<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 5
Portfolio of Investments......................... 6
Statement of Assets and Liabilities.............. 8
Statement of Operations.......................... 9
Statement of Changes in Net Assets............... 10
Financial Highlights............................. 11
Notes to Financial Statements.................... 12
Report of Independent Accountants................ 15
Dividend Reinvestment Plan....................... 16
</TABLE>
VPV 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
latest announcement continues our
forward progress. I am pleased to [PHOTO]
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 states' 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.
Portfolio Composition by Credit Quality*
as of October 31, 1997
<TABLE>
<S> <C>
AAA. . . . . . . 64.8%
AA . . . . . . . 16.8%
A. . . . . . . . 4.7%
BBB. . . . . . . 13.7%
*As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as issued by Standard & Poor's
or Moody's
</TABLE>
TRUST STRATEGY
In managing the Trust, we used the following strategies:
We maintained a portfolio heavily invested in 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
rating assigned by Standard & Poor's, tend to perform better when rates are
rising, and have the potential to provide additional income.
Portfolio turnover during the fiscal year was moderate due to a lack of
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.
Acquisitions focused on enhancing the Trust's call protection. Because we
hope to limit the number of bonds that could be "called" at any one time, we
purchased new long-term discount securities that will not be callable for many
years. To increase income, we favored high-yielding, lower-rated bonds from a
diversified mix of market sectors. 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
Continued on page three
2
<PAGE> 4
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 falling, while
portfolios with short durations tend to do better when rates are rising. During
the second half of the fiscal year, we bought some zero-coupon bonds in the hope
of extending the portfolio's duration. These bonds, which pay no coupons until
they mature, have the longest duration of any bond. As of October 31, the
duration of the Trust's bond portfolio stood at 6.70 years, compared to 7.34
years for the Lehman Brothers Municipal Bond Index.
Top Five Portfolio Industry Holdings by Sector* as of October 31, 1997
Health Care....................... 24.7%
Single-Family Housing............. 13.1%
Water & Sewer..................... 12.7%
Public Building.................... 9.5%
General Purpose.................... 9.2%
*As a Percentage of Long-Term
Investments
PERFORMANCE SUMMARY
For the one-year period ended October 31, 1997, the Van Kampen American
Capital Pennsylvania Value Municipal Income Trust generated a total return at
market price of 14.26 percent(1). The Trust offered a tax-exempt distribution
rate of 5.50 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 $13.625, an 11.98 percent discount to its net asset value of $15.48.
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 8.84 percent(4) (for investors in the combined federal and
state income tax bracket of 37.8 percent).
Twelve-month Dividend History
For the Period Ended October 31, 1997
<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>
Distribution Per
Common Share $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625 $.0625
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
Continued on page four
3
<PAGE> 5
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 PENNSYLVANIA
VALUE MUNICIPAL INCOME TRUST
(NYSE TICKER SYMBOL--VPV)
<TABLE>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)............ 14.26%
One-year total return based on NAV(2)..................... 9.70%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................ 5.50%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)................................... 8.84%
SHARE VALUATIONS
Net asset value........................................... $ 15.48
Closing common stock price................................ $13.625
One-year high common stock price (07/10/97)............... $14.125
One-year low common stock price (12/26/96)................ $12.125
Preferred share rate(5)................................... 3.645%
</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 98.3%
PENNSYLVANIA 90.6%
$ 950 Allegheny Cnty, PA Indl Dev Auth Med Cent Rev
Presbyterian Med Cent Rfdg (FHA Gtd)............ 6.750% 02/01/26 $ 1,026,656
2,600 Allentown, PA Area Hosp Auth Rev Sacred Heart
Hosp Ser A Rfdg................................. 6.750 11/15/14 2,799,706
925 Berks Cnty, PA Muni Auth Hosp Rev Reading Hosp &
Med Cent Proj B (MBIA Insd)..................... 6.000 10/01/14 978,567
3,000 Butler Cnty, PA Area Sch Dist Cap Apprec (FGIC
Insd)........................................... * 11/15/22 723,480
2,000 Butler Cnty, PA Hosp Auth Hosp Rev North Hills
Passavant Hosp Ser A (Prerefunded @ 06/01/01)
(FSA Insd)...................................... 6.900 06/01/09 2,211,220
2,270 Cumberland Cnty, PA Auth Rev First Mtg Carlisle
Hosp & Hlth Rfdg................................ 6.800 11/15/14 2,453,234
3,900 Dauphin Cnty, PA Hosp Auth Rev Cmnty Genl
Osteopathic Hosp Rfdg........................... 7.375 06/01/16 4,250,805
3,570 Delaware Cnty, PA Auth Hlth Care Rev Mercy Hlth
Corp Southeastn Ser A Rfdg (Connie Lee Insd).... 5.125 11/15/12 3,514,808
1,000 Delaware Cnty, PA Auth Hosp Rev Crozer Chester
Med Cent........................................ 6.000 12/15/09 1,039,360
1,400 Derry, PA Sch Dist Ser A Rfdg (MBIA Insd)....... 6.550 09/01/06 1,530,298
3,505 Eastern York Sch Dist PA (MBIA Insd)............ 6.000 06/01/09 3,768,471
1,570 Lancaster, PA Hsg Fin Corp Mtg Rev Ser A Rfdg
(FHA Insd)...................................... 6.800 08/01/23 1,651,907
2,000 Lehigh Cnty, PA Genl Purp Auth Cedar Crest
College Rfdg.................................... 6.700 04/01/26 2,110,320
1,000 Lehigh Cnty, PA Indl Dev Auth Pollutn Ctl Rev PA
Pwr & Lt Co Proj Ser A Rfdg (MBIA Insd)......... 6.400 11/01/21 1,094,110
1,000 Monroeville, PA Hosp Auth Hosp Rev Forbes Hlth
Sys Rfdg........................................ 6.250 10/01/15 1,050,830
2,500 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev Abington Mem Hosp Ser A (AMBAC Insd)........ 5.125 06/01/24 2,406,850
3,850 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn
Ctl Ser E Rfdg (MBIA Insd)...................... 6.700 12/01/21 4,208,627
3,250 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
40.............................................. 6.900 04/01/25 3,516,858
3,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
41B Rfdg........................................ 6.450 10/01/12 3,185,640
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
53A............................................. 6.000 10/01/15 1,031,460
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
53A............................................. 6.050 04/01/18 1,033,030
2,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
54A Rfdg (FHA Insd)............................. 6.050 10/01/16 2,066,060
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
56A............................................. 6.050 10/01/16 1,034,110
500 Pennsylvania Infrastructure Invt Auth Rev
Pennvest Subser B............................... 6.800 09/01/10 549,905
1,500 Pennsylvania Intergvtl Coop Auth Spl Tax Rev
Philadelphia Fdg Pgm Rfdg (FGIC Insd)........... 5.500 06/15/20 1,510,125
4,000 Pennsylvania St Ctfs Partn Ser A Rfdg (AMBAC
Insd)........................................... 5.100 07/01/04 4,125,040
4,275 Pennsylvania St Ctfs Partn Ser A Rfdg (AMBAC
Insd)........................................... 5.250 07/01/10 4,320,358
1,000 Pennsylvania St Higher Edl Fac Allegheny DE Vly
Oblig Ser A Rfdg (MBIA Insd).................... 5.875 11/15/21 1,038,240
1,000 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Bryn Mawr College (MBIA Insd).......... 5.625 12/01/17 1,033,070
2,970 Pennsylvania St Higher Edl Thomas Jefferson Univ
Ser A Rfdg...................................... 6.625 08/15/09 3,250,516
2,000 Philadelphia, PA Auth for Indl Dev Rev Rfdg..... 5.500 07/01/10 2,060,960
1,500 Philadelphia, PA Gas Wks Rev Ser 14 Rfdg (FSA
Insd)........................................... 6.250 07/01/08 1,646,880
</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
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 895 Philadelphia, PA Hosp & Higher Edl Fac Auth Rev
Cmnty College Ser A (MBIA Insd)................. 6.050% 05/01/08 $ 977,877
1,455 Philadelphia, PA Hosp & Higher Edl Fac Auth Rev
Cmnty College Ser B Rfdg (MBIA Insd)............ 6.500 05/01/09 1,675,840
1,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Rev
Saint Agnes Med Cent Proj Rfdg (Prerefunded @
08/15/01) (FHA Insd)............................ 7.250 08/15/31 1,112,730
1,000 Philadelphia, PA Hosps & Higher Edl Fac Auth
Hosp Rev PA Hosp Rfdg........................... 6.250 07/01/06 1,071,340
2,000 Philadelphia, PA Sch Dist Ser B (AMBAC Insd).... 5.500 09/01/18 2,014,940
5,305 Philadelphia, PA Ser A Rfdg (FGIC Insd)......... 5.100 05/15/02 5,480,436
3,000 Philadelphia, PA Ser A Rfdg (FGIC Insd)......... 6.250 11/15/04 3,315,570
5,000 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (MBIA
Insd)........................................... 6.750 08/01/03 5,593,450
3,675 Philadelphia, PA Wtr & Wastewtr Rev Rfdg (AMBAC
Insd)........................................... 5.500 06/15/07 3,909,061
1,720 Pittsburgh, PA Urban Redev Mtg Rev Ser C........ 5.850 10/01/17 1,747,950
1,000 Pittsburgh, PA Urban Redev Mtg Rev Ser C Rfdg... 6.500 10/01/23 1,058,910
1,500 Pottstown Boro, PA Auth Swr Rev Gtd Rfdg (AMBAC
Insd)........................................... 5.500 11/01/21 1,511,640
2,500 Schuylkill Cnty, PA Muni Auth Wtr & Swr Rev Ser
A (Prerefunded @ 02/01/00) (FGIC Insd).......... 6.625 02/01/11 2,660,600
1,500 Shaler, PA Area Sch Dist (FGIC Insd)............ * 11/15/21 394,845
1,500 Sharon, PA Regl Hlth Sys Auth Hosp Rev Sharon
Regl Hlth Sys Proj A Rfdg....................... 6.875 12/01/09 1,614,450
1,000 West Shore, PA Area Hosp Auth Hosp Rev Holy
Spirit Hosp Proj (MBIA Insd).................... 5.700 01/01/22 1,024,550
------------
103,385,690
------------
PUERTO RICO 7.7%
2,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser
W Rfdg.......................................... 5.500 07/01/17 2,006,040
4,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser
Y Rfdg (Embedded Cap) (FSA Insd)(a)............. 5.730 07/01/21 4,594,800
2,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser K Rfdg.................................. 6.600 07/01/04 2,192,580
------------
8,793,420
------------
TOTAL LONG-TERM INVESTMENTS 98.3%
(Cost $104,319,542)........................................................ 112,179,110
SHORT-TERM INVESTMENTS AT AMORTIZED COST 0.5%............................... 600,000
------------
TOTAL INVESTMENTS 98.8%
(Cost $104,919,542)........................................................ 112,779,110
OTHER ASSETS IN EXCESS OF LIABILITIES 1.2%.................................. 1,405,476
------------
NET ASSETS 100.0%........................................................... $114,184,586
============
</TABLE>
* Zero coupon bond
(a) An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level. The price of these
securities may be more volatile than the price of a comparable fixed rate
security. The Trust invests in these instruments as a hedge against a rise
in the short-term interest rates which it pays on its preferred shares.
These derivative instruments are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation on
Investments. Upon disposition, a realized gain or loss is recognized
accordingly.
See Notes to Financial Statements
7
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $104,919,542)....................... $112,779,110
Interest Receivable......................................... 2,043,261
Cash........................................................ 38,954
Unamortized Organizational Costs............................ 2,466
Other....................................................... 381
------------
Total Assets.......................................... 114,864,172
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 394,845
Investment Advisory Fee................................... 62,817
Income Distributions -- Common and Preferred Shares....... 28,268
Administrative Fee........................................ 19,328
Affiliates................................................ 7,175
Accrued Expenses............................................ 96,761
Trustees' Deferred Compensation and Retirement Plans........ 70,392
------------
Total Liabilities..................................... 679,586
------------
NET ASSETS.................................................. $114,184,586
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 900 issued with liquidation preference of $50,000
per share)................................................ $ 45,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 4,468,924 shares issued and
outstanding).............................................. 44,689
Paid in Surplus............................................. 65,577,874
Net Unrealized Appreciation................................. 7,859,568
Accumulated Undistributed Net Investment Income............. 407,624
Accumulated Net Realized Loss............................... (4,705,169)
------------
Net Assets Applicable to Common Shares................ 69,184,586
------------
NET ASSETS.................................................. $114,184,586
============
NET ASSET VALUE PER COMMON SHARE ($69,184,586 divided
by 4,468,924 shares outstanding).......................... $ 15.48
============
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $6,319,838
----------
EXPENSES:
Investment Advisory Fee..................................... 728,877
Administrative Fee.......................................... 224,270
Preferred Share Maintenance................................. 122,476
Trustees' Fees and Expenses................................. 34,941
Custody..................................................... 16,923
Legal....................................................... 12,264
Amortization of Organizational Costs........................ 4,997
Other....................................................... 136,259
----------
Total Expenses............................................ 1,281,007
----------
NET INVESTMENT INCOME....................................... $5,038,831
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 160,863
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 5,221,856
End of the Period......................................... 7,859,568
----------
Net Unrealized Appreciation During the Period............... 2,637,712
----------
NET REALIZED AND UNREALIZED GAIN............................ $2,798,575
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $7,837,406
==========
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
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.................................. $ 5,038,831 $ 5,034,003
Net Realized Gain...................................... 160,863 148,576
Net Unrealized Appreciation During the Period.......... 2,637,712 461,513
------------ ------------
Change in Net Assets from Operations................... 7,837,406 5,644,092
------------ ------------
Distributions from Net Investment Income:
Common Shares........................................ (3,351,526) (3,362,738)
Preferred Shares..................................... (1,582,718) (1,610,100)
------------ ------------
Total Distributions.................................... (4,934,244) (4,972,838)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 2,903,162 671,254
NET ASSETS:
Beginning of the Period................................ 111,281,424 110,610,170
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $407,624 and $303,037,
respectively)........................................ $114,184,586 $111,281,424
============ ============
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 30, 1993
(Commencement
Year Ended October 31, of Investment
------------------------------------- Operations) to
1997 1996 1995 1994 October 31, 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period (a)......................... $14.832 $14.681 $12.573 $15.672 $14.687
------- ------- ------- ------- -------
Net Investment Income.............. 1.128 1.127 1.134 1.142 .433
Net Realized and Unrealized
Gain/Loss........................ .625 .137 2.190 (3.132) .896
------- ------- ------- ------- -------
Total from Investment Operations..... 1.753 1.264 3.324 (1.990) 1.329
------- ------- ------- ------- -------
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders...... .750 .753 .815 .822 .274
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders................... .354 .360 .401 .273 .070
Distributions from Net Realized
Gain:
Paid to Common Shareholders...... -0- -0- -0- .012 -0-
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders................... -0- -0- -0- .002 -0-
------- ------- ------- ------- -------
Total Distributions.................. 1.104 1.113 1.216 1.109 .344
------- ------- ------- ------- -------
Net Asset Value, End of the Period... $15.481 $14.832 $14.681 $12.573 $15.672
======= ======= ======= ======= =======
Market Price Per Share at End of the
Period............................. $13.625 $12.625 $12.500 $10.375 $14.875
Total Investment Return at Market
Price (b).......................... 14.26% 7.17% 28.60% (25.61%) 1.00%*
Total Return at Net Asset Value
(c)................................ 9.70% 6.33% 23.90% (14.91%) 6.33%*
Net Assets at End of the Period (In
millions).......................... $ 114.2 $ 111.3 $ 110.6 $ 101.2 $ 115.0
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares............................. 1.91% 1.97% 2.03% 1.98% 1.55%
Ratio of Expenses to Average Net
Assets............................. 1.14% 1.17% 1.17% 1.16% 1.14%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d).................. 5.15% 5.24% 5.35% 6.09% 4.75%
Portfolio Turnover................... 9% 27% 43% 53% 9%*
</TABLE>
* Non-Annualized
(a) Net Asset Value at April 30, 1993, is adjusted for common and preferred
share offering costs of $.313 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.
See Notes to Financial Statements
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Pennsylvania Value 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 April 30, 1993.
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 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.
12
<PAGE> 14
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
are being amortized on a straight line basis over the 60 month period ending
April 29, 1998. 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, 1997, the Trust had an accumulated capital loss carry
forward for tax purposes of $4,705,169, which will expire between October 31,
2002 and October 31, 2003.
At October 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $104,919,542; the aggregate gross unrealized
appreciation is $7,859,568 and the aggregate gross unrealized depreciation is
$0, resulting in net unrealized appreciation of $7,859,568.
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, 100% of the income distributions made
by the Trust were exempt from federal income taxes. 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, 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
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
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 $4,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the year ended October 31, 1997, the Trust recognized expenses of
approximately $45,200 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 October 31, 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 $11,030,686 and $10,378,334,
respectively.
4. PREFERRED SHARES
The Trust has outstanding 900 Auction Preferred Shares ("APS"). Dividends are
cumulative and the dividend rate is currently reset every seven days through an
auction process. The rate in effect on October 31, 1997, was 3.645%. During the
year ended October 31, 1997, the rates ranged from 2.950% to 4.150%.
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.
14
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Pennsylvania Value Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Pennsylvania Value Municipal Income Trust (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 and broker. 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 Pennsylvania Value Municipal Income Trust 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
November 24, 1997
15
<PAGE> 17
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, 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
16
<PAGE> 18
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.
17
<PAGE> 19
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE 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.
18
<PAGE> 20
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 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,
3,776,847 shares voted for the proposal, 44,269 shares voted against, 99,677
shares abstained and 0 shares represented broker non-votes.
2) With regard to the election of the following Trustees:
<TABLE>
<CAPTION>
# OF SHARES
------------------------
IN FAVOR WITHHELD
- -----------------------------------------------------------------------
<S> <C> <C>
David C. Arch 3,863,697 56,299
Howard J Kerr 3,865,785 54,211
Dennis J. McDonnell 3,865,985 54,011
</TABLE>
3) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for its current fiscal year, 3,844,880 shares voted for the
proposal, 17,859 shares voted against, 58,055 shares abstained and 0 shares
represented broker non-votes.
19
<PAGE> 21
VAN KAMPEN AMERICAN CAPITAL PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
THIS PAGE INTENTIONALLY LEFT BLANK
20
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 104,919,542
<INVESTMENTS-AT-VALUE> 112,779,110
<RECEIVABLES> 2,043,261
<ASSETS-OTHER> 2,466
<OTHER-ITEMS-ASSETS> 39,335
<TOTAL-ASSETS> 114,864,172
<PAYABLE-FOR-SECURITIES> 394,845
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 284,741
<TOTAL-LIABILITIES> 679,586
<SENIOR-EQUITY> 45,000,000
<PAID-IN-CAPITAL-COMMON> 65,622,563
<SHARES-COMMON-STOCK> 4,468,924
<SHARES-COMMON-PRIOR> 4,468,924
<ACCUMULATED-NII-CURRENT> 407,624
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,705,169)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,859,568
<NET-ASSETS> 114,184,586
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,319,838
<OTHER-INCOME> 0
<EXPENSES-NET> (1,281,007)
<NET-INVESTMENT-INCOME> 5,038,831
<REALIZED-GAINS-CURRENT> 160,863
<APPREC-INCREASE-CURRENT> 2,637,712
<NET-CHANGE-FROM-OPS> 7,837,406
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,934,244)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,903,162
<ACCUMULATED-NII-PRIOR> 303,037
<ACCUMULATED-GAINS-PRIOR> (4,866,032)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 728,877
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,281,007
<AVERAGE-NET-ASSETS> 67,139,270
<PER-SHARE-NAV-BEGIN> 14.832
<PER-SHARE-NII> 1.128
<PER-SHARE-GAIN-APPREC> 0.625
<PER-SHARE-DIVIDEND> (1.104)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.481
<EXPENSE-RATIO> 1.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
