<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Portfolio Management Review...................... 4
Glossary of Terms................................ 7
Portfolio Highlights............................. 8
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 17
Statement of Operations.......................... 18
Statement of Changes in Net Assets............... 19
Financial Highlights............................. 20
Notes to Financial Statements.................... 22
Report of Independent Accountants................ 27
Dividend Reinvestment Plan....................... 28
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
November 19, 1999
Dear Shareholder:
As we approach the end of the century--and the millennium--it seems
appropriate to take a look back at the progress we've made over the last 100
years and how the world of investing has changed over the generations. Although
rapid advances in technology and science have dramatically altered the world
that we live in today, one of the greatest shifts we've seen this century is the
increasing importance of investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is
now available to most people. In fact, almost 79 million individuals--who
represent almost half of all U.S. households--own stocks either directly or
through mutual funds. This is even more impressive when considering that just 16
years earlier, only 19 percent of households owned stocks. Another important
shift has been the need for retirement planning beyond a pension plan or Social
Security. The Investment Company Institute, the leading mutual fund industry
association, reports that 77 percent of all mutual fund shareholders earmarked
retirement as their primary financial goal in 1998.
Through all the changes in the investment environment over the past century,
the general principles that have made generations of investors successful remain
the same. Those that have stood the test of time include:
- Investing for the long-term
- Basing investment decisions on sound research
- Building a diversified portfolio
- Believing in the value of professional investment advice
While no one can predict the future, at Van Kampen, we believe that these
ideas will remain important tenets for investors well into the next century. As
we continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we enter the new
millennium.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory
Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory
Corp.
Source: Investment Company Institute
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree over the past year, keeping the
economy growing at a healthy pace. High levels of consumer confidence fueled
this heavy retail activity, which pushed the personal savings rate to a record
low as spending rates outpaced income growth. Although the U.S. economy
experienced a slowdown during the second quarter of 1999, growth rebounded
toward the end of the reporting period.
EMPLOYMENT SITUATION
The strong job market helped support the strength of the economy. During the
reporting period, the unemployment rate reached its lowest level in almost 30
years, and wages continued to climb. The wage pressures were balanced somewhat
by productivity gains. However, these pressures ultimately pushed the cost of
labor higher in the second quarter, as the employment cost index recorded its
biggest gain in eight years before returning to a more moderate level in the
third quarter.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index report. The Federal Reserve Board remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
its three interest rate cuts from the fall of 1998, raising rates in June,
August, and November 1999 to keep the economy from overheating.
U.S. GROSS DOMESTIC PRODUCT
Seasonally Adjusted Annualized Rates
Third Quarter 1997 through Third Quarter 1999
[BAR GRAPH]
<TABLE>
<S> <C>
97Q3 4.0
97Q4 3.1
98Q1 6.7
98Q2 2.1
98Q3 3.8
98Q4 5.9
99Q1 3.7
99Q2 1.9
99Q3 5.5
</TABLE>
Source: Bureau of Economic Analysis
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1999
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
(NYSE TICKER SYMBOL--VKS)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
One-year total return based on market price(1)............. (15.30%)
One-year total return based on NAV(2)...................... (6.35%)
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................... 6.71%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)...................................... 10.48%
SHARE VALUATIONS
Net asset value............................................ $13.14
Closing common stock price................................. $11.625
One-year high common stock price (11/02/98)................ $14.750
One-year low common stock price (10/26/99)................. $11.000
Preferred share (Series A) rate(5)......................... 3.380%
Preferred share (Series B) rate(5)......................... 3.450%
</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 #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.
3
<PAGE> 5
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
We recently spoke with representatives of the adviser of the Van Kampen
Strategic Sector Municipal Trust about the key events and economic forces that
shaped the markets during the past year. Timothy D. Haney, portfolio manager,
has managed the Trust since 1996 and worked in the investment industry since
1988. He is joined by Peter W. Hegel, chief investment officer for fixed-income
investments. The following discussion reflects their views on the Trust's
performance during the 12 months ended October 31, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types experienced price declines during the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve Board's two
interest-rate increases during the summer, the bond market declined as the
nation's strong economic growth continued to spark inflation fears, leading to
concern about future rate hikes. Because of low institutional demand for
municipal bonds during the period, these conditions affected municipals more
than their taxable counterparts--corporate and Treasury bonds. The yields of
newly issued 30-year AAA municipal bonds rose more than a full percentage point
during the 12-month period, so the prices of existing bonds dropped
concurrently. The bonds in the Trust's portfolio were not spared by this market
movement and suffered price declines along with the rest of the municipal
market.
The interest-rate increases also suppressed municipal bond supply, bringing
overall nationwide issuance down more than 20 percent in the first ten months of
the year compared with 1998. Supply was down in almost every sector, with
electric-utility and health-care bonds experiencing the most significant drops.
Although new issuance kept pace with last year's active market, the amount of
bonds issued through refinancing was down more than 50 percent for the year
through October. Many municipalities simply chose not to refinance outstanding
bonds because of the higher interest rates they would have to pay in the current
marketplace.
Q DID MUNICIPAL BONDS BENEFIT FROM THE STRONG ECONOMY?
A Yes. The effects of the healthy economy were reflected in the good credit
conditions in the municipal market, even though prices suffered. With the
exception of the health-care sector, overall credit quality remained high, and
we witnessed a number of credit upgrades as tax revenues kept municipal finances
strong.
4
<PAGE> 6
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE TRUST IN THESE CONDITIONS?
A We took advantage of the general market price declines to enhance the
current income potential and tax management of the Trust. We sold some of
our holdings at a capital loss to offset some of the gains we had earned
early in 1999. This allowed us to avoid the need to distribute taxable capital
gains to shareholders this year. We replaced these bonds with longer-maturity,
higher-yielding issues, which protected the Trust's income stream. The new bonds
also had better protection against bond calls.
As a consequence of this strategy, there was an increase in the portfolio's
duration, or sensitivity to interest-rate changes. We feel that this will
benefit the Trust in a declining interest-rate environment by allowing it to
participate more fully in a market rally. In the short term, however, the longer
duration negatively affected the Trust's total return as interest rates climbed.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE TO YOU?
A We continually looked for the bonds that we felt represented the best
values compared with the other offerings in the marketplace. In general,
the most attractive bonds were the ones that, going forward, we felt would
be in greatest demand by retail investors. That often involved selling the
holdings that provided the most in-demand coupon rate by investors (which varied
as interest rates increased) and replacing them with other issues that appeared
to be undervalued. For example, we sought bonds issued in states where heavy
supply had temporarily suppressed prices. During the last year, we found
attractive issues that met this criteria in states like New York, Colorado, and
Michigan. When we correctly anticipated an increase in demand, this strategy
contributed to the Trust's total return. For additional Fund portfolio
highlights, please refer to page 8.
Q HOW DID THE TRUST PERFORM DURING THE PERIOD?
A Total return performance was disappointing because of the general downturn
in bond prices and the Trust's increased duration. In addition, the
Trust's leverage component hurt its performance during the period.
Although leverage helps the Trust provide higher income levels to common
shareholders, it made the portfolio more sensitive to the interest-rate
increases during the reporting period. For the one-year period ended October 31,
1999, the Trust returned -15.30 percent(1) based on market price. This reflects
a decrease in market price from $14.5625 per share on October 31, 1998, to
$11.6250 per share on October 31, 1999.
On the positive side, the dividend remained unchanged during the past 12
months. The monthly federally tax-exempt dividend of $0.065 per share translates
to a distribution rate of 6.71 percent(3) based on the Trust's closing market
price on October 31, 1999. Because the Trust is exempt from federal income
taxes, this distribution rate is equivalent to a taxable yield of 10.48
percent(4) for an investor in the 36 percent federal income tax
5
<PAGE> 7
bracket. Please refer to the chart and footnotes on page 3 for additional
performance results. Past performance does not guarantee future performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A In the coming months, we will probably see a slowing economy, which may be
partly the result of year 2000 concerns. Wage increases will likely keep
inflation fears at the forefront, although increasing productivity should
be able to offset higher wage costs for employers.
Preparations for the turn of the millennium may also limit new issuance and
general market activity at the end of the year. Many municipal issuers are
planning to postpone issuing bonds until they feel certain that any potential
computer problems have been avoided, but we believe that market activity should
pick up early in 2000. In the meantime, we will continue to focus on finding
attractive-yielding bonds and protecting the Trust from bond calls as much as
possible. We will also use our extensive research capabilities to look for
attractive opportunities throughout the coming months.
[SIG]
Timothy Haney
Portfolio Manager
[SIG]
Peter Hegel
Chief Investment Officer
Fixed Income Investments
6
<PAGE> 8
GLOSSARY OF TERMS
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
PREREFUNDING: The process of issuing new bonds to refinance an outstanding
municipal bond issue prior to its maturity or call date. The proceeds from
the new bonds are generally invested in U.S. government securities.
Prerefunding typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It is redeemed at maturity for
full face value.
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Health Care 21.8 25.0
General Purpose 18.3 17.3
Industrial Revenue 9.8 8.3
Retail Elec/Gas/Teleph 9.0 8.4
Public Education 8.0 7.3
</TABLE>
* As a percentage of long-term investments
NET ASSET VALUE AND MARKET PRICE
(BASED UPON MONTH-END VALUES)
JANUARY 1993 THROUGH OCTOBER 1999
[LINE GRAPH]
<TABLE>
<CAPTION>
MARKET PRICE NET ASSET VALUE
------------ ---------------
<S> <C> <C>
Jan 1993 15.13 13.96
15.13 14.53
14.25 14.16
14.25 14.30
14.13 14.32
14.50 14.72
14.25 14.74
14.75 15.03
14.75 15.31
Oct 1993 14.63 15.25
13.63 14.87
14.25 15.11
14.50 15.27
13.38 14.57
12.63 13.34
12.38 13.26
13.00 13.36
12.38 13.22
12.38 13.43
12.13 13.36
11.63 12.95
Oct 1994 10.75 12.28
11.25 11.68
10.88 12.26
11.75 12.78
12.38 13.50
12.25 13.47
12.25 13.31
11.75 13.74
11.63 13.33
11.63 13.45
11.63 13.52
11.63 13.54
Oct 1995 11.88 13.72
12.00 14.18
12.00 14.07
12.25 14.18
12.50 13.94
11.88 13.43
11.25 13.25
11.50 13.13
11.63 13.23
11.75 13.39
11.88 13.29
11.75 13.55
Oct 1996 11.75 13.67
11.88 13.99
11.63 13.78
11.75 13.70
12.13 13.80
11.38 13.45
11.88 13.54
12.00 13.77
12.56 13.93
13.19 14.48
13.13 14.14
12.94 14.32
Oct 1997 12.75 14.35
13.19 14.39
13.13 14.62
13.63 14.73
13.56 14.65
13.19 14.58
13.13 14.35
12.94 14.63
13.31 14.60
13.44 14.57
13.56 14.82
13.88 14.98
Oct 1998 14.56 14.82
14.00 14.80
13.94 14.75
13.69 14.92
13.88 14.72
13.69 14.64
13.63 14.63
13.00 14.39
13.00 13.95
12.56 13.92
12.44 13.61
11.63 13.47
Oct 1999 11.63 13.14
</TABLE>
The solid line above represents the Trust's net asset value (NAV), which
indicates overall changes in value among the Trust's underlying securities. The
Trust's market price is represented by the dashed line, which indicates the
price the market is willing to pay for shares of the Trust at a given time.
Market price is influenced by a range of factors, including supply and demand
and market conditions.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS (CONTINUED)
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF OCTOBER 31, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa BB/Ba
------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C>
As of October 31, 1999 62.3 8.10 5.40 19.1 3.0
<CAPTION>
Non-Rated
---------
<S> <C>
As of October 31, 1999 2.10
</TABLE>
AS OF OCTOBER 31, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa BB/Ba
------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C>
As of October 31, 1998 56.30 13.20 5.80 21.40 1.20
<CAPTION>
Non-Rated
---------
<S> <C>
As of October 31, 1998 2.10
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY
FOR THE PERIOD ENDED OCTOBER 31, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTIONS
-------------
<S> <C>
'Nov 1998' .0650
'Dec 1998' .0650
'Jan 1999' .0650
'Feb 1999' .0650
'Mar 1999' .0650
'Apr 1999' .0650
'May 1999' .0650
'Jun 1999' .0650
'Jul 1999' .0650
'Aug 1999' .0650
'Sep 1999' .0650
'Oct 1999' .0650
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 100.6%
ALABAMA 1.9%
$5,000 Alabama Wtr Pollutn Ctl Auth Revolving
Fund Ln Ser A (AMBAC Insd)............ 5.000% 08/15/15 $ 4,510,350
------------
CALIFORNIA 15.6%
3,330 Anaheim, CA Ctfs Partn Anaheim Mem
Hosp Assn Rfdg (AMBAC Insd)........... 5.000 05/15/13 3,149,547
1,500 California Hlth Fac Fin Auth Rev
Cedars Sinai Med Ctr Ser A............ 6.125 12/01/19 1,482,840
3,000 California Hlth Fac Fin Auth Rev
Kaiser Permanente Med Cent (c)........ 5.450 10/01/13 2,911,350
6,420 California Pollutn Ctl Fin Auth
Pollutn Ctl Rev Pacific Gas & Elec Co
Ser B (MBIA Insd)..................... 6.350 06/01/09 6,837,942
915 California Rural Home Mtg Fin Auth
Single Family Mtg Rev Ser C (GNMA
Collateralized)....................... 7.800 02/01/28 1,007,598
10,000 California Statewide Cmntys Dev Auth
Rev Ctfs Partn Insd Children's Hosp
Rfdg (MBIA Insd) (d).................. 4.750 06/01/21 8,375,400
5,000 Foothill/Eastern Trans Corridor Agy CA
Toll Rd Rev Conv Rfdg................. * 01/15/20 2,658,050
2,000 Los Angeles Cnty, CA Pub Wks (FSA
Insd)................................. 5.500 10/01/18 1,932,620
3,000 Orange Cnty, CA Recovery Ser A Rfdg
(MBIA Insd)........................... 6.000 06/01/08 3,230,040
2,000 Paramount, CA Redev Agy Tax Alloc
Redev Proj Area No 1 Rfdg (MBIA
Insd)................................. 6.250 08/01/23 2,044,720
1,865 Santa Clara Cnty, CA Fin Auth Lease
Rev Multi Fac Projs Ser B (AMBAC
Insd) (c)............................. 5.500 05/15/08 1,895,139
1,000 Santa Clara Cnty, CA Fin Auth Lease
Rev Multi Facs Projs Ser B (AMBAC
Insd) (c)............................. 5.500 05/15/09 1,011,620
1,330 Temple City, CA Uni Sch Dist Cap
Apprec Ser A (FGIC Insd).............. * 08/01/16 497,553
------------
37,034,419
------------
COLORADO 4.2%
1,000 Arapahoe Cnty, CO Cap Impt Trust Fund
Hwy Rev E-470 Proj Ser B (Prerefunded
@ 08/31/05)........................... 7.000 08/31/26 1,135,410
1,875 Colorado Hsg Fin Auth Multi-Family Hsg
Insd Mtg Ser A........................ 6.800 10/01/37 1,963,669
1,500 Colorado Hsg Fin Auth Single Family
Pgm Sr
Ser C1................................ 7.550 11/01/27 1,636,680
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$1,475 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser F.......................... 8.625% 06/01/25 $ 1,548,440
3,415 Denver, CO City & Cnty Arpt Rev Ser
B..................................... 6.900 11/15/00 3,497,711
1,000 E-470 Pub Hwy Auth CO Rev Cap Apprec
Sr Ser B (MBIA Insd).................. * 09/01/22 246,860
------------
10,028,770
------------
CONNECTICUT 1.4%
1,500 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A, 144A - Private
Placement (b)......................... 6.400 09/01/11 1,543,650
1,500 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A, 144A - Private
Placement (Prerefunded @ 09/01/07)
(b)................................... 6.400 09/01/11 1,656,690
------------
3,200,340
------------
GEORGIA 2.7%
3,000 Atlanta, GA Spl Purp Fac Rev Delta
Airls Ser B........................... 7.900 12/01/18 3,065,910
1,425 Georgia Muni Elec Auth Pwr Rev Ser A
Rfdg (FGIC Insd)...................... 5.500 01/01/12 1,424,259
2,000 Georgia Muni Elec Auth Pwr Rev Ser Z
Rfdg (FGIC Insd)...................... 5.500 01/01/12 1,998,960
------------
6,489,129
------------
ILLINOIS 5.7%
2,060 Alton, IL Hosp Fac Rev Saint Anthony's
Hlth Cent Rfdg........................ 5.875 09/01/06 2,049,515
3,000 Chicago, IL Midway Arpt Rev Ser C
(MBIA Insd)........................... 5.500 01/01/24 2,833,320
2,000 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev United Airls Proj Ser B........... 5.200 04/01/11 1,824,160
4,500 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev American Airls Inc Proj Ser A..... 7.875 11/01/25 4,688,820
1,635 Cook Cnty, IL Sch Dist 100 Berwyn
South Rfdg (FSA Insd)................. 8.100 12/01/15 2,037,635
------------
13,433,450
------------
INDIANA 3.2%
1,000 East Chicago, IN Solid Waste Disp Rev
USG Corp Proj......................... 6.375 08/01/29 948,350
3,000 Kokomo, IN Hosp Auth Hosp Rev Saint
Joseph Hosp & Hlth Cent Rfdg.......... 6.000 08/15/02 3,082,110
2,000 Kokomo, IN Hosp Auth Hosp Rev Saint
Joseph Hosp & Hlth Cent Rfdg.......... 6.250 08/15/05 2,104,920
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA (CONTINUED)
$ 990 La Porte Cnty, IN Hosp Auth Hosp Fac
Rev La Porte Hosp Inc Rfdg............ 5.900% 03/01/01 $ 1,001,820
540 La Porte Cnty, IN Hosp Auth Hosp Fac
Rev La Porte Hosp Inc Rfdg............ 6.000 03/01/02 551,043
------------
7,688,243
------------
IOWA 2.2%
5,000 Muscatine, IA Elec Rev Rfdg (AMBAC
Insd)................................. 6.125 01/01/12 5,151,200
------------
KANSAS 2.2%
5,000 Burlington, KS Pollutn Ctl Rev KS Gas
& Elec Co Proj Rfdg (MBIA Insd)....... 7.000 06/01/31 5,253,600
------------
LOUISIANA 1.7%
2,000 New Orleans, LA Rfdg (FGIC Insd)...... 5.500 12/01/21 1,912,520
1,000 New Orleans, LA Rfdg (FGIC Insd)...... 4.750 12/01/26 815,860
1,250 Saint Charles Parish, LA Pollutn Ctl
Rev LA Pwr & Lt Co Proj (FSA Insd).... 7.500 06/01/21 1,323,825
------------
4,052,205
------------
MARYLAND 5.9%
1,275 Baltimore, MD Ctfs Partn Brd of Edl
Admin Proj Ser A Rfdg (MBIA
Insd) (c)............................. 5.000 04/01/15 1,168,359
1,000 Maryland St Econ Dev Corp Student Hsg
Rev Collegiate Hsg Towson Ser A....... 5.750 06/01/29 891,180
6,325 Maryland St Hlth & Higher Edl Fac Auth
Rev Greater Baltimore Med Cent Rfdg
(FGIC Insd)........................... 5.000 07/01/13 5,945,184
6,270 Maryland St Hlth & Higher Edl Fac Auth
Rev Subn Hosp Rfdg (AMBAC Insd)....... 5.000 07/01/13 5,893,486
------------
13,898,209
------------
MASSACHUSETTS 1.6%
1,775 Massachusetts Muni Whsl Elec Co Pwr
Supply Sys Rev Ser B Rfdg............. 6.750 07/01/05 1,882,743
1,705 Massachusetts St Hlth & Edl Fac Auth
Rev Vly Regl Hlth Sys Ser C Rfdg
(Connie Lee Insd)..................... 7.000 07/01/09 1,907,588
------------
3,790,331
------------
MICHIGAN 6.1%
1,250 Avondale, MI Schl Dist Rfdg (AMBAC
Insd)................................. 4.750 05/01/22 1,045,575
2,745 Michigan Muni Bond Auth Rev St
Revolving Fund........................ 5.400 10/01/14 2,637,533
2,000 Michigan St Hosp Fin Auth Rev Detroit
Med Cent Oblig Ser A.................. 5.250 08/15/28 1,562,640
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$1,500 Michigan St Hsg Dev Auth Multi Family
Rev................................... 6.250% 08/01/39 $ 1,474,785
2,000 Michigan St Strategic Fd Ltd Oblig Rev
Detroit Edison Co Ser A Rfdg (MBIA
Insd)................................. 5.550 09/01/29 1,827,840
7,000 Wayne Charter Cnty, MI Arpt Rev (MBIA
Insd)................................. 5.000 12/01/28 5,853,680
------------
14,402,053
------------
MISSISSIPPI 1.8%
1,990 Mississippi Home Corp Single Family
Rev Mtg Ser C (GNMA Collateralized)... 7.600 06/01/29 2,183,866
920 Mississippi Home Corp Single Family
Rev Mtg Ser D (GNMA Collateralized)... 8.100 12/01/24 1,000,270
990 Mississippi Home Corp Single Family
Rev Mtg Ser F (GNMA Collateralized)... 7.550 12/01/27 1,087,544
------------
4,271,680
------------
MISSOURI 1.7%
250 Missouri St Hlth & Edl Fac Auth Hlth
Fac Rev............................... 6.250 02/15/11 247,085
515 Missouri St Hlth & Edl Fac Auth Hlth
Fac Rev (Prerefunded @ 02/15/06)...... 6.250 02/15/11 556,463
1,000 Missouri St Hlth & Edl Fac Auth Rev
BJC Hlth Sys.......................... 5.000 05/15/28 842,050
775 Missouri St Hsg Dev Comm Mtg Rev
Single Family Ln Ser A (GNMA
Collateralized)....................... 7.200 09/01/26 824,701
1,625 West Plains, MO Indl Dev Auth Hosp Rev
Ozarks Med Ctr........................ 6.750 11/15/24 1,560,601
------------
4,030,900
------------
NEVADA 0.8%
1,925 Nevada Hsg Div Single Family Pgm Ser E
(FHA Gtd)............................. 6.900 10/01/11 1,982,038
------------
NEW JERSEY 3.2%
2,000 New Jersey Econ Dev Auth Dist Heating
& Cooling Rev Trigen Trenton Ser A.... 6.200 12/01/10 1,982,500
2,000 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airls Inc Proj............ 6.250 09/15/29 1,869,620
2,500 New Jersey Econ Dev Auth Wtr Facs Rev
NJ American Wtr Co Inc Proj Ser A
(FGIC Insd)........................... 6.875 11/01/34 2,684,475
1,275 New Jersey Hlth Care Fac Fin Auth Rev
Barnabas Hlth Ser C Rfdg (MBIA
Insd) (c)............................. 5.250 07/01/18 1,159,829
------------
7,696,424
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK 12.5%
$1,000 New York City Indl Dev Agy Civic Fac
Rev Touro College Proj Ser A.......... 6.350% 06/01/29 $ 944,710
2,520 New York City Ser B (Prerefunded @
08/15/04)............................. 7.250 08/15/19 2,820,384
5,000 New York City Ser B1 (Prerefunded @
08/15/04)............................. 7.000 08/15/16 5,542,850
5 New York City Ser C................... 7.250 08/15/24 5,212
5,960 New York City Ser C (Prerefunded @
08/15/01)............................. 7.250 08/15/24 6,273,198
2,000 New York City Ser G................... 5.750 02/01/14 1,975,880
3,820 New York St Dorm Auth Lease Rev Muni
Hlth Fac Impt Ser 1 (FSA Insd)........ 4.750 01/15/29 3,096,072
4,355 New York St Dorm Auth Rev Court Fac
Lease Ser A........................... 5.500 05/15/10 4,318,810
595 New York St Med Care Fac Fin Agy Rev
Mental Hlth Svcs Fac Impt Ser B....... 7.625 08/15/17 634,163
4,350 Triborough Brdg & Tunl Auth NY Rev
Genl Purp Ser A Rfdg.................. 5.000 01/01/12 4,119,711
------------
29,730,990
------------
NORTH CAROLINA 0.3%
2,500 University of NC Chapel Hill Rev Util
Sys Rfdg.............................. * 08/01/20 719,750
------------
OHIO 4.3%
1,000 Akron, OH Ctfs Partn Akron Muni
Baseball Stadium Proj (a)............. 0/6.500 12/01/07 945,980
1,000 Cleveland, OH Arpt Spl Rev Continental
Airls Inc Proj........................ 5.375 09/15/27 832,560
1,000 Delaware Cnty, OH Hlthcare Fac Rev Mtg
Centrum at Willow Brook (FHA Gtd)..... 6.550 02/01/35 1,037,040
2,045 Marion Cnty, OH Hosp Impt Rev Cmnty
Hosp Rfdg............................. 6.000 05/15/05 2,091,360
1,000 Miami Cnty, OH Hosp Fac Rev Upper Vly
Med Cent Ser C Rfdg & Impt............ 6.000 05/15/06 1,009,700
1,300 Montgomery Cnty, OH Hosp Rev Grandview
Hosp & Med Cent Rfdg.................. 5.500 12/01/10 1,196,000
2,950 Ohio Hsg Fin Agy Mtg Rev (GNMA
Collateralized)....................... 6.050 09/01/17 2,986,787
------------
10,099,427
------------
OKLAHOMA 1.1%
2,750 Shawnee, OK Hosp Auth Hosp Rev
Mid-America Hlthcare Inc Rfdg......... 6.125 10/01/14 2,640,852
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA 10.9%
$1,000 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt USX Corp Proj
Rfdg.................................. 6.100% 07/15/20 $ 939,580
3,000 Delaware Cnty, PA Auth Hlth Care Rev
Mercy Hlth Corp Southeastn Ser B
(Prerefunded @ 11/15/05).............. 6.000 11/15/07 3,193,560
6,000 Pennsylvania Intergovtl Coop Auth Spl
Tax Rev City of Philadelphia Fdg Pgm
(Prerefunded @ 06/15/03) (FGIC
Insd)................................. 5.350 06/15/07 6,171,660
10,000 Pennsylvania St Ctfs Partn Ser A Rfdg
(AMBAC Insd).......................... 5.400 07/01/09 9,980,600
4,325 Philadelphia, PA Hosps & Higher Edl
Auth Fac Hosp Rev Rfdg................ 6.350 07/01/07 4,690,246
1,000 Philadelphia, PA Sch Dist Ser A (MBIA
Insd)................................. 4.750 04/01/27 818,390
------------
25,794,036
------------
TEXAS 4.1%
3,000 Brazos River Auth TX Rev Houston Inds
Inc Proj Ser D Rfdg (MBIA Insd)....... 4.900 10/01/15 2,668,680
3,000 Harris Cnty, TX Toll Road Sr Lien Rfdg
(AMBAC Insd).......................... 4.950 08/15/06 3,012,660
2,000 Houston, TX Arpt Sys Rev Spl Fac
Continental Airls Ser B............... 6.125 07/15/17 1,871,720
1,000 Matagorda Cnty, TX Navigation Dist 1
Houston Ltg Pwr Co (AMBAC Insd)....... 5.125 11/01/28 857,900
1,090 San Antonio, TX Arpt Sys Rev Rfdg
(AMBAC Insd).......................... 7.375 07/01/13 1,199,937
------------
9,610,897
------------
UTAH 2.9%
3,000 Intermountain Pwr Agy UT Pwr Supply
Rev Ser B Rfdg (MBIA Insd)............ 5.750 07/01/19 2,915,460
3,000 Salt Lake City, UT Arpt Rev Delta
Airls Inc Proj........................ 7.900 06/01/17 3,065,580
910 Utah St Hsg Fin Agy Single Family Mtg
Sr Ser D2 (FHA Gtd)................... 6.850 07/01/25 930,894
------------
6,911,934
------------
WASHINGTON 2.6%
1,000 Grant Cnty, WA Pub Util Dist Number
002 Wanapum Hydro Elec Rev Ser B Rfdg
(MBIA Insd)........................... 5.375 01/01/18 915,300
2,030 Washington St Pub Pwr Supply Sys
Nuclear Proj No 3 Rev Ser C Rfdg (MBIA
Insd)................................. * 07/01/13 917,946
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WASHINGTON (CONTINUED)
$3,380 Washington St Pub Pwr Supply Sys
Nuclear Proj No 3 Rev Ser C Rfdg (MBIA
Insd)................................. * 07/01/15 $ 1,320,059
3,000 Washington St Ser B................... 5.500% 05/01/18 2,887,170
------------
6,040,475
------------
TOTAL INVESTMENTS 100.6%
(Cost $230,752,186)................................................. 238,461,702
LIABILITIES IN EXCESS OF OTHER ASSETS (0.6%)......................... (1,505,345)
------------
NET ASSETS 100.0%.................................................... $236,956,357
============
</TABLE>
* Zero coupon bond
(a) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(c) Securities purchased on a when issued or delayed delivery basis.
(d) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
AMBAC--AMBAC Indemnity Corporation
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Administration
FSA--Financial Securities Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $230,752,186)....................... $238,461,702
Receivables:
Investments Sold.......................................... 5,401,679
Interest.................................................. 4,350,717
Other....................................................... 10,802
------------
Total Assets.......................................... 248,224,900
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 10,380,577
Custodian Bank............................................ 312,287
Income Distributions--Common and Preferred Shares......... 184,401
Investment Advisory Fee................................... 131,292
Administrative Fee........................................ 30,298
Affiliates................................................ 17,089
Trustees' Deferred Compensation and Retirement Plans........ 106,736
Accrued Expenses............................................ 105,863
------------
Total Liabilities..................................... 11,268,543
------------
NET ASSETS.................................................. $236,956,357
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 3,800 issued with liquidation preference of
$25,000 per share)........................................ $ 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................................. 7,709,516
Accumulated Undistributed Net Investment Income............. 798,217
Accumulated Net Realized Loss............................... (15,826,726)
------------
Net Assets Applicable to Common Shares................ 141,956,357
------------
NET ASSETS.................................................. $236,956,357
============
NET ASSET VALUE PER COMMON SHARE ($141,956,357 divided
by 10,806,700 shares outstanding)......................... $ 13.14
============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 14,053,582
------------
EXPENSES:
Investment Advisory Fee..................................... 1,620,151
Administrative Fee.......................................... 373,881
Preferred Share Maintenance................................. 256,903
Custody..................................................... 19,128
Trustees' Fees and Related Expenses......................... 15,972
Legal....................................................... 13,576
Other....................................................... 227,287
------------
Total Expenses.......................................... 2,526,898
------------
NET INVESTMENT INCOME....................................... $ 11,526,684
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (1,246,122)
Options................................................... 83,445
------------
Net Realized Loss........................................... (1,162,677)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 24,815,534
End of the Period
Investments............................................. 7,709,516
------------
Net Unrealized Depreciation During the Period............... (17,106,018)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(18,268,695)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (6,742,011)
============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1999 October 31, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 11,526,684 $ 11,799,953
Net Realized Gain/Loss............................ (1,162,677) 861,705
Net Unrealized Appreciation/Depreciation
During the Period............................... (17,106,018) 4,184,127
------------ ------------
Change in Net Assets from Operations.............. (6,742,011) 16,845,785
------------ ------------
Distributions from Net Investment Income:
Common Shares................................... (8,428,611) (8,428,547)
Preferred Shares................................ (3,036,827) (3,351,758)
------------ ------------
Total Distributions............................... (11,465,438) (11,780,305)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (18,207,449) 5,065,480
NET ASSETS:
Beginning of the Period........................... 255,163,806 250,098,326
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $798,217
and $736,971, respectively)..................... $236,956,357 $255,163,806
============ ============
</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>
---------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period (a)...................... $ 14.821 $ 14.352 $13.669
-------- -------- -------
Net Investment Income........... 1.067 1.092 1.096
Net Realized and Unrealized
Gain/Loss..................... (1.691) .467 .675
-------- -------- -------
Total from Investment
Operations...................... (0.624) 1.559 1.771
-------- -------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common Shareholders... .780 .780 .780
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders...... .281 .310 .308
Distributions from Net Realized
Gain:
Paid to Common Shareholders... -0- -0- -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders...... -0- -0- -0-
-------- -------- -------
Total Distributions............... 1.061 1.090 1.088
-------- -------- -------
Net Asset Value, End of the
Period.......................... $ 13.136 $ 14.821 $14.352
======== ======== =======
Market Price Per Share at End of
the Period...................... $ 11.625 $14.5625 $12.750
Total Investment Return at Market
Price (b)....................... (15.30%) 20.97% 15.55%
Total Return at Net Asset
Value (c)....................... (6.35%) 8.91% 11.01%
Net Assets at End of the Period
(In millions)................... $ 237.0 $ 255.2 $ 250.1
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares**........................ 1.64% 1.62% 1.65%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d)............... 5.50% 5.35% 5.67%
Portfolio Turnover................ 39% 18% 23%
* Non-Annualized
** Ratio of Expenses to Average
Net Assets including Preferred
Shares......................... 1.01% 1.01% 1.01%
</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.
20
<PAGE> 22
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 22, 1993
(Commencement
of Investment
Year Ended October 31, Operations) to
- --------------------------------------
1996 1995 1994 October 31, 1993
- -------------------------------------------------------
<S> <C> <C> <C>
$13.722 $12.284 $15.253 $13.808
------- ------- ------- -------
1.116 1.147 1.181 .803
(.065) 1.507 (2.927) 1.329
------- ------- ------- -------
1.051 2.654 (1.746) 2.132
------- ------- ------- -------
.790 .874 .938 .547
.314 .342 .244 .140
-0- -0- .034 -0-
-0- -0- .007 -0-
------- ------- ------- -------
1.104 1.216 1.223 .687
------- ------- ------- -------
$13.669 $13.722 $12.284 $15.253
======= ======= ======= =======
$11.750 $11.875 $10.750 $14.625
5.69% 18.79% (20.83%) 8.26%*
5.58% 19.39% (13.59%) 12.82%*
$ 242.7 $ 243.3 $ 227.7 $ 259.8
1.67% 1.77% 1.61% 1.49%
5.91% 6.14% 6.76% 5.97%
24% 75% 165% 114%*
1.01% 1.06% .99% 1.02%
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
October 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1999, the Trust had an accumulated capital loss
carryforward for tax purposes of $15,826,726 which will expire between October
31, 2002 and October 31, 2007.
At October 31, 1999, for federal income tax purposes the cost of long-term
investments is $230,752,186, the aggregate gross unrealized appreciation is
$11,579,850 and the aggregate gross unrealized depreciation is $3,870,334,
resulting in net unrealized appreciation on long-term investments of $7,709,516.
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 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, Van Kampen
Investment Advisory Corp. (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 Van Kampen Funds Inc. or its affiliates' (collectively
"Van Kampen"), 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.
For the year ended October 31, 1999, the Trust recognized expenses of
approximately $4,400, representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust of which a trustee of the
Trust is an affiliated person.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
For the year ended October 31, 1999, the Trust recognized expenses of
approximately $84,300 representing Van Kampen's cost of providing accounting and
legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $99,912,091 and $99,820,492,
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 unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising an option contract or taking
delivery of a security underlying a futures contract. In these instances, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Trust
to manage the portfolio's effective maturity and duration.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
Transactions in options for the year ended October 31, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1998.................. 100 $ 61,690
Options Written and Purchased (Net)............ 200 82,756
Options Terminated in Closing Transactions
(Net)....................................... (100) (33,566)
Options Expired (Net).......................... (200) (110,880)
---- --------
Outstanding at October 31, 1999.................. -0- $ -0-
==== ========
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration. Upon entering into futures contracts, the Trust maintains, in a
segregated account with its custodian, securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin).
For the year ended October 31, 1999, there were no transactions in futures
contracts.
5. PREFERRED SHARES
Effective with the close of business on April 23, 1999, the liquidation
preference on the Trust's preferred shares decreased from $50,000 to $25,000 per
share. This decrease was effected by means of a 2 for 1 stock split that doubled
the Trust's number of outstanding preferred shares. The total liquidation value
for the Trust was unchanged. As of October 31, 1999, the Trust has outstanding
3,800 Auction Preferred Shares ("APS") in two series. Series A contains 2,000
shares while Series B contains 1,800 shares. Dividends are cumulative and the
dividend rate for both Series is currently reset every 28 days through an
auction process. At October 31, 1999, the average rate in effect was 3.413%.
During the year ended October 31, 1999, the rates ranged from 2.970% to 3.600%.
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.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $25,000 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.
26
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Strategic Sector Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Strategic Sector Municipal Trust (the "Trust"), including the portfolio
of investments, as of October 31, 1999, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Strategic Sector Municipal Trust as of October 31, 1999, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
December 6, 1999
27
<PAGE> 29
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 dividends and
capital gains distributions automatically reinvested in Common Shares of the
Trust. All Common Shareholders are deemed to be participants in the Plan unless
they specifically elect not to participate. Common Shareholders who elect not to
participate in the Plan will receive all distributions of dividends and capital
gains in cash paid by check mailed directly to the Common Shareholder by the
Trust's dividend disbursing agent.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for
the Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
All Common Shareholders of the Trust are deemed to be participants in the Plan
unless they specifically elect not to participate. You may withdraw from the
Plan at any time by calling 1-800-341-2929 or by writing State Street Bank and
Trust Company, P.O. Box 8200, Boston, MA 02266-8200. If you withdraw, you will
receive, without charge, a share certificate issued in your name for all full
Common Shares credited to your account under the Plan and a cash payment will be
made for any fractional Common Share credited to your account under the Plan.
You may again elect to participate in the Plan at any time by calling
1-800-341-2929 or writing to the Trust at:
Van Kampen Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
28
<PAGE> 30
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these
funds, ask your financial advisor for
a prospectus, which contains more
complete information, including sales
charges, risks, and ongoing expenses.
Please read it carefully before you
invest or send money.
To view a current Van Kampen fund
prospectus or to receive additional
fund information, choose from one of
the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
29
<PAGE> 31
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*
STEVEN MULLER
THEODORE A. MYERS
RICHARD F. POWERS, III*--Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President
and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
CUSTODIAN AND
TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
For Federal Income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
October 31, 1999. The Trust designated 100% of the income distributions as a
tax-exempt income distribution. In January, 2000, the Trust will provide tax
information to shareholders for the 1999 calendar year.
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
30
<PAGE> 32
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on June 16, 1999, where
shareholders voted on the election of trustees and the selection of independent
public accountants.
1) With regard to the election of the following trustee by the preferred
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
-------------------
IN FAVOR WITHHELD
- ----------------------------------------------------------------------
<S> <C> <C>
Theodore A. Myers................................ 2,740 248
</TABLE>
2) With regard to the election of the following trustees by the common
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
--------------------
IN FAVOR WITHHELD
- ----------------------------------------------------------------------
<S> <C> <C>
Don G. Powell*.................................. 8,849,004 155,191
Hugo F. Sonnenschein............................ 8,848,812 155,384
</TABLE>
The other Trustees of the Trust whose term did not expire in 1999 are David C.
Arch, Rod Dammeyer, Howard J Kerr, Dennis J. McDonnell, Steven Muller and Wayne
W. Whalen.
3) With regard to the ratification of KPMG LLP as independent public
accountants for the Trust, 8,813,979 shares voted in favor of the proposal,
51,612 shares voted against and 141,592 shares abstained.
* On August 9, 1999, Don G. Powell resigned and the Board of Trustees appointed
Richard F. Powers, III.
31
<PAGE> 33
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Trust could be adversely affected if the computer systems
used by the Trust's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Trust's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Trust. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Trust may invest that, in turn, may adversely affect
the net asset value of the Trust. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Trust's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
32
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000894241
<NAME> STRATEGIC SECTOR MUNICIPAL TRUST
<SERIES>
<NUMBER> 11
<NAME> STRAT SECT
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<INVESTMENTS-AT-COST> 230,752,186
<INVESTMENTS-AT-VALUE> 238,461,702
<RECEIVABLES> 9,752,396
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 10,802
<TOTAL-ASSETS> 248,224,900
<PAYABLE-FOR-SECURITIES> 10,380,577
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 887,966
<TOTAL-LIABILITIES> 11,268,543
<SENIOR-EQUITY> 95,000,000
<PAID-IN-CAPITAL-COMMON> 149,275,350
<SHARES-COMMON-STOCK> 10,806,700
<SHARES-COMMON-PRIOR> 10,806,700
<ACCUMULATED-NII-CURRENT> 798,217
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (15,826,726)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,709,516
<NET-ASSETS> 236,956,357
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,053,582
<OTHER-INCOME> 0
<EXPENSES-NET> (2,526,898)
<NET-INVESTMENT-INCOME> 11,526,684
<REALIZED-GAINS-CURRENT> (1,162,677)
<APPREC-INCREASE-CURRENT> (17,106,018)
<NET-CHANGE-FROM-OPS> (6,742,011)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,465,438)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (18,207,449)
<ACCUMULATED-NII-PRIOR> 736,971
<ACCUMULATED-GAINS-PRIOR> (14,664,049)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,620,151
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,526,898
<AVERAGE-NET-ASSETS> 249,246,174
<PER-SHARE-NAV-BEGIN> 14.821
<PER-SHARE-NII> 1.067
<PER-SHARE-GAIN-APPREC> (1.691)
<PER-SHARE-DIVIDEND> (1.061)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.136
<EXPENSE-RATIO> 1.64
</TABLE>
