<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio of Investments ............. 4
Statement of Assets and Liabilities ... 7
Statement of Operations .............. 8
Statement of Changes in Net Assets .... 9
Financial Highlights ................. 10
Notes to Financial Statements ......... 12
Independent Auditors' Report ......... 15
Dividend Reinvestment Plan ........... 16
</TABLE>
Letter to Shareholders
August 3, 1995
Dear Shareholder:
The fiscal year ended June 30, 1995 has been a very positive one for most
investors. After a poor first half, both the fixed-income and stock markets have
made considerable gains.
The first six months of 1995 serve as a reminder of just how quickly markets
can move, and how difficult it can be to predict the timing of those movements.
Moreover, this year reinforces the importance of maintaining a long-term
perspective, and reaffirms the principle that it is time---not timing---that
leads to investment success.
[PHOTO]
Dennis J. McDonnell and Don G. Powell
Economic Overview
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of this
guided slowdown was reflected in gross domestic product for the second quarter,
which grew at an annual rate of 0.5 percent, substantially lower than its first
quarter rate of 2.7 percent and fourth quarter 1994 rate of 5.1 percent. While
other key economic data, including unemployment rates and housing starts, have
shown mixed signs during recent weeks, the general trend for the first half of
the year suggested a "soft landing" scenario. Subsequently, concern over
inflation has subsided, as its annualized rate has run at a modest pace of 3.2
percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to
6.62 percent at the end of June, while prices on the "long bond" rose 18
percent. Likewise, the yield on the Bond Buyer's Municipal Bond Index fell from
7.28 percent to 6.37 percent during the same period. Although municipal bond
yields have declined, they are still offering compelling yields, particularly to
investors in high tax brackets. Average yields on municipal bonds reached 90
percent of their taxable counterparts during the fiscal year ended June 30,
1995.
Closer to home, the California municipal bond market suffered from the default
of Orange County, California securities, and the county's June 27 election, in
which voters turned down a half-cent sales tax increase to repay the
obligations. We are pleased to report that the Trust was not materially impacted
by the Orange County bankruptcy, nor the subsequent defeat of a half-cent sales
tax to cover the county's obligations. Nearly 38 percent of the Trust's
portfolio is rated AAA, the highest rating assigned to municipal bonds by
Standard & Poor's Ratings Group.
Performance Summary
For the fiscal year ended June 30, 1995, the Trust generated a total return at
market price of 8.67 percent<F1>. This return reflects an increase in market
price per common share on the
(Continued on page two)
1
American Stock Exchange from $10.625 on June 30, 1994 to $10.75 on June 30,
1995. Like other fixed-income securities during the first half of 1995, the
value of municipal bonds rose as interest rates declined.
Additionally, the Trust produced a tax-exempt distribution rate of 6.98
percent<F3>, based on the closing stock price of $10.75 per share on June 30,
1995. Since income from the Trust is exempt from federal and state income tax,
it is important to compare the Trust's distribution rate to an equivalent
taxable rate. For example, for California residents in the combined marginal
tax bracket of 43.0 percent, the Trust's distribution rate represents a yield
equivalent to a taxable investment earning 12.25 percent<F4>.
Outlook
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe that
the Fed will move cautiously before easing again, waiting for further signs that
the economy has settled into a slow growth pattern. We anticipate that the
economy will grow at an annual rate between 2 and 3 percent in the second half
of the year, and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon this generally slow growth and low inflation outlook, we
believe that fixed-income markets will continue to make attractive gains as
interest rates fall.
The California municipal bond market will probably feel the adverse affects of
the Orange County situation for some time to come unless local authorities can
come up with a plan to remedy the problem. However, if California were a
country, it would be the seventh largest economy in the world, and its economy
has finally emerged from a recession, which bodes well for the municipal bond
market.
During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At this
point, no one knows for sure what will happen or when it might actually take
place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.
Once again, it is important to remember that financial markets will inevitably
experience highs and lows, but by maintaining a long-term investment
perspective, it may allow you to ride the ups and downs of the markets more
easily as you pursue your investment goals.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Trust.
Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.
2
Performance Results for the Period Ended June 30, 1995
Van Kampen Merritt California Municipal Trust
(AMEX Ticker Symbol VKC)
<TABLE>
<CAPTION>
<S> <C>
Total Returns
One-year total return based on market price<F1> ................................... 8.67%
One-year total return based on NAV<F2> ........................................... 8.47%
Distribution Rates
Distribution rate as a % of initial offer stock price<F3> ......................... 7.50%
Taxable-equivalent distribution rate as a % of initial offer stock price<F4> ...... 13.16%
Distribution rate as a % of 06/30/95 closing stock price<F3> ..................... 6.98%
Taxable-equivalent distribution rate as a % of 06/30/95 closing stock price<F4> ... 12.25%
Share Valuations
Net asset value as of 06/30/95 .................................................... $ 10.40
Preferred share rate as of 06/30/95<F5> ........................................... 3.95%
Closing common stock price as of 06/30/95 ........................................ $ 10.750
One-year high common stock price (06/08/95) ....................................... $ 11.250
One-year low common stock price (11/14/94) ....................................... $ 8.625
<FN>
<F1>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 stock price at the end of the period indicated.
<F2>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 net asset value.
<F3>Distribution rate represents the monthly annualized distributions of the Trust
at the end of the period, and not the earnings of the Trust.
<F4>The taxable-equivalent distribution rate is calculated assuming a 43% combined
federal and state tax bracket, which takes into consideration the deductibility
of individual state taxes paid.
<F5>See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
</TABLE>
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.
3
Portfolio of Investments
June 30, 1995
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California Municipal Bonds 98.4%
$ 790 Bay Area Govt Assn CA Rev Ser A
(Cap Guar Insd) <F2> .............................. 6.000% 12/15/15 $ 774,477
500 Brea & Olinda, CA Unified Sch Dist Ctfs Partn
Sr High Sch Pgm Ser A Rfdg (Cap Guar Insd) ....... 6.000 08/01/09 504,320
500 California Hlth Fac Fin Auth Rev Children's
Hosp Los Angeles Ser A (Prerefunded @ 06/01/01) ... 7.125 06/01/21 570,425
1,000 California Hlth Fac Fin Auth Rev Insd
Amern Baptist Homes West Ser A ................... 7.650 04/01/14 1,078,790
1,300 California Hlth Fac Fin Auth Rev
Insd Episcopal Homes Ser A ....................... 7.800 07/01/15 1,412,476
1,300 California Hlth Fac Fin Auth Rev Insd
Hlth Fac Eskaton Ppty (Prerefunded @ 05/01/00) ... 7.500 05/01/20 1,469,221
1,000 California Hlth Fac Fin Auth Rev
Pomona Vly Cmnty Hosp Ser A ....................... 7.000 01/01/17 1,028,610
1,500 California Hlth Fac Fin Auth Rev Saint
Joseph Hlth Sys Ser A (Prerefunded @ 07/01/01) ... 6.750 07/01/21 1,684,425
1,225 California Hsg Fin Agy Rev Homeowner Mtg Ser A ... 8.100 08/01/16 1,275,580
3,205 California Hsg Fin Agy Rev Homeowner Mtg Ser D ... * 08/01/20 453,219
15,000 California Hsg Fin Agy Rev Homeowner
Mtg Ser D (AMBAC Insd) ........................... * 08/01/20 2,210,100
1,280 California Pollutn Ctl Fin Auth Pollutn Ctl
Rev Pacific Gas & Elec Co Ser B (AMBAC Insd) ...... 8.875 01/01/10 1,425,229
2,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southern CA Edison Co (Embedded Cap)
(AMBAC Insd) <F4> ................................. 6.000 07/01/27 1,990,900
1,300 California St Dept Veteran Affairs Home
Pur Rev Ser A <F3> ............................... 8.300 08/01/19 1,357,512
500 California St Pub Wks Brd Lease Rev
Cmnty College Projs Ser A ........................ 6.000 10/01/14 482,265
1,000 California St Pub Wks Brd Lease Rev
Var CA St Univ Projs Ser A ....................... 6.300 10/01/10 992,620
1,000 California St Pub Wks Brd Lease Rev
Var CA St Univ Projs Ser A ....................... 6.375 10/01/14 997,120
800 California St Var Purp (MBIA Insd) ............... 6.000 10/01/14 794,496
785 Central Contra Costa, CA San Dist Rev
Wastewtr Fac Impt Proj (MBIA Insd) ............... 6.250 09/01/11 813,009
1,000 Contra Costa, CA Tran Auth Sales Tax Rev Ser A ... 6.875 03/01/07 1,066,500
2,300 Desert Hosp Dist CA Hosp Rev Ctfs Partn
Desert Hosp Corp Proj (Prerefunded @ 07/01/00) .... 8.100 07/01/20 2,704,041
</TABLE>
4
See Notes to Financial Statements
Portfolio of Investments (Continued)
June 30, 1995
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,500 Eden Twp, CA Hosp Dist Hosp Rev Ser A ................ 7.200% 11/01/16 $ 1,490,085
2,000 Emeryville, CA Pub Fin Auth Rev Hsg
Increment Sub Lien A ................................ 7.875 02/01/15 2,177,480
1,000 Foothill De Anza, CA Cmnty College Dist
Ctfs Partn Pkg Structure Proj
(Prerefunded @ 07/01/98) ............................ 8.250 07/01/18 1,139,920
5,000 Foothill/Eastern Tran Agy Cap Apprec Sr Lien Ser A ... * 01/01/27 533,650
1,000 Foothill/Eastern Tran Conv Cap Apprec
Sr Lien Ser A <F5> ................................... 0/7.500 01/01/10 535,730
1,300 Local Govt Fin Auth CA Rev Fullerton
Redev Agy Rfdg (Prerefunded @ 02/01/99) ............. 7.700 02/01/14 1,459,354
790 Los Angeles Cnty, CA Ctfs Partn Disney Pkg Proj ..... * 03/01/10 300,816
800 Los Angeles Cnty, CA Ctfs Partn Disney Pkg Proj ..... * 03/01/11 282,216
1,700 Los Angeles Cnty, CA Ctfs Partn Disney Pkg Proj ..... * 03/01/12 558,416
975 Los Angeles Cnty, CA Ctfs Partn Disney Pkg Proj ..... * 03/01/13 299,588
155 Los Angeles Cnty, CA Ctfs Partn Disney Pkg Proj ..... * 03/01/20 28,116
1,000 Los Angeles Cnty, CA Ctfs Partn Disney Pkg Proj ..... * 09/01/20 175,230
1,662 Los Angeles Cnty, CA Tran Comm Lease Rev
Dia RR Lease Ltd (FSA Insd) .......................... 7.375 12/15/06 1,871,312
1,285 Montebello, CA Ctfs Partn Cap Impt Proj
(Prerefunded @ 06/01/00) ............................ 7.000 06/01/15 1,437,465
1,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) ..... 5.750 06/01/15 933,720
3,095 Paramount, CA Redev Agy Tax Alloc
Redev Proj Area No 1 Ser B (MBIA Insd) .............. * 08/01/26 386,349
500 Rancho Cucamonga, CA Redev Agy Tax
Alloc Rancho Redev Proj (MBIA Insd) ................. 7.125 09/01/19 546,445
1,000 Sacramento, CA City Fin Auth Rev
(Prerefunded @ 11/01/01) ............................ 6.800 11/01/20 1,134,050
1,000 San Diego, CA Indl Dev Rev San Diego
G&E Co Ser A (AMBAC Insd) ........................... 7.625 07/01/21 1,051,660
895 San Jose, CA Arpt Rev (AMBAC Insd) .................. 7.500 03/01/18 970,556
935 Santa Barbara, CA Ctfs Partn ......................... 7.650 05/01/15 1,009,594
1,450 Santa Barbara, CA Ctfs Partn Wtr Sys
Impt Proj & Rfdg (AMBAC Insd) ....................... 6.700 04/01/27 1,545,787
2,000 Southeast Res Recovery Fac Auth CA Lease Rev ........ 9.000 12/01/08 2,079,260
100 Southern CA Home Fin Auth Single
Family Mtg Rev Ser B ................................ 7.750 03/01/24 105,770
600 Southern CA Pub Pwr Auth Pwr Proj Rev Multi Projs .... 5.500 07/01/20 539,964
</TABLE>
See Notes to Financial Statements
5
Portfolio of Investments (Continued)
June 30, 1995
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 900 Southern CA Pub Pwr Auth Pwr Proj Rev Multi
Projs Ser 1989 (Prerefunded @ 07/01/00) ................. 5.500% 07/01/20 $ 939,915
1,300 Upland, CA Hosp Rev Ctfs Partn San Antonio
Cmnty Hosp (Prerefunded @ 01/01/99) ..................... 7.800 01/01/18 1,460,745
2,000 Westminster, CA Redev Agy Tax Alloc Rev
Coml Redev Proj No 1 Ser A Rfdg ......................... 7.300 08/01/21 2,065,000
----------
Total Long-Term Investments 98.4%
(Cost $48,489,044) <F1> ......................................... 52,143,528
Short-Term Investments at Amortized Cost 1.9% ................. 1,000,000
Liabilities in Excess of Other Assets (0.3%) .................. (135,269)
----------
Net Assets 100% ................................................ $53,008,259
----------
*Zero coupon bond
<FN>
<F1> At June 30, 1995, cost for federal income tax purposes is $48,489,044; the
aggregate gross unrealized appreciation is $3,729,541 and the aggregate
gross unrealized depreciation is $75,057, resulting in net unrealized
appreciation of $3,654,484.
<F2> Securities purchased on a when issued or delayed delivery basis.
<F3> Assets segregated as collateral for when issued or delayed delivery
purchase commitments.
<F4> 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.
<F5> Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.
</FN>
</TABLE>
The following table summarizes the portfolio composition at June 30, 1995, based
upon quality ratings issued by Standard & Poor's. For securities not rated by
Standard & Poor's, the Moody's rating is used.
<TABLE>
Portfolio Composition by Credit Quality
<CAPTION>
<S> <C>
AAA ........... 37.5%
AA ........... 6.5
A ............ 41.5
BBB .......... 8.9
Non-Rated .... 5.6
------
100.0%
------
</TABLE>
See Notes to Financial Statements
6
Statement of Assets and Liabilities
June 30, 1995
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $48,489,044) (Note 1) ............................ $ 52,143,528
Short-Term Investments (Note 1) ..................................................... 1,000,000
Cash ............................................................................... 25,073
Interest Receivable ................................................................ 1,013,219
------------
Total Assets ........................................................................ 54,181,820
------------
Liabilities:
Payables:
Investments Purchased ............................................................. 774,477
Income Distributions - Common and Preferred Shares ............................... 250,405
Investment Advisory Fee (Note 2) ................................................. 26,412
Accrued Expenses .................................................................... 122,267
------------
Total Liabilities ................................................................... 1,173,561
------------
Net Assets .......................................................................... $ 53,008,259
------------
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 1,000,000 shares, 400 shares are issued
with a liquidation preference of $50,000 per share) (Note 5) ....................... $ 20,000,000
------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
3,175,320 shares issued and outstanding) (Note 3) ................................... 31,753
Paid in Surplus ................................................................... 28,654,945
Net Unrealized Appreciation on Investments ......................................... 3,654,484
Accumulated Undistributed Net Investment Income .................................... 831,682
Accumulated Net Realized Loss on Investments ........................................ (164,605)
------------
Net Assets Applicable to Common Shares .............................................. 33,008,259
------------
Net Assets .......................................................................... $ 53,008,259
------------
Net Asset Value Per Common Share ($33,008,259 divided
by 3,175,320 shares outstanding) .................................................... $ 10.40
------------
</TABLE>
See Notes to Financial Statements
7
Statement of Operations
For the Year Ended June 30, 1995
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest ....................................................... $ 3,548,482
------------
Expenses:
Investment Advisory Fee (Note 2) .............................. 313,605
Preferred Share Maintenance (Note 5) ........................... 51,409
Custody ....................................................... 40,472
Audit ......................................................... 34,719
Printing ...................................................... 27,473
Shareholder Services (Note 2) .................................. 26,981
Trustees Fees and Expenses (Note 2) ............................ 20,912
Legal (Note 2) ................................................ 4,245
Other ......................................................... 12,846
------------
Total Expenses ................................................. 532,662
------------
Net Investment Income .......................................... $ 3,015,820
------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales .......................................... $ 8,071,510
Cost of Securities Sold ...................................... (8,235,992)
------------
Net Realized Loss on Investments ............................. (164,482)
------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period ..................................... 3,141,611
End of the Period ........................................... 3,654,484
------------
Net Unrealized Appreciation on Investments During the Period ... 512,873
------------
Net Realized and Unrealized Gain on Investments ................ $ 348,391
------------
Net Increase in Net Assets from Operations .................... $ 3,364,211
------------
</TABLE>
See Notes to Financial Statements
8
<TABLE>
Statement of Changes in Net Assets
For the Years Ended June 30, 1995 and 1994
<CAPTION>
Year Ended Year Ended
June 30, 1995 June 30, 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income .................................................. $ 3,015,820 $ 3,018,184
Net Realized Gain/Loss on Investments .................................. (164,482) 30,740
Net Unrealized Appreciation/Depreciation on Investments
During the Period ..................................................... 512,873 (2,370,746)
------------ ---------------
Change in Net Assets from Operations ................................. 3,364,211 678,178
------------ ---------------
Distributions from Net Investment Income:
Common Shares ......................................................... (2,297,195) (2,246,404)
Preferred Shares ...................................................... (750,639) (492,435)
------------ ---------------
(3,047,834) (2,738,839)
Distributions from Net Realized Gain on Investments - Common Shares ... (19,001) (32,785)
------------ ---------------
Total Distributions ................................................... (3,066,835) (2,771,624)
------------ ---------------
Net Change in Net Assets from Investment Activities ................... 297,376 (2,093,446)
From Capital Transactions (Note 3):
Value of Common Shares Issued Through Dividend Reinvestment ............ 137,858 152,769
------------ ---------------
Total Increase/Decrease in Net Assets .................................. 435,234 (1,940,677)
Net Assets:
Beginning of the Period ............................................... 52,573,025 54,513,702
------------ ---------------
End of the Period (Including undistributed net investment income
of $831,682 and $863,696, respectively) ............................... $ 53,008,259 $ 52,573,025
------------ ---------------
</TABLE>
See Notes to Financial Statements
9
<TABLE>
Financial Highlights
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
<CAPTION>
Year Ended June 30,
1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period <F1> ... $ 10.301 $ 10.963
-------- --------
Net Investment Income ....................... .951 .956
Net Realized and Unrealized Gain/Loss
on Investments ............................... .111 (.740)
-------- --------
Total from Investment Operations ............. 1.062 .216
-------- --------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders ................. .725 .712
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders ....................... .237 .156
Distributions from Net Realized
Gain on Investments Paid
to Common Shareholders ....................... .006 .010
-------- --------
Total Distributions .......................... .968 .878
-------- --------
Net Asset Value, End of Period ............... $ 10.395 $ 10.301
-------- --------
Market Price Per Share
at End of Period ............................ $ 10.750 $ 10.625
Total Investment Return at Market
Price (Non-Annualized) <F2> ................. 8.67% 4.32%
Total Return at Net Asset Value
(Non-Annualized) <F3> ........................ 8.47% .35%
Net Assets at End of Period (In millions) ... $ 53.0 $ 52.6
Ratio of Expenses to Average Net Assets
Applicable to Common Shares
(Annualized) ................................ 1.65% 1.53%
Ratio of Expenses to Average Net Assets
(Annualized) ................................ 1.02% .97%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (Annualized) <F4> ............. 7.02% 7.28%
Portfolio Turnover .......................... 15.81% 10.92%
*If certain expenses had not been assumed by the Adviser, the annualized ratio
of expenses to average net assets applicable to common shares, ratio of expenses
to average net assets and the ratio of net investment income to average net
assets applicable to common shares would have been 2.06%, 1.22% and 6.80% for
the year ended June 30, 1991, 1.31%, 1.13% and 6.21% for the year ended June 30,
1990, and 1.09%, 1.09% and 6.04% for the period ended June 30, 1989.
<FN>
<F1> Net asset value at November 1, 1988 of $9.300 is adjusted for common share
offering costs of $.145 per common share. Net asset value at June 30, 1989
of $9.416 is adjusted for preferred share offering costs of $.204 per com
mon share.
<F2> 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.
<F3> Total return at net asset value (NAV) reflects the change in the value of
the Trust's assets with reinvestment of dividends based upon NAV.
<F4> Net investment income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
</FN>
</TABLE>
N/A = Not Applicable
10
<TABLE>
<CAPTION>
November 1, 1988
(Commencement
Year Ended June 30 of Investment
- -------------------------------------------------- Operations) to
1993 1992 1991 1990 June 30, 1989
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 10.147 $ 9.408 $ 9.095 $ 9.212 $ 9.155
----------- -------- ------- ------- -------
.968 .946 .975 .719 .385
.788 .719 .313 (.117) .261
----------- -------- ------- ------- -------
1.756 1.665 1.288 .602 .646
----------- -------- ------- ------- -------
.663 .654 .648 .648 .385
.167 .245 .327 .071 -0-
.110 .027 -0- -0- -0-
----------- -------- ------- ------- -------
.940 .926 .975 .719 .385
----------- -------- ------- ------- -------
$ 10.963 $ 10.147 $ 9.408 $ 9.095 $ 9.416
----------- -------- ------- ------- -------
$ 10.875 $ 9.875 $ 9.750 $ 9.125 $ 9.875
18.49% 8.44% 14.51% (.95%) 2.92%
16.19% 15.54% 10.85% 4.27% (2.43%)
$ 54.5 $ 51.9 $ 49.5 $ 48.4 $ 29.3
1.57% 2.07% 1.88%* .50%* .87%*
.98% 1.26% 1.11%* .43%* N/A*
7.62% 7.74% 6.98%* 7.01%* 6.26%*
17.66% 40.60% 99.43% 99.54% 57.06%
</TABLE>
See Notes to Financial Statements
11
Notes to Financial Statements
June 30, 1995
1. Significant Accounting Policies
Van Kampen Merritt California Municipal Trust (the "Trust") is registered as a
diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust commenced investment operations on
November 1, 1988.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements.
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.
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.
D. 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 June 30, 1995, the Trust had an accumulated capital loss carryforward
for tax purposes of $164,482 which will expire on June 30, 2003. Net realized
gains or losses may differ for financial and tax reporting purposes primarily as
a result of post October 31 losses which are not recognized for tax purposes
until the first day of the following fiscal year.
12
Notes to Financial Statements (Continued)
June 30, 1995
E. 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 to common 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, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
investment advice and facilities to the Trust for an annual fee payable monthly
of .60% of the average net assets of the Trust.
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 year ended June 30, 1995, the Trust recognized expenses of
approximately $11,700 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
legal and certain shareholder 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. The Trust's liability under the
deferred compensation and retirement plans at June 30, 1995, was approximately
$19,400.
3. Capital Transactions
At June 30, 1995 and 1994, paid in surplus related to common shares aggregated
$28,654,945 and $28,517,219, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1995 June 30, 1994
- ------------------------------------------------------
<S> <C> <C>
Beginning Shares........ 3,162,077 3,148,246
Shares Issued Through
Dividend Reinvestment... 13,243 13,831
---------- -----------
Ending Shares .......... 3,175,320 3,162,077
---------- -----------
</TABLE>
13
Notes to Financial Statements (Continued)
June 30, 1995
4. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the year ended June 30, 1995, were $8,095,812 and
$8,235,992, respectively.
5. Remarketed Preferred Shares
The Trust has outstanding 400 shares of Remarketed Preferred Shares ("RP").
Dividends are cumulative and the rate is reset through an auction process every
28 days. The rate in effect on June 30, 1995, was 3.95%, and for the year then
ended rates ranged from 2.720% to 5.125%.
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 RP 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 RP are subject to
mandatory redemptions if the tests are not met.
14
Independent Auditors' Report
The Board of Trustees and Shareholders of
Van Kampen Merritt California Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt California Municipal Trust (the "Trust"), including the portfolio
of investments, as of June 30, 1995, 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 June
30, 1995, by correspondence with the custodian and brokers. 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 Merritt California Municipal Trust as of June 30, 1995, 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
August 3, 1995
15
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 valuable 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 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 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
One Parkview Plaza, Oakbrook Terrace, IL 60181, Attn: Closed-End Funds
16
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
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
Limited 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 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
17
Van Kampen Merritt California Municipal 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., 1995 All rights reserved.
SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.
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