<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Portfolio Management Review...................... 4
Glossary of Terms................................ 7
Portfolio Highlights............................. 8
Portfolio of Investments......................... 10
Statements of Assets and Liabilities............. 17
Statements of Operations......................... 18
Statement of Changes in Net Assets............... 19
Financial Highlights............................. 20
Notes to Financial Statements.................... 22
Report of Independent Accountants................ 26
Dividend Reinvestment Plan....................... 27
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
November 19, 1999
Dear Shareholder:
As we approach the end of the century--and the millennium--it seems
appropriate to take a look back at the progress we've made over the last 100
years and how the world of investing has changed over the generations. Although
rapid advances in technology and science have dramatically altered the world
that we live in today, one of the greatest shifts we've seen this century is the
increasing importance of investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is
now available to most people. In fact, almost 79 million individuals--who
represent almost half of all U.S. households--own stocks either directly or
through mutual funds. This is even more impressive when considering that just 16
years earlier, only 19 percent of households owned stocks. Another important
shift has been the need for retirement planning beyond a pension plan or Social
Security. The Investment Company Institute, the leading mutual fund industry
association, reports that 77 percent of all mutual fund shareholders earmarked
retirement as their primary financial goal in 1998.
Through all the changes in the investment environment over the past century,
the general principles that have made generations of investors successful remain
the same. Those that have stood the test of time include:
- Investing for the long-term
- Basing investment decisions on sound research
- Building a diversified portfolio
- Believing in the value of professional investment advice
While no one can predict the future, at Van Kampen, we believe that these
ideas will remain important tenets for investors well into the next century. As
we continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we enter the new
millennium.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
Source: Investment Company Institute
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree over the past year, keeping the
economy growing at a healthy pace. High levels of consumer confidence fueled
this heavy retail activity, which pushed the personal savings rate to a record
low as spending rates outpaced income growth. Although the U.S. economy
experienced a slowdown during the second quarter of 1999, growth rebounded
toward the end of the reporting period.
EMPLOYMENT SITUATION
The strong job market helped support the strength of the economy. During the
reporting period, the unemployment rate reached its lowest level in almost 30
years, and wages continued to climb. The wage pressures were balanced somewhat
by productivity gains. However, these pressures ultimately pushed the cost of
labor higher in the second quarter, as the employment cost index recorded its
biggest gain in eight years before returning to a more moderate level in the
third quarter.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index report. The Federal Reserve Board remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
its three interest rate cuts from the fall of 1998, raising rates in June,
August, and November 1999 to keep the economy from overheating.
U.S. GROSS DOMESTIC PRODUCT
Seasonally Adjusted Annualized Rates
Third Quarter 1997 through Third Quarter 1999
[BAR GRAPH]
<TABLE>
<S> <C>
97Q3 4
97Q4 3.1
98Q1 6.7
98Q2 2.1
98Q3 3.8
98Q4 5.9
99Q1 3.7
99Q2 1.9
99Q3 5.5
</TABLE>
Source: Bureau of Economic Analysis
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1999
VAN KAMPEN CALIFORNIA QUALITY MUNICIPAL TRUST
(NYSE TICKER SYMBOL--VQC)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
One-year total return based on market price(1)............ (11.34%)
One-year total return based on NAV(2)..................... (5.69%)
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3).................................................. 6.49%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 11.19%
SHARE VALUATIONS
Net asset value........................................... $ 15.78
Closing common stock price................................ $15.2500
One-year high common stock price (12/07/98)............... $18.8125
One-year low common stock price (10/20/99)................ $15.0625
Preferred share rate(5)................................... 3.300%
</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 #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.
3
<PAGE> 5
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN CALIFORNIA QUALITY MUNICIPAL TRUST
We recently spoke with representatives of the adviser of the Van Kampen
California Quality Municipal Trust about the key events and economic forces that
shaped the markets during the past year. Joseph A. Piraro, portfolio manager,
has managed the Trust since May 1992 and worked in the investment industry since
1971. He is joined by Peter W. Hegel, chief investment officer for fixed-income
investments. The following discussion reflects their views on the Trust's
performance during the 12 months ended October 31, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types experienced price declines during the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve Board's two
interest-rate increases during the summer, the bond market declined as the
nation's strong economic growth continued to spark inflation fears, leading to
concern about future rate hikes. Because of low institutional demand for
municipal bonds during the period, these conditions affected municipals more
than their taxable counterparts--corporate and Treasury bonds. The yields of
newly issued 30-year AAA municipal bonds rose more than a full percentage point
during the 12-month period, so the prices of existing bonds dropped
concurrently. The bonds in the Trust's portfolio were not spared by this market
movement and suffered price declines along with the rest of the municipal
market.
The interest-rate increases also suppressed municipal bond supply, bringing
overall nationwide issuance down more than 20 percent in the first ten months of
the year compared with 1998. Supply was down in almost every sector, with
electric-utility and health-care bonds experiencing the most significant drops.
Although new issuance kept pace with last year's active market, the amount of
bonds issued through refinancing was down more than 50 percent for the year
through October. Many municipalities simply chose not to refinance outstanding
bonds because of the higher interest rates they would have to pay in the current
marketplace.
Q DID MUNICIPAL BONDS BENEFIT FROM THE STRONG ECONOMY?
A Yes. The effects of the healthy economy were reflected in the good credit
conditions in the municipal market, even though prices suffered. With the
exception of the health-care sector, overall credit quality remained high, and
we witnessed a number of credit upgrades as tax revenues kept municipal finances
strong.
4
<PAGE> 6
Q COULD YOU DESCRIBE CALIFORNIA'S ECONOMIC AND MUNICIPAL MARKET ENVIRONMENT
DURING THE YEAR?
A Municipal bond supply in California declined less than the nationwide
average, making it by far the largest-issuing state for the year through
October. California bonds were very attractive to investors across the
country because of the state's strong economic conditions and the solid fiscal
management of many municipalities. The growth of the technology industry in the
state played an important role in supporting this fiscal health. Despite the
good economy, the state's infrastructure needs remain high, ensuring ample
supply of municipals throughout the state. However, these conditions were
balanced by strong demand, as we continued to witness a rising number of
high-income Californians turning to municipals for a tax-advantaged way to
invest.
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE TRUST IN THESE CONDITIONS?
A We took advantage of the general market price declines to enhance the
Trust's current income potential and tax management. We sold some of our
holdings at a capital loss to offset some of the gains we had earned early
in 1999. This allowed us to avoid the need to distribute taxable capital gains
to shareholders this year. We replaced these bonds with longer-maturity,
higher-yielding issues, increasing the Trust's income stream. The new bonds also
had better protection against bond calls.
We used a related strategy by increasing the portfolio's duration, or
sensitivity to interest-rate changes. We sold the bonds that were about to be
called or refunded and purchased longer-duration securities, including bonds
with 20- to 30-year maturities. We feel that the longer duration will benefit
the Trust in a declining interest-rate environment by allowing it to participate
more fully in a market rally. In the short term, however, the longer duration
negatively affected the Trust's total return as interest rates climbed.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE TO YOU?
A One of the most attractive sectors during the past year was transportation
--especially tollway bonds--because we've seen such heavy issuance in that
area. These projects are visible ways for voters to see their tax dollars at
work, so they tend to be well-funded when the economy is strong. Improving the
transportation infrastructure in California also remains a high priority, which
contributed to the heavy supply and attractiveness of these bonds. As a result,
we had a range of quality issues from which to choose and were able to add to
our position in transportation. For additional highlights, please refer to page
8.
5
<PAGE> 7
Q HOW DID THE TRUST PERFORM DURING THE PERIOD?
A Total return performance was disappointing because of the general downturn
in bond prices and the Trust's increased duration. In addition, the
Trust's leverage component hurt its performance during the period.
Although leverage helps the Trust provide higher income levels to common
shareholders, it made the portfolio more sensitive to the interest-rate
increases during the reporting period. However, the Trust's total return was
supported by its duration, which was relatively short even though it increased
during the period. For the one-year period ended October 31, 1999, the Trust
returned -11.34 percent(1) based on market price. This reflects a decrease in
market price from $18.4375 per share on October 31, 1998, to $15.25 per share on
October 31, 1999.
In addition, the dividend remained unchanged during the past 12 months. The
monthly tax-exempt dividend of $0.0825 per share translates to a distribution
rate of 6.49 percent(3) based on the Trust's closing market price on October 31,
1999. Because the Trust is exempt from federal and California income taxes, this
distribution rate is equivalent to a taxable yield of 11.19 percent(4) for an
investor in the 42 percent combined federal and state income tax bracket. Please
refer to the chart and footnotes on page 3 for additional performance results.
Past performance does not guarantee future performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A In the coming months, we will probably see a slowing economy, which may be
partly the result of year 2000 concerns. Wage increases will likely keep
inflation fears at the forefront, although increasing productivity should
be able to offset higher wage costs for employers.
Preparations for the turn of the millennium may also limit new issuance and
general market activity at the end of the year. Many municipal issuers are
planning to postpone issuing bonds until they feel certain that any potential
computer problems have been avoided, but we believe that market activity should
pick up early in 2000. In the meantime, we will continue to focus on finding
attractive-yielding bonds and protecting the Trust from bond calls as much as
possible. We will also use our extensive research capabilities to look for
attractive opportunities throughout the coming months.
[SIG]
Joseph A. Piraro
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
6
<PAGE> 8
GLOSSARY OF TERMS
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's 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.
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 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 (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
PREREFUNDING: The process of issuing new bonds to refinance an outstanding
municipal bond issue prior to its maturity or call date. The proceeds from
the new bonds are generally invested in U.S. government securities.
Prerefunding typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It is redeemed at maturity for
full face value.
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN CALIFORNIA QUALITY MUNICIPAL TRUST
TOP FIVE PORTFOLIO INDUSTRIES*
GRAPH
<TABLE>
<CAPTION>
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
General Purpose 17.00 19.40
Tax District 12.40 12.70
Retail Elec/Gas/Teleph 10.60 10.70
Multi-Family Housing 10.10 10.40
Health Care 9.30 9.00
</TABLE>
* As a percentage of long-term investments
NET ASSET VALUE AND MARKET PRICE
(BASED UPON MONTH-END VALUES)
SEPTEMBER 1991 THROUGH OCTOBER 1999
[GRAPH]
<TABLE>
<CAPTION>
MARKET PRICE NET ASSET VALUE
------------ ---------------
<S> <C> <C>
Sep 1991 15.00 14.81
Oct 1991 15.00 15.02
14.75 15.02
14.38 15.07
14.88 15.11
14.25 14.90
15.63 14.90
14.50 15.00
15.63 15.19
14.75 15.45
15.25 16.17
15.13 15.82
15.00 15.72
Oct 1992 14.63 15.31
14.88 15.67
14.75 15.64
14.75 15.89
16.00 16.94
16.25 16.78
16.13 16.90
16.13 16.82
16.38 17.07
16.63 17.04
16.75 17.45
17.38 17.70
Oct 1993 17.13 17.57
16.50 17.13
16.75 17.42
17.00 17.61
15.88 16.87
15.13 15.67
14.88 15.50
15.13 15.60
15.25 15.43
15.00 15.71
15.50 15.70
14.88 15.21
Oct 1994 13.50 14.65
13.25 14.00
12.75 14.35
14.00 14.85
14.75 15.62
14.75 15.69
15.25 15.67
15.25 16.25
15.00 15.94
15.00 15.97
15.00 16.13
15.25 16.17
Oct 1995 15.13 16.40
15.88 16.67
15.38 16.87
15.50 16.86
15.75 16.71
15.88 16.16
15.75 15.97
15.38 16.01
15.25 16.10
15.75 16.33
16.13 16.28
15.88 16.51
Oct 1996 16.00 16.66
16.25 16.96
16.63 16.67
16.13 16.64
16.25 16.75
15.13 16.42
15.63 16.51
16.25 16.71
16.75 16.86
16.63 17.42
16.81 17.08
16.81 17.26
Oct 1997 16.56 17.35
17.06 17.37
17.06 17.60
17.88 17.64
17.63 17.64
17.50 17.56
17.25 17.32
17.31 17.61
17.31 17.60
17.88 17.56
17.88 17.85
18.19 18.07
Oct 1998 18.44 17.93
18.69 17.88
18.44 17.62
17.44 17.78
18.06 17.57
17.69 17.50
17.63 17.44
16.56 17.20
16.63 16.73
16.63 16.72
16.81 16.35
16.56 16.25
Oct 1999 15.25 15.78
</TABLE>
The solid line above represents the Trust's net asset value (NAV), which
indicates overall changes in value among the Trust's underlying securities. The
Trust's market price is represented by the dashed line, which indicates the
price the market is willing to pay for shares of the Trust at a given time.
Market price is influenced by a range of factors, including supply and demand
and market conditions.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS (CONTINUED)
VAN KAMPEN CALIFORNIA QUALITY MUNICIPAL TRUST
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF OCTOBER 31, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA NON-RATED
------- ----- --- ------- ---------
<S> <C> <C> <C> <C> <C>
As of October 31, 1999 50.70 14.00 7.90 13.70 13.70
</TABLE>
AS OF OCTOBER 31, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA BB/BA
------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C>
As of October 31, 1998 49.60 5.70 16.30 11.60 0.6
</TABLE>
<TABLE>
<CAPTION>
NON-RATED
---------
<S> <C>
As of October 31, 1998 16.20
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DISTRIBUTION HISTORY
FOR THE PERIOD ENDED OCTOBER 31, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS CAPITAL GAINS
--------- -------------
<S> <C> <C>
'Nov 1998' 0.0825
'Dec 1998' 0.0825 0.1992
'Jan 1999' 0.0825
'Feb 1999' 0.0825
'Mar 1999' 0.0825
'Apr 1999' 0.0825
'May 1999' 0.0825
'Jun 1999' 0.0825
'Jul 1999' 0.0825
'Aug 1999' 0.0825
'Sep 1999' 0.0825
'Oct 1999' 0.0825
</TABLE>
The distribution history represents past performance of the Trust and does not
predict the Trust's future distributions.
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 98.5%
CALIFORNIA 95.6%
$ 2,000 Abag Fin Auth For Nonprofit Corps CA
Rev Ctfs Partn....................... 5.500% 02/15/29 $ 1,719,640
1,390 Abag Fin Auth Nonprft Corp CA
Childrens Hosp Med Cent (a).......... 5.875 12/01/19 1,378,588
2,000 Abag Fin Auth Nonprft Corp CA
Childrens Hosp Med Cent (a).......... 6.000 12/01/29 1,987,460
1,000 Bakersfield, CA Ctfs Partn Convention
Cent Expansion Proj (MBIA Insd)...... 5.875 04/01/22 992,560
1,610 Blythe, CA Redev Agy Redev Proj No 1
Tax Alloc Ser A Rfdg................. 7.500 05/01/23 1,745,465
1,055 Borrego, CA Wtr Dist Ctfs Partn
Wtr Sys Acquisition.................. 7.000 04/01/27 1,063,957
1,000 California Edl Fac Auth Rev Pooled
Coll & Univ Projs Ser B.............. 6.125 04/01/13 1,010,630
2,000 California Edl Fac Auth Rev Student
Ln CA Ln Pgm Ser A (MBIA Insd)....... 6.000 03/01/16 2,000,520
2,000 California Edl Fac Auth Rev Univ of
La Verne............................. 6.375 04/01/13 2,029,080
1,000 California Hlth Fac Fin Auth Rev
Kaiser Permanente Ser A (Prerefunded
@ 12/01/00).......................... 7.000 12/01/10 1,054,110
3,000 California Hlth Fac Fin Cedars Sinai
Med Cent Ser A (a)................... 6.125 12/01/19 2,965,680
1,000 California Hsg Fin Agy Rev Cap Apprec
Home Mtg Ser K (MBIA Insd)........... * 08/01/24 213,790
1,000 California Hsg Fin Agy Rev Home Mtg
Ser B (MBIA Insd).................... 6.100 02/01/28 993,220
1,000 California Hsg Fin Agy Rev Home Mtg
Ser E (AMBAC Insd)................... 6.100 08/01/29 1,004,260
1,090 California Hsg Fin Agy Rev Home Mtg
Ser F (FHA Gtd)...................... 6.750 08/01/11 1,129,229
2,120 California Hsg Fin Agy Rev Insd Hsg
Ser E (MBIA Insd).................... 7.000 08/01/26 2,208,701
3,000 California Hsg Fin Agy Rev Multi-Unit
Rental Hsg Ser C II.................. 6.850 08/01/15 3,121,350
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 8,190 California Hsg Fin Agy Rev Multi-Unit
Rental Hsg Ser C II.................. 6.875% 08/01/24 $ 8,512,522
10,000 California Pollutn Ctl Fin Auth
Pollutn Ctl Rev Southn CA Edison Co
(AMBAC Insd) (b)..................... 6.000 07/01/27 9,820,300
4,000 California Pollutn Ctl Fin Auth
Pollutn Ctl Rev Southn CA Edison Co
Ser B (AMBAC Insd)................... 6.400 12/01/24 4,058,680
7,800 California Pollutn Ctl Fin Auth Solid
Waste Disp Rev North Cnty Recycling
Ser A................................ 6.750 07/01/17 8,386,794
725 California Rural Home Mtg Fin Auth
Single Family Mtg Rev Ser C (GNMA
Collateralized)...................... 7.800 02/01/28 798,370
3,655 California St Cpn Muni Rcpts......... * 03/01/08 2,400,641
13,255 California St Cpn Muni Rcpts......... * 09/01/09 7,944,403
1,000 California St Pub Wks Brd Lease Rev
Dept Hlth Svcs Ser A (MBIA Insd)..... 5.750 11/01/24 970,980
2,340 California St Rfdg (FGIC Insd)....... 5.000 02/01/23 2,048,459
1,000 California St Veterans (AMBAC
Insd)................................ 6.200 02/01/16 1,000,550
1,000 California St Veterans Ser BH (FSA
Insd)................................ 5.400 12/01/15 954,940
1,000 California St Veterans Ser BH (FSA
Insd)................................ 5.400 12/01/16 946,260
2,000 California St Veterans Ser BR........ 5.300 12/01/29 1,754,080
1,000 California Statewide Cmntys Dev Auth
Spl Fac United Airls................. 5.625 10/01/34 880,980
6,000 California Statewide Cmntys Dev Corp
Ctfs Partn Insd United Westn Med Cent
(Prerefunded @ 12/01/01)............. 6.750 12/01/21 6,442,080
1,000 Camarillo, CA Multi-Family Hsg Park
Glenn Apts (FNMA Collateralized)..... 5.400 03/01/28 899,870
2,000 Campbell, CA Redev Agy Tax Alloc
Central Campbell Redev Proj Ser A
(a).................................. 6.550 10/01/32 2,010,540
1,530 Carson, CA Impt Bond Act 1915 Assmt
Dist No 92-1......................... 7.375 09/02/22 1,608,550
1,000 Central Contra Costa, CA Santn Dist
Rev Wastewtr Fac Impt Proj
(Prerefunded @ 09/01/04) (MBIA
Insd)................................ 6.250 09/01/11 1,097,120
2,000 Chino Basin, CA Regl Fing Auth Inland
Empire Util Agy Swr Proj............. 5.750 11/01/22 1,945,320
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 2,575 Chula Vista, CA Redev Agy Tax Alloc
Sr Bayfront Ser D Rfdg............... 8.625% 09/01/24 $ 2,979,713
1,000 Coachella, CA Redev Agy Tax Alloc
Proj Area No 3 Rfdg.................. 5.875 12/01/28 908,490
1,000 Colton, CA Redev Agy Tax Alloc Mount
Vernon Corridor Redev................ 6.300 09/01/36 965,950
2,000 Contra Costa Cnty, CA Ctfs Partn
Merrithew Mem Hosp Proj Rfdg (MBIA
Insd)................................ 5.500 11/01/22 1,886,800
1,000 Contra Costa Cnty, CA Pub Fin Auth
Tax Alloc Rev Ser A.................. 7.100 08/01/22 1,065,050
1,000 Davis, CA Pub Fac Fin Auth Loc Agy
Rev Mace Ranch Area Ser A............ 6.500 09/01/15 1,004,570
1,000 Delano, CA Ctfs Partn Delano Regal
Med Cent............................. 5.250 01/01/18 845,570
1,910 Delano, CA Ctfs Partn Ser A
(Prerefunded @ 01/01/03)............. 9.250 01/01/22 2,214,358
1,000 Duarte, CA Redev Agy Tax Alloc Davis
Addition Proj Area Rfdg.............. 6.700 09/01/14 1,011,720
2,305 Dublin, CA Jt Uni Sch Dist Cap Apprec
Ser E................................ * 08/01/22 552,693
1,000 El Monte, CA Ctfs Partn Dept Pub
Social Svcs Fac (AMBAC Insd)......... 4.750 06/01/30 810,920
1,220 Emeryville, CA Pub Fing Auth Rev
Assmt Dist Refing.................... 5.900 09/02/21 1,123,791
875 Fairfield, CA Hsg Auth Mtg Rev
Creekside Estates Proj Rfdg
(Prerefunded @ 08/01/02)............. 7.875 02/01/15 972,641
1,000 Folsom, CA Spl Tax Cmnty Fac Dist No
2 Rfdg (Connie Lee Insd)............. 5.250 12/01/19 922,380
15,000 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Cap Apprec.................... * 01/15/26 2,780,400
6,000 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Cap Apprec Sr Lien Ser A...... * 01/01/27 1,183,260
2,500 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Conv Cap Apprec............... * 01/15/27 1,287,725
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 2,000 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Conv Cap Apprec Sr Lien Ser A
(c).................................. 0/7.050% 01/01/10 $ 1,652,720
1,000 Glendale, CA Uni Sch Dist Ser C (FSA
Insd)................................ 5.500 09/01/19 960,840
2,000 Hawaii Desert, CA Mem Hlthcare Dist
Rev Rfdg............................. 5.500 10/01/19 1,693,400
1,500 Huntington Beach, CA Pub Fin Auth Rev
Huntington Beach Redev Proj.......... 7.000 08/01/24 1,516,950
1,000 Huntington Park, CA Pub Fin Auth
Lease Rev Wastewtr Sys Proj Ser A.... 6.200 10/01/25 950,710
665 Inglewood, CA Redev Agy Tax Alloc
Centy Redev Proj Ser A............... 6.125 07/01/23 655,131
3,000 Los Angeles Cnty, CA Ctfs Partn
(Prerefunded @ 11/01/01)............. 6.600 11/01/11 3,206,580
2,000 Los Angeles Cnty, CA Met Tran Auth
Sales Tax Rev (AMBAC Insd)........... 5.000 07/01/23 1,748,800
12,000 Los Angeles Cnty, CA Pension Oblig
Ctfs Ltd Muni Oblig Ser A (MBIA Insd)
(b).................................. 6.900 06/30/08 13,665,840
1,565 Los Angeles, CA Cmnty Redev Agy Ctfs
Partn Allright Garage (Prerefunded @
05/01/03)............................ 7.550 11/01/08 1,724,176
1,900 Los Angeles, CA Ctfs Partn........... 5.700 02/01/18 1,760,654
1,493 Los Angeles, CA Multi-Family Rev Hsg
Earthquake Rehab Proj Ser A (FNMA
Collateralized)...................... 5.700 12/01/27 1,534,439
1,635 Los Angeles, CA Single Family Home
Mtg Rev Pgm Ser A (GNMA
Collateralized)...................... 6.875 06/01/25 1,676,562
3,720 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev (AMBAC Insd)............ * 08/01/27 624,328
2,000 Needles, CA Pub Util Auth Util Sys
Acquisition.......................... 6.500 02/01/22 1,986,020
1,500 Newport Beach, CA Spl Tax Spl Impt
Dist No 95-1 Ser A................... 6.750 09/01/20 1,526,715
1,000 Oakland, CA Uni Sch Dist Alameda Cnty
Ctfs Partn, 144A-Private Placement
(e).................................. 7.000 05/15/11 1,138,570
2,000 Oakland, CA Uni Sch Dist Alameda Cnty
Ctfs Partn Energy Retrofit Proj,
144A-Private Placement (e)........... 6.750 11/15/14 2,269,020
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 990 Oceanside, CA Mobile Home Pk Fin Auth
Rev.................................. 5.800% 03/01/28 $ 923,650
2,000 Orange Cnty, CA Recovery Ser A Rfdg
(MBIA Insd).......................... 5.750 06/01/15 2,009,020
1,500 Pasadena, CA Spl Tax Cmnty Fac Dist
No 1 Civic Cent West................. * 12/01/07 1,008,795
1,100 Pomona, CA Redev Agy Tax Alloc
Downtown No 2 Redev Proj Ser U
Rfdg................................. 5.750 04/01/19 1,004,564
1,000 Port of Oakland, CA Spl Fac Rev
Mitsui O.S.K. Line Ltd Ser A (LOC:
Industrial Bank of Japan)............ 6.800 01/01/19 1,016,220
1,190 Redding, CA Redev Agy Tax Alloc
Market Street Redev Proj Ser A....... 6.700 09/01/23 1,251,345
2,000 Redlands, CA Redev Agy Tax Alloc
Redev Proj Ser A Rfdg (MBIA Insd).... 4.750 08/01/21 1,690,780
1,000 Redondo Beach, CA Pub Fin Auth Rev
South Bay Cent Redev Proj............ 7.000 07/01/16 1,050,530
2,000 Richmond, CA Rev YMCA East Bay Proj
Rfdg................................. 7.250 06/01/17 2,091,620
500 San Bernadino Cnty, CA Ctfs Partn Med
Cent Fin Proj (MBIA Insd)............ 5.000 08/01/28 427,305
6,000 San Diego Cnty, CA Wtr Auth Wtr Rev
Ctfs Partn Ser 91 B (Inverse Fltg)
(Prerefunded @ 04/27/06) (MBIA Insd)
(d).................................. 8.720 04/08/21 6,997,500
2,650 San Diego, CA Indl Dev Rev San Diego
Gas & Elec Ser A (MBIA Insd)......... 6.400 09/01/18 2,762,996
5,000 San Diego, CA Indl Dev Rev San Diego
Gas & Elec Ser A (AMBAC Insd)........ 6.100 09/01/19 5,054,700
1,000 San Francisco, CA City & Cnty Arpt
Comm Intl Arpt Rev Second Ser Issue
12-A (FGIC Insd)..................... 5.800 05/01/21 969,560
2,305 San Francisco, CA City & Cnty Redev
Agy Hotel Tax Rev (Prerefunded @
07/01/04) (FSA Insd)................. 6.750 07/01/15 2,571,550
5,000 San Francisco, CA City & Cnty Redev
Agy Lease Rev George Moscone......... * 07/01/08 3,161,800
3,520 San Francisco, CA City & Cnty Redev
Agy Lease Rev George Moscone......... * 07/01/09 2,085,670
4,250 San Francisco, CA City & Cnty Redev
Agy Lease Rev George Moscone......... * 07/01/12 2,047,948
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 2,130 San Francisco, CA City & Cnty Redev
Agy Lease Rev George Moscone......... * 07/01/14 $ 888,977
800 San Francisco, CA City & Cnty Redev
Agy Lease Rev George Moscone (FSA
Insd)................................ 6.750% 07/01/15 870,848
1,000 San Jose, CA Single Family Mtg Rev
Cap Apprec Ser A..................... * 04/01/16 382,710
1,575 San Marcos, CA Redev Agy Tax Alloc... 6.000 08/01/29 1,436,227
1,000 Sanger, CA Uni Sch Dist Rfdg (MBIA
Insd)................................ 5.600 08/01/23 971,150
1,000 Santa Ana, CA Multi-Family Hsg Rev
Villa Del Sol Apts Ser B (FNMA
Collateralized)...................... 5.650 11/01/21 1,023,460
3,000 Santa Clara Cnty, CA Fin Auth Lease
Rev Multiple Facs Proj Ser B (AMBAC
Insd) (a)............................ 5.500 05/15/10 3,016,020
2,000 Santa Clarita, CA Cmnty Fac Dist Spl
Tax No 92-1 Ser A.................... 7.450 11/15/10 2,094,040
1,325 Simi Valley, CA Cmnty Dev Agy Coml
Sycamore Plaza II Rfdg............... 6.000 09/01/12 1,336,170
1,000 South Orange Cnty, CA Pub Fin Auth
Reassmt Rev (FSA Insd) (a)........... 5.800 09/02/18 993,680
1,390 Southern CA Home Fin Auth Single
Family Mtg Rev Pgm B (GNMA
Collateralized)...................... 6.900 10/01/24 1,425,264
5,000 Southern CA Pub Pwr Auth Pwr Proj Rev
Multi-Projs.......................... 6.750 07/01/12 5,552,400
1,000 Stockton, CA Cmnty Fac Dist Spl
Tax.................................. 5.800 09/01/14 944,330
1,000 Stockton, CA South Stockton Cmnty
Facs Dist Spl Tax No 90-1 Rfdg....... 6.400 09/01/15 996,450
1,000 Vista, CA Mobile Home Pk Rev Estrella
De Oro Mobile Home Ser A............. 5.875 02/01/28 949,160
2,785 Yolo Cnty, CA Hsg Auth Mtg Rev Mtg
Waggener Ranch Proj (FHA Gtd)........ 7.000 10/01/33 2,868,856
------------
217,782,460
------------
GUAM 0.9%
2,000 Guam Arpt Auth Rev Ser B............. 6.700 10/01/23 2,096,660
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PUERTO RICO 1.0%
$ 628 Centro de Recaudaciones de Ingresos
Muni Ctfs Partn PR................... 6.850% 10/17/03 $ 636,404
1,580 Puerto Rico Hsg Fin Single Family Mtg
Rev Portfolio 1 C (GNMA
Collateralized)...................... 6.850 10/15/23 1,643,437
------------
2,279,841
------------
U. S. VIRGIN ISLANDS 1.0%
2,000 Virgin Islands Pub Fin Auth Rev
Matching Fd Ln Nts Ser A Rfdg
(Prerefunded @ 10/01/02)............. 7.250 10/01/18 2,204,060
------------
TOTAL LONG-TERM INVESTMENTS 98.5%
(Cost $215,637,992)................................................. 224,363,021
TOTAL SHORT-TERM INVESTMENTS 7.2%
(Cost $16,410,000).................................................. 16,410,000
------------
TOTAL INVESTMENTS 105.7%
(Cost $232,047,992)................................................. 240,773,021
LIABILITIES IN EXCESS OF OTHER ASSETS (5.7%)......................... (13,018,146)
------------
NET ASSETS 100.0%.................................................... $227,754,875
============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(c) Security is currently a zero coupon bond which will convert to a coupon
paying bond at a predetermined date.
(d) 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. The price of this security
may be more volatile than the price of a comparable fixed rate security. 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. Upon disposition, a realized gain or
loss is recognized accordingly.
(e) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
AMBAC--AMBAC Indemnity Corporation
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Authority
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
16
<PAGE> 18
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $232,047,992)....................... $240,773,021
Cash........................................................ 3,689
Receivables:
Interest.................................................. 3,349,832
Investments Sold.......................................... 2,600,000
Other....................................................... 12,926
------------
Total Assets.......................................... 246,739,468
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 18,302,867
Income Distributions--Common and Preferred Shares......... 238,491
Investment Advisory Fee................................... 136,272
Administrative Fee........................................ 38,935
Affiliates................................................ 19,186
Accrued Expenses............................................ 138,287
Trustees' Deferred Compensation and Retirement Plans........ 110,555
------------
Total Liabilities..................................... 18,984,593
------------
NET ASSETS.................................................. $227,754,875
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 3,000 issued with liquidation preference of
$25,000 per share)........................................ $ 75,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 9,682,997 shares issued and
outstanding).............................................. 96,830
Paid in Surplus............................................. 143,433,980
Net Unrealized Appreciation................................. 8,725,029
Accumulated Undistributed Net Investment Income............. 698,091
Accumulated Net Realized Loss............................... (199,055)
------------
Net Assets Applicable to Common Shares................ 152,754,875
------------
NET ASSETS.................................................. $227,754,875
============
NET ASSET VALUE PER COMMON SHARE ($152,754,875 divided by
9,682,997 shares outstanding)............................. $ 15.78
============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENTS OF OPERATIONS
For the Year Ended October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 14,192,510
------------
EXPENSES:
Investment Advisory Fee..................................... 1,683,125
Administrative Fee.......................................... 480,893
Preferred Share Maintenance................................. 193,008
Trustees' Fees and Related Expenses......................... 28,004
Custody..................................................... 17,457
Legal....................................................... 12,368
Other....................................................... 158,644
------------
Total Expenses.......................................... 2,573,499
------------
NET INVESTMENT INCOME....................................... $ 11,619,011
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (199,058)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 26,927,768
End of the Period......................................... 8,725,029
------------
Net Unrealized Depreciation During the Period............... (18,202,739)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(18,401,797)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (6,782,786)
============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended October 31, 1999, the Two Months Ended
October 31, 1998 and the Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Two Months Ended Year Ended
October 31, 1999 October 31, 1998 August 31, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............... $ 11,619,011 $ 1,949,790 $ 11,825,238
Net Realized Gain/Loss.............. (199,058) 61,515 2,333,794
Net Unrealized
Appreciation/Depreciation During
the Period........................ (18,202,739) 745,537 5,871,891
------------ ------------ ------------
Change in Net Assets from
Operations........................ (6,782,786) 2,756,842 20,030,923
------------ ------------ ------------
Distributions from Net Investment
Income:
Common Shares..................... (9,570,332) (1,590,741) (9,531,032)
Preferred Shares.................. (2,058,702) (388,870) (2,343,161)
------------ ------------ ------------
(11,629,034) (1,979,611) (11,874,193)
------------ ------------ ------------
Distributions from Net Realized
Gain:
Common Shares..................... (1,921,647) -0- (649,552)
Preferred Shares.................. (473,423) -0- (161,112)
------------ ------------ ------------
(2,395,070) -0- (810,664)
------------ ------------ ------------
Total Distributions................. (14,024,104) (1,979,611) (12,684,857)
------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............. (20,806,890) 777,231 7,346,066
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued
Through Dividend Reinvestment..... 637,809 116,196 287,402
------------ ------------ ------------
TOTAL INCREASE/DECREASE IN NET
ASSETS............................ (20,169,081) 893,427 7,633,468
NET ASSETS:
Beginning of the Period............. 247,923,956 247,030,529 239,397,061
------------ ------------ ------------
End of the Period (Including
accumulated undistributed net
investment income of $698,091,
$708,114 and $737,935,
respectively)..................... $227,754,875 $247,923,956 $247,030,529
============ ============ ============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Two Months Ended
October 31, 1999 October 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of the Period (a).... $ 17.927 $ 17.846
-------- --------
Net Investment Income........................... 1.201 .202
Net Realized and Unrealized Gain/Loss........... (1.901) .084
-------- --------
Total from Investment Operations................ (.700) .286
-------- --------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders................. .990 .165
Common Share Equivalent of Distributions
Paid to Preferred Shareholders............ .213 .040
Distributions from and in Excess of Net
Realized Gain:
Paid to Common Shareholders................. .199 -0-
Common Share Equivalent of Distributions
Paid to Preferred Shareholders............ .049 -0-
-------- --------
Total Distributions............................. 1.451 .205
-------- --------
Net Asset Value, End of the Period.............. $ 15.776 $ 17.927
======== ========
Market Price Per Share at End of the Period..... $15.2500 $18.4375
Total Investment Return at Market Price (b)..... (11.34%) 4.09%*
Total Return at Net Asset Value (c)............. (5.69%) 1.37%*
Net Assets at End of the Period (In millions)... $ 227.8 $ 247.9
Ratio of Expenses to Average Net Assets
Applicable to Common Shares**................. 1.56% 1.58%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (d)........ 5.78% 5.40%
Portfolio Turnover.............................. 24% 2%*
* Non-Annualized
** Ratio of Expenses to Average Net Assets
Including Preferred Shares................... 1.07% 1.10%
</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.
20
<PAGE> 22
- --------------------------------------------------------------------------------
<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>
$17.083 $ 16.283 $16.127 $15.699 $17.454 $15.816 $14.805
------- -------- ------- ------- ------- ------- -------
1.228 1.263 1.259 1.269 1.286 1.305 1.038
.852 .902 .233 .523 (1.693) 1.658 .870
------- -------- ------- ------- ------- ------- -------
2.080 2.165 1.492 1.792 (.407) 2.963 1.908
------- -------- ------- ------- ------- ------- -------
.990 1.02 1.050 1.050 1.050 .981 .698
.243 .252 .286 .311 .235 .206 .199
.067 .072 -0- .002 .054 .110 -0-
.017 .021 -0- .001 .009 .028 -0-
------- -------- ------- ------- ------- ------- -------
1.317 1.365 1.336 1.364 1.348 1.325 .897
------- -------- ------- ------- ------- ------- -------
$17.846 $ 17.083 $16.283 $16.127 $15.699 $17.454 $15.816
======= ======== ======= ======= ======= ======= =======
$17.875 $16.8125 $16.125 $15.000 $15.500 $16.750 $15.125
12.96% 11.45% 14.89% 3.95% (.90%) 18.66% 5.69%*
10.99% 11.96% 7.60% 10.02% (3.81%) 17.89% 11.80%*
$ 247.0 $ 239.4 $ 231.7 $ 230.2 $ 226.1 $ 243.0 $ 227.2
1.59% 1.61% 1.64% 1.66% 1.62% 1.58% 1.55%
5.63% 6.05% 5.95% 6.22% 6.34% 6.70% 6.09%
21% 17% 10% 16% 7% 26% 93%*
1.10% 1.10% 1.11% 1.10% 1.10% 1.07% 1.09%
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
October 31, 1999
- --------------------------------------------------------------------------------
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--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using 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.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1999, the Trust had an accumulated capital loss
carryforward for tax purposes of $199,055 which will expire on October 31, 2007.
At October 31, 1999, for federal income tax purposes cost of long- and
short-term investments is $232,047,992; the aggregate gross unrealized
appreciation is $12,134,782 and the aggregate gross unrealized depreciation is
$3,409,753, resulting in net unrealized appreciation on long- and short-term
investments of $8,725,029.
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.
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 include record keeping and reporting responsibilities with respect
to the Trust's portfolio and preferred shares and providing certain services to
shareholders.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
For the year ended October 31, 1999 the Fund 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 October 31, 1999, the Fund recognized expenses of
approximately $79,200 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 October 31, 1999 and October 31, 1998, paid in surplus related to common
shares aggregated $143,433,980, and $142,796,541, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares...................... 9,646,008 9,639,553
Shares Issued Through Dividend
Reinvestment........................ 36,989 6,455
--------- ---------
Ending Shares......................... 9,682,997 9,646,008
========= =========
</TABLE>
4. INVESTMENT TRANSACTIONS
For the year ended October 31, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $59,043,122 and
$66,979,844, respectively.
5. PREFERRED SHARES
Effective with the close of business on April 23, 1999, the liquidation
preference on the Trust's preferred shares decreased from $50,000 to $25,000 per
share. This decrease was effected by means of a 2 for 1 stock split that doubled
the Trust's number of outstanding preferred shares. The total liquidation value
for the Trust was unchanged.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
As of October 31, 1999, the Trust has outstanding 3,000 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 October 31, 1999, was
3.300% and for the year then ended rates ranged from 2.550% to 5.250%.
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 $25,000 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.
25
<PAGE> 27
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 October 31, 1999, the related statement of operations for
the year then ended, the statement of changes in net assets for the year then
ended, for the two-month period ended October 31, 1998, and for the year ended
August 31, 1998, and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, 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 October 31, 1999, the results of
its operations for the year then ended, the changes in its net assets for the
year then ended, for the two-month period ended October 31, 1998, and for the
year ended August 31, 1998, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG LLP SIG
Chicago, Illinois
December 9, 1999
26
<PAGE> 28
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 Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
27
<PAGE> 29
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
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
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing 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
* Closed to new investors
28
<PAGE> 30
VAN KAMPEN CALIFORNIA QUALITY MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*
STEVEN MULLER
THEODORE A. MYERS
RICHARD F. POWERS, III*--Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
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 LLP
303 East Wacker Drive
Chicago, Illinois 60601
For Federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
October 31, 1999. The Trust designated 99.9% of the income distributions as a
tax-exempt income distribution. Additionally, during the period, the Trust
designated and paid $2,200,332 as a 20% rate gain distribution. These
distributions, where applicable, were included on 1998's Form 1099-Div which
was mailed to shareholders in January of 1999. In January, 2000, the Trust
will provide tax information to shareholders for the 1999 calendar year.
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1999. All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
29
<PAGE> 31
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on June 16, 1999, where
shareholders voted on the election of trustees and the selection of independent
public accountants.
1) With regard to the election of the following trustees by the common
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
--------------------
IN FAVOR WITHHELD
- ----------------------------------------------------------------------
<S> <C> <C>
David C. Arch................................... 7,993,947 69,158
Howard J Kerr................................... 7,994,567 68,558
Dennis J. McDonnell............................. 7,994,547 68,558
</TABLE>
The other trustees of the Trust whose terms did not expire in 1999 are Rod
Dammeyer, Steven Muller, Theodore A. Myers, Don G. Powell*, Hugo F. Sonnenschein
and Wayne W. Whalen.
2) With regard to the ratification of KPMG LLP as independent public
accountants for the Trust, 7,958,919 shares voted for the proposal, 15,840
shares voted against, and 88,345 shares abstained.
* On August 9, 1999 Don G. Powell resigned and the Board of Trustees appointed
Richard F. Powers, III.
30
<PAGE> 32
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Trust could be adversely affected if the computer systems
used by the Trust's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Trust's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Trust. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Trust may invest that, in turn, may adversely affect
the net asset value of the Trust. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Trust's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
31
<PAGE> 33
VAN KAMPEN FUNDS
YOUR NOTES:
32
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000877461
<NAME> VK CALIFORNIA QUALITY MUNICIPAL TRUST
<SERIES>
<NUMBER> 11
<NAME> CAL QUALITY MUNICIPAL TRUST
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<INVESTMENTS-AT-COST> 232,047,992
<INVESTMENTS-AT-VALUE> 240,773,021
<RECEIVABLES> 5,949,832
<ASSETS-OTHER> 12,926
<OTHER-ITEMS-ASSETS> 3,689
<TOTAL-ASSETS> 246,739,468
<PAYABLE-FOR-SECURITIES> 18,302,867
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 681,726
<TOTAL-LIABILITIES> 18,984,593
<SENIOR-EQUITY> 75,000,000
<PAID-IN-CAPITAL-COMMON> 143,530,810
<SHARES-COMMON-STOCK> 9,682,997
<SHARES-COMMON-PRIOR> 9,646,008
<ACCUMULATED-NII-CURRENT> 698,091
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (199,055)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,725,029
<NET-ASSETS> 227,754,875
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,192,510
<OTHER-INCOME> 0
<EXPENSES-NET> (2,573,499)
<NET-INVESTMENT-INCOME> 11,619,011
<REALIZED-GAINS-CURRENT> (199,058)
<APPREC-INCREASE-CURRENT> (18,202,739)
<NET-CHANGE-FROM-OPS> (6,782,786)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,629,034)
<DISTRIBUTIONS-OF-GAINS> (2,395,070)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 36,989
<NET-CHANGE-IN-ASSETS> (20,169,081)
<ACCUMULATED-NII-PRIOR> 708,114
<ACCUMULATED-GAINS-PRIOR> 2,395,073
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,683,125
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,573,499
<AVERAGE-NET-ASSETS> 165,442,578
<PER-SHARE-NAV-BEGIN> 17.927
<PER-SHARE-NII> 1.201
<PER-SHARE-GAIN-APPREC> (1.901)
<PER-SHARE-DIVIDEND> (1.203)
<PER-SHARE-DISTRIBUTIONS> (0.248)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.776
<EXPENSE-RATIO> 1.56
</TABLE>
