<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 6
Portfolio Highlights............................. 11
Portfolio of Investments......................... 13
Statement of Assets and Liabilities.............. 30
Statement of Operations.......................... 31
Statement of Changes in Net Assets............... 32
Statement of Cash Flows.......................... 33
Financial Highlights............................. 34
Notes to Financial Statements.................... 35
</TABLE>
PRIT SAR 3/98
<PAGE> 2
LETTER TO SHAREHOLDERS
February 20, 1998
Dear Shareholder,
The new year ushered in what
promises to be an exciting and
challenging time for investors. The
Taxpayer Relief Act of 1997, signed [PHOTO]
into law by President Clinton in
August, creates many new
opportunities for you and your family
to take a more active role in DENNIS J. MCDONNELL AND DON G. POWELL
achieving your long-term financial
goals.
Most Americans will benefit from
the bill's $95 billion in tax cuts over five years. The so-called Kiddie Credit
gives parents $400 in immediate tax relief for every child under age 17, and
families will find it easier to save for their children's college expenses
through the new Education IRA. The bill also cuts capital gains tax rates for
the first time in over a decade and loosens restrictions on tax-deductible IRA
contributions. Perhaps the most exciting feature is the new Roth IRA, which
allows investment earnings to grow tax free, not just tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
ECONOMIC REVIEW
The U.S. economy sustained its forward momentum, continuing to grow at a
moderate pace throughout the reporting period. For the 1997 calendar year, the
nation's economy (measured in terms of gross domestic product) grew at a rate of
3.8 percent. Despite this persistent growth trend, inflation remained in check.
The Cost of Living Index, for example, rose by just 1.7 percent during the
course of 1997, the smallest yearly increase since 1986.
Moving into the current fiscal year, however, market watchers remain alert
for signs of surging prices. One cause of concern is the extremely tight labor
market, as reflected in one of the lowest unemployment rates of recent
years--just 4.7 percent at the end of 1997. With continued economic activity,
the demand for workers is expected to put upward pressure on wages, which could
spark renewed inflation worries.
Another factor that is being closely monitored is the fallout from the Asian
currency devaluations that occurred in the fourth quarter of 1997, a time when
the U.S. dollar continued to be extremely strong against most major foreign
currencies. If Asia's purchasing power is sharply reduced due to weakened
currency, analysts fear that U.S. export sales would slump. At the same time, as
Asian goods become cheaper relative to American goods, domestic companies could
face a period of price competition versus
Continued on page two
1
<PAGE> 3
imported goods. Taken together, these developments could cut into the earnings
of U.S. corporations.
TRUST UPDATE
The management team of the Van Kampen American Capital Prime Rate Income
Trust continues to work diligently to keep the Trust's investment policies
aligned with the changing financial marketplace. During 1997, the management
team received approval from the Trust's Board of Trustees to make a number of
changes to the Trust's investment policies.
First, the Trust may invest up to 20 percent of its total assets in senior
loans that are not secured by any collateral, an increase from its prior limit
of 5 percent. Second, the Trust may invest in senior loans of foreign issuers,
provided that these senior loans are U.S. dollar denominated and payments of
interest and principal are made in U.S. dollars. Third, the Trust may borrow to
obtain short-term credits in connection with tender offers for the Trust's
common shares and to fund commitments to purchase senior loans, although the
Trust does not intend to use borrowings for long-term financial leverage.
Fourth, the Trust may invest up to 5 percent of its total assets in structured
notes with rates of return linked to the total return on senior loans referenced
in these notes, and the return on such structured notes may be determined by
applying a multiplier to the rate of either of the referenced loans. Application
of a multiplier is comparable to the use of financial leverage, a speculative
technique. And finally, the Trust may invest in senior loans with stated
maturities of up to 10 years, an increase from its previous limit of 7 years.
Although these new policies have been approved, it is up to the Trust's
management team to determine whether these strategies coincide with the best
interests of the Trust's shareholders. If the Trust's management team chooses to
take advantage of any of these options, it may do so immediately. These changes
and their risks are described in more detail in the Trust's prospectus--please
contact your financial adviser if you would like a current prospectus
incorporating these changes.
MARKET REVIEW
Seeing little inflationary pressure, the Federal Reserve Board held key
short-term interest rates steady throughout the reporting period. Generally,
interest rates slipped downward during the past six months, as illustrated by
the yield on the benchmark 30-year Treasury bond, which fell from 6.30 percent
to 5.80 percent. At the end of the reporting period, the short-term market
environment was characterized by six-month certificates of deposit averaging a
yield of 5.52 percent and three-month T-bills yielding 5.18 percent.
Against this backdrop, the Trust continued to provide its shareholders with
an attractive level of current income, while maintaining a relatively stable net
asset value (NAV). During the reporting period, the Trust's dividend remained
unchanged and its NAV fluctuated within a two-cent range, from $9.96 to $9.98
per share.
The senior loan market has been very active, as these instruments are being
bought and sold by a growing number of major commercial and investment banks and
other financial institutions. According to Loan Pricing Corporation, more than
$194 billion in new
Continued on page three
2
<PAGE> 4
issues of leveraged senior loans came to market in 1997, with secondary market
transactions of approximately $61.9 billion.
OUTLOOK
We expect the U.S. economy to remain strong in the coming months. Job growth
has been steady, but thus far the economy has been able to absorb new workers
without overheating or driving consumer prices higher. Based on these factors,
we believe the demand for the products and services provided by the companies
represented in the Trust's portfolio is likely to remain strong across the
board. With a focus on inflation rather than growth, the Fed will probably take
any necessary actions to keep inflation from rising.
Not surprisingly, we expect the senior loan market to remain active. Merger
and acquisition activity, especially in vibrant industries such as
telecommunications, broadcasting, and financial services, should provide a vast
array of attractive opportunities for investment in senior loans. We anticipate
a high volume of new issues, as well as enthusiastic participation in the
secondary trading market.
The situation in Asia is a concern, but its impact is difficult to isolate
and quantify. Obviously, companies with a significant exposure to Asian markets
may face difficulties; it is the more subtle "ripple effect" of Asian financial
turmoil that will be more difficult to gauge. We will continue to be thorough in
our research and analysis of the senior loans that comprise the portfolio.
Additional details about your Trust, including a question-and-answer section
with your portfolio manager, are provided in this report. As always, we
appreciate the fact that you have entrusted a portion of your investment
portfolio to 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.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED JANUARY 31, 1998
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
<TABLE>
<CAPTION>
TOTAL RETURNS
<S> <C>
Six-month total return(1).................................. 3.55%
One-year total return(1)................................... 6.90%
Five-year average annual total return(1)................... 6.88%
Life-of-Trust average annual total return(1)............... 7.60%
Commencement date.......................................... 10/04/89
Distribution rate(2)....................................... 6.79%
SHARE VALUATIONS
Net asset value on 01/31/98................................ $9.97
Six-month high net asset value............................. $9.98
Six-month 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 rate 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.
4
<PAGE> 6
GLOSSARY OF TERMS
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Under normal circumstances, lower-quality issues provide higher yields in order
to compensate investors for the additional credit risk.
FEDERAL RESERVE BOARD (THE FED): A seven-member group that oversees the
operations of the Federal Reserve System--the central bank system of the United
States. Its primary responsibility is to establish monetary policy (such as
money flow and credit availability), and it monitors the country's economic
pulse.
FLOATING-RATE SECURITIES: Securities that adjust their yield according to
changes in interest rates.
NET ASSET VALUE (NAV): The value of a mutual fund share, computed by deducting a
fund's liabilities from its total assets and dividing this amount by the number
of shares outstanding. It does not include any initial or contingent deferred
sales charge.
SECONDARY MARKET: A market where securities are traded after they are initially
offered.
SENIOR LOANS: Loans or other debt securities that are given preference to junior
securities of the borrower. In the event of bankruptcy, payments to holders of
senior loan obligations are given priority over payments to shareholders of
subordinated debt, as well as shareholders of preferred and common stock. Senior
loans may share priority status with other senior securities of the borrower,
and such status is not a guarantee that monies to which the Trust is entitled
will be paid.
YIELD: The rate of return on an investment, usually expressed as an annual
percentage rate.
5
<PAGE> 7
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 past six months. The Trust's portfolio manager, Jeffrey W.
Maillet, senior vice president of Van Kampen American Capital Investment
Advisory Corp., has been responsible for the day-to-day management of the
Trust's portfolio since its inception. The following excerpts reflect his views
on the Trust's performance during the six-month period ended January 31, 1998.
Q HOW DID CONDITIONS IN THE SENIOR LOAN MARKET AFFECT THE TRUST DURING THE
PAST SIX MONTHS?
A The reporting period was a very exciting time for the senior loan market,
with a strong supply of loans across a broad range of industries. In such
an ample environment, we've had plenty of attractive senior loans to
choose from, and we've invested in loans from many industry sectors. Once again,
the senior loan market benefited from the strength of the U.S. economy, which
supported corporate profitability and helped many companies make their loan
payments on schedule.
Q DID THE SITUATION IN ASIA HAVE A NEGATIVE IMPACT ON THE TRUST?
A No, it did not. We analyzed the Trust's exposure to Asian markets, and
we're comfortable with how the Trust is positioned. We don't expect to
make major investments in this region during the near term, because we
think it will be a while before economic conditions in Asia get better. The
current crisis was the result of a situation that had been developing for the
past decade, so we don't expect it to fix itself overnight.
Q WHAT AREAS PROVIDED THE BEST OPPORTUNITIES FOR THE TRUST?
A We kept the portfolio widely varied, with 276 loans representing 24
industry sectors. We believe this is a benefit to Trust shareholders
because it should help to reduce the negative influence of any one issue
or sector on the portfolio. The borrowing companies whose loans we have in the
portfolio generally provide basic goods and services to the domestic economy--if
you turn to the "Portfolio of Investments" on page 13, you'll probably see a lot
of familiar names. Industries that we found especially favorable during the past
six months included aerospace, broadcasting, entertainment/leisure, finance,
personal/non-durables, and building/housing.
We have been particularly interested in the aerospace sector since the
Trust's inception. Recently, there has been a substantial increase in production
of commercial aircraft, in order to replace older planes in airline fleets and
to add to the total number of planes in those fleets. The Trust's holdings
include companies that supply everything from aircraft parts to critical
equipment. In addition, the aerospace industry tends to overlap with the
communications sector, because satellites and high-tech communications are vital
to aerospace. We participate in parts and equipment suppliers for these
companies also,
6
<PAGE> 8
as well as those companies that own the satellites. Most of these companies have
been generating solid earnings lately.
Broadcasting has also been an active sector. Deregulation of the
broadcasting industry has presented some new investment opportunities, because
it allows individual companies to own an unrestricted number of radio and
television stations. As a result, a small number of companies can dominate the
advertising dollars spent in a given region. These companies have found it
extremely lucrative to become the primary advertising source in a particular
geographic area, because they can provide "one-stop shopping" for advertisers.
Some of the portfolio's loans in this sector included Sinclair Broadcasting,
American Radio Systems, Young Broadcasting, and Jacor Communications. Jacor, the
third-largest radio group in the nation, has been a primary beneficiary of
industry deregulation. The company focuses on being a broadcasting leader as
well as the country's third-largest provider of syndicated radio programming.
Aerospace and broadcasting were just two of many positive areas for the
Trust during the reporting period. Strong holdings in entertainment/leisure
included Six Flags Theme Parks, Metro Goldwyn Mayer (MGM), and Viacom. Six Flags
Theme Parks, a portfolio holding since mid-1995, recently was sold by Time
Warner and Boston Ventures for approximately $1.9 billion, a substantial premium
to the valuation used for the earlier transaction. Six Flags' price appreciation
is an indication of the company's inherent financial strength, a quality that we
look for in senior loans. Other notable sectors included finance (Blackstone
Capital, Ark Asset Holdings), personal/non-durable (Revlon), and
building/housing (National Gypsum). Keep in mind that not every loan in the
portfolio will produce such positive results, and all of the loans are subject
to credit risk.
Q CAN YOU DISCUSS SOME RECENT ADDITIONS TO THE PORTFOLIO?
A The Trust has made more than 150 transactions since the last financial
statement. As we mentioned, the broadcasting sector has been very active
recently, and the Trust has made a number of investments in this area. One
of our larger transactions was the financing for the merger of Chancellor
Broadcasting Co. and Evergreen Media Corp. This merger created Chancellor Media
Corp., the second-largest owner of radio stations in the United States, with
nearly 100 radio stations in more than 20 major U.S. markets.
Another new holding is Outdoor Systems, Inc., the largest outdoor
advertising company in North America. The company operates approximately 220,000
bulletins, posters, transit shelters, and subway and mall displays in 48 states
in the United States and eight provinces in Canada.
The Trust has made a number of investments in the health-care industry,
including Merit Behavioral Care, Sun Healthcare Group, Genesis Health Ventures,
Total Renal Care, and Integrated Health Services. Integrated Health Services
(IHS) has built a strong post-acute care delivery network on both a local and
regional basis. The Trust recently participated in the company's acquisition of
Horizon Healthcare, a complementary health-care provider, giving IHS more than
2,000 post-acute service locations in 47 states throughout the country.
Finally, a recent Trust investment and typical portfolio holding is American
Axle & Manufacturing. AAM is the former axle and driveline parts division of
General Motors. The
7
<PAGE> 9
company is a supplier to the automotive industry and a world leader in
engineering and manufacturing driveline systems, forged products, chassis
components, and related service parts.
Q HOW DID THE TRUST PERFORM DURING THE PAST SIX MONTHS?
A The Trust's total return for the six-month period was 3.55 percent(1) at
net asset value (NAV). During the reporting period, the Trust's NAV
remained within a very narrow range of $9.96 and $9.98 per share. Based on
the January 31, 1998 public offering price of $9.97 per share, the Trust's
current monthly dividend of $0.0564 represents a distribution rate of 6.79
percent(2). For more information on the Trust's performance, please refer to the
chart on page four.
Q ARE YOU PLEASED WITH THE TRUST'S PERFORMANCE?
A Absolutely. Most shareholders invest in the Trust for the potential for
high current income and preservation of capital. Look what the Trust
delivered during the period--a net asset value that fluctuated just two
cents. Then, compare the Trust's distribution rate of 6.79 percent(2) to the
3-month Treasury bill, which was yielding 5.10 percent at the end of the
reporting period. Even more impressive, compare it to the 30-year Treasury bond,
which was yielding 5.80 percent.* Of course, the Trust is subject to credit
risks, while Treasury securities are not. These risks are discussed in more
detail in "A Focus on Senior Loans" on page 10.
Q WHAT IS YOUR OUTLOOK FOR THE ECONOMY AND SENIOR LOAN MARKET IN 1998?
A While we expect our vibrant economy to continue, the situation in Asian
should certainly have some impact here in the United States, although the
magnitude and timing of this impact is unclear. U.S. corporate profits
could be negatively affected by an increase in competition from cheaper Asian
imports, and lower currency values in Asia could result in declining interest
rates in the United States. Currently, however, there is a seemingly insatiable
demand for basic goods and services in the U.S. economy--goods and services
provided by many of the companies in which we invest. As a result, we are
optimistic about the senior loan market and expect a continuation of high volume
of loans.
In the Trust's annual report six months ago, we stated that the pickup in
commercial activity worldwide was a strong indication that the United States
would eventually see rising interest rates. We still believe this is the
case--the U.S. economy simply has not moderated. Economic growth remains strong,
the stock market is at record levels, and unemployment is extremely low. Given
these conditions, we can not rule out that at some point we will find ourselves
in a rising rate environment. We just do not believe that the economy can keep
expanding without feeling some growing pains.
In the midst of this economic uncertainty, we can definitely tell our
shareholders this: the Trust will always have the ability to provide income that
adjusts with interest rates. So regardless of whether interest rates go up or
down, your dividend will fluctuate but the net
8
<PAGE> 10
asset value of the Trust has the potential to remain relatively stable (although
a sudden or extreme change in prevailing interest rates could affect the credit
quality of the Trust's holdings which may affect the Trust's net asset value).
This is where we believe the Trust can be a very valuable tool for investors.
[SIG]
Jeffrey W. Maillet
Portfolio Manager
* U.S. Treasuries are backed by the full faith and credit of the U.S.
government, while the Trust is not, and the Trust is subject to credit risks.
U.S. Treasury bills are short-term obligations of the U.S. government that are
purchased at a discount and mature at face value. Past performance does not
guarantee future results.
Please see footnotes on page four
9
<PAGE> 11
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 that operate in
a variety of industries and geographic locations. Senior loans have a number of
characteristics that, 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 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 a loan agreement. Forms of collateral include
accounts receivable or inventory, buildings, and real estate, among others.
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
bankruptcy of a borrower) that could cause the Trust's security interest in the
loan's collateral to be invalidated.
CREDIT QUALITY
Many senior loans carry provisions designed to protect the lender in certain
circumstances. In addition, the variable-rate nature of the portfolio is
expected to lessen the fluctuation in the Trust's net asset value. However, the
net asset value will still be subject to the influence of changes in the
perceived credit quality of the loans in which the Trust invests. This may occur
in the event of a sudden or extreme increase in prevailing interest rates, a
default in a loan in which the Trust holds an interest, or a substantial
deterioration in the borrower's creditworthiness. From time to time, the Trust's
net asset value may be more or less than at the time of the investment.
10
<PAGE> 12
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
TOP FIVE PORTFOLIO SECTORS*
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1998 AS OF JULY 31, 1997
<S> <C> <S> <C>
Healthcare ..................... 14.4% Cable .......................... 13.0%
Wireless/Tele-Communications ... 12.3% Wireless/Tele-Communications ... 9.9%
Cable .......................... 10.4% Manufacturing .................. 8.7%
Manufacturing .................. 8.3% Entertainment/Leisure .......... 7.6%
Paper .......................... 6.5% Paper .......................... 6.8%
</TABLE>
*As a Percentage of Variable Rate Senior Loan Interests
NET ASSET VALUE STABILITY SINCE INCEPTION
(BASED UPON MONTH-END NET ASSET VALUE)
OCTOBER 1989 THROUGH JANUARY 1998
[LINE GRAPH]
VKAC Prime Rate Income Trust
High $10.07 on 1/3/95
Low $9.96 on 11/12/97
<TABLE>
<S> <C>
Oct 1989 10.00
Jul 1990 10.01
Jul 1991 9.98
Jul 1992 10.00
Jul 1993 10.00
Jul 1994 10.05
Jul 1995 10.04
Jul 1996 10.00
Jul 1997 9.96
Jan 1998 9.97
</TABLE>
Past performance does not guarantee future results.
11
<PAGE> 13
PORTFOLIO HIGHLIGHTS (CONTINUED)
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
CURRENT INCOME
OCTOBER 4, 1989 THROUGH JANUARY 31, 1998
[LINE GRAPH]
<TABLE>
<CAPTION>
VKAC Prime Rate 3-Month
Income Trust Treasury Bill
--------------- -------------
<S> <C> <C>
Oct 1989 8.08
Jul 1990 10.00 7.73
Jul 1991 8.02 5.68
Jul 1992 6.00 3.24
Jul 1993 5.76 3.10
Jul 1994 6.50 4.36
Jul 1995 8.02 5.58
Jul 1996 6.80 5.31
Jul 1997 6.80 5.09
Jan 1998 6.79 5.10
</TABLE>
TOP FIVE HOLDINGS AS A PERCENTAGE OF VARIABLE RATE SENIOR LOAN INTERESTS
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1998
<S> <C>
Stone Container Corp. -- Manufacturer of paper products..... 3.08%
Integrated Health Services, Inc. -- Provider of post-acute
healthcare services....................................... 2.63%
Nextel Finance Co. -- Wireless communications service
provider.................................................. 1.96%
Jefferson Smurfit Corp. -- Manufacturer of corrugated paper
products.................................................. 1.85%
Sun Healthcare Group, Inc. -- Provider of long term care.... 1.58%
</TABLE>
Past performance does not guarantee future results.
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS 85.1%
AEROSPACE/DEFENSE 1.7%
$ 10,078 Aerostructures Corp., Term Loan --
Manufacturer and assembler of structural
aircraft parts............................... 09/30/03 to 09/30/04 $ 10,091,557
5,860 Alliant Techsystems, Inc., Term Loan --
Manufacturer of ordnance, composite metals... 03/15/01 5,871,846
47,500 Gulfstream Delaware Corp., Term Loan --
Aircraft manufacturer........................ 09/30/02 47,565,569
15,860 K & F Industries, Inc., Term Loan --
Manufacturer of wheel, brake, and anti-skid
systems for aircraft......................... 10/15/05 15,861,500
5,459 L-3 Communications Corp., Term Loan --
Provider of secure communications systems.... 03/31/03 to 03/31/06 5,467,222
4,743 MAG Aerospace Industries, Inc., Term Loan --
Supplier of waste and trash systems to the
aerospace industry........................... 06/15/03 4,759,158
7,920 Tri-Star, Inc., Term Loan -- Distributor of
aerospace fasteners.......................... 09/30/03 7,955,087
19,199 United Defense Industries, Inc., Term Loan --
Defense contractor........................... 10/06/05 to 10/06/06 19,202,935
--------------
116,774,874
--------------
AUTOMOTIVE 3.4%
4,043 Advanced Accessory Systems, Inc., Term
Loan -- Supplier of exterior automotive
accessories.................................. 10/30/04 4,043,328
34,000 American Axel and Manufacturing Co., Term
Loan -- Manufacturer of automotive parts..... 04/30/06 34,000,000
8,500 American Bumper and Manufacturing Co., Term
Loan -- Manufacturer of light truck and SUV
bumpers...................................... 04/30/04 8,514,924
17,496 Blue Bird Body Co., Term Loan -- Manufacturer
of school buses.............................. 11/19/03 17,517,213
75,000 Breed Technologies, Inc., Term Loan --
Manufacturer of automotive protection
systems...................................... 10/31/98 75,000,717
28,000 Cambridge Industries, Inc., Term Loan --
Manufacturer of plastic components for
automobiles.................................. 06/30/05 28,025,219
16,215 Columbus-McKinnon Corp., Term Loan --
Manufacturer of material handling
equipment.................................... 10/17/01 to 09/30/03 16,244,688
5,544 Columbus-McKinnon Corp., Revolving Credit.... 09/30/01 5,545,769
9,963 Hayes Lemmerz International, Inc., Term
Loan -- Designer and manufacturer of car and
truck wheels................................. 07/31/04 to 07/31/05 9,995,457
4,917 International Data Response Corp., Term
Loan -- Manufacturer of plastic components
for automobiles.............................. 12/31/01 to 12/31/02 4,930,280
5,000 JMS Automotive Rebuilding, Inc., Term Loan --
Automotive parts re-manufacturer............. 06/30/04 5,002,702
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
AUTOMOTIVE (CONTINUED)
$ 11,439 Numatics, Inc., Term Loan -- Manufacturer of
pneumatic fluid power equipment.............. 12/31/03 $ 11,449,222
10,000 The Plastech Group, Term Loan -- Manufacturer
and designer of thermoplastic automotive
parts........................................ 04/01/02 to 04/01/04 10,000,923
--------------
230,270,442
--------------
BROADCASTING 4.1%
4,000 American Radio Systems Corp., Term Loan --
Radio station owner/operator................. 12/31/04 4,021,167
6,220 American Radio Systems Corp., Revolving
Credit....................................... 12/31/04 6,275,724
12,000 Benedek Broadcasting Corp., Term Loan --
Television station owner/operator............ 05/01/01 to 11/01/02 12,008,838
76,638 Chancellor Broadcasting Co., Term Loan --
Radio station owner/operator................. 06/30/05 76,845,575
16,831 Chancellor Broadcasting Co., Revolving
Credit....................................... 06/30/05 16,951,001
35,000 Jacor Communications, Inc., Term Loan --
Radio station owner/operator................. 12/31/04 35,000,565
36,333 Outdoor Systems, Inc., Term Loan -- Outdoor
advertising, billboards, etc................. 06/30/04 36,333,251
10,820 River City Broadcasting, L.P., Term Loan --
Midwestern radio station owner/operator...... 12/31/99 10,819,508
10,955 SFX Broadcasting, Inc., Revolving Credit --
Radio station operator....................... 06/30/05 10,984,480
42,714 Sinclair Broadcasting, Term Loan --
Television and radio station
owner/operator............................... 12/31/04 42,771,917
20,893 Sullivan Broadcasting, Term Loan --
Television station owner/operator............ 12/31/03 20,893,573
1,512 Sullivan Broadcasting, Revolving Credit...... 12/31/03 1,512,068
--------------
274,417,667
--------------
BUILDING/HOUSING 2.7%
23,619 Behr Process Corp., Term Loan -- Paint
manufacturer................................. 03/31/02 to 03/31/05 23,631,469
706 Behr Process Corp., Revolving Credit......... 03/31/02 705,891
10,000 Dayton Superior Corp., Term Loan --
Manufactures and distributes metal
accessories used in concrete and masonry
construction................................. 09/29/05 10,002,181
13,711 Falcon Building Products, Inc., Term Loan --
Manufacturer of building products............ 06/30/05 13,755,068
59,649 National Gypsum Co., Term Loan --
Manufacturer of wallboard.................... 09/20/03 59,665,047
7,000 Reliant Building Products, Inc., Term Loan --
Manufacturer of aluminum and vinyl windows... 03/31/04 7,000,000
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
BUILDING/HOUSING (CONTINUED)
$ 50,000 Walter Industries, Inc., Term Loan --
Diversified line of products and services for
homes and other construction................. 10/15/03 $ 50,001,813
15,000 Werner Holding Co., Term Loan -- Manufacturer
and marketer of ladders...................... 11/30/04 to 11/30/05 15,000,000
--------------
179,761,469
--------------
CABLE 8.8%
15,994 Adelphia Cable Partners, L.P., Revolving
Credit -- Cable television systems
operator..................................... 12/31/03 16,076,748
22,500 Bresnan Communications Co., L.P., Term
Loan -- Cable television systems operator.... 03/31/06 22,612,849
5,940 Cable Systems International, Inc., Term
Loan -- Manufacturer of electrical wire and
cable........................................ 12/31/02 5,948,399
45,702 Charter Communications Entertainment I, Term
Loan -- Cable television systems operator.... 06/30/04 45,718,704
10,414 Charter Communications Entertainment II, Term
Loan -- Cable television systems operator.... 06/30/05 to 12/31/05 10,422,689
3,659 Charter Communications Entertainment II,
Revolving Credit............................. 06/30/05 3,658,938
32,000 Charter Communications Entertainment II &
Long Beach, Term Loan -- Cable television
systems operator............................. 03/31/06 32,082,361
47,500 Chelsea Communications, Inc., Term Loan --
Cable television systems operator............ 12/31/04 47,534,080
21,034 Classic Cable, Inc., Term Loan -- Cable
television systems operator.................. 06/30/05 21,038,943
16,660 Coaxial Communications of Central Ohio, Term
Loan -- Cable television systems operator.... 12/31/99 16,662,400
25,500 Comcast MH Holdings, Inc., Revolving
Credit -- Cable television systems
operator..................................... 12/31/03 25,508,664
44,677 Falcon Holdings Group, L.P., Term Loan --
Cable television systems owner/operator...... 07/11/05 44,710,590
9,337 Falcon Holdings Group, L.P., Revolving
Credit....................................... 01/11/05 9,371,313
15,000 Frontiervision Operating Partners, L.P., Term
Loan -- Cable television systems operator.... 03/31/06 15,000,000
22,500 Garden State Cablevision, L.P., Revolving
Credit -- Cable television systems
owner/operator............................... 06/30/05 22,502,628
0 Hilton Head Communications, L.P., Revolving
Credit -- Cable television systems operator.. 06/30/03 42,388
11,000 Insight Communication Co., L.P., Term Loan --
Cable television systems operator............ 03/31/05 11,029,692
6,960 Insight Communication Co., L.P., Revolving
Credit....................................... 03/31/05 6,979,903
18,500 InterMedia Partners IV, L.P., Term Loan --
Cable television systems operator............ 01/01/05 18,512,360
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CABLE (CONTINUED)
$ 4,333 Lenfest Communications, Inc., Term Loan --
Cable television systems operator............ 09/30/03 $ 4,346,760
3,300 Lenfest Communications, Inc., Revolving
Credit....................................... 09/30/03 3,328,292
64,530 Marcus Cable Operating Co., Term Loan --
Cable television systems operator............ 12/31/02 to 04/30/04 64,582,159
5,543 Marcus Cable Operating Co., Revolving
Credit....................................... 12/31/02 5,543,538
5,000 Mark Twain Cablevision, L.P., Term Loan --
Cable television systems operator............ 06/30/04 5,014,155
47,500 TCI Pacific, Inc., Term Loan -- Cable
television systems operator.................. 12/31/04 47,534,440
7,890 TCI Southeast, Inc., Revolving Credit --
Cable television services provider........... 06/30/01 7,894,837
30,714 Triax Midwest Associates, Term Loan -- Cable
television systems operator.................. 06/30/04 to 06/30/05 30,777,688
2,698 Triax Midwest Associates, Revolving Credit... 06/30/04 2,704,942
27,343 TW Fanch, Revolving Credit -- Cable
television systems operator.................. 12/31/04 27,422,544
15,600 UCA Group, Revolving Credit -- Cable
television systems operator.................. 09/30/03 15,600,031
--------------
590,163,035
--------------
CHEMICAL 3.0%
11,340 Cedar Chemicals Corp., Term Loan --
Manufacturer of fertilizer................... 10/30/03 11,346,516
7,319 Geo Specialty Chemicals, Inc., Term Loan --
Manufacturer of specialty chemicals.......... 09/25/02 to 03/25/04 7,351,999
58,722 Huntsman Group Holdings, Term Loan --
Integrated chemical, plastic and packaging
producer..................................... 12/31/02 to 12/31/05 58,777,092
8,476 Huntsman Group Holdings, Revolving Credit.... 12/31/02 8,480,036
19,800 Huntsman Specialty Chemical Corp., Term
Loan -- Manufacturer of specialty
chemicals.................................... 03/15/04 to 03/15/05 19,818,733
9,950 Pioneer Americas Acquisition Corp., Term
Loan -- Manufacturer of water treatment
chemicals.................................... 12/31/06 9,961,283
12,102 Reid Plastics, Inc., Term Loan --
Manufacturer of plastic bottles.............. 11/12/03 12,143,051
2,500 Sovereign Specialty, Term Loan --
Manufacturer of specialty chemicals.......... 07/31/01 2,500,062
43,166 Sterling Chemicals, Inc., Term Loan --
Manufacturer of commodity petrochemicals..... 09/30/04 43,227,619
12,138 Texas Petrochemicals Corp., Term Loan --
Processor of petrochemicals.................. 06/30/01 to 06/30/04 12,147,640
1,529 Texas Petrochemicals Corp., Revolving
Credit....................................... 12/31/02 1,529,230
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
CHEMICAL (CONTINUED)
$ 5,854 Thoro System Products, Inc., Term Loan --
Manufacturer of chemicals for construction
industry..................................... 03/31/00 $ 5,936,104
6,660 TruSeal Technologies, Inc., Term Loan --
Manufacturer of window sealant/systems....... 06/30/04 6,659,878
--------------
199,879,243
--------------
ELECTRIC/ELECTRONICS 2.3%
20,019 Amphenol Corp., Term Loan -- Designer,
manufacturer and marketer of
electric/electronic connectors............... 05/19/06 20,027,545
5,676 Anacomp, Inc., Term Loan -- Micrographics
provider..................................... 03/31/01 5,693,048
6,738 Banker's Systems, Inc., Term Loan -- Supplier
of compliance services....................... 11/01/02 6,738,890
9,716 Berg Electronics, Inc., Term Loan --
Manufacturer of electronic connectors........ 06/30/03 9,717,145
4,418 Berg Electronics, Inc., Revolving Credit..... 06/30/03 4,419,431
10,000 Control Data Systems, Inc., Term Loan --
Software information services provider....... 11/26/00 10,000,194
17,000 Cooperative Computing Inc./Triad Systems
Corp., Term Loan -- Provider of information
services..................................... 02/27/03 17,062,590
43,922 DecisionOne Corp., Term Loan -- Multivendor,
computer maintenance and technical support... 08/07/03 to 08/07/05 43,925,068
7,000 Details, Inc., Term Loan -- Manufactures
printed circuit boards....................... 11/30/04 7,002,056
4,000 Labtec Enterprises, Inc., Term Loan --
Manufacturer and marketer of multimedia
accessory products........................... 10/07/04 4,002,475
8,358 Rowe International, Inc., Term Loan --
Manufacturer of jukeboxes and electronic
equipment (a)................................ 03/31/00 7,104,583
8,929 Sarcom, Inc., Term Loan -- Provider of
information technology....................... 12/31/02 8,973,899
8,750 Viasystems, Inc., Term Loan -- Manufacturer
of PCB equipment............................. 06/30/04 to 06/30/05 8,767,370
53 Viasystems, Inc., Revolving Credit........... 12/31/02 52,795
--------------
153,487,089
--------------
ENTERTAINMENT/LEISURE 4.8%
9,808 Alliance Gaming Corp., Term Loan -- Designer
& manufacturer of gaming machines............ 01/31/05 9,809,918
2,143 Alliance Gaming Corp., Delayed Draw Term
Loan......................................... 01/31/05 2,143,050
21,500 ASC Network Corp., Term Loan -- Ski resort
operator..................................... 05/31/06 21,499,902
33,000 Fleer Corp., Term Loan -- Publisher of
children's magazines (a)(b).................. 02/28/02 24,750,000
8,000 Hard Rock Hotel, Inc., Term Loan -- Hotel and
gaming....................................... 09/26/03 to 09/26/05 8,000,169
2,267 Hollywood Entertainment Corp., Revolving
Credit -- Owner and operator of video retail
stores....................................... 09/05/02 2,266,774
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
ENTERTAINMENT/LEISURE (CONTINUED)
$ 8,000 KSL Recreation Group, Inc., Term Loan --
Leisure, recreation, and travel.............. 04/30/05 to 04/30/06 $ 8,016,411
3,643 KSL Recreation Group, Inc., Revolving
Credit....................................... 04/30/04 3,643,434
353 Las Vegas Sands, Inc., Revolving Credit --
Casino resort................................ 11/30/03 396,554
8,782 M.W. Manufacturers, Term Loan -- Manufacturer
of sporting goods and table games............ 09/15/02 8,783,303
59,231 Mafco Finance Corp., Term Loan -- Holding
company...................................... 03/20/99 59,403,237
79,000 Metro-Goldwyn-Mayer, Term Loan --
Movie/television producer.................... 03/31/05 to 03/31/06 79,017,514
13,980 Metro-Goldwyn-Mayer, Revolving Credit........ 09/30/03 13,981,226
22,613 Six Flags Theme Parks, Term Loan -- Theme
park operator................................ 06/23/03 22,614,825
6,700 Sportcraft, Ltd., Term Loan -- Supplier of
high quality branded sporting goods.......... 12/31/02 6,710,652
46,819 Viacom, Inc., Term Loan -- Entertainment
media/television programming................. 04/01/02 to 04/02/02 46,860,161
2,744 Viacom, Inc., Revolving Credit............... 04/01/02 2,751,365
--------------
320,648,495
--------------
FINANCE 1.2%
1,936 Ark Asset Holdings, Inc., Term Loan --
Institutional money manager.................. 11/30/01 1,936,639
7,000 Blackstone Capital Co., Term Loan --
Financial services........................... 05/31/99 7,014,474
7,000 Blackstone Capital Co., Revolving Credit..... 05/31/99 7,015,112
25,000 Bridge Information Systems, Inc., Term
Loan -- Provider of financial and analytical
services..................................... 12/31/04 25,011,618
35,852 Outsourcing Solution, Inc., Term Loan --
Accounts receivable management services...... 10/15/03 to 10/15/04 35,865,437
--------------
76,843,280
--------------
FOOD/BEVERAGE 2.7%
11,500 Amerifoods, Inc., Term Loan -- Manufacturer
of snack foods and bakery products........... 06/30/01 to 06/30/02 10,925,000
25,000 Dr. Pepper Bottling, Term Loan -- Soft drink
bottler...................................... 12/31/05 24,999,300
9,263 Edwards Baking Corp., Term Loan --
Manufacturer of bakery products.............. 09/30/03 to 09/30/05 9,268,145
9,921 IM Stadium, Inc., Term Loan -- Sports stadium
concessions non-food products................ 12/31/02 to 12/31/03 9,925,504
7,363 Mistic Brands, Inc., Term Loan -- Beverage
producer..................................... 06/01/04 to 06/01/05 7,363,361
32,918 S.C. International Services, Term Loan --
In-flight food services...................... 08/28/02 32,925,767
13,823 Select Beverages, Inc., Term Loan --
Independent bottler.......................... 06/30/01 to 06/30/02 13,826,505
5,883 Southern Foods Group, Inc., Term Loan -- Milk
processor and distributor.................... 02/28/06 5,885,037
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
FOOD/BEVERAGE (CONTINUED)
$ 11,794 Specialty Foods Corp., Term Loan -- Food
manufacturer................................. 04/01/01 $ 11,794,122
24,376 Stroh Brewery Co., Term Loan -- Beer
manufacturer................................. 06/30/03 24,408,551
20,021 Van De Kamp's, Inc., Term Loan -- Processor
and distributor of frozen foods.............. 04/30/03 to 09/30/03 20,046,760
6,197 Windsor Quality Food Co., LTD, Term Loan --
Processor of frozen foods.................... 12/31/01 6,207,599
--------------
177,575,651
--------------
FOOD STORES 2.3%
42,756 Bruno's, Inc., Term Loan -- Southeastern
retail food chain operator(a)(b)............. 12/02/03 to 04/15/05 40,999,447
4,825 Bruno's, Inc., Revolving Credit(a)(b)........ 12/02/03 4,621,768
12,740 Carr-Gottstein Foods, Term Loan --
Alaska-based retail food chain operator...... 12/31/02 12,743,711
12,500 Eagle Family Foods, Term Loan -- Retail food
chain operator and manufacturer.............. 12/31/05 12,500,004
22,035 Fleming Cos., Inc., Term Loan -- Food
marketing and distribution................... 07/25/04 22,142,309
5,515 Fleming Cos., Inc., Revolving Credit......... 07/25/03 5,711,617
4,693 Harvest Foods, Inc., Term Loan --
Mississippi-based retail food chain operator
(a)(b)....................................... 06/30/02 93,861
31,256 Pathmark Stores, Inc., Term Loan -- New
Jersey-based retail food chain operator...... 06/15/01 to 12/15/01 31,345,974
5,069 Ralph's Grocery Co., Term Loan -- Los
Angeles, California-based retail food chain
operator..................................... 02/15/04 5,069,592
8,508 Randall's Food Markets, Inc., Term Loan --
Texas-based retail food chain operator....... 06/27/06 8,508,117
10,157 Star Markets Co., Inc., Term Loan -- New
England-based retail food chain operator..... 12/31/02 to 12/31/03 10,166,153
2,522 Star Markets Co., Inc., Revolving Credit..... 12/31/01 2,523,748
--------------
156,426,301
--------------
FUEL RETAILER 0.2%
11,938 TravelCenters of America, Inc., Term Loan --
Operator of truckstops nationwide............ 03/31/05 11,969,989
--------------
HEALTHCARE 12.2%
16,328 Alaris Medical Systems, Inc., Term Loan --
Infusion systems provider.................... 08/01/02 to 05/01/05 16,342,047
1,019 Alaris Medical Systems, Inc., Revolving
Credit....................................... 08/01/02 1,019,246
3,360 Alliance Imaging, Inc., Term Loan --
Diagnostic imaging services.................. 12/18/03 3,361,582
7,447 Beltone Electronics, Inc., Term Loan --
Manufacturer, marketer, and distributor of
hearing aids................................. 10/31/04 7,447,071
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
HEALTHCARE (CONTINUED)
$ 6,500 Charter Behavioral, Revolving Credit --
Behavioral healthcare services............... 06/17/02 $ 6,534,537
59,240 Community Health Systems, Inc., Term Loan --
Southeast and Southwest hospital
operator/provider of healthcare services..... 12/31/03 to 12/31/05 59,349,218
10,000 ConMed Corp., Term Loan -- Manufacturer and
developer of medical devices................. 12/30/04 10,000,238
51,147 Dade International, Inc., Term Loan --
Medical equipment manufacturer/marketer...... 12/31/02 to 12/31/04 51,196,783
17,500 Endo Pharmaceuticals, Inc., Term Loan --
Generic pharmaceutical producer.............. 06/30/04 17,502,966
27,000 Extendicare Health Services, Inc., Term
Loan -- Operator of long-term care facilities
and hospitals................................ 12/31/03 27,000,676
27,431 FPA Medical Management, Inc., Term Loan --
Healthcare provider.......................... 09/30/01 27,472,933
30,577 Genesis Healthcare Ventures, Inc., Term
Loan -- Elderly healthcare provider.......... 09/30/04 to 06/01/05 30,580,992
15,678 Graphic Controls Corp., Term Loan --
Manufacturer of medical equipment............ 09/28/03 15,682,144
2,200 Housecall Medical Resources, Inc., Term
Loan -- Provider of home healthcare
services..................................... 05/01/00 2,200,910
1,500 Housecall Medical Resources, Inc., Revolving
Credit....................................... 05/01/00 1,502,522
8,000 Insight Health Services Corp., Term Loan --
Provider of diagnostic imaging services...... 10/14/04 8,001,315
150,000 Integrated Health Services, Inc., Term
Loan -- Provider of post-acute healthcare
services..................................... 09/15/03 to 09/15/05 150,002,497
9,000 Kinetic Concepts, Inc., Term Loan --
Manufacturer of therapeutic beds and support
surfaces..................................... 12/31/04 to 12/31/05 9,001,190
0 Magellan Health Services, Inc., Revolving
Credit -- Provider of specialty
medical services ............................ 06/17/02 68,904
6,841 Medical Specialties Group, Inc., Term Loan --
Supplier of medical pumps and consumables.... 06/30/01 to 06/30/04 6,855,428
9,855 Mediq/PRN Life Support Services, Inc., Term
Loan -- Rents movable critical care
equipment.................................... 09/30/04 9,874,683
27,437 Merit Behavioral Corp., Term Loan --
Psychiatric hospital operator................ 03/11/07 27,446,260
15,292 Multicare Companies, Inc., Term Loan --
Provider of long term care and specialty
medical services............................. 09/30/04 to 06/01/05 15,291,689
60,000 National Medical Care, Inc., Term Loan --
Kidney dialysis service provider............. 09/30/03 60,154,585
6,122 NEN Acquisition, Inc., Term Loan --
Manufacturer of consumable radio-isotopic
biochemicals................................. 03/31/05 6,149,147
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
HEALTHCARE (CONTINUED)
$ 25,000 Paragon Health Network, Inc., Term Loan --
Provider of long-term care................... 03/31/05 to 03/31/06 $ 25,006,432
5,000 Prime Medical Services, Inc., Term Loan --
Provider of lithotripsy services............. 04/30/03 5,013,202
37,500 Quest Diagnostics, Inc., Term Loan --
Clinical testing laboratory.................. 12/05/02 to 12/05/03 37,612,292
7,980 SMT Health Services, Inc., Term Loan --
Provider of diagnostic imaging services...... 08/30/03 7,980,097
25,000 Sterling Diagnostic, Inc., Term Loan --
Manufacturer and marketer of medical imaging
equipment.................................... 09/30/05 25,017,894
90,000 Sun Healthcare Group, Inc., Term Loan --
Provider of healthcare services.............. 11/12/04 to 11/12/05 90,000,554
52,500 Total Renal Care Holdings, Inc., Term Loan --
Provider of dialysis services................ 09/30/07 52,500,954
4,938 WGL Acquisition Corp., Term Loan --
Manufacturer of implant batteries and medical
devices...................................... 07/30/04 4,937,661
--------------
818,108,649
--------------
MANUFACTURING 7.0%
9,325 Arena Brands, Inc., Term Loan -- Manufacturer
of hats...................................... 06/01/02 9,333,606
758 Arena Brands, Inc., Revolving Credit......... 06/01/02 757,507
7,406 CII Carbon, L.L.C., Term Loan -- Calcinated
coke producer................................ 09/30/04 7,426,406
12,219 Calmar, Inc., Term Loan -- Manufacturer of
dispensing and spray products................ 09/15/03 to 03/15/04 12,223,463
9,728 CBP Resources, Inc., Term Loan --
Manufacturer of animal feed ingredients...... 09/30/03 9,734,356
8,307 Chatham Technologies Acquisition, Inc., Term
Loan -- Manufacturer of custom electronic
enclosures................................... 08/18/03 to 08/18/05 8,310,991
50,913 Dal-Tile Group, Inc., Term Loan -- Ceramic
tile and floor covering
manufacturer/retailer........................ 12/31/02 to 12/31/03 51,077,187
5,079 Dal-Tile Group, Inc., Revolving Credit....... 12/31/02 5,082,742
7,500 Desa International, Term Loan -- Diversified
manufacturer of heaters, fireplaces, and
specialty tools.............................. 12/26/04 7,506,659
9,321 Ebel USA, Inc., Term Loan -- Manufacturer of
luxury time pieces........................... 09/30/01 9,325,736
2,595 Essex Group, Inc., Revolving Credit --
Manufacturer of electrical wire and cable.... 10/31/01 2,605,868
52,500 Evenflo & Spalding Holdings Corp., Term
Loan -- Global manufacturer of branded
sporting goods/juvenile products............. 09/30/03 to 03/30/06 51,470,553
5,130 Evenflo & Spalding Holdings Corp., Revolving
Credit....................................... 09/30/03 5,027,459
17,375 Fairchild Semiconductor Corp., Term Loan --
Manufacturer of semiconductors............... 03/11/03 17,390,586
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MANUFACTURING (CONTINUED)
$ 17,995 Foamex, L.P., Term Loan --
Manufacturer/marketer of flexible
polyurethane................................. 06/30/03 to 06/30/06 $ 18,002,851
3,652 Foamex, L.P., Revolving Credit............... 06/12/03 3,652,658
34,000 Furniture Brands, Term Loan -- Manufacturer
and marketer of furniture.................... 06/30/07 34,000,000
27,500 Goodman Manufacturing, Inc., Term Loan --
Heating, air conditioning, and home appliance
manufacturer................................. 09/30/04 to 09/30/05 27,522,719
9,925 IAH Acquisition Corp., Term Loan -- Safety
shoe manufacturer, distributor, and
retailer..................................... 01/31/05 9,959,664
6,419 Identity Group, Inc., Term Loan -- Designer,
manufacturer, and distributor of identity
products..................................... 11/22/03 6,432,224
25,919 International Wire Group, Term Loan --
Manufacturer of auto, appliance, and
communication wires.......................... 09/30/03 25,946,986
29,925 IPC, Inc., Term Loan -- Manufacturer of
packaging materials.......................... 10/02/04 29,933,218
6,133 Jet Plastica Industries, Inc., Term Loan --
Manufacturer of disposable tableware
products..................................... 12/31/02 to 12/31/04 6,151,865
28,002 Johnstown America, Term Loan -- Manufacturer
of railcars.................................. 03/31/03 28,006,741
9,658 RTI Funding Corp., Term Loan -- Manufacturer
of building blocks for children.............. 02/08/03 to 02/08/04 9,659,812
20,000 Safelite Glass Corp., Term Loan --
Manufacturer/installer of auto glass
replacements................................. 12/23/04 to 12/23/05 20,000,000
9,630 Signature Brands, Inc., Term Loan --
Manufacturer of small appliances............. 08/15/01 9,640,602
6,940 Simmons Co., Term Loan -- Manufacturer and
distributor of bedding....................... 03/31/03 6,945,939
24,979 UCAR International, Inc., Term Loan --
Manufacturer of graphite/carbide
electrodes................................... 12/31/02 24,993,311
6,201 U.F. Acquisition, Term Loan -- Provider of
fixtures and storage for retailer stores..... 12/15/02 6,203,661
4,983 Walco International, Inc., Term Loan --
Distributor of animal health products........ 03/31/04 4,997,081
1,115 Windy Hill Pet Food Co., Term Loan --
Manufacturer of pet food products............ 12/31/03 1,131,177
--------------
470,453,628
--------------
MINING/METALS 0.8%
10,732 Alliance Coal Corp., Term Loan -- Coal
mining....................................... 12/31/01 to 12/31/02 10,756,358
22,483 AMAX Gold, Inc., Term Loan -- Gold and silver
mining and processing........................ 12/31/01 22,521,250
4,712 Centennial Resources, Inc., Term Loan -- Coal
provider..................................... 03/31/02 to 03/31/04 4,726,954
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MINING/METALS (CONTINUED)
$ 7,064 Fairmont Minerals, Ltd., Term Loan -- Silica
sand and gravel producer..................... 02/25/05 $ 7,064,025
8,705 U.S. Silica Co., Term Loan -- Producer of
industrial silica............................ 12/31/03 8,719,351
--------------
53,787,938
--------------
PAPER 5.5%
10,000 Bear Island Paper Co., Term Loan -- Paper
mill......................................... 12/31/05 10,002,678
24,698 Crown Paper Co., Term Loan -- Producer of
value-added paper products................... 08/23/02 24,718,654
2,694 Crown Paper Co., Revolving Credit............ 08/23/02 2,698,124
4,000 CST Office Products, Corp., Term Loan --
Manufacturer and distributor of stock
computer forms............................... 12/31/01 4,020,897
8,458 Fleming Packaging Co., Term Loan --
Manufacturer of premium printed labels....... 08/30/04 8,459,909
105,623 Jefferson Smurfit Corp., Term Loan --
Manufacturer of corrugated paper products.... 04/30/01 to 10/31/02 105,646,432
13,985 S.D. Warren Co., Term Loan -- Manufacturer of
coated-free paper............................ 04/26/04 13,996,755
15,500 St. Laurent Paper Products L.L.C., Term
Loan -- Producer of integrated pulp and
paper........................................ 05/31/03 to 05/31/04 15,530,448
175,180 Stone Container Corp., Term Loan --
Manufacturer of paper products............... 04/01/00 to 10/01/03 175,783,303
732 Stone Container Corp., Revolving Credit...... 05/15/99 731,849
7,851 Stronghaven, Inc., Term Loan -- Manufacturer
of corrugated containers..................... 05/15/04 7,873,185
--------------
369,462,234
--------------
PERSONAL/NON-DURABLE 1.6%
9,453 Chattem, Inc., Term Loan -- Manufacturer and
marketer of OTC pharmaceuticals.............. 06/30/04 9,474,656
17,728 Mary Kay Cosmetics, Inc., Term Loan -- Direct
cosmetic sales............................... 03/06/04 17,780,460
214 Mary Kay Cosmetics, Inc., Revolving Credit... 03/06/04 223,015
24,875 Playtex Products, Inc., Term Loan --
Manufacturer of beauty aid and hygiene
products..................................... 09/15/03 24,898,130
55,000 Revlon Consumer Products Corp., Term Loan --
Manufacturer of cosmetics.................... 05/30/02 55,068,974
--------------
107,445,235
--------------
PRINTING/PUBLISHING 3.2%
20,669 Advanstar Communications, Term Loan -- Trade
magazine publisher........................... 12/31/02 to 12/21/03 20,713,557
14,452 ADVO, Inc., Term Loan -- Direct mail
marketer..................................... 09/29/03 14,457,428
45,341 American Media Operations, Inc., Term Loan --
Magazine/newspaper publisher................. 09/30/01 to 09/30/02 45,345,831
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
PRINTING/PUBLISHING (CONTINUED)
$ 273 American Media Operations, Inc., Revolving
Credit....................................... 09/30/01 $ 274,014
2,333 Brylane, L.P., Term Loan -- Catalog retailer
of apparel................................... 10/20/02 2,333,655
467 Brylane, L.P., Revolving Credit.............. 10/20/02 466,722
9,000 Cygnus Publishing, Inc., Term Loan --
Magazine publisher........................... 06/05/05 9,024,629
735 Garden State Newspapers, Inc., Term Loan --
Suburban newspaper operator.................. 03/31/04 738,574
4,214 Garden State Newspapers, Inc., Revolving
Credit....................................... 06/30/03 4,250,601
23,811 Journal News, Inc., Term Loan -- Multiple
newspaper printer............................ 12/31/02 23,818,860
33,000 Morris Communications, Inc., Term Loan --
Newspaper operator........................... 03/31/04 to 06/30/05 33,014,012
10,783 Polyfibron Technologies, Inc., Term Loan --
Manufacturer/marketer of consumable printing
products..................................... 12/28/03 10,798,123
19,000 PRIMEDIA, Inc., Term Loan -- Magazine
publications................................. 06/30/04 19,015,567
7,529 TWP Capital Corp., Term Loan -- Publisher of
yellow pages................................. 10/01/04 7,529,497
7,913 Von Hoffman Press, Inc., Term Loan --
Manufacturer of textbooks.................... 05/30/03 to 05/30/05 7,928,872
1,528 Von Hoffman Press, Inc., Revolving Credit.... 05/30/03 1,527,750
5,000 Yellow Book USA, Inc., Term Loan -- Publisher
of directories............................... 12/15/05 to 12/05/06 5,000,808
10,000 21st Century Newspaper, Inc., Term Loan --
Local newspaper publisher.................... 09/15/03 10,005,079
--------------
216,243,579
--------------
RESTAURANTS 0.4%
5,686 California Pizza Kitchen, Inc., Term Loan --
Restaurant chain............................. 09/30/04 5,686,329
943 Carvel Corp., Term Loan -- Soft ice cream
products franchiser.......................... 12/31/98 942,814
4,051 Long John Silver's Restaurants, Inc., Term
Loan -- Retail seafood restaurant
owner/operator............................... 09/30/04 4,179,093
14,813 Shoney's, Inc., Term Loan -- Restaurant
chain........................................ 04/30/02 14,813,270
--------------
25,621,506
--------------
RETAIL 1.8%
7,500 Amazon.com, Inc., Term Loan -- Retailer of
books online................................. 12/23/00 7,500,000
17,086 Color Tile, Inc., Term Loan -- National
retailer of floor and wall covering products
(a) (b)...................................... 12/31/98 6,663,504
5,926 Kirkland's Holdings, Term Loan -- Retailer of
decorative home accessories and gift items... 06/30/02 5,935,998
9,278 Luxottica Group SPA, Term Loan --
Manufacturer and distributor of eyeglasses... 06/30/01 9,277,556
7,944 Murray's Discount Auto, Inc., Term Loan --
Retailer of auto parts....................... 06/30/03 7,944,690
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
RETAIL (CONTINUED)
$ 7,385 Nebraska Book Co., Inc., Term Loan -- Used
book distributor............................. 10/31/03 $ 7,385,000
25,959 Payless Cashways, Inc., Term Loan -- Building
products retailer............................ 11/30/02 25,959,037
8,679 Payless Cashways, Inc., Revolving Credit..... 05/31/02 8,679,427
10,761 Peebles, Inc., Term Loan -- Mid-Atlantic
retailer..................................... 06/09/02 10,761,244
17,500 QVC, Inc., Term Loan -- Home shopping
television network........................... 02/15/02 17,515,690
10,503 Service Merchandise Co., Inc., Term Loan --
Catalog retailer............................. 09/10/02 10,506,893
4,961 Vitamin Shoppe Industries, Inc., Term Loan --
Retailer/marketer of vitamins................ 05/15/04 4,961,553
--------------
123,090,592
--------------
TEXTILES 1.4%
11,270 American Marketing Industries, Inc., Term
Loan -- Manufacturer of textiles............. 11/30/02 11,270,000
8,955 GFSI, Inc., Term Loan -- Designer,
manufacturer, and marketer of sportswear..... 03/31/04 8,963,150
4,064 Homemaker Industries, Inc., Term Loan --
Manufacturer of braided rugs................. 06/30/04 4,081,686
5,394 Ithaca Industries, Inc., Term Loan --
Manufacturer of undergarments and hosiery.... 08/31/99 5,466,480
1,292 Ithaca Industries, Inc., Revolving Credit.... 08/31/99 1,358,713
14,000 Joan Fabrics Corp., Term Loan -- Manufacturer
of automobile and furniture textiles......... 06/30/05 to 06/30/06 15,002,903
13,413 Johnston Industries, Inc., Term Loan --
Diversified manufacturer of home furnishings
and textiles................................. 03/28/03 13,429,111
34,476 London Fog Industries, Inc., Term Loan --
Manufacturer of rainwear and outerwear (c)... 05/31/02 25,909,842
7,056 William Carter Co., Term Loan -- Manufacturer
of children's clothing....................... 10/30/03 7,072,496
--------------
92,554,381
--------------
TRANSPORTATION 1.8%
29,500 Atlas Freighter Leasing, Inc., Term Loan --
Air cargo carrier............................ 05/29/04 to 06/30/04 29,526,550
51,564 Continental Airlines, Inc., Term Loan --
Airline passenger carrier.................... 07/31/02 to 07/31/04 51,622,878
39,654 Evergreen International Aviation, Inc., Term
Loan -- Air cargo carrier.................... 05/31/02 to 05/31/03 39,782,193
--------------
120,931,621
--------------
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WIRELESS COMMUNICATIONS/
TELECOMMUNICATIONS 10.5%
$ 27,977 Arch Communications, Inc., Term Loan --
Wireless communications operator............. 12/31/02 to 12/31/03 $ 28,028,422
7,750 Arch Communications, Inc., Revolving
Credit....................................... 12/31/02 7,813,098
5,950 Claricom, Inc., Term Loan -- Seller and
servicer of telephone systems and software... 11/30/02 5,959,160
12,331 Global TeleSystems Group, Inc., Term Loan --
Provider of telecommunications networks and
wireless services............................ 11/30/02 12,331,068
6,585 Intesys Technologies, Inc., Term Loan --
Equipment manufacturer for
telecommunications/autos..................... 12/31/01 6,588,072
30,412 Iridium Operating LLC, Term Loan -- Global,
wireless commercial telephone systems........ 09/30/98 30,412,409
12,500 Metrocall, Inc., Term Loan -- Provider of
paging services.............................. 12/31/04 12,500,060
2,216 Metrocall, Inc., Revolving Credit............ 12/31/04 2,338,495
64,005 Mobilemedia Communications, Inc., Term
Loan -- Nationwide paging operator........... 06/30/02 to 06/30/03 61,465,483
2,555 Mobilemedia Communications, Inc., Revolving
Credit....................................... 06/30/02 2,458,232
111,363 Nextel Finance Co., Term Loan -- Wireless
communications service provider.............. 03/31/03 to 06/30/03 111,573,516
16,592 Nextel Finance Co., Revolving Credit......... 03/30/03 17,502,696
35,000 Omnipoint Communications Corp., Term Loan --
Wireless communications/PCS service
provider..................................... 12/31/04 35,000,000
11,000 Powertel PCS, Inc., Revolving Credit --
Wireless communications/PCS service
provider..................................... 03/31/06 10,998,436
34,098 Price Communications, Inc., Term Loan --
Cellular communications provider............. 09/30/05 to 09/30/06 34,098,359
6,867 Price Communications, Inc., Revolving
Credit....................................... 09/30/05 6,866,747
11,767 Shared Technologies, Inc., Term Loan --
Provider of shared telecommunications
services..................................... 03/30/01 to 03/31/03 11,773,456
1,533 Shared Technologies, Inc., Revolving
Credit....................................... 03/30/01 1,534,926
75,000 Sprint Spectrum L.P., Term Loan -- PCS
provider/wireless communications............. 01/31/02 75,280,377
70,000 Sprint, Lucent Technologies Vendor Facility,
Term Loan -- PCS provider/wireless
communications............................... 06/30/01 70,359,526
43,995 Sprint, Northern Telecom Vendor Facility,
Term Loan -- PCS provider/wireless
communications............................... 03/31/05 44,475,536
9,500 Teletouch Communications, Inc., Term Loan --
Provider of paging services.................. 11/30/05 9,500,000
5,727 USA Mobile Communications, Inc. II, Revolving
Credit -- Wireless communications service
provider..................................... 06/30/02 5,771,916
2,500 Wavetech Corp., Term Loan -- Developer and
manufacturer of communications testing
equipment.................................... 12/15/02 2,500,034
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Stated
(000) Borrower Maturity* Value
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
WIRELESS COMMUNICATIONS/
TELECOMMUNICATIONS (CONTINUED)
$ 30,000 Western PCS II Corp., Term Loan -- PCS
owner/operator............................... 12/31/03 $ 30,184,910
65,000 Western Wireless Corp., Term Loan -- Cellular
and personal communications services
operator..................................... 03/31/05 65,009,991
--------------
702,324,925
--------------
OTHER 1.7%
1,050 AES Cemig Funding Corp., Term Loan --
Electric utility provider.................... 08/28/98 1,050,000
1,750 AESEBA Funding Corp., Term Loan -- Electric
utility provider............................. 08/28/98 1,750,000
17,220 Allied Waste Industries, Inc., Term Loan --
Solid waste management....................... 12/05/03 17,233,040
4,358 Borg-Warner Security Corp., Revolving
Credit -- Protection and security services
provider..................................... 03/31/02 4,367,821
16,000 Brand Scaffold Services, Inc., Term Loan --
Industrial scaffolding rental services....... 09/30/02 to 09/30/04 16,041,895
333 Brand Scaffold Services, Inc., Revolving
Credit....................................... 09/30/02 337,842
8,778 Kindercare Learning Centers, Inc., Term
Loan -- Provider of educational and child
care services................................ 03/21/06 8,777,764
19,035 LES, Inc., Term Loan -- Hazardous and
industrial waste services.................... 05/15/03 to 05/15/05 19,065,494
10,000 Norwood Promotional Products, Inc., Term
Loan -- Supplier of custom-imprinted
promotional products......................... 08/28/04 10,001,743
5,032 Panolam Industries, Inc., Term Loan --
Manufactures and markets decorative panels... 01/31/03 5,037,651
6,888 RIGCO North America, L.L.C., Term Loan --
Lessor of semi-submersible offshore drilling
rigs......................................... 09/30/98 6,904,030
4,857 Smarte Carte Corp., Term Loan -- Manufacturer
of airport carts and storage lockers......... 06/30/03 4,869,975
15,777 United Stationers, Inc., Term Loan --
Distributor of office paper products......... 10/31/03 15,788,234
--------------
111,225,489
--------------
TOTAL VARIABLE RATE ** SENIOR LOAN INTERESTS 85.1%................ 5,699,467,312
--------------
EQUITIES 1.3%
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
Camelot Music Holdings, Inc., (1,994,717 common shares)............ 69,498,022
Dan River, Inc. (192,060 common shares) (e)........................ 2,832,885
Classic Cable, Inc. (Warrants for 760 shares) (e).................. 0
Flagstar Cos., Inc. (8,755 common shares) (e)...................... 3,239
London Fog Industries, Inc. (10,833,012 common shares) (d) (e)..... 0
</TABLE>
See Notes to Financial Statements
27
<PAGE> 29
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Borrower Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
EQUITIES (CONTINUED)
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).................................................... 738,750
Payless Cashways, Inc. (1,024,159 common shares) (e)............... 2,016,313
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..................................................... 88,321,739
--------------
TOTAL LONG-TERM INVESTMENTS 86.4%
(Cost $5,824,985,388).............................................. 5,787,789,051
--------------
SHORT-TERM INVESTMENTS 12.9%
COMMERCIAL PAPER 1.5%
Comdisco, Inc. ($25,000,000 par, maturing 02/23/98, yielding
5.62%)............................................................. 24,914,139
Cox Communications, Inc. ($20,000,000 par, maturing 02/20/98,
yielding 5.60%).................................................... 19,940,889
Illinois Central Railroad Co. ($30,000,000 par, maturing 03/10/98,
yielding 5.61%).................................................... 29,827,025
Rite Aid Corp. ($14,500,000 par, maturing 02/12/98, yielding
5.59%)............................................................. 14,475,233
XTRA, Inc. ($15,000,000 par, maturing 02/02/98 to 02/03/98,
yielding 5.60% to 5.62%)........................................... 14,996,883
--------------
TOTAL COMMERCIAL PAPER............................................. 104,154,169
--------------
SHORT-TERM LOAN PARTICIPATIONS 11.4%
American Stores Co. ($30,000,000 par, maturing 02/02/98 to
03/06/98, yielding 5.72% to 6.08%)................................. 30,000,000
Army and Air Force Service Exchange ($30,000,000 par, maturing
02/06/98 to 02/20/98, yielding 5.55% to 5.57%)..................... 30,000,000
Ashland Oil Co. ($25,000,000 par, maturing 02/02/98, yielding
5.70%)............................................................. 25,000,000
Baxter International, Inc. ($7,000,000 par, maturing 02/03/98,
yielding 5.54%).................................................... 7,000,000
Bell Atlantic Financial Services, Inc. ($30,000,000 par, maturing
02/10/98, yielding 5.51% to 5.52%)................................. 30,000,000
Bell Atlantic Networks ($20,000,000 par, maturing 02/11/98,
yielding 5.50%).................................................... 20,000,000
Cabot Corp. ($20,000,000 par, maturing 03/16/98 to 03/23/98,
yielding 6.08% to 6.10%)........................................... 20,000,000
Centex Corp. ($35,000,000 par, maturing 02/02/98 to 02/12/98,
yielding 5.63% to 5.70%)........................................... 35,000,000
Champion International Corp. ($20,000,000 par, maturing 02/24/98,
yielding 5.63%).................................................... 20,000,000
CIBC New York ($290,271,983 par, maturing 03/02/98, yielding
6.625%)............................................................ 290,271,983
Conagra, Inc. ($27,000,000 par, maturing 02/06/98 to 02/13/98,
yielding 5.62%).................................................... 27,000,000
Echlin, Inc. ($30,000,000 par, maturing 02/12/98, yielding
5.62%)............................................................. 30,000,000
Enron Corp. ($14,000,000 par, maturing 02/02/98, yielding 5.70%)... 14,000,000
IKON Office Solutions, Inc. ($7,600,000 par, maturing 02/02/98,
yielding 5.73%).................................................... 7,600,000
Indiana Gas, Inc. ($10,000,000 par, maturing 02/03/98, yielding
5.51%)............................................................. 10,000,000
</TABLE>
See Notes to Financial Statements
28
<PAGE> 30
PORTFOLIO OF INVESTMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Borrower Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM LOAN PARTICIPATIONS (CONTINUED)
McKesson Corp. ($30,000,000 par, maturing 02/18/98, yielding
5.62%)............................................................. $ 30,000,000
National Rural Utilities Coop Financial ($30,000,000 par, maturing
02/11/98 to 02/17/98, yielding 5.50% to 5.52%)..................... 30,000,000
Nipsco Capital Markets, Inc. ($12,700,000 par, maturing 02/12/98,
yielding 5.65%).................................................... 12,700,000
Ralston Purina Co. ($10,000,000 par, maturing 02/09/98, yielding
5.62%)............................................................. 10,000,000
State Street Bank & Trust Co. ($11,000,000 par, maturing 02/02/98,
yielding 5.25%).................................................... 11,000,000
Temple Inland, Inc. ($11,000,000 par, maturing 02/06/98, yielding
5.63%)............................................................. 11,000,000
TRW, Inc. ($30,000,000 par, maturing 02/05/98 to 02/06/98, yielding
5.50%)............................................................. 30,000,000
Tyson Foods ($10,000,000 par, maturing 02/05/98, yielding 5.60%)... 10,000,000
Universal Corp. ($10,000,000 par, maturing 02/05/98, yielding
5.69%)............................................................. 10,000,000
Western Resources, Inc. ($10,000,000 par, maturing 02/03/98,
yielding 5.66%).................................................... 10,000,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS............................... 760,571,983
--------------
TOTAL SHORT-TERM INVESTMENTS 12.9%
(Cost $864,726,152)................................................ 864,726,152
--------------
TOTAL INVESTMENTS 99.3%
(Cost $6,689,711,540).............................................. 6,652,515,203
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7%........................ 44,400,628
--------------
NET ASSETS 100.0%................................................. $6,696,915,831
==============
</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
29
<PAGE> 31
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $6,689,711,540)..................... $6,652,515,203
Receivables:
Interest and Fees......................................... 47,305,237
Fund Shares Sold.......................................... 24,906,105
Investments Sold.......................................... 1,848,229
Other....................................................... 121,364
--------------
Total Assets............................................ 6,726,696,138
--------------
LIABILITIES:
Payables:
Income Distributions...................................... 9,135,281
Investment Advisory Fee................................... 5,300,054
Administrative Fee........................................ 1,425,053
Distributor and Affiliates................................ 1,095,896
Fund Shares Repurchased................................... 1,011,504
Custodian Bank............................................ 989,158
Deferred Facility Fees...................................... 8,260,344
Accrued Expenses............................................ 2,485,450
Trustees' Deferred Compensation and Retirement Plans........ 77,567
--------------
Total Liabilities....................................... 29,780,307
--------------
NET ASSETS.................................................. $6,696,915,831
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 671,740,987 shares issued and
outstanding).............................................. $ 6,717,410
Paid in Surplus............................................. 6,719,618,168
Accumulated Undistributed Net Investment Income............. 11,722,204
Accumulated Net Realized Loss............................... (3,945,614)
Net Unrealized Depreciation................................. (37,196,337)
--------------
NET ASSETS.................................................. $6,696,915,831
==============
NET ASSET VALUE PER COMMON SHARE
($6,696,915,831 divided by 671,740,987 shares
outstanding).............................................. $ 9.97
==============
</TABLE>
See Notes to Financial Statements
30
<PAGE> 32
STATEMENT OF OPERATIONS
For the Six Months Ended January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $263,409,515
Fees........................................................ 10,796,013
Other....................................................... 1,303,172
------------
Total Income............................................ 275,508,700
------------
EXPENSES:
Investment Advisory Fee..................................... 30,536,567
Administrative Fee.......................................... 8,202,319
Shareholder Services........................................ 3,609,020
Legal....................................................... 1,012,000
Custody..................................................... 918,660
Trustee Fees and Expenses................................... 11,710
Other....................................................... 2,036,894
------------
Total Expenses.......................................... 46,327,170
------------
NET INVESTMENT INCOME....................................... $229,181,530
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 3,647,277
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (31,460,156)
End of the Period......................................... (37,196,337)
------------
Net Unrealized Depreciation During the Period............... (5,736,181)
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (2,088,904)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $227,092,626
============
</TABLE>
See Notes to Financial Statements
31
<PAGE> 33
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended January 31, 1998 and
the Year Ended July 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 1998 July 31, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net Investment Income.................................... $ 229,181,530 $ 392,667,747
Net Realized Gain........................................ 3,647,277 442,960
Net Unrealized Depreciation During the Period............ (5,736,181) (25,147,243)
-------------- --------------
Change in Net Assets from Operations..................... 227,092,626 367,963,464
Distributions from Net Investment Income................. (222,829,155) (390,215,999)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 4,263,471 (22,252,535)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Common Shares Sold......................... 712,453,217 1,781,772,630
Value of Shares Issued Through Dividend Reinvestment..... 118,070,057 209,636,808
Cost of Shares Repurchased............................... (374,838,695) (597,973,300)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... 455,684,579 1,393,436,138
-------------- --------------
TOTAL INCREASE IN NET ASSETS............................. 459,948,050 1,371,183,603
NET ASSETS:
Beginning of the Period.................................. 6,236,967,781 4,865,784,178
-------------- --------------
End of the Period (Including accumulated undistributed
net investment income of $11,722,204 and $5,369,829,
respectively).......................................... $6,696,915,831 $6,236,967,781
============== ==============
</TABLE>
See Notes to Financial Statements
32
<PAGE> 34
STATEMENT OF CASH FLOWS
For the Six Months Ended January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 227,092,626
-------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (445,158,960)
Increase in Interest and Fees Receivables................. (1,916,489)
Increase in Receivable for Investments Sold............... (1,091,932)
Increase in Other Assets.................................. (84,152)
Decrease in Deferred Facility Fees........................ (9,847,808)
Increase in Investment Advisory and Administrative Fees
Payable................................................. 440,934
Increase in Distributor and Affiliates Payable............ 647,958
Increase in Accrued Expenses.............................. 127,511
Increase in Deferred Compensation and Retirement Plans
Expenses................................................ 9,224
-------------
Total Adjustments....................................... (456,873,714)
-------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (229,781,088)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 710,515,539
Payments on Shares Repurchased.............................. (374,201,633)
Decrease in Intra-day Credit Line........................... (4,107,869)
Cash Dividends Paid......................................... (102,424,949)
-------------
Net Cash Provided by Financing Activities................. 229,781,088
-------------
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
33
<PAGE> 35
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended July 31,
Ended -----------------------------------------
January 31, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $ 9.963 $ 10.002 $ 10.046 $ 10.052 $ 10.004
-------- -------- -------- -------- --------
Net Investment Income.......... .347 .701 .735 .756 .618
Net Realized and Unrealized
Gain/Loss.................... (.003) (.042) (.028) (.004) .015
-------- -------- -------- -------- --------
Total from Investment
Operations..................... .344 .659 .707 .752 .633
-------- -------- -------- -------- --------
Less:
Distributions from Net
Investment Income............ .338 .698 .751 .758 .585
Distributions in Excess of Net
Investment Income............ -0- -0- -0- -0- -0-
-------- -------- -------- -------- --------
Total Distributions.............. .338 .698 .751 .758 .585
-------- -------- -------- -------- --------
Net Asset Value, End of the
Period......................... $ 9.969 $ 9.963 $ 10.002 $ 10.046 $ 10.052
======== ======== ======== ======== ========
Total Return (a)................. 3.55%* 6.79% 7.22% 7.82% 6.52%
Net Assets at End of the Period
(In millions).................. $6,696.9 $6,237.0 $4,865.8 $2,530.1 $1,229.0
Ratio of Expenses to Average Net
Assets......................... 1.41% 1.42% 1.46% 1.49% 1.53%
Ratio of Net Investment Income to
Average Net Assets............. 6.99% 7.02% 7.33% 7.71% 6.16%
Portfolio Turnover (b)........... 39%* 83% 66% 71% 74%
</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.
* Non-Annualized
See Notes to Financial Statements
34
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 $5,699,467,312 (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
35
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. Facilities fees on senior loans purchased after July 31, 1997, are treated
as market discount. 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, 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 January 31, 1998, for federal income tax purposes cost of long- and
short-term investments is $6,689,711,540, the aggregate gross unrealized
appreciation is $32,554,630 and the aggregate gross unrealized depreciation is
$69,750,967 resulting in net unrealized depreciation of $37,196,337.
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.
36
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 six months ended January 31, 1998, the Trust recognized expenses of
approximately $188,000 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 six months ended January 31, 1998, the Trust recognized expenses of
approximately $37,500 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 six months ended
January 31, 1998, the Trust recognized expenses of approximately $2,624,700,
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 Trust 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.
37
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At January 31, 1998 and July 31, 1997, paid in surplus aggregated
$6,719,618,168 and $6,264,390,819, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JANUARY 31, 1998 JULY 31, 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares........................ 626,018,023 486,490,317
----------- -----------
Shares Sold............................. 71,491,711 178,438,954
Shares Issued Through Dividend
Reinvestment.......................... 11,848,368 20,996,830
Shares Repurchased...................... (37,617,115) (59,908,078)
----------- -----------
Net Increase in Shares Outstanding...... 45,722,964 139,527,706
----------- -----------
Ending Shares........................... 671,740,987 626,018,023
=========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $2,687,937,870 and
$2,224,680,751, respectively.
5. TENDER OF SHARES
The Board of Trustees currently intends, each quarter, to consider authorizing
the Trust to make tender offers for all or a portion of its then outstanding
common shares at the then net asset value of the common shares. For the six
months ended January 31, 1998, 37,617,115 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
38
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
VKAC. Any early withdrawal charge which is required to be imposed will be made
in accordance with the following schedule.
<TABLE>
<CAPTION>
WITHDRAWAL
YEAR OF REPURCHASE CHARGE
- ---------------------------------------------------------------------
<S> <C>
First.................................................... 3.0%
Second................................................... 2.5%
Third.................................................... 2.0%
Fourth................................................... 1.5%
Fifth.................................................... 1.0%
Sixth and following...................................... 0.0%
</TABLE>
For the six months ended January 31, 1998, VKAC received early withdrawal
charges of approximately $4,976,500 in connection with tendered shares of the
Trust.
7. COMMITMENTS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $443,863,200 as of
January 31, 1998. 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.
39
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
8. SENIOR LOAN PARTICIPATION COMMITMENTS
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States corporations, partnerships, and other entities. When the Trust
purchases a participation of a Senior Loan interest, the Trust typically enters
into a contractual agreement with the lender or other third party selling the
participation, but not with the borrower directly. As such, the Trust assumes
the credit risk of the borrower, Selling Participant or other persons
interpositioned between the Trust and the borrower.
At January 31, 1998, 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................................... $107,880 $107,852
Donaldson Lufkin Jenrette....................... 46,500 46,687
NationsBank..................................... 26,000 26,016
Canadian Imperial Bank of Commerce.............. 20,133 20,041
Goldman Sachs................................... 19,552 19,441
Merrill Lynch Capital Corp...................... 18,039 18,069
Bank of New York................................ 15,862 15,872
Chase Securities Inc............................ 13,033 13,043
ABN AMRO........................................ 4,444 4,453
Fleet National Bank............................. 2,500 2,500
-------- --------
Total........................................... $273,943 $273,974
======== ========
</TABLE>
40
<PAGE> 42
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
STEVEN MULLER
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., 1998
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
41
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> PRIME RATE INCOME TRUST
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JAN-31-1998
<INVESTMENTS-AT-COST> 6,689,711,540
<INVESTMENTS-AT-VALUE> 6,652,515,203
<RECEIVABLES> 74,059,571
<ASSETS-OTHER> 121,364
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,726,696,138
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,780,307
<TOTAL-LIABILITIES> 29,780,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,726,335,578
<SHARES-COMMON-STOCK> 671,740,987
<SHARES-COMMON-PRIOR> 626,018,023
<ACCUMULATED-NII-CURRENT> 11,722,204
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,945,614)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (37,196,337)
<NET-ASSETS> 6,696,915,831
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 263,409,515
<OTHER-INCOME> 12,099,185
<EXPENSES-NET> (46,327,170)
<NET-INVESTMENT-INCOME> 229,181,530
<REALIZED-GAINS-CURRENT> 3,647,277
<APPREC-INCREASE-CURRENT> (5,736,181)
<NET-CHANGE-FROM-OPS> 227,092,626
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (222,829,155)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 71,491,711
<NUMBER-OF-SHARES-REDEEMED> (37,617,115)
<SHARES-REINVESTED> 11,848,368
<NET-CHANGE-IN-ASSETS> 459,948,050
<ACCUMULATED-NII-PRIOR> 5,369,829
<ACCUMULATED-GAINS-PRIOR> (7,592,891)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,536,567
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 46,327,170
<AVERAGE-NET-ASSETS> 6,507,829,912
<PER-SHARE-NAV-BEGIN> 9.963
<PER-SHARE-NII> 0.347
<PER-SHARE-GAIN-APPREC> (0.003)
<PER-SHARE-DIVIDEND> (0.338)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.969
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
