<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 5
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
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
Dividend Reinvestment Plan....................... 27
</TABLE>
VKS SAR 6/99
<PAGE> 2
LETTER TO SHAREHOLDERS
May 20, 1999
Dear Shareholder,
With the volatility that we've experienced in many financial markets in
recent months, some investors have sold securities because of uncertainty about
where the markets were going, only to be left rethinking whether they made the
right decision. We've witnessed this kind of market activity numerous times over
the past several years, sparked by concerns such as the impact of the Asian
economic crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the latest rally. That's partly because most of the recent big gains happened
in relatively short periods of time. This kind of volatility--and the danger of
making short-term decisions--highlights the importance of investing for the long
term, in accordance with your individual financial objectives.
Although the worst of the Asian crisis appears to be behind us, new concerns
are always emerging. In the coming months, we'll likely hear more about how the
year 2000 computer problem may affect the markets or that we're overdue for a
correction. While the markets could undoubtedly suffer as a result of these or
any number of other events, we encourage you to focus on your long-term
investment goals. Although nothing is certain, history has shown us that over
time, the markets tend to recover--and most investors want to be positioned to
take advantage of any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather whatever the markets have in store.
Sincerely,
[SIG.]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 3
ECONOMIC SNAPSHOT
A surge in consumer confidence led to strong economic growth over the past
six months, as fears about the impact of the Asian financial crisis subsided. In
the fourth quarter, the nation's gross domestic product (GDP) rose at an
astounding 6.0 percent annual rate and remained strong at 4.5 percent through
the first quarter of 1999. This powerful level of growth is attributed to a
continued increase in consumer spending, a strong housing market, and high
retail sales--all the result of a more confident consumer given the positive
employment environment. The economy began to show signs of slowing down early in
1999, however, as corporate profits and wage growth declined.
Despite continued improvements in Asia and Latin America and the record
economic growth in the United States, inflation remained at bay in late 1998 as
commodity prices tumbled. Although rising oil prices pushed inflation up 3.3
percent on an annualized basis in the first four months of 1999, price increases
remained moderate enough overall to keep inflation-adjusted interest rates
attractive.
Our outlook for the domestic economy remains positive, although we
anticipate slower growth in the second half of the year. We look for a gradual
but steady rise in inflation throughout 1999 to more normal but certainly not
alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic progress we've witnessed
overseas.
INTEREST RATES AND INFLATION
April 30, 1997, through April 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Apr 1997 6.0000 2.5000
5.6250 2.2000
6.5000 2.3000
Jul 1997 6.0000 2.2000
5.5000 2.2000
6.2500 2.2000
Oct 1997 5.7500 2.1000
5.6875 1.8000
6.5000 1.7000
Jan 1998 5.5625 1.6000
5.6250 1.4000
6.1250 1.4000
Apr 1998 5.6250 1.4000
5.6875 1.7000
6.0000 1.7000
Jul 1998 5.5625 1.7000
5.9375 1.6000
5.7500 1.5000
Oct 1998 5.2500 1.5000
4.8750 1.5000
4.0000 1.6000
Jan 1999 4.8125 1.7000
4.8750 1.6000
5.1250 1.7000
Apr 1999 4.9375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED APRIL 30, 1999
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
(NYSE TICKER SYMBOL--VKS)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
Six-month total return based on market price(1)........... (3.78%)
Six-month total return based on NAV(2).................... 1.36%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3).................................................. 5.72%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 8.94%
SHARE VALUATIONS
Net asset value........................................... $14.63
Closing common stock price................................ $13.6250
Six-month high common stock price (11/02/98).............. $14.7500
Six-month low common stock price (01/25/99)............... $13.3750
Preferred share (Series A) rate(5)........................ 3.150%
Preferred share (Series B) rate(5)........................ 3.150%
</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.
3
<PAGE> 5
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.
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.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's 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 1998
and maturing in 2008 is a 10-year bond.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
in some states, from state and local income taxes.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
REFUNDING: Retiring an outstanding bond issue at maturity using money from the
sale of a new offering.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
We recently spoke with the management team of the Van Kampen Strategic Sector
Municipal Trust about the key events and economic forces that shaped the markets
during the reporting period. The team includes Timothy D. Haney, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following comments reflect their views on the Trust's
performance during the six months ended April 30, 1999.
Q HOW WOULD YOU DESCRIBE THE CONDITIONS IN THE MUNICIPAL MARKET DURING THE
PAST SIX MONTHS?
A Although most of the financial markets experienced volatility during the
period, the municipal market remained relatively stable. For the majority
of the six months, long-term municipal bond yields remained within a range
of about 5.1 to 5.3 percent, even as the Federal Reserve cut interest rates.
Much of the stability in the municipal market can be attributed to its isolation
from turbulence abroad. Concerns about the financial conditions in Asia and
Latin America hurt the stock and high-yield bond markets last fall, but had
little effect on municipals.
The positive economic and market conditions encouraged more municipalities
to take advantage of low interest rates and issue new bonds. Although the amount
of municipal debt increased, the credit quality of many issuers was not
compromised--in fact, it improved as the positive economic environment led to
stronger balance sheets. As a result, we saw more issuers using municipal bonds
to finance special growth and expansion projects, as opposed to financing their
regular operations.
The proportion of higher-yielding municipal bonds also increased during the
period as the number of insured bonds declined. Because bond insurers tightened
their underwriting criteria, more issuers came to market without insurance and
offered higher yields to compensate bondholders for the increased credit risk.
This benefited the Trust because it allowed our experienced research staff to
seek out those higher-yielding bonds that we felt had strong underlying quality.
Q WHY WERE MUNICIPAL BONDS SO ATTRACTIVE RELATIVE TO COMPARABLE TREASURY
BONDS?
A Toward the end of 1998, the yields on 30-year insured municipal bonds and
comparable U.S. Treasury bonds reached equivalent levels, which is a rare
occurrence. Typically, investment-grade municipal bonds have offered about
85 to 90 percent as much yield as comparable Treasury bonds because their
interest payments are exempt from federal income taxes. However, as Treasury
yields fell and municipal yields remained stable, the yield difference between
the two types of bonds shrank. Early in 1999, investors recognized the
tremendous opportunities available in the municipal market, and demand for
municipals began to increase. In conjunction with a recent slowdown in supply,
this boost in municipal demand pushed the municipal-to-Treasury yield ratio back
to more traditional but still attractive levels.
5
<PAGE> 7
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE TRUST?
A Our focus was on supporting the Trust's income stream while monitoring its
risk level and price volatility. To do so, we sought to limit the Trust's
exposure to bond calls, which can lower its income stream because we must
invest the proceeds of called bonds into bonds paying current lower interest
rates. During the reporting period, we purchased noncallable bonds, which cannot
be paid off early by their issuers, even if interest rates decline. In addition,
we began to replace some of our housing bonds. These bonds carry a risk that the
mortgage holder will refinance the mortgage or pay it off early, especially
during a low interest-rate environment like we are currently experiencing. As a
result, housing bonds are more likely than many other issues to be called from
the portfolio.
By working closely with our experienced research analysts, we continued to
look for securities that may be temporarily out of favor but that we feel have
the potential to appreciate in price if market circumstances change. For
example, we purchased 30-year bonds with 5 percent coupon rates--which tend to
attract strong demand from individual investors--during a period where heavy
supply kept prices attractive. A few months later, we sold them at a profit when
the supply of municipal securities declined and demand for these issues
increased. For additional portfolio highlights, please refer to page 8.
In addition, our research team helped us find value in the health-care
sector, which is under pressure as a result of the challenges imposed by managed
care and changing Medicare reimbursement policies. The team sifted through the
range of health-care offerings to help us find lower-rated bonds with attractive
yields and strong underlying quality. For example, they recently uncovered a
hospital issue that was out of favor because its credit rating had been
downgraded. We felt that the market had overreacted to the lower (but still
investment-grade) rating, and we bought the bonds at an attractive price.
Q HOW DID THE TRUST PERFORM DURING THE PERIOD?
A During the past six months, the Trust generated a total return of -3.78
percent(1) based on market price. This reflects a decrease in market price
from $14.5625 per share on October 31, 1998, to $13.6250 on April 30,
1999. In addition, the Trust provided a distribution rate of 5.72 percent(3)
based on its closing common stock price on April 30, 1999. Because the Trust is
exempt from federal income taxes, this distribution rate is equivalent to a
yield of 8.94 percent(4) on a taxable investment for shareholders in the 36
percent federal income tax bracket. The Trust's monthly dividend of $.0650 per
share was unchanged during the reporting period. Past performance does not
guarantee future results. Please refer to the footnotes and chart on page 3 for
additional Trust performance results.
6
<PAGE> 8
Q WHAT DO YOU SEE AHEAD FOR THE MUNICIPAL MARKET?
A Strong economic performance should continue to bolster the credit
conditions of municipal issuers. In addition, we expect that this economic
strength will continue to make municipalities more likely to issue debt
for special projects rather than for general operating financing.
Although insured debt has been increasing in recent years, we have started
to see a reversal of this trend in the last few months, as municipal bond
insurers have become more cautious. If this caution continues, credit spreads
may widen as the proportion of higher-yielding uninsured bonds increases.
Finally, we see the potential for changes in traditional economic activity
toward the end of the year because of investor concerns about the year 2000
computer problem. These temporary concerns, however, may result in attractive
investment opportunities that our research staff can explore to uncover
potential value.
[SIG.]
Timothy D. Haney
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF APRIL 30, 1999
<S> <C>
Health Care................. 26.0%
General Purpose............. 17.4%
Industrial Revenue.......... 9.1%
Public Education............ 9.1%
Retail
Electric/Gas/Telephone.... 8.6%
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1998
<S> <C>
Health Care................. 25.0%
General Purpose............. 17.3%
Single-Family Housing....... 9.8%
Retail
Electric/Gas/Telephone.... 8.4%
Industrial Revenue.......... 8.3%
</TABLE>
PORTFOLIO COMPOSITION BY CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF APRIL 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa BB/Ba Non-Rated
------- ----- --- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
As of April 30, 1999 65.8% 8.8% 5.3% 16.5% 1.2% 2.4%
</TABLE>
AS OF OCTOBER 31, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa BB/Ba Non-Rated
------- ----- --- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
As of October 31, 1998 56.3% 13.2% 5.8% 21.4% 1.2% 2.1%
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY
FOR THE PERIOD ENDED APRIL 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
Distribution Per Common Share
-----------------------------
<S> <C>
Nov 1998 0.065
Dec 1998 0.065
Jan 1999 0.065
Feb 1999 0.065
Mar 1999 0.065
Apr 1999 0.065
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 102.5%
ALABAMA 5.0%
$ 5,000 Alabama Wtr Pollutn Ctl Auth
Revolving Fund Ln Ser A (AMBAC
Insd)................................ 5.000% 08/15/15 $ 4,996,850
8,000 Montgomery, AL BMC Spl Care Facs Fin
Auth Rev Baptist Hlth Ser B (MBIA
Insd)................................ 5.000 11/15/29 7,702,960
------------
12,699,810
------------
CALIFORNIA 14.0%
3,330 Anaheim, CA Ctfs Partn Anaheim Mem
Hosp Assn Rfdg (AMBAC Insd).......... 5.000 05/15/13 3,368,328
3,000 California Hlth Fac Fin Auth Rev
Kaiser Permanente Med Cent........... 5.450 10/01/13 3,064,650
6,420 California Pollutn Ctl Fin Auth
Pollutn Ctl Rev Pacific Gas & Elec Co
Ser B (MBIA Insd).................... 6.350 06/01/09 7,048,647
1,110 California Rural Home Mtg Fin Auth
Single Family Mtg Rev Ser C (GNMA
Collateralized) (d).................. 7.800 02/01/28 1,274,413
10,000 California Statewide Cmntys Dev Auth
Rev Ctfs Partn Insd Children's Hosp
Rfdg (MBIA Insd) (d)................. 4.750 06/01/21 9,418,900
2,000 Los Angeles Cnty, CA Pub Wks (FSA
Insd)................................ 5.500 10/01/18 2,160,940
3,000 Orange Cnty, CA Recovery Ser A Rfdg
(MBIA Insd).......................... 6.000 06/01/08 3,388,560
2,000 Paramount, CA Redev Agy Tax Alloc
Redev Proj Area No 1 Rfdg (MBIA Insd)
(d).................................. 6.250 08/01/23 2,189,480
1,865 Santa Clara Cnty, CA Fin Auth Lease
Rev Multi Facs Projs Ser B (AMBAC
Insd) (c)............................ 5.500 05/15/08 1,996,762
1,000 Santa Clara Cnty, CA Fin Auth Lease
Rev Multi Facs Projs Ser B (AMBAC
Insd) (c)............................ 5.500 05/15/09 1,071,530
1,330 Temple City, CA Unified Sch Dist Cap
Apprec Ser A (FGIC Insd)............. * 08/01/16 563,029
------------
35,545,239
------------
COLORADO 4.3%
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 1,190,590
1,875 Colorado Hsg Fin Auth Multi-Family
Hsg Insd Mtg Ser A................... 6.800 10/01/37 2,033,738
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLORADO (CONTINUED)
$ 1,500 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser C1........................ 7.550% 11/01/27 $ 1,700,940
2,010 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser F (d)..................... 8.625 06/01/25 2,152,187
3,415 Denver, CO City & Cnty Arpt Rev Ser
B.................................... 6.900 11/15/00 3,564,748
1,000 E-470 Pub Hwy Auth CO Rev Cap Apprec
Sr Ser B Rfdg (MBIA Insd)............ * 09/01/22 297,920
------------
10,940,123
------------
CONNECTICUT 1.9%
1,500 Connecticut St Hlth & Edl Facs Auth
Rev Quinnipiac College Ser E (FSA
Insd)................................ 4.750 07/01/28 1,413,060
1,500 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A, 144A - Private
Placement (b)........................ 6.400 09/01/11 1,649,370
1,500 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A, 144A - Private
Placement (Prerefunded @ 09/01/07)
(b).................................. 6.400 09/01/11 1,745,760
------------
4,808,190
------------
GEORGIA 3.1%
3,000 Atlanta, GA Spl Purp Fac Rev Delta
Airls Ser B.......................... 7.900 12/01/18 3,120,210
1,000 Carroll Cnty, GA Wtr Auth Wtr & Swr
Rev Rfdg (AMBAC Insd)................ 4.750 07/01/22 950,720
1,425 Georgia Muni Elec Auth Pwr Rev Ser A
Rfdg (FGIC Insd)..................... 5.500 01/01/12 1,540,596
2,000 Georgia Muni Elec Auth Pwr Rev Ser Z
Rfdg (FGIC Insd)..................... 5.500 01/01/12 2,162,240
------------
7,773,766
------------
ILLINOIS 5.5%
2,060 Alton, IL Hosp Fac Rev Saint
Anthony's Hlth Cent Rfdg............. 5.875 09/01/06 2,155,234
2,500 Chicago, IL Brd Edl Ser 1999A Chicago
Sch Reform Brd Ser A Rfdg (FGIC
Insd)................................ 5.250 12/01/23 2,575,200
2,000 Chicago, IL Brd Edl Ser 1999A Chicago
Sch Reform Brd Ser A Rfgd (FGIC
Insd)................................ 5.500 12/01/26 2,131,540
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 4,500 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev American Airls Inc Proj Ser A
(d).................................. 7.875% 11/01/25 $ 4,815,090
1,635 Cook Cnty, IL Sch Dist 100 Berwyn
South Rfdg (FSA Insd)................ 8.100 12/01/15 2,245,983
------------
13,923,047
------------
INDIANA 3.5%
2,000 Fort Wayne, IN Hosp Auth Hosp Rev
Parkview Hlth Sys Inc Proj Rfdg (MBIA
Insd)................................ 4.750 11/15/28 1,826,940
3,000 Kokomo, IN Hosp Auth Hosp Rev Saint
Joseph Hosp & Hlth Cent Rfdg......... 6.000 08/15/02 3,150,780
2,000 Kokomo, IN Hosp Auth Hosp Rev Saint
Joseph Hosp & Hlth Cent Rfdg......... 6.250 08/15/05 2,188,980
990 La Porte Cnty, IN Hosp Auth Hosp Fac
Rev La Porte Hosp Inc Rfdg........... 5.900 03/01/01 1,021,680
540 La Porte Cnty, IN Hosp Auth Hosp Fac
Rev La Porte Hosp Inc Rfdg........... 6.000 03/01/02 567,070
------------
8,755,450
------------
IOWA 2.1%
5,000 Muscatine, IA Elec Rev Rfdg (AMBAC
Insd) (d)............................ 6.125 01/01/12 5,347,550
------------
KANSAS 2.1%
5,000 Burlington, KS Pollutn Ctl Rev KS Gas
& Elec Co Proj Rfdg (MBIA Insd)
(d).................................. 7.000 06/01/31 5,392,750
------------
LOUISIANA 0.5%
1,250 Saint Charles Parish, LA Pollutn Ctl
Rev LA Pwr & Lt Co Proj (FSA Insd)... 7.500 06/01/21 1,357,950
------------
MARYLAND 5.5%
1,275 Baltimore, MD Ctfs Partn Brd of Edl
Admin Proj Ser A Rfdg (MBIA Insd)
(c).................................. 5.000 04/01/15 1,262,645
6,325 Maryland St Hlth & Higher Edl Fac
Auth Rev Greater Baltimore Med Cent
Rfdg (FGIC Insd)..................... 5.000 07/01/13 6,365,923
6,270 Maryland St Hlth & Higher Edl Fac
Auth Rev Subn Hosp Rfdg (AMBAC
Insd)................................ 5.000 07/01/13 6,327,559
------------
13,956,127
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS 2.3%
$ 1,775 Massachusetts Muni Whsl Elec Co Pwr
Supply Sys Rev Ser B Rfdg............ 6.750% 07/01/05 $ 1,919,680
1,705 Massachusetts St Hlth & Edl Fac Auth
Rev Vly Regl Hlth Sys Ser C Rfdg
(Connie Lee Insd).................... 7.000 07/01/09 2,033,486
2,000 Massachusetts St Wtr Res Auth Genl
Ser A (FSA Insd)..................... 4.750 08/01/27 1,868,760
------------
5,821,926
------------
MICHIGAN 3.7%
2,745 Michigan Muni Bond Auth Rev St
Revolving Fund....................... 5.400 10/01/14 2,878,983
1,000 Michigan St Hosp Fin Auth Rev Detroit
Med Cent Oblig Ser A................. 5.250 08/15/28 907,220
1,000 Michigan St Hosp Fin Auth Rev Hosp
Genesys Regl Med Rfdg (ACA Insd)..... 5.500 10/01/18 1,005,860
1,000 Michigan St Hosp Fin Auth Rev Hosp
Genesys Regl Med Rfdg (ACA Insd)..... 5.500 10/01/27 1,002,700
3,500 Michigan St Strat Fd Ltd Oblig Rev
Detroit Edison Co Ser A Rfdg (MBIA
Insd) (c)............................ 5.550 09/01/29 3,551,870
------------
9,346,633
------------
MINNESOTA 0.5%
1,295 Eden Prairie, MN Multi-Family Hsg Rev
Edendale Apts Ser A Rfdg (GNMA
Collateralized)...................... 5.550 12/01/24 1,337,865
------------
MISSISSIPPI 1.8%
1,990 Mississippi Home Corp Single Family
Rev Mtg Ser C (GNMA
Collateralized)...................... 7.600 06/01/29 2,258,650
985 Mississippi Home Corp Single Family
Rev Mtg Ser D (GNMA
Collateralized)...................... 8.100 12/01/24 1,101,457
990 Mississippi Home Corp Single Family
Rev Mtg Ser F (GNMA
Collateralized)...................... 7.550 12/01/27 1,126,590
------------
4,486,697
------------
MISSOURI 1.1%
250 Missouri St Hlth & Edl Fac Auth Hlth
Fac Rev.............................. 6.250 02/15/11 262,730
515 Missouri St Hlth & Edl Fac Auth Hlth
Fac Rev (Prerefunded @ 02/15/06)..... 6.250 02/15/11 583,078
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI (CONTINUED)
$ 1,000 Missouri St Hlth & Edl Fac Auth Rev
BJC Hlth Sys......................... 5.000% 05/15/28 $ 957,900
845 Missouri St Hsg Dev Comm Mtg Rev
Single Family Ln Ser A (GNMA
Collateralized)...................... 7.200 09/01/26 953,016
------------
2,756,724
------------
NEVADA 0.9%
2,055 Nevada Hsg Division Single Family Pgm
Ser E (FHA Gtd)...................... 6.900 10/01/11 2,196,035
------------
NEW JERSEY 2.5%
2,000 New Jersey Econ Dev Auth Dist Heating
& Cooling Rev Trigen Trenton Ser A... 6.200 12/01/10 2,100,560
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 2,832,925
1,275 New Jersey Hlth Care Fac Fin Auth Rev
Saint Barnabas Hlth Ser C Rfdg (MBIA
Insd) (c)............................ 5.250 07/01/18 1,259,764
------------
6,193,249
------------
NEW YORK 11.6%
2,520 New York City Ser B (Prerefunded @
08/15/04)............................ 7.250 08/15/19 2,941,117
5,000 New York City Ser B1 (Prerefunded @
08/15/04)............................ 7.000 08/15/16 5,781,500
5 New York City Ser C.................. 7.250 08/15/24 5,359
5,960 New York City Ser C (Prerefunded @
08/15/01)............................ 7.250 08/15/24 6,440,138
2,000 New York City Ser G.................. 5.750 02/01/14 2,130,700
4,355 New York St Dorm Auth Rev Court Fac
Lease Ser A.......................... 5.500 05/15/10 4,522,406
1,155 New York St Dorm Auth Rev Secured
Hosp Wyckoff Hts Ser H Rfdg.......... 5.200 02/15/14 1,168,514
595 New York St Med Care Fac Fin Agy Rev
Mental Hlth Svcs Fac Impt Ser B...... 7.625 08/15/17 651,138
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,285 New York St Med Care Fac Fin Agy Rev
Mental Hlth Svcs Fac Impt Ser B
(Prerefunded @ 08/15/01)............. 7.625% 08/15/17 $ 1,420,323
4,350 Triborough Brdg & Tunl Auth NY Rev
Genl Purp Ser A Rfdg................. 5.000 01/01/12 4,388,150
------------
29,449,345
------------
NORTH CAROLINA 0.3%
2,500 University of NC Chapel Hill Rev Util
Sys Rfdg............................. * 08/01/20 851,950
------------
OHIO 4.6%
1,000 Akron, OH Ctfs Partn Akron Muni
Baseball Stadium Proj (a)............ 0/6.500 12/01/07 983,490
1,000 Cleveland, OH Arpt Spl Rev
Continental Airls Inc Rfdg (c)....... 5.700 12/01/19 984,270
1,000 Delaware Cnty, OH Hlthcare Fac Rev
Mtg Centrum at Willow Brook (FHA Gtd)
(d).................................. 6.550 02/01/35 1,099,490
2,045 Marion Cnty, OH Hosp Impt Rev Cmnty
Hosp Rfdg............................ 6.000 05/15/05 2,215,880
1,000 Miami Cnty, OH Hosp Fac Rev Upper Vly
Med Cent Ser C Rfdg & Impt........... 6.000 05/15/06 1,057,740
1,300 Montgomery Cnty, OH Hosp Rev
Grandview Hosp & Med Cent Rfdg....... 5.500 12/01/10 1,243,073
2,970 Ohio Hsg Fin Agy Mtg Rev (GNMA
Collateralized)...................... 6.050 09/01/17 3,167,208
885 Toledo, OH Multi-Family Hsg Impt
Commodore Perry (FGIC Insd).......... 5.400 12/01/23 897,142
------------
11,648,293
------------
OKLAHOMA 1.1%
2,750 Shawnee, OK Hosp Auth Hosp Rev
Mid-America Hlthcare Inc Rfdg........ 6.125 10/01/14 2,849,275
------------
PENNSYLVANIA 11.1%
1,000 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt USX Corp Proj
Rfdg................................. 6.100 07/15/20 1,052,950
3,000 Delaware Cnty, PA Auth Hlth Care Rev
Mercy Hlth Corp Southeastn Ser B
(Prerefunded @ 11/15/05)............. 6.000 11/15/07 3,309,750
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,000 Pennsylvania Intergovt Coop Auth Spl
Tax Rev City of Philadelphia Fdg Pgm
(FGIC Insd).......................... 5.250% 06/15/12 $ 2,085,240
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 6,362,280
10,000 Pennsylvania St Ctfs Partn Ser A Rfdg
(AMBAC Insd) (d)..................... 5.400 07/01/09 10,427,500
4,325 Philadelphia, PA Hosp & Higher Edl
Auth Fac Hosp Rev Rfdg............... 6.350 07/01/07 4,929,029
------------
28,166,749
------------
TENNESSEE 1.0%
2,485 Shelby Cnty, TN Hlth Edl & Hsg Fac
Brd Rev Edl Fac Christian Brother
Rfdg................................. 5.750 09/01/16 2,460,597
------------
TEXAS 6.4%
3,000 Brazos River Auth TX Rev Houston Inds
Inc Proj Ser D Rfdg (MBIA Insd)...... 4.900 10/01/15 3,035,400
3,000 Harris Cnty, TX Toll Rd Sr Lien Rfdg
(AMBAC Insd)......................... 4.950 08/15/06 3,146,610
2,000 Houston, TX Arpt Sys Rev Spl Fac
Continental Airls Ser B.............. 6.125 07/15/17 2,056,220
2,000 Lower Colorado River Auth TX Rev
Junior Lien Seventh Supply Ser (FSA
Insd)................................ 4.750 01/01/28 1,870,740
1,000 Matagorda Cnty, TX Navigation Dist 1
Houston Ltg Pwr Co (AMBAC Insd)...... 5.125 11/01/28 988,000
2,490 San Antonio, TX Arpt Sys Rev Rfdg
(AMBAC Insd)......................... 7.375 07/01/13 2,850,253
1,610 Texas Hsg Agy Residential Dev Rev Mtg
Ser D (GNMA Collateralized).......... 8.400 01/01/21 1,647,400
2,090 Wylie, TX Indpt Sch Dist Cap Apprec
Rfdg (PSF Gtd)....................... * 08/15/20 666,564
------------
16,261,187
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTAH 3.0%
$ 3,000 Intermountain Pwr Agy UT Pwr Supply
Rev Ser B Rfdg (MBIA Insd)........... 5.750% 07/01/19 $ 3,208,290
3,000 Salt Lake City, UT Arpt Rev Delta
Airls Inc Proj....................... 7.900 06/01/17 3,068,100
1,180 Utah St Hsg Fin Agy Single Family Mtg
Sr Ser D2 (FHA Gtd).................. 6.850 07/01/25 1,245,856
------------
7,522,246
------------
WASHINGTON 2.7%
1,000 Grant Cnty, WA Pub Util Dist No 2
Wanapum Hydro Elec Rev Ser B Rfdg
(MBIA Insd) (c)...................... 5.375 01/01/18 988,180
2,030 Washington St Pub Pwr Supply Sys
Nuclear Proj No 3 Rev Ser C Rfdg
(MBIA Insd).......................... * 07/01/13 1,011,102
3,380 Washington St Pub Pwr Supply Sys
Nuclear Proj No 3 Rev Ser C Rfdg
(MBIA Insd).......................... * 07/01/15 1,501,903
3,000 Washington St Ser B.................. 5.500 05/01/18 3,226,740
------------
6,727,925
------------
WISCONSIN 0.4%
1,000 Wisconsin St Hlth & Edl Facs Auth Rev
Marquette Univ (MBIA Insd)........... 4.750 06/01/28 926,510
------------
TOTAL INVESTMENTS 102.5%
(Cost $237,377,564)................................................. 259,503,208
LIABILITIES IN EXCESS OF OTHER ASSETS (2.5%)......................... (6,363,476)
------------
NET ASSETS 100.0%.................................................... $253,139,732
============
</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 and open option transactions.
ACA--American Capital Access Insurance Company
AMBAC--AMBAC Indemnity Corporation
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance, Inc.
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Permanent School Fund Guaranty
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $237,377,564)....................... $259,503,208
Receivables:
Interest.................................................. 4,474,984
Investments Sold.......................................... 1,514,352
------------
Total Assets.......................................... 265,492,544
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 10,990,933
Custodian Bank............................................ 807,268
Income Distributions--Common and Preferred Shares......... 168,686
Investment Advisory Fee................................... 135,479
Administrative Fee........................................ 31,264
Affiliates................................................ 27,955
Trustees' Deferred Compensation and Retirement Plans........ 98,121
Accrued Expenses............................................ 83,731
Options at Market Value (Net premiums received of
$49,190).................................................. 9,375
------------
Total Liabilities..................................... 12,352,812
------------
NET ASSETS.................................................. $253,139,732
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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................................. 22,165,459
Accumulated Undistributed Net Investment Income............. 771,515
Accumulated Net Realized Loss............................... (14,072,592)
------------
Net Assets Applicable to Common Shares................ 158,139,732
------------
NET ASSETS.................................................. $253,139,732
============
NET ASSET VALUE PER COMMON SHARE ($158,139,732 divided
by 10,806,700 shares outstanding)......................... $ 14.63
============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 7,031,992
-----------
EXPENSES:
Investment Advisory Fee..................................... 819,440
Administrative Fee.......................................... 189,101
Preferred Share Maintenance................................. 128,070
Trustees' Fees and Related Expenses......................... 14,389
Custody..................................................... 10,092
Legal....................................................... 6,437
Other....................................................... 112,286
-----------
Total Expenses.......................................... 1,279,815
-----------
NET INVESTMENT INCOME....................................... $ 5,752,177
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 529,767
Options................................................... 61,690
-----------
Net Realized Gain........................................... 591,457
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 24,815,534
-----------
End of the Period:
Investments............................................. 22,125,644
Options................................................. 39,815
-----------
22,165,459
-----------
Net Unrealized Depreciation During the Period............... (2,650,075)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(2,058,618)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 3,693,559
===========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1999 and
the Year Ended October 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1999 October 31, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 5,752,177 $ 11,799,953
Net Realized Gain................................. 591,457 861,705
Net Unrealized Appreciation/Depreciation During
the Period...................................... (2,650,075) 4,184,127
------------ ------------
Change in Net Assets from Operations.............. 3,693,559 16,845,785
------------ ------------
Distributions from Net Investment Income:
Common Shares................................... (4,214,250) (8,428,547)
Preferred Shares................................ (1,503,383) (3,351,758)
------------ ------------
Total Distributions............................... (5,717,633) (11,780,305)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (2,024,074) 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 $771,515
and $736,971, respectively)..................... $253,139,732 $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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended -----------------------
April 30, 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period (a)...................... $ 14.821 $ 14.352 $13.669
-------- -------- -------
Net Investment Income........... .532 1.092 1.096
Net Realized and Unrealized
Gain/Loss..................... (.191) .467 .675
-------- -------- -------
Total from Investment
Operations...................... .341 1.559 1.771
-------- -------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common Shareholders... .390 .780 .780
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders...... .139 .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............... .529 1.090 1.088
-------- -------- -------
Net Asset Value, End of the
Period.......................... $ 14.633 $ 14.821 $14.352
======== ======== =======
Market Price Per Share at End of
the Period...................... $ 13.625 $14.5625 $12.750
Total Investment Return at Market
Price (b)....................... (3.78%)* 20.97% 15.55%
Total Return at Net Asset
Value (c)....................... 1.36%* 8.91% 11.01%
Net Assets at End of the Period
(In millions)................... $ 253.1 $ 255.2 $ 250.1
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares**........................ 1.62% 1.62% 1.65%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d)............... 5.38% 5.35% 5.67%
Portfolio Turnover................ 17%* 18% 23%
* Non-Annualized
** Ratio of Expenses to Average
Net Assets including Preferred
Shares......................... 1.02% 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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 22, 1993
(Commencement
of Investment
Operations) to
Year Ended October 31, October 31, 1993
- -------------------------------------------------------
1996 1995 1994 October 31, 1993
- -------------------------------------------------------
<S> <C> <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
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1998, the Trust had an accumulated capital loss
carryforward for tax purposes of $14,641,421 which will expire between October
31, 2002 and October 31, 2004. Net realized gains or losses differ for financial
and tax reporting purposes as a result of gains or losses recognized for tax
purposes on open option positions at October 31, 1998.
At April 30, 1999, for federal income tax purposes the cost of long-term
investments is $237,377,564, the aggregate gross unrealized appreciation is
$22,426,249 and the aggregate gross unrealized depreciation is $300,605,
resulting in net unrealized appreciation on long-term investments of
$22,125,644.
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 six months ended April 30, 1999, the Trust recognized expenses of
approximately $2,400, 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)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended April 30, 1999, the Trust recognized expenses of
approximately $52,400 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 $49,395,326 and $44,373,787,
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)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six months ended April 30, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1998.................. 100 $ 61,690
Options Written and Purchased (Net)............ 100 49,190
Options Expired (Net).......................... (100) (61,690)
---- --------
Outstanding at April 30, 1999.................... 100 $ 49,190
==== ========
</TABLE>
The related futures contracts of the outstanding option transactions as of
April 30, 1999, and the description and market value is as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
CONTRACTS EXERCISE PRICE OPTIONS
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Bond Index
June 1999--Written Calls
(Current notional value of
$123,188 per contract).......... 100 June/128 $(9,375)
=== =======
</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).
There were no transactions in futures contracts during the six months ended
April 30, 1999.
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 April 30, 1999, the Trust has outstanding
3,800 Auction Preferred Shares ("APS") in
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 April 30, 1999, the average
rate in effect was 3.150%. During the six months ended April 30, 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.
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
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
27
<PAGE> 29
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
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*
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
* "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.
28
<PAGE> 30
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.
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<NAME> STRAT SECT
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