UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-7356
Van Kampen Strategic Sector Municipal Trust
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas NY NY 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas
New York, NY 10020
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
-----------------------------
Date of fiscal year end: 10/31/03
-----------
Date of reporting period: 04/30/03
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Item 1. Report to Shareholders
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of April 30, 2003)
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NYSE Ticker Symbol - VKS
- ------------------------------
<Table>
- -----------------------------------------------------------------------
Six-month total return(1) 5.46%
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One-year total return(1) 11.45%
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Five-year average annual total return(1) 7.73%
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Ten-year average annual total return(1) 6.47%
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Life-of-Trust average annual total return(1) 5.82%
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Commencement date 1/22/93
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Distribution rate as a % of closing common share market
price(2) 7.12%
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Taxable-equivalent distribution rate as a % of closing
common share market price(3) 11.60%
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Preferred share (Series A) rate(4) 1.140%
- -----------------------------------------------------------------------
Preferred share (Series B) rate(4) 1.049%
- -----------------------------------------------------------------------
Net asset value $14.64
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Closing common share market price $13.90
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Six-month high common share market price (03/10/03) $14.07
- -----------------------------------------------------------------------
Six-month low common share market price (11/22/02) $13.31
- -----------------------------------------------------------------------
</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
1
(1) Total return assumes an investment at the common share 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 share market price at the end of the
period indicated.
(2) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(3) The taxable-equivalent distribution rate is calculated assuming the maximum
38.6% federal income tax bracket effective for calendar year 2003.
(4) 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,
common share market price and net asset value will fluctuate and Trust
shares, when sold, may be worth more or less than their original cost. An
investment in the Trust is subject to investment risks, and you could lose
money on your investment in the Trust. As a result of recent market
activity, current performance may vary from the figures shown. For more
up-to-date information, please visit vankampen.com or speak with your
financial advisor.
2
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
AAA/Aaa........................... 78.4%
AA/Aa............................. 5.3%
A/A............................... 3.3%
BBB/Baa........................... 10.4%
BB/Ba............................. 0.4%
B/B............................... 1.3%
CCC/Caa........................... 0.1%
Non-Rated......................... 0.8%
</Table>
TOP FIVE SECTORS
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
General Purpose................... 26.4%
Health Care....................... 14.7%
Industrial Revenue................ 12.8%
Public Building................... 7.7%
Retail/Electric/Gas............... 7.3%
</Table>
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
NET ASSET VALUE AND COMMON SHARE MARKET PRICE
(based upon quarter-end values--April 1993 through April 2003)
[LINE GRAPH]
<Table>
<Caption>
NET ASSET VALUE COMMON SHARE MARKET PRICE
--------------- -------------------------
4/93 $14.3000 $14.2500
6/93 $14.7200 $14.5000
$15.3100 $14.7500
$15.1100 $14.2500
$13.3400 $12.6250
6/94 $13.2200 $12.3750
$12.9500 $11.6250
$12.2600 $10.8750
$13.4700 $12.2500
6/95 $13.3300 $11.6250
$13.5400 $11.6250
$14.0700 $12.0000
$13.4300 $11.8750
6/96 $13.2300 $11.6250
$13.5500 $11.7500
$13.7800 $11.6250
$13.4500 $11.3750
6/97 $13.9300 $12.5620
$14.3200 $12.9375
$14.6200 $13.1250
$14.5800 $13.1875
6/98 $14.6000 $13.3125
$14.9800 $13.8750
$14.7500 $13.9375
$14.6400 $13.6875
6/99 $13.9500 $13.0000
$13.4700 $11.6250
$12.9900 $11.6875
$13.3300 $11.1875
6/00 $13.2900 $11.3750
$13.5600 $11.5625
$14.3100 $11.8125
$14.4500 $12.4100
6/01 $14.2400 $12.3300
$14.6300 $13.1500
$14.1400 $13.1600
$14.0300 $13.1500
6/02 $14.4300 $14.2000
$15.1000 $14.5600
$14.6300 $13.9500
$14.4900 $13.9000
4/03 $14.6400 $13.9000
</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 common share 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. Common share market price is influenced by a range of factors,
including supply and demand and market conditions.
3
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF VAN KAMPEN STRATEGIC SECTOR
MUNICIPAL TRUST ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS
AND INFLUENCED THE TRUST'S RETURN DURING THE SIX MONTHS ENDED APRIL 30, 2003.
TIMOTHY D. HANEY, PORTFOLIO MANAGER, HAS MANAGED THE TRUST SINCE 1996 AND HAS
WORKED IN THE INVESTMENT INDUSTRY SINCE 1988. THE FOLLOWING DISCUSSION REFLECTS
HIS VIEWS ON THE TRUST'S PERFORMANCE.
Q WHAT WAS THE MARKET ENVIRONMENT OF THE PAST SIX MONTHS, AND HOW DID THE
TRUST PERFORM IN THAT ENVIRONMENT?
A The environment over the past six months has been defined by two major
themes. The first of these was the level of interest rates. The period began
with interest rates at levels not seen in over three decades and, surprisingly
for many, ended with rates slightly lower. The Federal Reserve Board (the Fed)
helped keep rates low with a widely anticipated rate cut in November, driven by
economic uncertainty and geopolitical risk. The low level of rates led to a boom
in issuance by municipalities seeking to lock in low financing costs. As a
result, issuance reached a record level of $354 billion in 2002 and continued to
be exceptional in the first quarter of 2003.
The other theme in the market during the period was the relative
attractiveness of municipal bonds, which produced enough demand to absorb the
record issuance. Investors, wary of volatility in the equity market and in the
geopolitical arena, flocked to perceived safe haven investments. Their risk
aversion counteracted growing expectations for economic recovery and rising
interest rates and was a key factor in keeping interest rates at historically
low levels. In their ongoing preference for low-risk assets, investors bid
Treasury prices up to such high levels that municipal bonds became as
attractively valued as they have ever been relative to Treasuries. Insurance
companies also moved heavily into municipal bonds as their mainstay corporate
bond holdings became less attractive. At the same time, issuers recognized
investor concerns over economic weakness by insuring roughly 50 percent of all
issuance. This credit enhancement made municipal bonds even more attractive to
risk-averse investors.
While lower financing costs were a boon to municipal issuers, the continuing
weakness in the economy had a negative impact on municipal credit quality,
particularly in the first quarter of 2003. Moody's upgrades barely exceeded the
number of downgrades in the first quarter with
4
credit quality facing continued pressure from rising social service costs and
weak national and regional economic conditions. As a result, municipalities face
enormous deficits in 2003, when their combined shortfall is expected to reach
$90 billion.
Performance along the yield curve was varied. The Fed's November rate cut
fueled a rally in short-term bonds that helped pull yields lower at the front
end of the curve. Despite that rally, the best performing segment of the curve
was the long-intermediate portion where performance was largely driven by buying
activity among institutional investors drawn to the bonds' attractive total
return potential.
The trust's monthly dividend of $0.0825 per share translated to a
distribution rate of 7.12 percent based on the trust's closing common share
market price on April 30, 2003. Based on these figures, investors would have to
earn a distribution rate of 11.60 percent on a taxable investment (for an
investor in the 38.60 percent federal income tax bracket) to match the
tax-exempt yield provided by the trust.
For the six months through April 30, 2003, the trust produced a total return
of 5.46 percent based on common share market price. By comparison, the Lehman
Brothers Municipal Bond Index posted a total return of 3.59 percent for the same
period. Of course, past performance is no guarantee of future results.
Investment return, common share market price and net asset value will fluctuate
and trust shares, when sold, may be worth more or less than their original cost.
As a result of recent market activity, current performance may vary from the
figures shown. For more up-to-date information, please visit vankampen.com or
speak with your financial advisor.
The Lehman Brothers Municipal Bond Index is an unmanaged, broad-based
statistical composite of municipal bonds. Index returns do not include any sales
charges or fees that would be paid by an investor purchasing the securities the
index represents. Such costs would lower performance. It is not possible to
invest directly in an index. For additional information, please refer to the
performance summary section.
Q WHAT STRATEGIES DID YOU PURSUE
IN MANAGING THE TRUST?
A With interest rates hovering near record lows, we focused on protecting the
trust from the potential adverse effects of rising interest rates, while
maintaining the trust's yield. One of our primary methods for trying to do this
was to purchase premium bonds with maturities of between 15 and 20 years, priced
to a ten-year call date. Our quantitative analysis showed that this segment of
the yield curve offered a favorable combination of total return potential and
downside protection. The yield of these bonds is competitive, corresponding to
their 15 to 20 year maturity dates, yet their interest rate volatility is more
closely related to the 10-year call feature. We funded our purchases in this
maturity range chiefly through sales of bonds in the 10- and 30-year segments of
the yield curve. This alteration of the trust's yield curve exposure should be
beneficial if rates
5
rise on the short end of the yield curve.
Our preference for long-intermediate bonds led to several shifts in the
portfolio's sector composition, though these were generally not reflective of
strong sector views so much as the availability of bonds at key points on the
yield curve. The strategy of shifting assets along the curve resulted in
declines in the airport sector (down by 2.1 percent), transportation (down 1.6
percent), and public education (down 1.5 percent). In turn, portfolio holdings
in retail electric/gas bonds were up by 2.9 percent and general purpose bonds
exposure rose by 2.5 percent.
The generally poor economies of the states and municipalities also led us to
upgrade the portfolio's overall credit profile. The ongoing economic
difficulties across the country have made uninsured and lower-quality paper
increasingly unattractive in our analysis, and as a result we focused our
purchases on higher-quality paper. During the period, the trust's exposure to
AAA rated bonds climbed by 4.1 percent.
One of the sectors we avoided during the period was tobacco bonds. These
bonds were issued by states seeking to securitize their future income streams
resulting from settlements from class action suits against the major tobacco
companies. Recent litigation in Illinois resulted in a judge awarding billions
more in a suit alleging that the companies misled smokers about the amount of
nicotine in "light" cigarettes. In order to appeal, the law required the
companies to put up such substantial amounts of money that some began talking
about potential bankruptcy, and the tobacco bonds' credit ratings and price
performance suffered accordingly. Our decision not to invest in these securities
was a benefit to shareholders during the period.
6
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MUNICIPAL BONDS 159.7%
ALABAMA 3.3%
$5,000 Alabama Wtr Pollutn Ctl Auth Revolving Fd
Ln Ser A (AMBAC Insd) (a)................. 5.000% 08/15/15 $ 5,207,150
------------
ARIZONA 0.8%
1,200 Tempe, AZ Excise Tax Rev Rfdg............. 5.250 07/01/19 1,311,132
------------
CALIFORNIA 24.9%
3,330 Anaheim, CA Ctfs Partn Anaheim Mem Hosp
Assn Rfdg (Escrowed to Maturity) (AMBAC
Insd)..................................... 5.000 05/15/13 3,509,920
20,000 Anaheim, CA Pub Fin Auth Lease Rev Cap
Apprec Sub Pub Impt Proj Ser C (FSA
Insd)..................................... * 09/01/25 6,264,800
2,500 California Hlth Fac Auth Rev KaiSer
Permanente Med Ctr........................ 5.450 10/01/13 2,513,375
6,420 California Pollutn Ctl Fin Auth Pollutn
Ctl Rev Pacific Gas & Elec Ser B (MBIA
Insd) (a)................................. 6.350 06/01/09 6,574,658
375 California Rural Home Mtg Fin Auth Single
Family Mtg Rev Ser C (Var Rate Cpn) (GNMA
Collateralized)........................... 7.800 02/01/28 433,980
2,000 California St Dept Wtr Res Pwr Ser A (XLCA
Insd)..................................... 5.375 05/01/17 2,213,000
5,000 California St Dept Wtr Res Pwr Ser A (MBIA
Insd)..................................... 5.375 05/01/22 5,401,550
5,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Conv Cap Apprec Rfdg (b).............. 0/5.800 01/15/20 3,615,550
2,000 Los Angeles Cnty, CA Pub Wks Fin Auth Rev
Sr Lien Ser A Rfdg (FSA Insd)............. 5.500 10/01/18 2,331,360
1,300 Paramount, CA Redev Agy Tax Alloc (MBIA
Insd)..................................... 6.250 08/01/23 1,341,587
</Table>
See Notes to Financial Statements
7
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CALIFORNIA (CONTINUED)
$13,880 San Joaquin Hills, CA Tran Corridor Agy
Toll Rd Rev Cap Apprec Ser A Rfdg (MBIA
Insd)..................................... * 01/15/28 $ 3,815,890
4,000 Whisman, CA Sch Dist Cap Apprec Ser D (FSA
Insd)..................................... * 02/01/25 1,344,640
------------
39,360,310
------------
COLORADO 3.6%
1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj Ser B (Prerefunded @
08/31/05)................................. 7.000% 08/31/26 1,156,670
1,000 Colorado Hlth Fac Auth Rev Hosp Parkview
Med Ctr Proj.............................. 6.500 09/01/20 1,081,190
1,850 Colorado Hsg Fin Auth Multi-Family Hsg
Insd Mtg Ser A............................ 6.800 10/01/37 1,923,038
260 Colorado Hsg Fin Auth Single Family Pgm Sr
Ser C1.................................... 7.550 11/01/27 263,604
130 Colorado Hsg Fin Auth Single Family Pgm Sr
Ser F..................................... 8.625 06/01/25 133,875
1,145 Denver, CO City & Cnty Arpt Rev Ser A (FSA
Insd)..................................... 5.000 11/15/25 1,149,614
------------
5,707,991
------------
CONNECTICUT 2.1%
1,500 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A--Private Placement (c).... 6.400 09/01/11 1,620,270
1,500 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A--Private Placement
(Prerefunded @ 09/01/07) (c).............. 6.400 09/01/11 1,750,860
------------
3,371,130
------------
GEORGIA 3.9%
1,870 Georgia Muni Elec Auth Pwr Rev Ser A (FGIC
Insd)..................................... 5.500 01/01/12 2,140,720
1,425 Georgia Muni Elec Auth Pwr Rev Ser A Rfdg
(Escrowed to Maturity) (FGIC Insd)........ 5.500 01/01/12 1,647,414
2,085 Newnan, GA Hosp Auth Rev Antic Ctf Newnan
Hosp Inc (MBIA Insd)...................... 5.500 01/01/15 2,368,560
------------
6,155,594
------------
</Table>
See Notes to Financial Statements
8
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
ILLINOIS 13.6%
$5,400 Chicago, IL Brd of Ed Cap Apprec Sch
Reform Ser B-1 (FGIC Insd)................ * 12/01/28 $ 1,369,386
4,335 Chicago, IL Cap Apprec City Colleges (FGIC
Insd)..................................... * 01/01/30 1,054,922
2,540 Chicago, IL O'Hare Intl Arpt Rev Second
Lien Passenger Fac Ser A (AMBAC Insd)..... 5.375% 01/01/32 2,610,485
1,700 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airl Proj Ser B Rfdg (d) (e)....... 5.200 04/01/11 150,450
300 Chicago, IL O'Hare Intl Arpt Spl United
Airl Proj Ser A (d) (e)................... 5.350 09/01/16 27,300
5,000 Chicago, IL Proj Ser A Rfdg (MBIA Insd)
(a)....................................... 5.500 01/01/38 5,327,600
950 Chicago, IL Tax Increment Alloc Sub Cent
Loop Redev Ser A (ACA Insd)............... 6.500 12/01/08 1,108,906
1,635 Cook Cnty, IL Sch Dist No 100 Berwyn South
(FSA Insd)................................ 8.100 12/01/15 2,307,377
5,000 Cook Cnty, IL Ser A (FGIC Insd)........... 5.500 11/15/31 5,322,000
1,000 Illinois Hlth Fac Auth Rev Midwest
Physician Grp Ltd Rfdg.................... 5.500 11/15/19 797,230
2,800 Will Cnty, IL Fst Presv Dist Ser B (FGIC
Insd)..................................... * 12/01/16 1,507,436
------------
21,583,092
------------
INDIANA 6.5%
3,065 Allen Cnty, IN War Mem Coliseum Additions
Bldg Corp Ser A (AMBAC Insd).............. 5.750 11/01/25 3,373,615
3,505 East Chicago, IN Elem Sch Bldg Corp First
Mtg Rfdg (AMBAC Insd)..................... 6.250 01/05/16 4,203,652
3,000 Petersburg, IN Pollutn Ctl Rev IN Pwr &
Lt........................................ 6.375 11/01/29 2,657,610
------------
10,234,877
------------
KANSAS 4.0%
5,000 Burlington, KS Pollutn Ctl KS Gas & Elec
Co Proj Rfdg (MBIA Insd) (a).............. 7.000 06/01/31 5,247,000
1,000 Overland Park, KS Dev Corp Rev First Tier
Overland Park Ser A....................... 7.375 01/01/32 1,019,180
------------
6,266,180
------------
</Table>
See Notes to Financial Statements
9
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
LOUISIANA 4.3%
$2,855 Louisiana St Gas & Fuels Tax Rev Ser A
(AMBAC Insd).............................. 5.375% 06/01/16 $ 3,189,549
2,000 New Orleans, LA Rfdg (FGIC Insd).......... 5.500 12/01/21 2,292,420
1,250 St Charles Parish, LA Pollutn Ctl Rev LA
Pwr & Lt Co Proj (FSA Insd)............... 7.500 06/01/21 1,297,750
------------
6,779,719
------------
MARYLAND 8.1%
6,325 Maryland St Hlth & Higher Ed Fac Auth Rev
Greater Baltimore Med Ctr Rfdg (FGIC Insd)
(a)....................................... 5.000 07/01/13 6,360,420
6,270 Maryland St Hlth & Higher Ed Fac Auth Rev
Subn Hosp Rfdg (AMBAC Insd) (a)........... 5.000 07/01/13 6,430,136
------------
12,790,556
------------
MASSACHUSETTS 6.1%
5,000 Massachusetts St Cons Ln Ser E (FSA
Insd)..................................... 5.250 01/01/20 5,403,050
2,000 Massachusetts St Dev Fin Agy Semass Sys
Ser A (MBIA Insd)......................... 5.625 01/01/15 2,230,720
1,705 Massachusetts St Hlth & Ed Fac Auth Rev
Vly Regl Hlth Sys Ser C (Connie Lee
Insd)..................................... 7.000 07/01/09 2,070,876
------------
9,704,646
------------
MICHIGAN 3.4%
1,000 Detroit, MI Downtown Dev Auth Tax
Increment Rev Dev Area No 1 Proj Ser A
Rfdg (MBIA Insd).......................... 4.750 07/01/25 1,005,630
2,745 Michigan Muni Bond Auth Rev St Revolving
Fd (Prerefunded @ 10/01/03)............... 5.400 10/01/14 2,849,282
1,490 Michigan St Hsg Dev Auth Multi-Family Rev
Ltd Oblig Hsg Orion Four Ser A (Var Rate
Cpn)...................................... 6.250 08/01/39 1,523,525
------------
5,378,437
------------
MISSISSIPPI 4.7%
2,000 Mississippi Business Fin Corp Sys Energy
Res Inc Proj.............................. 5.875 04/01/22 1,975,160
2,860 Mississippi Dev Bk Spl Oblig Cap Proj &
Equip Acquisition Ser A2 (AMBAC Insd)..... 5.000 07/01/24 3,019,531
1,350 Mississippi Home Corp Single Family Rev
Mtg Ser C (GNMA Collateralized)........... 7.600 06/01/29 1,500,214
</Table>
See Notes to Financial Statements
10
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MISSISSIPPI (CONTINUED)
$ 485 Mississippi Home Corp Single Family Rev
Mtg Ser F (GNMA Collateralized)........... 7.550% 12/01/27 $ 509,900
422 Mississippi Home Corp Single Family Rev
Ser D (GNMA Collateralized)............... 8.100 12/01/24 452,021
------------
7,456,826
------------
MISSOURI 0.6%
1,000 St Louis, MO Indl Dev Auth Rev Sr Lien St
Louis Convention Ser A.................... 6.875 12/15/20 1,004,500
------------
NEVADA 0.5%
830 Nevada Hsg Div Single Family Pgm Mezz Ser
E (FHA/VA Gtd)............................ 6.900 10/01/11 854,809
------------
NEW JERSEY 4.4%
2,000 New Jersey Econ Dev Auth Dist Heating &
Cooling Rev Trigen Trenton Ser A.......... 6.200 12/01/10 2,005,540
2,000 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airl Inc Proj................. 6.250 09/15/29 1,405,820
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 2,723,750
830 New Jersey Hlthcare Fac Fin Auth Rev
Trinitas Hosp Oblig Grp................... 6.500 07/01/03 834,175
------------
6,969,285
------------
NEW YORK 13.3%
1,000 New York City Indl Dev Agy Civic Fac Rev
Touro College Proj Ser A (f).............. 6.350 06/01/29 891,420
2,520 New York City Ser B (Prerefunded @
08/15/04)................................. 7.250 08/15/19 2,742,844
5,000 New York City Ser B1 (Prerefunded @
08/15/04) (a)............................. 7.000 08/15/16 5,426,850
5 New York City Ser C....................... 7.250 08/15/24 5,021
2,000 New York City Ser G....................... 5.750 02/01/14 2,174,880
5,000 New York City Ser H (MBIA Insd) (a)....... 5.250 03/15/14 5,513,800
4,000 New York City Transitional Future Tax Secd
Ser D (MBIA Insd)......................... 5.250 02/01/20 4,334,680
------------
21,089,495
------------
</Table>
See Notes to Financial Statements
11
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
NORTH CAROLINA 2.1%
$3,000 Charlotte, NC Ctf Partn Convention Fac
Proj Ser A Rfdg (g)....................... 5.500% 08/01/19 $ 3,290,160
------------
OHIO 7.1%
1,000 Akron, OH Ctf Partn Akron Muni Baseball
Stad Proj................................. 6.500 12/01/07 1,093,370
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj...................................... 7.500 01/01/30 1,109,430
1,000 Delaware Cnty, OH Hlthcare Fac Rev Mtg
Centrum at Willow Brook (FHA Gtd) (a)..... 6.550 02/01/35 1,064,680
1,315 Logan Cnty, OH (MBIA Insd)................ 5.250 12/01/17 1,454,153
2,045 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp
Rfdg...................................... 6.000 05/15/05 2,169,970
770 Miami Cnty, OH Hosp Fac Impt Upper Vly Med
Ctr Ser C Rfdg............................ 6.000 05/15/06 832,609
2,340 Ohio Hsg Fin Agy Mtg Rev Residential Ser
A-1 (GNMA Collateralized)................. 6.050 09/01/17 2,490,251
1,030 Toledo Lucas Cnty, OH Port Auth Northwest
OH Bd Fd Ser C............................ 6.000 05/15/11 1,095,034
------------
11,309,497
------------
OKLAHOMA 1.8%
1,000 Mc Alester, OK Pub Wks Auth Util Sys Rev
Cap Apprec (FSA Insd)..................... * 02/01/31 242,670
1,000 Mc Alester, OK Pub Wks Auth Util Sys Rev
Cap Apprec (FSA Insd)..................... * 02/01/32 230,280
1,000 Tulsa Cnty, OK Pub Fac Auth Cap Impt Rev
(AMBAC Insd).............................. 6.250 11/01/22 1,190,660
2,000 Tulsa, OK Muni Arpt Tr Rev Ser B Rfdg..... 5.650 12/01/35 1,130,540
------------
2,794,150
------------
PENNSYLVANIA 13.0%
1,840 Delaware Cnty, PA Auth Hlthcare Rev Mercy
Hlth Corp Southeastn Ser B (Prerefunded @
11/15/05)................................. 6.000 11/15/07 1,922,524
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 6,031,860
</Table>
See Notes to Financial Statements
12
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
PENNSYLVANIA (CONTINUED)
$10,000 Pennsylvania St Ctf Partn Ser A (AMBAC
Insd) (a)................................. 5.400% 07/01/09 $ 10,237,000
2,000 Philadelphia, PA Hosp & Higher Ed Fac Auth
Hosp Rev PA Hosp Rfdg (Escrowed to
Maturity)................................. 6.350 07/01/07 2,318,040
------------
20,509,424
------------
SOUTH CAROLINA 4.0%
2,420 Beaufort Cnty, SC Tax Increment New River
Redev Proj Area (MBIA Insd)............... 5.500 06/01/20 2,673,108
1,000 South Carolina Jobs Econ Dev Sr Myrtle
Beach Convention Ser A.................... 6.625 04/01/36 1,003,830
2,500 South Carolina St Pub Svc Auth Rev Ser D
Rfdg (FSA Insd)........................... 5.000 01/01/21 2,628,025
------------
6,304,963
------------
TENNESSEE 1.9%
1,500 Elizabethton, TN Hlth & Ed Fac Brd Rev
Hosp First Mtg Ser B Impt & Rfdg.......... 8.000 07/01/33 1,701,405
1,000 Johnson City, TN Hlth & Ed Fac Brd Hosp
Rev First Mtg MTN States Hlth Ser A Rfdg
(MBIA Insd)............................... 7.500 07/01/25 1,269,850
------------
2,971,255
------------
TEXAS 12.1%
1,500 Brazos River Auth TX Pollutn Adj TXU Elec
Co Proj Ser C Rfdg........................ 5.750 05/01/36 1,476,675
3,000 Dallas, TX Wtrwks & Swr Sys Rev Impt &
Rfdg (FSA Insd)........................... 5.375 10/01/19 3,305,220
4,900 Galena Park, TX Indpt Sch Dist Cap Apprec
Rfdg (PSF Gtd)............................ * 08/15/28 1,275,813
5,000 Houston, TX Area Wtr Corp Northeast Wtr
Purification Proj (FGIC Insd)............. 5.125 03/01/32 5,139,850
1,500 Houston, TX Arpt Sys Rev Spl Fac
Continental Airl Ser B.................... 6.125 07/15/17 872,670
4,000 Houston, TX Arpt Sys Rev Sub Lien (FSA
Insd)..................................... 5.000 07/01/32 4,054,080
1,000 Matagorda Cnty, TX Navig Dist No 1 Rev
Houston Ltg Rfdg (AMBAC Insd)............. 5.125 11/01/28 1,030,630
2,000 Texas Tech Univ Rev Fin Sys Seventh Ser
(MBIA Insd)............................... 5.000 08/15/31 2,036,180
------------
19,191,118
------------
</Table>
See Notes to Financial Statements
13
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
VIRGINIA 1.0%
$1,485 Richmond, VA Indl Dev Auth Govt Fac Rev
Bonds (AMBAC Insd)........................ 5.000% 07/15/15 $ 1,655,389
------------
WASHINGTON 8.6%
5,000 Energy Northwest, WA Elec Rev Proj No. 3
Ser B Rfdg (FSA Insd)..................... 6.000 07/01/16 5,800,550
1,000 Grant Cnty, WA Pub Util Dist No 002
Wanapum Hydro Elec Rev Ser B Rfdg (MBIA
Insd)..................................... 5.375 01/01/18 1,057,750
2,030 Washington St Pub Pwr Supply Sys Nuclear
Proj No 3 Rev Ser C Rfdg (MBIA Insd)...... * 07/01/13 1,319,662
3,380 Washington St Pub Pwr Supply Sys Nuclear
Proj No 3 Rev Ser C Rfdg (MBIA Insd)...... * 07/01/15 1,957,290
3,000 Washington St Ser B....................... 5.500 05/01/18 3,397,140
------------
13,532,392
------------
TOTAL INVESTMENTS 159.7%
(Cost $237,325,552).................................................... 252,785,177
OTHER ASSETS IN EXCESS OF LIABILITIES 0.4%.............................. 524,023
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (60.1%).............. (95,053,220)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%........................... $158,255,980
============
</Table>
* Zero coupon bond
(a) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments and open futures transactions.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(d) Non-income producing security.
(e) Issuer has filed for protection in federal bankruptcy court.
(f) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers.
See Notes to Financial Statements
14
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
(g) Security purchased on a when-issued or delayed delivery basis.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
Connie Lee--Connie Lee Insurance Co.
FGIC--Financial Guaranty Insurance Co.
FHA--Federal Housing Administration
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Public School Fund
XLCA--XL Capital Assurance Inc.
See Notes to Financial Statements
15
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2003 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $237,325,552)....................... $252,785,177
Receivables:
Interest.................................................. 4,125,205
Investments Sold.......................................... 2,456,003
Other....................................................... 473
------------
Total Assets............................................ 259,366,858
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 5,122,525
Custodian Bank............................................ 412,332
Variation Margin on Futures............................... 148,812
Investment Advisory Fee................................... 134,323
Administrative Fee........................................ 20,665
Affiliates................................................ 8,178
Trustees' Deferred Compensation and Retirement Plans........ 161,768
Accrued Expenses............................................ 49,055
------------
Total Liabilities....................................... 6,057,658
Preferred Shares (including accrued distributions).......... 95,053,220
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $158,255,980
============
NET ASSET VALUE PER COMMON SHARE ($158,255,980 divided by
10,806,700 shares outstanding)............................ $ 14.64
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 10,806,700 shares issued and
outstanding).............................................. $ 108,067
Paid in Surplus............................................. 148,388,654
Net Unrealized Appreciation................................. 15,335,509
Accumulated Undistributed Net Investment Income............. 3,512,039
Accumulated Net Realized Loss............................... (9,088,289)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $158,255,980
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 3,800 issued with liquidation preference of
$25,000 per share)........................................ $ 95,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $253,255,980
============
</Table>
See Notes to Financial Statements
16
Statement of Operations
For the Six Months Ended April 30, 2003 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................... $ 6,903,380
-----------
EXPENSES:
Investment Advisory Fee..................................... 810,088
Preferred Share Maintenance................................. 130,203
Administrative Fee.......................................... 124,628
Trustees' Fees and Related Expenses......................... 26,890
Legal....................................................... 14,017
Custody..................................................... 8,893
Other....................................................... 94,164
-----------
Total Expenses.......................................... 1,208,883
-----------
NET INVESTMENT INCOME....................................... $ 5,694,497
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,312,939
Futures................................................... (865,885)
-----------
Net Realized Gain........................................... 447,054
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 13,327,778
End of the Period:
Investments............................................. 15,459,625
Futures................................................. (124,116)
-----------
15,335,509
-----------
Net Unrealized Appreciation During the Period............... 2,007,731
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 2,454,785
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (567,694)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 7,581,588
===========
</Table>
See Notes to Financial Statements
17
Statements of Changes in Net Assets
(Unaudited)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 5,694,497 $ 11,723,174
Net Realized Gain.................................. 447,054 1,489,533
Net Unrealized Appreciation/Depreciation During the
Period........................................... 2,007,731 (5,021,124)
Distributions to Preferred Shareholders:
Net Investment Income............................ (567,694) (1,344,123)
------------ ------------
Change in Net Assets Applicable to Common Shares
from Operations.................................. 7,581,588 6,847,460
Distributions to Common Shareholders:
Net Investment Income............................ (5,348,743) (10,227,407)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM INVESTMENT ACTIVITIES................ 2,232,845 (3,379,947)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period............................ 156,023,135 159,403,082
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $3,512,039
and $3,733,979, respectively).................... $158,255,980 $156,023,135
============ ============
</Table>
See Notes to Financial Statements
18
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS
ENDED
APRIL 30, -------------------
2003 2002 (a) 2001
---------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD (b)......... $ 14.44 $ 14.75 $ 13.70
------- ------- -------
Net Investment Income.............................. .52 1.09 1.10
Net Realized and Unrealized Gain/Loss.............. .22 (.33) .94
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income............................ (.05) (.12) (.28)
Net Realized Gain................................ -0- -0- -0-
------- ------- -------
Total from Investment Operations..................... .69 .64 1.76
Distributions Paid to Common Shareholders:
Net Investment Income............................ (.49) (.95) (.71)
Net Realized Gain................................ -0- -0- -0-
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD................... $ 14.64 $ 14.44 $ 14.75
======= ======= =======
Common Share Market Price at End of the Period....... $ 13.90 $ 13.66 $ 13.28
Total Return (c)..................................... 5.46%* 10.14% 24.99%
Net Assets at End of the Period (In millions)........ $ 158.3 $ 156.0 $ 159.4
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (d).................................. 1.56% 1.54% 1.55%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d).................... 7.35% 7.51% 7.77%
Portfolio Turnover................................... 12%* 33% 44%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (d)............................... .97% .95% .96%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (e).................... 6.62% 6.65% 5.79%
SENIOR SECURITIES:
Total Preferred Shares Outstanding................... 3,800 3,800 3,800
Asset Coverage Per Preferred Share (f)............... $66,660 $66,065 $66,948
Involuntary Liquidating Preference Per Preferred
Share.............................................. $25,000 $25,000 $25,000
Average Market Value Per Preferred Share............. $25,000 $25,000 $25,000
</Table>
* Non-Annualized
(a) As required, effective November 1, 2001, the Trust has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment companies
and began accreting market discount on fixed income securities. The effect
of this change for the year ended October 31, 2002 was to increase net
investment income per share by $.03, decrease net realized and unrealized
gains and losses per share by $.03 and increase the ratio of net investment
income to average net assets applicable to common shares by .19%. Per share,
ratios and supplemental data for periods prior to October 31, 2002 have not
been restated to reflect this change in presentation.
(b) Net Asset Value at January 22, 1993, is adjusted for common and preferred
share offering costs of $.217 per common share.
(c) Total return assumes an investment at the common share 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 share market price at the end of the
period indicated.
(d) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(e) Ratios reflect the effect of dividend payments to preferred shareholders.
(f) Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
See Notes to Financial Statements
19
<Table>
<Caption>
JANUARY 22, 1993
(COMMENCEMENT
OF INVESTMENT
YEAR ENDED OCTOBER 31, OPERATIONS) TO
- ---------------------------------------------------------------------------- OCTOBER 31,
2000 1999 1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
$ 13.14 $ 14.82 $ 14.35 $ 13.67 $ 13.72 $ 12.28 $ 15.25 $ 13.81
------- ------- -------- -------- -------- -------- -------- --------
1.07 1.07 1.09 1.10 1.12 1.15 1.18 .80
.61 (1.69) .47 .67 (.07) 1.51 (2.93) 1.33
(.36) (.28) (.31) (.31) (.31) (.34) (.24) (.14)
-0- -0- -0- -0- -0- -0- (.01) -0-
------- ------- -------- -------- -------- -------- -------- --------
1.32 (.90) 1.25 1.46 .74 2.32 (2.00) 1.99
(.76) (.78) (.78) (.78) (.79) (.88) (.94) (.55)
-0- -0- -0- -0- -0- -0- (.03) -0-
------- ------- -------- -------- -------- -------- -------- --------
$ 13.70 $ 13.14 $ 14.82 $ 14.35 $ 13.67 $ 13.72 $ 12.28 $ 15.25
======= ======= ======== ======== ======== ======== ======== ========
$11.250 $11.625 $14.5625 $ 12.750 $ 11.750 $ 11.875 $ 10.750 $ 14.625
3.37% -15.30% 20.97% 15.55% 5.69% 18.79% -20.83% 8.26%*
$ 148.0 $ 142.0 $ 160.2 $ 155.1 $ 147.7 $ 148.3 $ 132.7 $ 164.8
1.66% 1.64% 1.62% 1.65% 1.67% 1.77% 1.61% 1.49%
8.07% 7.47% 7.47% 7.89% 8.23% 8.74% 8.52% 7.23%
22% 39% 18% 23% 24% 75% 165% 114%*
1.00% 1.01% 1.01% 1.01% 1.01% 1.06% .99% 1.02%
5.38% 5.50% 5.35% 5.67% 5.91% 6.14% 6.76% 5.97%
3,800 3,800 1,900 1,900 1,900 1,900 1,900 1,900
$63,958 $62,357 $134,297 $131,631 $127,743 $128,047 $119,868 $136,754
$25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
</Table>
See Notes to Financial Statements
20
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (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 (the "1940 Act"), as amended. The Trust's investment
objective is to seek 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 accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Municipal bonds are valued by independent pricing services
or dealers using the mean of the bid and asked prices or, in the absence of
market quotations, at fair value based upon yield data relating to municipal
bonds with similar characteristics and general market conditions. Securities
which are not valued by independent pricing services or dealers 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. At April 30, 2003, there was
$3,167,445 of when-issued or delayed delivery purchase commitments.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
premium is amortized and discount is accreted over the expected life of each
applicable security.
21
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (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, 2002, the Trust had an accumulated capital loss
carryforward for tax purposes of $9,475,367 which will expire between October
31, 2003 and October 31, 2008. Of this amount, $6,109,988 will expire on October
31, 2003.
At April 30, 2003 the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $235,039,683
============
Gross tax unrealized appreciation........................... $ 21,494,056
Gross tax unrealized depreciation........................... (3,748,562)
------------
Net tax unrealized appreciation on investments.............. $ 17,745,494
============
</Table>
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.
The tax character of distributions paid during the year ended October 31,
2002 was as follows:
<Table>
<Caption>
2002
Distributions paid from:
Ordinary Income........................................... $424,794
Long-Term capital gain.................................... -0-
--------
$424,794
========
</Table>
As of October 31, 2002, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $41,137
</Table>
22
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
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
daily net assets of the Trust. In addition, the Trust will pay a monthly
administrative fee to Van Kampen Investments Inc. or its affiliates'
(collectively "Van Kampen"), the Trust's Administrator, at an annual rate of
..10% of the average daily 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, 2003, the Trust recognized expenses of
approximately $6,600 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.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each trust. For the six months ended
April 30, 2003, the Trust recognized expenses of approximately $18,500
representing Van Kampen's cost of providing accounting and legal services to the
Trust, which are reported as part of "Other" and "Legal" expenses, respectively,
in the Statement of Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement 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 $32,818,434 and $30,407,728,
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.
23
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
In order to seek to manage the interest rate exposure of the Trust's
portfolio in a changing interest rate environment, the Trust may purchase or
sell financial futures contracts or engage in transactions involving interest
rate swaps, caps, floors or collars. The Trust expects to enter into these
transactions primarily as a hedge against anticipated interest rate or
fixed-income market changes, for duration management or for risk management
purposes, but may also enter into these transactions to generate additional
income. All of the Trust's portfolio holdings, including derivative instruments,
are marked to market each day with the change in value reflected in the
unrealized appreciation/depreciation. Upon disposition, a realized gain or loss
is recognized accordingly, except when taking delivery of a security underlying
a futures contract. In this instance, the recognition of gain or loss is
postponed until the disposal of the security underlying the futures contract.
During the period, the Trust invested in futures contracts, a type of
derivative. 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 exchange traded futures on U.S. Treasury Bonds and Notes
and typically closes the contract prior to delivery date. Upon entering into
futures contracts, the Trust maintains an amount of cash or liquid securities
with a value equal to a percentage of the contract amount with either a future
commission merchant pursuant to rules and regulations promulgated under the 1940
Act, as amended, or with its custodian in an account in the broker's name. This
amount is known as initial margin. 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). The risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.
Transactions in futures contracts for the six months ended April 30, 2003,
were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at October 31, 2002............................. 205
Futures Opened.............................................. 620
Futures Closed.............................................. (523)
----
Outstanding at April 30, 2003............................... 302
====
</Table>
24
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
The futures contracts outstanding as of April 30, 2003 and the descriptions
and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
UNREALIZED
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
U.S. Treasury Notes 10-Year Futures June 2003 (Current
Notional Value of $115,125 per contract).................. 58 (17,012)
U.S. Treasury Notes 5-Year Futures June 2003 (Current
Notional Value of $113,750 per contract).................. 244 (107,104)
--- ---------
302 $(124,116)
=== =========
</Table>
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 generally reset every 28
days through an auction process. At April 30, 2003, the average rate in effect
was 1.097%. During the six months ended April 30, 2003, the rates ranged from
0.990% to 1.800%.
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 in the Statement of Operations.
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.
25
BOARD OF TRUSTEES 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*
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
26
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you make with us,
our affiliates, or third parties. We may also collect information you provide
when using our web site, and text files (a.k.a. "cookies") may be placed on your
computer to help us to recognize you and to facilitate transactions you
initiate. We do not disclose any nonpublic personal information about you or any
of our former customers to anyone, except as permitted by law. For instance, so
that we may continue to offer you Van Kampen investment products and services
that meet your investing needs, and to effect transactions that you request or
authorize, we may disclose the information we collect to companies that perform
services on our behalf, such as printers and mailers that assist us in the
distribution of investor materials. These companies will use this information
only for the services for which we hired them, and are not permitted to use or
share this information for any other purpose. To protect your nonpublic personal
information internally, we permit access to it only by authorized employees, and
maintain physical, electronic and procedural safeguards to guard your nonpublic
personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van
Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as
well as the many Van Kampen mutual funds and Van Kampen unit investment
trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2003 Van Kampen Funds Inc. All rights reserved.
VKS SAR 6/03 Member NASD/SIPC.
11241F03-AS-6/03
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semi-annual reports.
Item 8. [Reserved.]
Item 9.
The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits.
(a) Code of Ethics - Not applicable for semi-annual reports.
(b) Certifications of Principal Executive Officer and Principal Financial
Officer attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen Strategic Sector Municipal Trust
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By: /s/ Ronald E. Robison
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Name: Ronald E. Robison
Title: Principal Executive Officer
Date: June 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
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Name: Ronald E. Robison
Title: Principal Executive Officer
Date: June 23, 2003
By: /s/ John L. Sullivan
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Name: John Sullivan
Title: Principal Financial Officer
Date: June 23, 2003