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<PAGE> PAGE 2
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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<PAGE> PAGE 8
074 X000000 1360
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080 A000000 ICI MUTUAL INSURANCE
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SIGNATURE DENNIS J MCDONNELL
TITLE PRES, CEO & TRUSTEE
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Table of Contents
<CAPTION>
<S> <C>
Letter to Shareholders ................ 1
Performance Results ................... 3
Portfolio of Investments ............. 4
Statement of Assets and Liabilities ... 9
Statement of Operations ............... 10
Statement of Changes in Net Assets .... 11
Financial Highlights ................. 12
Notes to Financial Statements ......... 14
Page: 1
Letter to Shareholders
June 16, 1995
Dear Shareholder:
During the six-month period covered by this report, November 1, 1994 through
April 30, 1995, we saw the close of a challenging and difficult year in the
financial markets -- and the beginning of a new year, with renewed optimism and
strength on many fronts.
Market Overview
Most of 1994 was a difficult period for fixed-income investors as the Federal
Reserve Board's crusade against inflation drove interest rates markedly higher.
The yield on 30-year Treasury securities, for example, climbed from 6.35 percent
as the year began to a high of 8.16 percent by early November. As interest rates
rose, fixed-income investments declined in value.
The fixed-income markets have rebounded considerably since late 1994, however,
with growing confidence that the Fed's inflation fighting initiatives have taken
hold. The yield on 30-year Treasury securities fell to 7.34 percent by the end
of April 1995 and to approximately 6.50 percent at the time of this writing.
This rate reversal has pushed bond prices back to February 1994 levels. Closed-
end municipal bond funds, in particular, have been among the greatest
beneficiaries in this rally, earning back virtually all of last year's losses
and posting attractive returns.
Performance Summary
The Trust achieved a six-month total return of 7.43 percent <F1>, based on
market price, for the period ended April 30, 1995. This robust performance
can be partially attributed to the Trust's leveraged capital structure, which
has helped it to more fully benefit from a fall in long-term interest rates
over the last six months. While leveraging adds certain financing risks and
volatility, it is designed, over time, to provide shareholders with enhanced
returns by taking advantage of the yield differential between long-term and
short-term interest rates.
Additionally, the Trust's closing stock price gained more than 3 percent from
its $11.125 level on October 31, 1994, to $11.500 on April 30, 1995. As the
graph on the following page shows, we've also seen the Trust's net asset value
rebound during the last six months.
Although intermediate and long-term interest rates eased during this
reporting period, short-term interest rates have remained persistently high,
placing continued pressure on the Trust's preferred rates and common dividend.
The Trust was able, however, to sustain its annualized dividend level in this
environment at $0.87 per common share, which represents a tax-exempt
distribution rate of 7.57 percent <F3>, based on the closing stock price of
$11.500 per share on April 30, 1995. For shareholders in the 36 percent
federal income tax bracket, this distribution rate represents a yield
equivalent to a taxable investment earning 11.83 percent <F4>.
[Photo]
Dennis J. McDonnell and Don G. Powell
(Continued on page two)
Page: 2
Outlook
The outlook for fixed-income securities appears favorable. To date, inflation
remains under control, and recent economic data continues to suggest a slowdown
in the economy. First-quarter gross domestic product, for example, grew at an
annual rate of 2.8 percent, substantially lower than its fourth-quarter rate of
5.1 percent last year. Many analysts now expect GDP to grow at an annual rate
between 1 and 2 percent in the second half of this year. Should this scenario
play out, we suspect that the Fed is more likely to lower than raise short-term
rates, which would be a positive development for all fixed-income investors.
Regarding the municipal market, we remain optimistic about the current supply-
and-demand dynamics. With much of the refinancing by municipal issuers behind
us, we expect new-issue supply to remain low in 1995 and demand for municipals
to be steady, if not strong. A decline in supply combined with steady demand
should lend price stability and price support to this market. We believe the
Trust will continue to provide shareholders with long-term value as we seek to
maintain a high level of current income over time.
[GRAPH]
Trust Rebounds in 1995
COMPARISON OF NAV AND MARKET PRICE OF THE TRUST
<CAPTION>
Measurement Market
Period NAV Price
<S> <C> <C>
30-Apr-94 $11.00 12.125
31-May-94 $11.13 12.250
30-Jun-94 $10.81 12.375
31-Jul-94 $10.92 12.375
31-Aug-94 $10.90 12.250
30-Sep-94 $10.75 12.000
31-Oct-94 $10.50 11.125
30-Nov-94 $10.14 10.500
31-Dec-94 $10.33 10.500
31-Jan-95 $10.61 11.125
28-Feb-95 $10.99 11.375
31-Mar-95 $10.95 11.250
30-Apr-95 $10.76 11.500
Corporate News
As you may have already noticed, we have adopted a new design for our
shareholder reports that reflects our new identity as Van Kampen American
Capital. Going forward, we will continue to look for new ways to improve upon
the presentation of information in your Trust's report. In addition, we have
developed a new corporate advertising campaign introducing
Van Kampen American Capital. Full page ads appeared in The Wall Street Journalin
the first quarter of 1995 -- watch for more advertising throughout the year.
We look forward to communicating with you on a regular basis, providing
information about your Trust's performance, new investment opportunities, and
our newly created company. We appreciate your continued confidence in your
investment with Van Kampen American Capital.
Sincerely,
Don G. Powell, Chief Executive Officer
Van Kampen American Capital Investment Advisory Corp.
Dennis J. McDonnell, President
Van Kampen American Capital Investment Advisory Corp.
Page: 3
Performance Results for the Period Ended April 30, 1995
Van Kampen Merritt Investment Grade Municipal Trust
(NYSE Ticker Symbol VIG)
<CAPTION>
<S> <C>
Total Returns
Six-month total return based on market price<F1> .................................. 7.43%
Six-month total return based on NAV<F2> ........................................... 6.75%
Distribution Rates
Distribution rate as a % of initial offer stock price<F3> ......................... 7.25%
Taxable-equivalent distribution rate as a % of initial offer stock price<F4> ...... 11.33%
Distribution rate as a % of 04/30/95 closing stock price<F3> ...................... 7.57%
Taxable-equivalent distribution rate as a % of 04/30/95 closing stock price<F4> ... 11.83%
Share Valuations
Net asset value as of 04/30/95 .................................................... $ 10.76
Preferred share rate as of 04/30/95<F5> ........................................... 4.18%
Closing common stock price as of 04/30/95 ........................................ $ 11.50
Six-month high common stock price (04/27/95) ..................................... $ 11.75
Six-month low common stock price (11/11/94) ...................................... $ 9.75
<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 net asset value.
<F3> Distribution rate represents the monthly annualized distributions of the
Trust at the end of April 1995, and not the earnings of the Trust.
<F4> The taxable-equivalent distribution rate is calculated assuming a 36%
federal tax bracket.
<F5> See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
Page: 4
Portfolio of Investments
<CAPTION>
April 30,1995 (Unaudited)
- ---------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Alaska 4.8%
$ 3,345 Kasaan, AK Lease Rev .................................. 8.000% 08/15/10 $ 3,660,400
------------
Arkansas 4.2%
1,000 Dogwood Addition PRD Muni Ppty Owners Multi
Purp Impt Dist No 8 AR Impt Ser A <F3> ................ 9.750 07/01/12 629,000
1,000 Dogwood Addition PRD Muni Ppty Owners Multi
Purp Impt Dist No 8 AR Impt Ser B <F3> ................ 9.750 07/01/12 629,000
2,165 Maumelle, AR West Pointe Addition Muni Ppty Owners
Multi Purp Impt Dist No 7 ............................. 9.500 12/01/10 1,948,500
------------
3,206,500
------------
California 2.5%
2,000 Metropolitan Wtrwks Dist Southern CA ................. 5.808 08/05/22 1,929,320
------------
Colorado 8.2%
2,800 Denver, CO City & Cnty Arpt Rev Ser A ................ 8.500 11/15/23 3,027,080
220 Jefferson Cnty, CO Residential Mtg Rev ................ 11.500 09/01/11 353,168
145 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/03) ............................. 11.500 09/01/11 206,048
160 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/04) ............................. 11.500 09/01/11 232,771
180 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/05) ............................. 11.500 09/01/11 267,395
205 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/06) ............................. 11.500 09/01/11 309,997
235 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/07) ............................. 11.500 09/01/11 360,648
265 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/08) ............................. 11.500 09/01/11 412,194
300 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/09) ............................. 11.500 09/01/11 471,666
340 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/10) ............................. 11.500 09/01/11 539,356
100 Jefferson Cnty, CO Residential Mtg Rev ................ 9.000 09/01/12 135,629
------------
6,315,952
------------
District of Columbia 0.6%
500 Metropolitan WA, DC Arpts Auth Genl Arpt
Rev Ser A (MBIA Insd) ................................ 5.875 10/01/15 477,950
------------
Florida 6.4%
2,000 Florida Hsg Fin Agy Hsg Bradley Park Apts Proj <F3> ... 9.750 12/01/19 1,054,200
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp
Orlando Genl Hosp Ser A (Prerefunded @ 06/01/99) ...... 8.750 06/01/16 1,160,340
See Notes to Financial Statements
Page: 5
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- -----------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida (Continued)
$ 1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp
Orlando Genl Hosp Ser B (Prerefunded @ 06/01/99) ........ 8.750% 06/01/16 $ 1,160,340
2,300 Sun N Lake of Sebring, FL Impt Dist Spl Assmt
Ser A <F3> .............................................. 10.000 12/15/11 1,518,000
------------
4,892,880
------------
Illinois 20.8%
1,000 Alton, IL Hlth Fac Rev & Impt Christian Hlth
Ser C Rfdg (Prerefunded @ 02/15/01) (FGIC Insd) <F2> .... 7.200 02/15/21 1,122,300
2,500 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent Proj ... 8.375 09/01/14 2,645,200
7,405 Aurora, IL Single Family Mtg Rev Cap Apprec
(AMBAC Insd) ........................................... * 12/01/22 850,834
2,740 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Ser B ........................................ 8.950 05/01/18 3,023,727
510 Cook Cnty, IL Sch Dist No 107 La Grange ................ 7.150 12/01/08 567,467
575 Cook Cnty, IL Sch Dist No 107 La Grange ................ 7.200 12/01/09 641,413
625 Cook Cnty, IL Sch Dist No 107 La Grange ................ 7.000 12/01/10 684,337
500 Hodgkins, IL Tax Increment Rev Ser A Rfdg .............. 7.625 12/01/13 493,355
980 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D ..... 9.500 11/15/15 1,133,252
745 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D
(Prerefunded @ 11/15/00) ............................... 9.500 11/15/15 919,010
500 Illinois Hlth Fac Auth Rev Lutheran Social Svcs Proj
Ser A (Prerefunded @ 08/01/00) .......................... 7.650 08/01/20 568,505
1,910 Illinois Hsg Dev Auth Residential Mtg Rev Ser B ........ 7.250 08/01/17 2,002,635
5,000 Metropolitan Pier & Expo Auth IL Dedicated St Tax
Rev McCormick Place Expansion Ser A
Rfdg (MBIA Insd) ....................................... * 06/15/15 1,393,050
------------
16,045,085
------------
Indiana 2.9%
2,000 Kokomo, IN Hosp Auth Hosp Rev Saint Joseph Hosp
& Hlth Cent Ser A Rfdg (Prerefunded @ 08/15/98) ........ 8.750 02/15/13 2,271,580
------------
Louisiana 2.0%
1,500 Ouachita Parish, LA Hosp Svcs Dist No 1 Rev
Glenwood Regl Med Cent ................................. 7.500 07/01/21 1,573,425
------------
See Notes to Financial Statements
Page: 6
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- -------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maryland 4.4%
$ 2,800 Baltimore, MD Cap Apprec Cons Pub Impt Ser
(FGIC Insd) .................................... *% 10/15/08 $ 1,273,524
2,000 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty
Dev Single Family Ser 4 ....................... 7.450 04/01/32 2,102,200
------------
3,375,724
------------
Massachusetts 1.2%
500 Massachusetts St Hlth & Edl Fac Auth Rev
Melrose-Wakefield Hosp Ser A
(Prerefunded @ 07/01/96) ...................... 8.625 07/01/18 533,740
395 Massachusetts St Hsg Fin Agy Multi-Family
Residential Dev Ser A (FNMA Collateralized) ... 8.150 02/01/29 417,910
------------
951,650
------------
Michigan 1.3%
865 Michigan St Hosp Fin Auth Rev Battle Creek
Hosp Ser H ..................................... 9.500 11/15/15 981,170
------------
Minnesota 4.3%
15,660 Southern MN Muni Pwr Agy Pwr Supply Sys
Rev Ser A (MBIA Insd) ......................... * 01/01/21 3,306,452
------------
Montana 4.4%
2,900 Forsyth, MT Pollutn Ctl Rev Puget Sound Pwr & Lt
Ser B Rfdg (AMBAC Insd) ........................ 7.250 08/01/21 3,123,358
300 Montana St Brd Invt Res Recovery Rev Yellowstone
Energy L P Proj ................................ 7.000 12/31/19 279,087
------------
3,402,445
------------
Nevada 2.0%
1,500 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj
Ser A (FGIC Insd) .............................. 6.700 06/01/22 1,543,020
------------
New Hampshire 4.1%
2,500 New Hampshire Higher Edl & Hlth Fac Auth Rev
Hosp Catholic Med Cent Rfdg .................... 8.250 07/01/13 2,636,475
500 New Hampshire St Indl Dev Auth Rev Pollutn Ctl
Pub Svcs Co NH Proj C ......................... 7.650 05/01/21 516,205
------------
3,152,680
------------
See Notes to Financial Statements
Page: 7
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- -----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York 10.6%
$ 1,975 Metropolitan Tran Auth NY Svcs Contract Tran Fac ... 5.750% 07/01/13 $ 1,848,086
2,000 New York City Indl Spl Fac Terminal One Group
Assn Proj .......................................... 6.000 01/01/15 1,902,400
2,500 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser A (AMBAC Insd) ............................. 6.750 06/15/06 2,687,900
2,000 New York St Urban Dev Corp Rev Correctional Fac
Ser A Rfdg (AMBAC Insd) <F2> ...................... 5.000 01/01/17 1,735,060
------------
8,173,446
------------
Pennsylvania 0.7%
500 Pennsylvania Econ Dev Fin Auth Recycling Rev
Ponderosa Fibres Proj Ser A ........................ 9.250 01/01/22 503,420
------------
Tennessee 3.1%
2,195 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev
Open Arms Dev Cent Ser E .......................... 9.750 08/01/19 2,383,770
------------
Texas 4.5%
2,580 Texas St Pub Ppty Fin Corp Rev Mental
Hlth & Retardation Rfdg (Cap Guar Insd) ............ 5.500 09/01/13 2,410,288
1,000 West Side Calhoun Cnty, TX Navig Dist Solid Waste
Disp Union Carbide Chem & Plastics ................ 8.200 03/15/21 1,078,790
------------
3,489,078
------------
Wisconsin 1.5%
1,015 Wisconsin St Hlth & Edl Fac Auth Rev Chippewa
Vly Hosp Ser F Rfdg ............................... 9.500 11/15/12 1,182,536
------------
See Notes to Financial Statements
Page: 8
Portfolio of Investments (Continued)
<CAPTION>
April 30,1995 (Unaudited)
- ---------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wyoming 1.4%
$ 1,000 Laramie Cnty, WY Indl Dev Rev Cheyenne Lt,
Fuel & Pwr Co Ser A (AMBAC Insd) ........ 7.250% 09/01/21 $ 1,059,320
-------------
Total Long-Term Investments 95.9%
(Cost $71,455,955) <F1> ................................................ 73,877,803
Short-Term Investments at Amortized Cost 1.4% ........................ 1,100,000
Other Assets in Excess of Liabilities 2.7% ........................... 2,093,668
-------------
Net Assets 100% ....................................................... $ 77,071,471
-------------
*Zero coupon bond
<FN>
<F1> At April 30, 1995, for federal income tax purposes, cost is $71,535,304,
the aggregate gross unrealized appreciation is $4,997,932 and the aggregate
gross unrealized depreciation is $3,061,678, resulting in net unrealized
appreciation including open option and futures transactions of $1,936,254.
<F2> Assets segregated as collateral for when issued or delayed delivery
purchase commitments, open option and open futures transactions.
<F3> Non-Income producing security.
The following table summarizes the portfolio composition at April 30, 1995,
based upon quality ratings issued by Standard & Poor's. For securities not rated
by Standard & Poor's, the Moody's rating is used.
Portfolio Composition by Credit Quality
<CAPTION>
<S> <C>
AAA .......... 35.4%
AA ........... 5.5
A ............ 15.7
BBB .......... 18.6
BB ........... 8.9
Non-Rated ... 15.9
-------
100.0%
-------
See Notes to Financial Statements
Page: 9
Statement of Assets and Liabilities
April 30,1995 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Assets:
<S> <C>
Investments, at Market Value (Cost $71,455,955) (Note 1) ................................... $ 73,877,803
Short-Term Investments (Note 1) ............................................................ 1,100,000
Cash ...................................................................................... 66,770
Receivables:
Interest .................................................................................. 2,137,404
Investments Sold ........................................................................... 329,451
Options at Market Value (Net premiums paid of $186,848) (Note 4) ........................... 85,938
--------------
Total Assets ............................................................................... 77,597,366
--------------
Liabilities:
Payables:
Income Distributions - Common and Preferred Shares ........................................ 365,143
Investment Advisory Fee (Note 2) ........................................................... 38,483
Accrued Expenses ........................................................................... 122,269
--------------
Total Liabilities .......................................................................... 525,895
--------------
Net Assets ................................................................................. $ 77,071,471
--------------
Net Assets Consist of:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 250 issued with liquidation
preference of $100,000 per share) (Note 5) ................................................. $ 25,000,000
--------------
Common Shares ($.01 par value with an unlimited number of shares authorized,
4,839,000 shares issued and outstanding) .................................................. 48,390
Paid in Surplus ........................................................................... 52,700,019
Net Unrealized Appreciation on Investments ................................................ 2,015,603
Accumulated Distributions in Excess of Net Investment Income (Note 1) ..................... (542,672)
Accumulated Net Realized Loss on Investments ............................................... (2,149,869)
--------------
Net Assets Applicable to Common Shares ..................................................... 52,071,471
--------------
Net Assets ................................................................................. $ 77,071,471
--------------
Net Asset Value Per Common Share($52,071,471 divided
by 4,839,000 shares outstanding) ........................................................... $ 10.76
--------------
See Notes to Financial Statements
Page: 10
Statement of Operations
For the Six Months Ended April 30,1995 (Unaudited)
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Investment Income:
<S> <C>
Interest .................................................................................... $ 2,553,919
---------------
Expenses:
Investment Advisory Fee (Note 2) ........................................................... 227,015
Preferred Share Maintenance (Note 5) ........................................................ 43,691
Audit ....................................................................................... 28,608
Custody ..................................................................................... 25,068
Legal (Note 2) ............................................................................. 18,468
Trustees Fees and Expenses (Note 2) ......................................................... 11,158
Amortization of Organizational Expenses (Note 1) ........................................... 610
Other ....................................................................................... 38,849
---------------
Total Expenses .............................................................................. 393,467
---------------
Net Investment Income ....................................................................... $ 2,160,452
---------------
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales ......................................................................... $ 21,546,848
Cost of Securities Sold (Including reorganization and restructuring costs of $3,542) ....... (22,162,225)
---------------
Net Realized Loss on Investments (Including realized loss on closed and expired option
and futures transactions of $135,334 and $1,135,583, respectively) .......................... (615,377)
---------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period .................................................................... (301,649)
End of the Period (Including unrealized depreciation on open option and futures transactions
of $100,910 and $305,335, respectively) .................................................... 2,015,603
---------------
Net Unrealized Appreciation on Investments During the Period ................................ 2,317,252
---------------
Net Realized and Unrealized Gain on Investments ............................................. $ 1,701,875
---------------
Net Increase in Net Assets from Operations .................................................. $ 3,862,327
---------------
See Notes to Financial Statements
Page: 11
Statement of Changes in Net Assets
For the Six Months Ended April 30,1995 and the Year Ended October 31,1994 (Unaudited)
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Six Months Ended Year Ended
April 30,1995 October 31,1994
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income ............................................. $ 2,160,452 $ 4,636,263
Net Realized Loss on Investments .................................. (615,377) (1,060,509)
Net Unrealized Appreciation/Depreciation on
Investments During the Period ..................................... 2,317,252 (6,105,171)
---------------- ---------------
Change in Net Assets from Operations ............................. 3,862,327 (2,529,417)
---------------- ---------------
Distributions from Net Investment Income:
Common Shares ..................................................... (1,666,699) (4,395,348)
Preferred Shares ................................................. (493,753) (687,350)
---------------- ---------------
(2,160,452) (5,082,698)
Distributions in Excess of Net Investment
Income - Common Shares (Note 1) ................................... (438,079) (104,593)
---------------- ---------------
Total Distributions .............................................. (2,598,531) (5,187,291)
---------------- ---------------
Net Change in Net Assets from Investment Activities ............... 1,263,796 (7,716,708)
Net Assets:
Beginning of the Period .......................................... 75,807,675 83,524,383
---------------- ---------------
End of the Period (Including undistributed net investment income of
$(542,672) and $(104,593), respectively) .......................... $ 77,071,471 $ 75,807,675
---------------- ---------------
See Notes to Financial Statements
Page: 12
Financial Highlights
The following schedule presents financial highlights for one common share of the
Trust outstanding throughout the periods indicated.(Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
Six Months Year Year
Ended Ended Ended
April 30, October 31, October 31,
1995 1994 1993
<S> <C> <C> <C>
Net Asset Value, Beginning of Period <F1> ......... $ 10.500 $ 12.094 $ 11.151
---------- ------------ -----------
Net Investment Income ............................. .447 .958 1.090
Net Realized and Unrealized
Gain/Loss on Investments .......................... .351 (1.480) .917
---------- ------------ -----------
Total from Investment Operations ................. .798 (.522) 2.007
---------- ------------ -----------
Less:
Distributions from and in Excess of
Net Investment Income (Note 1):
Paid to Common Shareholders ...................... .435 .930 .930
Common Share Equivalent of Distributions
Paid to Preferred Shareholders ................... .102 .142 .134
---------- ------------ -----------
Total Distributions .............................. .537 1.072 1.064
---------- ------------ -----------
Net Asset Value, End of Period .................... $ 10.761 $ 10.500 $ 12.094
---------- ------------ -----------
Market Price Per Share at End of Period ........... $ 11.500 $ 11.125 $ 13.875
Total Investment Return at Market Price
(Non-Annualized) <F2> ............................. 7.43% (13.59%) 26.46%
Total Return at Net Asset Value
(Non-Annualized) <F3> ............................. 6.75% (5.77%) 17.40%
Net Assets at End of Period (In millions) ......... $ 77.1 $ 75.8 $ 83.5
Ratio of Expenses to Average Net Assets Applicable
to Common Shares (Annualized) .................... 1.53% 1.47% 1.35%
Ratio of Expenses to Average Net
Assets (Annualized) ............................... 1.03% 1.01% .94%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares
(Annualized) <F4> ................................. 6.49% 7.20% 8.14%
Portfolio Turnover ............................... 26.59% 29.89% 7.04%
<FN>
<F1> Net asset value at November 30, 1989 is adjusted for common and preferred
share offering costs of $.259 per commonshare.
<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> Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
N/A=Not Applicable
See Notes to Financial Statements
Page: 13
Financial Highlights (Continued)
The following schedule presents financial highlights for one common share of the
Trust outstanding throughout the periods indicated.(Unaudited)
- --------------------------------------------------------------------------------
<CAPTION>
November 30,1989
Year Year (Commencement
Ended Ended of Investment
October 31, October 31, Operations) to
1992 1991 October 31,1990
<S> <C> <C> <C>
Net Asset Value, Beginning of Period <F1> ......... $ 11.502 $ 10.832 $ 10.901
----------- ----------- ----------------
Net Investment Income ............................. 1.090 1.153 1.001
Net Realized and Unrealized
Gain/Loss on Investments ......................... (.348) .647 (.115)
----------- ----------- ----------------
Total from Investment Operations ................. .742 1.800 .886
----------- ----------- ----------------
Less:
Distributions from and in Excess of
Net Investment Income (Note 1):
Paid to Common Shareholders ....................... .925 .886 .725
Common Share Equivalent of Distributions
Paid to Preferred Shareholders ................... .168 .244 .230
----------- ----------- ----------------
Total Distributions .............................. 1.093 1.130 .955
----------- ----------- ----------------
Net Asset Value, End of Period .................... $ 11.151 $ 11.502 $ 10.832
----------- ----------- ----------------
Market Price Per Share at End of Period ........... $ 11.750 $ 12.250 $ 10.500
Total Investment Return at Market Price
(Non-Annualized) <F2> ............................. 3.10% 25.65% .21%
Total Return at Net Asset Value
(Non-Annualized) <F3> ............................. 5.04% 14.87% 3.70%
Net Assets at End of Period (In millions) ......... $ 79.0 $ 80.7 $ 77.4
Ratio of Expenses to Average Net Assets Applicable
to Common Shares (Annualized) .................... 1.52% 1.53% 1.41%
Ratio of Expenses to Average Net
Assets (Annualized) ............................... 1.05% 1.05% N/A
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares
(Annualized) <F4> ................................. 8.01% 8.12% 7.75%
Portfolio Turnover ............................... 20.87% 52.20% 133.73%
<FN>
<F1> Net asset value at November 30, 1989 is adjusted for common and preferred
share offering costs of $.259 per commonshare.
<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> Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
N/A=Not Applicable
See Notes to Financial Statements
Page: 14
Notes to Financial Statements
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen Merritt Investment Grade Municipal Trust (the "Trust") is registered
as a diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust commenced investment operations on
November 30, 1989.
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,
prices provided by market makers or 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. Investments
valued using estimates of market value are generally those non-rated securities
in which the Trust owns over 90% of the original bond issue. At April 30, 1995,
approximately 10.9% of the Trust's net assets consisted of such securities.
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 April 30, 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 ("VKAC") for costs incurred in connection
with the Trust's organization and initial registration in the amount of $40,000.
These costs were amortized on a straight line basis over the 60 month period
ended November 30, 1994.
Page: 15
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
E. Federal Income Taxes-It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
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, 1994, the Trust had an accumulated capital loss
carryforward of $1,458,685. Of this amount, $414,447, $15,580 and $1,028,658
will expire on October 31, 1998, 2001 and 2002, respectively. Net realized gains
or losses may differ for financial and tax reporting purposes primarily as a
result of the capitalization of reorganization and restructuring costs for
tax purposes.
F. Distribution of Income and Gains-The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually. Due to inherent differences in the recognition of
interest income under generally accepted accounting principles and federal
income tax purposes, for those securities which the Trust has placed on
non-accrual status, the amount of distributable net investment income may differ
between book and federal income tax purposes for a particular period. These
differences are temporary in nature, but may result in book basis distributions
in excess of net investment income for certain periods.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
investment advice and facilities to the Trust for an annual fee payable monthly
of .60% of the average net assets of the Trust.
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 six months ended April 30, 1995, the Trust recognized expenses of
approximately $9,100 representing VKAC's cost of providing accounting, legal and
certain shareholder services to the Trust.
Certain officers and trustees of the Trust are also officers and directors of
VKAC. The Trust does not compensate its officers or trustees who are officers of
VKAC.
The Trust has implemented deferred compensation and retirement plans for its
Trustees. Under the deferred compensation plan, Trustees may elect to defer all
or a portion of their
Page: 16
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
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 April 30, 1995, was approximately $14,200.
At April 30, 1995, VKAC owned 9,000 common shares of the Trust.
3. Investment Transactions
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended April 30, 1995 were $19,112,299 and
$22,158,683, respectively.
4. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. Option Contracts-An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Trust
to manage the portfolio's effective maturity and duration.
Transactions in options for the six months ended April 30, 1995, were as
follows:
<CAPTION>
Contracts Premium
- ------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1994 .................... 50 $ 15,222
Options Written and Purchased (Net) ................ 1,142 (366,890)
Options Terminated in Closing Transactions (Net) ... (200) 20,364
Options Expired (Net) .............................. (492) 144,456
Options Exercised (Net) ........................... -0- -0-
--------- -------------
Outstanding at April 30, 1995 ...................... 500 $ (186,848)
--------- -------------
Page: 17
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
The related futures contracts of the outstanding option transactions as of
April 30, 1995, and the descriptions and market values are as follows:
<CAPTION>
Expiration
Month/
Exercise Market Value
Contracts Price of Option
<S> <C> <C> <C>
U.S. Treasury Bond Futures
June 1995-Purchased Puts .... 100 Jun/102 $ 4,688
June 1995-Purchased Calls ... 200 Jun/102 90,626
June 1995-Written Calls ..... 200 Jun/108 (9,376)
--------- ------------
500 $ 85,938
--------- ------------
B.Futures Contracts-A futures contract is an agreement involving the delivery of
a particular asset on a specified future date at an agreed upon price. The Trust
generally invests in futures on U.S. Treasury Bonds and the Municipal Bond Index
and typically closes the contract prior to the delivery date. These contracts
are generally used to manage the portfolio's effective maturity and duration.
The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.
Transactions in futures contracts for the six months ended April 30, 1995,
were as follows:
<CAPTION>
Contracts
<S> <C>
Outstanding at October 31, 1994 ... 1,140
Futures Opened .................... 2,830
Futures Closed .................... (3,580)
--------
Outstanding at April 30, 1995 ..... 390
--------
The futures contracts outstanding as of April 30, 1995, and the description and
unrealized depreciation are as follows:
<CAPTION>
<S> <C> <C>
Unrealized
Contracts Depreciation
U.S. Treasury Bond Futures
June 1995-Sells to Open ... 390 $ 305,335
--------- ------------
Page: 18
Notes to Financial Statements (Continued)
April 30,1995 (Unaudited)
- --------------------------------------------------------------------------------
5. Preferred Shares
The Trust has outstanding 250 Remarketed Preferred Shares ("RP"). Dividends are
cumulative and the dividend rate is currently reset every 28 days through a
remarketing process. The rate in effect on April 30, 1995 was 4.180%. During the
six months ended April 30, 1995, the rates ranged from 3.375% to 4.250%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
shares. These fees are included as a component of Preferred Share Maintenance
expense.
The RP are redeemable at the option of the Trust in whole or in part at the
liquidation value of $100,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the RP are subject to
mandatory redemption if the tests are not met.
Page: 19
Funds Distributed by Van Kampen American Capital
GLOBAL AND INTERNATIONAL
Govett Emerging Markets Fund
AC Global Equity Fund
Govett Global Government Income Fund
AC Global Government Securities
AC Global Managed Assets Fund
Govett International Equity Fund
Govett Latin America Fund
Govett Pacific Strategy Fund
VKM Short-Term Global Income Fund
VKM Strategic Income Fund
EQUITY
Growth
AC Emerging Growth Fund
AC Enterprise Fund
AC Pace Fund
Govett Smaller Companies Fund
Growth & Income
VKM Balanced Fund
AC Comstock Fund
AC Equity Income Fund
AC Growth and Income Fund
VKM Growth and Income Fund
AC Harbor Fund
AC Real Estate Securities Fund
VKM Utility Fund
AC Utilities Income Fund
FIXED INCOME
VKM Adjustable Rate U.S. Government Fund
AC Corporate Bond Fund
AC Federal Mortgage Trust
AC Government Securities
VKM High Yield Fund
AC High Yield Investments
VKM Money Market Fund
VKM Prime Rate Income Trust
AC Reserve Fund
VKM U.S. Government Fund
AC U.S. Government Trust for Income
TAX-FREE
VKM California Insured Tax Free Fund
VKM Florida Insured Tax Free Income Fund
VKM Insured Tax Free Income Fund
VKM Limited Term Municipal Income Fund
AC Municipal Bond Fund
VKM Municipal Income Fund
VKM New Jersey Tax Free Income Fund
VKM New York Tax Free Income Fund
VKM Pennsylvania Tax Free Income Fund
AC Tax-Exempt Trust
-- High Yield Municipal Portfolio
-- Insured Municipal Portfolio
VKM Tax Free High Income Fund
VKM Tax Free Money Fund
AC Texas Municipal Securities
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
Page: 20
Van Kampen Merritt Investment Grade Municipal 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.
</TABLE>
