N-CSR 1 c80882nvcsr.txt ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-6535 Van Kampen Trust for Investment Grade California Municipals ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) 1221 Avenue of the Americas NY NY 10020 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Ronald Robison 1221 Avenue of the Americas New York, NY 10020 ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: 10/31 Date of reporting period: 10/31/03 Item 1. Report to Shareholders Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen Trust for Investment Grade California Municipals performed during the annual period. The portfolio management team will provide an overview of the market conditions and discuss some of the factors that affected investment performance during the reporting period. In addition, this report includes the trust's financial statements and a list of trust investments as of October 31, 2003. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the trust will achieve its investment objective. The trust is subject to market risk, which is the possibility that the market values of securities owned by the trust will decline and, therefore, the value of the trust shares may be less than what you paid for them. Accordingly, you can lose money investing in this trust. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Performance Summary
TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS SYMBOL: VIC ------------------------------------------------------- AVERAGE ANNUAL BASED ON BASED ON TOTAL RETURNS NAV MARKET PRICE Since Inception (3/27/92) 7.93% 7.66% 10-year 6.41 6.98 5-year 5.83 4.81 1-year 6.56 5.09 -------------------------------------------------------
Past performance is no guarantee of future results. Investment return, net asset value (NAV) and common share market price will fluctuate and trust shares, when sold, may be worth more or less than their original cost. As a result of recent market activity, current performance may vary from the figures shown. For more up-to-date information, please visit vankampen.com or speak with your financial advisor. NAV per share is determined by dividing the value of the trust's portfolio securities, cash and other assets, less all liabilities, by the total number of common shares outstanding. The common share market price is the price the market is willing to pay for shares of the trust at a given time. Common share market price is influenced by a range of factors, including supply and demand and market conditions. Total return assumes an investment at the beginning of the period, reinvestment of all distributions for the period in accordance with the trust's dividend reinvestment plan, and sale of all shares at the end of the period. The Lehman Brothers California Municipal Bond Index is a broad-based statistical composite of California municipal bonds. The index is unmanaged and does not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 1 Trust Report FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2003 Van Kampen Trust for Investment Grade California Municipals is managed by the adviser's Municipal Fixed Income team.(1) Current members include Joseph Piraro, Vice President; Robert Wimmel, Vice President; and John Reynoldson, Executive Director. MARKET CONDITIONS The economic backdrop for the 12 months ended October 31 was largely characterized by the persistent weakness of the U.S. economy. One of the most closely watched economic indicators, employment strength, was in negative territory for much of the period. Repeated comments from government and private-sector economists suggesting that the U.S. economy might be entering a deflationary period also seemed to weigh heavily on the minds of investors over the course of the year. At the same time, ongoing budgetary and fiscal difficulties at the state and local level contributed to ratings downgrades for many municipal bonds. The Federal Reserve Board (the Fed) attempted to allay these fears and keep the economy moving in the right direction by cutting the Fed Funds target rate twice during the period to a level of 1.00 percent. Although the stock markets appeared to look past the sluggish economic data, bonds, in general, were hampered. While yields on intermediate- and long-term bonds ended the period roughly where they began, the road between those two points was decidedly bumpy. The 12-month period can be divided into two distinct market environments. The first of these, which lasted from October 2002 to mid-June 2003, saw municipal yields fall by roughly 80 basis points to levels not seen since the late 1960s. These plummeting yields led to a surge in issuance as municipalities moved to lock in low financing and, in the case of older bonds, low refinancing costs. These record levels of supply met with substantial demand as investors in search of relative stability poured cash into municipal bond funds. Demand for municipal bonds was also strong from so-called "cross-over" buyers--investors who traditionally favor taxable investments, but were drawn to the relatively attractive yields of municipal bonds. The municipal market reversed abruptly in mid-June, when yields began to climb from their lows. Investors during this phase shifted their attention to the advancing equity market, which reduced demand for municipal bonds. Interest from cross-over investors also evaporated as the relative attractiveness of the taxable market returned. Issuance remained strong throughout this leg of the period, though it abated somewhat in the last three months of the reporting year. These forces combined to drive municipal bond yields off of their historic lows, ending the period where they began. (1)Team members may change without notice at any time. 2 California's economic outlook grew increasingly negative over the 12-month period. The state's economy continued to be affected by the recession, with unemployment well above the national average and very little growth in economic activity. The state also faces the largest state budget deficit in the country, and the legislative and executive branches of the California state government appeared to offer no solution to closing the gap. This difficult situation led both Standard & Poor's and Moody's to downgrade the state's general obligations during the summer of 2003. Because of these fiscal and credit concerns, valuations in the state's municipal-bond market declined to extremely low levels during the period, drawing interest from many national investors seeking to benefit from relatively attractive yields in the California market. The state continued to bring large amounts of debt to the market, issuing $52 billion in bonds in the first 10 months of 2003. This represented a 35 percent increase over the same period in the previous year. Governor Arnold Schwarzenegger faces serious financial challenges in the near future, and the market is awaiting his proposals for getting the state back on track. PERFORMANCE ANALYSIS The trust's return can be calculated based upon either the market price or the net asset value (NAV) of its shares. NAV per share is determined by dividing the value of the trust's portfolio securities, cash and other assets, less all liabilities, by the total number of common shares outstanding, while market price reflects the supply and demand for the shares. As a result, the two returns can differ significantly. On both a market price and an NAV basis, the trust outperformed its benchmark, the Lehman Brothers California Municipal Bond Index. (See table below.) The trust uses leverage to enhance its dividend to common shareholders. The trust borrows money at short-term rates through the issuance of preferred shares. The proceeds are reinvested in longer-term securities, taking advantage of the difference between short- and longer-term rates. With short-term rates at historic lows during the period, the difference between short- and longer-term rates was relatively high. This made using leverage a particularly profitable approach during the period, and added to the trust's strong performance. TOTAL RETURN FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2003
---------------------------------------------------------------- BASED ON BASED ON LEHMAN BROTHERS CALIFORNIA NAV MARKET PRICE MUNICIPAL BOND INDEX 6.56% 5.09% 4.48% ----------------------------------------------------------------
Past performance is no guarantee of future results. Investment return, net asset value and common share market price will fluctuate and trust shares, when sold, may be worth more or less than their original cost. See Performance Summary for additional performance information. 3 Our strategy of avoiding housing bonds also helped the trust; the sector performed poorly amidst record levels of mortgage refinancing activity. While the trust outperformed its benchmark, not all of its positions performed strongly over the entire period in question. With interest rates at such low levels during the period, our analysis showed an increasing possibility of a damaging upward shift in interest rates. We positioned the trust defensively by maintaining a duration (a measure of interest-rate sensitivity) that was slightly shorter than that of the benchmark during the period. This position helped the trust when rates climbed, but kept it from fully participating in the bond market rally earlier in the period. We were equally defensive in managing the portfolio's maturity structure. Given the steepness of the yield curve for much of the period (steepness is a measure of the difference in yields between long- and short-maturity securities), we focused on a strategy designed to outperform in a curve-flattening environment. We purchased premium bonds in the 15- to 22-year range that were priced to 10-year call dates. These bonds offer attractive yields compared to bonds with similar interest-rate risk. We sold bonds in the 5- to 10-year range, an area of the curve that we feel will underperform when short rates rise. This curve flattening did not occur as early as we anticipated, however, and the strategy hampered performance when short rates fell in the first part of the period. However, when long-bond yields rose in the latter part of the period, our emphasis on defensive bonds in the 15- to 22-year range helped to preserve principal. During the period, many municipalities in California faced budget shortfalls and potential credit downgrades. In this challenging environment, we invested in the highest credit-quality tiers of California's municipal bond market. As of October 31, 2003, approximately 81 percent of the trust's long-term investments were invested in bonds rated AAA, the highest credit quality available. We will continue with our disciplined investment approach, monitoring the market closely for compelling opportunities. TOP 5 SECTORS AS OF 10/31/03 RATINGS ALLOCATION AS OF 10/31/03 Public Education 19.6% AAA/Aaa 81.4% Transportation 12.4 AA/Aa 5.7 Tax District 11.9 BBB/Baa 12.9 Industrial Revenue 11.6 Public Building 8.8
Subject to change daily. All percentages are as a percentage of long-term investments. Provided for informational purposes only and should not be deemed as a recommendation to buy securities in the sectors shown above. Securities are classified by sectors that represent broad groupings of related industries. Rating allocations based upon ratings as issued by Standard and Poor's and Moody's, respectively. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. 4 PROXY VOTING POLICIES AND PROCEDURES A description of the trust's policies and procedures with respect to the voting of proxies relating to the trust's portfolio securities is available without charge, upon request, by calling 1-800-847-2424. This information is also available on the Securities and Exchange Commission's website at http://www.sec.gov. 5 BY THE NUMBERS YOUR TRUST'S INVESTMENTS October 31, 2003 THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF THE REPORTING PERIOD.
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE MUNICIPAL BONDS 154.4% CALIFORNIA 153.0% $ 1,020 A B C CA Uni Sch Dist Cap Apprec Ser B (FGIC Insd)........................................... * 08/01/17 $ 531,675 1,000 Abag Fin Auth For Nonprofit Corp CA Multi-Family Rev Hsg Utd Dominion Ser A Rfdg (Asset Gty Insd)........................................... 6.400% 08/15/30 1,059,310 3,540 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Pub Impt Proj Ser C (FSA Insd).................. * 09/01/32 719,116 2,000 Bay Area Toll Auth CA Toll Brdg Rev San Francisco Bay Area Ser D........................ 5.000 04/01/17 2,116,920 3,535 Brea, CA Redev Agy Tax Alloc Ser A Rfdg (AMBAC Insd)........................................... 5.500 08/01/20 3,823,880 1,000 California Edl Fac Auth Rev Pooled College & Univ Proj Ser B (Partially prerefunded @ 04/01/09)....................................... 5.250 04/01/24 983,350 1,000 California Edl Fac Auth Rev Pooled College & Univ Proj Ser B................................. 6.750 06/01/30 1,087,600 835 California Edl Fac Auth Rev Student Ln CA Ln Pgm Ser A (MBIA Insd)............................... 6.000 03/01/16 893,350 735 California Hlth Fac Fin Auth Rev Hlth Fac Small Fac Ln Ser A (CA MTG Insd)...................... 6.700 03/01/11 741,703 1,015 California Hlth Fac Fin Auth Rev Hlth Fac Small Fac Ln Ser A (CA MTG Insd)...................... 6.750 03/01/20 1,029,454 2,500 California Hlth Fac Fin Auth Rev Insd Hlth Fac Vlycare Ser A (CA MTG Insd)..................... 6.125 05/01/12 2,524,200 240 California Hsg Fin Agy Rev Cap Apprec Home Mtg Ser K (MBIA Insd)............................... * 08/01/24 70,418 545 California Hsg Fin Agy Rev Home Mtg Ser B (MBIA Insd)........................................... 6.000 08/01/16 572,244 15 California Hsg Fin Agy Rev Home Mtg Ser E (AMBAC Insd)........................................... 6.100 08/01/29 15,515 1,000 California Hsg Fin Agy Rev Home Mtg Ser M (MBIA Insd)........................................... 5.550 08/01/17 1,045,580 1,000 California Hsg Fin Agy Rev Multi-Family Hsg III Ser A (MBIA Insd)............................... 5.850 08/01/17 1,045,400 2,000 California Infrastructure & Econ Dev Bk Rev Bay Area Toll Brdgs 1st Lien Ser A (FGIC Insd)...... 5.000 07/01/29 2,018,960 4,500 California Pollutn Ctl Fin Auth Pollutn Ctl Rev Southn CA Edison Co (AMBAC Insd)................ 6.000 07/01/27 4,562,055 2,110 California Spl Dists Fin Prog Ser 00 (MBIA Insd)........................................... 5.250 12/01/26 2,166,738
6 See Notes to Financial Statements YOUR TRUST'S INVESTMENTS October 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE CALIFORNIA (CONTINUED) $ 1,000 California St (CIFG Insd)....................... 5.000% 10/01/22 $ 1,021,240 2,000 California St Dept Wtr Res Pwr Ser A (AMBAC Insd)........................................... 5.500 05/01/16 2,214,180 1,000 California St Dept Wtr Res Wtr Ser W............ 5.500 12/01/17 1,111,520 1,475 California St Pub Wks Brd Dept Corr Ser B Rfdg (CIFG Insd)..................................... 5.250 01/01/13 1,634,949 1,000 California St Univ Fresno Assn Sr Aux Organization Event Ctr.......................... 6.000 07/01/26 1,030,490 1,000 California St Vet Bd Ser BH (FSA Insd).......... 5.400 12/01/15 1,044,960 2,000 California St Vet Bd Ser BH (FSA Insd).......... 5.400 12/01/16 2,079,140 1,085 Cathedral City, CA Pub Fin Auth Rev Cap Apprec Ser A (MBIA Insd)............................... * 08/01/30 249,897 1,085 Cathedral City, CA Pub Fin Auth Rev Cap Apprec Ser A (MBIA Insd)............................... * 08/01/31 235,402 1,000 Chaffey, CA Uni High Sch Dist Ser C (FSA Insd)........................................... 5.000 05/01/27 1,010,930 1,700 Chino Vly Uni Sch Dist CA Ctfs Partn Ser A Rfdg (FSA Insd)...................................... 5.375 09/01/20 1,832,430 1,700 Chula Vista, CA Indl Dev Rev San Diego Gas & Elec Co Ser A (AMBAC Insd)...................... 6.400 12/01/27 1,741,361 2,900 Colton, CA Jt Uni Sch Dist Ser A (FGIC Insd).... 5.500 08/01/22 3,163,494 1,000 Colton, CA Redev Agy Tax Alloc Mount Vernon Corridor Redev.................................. 6.300 09/01/36 1,063,010 1,000 Corona CA Ctf Part Clearwater Cogeneration Proj (MBIA Insd)..................................... 5.000 09/01/17 1,064,260 1,360 Csuci Fin Auth Rev CA East Campus Cmnty Ser A (MBIA Insd)..................................... 5.125 09/01/21 1,415,964 1,245 Duarte, CA Multi-Family Rev Hsg Heritage Park Apt Ser A (FNMA Collateralized)................. 5.850 05/01/30 1,289,347 1,000 Fairfield Suisun, CA Uni Sch Dist Spl Tax Cmnty Fac Dist No 5 New Sch (FSA Insd)................ 5.375 08/15/29 1,046,220 1,000 Folsom, CA Spl Tax Cmnty Fac Dist No 2 Rfdg (Connie Lee Insd)............................... 5.250 12/01/19 1,065,830 1,950 Fontana, CA Redev Agy Tax Alloc Southwest Indl Park Proj (MBIA Insd)........................... 5.200 09/01/30 1,989,039 10,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap Apprec Rfdg..................................... * 01/15/25 2,871,400 3,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev Conv Cap Apprec Sr Lien Ser A (Escrowed to Maturity) (a)................................... 0/7.050 01/01/10 3,401,430 1,680 Glendale, CA Uni Sch Dist Ser D (MBIA Insd)..... 5.250 09/01/17 1,823,590 1,000 Industry, CA Urban Dev Agy Tax Alloc Civic Rec Indl-1 Rfdg (MBIA Insd)......................... 5.500 05/01/14 1,115,240 1,000 Kern, CA Cmnty College Sch Fac Impt Dist Mammoth Campus/Kern Cmnty (AMBAC Insd).................. * 08/01/22 376,720
See Notes to Financial Statements 7 YOUR TRUST'S INVESTMENTS October 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE CALIFORNIA (CONTINUED) $ 1,000 Laguna Hills, CA Ctf Part Cmnty Ctr Proj (MBIA Insd)........................................... 5.000% 12/01/18 $ 1,046,710 1,105 Larkspur, CA Sch Dist Cap Apprec Ser A (FGIC Insd)........................................... * 08/01/20 474,962 1,000 Loma Linda, CA Redev Agy Tax Loma Linda Redev Proj Rfdg (MBIA Insd)........................... 5.125 07/01/30 1,023,770 1,000 Los Angeles Cnty, CA Met Tran Auth Sales Tax Rev Prop A Second Tier Sr Ser A Rfdg (Prerefunded @ 07/01/05) (AMBAC Insd).......................... 5.000 07/01/25 1,063,100 1,000 Los Angeles, CA Cmnty College Dist Ser A (MBIA Insd)........................................... 5.000 06/01/26 1,009,840 1,000 Los Angeles, CA Ctf Partn Sr Sonnenblick Del Rio W L. A. (AMBAC Insd)............................ 6.000 11/01/19 1,145,180 260 Los Angeles, CA Dept Wtr & Pwr Elec Plt Rev (Prerefunded @ 02/15/05)........................ 6.000 02/15/30 278,749 1,473 Los Angeles, CA Multi-Family Rev Hsg Earthquake Rehab Proj Ser A (FNMA Collateralized).......... 5.700 12/01/27 1,593,436 1,000 Los Angeles, CA Wtr & Pwr Rev Ser A............. 5.250 07/01/18 1,053,920 1,000 Los Gatos, CA Jt Uni High Sch Election of 1998 Ser C (FSA Insd)................................ 5.000 06/01/27 1,010,960 1,000 Mendocino Cnty, CA Ctf Part Cnty Pub Fac Corp (MBIA Insd)..................................... 5.250 06/01/30 1,036,530 1,000 Metropolitan Wtr Dist Southn CA authorization Ser B2 (FGIC Insd).............................. 5.000 10/01/26 1,012,050 1,000 Oakland, CA Uni Sch Dist Alameda Cnty (FSA Insd)........................................... 5.000 08/01/17 1,037,070 1,000 Oxnard, CA Uni High Sch Dist Ser A Rfdg (MBIA Insd)........................................... 6.200 08/01/30 1,143,350 1,500 Placentia-Yorba Linda CA Un Ser A (FGIC Insd)... 5.000 08/01/26 1,516,305 3,000 Port Oakland, CA Ser N Rfdg (MBIA Insd)......... 5.000 11/01/22 3,014,040 1,220 Rancho Mirage, CA Redev Agy Tax Redev Plan 1984 Proj Ser A 1 (MBIA Insd)........................ 5.000 04/01/26 1,232,895 1,000 Redlands, CA Redev Agy Tax Alloc Redev Proj Ser A Rfdg (MBIA Insd).............................. 4.750 08/01/21 1,004,810 1,650 Roseville, CA Jt Uni High Sch Dist Ser B (FGIC Insd)........................................... * 06/01/20 715,209 1,000 Salinas Vly CA Solid Waste Auth Rev (AMBAC Insd)........................................... 5.250 08/01/27 1,018,310 1,000 San Bernardino Cnty, CA Ctf Part Med Cent Fin Proj (MBIA Insd)................................ 5.000 08/01/28 1,001,390 4,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec Ser A (AMBAC Insd).............................. 6.100 09/01/19 4,055,840 1,500 San Diego, CA Redev Agy Centre City Redev Proj Ser A........................................... 6.400 09/01/25 1,597,530
8 See Notes to Financial Statements YOUR TRUST'S INVESTMENTS October 31, 2003
PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE CALIFORNIA (CONTINUED) $ 1,185 San Francisco, CA City & Cnty Arpt Commn Intl Arpt Rev Second Ser Issue 15B (MBIA Insd)....... 4.800% 05/01/17 $ 1,223,536 1,685 San Francisco, CA City & Cnty Arpt Commn Intl Arpt Rev Spl Fac Lease Ser A (FSA Insd)......... 6.125 01/01/27 1,870,468 1,000 San Francisco, CA City & Cnty Arpt Commn Intl Arpt Second Ser 27A Rfdg (MBIA Insd)............ 5.250 05/01/26 1,015,160 1,000 Sanger, CA Uni Sch Dist Rfdg (MBIA Insd)........ 5.600 08/01/23 1,122,780 1,500 Santa Ana, CA Multi-Family Hsg Rev Villa Del Sol Apts Ser B (FNMA Collateralized)................ 5.650 11/01/21 1,522,365 2,000 Santa Ana, CA Uni Sch Dist (MBIA Insd).......... 5.375 08/01/27 2,097,980 1,000 Santa Ana, CA Uni Sch Dist Ctf Part Cap Apprec Fin Proj (FSA Insd)............................. * 04/01/36 166,630 1,000 Sierra Uni Sch Dist CA Ctf Rfdg (FSA Insd) (b)............................................. 5.000 03/01/15 1,077,600 2,000 South Orange Cnty, CA Pub Fin Auth Reassmt Rev (FSA Insd)...................................... 5.800 09/02/18 2,271,100 105 Southern CA Home Fin Auth Single Family Mtg Rev Ser A (GNMA Collateralized)..................... 6.750 09/01/22 105,220 1,000 Stockton, CA Hlth Fac Rev Saint Joseph Med Cent Ser A (MBIA Insd)............................... 5.625 06/01/13 1,023,530 1,300 Taft, CA City Elem Sch Dist Ser A (MBIA Insd)... * 08/01/22 489,736 2,000 University of CA Ctf Part San Diego Campus Proj Ser A........................................... 5.250 01/01/32 2,047,180 1,000 University of CA Rev Gen Ser A (AMBAC Insd)..... 5.000 05/15/26 1,011,710 1,200 Ventura Cnty, CA Cmnty College Dist Ser A (MBIA Insd)........................................... 5.500 08/01/23 1,291,320 1,000 Vista, CA Uni Sch Dist Ser A (FSA Insd)......... 5.000 08/01/23 1,020,170 2,000 William S Hart CA Jt Sch Fin Auth Spl Tax Rev Cmnty Fac Rfdg (FSA Insd)....................... 6.500 09/01/14 2,226,820 1,000 Woodland, CA Fin Auth Lease Rev Cap Proj Rfdg (XLCA Insd)..................................... 5.000 03/01/25 1,006,390 ------------ 115,575,162 ------------ U. S. VIRGIN ISLANDS 1.4% 1,000 Virgin Islands Pub Fin Auth Rev Gross Rcpt Taxes Ln Nt Ser A..................................... 6.375 10/01/19 1,106,070 ------------ TOTAL LONG-TERM INVESTMENTS 154.4% (Cost $110,995,745)......................................................... 116,681,232
See Notes to Financial Statements 9 YOUR TRUST'S INVESTMENTS October 31, 2003
MARKET DESCRIPTION VALUE SHORT-TERM INVESTMENT 2.0% (Cost $1,500,000)........................................................... $ 1,500,000 ------------ TOTAL INVESTMENTS $156.4% (Cost $112,495,745)......................................................... 118,181,232 OTHER ASSETS IN EXCESS OF LIABILITIES 3.2%................................... 2,376,572 PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (59.6%)................... (45,009,986) ------------ NET ASSETS APPLICABLE TO COMMON SHARES 100.0%................................ $ 75,547,818 ============
* Zero coupon bond (a) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (b) Securities purchased on a when-issued or delayed delivery basis. AMBAC--AMBAC Indemnity Corp. Asset Gty--Asset Guaranty Insurance Co. CA MTG--California Mortgage Insurance CIFG--CDC IXIS Financial Guaranty Connie Lee--Connie Lee Insurance Co. FGIC--Financial Guaranty Insurance Co. FNMA--Federal National Mortgage Association FSA--Financial Security Assurance Inc. GNMA--Government National Mortgage Association MBIA--Municipal Bond Investors Assurance Corp. XLCA--XL Capital Assurance Inc. 10 See Notes to Financial Statements FINANCIAL STATEMENTS Statement of Assets and Liabilities October 31, 2003 ASSETS: Total Investments (Cost $112,495,745)....................... $118,181,232 Cash........................................................ 75,577 Receivables: Investments Sold.......................................... 2,000,000 Interest.................................................. 1,704,147 Other....................................................... 2,259 ------------ Total Assets............................................ 121,963,215 ------------ LIABILITIES: Payables: Investments Purchased..................................... 1,076,600 Investment Advisory Fee................................... 61,176 Income Distributions--Common Shares....................... 24,430 Affiliates................................................ 6,157 Administrative Fee........................................ 5,098 Trustees' Deferred Compensation and Retirement Plans........ 165,132 Accrued Expenses............................................ 66,818 ------------ Total Liabilities....................................... 1,405,411 Preferred Shares (including accrued distributions).......... 45,009,986 ------------ NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 75,547,818 ============ NET ASSET VALUE PER COMMON SHARE ($75,547,818 divided by 4,667,882 shares outstanding)............................. $ 16.18 ============ NET ASSETS CONSIST OF: Common Shares ($.01 par value with an unlimited number of shares authorized, 4,667,882 shares issued and outstanding).............................................. $ 46,679 Paid in Surplus............................................. 68,611,189 Net Unrealized Appreciation................................. 5,685,487 Accumulated Net Realized Gain............................... 700,902 Accumulated Undistributed Net Investment Income............. 503,561 ------------ NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 75,547,818 ============ PREFERRED SHARES ($.01 par value, authorized 100,000,000 shares, 1,800 issued with liquidation preference of $25,000 per share)........................................ $ 45,000,000 ============ NET ASSETS INCLUDING PREFERRED SHARES....................... $120,547,818 ============
See Notes to Financial Statements 11 Statement of Operations For the Year Ended October 31, 2003 INVESTMENT INCOME: Interest.................................................... $6,198,590 ---------- EXPENSES: Investment Advisory Fee..................................... 727,791 Preferred Share Maintenance................................. 125,172 Administrative Fee.......................................... 60,648 Trustees' Fees and Related Expenses......................... 43,972 Legal....................................................... 21,077 Custody..................................................... 7,993 Other....................................................... 136,310 ---------- Total Expenses.......................................... 1,122,963 ---------- NET INVESTMENT INCOME....................................... $5,075,627 ========== REALIZED AND UNREALIZED GAIN/LOSS: Net Realized Gain........................................... $ 678,004 ---------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 6,207,133 End of the Period......................................... 5,685,487 ---------- Net Unrealized Depreciation During the Period............... (521,646) ---------- NET REALIZED AND UNREALIZED GAIN............................ $ 156,358 ========== DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (429,847) ========== NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM OPERATIONS................................................ $4,802,138 ==========
12 See Notes to Financial Statements Statement of Changes in Net Assets
YEAR ENDED YEAR ENDED OCTOBER 31, 2003 OCTOBER 31, 2002 ------------------------------------ FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.................................... $ 5,075,627 $ 5,410,342 Net Realized Gain........................................ 678,004 1,249,380 Net Unrealized Depreciation During the Period............ (521,646) (1,703,665) Distributions to Preferred Shareholders: Net Investment Income.................................. (367,148) (341,421) Net Realized Gain...................................... (62,699) (379,278) ----------- ----------- Change in Net Assets Applicable to Common Shares from Operations............................................. 4,802,138 4,235,358 Distributions to Common Shareholders: Net Investment Income.................................. (5,053,725) (4,581,949) Net Realized Gain...................................... (1,181,979) (1,156,781) ----------- ----------- NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM INVESTMENT ACTIVITIES.................................. (1,433,566) (1,503,372) FROM CAPITAL TRANSACTIONS: Value of Common Shares Issued Through Dividend Reinvestment........................................... 26,165 -0- ----------- ----------- TOTAL DECREASE IN NET ASSETS APPLICABLE TO COMMON SHARES................................................. (1,407,401) (1,503,372) NET ASSETS APPLICABLE TO COMMON SHARES: Beginning of the Period.................................. 76,955,219 78,458,591 ----------- ----------- End of the Period (Including accumulated undistributed net investment income of $503,561 and $883,927, respectively).......................................... $75,547,818 $76,955,219 =========== ===========
See Notes to Financial Statements 13 Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
---------------------------- 2003 2002 (a) 2001 ---------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.................... $ 16.49 $ 16.81 $ 15.84 ------- ------- ------- Net Investment Income..................................... 1.08 1.16 1.16 Net Realized and Unrealized Gain/Loss..................... .03 (.10) 1.03 Common Share Equivalent of Distributions Paid to Preferred Shareholders: Net Investment Income................................... (.08) (.07) (.29) Net Realized Gain....................................... (.01) (.08) (.01) ------- ------- ------- Total from Investment Operations............................ 1.02 .91 1.89 Distributions Paid to Common Shareholders: Net Investment Income................................... (1.08) (.98) (.92) Net Realized Gain....................................... (.25) (.25) -0- ------- ------- ------- NET ASSET VALUE, END OF THE PERIOD.......................... $ 16.18 $ 16.49 $ 16.81 ======= ======= ======= Common Share Market Price at End of the Period.............. $ 15.84 $ 16.37 $ 15.59 Total Return (b)............................................ 5.09% 13.41% 2.45% Net Assets Applicable to Common Shares at End of the Period (In millions)............................................. $ 75.5 $ 77.0 $ 78.5 Ratio of Expenses to Average Net Assets Applicable to Common Shares (c)................................................ 1.47% 1.56% 1.74% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (c)........................... 6.65% 7.13% 7.17% Portfolio Turnover.......................................... 17% 21% 27% SUPPLEMENTAL RATIOS: Ratio of Expenses to Average Net Assets Including Preferred Shares (c)................................................ .93% .98% 1.09% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (d)........................... 6.17% 6.68% 5.37% SENIOR SECURITIES: Total Preferred Shares Outstanding.......................... 1,800 1,800 1,800 Asset Coverage Per Preferred Share (e)...................... $66,977 $67,762 $68,588 Involuntary Liquidating Preference Per Preferred Share...... $25,000 $25,000 $25,000 Average Market Value Per Preferred Share.................... $25,000 $25,000 $25,000
(a) As required, effective November 1, 2001, the Trust has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on fixed income securities. The effect of this change for the year ended October 31, 2002 was to increase net investment income per share by $.01, decrease net realized and unrealized gains and losses per share by $.01 and increase the ratio of net investment income to average net assets applicable to common shares from 7.11% to 7.13%. Per share, ratios, and supplemental data for periods prior to October 31, 2002 have not been restated to reflect this change in presentation. (b) Total return assumes an investment at the common share 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 share market price at the end of the period indicated. (c) Ratios do not reflect the effect of dividend payments to preferred shareholders. (d) Ratios reflect the effect of dividend payments to preferred shareholders. (e) Calculated by subtracting the Trust's total liabilities (not including the preferred shares) from the Trust's total assets and dividing this by the number of preferred shares outstanding. 14
YEAR ENDED OCTOBER 31, ----------------------------------------------------------------------------- 2000 1999 1998 1997 1996 1995 1994 ----------------------------------------------------------------------------- $ 15.10 $ 17.51 $ 17.16 $ 16.58 $ 16.29 $ 14.67 $ 17.64 ------- ------- -------- -------- -------- -------- -------- 1.22 1.19 1.24 1.26 1.30 1.30 1.28 .84 (1.95) .70 .84 .40 1.64 (3.00) (.33) (.22) (.28) (.27) (.32) (.40) (.26) -0- (.10) (.07) (.06) (.04) -0- (.01) ------- ------- -------- -------- -------- -------- -------- 1.73 (1.08) 1.59 1.77 1.34 2.54 (1.99) (.99) (.99) (.99) (.99) (.96) (.92) (.92) -0- (.34) (.25) (.20) (.09) -0- (.06) ------- ------- -------- -------- -------- -------- -------- $ 15.84 $ 15.10 $ 17.51 $ 17.16 $ 16.58 $ 16.29 $ 14.67 ======= ======= ======== ======== ======== ======== ======== $16.125 $14.375 $ 18.00 $ 16.75 $ 15.75 $ 14.75 $ 12.75 19.77% -13.54% 15.46% 12.96% 14.14% 23.60% -16.67% 73.8 $ 70.2 $ 81.0 $ 79.3 $ 76.6 $ 75.3 $ 67.8 $ 1.74% 1.71% 1.77% 1.80% 1.83% 1.79% 1.80% 7.15% 7.16% 7.57% 7.97% 8.39% 7.91% 7.98% 28% 25% 27% 23% 16% 13% 14% 1.10% 1.10% 1.12% 1.13% 1.12% 1.12% 1.10% 5.84% 5.54% 5.93% 5.97% 5.83% 6.31% 5.81% 1,800 1,800 900 900 900 900 900 $66,008 $64,025 $140,049 $138,057 $135,121 $133,628 $125,291 $25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
See Notes to Financial Statements 15 NOTES TO FINANCIAL STATEMENTS October 31, 2003 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Municipal bonds are valued by independent pricing services or dealers using the mean of the bid and asked prices or, in the absence of market quotations, at fair value based upon yield data relating to municipal bonds with similar characteristics and general market conditions. Securities which are not valued by independent pricing services or dealers are valued at fair value using procedures established in good faith by the Board of Trustees. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. 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 segregate assets with the custodian 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, 2003, the Trust had $1,076,600 of when-issued and delayed delivery purchase commitments. C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond premium is amortized and discount is accreted over the expected life of each applicable security. D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. 16 NOTES TO FINANCIAL STATEMENTS October 31, 2003 At October 31, 2003 the cost and related gross unrealized appreciation and depreciation are as follows: Cost of investments for tax purposes........................ $112,423,401 ============ Gross tax unrealized appreciation........................... $ 5,890,081 Gross tax unrealized depreciation........................... (132,250) ------------ Net tax unrealized appreciation on investments.............. $ 5,757,831 ============
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. The tax character of distributions paid during 2003 and 2002 was as follows:
2003 2002 Distribution paid from: Ordinary Income........................................... $ 61,045 $ 169,723 Long-term capital gain.................................... 1,230,078 1,382,282 ---------- ---------- $1,291,123 $1,552,005 ========== ==========
Due to inherent differences in the recognition of income, expenses and realized gains/ losses under accounting principles generally accepted in the United States of America and federal income tax purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. A permanent book and tax difference of $35,120 related to book and tax accretion differences was reclassified from accumulated undistributed net investment income to accumulated net realized gain. As of October 31, 2003, the components of distributable earnings on a tax basis were as follows: Undistributed ordinary income............................... $176,196 Undistributed long-term capital gain........................ 529,938
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Trust's Investment Advisory Agreement, Van Kampen Investment Advisory Corp. (the "Adviser") will provide investment advice and facilities to the Trust for an annual fee payable monthly of .60% of the average daily net assets of the Trust. In addition, the Trust will pay a monthly administrative fee to Van Kampen Funds Inc. or its affiliates (collectively "Van Kampen"), the Trust's Administrator, at an annual rate of .05% of the average daily net assets of the Trust. The administrative services provided by the 17 NOTES TO FINANCIAL STATEMENTS October 31, 2003 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 year ended October 31, 2003, the Trust recognized expenses of approximately $8,500 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. Under separate Accounting Services and Legal Services agreements, the Adviser provides accounting and legal services to the Trust. The Adviser allocates the cost of such services to each trust. For the year ended October 31, 2003, the Trust recognized expenses of approximately $25,300 representing Van Kampen's cost of providing accounting and legal services to the Trust, which are reported as part of "Other" and "Legal" expenses, respectively, in the Statement of Operations. Certain officers and trustees of the Trust are also officers and directors of Van Kampen. The Trust does not compensate its officers or trustees who are officers of Van Kampen. The Trust provides deferred compensation and retirement plans for its trustees who are not officers of Van Kampen. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation to a later date. Benefits under the retirement plan are payable upon retirement for a ten-year period and are based upon each trustee's years of service to the Trust. The maximum annual benefit per trustee under the plan is $2,500. 3. CAPITAL TRANSACTIONS At October 31, 2003 and October 31, 2002, paid in surplus related to common shares aggregated $68,611,189 and $68,585,040, respectively. Transactions in common shares were as follows:
YEAR ENDED YEAR ENDED OCTOBER 31, 2003 OCTOBER 31, 2002 Beginning Shares........................................ 4,666,320 4,666,320 --------- --------- Shares Issued Through Dividend Reinvestment............. 1,562 -0- --------- --------- Ending Shares........................................... 4,667,882 4,666,320 ========= =========
4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $20,263,174 and $20,812,025, respectively. 5. PREFERRED SHARES As of October 31, 2003, the Trust has outstanding 1,800 Auction Preferred Shares ("APS"). Dividends are cumulative and the dividend rate is currently reset every 28 days through an auction process. The rate in effect on October 31, 2003 was 0.90%. During the year ended October 31, 2003, rates ranged from 0.70% to 1.70%. 18 NOTES TO FINANCIAL STATEMENTS October 31, 2003 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 in the Statement of Operations. The APS are redeemable at the option of the Trust in whole or in part at the liquidation value of $25,000 per share plus accumulated and unpaid dividends. The Trust is subject to certain asset coverage tests and the APS are subject to mandatory redemption if the tests are not met. 19 REPORT OF INDEPENDENT AUDITORS To the Board of Trustees and Shareholders of Van Kampen Trust for Investment Grade California Municipals: We have audited the accompanying statement of assets and liabilities of Van Kampen Trust for Investment Grade California Municipals (the "Trust"), including the portfolio of investments, as of October 31, 2003, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended. 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. The Trust's financial highlights for the periods ended prior to October 31, 2000, were audited by other auditors whose report, dated December 6, 1999, expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2003, by correspondence with the Trust's custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Van Kampen Trust for Investment Grade California Municipals as of October 31, 2003, the results of its operations, the changes in its net assets and the financial highlights for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Chicago, Illinois December 8, 2003 20 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 21 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 change 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 Funds Inc. Attn: Closed-End Funds 2800 Post Oak Blvd. Houston, TX 77056 22 BOARD OF TRUSTEES AND IMPORTANT ADDRESSES VAN KAMPEN TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS BOARD OF TRUSTEES DAVID C. ARCH J. MILES BRANAGAN JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* THEODORE A. MYERS JACK E. NELSON RICHARD F. POWERS, III* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN INVESTMENT ADVISORY CORP. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 CUSTODIAN AND TRANSFER AGENT STATE STREET BANK AND TRUST COMPANY c/o EquiServe P.O. Box 43011 Providence, Rhode Island 02940-3011 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT AUDITORS DELOITTE & TOUCHE LLP 180 North Stetson Avenue Chicago, Illinois 60601 For federal income tax purposes, the following information is furnished with respect to the distributions paid by the Trust during its taxable year ended October 31, 2003. The Trust designated 99.4% of the income distributions as a tax-exempt income distribution. The Fund designated and paid $1,230,078 as a long-term capital gain distribution. In January, the Trust provides tax information to shareholders for the preceding calendar year. * "Interested persons" of the Trust, as defined in the Investment Company Act of 1940, as amended. 23 RESULTS OF SHAREHOLDER VOTES The Annual Meeting of the Shareholders of the Trust was held on June 24, 2003, where shareholders voted on the election of trustees. 1) With regards to the election of the following trustees by the common shareholders of the Trust:
# OF SHARES ----------------------------- IN FAVOR WITHHELD ------------------------------------------------------------------------------------------ Jerry D. Choate............................................ 4,070,839 34,699 Linda Hutton Heagy......................................... 4,071,839 33,699 R. Craig Kennedy........................................... 4,071,839 33,699 Wayne W. Whalen............................................ 4,069,255 36,283 Suzanne H. Woolsey......................................... 4,071,384 34,154
The other trustees of the Trust whose terms did not expire in 2003 are David C. Arch, Rod Dammeyer, Howard J Kerr, Theodore A. Myers, Richard F. Powers, and Hugo F. Sonnenschein. 2) With regards to the authority to vote for the amendment to the Declaration of Trust:
# OF SHARES ------------------------------------- IN FAVOR AGAINST ABSTAIN ------------------------------------- 3,941,310 84,538 79,689
24 TRUSTEES AND OFFICERS The business and affairs of the Trust are managed under the direction of the Trust's Board of Trustees and the Trust's officers appointed by the Board of Trustees. The tables below list the trustees and executive officers of the Trust and their principal occupations during the last five years, other directorships held by trustees and their affiliations, if any, with Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are referred to herein collectively as the "Advisers." The term "Fund Complex" includes each of the investment companies advised by the Advisers or their affiliates as of the date of this Statement of Additional Information. Trustees serve until reaching their retirement age or until their successors are duly elected and qualified. Officers are annually elected by the trustees. INDEPENDENT TRUSTEES
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE David C. Arch (58) Trustee Trustee Chairman and Chief 90 Trustee/Director/Managing Blistex Inc. since 1992 Executive Officer of General Partner of funds 1800 Swift Drive Blistex Inc., a consumer in the Fund Complex. Oak Brook, IL 60523 health care products manufacturer. Former Director of the World Presidents Organization-Chicago Chapter. Director of the Heartland Alliance, a nonprofit organization serving human needs based in Chicago. J. Miles Branagan (71) Trustee Trustee Private investor. 88 Trustee/Director/Managing 1632 Morning Mountain Road since 2003 Co-founder, and prior to General Partner of funds Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex. Chief Executive Officer and President, MDT Corporation (now known as Getinge/Castle, Inc., a subsidiary of Getinge Industrier AB), a company which develops, manufactures, markets and services medical and scientific equipment.
25
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jerry D. Choate (65) Trustee Trustee Prior to January 1999, 88 Trustee/Director/Managing 33971 Selva Road since 2003 Chairman and Chief General Partner of funds Suite 130 Executive Officer of the in the Fund Complex. Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a ("Allstate") and Allstate biotechnological company, Insurance Company. Prior and Director of Valero to January 1995, Energy Corporation, an President and Chief independent refining Executive Officer of company. Allstate. Prior to August 1994, various management positions at Allstate. Rod Dammeyer (63) Trustee Trustee President of CAC, llc., a 90 Trustee/Director/Managing CAC, llc. since 1992 private company offering General Partner of funds 4350 LaJolla Village Drive capital investment and in the Fund Complex. Suite 980 management advisory Director of TeleTech San Diego, CA 92122-6223 services. Prior to July Holdings Inc., 2000, Managing Partner of Stericycle, Inc., Equity Group Corporate TheraSense, Inc., GATX Investment (EGI), a Corporation, Arris Group, company that makes Inc. and Trustee of the private investments in University of Chicago other companies. Hospitals and Health Systems. Prior to May 2002, Director of Peregrine Systems Inc. Prior to February 2001, Vice Chairman and Director of Anixter International, Inc. and IMC Global Inc. Prior to July 2000, Director of Allied Riser Communications Corp., Matria Healthcare Inc., Transmedia Networks, Inc., CNA Surety, Corp. and Grupo Azcarero Mexico (GAM). Prior to April 1999, Director of Metal Management, Inc.
26
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (55) Trustee Trustee Managing Partner of 88 Trustee/Director/Managing Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds 233 South Wacker Drive executive search firm. in the Fund Complex. Suite 7000 Trustee on the University Chicago, IL 60606 of Chicago Hospitals Board, Vice Chair of the Board of the YMCA of Metropolitan Chicago and a member of the Women's Board of the University of Chicago. Prior to 1997, Partner of Ray & Berndtson, Inc., an executive recruiting firm. Prior to 1996, Trustee of The International House Board, a fellowship and housing organization for international graduate students. Prior to 1995, Executive Vice President of ABN AMRO, N.A., a bank holding company. Prior to 1992, Executive Vice President of La Salle National Bank. R. Craig Kennedy (51) Trustee Trustee Director and President of 88 Trustee/Director/Managing 11 DuPont Circle, N.W. since 2003 the German Marshall Fund General Partner of funds Washington, D.C. 20016 of the United States, an in the Fund Complex. independent U.S. foundation created to deepen understanding, promote collaboration and stimulate exchanges of practical experience between Americans and Europeans. Formerly, advisor to the Dennis Trading Group Inc., a managed futures and option company that invests money for individuals and institutions. Prior to 1992, President and Chief Executive Officer, Director and member of the Investment Committee of the Joyce Foundation, a private foundation. Howard J Kerr (68) Trustee Trustee Prior to 1998, President 90 Trustee/Director/Managing 736 North Western Avenue since 1992 and Chief Executive General Partner of funds P.O. Box 317 Officer of Pocklington in the Fund Complex. Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake investment holding Forest Bank & Trust. company. Director of the Marrow Foundation.
27
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Theodore A. Myers (73) Trustee Trustee Financial consultant, 36 Director of Met Life 550 Washington Avenue since 1992 Trustee or Managing Investors (formerly knows Glencoe, IL 60022 General Partner of other as COVA Financial Life funds in the Closed-End Insurance). Prior to Fund Complex. Prior to 1997, Director of McLouth 1998, Senior Financial Steel. Advisor (and, prior to 1997, an Executive Vice President, Chief Financial Officer and Director) of Qualitech Steel Corporation, a producer of high quality engineered steels for automotive, transportation and capital goods industries. Prior to 1997, member of the Arthur Andersen Chief Financial Officers' Advisory Committee. Jack E. Nelson (67) Trustee Trustee President of Nelson 88 Trustee/Director/Managing 423 Country Club Drive since 2003 Investment Planning General Partner of funds Winter Park, FL 32789 Services, Inc., a in the Fund Complex. financial planning company and registered investment adviser in the State of Florida. President of Nelson Ivest Brokerage Services Inc., a member of the NASD, Securities Investors Protection Corp. and the Municipal Securities Rulemaking Board. President of Nelson Sales and Services Corporation, a marketing and services company to support affiliated companies. Hugo F. Sonnenschein (63) Trustee Trustee President Emeritus and 90 Trustee/Director/Managing 1126 E. 59th Street since 1994 Honorary Trustee of the General Partner of funds Chicago, IL 60637 University of Chicago and in the Fund Complex. the Adam Smith Director of Winston Distinguished Service Laboratories, Inc. Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences.
28
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Suzanne H. Woolsey (61) Trustee Trustee Currently with Paladin 88 Trustee/Director/Managing 2101 Constitution Ave., N.W. since 2003 Capital Group/Paladin General Partner of funds Room 285 Homeland Security Fund. in the Fund Complex. Washington, D.C. 20418 Previously Chief Director of Neurogen Communications Officer of Corporation, a the National Academy of pharmaceutical company, Sciences/National since January 1998. Research Council, an independent, federally chartered policy institution, since 2001 and Chief Operating Officer from 1993 to 2001. Director of the Institute for Defense Analyses, a federally funded research and development center, Director of the German Marshall Fund of the United States, and Trustee of Colorado College. Prior to 1993, Executive Director of the Commission on Behavioral and Social Sciences and Education at the National Academy of Sciences/National Research Council. From 1980 through 1989, Partner of Coopers & Lybrand.
29 INTERESTED TRUSTEES*
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Mitchell M. Merin* (50) Trustee, Trustee President and Chief 88 Trustee/Director/Managing 1221 Avenue of the Americas President since 2002 Executive Officer of General Partner of funds New York, NY 10020 and Chief funds in the Fund in the Fund Complex. Executive Complex. Chairman, Officer President, Chief Executive Officer and Director of the Advisers and VK Advisors Inc. since December 2002. Chairman, President and Chief Executive Officer of Van Kampen Investments since December 2002. Director of Van Kampen Investments since December 1999. Chairman and Director of Van Kampen Funds Inc. since December 2002. President, Director and Chief Operating Officer of Morgan Stanley Investment Management since December 1998. President and Director since April 1997 and Chief Executive Officer since June 1998 of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Chairman, Chief Executive Officer and Director of Morgan Stanley Distributors Inc. since June 1998. Chairman since June 1998, and Director since January 1998 of Morgan Stanley Trust. Director of various Morgan Stanley subsidiaries. President of the Morgan Stanley Funds since May 1999. Previously Chief Executive Officer of Van Kampen Funds Inc. from December 2002 to July 2003, Chief Strategic Officer of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. and Executive Vice President of Morgan Stanley Distributors Inc. from April 1997 to June 1998. Chief Executive Officer from September 2002 to April 2003 and Vice President from May 1997 to April 1999 of the Morgan Stanley Funds.
30
NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INTERESTED TRUSTEE TRUST SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (57) Trustee Trustee Advisory Director of 90 Trustee/Director/Managing 1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds P.O. Box 5555 December 2002, Chairman, in the Fund Complex. Oakbrook Terrace, IL 60181 Director, President, Chief Executive Officer and Managing Director of Van Kampen Investments and its investment advisory, distribution and other subsidiaries. Prior to December 2002, President and Chief Executive Officer of funds in the Fund Complex. Prior to May 1998, Executive Vice President and Director of Marketing at Morgan Stanley and Director of Dean Witter, Discover & Co. and Dean Witter Realty. Prior to 1996, Director of Dean Witter Reynolds Inc. Wayne W. Whalen* (64) Trustee Trustee Partner in the law firm 90 Trustee/Director/Managing 333 West Wacker Drive since 1992 of Skadden, Arps, Slate, General Partner of funds Chicago, IL 60606 Meagher & Flom in the Fund Complex. (Illinois), legal counsel to funds in the Fund Complex.
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Messrs. Merin and Powers are interested persons of funds in the Fund Complex and the Advisers by reason of their current or former positions with Morgan Stanley or its affiliates. 31 OFFICERS
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS Stephen L. Boyd (63) Vice President Officer Managing Director of Global Research Investment Management. 2800 Post Oak Blvd. since 1998 Vice President of funds in the Fund Complex. Prior to 45th Floor December 2002, Chief Investment Officer of Van Kampen Houston, TX 77056 Investments and President and Chief Operations Officer of the Advisers and Van Kampen Advisors Inc. Prior to May 2002, Executive Vice President and Chief Investment Officer of funds in the Fund Complex. Prior to May 2001, Managing Director and Chief Investment Officer of Van Kampen Investments, and Managing Director and President of the Advisers and Van Kampen Advisors Inc. Prior to December 2000, Executive Vice President and Chief Investment Officer of Van Kampen Investments, and President and Chief Operating Officer of the Advisers. Prior to April 2000, Executive Vice President and Chief Investment Officer for Equity Investments of the Advisers. Prior to October 1998, Vice President and Senior Portfolio Manager with AIM Capital Management, Inc. Prior to February 1998, Senior Vice President and Portfolio Manager of Van Kampen American Capital Asset Management, Inc., Van Kampen American Capital Investment Advisory Corp. and Van Kampen American Capital Management, Inc. Stefanie V. Chang (37) Vice President Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas since 2003 Vice President of funds in the Fund Complex. New York, NY 10020 Joseph J. McAlinden (60) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Investment Officer Management Inc. and Morgan Stanley Investments LP and Director of Morgan Stanley Trust for over 5 years. Executive Vice President and Chief Investment Officer of funds in the Fund Complex. Managing Director and Chief Investment Officer of Van Kampen Investments, the Advisers and Van Kampen Advisors Inc. since December 2002.
32
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS John R. Reynoldson (50) Vice President Officer Executive Director and Portfolio Specialist of the Advisers 1 Parkview Plaza since 2000 and Van Kampen Advisors Inc. Vice President of funds in the P.O. Box 5555 Fund Complex. Prior to July 2001, Principal and Co-head of Oakbrook Terrace, IL 60181 the Fixed Income Department of the Advisers and Van Kampen Advisors Inc. Prior to December 2000, Senior Vice President of the Advisers and Van Kampen Advisors Inc. Prior to May 2000, Senior Vice President of the investment grade taxable group for the Advisers. Prior to June 1999, Senior Vice President of the government securities bond group for Asset Management. Ronald E. Robison (64) Executive Vice Officer Chief Executive Officer and Chairman of Investor Services. 1221 Avenue of the Americas President and Principal since 2003 Executive Vice President and Principal Executive Officer of New York, NY 10020 Executive Officer funds in the Fund Complex. Chief Global Operations Officer and Managing Director of Morgan Stanley Investment Management Inc. Managing Director of Morgan Stanley. Managing Director and Director of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Chief Executive Officer and Director of Morgan Stanley Trust. Vice President of the Morgan Stanley Funds. A. Thomas Smith III (46) Vice President and Officer Managing Director of Morgan Stanley, Managing Director and 1221 Avenue of the Americas Secretary since 1999 Director of Van Kampen Investments, Director of the New York, NY 10020 Advisers, Van Kampen Advisors Inc., the Distributor, Investor Services and certain other subsidiaries of Van Kampen Investments. Managing Director and General Counsel-Mutual Funds of Morgan Stanley Investment Advisors, Inc. Vice President and Secretary of funds in the Fund Complex. Prior to July 2001, Managing Director, General Counsel, Secretary and Director of Van Kampen Investments, the Advisers, the Distributor, Investor Services, and certain other subsidiaries of Van Kampen Investments. Prior to December 2000, Executive Vice President, General Counsel, Secretary and Director of Van Kampen Investments, the Advisers, Van Kampen Advisors Inc., the Distributor, Investor Services and certain other subsidiaries of Van Kampen Investments. Prior to January 1999, Vice President and Associate General Counsel to New York Life Insurance Company ("New York Life"), and prior to March 1997, Associate General Counsel of New York Life. Prior to December 1993, Assistant General Counsel of The Dreyfus Corporation. Prior to August 1991, Senior Associate, Willkie Farr & Gallagher. Prior to January 1989, Staff Attorney at the Securities and Exchange Commission, Division of Investment Management, Office of Chief Counsel.
33
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER TRUST SERVED DURING PAST 5 YEARS John L. Sullivan (48) Vice President, Chief Officer Director and Managing Director of Van Kampen Investments, 1 Parkview Plaza Financial Officer and since 1996 the Advisers, Van Kampen Advisors Inc. and certain other P.O. Box 5555 Treasurer subsidiaries of Van Kampen Investments. Vice President, Oakbrook Terrace, IL 60181 Chief Financial Officer and Treasurer of funds in the Fund Complex. Head of Fund Accounting for Morgan Stanley Investment Management. Prior to December 2002, Executive Director of Van Kampen Investments, the Advisers and Van Kampen Advisors Inc.
34 Item 2. Code of Ethics. (a) The Trust has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Trust or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) Not applicable (d) Not applicable (e) Not applicable. (f) (1) The Trust's Code of Ethics is attached hereto as Exhibit 10A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Trust's Board of Trustees has determined that it has four "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees: J. Miles Branagan, Jerry Choate, R. Craig Kennedy and Theodore A. Myers. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. Item 4. Principal Accountant Fees and Services. Applicable only for reports covering fiscal years ending on or after December 15, 2003. Item 5. Audit Committee of Listed Registrants. Applicable only for reports covering periods ending on or after the earlier of (i) the first annual shareholder meeting after January 15, 2004 or (ii) October 31, 2004. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. The Trust invests in exclusively non-voting securities and therefore this item is not applicable to the Trust. Item 8. [Reserved.] Item 9. Controls and Procedures (a) The Trust's principal executive officer and principal financial officer have concluded that the Trust's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Trust's internal controls or in other factors that could significantly affect the Trust's internal controls subsequent to the date of their evaluation. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10. Exhibits. (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (b) A separate certification for each principal executive officer and principal financial officer of the registrant are attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Van Kampen Trust for Investment Grade California Municipals By: /s/ Ronald E. Robison ------------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: December 18, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald E. Robison ------------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: December 18, 2003 By: /s/ John L. Sullivan ------------------------- Name: John L. Sullivan Title: Principal Financial Officer Date: December 18, 2003