<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
A Farewell from the Chairman..................... 6
Glossary of Terms................................ 7
Performance Results.............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 15
Statement of Operations.......................... 16
Statement of Changes in Net Assets............... 17
Financial Highlights............................. 18
Notes to Financial Statements.................... 20
Report of Independent Accountants................ 25
Dividend Reinvestment Plan....................... 26
</TABLE>
VIG ANR 12/98
<PAGE> 2
LETTER TO SHAREHOLDERS
November 20, 1998
Dear Shareholder,
The past decade has been a
remarkable time for investors.
Together, we've witnessed one of the [PHOTO]
greatest bull markets in investment
history, unprecedented growth in mutual
fund investing, and a surge in personal
retirement planning. The coming DENNIS J. MCDONNELL AND DON G. POWELL
millennium promises to hold even more
challenges and opportunities.
To lead us into this new era of
investing, we are proud to announce
that Richard F. Powers III has joined
Van Kampen as President and Chief Executive Officer, and will assume the
additional role of Chairman of Van Kampen in 1999. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. Dick Powers brings 27 years of
experience in the financial services industry, including vast expertise in
product management, strategic planning and brand development. While at Morgan
Stanley Dean Witter, he developed many of the firm's core products and services.
You'll hear more from Dick Powers in the coming months as he becomes
increasingly involved in matters related to your Trust and joins Dennis
McDonnell in addressing shareholders in future reports. (See Don Powell's
farewell to shareholders on page 6.)
ECONOMIC OVERVIEW
After two years of solid gains, the U.S. economy began to lose some of its
luster during the reporting period. No longer immune to the global economic
turmoil, the economy retreated from a 5.5 percent annual growth rate in the
first quarter to a tepid 1.8 percent in the second quarter (as measured by gross
domestic product). By the third quarter, however, growth rebounded to a 3.3
percent annual rate.
A strong dollar was largely responsible for moderating economic growth. As
the Asian financial crisis worsened and spread to other regions, foreign
investors amassed dollar-denominated U.S. Treasury bonds. These purchases sent
the dollar sharply higher, which increased the price of U.S. exports and slashed
the price of imports--resulting in reduced demand for U.S. goods and services
abroad. In light of the reduced demand and global economic problems, corporate
earnings fell, business investment declined, and stock prices plummeted. By the
end of August, the Dow Jones Industrial Average was down 19 percent from its
record high, set in mid-July. Although the stock market has since recovered much
of its losses, consumer confidence has declined and growth in consumer spending
has slowed.
Concerns about further economic deterioration, weakness in the stock market,
and a potential credit crunch prompted the Federal Reserve Board to cut
short-term interest rates
Continued on page 2
1
<PAGE> 3
0.25 percent in late September. It was the first rate cut in almost three years
and was followed by additional cuts of 0.25 percent in October and November.
Despite these rate cuts, the Fed took care to note that inflation was well
contained.
MARKET OVERVIEW
The volatility in overseas markets and U.S. stocks was a boon to bonds.
Foreign investors bought U.S. Treasury bonds in an attempt to escape the global
turmoil, while domestic investors purchased them to avoid further losses in U.S.
stocks. Because these purchases occurred at a time when the supply of new
Treasury issues was declining, Treasury bond prices soared.
The Fed rate cuts propelled bond prices even higher. Following the Fed's
first rate cut, the yield on the 30-year Treasury bond, which moves in the
opposite direction of its price, dropped to a record low of 4.72 percent on
October 5. However, subsequent sales of Treasuries by Asian and institutional
investors dampened the rally. As of October 31, the 30-year Treasury bond had a
5.15 percent yield, down 1 percent from a year ago.
Municipal bond prices followed Treasuries higher, but, as usual, they didn't
gain nearly as much in price. The yield on a typical AAA-rated general
obligation municipal bond fell only 32 basis points to 4.80 percent as of
October 31, from 5.12 percent a year earlier. Earlier in October, municipal bond
yields topped comparable Treasury bond yields, which is a rare event. Municipal
bonds generally yield less than Treasury securities because their interest
payments are exempt from federal and sometimes state and local income taxes.
During the past year, municipal bonds were burdened by an excess of supply
relative to demand. State and local governments, taking advantage of the
market's low interest rates, issued $230.9 billion worth of long-term bonds
during the first 10 months of the year--34 percent more than they had issued
during the same period last year. Approximately 44 percent of the new issues
were refinancings of older, higher-yielding bonds. However, new issuance slowed
recently as the number of bonds eligible for refinancing shrank.
Despite an abundant supply, many investors were reluctant to purchase
municipal bonds because of their generally low yields. Compounding the situation
was the abundance of insured issues, which accounted for almost 60 percent of
the new supply. The dominance of insured bonds reduced the supply of
lower-rated, higher-yielding bonds and narrowed the yield spread between higher-
and lower-rated bonds. (The insurance relates to the timely payment of principal
and interest, when due, on the bonds. The insurance does not protect the bonds
from market risk.)
Continued on page 3
2
<PAGE> 4
[CREDIT QUALITY PIE CHART]
Portfolio Composition By Credit Quality*
As Of October 31, 1998
<TABLE>
<S> <C>
AAA.............. 42.4%
AA............... 10.9%
A................ 15.5%
BBB.............. 16.2$
BB............... 3.5%
Non-Rated........ 11.5%
</TABLE>
*As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as issued by
Standard & Poor's or Moody's
TRUST STRATEGY
We used the following strategies to manage the Trust during the period:
We maintained a portfolio that emphasized higher-quality bonds but also
included lower-rated investment grade securities to provide additional yield.
However, we increased the percentage of bonds rated A and higher because they
tend to perform better during periods of falling interest rates, such as the
current reporting period, and we reduced the percentage of BBB-rated securities.
The portion of bonds rated below investment grade remained unchanged but well
below the 20 percent maximum that the Trust can hold.
We replaced bonds that had been called away by their issuers, as well as
bonds that had been prerefunded and would be called from the portfolio between
the years 1999 and 2001. We purchased long-term discount bonds and par bonds to
enhance the call protection of the Trust and support its dividend. They included
one noncallable issue, as well as several deep discount zero-coupon bonds.
Discount bonds tend to appreciate faster than par or premium bonds when interest
rates are declining.
These bonds helped offset the declining duration of the portfolio that
occurred as low interest rates caused some of our higher-coupon holdings to be
prerefunded or priced to call dates. As of October 31, the duration of the
Trust, which measures its sensitivity to changing interest rates, stood at 6.83
years, compared with 7.72 years for the Lehman Brothers Municipal Bond Index
(excluding bonds maturing in five years or less). We expect more bonds will face
potential calls in the coming years as long as interest rates remain near
current levels. However, we have not replaced those bonds at this time because
their yields far exceed current market yields. We will continue to seek
opportunities to address the portfolio's call risk going forward.
Continued on page 4
3
<PAGE> 5
Top Five Portfolio Sectors as of October 31, 1998*
Health Care....................... 18.9%
Industrial Revenue................ 15.5%
Single-Family Housing............. 14.9%
Retail Electric/Gas/Telephone..... 10.2%
Public Education.................. 7.5%
*As a Percentage of Long-Term
Investments
PERFORMANCE SUMMARY
For the one-year period ended October 31, 1998, the Trust generated a total
return of 7.63 percent.(1) This reflects a gain in market price per common share
from $10.9375 on October 31, 1997, to $11.0625 on October 31, 1998, plus
reinvestment of all dividends. The Trust had a tax-exempt distribution rate of
6.18 percent,(3) based on the closing price of its common shares. Because income
from the Trust is exempt from federal income taxes, this distribution rate is
equivalent to a yield of 9.66 percent(4) on a taxable investment for investors
in the 36 percent federal income tax bracket. Please refer to the chart on page
9 for additional performance numbers.
[DIVIDEND HISTORY GRAPH]
Twelve-Month Dividend History
For The Period Ended October 31, 1998
<TABLE>
<CAPTION> Distribution Per Common Share
Dividend
<S> <C>
Nov 1997..................................... $ .0570
Dec 1997..................................... $ .0570
Jan 1998..................................... $ .0570
Feb 1998..................................... $ .0570
Mar 1998..................................... $ .0570
Apr 1998..................................... $ .0570
May 1998..................................... $ .0570
Jun 1998..................................... $ .0570
Jul 1998..................................... $ .0570
Aug 1998..................................... $ .0570
Sep 1998..................................... $ .0570
Oct 1998..................................... $ .0570
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
ECONOMIC OUTLOOK
We believe the economy will continue to grow at a moderate rate for the
remainder of the year, supported by low interest rates. The housing industry has
already benefited from the sharp decline in interest rates, and other sectors
could follow if consumer and business spending picks up.
Looking ahead into next year, we see the potential for stronger economic
growth as long as domestic interest rates remain low and the global financial
crisis stabilizes. We
Continued on page 5
4
<PAGE> 6
believe the current low inflationary environment in the United States paves the
way for further Fed rate cuts if the economy resumes its slowdown.
Overseas, we see some promising signs of recovery, including Japan's new
bank reform package, which includes a willingness to let problem banks fail, and
approval of an International Monetary Fund rescue package for Brazil.
We will closely monitor these global and domestic events and their effects
on the performance of the Trust, adjusting the portfolio when appropriate. We
remain committed to the goal of providing a high level of tax-exempt income
while preserving shareholders' capital. Thank you for your continued support and
confidence in Van Kampen and the management of your Trust.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
Please see footnotes on page 9
5
<PAGE> 7
A FAREWELL FROM THE CHAIRMAN
------------------- - ---------------------
Dear Shareholder,
Since I became president and chief executive officer in 1987, much has
changed in our business. However, one thing has remained constant through these
years--my commitment to you, the trust shareholder. Through the many events at
Van Kampen that have marked the passage of time--including several mergers,
company name changes, and leadership changes--we have always focused on
providing superior investments and the highest level of customer service to help
you meet your investment objectives. I'm proud to say that during my tenure, Van
Kampen won eight consecutive awards for high-quality customer service--more
consecutive service awards than any other firm in the financial services
industry.(1) My successor, Dick Powers, shares this commitment to meeting your
needs and providing innovative and efficient ways to help you work with your
investment adviser to reach your financial goals.
Although my official retirement begins on January 1, 1999, I will remain
active in the industry and the community. I plan to continue my service as a
member of the board of directors of the Investment Company Institute, the
leading mutual fund industry association, and I will remain a trustee of your
Trust.
In closing, I want to say farewell to all of you. Thank you for your support
of Van Kampen over the years and for giving me the opportunity to serve you.
Best wishes,
[SIG]
Don G. Powell
------------------- - ---------------------
(1)American Capital, which merged with Van Kampen in 1995, received the DALBAR
Service Award annually from 1990 to 1994. The award was called the Quality
Tested Service Seal until 1997.
6
<PAGE> 8
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
COUPON RATE: The stated rate of interest the bond pays on an annual basis,
expressed as a percentage of the face value.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a bond's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations are
expected to perform better in rising rate environments, while funds with
longer durations are expected to perform better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA.
7
<PAGE> 9
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
potentially, from state and local income taxes.
NET ASSET VALUE (NAV): The value of a trust share, calculated by deducting a
trust's liabilities from the total assets applicable to common shareholders
in its portfolio and dividing this amount by the number of common shares
outstanding.
PREREFUNDING: The process of issuing new bonds to refinance an outstanding
municipal bond issue prior to its maturity or call date. The proceeds from
the new bonds are generally invested in U.S. government securities.
Prerefunding typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 10
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1998
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
(NYSE TICKER SYMBOL--VIG)
COMMON SHARE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C>
One-year total return based on market price(1)........... 7.63%
One-year total return based on NAV(2).................... 6.61%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)............................................... 6.18%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 9.66%
SHARE VALUATIONS
Net asset value.......................................... $ 10.66
Closing common stock price............................... $11.0625
One-year high common stock price (10/02/98).............. $11.5000
One-year low common stock price (5/15/98)................ $10.3125
Preferred share rate(5).................................. 3.40%
</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.
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 100.1%
ALABAMA 2.3%
$1,800 Mobile, AL Indl Dev Brd Pollutn Ctl Rev Intl
Paper Co
Proj Rfdg....................................... 4.750% 04/01/10 $ 1,793,661
-----------
ALASKA 4.3%
3,250 Valdez, AK Marine Term Rev BP Pipeline Inc Proj
Ser B Rfdg...................................... 5.500 10/01/28 3,318,217
-----------
ARIZONA 3.2%
2,675 Maricopa Cnty, AZ Uni Sch Dist No 69 Paradise
Vly (FSA Insd).................................. 4.000 07/01/16 2,417,424
-----------
ARKANSAS 2.6%
1,000 Dogwood Addition PRD Muni Ppty Owners Multi-Purp
Impt Dist No 8 AR Impt Ser A (e)................ 7.500 01/31/06 960,000
919 Dogwood Addition PRD Muni Ppty Owners Multi-Purp
Impt Dist No 8 AR Impt Ser B (e)................ 7.500 01/31/06 275,613
750 Pulaski Cnty, AR Hlth Facs Brd Rev Catholic Hlth
Initiatives
Ser A........................................... 5.000 12/01/18 748,554
-----------
1,984,167
-----------
CALIFORNIA 6.0%
4,490 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(MBIA Insd)..................................... * 09/01/17 1,774,403
225 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap
Apprec Sr Lien Ser A (d)........................ 0/7.50 01/01/13 185,533
65 Foothill/Eastern Corridor Agy CA Toll Rd Rev Cap
Apprec Sr Lien Ser A............................ * 01/01/28 138,944
500 Fresno, CA Uni Sch Dist Ser A Rfdg (MBIA Insd).. 6.100 08/01/12 589,525
2,205 San Joaquin Hills, CA Tran Corridor Agy Toll Rd
Cap Apprec Rev Ser A Rfdg (MBIA Insd)........... * 01/15/27 530,479
1,500 San Joaquin Hills, CA Tran Corridor Agy Toll Rd
Rev Cap Apprec Ser A Rfdg (MBIA Insd)........... * 01/15/28 343,095
1,000 San Marcos, CA Pub Facs Auth Rev Rfdg........... 5.800 09/01/27 1,008,860
-----------
4,570,839
-----------
COLORADO 10.4%
10,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C (Prerefunded @ 08/31/05)....... * 08/31/26 1,578,900
2,560 Denver, CO City & Cnty Arpt Rev Ser A........... 8.500 11/15/23 2,814,618
240 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)........................ 8.500 11/15/23 268,015
220 Jefferson Cnty, CO Residential Mtg Rev.......... 11.500 09/01/11 370,553
100 Jefferson Cnty, CO Residential Mtg Rev.......... 9.000 09/01/12 145,244
145 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/03)........................ 11.500 09/01/11 193,066
160 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/04)........................ 11.500 09/01/11 221,488
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 180 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/05)........................ 11.500% 09/01/11 $ 258,422
205 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/06)........................ 11.500 09/01/11 304,249
235 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/07)........................ 11.500 09/01/11 359,503
265 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/08)........................ 11.500 09/01/11 416,554
300 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/09)........................ 11.500 09/01/11 483,207
340 Jefferson Cnty, CO Residential Mtg Rev
(Prerefunded @ 09/01/10)........................ 11.500 09/01/11 558,447
-----------
7,972,266
-----------
FLORIDA 4.0%
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp Orlando
Genl Hosp Ser A (Prerefunded @ 06/01/99)........ 8.750 06/01/16 1,052,680
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp Orlando
Genl Hosp Ser B (Prerefunded @ 06/01/99)........ 8.750 06/01/16 1,052,680
2,300 Sun N Lake of Sebring, FL Impt Dist Spl Assmt
Ser A (c) (e)................................... 10.000 12/15/11 920,000
-----------
3,025,360
-----------
ILLINOIS 19.4%
1,000 Alton, IL Hlth Fac Rev & Impt Christian Hlth Ser
C Rfdg (Prerefunded @ 02/15/01) (FGIC Insd)..... 7.200 02/15/21 1,096,560
4,870 Aurora, IL Single Family Mtg Rev Cap Apprec
(AMBAC Insd).................................... * 12/01/22 745,402
450 Bedford Park, IL Tax Increment 71st & Cicero
Proj Rfdg....................................... 7.000 01/01/06 487,593
250 Chicago, IL Brd of Ed Chicago Sch Reform (AMBAC
Insd)........................................... 5.750 12/01/27 270,603
2,595 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc
Ser B (b)....................................... 8.950 05/01/18 2,873,885
1,415 Chicago, IL Single Family Mtg (GNMA
Collateralized)................................. 7.625 09/01/27 1,627,024
510 Cook Cnty, IL Sch Dist No 107 La Grange (b)..... 7.150 12/01/08 632,262
575 Cook Cnty, IL Sch Dist No 107 La Grange......... 7.200 12/01/09 721,424
625 Cook Cnty, IL Sch Dist No 107 La Grange......... 7.000 12/01/10 773,044
500 Hodgkins, IL Tax Increment Ser A Rfdg........... 7.625 12/01/13 558,665
845 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser
D............................................... 9.500 11/15/15 960,630
745 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser
D (Prerefunded @ 11/15/00)...................... 9.500 11/15/15 846,439
500 Illinois Hlth Fac Auth Rev Lutheran Social Svcs
Proj Ser A (Prerefunded @ 08/01/00)............. 7.650 08/01/20 544,455
1,910 Illinois Hsg Dev Auth Residential Mtg Rev Ser B
(b)............................................. 7.250 08/01/17 2,022,957
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 250 Lake Cnty, IL Cmnty Unit (b).................... 7.600% 02/01/14 $ 320,605
500 Robbins, IL Res Recovery Rev.................... 8.375 10/15/16 395,000
-----------
14,876,548
-----------
LOUISIANA 2.2%
1,500 Ouachita Parish, LA Hosp Svcs Dist No 1 Rev
Glenwood Regl Med Cent (Prerefunded @
07/01/01)....................................... 7.500 07/01/21 1,670,505
-----------
MARYLAND 2.5%
1,845 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Single Family Ser 4 (FHA Gtd)................... 7.450 04/01/32 1,943,947
-----------
MASSACHUSETTS 1.0%
360 Massachusetts St Hlth & Edl Fac Auth Rev Cent
New England Hlth Sys Ser A...................... 6.125 08/01/13 377,266
395 Massachusetts St Hsg Fin Agy Multi-Family
Residential Dev Ser A (FNMA Collateralized)..... 8.150 02/01/29 417,009
-----------
794,275
-----------
MICHIGAN 1.2%
800 Michigan St Hosp Fin Auth Rev Battle Creek Hosp
Ser H (Prerefunded @ 11/15/00).................. 9.500 11/15/15 906,880
-----------
MISSISSIPPI 2.0%
1,500 Medical Cent Ed Bldg Corp MS Rev Ref Univ MS Med
Cent Ser B (AMBAC Insd)......................... 5.000 12/01/16 1,504,665
-----------
MONTANA 4.2%
2,900 Forsyth, MT Pollutn Ctl Rev Puget Sound Pwr & Lt
Ser B Rfdg (AMBAC Insd) (b)..................... 7.250 08/01/21 3,186,810
-----------
NEVADA 2.1%
1,500 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser A
(FGIC Insd)..................................... 6.700 06/01/22 1,644,930
-----------
NEW HAMPSHIRE 4.1%
2,500 New Hampshire Higher Edl & Hlth Fac Auth Rev
Hosp Catholic Med Cent Rfdg (b)................. 8.250 07/01/13 2,599,475
500 New Hampshire St Indl Dev Auth Rev Pollutn Ctl
Pub Svcs Co of NH Proj Ser C.................... 7.650 05/01/21 534,335
-----------
3,133,810
-----------
NEW JERSEY 0.8%
600 New Jersey Hlthcare Fac Fin Auth Rev Palisades
Med Cent........................................ 7.500 07/01/06 644,076
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK 5.7%
$1,620 Long Island Pwr Auth NY Elec Gen (a)............ 4.250% 04/01/09 $ 1,605,825
1,240 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev (AMBAC Insd) (b)............................ 6.750 06/15/06 1,343,999
1,305 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK
Intl Arpt Terminal 6 (MBIA Insd) (b)............ 5.750 12/01/22 1,388,037
-----------
4,337,861
-----------
OHIO 1.8%
800 Cuyahoga Cnty, OH Multi-Family Rev Hsg Wtr St
Assoc Ltd Proj (GNMA Collateralized)............ 6.250 12/20/36 880,096
500 Ohio St Solid Waste Rev Republic Engineered
Steels Proj..................................... 8.250 10/01/14 518,425
-----------
1,398,521
-----------
PENNSYLVANIA 1.5%
1,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Collateral Toledo Edison Co Proj Rfdg........... 7.625 05/01/20 1,132,150
-----------
TENNESSEE 3.0%
2,105 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev Open
Arms Dev Cent Ser E (Prerefunded @ 08/01/99)
(b)............................................. 9.750 08/01/19 2,270,264
-----------
TEXAS 10.3%
1,000 Alliance Arpt Auth Inc TX Spl Fac Rev American
Airls Inc....................................... 7.000 12/01/11 1,175,540
472 Pecos Cnty, TX Ctfs Partn....................... 6.000 01/12/08 499,450
2,480 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation Rfdg (Cap Guar Insd) (b)............ 5.500 09/01/13 2,655,113
2,500 Victoria, TX Util Sys Rev (MBIA Insd)........... 5.000 12/01/21 2,467,875
1,000 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics........ 8.200 03/15/21 1,095,970
-----------
7,893,948
-----------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WEST VIRGINIA 4.1%
$3,000 Braxton Cnty, WV Solid Waste Variable
Weyerhaeuser Co Proj............................ 5.800% 06/01/27 $ 3,173,040
-----------
WISCONSIN 1.4%
905 Wisconsin St Hlth & Edl Fac Auth Rev Chippewa
Vly Hosp
Ser F Rfdg...................................... 9.500 11/15/12 1,057,836
-----------
TOTAL INVESTMENTS 100.1%
(Cost $73,026,023)........................................................ 76,652,000
LIABILITIES IN EXCESS OF OTHER ASSETS (0.1%)............................... (60,781)
-----------
NET ASSETS 100.0%.......................................................... $76,591,219
===========
</TABLE>
*Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(c) Non-Income producing security.
(d) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(e) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $73,026,023)........................ $76,652,000
Cash........................................................ 183,381
Receivables:
Interest.................................................. 1,589,997
Investments Sold.......................................... 90,000
Other....................................................... 19,923
-----------
Total Assets.......................................... 78,535,301
===========
LIABILITIES:
Payables:
Investments Purchased..................................... 1,605,011
Income Distributions--Common and Preferred Shares......... 95,525
Investment Advisory Fee................................... 39,168
Affiliates................................................ 8,000
Trustees' Deferred Compensation and Retirement Plans........ 91,892
Accrued Expenses............................................ 104,486
-----------
Total Liabilities..................................... 1,944,082
-----------
NET ASSETS.................................................. $76,591,219
===========
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 250 issued with liquidation preference of $100,000
per share)................................................ $25,000,000
-----------
Common Shares ($.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................................. 3,625,977
Accumulated Distributions in Excess of Net Investment
Income.................................................... (954,085)
Accumulated Net Realized Loss............................... (3,829,082)
-----------
Net Assets Applicable to Common Shares................ 51,591,219
-----------
NET ASSETS.................................................. $76,591,219
===========
NET ASSET VALUE PER COMMON SHARE ($51,591,219 divided
by 4,839,000 shares outstanding).......................... $ 10.66
===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 4,952,277
-----------
EXPENSES:
Investment Advisory Fee..................................... 459,142
Preferred Share Maintenance................................. 80,983
Accounting.................................................. 46,496
Trustees' Fees and Expenses................................. 22,901
Legal....................................................... 15,255
Custody..................................................... 4,891
Other....................................................... 128,037
-----------
Total Expenses.......................................... 757,705
-----------
NET INVESTMENT INCOME....................................... $ 4,194,572
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments (Including reorganization and restructuring
costs of $11,070)....................................... $ 915,234
Options................................................... 175,804
Futures................................................... (270,636)
-----------
Net Realized Gain........................................... 820,402
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 4,419,117
End of the Period:
Investments............................................. 3,625,977
-----------
Net Unrealized Depreciation During the Period............... (793,140)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 27,262
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 4,221,834
===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 4,194,572 $ 4,640,504
Net Realized Gain/Loss.................................. 820,402 (1,805,353)
Net Unrealized Appreciation/Depreciation
During the Period..................................... (793,140) 2,386,852
------------ ------------
Change in Net Assets from Operations.................... 4,221,834 5,222,003
------------ ------------
Distributions from and in Excess of Net Investment
Income:
Common Shares......................................... (3,309,358) (3,435,176)
Preferred Shares...................................... (896,885) (893,796)
------------ ------------
Total Distributions..................................... (4,206,243) (4,328,972)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 15,591 893,031
NET ASSETS:
Beginning of the Period................................. 76,575,628 75,682,597
------------ ------------
End of the Period (Including accumulated distributions
in excess of net investment income of $954,085 and
$942,414, respectively)............................... $76,591,219 $76,575,628
============ ============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period (a).................... $ 10.658 $ 10.474 $10.754 $10.500
-------- -------- ------- -------
Net Investment Income.......................... .867 .959 .882 .877
Net Realized and Unrealized Gain/Loss.......... .006 .120 (.195) .406
-------- -------- ------- -------
Total from Investment Operations................. .873 1.079 .687 1.283
-------- -------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income:
Paid to Common Shareholders.................. .684 .710 .780 .825
Common Share Equivalent of Distributions Paid
to Preferred Shareholders.................. .185 .185 .187 .204
-------- -------- ------- -------
Total Distributions.............................. .869 .895 .967 1.029
-------- -------- ------- -------
Net Asset Value,
End of the Period.............................. $10.662 $10.658 $10.474 $10.754
======== ======== ======= =======
Market Price Per Share at End of
the Period..................................... $11.0625 $10.9375 $11.000 $10.625
Total Investment Return at
Market Price (b)............................... 7.63% 6.13% 11.02% 2.88%
Total Return at Net Asset Value (c).............. 6.61% 8.91% 4.83% 10.59%
Net Assets at End of the Period
(In millions).................................. $76.6 $76.6 $75.7 $77.0
Ratio of Expenses to Average Net Assets
Applicable to Common Shares**.................. 1.47% 1.47% 1.51% 1.52%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (d)......... 6.40% 7.38% 6.55% 6.31%
Portfolio Turnover............................... 33% 25% 39% 50%
* Non-Annualized
**Ratio of Expenses to Average Net
Assets Including Preferred Shares.............. .99% .99% 1.01% 1.02%
</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
18
<PAGE> 20
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, 1989
Year Ended October 31 (Commencement
- ----------------------------------------------------------- of Investment
1994 1993 1992 1991 October 31, 1990
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.094 $11.151 $11.502 $10.832 $10.901
------- ------- ------- ------- -------
.958 1.090 1.090 1.153 1.001
(1.480) .917 (.348) .647 (.115)
------- ------- ------- ------- -------
(.522) 2.007 .742 1.800 .886
------- ------- ------- ------- -------
.930 .930 .925 .886 .725
.142 .134 .168 .244 .230
------- ------- ------- ------- -------
1.072 1.064 1.093 1.130 .955
------- ------- ------- ------- -------
$10.500 $12.094 $11.151 $11.502 $10.832
======= ======= ======= ======= =======
$11.125 $13.875 $11.750 $12.250 $10.500
(13.59%) 26.46% 3.10% 25.65% .21%*
(5.77%) 17.40% 5.04% 14.87% 3.70%*
$75.8 $83.5 $79.0 $80.7 $77.4
1.47% 1.35% 1.52% 1.53% 1.41%
7.20% 8.14% 8.01% 8.12% 7.75%
30% 7% 21% 52% 134%*
1.01% .94% 1.05% 1.05% N/A
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Investment Grade Municipal Trust, formerly known as 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. 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.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
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, 1998, the Trust had an accumulated capital loss
carryforward of $3,739,598 which will expire between October 31, 2002 and
October 31, 2005. 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.
At October 31, 1998, for federal income tax purposes, cost of long- and
short-term investments is $73,115,508; the aggregate gross unrealized
appreciation is $6,352,154 and the aggregate gross unrealized depreciation is
$2,815,662 resulting in net unrealized appreciation on long- and short-term
investments of $3,536,492.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually. 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, 1998 99.8% of the income distributions made by the Trust were exempt
from federal income taxes. In January, 1999, the Trust will provide tax
information to the shareholder for the 1998 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Trust for an annual fee payable monthly of .60% of the average
net assets of the Trust.
For the year ended October 31, 1998, the Trust recognized expenses of
approximately $3,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
For the year ended October 31, 1998, the Trust recognized expenses of
approximately $58,700 representing Van Kampen'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 Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $28,965,700 and $25,020,255,
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. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising a call option contract or taking
delivery of a security underlying a futures contract. In these instances, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
Summarized on the following pages 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.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
Transactions in options for the year ended October 31, 1998, were as
follows:
<TABLE>
<CAPTION>
Contracts Premium
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1997................. 435 $ 26,396
Options Written and Purchased (Net)............. 618 131,075
Options Terminated in Closing Transactions
(Net)......................................... (152) 3,727
Options Expired (Net)........................... (901) (161,198)
------- ---------
Outstanding at October 31, 1998................. -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.
Upon entering into futures contracts, the Trust maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
Transactions in futures contracts, each with a par value of $100,000, for
the year ended October 31, 1998, were as follows:
<TABLE>
<CAPTION>
Contracts
- ---------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1997........................... -0-
Futures Opened............................................ 359
Futures Closed............................................ (359)
-------
Outstanding at October 31, 1998........................... -0-
=======
</TABLE>
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, 1998 was 3.400%. During
the year ended October 31, 1998, the rates ranged from 3.390% to 3.875%.
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.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
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.
6. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Trust, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Trust with service at current levels. In
addition, it is possible that the securities markets in which the Trust invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
24
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Investment Grade Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Investment Grade Municipal Trust (the "Trust"), including the portfolio
of investments, as of October 31, 1998, 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, 1998, 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 Investment Grade Municipal Trust as of October 31, 1998, 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 1, 1998
25
<PAGE> 27
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") in which Common
Shareholders may elect to have dividends and capital gains distributions
automatically reinvested in Common Shares of the Trust. The service is entirely
voluntary and you may join or withdraw at any time.
HOW TO PARTICIPATE
If you wish to elect to participate in the Plan and your shares are held in your
own name, call 1-800-341-2929 for more information and a brochure. If your
shares are held in the name of a brokerage firm, bank, or other nominee, you
should contact your nominee to see if it would participate in the Plan on your
behalf. If you wish to participate in the Plan, but your brokerage firm, bank,
or nominee is unable to participate on your behalf, you should request that your
shares be re-registered in your own name which will enable your participation in
the Plan.
HOW THE PLAN WORKS
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 capital gains 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, with the written consent of the
Trust, by providing at least 90 days written notice to all Participants in the
Plan.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or capital gains distributions.
RIGHT TO WITHDRAW
You may withdraw from the Plan at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company. If you withdraw, you will receive,
without charge, a share certificate issued in your name for all full Common
Shares credited to your account under the Plan, and a cash payment will be made
for any fractional Common Share credited to your account under the Plan. You may
again elect to participate in the Plan at any time by calling 1-800-341-2929 or
writing to the Trust at:
Van Kampen Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
26
<PAGE> 28
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
27
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VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President,
Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
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RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on July 28, 1998, where
shareholders voted on the election of trustees and the selection of independent
public accountants.
1) With regard to the election of the following trustees by the preferred
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
--------------------
IN FAVOR WITHHELD
- -------------------------------------------------------------------------
<S> <C> <C>
Rod Dammeyer........................................ 250 0
</TABLE>
2) With regard to the election of the following trustees by the common
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
---------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------
<S> <C> <C>
Steven Muller..................................... 4,269,905 115,371
Wayne W. Whalen................................... 4,264,182 121,094
</TABLE>
The other trustees of the Trust whose terms did not expire in 1998 are David C.
Arch, Howard J Kerr, Dennis J. McDonnell, Theodore A. Myers, Don G. Powell and
Hugo F. Sonnenschein
3) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for the Trust, 4,275,713 shares voted in favor of the
proposal, 60,905 shares voted against, and 48,909 shares abstained.
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<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> INVESTMENT GRADE MUNI
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 73,026,023
<INVESTMENTS-AT-VALUE> 76,652,000
<RECEIVABLES> 1,679,997
<ASSETS-OTHER> 19,923
<OTHER-ITEMS-ASSETS> 183,381
<TOTAL-ASSETS> 78,535,301
<PAYABLE-FOR-SECURITIES> 1,605,011
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 339,071
<TOTAL-LIABILITIES> 1,944,082
<SENIOR-EQUITY> 25,000,000
<PAID-IN-CAPITAL-COMMON> 52,748,409
<SHARES-COMMON-STOCK> 4,839,000
<SHARES-COMMON-PRIOR> 4,839,000
<ACCUMULATED-NII-CURRENT> (954,085)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,829,082)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,625,977
<NET-ASSETS> 76,591,219
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,952,277
<OTHER-INCOME> 0
<EXPENSES-NET> (757,705)
<NET-INVESTMENT-INCOME> 4,194,572
<REALIZED-GAINS-CURRENT> 820,402
<APPREC-INCREASE-CURRENT> (793,140)
<NET-CHANGE-FROM-OPS> 4,221,834
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,206,243)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15,591
<ACCUMULATED-NII-PRIOR> (942,414)
<ACCUMULATED-GAINS-PRIOR> (4,649,484)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 459,142
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 757,705
<AVERAGE-NET-ASSETS> 76,534,550
<PER-SHARE-NAV-BEGIN> 10.658
<PER-SHARE-NII> 0.867
<PER-SHARE-GAIN-APPREC> 0.006
<PER-SHARE-DIVIDEND> (0.869)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.662
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
