<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Glossary of Terms................................ 5
Performance Results.............................. 7
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 15
Dividend Reinvestment Plan....................... 18
</TABLE>
VIC SAR 6/98
<PAGE> 2
LETTER TO SHAREHOLDERS
May 21, 1998
Dear Shareholder,
The Taxpayer Relief Act of 1997,
signed into law by President Clinton
last year, was created to fill the need
for a broad variety of tax-advantaged
investments to promote asset growth. We [PHOTO]
are pleased that you selected our Trust
as a vehicle to provide the potential
for tax-free income within your
investment portfolio. As you are aware,
dividends distributed by the Trust are
generally free from federal income DENNIS J. MCDONNEL AND DON G. POWELL
taxes, and often from state and local
taxes as well. At Van Kampen American Capital, we strive not only for a high
level of current income, but total return performance as well.
ECONOMIC REVIEW
After nearly seven years of continuous growth, the economy remained buoyant
with few signs of accelerating inflation. Wholesale prices in the first quarter
plummeted at an annual rate of 4.2 percent, while consumer prices inched up 0.2
percent and employment costs rose just 0.7 percent. However, inflationary
pressures were eased by factors such as lower oil prices, increasing
productivity, and a pending budget surplus. The Asian financial crisis led to a
stronger dollar and a decline in the prices of Asian imports, which in turn has
discouraged price increases on competing U.S. goods.
To date, Asia's slowdown has had a modest impact on U.S. economic growth. In
the first quarter, the U.S. economy grew at a 4.2 percent annual rate, its
fastest pace in the past year. Strong consumer spending and inventory buildup by
manufacturers offset a decrease in exports to Asia. Despite the economy's
strength, the Federal Reserve Board refrained from raising interest rates, given
the lack of domestic inflationary pressure and concerns about Asia's economic
future.
In California, the economy expanded at a brisk pace although exports to Asia
slowed as a result of that region's financial crisis. Ultimately, fewer exports
could lead to lower-than-expected state revenues and an adjustment of budget
projections. In November, municipalities face a deadline for voters to approve
existing taxes and assessments, as mandated by Proposition 218.
MARKET OVERVIEW
Against the backdrop of benign inflation and no action by the Fed, U.S. bond
prices rose during the past six months, although they ended the reporting period
below the highs reached in early January.
The yield of the 30-year Treasury bond, which moves in the opposite
direction of its price, fell from 6.15 percent on October 31 to 5.95 percent on
April 30. Bond prices hit a record high as yields reached 5.69 percent in early
January amidst expectations that the
Continued on page two
1
<PAGE> 3
Fed would cut interest rates, but the yield went back to 6.00 percent in early
March after the Fed chose not to act. Yields were volatile for the rest of the
reporting period, as foreign investors sold U.S. Treasury holdings and investors
began to fear that the Fed was leaning toward a rate hike.
Municipal bond yields generally moved in unison with Treasuries but did not
gain nearly as much in price. By the end of the reporting period, the average
yield of AAA-rated, 30-year generic general obligation bonds was 5.14 percent,
two basis points above the yield posted on October 31 of last year. The
underperformance of municipal bonds can be attributed in part to heavy supply
that outpaced demand. Supply increased as state and local governments took
advantage of low interest rates by issuing bonds to refinance outstanding issues
with higher interest rates, as well as to fund new projects. In the first
quarter, long-term municipal issuance totaled $71 billion, up from $40 billion a
year earlier.
More than half of the new issue volume was AAA-rated and insured, which
significantly diminished the amount of uninsured, higher-yielding securities
available in the marketplace. The dominance of insured volume and the high
demand for uninsured paper created an imbalance that compressed the yields
between higher-quality and lower-quality bonds.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of April 30, 1998*
<TABLE>
<S> <C>
AAA.................. 69.7%
AA................... 2.7%
A.................... 12.2%
BBB.................. 9.4%
BB................... 1.7%
Non-Rated............ 4.3%
</TABLE>
* As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as issued by Standard & Poor's
or Moody's.
TRUST STRATEGY
We used the following strategies to manage the Trust during the period:
We maintained a portfolio consisting primarily of high-quality bonds with a
heavy emphasis on AAA-rated insured securities. Under current market conditions,
we believe the yield spread between higher-rated and lower-rated securities does
not adequately compensate the investor for the additional credit risk on the
lower-rated securities. Also, high-quality bonds generally have performed better
than lower-quality holdings when interest rates are falling, which was the case
for most of the reporting period.
Overall, we limited the number of purchases during the period because
current market yields were lower than the average yield of bonds in the Trust.
During the reporting period, the Trust had notable reinvestment exposure, due to
prerefunded securities and other holdings priced to call dates in the next few
years. In an effort to reduce this
Continued on page three
2
<PAGE> 4
exposure, we sold several of these positions at a premium and purchased
long-term discount securities, which extended the call protection of the Trust.
We had little trouble finding replacement bonds, given the surplus of new
securities from which to choose.
In making purchases, we emphasized long-term discount bonds with maturities
near 25 years. In a falling interest rate environment, these bonds have the
potential to appreciate in value faster than premium bonds as they move closer
to maturity. They also have a longer duration, which makes them more sensitive
to changing interest rates. Discount bonds helped offset the declining duration
of the portfolio that occurred as low interest rates caused several of our
higher-coupon holdings to be prerefunded or priced to call dates. As of April
30, the duration of the Trust was 7.14 years, compared with 8.40 years for the
Lehman Brothers California Municipal Bond Index. Because of the longer-term
nature of the Trust, the calculation of this index's duration has been adjusted
to eliminate bonds with maturities of five years or less.
TOP 5 PORTFOLIO SECTORS AS OF APRIL 30, 1998*
Retail Electric/Gas/Telephone......................... 16.3%
Transportation........................................ 13.2%
Health Care........................................... 10.9%
Single-Family Housing................................. 9.1%
Tax District.......................................... 8.4%
*As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the six-month period ended April 30, 1998, the Trust generated a total
return of 6.76 percent(1). This reflects a gain in market price per common share
from $16.750 on October 31, 1997, to $17.125 on April 30, 1998, plus
reinvestment of all dividends. The Trust had a tax-exempt distribution rate of
5.78 percent(3), based on the closing price of its common shares. Because income
from the Trust is exempt from federal and California income taxes, this
distribution rate is equivalent to a yield of 9.97 percent(4) on a taxable
investment (for investors in the combined federal and state income tax bracket
of 42 percent). Please refer to the chart on page seven for additional
performance numbers.
Continued on page four
3
<PAGE> 5
[DIVIDEND HISTORY GRAPH]
Six-month Dividend History
For the Period Ended April 30, 1998
<TABLE>
<CAPTION>
Distribution per Common Share
<S> <C>
Nov 1997................................ $.0825
Dec 1997................................ $.3360
Jan 1998................................ $.0825
Feb 1998................................ $.0825
Mar 1998................................ $.0825
Apr 1998................................ $.0825
</TABLE>
The distribution history represents past performance of the Trust and does not
predict the Trust's future distributions.
ECONOMIC OUTLOOK
We expect the economy to slow from its brisk first-quarter pace, although
the extent of the slowdown depends on the continued effects of Asia's crisis and
on Fed policy. We believe the Fed is biased toward raising rates, given concerns
about the economy's increasing strength. If economic strength ignites
inflationary pressures, then we believe the Fed will raise interest rates later
this year. As a result, the yield of the 30-year Treasury bond could top 6.25
percent.
We will continue to track market developments and their effects on the
Trust. When appropriate, we will make adjustments to the portfolio. As we
mentioned earlier, our goal remains a high level of current income for
investors, plus gains in total return. Thank you for your continued support and
confidence in Van Kampen American Capital and the management of your Trust.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page seven
4
<PAGE> 6
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to one percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bond holder for loss of income and ownership, the call price is usually
higher than the face value of the bond. Bonds are usually called when interest
rates drop so significantly that the issuer can save money by issuing new bonds
at lower rates.
A callable bond is "priced to call" when it is selling at a premium, because it
is assumed that the issuer will redeem the bond at its call date, rather than at
maturity.
COUPON RATE: The stated rate of interest a bond pays until maturity, expressed
as a percentage of its face value.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investor Services are two
companies that assign bond ratings. Standard & Poor's ratings range from a high
of AAA to a low of D; Moody's ratings range from a high of Aaa to a low of D.
CREDIT SPREAD: The difference in yield between higher-quality issues and
lower-quality issues. Normally, lower-quality issues provide higher yields than
higher-quality issues in order 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.
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
one-percent change in the price of the bond for every one-percent change in
interest rates. The longer a fund's duration, the greater the effect of interest
rate movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
FEDERAL RESERVE BOARD (THE FED): A group that meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways and
schools.
5
<PAGE> 7
INFLATION: An economic situation in which money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most municipal bonds are AAA-rated. Insurance on the bonds does not
relate to mutual fund shares which will fluctuate in price.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MARKET PRICE: The price of a share of a closed-end fund trading on a stock
exchange. When the price is less than a fund's NAV, the fund is trading at a
discount. When the price is more than the NAV, the fund is trading at a premium.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
governmental entity to finance capital expenditures such as the construction of
highways or public works.
NET ASSET VALUE (NAV): The value of a fund share, calculated by deducting a
fund's liabilities from its total assets and dividing this amount by the number
of shares outstanding.
PREREFUNDING: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond.
YIELD SPREAD: The difference between the yields of distinct bonds, due to
variant credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities are
narrow, there is less incentive to own the bond with the longer maturity. In
both cases, the investor is not being compensated for the additional risk.
ZERO COUPON BONDS: A corporate or municipal debt security that trades at a deep
discount to face value and pays no interest. It may be redeemed at maturity for
full face value.
6
<PAGE> 8
PERFORMANCE RESULTS FOR THE PERIOD ENDED APRIL 30, 1998
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE
CALIFORNIA MUNICIPALS
(NYSE TICKER SYMBOL--VIC)
COMMON SHARE TOTAL RETURNS
<TABLE>
<S> <C>
Six-month total return based on market price(1)............ 6.76%
Six-month total return based on NAV(2)..................... 3.02%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 5.78%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 9.97%
SHARE VALUATIONS
Net asset value............................................ $ 16.93
Closing common stock price................................. $17.125
Six-month high common stock price (01/12/98)............... $18.000
Six-month low common stock price (12/11/97)................ $16.500
Preferred share rate(5).................................... 3.52%
</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 income 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.
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 98.7%
CALIFORNIA 92.5%
$ 500 Alameda Cnty, CA Ctfs Partn Rfdg and Cap Proj
(AMBAC Insd).................................... 5.000% 06/01/15 $ 485,440
1,000 Bakersfield, CA Ctfs Partn Convention Cent
Expansion Proj (MBIA Insd)...................... 5.875 04/01/22 1,047,010
1,000 Brea & Olinda, CA Unified Sch Dist Ctfs Partn Sr
High Sch Pgm Ser A Rfdg (FSA Insd).............. 6.000 08/01/09 1,077,770
1,000 California Edl Fac Auth Rev College Chiropractic
Rfdg............................................ 5.600 11/01/17 1,013,550
1,000 California Edl Fac Auth Rev Student Ln CA Ln Pgm
Ser A (MBIA Insd)............................... 6.000 03/01/16 1,029,620
1,000 California Edl Fac Auth Rev Univ of La Verne.... 6.300 04/01/09 1,063,140
1,100 California Hlth Fac Fin Auth Rev Hlth Fac Small
Fac Ln Ser A.................................... 6.700 03/01/11 1,189,067
1,500 California Hlth Fac Fin Auth Rev Hlth Fac Small
Fac Ln Ser A.................................... 6.750 03/01/20 1,622,415
2,500 California Hlth Fac Fin Auth Rev Insd Hlth Fac
Valleycare Ser A................................ 6.125 05/01/12 2,625,800
2,000 California Hlth Fac Fin Auth Rev Insd Hosp
Marshall Hosp Ser A............................. 6.500 11/01/12 2,162,600
1,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A (FSA Insd)..................... 5.550 08/15/25 1,008,770
1,000 California Hsg Fin Agy Rev Home Mtg Ser B (MBIA
Insd)........................................... 6.000 08/01/16 1,052,530
1,000 California Hsg Fin Agy Rev Home Mtg Ser E (AMBAC
Insd)........................................... 6.100 08/01/29 1,054,040
1,000 California Hsg Fin Agy Rev Home Mtg Ser M (MBIA
Insd)........................................... 5.550 08/01/17 1,025,090
1,000 California Hsg Fin Agy Rev Home Mtg Ser N....... 6.375 02/01/27 1,067,770
1,000 California Hsg Fin Agy Rev Multi-Family Hsg III
Ser A (MBIA Insd)............................... 5.850 08/01/17 1,035,420
1,000 California Hsg Fin Agy Rev Multi-Family Hsg III
Ser A (MBIA Insd)............................... 5.950 08/01/28 1,038,530
10,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southn CA Edison Co (AMBAC Insd)................ 6.000 07/01/27 10,497,500
2,000 California St (AMBAC Insd)...................... 6.200 02/01/16 2,042,980
1,000 California St Ser BH (FSA Insd)................. 5.200 12/01/11 1,007,750
1,000 California St Ser BH (FSA Insd)................. 5.400 12/01/15 1,015,450
2,000 California St Ser BH (FSA Insd)................. 5.400 12/01/16 2,030,900
1,000 California St Ser BH (FSA Insd)................. 5.500 12/01/24 1,010,880
3,500 California Statewide Cmntys Dev Auth Spl Fac
United Airls.................................... 5.625 10/01/34 3,472,980
1,000 California Vly Hsg Fin Auth Rev Home Mtg (MBIA
Insd)........................................... 5.650 02/01/27 1,015,970
1,700 Chula Vista, CA Indl Dev Rev San Diego Gas &
Elec Co Ser A (AMBAC Insd)...................... 6.400 12/01/27 1,837,309
1,000 Contra Costa Cnty, CA Pub Fin Auth Tax Alloc Rev
Ser A........................................... 7.100 08/01/22 1,091,640
1,245 Duarte, CA Multi-Family Rev Hsg Heritage Park
Apts Ser A (FNMA Insd).......................... 5.850 05/01/30 1,283,744
1,000 Folsom, CA Spl Tax Cmnty Fac Dist No. 2 Rfdg
(Connie Lee Insd)............................... 5.250 12/01/19 985,980
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 3,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Sr
Lien Ser A (a).................................. 0/7.050% 01/01/10 $ 2,276,490
7,455 Foothill/Eastern Corridor Agy CA Toll Rd Rev Sr
Lien Ser A...................................... * 01/01/23 1,861,141
3,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Sr
Lien Ser A...................................... * 01/01/24 708,000
2,655 Grand Terrace, CA Ctfs Partn Rfdg (MBIA Insd)... 5.450 09/01/21 2,674,886
2,000 Huntington Beach, CA Pub Fin Auth Rev Huntington
Beach Redev Proj................................ 7.000 08/01/10 2,113,840
1,000 Los Angeles Cnty, CA Tran Comm Sales Tax Rev Ser
B Rfdg (MBIA Insd).............................. 6.500 07/01/13 1,076,680
2,000 Los Angeles, CA Dept Wtr & Pwr Elec Plt Rev
Second Issue (Crossover Rfdg @ 09/15/00)........ 7.250 09/15/30 2,169,680
2,500 Los Angeles, CA Multi-Family Rev Hsg Earthquake
Rehab Proj Ser A (FNMA Insd).................... 5.700 12/01/27 2,626,975
1,000 Mountain View, CA Cap Impts Fin Auth Rev City
Hall/Cmnty Theatre (MBIA Insd).................. 6.500 08/01/16 1,076,480
1,930 Orange Cnty, CA Ctfs Partn Juvenile Justice Cent
Fac Rfdg (AMBAC Insd)........................... 6.375 06/01/11 2,081,119
1,000 Pajaro Vly, CA Unified Sch Dist Ctfs Partn Sch
Fac Brdg Fdg Pgm (FSA Insd)..................... 5.850 09/01/32 1,047,210
880 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)... 6.250 08/01/10 958,267
1,000 Pomona, CA Pub Fin Auth Rev SW Pomona Redev Proj
W Rfdg (MBIA Insd).............................. 5.000 02/01/24 955,330
1,000 Pomona, CA Pub Fin Auth Rev SW Pomona Redev Proj
W Rfdg (MBIA Insd).............................. 5.000 02/01/30 943,820
2,500 Port Oakland, CA Port Rev Ser E (MBIA Insd)..... 6.500 11/01/16 2,706,425
2,000 Riverside Cnty, CA Brd Edl Ctfs Partn Fin Proj
Ser A........................................... 6.650 11/01/17 2,140,480
2,425 San Benito, CA Hosp Dist Hlth Fac Rev Ser A..... 6.750 12/01/21 2,618,200
1,730 San Bernadino, CA Muni Wtr Dept Ctfs Partn Swr
(FGIC Insd)..................................... 6.250 02/01/17 1,834,786
1,000 San Bernardino Cnty, CA Ctfs Partn Med Cent Fin
Proj (MBIA Insd)................................ 5.000 08/01/28 944,880
5,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (AMBAC Insd).............................. 6.100 09/01/19 5,361,300
5,000 San Diego, CA Port Fac Rev Natl Steel & Shipbldg
Co Rfdg......................................... 6.600 12/01/02 5,230,250
1,500 San Francisco, CA City & Cnty Arpt Comm Intl
Arpt Rev Second Ser Issue 12-A (FGIC Insd)...... 5.800 05/01/21 1,547,730
3,565 San Francisco, CA City & Cnty Redev Agy Hotel
Tax Rev (Prerefunded @ 07/01/04) (FSA Insd)..... 6.750 07/01/15 4,074,866
3,500 San Joaquin Hills, CA Trns Toll Cap Apprec Ser A
Rfdg (MBIA Insd)................................ * 01/15/29 668,150
1,500 Santa Ana, CA Multi-Family Hsg Rev Villa Del Sol
Apts Ser B (FNMA Insd).......................... 5.650 11/01/21 1,582,875
2,250 Santa Barbara, CA Ctfs Partn Harbor Proj Rfdg... 6.750 10/01/27 2,446,065
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,000 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (Prerefunded @ 11/15/04)
(AMBAC Insd).................................... 6.875% 11/15/14 $ 1,155,930
1,000 Santa Fe Springs, CA Cmnty Dev Comm Tax Alloc
Cons Redev Proj Ser A Rfdg (MBIA Insd).......... 5.000 09/01/17 969,790
800 Southern CA Home Fin Auth Single Family Mtg Rev
Ser A (GNMA Insd)............................... 6.750 09/01/22 841,528
1,000 Stockton, CA Hlth Fac Rev Saint Joseph Med Cent
Ser A (MBIA Insd)............................... 5.625 06/01/13 1,037,990
3,000 Upland, CA Ctfs Partn Wtr Sys Proj Rfdg (FGIC
Insd)........................................... 6.600 08/01/16 3,259,110
2,835 West Covina, CA Ctfs Partn Civic Cent Proj Rfdg
(FSA Insd)...................................... 5.500 09/01/14 2,911,829
2,000 William S Hart CA Jt Sch Fin Auth Spl Tax Rev
Cmnty Fac Rfdg (FSA Insd)....................... 6.500 09/01/14 2,240,200
------------
114,033,947
------------
GUAM 3.5%
4,000 Guam Govt Ltd Oblig Hwy Ser A (FSA Insd)........ 6.250 05/01/07 4,332,560
------------
PUERTO RICO 2.7%
2,000 Puerto Rico Comwlth Pub Impt (Prerefunded @
07/01/02)....................................... 6.800 07/01/21 2,215,660
1,000 Puerto Rico Pub Bldgs Auth Rev Gtd Ser K
(Prerefunded @ 07/01/02)........................ 6.875 07/01/21 1,110,420
------------
3,326,080
------------
TOTAL INVESTMENTS 98.7%
(Cost $113,942,822)......................................................... 121,692,587
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3%................................... 1,560,370
------------
NET ASSETS 100.0%............................................................ $123,252,957
============
</TABLE>
*Zero coupon bond
(a) Security is currently a zero coupon bond which will convert to a coupon
paying bond at a predetermined date.
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $113,942,822)....................... $121,692,587
Interest Receivable......................................... 2,090,863
Other....................................................... 2,805
------------
Total Assets.......................................... 123,786,255
------------
LIABILITIES:
Payables:
Custodian Bank............................................ 196,911
Investment Advisory Fee................................... 66,313
Income Distributions--Preferred Shares.................... 65,094
Administrative Fee........................................ 20,404
Affiliates................................................ 8,664
Accrued Expenses............................................ 92,029
Trustees' Deferred Compensation and Retirement Plans........ 83,883
------------
Total Liabilities..................................... 533,298
------------
NET ASSETS.................................................. $123,252,957
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 900 issued with liquidation preference of $50,000
per share)................................................ $ 45,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 4,622,294 shares issued and
outstanding).............................................. 46,223
Paid in Surplus............................................. 67,865,218
Net Unrealized Appreciation................................. 7,749,765
Accumulated Net Realized Gain............................... 1,328,470
Accumulated Undistributed Net Investment Income............. 1,263,281
------------
Net Assets Applicable to Common Shares................ 78,252,957
------------
NET ASSETS.................................................. $123,252,957
============
NET ASSET VALUE PER COMMON SHARE ($78,252,957 divided
by 4,622,294 shares outstanding).......................... $ 16.93
============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $3,547,154
----------
EXPENSES:
Investment Advisory Fee..................................... 401,447
Administrative Fee.......................................... 123,522
Preferred Share Maintenance................................. 61,221
Trustees' Fees and Expenses................................. 13,633
Legal....................................................... 2,410
Custody..................................................... 1,572
Other....................................................... 68,262
----------
Total Expenses.......................................... 672,067
----------
NET INVESTMENT INCOME....................................... $2,875,087
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $1,328,471
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 8,661,224
End of the Period......................................... 7,749,765
----------
Net Unrealized Depreciation During the Period............... (911,459)
----------
NET REALIZED AND UNREALIZED GAIN............................ $ 417,012
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $3,292,099
==========
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1998 and
the Year Ended October 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1998 October 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 2,875,087 $ 5,830,126
Net Realized Gain....................................... 1,328,471 1,491,617
Net Unrealized Appreciation/Depreciation During the
Period................................................ (911,459) 2,374,751
------------ ------------
Change in Net Assets from Operations.................... 3,292,099 9,696,494
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (2,286,707) (4,561,267)
Preferred Shares...................................... (564,091) (1,261,119)
------------ ------------
(2,850,798) (5,822,386)
------------ ------------
Distributions from Net Realized Gain:
Common Shares......................................... (1,170,772) (924,173)
Preferred Shares...................................... (320,846) (307,769)
------------ ------------
(1,491,618) (1,231,942)
------------ ------------
Total Distributions..................................... (4,342,416) (7,054,328)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... (1,050,317) 2,642,166
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment.......................................... 52,080 -0-
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS................... (998,237) 2,642,166
NET ASSETS:
Beginning of the Period................................. 124,251,194 121,609,028
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,263,281 and $1,238,992,
respectively)......................................... $123,252,957 $124,251,194
============ ============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 27, 1992
(Commencement
Year Ended October 31 of Investment
Six Months Ended ----------------------------------------------- Operations) to
April 30, 1998 1997 1996 1995 1994 1993 October 31, 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period (a)................... $17.157 $16.584 $16.294 $14.670 $17.644 $14.878 $14.704
------- ------- ------- ------- ------- ------- -------
Net Investment Income........ .622 1.262 1.300 1.296 1.282 1.281 .594
Net Realized and Unrealized
Gain/Loss.................. .090 .839 .400 1.648 (3.002) 2.851 .098
------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations................... .712 2.101 1.700 2.944 (1.720) 4.132 .692
------- ------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders............. .495 .988 .957 .924 .924 .924 .385
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders... .122 .273 .326 .396 .259 .258 .133
Distributions from Net
Realized Gain:
Paid to Common
Shareholders............. .254 .200 .088 -0- .058 .136 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders... .069 .067 .039 -0- .013 .048 -0-
------- ------- ------- ------- ------- ------- -------
Total Distributions........... .940 1.528 1.410 1.320 1.254 1.366 .518
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................... $16.929 $17.157 $16.584 $16.294 $14.670 $17.644 $14.878
======= ======= ======= ======= ======= ======= =======
Market Price Per Share at End
of the Period................ $17.125 $16.750 $15.750 $14.750 $12.750 $16.375 $14.250
Total Investment Return at
Market Price (b)............. 6.76%* 12.96% 14.14% 23.60% (16.67%) 23.01% (2.50%)*
Total Return at Net Asset
Value (c).................... 3.02%* 9.78% 8.05% 17.86% (11.63%) 26.44% 1.70%*
Net Assets at End of the
Period (In millions)......... $123.3 $124.3 $121.6 $120.3 $112.8 $126.5 $ 113.7
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares**.............. 1.70% 1.77% 1.80% 1.83% 1.79% 1.73% 1.70%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common Shares
(d).......................... 5.86% 5.93% 5.97% 5.83% 6.31% 6.21% 5.18%
Portfolio Turnover............ 18%* 23% 16% 13% 14% 27% 51%*
* Non-Annualized
** Ratio of Expenses to
Average Net Assets
including Preferred
Shares..................... 1.09% 1.12% 1.13% 1.12% 1.12% 1.09% 1.18%
</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.
See Notes to Financial Statements
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 April 30, 1998, 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.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
At April 30, 1998, for federal income tax purposes cost of long-term
investments is $113,942,822, the aggregate gross unrealized appreciation is
$7,793,754 and the aggregate gross unrealized depreciation is $43,989, resulting
in net unrealized appreciation of $7,749,765.
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
American Capital Investment Advisory Corp. (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 Van Kampen American Capital Distributors, Inc.
or its affiliates (collectively "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.
For the six months ended April 30, 1998, the Trust recognized expenses of
approximately $1,100 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 six months ended April 30, 1998, the Trust recognized expenses of
approximately $20,600 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.
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit per trustee under the plan is equal to $2,500.
3. CAPITAL TRANSACTIONS
At April 30, 1998 and October 31, 1997, paid in surplus related to common shares
aggregated $67,865,218 and $67,813,169, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares...................... 4,619,242 4,619,242
Shares Issued Through Dividend
Reinvestment........................ 3,052 -0-
--------- ---------
Ending Shares......................... 4,622,294 4,619,242
========= =========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $22,662,059 and $23,313,511,
respectively.
5. 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 April 30, 1998 was 3.520%. During the six
months ended April 30, 1998, the rates ranged from 3.100% to 5.500%.
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.
17
<PAGE> 19
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen American Capital
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
18
<PAGE> 20
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
EQUITY FUNDS
Domestic
MS Aggressive Equity
VKAC Aggressive Growth
MS American Value
VKAC Comstock
VKAC Emerging Growth
VKAC Enterprise
VKAC Equity Income
VKAC Growth
VKAC Growth and Income
VKAC Harbor
VKAC Pace
VKAC Real Estate Securities
MS U.S. Real Estate
VKAC Utility
MS Value
International/Global
MS Asian Growth
MS Emerging Markets
MS Global Equity
MS Global Equity Allocation
VKAC Global Managed Assets
MS International Magnum
MS Latin American
FIXED-INCOME FUNDS
Income
VKAC Corporate Bond
MS Global Fixed Income
VKAC Global Government Securities
VKAC Government Securities
VKAC High Income Corporate Bond
MS High Yield
VKAC High Yield
VKAC Short-Term Global Income
VKAC Strategic Income
VKAC U.S. Government
VKAC U.S. Government Trust for Income
MS Worldwide High Income
Tax Exempt Income
VKAC California Insured Tax Free
VKAC Florida Insured Tax Free Income
VKAC High Yield Municipal
VKAC Insured Tax Free Income
VKAC Intermediate Term Municipal Income
VKAC Municipal Income
VKAC New York Tax Free Income
VKAC Pennsylvania Tax Free Income
VKAC Tax Free High Income
Capital Preservation
VKAC Limited Maturity Government
VKAC Prime Rate Income Trust
VKAC Reserve
VKAC Senior Floating Rate
VKAC Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen American Capital or Morgan Stanley fund
prospectus or to receive additional fund information, choose from one of the
following:
- visit our web site at WWW.VKAC.COM -- to view prospectuses, select
Investors' Place, then Download a 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.VKAC.COM and selecting Investors' Place
19
<PAGE> 21
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
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
20
