<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
Statement of Assets and Liabilities.............. 9
Statement of Operations.......................... 10
Statement of Changes in Net Assets............... 11
Financial Highlights............................. 12
Notes to Financial Statements.................... 13
Independent Accountants' Report.................. 17
Dividend Reinvestment Plan....................... 18
</TABLE>
VQC ANR 10/96
<PAGE> 2
LETTER TO SHAREHOLDERS
October 2, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC
Holding Inc., the parent company of Van
Kampen American Capital, Inc., to be
acquired by Morgan Stanley Group Inc. [PHOTO]
While this announcement may appear
commonplace in an ever-changing
financial industry, we believe it
represents an exciting opportunity for DENNIS J. MCDONNELL AND DON G. POWELL
shareholders of our investment
products.
With Morgan Stanley's global leadership
in investment banking and asset management and Van Kampen American Capital's
reputation for competitive long-term performance and superior investor services,
together we will offer a broader range of investment opportunities and
expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. We expect very little change in the way your mutual
fund account is maintained and serviced.
A proxy was mailed to you that explains the acquisition and asks for your
vote of approval. We value our relationship with you and look forward to
communicating more details of this transaction, which is anticipated to close in
October.
ECONOMIC REVIEW AND OUTLOOK
The economy demonstrated an acceleration in growth during the last half of
the 12-month reporting period. After a nominal 0.3 percent rise in the last
quarter of 1995, real GDP (the nation's gross domestic product, adjusted for
inflation) rose by 2.0 percent in this year's first quarter. And, as
anticipated, the economy grew by a much stronger 4.7 percent in the second
quarter, partly reflecting a rebound from the effects of labor strikes earlier
in the year and extreme weather conditions across the country. Upward momentum
has been assisted by consumer spending, as indicated by a 3.0 percent rise in
retail sales in the first eight months of this year (a 4.3 percent rise during
the reporting period).
In the manufacturing sector, economic reports, such as the National
Association of Purchasing Managers Index, suggest a continued rebound in
production from last winter's lower levels. In June, this index reached an
18-month high. Strong exports and a replenishing of inventories have helped
support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent
Continued on page two
1
<PAGE> 3
per year. In general, recent reports have suggested an upward creep in
labor-related costs. The Producer Price Index, which measures prices paid by
wholesalers to producers, has indicated low wholesale prices in the past three
months, from June through August.
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at more moderate rates than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may lean toward greater restraint in its monetary policy in the coming
months. That suggests an upward bias for short-term interest rates and a
continuation of the current trading range for yields on long-term bonds.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of August 31, 1996
<TABLE>
<S> <C>
AAA. . . . . . . . . 47.6%
AA . . . . . . . . . 2.4%
A. . . . . . . . . . 27.2%
BBB. . . . . . . . . 6.8%
BB . . . . . . . . . 1.3%
Non-Rated. . . . . . 14.7%
</TABLE>
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of February 29, 1996
<TABLE>
<S> <C>
AAA. . . . . . . . . 48.9%
AA . . . . . . . . . 2.4%
A. . . . . . . . . . 27.1%
BBB. . . . . . . . . 7.9%
BB . . . . . . . . . 1.4%
Non-Rated. . . . . . 12.3%
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.
PERFORMANCE SUMMARY
For the 12-month period ended August 31, 1996, the Trust generated a total
return at market price of 14.89 percent(1), including reinvestment of income
dividends totaling $1.05 per share. The Trust offered a tax-exempt distribution
rate of 6.51 percent(3), based on the closing common stock price of $16.125 per
share on August 31, 1996. Because income distributions from the Trust are exempt
from federal and state income taxes, this distribution rate represents a yield
equivalent to a taxable investment earning 11.42 percent(4) (for California
residents in the 43 percent combined federal and state income tax bracket).
MUNICIPAL MARKET REVIEW AND OUTLOOK
We witnessed significant movement in municipal bond yields during the first
six months of 1996. Early in the period, the Fed lowered rates in order to
energize the economy and bond prices increased. By late February, however, the
markets became concerned that the Fed would reverse its strategy and raise
rates. As a result, yields, as measured by the Bond Buyer 40 Municipal Bond
Index, rose from 5.6 percent to 6.0 percent during the first six months of 1996.
We believe market conditions for municipal bonds are poised for improvement
in the second half of 1996. Three major factors contribute to our optimism:
- - Near-term concerns about the implementation of major tax reform have faded.
In early 1996, the municipal market was wary of the growing political
sentiment for tax
Continued on page three
2
<PAGE> 4
reform, which could have eroded the value of the market's tax-exempt status.
However, the momentum slowed substantially and now appears to be on the back
burner until after the 1996 presidential election. This has added stability
to the municipal market.
- - For high-income households, tax-exempt bonds provide an attractive after-tax
alternative. Municipal bond yields have elevated to a point where taxable
equivalent yields range between 8.5 and 10 percent for investors in the 31
percent tax bracket or higher.
- - Recent volatility in the equity markets, coupled with higher interest rates,
are leading individual investors, as well as institutions, to reexamine
their allocation of assets. In general, this translates into an increased
emphasis on fixed-income investments, which should lend support to the
municipal market.
Looking ahead, inflation fears and concerns about economic growth may
continue to influence the municipal bond market and trust performance results.
Nevertheless, we are optimistic that tax-exempt securities will produce
attractive results for investors during the remainder of 1996.
We appreciate your continued confidence in your investment with Van Kampen
American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED AUGUST 31, 1996
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY MUNICIPAL TRUST
(NYSE TICKER SYMBOL--VQC)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)............ 14.89%
One-year total return based on NAV(2)..................... 7.60%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3).................................................. 6.51%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 11.42%
SHARE VALUATIONS
Net asset value........................................... $ 16.28
Closing common stock price................................ $16.125
One-year high common stock price (08/29/96)............... $16.250
One-year low common stock price (06/24/96)................ $14.875
Preferred share rate(5)................................... 3.425%
</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.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS
CALIFORNIA 94.0%
$ 1,610 Blythe, CA Redev Agy Redev Proj No 1 Tax Alloc Ser
A Rfdg............................................ 7.500% 05/01/23 $ 1,748,814
1,160 California Edl Fac Auth Rev Harvey Mudd College... 6.100 12/01/13 1,156,798
2,000 California Edl Fac Auth Rev Univ of La Verne...... 6.375 04/01/13 1,997,820
1,800 California Hlth Fac Fin Auth Rev Kaiser Permanente
Ser A............................................. 7.000 12/01/10 1,960,668
3,000 California Hlth Fac Fin Auth Rev Kaiser Permanente
Ser A (FSA Insd).................................. 5.550 08/15/25 2,813,580
2,195 California Hsg Fin Agy Rev Home Mtg Ser E (FHA
Gtd).............................................. 8.350 08/01/19 2,289,648
1,125 California Hsg Fin Agy Rev Home Mtg Ser F (FHA
Gtd).............................................. 6.750 08/01/11 1,171,485
2,120 California Hsg Fin Agy Rev Insd Hsg Ser E (MBIA
Insd)............................................. 7.000 08/01/26 2,208,001
3,000 California Hsg Fin Agy Rev Multi-Unit Rental Hsg
Ser C II.......................................... 6.850 08/01/15 3,095,790
8,190 California Hsg Fin Agy Rev Multi-Unit Rental Hsg
Ser C II.......................................... 6.875 08/01/24 8,438,403
10,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southern CA Edison Co (Embedded Cap) (AMBAC
Insd)............................................. 6.000 07/01/27 9,929,500
4,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southern CA Edison Co Ser B (AMBAC Insd).......... 6.400 12/01/24 4,122,160
7,800 California Pollutn Ctl Fin Auth Solid Waste Disp
Rev North Cnty Recycling Ser A (Prerefunded
07/01/04)......................................... 6.750 07/01/17 8,673,444
1,000 California St (AMBAC Insd)........................ 6.200 02/01/16 1,004,660
3,655 California St Cpn Muni Rcpts...................... * 03/01/08 1,919,094
3,655 California St Cpn Muni Rcpts...................... * 09/01/09 1,742,265
9,600 California St Prin Muni Rcpts..................... * 09/01/09 4,576,128
1,000 California Statewide Cmntys Dev Huntington Mem
Hosp (Connie Lee Insd)............................ 5.800 07/01/26 974,320
1,125 California Statewide Cmntys Dev Auth Rev Ctfs
Partn Saint Joseph Hlth (AMBAC Insd).............. 6.100 07/01/07 1,202,006
9,000 California Statewide Cmntys Dev Corp Ctfs Partn
Insd United Westn Med Cent........................ 6.750 12/01/21 9,447,750
6,500 Capistrano, CA Unified Sch Dist Cmnty Fac Dist Spl
Tax No 87-1 (Prerefunded 10/01/00)................ 8.375 10/01/20 7,505,550
1,600 Carson, CA Impt Bond Act 1915 Assmt Dist No
92-1.............................................. 7.375 09/02/22 1,665,008
1,000 Central Contra Costa, CA Santn Dist Rev Wastewtr
Fac Impt Proj (MBIA Insd)......................... 6.250 09/01/11 1,051,220
1,870 Central San Joaquin Vly, CA Risk Mgmt Auth Rev
Pooled Workers C.................................. * 08/01/97 1,802,399
1,860 Central San Joaquin Vly, CA Risk Mgmt Auth Rev
Pooled Workers C.................................. * 02/01/98 1,748,791
1,930 Central San Joaquin Vly, CA Risk Mgmt Auth Rev
Pooled Workers C.................................. * 08/01/98 1,771,451
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,940 Central San Joaquin Vly, CA Risk Mgmt Auth Rev
Pooled Workers C.................................. * 02/01/99 $ 1,737,037
2,000 Central San Joaquin Vly, CA Risk Mgmt Auth Rev
Pooled Workers C.................................. * 08/01/99 1,750,320
1,895 Central San Joaquin Vly, CA Risk Mgmt Auth Rev
Pooled Workers C.................................. * 02/01/00 1,615,582
2,055 Central San Joaquin Vly, CA Risk Mgmt Auth Rev
Pooled Workers C.................................. * 02/01/01 1,659,063
2,660 Chula Vista, CA Redev Agy Tax Alloc Sr Bayfront
Ser D Rfdg........................................ 8.625% 09/01/24 3,126,059
1,176 Contra Costa Cnty, CA Multi-Family Hsg Rev
Crescent Park Apts Proj Ser B (GNMA
Collateralized)................................... 7.800 12/20/14 1,308,606
1,000 Contra Costa Cnty, CA Pub Fin Auth Tax Alloc Rev
Ser A............................................. 7.100 08/01/22 1,056,540
1,935 Delano, CA Ctfs Partn Ser A....................... 9.250 01/01/22 2,156,345
945 Fairfield, CA Hsg Auth Mtg Rev Creekside Estates
Proj Rfdg......................................... 7.875 02/01/15 965,223
11,000 Foothill/Eastern Tran Agy Cap Apprec Sr Lien Ser
A................................................. * 01/01/27 1,404,920
2,000 Foothill/Eastern Tran Agy Conv Cap Apprec Sr Lien
Ser A (b)......................................... 0/7.050 01/01/10 1,226,720
1,500 Huntington Beach, CA Pub Fin Auth Rev Huntington
Beach Redev Proj.................................. 7.000 08/01/24 1,416,000
665 Inglewood, CA Redev Agy Tax Alloc Century Redev
Proj Ser A........................................ 6.125 07/01/23 637,928
3,205 Lompoc, CA Wtr & Wastewtr Impts Fin Auth Rev Wtr &
Wastewtr Sys Fin Proj Ser A (MBIA Insd)........... 6.700 03/01/22 3,468,804
5,000 Long Beach, CA Harbor Rev Ser A (MBIA Insd)....... 7.375 05/15/09 5,298,350
1,000 Long Beach, CA Harbor Rev Ser A (MBIA Insd)....... 7.250 05/15/19 1,060,360
7,000 Los Angeles Cnty, CA Ctfs Partn Multi-Cap Fac Proj
(Embedded Swap)................................... 7.990 11/01/11 7,060,270
12,000 Los Angeles Cnty, CA Pension Oblig Ctfs Ltd Muni
Oblig Ser A (MBIA Insd)........................... 6.900 06/30/08 13,665,000
1,865 Los Angeles, CA Cmnty Redev Agy Ctfs Partn
Allright Garage................................... 7.550 11/01/08 1,956,404
1,780 Los Angeles, CA Single Family Home Mtg Rev Pgm Ser
A (GNMA Collateralized)........................... 6.875 06/01/25 1,830,285
825 Mendota & Parlier, CA Unified Sch Dist Ctfs Partn
Cap Outlay Fin Pgm................................ 7.400 01/01/06 831,881
195 Mendota & Parlier, CA Unified Sch Dist Ctfs Partn
Cap Outlay Fin Pgm................................ 7.500 01/01/11 195,823
635 Mendota & Parlier, CA Unified Sch Dist Ctfs Partn
Cap Outlay Fin Pgm................................ 7.550 01/01/17 637,305
1,000 Montebello, CA Unified Sch Dist Ctfs Partn Cap
Impts Proj........................................ 6.300 06/01/11 1,014,310
2,490 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded
Cap) (AMBAC Insd)................................. 5.125 12/01/23 2,201,533
1,830 Newport Beach, CA Spl Tax Spl Impt Dist No 95-1
Ser A............................................. 6.750 09/01/20 1,794,864
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,000 Oakland, CA Unified Sch Dist Almeda............... 7.000% 11/15/11 $ 1,064,940
2,000 Oakland, CA Unified Sch Dist Energy Retrofit
Proj.............................................. 6.750 11/15/14 1,949,100
2,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd)... 5.750 06/01/15 1,978,320
6,000 Paramount, CA Redev Agy Tax Alloc Redev Proj Area
No 1 Ser B (MBIA Insd)............................ * 08/01/26 835,320
1,500 Pasadena, CA Spl Tax Cmnty Fac Dist No 1 Civic
Cent West......................................... * 12/01/07 681,300
2,000 Pasadena, CA Spl Tax Cmnty Fac Dist No 1 Civic
Cent West......................................... * 12/01/17 407,260
2,000 Port Oakland, CA Port Rev Ser A (BIGI Insd)....... 7.600 11/01/16 2,078,460
1,000 Port of Oakland, CA Spl Fac Rev Mitsui O.S.K. Line
Ltd Ser A......................................... 6.800 01/01/19 1,039,830
1,250 Redding, CA Redev Agy Tax Alloc Market Street
Redev Proj Ser A.................................. 6.700 09/01/23 1,282,488
1,000 Redondo Beach, CA Pub Fin Auth Rev South Bay Ctr
Redev Proj........................................ 7.000 07/01/16 998,270
2,000 Richmond, CA Rev YMCA East Bay Proj Rfdg.......... 7.250 06/01/17 2,006,900
5,000 Sacramento, CA City Fin Auth Rev (Prerefunded @
11/01/01)......................................... 6.800 11/01/20 5,588,200
6,000 San Diego Cnty, CA Wtr Auth Wtr Rev Ctfs Partn Ser
91B (Inverse Fltg) (MBIA Insd).................... 8.730 04/08/21 6,405,000
2,650 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (MBIA Insd)................................. 6.400 09/01/18 2,787,853
11,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (Embedded Cap) (AMBAC Insd)................. 6.100 09/01/19 11,034,320
2,305 San Francisco, CA City & Cnty Redev Agy Hotel Tax
Rev (FSA Insd).................................... 6.750 07/01/15 2,520,195
5,000 San Francisco, CA City & Cnty Redev Agy Lease Rev
George Moscone.................................... * 07/01/08 2,503,700
3,520 San Francisco, CA City & Cnty Redev Agy Lease Rev
George Moscone.................................... * 07/01/09 1,641,939
4,250 San Francisco, CA City & Cnty Redev Agy Lease Rev
George Moscone.................................... * 07/01/12 1,621,035
2,130 San Francisco, CA City & Cnty Redev Agy Lease Rev
George Moscone.................................... * 07/01/14 700,898
800 San Francisco, CA City & Cnty Redev Agy Lease Rev
George Moscone (FSA Insd)......................... 6.750 07/01/15 874,152
1,000 San Jose, CA Arpt Rev (AMBAC Insd)................ 7.500 03/01/18 1,057,400
1,000 San Jose, CA Single Family Mtg Rev Ser A Cap
Apprec............................................ * 04/01/16 309,410
1,000 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (AMBAC Insd)............... 6.875 11/15/14 1,103,600
1,000 Santa Clara, CA Impt Bond Act 1915 Assessment Dist
187 Ser 1996-1.................................... 7.000 09/02/11 1,000,450
2,000 Santa Clarita, CA Cmnty Fac Dist Spl Tax No 92-1
Ser A............................................. 7.450 11/15/10 2,096,460
1,790 Southern CA Home Fin Auth Single Family Mtg Rev
Pgm B (GNMA Collateralized)....................... 6.900 10/01/24 1,846,367
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 5,000 Southern CA Pub Pwr Auth Pwr Proj Rev
Multi-Projs....................................... 6.750% 07/01/12 $ 5,550,650
2,750 Tulare, CA Loc Hosp Dist Hlth Fac Rev Ser A....... 6.750 12/01/21 2,863,795
1,000 Valley Hlth Sys CA Hosp Rev Proj Ser A Rfdg &
Impt.............................................. 6.500 05/15/25 960,150
1,000 Waugh, CA Sch Dist Spl Tax Corona/Ely Cmnty Facs
Dist 1 (AMBAC Insd)............................... 5.800 09/01/26 982,560
2,785 Yolo Cnty, CA Hsg Auth Mtg Rev Mtg Waggener Ranch
Proj (FHA Gtd).................................... 7.000 10/01/33 2,865,737
------------
217,728,344
------------
GUAM 0.5%
1,000 Guam Arpt Auth Rev Ser B.......................... 6.700 10/01/23 1,017,260
------------
PUERTO RICO 0.7%
1,635 Puerto Rico Hsg Fin Single Family Mtg Rev
Portfolio 1 C (GNMA Collateralized)............... 6.850 10/15/23 1,697,130
------------
U. S. VIRGIN ISLANDS 3.1%
6,750 Virgin Islands Pub Fin Auth Rev Matching Fd Ln Nts
Ser A Rfdg........................................ 7.250 10/01/18 7,175,047
------------
TOTAL LONG-TERM INVESTMENTS 98.3%
(Cost $215,182,687) (a)....................................................... 227,617,781
SHORT-TERM INVESTMENTS AT AMORTIZED COST 0.4%.................................. 1,007,459
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3%..................................... 3,069,209
------------
NET ASSETS 100%................................................................ $231,694,449
============
</TABLE>
*Zero coupon bond
(a) At August 31, 1996, cost for federal income tax purposes is $215,182,687;
the aggregate gross unrealized appreciation is $13,096,050 and the aggregate
gross unrealized depreciation is $660,956, resulting in net unrealized
appreciation of $12,435,094.
(b) Security is currently a zero coupon bond which will convert to a coupon
paying bond at a predetermined date.
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $215,182,687) (Note 1).............. $227,617,781
Short-Term Investments (Note 1)........................................ 1,007,459
Cash................................................................... 140,076
Receivables:
Interest............................................................. 3,444,693
Investments Sold..................................................... 55,000
Unamortized Organizational Expenses (Note 1)........................... 428
Other.................................................................. 4,366
------------
Total Assets..................................................... 232,269,803
------------
LIABILITIES:
Payables:
Income Distributions--Common and Preferred Shares.................... 203,634
Investment Advisory Fee (Note 2)..................................... 138,703
Administrative Fee (Note 2).......................................... 39,629
Distributor and Affiliates (Note 2).................................. 16,588
Accrued Expenses....................................................... 129,661
Deferred Compensation and Retirement Plans (Note 2).................... 47,139
------------
Total Liabilities................................................ 575,354
------------
NET ASSETS............................................................. $231,694,449
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 1,500
issued with liquidation preference of $50,000 per share) (Note 5).... $ 75,000,000
------------
Common Shares ($.01 par value with an unlimited number of shares
authorized, 9,623,295 shares issued and outstanding)................. 96,233
Paid in Surplus........................................................ 142,409,084
Net Unrealized Appreciation on Securities.............................. 12,435,094
Accumulated Net Realized Gain on Securities............................ 893,867
Accumulated Undistributed Net Investment Income........................ 860,171
------------
Net Assets Applicable to Common Shares........................... 156,694,449
------------
NET ASSETS............................................................. $231,694,449
============
NET ASSET VALUE PER COMMON SHARE ($156,694,449 divided
by 9,623,295 shares outstanding)..................................... $ 16.28
============
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................ $14,693,797
------------
EXPENSES:
Investment Advisory Fee (Note 2)........................................ 1,626,464
Administrative Fee (Note 2)............................................. 464,704
Preferred Share Maintenance (Note 5).................................... 205,601
Trustees Fees and Expenses (Note 2)..................................... 32,537
Legal (Note 2).......................................................... 26,718
Amortization of Organizational Expenses (Note 1)........................ 6,010
Other................................................................... 216,458
------------
Total Expenses.................................................... 2,578,492
------------
NET INVESTMENT INCOME................................................... $12,115,305
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments........................................ $ 1,920,906
------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period............................................... 12,117,129
End of the Period:
Investments......................................................... 12,435,094
------------
Net Unrealized Appreciation on Securities During the Period............. 317,965
------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES.......................... $ 2,238,871
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.............................. $14,354,176
===========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended August 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1996 August 31, 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 12,115,305 $ 12,211,079
Net Realized Gain/Loss on Securities................... 1,920,906 (587,488)
Net Unrealized Appreciation on Securities During the
Period............................................... 317,965 5,627,457
------------ ------------
Change in Net Assets from Operations................... 14,354,176 17,251,048
------------ ------------
Distributions from Net Investment Income:
Common Shares........................................ (10,104,222) (10,104,283)
Preferred Shares..................................... (2,753,746) (2,997,032)
------------ ------------
(12,857,968) (13,101,315)
------------ ------------
Distributions from and in Excess of Net Realized Gain
on Securities:
Common Shares........................................ -0- (21,171)
Preferred Shares..................................... -0- (5,130)
------------ ------------
-0- (26,301)
------------ ------------
Total Distributions.................................... (12,857,968) (13,127,616)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 1,496,208 4,123,432
NET ASSETS:
Beginning of the Period................................ 230,198,241 226,074,809
------------ ------------
End of the Period (Including undistributed net
investment income of $860,171 and $1,602,546,
respectively)........................................ $231,694,449 $230,198,241
============ ============
</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>
Year Ended August 31 September 27, 1991
(Commencement
of Investment
---------------------------------- Operations) to
1996 1995 1994 1993 August 31, 1992
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
the Period (a)................ $16.127 $15.699 $17.454 $15.816 $14.805
------- ------- ------- ------- -------
Net Investment Income......... 1.259 1.269 1.286 1.305 1.038
Net Realized and Unrealized
Gain/Loss on Securities..... .233 .523 (1.693) 1.658 .870
------- ------- ------- ------- -------
Total from Investment
Operations.................... 1.492 1.792 (.407) 2.963 1.908
------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders.............. 1.050 1.050 1.050 .981 .698
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders.... .286 .311 .235 .206 .199
Distributions from and in
Excess of Net Realized Gain
on Securities:
Paid to Common
Shareholders.............. -0- .002 .054 .110 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders.... -0- .001 .009 .028 -0-
------- ------- ------- ------- -------
Total Distributions............ 1.336 1.364 1.348 1.325 .897
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................ $16.283 $16.127 $15.699 $17.454 $15.816
======= ======= ======= ======= =======
Market Price Per Share at End
of the Period................. $16.125 $15.000 $15.500 $16.750 $15.125
Total Investment Return at
Market Price (b).............. 14.89% 3.95% (.90%) 18.66% 5.69%*
Total Return at Net Asset Value
(c)........................... 7.60% 10.02% (3.81%) 17.89% 11.80%*
Net Assets at End of the Period
(In millions)................. $ 231.7 $ 230.2 $ 226.1 $ 243.0 $ 227.2
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares................. 1.64% 1.66% 1.62% 1.58% 1.55%
Ratio of Expenses to Average
Net Assets.................... 1.11% 1.10% 1.10% 1.07% 1.09%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common Shares
(d)........................... 5.95% 6.22% 6.34% 6.70% 6.09%
Portfolio Turnover............. 10% 16% 7% 26% 93%*
</TABLE>
(a) Net asset value at September 27, 1991, is adjusted for common and preferred
share offering costs of $.195 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
See Notes to Financial Statements
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital California Quality 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 consistent with preservation of capital. The Trust will invest in a
portfolio consisting substantially of California municipal obligations rated
investment grade at the time of investment, but may invest up to 20% of its
assets in unrated securities which are believed to be of comparable quality to
those rated investment grade. The Trust commenced investment operations on
September 27, 1991.
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 August 31, 1996, there were no
when issued or delayed delivery purchase commitments.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL EXPENSES--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization and initial registration in the amount
of $30,000. These costs are being amortized on a straight line basis over the
60-month period ending September 26, 1996. Van Kampen American Capital
Investment Advisory Corp. (the "Adviser") has agreed that in the event any of
the initial shares of the Trust originally purchased by VKAC are redeemed during
the amortization period, the Trust will be reimbursed for any unamortized
organizational expenses in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of post October 31 losses which may not be
recognized for tax purposes until the first day of the following fiscal year.
F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually 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. Permanent book and tax basis
differences relating to the recognition of certain expenses which are not
deductible for tax purposes totaling $288 have been reclassified from
accumulated undistributed net investment income to paid in surplus.
For the year ended August 31, 1996, 100% of the income distributions made by
the Trust were exempt from federal income taxes. In January, 1997, the Trust
will provide tax information to shareholders for the 1996 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .70% of
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
the average net assets of the Trust. In addition, the Trust will pay a monthly
administrative fee to VKAC, the Trust's Administrator, at an annual rate of .20%
of the average net assets of the Trust. The administrative services provided by
the Administrator include record keeping and reporting responsibilities with
respect to the Trust's portfolio and preferred shares and providing certain
services to shareholders.
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 August 31, 1996, the Trust recognized expenses of
approximately $21,900 representing VKAC's cost of providing accounting and legal
services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At August 31, 1996, VKAC owned 6,700 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $23,995,090 and $30,721,758,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on securities. Upon disposition, a realized gain or
loss is recognized accordingly.
The following types of Indexed Securities are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
A. An Inverse Floating security is one where the coupon is inversely indexed
to a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises,
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
the coupon is reduced. Conversely, as the floating rate declines, the coupon is
increased. These instruments are typically used by the Trust to enhance the
yield of the portfolio.
B. 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 Trust invests in these
instruments as a hedge against a rise in the short-term interest rates which it
pays on its preferred shares.
C. An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the security's fixed swap rate and the floating swap index. As the floating rate
rises, the coupon is reduced. Conversely, as the floating rate declines, the
coupon is increased. 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.
5. PREFERRED SHARES
The Trust has outstanding 1,500 shares of Auction Preferred Shares ("APS").
Dividends are cumulative and the rate is reset through an auction process every
28 days. The rate in effect on August 31, 1996, was 3.425% and for the year then
ended rates ranged from 3.425% to 3.90%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests, and the APS are subject to
mandatory 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 Quality Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital California Quality Municipal Trust (the "Trust"),
including the portfolio of investments, as of August 31, 1996, 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
August 31, 1996, 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 Quality Municipal Trust as of August 31,
1996, 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
October 11, 1996
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
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen American Capital
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
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
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
19
<PAGE> 21
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA QUALITY 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
WILLIAM N. BROWN*
PETER W. HEGEL*
Vice Presidents
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 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., 1996
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
20
