<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 19
Statement of Operations.......................... 20
Statement of Changes in Net Assets............... 21
Statement of Cash Flows.......................... 22
Financial Highlights............................. 23
Notes to Financial Statements.................... 24
Independent Accountant's Report.................. 28
</TABLE>
PRIT ANR 9/97
<PAGE> 2
LETTER TO SHAREHOLDERS
August 27, 1997
Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan Stanley
Group Inc., a world leader in asset
management. More recently, on February
5, 1997, Morgan Stanley Group Inc. and
Dean Witter, Discover & Co. agreed to
merge. The merger was completed on May
31, 1997, creating the combined company [PHOTO]
of Morgan Stanley, Dean Witter,
Discover & Co. Additionally, we are
very pleased to announce that Philip N.
Duff, formerly the chief financial
officer of Morgan Stanley Group Inc.,
has joined Van Kampen American Capital
as president and chief executive DENNIS J. MCDONNELL AND DON G. POWELL
officer. I will continue as chairman of
the firm. We are confident that the
partnership of Van Kampen American
Capital and Morgan Stanley will
continue to work to the benefit of our fund shareholders as we move into the
next century.
The Van Kampen American Capital Prime Rate Income Trust has continued to
provide shareholders with a high level of current income consistent with
preservation of capital. During the 12-month reporting period, the Trust posted
a total return of 6.79 percent at net asset value (NAV), while its NAV
fluctuated by only $0.05, ranging from $9.96 to $10.01. Following this letter,
you will find an interview with the Trust's portfolio manager, which will
provide a comprehensive overview of the Trust's performance and strategies
during the period.
ECONOMIC REVIEW
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the reporting period. After performing solidly
during the second half of 1996, the economy in the first quarter of 1997 grew at
its fastest pace since 1987. Meanwhile, consumer confidence soared to its
highest reading in 28 years, while unemployment fell to 4.8 percent, the lowest
level since 1973.
Despite the robust pace of economic activity, there was little evidence
of troublesome inflation. In fact, wholesale prices fell during each of the
first five months of 1997, the longest stretch of consecutive monthly declines
in 45 years. At the consumer level, prices rose by a mere 2.3 percent during the
12 months through June. A strong rally in the U.S. dollar helped dampen
inflationary pressures resulting from the vigorous domestic economy by making
imported goods less expensive. At the same time, continued moderation in the
cost of employee benefit packages offset mild upward pressure on wages.
In March, the inflationary implications of the nation's low unemployment
rate caused the Federal Reserve Board to raise its target for a key lending rate
by one-quarter of a percentage point, the first hike in short-term interest
rates in two years. Signs that economic growth slowed markedly in the second
quarter, however, led Fed policymakers to leave rates unchanged at subsequent
meetings.
MARKET REVIEW
Bond yields remained in a relatively narrow range during the reporting
period. For several weeks during the spring, it appeared that economic growth
was too robust and that inflation could reemerge. The Federal Reserve's
quarter-point increase in short-term interest rates, as well as worries about
inflation, pushed yields on long-term government bonds up to 7.17 percent in
April. When subsequent data showed the economy to be
Continued on page two
1
<PAGE> 3
decelerating during the second quarter, bond yields gradually fell back to 6.44
percent at the end of July, nearly unchanged from one year earlier.
Reflecting the strong economy, corporate bonds outperformed Treasury
issues by more than two percent during the 12 months ended in July. The Merrill
Lynch Domestic Master Bond Index returned 8.52 percent for the year, with most
of the gains coming in the final three months of the reporting period.
High-yield corporate bonds were the best-performing sector of the fixed-income
market, as the healthy economic environment increased investor confidence in the
creditworthiness of lower-rated debt.
The senior loan market experienced a significant contraction of credit
spreads during the reporting period. While a narrowing of spreads is common in
the later stages of a strong expansion, the magnitude of the credit contractions
is unusual. Meanwhile, senior loan activity remained robust. According to the
Loan Pricing Corporation, syndicated leveraged loan volume reached $189 billion
in the first quarter of 1997, up 40 percent from 1996 and nine-fold since 1991.
Second quarter loan volume for 1997 reached $320 billion, bringing the loan
volume for the first six months of 1997 to 28 percent ahead of the record pace
established in 1996.
OUTLOOK
We expect the pace of economic activity for the remainder of 1997 to
accelerate modestly from the relatively pedestrian rate that prevailed during
the second quarter. While we do not believe that economic growth will be rapid
enough to reignite inflation, some warning signs are present, including a tight
labor market and high consumer confidence. In this environment, at least one
additional round of monetary tightening by the Federal Reserve remains a
possibility. We anticipate that bond yields will remain within a relatively
narrow range for the remainder of the year. The sharp increase in corporate loan
volume during the first quarter is a positive indication of the economy's
longer-term prospects, as companies make capital investments and pursue growth
opportunities.
We are fortunate to be experiencing a rare combination of sustained
economic growth, low inflation, and solid financial-market returns. By most
objective indicators, the U.S. economy is in its best shape in over a
generation. We urge our fund shareholders to use this opportunity to consider
how their investments are currently divided among the three major asset classes
of stocks, bonds, and cash. Uneven moves in the various markets can distort a
carefully planned investment program. We encourage you to review your portfolio
with an eye toward correcting imbalances in the way assets have grown to be
allocated.
Once again, we appreciate your continued confidence in your investment
with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JULY 31, 1997
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
<TABLE>
<CAPTION>
TOTAL RETURNS
<S> <C>
One-year total return(1).................................... 6.79%
Five-year average annual total return(1).................... 6.90%
Life-of-Trust average annual total return(1)................ 7.63%
Commencement date........................................... 10/04/89
Distribution rate(2)........................................ 6.80%
SHARE VALUATIONS
Net asset value on 07/31/97................................. $9.96
One-year high net asset value............................... $10.01
One-year low net asset value................................ $9.96
</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 any early withdrawal charges.
(2)Distribution rate is based upon the offering price and the current monthly
dividend of $.0564 per share.
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.
3
<PAGE> 5
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
TOP FIVE PORTFOLIO SECTORS*
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
<S> <C>
Cable ............................. 13.0%
Wireless/Tele-Communications ...... 9.9%
Manufacturing ..................... 8.7%
Entertainment/Leisure ............. 7.6%
Paper ............................. 6.8%
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1997 **
<S> <C>
Cable ............................. 10.6%
Manufacturing ..................... 7.9%
Food/Beverage ..................... 7.4%
Entertainment/Leisure ............. 6.9%
Paper ............................. 6.7%
</TABLE>
*As a Percentage of Variable Rate Senior Loan Interests
**Unaudited
NET ASSET VALUE STABILITY SINCE INCEPTION
OCTOBER 4, 1989 THROUGH JULY 31, 1997
[LINE GRAPH]
<TABLE>
<CAPTION>
VKAC Prime Rate Income Trust Oct Jul Jul Jul Jul Jul Jul Jul Jul
High $10.07 on 1/3/95 1989 1990 1991 1992 1993 1994 1995 1996 1997
Low $9.96 on 7/18/97 ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 10.01 9.98 10 10 10.05 10.04 10 9.96
</TABLE>
CURRENT INCOME
OCTOBER 4, 1989 THROUGH JULY 31, 1997
[LINE GRAPH]
<TABLE>
<CAPTION>
Oct Jul Jul Jul Jul Jul Jul Jul Jul
1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VKAC Prime Rate Income Yield N/A 10.48 8.02 6 5.76 6.5 8.02 6.8 6.8
3 Month Treasury Bill 8.03 7.73 5.68 3.24 3.1 4.36 5.58 5.31 5.24
</TABLE>
TOP FIVE HOLDINGS AS A PERCENTAGE OF VARIABLE RATE SENIOR LOAN INTERESTS
AS OF JULY 31, 1997
<TABLE>
<S> <C>
Stone Container Corp. -- Manufacturer of paper products..... 3.1%
Nextel Finance Co. -- Wireless communications service
provider.................................................. 2.1%
Jefferson Smurfit Corp. -- Manufacturer of corrugated paper
products.................................................. 2.0%
AMF Bowling, Inc. -- Manufacturer of integrated bowling
equipment................................................. 1.6%
Marcus Cable Operating Co. -- Cable television systems
operator.................................................. 1.3%
</TABLE>
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
We recently spoke with the portfolio manager of the Van Kampen American Capital
Prime Rate Income Trust about the key events and economic forces that shaped the
markets during 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 12-month period ended July 31, 1997.
Q HOW DID ECONOMIC CONDITIONS AFFECT THE SENIOR LOAN MARKET AND THE TRUST
DURING THE PAST YEAR?
A In the senior loan market, economic strength continued to enhance
corporate profitability, which suggested that many companies should be
able to meet their senior loan obligations on a timely basis. Volume in
the U.S. corporate and industrial syndicated loan market for the first
quarter of 1997 posted the highest total ever for the first quarter of a year,
according to Loan Pricing Corporation. As a result, we can continue to be
selective in our choice of investments for the Trust.
The Trust enjoyed the steady economic growth and low inflation that
characterized the reporting period. In a preemptive move to control inflation,
the Federal Reserve Board raised short-term rates by one-quarter of a percent in
March, which had a positive effect on the Trust. Since then, interest rates have
not fluctuated significantly, so core lending rates -- and the Trust's dividend
- -- held reasonably steady.
Q WHAT OBSTACLES DID THE TRUST FACE DURING THE REPORTING PERIOD?
A Continued economic strength posed several challenges for the senior loan
market. First, there was an improvement in the overall financial health of
companies in the marketplace. In general, properly operated companies saw
an improvement in their performance and top-line revenues. As a result, many
companies were able to obtain loans at a lower lending rate, which means the
interest rate charged by banks on these loans was reduced. Because the Prime
Rate Income Trust invests in these loans, our ability to sustain the Trust's
dividend was under pressure, and the dividend was reduced modestly. We believe
the Trust's current monthly dividend of $0.0564 per share is very favorable
under these conditions, especially in light of the Trust's broad
diversification.
Another challenge was the inflow of cash from loan prepayments. In a booming
economy, more companies are in the position to prepay their loans. Our issuers
do not give any advance notice that they are going to prepay a loan, so it is
difficult to anticipate these inflows of cash. We try to maintain the Trust's
cash allocation between 8 and 13 percent in order to handle our shareholders'
liquidity needs during the Trust's tender periods without compromising the
dividend.
Q HAS THE STRUCTURE OF THE PORTFOLIO CHANGED SIGNIFICANTLY?
A Not really. Our weightings by sector continue to be roughly the same as
they were a year ago. To help us offset some of the potential risk of
senior loan investing, we maintain a widely varied portfolio comprised
primarily of senior secured loans issued by large domestic corporations. The
senior loan market continues to have good supply and most of its issues are
structurally sound, so we've been able to maintain our diversification among
many industry sectors, such as the following:
- Media, including radio, television, and cable, is relatively undervalued,
and industry deregulation has enhanced performance.
- A number of manufacturing companies, particularly in the aerospace
industry, are thriving. If you fly regularly, you may have noticed that
demand seems to be on the rise -- flights are full, so revenues per
air-seat mile are increasing. In addition, cheap petroleum prices have
helped profitability.
5
<PAGE> 7
- Telecommunications companies, from paging equipment to cellular services
to satellite devices, have benefited from new technology and industry
deregulation.
- Paper prices have gone down, and the profitability of industries that rely
on paper products, such as newspapers, has bounced up.
The Trust's portfolio represents over 250 individual companies -- companies
whose products and services you probably use. We currently hold issuers like
Viacom, Borg Warner Securities, Mary Kay Cosmetics, Revlon Consumer Products
Corp., Gulfstream, QVC Programming, Six Flags Theme Parks, Stone Container
Corp., and Vail Resorts. Although not all of the Trust's holdings will be as
established as these companies, you'll recognize many of them as large,
well-known firms with broad product offerings and widespread market presence.
Q CAN YOU GIVE AN EXAMPLE OF A PARTICULAR HOLDING THAT ILLUSTRATES YOUR
SELECTION STRATEGY?
A Our strategy requires us to look several years ahead at many different
industries and predict the direction of demand. For example, about four or
five years ago, we identified Nextel Communications, a wireless
communications company, as an up-and-comer. Back then, most people had never
heard of Nextel, and we were involved in one of their first major loans. Today,
Nextel has the largest reach of any wireless company in the Western Hemisphere,
and their goal is to be one of the top wireless carriers worldwide. As this
example illustrates, we aren't daily traders with this fund -- we maintain a
long-term horizon for our holdings.
Q HOW DID THE TRUST PERFORM DURING THE PAST YEAR?
A The Trust's total return for the 12-month reporting period was 6.79
percent(1) at net asset value (NAV). During the reporting period, the
Trust's NAV remained within a narrow range, between $9.96 and $10.01.
Based on the July 25, 1997 public offering price of $9.96, the Trust's
current monthly dividend of $0.0564 per share represents a distribution rate of
6.80 percent(2). Past performance does not guarantee future results. For more
information on the Trust's performance, please refer to the chart on page three.
Q ARE YOU PLEASED WITH THE TRUST'S PERFORMANCE?
A Yes, we are. Consider why most investors purchase the Prime Rate Income
Trust -- for the potential for a high level of current income and
preservation of capital. With this as our objective, we've done what we
set out to do, and that puts us in some pretty exclusive company. Keep in
mind that we're not out there trying to push the envelope with our shareholders'
investment dollars. Of course, higher-yielding investments are available in the
marketplace, but they are too risky for our liking. We're trying to make
decisions that provide shareholders with a relatively stable NAV and high
current dividend.
We wouldn't limit our satisfaction with the Trust to the past year alone.
Throughout its history, the Trust has met its objective in a variety of market
environments, and people are taking notice.
Q WHY DO YOU BELIEVE SO STRONGLY IN THE VALUE OF THIS TYPE OF INVESTMENT?
A First, senior loans provide integral financing in the life cycle of a
corporation. These loans are very important to major corporations. Second,
the Trust's holdings are primarily senior, secured, floating-rate
obligations. They tend to reflect the prevailing interest rate
environment, so the Trust's net asset value has been less sensitive to interest
rate changes. Finally, we have the luxury of investing in an asset class that
has tended to have a high degree of relative stability by its very nature.
Payments to holders of senior loan obligations are given priority over payments
to shareholders of subordinated debt and preferred and common stock, which
offers a measure of protection in volatile markets. As the stock and bond
markets extend their rallies, we think that people will start putting money back
into historically stable investments like the Prime Rate Income Trust. For
additional Trust portfolio highlights, please refer to page four.
6
<PAGE> 8
Q WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND INTEREST RATES?
A The Fed's rate hike in March appears to have been successful in warding
off inflation, and Fed Chairman Alan Greenspan has made comments that
suggest the Fed will hold rates steady for awhile. However, commercial
activity is picking up worldwide, and to think that we won't have a rising
interest rate environment is short-sighted. History bears this out. We believe
that it is only a matter of time before the market will be tempered by rising
interest rates, which have tended to maintain stability rather than promoting
the unabated expansion we've seen recently. A strong economy and a moderate rise
in interest rates would be beneficial to the Trust.
Q GIVEN THIS OUTLOOK, HOW DO YOU VIEW THE TRUST AND THE SENIOR LOAN MARKETS
IN THE MONTHS AHEAD?
A We believe that the Trust is well positioned in this type of market
environment. The strong economy should continue to attract investments
from around the world, which is likely to sustain the demand for the
senior loans in which the Trust invests. And in many cases, companies are
pursuing strategic growth opportunities, which should give them significant
competitive advantages over the long run. The senior loan market continues to be
an attractive and logical source of funding for these ventures. We will continue
to be selective and position the portfolio to participate in this growth without
losing sight of the potential changes in the economy.
[SIG]
Jeffrey W. Maillet
Portfolio Manager
Please see footnotes on page three
7
<PAGE> 9
A FOCUS ON SENIOR LOANS
The Prime Rate Income Trust invests primarily in senior collateralized
loans to U.S. corporations, partnerships, and other business entities which
operate in a variety of industries and geographical locations. Senior loans have
a number of characteristics which, in the opinion of the Trust's management
team, are important to the integrity of the Trust'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 senior securities of the borrower. This status is
not a guarantee, however, that monies to which the Trust is entitled will be
paid. 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 the loan agreement. Forms of collateral include,
among others, accounts receivable or inventory, buildings and real estate. 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 unsecured, and circumstances could arise (such as
the bankruptcy of a borrower) which could cause the Trust's security interest in
the loan's collateral to be invalidated.
PROTECTIVE COVENANTS
Many senior loans carry provisions designed to protect the lender in
certain circumstances. Still, the Trust's net asset value may fluctuate with
changes in the perceived credit quality of the loans in which the Trust has
invested and may, from time to time, be more or less than the net asset value at
the time of the investment.
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS 85.1%
AEROSPACE/DEFENSE 1.6%
$10,103 Aerostructures Corp., Term Loan -- Manufacturer and
assembler of structural aircraft parts...................... 09/30/03 to 09/30/04 $ 10,124,643
11,740 Alliant Techsystems, Inc., Term Loan -- Manufacturer of
ordnance, composite metals.................................. 03/15/01 11,756,648
8,807 Fiberite, Inc., Term Loan -- Manufacturer of composite
fibers...................................................... 12/31/01 8,815,769
49,167 Gulfstream Delaware Corp., Term Loan -- Aircraft
manufacturer................................................ 09/30/02 49,246,746
5,503 L-3 Communications Corp., Term Loan -- Provider of secure
communications systems...................................... 03/31/03 to 03/31/06 5,513,187
4,975 MAG Aerospace Industries, Inc., Term Loan -- Supplier of
waste and trash systems to the aerospace industry........... 06/15/03 5,000,386
8,000 Tri-Star, Inc., Term Loan -- Distributor of aerospace
fasteners................................................... 09/30/03 8,054,020
------------
98,511,399
------------
AUTOMOTIVE 2.5%
8,500 American Bumper and Manufacturing Co., Term Loan --
Manufacturer of light truck
and SUV bumpers............................................. 04/30/04 8,520,286
17,972 Blue Bird Body Co., Term Loan -- Manufacturer of school
buses....................................................... 11/19/03 18,007,785
1,833 Blue Bird Body Co., Revolving Credit........................ 11/19/03 1,833,352
28,000 Cambridge Industries, Inc., Term Loan -- Manufacturer of
plastic components for automobiles.......................... 06/30/05 28,036,930
16,411 Collins & Aikman Products Co., Term Loan -- Manufacturer of
auto interiors, home interiors and wallpaper................ 01/13/02 to 12/31/02 16,442,619
17,265 Columbus-McKinnon Corp., Term Loan -- Manufacturer of
material handling equipment................................. 09/30/01 to 09/30/03 17,908,551
4,648 Columbus-McKinnon Corp., Revolving Credit................... 09/30/01 4,649,341
9,975 Exide Corp., Term Loan -- Manufacturer of auto and
industrial batteries........................................ 06/15/01 9,978,764
15,928 Hayes Wheels International, Inc., Term Loan -- Designer and
manufacturer of car and truck wheels........................ 07/31/04 to 07/31/05 15,967,934
11,780 Numatics, Inc., Term Loan -- Manufacturer of pneumatic fluid
power equipment............................................. 12/31/03 11,814,486
10,000 The Plastech Group, Term Loan -- Manufacturer and designer
of thermoplastic automotive parts........................... 04/01/02 to 04/01/04 10,004,286
10,009 Stanadyne Automotive Corp., Term Loan -- Manufacturer of
diesel injection devices and engine parts................... 12/31/01 10,009,175
------------
152,573,509
------------
BROADCASTING 4.5%
25,170 American Radio Systems Corp., Revolving Credit -- Radio
station owner/operator...................................... 12/31/04 25,297,215
12,570 Benedek Broadcasting Corp., Term Loan -- Television station
owner/operator.............................................. 05/01/01 to 11/01/02 12,602,962
26,667 Chancellor Broadcasting Co., Term Loan -- Radio station
owner/operator.............................................. 06/30/04 26,795,212
1,465 Chancellor Broadcasting Co., Revolving Credit............... 06/30/04 1,576,621
53,571 Evergreen Media Corp. of Los Angeles, Term Loan -- Radio
station owner/operator...................................... 06/30/05 53,736,606
7,029 Evergreen Media Corp. of Los Angeles, Revolving Credit...... 06/30/05 7,093,795
9,227 Jacor Communications, Inc., Term Loan -- Radio station
owner/operator.............................................. 06/12/04 9,255,306
10,919 Katz Media Corp., Term Loan -- Media representation firm.... 12/31/04 10,937,087
1,693 Katz Media Corp., Revolving Credit.......................... 12/31/04 1,698,250
15,000 Patterson Broadcasting, Inc., Term Loan -- Radio station
operator.................................................... 06/30/04 15,050,540
9,427 River City Broadcasting, L.P., Term Loan -- Midwestern radio
station owner/operator...................................... 12/31/99 9,454,087
10,710 SFX Broadcasting, Inc., Revolving Credit -- Radio station
owner/operator.............................................. 06/30/05 10,743,623
45,200 Sinclair Broadcasting, Term Loan -- Television and radio
station owner/operator...................................... 12/31/04 45,264,651
21,614 Sullivan Broadcasting, Term Loan -- Television station
owner/operator.............................................. 12/31/03 21,641,709
383 Sullivan Broadcasting, Revolving Credit..................... 12/31/03 384,611
3,677 Universal Outdoor, Inc., Term Loan -- Outdoor advertiser.... 09/20/03 3,677,330
15,500 Universal Outdoor, Inc., Revolving Credit................... 09/30/03 15,575,146
9,926 Young Broadcasting, Inc., Term Loan -- Television station
operator.................................................... 09/30/03 9,964,365
------------
280,749,116
------------
BUILDING/HOUSING 2.0%
19,454 Behr Process Corp., Term Loan -- Manufacturer of paint...... 03/31/02 to 03/31/05 19,473,155
1,412 Behr Process Corp., Revolving Credit........................ 03/31/02 1,411,789
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BUILDING/HOUSING (CONTINUED)
$13,750 Falcon Building Products, Inc., Term Loan -- Manufacturer of
building products........................................... 06/30/05 $ 13,802,083
59,750 National Gypsum Co., Term Loan -- Manufacturer of
wallboard................................................... 09/20/03 59,792,054
23,602 Walter Industries, Inc., Term Loan -- Home builder.......... 01/22/02 to 01/22/03 23,644,962
5,443 Walter Industries, Inc., Revolving Credit................... 01/22/02 5,529,537
------------
123,653,580
------------
<CAPTION>
CABLE 11.0%
<S> <C> <C> <C>
23,107 Adelphia Cable Partners, L.P., Revolving Credit -- Cable
television operator......................................... 12/31/03 23,230,162
22,500 Bresnan Communications Co., L.P., Term Loan -- Cable
television systems operator................................. 03/31/06 22,653,552
5,970 Cable Systems International, Inc., Term Loan -- Manufacturer
of electrical wire and cable................................ 12/31/02 5,984,166
12,000 Cablevision of Ohio, Term Loan -- Cable television
owner/operator.............................................. 12/31/05 12,016,335
46,500 Charter Communications Entertainment I, Term Loan -- Cable
television systems operator................................. 06/30/04 46,531,468
10,414 Charter Communications Entertainment II, Term Loan -- Cable
television systems operator................................. 06/30/05 to 12/31/05 10,429,793
3,169 Charter Communications Entertainment II, Revolving Credit... 06/30/05 3,169,433
32,000 Charter Communications Entertainment II & Long Beach, Term
Loan -- Cable television systems operator................... 03/31/06 32,123,089
47,500 Chelsea Communications, Inc., Term Loan -- Cable television
systems operator............................................ 12/31/04 47,553,724
21,034 Classic Cable, Inc., Term Loan -- Cable television systems
operator.................................................... 06/30/05 21,074,828
16,717 Coaxial Communications of Central Ohio, Term Loan -- Cable
television systems operator................................. 12/31/99 16,718,050
25,875 Comcast MH Holdings, Inc., Revolving Credit -- Cable
television systems operator................................. 12/31/03 25,903,002
2,406 CSG Systems, Inc., Term Loan -- Communications management
consultant.................................................. 12/31/00 2,407,886
45,037 Falcon Holdings Group, L.P., Term Loan -- Cable television
systems operator............................................ 07/11/05 45,086,436
9,260 Falcon Holdings Group, L.P., Revolving Credit............... 07/11/05 9,309,094
26,500 Frontiervision Operating Partners, L.P., Term Loan -- Cable
television systems operator................................. 06/30/05 26,557,637
22,778 Garden State Cablevision, L.P., Revolving Credit -- Cable
television systems owner/operator........................... 06/30/05 22,778,667
33,971 Hilton Head Communications, L.P., Revolving Credit -- Cable
television systems operator................................. 06/30/03 34,138,774
11,000 Insight Communication Co., L.P., Term Loan -- Cable
television systems operator................................. 03/31/05 11,027,541
8,200 Insight Communication Co., L.P., Revolving Credit........... 03/31/05 8,233,263
18,500 InterMedia Partners IV, L.P., Term Loan -- Cable television
systems owner/operator...................................... 01/01/05 18,523,830
6,139 James Cable Partners, L.P., Term Loan -- Cable television
systems operator............................................ 06/30/00 6,152,799
500 James Cable Partners, L.P., Revolving Credit................ 06/30/00 501,935
7,000 Lenfest Communications, Inc., Term Loan -- Cable television
systems operator............................................ 09/30/03 7,019,193
7,350 Lenfest Communications, Inc., Revolving Credit.............. 09/30/03 7,393,215
67,313 Marcus Cable Operating Co., Term Loan -- Cable television
systems operator............................................ 12/31/02 to 04/30/04 67,464,833
3,095 Marcus Cable Operating Co., Revolving Credit................ 12/31/02 3,118,008
5,000 Mark Twain Cablevision, L.P., Term Loan -- Cable television
systems operator............................................ 06/30/04 5,026,115
10,800 Northland Cable Television, Inc., Term Loan -- Cable
television systems operator................................. 09/30/04 10,837,489
47,500 TCI Pacific, Inc., Term Loan -- Cable television systems
operator.................................................... 12/31/04 47,581,205
7,890 TCI Southeast, Inc., Revolving Credit -- Cable television
systems operator............................................ 06/30/01 7,906,536
30,714 Triax Midwest Associates, Term Loan -- Cable television
systems operator............................................ 06/30/04 to 06/30/05 30,813,692
2,730 Triax Midwest Associates, Revolving Credit.................. 06/30/04 2,738,720
27,029 TW Fanch, Revolving Credit -- Cable television systems
operator.................................................... 12/31/04 27,145,560
19,600 UCA Group, Revolving Credit -- Cable television systems
operator.................................................... 09/30/03 19,683,974
------------
688,834,004
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CHEMICAL 3.3%
$11,396 Cedar Chemicals Corp., Term Loan -- Manufacturer of
fertilizer.................................................. 10/30/03 $ 11,417,257
7,448 Geo Specialty Chemicals, Inc., Term Loan -- Manufacturer of
specialty chemicals......................................... 09/25/02 to 03/25/04 7,492,121
7,923 Hampshire Chemical Co., Term Loan -- Manufacturer of
specialty chemicals......................................... 09/01/03 7,925,963
47,507 Huntsman Group Holdings, Term Loan -- Integrated chemical,
plastic and packaging producer.............................. 12/31/02 to 12/31/04 47,581,975
4,340 Huntsman Group Holdings, Revolving Credit................... 12/31/02 4,353,815
20,000 Huntsman Specialty Chemical Corp., Term Loan -- Manufacturer
of specialty chemicals...................................... 03/15/04 to 03/15/05 20,018,076
10,000 Pioneer Americas Acquisition Corp., Term Loan --
Manufacturer of water treatment chemicals................... 12/31/06 10,014,993
12,147 Reid Plastics, Inc., Term Loan -- Manufacturer of plastic
bottles..................................................... 11/12/03 12,206,517
10,633 Rexene Corp., Term Loan -- Manufacturer of petrochemicals... 03/31/04 10,652,407
2,334 Rexene Corp., Revolving Credit.............................. 03/31/04 2,338,333
15,000 Rheox, Inc., Term Loan -- Manufacturer of chemical
additives................................................... 01/30/04 15,034,447
43,311 Sterling Chemicals, Inc., Term Loan -- Manufacturer of
commodity petrochemicals.................................... 09/30/04 43,441,922
6,692 Texas Petrochemicals Corp., Term Loan -- Processor of
petrochemicals.............................................. 06/30/04 6,705,414
5,958 Thoro System Products, Inc., Term Loan -- Manufacturer of
chemicals for construction industry......................... 03/31/00 6,077,072
------------
205,260,312
------------
<CAPTION>
ELECTRIC/ELECTRONICS 2.3%
<S> <C> <C> <C>
12,504 Amphenol Corp., Term Loan -- Designer, manufacturer and
marketer of electric/electronic connectors.................. 05/19/05 to 05/19/06 12,531,152
6,100 Anacomp, Inc., Term Loan -- Provider of micrographics....... 03/31/01 6,124,218
6,825 Banker's Systems, Inc., Term Loan -- Supplier of compliance
services.................................................... 11/01/02 6,826,372
31,625 Berg Electronics, Inc., Term Loan -- Manufacturer of
electronic connectors....................................... 12/31/02 31,653,108
21,350 Bridge Information Systems, Inc., Term Loan -- Provider of
financial and analytical services........................... 12/31/01 to 12/31/02 21,404,869
17,000 Cooperative Computing Inc./Triad Systems Corp., Term Loan --
Provider of information services............................ 02/27/03 17,084,550
2,290 Exide Electronics Group, Inc., Term Loan -- Manufacturer of
uninterruptible power supply products....................... 04/08/02 2,292,629
3,600 Exide Electronics Group, Inc., Revolving Credit............. 04/08/02 3,607,067
9,000 HG Holdings, Inc., Term Loan -- Provider of payment and
information processing...................................... 06/30/01 9,024,511
9,950 Phase Metrics, Inc., Term Loan -- Designer and manufacturer
of computer production test equipment....................... 11/27/01 9,984,590
8,358 Rowe International, Inc., Term Loan -- Manufacturer of
jukeboxes and electronic equipment (a)...................... 12/31/97 7,104,583
9,000 Sarcom, Inc., Term Loan -- Provider of information
technology.................................................. 12/31/02 9,000,900
8,775 Viasystems, Inc., Term Loan -- Manufacturer of PCB
equipment................................................... 06/30/04 to 06/30/05 8,803,727
------------
145,442,276
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENTERTAINMENT/LEISURE 6.5%
$83,470 AMF Bowling, Inc., Term Loan -- Manufacturer of integrated
bowling equipment........................................... 03/31/01 to 03/31/04 $ 83,563,184
1,422 AMF Bowling, Inc., Revolving Credit......................... 03/31/01 1,422,600
7,911 DW Investment, Inc., Revolving Credit -- Communications and
entertainment conglomerate.................................. 06/28/00 7,911,631
33,000 Fleer Corp., Term Loan -- Publisher of children's
magazines (a) (b)........................................... 02/28/02 30,096,000
8,000 KSL Recreation Group, Inc., Term Loan -- Leisure, recreation
and travel.................................................. 04/30/05 to 04/30/06 8,021,758
1,500 KSL Recreation Group, Inc., Revolving Credit................ 04/30/04 1,500,578
15,566 M.W. Manufacturers, Term Loan -- Manufacturer of sporting
goods and table games....................................... 09/15/02 15,581,134
59,231 Mafco Finance Corp., Term Loan -- Holding company........... 03/20/99 59,478,864
924 Mafco Finance Corp., Revolving Credit....................... 03/20/99 923,097
28,571 Metro-Goldwyn-Mayer, Term Loan -- Movie/television
producer.................................................... 09/30/02 28,999,796
29,600 Metro-Goldwyn-Mayer, Revolving Credit....................... 09/30/01 30,368,734
20,000 Orion Pictures Corp., Term Loan -- Theatrical production.... 07/10/02 20,098,918
2,000 Orion Pictures Corp., Revolving Credit...................... 07/10/02 2,024,069
24,130 Six Flags Theme Parks, Term Loan -- Theme park operator..... 06/23/03 24,130,994
6,700 Sportcraft, Ltd., Term Loan -- Supplier of high quality
branded sporting goods...................................... 12/31/02 6,730,872
8,250 TW Recreational Services, Inc., Term Loan -- Provider of
food and services for state and national parks.............. 09/30/02 8,266,189
15,000 Vail Resorts, Inc., Term Loan -- Resort operator............ 04/15/04 15,016,221
56,441 Viacom, Inc., Term Loan -- Entertainment media/television
programming................................................. 04/01/02 to 04/02/02 56,487,810
5,085 Viacom, Inc., Revolving Credit.............................. 04/01/02 5,094,614
------------
405,717,063
------------
FINANCE 0.5%
3,562 Ark Asset Holdings, Inc., Term Loan -- Institutional money
manager..................................................... 11/30/01 3,562,559
7,000 Blackstone Capital Co., Term Loan -- Financial services..... 05/31/99 7,018,686
7,000 Blackstone Capital Co., Revolving Credit.................... 05/31/99 7,018,320
14,842 OSI Holdings Corp., Term Loan -- Provider of accounts
receivable management services.............................. 11/01/03 14,865,900
------------
32,465,465
------------
FOOD/BEVERAGE 4.1%
10,808 American Italian Pasta Co., Term Loan -- Pasta products
producer.................................................... 02/28/04 10,832,003
11,500 Amerifoods, Inc., Term Loan -- Manufacturer of snack foods
and bakery products......................................... 06/30/01 to 06/30/02 10,925,000
7,400 Ameriserve Food Distribution, Inc., Term Loan -- Systems
food service distributor.................................... 06/30/04 to 06/30/06 7,407,428
4,137 Edwards Baking Corp., Term Loan -- Manufacturer of bakery
products.................................................... 09/30/00 to 10/31/02 4,146,877
4,839 Ghiradelli Chocolate Co., Term Loan -- Manufacturer of
chocolate products.......................................... 03/30/03 4,864,112
9,936 IM Stadium, Inc., Term Loan -- Sports stadium concessions... 12/31/02 to 12/31/03 9,956,757
36,000 International Home Foods, Inc., Term Loan -- Manufacturer
and marketer of branded food products....................... 09/30/04 36,077,918
17,758 President Baking Co., Inc., Term Loan -- Bread/bread
products manufacturer....................................... 12/30/02 17,692,751
39,676 Rykoff-Sexton, Inc., Term Loan -- Distributor and
manufacturer of food and related non-food products.......... 10/31/02 to 04/30/03 39,731,676
45,054 S.C International Services, Term Loan -- In-flight food
services.................................................... 09/30/00 to 09/30/03 45,089,242
13,880 Select Beverages, Inc., Term Loan -- Independent bottler.... 06/30/01 to 06/30/02 13,881,757
24,762 Stroh Brewery Co., Term Loan -- Beer manufacturer........... 06/30/03 24,834,478
20,138 Van De Kamp's, Inc., Term Loan -- Processor and distributor
of frozen foods............................................. 04/30/03 to 09/30/03 20,181,133
6,708 Windsor Quality Food Co., LTD, Term Loan -- Processor of
frozen foods................................................ 12/31/01 6,725,529
------------
252,346,661
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOOD STORES 3.6%
$48,000 Bruno's, Inc., Term Loan -- Southeastern retail food chain
operator.................................................... 04/15/05 $ 48,076,707
12,805 Carr-Gottstein Foods, Term Loan -- Alaska based retail food
chain operator.............................................. 12/31/02 12,810,784
11,440 Core-Mark International, Inc., Revolving Credit -- Wholesale
distributor................................................. 06/30/01 11,518,259
5,079 Harvest Foods, Inc., Term Loan -- Mississippi based retail
food chain operator (a) (b)................................. 06/30/02 304,724
30,455 Pathmark Stores, Inc., Term Loan -- New Jersey based retail
food chain operator......................................... 06/15/01 to 12/15/01 30,525,118
1,018 Pathmark Stores, Inc., Revolving Credit..................... 06/15/01 1,068,928
3,293 Ralph's Grocery Co., Revolving Credit -- Los Angeles,
California based retail food chain operator................. 02/15/03 3,303,407
54,827 Ralph's Grocery Co., Term Loan.............................. 02/15/03 to 02/15/04 54,887,876
51,376 Smith's Food and Drug Centers, Term Loan -- Food and drug
retailer.................................................... 11/01/03 to 05/01/05 51,424,039
10,157 Star Markets Co., Inc., Term Loan -- New England based
retail food chain operator.................................. 12/31/02 to 12/31/03 10,169,269
1,961 Star Markets Co., Inc., Revolving Credit.................... 01/31/01 1,963,343
------------
226,052,454
------------
FUEL RETAILER 0.2%
11,981 TravelCenters of America, Inc., Term Loan -- Operator of
truckstops nationwide....................................... 03/31/05 12,022,962
------------
HEALTHCARE 5.7%
16,389 Alaris Medical Systems, Inc., Term Loan -- Infusion systems
provider.................................................... 08/01/02 to 05/01/05 16,402,412
1,344 Alaris Medical Systems, Inc., Revolving Credit.............. 08/01/02 1,344,104
5,800 ASC Network Corp., Term Loan -- Operator of free-standing
outpatient surgery centers.................................. 06/30/01 to 06/30/03 5,831,417
6,500 Charter Behavioral, Revolving Credit -- Provider of
behavorial healthcare services.............................. 06/17/02 6,547,092
59,493 Community Health Systems, Inc., Term Loan -- Southeast and
Southwest hospital operator/provider of healthcare
services.................................................... 12/31/03 to 12/31/05 59,667,358
37,500 Corning Clinical Labs, Inc., Term Loan -- Clinical testing
laboratory operator......................................... 12/05/02 to 12/05/03 37,659,498
4,900 Coventry Corp., Term Loan -- Health maintenance
organization................................................ 04/01/98 4,900,000
55,824 Dade International, Inc., Term Loan -- Medical equipment
manufacturer/marketer....................................... 12/31/02 to 12/31/04 55,958,413
27,500 FPA Medical Management, Inc., Term Loan -- Healthcare
provider.................................................... 09/30/01 27,541,372
15,755 Graphic Controls Corp., Term Loan -- Manufacturer of medical
equipment................................................... 09/28/03 15,775,341
18,566 Integrated Health Services, Inc., Revolving Credit --
Provider of post-acute healthcare services.................. 06/30/02 18,767,746
6,920 Medical Specialties Group, Inc., Term Loan -- Supplier of
medical pumps and consumables............................... 06/30/01 to 06/30/04 6,945,058
9,905 Mediq/PRN Life Support Services, Inc., Term Loan -- Rents
movable critical care equipment............................. 09/30/04 9,946,087
18,315 Merit Behavioral Corp., Term Loan -- Psychiatric hospital
operator.................................................... 10/06/03 18,337,461
60,000 National Medical Care, Inc., Term Loan -- Kidney dialysis
service provider............................................ 09/30/03 60,213,995
7,143 NEN Acquisition, Inc., Term Loan -- Manufacturer of
consumable radio-isotopic biochemicals...................... 03/31/05 7,177,954
5,000 Prime Medical Services, Inc., Term Loan -- Provider of
lithotripsy services........................................ 04/30/03 5,016,290
------------
358,031,538
------------
MANUFACTURING 7.4%
9,500 Arena Brands, Inc., Term Loan -- Manufacturer of hats....... 06/01/02 9,500,000
618 Arena Brands, Inc., Revolving Credit........................ 06/01/02 617,500
7,444 CII Carbon, L.L.C., Term Loan -- Calcined coke producer..... 09/30/04 7,471,622
12,281 Calmar, Inc., Term Loan -- Manufacturer of dispensing and
spray products.............................................. 09/15/03 to 03/15/04 12,287,342
9,797 CBP Resources, Inc., Term Loan -- Manufacturer of animal
feed ingredients............................................ 09/30/03 9,820,078
47,052 Dal-Tile Group, Inc., Term Loan -- Ceramic tile and floor
covering manufacturer/retailer.............................. 12/31/02 to 12/31/03 47,258,814
3,181 Dal-Tile Group, Inc., Revolving Credit...................... 12/31/02 3,185,304
20,918 Desa International, Term Loan -- Diversified manufacturer of
heaters, fireplaces and specialty tools..................... 02/28/03 20,978,724
9,321 Ebel USA, Inc., Term Loan -- Manufacturer of luxury time
pieces...................................................... 09/30/01 9,320,793
3,795 Essex Group, Inc., Revolving Credit -- Manufacturer of
electrical wire and cable................................... 10/31/01 3,814,274
52,500 Evenflo & Spalding Holdings Corp., Term Loan -- Manufacturer
of branded sporting goods/juvenile products................. 09/30/03 to 09/30/06 52,535,651
2,700 Evenflo & Spalding Holdings Corp., Revolving Credit......... 09/30/03 2,700,083
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MANUFACTURING (CONTINUED)
$ 7,458 Fairchild Semiconductor Corp., Term Loan -- Manufacturer of
semiconductors.............................................. 03/11/03 $ 7,476,780
6,239 Fairchild Holding Corp., Term Loan -- Manufacturer of
fasteners for the aerospace industry........................ 07/28/00 6,270,040
18,726 Foamex, L.P., Term Loan -- Manufacturer/marketer of flexible
polyurethane................................................ 06/30/03 to 06/30/06 18,739,035
2,148 Foamex, L.P., Revolving Credit.............................. 06/12/03 2,148,398
20,000 Furniture Brands, Term Loan -- Manufacturer and marketer of
furniture................................................... 06/30/07 20,002,098
9,950 IAH Acquisition Corp., Term Loan -- Manufacturer,
distributor and retailer of safety shoes.................... 01/31/05 9,994,717
6,451 Identity Group, Inc., Term Loan -- Designer, manufacturer
and distributor of identity products........................ 11/22/03 6,473,437
28,000 International Wire Group, Term Loan -- Manufacturer of auto,
appliance, and communication wires.......................... 09/30/03 28,028,172
9,196 IPC, Inc., Term Loan -- Manufacturer of packaging
materials................................................... 09/30/01 9,204,025
2,389 IPC, Inc., Revolving Credit................................. 09/30/01 2,393,890
6,400 Jet Plastica Industries, Inc., Term Loan -- Manufacturer of
disposable tableware products............................... 12/31/02 to 12/31/04 6,426,191
28,502 Johnstown America, Term Loan -- Manufacturer of railcars.... 03/31/03 28,509,304
30,373 Lifestyle Furnishings International, LTD, Term Loan --
Manufacturer/designer of residential
furniture and fabrics in the United States.................. 08/30/04 30,438,540
5,700 Mettler-Toledo, Inc., Term Loan -- Manufacturer/marketer of
weighing instruments........................................ 12/31/04 5,711,585
5,514 Rayovac Corp., Term Loan -- Manufacturer of battery and
lighting products........................................... 09/30/03 to 09/30/04 5,524,419
10,000 RBX Corp., Term Loan -- Manufacturer of rubber products..... 12/31/03 10,009,366
9,670 RTI Funding Corp., Term Loan -- Manufacturer of building
blocks for children......................................... 02/08/03 to 02/08/04 9,695,378
9,571 Safelite Glass Corp., Term Loan -- Manufacturer/installer of
auto glass replacements..................................... 12/19/02 to 12/19/04 9,601,142
10,043 Signature Brands, Inc., Term Loan -- Manufacturer of small
appliances.................................................. 08/15/01 9,995,883
6,957 Simmons Co., Term Loan -- Manufacturer and distributor of
bedding..................................................... 03/31/03 6,969,300
11,550 Superior Telecom, Inc., Revolving Credit -- Manufacturer of
copper wire and cable....................................... 10/31/01 11,604,039
25,000 UCAR International, Inc., Term Loan -- Manufacturer of
graphite/carbide electrodes................................. 12/31/02 25,024,408
6,241 U.F. Acquisition, Term Loan -- Provider of fixtures and
storage for retailer stores................................. 12/15/02 6,279,757
5,000 Walco International, Inc., Term Loan -- Distributor of
animal health products...................................... 03/31/04 5,020,114
1,129 Windy Hill Pet Food Co., Term Loan -- Manufacturer of pet
food products............................................... 12/31/03 1,151,839
------------
462,182,042
------------
MINING/METALS 1.2%
11,149 Alliance Coal Corp., Term Loan -- Coal mining............... 12/31/01 to 12/31/02 11,185,078
25,000 AMAX Gold, Inc., Term Loan -- Gold and silver mining and
processing.................................................. 12/31/01 25,092,291
13,406 Anker Coal Group, Inc., Term Loan -- Coal mining............ 06/30/04 13,451,613
4,904 Centennial Resources, Inc., Term Loan -- Coal mining........ 03/31/02 to 03/31/04 4,924,460
8,836 Fairmont Minerals, Ltd., Term Loan -- Silica sand and gravel
producer.................................................... 02/28/03 8,866,840
8,705 U.S. Silica Co., Term Loan -- Producer of industrial
silica...................................................... 12/31/03 8,745,832
------------
72,266,114
------------
PAPER 5.8%
26,864 Crown Paper, Term Loan -- Producer of value-added paper
products.................................................... 08/23/02 26,875,139
2,205 Crown Paper, Revolving Credit............................... 08/23/02 2,211,852
4,500 CST Office Products, Corp., Term Loan -- Manufacturer and
distributor of stock computer forms......................... 12/31/01 4,549,109
18,367 Fort Howard Corp., Term Loan -- Paper manufacturer.......... 03/31/02 to 12/31/02 18,392,422
105,623 Jefferson Smurfit Corp., Term Loan -- Manufacturer of
corrugated paper products................................... 04/30/01 to 10/31/02 105,688,457
19,329 S.D. Warren Co., Term Loan -- Manufacturer of coated-free
paper....................................................... 04/26/04 19,359,202
15,500 St. Laurent Paper Products L.L.C., Term Loan -- Producer of
integrated pulp and paper................................... 05/31/03 to 05/31/04 15,548,140
161,202 Stone Container Corp., Term Loan -- Manufacturer of paper
products.................................................... 04/01/00 to 10/01/03 162,054,522
7,163 Stronghaven, Inc., Term Loan -- Manufacturer of corrugated
containers.................................................. 05/15/04 7,198,943
------------
361,877,786
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PAPER (CONTINUED)
PERSONAL/NON-DURABLE 1.9%
$ 9,500 Chattem, Inc., Term Loan -- Manufacturer and marketer of OTC
pharmaceuticals............................................. 06/30/04 $ 9,530,143
17,728 Mary Kay Cosmetics, Inc., Term Loan -- Direct cosmetic
sales....................................................... 03/06/04 17,790,789
1,495 Mary Kay Cosmetics, Inc., Revolving Credit.................. 03/06/04 1,508,587
6,774 Personal Care Group, Inc., Term Loan -- Manufacturer and
marketer of consumer products............................... 04/03/03 6,809,694
25,000 Playtex Products, Inc., Term Loan -- Manufacturer of beauty
aid and hygiene products.................................... 09/15/03 25,024,748
55,000 Revlon Consumer Products Corp., Term Loan -- Manufacturer of
cosmetics................................................... 05/30/02 55,084,915
------------
115,748,876
------------
PRINTING/PUBLISHING 3.8%
20,669 Advanstar Communications, Term Loan -- Trade magazine
publisher................................................... 12/31/02 to 12/21/03 20,753,848
22,332 ADVO, Inc., Term Loan -- Direct mail marketer............... 03/31/04 22,368,125
46,262 American Media Operations, Inc., Term Loan --
Magazine/newspaper publisher................................ 09/30/01 to 09/30/02 46,101,442
303 American Media Operations, Inc., Revolving Credit........... 09/30/01 310,077
9,000 Cygnus Publishing, Inc., Term Loan -- Magazine publisher.... 06/05/05 9,030,452
7,663 Garden State Newspapers, Inc., Term Loan -- Suburban
newspaper operator.......................................... 03/31/04 7,693,937
14,063 Garden State Newspapers, Inc., Revolving Credit............. 06/30/03 14,128,227
25,270 Journal News, Inc., Term Loan -- Multiple newspaper
printer..................................................... 12/31/02 25,266,988
19,000 K-III Communications, Term Loan -- Tabloids, magazines and
other media publisher....................................... 06/30/04 19,013,444
33,000 Morris Communications, Inc., Term Loan -- Newspaper
Operator.................................................... 03/31/04 to 06/30/05 33,020,379
19,763 Peterson Publishing Co., L.L.C., Term Loan -- Publisher of
consumer magazines.......................................... 12/31/02 to 09/30/04 19,830,090
12,000 Polyfibron Technologies, Inc., Term Loan --
Manufacturer/marketer of consumable printing products....... 12/28/03 12,022,274
8,455 Von Hoffman Press, Inc., Term Loan -- Manufacturer of
textbooks................................................... 05/30/03 to 05/30/05 8,472,845
------------
238,012,128
------------
RESTAURANTS 0.1%
943 Carvel Corp., Term Loan -- Soft ice cream products
franchiser.................................................. 12/31/98 942,752
4,099 Long John Silver's Restaurants, Inc., Term Loan -- Retail
seafood restaurant owner/operator........................... 09/30/04 4,321,833
------------
5,264,585
------------
RETAIL 2.8%
12,000 Brylane, L.P., Term Loan -- Catalog retailer of apparel..... 02/28/03 12,030,041
32,500 Camelot Music, Inc., Term Loan -- Retail distributor of
music and video cassettes (a) (b)........................... 02/28/02 24,384,089
17,086 Color Tile, Inc., Term Loan -- National retailer of floor
and wall covering products (a).............................. 12/31/98 6,663,504
2,111 Color Tile Holdings, Inc., Revolving Credit -- National
retailer of floor and wall covering products (a)............ 12/31/97 2,075,208
7,960 CSK Auto, Inc., Term Loan -- Auto parts retailer............ 10/31/03 8,040,763
7,320 CSK Auto, Inc., Revolving Credit............................ 10/31/03 7,388,770
22,059 Fleming Cos., Inc., Revolving Credit -- Food marketing,
distribution................................................ 07/25/04 22,169,428
5,956 Kirkland's Holdings, Term Loan -- Retailer of decorative
home accessories and gift items............................. 06/30/02 5,972,258
10,603 Luxottica Group SPA, Term Loan -- Manufacturer and
distributor of eyeglasses................................... 06/30/01 10,603,434
7,430 Nebraska Book Co., Inc., Term Loan -- Used book
distributor................................................. 10/31/03 7,433,091
26,416 Payless Cashways, Inc., Term Loan -- Building products
retailer.................................................... 11/20/00 24,003,549
11,318 Payless Cashways, Inc., Revolving Credit.................... 11/20/00 10,223,132
10,820 Peebles, Inc., Term Loan -- Mid-Atlantic retailer........... 06/09/02 10,886,280
18,333 QVC, Inc., Term Loan -- Home shopping television network.... 02/15/02 18,361,826
1,198 Service Merchandise Co., Inc., Revolving Credit -- Catalog
retailer.................................................... 06/08/99 1,435,029
5,000 Vitamin Shoppe Industries, Inc., Term Loan --
Retailer/marketer of vitamins............................... 05/15/04 5,000,273
------------
176,670,675
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAIL (CONTINUED)
TEXTILES 1.4%
$11,270 American Marketing Industries, Inc., Term Loan --
Manufacturer of textiles.................................... 11/30/02 $ 11,296,781
9,000 GFSI, Inc., Term Loan -- Designer, manufacturer and marketer
of sportswear............................................... 03/31/04 9,013,766
5,731 Homemaker Industries, Inc., Term Loan -- Manufacturer of
braided rugs................................................ 06/30/04 5,760,878
6,361 Ithaca Industries, Inc., Term Loan -- Manufacturer of
undergarments and hosiery................................... 08/31/99 6,474,571
1,477 Ithaca Industries, Inc., Revolving Credit................... 08/31/99 1,581,289
14,602 Johnston Industries, Inc., Term Loan -- Diversified
manufacturer of home furnishings and textiles............... 03/28/03 14,658,368
33,575 London Fog Industries, Inc., Term Loan -- Manufacturer of
rainwear and outerwear (c).................................. 05/31/02 25,443,975
7,700 Maxim Group, Inc., Term Loan -- Retailer of floor
coverings................................................... 12/31/01 to 09/30/03 7,747,777
7,128 William Carter Co., Term Loan -- Manufacturer of children's
clothing.................................................... 10/30/03 7,152,798
------------
89,130,203
------------
TRANSPORTATION 1.4%
17,999 Atlas Air, Inc., Revolving Credit -- Air cargo carrier...... 06/30/98 18,056,753
12,500 Atlas Freighter Leasing, Inc., Term Loan -- Air cargo
carrier..................................................... 05/29/04 12,529,385
19,000 Continental Airlines, Inc., Term Loan -- Airline passenger
carrier..................................................... 07/31/02 19,076,061
40,000 Evergreen International Aviation, Inc., Term Loan -- Air
cargo carrier............................................... 05/31/02 to 05/31/03 40,178,065
------------
89,840,264
------------
WIRELESS COMMUNICATIONS 8.4%
28,875 Arch Communications, Inc., Term Loan -- Wireless
communications operator..................................... 12/31/02 to 12/31/03 28,950,593
5,844 Arch Communications, Inc., Revolving Credit................. 12/31/02 5,928,287
4,950 Clarity Telecom, Inc., Term Loan -- Seller and servicer of
telephone systems and software.............................. 11/30/02 4,968,009
4,839 Comcast Cellular Corp., Revolving Credit -- Cellular systems
operator.................................................... 09/30/03 4,933,284
5,000 International Data Response Corp., Term Loan -- Manufacturer
of plastic components for automobiles....................... 12/31/01 to 12/31/02 5,018,598
6,585 Intesys Technologies, Inc., Term Loan -- Equipment
manufacturer for telecommunications/autos................... 12/31/01 6,586,107
12,500 Metrocall, Inc., Term Loan -- Provider of paging services... 12/31/04 12,599,996
9,090 Metrocall, Inc., Revolving Credit........................... 12/31/04 9,268,791
64,005 Mobilemedia Communications, Inc., Term Loan -- Nationwide
paging operator............................................. 06/30/02 to 06/30/03 61,505,295
2,556 Mobilemedia Communications, Inc., Revolving Credit.......... 06/30/02 2,461,828
96,363 Nextel Finance Co., Term Loan -- Wireless communications
service provider............................................ 03/31/03 to 06/30/03 96,684,664
13,895 Nextel Finance Co., Revolving Credit........................ 03/30/03 14,908,697
12,310 Shared Technologies, Inc., Term Loan -- Provider of shared
telecommunications services................................. 03/30/01 to 03/31/03 12,339,171
933 Shared Technologies, Inc., Revolving Credit................. 03/30/01 938,191
13,050 Skytel Corp., Revolving Credit -- Paging and personal
communications services operator............................ 12/31/01 13,081,162
65,000 Sprint Spectrum L.P., Term Loan -- PCS provider/wireless
communications.............................................. 01/31/01 to 01/31/02 65,444,358
55,000 Sprint, Lucent Technologies Vendor Facility, Term Loan --
PCS provider/wireless communications........................ 06/30/01 55,485,626
11,305 Sprint, Northern Telecom Vendor Facility, Term Loan -- PCS
provider/wireless communications............................ 03/31/05 11,936,672
9,500 Teletouch Communications, Inc., Term Loan -- Provider of
paging services............................................. 11/30/03 9,605,152
5,727 USA Mobile Communications, Inc. II, Revolving Credit --
Wireless communications operator............................ 06/30/02 5,789,300
30,000 Western PCS II Corp., Term Loan -- PCS Owner/Operator....... 12/31/03 30,258,072
65,000 Western Wireless Corp., Term Loan -- Cellular and personal
communications services operator............................ 03/31/05 65,026,173
------------
523,718,026
------------
OTHER 3.1%
3,510 AES Cemig Funding Corp., Term Loan -- Electric utility
provider.................................................... 05/27/98 3,581,368
2,790 AESEBA Funding Corp., Term Loan -- Electric utility
provider.................................................... 05/27/98 2,847,094
29,286 Allied Waste Industries, Inc., Term Loan -- Solid waste
management.................................................. 12/05/03 29,309,498
1,086 Allied Waste Industries, Inc., Revolving Credit............. 12/05/03 1,085,738
11,000 American Disposal Services, Inc., Term Loan -- Solid waste
management.................................................. 05/30/04 11,049,831
5,306 Avis Rent-a-Car, Inc., Term Loan -- Car rental services..... 12/31/00 5,420,623
7,375 Borg-Warner Security Corp., Revolving Credit -- Protection
services.................................................... 03/31/02 7,474,653
16,275 Brand Scaffold Services, Inc., Term Loan -- Industrial
scaffolding rental services................................. 09/30/02 to 09/30/04 16,346,813
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER (CONTINUED)
$ 8,000 Key Energy Group, Inc., Term Loan -- Operator of oil service
rigs........................................................ 06/30/04 $ 8,015,162
8,778 Kindercare Learning Centers, Inc., Term Loan -- Provider of
educational and child care services......................... 03/21/06 8,777,991
20,156 LES, Inc., Term Loan -- Provider of hazardous and industrial
waste services.............................................. 05/15/03 to 05/15/05 20,190,945
9,555 Loewen Group, Inc., Revolving Credit -- Funeral home and
cemetery owner/operator..................................... 05/29/02 9,609,291
7,625 RIGCO North America, L.L.C., Term Loan -- Lessor of
semi-submersible offshore drilling rigs..................... 09/30/98 7,653,804
22,616 Ryder TRS, Inc., Term Loan -- Rental truck/trailer
operator.................................................... 10/31/01 22,654,291
418 Ryder TRS, Inc., Revolving Credit........................... 10/31/01 419,217
5,000 Smarte Carte Corp., Term Loan -- Airport carts and storage
lockers..................................................... 06/30/03 5,017,535
5,120 U.S. Office Products Co., Revolving Credit -- Office
products supplier........................................... 08/21/01 5,172,059
17,498 United Stationers, Inc., Term Loan -- Distributor of office
paper products.............................................. 10/31/03 17,516,522
10,000 24 hour Fitness, Inc., Term Loan -- Fitness center
operator.................................................... 12/31/00 10,057,584
-------------
192,200,019
-------------
TOTAL VARIABLE RATE ** SENIOR LOAN INTERESTS 85.1%......... 5,308,571,057
-------------
EQUITIES 0.3%
AFC Enterprises, Inc. (604,251 common shares) (d) (e)............................. 3,625,506
Best Products Co., Inc. (297,480 common shares) (e)............................... 0
Best Products Co., Inc. (Warrants for 28,080 common shares) (e)................... 0
Dan River, Inc. (10,975 common shares) (e)........................................ 1,967,353
Classic Cable, Inc. (Warrants for 760 common shares) (e).......................... 0
Flagstar Cos., Inc. (8,755 common shares) (e)..................................... 3,694
London Fog Industries, Inc. (10,833,012 common shares) (d) (e).................... 0
London Fog Industries, Inc. ($19,181,547 par amount of preferred stock, 17.5%
coupon, maturity 05/31/02) (c) (d)................................................ 9,590,774
Nextel Communications, Inc. (Warrants for 60,000 common shares) (d) (e)........... 547,500
Rigco N.A., L.L.C. (Warrants for .325% interest of company's fully diluted
equity)........................................................................... 16,250
Sarcom, Inc. (43 common shares) (e)............................................... 0
-------------
TOTAL EQUITIES.................................................................... 15,751,077
-------------
TOTAL LONG-TERM INVESTMENTS 85.4%
(Cost $5,355,782,290)............................................................. 5,324,322,134
-------------
SHORT-TERM INVESTMENTS
COMMERCIAL PAPER 4.5%
AT&T Corp. ($30,000,000 par, maturing 08/01/97, yielding 5.76%)................... 30,000,000
Avery Dennison ($30,000,000 par, maturing 08/01/97, yielding 5.83%)............... 30,000,000
Baker Hughes, Inc. ($30,000,000 par, maturing 08/01/97, yielding 5.83%)........... 30,000,000
Cargill, Inc. ($30,000,000 par, maturing 08/05/97, yielding 5.52%)................ 29,981,600
Comdisco, Inc. ($30,000,000 par, maturing 08/08/97 to 08/26/97, yielding 5.67% to
5.72%)............................................................................ 29,932,486
McDonald's Corp. ($30,000,000 par, maturing 08/01/97, yielding 5.80%)............. 30,000,000
McKesson Corp. ($30,000,000 par, maturing 08/01/97, yielding 5.90%)............... 30,000,000
Nabisco, Inc. ($30,000,000 par, maturing 08/04/97 to 08/18/97, yielding 5.60% to
5.69%)............................................................................ 29,932,779
Pacificorp ($15,000,000 par, maturing 09/03/97, yielding 5.51%)................... 14,924,238
Pitney Bowes Credit Corp. ($3,600,000 par, maturing 08/01/97, yielding 5.75%)..... 3,600,000
Sara Lee Corp. ($15,000,000 par, maturing 08/01/97, yielding 5.50%)............... 15,000,000
XTRA, Inc. ($11,920,000 par, maturing 08/21/97 to 09/11/97, yielding 5.74% to
5.75%)............................................................................ 11,863,006
-------------
TOTAL COMMERCIAL PAPER............................................................ 285,234,109
-------------
SHORT-TERM LOAN PARTICIPATIONS 9.6%
Alltel Corp. ($30,000,000 par, maturing 08/01/97, yielding 5.88%)................. 30,000,000
American Stores Co. ($30,000,000 par, maturing 10/06/97, yielding 5.82% to
5.84%)............................................................................ 30,000,000
Anadarko Pete Corp. ($30,000,000 par, maturing 08/05/97 to 08/07/97, yielding
5.64% to 5.74%)................................................................... 30,000,000
Army and Air Force Service Exchange ($30,000,000 par, maturing 08/08/97, yielding
5.63%)............................................................................ 30,000,000
Baxter International, Inc. ($30,000,000 par, maturing 08/11/97 to 08/13/97,
yielding 5.64% to 5.65%).......................................................... 30,000,000
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Borrower Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM LOAN PARTICIPATIONS (CONTINUED)
Bell Atlantic Networks ($18,000,000 par, maturing 08/05/97 to 08/06/97, yielding
5.50%)............................................................................ $ 18,000,000
Centex Corp. ($30,000,000 par, maturing 08/01/97, yielding 5.95%)................. 30,000,000
Champion International Corp. ($15,000,000 par, maturing 08/15/97, yielding
5.72%)............................................................................ 15,000,000
Conagra, Inc. ($30,000,000 par, maturing 08/06/97 to 08/07/97, yielding 5.70% to
5.73%)............................................................................ 30,000,000
Englehard Corp. ($30,000,000 par, maturing 08/01/97 to 08/22/97, yielding 5.56% to
5.87%)............................................................................ 30,000,000
Enron Corp. ($30,000,000 par, maturing 08/12/97, yielding 5.70%).................. 30,000,000
FMC Corp. ($30,000,000 par, maturing 08/22/97, yielding 5.67% to 5.74%)........... 30,000,000
Gillette Co. ($30,000,000 par, maturing 08/01/97, yielding 5.83%)................. 30,000,000
Hertz Corp. ($25,000,000 par, maturing 08/08/97 to 08/15/97, yielding 5.54% to
5.56%)............................................................................ 25,000,000
IKON Office Solutions, Inc. ($30,000,000 par, maturing 08/08/97 to 08/22/97,
yielding 5.73% to 5.76%).......................................................... 30,000,000
Mapco, Inc. ($30,000,000 par, maturing 08/04/97 to 08/21/97, yielding 5.70% to
5.71%)............................................................................ 30,000,000
Mead Corp. ($15,600,000 par, maturing 08/01/97, yielding 5.90%)................... 15,600,000
National Rural Utilities Coop Financial ($15,000,000 par, maturing 08/19/97,
yielding 5.55%)................................................................... 15,000,000
Nipsco Capital Markets, Inc. ($13,400,000 par, maturing 08/01/97, yielding
5.70%)............................................................................ 13,400,000
Nipsco, Inc. ($7,000,000 par, maturing 08/29/97, yielding 5.56%).................. 7,000,000
Ralston Purina Co. ($10,000,000 par, maturing 08/01/97, yielding 5.73%)........... 10,000,000
Tandy Corp. ($28,800,000 par, maturing 08/01/97 to 08/06/97, yielding 5.70% to
5.77%)............................................................................ 28,800,000
Tyson Foods ($30,000,000 par, maturing 08/14/97, yielding 5.67%).................. 30,000,000
Union Pacific Corp. ($30,000,000 par, maturing 08/01/97 to 09/02/97, yielding
5.70% to 5.81%)................................................................... 30,000,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS.............................................. 597,800,000
--------------
TOTAL SHORT-TERM INVESTMENTS 14.1%
(Cost $883,034,109)............................................................... 883,034,109
--------------
TOTAL INVESTMENTS 99.5%
(Cost $6,238,816,399)............................................................. 6,207,356,243
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%........................................ 29,611,538
--------------
NET ASSETS 100.0%................................................................. $6,236,967,781
------------
</TABLE>
(a) Non-income producing Senior Loan interest.
(b) This Borrower has filed for protection in federal bankruptcy court.
(c) Payment-in-kind security.
(d) Restricted security.
(e) Non-income producing security as this stock currently does not declare
dividends.
* 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 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 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.
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $6,238,816,399)..................... $6,207,356,243
Receivables:
Interest and Fees......................................... 45,388,748
Fund Shares Sold.......................................... 22,968,427
Investments Sold.......................................... 756,297
Other....................................................... 37,212
--------------
Total Assets............................................ 6,276,506,927
--------------
LIABILITIES:
Deferred Facility Fees...................................... 18,108,152
Payables:
Income Distributions...................................... 6,801,132
Custodian Bank............................................ 5,097,027
Investment Advisory Fee................................... 4,954,975
Administrative Fee........................................ 1,329,198
Distributor and Affiliates................................ 941,888
Fund Shares Repurchased................................... 374,442
Accrued Expenses............................................ 1,863,989
Deferred Compensation and Retirement Plans.................. 68,343
--------------
Total Liabilities....................................... 39,539,146
--------------
NET ASSETS.................................................. $6,236,967,781
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 626,018,023 shares issued and
outstanding).............................................. $ 6,260,180
Paid in Surplus............................................. 6,264,390,819
Accumulated Undistributed Net Investment Income............. 5,369,829
Accumulated Net Realized Loss............................... (7,592,891)
Net Unrealized Depreciation................................. (31,460,156)
--------------
NET ASSETS.................................................. $6,236,967,781
==============
NET ASSET VALUE PER COMMON SHARE
($6,236,967,781 divided by 626,018,023 shares
outstanding).............................................. $ 9.96
==============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
STATEMENT OF OPERATIONS
For the Year Ended July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $440,296,258
Fees........................................................ 29,366,231
Other....................................................... 2,254,872
------------
Total Income............................................ 471,917,361
------------
EXPENSES:
Investment Advisory Fee..................................... 52,313,966
Administrative Fee.......................................... 13,976,102
Shareholder Services........................................ 6,310,415
Legal....................................................... 1,645,000
Custody..................................................... 1,389,184
Trustee Fees and Expenses................................... 30,202
Other....................................................... 3,584,745
------------
Total Expenses.......................................... 79,249,614
------------
NET INVESTMENT INCOME....................................... $392,667,747
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 442,960
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (6,312,913)
End of the Period......................................... (31,460,156)
------------
Net Unrealized Depreciation During the Period............... (25,147,243)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(24,704,283)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $367,963,464
============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended July 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 1997 July 31, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net Investment Income....................................... $ 392,667,747 $ 281,969,603
Net Realized Gain........................................... 442,960 541,536
Net Unrealized Depreciation During the Period............... (25,147,243) (14,949,532)
-------------- --------------
Change in Net Assets from Operations........................ 367,963,464 267,561,607
Distributions from Net Investment Income.................... (390,215,999) (283,580,704)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (22,252,535) (16,019,097)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Common Shares Sold............................ 1,781,772,630 2,551,158,978
Value of Shares Issued Through Dividend Reinvestment........ 209,636,808 155,099,566
Cost of Shares Repurchased.................................. (597,973,300) (354,520,255)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 1,393,436,138 2,351,738,289
-------------- --------------
TOTAL INCREASE IN NET ASSETS................................ 1,371,183,603 2,335,719,192
NET ASSETS:
Beginning of the Period..................................... 4,865,784,178 2,530,064,986
-------------- --------------
End of the Period (Including accumulated undistributed net
investment income of $5,369,829 and $2,874,542,
respectively)............................................. $6,236,967,781 $4,865,784,178
============== ==============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
STATEMENT OF CASH FLOWS
For the Year Ended July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 367,963,464
---------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (1,359,017,702)
Increase in Interest and Fees Receivables................. (10,866,302)
Increase in Receivable for Investments Sold............... (712,087)
Decrease in Other Assets.................................. 15,998
Decrease in Deferred Facility Fees........................ (2,607,607)
Increase in Investment Advisory and Administrative Fees
Payable................................................. 1,395,983
Increase in Distributor and Affiliates Payable............ 588,986
Increase in Accrued Expenses.............................. 308,934
Increase in Deferred Compensation and Retirement Plans
Expenses................................................ 22,864
---------------
Total Adjustments....................................... (1,370,870,933)
---------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (1,002,907,469)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 1,775,415,681
Payments on Shares Repurchased.............................. (597,598,858)
Increase in Intra-day Credit Line........................... 4,540,411
Cash Dividends Paid......................................... (179,449,765)
---------------
Net Cash Provided by Financing Activities................. 1,002,907,469
---------------
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
22
<PAGE> 24
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31
--------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $ 10.002 $ 10.046 $ 10.052 $ 10.004 $ 9.998
-------- -------- -------- -------- --------
Net Investment Income..................................... .701 .735 .756 .618 .600
Net Realized and Unrealized Gain/Loss..................... (.042) (.028) (.004) .015 .008
-------- -------- -------- -------- --------
Total from Investment Operations............................ .659 .707 .752 .633 .608
-------- -------- -------- -------- --------
Less:
Distributions from Net Investment Income.................. .698 .751 .758 .585 .600
Distributions in Excess of Net Investment Income.......... -0- -0- -0- -0- .002
-------- -------- -------- -------- --------
Total Distributions......................................... .698 .751 .758 .585 .602
-------- -------- -------- -------- --------
Net Asset Value, End of the Period.......................... $ 9.963 $ 10.002 $ 10.046 $ 10.052 $ 10.004
======== ======== ======== ======== ========
Total Return (a)............................................ 6.79% 7.22% 7.82% 6.52% 6.17%
Net Assets at End of the Period (In millions)............... $6,237.0 $4,865.8 $2,530.1 $1,229.0 $ 966.7
Ratio of Expenses to Average Net Assets..................... 1.42% 1.46% 1.49% 1.53% 1.53%
Ratio of Net Investment Income to Average Net Assets........ 7.02% 7.33% 7.71% 6.16% 5.96%
Portfolio Turnover (b)...................................... 83% 66% 71% 74% 67%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the contingent deferred sales charge.
(b) Calculation includes the proceeds from repayments and sales of variable rate
senior loan interests.
See Notes to Financial Statements
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
July 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Prime Rate Income Trust (the "Trust") is registered
as a non-diversified closed-end management investment company under the
Investment Company Act of 1940, as amended. The Trust's investment objective is
to provide a high level of current income, 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 Variable Rate Senior Loan
interests, totaling $5,308,571,057 (85.1% of net assets) is determined in the
absence of actual market values 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.
Because of uncertainty inherent in the valuation process, the estimated value of
a Variable Rate Senior Loan interest may differ significantly from the value
that would have been used had there been market activity for that Variable Rate
Senior Loan interest. Equity securities are valued on the basis of prices
furnished by pricing services or as determined in good faith by the Adviser.
Short-term securities with remaining maturities of 60 days or less 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.
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, 1997, the Trust had an accumulated capital
loss carryforward for tax purposes of $3,643,444,
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
which will expire on July 31, 2004. 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.
At July 31, 1997, for federal income tax purposes cost of long- and
short-term investments is $6,247,342,588, the aggregate gross unrealized
appreciation is $22,381,911 and the aggregate gross unrealized depreciation is
$62,368,256 resulting in net unrealized depreciation of $39,986,345.
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. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
Permanent book and tax basis differences relating to the recognition of
certain expenses which are not deductible for tax purposes totaling $43,539 were
reclassified from accumulated undistributed net investment income to capital.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
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 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 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.
For the year ended July 31, 1997, the Trust recognized expenses of
approximately $522,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the year ended July 31, 1997, the Trust recognized expenses of
approximately $65,400 representing the Administrator's or its affiliates'
(collectively "VKAC") cost of providing legal services to the Trust.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Trust. For the year ended July
31, 1997, the Trust recognized expenses of approximately $4,402,900,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Trust are also officers and
directors of VKAC. The Fund does not compensate its officers or trustees who are
officers of VKAC.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit per trustee under the plan is equal to the trustee's annual retainer
fee, which is currently $2,500.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At July 31, 1997 and July 31, 1996, paid in surplus aggregated $6,264,390,819
and $4,872,393,497, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JULY 31, 1997 JULY 31, 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares........................................... 486,490,317 251,848,949
----------- -----------
Shares Sold................................................ 178,438,954 254,577,948
Shares Issued Through Dividend Reinvestment................ 20,996,830 15,483,081
Shares Repurchased......................................... (59,908,078) (35,419,661)
----------- -----------
Net Increase in Shares Outstanding......................... 139,527,706 234,641,368
----------- -----------
Ending Shares.............................................. 626,018,023 486,490,317
=========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $4,994,709,841 and
$4,028,396,415, 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 year
ended July 31, 1997, 59,908,078 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 year ended July 31, 1997, VKAC received early withdrawal charges
of approximately $9,075,812 in connection with tendered shares of the Trust.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1997
- --------------------------------------------------------------------------------
7. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $704,948,400 as of July
31, 1997. The Trust generally will maintain with its custodian short-term
investments having an aggregate value at least equal to the amount of unfunded
loan commitments.
The Trust has entered into a revolving credit agreement with a syndicate
led by Bank of America for an aggregate of $250,000,000. The proceeds of any
borrowing by the Trust under the revolving credit agreement 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 of .065% 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 .375%. There have been no borrowings under this agreement 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 July 31, 1997, 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............................................... $153,247 $153,570
Donaldson Lufkin Jenrette................................... 50,954 51,255
NationsBank................................................. 26,958 26,987
Merrill Lynch Capital Corp.................................. 20,000 20,073
Canadian Imperial Bank of Commerce.......................... 19,924 20,037
Goldman Sachs............................................... 18,580 18,581
Chase Securities Inc........................................ 13,365 13,380
Bank of New York............................................ 8,625 8,652
ABN AMRO.................................................... 5,000 5,019
--------- --------
Total....................................................... $316,653 $317,554
========= ========
</TABLE>
27
<PAGE> 29
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Trustees and Shareholders of
Van Kampen American Capital Prime Rate Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Prime Rate Income Trust (the "Trust"), including the
portfolio of investments, as of July 31, 1997, and the related statements of
operations and cash flows for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities and variable rate
senior loan interests owned as of July 31, 1997, by correspondence with the
custodian and selling or agent banks; where replies were not received we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Van Kampen American Capital Prime Rate Income Trust as of July 31,
1997, the results of its operations and cash flows for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods presented in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
September 8, 1997
28
<PAGE> 30
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
JEFFREY W. MAILLET*
Vice Presidents
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 (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
RESULTS OF SHAREHOLDER VOTES
A Special Meeting of Shareholders of the Trust was held on July 9, 1997, where
shareholders voted on a new investment advisory agreement and a new fundamental
investment policy modifying existing fundamental investment policies and
restrictions and a corresponding conversion to a master-feeder structure in the
future. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Trust,
461,708,052 shares voted for the proposal, 12,272,938 shares voted against,
35,523,446 shares abstained and 0 shares represented broker non-votes. With
regard to the new fundamental investment policy, 302,236,461 shares voted for
the proposal, 15,851,273 shares voted against, 36,829,794 shares abstained and 0
shares represented broker non-votes.
29