<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Portfolio Management Review...................... 4
Glossary of Terms................................ 7
A Focus on Senior Loans.......................... 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 35
Statement of Operations.......................... 36
Statement of Changes in Net Assets............... 37
Statement of Cash Flows.......................... 38
Financial Highlights............................. 39
Notes to Financial Statements.................... 40
Report of Independent Accountants................ 46
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
August 19, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long-term, in accordance with your individual financial objectives.
Although the worst of the Asian crisis appears to be behind us, new concerns
are always emerging. In the coming months, we'll likely hear more about how the
year 2000 computer problem may affect the markets or that we're overdue for a
correction. While the markets could undoubtedly suffer as a result of these or
any number of other events, we encourage you to focus on your long-term
investment goals. Although nothing is certain, history has shown us that over
time, the markets tend to recover--and most investors want to be positioned to
take advantage of any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG.]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 3
ECONOMIC SNAPSHOT
The economy continued to experience impressive growth during the past 12
months, but finally began to show signs of moderating toward the end of the
reporting period.
ECONOMIC GROWTH
The nation's gross domestic product (GDP), which peaked at 6.0 percent in
the fourth quarter of 1998, fell to more sustainable levels in the first and
second quarters of 1999. The unusually strong GDP early in the reporting period
was fueled by an increase in consumer spending, which was attributed to vibrant
consumer confidence as a result of the strong job market. However, economic
growth leveled off in the second quarter of 1999, as did consumer confidence and
retail spending.
EMPLOYMENT ENVIRONMENT
Throughout the reporting period, unemployment remained low, the number of
jobs grew, and wages rose. The labor market remained especially tight in the
service industry and most urban areas. As a result, the cost of labor as
measured by the Employment Cost Index grew at a surprising rate in July, causing
concerns about the potential for higher inflation in the months ahead.
INFLATION AND INTEREST RATES
Inflation remained low during most of the reporting period, although a sharp
increase in oil prices contributed to a spike in April's consumer price index
report (CPI). Following this up-tick, the Federal Reserve raised interest rates
0.25 percent on June 30, partially reversing a series of rate decreases from the
fall of 1998. (Editor's Note: The Fed increased rates an additional 0.25 percent
on August 24.)
ECONOMIC OUTLOOK
We believe the moderate slowdown in growth may continue, bringing the
economy back to historically normal levels. Strong corporate earnings, low
unemployment, and an active housing market should provide some balance against
slower spending and job growth rates.
INTEREST RATES AND INFLATION
July 31, 1997, through July 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jul 1997 6.0 2.2
5.5 2.2
6.25 2.2
Oct 1997 5.75 2.1
5.6875 1.8
6.5 1.7
Jan 1998 5.5625 1.6
5.625 1.4
6.125 1.4
Apr 1998 5.625 1.4
5.6875 1.7
6.0 1.7
Jul 1998 5.5625 1.7
5.9375 1.6
5.75 1.5
Oct 1998 5.25 1.5
4.875 1.5
4.0 1.6
Jan 1999 4.8125 1.7
4.875 1.6
5.125 1.7
Apr 1999 4.9375 2.3
4.5 2.1
4.0 2.0
Jul 1999 4.75 2.1
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JULY 31, 1999
VAN KAMPEN PRIME RATE INCOME TRUST
<TABLE>
<S> <C>
TOTAL RETURNS AND DISTRIBUTION RATE
One-year total return(1)................................... 5.23%
Five-year average annual total return(1)................... 6.98%
Life-of-Trust average annual total return(1)............... 7.47%
Commencement date.......................................... 10/04/89
Distribution rate(2)....................................... 6.48%
SHARE VALUATIONS
Net asset value on 07/31/99................................ $9.85
One-year high net asset value (12/09/98)................... $9.98
One-year low net asset value (07/31/99).................... $9.85
</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 of $9.90 and the current
monthly dividend of $.0535 per share as of July 23, 1999.
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.
3
<PAGE> 5
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN PRIME RATE INCOME TRUST
We recently spoke with the portfolio management team of the Van Kampen Prime
Rate Income Trust about the key events and economic forces that shaped the
markets during the past year. On July 23, 1999, Dennis J. McDonnell, president
and chief operating officer of Van Kampen Investment Advisory Corp., assumed
day-to-day management responsibilities for the Trust.
Mr. McDonnell has more than 30 years of asset management experience and was
pivotal in Van Kampen's entry into the senior loan business in 1989. He has had
oversight responsibilities for all senior loan fund operations since the Trust's
inception. The following excerpts reflect his views on the Trust's performance
during the 12 months ended July 31, 1999.
Q CAN YOU DESCRIBE THE CONDITIONS OF THE SENIOR LOAN MARKET DURING THE PAST
YEAR?
A The second half of 1998 saw considerable volatility across the financial
markets, but the senior loan market handled the challenging conditions
quite well. Economic turmoil overseas sparked a credit crunch in the
United States, as banks became more cautious about lending to corporations--many
banks feared that a drop in corporate earnings might hinder the borrowers'
ability to repay their loans. This caution contributed to a slowdown in new
issuance of senior loans. The loans that did come to market carried attractive
yields, as banks required borrowing companies to pay a premium in light of the
uncertain economic environment. In addition, the companies that could afford to
pay these premiums were firms that generally displayed strong fundamentals. This
combination of desirable yields and strong issuers resulted in favorable
opportunities to add to our senior loan portfolio.
The Federal Reserve Board responded to market conditions with a series of
interest-rate cuts in late 1998. The market's absorption of these cuts in early
1999 coincided with a general recovery among global economies, and these factors
helped alleviate the U.S. credit crunch and accelerate new issuance in the
senior loan market. Surprisingly healthy economic growth and a mild surge in
inflation prompted the Fed to raise rates in June, adding more opportunities to
find attractive yields in the senior loan market. However, the corporate debt
market (including bonds and bank loans) has been experiencing some deterioration
over the last several months, resulting in an increase in the default rate.
Q HOW DID CHANGING INTEREST RATES AFFECT THE TRUST'S DIVIDEND?
A Senior loans have the ability to adjust their interest payments over time
in conjunction with changes in interest rates--generally, interest rates
on loans in the Trust's portfolio reset every 30 to 90 days. As a result,
the income generated by the Trust usually reflects the prevailing trend in
short-term interest rates. During late 1998,
4
<PAGE> 6
many of the Trust's holdings adjusted their interest rates to reflect the
downward trend in short-term rates and the reductions by the Fed. We lowered the
Trust's dividend accordingly on two occasions last fall. In 1999, however,
interest rates have been on the upswing, so we were able to raise the Trust's
dividend in June.
Q WHAT AREAS OF THE MARKET OFFERED THE BEST OPPORTUNITIES?
A As has been the case for awhile now, we found many opportunities in the
telecommunications arena--including cellular, wireless, and personal
communications systems. This segment constituted the largest industry weighting
in the portfolio. Telecommunications continues to experience a high level of
merger-and-acquisition activity, for which senior loans have helped provide the
financing. In addition to telecommunications, we had significant positions in
broadcasting and chemicals, plastics, and rubber.
Q CAN YOU TALK ABOUT SOME OF YOUR LARGEST HOLDINGS?
A Most of the borrowing companies represented in the portfolio provide basic
goods and services to the domestic economy. Senior loans often provide
integral financing for the growth and development of these firms.
Currently, we hold more than 310 issues from 47 industry sectors. Among our ten
largest holdings are:
- Lyondell Petrochemical--An oil refiner and petrochemical maker, Lyondell
used senior loans to help finance its acquisition of ARCO Chemical in
1998.
- Metro-Goldwyn-Mayer (MGM)--This company produces and distributes
television programs and motion pictures.
- Charter Communications--This national provider of cable television and
related telecommunications services is owned by Paul Allen, co-founder of
Microsoft.
- Chancellor Broadcasting--This diversified media company has interests in
radio, outdoor advertising, and television. Chancellor Broadcasting
continues to benefit from industry deregulation.
- Safety-Kleen--This firm provides hazardous and industrial waste management
services, including collection, processing, recycling, and disposal.
When we purchase senior loans for the Trust's portfolio, we seek companies
that we believe can perform well in the long run and make their loan payments on
schedule. Keep in mind, however, that every loan in the portfolio is subject to
credit risk. A senior loan issuer that finds itself unable to make timely
principal and interest payments is subject to the risk of default or bankruptcy
which would have a negative effect on the Trust's net asset value. For
additional portfolio highlights, please refer to page 9.
5
<PAGE> 7
Q WHAT FACTORS WORKED AGAINST THE TRUST?
A The portfolio had significant exposure to the health-care industry, which
underperformed during the reporting period. This exposure negatively
affected the Trust's performance and earnings. The challenges imposed by
managed care and changing Medicare reimbursement policies caused this area of
the market to struggle, and we believe these challenges will continue to have an
impact on the health-care industry into next year. Despite this turbulence, we
feel confident in the management teams of the borrowing companies in which we've
invested, and we expect them to adapt to the new health-care environment.
Another factor that negatively affected the Trust's performance was defaults
in certain senior loan holdings.
Q HOW DID THE TRUST PERFORM DURING THE REPORTING PERIOD?
A The Trust's total return for the 12-month period was 5.23 percent(1) at
net asset value, and the Trust's current monthly dividend of $0.0535
represented a distribution rate of 6.48 percent(2). For more information
on the Trust's performance, please refer to the chart and footnotes on page 3.
Past performance does not guarantee future results.
Q WHAT IS YOUR OUTLOOK FOR THE SENIOR LOAN MARKET AND FOR THE TRUST?
A Looking forward, there are several factors in place that suggest a
generally favorable environment for senior loans. Strong new issuance
continues to provide an ample supply of loans, and rising interest rates
have begun to create both increased income potential and increased demand for
senior loan products.
Nevertheless, we are mindful of deteriorating credit conditions, which may
adversely affect senior loan valuations. In light of the recent rise in defaults
and bankruptcy filings by corporate borrowers, we expect some weakening in the
quality of some existing positions in the portfolio, which could lead to greater
fluctuation in the Trust's net asset value than has been our previous
experience. During the reporting period, the Trust's net asset value fluctuated
between $9.85 and $9.98 per share. (Editor's note: As of September 14, 1999, the
Trust's net asset value was $9.78.) We expect to keep the Trust invested in a
broad variety of industries and individual loans, in our effort to limit the
effects of problems with a particular issuer or industry.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
6
<PAGE> 8
GLOSSARY OF TERMS
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a
year to establish monetary policy and monitor the economic pulse of the
United States.
FUNDAMENTALS: Characteristics of a company, such as revenue growth, earnings
growth, financial strength, market share, and quality of management.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing
this amount by the number of shares outstanding. The NAV does not include
any initial or contingent deferred sales charge.
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 fund
is entitled will be paid.
7
<PAGE> 9
A FOCUS ON SENIOR LOANS
The Prime Rate Income Trust invests primarily in senior collateralized loans
to corporations, partnerships, and other business entities that operate in a
variety of industries and geographic locations. Senior loans have a number of
characteristics that, in the opinion of the 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. If
they are not fully paid, it potentially could have a negative effect on the
Trust's net asset value. For more details, please refer to the prospectus.
COLLATERAL BACKING
Senior loans are often secured by collateral that has been pledged by the
borrower under the terms of a loan agreement. Forms of collateral include
trademarks, accounts receivable or inventory, buildings, real estate,
franchises, and common and preferred stock in subsidiaries and affiliates. Under
certain circumstances, collateral might not be entirely sufficient to satisfy
the borrower's obligations in the event of nonpayment of scheduled interest or
principal, and in some instances may be difficult to liquidate on a timely
basis.
Additionally, a decline in the value of the collateral could cause the loan
to become substantially undersecured, and circumstances could arise (such as
bankruptcy of a borrower) that could cause the Trust's security interest in the
loan's collateral to be invalidated. This could potentially have a negative
effect on the Trust's net asset value.
CREDIT QUALITY
Many senior loans carry provisions designed to protect the lender in certain
circumstances. In addition, the variable-rate nature of the portfolio is
expected to lessen the fluctuation in the Trust's net asset value. However, the
net asset value will still be subject to the influence of changes in the real or
perceived credit quality of the loans in which the Trust invests. This may
occur, for example, in the event of a sudden or extreme increase in prevailing
interest rates, a default in a loan in which the 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.
SPECIAL CONSIDERATIONS
Under normal market conditions, the Trust may invest up to 20 percent of its
assets in senior loans that are not secured by any specific collateral. From
time to time, the Trust may hold equity positions as collateral, which may
contribute to volatility in the Trust's net asset value. These equity positions
may or may not be traded on stock exchanges and valued daily at the market
price. It is management's opinion that shareholders will generally ultimately
benefit from these holdings. In addition, up to 20 percent of the Trust's assets
may be invested in senior loans made to non-U.S. borrowers, although these loans
must be U.S.-dollar denominated.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN PRIME RATE INCOME TRUST
TOP FIVE PORTFOLIO INDUSTRIES AS A PERCENTAGE OF VARIABLE RATE SENIOR LOAN
INTERESTS
<TABLE>
<S> <C>
AS OF JULY 31, 1999
Health Care ................................... 10.5%
Broadcasting--Cable ........................... 6.1%
Hotels, Motels, & Gaming ...................... 6.0%
Telecommunications--Cellular .................. 5.9%
Chemicals, Plastics & Rubber .................. 5.1%
</TABLE>
NET ASSET VALUE SINCE INCEPTION
OCTOBER 4, 1989 THROUGH JULY 31, 1999
Net Asset Value Graph
<TABLE>
<CAPTION>
VAN KAMPEN PRIME RATE INCOME TRUST
----------------------------------
<S> <C>
Oct 1989 10.00
10.02
10.02
10.02
10.02
10.02
10.01
10.01
10.01
Jul 1990 10.01
10.00
10.00
10.00
9.99
9.99
10.00
9.99
9.99
9.99
9.98
9.98
Jul 1991 9.99
9.98
9.99
10.00
10.00
10.01
10.00
10.02
10.00
10.00
9.98
9.99
Jul 1992 10.00
10.00
10.00
10.01
9.99
10.04
10.06
10.05
10.04
10.04
10.02
10.00
Jul 1993 10.00
10.01
10.01
10.01
10.03
10.07
10.07
10.06
10.05
10.04
10.04
10.04
Jul 1994 10.05
10.05
10.04
10.05
10.04
10.06
10.04
10.02
10.03
10.04
10.05
10.05
Jul 1995 10.05
10.05
10.04
10.03
10.03
10.03
10.02
10.02
10.00
10.00
10.00
10.00
Jul 1996 10.00
10.00
10.01
10.00
10.00
9.99
9.99
9.98
9.98
9.97
9.97
9.97
Jul 1997 9.96
9.96
9.96
9.96
9.97
9.97
9.97
9.98
9.96
9.96
9.97
9.98
Jul 1998 9.98
9.93
9.93
9.96
9.97
9.93
9.92
9.93
9.91
9.93
9.90
9.89
Jul 1999 9.85
</TABLE>
Past performance does not guarantee future results.
9
<PAGE> 11
PORTFOLIO HIGHLIGHTS (CONTINUED)
VAN KAMPEN PRIME RATE INCOME TRUST
CURRENT DISTRIBUTION
OCTOBER 4, 1989 THROUGH JULY 23, 1999
[GRAPH]
<TABLE>
<CAPTION>
VAN KAMPEN PRIME RATE INCOME
TRUST 3-MONTH TREASURY BILL
---------------------------- ---------------------
<S> <C> <C>
Oct 1989 8.03
7.84
10.48 7.78
10.24 8.01
10.00 8.03
10.00 8.04
10.01 8.03
10.00 8.02
10.00 7.99
Jul 1990 10.00 7.73
10.00 7.61
10.00 7.35
10.00 7.34
10.01 7.26
10.01 6.64
9.50 6.38
9.00 6.26
8.76 5.93
8.51 5.69
8.06 5.69
8.02 5.69
Jul 1991 8.02 5.68
7.76 5.48
7.62 5.25
7.60 4.97
7.26 4.46
6.50 3.96
6.51 3.94
6.50 4.02
6.51 4.14
6.51 3.77
6.52 3.77
6.52 3.65
Jul 1992 6.00 3.24
6.01 3.22
5.99 2.74
5.99 3.01
6.00 3.34
5.98 3.14
5.96 2.97
5.97 3.00
6.01 2.96
6.01 2.96
6.02 3.11
6.04 3.08
Jul 1993 5.76 3.10
5.75 3.07
5.75 2.98
5.50 3.10
5.49 3.20
5.47 3.06
5.47 3.03
5.48 3.43
5.72 3.55
6.16 3.95
6.50 4.24
6.50 4.22
Jul 1994 6.50 4.36
6.81 4.66
7.00 4.77
7.00 5.15
7.00 5.71
7.57 5.69
8.01 5.99
8.04 5.94
8.03 5.87
8.02 5.86
8.02 5.80
8.01 5.57
Jul 1995 8.02 5.58
8.01 5.44
8.02 5.41
8.03 5.51
8.03 5.49
7.54 5.08
7.54 5.05
7.25 5.03
7.26 5.14
7.01 5.15
6.80 5.18
6.80 5.16
Jul 1996 6.80 5.31
7.01 5.28
7.01 5.03
7.01 5.15
7.01 5.13
7.02 5.17
7.02 5.15
7.02 5.22
7.02 5.32
7.03 5.23
7.03 4.94
7.03 5.17
Jul 1997 6.80 5.23
6.80 5.22
6.80 5.10
6.80 5.20
6.79 5.20
6.79 5.35
6.79 5.18
6.78 5.31
6.79 5.12
6.79 4.97
6.79 5.01
6.77 5.08
Jul 1998 6.79 5.07
6.81 4.83
6.82 4.36
6.48 4.32
6.18 4.48
6.20 4.45
Jul 1999 6.21 4.45
6.20 4.67
6.21 4.48
6.20 4.54
6.22 4.63
6.49 4.78
6.48 4.66
</TABLE>
TOP FIVE HOLDINGS AS A PERCENTAGE OF VARIABLE RATE SENIOR LOAN INTERESTS
<TABLE>
<S> <C>
AS OF JULY 31, 1999
Charter Communications, Inc. .................. 2.75%
Allied Waste North America, Inc. .............. 2.34%
Starwood Hotels & Resorts Worldwide, Inc. ..... 2.20%
Integrated Health Services, Inc. .............. 2.03%
Nextel Finance Co. ............................ 1.86%
</TABLE>
Past performance does not guarantee future results.
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
VARIABLE RATE ** SENIOR LOAN INTERESTS 89.2%
AEROSPACE/DEFENSE 0.6%
$ 8,935 Aerostructures Corp.,
Term Loan................ NR BB- 12/31/03 to 09/06/04 $ 8,944,347
13,030 Aircraft Braking Systems,
Inc., Term Loan.......... NR NR 10/15/05 13,028,371
10,460 Decrane Finance Co.,
Term Loan................ B2 B+ 09/30/05 to 04/23/06 10,458,252
8,751 Fairchild Holding Corp.,
Term Loan................ Ba3 BB- 04/30/06 8,718,938
8,626 United Defense
Industries, Inc., Term
Loan..................... Ba3 BB- 10/06/05 to 10/06/06 8,626,037
--------------
49,775,945
--------------
AUTOMOTIVE 2.6%
34,000 American Axel and
Manufacturing Co., Term
Loan..................... Ba3 BB- 04/30/06 33,999,238
10,000 American Bumper and
Manufacturing Co., Term
Loan..................... NR NR 04/30/04 9,992,999
55,833 Breed Technologies, Inc.,
Term Loan................ Caa1 CCC 04/27/04 to 04/27/06 55,823,812
4,415 Breed Technologies, Inc.,
Revolving Credit
Agreement................ Caa1 CCC 04/27/04 4,414,294
15,000 Dura Operating Corp, Term
Loan..................... Ba3 BB- 03/31/06 14,976,526
40,000 Federal Mogul Corp., Term
Loan..................... Ba2 NR 03/24/05 39,998,082
9,950 Insilco Corp., Term
Loan..................... Ba3 B+ 11/24/05 9,950,000
4,798 JMS Automotive
Rebuilders, Inc., Term
Loan (a)(b).............. NR NR 06/30/04 479,761
10,000 Metalforming
Technologies, Inc., Term
Loan..................... NR NR 06/30/06 9,998,985
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
AUTOMOTIVE (CONTINUED)
$ 7,769 Murray's Discount Auto
Stores, Inc., Term
Loan..................... NR NR 06/30/03 $ 6,985,640
8,612 The Plastech Group, Term
Loan..................... NR NR 04/01/02 to 04/01/04 8,603,055
16,491 Safelite Glass Corp.,
Term Loan................ B1 B+ 12/23/04 to 12/23/05 16,492,344
--------------
211,714,736
--------------
BEVERAGE, FOOD, & TOBACCO 2.1%
46,930 Agrilink Foods, Term
Loan..................... B1 BB- 09/30/04 to 09/30/05 46,928,779
11,500 Amerifoods Cos., Inc.,
Term Loan (g)............ NR NR 06/30/01 10,925,000
37,406 Dr. Pepper Holdings,
Inc., Term Loan.......... NR NR 12/31/05 37,369,140
9,369 Edwards Baking Corp.,
Term Loan................ NR NR 09/30/03 to 09/30/05 9,354,199
12,375 Favorite Brands
International, Inc., Term
Loan..................... Caa3 NR 05/19/05 11,132,174
17,977 Fleming Cos., Inc., Term
Loan..................... Ba3 BB+ 07/25/04 17,957,466
19,853 Fleming Cos., Inc.,
Revolving Credit
Agreement................ Ba3 BB+ 07/25/03 19,852,028
7,425 Leon's Bakery, Inc., Term
Loan..................... NR NR 05/02/05 7,424,294
9,620 Southern Foods Group,
Inc., Term Loan.......... Ba3 BB- 02/28/06 9,623,611
--------------
170,566,691
--------------
BROADCASTING--CABLE 5.4%
9,800 Bresnan Communications
Co., LP, Term Loan....... Ba3 BB+ 01/29/08 9,798,569
200,000 Charter Communications,
Inc., Term Loan.......... Ba3 BB+ 03/17/08 200,006,254
46,906 Chelsea Communications,
Inc., Term Loan.......... Ba2 NR 12/31/04 46,903,030
10,400 Encore Investments, Term
Loan..................... NR NR 06/30/04 10,400,000
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
BROADCASTING--CABLE (CONTINUED)
$ 44,278 Falcon Communications,
Inc., Term Loan.......... NR BB 12/31/07 $ 44,269,363
15,000 Frontiervision Operating
Partners, LP, Term
Loan..................... Ba3 BB 03/31/06 14,996,721
20,694 Garden State Cablevision,
LP, Revolving Credit
Agreement................ NR NR 06/30/05 20,694,291
53,416 InterMedia Partners IV,
LP, Term Loan............ Ba3 NR 01/01/05 to 12/31/07 53,404,413
30,286 Triax Midwest Associates,
Term Loan................ NR NR 06/30/06 to 06/30/07 30,279,581
1,676 Triax Midwest Associates,
Revolving Credit
Agreement................ NR NR 06/30/06 1,675,566
7,000 TW Fanch, Term Loan...... NR NR 12/31/07 6,974,486
--------------
439,402,274
--------------
BROADCASTING--DIVERSIFIED 1.5%
76,638 Chancellor Broadcasting
Co., Term Loan........... Ba1 BB- 06/30/05 76,637,798
26,494 Chancellor Broadcasting
Co., Revolving Credit
Agreement................ Ba1 BB- 06/30/05 26,493,646
15,000 Muzak Audio
Communications, Inc.,
Term Loan................ B1 B+ 12/31/06 14,999,382
5,000 White Knight
Broadcasting, Inc., Term
Loan..................... NR NR 06/30/07 5,001,301
--------------
123,132,127
--------------
BROADCASTING--TELEVISION 1.6%
20,000 Black Entertainment
Television, Inc., Term
Loan..................... NR NR 06/30/06 19,997,910
9,511 Lin Television Corp.,
Term Loan................ Ba3 BB- 03/31/07 9,510,107
8,000 Quorom Broadcasting,
Inc., Term Loan.......... Ba1 BB 09/30/07 7,998,997
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
BROADCASTING--TELEVISION (CONTINUED)
$ 63,800 Sinclair Broadcasting,
Term Loan................ Ba2 BB- 09/15/05 $ 63,722,969
32,000 TLMD Acquisition Co.,
Term Loan................ NR NR 03/31/07 31,994,533
--------------
133,224,516
--------------
BUILDINGS & REAL ESTATE 0.8%
19,917 BSL Holdings, Term
Loan..................... NR BB- 12/30/05 19,908,287
47,222 Walter Industries, Inc.,
Term Loan................ NR NR 10/15/03 47,200,012
--------------
67,108,299
--------------
CHEMICAL, PLASTICS & RUBBER 4.6%
11,170 Cedar Chemicals Corp.,
Term Loan................ NR NR 10/30/03 11,170,062
10,474 Foamex, LP, Term Loan.... B3 B 06/30/05 to 06/30/06 10,473,295
4,833 Foamex, LP, Revolving
Credit Agreement......... B3 B 06/12/03 4,833,316
6,563 Gentek, Inc., Term
Loan..................... Ba3 BB 04/30/07 6,562,584
14,301 High Performance
Plastics, Inc., Term
Loan..................... NR NR 03/31/05 14,299,981
40,551 Huntsman Group Holdings,
Term Loan................ Ba2 BB 12/31/02 to 10/07/05 40,553,466
9,524 Huntsman Group Holdings,
Revolving Credit
Agreement................ Ba2 BB 12/31/02 9,524,074
55,000 Huntsman Specialty
Chemical Corp., Term
Loan..................... Ba3 NR 06/30/07 to 06/30/08 54,997,176
5,398 Jet Plastica Industries,
Inc., Term Loan.......... NR NR 12/31/02 to 12/31/04 5,389,977
29,760 Kosa, LLC, Term Loan..... Ba1 BB+ 12/31/06 29,761,652
121,018 Lyondell Petrochemical
Co., Term Loan........... Ba3 NR 06/30/03 to 05/17/06 121,002,634
15,000 MetoKote Corp., Term
Loan..................... NR NR 11/02/05 14,999,886
5,102 NEN Acquisition
Industries, Inc., Term
Loan..................... NR NR 03/31/05 5,099,948
9,800 Pioneer Americas
Acquisition Corp., Term
Loan..................... B2 B+ 12/31/06 9,787,227
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
CHEMICAL, PLASTICS & RUBBER (CONTINUED)
$ 1,667 Sovereign Specialty,
Inc., Revolving Credit
Agreement................ B1 BB- 07/31/01 $ 1,666,667
11,144 Texas Petrochemicals
Corp., Term Loan......... Ba3 NR 06/30/01 to 06/30/04 11,143,229
1,156 Texas Petrochemicals
Corp., Revolving Credit
Agreement................ Ba3 NR 12/31/02 1,156,000
6,442 TruSeal Technologies,
Inc., Term Loan.......... NR NR 06/30/04 6,441,789
8,100 Vinings Industries, Inc.,
Term Loan................ NR NR 03/31/05 8,099,555
4,554 West American Rubber,
Term Loan................ NR NR 06/30/05 4,554,000
--------------
371,516,518
--------------
CONSTRUCTION MATERIALS 1.7%
20,883 Behr Process Corp., Term
Loan..................... NR NR 03/31/02 to 03/31/05 20,884,934
1,444 Brand Scaffold Services,
Inc., Term Loan.......... B1 NR 09/30/02 1,446,747
10,000 Dayton Superior Corp.,
Term Loan................ NR NR 09/29/05 9,998,255
13,593 Falcon Building Products,
Inc., Term Loan.......... B1 B+ 06/30/05 13,592,692
6,831 Flextek Components, Inc.,
Term Loan (b)............ NR NR 02/28/05 5,471,009
59,349 National Gypsum Co., Term
Loan..................... NR NR 09/20/03 59,347,577
7,960 Panolam Industries, Inc.,
Term Loan................ B1 B+ 12/31/05 to 02/26/06 7,956,793
6,491 Reliant Building
Products, Inc., Term
Loan..................... B2 B+ 03/31/04 6,489,588
14,775 Werner Holding Co., Term
Loan..................... Ba3 B+ 11/30/04 to 11/30/05 14,772,513
--------------
139,960,108
--------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
CONTAINERS, PACKAGING & GLASS 3.1%
$ 8,203 Fleming Packaging Corp.,
Term Loan................ NR NR 08/30/04 $ 8,200,322
9,850 Graham Packaging Co.,
Term Loan................ B1 B+ 02/02/06 to 02/02/07 9,841,424
29,288 Huntsman Packaging Corp.,
Term Loan................ B1 BB- 09/30/05 to 06/30/06 29,288,301
29,475 IPC, Inc., Term Loan..... NR B+ 10/02/04 29,449,900
37,190 Packaging Corp., Term
Loan..................... Ba3 BB 04/12/07 to 04/12/08 37,188,173
4,971 Packaging Dynamics, Term
Loan..................... NR NR 11/20/05 4,967,977
118,847 Stone Container Corp.,
Term Loan................ Ba3 B+ 10/01/03 118,846,967
7,874 Stronghaven, Inc., Term
Loan..................... NR NR 05/15/04 7,085,501
7,110 Tekni-Plex, Inc., Term
Loan..................... B1 B+ 03/03/06 7,110,395
--------------
251,978,960
--------------
DIVERSIFIED MANUFACTURING 2.5%
3,472 Advanced Accessory
Systems, LLC, Term
Loan..................... B1 B+ 10/30/04 3,471,972
30,000 Chart Industries, Inc.,
Term Loan................ NR NR 03/31/06 29,959,717
7,633 CII Carbon, LLC, Term
Loan..................... NR NR 06/25/08 7,632,783
6,360 ConMed Corp., Term
Loan..................... B1 BB- 12/30/04 6,358,675
14,625 Desa International, Term
Loan..................... B2 B+ 11/26/03 to 12/26/04 14,621,732
30,120 International Wire Group,
Inc., Term Loan.......... B1 NR 09/30/03 30,118,627
7,792 Intesys Technologies,
Inc., Term Loan.......... NR NR 06/30/04 to 06/30/06 7,791,551
672 Intesys Technologies,
Inc., Revolving Credit
Agreement................ NR NR 06/30/04 671,999
18,352 Neenah Foundry Co., Term
Loan..................... Ba3 BB- 09/30/05 18,347,181
27,043 Spalding Holdings, Inc.,
Term Loan................ NR B- 09/30/03 to 03/30/06 27,040,414
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
DIVERSIFIED MANUFACTURING (CONTINUED)
$ 7,930 Spalding Holdings, Inc.,
Revolving Credit
Agreement................ NR B- 09/30/03 $ 7,929,323
12,292 Superior Telecom, Term
Loan..................... Ba3 B+ 11/27/05 12,292,446
24,688 UCAR International, Inc.,
Term Loan................ Ba3 BB- 12/31/02 24,688,001
6,161 United Fixtures Co., Term
Loan..................... NR NR 12/15/02 6,161,228
7,000 Western Industries, Inc.,
Term Loan................ NR NR 06/23/06 6,999,381
--------------
204,085,030
--------------
ECOLOGICAL 3.5%
170,000 Allied Waste North
America, Inc., Term
Loan..................... Ba3 NR 07/23/06 to 07/23/07 170,000,000
6,965 Environmental System,
Inc., Term Loan.......... B1 BB- 09/30/05 6,965,000
104,358 Safety-Kleen Corp., Term
Loan..................... Ba3 BB 03/10/05 to 03/10/06 104,347,654
--------------
281,312,654
--------------
EDUCATION & CHILDCARE 0.2%
8,602 Kindercare Learning
Centers, Inc., Term
Loan..................... Ba3 B+ 03/21/06 8,602,157
4,906 La Petite Academy, Inc.,
Term Loan................ B2 B 05/11/05 4,906,239
--------------
13,508,396
--------------
ELECTRONICS 2.3%
38,285 Amphenol Corp., Term
Loan..................... Ba3 B+ 05/19/04 to 05/19/06 38,287,399
6,817 Beltone Electronics,
Inc., Term Loan.......... NR NR 10/31/04 6,815,462
3,663 Caribiner International,
Term Loan................ NR NR 09/30/03 3,663,205
12,602 Chatham Technologies
Acquisition, Inc., Term
Loan..................... NR NR 08/18/03 to 08/18/05 12,601,310
7,000 Communications
Instruments, Inc., Term
Loan..................... Ba3 BB- 03/15/04 6,999,758
47,850 DecisionOne Corp., Term
Loan..................... Caa3 B- 08/07/03 to 08/07/05 33,494,482
5,384 Fisher Scientific
International, Inc., Term
Loan..................... Ba3 B+ 01/21/05 to 01/21/06 5,485,132
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
ELECTRONICS (CONTINUED)
$ 25,000 General Cable Corp., Term
Loan..................... Ba3 NR 06/30/07 $ 24,993,799
2,858 Labtec, Inc., Term
Loan..................... NR NR 10/07/04 2,857,747
4,435 Rowe International, Inc.,
Term Loan................ NR NR 12/31/03 4,435,436
8,375 Sarcom, Inc., Term
Loan..................... NR NR 12/31/02 8,374,602
7,462 Stoneridge, Inc., Term
Loan..................... Ba3 BB 12/31/05 7,462,309
9,969 Stratus Computers, Inc.,
Term Loan................ NR NR 02/26/05 9,965,085
21,722 Viasystems, Inc., Term
Loan..................... B2 B+ 04/30/03 to 06/30/05 21,717,394
1,007 Viasystems, Inc.,
Revolving Credit
Agreement................ B2 B+ 12/31/02 1,007,167
--------------
188,160,287
--------------
ENTERTAINMENT & LEISURE 3.1%
24,558 AMF Group, Inc., Term
Loan..................... B1 B 03/31/03 to 03/31/04 24,568,104
21,295 ASC Network Corp., Term
Loan..................... NR NR 05/31/06 21,295,136
7,840 KSL Recreation Group,
Inc., Term Loan.......... B2 B+ 04/30/05 to 04/30/06 7,832,266
4,069 KSL Recreation Group,
Inc., Revolving Credit
Agreement................ B2 B+ 04/30/04 4,065,865
79,000 Metro-Goldwyn-Mayer,
Inc., Term Loan.......... Ba1 BBB- 03/31/05 to 03/31/06 78,987,744
28,860 Metro-Goldwyn-Mayer,
Inc., Revolving Credit
Agreement................ Ba1 BBB- 09/30/03 28,860,240
5,011 Regal Cinemas, Inc., Term
Loan..................... Ba3 BB- 05/27/06 to 05/27/07 5,007,606
9,933 SFX Entertainment, Inc.,
Term Loan................ B1 B+ 03/31/06 9,930,737
5,229 Six Flags Theme Park,
Term Loan................ Ba3 B+ 11/30/04 5,227,618
6,700 Sportcraft, Ltd., Term
Loan..................... NR NR 12/31/02 6,698,229
4,962 True Temper, Term Loan... B1 BB- 09/30/05 4,960,731
4,975 United Artists Theatre,
Inc., Term Loan.......... B1 B+ 04/21/06 to 04/21/07 4,971,458
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
ENTERTAINMENT & LEISURE (CONTINUED)
$ 35,860 Viacom, Inc., Term
Loan..................... Baa3 BBB- 04/01/02 to 04/02/02 $ 35,851,544
2,195 Viacom, Inc., Revolving
Credit Agreement......... Baa3 BBB- 04/01/02 2,193,840
15,000 WestStar Cinemas, Inc.,
Term Loan (b)............ NR NR 09/30/05 14,250,000
--------------
254,701,118
--------------
FARMING & AGRICULTURE 0.2%
10,945 Doane Pet Care Cos., Term
Loan..................... B1 B+ 12/31/05 to 12/31/06 10,938,314
4,887 Walco International,
Inc., Term Loan.......... NR NR 03/31/04 4,887,500
--------------
15,825,814
--------------
FINANCE 4.2%
23,537 Alliance Data Systems,
Inc., Term Loan.......... NR NR 07/25/03 23,537,202
821 Alliance Data Systems,
Inc., Revolving Credit
Agreement................ NR NR 07/25/03 821,429
4,844 Blackstone Capital Co.,
Term Loan................ NR NR 11/30/00 4,844,135
40,000 Bridge Information
Systems, Inc., Term
Loan..................... NR NR 05/29/05 39,997,753
31,500 Mafco Finance Corp., Term
Loan..................... NR NR 04/28/00 31,491,428
975 Mafco Finance Corp.,
Revolving Credit
Agreement................ NR NR 04/28/00 973,459
26,500 Metris Cos., Inc., Term
Loan..................... Ba3 NR 06/30/03 26,499,915
39,564 Outsourcing Solutions,
Term Loan................ B2 BB- 10/15/04 39,559,244
65,000 Paul G. Allen, Term
Loan..................... NR NR 06/10/03 64,998,543
8,955 Prison Realty Group,
Inc., Term Loan.......... Ba1 BB 01/01/03 8,935,527
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
FINANCE (CONTINUED)
$ 98,173 Ventas Realty Ltd., Inc.,
Term Loan................ NR NR 04/30/03 $ 95,207,951
4,758 Wasserstein/C&A Holdings,
Inc., Term Loan.......... NR NR 11/30/00 4,753,623
--------------
341,620,209
--------------
GROCERY 1.4%
4,988 Big V Supermarkets, Inc.,
Term Loan................ B1 B+ 08/10/03 4,987,304
42,756 Bruno's, Inc., Term Loan
(a)(b)................... Caa2 NR 12/02/03 to 04/15/05 38,010,084
4,830 Bruno's, Inc., Revolving
Credit Agreement
(a)(b)................... Caa2 NR 12/02/03 4,294,150
12,393 Eagle Family Foods, Inc.,
Term Loan................ B1 B 12/31/05 12,389,348
30,350 Pathmark Stores, Inc.,
Term Loan................ B1 B+ 06/15/01 to 12/15/01 30,348,591
4,582 Pathmark Stores, Inc.,
Revolving Credit
Agreement................ B1 B+ 06/15/01 4,581,760
8,440 Randall's Food Markets,
Inc., Term Loan.......... Ba2 BB- 06/27/06 8,439,873
5,748 Randall's Food Markets,
Inc., Revolving Credit
Agreement................ Ba2 BB- 06/27/04 5,747,567
4,786 The Pantry, Inc., Term
Loan..................... B1 BB- 01/31/06 4,785,960
--------------
113,584,637
--------------
HEALTHCARE & BEAUTY AIDS 1.8%
27,555 Kinetic Concepts, Inc.,
Term Loan................ Ba3 B+ 12/31/04 to 12/31/05 27,554,662
16,269 Mary Kay Cosmetics, Inc.,
Term Loan................ NR NR 03/06/04 16,252,955
1,281 Mary Kay Cosmetics, Inc.,
Revolving Credit
Agreement................ NR NR 03/06/04 1,281,641
24,501 Playtex Products, Inc.,
Term Loan................ Ba2 BB 09/15/03 24,495,763
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
HEALTHCARE & BEAUTY AIDS (CONTINUED)
$ 54,450 Revlon Consumer Products
Corp., Term Loan......... Ba3 BB- 05/30/02 to 05/31/02 $ 54,401,792
20,000 24 Hour Fitness, Inc.,
Term Loan................ NR NR 12/31/05 19,999,931
--------------
143,986,744
--------------
HEALTHCARE 9.4%
3,940 Alliance Imaging, Inc.,
Term Loan................ B1 B+ 12/18/03 3,939,593
6,431 Charter Behavioral,
Revolving Credit
Agreement................ NR NR 06/17/02 6,431,167
9,966 Columbia Healthone, Inc.,
Term Loan................ Ba2 BB+ 06/30/05 9,965,517
99,540 Community Health Systems,
Inc., Term Loan.......... NR NR 12/31/03 to 12/31/05 99,533,563
14,741 Extendicare Health
Services, Inc., Term
Loan..................... Ba3 B+ 12/31/03 14,737,922
26,839 Genesis Healthcare
Ventures, Inc., Term
Loan..................... Ba3 B 09/30/04 to 06/01/05 26,849,361
147,750 Integrated Health
Services, Inc., Term
Loan..................... Ba3 B- 09/15/03 to 12/31/05 147,708,501
46,201 Magellan Health Services,
Inc., Term Loan.......... B2 B+ 02/12/05 46,200,511
24,105 Mariner Post-Acute
Network, Inc., Term
Loan..................... Caa2 CCC 03/31/05 to 03/31/06 24,101,104
6,714 Medical Specialties
Group, Inc., Term Loan... NR NR 06/30/01 to 06/30/04 6,716,516
11,000 Mediq/PRN Life Support
Services, Inc., Term
Loan..................... B1 B 06/30/06 10,994,341
25,000 Meditrust Corp., Term
Loan..................... NR NR 07/17/01 24,994,335
11,871 MedPartners, Inc., Term
Loan..................... B1 BB- 05/31/01 11,871,428
10,821 MedPartners, Inc.,
Revolving Credit
Agreement................ B1 BB- 05/31/01 10,821,387
18,360 Multicare Companies,
Inc., Term Loan.......... B1 B 09/30/04 to 06/01/05 18,367,862
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
HEALTHCARE (CONTINUED)
$ 45,000 National Medical Care,
Inc., Term Loan.......... Ba1 BB 09/30/03 $ 44,997,473
13,500 Oxford Health Plans,
Inc., Term Loan.......... B3 NR 05/15/03 13,475,250
26,916 Quest Diagnostics, Inc.,
Term Loan................ Ba3 BB 12/05/02 to 12/06/03 26,915,854
19,900 Stryker Corp., Term
Loan..................... Ba2 BB 12/04/05 to 12/04/06 19,900,000
48,404 Sun Healthcare Group,
Inc., Term Loan (b)...... Caa2 NR 11/12/04 to 11/12/05 46,952,064
89,100 Total Renal Care
Holdings, Inc., Term
Loan..................... Ba2 NR 03/31/08 89,078,581
55,461 Vencor, Inc., Term
Loan (e)................. Caa2 NR 01/15/05 52,686,950
4,863 Wilson Greatbatch, Ltd.,
Term Loan................ NR NR 07/30/04 4,862,534
--------------
762,101,814
--------------
HOME & OFFICE FURNISHINGS, HOUSEWARES &
DURABLE CONSUMER PRODUCTS 2.4%
12,870 Corning Consumer
Products, Co., Term
Loan..................... B1 NR 10/09/06 12,869,036
48,390 Dal-Tile Group, Inc.,
Term Loan................ NR NR 12/31/02 to 12/31/03 48,390,094
3,588 Dal-Tile Group, Inc.,
Revolving Credit
Agreement................ NR NR 12/31/02 3,588,475
34,000 Furniture Brands
International, Inc., Term
Loan..................... NR NR 06/30/07 33,976,483
26,045 Imperial Home Decor
Group, Inc., Term Loan... B1 B 03/12/04 to 03/13/06 26,042,672
3,604 Imperial Home Decor
Group, Inc., Revolving
Credit Agreement......... B1 B 03/12/04 3,603,629
70,429 Rent A Center, Inc., Term
Loan..................... Ba3 NR 01/31/06 to 01/31/07 70,431,813
--------------
198,902,202
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
HOTELS, MOTELS, INNS & GAMING 5.3%
$ 41,000 Aladdin Gaming, LLC, Term
Loan..................... B2 NR 02/26/08 $ 40,989,102
9,498 Alliance Gaming Corp.,
Term Loan................ B1 B 01/31/05 9,496,172
2,085 Alliance Gaming Corp.,
Delayed Draw Term Loan... B1 B 01/31/05 2,085,347
100,000 Felcor Suite Hotels, Term
Loan..................... Ba1 BB+ 03/31/04 99,999,751
5,000 Jazz Casino Co., Term
Loan..................... NR NR 01/06/06 4,991,731
13,235 Las Vegas Sands, Inc.,
Term Loan................ NR B+ 11/30/03 13,235,757
1,380 Las Vegas Sands, Inc.,
Revolving Credit
Agreement................ NR B+ 11/30/03 1,380,057
160,000 Starwood Hotels and
Resorts Worldwide, Inc.,
Term Loan................ Ba1 NR 02/23/03 159,992,388
100,000 Wyndham International,
Inc., Term Loan.......... NR NR 06/30/06 99,994,384
--------------
432,164,689
--------------
INSURANCE 0.5%
17,325 BRW Acquisition, Inc.,
Term Loan................ NR NR 07/10/06 to 07/10/07 17,325,000
24,250 Willis Corroon, Inc.,
Term Loan................ Ba2 BB 11/19/05 to 11/19/07 24,245,767
--------------
41,570,767
--------------
MACHINERY 0.4%
9,500 Alliance Laundry Systems,
LLC, Term Loan........... B1 B+ 06/30/05 9,481,417
15,000 Ocean Rig (Norway), Term
Loan..................... NR NR 06/01/08 14,996,571
5,815 RIGCO N.A., LLC, Term
Loan (e)................. NR NR 09/30/05 5,814,800
--------------
30,292,788
--------------
MINING, STEEL, IRON, & NON-PRECIOUS METALS 1.1%
19,990 Carmeuse Lime, Inc., Term
Loan..................... NR NR 03/31/06 19,991,110
8,369 Earle M. Jorgensen, Term
Loan..................... B1 B+ 03/31/04 8,401,267
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
MINING, STEEL, IRON, & NON-PRECIOUS METALS (CONTINUED)
$ 9,409 Fairmont Minerals, Ltd.,
Term Loan................ NR NR 02/25/05 $ 9,409,412
12,998 Global Metal
Technologies, Term
Loan..................... NR NR 03/13/05 12,996,637
38,655 Ispat Inland, Term
Loan..................... Ba3 BB 07/16/05 to 07/16/06 38,653,783
--------------
89,452,209
--------------
NATURAL RESOURCES--COAL 0.1%
7,035 Alliance Coal Corp., Term
Loan..................... NR NR 12/31/01 to 12/31/02 7,034,209
4,711 Centennial Resources,
Inc., Term Loan (a)(b)... NR NR 03/31/02 to 03/31/04 1,413,462
781 Centennial Resources,
Inc., Debtor in
Possession (a)(b)........ NR NR 03/31/02 to 03/31/04 780,798
--------------
9,228,469
--------------
NON-DURABLE CONSUMER PRODUCTS 0.1%
4,045 Homemaker Industries,
Inc., Term Loan.......... NR NR 06/30/04 4,044,551
--------------
PAPER & FOREST PRODUCTS 0.7%
9,046 Bear Island Paper Co.,
LLC, Term Loan........... Ba3 B+ 12/31/05 9,045,406
21,529 Crown Paper Co., Term
Loan..................... B2 B+ 08/23/02 21,528,109
3,509 Crown Paper Co.,
Revolving Credit
Agreement................ B2 B+ 08/23/02 3,508,588
3,761 CST/Office Products,
Inc., Term Loan.......... NR NR 12/31/01 to 01/31/02 3,196,734
14,850 Le Group Forex, Inc.,
Term Loan................ NR BB 06/30/05 14,850,000
8,833 Pacifica Papers, Inc.,
Term Loan................ Ba2 BB 03/12/06 8,832,958
--------------
60,961,795
--------------
PERSONAL & MISCELLANEOUS SERVICES 0.7%
9,266 Accessory Network Group,
Term Loan................ NR NR 07/31/05 9,265,909
8,525 Arena Brands, Inc., Term
Loan..................... NR NR 06/01/02 8,522,309
843 Arena Brands, Inc.,
Revolving Credit
Agreement................ NR NR 06/01/02 842,498
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
PERSONAL & MISCELLANEOUS SERVICES
(CONTINUED)
$ 6,650 Banker's Systems, Inc.,
Term Loan................ NR NR 11/01/02 $ 6,650,000
5,996 Borg Warner Security,
Revolving Credit
Agreement................ Ba3 NR 03/31/02 5,996,136
9,342 Boyds Collection, Ltd.,
Term Loan................ Ba3 B+ 04/21/06 9,338,687
13,500 Dimac Corp., Term Loan... Caa1 B- 06/30/06 to 12/30/06 13,485,593
--------------
54,101,132
--------------
PHARMACEUTICALS 0.2%
17,167 Endo Pharmaceuticals,
Inc., Term Loan.......... NR NR 06/30/04 17,165,224
--------------
PRINTING & PUBLISHING 3.6%
14,940 Advanstar Communications,
Term Loan................ Ba3 B+ 04/30/05 14,940,000
12,036 ADVO, Inc., Term Loan.... NR NR 09/29/03 12,032,221
12,250 American Media
Operations, Inc., Term
Loan..................... Ba3 B+ 09/30/01 to 04/01/07 12,239,097
4,948 Check Printers, Inc.,
Term Loan................ NR NR 06/30/05 4,948,221
8,775 Cygnus Publishing, Inc.,
Term Loan................ NR NR 06/05/05 8,777,984
68,000 Journal Register Co.,
Term Loan................ Ba1 BB+ 09/30/06 67,996,179
31,030 Morris Communications,
Inc., Term Loan.......... NR NR 03/31/04 to 06/30/05 31,029,963
36,467 Outdoor Systems, Inc.,
Term Loan................ Ba2 BB- 06/30/04 36,466,988
19,000 PRIMEDIA, Inc., Term
Loan..................... Ba3 BB- 06/30/04 18,999,945
6,268 TWP Capital Corp., Term
Loan..................... NR NR 10/01/04 6,268,001
14,653 Von Hoffman Press, Inc.,
Term Loan................ B1 B+ 05/30/03 to 05/30/05 14,652,350
1,916 Von Hoffman Press, Inc.,
Revolving Credit
Agreement................ B1 B+ 05/30/03 1,916,218
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
PRINTING & PUBLISHING (CONTINUED)
$ 4,942 Yellow Book USA, L.P.,
Term Loan................ NR NR 12/15/05 to 12/05/06 $ 4,942,308
45,000 Ziff-Davis Publishing,
Inc., Term Loan.......... Ba2 BB- 03/31/05 44,915,126
9,875 21st Century Newspaper,
Inc., Term Loan.......... NR NR 09/15/05 9,869,152
--------------
289,993,753
--------------
RESTAURANTS & FOOD SERVICE 1.4%
9,275 Applebee's International,
Inc., Term Loan.......... NR NR 03/31/06 9,274,647
5,236 California Pizza Kitchen,
Inc., Term Loan.......... NR NR 09/30/04 5,236,214
2,443 Carvel Corp., Term
Loan..................... NR NR 06/30/00 2,443,324
24,918 Domino's Pizza, Term
Loan..................... B1 B+ 12/21/06 to 12/21/07 24,918,414
41,827 S.C. International
Services, Inc., Term
Loan..................... Ba3 NR 08/28/02 41,819,182
24,330 Shoney's, Inc., Term
Loan..................... B1 NR 04/30/02 24,317,246
7,099 Volume Services America,
Term Loan................ B1 B+ 12/01/06 7,097,775
--------------
115,106,802
--------------
RETAIL--LUXURY GOODS 0.1%
7,391 Ebel USA, Inc., Term
Loan..................... NR NR 09/30/01 7,378,690
--------------
RETAIL--OFFICE PRODUCTS 0.7%
7,000 Identity Group, Inc.,
Term Loan................ NR NR 05/11/07 6,998,871
52,422 U.S. Office Products Co.,
Term Loan................ B2 B 06/09/06 52,421,498
--------------
59,420,369
--------------
RETAIL--OIL & GAS 0.1%
11,831 TravelCenters of America,
Inc., Term Loan.......... Ba2 BB- 03/31/05 11,853,444
--------------
RETAIL--SPECIALTY 0.2%
12,750 Hollywood Entertainment
Corp., Revolving Credit
Agreement................ B1 B+ 09/05/02 12,747,752
--------------
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
RETAIL--STORES 1.0%
$ 11,500 Advance Stores Co., Term
Loan..................... B1 NR 04/15/06 $ 11,499,946
1,786 American Blind and
Wallpaper Factory, Term
Loan..................... NR NR 12/31/05 1,786,179
5,838 Kirklands Holdings, Term
Loan..................... NR NR 06/30/02 5,837,995
12,308 Nebraska Book Co., Inc.,
Term Loan................ B1 B+ 03/31/06 12,304,959
21,400 Payless Cashways, Inc.,
Term Loan................ NR NR 11/30/02 19,925,744
7,600 Payless Cashways, Inc.,
Revolving Credit
Agreement................ NR NR 05/31/02 7,599,985
15,545 Peebles, Inc., Term
Loan..................... NR NR 06/09/02 15,545,387
4,844 Vitamin Shoppe
Industries, Inc., Term
Loan..................... NR NR 05/15/04 4,842,870
--------------
79,343,065
--------------
TELECOMMUNICATIONS--CELLULAR 5.2%
19,950 American Cellular
Wireless, Inc., Term
Loan..................... NR NR 06/30/07 19,940,866
100,000 BCP SP Ltd., Term Loan... NR NR 03/16/00 98,825,348
75,000 Cellular, Inc., Financial
Corp. (CommNet), Term
Loan..................... B1 NR 09/18/06 to 09/18/07 74,861,435
18,905 Centennial Cellular,
Inc., Term Loan.......... B2 NR 05/31/07 to 11/30/07 18,903,350
75,000 Global Crossing Holdings,
Inc., Term Loan.......... Ba1 BBB- 06/30/06 74,998,172
13,453 NATG Holdings, Inc., Term
Loan..................... NR NR 12/31/04 13,453,448
40,000 Sygnet Wireless, Inc.,
Term Loan................ B3 NR 03/23/07 to 12/23/07 39,997,908
65,000 Western Wireless Corp.,
Term Loan................ B1 NR 03/31/05 64,998,970
20,000 Wireless One Network,
Term Loan................ NR NR 09/30/07 19,968,159
--------------
425,947,656
--------------
</TABLE>
See Notes to Financial Statements
27
<PAGE> 29
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
TELECOMMUNICATIONS--HYBRID 3.3%
$ 25,000 Alaska Communication,
Inc., Term Loan.......... B1 BB 11/14/07 to 05/14/08 $ 24,995,155
125,000 Nextel Finance Co., Term
Loan..................... Ba3 B 03/31/06 to 03/31/07 124,998,375
10,000 Nextel Finance Co., Term
Loan (Argentina)......... NR NR 03/31/03 9,989,953
27,500 Nextel Partners Co., Term
Loan..................... B2 B- 11/01/07 27,498,267
30,000 Pacific Crossing Ltd.,
Term Loan................ NR NR 07/28/06 30,000,000
50,000 Teligent, Inc., Term
Loan..................... B3 B- 06/30/06 50,009,034
--------------
267,490,784
--------------
TELECOMMUNICATIONS--PERSONAL
COMMUNICATION SYSTEMS 2.5%
7,083 Mitel Corp., Term Loan... NR NR 12/26/03 7,082,054
74,160 Omnipoint Communications,
Inc., Term Loan.......... B2 NR 02/01/06 to 02/17/06 75,239,556
11,000 Powertel PCS, Inc.,
Revolving Credit
Agreement................ NR NR 03/31/06 11,000,611
5,000 Powertel PCS, Inc., Term
Loan..................... NR NR 03/31/06 5,000,277
17,000 Telecorp PCS, Inc., Term
Loan..................... B2 NR 12/05/07 16,999,870
9,819 Telespectrum Worldwide,
Inc., Term Loan.......... NR NR 12/31/01 to 12/31/03 9,815,897
40,000 Tritel Holding Corp.,
Term Loan................ B2 NR 12/31/07 39,998,724
42,000 Triton PCS, Inc., Term
Loan..................... B1 B 05/04/07 41,999,902
--------------
207,136,891
--------------
TELECOMMUNICATIONS--WIRELESS MESSAGING 1.5%
27,335 Arch Paging, Inc., Term
Loan..................... B2 B- 12/31/02 to 06/30/06 26,611,706
15,000 CCPR Services, Inc., Term
Loan..................... NR NR 06/30/02 14,988,022
65,000 Iridium Operating LLC,
Term Loan (e)............ NR CC 12/29/00 58,499,842
</TABLE>
See Notes to Financial Statements
28
<PAGE> 30
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
TELECOMMUNICATIONS--WIRELESS MESSAGING (CONTINUED)
$ 9,460 Teletouch Communications,
Inc., Term Loan.......... NR NR 11/30/05 $ 9,459,517
11,000 TSR Wireless LLC, Term
Loan..................... NR NR 06/30/05 11,005,584
--------------
120,564,671
--------------
TEXTILES & LEATHER 1.6%
11,098 American Marketing
Industries, Inc., Term
Loan..................... NR NR 11/30/02 11,097,432
8,820 GFSI, Inc., Term Loan.... NR NR 03/31/04 8,824,256
20,000 Glenoit Corp., Term
Loan..................... B1 BB- 12/31/03 to 06/30/04 19,995,311
9,600 Humphrey's, Inc., Term
Loan..................... B2 NR 01/15/03 9,584,804
14,425 Joan Fabrics Corp., Term
Loan..................... NR NR 06/30/05 to 06/30/06 14,425,328
12,673 Johnston Industries,
Inc., Term Loan.......... NR NR 07/01/00 12,675,781
20,000 Norcorp, Inc., Term
Loan..................... NR NR 03/31/06 19,999,840
13,895 Norcross Safety Products,
Term Loan................ NR NR 10/02/05 13,895,286
9,552 Polyfibron Technologies,
Inc., Term Loan.......... NR NR 12/28/03 9,554,038
6,840 William Carter Co., Term
Loan..................... Ba3 BB- 10/30/03 6,837,305
--------------
126,889,381
--------------
TRANSPORTATION--CARGO 1.1%
25,091 Atlas Freighter Leasing,
Inc., Term Loan.......... Ba3 NR 05/29/04 to 06/30/04 25,087,514
9,875 CTC Distribution
Services, LLC, Term
Loan..................... NR NR 02/25/06 9,872,992
33,827 Evergreen International
Aviation, Inc., Term
Loan..................... NR NR 05/31/02 to 05/31/03 33,829,044
7,550 Gemini Air Cargo, Inc.,
Term Loan................ B1 NR 12/12/02 7,548,053
7,388 North American Van Lines,
Inc., Term Loan.......... NR NR 03/30/05 7,386,028
8,100 OmniTrax Railroads, LLC,
Term Loan................ NR NR 05/14/05 8,099,242
--------------
91,822,873
--------------
</TABLE>
See Notes to Financial Statements
29
<PAGE> 31
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Bank Loan
Amount Ratings+
(000) Borrower Moody's S&P Stated Maturity* Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
TRANSPORTATION--MANUFACTURING COMPONENTS 0.8%
$ 27,440 Cambridge Industries,
Inc., Term Loan.......... B1 NR 06/30/05 $ 27,441,523
39,497 SPX Corp., Term Loan..... Ba3 BB 09/30/04 to 09/30/06 39,494,394
--------------
66,935,917
--------------
TRANSPORTATION--PERSONAL 1.9%
50,000 Avis Rent A Car, Inc.,
Term Loan................ Ba3 BB+ 06/30/06 to 06/30/07 50,000,234
16,453 Blue Bird Body Co., Term
Loan..................... Ba2 BB- 11/01/03 16,452,500
47,178 Continental Airlines,
Inc., Term Loan.......... Ba1 BB 07/31/02 to 07/31/04 47,173,964
40,000 Transportation
Manufacturing, Inc., Term
Loan..................... NR BB- 06/16/06 40,000,000
--------------
153,626,698
--------------
TRANSPORTATION--RAIL MANUFACTURING 0.0%
2,000 Johnstown America
Industries, Inc., Term
Loan..................... B1 NR 04/29/05 1,999,658
--------------
UTILITIES 0.1%
8,000 LIR Energy, Limited, Term
Loan..................... NR NR 04/21/00 7,999,384
--------------
TOTAL VARIABLE RATE** SENIOR LOAN INTERESTS 89.2%.............. 7,261,408,491
--------------
OTHER LOAN INTERESTS 0.6%
London Fog Industries, Inc. ($13,541,264 par, 10.00% coupon,
maturing 02/27/03) 144A (f)..................................... 13,541,264
Satelites Mexicanos ($35,524,000 par, 9.06% coupon, maturing
06/30/04) 144A (f).............................................. 35,524,000
--------------
TOTAL OTHER LOAN INTERESTS...................................... 49,065,264
--------------
</TABLE>
See Notes to Financial Statements
30
<PAGE> 32
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Value
- ---------------------------------------------------------------------------------------------
<S> <C>
EQUITIES 1.1%
AFC Enterprises, Inc. (604,251 common shares) (c)(d)........................ $ 10,084,949
American Blind and Wallpaper Factory, Inc. (198,600 common shares)
(c)(d)(h)................................................................. 1,999,906
Best Products Co., Inc. (297,480 common shares) (d)......................... 0
Best Products Co., Inc. (Warrants for 28,080 common shares) (d)............. 0
Classic Cable, Inc. (Warrants for 760 common shares) (d).................... 0
CST/Star Products, Inc. (0.3 common shares) (c)(d).......................... 557
Dan River, Inc. (192,060 common shares) (d)................................. 1,296,405
Flagstar Cos., Inc. (8,755 common shares) (d)............................... 22
London Fog Industries, Inc. (1,083,301 common shares) (c)(d)(h)............. 10,984,672
London Fog Industries, Inc., (Warrants for 66,580 common shares)
(c)(d)(h)................................................................. 0
Fleer/Marvel Entertainment, Inc. (570,427 preferred shares) (h)............. 5,704,278
Fleer/Marvel Entertainment, Inc. (891,340 common shares) (d)(h)............. 5,682,292
Murray's Discount Auto Stores, Inc. (Warrants for 289 common shares)
(c)(d).................................................................... 3
Nextel Communications, Inc. (Warrants for 60,000 common shares) (c)(d)...... 2,313,750
Payless Cashways, Inc. (1,024,159 common shares) (d)(h)..................... 2,176,338
Rigco N.A., LLC (Warrants for .325% interest of company's fully diluted
equity) (d)................................................................. 0
Rowe International, Inc. (91,173 common shares) (c)(d)(h)................... 2,500,900
Sarcom, Inc. (43 common shares) (c)(d)...................................... 0
Trans World Entertainment Corp. (3,789,962 common shares) (c)(d)(h)......... 47,137,653
--------------
TOTAL EQUITIES.............................................................. 89,881,725
--------------
TOTAL LONG-TERM INVESTMENTS 90.9%
(Cost $7,466,535,285)..................................................... 7,400,355,480
--------------
SHORT-TERM INVESTMENTS 8.5%
COMMERCIAL PAPER 5.5%
Autoliv ASP, Inc. ($29,955,000 par, maturing 08/18/99 to 08/20/99, yielding
5.25% to 5.28%)............................................................. $29,879,319
Central & Southwest Corp. ($20,000,000 par, maturing 08/10/99, yielding
5.23%)...................................................................... 19,973,850
Comdisco, Inc. ($30,000,000 par, maturing 08/09/99 to 08/10/99, yielding
5.25% to 5.27%)............................................................. 29,964,246
Compaq Computer Corp. ($24,355,000 par, maturing 08/13/99 to 08/25/99,
yielding 5.26% to 5.28%).................................................... 24,299,808
Conagra, Inc. ($6,995,000 par, maturing 08/02/99, yielding 5.22%)........... 6,993,986
</TABLE>
See Notes to Financial Statements
31
<PAGE> 33
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- ---------------------------------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER (CONTINUED)
Cox Communications, Inc. ($3,000,000 par, maturing 08/11/99, yielding
5.25%)...................................................................... $2,995,625
CSX Corp. ($5,000,000 par, maturing 08/30/99, yielding 5.27%)............... 4,978,774
Grainger W.W., Inc. ($27,250,000 par, maturing 08/04/99 to 08/17/99,
yielding 5.06% to 5.08%).................................................... 27,200,869
Halliburton Co. ($5,000,000 par, maturing 08/02/99, yielding 5.07%)......... 4,999,296
Hertz Corp. ($14,150,000 par, maturing 08/05/99, yielding 5.11%)............ 14,141,966
Hunt (J.B.) Transportation Services, Inc. ($4,590,000 par, maturing
08/03/99, yielding 5.20%)................................................... 4,588,674
Pfizer, Inc. ($270,000 par, maturing 08/26/99, yielding 5.06%).............. 269,051
Rayonier, Inc. ($6,075,000 par, maturing 08/10/99, yielding 5.25%).......... 6,067,027
Raytheon Co. ($20,000,000 par, maturing 08/09/99, yielding 5.22%)........... 19,976,800
Rite Aid Corp. ($50,000,000 par, maturing 08/09/99 to 09/08/99, yielding
5.25% to 5.27%)............................................................. 49,829,576
Safeway, Inc. ($50,100,000 par, maturing 08/02/99 to 09/07/99, yielding
5.20% to 5.30%)............................................................. 49,935,605
Tampa Electric Co. ($9,392,000 par, maturing 08/02/99, yielding 5.07%)...... 9,390,677
Tandy Corp. ($2,500,000 par, maturing 08/04/99, yielding 5.24%)............. 2,498,908
Texas Utilities Co. ($17,359,000 par, maturing 08/02/99 to 08/16/99,
yielding 5.23% to 5.31%).................................................... 17,323,074
Times Mirror Co. ($17,561,000 par, maturing 08/02/99 to 08/06/99, yielding
5.03% to 5.08%)............................................................. 17,550,159
TRW, Inc. ($51,015,000 par, maturing 08/05/99 to 09/20/99, yielding 5.27% to
5.47%)...................................................................... 50,850,224
Western Resources, Inc. ($25,244,000 par, maturing 08/11/99 to 08/25/99,
yielding 5.24% to 5.27%).................................................... 25,170,895
Xtra, Inc. ($24,960,000 par, maturing 08/04/99 to 09/15/99, yielding 5.25%
to 5.30%)................................................................... 24,890,980
--------------
TOTAL COMMERCIAL PAPER...................................................... 443,769,389
--------------
SHORT-TERM LOAN PARTICIPATIONS 3.0%
Anadarko Pete Corp. ($5,000,000 par, maturing 08/02/99, yielding 5.22%)..... 5,000,000
Army and Air Force Exchange Service ($20,000,000 par, maturing 08/12/99 to
08/13/99, yielding 5.13%)................................................... 20,000,000
Ashland Oil Co. ($6,900,000 par, maturing 08/05/99, yielding 5.27%)......... 6,900,000
Cabot Corp. ($26,237,000 par, maturing 08/02/99 to 08/20/99, yielding 5.23%
to 5.32%)................................................................... 26,237,000
</TABLE>
See Notes to Financial Statements
32
<PAGE> 34
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
- ---------------------------------------------------------------------------------------------
<S> <C>
SHORT-TERM LOAN PARTICIPATIONS (CONTINUED)
Centex Corp. ($15,000,000 par, maturing 08/02/99, yeilding 5.30 %)
$ 15,000,000
Conagra, Inc. ($10,000,000 par, maturing 08/16/99, yielding 5.25%).......... 10,000,000
Gillette Co. ($4,600,000 par, maturing 08/02/99, yielding 5.16%)............ 4,600,000
Hertz Corp. ($10,000,000 par, maturing 08/05/99, yielding 5.12%)............ 10,000,000
National Rural Utilities Coop Finance Corp. ($15,000,000 par, maturing
08/24/99, yielding 5.10%)................................................... 15,000,000
Praxair, Inc. ($15,000,000 par, maturing 08/05/99, yielding 5.22%).......... 15,000,000
Ralston Purina Co. ($20,000,000 par, maturing 08/03/99, yielding 5.26%)..... 20,000,000
Sara Lee Corp. ($6,700,000 par, maturing 08/05/99, yielding 5.08%).......... 6,700,000
Sprint Capital Corp. ($20,000,000 par, maturing 08/10/99, yielding 5.25%)... 20,000,000
Tandy Corp. ($32,600,000 par, maturing 08/03/99 to 08/17/99, yielding 5.25%
to 5.30%)................................................................... 32,600,000
Temple Inland, Inc. ($8,000,000 par, maturing 08/03/99, yielding 5.24%)..... 8,000,000
Universal Corp. ($10,000,000 par, maturing 08/03/99, yielding 5.28%)........ 10,000,000
Western Resources, Inc. ($21,900,000 par, maturing 08/12/99 to 08/19/99,
yielding 5.27% to 5.28%).................................................... 21,900,000
--------------
TOTAL SHORT-TERM LOAN PARTICIPATIONS........................................ 246,937,000
--------------
TOTAL SHORT-TERM INVESTMENTS 8.5%
(Cost $690,706,389)....................................................... 690,706,389
--------------
TOTAL INVESTMENTS 99.4%
(Cost $8,157,239,674)..................................................... 8,091,061,869
OTHER ASSETS IN EXCESS OF LIABILITIES 0.6%................................. 45,329,104
--------------
NET ASSETS 100.0%.......................................................... $8,136,390,973
==============
</TABLE>
NR = Not Rated
+ Bank loans rated below Baa by Moody's Investor Service, Inc. or BBB by
Standard & Poor's Group are considered to be below Investment grade.
(a) This Senior Loan interest is non-income producing.
(b) This Borrower has filed for protection in federal bankruptcy court.
(c) Restricted security.
(d) Non-income producing security as this stock currently does not declare
dividends.
(e) Subsequent to the year ended July 31, 1999, this borrower has filed for
protection in federal bankruptcy court.
(f) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(g) Interest is accruing at less than the stated coupon.
(h) Affiliated company. See notes to financial statements.
See Notes to Financial Statements
33
<PAGE> 35
PORTFOLIO OF INVESTMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
* 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 lending rate
offered by one or more major European banks, such as the London Inter-Bank
Offered Rate ("LIBOR"), (ii) the prime rate offered by one or more major
United States banks, and (iii) the certificate of deposit rate. Senior
loans are generally considered to be restricted in that the 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
34
<PAGE> 36
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $8,157,239,674)..................... $8,091,061,869
Receivables:
Interest and Fees......................................... 51,890,020
Fund Shares Sold.......................................... 17,638,279
Prepayments............................................... 2,323,937
Other....................................................... 330,273
--------------
Total Assets.......................................... 8,163,244,378
--------------
LIABILITIES:
Payables:
Income Distributions...................................... 10,673,922
Investment Advisory Fee................................... 6,457,488
Distributor and Affiliates................................ 2,419,184
Administrative Fee........................................ 1,750,965
Custodian Bank............................................ 1,276,982
Accrued Expenses............................................ 3,910,941
Trustees' Deferred Compensation and Retirement Plans........ 363,923
--------------
Total Liabilities..................................... 26,853,405
--------------
NET ASSETS.................................................. $8,136,390,973
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 825,612,225 shares issued and
outstanding).............................................. $ 8,256,122
Paid in Surplus............................................. 8,246,435,399
Accumulated Undistributed Net Investment Income............. 14,841,151
Net Unrealized Depreciation................................. (66,177,805)
Accumulated Net Realized Loss............................... (66,963,894)
--------------
NET ASSETS.................................................. $8,136,390,973
==============
NET ASSET VALUE PER COMMON SHARE ($8,136,390,973 divided by
825,612,225 shares outstanding)........................... $ 9.85
==============
</TABLE>
See Notes to Financial Statements
35
<PAGE> 37
STATEMENT OF OPERATIONS
For the Year Ended July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 601,850,652
Fees........................................................ 6,208,118
Dividends................................................... 653,734
Other....................................................... 8,647,834
-------------
Total Income............................................ 617,360,338
-------------
EXPENSES:
Investment Advisory Fee..................................... 72,850,479
Administrative Fee.......................................... 19,708,066
Shareholder Services........................................ 6,844,200
Legal....................................................... 2,245,100
Custody..................................................... 763,954
Trustees' Fees and Related Expenses......................... 363,340
Other....................................................... 3,997,993
-------------
Total Expenses.......................................... 106,773,132
-------------
NET INVESTMENT INCOME....................................... $ 510,587,206
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (39,696,960)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (5,181,222)
End of the Period......................................... (66,177,805)
-------------
Net Unrealized Depreciation During the Period............... (60,996,583)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $(100,693,543)
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 409,893,663
=============
</TABLE>
See Notes to Financial Statements
36
<PAGE> 38
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended July 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 1999 July 31, 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net Investment Income........................... $ 510,587,206 $ 461,572,692
Net Realized Loss............................... (39,696,960) (17,725,403)
Net Unrealized Appreciation/Depreciation During
the Period.................................... (60,996,583) 26,278,934
-------------- --------------
Change in Net Assets from Operations............ 409,893,663 470,126,223
Distributions from Net Investment Income........ (506,562,808) (461,726,242)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................... (96,669,145) 8,399,981
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Common Shares Sold................ 1,681,564,508 1,654,063,711
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................... 268,516,058 245,628,149
Cost of Shares Repurchased...................... (1,029,903,851) (832,176,219)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................. 920,176,715 1,067,515,641
-------------- --------------
TOTAL INCREASE IN NET ASSETS.................... 823,507,570 1,075,915,622
NET ASSETS:
Beginning of the Period......................... 7,312,883,403 6,236,967,781
-------------- --------------
End of the Period (including accumulated
undistributed net investment income of
$14,841,151 and $10,753,143, respectively).... $8,136,390,973 $7,312,883,403
============== ==============
</TABLE>
See Notes to Financial Statements
37
<PAGE> 39
STATEMENT OF CASH FLOWS
For the Year Ended July 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CHANGE IN NET ASSETS FROM OPERATIONS........................ $ 409,893,663
---------------
Adjustments to Reconcile the Change in Net Assets from
Operations to Net Cash Used for Operating Activities:
Increase in Investments at Value.......................... (837,136,979)
Decrease in Interest and Fees Receivables................. 5,876,804
Decrease in Receivable for Prepayments.................... 6,948,016
Increase in Other Assets.................................. (274,677)
Decrease in Deferred Facility Fees........................ (3,273,920)
Increase in Investment Advisory Fee Payable............... 685,968
Increase in Administrative Fee Payable.................... 194,949
Increase in Distributor and Affiliates Payable............ 1,119,846
Decrease in Accrued Expenses.............................. (163,393)
Increase in Trustees' Deferred Compensation and Retirement
Plans Payable........................................... 207,748
---------------
Total Adjustments..................................... (825,815,638)
---------------
NET CASH USED FOR OPERATING ACTIVITIES...................... (415,921,975)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Shares Sold................................... 1,690,332,972
Payments on Shares Repurchased.............................. (1,031,272,495)
Change in Intra-day Credit Line with Custodian Bank......... (6,236,963)
Cash Dividends Paid......................................... (236,901,539)
---------------
Net Cash Provided by Financing Activities................. 415,921,975
---------------
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
38
<PAGE> 40
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31,
----------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $ 9.976 $ 9.963 $ 10.002 $ 10.046 $ 10.052
-------- -------- -------- -------- --------
Net Investment Income........ .640 .675 .701 .735 .756
Net Realized and Unrealized
Gain/Loss.................. (.125) .015 (.042) (.028) (.004)
-------- -------- -------- -------- --------
Total from Investment
Operations................... .515 .690 .659 .707 .752
Less Distributions from Net
Investment Income............ .637 .677 .698 .751 .758
-------- -------- -------- -------- --------
Net Asset Value, End of the
Period....................... $ 9.854 $ 9.976 $ 9.963 $ 10.002 $ 10.046
======== ======== ======== ======== ========
Total Return (a)............... 5.23% 7.22% 6.79% 7.22% 7.82%
Net Assets at End of the Period
(In millions)................ $8,136.4 $7,312.9 $6,237.0 $4,865.8 $2,530.1
Ratio of Expenses to Average
Net Assets................... 1.35% 1.41% 1.42% 1.46% 1.49%
Ratio of Net Investment Income
to Average Net Assets........ 6.48% 6.81% 7.02% 7.33% 7.71%
Portfolio Turnover (b)......... 44% 73% 83% 66% 71%
</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 principal repayments and sales of
variable rate senior loan interests.
See Notes to Financial Statements
39
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
July 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 and Other Loan interests (collectively "Loan interest") totaling
$7,310,473,755 (89.8% of net assets) is determined by Van Kampen Investment
Advisory Corp. (the "Adviser") following guidelines and procedures established,
and periodically reviewed, by the Board of Trustees. The value of a 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 Loan interests, the Adviser considers market quotations and transactions
in instruments that the Adviser believes may be comparable to such Loan
interests. In determining the relationship between such instruments and the 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 secondary market
transactions in Senior Loan interests have occurred, the Adviser also considers
pricing information derived from such secondary market transactions in valuing
Loan interests. Because of uncertainty in the nature of the valuation process,
the estimated value of a Loan interest may differ significantly from the value
that would have been used had there been reliable market activity for that Loan
interest. Equity securities are valued on the basis of prices furnished by
pricing services or as determined in good faith by the Adviser. Short-term
securities with remaining maturities of 60 days or less are
40
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
valued at amortized cost. Short-term loan participations are valued at cost in
the absence of any indication of impairment.
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--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Facility fees on senior loans
purchased are treated as market discounts. Market premiums and discounts are
amortized over the stated life of each applicable security.
Other income is comprised primarily of amendment fees. Amendment fees are
earned as compensation for agreeing to changes in loan agreements.
D. 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, 1999, the Trust had an accumulated capital loss carryforward
for tax purposes of $29,215,056, which will expire between July 31, 2004 and
July 31, 2007. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of wash sales, post October losses
which may not be recognized for tax purposes until the first day of the
following fiscal year and losses that were recognized for book purposes but not
for tax purposes at the end of the fiscal year.
At July 31, 1999, for federal income tax purposes cost of long- and
short-term investments is $8,173,783,765, the aggregate gross unrealized
appreciation is $30,113,270 and the aggregate gross unrealized depreciation is
$112,835,166 resulting in net unrealized depreciation on long- and short-term
investments of $82,721,896.
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.
41
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 1999 fiscal year have been identified and appropriately
reclassified. Permanent differences relating to expenses which are not
deductible for tax purposes totaling $63,610 were reclassified from capital to
accumulated undistributed net investment income.
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
Funds Inc., the Trust's Administrator, at an annual rate of .25% of the average
net assets of the Trust. The administrative services to be provided by the
Administrator include monitoring the provisions of the loan agreements and any
agreements with respect to participations and assignments, record keeping
responsibilities with respect to interests in Variable Rate Senior Loans in the
Trust's portfolio and providing certain services to the holders of the Trust's
securities.
For the year ended July 31, 1999, the Trust recognized expenses of
approximately $334,000 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 year ended July 31, 1999, the Trust recognized expenses of
approximately $110,300 representing Van Kampen Funds Inc. or its affiliates'
(collectively "Van Kampen") cost of providing legal services to the Trust.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Trust. For the year ended July 31, 1999,
the Trust recognized expenses for these services of approximately $5,333,400.
Transfer agency fees are determined through negotiations with the Trust's Board
of Trustees and are based on competitive market benchmarks.
42
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
During the period, the Trust owned shares of the following affiliated
companies. Affiliated companies are defined by the Investment Company Act of
1940 as those companies in which a fund holds 5% or more of the outstanding
voting securities.
<TABLE>
<CAPTION>
Realized Dividend Market Value
Name Shares* Gain/(Loss) Income at 7/31/99
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Blind and
Wallpaper Factory,
Inc...................... 198,600 0 0 $ 1,999,906
London Fog Industries,
Inc...................... 1,083,301 0 0 10,984,672
Fleer/Marvel Entertainment,
Inc...................... 1,461,767 0 653,734 11,386,570
Payless Cashways, Inc...... 1,024,159 0 0 2,176,338
Rowe International, Inc.... 91,173 0 0 2,500,900
Trans World Entertainment
Corp..................... 3,789,962 0 0 47,137,653
</TABLE>
*Shares were acquired through the restructuring of Senior loan interests.
3. CAPITAL TRANSACTIONS
At July 31, 1999 and July 31, 1998, paid in surplus aggregated $8,246,435,399
and $7,327,247,726, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
July 31, 1999 July 31, 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares........................... 733,069,022 626,018,023
------------ -----------
Shares Sold.............................. 169,386,633 165,907,778
Shares Issued Through Dividend
Reinvestment.......................... 27,059,241 24,636,104
Shares Repurchased....................... (103,902,671) (83,492,883)
------------ -----------
Net Increase in Shares Outstanding....... 92,543,203 107,050,999
------------ -----------
Ending Shares.............................. 825,612,225 733,069,022
============ ===========
</TABLE>
43
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from investments sold and
repaid, excluding short-term investments, were $3,787,004,302 and
$3,058,028,938, respectively.
5. TENDER OF SHARES
The Board of Trustees currently intends, each quarter, to consider authorizing
the Trust to make tender offers for all or a portion of its then outstanding
common shares at the then net asset value of the common shares. For the year
ended July 31, 1999, 103,902,671 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 Van Kampen. 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 year ended July 31, 1999, Van Kampen received early withdrawal
charges of approximately $13,808,700 in connection with tendered shares of the
Trust.
7. COMMITMENTS/BORROWINGS
Pursuant to the terms of certain of the Variable Rate Senior Loan agreements,
the Trust had unfunded loan commitments of approximately $267,917,303 as of July
31, 1999. 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, along with the Van Kampen Senior Floating Rate Fund, has entered
into a revolving credit agreement with a syndicate led by Bank of America for an
aggregate of
44
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
July 31, 1999
- --------------------------------------------------------------------------------
$500,000,000, which will terminate on June 13, 2000. 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 .09% are charged on the unused portion of the credit line. Borrowings
under this facility will bear interest at either the LIBOR rate or the Federal
Funds rate plus .45%, except during the period from December 17, 1999 through
January 14, 2000, the applicable margin shall be .575%. There have been no
borrowings under this agreement to date.
8. SENIOR LOAN PARTICIPATION COMMITMENTS
The Trust invests primarily in participations, assignments, or acts as a party
to the primary lending syndicate of a Variable Rate Senior Loan interest to
United States corporations, partnerships, and other entities. When the Trust
purchases a participation of a Senior Loan interest, the Trust typically enters
into a contractual agreement with the lender or other third party selling the
participation, but not with the borrower directly. As such, the Trust assumes
the credit risk of the borrower, Selling Participant or other persons
interpositioned between the Trust and the borrower.
At July 31, 1999, 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>
Lehman Brothers................................. $100,000 $ 99,998
Bankers Trust................................... 59,153 59,157
Bank of New York................................ 45,000 44,915
Chase Securities Inc............................ 10,066 10,066
Donaldson Lufkin Jenrette....................... 4,988 4,987
Goldman Sachs................................... 3,948 3,948
Canadian Imperial Bank of Commerce.............. 3,442 3,443
-------- --------
Total........................................... $226,597 $226,514
======== ========
</TABLE>
45
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Prime Rate Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Prime Rate Income Trust (the "Trust"), including the portfolio of
investments as of July 31, 1999, and the related statements of operations and
cash flows for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1999, by correspondence with the custodian and selling or agent banks; where
replies were not received we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen Prime Rate Income Trust as of July 31, 1999, the results of its
operations and cash flows for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented, in conformity with generally accepted
accounting principles.
KPMG LLP
Chicago, Illinois
September 14, 1999
46
<PAGE> 48
VAN KAMPEN FUNDS
GROWTH
Aggressive Equity
Aggressive Growth
American Value
Emerging Growth
Enterprise
Equity Growth
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
47
<PAGE> 49
VAN KAMPEN PRIME RATE INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*
STEVEN MULLER
THEODORE A. MYERS
RICHARD F. POWERS, III*--Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer, and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
MICHAEL SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares and other pertinent
data. After December 31, 1999 the report must, if used with prospective
investors, be accompanied by a monthly performance update.
48
<PAGE> 50
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Trust could be adversely affected if the computer systems
used by the Trust's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Trust's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Trust. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Trust may invest that, in turn, may adversely affect
the net asset value of the Trust. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Trust's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> PRIME RATE INCOME TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JUL-31-1999
<INVESTMENTS-AT-COST> 8,157,239,674
<INVESTMENTS-AT-VALUE> 8,091,061,869
<RECEIVABLES> 71,852,236
<ASSETS-OTHER> 330,273
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,163,244,378
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26,853,405
<TOTAL-LIABILITIES> 26,853,405
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,254,691,521
<SHARES-COMMON-STOCK> 825,612,225
<SHARES-COMMON-PRIOR> 733,069,022
<ACCUMULATED-NII-CURRENT> 14,841,151
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (66,963,894)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (66,177,805)
<NET-ASSETS> 8,136,390,973
<DIVIDEND-INCOME> 653,734
<INTEREST-INCOME> 601,850,652
<OTHER-INCOME> 14,855,952
<EXPENSES-NET> (106,773,132)
<NET-INVESTMENT-INCOME> 510,587,206
<REALIZED-GAINS-CURRENT> (39,696,960)
<APPREC-INCREASE-CURRENT> (60,996,583)
<NET-CHANGE-FROM-OPS> 409,893,663
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (506,562,808)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 169,386,633
<NUMBER-OF-SHARES-REDEEMED> (103,902,671)
<SHARES-REINVESTED> 27,059,241
<NET-CHANGE-IN-ASSETS> 823,507,570
<ACCUMULATED-NII-PRIOR> 10,753,143
<ACCUMULATED-GAINS-PRIOR> (27,266,934)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 72,850,479
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 106,773,132
<AVERAGE-NET-ASSETS> 7,883,456,755
<PER-SHARE-NAV-BEGIN> 9.976
<PER-SHARE-NII> 0.640
<PER-SHARE-GAIN-APPREC> (0.125)
<PER-SHARE-DIVIDEND> (0.637)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.854
<EXPENSE-RATIO> 1.35
</TABLE>
