<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Portfolio Management Review...................... 4
Glossary of Terms................................ 7
Portfolio Highlights............................. 8
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................ 23
Dividend Reinvestment Plan....................... 24
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
November 19, 1999
Dear Shareholder:
As we approach the end of the century--and the millennium--it seems
appropriate to take a look back at the progress we've made over the last 100
years and how the world of investing has changed over the generations. Although
rapid advances in technology and science have dramatically altered the world
that we live in today, one of the greatest shifts we've seen this century is the
increasing importance of investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is
now available to most people. In fact, almost 79 million individuals--who
represent almost half of all U.S. households--own stocks either directly or
through mutual funds. This is even more impressive when considering that just 16
years earlier, only 19 percent of households owned stocks. Another important
shift has been the need for retirement planning beyond a pension plan or Social
Security. The Investment Company Institute, the leading mutual fund industry
association, reports that 77 percent of all mutual fund shareholders earmarked
retirement as their primary financial goal in 1998.
Through all the changes in the investment environment over the past century,
the general principles that have made generations of investors successful remain
the same. Those that have stood the test of time include:
- Investing for the long-term
- Basing investment decisions on sound research
- Building a diversified portfolio
- Believing in the value of professional investment advice
While no one can predict the future, at Van Kampen, we believe that these
ideas will remain important tenets for investors well into the next century. As
we continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we enter the new
millennium.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
Source: Investment Company Institute
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree over the past year, keeping the
economy growing at a healthy pace. High levels of consumer confidence fueled
this heavy retail activity, which pushed the personal savings rate to a record
low as spending rates outpaced income growth. Although the U.S. economy
experienced a slowdown during the second quarter of 1999, growth rebounded
toward the end of the reporting period.
EMPLOYMENT SITUATION
The strong job market helped support the strength of the economy. During the
reporting period, the unemployment rate reached its lowest level in almost 30
years, and wages continued to climb. The wage pressures were balanced somewhat
by productivity gains. However, these pressures ultimately pushed the cost of
labor higher in the second quarter, as the employment cost index recorded its
biggest gain in eight years before returning to a more moderate level in the
third quarter.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index report. The Federal Reserve Board remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
its three interest rate cuts from the fall of 1998, raising rates in June,
August, and November 1999 to keep the economy from overheating.
U.S. GROSS DOMESTIC PRODUCT
Seasonally Adjusted Annualized Rates
Third Quarter 1997 through Third Quarter 1999
[GRAPH]
<TABLE>
<S> <C>
97Q3 4.0
97Q4 3.1
98Q1 6.7
98Q2 2.1
98Q3 3.8
98Q4 5.9
99Q1 3.7
99Q2 1.9
99Q3 5.5
</TABLE>
Source: Bureau of Economic Analysis
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1999
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
(NYSE TICKER SYMBOL--VIG)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
One-year total return based on market price(1)............ (15.09%)
One-year total return based on NAV(2)..................... (5.98%)
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3).................................................. 7.35%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 11.48%
SHARE VALUATIONS
Net asset value........................................... $9.39
Closing common stock price................................ $8.8125
One-year high common stock price (12/11/98)............... $11.3750
One-year low common stock price (10/25/99)................ $8.7500
Preferred share rate(5)................................... 3.59%
</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 rate.
(5) See "Notes to Financial Statements" footnote #4, 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.
3
<PAGE> 5
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
We recently spoke with representatives of the adviser of the Van Kampen
Investment Grade Municipal Trust about the key events and economic forces that
shaped the markets during the past year. David C. Johnson, portfolio manager,
has managed the Trust since its inception in 1989 and worked in the investment
industry since 1981. He is joined by Peter W. Hegel, chief investment officer
for fixed-income investments. The following discussion reflects their views on
the Trust's performance during the 12 months ended October 31, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types experienced price declines during the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve Board's two
interest-rate increases during the summer, the bond market declined as the
nation's strong economic growth continued to spark inflation fears, leading to
concern about future rate hikes. Because of low institutional demand for
municipal bonds during the period, these conditions affected municipals more
than their taxable counterparts--corporate and Treasury bonds. The yields of
newly issued 30-year AAA municipal bonds rose more than a full percentage point
during the 12-month period, so the prices of existing bonds dropped
concurrently. The bonds in the Trust's portfolio were not spared by this market
movement and suffered price declines along with the rest of the municipal
market.
The interest-rate increases also suppressed municipal bond supply, bringing
overall nationwide issuance down more than 20 percent in the first ten months of
the year compared with 1998. Supply was down in almost every sector, with
electric-utility and health-care bonds experiencing the most significant drops.
Although new issuance kept pace with last year's active market, the amount of
bonds issued through refinancing was down more than 50 percent for the year
through October. Many municipalities simply chose not to refinance outstanding
bonds because of the higher interest rates they would have to pay in the current
marketplace.
Q DID MUNICIPAL BONDS BENEFIT FROM THE STRONG ECONOMY?
A Yes. The effects of the healthy economy were reflected in the good credit
conditions in the municipal market, even though prices suffered. With the
exception of the health-care sector, overall credit quality remained high, and
we witnessed a number of credit upgrades as tax revenues kept municipal finances
strong.
4
<PAGE> 6
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE TRUST IN THESE CONDITIONS?
A Although many of the Trust's more seasoned holdings were nearing their
call dates, we chose to maintain these positions until they are called
rather than give up these high-yielding securities. This benefited the
Trust's performance as interest rates rose because these bonds were less
sensitive to interest-rate increases and dropped less in price.
We also extended the Trust's duration, or its sensitivity to interest-rate
changes. We feel that the longer duration will benefit the Trust in a declining
interest-rate environment by allowing it to participate more fully in a market
rally. In the short term, however, the longer duration negatively affected the
Trust's total return as interest rates climbed. The Trust's total return was
also hurt by the increased proportion of AAA bonds, which represented 46.6
percent of the long-term investments at the end of October. These high-quality
issues suffered more than lower-quality bonds as rates increased.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE TO YOU?
A One of the most attractive sectors during the past year was airport bonds,
which we believed were backed by strong credit quality and provided
favorable yields. A number of airport renovations and expansions boosted
the supply of these bonds in the marketplace, enabling us to choose from a wide
variety of issues in a sector where issuance has historically been infrequent.
At the end of October, airport bonds represented one of the Trust's largest
sectors at 10.6 percent of the long-term investments.
To focus more on attractive sectors such as airport and general purpose, we
reduced our position in health care. Although many health-care bonds remain
attractive, the challenges imposed by managed care and changing Medicare
reimbursement policies have led us to focus on other areas of the market in
recent months. Reducing health care benefited the Trust's total return because
this sector underperformed the rest of the market during the year. For
additional portfolio highlights, please refer to page 8.
Q HOW DID THE TRUST PERFORM DURING THE PERIOD?
A Total return performance was disappointing because of the general downturn
in bond prices and the Trust's increased duration. In addition, the
Trust's leverage component hurt its performance during the period.
Although leverage helps the Trust provide higher income levels to common
shareholders, it made the portfolio more sensitive to the interest-rate
increases we experienced during the reporting period. For the one-year period
ended October 31, 1999, the Trust returned -15.09 percent(1) based on market
price. This reflects a decrease in market price from $11.0625 per share on
October 31, 1998, to $8.8125 per share on October 31, 1999.
5
<PAGE> 7
As the Trust reached the tenth anniversary of its inception, a significant
proportion of the bonds in the portfolio were called away by the issuers (many
bonds allow the issuer to call them after 10 years). These bonds paid higher
interest rates than were available in the current marketplace, so the Trust's
income stream decreased and led to two dividend decreases during the reporting
period. At its current rate, the Trust's monthly federally tax-exempt dividend
of $0.054 per share translates to a distribution rate of 7.35 percent(3) based
on the Trust's closing market price on October 31, 1999. Because the Trust is
exempt from federal income taxes, this distribution rate is equivalent to a
taxable yield of 11.48 percent(4) for an investor in the 36 percent federal
income tax bracket. Please refer to the chart and footnotes on page 3 for
additional performance results. Past performance does not guarantee future
performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A In the coming months, we will probably see a slowing economy, which may be
partly the result of year 2000 concerns. Wage increases will likely keep
inflation fears at the forefront, although increasing productivity should
be able to offset higher wage costs for employers.
Preparations for the turn of the millennium may also limit new issuance and
general market activity at the end of the year. Many municipal issuers are
planning to postpone issuing bonds until they feel certain that any potential
computer problems have been avoided, but we believe that market activity should
pick up early in 2000. In the meantime, we will continue to focus on finding
attractive-yielding bonds and protecting the Trust from bond calls as much as
possible. We will also use our extensive research capabilities to look for
attractive opportunities throughout the coming months.
[SIG]
David C. Johnson
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
6
<PAGE> 8
GLOSSARY OF TERMS
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.
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.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
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 (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
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.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It is redeemed at maturity for
full face value.
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
TOP FIVE PORTFOLIO INDUSTRIES*
[GRAPH]
<TABLE>
<CAPTION>
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Single-Family Housing 17.4 14.9
Health Care 13.5 18.9
Industrial Revenue 12.5 15.5
Airport 10.6 4.0
Public Education 8.6 7.5
</TABLE>
* As a percentage of long-term investments
NET ASSET VALUE AND MARKET PRICE
(BASED UPON MONTH-END VALUES)
NOVEMBER 1989 THROUGH OCTOBER 1999
[GRAPH]
<TABLE>
<CAPTION>
MARKET PRICE NET ASSET VALUE
------------ ---------------
<S> <C> <C>
Nov 1989 12.00 11.05
12.13 11.10
12.00 11.00
11.75 10.88
11.75 10.87
11.75 10.74
12.25 10.89
11.50 10.93
11.38 11.14
10.88 10.85
10.75 10.76
Oct 1990 10.50 10.83
11.13 10.98
11.25 11.02
11.25 11.08
11.63 11.18
11.88 11.08
11.75 11.19
11.88 11.31
11.63 11.23
12.00 11.29
11.88 11.37
12.00 11.54
Oct 1991 12.25 11.50
12.25 11.46
12.25 11.61
12.75 11.59
12.75 11.55
12.50 11.45
12.75 11.50
12.38 11.45
12.50 11.46
12.88 11.99
13.00 11.52
13.00 11.47
Oct 1992 11.75 11.15
12.38 11.34
12.38 11.43
13.00 11.50
13.38 11.91
13.38 11.76
13.63 11.79
13.38 11.74
13.38 11.90
13.63 11.86
13.75 12.02
14.00 12.16
Oct 1993 13.88 12.10
13.25 11.97
12.75 12.20
13.50 12.27
13.13 11.86
11.63 10.95
12.13 11.00
12.25 11.13
12.38 10.81
12.38 10.92
12.25 10.90
12.00 10.75
Oct 1994 11.13 10.50
10.50 10.14
10.50 10.33
11.13 10.61
11.38 10.99
11.25 10.95
11.50 10.76
10.88 10.76
10.50 10.70
10.63 10.63
10.50 10.76
10.75 10.71
Oct 1995 10.63 10.75
10.88 10.96
10.50 11.06
11.88 11.05
11.88 10.81
11.00 10.52
10.88 10.34
10.63 10.32
10.88 10.34
10.88 10.38
11.13 10.30
10.88 10.41
Oct 1996 11.00 10.47
11.25 10.63
10.63 10.48
10.63 10.44
10.63 10.47
10.38 10.28
10.63 10.31
10.75 10.41
10.56 10.48
10.81 10.75
10.75 10.56
10.94 10.65
Oct 1997 10.94 10.66
10.75 10.55
10.88 10.67
11.25 10.74
11.19 10.70
10.56 10.65
10.38 10.52
10.63 10.68
10.88 10.65
10.81 10.57
10.88 10.70
11.25 10.76
Oct 1998 11.06 10.66
10.94 10.60
11.06 10.56
10.94 10.63
10.94 10.50
11.00 10.44
10.75 10.41
10.38 10.27
10.38 9.98
10.25 9.95
9.63 9.72
9.06 9.63
Oct 1999 8.81 9.39
</TABLE>
The solid line above represents the Trust's net asset value (NAV), which
indicates overall changes in value among the Trust's underlying securities. The
Trust's market price is represented by the dashed line, which indicates the
price the market is willing to pay for shares of the Trust at a given time.
Market price is influenced by a range of factors, including supply and demand
and market conditions.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS (CONTINUED)
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF OCTOBER 31, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa BB/Ba NON-RATED
- ------- ----- --- ------- ----- ---------
<S> <C> <C> <C> <C> <C>
46.6 12.2 11.2 19.9 1.4 8.7
</TABLE>
AS OF OCTOBER 31, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa BB/Ba NON-RATED
- ------- ----- --- ------- ----- ---------
<S> <C> <C> <C> <C> <C>
42.4 10.90 15.50 16.20 3.50 11.50
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY
FOR THE PERIOD ENDED OCTOBER 31, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
Nov 1998 0.0570
Dec 1998 0.0570
Jan 1999 0.0570
Feb 1999 0.0570
Mar 1999 0.0555
Apr 1999 0.0555
May 1999 0.0555
Jun 1999 0.0540
Jul 1999 0.0540
Aug 1999 0.0540
Sep 1999 0.0540
Oct 1999 0.0540
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 104.1%
ALABAMA 4.3%
$1,140 Alabama Wtr Pollutn Ctrl Auth Ser B
(AMBAC Insd) (b)....................... 4.750% 08/15/18 $ 967,461
1,500 Birmingham, AL Arpt Auth Rev Rfdg
(AMBAC Insd) (a)....................... 5.375 07/01/20 1,365,690
800 Mobile, AL Indl Dev Brd Pollutn Ctl Rev
Intl Paper Co Proj Rfdg................ 4.750 04/01/10 714,432
-----------
3,047,583
-----------
ALASKA 2.9%
2,250 Valdez, AK Marine Term Rev BP Pipeline
Inc Proj Ser B Rfdg.................... 5.500 10/01/28 2,049,098
-----------
ARIZONA 2.9%
2,675 Maricopa Cnty, AZ Uni Sch Dist No 69
Paradise Vly (FSA Insd)................ 4.000 07/01/16 2,067,427
-----------
ARKANSAS 1.7%
1,000 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt Ser A
(c).................................... 9.750 07/01/12 960,000
919 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt Ser B
(c).................................... 9.750 07/01/12 275,613
-----------
1,235,613
-----------
CALIFORNIA 9.1%
4,490 Contra Costa, CA Home Mtg Fin Auth Home
Mtg Rev (MBIA Insd).................... * 09/01/17 1,568,088
4,000 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Cap Appr Rfdg................... * 01/15/26 2,084,480
650 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Cap Appr Sr Lien Ser A.......... * 01/01/28 120,750
225 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Cap Appr Sr Lien Ser A
(Prerefunded @ 01/01/10) (d)........... 0/7.50 01/01/13 189,342
500 Fresno, CA Uni Sch Dist Ser A Rfdg
(MBIA Insd)............................ 6.100 08/01/12 535,975
3,705 San Joaquin Hills, CA Tran Corridor Agy
Toll Rd Cap Apprec Rev Ser A Rfdg (MBIA
Insd).................................. * 01/15/27 709,952
1,500 San Joaquin Hills, CA Tran Corridor Agy
Toll Rd Cap Apprec Rev Ser A Rfdg (MBIA
Insd).................................. * 01/15/28 270,495
1,000 San Marcos, CA Pub Facs Auth Rev
Rfdg................................... 5.800 09/01/27 900,320
-----------
6,379,402
-----------
COLORADO 8.1%
2,560 Denver, CO City & Cnty Arpt Rev (b).... 8.500 11/15/23 2,692,967
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 145 Jefferson Cnty, CO Residential Mtg
Rev.................................... 11.500% 09/01/03 $ 179,419
160 Jefferson Cnty, CO Residential Mtg
Rev.................................... 11.500 09/01/04 205,459
180 Jefferson Cnty, CO Residential Mtg
Rev.................................... 11.500 09/01/05 239,128
205 Jefferson Cnty, CO Residential Mtg
Rev.................................... 11.500 09/01/06 280,493
235 Jefferson Cnty, CO Residential Mtg
Rev.................................... 11.500 09/01/07 330,868
265 Jefferson Cnty, CO Residential Mtg
Rev.................................... 11.500 09/01/08 381,947
300 Jefferson Cnty, CO Residential Mtg
Rev.................................... 11.500 09/01/09 441,576
340 Jefferson Cnty, CO Residential Mtg
Rev.................................... 11.500 09/01/10 508,627
220 Jefferson Cnty, CO Residential Mtg
Rev.................................... 11.500 09/01/11 335,093
100 Jefferson Cnty, CO Residential Mtg
Rev.................................... 9.000 09/01/12 131,970
-----------
5,727,547
-----------
FLORIDA 2.9%
340 Lee Cnty, FL Indl Dev Auth Hlthcare
Facs Rev............................... 5.750 11/15/13 321,093
500 Lee Cnty, FL Indl Dev Auth Hlthcare
Facs Rev............................... 5.750 11/15/14 469,480
325 Lee Cnty, FL Indl Dev Auth Hlthcare
Facs Rev............................... 5.750 11/15/15 301,109
2,300 Sun N Lake of Sebring, FL Impt Dist Spl
Assmt Ser A (c) (e).................... 10.000 12/15/11 920,000
-----------
2,011,682
-----------
GEORGIA 1.2%
1,000 Private Colleges & Univs Auth GA Rev
Rfdg Mercer Univ Proj Ser A............ 5.250 10/01/25 883,460
-----------
ILLINOIS 20.4%
1,000 Alton, IL Hlth Fac Rev & Impt Christian
Hlth Ser C Rfdg (Prerefunded @
02/15/01) (FGIC Insd) (b).............. 7.200 02/15/21 1,056,170
3,170 Aurora, IL Single Family Mtg Rev Cap
Apprec (AMBAC Insd).................... * 12/01/22 522,004
400 Bedford Park, IL Tax Increment 71st &
Cicero Proj Rfdg....................... 7.000 01/01/06 413,512
7,500 Chicago, IL Brd of Ed Chicago Sch
Reform Ser A (FGIC Insd)............... * 12/01/28 1,237,875
250 Chicago, IL Brd of Ed Chicago Sch
Reform (AMBAC Insd).................... 5.750 12/01/27 238,453
2,535 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev United Airls Inc Ser B (b)......... 8.950 05/01/18 2,692,195
925 Chicago, IL Single Family Mtg (GNMA
Collateralized) (b).................... 7.625 09/01/27 1,020,867
510 Cook Cnty, IL Sch Dist No 107 La Grange
(b).................................... 7.150 12/01/08 580,564
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 575 Cook Cnty, IL Sch Dist No 107 La
Grange................................. 7.200% 12/01/09 $ 656,807
625 Cook Cnty, IL Sch Dist No 107 La
Grange................................. 7.000 12/01/10 705,350
500 Hodgkins, IL Tax Increment Ser A
Rfdg................................... 7.625 12/01/13 532,295
805 Illinois Hlth Fac Auth Rev Glenoaks Med
Cent Ser D............................. 9.500 11/15/15 866,792
745 Illinois Hlth Fac Auth Rev Glenoaks Med
Cent Ser D (Prerefunded @ 11/15/00).... 9.500 11/15/15 801,523
500 Illinois Hlth Fac Auth Rev Lutheran
Social Svcs Proj Ser A (Prerefunded @
08/01/00) (LOC: Bank of Japan)......... 7.650 08/01/20 523,430
1,910 Illinois Hsg Dev Auth Residential Mtg
Rev Ser B.............................. 7.250 08/01/17 1,968,293
250 Lake Cnty, IL Cmnty Unit............... 7.600 02/01/14 296,470
500 Robbins, IL Res Recovery Rev........... 8.375 10/15/16 266,250
-----------
14,378,850
-----------
KENTUCKY 1.7%
1,500 Louisville & Jefferson Cnty, KY Metro
Swr Dist Swr & Drainage Sys Rev (FGIC
Insd).................................. 4.750 05/15/28 1,215,660
-----------
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 1,602,825
-----------
MARYLAND 2.2%
1,505 Maryland St Cmnty Dev Admin Dept Hsg &
Cmnty Dev Single Family Ser 4 (FHA
Gtd)................................... 7.450 04/01/32 1,549,518
-----------
MASSACHUSETTS 4.1%
360 Massachusetts St Hlth & Edl Fac Auth
Rev Cent New England Hlth Sys Ser A.... 6.125 08/01/13 342,468
395 Massachusetts St Hsg Fin Agy
Multi-Family Residential Dev Ser A
(FNMA Collateralized).................. 8.150 02/01/29 407,344
2,220 Massachusetts St Port Auth Rev, Pfc Ser
B (FSA Insd)........................... 5.500 07/01/15 2,115,615
-----------
2,865,427
-----------
MICHIGAN 1.2%
780 Michigan St Hosp Fin Auth Rev Battle
Creek Hosp Ser H (Prerefunded @
11/15/00).............................. 9.500 11/15/15 837,517
-----------
MONTANA 4.3%
2,900 Forsyth, MT Pollutn Ctl Rev Puget Sound
Pwr & Lt Ser B Rfdg (AMBAC Insd)....... 7.250 08/01/21 3,058,775
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEVADA 6.6%
$1,500 Clark Cnty, NV Indl Dev Rev NV Pwr Co
Proj Ser A (FGIC Insd) (b)............. 6.700% 06/01/22 $ 1,564,705
3,040 Nevada Hsg Div Single-Family Mtg Mezz
Ser D2 (a)............................. 6.300 04/01/21 3,054,926
-----------
4,619,631
-----------
NEW HAMPSHIRE 4.4%
2,500 New Hampshire Higher Edl & Hlth Fac
Auth Rev Hosp Catholic Med Cent Rfdg... 8.250 07/01/13 2,553,750
500 New Hampshire St Indl Dev Auth Rev
Pollutn Ctl Pub Svcs Co of NH Proj Ser
C...................................... 7.650 05/01/21 516,110
-----------
3,069,860
-----------
NEW JERSEY 0.8%
225 New Jersey Hlthcare Fac Fin Auth Rev... 7.500 07/01/06 236,378
315 New Jersey Hlthcare Fac Fin Auth Rev
(Prerefunded @ 07/01/02)............... 7.500 07/01/06 336,691
-----------
573,069
-----------
NEW YORK 3.1%
1,240 New York City Muni Wtr Fin Auth Wtr &
Swr Sys Rev (AMBAC Insd)............... 6.750 06/15/06 1,296,966
1,000 New York City Tran Auth Metro Transn
Auth Triborough Ser A (AMBAC Insd)..... 5.250 01/01/29 890,290
-----------
2,187,256
-----------
OHIO 1.9%
800 Cuyahoga Cnty, OH Multi-Family Rev Hsg
Wtr St Assoc Ltd Proj (GNMA
Collateralized)........................ 6.250 12/20/36 807,240
500 Ohio St Solid Waste Rev Rep Engineered
Steels Proj............................ 8.250 10/01/14 499,010
-----------
1,306,250
-----------
PENNSYLVANIA 2.0%
1,000 Beaver Cnty, PA Indl Dev Auth Pollutn
Ctl Rev Collateral Toledo Edison Co
Proj Rfdg (b).......................... 7.625 05/01/20 1,075,880
315 Crawford Cnty, PA Hosp Auth Sr Living
Facs Rev............................... 5.875 08/15/10 303,188
-----------
1,379,068
-----------
TEXAS 9.4%
1,000 Alliance Arpt Auth Inc TX Spl Fac Rev
American Airls Inc (b)................. 7.000 12/01/11 1,069,910
1,670 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev.......................... 6.375 05/01/35 1,605,505
433 Pecos Cnty, TX Ctfs Partn.............. 6.000 01/12/08 434,751
2,480 Texas St Pub Ppty Fin Corp Rev Mental
Hlth & Retardation Rfdg (Cap Guar
Insd).................................. 5.500 09/01/13 2,445,577
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$1,000 West Side Calhoun Cnty, TX Nav Dist Sld
Wst Disp Union Carbide Chem &
Plastics............................... 8.200% 03/15/21 $ 1,050,340
-----------
6,606,083
-----------
VIRGINIA 5.2%
3,740 Richmond, VA (FSA Insd) (a)............ 5.500 01/15/11 3,683,264
-----------
WISCONSIN 1.4%
905 Wisconsin St Hlth & Edl Fac Auth Rev
Chippewa Vly Hosp Ser F Rfdg........... 9.500 11/15/12 975,798
-----------
TOTAL LONG-TERM INVESTMENTS 104.1%
(Cost $75,799,048).................................................. 73,310,663
TOTAL SHORT-TERM INVESTMENTS 7.7%
(Cost $5,400,000)................................................... 5,400,000
-----------
TOTAL INVESTMENTS 111.8%
(Cost $81,199,048).................................................. 78,710,663
LIABILITIES IN EXCESS OF OTHER ASSETS (11.8%)........................ (8,287,975)
-----------
NET ASSETS 100.0%.................................................... $70,422,688
===========
</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) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(d) Security is a "Step-up" bond where the coupon increase or steps-up at a
predetermined date.
(e) Non-income producing security.
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $81,199,048)........................ $78,710,663
Cash........................................................ 55,884
Receivables:
Interest.................................................. 1,466,219
Investments Sold.......................................... 186,589
Other....................................................... 23,955
-----------
Total Assets.......................................... 80,443,310
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 9,585,297
Income Distributions--Common and Preferred Shares......... 94,707
Investment Advisory Fee................................... 36,882
Affiliates................................................ 13,799
Accrued Expenses............................................ 183,209
Trustees' Deferred Compensation and Retirement Plans........ 106,728
-----------
Total Liabilities..................................... 10,020,622
-----------
NET ASSETS.................................................. $70,422,688
===========
NET ASSETS CONSIST OF:
Preferred Shares ($.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
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,004,772)
Net Unrealized Depreciation................................. (2,488,385)
Accumulated Net Realized Loss............................... (3,832,564)
-----------
Net Assets Applicable to Common Shares................ 45,422,688
-----------
NET ASSETS.................................................. $70,422,688
===========
NET ASSET VALUE PER COMMON SHARE ($45,422,688 divided by
4,839,000 shares outstanding)............................. $ 9.39
===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 4,835,964
-----------
EXPENSES:
Investment Advisory Fee..................................... 446,143
Preferred Share Maintenance................................. 164,910
Accounting.................................................. 47,264
Trustees' Fees and Related Expenses......................... 23,653
Legal....................................................... 11,049
Custody..................................................... 7,544
Other....................................................... 131,450
-----------
Total Expenses.......................................... 832,013
-----------
NET INVESTMENT INCOME....................................... $ 4,003,951
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss (Including reorganization and
restructuring costs of $5,581)............................ $ (3,482)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 3,625,977
End of the Period......................................... (2,488,385)
-----------
Net Unrealized Depreciation During the Period............... (6,114,362)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(6,117,844)
===========
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(2,113,893)
===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1999 October 31, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 4,003,951 $ 4,194,572
Net Realized Gain/Loss............................ (3,482) 820,402
Net Unrealized Depreciation
During the Period............................... (6,114,362) (793,140)
------------- -------------
Change in Net Assets from Operations.............. (2,113,893) 4,221,834
------------- -------------
Distributions from and in Excess of Net Investment
Income:
Common Shares................................... (3,215,058) (3,309,358)
Preferred Shares................................ (839,580) (896,885)
------------- -------------
Total Distributions............................... (4,054,638) (4,206,243)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (6,168,531) 15,591
NET ASSETS:
Beginning of the Period........................... 76,591,219 76,575,628
------------- -------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $1,004,772 and $954,085, respectively)....... $70,422,688 $76,591,219
============= =============
</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>
-------------------------------------------
1999 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period (a).................. $10.662 $10.658 $10.474 $10.754
-------- -------- -------- -------
Net Investment Income........... .827 .867 .959 .882
Net Realized and Unrealized
Gain/Loss..................... (1.263) .006 .120 (.195)
-------- -------- -------- -------
Total from Investment
Operations.................... (.436) .873 1.079 .687
-------- -------- -------- -------
Less:
Distributions from and in
Excess of Net Investment
Income:
Paid to Common
Shareholders.............. .665 .684 .710 .780
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders.... .174 .185 .185 .187
-------- -------- -------- -------
Total Distributions............. .839 .869 .895 .967
-------- -------- -------- -------
Net Asset Value, End of the
Period........................ $9.387 $10.662 $10.658 $10.474
======== ======== ======== =======
Market Price Per Share at End of
the Period.................... $8.8125 $11.0625 $10.9375 $11.000
Total Investment Return at
Market Price (b).............. (15.09%) 7.63% 6.13% 11.02%
Total Return at Net Asset Value
(c)........................... (5.98%) 6.61% 8.91% 4.83%
Net Assets at End of the Period
(In millions)................. $70.4 $76.6 $76.6 $75.7
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares**...................... 1.69% 1.47% 1.47% 1.51%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common Shares
(d)........................... 6.41% 6.40% 7.38% 6.55%
Portfolio Turnover.............. 46% 33% 25% 39%
* Non-Annualized
**Ratio of Expenses to Average
Net Assets Including Preferred
Shares........................ 1.12% .99% .99% 1.01%
</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
See Notes to Financial Statements
18
<PAGE> 20
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 30, 1989
(Commencement
Year Ended October 31 of Investment
- ----------------------------------------------------- Operations) to
1995 1994 1993 1992 1991 October 31, 1990
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.500 $12.094 $11.151 $11.502 $10.832 $10.901
------- ------- ------- ------- ------- -------
.877 .958 1.090 1.090 1.153 1.001
.406 (1.480) .917 (.348) .647 (.115)
------- ------- ------- ------- ------- -------
1.283 (.522) 2.007 .742 1.800 .886
------- ------- ------- ------- ------- -------
.825 .930 .930 .925 .886 .725
.204 .142 .134 .168 .244 .230
------- ------- ------- ------- ------- -------
1.029 1.072 1.064 1.093 1.130 .955
------- ------- ------- ------- ------- -------
$10.754 $10.500 $12.094 $11.151 $11.502 $10.832
======= ======= ======= ======= ======= =======
$10.625 $11.125 $13.875 $11.750 $12.250 $10.500
2.88% (13.59%) 26.46% 3.10% 25.65% .21%*
10.59% (5.77%) 17.40% 5.04% 14.87% 3.70%*
$77.0 $75.8 $83.5 $79.0 $80.7 $77.4
1.52% 1.47% 1.35% 1.52% 1.53% 1.41%
6.31% 7.20% 8.14% 8.01% 8.12% 7.75%
50% 30% 7% 21% 52% 134%*
1.02% 1.01% .94% 1.05% 1.05% N/A
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
October 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
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, 1999
- --------------------------------------------------------------------------------
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, 1999, the Trust had an accumulated capital loss
carryforward of $3,740,562 which will expire between October 31, 2002 and
October 31, 2007. 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, 1999, for federal income tax purposes, cost of long- and
short-term investments is $81,291,050; the aggregate gross unrealized
appreciation is $2,569,791 and the aggregate gross unrealized depreciation is
$5,150,178 resulting in net unrealized depreciation on long- and short-term
investments of $2,580,387.
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.
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, 1999, the Trust recognized expenses of
approximately $4,500 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
For the year ended October 31, 1999, the Trust recognized expenses of
approximately $53,800 representing Van Kampen's cost of providing accounting and
legal 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 $36,717,984 and $34,277,611,
respectively.
4. 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, 1999 was 3.590%. During
the year ended October 31, 1999, the rates ranged from 3.150% to 3.790%.
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.
22
<PAGE> 24
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, 1999, 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, 1999, by correspondence with the custodian and broker. 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, 1999, 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 LLP
Chicago, Illinois
December 9, 1999
23
<PAGE> 25
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
Common Shareholders who are participants in the Plan may have all distributions
of dividends and capital gains 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 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 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. 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
24
<PAGE> 26
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
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
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing 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
* Closed to new investors
25
<PAGE> 27
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*
STEVEN MULLER
THEODORE A. MYERS
RICHARD F. POWERS, III* -- Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President
and Chief Investment Officer
A. THOMAS SMITH III*
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*
MICHAEL H. SANTO*
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 LLP
303 East Wacker Drive
Chicago, Illinois 60601
For Federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
October 31, 1999. The Trust designated 99.9% of the income distributions as a
tax-exempt income distribution. In January, 2000, the Trust will provide tax
information to shareholders for the 1999 calendar year.
* "Interested" persons of the Trust, as defined in the
Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
26
<PAGE> 28
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on June 16, 1999, where
shareholders voted on the election of trustees, the ratification of KPMG LLP as
the independent public accountants and the approval of the Preferred Share split
and simultaneous reduction of the liquidation preference per Preferred Share of
the Fund.
1) With regard to the election of the following trustee by preferred
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
--------------------
IN FAVOR WITHHELD
- ----------------------------------------------------------------------
<S> <C> <C>
Theodore A. Myers............................... 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>
Don G. Powell*.................................. 3,972,079 52,388
Hugo F. Sonnenschein............................ 3,972,042 52,425
</TABLE>
The other trustees of the Trust whose term did not expire in 1999 are David C.
Arch, Rod Dammeyer, Howard J Kerr, Dennis J. McDonnell, Steven Muller and Wayne
W. Whalen.
3) With regard to the ratification of KPMG LLP as independent public
accountants for the Trust, 3,954,826 shares voted in favor of the proposal,
10,141 shares voted against and 59,522 shares abstained.
4) With regard to the proposal to approve the Preferred Share split and
simultaneous reduction of the liquidation preference per Preferred Share, the
Meeting was adjourned until July 7, 1999, July 28, 1999 and August 18, 1999
where it was determined to be in the best interest of the Fund to discontinue
efforts to obtain the vote and adjourn with respect to the Preferred Shares of
this proposal.
* On August 9, 1999, Don G. Powell resigned and the Board of Trustees appointed
Richard F. Powers, III.
27
<PAGE> 29
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Trust could be adversely affected if the computer systems
used by the Trust's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Trust's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Trust. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Trust may invest that, in turn, may adversely affect
the net asset value of the Trust. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Trust's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
28
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> INVESTMENT GRADE MUNI
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<INVESTMENTS-AT-COST> 81,199,048
<INVESTMENTS-AT-VALUE> 78,710,663
<RECEIVABLES> 1,466,219
<ASSETS-OTHER> 186,589
<OTHER-ITEMS-ASSETS> 79,839
<TOTAL-ASSETS> 80,443,310
<PAYABLE-FOR-SECURITIES> 9,585,297
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 435,325
<TOTAL-LIABILITIES> 10,020,622
<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> (1,004,772)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,832,564)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,488,385)
<NET-ASSETS> 70,422,688
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,835,964
<OTHER-INCOME> 0
<EXPENSES-NET> (832,013)
<NET-INVESTMENT-INCOME> 4,003,951
<REALIZED-GAINS-CURRENT> (3,482)
<APPREC-INCREASE-CURRENT> (6,114,362)
<NET-CHANGE-FROM-OPS> (2,113,893)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,054,638)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (6,168,531)
<ACCUMULATED-NII-PRIOR> (954,085)
<ACCUMULATED-GAINS-PRIOR> (3,829,082)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 446,143
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 832,013
<AVERAGE-NET-ASSETS> 74,352,837
<PER-SHARE-NAV-BEGIN> 10.662
<PER-SHARE-NII> 0.827
<PER-SHARE-GAIN-APPREC> (1.263)
<PER-SHARE-DIVIDEND> (0.839)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.387
<EXPENSE-RATIO> 1.69
</TABLE>
