<TABLE>
Table of Contents
<CAPTION>
<S> <C>
Letter to Shareholders................. 1
Performance Results.................... 3
Portfolio Management Review............ 4
Portfolio of Investments............... 7
Statement of Assets and Liabilities.... 18
Statement of Operations................ 19
Statement of Changes in Net Assets..... 20
Statement of Cash Flows................ 21
Financial Highlights................... 22
Notes to Financial Statements.......... 23
</TABLE>
PRIT SAR 3/96
Letter to Shareholders
March 6, 1996
Dear Shareholder,
The economic climate of the past six months has been characterized by low
interest rates, low inflation, and slow but steady growth. These conditions,
in combination with corporate cost-cutting efforts, have contributed to the
improved profitability of many American businesses.
As a result, we believe that corporations, in general, are in a better
position to support their debt obligations, (e.g., make interest payments and
adhere to the terms of their loan agreements). Additionally, loan transactions
have tended to involve larger equity components and lower-cost debt, so the
credit quality of bank loans overall has remained strong.
Activity in the market for senior secured bank loans has reflected a growing
confidence on the part of lenders and investors. According to the Loan Pricing
Corporation, syndicated loan volume was up sharply, with transactions totaling
more than $100 billion for 1995. This reflects a 24 percent increase from the
previous year.
Still, the twists and turns of the financial markets reinforce the importance
of maintaining a long-term perspective for your investments. While the
environment for business remains positive, a downturn is always possible.
Consequently, Jeff Maillet, the Trust's portfolio manager, remains committed to
pursuing established loan issues with proven credit quality.
[PHOTO]
Dennis J. McDonnell and Don G. Powell
Economic Overview
Economic growth slowed during the second half of 1995, as measured by the
gross domestic product (the value of all goods and services produced in the
United States), growing at an annual rate of 2 percent in the fourth quarter of
1995. Final numbers for the Consumer Price Index showed prices escalating by a
modest 2.5 percent during the 1995 calendar year.
In anticipation of continued slow growth and low inflation, the Federal
Reserve Board once again lowered short-term interest rates in January, the third
cut in seven months. Most major banks followed suit by reducing their prime
interest rate. Ultimately, the impact of lower interest rates will manifest
itself on the senior loan market in the form of lower dividend potential for
those who invest in this market.
All told, the cut in short-term rates, combined with modest growth forecasts,
was viewed by the financial markets as a positive event, pushing up both stock
and bond prices. The yield on 10-year Treasury notes fell from 6.43 percent on
July 31, 1995, to 5.58 percent on January 31, 1996. Corporate earnings remained
quite strong during 1995. The strongest sectors were technology and finance,
which benefited from the impact of the Internet, telecommunications deregulation
and bank mergers. U.S. companies with global operations also did well, aided by
a declining U.S. dollar versus several foreign currencies.
Continued on page two
1
Economic Outlook
Looking ahead, we are cautiously optimistic. We expect the economy to grow at
a rate of 2 to 3 percent throughout 1996, with growth stronger in the second
half of the year as the full impact of the Fed's rate cuts take effect. Many
observers expect the Fed to cut rates further if Congress and the President are
able to reach an agreement on the federal budget, provided economic conditions
justify further easing. Lower rates will have the greatest impact on
interest-sensitive industries, such as housing. Although inflation appears to
be under control, there probably will be some cyclical upward pressure in 1996.
Since the Trust's inception in 1989, we believe the banking industry has made
significant progress in its efforts to improve the quality of loan portfolios.
Institutions have insisted on more traditional capital structures in their
leveraged lending to U.S. corporations, resulting in more conservative
debt-to-cash-flow ratios (ranging from 4-1 to 6-1, compared to the 9-1 ratios
common in the late 1980s). Although all of the loans in the Trust may not meet
this criteria, the Trust's management has taken steps to limit exposure to
potential credit deterioration by placing a priority on maintaining a strict
review process for all loans they consider for acquisition.
During recent months, debate over tax reform and the federal deficit has
dominated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue on
Capitol Hill. There has been varied speculation about the impact of these issues
on the economy and on various types of investments. We are following the tax
reform debate very closely, and we will keep you updated on this issue through
out the year. See the winter issue of "Your Portfolio" for a detailed discussion
of tax reform.
On the following pages, you can read about your Trust's performance during the
past six months, as well as the portfolio manager's outlook for the Trust in the
coming months.
Corporate News
As part of our commitment to helping you achieve your investment goals, Van
Kampen American Capital strives to provide shareholders with the best service in
the mutual fund industry. That is why we are especially pleased to have received
the 1995 Quality Tested Service Seal, which is awarded annually by DALBAR, Inc.,
an independent research firm. The Seal, which symbolizes the achievement of the
highest tier of service in the mutual fund industry, was awarded to American
Capital annually from 1990 to 1994, and we are honored that the service provided
by Van Kampen American Capital has achieved the same level of excellence.
Sincerely,
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Investment Advisory Corp. Investment Advisory Corp.
2
<TABLE>
<CAPTION>
Performance Results for the Period Ended January 31, 1996
Van Kampen American Capital Prime Rate Income Trust
<S> <C>
Total Returns
One-year total return<F1>......................... 8.07%
Five-year average annual total return<F1>......... 7.17%
Life-of-Trust average annual total return<F1>..... 7.81%
Commencement date................................. 10/04/89
Distribution rate<F2>............................. 7.54%
Share Valuations
Net asset value on 01/31/96....................... $ 10.02
Six-month high net asset value.................... $ 10.05
Six-month low net asset value..................... $ 10.02
<FN>
<F1>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 any early withdrawal charges.
<F2>Distribution rate is based upon the offering price and the monthly annualized
distributions of the Trust as of January 25, 1996.
Past performance does not guarantee future results. Distribution rates and net
asset value may fluctuate with market conditions. Trust shares, when tendered,
may be worth more or less than their original cost.
This report is intended for shareholders of the Trust and may not be used as
sales literature with prospective investors unless it is preceded or accompanied
by the Trust's current prospectus, which gives more complete information about
charges and expenses, investment objectives and operating policies. Prospective
investors should read the prospectus carefully before investing or sending
money.
</TABLE>
3
Portfolio Management Review
We recently spoke with the portfolio manager of the Van Kampen American Capital
Prime Rate Income Trust about the key events and economic forces which shaped
the markets during the first half of the Trust's fiscal year. The Trust's
portfolio manager, Jeffrey W. Maillet, senior vice president of Van Kampen
American Capital Investment Advisory Corp., has been responsible for the day to
day management of the Trust's portfolio since its inception. The following
excerpts reflect his views on the Trust's performance during the six-month
period ended January 31, 1996.
Q: What is your assessment of the Trust's performance at the mid-point
of its current fiscal year?
A: The Trust has performed as it was designed to perform. Its distribution
rate*, as of January 31, 1996, was 7.54 percent,<F2> which represents a
significant advantage over a number of the short-term, fixed-income investment
alternatives available in the marketplace. Its net asset value (NAV) has
remained relatively stable during this period, fluctuating within a narrow
range of just $.03 per share (between $10.02 and $10.05). The combination of
relatively high current income and relatively stable NAV is exactly the kind
of performance we strive for as we pursue the Trust's investment objective of
high current income, consistent with preservation of capital.
Overall, we're comfortable in saying that the Trust has achieved its objective
not only over the past six months, but over its entire six-year history. The NAV
has varied by as little as $.10 per share, yet we've achieved a cumulative total
return of 61.05 percent<F1> and an average annual total return of 7.81
percent<F1> (at NAV), for shareholders who've been with the Trust since its
inception (October 4, 1989 through January 31, 1996). For a look at the Trust's
one-year, 5-year and Life-of-Trust total return please refer to the chart on
page three.
*Distribution rate is based on a monthly dividend of $.0630 per share. The
Trust's monthly dividend was reduced in February 1996 to $.0605 per share,
providing a distribution rate of 7.25 percent.
Q: How has the Trust been affected by the interest rate environment of the
past six months?
A: As detailed in the Letter to Shareholders, interest rates have been trending
lower, which has had a direct impact on the Trust. The Trust invests primarily
in senior loans that pay interest at a floating or variable rate. Therefore,
the amount of current income the Trust earns will fluctuate with interest rate
movements.
Specifically, the Trust's loans are pegged to either the prime rate or LIBOR
(the London Interbank Offered Rate), two key short-term base interest rates.
Historically, the prime rate has been the rate banks charge their most
creditworthy customers, and LIBOR has been the base rate banks charge the
largest corporate borrowers. More recently, with the growth of home equity lines
of credit, prime has come to represent more of a retail-based lending rate,
while LIBOR has supplanted prime as the rate most corporate loans are pegged to
in the United States. Currently, approximately 94 percent of the Trust's
long-term senior loans are LIBOR-based. Since the average rate reset date for
these loans is approximately 54 days, the Trust's yield is likely to reflect
changes in LIBOR shortly thereafter.
4
[PIE CHART]
Portfolio Composition as of January 31, 1996
Other* 25.8%
Manufacturing 13.4%
Retail 9.8%
Paper 9.3%
Radio and Television Broadcasting 8.8%
Cable 8.2%
Food Stores 7.7%
Food/Beverage 6.5%
Entertainment/Leisure 6.4%
Printing 4.1%
*Other consists of 12 sectors each less than 4%.
For example, the Trust's dividend was reduced in December 1995, reflecting a
lower LIBOR rate, and again in February 1996, reflecting a reduction in the
prime rate. On the other hand, when interest rates increase, we have the ability
to periodically adjust the dividend upward. For example, the Trust's dividend
was increased seven times in 1994 and once again in 1995, reflecting increases
in interest rates.
The Trust has a history of proven performance, having minimized fluctuations
in net asset value, while providing investors with a competitive level of
current income. Although the Trust has been able to fulfill its objective thus
far, a portfolio of senior loans does involve credit risk and risks that may not
be associated with alternative investments.
Q: Have you made any significant changes to your portfolio strategy?
A: The Trust's holdings are currently more widely varied than at any point in
the Trust's history. This variation is beneficial in the event of an economic
slowdown, because the portfolio is not dependent upon any single type of issue.
As of January 31, 1996, the portfolio held 172 different issues, representing 21
distinct industry groups. The average size per issue was $18.8 million, or just
0.48 percent of net assets.
We continue to carefully evaluate the credit quality of the loans we are
considering and those we currently hold. We prefer those loans issued by
recognizable companies. For example, our holdings currently include issues from
Bell & Howell, Case Corporation, Fort Howard, General Nutrition, National
Gypsum, Playtex, Revlon, Six Flags Theme Parks, Viacom, Westinghouse, and
Ziff-Davis Publishing. While these companies may be familiar to you, the senior
loans they issue do involve credit risks.
We have also expanded our holdings in industries that we believe have
excellent growth prospects. The radio and television broadcasting sector
(representing 8.8 percent of long-term investments) should benefit from a strong
advertising environment attributable to the upcoming summer Olympics and the
presidential election in November. The cable television industry (8.2 percent)
continues to show strong consumer demand, and the wireless telecommunications
sector (3.6 percent) should benefit from federal regulatory action which would
spur price competition and stimulate consumer demand.
5
Q: What is your outlook for the Trust in the months ahead?
A: We will continue to focus on what we consider to be a successful formula--
concentrating on issues from U.S. companies that offer basic goods or services
and companies that have established their ability to ride out economic
downturns. Our approach to the market will be as long-term, value-oriented
investors.
Additionally, we will keep an open eye for opportunities to obtain interests
in senior loans that are issued by companies with good management, solid market
prospects and sustainable demand for their products or services. These are the
kinds of issues that we expect to provide a degree of relative stability to our
portfolio, while generating an attractive level of current income.
Jeffrey W. Maillet
Portfolio Manager
Please see footnotes on page three
6
<TABLE>
<CAPTION>
Portfolio of Investments
January 31, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Principal
Amount Stated
(000) Borrower Maturity* Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate** Senior Loan Interests
Aerospace/Defense 1.6%
$ 17,776 Alliant Techsystems, Inc., Term Loan - Manufacturer of
ordnance, composite metals................................... 03/15/01 $ 17,858,060
5,668 Grimes Aerospace Co., Term Loan - Airplane electronics
manufacturer................................................. 12/31/99 5,414,791
1,889 Grimes Aerospace Co., Revolving Credit....................... 12/31/99 1,807,927
19,800 Gulfstream Delaware Corp., Term Loan - Aircraft
manufacturer................................................. 03/31/98 19,809,011
12,000 Howmet Acquisition Co., Term Loan - Manufacturer of
aerospace supplies........................................... 11/20/02 to 05/20/03 12,046,521
5,750 Sperry Marine, Inc., Term Loan - Manufacturer of
navigational instruments..................................... 11/12/00 5,764,880
-------------
62,700,190
-------------
Building/Housing 2.8%
54,950 National Gypsum Co., Term Loan - Wallboard manufacturer...... 09/20/03 55,253,052
9,044 Overhead Door Corp., Term Loan - Manufacturer of garage
doors and openers............................................ 08/18/99 9,019,826
3,109 Overhead Door Corp., Revolving Credit........................ 08/18/99 3,088,353
19,840 PrimeCo, Inc., Term Loan - Equipment leasing................. 12/31/00 19,909,962
3,600 RSI Home Products, Inc., Term Loan - Bath and kitchen
cabinet manufacturer......................................... 11/30/99 3,666,376
20,000 Walter Industries, Inc., Term Loan - Home builder............ 01/22/03 20,039,507
-------------
110,977,076
-------------
Cable 6.8%
3,832 Alexcom Limited Partnership, Term Loan - Cellular telephone
systems operator............................................. 06/30/20 3,766,575
9,499 Cable Services Group, Inc., Term Loan - Cable systems
billing service.............................................. 11/30/01 9,526,693
62,000 Charter Communications, Term Loan - Cable television systems
operator..................................................... 12/31/03 to 12/31/04 62,427,068
21,500 Classic Cable, Inc., Term Loan - Cable television systems
operator..................................................... 06/30/05 21,722,956
16,887 Coaxial Communications of Central Ohio, Term Loan - Cable
television systems operator.................................. 12/31/99 16,848,200
14,968 Continental Cablevision, Revolving Credit - Cable television
systems operator............................................. 10/10/03 15,021,467
38,000 Falcon Cable Media, Term Loan - Cable television systems
operator..................................................... 06/15/03 38,226,028
7,000 James Cable Partners, Term Loan - Cable television systems
operator..................................................... 06/30/00 7,092,781
300 James Cable Partners, Revolving Credit....................... 06/30/00 313,196
</TABLE>
7 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
January 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------
Principal
Amount Stated
(000) Borrower Maturity* Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate** Senior Loan Interests (Continued)
Cable (Continued)
$ 65,313 Marcus Cable Operations, Term Loan - Cable television systems
operator....................................................... 12/31/02 to 04/30/04 $ 66,127,272
2,813 Marcus Cable Operations, Revolving Credit...................... 12/31/02 3,035,549
8,711 Maryland Cable, Term Loan - Cable television systems
operator....................................................... 12/31/02 8,735,823
8,500 Northland Cable Television, Inc., Term Loan - Cable television
systems operator............................................... 09/30/03 8,529,692
4,756 Viacom Cablevision, Term Loan - Cable television systems
operator....................................................... 07/01/02 4,775,978
-------------
266,149,278
-------------
Chemical 1.5%
10,860 AEP Industries, Inc., Term Loan - Manufacturer and
converter of plastic products.................................. 07/31/02 10,902,215
9,250 Cedar Chemicals Corp., Term Loan - Manufacturer of
fertilizer..................................................... 10/30/03 9,335,878
2,235 Findley Adhesives, Inc., Term Loan - Industrial glue
manufacturer................................................... 12/31/97 2,201,841
9,000 Freedom Chemical Co., Term Loan - Manufacturer of specialty
chemicals...................................................... 06/30/02 8,950,955
10,000 Hampshire Chemical Co., Term Loan - Manufacturer of specialty
chemicals...................................................... 09/01/03 10,043,639
3,240 Rheox, Inc., Term Loan - Chemical additives manufacturer....... 12/31/97 3,192,157
12,573 Thoro System Products, Inc., Term Loan - Manufacturer of
chemicals for construction industry............................ 12/20/02 12,508,938
-------------
57,135,623
-------------
Electric/Electronics 1.0%
417 Bell & Howell Co., Revolving Credit - Electronic storage and
information systems............................................ 07/31/98 430,992
6,384 Bell & Howell Co., Term Loan................................... 12/31/99 6,400,813
25,496 Berg Electronics, Inc., Term Loan - Manufacturer of electronic
connectors..................................................... 03/31/00 to 03/31/01 25,499,356
8,358 Rowe International, Inc., Term Loan - Manufacturer of
jukeboxes and electronic equipment............................. 12/31/96 7,947,846
-------------
40,279,007
-------------
Entertainment/Leisure 5.3%
8,333 Amfac Parks, Inc., Term Loan - Operator of national parks...... 09/30/02 8,416,474
8,147 Cobblestone Golf, Revolving Credit - Owner and operator of
golf courses................................................... 09/30/01 8,227,118
2,165 DW Investment, Inc., Term Loan - Communications and
entertainment conglomerate..................................... 08/09/00 2,179,025
6,000 H.E.C. Investments, Inc., Term Loan - Fitness club operator.... 12/31/00 6,049,182
</TABLE>
8 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
Principal
Amount Stated
(000) Borrower Maturity* Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate** Senior Loan Interests (Continued)
Entertainment/Leisure (Continued)
$ 30,000 Marvel Entertainment, Term Loan - Children's magazine
publisher.................................................... 02/28/02 $ 30,128,266
37,000 Marvel IV Holdings, Term Loan - Comic books, sports cards,
and outdoor equipment........................................ 09/01/97 37,418,208
25,000 Metro-Goldwyn-Mayer, Term Loan - Movie/television producer... 04/15/97 25,187,907
11,867 Orion Pictures Corp., Term Loan - Theatrical production...... 12/31/00 11,955,518
26,167 Six Flags Theme Park, Term Loan - Theme park operator........ 06/23/03 26,279,090
7,382 Spalding & Evenflo Cos., Inc., Term Loan - Manufacturer of
sporting goods............................................... 10/14/02 7,427,451
9,700 The U.S. Playing Card Co., Term Loan - Manufacturer/
distributor of playing cards................................. 09/30/02 9,680,375
33,479 Viacom, Inc., Term Loan - Entertainment media/television
programming.................................................. 07/01/02 33,613,042
-------------
206,561,656
-------------
Finance 1.1%
8,000 American Life Holdings, Term Loan
Life insurance company....................................... 04/15/03 8,029,439
6,503 Ark Asset Holdings, Inc., Term Loan - Institutional money
manager...................................................... 11/30/01 6,546,677
12,500 Blackstone Capital Co., Term Loan - Financial services....... 01/13/97 12,456,374
16,684 Conseco, Inc., Revolving Credit - Life insurance company .... 02/01/01 to 08/31/01 16,800,679
-------------
43,833,169
-------------
Food/Beverage 5.4%
9,500 American Italian Pasta Co., Term Loan - Pasta products
producer..................................................... 12/29/00 9,548,778
11,500 Amerifoods, Inc., Term Loan - Manufacturer of snack foods
and bakery products.......................................... 06/30/01 to 06/30/02 9,803,396
3,500 Edwards Baking Corp., Term Loan - Manufacturer of bakery
products..................................................... 10/31/02 3,515,948
17,061 Foodbrands America, Term Loan - Manufacturer of food
products..................................................... 01/15/00 17,163,708
733 G. Heileman Brewing Co., Revolving Credit - Beverage brewing
company...................................................... 12/31/98 707,603
13,394 G. Heileman Brewing Co., Term Loan........................... 12/31/00 12,070,090
10,000 IM Stadium, Inc., Term Loan - Sports stadium concessions..... 12/31/02 to 12/31/03 10,099,129
2,845 PSF Finance L.P., Term Loan - Integrated pork producer....... 12/23/99 3,406,673
9,852 President Baking Co., Inc., Term Loan - Bread/bread products
manufacturer................................................. 09/29/00 9,807,934
47,463 S.C. International Services, Term Loan - In-flight food
services..................................................... 09/30/00 to 09/30/03 47,779,275
</TABLE>
9 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
Principal
Amount Stated
(000) Borrower Maturity* Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate** Senior Loan Interests (Continued)
Food/Beverage (Continued)
$ 14,250 Select Beverages, Inc., Term Loan - Independent bottler..... 06/30/01 to 06/30/02 $ 14,379,997
51,504 Silgan Corp., Term Loan - Manufacturer of food cans......... 12/31/00 to 03/15/02 51,590,966
2,463 Silgan Corp., Revolving Credit.............................. 12/31/00 2,463,002
3,281 Tom's Foods, Inc., Term Loan - Snack foods producer/
distributor................................................. 12/31/98 2,788,572
15,290 U.S. Food Service, Inc., Term Loan Wholesale
food distributor............................................ 12/31/98 to 06/30/00 15,295,165
--------------
210,420,236
--------------
Food Stores 6.4%
9,600 Big V Supermarkets, Inc., Term Loan - Northeastern retail
food chain operator......................................... 03/15/00 9,603,013
62,694 Bruno's, Inc., Term Loan - Southeastern retail food chain
operator.................................................... 02/18/03 to 02/18/05 63,284,506
10,000 Carr-Gottstein Foods, Term Loan - Alaska based retail food
chain operator.............................................. 12/31/02 10,019,103
42,199 Dominick's Finer Foods, Inc., Term Loan - Illinois based
retail food chain operator.................................. 03/31/02 to 09/30/03 42,671,229
20,128 Grand Union Co., Term Loan - New York based retail food
chain operator.............................................. 06/15/02 20,161,451
7,733 Harvest Foods, Inc., Term Loan - Mississippi based retail
food chain operator......................................... 06/30/02 7,700,392
30,747 Pathmark Stores, Inc., Term Loan - New Jersey based retail
food chain operator......................................... 07/31/98 to 10/31/99 30,877,936
1,068 Pathmark Stores, Inc., Revolving Credit..................... 07/31/98 1,075,766
1,169 Ralph's Grocery Co., Revolving Credit - Los Angeles,
California based retail food chain operator................. 06/15/01 1,190,082
47,006 Ralph's Grocery Co., Term Loan.............................. 06/15/01 to 02/15/04 47,645,928
14,684 Star Markets Co., Inc., Term Loan - New England based
retail food chain operator.................................. 01/31/02 to 12/31/02 14,718,061
-------------
248,947,467
-------------
Fuel Retailer 0.6%
15,000 National Propane Corp., Term Loan - Propane gas
distributor................................................. 03/31/03 14,921,550
3,800 Petro PSC Properties, L.P., Term Loan - Multi-service
truck-stop operator......................................... 05/18/01 3,818,395
3,219 Truckstops of America, Inc., Term Loan - Interstate
fueling stations operator................................... 12/10/00 3,189,873
-------------
21,929,818
-------------
</TABLE>
10 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
Principal
Amount Stated
(000) Borrower Maturity* Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate** Senior Loan Interests (Continued)
Healthcare 1.6%
$ 17,466 Dade International, Inc., Term Loan - Medical equipment
manufacturer/marketer........................................... 12/31/01 to 06/30/03 $ 17,435,268
4,988 Graphic Controls Corp., Term Loan - Manufacturer of medical
equipment....................................................... 09/28/03 5,014,795
18,500 Merit Behavioral Corp., Term Loan - Psychiatric hospital
operator........................................................ 10/06/03 18,607,684
13,322 Tenet Healthcare, Term Loan - Hospital operator................. 08/31/01 13,474,832
418 Tenet Healthcare, Revolving Credit.............................. 08/31/01 455,338
8,587 Unilab Corp., Term Loan - Clinical laboratory testing........... 05/15/02 8,638,438
-------------
63,626,355
-------------
Manufacturing 11.1%
12,469 Calmar, Inc., Term Loan - Manufacturer of dispensing and
spray products.................................................. 09/15/03 to 03/15/04 12,530,773
19,546 Case Corp., Term Loan - Manufacturer of farm and construction
equipment....................................................... 09/15/20 19,725,715
2,087 Collins & Aikman Products Co., Revolving Credit-Manufacturer of
auto interiors, home interiors and wallpapers................... 06/30/01 2,087,701
56,668 Collins & Aikman Products Co., Term Loan........................ 01/12/02 to 06/30/03 56,701,816
9,697 Dal-Tile Group, Inc., Revolving Credit - Ceramic tile and floor
covering manufacturer/retailer.................................. 01/09/98 9,585,451
10,021 Ebel USA, Inc., Term Loan - Manufacturer of luxury time
pieces.......................................................... 09/30/01 10,102,666
5,462 Essex Group, Inc., Term Loan - Manufacturer of electrical wire
and cable....................................................... 04/30/00 5,478,052
9,000 Fiberite, Inc., Term Loan - Manufacturer of composite fibers.... 12/31/01 9,060,117
10,000 Headstrom Corp., Term Loan - Manufacturer of children's toys.... 04/27/01 10,058,823
11,458 Health O Meter, Inc., Term Loan - Manufacturer of small
appliances...................................................... 08/15/01 11,431,203
63,000 Interco, Inc., Term Loan - Manufacturer of furniture............ 03/29/03 to 03/29/04 63,152,020
9,941 Intermetro Industries Corp., Term Loan - Manufacturer of
metal/polymer storage products.................................. 06/30/01 to 12/31/02 9,902,451
16,225 International Wire Group, Term Loan - Manufacturer of auto,
appliance, and communication wires.............................. 09/30/02 16,284,509
7,000 IPC, Inc., Term Loan - Manufacturer of packaging materials...... 09/30/01 7,022,703
30,000 Johnstown America, Term Loan - Manufacturer of railcars......... 03/31/03 30,169,924
30,000 K-Tec Holdings, Inc., Term Loan - Manufacturer of
telecommunications equipment.................................... 02/01/03 to 02/01/04 30,123,307
26,377 Lear Seating Corp., Revolving Credit - Seat component
manufacturer.................................................... 09/30/01 26,458,405
</TABLE>
11 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
Principal
Amount Stated
(000) Borrower Maturity* Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate** Senior Loan Interests (Continued)
Manufacturing (Continued)
$ 7,226 Merkle-Korff Industries, Term Loan - Manufacturer of
electrical motors......................................... 09/22/01 to 03/15/03 $ 7,315,841
10,000 RBX Corp., Term Loan - Manufacturer of rubber products.... 12/31/03 10,056,348
1,111 Samsonite Corp., Term Loan - Manufacturer of luggage...... 07/14/00 1,111,674
178 Samsonite Corp., Revolving Credit......................... 07/14/00 177,797
10,626 Stanadyne Automotive, Term Loan - Manufacturer of diesel
injection devices and engine parts........................ 12/31/01 10,688,777
7,861 The Hawk Group of Cos., Inc., Term Loan - Manufacturer of
powdered metals........................................... 06/30/02 7,920,577
11,866 The Pullman Co., Term Loan - Diversified manufacturer,
primarily in the transportation sector.................... 12/31/99 11,953,961
5,873 The Pullman Co., Revolving Credit......................... 12/31/99 5,918,734
19,600 Thompson Minwax Co., Term Loan - Manufacturer of wood
stains and finishing products............................. 12/31/02 19,695,500
30,000 UCAR International, Inc., Term Loan - Manufacturer of
graphite/carbide electrodes............................... 12/31/02 30,078,044
-------------
434,792,889
-------------
Paper 7.7%
75,000 Fort Howard Corp., Term Loan - Paper manufacturer......... 03/31/02 to 12/31/02 75,595,684
88,213 Jefferson Smurfit Corp., Term Loan - Corrugated paper
products manufacturer..................................... 04/30/01 to 04/03/02 88,547,687
7,995 Mail-Well Corp., Term Loan - Manufacturer of envelopes
and graphic printers...................................... 07/31/98 to 07/31/03 8,093,903
1,069 Mail-Well SPX, Term Loan - Manufacturer of envelopes
and graphic printers...................................... 07/31/03 1,077,421
2,654 Mail-Well SPX, Revolving Credit........................... 07/31/03 2,677,262
35,280 S.D. Warren Co., Term Loan - Coated-free paper
manufacturer.............................................. 12/20/02 35,549,445
67,500 Stone Container Corp., Term Loan - Paper products
manufacturer.............................................. 04/01/00 67,459,980
23,142 Williamhouse Regency, Term Loan - Converter and
distributor of paper products............................. 10/31/00 to 04/30/04 23,343,629
-------------
302,345,011
-------------
Personal/Non-Durable 2.8%
19,840 Mary Kay Cosmetics, Term Loan - Direct cosmetic sales..... 12/06/02 19,989,838
40,000 Playtex Products, Inc., Term Loan - Manufacturer of
beauty aid and hygiene products........................... 06/30/02 40,180,453
50,000 Revlon Consumer Products Corp., Term Loan - Manufacturer
of cosmetics.............................................. 06/30/97 50,683,372
-------------
110,853,663
-------------
</TABLE>
12 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
Principal
Amount Stated
(000) Borrower Maturity* Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate** Senior Loan Interests (Continued)
Printing 3.4%
$ 26,136 American Media Operations, Inc., Term Loan
Magazine/newspaper publisher.................................. 09/30/02 $ 26,097,932
30,000 Journal News, Inc., Term Loan - Multiple newspaper printer.... 12/31/01 to 05/01/03 30,115,324
20,000 K III Communications, Term Loan - Tabloids, magazines and
other media producer.......................................... 05/01/03 20,139,752
7,222 Polyfibron Technologies, Term Loan - Textile manufacturer..... 12/31/01 7,276,224
48,484 Ziff-Davis Publishing Co., Term Loan - Publisher of computer
magazine...................................................... 12/31/01 to 12/31/02 48,755,367
-------------
132,384,599
-------------
Radio and Television Broadcasting 7.3%
23,320 A-3 Acquisition, Inc., Term Loan - Television
station operator.............................................. 12/31/03 23,434,729
448 A-3 Acquisition, Inc., Revolving Credit....................... 12/31/03 454,300
44,000 E.H. & F., Inc., Term Loan - Outdoor media.................... 06/30/02 to 12/31/03 44,349,823
34,475 Ellis Communications, Inc., Term Loan - Southeastern U.S.
television station owner/operator............................. 03/31/02 to 03/31/03 34,595,318
10,100 Granite Broadcasting, Term Loan - Midwestern television
station owner/operator........................................ 12/31/01 10,129,084
400 Granite Broadcasting, Revolving Credit........................ 12/31/01 415,815
11,500 Granum Finance Partners, Term Loan - Radio station
owner/operator................................................ 12/31/02 11,540,487
15,000 NWC Acquisition Corp., Term Loan - Television production and
broadcasting.................................................. 09/30/01 15,033,412
19,130 River City Broadcasting, L.P., Revolving Credit - Midwestern
radio station owner/operator.................................. 06/30/01 19,193,689
20,000 River City Broadcasting, L.P., Term Loan...................... 12/31/02 20,072,404
13,415 SKTV, Inc., Term Loan - Television station owner/operator..... 07/31/02 13,351,879
7,199 Smith Television, Term Loan - Television station
owner/operator................................................ 12/31/02 7,270,619
8,530 U.S. Radio Holdings, Inc., Term Loan - Radio station
owner/operator................................................ 12/31/01 to 09/30/03 8,591,234
75,000 Westinghouse Electric, Term Loan - Radio and television
broadcaster................................................... 05/24/98 to 11/24/02 75,326,016
-------------
283,758,809
-------------
</TABLE>
13 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
January 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate** Senior Loan Interests (Continued)
Restaurants 0.6%
$ 13,512 America's Favorite Chicken Co., Term Loan - Church's and
Popeye's Fried Chicken restaurants........................... 11/05/98 $ 13,512,213
1,210 Carvel Corp., Term Loan - Soft ice cream products
franchiser................................................... 12/31/98 1,210,573
6,969 Long John Silver's Restaurants, Inc., Term Loan - Retail
seafood restaurant owner/operator............................ 09/30/97 6,970,996
-------------
21,693,782
-------------
Retail 8.2%
300 American Blind and Windows, Term Loan - Wallcover
distributor.................................................. 06/30/96 299,771
32,500 Camelot Music, Inc., Term Loan - Retail distributor of music
and video cassettes.......................................... 02/28/02 32,500,000
17,600 Color Tile, Inc., Term Loan - Ceramic tile and floor
covering retailer<F4>........................................ 12/31/98 12,362,884
10,000 Duane Reade, Term Loan - Retail drug store................... 09/30/99 10,004,012
9,200 Eckerd Corp., Term Loan - Retail drug store.................. 11/29/00 9,205,553
27,401 Federated Department Stores, Inc., Term Loan - National
department store chain....................................... 03/31/00 27,804,659
9,245 Federated Department Stores, Inc., Revolving Credit.......... 03/31/00 9,622,376
12,396 General Nutrition, Inc., Term Loan - Vitamin, mineral and
food supplement manufacturer and retailer.................... 06/30/01 12,420,501
1,875 General Nutrition, Inc., Revolving Credit.................... 06/30/01 1,875,173
5,226 Luxottica U.S. Holdings, Revolving Credit -
Manufacturer/distributor of eyeglasses....................... 06/30/01 5,246,743
18,379 Luxottica U.S. Holdings, Term Loan........................... 06/30/01 18,410,165
7,485 Nebraska Book Co., Term Loan - Used book distributor......... 10/31/03 7,557,092
11,114 Nine West Group, Inc., Term Loan - Shoe designer and
retailer..................................................... 10/01/01 11,115,695
40,000 Payless Cashways, Inc., Term Loan - Building products
retailer..................................................... 11/18/00 40,094,707
10,998 Peebles, Inc., Term Loan - Mid-Atlantic retailer............. 06/09/02 11,366,064
33,000 QVC Programming, Term Loan - Home shopping
television network........................................... 01/31/04 33,195,750
54,655 Saks & Co., Term Loan - Retail fashions and accessories...... 06/30/00 54,986,500
730 Service Merchandise, Revolving Credit - Catalog retailer..... 06/08/99 863,339
19,749 Thrifty Payless, Inc., Term Loan - Retail drug store......... 09/30/01 19,844,494
-------------
318,775,478
-------------
</TABLE>
14 See Notes to Financial Statements
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------
Principal
Amount Stated
(000) Borrower Maturity* Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable Rate** Senior Loan Interests (Continued)
Textiles 2.1%
$ 11,500 American Marketing, Term Loan - Textile manufacturer.......... 11/30/02 $ 11,640,313
23,830 Chicopee, Inc., Term Loan - Manufacturer of non-woven fabrics
to medical industry........................................... 03/31/03 24,000,902
9,286 Hosiery Corp. of America, Term Loan - Manufacturer/direct
mail marketer of women's hosiery.............................. 07/31/01 9,206,847
7,572 Ithaca Industries, Inc., Term Loan - Undergarment and hosiery
manufacturer.................................................. 10/31/98 7,578,062
30,427 London Fog Industries, Inc., Term Loan........................ 05/31/02 28,916,551
-------------
81,342,675
-------------
Wireless Communications 3.0%
556 Horizon Cellular, Term Loan - Cellular telephone systems
operator...................................................... 12/31/96 556,147
3,778 Horizon Cellular, Revolving Credit............................ 09/30/99 3,782,929
7,500 Intesys Technologies, Inc., Term Loan - Equipment
manufacturer for telecommunications/autos..................... 12/31/01 7,554,265
29,001 Mobilemedia Communications, Term Loan - Nationwide paging
operator...................................................... 06/30/02 to 06/30/03 29,010,279
9,050 Skytel Corp., Revolving Credit - Paging and personal
communications services operator.............................. 12/31/01 9,194,679
39,257 Smart SMR of California, Inc., Term Loan - Cellular telephone
systems operator.............................................. 03/15/01 39,257,000
16,080 Western Wireless Corp., Revolving Credit - Cellular and
personal communications services operator..................... 12/31/03 16,380,154
11,278 The Westlink Co., Term Loan - Cellular and personal
communications services operator.............................. 06/30/02 to 12/31/02 11,416,073
-------------
117,151,526
-------------
Other 2.6%
6,913 Bankers Systems, Inc., Term Loan - Compliance services
supplier...................................................... 11/02/02 6,941,646
10,000 HG Holdings, Inc., Term Loan - Information processing......... 06/30/01 10,097,409
17,460 M.W. Manufacturers, Term Loan - Conglomerate.................. 09/15/02 17,618,706
13,800 National Oilwell L.P., Term Loan - Oil equipment
manufacturer.................................................. 12/31/01 13,875,535
20,000 Primark Corp., Term Loan - Information services............... 06/30/02 20,047,825
19,157 United Stationers Supply Co., Term Loan - Distributor of
office paper products......................................... 03/31/02 19,280,153
10,988 USA Waste Services, Term Loan - Waste disposal services....... 06/30/00 11,029,494
3,137 USA Waste Services, Revolving Credit.......................... 06/30/00 3,185,020
-------------
102,075,788
-------------
Total Variable Rate** Senior Loan Interests 82.9% 3,237,734,095
-------------
</TABLE>
15 See Notes to Financial Statements
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Portfolio of Investments (Continued)
January 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------------
Borrower Value
- -------------------------------------------------------------------------------------------------------
<S> <C>
Equities 0.6%
America's Favorite Chicken Co. (604,251 common shares)<F2><F3>.......................... $ 1,148,077
America's Favorite Chicken Co. (34,864 preferred shares)<F2><F3>........................ 2,370,752
Best Products Co., Inc. (297,480 common shares)<F3>..................................... 1,208,512
Best Products Co., Inc. (Warrants for 28,080 common shares)<F3>......................... -0-
Core-Mark International, L.L.C. (Class B ownership interest)<F2>........................ 2,571,831
Dan River, Inc. (10,975 common shares)<F2><F3>.......................................... 1,967,353
Flagstar Cos., Inc. (8,755 common shares)<F3>........................................... 37,210
London Fog Industries, Inc. (10,833,012 common shares)<F2><F3>.......................... -0-
London Fog Industries, Inc. ($14,457,139 par amount of preferred stock,
17.5% coupon, maturing 05/31/02)<F2><F5>.............................................. 12,243,542
MICOM Communications, Inc. (Warrants for 114,035 common shares)<F3>..................... 848,135
Nextel Communications, Inc. (Warrants for 60,000 common shares)<F2><F3>................. -0-
-------------
Total Equities.......................................................................... 22,395,412
-------------
Total Long-Term Investments 83.5%
(Cost $3,256,728,970)<F1>............................................................... 3,260,129,507
-------------
Short-Term Investments at Amortized Cost
Commercial Paper 7.8%
Abbott Laboratory ($20,000,000 par, maturing 02/01/96 through 02/02/96,
yielding 5.41% to 5.48%)................................................................ 19,999,543
American Brands, Inc. ($20,000,000 par, maturing 02/06/96, yielding 5.43%).............. 19,984,917
Amoco Credit Corp. ($20,000,000 par, maturing 02/02/96, yielding 5.45%)................. 19,996,972
Anheuser Busch, Inc. ($20,000,000 par, maturing 02/05/96, yielding 5.40%)............... 19,988,000
AT&T Corp. ($20,000,000 par, maturing 02/01/96, yielding 5.41%)......................... 20,000,000
Bayer Corp. ($14,990,000 par, maturing 02/07/96, yielding 5.47%)........................ 14,976,334
Cargil Financial Services Corp. ($20,000,000 par, maturing 02/02/96, yielding 5.48%).... 19,996,956
Du Pont E I De Memours & Co. ($20,000,000 par, maturing 02/06/96, yielding 5.40%)....... 19,985,000
Emerson Electric ($20,000,000 par, maturing 02/01/96, yielding 5.55%)................... 20,000,000
Ford Motor Credit Corp. ($20,000,000 par, maturing 02/06/96, yielding 5.42%)............ 19,984,944
General Electric Capital Corp. ($18,400,000 par, maturing 02/01/96, yielding 5.50%)..... 18,400,000
McDonald's Corp. ($20,000,000 par, maturing 02/05/96, yielding 5.47%)................... 19,987,844
Michelin North America, Inc. ($10,000,000 par, maturing 02/05/96, yielding 5.44%)....... 9,993,956
Motorola, Inc. ($20,000,000 par, maturing 02/08/96, yielding 5.45%)..................... 19,978,806
Raytheon Co. ($20,000,000 par, maturing 02/02/96, yielding 5.45%)....................... 19,996,972
Wal-Mart Stores, Inc. ($20,000,000 par, maturing 02/07/96, yielding 5.45%).............. 19,981,833
-------------
Total Commercial Paper.................................................................. 303,252,077
-------------
Short-Term Loan Participations 7.6%
AIG Funding Corp. ($20,000,000 par, maturing 02/05/96, yielding 5.41%).................. 20,000,000
Alltel Corp. ($20,000,000 par, maturing 02/01/96, yielding 5.50%)....................... 20,000,000
</TABLE>
16 See Notes to Financial Statements
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Portfolio of Investments (Continued)
January 31, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------------------------
Borrower Value
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Short-Term Loan Participations (Continued)
Ameritech Corp. ($20,000,000 par, maturing 02/06/96, yielding 5.41%)....................... $ 20,000,000
AON Corp. ($20,000,000 par, maturing 02/02/96, yielding 5.47%)............................. 20,000,000
Army & Air Force Exchange Services ($20,000,000 par, maturing 02/02/96, yielding 5.58%).... 20,000,000
Ashland Oil Co. ($17,200,000 par, maturing 02/01/96, yielding 5.81% to 5.92%).............. 17,200,000
Baxter International, Inc. ($10,000,000 par, maturing 02/05/96, yielding 5.65%)............ 10,000,000
Bell Atlantic Financial Services ($5,000,000 par, maturing 02/27/96, yielding 5.40%)....... 5,000,000
Central Telephone Co. ($20,000,000 par, maturing 02/05/96, yielding 5.52%)................. 20,000,000
Champion International Corp. ($12,000,000 par, maturing 02/09/96, yielding 5.61%).......... 12,000,000
CIBA Geigy Corp. ($17,000,000 par, maturing 02/01/96 through 02/12/96, yielding 5.45%)..... 17,000,000
Echlin, Inc. ($20,000,000 par, maturing 02/01/96, yielding 5.90%).......................... 20,000,000
Enron Corp. ($20,000,000 par, maturing 02/01/96, yielding 5.95%)........................... 20,000,000
Gillette Co. ($20,000,000 par, maturing 02/02/96, yielding 5.50%).......................... 20,000,000
National Rural Utilities Cooperative Finance ($20,000,000 par, maturing 02/13/96 through
03/06/96, yielding 5.40% to 5.50%)......................................................... 20,000,000
Sara Lee Corp. ($20,000,000 par, maturing 02/08/96, yielding 5.43%)........................ 20,000,000
USAA Capital Corp. ($15,000,000 par, maturing 02/05/96, yielding 5.46%).................... 15,000,000
-------------
Total Short-Term Loan Participations....................................................... 296,200,000
-------------
Total Short-Term Investments at Amortized Cost 15.4%...................................... 599,452,077
-------------
Other Assets in Excess of Liabilities 1.1%................................................ 44,496,029
-------------
Net Assets 100.0%.........................................................................$ 3,904,077,613
==============
<FN>
<F1> At January 31, 1996, cost for federal income tax purposes is
$3,256,728,970; the aggregate gross unrealized appreciation is
$22,570,168, and the aggregate gross unrealized depreciation is
$19,169,631, resulting in net unrealized appreciation of $3,400,537.
<F2> Restricted security.
<F3> Non-income producing security as this stock currently does not declare
dividends.
<F4> This Senior Loan interest is non-income producing. The Borrower has filed
for protection in federal bankruptcy court.
<F5> Payment-in-kind security.
* Senior Loans in the Trust'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 Trust's portfolio
may occur. As a result, the actual remaining maturity of Senior Loans held
in the Trust's portfolio may be substantially less than the stated
maturities shown. Although the Trust is unable to accurately estimate the
actual remaining maturity of individual Senior Loans, the Trust esti mates
that the actual average maturity of the Senior Loans held in its portfolio
will be approximately 18-24 months.
** Senior Loans in which the Trust 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 prime rate
offered by one or more major United States banks, (ii) the lending rate
offered by one or more major European banks, such as the London Inter-Bank
Offered Rate ("LIBOR") and (iii) the certificate of deposit rate. Senior
Loans are generally considered to be restricted in that the Trust
ordinarily is contractually obligated to receive approval from the Agent
Bank and/or borrower prior to the disposition of a Senior Loan.
</TABLE>
17 See Notes to Financial Statements
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Statement of Assets and Liabilities
January 31, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments, at Market Value (Cost $3,256,728,970) (Note 1).................. $ 3,260,129,507
Short-Term Investments (Note 1).............................................. 599,452,077
Receivables:
Fund Shares Sold........................................................... 46,766,738
Interest and Fees.......................................................... 26,303,869
Investments Sold........................................................... 295,051
Other........................................................................ 33,477
-----------------
Total Assets................................................................. 3,932,980,719
-----------------
Liabilities:
Deferred Facility Fees....................................................... 18,683,162
Payables:
Income Distributions....................................................... 4,997,099
Investment Advisory Fee (Note 2)........................................... 3,030,669
Administrative Fee (Note 2)................................................ 797,544
Fund Shares Repurchased.................................................... 96,883
Custodian Bank............................................................. 44,581
Accrued Expenses............................................................. 1,253,168
-----------------
Total Liabilities............................................................ 28,903,106
-----------------
Net Assets................................................................... $ 3,904,077,613
=================
Net Assets Consist of:
Common Shares ($.01 par value with an unlimited number of shares authorized,
389,797,676 shares issued and outstanding) (Note 3).......................... $ 3,897,977
Paid in Surplus.............................................................. 3,905,623,483
Net Unrealized Appreciation on Investments................................... 3,400,537
Accumulated Undistributed Net Investment Income.............................. 2,243,264
Accumulated Net Realized Loss on Investments................................. (11,087,648)
-----------------
Net Assets................................................................... $ 3,904,077,613
=================
Net Asset Value Per Common Share
($3,904,077,613 divided by 389,797,676 shares outstanding)................... $ 10.02
=================
</TABLE>
18 See Notes to Financial Statements
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended January 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest........................................................ $ 135,028,093
Fees............................................................ 9,779,750
Other........................................................... 446,374
----------------
Total Income.................................................... 145,254,217
----------------
Expenses:
Investment Advisory Fee (Note 2)................................ 15,241,566
Administrative Fee (Note 2)..................................... 4,010,938
Shareholder Services (Note 2)................................... 1,992,015
Legal (Note 2).................................................. 555,000
Other........................................................... 1,697,009
----------------
Total Expenses.................................................. 23,496,528
----------------
Net Investment Income........................................... $ 121,757,689
================
Realized and Unrealized Gain/Loss on Investments:
Realized Gain/Loss on Investments:
Proceeds from Sales and Principal Repayments.................... $ 448,969,362
Cost of Securities Sold and Repaid.............................. (449,311,194)
----------------
Net Realized Loss on Investments................................ (341,832)
----------------
Unrealized Appreciation/Depreciation on Investments:
Beginning of the Period......................................... 8,636,619
End of the Period............................................... 3,400,537
----------------
Net Unrealized Depreciation on Investments During the Period.... (5,236,082)
----------------
Net Realized and Unrealized Loss on Investments................. $ (5,577,914)
================
Net Increase in Net Assets from Operations...................... $ 116,179,775
================
</TABLE>
19 See Notes to Financial Statements
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Six Months Ended January 31, 1996 and the Year Ended July 31, 1995 (Unaudited)
- ---------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
January 31, 1996 July 31, 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Net Investment Income.............................................. $ 121,757,689 $ 137,068,617
Net Realized Loss on Investments................................... (341,832) (5,468,220)
Net Unrealized Appreciation/Depreciation on Investments During the
Period............................................................. (5,236,082) 2,107,100
----------------- -----------------
Change in Net Assets from Operations .............................. 116,179,775 133,707,497
Distributions from Net Investment Income........................... (126,141,718) (133,993,957)
----------------- -----------------
Net Change in Net Assets from Investment Activities................ (9,961,943) (286,460)
----------------- -----------------
From Capital Transactions (Notes 3 and 5):
Proceeds from Common Shares Sold................................... 1,430,752,187 1,349,284,514
Value of Shares Issued Through Dividend Reinvestment............... 69,822,562 74,960,773
Cost of Shares Repurchased......................................... (116,600,180) (122,897,620)
----------------- -----------------
Net Change in Net Assets from Capital Transactions................. 1,383,974,569 1,301,347,667
----------------- -----------------
Total Increase in Net Assets....................................... 1,374,012,626 1,301,061,207
Net Assets:
Beginning of the Period............................................ 2,530,064,987 1,229,003,780
----------------- -----------------
End of the Period (Including undistributed net investment income
of $2,243,264 and $6,627,293, respectively) ....................... $ 3,904,077,613 $ 2,530,064,987
================= =================
</TABLE>
20 See Notes to Financial Statements
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Statement of Cash Flows
For the Six Months Ended January 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------
<S> <C>
Change in Net Assets from Operations................................ $ 116,179,775
------------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Provided by Operating Activities:
Increase in Investments at Value.................................... (1,260,570,905)
Increase in Short-Term Investments at Amortized Cost................ (103,737,269)
Increase in Interest and Fee Receivables............................ (10,062,752)
Increase in Receivable for Investments Sold......................... (295,051)
Increase in Other Assets............................................ (33,477)
Increase in Deferred Facility Fees.................................. 1,678,086
Increase in Investment Advisory and Administrative Fees Payable..... 1,351,322
Increase in Accrued Expenses........................................ 46,282
------------------
Total Adjustments................................................... (1,371,623,764)
------------------
Net Cash Used for Operating Activities.............................. (1,255,443,989)
------------------
Cash Flows from Financing Activities (Notes 3 and 5):
Proceeds from Shares Sold........................................... 1,416,107,975
Payments on Shares Repurchased...................................... (116,511,431)
Increase in Intra-day Credit Line................................... 44,581
Cash Dividends Paid................................................. (54,532,599)
------------------
Net Cash Provided by Financing Activities........................... 1,245,108,526
------------------
Net Decrease in Cash................................................ (10,335,463)
Cash at Beginning of the Period..................................... 10,335,463
------------------
Cash at End of the Period........................................... $ -0-
==================
</TABLE>
21 See Notes to Financial Statements
<TABLE>
<CAPTION>
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------
The following schedule presents financial highlights for one common share of the
Trust outstanding throughout the periods indicated. (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
Six Months Ended Year Ended July 31
January 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.......... $ 10.046 $ 10.052 $ 10.004 $ 9.998 $ 9.985
--------------- ---------- ----------- ----------- -----------
Net Investment Income............................. .379 .756 .618 .600 .698
Net Realized and Unrealized Gain/Loss on
Investments....................................... (.010) (.004) .015 .008 .004
--------------- ---------- ----------- ----------- -----------
Total from Investment Operations.................. .369 .752 .633 .608 .702
--------------- ---------- ----------- ----------- -----------
Less:
Distributions from Net Investment Income.......... .399 .758 .585 .600 .689
Distributions in Excess of Net Investment Income
(Note 1).......................................... -0- -0- -0- .002 -0-
--------------- ---------- ----------- ----------- -----------
Total Distributions............................... .399 .758 .585 .602 .689
--------------- ---------- ----------- ----------- -----------
Net Asset Value, End of the Period................ $ 10.016 $ 10.046 $ 10.052 $ 10.004 $ 9.998
=============== ========== =========== =========== ===========
Total Return...................................... 3.73%* 7.82% 6.52% 6.17% 7.25%
Net Assets at End of the Period (In millions)..... $ 3,904.1 $ 2,530.1 $ 1,229.0 $ 966.7 $ 928.3
Ratio of Expenses to Average Net Assets ......... 1.47% 1.49% 1.53% 1.53% 1.55%
Ratio of Net Investment Income to Average Net
Assets .......................................... 7.63% 7.71% 6.16% 5.96% 6.98%
Portfolio Turnover <F1>........................... 15.89% 71.31% 73.50% 66.54% 58.79%
<FN>
<F1> Calculation includes the proceeds from repayments and sales of variable
rate senior loan interests.
*Non-Annualized
</TABLE>
22 See Notes to Financial Statements
Notes to Financial Statements
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen American Capital Prime Rate Income Trust (the "Trust") is registered
as a nondiversified 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, consistent with preservation of
capital. The Trust seeks to achieve its objective by investing primarily in a
portfolio of interests in floating or variable rate senior loans to United
States corporations, partnerships and other entities. The Trust commenced
investment operations on October 4, 1989.
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---The value of the Trust's portfolio is determined by Van
Kampen American Capital Investment Advisory Corp. (the "Adviser") following
guidelines and procedures established, and periodically reviewed, by the Board
of Trustees. The value of a Variable Rate Senior Loan interest in the Trust's
portfolio is determined with reference to changes in market interest rates and
to the creditworthiness of the underlying obligor. In valuing Variable Rate
Senior Loan interests, the Adviser considers market quotations and transactions
in instruments that the Adviser believes may be comparable to such Variable Rate
Senior Loan interests. In determining the relationship between such instruments
and the Variable Rate Senior Loan interests, the Adviser considers such factors
as the creditworthiness of the underlying obligor, the current interest rate,
the interest rate redetermination period and maturity date. To the extent that
reliable market transactions in Variable Rate Senior Loan interests have
occurred, the Adviser also considers pricing information derived from such
secondary market transactions in valuing Variable Rate Senior Loan interests.
Other portfolio securities are valued on the basis of prices furnished by
pricing services or as determined in good faith by the Adviser. Short-term
securities are valued at amortized cost.
B. Security Transactions---Investment transactions are recorded on a trade date
basis.Realized gains and losses are determined on an identified cost basis.
23
Notes to Financial Statements (Continued)
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
C. Investment Income---Interest income is recorded on an accrual basis. Facility
fees received are recognized as income ratably over the expected life of the
loan. Market premiums and discounts are amortized over the stated 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 July 31, 1995, the Trust had an accumulated capital loss carryforward
for tax purposes of $5,605,446. Of this amount, $137,226 and $5,468,220 will
expire on July 31, 2002 and 2003, respectively. Net realized gains or losses may
differ for financial and tax reporting purposes primarily as a result of post
October 31 losses which are not recognized for tax purposes until the first day
of the following fiscal year.
E. Distribution of Income and Gains---The Trust declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.
2. Investment Advisory Agreement and Other Agreements
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .95% of the average net assets of the Trust.
On November 10, 1995, the Board of Trustees approved a new investment advisory
agreement. The terms of this agreement, subject to shareholder approval, are as
follows:
<TABLE>
<CAPTION>
Average 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 Trust will pay a monthly administrative fee to Van Kampen
American Capital Distributors, Inc., the Trust's Administrator, at an annual
rate of .25% of the average net assets of the Trust. The administrative services
to be provided by the Administrator
24
Notes to Financial Statements (Continued)
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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 Trust's portfolio and
providing certain services to the holders of the Trust's securities.
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.
For the six months ended January 31, 1996, the Trust recognized expenses of
approximately $19,400 representing the cost to the Administrator or its
affiliates (collectively "VKAC") of providing legal services to the Trust.
For the six months ended January 31, 1996, the Trust recognized expenses of
approximately $1,649,300, representing the cost to ACCESS Investor Services
Inc., an affiliate of the Adviser, of providing transfer agency and shareholder
services to the Trust plus a profit.
Certain officers and trustees of the Trust are also officers and directors of
VKAC. The Trust does not compensate its officers or trustees who are officers of
VKAC.
The Trust has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC. The Trust's liability under the
deferred compensation and retirement plans at January 31, 1996, was
approximately $35,700.
3. Capital Transactions
At January 31, 1996 and July 31, 1995, paid in surplus aggregated $3,905,623,483
and $2,523,028,402, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1996 July 31, 1995
- -----------------------------------------------------------
<S> <C> <C>
Beginning Shares.......... 251,848,949 122,267,677
---------------- -------------
Shares Sold............... 142,616,925 134,357,255
Shares Issued Through
Dividend Reinvestment..... 6,959,479 7,465,118
Shares Repurchased........ (11,627,677) (12,241,101)
---------------- -------------
Net Increase in
Shares Outstanding........ 137,948,727 129,581,272
---------------- -------------
Ending Shares............. 389,797,676 251,848,949
================ =============
</TABLE>
25
Notes to Financial Statements (Continued)
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
4. Investment Transactions
Aggregate purchases and the cost of securities sold and repaid, excluding
short-term notes, for the six months ended July 31, 1995, were $1,714,224,663
and $449,311,194, respectively.
5. Tender of Shares
The Board of Trustees currently intends, each quarter, to consider authorizing
the Trust to make tender offers for all or a portion of its then outstanding
common shares at the then net asset value of the common shares. For the six
months ended January 31, 1996, 11,627,677 shares were tendered and repurchased
by the Trust.
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 five years which are
accepted by the Trust for repurchase pursuant to tender offers. The early
withdrawal charge will be payable to VKAC. Any early withdrawal charge which is
required to be imposed will be made in accordance with the following schedule.
<TABLE>
<CAPTION>
Year of Repurchase Withdrawal Charge
- -------------------------------------------
<S> <C>
First................... 3.0%
Second.................. 2.5%
Third................... 2.0%
Fourth.................. 1.5%
Fifth................... 1.0%
Sixth and following..... 0.0%
</TABLE>
For the six months ended January 31, 1996, VKAC received early withdrawal
charges of approximately $1,830,000 in connection with tendered shares of the
Trust.
7. Commitments
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $217,647,000 as of
January 31, 1996. The Trust will maintain with its custodian short-term
investments having an aggregate value at least equal to the amount of unfunded
loan commitments.
26
Notes to Financial Statements (Continued)
January 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The Trust has entered into revolving credit agreements with Morgan Guaranty
Trust Company of New York, Bank of America and State Street Bank and Trust
Company for up to $50,000,000, $50,000,000 and $50,000,000, respectively. The
proceeds of any borrowing by the Trust under the revolving credit agreements may
only be used, directly or indirectly, for liquidity purposes in connection with
the consummation of a tender offer by the Trust for its shares. Annual
commitment fees under each facility of 1/10 of 1% are charged on the unused
portion of the credit lines. Borrowings under these facilities will bear
interest at either the banks' prime rate or the Federal Funds rate plus 1/4 to
1/2 of 1%. There have been no borrowings under these agreements to date.
8. Senior Loan Participation Commitments
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States corporations, partnerships, and other entities. When the Trust
purchases a participation of a Senior Loan interest, the Trust 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 Trust assumes
the credit risk of the Borrower, Selling Participant or other persons
interpositioned between the Trust and
the Borrower.
At January 31, 1996, the following sets forth the selling participants with
respect to interests in Senior Loans purchased by the Trust on a participation
basis.
<TABLE>
<CAPTION>
Principal
Amount Value
Selling Participant (000) (000)
- -----------------------------------------------
<S> <C> <C>
Bankers Trust $ 118,952 $ 119,489
Mellon Bank 20,000 20,048
Chemical Bank 13,908 14,175
Merrill Lynch Capital 11,114 11,116
Natwest USA 9,697 9,585
Banque Paribas 3,953 3,934
FNB Canada 3,281 2,789
NationsBank 448 454
----------- -----------
Total $ 181,353 $ 181,590
=========== ===========
</TABLE>
27
Funds Distributed by Van Kampen American Capital
- --------------------------------------------------------------------------------
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment adviser for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
28
Van Kampen American Capital Prime Rate Income Trust
- --------------------------------------------------------------------------------
Officers and Trustees
Don G. Powell*
Chairman and Trustee
Dennis J. McDonnell*
President and Trustee
David C. Arch
Trustee
Rod Dammeyer
Trustee
Howard J Kerr
Trustee
Theodore A. Myers
Trustee
Hugo F. Sonnenschein
Trustee
Wayne W. Whalen*
Trustee
Peter W. Hegel*
Vice President
Jeffrey W. Maillet*
Vice President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Treasurer
Scott E. Martin*
Assistant Secretary
Weston B. Wetherell*
Assistant Secretary
Nicholas Dalmaso*
Assistant Secretary
John L. Sullivan*
Controller
Steven M. Hill*
Assistant Treasurer
Investment Adviser
Van Kampen American Capital Investment Advisory Corp.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606
Independent Auditors
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 American Capital Distributors, Inc., 1996 All rights reserved.
SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.
29