<TABLE>
Table of Contents
<CAPTION>
<S> <C>
Letter to Shareholders................. 1
Performance Results.................... 3
Portfolio of Investments............... 4
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
Independent Auditors' Report........... 15
Dividend Reinvestment Plan............. 16
</TABLE>
VCV ANR 12/95
Letter to Shareholders
November 22, 1995
Dear Shareholder:
The first ten months of 1995 have been very positive for most investors. Both
the fixed-income and equity markets have made considerable gains during the
period ended October 31, 1995.
This year serves as a reminder of just how quickly markets can move and how
difficult it can be to predict the timing of those movements. Moreover, this
year reinforces the importance of maintaining a long-term perspective and
reaffirms the principle that it is time---not timing---that leads to
investment success.
[PHOTO]
Dennis J. McDonnell and Don G. Powell
Economic Overview
Although the third quarter posted a stronger-than-expected annual gross
domestic product growth rate of 4.2 percent, the economy has slowed
significantly this year. This slowdown is due in large part to the Federal
Reserve Board's efforts to tighten monetary supply in 1994--
a measure that proved successful, as economic growth during the first half of
1995 was substantially lower than the fourth quarter 1994 rate of 5.1 percent.
And, while other key economic data have shown mixed signs during recent months,
the general economic trends for the year continue to support a "soft landing"
scenario.
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed its trend of raising interest rates and lowered short-term rates by a
quarter percent on July 6. With slowing growth, interest rates declined and the
value of many fixed-income investments rose (bond yields and prices move in
opposite directions).
Closer to home, the California municipal bond market suffered from the default
of Orange County securities and the county's June 27 election, in which voters
turned down a sales tax increase to repay the obligations. We are pleased to
report that the Trust was not materially impacted by the Orange County
bankruptcy or the subsequent defeat of the sales tax proposal. More than 67
percent of the Trust's portfolio is rated AAA, the highest rating assigned to
municipal bonds by Standard & Poor's Ratings Group.
Performance Summary
The Trust produced a tax-exempt distribution of 6.00 percent<F3>, based on the
closing stock price of $12.00 per common share on October 31, 1995. Because
income from the Trust is exempt from federal and California state income taxes,
it is important to compare the Trust's distribution rate to an equivalent
taxable rate. For example, for California residents in the combined marginal tax
bracket of 43 percent, the Trust's distribution rate represents a yield
equivalent to a taxable investment earning 10.53 percent<F4>. In fact, many
closed-end municipal bond funds, such as your investment, are currently offering
higher yields (after taxes) than many income alternatives.
As the graph on the following page shows, the Trust's net asset value and
market price have made significant gains over the one-year period. The Trust's
closing stock price, for
(Continued on page two)
1
example, gained more than 7.8 percent from October 1994 to October 1995.
Moreover, the Trust generated a one-year total return at market price of 15.04
percent<F1>, which includes reinvestment of dividends for the period ended
October 31, 1995.
[GRAPH]
Trust Participates
in Market Gains of '95
Market
Date NAV Price
31-Oct-94 12.64 11.1250
30-Nov-94 12.07 11.1250
31-Dec-94 12.47 10.5000
31-Jan-95 13.09 11.3750
28-Feb-95 13.86 12.5000
31-Mar-95 13.96 12.0000
30-Apr-95 13.85 12.3750
31-May-95 14.63 11.8750
30-Jun-95 14.12 12.1250
31-Jul-95 14.23 12.1250
31-Aug-95 14.48 11.8750
30-Sep-95 14.55 12.0000
31-Oct-95 14.80 12.0000
Based on month-end prices
Economic Outlook
We believe the Fed will move cautiously before it continues to lower
short-term rates, waiting for key indicators to show that the economy has truly
settled into a slow growth pattern. Although current economic data continues to
send mixed signals, we anticipate the economy will grow at an annual rate of 3
percent in the fourth quarter and inflation will run under 3 percent.
Based upon a generally modest growth and low inflation outlook, we
believe the outlook for fixed-income markets is positive. As interest rates
fall in response to a slowing economy, we believe yields on short-term
municipal bonds will continue to move significantly lower than long-term
municipal bonds. Lower short-term rates typically translate into lower
leveraging costs for the Trust, which provides increased opportunities
for higher earnings over time. Additionally, a steepening of the municipal
yield curve would likely increase investor demand for long-term municipal
bonds and help to boost market prices. Long-term municipal bond prices will
also benefit from the combination of low supply of new municipal bond issues
and increased demand driven by scheduled bond maturities.
While there has been varied speculation about the impact of tax reform, no one
is certain about what will finally happen. Consequently, in the near term, the
municipal market may continue to experience periodic market fluctuations as
various proposals come to the forefront. However, in the long term, we believe
the municipal market will remain an attractive investment choice for investors
seeking high current income. We will continue to keep a close watch over any new
developments and evaluate the potential impact they may have on your investment
in the Trust.
Once again, thank you for your continued confidence in your investment with
Van Kampen American Capital and for the privilege of working with you in seeking
to reach your financial goals.
Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.
2
Performance Results for the Period Ended October 31, 1995
Van Kampen Merritt California Value Municipal Income Trust
(NYSE Ticker Symbol VCV)
<TABLE>
<CAPTION>
<S> <C>
Total Returns
One-year total return based on market price<F1>........................................ 15.04%
One-year total return based on NAV<F2>................................................. 23.85%
Distribution Rates
Distribution rate as a % of initial offer common stock price<F3>....................... 4.80%
Taxable-equivalent distribution rate as a % of initial offer common stock price<F4>.... 8.42%
Distribution rate as a % of closing common stock price<F3>............................. 6.00%
Taxable-equivalent distribution rate as a % of closing common stock price<F4>.......... 10.53%
Share Valuations
Net asset value........................................................................ $ 14.80
Closing common stock price ............................................................ $ 12.000
One-year high common stock price (04/18/95)............................................ $ 12.625
One-year low common stock price (11/15/94)............................................. $ 10.125
Preferred share rate<F5>............................................................... 3.65%
<FN>
<F1>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 stock price at the end of the period indicated.
<F2>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.
<F3>Distribution rate represents the monthly annualized distributions of the Trust
at the end of the period and not the earnings of the Trust.
<F4>The taxable-equivalent distribution rate is calculated assuming a 43% combined
federal and state tax bracket, which takes into consideration the deductibility
of individual state taxes paid.
<F5>See "Notes to Financial Statements" footnote #4, for more information
concerning Preferred Share reset periods.
</TABLE>
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
3
<TABLE>
<CAPTION>
Portfolio of Investments
October 31, 1995
- ---------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
California 91.5%
$ 1,750 California Pollutn Ctl Fin Auth Pollutn Ctl Rev IBM
Proj Rfdg ............................................. 6.800% 11/01/11 $ 1,856,960
680 California Rural Home Mtg Fin Auth Single Family Mtg
Rev Ser A2 (GNMA Collateralized) ...................... 7.950 12/01/24 785,903
5,000 California St (FGIC Insd) ............................. 6.400 09/01/07 5,583,550
2,670 California St Dept Wtr Res Cent Vly Proj Rev Wtr Sys
Ser L Rfdg (MBIA Insd) ................................ 5.625 12/01/12 2,694,431
3,000 California St Pub Wks Brd Energy Efficiency Rev
Ser A (FSA Insd) ...................................... 5.250 05/01/08 3,012,240
3,000 California St Pub Wks Brd Lease Rev Dept of
Corrections CA St Prison D Susanville (MBIA Insd) ..... 5.375 06/01/18 2,878,710
4,000 California St Pub Wks Brd Lease Rev Dept of
Corrections Monterey Ser A (MBIA Insd) ................ 6.400 11/01/10 4,347,560
1,230 California St Pub Wks Brd Lease Rev Var Univ CA Proj
Ser A ................................................. 5.600 11/01/02 1,290,159
2,500 California St Pub Wks Brd Lease Rev Var Univ CA Proj
Ser A ................................................. 5.800 10/01/03 2,651,100
2,220 California St Pub Wks Brd Lease Rev Var Univ CA Proj
Ser A ................................................. 5.800 11/01/04 2,349,115
3,000 California St Pub Wks Brd Lease Rev Var Univ CA Proj
Ser A (AMBAC Insd) .................................... 6.200 12/01/06 3,248,100
2,400 California St Var Rate Cpn (AMBAC Insd) ............... 6.400 09/01/08 2,673,000
1,000 California Statewide Cmntys Dev Corp Ctfs Partn Insd
United Westn Med Cent ................................. 6.750 12/01/21 1,049,050
2,515 Chino Basin, CA Regl Fin Auth Rev Muni Wtr Dist Swr
Sys Proj Rfdg (AMBAC Insd) ............................ 7.000 08/01/07 2,927,133
1,440 Chino Basin, CA Regl Fin Auth Rev Muni Wtr Dist Swr
Sys Proj Rfdg (AMBAC Insd) ............................ 7.000 08/01/08 1,675,584
2,500 East Bay, CA Muni Util Dist Wtr Sys Rev Sub Rfdg ...... 6.000 06/01/12 2,537,500
3,100 Foothill/Eastern Tran Agy Cap Apprec Sr Lien Ser A .... * 01/01/27 369,768
5,000 Foothill/Eastern Tran Corridor Agy CA Toll Rd Rev Ser
A ..................................................... * 01/01/25 689,400
6,605 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev Ser A ..................................... * 01/01/28 735,863
</TABLE>
4 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
October 31, 1995
- ---------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (Continued)
$ 3,000 Foothill/Eastern Tran Corridor Agy CA Toll Rd Rev Ser
A ..................................................... 6.500% 01/01/32 $ 3,015,030
3,000 Huntington Park, CA Redev Agy Single Family
Residential Mtg Rev Ser A Rfdg (FHA Gtd) .............. 8.000 12/01/19 3,892,830
2,000 Imperial Irrigation Dist CA Ctfs Partn Elec Sys Proj
(MBIA Insd) ........................................... 6.750 11/01/11 2,231,200
2,340 Inglewood, CA Redev Agy Tax Alloc Century Redev Proj
Ser A Rfdg ............................................ 6.000 07/01/08 2,366,278
1,000 La Quinta, CA Redev Agy Tax Alloc Redev Proj Area No 1
Rfdg (MBIA Insd) ...................................... 7.300 09/01/06 1,189,110
1,740 La Quinta, CA Redev Agy Tax Alloc Redev Proj Area No 1
Rfdg (MBIA Insd) ...................................... 7.300 09/01/07 2,072,514
1,600 La Quinta, CA Redev Agy Tax Alloc Redev Proj Area No 1
Rfdg (MBIA Insd) ...................................... 7.300 09/01/08 1,907,456
3,000 Los Angeles Cnty, CA Pub Wks Fin Auth Rev Cap Constr
Rfdg (AMBAC Insd) ..................................... 5.000 03/01/11 2,817,630
3,250 Los Angeles Cnty, CA Tran Comm Sales Tax Rev Prop C
2nd Sr Ser A (MBIA Insd) .............................. 6.250 07/01/13 3,421,665
5,000 Los Angeles, CA Convention & Exhibition Cent Auth
Lease Rev Ser A Rfdg (MBIA Insd) ...................... 5.150 08/15/08 4,939,250
1,230 Merced, CA Irrigation Dist Ctfs Partn Wtr Fac Proj .... 6.400 11/01/10 1,257,786
2,000 Monrovia, CA Redev Agy Tax Alloc Cent Redev Proj Area
1 Ser B Rfdg (AMBAC Insd) ............................. 6.700 05/01/21 2,158,360
1,000 Montebello, CA Unified Sch Dist Ctfs Partn Cap Impts
Proj .................................................. 6.300 06/01/11 1,013,930
3,000 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded Cap)
(AMBAC Insd) <F2> ..................................... 5.125 12/01/23 2,691,000
265 Paradise, CA Irrigation Dist Rev Ctfs Partn Wtr Sys
Proj .................................................. 6.000 01/01/02 268,511
335 Paradise, CA Irrigation Dist Rev Ctfs Partn Wtr Sys
Proj .................................................. 6.150 01/01/03 340,980
340 Paradise, CA Irrigation Dist Rev Ctfs Partn Wtr Sys
Proj .................................................. 6.200 01/01/04 345,620
3,455 Paradise, CA Irrigation Dist Rev Ctfs Partn Wtr Sys
Proj .................................................. 6.400 01/01/14 3,489,170
2,040 Paramount, CA Redev Agy Tax Alloc Redev Proj Area No 1
Rfdg (MBIA Insd) ...................................... 6.100 08/01/08 2,183,779
</TABLE>
5 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
October 31, 1995
- ------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (Continued)
$ 2,000 Paramount, CA Redev Agy Tax Alloc Redev Proj Area
No 1 Rfdg (MBIA Insd) ............................. 6.250% 08/01/23 $ 2,078,280
5,000 Paramount, CA Redev Agy Tax Alloc Redev Proj Area
No 1 Ser B (MBIA Insd) ............................ * 08/01/26 670,200
4,000 Port Oakland, CA Port Rev Ser A (BIGI Insd) ....... 7.600 11/01/16 4,253,080
2,000 Port Oakland, CA Spl Fac Rev Mitsui O.S.K. Line
Ltd Ser A ......................................... 6.750 01/01/12 2,098,620
5,000 Riverside Cnty, CA Single Family Rev Single Family
Mtg Issue B (GNMA Collateralized) ................. 8.625 05/01/16 6,755,100
4,150 Riverside, CA Elec Rev Rfdg ....................... 5.000 10/01/13 3,798,039
1,500 Sacramento, CA Cogeneration Auth Cogeneration Proj
Rev Procter & Gamble Proj ......................... 6.375 07/01/10 1,538,325
1,000 Sacramento, CA Cogeneration Auth Cogeneration Proj
Rev Procter & Gamble Proj ......................... 6.500 07/01/14 1,024,130
2,000 Sacramento, CA Muni Util Dist Elec Rev Ser E (MBIA
Insd) ............................................. 5.750 05/15/22 1,987,820
3,000 San Francisco, CA City & Cnty Redev Agy Multi
Family Rev Hsg South Beach Proj Rfdg (GNMA
Collateralized) ................................... 5.500 03/01/14 2,876,100
1,320 San Marcos, CA Pub Fac Auth Rev Pub Impt Civic
Cent Ser A Rfdg ................................... 5.900 08/01/03 1,297,362
2,500 San Marcos, CA Pub Fac Auth Rev Pub Impt Civic
Cent Ser A Rfdg ................................... 6.150 08/01/13 2,435,250
1,250 San Mateo Cnty, CA Jt Pwrs Fin Auth Lease Rev San
Mateo Cnty Hlth Care Cent Ser A (FSA Insd) ........ 5.600 07/15/04 1,322,200
2,000 San Mateo Cnty, CA Jt Pwrs Fin Auth Lease Rev San
Mateo Cnty Hlth Care Cent Ser A (FSA Insd) ........ 5.700 07/15/05 2,127,020
2,000 San Mateo Cnty, CA Jt Pwrs Fin Auth Lease Rev San
Mateo Cnty Hlth Care Cent Ser A (FSA Insd) ........ 5.800 07/15/06 2,124,400
1,000 San Mateo Cnty, CA Transit Dist Sales Tax Rev Ser
A Rfdg (MBIA Insd) ................................ 5.250 06/01/18 954,790
4,680 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev Sr
Lien Ser A Rfdg (MBIA Insd) ....................... 7.000 09/01/07 5,437,364
2,000 Sunnyvale, CA Fin Auth Utils Rev Wastewtr Reuse &
Sludge Ser A (MBIA Insd) .......................... 6.300 10/01/17 2,075,200
</TABLE>
6 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
October 31, 1995
- ----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California (Continued)
$ 3,000 University CA Rev Multi Purp Projs Ser C Rfdg
(AMBAC Insd) .......................................... 5.125% 09/01/13 $ 2,846,820
2,955 University CA Rev Multi Purp Projs Ser D
(MBIA Insd) ........................................... 10.000 09/01/02 3,872,114
-------------
136,529,439
-------------
Puerto Rico 6.7%
3,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Ser V Rfdg ............................................ 6.625 07/01/12 3,204,300
2,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Ser W Rfdg ............................................ 5.500 07/01/17 1,918,020
1,700 Puerto Rico Comwlth Ser A Rfdg ........................ 6.250 07/01/10 1,780,240
3,000 Puerto Rico Pub Bldg Auth Gtd Pub Edl & Hlth
Fac Ser M Rfdg ........................................ 5.600 07/01/08 3,094,620
-------------
9,997,180
-------------
Total Long-Term Investments 98.2%
(Cost $139,337,818) <F1>........................................................... 146,526,619
Short-Term Investments at Amortized Cost 0.1%..................................... 200,000
Other Assets in Excess of Liabilities 1.7%........................................ 2,535,728
-------------
Net Assets 100%................................................................... $ 149,262,347
===============
*Zero coupon bond
<FN>
<F1> At October 31, 1995, cost for federal income tax purposes is $139,337,818;
the aggregate gross unrealized appreciation is $7,438,287 and the
aggregate gross unrealized depreciation is $249,486, resulting in net
unrealized appreciation of $7,188,801.
<F2> 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.
</FN>
</TABLE>
The following table summarizes the portfolio composition at October 31, 1995,
based upon quality ratings issued by Standard & Poor's. For securities not rated
by Standard & Poor's, the Moody's rating is used.
<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
AAA..... 67.4%
AA...... 1.7
A....... 17.1
BBB..... 13.8
-------
100.0%
=======
</TABLE>
7 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
October 31, 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at Market Value (Cost $139,337,818) (Note 1)..................................... $ 146,526,619
Short-Term Investments (Note 1)............................................................... 200,000
Cash.......................................................................................... 68,378
Interest Receivable........................................................................... 2,768,915
Unamortized Organizational Expenses (Note 1).................................................. 12,474
---------------
Total Assets................................................................................ 149,576,386
---------------
Liabilities:
Payables:
Investment Advisory Fee (Note 2)............................................................ 82,131
Income Distributions - Common and Preferred Shares.......................................... 66,315
Administrative Fee (Note 2)................................................................. 25,271
Accrued Expenses.............................................................................. 140,322
---------------
Total Liabilities........................................................................... 314,039
---------------
Net Assets.................................................................................... $ 149,262,347
===============
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 1,200 issued with
liquidation preference of $50,000 per share) (Note 4)......................................... $ 60,000,000
---------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
6,029,844 shares issued and outstanding)...................................................... 60,298
Paid in Surplus .............................................................................. 88,589,917
Net Unrealized Appreciation on Investments.................................................... 7,188,801
Accumulated Undistributed Net Investment Income............................................... 356,720
Accumulated Net Realized Loss on Investments.................................................. (6,933,389)
---------------
Net Assets Applicable to Common Shares...................................................... 89,262,347
---------------
Net Assets.................................................................................... $ 149,262,347
===============
Net Asset Value Per Common Share ($89,262,347 divided by 6,029,844 shares outstanding)........ $ 14.80
===============
</TABLE>
8 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest........................................................ $ 8,391,746
---------------
Expenses:
Investment Advisory Fee (Note 2)................................ 928,539
Administrative Fee (Note 2)..................................... 285,704
Preferred Share Maintenance (Note 4)............................ 176,222
Custody (Note 1)................................................ 48,129
Trustees Fees and Expenses (Note 2)............................. 29,082
Legal (Note 2).................................................. 26,887
Amortization of Organizational Expenses (Note 1)................ 4,997
Other........................................................... 123,789
---------------
Total Expenses................................................ 1,623,349
Earnings Credits on Cash Balances (Note 1).................... (8,642)
---------------
Net Expenses.................................................. 1,614,707
---------------
Net Investment Income........................................... $ 6,777,039
===============
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales........................................... $ 56,921,336
Cost of Securities Sold....................................... (57,959,980)
---------------
Net Realized Loss on Investments ............................... (1,038,644)
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period....................................... (7,182,476)
End of the Period............................................. 7,188,801
---------------
Net Unrealized Appreciation on Investments During the Period.... 14,371,277
---------------
Net Realized and Unrealized Gain on Investments................. $ 13,332,633
===============
Net Increase in Net Assets from Operations...................... $ 20,109,672
===============
</TABLE>
9 See Notes to Financial Statements
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Years Ended October 31, 1995 and 1994
- -------------------------------------------------------------------------------------------------------
Year Ended Year Ended
October 31, 1995 October 31, 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income.............................................. $ 6,777,039 $ 6,778,816
Net Realized Loss on Investments................................... (1,038,644) (5,894,745)
Net Unrealized Appreciation/Depreciation on Investments During the
Period............................................................. 14,371,277 (12,997,137)
---------------- ----------------
Change in Net Assets from Operations .............................. 20,109,672 (12,113,066)
---------------- ----------------
Distributions from Net Investment Income:
Common Shares.................................................... (4,667,035) (4,992,689)
Preferred Shares................................................. (2,424,795) (1,595,368)
---------------- ----------------
(7,091,830) (6,588,057)
---------------- ----------------
Distributions from Net Realized Gain on Investments (Note 1):
Common Shares.................................................... -0- (333,450)
Preferred Shares................................................. -0- (63,997)
---------------- ----------------
-0- (397,447)
---------------- ----------------
Total Distributions................................................ (7,091,830) (6,985,504)
---------------- ----------------
Net Change in Net Assets from Investment Activities................ 13,017,842 (19,098,570)
Net Assets:
Beginning of the Period............................................ 136,244,505 155,343,075
---------------- ----------------
End of the Period (Including undistributed net investment income
of$356,720 and $671,511, respectively)............................. $ 149,262,347 $ 136,244,505
================ ================
</TABLE>
10 See Notes to Financial Statements
<TABLE>
<CAPTION>
Financial Highlights
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- ----------------------------------------------------------------------------------------------
April 30, 1993
Year Year (Commencement
Ended Ended of Investment
October 31, October 31, Operations) to
1995 1994 October 31, 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period <F1>.... $ 12.644 $ 15.812 $ 14.714
----------- ------------ ----------------
Net Investment Income............................ 1.124 1.124 .424
Net Realized and Unrealized Gain/Loss on
Investments...................................... 2.211 (3.133) 1.018
----------- ------------ ----------------
Total from Investment Operations................. 3.335 (2.009) 1.442
----------- ------------ ----------------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders.................. .774 .828 .276
Common Share Equivalent of Distributions Paid to
Preferred Shareholders....................... .402 .265 .068
Distributions from Net Realized Gain on
Investments (Note 1):
Paid to Common Shareholders.................. -0- .055 -0-
Common Share Equivalent of Distributions Paid to
Preferred Shareholders....................... -0- .011 -0-
----------- ------------ ----------------
Total Distributions.............................. 1.176 1.159 .344
----------- ------------ ----------------
Net Asset Value, End of the Period............... $ 14.803 $ 12.644 $ 15.812
=========== ============ ================
Market Price Per Share at End of the Period...... $ 12.000 $ 11.125 $ 14.750
Total Investment Return at Market Price
(Non-Annualized) <F2>............................ 15.04% (19.23%) .18%
Total Return at Net Asset Value (Non-Annualized)
<F3>............................................. 23.85% (14.93%) 7.28%
Net Assets at End of the Period (In millions) ... $ 149.3 $ 136.2 $ 155.3
Ratio of Expenses to Average Net Assets Applicable
to Common Shares (Annualized) <F4>............... 1.96% 1.89% 1.56%
Ratio of Expenses to Average Net Assets
(Annualized) <F4>................................ 1.14% 1.11% 1.14%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares
(Annualized) <F5>................................ 5.25% 6.02% 4.68%
Portfolio Turnover............................... 41.25% 92.54% 35.62%
<FN>
<F1> Net asset value at April 30, 1993, is adjusted for common and preferred
share offering costs of $.286 per common share.
<F2> 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.
<F3> Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
<F4> Beginning with the year ended October 31, 1995, the Ratios of Expenses are
based upon Total Expenses which does not reflect credits earned on
overnight cash balances. (Note 1)
<F5> Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
</FN>
</TABLE>
11 See Notes to Financial Statements
Notes to Financial Statements
October 31, 1995
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1. Significant Accounting Policies
Van Kampen Merritt California Value Municipal Income Trust (the "Trust") is
registered as a diversified closed-end management investment company under the
Investment Company Act of 1940, as amended. The Trust commenced investment
operations on April 30, 1993.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements.
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 less than 60 days 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, 1995, 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.
D. Organizational Expenses-The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization and initial registration in the amount
of $25,000. These costs are being amortized on a straight line basis over the 60
month period ending April 29, 1998. 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.
12
Notes to Financial Statements (Continued)
October 31, 1995
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E. Expense Reductions-During the year ended October 31, 1995, the Trust's
custody fee was reduced by $8,642 as a result of credits earned on overnight
cash balances.
F. Federal Income Taxes-It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1995, the Trust had an accumulated capital loss
carryforward for tax purposes of $6,933,389, of which $5,894,745 and $1,038,644
will expire on October 31, 2002 and 2003, respectively.
G. 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.
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.
For the year ended October 31, 1995, the Trust recognized expenses of
approximately $11,800 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.
13
Notes to Financial Statements (Continued)
October 31, 1995
- --------------------------------------------------------------------------------
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. The Trust's liability under the
deferred compensation and retirement plans at October 31, 1995, was
approximately $24,100.
At October 31, 1995, VKAC owned 6,700 common shares of the Trust.
3. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the year ended October 31, 1995, were $57,644,188 and
$57,959,980, respectively.
4. Preferred Shares
The Trust has outstanding 1,200 Auction Preferred Shares ("APS"). Dividends are
cumulative and the dividend rate is currently reset every seven days through an
auction process. The rate in effect on October 31, 1995, was 3.65%. During the
year ended October 31, 1995, the rates ranged from 3.300% to 6.375%.
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.
14
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders of
Van Kampen Merritt California Value Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Merritt California Value Municipal Income Trust (the "Trust"), including
the portfolio of investments, as of October 31, 1995, 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, 1995, 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 Merritt California Value Municipal Income Trust as of October 31, 1995,
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 11, 1995
15
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 divi-
dends 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:
One Parkview Plaza, Oakbrook Terrace, IL 60181
Attn: Closed-End Funds
16
Van Kampen Merritt California Value Municipal Income Trust
- --------------------------------------------------------------------------------
Officers and Trustees
Don G. Powell*
Chairman and Trustee
Dennis J. McDonnell*
President and Trustee
David C. Arch
Trustee
Rod Dammeyer
Trustee
Howard J Kerr
Trustee
Theodore A. Myers
Trustee
Hugo F. Sonnenschein
Trustee
Wayne W. Whalen*
Trustee
Peter W. Hegel*
Vice President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Treasurer
Scott E. Martin*
Assistant Secretary
Weston B. Wetherell*
Assistant Secretary
Nicholas Dalmaso*
Assistant Secretary
John L. Sullivan*
Controller
Steven M. Hill*
Assistant Treasurer
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 Auditors
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., 1995 All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
17
