<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
TWELVE-MONTH DIVIDEND HISTORY 5
TOP FIVE SECTORS 6
NET ASSET VALUE AND MARKET PRICE 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 12
FINANCIAL STATEMENTS 17
NOTES TO FINANCIAL STATEMENTS 22
REPORT OF INDEPENDENT AUDITORS 25
DIVIDEND REINVESTMENT PLAN 26
TRUST OFFICERS AND IMPORTANT ADDRESSES 28
RESULTS OF SHAREHOLDER VOTES 29
</TABLE>
Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
November 20, 2000
Dear Shareholder,
The first three quarters of 2000 proved to be especially volatile, with all of
the major markets declining in the spring and spending the following months
trying to recover. To manage one's portfolio during such unpredictable times
requires investment-management experience, and the following pages should give
you some insight into how we have performed in this difficult environment.
In this report, the portfolio managers will explain how your investment
performed during the reporting period and describe the strategies they used to
manage your trust during that span. The report will also show you how your
investment has performed over time. Helpful charts summarize the trust's largest
investments, and you can examine the complete portfolio to see all of your
trust's holdings as of the end of your trust's reporting period.
At Van Kampen, we place a high priority on providing you and
your financial advisor with the information you need to help
you monitor your investments during all types of markets. With
nearly four generations of investment-management experience,
we've been around long enough to understand that by investing
with Van Kampen you're entrusting us with much more than your
money. Your investments may help make it possible to afford your next house,
keep up with rising college costs, or enjoy a comfortable retirement.
No matter what your reasons for investing, we're thankful that you've chosen to
place your investments with Van Kampen. We will continue to apply our
generations of money-management experience to helping you pursue life's true
wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED RELATIVELY STRONG DURING THE REPORTING PERIOD,
UNDERPINNED BY LOW UNEMPLOYMENT AND RISING PRODUCTIVITY, YET THERE WERE SIGNS
THAT A HEALTHY SLOWDOWN WAS UNDERWAY. GROSS DOMESTIC PRODUCT, THE PRIMARY
MEASURE OF ECONOMIC GROWTH, INCREASED AT A 2.4 PERCENT ANNUALIZED RATE FOR THE
THIRD QUARTER OF 2000. FOLLOWING RELATIVELY MILD FIRST- AND SECOND-QUARTER DATA,
THIS THIRD-QUARTER FIGURE OFFERS FURTHER EVIDENCE THAT GROWTH MIGHT BE SETTLING
BACK TO A MORE MODERATE AND SUSTAINABLE PACE THAN ITS RAPID RATE IN LATE 1999.
CONSUMER SPENDING AND EMPLOYMENT
CONCERNS ABOUT INFLATION REMAINED AT BAY DUE IN PART TO A GRADUAL SLOWDOWN IN
CONSUMER SPENDING. RISING INTEREST RATES, HIGHER ENERGY COSTS, AND A
DISAPPOINTING STOCK MARKET BEGAN TO TEMPER RETAIL SALES, WHICH LEVELED OFF FROM
THE BLISTERING PACE OF LATE 1999 AND EARLY 2000. AND WHILE CONSUMER SPENDING WAS
BRISK, THE OVERALL TREND HAS BEEN DOWNWARD THIS YEAR.
THE JOBLESS RATE CONTINUED TO BE EXTREMELY LOW BY HISTORICAL STANDARDS, BUT A
RECENT DECLINE IN NEW JOB CREATION SUPPORTS THE POPULAR BELIEF THAT THE ECONOMY
IS MODERATING. ALTHOUGH EMPLOYER COSTS SUCH AS WAGES AND BENEFITS WERE RISING AT
THE END OF 1999 AND THE BEGINNING OF 2000, OVER THE PAST SIX MONTHS THE
EMPLOYMENT COST INDEX HAS SHOWN MARKED DECELERATION, WHICH SHOULD HELP EASE
INFLATION CONCERNS.
INTEREST RATES AND INFLATION
THE FEDERAL RESERVE BOARD (THE FED) RAISED INTEREST RATES FOUR TIMES DURING THE
LAST 12 MONTHS IN AN EFFORT TO WARD OFF INFLATION BY CURBING ECONOMIC GROWTH.
OVER THE SAME PERIOD, THE CONSUMER PRICE INDEX ROSE 3.5 PERCENT, WHICH INDICATED
THAT INFLATION GENERALLY REMAINS UNDER CONTROL.
THE FED HAS ACKNOWLEDGED THE RISK OF RISING INFLATION AND WILL STAY ON GUARD, AS
RISING ENERGY COSTS AND LOW UNEMPLOYMENT THREATEN TO PROPEL THIS FIGURE UPWARD
IN THE COMING MONTHS. AS LONG AS INFLATION IS CONTAINED AND THE PACE OF ECONOMIC
GROWTH REMAINS FAVORABLE, THE FED IS LIKELY TO HOLD INTEREST RATES STEADY IN THE
SHORT TERM, WHICH COULD HELP STABILIZE THE STOCK AND BOND MARKETS.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998--September 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.40
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(October 31, 1998--October 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Oct 98 5.00 1.50
4.75 1.50
4.75 1.60
Jan 99 4.75 1.70
4.75 1.60
4.75 1.70
Apr 99 4.75 2.30
4.75 2.10
5.00 2.00
Jul 99 5.00 2.10
5.25 2.30
5.25 2.60
Oct 99 5.25 2.60
5.50 2.60
5.50 2.70
Jan 00 5.50 2.70
5.75 3.20
6.00 3.70
Apr 00 6.00 3.00
6.50 3.10
6.50 3.70
Jul 00 6.50 3.70
6.50 3.30
6.50 3.50
Oct 00 6.50 3.50
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of October 31, 2000)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
<S> <C> <C>
NYSE Ticker Symbol VIG
------------------------------------------------------------------------
One-year total return based on market price(1) -1.60%
------------------------------------------------------------------------
One-year total return based on NAV(2) 7.13%
------------------------------------------------------------------------
Distribution rate as a % of closing common stock price(3) 6.53%
------------------------------------------------------------------------
Taxable-equivalent distribution rate as a % of closing
common stock price(4) 10.20%
------------------------------------------------------------------------
Net asset value $9.43
------------------------------------------------------------------------
Closing common stock price $8.08
------------------------------------------------------------------------
One-year high common stock price (08/16/00) $9.0625
------------------------------------------------------------------------
One-year low common stock price (12/16/99) $7.750
------------------------------------------------------------------------
Preferred share rate(5) 4.30%
------------------------------------------------------------------------
</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 is no guarantee of future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust
shares, when sold, may be worth more or less than their original cost.
4
<PAGE> 6
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<TABLE>
<CAPTION>
As of October 31, 2000
<S> <C> <C>
- AAA/Aaa............ 60.3% [PIE CHART]
- AA/Aa.............. 14.4%
- A/A................ 3.0%
- BBB/Baa............ 15.5%
- BB/Ba.............. 1.6%
- Non-Rated.......... 5.2%
<CAPTION>
As of October 31, 1999
<S> <C> <C>
- AAA/Aaa............ 46.6% [PIE CHART]
- AA/Aa.............. 12.2%
- A/A................ 11.2%
- BBB/Baa............ 19.9%
- BB/Ba.............. 1.4%
- Non-Rated.......... 8.7%
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
TWELVE-MONTH DIVIDEND HISTORY
(for the period ended October 31, 2000, for common shares)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
11/99 0.052
12/99 0.052
1/00 0.052
2/00 0.052
3/00 0.052
4/00 0.052
5/00 0.052
6/00 0.049
7/00 0.049
8/00 0.049
9/00 0.044
10/00 0.044
</TABLE>
The dividend history represents past performance of the trust and is no
guarantee of the trust's future dividends.
5
<PAGE> 7
TOP FIVE SECTORS
(as a percentage of long-term investments)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
OCTOBER 31, 2000 OCTOBER 31, 1999
---------------- ----------------
<S> <C> <C>
Single-Family Housing 17.40 17.40
Water & Sewer 12.60 4.70
Public Education 12.30 8.60
Health Care 7.90 13.50
Industrial Revenue 7.30 12.50
</TABLE>
NET ASSET VALUE AND MARKET PRICE
(based upon quarter-end values--October 1990 through October 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NET ASSET VALUE MARKET PRICE
--------------- ------------
<S> <C> <C>
10/90 10.8300 10.5000
11.0200 11.2500
11.0800 11.8750
11.2300 11.6250
11.5400 12.0000
12/91 11.6100 12.2500
11.4500 12.5000
11.4600 12.5000
11.4700 13.0000
12/92 11.4300 12.3750
11.7600 13.3750
11.9000 13.3750
12.1600 14.0000
12/93 12.2000 12.7500
10.9500 11.6250
10.8100 12.3750
10.7500 12.0000
12/94 10.3300 10.5000
10.9500 11.2500
10.7000 10.5000
10.7100 10.7500
12/95 11.0600 10.5000
10.5200 11.0000
10.3400 10.8750
10.4100 10.8750
12/96 10.4800 10.6250
10.2800 10.3750
10.4800 10.5625
10.6500 10.9375
12/97 10.6700 10.8750
10.6500 10.5625
10.6500 10.8750
10.7600 11.2500
12/98 10.5600 11.0625
10.4400 11.0000
9.9800 10.3750
9.6300 9.0625
12/99 9.2300 8.1250
9.3400 8.1250
9.1900 8.1875
9.3600 8.1900
10/00 9.4300 8.0800
</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.
6
<PAGE> 8
[PHOTO]
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGER OF THE VAN KAMPEN INVESTMENT
GRADE MUNICIPAL TRUST ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS AND INFLUENCED THE TRUST'S RETURN DURING THE 12 MONTHS ENDED OCTOBER 31,
2000. THOMAS M. BYRON, PORTFOLIO MANAGER, HAS MANAGED THE TRUST SINCE 2000 AND
HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1981. THE FOLLOWING DISCUSSION
REFLECTS HIS VIEWS ON THE TRUST'S PERFORMANCE.
Q WHAT WERE THE MOST IMPORTANT
DEVELOPMENTS IN THE FIXED-INCOME MARKETS AND HOW DID THE TRUST PERFORM
DURING THE REPORTING PERIOD?
A The key factor in the market's
behavior during the past fiscal year has been generally rising interest rates,
especially at the short end of the maturity spectrum. This rate environment
stemmed from the Federal Reserve Board's commitment to keeping inflation in
check by ratcheting up short-term interest rates whenever the economy threatened
to overheat and push the prices of goods and services higher. In fact, the Fed
increased short-term rates four times during the reporting period, with the last
hike occurring in May 2000.
The strength of the economy, and the accompanying Federal Reserve activity,
caused interest rates to rise across the board for the first half of the
reporting period. In the spring of 2000, the bond market rallied as investors
began to anticipate an end to the Fed's rate-tightening cycle. By the end of
October, short-term rates remained high, but rates in the intermediate to long
maturity segments of the market had actually declined from the levels we had
seen at the start of the reporting period.
Because the trust is leveraged, higher short-term rates placed pressure on
the trust's dividend, as the increased cost of borrowing cut into the fund's
earnings. However, the relatively high long-term rates that prevailed for part
of the reporting period allowed the trust to add new holdings at attractive
yields, partially offsetting the decline in income that occurred as short-term
rates climbed.
After the steady increase in short-term interest rates over the past year,
we have seen a more stable environment in recent months, as the Fed has reacted
to slower economic growth, more efficient workforce output, and moderate price
gains by keeping target lending rates unchanged. The inflation rate, as measured
by the consumer price index, peaked in March 2000 at 3.8 percent and has since
dropped back below the 3 percent level.
7
<PAGE> 9
Supply in the municipal bond market was sharply lower from the levels of a
year ago, as higher interest rates have made it unattractive for municipalities
to retire existing debt. At the same time, strong economic activity has allowed
many municipalities to generate a budget surplus, enabling them to cover
spending that would normally require municipal bond financing.
Because demand has remained strong, the lack of new issuance in the primary
market helped support bond prices, although the somewhat limited selection of
available securities required us to be very selective in choosing new bonds for
the trust's portfolio. In many cases, we found attractive values in the
secondary market, buying and selling bonds that have been in the market for a
while.
The trust continued to provide shareholders with an attractive dividend,
even though the dividend was decreased slightly on three occasions during the
reporting period. Its monthly dividend of $0.044 per share translates to a
distribution rate of 6.53 percent based on the trust's closing market price on
October 31, 2000. Because income from the trust is exempt from federal income
taxes, this distribution rate is equivalent to a yield of 10.20 percent for an
investor in the 36 percent federal income tax bracket.
For the 12 months through October 31, 2000, the trust produced a total
return of -1.60 percent based on market price. At the same time, the trust's
market price decreased from $8.8125 per share on October 31, 1999, to $8.08 per
share on October 31, 2000.
Of course, past performance is no guarantee of future results. As a result
of recent market activity, current performance may vary from the figures shown.
By comparison, the Lehman Brothers Municipal Bond Index posted a total return of
8.51 percent for the same period. This broad-based, unmanaged index, which
reflects the general performance of municipal securities, does not reflect any
commissions or fees that would be paid by an investor purchasing the securities
it represents. Such costs would lower the performance of the index. It is not
possible to invest directly in an index. For additional performance results,
please refer to the chart and footnotes on page 4.
Q HOW DID YOU REACT TO THE
MARKET CONDITIONS YOU ENCOUNTERED IN MANAGING THE TRUST?
A Much of the activity in the trust's
portfolio during the reporting period was guided by a strategic direction we
adopted in February of 2000 and have gradually implemented since then. It was
our goal to lengthen the duration of the portfolio (a measure of its sensitivity
to changes in interest rates) so that it more closely mirrored the benchmark
indicators we use to gauge the trust's performance. At the time, we felt the
market had solid upside potential, and a longer duration would allow the trust
to more fully participate in the gains of the market if it rallied over time.
As we began implementing this strategy, we caught the market at a good time.
Early in the year, the
8
<PAGE> 10
market presented us with attractive yields on long-duration securities,
particularly those priced at deep discounts. We purchased some of these bonds
and sold prerefunded securities and bonds with short calls--many of which were
scheduled to be called or refunded within the next year or two. In effect, this
strategy helped capture additional par value and the potential for capital
appreciation, all while achieving the desired effect of extending the
portfolio's duration. This strategy was a positive in terms of the trust's
performance, especially during the market rally that occurred in the second and
third quarters of 2000.
Q HOW DID THIS STRATEGY AFFECT THE
COMPOSITION OF THE PORTFOLIO?
A A by-product of this market
activity--and the trust's positioning within the market--was an increase in the
overall credit quality of the portfolio. The rallies were strongest at the high
end of the quality spectrum, so these securities saw solid price gains while the
valuations of nonrated and lower-rated securities, such as those rated BBB or
lower, remained fairly flat or declined.
Over the course of the reporting period, the portfolio composition came to
reflect this trend, as the trust's AAA allocation increased to 60.3 percent of
long-term investments (up from 46.6 percent at the start of the period). Its BBB
allocation declined to 15.5 percent (down from 19.9 percent), nonrated
securities were reduced to 5.2 percent (down from 8.7 percent), and the
portfolio no longer contains any securities in the BB rating category (as of
October 31, 2000, the portfolio contained 1.6% of BB rated securities). All
told, as of October 31, 2000, 74.7 percent of the long-term investments was
invested in securities rated AA or better, up from 58.8 percent a year ago. In
general, our bias toward high-quality securities was a boost to portfolio
performance.
In terms of specific industry sectors, the trust's allocations to
health-care bonds and industrial revenue bonds were both reduced by roughly 6
percent. Much of this was due to our decision to increase the diversification of
the trust, reducing positions that we considered to be too big for the
portfolio. Also, the health-care sector has had its share of credit-quality
concerns, so we selectively sold issues that we thought would not meet our
expectations for long-term performance.
Q WHAT WERE THE MOST SIGNIFICANT
CHALLENGES YOU FACED IN MANAGING THE TRUST?
A Some credit concerns had an
adverse effect on the trust's net asset value during the past fiscal year. The
trust held four nonrated issues--two real estate projects, a steel mill, and a
waste incinerator facility--that ran into difficulties with payment defaults or
bankruptcy, resulting in a significant decline in the price of these securities.
We will monitor the progress of these situations and take whatever action we
believe is in the best interest of the trust's shareholders.
9
<PAGE> 11
Q YOU MENTIONED THAT THE TRUST'S
DIVIDEND WAS REDUCED DURING THE REPORTING PERIOD. CAN YOU EXPLAIN WHY?
A A combination of factors made it
necessary to cut the trust's dividend in November 1999, June 2000, and September
2000. First, as a leveraged portfolio, the trust must pay interest on money
borrowed at short-term rates, while investing these funds in longer-term
securities. As short-term rates rose more significantly than longer-term rates,
the cost of this leverage increased during the reporting period and reduced the
trust's income stream.
Second, as we took advantage of higher rates in long-maturity bonds, we
tended to sell older, higher-yielding bonds that had strengthened the trust's
income stream but were susceptible to being called out of the portfolio in the
near future. Essentially, we exchanged their near-term contribution to the
trust's income for an improvement in the portfolio's overall structure and
long-term income potential.
Q WHAT DO YOU SEE AHEAD FOR
THE ECONOMY AND THE MUNICIPAL MARKET?
A The outlook for the municipal
bond market will be closely tied to the prospects of the U.S. economy and the
Fed's reaction to key economic indicators. While interest rates have been fairly
steady of late, the Fed's next move will be based on whether inflation shows
signs of heating up. We believe inflation appears to be under control at this
time, but the Fed will be watching economic growth statistics, the labor market,
and the prices of key commodities, such as crude oil, for signs of inflationary
pressures.
Clearly, the direction of interest rates will be determined by the Fed's
reaction to inflationary signals, so we feel it would be imprudent to make a bet
on the direction of interest rates in terms of how we position the trust.
Consequently, we will seek to maintain a neutral stance with respect to the
portfolio's duration (a measure of a trust's sensitivity to interest-rate
changes) in the near term.
We believe the demand for municipal securities should remain healthy. This
will hopefully bode well for the trust, although it will be competing with a
range of investment options, such as individual bonds, mutual funds, and managed
accounts, for investor assets. Also, the stock market may continue to attract
assets away from bonds, depending on its return prospects and price volatility.
We believe bond supply should remain tight, helping to support prices, as
municipalities continue to operate with budget surpluses that can be used for
construction projects, education funding, road improvements, and other
expenditures typically financed by new bond issuance.
We will continue to search for securities that have the potential to enhance
the trust's long-term performance. If our analysis indicates that it would be
advantageous to sell certain bonds--or as bonds are prerefunded, mature
according to schedule, or are called from the portfolio--we will strive to
replace them with bonds that offer the best relative value available at the
time.
10
<PAGE> 12
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CALL FEATURE: Allows a bond issuer to buy back a bond on specific dates at set
prices before the bond's maturity date. 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.
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 its price. Typically, funds with shorter durations perform better
in rising-rate environments, while funds with longer durations perform better
when rates decline.
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. Typically, short-term bonds mature in
five years or less, intermediate-term bonds mature in five to ten years, and
long-term bonds mature after ten years.
PREREFUNDING: The process of issuing new bonds to refinance an outstanding 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.
SECONDARY MARKET: A market where securities are traded after they are initially
offered.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower credit 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.
11
<PAGE> 13
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
October 31, 2000
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 94.7%
ALABAMA 1.5%
$1,140 Alabama Wtr Pollutn Ctrl Auth Ser B (AMBAC
Insd) (b)................................... 4.750% 08/15/18 $ 1,028,679
-----------
ALASKA 1.5%
1,000 Matanuska-Susitna Boro, AK Ctfs Partn Pub
Safety Bldg Lease (FSA Insd)................ 5.750 03/01/16 1,027,160
-----------
ARIZONA 4.8%
2,675 Maricopa Cnty, AZ Uni Sch Dist No 69
Paradise Vly (FSA Insd) (b)................. 4.000 07/01/16 2,271,931
1,000 Phoenix, AZ Civic Impt Corp Jr Lien......... 6.250 07/01/17 1,087,770
-----------
3,359,701
-----------
ARKANSAS 1.2%
1,000 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt Ser A
(c)......................................... 7.500 01/31/06 859,400
919 Dogwood Addition PRD Muni Ppty Owners Multi-
Purp Impt Dist No 8 AR Impt Ser B (c) (e)... 7.500 01/31/06 0
-----------
859,400
-----------
CALIFORNIA 5.5%
4,490 Contra Costa, CA Home Mtg Fin Auth Home Mtg
Rev (MBIA Insd)............................. * 09/01/17 1,785,179
650 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Cap Apprec Sr Lien Ser A.................... * 01/01/28 141,005
225 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Conv Cap Apprec Sr Lien Ser A (Prerefunded @
01/01/10) (d)............................... 0/7.50 01/01/13 205,425
500 Fresno, CA Uni Sch Dist Ser A Rfdg (MBIA
Insd)....................................... 6.100 08/01/12 569,650
3,705 San Joaquin Hills, CA Tran Corridor Agy Toll
Rd Cap Apprec Rev Ser A Rfdg (MBIA Insd).... * 01/15/27 844,073
1,500 San Joaquin Hills, CA Tran Corridor Agy Toll
Rd Cap Apprec Rev Ser A Rfdg (MBIA Insd).... * 01/15/28 322,125
-----------
3,867,457
-----------
COLORADO 4.2%
145 Jefferson Cnty, CO Residential Mtg Rev...... 11.500 09/01/03 170,996
160 Jefferson Cnty, CO Residential Mtg Rev...... 11.500 09/01/04 197,574
180 Jefferson Cnty, CO Residential Mtg Rev...... 11.500 09/01/05 231,664
205 Jefferson Cnty, CO Residential Mtg Rev...... 11.500 09/01/06 273,812
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR TRUST'S INVESTMENTS
October 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 235 Jefferson Cnty, CO Residential Mtg Rev...... 11.500% 09/01/07 $ 324,678
265 Jefferson Cnty, CO Residential Mtg Rev...... 11.500 09/01/08 377,479
300 Jefferson Cnty, CO Residential Mtg Rev...... 11.500 09/01/09 439,296
340 Jefferson Cnty, CO Residential Mtg Rev...... 11.500 09/01/10 510,456
220 Jefferson Cnty, CO Residential Mtg Rev...... 11.500 09/01/11 338,562
100 Jefferson Cnty, CO Residential Mtg Rev...... 9.000 09/01/12 135,446
-----------
2,999,963
-----------
FLORIDA 4.9%
1,000 Escambia Cnty, FL Hlth Fac Rev (AMBAC
Insd)....................................... 5.950 07/01/20 1,041,440
560 Hillsborough Cnty, FL Indl Dev Hlth Facs
Proj Uni Cmnty Hosp Ser A................... 5.500 08/15/14 501,922
2,300 Sun N Lake of Sebring, FL Impt Dist Spl
Assmt Ser A (c) (e)......................... 10.000 12/15/11 736,000
1,145 West Palm Beach, FL......................... 5.250 03/01/14 1,155,294
-----------
3,434,656
-----------
ILLINOIS 17.0%
2,510 Aurora, IL Single Family Mtg Rev Cap Apprec
(AMBAC Insd)................................ * 12/01/22 445,977
350 Bedford Park, IL Tax Increment 71st & Cicero
Proj Rfdg................................... 7.000 01/01/06 360,700
7,500 Chicago, IL Brd of Ed Chicago Sch Reform Ser
A (FGIC Insd)............................... * 12/01/28 1,452,450
2,055 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B (b).................. 8.950 05/01/18 2,149,818
1,250 Chicago, IL Proj Ser C Rfdg................. 5.500 01/01/40 1,206,150
790 Chicago, IL Single Family Mtg (GNMA
Collateralized) (b)......................... 7.625 09/01/27 884,855
510 Cook Cnty, IL Sch Dist No 107 La Grange
(b)......................................... 7.150 12/01/08 584,817
575 Cook Cnty, IL Sch Dist No 107 La Grange..... 7.200 12/01/09 667,828
625 Cook Cnty, IL Sch Dist No 107 La Grange..... 7.000 12/01/10 722,750
500 Hodgkins, IL Tax Increment Ser A Rfdg....... 7.625 12/01/13 531,760
1,910 Illinois Hsg Dev Auth Residential Mtg Rev
Ser B....................................... 7.250 08/01/17 1,954,407
500 Illinois Hsg Dev Auth Rev Homeowner Mtg
G2.......................................... 6.050 08/01/29 506,520
250 Lake Cnty, IL Cmnty Unit.................... 7.600 02/01/14 308,135
180 Robbins, IL Res Recovery Rev Restructuring
Proj Ser A (e).............................. 8.375 10/15/16 26,953
70 Robbins, IL Res Recovery Rev Restructuring
Proj Ser B (e).............................. 8.375 10/15/16 10,547
28 Robbins, IL Res Recovery Rev Restructuring
Proj Ser C.................................. 7.250 10/15/09 26,489
121 Robbins, IL Res Recovery Rev Restructuring
Proj Ser C.................................. 7.250 10/15/24 110,609
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR TRUST'S INVESTMENTS
October 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 56 Robbins, IL Res Recovery Rev Restructuring
Pro Ser D................................... * 10/15/09 $ 26,163
-----------
11,976,928
-----------
INDIANA 1.3%
1,000 Marion Cnty, IN Conv & Rectnl Fac Auth
Excise Tax Rev Ser A (MBIA Insd)............ 5.000% 06/01/27 909,920
-----------
KENTUCKY 3.3%
2,680 Louisville & Jefferson Cnty, KY Metro Swr
Dist Swr & Drainage Sys Rev (FGIC Insd)..... 4.750 05/15/28 2,339,345
-----------
MASSACHUSETTS 2.6%
360 Massachusetts St Hlth & Edl Fac Auth Rev
Cent New England Hlth Sys Ser A............. 6.125 08/01/13 318,820
395 Massachusetts St Hsg Fin Agy Multi-Family
Residential Dev Ser A (FNMA
Collateralized)............................. 8.150 02/01/29 403,330
1,140 Massachusetts St Port Auth Rev Ser B (FSA
Insd)....................................... 5.500 07/01/15 1,146,270
-----------
1,868,420
-----------
MONTANA 2.9%
2,000 Forsyth, MT Pollutn Ctl Rev Puget Sound Pwr
& Lt Ser B Rfdg (AMBAC Insd)................ 7.250 08/01/21 2,070,640
-----------
NEVADA 7.2%
1,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj
Ser A (FGIC Insd) (b)....................... 6.700 06/01/22 1,043,310
1,000 Director St NV Dept Business & Ind Las Vegas
Monorail Proj............................... 5.375 01/01/40 945,480
3,015 Nevada Hsg Div Single Family Mtg Mezz Ser
D2.......................................... 6.300 04/01/21 3,120,736
-----------
5,109,526
-----------
NEW HAMPSHIRE 5.0%
2,500 New Hampshire Higher Edl & Hlth Fac Auth Rev
Hosp Catholic Med Cent Rfdg................. 8.250 07/01/13 2,528,325
525 New Hampshire Hlth & Edl Derryfield Sch..... 6.750 07/01/20 520,705
500 New Hampshire St Indl Dev Auth Rev Pollutn
Ctl Pub Svcs Co of NH Proj Ser C............ 7.650 05/01/21 511,430
-----------
3,560,460
-----------
NEW JERSEY 2.3%
1,500 New Jersey Econ Dev Wtr NJ American Wtr Co.,
Inc. Ser B.................................. 5.375 05/01/32 1,432,830
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR TRUST'S INVESTMENTS
October 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 200 New Jersey Hlthcare Fac Fin Auth Rev........ 7.500% 07/01/06 $ 206,702
-----------
1,639,532
-----------
NEW YORK 7.1%
1,000 Nassau Cnty, NY Interim Fin Sales Tax
Secured Ser A............................... 5.750 11/15/13 1,050,150
1,000 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev (AMBAC Insd)........................ 6.750 06/15/06 1,023,500
1,000 New York City Ser H (MBIA Insd)............. 5.125 08/01/25 936,080
1,000 New York City Tran Auth Metro Transn Auth
Triborough Ser A (AMBAC Insd)............... 5.250 01/01/29 949,930
1,000 New York St Twy Auth Svcs Rev Loc Hwy & Bldg
(AMBAC Insd)................................ 5.500 04/01/11 1,051,370
-----------
5,011,030
-----------
OHIO 0.1%
500 Ohio St Solid Waste Rev Rep Engineered
Steels Proj................................. 8.250 10/01/14 98,970
-----------
PENNSYLVANIA 1.9%
1,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl
Rev Collateral Toledo Edison Co Proj Rfdg
(b)......................................... 7.625 05/01/20 1,061,180
315 Crawford Cnty, PA Hosp Auth Sr Living Facs
Rev......................................... 5.875 08/15/10 298,491
-----------
1,359,671
-----------
SOUTH CAROLINA 1.7%
1,235 Rock Hill, SC Util Sys Rev Ser C Rfdg (a)... 5.250 01/01/15 1,235,383
-----------
TENNESSEE 0.6%
400 Elizabethton, TN Hlth & Edl Fac Brd Rev..... 7.750 07/01/29 394,772
-----------
TEXAS 12.3%
1,000 Alliance Arpt Auth Inc TX Spl Fac Rev
American Airls Inc (b)...................... 7.000 12/01/11 1,082,570
1,670 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev.................................... 6.375 05/01/35 1,627,983
1,500 Fort Worth, TX Wtr & Swr Rev Impt Rfdg
(a)......................................... 5.750 02/15/16 1,552,635
1,000 Houston, TX Arpt Sys Rev Ser A (a).......... 5.625 07/01/30 973,200
391 Pecos Cnty, TX Ctfs Partn................... 6.000 01/12/08 394,993
2,480 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation Rfdg (Cap Guar Insd)............ 5.500 09/01/13 2,514,943
500 West Side Calhoun Cnty, TX Nav Dist Sld Wst
Disp Union Carbide Chem & Plastics.......... 8.200 03/15/21 513,890
-----------
8,660,214
-----------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR TRUST'S INVESTMENTS
October 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
VIRGINIA 3.0%
$2,000 Richmond, VA (FSA Insd)..................... 5.500% 01/15/11 $ 2,109,280
-----------
WASHINGTON 1.4%
1,000 Port Seattle, WA Rev Ser B.................. 5.625 02/01/24 980,840
-----------
GUAM 1.4%
1,000 Guam Pwr Auth Rev Ser A (AMBAC Insd)........ 5.250 10/01/34 964,840
-----------
TOTAL LONG-TERM INVESTMENTS 94.7%
(Cost $68,716,484).................................................... 66,866,787
SHORT-TERM INVESTMENTS 0.1%
(Cost $100,000)....................................................... 100,000
-----------
TOTAL INVESTMENTS 94.8%
(Cost $68,816,484).................................................... 66,966,787
OTHER ASSETS IN EXCESS OF LIABILITIES 5.2%............................. 3,649,583
-----------
NET ASSETS 100.0%...................................................... $70,616,370
===========
</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 increases or steps-up at a
predetermined date.
(e) Non-income producing security.
AMBAC--AMBAC Indemnity Corporation
Cap Guar--Capital Guarantee
FGIC--Financial Guaranty Insurance Company
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
16
<PAGE> 18
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $68,816,484)........................ $66,966,787
Cash........................................................ 86,729
Receivables:
Investments Sold.......................................... 6,305,700
Interest.................................................. 1,358,476
Other....................................................... 1,752
-----------
Total Assets............................................ 74,719,444
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,748,227
Income Distributions--Preferred Shares.................... 82,465
Investment Advisory Fee................................... 37,451
Affiliates................................................ 7,461
Accrued Expenses............................................ 113,847
Trustees' Deferred Compensation and Retirement Plans........ 113,623
-----------
Total Liabilities....................................... 4,103,074
-----------
NET ASSETS.................................................. $70,616,370
===========
NET ASSETS CONSIST OF:
Preferred Shares ($.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.................................................... (1,253,559)
Net Unrealized Depreciation................................. (1,849,697)
Accumulated Net Realized Loss............................... (4,028,783)
-----------
Net Assets Applicable to Common Shares.................. 45,616,370
-----------
NET ASSETS.................................................. $70,616,370
===========
NET ASSET VALUE PER COMMON SHARE ($45,616,370 divided by
4,839,000 shares outstanding)............................. $ 9.43
===========
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
Statement of Operations
For the Year Ended October 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 4,371,410
-----------
EXPENSES:
Investment Advisory Fee..................................... 418,960
Preferred Share Maintenance................................. 75,541
Audit....................................................... 43,736
Shareholder Reports......................................... 38,953
Trustees' Fees and Related Expenses......................... 18,628
Legal....................................................... 15,748
Custody..................................................... 7,284
Other....................................................... 62,215
-----------
Total Expenses.......................................... 681,065
Less Credits Earned on Cash Balances.................... 300
-----------
Net Expenses............................................ 680,765
-----------
NET INVESTMENT INCOME....................................... $ 3,690,645
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss (Including reorganization and
restructuring costs of $545).............................. $ (196,219)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (2,488,385)
End of the Period......................................... (1,849,697)
-----------
Net Unrealized Appreciation During the Period............... 638,688
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 442,469
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 4,133,114
===========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
Statement of Changes in Net Assets
For the Years Ended October 31, 2000 and 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 3,690,645 $ 4,003,951
Net Realized Loss................................... (196,219) (3,482)
Net Unrealized Appreciation/Depreciation During the
Period............................................ 638,688 (6,114,362)
----------- -----------
Change in Net Assets from Operations................ 4,133,114 (2,113,893)
----------- -----------
Distributions from and in Excess of Net Investment
Income:
Common Shares..................................... (2,897,939) (3,215,058)
Preferred Shares.................................. (1,041,493) (839,580)
----------- -----------
Total Distributions................................. (3,939,432) (4,054,638)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ 193,682 (6,168,531)
NET ASSETS:
Beginning of the Period............................. 70,422,688 76,591,219
----------- -----------
End of the Period (Including accumulated
distributions in excess of net investment income
of $1,253,559 and $1,004,772, respectively)....... $70,616,370 $70,422,688
=========== ===========
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
---------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD.............................. $ 9.39 $ 10.66 $ 10.66 $ 10.47 $ 10.75
-------- -------- -------- -------- -------
Net Investment Income............... .76 .83 .86 .96 .88
Net Realized and Unrealized
Gain/Loss......................... .09 (1.26) .01 .12 (.19)
-------- -------- -------- -------- -------
Total from Investment Operations...... .85 (.43) .87 1.08 .69
-------- -------- -------- -------- -------
Less:
Distributions from and in Excess of
Net Investment Income:
Paid to Common Shareholders....... .60 .67 .68 .71 .78
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders.................... .21 .17 .19 .18 .19
-------- -------- -------- -------- -------
Total Distributions................... .81 .84 .87 .89 .97
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF THE PERIOD.... $ 9.43 $ 9.39 $ 10.66 $ 10.66 $ 10.47
======== ======== ======== ======== =======
Market Price Per Share at End of the
Period.............................. $ 8.0800 $ 8.8125 $11.0625 $10.9375 $11.000
Total Investment Return at Market
Price (a)........................... -1.60% -15.09% 7.63% 6.13% 11.02%
Total Return at Net Asset Value (b)... 7.13% -5.98% 6.61% 8.91% 4.83%
Net Assets at End of the Period (In
millions)........................... $ 70.6 $ 70.4 $ 76.6 $ 76.6 $ 75.7
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares**............................ 1.52% 1.69% 1.47% 1.47% 1.51%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (c)................... 5.92% 6.41% 6.40% 7.38% 6.55%
Portfolio Turnover.................... 41% 46% 33% 25% 39%
** Ratio of Expenses to Average Net
Assets Including Preferred
Shares............................. .98% 1.12% .99% .99% 1.01%
</TABLE>
(a) 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.
(b) 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.
(c) Net Investment Income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
20
<PAGE> 22
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
-----------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 10.50 $ 12.09 $ 11.15 $ 11.50 $ 10.83
------- -------- ------- ------- -------
.88 .96 1.09 1.09 1.15
.40 (1.48) .91 (.35) .65
------- -------- ------- ------- -------
1.28 (.52) 2.00 .74 1.80
------- -------- ------- ------- -------
.83 .93 .93 .92 .89
.20 .14 .13 .17 .24
------- -------- ------- ------- -------
1.03 1.07 1.06 1.09 1.13
------- -------- ------- ------- -------
$ 10.75 $ 10.50 $ 12.09 $ 11.15 $ 11.50
======= ======== ======= ======= =======
$10.625 $ 11.125 $13.875 $11.750 $12.250
2.88% -13.59% 26.46% 3.10% 25.65%
10.59% -5.77% 17.40% 5.04% 14.87%
$ 77.0 $ 75.8 $ 83.5 $ 79.0 $ 80.7
1.52% 1.47% 1.35% 1.52% 1.53%
6.31% 7.20% 8.14% 8.01% 8.12%
50% 30% 7% 21% 52%
1.02% 1.01% .94% 1.05% 1.05%
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
NOTES TO
FINANCIAL STATEMENTS
October 31, 2000
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 accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Municipal bonds are valued by independent pricing services
or dealers using the mean of the bid and asked prices or, in the absence of
market quotations, at fair value based upon yield data relating to municipal
bonds with similar characteristics and general market conditions. Securities
which are not valued by independent pricing services are valued at fair value
using procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when-issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
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 is amortized and original issue discount is accreted over the expected
life of each applicable security.
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
October 31, 2000
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, 2000, the Trust had an accumulated capital loss
carryforward of $3,936,669 which will expire between October 31, 2002 and
October 31, 2008. 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, 2000, for federal income tax purposes, cost of long- and
short-term investments is $68,908,598; the aggregate gross unrealized
appreciation is $2,505,997 and the aggregate gross unrealized depreciation is
$4,447,808, resulting in net unrealized depreciation on long- and short-term
investments of $1,941,811.
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.
F. EXPENSE REDUCTIONS During the year ended October 31, 2000, the Fund's custody
fee was reduced by $300 as a result of credits earned on overnight cash
balances.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Trust for an annual fee payable monthly of .60% of the average
daily net assets of the Trust.
For the year ended October 31, 2000, the Trust recognized expenses of
approximately $2,000 representing legal services provided by Skadden, Arps,
Slate,
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
October 31, 2000
Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of the Trust
is an affiliated person.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each Trust. For the year ended October
31, 2000, the Trust recognized expenses of approximately $24,000 representing
Van Kampen's cost of providing accounting and legal services to the Trust, which
are reported as part of other and legal expenses, respectively, in the statement
of operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable 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 $29,577,971 and $36,829,081,
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, 2000 was 4.30%. During
the year ended October 31, 2000, the rates ranged from 3.550% to 4.850%.
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.
24
<PAGE> 26
REPORT OF INDEPENDENT AUDITORS
To 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, 2000, and the related statements of
operations, changes in net assets and the financial highlights for the year then
ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The Trust's financial statements and financial highlights for the periods
ended prior to October 31, 2000 were audited by other auditors whose report,
dated December 9, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000, by correspondence with the Trust's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides 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, 2000, the results of
its operations, the changes in its net assets and the financial highlights for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
December 6, 2000
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<PAGE> 27
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.
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<PAGE> 28
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
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<PAGE> 29
TRUST OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN INVESTMENT GRADE
MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
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
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS(1)
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
For Federal Income tax purposes, the following information is furnished with
respect to
the distributions paid by the Trust during its taxable year ended October 31,
2000. The
Trust designated 98.8% of the income distributions as a tax-exempt income
distribution.
In January, 2001, the Trust will provide tax information to shareholders for
the 2000 calendar year.
(1) Independent auditors for the Trust perform an annual audit of the Trust's
financial statements. The Board of Trustees has engaged Deloitte & Touche
LLP to be the Trust's independent auditors.
KPMG LLP, located at 303 West Wacker Drive, Chicago, IL 60601 ("KPMG"),
ceased being the Trust's independent accountants effective April 14, 2000.
The cessation of the client- auditor relationship between the Trust and KPMG
was based solely on a possible future business relationship by KPMG with an
affiliate of the Trust's investment adviser.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
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<PAGE> 30
RESULTS OF
SHAREHOLDER VOTES
An Annual Meeting of the Shareholders of the Trust was held on June 21, 2000,
where shareholders voted on the election of trustees and the ratification of
Deloitte & Touche LLP as the independent public auditors.
1) With regard to the election of the following trustees by the shareholders of
the Trust:
<TABLE>
<CAPTION>
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
<S> <C> <C>
David C. Arch.......................................... 4,221,374 147,141
Howard J Kerr.......................................... 4,219,947 148,569
</TABLE>
The other trustees whose terms did not expire in 2000 were Theodore A. Myers,
Richard F. Powers, III, Hugo F. Sonnenschein and Wayne W. Whalen.
2) With regard to the ratification of Deloitte & Touche LLP as independent
auditors for the Trust; 4,276,226 shares voted in favor of the proposal, 47,878
shares voted against and 44,410 shares abstained.
29
