<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
Statement of Assets and Liabilities.............. 9
Statement of Operations.......................... 10
Statement of Changes in Net Assets............... 11
Financial Highlights............................. 12
Notes to Financial Statements.................... 13
</TABLE>
VKS SAR 6/96
<PAGE> 2
LETTER TO SHAREHOLDERS
May 15, 1996
Dear Shareholder,
While interest rates drifted
downward during the fourth quarter of
last year, such was not the case in the
first quarter of 1996. Early in the
quarter, municipal bond prices
demonstrated increased volatility in
conjunction with February's economic
announcements, which revealed a revival PHOTO
in economic growth, impressive
employment levels, and moderate
inflation. This positive economic DENNIS J. MCDONNELL AND DON G. POWELL
environment, however, did not translate
into positive movement for the bond markets. Instead, the markets became wary,
because inflation often accompanies economic growth.
Other factors influencing the municipal bond market early in the year
included:
- Intense weather conditions, which hindered distribution and manufacturing,
were experienced by much of the United States and affected certain
municipal bond sectors.
- The expectation that a federal budget agreement was forthcoming helped
bolster municipal bonds, especially at the longer end of the spectrum.
- The proposal of tax reform--and the threat of municipal bonds having
diminished tax-exempt status--continued to dampen demand for municipals,
resulting in lower bond prices.
We believe the beginning of 1996 reflected the market's reaction to the
possibility of a return to long-term economic growth. This, coupled with
continued low inflationary conditions, has served to put the Federal Reserve
Board in a neutral policy mode, bringing relative calm to the market--although
currently at higher interest rate levels.
PERFORMANCE SUMMARY
The Van Kampen American Capital Strategic Sector Municipal Trust (ticker
symbol VKS) finished the period with a closing common stock price of $11.25,
representing a decline of over 5 percent over the past six months. However, this
dip in market price was consistent with the general decline of the municipal
bond market, which was down 4 percent for the same period, according to the Bond
Buyer's 40 Municipal Bond Index.
For the six months ended April 30, 1996, the Trust posted a total return of
- -2.09 percent(1), based on market price. Longer term, the Trust's one-year total
return was -1.81 percent(1), based on market price for the period ended April
30, 1996, including reinvestment of dividends.
Continued on page two
1
<PAGE> 3
The Trust sustained a reduction in its monthly dividend from $0.0675 to
$0.0650 per common share which was effective March 1, 1996 and first payable
March 31, 1996. Although short-term municipal rates have recently notched lower,
due to a series of Fed easings beginning in 1995, short-term rates in general
are significantly higher than two years ago. This short-term rate pressure,
combined with efforts to manage the Trust's callable bonds, has impacted the
Trust's earning potential and necessitated the dividend adjustment.
Despite the decline in income, many closed-end municipal bond funds are
currently offering higher after-tax yields than taxable income alternatives, and
your Trust is no exception. Based on the closing common stock price on April 30,
1996, the Strategic Sector Municipal Trust had a tax-exempt distribution rate of
6.93 percent(3). In other words, investors in the 36 percent federal income tax
bracket would have to earn a yield of 10.83 percent(4) on a taxable investment
to equal your Trust's tax-exempt distribution rate.
MARKET OUTLOOK
The economy rebounded in the first quarter of 1996, despite poor weather in
the East and the remnants of a slow fourth quarter of 1995, which was hindered
by weak construction activity, two government shutdowns, and a strike at Boeing.
We believe the momentum of the first quarter can carry into the second, due in
part to renewed auto production in the aftermath of the General Motors strike
and an end to the budget stalemate between the White House and Congress. We
expect a modest slowdown in the summer months, as higher interest rates could
slow activity in interest-sensitive sectors of the economy, such as housing.
Portfolio Holdings by Industry as of April 30,
1996
Utilities......................... 23.6%
Health Care....................... 20.4%
General Purpose................... 13.2%
Transportation.................... 11.5%
Housing........................... 11.4%
Industrial Revenue................ 10.0%
Education.......................... 6.9%
Other.............................. 3.0%
The Fed's protracted period of easing, and relatively neutral stance, favors
the growth we are currently experiencing. Given the strong employment situation
and commodity price increases, we think the Fed will await further economic
evidence before adjusting interest rates again--probably summertime at the
earliest. So far, guides such as the Consumer Price Index continue to indicate
modest levels of inflation. More importantly, we continue to see few signs of
emerging inflation in either unit labor costs, hourly earnings or the employment
cost index.
- --------------------------------------------------------------------------------
INVESTMENT TERM: REVENUE BONDS
Revenue bonds are one of the three most common types of municipal bonds--the
other two are general obligation bonds and municipal notes. Revenue bonds
are issued to finance income-generating projects such as turnpikes, toll
bridges and airports. The revenues these projects bring in are used to pay
interest and principal to bondholders.
- --------------------------------------------------------------------------------
Continued on page three
2
<PAGE> 4
Finally, as the November elections approach, the debate on tax reform may
grow. We believe the outcome in the long run will be positive, or at worst
neutral, for municipal bonds. That's good news for the market, which was
concerned that flat tax proposals could threaten the tax-exempt status of
municipal bonds. While the debate may not be over and legislation may be
forthcoming, the market should be more confident.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of April 30, 1996
<TABLE>
<S> <C>
AAA................ 53.5%
BB................. 4.8%
BBB................ 19.5%
A.................. 6.0%
AA................. 16.2%
</TABLE>
BASED UPON CREDIT QUALITY RATINGS ISSUED BY STANDARD & POOR'S.
FOR SECURITIES NOT RATED BY STANDARD & POOR'S, THE MOODY'S RATING IS USED.
Indeed, we expect investor demand for municipal securities to exceed
supply, which should add price stability to the general market. And with
municipal bond yields currently at attractive levels relative to Treasuries,
investor demand for tax-exempt securities should increase.
In summary, our view of the general municipal market is positive. From the
decreasing likelihood of tax reform in the near term to specific market
conditions, we believe the market is on solid ground. With our dedication to
comprehensive research and long-term investment perspective, we believe your
Trust is in a position to benefit in the coming months.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED APRIL 30, 1996
VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
(NYSE TICKER SYMBOL--VKS)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
Six-month total return based on market price(1)........... (2.09%)
Six-month total return based on NAV(2).................... (.60%)
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................ 6.93%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)................................... 10.83%
SHARE VALUATIONS
Net asset value........................................... $ 13.25
Closing common stock price................................ $11.250
One-year high common stock price (02/23/96)............... $12.625
One-year low common stock price (04/30/96)................ $11.250
Preferred share (Series A) rate(5)........................ 3.64%
Preferred share (Series B) rate(5)........................ 3.60%
</TABLE>
(1)Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions for
the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common stock price at the end of the period
indicated.
(2)Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(3)Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(4)The taxable-equivalent distribution rate is calculated assuming a 36% federal
income tax bracket.
(5)See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 1.9%
$ 5,000 Alabama Wtr Pollutn Ctl Auth Revolving Fd Ln Ser
A (AMBAC Insd).................................. 5.000% 08/15/15 $ 4,509,250
------------
CALIFORNIA 13.7%
3,330 Anaheim, CA Ctfs Partn Anaheim Mem Hosp Assoc
Rfdg (AMBAC Insd)............................... 5.000 05/15/13 3,022,175
3,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Med Cent............................. 5.450 10/01/13 2,796,960
6,420 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Pacific Gas & Elec Co Ser B (MBIA Insd)......... 6.350 06/01/09 6,671,150
10,000 California Statewide Cmntys Dev Auth Rev Ctfs
Partn Insd Children's Hosp Rfdg (MBIA Insd)..... 4.750 06/01/21 8,271,000
2,000 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded
Cap) (AMBAC Insd)............................... 5.125 12/01/23 1,731,840
3,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)........................................... 6.000 06/01/08 3,122,910
4,880 Paramount, CA Redev Agy Tax Alloc Redev Proj
Area No 1 Rfdg (MBIA Insd)...................... 6.250 08/01/23 5,028,596
2,000 San Francisco, CA City & Cnty Arpts Comm Intl
Arpt Rev 2nd Ser Issue 8A (FGIC Insd)........... 6.250 05/01/20 2,018,480
------------
32,663,111
------------
COLORADO 6.1%
1,000 Arapahoe Cnty, CO Cap Impt Trust Fd Hwy Rev
E-470 Proj Ser B................................ 7.000 08/31/26 1,045,740
2,000 Colorado Hsg Fin Auth Multi Family Hsg Insd Mtg
Ser A........................................... 6.800 10/01/37 2,057,280
5,045 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
F............................................... 8.625 06/01/25 5,753,974
3,415 Denver, CO City & Cnty Arpt Rev Ser B........... 6.900 11/15/00 3,658,455
2,000 Denver, CO City & Cnty Arpt Rev Ser B (MBIA
Insd)........................................... 5.750 11/15/17 1,917,780
------------
14,433,229
------------
GEORGIA 2.8%
3,000 Atlanta, GA Spl Purp Fac Rev Delta Airls Ser
B............................................... 7.900 12/01/18 3,202,500
1,425 Georgia Muni Elec Auth Pwr Rev Ser A Rfdg (FGIC
Insd)........................................... 5.500 01/01/12 1,415,281
2,000 Georgia Muni Elec Auth Pwr Rev Ser Z Rfdg (FGIC
Insd)........................................... 5.500 01/01/12 1,986,360
------------
6,604,141
------------
ILLINOIS 4.1%
4,500 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Ser A................... 7.875 11/01/25 4,846,410
3,500 Chicago, IL O'Hare Intl Arpt Spl Fac Rev Intl
Terminal (MBIA Insd)............................ 6.750 01/01/12 3,664,570
1,260 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Proj Ser 84C.......................... 8.200 05/01/18 1,365,991
------------
9,876,971
------------
INDIANA 2.8%
3,000 Kokomo, IN Hosp Auth Hosp Rev Saint Joseph Hosp
& Hlth Cent Rfdg................................ 6.000 08/15/02 3,005,910
2,000 Kokomo, IN Hosp Auth Hosp Rev Saint Joseph Hosp
& Hlth Cent Rfdg................................ 6.250 08/15/05 2,053,620
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDIANA (CONTINUED)
$ 990 La Porte Cnty, IN Hosp Auth Hosp Fac Rev La
Porte Hosp Inc Rfdg............................. 5.900% 03/01/01 $ 994,277
540 La Porte Cnty, IN Hosp Auth Hosp Fac Rev La
Porte Hosp
Inc Rfdg........................................ 6.000 03/01/02 540,999
------------
6,594,806
------------
IOWA 2.2%
5,000 Muscatine, IA Elec Rev Rfdg (AMBAC Insd)........ 6.125 01/01/12 5,141,000
------------
KANSAS 2.3%
5,000 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co
Proj Rfdg (MBIA Insd)........................... 7.000 06/01/31 5,477,950
------------
KENTUCKY 1.8%
4,020 Louisville, KY Hsg Assistance Corp Mtg Rev
Carrousel Pptys Ser A Rfdg (FHA Gtd)............ 8.300 07/01/24 4,364,876
------------
LOUISIANA 1.0%
2,250 Saint Charles Parish, LA Pollutn Ctl Rev LA Pwr
& Lt Co Proj (FSA Insd)......................... 7.500 06/01/21 2,477,610
------------
MAINE 0.1%
150 Maine St Hsg Auth Mtg Purp Ser A6............... 6.350 11/15/22 150,608
------------
MARYLAND 5.7%
2,000 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Rev Single Family Pgm Seventh Ser............... 7.300 04/01/25 2,078,440
6,325 Maryland St Hlth & Higher Edl Fac Auth Rev
Greater Baltimore Med Cent Rfdg (FGIC Insd)..... 5.000 07/01/13 5,731,019
6,270 Maryland St Hlth & Higher Edl Fac Auth Rev Subn
Hosp Rfdg (AMBAC Insd).......................... 5.000 07/01/13 5,681,185
------------
13,490,644
------------
MASSACHUSETTS 1.6%
1,775 Massachusetts Muni Whsl Elec Co Pwr Supply Sys
Rev
Ser B Rfdg...................................... 6.750 07/01/05 1,931,040
1,705 Massachusetts St Hlth & Edl Fac Auth Rev Vly
Regl Hlth Sys Ser C Rfdg (Connie Lee Insd)...... 7.000 07/01/09 1,894,767
------------
3,825,807
------------
MICHIGAN 1.5%
1,000 Detroit, MI Downtown Dev Auth Tax Increment Rev
Dev Area No 1 Projs Ser C1...................... 6.250 07/01/25 974,390
2,745 Michigan Muni Bond Auth Rev St Revolving Fd..... 5.400 10/01/14 2,623,095
------------
3,597,485
------------
MINNESOTA 0.5%
1,375 Saint Cloud, MN Hosp Fac Rev Saint Cloud Hosp
Ser A Rfdg (AMBAC Insd)......................... 5.000 07/01/12 1,269,304
------------
MISSISSIPPI 1.6%
2,000 Mississippi Home Corp Single Family Rev Mtg Ser
C............................................... * 06/01/29 2,177,760
1,465 Mississippi Home Corp Single Family Rev Ser D
(GNMA Collateralized)........................... 8.100 12/01/24 1,622,121
------------
3,799,881
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI 0.4%
$ 1,000 Missouri St Hsg Dev Comm Mtg Rev Single Family
Ln Ser A (GNMA Collateralized).................. 7.200% 09/01/26 $ 1,082,620
------------
NEVADA 1.9%
2,000 Clark Cnty, NV Passenger Fac Las Vegas Macarran
Intl Arpt (MBIA Insd)........................... 5.750 07/01/23 1,886,020
2,515 Nevada Hsg Div Single Family Pgm Ser E (FHA
Gtd)............................................ 6.900 10/01/11 2,586,602
------------
4,472,622
------------
NEW JERSEY 5.8%
2,000 New Jersey Econ Dev Auth Dist Heating & Cooling
Rev Trigen Trenton Ser A........................ 6.200 12/01/10 2,003,160
10,000 New Jersey Econ Dev Auth Wtr Fac Rev NJ American
Wtr Co Inc Proj Ser A (FGIC Insd)............... 6.875 11/01/34 10,702,700
1,000 Union Cnty, NJ Util Auth Solid Waste Rev Ser
A............................................... 7.200 06/15/14 1,017,130
------------
13,722,990
------------
NEW YORK 16.7%
1,615 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser A (FGIC Insd)........................... 6.750 06/15/14 1,709,978
2,520 New York City Ser B............................. 7.250 08/15/19 2,696,778
2,000 New York City Ser B Rfdg........................ 6.375 08/15/12 2,000,560
5,000 New York City Ser C............................. 7.000 08/15/16 5,237,800
5,965 New York City Ser C............................. 7.250 08/15/24 6,258,180
4,355 New York St Dorm Auth Rev Court Fac Lease Ser
A............................................... 5.500 05/15/10 4,106,808
1,100 New York St Dorm Auth Rev Long Beach Med Cent
Rfdg (MBIA Insd)................................ 5.625 08/01/22 1,049,191
3,200 New York St Environmental Fac Corp Wtr Fac Rev
Jamaica
Wtr Supply Province (AMBAC Insd)................ 7.625 04/01/29 3,446,752
1,910 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Fac Impt Ser B............................. 7.625 08/15/17 2,112,842
3,000 New York St Pwr Auth Rev & Genl Purp Ser Y...... 6.750 01/01/18 3,230,400
3,750 New York St Pwr Auth Rev & Genl Purp Ser Z
Rfdg............................................ 6.500 01/01/19 3,956,550
4,350 Triborough Brdg & Tunl Auth NY Rev Genl Purp Ser
A Rfdg.......................................... 5.000 01/01/12 3,996,693
------------
39,802,532
------------
NORTH CAROLINA 2.4%
5,800 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev
Ser B Rfdg (Embedded Cap)....................... 6.000 01/01/14 5,693,338
------------
OHIO 0.4%
1,000 Delaware Cnty, OH Hlth Care Fac Rev Mtg Centrum
at Willow Brk (FHA Gtd)......................... 6.550 02/01/35 1,008,980
------------
OKLAHOMA 1.1%
2,750 Shawnee, OK Hosp Auth Hosp Rev Midamerica
Hlthcare Inc Rfdg............................... 6.125 10/01/14 2,581,150
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA 8.0%
$ 3,000 Butler Cnty, PA Hosp Auth Hosp Rev North Hills
Passavant Hosp Ser A (Cap Guar Insd)............ 6.900% 06/01/09 $ 3,244,080
6,000 Pennsylvania Intergovtl Coop Auth Spl Tax Rev
City of Philadelphia Fdg Pgm (FGIC Insd)........ 5.350 06/15/07 6,002,040
10,000 Pennsylvania St Ctfs Partn Ser A Rfdg (AMBAC
Insd)........................................... 5.400 07/01/09 9,936,900
------------
19,183,020
------------
SOUTH CAROLINA 0.9%
2,000 South Carolina St Port Auth Port Rev (AMBAC
Insd)........................................... 6.750 07/01/21 2,078,480
------------
TEXAS 5.4%
250 Brazos Cnty, TX Hlth Fac Dev Corp Franciscan
Svcs Rev Saint Joseph Hosp & Hlth Cent Ser B
Rfdg............................................ 6.000 01/01/19 230,670
3,500 Brazos River Auth TX Pollutn Ctl Rev Coll TX
Utils Elec Co
Proj A.......................................... 7.875 03/01/21 3,843,175
3,000 Harris Cnty, TX Toll Rd Sr Lien Rfdg (AMBAC
Insd)........................................... 4.950 08/15/06 2,941,740
3,190 San Antonio, TX Arpt Sys Rev Rfdg (AMBAC
Insd)........................................... 7.375 07/01/13 3,627,158
2,080 Texas Hsg Agy Residential Dev Rev Mtg Ser D
(GNMA Collateralized)........................... 8.400 01/01/21 2,185,955
------------
12,828,698
------------
UTAH 2.4%
3,000 Murray City, UT Hosp Rev Inc Hlth Serv Inc Rfdg
(MBIA Insd)..................................... 4.750 05/15/20 2,477,820
3,000 Salt Lake City, UT Arpt Rev Delta Airls Inc
Proj............................................ 7.900 06/01/17 3,171,450
------------
5,649,270
------------
WASHINGTON 1.9%
2,030 Washington St Pub Pwr Supply Sys Nuclear Proj No
3 Rev Ser C Rfdg................................ * 07/01/13 680,293
3,380 Washington St Pub Pwr Supply Sys Nuclear Proj No
3 Ser C Rfdg.................................... * 07/01/15 1,003,556
3,000 Washington St Ser B............................. 5.500 05/01/18 2,894,340
------------
4,578,189
------------
WISCONSIN 1.1%
2,480 Wisconsin Hsg & Econ Dev Auth Homeownership Rev
Ser E (FHA Gtd)................................. 8.000 03/01/21 2,595,791
------------
TOTAL LONG-TERM INVESTMENTS 98.1%
(Cost $224,102,652)(a)...................................................... 233,554,353
OTHER ASSETS IN EXCESS OF LIABILITIES 1.9%................................... 4,592,900
------------
NET ASSETS 100%.............................................................. $238,147,253
============
*Zero coupon bond
</TABLE>
(a) At April 30, 1996, cost for federal income tax purposes is $224,102,652; the
aggregate gross unrealized appreciation is $10,266,482 and the aggregate
gross unrealized depreciation is $814,781, resulting in net unrealized
appreciation of $9,451,701.
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $224,102,652) (Note 1).............. $233,554,353
Receivables:
Interest............................................................. 4,706,030
Investments Sold..................................................... 2,375,857
Unamortized Organizational Expenses (Note 1)........................... 13,817
Other.................................................................. 6,835
------------
Total Assets..................................................... 240,656,892
------------
LIABILITIES:
Payables:
Custodian Bank....................................................... 1,978,539
Income Distributions--Common and Preferred Shares.................... 179,508
Investment Advisory Fee (Note 2)..................................... 126,951
Administrative Fee (Note 2).......................................... 29,296
Accrued Expenses....................................................... 156,728
Deferred Compensation and Retirement Plans (Note 2).................... 38,617
------------
Total Liabilities................................................ 2,509,639
------------
NET ASSETS............................................................. $238,147,253
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 1,900
issued with liquidation preference of $50,000 per share) (Note 5).... $ 95,000,000
------------
Common Shares ($.01 par value with an unlimited number of shares
authorized, 10,806,700 shares issued and outstanding)................ 108,067
Paid in Surplus........................................................ 149,167,283
Net Unrealized Appreciation on Investments............................. 9,451,701
Accumulated Undistributed Net Investment Income........................ 487,631
Accumulated Net Realized Loss on Investments........................... (16,067,429)
------------
Net Assets Applicable to Common Shares........................... 143,147,253
------------
NET ASSETS............................................................. $238,147,253
============
NET ASSET VALUE PER COMMON SHARE ($143,147,253 divided
by 10,806,700 shares outstanding).................................... $ 13.25
============
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................ $ 7,306,430
------------
EXPENSES:
Investment Advisory Fee (Note 2)........................................ 790,320
Administrative Fee (Note 2)............................................. 182,381
Preferred Share Maintenance (Note 5).................................... 133,179
Trustees Fees and Expenses (Note 2)..................................... 12,154
Legal (Note 2).......................................................... 7,070
Amortization of Organizational Expenses (Note 1)........................ 3,988
Other................................................................... 132,137
------------
Total Expenses...................................................... 1,261,229
------------
NET INVESTMENT INCOME................................................... $ 6,045,201
============
REALIZED AND UNREALIZED GAIN/LOSS ON INVESTMENTS:
Realized Gain/Loss on Investments:
Proceeds from Sales................................................... $ 10,815,907
Cost of Securities Sold............................................... (12,433,699)
------------
Net Realized Loss on Investments (Including realized loss on
futures transactions of $1,553,306)................................... (1,617,792)
------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period............................................... 12,962,654
End of the Period..................................................... 9,451,701
------------
Net Unrealized Depreciation on Investments During the Period............ (3,510,953)
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS......................... $ (5,128,745)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.............................. $ 916,456
============
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1996
and the Year Ended October 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 6,045,201 $ 12,397,264
Net Realized Loss on Investments...................... (1,617,792) (6,109,988)
Net Unrealized Appreciation/Depreciation on
Investments During the Period....................... (3,510,953) 22,391,711
------------ ------------
Change in Net Assets from Operations.................. 916,456 28,678,987
------------ ------------
Distributions from Net Investment Income:
Common Shares....................................... (4,322,475) (9,446,665)
Preferred Shares.................................... (1,736,483) (3,692,258)
------------ ------------
Total Distributions................................... (6,058,958) (13,138,923)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (5,142,502) 15,540,064
NET ASSETS:
Beginning of the Period............................... 243,289,755 227,749,691
------------ ------------
End of the Period (Including undistributed net
investment income of $487,631 and $501,388,
respectively)....................................... $238,147,253 $243,289,755
============ ============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 22, 1993
Six Months Year Year (Commencement
Ended Ended Ended of Investment
April 30, October 31, October 31, Operations) to
1996 1995 1994 October 31, 1993
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of the Period (a)..... $13.722 $12.284 $15.253 $13.808
------- ------- ------- -------
Net Investment Income........... .560 1.147 1.181 .803
Net Realized and Unrealized
Gain/Loss on Investments...... (.475) 1.507 (2.927) 1.329
------- ------- ------- -------
Total from Investment
Operations...................... .085 2.654 (1.746) 2.132
------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common Shareholders... .400 .874 .938 .547
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders...... .161 .342 .244 .140
Distributions from Net Realized
Gain on Investments (Note 1):
Paid to Common Shareholders... -0- -0- .034 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders...... -0- -0- .007 -0-
------- ------- ------- -------
Total Distributions............... .561 1.216 1.223 .687
------- ------- ------- -------
Net Asset Value, End of the
Period.......................... $13.246 $13.722 $12.284 $15.253
======= ======= ======= =======
Market Price Per Share at End of
the Period...................... $11.250 $11.875 $10.750 $14.625
Total Investment Return at Market
Price (b)....................... (2.09%)* 18.79% (20.83%) 8.26%*
Total Return at Net Asset Value
(c)............................. (.60%)* 19.39% (13.59%) 12.82%*
Net Assets at End of the Period
(In millions)................... $238.1 $243.3 $227.7 $259.8
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares.......................... 1.69% 1.77% 1.61% 1.49%
Ratio of Expenses to Average Net
Assets.......................... 1.03% 1.06% .99% 1.02%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d)............... 5.76% 6.14% 6.76% 5.97%
Portfolio Turnover................ 5.15%* 74.67% 165.20% 114.39%*
</TABLE>
(a) Net asset value at January 22, 1993, is adjusted for common and preferred
share offering costs of $.217 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 upon NAV.
(d) Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
See Notes to Financial Statements
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Strategic Sector Municipal Trust (the "Trust") is
registered as a non-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 invest in a portfolio
consisting substantially of municipal obligations from those market sectors
which the Adviser feels will best meet the Trust's investment objective. The
Trust commenced investment operations on January 22, 1993.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At April 30, 1996, there were no
when issued or delayed delivery purchase commitments.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL EXPENSES--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization in the amount of $40,000. These costs
are being amortized on a straight line basis over the 60 month period ending
January 21, 1998. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Trust
originally purchased by VKAC are redeemed during the amortization period, the
Trust will be reimbursed for any unamortized organizational expenses in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1995, the Trust had an accumulated capital loss
carryforward for tax purposes of $14,449,637, of which $8,339,649 and $6,109,988
will expire on October 31, 2002 and 2003, respectively.
F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .65% of the average net assets of the Trust. In addition, the Trust
will pay a monthly administrative fee to VKAC, the Trust's Administrator, at an
annual rate of .15% of the average net assets of the Trust. The administrative
services provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and preferred shares and
providing certain services to shareholders.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended April 30, 1996, the Trust recognized expenses of
approximately $9,400 representing VKAC's cost of providing accounting and legal
services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At April 30, 1996, VKAC owned 6,700 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
Aggregate purchases and cost of sales of investment securities, excluding
short-term notes, for the six months ended April 30, 1996, were $14,469,326 and
$12,433,699, respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The fluctuation in market value of the contracts is settled daily through a
cash margin account. Realized gains and losses are recognized when the contracts
are closed or expire.
Transactions in futures contracts for the six months ended April 30, 1996,
were as follows:
<TABLE>
<CAPTION>
Contracts
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1995.............................. 200
Futures Opened............................................... 200
Futures Closed............................................... (400)
-------
Outstanding at April 30, 1996................................ -0-
=======
</TABLE>
B. EMBEDDED CAPS--These securities, which are identified in the portfolio of
investments, include a cap strike level such that the coupon payment may be
supplemented by cap payments if the floating rate index upon which the cap is
based rises above the strike level. The price of these securities may be more
volatile than the price of a comparable fixed rate security. The Trust invests
in these instruments as a hedge against a rise in the short-term interest rates
which is pays on its preferred shares.
5. PREFERRED SHARES
The Trust has outstanding 1,900 Auction Preferred Shares ("APS") in two series.
Series A contains 1,000 shares while Series B contains 900 shares. Dividends are
cumulative and the dividend rate for both Series is currently reset every 28
days through an auction process. At April 30, 1996, the average rate in effect
was 3.621%. During the six months ended April 30, 1996, the rates ranged from
3.31% to 4.25%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
16
<PAGE> 18
VAN KAMPEN AMERICAN CAPITAL STRATEGIC SECTOR MUNICIPAL TRUST
OFFICERS AND TRUSTEES
DON G. POWELL*
Chairman and Trustee
DENNIS J. MCDONNELL*
President and Trustee
DAVID C. ARCH
Trustee
ROD DAMMEYER
Trustee
HOWARD J KERR
Trustee
THEODORE A. MYERS
Trustee
HUGO F. SONNENSCHEIN
Trustee
WAYNE W. WHALEN*
Trustee
PETER W. HEGEL*
Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Treasurer
SCOTT E. MARTIN*
Assistant Secretary
WESTON B. WETHERELL*
Assistant Secretary
NICHOLAS DALMASO*
Assistant Secretary
JOHN L. SULLIVAN*
Controller
STEVEN M. HILL*
Assistant Treasurer
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in
the Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1996
All rights reserved.
SM denotes a service mark of Van Kampen American
Capital Distributors, Inc.
17