<PAGE> 1
LETTER TO SHAREHOLDERS
September 21, 1998
Dear Shareholder,
Recently, we decided to consolidate
all Van Kampen American Capital funds
under the single name of Van Kampen
Funds. This move accompanies the change
in the legal name of our firm to Van [PHOTO]
Kampen Funds Inc. Consequently, your
Trust's name was changed to Van Kampen
California Quality Municipal Trust on
August 28. You can be assured that the DENNIS J. MCDONNELL AND DON G. POWELL
change in your Trust's name will not
affect its management or daily
operations, and your Trust will continue to trade under its current ticker
symbol. If you have any questions regarding your investment or our new name,
please contact your financial adviser.
ECONOMIC OVERVIEW
The economy grew at a moderate rate for much of the past year, accompanied
by low inflation. During the three quarters that ended June 30, growth
accelerated at a 3.4 percent annual rate, while consumer prices rose 1.4
percent.
Beneath this tranquil scenario, however, lay periods of economic and
financial volatility. During the first quarter, for example, growth surged at a
5.5 percent annual rate, fueled by heavy consumer spending and business
inventory buildup. By the second quarter, growth had slowed to a sluggish 1.6
percent annual pace, due to the deepening Asian economic crisis and the General
Motors strike.
Despite the weakening economy, the dollar rallied as foreign investors
sought refuge from global turmoil by purchasing U.S. Treasury securities. The
strong dollar raised the price of U.S. exports and cut the price of imports. As
a result, U.S. companies found they could neither maintain their foreign sales
nor compete easily with cheap imports here. Corporate earnings fell, and U.S.
stock prices retreated. By August 31, the Dow Jones Industrial Average was down
19 percent from its mid-July high.
In California, the economy expanded at a brisk pace although exports to Asia
slowed. The state's financial position improved along with the economy, leading
Governor Pete Wilson to project an 11 percent increase in revenues for the
current fiscal year. Despite these achievements, the state faces pressures from
property tax limits and increased school funding requirements. It has only
minimal reserves to weather an economic downturn.
MARKET OVERVIEW
The stock market rout and foreign economic turmoil were nothing but good
news for bonds. The Federal Reserve refrained from raising interest rates to
avoid aggravating Asia's crisis, and investors worldwide aggressively bought
U.S. Treasury securities. Because
Continued on page 2
1
<PAGE> 2
these purchases occurred at a time when the supply of new Treasury issues was
declining, Treasury bond prices rocketed to record levels. On August 31, the Dow
Jones Industrial Average fell 512 points, and the 30-year Treasury bond yield,
which moves in the opposite direction of its price, fell to a record low of 5.25
percent. A year earlier, its yield was 6.61 percent.
Municipal bonds followed the gains in Treasuries but, true to form, they
didn't rally as strongly. While long-term Treasury bond yields fell 136 basis
points during the past year, the yield of the AAA-rated general obligation
municipal bond fell only 44 basis points to 4.86 percent on August 31, 1998,
from 5.30 percent a year earlier.
Municipal bonds were hampered by an excess of supply relative to demand.
State and local governments, taking advantage of the market's low interest
rates, issued $190 billion worth of bonds during the first seven months of this
year--47 percent more than they had issued during the comparable period last
year.
Despite an abundant supply from which to choose, U.S. investors were
reluctant to purchase municipal bonds because of their relatively low yields,
and foreign investors had even less interest because they had no need for the
tax-exempt income. Compounding the situation was the flood of insured issues,
which accounted for almost 60 percent of the new supply. As a result, fewer
lower-rated, higher-yielding bonds were issued, and the yield spread between
higher-quality and lower-quality bonds narrowed.
[PORTFOLIO COMPOSITION PIE CHART]
Portfolio Composition By Credit Quality*
As Of August 31, 1998
AAA...................... 49.7%
AA....................... 0.9%
A........................ 21.2%
BBB...................... 11.8%
BB....................... 0.7%
Non-Rated................ 15.7%
*As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as issued by Standard & Poor's of
Moody's.
TRUST STRATEGY
We used the following strategies to manage the Trust during the period:
We replaced bonds that had been called or were prerefunded for calls later
this year due to the drop in interest rates. These bonds accounted for about 6
percent of the Trust's portfolio. Like most bonds in the portfolio, they were
purchased when the Trust was created in 1991, a time of significantly higher
interest rates. If interest rates remain low, approximately 19 percent of the
current portfolio will face potential calls from 1999 through 2003. We did not
replace these bonds, however, because their yields are substantially higher than
current market yields.
Continued on page 3
2
<PAGE> 3
We purchased long-term bonds in order to extend the call protection of the
Trust. Most were discount bonds, which have the potential to appreciate faster
than par or premium bonds during periods of falling interest rates. Discount
bonds also have longer durations, which means they are more sensitive to
changing rates. Our purchases of discount bonds helped to offset some of the
decline in the Trust's duration due to calls and prerefundings. As of August 31,
the duration of the Trust stood at 7.13 years, compared with 8.11 years for the
Lehman Brothers Municipal Bond Index (excluding bonds maturing in five years or
less).
Our purchases favored lower-quality bonds because they provide a greater
yield than higher-quality bonds and, therefore, help to maintain the Trust's
dividend payouts. In order to qualify for inclusion in the Trust, however, all
purchases were rated the equivalent of BBB or higher by our research staff,
although some were not rated by outside ratings agencies. As a result of these
acquisitions, the percentage of lower-quality bonds in the Trust rose slightly.
TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR*
AS OF
AUGUST 31, 1998
General Purpose............................................. 19.5%
Tax District................................................ 12.9%
Retail Electric/Gas/Telephone............................... 10.9%
Multi-Family Housing........................................ 10.5%
Health Care................................................. 8.3%
*As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the 12-month period ended August 31, 1998, the Trust generated a total
return of 12.96 percent(1) at market price. This reflects a gain in market price
per common share from $16.8125 on August 31, 1997, to $17.8750 on August 31,
1998, plus reinvestment of all dividends. The Trust had a tax-exempt
distribution rate of 5.54 percent(3), based on the closing price of its common
shares. Because income from the Trust is exempt from federal and state income
taxes, this distribution rate is equivalent to a yield of 9.55 percent(4) on a
taxable investment (for investors in the combined federal and state income tax
bracket of 42 percent). Please refer to the chart on page 7 for additional
performance numbers.
Continued on page 4
3
<PAGE> 4
[DISTRIBUTION HISTORY GRAPH]
Twelve-Month Distribution History
For the Period Ended August 31, 1998
<TABLE>
<CAPTION>
Capital Gains Dividends
<S> <C> <C>
Sep 1997.................... $ $ .0825
Oct 1997.................... .0825
Nov 1997.................... .0825
Dec 1997.................... .0675 .0825
Jan 1998.................... .0825
Feb 1998.................... .0825
Mar 1998.................... .0825
Apr 1998.................... .0825
May 1998.................... .0825
Jun 1998.................... .0825
Jul 1998.................... .0825
Aug 1998.................... .0825
</TABLE>
The distribution history represents past performance of the Trust and does not
predict the Trust's future distribution.
ECONOMIC OUTLOOK
We believe the economy will rebound later this year, provided some stability
is restored in the stock market. Domestic economic activity remains strong
despite the market's decline and should overcome many of the negative effects of
the global economic crisis. In Asia, where the crisis began, there are signs of
potential rebounds. If the economic crisis in Asia, Russia, and other emerging
markets continues unabated, however, we believe the Fed will refrain from
raising rates and could even lower them. Fed Chairman Alan Greenspan
acknowledged as much in a recent speech, when he disclosed that Fed
policy-makers had abandoned their bias toward a rate hike in favor of a neutral
position. Due to events overseas, policy-makers are now more concerned about an
economic slowdown than about rising inflation, Greenspan indicated. The impact
of slower economic growth abroad should help to offset any acceleration in
domestic inflation.
We will closely monitor these global events and their effects on the
performance of the Trust, adjusting the portfolio when appropriate. We remain
committed to providing a high level of tax-exempt income while preserving
shareholders' capital. Thank you for your continued support and confidence in
Van Kampen and the management of your Trust.
Sincerely,
[sig]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[sig]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
Please see footnotes on page 7
4
<PAGE> 5
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial call price is
usually higher than the face value of the bond. Bonds are usually called when
interest rates drop so significantly that the issuer can save money by issuing
new bonds at lower rates.
A callable bond is "priced to call" when it is selling at a premium,
because it is assumed that the issuer will redeem the bond at its call date,
rather than at maturity.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are two
companies that assign bond ratings. Standard & Poor's ratings range from a high
of AAA to a low of D, while Moody's ratings range from a high of Aaa to a low of
C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Normally, lower-quality issues provide higher yields to compensate investors for
the additional credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has more
potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways and
schools.
5
<PAGE> 6
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic indicator
that measures the change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA-rated. Recently, an A-rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A-rated.
MARKET PRICE: The price of a share of a closed-end fund trading on a stock
exchange. When the price is less than a fund's net asset value, the fund is
trading at a discount. When the price is more than the NAV, the fund is trading
at a premium.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding.
PREREFUNDING: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
6
<PAGE> 7
PERFORMANCE RESULTS FOR THE PERIOD ENDED AUGUST 31, 1998
VAN KAMPEN 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)........... 12.96%
One-year total return based on NAV(2).................... 10.99%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 5.54%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 9.55%
SHARE VALUATIONS
Net asset value.......................................... $ 17.85
Closing common stock price............................... $17.8750
One-year high common stock price (08/18/98).............. $18.1875
One-year low common stock price (10/22/97)............... $16.4375
Preferred share rate(5).................................. 3.100%
</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 42%
combined federal and state tax bracket, which takes into consideration the
deductibility of individual state taxes paid.
(5)See "Notes to Financial Statements" footnote #6, 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.
On August 20, 1998, the Trust's Board of Trustees voted to change the
Trust's fiscal year end from August 31 to October 31, effective at the close of
the August 31, 1998 fiscal year. As a result, the new fiscal year will commence
on September 1, 1998 and end on October 31, 1998; however, you will not receive
an annual report for the two-month transition period from August 31, 1998 to
October 31, 1998. Instead, the financial information for those two months will
appear in a separate column in the April 30, 1999, semiannual report. If you
would like to receive the audited financial statements for this two-month
period, please contact our Investor Services Department at 1-800-341-2929.
7
<PAGE> 8
PORTFOLIO OF INVESTMENTS
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 99.1%
CALIFORNIA 94.0%
$ 2,100 Alameda, CA Pub Fin Auth Rev Marina Vlg Assmt
Dist Rfdg....................................... 6.375% 09/02/14 $ 2,162,811
1,000 Bakersfield, CA Ctfs Partn Convention Cent
Expansion Proj (MBIA Insd)...................... 5.875 04/01/22 1,084,080
1,090 Baldwin Pk, CA Pub Fin Auth San Gabriel River
Tax Alloc....................................... 5.000 08/01/21 1,084,070
1,610 Blythe, CA Redev Agy Redev Proj No 1 Tax Alloc
Ser A Rfdg...................................... 7.500 05/01/23 1,859,325
1,055 Borrego, CA Wtr Dist Ctfs Partn Wtr Sys
Acquisition..................................... 7.000 04/01/27 1,140,571
1,000 California Edl Fac Auth Rev Pooled Coll & Univ
Projs B......................................... 6.125 04/01/13 1,085,970
2,000 California Edl Fac Auth Rev Student Ln CA Ln Pgm
Ser A (MBIA Insd)............................... 6.000 03/01/16 2,104,220
2,000 California Edl Fac Auth Rev Univ of La Verne.... 6.375 04/01/13 2,138,520
1,800 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A................................ 7.000 12/01/10 1,944,738
1,000 California Hsg Fin Agy Rev Home Mtg Ser B (MBIA
Insd)........................................... 6.100 02/01/28 1,066,660
1,000 California Hsg Fin Agy Rev Home Mtg Ser E (AMBAC
Insd)........................................... 6.100.. 08/01/29 1,069,040
1,090 California Hsg Fin Agy Rev Home Mtg Ser F (FHA
Gtd)............................................ 6.750 08/01/11 1,160,905
1,000 California Hsg Fin Agy Rev Home Mtg Ser M (MBIA
Insd)........................................... 5.550 08/01/17 1,041,170
2,120 California Hsg Fin Agy Rev Insd Hsg Ser E (MBIA
Insd)........................................... 7.000 08/01/26 2,245,440
3,000 California Hsg Fin Agy Rev Multi-Unit Rental Hsg
Ser C II........................................ 6.850 08/01/15 3,214,530
8,190 California Hsg Fin Agy Rev Multi-Unit Rental Hsg
Ser C II........................................ 6.875 08/01/24 8,752,817
10,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southn CA Edison Co (AMBAC Insd)................ 6.000 07/01/27 10,747,700
4,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southn CA Edison Co Ser B (AMBAC Insd).......... 6.400 12/01/24 4,385,440
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 8,685,066
850 California Rural Home Mtg Fin Auth Single Family
Mtg Rev Ser C (GNMA Collateralized)............. 7.800 02/01/28 986,043
1,000 California St (AMBAC Insd)...................... 6.200 02/01/16 1,021,860
3,500 California St Ser BH (FSA Insd)................. 5.200 12/01/11 3,556,385
1,000 California St Ser BH (FSA Insd)................. 5.400 12/01/15 1,025,360
1,000 California St Ser BH (FSA Insd)................. 5.400 12/01/16 1,025,360
3,655 California St Cpn Muni Rcpts.................... * 03/01/08 2,413,872
3,655 California St Cpn Muni Rcpts.................... * 09/01/09 2,234,228
9,600 California St Prin Muni Rcpts................... * 09/01/09 5,868,288
4,000 California Statewide Cmntys Dev Auth Spl Fac
United Airls.................................... 5.625 10/01/34 4,107,720
8,000 California Statewide Cmntys Dev Corp Ctfs Partn
Insd United Westn Med Cent (Prerefunded @
12/01/01)....................................... 6.750 12/01/21 8,888,720
</TABLE>
See Notes to Financial Statements
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,000 Camarillo, CA Multi-Family Hsg Pk Glenn Apts
(FNMA Insd)..................................... 5.400% 03/01/28 $ 1,014,100
1,555 Carson, CA Impt Bond Act 1915 Assmt Dist No
92-1............................................ 7.375 09/02/22 1,705,182
1,000 Central Contra Costa, CA Santn Dist Rev Wastewtr
Fac Impt Proj (MBIA Insd)....................... 6.250 09/01/11 1,124,740
2,055 Central San Joaquin Vly, CA Risk Mgmt Auth Rev
Pooled Workers Ser C............................ * 02/01/01 1,865,221
2,605 Chula Vista, CA Redev Agy Tax Alloc Sr Bayfront
Ser D Rfdg...................................... 8.625 09/01/24 3,247,653
2,000 Contra Costa Cnty, CA Ctfs Partn Merrithew Mem
Hosp Proj Rfdg (MBIA Insd)...................... 5.500 11/01/22 2,110,040
1,000 Contra Costa Cnty, CA Pub Fin Auth Tax Alloc Rev
Ser A........................................... 7.100 08/01/22 1,101,000
1,000 Davis, CA Pub Fac Fin Auth Loc Agy Rev Mace
Ranch Area Ser A................................ 6.500 09/01/15 1,067,670
1,000 Delano, CA Ctfs Partn Delano Regal Med Cent..... 5.250 01/01/18 982,650
1,935 Delano, CA Ctfs Partn Ser A (Prerefunded @
01/01/03)....................................... 9.250 01/01/22 2,400,677
1,000 Duarte, CA Redev Agcy Tax Alloc Davis Addition
Proj Area Rfdg.................................. 6.700 09/01/14 1,076,230
905 Fairfield, CA Hsg Auth Mtg Rev Creekside Estates
Proj Rfdg....................................... 7.875 02/01/15 944,078
1,000 Folsom, CA Spl Tax Cmnty Fac Dist No 2 Rfdg
(Connie Lee Insd)............................... 5.250 12/01/19 1,021,660
1,000 Fontana, CA Redev Agy Tax Southeast Indl Park
Proj Rfdg (MBIA Insd) (b)....................... 5.000 09/01/22 991,030
6,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap
Apprec Sr Lien Ser A............................ * 01/01/27 1,370,460
2,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Conv Cap Apprec Sr Lien Ser A (a)............... 0/7.050 01/01/10 1,619,580
1,500 Huntington Beach, CA Pub Fin Auth Rev Huntington
Beach Redev Proj................................ 7.000 08/01/24 1,588,575
1,000 Huntington Park, CA Pub Fin Auth Lease Rev
Wastewtr Sys Proj Ser A......................... 6.200 10/01/25 1,041,030
1,000 Imperial, CA Irrig Dist Elec Rev Sys Rfdg (MBIA
Insd)........................................... 5.000 11/01/18 1,003,760
665 Inglewood, CA Redev Agy Tax Alloc Centy Redev
Proj Ser A...................................... 6.125 07/01/23 701,701
3,205 Lompoc, CA Wtr & Wastewtr Impts Fin Auth Rev Wtr
& Wastewtr Sys Fin Proj Ser A (Prerefunded @
03/01/02) (MBIA Insd)........................... 6.700 03/01/22 3,535,852
4,000 Los Angeles Cnty, CA Ctfs Partn (Prerefunded @
11/01/01)....................................... 6.600 11/01/11 4,415,400
12,000 Los Angeles Cnty, CA Pension Oblig Ctfs Ltd Muni
Oblig Ser A (MBIA Insd) (c)..................... 6.900 06/30/08 14,564,520
1,730 Los Angeles, CA Cmnty Redev Agy Ctfs Partn
Allright Garage (Prerefunded @ 05/01/03)........ 7.550 11/01/08 1,977,390
1,900 Los Angeles, CA Ctfs Partn...................... 5.700 02/01/18 1,922,952
</TABLE>
See Notes to Financial Statements
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 2,500 Los Angeles, CA Multi-Family Rev Hsg Earthquake
Rehab Proj Ser A (FNMA Insd).................... 5.700% 12/01/27 $ 2,655,625
1,690 Los Angeles, CA Single Family Home Mtg Rev Pgm
Ser A (GNMA Collateralized)..................... 6.875 06/01/25 1,785,924
1,000 Metropolitan Wtr Dist Southn CA Wtrwks Rev Ser
C............................................... 5.000 07/01/37 992,300
795 Montebello, CA Unified Sch Dist Ctfs Partn Cap
Impts Proj...................................... 6.300 06/01/11 852,995
2,000 Needles, CA Pub Util Auth Util Sys
Acquisition..................................... 6.500 02/01/22 2,132,200
1,500 Newport Beach, CA Spl Tax Spl Impt Dist No 95-1
Ser A........................................... 6.750 09/01/20 1,641,555
1,000 Oakland, CA Unified Sch Dist Alameda Cnty Ctfs
Partn........................................... 7.000 05/15/11 1,135,310
2,000 Oakland, CA Unified Sch Dist Alameda Cnty Ctfs
Partn Energy Retrofit Proj...................... 6.750 11/15/14 2,155,900
1,000 Oceanside, CA Mobile Home Pk Fin Auth Rev....... 5.800 03/01/28 1,011,630
2,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)........................................... 5.750 06/01/15 2,143,880
1,500 Paramount, CA Multi-Family Rev Hsg Twin Twrs
Apts Ser A Rfdg (GNMA Insd)..................... 5.700 02/20/33 1,546,875
6,000 Paramount, CA Redev Agy Tax Alloc Redev Proj
Area No 1 Ser B (Prerefunded @ 08/01/03) (MBIA
Insd)........................................... * 08/01/26 1,055,160
1,500 Pasadena, CA Spl Tax Cmnty Fac Dist No 1 Civic
Cent West....................................... * 12/01/07 987,570
2,000 Pasadena, CA Spl Tax Cmnty Fac Dist No 1 Civic
Cent West (Prerefunded @ 12/01/07).............. * 12/01/17 630,920
3,000 Pomona, CA Pub Fin Auth Rev Southwest Pomona
Redev Proj Ser W Rfdg (MBIA Insd)............... 5.000 02/01/24 2,972,160
1,500 Pomona, CA Pub Fin Auth Rev Southwest Pomona
Redev Proj Ser W Rfdg (MBIA Insd)............... 5.000 02/01/30 1,482,360
1,100 Pomona, CA Redev Agy Tax Alloc Downtown No 2
Redev Proj Ser U Rfdg........................... 5.750 04/01/19 1,087,515
1,000 Port of Oakland, CA Spl Fac Rev Mitsui O.S.K.
Line Ltd Ser A.................................. 6.800 01/01/19 1,089,720
1,210 Redding, CA Redev Agy Tax Alloc Market Street
Redev Proj Ser A................................ 6.700 09/01/23 1,341,152
1,000 Redondo Beach, CA Pub Fin Auth Rev South Bay
Cent Redev Proj................................. 7.000 07/01/16 1,120,670
2,000 Richmond, CA Rev YMCA East Bay Proj Rfdg........ 7.250 06/01/17 2,211,820
1,360 Roseville, CA Fin Auth Local Agy Rev Northeast
Cfd Bond Rfdg Ser A (FSA Insd).................. 5.000 09/01/21 1,357,239
1,000 Sacramento, CA Cogeneration Auth Cogeneration
Proj Rev Rfdg (MBIA Insd)(b).................... 5.000 07/01/16 1,005,710
1,000 Salinas, CA San Swr Sys Rev (FGIC Insd)......... 5.000 08/01/20 994,690
1,000 San Bernardino Cnty, CA Ctfs Partn Med Cent Fin
Proj (MBIA Insd)................................ 5.000 08/01/28 986,960
</TABLE>
See Notes to Financial Statements
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 6,000 San Diego Cnty, CA Wtr Auth Wtr Rev Ctfs Partn
Ser 91 B (Inverse Fltg) (Prerefunded @ 04/27/06)
(MBIA Insd)..................................... 8.670% 04/08/21 $ 7,927,500
2,650 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (MBIA Insd)............................... 6.400 09/01/18 2,923,507
5,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (AMBAC Insd).............................. 6.100 09/01/19 5,461,400
1,000 San Francisco, CA City & Cnty Arpt Comm Intl
Arpt Rev Second Ser Issue 12-A (FGIC Insd)...... 5.800 05/01/21 1,061,050
2,305 San Francisco, CA City & Cnty Redev Agy Hotel
Tax Rev (Prerefunded @ 07/01/04) (FSA Insd)..... 6.750 07/01/15 2,687,353
5,000 San Francisco, CA City & Cnty Redev Agy Lease
Rev George Moscone.............................. * 07/01/08 3,207,800
3,520 San Francisco, CA City & Cnty Redev Agy Lease
Rev George Moscone.............................. * 07/01/09 2,133,648
4,250 San Francisco, CA City & Cnty Redev Agy Lease
Rev George Moscone.............................. * 07/01/12 2,153,560
2,130 San Francisco, CA City & Cnty Redev Agy Lease
Rev George Moscone.............................. * 07/01/14 960,332
800 San Francisco, CA City & Cnty Redev Agy Lease
Rev George Moscone (FSA Insd)................... 6.750 07/01/15 917,296
3,330 San Joaquin Hills, CA Tran Corridor Agy Toll Rd
Rev Ser A Rfdg (MBIA Insd)...................... * 01/15/27 806,926
1,000 San Jose, CA Single Family Mtg Rev Cap Apprec
Ser A........................................... * 04/01/16 420,360
1,000 Santa Ana, CA Multi-Family Hsg Rev Villa Del Sol
Apts Ser B (FNMA Insd).......................... 5.650 11/01/21 1,066,460
1,000 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (Prerefunded @ 11/15/04)
(AMBAC Insd).................................... 6.875 11/15/14 1,180,970
2,000 Santa Clarita, CA Cmnty Fac Dist Spl Tax No 92-1
Ser A........................................... 7.450 11/15/10 2,182,960
1,325 Simi Valley, CA Comnty Dev Agy Coml Rfdg
Sycamore Plaza II............................... 6.000 09/01/12 1,336,872
1,745 Southern CA Home Fin Auth Single Family Mtg Rev
Pgm B (GNMA Collateralized)..................... 6.900 10/01/24 1,842,842
5,000 Southern CA Pub Pwr Auth Pwr Proj Rev
Multi-Projs..................................... 6.750 07/01/12 6,047,750
1,000 Stockton, CA Comnty Fac Dist Spl Tax............ 5.800 09/01/14 1,028,650
1,000 Stockton, CA South Stockton Cmnty Facs Dist Spl
Tax No 90-1 Rfdg................................ 6.400 09/01/15 1,067,240
2,750 Tulare, CA Loc Hosp Dist Hlth Fac Rev Ser A..... 6.750 12/01/21 2,988,150
</TABLE>
See Notes to Financial Statements
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,000 Vista, CA Mobile Home Pk Rev Estrella De Oro
Mobile Home Ser A............................... 5.875% 02/01/28 $ 1,008,050
2,785 Yolo Cnty, CA Hsg Auth Mtg Rev Mtg Waggener
Ranch Proj (FHA Gtd)............................ 7.000 10/01/33 2,950,179
-------------
232,232,755
-------------
GUAM 0.9%
2,000 Guam Arpt Auth Rev Ser B........................ 6.700 10/01/23 2,198,560
-------------
PUERTO RICO 1.1%
824 Centro de Recaudaciones de Ingresos Muni Ctfs
Partn PR........................................ 6.850 10/17/03 859,686
1,580 Puerto Rico Hsg Fin Single Family Mtg Rev
Portfolio 1 C (GNMA Collateralized)............. 6.850 10/15/23 1,691,690
-------------
2,551,376
-------------
U.S. VIRGIN ISLANDS 3.1%
6,750 Virgin Islands Pub Fin Auth Rev Matching Fd Ln
Nts Ser A Rfdg (Prerefunded @ 10/01/02)......... 7.250 10/01/18 7,734,420
-------------
TOTAL INVESTMENTS 99.1%
(Cost $218,534,880)........................................................ 244,717,111
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%.................................. 2,313,418
-------------
NET ASSETS 100.0%........................................................... $ 247,030,529
-------------
</TABLE>
*Zero coupon bond
(a) Security is currently a zero coupon bond which will convert to a coupon
paying bond at a predetermined date.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
See Notes to Financial Statements
12
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $218,534,880)....................... $244,717,111
Receivables:
Interest.................................................. 3,297,136
Investments Sold.......................................... 1,949,199
Other....................................................... 3,780
------------
Total Assets.......................................... 249,967,226
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,965,699
Custodian Bank............................................ 391,120
Investment Advisory Fee................................... 145,676
Income Distributions--Preferred Shares.................... 127,393
Administrative Fee........................................ 41,621
Affiliates................................................ 18,175
Accrued Expenses............................................ 155,317
Trustees' Deferred Compensation and Retirement Plans........ 91,696
------------
Total Liabilities..................................... 2,936,697
------------
NET ASSETS.................................................. $247,030,529
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 1,500 issued with liquidation preference of
$50,000 per share)........................................ $ 75,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 9,639,553 shares issued and
outstanding).............................................. 96,396
Paid in Surplus............................................. 142,680,409
Net Unrealized Appreciation................................. 26,182,231
Accumulated Net Realized Gain............................... 2,333,558
Accumulated Undistributed Net Investment Income............. 737,935
------------
Net Assets Applicable to Common Shares................ 172,030,529
------------
NET ASSETS.................................................. $247,030,529
============
NET ASSET VALUE PER COMMON SHARE ($172,030,529 divided
by 9,639,553 shares outstanding).......................... $ 17.85
============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 14
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $14,500,974
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,703,571
Administrative Fee.......................................... 486,735
Preferred Share Maintenance................................. 205,039
Trustees' Fees and Expenses................................. 27,621
Custody..................................................... 16,678
Legal....................................................... 13,073
Other....................................................... 223,019
-----------
Total Expenses........................................ 2,675,736
-----------
NET INVESTMENT INCOME....................................... $11,825,238
-----------
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 2,333,794
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 20,310,340
End of the Period......................................... 26,182,231
-----------
Net Unrealized Appreciation During the Period............... 5,871,891
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 8,205,685
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $20,030,923
-----------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 15
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended August 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1998 August 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 11,825,238 $ 12,150,732
Net Realized Gain..................................... 2,333,794 810,425
Net Unrealized Appreciation During the Period......... 5,871,891 7,875,246
------------ ------------
Change in Net Assets from Operations.................. 20,030,923 20,836,403
------------ ------------
Distributions from Net Investment Income:
Common Shares....................................... (9,531,032) (9,815,485)
Preferred Shares.................................... (2,343,161) (2,424,442)
------------ ------------
(11,874,193) (12,239,927)
------------ ------------
Distributions from Net Realized Gain:
Common Shares....................................... (649,552) (690,815)
Preferred Shares.................................... (161,112) (203,049)
------------ ------------
(810,664) (893,864)
------------ ------------
Total Distributions................................... (12,684,857) (13,133,791)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 7,346,066 7,702,612
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment........................................ 287,402 -0-
------------ ------------
TOTAL INCREASE IN NET ASSETS.......................... 7,633,468 7,702,612
NET ASSETS:
Beginning of the Period............................... 239,397,061 231,694,449
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $737,935 and $770,976,
respectively)....................................... $247,030,529 $239,397,061
============ ============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 16
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 27, 1991
(Commencement
Year Ended August 31 of Investment
---------------------------------------------------------------- Operations) to
1998 1997 1996 1995 1994 1993 August 31, 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period
(a)....................... $17.083 $16.283 $16.127 $15.699 $17.454 $15.816 $14.805
----- ----- ----- ----- ----- ----- -----
Net Investment Income....... 1.228 1.263 1.259 1.269 1.286 1.305 1.038
Net Realized and Unrealized
Gain/Loss................. .852 .902 .233 .523 (1.693) 1.658 .870
----- ----- ----- ----- ----- -----
Total from Investment
Operations.................. 2.080 2.165 1.492 1.792 (.407) 2.963 1.908
----- ----- ----- ----- ----- ----- -----
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders............ .990 1.02 1.050 1.050 1.050 .981 .698
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders.. .243 .252 .286 .311 .235 .206 .199
Distributions from and in
Excess of Net Realized
Gain:
Paid to Common
Shareholders............ .067 .072 -0- .002 .054 .110 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders.. .017 .021 -0- .001 .009 .028 -0-
----- ----- ----- ----- ----- ----- -----
Total Distributions.......... 1.317 1.365 1.336 1.364 1.348 1.325 .897
----- ----- ----- ----- ----- ----- -----
Net Asset Value, End of the
Period...................... $17.846 $17.083 $16.283 $16.127 $15.699 $17.454 $15.816
----- ----- ----- ----- ----- ----- -----
Market Price Per Share at End
of the Period............... $17.875 $16.8125 $16.125 $15.000 $15.500 $16.750 $15.125
Total Investment Return at
Market Price (b)............ 12.96% 11.45% 14.89% 3.95% (.90%) 18.66% 5.69%*
Total Return at Net Asset
Value (c)................... 10.99% 11.96% 7.60% 10.02% (3.81%) 17.89% 11.80%*
Net Assets at End of the
Period (In millions)....... $247.0 $239.4 $231.7 $230.2 $226.1 $243.0 $227.2
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares**............. 1.59% 1.61% 1.64% 1.66% 1.62% 1.58% 1.55%
Ratio of Net Investment
Income to Average Net Assets
Applicable to Common Shares
(d)......................... 5.63% 6.05% 5.95% 6.22% 6.34% 6.70% 6.09%
Portfolio Turnover........... 21% 17% 10% 16% 7% 26% 93%*
* Non-Annualized
** Ratio of Expenses to
Average Net Assets
Including Preferred
Shares.................... 1.10% 1.10% 1.11% 1.10% 1.10% 1.07% 1.09%
</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.
See Notes to Financial Statements
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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.
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.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
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 August 31, 1998, for federal income tax purposes cost of long-term
investments is $218,534,880; the aggregate gross unrealized appreciation is
$26,182,231 and the aggregate gross unrealized depreciation is $0, resulting in
net unrealized appreciation of $26,182,231.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 1998 fiscal year have been identified and appropriately
reclassified. Permanent book and tax basis differences relating to expenses
which are not deductible for tax purposes totaling $15,914 were reclassified
from accumulated undistributed net investment income to capital.
For the year ended August 31, 1998, 100% of the income distributions made by
the Trust were exempt from federal income taxes. Additionally, during the
period, the Trust designated and paid $791,793 as a 28% rate gain distribution.
These distributions, where applicable, were included on 1997's Form 1099-Div
which was mailed to shareholders in January of 1998. In January 1999, the Trust
will provide tax information to shareholders for the 1998 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Trust for an annual fee payable monthly of .70% of the average
net assets of the Trust. In addition, the Trust will pay a monthly
administrative fee to Van Kampen Funds Inc. or its affiliates (collectively "Van
Kampen"), 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
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
include record keeping and reporting responsibilities with respect to the
Trust's portfolio and preferred shares and providing certain services to
shareholders.
For the year ended August 31, 1998, the Trust recognized expenses of
approximately $4,100 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 August 31, 1998, the Trust recognized expenses of
approximately $88,800 representing Van Kampen's cost of providing accounting and
legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. 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 per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At August 31, 1998 and August 31, 1997, paid in surplus related to common shares
aggregated $142,680,409 and $142,409,084, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1998 August 31, 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares............................ 9,623,295 9,623,295
Shares Issued Through Dividend
Reinvestment.............................. 16,258 -0-
------------ ------------
Ending Shares............................... 9,639,553 9,623,295
============ ============
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $51,128,710 and $53,143,057,
respectively.
5. 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
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
holdings, including 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.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specific factor. As the
floating rate rises, 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. This type of Indexed Security is
identified in the portfolio of investments. The price of this security may be
more volatile than the price of a comparable fixed rate security.
6. 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, 1998, was 3.100% and for the year then
ended rates ranged from 2.60% to 4.80%.
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.
7. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Trust, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Trust with service at current levels. In
addition, it is possible that the securities markets in which the Trust invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen California Quality Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen California Quality Municipal Trust (the "Trust"), including the portfolio
of investments, as of August 31, 1998, 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, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen California Quality Municipal Trust as of August 31, 1998, 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 6, 1998
21
<PAGE> 22
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
prorata 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
22
<PAGE> 23
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
23
<PAGE> 24
VAN KAMPEN CALIFORNIA QUALITY MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
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
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
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 Funds Inc., 1998. All rights reserved.
SM denotes a service mark of Van Kampen Funds Inc.
24
<PAGE> 25
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on July 28, 1998,
where shareholders voted on the election of Trustees whose terms expired in 1998
and the selection of independent public accountants.
1) With regard to the election of the following Trustees by the common
shareholders:
<TABLE>
<CAPTION>
# OF SHARES
------------------------
IN FAVOR WITHHELD
- ---------------------------------------------------------------------------
<S> <C> <C>
Don G. Powell............................... 8,705,368 75,470
Hugo Sonnenschein........................... 8,705,492 75,346
</TABLE>
2) With regard to the election of Theodore A. Myers as elected trustee by
the preferred shareholders of the Trust, 1,389 shares voted in his favor and 0
shares withheld.
3) With regard to the ratification of KPMG Peat Marwick LLP as
independent public accountants for the Trust, 8,664,234 shares voted in favor of
the proposal, 11,939 shares voted against, and 106,054 shares abstained.
25
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> CAL QUALITY MUNICIPAL TR
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 218,534,680
<INVESTMENTS-AT-VALUE> 244,717,111
<RECEIVABLES> 5,246,335
<ASSETS-OTHER> 3,780
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 249,967,226
<PAYABLE-FOR-SECURITIES> 1,965,699
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 970,998
<TOTAL-LIABILITIES> 2,936,697
<SENIOR-EQUITY> 75,000,000
<PAID-IN-CAPITAL-COMMON> 142,776,805
<SHARES-COMMON-STOCK> 9,639,553
<SHARES-COMMON-PRIOR> 9,623,295
<ACCUMULATED-NII-CURRENT> 737,935
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,333,558
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26,182,231
<NET-ASSETS> 247,030,529
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,500,974
<OTHER-INCOME> 0
<EXPENSES-NET> (2,675,736)
<NET-INVESTMENT-INCOME> 11,825,238
<REALIZED-GAINS-CURRENT> 2,333,794
<APPREC-INCREASE-CURRENT> 5,871,891
<NET-CHANGE-FROM-OPS> 20,030,923
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,874,193)
<DISTRIBUTIONS-OF-GAINS> (810,664)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 16,258
<NET-CHANGE-IN-ASSETS> 7,633,468
<ACCUMULATED-NII-PRIOR> 770,976
<ACCUMULATED-GAINS-PRIOR> 810,428
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,703,571
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,675,736
<AVERAGE-NET-ASSETS> 243,430,164
<PER-SHARE-NAV-BEGIN> 17.083
<PER-SHARE-NII> 1.228
<PER-SHARE-GAIN-APPREC> 0.852
<PER-SHARE-DIVIDEND> (1.233)
<PER-SHARE-DISTRIBUTIONS> (0.084)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.846
<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
