<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
</TABLE>
VAP SAR 6/97
<PAGE> 2
LETTER TO SHAREHOLDERS
June 5, 1997
Dear Shareholder,
As mentioned in your previous
report, VK/AC Holding, Inc., the parent
company of Van Kampen American Capital,
Inc., was acquired by Morgan Stanley
Group Inc., a world leader in asset
management. More recently, on February [PHOTO]
5, 1997, Morgan Stanley Group Inc. and
Dean Witter, Discover & Co. announced
their agreement to merge, and you DENNIS J. MCDONNELL AND DON G. POWELL
received a proxy in April. The merger
was completed on May 31, 1997, creating
the combined company of Morgan Stanley, Dean Witter, Discover & Co. This
preeminent global financial services firm boasts a market capitalization of $21
billion and leading market positions in securities, asset management, and credit
services. As the financial industry continues to witness unprecedented
consolidations and new partnerships, we believe that those firms that are
leaders in all facets of their business will be able to offer investors the
greatest opportunities and services as we move into the next century. We are
confident that this merger will provide investors with those benefits.
ECONOMIC REVIEW
Bond prices were volatile during the six months ended April 30, 1997. Prices
initially rose as the economy slowed, erasing fears of an interest rate hike by
the Federal Reserve Board. The November election of a Democratic president and
Republican Congress was positive for bonds because the split government was
viewed as a restraint on spending increases that could potentially swell the
budget deficit. In addition, support diminished for radical tax reform that
could threaten the tax-free status of municipal bonds.
By the beginning of 1997, the situation changed. Bond prices began to fall
as the economy picked up speed, culminating in a 5.60 percent annualized growth
rate in the first quarter. This strength, coupled with warnings by Fed Chairman
Alan Greenspan that tighter monetary policy might be appropriate, reignited
fears of a rate hike. On March 25, the Fed raised short-term rates by a modest
0.25 percent, which sent the 30-year Treasury bond yield above 7.00 percent for
the first time in six months. By the end of April, the 30-year Treasury bond
yield slipped back below 7.00 percent as the market turned its attention to
positive news about inflation, and bonds recovered some of their earlier losses.
Throughout most of the six months ended April 30, municipal bonds generally
outperformed Treasuries. Between October 31 and April 30, yields on long-term
municipal revenue bonds rose 21 basis points, while yields on 30-year Treasury
bonds jumped 31 basis points. Because bond yields move in the opposite direction
of prices, the smaller
Continued on page two
1
<PAGE> 3
increase in municipal yields meant that municipal bond prices did not fall as
sharply as Treasury bond prices did. A relatively stable supply of new issues,
combined with an increase in retail demand, contributed to the improved
performance of municipal bonds.
In Pennsylvania, economic growth was sluggish, falling below the national
average. Since emerging from the last recession in the early 1990s, the
Commonwealth has failed to replenish budgetary reserves and expects to end the
current fiscal year with a modest fund balance. Pennsylvania's health-care
sector is experiencing tremendous volatility due to rapidly changing market
conditions. Hospitals in Philadelphia are especially vulnerable, with low
occupancy rates, high HMO concentration, and rapid consolidation among a handful
of large hospital systems.
FUND STRATEGY
In managing the Trust, we maintained a concentration in high-quality bonds.
As of April 30, approximately 79 percent of the Trust's long-term investments
were AAA-rated, the highest credit rating assigned to bonds by the Standard &
Poor's Ratings Group. Most of the AAA-rated bonds are insured bonds, which are
extremely liquid and provide the potential for safety of principal. These bonds,
however, have tended to perform better when interest rates are falling, which
was not the case for most of the period. The remaining 21 percent of long-term
investments were rated AA or A.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality as a Percentage
of Long-Term Investments as of April 30, 1997
<TABLE>
<S> <C>
AAA.................................. 79.3%
AA................................... 5.6%
A.................................... 15.1%
</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.
Portfolio turnover was minimal during the period due to tight supplies of
Pennsylvania bonds and market conditions that offered few opportunities to add
value over existing holdings. The average yield of bonds in the portfolio was
higher than current market yields, and spreads between yields of AAA-rated bonds
and lower-rated bonds were so narrow that there was little incentive to take on
the additional credit risk of lower-rated securities. These spreads remained
tight due to the increasing number of insured bonds in the municipal market.
Also restricting activity were the capital gains built into the Trust's
holdings. Selling those securities would have resulted in taxable events for
Trust shareholders. The trades that did occur during the period were focused on
enhancing the call protection of the portfolio. In other words, we hope to
lessen the concentration of bonds that can be called
Continued on page three
2
<PAGE> 4
at any one time. These acquisitions were financed by sales of prerefunded
premium bonds. When buying new securities for the portfolio, we attempt to
identify those 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.
We shortened the duration during this period of rising interest rates in
order to potentially reduce the Trust's volatility to rate increases. Duration,
which is expressed in years, is a measure of a portfolio's sensitivity to
interest rate movements. Portfolios with long durations have tended to perform
better when rates are falling; portfolios with short durations have tended to
perform better when rates are rising. At the end of the period, the Trust's
duration stood at 7.14 years compared to 7.89 years for the Lehman Brothers
Pennsylvania Municipal Bond Index benchmark.
[DIVIDEND HISTORY CHART]
Six-Month Dividend History
For the Period Ended April 30, 1997
<TABLE>
<CAPTION>
Distribution per Share
<S> <C>
Nov 1996....................... $.0775
Dec 1996....................... $.0800
Jan 1997....................... $.0800
Feb 1997....................... $.0800
Mar 1997....................... $.0800
Apr 1997....................... $.0800
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
PERFORMANCE SUMMARY
We are pleased to report that the Van Kampen American Capital Advantage
Pennsylvania Municipal Income Trust continued its positive performance over the
first half of its fiscal year. For the six-month period ended April 30, 1997,
the Trust generated a total return at market price of 5.65 percent(1). The Trust
offered a tax-exempt distribution rate of 6.19 percent(3), based on the closing
common stock price of $15.50 per share on April 30, 1997. Because income from
the Trust is exempt from federal and Pennsylvania state income taxes, this
distribution rate represents a yield equivalent to a taxable investment earning
9.95 percent(4) (for investors in the combined federal and state income tax
bracket of 37.80 percent). At the end of the reporting period, the closing share
price of the Trust traded at a 6.00 percent discount to its net asset value of
$16.49.
Continued on page four
3
<PAGE> 5
As a result of the Trust's improved earnings, the Board of Trustees approved
a slight increase in its monthly dividend from $0.0775 to $0.0800 per common
share, payable December 31, 1996.
TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR AS OF APRIL 30, 1997*
Health Care....................... 26.5%
General Purpose................... 22.3%
Multi-Family Housing.............. 11.2%
Water & Sewer..................... 10.9%
Retail Electric/Gas/Telephone..... 10.7%
*As a Percentage of Long-Term Investments
MUNICIPAL MARKET OUTLOOK
We continue to see signs of a strong economy, although we do not expect the
unusually brisk growth rate of the first quarter to be sustained throughout the
year. As a result, we believe the Fed will monitor the economy closely and take
aggressive action to control growth if inflation picks up or the high growth
rate is sustained. However, if growth slows, we believe the Fed will leave rates
unchanged. Given this outlook, we expect that yields on the 30-year Treasury
bond will range between 6.75 and 7.40 percent for the remainder of the year,
with higher levels occurring early and lower yields dominating the second half
of 1997. Although short-term interest rates have risen, this has not had a
significant impact on the leveraged structure of the Trust.
We believe the Trust is positioned to perform well in the coming months, and
we do not anticipate major structural changes in the portfolio. In light of our
expectations for interest rates, we will continue to maintain a slightly
defensive posture by keeping a relatively short duration for the portfolio and
adjusting the duration when prudent. We will also continue to seek a balance
between the Trust's total return and its dividend income, as well as to add
value through security selection. Thank you for your continued confidence in Van
Kampen American Capital and your Trust's team of managers.
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 APRIL 30, 1997
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)........... 5.65%
Six-month total return based on NAV(2).................... 1.47%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3).................................................. 6.19%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 9.95%
SHARE VALUATIONS
Net asset value........................................... $ 16.49
Closing common stock price................................ $15.500
Six-month high common stock price (01/15/97).............. $16.125
Six-month low common stock price (11/05/96)............... $15.000
Preferred share rate(5)................................... 3.570%
</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.
Market forecasts provided in this report may not necessarily come to pass.
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
PENNSYLVANIA 90.4%
$2,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)........................... 6.625% 01/01/22 $ 2,614,575
3,250 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Dev Inc Proj Rfdg (MBIA Insd)................... 6.300 09/01/13 3,415,912
3,750 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Cent
Presbyterian Univ Ser A (MBIA Insd)............. 6.250 11/01/23 3,850,687
2,000 Allegheny Cnty, PA San Auth Swr Rev (FGIC
Insd)........................................... 6.000 12/01/12 2,059,360
1,400 Bensalem Twp, PA Wtr & Swr Rev Ser A (FSA
Insd)........................................... 6.500 12/01/14 1,483,230
5,000 Dauphin Cnty, PA Genl Auth Hosp Rev Hapsco
Western PA Hosp Proj B Rfdg (MBIA Insd)......... 6.250 07/01/16 5,187,800
655 Delaware Cnty, PA............................... 6.000 11/15/14 668,408
2,345 Delaware Cnty, PA (Prerefunded @ 11/15/02)...... 6.000 11/15/14 2,472,873
1,000 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/10 473,980
1,045 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/11 465,433
1,225 Delaware Cnty, PA Cap Apprec Rfdg............... * 11/15/12 512,197
3,050 Erie Cnty, PA Hosp Auth Rev Saint Vincent Hlth
Cent Proj Ser A (MBIA Insd)..................... 6.375 07/01/22 3,174,013
1,510 Lackawanna Cnty, PA Multi-Purp Stad Auth Stad
Rev Gtd (FGIC Insd)............................. 6.150 08/15/05 1,596,674
1,380 Lackawanna Cnty, PA Multi-Purp Stad Auth Stad
Rev Gtd (FGIC Insd)............................. 6.200 08/15/06 1,458,425
1,000 Lackawanna Cnty, PA Multi-Purp Stad Auth Stad
Rev Gtd (FGIC Insd)............................. 6.300 08/15/07 1,059,030
4,500 Lehigh Cnty, PA Genl Purp Auth Rev Hosp
Muhlenberg Hosp Cent Ser A...................... 6.600 07/15/22 4,707,765
3,500 Lehigh Cnty, PA Indl Dev Auth Pollutn Ctl Rev PA
Pwr & Lt Co. Proj Ser A Rfdg (MBIA Insd)........ 6.400 11/01/21 3,664,150
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/17 339,636
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/18 320,638
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/19 304,027
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/20 284,481
1,095 Mars, PA Area Sch Dist Ser AA (MBIA Insd)....... * 09/01/21 266,994
1,700 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Abington Hosp (AMBAC Insd).................. 6.000 06/01/16 1,712,325
1,000 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev Adult Cmntys Total Svcs Ser B......... 5.625 11/15/12 963,870
3,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recovery........................................ 7.500 01/01/12 3,211,440
2,925 Moon Twp, PA Muni Auth Wtr & Swr Rev
(Prerefunded @ 12/01/02) (FSA Insd)............. 6.500 12/01/17 3,183,161
2,000 North Penn, PA Wtr Auth Wtr Rev (FGIC Insd)..... 6.200 11/01/22 2,061,900
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$1,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
53A............................................. 6.000% 10/01/15 $ 1,494,945
2,000 Pennsylvania Intergvtl Co-op Auth Spl Tax Rev
City of Philadelphia (Prerefunded @ 06/15/02)... 6.800 06/15/22 2,176,380
3,490 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
City of Philadelphia Funding Pgm (MBIA Insd).... 5.600 06/15/15 3,428,960
4,250 Philadelphia, PA Gas Wks Rev 12th Ser B (MBIA
Insd)........................................... 7.000 05/15/20 4,936,120
3,000 Philadelphia, PA Gas Wks Rev 14th Ser (FSA
Insd)........................................... 6.250 07/01/08 3,191,850
3,500 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Chestnut Hill Hosp.......................... 6.500 11/15/22 3,573,955
500 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Frankford Hosp Rfdg (Connie Lee Insd)....... 5.750 01/01/19 492,350
1,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Temple Univ Hosp Ser A...................... 6.625 11/15/23 1,034,850
2,870 Philadelphia, PA Redev Auth Fin Corp Mtg Rev
Multi-Family Mtg Chinatown Ser B Rfdg (FNMA
Collateralized)................................. 6.750 09/01/22 2,965,801
4,270 Philadelphia, PA Redev Auth Fin Corp Mtg Rev
Multi-Family Mtg Cobbs Creek Ser A Rfdg (FNMA
Collateralized)................................. 6.750 08/01/24 4,399,893
4,715 Philadelphia, PA Redev Auth Multi-Family Hsg Rev
Mtg Washington Square Ser C Rfdg (FNMA
Collateralized)................................. 6.950 11/15/24 4,928,212
4,905 Philadelphia, PA Wtr & Swr Rev Cap Apprec 14th
Ser (MBIA Insd)................................. * 10/01/07 2,821,013
1,900 Scranton-Lackawanna, PA Hlth & Welfare Auth Rev
Cmnty Med Cent Proj (FGIC Insd)................. 7.000 07/01/19 2,016,622
4,800 Somerset Cnty, PA Genl Auth Comwlth Lease Rev
(Prerefunded @ 10/15/01) (FGIC Insd)............ 6.250 10/15/11 5,089,056
1,035 Unity Twp, PA Muni Auth Gtd Swr Cap Apprec
(AMBAC Insd).................................... * 11/01/14 384,389
2,500 Upper Darby Twp, PA Rfdg (AMBAC Insd)........... 6.500 07/15/18 2,642,300
4,290 Westmoreland Cnty, PA Muni Auth Muni Svc Rev Ser
C (FGIC Insd)................................... 5.000 08/15/10 4,087,297
------------
101,176,977
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PUERTO RICO 7.8%
$1,100 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser
T (Prerefunded @ 07/01/02)...................... 6.500% 07/01/22 $ 1,202,553
2,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser K Rfdg.................................. 6.600 07/01/04 2,144,560
1,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser M Rfdg.................................. 5.750 07/01/15 989,360
4,000 Puerto Rico Pub Bldgs Auth Rev Gtd Ser K
(Prerefunded @ 07/01/02)........................ 6.875 07/01/12 4,441,040
------------
8,777,513
------------
TOTAL LONG-TERM INVESTMENTS 98.2%
(Cost $103,165,002)(a)..................................................... 109,954,490
SHORT-TERM INVESTMENTS 0.2%
(Cost $200,000)(a)......................................................... 200,000
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%.................................. 1,774,338
------------
NET ASSETS 100%............................................................. $111,928,828
============
</TABLE>
*Zero coupon bond
(a) At April 30, 1997, cost of long- and short-term investments for federal
income tax purposes is $103,365,002; the aggregate gross unrealized
appreciation is $6,801,887 and the aggregate gross unrealized depreciation
is $12,399, resulting in net unrealized appreciation of $6,789,488.
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $103,165,002)
(Note 1).................................................. $109,954,490
Short-Term Investments (Cost $200,000) (Note 1)............. 200,000
Cash........................................................ 43,875
Receivables:
Interest................................................ 2,133,456
Investments Sold........................................ 10,000
Unamortized Organizational Costs (Note 1)................... 2,014
Other....................................................... 1,256
------------
Total Assets.......................................... 112,345,091
------------
LIABILITIES:
Payables:
Income Distributions - Common and Preferred Shares...... 142,526
Investment Advisory Fee (Note 2)........................ 59,481
Administrative Fee (Note 2)............................. 18,302
Affiliates (Note 2)..................................... 8,646
Accrued Expenses............................................ 125,868
Deferred Compensation and Retirement Plans (Note 2)......... 61,440
------------
Total Liabilities..................................... 416,263
------------
NET ASSETS.................................................. $111,928,828
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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.................. 6,789,488
Accumulated Undistributed Net Investment Income............. 1,072,930
Accumulated Net Realized Loss on Investments................ (119,120)
------------
Net Assets Applicable to Common Shares.................. 71,928,828
------------
NET ASSETS.................................................. $111,928,828
============
NET ASSET VALUE PER COMMON SHARE ($71,928,828 divided by
4,361,902 shares outstanding)............................. $ 16.49
============
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $3,335,474
----------
EXPENSES:
Investment Advisory Fee (Note 2)............................ 363,789
Administrative Fee (Note 2)................................. 111,935
Preferred Share Maintenance (Note 4)........................ 52,309
Trustees Fees and Expenses (Note 2)......................... 12,833
Legal (Note 2).............................................. 6,335
Custody..................................................... 6,268
Amortization of Organizational Costs (Note 1)............... 2,478
Other....................................................... 75,408
----------
Total Expenses.......................................... 631,355
----------
NET INVESTMENT INCOME....................................... $2,704,119
==========
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Net Realized Loss on Investments............................ $ (13,295)
----------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period................................... 7,730,072
End of the Period......................................... 6,789,488
----------
Net Unrealized Depreciation on Investments During the
Period.................................................... (940,584)
----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS............. $ (953,879)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,750,240
==========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1997 and the
Year Ended October 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
April 30, 1997 October 31, 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 2,704,119 $ 5,420,680
Net Realized Gain/Loss on Investments.................... (13,295) 102,063
Net Unrealized Appreciation/Depreciation on Investments
During the Period...................................... (940,584) 62,747
------------ ------------
Change in Net Assets from Operations..................... 1,750,240 5,585,490
------------ ------------
Distributions from Net Investment Income:
Common Shares.......................................... (2,082,724) (4,045,525)
Preferred Shares....................................... (678,348) (1,420,682)
------------ ------------
Total Distributions...................................... (2,761,072) (5,466,207)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... (1,010,832) 119,283
NET ASSETS:
Beginning of the Period.................................. 112,939,660 112,820,377
------------ ------------
End of the Period (Including undistributed net investment
income of $1,072,930 and $1,129,883, respectively)..... $111,928,828 $112,939,660
============ ============
</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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 25,
1992
(Commencement
Six months of Investment
ended Year Ended October 31 Operations)
April 30, ------------------------------------- October 31,
1997 1996 1995 1994 1993 1992(a)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period(a).......... $16.722 $16.694 $14.629 $17.327 $14.443 $14.715
------- ------- ------- ------- ------- -------
Net Investment Income..... .620 1.244 1.253 1.254 1.220 .042
Net Realized and
Unrealized Gain/Loss on
Investments............. (.219) .038 2.059 (2.774) 2.764 (.311)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ .401 1.282 3.312 (1.520) 3.984 (.269)
------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders.......... .477 .928 .888 .876 .803 -0-
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders.......... .156 .326 .359 .275 .297 .003
Distributions from and in
Excess of Net Realized
Gain on Securities:
Paid to Common
Shareholders (Note
1).................... -0- -0- -0- .020 -0- -0-
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders.......... -0- -0- -0- .007 -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions......... .633 1.254 1.247 1.178 1.100 .003
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $16.490 $16.722 $16.694 $14.629 $17.327 $14.443
======= ======= ======= ======= ======= =======
Market Price Per Share at
End of the Period......... $15.500 $15.125 $14.000 $12.125 $16.125 $14.375
Total Investment Return at
Market Price(b)........... 5.65%* 14.85% 23.03% (19.94%) 18.14% (4.17%)*
Total Return at Net Asset
Value(c).................. 1.47%* 5.91% 20.65% (10.75%) 26.01% (3.73%)*
Net Assets at End of the
Period (In millions)...... $ 111.9 $ 112.9 $ 112.8 $ 103.8 $ 115.6 $ 103.0
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares............. 1.75% 1.77% 1.77% 1.80% 1.79% 1.31%
Ratio of Expenses to Average
Net Assets................ 1.13% 1.14% 1.12% 1.15% 1.14% 1.18%
Ratio of Net Investment
Income to Average Net
Assets Applicable to
Common Shares(d).......... 5.61% 5.52% 5.68% 6.05% 5.70% 2.61%
Portfolio Turnover.......... 1%* 2% 9% 5% 12% 0%*
</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) Net Investment Income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
See Notes to Financial Statements
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<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
April 30, 1997 (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 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. As of April 30, 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.
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<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
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
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 costs 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, 1996, the Trust had an accumulated capital loss
carryforward for tax purposes of $105,825, which will expire on October 31,
2003.
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.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Trust, of which a trustee of the Trust is an
affiliated person.
For the six months ended April 30, 1997, the Trust recognized expenses of
approximately $17,900 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 trustees' annual retainer fee, which is
currently $2,500.
At April 30, 1997, 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 $970,800 and $1,466,980, 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, 1997, was 3.570%. During the
six months ended April 30, 1997, the rates ranged from 3.36% to 3.57%.
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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<PAGE> 17
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 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
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate 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
1-800-282-4404 for Morgan Stanley retail funds.
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<PAGE> 18
VAN KAMPEN AMERICAN CAPITAL ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
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.
17
