<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 4
SIX-MONTH DIVIDEND HISTORY 4
TOP FIVE INDUSTRIES 5
NET ASSET VALUE AND MARKET PRICE 5
Q&A WITH YOUR PORTFOLIO MANAGERS 6
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 11
FINANCIAL STATEMENTS 19
NOTES TO FINANCIAL STATEMENTS 24
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 28
TRUST OFFICERS AND IMPORTANT ADDRESSES 29
</TABLE>
It is times like these when money- management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
May 19, 2000
Dear Shareholder,
Whether you have held your Trust for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your Trust is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term market volatility and the value of investing for
the long term.
As we head into the second half of 2000, count on us to
continue to draw on the wisdom of our 76 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is
the theme of a national advertising campaign that kicked off this spring. The
message emphasizes our depth of investment-management history, as well as our
firm belief that with the right investments, anyone can realize life's true
wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED STRONG, PRIMARILY DUE TO ACTIVE CONSUMER AND BUSINESS
SPENDING. GROSS DOMESTIC PRODUCT, THE PRIMARY MEASURE OF ECONOMIC GROWTH,
INCREASED AT AN ANNUALIZED RATE OF 5.4 PERCENT IN THE FIRST QUARTER OF 2000.
WHILE THIS FIGURE INDICATES A MODEST SLOWDOWN FROM THE PREVIOUS TWO QUARTERS, IT
NEVERTHELESS REPRESENTS A HIGH RATE OF ECONOMIC GROWTH.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION FEARS CONTINUED TO MOUNT BECAUSE OF STRONG CONSUMER SPENDING AND THE
TIGHT LABOR MARKET. FOR MOST OF THE REPORTING PERIOD, RISING INTEREST RATES DID
LITTLE TO REIN IN ROBUST CONSUMER SPENDING. ALTHOUGH RETAIL SALES GROWTH
MODERATED IN APRIL, THE FACTORS UNDERPINNING CONSUMER ACTIVITY REMAINED LARGELY
UNCHANGED--RISING WAGES, LOW UNEMPLOYMENT, AND A GENERALLY FAVORABLE (THOUGH
VOLATILE) STOCK MARKET.
IN ADDITION, THE JOBLESS RATE HOVERED NEAR ITS LOWEST LEVEL IN THREE DECADES.
THE EMPLOYMENT COST INDEX ACCELERATED SHARPLY IN THE FIRST QUARTER OF 2000,
REFLECTING RISING WAGES AS EMPLOYERS VIE TO ATTRACT AND RETAIN SKILLED WORKERS.
THESE WAGE PRESSURES, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO
RAISE THE COST OF GOODS AND SERVICES TO COMPENSATE FOR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO SEEK TO SLOW THE PACE OF ECONOMIC GROWTH AND WARD OFF INFLATION. THE
FED INCREASED THE FEDERAL FUNDS RATE BY 0.25 PERCENT FIVE TIMES BETWEEN JUNE
1999 AND APRIL 2000. [EDITOR'S NOTE: THE FED RAISED RATES BY 0.50 PERCENT ON MAY
16.] DESPITE THE FED'S CONCERNS, THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE A MODERATE 3.0 PERCENT DURING THE 12 MONTHS ENDED APRIL 30,
2000.
INTEREST RATES AND INFLATION
(April 30, 1998 - April 30, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Apr 98 5.50 1.40
5.50 1.70
5.50 1.70
Jul 98 5.50 1.70
5.50 1.60
5.25 1.50
Oct 98 5.00 1.50
4.75 1.50
4.75 1.60
Jan 99 4.75 1.70
4.75 1.60
4.75 1.70
Apr 99 4.75 2.30
4.75 2.10
5.00 2.00
Jul 99 5.00 2.10
5.25 2.30
5.25 2.60
Oct 99 5.25 2.60
5.50 2.60
5.50 2.70
Jan 00 5.50 2.70
5.75 3.20
6.00 3.70
Apr 00 6.00 3.00
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last
day of each month. Inflation is indicated by the annual percent change of the
Consumer Price Index for all urban consumers at the end of each month.
2
<PAGE> 4
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of April 30, 2000)
<TABLE>
<S> <C> <C>
---------------------------------------------------------------------
NYSE Ticker Symbol VKS
---------------------------------------------------------------------
Six-month total return based on market price(1) 1.79%
---------------------------------------------------------------------
Six-month total return based on NAV(2) 2.25%
---------------------------------------------------------------------
Distribution rate as a % of closing common stock
price(3) 6.82%
---------------------------------------------------------------------
Taxable-equivalent distribution rate as a % of closing
common stock price(4) 10.66%
---------------------------------------------------------------------
Net asset value $13.04
---------------------------------------------------------------------
Closing common stock price $11.4375
---------------------------------------------------------------------
Six-month high common stock price (11/03/99) $12.0000
---------------------------------------------------------------------
Six-month low common stock price (03/13/00) $10.3750
---------------------------------------------------------------------
Preferred share (Series A) rate(5) 3.900%
---------------------------------------------------------------------
Preferred share (Series B) rate(5) 3.900%
---------------------------------------------------------------------
</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 is no guarantee of future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust
shares, when sold, may be worth more or less than their original cost.
3
<PAGE> 5
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<TABLE>
<CAPTION>
As of April 30, 2000
<S> <C> <C>
- AAA/Aaa............ 66.8%
- AA/Aa.............. 8.4%
- A/A................ 5.0%
- BBB/Baa............ 16.9%
- BB/Ba.............. 2.9%
[PIE CHART]
<CAPTION>
As of October 31, 1999
<S> <C> <C>
- AAA/Aaa............ 62.3%
- AA/Aa.............. 8.1%
- A/A................ 5.4%
- BBB/Baa............ 19.1%
- BB/Ba.............. 3.0%
- Non-Rated.......... 2.1%
[PIE CHART]
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DIVIDEND HISTORY
(for the six months ending April 30, 2000, for common shares)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
11/99 0.065
12/99 0.065
1/00 0.065
2/00 0.065
3/00 0.065
4/00 0.065
</TABLE>
The dividend history represents past performance of the Trust and is no
guarantee of the Trust's future dividends.
4
<PAGE> 6
TOP FIVE INDUSTRIES
(as a percentage of long-term investments)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
APRIL 30, 2000 OCTOBER 31, 1999
-------------- ----------------
<S> <C> <C>
Health Care 21.10 21.80
General Purpose 14.90 18.30
Industrial Revenue 11.00 9.80
Retail Electric/Gas/Telephone 9.10 9.00
Public Education 8.80 8.00
</TABLE>
NET ASSET VALUE AND MARKET PRICE
(based upon quarter-end values--January 1993 through April 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NET ASSET VALUE MARKET PRICE
--------------- ------------
<S> <C> <C>
1/93 13.9600 15.1250
14.1600 14.2500
14.7200 14.5000
15.3100 14.7500
12/93 15.1100 14.2500
13.3400 12.6250
13.2200 12.3750
12.9500 11.6250
12/94 12.2600 10.8750
13.4700 12.2500
13.3300 11.6250
13.5400 11.6250
12/95 14.0700 12.0000
13.4300 11.8750
13.2300 11.6250
13.5500 11.7500
12/96 13.7800 11.6250
13.4500 11.3750
13.9300 12.5620
14.3200 12.9375
12/97 14.6200 13.1250
14.5800 13.1875
14.6000 13.3125
14.9800 13.8750
12/98 14.7500 13.9375
14.6400 13.6875
13.9500 13.0000
13.4700 11.6250
12/99 12.9900 11.6870
13.3300 11.1875
4/00 13.0400 11.4375
</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.
5
<PAGE> 7
Q&A WITH YOUR PORTFOLIO MANAGERS
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 SIX MONTHS. THE REPRESENTATIVES INCLUDE
TIMOTHY D. HANEY, PORTFOLIO MANAGER, WHO HAS MANAGED THE TRUST SINCE 1996 AND
WORKED IN THE INVESTMENT INDUSTRY SINCE 1988. THE FOLLOWING COMMENTS REFLECT THE
REPRESENTATIVES' VIEWS ON THE TRUST'S PERFORMANCE DURING THE SIX MONTHS ENDED
APRIL 30, 2000.
Q WHAT WERE THE MOST IMPORTANT
DEVELOPMENTS IN THE FIXED-INCOME MARKETS DURING THE REPORTING PERIOD?
A Generally higher interest rates,
sparked by inflation worries, set the tone for the fixed-income markets during
the past six months. As the economy continued its strong advance, the markets
reacted warily to signs of potential inflationary pressures--such as rising
employment costs, healthy job growth, strong consumer spending, and spikes in
commodities prices, especially oil. These concerns fueled a steady sell-off
through the fourth quarter of 1999 and into January 2000.
To slow the economy and keep prices from rising, the Federal Reserve Board
gradually pushed short-term interest rates higher, raising the fed funds rate (a
key short-term lending rate) three times between November 1999 and April 2000.
(Editor's note: On May 16, 2000, after the reporting period ended, the Fed
raised rates a fourth time.)
In times of rising interest rates, bond prices trend downward. Add to that
the lingering effects of the Year 2000 (Y2K) computer scare early in the first
quarter of 2000, and you can see why this was a challenging period for many
fixed-income investors.
Q HOW DID THE MUNICIPAL
BOND MARKET REACT TO THESE CONDITIONS?
A Not surprisingly, higher interest
rates hurt municipal bond prices, but we believe there's always opportunity in
the market. In the past few months, we've actually seen some fairly significant
price swings--both up and down--as investors tried to anticipate the Fed's next
move and the direction of interest rates. The market was weak in late 1999 and
early 2000, but we had a nice rally in February and March, which tapered off in
April.
The strong economy has bolstered the financial condition of many
municipalities across the country, so the pace of new municipal bond issuance
dropped sharply (about 40 percent) from a year ago. With their coffers full,
municipalities haven't needed to turn to the bond market for financing. Also,
6
<PAGE> 8
higher interest rates made it more difficult for issuers to refund outstanding
bond issues, which has been a source of new investment opportunities in the
past.
Q WHAT STRATEGIES DID YOU FOLLOW
IN MANAGING THE TRUST?
A Strategically, we've been moving in
a new direction since early this year. We made the decision to manage the Trust
relative to a new benchmark, rather than the Lipper peer group, which meant that
we needed to make some adjustments to the Trust's structure. The Trust's
benchmark is now the Lehman Brothers Municipal Bond Index with maturities
greater than five years. Specifically, we increased the duration of the
portfolio (a measure of its sensitivity to changes in interest rates) to more
closely track the performance of the new benchmark index. The benchmark provides
the shareholder with general municipal market returns, and the leveraged
structure provides the opportunity for enhanced dividends.
Fortunately, the municipal bond market played into our hands and gave us
some excellent opportunities to implement this new strategy. Beginning in late
January, we began purchasing deeply discounted bonds. These were securities that
had been issued a year or so ago with coupons of 4.75, 5.00, or 5.25 percent. As
interest rates went up over time, these bonds began selling at a deep discount,
with some as low as 80 cents on the dollar.
At the same time, the Trust held a number of older, prerefunded issues with
higher coupons in the 6.00 to 7.50 percent range. Such prerefunded issues tend
to decrease the duration of a portfolio because they have shorter lives than
their stated maturities. But because of their attractive coupons, these bonds
were trading at a premium to par, presenting us with an opportunity to capture
some solid capital gains. Because these bonds were scheduled to be called or
refunded within the next year or two, we chose to sell them while the demand for
them--and therefore their market price--was high.
This combination of buying deep-discount bonds and selling prerefunded
issues enabled us to lengthen the duration of the portfolio without drastically
altering the income stream that the Trust will be earning over time. While we
may see a slight decline in portfolio income in the months ahead, buying the
deeply discounted bonds enabled us to purchase more par value per dollar
invested. In some cases, for example, we were able to pick up $1 million worth
of bond par value for just $800,000.
Q WHAT AREAS OF THE MUNICIPAL
MARKET WERE MOST ATTRACTIVE TO YOU?
A Our philosophy is to seek bonds
that we feel represent the best values compared with similar offerings in the
marketplace. During the past six months, we did not specifically target one area
of the market over another, although we did maintain significant concentrations
in certain sectors, including health-care, general purpose, and industrial
revenue bonds, each of
7
<PAGE> 9
which represented more than 11 percent of the portfolio's long-term investments.
Many of our portfolio management decisions were based on pricing issues,
such as the availability of deep discounts, or structural issues, such as
extending duration or maintaining adequate call protection and diversification
for the portfolio. For additional portfolio highlights, please refer to page 4.
Q HOW DID THE TRUST PERFORM
DURING THE PERIOD?
A Our allocation to BBB rated and
BB rated bonds slightly hindered the Trust's performance, but we took advantage
of price declines among these bonds to invest selectively in what we believe are
favorable positions. We expect these securities to enhance the Trust's income
stream over time.
For the six-month period ended April 30, 2000, the Trust returned 1.79
percent based on market price. At the same time, the Trust's market price
decreased from $11.6250 per share on October 31, 1999, to $11.4375 per share on
April 30, 2000. By comparison, the total return of the Trust's peer group (as
represented by the Lehman Brothers Municipal Bond Index) was 2.63 percent for
the same period.
The Trust's dividend remained unchanged during the past six months. The
monthly tax-exempt dividend of $0.065 per share translates to a distribution
rate of 6.82 percent based on the Trust's closing common stock price on April
30, 2000.
Because the Trust is exempt from federal income taxes, this distribution
rate is equivalent to a yield of 10.66 percent for an investor in the 36 percent
federal income-tax bracket. Please refer to the chart and footnotes on page 3
for additional performance results. Past performance is no guarantee of future
results.
Q WHAT DO YOU SEE AHEAD
FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A All eyes will be on the key
economic statistics, such as GDP growth, employment costs, and the unemployment
rate. These figures measure the economy's strength and rate of growth and may
influence whether the Fed will continue to raise short-term interest rates. We
expect that the inflation rate may increase, but it's likely to remain in a
moderate range for the near term. It's anticipated that the Fed will continue to
increase short-term rates by the end of the summer, perhaps by more than 0.50
percent. Higher interest rates will, in turn, put pressure on the municipal
market in the short run.
Increased stock-price volatility in April has increased investor skepticism,
but investors continue to see price pullbacks as opportunities to buy
aggressive-growth stocks. It may take a much deeper, more sustained decline in
these stocks to convince investors to rethink their asset allocation decisions.
If the stock market does fall sharply, we could see a flight to quality, as
investors pursue investments that typically carry less risk. Such conditions
8
<PAGE> 10
might benefit investment-grade municipal bonds.
Low municipal-bond supply could continue throughout 2000, especially if
interest rates trend higher, as expected, throughout the first half of the year.
Overall, the lower supply of bonds should help to shore up prices, as demand
remains strong. Investors can tolerate periodic price swings if they keep
long-term perspectives and continue to value the steady stream of tax-exempt
income that municipal bonds provide. As always, we will rely on our strong
research efforts to evaluate opportunities in the marketplace and identify
securities that may offer superior investment potential and value over time.
9
<PAGE> 11
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
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.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a bond's duration, the greater the effect of interest-rate
movements on its price. Typically, funds with shorter durations perform better
in rising rate environments, while funds with longer durations perform better
when rates decline.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic indicator
that measures the change in the cost of purchased goods and services.
MATURITY DATE: The date a bond expires, usually at face value.
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.
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.
10
<PAGE> 12
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
April 30, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR TRUST AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 99.2%
ALABAMA 2.0%
$5,000 Alabama Wtr Pollutn Ctl Auth Revolving Fund
Ln Ser A (AMBAC Insd)...................... 5.000% 08/15/15 $ 4,619,000
------------
CALIFORNIA 18.4%
3,330 Anaheim, CA Ctfs Partn Anaheim Mem Hosp
Assn Rfdg (AMBAC Insd)..................... 5.000 05/15/13 3,216,913
5,000 Anaheim, CA Pub Fin Auth Lease Rev Cap
Apprec Sub Pub Impt Proj C (FSA Insd)...... * 09/01/26 1,020,450
19,900 Anaheim, CA Pub Fin Auth Lease Rev Cap Sub
Pub Impt Proj C (FSA Insd)................. * 09/01/25 4,313,922
3,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Med Cent........................ 5.450 10/01/13 2,882,580
6,420 California Pollutn Ctl Fin Auth Pollutn Ctl
Rev Pacific Gas & Elec Co Ser B (MBIA
Insd)...................................... 6.350 06/01/09 6,747,227
855 California Rural Home Mtg Fin Auth Single
Family Mtg Rev Ser C (GNMA
Collateralized)............................ 7.800 02/01/28 930,531
10,000 California Statewide Cmntys Dev Auth Rev
Ctfs Partn Insd Children's Hosp Rfdg (MBIA
Insd)...................................... 4.750 06/01/21 8,393,900
5,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Conv Cap Apprec Rfdg................... * 01/15/20 2,644,800
2,000 Los Angeles Cnty, CA Pub Wks (FSA Insd).... 5.500 10/01/18 1,996,460
2,000 Paramount, CA Redev Agy Tax Alloc Redev
Proj Area No 1 Rfdg (MBIA Insd)............ 6.250 08/01/23 2,057,840
3,750 San Diego, CA Convention Cent Expansion Fin
Auth Lease Rev Ser A....................... 4.750 04/01/28 3,115,425
13,880 San Joaquin Hills, CA Tran Corridor Agy
Toll Rd Rev Cap Apprec Ser A Rfdg (MBIA
Insd)...................................... * 01/15/28 2,621,654
1,865 Santa Clara Cnty, CA Fin Auth Lease Rev
Multi Fac Projs Ser B (AMBAC Insd) (a)..... 5.500 05/15/08 1,926,620
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
YOUR TRUST'S INVESTMENTS
April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$1,000 Santa Clara Cnty, CA Fin Auth Lease Rev
Multi Fac Projs Ser B (AMBAC Insd) (a)..... 5.500% 05/15/09 $ 1,031,900
1,330 Temple City, CA Uni Sch Dist Cap Apprec Ser
A (FGIC Insd).............................. * 08/01/16 526,228
------------
43,426,450
------------
COLORADO 2.5%
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 1,115,910
1,875 Colorado Hsg Fin Auth Multi-Family Hsg Insd
Mtg Ser A.................................. 6.800 10/01/37 1,931,063
1,500 Colorado Hsg Fin Auth Single Family Pgm Sr
Ser C1..................................... 7.550 11/01/27 1,566,615
1,235 Colorado Hsg Fin Auth Single Family Pgm Sr
Ser F...................................... 8.625 06/01/25 1,272,544
------------
5,886,132
------------
CONNECTICUT 1.4%
1,500 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A -- Private Placement (d)... 6.400 09/01/11 1,544,730
1,500 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A -- Private Placement
(Prerefunded @ 09/01/07) (d)............... 6.400 09/01/11 1,631,775
------------
3,176,505
------------
FLORIDA 1.5%
4,000 South Miami, FL Hlth Fac Auth Hosp Rev
Baptist Hlth Sys Oblig Grp (MBIA Insd)..... 5.000 11/15/28 3,444,840
------------
GEORGIA 2.8%
3,000 Atlanta, GA Spl Purp Fac Rev Delta Airls
Ser B...................................... 7.900 12/01/18 3,050,040
1,425 Georgia Muni Elec Auth Pwr Rev Ser A Rfdg
(FGIC Insd)................................ 5.500 01/01/12 1,441,416
2,000 Georgia Muni Elec Auth Pwr Rev Ser Z Rfdg
(FGIC Insd)................................ 5.500 01/01/12 2,023,040
------------
6,514,496
------------
ILLINOIS 6.8%
2,060 Alton, IL Hosp Fac Rev Saint Anthony's Hlth
Cent Rfdg.................................. 5.875 09/01/06 2,009,365
5,500 Chicago, IL Brd of Ed Cap Apprec Sch Reform
B-1 (FGIC Insd)............................ * 12/01/28 939,015
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR TRUST'S INVESTMENTS
April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$5,000 Chicago, IL Brd of Ed Cap Apprec Sch Reform
Ser A (FGIC Insd).......................... * 12/01/27 $ 910,550
2,000 Chicago, IL Brd of Ed Chicago Sch Reform
Ser A (AMBAC Insd)......................... 5.250% 12/01/30 1,766,780
1,000 Chicago, IL Brd of Ed Cap Apprec Sch Reform
B-1 (FGIC Insd)............................ * 12/01/23 234,660
4,335 Chicago, IL Cap Apprec City Colleges (FGIC
Insd)...................................... * 01/01/30 708,079
2,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Proj Ser B.................... 5.200 04/01/11 1,803,700
4,500 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Ser A.............. 7.875 11/01/25 4,614,795
1,635 Cook Cnty, IL Sch Dist No 100 Berwyn South
Rfdg (FSA Insd)............................ 8.100 12/01/15 2,047,216
3,370 Will Cnty, IL Comnty Unit Sch Dist No 365 U
Vly View Ser B (FSA Insd).................. * 11/01/18 1,116,245
------------
16,150,405
------------
INDIANA 1.1%
1,000 East Chicago, IN Solid Waste Disp Rev USG
Corp Proj.................................. 6.375 08/01/29 955,950
990 La Porte Cnty, IN Hosp Auth Hosp Fac Rev La
Porte Hosp Inc Rfdg........................ 5.900 03/01/01 994,346
540 La Porte Cnty, IN Hosp Auth Hosp Fac Rev La
Porte Hosp Inc Rfdg........................ 6.000 03/01/02 545,130
------------
2,495,426
------------
IOWA 2.2%
5,000 Muscatine, IA Elec Rev Rfdg (AMBAC Insd)... 6.125 01/01/12 5,128,100
------------
KANSAS 2.2%
5,000 Burlington, KS Pollutn Ctl Rev KS Gas &
Elec Co Proj Rfdg (MBIA Insd) (b).......... 7.000 06/01/31 5,201,250
------------
LOUISIANA 1.7%
2,000 New Orleans, LA Rfdg (FGIC Insd)........... 5.500 12/01/21 1,925,340
1,000 New Orleans, LA Rfdg (FGIC Insd)........... 4.750 12/01/26 818,330
1,250 Saint Charles Parish, LA Pollutn Ctl Rev LA
Pwr & Lt Co Proj (FSA Insd)................ 7.500 06/01/21 1,305,500
------------
4,049,170
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR TRUST'S INVESTMENTS
April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MARYLAND 5.4%
$1,000 Maryland St Econ Dev Corp Student Hsg Rev
Collegiate Hsg Towson Ser A................ 5.750% 06/01/29 $ 879,560
6,325 Maryland St Hlth & Higher Edl Fac Auth Rev
Greater Baltimore Med Cent Rfdg (FGIC
Insd)...................................... 5.000 07/01/13 6,005,271
6,270 Maryland St Hlth & Higher Edl Fac Auth Rev
Subn Hosp Rfdg (AMBAC Insd)................ 5.000 07/01/13 5,941,828
------------
12,826,659
------------
MASSACHUSETTS 0.8%
1,705 Massachusetts St Hlth & Edl Fac Auth Rev
Vly Regl Hlth Sys Ser C Rfdg (Connie Lee
Insd)...................................... 7.000 07/01/09 1,894,306
------------
MICHIGAN 5.5%
1,250 Avondale, MI Schl Dist Rfdg (AMBAC Insd)... 4.750 05/01/22 1,049,063
2,500 Detroit, MI Downtown Dev Auth Tax Increment
Rev Dev Area No 1 Proj Ser A Rfdg (MBIA
Insd)...................................... 4.750 07/01/25 2,075,400
2,745 Michigan Muni Bond Auth Rev St Revolving
Fund....................................... 5.400 10/01/14 2,704,099
2,000 Michigan St Hosp Fin Auth Rev Detroit Med
Cent Oblig Ser A........................... 5.250 08/15/28 1,425,260
1,500 Michigan St Hsg Dev Auth Multi Family Rev
(Var Rate Cpn)............................. 6.250 08/01/39 1,450,965
2,000 Michigan St Strategic Fd Ltd Oblig Rev
Detroit Edison Co Ser A Rfdg (MBIA Insd)... 5.550 09/01/29 1,849,140
3,000 Wayne Charter Cnty, MI Arpt Rev (MBIA
Insd)...................................... 5.000 12/01/28 2,515,260
------------
13,069,187
------------
MISSISSIPPI 2.5%
2,000 Mississippi Business Fin Corp MS Pollutn
Ctl Rev Sys Energy Res Inc Proj............ 5.875 04/01/22 1,735,520
1,990 Mississippi Home Corp Single Family Rev Mtg
Ser C (GNMA Collateralized)................ 7.600 06/01/29 2,155,031
830 Mississippi Home Corp Single Family Rev Mtg
Ser D (GNMA Collateralized)................ 8.100 12/01/24 891,486
990 Mississippi Home Corp Single Family Rev Mtg
Ser F (GNMA Collateralized)................ 7.550 12/01/27 1,072,131
------------
5,854,168
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR TRUST'S INVESTMENTS
April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MISSOURI 1.4%
$ 250 Missouri St Hlth & Edl Fac Auth Hlth Fac
Rev........................................ 6.250% 02/15/11 $ 238,745
1,000 Missouri St Hlth & Edl Fac Auth Rev BJC
Hlth Sys................................... 5.000 05/15/28 831,900
740 Missouri St Hsg Dev Comm Mtg Rev Single
Family Ln Ser A (GNMA Collateralized)...... 7.200 09/01/26 768,860
1,625 West Plains, MO Indl Dev Auth Hosp Rev
Ozarks Med Ctr............................. 6.750 11/15/24 1,464,011
------------
3,303,516
------------
NEVADA 0.7%
1,705 Nevada Hsg Div Single Family Pgm Ser E (FHA
Gtd)....................................... 6.900 10/01/11 1,754,820
------------
NEW JERSEY 3.9%
2,000 New Jersey Econ Dev Auth Dist Heating &
Cooling Rev Trigen Trenton Ser A........... 6.200 12/01/10 1,951,440
2,000 New Jersey Econ Dev Auth Spl Facs Rev
Continental Airls Inc Proj................. 6.250 09/15/29 1,825,440
2,500 New Jersey Econ Dev Auth Wtr Fac Rev NJ
American Wtr Co Inc Proj Ser A (FGIC
Insd)...................................... 6.875 11/01/34 2,673,200
775 New Jersey Hlth Care Facs Fing Auth Rev
Trinitas Hosp Oblig Grp.................... 6.500 07/01/02 782,029
830 New Jersey Hlth Care Facs Fing Auth Rev
Trinitas Hosp Oblig Grp.................... 6.500 07/01/03 838,790
1,275 New Jersey Hlth Care Facs Fing Auth Rev
Barnabas Hlth Ser C Rfdg (MBIA Insd) (a)... 5.250 07/01/18 1,187,994
------------
9,258,893
------------
NEW YORK 11.4%
3,000 Metropolitan Transn Auth NY Tran Facs Rev
Ser B (FGIC Insd).......................... 4.750 07/01/26 2,485,440
1,000 New York City Indl Dev Agy Civic Fac Rev
Touro College Proj Ser A................... 6.350 06/01/29 922,510
2,520 New York City Ser B (Prerefunded @
08/15/04).................................. 7.250 08/15/19 2,760,534
5,000 New York City Ser B1 (Prerefunded @
08/15/04).................................. 7.000 08/15/16 5,429,400
5 New York City Ser C........................ 7.250 08/15/24 5,144
2,000 New York City Ser G........................ 5.750 02/01/14 2,009,100
3,820 New York St Dorm Auth Lease Rev Muni Hlth
Fac Impt Ser 1 (FSA Insd).................. 4.750 01/15/29 3,113,797
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR TRUST'S INVESTMENTS
April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$4,355 New York St Dorm Auth Rev Court Fac Lease
Ser A...................................... 5.500% 05/15/10 $ 4,326,692
2,000 New York, NY City Muni Wtr Fin Auth Wtr &
Swr Sys Rev Ser B (FGIC Insd).............. 5.250 06/15/29 1,788,240
4,350 Triborough Brdg & Tunl Auth NY Rev Genl
Purp Ser A Rfdg............................ 5.000 01/01/12 4,151,466
------------
26,992,323
------------
NORTH CAROLINA 0.3%
2,500 Univ of NC Chapel Hill Rev Util Sys Rfdg... * 08/01/20 759,250
------------
OHIO 3.7%
1,000 Akron, OH Ctfs Partn Akron Muni Baseball
Stadium Proj (c)........................... 0/6.500 12/01/07 935,870
1,000 Cleveland, OH Arpt Spl Rev Continental
Airls Inc Proj............................. 5.375 09/15/27 787,930
1,000 Delaware Cnty, OH Hlthcare Fac Rev Mtg
Centrum at Willow Brook (FHA Gtd).......... 6.550 02/01/35 1,027,900
2,045 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp
Rfdg....................................... 6.000 05/15/05 2,050,297
1,000 Miami Cnty, OH Hosp Fac Rev Upper Vly Med
Cent Ser C Rfdg & Impt..................... 6.000 05/15/06 989,060
2,950 Ohio Hsg Fin Agy Mtg Rev (GNMA
Collateralized)............................ 6.050 09/01/17 2,953,894
------------
8,744,951
------------
OKLAHOMA 1.5%
2,750 Shawnee, OK Hosp Auth Hosp Rev Mid-America
Hlthcare Inc Rfdg.......................... 6.125 10/01/14 2,522,960
1,000 Tulsa Cnty, OK Pub Facs Auth Cap Impt Rev.. 6.250 11/01/22 975,260
------------
3,498,220
------------
PENNSYLVANIA 10.7%
1,000 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt USX Corp Proj Rfdg...... 6.100 07/15/20 936,060
3,000 Delaware Cnty, PA Auth Hlth Care Rev Mercy
Hlth Corp Southeastn Ser B (Prerefunded @
11/15/05).................................. 6.000 11/15/07 3,136,440
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 6,072,780
10,000 Pennsylvania St Ctfs Partn Ser A Rfdg
(AMBAC Insd)............................... 5.400 07/01/09 9,954,200
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
YOUR TRUST'S INVESTMENTS
April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$2,000 Philadelphia, PA Hosps & Higher Edl Auth
Fac Hosp Rev Rfdg.......................... 6.350% 07/01/07 $ 2,119,520
2,500 Pittsburgh & Allegheny Cnty, PA Pub Aud
Regl Asset Dist Sales Tax (AMBAC Insd)..... 5.250 02/01/31 2,239,575
1,000 Southeastern, PA Transn Auth PA Spl Rev Ser
A (FGIC Insd).............................. 4.750 03/01/29 818,310
------------
25,276,885
------------
TENNESSEE 1.0%
1,000 Johnson City, TN Hlth & Edl Facs Brd Hosp
Rev First Mtg Mtn States Hlth Ser A Rfdg... 7.500 07/01/25 965,910
1,500 Metropolitan Govt Nashville & Davidson Cnty
TN Ser A (FGIC Insd)....................... 5.125 11/15/27 1,332,780
------------
2,298,690
------------
TEXAS 3.5%
3,000 Brazos River Auth TX Rev Houston Inds Inc
Proj Ser D Rfdg (MBIA Insd)................ 4.900 10/01/15 2,681,670
3,000 Harris Cnty, TX Toll Road Sr Lien Rfdg
(AMBAC Insd)............................... 4.950 08/15/06 2,969,610
2,000 Houston, TX Arpt Sys Rev Spl Fac
Continental Airls Ser B.................... 6.125 07/15/17 1,813,260
1,000 Matagorda Cnty, TX Navigation Dist 1
Houston Ltg Pwr Co (AMBAC Insd)............ 5.125 11/01/28 870,920
------------
8,335,460
------------
UTAH 1.6%
3,000 Salt Lake City, UT Arpt Rev Delta Airls Inc
Proj....................................... 7.900 06/01/17 3,055,800
780 Utah St Hsg Fin Agy Single Family Mtg Sr
Ser D2 (FHA Gtd)........................... 6.850 07/01/25 791,700
------------
3,847,500
------------
WASHINGTON 2.7%
1,000 Grant Cnty, WA Pub Util Dist No 002 Wanapum
Hydro Elec Rev Ser B Rfdg (MBIA Insd)...... 5.375 01/01/18 928,780
2,030 Washington St Pub Pwr Supply Sys Nuclear
Proj No 3 Rev Ser C Rfdg (MBIA Insd)....... * 07/01/13 956,983
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
YOUR TRUST'S INVESTMENTS
April 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY 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 $ 1,396,582
3,000 Washington St Ser B........................ 5.500% 05/01/18 2,964,540
------------
6,246,885
------------
TOTAL LONG-TERM INVESTMENTS 99.2%
(Cost $227,159,170)................................................... 234,053,487
------------
SHORT-TERM INVESTMENTS 1.0%
(Cost $2,400,000)..................................................... 2,400,000
------------
TOTAL INVESTMENTS 100.2%
(Cost $229,559,170)................................................... 236,453,487
LIABILITIES IN EXCESS OF OTHER ASSETS (0.2%)........................... (543,538)
------------
NET ASSETS 100.0%...................................................... $235,909,949
============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when-issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(c) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(d) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
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
18
<PAGE> 20
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $229,559,170)....................... $236,453,487
Cash........................................................ 94,952
Receivables:
Interest.................................................. 4,111,930
Investments Sold.......................................... 36,138
Other....................................................... 10,506
------------
Total Assets............................................ 240,707,013
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 4,281,328
Income Distributions -- Common and Preferred Shares....... 158,653
Investment Advisory Fee................................... 127,120
Administrative Fee........................................ 29,335
Affiliates................................................ 8,074
Trustees' Deferred Compensation and Retirement Plans........ 107,055
Accrued Expenses............................................ 85,499
------------
Total Liabilities....................................... 4,797,064
------------
NET ASSETS.................................................. $235,909,949
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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................................. 6,894,317
Accumulated Undistributed Net Investment Income............. 505,325
Accumulated Net Realized Loss............................... (15,765,043)
------------
Net Assets Applicable to Common Shares.................. 140,909,949
------------
NET ASSETS.................................................. $235,909,949
============
NET ASSET VALUE PER COMMON SHARE ($140,909,949 divided by
10,806,700 shares outstanding)............................ $ 13.04
============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
Statement of Operations
For the Six Months Ended April 30, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $6,926,758
----------
EXPENSES:
Investment Advisory Fee..................................... 764,234
Administrative Fee.......................................... 176,361
Preferred Share Maintenance................................. 128,776
Custody..................................................... 6,472
Legal....................................................... 5,460
Trustees' Fees and Related Expenses......................... 3,813
Other....................................................... 96,931
----------
Total Expenses.......................................... 1,182,047
----------
NET INVESTMENT INCOME....................................... $5,744,711
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 61,683
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 7,709,516
End of the Period
Investments............................................. 6,894,317
----------
Net Unrealized Depreciation During the Period............... (815,199)
----------
NET REALIZED AND UNREALIZED LOSS............................ $ (753,516)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $4,991,195
==========
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
Statement of Changes in Net Assets
For the Six Months Ended April 30, 2000 and the Year Ended October 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2000 OCTOBER 31, 1999
------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 5,744,711 $ 11,526,684
Net Realized Gain/Loss............................. 61,683 (1,162,677)
Net Unrealized Depreciation During the Period...... (815,199) (17,106,018)
------------ ------------
Change in Net Assets from Operations............... 4,991,195 (6,742,011)
------------ ------------
Distributions from Net Investment Income:
Common Shares.................................... (4,214,613) (8,428,611)
Preferred Shares................................. (1,822,990) (3,036,827)
------------ ------------
Total Distributions................................ (6,037,603) (11,465,438)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... (1,046,408) (18,207,449)
NET ASSETS:
Beginning of the Period............................ 236,956,357 255,163,806
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $505,325
and $798,217, respectively)...................... $235,909,949 $236,956,357
============ ============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
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, 2000 1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD (A)........................ $ 13.136 $ 14.821 $ 14.352 $13.669
-------- -------- -------- -------
Net Investment Income............. .532 1.067 1.092 1.096
Net Realized and Unrealized
Gain/Loss....................... (.070) (1.691) .467 .675
-------- -------- -------- -------
Total from Investment Operations.... .462 (0.624) 1.559 1.771
-------- -------- -------- -------
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders..... .390 .780 .780 .780
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders........ .169 .281 .310 .308
Distributions from Net Realized
Gain:
Paid to Common Shareholders..... -0- -0- -0- -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders........ -0- -0- -0- -0-
-------- -------- -------- -------
Total Distributions................. .559 1.061 1.090 1.088
-------- -------- -------- -------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 13.039 $ 13.136 $ 14.821 $14.352
======== ======== ======== =======
Market Price Per Share at End of the
Period............................ $11.4375 $ 11.625 $14.5625 $12.750
Total Investment Return at Market
Price (b)......................... 1.79%* -15.30% 20.97% 15.55%
Total Return at Net Asset Value
(c)............................... 2.25%* -6.35% 8.91% 11.01%
Net Assets at End of the Period (In
millions)......................... $ 235.9 $ 237.0 $ 255.2 $ 250.1
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares**.......................... 1.70% 1.64% 1.62% 1.65%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d)................. 5.64% 5.50% 5.35% 5.67%
Portfolio Turnover.................. 16%* 39% 18% 23%
* Non-Annualized
** Ratio of Expenses to Average Net
Assets including Preferred
Shares........................... 1.01% 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 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.
(c) 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.
(d) Net Investment Income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
22
<PAGE> 24
<TABLE>
<CAPTION>
JANUARY 22, 1993
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF INVESTMENT
-------------------------------- OPERATIONS) TO
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
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
April 30, 2000 (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, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when-issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when-issued or delayed delivery
purchase commitments until payment is made.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
premium is amortized and original issue discount is accreted over the expected
life of each applicable security.
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
April 30, 2000 (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, 1999, the Trust had an accumulated capital loss
carryforward for tax purposes of $15,826,709 which will expire between October
31, 2002 and October 31, 2007.
At April 30, 2000, for federal income tax purposes the cost of long- and
short-term investments is $229,559,170, the aggregate gross unrealized
appreciation is $10,707,695 and the aggregate gross unrealized depreciation is
$3,813,378, resulting in net unrealized appreciation on long- and short-term
investments of $6,894,317.
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, 2000, the Trust recognized expenses of
approximately $1,900, 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.
For the six months ended April 30, 2000, the Trust recognized expenses of
approximately $16,300 representing Van Kampen's cost of providing accounting and
legal services to the Trust.
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
April 30, 2000 (Unaudited)
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 $38,040,102 and $41,860,783,
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.
For the six months ended April 30, 2000, there were no transactions in
option contracts.
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
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
April 30, 2000 (Unaudited)
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, cash or liquid 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 six months ended April 30, 2000, there were no transactions in futures
contracts.
5. PREFERRED SHARES
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 April 30, 2000, the average rate in effect
was 3.900%. During the six months ended April 30, 2000, the rates ranged from
3.380% to 4.950%.
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.
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<PAGE> 29
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth*
Mid Cap Growth
Pace
Small Cap Value
Tax Managed Equity Growth
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
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
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 [COMPUTER ICON]
- 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.
[PHONE ICON]
- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
28
<PAGE> 30
TRUST OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN STRATEGIC SECTOR
MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
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(1)
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
(1) Independent accountants for the Trust perform an annual audit of the Trust's
financial statements. The Board of Trustees has engaged Deloitte & Touche
LLP to be the Trust's independent accountants.
KPMG LLP, located at 303 West Wacker Drive, Chicago, IL 60601 ("KPMG"),
ceased being the Trust's independent accountants effective April 14, 2000.
The cessation of the client- auditor relationship between the Trust and KPMG
was based solely on a possible future business relationship by KPMG with an
affiliate of the Trust's investment adviser.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
29
