01/16 5,116,500
3,000 Delaware Cnty, PA............................... 6.000 11/15/14 3,024,870
1,000 Delaware Cnty, PA Cap Apprec.................... * 11/15/10 429,930
1,045 Delaware Cnty, PA Cap Apprec.................... * 11/15/11 420,748
1,225 Delaware Cnty, PA Cap Apprec.................... * 11/15/12 461,458
3,050 Erie Cnty, PA Hosp Auth Rev Saint Vincent Hlth
Cent Proj Ser A (MBIA Insd)..................... 6.375 07/01/22 3,133,601
1,510 Lackawanna Cnty, PA Multi Purp Stad Auth Stad
Rev Gtd (FGIC Insd)............................. 6.150 08/15/05 1,604,858
1,380 Lackawanna Cnty, PA Multi Purp Stad Auth Stad
Rev Gtd (FGIC Insd)............................. 6.200 08/15/06 1,465,781
1,000 Lackawanna Cnty, PA Multi Purp Stad Auth Stad
Rev Gtd (FGIC Insd)............................. 6.300 08/15/07 1,062,490
4,500 Lehigh Cnty, PA Genl Purp Auth Rev Hosp
Muhlenberg Hosp Cent Ser A...................... 6.600 07/15/22 4,500,810
3,500 Lehigh Cnty, PA Indl Dev Auth Pollutn Ctl Rev PA
Pwr & Lt Co Proj Ser A Bfdg (MBIA Insd)......... 6.400 11/01/21 3,645,355
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/17 302,450
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/18 282,477
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/19 264,585
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/20 248,959
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/21 234,264
1,700 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Abington Hosp (AMBAC Insd).................. 6.000 06/01/16 1,690,089
3,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recovery........................................ 7.500 01/01/12 3,177,810
2,925 Moon Twp, PA Muni Auth Wtr & Swr Rev
(Prerefunded @ 12/01/02) (FSA Insd)............. 6.500 12/01/17 3,230,282
2,000 North Penn, PA Wtr Auth Wtr Rev (FGIC Insd)..... 6.200 11/01/22 2,046,280
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
47.............................................. 5.700 10/01/26 926,750
2,000 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia (Prerefunded @ 06/15/02)... 6.800 06/15/22 2,215,660
3,490 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia Funding Pgm (MBIA Insd).... 5.600 06/15/15 3,368,688
4,250 Philadelphia, PA Gas Wks Rev 12th Ser B (MBIA
Insd)........................................... 7.000 05/15/20 4,910,365
3,000 Philadelphia, PA Gas Wks Rev 14th Ser (FSA
Insd)........................................... 6.250 07/01/08 3,187,800
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$3,500 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Chestnut Hill Hosp.......................... 6.500% 11/15/22 $ 3,484,530
1,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Frankford Hosp Rfdg (Connie Lee Insd)....... 5.750 01/01/19 953,100
1,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Temple Univ Hosp Ser A...................... 6.625 11/15/23 1,021,210
2,885 Philadelphia, PA Redev Auth Fin Corp Mtg Rev
Multi Family Mtg Chinatown Ser B Rfdg (FNMA
Collateralized)................................. 6.750 09/01/22 2,956,490
4,275 Philadelphia, PA Redev Auth Fin Corp Mtg Rev
Multi Family Mtg Cobbs Creek Ser A Rfdg (FNMA
Collateralized)................................. 6.750 08/01/24 4,372,897
4,735 Philadelphia, PA Redev Auth Multi Family Hsg Rev
Mtg Washington Square Ser C Rfdg (FNMA
Collateralized)................................. 6.950 11/15/24 4,929,703
4,905 Philadelphia, PA Wtr & Swr Rev Cap Apprec 14th
Ser (MBIA Insd)................................. * 10/01/07 2,613,433
1,900 Scranton-Lackawanna, PA Hlth & Welfare Auth Rev
Cmnty Med Cent Proj (FGIC Insd)................. 7.000 07/01/19 2,040,980
4,800 Somerset Cnty, PA Genl Auth Comwlth Lease Rev
(Prerefunded @ 10/15/01) (FGIC Insd)............ 6.250 10/15/11 5,157,984
1,035 Unity Twp, PA Muni Auth Gtd Swr Cap Apprec
(AMBAC Insd).................................... * 11/01/14 344,169
1,560 University of Pittsburgh, PA Higher Edl Univ Cap
Proj Ser A (MBIA Insd).......................... 6.125 06/01/21 1,582,714
2,500 Upper Darby Twp, PA Rfdg (AMBAC Insd)........... 6.500 07/15/18 2,639,800
4,290 Westmoreland Cnty, PA Muni Auth Muni Svc Rev Ser
C (FGIC Insd)................................... 5.000 08/15/10 4,004,715
------------
100,293,617
------------
PUERTO RICO 7.9%
1,100 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser
T (Prerefunded @ 07/01/02)...................... 6.500 07/01/22 1,215,720
2,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser K Rfdg.................................. 6.600 07/01/04 2,126,420
1,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser M Rfdg....................................5.750 07/01/15 953,610
4,000 Puerto Rico Pub Bldgs Auth Rev Gtd Ser K
(Prerefunded @ 07/01/02)........................ 6.875 07/01/12 4,502,520
------------
8,798,270
------------
TOTAL LONG-TERM INVESTMENTS 98.4%
(Cost $103,409,786) (a)................................................... 109,091,887
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%................................. 1,753,247
------------
NET ASSETS 100%............................................................ $110,845,134
============
*Zero coupon bond
</TABLE>
(a) At April 30, 1996, cost for federal income tax purposes is $103,409,786; the
aggregate gross unrealized appreciation is $5,746,662 and the aggregate
gross unrealized depreciation is $64,561, resulting in net unrealized
appreciation of $5,682,101.
See Notes to Financial Statements
6
<PAGE> 8
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $103,409,786) (Note 1).............. $ 109,091,887
Receivables:
Interest........................................................... 2,165,634
Investments Sold................................................... 10,000
Unamortized Organizational Expenses (Note 1)....................... 7,011
Other.............................................................. 3,144
------------
Total Assets..................................................... 111,277,676
------------
LIABILITIES:
Payables:
Income Distributions - Common and Preferred Shares................. 139,372
Investment Advisory Fee (Note 2)................................... 59,153
Custodian Bank..................................................... 40,860
Administrative Fee (Note 2)........................................ 18,201
Accrued Expenses................................................... 136,386
Deferred Compensation and Retirement Plans (Note 2)................ 38,570
------------
Total Liabilities................................................ 432,542
------------
NET ASSETS............................................................. $ 110,845,134
===========
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 800
issued with liquidation preference of $50,000 per share) (Note 4).... $ 40,000,000
------------
Common Shares ($.01 par value with an unlimited number of shares
authorized, 4,361,902 shares issued and outstanding)................. 43,619
Paid in Surplus........................................................ 64,141,911
Net Unrealized Appreciation on Investments............................. 5,682,101
Accumulated Undistributed Net Investment Income........................ 1,144,457
Accumulated Net Realized Loss on Investments........................... (166,954)
------------
Net Assets Applicable to Common Shares............................. 70,845,134
------------
NET ASSETS............................................................. $ 110,845,134
===========
NET ASSET VALUE PER COMMON SHARE ($70,845,134 divided by
4,361,902 shares outstanding)........................................ $ 16.24
===========
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................ $ 3,346,495
-----------
EXPENSES:
Investment Advisory Fee (Note 2)........................................ 367,075
Administrative Fee (Note 2)............................................. 112,946
Preferred Share Maintenance (Note 4).................................... 52,598
Trustees Fees and Expenses (Note 2)..................................... 15,744
Legal (Note 2).......................................................... 8,955
Amortization of Organizational Expenses (Note 1)........................ 2,492
Other................................................................... 84,268
-----------
Total Expenses...................................................... 644,078
-----------
NET INVESTMENT INCOME................................................... $ 2,702,417
=========
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Realized Gain/Loss on Investments:
Proceeds from Sales................................................... $ 1,022,950
Cost of Securities Sold............................................... (982,016)
-----------
Net Realized Gain on Investments........................................ 40,934
-----------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period............................................... 7,667,325
End of the Period..................................................... 5,682,101
-----------
Net Unrealized Depreciation on Investments During the Period............ (1,985,224)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS......................... $(1,944,290)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.............................. $ 758,127
=========
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1996
and the Year Ended October 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 2,702,417 $ 5,468,398
Net Realized Gain/Loss on Investments................ 40,934 (148,408)
Net Unrealized Appreciation/Depreciation on
Investments During the Period...................... (1,985,224) 9,128,278
---------- ----------
Change in Net Assets from Operations................. 758,127 14,448,268
---------- ----------
Distributions from Net Investment Income:
Common Shares...................................... (2,017,324) (3,873,291)
Preferred Shares................................... (716,046) (1,566,119)
---------- ----------
Total Distributions.................................. (2,733,370) (5,439,410)
---------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... (1,975,243) 9,008,858
NET ASSETS:
Beginning of the Period.............................. 112,820,377 103,811,519
---------- ----------
End of the Period (Including undistributed net
investment income of
$1,144,457 and $1,175,410, respectively)........... $110,845,134 $112,820,377
=========== ===========
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31 September 25, 1992
Six Months (Commencement
Ended -------------------- of Investment
April 30, Operations) to
1996 1995 1994 1993 October 31, 1992
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of the Period (a)..... $16.694 $14.629 $17.327 $14.443 $14.715
------ ------ ------ ------ ------
Net Investment Income........... .620 1.253 1.254 1.220 .042
Net Realized and Unrealized
Gain/Loss on Investments...... (.445) 2.059 (2.774) 2.764 (.311)
------ ------ ------ ------ ------
Total from Investment
Operations...................... .175 3.312 (1.520) 3.984 (.269)
------ ------ ------ ------ ------
Less:
Distributions from Net
Investment Income:
Paid to Common Shareholders... .463 .888 .876 .803 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders...... .164 .359 .275 .297 .003
Distributions from Net Realized
Gain on Investments:
Paid to Common Shareholders... -0- -0- .020 -0- -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders...... -0- -0- .007 -0- -0-
------ ------ ------ ------ ------
Total Distributions............... .627 1.247 1.178 1.100 .003
------ ------ ------ ------ ------
Net Asset Value, End of the
Period.......................... $16.242 $16.694 $14.629 $17.327 $14.443
======= ======= ======= ======= =======
Market Price Per Share at
End of the Period............... $15.000 $14.000 $12.125 $16.125 $14.375
Total Investment Return at Market
Price (b)....................... 10.45%* 23.03% (19.94%) 18.14% (4.17%)*
Total Return at Net Asset Value
(c)............................. .00%* 20.65% (10.75%) 26.01% (3.73%)*
Net Assets at End of the Period
(In millions)................... $ 110.8 $ 112.8 $ 103.8 $ 115.6 $ 103.0
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares (d)...................... 1.75% 1.77% 1.80% 1.79% 1.31%
Ratio of Expenses to Average Net
Assets (d)...................... 1.13% 1.12% 1.15% 1.14% 1.18%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (e)............... 5.40% 5.68% 6.05% 5.70% 2.61%
Portfolio Turnover................ .87%* 9.44% 4.78% 11.61% *.00%
</TABLE>
(a) Net asset value at September 25, 1992, is adjusted for common and preferred
share offering costs of $.285 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) Beginning with the year ended October 31, 1995, the Ratios of Expenses are
based upon Total Expenses which does not reflect credits earned, if any, on
overnight cash balances.
(e) Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
See Notes to Financial Statements
10
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Advantage Pennsylvania Municipal Income Trust (the
"Trust") is registered as a non-diversified closed-end management investment
company under the Investment Company Act of 1940, as amended. The Trust's
investment objective is to provide a high level of current income exempt from
federal and Pennsylvania income taxes and, where possible under local law, local
income and personal property taxes, consistent with preservation of capital. The
Trust will invest substantially all of its assets in Pennsylvania municipal
securities rated investment grade at the time of investment. The Trust commenced
investment operations on September 25, 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 less than 60 days 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 April 30, 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.
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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
September 24, 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.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1995, the Trust had an accumulated capital loss
carryforward for tax purposes of $207,888, of which $59,480 and $148,408 will
expire on October 31, 2002 and 2003, respectively.
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.
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.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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.
For the six months ended April 30, 1996, the Trust recognized expenses of
approximately $7,400 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 April 30, 1996, VKAC owned 6,700 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended April 30, 1996, were $975,190 and
$982,016, respectively.
4. PREFERRED SHARES
The Trust has outstanding 800 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 April 30, 1996, was 3.46%. During the six
months ended April 30, 1996, the rates ranged from 3.34% to 4.00%.
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.
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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
Pace Fund
Growth & Income
Balanced Fund
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 Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies 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 direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
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VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
OFFICERS AND TRUSTEES
DON G. POWELL*
Chairman and Trustee
DENNIS J. MCDONNELL*
President and Trustee
DAVID C. ARCH
Trustee
ROD DAMMEYER
Trustee
HOWARD J KERR
Trustee
THEODORE A. MYERS
Trustee
HUGO F. SONNENSCHEIN
Trustee
WAYNE W. WHALEN*
Trustee
PETER W. HEGEL*
Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Treasurer
SCOTT E. MARTIN*
Assistant Secretary
WESTON B. WETHERELL*
Assistant Secretary
NICHOLAS DALMASO*
Assistant Secretary
JOHN L. SULLIVAN*
Controller
STEVEN M. HILL*
Assistant Treasurer
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 AUDITORS
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.
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VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
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