<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
Statement of Assets and Liabilities.............. 8
Statement of Operations.......................... 9
Statement of Changes in Net Assets............... 10
Financial Highlights............................. 11
Notes to Financial Statements.................... 12
Report of Independent Accountants................ 15
Dividend Reinvestment Plan....................... 16
</TABLE>
VIC ANR 12/96
<PAGE> 2
LETTER TO SHAREHOLDERS
December 10, 1996
Dear Shareholder,
The first ten months of 1996 have
been a mixed experience for most
municipal bond fund investors. The
continuation of the 1995 rally at the
beginning of this year was thwarted
early on as the economy gained [PHOTO]
momentum, causing the bond market to
sell off. But by the second half of the
year, the pattern reversed. Growth
slowed and bonds recovered much of DENNIS J. MCDONNELL AND DON G. POWELL
their earlier losses.
This kind of volatility is not unusual, but it is difficult to predict and
serves as a reminder to investors to maintain their long-term outlook. Bailing
out during price declines and re-entering after market rebounds is often a
losing strategy. We believe it is time in the market, not timing the market,
that potentially maximizes long-term investment gains.
Additionally, we believe our recent acquisition by Morgan Stanley Group Inc.
will further help investors achieve their long-term goals. Morgan Stanley's
strong global presence and commitment to superior investment performance
complement our broad range of investment products, money management
capabilities, and high level of service that we currently offer.
ECONOMIC OVERVIEW
The economy has grown at a moderate pace this year, despite the second
quarter's 4.7 percent surge. By the third quarter, growth slowed to 2.0 percent,
near the level that prevailed early in the year. This moderation of economic
activity, coupled with continued low inflation, eased fears of an interest rate
hike by the Federal Reserve Board--fears that had dominated the market in early
summer and pushed long-term bond yields above 7.0 percent.
Once the market realized that the economy's pace had slowed, bond prices
rose from their 1996 lows and yields fell as they moved in the opposite
direction of bond prices. By the end of October, the 30-year Treasury bond yield
was near 6.5 percent.
During this recovery, municipal bonds rebounded even more than Treasuries,
due to a steady demand that outpaced supply. Demand for California bonds was
particularly strong because of the state's continuing economic improvement. As a
result of that acceleration, the credit rating of California bonds was upgraded
earlier this year.
It is expected that on a nationwide basis there will be little or no
increase in the total number of municipal bonds outstanding this year. The
volume of new issues is expected to almost equal the volume of bonds that were
redeemed or called.
Continued on page two
1
<PAGE> 3
[PIE CHART]
PORTFOLIO COMPOSITION BY CREDIT QUALITY
AS OF OCTOBER 31, 1996
<TABLE>
<S> <C>
AAA............ 63.1%
AA............. 0.9%
A.............. 25.2%
BBB............ 5.0%
BB.............. 1.6%
Non-Rated...... 4.2%
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.
PERFORMANCE SUMMARY
Many closed-end municipal bond funds, such as this one, are currently
offering higher after-tax yields than taxable income alternatives. The Trust
generated a tax-exempt distribution of 6.10 percent(3), based on the closing
stock price of $15.75 per common share as of October 31, 1996. For California
residents in the combined federal and state income tax bracket of 43 percent,
this distribution is equivalent to a yield of 10.70 percent(4) on a taxable
investment.
The Trust's one-year total return was 14.14 percent(1), including
reinvestment of all dividends, reflecting a 6.8 percent increase in market price
for the period ended October 31, 1996.
TOP FIVE PORTFOLIO HOLDINGS BY INDUSTRY AS OF OCTOBER 31, 1996
Retail Electric/Gas/Telephone..... 16.7%
Health Care....................... 16.2%
Transportation.................... 15.5%
Public Education................... 9.0%
Tax District....................... 6.8%
ECONOMIC OUTLOOK
We believe Fed policy will remain unchanged through the end of the year. We
look for the long Treasury bond to trade within a range of 6.25 and 6.75 percent
and the 5-year Treasury to trade between 5.75 percent and 6.25 percent for the
remainder of 1996. After that, interest rates could rise moderately if the
economy rebounds to a 3.0 percent annual growth rate and inflation edges higher.
Based upon this view of moderate growth and slightly higher inflation, we
believe the outlook for fixed-income markets remains positive.
Relatively stable interest rates early next year would be favorable for the
leveraged structure of our closed-end funds, which involves borrowing short-term
funds to purchase long-term municipal securities. Depending on the difference
between long-term and short-term market rates, this structure provides
opportunities for additional earnings over time.
Continued on page three
2
<PAGE> 4
The leveraged capital structure of the Trust continues to provide common
shareholders with above-market levels of dividend income. It should be noted,
however, that the rise in short-term rates would have an unfavorable effect on
common share performance.
The bond market should find continued support from the results of the recent
national elections. With a Democratic president and a Republican Congress, there
should be checks on potential spending increases and tax cuts so the budget
deficit does not balloon out of control. This split government should also help
minimize chances of major tax reform, which would likely affect investment
markets, including municipal bonds.
The stock market is another factor that could influence the performance of
the bond market in the coming year. If stocks suffer a protracted setback, the
demand for bonds, including municipals, could increase.
We will closely monitor any new developments in Washington and in the
financial markets in order to evaluate their potential impact on the Trust. We
believe that in the coming year, the municipal market will continue to be an
attractive investment choice for investors seeking high current income. Thank
you for your continued confidence in your investment with Van Kampen American
Capital and for the privilege of working with you to help you achieve your
financial goals.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1996
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE
CALIFORNIA MUNICIPALS
(NYSE TICKER SYMBOL--VIC)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)............. 14.14%
One-year total return based on NAV(2)...................... 8.05%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 6.10%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 10.70%
SHARE VALUATIONS
Net asset value............................................ $ 16.58
Closing common stock price................................. $15.750
One-year high common stock price (07/05/96)................ $15.875
One-year low common stock price (11/29/95)................. $14.625
Preferred share rate(5).................................... 3.150%
</TABLE>
(1)Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions for
the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common stock price at the end of the period
indicated.
(2)Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(3)Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(4)The taxable-equivalent distribution rate is calculated assuming a 43%
combined federal and state income tax bracket, which takes into consideration
the deductibility of individual state taxes paid.
(5)See "Notes to Financial Statements" footnote #4, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
CALIFORNIA 91.0%
$ 1,000 Brea & Olinda, CA Unified Sch Dist Ctfs Partn
Sr High Sch Pgm Ser A Rfdg (FSA Insd).......... 6.000% 08/01/09 $ 1,045,540
1,250 California Edl Fac Auth Rev Loyola Marymount
Univ Ser B..................................... 6.550 10/01/12 1,331,187
1,300 California Edl Fac Auth Rev Mills College...... 6.875 09/01/22 1,398,540
1,000 California Edl Fac Auth Rev Univ of La Verne... 6.300 04/01/09 1,025,180
1,100 California Hlth Fac Fin Auth Rev Hlth Fac Small
Fac Ln Ser A................................... 6.700 03/01/11 1,167,639
1,500 California Hlth Fac Fin Auth Rev Hlth Fac Small
Fac Ln Ser A................................... 6.750 03/01/20 1,586,280
2,500 California Hlth Fac Fin Auth Rev Insd Hlth Fac
Valleycare Ser A............................... 6.125 05/01/12 2,534,450
2,000 California Hlth Fac Fin Auth Rev Insd Hosp
Marshall Hosp Ser A............................ 6.500 11/01/12 2,099,680
1,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A (FSA Insd).................... 5.550 08/15/25 969,870
1,000 California Hsg Fin Agy Rev Home Mtg Ser N...... 6.375 02/01/27 1,016,000
10,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southern CA Edison Co (Embedded Cap) (AMBAC
Insd) (b)...................................... 6.000 07/01/27 10,066,600
2,000 California St (AMBAC Insd)..................... 6.200 02/01/16 2,034,700
2,000 California St Dept Tran Ctfs Partn East Bay St
Bldg Ser A..................................... 6.500 03/01/16 2,085,480
1,000 California St Pub Wks Brd Lease Rev Dept of
Corrections Ser B Rfdg (MBIA Insd)............. 5.625 11/01/19 992,350
2,000 California St Pub Wks Brd Lease Rev Var CA St
Univ Proj Ser A (Prerefunded @ 10/01/02)....... 6.700 10/01/17 2,260,000
1,000 California Statewide Cmntys Dev Auth Rev Ctfs
Partn Saint Joseph Hlth (AMBAC Insd)........... 6.100 07/01/07 1,069,190
2,000 California Statewide Cmntys Dev Corp Ctfs Partn
Insd United Westn Med Cent..................... 6.750 12/01/21 2,126,500
1,000 Central San Joaquin Vly, CA Risk Mgmt Auth Rev
Pooled Workers Ser C........................... * 02/01/97 990,800
2,070 Central San Joaquin Vly, CA Risk Mgmt Auth Rev
Pooled Workers Ser C........................... * 08/01/00 1,749,273
315 Centralia, CA Sch Dist Ctfs Partn Cap Apprec... * 06/01/00 268,289
260 Centralia, CA Sch Dist Ctfs Partn Cap Apprec... * 06/01/01 210,798
505 Centralia, CA Sch Dist Ctfs Partn Cap Apprec
(Prerefunded @ 06/01/01)....................... * 06/01/02 393,481
540 Centralia, CA Sch Dist Ctfs Partn Cap Apprec
(Prerefunded @ 06/01/01)....................... * 06/01/03 392,585
580 Centralia, CA Sch Dist Ctfs Partn Cap Apprec
(Prerefunded @ 06/01/01)....................... * 06/01/04 392,875
625 Centralia, CA Sch Dist Ctfs Partn Cap Apprec
(Prerefunded @ 06/01/01)....................... * 06/01/05 394,825
630 Centralia, CA Sch Dist Ctfs Partn Cap Apprec
(Prerefunded @ 06/01/01)....................... * 06/01/06 370,270
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 720 Centralia, CA Sch Dist Ctfs Partn Cap Apprec
(Prerefunded @ 06/01/01)....................... * 06/01/07 $ 394,452
1,700 Chula Vista, CA Indl Dev Rev San Diego Gas &
Elec Co Ser A (AMBAC Insd)..................... 6.400% 12/01/27 1,794,690
3,000 Contra Costa Cnty, CA Ctfs Partn Merrithew Mem
Hosp Replacement............................... 6.625 11/01/22 3,153,690
1,000 Contra Costa Cnty, CA Pub Fin Auth Tax Alloc
Rev Ser A...................................... 7.100 08/01/22 1,061,220
3,000 Foothill/Eastern Tran Agy Conv Cap Apprec Sr
Lien Ser A (c)................................. 0/7.050 01/01/10 1,900,530
7,455 Foothill/Eastern Tran Corridor Agy CA Toll Rd
Rev Sr Lien Ser A.............................. * 01/01/23 1,419,507
3,000 Foothill/Eastern Tran Corridor Agy CA Toll Rd
Rev Sr Lien Ser A............................. * 01/01/24 536,160
2,000 Huntington Beach, CA Pub Fin Auth Rev
Huntington Beach Redev Proj.................... 7.000 08/01/10 1,989,240
1,000 Long Beach, CA Harbor Rev Ser A (MBIA Insd).... 7.250 05/15/19 1,063,340
1,000 Los Angeles Cnty, CA Tran Comm Sales Tax Rev
Ser B Rfdg (MBIA Insd)......................... 6.500 07/01/13 1,080,370
2,000 Los Angeles, CA Dept Wtr & Pwr Elec Plt Rev
Second Issue (Crossover Rfdg @ 09/15/00)....... 7.250 09/15/30 2,231,520
2,500 Los Angeles, CA Multi-Family Rev Hsg Earthquake
Rehab Proj Ser A (FNMA Insd)................... 5.700 12/01/28 2,516,550
1,000 Mountain View, CA Cap Impts Fin Auth Rev City
Hall/Cmnty Theatre (MBIA Insd)................. 6.500 08/01/16 1,081,320
1,930 Orange Cnty, CA Ctfs Partn Juvenile Justice
Cent Fac Rfdg (AMBAC Insd)..................... 6.375 06/01/11 2,059,310
1,000 Paramount, CA Redev Agy Tax Alloc (MBIA
Insd).......................................... 6.250 08/01/10 1,075,250
2,500 Port Oakland, CA Port Rev Ser E (MBIA Insd).... 6.500 11/01/16 2,681,675
1,000 Rancho Mirage, CA Hosp Rev Ctfs Partn
Eisenhower Mem Hosp............................ 7.000 03/01/12 1,036,890
1,000 Rio Linda, CA Univ Sch Dist Ser A (AMBAC
Insd).......................................... 7.400 08/01/10 1,149,050
1,420 Rio Linda, CA Univ Sch Dist Ser A (AMBAC
Insd).......................................... 6.250 08/01/15 1,494,096
2,000 Riverside Cnty, CA Brd Edl Ctfs Partn Fin Proj
Ser A.......................................... 6.650 11/01/17 2,101,940
1,980 Riverside, CA Elec Rev Rfdg (MBIA Insd)........ 5.000 10/01/13 1,862,447
1,000 Sacramento, CA Muni Util Dist Elec Rev Ser B
(MBIA Insd).................................... 6.375 08/15/22 1,065,480
2,425 San Benito, CA Hosp Dist Hlth Fac Rev Ser A.... 6.750 12/01/21 2,562,158
1,730 San Bernadino, CA Muni Wtr Dept Ctfs Partn Swr
(FGIC Insd).................................... 6.250 02/01/17 1,802,764
5,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (Embedded Cap) (AMBAC Insd) (b).......... 6.100 09/01/19 5,145,150
5,000 San Diego, CA Port Fac Rev Natl Steel &
Shipbldg Co Rfdg............................... 6.600 12/01/02 5,017,450
4,000 San Francisco, CA City & Cnty Intl Arpt Rev
Second Ser Issue 12A (FGIC Insd)............... 5.800 05/01/21 4,004,680
3,565 San Francisco, CA City & Cnty Redev Agy Hotel
Tax Rev (FSA Insd)............................. 6.750 07/01/15 3,957,293
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,500 Santa Ana, CA Multi-Family Hsg Rev Villa Del
Sol Apartments Ser B (FNMA Insd)............... 5.650% 11/01/21 $ 1,519,800
2,250 Santa Barbara, CA Ctfs Partn Harbor Proj
Rfdg........................................... 6.750 10/01/27 2,405,813
1,000 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (AMBAC Insd)............ 6.875 11/15/14 1,126,000
835 Southern CA Home Fin Auth Single Family Mtg Rev
Ser A (GNMA Collateralized).................... 6.750 09/01/22 863,131
1,080 Stanislaus Cnty, CA Ctfs Partn Cap Impt Pgm Ser
A Rfdg (MBIA Insd)............................. 5.250 05/01/14 1,044,608
1,000 Stockton, CA Hlth Fac Rev Saint Joseph Med Cent
Ser A (MBIA Insd).............................. 5.625 06/01/13 996,210
3,000 Upland, CA Ctfs Partn Wtr Sys Proj Rfdg (FGIC
Insd).......................................... 6.600 08/01/16 3,268,800
2,000 William S Hart CA Jt Sch Fin Auth Spl Tax Rev
Cmnty Fac Rfdg (FSA Insd)...................... 6.500 09/01/14 2,172,480
------------
110,607,446
------------
GUAM 3.5%
4,000 Guam Govt Ltd Oblig Hwy Ser A (FSA Insd)....... 6.250 05/01/07 4,277,880
------------
PUERTO RICO 3.7%
1,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser
T (Prerefunded @ 07/01/02)..................... 6.500 07/01/22 1,115,160
2,000 Puerto Rico Comwlth Pub Impt (Prerefunded @
07/01/02)...................................... 6.800 07/01/21 2,259,040
1,000 Puerto Rico Pub Bldgs Auth Rev Gtd Ser K
(Prerefunded @ 07/01/02)....................... 6.875 07/01/21 1,133,240
------------
4,507,440
------------
TOTAL LONG-TERM INVESTMENTS 98.2%
(Cost $113,106,293) (a)..................................................... 119,392,766
SHORT-TERM INVESTMENTS AT AMORTIZED COST 0.4%................................ 500,000
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%................................... 1,716,262
------------
NET ASSETS 100%.............................................................. $121,609,028
============
</TABLE>
*Zero coupon bond
(a) At October 31, 1996, cost for federal income tax purposes is $113,106,293;
the aggregate gross unrealized appreciation is $6,368,176 and the aggregate
gross unrealized depreciation is $81,703, resulting in net unrealized
appreciation of $6,286,473.
(b) An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level. The price of these
securities may be more volatile than the price of a comparable fixed rate
security. The Trust invests in these instruments as a hedge against a rise
in the short-term interest rates which it pays on its preferred shares.
These derivative instruments are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation on
securities. Upon disposition, a realized gain or loss is recognized
accordingly.
(c) Security is currently a zero coupon bond which will convert to a coupon
paying bond at a predetermined date.
See Notes to Financial Statements
7
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $113,106,293) (Note 1)............... $119,392,766
Short-Term Investments (Note 1)......................................... 500,000
Interest Receivable..................................................... 1,962,007
Cash.................................................................... 34,161
Unamortized Organizational Expenses (Note 1)............................ 2,001
Other................................................................... 1,711
------------
Total Assets...................................................... 121,892,646
------------
LIABILITIES:
Payables:
Investment Advisory Fee (Note 2)...................................... 66,819
Income Distributions--Common and Preferred Shares..................... 30,533
Administrative Fee (Note 2)........................................... 20,560
Affiliates (Note 2)................................................... 10,617
Accrued Expenses........................................................ 105,640
Deferred Compensation and Retirement Plans (Note 2)..................... 49,449
------------
Total Liabilities................................................. 283,618
------------
NET ASSETS.............................................................. $121,609,028
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 900
issued with liquidation preference of $50,000 per share) (Note 4)..... $ 45,000,000
------------
Common Shares ($.01 par value with an unlimited number of shares
authorized, 4,619,242 shares issued and outstanding).................. 46,192
Paid in Surplus......................................................... 67,813,169
Net Unrealized Appreciation on Investments.............................. 6,286,473
Accumulated Net Realized Gain on Investments............................ 1,231,942
Accumulated Undistributed Net Investment Income......................... 1,231,252
------------
Net Assets Applicable to Common Shares............................ 76,609,028
------------
NET ASSETS.............................................................. $121,609,028
============
NET ASSET VALUE PER COMMON SHARE ($76,609,028 divided
by 4,619,242 shares outstanding)...................................... $ 16.58
============
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................................. $7,362,541
----------
EXPENSES:
Investment Advisory Fee (Note 2).......................................... 783,453
Administrative Fee (Note 2)............................................... 241,063
Preferred Share Maintenance (Note 4)...................................... 138,001
Trustees Fees and Expenses (Note 2)....................................... 27,444
Legal (Note 2)............................................................ 11,000
Amortization of Organizational Expenses (Note 1).......................... 5,011
Other..................................................................... 150,105
----------
Total Expenses........................................................ 1,356,077
----------
NET INVESTMENT INCOME..................................................... $6,006,464
==========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments.......................................... $1,231,942
----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period................................................. 5,667,020
End of the Period:
Investments........................................................... 6,286,473
----------
Net Unrealized Appreciation on Securities During the Period............... 619,453
----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES............................ $1,851,395
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS................................ $7,857,859
==========
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 6,006,464 $ 5,987,941
Net Realized Gain on Securities.................. 1,231,942 640,742
Net Unrealized Appreciation/Depreciation
on Securities During the Period................ 619,453 6,971,978
------------ ------------
Change in Net Assets from Operations............. 7,857,859 13,600,661
------------ ------------
Distributions from Net Investment Income:
Common Shares.................................. (4,420,235) (4,268,081)
Preferred Shares............................... (1,507,837) (1,829,068)
------------ ------------
(5,928,072) (6,097,149)
------------ ------------
Distributions from Net Realized Gain
on Investments (Note 1):
Common Shares.................................. (407,627) -0-
Preferred Shares............................... (178,664) -0-
------------ ------------
(586,291) -0-
------------ ------------
Total Distributions.............................. (6,514,363) (6,097,149)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... 1,343,496 7,503,512
NET ASSETS:
Beginning of the Period.......................... 120,265,532 112,762,020
------------ ------------
End of the Period (Including undistributed net
investment income of $1,231,252 and $1,152,860,
respectively).................................. $121,609,028 $120,265,532
============ ============
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 27, 1992
(Commencement
Year Ended October 31 of Investment
------------------------------------- Operations) to
1996 1995 1994 1993 October 31, 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period (a)...... $16.294 $14.670 $17.644 $14.878 $14.704
------- ------- ------- ------- -------
Net Investment Income............ 1.300 1.296 1.282 1.281 .594
Net Realized and Unrealized
Gain/Loss on Securities........ .400 1.648 (3.002) 2.851 .098
------- ------- ------- ------- -------
Total from Investment Operations... 1.700 2.944 (1.720) 4.132 .692
------- ------- ------- ------- -------
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders.... .957 .924 .924 .924 .385
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders....... .326 .396 .259 .258 .133
Distributions from Net Realized
Gain on Securities (Note 1):
Paid to Common Shareholders.... .088 -0- .058 .136 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders....... .039 -0- .013 .048 -0-
------- ------- ------- ------- -------
Total Distributions................ 1.410 1.320 1.254 1.366 .518
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $16.584 $16.294 $14.670 $17.644 $14.878
======= ======= ======= ======= =======
Market Price Per Share at End of
the Period....................... $15.750 $14.750 $12.750 $16.375 $14.250
Total Investment Return at Market
Price (b)........................ 14.14% 23.60% (16.67%) 23.01% (2.50%)*
Total Return at Net Asset Value
(c).............................. 8.05% 17.86% (11.63%) 26.44% 1.70%*
Net Assets at End of the Period (In
millions)........................ $121.6 $120.3 $112.8 $126.5 $113.7
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares........................... 1.80% 1.83% 1.79% 1.73% 1.70%
Ratio of Expenses to Average Net
Assets........................... 1.13% 1.12% 1.12% 1.09% 1.18%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d)................ 5.97% 5.83% 6.31% 6.21% 5.18%
Portfolio Turnover................. 16% 13% 14% 27% 51%*
</TABLE>
(a) Net asset value at March 27, 1992, is adjusted for common and preferred
share offering costs of $.296 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 value of the
Trust's assets with reinvestment of dividends based upon NAV.
(d) Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
See Notes to Financial Statements
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Trust for Investment Grade California Municipals
(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. The
Trust commenced investment operations on March 27, 1992.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At October 31, 1996, there were no
when issued or delayed delivery purchase commitments.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL EXPENSES--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization in the amount of $25,000. These costs
are being amortized on a straight line basis over the 60 month period ending
March 26, 1997. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Trust
originally purchased by VKAC are redeemed during the amortization period, the
Trust will be reimbursed for any unamortized organizational expenses in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually 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.
For the year ended October 31, 1996, 99.83% of the income distributions made
by the Trust were exempt from federal income taxes. Additionally, during the
period, the Trust paid long-term capital gains of $429,976. In January, 1997,
the Trust will provide tax information to shareholders for the 1996 calendar
year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .65% of the average net assets of the Trust. In addition, the Trust
will pay a monthly administrative fee to VKAC, the Trust's Administrator, at an
annual rate of .20% of the average net assets of the Trust. The administrative
services provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and preferred shares and
providing certain services to shareholders.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
For the year ended October 31, 1996, the Trust recognized expenses of
approximately $16,300 representing VKAC's cost of providing accounting and legal
services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At October 31, 1996, VKAC owned 6,700 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $18,949,364 and $20,826,111,
respectively.
4. PREFERRED SHARES
The Trust has outstanding 900 Auction Preferred Shares ("APS"). Dividends are
cumulative and the dividend rate is currently reset every 28 days through an
auction process. The rate in effect on October 31, 1996, was 3.150%. During the
year ended October 31, 1996, the rates ranged from 3.150% to 6.093%, of which a
portion of 6.093% was taxable.
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 redemption if the tests are not met.
5. SUBSEQUENT EVENTS
The Trust declared a capital gain of $0.20007 per common share, of which 97.5
percent is long-term and 2.5 percent is short-term, to common shareholders of
record on December 13, 1996 which will be payable on December 31, 1996.
14
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Trust for Investment Grade California Municipals:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Trust for Investment Grade California Municipals (the
"Trust"), including the portfolio of investments, as of October 31, 1996, and
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital Trust for Investment Grade California Municipals as of
October 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 4, 1996
15
<PAGE> 17
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen American Capital
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
16
<PAGE> 18
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1996 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
RESULTS OF SHAREHOLDER VOTES
An Annual Meeting of Shareholders of the Trust was held on May 23, 1996, where
shareholders voted on the election of trustees and the selection of independent
public accountants. With regard to the election of David C. Arch as elected
trustee by the common shareholders of the Trust, 2,436,144 shares voted in his
favor, 31,409 withheld. With regard to the election of Howard J Kerr as elected
trustee by the common shareholders of the Trust, 2,436,144 shares voted in his
favor, 31,409 withheld. With regard to the election of Dennis J. McDonnell as
elected trustee by the common shareholders of the Trust, 2,436,657 shares voted
in his favor, 30,897 withheld. With regard to the ratification of KPMG Peat
Marwick LLP as independent public accountants for the Trust, 2,394,127 voted in
favor, 11,165 voted against and 63,008 abstained.
A Special Meeting of Shareholders of the Trust was held on October 23, 1996,
where shareholders voted on a new investment advisory agreement and changes to
investment policies. With regard to the approval of a new investment advisory
agreement between Van Kampen American Capital Investment Advisory Corp. and the
Trust, 3,686,442 shares voted for the proposal, 58,467 voted against and 156,857
abstained. With regard to the approval of certain changes to the Trust's
fundamental investment policies with respect to investment in other investment
companies, 1,800,598 shares voted for the proposal, 76,261 voted against and
151,690 abstained.
17
