<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
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
Report of Independent Accountants................ 19
Dividend Reinvestment Plan....................... 20
</TABLE>
VIG ANR 12/96
<PAGE> 2
LETTER TO SHAREHOLDERS
December 10, 1996
Dear Shareholder,
The first ten months of 1996 have
been a mixed experience for most
municipal bond fund investors. The
continuation of the 1995 rally at the
beginning of this year was thwarted
early on as the economy gained [PHOTO]
momentum, causing the bond market to
sell off. But by the second half of the
year, the pattern reversed. Growth DENNIS J. MCDONNELL AND DON G. POWELL
slowed and bonds recovered much of
their earlier losses.
This kind of volatility is not
unusual, but it is difficult to predict and serves as a reminder to investors to
maintain their long-term outlook. Bailing out during price declines and
re-entering after market rebounds is often a losing strategy. We believe it is
time in the market, not timing the market, that potentially maximizes long-term
investment gains.
Additionally, we believe our recent acquisition by Morgan Stanley Group Inc.
will further help investors achieve their long-term goals. Morgan Stanley's
strong global presence and commitment to superior investment performance
complement our broad range of investment products, money management
capabilities, and high level of service that we currently offer.
ECONOMIC OVERVIEW
The economy has grown at a moderate pace this year, despite the second
quarter's 4.7 percent surge. By the third quarter, growth slowed to 2.0 percent,
near the level that prevailed early in the year. This moderation of economic
activity, coupled with continued low inflation, eased fears of an interest rate
hike by the Federal Reserve Board--fears that had dominated the market in early
summer and pushed long-term bond yields above 7.0 percent.
Once the market realized that the economy's pace had slowed, bond prices
rose from their 1996 lows and yields fell as they moved in the opposite
direction of bond prices. By the end of October, the 30-year Treasury bond yield
was near 6.5 percent.
During this recovery, municipal bonds rebounded even more than Treasuries,
due to a steady demand that outpaced supply. It is expected that on a nationwide
basis there will be little or no increase in the total number of municipal bonds
outstanding this year. The volume of new issues is expected to almost equal the
volume of bonds that were redeemed or called.
Continued on page two
1
<PAGE> 3
[PIE CHART]
PORTFOLIO COMPOSITION BY CREDIT QUALITY AS OF OCTOBER 31, 1996
<TABLE>
<S> <C>
NON-RATED 11.0%
BB 8.5%
BBB 24.5%
A 8.2%
AA 2.9%
AAA 44.9%
</TABLE>
BASED UPON CREDIT QUALITY RATINGS ISSUED BY STANDARD & POOR'S. FOR SECURITIES
NOT RATED BY STANDARD & POOR'S, THE MOODY'S RATING IS USED.
PERFORMANCE SUMMARY
Many closed-end municipal bond funds, such as this one, are currently
offering higher after-tax yields than taxable income alternatives. The Trust
generated a tax-exempt distribution of 7.09 percent(3), based on the closing
stock price of $11.00 per common share as of October 31, 1996. For shareholders
in the federal income tax bracket of 36 percent, this distribution rate is
equivalent to a yield of 11.08 percent(4) on a taxable investment.
The Trust's one-year total return was 11.02 percent(1), including
reinvestment of all dividends, reflecting a 3.5 percent increase in market price
for the period ended October 31, 1996.
Top Five Portfolio Holdings by Industry as of October
31, 1996
Health Care....................... 25.4%
Single-Family Housing............. 14.4%
Industrial Revenue................. 9.0%
Other Care......................... 7.1%
Public Building.................... 7.0%
ECONOMIC OUTLOOK
We believe Fed policy will remain unchanged through the end of the year. We
look for the long Treasury bond to trade within a range of 6.25 and 6.75 percent
and the 5-year Treasury to trade between 5.75 percent and 6.25 percent for the
remainder of 1996. After that, interest rates could rise moderately if the
economy rebounds to a 3.0 percent annual growth rate and inflation edges higher.
Based upon this view of moderate growth and slightly higher inflation, we
believe the outlook for fixed-income markets remains positive.
Relatively stable interest rates early next year would be favorable for the
leveraged structure of our closed-end funds, which involves borrowing short-term
funds to purchase long-term municipal securities. Depending on the difference
between long-term and short-term market rates, this structure provides
opportunities for additional earnings over time.
Continued on page three
2
<PAGE> 4
The leveraged capital structure of the Trust continues to provide common
shareholders with above-market levels of dividend income. It should be noted,
however, that the rise in short-term rates would have an unfavorable effect on
common share performance.
The bond market should find continued support from the results of the recent
national elections. With a Democratic president and a Republican Congress, there
should be checks on potential spending increases and tax cuts so the budget
deficit does not balloon out of control. This split government should also help
minimize chances of major tax reform, which would likely affect investment
markets, including municipal bonds.
The stock market is another factor that could influence the performance of
the bond market in the coming year. If stocks suffer a protracted setback, the
demand for bonds, including municipals, could increase.
We will closely monitor any new developments in Washington and in the
financial markets in order to evaluate their potential impact on the Trust. We
believe that in the coming year, the municipal market will continue to be an
attractive investment choice for investors seeking high current income. Thank
you for your continued confidence in your investment with Van Kampen American
Capital and for the privilege of working with you to help you achieve your
financial goals.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1996
VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
(NYSE TICKER SYMBOL--VIG)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)............ 11.02%
One-year total return based on NAV(2)..................... 4.83%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................ 7.09%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 11.08%
SHARE VALUATIONS
Net asset value........................................... $ 10.47
Closing common stock price................................ $11.000
One-year high common stock price (02/01/96)............... $12.000
One-year low common stock price (06/10/96)................ $10.250
Preferred share rate(5)................................... 3.42%
</TABLE>
(1)Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions for
the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common stock price at the end of the period
indicated.
(2)Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(3)Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(4)The taxable-equivalent distribution rate is calculated assuming a 36% federal
income tax bracket.
(5)See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS
ARKANSAS 1.7%
$ 1,000 Dogwood Addition PRD Muni Ppty Owners Multi-Purp
Impt Dist No 8 AR Impt Ser A.................... 7.500% 01/31/06 $ 960,000
1,000 Dogwood Addition PRD Muni Ppty Owners Multi-Purp
Impt Dist No 8 AR Impt Ser B.................... 7.500 01/31/06 300,000
-----------
1,260,000
-----------
CALIFORNIA 4.6%
2,000 California St Pub Wks Lease CA St Univ Proj Ser
A Rfdg (AMBAC Insd)............................. 5.375 10/01/17 1,948,460
4,490 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(MBIA Insd)..................................... * 09/01/17 1,297,071
225 Foothill/Eastern Tran Corridor Agy CA Toll Rd
Rev............................................. * 01/01/13 141,170
650 Foothill/Eastern Tran Corridor Agy CA Toll Rd
Rev Sr Lien Ser A............................... * 01/01/28 89,336
-----------
3,476,037
-----------
COLORADO 10.1%
10,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C................................ * 08/31/26 1,176,600
2,800 Denver, CO City & Cnty Arpt Rev Ser A........... 8.500 11/15/23 3,209,612
220 Jefferson Cnty, CO Residential Mtg Rev.......... 11.500 09/01/11 356,514
100 Jefferson Cnty, CO Residential Mtg Rev.......... 9.000 09/01/12 138,440
145 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/03)........................ 11.500 09/01/11 201,988
160 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/04)........................ 11.500 09/01/11 229,221
180 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/05)........................ 11.500 09/01/11 264,247
205 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/06)........................ 11.500 09/01/11 307,588
235 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/07)........................ 11.500 09/01/11 359,094
265 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/08)........................ 11.500 09/01/11 411,280
300 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/09)........................ 11.500 09/01/11 472,491
340 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/10)........................ 11.500 09/01/11 543,640
-----------
7,670,715
-----------
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA 7.7%
$ 9,805 Dade Cnty, FL Spl Oblig Cap Apprec Bond Ser B
Rfdg (AMBAC Insd)............................... * 10/01/25 $ 1,638,121
2,000 Florida Hsg Fin Agy Hsg Bradley Park Apts
Proj (d)........................................ 9.750% 12/01/19 407,800
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp Orlando
Genl Hosp Ser A (Prerefunded @ 06/01/99)........ 8.750 06/01/16 1,121,270
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp Orlando
Genl Hosp Ser B (Prerefunded @ 06/01/99)........ 8.750 06/01/16 1,121,270
2,300 Sun N Lake of Sebring, FL Impt Dist Spl Assmt
Ser A (d)....................................... 10.000 12/15/11 1,581,243
-----------
5,869,704
-----------
ILLINOIS 22.9%
1,000 Alton, IL Hlth Fac Rev & Impt Christian Hlth Ser
C Rfdg (Prerefunded @ 02/15/01) (FGIC Insd)..... 7.200 02/15/21 1,119,220
2,500 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent
Proj (Prerefunded @ 09/01/99)................... 8.375 09/01/14 2,780,050
6,515 Aurora, IL Single Family Mtg Rev Cap Apprec
(AMBAC Insd).................................... * 12/01/22 843,627
2,700 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Ser B................................. 8.950 05/01/18 3,081,429
1,500 Chicago, IL Single Family Mtg (GNMA
Collateralized)................................. 7.625 09/01/27 1,668,120
510 Cook Cnty, IL Sch Dist No 107 La Grange......... 7.150 12/01/08 591,192
575 Cook Cnty, IL Sch Dist No 107 La Grange......... 7.200 12/01/09 668,466
625 Cook Cnty, IL Sch Dist No 107 La Grange......... 7.000 12/01/10 716,025
500 Hodgkins, IL Tax Increment Rev Ser A Rfdg....... 7.625 12/01/13 512,730
920 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser
D............................................... 9.500 11/15/15 1,049,784
745 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser
D (Prerefunded @ 11/15/00)...................... 9.500 11/15/15 893,598
500 Illinois Hlth Fac Auth Rev Lutheran Social Svcs
Proj Ser A (Prerefunded @ 08/01/00)............. 7.650 08/01/20 558,980
1,910 Illinois Hsg Dev Auth Residential Mtg Rev Ser
B............................................... 7.250 08/01/17 2,021,143
250 Lake Cnty, IL Cmnty Unit........................ 7.600 02/01/14 293,123
500 Robbins, IL Res Recovery Rev.................... 8.375 10/15/16 512,500
-----------
17,309,987
-----------
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 2,188,380
-----------
LOUISIANA 2.3%
1,500 Ouachita Parish, LA Hosp Svcs Dist No 1 Rev
Glenwood Regl Med Cent (Prerefunded @
07/01/01)....................................... 7.500 07/01/21 1,712,100
-----------
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARYLAND 4.5%
$ 2,800 Baltimore, MD Cap Apprec Cons Pub Impt Ser (FGIC
Insd)........................................... * 10/15/08 $ 1,498,924
1,845 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Single Family Ser 4 (FHA Gtd)................... 7.450% 04/01/32 1,937,601
-----------
3,436,525
-----------
MASSACHUSETTS 0.5%
395 Massachusetts St Hsg Fin Agy Multi-Family
Residential Dev Ser A (FNMA Collateralized)..... 8.150 02/01/29 420,497
-----------
MICHIGAN 1.3%
835 Michigan St Hosp Fin Auth Rev Battle Creek Hosp
Ser H........................................... 9.500 11/15/15 994,702
-----------
MONTANA 4.3%
2,900 Forsyth, MT Pollutn Ctl Rev Puget Sound Pwr & Lt
Ser B Rfdg (AMBAC Insd) (c)..................... 7.250 08/01/21 3,226,888
-----------
NEVADA 2.1%
1,500 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser A
(FGIC Insd)..................................... 6.700 06/01/22 1,602,735
-----------
NEW HAMPSHIRE 4.2%
2,500 New Hampshire Higher Edl & Hlth Fac Auth Rev
Hosp Catholic Med Cent Rfdg..................... 8.250 07/01/13 2,683,450
500 New Hampshire St Indl Dev Auth Rev Pollutn Ctl
Pub Svcs Co NH Proj C........................... 7.650 05/01/21 513,835
-----------
3,197,285
-----------
NEW JERSEY 1.0%
700 New Jersey Hlth Care Fac Fin Auth Rev Palisades
Med Cent........................................ 7.500 07/01/06 725,214
-----------
NEW YORK 8.5%
1,260 New York City Muni Wtr Fin Auth Ser A
(Prerefunded @ 06/15/01) (AMBAC Insd)........... 6.750 06/15/06 1,390,901
1,240 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev (AMBAC Insd)................................ 6.750 06/15/06 1,337,551
1,000 New York St Med Care Fac Fin Agy Rev
Presbyterian Hosp Ser A Rfdg (MBIA Insd)........ 5.375 02/15/25 952,500
2,000 New York St Urban Dev Corp Rev Correctional Fac
Ser A Rfdg (AMBAC Insd)......................... 5.000 01/01/17 1,854,780
1,000 Niagara Falls, NY Brdg Comm Toll Rev Ser B Rfdg
(FGIC Insd)..................................... 5.250 10/01/21 937,310
-----------
6,473,042
-----------
NORTH CAROLINA 2.5%
2,000 Charlotte, NC Ctfs Partn Convention Fac Proj Ser
C Rfdg (AMBAC Insd)............................. 5.250 12/01/20 1,896,580
-----------
OHIO 0.7%
500 Ohio St Solid Waste Rev Rep Engineered Steels
Proj............................................ 8.250 10/01/14 512,235
-----------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA 3.3%
$1,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Collateral Toledo Edison Co Proj Rfdg........... 7.625% 05/01/20 $ 1,073,630
500 Pennsylvania Econ Dev Fin Auth Recycling Rev
Ponderosa Fibres Proj Ser A..................... 9.250 01/01/22 468,190
1,000 Ridley Park, PA Hosp Auth Rev Ser 1993A......... 6.000 12/01/13 959,740
-----------
2,501,560
-----------
TENNESSEE 3.1%
2,170 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev Open
Arms Dev Cent Ser E............................. 9.750 08/01/19 2,335,137
-----------
TEXAS 6.3%
1,000 Alliance Arpt Auth Inc TX Spl Fac Rev American
Airls Inc ...................................... 7.000 12/01/11 1,100,050
2,580 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation Rfdg (Cap Guar Insd)................ 5.500 09/01/13 2,553,271
1,000 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics........ 8.200 03/15/21 1,119,970
-----------
4,773,291
-----------
UTAH 3.9%
3,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg (MBIA Insd) (b)............................ 5.750 07/01/19 2,930,340
-----------
WISCONSIN 1.5%
965 Wisconsin St Hlth & Edl Fac Auth Rev Chippewa
Vly Hosp Ser F Rfdg............................. 9.500 11/15/12 1,110,339
-----------
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 1,045,520
-----------
TOTAL LONG-TERM INVESTMENTS 101.3%
(Cost $74,636,548) (a)..................................................... 76,668,813
LIABILITIES IN EXCESS OF OTHER ASSETS (1.3%)................................ (986,216)
-----------
NET ASSETS 100.0%........................................................... $75,682,597
===========
*Zero coupon bond
</TABLE>
(a) At October 31, 1996, for federal income tax purposes cost is $74,728,451;
the aggregate gross unrealized appreciation is $5,665,900 and the aggregate
gross unrealized depreciation is $3,725,538, resulting in net unrealized
appreciation of $1,940,362.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(d) Non-Income producing security.
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $74,636,548) (Note 1)................. $76,668,813
Cash..................................................................... 450,421
Receivables:
Interest............................................................... 1,901,375
Securities Sold........................................................ 70,000
Other.................................................................... 8,301
-----------
Total Assets....................................................... 79,098,910
-----------
LIABILITIES:
Payables:
Securities Purchased................................................... 2,850,000
Income Distributions--Common and Preferred Shares...................... 368,413
Investment Advisory Fee (Note 2)....................................... 38,559
Affiliates (Note 2).................................................... 5,315
Accrued Expenses......................................................... 101,973
Deferred Compensation and Retirement Plans (Note 2)...................... 52,053
-----------
Total Liabilities.................................................. 3,416,313
-----------
NET ASSETS............................................................... $75,682,597
===========
NET ASSETS CONSIST OF:
Preferred Shares ($.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 Securities................................ 2,032,265
Accumulated Distributions in Excess of Net Investment Income (Note 1).... (1,253,946)
Accumulated Net Realized Loss on Securities.............................. (2,844,131)
-----------
Net Assets Applicable to Common Shares............................. 50,682,597
-----------
NET ASSETS............................................................... $75,682,597
===========
NET ASSET VALUE PER COMMON SHARE ($50,682,597 divided
by 4,839,000 shares outstanding)....................................... $ 10.47
===========
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................. $ 5,039,415
-----------
EXPENSES:
Investment Advisory Fee (Note 2)......................................... 458,065
Preferred Share Maintenance (Note 5)..................................... 82,208
Audit.................................................................... 44,286
Custody.................................................................. 43,699
Shareholder Services (Note 2)............................................ 40,184
Trustees Fees and Expenses (Note 2)...................................... 23,834
Legal (Note 2)........................................................... 14,640
Other.................................................................... 66,774
-----------
Total Expenses....................................................... 773,690
-----------
NET INVESTMENT INCOME.................................................... $ 4,265,725
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments (Including reorganization and restructuring costs of
$96,640)............................................................. $ 1,293,786
Options................................................................ (208,143)
Futures................................................................ (503,714)
-----------
Net Realized Gain on Securities.......................................... 581,929
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period................................................ 3,555,116
End of the Period:
Investments.......................................................... 2,032,265
-----------
Net Unrealized Depreciation on Securities During the Period.............. (1,522,851)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES........................... $ (940,922)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS............................... $ 3,324,803
===========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended October 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 4,265,725 $ 4,244,004
Net Realized Gain/Loss on Securities............... 581,929 (1,891,568)
Net Unrealized Appreciation/Depreciation
on Securities During the Period.................. (1,522,851) 3,856,765
----------- -----------
Change in Net Assets from Operations............... 3,324,803 6,209,201
----------- -----------
Distributions from Net Investment Income:
Common Shares.................................... (3,360,123) (3,256,358)
Preferred Shares................................. (905,602) (987,646)
----------- -----------
(4,265,725) (4,244,004)
Distributions in Excess of Net Investment
Income--Common Shares (Note 1)................... (413,869) (735,484)
----------- -----------
Total Distributions................................ (4,679,594) (4,979,488)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... (1,354,791) 1,229,713
NET ASSETS:
Beginning of the Period............................ 77,037,388 75,807,675
----------- -----------
End of the Period (Including undistributed net
investment income of $(1,253,946) and $(840,077),
respectively).................................... $75,682,597 $77,037,388
=========== ===========
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of the Period (a)............... $10.754 $10.500 $12.094
------- ------- -------
Net Investment Income..................... .882 .877 .958
Net Realized and Unrealized Gain/Loss on
Securities.............................. (.195) .406 (1.480)
------- ------- -------
Total from Investment Operations............ .687 1.283 (.522)
------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income (Note 1):
Paid to Common Shareholders............. .780 .825 .930
Common Share Equivalent of Distributions
Paid to Preferred Shareholders........ .187 .204 .142
------- ------- -------
Total Distributions......................... .967 1.029 1.072
------- ------- -------
Net Asset Value,
End of the Period......................... $10.474 $10.754 $10.500
======= ======= =======
Market Price Per Share at End of
the Period................................ $11.000 $10.625 $11.125
Total Investment Return at
Market Price (b).......................... 11.02% 2.88% (13.59%)
Total Return at Net Asset Value (c)......... 4.83% 10.59% (5.77%)
Net Assets at End of the Period
(In millions)............................. $75.7 $77.0 $75.8
Ratio of Expenses to Average Net Assets
Applicable to Common Shares............... 1.51% 1.52% 1.47%
Ratio of Expenses to Average Net Assets..... 1.01% 1.02% 1.01%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(d)....................................... 6.55% 6.31% 7.20%
Portfolio Turnover.......................... 39% 50% 30%
</TABLE>
(a) Net asset value at November 30, 1989, is adjusted for common and preferred
share offering costs of $.259 per common share.
(b) Total investment return at market price reflects the change in market value
of the common shares for the period indicated with reinvestment of
dividends in accordance with the Trust's dividend reinvestment plan.
(c) Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based on NAV.
(d) Net investment income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
N/A=Not Applicable
* Non-Annualized
12
<PAGE> 14
- -------------------------------------------------------
<TABLE>
<CAPTION>
November 30, 1989
(Commencement
Year Ended October 31 of Investment
- --------------------------------- Operations) to
1993 1992 1991 October 31, 1990
- -------------------------------------------------------
<S> <C> <C> <C>
$11.151 $11.502 $10.832 $ 10.901
------- ------- ------- -------
1.090 1.090 1.153 1.001
.917 (.348) .647 (.115)
------- ------- ------- -------
2.007 .742 1.800 .886
------- ------- ------- -------
.930 .925 .886 .725
.134 .168 .244 .230
------- ------- ------- -------
1.064 1.093 1.130 .955
------- ------- ------- -------
$12.094 $11.151 $11.502 $ 10.832
======= ======= ======= =======
$13.875 $11.750 $12.250 $ 10.500
26.46% 3.10% 25.65% .21%*
17.40% 5.04% 14.87% 3.70%*
$83.5 $79.0 $80.7 $77.4
1.35% 1.52% 1.53% 1.41%
.94% 1.05% 1.05% N/A
8.14% 8.01% 8.12% 7.75%
7% 21% 52% 134%*
</TABLE>
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital 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's investment objective is
to provide a high level of current income exempt from federal income tax,
consistent with preservation of capital. The Trust will normally invest at least
80% of its total assets in tax-exempt municipal securities rated investment
grade at the time of investment. 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. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations,
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 October 31,
1996, approximately 7.1% of the Trust's net assets consisted of such securities.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
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.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
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.
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, 1996, the Trust had an accumulated capital loss
carryforward of $2,752,228, which will expire between October 31, 1998 and
October 31, 2003. 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.
E. 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.
For the year ended October 31, 1996, 99.9% of the income distributions made
by the Trust were exempt from federal income taxes. In January, 1997, the Trust
will provide tax information to shareholders for the 1996 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, 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 year ended October 31, 1996, the Trust recognized expenses of
approximately $26,300 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
legal and certain shareholder services to the Trust.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $32,504,676 and $28,651,137,
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 securities. 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.
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
Transactions in options for the year ended October 31, 1996, were as
follows:
<TABLE>
<CAPTION>
Contracts Premium
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1995.................. 50 $ 39,441
Options Written and Purchased (Net).............. 600 (318,768)
Options Terminated in Closing Transactions
(Net).......................................... (170) 45,240
Options Expired (Net)............................ (430) 197,004
Options Exercised (Net).......................... (50) 37,083
------ ---------
Outstanding at October 31, 1996.................. -0- $ -0-
------ ---------
</TABLE>
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 year ended October 31, 1996, were
as follows:
<TABLE>
<CAPTION>
Contracts
- ---------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1995........................... 150
Futures Opened............................................ 275
Futures Closed............................................ (425)
------
Outstanding at October 31, 1996........................... -0-
------
</TABLE>
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
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 October 31, 1996 was 3.42%. During
the year ended October 31, 1996, the rates ranged from 3.420% to 3.905%.
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.
18
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Investment Grade Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Investment Grade Municipal Trust (the "Trust"),
including the portfolio of investments, as of October 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996, by correspondence with the custodian 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 American Capital Investment Grade Municipal Trust as of October 31, 1996,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 11, 1996
19
<PAGE> 21
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") for Common
Shareholders pursuant to which Common Shareholders who are participants in the
Plan may have all distributions of dividends and capital gains distributions
automatically reinvested in Common Shares of the Trust. All Common Shareholders
are deemed to be participants in the Plan unless they specifically elect not to
participate. Common Shareholders who elect not to participate in the Plan will
receive all distributions of dividends and capital gains in cash paid by check
mailed directly to the Common Shareholder by the Trust's dividend disbursing
agent.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for the
Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, 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.
COST 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
All Common Shareholders of the Trust are deemed to be participants in the Plan
unless they specifically elect not to participate. You may withdraw from the
Plan at any time by calling 1-800-341-2929 or by writing State Street Bank and
Trust Company, P.O. Box 8200, Boston, MA 02266-8200. If you withdraw, you will
receive, without charge, a share certificate issued in your name for all full
Common Shares credited to your account under the Plan and a cash payment will be
made for any fractional Common Share credited to your account under the Plan.
You may again elect to participate in the Plan at any time by calling
1-800-341-2929 or writing to the Trust at:
Van Kampen American Capital
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
20
<PAGE> 22
VAN KAMPEN AMERICAN CAPITAL INVESTMENT GRADE MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT 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., 1996 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
RESULTS OF SHAREHOLDER VOTES
An Annual Meeting of Shareholders of the Trust was held on May 23, 1996, where
shareholders voted on the election of trustees and the selection of independent
public accountants. With regard to the election of Don G. Powell as elected
trustee by the common shareholders of the Trust, 3,081,962 shares voted in his
favor, 55,781 withheld. With regard to the election of Hugo F. Sonnenschein as
elected trustee by the common shareholders of the Trust, 3,081,930 shares voted
in his favor, 55,812 withheld. With regard to the election of Theodore A. Myers
as elected trustee by the preferred shareholders of the Trust, 197 shares voted
in his favor, 0 withheld. With regard to the ratification of KPMG Peat Marwick
LLP as independent public accountants for the Trust, 3,090,823 voted in favor,
10,699 voted against and 36,418 abstained.
A Special Meeting of Shareholders of the Trust was held on October 23, 1996,
where shareholders voted on a new investment advisory agreement and changes to
investment policies. With regard to the approval of a new investment advisory
agreement between Van Kampen American Capital Investment Advisory Corp. and the
Trust, 3,818,699 shares voted for the proposal, 92,752 voted against and 153,550
abstained. With regard to the approval of certain changes to the Trust's
fundamental investment policies with respect to investment in other investment
companies, 2,231,419 shares voted for the proposal, 166,805 voted against and
182,420 abstained.
21
