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, New York, New York 10020
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas, New York, New York 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
Date of reporting period: 4/30/04
Item 1. Report to Shareholders.
The Trust's semi-annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Strategic Sector Municipal Trust performed during the semiannual period.
The portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the trust's financial statements and a list of trust investments
as of April 30, 2004.
Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the trust will achieve its investment
objective. Trusts are subject to market risk, which is the possibility
that the market values of securities owned by the trust will decline and
that the value of trust shares may therefore be less than what you paid
for them. Accordingly, you can lose money investing in this trust.
Income may subject certain individuals to the federal Alternative Minimum
Tax (AMT).
<Table>
<Caption>
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NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
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</Table>
Performance Summary as of 4/30/04
<Table>
<Caption>
STRATEGIC SECTOR MUNICIPAL TRUST
SYMBOL: VKS
- ------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (01/22/93) 6.77% 5.01%
10-year 7.48 6.93
5-year 6.14 5.10
1-year 3.88 -2.94
6-month 1.38 -7.63
- ------------------------------------------------------
</Table>
Past performance is no guarantee of future results. Investment return, net asset
value (NAV) and common share market price 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. NAV per share is determined by dividing the
value of the trust's portfolio securities, cash and other assets, less all
liabilities, by the total number of common shares outstanding. The common share
market price is 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. Total return assumes an
investment at the beginning of the period, reinvestment of all distributions for
the period in accordance with the trust's dividend reinvestment plan, and sale
of all shares at the end of the period.
The Lehman Brothers Municipal Bond Index is a broad-based statistical composite
of municipal bonds. The index is unmanaged and does not include any sales
charges or fees. Such costs would lower performance. It is not possible to
invest directly in an index.
1
Trust Report
FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2004
Van Kampen Strategic Sector Municipal Trust is managed by the adviser's
Municipal Fixed Income team.(1) Current members include Timothy D. Haney, Vice
President; Robert Wimmel, Vice President; and John Reynoldson, Executive
Director.
MARKET CONDITIONS
The state of the U.S. economy remained mixed over the six-month period under
review. On the positive side, economic growth continued to be robust, with Gross
Domestic Product growth topping 4 percent in both the last quarter of 2003 and,
preliminarily, the first quarter of this year. While this strength in output has
historically triggered fears of rising interest rates, yields remained
stubbornly low across the municipal curve. These low yields were partly the
result of the continued low levels of observed inflation in the U.S. economy.
Unfortunately, they also reflected continuing weakness in the job market, which
remained soft throughout most of the period. The soft job numbers, coupled with
persistently low inflation, led the Federal Open Market Committee (the Fed) to
maintain its accommodative stance throughout the period.
The surprisingly rapid job growth data released in April, coupled with rapidly
rising commodity and high oil prices, led many investors to fear that the Fed
would be forced to raise interest rates earlier than the market initially
expected. As a result, bond yields across all major sectors spiked in April.
Supply of new municipal bonds in calendar 2003 hit record levels as
municipalities moved to take advantage of historically low interest rates. Many
cities and states sought to reduce expenditures by refinancing existing debt and
replacing it with lower-yielding bonds. In other cases, municipalities attempted
to meet current and future funding needs by issuing new debt. This activity
slowed in the first months of 2004.
The low interest rates that prevailed over much of the period also had an impact
on the demand for municipal bonds. Retail and institutional investor activity
slowed as holders of municipal bonds saw little reason to sell bonds purchased
at higher yield levels and reinvest at lower yields. However, the period was
marked by rising activity among non-traditional investors, such as hedge funds
and insurance companies seeking to take advantage of the attractiveness of
municipal bonds relative to some taxable securities. Additionally, investors'
search for yield led to significant outperformance by lower-rated bonds with
greater credit risk. Sectors such as health care, with a preponderance of
lower-rated issues, performed particularly well.
(1)Team members may change without notice at any time.
2
PERFORMANCE ANALYSIS
Closed-end fund returns can be calculated based upon either the market price or
the net asset value (NAV) of its shares. NAV per share is determined by dividing
the value of the trust's portfolio securities, cash and other assets, less all
liabilities, by the total number of common shares outstanding, while market
price reflects the supply and demand for the shares. As a result, the two
returns can differ significantly. On an NAV basis, the trust outperformed its
benchmark, the Lehman Brothers Municipal Bond Index, but underperformed on a
market-price basis. (See table below.)
The trust uses leverage to enhance its dividend to common shareholders. The
trust borrows money at short-term rates through the issuance of preferred
shares. The proceeds are typically reinvested in longer-term securities, taking
advantage of the difference between short- and longer-term rates. As yields rose
toward the end of the period, the prices of bonds declined. The trust's use of
leverage magnified this negative movement. However, the portfolio saw strong
relative performance from its higher-yielding holdings during the period, which
counterbalanced the effects of the leverage and helped produce a total return on
an NAV basis higher than that of the benchmark, which is not leveraged.
Our analysis of the macroeconomic environment, coupled with the levels of
interest rates near multi-decade lows, led us to believe that interest rates
were more likely to rise than to fall further. As a result, we kept the trust's
duration (a measure of interest-rate sensitivity) below that of its benchmark in
order to limit the potentially damaging impact of any increase in interest
rates. This approach hampered the trust's returns as interest rates fell for
much of the period. That said, the strategy provided a cushion to returns when
interest rates soared in the final weeks of the period.
We also adjusted the portfolio's term structure in anticipation of rising
interest rates. Our research showed that the intermediate portion of the curve
offered the most promising total-return potential. As a result, we focused our
purchases on the 15- to 20-year segment of the curve. These securities had the
added appeal of premium coupons and 10-year call dates, which offered attractive
income coupled with limited interest-rate exposure. Our term-structure strategy
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED APRIL 30, 2004
<Table>
<Caption>
- ----------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS
NAV MARKET PRICE MUNICIPAL BOND INDEX
1.38% -7.63% 1.19%
- ----------------------------------------------------------
</Table>
Past performance is no guarantee of future results. Investment return, net asset
value and common share market price will fluctuate and trust shares, when sold,
may be worth more or less than their original cost. See Performance Summary for
additional performance information and index definition.
3
also included an attempt to capitalize on a temporary pricing anomaly which
boosted the short-term returns of securities in the ten-year range as they
"rolled down" the yield curve at the end of the calendar year.
While the trust has a high-quality bias overall, its performance benefited from
its holdings of high-yield issues. During the period, municipal-bond investors
responded to the protracted low rate environment by favoring high-yield bonds,
which caused the yield spreads between higher- and lower-rated bonds (yield
spreads reflect the premium demanded by investors to buy lower-rated bonds) to
narrow. As a result, lower-quality bonds outperformed. The portfolio had
approximately 87 percent exposure to bonds rated AA/Aa or higher at the end of
the period.
Our trading activity during the period was below traditional norms because we
wanted to avoid having to reinvest into securities with low yields. That said,
we were able to make selective relative-value trades among securities and
sectors as they moved into and out of fair value. Some of these acquisitions
were funded by the proceeds of bonds that were called away by their issuers
during the period. In other cases, we sold bonds that met their performance
objectives. We reinvested this cash into securities with more promising
total-return characteristics, including several lower-rated issues and
premium-coupon high-grade bonds.
The trust's portfolio remained well diversified during the period, with its
holdings spread across many major municipal-bond sectors. We believe this
long-standing strategy helps to minimize the risk of over-concentration in any
single sector, while also giving the portfolio exposure to as many potential
sources of return as possible. The three largest sector exposures at the end of
the period were general purpose, public building and industrial revenue.
<Table>
TOP 5 SECTORS AS OF 4/30/04 RATINGS ALLOCATION AS OF 4/30/04
General Purpose 26.8% AAA/Aaa 78.0%
Public Building 12.8 AA/Aa 8.9
Industrial Revenue 11.9 A/A 1.6
Wholesale Electric 10.0 BBB/Baa 8.9
Health Care 9.7 BB/Ba 0.4
B/B 1.2
CC/Ca 0.2
Non-Rated 0.8
</Table>
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the sectors shown above. All percentages are as a percentage of
long-term investments. Securities are classified by sectors that represent broad
groupings of related industries. Ratings allocations based upon ratings as
issued by Standard and Poor's and Moody's. Van Kampen is a wholly owned
subsidiary of a global securities firm which is engaged in a wide range of
financial services including, for example, securities trading and brokerage
activities, investment banking, research and analysis, financing and financial
advisory services.
4
As mentioned above, the portfolio's below-market duration served it well in the
final weeks of the period, when interest rates rose sharply. While it is
impossible to predict how long this trend will hold, we believe that the trust
is well positioned to weather further increases in rates. We look forward to
becoming more active in seeking attractive structures and relative-value trading
opportunities now that rates have moved into a more normal range.
PROXY VOTING POLICIES AND PROCEDURES
A description of the trust's policies and procedures with respect to the
voting of proxies relating to the trust's portfolio securities is
available without charge, upon request, by calling 1-800-847-2424. This
information is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
5
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED)
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
MUNICIPAL BONDS 156.0%
ALABAMA 7.8%
$6,345 Alabama St Muni Elec Auth Pwr Supply Rev Ser A
(MBIA Insd).................................... 5.500% 09/01/19 $ 6,944,602
5,000 Alabama Wtr Pollutn Ctl Auth Revolving Fd Ln
Ser A (Prerefunded @ 8/15/04)
(AMBAC Insd) (a)............................... 5.000 08/15/15 5,055,550
------------
12,000,152
------------
ARIZONA 0.8%
1,200 Tempe, AZ Excise Tax Rev Rfdg.................. 5.250 07/01/19 1,275,744
------------
CALIFORNIA 21.1%
5,000 Alameda Corridor Transn Auth CA Conv-Cap Apprec
Sub Lien Ser A Rfdg (AMBAC Insd) (b) (c)....... 0/5.400 10/01/24 3,160,250
3,330 Anaheim, CA Ctf Partn Anaheim Mem Hosp Assn
Rfdg (Escrowed to Maturity) (AMBAC Insd)....... 5.000 05/15/13 3,404,126
20,000 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec
Sub Pub Impt Proj Ser C (FSA Insd)............. * 09/01/25 6,187,400
115 California Rural Home Mtg Fin Auth Single
Family Mtg Rev Ser C (AMT) (GNMA
Collateralized)................................ 7.800 02/01/28 121,921
6,000 California St (AMBAC Insd)..................... 5.125 10/01/27 6,018,540
2,000 California St Dept Wtr Res Pwr Supply Rev Ser A
(XLCA Insd).................................... 5.375 05/01/17 2,152,140
5,000 California St Dept Wtr Res Pwr Supply Rev Ser A
(MBIA Insd).................................... 5.375 05/01/22 5,269,800
5,000 Foothill/Eastern Corridor Agy CA Toll Rd Rev
Conv Cap Apprec Rfdg (c)....................... 0/5.800 01/15/20 3,754,300
2,000 Los Angeles Cnty, CA Pub Wks Fin Auth Rev Sr
Lien Ser A Rfdg (FSA Insd)..................... 5.500 10/01/18 2,232,060
------------
32,300,537
------------
COLORADO 2.8%
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 1,102,170
1,000 Colorado Hlth Fac Auth Rev Hosp Parkview Med
Ctr Proj....................................... 6.500 09/01/20 1,073,630
1,850 Colorado Hsg Fin Auth Multi-Family Hsg Insd Mtg
Ser A (AMT).................................... 6.800 10/01/37 1,904,649
160 Colorado Hsg Fin Auth Single Family Pgm Sr
Ser C1 (AMT)................................... 7.550 11/01/27 163,936
20 Colorado Hsg Fin Auth Single Family Pgm Sr
Ser F (AMT).................................... 8.625 06/01/25 20,299
------------
4,264,684
------------
</Table>
6 See Notes to Financial Statements
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
CONNECTICUT 2.1%
$1,500 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A-Private Placement (d).............. 6.400% 09/01/11 $ 1,604,610
1,500 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A-Private Placement
(Prerefunded @ 09/01/07) (d)................... 6.400 09/01/11 1,685,985
------------
3,290,595
------------
GEORGIA 2.4%
1,870 Georgia Muni Elec Auth Pwr Rev Ser A
(FGIC Insd).................................... 5.500 01/01/12 2,076,392
1,425 Georgia Muni Elec Auth Pwr Rev Ser A Rfdg
(Escrowed to Maturity) (FGIC Insd)............. 5.500 01/01/12 1,593,321
------------
3,669,713
------------
ILLINOIS 13.5%
5,670 Chicago, IL Cap Apprec City Colleges
(FGIC Insd).................................... * 01/01/29 1,430,201
4,335 Chicago, IL Cap Apprec City Colleges
(FGIC Insd).................................... * 01/01/30 1,026,615
2,540 Chicago, IL O'Hare Intl Arpt Rev Second Lien
Passenger Fac Ser A (AMT) (AMBAC Insd)......... 5.375 01/01/32 2,573,071
1,700 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airl Proj Ser B Rfdg (AMT) (e) (f)............. 5.200 04/01/11 533,375
5,000 Chicago, IL Proj Ser A Rfdg (MBIA Insd)........ 5.500 01/01/38 5,200,850
950 Chicago, IL Tax Increment Alloc Sub Cent Loop
Redev Ser A (ACA Insd)......................... 6.500 12/01/08 1,071,942
1,635 Cook Cnty, IL Sch Dist No. 100 Berwyn South
(FSA Insd)..................................... 8.100 12/01/15 2,187,221
5,000 Cook Cnty, IL Ser A (FGIC Insd)................ 5.500 11/15/31 5,194,200
2,800 Will Cnty, IL Fst Presv Dist Ser B (FGIC
Insd).......................................... * 12/01/16 1,522,108
------------
20,739,583
------------
INDIANA 4.8%
3,065 Allen Cnty, IN War Mem Coliseum Additions Bldg
Corp Ser A (AMBAC Insd)........................ 5.750 11/01/25 3,287,120
3,505 East Chicago, IN Elem Sch Bldg Corp First Mtg
Rfdg (AMBAC Insd).............................. 6.250 01/05/16 4,065,555
------------
7,352,675
------------
KANSAS 4.1%
5,000 Burlington, KS Pollutn Ctl KS Gas & Elec Co
Proj Rfdg (MBIA Insd).......................... 7.000 06/01/31 5,266,500
1,000 Overland Park, KS Dev Corp Rev First Tier
Overland Park Ser A............................ 7.375 01/01/32 987,880
------------
6,254,380
------------
KENTUCKY 1.1%
1,650 Kentucky Econ Dev Fin Auth College & Univ Rev
Impt Centre College Proj Rfdg (FSA Insd)....... 5.000 04/01/32 1,652,409
------------
</Table>
See Notes to Financial Statements 7
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
LOUISIANA 9.8%
$7,930 Ernest N Morial New Orleans LA Exhibit Hall
Auth Spl Tax Sr Sub Ser A (AMBAC Insd)......... 5.250% 07/15/18 $ 8,413,730
2,855 Louisiana St Gas & Fuels Tax Rev Ser A (AMBAC
Insd).......................................... 5.375 06/01/16 3,081,658
2,000 New Orleans, LA Rfdg (FGIC Insd)............... 5.500 12/01/21 2,216,640
1,250 St Charles Parish, LA Pollutn Ctl Rev LA Pwr &
Lt Co Proj (AMT) (FSA Insd).................... 7.500 06/01/21 1,282,250
------------
14,994,278
------------
MARYLAND 5.6%
1,000 Maryland St Econ Dev Corp Univ MD College Park
Proj........................................... 5.625 06/01/35 1,010,860
1,250 Maryland St Hlth & Higher Ed Fac Auth Rev
Medstar Health Rfdg............................ 5.375 08/15/24 1,216,775
6,270 Maryland St Hlth & Higher Ed Fac Auth Rev Subn
Hosp Rfdg (AMBAC Insd)......................... 5.000 07/01/13 6,411,702
------------
8,639,337
------------
MASSACHUSETTS 6.3%
5,000 Massachusetts St Cons Ln Ser E
(Prerefunded @ 01/01/13) (FSA Insd)............ 5.250 01/01/20 5,471,050
2,000 Massachusetts St Dev Fin Agy Semass Sys Ser A
(MBIA Insd).................................... 5.625 01/01/15 2,189,300
1,705 Massachusetts St Hlth & Ed Fac Auth Rev Vly
Regl Hlth Sys Ser C (Connie Lee Insd).......... 7.000 07/01/09 2,002,011
------------
9,662,361
------------
MINNESOTA 1.3%
2,000 Anoka Cnty, MN Hsg & Redev Auth Hsg Dev
(AMBAC Insd)................................... 5.000 02/01/34 1,988,800
------------
MISSISSIPPI 4.1%
2,000 Mississippi Business Fin Corp Sys Energy Res
Inc Proj....................................... 5.875 04/01/22 2,009,980
2,860 Mississippi Dev Bk Spl Oblig Cap Proj & Equip
Acquisition Ser A2 (AMBAC Insd)................ 5.000 07/01/24 2,890,688
805 Mississippi Home Corp Single Family Rev Mtg Ser
C (AMT) (GNMA Collateralized) (c).............. 7.600 06/01/29 861,285
310 Mississippi Home Corp Single Family Rev Mtg Ser
F (AMT) (GNMA Collateralized) (c).............. 7.550 12/01/27 319,691
247 Mississippi Home Corp Single Family Rev Ser D
(AMT) (GNMA Collateralized).................... 8.100 12/01/24 260,543
------------
6,342,187
------------
NEVADA 0.2%
230 Nevada Hsg Div Single Family Pgm Mezz Ser E
(AMT) (FHA/VA Gtd)............................. 6.900 10/01/11 234,959
------------
</Table>
8 See Notes to Financial Statements
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
NEW JERSEY 10.4%
$2,000 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airl Inc Proj (AMT)................ 6.250% 09/15/29 $ 1,568,520
2,500 New Jersey Econ Dev Auth Wtr Fac Rev NJ
American Wtr Co Inc Proj Ser A (AMT)
(FGIC Insd).................................... 6.875 11/01/34 2,608,775
6,500 New Jersey Econ Dev Auth Wtr Fac Rev NJ
American Wtr Co Ser A (AMT) (AMBAC Insd)....... 5.250 11/01/32 6,561,945
5,000 New Jersey St Tpk Auth Tpk Rev Ser A
(FSA Insd)..................................... 5.000 01/01/20 5,172,550
------------
15,911,790
------------
NEW YORK 16.7%
970 New York City Indl Dev Agy Civic Fac Rev Touro
College Proj Ser A (Acquired 06/29/1999, Cost
$970,000) (g).................................. 6.350 06/01/29 917,174
2,520 New York City Ser B (Prerefunded @ 08/15/04)... 7.250 08/15/19 2,589,552
5,000 New York City Ser B1 (Prerefunded @
08/15/04)...................................... 7.000 08/15/16 5,134,550
5 New York City Ser C............................ 7.250 08/15/24 5,020
965 New York City Ser G............................ 5.750 02/01/14 1,030,080
1,035 New York City Ser G (Prerefunded @ 02/01/06)... 5.750 02/01/14 1,120,015
5,000 New York City Ser H (MBIA Insd)................ 5.250 03/15/14 5,382,150
5,000 New York City Transitional Fin Auth Future Tax
Sec Ser B...................................... 5.000 08/01/22 5,105,500
4,000 New York City Transitional Fin Auth Future Tax
Sec Ser D (MBIA Insd).......................... 5.250 02/01/20 4,237,040
------------
25,521,081
------------
NORTH CAROLINA 2.1%
3,000 Charlotte, NC Ctf Part Convention Fac Proj Ser
A Rfdg......................................... 5.500 08/01/19 3,269,640
------------
OHIO 9.7%
705 Akron, OH Ctf Part Akron Muni Baseball
Stad Proj...................................... 6.500 12/01/07 756,867
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton
Inc Proj....................................... 7.500 01/01/30 1,101,400
1,000 Delaware Cnty, OH Hlthcare Fac Rev Mtg Centrum
at Willow Brook (FHA Gtd) (a).................. 6.550 02/01/35 1,042,340
1,315 Logan Cnty, OH (MBIA Insd)..................... 5.250 12/01/17 1,402,579
2,045 Marion Cnty, OH Hosp Impt Rev
Cmnty Hosp Rfdg................................ 6.000 05/15/05 2,114,918
530 Miami Cnty, OH Hosp Fac Impt Upper Vly Med Ctr
Ser C Rfdg..................................... 6.000 05/15/06 562,510
</Table>
See Notes to Financial Statements 9
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
OHIO (CONTINUED)
$1,675 Ohio Hsg Fin Agy Mtg Rev Residential Ser A-1
(AMT) (GNMA Collateralized).................... 6.050% 09/01/17 $ 1,762,418
5,000 Ohio St Wtr Dev Auth Wtr Pollutn Ctl Rev Wtr
Quality Ln Fd (AMT)............................ 5.000 06/01/20 5,165,850
925 Toledo Lucas Cnty, OH Port Auth Northwest OH Bd
Fd Ser C (AMT)................................. 6.000 05/15/11 975,662
------------
14,884,544
------------
OKLAHOMA 4.5%
3,905 Jenks, OK Aquarium Auth Rev Rfdg (MBIA Insd)... 5.250 07/01/29 4,037,965
1,475 Jenks, OK Aquarium Auth Rev Rfdg (MBIA Insd)... 5.250 07/01/33 1,522,480
1,000 Mc Alester, OK Pub Wks Auth Util Sys Rev Cap
Apprec (FSA Insd).............................. * 02/01/31 228,790
1,000 Tulsa Cnty, OK Pub Fac Auth Cap Impt Rev
(AMBAC Insd)................................... 6.250 11/01/22 1,150,800
------------
6,940,035
------------
PENNSYLVANIA 1.5%
2,000 Philadelphia, PA Hosp & Higher Ed Fac Auth Hosp
Rev PA Hosp Rfdg (Escrowed to Maturity)........ 6.350 07/01/07 2,234,120
------------
SOUTH CAROLINA 3.4%
2,420 Beaufort Cnty, SC Tax Increment New River Redev
Proj Area (MBIA Insd).......................... 5.500 06/01/20 2,606,219
2,500 South Carolina St Pub Svc Auth Rev Ser D Rfdg
(FSA Insd)..................................... 5.000 01/01/21 2,566,175
------------
5,172,394
------------
TENNESSEE 1.9%
1,500 Elizabethton, TN Hlth & Ed Fac Brd Rev Hosp
First Mtg Ser B Impt & Rfdg.................... 8.000 07/01/33 1,733,400
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 1,233,310
------------
2,966,710
------------
TEXAS 8.7%
1,500 Brazos River Auth TX Pollutn Ctl Rev Adj TXU
Elec Co Proj Ser C Rfdg (AMT).................. 5.750 05/01/36 1,585,995
3,000 Dallas, TX Wtrwks & Swr Sys Rev Impt & Rfdg
(FSA Insd)..................................... 5.375 10/01/19 3,221,760
4,790 Galena Park, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Gtd)...................................... * 08/15/28 1,233,090
3,720 Harris Cnty, TX Flood Ctl Dist Contract Rfdg... 5.000 10/01/22 3,782,756
</Table>
10 See Notes to Financial Statements
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$1,500 Houston, TX Arpt Sys Rev Spl Fac Continental
Airl Ser B (AMT)............................... 6.125% 07/15/17 $ 1,225,365
1,250 Matagorda Cnty, TX Navig Dist No 1 Rev Coll
Centerpoint Energy Proj Rfdg................... 5.600 03/01/27 1,248,775
1,000 Matagorda Cnty, TX Navig Dist No 1 Rev Houston
Lt Rfdg (AMT) (AMBAC Insd)..................... 5.125 11/01/28 996,130
------------
13,293,871
------------
VIRGINIA 1.0%
1,485 Richmond, VA Indl Dev Auth Govt Fac Rev Bonds
(AMBAC Insd)................................... 5.000 07/15/15 1,593,687
------------
WASHINGTON 8.3%
1,000 Grant Cnty, WA Pub Util Dist No 002 Wanapum
Hydro Elec Rev Ser B Rfdg (MBIA Insd).......... 5.375 01/01/18 1,040,230
5,000 Spokane, WA Pub Fac Dist Hotel Motel & Sales
Use Tax (MBIA Insd)............................ 5.250 09/01/33 5,115,100
2,030 Washington St Pub Pwr Supply Sys Nuclear Proj
No 3 Rev Ser C Rfdg (MBIA Insd)................ * 07/01/13 1,346,215
3,380 Washington St Pub Pwr Supply Sys Nuclear Proj
No 3 Rev Ser C Rfdg (MBIA Insd)................ * 07/01/15 1,979,058
3,000 Washington St Ser B............................ 5.500 05/01/18 3,285,270
------------
12,765,873
------------
TOTAL LONG-TERM INVESTMENTS 156.0%
(Cost $232,622,349)....................................................... 239,216,139
------------
SHORT-TERM INVESTMENTS 5.8%
2,100 Delaware Cnty, PA Indl Dev Auth Arpt Fac Rev
Dates United Parcel Svc Proj................... 1.030 12/01/15 2,100,000
5,200 Hapeville, GA Dev Auth Indl Dev Rev Hapeville
Hotel Ltd...................................... 1.080 11/01/15 5,200,000
1,500 Idaho Hlth Fac Auth Rev Saint Lukes Med Ctr.... 1.100 07/01/30 1,500,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $8,800,000)......................................................... 8,800,000
------------
TOTAL INVESTMENTS 161.8%
(Cost $241,422,349)....................................................... 248,016,139
OTHER ASSETS IN EXCESS OF LIABILITIES 0.2%................................. 349,742
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (62.0%)................. (95,054,078)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.............................. $153,311,803
============
</Table>
See Notes to Financial Statements 11
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS -- APRIL 30, 2004 (UNAUDITED) continued
* Zero coupon bond
(a) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(b) Security purchased on a when-issued or delayed delivery basis.
(c) Securities are 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 only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(e) Non-income producing security.
(f) Issuer has filed for protection in federal bankruptcy court.
(g) This security is restricted and may be resold only in transactions exempt
from registration which are normally those transactions with qualified
institutional buyers. Restricted securities comprise .6% of net assets
applicable to common shares.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
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.
12 See Notes to Financial Statements
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2004 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $241,422,349)....................... $248,016,139
Cash........................................................ 242,330
Receivables:
Interest.................................................. 3,560,843
Investments Sold.......................................... 361,002
Other....................................................... 1,010
------------
Total Assets............................................ 252,181,324
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,195,350
Investment Advisory Fee................................... 133,680
Variation Margin on Futures............................... 116,672
Income Distributions--Common Shares....................... 46,417
Administrative Fee........................................ 20,566
Other Affiliates.......................................... 10,736
Trustees' Deferred Compensation and Retirement Plans........ 217,883
Accrued Expenses............................................ 74,139
------------
Total Liabilities....................................... 3,815,443
Preferred Shares (including accrued distributions).......... 95,054,078
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $153,311,803
============
NET ASSET VALUE PER COMMON SHARE ($153,311,803 divided by
10,806,700 shares outstanding)............................ $ 14.19
============
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............................................. 147,064,328
Net Unrealized Appreciation................................. 7,443,964
Accumulated Undistributed Net Investment Income............. 1,836,052
Accumulated Net Realized Loss............................... (3,140,608)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $153,311,803
============
PREFERRED SHARES ($.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....................... $248,311,803
============
</Table>
See Notes to Financial Statements 13
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
FINANCIAL STATEMENTS continued
Statement of Operations
For the Six Months Ended April 30, 2004 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................. $ 6,265,821
-----------
EXPENSES:
Investment Advisory Fee..................................... 821,731
Preferred Share Maintenance................................. 129,653
Administrative Fee.......................................... 126,420
Trustees' Fees and Related Expenses......................... 47,427
Legal....................................................... 14,780
Custody..................................................... 9,070
Other....................................................... 88,925
-----------
Total Expenses.......................................... 1,238,006
-----------
NET INVESTMENT INCOME....................................... $ 5,027,815
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,207,675
Futures................................................... (1,800,136)
-----------
Net Realized Loss........................................... (592,461)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 9,348,444
End of the Period:
Investments............................................. 6,593,790
Futures................................................. 850,174
-----------
7,443,964
-----------
Net Unrealized Depreciation During the Period............... (1,904,480)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(2,496,941)
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (490,071)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 2,040,803
===========
</Table>
14 See Notes to Financial Statements
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets (Unaudited)
<Table>
<Caption>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31, 2003
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 5,027,815 $ 11,112,402
Net Realized Gain/Loss.................................. (592,461) 5,104,419
Net Unrealized Depreciation During the Period........... (1,904,480) (3,979,334)
Distributions to Preferred Shareholders:
Net Investment Income................................. (490,071) (1,008,168)
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations............................................ 2,040,803 11,229,319
Distributions to Common Shareholders:
Net Investment Income................................. (5,283,982) (10,697,472)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES............................ (3,243,179) 531,847
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................. 156,554,982 156,023,135
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,836,052 and $2,582,290
respectively)......................................... $153,311,803 $156,554,982
============ ============
</Table>
See Notes to Financial Statements 15
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
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, -------------------
2004 2003 2002 (a)
---------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................... $ 14.49 $ 14.44 $ 14.75
------- ------- -------
Net Investment Income.................................... .47 1.03 1.09
Net Realized and Unrealized Gain/Loss.................... (.23) .10 (.33)
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income.................................. (.05) (.09) (.12)
Net Realized Gain...................................... -0- -0- -0-
------- ------- -------
Total from Investment Operations........................... .19 1.04 .64
Distributions Paid to Common Shareholders:
Net Investment Income.................................. (.49) (.99) (.95)
Net Realized Gain...................................... -0- -0- -0-
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD......................... $ 14.19 $ 14.49 $ 14.44
======= ======= =======
Common Share Market Price at End of the Period............. $ 12.58 $ 14.10 $ 13.66
Total Return (b)........................................... -7.63%* 10.82% 10.14%
Net Assets Applicable to Common Shares at End of the Period
(In millions)............................................ $ 153.3 $ 156.6 $ 156.0
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (c)........................................ 1.56% 1.56% 1.54%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c).......................... 6.35% 7.09% 7.51%
Portfolio Turnover......................................... 15%* 33% 33%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including Preferred
Shares (c)............................................... .98% .97% .95%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d).......................... 5.73% 6.44% 6.65%
SENIOR SECURITIES:
Total Preferred Shares Outstanding......................... 3,800 3,800 3,800
Asset Coverage Per Preferred Share (e)..................... $65,359 $66,202 $66,065
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)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.
(c)Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(d)Ratios reflect the effect of dividend payments to preferred shareholders.
(e)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.
16
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
- ---------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
$ 13.70 $ 13.14 $ 14.82 $ 14.35 $ 13.67 $ 13.72 $ 12.28 $ 15.25
------- ------- ------- -------- -------- -------- -------- --------
1.10 1.07 1.07 1.09 1.10 1.12 1.15 1.18
.94 .61 (1.69) .47 .67 (.07) 1.51 (2.93)
(.28) (.36) (.28) (.31) (.31) (.31) (.34) (.24)
-0- -0- -0- -0- -0- -0- -0- (.01)
------- ------- ------- -------- -------- -------- -------- --------
1.76 1.32 (.90) 1.25 1.46 .74 2.32 (2.00)
(.71) (.76) (.78) (.78) (.78) (.79) (.88) (.94)
-0- -0- -0- -0- -0- -0- -0- (.03)
------- ------- ------- -------- -------- -------- -------- --------
$ 14.75 $ 13.70 $ 13.14 $ 14.82 $ 14.35 $ 13.67 $ 13.72 $ 12.28
======= ======= ======= ======== ======== ======== ======== ========
$ 13.28 $11.250 $11.625 $14.5625 $ 12.750 $ 11.750 $ 11.875 $ 10.750
24.99% 3.37% -15.30% 20.97% 15.55% 5.69% 18.79% -20.83%
$ 159.4 $ 148.0 $ 142.0 $ 160.2 $ 155.1 $ 147.7 $ 148.3 $ 132.7
1.55% 1.66% 1.64% 1.62% 1.65% 1.67% 1.77% 1.61%
7.77% 8.07% 7.47% 7.47% 7.89% 8.23% 8.74% 8.52%
44% 22% 39% 18% 23% 24% 75% 165%
.96% 1.00% 1.01% 1.01% 1.01% 1.01% 1.06% .99%
5.79% 5.38% 5.50% 5.35% 5.67% 5.91% 6.14% 6.76%
3,800 3,800 3,800 1,900 1,900 1,900 1,900 1,900
$66,948 $63,958 $62,357 $134,297 $131,631 $127,743 $128,047 $119,868
$25,000 $25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$25,000 $25,000 $25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
</Table>
See Notes to Financial Statements 17
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (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. Effective November 30, 2003, the Trust's investment adviser, Van Kampen
Investment Advisory Corp. merged into its affiliate, Van Kampen Asset
Management.
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.
Futures contracts are valued at the settlement price established each day on the
exchange on which they are traded. 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
segregate assets with the custodian 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, 2004, the Trust had $3,195,350 of when-issued and
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.
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, 2003, the Trust had an
18
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (UNAUDITED) continued
accumulated capital loss carryforward for tax purposes of $3,365,379, which will
expire between October 31, 2004 and October 31, 2008. Of this amount, $1,702,886
will expire on October 31, 2004.
At April 30, 2004 the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $240,489,946
============
Gross tax unrealized appreciation........................... $ 10,523,858
Gross tax unrealized depreciation........................... (2,997,665)
------------
Net tax unrealized appreciation on investments.............. $ 7,526,193
============
</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,
2003 was as follows:
<Table>
Distribution paid from:
Ordinary Income........................................... $41,136
Long-Term Capital Gain.................................... -0-
-------
$41,136
=======
</Table>
As of October 31, 2003, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $952,648
</Table>
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Van Kampen
Asset Management (the "Adviser") provides 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 pays 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. Effective June 1, 2004, the administrative fee was reduced from
..05% to .00%.
For the six months ended April 30, 2004, the Trust recognized expenses of
approximately $7,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, 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, 2004, the Trust recognized expenses of approximately $16,800
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.
19
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (UNAUDITED) continued
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 $41,532,398 and $36,163,770,
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.
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.
20
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS -- APRIL 30, 2004 (UNAUDITED) continued
Transactions in futures contracts for the six months ended April 30, 2004,
were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at October 31, 2003............................. 317
Futures Opened.............................................. 915
Futures Closed.............................................. (713)
----
Outstanding at April 30, 2004............................... 519
====
</Table>
The futures contracts outstanding as of April 30, 2004 and the descriptions
and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
UNREALIZED
APPRECIATION
CONTRACTS /DEPRECIATION
SHORT CONTRACTS:
U.S. Treasury Notes 10-Year
Futures June 2004 (Current Notional Value of $110,500 per
contract)............................................... 90 188,900
U.S. Treasury Notes 5-Year
Futures June 2004 (Current Notional Value of $109,938 per
contract)............................................... 429 661,274
--- --------
519 $850,174
=== ========
</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, 2004, the average rate in effect
was 0.985%. During the six months ended April 30, 2004, the rates ranged from
0.750% to 1.750%.
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.
21
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
DIVIDEND REINVESTMENT PLAN
The Trust offers a Dividend Reinvestment Plan (the "Plan") pursuant to which
Common Shareholders who are participants in the Plan may have dividends and
capital gains distributions automatically reinvested in Common Shares of the
Trust. All Common Shareholders are deemed to be participants in the Plan unless
they specifically elect not to participate. Common Shareholders who elect not to
participate in the Plan will receive all distributions of dividends and capital
gains in cash paid by check mailed directly to the Common Shareholder by the
Trust's dividend disbursing agent.
HOW THE PLAN WORKS
State Street Bank and Trust Company, as your Plan Agent, serves as agent for
the Common Shareholders in administering the Plan. After the Trust declares a
dividend or determines to make a capital gains distribution, the Plan Agent
will, as agent for the participants, receive the cash payment and use it to buy
Common Shares in the open market, on the New York Stock Exchange or elsewhere,
for the participants' accounts. The Trust will not issue any new Common Shares
in connection with the Plan. All reinvestments are in full and fractional Common
Shares, carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
22
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
DIVIDEND REINVESTMENT PLAN continued
RIGHT TO WITHDRAW
All Common Shareholders of the Trust are deemed to be participants in the
Plan unless they specifically elect not to participate. You may withdraw from
the Plan at any time by calling 1-800-341-2929 or by writing State Street Bank
and Trust Company, P.O. Box 8200, Boston, MA 02266-8200. If you withdraw, you
will receive, without charge, a share certificate issued in your name for all
full Common Shares credited to your account under the Plan and a cash payment
will be made for any fractional Common Share credited to your account under the
Plan. You may again elect to participate in the Plan at any time by calling
1-800-341-2929 or writing to the Trust at:
Van Kampen Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
23
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
J. MILES BRANAGAN
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, NY 10020
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 LLP
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.
24
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 conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "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 Asset Management, Van
Kampen Advisors Inc., Van Kampen Funds Inc., Van Kampen Investor Services
Inc., 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)2004 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC.
VKS SAR 6/04 RN04-00741P-Y04/04
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.
Item 8. [Reserved.]
Item 9. Controls and Procedures
(a) 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.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) Code of Ethics -- Not applicable for semi-annual reports.
(b)(1) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(b)(2) A certification for the Principal Financial Officer of the registrant is
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
By: /s/ Ronald E. Robison
---------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: June 22, 2004
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
---------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: June 22, 2004
By: /s/ John L. Sullivan
--------------------
Name: John L. Sullivan
Title: Principal Financial Officer
Date: June 22, 2004