<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 5
Portfolio of Investments......................... 6
Statement of Assets and Liabilities.............. 9
Statement of Operations.......................... 10
Statement of Changes in Net Assets............... 11
Financial Highlights............................. 12
Notes to Financial Statements.................... 14
Independent Accountants' Report.................. 17
Dividend Reinvestment Plan....................... 18
</TABLE>
VKC ANR 8/97
<PAGE> 2
LETTER TO SHAREHOLDERS
July 30, 1997
Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan
Stanley Group Inc., a world leader in
asset management. On February 5,
1997, Morgan Stanley Group Inc. and
Dean Witter, Discover & Co. agreed to
merge; the merger was completed on [PHOTO]
May 31, creating the combined company
of Morgan Stanley, Dean Witter,
Discover & Co. This preeminent global DENNIS J. MCDONNELL AND DON G. POWELL
financial services firm boasts a
market capitalization of $21 billion and leading market positions in securities,
asset management, and credit services. Additionally, I am very pleased to
announce that Philip N. Duff, formerly the chief financial officer of Morgan
Stanley, has joined Van Kampen American Capital as president and chief executive
officer. I will continue as chairman of the firm.
As the financial industry continues to witness unprecedented consolidations
and new partnerships, we believe that those firms who are leaders in all facets
of their business will be able to offer investors the greatest opportunities and
services as we move into the next century. We are confident that these changes
will continue to work to the benefit of our fund shareholders as we move into
the next century.
ECONOMIC REVIEW
Volatility dominated the bond market during the 12 months ended June 30.
Initially, prices fell as the economy grew stronger, which fueled fears of an
interest rate hike by the Federal Reserve Board. When growth slowed to a
moderate 2.1 percent rate in the third quarter of 1996 and a Democratic
president was re-elected along with a Republican Congress, bond prices resumed
their rise. The split government was seen as a restraint on spending increases
that could potentially undermine efforts to control the federal budget deficit.
Municipal bonds found additional support from a waning interest in radical tax
reform that could potentially threaten their tax-free status. By late November,
the yield of the 30-year Treasury bond, which moves in the opposite direction of
its price, slipped to 6.35 percent from over 7.00 percent in July.
The scenario shifted again at the start of 1997. Economic growth began to
accelerate, reigniting fears of a Fed rate hike, and bond prices resumed their
retreat. Despite a temporary reversal in February on signs of moderating
inflation, the price decline continued, gaining momentum after the Fed raised
short-term interest rates one-quarter percentage point in late March. The rate
hike was viewed as the first of many, imposing additional downward pressure on
bond prices. First-quarter growth soared at a 4.9 percent pace, and the yield on
the 30-year Treasury bond jumped to 7.17 percent by mid-April. The market
reversed itself once more after signs of a slowing economy re-emerged in May
Continued on page two
1
<PAGE> 3
and the Fed refrained from raising rates again. The price of the 30-year
Treasury rose as its yield slipped to 6.79 percent by the end of June.
During most of the 12 months ended June 30, municipal bonds outperformed
Treasuries due to strong demand by retail and institutional investors amid
limited supply. From the beginning of July 1996 to the end of June 1997, the
yield on long-term municipal bonds fell 47 basis points, while the yield on the
30-year Treasury bond fell only 30 basis points. The demand for California bonds
was particularly strong because of the state's strong economy, which grew well
in excess of the national rate.
PORTFOLIO STRATEGY
During the fiscal year we maintained a mix of credit quality in order to
seek to minimize the Trust's volatility to interest rates changes. We slightly
increased the Trust's weighting in AAA-rated securities, financing these
purchases with proceeds from the sale of some A-rated bonds. As of June 30,
1997, 46 percent of the Trust's long-term investments were AAA-rated, the
highest credit rating assigned by the Standard & Poor's Rating Group. In
addition, 11 percent of long-term investments were AA-rated, 24 percent were
A-rated, and 16 percent were BBB-rated. About 3 percent of long-term investments
were non-rated.
AAA-rated securities typically have outperformed when interest rates are
falling and have tended to provide safety of principal. Most are insured bonds,
whose principal and interest payments are protected in the case of default.
Insured bonds are also extremely liquid, and currently comprise over half of all
new municipal and California state bond issues. Insured bonds enjoy widespread
demand, which, in turn, enhances their potential price appreciation. BBB-rated
bonds and non-rated securities tend to outperform when interest rates are
rising, and potentially provide additional income. The insurance, however, does
not remove market risk.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of June 30, 1997*
<TABLE>
<S> <C>
AAA................. 46.4%
AA.................. 10.6%
A................... 24.5%
BBB................. 15.8%
Non-Rated........... 2.7%
</TABLE>
*As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as issued
by Standard & Poor's or Moodys.
Portfolio turnover during the fiscal year focused on enhancing the potential
price appreciation of the Trust and its call protection. Bonds that had been
pre-refunded by their issuers in anticipation of being called were sold, and the
proceeds of those sales were used to purchase longer-term discount securities.
Continued on page three
2
<PAGE> 4
During the period, the Trust's duration shortened. Duration, which is
expressed in years, is a measure of the portfolio's sensitivity to interest rate
changes. Portfolios with shorter durations tend to perform better when interest
rates are rising, and those with longer durations tend to perform better when
rates are falling. The duration of the Trust shortened as bonds that had
appreciated in price began to trade to their call date rather than their longer
maturity date. At the end of the period, the Trust's duration stood at 7.24
years compared to 8.53 years for the Lehman Brothers Municipal Bond Index.
Because of the longer-term nature of the Fund, the index has been adjusted to
eliminate bonds with maturities of five years or less.
The relatively short duration of the Trust helped to cushion its share price
in March and April, when interest rates rose as a result of monetary tightening
by the Federal Reserve Board. During much of the second half of 1996, when rates
were falling, the Trust's relatively short duration limited its gains. Although
the Fed could tighten policy again before year-end, we do not expect a sharp
increase in rates. As a result, we hope to gradually extend the Trust's duration
in the future.
During the fiscal year, we maintained the Trust's high concentrations in
health care, single-family housing, and transportation bonds all high-yielding
sectors within the tax-exempt market. When selecting new securities, our
research team strives to identify those bonds that we believe will outperform
within these sectors.
<TABLE>
<S> <C>
TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR
AS OF JUNE 30, 1997*
Single-Family Housing................................... 16.7%
Health Care............................................. 15.7%
Transportation.......................................... 9.8%
Public Building......................................... 8.3%
Tax District............................................ 7.3%
</TABLE>
* As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the 12-month period ended June 30, 1997, the Trust generated a total
return at market price of 21.40 percent(1). This performance reflects an
increase in market price per common share on the American Stock Exchange from
$10.8750 on June 30, 1996, to $12.1875 on June 30, 1997, including reinvestment
of dividends and capital gains distributions totaling $0.903 per share. The
Trust offered a tax-exempt distribution rate of 6.15 percent(3), based on the
closing common stock price on June 30, 1997. For California residents in the
combined federal and state income tax bracket of 43 percent, this distribution
rate is equivalent to a yield of 10.79 percent(4) on a taxable investment.
Continued on page four
3
<PAGE> 5
[DIVIDEND HISTORY GRAPH]
Twelve-month Distribution History
For the Period Ended June 30, 1997
<TABLE>
<CAPTION>
DISTRIBUTION PER COMMON SHARE
<S> <C>
Jul 1996........................... $.0625
Aug 1996........................... $.0625
Sep 1996........................... $.0625
Oct 1996........................... $.0625
Nov 1996........................... $.0625
Dec 1996........................... $.2155
Jan 1997........................... $.0625
Feb 1997........................... $.0625
Mar 1997........................... $.0625
Apr 1997........................... $.0625
May 1997........................... $.0625
Jun 1997........................... $.0625
</TABLE>
The dividend and/or capital gains history represents past performance of the
Trust and does not predict the Trusts future distributions.
OUTLOOK
We continue to see strength in the economy, but we do not believe that
second-quarter growth was nearly as vibrant as the 4.9 percent pace set in the
first quarter. While labor productivity and manufacturing remained strong in the
second quarter, retail sales fell, and the unemployment rate, which had slipped
below 5.0 percent in April and May, edged up to that level in June.
We expect that growth will accelerate again during the second half of the
year because the economy's strong underlying fundamentals, including consumer
confidence, job growth, and moderate inflation, remain intact. As a result, we
believe the Federal Reserve may raise rates again before year end. Given this
outlook, we expect the yield on the 30-year Treasury bond to range between 6.25
and 6.75 percent for the remainder of the year.
We believe the Trust is well-positioned for the second half of 1997. Its
relatively short duration compared to market benchmarks and its diversity among
credit ratings serves to potentially help limit price volatility. We do not
anticipate making major adjustments to the portfolio unless market fundamentals
shift substantially, and we will monitor the economy in addition to Fed policy
in order to anticipate such a shift. In addition, we will continue to seek a
balance between the Trust's total return and its dividend income, and will seek
to add value through security selection. Thank you for your continued confidence
in Van Kampen American Capital and your Trust's team of managers.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page five
4
<PAGE> 6
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL TRUST
(AMEX TICKER SYMBOL--VKC)
TOTAL RETURNS
<TABLE>
<S> <C>
One-year total return based on market price(1)............ 21.40%
One-year total return based on NAV(2)..................... 10.76%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 6.15%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................. 10.79%
SHARE VALUATIONS
Net asset value........................................... $10.45
Closing common stock price................................ $12.1875
One-year high common stock price (06/30/97)............... $12.1875
One-year low common stock price (07/02/96)................ $10.875
Preferred share rate(5)................................... 3.549%
</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 43%
combined federal and state tax bracket, which takes into consideration the
deductibility of individual state taxes paid.
(5) See "Notes to Financial Statements" footnote #5, 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
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 97.6%
CALIFORNIA 94.9%
$ 790 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy
Pool Rev Ser A (FSA Insd)....................... 6.000% 12/15/15 $ 821,166
500 Brea & Olinda, CA Unified Sch Dist Ctfs Partn Sr
High Sch Pgm Ser A Rfdg (FSA Insd).............. 6.000 08/01/09 529,045
1,000 California Edl Fac Auth Rev Student Ln CA Ln Pgm
Ser A (MBIA Insd)............................... 6.000 03/01/16 1,019,670
500 California Hlth Fac Fin Auth Rev Children's Hosp
Los Angeles Ser A (Prerefunded @ 06/01/01)...... 7.125 06/01/21 559,565
1,000 California Hlth Fac Fin Auth Rev Insd Amern
Baptist Homes West Ser A........................ 7.650 04/01/14 1,043,100
1,300 California Hlth Fac Fin Auth Rev Insd Episcopal
Homes Ser A..................................... 7.800 07/01/15 1,370,486
1,500 California Hlth Fac Fin Auth Rev Saint Joseph
Hlth Sys Ser A (Prerefunded @ 07/01/01)......... 6.750 07/01/21 1,659,420
1,000 California Hsg Fin Agy Rev Multi-Family Hsg III
Ser A (MBIA Insd)............................... 5.850 08/01/17 1,004,120
1,000 California Hsg Fin Agy Rev Home Mtg Ser E (AMBAC
Insd)........................................... 6.100 08/01/29 1,021,380
3,205 California Hsg Fin Agy Rev Homeowner Mtg Ser
D............................................... * 08/01/20 544,530
15,000 California Hsg Fin Agy Rev Homeowner Mtg Ser D
(AMBAC Insd).................................... * 08/01/20 2,548,500
2,000 California Hsg Fin Agy Rev Homeowner Mtg Ser
N............................................... 6.375 02/01/27 2,068,140
1,280 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Pacific Gas & Elec Co Ser B (AMBAC Insd)........ 8.875 01/01/10 1,330,854
2,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southern CA Edison Co (Embedded Cap) (AMBAC
Insd) (a)....................................... 6.000 07/01/27 2,042,300
1,000 California Rural Home Mtg Fin Mtg Backed Secs
Pgm Ser C (GNMA Collateralized) (b)............. 6.40/7.80 02/01/28 1,126,310
1,300 California St Dept Veteran Affairs Home Pur Rev
Ser A........................................... 8.300 08/01/19 1,346,774
1,000 California St Pub Wks Brd Lease Rev Var CA St
Univ Projs Ser A................................ 6.300 10/01/10 1,080,390
1,000 California St Pub Wks Brd Lease Rev Var CA St
Univ Projs Ser A................................ 6.375 10/01/14 1,072,050
800 California St Var Purp (MBIA Insd).............. 6.000 10/01/14 832,064
785 Central Contra Costa, CA Santn Dist Rev Wastewtr
Fac Impt Proj (MBIA Insd)....................... 6.250 09/01/11 854,716
1,000 Contra Costa, CA Tran Auth Sales Tax Rev Ser
A............................................... 6.875 03/01/07 1,119,640
2,300 Desert Hosp Dist CA Hosp Rev Ctfs Partn Desert
Hosp Corp Proj (Prerefunded @ 07/01/00)......... 8.100 07/01/20 2,593,503
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,500 Eden Twp, CA Hosp Dist Hosp Rev Ser A........... 7.200% 11/01/16 $ 1,536,210
2,000 Emeryville, CA Pub Fin Auth Rev Hsg Increment
Sub Lien A (Prerefunded @ 02/01/01)............. 7.875 02/01/15 2,265,220
1,000 Foothill/Eastern Tran Agy Conv Cap Apprec Sr
Lien Ser A (b).................................. 0/7.050 01/01/10 670,830
5,435 Foothill/Eastern Tran Corridor Agy CA Toll Rd
Rev Sr Lien Ser A............................... * 01/01/19 1,471,363
2,000 Foothill/Eastern Tran Corridor Agy CA Toll Rd
Rev Sr Lien Ser A............................... * 01/01/28 306,020
790 Los Angeles Cnty, CA Ctfs Partn Disney Pkg
Proj............................................ * 03/01/10 378,173
800 Los Angeles Cnty, CA Ctfs Partn Disney Pkg
Proj............................................ * 03/01/11 358,936
1,700 Los Angeles Cnty, CA Ctfs Partn Disney Pkg
Proj............................................ * 03/01/12 714,204
975 Los Angeles Cnty, CA Ctfs Partn Disney Pkg
Proj............................................ * 03/01/13 383,175
155 Los Angeles Cnty, CA Ctfs Partn Disney Pkg
Proj............................................ * 03/01/20 37,989
1,000 Los Angeles Cnty, CA Ctfs Partn Disney Pkg
Proj............................................ * 09/01/20 237,600
1,424 Los Angeles Cnty, CA Tran Comm Lease Rev Dia RR
Lease Ltd (FSA Insd)............................ 7.375 12/15/06 1,576,453
1,390 Metropolitan Wtr Dist Southn CA Wtrwks Rev Ser
C............................................... 5.000 07/01/37 1,264,580
1,285 Montebello, CA Ctfs Partn Cap Impt Proj
(Prerefunded @ 06/01/00)........................ 7.000 06/01/15 1,403,914
1,800 Mountain View Los Altos, CA Union High Sch Dist
Ctfs Partn (MBIA Insd).......................... 5.625 08/01/16 1,805,418
3,095 Paramount, CA Redev Agy Tax Alloc Redev Proj
Area No 1 Ser B (MBIA Insd)..................... * 08/01/26 464,405
1,000 San Bernardino Cnty, CA Ctfs Partn Med Cent Fin
Proj (MBIA Insd)................................ 5.000 08/01/28 908,650
895 San Jose, CA Arpt Rev (AMBAC Insd).............. 7.500 03/01/18 930,317
1,210 San Jose, CA Redev Agy Tax Alloc Hsg Set Aside
Merged Area Ser E (MBIA Insd)................... 5.750 08/01/17 1,212,541
890 Santa Barbara, CA Ctfs Partn.................... 7.650 05/01/15 965,917
1,450 Santa Barbara, CA Ctfs Partn Wtr Sys Impt Proj &
Rfdg (AMBAC Insd)............................... 6.700 04/01/27 1,573,670
100 Southern CA Home Fin Auth Single Family Mtg Rev
Ser B (GNMA Collateralized)..................... 7.750 03/01/24 105,708
600 Southern CA Pub Pwr Auth Pwr Proj Rev Multi
Projs........................................... 5.500 07/01/20 581,364
2,000 Westminster, CA Redev Agy Tax Alloc Rev Coml
Redev Proj No 1 Ser A Rfdg...................... 7.300 08/01/21 2,164,740
-----------
50,905,120
-----------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
PUERTO RICO 2.7%
<S> <C> <C> <C> <C>
$ 1,500 Puerto Rico Pub Bldgs Auth Rev Govt Fac Ser B... 5.250% 07/01/21 $ 1,426,410
-----------
TOTAL LONG-TERM INVESTMENTS 97.6%
(Cost $48,738,080)............................................................ 52,331,530
SHORT-TERM INVESTMENTS 1.1%
(Cost $600,000)............................................................... 600,000
-----------
TOTAL INVESTMENTS 98.7%
(Cost $49,338,080)............................................................ 52,931,530
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3%..................................... 690,665
-----------
NET ASSETS 100.0%.............................................................. $53,622,195
===========
</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. Upon
disposition, a realized gain or loss is recognized accordingly.
(b) Security is a "step up" bond where the coupon increases or steps up at a
predetermined date.
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $49,338,080)........................ $52,931,530
Cash........................................................ 1,348
Interest Receivable......................................... 918,839
Other....................................................... 577
-----------
Total Assets.......................................... 53,852,294
-----------
LIABILITIES:
Payables:
Income Distributions--Preferred Shares.................... 52,507
Investment Advisory Fee................................... 26,433
Affiliates................................................ 7,103
Accrued Expenses............................................ 74,276
Deferred Compensation and Retirement Plans.................. 69,780
-----------
Total Liabilities..................................... 230,099
-----------
NET ASSETS.................................................. $53,622,195
===========
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 1,000,000
shares, 400 shares are issued and outstanding with a
liquidation preference of $50,000 per share).............. $20,000,000
-----------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 3,217,303 shares issued and
outstanding).............................................. 32,173
Paid in Surplus............................................. 29,113,921
Net Unrealized Appreciation................................. 3,593,450
Accumulated Net Realized Gain............................... 470,770
Accumulated Undistributed Net Investment Income............. 411,881
-----------
Net Assets Applicable to Common Shares................ 33,622,195
-----------
NET ASSETS.................................................. $53,622,195
===========
NET ASSET VALUE PER COMMON SHARE ($33,622,195 divided by
3,217,303 shares outstanding)............................. $ 10.45
===========
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $3,381,738
----------
EXPENSES:
Investment Advisory Fee..................................... 320,384
Preferred Share Maintenance................................. 64,673
Accounting Services......................................... 35,780
Audit....................................................... 29,565
Trustees Fees and Expenses.................................. 28,387
Legal....................................................... 8,950
Custody..................................................... 1,920
Other....................................................... 39,320
----------
Total Expenses.......................................... 528,979
----------
NET INVESTMENT INCOME....................................... $2,852,759
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 556,587
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 2,907,755
End of the Period......................................... 3,593,450
----------
Net Unrealized Appreciation During the Period............... 685,695
----------
NET REALIZED AND UNREALIZED GAIN............................ $1,242,282
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $4,095,041
==========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 2,852,759 $ 2,935,023
Net Realized Gain........................................... 556,587 727,805
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 685,695 (746,729)
----------- -----------
Change in Net Assets from Operations........................ 4,095,041 2,916,099
----------- -----------
Distributions from Net Investment Income:
Common Shares............................................. (2,405,288) (2,390,456)
Preferred Shares.......................................... (678,245) (733,594)
----------- -----------
(3,083,533) (3,124,050)
Distributions from Net Realized Gain--Common Shares......... (490,372) (158,645)
----------- -----------
Total Distributions....................................... (3,573,905) (3,282,695)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 521,136 (366,596)
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment.............................................. 224,216 235,180
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... 745,352 (131,416)
NET ASSETS:
Beginning of the Period..................................... 52,876,843 53,008,259
----------- -----------
End of the Period (Including accumulated undistributed net
investment income of $411,881 and $642,655,
respectively)............................................. $53,622,195 $ 52,876,843
=========== ============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------
1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period (a)... $ 10.283 $10.395 $10.301 $10.963
-------- ------- ------- -------
Net Investment Income........................ .888 .919 .951 .956
Net Realized and Unrealized Gain/Loss........ .393 (.001) .111 (.740)
-------- ------- ------- -------
Total from Investment Operations............... 1.281 .918 1.062 .216
-------- ------- ------- -------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders................ .750 .750 .725 .712
Common Share Equivalent of Distributions
Paid to Preferred Shareholders........... .211 .230 .237 .156
Distributions from Net Realized Gain Paid to
Common Shareholders........................ .153 .050 .006 .010
-------- ------- ------- -------
Total Distributions............................ 1.114 1.030 .968 .878
-------- ------- ------- -------
Net Asset Value, End of the Period............. $ 10.450 $10.283 $10.395 $10.301
======== ======= ======= =======
Market Price Per Share at End of the Period.... $12.1875 $10.875 $10.750 $10.625
Total Investment Return at Market Price (b).... 21.40% 9.02% 8.67% 4.32%
Total Return at Net Asset Value (c)............ 10.76% 6.62% 8.47% .35%
Net Assets at End of the Period (In
millions).................................... $53.6 $52.9 $53.0 $52.6
Ratio of Expenses to Average Net Assets
Applicable to Common Shares.................. 1.58% 1.65% 1.65% 1.53%
Ratio of Expenses to Average Net Assets........ .99% 1.03% 1.02% .97%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (d)....... 6.51% 6.57% 7.02% 7.28%
Portfolio Turnover............................. 30% 19% 16% 11%
</TABLE>
(a) 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 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 the value of
the Trust's assets with reinvestment of dividends based upon NAV.
(d) Net investment income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
** If certain expenses had not been assumed by VKAC, 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.
N/A = Not Applicable
12
<PAGE> 14
- --------------------------------------------------------------------------------
<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%**
18% 41% 99% 100% 57%*
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital 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's investment objective is
to provide a high level of current income exempt from federal and California
income taxes with safety of principal. The Trust will invest in a portfolio
consisting substantially of California municipal obligations rated investment
grade at the time of investment. 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. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1997, there were no when
issued or delayed delivery purchase commitments.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
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.
At June 30, 1997, cost of long- and short-term investments for federal
income tax purposes is $49,338,080; the aggregate gross unrealized appreciation
is $3,593,450 and the aggregate gross unrealized depreciation is $0, resulting
in net unrealized appreciation of $3,593,450.
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 year.
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.
For the year ended June 30, 1997, 100% of the income distributions made by
the Trust were exempt from federal income taxes. Additionally, during the
period, the Trust paid long-term capital gains of $473,064. In January, 1998,
the Trust will provide tax information to shareholders for the 1997 calendar
year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
investment advice and facilities to the Trust for an annual fee payable monthly
of .60% of the average net assets of the Trust.
For the year ended June 30, 1997, the Trust recognized expenses of
approximately $4,900 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 June 30, 1997, the Trust recognized expenses of
approximately $42,100 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.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit under the plan is equal to the trustee's annual retainer fee, which is
currently $2,500.
3. CAPITAL TRANSACTIONS
At June 30, 1997 and 1996, paid in surplus related to common shares aggregated
$29,113,921 and $28,889,905, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares......................... 3,197,321 3,175,320
Shares Issued Through Dividend
Reinvestment........................... 19,982 22,001
--------- ---------
Ending Shares............................ 3,217,303 3,197,321
--------- ---------
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $15,529,641 and $16,582,874,
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, 1997, was 3.549%, and for the year then
ended rates ranged from 3.14% to 3.69%.
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.
16
<PAGE> 18
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Trustees and Shareholders of
Van Kampen American Capital California Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital California Municipal Trust (the "Trust"), including the
portfolio of investments, as of June 30, 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 June
30, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital California Municipal Trust as of June 30, 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
July 31, 1997
17
<PAGE> 19
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
automatically reinvested in Common Shares of the Trust.
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
State Street Bank and Trust Company, as your Plan Agent, serves as agent for the
Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the American Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, 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
change 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
18
<PAGE> 20
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
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 retail funds.
19
<PAGE> 21
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA MUNICIPAL 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.
20
<PAGE> 22
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on June 28, 1997, where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the selection of independent public accountants. With regard to the
approval of a new investment advisory agreement between Van Kampen American
Capital Investment Advisory Corp. and the Trust, 2,216,847 shares voted for the
proposal, 68,447 shares voted against, 102,691 shares abstained and 0 shares
represented broker non-votes. With regard to the election of Rod Dammeyer as
elected trustee by the preferred shareholders of the Trust 400 shares voted in
his favor, 0 shares withheld. With regard to the election of Wayne W. Whalen as
elected trustee by the common shareholders of the Trust 2,314,673 shares voted
in his favor, 72,911 shares withheld. The other trustees of the Fund whose terms
did not expire in 1997 are Dennis J. McDonnell, Theodore A. Myers, Hugo
Sonnenschein, David C. Arch and Howard J Kerr. With regard to the ratification
of KPMG Peat Marwick LLP as independent public accountants for the Trust,
2,334,882 shares voted in favor of the proposal, 6,241 shares voted against,
46,861 shares abstained and 0 shares represented broker non-votes.
21
