<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
TOP FIVE PORTFOLIO INDUSTRIES 5
TOP TEN HOLDINGS 5
CURRENT DISTRIBUTION 6
NET ASSET VALUE SINCE INCEPTION 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
A FOCUS ON SENIOR LOANS 12
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 13
FINANCIAL STATEMENTS 27
NOTES TO FINANCIAL STATEMENTS 32
REPORT OF INDEPENDENT AUDITORS 38
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 39
FUND OFFICERS AND IMPORTANT ADDRESSES 40
</TABLE>
It is times like these when money- management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
August 18, 2000
Dear Shareholder,
Whether you have held your fund for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your fund is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term market volatility and the value of investing for
the long term.
As we move through the second half of 2000, count on us to
continue to draw on the wisdom of our 74 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is
the theme of a national advertising campaign that we recently kicked off. The
message emphasizes our depth of investment-management history, as well as our
firm belief that with the right investments, anyone can realize life's true
wealth.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH CONTINUED TO BE IMPRESSIVE, WITH THE GROSS DOMESTIC PRODUCT
(GDP), THE PRIMARY MEASURE OF ECONOMIC GROWTH, INCREASING AT A 5.3 PERCENT
ANNUALIZED RATE FOR THE REVISED SECOND QUARTER OF 2000. PRODUCTIVITY ALSO
CONTINUED ITS STEADY PACE AND SHOWED NO CLEAR SIGNS OF SLOWING DOWN. LOW
UNEMPLOYMENT AND RISING PRODUCTIVITY WERE THE PRIMARY FACTORS UNDERLYING THE
HEALTHY ECONOMY.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION FEARS MOUNTED BECAUSE OF STRONG CONSUMER SPENDING AND THE TIGHT LABOR
MARKET. ALTHOUGH CONSUMER SPENDING DECREASED SLIGHTLY FOR THE LATTER PART OF THE
SECOND QUARTER, RISING INTEREST RATES DID LITTLE TO REIN IN ROBUST CONSUMER
SPENDING FOR MOST OF THE REPORTING PERIOD, AND THE FACTORS UNDERPINNING CONSUMER
ACTIVITY--RISING WAGES AND LOW UNEMPLOYMENT--REMAINED LARGELY UNCHANGED.
THE JOBLESS RATE HOVERED NEAR LOW LEVELS, AND EXPERIENCED LITTLE CHANGE IN JULY,
WITH UNEMPLOYMENT REACHING A LOW OF 4.0 PERCENT, UNCHANGED FROM THE PREVIOUS
MONTH.
INTEREST RATES AND INFLATION
STRONG GDP NUMBERS PROMPTED THE FEDERAL RESERVE BOARD (THE FED) TO EXERCISE
CAUTION BY RAISING INTEREST RATES TO GUARD AGAINST INFLATION AND TEMPER ECONOMIC
GROWTH. THE CONSUMER PRICE INDEX (CPI) ALSO ROSE DURING THE REPORTING PERIOD.
BOTH GDP AND CPI DATA IN THE EARLY PART OF THE REPORTING PERIOD SUPPORTED THE
FED'S INCREASE OF SHORT-TERM RATES. IN THE LATTER PART OF THE REPORTING PERIOD,
HOWEVER, THE FED STOOD FIRM AND TOOK NO ACTION IN CHANGING INTEREST RATES
BECAUSE OF BELIEFS AND SIGNS THAT THE ECONOMY WAS SLOWING.
WHILE MARKETS EXPERIENCED STRONG VOLATILITY, OBSERVERS BELIEVE THAT MARKET
CONDITIONS MAY STABILIZE IF AND WHEN THE FED GROWS COMFORTABLE WITH THE PACE OF
THE ECONOMY AND DECIDES TO CEASE INTEREST-RATE CHANGES.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Jun 98 2.1
Sep 98 3.8
Dec 98 5.9
Mar 99 3.5
Jun 99 2.5
Sep 99 5.7
Dec 99 8.3
Mar 00 4.8
Jun 00 5.3
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(July 31, 1998 -- July 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jul 98 5.50 1.70
5.50 1.60
5.25 1.50
Oct 98 5.00 1.50
4.75 1.50
4.75 1.60
Jan 99 4.75 1.70
4.75 1.60
4.75 1.70
Apr 99 4.75 2.30
4.75 2.10
5.00 2.00
Jul 99 5.00 2.10
5.25 2.30
5.25 2.60
Oct 99 5.25 2.60
5.50 2.60
5.50 2.70
Jan 00 5.50 2.70
5.75 3.20
6.00 3.70
Apr 00 6.00 3.00
6.50 3.10
6.50 3.70
Jul 00 6.50 3.60
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of July 31, 2000)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
<S> <C> <C>
TOTAL RETURNS AND DISTRIBUTION RATE
-----------------------------------------------------------------------
One-year total return(1) 2.27%
-----------------------------------------------------------------------
Life-of-Fund average annual total return(1) 5.06%
-----------------------------------------------------------------------
Commencement date 03/27/98
-----------------------------------------------------------------------
Distribution rate(2) 8.02%
-----------------------------------------------------------------------
SHARE VALUATIONS
-----------------------------------------------------------------------
Net asset value on 07/31/00 $9.58
-----------------------------------------------------------------------
One-year high net asset value (08/02/99) $10.09
-----------------------------------------------------------------------
One-year low net asset value (07/28/00) $9.57
-----------------------------------------------------------------------
</TABLE>
(1) Total return assumes an investment at the beginning of the period indicated,
reinvestment of all distributions for the period, and tender of all shares at
the end of the period indicated, excluding payment of 1% imposed on most shares
accepted by the Fund for repurchase which have been held for less than one year.
If the early withdrawal charge was included, total return would be lower.
(2) Distribution rate is based upon the offering price of $9.58 and the current
monthly dividend of $0.0640 per share as of July 25, 2000.
Past performance is no guarantee of future results. Distribution rates and net
asset value may fluctuate with market conditions. Fund shares, when tendered,
may be worth more or less than their original cost.
This report is intended for shareholders of the Fund and may not be used as
sales literature with prospective investors unless it is preceded or accompanied
by the Fund's current prospectus, which gives more complete information about
risk considerations, charges and expenses, investment objectives, and operating
policies. Prospective investors should read the prospectus carefully before
investing or sending money.
4
<PAGE> 6
PORTFOLIO AT A GLANCE
TOP FIVE PORTFOLIO INDUSTRIES
(as a percentage of total assets--July 31, 2000)
<TABLE>
<S> <C> <C>
Telecommunications--Wireless 7.1%
---------------------------------------------------------------------
Chemicals, Plastics, and Rubber 5.1%
---------------------------------------------------------------------
Printing and Publishing 5.1%
---------------------------------------------------------------------
Health Care 4.4%
---------------------------------------------------------------------
Automotive 4.4%
---------------------------------------------------------------------
</TABLE>
TOP TEN HOLDINGS*
(as a percentage of total assets--July 31, 2000)
<TABLE>
<S> <C> <C>
Allied Waste Industries, Inc. 2.6%
---------------------------------------------------------------------
Agrilink Foods, Inc. 2.0%
---------------------------------------------------------------------
Pacific Crossing, Ltd. 1.6%
---------------------------------------------------------------------
VoiceStream Wireless Corp. 1.6%
---------------------------------------------------------------------
Magnatrax Corp. 1.4%
---------------------------------------------------------------------
Motor Coach Industries International, Inc. 1.4%
---------------------------------------------------------------------
Nextel Finance Co. 1.3%
---------------------------------------------------------------------
Six Flags Theme Parks, Inc. 1.2%
---------------------------------------------------------------------
North American Van Lines, Inc. 1.2%
---------------------------------------------------------------------
Outsourcing Solutions 1.1%
---------------------------------------------------------------------
</TABLE>
* Excludes short-term investments
5
<PAGE> 7
CURRENT DISTRIBUTION
(April 24, 1998--July 25, 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN SENIOR FLOATING RATE
FUND 3-MONTH TREASURY BILL
------------------------------- ---------------------
<S> <C> <C>
4/98 3.9 4.97
6.59 5.01
6.58 5.08
7/98 6.57 5.07
6.57 4.83
6.57 4.36
6.32 4.32
6.06 4.48
6.07 4.45
1/99 6.05 4.45
6.03 4.67
6.52 4.48
6.52 4.54
6.53 4.63
6.52 4.78
7/99 6.52 4.75
6.89 4.97
6.89 4.85
6.91 5.09
6.91 5.3
6.91 5.33
1/00 7.39 5.69
7.45 5.78
7.84 5.87
7.88 5.83
7.93 5.62
7.98 5.85
7/00 8.02 6.22
</TABLE>
NET ASSET VALUE SINCE INCEPTION
(March 27, 1998--July 31, 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN SENIOR FLOATING RATE FUND
------------------------------------
<S> <C>
3/98 10
10.01
10.03
10.04
7/98 10.04
10.04
10.05
10.05
10.05
10.06
1/99 10.08
10.11
10.12
10.11
10.11
10.12
7/99 10.09
10.02
10.01
9.98
9.98
9.93
1/00 9.84
9.82
9.8
9.75
9.68
9.63
7/00 9.58
</TABLE>
Past performance is no guarantee of future results.
6
<PAGE> 8
[PHOTO]
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN SENIOR
FLOATING RATE FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED JULY 31,
2000. THE TEAM IS LED BY HOWARD TIFFEN, SENIOR PORTFOLIO MANAGER, WHO HAS
MANAGED THE FUND SINCE DECEMBER 1999 AND BRINGS MORE THAN 30 YEARS OF GLOBAL AND
DOMESTIC INVESTMENT EXPERIENCE TO VAN KAMPEN'S SENIOR LOAN MANAGEMENT TEAM. THE
FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE
MARKET ENVIRONMENT IN WHICH THE FUND OPERATED, AND HOW DID THE FUND PERFORM
IN THAT ENVIRONMENT DURING THE PAST 12 MONTHS?
A The reporting period was split in
two by the arrival of the much-
anticipated year 2000 transition, which created a tentative market environment
for much of late 1999 and early 2000. Many senior loan issuers expected market
disruptions, so they moved quickly to arrange their financing before the fourth
quarter of 1999. Others preferred to wait until the dust settled, delaying their
senior loan issuance beyond the first weeks of January.
As a result, the volume of new senior loan issuance slowed to a trickle in
December and January. This caution may have been a blessing in disguise, as the
senior loans that subsequently came to market were prudently constructed, with
sound capital structures and sensible leverage levels. The relatively low volume
spurred increased competition for suitable senior loans, providing greater
liquidity and support for loan prices.
The second half of the fund's fiscal year began quietly, due in part to
weakness in the high-yield bond market. Many high-yield investors had lingering
concerns over the record level of defaults in this market in 1999. This caution,
coupled with steadily rising interest rates over the period, put the brakes on
new issuance in the high-yield bond market. Because the senior debt market needs
a healthy capital market for junior debt (which includes high-yield bonds), the
lethargic nature of the high-yield market dragged the senior loan market as
well.
The remainder of the reporting period was healthy and vibrant in terms of
new deal flow for senior loans. Pricing was higher, competition from other
institutional buyers eased, and the market had slightly less liquidity, enabling
us to purchase new senior loans for the fund under significantly better terms
than during the early part of the year.
7
<PAGE> 9
Finally, steadily rising interest rates since June 1999 have translated into
a higher level of income produced by the portfolio, strengthening the fund's
ability to provide shareholders with an attractive monthly dividend.
For the 12 months ended July 31, 2000, the fund had a total return of 2.27
percent based on net asset value. This includes a decrease in net asset value
from $10.09 per share on July 31, 1999, to $9.58 per share on July 31, 2000.
The fund continued to provide shareholders with an attractive level of
current income, as its dividend was increased three times during the fiscal
year, reflecting the steady rise in interest rates during the period. Its
monthly dividend of $.0640 per share translates to a distribution rate of 8.02
percent based on the fund's public offering price on July 31, 2000. Please refer
to the chart and footnotes on page 4 for additional return highlights. As a
result of recent market activity, current performance may vary from the figures
shown. Past performance is no guarantee of future results.
Much of the decline in the fund's net asset value over the period is
associated with defaults that arose among several loans in the portfolio in 1999
and are still being worked out. Historically, nearly every default situation has
resulted in a sudden decline in the perceived value of the defaulted loan,
followed in many cases by a period of gradual recovery, which can take two years
or more. We are confident in the asset recovery process we have in place and the
highly skilled professional staff we have assembled, and we hope for a return to
greater relative stability in the fund's net asset value over the long term.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE FUND DURING THIS PERIOD?
A The alarming rate of defaults that
occurred in the high-yield capital market during the past year continued to
haunt investors and slow the demand for these investments. An increase in
default activity is normally associated with recessionary periods, not times of
strong business activity, so the truly puzzling aspect of the default rate is
that it spiked during a time of positive economic growth. This suggests that
default patterns are less cyclical than one might expect, and that specific
conditions have complicated the credit picture for many senior loan and
high-yield issuers.
For example, the health-care sector was hit hard by falling Medicare
reimbursements from the federal government. The resulting capital drain pushed
five of the seven largest long-term care providers into bankruptcy by the end of
the third fiscal quarter. The impact has been widespread, as many health-related
issuers have defaulted on their debt obligations, and the fund has been
adversely affected by its holdings in this sector. However, as of July 31, 2000,
the fund held only one non-accruing senior loan associated with the health-care
industry (Vencor Operating, a nursing home operator based in Louisville,
Kentucky).
8
<PAGE> 10
After the end of the fiscal year, we sold our investment in Davel, a com-
pany that operates pay phones. This sale resulted in a significant decline in
net asset value in August 2000. The decision to sell and redeploy the proceeds
was predicated on our analysis of the continuing development of the company's
business.
In 1998 and 1999, we also saw sinking commodities prices--for example, the
price of a barrel of oil reached as low as $12, which contrib-
uted to recent difficulties in the energy sector. These factors, combined with
the liquidity crisis brought about by Russia's default on its debt obligations
in August 1998, created an increasing reluctance to commit capital to the debt
markets.
We also had to deal with credit concerns tied to intense competition in the
cinema industry, where overbuilding of new, more luxurious theatres, while
existing theatres were still in service, glutted the market with capacity and
cut into profits. In fact, WestStar Cinemas, one of the fund's non-performing
loans, encountered financial pressures and was sold from the portfolio during
the reporting period.
We will talk later about the increased resources we have deployed to manage
the portfolio. Part of this has been an increased commitment to the still small
but growing secondary market for loans. We have used this to help reduce
exposures and to add new investments to the portfolio at what we think are
attractive values. We have also used the secondary market to lower our exposure
in areas where we believe we should either reduce risk, or where we want to
hedge the outcome from the workout of a difficult investment. Just after the
close of the fiscal year, we sold $46 million of the fund's holding in Iridium,
for example, to reduce our exposure to that workout.
Q WHAT SPECIFIC STRATEGIES DID
YOU EMPLOY IN MANAGING THE PORTFOLIO?
A Our chief focus was on increasing
the diversification of the fund's portfolio, as we believe this is one of the
most important defenses against the potential for principal loss due to loan
defaults. This is particularly important to this portfolio, which at one time
had a high concentration of assets in a relatively small number of senior loan
issues, which made it more sensitive to the impact of defaults.
While senior loans do have the inherent strengths of collateral coverage and
senior capital positions, we believe increased diversification is a key to our
strategy. A highly concentrated portfolio may be more susceptible to negative
surprises, so we reduced the percentage of portfolio assets allocated to each of
the fund's top 10 holdings, while increasing the range of the fund's investments
across the board. We strictly limited the concentration of fund assets in any
one issuer.
We expanded the fund's portfolio holdings to include 165 separate issues, up
from 122 issues in January. The fund's top 10 holdings fell during the fiscal
year from 27.1 to 15.4 percent of total assets. With these changes, we greatly
reduced short-term holdings and the cash position of the portfolio to just 5.3
percent of net assets as of
9
<PAGE> 11
July 31, 2000, down from 19.8 percent at the beginning of the reporting period.
Of course, there can be no assurance that this strategy will protect against
market decline.
Aside from these strategic moves, we nearly doubled the size of our senior
loan staff, adding a depth and breadth of experience. Our team, which has grown
to include 18 analysts with an average of 17 years of experience, has been
around long enough to witness several market cycles, giving them a broad
understanding of the dynamics of the senior loan market. In addition, we
increased our value recovery group, establishing a highly experienced senior
loan group.
Q WHAT IS YOUR OUTLOOK FOR THE
MARKET AND THE FUND IN THE MONTHS AHEAD?
A We anticipate a stable to slightly
rising interest-rate environment, as long as economic growth remains steady but
unspectacular and inflation remains in check. Continued relatively modest demand
for senior loans should help support yields.
Also, we expect the recent discipline within the senior loan market to
continue, sustaining the supply of new senior loans with solid credit
structures, prudent loan covenants, and sensible leverage levels. Default rates
have moderated and should remain at reasonable levels more closely aligned with
the market's historical default rate.
We believe the portfolio is well-positioned for the future. The senior loan
asset class should continue to be a defensive investment, an inflation hedge,
and an attractive choice for portfolio diversification.
10
<PAGE> 12
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
DIVERSIFICATION: A method of portfolio allocation and management aimed at
balancing investment risk and return; a balanced portfolio may combine stocks,
bonds, and cash equivalents.
DIVIDEND: A distribution of earnings. Dividends may be in the form of cash,
stock, or property.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic indicator
that measures the change in the cost of purchased goods and services.
LIQUIDITY: The ease with which an investor can buy or sell a security at a
reasonable price.
PORTFOLIO: A collection of securities owned by an individual or an institution
that may include stocks, bonds, and money-market securities.
SECTOR: A group of securities that are similar with respect to industry,
maturity, credit rating, or coupon.
SENIOR LOANS: Loans or other debt securities that are given preference to junior
securities of the borrower. In the event of bankruptcy, payments to holders of
senior loan obligations are given priority over payments to holders of
subordinated debt, as well as shareholders of preferred and common stock. Senior
loans may share priority status with other senior securities of the borrower,
although such status is not a guarantee that monies to which the fund is
entitled will be paid.
YIELD: The annual rate of return on an investment, expressed as a percentage.
11
<PAGE> 13
A FOCUS ON SENIOR LOANS
The Senior Floating Rate Fund invests primarily in senior collateralized
loans to corporations, partnerships, and other business entities that operate in
a variety of industries and geographic locations. Senior loans have a number of
characteristics that, in the opinion of the fund's management team, are
important to the integrity of the fund's portfolio. These include:
SENIOR STANDING
With respect to interest payments, senior loans generally have priority over
other classes of loans, preferred stock, or common stocks, though they may have
equal status with other securities of the borrower. This status is not a
guarantee, however, that monies to which the fund is entitled will be paid. If
they are not fully paid, it potentially could have a negative effect on the
fund's net asset value. For more details, please refer to the prospectus.
COLLATERAL BACKING
Senior loans are often secured by collateral that has been pledged by the
borrower under the terms of a loan agreement. Forms of collateral include
trademarks, accounts receivable or inventory, buildings, real estate,
franchises, and common and preferred stock in subsidiaries and affiliates. Under
certain circumstances, collateral might not be entirely sufficient to satisfy
the borrower's obligations in the event of non-payment of scheduled interest or
principal, and in some instances may be difficult to liquidate on a timely
basis.
Additionally, a decline in the value of the collateral could cause the loan
to become substantially undersecured, and circumstances could arise (such as
bankruptcy of a borrower) that could cause the fund's security interest in the
loan's collateral to be invalidated. This could potentially have a negative
effect on the fund's net asset value.
CREDIT QUALITY
Many senior loans carry provisions designed to protect the lender in certain
circumstances. In addition, the variable-rate nature of the portfolio is
expected to lessen the fluctuation in the fund's net asset value. However, the
net asset value will still be subject to the influence of changes in the real or
perceived credit quality of the loans in which the fund invests. This may occur,
for example, in the event of a sudden or extreme increase in prevailing interest
rates, a default in a loan in which the fund holds an interest, or a substantial
deterioration in the borrower's creditworthiness. From time to time, the fund's
net asset value may be more or less than at the time of the investment.
SPECIAL CONSIDERATIONS
Under normal market conditions, the fund may invest up to 20 percent of its
assets in senior loans that are not secured by any specific collateral. In
addition, up to 20 percent of its assets may be invested in senior loans made to
non-U.S. borrowers, although these loans must be U.S.-dollar denominated.
12
<PAGE> 14
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
July 31, 2000
THE FOLLOWING PAGES DETAIL THE PORTFOLIO OF INVESTMENTS OF YOUR FUND AT THE END
OF THE REPORTING PERIOD.(1)
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
VARIABLE RATE** SENIOR LOAN INTERESTS 94.1%
AEROSPACE/DEFENSE 1.8%
$ 4,782 Aerostructures Corp.,
Term Loan............... NR BB- 12/31/03 $ 4,720,699
13,780 Decrane Finance Co.,
Term Loan............... B2 B+ 09/30/05 13,781,452
7,432 Stellex Technologies,
Inc., Term Loan......... Caa1 CCC- 09/30/06 7,431,818
--------------
25,933,969
--------------
AUTOMOTIVE 4.4%
5,042 Breed Technologies,
Inc., Term
Loan (a) (b)............ NR NR 09/30/00 to 04/27/06 2,319,253
648 Breed Technologies,
Inc., Revolving Credit
Agreement (a) (b)....... NR NR 04/27/04 298,073
284 Breed Technologies,
Inc., Debtor In
Possession (b).......... NR NR 09/30/00 284,335
4,985 Exide Corp., Term
Loan.................... Ba3 B+ 03/18/05 4,997,461
12,548 J.L. French Automotive
Castings, Inc., Term
Loan.................... B1 B+ 10/21/06 12,430,776
7,500 Meridian Automotive
Systems, Inc., Term
Loan.................... B1 BB- 03/31/07 7,490,853
9,900 Metalforming
Technologies, Inc., Term
Loan.................... NR NR 06/30/06 9,899,956
4,000 Polypore, Inc., Term
Loan.................... Ba3 B+ 12/31/06 4,000,014
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
AUTOMOTIVE (CONTINUED)
$ 9,947 Safelite Glass Corp.,
Term Loan (a) (b)....... Caa1 NR 12/23/03 to 12/23/05 $ 5,468,191
3,144 Safelite Glass Corp.,
Revolving Credit
Agreement (a) (b)....... Caa1 NR 12/23/03 1,728,394
15,000 Tenneco Automotive,
Inc., Term Loan......... Ba3 BB 11/04/07 to 07/04/08 14,899,680
--------------
63,816,986
--------------
BEVERAGE, FOOD & TOBACCO 2.6%
28,741 Agrilink Foods, Inc.,
Term Loan............... B1 B+ 09/30/04 to 09/30/05 28,740,512
9,250 B & G Foods, Inc., Term
Loan.................... B1 B+ 03/31/06 9,245,946
--------------
37,986,458
--------------
BROADCASTING--CABLE 0.5%
6,975 Fairchild Corp., Term
Loan.................... Ba3 BB- 04/30/06 6,975,039
--------------
BROADCASTING--DIVERSIFIED 1.0%
10,000 Comcorp Broadcasting,
Inc., Term Loan......... NR NR 06/30/07 10,000,024
4,550 White Knight
Broadcasting, Inc., Term
Loan.................... NR NR 06/30/07 4,550,011
--------------
14,550,035
--------------
BROADCASTING--RADIO 0.5%
7,000 Cumulus Media, Inc.,
Term Loan............... B1 B+ 09/30/07 to 02/28/08 7,000,000
--------------
BROADCASTING--TELEVISION 1.2%
7,960 Quoram Broadcasting,
Inc., Term Loan......... NR NR 09/30/07 7,959,965
8,833 Sinclair Broadcast
Group, Inc., Term
Loan.................... Ba2 BB- 09/15/05 8,834,182
--------------
16,794,147
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
BUILDINGS & REAL ESTATE 1.3%
$ 4,929 Builders FirstSource,
Inc., Term Loan......... NR BB- 12/30/05 $ 4,929,731
1,491 Crescent Real Estate
Equities Co., Term
Loan.................... NR NR 02/01/04 1,483,104
6,000 Morrison Knudsen Corp.,
Term Loan............... Ba1 NR 08/14/00 5,996,250
7,450 Prison Realty Trust,
Inc., Term Loan......... B3 B 12/31/02 7,286,816
--------------
19,695,901
--------------
CHEMICAL, PLASTICS & RUBBER 5.1%
4,247 Applied Tech Management
Corp., Term Loan........ B1 NR 04/30/07 4,231,088
4,962 Georgia Gulf Corp., Term
Loan.................... Ba1 BBB- 11/12/06 4,996,100
4,628 Huntsman Group Holdings,
Term Loan............... Ba2 NR 04/01/02 4,613,284
1,026 Huntsman Group Holdings,
Revolving Credit
Agreement............... Ba2 NR 12/31/02 1,025,812
4,950 Huntsman ICI Chemicals
LLC, Term Loan.......... Ba3 BB 06/30/07 to 06/30/08 4,987,407
14,081 Lyondell Petrochemical
Co., Term Loan.......... Ba3 NR 06/30/05 to 05/17/06 14,447,930
4,975 MetoKote Corp., Term
Loan.................... NR NR 11/02/05 4,975,703
10,000 Nutrasweet Co., Term
Loan.................... Ba3 NR 05/25/07 to 05/25/09 9,988,086
2,993 Om Group, Inc., Term
Loan.................... NR NR 03/31/07 2,999,981
8,025 Pioneer Americas
Acquisition Corp., Term
Loan.................... B3 B 12/31/06 8,024,117
6,220 Sterling Pulp Chemicals,
Inc., Term Loan......... B3 BB- 09/30/04 6,220,670
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
CHEMICAL, PLASTICS & RUBBER (CONTINUED)
$ 3,990 Sybron Chemicals, Inc.,
Term Loan............... NR NR 07/31/04 $ 3,977,631
5,713 West American Rubber,
Term Loan............... NR NR 06/30/05 3,999,100
--------------
74,486,909
--------------
CONSTRUCTION MATERIALS 3.4%
875 Dayton Superior Corp.,
Term Loan............... Ba3 BB- 06/01/08 872,920
5,538 Flextek Components,
Inc., Term Loan (a)..... NR NR 08/31/03 3,045,808
8,479 Formica Corp., Term
Loan.................... B1 B+ 04/30/06 8,491,998
7,180 Hexcel Corp., Term
Loan.................... Ba3 BB- 09/14/05 7,171,891
20,731 Magnatrax Corp., Term
Loan.................... NR NR 11/15/05 20,731,053
9,900 Mueller Group, Inc.,
Term Loan............... B1 B+ 08/16/06 to 08/16/07 9,924,750
--------------
50,238,420
--------------
CONTAINERS, PACKAGING & GLASS 3.7%
10,905 Dr. Pepper/Seven-Up
Cos., Inc., Term Loan... NR NR 10/07/07 10,910,363
10,000 Huntsman Packaging
Corp., Term Loan........ B1 BB- 05/31/08 10,031,250
10,000 LLS Corp., Term Loan.... B1 B+ 07/31/06 10,000,534
14,850 Mediapak Corp., Term
Loan.................... NR NR 12/31/05 to 12/31/06 14,851,104
3,894 Stone Container Corp.,
Term Loan............... Ba3 B+ 10/01/03 3,906,148
5,000 Tekni-Plex, Inc., Term
Loan.................... Ba3 B+ 06/26/08 5,028,125
--------------
54,727,524
--------------
DIVERSIFIED MANUFACTURING 1.8%
4,938 Blount, Inc., Term
Loan.................... B1 B+ 09/30/06 4,965,337
12,500 Citation Corp., Term
Loan.................... NR B+ 12/01/07 12,501,694
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
DIVERSIFIED MANUFACTURING (CONTINUED)
$ 3,990 Tritech Precision, Inc.,
Term Loan............... B1 B+ 03/28/07 $ 3,968,996
4,983 UCAR Global Enterprises,
Inc., Term Loan......... Ba3 BB- 12/31/07 4,981,778
--------------
26,417,805
--------------
ECOLOGICAL 2.8%
40,000 Allied Waste Industries,
Inc., Term Loan......... Ba3 BB 07/23/06 to 07/23/07 38,545,600
3,180 Safety-Kleen Corp., Term
Loan (a) (b)............ NR NR 04/03/05 to 04/03/06 2,162,215
--------------
40,707,815
--------------
ELECTRONICS 3.5%
7,131 Amphenol Corp., Term
Loan.................... Ba2 BB 05/19/04 7,031,038
5,355 Dynamic Details, Inc.,
Term Loan............... B1 B+ 04/22/05 5,355,242
9,914 EG&G Technical Services,
Inc., Term Loan......... B1 NR 08/20/07 9,913,772
9,844 Stratus Computers, Inc.,
Term Loan............... NR NR 02/26/05 9,856,055
5,000 Stream International
Holdings, Inc., Term
Loan.................... NR NR 12/31/06 5,000,177
5,928 Superior Telcom, Inc.,
Term Loan............... Ba3 B+ 11/27/05 5,910,433
8,000 Viasystems, Inc., Term
Loan.................... B1 BB- 03/31/07 7,996,248
--------------
51,062,965
--------------
ENTERTAINMENT & LEISURE 4.2%
9,930 Aspen Marketing Group,
Term Loan............... NR NR 06/30/06 9,930,697
15,936 Fitness Holdings
Worldwide, Inc., Term
Loan.................... NR B+ 11/02/06 to 11/02/07 15,789,384
15,000 SFX Entertainment, Inc.,
Term Loan............... B1 NR 06/30/06 15,015,000
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
ENTERTAINMENT & LEISURE (CONTINUED)
$ 17,000 Six Flags Theme Parks,
Inc., Term Loan......... Ba2 B+ 09/30/05 $ 17,111,571
3,185 True Temper Sports,
Inc., Term Loan......... B1 BB- 09/30/05 3,185,171
--------------
61,031,823
--------------
FINANCE 2.8%
7,305 Bridge Information
Systems, Inc., Term
Loan.................... NR NR 05/29/05 7,306,036
16,873 Outsourcing Solutions,
Term Loan............... B2 BB- 06/01/06 16,832,951
10,000 Paul G. Allen, Term
Loan.................... NR NR 06/10/03 9,995,667
6,000 Sovereign Bancorp, Inc.,
Term Loan............... Ba3 NR 11/14/03 6,022,500
--------------
40,157,154
--------------
GROCERY 0.5%
7,523 The Pantry, Inc., Term
Loan.................... B1 BB- 01/31/06 7,523,400
--------------
HEALTHCARE 4.5%
6,300 Charles River
Laboratories, Inc., Term
Loan.................... B1 B+ 09/29/07 6,300,000
5,000 Columbia/HCA Healthcare
Corp., Term Loan........ NR NR 09/13/01 4,946,882
14,925 Dade Behring, Inc., Term
Loan.................... Ba3 B+ 06/30/06 to 06/30/07 14,924,193
8,055 LifePoint Hospitals,
Inc., Term Loan......... B1 B+ 11/11/05 8,059,796
9,975 National Nephrology
Associates, Inc., Term
Loan.................... B1 B+ 12/31/05 9,975,373
4,944 Unilab Corp., Term
Loan.................... B1 B+ 11/23/06 4,945,092
18,119 Vencor, Inc., Term
Loan (a) (b)............ NR NR 01/15/05 15,763,783
--------------
64,915,119
--------------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
HOME & OFFICE FURNISHINGS, HOUSEWARES & DURABLE CONSUMER
PRODUCTS 2.1%
$ 16,043 Imperial Home Decor
Group, Inc., Term
Loan (a) (b)............ NR NR 03/12/04 to 03/13/06 $ 9,306,205
5,355 Imperial Home Decor
Group, Inc., Revolving
Credit
Agreement (a) (b)....... NR NR 03/12/04 3,103,405
4,913 Medical Arts Press,
Inc., Term Loan......... NR NR 05/16/06 4,912,061
13,402 Rent-A-Center, Inc.,
Term Loan............... Ba3 BB- 01/31/06 to 12/31/07 13,359,207
--------------
30,680,878
--------------
HOTELS, MOTELS, INNS & GAMING 3.5%
10,000 Aladdin Gaming LLC, Term
Loan.................... B2 NR 08/25/06 10,000,007
15,000 Extended Stay America,
Inc., Term Loan......... Ba3 NR 12/31/03 to 06/30/07 14,961,470
9,973 FelCor Lodging LP, Term
Loan.................... Ba2 BB 03/31/04 9,931,774
3,491 Isle Of Capri Casinos,
Inc., Term Loan......... Ba2 BB- 03/02/06 to 03/02/07 3,510,578
5,500 Las Vegas Sands, Inc.,
Term Loan............... NR B+ 07/31/04 5,479,858
7,569 Meditrust Corp.,
Revolving Credit
Agreement............... NR NR 07/17/01 7,569,735
--------------
51,453,422
--------------
INSURANCE 0.3%
5,000 Brera Gab Robins, Inc.,
Term Loan............... NR NR 12/01/05 5,000,104
--------------
MACHINERY 4.0%
3,000 Alliance Laundry Systems
LLC, Term Loan.......... B1 B+ 06/30/05 2,985,000
15,000 Ashtead Group PLC, Term
Loan.................... NR NR 06/01/07 14,913,506
4,970 Coinmach Corp., Term
Loan.................... NR BB- 12/31/04 to 06/30/05 4,951,912
7,323 Gleason Corp., Term
Loan.................... NR NR 02/18/08 7,305,005
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
MACHINERY (CONTINUED)
$ 15,000 Ocean Rig (Norway), Term
Loan.................... NR NR 06/01/08 $ 15,001,271
9,834 Terex Corp., Term
Loan.................... Ba3 BB- 03/06/06 9,844,058
3,000 Weigh-Tronix LLC, Term
Loan.................... NR NR 06/30/07 2,985,000
--------------
57,985,752
--------------
MEDICAL PRODUCTS & SUPPLIES 1.9%
15,000 Alliance Imaging, Inc.,
Term Loan............... B1 NR 11/02/07 to 11/02/08 14,887,500
5,162 Stryker Corp., Term
Loan.................... Ba2 BB 12/04/05 5,186,488
7,860 Wilson Greatbatch, Ltd.,
Term Loan............... NR NR 07/30/04 7,860,229
--------------
27,934,217
--------------
MINING, STEEL, IRON & NON-PRECIOUS METALS 1.1%
15,770 Ispat Inland, Term
Loan.................... Ba3 BB 07/16/05 to 07/16/06 15,702,066
--------------
NATURAL RESOURCES 0.2%
3,268 P&L Coal Holdings Corp.,
Term Loan............... Ba2 NR 06/30/06 3,263,400
--------------
NON-DURABLE CONSUMER GOODS 0.1%
997 American Safety Razor
Co., Term Loan.......... B1 B+ 04/30/07 994,157
--------------
PAPER & FOREST PRODUCTS 0.6%
8,745 Pacifica Papers, Inc.,
Term Loan............... Ba2 BB 03/12/06 8,788,725
--------------
PERSONAL & MISCELLANEOUS SERVICES 1.6%
917 Boyds Collection, Ltd.,
Term Loan............... Ba3 B+ 04/21/06 911,107
18,762 Davel Financing Co. LLC,
Term Loan (c)........... NR NR 06/23/05 3,002,000
13,500 DIMAC Corp., Term
Loan (b)................ NR NR 06/30/06 to 12/30/06 10,935,000
9,525 Telespectrum Worldwide,
Inc., Term Loan......... NR NR 12/31/01 to 12/31/03 9,527,735
--------------
24,375,842
--------------
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
PHARMACEUTICALS 0.6%
$ 8,620 King Pharmaceuticals,
Inc., Term Loan......... B1 BB- 12/18/06 $ 8,631,508
--------------
PRINTING & PUBLISHING 5.1%
5,000 21st Century Newspaper,
Term Loan............... B3 NR 09/15/05 4,981,536
6,380 Advanstar
Communications, Term
Loan.................... Ba3 B+ 04/30/05 6,379,673
4,988 American Reprographics,
Term Loan............... NR NR 03/31/08 4,942,311
5,990 Big Flower Press
Holdings, Inc., Term
Loan.................... B1 NR 12/06/08 6,012,651
4,898 Check Printers, Inc.,
Term Loan............... NR NR 06/30/05 4,897,963
8,500 Commerce Connect Media,
Term Loan............... NR NR 12/31/07 8,457,877
9,950 Haights Cross Comm.
Operating Co., Term
Loan.................... B2 B+ 12/10/06 9,951,490
5,000 Liberty Group Operating,
Inc., Term Loan......... B1 B 03/31/07 4,987,828
6,429 Penton Media, Inc., Term
Loan.................... Ba3 BB- 06/30/07 6,428,789
4,980 Reiman Publications,
Inc., Term Loan......... NR NR 12/10/05 4,999,492
4,081 TWP LP, Term Loan....... Ba3 B+ 10/01/04 4,080,543
6,000 Vutek, Inc., Term
Loan.................... NR NR 06/30/07 5,962,500
2,495 Ziff-Davis Media, Inc.,
Term Loan............... Ba3 B+ 03/31/07 2,499,050
--------------
74,581,703
--------------
RESTAURANTS & FOOD SERVICE 0.6%
3,120 Americas Favorite
Chicken, Inc., Term
Loan.................... Ba3 BB- 06/30/02 3,120,307
1,384 Carvel Corp., Term
Loan.................... NR NR 06/30/01 1,383,744
4,354 Domino's Pizza, Term
Loan.................... B1 B+ 12/21/06 to 12/21/07 4,372,268
--------------
8,876,319
--------------
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
RETAIL--OFFICE PRODUCTS 1.0%
$ 6,540 Buhrmann U.S., Inc.,
Term Loan............... Ba3 BB- 10/26/07 $ 6,556,445
8,804 U.S. Office Products
Co., Term Loan.......... Caa1 CCC+ 06/09/06 8,363,623
--------------
14,920,068
--------------
RETAIL--OIL & GAS 1.8%
7,433 Barjan Products LLC,
Term Loan............... NR NR 05/31/06 7,396,501
5,000 Kwik Trip, Inc., Term
Loan.................... NR NR 07/27/07 4,987,500
5,000 Port Arthur Coker Co.,
Term Loan............... Ba3 NR 07/15/07 4,743,876
9,288 Superior Energy
Services, Inc., Term
Loan.................... Ba3 BB- 06/30/06 9,288,760
--------------
26,416,637
--------------
RETAIL--STORES 2.5%
14,738 Duane Reade, Inc., Term
Loan.................... B1 B+ 02/15/06 14,738,547
7,087 Kirklands, Holdings,
Term Loan............... NR NR 06/30/02 7,087,096
14,000 Rite Aid Corp., Term
Loan.................... Ba3 B 08/01/02 13,930,003
--------------
35,755,646
--------------
TELECOMMUNICATIONS--LOCAL EXCHANGE CARRIERS 2.2%
2,973 Alaska Communications
Systems Holdings, Inc.,
Term Loan............... B1 BB 11/14/07 to 05/14/08 2,974,559
5,000 Cincinnati Bell, Inc.,
Term Loan............... Ba1 NR 12/30/06 5,010,115
7,000 McLeodUSA, Inc., Term
Loan.................... Ba2 BB- 05/31/08 7,015,624
11,743 Orius Corp., Term
Loan.................... NR B+ 12/14/06 11,744,126
5,000 Rural Cellular Corp.,
Term Loan............... B1 B+ 10/03/08 to 04/03/09 4,994,375
--------------
31,738,799
--------------
TELECOMMUNICATIONS--LONG DISTANCE 1.6%
24,000 Pacific Crossing, Ltd.,
Term Loan............... NR NR 07/28/06 24,000,000
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
TELECOMMUNICATIONS--PAGING 0.8%
$ 10,973 TSR Wireless LLC, Term
Loan.................... NR NR 06/30/05 $ 10,972,500
--------------
TELECOMMUNICATIONS--WIRELESS 7.2%
5,000 American Cellular Corp.,
Term Loan............... Ba3 B+ 03/31/08 to 03/31/09 5,000,390
15,000 BCP SP Ltd., Term Loan.. NR NR 03/31/00 to 03/31/05 14,851,437
5,000 Crown Castle
International Corp.,
Term Loan............... Ba3 BB- 03/15/08 5,015,180
53,996 Iridium Operating LLC,
Term Loan (a) (b)....... NR D 12/29/00 11,879,117
19,500 Nextel Finance Co., Term
Loan.................... Ba2 BB- 06/30/08 to 03/31/09 19,554,599
15,000 Nextel Partners, Inc.,
Term Loan............... Ba2 B- 07/29/08 15,081,255
5,000 Telecorp PCS, Inc., Term
Loan.................... B2 NR 12/05/07 4,994,790
23,250 VoiceStream Wireless
Corp., Term Loan........ B1 B+ 02/25/08 to 02/25/09 23,147,950
5,000 Western Wireless Corp.,
Term Loan............... Ba2 BB 09/30/08 5,021,250
--------------
104,545,968
--------------
TEXTILES & LEATHER 3.7%
8,113 American Marketing
Industries, Inc., Term
Loan.................... NR NR 11/30/04 to 11/30/05 8,114,153
1,645 GFSI, Inc., Term Loan... Ba3 NR 03/31/04 1,628,674
18,955 Glenoit Corp., Term
Loan (c)................ Caa1 D 12/31/03 to 06/30/04 16,682,696
5,400 Humphrey's, Inc., Term
Loan.................... NR NR 01/15/03 3,832,952
3,370 Jo-Ann Fabrics Corp.,
Term Loan............... Ba3 BB- 06/30/05 3,353,361
4,968 Norcorp, Inc., Term
Loan.................... NR NR 05/30/06 to 11/30/06 4,968,252
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL BANK LOAN
AMOUNT RATINGS+
(000) BORROWER MOODY'S S&P STATED MATURITY* VALUE
<C> <S> <C> <C> <C> <C>
TEXTILES & LEATHER (CONTINUED)
$ 13,755 Norcross Safety
Products, Term Loan..... NR NR 10/02/05 $ 13,750,181
2,000 Sleepmaster LLC, Term
Loan.................... B1 BB- 12/31/06 1,992,507
--------------
54,322,776
--------------
TRANSPORTATION--CARGO 2.6%
4,903 Atlas Freighter Leasing,
Term Loan............... NR NR 04/20/05 to 04/20/06 4,884,325
3,936 Evergreen International
Aviation, Inc., Term
Loan.................... NR NR 05/02/04 3,901,303
3,783 Gemini Leasing, Inc.,
Term Loan............... B1 NR 08/12/05 3,783,888
16,915 North American Van
Lines, Inc., Term
Loan.................... B1 B+ 11/18/07 16,915,000
8,018 OmniTrax Railroads LLC,
Term Loan............... NR NR 05/14/05 8,019,343
--------------
37,503,859
--------------
TRANSPORTATION--PERSONAL 2.1%
9,973 Avis Rent A Car, Inc.,
Term Loan............... Ba3 BB+ 06/30/06 to 06/30/07 9,982,030
19,976 Motor Coach Industries
International, Inc.,
Term Loan............... Ba3 BB- 06/15/06 19,979,456
--------------
29,961,486
--------------
TRANSPORTATION--RAIL MANUFACTURING 0.2%
2,993 RailWorks Corp., Term
Loan.................... B1 BB- 09/30/06 3,014,955
--------------
UTILITIES 1.1%
10,000 AES Texas Funding LLC,
Term Loan............... Ba1 NR 04/24/01 10,001,126
6,000 Western Resources, Inc.,
Term Loan............... NR NR 03/17/03 6,025,500
--------------
16,026,626
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 94.1%
(Cost $1,456,565,453).................................................... 1,371,468,882
--------------
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
YOUR FUND'S INVESTMENTS
July 31, 2000
<TABLE>
<CAPTION>
DESCRIPTION VALUE
<C> <S> <C> <C> <C> <C>
COMMERCIAL PAPER 5.4%
Armstrong World Industries, Inc. ($10,000,000 par, maturing 08/09/00,
yielding 6.67%).............................................................. $ 9,985,178
Ashland, Inc. ($20,000,000 par, maturing 08/04/00, yielding 6.67%)........... 19,988,883
Bridgestone/Firestone, Inc. ($2,300,000 par, maturing 08/02/00, yielding
6.50%)....................................................................... 2,299,585
Federated Department Stores, Inc. ($10,000,000 par, maturing 08/02/00,
yielding 6.67%).............................................................. 9,998,147
Hunt (J.B.) Transportation Services, Inc. ($5,000,000 par, maturing 08/03/00,
yielding 6.70%).............................................................. 4,998,139
Mallinckrodt, Inc. ($11,500,000 par, maturing 08/01/00, yielding 6.75%)...... 11,500,000
Temple Inland, Inc. ($3,400,000 par, maturing 08/01/00, yielding 6.78%)...... 3,400,000
Texas Utilities Co. ($10,000,000 par, maturing 08/01/00, yielding 6.68%)..... 10,000,000
Xtra, Inc. ($6,000,000 par, maturing 08/07/00, yielding 6.70%)............... 5,993,300
--------------
TOTAL COMMERCIAL PAPER 5.4%
(Cost $78,163,232)......................................................... 78,163,232
--------------
TOTAL INVESTMENTS 99.5%
(Cost $1,534,728,685)...................................................... 1,449,632,114
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%.................................. 7,976,494
--------------
NET ASSETS 100.0%........................................................... $1,457,608,608
==============
</TABLE>
NR=Not Rated
+ Bank loans rated below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poor's Group are considered to be below investment grade.
(Unaudited)
1 Industry percentages are calculated as a percentage of net assets.
(a) This Senior Loan interest is non-income producing.
(b) This Borrower has filed for protection in federal bankruptcy court.
(c) Subsequent to July 31, 2000, this borrower has filed for protection in
federal bankruptcy court.
See Notes to Financial Statements
25
<PAGE> 27
YOUR FUND'S INVESTMENTS
July 31, 2000
* Senior Loans in the Fund's portfolio generally are subject to mandatory
and/or optional prepayment. Because of these mandatory prepayment conditions
and because there may be significant economic incentives for a Borrower to
prepay, prepayments of Senior Loans in the Fund's portfolio may occur. As a
result, the actual remaining maturity of Senior Loans held in the Fund's
portfolio may be substantially less than the stated maturities shown.
Although the Fund is unable to accurately estimate the actual remaining
maturity of individual Senior Loans, the Fund estimates that the actual
average maturity of the Senior Loans held in its portfolio will be
approximately 18-24 months.
** Senior Loans in which the Fund invests generally pay interest at rates
which are periodically redetermined by reference to a base lending rate
plus a premium. These base lending rates are generally (i) the lending rate
offered by one or more major European banks, such as the London Inter-Bank
Offered Rate ("LIBOR"), (ii) the prime rate offered by one or more major
United States banks and (iii) the certificate of deposit rate. Senior loans
are generally considered to be restricted in that the Fund ordinarily is
contractually obligated to receive approval from the Agent Bank and/or
borrower prior to the disposition of a Senior Loan.
See Notes to Financial Statements
26
<PAGE> 28
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
July 31, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,534,728,685)..................... $1,449,632,114
Receivables:
Interest.................................................. 11,031,886
Fund Shares Sold.......................................... 2,678,181
Prepaid Expenses............................................ 516,136
Other....................................................... 33,624
--------------
Total Assets.......................................... 1,463,891,941
==============
LIABILITIES:
Payables:
Income Distributions...................................... 1,880,672
Custodian Bank............................................ 1,527,645
Investment Advisory Fee................................... 1,233,040
Distributor and Affiliates................................ 374,049
Administrative Fee........................................ 344,154
Fund Shares Repurchased................................... 51,789
Initial Offering and Registration Costs................... 41,558
Accrued Expenses............................................ 764,381
Trustees' Deferred Compensation and Retirement Plans........ 66,045
--------------
Total Liabilities..................................... 6,283,333
--------------
NET ASSETS.................................................. $1,457,608,608
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 152,178,276 shares issued and
outstanding).............................................. $ 1,521,783
Paid in Surplus............................................. 1,534,716,501
Accumulated Undistributed Net Investment Income............. 3,604,417
Accumulated Net Realized Gain............................... 2,862,478
Net Unrealized Depreciation................................. (85,096,571)
--------------
NET ASSETS.................................................. $1,457,608,608
==============
NET ASSET VALUE PER COMMON SHARE ($1,457,608,608 divided by
152,178,276 shares outstanding)........................... $ 9.58
==============
</TABLE>
See Notes to Financial Statements
27
<PAGE> 29
Statement of Operations
For the Year Ended July 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $140,920,030
Fees........................................................ 33,586
Other....................................................... 2,077,389
------------
Total Income............................................ 143,031,005
------------
EXPENSES:
Investment Advisory Fee..................................... 15,073,901
Administrative Fee.......................................... 3,966,816
Service Fee................................................. 2,380,090
Shareholder Services........................................ 1,159,712
Custody..................................................... 674,541
Legal....................................................... 622,791
Amortization of Organizational Costs........................ 102,254
Trustees' Fees and Related Expenses......................... 76,608
Other....................................................... 2,002,678
------------
Total Expenses.......................................... 26,059,391
------------
NET INVESTMENT INCOME....................................... $116,971,614
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 3,089,393
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (911,892)
End of the Period......................................... (85,096,571)
------------
Net Unrealized Depreciation During the Period............... (84,184,679)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(81,095,286)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 35,876,328
============
</TABLE>
See Notes to Financial Statements
28
<PAGE> 30
Statement of Changes in Net Assets
For the Years Ended July 31, 2000 and 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 1999
--------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 116,971,614 $ 58,912,884
Net Realized Gain................................ 3,089,393 891,210
Net Unrealized Depreciation During the Period.... (84,184,679) (1,472,606)
-------------- --------------
Change in Net Assets from Operations............. 35,876,328 58,331,488
-------------- --------------
Distributions from Net Investment Income......... (116,807,793) (56,436,224)
Distributions from Net Realized Gain............. (1,076,619) (39,076)
-------------- --------------
Total Distributions.......................... (117,884,412) (56,475,300)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... (82,008,084) 1,856,188
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................ 568,093,865 1,133,265,976
Net Asset Value of Shares Issued Through Dividend
Reinvestment................................... 81,211,399 39,411,306
Cost of Shares Repurchased....................... (581,641,209) (114,016,137)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................... 67,664,055 1,058,661,145
-------------- --------------
TOTAL INCREASE/DECREASE IN NET ASSETS............ (14,344,029) 1,060,517,333
NET ASSETS:
Beginning of the Period.......................... 1,471,952,637 411,435,304
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of
$3,604,417 and $3,303,975, respectively)....... $1,457,608,608 $1,471,952,637
============== ==============
</TABLE>
See Notes to Financial Statements
29
<PAGE> 31
Statement of Cash Flows
For the Year Ended July 31, 2000
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 35,876,328
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Decrease in Investments at Value.......................... 1,117,270
Increase in Interest Receivable........................... (3,545,844)
Decrease in Receivable for Funding Fee.................... 250,000
Increase in Prepaid Expenses.............................. (267,501)
Decrease in Unamortized Organizational Costs.............. 102,254
Increase in Other Assets.................................. (20,882)
Increase in Investment Advisory Fees Payable.............. 38,183
Increase in Administrative Fees Payable................... 10,048
Increase in Distributor & Affiliates Payable.............. 52,836
Increase in Accrued Expenses.............................. 501,409
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 31,603
-------------
Total Adjustments....................................... (1,730,624)
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 34,145,704
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 584,707,828
Change in Intra-day Credit Line with Custodian Bank......... (565,467)
Payments on Shares Repurchased.............................. (581,589,420)
Cash Dividends Paid......................................... (35,622,026)
Capital Gain Distributions Paid............................. (1,076,619)
-------------
Net Cash Provided by Financing Activities................. (34,145,704)
-------------
NET INCREASE IN CASH........................................ -0 -
Cash at Beginning of the Period............................. -0 -
-------------
CASH AT END OF THE PERIOD................................... $ -0 -
=============
</TABLE>
See Notes to Financial Statements
30
<PAGE> 32
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
MARCH 27, 1998
(COMMENCEMENT
YEAR ENDED JULY 31, OF INVESTMENT
------------------------- OPERATIONS) TO
2000 1999 JULY 31, 1998
-------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD..... $ 10.09 $ 10.04 $ 10.00
-------- -------- -------
Net Investment Income...................... .72 .65 .21
Net Realized and Unrealized Gain/Loss...... (.50) .04 .04
-------- -------- -------
Total from Investment Operations............. .22 .69 .25
-------- -------- -------
Less:
Distributions from Net Investment Income... .72 .64 .21
Distributions from Realized Gain........... .01 -0- -0-
-------- -------- -------
Total Distributions.......................... .73 .64 .21
-------- -------- -------
NET ASSET VALUE, END OF THE PERIOD........... $ 9.58 $ 10.09 $ 10.04
======== ======== =======
Total Return* (a)............................ 2.27% 7.09% 2.52%**
Net Assets at End of the Period (In
millions).................................. $1,457.6 $1,472.0 $ 411.4
Ratio of Expenses to Average Net Assets*..... 1.64% 1.60% 1.70%
Ratio of Net Investment Income to Average Net
Assets*.................................... 7.37% 6.66% 6.33%
Portfolio Turnover (b)....................... 54% 23% 4%**
* If certain expenses had not been waived by Van
Kampen, Total Return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets................................. N/A 1.61% 1.92%
Ratio of Net Investment Income to Average
Net Assets............................. N/A 6.65% 6.11%
</TABLE>
** Non-Annualized
N/A = Not Applicable.
(a) Total return assumes an investment at the beginning of the period indicated,
reinvestment of all distributions for the period and tender of all shares at
the end of the period indicated, excluding payment of 1% imposed on most
shares accepted by the Fund for repurchase which have been held for less
than one year. If the early withdrawal charge was included, total return
would be lower.
(b) Calculation includes the proceeds from principal repayments and sales of
variable rate senior loan interests.
See Notes to Financial Statements
31
<PAGE> 33
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Senior Floating Rate Fund (the "Fund") is registered as a non-
diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to provide a
high level of current income, consistent with preservation of capital. The Fund
seeks to achieve its objective by investing primarily in a portfolio of
interests in floating or variable rate senior loans to corporations,
partnerships and other entities which operate in a variety of industries and
geographical regions. The Fund commenced investment operations on March 27,
1998.
The following is a summary of significant accounting policies consistently
followed by the Fund 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 The Fund's Variable Rate Senior Loan interests ("Loan
interests") are valued by the Fund following guidelines established and
periodically reviewed by the Fund's Board of Trustees. Subject to criteria
established by the Fund's Board of Trustees about the availability and
reliability of market indicators obtained from independent pricing sources,
certain Loan interests are valued at the mean of bid and ask market indicators
supplied by independent pricing sources approved by the Fund's Board of
Trustees. All other Loan interests are valued by considering a number of factors
including consideration of market indicators, transactions in instruments which
Van Kampen Investment Advisory Corp. (the "Adviser") believes may be comparable
(including comparable credit quality, interest rate, interest rate
redetermination period and maturity), the credit worthiness of the borrower, the
current interest rate, the period until next interest rate redetermination and
the maturity of such Loan interests. Consideration of comparable instruments may
include commercial paper, negotiable certificates of deposit and short-term
variable rate securities which have adjustment periods comparable to the Loan
interests in the Fund's portfolio. The fair value of Loan interests are reviewed
and approved by the Fund's Valuation Committee and by the Fund's Board of
Trustees. The fair value of a Loan interest may differ significantly from the
market value that would have been used had there been a ready and reliable
market for that Loan interest.
Short-term securities with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. Short-term loan
participations are valued at cost in the absence of any indication of
impairment.
32
<PAGE> 34
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
B. SECURITY TRANSACTIONS Investment transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Facility
fees received are treated as market discounts. Market premiums are amortized and
discounts are accreted over the stated life of each applicable security. Other
income is comprised primarily of amendment fees. Amendment fees are earned as
compensation for agreeing to changes in loan agreements.
D. ORGANIZATIONAL COSTS The Fund has agreed to reimburse Van Kampen Funds Inc.
or its affiliates (collectively "Van Kampen") for costs incurred in connection
with the Fund's organization in the amount of $140,000. These costs normally are
amortized over a 60 month period beginning on the date of the Fund's initial
public offering of its shares. However, AICPA Statement of Position 98-5, which
is effective for fiscal years beginning after December 15, 1998, requires that
unamortized organizational costs on the Fund's statement of assets and
liabilities be written off. Therefore, the Fund wrote off the remaining
unamortized organizational costs in August 1999.
E. FEDERAL INCOME TAXES It is the Fund'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.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses relating to wash sale
transactions.
At July 31, 2000, for federal income tax purposes the cost of long- and
short-term investments is $1,534,731,336, the aggregate gross unrealized
appreciation is $6,537,395 and the aggregate gross unrealized depreciation is
$91,636,617, resulting in net unrealized depreciation on long- and short-term
investments of $85,099,222.
F. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed at least annually. Distributions from net realized gains for book
purposes may include short-term capital gains, which are included as ordinary
income for tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 2000 fiscal year have been identified and appropriately
reclassified. A permanent difference of $136,621 relating to expenses not
33
<PAGE> 35
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
deductible for tax purposes has been reclassified from capital to accumulated
undistributed net investment income.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $4.0 billion.......................................... .950 of 1%
Next $3.5 billion........................................... .900 of 1%
Next $2.5 billion........................................... .875 of 1%
Over $10.0 billion.......................................... .850 of 1%
</TABLE>
In addition, the Fund will pay a monthly administrative fee to Van Kampen
Funds Inc., the Fund's Administrator, at an annual rate of .25% of the average
net assets of the Fund. The administrative services to be provided by the
Administrator include monitoring the provisions of the loan agreements and any
agreements with respect to participations and assignments, record keeping
responsibilities with respect to interests in Variable Rate Senior Loans in the
Fund's portfolio and providing certain services to the holders of the Fund's
securities.
For the year ended July 31, 2000, the Fund recognized expenses of
approximately $284,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended July 31, 2000, the Fund recognized expenses of
approximately $22,500 representing Van Kampen's cost of providing legal services
to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended July 31, 2000,
the Fund recognized expenses for their services of approximately $887,100.
Shareholder servicing fees are determined through negotiations with the Fund's
Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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
34
<PAGE> 36
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At July 31, 2000 and July 31, 1999, paid in surplus aggregated $1,534,716,501
and $1,467,251,336 respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 1999
<S> <C> <C>
Beginning Shares....................................... 145,951,374 40,992,495
----------- -----------
Shares Sold.......................................... 57,196,384 112,343,843
Shares Issued Through Dividend Reinvestment.......... 8,251,082 3,904,175
Shares Repurchased................................... (59,220,564) (11,289,139)
----------- -----------
Net Increase in Shares............................... 6,226,902 104,958,879
----------- -----------
Ending Shares.......................................... 152,178,276 145,951,374
=========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the costs of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $1,004,256,377 and $702,218,160,
respectively.
5. TENDER OF SHARES
The Board of Trustees currently intends, each quarter, to consider authorizing
the Fund to make tender offers for all or a portion of its then outstanding
common shares at the net asset value of the shares on the expiration date of the
tender offer. For the year ended July 31, 2000, 59,220,564 shares were tendered
and repurchased by the Fund.
6. EARLY WITHDRAWAL CHARGE
An early withdrawal charge to recover offering expenses will be imposed in
connection with most common shares held for less than one year which are
accepted by the Fund for repurchase pursuant to tender offers. The early
withdrawal charge of 1.00% will be payable to Van Kampen. For the year ended
July 31, 2000, Van Kampen received early withdrawal charges of approximately
$1,278,800 in connection with tendered shares of the Fund.
7. COMMITMENTS/BORROWINGS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Fund had unfunded loan commitments of approximately $9,631,900 as of July
31,
35
<PAGE> 37
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
2000. The Fund generally will maintain with its custodian short-term investments
having an aggregate value at least equal to the amount of unfunded loan
commitments.
The Fund, along with the Van Kampen Prime Rate Income Trust, has entered
into a revolving credit agreement with a syndicate led by Bank of America for an
aggregate of $500,000,000, which will terminate on September 12, 2001. The
proceeds of any borrowing by the Fund under the revolving credit agreement shall
be used for temporary liquidity purposes and funding of shareholder tender
offers. Annual commitment fees of .09% are charged on the unused portion of the
credit line. Borrowings under this facility will bear interest at either the
LIBOR rate or the Federal Funds rate plus .50%. There have been no borrowings
under this agreement to date.
8. SENIOR LOAN PARTICIPATION COMMITMENTS
The Fund invests primarily in participations, assignments, or acts as a party to
the primary lending syndicate of a Variable Rate Senior Loan interest to
corporations, partnerships, and other entities. When the Fund purchases a
participation of a Senior Loan interest, the Fund typically enters into a
contractual agreement with the lender or other third party selling the
participation, but not with the borrower directly. As such, the Fund assumes the
credit risk of the borrower, selling participant or other persons
interpositioned between the Fund and the borrower.
At July 31, 2000, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Fund on a participation
basis.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (000) (000)
<S> <C> <C>
Chase Securities, Inc. ..................................... $ 66,879 $ 64,546
Bankers Trust............................................... 65,217 65,195
Toronto Dominion............................................ 34,250 34,186
Canadian Imperial Bank of Commerce.......................... 26,279 26,296
Bank of America............................................. 20,654 20,693
Morgan Guaranty Trust....................................... 19,983 20,011
Lehman Brothers............................................. 15,688 15,502
Bank of New York............................................ 15,000 14,914
ABN Amro.................................................... 15,000 14,851
Bank One.................................................... 14,078 14,013
Fleet National Bank......................................... 11,055 11,045
Credit Suisse............................................... 10,985 10,994
Union Bank.................................................. 10,975 10,952
IBJ Schroder Bank........................................... 10,000 9,974
</TABLE>
36
<PAGE> 38
NOTES TO
FINANCIAL STATEMENTS
July 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
SELLING PARTICIPANT (CONTINUED) (000) (000)
<S> <C> <C>
GE Capital.................................................. 9,000 8,948
Industrial Bank of Japan.................................... 5,000 4,987
Deutsche Bank............................................... 5,000 4,744
Citibank.................................................... 5,000 4,988
Bank of Nova Scotia......................................... 4,913 4,912
Heller Finance.............................................. 4,247 4,231
National City Bank.......................................... 2,993 3,000
First Union................................................. 2,000 1,993
UBS AG...................................................... 1,491 1,483
-------- --------
Total....................................................... $375,687 $372,458
======== ========
</TABLE>
9. SERVICE PLAN
The Fund has adopted a Service Plan (the "Plan") designed to meet the service
fee requirements of the sales charge rule of the National Association of
Securities Dealers, Inc. The Plan governs payments for personal services and/or
the maintenance of shareholder accounts.
Annual fees under the Plan of .15% (.25% maximum) of net assets are accrued
daily and paid quarterly. For the year ended July 31, 2000, the Fund paid
service fees of approximately $2,380,100 to Van Kampen.
37
<PAGE> 39
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of Van Kampen Senior Floating Rate
Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Senior Floating Rate Trust (the "Fund"), including the portfolio of
investments as of July 31, 2000, and the related statements of operations, cash
flows, changes in net assets, and the financial highlights for the year then
ended. 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
audit. The Fund's financial statements and financial highlights for the periods
ended prior to July 31, 2000, were audited by other auditors whose report, dated
September 14, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 July 31, 2000, by correspondence with the Fund's
custodian and selling or agent banks. 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
audit provides 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 Senior Floating Rate Fund as of July 31, 2000, the results of its
operations, cash flows, changes in net assets, and financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
As discussed in Note 1A, the portfolio of investments includes certain loan
interests for which, fair values are determined by the Fund's investment adviser
under procedures approved by the Board of Trustees. Determination of fair values
involves subjective judgement, as the actual market value of a particular
security can be established only by negotiations between parties in a
transaction. We have reviewed the procedures established by the Board of
Trustees and applied by the investment adviser in determining the fair values of
such loan interests and inspected the underlying documentation. We believe that,
in the circumstances, the procedures are reasonable and the documentation
appropriate.
DELOITTE & TOUCHE LLP
Chicago, Illinois
September 15, 2000
38
<PAGE> 40
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
Growth and Income
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income*
Tax Managed Global Franchise
Worldwide High Income
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
Tax Free
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal
Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]
- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
Central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.
[PHONE ICON]
- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
39
<PAGE> 41
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Fund during its taxable year ended
July 31, 2000. The Fund designated and paid $67,289 as a 20% rate gain
distribution. Shareholders were sent a 1999 Form 1099-DIV in January 2000,
representing their proportionate share of this capital gain distribution.
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Deloitte & Touche
LLP to be the Fund's independent auditors.
KPMG LLP, located at 303 West Wacker Drive, Chicago, IL 60601 ("KPMG"),
ceased being the Fund's independent auditors effective April 14, 2000. The
cessation of the client-auditor relationship between the Fund and KPMG was
based solely on a possible future business relationship by KPMG with an
affiliate of the Fund's investment adviser.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940,
as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of
the Fund. It is not authorized for distribution to prospective investors
unless it has been preceded or is accompanied by an effective prospectus of
the Fund which contains additional information on how to purchase shares
and other pertinent data. After December 31, 2000, the report must, if used
with prospective investors, be accompanied by a monthly performance update.
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN SENIOR FLOATING RATE FUND
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
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 AUDITORS(1)
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
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