<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
A Farewell from the Chairman..................... 1
Portfolio of Investments......................... 2
Statement of Assets and Liabilities.............. 5
Statement of Operations.......................... 6
Statement of Changes in Net Assets............... 7
Financial Highlights............................. 8
Notes to Financial Statements.................... 10
Report of Independent Accountants................ 14
Dividend Reinvestment Plan....................... 15
</TABLE>
VFM ANR 12/98
<PAGE> 2
A FAREWELL FROM THE CHAIRMAN
------------------------ - ------------------------
Dear Shareholder,
Since I became president and chief executive officer in 1987, much has
changed in our business. However, one thing has remained constant through these
years--my commitment to you, the trust shareholder. Through the many events at
Van Kampen that have marked the passage of time--including several mergers,
company name changes, and leadership changes--we have always focused on
providing superior investments and the highest level of customer service to help
you meet your investment objectives. I'm proud to say that during my tenure, Van
Kampen won eight consecutive awards for high-quality customer service--more
consecutive service awards than any other firm in the financial services
industry.(1) My successor, Dick Powers, shares this commitment to meeting your
needs and providing innovative and efficient ways to help you work with your
investment adviser to reach your financial goals.
Although my official retirement begins on January 1, 1999, I will remain
active in the industry and the community. I plan to continue my service as a
member of the board of directors of the Investment Company Institute, the
leading mutual fund industry association, and I will remain a trustee of your
Trust.
In closing, I want to say farewell to all of you. Thank you for your support
of Van Kampen over the years and for giving me the opportunity to serve you.
Best wishes,
Don G. Powell
Don G. Powell
------------------------ - ------------------------
(1)American Capital, which merged with Van Kampen in 1995, received the DALBAR
Service Award annually from 1990 to 1994. The award was called the Quality
Tested Service Seal until 1997.
1
<PAGE> 3
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 101.4%
FLORIDA 96.9%
$ 1,000 Bay Cnty, FL Sch Brd Ctfs Partn (Prerefunded @
07/01/04) (AMBAC Insd). ......................... 6.750% 07/01/12 $ 1,162,210
225 Broward Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Rfdg Ser A (GNMA Collateralized)............. 6.200 04/01/30 240,485
1,450 Cape Canaveral, FL Hosp Dist Rev Ctfs
(Prerefunded @ 01/01/01) (AMBAC Insd)............ 6.875 01/01/21 1,576,904
1,500 Cape Canaveral, FL Hosp Dist Rev Ctfs Rfdg....... 5.250 01/01/28 1,485,510
1,135 Cape Coral, FL Wtr & Swr Rev (Prerefunded @
10/01/01) (MBIA Insd)............................ * 10/01/13 454,057
3,205 Cape Coral, FL Wtr & Swr Rev (Prerefunded @
10/01/01) (MBIA Insd)............................ * 10/01/14 1,195,786
4,005 Cape Coral, FL Wtr & Swr Rev (Prerefunded @
10/01/01) (MBIA Insd)............................ * 10/01/15 1,393,540
4,005 Cape Coral, FL Wtr & Swr Rev (Prerefunded @
10/01/01) (MBIA Insd)............................ * 10/01/16 1,299,623
2,000 Cape Coral, FL Wtr & Swr Rev (Prerefunded @
10/01/01) (MBIA Insd)............................ * 10/01/17 605,260
1,960 Cape Coral, FL Wtr & Swr Rev (Prerefunded @
10/01/01) (MBIA Insd)............................ * 10/01/18 553,190
1,000 Charlotte Cnty, FL Util Rev (Prerefunded @
10/01/01) (FGIC Insd)............................ 6.875 10/01/21 1,109,450
725 Clay Cnty, FL Hsg Fin Auth Rev Single Family Mtg
(GNMA Collateralized)............................ 6.500 09/01/21 777,998
750 Cocoa, FL Wtr & Swr Rev Impt (FGIC Insd)......... 5.875 10/01/26 817,785
750 Dade Cnty, FL Edl Fac Auth Rev Univ of Miami Ser
B (MBIA Insd).................................... 5.750 04/01/20 810,278
1,280 Dade Cnty, FL Hlth Fac Auth Hosp Rev North Shore
Med Cent Proj Rfdg (Prerefunded @ 08/15/02)
(AMBAC Insd)..................................... 6.000 08/15/10 1,385,203
4,000 Dade Cnty, FL Hlth Fac Auth Hosp Rev South Miami
Hosp Proj Ser A (Prerefunded @ 10/01/01) (AMBAC
Insd) (b)........................................ 6.750 10/01/20 4,422,280
130 Dade Cnty, FL Hsg Fin Auth Single Family Mtg Rev
Ser E Rfdg (GNMA Collateralized)................. 7.000 03/01/24 136,731
20,445 Dade Cnty, FL Spl Oblig Cap Apprec Bond Ser B
Rfdg (Prerefunded @ 10/01/08) (AMBAC Insd)....... * 10/01/28 3,882,914
16,125 Dade Cnty, FL Spl Oblig Cap Apprec Bond Ser B
Rfdg (Prerefunded @ 10/01/08) (AMBAC Insd)....... * 10/01/29 2,872,830
1,000 Dade Cnty, FL Wtr & Swr Sys Rev Rfdg (FGIC
Insd)............................................ 5.000 10/01/13 1,020,760
500 Daytona Beach, FL Wtr & Swr Rev Rfdg (AMBAC
Insd)............................................ 5.750 11/15/10 542,100
2,000 Dunedin, FL Hosp Rev Mease Hlthcare (Prerefunded
@ 11/15/01) (MBIA Insd).......................... 6.750 11/15/21 2,217,660
215 Escambia Cnty, FL Hlth Facs Auth Hlth Fac Rev.... 6.750 10/01/14 230,160
785 Escambia Cnty, FL Hlth Facs Auth Hlth Fac Rev
(Prerefunded @ 10/01/03)......................... 6.750 10/01/14 899,123
1,000 Escambia Cnty, FL Pollutn Ctl Rev Champion Intl
Corp Proj........................................ 6.900 08/01/22 1,100,210
4,180 Florida Hsg Fin Agy Home Ownership Mtg (GNMA
Collateralized).................................. 8.595 11/01/18 4,751,490
1,500 Florida Hsg Fin Agy Homeowner Mtg Ser 3.......... 6.350 07/01/28 1,615,125
1,000 Florida Hsg Fin Agy Hsg Brittany Rosemont Ser G1
(AMBAC Insd)..................................... 6.150 07/01/25 1,070,760
</TABLE>
See Notes to Financial Statements
2
<PAGE> 4
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,000 Florida Hsg Fin Agy Hsg Brittany Rosemont Ser G1
(AMBAC Insd)..................................... 6.250% 07/01/35 $ 1,074,210
500 Florida Hsg Fin Agy Hsg Riverfront Apts Ser A
(AMBAC Insd)..................................... 6.250 04/01/37 540,960
1,750 Florida St Brd Edl Cap Outlay Pub Edl Ser C Rfdg
(FSA Insd)....................................... 4.500 06/01/22 1,639,890
2,250 Florida St Brd Edl Cap Outlay Pub Edl Ser A
(Prerefunded @ 06/01/01)......................... 6.750 06/01/21 2,447,730
975 Florida St Brd Edl Cap Outlay Pub Edl Ser A
Rfdg............................................. 7.250 06/01/23 1,043,796
1,650 Florida St Muni Pwr Agy Rev Pwr Supply Rfdg
(Prerefunded @ 10/01/01) (AMBAC Insd)............ 6.250 10/01/19 1,802,476
1,000 Florida St Tpk Auth Tpk Rev Ser A Rfdg (FGIC
Insd)............................................ 5.250 07/01/22 1,017,650
2,000 Halifax Hosp Med Cent FL Hosp Rev Ser A Rfdg
(Prerefunded @ 10/01/01) (MBIA Insd)............. 7.000 10/01/13 2,224,300
4,670 Hernando Cnty, FL Sch Brd Ctfs Partn (Prerefunded
@ 07/01/01) (FSA Insd)........................... 6.500 07/01/12 5,104,543
3,000 Hillsborough Cnty, FL Edl Fac Univ Tampa Proj
Rfdg............................................. 5.750 04/01/18 3,118,080
1,000 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Ser 92 Rfdg............... 8.000 05/01/22 1,152,970
2,000 Hollywood, FL Wtr & Swr Rev (Prerefunded @
10/01/01) (FGIC Insd)............................ 6.875 10/01/21 2,218,900
5,000 Jacksonville, FL Elec Auth Rev Bulk Pwr Supply
Scherer (Prerefunded @ 10/01/00)................. 6.750 10/01/16 5,381,250
3,350 Jacksonville, FL Excise Tax Rev Ser B (AMBAC
Insd)............................................ 6.500 10/01/16 3,502,860
1,665 Jacksonville, FL Gtd Entitlement Rev Ser A Rfdg
(AMBAC Insd)..................................... 5.500 10/01/12 1,780,401
2,000 Jacksonville, FL Hosp Rev Univ Med Cent Inc Proj
(Connie Lee Insd)................................ 6.500 02/01/11 2,181,400
5,000 Kissimmee, FL Util Auth Elec Sys Rev Rfdg & Impt
(Prerefunded @ 10/01/01) (FGIC Insd)............. 6.500 10/01/17 5,496,450
485 Lee Cnty, FL Hosp Brd Directors Hosp Rev Lee Mem
Hlth Sys Ser A (MBIA Insd)....................... 5.875 04/01/24 526,298
1,380 Lee Cnty, FL Hsg Fin Auth Single Family Mtg Rev
Multi-Cnty Pgm Ser A (GNMA Collateralized)....... 7.450 09/01/27 1,571,020
1,000 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj Ser A Rfdg.......... 7.875 12/15/25 1,156,440
6,500 Miami Dade Cnty, FL Spl Oblig Ser B (MBIA
Insd)............................................ * 10/01/33 995,735
4,000 Miami, FL Hlth Fac Auth Hlth Fac Rev Mercy Hosp
Proj (Prerefunded @ 08/01/01) (AMBAC Insd)....... 6.750 08/01/20 4,404,320
5,000 Miramar, FL Wastewater Impt Assmt Rev (FGIC
Insd)............................................ 6.750 10/01/25 5,799,300
5,000 Orange Cnty, FL Hlth Fac Auth Rev (Inverse Fltg)
(MBIA Insd) (c).................................. 8.796 10/29/21 5,968,750
2,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp Adventist
Hlth/Sunbelt Ser A (AMBAC Insd).................. 6.875 11/15/15 2,203,100
1,000 Orange Cnty, FL Hsg Fin Auth Multi-Family Rev Mtg
Hands Inc Proj Ser A............................. 8.000 10/01/25 1,115,460
775 Orange Cnty, FL Hsg Fin Auth Single Family Mtg
Rev (GNMA Collateralized)........................ 6.550 10/01/21 832,466
7,500 Palm Beach Cnty, FL Arpt Sys Rev Rfdg (MBIA
Insd)............................................ 7.750 10/01/10 8,436,450
270 Palm Beach Cnty, FL Hsg Fin Auth Multi-Family Rev
Hsg Chelsea Commons Apts Proj (FSA Insd)......... 5.900 06/01/29 282,371
</TABLE>
See Notes to Financial Statements
3
<PAGE> 5
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 750 Palm Beach Cnty, FL Hsg Fin Auth Multi-Family Rev
Hsg Windsor Pk Apts Proj Ser A................... 5.850% 12/01/33 $ 782,033
1,500 Pensacola, FL Arpt Rev Ser A Rfdg (MBIA Insd).... 6.000 10/01/12 1,661,295
1,565 Pensacola, FL Arpt Rev Ser A Rfdg (MBIA Insd).... 6.125 10/01/18 1,735,444
3,250 Polk Cnty, FL Indl Dev Auth Indl Dev Rev IMC
Fertilizer Inc Ser A............................. 7.525 01/01/15 3,481,985
475 Port Orange, FL Wtr & Swr Rev Rfdg (AMBAC
Insd) (a)........................................ 4.900 10/01/11 489,473
565 Port Orange, FL Wtr & Swr Rev Rfdg (AMBAC
Insd) (a)........................................ 5.000 10/01/12 582,023
3,500 Reedy Creek, FL Impt Dist FL Ser A............... 6.000 06/01/16 3,699,605
5,000 Reedy Creek, FL Impt Dist FL Util Rev (AMBAC
Insd)............................................ 7.250 10/01/08 5,270,950
14,000 Reedy Creek, FL Impt Dist FL Util Rev Ser 1991-1
(Prerefunded @ 10/01/01) (MBIA Insd) (b)......... 6.500 10/01/16 15,263,640
1,000 Saint Lucie Cnty, FL Sales Tax Rev (Prerefunded @
10/01/02) (FGIC Insd)............................ 6.500 10/01/22 1,120,920
1,000 Santa Rosa Bay Brdg Auth FL Rev.................. 6.250 07/01/28 1,092,090
1,000 Santa Rosa Bay Brdg Auth FL Rev Cap Apprec....... * 07/01/21 299,480
1,445 Sarasota Cnty, FL Hlth Fac Auth Rev Hlthcare
Kobernick/Meadow Pk (Prerefunded @ 07/01/02)..... 10.000 07/01/22 1,766,700
2,500 South Miami, FL Hlth Facs Baptist Hlth Sys Oblig
Group (MBIA Insd) (a)............................ 5.000 11/15/28 2,467,400
1,250 Tarpon Springs, FL Hlth Fac Auth Hosp Rev Helen
Ellis Mem Hosp Proj.............................. 7.500 05/01/11 1,339,863
1,250 Tarpon Springs, FL Hlth Fac Auth Hosp Rev Helen
Ellis Mem Hosp Proj.............................. 7.625 05/01/21 1,343,488
------------
157,045,387
------------
PUERTO RICO 4.5%
1,521 Centro de Recaudaciones de Ingresos Muni Ctfs
Partn PR......................................... 6.850 10/17/03 1,590,939
2,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser
W................................................ 5.500 07/01/15 2,165,240
1,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser X
Rfdg............................................. 5.500 07/01/19 1,038,030
1,000 Puerto Rico Comwlth Hwy & Tran Auth Tran Rev Ser
A................................................ 4.750 07/01/38 957,810
1,250 Puerto Rico Elec Pwr Auth Pwr Rev Ser T
(Prerefunded @ 07/01/04)......................... 6.375 07/01/24 1,430,475
------------
7,182,494
------------
TOTAL INVESTMENTS 101.4%
(Cost $148,380,635)......................................................... 164,227,881
LIABILITIES IN EXCESS OF OTHER ASSETS (1.4%)................................. (2,189,879)
------------
NET ASSETS 100.0%............................................................ $162,038,002
============
</TABLE>
*Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(c) An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these securities may be more
volatile than the price of a comparable fixed rate security. These
instruments are typically used by the Trust to enhance the yield of the
portfolio.
See Notes to Financial Statements
4
<PAGE> 6
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $148,380,635)....................... $164,227,881
Receivables:
Interest.................................................. 1,707,252
Investments Sold.......................................... 70,000
Other....................................................... 2,377
------------
Total Assets.......................................... 166,007,510
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,501,095
Investment Advisory Fee................................... 96,536
Income Distributions-Preferred Shares..................... 79,153
Custodian Bank............................................ 69,758
Administrative Fee........................................ 27,582
Affiliates................................................ 7,735
Accrued Expenses............................................ 97,421
Trustees' Deferred Compensation and Retirement Plans........ 90,228
------------
Total Liabilities..................................... 3,969,508
------------
NET ASSETS.................................................. $162,038,002
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 1,000 issued with liquidation preference of
$50,000 per share)........................................ $ 50,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 6,510,151 shares issued and
outstanding).............................................. 65,102
Paid in Surplus............................................. 96,401,752
Net Unrealized Appreciation................................. 15,847,246
Accumulated Undistributed Net Investment Income............. 410,169
Accumulated Net Realized Loss............................... (686,267)
------------
Net Assets Applicable to Common Shares................ 112,038,002
------------
NET ASSETS.................................................. $162,038,002
============
NET ASSET VALUE PER COMMON SHARE ($112,038,002 divided
by 6,510,151 shares outstanding).......................... $ 17.21
============
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
STATEMENT OF OPERATIONS
For the Two Months Ended October 31, 1998
and the Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Two Months Ended Year Ended
October 31, 1998 August 31, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................. $ 1,627,830 $ 9,797,088
----------- -----------
EXPENSES:
Investment Advisory Fee.............................. 189,564 1,124,363
Administrative Fee................................... 54,161 321,247
Preferred Share Maintenance.......................... 23,210 138,383
Custody.............................................. 1,792 11,636
Legal................................................ 1,591 10,437
Trustees' Fees and Expenses.......................... 771 27,826
Other................................................ 38,074 157,777
----------- -----------
Total Expenses................................... 309,163 1,791,669
----------- -----------
NET INVESTMENT INCOME................................ $ 1,318,667 $ 8,005,419
=========== ===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain.................................... $ 31,578 $ 471,665
----------- -----------
Unrealized Appreciation/Depreciation:
Beginning of the Period............................ 15,739,869 13,864,115
End of the Period.................................. 15,847,246 15,739,869
----------- -----------
Net Unrealized Appreciation During the Period........ 107,377 1,875,754
----------- -----------
NET REALIZED AND UNREALIZED GAIN..................... $ 138,955 $ 2,347,419
=========== ===========
NET INCREASE IN NET ASSETS FROM OPERATIONS........... $ 1,457,622 $10,352,838
=========== ===========
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
STATEMENT OF CHANGES IN NET ASSETS
For the Two Months Ended October 31, 1998
and the Years Ended August 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Two Months Ended Year Ended Year Ended
October 31, 1998 August 31, 1998 August 31, 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................... $ 1,318,667 $ 8,005,419 $ 8,105,729
Net Realized Gain....................... 31,578 471,665 245,032
Net Unrealized Appreciation During the
Period................................ 107,377 1,875,754 2,591,702
------------ ------------ ------------
Change in Net Assets from Operations.... 1,457,622 10,352,838 10,942,463
------------ ------------ ------------
Distributions from Net Investment
Income:
Common Shares......................... (1,028,096) (6,231,115) (6,705,935)
Preferred Shares...................... (287,975) (1,781,206) (1,752,659)
------------ ------------ ------------
Total Distributions..................... (1,316,071) (8,012,321) (8,458,594)
------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................ 141,551 2,340,517 2,483,869
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through
Dividend Reinvestment................. 65,436 173,528 522,937
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS............ 206,987 2,514,045 3,006,806
NET ASSETS:
Beginning of the Period................. 161,831,015 159,316,970 156,310,164
------------ ------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$410,169, $407,573 and $414,475,
respectively)......................... $162,038,002 $161,831,015 $159,316,970
============ ============ ============
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Two Months Ended ------------------------
October 31, 1998 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period (a)...... $17.188 $ 16.828 $16.444
------- -------- -------
Net Investment Income........................... .203 1.231 1.251
Net Realized and Unrealized Gain/Loss........... .021 .362 .438
------- -------- -------
Total from Investment Operations.................. .224 1.593 1.689
------- -------- -------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders................... .158 .959 1.035
Common Share Equivalent of Distributions Paid
to Preferred Shareholders................... .044 .274 .270
Distributions from and in Excess of Net Realized
Gain:
Paid to Common Shareholders................... -0- -0- -0-
Common Share Equivalent of Distributions Paid
to Preferred Shareholders................... -0- -0- -0-
------- -------- -------
Total Distributions............................... .202 1.233 1.305
------- -------- -------
Net Asset Value, End of the Period................ $17.210 $ 17.188 $16.828
======= ======== =======
Market Price Per Share at End of the Period....... $17.750 $16.9375 $17.375
Total Investment Return at Market Price (b)....... 5.76%* 3.13% 10.33%
Total Return at Net Asset Value (c)............... 1.04%* 8.04% 8.89%
Net Assets at End of the Period
(In millions)................................... $ 162.0 $ 161.8 $159.3
Ratio of Expenses to Average Net Assets Applicable
to Common Shares**.............................. 1.65% 1.62% 1.64%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (d).......... 5.51% 5.63% 5.87%
Portfolio Turnover................................ 3%* 20% 9%
* Non-Annualized
** Ratio of Expenses to Average Net Assets
Including Preferred Shares.................... 1.14% 1.12% 1.12%
</TABLE>
(a) Net Asset Value at September 27, 1991, is adjusted for common and preferred
share offering costs of $.214 per common share.
(b) Total Investment Return at Market Price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends
in accordance with the Trust's dividend reinvestment plan.
(c) Total Return at Net Asset Value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
(d) Net Investment Income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
8
<PAGE> 10
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 27, 1991
(Commencement
Year Ended August 31, of Investment
--------------------- Operations) to
1996 1995 1994 1993 August 31, 1992
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
$16.621 $16.282 $17.392 $16.013 $14.786
------- ------- ------- ------- -------
1.232 1.266 1.275 1.346 1.049
(.081) .497 (1.100) 1.309 1.116
------- ------- ------- ------- -------
1.151 1.763 .175 2.655 2.165
------- ------- ------- ------- -------
1.050 1.050 1.050 1.007 .743
.278 .293 .202 .185 .195
-0- .068 .029 .068 -0-
-0- .013 .004 .016 -0-
------- ------- ------- ------- -------
1.328 1.424 1.285 1.276 .938
------- ------- ------- ------- -------
$16.444 $16.621 $16.282 $17.392 $16.013
======= ======= ======= ======= =======
$16.750 $15.625 $15.625 $17.125 $15.625
14.18% 7.58% (2.62%) 17.05% 9.33%*
5.30% 9.47% (.23%) 15.91% 11.96%*
$156.3 $157.2 $155.0 $161.9 $152.9
1.67% 1.72% 1.66% 1.63% 1.60%
5.70% 6.06% 6.33% 7.04% 6.24%
8% 17% 19% 13% 37%*
1.14% 1.16% 1.14% 1.11% 1.12%
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Florida Quality Municipal Trust (the "Trust") is registered as a
non-diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust's investment objective is to provide
a high level of current income exempt from federal income taxes and Florida
State intangible taxes, consistent with preservation of capital. The Trust will
invest in a portfolio consisting substantially of Florida municipal obligations
rated investment grade at the time of investment, but may invest up to 20% of
its assets in unrated securities which are believed to be of comparable quality
to those rated investment grade. The Trust commenced investment operations on
September 27, 1991. In August, 1998, the Trust's Board of Trustees approved a
change in the Trust's fiscal year end from August 31 to October 31. As a result,
this financial report reflects the two-month period commencing on September 1,
1998 and ending October 31, 1998.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
10
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 1998, the Trust had an accumulated capital loss
carryforward for tax purposes of $686,267 which will expire between October 31,
2002 and October 31, 2003.
At October 31, 1998, for federal income tax purposes, the cost of long-term
investments is $148,380,635, the aggregate gross unrealized appreciation is
$15,883,589 and the aggregate gross unrealized depreciation is $36,343,
resulting in net unrealized appreciation on long-term investments of
$15,847,246.
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.
For the two months ended October 31, 1998, 100% of the income distributions
made by the Trust were exempt from federal income taxes. In January, 1999, the
Trust will provide tax information to shareholders for the 1998 calendar year.
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 .70% of the average
net assets of the Trust. In addition, the Trust will pay a monthly
administrative fee to Van Kampen Funds Inc. or its affiliates' (collectively
"Van Kampen"), the Trust's Administrator, at an annual rate of .20% of the
average net assets of the Trust. The administrative services provided by the
Administrator include record keeping and reporting responsibilities with respect
to the Trust's portfolio and preferred shares and providing certain services to
shareholders.
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
For the two months ended October 31, 1998 and the year ended August 31,
1998, the Trust recognized expenses of approximately $500 and $2,600,
respectively, representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of the Trust
is an affiliated person.
For the two months ended October 31, 1998 and the year ended August 31,
1998, the Trust recognized expenses of approximately $11,600 and $65,500,
respectively, representing Van Kampen's cost of providing accounting and legal
services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At October 31, 1998, August 31, 1998 and August 31, 1997, common share paid in
surplus aggregated $96,401,752, $96,336,354 and $96,162,928, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
TWO MONTHS ENDED YEAR ENDED YEAR ENDED
OCTOBER 31, 1998 AUGUST 31, 1998 AUGUST 31, 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning Shares............ 6,506,359 6,496,170 6,464,916
Shares Issued Through
Dividend Reinvestment..... 3,792 10,189 31,254
--------- --------- ---------------
Ending Shares............... 6,510,151 6,506,359 6,496,170
========= ========= ===============
</TABLE>
4. INVESTMENT TRANSACTIONS
For the two months ended October 31, 1998, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were $5,819,866 and
$4,333,801, respectively. For the year ended August 31, 1998, the cost of
purchases and proceeds from sales of investments, excluding short-term
investments, were $33,053,503 and $33,184,126, respectively.
5. PREFERRED SHARES
The Trust has outstanding 1,000 Auction Preferred Shares ("APS"). Dividends are
cumulative and the dividend rate is currently reset every 28 days through an
auction
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
process. The rate in effect on October 31, 1998 was 3.399%. During the two
months ended October 31, 1998, the rates ranged from 3.399% to 3.490%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 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.
6. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996, Van Kampen initiated a CountDown 2000
Project to review both the internal systems and external vendor connections. The
goal of this project is to position its business to continue unaffected as a
result of the century change. At this time, there can be no assurance that the
steps taken will be sufficient to avoid any adverse impact to the Trust, but Van
Kampen does not anticipate that the move to Year 2000 will have a material
impact on its ability to continue to provide the Trust with service at current
levels. In addition, it is possible that the securities markets in which the
Trust invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues.
PORTFOLIO COMPOSITION BY CREDIT QUALITY*
The following table summarizes the portfolio composition at October 31,
1998, based upon the highest credit quality ratings as determined by Standard
& Poor's or Moody's.
<TABLE>
<S> <C>
AAA...................... 80.4%
AA....................... 2.3
A........................ 4.8
BBB...................... 10.4
NR....................... 2.1
-----
100.0%
=====
</TABLE>
* As a percentage of long-term investments.
13
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Florida Quality Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Florida Quality Municipal Trust (the "Trust"), including the portfolio of
investments, as of October 31, 1998, and the related statement of operations for
the two-month period ended October 31, 1998 and the year ended August 31, 1998,
the statement of changes in net assets for the two-month period ended October
31, 1998 and for each of the two years in the period ended August 31, 1998, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Florida Quality Municipal Trust as of October 31, 1998, the results of
its operations for the two-month period ended October 31, 1998 and the year
ended August 31, 1998, the changes in its net assets for the two-month period
ended October 31, 1998 and for each of the two years in the period ended August
31, 1998, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 15, 1998
14
<PAGE> 16
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are 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
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw 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
15
<PAGE> 17
VAN KAMPEN FLORIDA QUALITY MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer
and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
16
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> SEP-01-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 148,380,635
<INVESTMENTS-AT-VALUE> 164,227,881
<RECEIVABLES> 1,777,252
<ASSETS-OTHER> 2,377
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 166,007,510
<PAYABLE-FOR-SECURITIES> 3,501,095
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 468,413
<TOTAL-LIABILITIES> 3,969,508
<SENIOR-EQUITY> 50,000,000
<PAID-IN-CAPITAL-COMMON> 96,466,854
<SHARES-COMMON-STOCK> 6,510,151
<SHARES-COMMON-PRIOR> 6,506,359
<ACCUMULATED-NII-CURRENT> 410,169
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (686,267)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,847,246
<NET-ASSETS> 162,038,002
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,627,830
<OTHER-INCOME> 0
<EXPENSES-NET> (309,163)
<NET-INVESTMENT-INCOME> 1,318,667
<REALIZED-GAINS-CURRENT> 31,578
<APPREC-INCREASE-CURRENT> 107,377
<NET-CHANGE-FROM-OPS> 1,457,622
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,316,071)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 3,792
<NET-CHANGE-IN-ASSETS> 206,987
<ACCUMULATED-NII-PRIOR> 407,573
<ACCUMULATED-GAINS-PRIOR> (717,845)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 189,564
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 309,163
<AVERAGE-NET-ASSETS> 162,024,271
<PER-SHARE-NAV-BEGIN> 17.188
<PER-SHARE-NII> 0.203
<PER-SHARE-GAIN-APPREC> 0.021
<PER-SHARE-DIVIDEND> (0.202)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.210
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
